10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-K
[X]		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2003
OR
[   ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _________ to ___________
Commission File Number			Registrant; State of Incorporation; Address and Telephone Number		IRS Employer Identification No.
1-11459			PPL Corporation (Exact name of Registrant as specified in its charter) (Pennsylvania) Two North Ninth Street Allentown, PA 18101-1179 (610) 774-5151		23-2758192
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) 869-5100		54-1928759
Securities registered pursuant to Section 12(b) of the Act:
Title of each class				Name of each exchange on          which registered
Common Stock of PPL Corporation				New York & Philadelphia Stock Exchanges
Preferred Stock of PPL Electric Utilities Corporation
	4-1/2% 4.40% Series			New York Stock Exchange New York Stock Exchange
7-3/4% PEPSSM Units ($25 stated value) of PPL Corporation and PPL Capital Funding Trust I (a)				New York Stock Exchange
7-3/4% PEPSSM Units, Series B ($25 stated value) of PPL Corporation and PPL Capital Funding (a)(b)				New York Stock Exchange
(a) Guaranteed by PPL Corporation
(b) Issued January 21, 2004

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

PPL Corporation	[ X ]
PPL Energy Supply, LLC	[ X ]
PPL Electric Utilities Corporation	[ X ]
PPL Montana, LLC	[ X ]

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

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

Indicate by check mark whether the Registrants are accelerated filers (as defined in Rule 12b-2 of the Act).

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

As of June 30, 2003, PPL Corporation had 176,688,958 shares of its $.01 par value Common Stock outstanding, excluding 31,016,424 shares held as treasury stock. The aggregate market value of these common shares (based upon the closing price of these shares on the New York Stock Exchange on that date) held by non-affiliates was $7,597,625,194. As of January 31, 2004, PPL Corporation had 177,506,989 shares of its $.01 par value Common Stock outstanding, excluding 31,019,352 shares held as treasury stock.

As of June 30, 2003, PPL Corporation held all 78,029,863 outstanding common shares, no par value, of PPL Electric Utilities Corporation, excluding 79,270,519 shares held as treasury stock. The aggregate market value of the voting preferred stock held by non-affiliates of PPL Electric Utilities Corporation at June 30, 2003 was $63,108,094.

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

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

Documents incorporated by reference:

PPL Corporation and PPL Electric Utilities Corporation have incorporated herein by reference certain sections of PPL Corporation's 2004 Notice of Annual Meeting and Proxy Statement, and PPL Electric Utilities Corporation's 2004 Notice of Annual Meeting and Information Statement, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2003. Such Statements will provide the information required by Part III of this Report.

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

FORM 10-K ANNUAL REPORT TO
THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 2003

TABLE OF CONTENTS

This combined Form 10-K is separately filed by PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation and PPL Montana, LLC. Information contained herein relating to PPL Energy Supply, LLC, PPL Electric Utilities Corporation and PPL Montana, LLC is filed by PPL Corporation and separately by PPL Energy Supply, LLC, PPL Electric Utilities Corporation and PPL Montana, LLC on their own behalf. No registrant makes any representation as to information relating to any other registrant, except that information relating to the three PPL Corporation subsidiaries is also attributed to PPL Corporation.

Item		Page
PART I
1.	Business	1
2.	Properties	12
3.	Legal Proceedings	13
4.	Submission of Matters to a Vote of Security Holders	16
	Executive Officers of the Registrants	17
PART II
5.	Market for the Registrant's Common Equity and Related Stockholder Matters	19
6.	Selected Financial and Operating Data	19
7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
7A.	Quantitative and Qualitative Disclosures About Market Risk	86
	Management's Report on Responsibility for Financial Statements	87
	Report of Independent Auditors	88
8.	Financial Statements and Supplementary Data	95
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	187
9A.	Controls and Procedures	187
PART III
10.	Directors and Executive Officers of the Registrant	187
11.	Executive Compensation	188
12.	Security Ownership of Certain Beneficial Owners and Management and     Related Stockholder Matters	188
13.	Certain Relationships and Related Transactions	189
14.	Principal Accountant Fees and Services	189
PART IV
15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	192
	Shareowner and Investor Information	193
	Signatures	195
	Exhibit Index	199
	Computation of Ratio of Earnings to Fixed Charges	206
	Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to    Section 302 of the Sarbanes-Oxley Act of 2002	210
	Certificates of Principal Executive Officer and Principal Financial Officer Pursuant to    Section 906 of the Sarbanes-Oxley Act of 2002	218
	PPL Corporation - Corporate Organization	226

GLOSSARY OF TERMS AND ABBREVIATIONS

£ - British pounds sterling.

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

2001 Senior Secured Bond Indenture - PPL Electric's Indenture, dated as of August 1, 2001, to JPMorgan Chase Bank, as trustee, as supplemented.

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

ANEEL - National Electric Energy Agency, Brazil's agency that regulates the transmission and distribution of electricity.

APA - Asset Purchase Agreement.

APB - Accounting Principles Board.

ARB - Accounting Research Bulletin.

ARO - asset retirement obligation.

Bangor Hydro - Bangor Hydro-Electric Company.

Bcf - billion cubic feet.

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

CGE - Compañia General de Electricidad, S.A., a distributor of electricity and natural gas with other industrial segments in Chile and Argentina in which PPL Global has an 8.7% direct and indirect minority 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.

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

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

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

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

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

1. 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.
2. It requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors.
3. 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.

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

DRIP - Dividend Reinvestment Plan.

EC - Electricidad de Centroamerica, S.A. de C.V., an El Salvadoran holding company and the majority owner of DelSur and El Salvador Telecom, S.A. de C.V. PPL Global has 100% ownership of EC.

EGS - electric generation supplier.

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.

Elfec - Empresa de Luz y Fuerza Electrica Cochabamba S.A. a Bolivian electric distribution company in which PPL Global has a majority ownership interest.

Emel - Empresas Emel S.A., a Chilean electric distribution holding company in which PPL Global has majority ownership.

EMF - electric and magnetic fields.

Enrichment - the concentration of fissionable isotopes to produce a fuel suitable for use in a nuclear reactor.

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

EPS - earnings per share.

ESOP - Employee Stock Ownership Plan.

EWG - exempt wholesale generator.

Fabrication - the process which manufactures nuclear fuel assemblies for insertion into the reactor.

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

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

FIN - FASB Interpretation.

FSP - FASB Staff Position.

GAAP - generally accepted accounting principles.

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

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

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

Integra - Empresa de Ingenieria y Servicios Integrales Cochabamba S.A., a Bolivian company providing construction and engineering services, in which PPL Global has a majority ownership interest.

IBEW - International Brotherhood of Electrical Workers.

ICP - Incentive Compensation Plan.

ICPKE - Incentive Compensation Plan for Key Employees.

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

ISO - Independent System Operator.

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

kWh - kilowatt-hour, basic unit of electrical energy.

kVA - kilovolt-ampere.

LIBOR - London Interbank Offered Rate.

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

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.

MW - megawatt, one thousand kilowatts.

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

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

NPDES - National Pollutant Discharge Elimination System.

NRC - Nuclear Regulatory Commission, the 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.

OSM - Office of Surface Mining, a U.S. government agency.

PCB - polychlorinated biphenyl, an 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, or PEPS^SM Units) - securities issued by PPL and PPL Capital Funding Trust I, consisting of a Preferred Security and a forward contract to purchase PPL common stock.

PEPS Units, Series B (Premium Equity Participating Security Units, or PEPS^SM Units, Series B) - securities issued by PPL and PPL Capital Funding, consisting of an undivided interest in a debt security issued by PPL Capital Funding and guaranteed by PPL, and a forward contract to purchase PPL common stock.

PJM (PJM Interconnection, L.L.C.) - operates 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.

PP&E - property, plant and equipment.

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

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

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

PPL Coal Supply - PPL Coal Supply, LLC, a limited liability company owned by PPL Coal Holdings Corporation (a subsidiary of PPL Generation) and Iris Energy LLC. PPL Coal Supply procures coal, which it sells to PPL Generation for power plants and to Iris Energy for synfuel production.

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

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

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

PPL Energy Supply - PPL Energy Supply, LLC, 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 competitive sale of propane.

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

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

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

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

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

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

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

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

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

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

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

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

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

PUHCA - Public Utility Holding Company Act of 1935, legislation passed by the U.S. Congress.

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 - the Pennsylvania Public Utility Realty Tax Act.

RMC - Risk Management Committee.

SCR - selective catalytic reduction, a pollution control process.

SEC - Securities and Exchange Commission, a U.S. government agency.

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

SIUK Capital Trust I - a business trust created to issue preferred securities, whose common securities are held by WPD LLP.

SIUK Limited - was an intermediate holding company within the WPDH Limited group. In January 2003, SIUK Limited transferred its assets and liabilities to WPD LLP.

SPE - special purpose entity.

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 the owner of an electric generating facility agrees to use that facility to convert fuel provided by a third party into electric energy for delivery back to the third party.

UF - inflation-indexed peso-denominated unit.

VEBA - Voluntary Employee Benefit Association Trust, trust accounts for health and welfare plans for future benefit payments for employees, retirees or their beneficiaries.

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

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

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

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

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

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

FORWARD-LOOKING INFORMATION

Certain statements contained in this Form 10-K 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 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;
• transmission and distribution system conditions and operating costs;
• development of new projects, markets and technologies;
• performance of new ventures;
• asset acquisitions and dispositions;
• political, regulatory or economic conditions in states, regions or countries where PPL or its subsidiaries conduct business;
• receipt of necessary governmental permits, approvals and rate relief;
• impact of state or federal investigations applicable to PPL and its subsidiaries and the energy industry;
• the outcome of litigation against PPL and its subsidiaries;
• capital market conditions and decisions regarding capital structure;
• stock price performance;
• the market prices of equity securities and resultant cash funding requirements for defined benefit pension plans;
• securities and credit ratings;
• state and federal regulatory developments;
• foreign exchange rates;
• new state or federal legislation, including new tax legislation;
• national or regional economic conditions, including any potential effects arising from the September 11, 2001 terrorist attacks in the U.S., the situation in Iraq and any consequential hostilities or other hostilities; and
• the commitments and liabilities of PPL and its subsidiaries.

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

PART I

ITEM 1. BUSINESS

BACKGROUND

PPL Corporation is an energy and utility holding company that was incorporated in 1994. Through its subsidiaries, PPL generates electricity in power plants in the northeastern and western U.S.; markets wholesale or retail energy primarily in the northeastern and western portions of the U.S.; delivers electricity to nearly five million customers in Pennsylvania, the U.K. and Latin America; and provides energy services for businesses in the mid-Atlantic and northeastern U.S. PPL's significant subsidiaries are shown below:

See Exhibit 99 in Item 15 for additional information on the current corporate organization. In addition to PPL Corporation, the other SEC registrants included in this filing are:

PPL Energy Supply, LLC, an indirect wholly-owned subsidiary of PPL formed in 2000, is an energy company engaged through its subsidiaries in the generation and marketing of power primarily in the northeastern and western power markets of the U.S. and in the delivery of electricity in the U.K. and Latin America. PPL Energy Supply's major operating subsidiaries are PPL Generation, PPL EnergyPlus and PPL Global. PPL Energy Supply owns or controls 11,527 MW of electric power generation capacity, and is constructing new electric generation projects in Pennsylvania, which will add 663 MW of electric generation capacity.

PPL Electric Utilities Corporation, incorporated in 1920, is a direct subsidiary of PPL and a regulated public utility. PPL Electric provides electricity delivery service in its service territory in Pennsylvania, and provides electricity supply to retail customers in that territory as a PLR under the Customer Choice Act.

PPL Montana, LLC, an indirect wholly-owned subsidiary of PPL Energy Supply formed in 1998, acquired the Montana generating assets in 1999. PPL Montana operates interests in 13 electric generating facilities, which it owns or leases, with an aggregate capacity of 1,157 MW. PPL Montana's primary regional market for wholesale customers is the northwest U.S. (Montana, Oregon, Washington and Idaho).

Segment Information

PPL is organized into segments consisting of Supply, Delivery and International. PPL Energy Supply's segments consist of Supply and International. In addition, certain corporate service functions reside in PPL Services. PPL Electric and PPL Montana do not have segments. See Note 2 to the Financial Statements for financial information about the segments and geographic financial data.

•	Supply Segment -
	Owns and operates power plants to generate electricity; markets this electricity and other power purchases to deregulated wholesale and retail markets; and acquires and develops domestic generation projects.
	Consists of the activities of PPL Generation, PPL EnergyPlus and the domestic activities of PPL Global.

PPL has generation assets that are focused on the eastern and western markets. The eastern generation assets are focused on the Northeast/Mid-Atlantic energy markets - including the PJM, the New York ISO, the New England Power Pool and the Mid-American Interconnection Network. PPL's western generating capacity is focused on the markets within the Western Systems Coordinating Council.

PPL Generation

PPL Generation had a total generating capacity of 11,527 MW at December 31, 2003. Through subsidiaries, PPL Generation owns and operates power plants in Pennsylvania, Montana, Maine, Connecticut, Arizona, Illinois and New York.

The Pennsylvania generation plants had a total capacity of 8,582 MW at December 31, 2003. These plants are fueled by nuclear reaction, coal, gas, oil and hydro power. The electricity from these plants is sold to PPL EnergyPlus under FERC-jurisdictional power purchase agreements.

PPL's U.S. generation subsidiaries are EWGs, which sell electricity into the wholesale market. PPL's EWGs are subject to regulation by the FERC but not subject to regulation under PUHCA. The FERC has authorized these EWGs to sell generation from their facilities at market-based prices.

PPL Susquehanna, a subsidiary of PPL Generation, owns a 90% undivided interest in each of the two nuclear-fueled generating units at its Susquehanna station and Allegheny Electric Cooperative, Inc. owns the remaining 10% undivided interest in each of those units. PPL's 90% share of Susquehanna's capacity was 2,072 MW at December 31, 2003. In 2003, PPL Susquehanna completed the installation of a more efficient steam turbine to Unit 2 that increased the capacity of the Susquehanna plant by 50 MW. PPL Susquehanna's share of this new capacity is 45 MW. PPL Susquehanna is currently installing a similar steam turbine for Unit 1 and the project is expected to be completed in 2004.

PPL Generation operates its Pennsylvania power plants in conjunction with PJM. PPL Generation's Pennsylvania power plants and PPL EnergyPlus are parties to the Mid-Atlantic Area Coordination Agreement. Refer to "Delivery Segment" for information regarding PJM's operations and functions and the Mid-Atlantic Area Coordination Agreement.

The Montana generating stations are fueled by coal and hydro power, and have a net capacity of 1,157 MW. PPL EnergyPlus, as agent for PPL Montana, supplies 300 MW of around-the-clock electricity and 150 MW of unit-contingent on-peak electricity to NorthWestern under two five-year agreements that began in July 2002. These contracts accounted for 33% of PPL Montana's operating revenue in 2003. PPL Montana also purchases 98 MW of firm energy and capacity during the months of November through April from Basin Electric Cooperative.

The Maine generating assets were acquired from Bangor Hydro in 1998. The oil- and hydro-powered stations have a total capacity of 96 MW.

The Wallingford, Connecticut generating station was constructed by PPL and began commercial operations in 2001. This natural gas-powered station has a total capacity of 243 MW.

During 2002, PPL began commercial operations in Arizona of two natural gas-powered stations. The Griffith project is located in Kingman, and PPL's ownership interest is 300 MW. The Sundance project near Coolidge has a total capacity of 450 MW.

In 2002, PPL also began commercial operations in Illinois with a 540 MW natural gas-powered station located in University Park, and in New York with a natural gas-powered station in Edgewood and an oil-powered station in Shoreham, both on Long Island. These plants have a combined capacity of 159 MW.

At December 31, 2003, PPL Generation was in the process of developing approximately 670 MW of electric generating capacity in Pennsylvania, consisting of 600 MW at the Lower Mt. Bethel gas-fired facility and 70 MW at the Susquehanna station. PPL's share of the additional Susquehanna capacity is approximately 63 MW. See Item 2, "Properties," for additional information.

PPL Generation subsidiaries are subject to the jurisdiction of certain federal, regional, state and local regulatory agencies with respect to air and water quality, land use and other environmental matters. PPL Susquehanna is subject to the jurisdiction of the NRC in connection with the operation of the Susquehanna units. Certain of PPL Generation's other subsidiaries, including PPL Montana, are subject to the jurisdiction of the NRC in connection with the operation of their fossil plants with respect to certain level and density monitoring devices.

Certain operations of PPL Generation's subsidiaries are subject to the Occupational Safety and Health Act of 1970 and comparable state statutes.

Refer to the "Power Supply" section for additional information regarding the various power plants operated by PPL Generation. Also refer to "Fuel Supply" for a discussion of fuel requirements and contractual arrangements.

PPL EnergyPlus

PPL EnergyPlus markets or brokers the electricity produced by PPL Generation subsidiaries, along with purchased power, natural gas and oil, in competitive wholesale and deregulated retail markets in order to take advantage of opportunities in the competitive energy marketplace.

PPL EnergyPlus buys and sells energy at competitive prices. PPL EnergyPlus purchases electric capacity and energy at the wholesale level, and also sells electric capacity and energy at the wholesale level under FERC market-based tariffs. PPL EnergyPlus enters into these agreements to market available energy and capacity from PPL Generation's assets and to profit from market price fluctuations. PPL EnergyPlus is actively managing its portfolios to maximize the value of PPL's generating assets and to limit exposure to price fluctuations. PPL EnergyPlus also purchases and sells energy forward and futures contracts as well as other commodity-based financial instruments in accordance with PPL's risk management policies, objectives and strategies.

PPL EnergyPlus has executed contracts to provide electricity to PPL Electric sufficient for it to meet its PLR obligation from 2003 through 2009, at the predetermined capped rates PPL Electric is entitled to charge its customers during this period. This arrangement with PPL Electric accounted for 34% of PPL Energy Supply's consolidated revenues in 2003. See Note 15 to the Financial Statements for more information concerning these contracts.

PPL EnergyPlus has a PUC license to act as an EGS in Pennsylvania. This license permits PPL EnergyPlus to offer retail electric supply to customers throughout Pennsylvania. In 2003, PPL EnergyPlus was licensed, and supplied energy to industrial and commercial customers in Pennsylvania, New Jersey and Montana. PPL EnergyPlus also is licensed to provide energy in Delaware, Maryland, Maine and Massachusetts. At this time, PPL EnergyPlus has decided not to pursue residential customers in the competitive marketplace based on economic considerations.

PPL EnergyPlus also provides distributed generation and energy-related products and services to commercial and industrial customers, through its mechanical contracting and engineering subsidiaries operating primarily in Pennsylvania, Massachusetts, Connecticut, New York and New Jersey. The distributed generation business brings customers closer to distributed energy generating technologies, such as fuel cells, small turbines, microturbines and reciprocating engines. Through these various technologies, the distributed generation business currently owns approximately 500 kilowatts of installed capacity to serve commercial customers and has installed approximately 2 MW of capacity which is owned by the customer.

PPL Synfuel Investments, LLC, a subsidiary of PPL EnergyPlus, indirectly owns, through its subsidiaries, two production facilities. These facilities manufacture synthetic fuel from coal or coal byproducts. PPL receives federal tax credits for these qualified manufactured synfuel products.

PPL Global (domestic operations)

PPL Global acquires and develops domestic generation projects for PPL Generation as opportunities arise.

PPL Telcom

PPL Telcom, an unregulated subsidiary of PPL Energy Funding, has a fiber optic network and markets available capacity on PPL Electric's fiber optic cables in eastern and central Pennsylvania. The fiber optic services include point-to-point data transport, high-speed connections among multiple sites and access to national and global fiber networks. PPL Telcom markets its services to customers such as other telecommunications companies, internet service providers and large enterprises that need high-speed data connections between multiple locations. Additionally, PPL Telcom provides engineering, construction and site leasing services to wireless carriers.

In April 2003, a subsidiary of PPL Telcom acquired the fiber optic network of a Fairfax, Virginia-based company. The 1,330-route-mile metropolitan area fiber network connects New York, northern New Jersey, Philadelphia, Baltimore and Washington, D.C.

•	Delivery Segment -
	Includes the regulated electric and gas delivery operations of PPL Electric and PPL Gas Utilities.

PPL Electric provides electricity delivery service to approximately 1.3 million customers in a 10,000-square mile territory in 29 counties of eastern and central Pennsylvania. The largest cities in this territory are Allentown, Bethlehem, Harrisburg, Hazleton, Lancaster, Scranton, Wilkes-Barre and Williamsport. Pursuant to the PUC Final Order, PPL Electric agreed in 1998 to a cap on the electricity transmission and distribution rates that it collects from retail customers in its service territory. This cap expires on December 31, 2004. PPL Electric expects to file a request for a distribution rate increase with the PUC in March 2004. If approved, the new distribution rates will go into effect in January 2005, when the distribution rate cap expires. PPL Electric cannot predict the amount of the rate increase that will ultimately be approved by the PUC.

In addition to providing electricity delivery service in its service territory in Pennsylvania, PPL Electric also provides electricity supply to retail customers in that territory as a PLR under the Customer Choice Act. As part of the PUC Final Order, PPL Electric agreed to provide this electricity supply at predetermined capped rates through 2009. PPL Electric has executed two contracts to purchase electricity from PPL EnergyPlus sufficient for PPL Electric to meet its PLR obligation from 2003 through 2009, at the pre-determined capped rates. PPL Electric's PLR obligation after 2009 will be determined by the PUC pursuant to rules that have not yet been promulgated.

During 2003, about 93% of PPL Electric's operating revenues were derived from regulated electricity deliveries and supply as a PLR. About 7% of 2003 operating revenues were from wholesale sales, including the sale to PPL EnergyPlus of power purchased from NUGs. During 2003, about 44% of electricity delivery and PLR revenues were from residential customers, 35% from commercial customers, 20% from industrial customers and 1% from other customer classes.

PPL Electric is subject to regulation as a public utility by the PUC, and certain of its activities are subject to the jurisdiction of the FERC under the Federal Power Act. PPL Electric is not a holding company under PUHCA, and PPL has been exempted by the SEC from the provisions of PUHCA applicable to it as a holding company.

PPL Electric also is subject to the jurisdiction of certain federal, regional, state and local regulatory agencies with respect to land use and other environmental matters. Certain operations of PPL Electric are subject to the Occupational Safety and Health Act of 1970 and comparable state statutes.

PPL Electric operates its transmission facilities as part of PJM. PJM operates the electric transmission network and electric energy market in the mid-Atlantic region of the U.S. Bulk electricity is transmitted to wholesale users throughout a geographic area including all or part of Pennsylvania, New Jersey, Maryland, Delaware, Virginia, Ohio, West Virginia and the District of Columbia. PPL Electric is also a party to the Mid-Atlantic Area Coordination Agreement, which provides for the coordinated planning of generation and transmission facilities by the companies included in PJM.

PJM serves as an ISO in order to accommodate greater competition and broader participation in the power pool. The purpose of the ISO is to separate operation of, and access to, the transmission grid from PJM electric utilities' generation interests. The electric utilities continue to own the transmission assets, but the ISO directs the control and operation of the transmission facilities. In March 2004, PPL Electric expects to notify the PUC and retail customers that, beginning January 1, 2005, it will begin to fully recover from retail customers thecharges that it pays to PJM for transmission-related services. PJM imposes these charges pursuant to its FERC-approved Open Access Transmission Tariff. PPL Electric's retail electric tariff authorizes it to recover such charges from its retail customers, but pursuant to the transmission and distribution rate cap described above, full recovery is precluded through December 31, 2004.

PPL Gas Utilities provides natural gas and propane delivery to approximately 105,000 customers in Pennsylvania and Maryland.

•	International Segment -
	Includes PPL Global's acquiring and holding of international energy projects that are primarily focused on the distribution of energy.

In September 2002, PPL Global acquired the remaining 49% equity interest in WPDH Limited and WPDL from Mirant, for approximately $236 million. The acquisition of Mirant's 49% interest provides PPL Global with complete ownership of WPD. WPD, through indirect wholly-owned subsidiaries, operates two electric distribution companies in the U.K., which together serve approximately 2.5 million end-users. WPD delivered 28,137 million kWh of electricity in 2003. See Note 9 to the Financial Statements for additional information on this acquisition.

PPL Global also has controlling interests in electricity transmission and distribution companies serving customers in Chile, El Salvador and Bolivia. Emel, of which PPL Global owns 95.4%, serves approximately 529,000 customers with its distribution companies in northern Chile and just south of its headquarters in Santiago, Chile. DelSur, of which PPL Global owns 80.5%, is an electric distribution company headquartered in San Salvador, which serves approximately 261,000 customers in the central and southern regions of El Salvador, including a portion of the city of San Salvador. Elfec, of which PPL Global owns 92.1%, is the second largest electric distribution company in Bolivia, and serves approximately 251,000 customers in Cochabamba.

PPL Global also has minority investments in generating facilities in Peru and Spain and has a majority ownership interest in a telecommunications company in El Salvador with approximately 7,000 customers. In 2003, PPL Global's Board of Managers authorized PPL Global to sell its investment in the telecommunications company, and approved a plan of sale. See Note 9 to the Financial Statements for additional information on this divestiture.

In August 2002, PPL Global deconsolidated its 90% equity interest in its Brazilian investment, CEMAR, when ANEEL authorized an administrative intervention and fully assumed operational and financial control of the company. See Note 9 to the Financial Statements for additional information on the deconsolidation and status of the CEMAR investment.

PPL Services

Various corporate service functions reside in PPL Services, an unregulated subsidiary of PPL. PPL Services provides shared services for PPL and its subsidiaries. These services include financial, legal, human resources and information services. These services are directly charged or allocated, as appropriate, to the Supply, Delivery and International segments.

Seasonality

In some parts of the country, demand for, and market prices of, electricity are higher during the hot summer months, while in other parts of the country such peaks may occur in the cold winter months. As a result, PPL's overall operating results in the future may fluctuate substantially on a seasonal basis, especially when more severe weather conditions such as heat waves or winter storms make such fluctuations more pronounced. The pattern of this fluctuation may change depending on the nature and location of the facilities PPL acquires and the terms of the contracts to sell electricity.

FINANCIAL CONDITION

See PPL's, PPL Energy Supply's and PPL Electric's Management's Discussion and Analysis of Financial Condition and Results of Operations for this information.

CAPITAL EXPENDITURE REQUIREMENTS

See "Financial Condition - Capital Expenditure Requirements" in PPL's, PPL Energy Supply's and PPL Electric's Management's Discussion and Analysis of Financial Condition and Results of Operations for information concerning estimated capital expenditure requirements for the years 2004-2008. See Note 14 to the Financial Statements for information concerning estimates of the costs to comply with various environmental regulations.

COMPETITION

The unregulated businesses and markets that PPL and its subsidiaries participate in are highly competitive. The electric industry has experienced an increase in the level of competition in the energy markets over the last several years due to federal and state deregulation initiatives.

In 1992, the Energy Act amended the PUHCA to create a new class of independent power producers, and amended the Federal Power Act to provide open access to electric transmission systems for wholesale transactions. In 1996, the Customer Choice Act was enacted in Pennsylvania to restructure the state's electric utility industry in order to create retail access to a competitive market for the generation of electricity. Certain other states in which PPL's subsidiaries operate have also adopted a "customer choice" plan to allow customers to choose their electricity supplier. Competitive factors affecting PPL's results of operations include energy and fuel prices, new market entrants, construction by others of generating assets, the actions of regulatory authorities and other factors. PPL cannot predict the impact of these and other competitive factors on its future results of operations or financial condition.

PPL and its subsidiaries believe that competition in deregulated energy markets will continue to be intense. In addition to deregulation, competitive pressures have resulted from technological advances in power generation and electronic communications and the greater efficiency of energy markets.

The wholesale power markets in which PPL Generation subsidiaries and PPL EnergyPlus operate are highly competitive. Competitors include regulated utilities, industrial companies, non-utility generators and unregulated subsidiaries of regulated utilities. Although PPL EnergyPlus has long-term supply agreements (see "Background - Supply Segment"), a substantial portion of PPL's future sales will be made into the competitive wholesale markets. Competition will occur principally on the basis of the price of products and, to a lesser extent, on the basis of reliability and availability.

PPL EnergyPlus also faces competition in the wholesale markets for energy capacity and ancillary services. As pricing information becomes increasingly available in the energy trading and marketing business and assuming deregulation in the electricity markets continues, PPL EnergyPlus anticipates that trading, marketing and risk management operations will experience greater competition. PPL EnergyPlus primarily competes with other energy merchants based on the ability to aggregate supplies at competitive prices from different sources and locations and to efficiently utilize transportation from third-party pipelines and transmission from electric utilities. Competitors may employ widely differing strategies in their fuel supply and power sales contracts with respect to pricing and other terms and conditions. PPL EnergyPlus also competes against other energy marketers on the basis of relative financial condition and access to credit sources.

Some restructured markets have recently experienced supply problems and price volatility. In a number of these markets, government agencies and other interested parties have made proposals to delay market restructuring or even re-regulate certain areas of these markets that have previously been deregulated. In California, legislation has been passed placing a moratorium on the sale of generation plants by public utilities regulated by the California Public Utilities Commission. In June 2001, the FERC instituted a series of price controls designed to mitigate (or cap) prices in the entire western U.S. to address the extreme volatility in the California energy markets. These price controls have contributed to the lowering of spot and forward energy prices in the western market. In addition, ISOs that oversee the transmission systems in certain wholesale power markets have from time to time been authorized to address volatility in power markets. These types of price limitations and other mechanisms may adversely impact the profitability of PPL's wholesale power marketing and trading business. Other proposals to institute price controls or to re-regulate the energy industry may be made, and legislative or other actions may cause the electric power restructuring process to be delayed, discontinued or reversed in the states in which PPL currently, or may in the future, operate. If the competitive restructuring of the wholesale and retail power markets is delayed, discontinued or reversed, PPL's business prospects and financial condition could be materially adversely affected.

See Note 14 to the Financial Statements for information on the FERC Proposed Rules entitled "Remedying Undue Discrimination through Open Access Transmission Service and Standard Electricity Market Design."

Pursuant to PPL Electric's authorizations from the Commonwealth of Pennsylvania and the PUC, PPL Electric operates a regulated distribution monopoly in its service area. Accordingly, PPL Electric does not face competition in its distribution business. Although the majority of PPL Global's international electricity transmission and distribution companies operate in non-exclusive concession areas in their respective countries, these companies currently face little or no competition. See "Franchises and Licenses" for more information.

POWER SUPPLY

PPL Generation's system capacity (winter rating) at December 31, 2003 was as follows:

Plant			Net MW Capacity
Pennsylvania
Nuclear-fueled steam station
	Susquehanna		2,072	(a)
Coal-fired steam stations
	Montour		1,540
	Brunner Island		1,473
	Martins Creek		300
	Keystone		211	(b)
	Conemaugh		278	(c)
		Total coal-fired	3,802
Gas- and oil-fired steam station
	Martins Creek		1,670
Combustion turbines and diesels			451
Hydroelectric			153
		Total generating capacity	8,148
Firm purchases
	Hydroelectric		140	(d)
	Qualifying facilities		294
		Total firm purchases	434
Total system capacity - Pennsylvania			8,582
Arizona
Natural gas-powered stations
	Griffith		300	(e)
	Sundance		450
Total system capacity - Arizona			750
Connecticut
Natural gas-powered station
	Wallingford		243
Illinois
Natural gas-powered station
	University Park		540
New York
Natural gas- and oil-powered stations
	Edgewood and Shoreham		159
Montana
Coal-fired stations
	Colstrip Units 1 & 2		307	(f)
	Colstrip Unit 3		222	(g)
	Corette		154
		Total coal-fired	683
Hydroelectric			474
Total system capacity - Montana			1,157
Maine
Oil-fired generating station
	Wyman Unit 4		52	(h)
Hydroelectric			44	(i)
Total system capacity - Maine			96
Total system capacity - PPL Generation			11,527

(a)	PPL's 90% undivided interest.
(b)	PPL's 12.34% undivided interest.
(c)	PPL's 16.25% aggregate interest.
(d)	From Safe Harbor Water Power Corporation.
(e)	PPL's 50% equity investment.
(f)	PPL's 50% undivided leasehold interest.
(g)	PPL's 30% undivided leasehold interest.
(h)	PPL's 8.33% undivided interest.
(i)	Includes PPL's 50% interest in the West Enfield Station.

The capacity of generating units is based upon a number of factors, including the operating experience and physical condition of the units, and may be revised periodically to reflect changed circumstances.

During 2003, PPL Generation's plants generated the following amounts of electricity:

State		Millions of kWh
Pennsylvania		42,952
Montana		8,151
Arizona		672
Maine		378
New York		142
Connecticut		97
Illinois		59
	Total	52,451

Of this generation, 55% of the energy was generated by coal-fired stations, 31% from nuclear operations at the Susquehanna station, 8% from hydroelectric stations and 6% from oil/gas-fired stations.

On average, approximately 80% of PPL's expected annual generation output for the period 2004 through 2008 is committed to meet:

• PPL EnergyPlus' obligation under two contracts to provide electricity for PPL Electric to satisfy its PLR obligation under the Customer Choice Act;
• PPL EnergyPlus' obligation under two contracts to provide electricity to NorthWestern through June 2007; and
• Other contractual sales to other counterparties for terms of various lengths.

See Note 14 to the Financial Statements for more information regarding PPL's wholesale energy commitments and Note 15 for more information regarding the PLR contracts. These contractual arrangements are consistent with and are an integral part of PPL's overall business strategy, which includes the matching of PPL's anticipated energy supply with load, or customer demand, under long-term and intermediate-term contracts with creditworthy counterparties to capture profits while reducing PPL's exposure to movements in energy and fuel prices and counterparty credit risk.

FUEL SUPPLY

Coal

Pennsylvania

In 2001, a subsidiary of PPL Generation entered into a partnership with Iris Energy, LLC, an unrelated third party, to procure coal and facilitate the production of synthetic fuel. PPL Coal Supply began operations in mid-2001 and provides coal to PPL Generation power plants and to Iris Energy for the production of synthetic fuel. In 2003, synthetic fuel from Iris Energy provided 59% of the fuel requirements of PPL Generation's Pennsylvania stations. The balance of the requirements was met by coal provided by PPL Coal Supply. PPL Coal Supply actively manages its supply base principally in central Appalachia and western and central Pennsylvania.

During 2003, about 92% of the coal delivered to PPL Generation's Pennsylvania stations was purchased under long-term contracts and 8% was obtained through open market purchases. These contracts provided PPL Generation with about 6.8 million tons of coal. Contracts currently in place are expected to provide approximately 7.4 million tons in 2004. At December 31, 2003, Pennsylvania plants had sufficient supply for about 33 days of operations. The amount of coal in inventory varies from time-to-time depending on market conditions and plant operations.

At December 31, 2003, a PPL Generation subsidiary owned a 12.34% undivided interest in the Keystone station and a 16.25% aggregate interest in the Conemaugh station. The owners of the Keystone station have a long-term contract with a synthetic fuel supplier to provide a minimum of 3.0 million tons in 2004. In addition, the Keystone station contracts with Keystone Fuels, LLC for the balance of its requirements. The owners of the Conemaugh station have a long-term contract with a synthetic fuel supplier to provide a minimum of 2.4 million tons in 2004. The balance of the Conemaugh station requirements is purchased under contract from Conemaugh Fuels, LLC.

Montana

PPL Montana has a 50% leasehold interest in Colstrip Units 1 and 2, and a 30% leasehold interest in Unit 3. PPL Montana is party to contracts to purchase coal from a neighboring mine with defined quality characteristics and specifications. The coal purchase contract for Units 1 and 2 is in effect through December 31, 2009. The coal purchase contract for Unit 3 is in effect through December 31, 2019.

PPL Montana owns the Corette power plant. The plant has coal purchase contracts to purchase low sulfur coal with defined quality characteristics and specifications. The contracts supplied 100% of the plant coal requirements and expired at the end of 2003. Similar contracts are currently in place to supply 100% of the expected coal requirements for 2004.

Oil and Natural Gas

PPL Generation's Martins Creek Units 3 and 4 burn both oil and natural gas. PPL EnergyPlus, the marketing and trading subsidiary of PPL, is responsible for procuring the oil and natural gas supply for all PPL Generation operations. During 2003, 100% of the oil requirements for the Martins Creek units were purchased on the spot market. As of December 31, 2003, PPL EnergyPlus had no long-term agreements for these requirements.

PPL EnergyPlus has a long-term pipeline capacity contract for delivery of gas supply representing approximately 10% of the maximum requirements of the Sundance facility, but has no long-term supply agreement to purchase natural gas. As of December 31, 2003, there were no long-term delivery or supply agreements to purchase natural gas for University Park.

PPL EnergyPlus has a long-term contract for approximately 40% of the expected pipeline transportation requirements of the Wallingford facility, but has no long-term supply agreement to purchase natural gas. Likewise, PPL EnergyPlus has long-term pipeline transportation contracts in place for the Griffith Energy facility equaling 100% of the expected requirements.

In 2003, PPL EnergyPlus began supplying natural gas for the testing process for the Lower Mt. Bethel project. PPL EnergyPlus has two gas transportation contracts in place for approximately 30% of the maximum daily requirements of the plant. These contracts expire in September 2008 and 2013.

PPL EnergyPlus employs a strategy of procuring natural gas in conjunction with electricity sales commitments.

Nuclear

PPL Susquehanna has in effect uranium supply and conversion agreements that satisfied 100% of its uranium requirements in 2003 and, including options, will satisfy approximately 25% of its requirements for the period 2004-2007. Deliveries under these agreements are expected to provide sufficient uranium to permit Unit 1 to operate into the first quarter of 2006 and Unit 2 to operate into the first quarter of 2005.

PPL Susquehanna has executed an agreement that satisfies all of its enrichment requirements through 2008. Assuming that the other uranium components of the nuclear fuel cycle are satisfied, deliveries under this agreement are expected to provide sufficient enrichment to permit Unit 1 to operate into the first quarter of 2010 and Unit 2 to operate into the first quarter of 2011.

PPL Susquehanna has entered into an agreement that, including options, satisfies all of its fabrication requirements through 2006. Assuming that the uranium and other components of the nuclear fuel cycle are satisfied, deliveries under this agreement can provide sufficient fabrication to permit Unit 1 to operate into the first quarter of 2008 and Unit 2 to operate into the first quarter of 2007.

Federal law requires the federal government to provide for the permanent disposal of commercial spent nuclear fuel. Under the Nuclear Waste Policy Act (NWPA), the DOE initiated an analysis of a site in Nevada for a permanent nuclear waste repository. DOE does not expect the repository to be operational before 2010. As a result, it was necessary to expand Susquehanna's on-site spent fuel storage capacity. To support this expansion, PPL Susquehanna contracted for the design and construction of a spent fuel storage facility employing dry cask fuel storage technology. The facility is modular, so that additional storage capacity can be added as needed. The facility began receiving spent nuclear fuel in 1999. PPL Susquehanna estimates that there is sufficient storage capacity in the spent nuclear fuel pools and the on-site spent fuel storage facility at Susquehanna to accommodate spent fuel discharged through approximately 2017, under current operating conditions. If necessary, the on-site spent fuel storage facility can be expanded, assuming appropriate regulatory approvals are obtained, such that, together, the spent fuel pools and the expanded dry fuel storage facility will accommodate all of the spent fuel expected to be discharged through the current life of the plant.

In 2002, President Bush approved the Congressional override of a veto by the State of Nevada, designating Yucca Mountain, Nevada as the site for development of a long-term repository for high-level radioactive waste. The next step is for the DOE to submit a license application to the NRC to build and then operate the Yucca Mountain repository.

In 1996, the U.S. Court of Appeals for the District of Columbia Circuit ruled that the NWPA imposed on DOE an unconditional obligation to begin accepting spent nuclear fuel on or before January 31, 1998. In 1997, the Court ruled that the contracts between the utilities and the DOE provide a potentially adequate remedy if the DOE failed to begin disposal of spent nuclear fuel by January 31, 1998. The DOE did not, in fact, begin to dispose of spent nuclear fuel on that date. The DOE continues to contest claims that its failures resulted in recoverable damages. On January 22, 2004, PPL Susquehanna filed suit in the U.S. Court of Federal Claims for unspecified damages suffered as a result of the DOE's breach of its contract to accept and dispose of spent nuclear fuel. PPL cannot predict the outcome of this dispute.

ENVIRONMENTAL MATTERS

Certain PPL subsidiaries, including PPL Electric and PPL Generation subsidiaries, are subject to certain present and developing federal, regional, state and local laws and regulations with respect to air and water quality, land use and other environmental matters. See PPL's and PPL Energy Supply's "Financial Condition - Capital Expenditure Requirements" in Management's Discussion and Analysis of Financial Condition and Results of Operations for information concerning environmental expenditures during 2003 and their estimate of those expenditures during the years 2004-2008. PPL believes that its subsidiaries are in substantial compliance with applicable environmental laws and regulations.

See "Environmental Matters" in Note 14 to the Financial Statements for information concerning federal clean air legislation, groundwater degradation and waste water control at facilities owned by PPL's subsidiaries and PPL Electric's and PPL Gas Utilities' agreements with the Pennsylvania DEP concerning remediation at certain sites. Other environmental laws, regulations and developments that may have a substantial impact on PPL's subsidiaries are discussed below.

Air

The Clean Air Act includes, among other things, provisions that: (a) restrict the construction of, and revise the performance standards for, new and substantially modified coal-fired and oil-fired generating stations; and (b) authorize the EPA to impose substantial noncompliance penalties of up to $27,500 per day of violation for each facility found to be in violation of the requirements of an applicable state implementation plan. The state agencies administer the EPA's air quality regulations through the state implementation plans and have concurrent authority to impose penalties for non-compliance.

In 1997, international negotiators reached agreement in Kyoto, Japan to strengthen the 1992 United Nations Global Climate Change Treaty by adding legally-binding greenhouse gas emission limits. This agreement, the Kyoto Protocol, would require the U.S. to reduce its greenhouse gas emissions to 7% below 1990 levels by 2008 through 2012. Although the Kyoto Protocol is unlikely to be ratified by the U.S., the electricity generating industry has committed to certain voluntary reductions in carbon dioxide. Some form of carbon dioxide reductions will likely be required in the future. Such requirements could result in increased capital and operating expenses which are not now determinable, but which could be significant.

Water

To implement the requirements of the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977 and the Water Quality Act of 1987, the EPA has adopted regulations on effluent standards for steam electric stations. The states administer the EPA's effluent standards through state laws and regulations relating to, among other things, effluent discharges and water quality. The standards adopted by the EPA pursuant to the Clean Water Act may have a significant impact on existing facilities of certain PPL subsidiaries, depending on the states' interpretation and future amendments to regulations.

Pursuant to the Surface Mining and Reclamation Act of 1977, the Office of Surface Mining (OSM) has adopted effluent guidelines which are applicable to PPL subsidiaries as a result of their past coal mining and coal processing activities. The EPA and the OSM limitations, guidelines and standards also are enforced through the issuance of NPDES permits. In accordance with the provisions of the Clean Water Act and the Reclamation Act of 1977, the EPA and the OSM have authorized the states to implement the NPDES program. Compliance with applicable water quality standards is assured by state imposition of NPDES permit conditions and requirements to address acid mine drainage.

Solid and Hazardous Waste

The provisions of Superfund authorize the EPA to require past and present owners of contaminated sites and generators of any hazardous substance found at a site to clean-up the site or pay the EPA or the state for the costs of clean-up. The generators and past owners can be liable even if the generator contributed only a minute portion of the hazardous substances at the site. Present owners can be liable even if they contributed no hazardous substances to the site.

State laws such as the Pennsylvania and Montana Superfund statutes also give state agencies broad authority to identify hazardous or contaminated sites and to order owners or responsible parties to clean-up the sites. If responsible parties cannot or will not perform the clean-up, the agency can hire contractors to clean-up the sites and then require reimbursement from the responsible parties after the clean-up is completed. Another Pennsylvania statute, the Industrial Sites Recycling Act, encourages voluntary clean-ups by allowing responsible parties to choose from a menu of clean-up standards and providing liability protection commensurate with the clean-up standard chosen.

Certain federal and state statutes, including federal and state Superfund statutes, also impose liability on the responsible parties for the lost value of damaged natural resources.

Low-Level Radioactive Waste

Under federal law, each state is responsible for the disposal of low-level radioactive waste generated in that state. States may join in regional compacts to jointly fulfill their responsibilities. The states of Pennsylvania, Maryland, Delaware and West Virginia are members of the Appalachian States Low-Level Radioactive Waste Compact. Efforts to develop a regional disposal facility in Pennsylvania were suspended by the Pennsylvania DEP in 1998. The Commonwealth retains the legal authority and may be required to resume the siting process should it be necessary. Low-level radioactive waste resulting from the operation of the Susquehanna facility is currently being sent to Barnwell, South Carolina and Clive, Utah for disposal. In the event this or other emergent disposal options become unavailable or no longer cost-effective, the low-level radioactive waste will be stored on-site at Susquehanna. PPL Susquehanna cannot predict the future availability of low-level waste disposal facilities or the cost of such disposal.

Asbestos

There have been increasing litigation claims throughout the U.S. based on exposure to asbestos against companies that manufacture or distribute asbestos products or that have these products on their premises. Certain of PPL's generation subsidiaries and certain of its energy services subsidiaries, such as those that have supplied, may have supplied or installed asbestos material in connection with the repair or installation of 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.

Electric and Magnetic Fields

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

General

PPL and its subsidiaries are unable to predict the ultimate effect of evolving environmental laws and regulations upon their existing and proposed facilities and operations. In complying with statutes, regulations and actions by regulatory bodies involving environmental matters, including the areas of water and air quality, hazardous and solid waste handling and disposal and toxic substances, PPL's subsidiaries may be required to modify, replace or cease operating certain of their facilities. PPL's subsidiaries may also incur significant capital expenditures and operating expenses in amounts which are not now determinable, but which could be significant.

FRANCHISES AND LICENSES

PPL Electric is authorized to provide electric public utility service throughout its service area as a result of grants by the Commonwealth of Pennsylvania in corporate charters to PPL Electric and companies to which it has succeeded and as a result of certification by the PUC. PPL Electric is granted the right to enter the streets and highways by the Commonwealth subject to certain conditions. In general, such conditions have been met by ordinance, resolution, permit, acquiescence or other action by an appropriate local political subdivision or agency of the Commonwealth.

See "Background - Supply Segment" for a discussion of PPL EnergyPlus' licenses in various states. PPL EnergyPlus also has an export license from the DOE to sell capacity and/or energy to electric utilities in Canada.

PPL Susquehanna operates Units 1 and 2 pursuant to NRC operating licenses which expire in 2022 and 2024, respectively. In November 2001, PPL Susquehanna notified the NRC that it intends to seek extensions of its operating licenses. The application for this extension will most likely be made in 2006 or 2007, in accordance with NRC guidelines. If the NRC approves PPL Susquehanna's application, the operating licenses for Units 1 and 2 would each be extended for an additional 20 years, to 2042 and 2044, respectively.

PPL Holtwood operates the Wallenpaupack and Holtwood hydroelectric projects pursuant to licenses renewed by the FERC in 1980. The Wallenpaupack license expires in 2004 and the Holtwood license expires in 2014. PPL Holtwood also owns one-third of the capital stock of Safe Harbor Water Power Corporation (Safe Harbor), which holds a project license which extends the operation of its hydroelectric plant until 2030. The total capacity of the Safe Harbor plant is 418 MW, and PPL Holtwood is entitled by contract to one-third of the total capacity.

The 11 hydroelectric facilities and one storage reservoir purchased from Montana Power in 1999 are licensed by the FERC. These licenses expire periodically, and the generating facilities must be relicensed at such times. The FERC license for the Mystic facility expires in 2009; the Thompson Falls and Kerr licenses expire in 2025 and 2035, respectively, and the licenses for the nine Missouri-Madison facilities expire in 2040.

PPL Holtwood is working to have the Wallenpaupack facility relicensed, and PPL Montana is working to have the Mystic facility relicensed. Under applicable law, FERC may relicense the original licensee or may license a new licensee, or the U.S. government may take over the project. If the original licensee is not relicensed, it is compensated for its net investment in the project, not to exceed the fair value of the property taken, plus reasonable damages to other property affected by the lack of relicensing.

PPL Global's international electricity transmission and distribution companies are authorized by the governments of their respective countries to provide electric distribution services within their concession areas and service territories, subject to certain conditions and obligations. For instance, each of these companies is subject to governmental regulation on the prices that it can charge and the quality of supply it must provide, and the companies can be fined if they do not meet the mandated quality of supply.

WPD operates under distribution licenses granted, and price controls set, by Great Britain's Gas and Electricity Markets Authority. The price control formula that governs WPD's allowed revenue is normally determined every five years with the next review to be completed by the end of 2004, and effective April 1, 2005. Absent WPD's breach or default under its distribution licenses, the regulator must provide 25-years notice before the licenses may be revoked. See Note 14 for more information regarding certain U.K. electricity regulations.

Emel is subject to regulated maximum tariffs set by Chile's National Energy Commission. The components of the distribution tariffs are an energy price, a transmission surcharge and the value added on account of distribution costs (VAD). The VAD includes a targeted return on invested capital of 10% per year. The energy price is a direct pass-through to regulated customers of the energy charge that Emel pays to the generation companies. The tariffs are calculated every four years, with the next tariff review to be completed by the end of 2004 and effective beginning 2005. Absent Emel's breach or default of its regulated obligations, Emel's distribution rights within its concession area are perpetual.

DelSur is subject to regulated maximum tariffs set by El Salvador's Superintendencia General de Electricidad y Telecomunicaciones. The three components of the distribution tariff are an energy price, a commercialization charge and a distribution charge. DelSur's tariff specifies the energy price as a trailing six-month average of the spot market price. The tariffs are calculated every 5 years and are adjusted for inflation on January 1 of each year. The next comprehensive tariff review will take place in 2007 and be effective in 2008. Absent DelSur's breach or default of its regulated obligations, DelSur's distribution rights within its service territory are perpetual.

Elfec is subject to regulated maximum tariffs set by Bolivia's Superintendent of Electricity. Tariffs are calculated every four years based on the trailing three-year average of the equity returns from companies listed in the Dow Jones Utility Index. Tariffs are adjusted on a monthly basis for local inflation and every six months to reflect any changes in the energy node prices, which is a pass-through to regulated customers of the energy charge that Elfec pays to generation companies. The tariffs are calculated every four years. The latest tariff review was completed in January 2004 and is effective beginning 2004. Absent Elfec's breach or default of its regulated obligations, Elfec's distribution rights within its concession area are perpetual.

EMPLOYEE RELATIONS

As of December 31, 2003, PPL and its subsidiaries had the following full-time employees:

PPL Energy Supply
	PPL Generation		2,237	(a)
	PPL EnergyPlus		1,663	(b)
	PPL Global
		Domestic	19
		International	3,939	(c)
	Total PPL Energy Supply		7,858
PPL Electric			2,842
PPL Gas Utilities			386
PPL Services & Other			1,170
Total PPL			12,256

(a)	Includes 458 PPL Montana employees.
(b)	Includes union employees of mechanical contracting subsidiaries, which tend to fluctuate due to the nature of their business.
(c)	Includes employees of WPD and PPL Global's consolidated subsidiaries in Latin America.

Approximately 60%, or 4,958, of PPL's domestic workforce are members of labor unions, with four IBEW locals representing 3,425 employees. The other unions primarily represent employees of the mechanical contractors and gas utility employees in Pennsylvania. The bargaining agreement with the largest union was negotiated in May 2002 and expires in May 2006. Eight four-year contracts with smaller gas utility locals in Pennsylvania were negotiated in 2003. Also in 2001, three- and four-year contracts were concluded with two IBEW locals in Montana that represent 300 and 48 employees, respectively. The three-year contract expires in April 2004, and PPL Montana currently is negotiating with the IBEW Local regarding a new contract. The other IBEW contract expires in April 2005. PPL Montana negotiated a five-year agreement with the Teamsters Union in 2002 that expires in September 2006.

Approximately 79%, or 3,115, of PPL's international workforce are members of labor unions. WPD represents the majority of the international workforce. WPD recognizes five unions, the largest of which represents 38% of union members. WPD has two employment agreements which are negotiated with the unions. The Electricity Business Agreement covers 2,392 employees; it may be amended by agreement between WPD and the unions and is terminable with 12 months notice by either side. The other employment agreement, called the Meter Reading Services Handbook of Agreements, covers 54 employees; it may be amended by agreement between WPD and the unions and is terminable by written notice by either side.

PPL's Latin American subsidiaries have 941 union employees that are represented by 12 unions in 14 companies located in three countries. Several employees of Emel and its five distribution companies belong to ten unions, one of which negotiated a new, three-year agreement during 2003 and the remaining nine unions have agreements in place until May 2006. DelSur is currently negotiating with its one union and is expected to reach an agreement in early 2004 that will remain in force for three years. Union employees of Elfec and Integra are not covered by a collective bargaining agreement, but instead informally negotiate adjustments to their benefits with management each year. The agreement covering 2004 is expected to be settled during March 2004.

AVAILABLE INFORMATION

PPL's Internet Web site is www.pplweb.com. On the Investor Center page of that Web site, PPL provides access to all SEC filings of PPL registrants free of charge, as soon as reasonably practicable after filing with the SEC. Additionally, PPL registrants' filings are available at the SEC's Web site (www.sec.gov) and at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549, or by calling 1-800-SEC-0330.

ITEM 2. PROPERTIES

Domestic Generation

For a description of PPL's domestic generation portfolio, see Item 1, "Business - Power Supply."

Domestic Generation Under Development

PPL Generation had the following domestic generation development projects in progress at December 31, 2003:

Project		Type	Total MW Capacity (a)	PPL Ownership or Lease Interest in MW		Expected In-Service Date (b)
Pennsylvania
	Lower Mt. Bethel (c)	Gas-fired	600	600	(100%)	2004
	Susquehanna (d)	Nuclear	50	45	(90%)	2004
	Susquehanna (e)	Nuclear	20	18	(90%)	2005 - 2006
Total			670	663

(a)	The capacity of generation units is based on a number of factors, including the operating experience and physical condition of the units, and may be revised periodically to reflect changed circumstances.
(b)	The expected in-service dates are subject to receipt of required approvals and permits and to other contingencies.
(c)	This project is a gas-fired combined cycle combustion turbine facility.
(d)	This project involves the installation of more efficient steam turbines to increase capacity on Unit 1.
(e)	This project involves the installation of more efficient internals for the high pressure turbine moisture separators on Units 1 and 2.

PPL continually reexamines development projects based on market conditions and other factors to determine whether to proceed with these projects, sell them, expand them, execute tolling agreements or pursue other opportunities.

Domestic Delivery

Electric

For a description of PPL Electric's service territory, see Item 1, "Business - Background." At December 31, 2003, PPL Electric had electric transmission and distribution lines in public streets and highways pursuant to franchises and rights-of-way secured from property owners. PPL Electric's system included 379 substations with a total capacity of 25.6 million kVA, 32,797 circuit miles of overhead lines and 6,334 cable miles of underground conductors. All of PPL Electric's facilities are located in Pennsylvania. Substantially all of PPL Electric's transmission and distribution properties are subject to the lien of PPL Electric's 1945 First Mortgage Bond Indenture and its 2001 Senior Secured Bond Indenture.

Gas

PPL Gas Utilities has two natural gas distribution subsidiaries - PFG Gas, Inc., which distributes gas to customers in southeastern and central Pennsylvania and parts of Maryland, and North Penn Gas Company, which serves customers in the northern part of Pennsylvania. North Penn Gas Company also has natural gas storage facilities in Pennsylvania. As of December 31, 2003, PFG Gas, Inc. had approximately 40,500 customers and 1,173 miles of pipeline mains, with 14 miles in Maryland and the remainder in Pennsylvania. North Penn Gas Company had approximately 35,500 customers and 2,714 miles of pipeline mains in Pennsylvania.

International Delivery

PPL Global has consolidated investments in electricity distribution companies, serving approximately 3.5 million customers in Latin America and the U.K., as follows:

Company (a)			Location	PPL Ownership Interest	2003 Electricity Sales GWh (b)
Latin America
Empresas Emel S.A. (Emel)			Santiago, Chile	95.4%	2,286
Empresa de Luz y Fuerza Electrica Cochabamba S.A.
	(Elfec)		Cochabamba, Bolivia	92.1%	595
Distribuidora de Electricidad DelSur S.A.de C.V. (DelSur)			San Salvador, El Salvador	80.5%	934
United Kingdom
Western Power Distribution Holdings Limited (WPDH Limited)			Bristol, England	100%	28,137
Total					31,952
(a)		PPL Global no longer controls CEMAR and has deconsolidated this investment in its financial statements. PPL Global stopped recording operating results of CEMAR after August 21, 2002, the day ANEEL assumed control. CEMAR's customers have not been included in the year-end customer count above. See Note 9 to the Financial Statements for additional information.
(b)		Corresponds to revenues recorded by PPL Global in 2003.

ITEM 3. LEGAL PROCEEDINGS

See Item 1, "Business - Fuel Supply," for information concerning a lawsuit against the DOE for failure of that agency to perform certain contractual obligations. See "Environmental Matters" in Note 14 to the Financial Statements for information concerning certain environmental matters.

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. In addition, PPL has filed appeals for 2000 and beyond, as permitted under normal assessment procedures. It is anticipated that assessment appeals may 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 all 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 the two pending proceedings in Pennsylvania, only the appeal concerning the assessed value of the Susquehanna nuclear station will result in annual local taxes exceeding $1 million. PPL's appeal of the Susquehanna station assessment was decided in its favor by the Luzerne County Court of Common Pleas, and PPL subsequently settled with the local taxing authorities, resulting in annual local tax liability of approximately $3 million for tax years 2000 and beyond and no additional PURTA tax liability for tax years 1998 and 1999. However, the settlement of the tax liability for tax years 1998 and 1999 was subject to the outcome of claims asserted by certain intervenors which are described below.

In August 2000, over PPL's objections, the Luzerne County Court of Common Pleas 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 because a change in the assessment of the plant affected the amount they collected under PURTA for the tax years 1998 and 1999. Based on the appraisal obtained by the Philadelphia parties, PPL would have been required to pay up to an extra $213 million in PURTA taxes for 1998 and 1999. The court ruled in PPL's favor concerning the assessed value of the plant, and this determination was affirmed by the Commonwealth Court in October 2003. The Philadelphia parties subsequently petitioned the Commonwealth Court for reargument, and this request was denied. The Philadelphia parties did not seek further appellate review of this matter.

PPL Montana is currently protesting certain property tax assessments by the Montana Department of Revenue (MDOR) on its generation facilities. The tax liabilities in dispute are approximately $2 million for 2000 and 2001, $9 million for 2002 and $6 million for 2003. PPL Montana's dispute with respect to most of the 2002 and 2003 tax liability is based on the assessed value used by the MDOR for PPL Montana's hydroelectric facilities versus the assessed value used for the facilities of another hydroelectric generator in the state. The state tax appeals board is scheduled to hear the 2000 and 2001 disputes in April 2004, while the hearing for the 2002 dispute is scheduled for May 2004. A hearing for the 2003 dispute has not yet been scheduled.

NorthWestern Corporation Litigation

In connection with the acquisition of the Montana generation assets, the Montana Power APA, which was previously assigned to PPL Montana by PPL Global, includes a provision concerning the proposed purchase by PPL Montana of a portion of NorthWestern's interest in the 500-kilovolt Colstrip Transmission System (CTS) for $97 million. During 2002, PPL Montana had been in discussions with NorthWestern regarding the proposed purchase of the CTS and the claims that PPL Montana believes it has against NorthWestern arising from the Montana Power APA and related agreements. Notwithstanding such discussions, in September 2002, NorthWestern filed 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. Pursuant to PPL Montana's application, the matter was removed to the U.S. District Court of Montana, Butte Division. Following removal, NorthWestern asserted additional claims for damages against PPL Montana, and PPL Montana filed defenses denying liability for NorthWestern's claims as well as counterclaims against NorthWestern seeking damages PPL Montana believes it has suffered under the Montana Power APA and related agreements. This matter currently is scheduled for trial in the Montana federal district court in mid-2005.

In September 2003, NorthWestern filed a petition in Delaware for reorganization under the U.S. Bankruptcy Code, which has resulted in an automatic stay of PPL Montana's counterclaims against NorthWestern. PPL Montana has applied to the bankruptcy court for relief from the automatic stay. In December 2003, NorthWestern filed a motion to transfer this litigation from the Montana federal district court to the federal district court in Delaware where NorthWestern's bankruptcy proceeding is pending. PPL Montana has opposed the motion for transfer, which will be decided by the Montana federal district court. NorthWestern and PPL Montana also have stipulated in NorthWestern's bankruptcy proceeding that the automatic stay of PPL Montana's counterclaims will be lifted ten days after the Montana federal district court rules on the transfer motion. PPL, PPL Energy Supply and PPL Montana cannot predict the outcome of this litigation.

Montana Hydroelectric Litigation

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

California ISO and Western Markets

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 faced by the California electric utilities and the California ISO, PPL cannot predict whether or when it will receive payment. As of December 31, 2003, PPL has fully reserved for possible underrecoveries of payments for these sales.

Regulatory proceedings arising out of the California electricity supply situation have been filed at the FERC. The FERC has determined that all sellers of energy into markets operated by the California ISO and the California Power Exchange, including PPL Montana, should be subject to refund liability for the period beginning October 2, 2000 through June 20, 2001 and initiated an evidentiary hearing concerning refund amounts. In April 2003, the FERC changed the manner in which this refund liability is to be computed and ordered further proceedings to determine the exact amounts that the sellers, including PPL Montana, would be required to refund.

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

Litigation arising out of the California electricity supply situation has been filed in California courts against sellers of energy to the California ISO. The plaintiffs and intervenors in these legal proceedings allege, among other things, abuse of market power, manipulation of market prices, unfair trade practices and violations of state antitrust laws, and seek other relief, including treble damages and attorneys' fees. While PPL's subsidiaries have not been named by the plaintiffs in these legal proceedings alleging abuses of market power, manipulation of market prices, unfair trade practices and violations of state antitrust laws, PPL Montana was named by a defendant in its cross-complaint in a consolidated court proceeding, which combined into one master proceeding several of the lawsuits alleging antitrust violations and unfair trade practices. This generator denies that any unlawful, unfair or fraudulent conduct occurred but 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.

In May 2003, the Port of Seattle filed a lawsuit in the U.S. District Court for the Western District of Washington against eighteen defendants, including PPL Montana. The lawsuit asserts claims against all defendants under the federal and state antitrust laws, the federal Racketeer Influenced and Corrupt Organizations Act and for common law fraud. The complaint centers on many of the same alleged activities that are the basis for the litigation arising out of the California electricity supply situation described above. The Port of Seattle is seeking actual, trebled and punitive damages, as well as attorneys' fees. PPL Montana and several other defendants have filed a motion to dismiss this complaint that has not been ruled on by the court. In December 2003, this matter was transferred to the U.S. District Court for the Southern District of California for inclusion with proceedings already centralized and pending in that court.

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

While PPL and its subsidiaries believe that they have not engaged in any improper trading practices, they cannot predict whether, or the extent to which, any PPL 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 them of the electricity supply situation in California and other western states will be material.

New England Investigation

In January 2004, PPL became aware of an investigation by the Connecticut Attorney General and the FERC's Office of Market Oversight and Investigation (OMOI) regarding allegations that natural gas-fired generators located in New England illegally sold natural gas instead of generating electricity during the week of January 12, 2004. Subsequently, PPL and other generators were served with a data request by OMOI. The data request indicated that PPL was not under suspicion of a regulatory violation but that OMOI was conducting an initial investigation. PPL has responded to this data request. While PPL does not believe that it committed any regulatory or other violations concerning the subject matter of the investigation, PPL cannot predict the outcome of the investigation.

Montana Power Shareholders' Litigation

In August 2001, a purported class-action lawsuit was filed by a group of shareholders of Montana Power against Montana Power, the directors of Montana Power, certain advisors and consultants of Montana Power and PPL Montana. The plaintiffs allege, among other things, that Montana Power 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. This lawsuit is currently pending in the U.S. District Court of Montana, Butte Division. PPL, PPL Energy Supply and PPL Montana cannot predict the outcome of this matter.

PJM Capacity Transactions

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 concluded 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, and 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. The PUC stated that it was not authorized to, and was not attempting to, adjudicate the merits of PPL's defenses to its allegations, but referred the matter to the U.S. Department of Justice - Antitrust Division (DOJ), the FERC and the Pennsylvania Attorney General.

In June 2003, the DOJ notified PPL that it had closed its investigation in this matter. Also in June, the Pennsylvania Attorney General's office completed its investigation and notified the PUC that PPL did not violate antitrust or other laws in its capacity market activities. The FERC already has completed two investigations related to these capacity market questions and has found no reason to take action against PPL. PPL continues to believe 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.

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

In December 2002, PPL was served with a complaint against PPL, PPL EnergyPlus and PPL Electric filed in the U.S. District Court for the Eastern District of Pennsylvania by a group of 14 Pennsylvania boroughs that apparently alleges, in broad terms, similar violations of the federal antitrust laws. These boroughs were wholesale customers of PPL Electric. In addition, in November 2003, PPL and PPL EnergyPlus were served with a complaint which was filed in the same court by Joseph Martorano, III (d/b/a ENERCO), that also alleges violations of the federal antitrust laws. The complaint indicates that ENERCO provides consulting and energy procurement services to clients in Pennsylvania and New Jersey. Although PPL, PPL EnergyPlus and PPL Electric believe the claims in these complaints are without merit, they cannot predict the outcome of these matters.

FERC Market-Based Rate Authority

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.

Lower Mt. Bethel

In August 2002, the Northampton County Court of Common Pleas issued a decision concerning the permissible noise levels from the Lower Mt. Bethel facility when it becomes operational. Specifically, the court's decision sets certain permissible noise levels required for plant operation. PPL appealed the court's decision to the Commonwealth Court, and an intervenor in the lawsuit cross-appealed the court's decision. In May 2003, the Commonwealth Court remanded the case to the Court of Common Pleas for further findings of fact concerning the zoning application relating to the construction of the facility. In September 2003, the Court of Common Pleas ruled in PPL's favor while also reaffirming its decision on the noise levels, and the intervenor has appealed this ruling to the Commonwealth Court. The Lower Mt. Bethel facility is expected to be operational in 2004. However, PPL and PPL Energy Supply cannot predict the outcome of the ongoing litigation concerning the facility or its ultimate impact on the Lower Mt. Bethel facility, but such impact may be material.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of 2003.

EXECUTIVE OFFICERS OF THE REGISTRANTS

Officers of PPL, PPL Energy Supply, PPL Electric and PPL Montana are elected annually by their Boards of Directors (or Boards of Managers, as applicable) to serve at the pleasure of the respective Boards. There are no family relationships among any of the executive officers, nor is there any arrangement or understanding between any executive officer and any other person pursuant to which the officer was selected.

There have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions material to the evaluation of the ability and integrity of any executive officer during the past five years.

Listed below are the executive officers:

PPL Corporation
Name		Age	Positions Held During the Past Five Years		Dates
William F. Hecht		60	Chairman, President and Chief Executive Officer		February 1995 - present
John R. Biggar		59	Executive Vice President and Chief Financial Officer		January 2001 - present
			Senior Vice President and Chief Financial Officer		November 1998 - January 2001
Lawrence E. De Simone		56	Executive Vice President		January 2004 - present
			Executive Vice President - Supply		October 2001 - January 2004
			President - PPL EnergyPlus		November 1998 - October 2001
James H. Miller		55	Executive Vice President		January 2004 - present
			President - PPL Generation		February 2001 - present
			Executive Vice President - USEC, Inc.		January 1999 - February 2001
			Vice President, Production - USEC, Inc.		September 1995 - January 1999
Robert J. Grey		53	Senior Vice President, General Counsel and Secretary		March 1996 - present
Paul T. Champagne*		45	President - PPL EnergyPlus		October 2001 - present
			President - PPL Global		May 1999 - October 2001
			Vice President and Senior Business Development Officer -		October 1998 - May 1999
				PPL Global
Paul A. Farr*		36	Senior Vice President - PPL Global		January 2004 - present
			Vice President - International Operations - PPL Global		June 2002 - January 2004
			Vice President - PPL Global		October 2001 - June 2002
			Vice President and Chief Financial Officer - PPL Montana		June 1999 - October 2001
			Director of International Tax - PPL Global		June 1998 - June 1999
Roger L. Petersen*		52	President - PPL Global		October 2001 - present
			President and Chief Executive Officer - PPL Montana		May 1999 - October 2001
			President - PPL Montana		January 1999 - May 1999
John F. Sipics*		55	President - PPL Electric		October 2003 - present
			Vice President - Asset Management		August 2001 - October 2003
			Vice President - Regulatory Support		August 2000 - August 2001
			Vice President - Delivery Services & Economic Development		October 1998 - August 2000
James E. Abel		52	Vice President - Finance and Treasurer		June 1999 - present
			Treasurer		August 1996 - June 1999
Mark D. Woods		45	Controller		February 2004 - present
			Manager - Financial Reporting and Consolidation - PPL Services		March 1999 - February 2004
			Supervisor - Financial Accounting - PPL Services		March 1997 - March 1999
*	Messrs. Champagne, Farr, Petersen and Sipics have been designated executive officers of PPL by virtue of their respective positions at PPL subsidiaries.

PPL Electric Utilities Corporation
Name	Age	Positions Held During the Past Five Years	Dates
John F. Sipics	55	President	October 2003 - present
		Vice President - Asset Management	August 2001 - October 2003
		Vice President - Regulatory Support	August 2000 - August 2001
		Vice President - Delivery Services & Economic Development	October 1998 - August 2000
James E. Abel	52	Treasurer	July 2000 - present
		Vice President - Finance and Treasurer	June 1999 - July 2000
		Treasurer	August 1996 - June 1999
Mark D. Woods	45	Controller	February 2004 - present
		Manager - Financial Reporting and Consolidation - PPL Services	March 1999 - February 2004
		Supervisor - Financial Accounting - PPL Services	March 1997 - March 1999

PPL Energy Supply, LLC

Item 4 is omitted as PPL Energy Supply meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K.

PPL Montana, LLC

Item 4 is omitted as PPL Montana meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S
COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

PPL Corporation

Additional information for this item is set forth in the sections entitled "Quarterly Financial, Common Stock Price and Dividend Data," "Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" and "Shareowner and Investor Information" of this report. The number of common shareowners is set forth in "Item 6 - Selected Financial and Operating Data."

PPL Energy Supply, LLC

There is no established public trading market for PPL Energy Supply's membership interests. PPL Energy Funding, a direct wholly-owned subsidiary of PPL, owns all of PPL Energy Supply's outstanding membership interests. Distributions on the membership interests will be paid as determined by PPL Energy Supply's Board of Managers. PPL Energy Supply made cash distributions to PPL Energy Funding of approximately $1.2 billion in 2003 and $710 million in 2002.

PPL Electric Utilities Corporation

Additional information for this item is set forth in the sections entitled "Quarterly Financial Data" and "Shareowner and Investor Information" of this report.

PPL Montana, LLC

There is no established public trading market for PPL Montana's membership interests. PPL indirectly owns all of PPL Montana's outstanding membership interests. Distributions on the membership interests will be paid as determined by PPL Montana's Board of Managers. PPL Montana made a cash distribution indirectly to PPL of $5 million in 2003. There were no such distributions in 2002.

ITEM 6. SELECTED FINANCIAL AND OPERATING DATA

PPL Energy Supply, LLC

Item 6 is omitted as PPL Energy Supply meets the conditions set forth in General Instructions (I)(1)(a) and (b) of Form 10-K.

PPL Montana, LLC

Item 6 is omitted as PPL Montana meets the conditions set forth in General Instructions (I)(1)(a) and (b) of Form 10-K.

ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
PPL Corporation (a)					2003		2002		2001		2000		1999
Income Items - millions
	Operating revenues (b)			$	5,587	$	5,481	$	5,115	$	4,545	$	3,697
	Operating income (b)				1,340		1,246		850		1,194		821
	Income from continuing operations				719		360		169		487		478
	Net income				734		208		179		498		432
Balance Sheet Items - millions (c)
	Property, plant and equipment - net				10,446		9,566		5,947		5,948		5,624
	Recoverable transition costs				1,687		1,946		2,172		2,425		2,647
	Total assets				17,123		15,552		12,562		12,360		11,174
	Long-term debt				7,859		6,267		5,579		4,784		4,157
	Long-term debt with affiliate trusts (d)				681
	Company-obligated mandatorily redeemable   preferred securities of subsidiary trusts holding   solely company debentures (d)						661		825		250		250
	Preferred stock
			With sinking fund requirements				31		31		46		46
			Without sinking fund requirements		51		51		51		51		51
	Common equity				3,259		2,224		1,857		2,012		1,613
	Short-term debt				56		943		118		1,037		857
	Total capital provided by investors				11,906		10,177		8,461		8,180		6,974
	Capital lease obligations				12								125
Financial Ratios
	Return on average common equity - %				26.56		10.27		8.41		27.49		24.70
	Embedded cost rates (c)
			Long-term debt - %		6.56		7.04		6.84		6.98		6.95
			Preferred stock - %		5.14		5.81		5.81		5.87		5.87
			Preferred securities - % (d)				8.02		8.13		8.44		8.44
	Times interest earned before income taxes				2.92		1.97		2.19		3.05		3.37
	Ratio of earnings to fixed charges - total   enterprise basis (e)				2.5		1.9		1.7		2.5		2.7
Common Stock Data
	Number of shares outstanding - thousands
			Year-end		177,362		165,736		146,580		145,041		143,697
			Average		172,795		152,492		145,974		144,350		152,287
	Number of record shareowners (c)				83,783		85,002		87,796		91,777		91,553
	Income from continuing operations - Basic EPS			$	4.16	$	2.36	$	1.16	$	3.38	$	3.14
	Income from continuing operations - Diluted EPS			$	4.15	$	2.36	$	1.15	$	3.37	$	3.14
	Net income - Basic EPS			$	4.25	$	1.37	$	1.23	$	3.45	$	2.84
	Net income - Diluted EPS			$	4.24	$	1.36	$	1.22	$	3.44	$	2.84
	Dividends declared per share			$	1.54	$	1.44	$	1.06	$	1.06	$	1.00
	Book value per share (c)			$	18.37	$	13.42	$	12.67	$	13.87	$	11.23
	Market price per share (c)			$	43.75	$	34.68	$	34.85	$	45.188	$	22.875
	Dividend payout rate - % (f)				36		106		87		31		35
	Dividend yield - % (g)				3.52		4.15		3.04		2.35		4.37
	Price earnings ratio (f) (g)				10.32		25.50		28.57		13.14		8.05
Sales Data - millions of kWh
	Domestic - Electric energy supplied - retail				36,774		36,746		37,395		37,758		33,695
	Domestic - Electric energy supplied - wholesale				41,709		36,849		27,683		40,925		32,045
	Domestic - Electric energy delivered				36,083		35,712		35,534		34,731		33,874
	International - Electric energy delivered (h)				31,952		33,313		5,919		3,735		2,942
(a)		The earnings each year were affected by unusual items, which affected net income. See "Earnings" in Management's Discussion and Analysis of Financial Condition and Results of Operations for a description of unusual items in 2003, 2002 and 2001.
(b)		Operating revenues and operating income of certain years are restated to conform to the current presentation.
(c)		At year-end.
(d)		On July 1, 2003, PPL adopted the provisions of SFAS 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." The company-obligated mandatorily redeemable preferred securities are mandatorily redeemable financial instruments, as they require the issuer to redeem the securities for cash on a specified date. Thus, they should be classified as liabilities, as a component of long-term debt, instead of "mezzanine" equity on the Balance Sheet. However, as of December 31, 2003, no amounts were included in "Long-term Debt" for these securities because PPL Capital Funding Trust I and SIUK Capital Trust I were deconsolidated effective December 31, 2003 in connection with the adoption of FIN 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," for certain entities. Instead, the subordinated debt securities that support the company-obligated mandatorily redeemable preferred securities of the trust are reflected in "Long-term Debt with Affiliate Trusts" as of December 31, 2003. See Note 22 for additional information on SFAS 150 and FIN 46.
(e)		Computed using earnings and fixed charges of PPL and its subsidiaries. Fixed charges consist of interest on short- and long-term debt, other interest charges, interest on capital lease obligations, the estimated interest component of other rentals and preferred dividends.
(f)		Based on diluted EPS.
(g)		Based on year-end market prices.
(h)		Deliveries for 2002 include the electricity deliveries of WPD for the full year and of CEMAR prior to deconsolidation.

ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
PPL Electric Utilities Corporation (a)							2003		2002		2001		2000		1999 (e)
Income Items - millions
	Operating revenues					$	2,788	$	2,748	$	2,694	$	3,336	$	3,059
	Operating income						251		275		419		669		749
	Income available to PPL Corporation						25		39		119		261		398
Balance Sheet Items - millions (b)
	Property, plant and equipment - net						2,589		2,456		2,319		2,401		4,345
	Recoverable transition costs						1,687		1,946		2,172		2,425		2,647
	Total assets						5,469		5,583		5,921		6,023		9,092
	Long-term debt						2,937		3,175		3,459		3,126		3,505
	Company-obligated mandatorily redeemable    preferred securities of subsidiary trusts    holding solely company debentures										250		250		250
	Preferred stock
			With sinking fund requirements						31		31		46		46
			Without sinking fund requirements				51		51		51		51		51
	Common equity						1,222		1,147		931		1,160		1,296
	Short-term debt								15				59		183
	Total capital provided by investors						4,210		4,419		4,722		4,692		5,331
	Capital lease obligations														125
Financial Ratios
	Return on average common equity - %						2.08		3.87		11.09		19.40		25.59
	Embedded cost rates (b)
			Long-term debt - %				6.61		6.83		6.81		6.88		6.97
			Preferred stock - %				5.14		5.81		5.81		5.87		5.87
			Preferred securities - %								8.44		8.44		8.44
	Times interest earned before income taxes						1.22		1.33		1.92		2.81		3.75
	Ratio of earnings to fixed charges (c)						1.2		1.2		1.7		2.5		3.2
Sales Data
	Customers (thousands) (b)						1,330		1,308		1,298		1,270		1,270
	Electric energy delivered - millions of kWh
				Residential			13,266		12,640		12,269		11,924		11,704
				Commercial			12,388		12,371		12,130		11,565		11,002
				Industrial			9,599		9,853		10,000		10,224		10,179
				Other			154		169		211		194		160
					Retail electric sales		35,407		35,033		34,610		33,907		33,045
					Wholesale electric sales (d)		676		679		924		17,548		31,715
					Total electric energy sales delivered		36,083		35,712		35,534		51,455		64,760
	Electric energy supplied as a PLR						33,627		33,747		31,653		32,260		33,695
(a)		Earnings each year were affected by unusual items which affected net income. See "Earnings" in Management's Discussion and Analysis of Financial Condition and Results of Operations for a description of unusual items in 2003, 2002 and 2001.
(b)		At year-end.
(c)		Computed using earnings and fixed charges of PPL Electric and its subsidiaries. Fixed charges consist of interest on short- and long-term debt, other interest charges, interest on capital lease obligations and the estimated interest component of other rentals.
(d)		After the July 1, 2000 corporate realignment, PPL Electric had only wholesale sales to municipalities and NUG purchases that are resold to PPL EnergyPlus.
(e)		Comparability of Selected Financial and Operating Data for 1999 to subsequent years is affected by the corporate realignment on July 1, 2000, in which PPL Electric transferred its electric generation and related assets to certain PPL affiliates.

PPL CORPORATION
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

PPL is an energy and utility holding company with headquarters in Allentown, PA. See Item 1, "Business - Background," for descriptions of PPL's major segments. See Exhibit 99 in Item 15 for the current corporate organization structure. Through its subsidiaries, PPL is primarily engaged in the generation and marketing of electricity in two key markets - the northeastern and western U.S. - and in the delivery of electricity in Pennsylvania, the U.K. and Latin America. PPL's strategy for its electricity generation and marketing business is to match energy supply with load, or customer demand, under long-term and intermediate-term contracts with creditworthy counterparties. PPL's strategy for its electricity delivery businesses is to own and operate these businesses at the highest level of quality and reliability and at the most efficient cost.

PPL faces several risks in its generation business. The principal risks are electricity wholesale price risk, fuel supply and price risk, power plant performance and counterparty credit risk. PPL attempts to manage these risks through various means. For instance, PPL operates a portfolio of generation assets that is diversified as to geography, fuel source, cost structure and operating characteristics. PPL is focused on the operating efficiency and maintaining availability of these power plants. In addition, PPL has in place and continues to pursue long-term and intermediate-term contracts for energy sales and fuel supply, and other means, to mitigate the risks associated with adverse changes in the difference, or margin, between the cost to produce electricity and the price at which PPL sells it. PPL's contractual commitments for energy sales are primarily satisfied through its own generation assets - i.e., PPL primarily markets and trades around its physical portfolio of generating assets through integrated generation, marketing and trading functions. Finally, PPL attempts to reduce its exposure to the various risks it faces through its risk management program, which, among other things, includes an evaluation of market risks and the creditworthiness of all counterparties.

PPL's electricity delivery businesses are rate-regulated. Accordingly, these businesses are subject to regulatory risk in terms of the costs that they may recover and the investment returns that they may collect in customer rates. The principal challenge that PPL faces in its electricity delivery businesses is to maintain high standards of customer service and reliability in a cost-effective manner. PPL seeks to apply its experience in operating and managing its Pennsylvania delivery business to its international businesses. In turn, PPL has also gained valuable experience by operating and managing these international businesses. PPL faces certain financial risks by conducting international operations, such as fluctuations in currency exchange rates. PPL attempts to manage these financial risks through its risk management program.

A key challenge for PPL's business as a whole is to maintain a strong credit profile. In the past few years, investors, analysts and rating agencies that follow companies in the energy industry have been particularly focused on the credit quality and liquidity position of energy companies. PPL is focused on strengthening its balance sheet and improving its liquidity position, thereby improving its credit profile.

The purpose of "Management's Discussion and Analysis of Financial Condition and Results of Operations" is to provide information concerning PPL's past and expected future performance in implementing the strategies and managing the risks and challenges outlined above. Specifically:

• "Results of Operations" provides an overview of PPL's operating results in 2003, 2002 and 2001, starting with a review of earnings. The earnings review includes a listing of certain unusual items that had significant impacts in these years, and it also includes a description of key factors that management expects may impact future earnings. "Results of Operations" also includes an explanation of changes during this three-year period in significant income statement components, such as energy margins, utility revenues, operation and maintenance expenses, financing costs, income taxes and cumulative effects of accounting changes.

• "Financial Condition - Liquidity" provides an analysis of PPL's liquidity position and credit profile, including its sources of cash (including bank credit facilities and sources of operating cash flow) and uses of cash (including contractual commitments and capital expenditure requirements) and the key risks and uncertainties that impact PPL's past and future liquidity position and financial condition. This subsection also includes an explanation of recent rating agency decisions affecting PPL, as well as a listing of PPL's current credit ratings.

• "Financial Condition - Risk Management - Energy Marketing & Trading and Other" includes an explanation of PPL's risk management program relating to market risk (i.e., commodity price, interest rate and foreign currency exchange risk) and credit risk (i.e., counterparty credit risk).

• "New Accounting Standards" provides a description of accounting standards that impact PPL's Financial Statements and that were implemented in 2003 or are pending adoption.

• "Application of Critical Accounting Policies" provides an overview of the accounting policies that are particularly important to the results of operations and financial condition of PPL and that require PPL's management to make significant estimates, assumptions and other judgments. Although PPL's management believes that these estimates, assumptions and other judgments are appropriate, they relate to matters that are inherently uncertain. Accordingly, changes in the estimates, assumptions and other judgments applied to these accounting policies could have a significant impact on PPL's results of operations and financial condition, as reflected in PPL's Financial Statements.

The information provided in "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with PPL's Financial Statements and the Notes thereto.

Terms and abbreviations appearing herein are explained in the glossary. Dollars are in millions, except per share data, unless otherwise noted.

Results of Operations

Earnings in 2003 and 2002 were impacted by the acquisition of a controlling interest in WPD on September 6, 2002, and the resulting consolidation, as described in Note 9 to the Financial Statements. Therefore, the comparison of reported income statement line items between 2002 and 2001 is not meaningful without eliminating the impact of the WPD consolidation. The following table shows the 2002 Statement of Income as reported, the adjustments to eliminate the impact of the WPD consolidation (by reflecting WPD on the equity method), and as adjusted to exclude the WPD consolidation. The following discussion, that explains significant annual changes in principal items on the Statement of Income, compares 2003 to 2002, unadjusted, and compares 2002, as adjusted, to 2001.

PPL Corporation and Subsidiaries Consolidated Statement of Income Adjusted to Eliminate WPD Consolidation
		2002
		As Reported		Adjustment			As Adjusted
Operating Revenues
Utility		$	3,676	$	579		$	3,097
Unregulated retail electric and gas			182					182
Wholesale energy marketing			1,036					1,036
Net energy trading margins			19					19
Energy related businesses			568		(60	)		628
Total			5,481		519			4,962
Operating Expenses
Operation
	Fuel		584					584
	Energy purchases		916					916
	Other operation and maintenance		1,136		42			1,094
	Amortization of recoverable transition costs		226					226
Depreciation			367		112			255
Taxes, other than income			231		42			189
Energy related businesses			543		29			514
Other charges
	Write-down of international energy projects		113					113
	Workforce reduction		75					75
	Write-down of generation assets		44					44
Total			4,235		225			4,010

	As Reported			Adjustment		As Adjusted
Operating Income		1,246			294		952
Other Income - net		30			20		10
Interest Expense		561			127		434
Income Taxes		210			105		105
Minority Interest		78			73		5
Distributions on Preferred Securities		67			9		58
Loss from Discontinued Operations		2					2
Cumulative Effect of a Change in Accounting Principle		(150	)				(150	)
Net Income	$	208		$		$	208

The comparability of certain items on the Statement of Income has also been impacted by PPL Global's investment in CEMAR. The consolidated results of CEMAR are included for periods during which PPL had a controlling interest, from January 1, 2001 to August 2002. See Note 9 to the Financial Statements for more information.

WPD's results, as consolidated in PPL's Statement of Income, are impacted by changes in foreign currency exchange rates. For the twelve months ended December 31, 2003, as compared to the same period in 2002, changes in foreign exchange rates increased WPD's portion of revenue and expense line items by about 9%.

Earnings

Net income, and the related EPS, were as follows:

	2003		2002		2001
Net income	$	734	$	208	$	179
EPS - basic	$	4.25	$	1.37	$	1.23
EPS - diluted	$	4.24	$	1.36	$	1.22

The after-tax changes in net income were primarily due to:

		2003 vs. 2002			2002 vs. 2001
Domestic:
	Wholesale energy margins	$	68		$	(81	)
	Net energy trading margins		(4	)		(11	)
	Unregulated retail energy margins		(6	)		(33	)
	Regulated retail energy margins		(43	)		59
	Delivery revenues (net of CTC/ITC amortization and interest expense on transition bonds)		11			(10	)
	Operation and maintenance expenses		(41	)		(34	)
	Realized earnings on decommissioning trust fund		12
	Depreciation					4
	Contribution of property		12
	Taxes other than income (excluding gross receipts tax)		(14	)		5
	Synfuel tax credits		2			10

			2003 vs. 2002			2002 vs. 2001
	Mechanical contractors earnings						(4	)
	Interest expense and preferred dividends			51			(29	)
	Other			(12	)		(5	)
		Total Domestic		36			(129	)
International:
	U.K. operations:
		Benefit of complete ownership of WPD (see Note 9)		29			11
		Impact of changes in foreign currency exchange rates		14			1
		Other		1			1
	Latin America			18			(24	)
	Other			3			61
		Total International		65			50
Unusual items				425			108
			$	526		$	29

The changes in net income from year to year were, in part, attributable to several unusual items with significant earnings impacts, including accounting changes, discontinued operations and infrequently occurring items. The after-tax impacts of these unusual items are shown below.

		Impact on Net Income
		2003			2002			2001
Accounting changes:
	Asset retirement obligation (Note 21)	$	63
	Consolidation of variable interest entities (Note 22)		(27	)
	Goodwill impairment (Note 18)				$	(150	)
	Pensions (Note 12)							$	10
Discontinued operations (Note 9)			(20	)
CEMAR-related net tax benefit (Note 5)			81
Workforce reduction (Note 20)			(5	)		(44	)
Write-down of generation assets (Note 9)						(26	)
CEMAR operating losses (Note 9)						(23	)
CEMAR impairment (Note 9)						(98	)		(217	)
Cancellation of generation projects (Note 9)									(88	)
WPD impairment (Note 9)									(117	)
Tax benefit - Teesside (Note 9)						8
Enron impact on trading (Note 17)									(8	)
Enron impact - write-down investment in Teesside (Note 9)									(21	)
Total		$	92		$	(333	)	$	(441	)

The year to year changes in earnings components, including margins by activity and income statement line items, are discussed in the balance of the discussion in "Results of Operations."

PPL's future earnings could be, or will be, impacted by a number of key factors, including the following:

• Based upon current electricity and natural gas price levels, there is a risk that PPL may be unable to recover its investment in new gas-fired generation facilities. Under GAAP, PPL does not believe that there is an impairment charge to be recorded for these facilities at this time. PPL is unable to predict the ultimate earnings impact of this issue, based upon future energy price levels, applicable accounting rules and other factors, but such impact may be material. (See "Application of Critical Accounting Policies - Asset Impairment" for additional information.)
• PPL is unable to predict whether future impairments of goodwill may be required for its domestic and international investments. While no goodwill impairments were required based on the annual review performed in the fourth quarter of 2003, future impairments may occur due to determinations of fair value exceeding the carrying value of these investments. (See "Application of Critical Accounting Policies - Asset Impairment" for additional information.)
• Earnings in 2004 and beyond will be impacted by the consolidation of variable interest entities (as discussed in Note 22 to the Financial Statements).
• PPL Electric expects to file a request for a distribution rate increase with the PUC in March 2004. If approved, the new rates will go into effect in January 2005, when PPL Electric's distribution rate cap expires. In addition, beginning January 1, 2005, PPL Electric expects to fully recover from its retail customers the charges that it pays to PJM for transmission-related services. See "Item 1. Business-Background-Delivery Segment" for more information regarding PPL Electric's transmission and distribution rate cap.
• Earnings in 2005 and beyond may be impacted by a rate review of the delivery business of WPD (South West) and WPD (South Wales). PPL cannot predict the ultimate outcome of the rate review.
• PPL operates a synfuel facility and receives tax credits pursuant to Section 29 of the Internal Revenue Code based on its sale of synfuel to unaffiliated third-party purchasers. See Note 14 to the Financial Statements for a discussion of the IRS review of synfuel production procedures, and the projected annual earnings attributable to PPL's synfuel operations.
• Future earnings may also be impacted by the ultimate exiting of the CEMAR investment (see Note 9 to the Financial Statements for additional information) or other investments.

Domestic Gross Energy Margins

The following table provides changes in income statement line items that comprise domestic gross energy margins:

			2003 vs. 2002			2002 vs. 2001
Utility revenues			$	34		$	63
Unregulated retail electric and gas revenues				(30	)		(174	)
Wholesale energy marketing revenues				178			9
Net energy trading margins				(7	)		(18	)
Other revenue adjustments (a)				6			41
	Total revenues			181			(79	)
Fuel				33			(18	)
Energy purchases				114			5
Other cost adjustments (a)				9			31
	Total cost of sales			156			18
		Domestic gross energy margins	$	25		$	(97	)

(a) Adjusted to exclude the impact of any revenues and costs not associated with domestic energy margins, in particular, revenues and energy costs related to the international operations of PPL Global and the domestic delivery operations of PPL Electric and PPL Gas Utilities. Also adjusted to include gains on sales of emission allowances, which are reflected in "Other operation and maintenance" expenses on the Statement of Income, and the reduction of the reserve for Enron receivables, as described in Note 17 to the Financial Statements.

Changes in Domestic Gross Energy Margins By Activity

Gross margin calculations are dependent on the allocation of fuel and purchased power costs to the activities listed below. That allocation is based on monthly MWh consumption levels compared to monthly MWh supply costs. Any costs specific to an activity are charged to that activity.

		2003 vs. 2002		2002 vs. 2001
Wholesale - Eastern U.S.		$	67	$	(64)
Wholesale - Western U.S.			49		(71)
Net energy trading			(7)		(18)
Unregulated retail			(10)		(55)
Regulated retail			(74)		111
	Domestic gross energy margins	$	25	$	(97)

Wholesale - Eastern U.S.

Eastern U.S. wholesale margins were higher in 2003 compared to 2002 primarily due to higher volumes, which increased by 47%. The higher volumes were primarily driven by market opportunities to optimize the value of generating assets and by higher spot prices that allowed PPL to increase the utilization of its higher cost generating units including 699 MW of new generation that began commercial operation in mid-2002. In PJM, where the majority of PPL's Eastern wholesale activity occurs, average on-peak spot market real time prices rose 34% in 2003 compared to 2002. Partially offsetting the increase in wholesale energy margins in 2003 compared to 2002, was the buyout of a NUG contract in February 2002, which reduced power purchases by $25 million.

Eastern wholesale margins were lower in 2002 compared to 2001, despite a buyout of a NUG contract in February 2002 that reduced purchased power costs by $25 million. The decline in margins was primarily attributable to the decline in wholesale prices for energy and capacity. PJM on-peak prices averaged $6/MWh less, a decline of 14%, for 2002 compared to 2001. Additionally, because new generating capability came on-line within PJM in 2002, the prices for the PJM monthly auctions for unforced capacity credits fell from an average of $100/MW-month in 2001 to an average of $38/MW-month in 2002. However, higher volumes of energy sales partially offset the decline in prices, as wholesale transactions in 2002 increased by about 33% over 2001 due to better generating unit availability.

Wholesale - Western U.S.

Western U.S. wholesale margins consist of margins in the Northwest and in the Southwest.

In the Northwest, margins were $31 million higher in 2003 compared to 2002, primarily due to higher wholesale prices. Average wholesale prices for 2003 were $6/MWh higher than prices in 2002. A favorable settlement of $3 million with Energy West Resources Inc. in June 2003 also positively impacted margins in 2003. Margins were $74 million lower in 2002 compared to 2001, primarily due to a decrease in average realized wholesale prices by $15/MWh, partially offset by a 7% increase in volumes.

In the Southwest, margins were $9 million higher in 2003 compared to 2002, primarily due to the inception of new tolling agreements in Arizona and due to an increase of average wholesale prices in 2003 by $16/MWh compared to 2002. Margins were $9 million lower in 2002 compared to 2001, primarily due to a decrease in average wholesale prices by $40/MWh. These lower prices were offset by increased sales, which were three times higher than the prior period, as a result of the Griffith Energy and Sundance facilities coming on-line in 2002.

The above explanation is exclusive of $9 million related to the 2003 partial reversal of a reserve against Enron receivables, and a 2001 charge of $12 million for the Enron bankruptcy, both of which affected gross margins. These items are discussed in further detail in Note 17 to the Financial Statements.

Net Energy Trading

PPL enters into certain contractual arrangements that meet the criteria of energy trading derivatives as defined by EITF 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities." These physical and financial contracts cover trading activity associated with electricity, gas and oil. The $7 million decrease in 2003 compared to 2002 was primarily due to realized electric swap losses in 2003. The $18 million decrease in 2002 compared to 2001 was primarily due to unrealized, mark-to-market gains in 2001 and lower energy margins in 2002. The physical volumes associated with energy trading were 9,100 GWh and 12.6 Bcf in 2003; 10,700 GWh and 12.4 Bcf in 2002; and 7,700 GWh and 22.4 Bcf in 2001. The amount of energy trading margins from unrealized mark-to-market transactions was not significant in 2003, 2002 and 2001.

Unregulated Retail

Unregulated retail margins declined in 2003 compared to 2002 primarily due to significantly lower electric retail prices in the Western U.S. Western U.S. retail contract prices decreased about 19% in 2003 compared to 2002. The decline in 2002 compared to 2001 was primarily due to lower revenues resulting from the expiration of contracts which were not renewed in the Eastern U.S. and due to significantly lower retail prices in the Western U.S., somewhat offset by an increase in the number of customers in the Western U.S.

Regulated Retail

Regulated retail margins in the Eastern U.S. for 2003 decreased by 9% compared to 2002, due to higher supply costs resulting from higher purchased power prices. Purchased power prices were higher because of increased gas and oil prices and an abnormally cold winter. Regulated retail margins for 2002 were 17% higher than in 2001. Higher sales volumes and higher average prices, caused by changes in usage among customer classes, provided the improved margins. In addition, lower supply costs in 2002, due to lower fuel costs and increased generating unit availability, further improved margins.

Utility Revenues

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

			2003 vs. 2002			2002 vs. 2001
Domestic:
	Retail electric revenue (PPL Electric)
		Electric delivery	$	48		$	(1	)
		PLR electric supply		22			102
		Other					(11	)
	Wholesale electric revenue (PPL Electric)						(5	)
	Gas revenue (PPL Gas Utilities)			10			(15	)
International:
	Retail electric delivery (PPL Global)
		U.K.		35
		El Salvador		13			4
		Bolivia		1			2
		Chile		18			4
		Brazil		(113	)		(17	)
			$	34		$	63

The increase in utility revenues for 2003 compared with 2002 was attributable to:

• higher PPL Electric delivery revenues resulting from a 1.1% increase in delivery sales, in part due to colder winter weather in the first quarter of 2003;
• higher PPL Electric PLR supply revenues due to higher energy and capacity rates in 2003 compared with 2002;

• higher PPL Gas Utilities revenues primarily due to higher sales volumes of propane and natural gas;
• higher WPD revenues in the U.K. primarily due to the change in foreign currency exchange rates from period to period;

• higher revenues in El Salvador primarily due to higher volumes and higher pass-through energy costs, partially offset by a 6% tariff reduction effective January 1, 2003; and
• higher revenues in Chile primarily due to higher volumes and the consolidation of TransEmel (see Note 9 to the Financial Statements); partially offset by
• lower revenues in Brazil attributable to the deconsolidation of CEMAR in August 2002 (see Note 9).

The increase in utility revenues in 2002 compared with 2001 was primarily due to:

• higher PPL Electric PLR supply revenues, see "Regulated Retail" for additional information; partially offset by

• lower PPL Gas Utilities revenues primarily due to lower sales volumes (due in part to milder winter weather experienced in the first quarter of 2002) and a decrease in the fuel cost component of customer rates; and
• lower revenues in Brazil, as noted above.

Energy Related Businesses

Energy related businesses contributed $17 million less to operating income in 2003 compared with 2002. The decrease resulted primarily from:

• $7 million of credits recorded on development projects in 2002, due largely to a favorable settlement on the cancellation of a generation project in Washington state;
• a $5 million operating loss on some Hyder properties in the first quarter of 2003, which were subsequently sold in April 2003;
• an $8 million decrease in Latin America revenues from lower material and construction project sales. (In 2002, a Bolivian subsidiary participated in the construction of a 1,500 kilometer transmission line in rural areas); and
• a $3 million decrease in margins from telecommunications, due to the acquisition of a fiber optic network and start-up activities for new products; partially offset by
• a $3 million improvement in contributions from mechanical contracting subsidiaries due to enhanced project controls that were implemented to minimize project overruns, offset by a continuing decline in construction markets in 2003.

Energy related businesses (when adjusted to include WPD on an equity basis) contributed $12 million less to operating income in 2002 compared with 2001. This was primarily due to:

• a $14 million benefit recorded in 2001 from an equity interest in Griffith Energy related to margins on forward electricity contracts executed prior to commercial operation;

• a $9 million decline from the mechanical contracting and engineering subsidiaries, primarily due to cost overruns experienced at two major projects;
• a $6 million operating loss on start-up telecommunications operations; and

• $4 million of pre-tax operating losses from synfuel projects; partially offset by

• a $23 million decrease in PPL Global's expenses due to lower spending on development projects in 2002, including a favorable settlement on the cancellation of a generation project in Washington state.

Although operating income from synfuel operations declined in 2002 compared to 2001, the synfuel projects contributed $7 million more to net income after recording tax credits.

Other Operation and Maintenance

The increase (decrease) in other operation and maintenance expenses was primarily due to:

	2003 vs. 2002			2002 vs. 2001
Decrease in domestic and international pension income	$	53		$	17
Increased operating expenses in domestic business lines and other		44			2
Additional expenses of new generating facilities		28			27
Increase in WPD expenses due to regulatory accounting adjustments, and resolution of purchase accounting contingencies in the second quarter of 2002 related to the Hyder acquisition		18
Increase in foreign currency exchange rates		10
Accretion expense as a result of applying SFAS 143 (see Note 21)		18
Increase in other postretirement benefit expense		15			6
Outage costs associated with the turbine replacement at the Susquehanna station		7
Change to account for CEMAR on the cost method		(38	)		(9	)
Estimated reduction in salaries and benefits as a result of the workforce reduction initiated in 2002		(28	)		(11	)
Insurance settlements - property damage and environmental		(27	)
Decrease in PPL Global's administrative and general expenses					(10	)
Gains on sales of emission allowances		(17	)		(2	)
Vacation liability adjustment in 2002 in conjunction with the workforce reduction		(15	)		15
	$	68		$	35

The $53 million decrease in net pension income was attributable to decreased asset values at the end of 2002 and reductions in the discount rate assumptions for PPL's domestic and international pension plans, which were the result of weakness in the financial markets during 2002. The 2002 year-end asset values and discount rates were used to measure net pension income for 2003. Through December 31, 2003, PPL recorded $42 million of net pension income.

Although financial markets have improved and PPL's domestic and international pension plans have experienced significant asset gains in 2003, interest rates on fixed-income obligations have continued to fall, requiring a further reduction in the discount rate assumption as of December 31, 2003. The reduction in the discount rate assumption has a significant impact on the measurement of plan obligations and net pension cost, which will result in PPL's recognition of lower levels of net pension income in 2004. See Note 12 to the Financial Statements for details of the funded status of PPL's pension plans.

Depreciation

Impacts on depreciation were as follows:

	2003 vs. 2002			2002 vs. 2001
Additions to PP&E	$	32		$	20
Foreign currency exchange rates		10
Lower depreciation due to deconsolidation of CEMAR in 2002		(7	)		(7	)
Discontinuation of recording goodwill amortization in 2002 due to adoption of SFAS 142 (see Note 18)					(10	)
Extension of Susquehanna station's depreciable life					(14	)
No decommissioning expense in 2003 due to application of SFAS 143 (a)		(22	)
	$	13		$	(11	)

(a) There was a corresponding recording of accretion expense for PPL Susquehanna in 2003, which is part of "Other operation and maintenance" expense.

Depreciation expense increased in 2003 by $13 million. An additional $32 million of depreciation was recorded related to several projects, the largest of which were the Susquehanna Unit 2 turbine replacement and the Automated Meter Reading and Power Management System projects. The additional depreciation was partially offset by the removal of decommissioning expense from depreciation expense as required by SFAS 143, "Accounting for Asset Retirement Obligations." See Note 21 to the Financial Statements for additional information.

Taxes, Other Than Income

Taxes, other than income, increased by $25 million in 2003 compared with 2002 due to the settlement of prior years' capital stock tax refund claims of $8 million in 2002, higher taxes related to an increase in the basis on which capital stock tax is calculated in 2003 and higher real estate taxes.

Taxes, other than income, increased by $34 million in 2002 compared with 2001, primarily due to a $42 million increase in gross receipts tax, partially offset by a $12 million decrease in capital stock tax.

The gross receipts tax increase in 2002 was 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 or return benefits to customers that may result from the restructuring of the electric industry. This increase was partially offset by the settlement of prior years' capital stock tax refund claims and a lower capital stock tax rate in 2002.

Other Charges

Other charges of $9 million in 2003 consisted of a charge for a workforce reduction program (see Note 20 to the Financial Statements).

Other charges of $232 million in 2002 consisted of the write-down of PPL Global's investment in CEMAR and several smaller impairment charges on other international investments (see Note 9), the write-down of generation assets (see Note 9) and a charge for a workforce reduction program (see Note 20).

Other charges of $486 million in 2001 consisted of the write-down of international energy projects and the cancellation of generation projects (see Note 9).

Other Income - net

See Note 16 to the Financial Statements for details of other income and deductions.

Financing Costs

Interest expense decreased by $86 million in 2003 compared with 2002 primarily due to the net effect of:

• a $55 million decrease in long-term debt interest due to debt retirements in 2003;
• a $34 million decrease in long-term debt interest from the deconsolidation of CEMAR in August 2002;
• a $24 million charge that occurred in 2002 to cancel a remarketing agreement;
• a $20 million decrease in short-term debt interest expense;
• a $15 million decrease due to a 2002 charge to expense related to the ineffectiveness and subsequent dedesignation of hedges on anticipated debt issuances that did not occur; and
• a $7 million decrease due to changes in interest rates caused by economic hedges that did not qualify for hedge accounting treatment under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities;" offset by
• $27 million of interest on Preferred Securities and preferred stock with sinking fund requirements due to reclassifications from applying SFAS 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." See Note 22 to the Financial Statements for additional information;
• a $14 million increase in long-term debt interest expense due to issuances of $100 million Senior Secured Bonds and $400 million Convertible Senior Notes;
• a $14 million decrease in capitalized interest; and
• an $11 million write-off of unamortized swap costs on WPD debt restructuring in 2003.

Interest expense increased by $48 million in 2002 compared with 2001 primarily due to:

• a $24 million charge to cancel the remarketing agreement of the 7.7% Reset Put Securities;
• a $19 million net increase in long-term debt interest related to a full year of interest in 2002 from the issuances in 2001 of $800 million of senior secured bonds by PPL Electric, $500 million of senior unsecured notes by PPL Energy Supply and debt by PPL Global's consolidated subsidiaries, partially offset by bond retirements;
• a $15 million charge due to ineffectiveness and subsequent dedesignation of hedges on anticipated debt issuances that did not occur in 2002;
• a $3 million charge due to market fluctuations for economic hedges that did not qualify for hedge accounting treatment under SFAS 133; and
• a $7 million decrease in capitalized interest; offset by
• a $24 million decrease in short-term debt interest as a portion of the proceeds from the issuance of long-term debt was used to pay down commercial paper.

Distributions on preferred securities decreased by $38 million in 2003 compared with 2002. This decrease was due to:

• $27 million of distributions on Preferred Securities and preferred stock with sinking fund requirements are categorized as interest expense due to the implementation of SFAS 150 on July 1, 2003 (see Note 22); and
• the retirement of preferred securities in 2002.

Distributions on preferred securities increased by $6 million in 2002 compared with 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 $10 million decrease in dividends and distributions due to the retirements and redemptions in 2002 of preferred securities.

Income Taxes

Income tax expense decreased by $40 million in 2003 compared with 2002. This decrease was due to:

• a $31 million reduction related to deferred income tax valuation allowances recorded on impairment charges on PPL's investment in Brazil recorded during 2002;
• an $84 million reduction in income taxes related to the tax benefit recognized in 2003 on foreign investment losses included in the 2002 federal income tax return;
• a $9 million decrease related to a contribution of property; and
• a $2 million decrease related to additional federal synfuel tax credits recognized; offset by
• higher pre-tax domestic book income, resulting in an $84 million increase in income taxes.

Income tax expense decreased by $156 million in 2002 compared with 2001. This decrease was due to:

• lower pre-tax domestic book income, resulting in a $75 million reduction in income taxes;
• lower impairment charges on PPL's investment in Brazil resulting in a $30 million decrease in the amount of deferred income tax valuation allowances recorded;
• a $27 million reduction in income taxes due to losses recognized on foreign investments; and
• a $10 million decrease related to additional federal synfuel tax credits recognized.

Discontinued Operations

PPL reported a loss of $20 million in connection with the approval of a plan of sale of PPL Global's investment in a Latin American telecommunications company. See "Discontinued Operations" in Note 9 to the Financial Statements for additional information.

Cumulative Effects of Changes in Accounting Principles

In 2003, PPL recorded a charge of $27 million, after-tax, as a cumulative effect of a change in accounting principle in connection with the adoption of FIN 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," for certain entities. See "New Accounting Standards" for further discussion.

PPL adopted SFAS 143, "Accounting for Asset Retirement Obligations," effective January 1, 2003. SFAS 143 addresses the accounting for obligations associated with the retirement of tangible long-lived assets. It requires legal obligations associated with the retirement of long-lived assets to be recognized as a liability in the financial statements. Application of the new rules resulted in a cumulative effect of adoption that increased net income by $63 million in 2003. See Note 21 to the Financial Statements for additional information.

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. See Note 18 to the Financial Statements for additional information.

In 2001, PPL changed its method of amortizing unrecognized gains or losses in the annual pension expense or income determined under SFAS 87, "Employers' Accounting for Pensions." This change resulted in a cumulative-effect credit of $10 million. See Note 12 to the Financial Statements for additional information.

Financial Condition

Liquidity

PPL is focused on maintaining a strong liquidity position and strengthening its balance sheet, thereby improving its credit profile. PPL believes that its cash on hand, operating cash flows, access to debt and equity capital markets and borrowing capacity, taken as a whole, provide sufficient resources to fund its ongoing operating requirements, future security maturities and estimated future capital expenditures. PPL currently expects cash on hand at the end of 2004 to be approximately $400 million, with about $1.5 billion in syndicated credit facilities. PPL also expects that cash from operations less payments for capital expenditures, dividends and transition bonds will be positive in 2004. However, PPL's cash flows from operations and its access to cost effective bank and capital markets are subject to risks and uncertainties, including but not limited to, the following:

• changes in market prices for electricity;
• changes in commodity prices that may increase the cost of producing power or decrease the amount PPL receives from selling power;
• price and credit risks associated with selling and marketing products in the wholesale power markets;
• ineffectiveness of trading, marketing and risk management policies and programs used to mitigate PPL's risk exposure to adverse energy and fuel prices, interest rates, foreign currency exchange rates and counterparty credit;
• unusual or extreme weather that may damage PPL's transmission and distribution facilities or effect energy sales to customers;
• reliance on transmission and distribution facilities that PPL does not own or control to deliver its electricity and natural gas;
• unavailability of generating units (due to unscheduled or longer-than-anticipated generation outages) and the resulting loss of revenues and additional costs of replacement electricity;
• ability to recover, and timeliness and adequacy of recovery of costs associated with regulated utility businesses; and
• a downgrade in PPL's or PPL's subsidiaries' credit ratings that could negatively affect their ability to access capital and increase the cost of maintaining credit facilities and any new debt.

At December 31, 2003, PPL had $476 million in cash and cash equivalents and $56 million of short-term debt as compared to $245 million in cash and cash equivalents and $943 million of short-term debt at December 31, 2002, and $933 million in cash and cash equivalents and $118 million of short-term debt at December 31, 2001. The changes in cash and cash equivalents resulted from the following:

	2003			2002			2001
Net Cash Provided by Operating Activities	$	1,340		$	802		$	909
Net Cash Used in Investing Activities		(729	)		(1,129	)		(702	)
Net Cash Provided by (Used in) Financing Activities		(387	)		(363	)		249
Effect of Exchange Rates on Cash & Cash Equivalents		7			2			(3	)
Increase (Decrease) in Cash & Cash Equivalents	$	231		$	(688	)	$	453

Net Cash Provided by Operating Activities

Net cash provided by operating activities increased by 67%, or $538 million in 2003 versus 2002, reflecting higher net income adjusted for non-cash items, working capital improvements and lower cash income taxes. In addition, 2002 included cash outlays of $152 million for the cancellation of generation projects and $50 million for the termination of a NUG contract. The higher net income in 2003 was principally driven by complete ownership of WPD, higher wholesale energy margins, lower interest expense and savings from a workforce reduction program in the U.S. that commenced in 2002. The working capital improvements resulted from a decrease in accounts receivable and prepayments. These positive changes were partially offset by rising transmission and distribution operating costs at PPL Electric and other factors.

Important elements supporting the stability of PPL's cash provided by operating activities are the long-term and intermediate-term commitments from wholesale and retail customers and long-term fuel supply contracts PPL has in place. In 2003, PPL EnergyPlus entered into several new wholesale agreements to provide capacity and/or electricity to utilities in New Jersey, Arizona and Connecticut. These agreements supplement previously existing long-term contracts with PPL Electric, NorthWestern and the Long Island Power Authority (see Note 14 to the Financial Statements for additional information). PPL estimates that, on average, approximately 80% of its expected annual generation output for the period 2004 through 2008 is committed under long-term and intermediate-term energy supply contracts. PPL EnergyPlus also enters into contracts under which it agrees to sell and purchase electricity, natural gas, oil and coal. These contracts often require cash collateral or other credit enhancement, or reductions or terminations of a portion or the entire contract through cash settlement in the event of a downgrade of PPL or the respective subsidiary's credit ratings or adverse changes in market prices. For example, in addition to limiting its trading ability, if PPL or its respective subsidiary's ratings were lowered to below "investment grade" and energy prices increased by 10%, PPL estimates that, based on its December 31, 2003 position, it would have to post collateral of approximately $190 million as compared to $121 million at December 31, 2002. PPL has in place risk management programs that, among other things, are designed to monitor and manage its exposure to volatility of cash flows related to changes in energy prices, interest rates, foreign currency exchange rates, counterparty credit quality and the operational performance of its generating units.

Net cash provided by operating activities decreased by $107 million in 2002 versus 2001. This decrease was primarily due to $152 million of turbine cancellation payments made in 2002, a $50 million payment to terminate a NUG contract also made in 2002 and an $89 million decrease in dividends received from unconsolidated affiliates, partially offset by increases in net income adjusted for non-cash items.

Net Cash Used in Investing Activities

Net cash used in investing activities decreased by 35%, or $400 million, in 2003 versus 2002, primarily as a result of reduced investment in generation assets and electric energy projects and the acquisition of the controlling interest in WPD in September 2002. The primary use of cash for investing activities is capital and investment expenditures, which are summarized by category in the table in "Capital Expenditure Requirements." In 2004, PPL expects to be able to fund all of its capital expenditures with cash from operations.

Net cash used in investing activities in 2002 was $1.1 billion, compared to $702 million in 2001. The primary reasons for the $427 million increase in cash used in investing activities were the acquisition of the controlling interest in WPD for $211 million, net of cash acquired, and a repayment of the loan from a non-consolidated affiliate in 2001.

Net Cash Provided by (Used in) Financing Activities

Net cash used in financing activities was $387 million in 2003, compared to $363 million in 2002, and primarily reflected the repayment of short-term debt, retirement of long-term debt and increased dividends to shareholders. In 2003, the $387 million primarily consisted of net debt retirements of $460 million, common stock sale proceeds of approximately $426 million, preferred stock retirements of $31 million and common and preferred dividends paid of $287 million. In 2002, the $363 million primarily consisted of net debt retirements of $412 million, company-obligated mandatorily redeemable preferred securities retirements of $250 million, common stock sale proceeds of $587 million and common and preferred stock dividends paid of $261 million. PPL currently has no plans to issue any additional common stock other than the shares associated with the May 2004 common stock conversion related to the $575 million aggregate stated amount of PEPS Units and PEPS Units, Series B. See Note 8 to the Financial Statements for additional information on common stock sales in 2003.

PPL's debt financing activity in 2003 was as follows:

		Additions		Payments			Net
PPL Electric First Mortgage Bonds (FMB)		$	$100	$	(85	)	$	15
PPL Electric FMB Pollution Control Bonds			90		(90	)
PPL Electric Commercial Paper (net change)					(15	)		(15	)
PPL Transition Bond Company					(255	)		(255	)
North Penn Gas, Inc. Notes					(1	)		(1	)
PPL Capital Funding Medium- Term Notes					(85	)		(85	)
PPL Energy Supply Convertible Notes			400					400
PPL Energy Supply Commercial Paper (net change)					(374	)		(374	)
WPD (South West) (USD equivalent)			402		(409	)		(7	)
WPDH Limited (USD equivalent)					(53	)		(53	)
Latin America Companies (USD equivalent)					(4	)		(4	)
Payments on amounts advanced from trustee in synthetic lease agreement and other					(81	)		(81	)
	Total	$	992	$	(1,452	)	$	(460	)

Debt issued during 2003 had stated interest rates ranging from 2.62% to 5.87% and maturities from 2008 through 2027. See Note 8 to the Financial Statements for more detailed information regarding PPL's borrowings.

In July 2003, PPL Energy Supply and PPL Electric each determined that, based on their current cash positions and anticipated cash flows, they would not need to access the commercial paper markets through at least the end of 2003. As a result, PPL Energy Supply and PPL Electric each requested Standard & Poor's Ratings Services (S&P), Moody's Investors Service, Inc. (Moody's) and Fitch Ratings (Fitch) to withdraw their ratings for these currently inactive commercial paper programs, which the rating agencies did effective as of July 9, 2003. This decision has not limited the ability of either PPL Energy Supply or PPL Electric to fund its short-term liquidity needs. Neither company currently has any commercial paper outstanding. PPL Electric expects to renew its commercial paper program in early 2004. PPL Energy Supply currently does not anticipate a need to access the commercial paper market in 2004.

At December 31, 2003, PPL's total committed borrowing capacity and the use of this borrowing capacity were as follows:

		Committed Capacity		Borrowed		Letters of Credit Issued (d)		Available Capacity (d)
PPL Electric Credit Facilities (a)		$	300			$	42	$	258
PPL Energy Supply Credit Facilities (b)			1,100				87		1,013
WPD (South West) Bank Facilities (c)			435	$	48				387
	Total	$	1,835	$	48	$	129	$	1,658

(a)	PPL Electric's credit facilities allow for borrowings at LIBOR-based rates plus a spread, depending upon the company's public debt rating. PPL Electric also has the capability to issue up to $250 million of letters of credit under these facilities, which issuance reduces available borrowing capacity. These credit facilities contain a financial covenant requiring debt to total capitalization not greater than 70%. At December 31, 2003 and 2002, PPL Electric's consolidated debt to total capitalization percentages, as calculated in accordance with its credit facilities, were 57% and 58%. PPL Electric's 364-day credit facility also allows it to borrow up to the full amount of the credit facility on the day of expiration for up to a one-year period. The credit agreements also contain certain representations and warranties that must be made for PPL Electric to borrow under them, including, but not limited to, a material adverse change clause that relates to PPL Electric's ability to perform its obligations under the credit agreements and related loan documents.
(b)	PPL Energy Supply's credit facilities allow for borrowings at LIBOR-based rates plus a spread, depending upon the company's public debt rating. PPL Energy Supply also has the capability to issue up to $800 million of letters of credit under these facilities, which issuance reduces available borrowing capacity. These credit facilities contain financial covenants requiring debt to total capitalization not greater than 65% and an interest coverage ratio of not less than 2.0 times consolidated earnings before income taxes, depreciation and amortization. At December 31, 2003 and 2002, PPL Energy Supply's consolidated debt to total capitalization percentages, as calculated in accordance with its credit facilities, were 36% and 35%. At December 31, 2003 and 2002, PPL Energy Supply's interest coverage ratios, as calculated in accordance with its credit facilities, were 6.3 and 7.4. The credit agreements also contain certain representations and warranties that must be made for PPL Energy Supply to borrow under them, including, but not limited to a material adverse change clause that relates solely to PPL Energy Supply's ability to perform its obligations under the credit agreements and related loan documents.
(c)	WPD (South West)'s credit facilities allow for borrowings at LIBOR-based rates plus a spread, depending upon the company's public debt rating. These credit facilities contain financial covenants that require it to maintain an interest coverage ratio of not less than 3.0 times consolidated earnings before income taxes, depreciation and amortization, and the regulatory asset base must be £150 million greater than total gross debt, in each case as calculated in accordance with the credit facilities. At December 31, 2003 and 2002, WPD (South West)'s interest coverage ratio, as calculated in accordance with its credit lines, was 6.7 and 10.3. At December 31, 2003 and 2002, WPD (South West)'s regulatory asset base exceeded its total gross debt by £457 million and £491 million.
(d)	The Borrower under each of these facilities has a reimbursement obligation to the extent any letters of credit are drawn upon. The letters of credit issued as of December 31, 2003 expire in 2004.

These credit agreements contain various other covenants. Failure to meet those covenants beyond applicable grace periods could result in acceleration of due dates of borrowings and/or termination of the agreements. PPL monitors the covenants on a regular basis. At December 31, 2003, PPL was in compliance with those covenants. At this time PPL believes that these covenants and other borrowing conditions will not limit access to these funding sources. PPL Electric intends to reduce its total syndicated credit facilities to $200 million in the first quarter of 2004. In early 2004, PPL Electric also intends to participate in an Asset-Backed Commercial Paper (ABCP) Program for up to $150 million that would be secured by a portion of its accounts receivable. The ABCP Program would provide a more reliable and stable source of liquidity than an unsecured commercial paper program. PPL Energy Supply intends to reduce its syndicated credit facilities to $800 million in the first quarter of 2004 because of lower development and acquisition requirements related to its supply business. WPD (South West) intends to renew and extend all of its syndicated credit facilities in 2004.

Net cash used in financing activities was $363 million in 2002, compared to net cash provided by financing activities of $249 million in 2001. In 2001, PPL had net issuances of $544 million of debt, preferred securities and equity, compared to net retirements of $75 million in 2002.

Operating Leases

PPL and its subsidiaries also have available funding sources that are provided through operating leases. PPL's subsidiaries lease vehicles, office space, land, buildings, personal computers and other equipment under master operating lease arrangements. These leasing structures provide PPL with additional operating and financing flexibility. The operating leases contain covenants that are typical for these agreements, such as maintaining insurance, maintaining corporate existence and timely payment of rent and other fees. Failure to meet these covenants could limit or restrict access to these funds or require early payment of obligations. At this time, PPL believes that these covenants will not limit access to these funding sources or cause acceleration or termination of the leases.

PPL, through its subsidiary PPL Montana, leases a 50% interest in Colstrip Units 1 and 2 and a 30% interest in Unit 3, under four 36-year non-cancelable operating leases. These operating leases are not recorded on PPL's Balance Sheet, which is in accordance with applicable accounting guidance. The leases place certain restrictions on PPL Montana's ability to incur additional debt, sell assets and declare dividends. At this time, PPL believes that these restrictions will not limit access to these funding sources or cause acceleration or termination of the leases. See Note 8 to the Financial Statements for a discussion of other dividend restrictions related to PPL subsidiaries.

See Note 10 to the Financial Statements for further discussion of the operating leases.

Contractual Obligations

At December 31, 2003, the estimated contractual cash obligations of PPL were as follows:

Contractual Cash Obligations	Total		Less Than 1 Year		1-3 Years		3-5 Years		After 5 Years
Long-term Debt (a)	$	8,525	$	395	$	2,365	$	2,350	$	3,415
Capital Lease Obligations		20		1		2		2		15
Operating Leases (b)		827		79		131		112		505
Purchase Obligations (c)		3,251		628		1,189		588		846
Other Long-term Liabilities Reflected on the Balance Sheet under GAAP
Total Contractual Cash Obligations	$	12,623	$	1,103	$	3,687	$	3,052	$	4,781

(a)	Reflects principal maturities only, including maturities of consolidated lease debt.
(b)	Excludes amounts for the leases of the Sundance, University Park and Lower Mt. Bethel generation facilities as the lessors were consolidated effective December 31, 2003 as a result of the adoption of FIN 46 for certain entities. See "New Accounting Standards" for further discussion.
(c)	The payments reflected herein are subject to change as certain purchase obligations included are estimates based on projected obligated quantities and/or projected pricing under the contracts.

Credit Ratings

The following table summarizes the credit ratings of PPL and its key financing subsidiaries at December 31, 2003:

		Moody's	Standard & Poor's	Fitch
PPL
	Issuer Rating		BBB	BBB
	Subordinated Debt	Baa3	BBB-
	Senior Unsecured Debt		BBB	BBB
	Short-term Debt
	Outlook	STABLE	NEGATIVE	NEGATIVE
PPL Energy Supply
	Issuer Rating		BBB
	Senior Unsecured Notes	Baa2	BBB	BBB+
	Outlook	STABLE	NEGATIVE	NEGATIVE
PPL Capital Funding
	Senior Unsecured Debt	Baa3	BBB-	BBB
	Subordinated Debt	Ba1	BBB-
	Medium -Term Notes	Baa3	BBB-	BBB
	Outlook	STABLE	NEGATIVE	NEGATIVE
PPL Capital Funding Trust I
	PEPS Units*	Ba1	BB+	BBB-
PPL Electric
	Senior Unsecured/Issuer   Rating	Baa1	A-
	First Mortgage Bonds	Baa1	A-	A-
	Pollution Control Bonds**	Aaa	AAA
	Senior Secured Bonds	Baa1	A-	A-
	Preferred Stock	Ba1	BBB	BBB+
	Outlook	STABLE	NEGATIVE	STABLE
PPL Transition Bond Company
	Transition Bonds	Aaa	AAA	AAA
PPL Montana
	Pass -Through Certificates	Baa3	BBB-	BBB
	Outlook	Poss. Downgrade	NEGATIVE
WPDH Limited
	Issuer Rating	Baa2	BBB-
	Senior Unsecured Debt	Baa2	BBB-	BBB
	Outlook	STABLE	NEGATIVE	STABLE

		Moody's	Standard & Poor's	Fitch
WPD LLP
	Issuer Rating		BBB-
	Senior Unsecured Debt	Baa2	BBB-	BBB
	Capital Trust Securities*	Baa3	BB
	Outlook	STABLE	NEGATIVE	STABLE
WPD (South Wales)
	Issuer Rating		BBB+
	Senior Unsecured Debt	Baa1	BBB+	A-
	Commercial Paper		A-2	F2
	Outlook	STABLE	NEGATIVE	STABLE
WPD (South West)
	Issuer Rating	Baa1	BBB+
	Senior Unsecured Debt		BBB+	A-
	Commercial Paper	P-2	A-2	F2
	Outlook	STABLE	NEGATIVE	STABLE

*	These trust preferred securities were deconsolidated effective December 31, 2003 from the Balance Sheet. See Note 22 to the Financial Statements for additional information.
**	Insured as to payment of principal and interest.

Rating Agency Actions in 2003

In 2003, S&P, Moody's and Fitch reviewed the credit ratings on the debt and preferred securities of PPL and its subsidiaries. Based on their respective reviews, the rating agencies made certain ratings revisions that are described below. Management does not expect these ratings decisions to impact PPL and its subsidiaries' ability to raise new debt or equity capital or to have a significant impact on the cost of any new capital or the cost of maintaining their credit facilities.

The ratings of S&P, Moody's and Fitch are not a recommendation to buy, sell or hold any securities of PPL or its subsidiaries. Such ratings may be subject to revisions or withdrawal by the agencies at any time and should be evaluated independently of each other and any other rating that may be assigned to their securities.

PPL and Domestic Subsidiaries

S&P

In April 2003, S&P notified PPL, PPL Energy Supply and PPL Electric that it:

• affirmed both the 'A-' ratings on PPL Electric's first mortgage bonds and senior secured bonds and the 'BBB' corporate credit ratings for PPL and PPL Energy Supply;
• lowered the rating on PPL Capital Funding's senior unsecured debt to 'BBB-' from 'BBB';
• placed PPL Electric on negative outlook. S&P indicated that PPL and PPL Energy Supply remain on negative outlook; and
• affirmed the 'A-2' commercial paper ratings of PPL Energy Supply and PPL Electric.

S&P indicated that the rating revision on PPL Capital Funding's senior unsecured debt is based on the addition of debt at PPL Energy Supply, which it noted is expected to increase further in the future. PPL Energy Supply provides significant cash flows to PPL Capital Funding to support PPL Capital Funding's cash requirements. S&P also indicated that the negative outlook for PPL and its subsidiaries reflects its view of weak credit metrics due to low wholesale energy prices.

In December 2003, S&P downgraded PPL Montana's 8.903% Pass Through Certificates due 2020 to BBB- from BBB. S&P indicated that its outlook for these securities remains negative.

S&P indicated that its downgrade reflects certain risks that it believes PPL Montana faces, including counterparty credit risk resulting from the Chapter 11 bankruptcy filing of NorthWestern, which is PPL Montana's largest customer. S&P noted, however, that the bankruptcy court has approved NorthWestern's request to affirm the power sales agreements with PPL Montana and that NorthWestern has strong incentives to maintain this status. See Note 14 for more detailed information regarding NorthWestern's bankruptcy filing.

Moody's

In May 2003, Moody's downgraded the credit ratings on the debt and preferred securities of PPL, PPL Electric and PPL Energy Supply. The ratings downgraded include:

• PPL Electric's first mortgage bonds and senior secured bonds, to 'Baa1' from 'A3';
• PPL Energy Supply's senior unsecured notes, to 'Baa2' from 'Baa1';
• PPL Capital Funding's senior unsecured debt, to 'Baa3' from 'Baa2'; and
• PPL's senior unsecured debt that is not currently outstanding but that may be issued under PPL's shelf registration statement on file with the SEC, to 'Baa3' from 'Baa2'.

The Moody's ratings outlook is stable for each of PPL, PPL Electric, PPL Energy Supply and PPL Capital Funding. Neither PPL Electric's nor PPL Energy Supply's short-term debt ratings was impacted by Moody's long-term debt review.

Moody's stated that the downgrades reflect its concerns about PPL's high debt levels, PPL Energy Supply's modest exposure to merchant generation risk, the continued weakness in the wholesale power market and the associated financial impact on PPL Energy Supply, and concerns regarding the amount of cash flow to be generated from PPL Energy Supply's non-regulated domestic operations and the free cash flow available from its regulated international assets. However, Moody's also indicated that the full requirements contract between PPL Electric and PPL EnergyPlus, which previously was approved by the PUC and which extends through December 2009, mitigates PPL Electric's supply and price risk and provides a predictable stream of cash flows to PPL Energy Supply during such time period. Moody's also noted that PPL's management had implemented a number of initiatives to strengthen its current credit quality and reduce its debt levels, such as the issuance of over $1 billion of common stock and mandatorily convertible securities over the last few years, a sizeable reduction in planned capital expenditures, the cancellation of projects under development, workforce reductions and write-downs of certain investments.

In September 2003, Moody's announced that it was placing PPL Montana's 8.903% Pass-Through Certificates due 2020 under review for possible downgrade. These securities currently are rated 'Baa3' by Moody's. Moody's stated that its review is prompted by its concerns about the credit profile of PPL Montana's largest customer, NorthWestern, and lower cash flow generation than was forecasted at the time the securities were issued in 2000. See Note 14 to the Financial Statements for additional information on NorthWestern's current situation. Management does not expect any action by Moody's based on this review to limit PPL Montana's ability to fund its short-term liquidity needs. PPL Montana has no plans to raise new long-term debt. Any ratings downgrade by Moody's would have an insignificant impact on PPL Montana's cost of maintaining the credit facility that it has in place with its affiliate. In addition, management does not expect any ratings downgrade by Moody's based on this review to have any adverse impact on the credit ratings of PPL or PPL Energy Supply.

Fitch

In May 2003, Fitch notified PPL, PPL Energy Supply and PPL Capital Funding that it:

• downgraded PPL Capital Funding's senior unsecured debt to 'BBB' from 'BBB+';
• downgraded PPL's senior unsecured debt that is not currently outstanding but that may be issued under PPL's shelf registration statement on file with the SEC, to 'BBB' from 'BBB+';
• affirmed both the 'BBB+' rating of PPL Energy Supply's senior unsecured debt, and the 'F2' rating of its commercial paper; and
• placed each of PPL, PPL Capital Funding and PPL Energy Supply on negative outlook.

Fitch indicated that the revised ratings for PPL and PPL Capital Funding reflect the structural subordination of the obligations of PPL to those of its subsidiaries and Fitch's expectations of lower cash flow from PPL Electric until early 2005. Fitch indicated that the change in outlook for these companies results from the increase during 2002 in PPL's generation asset portfolio that is dependent on merchant generation, continued weakness in U.S. merchant energy markets and exposure to international distribution assets primarily in Latin America and the U.K. However, Fitch noted that PPL Energy Supply derives significant earnings and cash flow from long-term supply contracts, including the full requirements contract between PPL Electric and PPL EnergyPlus, that on average account for about 70% of PPL Energy Supply's gross margin over the next five years.

WPD and Subsidiaries

In February 2003, Moody's confirmed the ratings of WPDH Limited at 'Baa2' and WPD (South West) and WPD (South Wales) at 'Baa1', and downgraded WPD LLP from 'Baa1' to 'Baa2' and SIUK Capital Trust I from 'Baa2' to 'Baa3'. The outlook on all ratings was stable. In March 2003, S&P assigned its 'BBB+' senior unsecured debt rating to the £200 million bonds issued by WPD (South West). At the same time, the 'BBB+' and 'A-2' corporate credit ratings on SIUK Limited were withdrawn as a result of the acquisition of its debt by WPD LLP. S&P assigned its 'BBB' long-term and 'A-2' short-term corporate credit ratings to WPD LLP, in line with the ratings on the rest of the WPD group.

Following a review of holding companies of U.K. regulated utilities, in July 2003 S&P downgraded the long-term ratings from 'BBB' to 'BBB-' and short-term ratings from 'A-2' to 'A-3' for both WPDH Limited and WPD LLP, and retained a negative outlook. At the same time, S&P reaffirmed the credit ratings for WPD (South West) and WPD (South Wales) at 'BBB+'. S&P stated that this is in line with S&P U.K.'s recently announced implementation of a new methodology related to U.K. electric distribution holding companies, whereby electric distribution operating companies rated in the 'BBB' category will have the parent holding company (WPDH Limited) notched down by two categories from the operating company rating level. WPD's management does not expect the placement of WPD on negative outlook to limit its ability to fund its short-term liquidity needs or access to new long-term debt or to impact materially the cost of any new long-term debt.

Subsequent Events

In February 2004, PPL successfully remarketed an aggregate liquidation amount of $257 million of the PPL Capital Funding Trust I trust preferred securities that were a component of the PEPS Units. The trust preferred securities were remarketed at a price of 107.284% of their aggregate stated liquidation amount, resulting in a yield to maturity of 3.912% based on the reset distribution rate of 7.29% per annum. Under the terms of the PEPS Units, holders were entitled to surrender their trust preferred securities for remarketing in order to settle the purchase contract component of the PEPS Units. Holders of an aggregate liquidation amount of $218 million of the trust preferred securities elected not to participate in the remarketing. Those holders will retain their trust preferred securities at a distribution rate of 7.29% per annum. Both the trust preferred securities that were remarketed and those that were not remarketed will mature in May 2006.

Additionally in February 2004, PPL Capital Funding issued $201 million of senior unsecured notes guaranteed by PPL. The senior notes bear interest at a rate of 4.33% per year that is payable semiannually on March 1 and September 1 of each year, from September 1, 2004 through the maturity date of March 1, 2009. The senior notes are not redeemable by PPL or PPL Capital Funding, and the holders will not be entitled to require PPL or PPL Capital Funding to repurchase the senior notes before maturity. The senior notes were sold in an SEC Rule 144A private offering to qualified institutional buyers in exchange for $185 million aggregate liquidation amount of the trust preferred securities of PPL Capital Funding Trust I, which were surrendered for cancellation, and for a payment of $400,000 in cash. Except for the receipt of $400,000 in cash, neither PPL nor PPL Capital Funding received any cash proceeds from the sale of the senior notes. Pursuant to a registration rights agreement with the initial purchasers, PPL and PPL Capital Funding intend to consummate an exchange offer for the notes to register them with the SEC for resale.

Also in February 2004, notice was provided to the holders of the trust preferred securities that PPL has elected to liquidate PPL Capital Funding Trust I and cause the distribution of the underlying PPL Capital Funding 7.29% subordinated notes due 2006 to the holders of the trust preferred securities. The liquidation date is expected to occur on or about March 23, 2004. From and after the liquidation date, the trust preferred securities will no longer be deemed to be outstanding and the underlying PPL Capital Funding 7.29% subordinated notes will be held by the former holders of the trust preferred securities.

Finally, in February 2004, PPL announced an increase to its quarterly common stock dividend, payable April 1, 2004, to 41 cents per share (equivalent to $1.64 per annum). Future dividends, declared at the discretion of the Board of Directors, will be dependent upon future earnings, cash flows, financial requirements and other factors.

Off-Balance Sheet Arrangements

PPL, PPL Energy Supply and PPL Electric provide guarantees for certain affiliate financing arrangements that enable certain transactions. Some of the guarantees contain financial and other covenants that, if not met, would limit or restrict the affiliates' access to funds under these financing arrangements, require early maturity of such arrangements or limit PPL's ability to enter into certain transactions. At this time, PPL believes that these covenants will not limit access to the relevant funding sources.

PPL has entered into certain guarantee agreements that are within the scope of FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34." See Note 14 to the Financial Statements for a discussion on guarantees.

Risk Management - Energy Marketing & Trading and Other

Market Risk

Background

Market risk is the potential loss PPL may incur as a result of price changes associated with a particular financial or commodity instrument. PPL is exposed to market risk from:

• commodity price risk for energy and energy-related products associated with the sale of electricity, the purchase of fuel for the generating assets, and energy trading activities;
• interest rate risk associated with variable-rate debt and the fair value of fixed-rate debt used to finance operations, as well as the fair value of debt securities invested in by PPL's nuclear decommissioning fund;
• foreign currency exchange rate risk associated with investments in affiliates in Latin America and Europe, as well as purchases of equipment in currencies other than U.S. dollars; and
• equity securities price risk associated with the fair value of equity securities invested in by PPL's nuclear decommissioning fund.

PPL has a risk management policy approved by the Board of Directors to manage market risk and counterparty credit risk. (Credit risk is discussed below.) The RMC, comprised of senior management and chaired by the Vice President-Risk Management, oversees the risk management function. Key risk control activities designed to monitor compliance with risk policies and detailed programs include, but are not limited to, credit review and approval, validation of transactions and market prices, verification of risk and transaction limits, sensitivity analyses, and daily portfolio reporting, including open positions, mark-to-market valuations and other risk measurement metrics. In addition, efforts are ongoing to develop systems to improve the timeliness, quality and breadth of market and credit risk information.

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.

Contract Valuation

PPL utilizes forward contracts, futures contracts, options, swaps and tolling agreements as part of its risk management strategy to minimize unanticipated fluctuations in earnings caused by commodity price, interest rate and foreign currency volatility. When available, quoted market prices are used to determine the fair value of a commodity or financial instrument. This may include exchange prices, the average mid-point bid/ask spreads obtained from brokers, or an independent valuation by an external source, such as a bank. However, market prices for energy or energy-related contracts may not be readily determinable because of market illiquidity. If no active trading market exists, contracts are valued using internally developed models, which are then reviewed by an independent, internal group. Although PPL believes that its valuation methods are reasonable, changes in the underlying assumptions could result in significantly different values and realization in future periods.

To record derivatives at their fair value, PPL discounts the forward values using LIBOR. Additionally, PPL reduces derivative assets' carrying values to recognize differences in counterparty credit quality and potential illiquidity in the market:

• The credit adjustment takes into account the probability of default, as calculated by an independent service, for each counterparty that has an out-of-the money position with PPL.

• The liquidity adjustment takes into account the fact that it may not be appropriate to value contracts at the midpoint of the bid/ask spread. PPL might have to accept the "bid" price if PPL wanted to close an open sales position or PPL might have to accept the "ask" price if PPL wanted to close an open purchase position.

Accounting and Reporting

PPL follows the provisions of SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," and SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," and interpreted by DIG issues (together, "SFAS 133"), EITF 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities," and EITF 03-11, "Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not 'Held for Trading Purposes' as Defined in Issue No. 02-3," to account for and report on contracts entered into to manage market risk. SFAS 133 requires that all derivative instruments be recorded at fair value on the balance sheet as an asset or liability (unless they meet SFAS 133's criteria for exclusion) and that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met.

In April 2003, the FASB issued SFAS 149, which amends and clarifies SFAS 133 to improve financial accounting and reporting for derivative instruments and hedging activities. To ensure that contracts with comparable characteristics are accounted for similarly, SFAS 149 clarifies the circumstances under which a contract with an initial net investment meets the characteristics of a derivative, clarifies when a derivative contains a financing component, amends the definition of an "underlying" and amends certain other existing pronouncements. Additionally, SFAS 149 placed additional limitations on the use of the normal purchase or normal sale exception. SFAS 149 was effective for contracts entered into or modified and for hedging relationships designated after June 30, 2003, except certain provisions relating to forward purchases or sales of when-issued securities or other securities that did not yet exist. PPL adopted SFAS 149 as of July 1, 2003. The adoption of SFAS 149 did not have a significant impact on PPL.

PPL adopted the final provisions of EITF 02-3 during the fourth quarter of 2002. As such, PPL now reflects its net realized and unrealized gains and losses associated with all derivatives that are held for trading purposes in the "Net energy trading margins" line on the Statement of Income. Non-derivative contracts that met the definition of energy trading activities as defined by EITF 98-10, "Accounting for Energy Trading and Risk Management Activities" are reflected in the financial statements using the accrual method of accounting. Under the accrual method of accounting, unrealized gains and losses are not reflected in the financial statements. Prior periods were reclassified. No cumulative effect adjustment was required upon adoption.

PPL has adopted the final provisions of EITF 03-11 prospectively as of October 1, 2003. As a result of this adoption, non-trading bilateral sales of electricity at major market delivery points are netted with purchases that offset the sales at those same delivery points. A major market delivery point is any delivery point with liquid pricing available. See Note 17 to the Financial Statements for the impact of the adoption of EITF 03-11.

PPL's short-term derivative contracts are recorded as "Price risk management assets" and "Price risk management liabilities" on the Balance Sheet. Long-term derivative contracts are included in "Regulatory and Other Noncurrent Assets - Other" and "Deferred Credits and Other Noncurrent Liabilities - Other."

Accounting Designation

Energy contracts that do not qualify as derivatives receive accrual accounting. For energy contracts that meet the definition of a derivative, the circumstances and intent existing at the time that energy transactions are entered into determine their accounting designation. These designations are verified by PPL's risk control group on a daily basis. The following is a summary of the guidelines that have been provided to the traders who are responsible for contract designation for derivative energy contracts due to the adoption of SFAS 149:

• Any wholesale and retail contracts to sell or buy electricity and the related capacity that are expected to be delivered from PPL's generation or that are approved by the RMC to fulfill a strategic element of PPL's overall marketing strategy are considered "normal." These transactions are not recorded in the financial statements and have no earnings impact until delivery.

• Physical electricity-only transactions can receive cash flow hedge treatment if all of the qualifications under SFAS 133 are met. Any unrealized gains or losses on transactions receiving cash flow hedge treatment are recorded in other comprehensive income. These unrealized gains and losses become realized when the contracts settle and are recognized in income when the hedged transactions occur.

• Physical electricity purchases that increase PPL's long position and any energy sale or purchase judged a "market call" are considered speculative, with unrealized gains or losses recorded immediately through earnings.

• Financial transactions, which can be settled in cash, cannot be considered "normal" because they do not require physical delivery. These transactions receive cash flow hedge treatment if they lock-in the price PPL will receive or pay for energy expected to be generated or purchased in the spot market. Any unrealized gains or losses on transactions that receive cash flow hedge treatment are recorded in other comprehensive income. These unrealized gains and losses become realized when the contracts settle and are recognized in income when the hedged transactions occur.

• Physical and financial transactions for gas and oil to meet fuel and retail requirements can receive cash flow hedge treatment if they lock-in the price PPL will pay in the spot market. Any unrealized gains or losses on transactions receiving cash flow hedge treatment are recorded in other comprehensive income. These unrealized gains and losses become realized when the contracts settle and are recognized in income when the hedged transactions occur.

• Option contracts that do not meet the requirements of DIG Issue C15, "Scope Exceptions: Interpreting the Normal Purchases and Normal Sales Exception as an Election," do not receive hedge accounting treatment and are marked to market through earnings.

In addition to energy-related transactions, PPL enters into financial interest rate and foreign currency swap contracts to hedge interest expense associated with both existing and anticipated debt issuances. PPL also enters into foreign currency swap contracts to hedge the fair value of firm commitments denominated in foreign currency and net investments in foreign operations. As with energy transactions, the circumstances and intent existing at the time of the transaction determine a contract's accounting designation, which is subsequently verified by PPL's risk control group on a daily basis. The following is a summary of certain guidelines that have been provided to the Treasury Department, which is responsible for contract designation:

• Transactions to lock-in an interest rate prior to a debt issuance are considered cash flow hedges. Any unrealized gains or losses on transactions receiving cash flow hedge treatment are recorded in other comprehensive income and are amortized as a component of interest expense over the life of the debt.

• Transactions entered into to hedge fluctuations in the value of existing debt are considered fair value hedges with no earnings impact until the debt is terminated because the hedged debt is also marked to market.

• Transactions entered into to hedge the value of a net investment of foreign operations are considered net investment hedges. To the extent that the derivatives are highly effective at hedging the value of the net investment, gains and losses are recorded in other comprehensive income/loss and will not be recorded in earnings until the investment is disposed of.

• Transactions which do not qualify for hedge accounting treatment are marked to market through earnings.

Commodity Price Risk

Commodity price risk is one of PPL's most significant risks due to the level of investment that PPL maintains in its generation assets, coupled with the volatility of prices for energy and energy-related products. Several factors influence price levels and volatilities. These factors include, but are not limited to, seasonal changes in demand, weather conditions, available generating assets within regions, transportation availability and reliability within and between regions, market liquidity, and the nature and extent of current and potential federal and state regulations. To hedge the impact of market price fluctuations on PPL's energy-related assets, liabilities and other contractual arrangements, PPL EnergyPlus sells and purchases physical energy at the wholesale level under FERC market-based tariffs throughout the U.S. and enters into financial exchange-traded and over-the-counter contracts. Because of the generating assets PPL owns or controls, the majority of PPL's energy transactions qualify for accrual or hedge accounting.

Within PPL's hedge portfolio, the decision to enter into energy contracts hinges on the expected value of PPL's generation. To address this risk, PPL takes a conservative approach in determining the number of MWhs that are available to be sold forward. In this regard, PPL reduces the maximum potential output that a plant may produce by three factors - planned maintenance, unplanned outages and economic conditions. The potential output of a plant is first reduced by the amount of unavailable generation due to planned maintenance on a particular unit. Another reduction, representing the unplanned outage rate, is the amount of MWhs that historically is not produced by a plant due to such factors as equipment breakage. Finally, the potential output of certain plants (like peaking units) are reduced because their higher cost of production will not allow them to economically run during all hours.

PPL's non-trading portfolio also includes full requirements energy contracts. The net obligation to serve these contracts changes minute by minute. PPL analyzes historical on-peak and off-peak usage patterns, as well as spot prices and weather patterns, to determine a monthly level of a block of electricity that best fits the usage patterns in order to minimize earnings volatility. On a forward basis, PPL reserves a block amount of generation for full requirements energy contracts that is expected to be the best match with their anticipated usage patterns and energy peaks. Anticipated usage patterns and peaks are affected by expected load growth, regional economic drivers and seasonality.

PPL's commodity derivative contracts that qualify for hedge accounting treatment mature at various times through 2010. The following chart sets forth PPL's net fair market value of these contracts as of December 31, 2003:

	Gains/(Losses)
Fair value of contracts outstanding at the beginning of the year		$	63
Contracts realized or otherwise settled during the year			(67	)
Fair value of new contracts at inception
Other changes in fair values			90
Fair value of contracts outstanding at the end of the year		$	86

During 2003, PPL realized or otherwise settled net gains of approximately $67 million related to contracts entered into prior to January 1, 2003. This amount does not reflect intra-quarter contracts that were entered into and settled during the period.

"Other changes in fair values," a gain of approximately $90 million, represents changes in the market value that occurred during 2003 for contracts that were outstanding at the end of 2003.

The following chart segregates estimated fair values of PPL's commodity derivative contracts that qualify for hedge accounting treatment at December 31, 2003 based on whether the fair values are determined by quoted market prices or other more subjective means.

	Fair Value of Contracts at Period-End Gains/(Losses)
	Maturity Less Than 1 Year		Maturity 1-3 Years		Maturity 3-5 Years			Maturity in Excess of 5 Years	Total Fair Value
Source of Fair Value
Prices actively quoted	$	7	$	1					$	8
Prices provided by other external sources		47		32	$	(1	)			78
Prices based on models and other valuation methods
Fair value of contracts outstanding at the end of the period	$	54	$	33	$	(1	)		$	86

The "Prices actively quoted" category includes the fair value of exchange-traded natural gas futures contracts quoted on the New York Mercantile Exchange (NYMEX). The NYMEX has currently quoted prices through 2010.

The "Prices provided by other external sources" category includes PPL's forward positions and options in natural gas and power and natural gas basis swaps at points for which over-the-counter (OTC) broker quotes are available. The fair value of electricity positions recorded above use the midpoint of the bid/ask spreads obtained through OTC brokers. On average, OTC quotes for forwards and swaps of natural gas and power extend one and two years into the future.

The "Prices based on models and other valuation methods" category includes the value of transactions for which an internally developed price curve was constructed as a result of the long-dated nature of the transaction or the illiquidity of the market point, or the value of options not quoted by an exchange or OTC broker. Additionally, this category includes "strip" transactions whose prices are obtained from external sources and then modeled to monthly prices as appropriate.

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

As of December 31, 2003, PPL estimated that a 10% adverse movement in market prices across all geographic areas and time periods would have decreased the value of the commodity contracts in its non-trading portfolio by approximately $146 million, which is equal to the estimated decrease at December 31, 2002. However, the change in the value of the non-trading 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. Additionally, the value of PPL's unsold generation would be improved. Because PPL's electricity portfolio is generally in a net sales position, the adverse movement in prices is usually an increase in prices. Conversely, because PPL's commodity fuels portfolio is generally in a net purchase position, the adverse movement in prices is usually a decrease in prices. If both of these scenarios happened, the implied margins for the unsold generation would increase.

PPL also executes energy contracts to take advantage of market opportunities. As a result, PPL may at times create a net open position in its portfolio that could result in significant losses if prices do not move in the manner or direction anticipated. The margins from these trading activities are shown in the Statement of Income as "Net energy trading margins."

PPL's trading contracts mature at various times through 2005. The following chart sets forth PPL's net fair market value of trading contracts as of December 31, 2003.

	Gains/(Losses)
Fair value of contracts outstanding at the beginning of the year		$	(6	)
Contracts realized or otherwise settled during the year			21
Fair value of new contracts at inception			1
Other changes in fair values			(13	)
Fair value of contracts outstanding at the end of the year		$	3

During 2003, PPL realized or otherwise settled net losses of approximately $21 million related to contracts entered into prior to January 1, 2003. This amount does not reflect intra-year contracts that were entered into and settled during the period.

The fair value of new contracts at inception is usually zero, because they are entered into at current market prices. However, when PPL enters into an option contract, a premium is paid or received. PPL paid $1 million, net, during 2003 for these option contracts.

"Other changes in fair values," a loss of approximately $13 million, represent changes in the market value of contracts outstanding at the end of 2003.

As of December 31, 2003, the net loss on PPL's trading activities expected to be recognized in earnings during the next three months is approximately $2 million.

The following chart segregates estimated fair values of PPL's trading portfolio at December 31, 2003 based on whether the fair values are determined by quoted market prices or other more subjective means.

	Fair Value of Contracts at Period-End Gains/(Losses)
	Maturity Less Than 1 Year		Maturity 1-3 Years	Maturity 3-5 Years	Maturity in Excess of 5 Years	Total Fair Value
Source of Fair Value
Prices actively quoted
Prices provided by other external sources
Prices based on models and other valuation methods	$	3				$	3
Fair value of contracts outstanding at the end of the period	$	3				$	3

The "Prices actively quoted" category includes the fair value of exchange-traded natural gas futures contracts quoted on the NYMEX. The NYMEX has currently quoted prices through 2010.

The "Prices provided by other external sources" category includes PPL's forward positions and options in natural gas and power and natural gas basis swaps at points for which OTC broker quotes are available. The fair value of electricity positions recorded above use the midpoint of the bid/ask spreads obtained through OTC brokers. On average, OTC quotes for forwards and swaps of natural gas and power extend one and two years into the future.

The "Prices based on models and other valuation methods" category includes the value of transactions for which an internally developed price curve was constructed as a result of the long-dated nature of the transaction or the illiquidity of the market point, or the value of options not quoted by an exchange or OTC broker. Additionally, this category includes "strip" transactions whose prices are obtained from external sources and then modeled to monthly prices as appropriate.

As of December 31, 2003, PPL estimated that a 10% adverse movement in market prices across all geographic areas and time periods would have decreased the value of the commodity contracts in its trading portfolio by $3 million compared to a decrease of $7 million at December 31, 2002.

In accordance with its marketing strategy, PPL does not completely hedge its generation output or fuel requirements. PPL estimates that for its entire portfolio, including all generation and physical and financial energy positions, a 10% adverse change in power prices across all geographic zones and time periods will decrease expected 2004 gross margins by about $3 million. Similarly, a 10% adverse movement in all fossil fuel prices will decrease 2004 gross margins by $15 million.

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 interest rates in its debt portfolio, adjust the duration of its debt portfolio and lock 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 changes in the fair value of PPL's debt portfolio due to changes in the absolute level of interest rates.

At December 31, 2003, PPL's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was estimated at $2 million, compared to a $3 million increase at December 31, 2002.

PPL is also exposed to changes in the fair value of its U.S. and international debt portfolios. At December 31, 2003, 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 $168 million, compared to $219 million at December 31, 2002.

PPL utilizes various risk management instruments to reduce its exposure to adverse interest rate movements for future anticipated financing. 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 December 31, 2003, 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 $6 million, compared to an $18 million exposure at December 31, 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. In addition, PPL enters into financial instruments to protect against foreign currency translation risk.

PPL holds contracts for the forward purchase of 26 million euros to pay for certain equipment of PPL Susquehanna in 2004. The estimated value of these forward purchases as of December 31, 2003, being the amount PPL would receive to terminate them, was $1 million.

PPL executed forward sale transactions for £25 million to hedge a portion of its net investment in WPDH Limited. The estimated value of these agreements as of December 31, 2003 was $4 million, being the amount PPL would pay to terminate the transactions.

PPL executed forward sale transactions for 3.1 billion Chilean pesos to hedge a portion of its net investment in its subsidiary that owns CGE. The estimated value of these agreements as of December 31, 2003 was $1 million, being the amount PPL would pay to terminate the transactions.

To protect expected income in Chilean pesos, PPL entered into average rate options for 2.4 billion Chilean pesos. At December 31, 2003, the market value of these positions, representing the amount PPL would pay to terminate them, was insignificant.

WPDH Limited executed cross-currency swaps totaling $1.5 billion to hedge the interest payments and value of its U.S. dollar-denominated bonds. The estimated value of this position on December 31, 2003, being the amount PPL would pay to terminate them, including accrued interest, was $84 million.

On the Statement of Income, gains and loses associated with hedges of interest payments denominated in foreign currencies are reflected in "Interest Expense." Gains and losses associated with the purchase of equipment are reflected in "Depreciation." Gains and losses associated with net investment hedges remain in "Accumulated other comprehensive loss" on the Balance Sheet until the investment is disposed.

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 December 31, 2003, 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 December 31, 2003, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $24 million reduction in the fair value of the trust assets, as compared to a $16 million reduction at December 31, 2002.

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.

Credit Risk

Credit risk relates to the risk of loss that PPL would incur as a result of non-performance by counterparties of their contractual obligations. PPL maintains credit policies and procedures with respect to counterparties (including requirements that counterparties maintain certain credit ratings criteria) and requires other assurances in the form of credit support or collateral in certain circumstances in order to limit counterparty credit risk. However, PPL has concentrations of suppliers and customers among electric utilities, natural gas distribution companies and other energy marketing and trading companies. These concentrations of counterparties may impact PPL's overall exposure to credit risk, either positively or negatively, in that counterparties may be similarly affected by changes in economic, regulatory or other conditions. As discussed above under "Contract Valuation," PPL records certain non-performance reserves to reflect the probability that a counterparty with contracts that are out of the money (from the counterparty's standpoint) will default in its performance, in which case PPL would have to sell into a lower-priced market or purchase from a higher-priced market. These reserves are reflected in the fair value of assets recorded in "Price risk management assets" on the Balance Sheet. PPL also records reserves to reflect the probability that a counterparty will not make payments for deliveries PPL has made but not yet billed. These reserves are reflected in "Unbilled revenues" on the Balance Sheet. PPL has also established a reserve with respect to certain sales to the California ISO for which PPL has not yet been paid, as well as a reserve related to PPL's exposure as a result of the Enron bankruptcy, which are reflected in "Accounts receivable" on the Balance Sheet. See Notes 14 and 17 to the Financial Statements.

Related Party Transactions

PPL is not aware of any material ownership interests or operating responsibility by senior management of PPL, PPL Energy Supply, PPL Electric or PPL Montana in outside partnerships, including leasing transactions with variable interest entities, or other entities doing business with PPL.

For additional information on related party accounting transactions, see Note 15 to the Financial Statements.

Capital Expenditure Requirements

The schedule below shows PPL's current capital expenditure projections for the years 2004-2008 and actual spending for the year 2003:

			Actual		Projected
			2003		2004		2005		2006		2007		2008
Construction expenditures (a) (b)
	Generating facilities (c)		$	300	$	167	$	193	$	161	$	194	$	180
	Transmission and distribution facilities			467		427		416		436		473		476
	Environmental			21		5		12		32		74		102
	Other			47		39		28		23		16		16
		Total Construction Expenditures		835		638		649		652		757		774
Nuclear fuel				53		56		59		62		63		64
		Total Capital Expenditures	$	888	$	694	$	708	$	714	$	820	$	838

(a)	Construction expenditures include AFUDC and capitalized interest, which are expected to be less than $12 million in each of the years 2004-2008.
(b)	This information excludes any investments by PPL Global for new projects.
(c)	Expenditures for generating facilities in 2003 include $116 million for facilities under synthetic lease agreements that had been reflected off-balance sheet prior to December 31, 2003. Projected capital expenditures on these facilities are also included for the years 2004 through 2008.

PPL's capital expenditure projections for the years 2004-2008 total about $3.8 billion. Capital expenditure plans are revised periodically to reflect changes in market, and asset regulatory conditions. PPL also leases vehicles, personal computers and other equipment, as described in Note 10 to the Financial Statements. See Note 14 for additional information regarding potential capital expenditures for environmental projects.

Acquisitions, Development and Divestitures

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 9 to the Financial Statements for information regarding recent acquisitions and development activities.

At December 31, 2003, PPL Global had investments in foreign facilities, including consolidated investments in WPD, Emel, EC and others. See Note 3 to the Financial Statements for information on unconsolidated investments accounted for under the equity method.

PPL Global is exploring potential sale opportunities for its interest in CGE, within the context of an on-going review of its international minority ownership investments.

At December 31, 2003, PPL had domestic generation projects under development which will provide 663 MW of additional generation.

PPL 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.

Environmental Matters

See Note 14 to the Financial Statements for a discussion of environmental matters.

Competition

See Item 1, "Business - Competition," for additional information.

New Accounting Standards

FIN 46 and FIN 46(R)

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." FIN 46 clarifies that variable interest entities, as defined therein, that do not disperse risks among the parties involved should be consolidated by the entity that is determined to be the primary beneficiary. FIN 46 also requires certain disclosures to be made by the primary beneficiary and by an enterprise that holds a significant variable interest in a variable interest entity but is not the primary beneficiary. FIN 46 applies immediately to variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after January 31, 2003. For variable interest entities in which an enterprise holds a variable interest that was acquired before February 1, 2003, FIN 46 was originally required to be adopted no later than the first fiscal year or interim period beginning after June 15, 2003. However, in October 2003, the FASB issued FSP FIN 46-6, "Effective Date of FASB Interpretation No. 46, Consolidation of Variable Interest Entities," which delayed the effective date for applying the provisions of FIN 46 to interests held by public entities in variable interest entities or potential variable interest entities created before February 1, 2003 until the end of the first interim period ending after December 15, 2003.

In December 2003, the FASB revised FIN 46 by issuing Interpretation No. 46 (revised December 2003), which is known as FIN 46(R) and replaces FIN 46. FIN 46(R) does not change the general consolidation concepts of FIN 46. Among other things, FIN 46(R) again changes the effective date for applying the provisions of FIN 46 to certain entities, clarifies certain provisions of FIN 46 and provides additional scope exceptions for certain types of businesses. For entities to which the provisions of FIN 46 have not been applied as of December 24, 2003, FIN 46(R) provides that a public entity that is not a small business issuer should apply the provisions of FIN 46 or FIN 46(R) as follows: (i) FIN 46(R) shall be applied to all entities no later than the end of the first reporting period that ends after March 15, 2004 and (ii) FIN 46 or FIN 46(R) should be applied to entities that are considered to be SPEs no later than the end of the first reporting period that ends after December 15, 2003.

As permitted by FIN 46(R), PPL adopted FIN 46 effective December 31, 2003 for entities created before February 1, 2003 that are considered to be SPEs. This adoption resulted in the consolidation of the lessors under the operating leases for the Sundance, University Park and Lower Mt. Bethel generation facilities, as well as the deconsolidation of two wholly-owned trusts. See below for further discussion. Also, as permitted by FIN 46(R), PPL deferred the application of FIN 46 for other entities and plans to adopt FIN 46(R) for all entities on March 31, 2004.

PPL is in the process of evaluating entities in which it holds a variable interest in accordance with FIN 46(R). PPL is currently not aware of any variable interest entities that are not consolidated as of December 31, 2003 but which it will be required to consolidate in accordance with FIN 46(R) effective March 31, 2004. As it continues to evaluate the impact of applying FIN 46(R), PPL may identify additional entities that it would need to consolidate.

Additional Entities Consolidated

The lessors under the operating leases for the Sundance, University Park and Lower Mt. Bethel generation facilities are variable interest entities that are considered to be SPEs. PPL is the primary beneficiary of these entities. Consequently, PPL was required to consolidate the financial statements of the lessors effective December 31, 2003. Upon initial consolidation, PPL recognized $1.1 billion of additional assets and liabilities on its balance sheet and a charge of $27 million, after-tax, as a cumulative effect of a change in accounting principle. The additional assets consist principally of the generation facilities, and the additional liabilities consist principally of the lease financing. See Note 22 to the Financial Statements for a discussion of the leases.

Entities Deconsolidated

Effective December 31, 2003, PPL deconsolidated PPL Capital Funding Trust I and SIUK Capital Trust I. These trusts are considered to be SPEs and were deconsolidated because PPL is not the primary beneficiary of the trusts under current interpretations of FIN 46. Therefore, the "Company-obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Company Debentures" amounting to $661 million, which would have been recorded as a component of long-term debt in 2003 in accordance with SFAS 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity," if the trusts were consolidated, are not reflected in PPL's Balance Sheet at December 31, 2003. Instead, the subordinated debt securities that support the trust preferred securities are reflected in "Long-term Debt with Affiliate Trusts" as of December 31, 2003. See below for further discussion.

The trusts hold subordinated debt securities of PPL Capital Funding, in the case of PPL Capital Funding Trust I, and WPD LLP, in the case of SIUK Capital Trust I. As a result of deconsolidating the trusts, the subordinated debt securities are no longer eliminated in the consolidated financial statements. As of December 31, 2003, $681 million is reflected as "Long-term Debt with Affiliate Trusts" in PPL's Balance Sheet.

The effect on the Balance Sheet as a result of deconsolidating the trusts was an increase in both total assets and total liabilities of $21 million. The increase in assets relates to the investments in the common securities of the trusts, which are no longer eliminated in the consolidated financial statements. The increase in liabilities consists primarily of the difference between the carrying value of the preferred securities issued by the trusts compared to the carrying value of the subordinated debt securities of PPL Capital Funding and WPD LLP. The deconsolidation of the trusts did not impact the earnings of PPL.

See the Statement of Company-obligated Mandatorily Redeemable Securities contained in the Financial Statements for a discussion of the trusts and their preferred securities, as well as the subordinated debt securities issued to the trusts.

Other

See Note 22 to the Financial Statements for information on other new accounting standards adopted in 2003 or pending adoption.

Application of Critical Accounting Policies

PPL's financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following accounting policies are particularly important to the financial condition or results of operations of PPL, and require estimates or other judgments of matters inherently uncertain. Changes in the estimates or other judgments included within these accounting policies could result in a significant change to the information presented in the financial statements. (These accounting policies are also discussed in Note 1 to the Financial Statements.) PPL's senior management has reviewed these critical accounting policies, and the estimates and assumptions regarding them, with its Audit Committee. In addition, PPL's senior management has reviewed the following disclosures regarding the application of these critical accounting policies with the Audit Committee.

1)  Price Risk Management

See "Risk Management - Energy Marketing & Trading and Other" in Financial Condition.

2)  Pension and Other Postretirement Benefits

PPL follows the guidance of SFAS 87, "Employers' Accounting for Pensions," and SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," when accounting for these benefits. Under these accounting standards, assumptions are made regarding the valuation of benefit obligations and the performance of plan assets. Delayed recognition of differences between actual results and expected or estimated results is a guiding principle of these standards. This delayed recognition of actual results allows for a smoothed recognition of changes in benefit obligations and plan performance over the working lives of the employees who benefit under the plans. The primary assumptions are as follows:

• Discount Rate - The discount rate is used in calculating the present value of benefits, which is based on projections of benefit payments to be made in the future.

• Expected Return on Plan Assets - Management projects the future return on plan assets considering prior performance, but primarily based upon the plans' mix of assets and expectations for the long-term returns on those asset classes. These projected returns reduce the net benefit costs the company will record currently.

• Rate of Compensation Increase - Management projects employees' annual pay increases, which are used to project employees' pension benefits at retirement.

• Health Care Cost Trend Rate - Management projects the expected increases in the cost of health care.

In selecting discount rates, PPL considers fixed-income security yield rates. At December 31, 2003, PPL decreased the discount rate for its domestic plans from 6.75% to 6.25% as a result of decreased fixed-income security returns. For its international plans, PPL decreased the discount rate for its international plans from 5.75% to 5.50% at December 31, 2003.

In selecting an expected return on plan assets, PPL considers tax implications, past performance and economic forecasts for the types of investments held by the plan. At December 31, 2003, PPL's expected return on plan assets remained at 9.0% for its domestic pension plans and 7.8% for its other postretirement plans. For its international plans, PPL maintained a weighted average of 8.30% as the expected return on plan assets at December 31, 2003.

In selecting a rate of compensation increase, PPL considers past experience in light of movements in inflation rates. At December 31, 2003, PPL's rate of compensation increase remained at 4.0% for its domestic plans. For its international plans, PPL's rate of compensation increase remained at 3.75% at December 31, 2003.

In selecting health care cost trend rates, PPL considers past performance and forecasts of health care costs. At December 31, 2003, PPL's health care cost trend rates were 11% for 2004, gradually declining to 5.0% for 2010.

A variance in the assumptions listed above could have a significant impact on projected benefit obligations, accrued pension and other postretirement benefit liabilities, reported annual net periodic pension and other postretirement benefit cost and other comprehensive income (OCI). The following chart reflects the sensitivities associated with a change in certain assumptions. While the chart below reflects either an increase or decrease in each assumption, the inverse of this change would impact the projected benefit obligation, accrued pension and other postretirement benefit liabilities, reported annual net periodic pension and other postretirement benefit cost and OCI by a similar amount in the opposite direction. Each sensitivity below reflects an evaluation of the change based solely on a change in that assumption.

	Increase/(Decrease)
Actuarial Assumption	Change in Assumption		Impact on Obligation		Impact on Liabilities (a)		Impact on Cost		Impact on OCI
Discount Rate		(0.25)%	$	160	$	6	$	6	$	89
Expected Return on Plan Assets		(0.25)%		N/A		10		10
Rate of Compensation Increase		0.25%		20		4		4
Health Care Cost Trend Rate (b)		1.0%		33		5		5		N/A

(a)	Excludes the impact of additional minimum liability.
(b)	Only impacts other postretirement benefits.

At December 31, 2003, PPL had recognized accrued pension and other postretirement benefit liabilities totaling $463 million, included in "Deferred Credits and Other Noncurrent Liabilities - Other" on the Balance Sheet. At December 31, 2003, PPL had recognized $4 million of prepaid postretirement benefit costs included in "Prepayments" on the Balance Sheet. PPL's total projected obligation for these benefits was approximately $4.8 billion, which was offset by $4.0 billion of assets held in various trusts. However, these amounts are not fully reflected in the current financial statements due to the delayed recognition criteria of the accounting standards for these obligations.

In 2003, PPL recognized net periodic pension and other postretirement costs charged to operating expenses of $1 million. This amount represents a $62 million decrease from the credit recognized during 2002. This decrease was primarily due to the decrease in the discount rate at December 31, 2002.

As a result of the decrease in the assumed discount rate at December 31, 2003, PPL was required to increase its recognized additional minimum pension liability. Recording the change in the additional minimum liability resulted in a $10 million increase to the pension related charge to OCI, net of taxes, translation adjustment and unrecognized prior service costs, with no effect on net income. This charge increased the pension-related balance in OCI, which is a reduction to shareowners equity, to $316 million at December 31, 2003. The charges to OCI will reverse in future periods if the fair value of trust assets exceeds the accumulated benefit obligation.

Refer to Note 12 to the Financial Statements for additional information regarding pension and other postretirement benefits.

3)  Asset Impairment

PPL and its subsidiaries review long-lived assets for impairment when events or circumstances indicate carrying amounts may not be recoverable. Assets subject to this review, for which impairments have been recorded in 2003 or prior years, include international equity investments, new generation assets, consolidated international energy projects and goodwill.

PPL performs impairment analyses for tangible long-lived assets in accordance with SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." For long-lived assets to be held and used, SFAS 144 requires companies 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.

In determining asset impairments, management must make significant judgments and estimates to calculate the fair value of an investment. Fair value is developed through consideration of several valuation methods including comparison to market multiples, comparison to similar recent sales transactions, comparison to replacement cost and discounted cash flow. Discounted cash flow is calculated by estimating future cash flow streams, applying appropriate discount rates to determine the present value of the cash flow streams, and then assessing the probability of the various cash flow scenarios. The impairment is then recorded based on the excess of the carrying value of the investment over fair value. Changes in assumptions and estimates included within the impairment reviews could result in significantly different results than those identified and recorded in the financial statements.

During 2003, PPL and its subsidiaries evaluated certain gas-fired generation assets for impairment, as events and circumstances indicated that the carrying value of these investments may not be recoverable. PPL did not record an impairment of its new gas-fired generation assets in 2003. For these impairment analyses, the most significant assumption was the estimate of future cash flows. PPL estimates future cash flow using information from its corporate business plan adjusted for any recent sales or purchase commitments. Key factors that impact cash flows include projected prices for electricity and gas as well as firm sales and purchase commitments. A 10% decrease in estimated future cash flows for certain in-service gas-fired generation assets would have resulted in an impairment charge.

PPL performs impairment analyses of goodwill in accordance with SFAS 142, "Goodwill and Other Intangible Assets." SFAS 142 requires an annual impairment test of goodwill and other intangible assets that are not subject to amortization.

PPL completed its annual goodwill impairment test in the fourth quarter of 2003. This test did not result in an impairment. PPL's most significant assumptions surrounding the goodwill impairment test relate to the determination of fair value. PPL determined fair value based upon discounted cash flows. A decrease in the forecasted cash flows of 10% or an increase of the discount rates by 25 basis points would have resulted in impairment.

4)  Leasing

PPL applies the provisions of SFAS 13, "Accounting for Leases," to all leasing transactions. In addition, PPL applies the provisions of numerous other accounting pronouncements issued by the FASB and the EITF that provide specific guidance and additional requirements related to accounting for various leasing arrangements. In general, there are two types of leases from a lessee's perspective: operating leases - leases accounted for off-balance sheet; and capital leases - leases capitalized on the balance sheet.

In accounting for leases, management makes various assumptions, including the discount rate, the fair market value of the leased assets and the estimated useful life, in determining whether a lease should be classified as operating or capital. Changes in these assumptions could result in the difference between whether a lease is determined to be an operating lease or a capital lease, thus significantly impacting the amounts to be recognized in the financial statements.

In addition to uncertainty inherent in management's assumptions, leasing transactions and the related accounting rules become increasingly complex when they involve: sale/leaseback accounting (leasing transactions where the lessee previously owned the leased assets); synthetic leases (leases that qualify for operating lease treatment for book accounting purposes and financing treatment for tax accounting purposes); and lessee involvement in the construction of leased assets.

At December 31, 2003, PPL subsidiaries participated in one significant sale/leaseback transaction which has been accounted for as an operating lease. As discussed in Note 22 to the Financial Statements, the lessors under certain synthetic operating leases previously accounted for off-balance sheet were consolidated effective December 31, 2003 as a result of the adoption of FIN 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," for certain entities.

Sale/Leaseback

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. This transaction is accounted for as an operating lease in accordance with current rules related to sale/leaseback arrangements. If for any reason this transaction did not meet the requirements for off-balance sheet operating lease treatment as a sale/leaseback, PPL would have approximately $315 million of additional assets and liabilities recorded on its balance sheet at December 31, 2003 and would have recorded additional expenses currently estimated at $9 million, after-tax, in 2003.

See Note 10 to the Financial Statements for additional information related to operating leases.

5)  Loss Contingencies

PPL periodically records the estimated impacts of various conditions, situations or circumstances involving uncertain outcomes. These events are called "contingencies," and PPL's accounting for such events is prescribed by SFAS 5, "Accounting for Contingencies." SFAS 5 defines a contingency as "an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur."

For loss contingencies, the loss must be accrued if (1) information is available that indicates it is "probable" that the loss has been incurred, given the likelihood of the uncertain future events and (2) the amount of the loss can be reasonably estimated. FASB defines "probable" as cases in which "the future event or events are likely to occur." SFAS 5 does not permit the accrual of contingencies that might result in gains.

The accrual of a loss contingency involves considerable judgment on the part of management. The accounting aspects of loss contingencies include: (1) the initial identification and recording of the loss contingency; (2) the determination of a triggering event for reducing a recorded loss contingency; and (3) the on-going assessment as to whether a recorded loss contingency is reasonable.

Initial Identification and Recording of the Loss Contingency

PPL uses its internal expertise and outside experts (such as lawyers, tax specialists and engineers), as necessary, to help estimate the probability that a loss has been incurred and the amount (or range) of the loss. PPL continuously assesses potential loss contingencies for environmental remediation, litigation claims, regulatory penalties and other events.

PPL has identified certain events which could give rise to a loss, but which do not meet the conditions for accrual under SFAS 5. SFAS 5 requires disclosure, but not a recording, of potential losses when it is "reasonably possible" that a loss has been incurred. FASB defines "reasonably possible" as cases in which "the chance of the future event or events occurring is more than remote but less than likely." See Note 14 to the Financial Statements for disclosure of potential loss contingencies, most of which have not met the criteria for accrual under SFAS 5.

Reducing Recorded Loss Contingencies

When a loss contingency is recorded, PPL identifies, where applicable, the triggering events for subsequently reducing the loss contingency. The triggering events generally occur when the contingency has been resolved and the actual loss is incurred, or when the risk of loss has diminished or been eliminated. The following are some of the triggering events which provide for the reduction of certain recorded loss contingencies:

• Certain loss contingencies are systematically reduced based on the expiration of contract terms. An example of this is the recorded liability for above-market NUG purchase commitments, which is described below. This loss contingency is being reduced over the lives of the NUG purchase contracts.

• Allowances for excess or obsolete inventory are reduced as the inventory items are pulled from the warehouse shelves and sold as scrap or otherwise disposed.

• Allowances for uncollectible accounts are reduced when accounts are written off after prescribed collection procedures have been exhausted.

• Environmental loss contingencies are reduced when PPL makes payments for environmental remediation.

On-Going Assessment of Recorded Loss Contingencies

PPL reviews its loss contingencies on a regular basis to assure that the recorded potential loss exposures are reasonable. This involves on-going communication and analyses with internal and external legal counsel, engineers, tax specialists, managers in various operational areas and other parties.

All three aspects of accounting for loss contingencies - the initial identification and recording of a probable loss, the identification of triggering events to reduce the loss contingency, and the ongoing assessment of the reasonableness of a recorded loss contingency - require significant judgment by PPL's management.

The largest loss contingency on PPL's balance sheet, and the loss contingency that changed most significantly in 2003, was for above-market NUG purchase commitments. This loss contingency reflects the estimated difference between the above-market contract terms under the purchase commitments, and the fair value of electricity. This loss contingency was originally recorded at $854 million in 1998, when PPL Electric's generation business was deregulated. Under regulatory accounting, PPL Electric recorded the above-market cost of the purchases from NUGs as part of its purchased power costs on an as-incurred basis, since these costs were recovered in regulated rates. When the generation business was deregulated, the loss contingency associated with the commitment to make above-market NUG purchases was recorded. This loss contingency for the above-market portion of NUG purchase commitments was recorded because it was probable that the loss had been incurred and the estimate of future energy prices could be reasonably determined, using the then forward prices of electricity and capacity. This loss contingency was transferred to PPL EnergyPlus in the July 1, 2000 corporate realignment. The above-market loss contingency was $352 million at December 31, 2003.

When the loss contingency related to NUG purchases was recorded in 1998, PPL Electric established the triggering events for when the loss contingency would be reduced. A schedule was established to reduce the liability based on projected purchases over the lives of the NUG contracts. All but one of the NUG contracts expire by 2009, with the last one ending in 2014. PPL EnergyPlus reduces the above-market NUG liability based on the aforementioned schedule. As PPL EnergyPlus reduces the liability for the above-market NUG purchases, it offsets the actual cost of NUG purchases, thereby bringing the net power purchase expense more in line with market prices.

PPL EnergyPlus assessed the remaining $352 million above-market liability at December 31, 2003, comparing the projected electricity purchases under the terms of the NUG contracts, with the purchases assuming projected market prices for the energy. This assessment was based on projected PJM market prices, including capacity, through 2014. The assessment also used sensitivities around the market prices, adjusting such prices upwards and downwards by 10%.

The assessment is dependent on the market prices of energy and the estimated output levels of the NUGs. Market prices of energy are dependent on many variables, including growth in electricity demand in PJM, available generation, and changes in regulatory and economic conditions. Accordingly, market price sensitivities were used in the assessment. If estimated market prices were adjusted upwards by 10% in each of the years from 2004 through 2014, the contingency for the above-market NUG purchase commitments would be approximately $296 million. Conversely, if estimated market prices were adjusted downwards by 10% during the remaining term of the NUG contracts, the contingency for the above-market NUG purchase commitments would be approximately $386 million. The recorded above-market liability of $352 million at December 31, 2003 falls within the range calculated in the year-end assessment. As noted above, it is very difficult to estimate future electricity prices, which are dependent on many variables and subject to significant volatility. However, PPL's management believes that the current recorded NUG above-market liability was fairly stated at December 31, 2003.

6)  Asset Retirement Obligations

In 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations," which addresses the accounting for obligations associated with the retirement of tangible long-lived assets. SFAS 143 requires legal obligations associated with the retirement of long-lived assets to be recognized as a liability in the financial statements. The initial obligation should be measured at the estimated fair value. An equivalent amount should be recorded as an increase in the value of the capitalized asset and allocated to expense over the useful life of the asset. Until the obligation is settled, the liability should be increased, through the recognition of accretion expense in the income statement, for changes in the obligation due to the passage of time. SFAS 143 is effective for fiscal years beginning after June 15, 2002.

In determining asset retirement obligations, management must make significant judgments and estimates to calculate fair value. Fair value is developed through consideration of estimated retirement costs in today's dollars, inflated to the anticipated retirement date and then discounted back to the date the asset retirement obligation was incurred. Changes in assumptions and estimates included within the calculations of asset retirement obligations could result in significantly different results than those identified and recorded in the financial statements.

PPL adopted SFAS 143 effective January 1, 2003. Initial adoption of the new rules resulted in an increase in net PP&E of $32 million, reversal of previously recorded liabilities of $304 million, recognition of asset retirement obligations of $229 million, recognition of a deferred tax liability of $44 million and a cumulative effect of adoption that increased net income by $63 million. At December 31, 2003, PPL had asset retirement obligations totaling $242 million recorded on the Balance Sheet. PPL's most significant assumptions surrounding asset retirement obligations are the forecasted retirement cost, discount rate and inflation rate. A variance in the forecasted retirement cost, discount rate or inflation rate could have a significant impact on the ARO liability and the cumulative effect gain.

The following chart reflects the sensitivities associated with a change in these assumptions upon initial adoption. Each sensitivity below reflects an evaluation of the change based solely on a change in that assumption only.

	Change in Assumption	Impact on Cumulative Effect	Impact on ARO Liability
Retirement Cost	10%/(10)%	$(10)/$10	$22/$(22)
Discount Rate	0.25%/(0.25)%	$10/$(11)	$(23)/$26
Inflation Rate	0.25%/(0.25)%	$(12)/$11	$27/$(24)

Other Information

PPL's Audit Committee has approved the independent auditor to provide audit and audit-related services and other services permitted by the Sarbanes-Oxley Act of 2002 and SEC rules. The audit and audit-related services include services in connection with statutory and regulatory filings, reviews of offering documents and registration statements, employee benefit plan audits and internal control reviews.

PPL ENERGY SUPPLY, LLC
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

PPL Energy Supply is an energy company with headquarters in Allentown, PA. See Item 1, "Business - Background," for a description of PPL Energy Supply's domestic and international businesses. See Exhibit 99 in Item 15 for a listing of its principal subsidiaries. Through its subsidiaries, PPL Energy Supply is primarily engaged in the generation and marketing of electricity in two key markets - the northeastern and western U.S. - and in the delivery of electricity in the U.K. and Latin America. PPL Energy Supply's strategy for its electricity generation and marketing business is to match energy supply with load, or customer demand, under long-term and intermediate-term contracts with creditworthy counterparties. PPL Energy Supply's strategy for its international electricity delivery businesses is to own and operate these businesses at the highest level of quality and reliability and at the most efficient cost.

PPL Energy Supply faces several risks in its generation business. The principal risks are electricity wholesale price risk, fuel supply and price risk, power plant performance and counterparty credit risk. PPL Energy Supply attempts to manage these risks through various means. For instance, PPL Energy Supply operates a portfolio of generation assets that is diversified as to geography, fuel source, cost structure and operating characteristics. PPL Energy Supply is focused on the operating efficiency and maintaining the availability of these power plants. In addition, PPL Energy Supply has in place and continues to pursue long-term and intermediate-term contracts for energy sales and fuel supply, and other means, to mitigate the risks associated with adverse changes in the difference, or margin, between the cost to produce electricity and the price at which PPL Energy Supply sells it. PPL Energy Supply's contractual commitments for energy sales are primarily satisfied through its own generation assets - i.e., PPL Energy Supply primarily markets and trades around its physical portfolio of generating assets through integrated generation, marketing and trading functions. Finally, PPL Energy Supply attempts to reduce its exposure to the various risks it faces through its risk management program, which, among other things, includes an evaluation of market risks and the creditworthiness of all counterparties.

PPL Energy Supply's international electricity delivery businesses are rate-regulated. Accordingly, these businesses are subject to regulatory risks in terms of the costs that they may recover and the investment returns that they may collect in customer rates. The principal challenge that PPL Energy Supply faces in its international electricity delivery businesses is to maintain high standards of customer service and reliability in a cost-effective manner. PPL Energy Supply faces certain financial risks by conducting international operations, such as fluctuations in currency exchange rates. PPL Energy Supply attempts to manage these financial risks through its risk management program.

A key challenge for PPL Energy Supply's business as a whole is to maintain a strong credit profile. In the past few years, investors, analysts and rating agencies that follow companies in the energy industry have been particularly focused on the credit quality and liquidity position of energy companies. PPL Energy Supply is focused on strengthening its balance sheet and improving its liquidity position, thereby improving its credit profile.

The purpose of "Management's Discussion and Analysis of Financial Condition and Results of Operations" is to provide information concerning PPL Energy Supply's past and expected future performance in implementing the strategies and managing the risks and challenges outlined above. Specifically:

• "Results of Operations" provides an overview of PPL Energy Supply's operating results in 2003, 2002 and 2001, starting with a review of earnings. The earnings review includes a listing of certain unusual items that had significant impacts in these years, and it also includes a description of key factors that management expects may impact future earnings. "Results of Operations" also includes an explanation of changes during this three-year period in significant income statement components, such as energy margins, utility revenues, operation and maintenance expenses, interest expense, income taxes and cumulative effects of accounting changes.

• "Financial Condition - Liquidity" provides an analysis of PPL Energy Supply's liquidity position and credit profile, including its sources of cash (including bank credit facilities and sources of operating cash flow) and uses of cash (including contractual commitments and capital expenditure requirements) and the key risks and uncertainties that impact PPL Energy Supply's past and future liquidity position and financial condition. This subsection also includes an explanation of recent rating agency decisions affecting PPL Energy Supply, as well as a listing of PPL Energy Supply's current credit ratings.

• "Financial Condition - Risk Management - Energy Marketing & Trading and Other" includes an explanation of PPL Energy Supply's risk management program relating to market risk (i.e., commodity price, interest rate and foreign currency exchange risk) and credit risk (i.e., counterparty credit risk).

• "New Accounting Standards" provides a description of accounting standards that impact PPL Energy Supply's Financial Statements and that were implemented in 2003 or are pending adoption.

• "Application of Critical Accounting Policies" provides an overview of the accounting policies that are particularly important to the results of operations and financial condition of PPL Energy Supply and that require PPL Energy Supply's management to make significant estimates, assumptions and other judgments. Although PPL Energy Supply's management believes that these estimates, assumptions and other judgments are appropriate, they relate to matters that are inherently uncertain. Accordingly, changes in the estimates, assumptions and other judgments applied to these accounting policies could have a significant impact on PPL Energy Supply's results of operations and financial condition, as reflected in PPL Energy Supply's Financial Statements.

The information provided in "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with PPL Energy Supply's Financial Statements and the Notes thereto.

Terms and abbreviations appearing herein are explained in the glossary. Dollars are in millions, except per share data, unless otherwise noted.

Results of Operations

Earnings in 2003 and 2002 were impacted by the acquisition of a controlling interest in WPD on September 6, 2002, and the resulting consolidation, as described in Note 9 to the Financial Statements. Therefore, the comparison of reported income statement line items between 2002 and 2001 is not meaningful without eliminating the impact of the WPD consolidation. The following table shows the 2002 Statement of Income as reported, the adjustments to eliminate the impact of the WPD consolidation (by reflecting WPD on the equity method), and as adjusted to exclude the WPD consolidation. The following discussion, that explains significant annual changes in principal items on the Statement of Income compares 2003 to 2002, unadjusted, and compares 2002, as adjusted, to 2001.

PPL Energy Supply, LLC and Subsidiaries Consolidated Statement of Income Adjusted to Eliminate WPD Consolidation
		2002
		As Reported		Adjustment			As Adjusted
Operating Revenues
Wholesale energy marketing	$		1,036				$	1,036
Wholesale energy marketing to affiliates			1,434					1,434
Utility			980	$	579			401
Unregulated retail electric and gas			182					182
Net energy trading margins			19					19
Energy related businesses			555		(60	)		615
Total			4,206		519			3,687

		2002
		As Reported			Adjustment		As Adjusted
Operating Expenses
Operation
	Fuel		502					502
	Energy purchases		708					708
	Energy purchases from affiliates		171					171
	Other operation and maintenance		812			42		770
Depreciation			265			112		153
Taxes, other than income			78			42		36
Energy related businesses			522			29		493
Other charges
	Write-down of international energy projects		113					113
	Workforce reduction		41					41
	Write-down of generation assets		44					44
Total			3,256			225		3,031
Operating Income			950			294		656
Other Income - net			44			20		24
Interest Expense			207			127		80
Interest Expense with Affiliate			3					3
Income Taxes			266			105		161
Minority Interest			78			73		5
Distributions on Preferred Securities			9			9
Loss from Discontinued Operations			2					2
Cumulative Effect of a Change in Accounting Principle			(150	)				(150	)
Net Income		$	279		$		$	279

The comparability of certain items on the Statement of Income has also been impacted by PPL Global's investment in CEMAR. The consolidated results of CEMAR are included for periods during which PPL had a controlling interest, from January 1, 2001 to August 2002. See Note 9 to the Financial Statements for more information.

WPD's results, as consolidated in PPL Energy Supply's Statement of Income, are impacted by changes in foreign currency exchange rates. For the twelve months ended December 31, 2003, as compared to the same period in 2002, changes in foreign exchange rates increased WPD's portion of revenue and expense line items by about 9%.

Earnings

Net income was as follows:

2003		2002		2001
$	727	$	279	$	174

The after-tax changes in net income were primarily due to:

			2003 vs. 2002			2002 vs. 2001
Domestic:
	Wholesale energy margins		$	68		$	(81	)
	Net energy trading margins			(4	)		(11	)
	Unregulated retail energy margins			(6	)		(33	)
	Regulated retail energy margins			(43	)		59
	Realized earnings on decommissioning trust fund			12
	Trademark license fees from affiliate			(18	)		(5	)
	Operation and maintenance expenses			(28	)		(20	)
	Synfuel tax credit			2			10
	Mechanical contractor earnings						(4	)
	Other			(10	)		5
		Total Domestic		(27	)		(80	)
International:
	U.K. operations:
		Benefit of complete ownership of WPD (see Note 9)		29			11
		Impact of changes in foreign currency exchange rates		14			1
		Other		1			1
	Latin America			18			(24	)
	Other			3			61
		Total International		65			50
Unusual items				410			135
			$	448		$	105

The changes in net income from year to year were, in part, attributable to several unusual items with significant earnings impacts, including accounting changes, discontinued operations and infrequently occurring items. The after-tax impacts of these unusual items are shown below.

		Impact on Net Income
		2003			2002			2001
Accounting changes:
	Asset retirement obligation (Note 21)	$	63
	Consolidation of variable interest entities (Note 22)		(27	)
	Goodwill impairment (Note 18)				$	(150	)
	Pensions (Note 12)							$	3
Discontinued operations (Note 9)			(20	)
CEMAR-related net tax benefit (Note 5)			81
Workforce reduction (Note 20)						(24	)
Write-down of generation assets (Note 9)						(26	)
CEMAR operating losses (Note 9)						(23	)
CEMAR impairment (Note 9)						(98	)		(217	)
Cancellation of generation projects (Note 9)									(88	)
		Impact on Net Income
		2003			2002			2001
WPD impairment (Note 9)									(117	)
Tax benefit - Teesside (Note 9)						8
Enron impact on trading (Note 17)									(8	)
Enron impact - write-down investment in Teesside (Note 9)									(21	)
Total		$	97		$	(313	)	$	(448	)

The year to year changes in earnings components, including margins by activity and income statement line items, are discussed in the balance of the discussion in "Results of Operations."

PPL Energy Supply's future earnings could be, or will be, impacted by a number of key factors, including the following:

• Based upon current electricity and natural gas price levels, there is a risk that PPL Energy Supply may be unable to recover its investment in new gas-fired generation facilities. Under GAAP, PPL Energy Supply does not believe that there is an impairment charge to be recorded for these facilities at this time. PPL Energy Supply is unable to predict the ultimate earnings impact of this issue, based upon future energy price levels, applicable accounting rules and other factors, but such impact may be material. (See "Application of Critical Accounting Policies - Asset Impairment" for additional information.)
• PPL Energy Supply is unable to predict whether future impairments of goodwill may be required for its domestic and international investments. While no goodwill impairments were required based on the annual review performed in the fourth quarter of 2003, future impairments may occur due to determinations of fair value exceeding the carrying value of these investments. See "Application of Critical Accounting Policies - Asset Impairment" for additional information.
• Earnings in 2004 and beyond will be impacted by the consolidation of variable interest entities (as discussed in Note 22 to the Financial Statements).
• Earnings in 2005 and beyond may be impacted by a rate review of the delivery business of WPD (South West) and WPD (South Wales). WPD cannot predict the ultimate outcome of the rate review.
• PPL Energy Supply operates a synfuel facility and receives tax credits pursuant to Section 29 of the Internal Revenue Code based on its sale of synfuel to unaffiliated third-party purchasers. See Note 14 to the Financial Statements for a discussion of the IRS review of synfuel production procedures, and the projected annual earnings attributable to PPL Energy Supply 's synfuel operations.
• Future earnings may also be impacted by the ultimate exiting of the CEMAR investment (see Note 9 to the Financial Statements for additional information) or other investments.

Domestic Gross Energy Margins

The following table provides changes in income statement line items that comprise domestic gross energy margins:

			2003 vs. 2002			2002 vs. 2001
Wholesale energy marketing revenues			$	178		$	9
Wholesale energy marketing to affiliates				17			103
Unregulated retail electric and gas revenues				(30	)		(174	)
Net energy trading margins				(7	)		(18	)
Other revenue adjustments (a)				23			1
	Total revenues			181			(79	)
Fuel				35			2
Energy purchases				110			(26	)
Energy purchases from affiliates				(11	)		(23	)
Other cost adjustments (a)				22			65
	Total cost of sales			156			18
		Domestic gross energy margins	$	25		$	(97	)

(a) Adjusted to exclude the impact of any revenues and costs not associated with domestic energy margins, in particular, revenues and energy costs related to the international operations of PPL Global. Also adjusted to include gains on sales of emission allowances, which are reflected in "Other operation and maintenance" expenses on the Statement of Income, and the reduction of the reserve for Enron receivables, as described in Note 17 to the Financial Statements.

Changes in Domestic Gross Energy Margins By Activity

Gross margin calculations are dependent on the allocation of fuel and purchased power costs to the activities listed below. That allocation is based on monthly MWh consumption levels compared to monthly MWh supply costs. Any costs specific to an activity are charged to that activity.

		2003 vs. 2002			2002 vs. 2001
Wholesale - Eastern U.S.		$	67		$	(64	)
Wholesale - Western U.S.			49			(71	)
Net energy trading			(7	)		(18	)
Unregulated retail			(10	)		(55	)
Regulated retail			(74	)		111
	Domestic gross energy margins	$	25		$	(97	)

Wholesale - Eastern U.S.

Eastern U.S. wholesale margins were higher in 2003 compared to 2002 primarily due to higher volumes, which increased by 47%. The higher volumes were primarily driven by market opportunities to optimize the value of generating assets and by higher spot prices that allowed PPL Energy Supply to increase the utilization of its higher cost generating units including 699 MW of new generation that began commercial operation in mid-2002. In PJM, where the majority of PPL Energy Supply 's Eastern wholesale activity occurs, average on-peak spot market real time prices rose 34% in 2003 compared to 2002. Partially offsetting the increase in wholesale energy margins in 2003 compared to 2002, was the buyout of a NUG contract in February 2002, which reduced power purchases by $25 million.

Eastern wholesale margins were lower in 2002 compared to 2001, despite a buyout of a NUG contract in February 2002 that reduced purchased power costs by $25 million. The decline in margins was primarily attributable to the decline in wholesale prices for energy and capacity. PJM on-peak prices averaged $6/MWh less, a decline of 14%, for 2002 compared to 2001. Additionally, because new generating capability came on-line within PJM in 2002, the prices for the PJM monthly auctions for unforced capacity credits fell from an average of $100/MW-month in 2001 to an average of $38/MW-month in 2002. However, higher volumes of energy sales partially offset the decline in prices, as wholesale transactions in 2002 increased by about 33% over 2001 due to better generating unit availability.

Wholesale - Western U.S.

Western U.S. wholesale margins consist of margins in the Northwest and in the Southwest.

In the Northwest, margins were $31 million higher in 2003 compared to 2002, primarily due to higher wholesale prices. Average wholesale prices for 2003 were $6/MWh higher than prices in 2002. A favorable settlement of $3 million with Energy West Resources Inc. in June 2003 also positively impacted margins in 2003. Margins were $74 million lower in 2002 compared to 2001, primarily due to a decrease in average realized wholesale prices by $15/MWh, partially offset by a 7% increase in volumes.

In the Southwest, margins were $9 million higher in 2003 compared to 2002, primarily due to the inception of new tolling agreements in Arizona and due to an increase of average wholesale prices in 2003 by $16/MWh compared to 2002. Margins were $9 million lower in 2002 compared to 2001, primarily due to a decrease in average wholesale prices by $40/MWh. These lower prices were offset by increased sales, which were three times higher than the prior period, as a result of the Griffith Energy and Sundance facilities coming on-line in 2002.

The above explanation is exclusive of $9 million related to the 2003 partial reversal of a reserve against Enron receivables, and a 2001 charge of $12 million for the Enron bankruptcy, both of which affected gross margins. These items are discussed in further detail in Note 17 to the Financial Statements.

Net Energy Trading

PPL Energy Supply enters into certain contractual arrangements that meet the criteria of energy trading derivatives as defined by EITF 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities." These physical and financial contracts cover trading activity associated with electricity, gas and oil. The $7 million decrease in 2003 compared to 2002 was primarily due to realized electric swap losses in 2003. The $18 million decrease in 2002 compared to 2001 was primarily due to unrealized, mark-to-market gains in 2001 and lower energy margins in 2002. The physical volumes associated with energy trading were 9,100 GWh and 12.6 Bcf in 2003; 10,700 GWh and 12.4 Bcf in 2002; and 7,700 GWh and 22.4 Bcf in 2001. The amount of energy trading margins from unrealized mark-to-market transactions was not significant in 2003, 2002 and 2001.

Unregulated Retail

Unregulated retail margins declined in 2003 compared to 2002 primarily due to significantly lower electric retail prices in the Western U.S. Western U.S. retail contract prices decreased about 19% in 2003 compared to 2002. The decline in 2002 compared to 2001 was primarily due to lower revenues resulting from the expiration of contracts which were not renewed in the Eastern U.S. and due to significantly lower retail prices in the Western U.S., somewhat offset by an increase in the number of customers in the Western U.S.

Regulated Retail

Regulated retail margins in the Eastern U.S. for 2003 decreased by 9% compared to 2002, due to higher supply costs resulting from higher purchased power prices. Purchased power prices were higher because of increased gas and oil prices and an abnormally cold winter. Regulated retail margins for 2002 were 17% higher than in 2001. Higher sales volumes and higher average prices, caused by changes in usage among customer classes, provided the improved margins. In addition, lower supply costs in 2002, due to lower fuel costs and increased generating unit availability, further improved margins.

Utility Revenues

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

		2003 vs. 2002			2002 vs. 2001
International:
Retail electric delivery (PPL Global)
	U.K	$	35
	El Salvador		13		$	4
	Bolivia		1			2
	Chile		18			4
	Brazil		(113	)		(17	)
		$	(46	)	$	(7	)

The decrease for both periods was primarily due to the deconsolidation of CEMAR. (See Note 9 to the Financial Statements for additional information.)

The decrease for 2003 compared with 2002 was partially offset by:

• higher WPD revenues in the U.K. primarily due to the change in foreign currency exchange rates from period to period;
• higher revenues in El Salvador primarily due to higher volumes and higher pass-through energy costs, partially offset by a 6% tariff reduction effective January 1, 2003; and
• higher revenues in Chile primarily due to higher volumes and the consolidation of TransEmel. (See Note 9 to the Financial Statements for additional information.)

The decrease for 2002 compared with 2001 was partially offset by higher sales volumes in Chile and El Salvador.

Energy Related Businesses

Energy related businesses contributed $16 million less to operating income in 2003 compared with 2002. The decrease resulted primarily from:

• $7 million of credits recorded on development projects in 2002, due largely to a favorable settlement on the cancellation of a generation project in Washington state;
• a $5 million operating loss on some Hyder properties in the first quarter of 2003, which were subsequently sold in April 2003; and
• an $8 million decrease in Latin America revenues from lower material and construction project sales (In 2002, a Bolivian subsidiary participated in the construction of a 1,500 kilometer transmission line in rural areas.); partially offset by
• a $3 million improvement in contributions from mechanical contracting subsidiaries due to enhanced project controls that were implemented to minimize project overruns, offset by a continuing decline in construction markets in 2003.

Energy related businesses (when adjusted to include WPD on an equity basis) contributed $3 million less to operating income in 2002 compared with 2001. This was primarily due to:

• a $14 million benefit recorded in 2001 from an equity interest in Griffith Energy related to margins on forward electricity contracts, executed prior to commercial operation;

• a $9 million decline from the mechanical contracting and engineering subsidiaries, primarily due to cost overruns experienced at two major projects; and

• $4 million of pre-tax operating losses from synfuel projects; partially offset by

• a $23 million decrease in PPL Global's expenses due to lower spending on development projects, including a favorable settlement on the cancellation of a generation project in Washington state.

Although operating income from synfuel operations declined in 2002 compared to 2001, the synfuel projects contributed $7 million more to net income after the recording of tax credits.

Other Operation and Maintenance

The increase (decrease) in other operation and maintenance expenses was primarily due to:

	2003 vs. 2002			2002 vs. 2001
Decrease in domestic and international pension income	$	37		$	7
Higher trademark license fees from a PPL subsidiary (see Note 15)		30			8
Additional expenses of new generating facilities		28			27
Increase in WPD expenses due to increases in regulatory accounting adjustments, and resolution of purchase accounting contingencies in the second quarter of 2002 related to the Hyder acquisition		18
Increase in foreign currency exchange rates		10
Accretion expense as a result of applying SFAS 143 (see Note 21)		18
Increased operating expenses in domestic business lines and other		20			1
Outage costs associated with the turbine replacement at the Susquehanna station		7
Increase in other postretirement benefit expense		5			2
Change to account for CEMAR on the cost-method		(38	)		(9	)
Insurance settlements - property damage and environmental		(26	)
Estimated reduction in salaries and benefits as a result of the workforce reduction initiated in 2002		(15	)		(6	)
Gains on sales of emission allowances		(17	)		(2	)
Decrease in PPL Global's administrative and general expenses					(10	)
Decrease in the Clean Air Act contingency relating to generating facilities		(8	)
Vacation liability adjustment in 2002 in conjunction with the workforce reduction		(6	)		6
	$	63		$	24

The $37 million decrease in net pension income was attributable to decreased asset values at the end of 2002 and reductions in the discount rate assumptions for PPL and PPL Energy Supply domestic and international pension plans, which were the result of weakness in the financial markets during 2002. The 2002 year-end asset values and discount rates were used to measure net pension income for 2003. Through December 31, 2003, PPL Energy Supply recorded and was allocated $39 million of net pension income.

Although financial markets have improved and PPL and PPL Energy Supply domestic and international pension plans have experienced significant asset gains in 2003, interest rates on fixed-income obligations have continued to fall, requiring a further reduction in the discount rate assumption as of December 31, 2003. The reduction in the discount rate assumption has a significant impact on the measurement of plan obligations and net pension cost, which will result in PPL and PPL Energy Supply recognizing lower levels of net pension income in 2004. See Note 12 to the Financial Statements for details of the funded status of PPL's pension plans.

Depreciation

Depreciation expense decreased by $16 million in 2002 compared with 2001. Depreciation on plant additions accounted for a $15 million increase. Other impacts on depreciation were as follows:

• $14 million decrease due to extension of the Susquehanna station's depreciable life, in conjunction with the announced plan to seek an extension of its NRC operating licenses;

• $10 million decrease due to no longer recording goodwill amortization due to adoption of SFAS 142 (see Note 18); and

• $7 million decrease due to PPL Global's write-down of CEMAR assets in 2001, resulting in no depreciation being recorded on these assets in 2002.

Taxes, Other Than Income

Taxes, other than income, increased by $11 million in 2003 compared with 2002, due to higher taxes related to increases in the basis on which capital stock is calculated and higher real estate taxes in 2003.

Other Charges

Other charges of $198 million in 2002 consisted of the write-down of PPL Global's investment in CEMAR and several smaller impairment charges on other international investments (see Note 9 to the Financial Statements), the write-down of generation assets (see Note 9) and a charge for a workforce reduction program (see Note 20).

Other charges of $486 million in 2001 consisted of the write-down of international energy projects and the cancellation of generation projects (See Note 9).

Other Income - net

See Note 16 to the Financial Statements for details of other income and deductions.

Interest Expense

Interest expense decreased by $11 million in 2003 compared to 2002 primarily due to:

• a $34 million decrease in long-term debt interest from the deconsolidation of CEMAR in August 2002; and
• a $20 million decrease in short-term debt interest expense; offset by
• an $11 million write-off of unamortized swap costs on WPD debt restructuring in 2003;
• a $7 million increase in long-term debt interest due to the issuance of $400 million 2.625% Convertible Senior Notes;
• $5 million of interest on preferred securities of SIUK Capital Trust I due to reclassifications from adopting SFAS 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" (see Note 22 to the Financial Statements for additional information);
• a $13 million decrease in capitalized interest; and
• a $7 million increase in amortization expense and other.

Interest expense increased by $36 million in 2002 compared with 2001 primarily due to:

• a $52 million increase in long-term debt interest due to a full year of interest in 2002 from the issuances of $500 million of senior unsecured notes in 2001 and debt issued by PPL Global's consolidated subsidiaries; and
• a $7 million decrease in capitalized interest; offset by
• a $23 million decrease in short-term debt interest from a decrease in short-term borrowings from affiliates.

Income Taxes

Income tax expense decreased by $81 million in 2003 compared with 2002. This decrease was due to:

• a $31 million reduction related to deferred income tax valuation allowances recorded on impairment charges on PPL Energy Supply's investment in Brazil recorded during 2002;
• an $84 million reduction in income taxes related to the tax benefit recognized in 2003 on foreign investment losses included in the 2002 federal income tax return; and
• a $2 million decrease related to additional federal synfuel tax credits recognized; offset by
• higher pre-tax domestic book income, resulting in a $39 million increase in income taxes.

Income tax expense decreased by $113 million in 2002 compared with 2001. This decrease was due to:

• lower pre-tax domestic book income, resulting in a $35 million reduction in income taxes;
• lower impairment charges on PPL Energy Supply's investment in Brazil resulting in a $30 million decrease in the amount of deferred income tax valuation allowances recorded;
• a $27 million reduction in income taxes due to losses recognized on foreign investments; and
• a $10 million decrease related to additional federal synfuel tax credits recognized.

Discontinued Operations

PPL Energy Supply reported a loss of $20 million in connection with the approval of a plan of sale of PPL Global's investment in a Latin American telecommunications company. See "Discontinued Operations" in Note 9 to the Financial Statements for additional information.

Cumulative Effects of Changes in Accounting Principles

In 2003, PPL Energy Supply recorded a charge of $27 million, after-tax, as a cumulative effect of a change in accounting principle in connection with the adoption of FIN 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," for certain entities. See "New Accounting Standards" for further discussion.

PPL Energy Supply adopted SFAS 143, "Accounting for Asset Retirement Obligations," effective January 1, 2003. SFAS 143 addresses the accounting for obligations associated with the retirement of tangible long-lived assets. It requires legal obligations associated with the retirement of long-lived assets to be recognized as a liability in the financial statements. Application of the new rules resulted in a cumulative effect of adoption that increased net income by $63 million in 2003. See Note 21 to the Financial Statements for additional information.

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. See Note 18 to the Financial Statements for additional information.

In 2001, PPL changed its method of amortizing unrecognized gains or losses in the annual pension expense or income determined under SFAS 87, "Employers' Accounting for Pensions." This change resulted in an allocation to PPL Energy Supply of a cumulative-effect credit of $3 million. See Note 12 to the Financial Statements for additional information.

Financial Condition

Liquidity

PPL Energy Supply is focused on maintaining a strong liquidity position and strengthening its balance sheet, thereby improving its credit profile. PPL Energy Supply believes that its cash on hand, operating cash flows, access to debt capital markets and borrowing capacity, taken as a whole, provide sufficient resources to fund its ongoing operating requirements, future security maturities and estimated future capital expenditures. PPL Energy Supply currently expects cash on hand at the end of 2004 to be approximately $200 million, with about $1.2 billion in syndicated credit facilities. However, PPL Energy Supply's cash flows from operations and its access to cost effective bank and capital markets are subject to risks and uncertainties, including but not limited to, the following:

• changes in market prices for electricity;
• changes in commodity prices that may increase the cost of producing power or decrease the amount PPL Energy Supply receives from selling power;
• price and credit risks associated with selling and marketing products in the wholesale power markets;
• ineffectiveness of trading, marketing and risk management policies and programs used to mitigate PPL Energy Supply's risk exposure to adverse energy and fuel prices, interest rates, foreign currency exchange rates and counterparty credit;
• unusual or extreme weather that may damage its international transmission and distribution facilities or effect energy sales to customers;
• reliance on transmission and distribution facilities that PPL Energy Supply does not own or control to deliver its electricity;
• unavailability of generating units (due to unscheduled or longer-than-anticipated generation outages) and the resulting loss of revenues and additional costs of replacement electricity;
• ability to recover, and timeliness and adequacy of recovery of, costs associated with international electricity delivery businesses; and
• a downgrade in PPL Energy Supply's or its rated subsidiaries' credit ratings that could negatively affect their ability to access capital and increase the cost of maintaining credit facilities and any new debt.

At December 31, 2003, PPL Energy Supply had $227 million in cash and cash equivalents and $56 million of short-term debt, as compared to $149 million in cash and cash equivalents and $928 million of short-term debt at December 31, 2002, and $815 million in cash and cash equivalents and $118 million of short-term debt at December 31, 2001. The changes in cash and cash equivalents resulted from the following:

	2003			2002			2001
Net Cash Provided by Operating Activities	$	910		$	651		$	619
Net Cash Provided by (Used in) Investing Activities		204			(1,144	)		278
Net Cash Used in Financing Activities		(1,043	)		(175	)		(209)
Effect of Exchange Rates on Cash & Cash Equivalents		7			2			(3	)
Increase (Decrease) in Cash & Cash Equivalents	$	78		$	(666	)	$	685

Net Cash Provided by Operating Activities

Net cash provided by operating activities increased by 40%, or $259 million, in 2003 versus 2002, reflecting higher net income adjusted for non-cash items and lower cash income taxes. In addition, 2002 included cash outlays of $152 million for the cancellation of generation projects and $50 million for the termination of a NUG contract. The higher net income in 2003 was principally driven by complete ownership in WPD, higher wholesale energy margins, lower interest expense and savings from a workforce reduction program in the U.S. that commenced in 2002.

Important elements supporting the stability of PPL Energy Supply's cash provided by operating activities are the long-term and intermediate-term commitments from wholesale and retail customers and long-term fuel supply contracts PPL Energy Supply has in place. In 2003, PPL EnergyPlus entered into several new wholesale agreements to provide capacity and/or electricity to utilities in New Jersey, Arizona and Connecticut. These agreements supplement previously existing long-term contracts with PPL Electric, NorthWestern and the Long Island Power Authority (see Note 14 to the Financial Statements for additional information). PPL Energy Supply estimates that, on average, approximately 80% of its expected annual generation output for the period 2004 through 2008 is committed under long-term and intermediate-term energy supply contracts. PPL EnergyPlus also enters into contracts under which it agrees to sell and purchase electricity, natural gas, oil and coal. These contracts often require cash collateral or other credit enhancement, or reductions or terminations of a portion or the entire contract through cash settlement in the event of a downgrade of PPL Energy Supply or the respective subsidiary's credit ratings or adverse changes in market prices. For example, in addition to limiting its trading ability, if PPL Energy Supply or its respective subsidiary's ratings were lowered to below "investment grade" and energy prices increased by 10%, PPL Energy Supply estimates that, based on its December 31, 2003 position, it would have to post collateral of approximately $490 million as compared to $421 million at December 31, 2002. PPL Energy Supply has in place risk management programs that, among other things, are designed to monitor and manage its exposure to volatility of cash flows related to changes in energy prices, interest rates, foreign currency exchange rates, counterparty credit quality and the operational performance of its generating units.

Net cash provided by operating activities in 2002 was $651 million, compared to $619 million in 2001. The $32 million increase in cash provided by operations was due to the net effect of increases in net income adjusted to a cash basis (i.e., adding back non-cash items such as depreciation, write-downs of projects and assets, change in accounting principle, etc.), partially offset by $152 million of turbine cancellation payments made in 2002, a $50 million payment to terminate a NUG contract also made in 2002, and an $89 million decrease in dividends received from unconsolidated affiliates.

Net Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities in 2003 was $204 million, compared to net cash used in investing activities of $1.1 billion in 2002. The primary reasons for the $1.3 billion increase in net cash provided by investing activities was reduced investment in generation assets and electric energy projects, the acquisition of controlling interest in WPD in 2002, and a repayment of a loan from an affiliate. The primary use of cash for investing activities is capital and investment expenditures, which are summarized by category in the table in "Capital Expenditure Requirements." In 2004, PPL Energy Supply expects to be able to fund all of its capital expenditures with cash provided by operating activities.

Net cash used in investing activities in 2002 was $1.1 billion, compared to net cash provided of $278 million in 2001. The primary reasons for the $1.4 billion increase in cash used in investing activities was due to the acquisition of the controlling interest in WPD in 2002 and a repayment of the loan from a non-consolidated affiliate in 2001.

Net Cash Used in Financing Activities

Net cash used in financing activities was $1.0 billion in 2003, compared to $175 million in 2002. The increase primarily reflected the repayment of short-term debt, retirement of long-term debt, distributions to PPL to support dividends to PPL's shareholders, and maturities and interest payments on PPL Capital Funding's debt. In 2003, PPL Energy Supply had net retirements of debt of $120 million compared with net issuances of $378 million in 2002. Net distributions to Member were $907 million in 2003 compared with $550 million in 2002.

PPL Energy Supply's debt financing activity in 2003 was as follows:

		Additions		Payments			Net
PPL Energy Supply Convertible Notes		$	400				$	400
PPL Energy Supply Commercial Paper (net change)				$	(374	)		(374	)
WPD (South West) (USD equivalent)			402		(409	)		(7	)
WPDH Limited (USD equivalent)					(53	)		(53	)
Latin America Companies (USD equivalent)					(4	)		(4	)
Payments on amounts advanced from trustee in synthetic lease agreement and other					(82	)		(82	)
	Total	$	802	$	(922	)	$	(120	)

Debt issued during 2003 had stated interest rates ranging from 2.62% to 5.87% and maturities from 2023 through 2027. See Note 8 to the Financial Statements for more detailed information regarding PPL Energy Supply's borrowings.

In July 2003, PPL Energy Supply determined that, based on its current cash position and anticipated cash flows, it would not need to access the commercial paper markets through at least the end of 2003. As a result, PPL Energy Supply requested Standard & Poor's Ratings Services (S&P), Moody's Investors Service, Inc. (Moody's) and Fitch Ratings (Fitch) to withdraw their ratings for its currently inactive commercial paper program, which the rating agencies did effective as of July 9, 2003. This decision has not limited the ability of PPL Energy Supply to fund its short-term liquidity needs. PPL Energy Supply currently does not have any commercial paper outstanding, and it does not anticipate a need to access the commercial paper market in 2004.

At December 31, 2003, PPL Energy Supply's total committed borrowing capacity and the use of this borrowing capacity were as follows:

		Committed Capacity		Borrowed		Letters of Credit Issued (c)		Available Capacity (c)
PPL Energy Supply Credit Facilities (a)		$	1,100			$	87	$	1,013
WPD (South West) Bank Facilities (b)			435	$	48				387
	Total	$	1,535	$	48	$	87	$	1,400

(a)	PPL Energy Supply's credit facilities allow for borrowings at LIBOR-based rates plus a spread, depending upon the company's public debt rating. PPL Energy Supply also has the capability to issue up to $800 million of letters of credit under its facilities, which issuance reduces available borrowing capacity. These credit facilities contain financial covenants requiring debt to total capitalization not greater than 65% and an interest coverage ratio of not less than 2.0 times consolidated earnings before income taxes, depreciation and amortization. At December 31, 2003 and 2002, PPL Energy Supply's consolidated debt to total capitalization percentages, as calculated in accordance with its credit facilities, were 36% and 35%. At December 31, 2003 and 2002, PPL Energy Supply's interest coverage ratios, as calculated in accordance with its credit facilities, were 6.3 and 7.4. The credit agreements also contain certain representations and warranties that must be made for PPL Energy Supply to borrow under them, including, but not limited to, a material adverse change clause that relates to PPL Energy Supply's ability to perform its obligations under the credit agreements and related loan documents.
(b)	WPD (South West)'s credit facilities allow for borrowings at LIBOR-based rates plus a spread, depending upon the company's public debt rating. These credit facilities contain financial covenants that require it to maintain an interest coverage ratio of not less than 3.0 times consolidated earnings before income taxes, depreciation and amortization, and the regulatory asset base must be £150 million greater than total gross debt, in each case as calculated in accordance with the credit facilities. At December 31, 2003 and 2002, WPD (South West)'s interest coverage ratio, as calculated in accordance with its credit lines, was 6.7 and 10.3. At December 31, 2003 and 2002, WPD (South West)'s regulatory asset base exceeded its total gross debt by £457 million and £491 million.
(c)	PPL Energy Supply and WPD (South West) have a reimbursement obligation to the extent any letters of credit are drawn upon. The letters of credit issued as of December 31, 2003 expire in 2004.

These credit agreements contain various other covenants. Failure to meet those covenants beyond applicable grace periods could result in acceleration of due dates of borrowings and/or termination of the agreements. PPL Energy Supply monitors the covenants on a regular basis. At December 31, 2003, PPL Energy Supply was in compliance with those covenants. At this time, PPL Energy Supply believes that these covenants and other borrowing conditions will not limit access to these funding sources. PPL Energy Supply intends to reduce its syndicated credit facilities to $800 million in the first quarter 2004 because of lower development and acquisition requirements related to its supply business. WPD (South West) intends to renew and extend all of its syndicated credit facilities in 2004.

Net cash used in financing activities was $175 million in 2002 compared to $209 million in 2001.

Operating Leases

PPL Energy Supply and its subsidiaries also have available funding sources that are provided through operating leases. PPL Energy Supply's subsidiaries lease vehicles, office space, land, buildings, personal computers and other equipment under master operating lease arrangements. These leasing structures provide PPL Energy Supply with additional operating and financing flexibility. The operating leases contain covenants that are typical for these agreements, such as maintaining insurance, maintaining corporate existence and timely payment of rent and other fees. Failure to meet these covenants could limit or restrict access to these funds or require early payment of obligations. At this time, PPL Energy Supply believes that these covenants will not limit access to these funding sources or cause acceleration or termination of the leases.

PPL Energy Supply, through its subsidiary PPL Montana, leases a 50% interest in Colstrip Units 1 and 2 and a 30% interest in Unit 3, under four 36-year non-cancelable operating leases. These operating leases are not recorded on PPL Energy Supply's Balance Sheet, which is in accordance with applicable accounting guidance. The leases place certain restrictions on PPL Montana's ability to incur additional debt, sell assets and declare dividends. At this time, PPL Energy Supply believes that these restrictions will not limit access to these funding sources or cause acceleration or termination of the leases. See Note 8 to the Financial Statements for a discussion of dividend restrictions related to PPL Global subsidiaries.

See Note 10 to the Financial Statements for further discussion of the operating leases.

Contractual Obligations

At December 31, 2003, the estimated contractual cash obligations of PPL Energy Supply were as follows:

Contractual Cash Obligations	Total		Less Than 1 Year		1-3 Years		3-5 Years		After 5 Years
Long-term Debt (a)	$	4,243	$	6	$	612	$	1,068	$	2,557
Capital Lease Obligations
Operating Leases (b)		775		65		111		101		498
Purchase Obligations (c)		3,166		605		1,158		575		828
Other Long-term Liabilities Reflected on the Balance Sheet under GAAP
Total Contractual Cash Obligations	$	8,184	$	676	$	1,881	$	1,744	$	3,883

(a)	Reflects principal maturities only, including maturities of consolidated lease debt.
(b)	Excludes amounts for the leases of the Sundance, University Park and Lower Mt. Bethel generation facilities as the lessors were consolidated effective December 31, 2003 as a result of the adoption of FIN 46 for certain entities. See "New Accounting Standards" for further discussion.
(c)	The payments reflected herein are subject to change as certain purchase obligations included are estimates based on projected obligated quantities and/or projected pricing under the contracts.

Credit Ratings

The following table summarizes the credit ratings of PPL Energy Supply and its financing subsidiaries at December 31, 2003:

		Moody's	Standard & Poor's	Fitch
PPL Energy Supply
	Issuer Rating		BBB
	Senior Unsecured Notes	Baa2	BBB	BBB+
	Outlook	STABLE	NEGATIVE	NEGATIVE
PPL Montana
	Pass -Through Certificates	Baa3	BBB-	BBB
	Outlook	Poss. Downgrade	NEGATIVE
WPDH Limited
	Issuer Rating	Baa2	BBB-
	Senior Unsecured Debt	Baa2	BBB-	BBB
	Outlook	STABLE	NEGATIVE	STABLE
WPD LLP
	Issuer Rating		BBB-
	Senior Unsecured Debt	Baa2	BBB-	BBB
	Capital Trust Securities*	Baa3	BB
	Outlook	STABLE	NEGATIVE	STABLE
WPD (South Wales)
	Issuer Rating		BBB+
	Senior Unsecured Debt	Baa1	BBB+	A-
	Commercial Paper		A-2	F2
	Outlook	STABLE	NEGATIVE	STABLE
WPD (South West)
	Issuer Rating	Baa1	BBB+
	Senior Unsecured Debt		BBB+	A-
	Commercial Paper	P-2	A-2	F2
	Outlook	STABLE	NEGATIVE	STABLE

* These trust preferred securities were deconsolidated effective December 31, 2003 from the Balance Sheet. See Note 22 to the Financial Statements for additional information.

Rating Agency Actions in 2003

In 2003, S&P, Moody's and Fitch reviewed the credit ratings on the debt of PPL Energy Supply and its subsidiaries. Based on their respective reviews, the rating agencies made certain ratings revisions that are described below. Management does not expect these ratings decisions to impact PPL Energy Supply and its subsidiaries' ability to raise new debt or equity capital or to have a significant impact on the cost of any new capital or the cost of maintaining their credit facilities.

The ratings of S&P, Moody's and Fitch are not a recommendation to buy, sell or hold any securities of PPL Energy Supply or its subsidiaries. Such ratings may be subject to revisions or withdrawal by the agencies at any time and should be evaluated independently of each other and any other rating that may be assigned to their securities.

PPL Energy Supply

S&P

In April 2003, S&P notified PPL Energy Supply that it affirmed the 'BBB' corporate credit rating for PPL Energy Supply and the 'A-2' commercial paper rating of PPL Energy Supply. S&P also indicated that PPL Energy Supply remains on negative outlook based on S&P's view of weak debt-protection measures due to low wholesale energy prices.

In December 2003, S&P downgraded PPL Montana's 8.903% Pass Through Certificates due 2020 to BBB- from BBB. S&P indicated that its outlook for these securities remains negative. S&P indicated that its downgrade reflects certain risks that it believes PPL Montana faces, including counterparty credit risk resulting from the Chapter 11 bankruptcy filing of NorthWestern, which is PPL Montana's largest customer. S&P noted, however, that the bankruptcy court has approved NorthWestern's request to affirm the power sales agreements with PPL Montana and that NorthWestern has strong incentives to maintain this status. See Note 14 to the Financial Statements for more detailed information regarding NorthWestern's bankruptcy filing.

Moody's

In May 2003, Moody's downgraded the credit ratings on PPL Energy Supply's senior unsecured notes, to 'Baa2' from 'Baa1'. The Moody's ratings outlook is stable for PPL Energy Supply. PPL Energy Supply's short-term debt rating was not impacted by Moody's long-term debt review.

Moody's stated that the downgrades reflect its concerns about PPL Energy Supply's modest exposure to merchant generation risk, the continued weakness in the wholesale power market and the associated financial impact on PPL Energy Supply, and concerns regarding the amount of cash flow to be generated from PPL Energy Supply's domestic operations and the free cash flow available from its regulated international assets. However, Moody's also indicated that the full requirements contract between PPL Electric and PPL EnergyPlus, which previously was approved by the PUC and which extends through December 2009, provides a predictable stream of cash flows to PPL Energy Supply during such time period. Moody's also viewed favorably certain actions taken by PPL Energy Supply, including a sizeable reduction in planned capital expenditures, the cancellation of projects under development, workforce reductions and write-downs of certain investments.

In September 2003, Moody's announced that it was placing PPL Montana's 8.903% Pass-Through Certificates due 2020 under review for possible downgrade. These securities currently are rated 'Baa3' by Moody's. Moody's stated that its review is prompted by its concerns about the credit profile of PPL Montana's largest customer, NorthWestern, and lower cash flow generation than was forecasted at the time the securities were issued in 2000. See Note 14 to the Financial Statements for additional information on NorthWestern's current situation. Management does not expect any action by Moody's based on this review to limit PPL Montana's ability to fund its short-term liquidity needs. PPL Montana has no plans to raise new long-term debt. Any ratings downgrade by Moody's would have an insignificant impact on PPL Montana's cost of maintaining the credit facility that it has in place with its affiliate. In addition, management does not expect any ratings downgrade by Moody's based on this review to have any adverse impact on the credit ratings of PPL Energy Supply.

Fitch

In May 2003, Fitch notified PPL Energy Supply that it affirmed the 'BBB+' rating of PPL Energy Supply's senior unsecured debt and the 'F2' rating of its commercial paper, and that it placed PPL Energy Supply on negative outlook.

Fitch indicated that the change in outlook for PPL Energy Supply results from the increase during 2002 in PPL Energy Supply's generation asset portfolio that is dependent on merchant generation, continued weakness in U.S. merchant energy markets and exposure to international distribution assets primarily in Latin America and the U.K. However, Fitch noted that PPL Energy Supply derives significant earnings and cash flow from long-term supply contracts, including the full requirements contract between PPL Electric and PPL EnergyPlus, that on average account for about 70% of PPL Energy Supply's gross margin over the next five years.

WPD and Subsidiaries

In February 2003, Moody's confirmed the ratings of WPDH Limited at 'Baa2' and WPD (South West) and WPD (South Wales) at 'Baa1', and downgraded WPD LLP from 'Baa1' to 'Baa2' and SIUK Capital Trust I from 'Baa2' to 'Baa3'. The outlook on all ratings was stable. In March 2003, S&P assigned its 'BBB+' senior unsecured debt rating to the £200 million bonds issued by WPD (South West). At the same time, the 'BBB+' and 'A-2' corporate credit ratings on SIUK Limited were withdrawn as a result of the acquisition of its debt by WPD LLP. S&P assigned its 'BBB' long-term and 'A-2' short-term corporate credit ratings to WPD LLP, in line with the ratings on the rest of the WPD group.

Following a review of holding companies of U.K., regulated utilities, in July 2003 S&P downgraded the long-term ratings from 'BBB' to 'BBB-' and short-term ratings from 'A-2' to 'A-3' for both WPDH Limited and WPD LLP, and retained a negative outlook. At the same time, S&P reaffirmed the credit ratings for WPD (South West) and WPD (South Wales) at 'BBB+'. S&P stated that this is in line with S&P U.K.'s recently announced implementation of a new methodology related to U.K. electric distribution holding companies, whereby electric distribution operating companies rated in the 'BBB' category will have the parent holding company (WPDH Limited) notched down by two categories from the operating company rating level. WPD's management does not expect the placement of WPD on negative outlook to limit its ability to fund its short-term liquidity needs or access to new long-term debt or to impact the cost of any new long-term debt.

Off-Balance Sheet Arrangements

PPL Energy Supply provides guarantees for certain affiliate financing arrangements that enable certain transactions. Some of the guarantees contain financial and other covenants that, if not met, would limit or restrict the affiliates' access to funds under these financing arrangements, require early maturity of such arrangements or limit PPL Energy Supply's ability to enter into certain transactions. At this time, PPL Energy Supply believes that these covenants will not limit access to the relevant funding sources.

PPL Energy Supply has entered into certain guarantee agreements that are within the scope of FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34." See Note 14 to the Financial Statements for a discussion on guarantees.

Risk Management - Energy Marketing & Trading and Other

Market Risk

Background

Market risk is the potential loss PPL Energy Supply may incur as a result of price changes associated with a particular financial or commodity instrument. PPL Energy Supply is exposed to market risk from:

• commodity price risk for energy and energy-related products associated with the sale of electricity, the purchase of fuel for the generating assets, and energy trading activities;
• interest rate risk associated with variable-rate debt and the fair value of fixed-rate debt used to finance operations, as well as the fair value of debt securities invested in by PPL Energy Supply's nuclear decommissioning fund;
• foreign currency exchange rate risk associated with investments in affiliates in Latin America and Europe, as well as purchases of equipment in currencies other than U.S. dollars; and
• equity securities price risk associated with the fair value of equity securities invested in by PPL Energy Supply's nuclear decommissioning fund.

PPL Energy Supply has a risk management policy approved by PPL's Board of Directors to manage market risk and counterparty credit risk. (Credit risk is discussed below.) The RMC, comprised of senior management and chaired by the Vice President-Risk Management, oversees the risk management function. Key risk control activities designed to monitor compliance with risk policies and detailed programs include, but are not limited to, credit review and approval, validation of transactions and market prices, verification of risk and transaction limits, sensitivity analyses, and daily portfolio reporting, including open positions, mark-to-market valuations and other risk measurement metrics. In addition, efforts are ongoing to develop systems to improve the timeliness, quality and breadth of market and credit risk information.

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.

Contract Valuation

PPL Energy Supply utilizes forward contracts, futures contracts, options, swaps and tolling agreements as part of its risk management strategy to minimize unanticipated fluctuations in earnings caused by commodity price, interest rate and foreign currency volatility. When available, quoted market prices are used to determine the fair value of a commodity or financial instrument. This may include exchange prices, the average mid-point bid/ask spreads obtained from brokers, or an independent valuation by an external source, such as a bank. However, market prices for energy or energy-related contracts may not be readily determinable because of market illiquidity. If no active trading market exists, contracts are valued using internally developed models, which are then reviewed by an independent, internal group. Although PPL Energy Supply believes that its valuation methods are reasonable, changes in the underlying assumptions could result in significantly different values and realization in future periods.

To record derivatives at their fair value, PPL Energy Supply discounts the forward values using LIBOR. Additionally, PPL Energy Supply reduces derivative assets' carrying values to recognize differences in counterparty credit quality and potential illiquidity in the market:

• The credit adjustment takes into account the probability of default, as calculated by an independent service, for each counterparty that has an out-of-the money position with PPL Energy Supply.

• The liquidity adjustment takes into account the fact that it may not be appropriate to value contracts at the midpoint of the bid/ask spread. PPL Energy Supply might have to accept the "bid" price if PPL Energy Supply wanted to close an open sales position or PPL Energy Supply might have to accept the "ask" price if PPL Energy Supply wanted to close an open purchase position.

Accounting and Reporting

PPL Energy Supply follows the provisions of SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," and SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," and interpreted by DIG issues (together, "SFAS 133"), EITF 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities," and EITF 03-11, "Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not 'Held for Trading Purposes' as Defined in Issue No. 02-3," to account for and report on contracts entered into to manage market risk. SFAS 133 requires that all derivative instruments be recorded at fair value on the balance sheet as an asset or liability (unless they meet SFAS 133's criteria for exclusion) and that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met.

In April 2003, the FASB issued SFAS 149, which amends and clarifies SFAS 133 to improve financial accounting and reporting for derivative instruments and hedging activities. To ensure that contracts with comparable characteristics are accounted for similarly, SFAS 149 clarifies the circumstances under which a contract with an initial net investment meets the characteristics of a derivative, clarifies when a derivative contains a financing component, amends the definition of an "underlying" and amends certain other existing pronouncements. Additionally, SFAS 149 placed additional limitations on the use of the normal purchase or normal sale exception. SFAS 149 was effective for contracts entered into or modified and for hedging relationships designated after June 30, 2003, except certain provisions relating to forward purchases or sales of when-issued securities or other securities that did not yet exist. PPL Energy Supply adopted SFAS 149 as of July 1, 2003. The adoption of SFAS 149 did not have a significant impact on PPL Energy Supply.

PPL Energy Supply adopted the final provisions of EITF 02-3 during the fourth quarter of 2002. As such, PPL Energy Supply now reflects its net realized and unrealized gains and losses associated with all derivatives that are held for trading purposes in the "Net energy trading margins" line on the Statement of Income. Non-derivative contracts that met the definition of energy trading activities as defined by EITF 98-10, "Accounting for Energy Trading and Risk Management Activities" are reflected in the financial statements using the accrual method of accounting. Under the accrual method of accounting, unrealized gains and losses are not reflected in the financial statements. Prior periods were reclassified. No cumulative effect adjustment was required upon adoption.

PPL Energy Supply has adopted the final provisions of EITF 03-11 prospectively as of October 1, 2003. As a result of this adoption, non-trading bilateral sales of electricity at major market delivery points are netted with purchases that offset the sales at those same delivery points. A major market delivery point is any delivery point with liquid pricing available. See Note 17 to the Financial Statements for the impact of the adoption of EITF 03-11.

PPL Energy Supply's short-term derivative contracts are recorded as "Price risk management assets" and "Price risk management liabilities" on the Balance Sheet. Long-term derivative contracts are included in "Other Noncurrent Assets - Other" and "Deferred Credits and Other Noncurrent Liabilities - Other."

Accounting Designation

Energy contracts that do not qualify as derivatives receive accrual accounting. For energy contracts that meet the definition of a derivative, the circumstances and intent existing at the time that energy transactions are entered into determine their accounting designation. These designations are verified by PPL Energy Supply's risk control group on a daily basis. The following is a summary of the guidelines that have been provided to the traders who are responsible for contract designation for derivative energy contracts due to the adoption of SFAS 149:

• Any wholesale and retail contracts to sell or buy electricity and the related capacity that are expected to be delivered from PPL's generation or that are approved by the RMC to fulfill a strategic element of PPL's overall marketing strategy are considered "normal." These transactions are not recorded in the financial statements and have no earnings impact until delivery.

• Physical electricity-only transactions can receive cash flow hedge treatment if all of the qualifications under SFAS 133 are met. Any unrealized gains or losses on transactions receiving cash flow hedge treatment are recorded in other comprehensive income. These unrealized gains and losses become realized when the contracts settle and are recognized in income when the hedged transactions occur.

• Physical electricity purchases that increase PPL Energy Supply's long position and any energy sale or purchase judged a "market call" are considered speculative, with unrealized gains or losses recorded immediately through earnings.

• Financial transactions, which can be settled in cash, cannot be considered "normal" because they do not require physical delivery. These transactions receive cash flow hedge treatment if they lock-in the price PPL Energy Supply will receive or pay for energy expected to be generated or purchased in the spot market. Any unrealized gains or losses on transactions that receive cash flow hedge treatment are recorded in other comprehensive income. These unrealized gains and losses become realized when the contracts settle and are recognized in income when the hedged transactions occur.

• Physical and financial transactions for gas and oil to meet fuel and retail requirements can receive cash flow hedge treatment if they lock-in the price PPL Energy Supply will pay in the spot market. Any unrealized gains or losses on transactions receiving cash flow hedge treatment are recorded in other comprehensive income. These unrealized gains and losses become realized when the contracts settle and are recognized in income when the hedged transactions occur.

• Option contracts that do not meet the requirements of DIG Issue C15, "Scope Exceptions: Interpreting the Normal Purchases and Normal Sales Exception as an Election," do not receive hedge accounting treatment and are marked to market through earnings.

In addition to energy-related transactions, PPL Energy Supply enters into foreign currency swap contracts to hedge the fair value of firm commitments denominated in foreign currency and net investments in foreign operations. As with energy transactions, the circumstances and intent existing at the time of the transaction determine a contract's accounting designation, which is subsequently verified by PPL Energy Supply's risk control group on a daily basis. The following is a summary of certain guidelines that have been provided to the Treasury Department, which is responsible for contract designation:

• Transactions to lock-in an interest rate prior to a debt issuance are considered cash flow hedges. Any unrealized gains or losses on transactions receiving cash flow hedge treatment are recorded in other comprehensive income and are amortized as a component of interest expense over the life of the debt.

• Transactions entered into to hedge fluctuations in the value of existing debt are considered fair value hedges with no earnings impact until the debt is terminated because the hedged debt is also marked to market.

• Transactions entered into to hedge the value of a net investment of foreign operations are considered net investment hedges. To the extent that the derivatives are highly effective at hedging the value of the net investment, gains and losses are recorded in other comprehensive income/loss and will not be recorded in earnings until the investment is disposed of.

• Transactions which do not qualify for hedge accounting treatment are marked to market through earnings.

Commodity Price Risk

Commodity price risk is one of PPL Energy Supply's most significant risks due to the level of investment that PPL Energy Supply maintains in its generation assets, coupled with the volatility of prices for energy and energy-related products. Several factors influence price levels and volatilities. These factors include, but are not limited to, seasonal changes in demand, weather conditions, available generating assets within regions, transportation availability and reliability within and between regions, market liquidity, and the nature and extent of current and potential federal and state regulations. To hedge the impact of market price fluctuations on PPL Energy Supply's energy-related assets, liabilities and other contractual arrangements, PPL EnergyPlus sells and purchases physical energy at the wholesale level under FERC market-based tariffs throughout the U.S. and enters into financial exchange-traded and over-the-counter contracts. Because of the generating assets PPL Energy Supply owns or controls, the majority of PPL Energy Supply's energy transactions qualify for accrual or hedge accounting.

Within PPL Energy Supply's hedge portfolio, the decision to enter into energy contracts hinges on the expected value of PPL Energy Supply's generation. To address this risk, PPL Energy Supply takes a conservative approach in determining the number of MWhs that are available to be sold forward. In this regard, PPL Energy Supply reduces the maximum potential output that a plant may produce by three factors - planned maintenance, unplanned outages and economic conditions. The potential output of a plant is first reduced by the amount of unavailable generation due to planned maintenance on a particular unit. Another reduction, representing the unplanned outage rate, is the amount of MWhs that historically are not produced by a plant due to such factors as equipment breakage. Finally, the potential output of certain plants (like peaking units) are reduced because their higher cost of production will not allow them to economically run during all hours.

PPL Energy Supply's non-trading portfolio also includes full requirements energy contracts. The net obligation to serve these contracts changes minute by minute. PPL Energy Supply analyzes historical on-peak and off-peak usage patterns, as well as spot prices and weather patterns, to determine a monthly level of a block of electricity that best fits the usage patterns in order to minimize earnings volatility. On a forward basis, PPL Energy Supply reserves a block amount of generation for full requirements energy contracts that is expected to be the best match with their anticipated usage patterns and energy peaks. Anticipated usage patterns and peaks are affected by expected load growth, regional economic drivers and seasonality.

PPL Energy Supply's commodity derivative contracts that qualify for hedge accounting treatment mature at various times through 2010. The following chart sets forth PPL Energy Supply's net fair market value of these contracts as of December 31, 2003.

	Gains/(Losses)
Fair value of contracts outstanding at the beginning of the year		$	58
Contracts realized or otherwise settled during the year			(64	)
Fair value of new contracts at inception
Other changes in fair values			92
Fair value of contracts outstanding at the end of the year		$	86

During 2003, PPL Energy Supply realized or otherwise settled net gains of approximately $64 million related to contracts entered into prior to January 1, 2003. This amount does not reflect intra-quarter contracts that were entered into and settled during the period.

"Other changes in fair values," a gain of approximately $92 million, represents changes in the market value that occurred during 2003 for contracts that were outstanding at the end of 2003.

The following chart segregates estimated fair values of PPL Energy Supply's commodity derivative contracts that qualify for hedge accounting treatment at December 31, 2003 based on whether the fair values are determined by quoted market prices or other more subjective means.

	Fair Value of Contracts at Period-End Gains/(Losses)
	Maturity Less Than 1 Year		Maturity 1-3 Years		Maturity 3-5 Years			Maturity in Excess of 5 Years	Total Fair Value
Source of Fair Value
Prices actively quoted	$	7	$	1					$	8
Prices provided by other external sources		47		32	$	(1	)			78
Prices based on models and other valuation methods
Fair value of contracts outstanding at the end of the period	$	54	$	33	$	(1	)		$	86

The "Prices actively quoted" category includes the fair value of exchange-traded natural gas futures contracts quoted on the New York Mercantile Exchange (NYMEX). The NYMEX has currently quoted prices through 2010.

The "Prices provided by other external sources" category includes PPL Energy Supply's forward positions and options in natural gas and power and natural gas basis swaps at points for which over-the-counter (OTC) broker quotes are available. The fair value of electricity positions recorded above use the midpoint of the bid/ask spreads obtained through OTC brokers. On average, OTC quotes for forwards and swaps of natural gas and power extend one and two years into the future.

The "Prices based on models and other valuation methods" category includes the value of transactions for which an internally developed price curve was constructed as a result of the long-dated nature of the transaction or the illiquidity of the market point, or the value of options not quoted by an exchange or OTC broker. Additionally, this category includes "strip" transactions whose prices are obtained from external sources and then modeled to monthly prices as appropriate.

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

As of December 31, 2003, 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 the commodity contracts in its non-trading portfolio by approximately $146 million, which is equal to the estimated decrease at December 31, 2002. However, the change in the value of the non-trading 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. Additionally, the value of PPL Energy Supply's unsold generation would be improved. Because PPL Energy Supply's electricity portfolio is generally in a net sales position, the adverse movement in prices is usually an increase in prices. Conversely, because PPL Energy Supply's commodity fuels portfolio is generally in a net purchase position, the adverse movement in prices is usually a decrease in prices. If both of these scenarios happened, the implied margins for the unsold generation would increase.

PPL Energy Supply also executes energy contracts to take advantage of market opportunities. As a result, PPL Energy Supply may at times create a net open position in its portfolio that could result in significant losses if prices do not move in the manner or direction anticipated. The margins from these trading activities are shown in the Statement of Income as "Net energy trading margins."

PPL Energy Supply's trading contracts mature at various times through 2005. The following chart sets forth PPL Energy Supply's net fair market value of trading contracts as of December 31, 2003:

	Gains/(Losses)
Fair value of contracts outstanding at the beginning of the year		$	(6	)
Contracts realized or otherwise settled during the year			21
Fair value of new contracts at inception			1
Other changes in fair values			(13	)
Fair value of contracts outstanding at the end of the year		$	3

During 2002, PPL Energy Supply realized or otherwise settled net losses of approximately $21 million related to contracts entered into prior to January 1, 2003. This amount does not reflect intra-year contracts that were entered into and settled during the period.

The fair value of new contracts at inception is usually zero, because they are entered into at current market prices. However, when PPL Energy Supply enters into an option contract, a premium is paid or received. PPL Energy Supply paid $1 million, net, during 2003 for these option contracts.

"Other changes in fair values," a loss of approximately $13 million, represent changes in the market value of contracts outstanding at the end of 2003.

As of December 31, 2003, the net gain on PPL Energy Supply's trading activities expected to be recognized in earnings during the next three months is approximately $2 million.

The following chart segregates estimated fair values of PPL Energy Supply's trading portfolio at December 31, 2003 based on whether the fair values are determined by quoted market prices or other more subjective means.

	Fair Value of Contracts at Period-End Gains/(Losses)
	Maturity Less Than 1 year		Maturity 1-3 years	Maturity 3-5 years	Maturity in Excess of 5 Years	Total Fair Value
Source of Fair Value
Prices actively quoted
Prices provided by other external sources
Prices based on models and other valuation methods	$	3				$	3
Fair value of contracts outstanding at the end of the period	$	3				$	3

The "Prices actively quoted" category includes the fair value of exchange-traded natural gas futures contracts quoted on the New York Mercantile Exchange (NYMEX). The NYMEX has currently quoted prices through 2010.

The "Prices provided by other external sources" category includes PPL Energy Supply's forward positions and options in natural gas and power and natural gas basis swaps at points for which over-the-counter (OTC) broker quotes are available. The fair value of electricity positions recorded above use the midpoint of the bid/ask spreads obtained through OTC brokers. On average, OTC quotes for forwards and swaps of natural gas and power extend one and two years into the future.

The "Prices based on models and other valuation methods" category includes the value of transactions for which an internally developed price curve was constructed as a result of the long-dated nature of the transaction or the illiquidity of the market point, or the value of options not quoted by an exchange or OTC broker. Additionally, this category includes "strip" transactions whose prices are obtained from external sources and then modeled to monthly prices as appropriate.

As of December 31, 2003, 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 the commodity contracts in its trading portfolio by $3 million compared to a decrease of $7 million at December 31, 2002.

In accordance with its marketing strategy, PPL Energy Supply does not completely hedge its generation output or fuel requirements. PPL Energy Supply estimates that for its entire portfolio, including all generation and physical and financial energy positions, a 10% adverse change in power prices across all geographic zones and time periods will decrease expected 2004 gross margins by about $3 million. Similarly, a 10% adverse movement in all fossil fuel prices will decrease 2004 gross margins by $15 million.

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 interest rates in its debt portfolio, adjusting the duration of its debt portfolio 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 changes in the fair value of PPL Energy Supply's debt portfolio due to changes in the absolute level of interest rates.

At December 31, 2003, PPL Energy Supply's potential annual exposure to increased interest expense, based on a 10% increase in interest rates was insignificant, compared to $1 million at December 31, 2002.

PPL Energy Supply is also exposed to changes in the fair value of its debt portfolio. At December 31, 2003, 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 $125 million, compared to $79 million at December 31, 2002.

PPL and PPL Energy Supply utilize 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 December 31, 2003, PPL Energy Supply estimated that its potential exposure to a change in the fair value of these instruments, through a 10% adverse movement in interest rates, was $1 million. At December 31, 2002, PPL Energy Supply had not entered into any such instruments.

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. In addition, PPL enters into financial instruments to protect against foreign currency translation risk.

PPL holds contracts for the forward purchase of 26 million euros to pay for certain equipment of PPL Susquehanna in 2004. The estimated value of these forward purchases as of December 31, 2003, being the amount PPL would receive to terminate them, was $1 million.

PPL executed forward sale transactions for £25 million to hedge a portion of its net investment in WPDH Limited. The estimated value of these agreements as of December 31, 2003 was $4 million, being the amount PPL would pay to terminate the transactions.

PPL executed forward sale transactions for 3.1 billion Chilean pesos to hedge a portion of its net investment in its subsidiary that owns CGE. The estimated value of these agreements as of December 31, 2003 was $1 million, being the amount PPL would pay to terminate the transactions.

To protect expected income in Chilean pesos, PPL entered into average rate options for 2.4 billion Chilean pesos. At December 31, 2003, the market value of these positions, representing the amount PPL would pay to terminate them, was insignificant.

WPDH Limited executed cross-currency swaps totaling $1.5 billion to hedge the interest payments and value of its U.S. dollar-denominated bonds. The estimated value of this position on December 31, 2003, being the amount PPL Energy Supply would pay to terminate them, including accrued interest, was $84 million.

On the Statement of Income, gains and loses associated with hedges of interest payments are reflected in "Interest Expense." Gains and losses associated with the purchase of equipment are reflected in "Depreciation." Gains and losses associated with net investment hedges remain in accumulated other comprehensive loss on the Balance Sheet until the investment is disposed.

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 December 31, 2003, 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 December 31, 2003, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $24 million reduction in the fair value of the trust assets, as compared to a $16 million reduction at December 31, 2002.

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.

Credit Risk

Credit risk relates to the risk of loss that PPL Energy Supply would incur as a result of non-performance by counterparties of their contractual obligations. PPL Energy Supply maintains credit policies and procedures with respect to counterparties (including requirements that counterparties maintain certain credit ratings criteria) and requires other assurances in the form of credit support or collateral in certain circumstances in order to limit counterparty credit risk. However, PPL Energy Supply has concentrations of suppliers and customers among electric utilities, natural gas distribution companies and other energy marketing and trading companies. These concentrations of counterparties may impact PPL Energy Supply's overall exposure to credit risk, either positively or negatively, in that counterparties may be similarly affected by changes in economic, regulatory or other conditions. As discussed above under "Contract Valuation," PPL Energy Supply records certain non-performance reserves to reflect the probability that a counterparty with contracts that are out of the money (from the counterparty's standpoint) will default in its performance, in which case PPL Energy Supply would have to sell into a lower-priced market or purchase from a higher-priced market. These reserves are reflected in the fair value of assets recorded in "Price risk management assets" on the Balance Sheet. PPL Energy Supply also records reserves to reflect the probability that a counterparty will not make payments for deliveries PPL Energy Supply has made but not yet billed. These reserves are reflected in "Unbilled revenues" on the Balance Sheet. PPL Energy Supply has also established a reserve with respect to certain sales to the California ISO for which PPL Energy Supply has not yet been paid, as well as a reserve related to PPL Energy Supply's exposure as a result of the Enron bankruptcy, which are reflected in "Accounts receivable" on the Balance Sheet. See Notes 14 and 17 to the Financial Statements.

Related Party Transactions

PPL Energy Supply is not aware of any material ownership interests or operating responsibility by senior management of PPL Energy Supply or PPL Montana in outside partnerships, including leasing transactions with variable interest entities, or other entities doing business with PPL Energy Supply.

For additional information on related party accounting transactions, see Note 15 to the Financial Statements.

Capital Expenditure Requirements

The schedule below shows PPL Energy Supply's current capital expenditure projections for the years 2004-2008 and actual spending for the year 2003:

					Actual		Projected
					2003		2004		2005		2006		2007		2008
Construction expenditures (a) (b)
	Generating facilities (c)				$	300	$	167	$	193	$	161	$	194	$	180
	Transmission and distribution facilities					226		249		221		220		244		253
	Environmental					21		3		10		30		72		100
	Other					12		20		2		2		2		2
		Total Construction Expenditures				559		439		426		413		512		535
Nuclear fuel						53		56		59		62		63		64
				Total Capital Expenditures	$	612	$	495	$	485	$	475	$	575	$	599
(a)			Construction expenditures include capitalized interest, which is expected to be less than $10 million in each of the years 2004-2008.
(b)			This information excludes any investments by PPL Global for new projects.
(c)			Expenditures for generating facilities in 2003 include $116 million for facilities under synthetic lease agreements that had been reflected off-balance sheet prior to December 31, 2003. Projected capital expenditures on these facilities are also included for the years 2004 through 2008.

PPL Energy Supply's capital expenditure projections for the years 2004-2008 total about $2.6 billion. Capital expenditure plans are revised periodically to reflect changes in market, and asset regulatory conditions. PPL Energy Supply also leases vehicles, personal computers and other equipment, as described in Note 10 to the Financial Statements. See Note 14 for additional information regarding potential capital expenditures for environmental projects.

Acquisitions, Development and Divestitures

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 9 to the Financial Statements for information regarding recent acquisitions and development activities.

At December 31, 2003, PPL Global had investments in foreign facilities, including consolidated investments in WPD, Emel, EC and others. See Note 3 to the Financial Statements for information on unconsolidated investments accounted for under the equity method.

PPL Global is exploring potential sale opportunities for its interest in CGE, within the context of an on-going review of its international minority ownership investments.

At December 31, 2003, PPL Energy Supply had domestic generation projects under development which will provide 663 MW of additional generation.

PPL Energy Supply 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.

Environmental Matters

See Note 14 to the Financial Statements for a discussion of environmental matters.

Competition

See Item 1, "Business - Competition," for additional information.

New Accounting Standards

FIN 46 and FIN 46(R)

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." FIN 46 clarifies that variable interest entities, as defined therein, that do not disperse risks among the parties involved should be consolidated by the entity that is determined to be the primary beneficiary. FIN 46 also requires certain disclosures to be made by the primary beneficiary and by an enterprise that holds a significant variable interest in a variable interest entity but is not the primary beneficiary. FIN 46 applies immediately to variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after January 31, 2003. For variable interest entities in which an enterprise holds a variable interest that was acquired before February 1, 2003, FIN 46 was originally required to be adopted no later than the first fiscal year or interim period beginning after June 15, 2003. However, in October 2003, the FASB issued FSP FIN 46-6, "Effective Date of FASB Interpretation No. 46, Consolidation of Variable Interest Entities," which delayed the effective date for applying the provisions of FIN 46 to interests held by public entities in variable interest entities or potential variable interest entities created before February 1, 2003 until the end of the first interim period ending after December 15, 2003.

In December 2003, the FASB revised FIN 46 by issuing Interpretation No. 46 (revised December 2003), which is known as FIN 46(R) and replaces FIN 46. FIN 46(R) does not change the general consolidation concepts of FIN 46. Among other things, FIN 46(R) again changes the effective date for applying the provisions of FIN 46 to certain entities, clarifies certain provisions of FIN 46 and provides additional scope exceptions for certain types of businesses. For entities to which the provisions of FIN 46 have not been applied as of December 24, 2003, FIN 46(R) provides that a public entity that is not a small business issuer should apply the provisions of FIN 46 or FIN 46(R) as follows: (i) FIN 46(R) shall be applied to all entities no later than the end of the first reporting period that ends after March 15, 2004 and (ii) FIN 46 or FIN 46(R) should be applied to entities that are considered to be SPEs no later than the end of the first reporting period that ends after December 15, 2003.

As permitted by FIN 46(R), PPL Energy Supply adopted FIN 46 effective December 31, 2003 for entities created before February 1, 2003 that are considered to be SPEs. This adoption resulted in the consolidation of the lessors under the operating leases for the Sundance, University Park and Lower Mt. Bethel generation facilities, as well as the deconsolidation of a wholly-owned trust. See below for further discussion. Also, as permitted by FIN 46(R), PPL Energy Supply deferred the application of FIN 46 for other entities and plans to adopt FIN 46(R) for all entities on March 31, 2004.

PPL Energy Supply is in the process of evaluating entities in which it holds a variable interest in accordance with FIN 46(R). PPL Energy Supply is currently not aware of any variable interest entities that are not consolidated as of December 31, 2003 but which it will be required to consolidate in accordance with FIN 46(R) effective March 31, 2004. As it continues to evaluate the impact of applying FIN 46(R), PPL Energy Supply may identify additional entities that it would need to consolidate.

Additional Entities Consolidated

The lessors under the operating leases for the Sundance, University Park and Lower Mt. Bethel generation facilities are variable interest entities that are considered to be SPEs. PPL Energy Supply is the primary beneficiary of these entities. Consequently, PPL Energy Supply was required to consolidate the financial statements of the lessors effective December 31, 2003. Upon initial consolidation, PPL Energy Supply recognized $1.1 billion of additional assets and liabilities on its balance sheet and a charge of $27 million, after-tax, as a cumulative effect of a change in accounting principle. The additional assets consist principally of the generation facilities, and the additional liabilities consist principally of the lease financing. See Note 10 to the Financial Statements for a discussion of the leases.

Entities Deconsolidated

Effective December 31, 2003, PPL Energy Supply deconsolidated SIUK Capital Trust I. This trust is considered to be an SPE and was deconsolidated because PPL Energy Supply is not the primary beneficiary of the trust under current interpretations of FIN 46. Therefore, the "Company-obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Company Debentures" amounting to $86 million, which would have been recorded as a component of long-term debt in 2003 in accordance with SFAS 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity," if the trust was consolidated, are not reflected in PPL Energy Supply's Balance Sheet at December 31, 2003. Instead, the subordinated debt securities that support the trust preferred securities are reflected in "Long-term Debt with Affiliate Trust" as of December 31, 2003. See below for further discussion.

SIUK Capital Trust I holds subordinated debt securities of WPD LLP. As a result of deconsolidating the trust, the subordinated debt securities are no longer eliminated in the consolidated financial statements. As of December 31, 2003, $89 million is reflected as "Long-term Debt with Affiliate Trust" in PPL Energy Supply's Balance Sheet.

The effect on the Balance Sheet as a result of deconsolidating the trust was an increase in both total assets and total liabilities of $3 million. The increase in assets relates to the investment in the common securities of the trust, which is no longer eliminated in the consolidated financial statements. The increase in liabilities consists primarily of the difference between the carrying value of the preferred securities issued by the trust compared to the carrying value of the subordinated debt securities of WPD LLP. The deconsolidation of the trust did not impact the earnings of PPL Energy Supply.

See the Statement of Company-obligated Mandatorily Redeemable Securities contained in the Financial Statements for a discussion of the trust and its preferred securities, as well as the subordinated debt securities issued to the trust.

Other

See Note 22 to the Financial Statements for information on other new accounting standards adopted in 2003 or pending adoption.

Application of Critical Accounting Policies

PPL Energy Supply's financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following accounting policies are particularly important to the financial condition or results of operations of PPL Energy Supply, and require estimates or other judgments of matters inherently uncertain. Changes in the estimates or other judgments included within these accounting policies could result in a significant change to the information presented in the financial statements. (These accounting policies are also discussed in Note 1 to the Financial Statements.) PPL's senior management has reviewed these critical accounting policies, and the estimates and assumptions regarding them, with its Audit Committee. In addition, PPL's senior management has reviewed the following disclosures regarding the application of these critical accounting policies with the Audit Committee.

1)  Price Risk Management

See "Risk Management - Energy Marketing & Trading and Other" in Financial Condition.

2)  Pension and Other Postretirement Benefits

As described in Note 12 to the Financial Statements, PPL Energy Supply subsidiaries sponsor various pension and other postretirement plans and participate in, and are allocated a significant portion of the liability and net periodic pension cost of the PPL Retirement Plan and the PPL Postretirement Benefit Plan. PPL and PPL Energy Supply follow the guidance of SFAS 87, "Employers' Accounting for Pensions," and SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," when accounting for these benefits. Under these accounting standards, assumptions are made regarding the valuation of benefit obligations and the performance of plan assets. Delayed recognition of differences between actual results and expected or estimated results is a guiding principle of these standards. This delayed recognition of actual results allows for a smoothed recognition of changes in benefit obligations and plan performance over the working lives of the employees who benefit under the plans. The primary assumptions are as follows:

• Discount Rate - The discount rate is used in calculating the present value of benefits, which are based on projections of benefit payments to be made in the future.

• Expected Return on Plan Assets - Management projects the future return on plan assets considering prior performance, but primarily based upon the plans' mix of assets and expectations for the long-term returns on those asset classes. These projected returns reduce the net benefit costs the company will record currently.

• Rate of Compensation Increase - Management projects employees' annual pay increases, which are used to project employees' pension benefits at retirement.

• Health Care Cost Trend Rate - Management projects the expected increases in the cost of health care.

In selecting discount rates, PPL and PPL Energy Supply consider fixed-income security yield rates. At December 31, 2003, PPL and PPL Energy Supply decreased the discount rate for their domestic plans from 6.75% to 6.25% as a result of decreased fixed-income security returns. For its international plans, PPL Energy Supply decreased the discount rate for its international plans from 5.75% to 5.50% at December 31, 2003.

In selecting an expected return on plan assets, PPL and PPL Energy Supply consider past performance and economic forecasts for the types of investments held by the plan. At December 31, 2003, PPL and PPL Energy Supply's expected return on plan assets for their domestic pension plans remained at 9.0%. For its international plans, PPL Energy Supply maintained a weighted average of 8.30% as the expected return on plan assets at December 31, 2003.

In selecting a rate of compensation increase, PPL and PPL Energy Supply consider tax implications, past experience in light of movements in inflation rates. At December 31, 2003, PPL and PPL Energy Supply's rates of compensation increase remained at 4.0% for their domestic plans. For its international plans, PPL Energy Supply's rate of compensation increase remained at 3.75% at December 31, 2003.

In selecting health care cost trend rates, PPL and PPL Energy Supply consider past performance and forecasts of health care costs. At December 31, 2003, PPL and PPL Energy Supply's health care cost trend rates were 11% for 2004, gradually declining to 5.0% for 2010.

A variance in the assumptions listed above could have a significant impact on projected benefit obligations, accrued pension and other postretirement benefit liabilities, reported annual net periodic pension and other postretirement benefit cost and other comprehensive income (OCI). The following chart reflects the sensitivities associated with a change in certain assumptions. While the chart below reflects either an increase or decrease in each assumption, the inverse of this change would impact the projected benefit obligation, accrued pension and other postretirement benefit liabilities, reported annual net periodic pension and other postretirement benefit cost and OCI by a similar amount in the opposite direction. Each sensitivity below reflects an evaluation of the change based solely on a change in that assumption.

	Increase/(Decrease)
Actuarial Assumption	Change in Assumption		Impact on Obligation		Impact on Liabilities (a)		Impact on Cost		Impact on OCI
Discount Rate		(0.25)%	$	114	$	2	$	2	$	89
Expected Return on Plan Assets		(0.25)%		N/A		7		7
Rate of Compensation Increase		0.25%		10		2		2
Health Care Cost Trend Rate (b)		1.0%		11		1		1		N/A

(a)	Excludes the impact of additional minimum liability
(b)	Only impacts other postretirement benefits

At December 31, 2003, PPL Energy Supply had been allocated and recognized accrued pension and other postretirement benefit liabilities totaling $332 million, included in "Deferred Credits and Other Noncurrent Liabilities - Other" on the Balance Sheet. At December 31, 2003, PPL Energy Supply had been allocated $1 million of prepaid postretirement benefit costs included in "Prepayments" on the Balance Sheet.

In 2003, PPL Energy Supply was allocated and recognized net periodic pension and other postretirement income credited to operating expenses of $24 million. This amount represents a $34 million decrease versus the credit recognized during 2002. This decrease was primarily due to the decrease in the discount rate at December 31, 2002.

As a result of the decrease in the assumed discount rate at December 31, 2003, PPL Energy Supply was required to increase its recognized additional minimum pension liability. Recording the change in the additional minimum liability resulted in a $12 million increase to the pension-related charge to OCI, net of taxes, translation adjustment and unrecognized prior service costs, with no effect on net income. This charge increased the pension related balance in OCI, which is a reduction to Member's Equity, to $309 million at December 31, 2003. The charges to OCI will reverse in future periods if the fair value of trust assets exceeds the accumulated benefit obligation.

Refer to Note 12 to the Financial Statements for additional information regarding pension and other postretirement benefits.

3)  Asset Impairment

PPL Energy Supply and its subsidiaries review long-lived assets for impairment when events or circumstances indicate carrying amounts may not be recoverable. Assets subject to this review, for which impairments have been recorded in 2003 or prior years, include international equity investments, new generation assets, consolidated international energy projects and goodwill.

PPL Energy Supply performs impairment analyses for tangible long-lived assets in accordance with SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." For long-lived assets to be held and used, SFAS 144 requires companies 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.

In determining asset impairments, management must make significant judgments and estimates to calculate the fair value of an investment. Fair value is developed through consideration of several valuation methods including comparison to market multiples, comparison to similar recent sales transactions, comparison to replacement cost and discounted cash flow. Discounted cash flow is calculated by estimating future cash flow streams, applying appropriate discount rates to determine the present values of the cash flow streams, and then assessing the probability of the various cash flow scenarios. The impairment is then recorded based on the excess of the carrying value of the investment over fair value. Changes in assumptions and estimates included within the impairment reviews could result in significantly different results than those identified and recorded in the financial statements.

During 2003, PPL Energy Supply and its subsidiaries evaluated gas-fired generation assets for impairment, as events and circumstances indicated that the carrying value of these investments may not be recoverable. PPL Energy Supply did not record an impairment of its new gas-fired generation assets in 2003. For these impairment analyses, the most significant assumption was the estimate of future cash flows. PPL Energy Supply estimates future cash flow using information from its corporate business plan adjusted for any recent sales or purchase commitments. Key factors that impact cash flows include projected prices for electricity and gas as well as firm sales and purchase commitments. A 10% decrease in estimated future cash flow for certain in-service gas-fired generation assets would have resulted in an impairment charge.

PPL Energy Supply performs impairment analyses of goodwill in accordance with SFAS 142, "Goodwill and Other Intangible Assets." SFAS 142 requires an annual impairment test of goodwill and other intangible assets that are not subject to amortization.

PPL Energy Supply completed its annual goodwill impairment test in the fourth quarter of 2003. This test did not result in an impairment. PPL Energy Supply's most significant assumptions surrounding the goodwill impairment test relate to the determination of fair value. PPL Energy Supply determined fair value based upon discounted cash flows. A decrease in the forecasted cash flows of 10% or an increase of the discount rate by 25 basis points would not have resulted in impairment.

4)  Leasing

PPL Energy Supply applies the provisions of SFAS 13, "Accounting for Leases," to all leasing transactions. In addition, PPL Energy Supply applies the provisions of numerous other accounting pronouncements issued by the FASB and the EITF that provide specific guidance and additional requirements related to accounting for various leasing arrangements. In general, there are two types of leases from a lessee's perspective: operating leases - leases accounted for off-balance sheet; and capital leases - leases capitalized on the balance sheet.

In accounting for leases, management makes various assumptions, including the discount rate, the fair market value of the leased assets and the estimated useful life, in determining whether a lease should be classified as operating or capital. Changes in these assumptions could result in the difference between whether a lease is determined to be an operating lease or a capital lease, thus significantly impacting the amounts to be recognized in the financial statements.

In addition to uncertainty inherent in management's assumptions, leasing transactions and the related accounting rules become increasingly complex when they involve: sale/leaseback accounting (leasing transactions where the lessee previously owned the leased assets); synthetic leases (leases that qualify for operating lease treatment for book accounting purposes and financing treatment for tax accounting purposes); and lessee involvement in the construction of leased assets.

At December 31, 2003, PPL Energy Supply subsidiaries participated in one significant sale/leaseback transaction which has been accounted for as an operating lease. As discussed in Note 22 to the Financial Statements, the lessors under certain synthetic operating leases previously accounted for off-balance sheet were consolidated effective December 31, 2003 as a result of the adoption of FIN 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," for certain entities.

Sale/Leaseback

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. This transaction is accounted for as an operating lease in accordance with current rules related to sale/leaseback arrangements. If for any reason this transaction did not meet the requirements for off-balance sheet operating lease treatment as a sale/leaseback, PPL Energy Supply would have approximately $315 million of additional assets and liabilities recorded on its balance sheet at December 31, 2003 and would have recorded additional expenses currently estimated at $9 million, after-tax, in 2003.

See Note 10 to the Financial Statements for additional information related to operating leases.

5)  Loss Contingencies

PPL Energy Supply periodically records the estimated impacts of various conditions, situations or circumstances involving uncertain outcomes. These events are called "contingencies," and PPL Energy Supply's accounting for such events is prescribed by SFAS 5, "Accounting for Contingencies." SFAS 5 defines a contingency as "an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur."

For loss contingencies, the loss must be accrued if (1) information is available that indicates it is "probable" that the loss has been incurred, given the likelihood of the uncertain future events and (2) the amount of the loss can be reasonably estimated. FASB defines "probable" as cases in which "the future event or events are likely to occur." SFAS 5 does not permit the accrual of contingencies that might result in gains.

The accrual of a loss contingency involves considerable judgment on the part of management. The accounting aspects of loss contingencies include: (1) the initial identification and recording of the loss contingency; (2) the determination of a triggering event for reducing a recorded loss contingency; and (3) the on-going assessment as to whether a recorded loss contingency is reasonable.

Initial Identification and Recording of the Loss Contingency

PPL Energy Supply uses its internal expertise and outside experts (such as lawyers, tax specialists and engineers), as necessary, to help estimate the probability that a loss has been incurred and the amount (or range) of the loss. PPL Energy Supply continuously assesses potential loss contingencies for environmental remediation, litigation claims, regulatory penalties and other events.

PPL Energy Supply has identified certain events which could give rise to a loss, but which do not meet the conditions for accrual under SFAS 5. SFAS 5 requires disclosure, but not a recording, of potential losses when it is "reasonably possible" that a loss has been incurred. FASB defines "reasonably possible" as cases in which "the chance of the future event or events occurring is more than remote but less than likely." See Note 14 to the Financial Statements for disclosure of potential loss contingencies, most of which have not met the criteria for accrual under SFAS 5.

Reducing Recorded Loss Contingencies

When a loss contingency is recorded, PPL Energy Supply identifies, where applicable, the triggering events for subsequently reducing the loss contingency. The triggering events generally occur when the contingency has been resolved and the actual loss is incurred, or when the risk of loss has diminished or been eliminated. The following are some of the triggering events which provide for the reduction of certain recorded loss contingencies:

• Certain loss contingencies are systematically reduced based on the expiration of contract terms. An example of this is the recorded liability for above-market NUG purchase commitments, which is described below. This loss contingency is being reduced over the lives of the NUG purchase contracts.

• Allowances for excess or obsolete inventory are reduced as the inventory items are pulled from the warehouse shelves and sold as scrap or otherwise disposed.

• Allowances for uncollectible accounts are reduced when accounts are written off after prescribed collection procedures have been exhausted.

• Environmental loss contingencies are reduced when PPL Energy Supply makes payments for environmental remediation.

On-Going Assessment of Recorded Loss Contingencies

PPL Energy Supply reviews its loss contingencies on a regular basis to assure that the recorded potential loss exposures are reasonable. This involves on-going communication and analyses with internal and external legal counsel, engineers, tax specialists, managers in various operational areas and other parties.

All three aspects of accounting for loss contingencies - the initial identification and recording of a probable loss, the identification of triggering events to reduce the loss contingency, and the ongoing assessment of the reasonableness of a recorded loss contingency - require significant judgment by PPL Energy Supply's management.

The largest loss contingency on PPL Energy Supply's balance sheet, and the loss contingency that changed most significantly in 2003, was for above-market NUG purchase commitments. This loss contingency reflects the estimated difference between the above-market contract terms under the purchase commitments, and the fair value of electricity. This loss contingency was originally recorded at $854 million in 1998, when PPL Electric's generation business was deregulated. Under regulatory accounting, PPL Electric recorded the above-market cost of the purchases from NUGs as part of its purchased power costs on an as-incurred basis, since these costs were recovered in regulated rates. When the generation business was deregulated, the loss contingency associated with the commitment to make above-market NUG purchases was recorded. This loss contingency for the above-market portion of NUG purchase commitments was recorded because it was probable that the loss had been incurred and the estimate of future energy prices could be reasonably determined, using the then forward prices of electricity and capacity. This loss contingency was transferred to PPL EnergyPlus in the July 1, 2000 corporate realignment. The above-market loss contingency was $352 million at December 31, 2003.

When the loss contingency related to NUG purchases was recorded in 1998, PPL Electric established the triggering events for when the loss contingency would be reduced. A schedule was established to reduce the liability based on projected purchases over the lives of the NUG contracts. All but one of the NUG contracts expire by 2009, with the last one ending in 2014. PPL EnergyPlus reduces the above-market NUG liability based on the aforementioned schedule. As PPL EnergyPlus reduces the liability for the above-market NUG purchases, it offsets the actual cost of NUG purchases, thereby bringing the net power purchase expense more in line with market prices.

PPL EnergyPlus assessed the remaining $352 million above-market liability at December 31, 2003, comparing the projected electricity purchases under the terms of the NUG contracts, with the purchases assuming projected market prices for the energy. This assessment was based on projected PJM market prices, including capacity, through 2014. The assessment also used sensitivities around the market prices, adjusting such prices upwards and downwards by 10%.

The assessment is dependent on the market prices of energy and the estimated output levels of the NUGs. Market prices of energy are dependent on many variables, including growth in electricity demand in PJM, available generation, and changes in regulatory and economic conditions. Accordingly, market price sensitivities were used in the assessment. If estimated market prices were adjusted upwards by 10% in each of the years from 2004 through 2014, the contingency for the above-market NUG purchase commitments would be approximately $296 million. Conversely, if estimated market prices were adjusted downwards by 10% during the remaining term of the NUG contracts, the contingency for the above-market NUG purchase commitments would be approximately $386 million. The recorded above-market liability of $352 million at December 31, 2003 falls within the range calculated in the year-end assessment. As noted above, it is very difficult to estimate future electricity prices, which are dependent on many variables and subject to significant volatility. However, PPL Energy Supply's management believes that the current recorded NUG above-market liability was fairly stated at December 31, 2003.

6)  Asset Retirement Obligations

In 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations," which addresses the accounting for obligations associated with the retirement of tangible long-lived assets. SFAS 143 requires legal obligations associated with the retirement of long-lived assets to be recognized as a liability in the financial statements. The initial obligation should be measured at the estimated fair value. An equivalent amount should be recorded as an increase in the value of the capitalized asset and allocated to expense over the useful life of the asset. Until the obligation is settled, the liability should be increased, through the recognition of accretion expense in the income statement, for changes in the obligation due to the passage of time. SFAS 143 is effective for fiscal years beginning after June 15, 2002.

In determining asset retirement obligations, management must make significant judgments and estimates to calculate fair value. Fair value is developed through consideration of estimated retirement costs in today's dollars, inflated to the anticipated retirement date and then discounted back to the date the asset retirement obligation was incurred. Changes in assumptions and estimates included within the calculations of asset retirement obligations could result in significantly different results than those identified and recorded in the financial statements.

PPL Energy Supply adopted SFAS 143 effective January 1, 2003. Initial adoption of the new rules resulted in an increase in net PP&E of $32 million, reversal of previously recorded liabilities of $304 million, recognition of asset retirement obligations of $229 million, recognition of a deferred tax liability of $44 million and a cumulative effect of adoption that increased net income by $63 million. At December 31, 2003, PPL Energy Supply had asset retirement obligations totaling $242 million recorded on the Balance Sheet. PPL Energy Supply's most significant assumptions surrounding asset retirement obligations are the forecasted retirement cost, discount rate and inflation rate. A variance in the forecasted retirement cost, discount rate or inflation rate could have a significant impact on the ARO liability and the cumulative effect gain.

The following chart reflects the sensitivities associated with a change in these assumptions upon initial adoption. Each sensitivity below reflects an evaluation of the change based solely on a change in that assumption only.

	Change in Assumption	Impact on Cumulative Effect	Impact on ARO Liability
Retirement Cost	10%/(10)%	$(10)/$10	$22/$(22)
Discount Rate	0.25%/(0.25)%	$10/$(11)	$(23)/$26
Inflation Rate	0.25%/(0.25)%	$(12)/$11	$27/$(24)

Other Information

PPL's Audit Committee has approved the independent auditor to provide audit and audit-related services and other services permitted by the Sarbanes-Oxley Act of 2002 and SEC rules. The audit and audit-related services include services in connection with statutory and regulatory filings, reviews of offering documents and registration statements, employee benefit plan audits and internal control reviews.

PPL ELECTRIC UTILITIES CORPORATION
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

PPL Electric provides electricity delivery service in eastern and central Pennsylvania. Its headquarters are in Allentown, Pennsylvania. See Item 1, "Business - Background," for a description of PPL Electric's business. PPL Electric's strategy and principal challenge is to own and operate its electricity delivery business at the highest level of quality and reliability and at the most efficient cost.

PPL Electric's electricity delivery business is rate-regulated. Accordingly, PPL Electric is subject to regulatory risks in terms of the costs that it may recover and the investment returns that it may collect in customers' rates.

An important challenge for PPL Electric is to maintain a strong credit profile. In the past few years, investors, analysts and rating agencies that follow companies in the energy industry have been particularly focused on the credit quality and liquidity position of these companies. PPL Electric is focused on strengthening its balance sheet and improving its liquidity position, thereby improving its credit profile.

The purpose of "Management's Discussion and Analysis of Financial Condition and Results of Operations" is to provide information concerning PPL Electric's past and expected future performance in implementing the strategy and challenges outlined above. Specifically:

• "Results of Operations" provides an overview of PPL Electric's operating results in 2003, 2002 and 2001, starting with a review of earnings. The earnings review identifies certain unusual items that had impacts in these years, and it also references the delivery rate increase that PPL Electric expects to file with the PUC in the spring of 2004. "Results of Operations" also includes an explanation of changes during this three-year period in significant income statement components, such as operating revenues, operation and maintenance expenses, financing costs, income taxes and cumulative effects of accounting changes.

• "Financial Condition - Liquidity" provides an analysis of PPL Electric's liquidity position and credit profile, including its sources of cash (including bank credit facilities and sources of operating cash flow) and uses of cash (including contractual commitments and capital expenditure requirements) and the key risks and uncertainties that impact PPL Electric's past and future liquidity position and financial condition. This subsection also includes an explanation of recent rating agency decisions affecting PPL Electric, as well as a listing of PPL Electric's current credit ratings.

• "Financial Condition - Risk Management" includes an explanation of PPL Electric's risk management activities regarding commodity price risk and interest rate risk.

• "Application of Critical Accounting Policies" provides an overview of the accounting policies that are particularly important to the results of operations and financial condition of PPL Electric and that require PPL Electric's management to make significant estimates, assumptions and other judgments. Although PPL Electric's management believes that these estimates, assumptions and other judgments are appropriate, they relate to matters that are inherently uncertain. Accordingly, changes in the estimates, assumptions and other judgments applied to these accounting policies could have a significant impact on PPL Electric's results of operations and financial condition, as reflected in PPL Electric's Financial Statements.

The information provided in "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with PPL Electric's Financial Statements and the Notes thereto.

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

Results of Operations

The following discussion explains significant changes in principal items on the Statement of Income comparing 2003 to 2002, and 2002 to 2001.

Earnings

Income available to PPL was:

2003		2002		2001
$	25	$	39	$	119

The after-tax changes in income available to PPL were primarily due to:

	2003 vs. 2002			2002 vs. 2001
Delivery revenues (net of CTC/ITC amortization and interest expense on transition bonds)	$	17		$	(10	)
Operation and maintenance expenses		(15	)		(18	)
PJM ancillary expenses		(6	)		(29	)
Depreciation expense		(5	)		(2	)
Retail electric to affiliate revenues		(9	)		2
Financing costs (excluding transition bond interest expense)		(6	)		(2	)
Other		(4	)		3
Unusual items		14			(24	)
	$	(14	)	$	(80	)

The changes in income available to PPL from year to year were, in part, attributable to several unusual items with significant earnings impacts, including an accounting change and an infrequently occurring item. The after-tax impacts of these unusual items are shown below:

	2003			2002			2001
Workforce reduction (Note 20)	$	(5	)	$	(19	)
Accounting method change - Pensions (Note 12)							$	5
Total	$	(5	)	$	(19	)	$	5

The year to year changes in earnings components are discussed in the balance of the discussion in "Results of Operations."

PPL Electric expects to file a request for a distribution rate increase with the PUC in March 2004. If approved, the new rates will go into effect in January 2005, when PPL Electric's distribution rate cap expires. In addition, beginning January 1, 2005, PPL Electric expects to fully recover from its retail customers the charges that it pays to PJM for transmission-related services. See "Item 1. Business-Background-Delivery Segment" for more information regarding PPL Electric's transmission and distribution rate cap.

Operating Revenues

Retail Electric (Including to Affiliate)

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

	2003 vs. 2002			2002 vs. 2001
Electric delivery	$	48		$	(1	)
PLR electric generation supply		22			102
Delivery and PLR supply to PPL Generation		(15	)		3
Other					(11	)
	$	55		$	93

The increase in operating revenues from retail electric operations for 2003, compared with the same period in 2002, was primarily due to:

• higher delivery revenues resulting from a 1.1% increase in delivery sales. The increase in sales volume was due in part to colder winter weather in the first quarter of 2003; and
• higher PLR revenues due to higher energy and capacity rates in 2003 compared with 2002; partially offset by
• lower sales to PPL Generation. PPL Generation's power plants began self-supplying their station use in April 2003, rather than taking supply from PPL Electric.

The increase in operating revenues from retail electric operations from 2002 compared with 2001 was primarily due to higher revenues from providing electric generation supply as a PLR. Since December 2001, about 50% to 60% of kWh load in PPL Electric's service territory that had been served by alternate suppliers under the Customer Choice Act had returned to PPL Electric as the supplier.

Wholesale Electric

PPL Electric wholesale revenues are derived from sales to municipalities. The $5 million decrease in wholesale electric revenues in 2002 compared with 2001 was due to the expiration of certain municipal contracts in February 2002.

Wholesale Electric to Affiliate

PPL Electric has a contract to sell to PPL EnergyPlus the electricity that PPL Electric purchases under contracts with NUGs. The termination of one NUG contract in April 2003 and another in February 2002 caused PPL Electric to purchase $8 million less NUG energy in 2003 compared to 2002 and $16 million less in 2002 compared with 2001. PPL Electric therefore had less electricity to sell to PPL EnergyPlus.

Energy Purchases

Effective January 1, 2002, PPL Electric began incurring the costs of certain ancillary services, such as area regulation and operating reserves, in connection with its power supply contract with PPL EnergyPlus. Energy purchases increased by $31 million in 2002 compared with 2001, including $48 million in ancillary service costs. These costs were primarily offset by a $16 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 $13 million in 2003 compared with 2002. This increase reflects higher prices for energy purchased under the power supply contracts with PPL EnergyPlus needed to support PLR load.

Energy purchases from affiliate increased by $106 million in 2002 compared with 2001. This increase reflects higher purchases under power supply contracts with PPL EnergyPlus needed to support a higher PLR load, due to the return of customers to PPL Electric as their PLR. See Note 15 to the Financial Statements for a discussion of the power supply contracts.

Other Operation and Maintenance

The increase (decrease) in other operation and maintenance expenses was primarily due to:

	2003 vs. 2002				2002 vs. 2001
Decrease in pension income	$	13		$		7
Lower net rent allocations to other PPL affiliates in 2003 and 2002		6				4
Increase in other postretirement benefit expense		7				3
Increases in expenses in responding to customers' service calls		2				5
Additional costs from winter storms						6
Work performed to assure reliability of the T&D system		2				3
Environmental accrual for a former manufactured gas plant		2
Television advertising		2
Increase in property damage provisions, based on an aging of those accounts receivable		1
Estimated reduction in salaries and benefits as a result of the workforce reduction initiated in 2002		(8	)			(4	)
Vacation liability adjustment in 2002 in conjunction with the workforce reduction		(7	)			7
Other - net		6
	$	26		$		31

The $13 million decrease in net pension income was attributable to decreased asset values at the end of 2002 and reductions in the discount rate assumptions for PPL's domestic pension plans, which was the result of weakness in the financial markets during 2002. The 2002 year-end asset values and discount rates were used to measure net pension income for 2003. Through December 31, 2003, PPL Electric was allocated $4 million of net pension income, based on its participation in PPL's primary domestic pension plan.

Although financial markets have improved and PPL domestic pension plans have experienced significant asset gains in 2003, interest rates on fixed-income obligations have continued to fall requiring a further reduction in the discount rate assumption as of December 31, 2003. The reduction in the discount rate assumption has a significant impact on the measurement of plan obligations and net pension cost, which will result in the allocation of a pension charge to PPL Electric in 2004. See Note 12 to the Financial Statements for details of the funded status of PPL's pension plans.

Depreciation

Depreciation increased by $9 million in 2003 compared with 2002, primarily due to plant and software additions, including the Automated Meter Reading project.

Taxes, Other Than Income

Taxes, other than income, increased by $11 million in 2003 compared with 2002 due to the settlement of prior years' capital stock tax refund claims of $8 million in 2002, and higher taxes related to an increase in the basis on which capital stock tax is calculated in 2003.

Taxes, other than income, increased by $37 million in 2002 compared with 2001, primarily due to a $45 million increase in gross receipts tax, partially offset by a $10 million decrease in capital stock tax.

The gross receipts tax increase in 2002 was 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 or return benefits to customers that may result from the restructuring of the electric industry. This increase was partially offset by the settlement of prior years' capital stock tax refund claims and a lower capital stock tax rate in 2002.

Workforce Reduction

See Note 20 to the Financial Statements for information on the charges recorded in 2003 and 2002.

Other Income - net

See Note 16 to the Financial Statements for details of other income and deductions.

Financing Costs

Interest expense on long-term debt decreased by $7 million in 2003 compared to 2002. This decrease was the net impact of retirements of mortgage bonds, Pollution Control Bonds and Transition Bonds, partially offset by the issuance of $100 million of Senior Secured Bonds and $90 million of Pollution Control Bonds.

Lower interest on long-term debt accounted for the $12 million decrease in interest expense in 2002 compared with 2001. This decrease was the net impact of retirements of mortgage bonds and Transition Bonds, partially offset by the issuance of $800 million of Senior Secured Bonds in August 2001.

Dividends on preferred securities decreased by $13 million from 2002 to 2003 and by $10 million from 2001 to 2002. These decreases were due to retirements and redemptions of preferred securities and preferred stock.

Income Taxes

Income tax expense did not change for 2003 compared with 2002. This was due to lower pre-tax book income, resulting in a $5 million reduction in income taxes, offset by a $3 million increase in income tax expense related to the filing of PPL Electric's income tax returns.

Income tax expense decreased by $47 million in 2002 compared with 2001. This change was primarily due to a decrease in pre-tax book income.

Cumulative Effect of a Change in Accounting Principle

In 2001, PPL changed its method of amortizing unrecognized gains or losses in the annual pension expense or income determined under SFAS 87, "Employers' Accounting for Pensions." This change resulted in an allocation to PPL Electric of a cumulative-effect credit of $5 million. See Note 12 to the Financial Statements for additional information.

Financial Condition

Liquidity

PPL Electric is focused on maintaining a strong liquidity position and strengthening its balance sheet, thereby improving its credit profile. PPL Electric believes that its cash on hand, operating cash flows, access to debt capital markets and borrowing capacity, taken as a whole, provide sufficient resources to fund its ongoing operating requirements, future security maturities and estimated future capital expenditures. PPL Electric currently expects cash on hand at the end of 2004 to be approximately $110 million, with about $200 million in syndicated credit facilities and up to $150 million in short-term debt capacity related to an asset-backed commercial paper program in which it plans to participate starting in early 2004. However, PPL Electric's cash flows from operations and its access to cost effective bank and capital markets are subject to risks and uncertainties, including but not limited to, the following:

• unusual or extreme weather that may damage PPL Electric's transmission and distribution facilities or effect energy sales to customers;
• ability to recover, and timeliness and adequacy of recovery of costs associated with regulated utility businesses; and
• a downgrade in PPL Electric's credit ratings that could negatively affect its ability to access capital and increase the cost of maintaining credit facilities and any new debt.

At December 31, 2003, PPL Electric had $162 million in cash and cash equivalents and no short-term debt as compared to $29 million in cash and cash equivalents and $15 million of short-term debt at December 31, 2002, and $79 million in cash and cash equivalents and no short-term debt at December 31, 2001. The changes in short-term debt resulted primarily from the repayments described below under "Net Cash Provided by (Used in) Financing Activities" and in Note 8 to the Financial Statements. The changes in cash and cash equivalents resulted from the following:

	2003			2002			2001
Net Cash Provided by Operating Activities	$	528		$	274		$	392
Net Cash Provided by (Used in) Investing Activities		(145	)		41			(432	)
Net Cash Used in Financing Activities		(250	)		(365	)		(148)
Increase (Decrease) in Cash & Cash Equivalents	$	133		$	(50	)	$	(188)

Net Cash Provided by Operating Activities

Net cash provided by operating activities increased by 93%, or $254 million, in 2003 versus 2002, reflecting working capital improvements resulting from a decrease in accounts receivable and an increase in accounts payable. The savings from a workforce reduction program that was commenced in 2002 was more than offset by rising transmission and distribution operating costs.

An important element supporting the stability of PPL Electric's cash from operations is its long-term energy purchase contracts with PPL EnergyPlus. These contracts provide sufficient energy for PPL Electric to meet its PLR obligation from 2003 through 2009, at the pre-determined capped rates it is entitled to charge its customers during this period. These contracts require cash collateral or other credit enhancement, or reductions or terminations of a portion or the entire contract through cash settlement in the event of a downgrade of PPL Electric or adverse changes in market prices. For example, if PPL Electric's ratings were lowered to below "investment grade" and energy prices decreased by 10%, PPL Electric estimates that, based on its December 31, 2003 and 2002 positions, it would have to post collateral of approximately $300 million for both years. The maximum that PPL Electric would have to post under these contracts is $300 million.

Net cash provided by operating activities in 2002 was $274 million, compared to $392 million in 2001. The decrease was primarily the result of lower earnings and an increase in accounts receivable. Cash provided by operating activities was lower in 2002, despite a $90 million up-front payment on the PLR contract made in 2001.

Net Cash Provided by (Used in) Investing Activities

Net cash used in investing activities in 2003 was $145 million, as compared to net cash provided by investing activities in 2002 of $41 million. The difference primarily was the result of a lower loan repayment by an affiliate. The primary use of cash for investing activities is capital and investment expenditures, which are summarized by category in the table in "Capital Expenditure Requirements." In 2004, PPL Electric expects to be able to fund all of its capital expenditures with cash from operations.

Net cash provided by investing activities in 2002 was $41 million, as compared to net cash used in investing activities in 2001 of $432 million. The difference primarily was the result of a loan repayment by an affiliate in 2002, versus net lending to affiliates in 2001.

Net Cash Used in Financing Activities

Net cash used in financing activities was $250 million in 2003, compared to $365 million in 2002, which reflects the repayment of long-term debt. In 2003, the $250 million of cash used in financing activities primarily consisted of net debt retirements of $255 million, preferred stock retirements of $31 million, a contribution from parent of $75 million and common and preferred dividends paid of $32 million. In 2002, the $365 million primarily consisted of net debt retirements of $270 million, company-obligated mandatorily redeemable preferred securities retirements of $250 million, a contribution from parent of $240 million and common and preferred stock dividends paid of $85 million.

PPL Electric's debt financing activity in 2003 was as follows:

		Additions		Payments			Net
PPL Electric First Mortgage Bonds (FMB)		$	100	$	(85	)	$	15
PPL Electric FMB Pollution Control Bonds			90		(90	)
PPL Electric Commercial Paper (net change)					(15	)		(15	)
PPL Transition Bond Company					(255	)		(255	)
	Total	$	190	$	(445	)	$	(255	)

Debt issued during 2003 had stated interest rates ranging from 3.125% to 4.30% and maturities from 2008 through 2013. See Note 8 to the Financial Statements for more detailed information regarding PPL Electric's borrowings.

In July 2003, PPL Electric determined that, based on its current cash position and anticipated cash flows, it would not need to access the commercial paper markets through at least the end of 2003. As a result, PPL Electric requested Standard & Poor's Ratings Services (S&P), Moody's Investors Service, Inc. (Moody's) and Fitch Ratings (Fitch) to withdraw their ratings for its currently inactive commercial paper program, which the rating agencies did effective as of July 9, 2003. This decision has not limited the ability of PPL Electric to fund its short-term liquidity needs. PPL Electric currently does not have any commercial paper outstanding, but it expects to restart its commercial paper program in early 2004.

At December 31, 2003, PPL Electric's total committed borrowing capacity and the use of this borrowing capacity were as follows:

	Committed Capacity		Borrowed	Letters of Credit Issued (b)		Available Capacity (b)
PPL Electric Credit Facilities (a)	$	300		$	42	$	258

(a)

PPL Electric's credit facilities allow for borrowings at LIBOR-based rates plus a spread, depending upon the company's public debt rating. PPL Electric also has the capability to issue up to $250 million of letters of credit under these facilities, which issuance reduces available borrowing capacity. These credit facilities contain a financial covenant requiring debt to total capitalization not greater than 70%. At December 31, 2003 and 2002, PPL Electric's consolidated debt to total capitalization percentages, as calculated in accordance with its credit facilities, were 57% and 58%. PPL Electric's 364-day credit facility also allows it to borrow up to the full amount of the credit facility on the day of expiration for up to a one-year period. The credit agreements also contain certain representations and warranties that must be made for PPL Electric to borrow under them, including, but not limited to, a material adverse change clause that relates solely to PPL Electric's ability to perform its obligations under the credit agreements and related loan documents.

(b)

PPL Electric has a reimbursement obligation to the extent any letters of credit are drawn upon. The letters of credit issued as of December 31, 2003 expire in 2004.

These credit agreements contain various other covenants. Failure to meet those covenants beyond applicable grace periods could result in acceleration of due dates of borrowings and/or termination of the agreements. PPL Electric monitors the covenants on a regular basis. At December 31, 2003, PPL Electric was in compliance with those covenants. At this time PPL Electric believes that these covenants and other borrowing conditions will not limit access to these funding sources. PPL Electric intends to reduce its total syndicated credit facilities to $200 million in the first quarter of 2004. In early 2004, PPL Electric also intends to participate in an Asset-Backed Commercial Paper (ABCP) Program for up to $150 million that would be secured by a portion of its accounts receivable. The ABCP Program would provide a more reliable and stable source of liquidity than an unsecured commercial paper program.

PPL Electric's 2001 Senior Secured Bond Indenture restricts dividend payments in the event that PPL Electric fails to meet interest coverage ratios or fails to comply with certain separateness formalities undertaken in connection with its strategic initiative (see Note 19 to the Financial Statements for additional information). PPL Electric does not, at this time, expect that any of such limitations would significantly impact its ability to declare dividends.

Net cash used in financing activities was $365 million in 2002, compared to $148 million in 2001. In 2002, the $365 million primarily consisted of net debt retirements of $270 million, company-obligated mandatorily redeemable preferred securities retirements of $250 million, preferred and common dividend payments of $85 million, offset by a contribution from PPL of $240 million. In 2001, the $148 million primarily consisted of net debt issuances of $276 million, preferred stock redemptions of $15 million, repurchase of common stock from PPL of $280 million and preferred and common dividends of $107 million.

Operating Leases

PPL Electric has operating lease agreements to finance vehicles, personal computers and other equipment. These leasing structures provide PPL Electric with additional operating and financing flexibility. The operating leases contain covenants that are standard for these types of arrangements, such as maintaining insurance, maintaining corporate existence and the timely payment of rent and other fees. Failure to meet these covenants could limit or restrict access to these leases or require early payment of obligations. At this time, PPL Electric believes that these covenants will not limit access to these leases or cause acceleration or termination of the leases.

See Note 10 to the Financial Statements for a further discussion of the operating leases.

Contractual Obligations

At December 31, 2003, the estimated contractual cash obligations of PPL Electric were as follows:

Contractual Cash Obligations	Total		Less Than 1 Year		1-3 Years		3-5 Years		After 5 Years
Long-term Debt (a)	$	2,943	$	289	$	810	$	995	$	849
Capital Lease Obligations
Operating Leases		50		13		19		10		8
Purchase Obligations (b)		9,981		1,489		3,192		3,466		1,834
Other Long-term Liabilities Reflected on the Balance Sheet under GAAP
Total Contractual Cash Obligations	$	12,974	$	1,791	$	4,021	$	4,471	$	2,691

(a)	Reflects maturities only. Includes $1.4 billion of transition bonds issued by PPL Transition Bond Company in 1999 to securitize a portion of PPL Electric's stranded costs. This debt is non-recourse to PPL Electric.
(b)	The payments reflected herein are subject to change as the purchase obligation reflected is an estimate based on projected obligated quantities and projected pricing under the contract.

Credit Ratings

The following table summarizes the credit ratings of PPL Electric and its subsidiary, PPL Transition Bond Company, LLC, at December 31, 2003:

		Moody's	Standard & Poor's	Fitch
PPL Electric
	Senior Unsecured/Issuer Rating	Baa1	A-
	First Mortgage Bonds	Baa1	A-	A-
	Pollution Control Bonds*	Aaa	AAA
	Senior Secured Bonds	Baa1	A-	A-
	Preferred Stock	Ba1	BBB	BBB+
	Outlook	STABLE	NEGATIVE	STABLE
PPL Transition Bond Company
	Transition Bonds	Aaa	AAA	AAA
* Insured as to payment of principal and interest.

Rating Agency Actions in 2003

In 2003, S&P, Moody's and Fitch reviewed the credit ratings on the debt and preferred securities of PPL Electric. Based on their respective reviews, the rating agencies made certain ratings revisions that are described below. Management does not expect these ratings decisions to impact PPL Electric's ability to raise new debt or equity capital or to have a significant impact on its cost of any new capital or the cost of maintaining its credit facilities.

The ratings of S&P, Moody's and Fitch are not a recommendation to buy, sell or hold any securities of PPL Electric or its subsidiary, PPL Transition Bond Company, LLC. Such ratings may be subject to revisions or withdrawal by the agencies at any time and should be evaluated independently of each other and any other rating that may be assigned to their securities.

S&P

In April 2003, S&P notified PPL Electric that it affirmed the 'A-' ratings on PPL Electric's first mortgage bonds and senior secured bonds and the 'A-2' commercial paper ratings of PPL Electric, and that it placed PPL Electric on negative outlook.

Moody's

In May 2003, Moody's downgraded the credit ratings on PPL Electric's first mortgage bonds and senior secured bonds, to 'Baa1' from 'A3'. Moody's ratings outlook was stable for PPL Electric. PPL Electric's short-term debt rating was not impacted by Moody's long-term debt review. Moody's indicated that the full requirements contract between PPL Electric and PPL EnergyPlus, which previously was approved by the PUC and which extends through December 2009, mitigates PPL Electric's supply and price risk.

Off-Balance Sheet Arrangements

PPL Electric has entered into certain guarantee agreements that are within the scope of FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34." See Note 14 to the Financial Statements for a discussion on guarantees.

Risk Management

Market Risk

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 2003 through 2009. See Note 15 to the Financial Statements for information on the PLR contracts.

Interest Rate Risk

PPL Electric has issued debt to finance its operations, which increases its interest rate risk. At December 31, 2003, PPL Electric's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was insignificant.

PPL Electric is also exposed to changes in the fair value of its debt portfolio. At December 31, 2003, 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 $51 million, compared to $45 million at December 31, 2002.

Related Party Transactions

PPL Electric is not aware of any material ownership interests or operating responsibility by senior management of PPL Electric in outside partnerships, including leasing transactions with variable interest entities, or other entities doing business with PPL Electric.

For additional information on related party accounting transactions, see Note 15 to the Financial Statements.

Capital Expenditure Requirements

The schedule below shows PPL Electric's current capital expenditure projections for the years 2004-2008 and actual spending for the year 2003:

		Actual		Projected
		2003		2004		2005		2006		2007		2008
Construction expenditures
	Expenditures for PP&E	$	232	$	168	$	185	$	205	$	219	$	211

Construction expenditures include AFUDC which is expected to be less than $2 million in each of the years 2004-2008.

PPL Electric's capital expenditure projections for the years 2004-2008 total $988 million. Capital expenditure plans are revised periodically to reflect changes in market, and asset regulatory conditions. PPL Electric also leases vehicles, personal computers and other equipment, as described in Note 10 to the Financial Statements.

Environmental Matters

See Note 14 to the Financial Statements for a discussion of environmental matters.

Competition

See Item 1, "Business - Competition," for additional information.

New Accounting Standards

See Note 22 to the Financial Statements for information on new accounting standards adopted in 2003 or pending adoption.

Application of Critical Accounting Policies

PPL Electric's financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following accounting policies are particularly important to the financial condition or results of operations of PPL Electric, and require estimates or other judgments of matters inherently uncertain. Changes in the estimates or other judgments included within these accounting policies could result in a significant change to the information presented in the financial statements. (These accounting policies are also discussed in Note 1 to the Financial Statements.) PPL's senior management has reviewed these critical accounting policies, and the estimates and assumptions regarding them, with its Audit Committee. In addition, PPL's senior management has reviewed the following disclosures regarding the application of these critical accounting policies with the Audit Committee.

1)  Pension and Other Postretirement Benefits

As described in Note 12 to the Financial Statements, PPL Electric participates in, and is allocated a significant portion of the liability and net periodic pension cost of the PPL Retirement Plan and the PPL Postretirement Benefit Plan. PPL follows the guidance of SFAS 87, "Employers' Accounting for Pensions," and SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," when accounting for these benefits. Under these accounting standards, assumptions are made regarding the valuation of benefit obligations and performance of plan assets. Delayed recognition of differences between actual results and expected or estimated results is a guiding principle of these standards. This delayed recognition of actual results allows for a smoothed recognition of changes in benefit obligations and plan performance over the working lives of the employees who benefit under the plans. The primary assumptions are as follows:

• Discount Rate - The discount rate is used in calculating the present value of benefits, which are based on projections of benefit payments to be made in the future.

• Expected Return on Plan Assets - Management projects the future return on plan assets considering prior performance, but primarily based upon the plans' mix of assets and expectations for the long-term returns on those asset classes. These projected returns reduce the net benefit costs the company will record currently.

• Rate of Compensation Increase - Management projects employees' annual pay increases, which are used to project employees' pension benefits at retirement.

• Health Care Cost Trend Rate - Management projects the expected increases in the cost of health care.

In selecting discount rates, PPL considers fixed-income security yield rates. At December 31, 2003, PPL decreased the discount rate for its domestic plans from 6.75% to 6.25% as a result of decreased fixed-income security returns.

In selecting an expected return on plan assets, PPL considers past performance and economic forecasts for the types of investments held by the plan. At December 31, 2003, PPL's expected return on plan assets for its domestic pension plans remained at 9.0%.

In selecting a rate of compensation increase, PPL considered past experience in light of movements in inflation rates. At December 31, 2003, PPL's rate of compensation increase remained at 4.0% for its domestic plans.

In selecting health care cost trend rates, PPL considers tax implications, past performance and forecasts of health care costs. At December 31, 2003, PPL's health care cost trend rates were 11% for 2004, gradually declining to 5.0% for 2010.

A variance in the assumptions listed above could have a significant impact on the accrued pension and other postretirement benefit liabilities and reported annual net periodic pension and other postretirement benefit cost allocated to PPL Electric. The following chart reflects the sensitivities associated with a change in certain assumptions. While the chart below reflects either an increase or decrease in each assumption, PPL and its actuaries expect that the inverse of this change would impact the accrued pension and other postretirement benefit liabilities and reported annual net periodic pension and other postretirement benefit cost by a similar amount in the opposite direction. Each sensitivity below reflects an evaluation of the change based solely on a change in that assumption.

	Increase/(Decrease)
Actuarial Assumption	Change in Assumption		Impact on Liabilities		Impact on Cost
Discount Rate		(0.25)%	$	2	$	2
Expected Return on Plan Assets		(0.25)%		2		2
Rate of Compensation Increase		0.25%		1		1
Health Care Cost Trend Rate (a)		1.0%		2		2

(a) Only impacts other postretirement benefits.

At December 31, 2003, PPL Electric had been allocated accrued pension liabilities totaling $74 million, included in "Deferred Credits and Other Noncurrent Liabilities - Other" on the Balance Sheet. At December 31, 2003, PPL Electric had been allocated prepaid postretirement benefit costs totaling $2 million, included in "Prepayments" on the Balance Sheet.

In 2003, PPL Electric was allocated net periodic pension and other postretirement costs charged to operating expense of $17 million. This amount represents a $21 million reduction in the credit recognized during 2002. This reduction was primarily due to the decrease in the discount rate at December 31, 2002.

Refer to Note 12 to the Financial Statements for additional information regarding pension and other postretirement benefits.

2)  Loss Contingencies

PPL Electric periodically records the estimated impacts of various conditions, situations or circumstances involving uncertain outcomes. These events are called "contingencies," and PPL Electric's accounting for such events is prescribed by SFAS 5, "Accounting for Contingencies." SFAS 5 defines a contingency as "an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur."

For loss contingencies, the loss must be accrued if (1) information is available that indicates it is "probable" that the loss has been incurred, given the likelihood of the uncertain future events and (2) the amount of the loss can be reasonably estimated. FASB defines "probable" as cases in which "the future event or events are likely to occur." SFAS 5 does not permit the accrual of contingencies that might result in gains.

The accrual of a loss contingency involves considerable judgment on the part of management. The accounting aspects of loss contingencies include: (1) the initial identification and recording of the loss contingency; (2) the determination of a triggering event for reducing a recorded loss contingency; and (3) the on-going assessment as to whether a recorded loss contingency is reasonable.

Initial Identification and Recording of the Loss Contingency

PPL Electric uses its internal expertise and outside experts (such as lawyers, tax specialists and engineers), as necessary, to help estimate the probability that a loss has been incurred and the amount (or range) of the loss. PPL Electric continuously assesses potential loss contingencies for environmental remediation, litigation claims, regulatory penalties and other events.

PPL Electric has identified certain events which could give rise to a loss, but which do not meet the conditions for accrual under SFAS 5. SFAS 5 requires disclosure, but not a recording, of potential losses when it is "reasonably possible" that a loss has been incurred. FASB defines "reasonably possible" as cases in which "the chance of the future event or events occurring is more than remote but less than likely." See Note 14 to the Financial Statements for disclosure of potential loss contingencies, most of which have not met the criteria for accrual under SFAS 5.

Reducing Recorded Loss Contingencies

When a loss contingency is recorded, PPL Electric identifies the triggering event for subsequently reducing the loss contingency. The triggering events generally occur when the contingency has been resolved and the actual loss is incurred, or when the risk of loss has diminished or been eliminated. The following are some of the triggering events which provide for the reduction of certain recorded loss contingencies:

• Certain loss contingencies are systematically reduced based on the expiration of contract terms. An example of this is the recorded liability for above-market NUG purchase commitments, which is described below. This loss contingency was being reduced over the lives of the NUG purchase contracts, prior to the transfer of this loss contingency to PPL EnergyPlus.
• Allowances for excess or obsolete inventory are reduced as the inventory items are pulled from the warehouse shelves and sold as scrap or otherwise disposed.
• Allowances for uncollectible accounts are reduced when accounts are written off after prescribed collection procedures have been exhausted.
• Environmental loss contingencies are reduced when PPL Electric makes payments for environmental remediation.

On-Going Assessment of Recorded Loss Contingencies

PPL Electric reviews its loss contingencies on a regular basis to assure that the recorded potential loss exposures are reasonable. This involves ongoing communication and analyses with internal and external legal counsel, engineers, tax specialists, managers in various operational areas and other parties.

All three aspects of accounting for loss contingencies - the initial identification and recording of a probable loss, the identification of triggering events to reduce the loss contingency, and the ongoing assessment of the reasonableness of a recorded loss contingency - require significant judgment by PPL Electric's management.

The largest contingency currently on PPL's balance sheet is the loss contingency for above-market NUG purchase commitments, being the difference between the above-market contract terms and the fair value of electricity. This loss contingency was originally recorded at $854 million in 1998, when PPL Electric's generation business was deregulated. Under regulatory accounting, PPL Electric recorded the above-market cost of the purchases from NUGs as part of its purchased power costs on an as-incurred basis, since these costs were recovered in regulated rates. When the generation business was deregulated, the loss contingency associated with the commitment to make above-market NUG purchases was recorded. This loss contingency for the above-market portion of NUG purchase commitments was recorded because it was probable that the loss had been incurred and the estimate of future energy prices could be reasonably determined, using the then forward prices of electricity and capacity information. This loss contingency was transferred to PPL EnergyPlus in the July 1, 2000 corporate realignment.

When the loss contingency related to NUG purchases was recorded in 1998, PPL Electric established the triggering events for when the loss contingency would be reduced. A schedule was established to reduce the liability based on projected purchases over the lives of the NUG contracts. All but one of the NUG contracts expire by 2009, with the last one ending in 2014.

Prior to the July 1, 2000 transfer, PPL Electric reduced the above-market NUG liability based on the aforementioned schedule. As PPL Electric reduced the liability for the above-market NUG purchases, it offset the actual cost of NUG purchases, thereby bringing the net power purchase expense more in line with market prices.

Other Information

PPL's Audit Committee has approved the independent auditor to provide audit and audit-related services and other services permitted by the Sarbanes-Oxley Act of 2002 and SEC rules. The audit and audit-related services include services in connection with statutory and regulatory filings, reviews of offering documents and registration statements, employee benefit plan audits and internal control reviews.

PPL MONTANA, LLC AND SUBSIDIARIES
ITEM 7. 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 (I)(1)(a) and (b) of Form 10-K. Such analysis should be read in conjunction with the financial statements in Item 8. Terms and abbreviations appearing here are explained in the glossary.

Results of Operations

The following discussion explains significant changes in principal items on the Statement of Income comparing 2003 to 2002. 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.

Earnings

Net income increased by $21 million in 2003 compared with 2002. The increase was primarily due to higher wholesale prices in the western U.S and an increase in generation.

Operating Revenues

Operating revenues increased by $48 million in 2003 compared with 2002. The increase was primarily due to an increase in wholesale energy prices of $27 million and an increase in volume sold of $21 million.

Operating Expenses

Operating expenses increased by $26 million in 2003 compared with 2002. 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 increase was primarily due to higher energy purchases of $11 million, related to the higher power costs in the western U.S. and higher volumes of $9 million.

Generation increased by 345 million kWh during 2003 compared with 2002. This increase was primarily the result of improved operational performance from the coal-fired generation units.

New Accounting Standards

See Note 22 to the Financial Statements for information on new accounting standards adopted in 2003 or pending adoption.

Risk Management - Energy Marketing & Trading and Other

Market Risk

Background

Market risk is the potential loss PPL Montana may incur as a result of price changes associated with a particular financial or commodity instrument. PPL Montana is exposed to market risk from commodity price risk for energy and energy-related products associated with the sale of electricity, the purchase of fuel for the generating assets, and energy trading activities.

PPL Montana has a risk management policy approved by PPL's Board of Directors to manage market risk and counterparty credit risk. (Credit risk is discussed below.) The RMC, comprised of senior management and chaired by the Vice President-Risk Management, oversees the risk management function. Key risk control activities designed to monitor compliance with risk policies and detailed programs include, but are not limited to, credit review and approval, validation of transactions and market prices, verification of risk and transaction limits, sensitivity analyses, and daily portfolio reporting, including open positions, mark-to-market valuations, and other risk measurement metrics. In addition, efforts are ongoing to develop systems to improve the timeliness, quality and breadth of market and credit risk information.

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.

Contract Valuation

PPL Montana utilizes forward contracts, options and swaps as part of its risk management strategy to minimize unanticipated fluctuations in earnings caused by commodity price volatility. When available, quoted market prices are used to determine the fair value of a commodity or financial instrument. This may include exchange prices, the average mid-point bid/ask spreads obtained from brokers, or an independent valuation by an external source, such as a bank. However, market prices for energy or energy-related contracts may not be readily determinable because of market illiquidity. If no active trading market exists, contracts are valued using internally developed models, which are then reviewed by an independent, internal group. Although PPL Montana believes that its valuation methods are reasonable, changes in the underlying assumptions could result in significantly different values and realization in future periods.

To record derivatives at their fair value, PPL Montana discounts the forward values using LIBOR. Additionally, PPL Montana reduces derivative assets' carrying value to recognize differences in counterparty credit quality and potential illiquidity in the market.

• The credit adjustment takes into account the probability of default, as calculated by an independent service, for each counterparty that has an out-of-the money position with PPL Montana.

• The liquidity adjustment takes into account the fact that it may not be appropriate to value contracts at the midpoint of the bid/ask spread. PPL Montana might have to accept the "bid" price if PPL Montana wanted to close an open sales position or PPL Montana might have to accept the "ask" price if PPL Montana wanted to close an open purchase position.

Accounting and Reporting

PPL Montana follows the provisions of SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," and SFAS 149, "Amendment of Statement 133 on Derivative Instrument and Hedging Activities," interpreted by DIG issues (together, "SFAS 133"), EITF 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities," and EITF 03-11, "Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not 'Held for Trading Purposes' as Defined in Issue No. 02-3," to account for and report on contracts entered into to manage market risk. SFAS 133 requires that all derivative instruments be recorded at fair value on the balance sheet as an asset or liability (unless they meet SFAS 133's criteria for exclusion) and that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met.

In April 2003, the FASB issued SFAS 149, which amends and clarifies SFAS 133 to improve financial accounting and reporting for derivative instruments and hedging activities. To ensure that contracts with comparable characteristics are accounted for similarly, SFAS 149 clarifies the circumstances under which a contract with an initial net investment meets the characteristics of a derivative, clarifies when a derivative contains a financing component, amends the definition of an "underlying" and amends certain other existing pronouncements. Additionally, SFAS 149 placed additional limitations on the use of the normal purchase or normal sale exception. SFAS 149 was effective for contracts entered into or modified and for hedging relationships designated after June 30, 2003, except certain provisions relating to forward purchases or sales of when-issued securities or other securities that did not yet exist. PPL Montana adopted SFAS 149 as of July 1, 2003. The adoption of SFAS 149 did not have a significant impact on PPL Montana.

PPL Montana adopted the final provisions of EITF 02-3 during the fourth quarter of 2002. As such, PPL Montana now reflects its net realized and unrealized gains and losses associated with all derivatives that are held for trading purposes in the "Net energy trading margins" line on the Statement of Income. Non-derivative contracts that met the definition of energy trading activities as defined by EITF 98-10, "Accounting for Energy Trading and Risk Management Activities" are reflected in the financial statements using the accrual method of accounting. Under the accrual method of accounting, unrealized gains and losses are not reflected in the financial statements. Prior periods were reclassified. No cumulative effect adjustment was required upon adoption.

PPL Montana has adopted the final provisions of EITF 03-11 prospectively as of October 1, 2003. As a result of this adoption, non-trading bilateral sales of electricity at major market delivery points are netted with purchases that offset the sales at those same delivery points. A major market delivery point is any delivery point with liquid pricing available. See Note 17 to the Financial Statements for the impact of adopting EITF 03-11.

PPL Montana's short-term derivative contracts are recorded as "Price risk management assets" and "Price risk management liabilities" on the Balance Sheet. Long-term derivative contracts are included in "Noncurrent Assets - Other" and "Noncurrent Liabilities - Other."

Accounting Designation

Energy contracts that do not qualify as derivatives receive accrual accounting. For energy contracts that meet the definition of a derivative, the circumstances and intent existing at the time that energy transactions are entered into determine their accounting designation. These designations are verified by PPL Montana's risk control group on a daily basis. The following is a summary of the guidelines that have been provided to the traders who are responsible for contract designation for derivative energy contracts due to the adoption of SFAS 149:

• Any wholesale and retail contracts to sell or buy electricity and the related capacity that are expected to be delivered from PPL Montana's generation or that are approved by the RMC to fulfill a strategic element of PPL Montana's overall marketing strategy are considered "normal." These transactions are not recorded in the financial statements and have no earnings impact until delivery.

• Physical electricity-only transactions can receive cash flow hedge treatment if all of the qualifications under SFAS 133 are met. Any unrealized gains or losses on transactions receiving cash flow hedge treatment are recorded in other comprehensive income. These unrealized gains and losses become realized when the contracts settle and are recognized in income when the hedged transactions occur.

• Physical electricity purchases that increase PPL Montana's long position and any energy sale or purchase judged a "market call" are considered speculative, with unrealized gains or losses recorded immediately through earnings.

• Financial transactions, which can be settled in cash, cannot be considered "normal" because they do not require physical delivery. These transactions receive cash flow hedge treatment if they lock-in the price PPL Montana will receive or pay for energy expected to be generated or purchased in the spot market. Any unrealized gains or losses on transactions that receive cash flow hedge treatment are recorded in other comprehensive income. These unrealized gains and losses become realized when the contracts settle and are recognized in income when the hedged transactions occur.

• Option contracts that do not meet the requirements of DIG Issue C15, "Scope Exceptions: Interpreting the Normal Purchases and Normal Sales Exception as an Election," do not receive hedge accounting treatment and are marked to market through earnings.

Commodity Price Risk

Commodity price risk is one of PPL Montana's most significant risks due to the level of investment that PPL Montana maintains in its generation assets, coupled with the volatility of prices for energy and energy-related products. Several factors influence price levels and volatilities. These factors include, but are not limited to, seasonal changes in demand, weather conditions, available generating assets within regions, transportation availability and reliability within and between regions, market liquidity, and the nature and extent of current and potential federal and state regulations. To hedge the impact of market price fluctuations on PPL Montana's energy-related assets, liabilities and other contractual arrangements, PPL EnergyPlus sells and purchases physical energy at the wholesale level under FERC market-based tariffs throughout the U.S. and enters into financial exchange-traded and over-the-counter contracts. Because of the generating assets PPL Montana owns or controls, the majority of PPL Montana's energy transactions qualify for accrual or hedge accounting.

Within PPL Montana's hedge portfolio, the decision to enter into energy contracts hinges on the expected value of PPL Montana's generation. To address this risk, PPL Montana takes a conservative approach in determining the number of MWhs that are available to be sold forward. In this regard, PPL Montana reduces the maximum potential output that a plant may produce by three factors - planned maintenance, unplanned outages and economic conditions. The potential output of a plant is first reduced by the amount of unavailable generation due to planned maintenance on a particular unit. Another reduction, representing the unplanned outage rate, is the amount of MWhs that historically are not produced by a plant due to such factors as equipment breakage. Finally, the potential output of certain plants (like peaking units) are reduced because their higher cost of production will not allow them to economically run during all hours.

At times, PPL Montana's non-trading portfolio includes full requirements energy contracts. The obligation to serve these contracts changes minute by minute. PPL Montana analyzes historical on-peak and off-peak usage patterns, as well as spot prices and weather patterns, to determine a monthly level of block electricity that best fits the usage patterns in order to minimize earnings volatility. On a forward basis, PPL Montana reserves a block amount of generation for full requirements energy contracts that is expected to be the best match with their anticipated usage patterns and energy peaks. Anticipated usage patterns and peaks are affected by expected load growth, regional economic drivers and seasonality.

PPL Montana's commodity derivative contracts that qualify for hedge accounting treatment mature at various times through 2010. The following chart sets forth PPL Montana's net fair market value of these contracts as of December 31, 2003:

	Gains
Fair value of contracts outstanding at the beginning of the year		$	11
Contracts realized or otherwise settled during the year			1
Fair value of new contracts at inception
Other changes in fair values			10
Fair value of contracts outstanding at the end of the year		$	22

During 2003, PPL Montana realized or otherwise settled net losses of approximately $1 million related to contracts entered into prior to January 1, 2003. This amount does not reflect intra-quarter contracts that were entered into and settled during the period.

"Other changes in fair values," a gain of approximately $10 million, represent changes in the market value that occurred during 2003 for contracts that were outstanding at the end of 2003.

The following chart segregates estimated fair values of PPL Montana commodity derivative contracts that qualify for hedge accounting treatment at December 31, 2003 based on whether the fair values are determined by quoted market prices or other more subjective means.

	Fair Value of Contracts at Period-End Gains/(Losses)
	Maturity Less Than 1 Year		Maturity 1-3 Years		Maturity 3-5 Years			Maturity in Excess of 5 Years	Total Fair Value
Source of Fair Value
Prices actively quoted
Prices provided by other external sources	$	11	$	12	$	(1	)		$	22
Prices based on models and other valuation methods
Fair value of contracts outstanding at the end of the period	$	11	$	12	$	(1	)		$	22

The "Prices provided by other external sources" category includes PPL Montana's forward positions and options in natural gas and power and natural gas basis swaps at points for which over-the-counter (OTC) broker quotes are available. The fair values of electricity positions recorded above use the midpoint of the bid/ask spreads obtained through OTC brokers. On average, OTC quotes for forwards and swaps of natural gas and power extend one and two years into the future.

The "Prices based on models and other valuation methods" category includes the value of transactions for which an internally developed price curve was constructed as a result of the long-dated nature of the transaction or the illiquidity of the market point, or the value of options not quoted by an exchange or OTC broker. Additionally, this category includes "strip" transactions whose prices are obtained from external sources and then modeled to monthly prices as appropriate.

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

As of December 31, 2003, PPL Montana estimated that a 10% adverse movement in market prices across all geographic areas and time periods would have decreased the value of the commodity contracts in its non-trading portfolio by approximately $80 million, as compared to a decrease of $76 million at December 31, 2002. However, the change in the value of the non-trading 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. Additionally, the value of PPL Montana's unsold generation would be improved. Because PPL Montana's electricity portfolio is generally in a net sales position, the adverse movement in prices is usually an increase in prices.

PPL Montana also executes energy contracts to take advantage of market opportunities. As a result, PPL Montana may at times create a net open position in its portfolio that could result in significant losses if prices do not move in the manner or direction anticipated. The margins from these trading activities are shown in the Statement of Income as "Net energy trading margins."

PPL Montana's trading contracts mature at various times through 2004. PPL Montana's net fair market value of trading contracts as of December 31, 2003 and 2002 was insignificant.

As of December 31, 2003, the net loss on PPL Montana's trading activities expected to be recognized in earnings during the next three months is insignificant.

PPL Montana estimated that a 10% adverse movement in market prices across all geographic areas and time periods would have decreased the value of the commodity contracts in its trading portfolio by an insignificant amount at December 31, 2003 and 2002.

Interest Rate Risk

PPL Montana may use borrowings to provide funds for its operations. PPL and PPL Energy Supply may utilize various financial derivative products and risk management techniques on behalf of PPL Montana to adjust the mix of fixed and floating interest rates in PPL Montana's debt portfolio and thereby reduce its exposure to adverse interest rate movements. PPL Montana had no borrowings outstanding as of December 31, 2003.

Credit Risk

Credit risk relates to the risk of loss that PPL Montana would incur as a result of non-performance by counterparties of their contractual obligations. PPL Montana maintains credit policies and procedures with respect to counterparties (including requirements that counterparties maintain certain credit ratings criteria) and requires other assurances in the form of credit support or collateral in certain circumstances in order to limit counterparty credit risk. However, PPL Montana has concentrations of suppliers and customers among electric utilities and other energy marketing and trading companies. These concentrations of counterparties may impact PPL Montana's overall exposure to credit risk, either positively or negatively, in that counterparties may be similarly affected by changes in economic, regulatory or other conditions. As discussed above under "Contract Valuation," PPL Montana records certain non-performance reserves to reflect the probability that a counterparty with contracts that are out of the money (from the counterparty's standpoint) will default in its performance, in which case PPL Montana would have to sell into a lower-priced market or purchase from a higher-priced market. These reserves are reflected in the fair value of assets recorded in "Price risk management assets" on the Balance Sheet. PPL Montana also records reserves to reflect the probability that a counterparty will not make payments for deliveries PPL Montana has made but not yet billed. These reserves are reflected in "Unbilled revenues" on the Balance Sheet. PPL Montana has also established a reserve with respect to certain sales to the California ISO for which PPL Montana has not yet been paid. See Note 14 to the Financial Statements.

Competition

See Item 1, "Business - Competition," for additional information.

Application of Critical Accounting Policies

PPL Montana's financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following accounting policies are particularly important to the financial condition or results of operations of PPL Montana, and require estimates or other judgments of matters inherently uncertain. Changes in the estimates or other judgments included within these accounting policies could result in a significant change to the information presented in the financial statements. (These accounting policies are also discussed in Note 1 to the Financial Statements.) PPL's senior management has reviewed these critical accounting policies, and the estimates and assumptions regarding them, with its Audit Committee. In addition, PPL's senior management has reviewed the following disclosures regarding the application of these critical accounting policies with the Audit Committee.

1)  Price Risk Management

See "Risk Management - Energy Marketing & Trading and Other" above.

2)  Pension and Other Postretirement Benefits

PPL Montana follows the guidance of SFAS 87, "Employers' Accounting for Pensions," and SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," when accounting for these benefits. Under these accounting standards, assumptions are made regarding the valuation of benefit obligations and performance of plan assets. Delayed recognition of differences between actual results and expected or estimated results is a guiding principle of these standards. This delayed recognition of actual results allows for a smoothed recognition of changes in benefit obligations and plan performance over the working lives of the employees who benefit under the plans. The primary assumptions are as follows:

• Discount Rate - The discount rate is used in calculating the present value of benefits, which are based on projections of benefit payments to be made in the future.

• Expected Return on Plan Assets - Management projects the future return on plan assets considering prior performance, but primarily based upon the plans' mix of assets and expectations for the long-term returns on those asset classes. These projected returns reduce the net benefit costs the company will record currently.

• Rate of Compensation Increase - Management projects employees' annual pay increases, which are used to project employees' pension benefits at retirement.

• Health Care Cost Trend Rate - Management projects the expected increases in the cost of health care.

In selecting discount rates, PPL Montana considers fixed-income security yield rates. At December 31, 2003, PPL Montana decreased the discount rate from 6.75% to 6.25% as a result of decreased fixed-income security returns.

In selecting an expected return on plan assets, PPL Montana considers past performance and economic forecasts for the types of investments held by the plan. At December 31, 2003, PPL Montana's expected return on plan assets remained at 9.0%.

In selecting a rate of compensation increase, PPL Montana considers past experience in light of movements in inflation rates. At December 31, 2002, PPL Montana's rate of compensation increase remained at 4.00%.

In selecting health care cost trend rates, PPL Montana considers tax implications, past performance and forecasts of health care costs. At December 31, 2003, PPL Montana's health care cost trend rates were 11% for 2004, gradually declining to 5.0% for 2010.

A variance in the assumption listed above could have a significant impact on the projected benefit obligations, accrued pension and other postretirement benefit liabilities, reported annual net periodic pension and other postretirement benefit cost and other comprehensive income (OCI).

A 25 basis point reduction in the discount rate would increase the projected benefit obligations and pre-tax OCI charge by $2 million and would have an insignificant impact on the accrued pension and other postretirement benefit liabilities (excluding additional minimum liability) and reported annual net periodic pension and other postretirement benefit cost. A 100 basis point increase in the health care cost trend rate would increase the projected benefit obligations by $1 million and would have an insignificant impact on the accrued pension and other postretirement benefit liabilities and the annual net periodic pension and other postretirement benefit cost. A 25 basis point change in the expected return on plan assets or rate of compensation increase would have an insignificant impact on the projected benefit obligations, accrued pension and other postretirement benefit liabilities, reported annual net periodic pension and other postretirement benefit cost and OCI. While the information above reflects either an increase or decrease in each assumption, the inverse of this change would have a similar impact in the opposite direction. Each sensitivity above reflects an evaluation of the change based solely on a change in that assumption.

At December 31, 2003, PPL Montana had recognized accrued pension and other postretirement benefit liabilities of $16 million, included in "Noncurrent Liabilities - Other" on the Balance Sheet. PPL Montana's total projected obligation for these benefits was approximately $66 million, but was offset by $46 million of assets held in a pension trust.

In 2003, PPL Montana recognized net periodic pension and other postretirement costs charged to operating expenses of $6 million, excluding amounts credited to construction and other non-expense accounts. This amount is comparable to the expense recognized during 2002.

During 2003, PPL Montana made contributions to its pension plan totaling $15 million. As a result, PPL Montana was able to decrease its recognized additional minimum pension liability. Recording the reduction in the additional minimum pension liability resulted in a decrease to the pension-related charge to OCI, net of taxes, of $1 million. This adjustment decreased the pension-related balance in OCI, which is a reduction to Member's Equity, to $5 million at December 31, 2003. The charges to OCI will reverse in future periods if the fair value of trust assets exceeds the accumulated benefit obligation.

Refer to Note 12 to the Financial Statements for additional information regarding pension and other postretirement benefits.

3)  Leasing

PPL Montana applies the provisions of SFAS 13, "Accounting for Leases," to all leasing transactions. In addition, PPL Montana applies the provisions of numerous other accounting pronouncements issued by the FASB and the EITF that provide specific guidance and additional requirements related to accounting for various leasing arrangements. In general, there are two types of leases from a lessee's perspective: operating leases - leases accounted for off-balance sheet and capital leases - leases capitalized on the balance sheet.

In accounting for leases, management makes various assumptions, including the discount rate, the fair market value of the leased assets and the estimated useful life, in determining whether a lease should be classified as operating or capital. Changes in these assumptions could result in the difference between whether a lease is determined to be an operating lease or a capital lease, thus significantly impacting the amounts to be recognized in the financial statements.

In addition to uncertainty inherent in management's assumptions, leasing transactions and the related accounting rules become increasingly complex when they involve: sale/leaseback accounting (leasing transactions where the lessee previously owned the leased assets), synthetic leases (leases that qualify for operating lease treatment for book accounting purposes and financing treatment for tax accounting purposes) and lessee involvement in the construction of leased assets.

At December 31, 2003, PPL Montana subsidiaries participated in one significant sale/leaseback transaction. This transaction has been accounted for as an operating lease.

Sale/Leaseback

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. This transaction is accounted for as an operating lease in accordance with current rules related to sale/leaseback arrangements. If for any reason this transaction did not meet the requirements for off-balance sheet operating lease treatment as a sale/leaseback, PPL Montana would have approximately $315 million of additional assets and liabilities recorded on its balance sheet at December 31, 2003 and would have recorded additional expenses currently estimated at $9 million, after-tax, in 2003.

See Note 10 to the Financial Statements for additional information related to operating leases.

4)  Loss Contingencies

PPL Montana periodically records the estimated impacts of various conditions, situations or circumstances involving uncertain outcomes. These events are called "contingencies," and PPL Montana's accounting for such events is prescribed by SFAS 5, "Accounting for Contingencies." SFAS 5 defines a contingency as "an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur."

For loss contingencies, the loss must be accrued if (1) information is available that indicates it is "probable" that the loss has been incurred, given the likelihood of the uncertain future events; and (2) the amount of the loss can be reasonably estimated. FASB defines "probable" as cases in which "the future event or events are likely to occur." SFAS 5 does not permit the accrual of contingencies that might result in gains.

The accrual of a loss contingency involves considerable judgment on the part of management. The accounting aspects of loss contingencies include: (1) the initial identification and recording of the loss contingency; (2) the determination of a triggering event for reducing a recorded loss contingency; and (3) the on-going assessment as to whether a recorded loss contingency is reasonable.

Initial Identification and Recording of the Loss Contingency

PPL Montana uses its internal expertise, and outside experts (such as lawyers, tax specialists and engineers), as necessary, to help estimate the probability that a loss has been incurred and the amount (or range) of the loss. PPL Montana continuously assesses potential loss contingencies for environmental remediation, litigation claims, regulatory penalties and other events.

PPL Montana has identified certain events which could give rise to a loss, but which do not meet the conditions for accrual under SFAS 5. SFAS 5 requires disclosure, but not a recording, of potential losses when it is "reasonably possible" that a loss has been incurred. FASB defines "reasonably possible" as cases in which "the chance of the future event or events occurring is more than remote but less than likely." See Note 14 to the Financial Statements for disclosure of potential loss contingencies, most of which have not met the criteria for accrual under SFAS 5.

Reducing Recorded Loss Contingencies

When a loss contingency is recorded, PPL Montana identifies the triggering event for subsequently reducing the loss contingency. The triggering events generally occur when the contingency has been resolved and the actual loss is incurred or the risk of loss has diminished or been eliminated. The following are some of the triggering events which provide for the reduction of certain recorded loss contingencies:

• Certain loss contingencies are systematically reduced based on the expiration of contract terms. An example of this is the recorded liability for above-market purchase contracts, as described below.

• Allowances for excess or obsolete inventory are reduced as the inventory items are pulled from the warehouse shelves and sold as scrap or otherwise disposed.

• Allowances for uncollectible accounts are reduced when accounts are written off after prescribed collection procedures have been exhausted.

• Environmental loss contingencies are reduced when PPL Montana makes payments for environmental remediation.

On-Going Assessment of Recorded Loss Contingencies

PPL Montana reviews its loss contingencies on a regular basis to assure that the recorded potential loss exposures are reasonable. This involves ongoing communication and analyses with internal and external legal counsel, engineers, tax specialists, managers in various operational areas and other parties.

All three aspects of accounting for loss contingencies - the initial identification and recording of a probable loss, the identification of triggering events to reduce the loss contingency, and the ongoing assessment of the reasonableness of a recorded loss contingency - require significant judgment by PPL Montana's management.

The largest contingency currently on PPL Montana's balance sheet is the loss contingency for the above-market purchase contract being the difference between the out-of-market contract terms and the fair value of the energy. This loss contingency was originally recorded at $59 million in 1999, when PPL Montana purchased the assets of Montana Power and assumed the contract. Under purchase accounting, PPL Montana recorded the out-of-market cost of the purchase contract. This loss contingency for the out-of-market contract was recorded because it was probable that the loss had been incurred and the loss could be reasonably estimated, using forward pricing information. The out-of-market loss contingency was $57 million at December 31, 2003.

When the loss contingency related to the contract was recorded in 1999, PPL Montana established the triggering events for when the loss contingency would be reduced. A schedule was established to reduce the liability based on projected purchases over the life of the contract which expires in 2010. The liability is being reduced over the agreement terms as an adjustment to "Energy purchases" on the Statement of Income.

PPL Montana assessed the remaining $57 million out-of-market liability at December 31, 2003, comparing the energy purchases under the terms of the contract, with the purchases assuming market prices for the energy.

Market prices for the contract were derived by using internal forward energy price curves. The forward energy price curves in this scenario were based on the revenue and sales information for 2004 through 2010, as comprehended in the current business plan of PPL Montana. The assessment also used sensitivities around the forward energy prices, adjusting such prices upwards and downwards by 10%.

The assessment was dependent on forward energy prices and the projected purchase levels of the contract. The forward prices of energy are dependent on many variables, including growth in electricity demand, available generation, and general economic conditions. Changes in these and other factors can have a dramatic impact on future electricity prices. Accordingly, forward energy price sensitivities were used in the assessment. If estimated forward market prices were adjusted upwards by 10% in each of the years from 2004 through 2010, the contract would have an estimated liability of $48 million. Conversely, if estimated forward market prices were adjusted downwards by 10% during the remaining term of the contract, the contract would have an estimated liability of $61 million. The recorded contingency of $57 million falls within the range calculated in the year-end assessment. As noted above, it is very difficult to estimate future electricity prices, which are dependent on many variables and subject to significant volatility. PPL Montana's management believes that the current recorded liability was fairly stated at December 31, 2003.

In connection with the December 2001 bankruptcy filings by Enron Corporation and its affiliates (collectively "Enron"), PPL Montana terminated certain electricity, gas and other trading agreements with Enron. At the time that these trading agreements were terminated, they were at prices more favorable to PPL Montana than current market prices, and PPL Montana established a reserve for uncollectible accounts of $29 million. In October 2002, PPL Montana filed proofs of claim in Enron's bankruptcy proceedings for $29 million. These claims were against Enron North America and Enron Power Marketing (the "Enron Subsidiaries"), and against Enron Corporation, which had guaranteed the Enron Subsidiaries' performance (the "Enron Corporation Guarantees").

During 2003, PPL Montana and Enron engaged in discussions regarding the amount of claims that would be allowed against the Enron Subsidiaries. Although no formal agreement on such amounts has been reached, based on informal discussions with Enron's counsel, PPL Montana believes that its claims against the Enron Subsidiaries will eventually be allowed in the bankruptcy at approximately $25 million. Accordingly, PPL Montana reduced its receivables from Enron, and the associated reserve for uncollectible accounts, by $4 million. PPL Montana also determined that it is probable that it will recover approximately $6 million of these receivables from the Enron Subsidiaries, and may collect additional amounts under the Enron Corporation Guarantees. Therefore, PPL Montana determined that it was appropriate to reduce its reserve by an additional $6 million. PPL Montana will continue to reassess the reserve for uncollectible accounts associated with its receivables from Enron.

Other Information

PPL's Audit Committee has approved the independent auditor to provide audit and audit-related services and other services permitted by the Sarbanes-Oxley Act of 2002 and SEC rules. The audit and audit-related services include services in connection with statutory and regulatory filings, reviews of offering documents and registration statements, employee benefit plan audits and internal control reviews.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation and PPL Montana, LLC

Reference is made to "Risk Management - Energy Marketing & Trading and Other" in Management's Discussion and Analysis of Financial Condition and Results of Operations.

PPL Corporation
Management's Report on Responsibility for Financial Statements

PPL management is responsible for the preparation, integrity and objectivity of the consolidated financial statements and all other information in this annual report. The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America and include amounts based on management's best estimates and judgments where necessary. Management believes that the financial statements are free of material misstatements and present fairly the financial position, results of operations and cash flows of PPL.

PPL management is responsible for establishing and maintaining an effective internal control structure and effective disclosure controls and procedures for financial reporting. PPL maintains a system of internal control that is designed to provide reasonable assurance that PPL assets are safeguarded from loss or unauthorized use or disposition and that transactions are executed in accordance with management's authorization and are properly recorded to permit the preparation of financial statements in accordance with generally accepted accounting principles. This system is augmented by a careful selection and training of qualified personnel, specific delegations of authority, a proper division of responsibilities, and utilization of written policies and procedures. An internal audit program monitors the effectiveness of this control system. Management believes that its internal control structure and its disclosure controls and procedures for financial reporting are adequate and effective.

The Audit Committee of the Board of Directors consists entirely of independent directors who are not employees of PPL. The Audit Committee reviews audit plans related to PPL's internal controls, financial reports and related matters and meets regularly with management as well as the independent auditors and internal auditors. The independent auditors and the internal auditors have free access to the Audit Committee, without management present, to discuss internal accounting control, auditing and financial reporting matters.

PricewaterhouseCoopers LLP, the independent certified public accountants, audited PPL's consolidated financial statements and issued their opinion below.

PPL management also recognizes its responsibility for fostering a strong ethical climate so that it conducts its business affairs according to the highest standards of personal and corporate conduct.

William F. Hecht
Chairman, President and Chief Executive Officer

John R. Biggar
Executive Vice President and Chief Financial Officer

Report of Independent Auditors

To the Board of Directors and Shareowners of
PPL Corporation:

In our opinion, the consolidated financial statements listed in the index appearing under Item 8 on page 95 present fairly, in all material respects, the financial position of PPL Corporation and its subsidiaries ("PPL") at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 8 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 17 to the consolidated financial statements, PPL changed its method of accounting for derivative and hedging activities pursuant to Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities (an amendment of FASB Statement 133), in 2001. As discussed in Note 12 to the consolidated financial statements, PPL also changed its method of accounting for the amortization of unrecognized gains or losses in the annual pension expense/income determined under SFAS No. 87, Employers' Accounting for Pensions, in 2001. As discussed in Note 18 to the consolidated financial statements, PPL adopted SFAS No. 142, Goodwill and Other Intangible Assets, in 2002. As discussed in Note 21 to the consolidated financial statements, PPL adopted SFAS No. 143, Accounting for Asset Retirement Obligations, in 2003. As discussed in Note 22 to the consolidated financial statements, PPL adopted SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, Emerging Issues Task Force No. 03-11, Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FAS 133 and Not "Held for Trading Purposes" as Defined in Issue No. 02-3, FASB Interpretation ("FIN") No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, and FIN No. 46, Consolidation of Variable Interest Entities -- an interpretation of ARB 51, as amended by FIN 46(R), in 2003. In addition, as discussed in Note 1 to the consolidated financial statements, PPL elected the fair value method of accounting for stock-based compensation as prescribed by SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure, an Amendment FASB Statement No. 123, in 2003.

[PricewaterhouseCoopers LLP (signed)]
PricewaterhouseCoopers LLP
Philadelphia, PA
February 2, 2004

PPL Energy Supply, LLC
Management's Report on Responsibility for Financial Statements

PPL Energy Supply management is responsible for the preparation, integrity and objectivity of the consolidated financial statements and all other information in this annual report. The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America and include amounts based on management's best estimates and judgments where necessary. Management believes that the financial statements are free of material misstatements and present fairly the financial position, results of operations and cash flows of PPL Energy Supply.

PPL Energy Supply management is responsible for establishing and maintaining an effective internal control structure and effective disclosure controls and procedures for financial reporting. PPL Energy Supply maintains a system of internal control that is designed to provide reasonable assurance that PPL Energy Supply assets are safeguarded from loss or unauthorized use or disposition and that transactions are executed in accordance with management's authorization and are properly recorded to permit the preparation of financial statements in accordance with generally accepted accounting principles. This system is augmented by a careful selection and training of qualified personnel, specific delegations of authority, a proper division of responsibilities, and utilization of written policies and procedures. An internal audit program monitors the effectiveness of this control system. Management believes that its internal control structure and its disclosure controls and procedures for financial reporting are adequate and effective.

PPL's Audit Committee, which consists entirely of independent directors who are not employees of PPL, reviews audit plans related to PPL Energy Supply's internal controls, financial reports and related matters and meets regularly with management as well as the independent auditors and internal auditors. The independent auditors and the internal auditors have free access to PPL's Audit Committee, without management present, to discuss internal accounting control, auditing and financial reporting matters.

PricewaterhouseCoopers LLP, the independent certified public accountants, audited PPL Energy Supply's consolidated financial statements and issued their opinion below.

PPL Energy Supply management also recognizes its responsibility for fostering a strong ethical climate so that it conducts its business affairs according to the highest standards of personal and corporate conduct.

William F. Hecht
President

John R. Biggar
Vice President

Report of Independent Auditors

To the Board of Managers and Sole Member of
PPL Energy Supply, LLC:

In our opinion, the consolidated financial statements listed in the index appearing under Item 8 on page 95 present fairly, in all material respects, the financial position of PPL Energy Supply, LLC and its subsidiaries ("PPL Energy Supply") at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 8 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 17 to the consolidated financial statements, PPL Energy Supply changed its method of accounting for derivative and hedging activities pursuant to Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities (an amendment of FASB Statement 133), in 2001. As discussed in Note 12 to the consolidated financial statements, PPL Energy Supply also changed its method of accounting for the amortization of unrecognized gains or losses in the annual pension expense/income determined under SFAS No. 87, Employers' Accounting for Pensions, in 2001. As discussed in Note 18 to the consolidated financial statements, PPL Energy Supply adopted SFAS No. 142, Goodwill and Other Intangible Assets, in 2002. As discussed in Note 21 to the consolidated financial statements, PPL Energy Supply adopted SFAS No. 143, Accounting for Asset Retirement Obligations, in 2003. As discussed in Note 22 to the consolidated financial statements, PPL Energy Supply adopted SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, Emerging Issues Task Force No. 03-11, Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FAS 133 and Not "Held for Trading Purposes" as Defined in Issue No. 02-3, FASB Interpretation ("FIN") No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, and FIN No. 46, Consolidation of Variable Interest Entities -- an interpretation of ARB 51, as amended by FIN 46(R), in 2003.

[PricewaterhouseCoopers LLP (signed)]
PricewaterhouseCoopers LLP
Philadelphia, PA
February 2, 2004

PPL Electric Utilities Corporation
Management's Report on Responsibility for Financial Statements

PPL Electric management is responsible for the preparation, integrity and objectivity of the consolidated financial statements and all other information in this annual report. The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America and include amounts based on management's best estimates and judgments where necessary. Management believes that the financial statements are free of material misstatements and present fairly the financial position, results of operations and cash flows of PPL Electric.

PPL Electric management is responsible for establishing and maintaining an effective internal control structure and effective disclosure controls and procedures for financial reporting. PPL Electric maintains a system of internal control that is designed to provide reasonable assurance that PPL Electric assets are safeguarded from loss or unauthorized use or disposition and that transactions are executed in accordance with management's authorization and are properly recorded to permit the preparation of financial statements in accordance with generally accepted accounting principles. This system is augmented by a careful selection and training of qualified personnel, specific delegations of authority, a proper division of responsibilities, and utilization of written policies and procedures. An internal audit program monitors the effectiveness of this control system. Management believes that its internal control structure and its disclosure controls and procedures for financial reporting are adequate and effective.

PPL's Audit Committee, which consists entirely of independent directors who are not employees of PPL, reviews audit plans related to PPL Electric's internal controls, financial reports and related matters and meets regularly with management as well as the independent auditors and internal auditors. The independent auditors and the internal auditors have free access to PPL's Audit Committee, without management present, to discuss internal accounting control, auditing and financial reporting matters.

PricewaterhouseCoopers LLP, the independent certified public accountants, audited PPL Electric's consolidated financial statements and issued their opinion below.

PPL Electric management also recognizes its responsibility for fostering a strong ethical climate so that it conducts its business affairs according to the highest standards of personal and corporate conduct.

John F. Sipics
President

James E. Abel
Treasurer

Report of Independent Auditors

To the Board of Directors and Shareowner of
PPL Electric Utilities Corporation:

In our opinion, the consolidated financial statements listed in the index appearing under Item 8 on page 95 present fairly, in all material respects, the financial position of PPL Electric Utilities Corporation and its subsidiaries ("PPL Electric") at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 8 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 12 to the consolidated financial statements, PPL Electric changed its method of accounting for the amortization of unrecognized gains or losses in the annual pension expense/income determined under Statement of Financial Accounting Standards No. 87, Employers' Accounting for Pensions, in 2001.

[PricewaterhouseCoopers LLP (signed)]
PricewaterhouseCoopers LLP
Philadelphia, PA
February 2, 2004

PPL Montana, LLC
Management's Report on Responsibility for Financial Statements

PPL Montana management is responsible for the preparation, integrity and objectivity of the consolidated financial statements and all other information in this annual report. The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America and include amounts based on management's best estimates and judgments where necessary. Management believes that the financial statements are free of material misstatements and present fairly the financial position, results of operations and cash flows of PPL Montana.

PPL Montana management is responsible for establishing and maintaining an effective internal control structure and effective disclosure controls and procedures for financial reporting. PPL Montana maintains a system of internal control that is designed to provide reasonable assurance that PPL Montana assets are safeguarded from loss or unauthorized use or disposition and that transactions are executed in accordance with management's authorization and are properly recorded to permit the preparation of financial statements in accordance with generally accepted accounting principles. This system is augmented by a careful selection and training of qualified personnel, specific delegations of authority, a proper division of responsibilities, and utilization of written policies and procedures. An internal audit program monitors the effectiveness of this control system. Management believes that its internal control structure and its disclosure controls and procedures for financial reporting are adequate and effective.

PPL's Audit Committee, which consists entirely of independent directors who are not employees of PPL, reviews audit plans related to PPL Montana's internal controls, financial reports and related matters and meets regularly with management as well as the independent auditors and internal auditors. The independent auditors and the internal auditors have free access to PPL's Audit Committee, without management present, to discuss internal accounting control, auditing and financial reporting matters.

PricewaterhouseCoopers LLP, the independent certified public accountants, audited PPL Montana's consolidated financial statements and issued their opinion below.

PPL Montana management also recognizes its responsibility for fostering a strong ethical climate so that it conducts its business affairs according to the highest standards of personal and corporate conduct.

Bradley E. Spencer
Vice President and Chief Operating Officer

Charles S. Baker
Controller

Report of Independent Auditors

To the Board of Managers and Member of
PPL Montana, LLC

In our opinion, the consolidated financial statements listed in the index appearing under Item 8 on page 95 present fairly, in all material respects, the financial position of PPL Montana, LLC and its subsidiaries ("PPL Montana") at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 8 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of PPL Montana's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 17 to the consolidated financial statements, PPL Montana changed its method of accounting for derivative and hedging activities pursuant to Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities (an amendment of FASB Statement 133) in 2001. As discussed in Note 22 to the consolidated financial statements, PPL Montana adopted Emerging Issues Task Force No. 03-11, Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FAS 133 and Not "Held for Trading Purposes" as Defined in Issue No. 02-3. As discussed in Note 17, PPL Montana adopted Derivatives Implementations Group Implementation Issue C20, Interpretation of Clearly and Closely Related in Contracts That Qualify for the Normal Purchases and Normal Sales Scope Exception, in 2003.

PricewaterhouseCoopers LLP
Minneapolis, MN
February 2, 2004

INDEX TO ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
			Page
FINANCIAL STATEMENTS
	PPL Corporation
		Consolidated Statement of Income for each of the three years ended December 31, 2003, 2002    and 2001	96
		Consolidated Statement of Cash Flows for each of the three years ended December 31, 2003,    2002 and 2001	97
		Consolidated Balance Sheet at December 31, 2003 and 2002	98
		Consolidated Statement of Shareowners' Common Equity and Comprehensive Income for    each of the three years ended December 31, 2003, 2002 and 2001	100
		Consolidated Statement of Preferred Stock at December 31, 2003 and 2002	101
		Consolidated Statement of Company-Obligated Mandatorily Redeemable Securities at   December 31, 2003 and 2002	102
		Consolidated Statement of Long-term Debt at December 31, 2003 and 2002	103
	PPL Energy Supply, LLC
		Consolidated Statement of Income for each of the three years ended December 31, 2003,    2002 and 2001	104
		Consolidated Statement of Cash Flows for each of the three years ended December 31, 2003,    2002 and 2001	105
		Consolidated Balance Sheet at December 31, 2003 and 2002	106
		Consolidated Statement of Member's Equity and Comprehensive Income for each of the   three years ended December 31, 2003, 2002 and 2001	108
		Consolidated Statement of Company-Obligated Mandatorily Redeemable Securities at   December 31, 2003 and 2002	109
		Consolidated Statement of Long-term Debt at December 31, 2003 and 2002	110
	PPL Electric Utilities Corporation
		Consolidated Statement of Income for each of the three years ended December 31, 2003,    2002 and 2001	112
		Consolidated Statement of Cash Flows for each of the three years ended December 31, 2003,    2002 and 2001	113
		Consolidated Balance Sheet at December 31, 2003 and 2002	114
		Consolidated Statement of Shareowner's Common Equity for each of the three years ended   December 31, 2003, 2002 and 2001	116
		Consolidated Statement of Preferred Stock at December 31, 2003 and 2002	117
		Consolidated Statement of Long-term Debt at December 31, 2003 and 2002	118
	PPL Montana, LLC
		Consolidated Statement of Income for each of the three years ended December 31, 2003,    2002 and 2001	119
		Consolidated Statement of Cash Flows for each of the three years ended December 31, 2003,    2002 and 2001	120
		Consolidated Balance Sheet at December 31, 2003 and 2002	121
		Consolidated Statement of Member's Equity and Comprehensive Income for each of the   three years ended December 31, 2003, 2002 and 2001	122
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS			123
FINANCIAL STATEMENT SCHEDULES
	Schedule II - Valuation and Qualifying Accounts and Reserves
		PPL Corporation	181
		PPL Energy Supply, LLC	182
		PPL Electric Utilities Corporation	183
		PPL Montana, LLC	184
	Quarterly Financial, Common Stock Price and Dividend Data - PPL Corporation		185
	Quarterly Financial Data - PPL Electric Utilities Corporation		186

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars, except per share data)
			2003		2002			2001
Operating Revenues
	Utility		$	3,710	$	3,676		$	3,034
	Unregulated retail electric and gas			152		182			356
	Wholesale energy marketing			1,214		1,036			1,027
	Net energy trading margins			12		19			37
	Energy related businesses			499		568			661
	Total			5,587		5,481			5,115
Operating Expenses
	Operation
		Fuel		617		584			602
		Energy purchases		1,030		916			911
		Other operation and maintenance		1,204		1,136			1,059
		Amortization of recoverable transition costs		260		226			251
	Depreciation (Note 1)			380		367			266
	Taxes, other than income (Note 5)			256		231			155
	Energy related businesses			491		543			535
	Other charges
		Write-down of international energy projects (Note 9)				113			336
		Cancellation of generation projects (Note 9)							150
		Workforce reduction (Note 20)		9		75
		Write-down of generation assets (Note 9)				44
	Total			4,247		4,235			4,265
Operating Income				1,340		1,246			850
Other Income - net (Note 16)				60		30			16
Interest Expense				475		561			386
Income from Continuing Operations Before Income Taxes,   Minority Interest and Distributions on Preferred Securities				925		715			480
Income Taxes (Note 5)				170		210			261
Minority Interest (Note 1)				7		78			(2	)
Distributions on Preferred Securities (Note 22)				29		67			52
Income from Continuing Operations				719		360			169
Loss from Discontinued Operations (net of income taxes) (Note 9)				20		2
Income Before Cumulative Effects of Changes in Accounting   Principles				699		358			169
Cumulative Effects of Changes in Accounting Principles (net of   income taxes) (Notes 12, 18, 21 and 22)				35		(150	)		10
Net Income			$	734	$	208		$	179
Earnings Per Share of Common Stock (Note 4)
	Income from Continuing Operations:
		Basic	$	4.16	$	2.36		$	1.16
		Diluted	$	4.15	$	2.36		$	1.15
	Net Income:
		Basic	$	4.25	$	1.37		$	1.23
		Diluted	$	4.24	$	1.36		$	1.22
Dividends Declared Per Share of Common Stock			$	1.54	$	1.44		$	1.06
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars)
				2003			2002			2001
Cash Flows From Operating Activities
	Net income			$	734		$	208		$	179
	Adjustments to reconcile net income to net cash provided by   operating activities
		Loss from discontinued operations			20
		Cumulative effects of changes in accounting principles			(35	)		150			(10	)
		Depreciation			380			289			266
		Amortizations - recoverable transition costs and other			244			198			224
		Charge for cancellation of generation projects									150
		Payments to cancel generation projects						(152	)
		Dividends received from unconsolidated affiliates			7			14			103
		Pension income - net			(41	)		(42	)		(47	)
		Pension funding			(18	)
		Write-down of assets			13			157			336
		Gain on asset sales and insurance settlements			(21	)
		Distribution requirements - preferred securities			29			60			52
		Equity in earnings of unconsolidated affiliates			11			9			(13	)
		Equity in earnings of WPD prior to acquiring controlling    interest in 2002						(75	)		(112	)
		Deferred income taxes and investment tax credits			96			85			(47	)
		Deferral of storm-related costs			(15	)
		Workforce reduction - net of cash paid			9			67
		Unrealized (gain) loss on derivative hedging activities			(38	)		24			(16	)
		Gain on NUG contract termination						(25	)
		NUG contract termination payment						(50	)
		Realized gain on nuclear trust fund			(19	)
		Interest accretion on asset retirement obligation and other			22			4			6
		Other - net			9			7			(2	)
	Change in current assets and current liabilities
		Accounts receivable			11			(48	)		35
		Accounts payable			7			(73	)		(101	)
		Other - net			(40	)		(6	)		(36	)
	Other operating activities - net
		Other assets			37			1			(69	)
		Other liabilities			(62	)					11
			Net cash provided by operating activities		1,340			802			909
Cash Flows From Investing Activities
	Expenditures for property, plant and equipment				(771	)		(649	)		(569	)
	Investment in generating assets and electric energy projects							(261	)		(312	)
	Acquisition of controlling interest in WPD, net of cash acquired							(211	)
	Proceeds from sale of assets and insurance settlements and other				49			20
	Net increase in notes receivable from affiliates										210
	Other investing activities - net				(7	)		(28	)		(31	)
			Net cash used in investing activities		(729	)		(1,129	)		(702	)
Cash Flows From Financing Activities
	Issuance of long-term debt				992						1,529
	Retirement of long-term debt				(575	)		(823	)		(616	)
	Issuance (retirement) of company-obligated mandatorily    redeemable preferred securities							(250	)		575
	Issuance of common stock				426			587			52
	Retirement of preferred stock				(31	)					(15	)
	Payment of common dividends and preferred distributions				(287	)		(261	)		(201	)
	Net increase (decrease) in short-term debt				(877	)		411			(981	)
	Other financing activities - net				(35	)		(27	)		(94	)
			Net cash provided by (used in) financing activities		(387	)		(363	)		249
Effect of Exchange Rates on Cash and Cash Equivalents					7			2			(3	)
Net Increase (Decrease) in Cash and Cash Equivalents					231			(688	)		453
	Cash and Cash Equivalents at Beginning of Period				245			933			480
	Cash and Cash Equivalents at End of Period			$	476		$	245		$	933
Supplemental Disclosures of Cash Flow Information
	Cash paid during the period for:
		Interest (net of amount capitalized)		$	456		$	412		$	373
		Income taxes		$	19		$	100		$	328
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEET AT DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars)
			2003		2002
Assets
Current Assets
	Cash and cash equivalents (Note 1)		$	476	$	245
	Accounts receivable (less reserve: 2003, $93; 2002, $111)			555		588
	Unbilled revenues			341		303
	Fuel, materials and supplies - at average cost			256		242
	Prepayments			54		122
	Deferred income taxes (Note 5)			105		104
	Price risk management assets (Notes 1 and 17)			90		103
	Other			162		112
				2,039		1,819
Investments
	Investment in unconsolidated affiliates - at equity (Notes 1 and 3)			230		234
	Investment in unconsolidated affiliates - at cost (Note 1)			126		107
	Nuclear plant decommissioning trust fund (Note 6)			357		287
	Other			29		28
				742		656
Property, Plant and Equipment - net (Note 1)
	Electric plant in service
		Transmission and distribution		5,456		5,603
		Generation		3,362		2,679
		General		431		479
				9,249		8,761
	Construction work in progress			627		223
	Nuclear fuel			144		129
		Electric plant		10,020		9,113
	Gas and oil plant			205		201
	Other property			221		252
				10,446		9,566
Regulatory and Other Noncurrent Assets (Note 1)
	Recoverable transition costs			1,687		1,946
	Goodwill (Note 18)			1,068		474
	Other intangibles (Note 18)			230		212
	Other			911		879
				3,896		3,511
			$	17,123	$	15,552
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEET AT DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars)
		2003			2002
Liabilities and Equity
Current Liabilities
	Short-term debt (Note 8)	$	56		$	943
	Long-term debt		395			366
	Accounts payable		456			452
	Above market NUG contracts (Note 14)		74			75
	Taxes		182			193
	Interest		121			101
	Dividends		70			66
	Price risk management liabilities (Notes 1 and 17)		82			110
	Other		337			307
			1,773			2,613
Long-term Debt			7,464			5,901
Long-term Debt with Affiliate Trusts (Notes 15 and 22)			681
Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes and investment tax credits (Note 5)		2,201			2,287
	Above market NUG contracts (Note 14)		278			352
	Other (Notes 1, 6, 9, 12 and 21)		1,362			1,396
			3,841			4,035
Commitments and Contingent Liabilities (Note 14)
Minority Interest (Note 1)			54			36
Company-obligated Mandatorily Redeemable Preferred Securities of   Subsidiary Trusts Holding Solely Company Debentures (Note 22)						661
Preferred Stock
	With sinking fund requirements					31
	Without sinking fund requirements		51			51
			51			82
Shareowners' Common Equity
	Common stock		2			2
	Capital in excess of par value		2,973			2,539
	Treasury stock (Note 1)		(837	)		(836	)
	Earnings reinvested		1,478			1,013
	Accumulated other comprehensive loss (Notes 1 and 17)		(297	)		(446	)
	Capital stock expense and other		(60	)		(48	)
			3,259			2,224
		$	17,123		$	15,552
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF SHAREOWNERS' COMMON EQUITY
AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars, except per share amounts)
				2003			2002			2001
Common stock at beginning of year				$	2		$	2		$	2
Common stock at end of year					2			2			2
Capital in excess of par value at beginning of year					2,539			1,956			1,895
	Common stock issued				426			587			54
	Other				8			(4	)		7
Capital in excess of par value at end of year					2,973			2,539			1,956
Treasury stock at beginning of year					(836	)		(836	)		(836	)
	Treasury stock purchased				(1	)
Treasury stock at end of year					(837	)		(836	)		(836	)
Earnings reinvested at beginning of year					1,013			1,023			999
	Net income (b)				734			208			179
	Cash dividends declared on common stock				(269	)		(218	)		(155	)
Earnings reinvested at end of year					1,478			1,013			1,023
Accumulated other comprehensive loss at beginning of year (c)					(446	)		(251	)		(36	)
	Foreign currency translation adjustments (b)				106			125			(234	)
	Unrealized gain (loss) on available-for-sale securities (b)				24			(3	)		(4	)
	Minimum pension liability adjustments (b) (d)				(10	)		(301	)
	Unrealized gain (loss) on qualifying derivatives (b)				29			(16	)		23
Accumulated other comprehensive loss at end of year					(297	)		(446	)		(251	)
Capital stock expense and other at beginning of year					(48	)		(37	)		(12	)
	Issuance costs and other charges to issue common stock				(9	)		(18	)
	Issuance costs and other charges to issue PEPS Units				(3	)					(25	)
	Other							7
Capital stock expense and other at end of year					(60	)		(48	)		(37	)
Total Shareowners' Common Equity				$	3,259		$	2,224		$	1,857
Common stock shares at beginning of year (a)					165,736			146,580			145,041
	Common stock issued through the ESOP, DRIP, ICP, ICPKE,   structured equity program and public offering				11,652			19,156			1,539
	Treasury stock purchased				(26	)
Common stock shares at end of year					177,362			165,736			146,580
(a)		Shares 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 (Loss) (Note 1):
		Net income		$	734		$	208		$	179
		Other comprehensive income (loss):
			Foreign currency translation adjustments, net of tax (benefit)    of $0, $(5), $15		106			125			(234	)
			Unrealized gain (loss) on available-for-sale securities, net of tax   (benefit) of $14, $(2), $(3)		24			(3	)		(4	)
			Minimum pension liability adjustments, net of tax (benefit)   of $(4), $(131)		(10	)		(301	)
			Unrealized gain (loss) on qualifying derivatives, net of tax   (benefit) of $15, $(10), $12		29			(16	)		23
		Total other comprehensive income (loss)			149			(195	)		(215	)
		Comprehensive Income (Loss)		$	883		$	13		$	(36	)
(c)		See Note 1 for disclosure of balances for each component of Accumulated Other Comprehensive Loss.
(d)		See Note 12 for additional information on the adjustments to the additional minimum pension liability.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF PREFERRED STOCK AT DECEMBER 31,
PPL Corporation and Subsidiaries (a)
(Millions of Dollars)
				Outstanding				Shares Outstanding	Shares Authorized
PPL Electric				2003		2002		2003
Preferred Stock - $100 par, cumulative
	4-1/2%			$	25	$	25	247,524		629,936
	Series Preferred				26		57	257,665		10,000,000
				$	51	$	82
Details of Preferred Stock (b)
				Outstanding				Shares Outstanding	Optional Redemption Price Per Share
				2003		2002		2003
With Sinking Fund Requirements (c)
	Series Preferred
			6.125%			$	17
			6.15%				10
			6.33%				4
						$	31
Without Sinking Fund Requirements
	4-1/2% Preferred			$	25	$	25	247,524	$	110.00
	Series Preferred
			3.35%		2		2	20,605		103.50
			4.40%		12		12	117,676		102.00
			4.60%		3		3	28,614		103.00
			6.75%		9		9	90,770		103.38
				$	51	$	51
Decreases in Preferred Stock
				2003				2002			2001
				Shares		Amount		Shares	Amount		Shares	Amount
	4-1/2% Preferred										(134)
	Series Preferred
			5.95%								(10,000)	$	(1)
			6.125%		(167,500)	$	(17)				(148,000)		(14)
			6.15%		(97,500)		(10)
			6.33%		(46,000)		(4)
Decreases in Preferred Stock normally represent: (i) the redemption of stock pursuant to mandatory sinking fund requirements; or (ii) shares redeemed pursuant to optional redemption provisions.
(a)		Each share of PPL Electric's preferred stock entitles the holder to one vote on any question presented to PPL Electric's shareowners' meetings. There were also 10 million shares of PPL's preferred stock and 5 million shares of PPL Electric's preference stock authorized; none were outstanding at December 31, 2003 and 2002.
(b)		The involuntary liquidation price of the preferred stock is $100 per share. The optional voluntary liquidation price is the optional redemption price per share in effect, except for the 4-1/2% Preferred Stock for which such price is $100 per share (plus in each case any unpaid dividends).
(c)		See Note 22 for additional information.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF COMPANY-OBLIGATED MANDATORILY REDEEMABLE SECURITIES AT DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars)
		Outstanding
		2003(c)	2002
Company-obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Company Debentures
	$25 per security
	7.75% (a)		$	575
	$1,000 per security
	8.23% (b)			86
			$	661
(a)	In May 2001, PPL and PPL Capital Funding Trust I, a wholly-owned financing subsidiary of PPL, issued $575 million of 7.75% PEPS Units. Each PEPS Unit consists of (i) a contract to purchase shares of PPL common stock on or prior to May 18, 2004 and (ii) a trust preferred security of PPL Capital Funding Trust I with a maturity date of May 2006 and stated liquidation amount of $25. Each purchase contract requires PPL to make contract adjustment payments of .46% per year, paid quarterly, on the $25 stated amount of the PEPS Unit and requires the holders of the contracts to purchase a number of shares of PPL common stock on or prior to May 18, 2004. The number of shares required to be purchased will depend on the average market price of PPL's common stock prior to the purchase date, subject to certain limitations. The holders' obligations to purchase shares under the purchase contracts may be settled with the proceeds of a remarketing of the trust preferred securities, which have been pledged to secure these obligations. The distribution rate on each trust preferred security is 7.29% per year, paid quarterly, until May 18, 2004. The trust's sole source of funds for distributions are from payments of interest on the 7.29% subordinated notes of PPL Capital Funding, due May 18, 2006, issued to the trust. PPL has guaranteed the payment of principal and interest on the subordinated notes issued to the trust by PPL Capital Funding. PPL has also fully and unconditionally guaranteed all of the trust's obligations under the trust preferred securities. See Note 8 for a discussion of dividend restrictions related to PPL's subsidiaries.
(b)	SIUK Capital Trust I issued $82 million of 8.23% preferred securities maturing in February 2027 and invested the proceeds in 8.23% subordinated debentures maturing in February 2027 issued by SIUK Limited. Thus, the preferred securities are supported by a corresponding amount of subordinated debentures. SIUK Limited owned all of the common securities of SIUK Capital Trust I and guaranteed all of SIUK Capital Trust I's obligations under the preferred securities. In January 2003, SIUK Limited transferred its assets and liabilities, including the common securities of SIUK Capital Trust I and the obligations under the subordinated debentures, to WPD LLP. Therefore, WPD LLP currently guarantees all of SIUK Capital Trust I's obligations under the preferred securities. SIUK Capital Trust I may, at the discretion of WPD LLP, redeem the preferred securities, in whole or in part, at 104.115% of par beginning February 2007 and thereafter at an annually declining premium over par through January 2017, after which time they are redeemable at par. With PPL's acquisition of the controlling interest in WPD in September 2002, these preferred securities were consolidated on the books of PPL at their then fair value of $86 million. See Note 9 for information on the acquisition of a controlling interest in WPD.
(c)	On July 1, 2003, PPL adopted the provisions of SFAS 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." These preferred securities are mandatorily redeemable financial instruments, as they require the issuer to redeem the securities for cash on a specified date. Thus, they should be classified as liabilities, as a component of long-term debt, instead of "mezzanine" equity on the Balance Sheet. However, as of December 31, 2003, no amounts were included in "Long-term Debt" for these securities because PPL Capital Funding Trust I and SIUK Capital Trust I were deconsolidated effective December 31, 2003 in connection with the adoption of FIN 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," for certain entities. Instead, the subordinated debt securities that support the trust preferred securities are reflected in "Long-term Debt with Affiliate Trusts" as of December 31, 2003. See Note 22 for additional information on SFAS 150 and FIN 46.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF LONG-TERM DEBT AT DECEMBER 31,
PPL Corporation and Subsidiaries
(Millions of Dollars)
				Outstanding
				2003				2002			Maturity (a)
Bonds:
	6-1/2% - 7-7/8% First Mortgage Bonds (b)			$	297		(d)	$	382			2003-2024
	3.125% - 6.40% First Mortgage Pollution Control   Bonds (b)				314		(e)		314			2008-2029
	4.30% - 6-1/4% Senior Secured Bonds (b)				900		(f)		800			2007-2013
	6.08% to 7.15% Series 1999-1 Transition Bonds				1,423		(g)		1,678			2003-2008
	5.875% - 9.25% Unsecured Bonds				1,982		(h)		1,583			2004-2028
	6.20% - 6.40% Inflation-linked Bonds				150		(i)		131			2006-2022
	1.54% Pollution Control Revenue Bonds				9				9			2027
Notes:
	5.75% - 8.375% Medium-term Notes (c)				737		(j)		822			2004-2007
	6.40% Senior Unsecured Notes				500				500			2011
	8.05% - 8.30% Senior Secured Notes				437		(k)					2013
	2.625% Convertible Senior Notes				400		(l)					2023
	8.70% - 9.64% Unsecured Promissory Notes				12		(m)		12			2010-2022
Term Loan - variable rate (2.56% at December 31, 2003)					625		(n)					2008
Trust Securities - variable rate (3.435% at December 31, 2003)					31		(n)					2008
Other Long-term Debt					27				21			2003-2013
					7,844				6,252
Fair Value Swaps					28				28
Unamortized discount					(13	)			(13	)
					7,859				6,267
Less amount due within one year					(395	)			(366	)
		Total Long-term Debt		$	7,464			$	5,901
Long-term Debt with Affiliate Trusts:
	7.29% Subordinated Notes			$	592		(o)					2006
	8.23% Subordinated Debentures				89		(o)					2027
			Total Long-term Debt with Affiliate Trusts	$	681
(a)		Aggregate maturities of long-term debt through 2008 are (millions of dollars): 2004, $395; 2005, $911; 2006, $1,454; 2007, $1,070; and 2008, $1,280.
(b)		The First Mortgage Bonds and the First Mortgage Pollution Control Bonds were issued under, and are secured by, the lien of the 1945 First Mortgage Bond Indenture. The lien of the 1945 First Mortgage Bond Indenture covers substantially all electric transmission and distribution plant owned by PPL Electric. The Senior Secured Bonds were issued under the 2001 Senior Secured Bond Indenture. The Senior Secured Bonds are secured by (i) an equal principal amount of First Mortgage Bonds issued under the 1945 First Mortgage Bond Indenture and (ii) the lien of the 2001 Senior Secured Bond Indenture, which covers substantially all electric transmission and distribution plant owned by PPL Electric and which is junior to the lien of the 1945 First Mortgage Bond Indenture.
(c)		PPL fully and unconditionally guarantees the medium-term notes of PPL Capital Funding, a wholly-owned financing subsidiary of PPL. See Note 8 for a discussion of dividend restrictions related to PPL's subsidiaries.
(d)		In April 2003, PPL Electric redeemed and retired all of its outstanding First Mortgage Bonds 7-7/8% Series due 2023, at an aggregate par value of $46 million, and in December 2003, retired $19 million of its First Mortgage Bonds 6-3/4% Series due 2023.
(e)		In February 2003, PPL Electric issued $90 million of 3.125% Pollution Control Bonds and also retired $90 million of its 6.40% Series H Pollution Control Bonds.
(f)		In May 2003, PPL Electric issued $100 million of 4.30% Senior Secured Bonds.
(g)		In August 1999, PPL Transition Bond Company issued $2.4 billion of transition bonds to securitize a portion of PPL Electric's stranded costs. The bonds were issued in eight different classes, with expected average lives of 1 to 8.7 years. Bond principal payments of $255 million were made in 2003.
(h)		In March 2003, WPD issued £200 million of 5.875% bonds due 2027 and in May 2003 WPD issued an additional £50 million of 5.875% bonds due 2027. During the fourth quarter, WPD retired $53 million of 7.375% bonds due 2028.
(i)		Increase due to an increase in foreign currency exchange rates.
(j)		During 2003, PPL Capital Funding retired the following series of medium-term notes: $60 million of 6.375% Series due 2003, $20 million of 6.23% Series due 2003 and $5 million of 6.40% Series due 2003.
(k)		Represents lease financing consolidated through a variable interest entity. See Note 22 for additional information. Secured by, among other things, the generation facility, which had a carrying value of $442 million as of December 31, 2003 and was included in "Property, Plant and Equipment - net - Construction work in progress" on the Balance Sheet.
(l)		Issued by PPL Energy Supply in May 2003.
(m)		In September 2003, PPL Gas Utilities made a $750,000 principal payment on its 9.64% Notes due 2010.
(n)		Represents lease financing consolidated through a variable interest entity. See Note 22 for additional information. Borrowings bear interest at a floating rate, based, at PPL's option, upon (i) LIBOR plus an applicable percentage that is subject to change based on the credit ratings of PPL Energy Supply or (ii) the greater of (a) the Wachovia Bank N.A. corporate base rate or (b) the federal funds rate plus 0.50%, plus an applicable percentage that is subject to change based on the credit ratings of PPL Energy Supply. Secured by, among other things, the generation facilities and the land on which the facilities are located. As of December 31, 2003, the aggregate carrying value of the facilities and the land was $617 million, net of accumulated depreciation of $26 million, and was included in "Property, Plant and Equipment - net - Electric plant in service" and "Regulatory and Other Noncurrent Assets - Other intangibles" on the Balance Sheet.
(o)		Represents debt with a wholly-owned trust that was deconsolidated effective December 31, 2003 as a result of the adoption of FIN 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," for certain entities. See Note 22 for further discussion.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31,
PPL Energy Supply, LLC and Subsidiaries
(Millions of Dollars)
			2003		2002			2001
Operating Revenues
	Wholesale energy marketing		$	1,214	$	1,036		$	1,027
	Wholesale energy marketing to affiliates (Note 15)			1,451		1,434			1,331
	Utility			934		980			408
	Unregulated retail electric and gas			152		182			356
	Net energy trading margins			12		19			37
	Energy related businesses			486		555			633
	Total			4,249		4,206			3,792
Operating Expenses
	Operation
		Fuel		537		502			500
		Energy purchases		818		708			734
		Energy purchases from affiliates (Note 15)		160		171			194
		Other operation and maintenance		875		812			746
	Depreciation (Note 1)			266		265			169
	Taxes, other than income (Note 5)			89		78			38
	Energy related businesses			469		522			508
	Other charges
		Write-down of international energy projects (Note 9)				113			336
		Cancellation of generation projects (Note 9)							150
		Workforce reduction (Note 20)				41
		Write-down of generation assets (Note 9)				44
	Total			3,214		3,256			3,375
Operating Income				1,035		950			417
Other Income - net (Note 16)				73		44			73
Interest Expense				198		207			21
Interest Expense with Affiliate				1		3			26
Income from Continuing Operations Before Income Taxes,   Minority Interest and Distributions on Preferred Securities				909		784			443
Income Taxes (Note 5)				185		266			274
Minority Interest (Note 1)				7		78			(2	)
Distributions on Preferred Securities (Note 22)				5		9
Income from Continuing Operations				712		431			171
Loss from Discontinued Operations (net of income taxes) (Note 9)				20		2
Income Before Cumulative Effects of Changes in Accounting Principles				692		429			171
Cumulative Effects of Changes in Accounting Principles (net of   income taxes) (Notes 12, 18, 21 and 22)				35		(150	)		3
Net Income			$	727	$	279		$	174
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
PPL Energy Supply, LLC and Subsidiaries
(Millions of Dollars)
				2003			2002			2001
Cash Flows From Operating Activities
	Net income			$	727		$	279		$	174
	Adjustments to reconcile net income to net cash provided by   operating activities
		Loss from discontinued operations			20
		Cumulative effects of changes in accounting principles			(35	)		150			(3	)
		Depreciation			266			175			169
		Amortization - energy commitments and other			(38	)		(56	)		(61	)
		Charge for cancellation of generation projects									150
		Payments to cancel generation projects						(152	)
		Dividends received from unconsolidated affiliates			7			14			103
		Pension income - net			(39	)		(20	)		(23	)
		Pension funding			(15	)
		Write-down of assets			13			157			336
		Gain on asset sales and insurance settlements			(21	)
		Equity in earnings of unconsolidated affiliates			8			8			(15	)
		Equity in earnings of WPD prior to acquiring controlling   interest in 2002						(75	)		(112	)
		Deferred income taxes and investment tax credits			154			158			14
		Workforce reduction - net of cash paid						37
		Unrealized (gain) loss on derivative hedging activities			(16	)		3			(16	)
		Gain on NUG contract termination						(25	)
		NUG contract termination payment						(50	)
		Realized gain on nuclear trust fund			(19	)
		Interest accretion on asset retirement obligation and other			22			4			6
		Deferred revenue on PLR supply to affiliate									90
		Other - net			16			7			(2	)
	Change in current assets and current liabilities
		Accounts receivable			(50	)		109			47
		Accounts payable			(21	)		(32	)		(145	)
		Other - net			(42	)		(40	)		(101	)
	Other operating activities - net
		Other assets			17			(1	)
		Other liabilities			(44	)		1			8
			Net cash provided by operating activities		910			651			619
Cash Flows From Investing Activities
	Expenditures for property, plant and equipment				(506	)		(404	)		(380	)
	Investment in generating assets and electric energy projects							(261	)		(312	)
	Acquisition of controlling interest in WPD, net of cash acquired							(211	)
	Proceeds from sale of assets and insurance settlements				47			20
	Net (increase) decrease in notes receivable from affiliates				653			(260	)		986
	Other investing activities - net				10			(28	)		(16	)
			Net cash provided by (used in) investing activities		204			(1,144	)		278
Cash Flows From Financing Activities
	Issuance of long-term debt				802						729
	Retirement of long-term debt				(60	)		(14	)		(9	)
	Contributions from Member				261			160			953
	Distributions to Member				(1,168	)		(710	)		(463	)
	Net increase (decrease) in short-term debt				(862	)		392			(193	)
	Net decrease in short-term debt payable to affiliates										(1,200	)
	Other financing activities - net				(16	)		(3	)		(26	)
			Net cash used in financing activities		(1,043	)		(175	)		(209	)
Effect of Exchange Rates on Cash and Cash Equivalents					7			2			(3	)
Net Increase (Decrease) in Cash and Cash Equivalents					78			(666	)		685
	Cash and Cash Equivalents at Beginning of Period				149			815			130
	Cash and Cash Equivalents at End of Period			$	227		$	149		$	815
Supplemental Disclosures of Cash Flow Information
	Cash paid during the period for:
		Interest (net of amount capitalized)		$	171		$	97		$	53
		Income taxes		$	16		$	27		$	60
Non-cash Contributions from Member
		Intercompany notes and accounts receivable								$	920
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEET AT DECEMBER 31,
PPL Energy Supply, LLC and Subsidiaries
(Millions of Dollars)
			2003		2002
Assets
Current Assets
	Cash and cash equivalents (Note 1)		$	227	$	149
	Accounts receivable (less reserve: 2003, $68; 2002, $87)			320		353
	Unbilled revenues			215		187
	Accounts receivable from affiliates (Note 15)			71		11
	Notes receivable from affiliates (Note 15)			2		655
	Fuel, materials and supplies - at average cost			198		200
	Price risk management assets (Notes 1 and 17)			88		93
	Other			175		159
				1,296		1,807
Investments
	Investment in unconsolidated affiliates - at equity (Notes 1 and 3)			212		234
	Investment in unconsolidated affiliates - at cost (Note 1)			126		107
	Nuclear plant decommissioning trust fund (Note 6)			357		287
	Other			5		10
				700		638
Property, Plant and Equipment - net (Note 1)
	Electric plant in service
		Transmission and distribution		3,129		3,390
		Generation		3,362		2,679
		General		200		279
				6,691		6,348
	Construction work in progress			593		176
	Nuclear fuel			144		129
		Electric plant		7,428		6,653
	Gas and oil plant			21		23
	Other property			163		213
				7,612		6,889
Other Noncurrent Assets
	Goodwill (Note 18)			1,013		419
	Other intangibles (Note 18)			96		91
	Other			533		497
				1,642		1,007
			$	11,250	$	10,341
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEET AT DECEMBER 31,
PPL Energy Supply, LLC and Subsidiaries
(Millions of Dollars)
		2003		2002
Liabilities and Equity
Current Liabilities
	Short-term debt (Note 8)	$	56	$	928
	Long-term debt		6		6
	Accounts payable		381		382
	Accounts payable to affiliates (Note 15)		53		76
	Above market NUG contracts (Note 14)		74		75
	Taxes		110		114
	Interest		74		55
	Deferred revenue on PLR energy supply to affiliate (Note 15)		12		12
	Price risk management liabilities (Notes 1 and 17)		76		96
	Other		222		216
			1,064		1,960
Long-term Debt			4,140		2,225
Long-term Debt with Affiliate Trust (Notes 15 and 22)			89
Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes and investment tax credits (Note 5)		1,012		1,022
	Above market NUG contracts (Note 14)		278		352
	Deferred revenue on PLR energy supply to affiliate (Note 15)		58		69
	Other (Notes 1, 6, 9, 12 and 21)		1,077		1,084
			2,425		2,527
Commitments and Contingent Liabilities (Note 14)
Minority Interest (Note 1)			54		36
Company-obligated Mandatorily Redeemable Preferred Securities of   Subsidiary Trusts Holding Solely Company Debentures (Note 22)					86
Member's Equity			3,478		3,507
		$	11,250	$	10,341
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF MEMBER'S EQUITY AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31,
PPL Energy Supply, LLC and Subsidiaries
(Millions of Dollars)
					2003			2002			2001
Member's Equity at beginning of year					$	3,507		$	3,972		$	2,577
	Comprehensive income:
			Net income			727			279			174
			Other comprehensive income (loss) (a)
				Foreign currency translation adjustments, net of tax    (benefit) of $0, $(5), $15 (b)		106			125			(234	)
				Unrealized gain (loss) on qualifying derivatives, net of tax    (benefit) of $17, $(15), $29		33			(23	)		46
				Minimum pension liability adjustments, net of tax    (benefit) of $(5), $(128), $0 (c)		(12	)		(296	)		(1	)
				Unrealized gain on available-for-sale securities, net of tax    of $12		24
	Total Comprehensive income (loss)					878			85			(15	)
	Member's contributions					261			160			1,873
	Distributions to Member					(1,168	)		(710	)		(463	)
Member's Equity at end of year					$	3,478		$	3,507		$	3,972
(a)		See Note 1 for disclosure of balances for each component of Accumulated Other Comprehensive Loss.
(b)		Includes a $94 million credit for the write-off of the CEMAR cumulative translation adjustment in June 2002. See Note 9 for additional information.
(c)		See Note 12 for additional information on the adjustments to the additional minimum pension liability.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF COMPANY-OBLIGATED MANDATORILY REDEEMABLE SECURITIES AT DECEMBER 31,
PPL Energy Supply, LLC and Subsidiaries
(Millions of Dollars)
		Outstanding
		2003(b)	2002
Company-obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Company Debentures - $1,000 per security
	8.23% (a)		$	86
(a)	SIUK Capital Trust I issued $82 million of 8.23% preferred securities maturing in February 2027 and invested the proceeds in 8.23% subordinated debentures, maturing in February 2027, issued by SIUK Limited. Thus, the preferred securities are supported by a corresponding amount of subordinated debentures. SIUK Limited owned all of the common securities of SIUK Capital Trust I and guaranteed all of SIUK Capital Trust I's obligations under the preferred securities. In January 2003, SIUK Limited transferred its assets and liabilities, including the common securities of SIUK Capital Trust I and the obligations under the subordinated debentures, to WPD LLP. Therefore, WPD LLP currently guarantees all of SIUK Capital Trust I's obligations under the preferred securities. SIUK Capital Trust I may, at the discretion of WPD LLP, redeem the preferred securities, in whole or in part, at 104.115% of par beginning February 2007 and thereafter at an annually declining premium over par through January 2017, after which time they are redeemable at par. With PPL Energy Supply's acquisition of the controlling interest in WPD in September 2002, these preferred securities were consolidated on the books of PPL Energy Supply at their then fair value of $86 million. See Note 9 for information on the acquisition of a controlling interest in WPD.
(b)	On July 1, 2003, PPL Energy Supply adopted the provisions of SFAS 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." These preferred securities are mandatorily redeemable financial instruments, as they require the issuer to redeem the securities for cash on a specified date. Thus, they should be classified as liabilities, as a component of long-term debt, instead of "mezzanine" equity on the Balance Sheet. However, as of December 31, 2003, no amounts were included in "Long-term Debt" for these securities because SIUK Capital Trust I was deconsolidated effective December 31, 2003 in connection with the adoption of FIN 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," for certain entities. Instead, the subordinated debentures that support the trust preferred securities are reflected in "Long-term Debt with Affiliate Trust" as of December 31, 2003. See Note 22 for additional information on SFAS 150 and FIN 46.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF LONG-TERM DEBT AT DECEMBER 31,
PPL Energy Supply, LLC and Subsidiaries
(Millions of Dollars)
		Outstanding
		2003			2002			Maturity (a)
6.40% Senior Unsecured Notes		$	500		$	500			November 1, 2011
2.625% Convertible Senior Notes (b)			400						May 15, 2023
5.875% to 9.25% Unsecured Bonds (c)			1,982			1,583			2004-2028
Variable rate (3.435% at December 31, 2003) Trust   Securities (d)			31						June 2008
Term loan - variable rate (2.56% at December 31,    2003) (d)			625						June 2008
8.05% Senior Secured Notes (e)			284						December 2013
8.30% Senior Secured Notes (e)			153						December 2013
6.20% - 6.40% Bonds - Inflation-linked bonds (f)			150			131			2006-2022
6% Bolivian Govt.			9			10			2004-2013
2.57% - 18% UF-denominated debt with various banks			4			6			2004-2013
9% Note payable			1			2			2003-2004
Other Long-term Debt			15			3			2003-2011
			4,154			2,235
Unamortized discount			(8	)		(4	)
			4,146			2,231
Less amount due within one year			(6	)		(6	)
	Total Long-term Debt	$	4,140		$	2,225
Long-term Debt with Affiliate Trust:
	8.23% Subordinated Debentures (g)	$	89						2027
(a)	Aggregate maturities of long-term debt through 2008 are (millions of dollars): 2004, $6; 2005, $185; 2006, $427; 2007, $183; and 2008, $885. There are no debt securities outstanding that have sinking fund requirements.
(b)	Issued by PPL Energy Supply in May 2003.
(c)	In March 2003, WPD issued £200 million of 5.875% bonds due 2027 and in May 2003 WPD issued an additional £50 million of 5.875% bonds due 2027. During the fourth quarter, WPD retired $53 million of 7.375% bonds due 2028.
(d)	Represents lease financing consolidated through a variable interest entity. See Note 22 for additional information. Borrowings bear interest at a floating rate based, at PPL's option, upon (i) LIBOR plus an applicable percentage that is subject to change based on the credit ratings of PPL Energy Supply or (ii) the greater of (a) the Wachovia Bank N.A. corporate base rate or (b) the federal funds rate plus 0.50%, plus an applicable percentage that is subject to change based on the credit ratings of PPL Energy Supply. Secured by, among other things, the generation facilities and the land on which the facilities are located. As of December 31, 2003, the aggregate carrying value of the facilities and the land is $617 million, net of accumulated depreciation of $26 million, and is included in "Property, Plant and Equipment - net - Electric plant in service" and "Regulatory and Other Noncurrent Assets - Other intangibles" on the Balance Sheet.
(e)	Represents lease financing consolidated through a variable interest entity. See Note 22 for additional information. Secured by, among other things, the generation facility, which has a carrying value of $442 million as of December 31, 2003 and is included in "Property, Plant and Equipment - net - Construction work in progress" on the Balance Sheet.
(f)	Increase due to an increase in foreign currency exchange rates.
(g)	Represents debt with a wholly-owned trust that was deconsolidated effective December 31, 2003 as a result of the adoption of FIN 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," for certain entities. See Note 22 for further discussion.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

(THIS PAGE LEFT BLANK INTENTIONALLY.)

CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
			2003		2002		2001
Operating Revenues
	Retail electric		$	2,597	$	2,527	$	2,437
	Retail electric to affiliate			8		23		20
	Wholesale electric			29		28		33
	Wholesale electric to affiliate (Note 15)			152		160		176
	Energy related businesses			2		10		28
	Total			2,788		2,748		2,694
Operating Expenses
	Operation
		Energy purchases		211		208		177
		Energy purchases from affiliate (Note 15)		1,444		1,431		1,325
		Other operation and maintenance		345		319		288
		Amortization of recoverable transition costs		260		226		251
	Depreciation (Note 1)			103		94		91
	Taxes, other than income (Note 5)			164		153		116
	Energy related businesses			1		9		27
	Workforce reduction (Note 20)			9		33
	Total			2,537		2,473		2,275
Operating Income				251		275		419
Other Income - net (Note 16)				6		16		16
Interest Expense				211		218		230
Income Before Income Taxes				46		73		205
Income Taxes (Note 5)				18		18		65
Income Before Cumulative Effect of a Change in Accounting   Principle				28		55		140
Cumulative Effect of a Change in Accounting Principle (net of   income taxes) (Note 12)								5
Income Before Distributions on Preferred Securities				28		55		145
Distributions on Preferred Securities				3		16		26
Income Available to PPL Corporation			$	25	$	39	$	119
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
				2003			2002			2001
Cash Flows From Operating Activities
	Net income			$	25		$	39		$	119
	Adjustments to reconcile net income to net cash provided by   operating activities
		Depreciation			103			94			91
		Amortizations - recoverable transition costs and other			281			245			260
		Distribution requirements - preferred securities			3			16			26
		Deferred income taxes and investment tax credits			17			21			31
		Workforce reduction - net of cash paid			9			31
		Deferral of storm-related costs			(15	)
		Prepayment on PLR energy supply from affiliate									(90	)
		Pension income			(4	)		(17	)		(24	)
		Cumulative effect of a change in accounting principle									(5	)
	Change in current assets and current liabilities
		Accounts receivable			21			(65	)		76
		Accounts payable			70			(97	)		(113	)
		Other - net			3			5			33
	Other operating activities - net
		Other assets			(4	)		11			(22	)
		Other liabilities			19			(9	)		10
			Net cash provided by operating activities		528			274			392
Cash Flows From Investing Activities
	Expenditures for property, plant and equipment				(235	)		(224	)		(138	)
	Net (increase) decrease in notes receivable from parent and    affiliates				90			260			(280	)
	Other investing activities - net							5			(14	)
			Net cash provided by (used in) investing activities		(145	)		41			(432	)
Cash Flows From Financing Activities
	Issuance of long-term debt				190						800
	Retirement of long-term debt				(430	)		(285	)		(465	)
	Retirement of company-obligated mandatorily redeemable   preferred securities							(250	)
	Contribution from parent				75			240
	Purchase of treasury stock										(280	)
	Retirement of preferred stock				(31	)					(15	)
	Payment of preferred distributions				(3	)		(22	)		(26	)
	Payment of common dividends to PPL Corporation				(29	)		(63	)		(81	)
	Net increase (decrease) in short-term debt				(15	)		15			(59	)
	Other financing activities - net				(7	)					(22	)
			Net cash used in financing activities		(250	)		(365	)		(148	)
Net Increase (Decrease) in Cash and Cash Equivalents					133			(50	)		(188	)
	Cash and Cash Equivalents at Beginning of Period				29			79			267
	Cash and Cash Equivalents at End of Period			$	162		$	29		$	79
Supplemental Disclosures of Cash Flow Information
	Cash paid during the period for:
		Interest (net of amount capitalized)		$	204		$	222		$	214
		Income taxes		$	17		$	32		$	63
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEET AT DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
			2003		2002
Assets
Current Assets
	Cash and cash equivalents (Note 1)		$	162	$	29
	Accounts receivable (less reserve: 2003, $24; 2002, $23)			212		216
	Unbilled revenues			123		113
	Accounts receivable from affiliates (Note 15)			27		44
	Notes receivable from affiliates (Note 15)					90
	Income tax receivable			35		35
	Prepayments			5		51
	Prepayment on PLR energy supply from affiliate (Note 15)			12		12
	Deferred income taxes (Note 5)			45		43
	Other			54		36
				675		669
Property, Plant and Equipment - net (Note 1)
	Electric plant in service
		Transmission and distribution		2,327		2,214
		General		226		192
				2,553		2,406
	Construction work in progress			31		46
		Electric plant		2,584		2,452
	Other property			5		4
				2,589		2,456
Regulatory and Other Noncurrent Assets (Note 1)
	Recoverable transition costs			1,687		1,946
	Intangibles (Note 18)			116		118
	Prepayment on PLR energy supply from affiliate (Note 15)			58		69
	Other			344		325
				2,205		2,458
			$	5,469	$	5,583
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEET AT DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
		2003			2002
Liabilities and Equity
Current Liabilities
	Short-term debt				$	15
	Long-term debt	$	289			274
	Accounts payable		44			42
	Accounts payable to affiliates (Note 15)		92			24
	Taxes		86			96
	Interest		32			34
	Other		83			63
			626			548
Long-term Debt			2,648			2,901
Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes and investment tax credits (Note 5)		728			702
	Other (Notes 1 and 12)		194			203
			922			905
Commitments and Contingent Liabilities (Note 14)
Preferred Stock
	With sinking fund requirements (Notes 8 and 22)					31
	Without sinking fund requirements		51			51
			51			82
Shareowner's Common Equity
	Common stock		1,476			1,476
	Additional paid-in capital		361			282
	Treasury stock (Note 1)		(912	)		(912	)
	Earnings reinvested		304			308
	Capital stock expense and other		(7	)		(7	)
			1,222			1,147
		$	5,469		$	5,583
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF SHAREOWNER'S COMMON EQUITY FOR THE YEARS ENDED DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars, except share amounts)
		2003			2002			2001
Common stock at beginning of year		$	1,476		$	1,476		$	1,476
Common stock at end of year			1,476			1,476			1,476
Additional paid-in capital at beginning of year			282			51			55
	Capital contribution from PPL		75			240
	Other		4			(9	)		(4	)
Additional paid-in capital at end of year			361			282			51
Treasury stock at beginning of year			(912	)		(912	)		(632	)
	Treasury stock purchased								(280	)
Treasury stock at end of year			(912	)		(912	)		(912	)
Earnings reinvested at beginning of year			308			332			277
	Net income (a)		25			39			119
	Cash dividends declared on common stock		(29	)		(63	)		(64	)
Earnings reinvested at end of year			304			308			332
Capital stock expense and other at beginning of year			(7	)		(16	)		(16	)
	Other					9
Capital stock expense and other at end of year			(7	)		(7	)		(16	)
Total Shareowner's Common Equity		$	1,222		$	1,147		$	931
Common stock shares at beginning of year (b)			78,030			78,030			102,230
	Treasury stock purchased								(24,200	)
Common stock shares at end of year			78,030			78,030			78,030
(a)	PPL Electric's net income approximates comprehensive income.
(b)	Shares in thousands. No par value. 170 million shares authorized. All common shares of PPL Electric stock are owned by PPL.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF PREFERRED STOCK AT DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries (a)
(Millions of Dollars)
								Shares Outstanding
				Outstanding						Shares
				2003		2002		2003		Authorized
Preferred Stock - $100 par,    cumulative
	4-1/2%			$	25	$	25	247,524		629,936
	Series Preferred				26		57	257,665		10,000,000
				$	51	$	82
Details of Preferred Stock (b)
								Shares Outstanding	Optional Redemption Price Per Share
				Outstanding
				2003		2002		2003
With Sinking Fund   Requirements (c)
	Series Preferred
			6.125%			$	17
			6.15%				10
			6.33%				4
						$	31
Without Sinking Fund   Requirements
	4-1/2% Preferred			$	25	$	25	247,524	$	110.00
	Series Preferred
			3.35%		2		2	20,605		103.50
			4.40%		12		12	117,676		102.00
			4.60%		3		3	28,614		103.00
			6.75%		9		9	90,770		103.38
				$	51	$	51
Decreases in Preferred Stock
				2003				2002			2001
				Shares		Amount		Shares	Amount		Shares	Amount
	4-1/2% Preferred										(134)
	Series Preferred
			5.95%								(10,000)	$	(1)
			6.125%		(167,500)	$	(17)				(148,000)		(14)
			6.15%		(97,500)		(10)
			6.33%		(46,000)		(4)
Decreases in Preferred Stock normally represent: (i) the redemption of stock pursuant to mandatory sinking fund requirements; or (ii) shares redeemed pursuant to optional redemption provisions.
(a)		Each share of PPL Electric's preferred stock entitles the holder to one vote on any question presented to PPL Electric's shareowners' meetings. There were 5 million shares of PPL Electric's preference stock authorized; none were outstanding at December 31, 2003 and 2002.
(b)		The involuntary liquidation price of the preferred stock is $100 per share. The optional voluntary liquidation price is the optional redemption price per share in effect, except for the 4-1/2% Preferred Stock for which such price is $100 per share (plus in each case any unpaid dividends).
(c)		See Note 22 for additional information.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF LONG-TERM DEBT AT DECEMBER 31,
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
		Outstanding
		2003				2002			Maturity (a)
First Mortgage Bonds (b)
	6-7/8%					$	19		February 1, 2003
	6-7/8%	$	25				25		March 1, 2004
	6-1/2%		110				110		April 1, 2005
	6.55%		146				146		March 1, 2006
	7-3/8%		10				10		2014-2018
	6-3/4% to 7-7/8%				(c)		66		2019-2023
	7.30%		6				6		2024-2029
First Mortgage Pollution Control Bonds (b)
	3.125% Series		90		(d)				November 1, 2008
	6.40% Series H				(d)		90		November 1, 2021
	5.50% Series I		53				53		February 15, 2027
	6.40% Series J		116				116		September 1, 2029
	6.15% Series K		55				55		August 1, 2029
Senior Secured Bonds (b)
	5-7/8%		300				300		August 15, 2007
	6-1/4%		500				500		August 15, 2009
	4.30%		100		(e)				June 1, 2013
			1,511				1,496
Series 1999-1 Transition Bonds
	6.08% to 7.15%		1,423		(f)		1,678		2003-2008
Pollution Control Revenue Bonds - 1.54%			9				9		June 1, 2027
			2,943				3,183
Unamortized discount			(6	)			(8	)
			2,937				3,175
Less amount due within one year			(289	)			(274	)
	Total Long-term Debt	$	2,648			$	2,901

(a)	Aggregate maturities of long-term debt through 2008 are (millions of dollars): 2004, $289; 2005, $376; 2006, $434; 2007, $600; and 2008, $395. There are no bonds outstanding that have sinking fund requirements.
(b)	The First Mortgage Bonds and the First Mortgage Pollution Control Bonds were issued under, and are secured by, the lien of the 1945 First Mortgage Bond Indenture. The lien of the 1945 First Mortgage Bond Indenture covers substantially all electric transmission and distribution plant owned by PPL Electric. The Senior Secured Bonds were issued under the 2001 Senior Secured Bond Indenture. The Senior Secured Bonds are secured by (i) an equal principal amount of First Mortgage Bonds issued under the 1945 First Mortgage Bond Indenture and (ii) the lien of the 2001 Senior Secured Bond Indenture, which covers substantially all electric transmission and distribution plant owned by PPL Electric and which is junior to the lien of the 1945 First Mortgage Bond Indenture.
(c)	In April 2003, PPL Electric redeemed and retired all of its outstanding First Mortgage Bonds, 7-7/8% Series due 2023, at an aggregate par value of $46 million and in December 2003, retired $19 million of its First Mortgage Bonds 6-3/4% Series due 2023.
(d)	In February 2003, PPL Electric issued $90 million of 3.125% Series Pollution Control Bonds and also retired $90 million of its 6.40% Series H Pollution Control Bonds.
(e)	In May 2003, PPL Electric issued $100 million of 4.30% Senior Secured Bonds.
(f)	In August 1999, PPL Transition Bond Company issued $2.4 billion of transition bonds to securitize a portion of PPL Electric's stranded costs. The bonds were issued in eight different classes, with expected average lives of 1 to 8.7 years. Bond principal payments of $255 million were made in 2003.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31,
PPL Montana, LLC and Subsidiaries
(Millions of Dollars)
			2003			2002			2001
Operating Revenues
	Wholesale energy marketing		$	287		$	237		$	335
	Wholesale energy marketing to affiliate (Note 15)			64			68			80
	Net energy trading margins						(1	)		6
	Other			3			2			3
	Total			354			306			424
Operating Expenses
	Operation
		Fuel		36			32			30
		Energy purchases		73			53			82
		Other operation and maintenance		97			98			101
		Transmission		11			7			8
	Depreciation (Note 1)			11			11			10
	Taxes, other than income (Note 5)			16			17			16
	Total			244			218			247
Operating Income				110			88			177
Other Income - net				9						3
Interest Expense				5			6			9
Income Before Income Taxes				114			82			171
Income Taxes (Note 5)				45			35			68
Income Before Cumulative Effect of a Change in Accounting    Principle				69			47			103
Cumulative Effect of a Change in Accounting Principle (net of income taxes)   (Note 14)				(1	)
Net Income			$	68		$	47		$	103
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
PPL Montana, LLC and Subsidiaries
(Millions of Dollars)
						2003			2002			2001
Cash Flows From Operating Activities
	Net income					$	68		$	47		$	103
	Adjustments to reconcile net income to net cash provided by operating   activities
			Cumulative effect of a change in accounting principle				1
			Allowance for doubtful accounts				(10	)					28
			Depreciation				11			11			10
			Amortization - wholesale energy commitments				(6	)		(17	)		(20	)
			Deferred income taxes				21			17			7
			Changes in current assets and liabilities
				Accounts receivable			6			(5	)		38
				Accounts receivable/payable to Member			(4	)		(14	)		(27	)
				Accounts receivable/payable to affiliate			3			6			(22	)
				Accounts payable and accrued expenses			2			(2	)		(17	)
				Other - net			(8	)		(6	)		(10	)
			Other operating activities
				Prepaid operating lease for generating assets			(25	)		(27	)		(15	)
				Pension funding			(12	)		9			12
				Other - net			7			(5	)		2
					Net cash provided by operating activities		54			14			89
Cash Flows From Investing Activities
	Proceeds from sale of property, plant and equipment												5
	Expenditures for property, plant and equipment						(21	)		(19	)		(26	)
					Net cash used in investing activities		(21	)		(19	)		(21	)
Cash Flows From Financing Activities
	Net borrowings (repayments) on revolving line of credit with affiliate						(26	)		(18	)		44
	Distribution to Member						(5	)					(167	)
					Net cash used in financing activities		(31	)		(18	)		(123	)
Net Increase (Decrease) in Cash and Cash Equivalents							2			(23	)		(55	)
	Cash and Cash Equivalents at Beginning of Period						1			24			79
	Cash and Cash Equivalents at End of Period					$	3		$	1		$	24
Supplemental Disclosures of Cash Flow Information
	Cash paid during the period for:
		Interest				$	1		$	1		$	2
		Income taxes				$	30		$	32		$	88
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED BALANCE SHEET AT DECEMBER 31,
PPL Montana, LLC and Subsidiaries
(Millions of Dollars)
		2003		2002
Assets
Current Assets
	Cash and cash equivalents (Note 1)	$	3	$	1
	Accounts receivable (less reserve: 2003, $36; 2002, $46)		5		3
	Unbilled revenues		23		23
	Accounts receivable from joint owners		9		8
	Accounts receivable from Member		6		2
	Fuel, materials and supplies - at average cost		7		6
	Price risk management assets (Notes 1 and 17)		14		12
	Deferred income taxes (Note 5)		10		17
	Prepayments and other		6		4
			83		76
Noncurrent Assets
	Property, plant and equipment - net (Note 1)		443		433
	Prepaid operating lease for generating assets (Note 10)		80		55
	Intangibles (Note 18)		43		39
	Deferred income taxes (Note 5)				12
	Other		27		28
			593		567
		$	676	$	643
Liabilities and Equity
Current Liabilities
	Accounts payable	$	34	$	31
	Accounts payable to affiliates		4		1
	Revolving line of credit with affiliate (Notes 8 and 15)				26
	Accrued expenses		16		17
	Price risk management liabilities (Notes 1 and 17)		7		12
	Wholesale energy commitments (Note 14)		3		2
			64		89
Noncurrent Liabilities
	Employee benefit obligations		16		27
	Wholesale energy commitments (Note 14)		54		62
	Deferred income taxes (Note 5)		6
	Other (Note 12)		31		31
			107		120
Commitments and Contingent Liabilities (Note 14)
Member's Equity			505		434
		$	676	$	643
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

CONSOLIDATED STATEMENT OF MEMBER'S EQUITY AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31,
PPL Montana, LLC and Subsidiaries
(Millions of Dollars)
					2003			2002			2001
Member's Equity at beginning of year					$	434		$	421		$	453
	Comprehensive income:
			Net income (a)			68			47			103
			Other comprehensive income (loss): (a)
				Unrealized gain (loss) on qualifying derivatives, net of tax   (benefit) of $4, (19), $21		7			(29	)		33
				Minimum pension liability adjustment		1			(5	)		(1	)
	Total comprehensive income					76			13			135
	Distribution to Member					(5	)					(167	)
Member's Equity at end of year					$	505		$	434		$	421
(a)		See Note 1 for disclosure of balances for each component of Accumulated Other Comprehensive Income.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Terms and abbreviations appearing in Combined Notes to Consolidated Financial Statements are explained in the glossary. Dollars are in millions, except per share data, unless otherwise noted.

1. Summary of Significant Accounting Policies

   Business and Consolidation

   (PPL, PPL Energy Supply and PPL Electric)

   PPL is an energy and utility holding company that, through its subsidiaries, is primarily engaged in the generation and marketing of electricity in the northeastern and western U.S. and in the delivery of electricity in Pennsylvania, the U.K. and Latin America. Based in Allentown, Pennsylvania, PPL's principal subsidiaries are PPL Energy Funding, PPL Electric, PPL Gas Utilities, PPL Services and PPL Capital Funding.

   (PPL and PPL Energy Supply)

   PPL Energy Funding is the parent of PPL Energy Supply, which serves as the holding company for PPL's principal unregulated subsidiaries. PPL Energy Supply is the parent of PPL Generation, PPL EnergyPlus and PPL Global.

   PPL Generation owns and operates a portfolio of domestic power generating assets. These power plants are located in Pennsylvania, Montana, Arizona, Illinois, Connecticut, New York and Maine and use well-diversified fuel sources including coal, nuclear, natural gas, oil and hydro. PPL EnergyPlus markets or brokers electricity produced by PPL Generation, along with purchased power, natural gas and oil in competitive wholesale and deregulated retail markets, primarily in the northeastern and western portions of the U.S. PPL Global acquires and develops domestic generation projects that are, in turn, operated by PPL Generation as part of its portfolio of generation assets. PPL Global also acquires and holds international energy projects that are primarily focused on the distribution of electricity.

   (PPL and PPL Electric)

   PPL Electric is the principal regulated subsidiary of PPL. PPL Electric's principal businesses are the transmission and distribution of electricity to serve retail customers in its franchised territory in eastern and central Pennsylvania, and the supply of electricity to retail customers in that territory as a PLR.

   (PPL, PPL Energy Supply and PPL Montana)

   PPL Montana commenced operations in 1999, after the purchase of substantially all of the generation assets and certain contracts of the utility division of Montana Power. PPL Montana operates steam generation and hydroelectric facilities throughout Montana. PPL Montana has been designated as an EWG under the Federal Power Act and sells wholesale power throughout the western U.S. PPL Montana Holdings, LLC is the sole Member of PPL Montana and is an indirect, wholly-owned subsidiary of PPL.

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

   The consolidated financial statements of PPL, PPL Energy Supply, PPL Electric and PPL Montana include each company's own accounts as well as the accounts of all entities in which the company has a controlling financial interest. Investments in entities in which the company has the ability to exercise significant influence but does not have a controlling financial interest are accounted for under the equity method. All other investments are carried at cost. All significant intercompany transactions have been eliminated. Any minority interests in operating results, and equity ownership, are reflected in the consolidated financial statements.

   (PPL and PPL Energy Supply)

   It is the policy of PPL and PPL Energy Supply to consolidate foreign subsidiaries and record equity in earnings of other foreign entities on a lag, based on the availability of financial data on a U.S. GAAP basis:

   • Earnings from foreign equity method investments are recorded on a three-month lag.

   • PPL and PPL Energy Supply consolidate the results of foreign entities in which they have a controlling financial interest (WPD, Emel, EC, the Bolivian subsidiaries and other investments) on a one-month lag.

   Effective August 21, 2002, PPL Energy Supply deconsolidated CEMAR and began accounting for it using the cost method. See Note 9 for further discussion.

   Effective December 31, 2003, PPL's and PPL Energy Supply's consolidated financial statements include the accounts of the lessors under the operating leases for the Sundance, University Park and Lower Mt. Bethel generation facilities. These entities are not included in the consolidated financial statements for periods ending prior to December 31, 2003. See "FIN 46 and FIN 46(R)" in Note 22 for further discussion.

   Effective December 31, 2003, PPL deconsolidated PPL Capital Funding Trust I, a wholly-owned trust, and PPL Energy Supply deconsolidated SIUK Capital Trust I, also a wholly-owned trust. Both entities are included in PPL's consolidated financial statements for periods ending prior to December 31, 2003. SIUK Capital Trust I is included in PPL Energy Supply's consolidated financial statements for periods ending prior to December 31, 2003. See "FIN 46 and FIN 46(R)" in Note 22 for further discussion.

   The consolidated financial statements of PPL and PPL Energy Supply include their share of undivided interests in jointly-owned facilities, as well as their share of the related operating costs of those facilities. See Note 13 for additional information.

   Use of Estimates (PPL, PPL Energy Supply, PPL Electric and PPL Montana)

   The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

   PPL records loss accruals in accordance with SFAS 5, "Accounting for Contingencies."

   Accounting Records (PPL and PPL Electric)

   The system of accounts for PPL Electric and PPL Gas Utilities are maintained in accordance with the Uniform System of Accounts prescribed by the FERC and adopted by the PUC.

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

   All highly liquid debt instruments purchased with original maturities of three months or less are considered to be cash equivalents.

   Property, Plant and Equipment

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

   PP&E is recorded at original cost, unless impaired. If impaired, the asset is written down to fair value at that time, which becomes the asset's new cost basis. Original cost includes material, labor, contractor costs, construction overheads and financing costs, where applicable. The cost of repairs and minor replacements are charged to expense as incurred. PPL records costs associated with planned major maintenance projects in the period in which the costs are incurred. No costs are accrued in advance of the period in which the work is performed.

   When a component of PP&E is retired that was depreciated under the composite or group method, the original cost is charged to accumulated depreciation. When all or a significant portion of an operating unit is retired or sold that was depreciated under the composite or group method, the property and the related accumulated depreciation account is reduced and any gain or loss is included in income, unless otherwise required by regulators. Depreciation is computed over the estimated useful lives of property using various methods including the straight-line, composite and group methods. PPL and its subsidiaries periodically review and adjust the depreciable lives of their fixed assets.

   AFUDC is capitalized as part of the construction costs for regulated projects. Interest is capitalized as part of construction costs for non-regulated projects.

   Following are the classes of PP&E, with the associated accumulated depreciation, at December 31:

   		2003
   		PPL		PPL Energy Supply		PPL Electric		PPL Montana
   Electric plant
   	Generation	$	8,191	$	8,191			$	403
   	Transmission and distribution		7,324		3,568	$	3,756
   	General		728		365		353		54
   	Construction work in progress		627		593		31		20
   	Nuclear fuel		308		308
   Gas and oil			321		63
   Other property			276		214		5
   			17,775		13,302		4,145		477
   Less: Accumulated depreciation and amortization			7,329		5,690		1,556		34
   		$	10,446	$	7,612	$	2,589	$	443

   		2002
   		PPL		PPL Energy Supply		PPL Electric		PPL Montana
   Electric plant
   	Generation	$	7,407	$	7,407			$	403
   	Transmission and distribution		7,279		3,695	$	3,584
   	General		749		414		324		41
   	Construction work in progress		223		176		46		14
   	Nuclear fuel		312		312
   Gas and oil			321		64
   Other property			301		262		5
   			16,592		12,330		3,959		458
   Less: Accumulated depreciation and amortization			7,026		5,441		1,503		25
   		$	9,566	$	6,889	$	2,456	$	433

   Following are the weighted-average rates of depreciation at December 31:

   	2003
   	PPL		PPL Energy Supply		PPL Electric		PPL Montana
   Generation		2.01%		2.01%				2.14%
   Transmission and distribution		3.16%		4.10%		2.31%
   General		3.75%		3.96%		3.64%		4.39%

   	2002
   	PPL		PPL Energy Supply		PPL Electric		PPL Montana
   Generation		1.88%		1.88%				2.16%
   Transmission and distribution		2.99%		3.70%		2.30%
   General		2.72%		2.99%		2.54%		4.75%

   The annual provisions for depreciation have been computed principally in accordance with the following ranges, in years, of assets lives:

   	PPL		PPL Energy Supply		PPL Electric		PPL Montana
   Generation		5-65		5-65				30-50
   Transmission and distribution		15-80		30-40		15-80
   General		3-80		3-60		10-80		5-55

   (PPL and PPL Energy Supply)

   As of July 1, 2003, PPL Energy Supply changed the depreciable lives of its gas-fired peaking plants from 30 to 40 years based upon engineering estimates. This change decreased depreciation by $1 million in 2003 and is expected to decrease depreciation by $8 million in 2004 and thereafter, which includes the impact for certain gas-fired peaking plants consolidated in accordance with FIN 46. See Note 22 for further discussion of FIN 46.

   (PPL Electric)

   When a component of regulated PP&E is retired, the original cost plus the cost of retirement, less salvage, is charged to accumulated depreciation.

   Property, Plant and Equipment and Intangible Asset - Impairments (PPL, PPL Energy Supply, PPL Electric and PPL Montana)

   Long-lived assets and identifiable intangibles held and used by PPL and its subsidiaries are reviewed for impairment when events or circumstances indicate carrying amounts may not be recoverable. An impairment loss is recognized if the carrying amount of PP&E and identifiable intangibles is not recoverable from undiscounted future cash flow. The impairment charge is measured by the difference between the carrying amount of the asset and its fair value. Goodwill is reviewed for impairment annually or more frequently when events or circumstances indicate that the carrying value may be greater than the implied fair value. If the carrying value of the reporting unit exceeds its fair value, the implied fair value of goodwill must be calculated. If the implied fair value goodwill is less than its carrying value, the difference represents the amount of impairment. See Notes 9 and 18 for a discussion of asset impairment charges recorded.

   Debt Securities

   (PPL, PPL Energy Supply and PPL Electric)

   Debt securities that have been classified as held-to-maturity have been so classified due to the intent to hold such securities to maturity and the ability to do so. All other debt securities have been classified as available-for-sale or trading.

   Regulation

   (PPL, PPL Energy Supply and PPL Electric)

   PPL Electric, PPL Gas Utilities, and a Latin American affiliate account for regulated operations in accordance with the provisions of SFAS 71, "Accounting for the Effects of Certain Types of Regulation," which requires rate-regulated entities to reflect the effects of regulatory decisions in their financial statements.

   The following regulatory assets were included in the "Regulatory and Other Noncurrent Assets" section of the Balance Sheet at December 31:

   	PPL				PPL Electric
   	2003		2002		2003		2002
   Recoverable transition costs	$	1,687	$	1,946	$	1,687	$	1,946
   Taxes recoverable through future rates		250		260		242		235
   Other		24		13		20		8
   	$	1,961	$	2,219	$	1,949	$	2,189

   Based on the PUC Final Order, PPL Electric began amortizing its competitive transition (or stranded) costs, $2.97 billion, over an 11-year transition period effective January 1, 1999. In August 1999, competitive transition costs of $2.4 billion were converted to intangible transition costs when they were securitized by the issuance of transition bonds. The intangible transition costs are being amortized over the life of the transition bonds, through December 2008, in accordance with an amortization schedule filed with the PUC. The assets of PPL Transition Bond Company, including the intangible transition property, are not available to creditors of PPL or PPL Electric. The transition bonds are obligations of PPL Transition Bond Company and are non-recourse to PPL and PPL Electric. The remaining competitive transition costs are also being amortized based on an amortization schedule previously filed with the PUC, adjusted for those competitive transition costs that were converted to intangible transition costs. As a result of the conversion of a significant portion of the competitive transition costs into intangible transition costs, amortization of substantially all of the remaining competitive transition costs will occur in 2009.

   Included in "Other" above, are approximately $15 million of storm restoration costs associated with the September 2003 Hurricane Isabel. These costs have been deferred in accordance with the PUC declaratory order of January 16, 2004. The ratemaking treatment of these losses will be addressed in the 2004 rate proceeding. PPL and PPL Electric believe there is a reasonable basis for recovery of all regulatory assets.

   Accounting for Derivatives and Other Contracts Held for Trading Purposes (PPL, PPL Energy Supply and PPL Montana)

   PPL Energy Supply and PPL Montana enter into energy and energy-related contracts. PPL and PPL Energy Supply enter into interest rate derivative contracts to hedge their exposure to changes in the fair value of their debt instruments and to hedge their exposure to variability in expected cash flows associated with existing debt instruments or forecasted transactions. PPL and PPL Energy Supply also enter into foreign currency derivative contracts to hedge foreign currency exposures, including firm commitments, recognized assets or liabilities, forecasted transactions or net investments.

   Contracts that meet the definition of a derivative are accounted for under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," as amended and interpreted. Certain energy contracts have been excluded from the requirements of SFAS 133 because they meet the definition of a "normal purchase or normal sale" under DIG Issue C15, "Scope Exceptions: Normal Purchases and Normal Sales Exception for Certain Option-Type Contracts and Forward Contracts in Electricity." These contracts are reflected in the financial statements using the accrual method of accounting.

   Additionally, PPL, PPL Energy Supply and PPL Montana adopted SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," as of July 1, 2003. The requirements of SFAS 149, which required prospective application, placed additional limitations on the use of the normal purchase or normal sale exception. Therefore, the accounting for certain types of transactions has been changed on a prospective basis to conform with SFAS 149.

   Under SFAS 133, all derivatives are recognized on the balance sheet at their fair value. On the date the derivative contract is executed, PPL designates the derivative as a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment ("fair value" hedge), a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow" hedge), a foreign currency fair value or cash flow hedge ("foreign currency" hedge), a hedge of a net investment in a foreign operation or a trading derivative. Changes in the fair value of a derivative that is highly effective as, and is designated and qualifies as, a fair value hedge, along with the loss or gain on the hedged asset or liability that is attributable to the hedged risk, are recorded in current-period earnings. Changes in the fair value of a derivative that is highly effective as, and is designated as and qualifies as, a cash flow hedge are recorded in other comprehensive income, until earnings are affected by the variability of cash flows being hedged. Changes in the fair value of derivatives that are designated as and qualify as foreign currency hedges are recorded in either current-period earnings or other comprehensive income, depending on whether the hedge transaction is a fair value hedge or a cash flow hedge. If a derivative is used as a hedge of a net investment in a foreign operation, its changes in fair value, to the extent effective as a hedge, are recorded within other comprehensive income. Changes in the fair value of derivatives that are not designated as hedging instruments are reported in current-period earnings.

   Unrealized gains and losses from changes in market prices of energy contracts accounted for as fair value hedges are reflected in "Energy purchases" on the Statement of Income, as are changes in the underlying positions. Gains and losses from changes in market prices of energy contracts accounted for as cash flow hedges, when recognized on the Statement of Income, are reflected in "Wholesale energy marketing" revenues or "Energy purchases," consistent with the hedged item. Gains and losses from changes in the market price of interest rate and foreign currency derivative contracts, when recognized on the Statement of Income, are accounted for in "Interest Expense."

   Gains or losses on interest rate derivative contracts that settled prior to the adoption of SFAS 133 were deferred and are being recognized over the life of the debt. Market gains and losses on foreign currency derivative contracts that settled prior to the adoption of SFAS 133 were recognized in accordance with SFAS 52, "Foreign Currency Translation," and are included in "Foreign currency translation adjustments," a component of accumulated other comprehensive income (loss).

   In the fourth quarter of 2002, PPL Energy Supply and PPL Montana adopted the accounting requirements under EITF 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities." As such, PPL reflects its net realized and unrealized gains and losses associated with all derivatives that are held for trading purposes in the "Net energy trading margins" line on the Statement of Income. Non-derivative contracts that met the definition of energy trading activities as defined by EITF 98-10, "Accounting for Energy Trading and Risk Management Activities" are reflected in the financial statements using the accrual method of accounting. Prior periods were restated.

   PPL Energy Supply and PPL Montana have adopted the final provisions of EITF 03-11, "Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not 'Held for Trading Purposes' as Defined in Issue No. 02-3," prospectively as of October 1, 2003. As a result of the adoption, non-trading bilateral sales of electricity at major market delivery points are netted with purchases that offset the sales at those same delivery points. A major market delivery point is any delivery point with liquid pricing available. The impact of adopting EITF 03-11 was a reduction in both "Wholesale energy marketing" revenues and "Energy purchases" of $105 million in PPL's and PPL Energy Supply's Statement of Income and by $18 million in PPL Montana's Statement of Income.

   See Note 17 for additional information on SFAS 133, its amendments and related accounting guidance.

   Revenue Recognition

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

   Operating revenues, except for energy related businesses, are recorded based on energy deliveries through the end of the calendar month. Unbilled retail revenues result because customers' meters are read and bills are rendered throughout the month, rather than all being read at the end of the month. Unbilled revenues for a month are calculated by multiplying an estimate of unbilled kWh by the estimated average cents per kWh. Unbilled wholesale energy revenues are recorded at month end to reflect estimated amounts until actual dollars and MWhs are confirmed and invoiced. At that time unbilled revenue is reversed and actual revenue is recorded.

   "Energy related businesses" revenue includes revenues from the mechanical contracting and engineering subsidiaries and PPL Global's proportionate share of affiliate earnings under the equity or cost method of accounting, as described in the "Business and Consolidation" section of Note 1. The mechanical contracting and engineering subsidiaries record profits from construction contracts on the percentage-of-completion method of accounting. Income from time and material contracts is recognized currently as the work is performed.

   Utility Revenue

   (PPL and PPL Energy Supply)

   The Statement of Income "Utility" line item contains revenues from domestic and international rate-regulated delivery operations, including WPD.

   WPD revenues are stated net of value-added tax.

   (PPL Electric)

   Since most of PPL Electric's operations are regulated, it is not meaningful to use a "Utility" caption. Therefore, the revenues of PPL Electric are presented according to specific types of revenue.

   Income Taxes

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

   The income tax provision for PPL and its subsidiaries is calculated in accordance with SFAS 109, "Accounting for Income Taxes." PPL and its domestic subsidiaries file a consolidated U.S. federal income tax return.

   (PPL Energy Supply, PPL Electric and PPL Montana)

   The provision for PPL Energy Supply, PPL Electric and PPL Montana is calculated in accordance with an intercompany tax sharing policy which provides that the taxable income be calculated as if PPL Energy Supply, PPL Electric and PPL Montana and its domestic subsidiaries filed a separate consolidated return.

   (PPL and PPL Electric)

   The provision for PPL Electric's deferred income taxes for regulated assets is based upon the ratemaking principles reflected in rates established by the PUC and the FERC. The difference in the provision for deferred income taxes for regulated assets and the amount that otherwise would be recorded under U.S. GAAP is deferred and included in taxes recoverable through future rates in "Regulatory and Other Noncurrent Assets - Other" on the Balance Sheet. See Note 5 for additional information.

   PPL Electric deferred investment tax credits when they were utilized and is amortizing the deferrals over the average lives of the related assets.

   (PPL Montana)

   PPL Montana is a limited liability company and has elected to be classified as an association taxable as a corporation for federal and state income tax purposes. The current tax benefit or provision recognized for each period is reported in "Accounts receivable from Member" or "Accounts payable to affiliates" on the Balance Sheet, as applicable.

   Leases

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

   PPL and its subsidiaries apply the provisions of SFAS 13, "Accounting for Leases," as amended and interpreted, to all leasing transactions. See Note 10 for a discussion of accounting for leases under which PPL, PPL Energy Supply, PPL Electric and PPL Montana are lessees.

   (PPL and PPL Energy Supply)

   In 2002, PPL began commercial operation of its 79.9 MW oil-powered station in Shoreham, New York. The Long Island Power Authority has contracted to purchase all of the plant's capacity and ancillary services as part of a 15-year power purchase agreement with PPL EnergyPlus. The capacity payments in the power purchase agreement result in the plant being classified as a direct financing lease, under which PPL EnergyPlus is the lessor. As of December 31, 2003 and 2002, PPL and PPL Energy Supply had a receivable balance of $277 million and $260 million (included in "Current Assets - Other" and "Regulatory and Other Noncurrent Assets - Other" for PPL and "Current Assets - Other" and "Other Noncurrent Assets - Other" for PPL Energy Supply) and an unearned revenue balance of $167 million and $152 million (included in "Deferred Credits and Other Noncurrent Liabilities - Other"). Rental income received through this direct financing lease during 2003 and 2002 was $15 million and $5 million. Total future minimum lease payments expected to be received are estimated at $16 million for each of the years from 2004 through 2008.

   Stock-Based Compensation

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

   PPL grants stock options, restricted stock, restricted stock units and stock units to employees and directors under several stock-based compensation plans. SFAS 123, "Accounting for Stock-Based Compensation," encourages entities to record compensation expense for stock-based compensation plans at fair value but provides the option of measuring compensation expense using the intrinsic value method prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." The fair value method under SFAS 123 is the preferable method of accounting for stock-based compensation, as it provides a consistent basis of accounting for all stock-based awards, thereby facilitating a better measure of compensation cost and improved financial reporting.

   Prior to 2003, PPL accounted for stock-based compensation in accordance with APB Opinion No. 25, as permitted by SFAS 123. Effective January 1, 2003, PPL and its subsidiaries adopted the fair value method of accounting for stock-based compensation, as prescribed by SFAS 123, using the prospective method of transition permitted by SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure, an Amendment of FASB Statement No. 123." See Note 22 for further discussion of SFAS 148. The prospective method of transition requires PPL and its subsidiaries to use the fair value method under SFAS 123 for all stock-based compensation awards granted, modified or settled on or after January 1, 2003. Thus, all awards granted prior to January 1, 2003 continue to be accounted for under the intrinsic value method of APB Opinion No. 25, to the extent such awards are not modified or settled. Stock-based compensation is included in "Other operation and maintenance" expense on PPL's Statement of Income.

   Use of the fair value method prescribed by SFAS 123 requires PPL and its subsidiaries to recognize compensation expense for stock options issued. Fair value for the stock options is determined using the Black-Scholes options pricing model.

   PPL and its subsidiaries were not required to recognize compensation expense for stock options issued under the intrinsic value method of APB Opinion No. 25, since PPL grants stock options with an exercise price that is not less than the fair market value of PPL's common stock on the date of grant. For stock options granted under the fair value method of SFAS 123, stock option expense for PPL was approximately $3 million for 2003. As currently structured, awards of restricted stock, restricted stock units and stock units result in the same amount of compensation expense under the fair value method of SFAS 123 as they would under the intrinsic value method of APB Opinion No. 25.

   The following table illustrates the pro forma effect on net income and EPS as if the fair value method had been used to account for all outstanding stock-based compensation awards in the years shown:

   (PPL)

   		2003		2002		2001
   Income
   Net Income - as reported		$	734	$	208	$	179
   	Add: Stock-based employee compensation expense included in reported net income, net of tax		5		3		3
   	Deduct: Total stock-based compensation expense determined under the fair value based method for all awards, net of tax		9		8		6
   Pro forma net income		$	730	$	203	$	176
   EPS
   Basic - as reported		$	4.25	$	1.37	$	1.23
   Basic - pro forma		$	4.23	$	1.34	$	1.21
   Diluted - as reported		$	4.24	$	1.36	$	1.22
   Diluted - pro forma		$	4.22	$	1.33	$	1.20

   (PPL Energy Supply)

   		2003		2002		2001
   Income
   Net Income - as reported		$	727	$	279	$	174
   	Add: Stock-based employee compensation expense included in reported net income, net of tax		3		2		3
   	Deduct: Total stock-based compensation expense determined under the fair value based method for all awards, net of tax		6		5		5
   Pro forma net income		$	724	$	276	$	172

   Stock-based compensation expense includes an allocation of PPL Services' expense.

   (PPL Electric and PPL Montana)

   Stock-based compensation expense, including awards granted to employees and an allocation of costs of awards granted to employees of PPL Services, was insignificant under both the intrinsic value and fair value methods for each of 2003, 2002 and 2001.

   Pension and Other Postretirement Benefits (PPL, PPL Energy Supply, PPL Electric and PPL Montana)

   See Note 12 for a discussion of accounting for pension and other postretirement benefits.

   Comprehensive Income

   (PPL and PPL Energy Supply)

   Comprehensive income consists of net income and other comprehensive income, defined as changes in common equity from transactions not related to shareowners. Other comprehensive income consists of foreign currency translation adjustments recorded by PPL Global, unrealized gains or losses on available-for-sale securities and qualifying derivatives, and the excess of additional pension liability over unamortized prior service costs, net of taxes. Comprehensive income is reflected on the PPL Statement of Shareowners' Common Equity and Comprehensive Income, and "Accumulated other comprehensive loss" is presented on the PPL Balance Sheet. Comprehensive income is reflected on the PPL Energy Supply Statement of Member's Equity and Comprehensive Income, and accumulated other comprehensive loss is included in Member's Equity on the PPL Energy Supply Balance Sheet.

   The accumulated other comprehensive loss of PPL consisted of the following at December 31:

   	2003			2002
   Foreign currency translation adjustments	$	(37	)	$	(143	)
   Unrealized gains (losses) on available-for-sale securities		20			(4	)
   Minimum pension liability		(316	)		(306	)
   Unrealized gains on qualifying derivatives		36			7
   	$	(297	)	$	(446	)

   The accumulated other comprehensive loss of PPL Energy Supply consisted of the following at December 31:

   	2003			2002
   Foreign currency translation adjustments	$	(37	)	$	(143	)
   Unrealized gains (losses) on available-for-sale securities		22			(2	)
   Minimum pension liability		(309	)		(297	)
   Unrealized gains on qualifying derivatives		56			23
   	$	(268	)	$	(419	)

   (PPL Montana)

   Comprehensive income consists of net income and other comprehensive income, defined as changes in Member's equity from transactions other than with the Member. Other comprehensive income consists of unrealized gains or losses on qualifying derivatives and the excess of additional pension liability over unamortized prior service costs, net of taxes. Comprehensive income is reflected on the Statement of Member's Equity and Comprehensive Income. The accumulated other comprehensive income (loss) of PPL Montana at December 31, 2003 and 2002 was $6 million and $(2) million. The 2003 balance consisted of the following: minimum pension liability adjustment of $(5) million and unrealized gains on qualifying derivatives of $11 million.

   Treasury Stock (PPL and PPL Electric)

   Treasury shares are reflected on the balance sheet as an offset to common equity under the cost method of accounting. Management has no definitive plans for the future use of these shares. Treasury shares are not considered outstanding in calculating EPS.

   Foreign Currency Translation and Transactions (PPL and PPL Energy Supply)

   Assets and liabilities of international operations, where the local currency is the functional currency, are translated at year-end exchange rates, and related revenues and expenses are translated at average exchange rates prevailing during the year. Adjustments resulting from translation are recorded in accumulated other comprehensive loss.

   Gains or losses relating to foreign currency transactions are recognized currently in income. The aggregate transaction gain (loss) was $(1) million, $(9) million and $8 million in 2003, 2002 and 2001.

   Independent System Operator (PPL, PPL Energy Supply and PPL Electric)

   Certain PPL subsidiaries participate in 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 than in PJM. In PJM, PPL EnergyPlus is a marketer, a load-serving entity to its customers who selected it as a supplier under the Customer Choice Act and a seller for PPL's Pennsylvania generation subsidiaries. PPL Electric is a transmission owner and provider of last resort in PJM. In NEPOOL, PPL EnergyPlus is a marketer and a seller 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 the FERC and industry accounting.

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

   Certain amounts in the 2002 and 2001 financial statements have been reclassified to conform to the current presentation.

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

   See Note 18 for a discussion of the accounting for goodwill and other intangible assets, Note 21 for a discussion of the accounting for asset retirement obligations, and Note 22 for a discussion of other new accounting standards.

2. 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 and holding of international energy projects. The majority of PPL Global's international investments are located in the U.K., Chile, El Salvador and Bolivia.

   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.

   Financial data for the segments are as follows:

   		PPL									PPL Energy Supply
   		2003			2002			2001			2003			2002			2001
   Income Statement Data
   Revenues from external customers
   	Supply	$	1,795		$	1,697		$	1,668		$	3,235		$	3,128		$	3,212
   	Delivery		2,778			2,706			2,867
   	International (a)		1,014			1,078			580			1,014			1,078			580
   			5,587			5,481			5,115			4,249			4,206			3,792
   Intersegment revenues
   	Supply		1,451			1,434			1,331
   	Delivery		160			183			196
   Equity in earnings of unconsolidated affiliates
   	Supply		(14	)		(12	)		12			(11	)		(11	)		14
   	International (a)		3			3			113			3			3			113
   			(11	)		(9	)		125			(8	)		(8	)		127
   Depreciation
   	Supply		120			129			126			116			127			125
   	Delivery		110			100			96
   	International (a)		150			138			44			150			138			44
   			380			367			266			266			265			169
   Amortizations - recoverable transition costs and other
   	Supply		(27	)		(38	)		(35	)		(38	)		(56	)		(61	)
   	Delivery		271			236			259
   			244			198			224			(38	)		(56	)		(61	)
   Interest income
   	Supply		(2	)		(5	)		3			17			26			61
   	Delivery		7			20			10
   	International (a)		7			13			2			7			13			2
   			12			28			15			24			39			63
   Interest expense
   	Supply		43			108			58			(19	)		(29	)		(48	)
   	Delivery		214			214			233
   	International (a)		218			239			95			218			239			95
   			475			561			386			199			210			47
   Income taxes
   	Supply		177			119			153			215			199			237
   	Delivery		23			24			71
   	International (a)		(30	)		67			37			(30	)		67			37
   			170			210			261			185			266			274
   Net Income
   	Supply (b)		502			356			368			531			475			489
   	Delivery		36			48			126
   	International (c)		196			(196	)		(315	)		196			(196	)		(315	)
   		$	734		$	208		$	179		$	727		$	279		$	174

   
   

   		PPL						PPL Energy Supply
   		2003		2002		2001		2003		2002		2001
   Cash Flow Data
   Expenditures for property, plant and equipment
   	Supply	$	274	$	299	$	290	$	260	$	291	$	254
   	Delivery		251		237		153
   	International		246		113		126		246		113		126
   			771		649		569		506		404		380
   Investment in generating assets and electric energy projects
   	Supply				261		176				261		176
   	International (d)				211		136				211		136
   		$		$	472	$	312	$		$	472	$	312

   		PPL				PPL Energy Supply
   		As of December 31,				As of December 31,
   		2003		2002		2003		2002
   Balance Sheet Data
   Net investment in unconsolidated affiliates - at equity
   	Supply	$	207	$	198	$	189	$	198
   	International		23		36		23		36
   			230		234		212		234
   Total assets
   	Supply		6,491		4,910		6,308		5,566
   	Delivery		5,690		5,867
   	International		4,942		4,775		4,942		4,775
   		$	17,123	$	15,552	$	11,250	$	10,341

   		PPL						PPL Energy Supply
   		2003		2002		2001		2003		2002		2001
   Geographic Data
   Revenues from external customers
   	Domestic	$	4,573	$	4,403	$	4,535	$	3,235	$	3,128	$	3,212
   	Foreign (a)		1,014		1,078		580		1,014		1,078		580
   		$	5,587	$	5,481	$	5,115	$	4,249	$	4,206	$	3,792

   		PPL				PPL Energy Supply
   		As of December 31,				As of December 31,
   		2003		2002		2003		2002
   Property, plant and equipment - net
   	Domestic	$	7,072	$	5,795	$	4,238	$	3,118
   	Foreign		3,374		3,771		3,374		3,771
   		$	10,446	$	9,566	$	7,612	$	6,889

   (a)	2002 contains the consolidated results of WPD. See Note 9 for additional information on the acquisition of a controlling interest in WPD.
   (b)	2003 includes two cumulative-effect changes in accounting principle recorded in January and December 2003. See Notes 21 and 22 for additional information.
   (c)	2002 includes the cumulative-effect change in accounting principle recorded in March 2002. See Note 18 for additional information. The International segment also includes the write-downs of the CEMAR investment recorded in March and June 2002 described in Note 9.
   (d)	The 2002 amount represents the acquisition of the controlling interest in WPD.

   
   
3. Investment in Unconsolidated Affiliates - at Equity

   (PPL and PPL Energy Supply)

   In the third quarter of 2002, PPL Global acquired a controlling interest in WPD. As a result, PPL Global fully consolidated the financial results of WPD at September 30, 2002. See Note 9 for additional information.

   Investment in unconsolidated affiliates accounted for under the equity method were as follows as of December 31 (equity ownership percentages as of December 31, 2003):

   		2003		2002
   Aguaytia Energy, LLC - 11.4%		$	11	$	14
   Bangor Pacific Hydro Associates - 50.0%			15		14
   Hidro Iberica, B.V. - 50.0%			9		8
   Latin American Energy & Electricity Fund I, LP - 16.6%			3		3
   Safe Harbor Water Power Corporation - 33.3%			15		17
   SIUK Capital Trust I - 100%			3
   Southwest Power Partners, LLC - 50.0%			156		167
   Teesside Power Limited - 15.4%
   Other PPL Global investments (a)					11
   	Total PPL Energy Supply	$	212	$	234
   PPL Capital Funding Trust I - 100%			18
   	Total PPL	$	230	$	234

   (a) In 2003, PPL Global sold its investment in Wind Resources Limited, and fully consolidated its investment in TransEmel upon acquisition of the remaining interest. See Note 9 for additional information on TransEmel.

   Summarized below is information from the financial statements of unconsolidated affiliates accounted for under the equity method, underlying the amounts included in the consolidated financial statements:

   		PPL								PPL Energy Supply
   		2003			2002			2001(a)		2003			2002			2001(a)
   Income Statement Data
   	Revenues	$	126		$	118		$	111	$	126		$	118		$	111
   	Operating Income		17			13			42		17			13			42
   	Net Income (Loss)		(5	)		(9	)		52		(6	)		(9	)		52

   		PPL				PPL Energy Supply
   		As of December 31,				As of December 31,
   		2003		2002		2003		2002
   Balance Sheet Data
   	Current Assets	$	131	$	139	$	126	$	139
   	Noncurrent Assets		1,414		807		821		807
   	Current Liabilities		47		31		42		31
   	Noncurrent Liabilities		924		298		349		298

   (a) For purpose of comparability, the summarized information of WPD is excluded from 2001.

   
   
4. Earnings Per Share

   (PPL)

   Basic EPS is calculated by dividing "Net Income" on the Statement of Income by the weighted-average number of common shares outstanding during the period. Diluted EPS is calculated similarly for PPL, except that 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, restricted stock and restricted stock units granted under the incentive compensation plans,

   • stock units representing common stock granted under the directors compensation programs,

   • common stock purchase contracts that are a component of the PEPS units, and

   • convertible senior notes.

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

   		2003			2002			2001
   Income (Numerator)
   Income from continuing operations		$	719		$	360		$	169
   	Loss from discontinued operations		(20	)		(2	)
   	Cumulative effect of a change in accounting principle (net of tax)		35			(150	)		10
   Net Income		$	734		$	208		$	179
   Shares (Denominator)
   Shares for Basic EPS			172,795			152,492			145,974
   Add: Incremental shares
   	Stock options and other share-based awards		597			317			640
   Shares for Diluted EPS			173,392			152,809			146,614
   Basic EPS
   Income from continuing operations		$	4.16		$	2.36		$	1.16
   	Loss from discontinued operations		(0.11	)		(0.01	)
   	Cumulative effect of a change in accounting principle (net of tax)		0.20			(0.98	)		0.07
   Net Income		$	4.25		$	1.37		$	1.23
   Diluted EPS
   Income from continuing operations		$	4.15		$	2.36		$	1.15
   	Loss from discontinued operations		(0.11	)		(0.01	)
   	Cumulative effect of a change in accounting principle (net of tax)		0.20			(0.99	)		0.07
   Net Income		$	4.24		$	1.36		$	1.22

   In May 2001, PPL and PPL Capital Funding Trust I issued 23 million PEPS Units that contain a purchase contract component for PPL's common stock. The purchase contracts will only be dilutive if the average price of PPL's common stock exceeds a threshold appreciation price, which is adjusted for cash distributions on PPL common stock. The appreciation price was initially set at $65.03 and has subsequently been adjusted to $63.94 as of December 31, 2003 based on dividends paid on PPL's common stock since issuance. Since the average price has not exceeded the threshold appreciation price, the purchase contracts were excluded from the diluted EPS calculations.

   In January 2004, PPL completed an exchange offer resulting in the exchange of approximately 4 million PEPS Units for PEPS Units, Series B. The primary difference in the units relates to the debt component. The purchase contract components of both units, which are potentially dilutive, are identical. The threshold appreciation price for the purchase contract component of the PEPS Units, Series B was set at the last adjusted threshold appreciation price of $63.94 for the PEPS Units and will be adjusted in the same manner as that of the PEPS Units. See Note 8 for a more detailed discussion of the exchange offer.

   In May 2003, PPL Energy Supply issued $400 million of 2.625% Convertible Senior Notes due 2023. The notes are guaranteed by PPL and can be converted into shares of PPL common stock, at an initial conversion rate of 20.1106 shares per $1,000 principal amount of notes, subject to adjustment if:

   • during any fiscal quarter starting after June 30, 2003, the market price of PPL's common stock trades at or above $59.67 per share over a certain period during the preceding fiscal quarter;

   • PPL calls the debt for redemption;

   • the holder exercises its right to put the debt on any five-year anniversary of the offering;

   • the long-term credit rating assigned to the notes by Moody's and Standard & Poor's falls below Ba2 and BB or the notes are not rated; or

   • certain specified corporate transactions occur, e.g., change in control and certain distributions to the holders of PPL common stock.

   As none of these events has occurred, the Convertible Senior Notes were excluded from the diluted EPS calculations.

   The following number of stock options to purchase PPL common shares were excluded in the periods' computations 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.

   (Thousands of Shares)	2003		2002		2001
   Antidilutive stock options		1,683		1,294		896

   
   
5. Income and Other Taxes

   For 2003, 2002 and 2001, the statutory U.S. corporate federal income tax rate was 35%. The statutory corporate net income tax rates for Pennsylvania and Montana were 9.99% and 6.75%.

   (PPL)

   The tax effects of significant temporary differences comprising PPL's net deferred income tax liability were as follows:

   		2003			2002
   Deferred Tax Assets
   	Deferred investment tax credits	$	48		$	54
   	NUG contracts & buybacks		168			203
   	Accrued pension costs		81			89
   	Foreign loss carryforwards		278			232
   	Foreign - pensions		144			125
   	Foreign - other		18			3
   	Write-down of generation assets					18
   	Impairment write-down					91
   	Contribution in aid of construction		63			56
   	Other		222			223
   	Valuation allowance		(288	)		(327	)
   			734			767
   Deferred Tax Liabilities
   	Plant - net		1,061			976
   	Restructuring - CTC		613			700
   	Taxes recoverable through future rates		106			104
   	Reacquired debt costs		11			11
   	Foreign - plant		617			792
   	Foreign - pensions		227			167
   	Foreign - other		6			38
   	Other domestic		73			31
   			2,714			2,819
   Net deferred tax liability		$	1,980		$	2,052

   Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to income from continuing operations for accounting purposes, and details of taxes other than income are as follows:

   		2003			2002			2001
   Income Tax Expense
   	Current-Federal	$	26		$	41		$	270
   	Current-State		13			(9	)		36
   	Current-Foreign		35			52			8
   			74			84			314
   	Deferred-Federal		39			70			(86	)
   	Deferred-State		24			27			4
   	Deferred-Foreign		48			44			44
   			111			141			(38	)
   	Investment tax credit, net-federal		(15	)		(15	)		(15	)
   	Total	$	170		$	210		$	261
   Total income tax expense-Federal		$	50		$	96		$	169
   Total income tax expense-State			37			18			40
   Total income tax expense-Foreign			83			96			52
   	Total	$	170		$	210		$	261

   
   

   		2003			2002			2001
   Reconciliation of Income Tax Expense
   	Indicated federal income tax on pre-tax income before cumulative effect of a change in accounting principle at statutory tax rate - 35%	$	324		$	250		$	168
   Increase/(decrease) due to:
   	State income taxes		25			11			25
   	Amortization of investment tax credit		(10	)		(11	)		(11	)
   	International energy projects - charges (benefits)		(83	)		14			144
   	Difference related to income recognition of foreign affiliates (net of foreign income taxes)		(7	)		18			(9	)
   	Federal income tax credits		(52	)		(50	)		(40	)
   	Contribution of property		(9	)
   	Other		(18	)		(22	)		(16	)
   			(154	)		(40	)		93
   Total income tax expense		$	170		$	210		$	261
   Effective income tax rate			18.4%			29.4%			54.4%
   Taxes, Other than Income
   	State gross receipts	$	155		$	154		$	112
   	State utility realty		3			3			4
   	State capital stock		27			7			20
   	Property - foreign		44			42
   	Domestic property and other		27			25			19
   		$	256		$	231		$	155

   PPL Global had foreign net operating loss carryforwards of approximately $13 million and $28 million at December 31, 2003 and 2002. PPL Global also had foreign capital loss carryforwards of $920 million at December 31, 2003 and $760 million at December 31, 2002. All of these losses have an unlimited carryforward period. However, it is more likely than not that these losses will not be utilized and as such, a full valuation allowance has been provided.

   PPL Global does not pay or record U.S. income taxes on the undistributed earnings of its foreign subsidiaries where management has determined that the earnings are permanently reinvested. The cumulative undistributed earnings are included in "Earnings reinvested" on the Balance Sheet. The amounts considered permanently reinvested at December 31, 2003 and 2002 were $530 million and $295 million. If the earnings were remitted as dividends, PPL Global may be subject to additional U.S. taxes, net of allowable foreign tax credits. It is not practical to estimate the amount of additional taxes that might be payable on these foreign earnings.

   (PPL Energy Supply)

   The tax effects of significant temporary differences comprising PPL Energy Supply's net deferred income tax liability were as follows:

   		2003			2002
   Deferred Tax Assets
   	Deferred investment tax credits	$	37		$	42
   	NUG contracts & buybacks		168			203
   	Accrued pension costs		26			34
   	Foreign loss carryforwards		278			232
   	Foreign - pensions		144			125
   	Foreign - other		18			3
   	Write-down of generation assets					18
   	Impairment write-down					91
   	Other domestic		120			120
   	Valuation allowance		(288	)		(327	)
   			503			541
   Deferred Tax Liabilities
   	Plant - net		469			396
   	Foreign investments		9			10
   	Foreign - plant		617			792
   	Foreign - pensions		227			167
   	Foreign - other		6			38
   `
   	Other domestic		54			25
   			1,382			1,428
   Net deferred tax liability		$	879		$	887

   Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to income from continuing operations for accounting purposes, and details of taxes other than income are as follows:

   		2003			2002			2001
   Income Tax Expense
   	Current-Federal	$	(15	)	$	22		$	210
   	Current-State		11			(6	)		44
   	Current-Foreign		35			52			8
   			31			68			262
   	Deferred-Federal		94			134			(22	)
   	Deferred-State		24			32			2
   	Deferred-Foreign		48			44			44
   			166			210			24
   	Investment tax credit, net-federal		(12	)		(12	)		(12	)
   	Total	$	185		$	266		$	274
   Total income tax expense-Federal		$	67		$	144		$	176
   Total income tax expense-State			35			26			46
   Total income tax expense-Foreign			83			96			52
   	Total	$	185		$	266		$	274

   
   

   		2003			2002			2001
   Reconciliation of Income Tax Expense
   	Indicated federal income tax on pre-tax income before cumulative effect of a change in accounting principle at statutory tax rate - 35%	$	318		$	274		$	155
   Increase/(decrease) due to:
   	State income taxes		27			17			31
   	Amortization of investment tax credit		(8	)		(8	)		(8	)
   	International energy projects - charges (benefits)		(83	)		14			144
   	Difference related to income recognition of foreign affiliates (net of foreign income taxes)		(7	)		18			(9	)
   	Federal income tax credits		(52	)		(50	)		(40	)
   	Other		(10	)		1			1
   			(133	)		(8	)		119
   Total income tax expense		$	185		$	266		$	274
   Effective income tax rate			20.4%			33.9%			61.9%
   Taxes, Other than Income
   	State gross receipts	$	3		$	4		$	7
   	State capital stock		14			9			11
   	Property - foreign		44			42
   	Domestic property and other		28			23			20
   		$	89		$	78		$	38

   PPL Global had foreign net operating loss carryforwards of approximately $13 million and $28 million at December 31, 2003 and 2002. PPL Global also had foreign capital loss carryforwards of $920 million at December 31, 2003 and $760 million at December 31, 2002. All of these losses have an unlimited carryforward period. However, it is more likely than not that these losses will not be utilized and as such, a full valuation allowance has been provided.

   PPL Global does not pay or record U.S. income taxes on the undistributed earnings of its foreign subsidiaries where management has determined that the earnings are permanently reinvested. The cumulative undistributed earnings are included in "Earnings reinvested" on the Balance Sheet. The amounts considered permanently reinvested at December 31, 2003 and 2002 were $530 million and $295 million. If the earnings were remitted as dividends, PPL Global may be subject to additional U.S. taxes, net of allowable foreign tax credits. It is not practical to estimate the amount of additional taxes that might be payable on these foreign earnings.

   (PPL Electric)

   The tax effects of significant temporary differences comprising PPL Electric's net deferred income tax liability were as follows:

   		2003		2002
   Deferred Tax Assets
   	Deferred investment tax credits	$	9	$	11
   	Accrued pension costs		34		33
   	Contribution in aid of construction		62		55
   	Other		64		61
   			169		160
   Deferred Tax Liabilities
   	Electric utility plant - net		558		529
   	Restructuring - CTC		143		145
   	Taxes recoverable through future rates		100		99
   	Reacquired debt costs		11		10
   	Other		18		11
   			830		794
   Net deferred tax liability		$	661	$	634

   Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to income from continuing operations for accounting purposes, and details of taxes other than income are as follows:

   		2003			2002			2001
   Income Tax Expense
   	Current-Federal	$	(2	)	$	(8	)	$	31
   	Current-State		3			5			6
   			1			(3	)		37
   	Deferred-Federal		22			27			27
   	Deferred-State		(2	)		(3	)		4
   			20			24			31
   	Investment tax credit, net-federal		(3	)		(3	)		(3	)
   	Total	$	18		$	18		$	65
   Total income tax expense-Federal		$	17		$	16		$	55
   Total income tax expense-State			1			2			10
   	Total	$	18		$	18		$	65
   Reconciliation of Income Tax Expense
   	Indicated federal income tax on pre-tax income before cumulative effect of a change in accounting principle at statutory tax rate - 35%	$	16		$	26		$	72
   Increase/(decrease) due to:
   	State income taxes		1			1			4
   	Flow through of depreciation differences not previously normalized		1
   	Amortization of investment tax credit		(2	)		(3	)		(3	)
   	Other		2			(6	)		(8	)
   			2			(8	)		(7	)
   Total income tax expense		$	18		$	18		$	65
   Effective income tax rate			39.1%			24.7%			31.7%

   
   

   		2003			2002			2001
   Taxes, Other than Income
   	State gross receipts	$	152		$	151		$	105
   	State utility realty		3			3			4
   	State capital stock		10			(2	)		8
   	Property and other		(1	)		1			(1	)
   		$	164		$	153		$	116

   (PPL Montana)

   The tax effects of significant temporary differences comprising PPL Montana's net deferred income tax asset were as follows:

   		2003		2002
   Deferred Tax Assets
   	Wholesale energy commitments	$	22	$	25
   	Accrued retirement cost		5		9
   	Allowance for doubtful accounts		14		18
   	Other		2		2
   			43		54
   Deferred Tax Liabilities
   	PP&E		26		17
   	Mark-to-market		6		2
   	Other		7		6
   			39		25
   Net deferred tax asset		$	4	$	29

   Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to income from continuing operations for accounting purposes, and details of taxes other than income are as follows:

   		2003		2002		2001
   Income Tax Expense
   	Current-Federal	$	19	$	12	$	50
   	Current-State		5		6		11
   			24		18		61
   	Deferred-Federal		18		14		5
   	Deferred-State		3		3		2
   			21		17		7
   		$	45	$	35	$	68
   	Total income tax expense-Federal	$	37	$	26	$	55
   	Total income tax expense-State		8		9		13
   		$	45	$	35	$	68

   
   

   		2003		2002			2001
   Reconciliation of Income Tax Expense:
   	Indicated federal income tax on pre-tax income at statutory tax rate - 35%	$	40	$	29		$	60
   Increase/(decrease) due to:
   	State income taxes		5		7			9
   	Other				(1	)		(1	)
   			5		6			8
   Total income tax expense		$	45	$	35		$	68
   Effective income tax rate			39.5%		42.7%			39.8%
   Taxes, Other than Income
   	Property taxes	$	14	$	15		$	14
   	Generation taxes		2		2			2
   		$	16	$	17		$	16

   
   
6. Nuclear Decommissioning Costs

   (PPL and PPL Energy Supply)

   The cost to decommission the Susquehanna station is based on a 2002 site-specific study to dismantle and decommission each unit immediately following final shutdown. PPL Susquehanna's 90% share of the total estimated cost of decommissioning the Susquehanna station was approximately $936 million measured in 2002 dollars. This estimate includes decommissioning the radiological portions of the station and the cost of removal of non-radiological structures and materials.

   Beginning in January 1999, in accordance with the PUC Final Order, approximately $130 million of decommissioning costs are being recovered from customers through the CTC over the 11-year life of the CTC rather than the remaining life of Susquehanna. The recovery will include a return on unamortized decommissioning costs. Effective January 1, 2003, PPL adopted SFAS 143 "Accounting for Asset Retirement Obligations." In connection with the adoption, the previously recorded liability for nuclear decommissioning of $296 million was reversed and a liability of $202 million was recorded. Accretion expense, as determined under the provisions of SFAS 143, was $16 million in 2003 and is included in "Other operation and maintenance." In 2002 and 2001, decommissioning expenses were $22 million and $24 million, and were recorded as a component of depreciation expense. Accrued nuclear decommissioning expenses, as determined under the provisions of SFAS 143, were $218 million at December 31, 2003, and are included in "Deferred Credits and Other Noncurrent Liabilities - Other." See Note 21 for additional information on SFAS 143.

   Amounts collected from PPL Electric's customers for decommissioning, less applicable taxes, are deposited in external trust funds for investment and can be used only for future decommissioning costs.

   In November 2001, PPL Susquehanna notified the NRC that it intends to file for 20-year license renewals for each of the Susquehanna units. If approved, the operating licenses would be extended from 2022 to 2042 for Unit 1 and from 2024 to 2044 for Unit 2.

7. Financial Instruments

   At December 31, 2003 and 2002, the carrying value of cash and cash equivalents, nuclear plant decommissioning trust fund, other investments and short-term debt approximated fair value due to the short-term nature of the instruments, variable interest rates associated with the financial instruments or the carrying value of the instruments being based on established market prices. Price risk management assets and liabilities are valued using either exchange traded market quotes or prices obtained through third party brokers and are recorded at fair value. Financial instruments where the carrying amount on the Balance Sheet and the estimated fair value (based on quoted market prices for the securities where available and estimates based on current rates offered to PPL where quoted market prices are not available) are different, are set forth below:

   (PPL)

   		December 31, 2003				December 31, 2002
   		Carrying Amount		Fair Value		Carrying Amount		Fair Value
   Liabilities
   	Long-term debt	$	7,859	$	8,589	$	6,267	$	6,657
   	Long-term debt with affiliate trusts		681		612
   	Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely company debentures						661		507
   	Preferred stock with sinking fund requirements						31		30

   (PPL Energy Supply)

   		December 31, 2003				December 31, 2002
   		Carrying Amount		Fair Value		Carrying Amount		Fair Value
   Liabilities
   	Long-term debt	$	4,146	$	4,530	$	2,231	$	2,252
   	Long-term debt with affiliate trust		89		87
   	Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely company debentures						86		90

   (PPL Electric)

   		December 31, 2003				December 31, 2002
   		Carrying Amount		Fair Value		Carrying Amount		Fair Value
   Liabilities
   	Long-term debt	$	2,937	$	3,215	$	3,175	$	3,476
   	Preferred stock with sinking fund requirements						31		30

   (PPL Montana)

   At December 31, 2003 and 2002, the carrying value of cash and cash equivalents, and the revolving line of credit approximated fair value due to either the short-term nature of the instruments or variable interest rates associated with the financial instruments. Price risk management assets and liabilities are valued using either exchange traded market quotes or prices obtained through third party brokers and are recorded at fair value.

8. Credit Arrangements and Financing Activities

   Credit Arrangements

   (PPL, PPL Energy Supply and PPL Electric)

   In order to enhance liquidity, and as credit support to its commercial paper program, PPL Electric maintained a $400 million 364-day credit facility which matured in June 2003. PPL Electric replaced its facility with a $200 million, 364-day facility maturing in June 2004 and a $100 million three-year credit facility maturing in June 2006. PPL Energy Supply maintains three credit facilities: a $300 million three-year credit facility maturing in June 2006, (this credit facility replaced a $300 million 364-day credit facility which matured 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. Both PPL Electric and PPL Energy Supply have the ability to cause the lenders to issue letters of credit under their respective facilities. At December 31, 2003, no cash borrowings were outstanding under any credit facilities of PPL Electric or PPL Energy Supply. At December 31, 2003, PPL Electric had $42 million of letters of credit outstanding under its $100 million three-year facility, and PPL Energy Supply had $87 million of letters of credit outstanding under its $500 million three-year facility.

   (PPL and PPL Energy Supply)

   In October 2003, WPD (South West) replaced its expiring credit facility with a new £100 million 364-day credit facility maturing in October 2004 and extended its £150 million five-year credit facility to October 2008. At December 31, 2003, WPD (South West) had £27 million ($48 million based on current exchange rates) of outstanding borrowings under its 364-day credit facility and no outstanding borrowings under its five-year credit facility. At December 31, 2003, WPD (South West) had uncommitted credit line borrowings of £25 million ($44 million based on current exchange rates) in separate agreements with lender banks.

   WPD (South West) maintained a £250 million bridge facility, which expired in April 2003, for short-term liquidity. This bridge facility was paid down with the proceeds from the issuance of long-term bonds and borrowings under another credit facility. The long-term bond issuance is discussed in more detail under "Financing Activities."

   (PPL Montana)

   PPL Montana has a $100 million three-year credit facility with another PPL Energy Supply subsidiary on market terms to meet its liquidity needs. At December 31, 2003, PPL Montana had no outstanding borrowings under that credit facility.

   (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)

   PPL Capital Funding retired the following medium-term notes, at par, during 2003:

   • all of its $60 million 6.375% Series due March 2003;

   • all of its $20 million 6.23% Series due October 2003; and

   • all of its $5 million 6.40% Series due October 2003.

   In November 2003, PPL launched an offer to exchange up to $573 million aggregate stated amount of its outstanding PEPS Units for up to $573 million aggregate stated amount of its PEPS Units, Series B and a cash payment by PPL of $0.375 for each validly tendered and accepted outstanding PEPS Unit. The exchange offer, which closed in January 2004, resulted in 3,975,160 PEPS Units, or 17.28% of the 23 million outstanding PEPS Units, being exchanged. PPL conducted the exchange offer to reduce its future interest expense.

   During the twelve months ended December 31, 2003, PPL issued $426 million of common stock, including $109 million through its Structured Equity Shelf Program and $270 million through a public offering in May 2003. In this public offering, PPL issued 7.1 million shares of common stock for $38.25 per share. PPL received net proceeds of approximately $261 million, which were used to repurchase commercial paper of PPL Energy Supply and for general corporate purposes.

   (PPL and PPL Energy Supply)

   In March 2003, WPD (South West) issued £200 million of 5.875% bonds due 2027. The proceeds from this issuance were used to repay £200 million of borrowings under its bridge facility. Additionally, in May 2003, WPD (South West) issued an additional £50 million of 5.875% bonds due 2027. WPD (South West) used the proceeds from this issuance to pay down short-term borrowings. The issuance of this long-term debt resulted in an $11 million write-off of unamortized swap restructuring costs in the second quarter of 2003.

   In May 2003, PPL Energy Supply issued $400 million of 2.625% Convertible Senior Notes due 2023, which are guaranteed by PPL and convertible into PPL common stock. The convertible notes were sold in a Rule 144A private offering to qualified institutional buyers, and PPL Energy Supply and PPL subsequently registered the resale of the notes with the SEC for the benefit of the holders. See Note 4 for additional information on the convertibility features of the notes. PPL Energy Supply used the proceeds from the private offering of the convertible notes to repurchase commercial paper and for general corporate purposes.

   During the twelve months ended December 31, 2003, WPD retired $53 million of 7.375% Unsecured Bonds due 2028.

   At December 31, 2003, PPL Energy Supply had no commercial paper outstanding.

   During the twelve months ended December 31, 2003, PPL Energy Supply distributed approximately $1.2 billion to its parent company, PPL Energy Funding, and received capital contributions of $261 million.

   (PPL and PPL Electric)

   In February 2003, the Lehigh County Industrial Development Authority (LCIDA) issued $90 million of 3.125% Pollution Control Revenue Refunding Bonds due November 2008 on behalf of PPL Electric. The proceeds of the bonds were used to refund the LCIDA's $90 million, 6.40% Pollution Control Revenue Refunding Bonds due 2021. In order to secure its obligations to repay the LCIDA, PPL Electric issued $90 million aggregate principal amount of its Senior Secured Bonds under its 2001 Senior Secured Bond Indenture, having terms corresponding to the terms of the LCIDA bonds.

   In February 2003, PPL Electric retired $19 million of its outstanding First Mortgage Bonds, 6-7/8% Series due February 2003, at par value.

   In April 2003 and December 2003, as permitted by the 1945 First Mortgage Bond Indenture, PPL Electric retired approximately $46 million aggregate principal amount of its First Mortgage Bonds, 7-7/8% Series due 2023, and $19 million aggregate principal amount of its First Mortgage Bonds, 6.75% Series due 2023. Both issues were retired at par value, plus accrued interest, through the application of cash deposited with the trustee to release certain transmission lines and other equipment from the lien of the 1945 First Mortgage Bond Indenture.

   In May 2003, PPL Electric issued $100 million of 4.30% Senior Secured Bonds due 2013. The proceeds were used for general corporate purposes including the refunding of higher-cost securities.

   PPL Electric redeemed all outstanding shares of the following preferred stock, at par value of $100 per share plus accumulated and unpaid dividends, in accordance with the mandatory sinking fund requirements or through the optional redemption provisions of each series:

   • in April 2003, $10 million of 6.15% Series Preferred Stock;

   • in July 2003, $4 million of 6.33% Series Preferred Stock; and

   • in October 2003, $17 million of 6.125% Series Preferred Stock.

   In January 2004, PPL Electric notified holders of its intent to redeem on March 1, 2004 approximately $6 million aggregate principal amount of its 7.30% First Mortgage Bonds. This issue will be retired at par value, plus any accrued and unpaid interest, through the application of cash deposited with the trustee to release certain transmission lines and other equipment from the lien of the 1945 First Mortgage Bond Indenture.

   During the twelve months ended December 31, 2003, PPL Transition Bond Company made principal payments on transition bonds totaling $255 million.

   During the twelve months ended December 31, 2003, PPL Electric received a capital contribution of $75 million from PPL.

   At December 31, 2003, PPL Electric had no commercial paper outstanding.

   (PPL Montana)

   During the twelve months ended December 31, 2003, PPL Montana repaid $26 million under its revolving line of credit with an affiliate. Also during this period, PPL Montana distributed $5 million to its parent company, PPL Montana Holdings, LLC.

   Dividends and Dividend Restrictions

   (PPL)

   In February 2003, PPL announced an increase of its quarterly common stock dividend, effective April 1, 2003, from 36 cents per share to 38.5 cents per share (equivalent to $1.54 per annum). Future dividends, declared at the discretion of the Board of Directors, will be dependent upon future earnings, cash flows, financial requirements and other factors.

   (PPL, 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.

   (PPL and PPL Electric)

   PPL Electric's 2001 Senior Secured Bond Indenture restricts dividend payments in the event that PPL Electric fails to meet interest coverage ratios or fails to comply with certain separateness formalities undertaken in connection with its strategic initiative (see Note 19 for additional information). PPL Electric does not, at this time, expect that any of such limitations would significantly impact its ability to declare dividends.

9. Acquisitions, Development and Divestitures

   Domestic Generation Projects (PPL and PPL Energy Supply)

   In 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, or $88 million after-tax, and was reported on the 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.

   In November 2002, PPL Global evaluated its options with respect to six unassigned turbines and SCRs that were complete or substantially complete. These units were intended to be used at the Kings Park site on Long Island, New York. At that time, given low energy prices and the unavailability of a power contract, PPL Global was reevaluating its options with respect to the Kings Park project.

   Due to the uncertainty of the project and the absence of other viable projects, a valuation based upon replacement costs of the turbines and the SCRs was completed. This resulted in the recognition of a $44 million impairment charge, which is reported on the Statement of Income as "Write-down of generation assets," a component of "Other charges." A deferred income tax benefit of $18 million was recognized on the write-down.

   In January 2003, PPL announced that it had decided not to proceed with development of the 300 MW Kings Park project. In March, PPL Global sold its interest in Kings Park Energy, LLC. At that time, the six unassigned gas combustion turbine generators and SCRs to be used at the Kings Park site were retained as spare parts.

   In April 2003, PPL Susquehanna completed the replacement of the Unit 2 steam turbine at the Susquehanna station. This project provides a nominal power increase of 50 MW of generation capacity, of which PPL Susquehanna has a 90% undivided interest. An additional turbine upgrade is in progress for Unit 1 and is expected to be completed in 2004. Through December 31, 2003, a total of approximately $125 million had been incurred on these projects.

   In October 2003, PPL Maine entered into an agreement in principle with a coalition of government agencies and private groups to sell three of its nine hydroelectric dams in Maine. If the agreement is finalized, a non-profit organization designated by the coalition would have a five-year option to purchase the dams for approximately $25 million, and PPL Maine would receive rights to increase energy output at its other hydroelectric dams in Maine. The coalition has indicated that it plans to remove or bypass the dams subject to the agreement in order to restore runs of Atlantic salmon and other migratory fish to the Penobscot River. Any final agreement will require several approvals by the FERC.

   In November 2003, PPL Generation sold four of the six spare gas combustion turbine generators and related equipment for approximately $33 million. PPL Generation received substantially all of the proceeds in January 2004. The pre-tax loss on the sale of about $3 million is included in "Other Income - net" on the Statement of Income.

   See Note 22 for a discussion of the Lower Mt. Bethel facility.

   International Energy Projects (PPL and PPL Energy Supply)

   Acquisitions

   WPD

   On September 6, 2002, PPL Global acquired the remaining 49% equity interest in WPDH Limited and WPDL from Mirant for approximately $236 million, including acquisition costs. The acquisition of Mirant's 49% interest provides PPL Global with complete ownership of WPD.

   Prior to the acquisition, PPL Global held 51% of the equity interest in WPD but shared control with Mirant pursuant to a shareholders' agreement. The shareholders' agreement was terminated in connection with the closing of the acquisition. No regulatory approvals were required for this transaction.

   The purchase of Mirant's interest in WPD was accounted for as a step-acquisition and resulted in the consolidation of WPD's accounts by PPL and PPL Energy Supply.

   The assets acquired and liabilities assumed were recorded at estimated fair value as determined by management based on information available at the time of acquisition. As of October 1, 2003, management completed its review and determination of the fair values assigned to assets acquired and liabilities assumed. The fair value of PP&E, based on an independent appraisal, was approximately $800 million lower than the preliminary valuation. Accordingly, PP&E was reduced, with offsetting increases in goodwill and reductions in deferred income taxes.

   The following table summarizes the final allocation of purchase price based on fair values of the assets acquired and liabilities assumed at the date of acquisition, plus the book value of assets and liabilities underlying PPL Global's previous 51% equity ownership:

   Current assets	$	236
   Investments (a)		(450	)
   PP&E		2,629
   Goodwill		740
   Other intangibles		4
   Other		244
   Total assets acquired		3,403
   Current liabilities		767
   Long-term debt		1,668
   Other		732
   Total liabilities assumed		3,167
   Net assets acquired	$	236

   (a) Includes the reversal of PPL Global's equity investment.

   The goodwill reflected above includes the remaining value of PPL Global's 51% share of the goodwill recognized by WPD on its acquisition of Hyder, in addition to the $568 million of non-deductible goodwill arising upon acquisition of Mirant's 49% interest.

   The PPL income statements for 2003 and 2002 include consolidated WPD results for the twelve-month periods ended November 30, 2003 and 2002. This reflects PPL Global's policy of recording the results of foreign controlled subsidiaries on a one-month lag. The portion of earnings attributable to Mirant, $73 million for the year ended December 31, 2002, is reported on the Statement of Income in "Minority Interest."

   TransEmel

   Emel acquired the remaining 40% interest in a provider of transmission service to northern Chile in July 2003 at a net cost of $3 million, bringing its total ownership interest in TransEmel to 100%. As a result of this acquisition, the operating results of TransEmel have been consolidated from the beginning of the year. The portion of earnings attributable to the minority shareholder is reported on the Statement of Income in "Minority Interest."

   Write-down of International Energy Projects

   CEMAR

   In 2001, PPL Global estimated that the long-term viability of its CEMAR investment was jeopardized and that there was minimal probability of positive future cash flows. At that time, PPL Global recorded an impairment loss of $217 million in the carrying value of its net assets in CEMAR, including a $179 million charge to "Write-down of international energy projects," a component of "Other charges" on the Statement of Income. In March 2002, PPL Global recorded a further impairment loss of $6 million, which was also charged to "Write-down of international energy projects." In June 2002, PPL made a decision to exit the investment. At that time, PPL Global's remaining portion of its CEMAR investment, which related to foreign currency translation adjustments (CTA), was written-off. The $94 million charge was recorded in "Write-down of international energy projects." Accounting guidance prohibited the inclusion of CTA in impairment calculations prior to designating such assets as held for disposal.

   On August 21, 2002, ANEEL authorized an administrative intervention in CEMAR and fully assumed operational and financial control of the company. In its public announcement relating to the intervention, ANEEL said that its intervention and control of CEMAR would last for an initial term of 180 days and that it could be extended.

   The intervenor appointed by ANEEL issued a public statement and schedule for the transfer of the ownership interest in CEMAR to a new owner. Although the schedule announced by the intervenor reflected a closing for the transfer of control of CEMAR to a third party on December 20, 2002, the closing did not occur. The deadline for the sale process was extended to February 17, 2003, the same day the initial term of the intervention was scheduled to end. No conforming bids were submitted to ANEEL by the February 17 deadline due to three outstanding injunctions preventing the sale process from continuing. ANEEL publicly announced a 180-day extension of the initial intervention on February 14, citing the continuing unresolved financial crisis of CEMAR as the primary reason for the extension. As of February 11, 2003, due to the inability to discharge their obligations under the continuing intervention, PPL-related officers and directors of CEMAR resigned from their respective positions.

   In April 2003, PPL learned that the Brazilian Federal Appellate Court hearing the appeal of one of the above-mentioned injunctions accepted ANEEL's arguments and cancelled the injunction. In June, ANEEL's officials indicated to PPL that the other two injunctions outstanding against the sale process had been lifted as well. The intervenor appointed by ANEEL issued a public statement and revised schedule for the transfer of the ownership interest in CEMAR to a new owner. In July, ANEEL pre-qualified a Brazilian private equity fund, GP Investimentos (GP), as the sole qualified bidder. However, on August 12, ANEEL announced that it could not proceed with GP's offer because, among other reasons, it was unacceptable to CEMAR's creditors. On August 16, ANEEL extended the intervention for up to an additional 180 days. On September 4, ANEEL published a revised schedule for the sale of CEMAR to a third party by the end of 2003. On December 16, 2003, a federal judge enjoined the sale process to allow another party (MT Baker) 30 days to submit a bid for CEMAR. However, GP was the only party that submitted a bid by the revised deadline. On February 3, 2004, ANEEL announced that it had accepted the bid of GP. Before assuming control of CEMAR, GP must complete negotiations with CEMAR's creditors and other third parties. ANEEL has extended the closing date for the sale of CEMAR to GP to March 30, 2004. At this time, PPL Global cannot predict when or if GP will complete these negotiations and assume control of CEMAR.

   PPL Global no longer controls or manages CEMAR, and PPL Global has deconsolidated the financial assets and liabilities of CEMAR from its financial statements. Consistent with the cost method of accounting, PPL Global is no longer recording CEMAR's operating results.

   At December 31, 2003, the negative investment in CEMAR of $18 million was included in "Deferred Credits and Other Noncurrent Liabilities - Other." Any negative carrying value will be reversed upon the final sale or other disposition of the company.

   WPD/Teesside

   WPD has an equity interest in Teesside Power Limited (Teesside), the owner of the 1,875 MW Teesside Power Station, located in northeast England. Through its European affiliates, Enron was an owner, operator and power purchaser of the station's output. As a result of Enron being placed into receivership in the U.K. and its default on obligations under the power purchase agreements, in 2001, WPD wrote off its entire equity investment in Teesside. PPL Global's share of the impairment loss was $21 million and is included in "Write-down of international energy projects" on the Statement of Income.

   In connection with the Enron bankruptcy and the probable resulting loss of Teesside cash flows, PPL and its subsidiaries evaluated the carrying value of WPD. Fair value, measured using discounted cash flows, was compared to the carrying value to determine whether impairment existed at December 31, 2001. Fair value was determined considering the loss of the value of the future cash flows from the Teesside Power Station and a forecasted reduction in future operating cash flows at WPD. The probability-weighted impairment loss was $117 million, after-tax. The pre-tax charge was $134 million, and was recorded as a charge to "Write-down of international energy projects."

   In 2002, PPL Global recognized an $8 million tax benefit on the worthlessness of WPD's investment in Teesside.

   Other

   In 2002, PPL Global evaluated certain investments for impairment and recorded a $5 million impairment charge in connection with its investment in CGE, a $4 million impairment of a corporate joint venture's investment in Brazil, and a $4 million write-down of certain non-electrical assets in Bolivia.

   Discontinued Operations

   In December 2003, PPL Global's Board of Managers authorized PPL Global to sell its investment in a Latin American telecommunications company, and approved a plan of sale. It was determined that the viability of this non-strategic business was uneconomical. PPL Global believes a sale is probable within one year.

   As a result, PPL Global recorded a write-down in the carrying value of the company's net assets to their estimated fair value of approximately $1 million. This write-down, totaling approximately $18 million, as well as operating results of the Latin American telecommunications company, which was a loss of approximately $2 million for 2003, are reflected as "Loss from Discontinued Operations" on the Statement of Income. The results of operations have been classified as discontinued operations for all periods presented. The assets and liabilities of the discontinued operation totaled $5 million and $4 million at December 31, 2003, and are included in "Current Assets - Other" and "Current Liabilities - Other" on the Balance Sheet. Balance Sheet amounts have not been reclassified at December 31, 2002.

   Sales of Property

   In the second quarter of 2003, a subsidiary of WPD sold certain Hyder properties. PPL Global received approximately $17 million from the sales, and recorded a pre-tax gain of about $2 million. This gain is included in "Other Income - net" on the Statement of Income.

   Other (PPL)

   In April 2003, a subsidiary of PPL Telcom acquired the fiber optic network of a Fairfax, Virginia-based company for approximately $21 million, consisting of $9 million in cash and a $12 million capital lease obligation for the right to use portions of a fiber optic network. The 1,330-route-mile metropolitan area fiber network connects New York, northern New Jersey, Philadelphia, Baltimore and Washington, D.C. The acquisition required certain regulatory approvals and authorizations in the area served by the network.

10. Leases

    Colstrip Generating Plant (PPL, PPL Energy Supply and PPL Montana)

    PPL Montana leases a 50% interest in Colstrip Units 1 and 2 and a 30% interest in Unit 3, under four 36-year non-cancelable operating leases. These leases provide two renewal options based on the economic useful life of the generation assets. PPL Montana is required to pay all expenses associated with the operations of the generation units. The leases place certain restrictions on PPL Montana's ability to incur additional debt, sell assets and declare dividends and require PPL Montana to maintain certain financial ratios related to cash flow and net worth. The amount outstanding under these leases at December 31, 2003 was $295 million. There are no residual value guarantees in these 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 or covenants, acceleration of other indebtedness of PPL Montana, change in control of PPL Montana and certain bankruptcy events. The termination value is estimated to be $583 million at December 31, 2003.

    Other Leases

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

    In addition to the leasing arrangements discussed above, PPL and its subsidiaries also have leases for vehicles, office space, land, buildings, personal computers and other equipment. Rental expense for all operating leases was as follows:

    	PPL		PPL Energy Supply		PPL Electric		PPL Montana
    2003	$	85	$	63	$	21	$	21
    2002		62		46		15		21
    2001		52		36		15		21

    Total future minimum rental payments for all operating leases are estimated as follows:

    	PPL		PPL Energy Supply		PPL Electric		PPL Montana
    2004	$	79	$	65	$	13	$	44
    2005		68		57		11		39
    2006		63		54		8		38
    2007		56		50		6		36
    2008		56		51		4		38
    Thereafter		505		498		8		420
    	$	827	$	775	$	50	$	615

    (PPL)

    In connection with the acquisition of the fiber optic network discussed in Note 9, a subsidiary of PPL Telcom assumed a $12 million capital lease obligation through 2020 for the right to use portions of the fiber optic network. Total future minimum rental payments for this capital lease are estimated at $1 million for each of the years from 2004 through 2008, and $15 million thereafter.

    (PPL and PPL Energy Supply)

    See Note 22 for discussion of synthetic leases.

11. Stock-Based Compensation

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

    Under the PPL Incentive Compensation Plan (ICP) and the Incentive Compensation Plan for Key Employees (ICPKE) (together, the "Plans"), restricted shares of PPL common stock, restricted stock units and stock options may be granted to officers and other key employees of PPL, PPL Electric and other affiliated companies. Awards under the Plans are made by the Compensation and Corporate Governance Committee (CCGC) of the PPL Board of Directors, in the case of the ICP, and by the PPL Corporate Leadership Council (CLC), in the case of the ICPKE. The ICP limits the total number of awards that may be granted under it after April 23, 1999 to 7,884,715 awards, or 5% of the total shares of common stock that were outstanding at April 23, 1999. The ICPKE limits the total number of awards that may be granted under it after April 25, 2003, to 8,286,804 awards, or 5% of the total shares of common stock that were outstanding at January 1, 2003, reduced by outstanding awards for which common stock was not yet issued as of April 25, 2003. In addition, each Plan limits the number of shares available for awards in any calendar year to 2% of the outstanding common stock of PPL on the first day of such calendar year. The maximum number of options that can be awarded under each Plan to any single eligible employee in any calendar year is 1.5 million shares. Any portion of these options that has not been granted may be carried over and used in any subsequent year. If any award lapses, is forfeited or the rights of the participant terminate, the shares of common stock underlying such an award are again available for grant. Shares delivered under the Plans may be in the form of authorized and unissued common stock, common stock held in treasury by PPL or common stock purchased on the open market (including private purchases) in accordance with applicable securities laws.

    Restricted Stock

    Restricted shares of PPL common stock are outstanding shares with full voting and dividend rights. Restricted stock awards are subject to a restriction or vesting period as determined by the CCGC in the case of the ICP, and the CLC in the case of the ICPKE. In addition, the shares are subject to forfeiture or accelerated payout under Plan provisions for termination, retirement, disability and death of employees. Restricted shares vest fully if control of PPL changes, as defined by the plans.

    Restricted Stock Units

    In 2003, the Plans were amended to allow for the grant of restricted stock units. Restricted stock units are awards based on the fair market value of PPL common stock. Actual PPL common shares will be issued upon completion of a restriction or vesting period as determined by the CCGC in the case of the ICP, and the CLC in the case of the ICPKE. Recipients of restricted stock units may also be granted the right to receive dividend equivalents through the end of the restriction period or until the award is forfeited. Restricted stock units are subject to forfeiture or accelerated payout under the Plan provisions for termination, retirement, disability and death of employees. Restricted stock units vest fully if control of PPL changes, as defined by the Plans.

    A summary of restricted stock/unit grants follows:

    Restricted Stock/ Units Granted		Restricted Shares Granted	Weighted Average Fair Value		Restricted Units Granted	Weighted Average Fair Value
    2003
    	PPL	42,090		$36.23	139,732		$35.09
    	PPL Energy Supply	10,110		$36.23	77,306		$35.11
    	PPL Electric	2,850		$36.23	21,170		$35.07
    	PPL Montana				3,970		$35.07
    2002
    	PPL	147,735		$34.12
    	PPL Energy Supply	82,211		$34.45
    	PPL Electric	18,860		$33.71
    	PPL Montana	2,830		$33.74
    2001
    	PPL	202,590		$43.09
    	PPL Energy Supply	141,289		$42.68
    	PPL Electric	19,410		$44.79
    	PPL Montana	1,630		$45.09

    Compensation expense related to restricted stock and restricted stock unit awards was $5 million, $5 million and $6 million for PPL for 2003, 2002 and 2001. At December 31, 2003, there were 491,014 restricted shares and 135,078 restricted units outstanding. These awards currently vest from three to 25 years from the date of grant.

    Compensation expense related to restricted stock/unit awards for PPL Energy Supply in 2003, 2002 and 2001 was $4 million, $4 million and $5 million. Compensation expense related to restricted stock/unit awards for PPL Electric was $1 million for 2003, 2002 and 2001. Such compensation expense for PPL Montana was insignificant for all periods reported.

    Stock Options

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

    Under the Plans, stock options may also be granted with an option exercise price per share not less than the fair market value of PPL's common stock on the date of grant. The options are exercisable beginning one year after the date of grant, assuming the individual is still employed by PPL or a subsidiary, in installments as determined by the CCGC in the case of the ICP, and the CLC in the case of the ICPKE. Options outstanding at December 31, 2003 vest over a three-year period from the date of grant in equal installments. The CCGC and CLC have discretion to accelerate the exercisability of the options. All options expire no later than ten years from the grant date. The options become exercisable immediately if control of PPL changes, as defined by the Plans.

    A summary of stock option activity follows:

    		2003					2002					2001
    		Number of Options			Weighted Average Exercise Price		Number of Options			Weighted Average Exercise Price		Number of Options			Weighted Average Exercise Price
    PPL
    Outstanding at beginning of year			3,008,685			$32.09		2,255,051			$31.36		1,969,301			$23.64
    	Granted		816,110			36.23		840,430			33.49		922,860			43.16
    	Exercised		(860,915	)		24.09		(62,710	)		22.82		(548,424	)		23.49
    	Forfeited		(51,622	)		35.32		(24,086	)		36.18		(88,686	)		31.31
    Outstanding at end of year			2,912,258			35.56		3,008,685			32.09		2,255,051			31.36
    Options exercisable at end of year			1,354,075					1,400,701					306,544
    Weighted-average fair value of options granted			$11.92					$11.68					$10.42
    PPL Energy Supply
    Outstanding at beginning of year			903,549			32.78		675,179			31.64		655,755			23.27
    	Granted		266,760			36.23		304,480			33.49		306,130			43.16
    	Exercised		(253,805	)		24.41		(61,160	)		22.72		(167,446	)		23.92
    	Forfeited		(51,622	)		35.32		(14,950	)		37.07		(53,100	)		29.91
    	Transferred												(66,160	)		22.88
    Outstanding at end of year			864,882			36.14		903,549			32.78		675,179			31.64
    Options exercisable at end of year			366,209					381,657					88,436
    Weighted-average fair value of options granted			$11.92					$11.68					$10.42
    PPL Electric
    Outstanding at beginning of year			232,376			34.40		163,942			34.92		105,400			24.53
    	Granted		66,630			36.23		77,570			33.49		92,450			43.16
    	Transferred		3,114			26.84
    	Exercised		(75,927	)		26.68							(33,908	)		25.04
    	Forfeited							(9,136	)		36.20
    Outstanding at end of year			226,193			37.42		232,376			34.40		163,942			34.92
    Options exercisable at end of year			87,488					95,561					16,924
    Weighted-average fair value of options granted			$11.92					$11.68					$10.42
    PPL Montana
    Outstanding at beginning of year			25,110			30.41		21,720			26.18		100,420			21.79
    	Granted		21,000			36.23		9,390			33.49		5,860			43.16
    	Exercised							(6,000	)		19.91
    	Forfeited												(16,390	)		19.91
    	Transferred												(68,170	)		22.68
    Outstanding at end of year			46,110			33.06		25,110			30.41		21,720			26.18
    Options exercisable at end of year			16,898					6,527					6,287
    Weighted-average fair value of options granted			$11.92					$11.68					$10.42

    The estimated fair value of each option granted was calculated using a Black-Scholes option-pricing model. The weighted average assumptions used in the model were as follows:

    	2003	2002	2001
    Risk-free interest rate	3.81%	5.35%	5.46%
    Expected option life	7.75 yrs.	10 yrs.	10 yrs.
    Expected stock volatility	39.94%	39.11%	30.24%
    Dividend yield	3.48%	3.34%	4.28%

    The following table summarizes information about stock options at December 31, 2003:

    PPL

    	Options Outstanding			Options Exercisable
    Range of Exercise Prices	Number Outstanding at 12/31/03	Weighted- Avg. Remaining Contractual Life	Weighted- Avg. Exercise Prices	Number Exercisable at 12/31/03	Weighted- Avg. Exercise Price
    $19.00-$24.00	206,415	6.1	$22.26	206,415	$22.26
    $25.00-$29.00	327,712	5.3	26.84	327,712	26.84
    $30.00-$35.00	705,403	8.1	33.49	193,547	33.49
    $36.00-$39.00	816,110	9.1	36.23
    $40.00-$45.00	856,618	7.1	43.16	626,401	43.16

    Total options outstanding had a weighted-average remaining life of 7.6 years at December 31, 2003.

    PPL Energy Supply

    	Options Outstanding			Options Exercisable
    Range of Exercise Prices	Number Outstanding at 12/31/03	Weighted- Avg. Remaining Contractual Life	Weighted- Avg. Exercise Prices	Number Exercisable at 12/31/03	Weighted- Avg. Exercise Price
    $19.00-$24.00	45,056	6.1	$20.87	45,056	$20.87
    $25.00-$29.00	57,200	6.3	26.84	57,200	26.84
    $30.00-$35.00	235,882	8.1	33.49	74,741	33.49
    $36.00-$39.00	266,760	9.1	36.23
    $40.00-$45.00	259,984	7.1	43.16	189,212	43.16

    Total options outstanding had a weighted-average remaining life of 7.1 years at December 31, 2003.

    PPL Electric

    	Options Outstanding			Options Exercisable
    Range of Exercise Prices	Number Outstanding at 12/31/03	Weighted- Avg. Remaining Contractual Life	Weighted- Avg. Exercise Prices	Number Exercisable at 12/31/03	Weighted- Avg. Exercise Price
    $25.00-$29.00	9,166	5.3	$26.84	9,166	$26.84
    $30.00-$35.00	60,503	8.1	33.49	15,371	33.49
    $36.00-$39.00	66,630	9.1	36.23
    $40.00-$45.00	89,894	7.1	43.16	62,951	43.16

    Total options outstanding had a weighted-average remaining life of 7.9 years at December 31, 2003.

    PPL Montana

    	Options Outstanding			Options Exercisable
    Range of Exercise Prices	Number Outstanding at 12/31/03	Weighted- Avg. Remaining Contractual Life	Weighted- Avg. Exercise Prices	Number Exercisable at 12/31/03	Weighted- Avg. Exercise Price
    $19.00-$24.00	9,860	6.2	$19.91	9,860	$19.91
    $30.00-$35.00	9,390	8.1	33.49	3,131	33.49
    $36.00-$39.00	21,000	9.1	36.23
    $40.00-$45.00	5,860	7.1	43.16	3,907	43.16

    Total options outstanding had a weighted-average remaining life of 8.0 years at December 31, 2003.

    Director Stock Units

    (PPL)

    Under the Directors Deferred Compensation Plan, stock units are used to compensate members of PPL's Board of Directors who are not employees of PPL. Such stock units represent shares of PPL's common stock to which board members are entitled after they cease serving as a member of the Board of Directors. Board members are also entitled to defer any or all of their cash compensation into stock units. The stock unit accounts of each board member are increased based on dividends paid or other distributions on PPL's common stock. There were 77,428 stock units outstanding at December 31, 2003. Compensation expense for all periods reported was insignificant.

    Stock Appreciation Rights

    (PPL and PPL Energy Supply)

    WPD uses stock appreciation rights to compensate senior management employees. Stock appreciation rights are granted with a reference price to PPL's common stock at the date of grant. These awards vest over a three-year period and have a 10-year term, during which time employees are entitled to receive a cash payment of any appreciation in the price of PPL's common stock over the grant date value. At December 31, 2003, there were 70,815 stock appreciation rights outstanding. Compensation expense for all periods reported was insignificant.

    Method of Accounting

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

    Effective January 1, 2003, PPL and its subsidiaries adopted the fair value method of accounting for stock-based compensation, as prescribed by SFAS 123, "Accounting for Stock-Based Compensation," using the prospective method of transition permitted by SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123." Prior to 2003, PPL applied the intrinsic value method, permitted under SFAS 123 and defined in APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. See Note 1 for additional information related to the adoption of the fair value method.

12. Retirement and Postemployment Benefits

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

    Pension and Other Postretirement Benefits

    PPL and certain of its subsidiaries sponsor various pension and other postretirement and postemployment benefit plans. PPL follows the guidance of SFAS 87, "Employers' Accounting for Pensions," and SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," when accounting for these benefits.

    PPL and certain of its subsidiaries also provide supplemental retirement benefits to directors, executives and other key management employees through unfunded nonqualified retirement plans.

    The majority of employees of PPL's domestic subsidiaries will become eligible for certain health care and life insurance benefits upon retirement through contributory plans. Postretirement benefits under the PPL Retiree Health Plans (covering retirees of PPL Electric and various other affiliated PPL companies) and the North Penn Gas Plans are paid from funded VEBA trusts sponsored by the respective companies.

    At December 31, 2003, PPL Electric had a regulatory asset of $5 million relating to postretirement benefits that is being amortized and recovered in rates, with a remaining life of nine years. PPL Electric also maintains an additional liability for the cost of health care of retired miners of former subsidiaries that had been engaged in coal mining. At December 31, 2003, the liability was $28 million. The liability is the net of $57 million of estimated future benefit payments offset by $29 million of available assets in a PPL Electric-funded VEBA trust.

    PPL Energy Supply subsidiaries engaged in the mechanical contracting business make contributions to various multi-employer pension and health and welfare plans, depending on an employee's status. Contributions of $23 million, $30 million and $21 million were made in 2003, 2002 and 2001. The change in contributions from year to year is primarily the result of the changes in the workforce at the mechanical contracting companies. The contribution rates have also increased from year to year.

    In the third quarter of 2002, PPL Global acquired complete ownership of WPD. Included in the fully consolidated financial results of PPL Energy Supply for 2003 and 2002 is the impact of the various pension plans WPD sponsors in the U.K.

    The following disclosures distinguish between PPL's domestic and international pension plans.

    PPL uses a December 31 measurement date for its domestic pension and other postretirement benefit plans and its international pension plans.

    Net pension and other postretirement benefit costs (credits) were as follows:

    	Pension Benefits																		Other Postretirement Benefits
    	2003						2002						2001						2003			2002			2001
    	Domestic			International			Domestic			International			Domestic			International
    PPL
    Service cost	$	42		$	14		$	40		$	13		$	38		$	1		$	7		$	5		$	5
    Interest cost		105			124			99			98			91			3			31			26			22
    Expected return on plan assets		(143	)		(188	)		(147	)		(179	)		(140	)		(3	)		(13	)		(12	)		(11	)
    Net amortization and deferral		(6	)		4			(31	)		3			(50	)					25			15			12
    Net periodic pension and postretirement costs/(credits) prior to special termination benefits		(2	)		(46	)		(39	)		(65	)		(61	)		1			50			34			28
    Special termination benefits		9						62						3									4
    Net periodic pension and postretirement benefit cost/(credit)	$	7		$	(46	)	$	23		$	(65	)	$	(58	)	$	1		$	50		$	38		$	28
    PPL Energy Supply
    Service cost	$	3		$	14		$	2		$	13		$	2		$	1
    Interest cost		4			124			4			98			4			3		$	1		$	1		$	1
    Expected return on plan assets		(4	)		(188	)		(3	)		(179	)		(3	)		(3	)
    Net amortization and deferral		1			4						3
    Net periodic pension and postretirement benefit cost/(credit)	$	4		$	(46	)	$	3		$	(65	)	$	3		$	1		$	1		$	1		$	1
    PPL Montana
    Service cost	$	2					$	2					$	2
    Interest cost		4						3						3					$	1		$	1		$	1
    Expected return on plan assets		(3	)					(2	)					(2	)
    Net amortization and deferral		1
    Net periodic pension and postretirement benefit cost	$	4					$	3					$	3					$	1		$	1		$	1

    Net periodic pension cost charged (credited) to operating expense, excluding amounts charged to construction and other non-expense accounts, were:

    	2003						2002						2001
    	Domestic			Int'l			Domestic			Int'l			Domestic			Int'l
    PPL (a)	$	(2	)	$	(40	)	$	(31	)	$	(58	)	$	(48	)	$	1
    PPL Energy Supply (b)		2			(40	)		(9	)		(58	)		(16	)		1
    PPL Electric (c)		(4	)					(17	)					(24	)
    PPL Montana		4						3						3

    (a)	The domestic amounts for 2003 and 2002 exclude the $9 million and $62 million cost of special termination benefits, which are included separately on the Statement of Income, within the "Workforce reduction" charge for those years.
    (b)	In addition to the specific plans sponsored by PPL Energy Supply, PPL Generation subsidiaries and PPL EnergyPlus are also allocated a portion of the costs of pension plans sponsored by PPL Services, included in the PPL total cost above, based on their participation in those plans.
    (c)	PPL Electric is also allocated a portion of the costs of pension plans sponsored by PPL Services, included in the PPL total cost above, based on participation in those plans.

    In 2001, PPL changed its method of amortizing unrecognized gains or losses in the annual pension expense or income determined under SFAS 87, "Employers' Accounting for Pensions" for its primary domestic pension plan. Under the old method, the net unrecognized gains or losses in excess of 10% of the greater of the plan's projected benefit obligation or the market-related value of plan assets were amortized on a straight-line basis over the estimated average future service period of plan participants. Market-related value of assets is calculated by rolling forward the prior year market-related value with contributions, disbursements and expected return on investments. This expected value is then compared to the actual fair value of assets. One fifth of the difference between the actual value of assets and the expected value is added (or subtracted if negative) to the expected value to arrive at the new market-related value.

    Under the new method, a second corridor is utilized for the net unrecognized gains or losses in excess of 30% of the plan's projected benefit obligation. The net unrecognized gains or losses outside the second corridor are now amortized on a straight-line basis over a period equal to one-half of the average future service period of the plan participants. The new method is preferable under SFAS 87 because it provides more current recognition of gains and losses, thereby lessening the accumulation of unrecognized gains and losses.

    The pro forma effect of retroactive application of this change in accounting principle would have been:

    	2001
    	Net Income			EPS
    PPL	$	(10	)	$	(.07	)
    PPL Energy Supply		(3	)		N/A
    PPL Electric		(5	)		N/A

    The international plans adopted the double corridor approach when PPL gained control of WPD. This had no effect on prior figures.

    Other post retirement benefit costs charged to operating expense, excluding amounts charged to construction and other non-expense accounts, were:

    	2003		2002		2001
    PPL	$	43	$	27	$	21
    PPL Energy Supply (a)		14		9		8
    PPL Electric (b)		20		13		10
    PPL Montana		1		1

    (a)	In addition to the specific plans sponsored by PPL Energy Supply, PPL Generation subsidiaries and PPL EnergyPlus are also allocated a portion of the costs of other postretirement benefit plans sponsored by PPL Services, included in the PPL total cost above, based on their participation in those plans.
    (b)	PPL Electric is also allocated a portion of the costs of other postretirement benefit plans sponsored by PPL Services, included in the PPL total cost above, based on participation in those plans.

    The following assumptions were used in the valuation of the benefit obligations at December 31 and determination of net periodic benefit cost for the years ended December 31:

    PPL

    Pension Benefits	2003		2002		2001
    	Domestic	Int'l	Domestic	Int'l	Domestic	Int'l
    Discount rate
    - obligations	6.25%	5.50%	6.75%	5.75%	7.25%	10.24%
    - cost	6.75%	5.75%	7.25%	5.75%	7.50%	10.24%
    Expected return on plan assets
    - obligations	9.0%	8.30%	9.0%	8.31%	9.2%	10.24%
    - cost	9.0%	8.31%	9.2%	8.31%	9.2%	10.24%
    Rate of compensation increase
    - obligations	4.0%	3.75%	4.0%	3.75%	4.25%	7.12%
    - cost	4.0%	3.75%	4.25%	3.75%	4.75%	7.12%

    
    

    Other Postretirement Benefits	2003	2002	2001
    Discount rate
    - obligations	6.25%	6.75%	7.25%
    - cost	6.75%	7.25%	7.50%
    Expected return on plan assets
    - obligations	7.80%	7.80%	7.60%
    - cost	7.80%	7.60%	7.60%
    Rate of compensation increase
    - obligations	4.0%	4.0%	4.25%
    - cost	4.0%	4.25%	4.75%

    PPL Energy Supply

    Pension Benefits	2003		2002		2001
    	Domestic	Int'l	Domestic	Int'l	Domestic	Int'l
    Discount rate
    - obligations	6.25%	5.50%	6.75%	5.75%	7.25%	10.24%
    - cost	6.75%	5.75%	7.25%	5.75%	7.50%	10.24%
    Expected return on plan assets
    - obligations	9.0%	8.30%	9.0%	8.31%	9.2%	10.24%
    - cost	9.0%	8.31%	9.2%	8.31%	9.2%	10.24%
    Rate of compensation increase
    - obligations	4.0%	3.75%	4.0%	3.75%	4.25%	7.12%
    - cost	4.0%	3.75%	4.25%	3.75%	4.75%	7.12%

    
    

    Other Postretirement Benefits	2003	2002	2001
    Discount rate
    - obligations	6.25%	6.75%	7.25%
    - cost	6.75%	7.25%	7.50%
    Expected return on plan assets	N/A	N/A	N/A
    Rate of compensation increase
    - obligations	4.0%	4.0%	4.25%
    - cost	4.0%	4.25%	4.75%

    PPL Montana

    Pension Benefits	2003	2002	2001
    Discount rate
    - obligations	6.25%	6.75%	7.25%
    - cost	6.75%	7.25%	7.50%
    Expected return on plan assets
    - obligations	9.0%	9.0%	9.2%
    - cost	9.0%	9.2%	9.2%
    Rate of compensation increase
    - obligations	4.0%	4.0%	4.25%
    - cost	4.0%	4.25%	4.75%

    
    

    Other Postretirement Benefits	2003	2002	2001
    Discount rate
    - obligations	6.25%	6.75%	7.25%
    - cost	6.75%	7.25%	7.50%
    Expected return on plan assets	N/A	N/A	N/A
    Rate of compensation increase
    - obligations	4.0%	4.0%	4.25%
    - cost	4.0%	4.25%	4.75%

    PPL, PPL Energy Supply and PPL Montana

    Assumed health care cost trend rates at December 31,		2003		2002		2001
    Health care cost trend rate assumed for next year
    	- obligations		11%		12%		7%
    	- cost		12%		7%		7.25%
    Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
    	- obligations		5%		5%		6%
    	- cost		5%		6%		6%
    Year that the rate reaches the ultimate trend rate
    	- obligations		2010		2010		2006
    	- cost		2010		2006		2006

    A one-percentage point change in the assumed health care costs trend assumption would have the following effects in 2003:

    	One Percentage Point
    	Increase		Decrease
    PPL
    Effect on service cost and interest cost components	$	3	$	(2	)
    Effect on postretirement benefit obligation		34		(29	)
    PPL Energy Supply
    Effect on service cost and interest cost components
    Effect on postretirement benefit obligation		1		(1	)
    PPL Montana
    Effect on service cost and interest cost components
    Effect on postretirement benefit obligation		1		(1	)

    The expected long-term rate of return for PPL's domestic pension plans considers the plans' historical experience, but is primarily based on the plans' mix of assets and expectations for long-term returns of those asset classes.

    (PPL)

    The expected long-term rate of return for PPL's other postretirement benefit plans is based on the VEBA trusts' mix of assets and expectations for long-term returns of those asset classes considering that a portion of those assets are taxable.

    (PPL and PPL Energy Supply)

    The expected rate of return for PPL's international pension plans considers that a portfolio largely invested in equities would be expected to achieve an average rate of return in excess of a portfolio largely invested in long-term bonds. The historical experience has been an excess return of 2% to 4% per annum on average over the return on long-term bonds.

    (PPL)

    The funded status of the PPL plans was as follows:

    		Pension Benefits												Other Postretirement Benefits
    		2003						2002						2003			2002
    		Domestic			International			Domestic			International
    Change in Benefit Obligation
    Benefit Obligation, January 1		$	1,558		$	2,126		$	1,279		$	37		$	423		$	330
    	Service cost		42			14			40			13			7			5
    	Interest cost		105			124			99			98			31			26
    	Participant contributions					5						4			1			1
    	Plan amendments		3						80			39			48			21
    	Actuarial (gain)/loss		127			101			76			(53	)		30			59
    	Special termination benefits		9						62									4
    	Acquisition/divestitures											1,970
    	Settlements/curtailments											(30	)
    	Actual expense paid		(1	)					(1	)
    	Net benefits paid		(71	)		(131	)		(77	)		(128	)		(28	)		(23	)
    	Currency conversion					235						176
    Benefit Obligation, December 31			1,772			2,474			1,558			2,126			512			423

    		Pension Benefits												Other Postretirement Benefits
    		2003						2002						2003			2002
    		Domestic			International			Domestic			International
    Change in Plan Assets
    Plan assets at fair value, January 1			1,376			1,757			1,633			21			163			155
    	Actual return on plan assets		329			332			(182	)		(335	)		27			(11	)
    	Employer contributions		20						3			1			56			41
    	Participant contributions					5						4			1			1
    	Acquisition/divestitures											2,050
    	Settlements/curtailments											(21	)
    	Actual expense paid		(1	)					(1	)
    	Net benefits paid		(71	)		(131	)		(77	)		(128	)		(28	)		(23	)
    	Currency conversion					201						165
    Plan assets at fair value, December 31			1,653			2,164			1,376			1,757			219			163
    Funded Status
    Funded Status of Plan			(119	)		(310	)		(182	)		(369	)		(293	)		(260	)
    Unrecognized actuarial (gain)/loss			(187	)		477			(144	)		497			134			123
    Unrecognized prior service cost			167			33			178			34			76			39
    Unrecognized transition assets			(27	)					(31	)					78			87
    Currency conversion						57						26
    Net amount recognized at end of year		$	(166	)	$	257		$	(179	)	$	188		$	(5	)	$	(11	)
    Amounts recognized in the Balance Sheet consist of:
    	Prepaid benefit cost	$	4		$	257		$	1		$	219		$	4
    	Accrued benefit liability		(170	)					(180	)		(31	)		(9	)	$	(11	)
    	Additional minimum liability		(28	)		(516	)		(29	)		(453	)
    	Intangible asset		9			37			5			37
    	Accumulated other comprehensive income (pre-tax)		19			434			24			416
    	Cumulative translation adjustment					45
    Net amount recognized at end of year		$	(166	)	$	257		$	(179	)	$	188		$	(5	)	$	(11	)
    Total accumulated benefit obligation for defined benefit pension plans		$	1,553		$	2,423		$	1,376		$	2,022

    Information for pension plans with projected and accumulated benefit obligations in excess of plan assets follows:

    	2003				2002
    	Domestic		Int'l		Domestic		Int'l
    Projected benefit obligation pensions	$	1,765	$	2,474	$	1,551	$	2,126
    Accumulated benefit obligation	$	1,546	$	2,423	$	1,369	$	2,022
    Fair value of assets	$	1,646	$	2,164	$	1,369	$	1,757

    Information for pension plans with accumulated benefit obligations in excess of plan assets follows:

    	2003				2002
    	Domestic		Int'l		Domestic		Int'l
    Projected benefit obligation pensions	$	142	$	2,474	$	122	$	2,126
    Accumulated benefit obligation	$	130	$	2,423	$	110	$	2,022
    Fair value of assets	$	76	$	2,164	$	46	$	1,757

    Information for other postretirement benefit plans with accumulated postretirement benefit obligations in excess of plan assets follows:

    	2003		2002
    Accumulated postretirement benefit obligation	$	512	$	423
    Fair value of assets	$	219	$	163

    (PPL Energy Supply)

    The funded status of the PPL Energy Supply plans was as follows:

    		Pension Benefits													Other Postretirement Benefits
    		2003						2002							2003			2002
    		Domestic			International			Domestic			International
    Change in Benefit Obligation
    Benefit Obligation, January 1		$	58		$	2,126		$	51		$	37			$	9		$	5
    	Service cost		3			14			2			13
    	Interest cost		4			124			4			98				1			1
    	Participant contributions					5						4
    	Plan amendments											39
    	Actuarial (gain)/loss					101			2			(53	)			1			3
    	Acquisitions/divestitures											1,970
    	Settlements/curtailments											(30	)
    	Net benefits paid		(1	)		(131	)		(1	)		(128	)
    	Net transfer out		(2	)
    	Currency conversion					235						176
    Benefit Obligation, December 31			62			2,474			58			2,126				11			9
    Change in Plan Assets
    Plan assets at fair value, January 1			30			1,757			33			21
    	Actual return on plan assets		9			332			(3	)		(335	)
    	Employer contributions		15						1			1
    	Participant contributions					5						4
    	Acquisition/divestitures											2,050
    	Settlements/curtailments											(21	)
    	Net benefits paid		(1	)		(131	)		(1	)		(128	)
    	Currency conversion					201						165
    Plan assets at fair value, December 31			53			2,164			30			1,757
    Funded Status
    Funded Status of Plan			(9	)		(310	)		(28	)		(369	)			(11	)		(9	)
    Unrecognized actuarial loss			9			477			14			497				4			3
    Unrecognized prior service cost			4			33			4			34
    Currency conversion						57						26
    Net amount recognized at end of year		$	4		$	257		$	(10	)	$	188			$	(7	)	$	(6	)
    Amounts recognized in the Balance Sheet consist of:
    	Prepaid benefit cost	$	4		$	257		$	1		$	219
    	Accrued benefit liability								(11	)		(31	)	$		(7	)	$	(6	)
    	Additional minimum liability		(11	)		(516	)		(13	)		(453	)
    	Intangible asset		3			37			3			37
    	Accumulated other comprehensive income (pre-tax)		8			434			10			416
    	Cumulative translation adjustment					45
    Net amount recognized at end of year		$	4		$	257		$	(10	)	$	188			$	(7	)	$	(6	)
    Total accumulated benefit obligation for defined benefit pension plans		$	62		$	2,423		$	52		$	2,022

    Information for pension plans with projected and accumulated benefit obligations in excess of plan assets follows:

    	2003				2002
    	Domestic		Int'l		Domestic		Int'l
    Projected benefit obligation pensions	$	55	$	2,474	$	51	$	2,126
    Accumulated benefit obligation	$	55	$	2,423	$	46	$	2,022
    Fair value of assets	$	46	$	2,164	$	23	$	1,757

    Information for other postretirement benefit plans with accumulated postretirement benefit obligations in excess of plan assets follows:

    	2003		2002
    Accumulated postretirement benefit obligation	$	11	$	9
    Fair value of assets	$	0	$	0

    In addition to the plans sponsored by PPL Energy Supply, PPL Generation subsidiaries and PPL EnergyPlus are allocated a portion of the liabilities and costs of the pension and other postretirement benefit plans sponsored by PPL Services based on their participation in those plans. The pension liabilities assumed by PPL Energy Supply for these plans total $55 million and $58 million at December 31, 2003 and 2002. The prepaid other postretirement benefit costs assumed by PPL Energy Supply for these plans total $1 million at December 31, 2003. The other postretirement benefit liabilities assumed by PPL Energy Supply for these plans totaled $3 million at December 31, 2002.

    (PPL Montana)

    The funded status of the PPL Montana plans was as follows:

    		Pension Benefits						Other Postretirement Benefits
    		2003			2002			2003		2002
    Change in Benefit Obligation
    Benefit Obligation, January 1		$	49		$	41		$	9	$	5
    	Service cost		2			2
    	Interest cost		4			3			1		1
    	Plan amendments		1
    	Actuarial gain					4			1		3
    	Benefits paid		(1	)		(1	)
    Benefit Obligation, December 31			55			49			11		9
    Change in Plan Assets
    Plan assets at fair value, January 1			23			26
    	Actual return on plan assets		9			(3	)
    	Employer contributions		15			1
    	Benefits paid		(1	)		(1	)
    	Plan assets at fair value, December 31		46			23

    		Pension Benefits						Other Postretirement Benefits
    		2003			2002			2003			2002
    Funded Status
    Funded status of plan			(9	)		(26	)		(11	)		(9	)
    Unrecognized actuarial gain			8			15			4			3
    Unrecognized prior service cost			3			3
    Net amount recognized at end of year		$	2		$	(8	)	$	(7	)	$	(6	)
    Amounts recognized in the Balance Sheet consist of:
    	Accrued benefit liability	$	2		$	(8	)	$	(7	)	$	(6	)
    	Additional minimum liability		(11	)		(13	)
    	Intangible asset		3			3
    	Accumulated other comprehensive income		8			10
    Net amount recognized at end of year		$	2		$	(8	)	$	(7	)	$	(6	)
    Total accumulated benefit obligation for defined benefit pension plans			55			44

    Information for pension plans with projected and accumulated benefit obligations in excess of plan assets follows:

    	2003		2002
    Projected benefit obligation	$	55	$	49
    Accumulated benefit obligation	$	55	$	44
    Fair value of plan assets	$	46	$	23

    Information for other postretirement benefit plans with accumulated postretirement benefit obligations in excess of plan assets follows:

    	2003		2002
    Accumulated postretirement benefit obligation	$	11	$	9
    Fair value of assets	$	0	$	0

    (PPL Electric)

    Although PPL Electric does not directly sponsor any pension or other postretirement benefit plans, PPL Electric is allocated a portion of the liabilities and costs of plans sponsored by PPL Services based on participation in those plans. At December 31, 2003 and 2002, the recorded balance of PPL Electric's allocated share of the total pension liability was $74 million and $71 million. At December 31, 2003, the balance in PPL Electric's allocated share of the total prepaid other postretirement benefit cost was $2 million. At December 31, 2002, the balance in PPL Electric's allocated share of the total other postretirement benefit liability was $1 million.

    Plan Assets - Domestic Pension Plans (PPL, PPL Energy Supply and PPL Montana)

    The asset allocation for the PPL Retirement Plan Master Trust and the target allocation, by asset category, are detailed below.

    Asset Category		Percentage of plan assets at December 31,				Target asset allocation
    		2003		2002
    Equity securities			73%		66%		70%
    Debt securities			22%		29%		25%
    Real estate and other			5%		5%		5%
    	Total		100%		100%		100%

    The domestic pension plan assets are managed by outside investment managers and are rebalanced as necessary to maintain the target asset allocation ranges. PPL's investment strategy with respect to the domestic pension assets is to achieve a satisfactory risk adjusted return on assets that, in combination with PPL's funding policy and tolerance for return volatility, will ensure that sufficient dollars are available to provide benefit payments.

    Plan Assets - Domestic Other Postretirement Benefit Plans (PPL)

    The asset allocation for the PPL other postretirement benefit plans by asset category, are detailed below.

    Asset Category		Percentage of plan assets at December 31,
    		2003		2002
    Equity securities			56%		52%
    Debt securities			44%		48%
    	Total		100%		100%

    PPL's investment strategy with respect to its other postretirement benefit obligations is to fund the VEBA trusts with voluntary contributions and to invest in a tax efficient manner utilizing a prudent mix of assets. Based on the current VEBA and postretirement plan structure, a targeted asset allocation range of 50% to 60% equity and 40% to 50% debt is maintained.

    Plan Assets - International Pension Plans (PPL and PPL Energy Supply)

    WPD operates three defined benefit plans, the WPD Group segment of the Electricity Supply Pension Scheme (ESPS), the Western Power Utilities Pension Scheme (WPUPS), and the Infralec 1992 Scheme (Infralec). The assets of all three schemes are held separately from those of WPD in trustee-administered funds.

    PPL's international pension plan asset allocation and target allocation are detailed below.

    Asset Category		Percentage of plan assets at December 31,				Target asset allocation
    		2003		2002
    Equity securities			75%		75%		75%
    Debt securities			21%		21%		23%
    Real estate and other			4%		4%		2%
    	Total		100%		100%		100%

    In consultation with its investment advisor and with WPD, the group trustees of the WPD Group of the ESPS have drawn up a Statement of Investment Principles (the Statement) to comply with the requirements of U.K. legislation.

    The group trustees' primary investment objective is to maximize investment returns within the constraint of avoiding excessive volatility in the funding position.

    Expected Cash Flows - Domestic Pension Plans

    (PPL)

    There are no contributions required for PPL's primary domestic pension plan or any of PPL's other domestic subsidiary pension plans. However, PPL subsidiaries expect to contribute approximately $9 million to their pension plans in 2004 to ensure future compliance with minimum funding requirements.

    PPL sponsors various non-qualified supplemental pension plans for which no assets are segregated from corporate assets. PPL expects to make approximately $2 million of benefit payments under these plans in 2004.

    (PPL Energy Supply and PPL Montana)

    There are no contributions required for the PPL Montana pension plan. However, PPL Montana expects to contribute approximately $7 million to the plan in 2004 to ensure future compliance with minimum funding requirements.

    Expected Cash Flows - Domestic Other Postretirement Benefit Plans (PPL)

    PPL is not required to make contributions to its other postretirement benefit plans, but has historically funded these plans in amounts equal to the postretirement benefit costs recognized. Continuation of this past practice would provide for PPL to contribute $35 million to its other postretirement benefit plans in 2004.

    Expected Cash Flows - International Pension Plans (PPL and PPL Energy Supply)

    The pension plans of WPD are subject to formal actuarial valuations every three years, which are used to determine funding requirements. WPD expects to make contributions of approximately $3 million in 2004. Future contributions will be evaluated in accordance with these formal actuarial valuations, the next of which will be performed as of March 31, 2004 in respect of WPD's principal pension scheme, the ESPS, to determine contribution requirements for 2005 and forward.

    Medicare Prescription Drug, Improvement and Modernization Act of 2003 (PPL, PPL Energy Supply, PPL Electric and PPL Montana)

    On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law. The Act introduces a prescription drug benefit under Medicare and also provides for a federal subsidy to sponsors of retiree health care benefit plans that provide an actuarially equivalent level of prescription drug benefits. The subsidy would be 28% of eligible drug costs for retirees that are over age 65 and covered under PPL's other postretirement benefit plans.

    The impact of the Act on the provisions of SFAS 106 has yet to be determined by the FASB. PPL has elected to defer recognition of the potential impact of the Act, as allowed under FSP FAS 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003," which was issued by the FASB in January 2004. Thus, the measures of PPL's accumulated postretirement benefit obligations and net postretirement benefit costs in the financial statements and accompanying notes do not reflect the effects of the Act. PPL could be required to change previously reported information upon issuance of final accounting guidance related to the Act, as PPL's other postretirement benefit plans provide prescription drug coverage to retirees that may be eligible for the federal subsidy.

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

    Substantially all employees of PPL's domestic subsidiaries are eligible to participate in deferred savings plans (401(k)s). Contributions to the plans charged to operating expense approximated the following:

    	2003		2002		2001
    PPL	$	11	$	11	$	10
    PPL Energy Supply		6		6		5
    PPL Electric		2		2		2
    PPL Montana		2		1		1

    Employee Stock Ownership Plan (PPL, PPL Energy Supply and PPL Electric)

    PPL sponsors a non-leveraged ESOP, in which substantially all employees, excluding those of PPL Global, PPL Montana, PPL Gas Utilities and the mechanical contractors, are enrolled after one year of credited service. Dividends paid on ESOP shares are treated as ordinary dividends by PPL. Under existing income tax laws, PPL is permitted to deduct the amount of those dividends for income tax purposes and to contribute the resulting tax savings (dividend-based contribution) to the ESOP.

    The dividend-based contribution is used to buy shares of PPL's common stock and is expressly conditioned upon the deductibility of the contribution for federal income tax purposes. Contributions to the ESOP are allocated to eligible participants' accounts as of the end of each year, based 75% on shares held in existing participants' accounts and 25% on the eligible participants' compensation.

    Amounts charged as compensation expense for ESOP contributions approximated $5 million in each of 2003 and 2002 and $4 million in 2001. These amounts were offset by the dividend-based contribution tax savings and had no impact on PPL's earnings.

    ESOP shares outstanding at December 31, 2003 totaled 4,841,488, or 3% of total common shares outstanding, and are included in all EPS calculations.

    Postemployment Benefits

    (PPL, PPL Energy Supply and PPL Electric)

    Certain PPL subsidiaries provide health and life insurance benefits to disabled employees and income benefits to eligible spouses of deceased employees. Postemployment benefits charged to operating expenses were not significant in 2003, 2002 or 2001.

    (PPL and PPL Energy Supply)

    Certain of PPL Global subsidiaries, including Emel, EC, Elfec and Integra, provide limited non-pension benefits to all current employees. All active employees are entitled to benefits in the event of termination or retirement in accordance with government-sponsored programs. These plans generally obligate a company to pay one month's salary per year of service to employees in the event of involuntary termination. Under certain plans, employees with five or more years of service are entitled to this payment in the event of voluntary or involuntary termination. There is no limit on the number of years of service in the calculation of the benefit obligation.

    The liabilities for these plans are accounted for under the guidance of EITF 88-1 "Determination of Vested Benefit Obligation for a Defined Benefit Pension Plan" using, what is commonly referred to as, the "shut down" method, where a company records the undiscounted obligation as if it were payable at each balance sheet date. The combined liabilities for these plans at December 31, 2003 and 2002 were $8 million and $6 million, and are recorded in "Deferred Credits and Noncurrent Liabilities - Other" on the Balance Sheet.

13. Jointly-Owned Facilities

    (PPL and PPL Energy Supply)

    At December 31, 2003, subsidiaries of PPL and PPL Energy Supply owned undivided interests in the facilities listed below. The Balance Sheets of PPL and PPL Energy Supply include the amounts noted in the table below:

    		Ownership Interest	Electric Plant in Service		Other Property		Accumulated Depreciation		Construction Work in Progress
    PPL Generation
    Generating Stations
    	Susquehanna	90.00%	$	4,320			$	3,541	$	63
    	Conemaugh	16.25%		191				70		1
    	Keystone	12.34%		97				49		1
    	Wyman Unit 4	8.33%		15				4
    Merrill Creek Reservoir		8.37%			$	22		13

    Each PPL Generation subsidiary provided its own funding for its share of the facility. Each receives a portion of the total output of the generating stations equal to its percentage ownership. The share of fuel and other operating costs associated with the stations is reflected on the Statement of Income.

    (PPL, PPL Energy Supply and PPL Montana)

    PPL Montana is the operator of the jointly-owned, coal-fired generating units comprising the Colstrip steam generation facility. At December 31, 2003 and 2002, PPL Montana had a 50% undivided leasehold interest in Colstrip Units 1 and 2 and a 30% undivided leasehold interest in Colstrip Unit 3 under operating leases. See Note 10 for additional information.

    PPL Montana's share of direct expenses associated with the operation and maintenance of these facilities is included in the corresponding operating expenses on the Statement of Income. Each joint-owner in these facilities provides its own financing. As operator of all Colstrip Units, PPL Montana invoices each joint-owner for their respective portion of the direct expenses. The amount due from joint-owners was approximately $9 million and $8 million at December 31, 2003 and 2002.

    At December 31, 2003, Montana Power continued to own a 30% leasehold interest in Colstrip Unit 4. As part of the purchase of generation assets from Montana Power, PPL Montana and Montana Power entered into a reciprocal sharing agreement to govern each party's responsibilities regarding the operation of Colstrip Units 3 and 4, and each party is responsible for 15% of the respective operating and construction costs, regardless of whether a particular cost is specified to Colstrip Unit 3 or 4. However, each party is responsible for its own fuel-related costs.

14. Commitments and Contingent Liabilities

    Energy Purchases and Sales Commitments

    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 in 2000, the remaining balance of this liability was transferred to PPL EnergyPlus. At December 31, 2003, the remaining liability associated with the above market NUG contracts was $352 million.

    Wholesale Energy Commitments

    (PPL, PPL Energy Supply and PPL Montana)

    As part of the purchase of generation assets from Montana Power, PPL Montana assumed a power purchase agreement and a power sales agreement (for the Flathead Irrigation Project), which were still in effect at December 31, 2003. In accordance with purchase accounting guidelines, PPL Montana recorded liabilities of $66 million as the estimated fair value of these agreements at the acquisition date. These liabilities are being reduced over the terms of the agreements, through 2010, as adjustments to "Wholesale energy marketing" revenues and "Energy purchases" on the Statement of Income. The unamortized balance of the liability related to the power purchase agreement at December 31, 2003 was $57 million and is included in "Wholesale energy commitments" on the Balance Sheet.

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

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

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

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

    (PPL Montana)

    In June 2003, the FASB issued DIG Issue C20, "Scope Exceptions: Interpretation of the Meaning of Not Clearly and Closely Related in Paragraph 10(b) Regarding Contracts with a Price Adjustment Feature," which became effective October 1, 2003. DIG Issue C20 clarified that prior guidance did not permit the use of a broad market index to serve as a proxy for an ingredient or direct factor. Thus, DIG Issue C20 required that contracts that had been accounted for as normal, but were not eligible for normal treatment because they contained pricing linked to a broad market index, must be reflected on the balance sheet at their fair value, with an offsetting amount reflected in income as of the date of adoption. The power sales agreement referenced above for the Flathead Irrigation Project has a price escalator based upon the Consumer Price Index. Consequently, a pre-tax mark-to-market loss of $2 million was recognized for this contract. This represented the difference between the current market value of the c ontract and the liability previously recorded in connection with the purchase of the Montana assets. This mark-to-market loss was recorded as a "Cumulative Effect of a Change in Accounting Principle" on the Statement of Income of PPL Montana.

    (PPL and PPL Energy Supply)

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

    In April 2003, PPL EnergyPlus entered into an agreement with Arizona Public Service Company to provide 112 MW of capacity and associated electricity from July through September of 2003 and 150 MW from June through September of 2004 and 2005.

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

    In May 2003, PPL EnergyPlus entered into a 20-year agreement with Community Energy, Inc. to purchase energy from its Bear Creek wind power project in northeastern Pennsylvania. The project is expected to produce up to 20 MW and be completed in 2004.

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

    Legal Matters

    (PPL, 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.

    Tax Assessment Appeals

    (PPL and PPL Energy Supply)

    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. In addition, PPL has filed appeals for 2000 and beyond, as permitted under normal assessment procedures. It is anticipated that assessment appeals may 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 all 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 the two pending proceedings in Pennsylvania, only the appeal concerning the assessed value of the Susquehanna nuclear station will result in annual local taxes exceeding $1 million. PPL's appeal of the Susquehanna station assessment was decided in its favor by the Luzerne County Court of Common Pleas, and PPL subsequently settled with the local taxing authorities, resulting in annual local tax liability of approximately $3 million for tax years 2000 and beyond and no additional PURTA tax liability for tax years 1998 and 1999. However, the settlement of the tax liability for tax years 1998 and 1999 was subject to the outcome of claims asserted by certain intervenors which are described below.

    In August 2000, over PPL's objections, the Luzerne County Court of Common Pleas 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 because a change in the assessment of the plant affected the amount they collected under PURTA for the tax years 1998 and 1999. Based on the appraisal obtained by the Philadelphia parties, PPL would have been required to pay up to an extra $213 million in PURTA taxes for 1998 and 1999. The court ruled in PPL's favor concerning the assessed value of the plant, and this determination was affirmed by the Commonwealth Court in October 2003. The Philadelphia parties subsequently petitioned the Commonwealth Court for reargument, and this request was denied. The Philadelphia parties did not seek further appellate review of this matter.

    (PPL, PPL Energy Supply and PPL Montana)

    PPL Montana is currently protesting certain property tax assessments by the Montana Department of Revenue (MDOR) on its generation facilities. The tax liabilities in dispute are approximately $2 million for 2000 and 2001, $9 million for 2002 and $6 million for 2003. PPL Montana's dispute with respect to most of the 2002 and 2003 tax liability is based on the assessed value used by the MDOR for PPL Montana's hydroelectric facilities versus the assessed value used for the facilities of another hydroelectric generator in the state. The state tax appeals board is scheduled to hear the 2000 and 2001 disputes in April 2004, while the hearing for the 2002 dispute is scheduled for May 2004. A hearing for the 2003 dispute has not yet been scheduled.

    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 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. This lawsuit is currently pending in the U.S. District Court of Montana, Butte Division. PPL, PPL Energy Supply and PPL Montana cannot predict the outcome of this matter.

    NorthWestern Corporation Litigation (PPL, PPL Energy Supply and PPL Montana)

    In connection with the acquisition of the Montana generation assets, the Montana Power APA, which was previously assigned to PPL Montana by PPL Global, includes a provision concerning the proposed purchase by PPL Montana of a portion of NorthWestern's interest in the 500-kilovolt Colstrip Transmission System (CTS) for $97 million. During 2002, PPL Montana had been in discussions with NorthWestern regarding the proposed purchase of the CTS and the claims that PPL Montana believes it has against NorthWestern arising from the Montana Power APA and related agreements. Notwithstanding such discussions, in September 2002, NorthWestern filed 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. Pursuant to PPL Montana's application, the matter was removed to the U.S. District Court of Montana, Butte Division. Following removal, NorthWestern asserted additional claims for damages against PPL Mon tana, and PPL Montana filed defenses denying liability for NorthWestern's claims as well as counterclaims against NorthWestern seeking damages PPL Montana believes it has suffered under the Montana Power APA and related agreements. This matter currently is scheduled for trial in the Montana federal district court in mid-2005.

    In September 2003, NorthWestern filed a petition in Delaware for reorganization under the U.S. Bankruptcy Code, which has resulted in an automatic stay of PPL Montana's counterclaims against NorthWestern. PPL Montana has applied to the bankruptcy court for relief from the automatic stay. In December 2003, NorthWestern filed a motion to transfer this litigation from the Montana federal district court to the federal district court in Delaware where NorthWestern's bankruptcy proceeding is pending. PPL Montana has opposed the motion for transfer, which will be decided by the Montana federal district court. NorthWestern and PPL Montana also have stipulated in NorthWestern's bankruptcy proceeding that the automatic stay of PPL Montana's counterclaims will be lifted ten days after the Montana federal district court rules on the transfer motion. PPL, PPL Energy Supply and PPL Montana cannot predict the outcome of this litigation.

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

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

    Regulatory Issues

    California ISO and Western Markets (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 December 31, 2003, PPL has fully reserved for possible underrecoveries of payments for these sales.

    Regulatory proceedings arising out of the California electricity supply situation have been filed at the FERC. The FERC has determined that all sellers of energy into markets operated by the California ISO and the California Power Exchange, including PPL Montana, should be subject to refund liability for the period beginning October 2, 2000 through June 20, 2001 and initiated an evidentiary hearing concerning refund amounts. In April 2003, the FERC changed the manner in which this refund liability is to be computed and ordered further proceedings to determine the exact amounts that the sellers, including PPL Montana, would be required to refund.

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

    Litigation arising out of the California electricity supply situation has been filed in California courts against sellers of energy to the California ISO. The plaintiffs and intervenors in these legal proceedings allege, among other things, abuse of market power, manipulation of market prices, unfair trade practices and violations of state antitrust laws, and seek other relief, including treble damages and attorneys' fees. While PPL's subsidiaries have not been named by the plaintiffs in these legal proceedings alleging abuses of market power, manipulation of market prices, unfair trade practices and violations of state antitrust laws, PPL Montana was named by a defendant in its cross-complaint in a consolidated court proceeding, which combined into one master proceeding several of the lawsuits alleging antitrust violations and unfair trade practices. This generator denies that any unlawful, unfair or fraudulent conduct occurred but asserts that, if it is found liable, the other generators and power ma rketers, including PPL Montana, caused, contributed to and/or participated in the plaintiffs' alleged losses.

    In May 2003, the Port of Seattle filed a lawsuit in the U.S. District Court for the Western District of Washington against eighteen defendants, including PPL Montana. The lawsuit asserts claims against all defendants under the federal and state antitrust laws, the federal Racketeer Influenced and Corrupt Organizations Act and for common law fraud. The complaint centers on many of the same alleged activities that are the basis for the litigation arising out of the California electricity supply situation described above. The Port of Seattle is seeking actual, trebled and punitive damages, as well as attorneys' fees. PPL Montana and several other defendants have filed a motion to dismiss this complaint that has not been ruled on by the court. In December 2003, this matter was transferred to the U.S. District Court for the Southern District of California for inclusion with proceedings already centralized and pending in that court.

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

    While PPL and its subsidiaries believe that they have not engaged in any improper trading practices, they cannot predict whether, or the extent to which, any PPL 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 them of the electricity supply situation in California and other western states will be material.

    PJM Capacity Transactions (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 concluded 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, and 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. The PUC stated that i t was not authorized to, and was not attempting to, adjudicate the merits of PPL's defenses to its allegations, but referred the matter to the U.S. Department of Justice - Antitrust Division (DOJ), the FERC and the Pennsylvania Attorney General.

    In June 2003, the DOJ notified PPL that it had closed its investigation in this matter. Also in June, the Pennsylvania Attorney General's office completed its investigation and notified the PUC that PPL did not violate antitrust or other laws in its capacity market activities. The FERC already has completed two investigations related to these capacity market questions and has found no reason to take action against PPL. PPL continues to believe 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.

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

    In December 2002, PPL was served with a complaint against PPL, PPL EnergyPlus and PPL Electric filed in the U.S. District Court for the Eastern District of Pennsylvania by a group of 14 Pennsylvania boroughs that apparently alleges, in broad terms, similar violations of the federal antitrust laws. These boroughs were wholesale customers of PPL Electric. In addition, in November 2003, PPL and PPL EnergyPlus were served with a complaint which was filed in the same court by Joseph Martorano, III (d/b/a ENERCO), that also alleges violations of the federal antitrust laws. The complaint indicates that ENERCO provides consulting and energy procurement services to clients in Pennsylvania and New Jersey. Although PPL, PPL EnergyPlus and PPL Electric believe the claims in these complaints are without merit, they cannot predict the outcome of these matters.

    New England Investigation (PPL and PPL Energy Supply)

    In January 2004, PPL became aware of an investigation by the Connecticut Attorney General and the FERC's Office of Market Oversight and Investigation (OMOI) regarding allegations that natural gas-fired generators located in New England illegally sold natural gas instead of generating electricity during the week of January 12, 2004. Subsequently, PPL and other generators were served with a data request by OMOI. The data request indicated that PPL was not under suspicion of a regulatory violation but that OMOI was conducting an initial investigation. PPL has responded to this data request. While PPL does not believe that it committed any regulatory or other violations concerning the subject matter of the investigation, PPL cannot predict the outcome of the investigation.

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

    In December 1998, the FERC issued an order authorizing PPL EnergyPlus to make wholesale sales of electric power and related products at market-based rates. In that order, the FERC directed PPL EnergyPlus to file an updated market analysis within three years of the date of the order, and every three years thereafter. 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 Proposed Rules (PPL, PPL Energy Supply, PPL Electric and PPL Montana)

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

    • 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.

    In April 2003, the FERC issued a white paper describing certain modifications to the proposed rule. The FERC has requested comments and is holding numerous public comment sessions concerning the white paper.

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

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

    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 to PPL Montana of all pertinent licenses and any amendments in connection with the Montana APA.

    The Kerr Dam Project license was jointly issued by the FERC to Montana Power and the Confederated Salish and Kootenai Tribes of the Flathead Reservation in 1985, and required Montana Power to hold and operate the project for 30 years. The license required Montana Power, and subsequently PPL Montana as a result of the purchase of the Kerr Dam from Montana Power, to continue to implement a plan to mitigate the impact of the Kerr Dam on fish, wildlife and the habitat. Under this arrangement, PPL Montana has a remaining commitment to spend approximately $22 million between 2004 and 2015.

    PPL Montana entered into a Memorandum of Understanding (MOU) with state, federal and private entities related to the issuance in 2000 of the FERC renewal license for the nine dams for the Missouri-Madison project. The MOU requires PPL Montana to implement plans to mitigate the impact of its projects on fish, wildlife and the habitat, and to increase recreational opportunities. The MOU was created to maximize collaboration between the parties and possibilities for matching funds. Under this arrangement, PPL Montana has a remaining commitment to spend approximately $17 million between 2004 and 2010.

    Wallingford Deactivation (PPL and PPL Energy Supply)

    In January 2003, PPL negotiated an agreement with the ISO - New England that would declare that four of the five units at PPL's Wallingford, Connecticut facility are "reliability must run" units and put those units under cost-based rates. This agreement and the cost-based rates are subject to the FERC's approval, and PPL filed a request with the FERC for such approval. PPL requested authority for cost-based rates because the current and anticipated wholesale prices in New England are insufficient to cover the costs of keeping these units available for operation. In March 2003, PPL filed an application with the New England Power Pool to temporarily deactivate these four units. In May 2003, FERC denied PPL's request for cost-based rates in light of FERC's changes to the market and bid mitigation rules of the ISO - New England made in a similar case involving generating units owned by NRG Energy, Inc. PPL subsequently has explained to the FERC that its changes to the market and bid mitigation rules of I SO - New England will not provide sufficient revenues to PPL, and PPL continues to seek approval of its cost-based rates. However, PPL has informed the New England Power Pool that it will not pursue its request to temporarily deactivate certain Wallingford units. In February 2004, PPL appealed the FERC's denial of its request for cost-based rates to the U.S. Court of Appeals for the D.C. Circuit. PPL cannot predict the outcome of this matter.

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

    Through one of its subsidiaries, PPL operates a synfuel facility in Somerset, Pennsylvania and receives tax credits pursuant to Section 29 of the Internal Revenue Code based on its sale of synfuel to unaffiliated third-party purchasers. Section 29 of the Internal Revenue Code provides tax credits for the production and sale of solid synthetic fuels produced from coal. To qualify for the Section 29 tax credits, the synthetic fuel must meet three primary conditions: (i) there must be a significant chemical change in the coal feedstock, (ii) the product must be sold to an unaffiliated entity, and (iii) the production facility must have been placed in service before July 1, 1998. Section 29 tax credits are currently scheduled to expire at the end of 2007.

    PPL received a private letter ruling from the IRS in November 2001 pursuant to which, among other things, the IRS concluded that the synthetic fuel produced at the Somerset facility qualifies for Section 29 tax credits. PPL uses the Covol technology to produce synfuel at the Somerset facility, and the IRS issued the private letter ruling after its review and approval of that technology. In reliance on this private letter ruling, PPL has sold synfuel produced at the Somerset facility resulting in an aggregate of approximately $147 million of tax credits as of December 31, 2003. PPL has estimated that the Somerset facility will contribute approximately $0.13 to its EPS in each year from 2004 through 2007. PPL also purchases synfuel from unaffiliated third parties, at prices below the market price of coal, for use at its coal-fired power plants.

    In June 2003, the IRS announced that it had reason to question the scientific validity of certain test procedures and results that have been presented to it by taxpayers with interests in synfuel operations as evidence that the required significant chemical change has occurred, and that it was reviewing information regarding these test procedures and practices. In conjunction with such review, the IRS suspended the issuance of private letter rulings concerning whether a significant chemical change has occurred for requests relying on the procedures and results being reviewed. In addition, the IRS indicated that it might revoke existing private letter rulings that relied on the procedures and results under review if it determined that those test procedures and results do not demonstrate that a significant chemical change has occurred.

    In October 2003, the IRS announced that it had completed its review of the scientific validity of test procedures and results presented by taxpayers as evidence of significant chemical change and determined that the test procedures and results used by taxpayers are scientifically valid, if the procedures are applied in a consistent and unbiased manner. Further, the IRS announced that it will continue to issue rulings on significant chemical change under applicable IRS guidelines, despite some question by the IRS as to whether those processes result in the level of significant chemical change required by Section 29 of the Internal Revenue Code and IRS revenue rulings. Finally, the IRS indicated that it would require taxpayers to comply with certain sampling and data/record retention practices to obtain or maintain a ruling on significant chemical change.

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

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

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

    The principal legislation governing the structure of the electricity industry in Great Britain is the Electricity Act 1989 (the "Electricity Act"), as amended by the Utilities Act 2000 (the "Utilities Act").

    The provisions in the Utilities Act include the replacement of individual gas and electricity regulators with the Gas and Electricity Markets Authority (the "Regulator"). The principal objective of the Regulator is to protect the interests of consumers, wherever appropriate, by promoting effective competition in electricity generation and supply. There currently is no competition in electricity distribution, but recently a small operator has applied to the Regulator for a license to operate in Great Britain.

    Each distribution business constitutes a natural regional monopoly and is subject to control on the prices it can charge and the quality of supply it must provide. The operations of WPD are regulated under its distribution licenses, pursuant to which income generated is subject to an allowed revenue regulatory framework that provides economic incentives to minimize operating, capital and financing costs. Under the Electricity Act, WPD is under a statutory duty to offer terms to connect any customer requiring electricity within their area and to maintain that connection. The allowed revenue that is recovered from electricity supply businesses through charges by the Distribution Network Operator (DNO) made for the use of the distribution network is regulated on the basis of the Retail Price Index (RPI) minus X formula. The allowed revenue is increased by RPI minus X during the tenure of each price control period. (RPI is a measure of inflation and equals the percentage change in the U.K. RPI between the six-month period of July to December in the previous year. The X factor is established by the Regulator following review and represents an annual efficiency factor.) The Regulator currently sets the Distribution Price Control Formula for five-year periods.

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

    In December 1999, the Regulator published final price proposals for distribution price control for the 12 DNOs in England and Wales. These proposals represented a reduction to distribution prices of 20% for WPD (South West) and 26% for WPD (South Wales) effective April 2000, followed by a reduction in real terms (i.e., before inflation is taken into account) of 3% each year from April 2001. This price control is scheduled to operate until March 2005.

    Improvements in quality of supply form an important part of the final proposals. Revised targets for system performance, in terms of the security and availability of supply, were proposed with new targets for reductions in minutes lost and interruptions.

    The Regulator has introduced a quality of service incentive plan for the period from April 2002 to March 2005. Companies will be penalized annually up to 2% of revenue for failing to meet their quality of supply targets for the incentive plan. The plan includes a mechanism for rewarding companies which exceed their targets based on their rate of improvement of performance during the period and a process for rewarding exceptional performance by specifying how the targets will be reset.

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

    In June 2003, the Regulator published a report on the quality of supply from April 2001 through March 2002. The report confirms that WPD (South West) and WPD (South Wales) met or exceeded such standards and that no payments were required to be made by either company.

    Any significant lowering of rates implemented by the Regulator after the current price control ends in March 2005 could lower the amount of revenue WPD generates in relation to its operational cost and could materially lower the income of WPD.

    Environmental Matters - Domestic

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

    Due to the environmental issues discussed below 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 or operating expenses in amounts which are not now determinable, but which could be significant.

    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 nitrogen oxide, sulfur dioxide and mercury and could possibly require measures to limit carbon dioxide. In addition, several states have taken their own actions requiring mandatory carbon dioxide emission reductions. Pennsylvania and Montana have not, at this time, established any formal programs to address carbon dioxide and other greenhouse gases.

    The Pennsylvania DEP has finalized regulations requiring further seasonal (May-June) nitrogen oxide reductions to 80% from 1990 levels starting in 2003. These regulations are pursuant to EPA's 1998 State Implementation Plan (SIP) call to 22 eastern states, including Pennsylvania, to revise their state implementation plans. PPL achieved the 2003 nitrogen oxide reductions with the installation of SCR technology on the Montour units, and may install SCR or other additional nitrogen oxide reduction technology on one or more Brunner Island units at a later date.

    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 sulfur dioxide and year-round nitrogen oxide 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.

    The EPA has proposed mercury and nickel regulations and is expected to finalize these regulations in 2004. The cost of complying with these regulations is not now determinable, but could be significant.

    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. The future direction of the EPA's enforcement initiative 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 Colstrip plant in 2003. The Region III office issued such a request to PPL Generation's Martins Cre ek plant in 2002. PPL and its subsidiaries have responded to the Corette and Martins Creek information requests and are in the process of responding to the Colstrip information request. The EPA has taken no further action following the Martins Creek and Corette submittals. 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.

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

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

    In addition to the opacity concerns raised by the New Jersey DEP, the Pennsylvania DEP also has raised concerns about the opacity of emissions from the Martins Creek and Montour plants. PPL is discussing these concerns with the Pennsylvania DEP. If it is determined that actions must be taken to address the Pennsylvania DEP's concerns, such actions could result in costs that are not now determinable, but which could be significant.

    In December 2003, PPL Montana, as operator of the Colstrip facility, received an Administrative Compliance Order (ACO) from the EPA pursuant to the Clean Air Act. The ACO alleges that Units 3 and 4 of the facility have been in violation of the Clean Air Act permit at Colstrip since 1980. The permit required Colstrip to submit for review and approval by the EPA an analysis and proposal for reducing emissions of nitrogen oxides (NO_X) to address visibility concerns if and when EPA promulgates Best Available Retrofit Technology requirements for NO_X. The EPA is asserting that regulations it promulgated in 1980 triggered this requirement. PPL believes that the ACO is unfounded and is discussing the matter with the EPA. The ACO does not expressly seek penalties, and it is unclear at this time what, if any, additional control technology the EPA may consider to be required. Accordingly, the costs to install any additional controls for NO_X, if required, are not now determi nable, but could be significant.

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

    A final permit for water discharges (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. These studies are underway and are expected to be completed in 2006. The Pennsylvania DEP has stated that it believes the studies to date show that the temperature of the discharge must be lowered. The Pennsylvania DEP has also stated that it believes the plant is in violation of a permit condition prohibiting the discharge from changing the river temperature by more than two degrees per hour. PPL is discussing these matters with the agency. Depending on the outcome of these discussions, the plant could be subject to additional capital and operating costs that are not now determinable, but which could be significant.

    The Pennsylvania DEP has issued a water quality certification and a draft NPDES permit to PPL Holtwood, LLC in the FERC license renewal proceeding for its Lake Wallenpaupack hydroelectric facility. PPL has appealed the certification and is discussing both the certification and the NPDES permit with the Pennsylvania DEP. If these discussions are unsuccessful, PPL expects to appeal the permit as well. Depending on the outcome of these appeals, each of the certification and the NPDES permit could impose additional costs on PPL, which 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 either further treat wastewater or take abatement action at their power plants, or both. The cost of complying with the revised standard is not now determinable, but 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. If the source of water for the plants is surface water, these rules could impose significant capital and operating costs on PPL subsidiaries. Another new rule, expected to be finalized in 2004, will address existing structures. PPL has begun preliminary studies to evaluate options to comply with the expected rule. Each of these rules could impose additional costs on PPL subsidiaries, which are not now determinable, but which could be significant.

    Superfund and Other Remediation

    (PPL and PPL Energy Supply)

    Under the Pennsylvania Clean Streams Law, subsidiaries of PPL Generation are obligated to remediate acid mine drainage at former mine sites and may be required to take additional measures to prevent potential acid mine drainage at previously capped refuse piles. One PPL subsidiary is pumping and treating mine water at two mine sites. Another PPL subsidiary plans to install passive wetlands treatment at a third site, and the Pennsylvania DEP has suggested that it may require that PPL subsidiary to pump and treat the mine water at that third site. At December 31, 2003, PPL had accrued $29 million to cover the costs of pumping and treating groundwater at two mine sites for 50 years and for installing passive wetlands treatment at the third site.

    (PPL, PPL Energy Supply and PPL Electric)

    In 1995, PPL Electric and PPL Generation entered into a consent order with the Pennsylvania DEP to address a number of sites that were not being addressed under another regulatory program such as Superfund, but for which PPL Electric or PPL Generation may be liable for remediation. This may include potential PCB contamination at certain PPL Electric substations and pole sites; potential contamination at a number of coal gas manufacturing facilities formerly owned or operated by PPL Electric; oil or other contamination which may exist at some of PPL Electric's former generating facilities; and potential contamination at abandoned power plant sites owned by PPL Generation. As of December 31, 2003, work has been completed for 94% of the sites included in the consent order. Additional sites formerly owned or operated by PPL Electric are added to the consent order on a case-by-case basis.

    In 1996, PPL Gas Utilities entered into a similar consent order with the Pennsylvania DEP to address a number of sites where subsidiaries of PPL Gas Utilities may be liable for remediation. The sites primarily include former coal gas manufacturing facilities. Subsidiaries of PPL Gas Utilities are also investigating the potential for any mercury contamination from gas meters and regulators. Accordingly, PPL Gas Utilities and the Pennsylvania DEP have agreed to add 72 meter/regulation sites to the consent order. As of December 31, 2003, PPL Gas Utilities had addressed 24% of the sites under its consent order.

    At December 31, 2003, PPL Electric and PPL Gas Utilities had accrued approximately $3 million and $9 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. Depending on the outcome of investigations at sites where investigations have not begun or have not been completed, the costs of remediation and other liabilities could be substantial. PPL also could face other non-remediation liabilities at sites included in the consent order or other contaminated sites, the costs of which are not now determinable, but which could be significant.

    (PPL, 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 identified various groundwater remediation issues. Based upon subsequent assessments and actions taken by PPL Montana, the costs to PPL Montana of the groundwater remediation measures identified in those assessments are expected to be approximately $3 million. However, additional expenditures could be required in amounts which are not now determinable, but which could be significant.

    In May 2003, approximately 40 plaintiffs brought an action in the Montana Second Judicial District Court, Butte-Silver Bow County, against PPL Montana and the other owners of the Colstrip plant alleging property damage from freshwater pond seepage and contamination from wastewater ponds at the plant. This action has been moved to the Montana Sixteenth Judicial District Court, Rosebud County. This action could result in PPL Montana and the other Colstrip owners being liable for damages and being required to take additional remedial measures, the costs of 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.

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

    Asbestos (PPL and PPL Energy Supply)

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

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

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

    Lower Mt. Bethel (PPL and PPL Energy Supply)

    In August 2002, the Northampton County Court of Common Pleas issued a decision concerning the permissible noise levels from the Lower Mt. Bethel facility when it becomes operational. Specifically, the court's decision sets certain permissible noise levels required for plant operation. PPL appealed the court's decision to the Commonwealth Court, and an intervenor in the lawsuit cross-appealed the court's decision. In May 2003, the Commonwealth Court remanded the case to the Court of Common Pleas for further findings of fact concerning the zoning application relating to the construction of the facility. In September 2003, the Court of Common Pleas ruled in PPL's favor while also reaffirming its decision on the noise levels, and the intervenor has appealed this ruling to the Commonwealth Court. The Lower Mt. Bethel facility is expected to be operational in 2004. However, PPL and PPL Energy Supply cannot predict the outcome of the ongoing litigation concerning the facility or its ultimate impact on the Lower Mt. Bethel facility, but such impact may be material.

    Environmental Matters - International (PPL and PPL Energy Supply)

    U.K.

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

    Latin America

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

    Other

    Nuclear Insurance (PPL and PPL Energy Supply)

    PPL 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. At December 31, 2003, this maximum assessment was about $40 million.

    PPL Susquehanna's public liability for claims resulting from a nuclear incident at the Susquehanna station is limited to about $10.9 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 $201 million per incident, payable at $20 million per year.

    Guarantees and Other Assurances

    (PPL, PPL Energy Supply and PPL Electric)

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

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

    PPL, PPL Energy Supply, PPL Electric and PPL Montana provide certain guarantees that are required to be disclosed in accordance with FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34." See Note 22 for a discussion of FIN 45. The guarantees provided as of December 31, 2003 are discussed below. In accordance with the provisions of FIN 45, the fair values of guarantees related to arrangements entered into prior to January 1, 2003, as well as guarantees excluded from the initial recognition and measurement provisions of FIN 45, are not recorded in the financial statements.

    (PPL)

    PPL fully and unconditionally guarantees the debt securities of PPL Capital Funding, a wholly-owned financing subsidiary of PPL, including PPL Capital Funding's medium-term notes and the notes issued by PPL Capital Funding in connection with the PEPS Units and PEPS Units, Series B. PPL also fully and unconditionally guarantees all of the obligations of PPL Capital Funding Trust I, an unconsolidated wholly-owned financing subsidiary of PPL, under the trust preferred securities that are a component of the PEPS Units. The aggregate face value of the trust's outstanding preferred securities was $575 million at December 31, 2003. See the Statement of Company-Obligated Mandatorily Redeemable Securities for a discussion of the terms of the trust preferred securities of PPL Capital Funding Trust I and Note 8 for a description of the exchange offer involving the PEPS Units and PEPS Units, Series B and the remarketing of the trust preferred securities of PPL Capital Funding Trust I.

    (PPL and PPL Energy Supply)

    WPD LLP guarantees all of the obligations of SIUK Capital Trust I, an unconsolidated wholly-owned financing subsidiary of WPD LLP, under its trust preferred securities. The aggregate face value of the trust's outstanding preferred securities was $82 million at December 31, 2003. See the Statement of Company-Obligated Mandatorily Redeemable Securities for a discussion of the terms of the trust preferred securities of SIUK Capital Trust I.

    (PPL Energy Supply)

    PPL Energy Supply has entered into several standby letter of credit arrangements under its $500 million three-year credit facility for the purposes of protecting various third parties against nonperformance by PPL and PPL Gas Utilities. As of December 31, 2003, the aggregate maximum exposure related to these standby letters of credit was $13 million. These letters of credit expire in 2004.

    (PPL and PPL Energy Supply)

    PPL Generation has entered into certain partnership arrangements for the sale of coal to third parties. PPL Generation has also executed support agreements, which expire in 2007, for the benefit of these third-party purchasers pursuant to which it guarantees the partnerships' obligations in an amount up to its pro rata ownership interest in the partnerships. PPL Generation's maximum aggregate exposure under these support arrangements was approximately $9 million as of December 31, 2003.

    PPL Susquehanna is contingently obligated to pay $40 million related to potential retroactive premiums that could be assessed under its nuclear insurance programs. Additionally, under the Price Anderson Amendments Act of 1988, PPL Susquehanna could be assessed up to $201 million for each incident at any of the nuclear reactors covered by this Act. See "Nuclear Insurance" for additional information.

    PPL EnergyPlus enters into written put option contracts under which, in exchange for a premium received, it agrees to purchase a specified quantity of a commodity for a specified price if the counterparty exercises the option. The aggregate carrying value of such contracts that were outstanding as of December 31, 2003 was insignificant. These option contracts expire from June 2004 through August 2004. The aggregate maximum amount of payments that PPL EnergyPlus could be required to make if the options are exercised by the counterparties under these contracts is $3 million.

    Certain acquisition agreements relating to the acquisition of mechanical contractors contain provisions that require a PPL Energy Supply subsidiary to make contingent payments to the former owners based upon the profitability of the business unit. The maximum amount of potential payments is not explicitly stated in the acquisition agreements. These arrangements expire at the end of 2004. Based on current expectations, PPL Energy Supply estimates that any amounts to be paid under these arrangements for future performance of the business units will be insignificant.

    Certain agreements relating to the purchase of ownership interests in synfuel projects contain provisions that require certain PPL Energy Supply subsidiaries to make contingent purchase price payments to the former owners. These payments are non-recourse to PPL, PPL Energy Supply and their other subsidiaries and are based primarily upon production levels of the synfuel projects. The maximum amounts of potential payments are not explicitly stated in the agreements. These arrangements expire in 2007. Based on current expectations, PPL Energy Supply estimates that the subsidiaries could pay up to an aggregate of approximately $60 million under these arrangements. As of December 31, 2003, PPL Energy Supply's Balance Sheet reflects a liability of approximately $4 million related to the contingent purchase price obligations of a subsidiary of PPL Energy Supply.

    (PPL and PPL Electric)

    PPL Electric provides a guarantee in the amount of approximately $7 million, as of December 31, 2003, related to debt of an unconsolidated entity. The guarantee expires in June 2008.

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

    PPL Electric and PPL Montana lease certain equipment under master operating lease agreements. The term for each piece of equipment leased by PPL Electric ranges from one to three years, after which time the lease term may be extended for certain equipment either (i) from month-to-month until terminated or (ii) for up to two additional years. The term for each piece of equipment leased by PPL Montana is one year, after which time the lease term may be extended from month-to-month until terminated. Under these lease arrangements, PPL Electric and PPL Montana provide residual value guarantees to the lessors. PPL Electric and PPL Montana generally could be required to pay a residual value guarantee if the proceeds received from the sale of a piece of equipment, upon termination of the lease, are less than the expected residual value of the equipment. As of December 31, 2003, the maximum aggregate amount of future payments that could be required to be made as a result of these residual value guarantees wa s approximately $88 million for PPL Electric and $4 million for PPL Montana. As of December 31, 2003, the aggregate carrying value of residual value guarantees issued subsequent to December 31, 2002 was $16 million for PPL Electric and was insignificant for PPL Montana and is included in "Current Liabilities - Other" on the respective Balance Sheets. These guarantees generally expire within one year, unless the lease terms are extended.

    PPL, PPL Energy Supply, PPL Electric and PPL Montana and their subsidiaries provide other miscellaneous guarantees through contracts entered into in the normal course of business. These guarantees are primarily in the form of various indemnifications or warranties related to services or equipment, and vary in duration. Except as otherwise noted below, the obligated amounts of these guarantees often are not explicitly stated; therefore, the overall maximum amount of the obligation under such guarantees cannot be reasonably estimated. Historically, PPL, PPL Energy Supply, PPL Electric and PPL Montana and their subsidiaries have not made any significant payments with respect to these types of guarantees. As of December 31, 2003, the aggregate fair value of these indemnifications related to arrangements entered into subsequent to December 31, 2002 was insignificant. These guarantees include the following:

    • The companies' or their subsidiaries' leasing arrangements, including those discussed above, contain certain indemnifications in favor of the lessors (e.g., tax and environmental matters).

    • In connection with their issuances of securities, the companies and their subsidiaries engage underwriters, purchasers and purchasing agents to whom they provide indemnification for damages incurred by such parties arising from the companies' material misstatements or omissions in the related offering documents. In addition, in connection with these securities offerings and other financing transactions, the companies also engage trustees or custodial, escrow or other agents to act for the benefit of the investors or to provide other agency services. The companies and their subsidiaries typically provide indemnification to these agents for any liability or expenses incurred by them in performing their obligations.

    • PPL EnergyPlus is party to numerous energy trading or purchase and sale agreements pursuant to which the parties indemnify each other for any damages arising from events that occur while the indemnifying party has title to the electricity or natural gas. For example, in the case of the party that is delivering the product, such party would be responsible for damages arising from events occurring prior to delivery.

    • In connection with their sales of various businesses, WPD and its affiliates have provided the purchasers with indemnifications that are standard for such transactions, including indemnifications for certain pre-existing liabilities and environmental and tax matters. In addition, in connection with certain of these sales, WPD and its affiliates have agreed to continue their obligations under existing third-party guarantees, either for a set period of time following the transactions or upon the condition that the purchasers make reasonable efforts to terminate the guarantees. They also have guaranteed the payment of up to £19 million, or $34 million at current exchange rates, under a contract that expires in 2005 assigned as part of one of these sales. Finally, WPD and its affiliates remain secondarily responsible for lease payments under certain leases that they have assigned to third parties.

    PPL, on behalf of itself and its subsidiaries, maintains insurance that covers liability assumed under contract for bodily injury and property damage. The coverage requires a $4 million deductible per occurrence and provides maximum aggregate coverage of approximately $175 million. This insurance may be applicable to certain obligations under the contractual arrangements discussed above.

15. Related Party Transactions

    Affiliate Trusts

    (PPL and PPL Energy Supply)

    See Note 22 for a discussion of the implementation of FIN 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." Adoption of this statement on December 31, 2003 for certain entities required the deconsolidation of wholly-owned trusts that had issued preferred securities. As a result, the subordinated debt securities of PPL Capital Funding, in the case of PPL Capital Funding Trust I, and WPD LLP, in the case of SIUK Capital Trust I, which support the trust preferred securities, are no longer eliminated in consolidation. As of December 31, 2003, $681 million is reflected as "Long-term Debt with Affiliate Trusts" on PPL's Balance Sheet, and $89 million is reflected as "Long-term Debt with Affiliate Trust" on the Balance Sheet of PPL Energy Supply.

    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. These purchases totaled $1.4 billion in 2003 and 2002, including nuclear decommissioning recovery and amortization of an up-front contract payment. These purchases totaled $1.3 billion in 2001, also including nuclear decommissioning recovery, under the first PLR contract. These purchases are included in the Statement of Income as "Energy purchases from affiliate" by PPL Electric and as revenues from "Wholesale energy marketing to affiliates" by PPL Energy Supply.

    Under the PLR contracts, PPL Electric is required to make performance assurance deposits with PPL EnergyPlus when the market price of electricity is less than the contract price by more than its contract collateral threshold. Conversely, PPL EnergyPlus is required to make performance assurance deposits with PPL Electric when the market price of electricity is greater than the contract price by more than its contract collateral threshold. At December 31, 2003, PPL Electric's deposit with PPL Energy Supply was $2 million, which is included in "Current Assets - Other" for PPL Electric's Balance Sheet and in "Current Liabilities - Other" for 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."

    In 2001, PPL Electric made a $90 million payment to PPL EnergyPlus in connection with the PLR contracts. The upfront payment is being amortized by both parties over the term of the PLR contracts. The unamortized balance of this payment, and other payments under the contract, was $70 million at December 31, 2003 and $81 million at December 31, 2002. This balance is reported on the Balance Sheet as "Prepayment on PLR energy supply from affiliate" by PPL Electric and as "Deferred revenue on PLR energy supply from affiliate" by PPL Energy Supply.

    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. These purchases totaled $152 million in 2003, $160 million in 2002 and $176 million in 2001. These amounts are included in the Statement of Income as revenues from "Wholesale electric to affiliate" by PPL Electric, and as "Energy purchases from affiliates" by PPL Energy Supply.

    Montana Retail Supply (PPL Montana)

    PPL Montana had a Memorandum of Understanding (MOU) with PPL EnergyPlus regarding the supply of energy to satisfy PPL EnergyPlus' obligations under its retail contracts. This MOU will remain in effect until terminated by mutual consent of the parties, or upon 90 days written notice of termination given by either party to the other party. Under the MOU, energy sales to PPL EnergyPlus were $64 million in 2003, $68 million in 2002 and $80 million in 2001. These amounts are included in revenues from "Wholesale energy marketing to affiliate" on the Statement of Income.

    Brokering and Contract Management Agreement (PPL Montana)

    Under a brokering and contract management agreement between PPL Montana and PPL EnergyPlus, PPL Montana paid PPL EnergyPlus $4 million in 2003, $7 million in 2002 and $5 million in 2001. 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)

    PPL Services provides corporate functions such as financial, legal, human resources and information services. 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 using a three-factor method based on an average of the subsidiaries' relative invested capital, operation and maintenance expenses, and number of employees. PPL Services allocated the following charges to PPL Energy Supply, PPL Electric and PPL Montana:

    		2003		2002		2001
    Direct expenses
    	PPL Energy Supply	$	94	$	88	$	80
    	PPL Electric		60		56		68
    	PPL Montana		9		12		7
    Overhead costs
    	PPL Energy Supply		63		38		39
    	PPL Electric		27		28		28
    	PPL Montana		6		4		3

    Intercompany Borrowings

    (PPL Energy Supply)

    PPL Energy Supply, primarily through its financing subsidiary, PPL Investment Corporation, had notes receivable from affiliates of PPL totaling $2 million at December 31, 2003, and $655 million at December 31, 2002. Interest earned on loans to affiliates, included in "Other Income - net" on the Statement of Income, was $16 million, $22 million and $57 million in 2003, 2002 and 2001.

    (PPL Electric)

    In 2001, PPL Electric made a $150 million demand loan, requiring monthly interest payments at an annual interest rate of 4.0%, from excess cash to PPL Energy Funding. The loan was terminated on November 30, 2003. Intercompany interest income, included in "Other Income - net" on the Statement of Income, was $3 million, $9 million and $5 million in 2003, 2002 and 2001.

    (PPL Montana)

    In 2002, PPL Montana entered into a $100 million three-year credit facility with PPL Investment Corporation on market terms to meet its liquidity needs. At December 31, 2003, there was no outstanding balance. At December 31, 2002 there was a $26 million outstanding balance, which is shown as "Revolving line of credit with affiliate" on the Balance Sheet.

    Trademark Royalties (PPL Energy Supply)

    In the fourth quarter of 2002, a PPL subsidiary that owns PPL trademarks began billing certain affiliates which use these trademarks. PPL Energy Supply was allocated $39 million of this license fee in 2003 and $8 million in 2002, which is primarily included in "Other Operation and Maintenance" on the Statement of Income.

    Other (PPL Energy Supply and PPL Electric)

    PPL Energy Supply owns no domestic transmission or distribution facilities, other than facilities to interconnect its generation with the electric transmission system. Therefore, PPL EnergyPlus and other PPL Generation subsidiaries must pay PJM, the operator of the transmission system, to deliver the energy these subsidiaries supply to retail and wholesale customers in PPL Electric's franchised territory in eastern and central Pennsylvania.

16. Other Income - Net

    (PPL)

    The breakdown of PPL's "Other Income - net" was as follows:

    		2003		2002		2001
    Other Income
    	Interest income	$	12	$	28	$	15
    	Equity earnings (loss)				2		(2	)
    	Realized earnings on nuclear decommissioning trust		20
    	Gain by WPD on the disposition of property		3		6
    	Hyder-related activity		8
    	Rental income		4
    	Reduction of reserves for receivables from Enron		10
    	Legal claim settlements		3
    	Miscellaneous - domestic		11		7		11
    	Miscellaneous - international		10		5		12
    	Total		81		48		36
    Other Deductions
    	Asset valuation write-down		3		1
    	Non-operating taxes other than income		1		3		5
    	Miscellaneous - domestic		7		10		15
    	Miscellaneous - international		10		4
    Other Income - net		$	60	$	30	$	16

    (PPL Energy Supply)

    The breakdown of PPL Energy Supply's "Other Income - net" was as follows:

    		2003		2002		2001
    Other Income
    	Affiliated interest income	$	16	$	22	$	57
    	Interest income		8		17		6
    	Reduction of reserves for receivables from Enron		10
    	Gain by WPD on the disposition of property		3		6
    	Legal claim settlements		3
    	Realized earnings on nuclear decommissioning trust		20
    	Rental income		4
    	Equity earnings		4		3		3
    	Hyder-related activity		8
    	Miscellaneous - domestic		2		2		6
    	Miscellaneous - international		10		5		12
    	Total		88		55		84
    Other Deductions
    	Asset valuation write-down		3		1
    	Non-operating taxes other than income		1		2		2
    	Miscellaneous - domestic		1		4		9
    	Miscellaneous - international		10		4
    Other Income - net		$	73	$	44	$	73

    (PPL Electric)

    The breakdown of PPL Electric's "Other Income - net" was as follows:

    		2003		2002		2001
    Other Income
    	Affiliated interest income	$	3	$	9	$	5
    	Interest income		4		8		7
    	Non-operating income - affiliates						5
    	Miscellaneous				1		1
    	Total		7		18		18
    Other Deductions
    	Miscellaneous		1		2		2
    Other Income - net		$	6	$	16	$	16

    (PPL Montana)

    "Other Income - net" was $9 million for the year ended 2003, primarily due to a $6 million reduction of the reserve provided against the Enron receivables. See Note 17 for additional information.

17. Derivative Instruments and Hedging Activities

    (PPL, PPL Energy Supply and PPL Montana)

    PPL, PPL Energy Supply and PPL Montana adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," on January 1, 2001. Upon adoption and in accordance with the transition provisions of SFAS 133, PPL Energy Supply recorded a cumulative-effect credit of $11 million in earnings, included as an increase to "Wholesale energy marketing" revenues and a decrease to "Energy purchases" on the Statement of Income. PPL Energy Supply and PPL Montana also recorded cumulative-effect charges of $182 million and $156 million, respectively, in "Accumulated other comprehensive loss," a component of Member's Equity.

    In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," which amends and clarifies SFAS 133 to improve financial accounting and reporting for derivative instruments and hedging activities. To ensure that contracts with comparable characteristics are accounted for similarly, SFAS 149 clarifies the circumstances under which a contract with an initial net investment meets the characteristics of a derivative, clarifies when a derivative contains a financing component, amends the definition of an "underlying" and amends certain other existing pronouncements. Additionally, SFAS 149 placed additional limitations on the use of the normal purchase or normal sale exception. SFAS 149 was effective for contracts entered into or modified and for hedging relationships designated after June 30, 2003, except certain provisions relating to forward purchases or sales of when-issued securities or other securities that did not yet exist. PPL adopted SFAS 149 as of July 1, 2003. The adoption of SFAS 149 did not have a significant impact on PPL, PPL Energy Supply or PPL Montana.

    Management of Market Risk Exposures

    Market risk is the potential loss PPL may incur as a result of price changes associated with a particular financial or commodity instrument. PPL is exposed to market risk from:

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

    • interest rate risk associated with variable-rate debt and the fair value of fixed-rate debt used to finance operations, as well as the fair value of debt securities invested in by PPL's nuclear decommissioning fund;

    • foreign currency exchange rate risk associated with investments in affiliates in Latin America and Europe, as well as purchases of equipment in currencies other than U.S. dollars; and

    • equity securities price risk associated with the fair value of equity securities invested in by PPL's nuclear decommissioning fund.

    PPL has a risk management policy approved by the Board of Directors to manage market risk and counterparty credit risk. The RMC, comprised of senior management and chaired by the Vice President-Risk Management, oversees the risk management function. Key risk control activities designed to ensure compliance with risk policies and detailed programs include, but are not limited to, credit review and approval, validation of transactions and market prices, verification of risk and transaction limits, sensitivity analyses, and daily portfolio reporting, including open positions, mark-to-market valuations, and other risk measurement metrics. In addition, efforts are ongoing to develop systems to improve the timeliness, quality and breadth of market and credit risk information.

    PPL utilizes forward contracts, futures contracts, options and swaps as part of its risk management strategy to minimize unanticipated fluctuations in earnings caused by commodity price, interest rate and foreign currency volatility. All derivatives are recognized on the balance sheet at their fair value, unless they meet SFAS 133 criteria for exclusion (see discussion in "Related Implementation Issues" below).

    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 2006. Additionally, PPL and PPL Energy Supply enter into financial contracts to hedge fluctuations in market value of existing debt issuances. These contracts range in maturity through 2029.

    PPL, PPL Energy Supply and PPL Montana recognized the following net gains/(losses), after-tax, resulting from hedges of firm commitments that no longer qualified as fair value hedges (reported in "Wholesale energy marketing" revenues and "Energy purchases" on the Statement of Income):

    	2003			2002	2001
    PPL	$	1			$	7
    PPL Energy Supply		1				7
    PPL Montana		(1	)

    PPL, PPL Energy Supply and PPL Montana did not recognize any gains/(losses) resulting from the ineffective portion of fair value hedges for the twelve months ended December 31, 2003, 2002 or 2001.

    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. These contracts range in maturity through 2010. Additionally, PPL and PPL Energy Supply enter into financial interest rate swap contracts to hedge interest expense associated with both existing and anticipated debt issuances. These swaps range in maturity through 2014. PPL and PPL Energy Supply also enter into foreign currency forward contracts to hedge exchange rates associated with firm commitments denominated in foreign currencies and to hedge the net investment of foreign operations. These forward contracts range in maturity through 2028.

    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. PPL, PPL Energy Supply and PPL Montana discontinued certain cash flow hedges which resulted in the following net gain/(loss), after tax, reclassifications from other comprehensive income (reported in "Wholesale energy marketing" revenues, "Energy purchases" and "Interest Expense" on the Statement of Income):

    	2003			2002			2001
    PPL	$	(7	)	$	(9	)	$	(14	)
    PPL Energy Supply		(7	)					(14	)
    PPL Montana								7

    Due to hedge ineffectiveness, PPL, PPL Energy Supply and PPL Montana reclassified the following net gains/(losses), after tax, from other comprehensive income (reported in "Wholesale energy marketing" revenues and "Energy purchases" on the Statement of Income):

    	2003	2002			2001
    PPL		$	(2	)
    PPL Energy Supply			(2	)
    PPL Montana

    As of December 31, 2003, the deferred net gain/(loss), after tax, on derivative instruments in "Accumulated other comprehensive income" expected to be reclassified into earnings during the next twelve months was $(1) million, $5 million and $5 million for PPL, PPL Energy Supply and PPL Montana.

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

    		2003			2002
    PPL
    	Beginning accumulated derivative gain	$	7		$	23
    	Net change associated with current period hedging activities and other		129			12
    	Net change associated with net investment hedges		(2	)		(3	)
    	Net change from reclassification into earnings		(98	)		(25	)
    	Ending accumulated derivative gain	$	36		$	7

    PPL Energy Supply
    	Beginning accumulated derivative gain	$	23		$	46
    	Net change associated with current period hedging activities and other		131			(9	)
    	Net change associated with net investment hedges		(2	)		(3	)
    	Net change from reclassification into earnings		(96	)		(11	)
    	Ending accumulated derivative gain	$	56		$	23

    PPL Montana
    	Beginning accumulated derivative gain	$	4		$	33
    	Net change associated with current period hedging activities and other		8			(23	)
    	Net change from reclassification into earnings		(1	)		(6	)
    	Ending accumulated derivative gain	$	11		$	4

    Related Implementation Issues

    For energy contracts that meet the definition of a derivative, the circumstances and intent existing at the time that energy transactions are entered into determine their accounting designation. The following summarizes the electricity guidelines that have been provided to the traders who are responsible for contract designation for derivative energy contracts in accordance with SFAS 149:

    • Any wholesale and retail contracts to sell electricity and the related capacity that are expected to be delivered from PPL's generation or that are approved by the RMC as being a strategic element of PPL's overall marketing strategy are considered "normal." These transactions are not recorded in the financial statements and have no earnings impact until delivery.

    • Physical electricity-only transactions can receive cash flow hedge treatment if all of the qualifications under SFAS 133 are met. Any unrealized gains or losses on transactions receiving cash flow hedge treatment are recorded in other comprehensive income.

    • Physical electricity purchases that increase PPL's long position and any energy sale or purchase judged a "market call" are considered speculative, with unrealized gains or losses recorded immediately through earnings.

    • Financial transactions, which can be settled in cash, cannot be considered "normal" because they do not require physical delivery. These transactions receive cash flow hedge treatment if they lock in the price PPL will receive or pay for energy expected to be generated or purchased in the spot market. Any unrealized gains or losses on transactions that receive cash flow hedge treatment are recorded in other comprehensive income.

    Transactions that do not qualify for hedge accounting treatment are marked to market through earnings.

    In June 2001, the FASB issued definitive guidance on DIG Issue C15, "Scope Exceptions: Normal Purchases and Normal Sales Exception for Certain Option-Type Contracts and Forward Contracts in Electricity." DIG Issue C15 provides additional guidance on the classification and application of derivative accounting rules relating to purchases and sales of electricity utilizing forward and option contracts. This guidance became effective as of July 1, 2001. In December 2001, the FASB revised the guidance in DIG Issue C15, principally related to the eligibility of options for the normal purchases and normal sales exception. The revised guidance was effective April 1, 2002. In November 2003, the FASB again revised the guidance in DIG Issue C15 to clarify the application of derivative accounting rules for contracts that may involve capacity. The guidance is effective January 1, 2004 for PPL. PPL does not expect this guidance to have a significant impact on its financial statements.

    In June 2003, the FASB issued DIG Issue C20, "Scope Exceptions: Interpretation of the Meaning of Not Clearly and Closely Related in Paragraph 10(b) Regarding Contracts with a Price Adjustment Feature," which became effective October 1, 2003. DIG Issue C20 addresses a requirement in SFAS 133 that contracts that qualify for normal treatment must feature pricing that is clearly and closely related to the asset being sold. Diversity in practice had developed among companies. DIG Issue C20 permits normal treatment if a price adjustment factor, such as a broad market index (e.g., Consumer Price Index), is not extraneous to both the cost and the fair value of the asset being sold and is not significantly disproportionate in terms of the magnitude and direction when compared with the asset being sold. However, DIG Issue C20 also stated that prior guidance did not permit the use of a broad market index to serve as a proxy for an ingredient or direct factor. Thus, DIG Issue C20 required that contracts that had been accounted for as normal but were not eligible for normal treatment under prior guidance be reflected on the balance sheet at their fair value, with an offsetting amount reflected in income as of the date of adoption. These contracts could then be evaluated under the provisions of DIG Issue C20 to determine whether they could qualify for normal treatment prospectively. PPL, PPL Energy Supply and PPL Montana recorded a pre-tax charge to income of $2 million in the fourth quarter of 2003 to comply with the provisions of DIG Issue C20.

    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." DIG Issue C16 provides additional guidance on the classification and application of SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," 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.

    PPL adopted the final provisions of EITF 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities," during the fourth quarter of 2002. As such, PPL reflects its net realized and unrealized gains and losses associated with all derivatives that are held for trading purposes in the "Net energy trading margins" line on the Statement of Income. Non-derivative contracts that met the definition of energy trading activities as defined by EITF 98-10, "Accounting for Energy Trading and Risk Management Activities" are reflected in the financial statements using the accrual method of accounting. Under the accrual method of accounting, unrealized gains and losses are not reflected in the financial statements. Prior periods were reclassified. No cumulative effect adjustment was required upon adoption.

    PPL Energy Supply and PPL Montana have adopted the final provisions of EITF 03-11, "Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not 'Held for Trading Purposes' as Defined in Issue No. 02-3," prospectively as of October 1, 2003. As a result of this adoption, non-trading bilateral sales of electricity at major market delivery points are netted with purchases that offset the sales at those same delivery points. A major market delivery point is any delivery point with liquid pricing available. The impact of adopting EITF 03-11 was a reduction in both "Wholesale energy marketing" revenues and "Energy purchases" by $105 million in PPL's and PPL Energy Supply's Statement of Income and by $18 million in PPL Montana's Statement of Income.

    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 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 December 31, 2003, PPL had a credit exposure of $234 million to energy trading partners. Eight counterparties accounted for 51% of this exposure. No other individual counterparty accounted for more than 4% of the exposure. With one exception, each of the eight primary counterparties had an investment grade credit rating from Standard & Poor's Ratings Services (S&P). The non-investment grade counterparty, NorthWestern, has filed for Chapter 11 bankruptcy protection. NorthWestern has assumed the power supply agreements in its bankruptcy proceeding. NorthWestern has remained current on all post-bankruptcy obligations with PPL Montana. Payment on all pre-bankruptcy obligations was received in October 2003. See Note 14 under "Wholesale Energy Commitments" for additional information regarding the NorthWestern bankruptcy proceeding.

    At December 31, 2003, PPL Energy Supply had a credit exposure of $508 million to energy trading partners. Nine counterparties accounted for 77% of this exposure. No other individual counterparty accounted for more than 2% of the exposure. The largest exposure, $274 million, was to PPL Electric, under the long-term contract to supply PPL Electric's PLR load. With one exception, the other eight counterparties have an investment grade credit rating from S&P. The non-investment grade counterparty, NorthWestern, has filed for Chapter 11 bankruptcy protection, as discussed above.

    At December 31, 2003, PPL Montana had a credit exposure of $75 million to energy trading partners. Four counterparties accounted for 79% of this exposure. No other individual counterparty accounted for more than 3% of the exposure. Three of the four counterparties have an investment grade credit rating from S&P. The non-investment grade counterparty, NorthWestern, has filed for Chapter 11 bankruptcy protection, as discussed above.

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

    Enron Bankruptcy

    In connection with the December 2001 bankruptcy filings by Enron Corporation and its affiliates (collectively "Enron"), PPL EnergyPlus and PPL Montana terminated certain electricity, gas and other trading agreements with Enron. PPL EnergyPlus' 2001 after-tax earnings exposure associated with termination of these contracts was approximately $8 million, which was recorded in "Wholesale energy marketing" and "Energy purchases" in the Statement of Income. PPL Montana had no 2001 earnings effect associated with the termination of these contracts. Additionally, at the time that these trading agreements were terminated, they were at prices more favorable to PPL EnergyPlus and PPL Montana than current market prices, and PPL established a reserve for uncollectible accounts in the aggregate amount of $50 million. In October 2002, PPL EnergyPlus and PPL Montana filed proofs of claim in Enron's bankruptcy proceedings for approximately $21 million and $29 million, respectively. These claims were against Enron North America and Enron Power Marketing (the "Enron Subsidiaries"), and against Enron Corporation, which had guaranteed the Enron Subsidiaries' performance (the "Enron Corporation Guarantees").

    During 2003, PPL EnergyPlus, PPL Montana and Enron engaged in discussions regarding the amount of claims that would be allowed against the Enron Subsidiaries. Although no formal agreement on such amounts has been reached, based on informal discussions with Enron's counsel, PPL EnergyPlus and PPL Montana believe that their claims against the Enron Subsidiaries will eventually be allowed in the bankruptcy at approximately $21 million and $25 million, respectively. Accordingly, PPL reduced its receivables from Enron, and the associated reserve for uncollectible accounts, by $4 million. PPL also determined that it is probable that PPL EnergyPlus and PPL Montana will recover approximately $4 million and $6 million, respectively, of these receivables from the Enron Subsidiaries, and may collect additional amounts under the Enron Corporation Guarantees. Therefore, PPL determined that it was appropriate to reduce its reserve by an additional $10 million.

    In November 2003, Enron Corporation filed suits against each of PPL EnergyPlus and PPL Montana, asserting that the Enron Corporation Guarantees should be avoided as fraudulent transfers. If Enron Corporation were successful in these suits, PPL EnergyPlus' and PPL Montana's claims against Enron Corporation under the Enron Corporation Guarantees would not be allowed in the bankruptcy proceeding.

18. Goodwill and Other Intangible Assets

    On January 1, 2002, PPL and its subsidiaries adopted 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, which compares the carrying value of the reporting unit to its fair value. A reporting unit is a segment or one level below a segment. Intangible assets other than goodwill that are not subject to amortization are also required to undergo an annual impairment test. PPL changed the classification of certain intangible assets on the balance sheet upon adopting SFAS 142. 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:

    	December 31, 2003				December 31, 2002
    	Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
    Land and transmission rights	$	256	$	94	$	245	$	90
    Emission allowances		49				41
    Licenses and other		51		4		37		3
    	$	356	$	98	$	323	$	93

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

    Amortization expense was approximately $6 million for 2003 and 2002. Amortization expense is estimated at $6 million per year for 2004 through 2008.

    (PPL Energy Supply)

    The carrying amount and the accumulated amortization of acquired intangible assets were as follows:

    	December 31, 2003				December 31, 2002
    	Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
    Land and transmission rights	$	45	$	15	$	49	$	14
    Emission allowances		49				41
    Licenses and other		50		4		36		3
    	$	144	$	19	$	126	$	17

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

    Amortization expense was approximately $2 million for 2003 and 2002. Amortization expense is estimated at $3 million per year for 2004 through 2008.

    (PPL Electric)

    The carrying amount and the accumulated amortization of acquired intangible assets were as follows:

    	December 31, 2003				December 31, 2002
    	Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
    Land and transmission rights	$	193	$	77	$	192	$	74

    Intangible assets are shown as "Intangibles" on the Balance Sheet.

    Amortization expense was approximately $2 million for 2003 and 2002. Amortization expense is estimated at $2 million per year for 2004 through 2008.

    (PPL Montana)

    The carrying amount and the accumulated amortization of acquired intangible assets were as follows:

    	December 31, 2003				December 31, 2002
    	Carrying Amount		Accumulated Amortization		Carrying Amount		Accumulated Amortization
    Emission allowances	$	18			$	18
    Licenses and other		27	$	1		22	$	1
    	$	45	$	1	$	40	$	1

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

    Amortization expense was approximately $1 million for 2003 and 2002. Amortization expense is estimated at $1 million per year for 2004 through 2008.

    Goodwill (PPL and PPL Energy Supply)

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

    	PPL Energy Supply										PPL
    	Supply		International			Total			Delivery(a)		Total
    Balance as of January 1, 2002	$	72	$	257		$	329		$	55	$	384
    Goodwill acquired		13		6			19					19
    Interest in WPD goodwill (b)				225			225					225
    Effect of foreign currency exchange rates				(4	)		(4	)				(4	)
    Impairment losses				(150	)		(150	)				(150	)
    Balance as of December 31, 2002	$	85	$	334		$	419		$	55	$	474
    Effect of foreign currency exchange rates				92			92					92
    Purchase accounting adjustments (b)		8		500			508					508
    Discontinued operations				(6	)		(6	)				(6	)
    Balance as of December 31, 2003	$	93	$	920		$	1,013		$	55	$	1,068

    (a)	The Delivery segment is not part of PPL Energy Supply.
    (b)	See Note 9 for additional information.

    Goodwill is included in "Goodwill" 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 Effects of Changes in Accounting Principles" on the Statement of Income. The fair value of the reporting unit was estimated using the expected present value of future cash flows.

    In December 2003, the PPL Global Board of Managers authorized the sale of its investment in a Latin American telecommunications company. As a result of this decision, PPL Global wrote off $6 million of goodwill.

    Reconciliation of Prior Periods to Exclude Amortization

    (PPL and PPL Energy Supply)

    The following table reconciles reported earnings for 2001 to earnings adjusted to exclude amortization expense related to goodwill and equity method goodwill. Those expenses were no longer recorded in 2002 or 2003 in accordance with SFAS 142. PPL and PPL Energy Supply were not affected by changes in amortization periods for other intangible assets.

    PPL	2003		2002		2001
    Income from continuing operations	$	719	$	360	$	169
    Goodwill amortization						13
    Equity method goodwill amortization						3
    Pro forma income from continuing operations	$	719	$	360	$	185
    Reported net income	$	734	$	208	$	179
    Goodwill amortization						13
    Equity method goodwill amortization						3
    Adjusted net income	$	734	$	208	$	195
    Basic EPS:
    Income from continuing operations	$	4.16	$	2.36	$	1.16
    Goodwill amortization						0.09
    Equity method goodwill amortization						0.02
    Pro forma income from continuing operations	$	4.16	$	2.36	$	1.27
    Reported net income	$	4.25	$	1.37	$	1.23
    Goodwill amortization						0.09
    Equity method goodwill amortization						0.02
    Adjusted net income	$	4.25	$	1.37	$	1.34
    Diluted EPS:
    Income from continuing operations	$	4.15	$	2.36	$	1.15
    Goodwill amortization						0.09
    Equity method goodwill amortization						0.02
    Pro forma income from continuing operations	$	4.15	$	2.36	$	1.26
    Reported net income	$	4.24	$	1.36	$	1.22
    Goodwill amortization						0.09
    Equity method goodwill amortization						0.02
    Adjusted net income	$	4.24	$	1.36	$	1.33

    
    

    PPL Energy Supply	2003		2002		2001
    Income from continuing operations	$	712	$	431	$	171
    Goodwill amortization						12
    Equity method goodwill amortization						3
    Pro forma income from continuing operations	$	712	$	431	$	186
    Reported net income	$	727	$	279	$	174
    Goodwill amortization						12
    Equity method goodwill amortization						3
    Adjusted net income	$	727	$	279	$	189

    (PPL Electric and PPL Montana)

    PPL Electric and PPL Montana had no goodwill at December 31, 2003, 2002 and 2001. The adoption of SFAS 142 would not have affected prior period earnings of PPL Electric and PPL Montana.

19. Strategic Initiative

    (PPL, PPL Energy Supply and PPL Electric)

    In August 2001, PPL completed a strategic initiative to confirm the structural separation of PPL Electric from PPL and PPL's other affiliated companies. This initiative enabled PPL Electric to reduce business risk by securing a supply contract adequate to meet its PLR obligations, enabled PPL Electric to lower its capital costs, enabled PPL EnergyPlus to lock in an electric supply agreement at current favorable prices, and enabled PPL to raise capital at attractive rates for its unregulated businesses, while allowing PPL to retain valuable advantages related to operating both energy supply and energy delivery businesses.

    In connection with this initiative, PPL Electric:

    • obtained a long-term electric supply contract to meet its PLR obligations, at prices generally equal to the pre-determined "capped" rates it is authorized to charge its PLR customers from 2002 through 2009 under the 1998 PUC settlement order;

    • agreed to limit its businesses to electric transmission and distribution and activities relating to or arising out of those businesses;

    • adopted amendments to its Articles of Incorporation and Bylaws containing corporate governance and operating provisions designed to reinforce its corporate separateness from affiliated companies;

    • appointed an independent director to its Board of Directors and required the unanimous consent of the Board of Directors, including the consent of the independent director, to amendments to these corporate governance and operating provisions or to the commencement of any insolvency proceeding, including any filing of a voluntary petition in bankruptcy or other similar actions;

    • appointed an independent compliance administrator to review, on a semi-annual basis, its compliance with the new corporate governance and operating requirements contained in its amended Articles of Incorporation and Bylaws; and

    • adopted a plan of division pursuant to the Pennsylvania Business Corporation Law. The plan of division resulted in two separate corporations. PPL Electric was the surviving corporation and a new Pennsylvania corporation was created. Under the plan of division, $5 million of cash and certain of PPL Electric's potential liabilities were allocated to the new corporation. PPL has guaranteed the obligations of the new corporation with respect to such liabilities.

    The enhancements to PPL Electric's legal separation from its affiliates are intended to minimize the risk that a court would order PPL Electric's assets and liabilities to be substantively consolidated with those of PPL or another affiliate of PPL in the event that PPL or another PPL affiliate were to become a debtor in a bankruptcy case.

    At a special meeting of PPL Electric's shareowners held on July 17, 2001, the plan of division and the amendments to PPL Electric's Articles of Incorporation and Bylaws were approved, and became effective upon filing the articles of division and the plan of division with the Secretary of State of the Commonwealth of Pennsylvania. This filing was made in August 2001.

    As part of the strategic initiative, PPL Electric solicited bids to contract with energy suppliers to meet its obligation to deliver energy to its customers from 2002 through 2009. In June 2001, PPL Electric announced that PPL EnergyPlus was the low bidder, among six bids examined, and was selected to provide the energy supply requirements of PPL Electric from 2002 through 2009. Under this contract, PPL EnergyPlus will provide electricity at pre-determined capped prices that PPL Electric is authorized to charge its PLR customers, and received a $90 million payment to offset differences between the revenues expected under the capped prices and projected market prices through the life of the supply agreement (as projected by PPL EnergyPlus at the time of its bid). The contract resulted in PPL EnergyPlus having an eight-year contract at current market prices. PPL has guaranteed the obligations of PPL EnergyPlus under the new contract.

    In July 2001, the energy supply contract was approved by the PUC and accepted for filing by the FERC.

    Also in July 2001, PPL Electric filed a shelf registration statement with the SEC to issue up to $900 million in debt. In August 2001, PPL Electric sold $800 million of senior secured bonds under this registration statement. The offering consisted of two series of bonds: $300 million of 5-7/8% Series due 2007 and $500 million of 6-1/4% Series due 2009. PPL Electric used a portion of the proceeds from these debt issuances to make the $90 million up-front payment to PPL EnergyPlus, and $280 million was used to repurchase a portion of its common stock from PPL. The remainder of the proceeds was used for general corporate purposes.

    Taken collectively, the steps in the strategic initiative were intended to protect the customers of PPL Electric from volatile energy prices and lower its cost of capital. PPL's shareowners also benefited from this initiative because it provided low-cost capital to the higher-growth, unregulated side of PPL's business.

20. Workforce Reduction

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

    In an effort to improve operational efficiency and reduce costs, PPL and its subsidiaries commenced a workforce reduction assessment in June 2002 that was expected to eliminate up to 598 employees, or about 7% of PPL's U.S. workforce, at an estimated cost of $74 million. The program was broad-based and impacted 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. An additional $1 million workforce reduction charge was recorded in September 2002, when plans specific to PPL Global and PPL Montana subsidiaries were finalized which were expected to impact 26 employees. These additional reductions increased PPL's total charge for workforce reductions to $75 million for the elimination of up to 624 positions.

    PPL recorded the charges in the Statement of Income as "Workforce reduction" for the year ended December 31, 2002. These charges reduced net income by $44 million after taxes. The program provides primarily 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 from the PPL Retirement Plan pension trust and increased PPL's pension and postretirement benefit liabilities by $65 million. The remaining $10 million of costs related primarily to non-pension benefits, such as severance payments and outplacement costs, which will be paid by PPL.

    PPL Energy Supply expected to ultimately eliminate up to 221 employees and recorded charges of $40 million in June 2002 and $1 million in September 2002. These charges reduced net income by $24 million for the year ended December 31, 2002. Included in these charges was a $10 million allocation of costs associated with the elimination of employees of PPL Services.

    PPL Electric expected to ultimately eliminate up to 260 employees and recorded a charge of $33 million, which reduced net income by $19 million for the year ended December 31, 2002. Included in the charge was a $6 million allocation of costs associated with the elimination of employees of PPL Services.

    In the third quarter of 2003, PPL Electric recorded an additional $9 million, or $5 million after-tax, charge for the completion of the workforce reduction program that commenced in 2002. This additional charge covers the final 94 employees anticipated to be separated as part of the Automated Meter Reader implementation project. The charge was related to pension enhancements, which will be paid from the PPL Retirement Plan pension trust.

    PPL Montana expected to ultimately eliminate up to ten employees and recorded an insignificant charge for the year ended December 31, 2002.

    As of December 31, 2003, 490 employees of PPL subsidiaries were terminated. Approximately 129 positions, which are primarily bargaining unit, will be evaluated for termination over the next six months, due to the timing of the Automated Meter Reader implementation and the displacement process under the bargaining unit contract. Substantially all of the accrued non-pension benefits have been paid.

21. Asset Retirement Obligations

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

    In 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations," which addresses the accounting for obligations associated with the retirement of tangible long-lived assets. SFAS 143 requires legal obligations associated with the retirement of long-lived assets to be recognized as a liability in the financial statements. The initial obligation should be measured at the estimated fair value. An equivalent amount should be recorded as an increase in the value of the capitalized asset and allocated to expense over the useful life of the asset. Until the obligation is settled, the liability should be increased, through the recognition of accretion expense in the income statement, for changes in the obligation due to the passage of time.

    (PPL and PPL Energy Supply)

    PPL and PPL Energy Supply adopted SFAS 143 effective January 1, 2003. Application of the new rules resulted in an increase in net PP&E of $32 million, reversal of previously recorded liabilities of $304 million, recognition of asset retirement obligations of $229 million, recognition of a deferred tax liability of $44 million and a cumulative effect of adoption that increased net income by $63 million or $0.36 per share. In 2003, as a result of applying SFAS 143, PPL and PPL Energy Supply recognized $18 million of accretion expense and an insignificant amount of depreciation expense.

    PPL and PPL Energy Supply identified various legal obligations to retire long-lived assets, the largest of which relates to the decommissioning of the Susquehanna station. PPL and PPL Energy Supply identified and recorded other asset retirement obligations related to significant interim retirements at the Susquehanna station, and various environmental requirements for coal piles, ash basins and other waste basin retirements.

    PPL and PPL Energy Supply also identified legal retirement obligations that were not measurable at this time. These items included the retirement of certain transmission assets and a reservoir. These retirement obligations were not measurable due to indeterminable dates of retirement.

    Amounts collected from PPL Electric's customers for decommissioning, less applicable taxes, are deposited in external trust funds for investment and can only be used for future decommissioning costs. The fair value of the nuclear decommissioning trust was $357 million and $287 million as of December 31, 2003 and 2002.

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

    Asset retirement obligation at January 1, 2003	$	229
    Add: Accretion expense		18
    Less: Settlement		5
    Asset retirement obligation at December 31, 2003	$	242

    (PPL Electric)

    PPL Electric adopted SFAS 143 effective January 1, 2003 and did not record any asset retirement obligations upon adoption. PPL Electric identified legal retirement obligations for the retirement of certain transmission assets that were not measurable at this time due to indeterminable dates of retirement.

    (PPL Montana)

    PPL Montana adopted SFAS 143 effective January 1, 2003. PPL Montana recorded asset retirement obligations associated with various environmental requirements for coal piles, ash basins and other waste basin retirements. The impact of these asset retirement obligations was insignificant.

    Reconciliation of Prior Annual Periods (PPL and PPL Energy Supply)

    The pro forma asset retirement obligation liability balances, calculated as if SFAS 143 had been adopted on January 1, 2001 (rather than January 1, 2003), were $229 million, $211 million and $196 million as of December 31, 2002, December 31, 2001 and January 1, 2001.

    The pro forma income statement effects of the application of SFAS 143, calculated as if it had been adopted prior to January 1, 2001 (rather than January 1, 2003) are presented below:

    	For the Years Ended December 31,
    PPL	2003		2002		2001
    Income from continuing operations	$	719	$	360	$	169
    Pro forma income from continuing operations	$	719	$	351	$	167
    Reported net income	$	734	$	208	$	179
    Pro forma net income	$	671	$	199	$	177
    Basic EPS:
    Income from continuing operations	$	4.16	$	2.36	$	1.16
    Pro forma income from continuing operations	$	4.16	$	2.30	$	1.15
    Reported net income	$	4.25	$	1.37	$	1.23
    Pro forma net income	$	3.89	$	1.31	$	1.21
    Diluted EPS:
    Income from continuing operations	$	4.15	$	2.36	$	1.15
    Pro forma income from continuing operations	$	4.15	$	2.30	$	1.14
    Reported net income	$	4.24	$	1.36	$	1.22
    Pro forma net income	$	3.88	$	1.31	$	1.21

    PPL Energy Supply	2003		2002		2001
    Income from continuing operations	$	712	$	431	$	171
    Pro forma income from continuing operations	$	712	$	422	$	169
    Reported net income	$	727	$	279	$	174
    Pro forma net income	$	664	$	270	$	172

    
    
22. New Accounting Standards

    SFAS 143 (PPL, PPL Energy Supply, PPL Electric and PPL Montana)

    See Note 21 for a discussion of SFAS 143, "Accounting for Asset Retirement Obligations," and the impact of its adoption.

    SFAS 146 (PPL, PPL Energy Supply, PPL Electric and PPL Montana)

    In 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 nullifies EITF Issue No. 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 a liability for costs associated with exit or disposal activities when the liability is incurred rather than at the date of a commitment to an exit or disposal plan. SFAS 146 also establishes that the initial liability should be measured at its estimated fair value. The provisions of SFAS 146 are effective for exit or disposal activities initiated after December 31, 2002, with earlier application encouraged. PPL and its subsidiaries adopted SFAS 146 effective January 1, 2003. SFAS 146 did not have an impact on PPL or its subsidiaries during 2003.

    SFAS 148 (PPL, PPL Energy Supply, PPL Electric and PPL Montana)

    In 2002, the FASB issued SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure, an Amendment of FASB Statement No. 123." SFAS 148 provides three transition methods for adopting the fair value method of accounting for stock-based compensation prescribed under SFAS 123 and enhances the required disclosures regarding stock-based compensation effective for fiscal years ending after December 15, 2002. SFAS 148 also requires certain disclosures in financial reports issued for interim periods beginning after December 15, 2002.

    PPL and its subsidiaries elected to adopt the fair value method of accounting for stock-based compensation as of January 1, 2003 using the prospective method of transition, as permitted by SFAS 148. The prospective method provides that PPL and its subsidiaries will recognize expense for all stock-based compensation awards granted, modified or settled on or after January 1, 2003. See Note 1 for a discussion of the change in accounting for stock-based compensation and the disclosures required by SFAS 148.

    SFAS 149 (PPL, PPL Energy Supply and PPL Montana)

    See Note 17 for a discussion of SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," and the impact of its adoption.

    SFAS 150

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

    In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS 150 establishes standards for classifying and measuring certain financial instruments that have characteristics of both liabilities and equity. The standards established by it require certain financial instruments that, under previous guidance, could be classified as equity or "mezzanine" equity to now be classified as liabilities on the balance sheet. SFAS 150 requires the following freestanding financial instruments to be classified as liabilities (or assets in some circumstances):

    • mandatorily redeemable financial instruments,

    • financial instruments that embody obligations to repurchase equity shares in exchange for cash or other assets, including written put options and forward purchase contracts, and

    • certain financial instruments that embody obligations to issue a variable number of shares.

    SFAS 150 also requires disclosure regarding the nature and terms of those instruments and settlement alternatives. Except as discussed below, SFAS 150 is effective for all financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. In November 2003, the FASB issued FSP FAS 150-3, "Effective Date, Disclosures, and Transition for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests under FASB Statement No. 150, 'Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,' " which, as it relates to public entities, deferred indefinitely certain provisions of SFAS 150 related to certain mandatorily redeemable noncontrolling interests. SFAS 150 prohibits the restatement of financial statements for periods prior to its adoption.

    (PPL, PPL Energy Supply and PPL Electric)

    In accordance with SFAS 150, effective July 1, 2003, PPL changed its classification of the trust preferred securities of PPL Capital Funding Trust I, which were issued as a component of the PEPS Units, PPL Energy Supply changed its classification of the trust preferred securities issued by SIUK Capital Trust I and PPL Electric changed its classification of its preferred stock with sinking fund requirements. These securities are mandatorily redeemable financial instruments, as they require the issuer to redeem the securities for cash on a specified date. Thus, they should be classified as liabilities, as a component of long-term debt, instead of "mezzanine" equity, on the balance sheet. As of December 31, 2003, no amounts were included in long-term debt for any of these securities because of the following: PPL deconsolidated PPL Capital Funding Trust I in accordance with FASB Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," PPL Energy Supply deconsolidated SIUK Capital Trust I in accordance with FIN 46 and there was no preferred stock with sinking fund requirements of PPL Electric outstanding (due to preferred stock redemptions discussed in Note 8). As a result of the deconsolidation of the trusts, the subordinated debt securities that support the trust preferred securities, rather than the trust preferred securities themselves, are reflected in long-term debt as of December 31, 2003. See "FIN 46 and FIN 46(R)" for a discussion of the deconsolidation of the trusts.

    SFAS 150 also requires the distributions on these mandatorily redeemable securities to be included as a component of "Interest Expense" instead of "Distributions on Preferred Securities" in the Statement of Income effective July 1, 2003. "Interest Expense" for 2003 includes distributions on these securities totaling $27 million for PPL, $5 million for PPL Energy Supply and an insignificant amount for PPL Electric. Periods ending prior to July 1, 2003 have not been restated to conform to these presentations since SFAS 150 specifically prohibits the restatement of financial statements for periods prior to its adoption.

    FIN 45 (PPL, PPL Energy Supply, PPL Electric and PPL Montana)

    In 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34." FIN 45 clarifies that upon issuance of certain types of guarantees, the guarantor must recognize an initial liability for the fair value of the obligation it assumes under the guarantee. The offsetting entry will be dependent upon the circumstances under which the guarantee is issued, and the initial liability should typically be reduced as the guarantor is released from risk under the guarantee. FIN 45 also requires a guarantor to make significant new disclosures for guarantees even if the likelihood of the guarantor's having to make payments is remote. The provisions relating to the initial recognition and measurement of guarantee obligations must be applied on a prospective basis for guarantees issued or modified after December 31, 2002. PPL and its subsidiaries adopted FIN 45 effective January 1, 2003. FIN 45 did not have a significant impact on earnings in 2003. See Note 14 for disclosure of guarantees and other assurances existing as of December 31, 2003.

    FIN 46 and FIN 46(R) (PPL, PPL Energy Supply, PPL Electric and PPL Montana)

    In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." FIN 46 clarifies that variable interest entities, as defined therein, that do not disperse risks among the parties involved should be consolidated by the entity that is determined to be the primary beneficiary. FIN 46 also requires certain disclosures to be made by the primary beneficiary and by an enterprise that holds a significant variable interest in a variable interest entity but is not the primary beneficiary. FIN 46 applies immediately to variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after January 31, 2003. For variable interest entities in which an enterprise holds a variable interest that was acquired before February 1, 2003, FIN 46 was originally required to be adopted no later than the first fiscal year or interim period beginning after June 15, 2003. However, in October 2003, the FASB issued FSP FIN 46-6, "Effective Date of FASB Interpretation No. 46, Consolidation of Variable Interest Entities," which delayed the effective date for applying the provisions of FIN 46 to interests held by public entities in variable interest entities or potential variable interest entities created before February 1, 2003 until the end of the first interim period ending after December 15, 2003.

    In December 2003, the FASB revised FIN 46 by issuing Interpretation No. 46 (revised December 2003), which is known as FIN 46(R) and replaces FIN 46. FIN 46(R) does not change the general consolidation concepts of FIN 46. Among other things, FIN 46(R) again changes the effective date for applying the provisions of FIN 46 to certain entities, clarifies certain provisions of FIN 46 and provides additional scope exceptions for certain types of businesses. For entities to which the provisions of FIN 46 have not been applied as of December 24, 2003, FIN 46(R) provides that a public entity that is not a small business issuer should apply the provisions of FIN 46 or FIN 46(R) as follows: (i) FIN 46(R) shall be applied to all entities no later than the end of the first reporting period that ends after March 15, 2004, and (ii) FIN 46 or FIN 46(R) should be applied to entities that are considered to be SPEs no later than the end of the first reporting period that ends after December 15, 2003.

    As permitted by FIN 46(R), PPL and its subsidiaries adopted FIN 46 effective December 31, 2003 for entities created before February 1, 2003 that are considered to be SPEs. This adoption resulted in the consolidation of the lessors under the operating leases for the Sundance, University Park and Lower Mt. Bethel generation facilities, as well as the deconsolidation of two wholly-owned trusts. See below for further discussion. Also, as permitted by FIN 46(R), PPL and its subsidiaries deferred the application of FIN 46 for other entities and plans to adopt FIN 46(R) for all entities on March 31, 2004.

    PPL and its subsidiaries are in the process of evaluating entities in which they hold a variable interest in accordance with FIN 46(R). PPL and its subsidiaries are currently not aware of any variable interest entities that are not consolidated as of December 31, 2003 but which they will be required to consolidate in accordance with FIN 46(R) effective March 31, 2004. As they continue to evaluate the impact of applying FIN 46(R), PPL and its subsidiaries may identify additional entities that they would need to consolidate.

    (PPL and PPL Energy Supply)

    Additional Entities Consolidated

    The lessors under the operating leases for the Sundance, University Park and Lower Mt. Bethel generation facilities are variable interest entities that are considered to be SPEs. PPL Energy Supply is the primary beneficiary of these entities. Consequently, PPL Energy Supply was required to consolidate the financial statements of the lessors effective December 31, 2003. Upon initial consolidation, PPL Energy Supply recognized $1.1 billion of additional assets and liabilities on its balance sheet and a charge of $27 million, after-tax, as a cumulative effect of a change in accounting principle. The additional assets consist principally of the generation facilities, and the additional liabilities consist principally of the lease financing. See below for a discussion of the leases.

    In May 2001, a subsidiary of PPL Energy Supply entered into a lease arrangement, as lessee, for the development, construction and operation of commercial power generation facilities. The lessor was created for the sole purpose of owning the facilities and incurring the related financing costs. The $660 million operating lease arrangement covers the 450 MW gas-powered Sundance project near Coolidge, Arizona and the 540 MW gas-powered University Park project near University Park, Illinois. These facilities were substantially complete in July 2002, at which time the initial lease term commenced. See the Statement of Long-term Debt for a discussion of the related financing.

    In December 2001, another subsidiary of PPL Energy Supply entered into a $455 million operating lease arrangement, as lessee, 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 lessor was created for the sole purpose of owning the facilities and incurring the related financing costs. The initial lease term commences on the date of commercial operation, which is expected to occur in 2004, and ends in December 2013. See the Statement of Long-term Debt for a discussion of the related financing.

    Entities Deconsolidated

    Effective December 31, 2003, PPL deconsolidated PPL Capital Funding Trust I, and PPL Energy Supply deconsolidated SIUK Capital Trust I. These trusts are considered to be SPEs and were deconsolidated because PPL and PPL Energy Supply are not the primary beneficiaries of the trusts under current interpretations of FIN 46. Therefore, the "Company-obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Company Debentures" amounting to $661 million (for PPL) and $86 million (for PPL Energy Supply), which would have been recorded as a component of long-term debt in 2003 in accordance with SFAS 150 if the trusts were consolidated, are not reflected in PPL's and PPL Energy Supply's Balance Sheet at December 31, 2003. Instead, the subordinated debt securities that support the trust preferred securities are reflected in "Long-term Debt with Affiliate Trust(s)" as of December 31, 2003. See below for further discussion.

    The trusts hold subordinated debt securities of PPL Capital Funding, in the case of PPL Capital Funding Trust I, and WPD LLP, in the case of SIUK Capital Trust I. As a result of deconsolidating the trusts, the subordinated debt securities are no longer eliminated in the consolidated financial statements. As of December 31, 2003, $681 million is reflected as "Long-term Debt with Affiliate Trusts" in PPL's Balance Sheet, and $89 million is reflected as "Long-term Debt with Affiliate Trust" in PPL Energy Supply's Balance Sheet.

    The effect on the Balance Sheet as a result of deconsolidating the trusts was an increase in both total assets and total liabilities of $21 million for PPL and $3 million for PPL Energy Supply. The increase in assets relates to the investments in the common securities of the trusts, which are no longer eliminated in the consolidated financial statements. The increase in liabilities consists primarily of the difference between the carrying value of the preferred securities issued by the trusts compared to the carrying value of the subordinated debt securities of PPL Capital Funding and WPD LLP. The deconsolidation of the trusts did not impact the earnings of PPL and PPL Energy Supply.

    See the Statement of Company-Obligated Mandatorily Redeemable Securities for a discussion of the trusts and their preferred securities, as well as the subordinated debt securities issued to the trusts.

    EITF 03-11 (PPL, PPL Energy Supply and PPL Montana)

    In August 2003, the FASB ratified EITF 03-11, "Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and Not 'Held for Trading Purposes' as Defined in EITF Issue No. 02-3, 'Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities'." EITF 03-11 addresses whether realized gains and losses on physically settled derivative contracts not "held for trading purposes" should be reported in the income statement on a gross or net basis. It requires that each entity make this determination for itself based on the relevant facts and circumstances in the context of the various activities of the entity rather than based solely on the terms of the individual contracts. EITF 03-11 is effective for transactions entered into on or after October 1, 2003. See Note 17 for a discussion of the impact of the adoption of EITF 03-11.

    FSP FAS 106-1 (PPL, PPL Energy Supply, PPL Electric and PPL Montana)

    See Note 12 for a discussion of FSP FAS 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003."

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
PPL Corporation
(Millions of Dollars)
Column A			Column B		Column C					Column D				Column E
			Balance at Beginning of Period
					Additions									Balance at End of Period
					Charged to Income		Other			Deductions
Description
Year Ended December 31, 2003
Reserves deducted from assets in the   Balance Sheet
		Uncollectible accounts including   unbilled revenues	$	112	$	31					$	47	(a)	$	96	(b)
		Obsolete inventory - Materials and   supplies		1		3						1			3
		Mark-to-market valuation reserves		3			$	2				1			4
		Deferred tax valuation allowance		327		4		48				91			288
Year Ended December 31, 2002
Reserves deducted from assets in the   Balance Sheet
		Uncollectible accounts including   unbilled revenues		125		32		7	(c)			52	(d)		112	(b)
		Obsolete inventory - Materials and   supplies		1											1
		Mark-to-market valuation reserves		7								4			3
		Deferred tax valuation allowance		132		30		182	(c)			17			327
Year Ended December 31, 2001
Reserves deducted from assets in the   Balance Sheet
		Uncollectible accounts including   unbilled revenues		70		98						43			125	(b)
		Obsolete inventory - Materials and   supplies		4								3			1
		Mark-to-market valuation reserves		2		5									7
		Deferred tax valuation allowance		8		61		67				4			132
(a)	See Note 17 to the financial statements regarding a reduction in the Enron receivable reserve.
(b)	Includes reserves for customer accounts receivable, California ISO, the Enron receivables and other.
(c)	Includes the reserve recorded upon the acquisition of a controlling interest in WPD.
(d)	Includes the removal of reserves upon the deconsolidation of CEMAR.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
PPL Energy Supply, LLC
(Millions of Dollars)
Column A			Column B		Column C					Column D			Column E
			Balance at Beginning of Period
					Additions								Balance at End of Period
					Charged to Income		Other			Deductions
Description
Year Ended December 31, 2003
Reserves deducted from assets in the   Balance Sheet
		Uncollectible accounts including   unbilled revenues	$	88	$	5				$	22	(a)	$	71	(b)
		Obsolete inventory - Materials and   supplies		1		3					1			3
		Mark-to-market valuation reserves		3			$	2			1			4
		Deferred tax valuation allowance		327		4		48			91			288
Year Ended December 31, 2002
Reserves deducted from assets in the   Balance Sheet
		Uncollectible accounts including   unbilled revenues		104		5		7	(c)		28	(d)		88	(b)
		Obsolete inventory - Materials and   supplies		1										1
		Mark-to-market valuation reserves		7							4			3
		Deferred tax valuation allowance		132		30		182	(c)		17			327
Year Ended December 31, 2001
Reserves deducted from assets in the   Balance Sheet
		Uncollectible accounts including   unbilled revenues		52		67					15			104	(b)
		Obsolete inventory - Materials and   supplies		4							3			1
		Mark-to-market valuation reserves		2		5								7
		Deferred tax valuation allowance		8		61		67			4			132
(a)	See Note 17 to the financial statements regarding a reduction in the Enron receivable reserve.
(b)	Includes reserves for customer accounts receivable, California ISO, the Enron receivables and other.
(c)	Includes the reserve recorded upon the acquisition of a controlling interest in WPD.
(d)	Includes the removal of reserves upon the deconsolidation of CEMAR.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
PPL Electric Utilities Corporation
(Millions of Dollars)
Column A		Column B		Column C			Column D		Column E
		Balance at Beginning of Period
				Additions					Balance at End of Period
				Charged to Income		Other	Deductions
Description
Year Ended December 31, 2003
Reserves deducted from assets in the   Balance Sheet
	Uncollectible accounts	$	23	$	24		$	23	$	24
Year Ended December 31, 2002
Reserves deducted from assets in the   Balance Sheet
	Uncollectible accounts		19		25			21		23
Year Ended December 31, 2001
Reserves deducted from assets in the   Balance Sheet
	Uncollectible accounts		16		30			27		19

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

PPL Montana, LLC

(Millions of Dollars)

Column A

Column B

Column C

Column D

Column E

Balance at Beginning of Period

Additions

Balance at End of Period

Charged to Income

Other

Deductions

Description

Year Ended December 31, 2003

Reserves deducted from assets in the   Balance Sheet

Uncollectible accounts including   unbilled revenues

$

47

$

10

(a)

$

37

(b)

Obsolete inventory - Materials and   supplies

1

1

Year Ended December 31, 2002

Reserves deducted from assets in the   Balance Sheet

Uncollectible accounts including   unbilled revenues

47

47

(b)

Obsolete inventory - Materials and   supplies

1

1

Mark-to-market valuation reserves

1

1

Year Ended December 31, 2001

Reserves deducted from assets in the   Balance Sheet

Uncollectible accounts including   unbilled revenues

18

$

30

1

47

(b)

Obsolete inventory - Materials and   supplies

2

1

1

Mark-to-market valuation reserves

1

1

(a)

See Note 17 to the financial statements regarding a reduction in the Enron receivable reserve.

(b)

Includes reserves for customer accounts receivable, California ISO, the Enron receivables and other.

QUARTERLY FINANCIAL, COMMON STOCK PRICE AND DIVIDEND DATA (Unaudited)
PPL Corporation and Subsidiaries
(Millions of Dollars, except per share data)
		For the Quarters Ended (a)
		March 31			June 30			Sept. 30			Dec. 31
	2003
Operating revenues as previously reported		$	1,487		$	1,338		$	1,456
	Reclassification (b)		5			4			2
	Discontinued operations (c)		(2	)		(1	)		(1	)
			1,490			1,341			1,457		$	1,299
Operating income as previously reported			357			285			362
	Discontinued operations (c)					1			1
	Other		2
			359			286			363			332
Income from continuing operations			176			116			172			255
Net income			239			116			171			208
Basic earnings per common share: (d)
	Income from continuing operations		1.06			0.68			0.97			1.44
	Net income		1.43			0.68			0.97			1.17
Diluted earnings per common share: (d)
	Income from continuing operations		1.06			0.67			0.97			1.44
	Net income		1.43			0.67			0.97			1.17
Dividends declared per common share (e)			0.385			0.385			0.385			0.385
Price per common share
	High	$	38.10		$	44.34		$	43.12		$	43.89
	Low		31.65			35.04			38.45			38.88
	2002
Operating revenues as previously reported		$	1,354		$	1,299		$	1,492
	Reclassification (b)		3			5			4
	Discontinued operations (c)		(1	)		(1	)		(1	)
			1,356			1,303			1,495		$	1,327
Operating income as previously reported			400			178			394
	Discontinued operations (c)								1
			400			178			395			273
Income (loss) from continuing operations			147			(27	)		123			117
Net income (loss)			(3	)		(27	)		122			116
Basic earnings per common share: (d)
	Income (loss) from continuing operations		1.00			(0.18	)		0.81			0.71
	Net income (loss)		(0.02	)		(0.18	)		0.81			0.71
Diluted earnings per common share: (d)
	Income (loss) from continuing operations		1.00			(0.18	)		0.80			0.71
	Net income (loss)		(0.02	)		(0.18	)		0.80			0.71
Dividends declared per common share (e)			0.36			0.36			0.36			0.36
Price per common share
	High	$	39.85		$	39.95		$	37.60		$	36.26
	Low		31.40			28.97			26.00			26.47
(a)	Quarterly results can vary depending on weather and the forward pricing of power. In addition, earnings in 2003 and 2002 were affected by unusual items. Accordingly, comparisons among quarters of a year may not be indicative of overall trends and changes in operations.
(b)	Relates to the reclassification of equity losses from an unconsolidated affiliate from revenue to operating and maintenance expenses.
(c)	Each quarter in 2002 and 2003 has been restated to reflect the loss from discontinued Latin American telecommunications operations.
(d)	The sum of the quarterly amounts may not equal annual earnings per share due to changes in the number of common shares outstanding during the year or rounding.
(e)	PPL has paid quarterly cash dividends on its common stock in every year since 1946. The dividends declared per share in 2003 were $1.54 and in 2002 were $1.44. In February 2003, PPL announced an increase to its quarterly common stock dividend, payable April 1, 2003, to 38.5 cents per share (equivalent to $1.54 per annum.) In February 2004, PPL announced an increase to its quarterly common stock dividend, payable April 1, 2004, to 41 cents per share (equivalent to $1.64 per annum). Future dividends, declared at the discretion of the Board of Directors, will be dependent upon future earnings, cash flows, financial requirements and other factors.

QUARTERLY FINANCIAL DATA (Unaudited)
PPL Electric Utilities Corporation and Subsidiaries
(Millions of Dollars)
		For the Quarters Ended (a)
		March 31		June 30			Sept. 30			Dec. 31
2003
Operating revenues		$	753	$	637		$	704		$	694
Operating income			99		54			41			57
Income (loss) available to PPL			29					(6	)		2
2002
Operating revenues		$	697	$	651		$	715		$	685
Operating income			89		39			87			60
Income (loss) available to PPL			20		(8	)		24			3
(a)	PPL Electric's business is seasonal in nature, with peak sales periods generally occurring in the winter and summer months. In addition, earnings in certain quarters were affected by unusual items. Accordingly, comparisons among quarters of a year may not be indicative of overall trends and changes in operations.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation and PPL Montana, LLC

None.

ITEM 9A. CONTROLS AND PROCEDURES
PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation and PPL Montana, LLC
(a)	Evaluation of disclosure controls and procedures.
	The registrants' principal executive officers and principal financial officers, based on their evaluation of the registrants' disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) have concluded that, as of December 31, 2003, the registrants' disclosure controls and procedures are adequate and effective to ensure that material information relating to the registrants and their consolidated subsidiaries is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, particularly during the period for which this annual report has been prepared.
(b)	Change in internal controls over financial reporting.
	The registrants' principal executive officers and principal financial officers have concluded that there were no changes in the registrants' internal controls over financial reporting during the registrant's fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting.

PART III to Exhibit Index

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

PPL Corporation

Additional information for this item will be set forth in the sections entitled "Nominees for Directors," "Directors Continuing in Office," "Section 16(a) Beneficial Ownership Reporting Compliance" and "Board Committees - Audit Committee" in PPL's 2004 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2003, and which information is incorporated herein by reference. Information required by this item concerning the executive officers of PPL is set forth at the end of Part I of this report.

PPL has adopted a code of ethics entitled "Standards of Conduct and Integrity" that applies to all directors, managers, trustees, officers (including the principal executive officers, principal financial officers and principal accounting officers), employees and agents of PPL and PPL's subsidiaries for which it has operating control (including PPL Energy Supply, PPL Electric and PPL Montana). The "Standards of Conduct and Integrity" are posted on PPL's Internet Web site: www.pplweb.com/corporategovernance.htm and are available in print to any shareholder who requests them.

PPL also has adopted its "Guidelines of Corporate Governance," which address, among other things, director qualification standards and director and board committee responsibilities. These guidelines, and the charters of each of the committees of PPL's board of directors, are posted on PPL's Internet Web site: www.pplweb.com/corporategovernance.htm and are available in print to any shareholder who requests them.

PPL Energy Supply, LLC

Item 10 is omitted as PPL Energy Supply meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K.

PPL Electric Utilities Corporation

Information for this item will be set forth in the sections entitled "Nominees for Directors" and "Directors Continuing in Office" in PPL Electric's 2004 Notice of Annual Meeting and Information Statement, which will be filed with the SEC not later than 120 days after December 31, 2003, and which information is incorporated herein by reference. Information required by this item concerning the executive officers of PPL Electric is set forth at the end of Part I of this report.

PPL Montana, LLC

Item 10 is omitted as PPL Montana meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K.

ITEM 11. EXECUTIVE COMPENSATIONx

PPL Corporation

Information for this item will be set forth in the sections entitled "Compensation of Directors," "Board Committees - Audit Committee," "Summary Compensation Table," "Option Grants in Last Fiscal Year" and "Retirement Plans for Executive Officers" in PPL's 2004 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2003, and which information is incorporated herein by reference.

PPL Energy Supply, LLC

Item 11 is omitted as PPL Energy Supply meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K.

PPL Electric Utilities Corporation

Information for this item will be set forth in the sections entitled "Compensation of Directors," "Summary Compensation Table," "Option Grants in Last Fiscal Year" and "Retirement Plans for Executive Officers" in PPL Electric's 2004 Notice of Annual Meeting and Information Statement, which will be filed with the SEC not later than 120 days after December 31, 2003, and which information is incorporated herein by reference.

PPL Montana, LLC

Item 11 is omitted as PPL Montana meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

PPL Corporation

Information for this item will be set forth in the section entitled "Stock Ownership" in PPL's 2004 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2003, and which information is incorporated herein by reference. In addition, provided below in tabular format is information as of December 31, 2003 with respect to compensation plans (including individual compensation arrangements) under which equity securities of PPL are authorized for issuance.

Equity Compensation Plan Information

	Number of securities to be issued upon exercise of outstanding options, warrants and rights (3)	Weighted-average exercise price of outstanding options, warrants and rights (3)	Number of securities remaining available for future issuance under equity compensation plans (4)
Equity compensation plans approved by security holders (1)	2,022,388 - ICP    889,870 - ICPKE 2,912,258 - Total	$34.99 - ICP $36.86 - ICPKE $35.56 - Combined	4,364,191 - ICP  7,100,710 - ICPKE  7,416,806 - DDCP 18,881,707 - Total
Equity compensation plans not approved by security holders (2)

1. Includes (a) the Amended and Restated Incentive Compensation Plan (ICP), under which stock options, restricted stock, restricted stock units, dividend equivalents and other stock-based awards may be awarded to executive officers of PPL; (b) the Amended and Restated Incentive Compensation Plan for Key Employees (ICPKE), under which stock options, restricted stock, restricted stock units, dividend equivalents and other stock-based awards may be awarded to non-executive key employees of PPL and its subsidiaries; and (c) the Directors Deferred Compensation Plan (DDCP), under which stock units may be awarded to directors of PPL. See Note 11 to the financial statements for additional information.
2. All of PPL's current compensation plans under which equity securities of PPL are authorized for issuance have been approved by PPL's shareholders.
3. Relates to common stock issuable upon the exercise of stock options awarded under the ICP and ICPKE as of December 31, 2003. In addition, as of December 31, 2003, the following other securities had been awarded and are outstanding under the ICP, DDCP and ICPKE: 182,653 shares of restricted stock under the ICP; 308,361 shares of restricted stock and 135,078 restricted stock units under the ICPKE; and 77,428 stock units under the DDCP.
4. Based upon the following aggregate award limitations under the ICP, ICPKE and DDCP: (a) under the ICP, 7,884,715 awards (i.e., 5% of the total PPL common stock outstanding as of April 23, 1999) granted after April 23, 1999; (b) under the ICPKE, 8,286,804 awards (i.e., 5% of the total PPL common stock outstanding as of January 1, 2003) granted after April 25, 2003, reduced by outstanding awards for which common stock was not yet issued as of such date; and (c) under the DDCP, 7,526,428 securities. In addition, each of the ICP and ICPKE includes an annual award limitation of 2% of total PPL common stock outstanding as of January 1 of each year.

PPL Energy Supply, LLC

Item 12 is omitted as PPL Energy Supply meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K.

PPL Electric Utilities Corporation

Information for this item will be set forth in the section entitled "Stock Ownership" in PPL Electric's 2004 Notice of Annual Meeting and Information Statement, which will be filed with the SEC not later than 120 days after December 31, 2003, and which information is incorporated herein by reference.

PPL Montana, LLC

Item 12 is omitted as PPL Montana meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PPL Corporation

None.

PPL Energy Supply, LLC

Item 13 is omitted as PPL Energy Supply meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K.

PPL Electric Utilities Corporation

None.

PPL Montana, LLC

Item 13 is omitted as PPL Montana meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

PPL Corporation

Information for this item will be set forth in the section entitled "Fees to Independent Auditor for 2003 and 2002" in PPL's 2004 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2003, and which information is incorporated herein by reference.

PPL Energy Supply, LLC

Audit Fees

The aggregate fees billed by PricewaterhouseCoopers LLP for the fiscal years ended December 31, 2003 and December 31, 2002 for professional services rendered for the audit of PPL Energy Supply's annual financial statements and review of financial statements included in PPL Energy Supply's Quarterly Reports on Form 10-Q and for services in connection with statutory and regulatory filings or engagements, including comfort letters and consents for financings and filings made with the SEC, for those fiscal years were $1,576,000 and $1,284,000, respectively.

Audit-Related Fees

The aggregate fees billed for the fiscal years ended December 31, 2003 and December 31, 2002 for assurance and related services rendered by PricewaterhouseCoopers LLP that are related to the performance of the audit or review of PPL Energy Supply's financial statements were $116,000 and $217,000, respectively. These services principally related to audits of employee benefit plans and consultation to ensure appropriate accounting and reporting in connection with various business and financing transactions.

Tax Fees

The aggregate fees billed for the fiscal years ended December 31, 2003 and December 31, 2002 for professional services rendered by PricewaterhouseCoopers LLP for tax-related services were $792,000 and $1,386,000, respectively. These fees principally related to international tax consulting and advisory services.

All Other Fees

There were no additional fees billed by PricewaterhouseCoopers LLP for the fiscal year ended December 31, 2003. The aggregate fees billed by PricewaterhouseCoopers LLP for the fiscal year ended December 31, 2002 for services rendered to PPL Energy Supply other than the Audit Fees, Audit-Related Fees and Tax Fees included above were $355,000. These fees related to financial information system implementation and design services at an international affiliate. PricewaterhouseCoopers LLP no longer provides this type of service for PPL Energy Supply or any of its affiliates.

During 2002, the Audit Committee of PPL adopted procedures for pre-approving audit and non-audit services to be provided by the independent auditor for PPL and its subsidiaries. The procedures are designed to safeguard the continued independence of the independent auditor. More specifically, the use of the independent auditor to perform either audit or non-audit services is prohibited unless specifically approved in advance by the Audit Committee of PPL. As a result of this approval process, the Audit Committee of PPL has established specific categories of services and authorization levels. All services outside of the specified categories and all amounts exceeding the authorization levels are reviewed by the Chair of the Audit Committee of PPL, who serves as the Committee designee to review and approve audit and non-audit related services during the year. A listing of the approved audit and non-audit services is reviewed with the full Audit Committee of PPL no later than at its next meeting.

The Audit Committee of PPL reviewed all 2003 and 2002 audit and non-audit related fees. Since July 2002, when the Sarbanes-Oxley Act of 2002 was signed into law, the Audit Committee of PPL approved 100% of all fees. There were no services provided by the independent auditor during that time that would fall within the All Other Fees category.

PPL Electric Utilities Corporation

Information for this item will be set forth in the section entitled "Fees to Independent Auditor for 2003 and 2002" in PPL Electric's 2004 Notice of Annual Meeting and Information Statement, which will be filed with the SEC not later than 120 days after December 31, 2003, and which information is incorporated herein by reference.

PPL Montana, LLC

Audit Fees

The aggregate fees billed by PricewaterhouseCoopers LLP for the fiscal years ended December 31, 2003 and December 31, 2002 for professional services rendered for the audit of PPL Montana's annual financial statements and review of financial statements included in PPL Montana's Quarterly Reports on Form 10-Q and for services in connection with statutory and regulatory filings or engagements, including comfort letters and consents for financings and filings made with the SEC, for those fiscal years were $131,000 and $135,000, respectively.

Audit-Related Fees

The aggregate fees billed for the fiscal years ended December 31, 2003 and December 31, 2002 for assurance and related services rendered by PricewaterhouseCoopers LLP that are related to the performance of the audit or review of PPL Montana's financial statements, were $8,000 and $7,000, respectively. These services principally related to audits of employee benefit plans.

Tax Fees

PricewaterhouseCoopers LLP did not render any professional services for tax-related matters for PPL Montana for the fiscal years ended December 31, 2003 and December 31, 2002.

All Other Fees

PricewaterhouseCoopers LLP did not render any professional services for any other matters for the fiscal years ended December 31, 2003 and December 31, 2002, other than the Audit Fees included above.

During 2002, the Audit Committee of PPL adopted procedures for pre-approving audit and non-audit services to be provided by the independent auditor for PPL and its subsidiaries. The procedures are designed to safeguard the continued independence of the independent auditor. More specifically, the use of the independent auditor to perform either audit or non-audit services is prohibited unless specifically approved in advance by the Audit Committee of PPL. As a result of this approval process, the Audit Committee of PPL has established specific categories of services and authorization levels. All services outside of the specified categories and all amounts exceeding the authorization levels are reviewed by the Chair of the Audit Committee of PPL, who serves as the Committee designee to review and approve audit and non-audit related services during the year. A listing of the approved audit and non-audit services is reviewed with the full Audit Committee of PPL no later than at its next meeting.

The Audit Committee of PPL reviewed all 2003 and 2002 audit and non-audit related fees. Since July 2002, when the Sarbanes-Oxley Act of 2002 was signed into law, the Audit Committee of PPL approved 100% of all fees. There were no services provided by the independent auditor during that time that would fall within Tax Fees or the All Other Fees category.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K

PPL Corporation, PPL Energy Supply, LLC, PPL Electric Utilities Corporation and PPL Montana, LLC
(a) The following documents are filed as part of this report:
	1.	Financial Statements - Refer to the "Index to Item 8. Financial Statements and Financial Statement Schedules" for an index of the financial statements included in this report.
	2.	Supplementary Data and Supplemental Financial Statement Schedule - included in response to Item 8.
		Schedule II - Valuation and Qualifying Accounts and Reserves for the Three Years Ended December 31, 2003
		All other schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the financial statements or notes thereto.
	3.	Exhibits
		Exhibit Index on page 199.
(b) Reports on Form 8-K:
	The following Reports on Form 8-K were filed (*) or furnished (**), as indicated, during the three months ended December 31, 2003:
**	Report dated October 23, 2003 - PPL
		Item 12.	Disclosure of Results of Operations and Financial Condition
			PPL issued a press release announcing its results for the quarter ended September 30, 2003, a tightening of the range for its 2003 earnings forecast, and its 2004 earnings forecast.
		Item 7.	Financial Statements and Exhibits
			Press release announcing PPL's results for the quarter ended September 30, 2003, a tightening of the range for PPL's 2003 earnings forecast, and PPL's 2004 earnings forecast.
*	Report dated December 12, 2003 - PPL Montana
		Item 9.	Rating Agency Decision
			Standard & Poor's Ratings Services' (S&P) downgrade of PPL Montana's 8.903% Pass Through Certificates due 2020 to BBB- from BBB.
		Item 7.	Financial Statements and Exhibits
			Report on downgrade by S&P on December 12, 2003.
**	Report dated December 19, 2003 - PPL
		Item 5.	Other Events
			PPL issued a press release announcing the extension of the duration of its exchange offer for its outstanding 7-3/4% PEPS Units.
		Item 7.	Financial Statements and Exhibits
			Exhibit of (1) Press releases announcing the extension of the duration of the Exchange Offer and certain modifications to the Exchange Offer and (2) Instructions for Soliciting Dealers.

SHAREOWNER AND INVESTOR INFORMATION

Annual Meetings: The annual meeting of shareowners of PPL Corporation is held each year on the fourth Friday of April. The 2004 meeting for PPL Corporation will be held on Friday, April 23, 2004, at Lehigh University's Stabler Arena, at the Goodman Campus Complex located in Lower Saucon Township, outside Bethlehem, Pennsylvania. The 2004 meeting for PPL Electric will be held on Tuesday, April 20, 2004, at the offices of the company at Two North Ninth Street, Allentown, Pennsylvania.

Proxy and Information Statement Material: A proxy statement and information statement and notice of PPL's and PPL Electric's annual meetings are mailed to all shareowners of record as of February 27, 2004.

Dividends: Subject to the declaration of dividends on PPL common stock by the PPL Board of Directors or its Executive Committee and PPL Electric preferred stock by the PPL Electric Board of Directors, dividends are paid on the first day of April, July, October and January. Dividend checks are mailed in advance of those dates with the intention that they arrive as close as possible to the payment dates. The 2004 record dates for dividends are expected to be March 10, June 10, September 10, and December 10.

Direct Deposit of Dividends: Shareowners may choose to have their dividend checks deposited directly into their checking or savings account. Quarterly dividend payments are electronically credited on the dividend date, or the first business day thereafter.

Dividend Reinvestment Plan: Shareowners may choose to have dividends on their PPL common stock or PPL Electric preferred stock reinvested in PPL common stock instead of receiving the dividend by check.

Certificate Safekeeping: Shareowners participating in the Dividend Reinvestment Plan may choose to have their common stock certificates forwarded to PPL for safekeeping.

Lost Dividend or Interest Checks: Dividend or interest checks lost by investors, or those that may be lost in the mail, will be replaced if the check has not been located by the 10th business day following the payment date.

Transfer of Stock or Bonds: Stock or bonds may be transferred from one name to another or to a new account in the name of another person. Please contact Investor Services regarding transfer instructions.

Bondholder Information: Much of the information and many of the procedures detailed here for shareowners also apply to bondholders. Questions related to bondholder accounts should be directed to Investor Services.

Lost Stock or Bond Certificates: Please contact Investor Services for an explanation of the procedure to replace lost stock or bond certificates.

PPL Annual Report: Published and mailed in mid-March to all shareowners of record.

Periodic Mailings: Letters regarding new investor programs, special items of interest, or other pertinent information are mailed on a non-scheduled basis as necessary.

Duplicate Mailings: The annual report and other investor publications are mailed to each investor account. If you have more than one account, or if there is more than one investor in your household, you may contact Investor Services to request that only one publication be delivered to your address. Please provide account numbers for all duplicate mailings.

Shareowner Information Line: Shareowners can get detailed corporate and financial information 24 hours a day using the Shareowner Information Line. They can hear timely recorded messages about earnings, dividends and other company news releases; request information by fax; and request printed materials in the mail.

The toll-free Shareowner Information Line is 1-800-345-3085.

Other PPL publications, such as the annual and quarterly reports to the Securities and Exchange Commission (Forms 10-K and 10-Q) will be mailed upon request.

Shareowners can also obtain information free of charge from PPL's Internet home page (www.pplweb.com). Shareowners can access PPL Securities and Exchange Commission filings, news releases, stock quotes and historical performance. Visitors to our Web site can provide their E-mail address and indicate their desire to receive future earnings or news releases automatically.

Investor Services: For any questions you have or additional information you require about PPL and its subsidiaries, please call the Shareowner Information Line, or write to:

Manager-Investor Services

PPL Services Corporation

Two North Ninth Street

Allentown, PA 18101

Internet Access: For updated information throughout the year, check out our home page at http://www.pplweb.com. You may also contact Investor Services via E-mail at invserv@pplweb.com.

Registered shareowners can access account information by visiting shareowneronline.com.

Listed Securities:		Fiscal Agents:
New York Stock Exchange		Stock Transfer Agents and
		Registrars
	PPL Corporation:	Wells Fargo Bank Minnesota, N.A.
	Common Stock (Code: PPL)	Shareowner Services
	7-3/4% PEPSSM Units	161 North Concord Exchange
	(Code: PPLPrE)	South St. Paul, MN 55075-1139
	7-3/4% PEPSSM Units, Series B
	(Code: PPLPrF)	PPL Services Corporation
		Investor Services Department
	PPL Electric Utilities Corporation:
	4-1/2% Preferred Stock	Dividend Disbursing Office and
	(Code: PPLPRB)	Dividend Reinvestment Plan Agent
	4.40% Series Preferred Stock	PPL Services Corporation
	(Code: PPLPRA)	Investor Services Department
Philadelphia Stock Exchange		Mortgage Bond Trustee
		Deutsche Bank Trust Company Americas
	PPL Corporation:	Attn: Security Transfer Unit
	Common Stock	648 Grassmere Park Road
		Nashville, TN 37211
		Indenture Trustee
		JPMorgan Chase Bank
		450 West 33rd Street
		New York, NY 10001
		Bond Interest Paying Agent
		PPL Services Corporation
		Investor Services Department

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PPL Corporation
(Registrant)

By /s/ William F. Hecht
William F. Hecht -
Chairman, President
and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
		TITLE
By /s/ William F. Hecht		Principal Executive Officer and Director
William F. Hecht -
Chairman, President
and Chief Executive
Officer
By /s/ John R. Biggar		Principal Financial Officer and Director
John R. Biggar -
Executive Vice President
and Chief Financial Officer
By /s/ Mark D. Woods		Principal Accounting Officer
Mark D. Woods -
Controller
Directors:
Frederick M. Bernthal	Stuart Heydt
John W. Conway	W. Keith Smith
E. Allen Deaver	Susan M. Stalnecker
Louise K. Goeser
By /s/ William F. Hecht
William F. Hecht, Attorney-in-fact	Date: March 1, 2004

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PPL Energy Supply, LLC
(Registrant)

By /s/ William F. Hecht
William F. Hecht -
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
	TITLE
By /s/ William F. Hecht	Principal Executive Officer and Manager
William F. Hecht -
President
By /s/ James E. Abel	Principal Financial Officer and Manager
James E. Abel -
Treasurer
By /s/ Mark D. Woods	Principal Accounting Officer and Manager
Mark D. Woods -
Controller
Managers:
/s/ John R. Biggar
John R. Biggar
/s/ Lawrence E. De Simone
Lawrence E. De Simone
/s/ Robert J. Grey
Robert J. Grey
Date: March 1, 2004

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PPL Electric Utilities Corporation
(Registrant)

By /s/ John F. Sipics
John F. Sipics -
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
	TITLE
By /s/ John F. Sipics	Principal Executive Officer and Director
John F. Sipics -
President
By /s/ James E. Abel	Principal Financial Officer
James E. Abel -
Treasurer
By /s/ Mark D. Woods	Principal Accounting Officer
Mark D. Woods -
Controller

Directors:
/s/ William F. Hecht	/s/ Dean A. Christiansen	/s/ Robert J. Grey
William F. Hecht	Dean A. Christiansen	Robert J. Grey
/s/ John R. Biggar	/s/ Lawrence E. De Simone	/s/ James H. Miller
John R. Biggar	Lawrence E. De Simone	James H. Miller
/s/ Paul T. Champagne
Paul T. Champagne
Date: March 1, 2004

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PPL Montana, LLC
(Registrant)

By /s/ James H. Miller
James H. Miller -
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
	TITLE
By /s/ James H. Miller	Principal Executive Officer and Manager
James H. Miller -
President
By /s/ James E. Abel	Principal Financial Officer and Manager
James E. Abel -
Treasurer
By /s/ Charles S. Baker	Principal Accounting Officer
Charles S. Baker -
Controller
Managers:
/s/ Albert J. Fioravanti
Albert J. Fioravanti
/s/ Bradley E. Spencer
Bradley E. Spencer
Date: March 1, 2004

EXHIBIT INDEX

The following Exhibits indicated by an asterisk preceding the Exhibit number are filed herewith. The balance of the Exhibits have heretofore been filed with the Commission and pursuant to Rule 12(b)-32 are incorporated herein by reference. Exhibits indicated by a [_] are filed or listed pursuant to Item 601(b)(10)(iii) of Regulation S-K.

3(a)-1	-	Articles of Incorporation of PPL Corporation (Exhibit B to Proxy Statement of PPL Electric Utilities Corporation and Prospectus of PPL Corporation, dated March 9, 1995)
3(a)-2	-	Articles of Amendment of PPL Corporation (Exhibit 3.2 to PPL Corporation Form S-3 (Registration Statement Nos. 333-54504, 333-54504-01 and 333-54504-02))
3(a)-3	-	Amended and Restated Articles of Incorporation of PPL Electric Utilities Corporation (Exhibit 3(a)-3 to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for year ended December 31, 2001)
3(a)-4	-	Certificate of Formation of PPL Energy Supply, LLC (Exhibit 3.1 to PPL Energy Supply, LLC Form S-4 (Registration Statement No. 333-74794))
3(a)-5	-	Certificate of Formation of PPL Montana, LLC (Exhibit 3.1 to PPL Montana, LLC Form S-4 (Registration Statement No. 333-50350))
3(b)-1	-	Bylaws of PPL Corporation (Exhibit 3(ii)(a) to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended September 30, 1998)
3(b)-2	-	Bylaws of PPL Electric Utilities Corporation (Exhibit 3(b)-2 to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for year ended December 31, 2001)
3(b)-3	-	Limited Liability Company Agreement of PPL Energy Supply, LLC, dated March 20, 2001 (Exhibit 3.2 to PPL Energy Supply, LLC Form S-4 (Registration Statement No. 333-74794))
3(b)-4	-	Limited Liability Company Agreement and Bylaws of PPL Montana, LLC, effective as of December 17, 1999 (Exhibit 3.2 to PPL Montana, LLC Form S-4 (Registration Statement No. 333-50350))
4(a)-1	-	Amended and Restated Employee Stock Ownership Plan, effective January 1, 2000 (Exhibit 4(a) to PPL Corporation Form 10-K Report (File No. 1-11459) for year ended December 31, 2000)
4(a)-2	-	Amendment No. 1 to said Employee Stock Ownership Plan, effective January 1, 2000 (Exhibit 4(a)-2 to PPL Corporation Form 10-K Report (File No. 1-11459) for year ended December 31, 2001)
4(a)-3	-	Amendment No. 2 to said Employee Stock Ownership Plan, dated October 8, 2002 (Exhibit 4(a)-3 to PPL Corporation Form 10-K Report (File No. 1-11459) for year ended December 31, 2002)
*4(a)-4	-	Amendment No. 3 to said Employee Stock Ownership Plan, dated April 1, 2003
*4(a)-5	-	Amendment No. 4 to said Employee Stock Ownership Plan, dated May 7, 2003
4(b)-1	-	Mortgage and Deed of Trust, dated as of October 1, 1945, between PPL Electric Utilities Corporation and Bankers Trust Company (as successor Trustee) (Exhibit 2(a)-4 to Registration Statement No. 2-60291)
4(b)-2	-	Supplement, dated as of July 1, 1954, to said Mortgage and Deed of Trust (Exhibit 2(b)-5 to Registration Statement No. 219255)
4(b)-3	-	Supplement, dated as of July 1, 1991, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated July 29, 1991)
4(b)-4	-	Supplement, dated as of May 1, 1992, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated June 1, 1992)
4(b)-5	-	Supplement, dated as of November 1, 1992, to said Mortgage and Deed of Trust (Exhibit 4(b)-29 to PPL Electric Utilities Corporation Form 10-K Report (File 1-905) for the year ended December 31, 1992)
4(b)-6	-	Supplement, dated as of April 1, 1993, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated April 30, 1993)
4(b)-7	-	Supplement, dated as of February 15, 1994, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated March 11, 1994)
4(b)-8	-	Supplement, dated as of March 1, 1994, to said Mortgage and Deed of Trust (Exhibit 4(b) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated March 11, 1994)
4(b)-9	-	Supplement, dated as of March 15, 1994, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated March 30, 1994)
4(b)-10	-	Supplement, dated as of September 1, 1994, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K (File No. 1-905) dated October 3, 1994)
4(b)-11	-	Supplement, dated as of October 1, 1994, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated October 3, 1994)
4(b)-12	-	Supplement, dated as of August 1, 1995, to said Mortgage and Deed of Trust (Exhibit 6(a) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended September 30, 1995)
4(b)-13	-	Supplement, dated as of April 1, 1997, to said Mortgage and Deed of Trust (Exhibit 4(b)-17 to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 1997)
4(b)-14	-	Supplement, dated as of May 5, 1998, to said Mortgage and Deed of Trust (Exhibit 4.3 to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated May 1, 1998)
4(b)-15	-	Supplement, dated as of June 1, 1999, to said Mortgage and Deed of Trust (Exhibit 4(b)-19 to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 1999)
4(b)-16	-	Supplement, dated as of August 1, 2001, to said Mortgage and Deed of Trust (Exhibit 4.5 to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated August 21, 2001)
4(b)-17	-	Supplement, dated as of January 1, 2002, to said Mortgage and Deed of Trust (Exhibit 4(b)-19 to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for year ended December 31, 2001)
4(b)-18	-	Supplement, dated as of February 1, 2003, to said Mortgage and Deed of Trust (Exhibit 4(b)-20 to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for year ended December 31, 2002)
4(b)-19	-	Supplement, dated as of May 1, 2003, to said Mortgage and Deed of Trust (Exhibit 10(c) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for quarter ended June 30, 2003)
4(c)-1	-	Indenture, dated as of November 1, 1997, among PPL Corporation, PPL Capital Funding, Inc. and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee (Exhibit 4.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated November 12, 1997)
4(c)-2	-	Supplement, dated as of November 1, 1997, to said Indenture (Exhibit 4.2 to PPL Corporation Form 8-K Report (File No. 1-11459) dated November 12, 1997)
4(c)-3	-	Supplement, dated as of March 1, 1999, to said Indenture (Exhibit 4.3 to Registration Statement Nos. 333-87847, 333-87847-01 and 333-87847-02)

4(c)-4	-	Supplement, dated as of October 1, 1999, to said Indenture (Exhibit 4(c)-4 to PPL Corporation Form 10-K Report (File No. 1-11459) for the year ended December 31, 1999)
4(c)-5	-	Supplement, dated as of June 1, 2000, to said Indenture (Exhibit 4 to PPL Corporation Form 10-Q Report (File No. 1-11459) for the quarter ended June 30, 2000)
4(c)-6	-	Supplement, dated as of January 21, 2003, to said Indenture (Exhibit 99.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated January 22, 2003)
4(d)-1	-	Junior Subordinated Indenture, dated as of April 1, 1997, between PPL Electric Utilities Corporation and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee (Exhibit 4.1 to Registration Statement No. 333-20661)
4(d)-2	-	Amended and Restated Trust Agreement, dated as of April 8, 1997, among PPL Electric Utilities Corporation, JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Property Trustee, Chase Manhattan Bank (Delaware), as Delaware Trustee, and John R. Biggar and James E. Abel, as Administrative Trustees (Exhibit 4.4 to Registration Statement No. 333-20661)
4(d)-3	-	Guarantee Agreement, dated as of April 8, 1997, between PPL Electric Utilities Corporation and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee (Exhibit 4.6 to Registration Statement No. 333-20661)
4(e)-1	-	Amended and Restated Trust Agreement, dated as of June 13, 1997, among PPL Electric Utilities Corporation, JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Property Trustee, Chase Manhattan Bank (Delaware), as Delaware Trustee, and John R. Biggar and James E. Abel, as Administrative Trustees (Exhibit 4.4 to Registration Statement No. 333-27773)
4(e)-2	-	Guarantee Agreement, dated as of June 13, 1997, between PPL Electric Utilities Corporation and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee (Exhibit 4.6 to Registration Statement No. 333-27773)
4(f)-1	-	Subordinated Indenture, dated as of May 9, 2001, between PPL Capital Funding, Inc., PPL Corporation and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee (Exhibit 4.1 to PPL Corporation Form 8-K Report (File No. 1-11459) dated May 9, 2001)
4(f)-2	-	Supplement, dated as of May 9, 2001, to said Subordinated Indenture (Exhibit 4.2 to PPL Corporation Form 8-K Report (File No. 1-11459) dated May 9, 2001)
4(f)-3	-	Trust Securities Guarantee Agreement, dated as of May 9, 2001 (Exhibit 4.10 to PPL Corporation Form 8-K Report (File No. 1-11459) dated May 9, 2001)
4(f)-4	-	Amended and Restated Trust Agreement, dated as of May 9, 2001, among PPL Corporation, PPL Capital Funding, Inc., JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Property Trustee, Chase Manhattan Bank USA National Association, as Delaware Trustee, John R. Biggar and James E. Abel, as Administrative Trustees, and the several Holders of the Trust Securities (Exhibit 4.8 to PPL Corporation Form 8-K Report (File No. 1-11459) dated May 9, 2001)
4(g)-1	-	Indenture, dated as of August 1, 2001, by PPL Electric Utilities Corporation and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee (Exhibit 4.1 to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated August 21, 2001)
4(g)-2	-	Supplement, dated as of August 1, 2001, to said Indenture (Exhibit 4.2 to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated August 21, 2001)
4(g)-3	-	Supplement, dated as of February 1, 2003, to said Indenture (Exhibit 4(g)-3 to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 2002)
4(g)-4	-	Supplement, dated as of May 1, 2003, to said Indenture (Exhibit 10(d) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended June 30, 2002)
4(h)-1	-	Indenture, dated as of October 1, 2001, by PPL Energy Supply, LLC and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee (Exhibit 4.1 to PPL Energy Supply, LLC Form S-4 (Registration Statement No. 333-74794))
4(h)-2	-	Supplement, dated as of October 1, 2001, to said Indenture (Exhibit 4.2 to PPL Energy Supply, LLC Form S-4 (Registration Statement No. 333-74794))
4(h)-3	-	Registration Rights Agreement between PPL Energy Supply, LLC and the Initial Purchasers (Exhibit 4.5 to PPL Energy Supply, LLC Form S-4 (Registration Statement No. 333-74794))
4(h)-4	-	Registration Rights Agreement, dated as of May 21, 2003, by PPL Energy Supply, LLC, PPL Corporation and the Representatives of the Initial Purchasers (Exhibit 4.2 to PPL Energy Supply, LLC and PPL Corporation Form S-4 (Registration Statement No. 333-106200))
4(h)-5	-	Indenture, dated as of May 21, 2003, by PPL Energy Supply, LLC, PPL Corporation and JPMorgan Chase Bank, as Trustee (Exhibit 4.3 to PPL Energy Supply, LLC and PPL Corporation Form S-4 (Registration Statement No. 333-106200))
10(a)	-	$300 million Three-Year Credit Agreement, dated as of June 25, 2002, among PPL Energy Supply, LLC and the banks named therein (Exhibit 10(b) to PPL Energy Supply, LLC Form 10-Q Report (File No. 333-74794) for the quarter ended June 30, 2002)
10(b)	-	$300 million Three-Year Credit Agreement, dated as of June 24, 2003, among PPL Energy Supply, LLC and the banks named therein (Exhibit 10(e) to PPL Energy Supply, LLC Form 10-Q Report (File No. 333-74794) for the quarter ended June 30, 2003)
10(c)	-	$100 million Three-Year Credit Agreement, dated as of June 24, 2003, among PPL Electric Utilities Corporation and the banks named therein (Exhibit 10(f) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended June 30, 2003)
10(d)	-	$200 million 364-Day Credit Agreement, dated as of June 24, 2003, among PPL Electric Utilities Corporation and the banks named therein (Exhibit 10(g) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended June 30, 2003)
10(e)	-	Credit Agreement dated as of October 31, 2002, among PPL Montana, LLC and PPL Investment Corporation (Exhibit 10(h) to PPL Montana, LLC Form 10-Q Report (File No. 333-50350) for the quarter ended June 30, 2003)
10(f)	-	$150 Million Credit and Reimbursement Agreement, dated as of April 25, 2001, among PPL Montana, LLC and the banks named therein (Exhibit 10(d) to PPL Montana, LLC Form 10-Q Report (File No. 333-50350) for the quarter ended June 30, 2001)
10(g)	-	Generation Supply Agreement, dated as of June 20, 2001, between PPL Electric Utilities Corporation and PPL EnergyPlus, LLC (Exhibit 10.5 to PPL Energy Supply, LLC Form S-4 (Registration Statement No. 333-74794))
10(h)	-	Master Power Purchase and Sale Agreement, dated as of October 15, 2001, between The Montana Power Company and PPL Montana, LLC (Exhibit 10(g) to PPL Montana, LLC Form 10-K Report (File No. 333-50350) for year ended December 31, 2002)
10(i)	-	Amended and Restated Parent Guaranty, dated as of November 30, 2000, by PPL Corporation in favor of Large Scale Distributed Generation Statutory Trust (Exhibit 10(h) to PPL Corporation Form 10-K Report (File No. 1-11459) for year ended December 31, 2001)

10(j)	-	Amended and Restated PPL Energy Supply, LLC Guarantee, dated as of July 17, 2001, in favor of Large Scale Distributed Generation II Statutory Trust (Exhibit 10.6 to PPL Energy Supply, LLC Form S-4 (Registration Statement No. 333-74794))
*10(k)	-	Amended and Restated Participation Agreement, dated as of July 17, 2001, among PPL Large Scale Distributed Generation II, LLC, Large Scale Distributed Generation II Statutory Trust, State Street Bank and Trust Company of Connecticut, National Association, as Trustee, First Union National Bank, as Administrative Agent, and the Financial Institutions named therein in the capacities indicated therein
10(l)	-	Guaranty, dated as of December 21, 2001, from PPL Energy Supply, LLC in favor of LMB Funding, Limited Partnership (Exhibit 10(j) to PPL Energy Supply, LLC Form 10-K Report (File No. 333-74794) for year ended December 31, 2001)
*10(m)	-	Agreement for Lease, dated as of December 21, 2001, between LMB Funding, Limited Partnership and Lower Mt. Bethel Energy, LLC
*10(m)-1	-	Amendment No. 1 to Agreement for Lease, dated as of September 16, 2002, between LMB Funding, Limited Partnership and Lower Mt. Bethel Energy, LLC
*10(n)	-	Lease Agreement, dated as of December 21, 2001, between LMB Funding, Limited Partnership and Lower Mt. Bethel Energy, LLC
*10(n)-1	-	Amendment No. 1 to Lease Agreement, dated as of September 16, 2002, between LMB Funding, Limited Partnership and Lower Mt. Bethel Energy, LLC
10(o)	-	Pollution Control Facilities Agreement, dated as of May 1, 1973, between PPL Electric Utilities Corporation and the Lehigh County Industrial Development Authority (Exhibit 5(z) to Registration Statement No. 2-60834)
10(p)	-	Amended and Restated Operating Agreement of the PJM Interconnection, LLC, dated February 6, 2002 (Exhibit 10(l) to PPL Corporation Form 10-K Report (File No. 1-11459) for year ended December 31, 2001)
[_]10(q)	-	Amended and Restated Directors Deferred Compensation Plan, dated February 14, 2000 (Exhibit 10(h) to PPL Corporation Form 10-K Report (File No. 1-11459) for year ended December 31, 2000)
[_]10(q)-1	-	Amendment No. 1 to Amended and Restated Directors Deferred Compensation Plan, dated December 18, 2002 (Exhibit 10(m)-1 to PPL Corporation Form 10-K Report (File No. 1-11459) for year ended December 31, 2002)
*[_]10(q)-2	-	Amendment No. 2 to Amended and Restated Directors Deferred Compensation Plan, dated January 1, 2004
*[_]10(r)	-	Amended and Restated Officers Deferred Compensation Plan, effective November 1, 2003
*[_]10(s)	-	Amended and Restated Supplemental Executive Retirement Plan, effective July 1, 2003
[_]10(t)	-	Incentive Compensation Plan, amended and restated effective January 1, 2003 (Exhibit 10(p) to PPL Corporation Form 10-K Report (File No. 1-11459) for year ended December 31, 2002)
[_]10(u)	-	Incentive Compensation Plan for Key Employees, amended and restated effective January 1, 2003 (Schedule B to Proxy Statement of PPL Corporation, dated March 17, 2003)
[_]10(v)	-	Short-term Incentive Plan (Schedule B to Proxy Statement of PPL Corporation, dated March 12, 1999)
[_]10(w)	-	Form of Severance Agreement entered into between PPL Corporation and the Executive Officers listed in this Form 10-K Report (Exhibit 10(r) to PPL Corporation Form 10-K Report (File No. 1-11459) for year ended December 31, 2001)

[_]10(x)	-	Form for Retention Agreement entered into between PPL Corporation and Messrs. Champagne, De Simone, Miller and Petersen (Exhibit 10(s) to PPL Corporation Form 10-K Report (File No. 1-11459) for year ended December 31, 2001)
[_]10(y)	-	Agreement dated January 15, 2003 between PPL Corporation and Mr. Miller regarding Supplemental Pension Benefits (Exhibit 10(u) to PPL Corporation Form 10-K Report (File No. 1-11459) for year ended December 31, 2002)
10(z)	-	Equity Contribution Agreement, among PPL Corporation, PPL Montana, LLC, and The Chase Manhattan Bank, as Trustee (Exhibit 10.15 to PPL Montana, LLC Form S-4 (Registration Statement No. 333-50350))
10(aa)	-	Facility Lease Agreement (BA 1/2) between PPL Montana, LLC and Montana OL3, LLC (Exhibit 4.7a to PPL Montana, LLC Form S-4 (Registration Statement No. 333-50350))
10(bb)	-	Facility Lease Agreement (BA 3) between PPL Montana, LLC and Montana OL4, LLC (Exhibit 4.8a to PPL Montana, LLC Form S-4 (Registration Statement No. 333-50350))
10(cc)	-	Services Agreement, dated as of July 1, 2000, among PPL Corporation, PPL Energy Funding Corporation and its direct and indirect subsidiaries in various tiers, PPL Capital Funding, Inc., PPL Gas Utilities Corporation, PPL Services Corporation and CEP Commerce, LLC (Exhibit 10.20 to PPL Energy Supply, LLC Form S-4 (Registration Statement No. 333-74794))
10(dd)	-	Pollution Control Facilities Loan Agreement, dated as of February 1, 2003, between PPL Electric Utilities Corporation and the Lehigh County Industrial Development Authority
*12(a)	-	PPL Corporation and Subsidiaries Computation of Ratio of Earnings to Fixed Charges
*12(b)	-	PPL Energy Supply, LLC and Subsidiaries Computation of Ratio of Earnings to Fixed Charges
*12(c)	-	PPL Electric Utilities Corporation and Subsidiaries Computation of Ratio of Earnings to Fixed Charges
*12(d)	-	PPL Montana, LLC and Subsidiaries Computation of Ratio of Earnings to Fixed Charges
*21(a)	-	Subsidiaries of PPL Corporation
*21(b)	-	Subsidiaries of PPL Electric Utilities Corporation
*23(a)	-	Consent of PricewaterhouseCoopers LLP - PPL Corporation
*23(b)	-	Consent of PricewaterhouseCoopers LLP - PPL Energy Supply, LLC
*23(c)	-	Consent of PricewaterhouseCoopers LLP - PPL Electric Utilities Corporation
*24	-	Power of Attorney
*31(a)	-	Certificate of PPL's principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31(b)	-	Certificate of PPL's principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31(c)	-	Certificate of PPL Energy Supply's principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31(d)	-	Certificate of PPL Energy Supply's principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31(e)	-	Certificate of PPL Electric's principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31(f)	-	Certificate of PPL Electric's principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31(g)	-	Certificate of PPL Montana's principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31(h)	-	Certificate of PPL Montana's principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*32(a)	-	Certificate of PPL's principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32(b)	-	Certificate of PPL's principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32(c)	-	Certificate of PPL Energy Supply's principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32(d)	-	Certificate of PPL Energy Supply's principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32(e)	-	Certificate of PPL Electric's principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32(f)	-	Certificate of PPL Electric's principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32(g)	-	Certificate of PPL Montana's principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32(h)	-	Certificate of PPL Montana's principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*99	-	PPL Corporate Organization (Selected Subsidiaries)

EX-4

Exhibit 4(a)-4

EX-4

Exhibit 4(a)-5

AMENDMENT NO. 4

TO

PPL EMPLOYEE STOCK OWNERSHIP PLAN

     WHEREAS, PPL Services Corporation ("PPL") has adopted the PPL Employee Stock Ownership Plan ("Plan") effective July 1, 2000, on behalf of various affiliated companies; and

     WHEREAS, the Plan was amended and restated effective January 1, 2000, and subsequently amended by Amendment No. 1, 2 and 3; and

     WHEREAS, the Company desires to further amend the Plan;

     NOW, THEREFORE, the Plan is hereby amended as follows:

     I.     Effective April 11, 2003, Appendix A and Schedule A are amended to read as follows:

Appendix A

Participating Company

Name		Effective Date
1.	PPL Services Corporation	July 1, 2000
2.	PPL Electric Utilities Corporation	January 1, 1975
3.	PPL EnergyPlus, LLC	July 14, 1998
4.	PPL Generation, LLC	July 1, 2000
5.	PPL Brunner Island, LLC	July 1, 2000
6.	PPL Holtwood, LLC	July 1, 2000
7.	PPL Martins Creek, LLC	July 1, 2000
8.	PPL Montour, LLC	July 1, 2000
9.	PPL Susquehanna, LLC	July 1, 2000
10.	PPLSolutions, LLC	January 1, 2002
11.	PPL Telcom, LLC	February 5, 2001
12.	Lower Mount Bethel Energy, LLC	September 30, 2002
13.	PPL Edgewood Energy, LLC	April 1, 2003
14.	PPL Maine, LLC	April 1, 2003
15.	PPL Wallingford Energy, LLC	April 1, 2003

Schedule A

Effective July 1, 2000

A.     For all Participating Companies, "Compensation" shall mean the annual compensation received by an Employee from a Participating Company as reported on Internal Revenue Service Form W-2 or a successor form plus the Employee's elective deferrals under the Employee Savings Plan or Deferred Savings Plan; provided, however, that Compensation shall not include bonuses or fringe benefits not normally included in compensation, such as tuition refunds, moving expenses, etc. and shall not, for purposes of allocation under Section 5.2(a), include any amount in excess of (i) for the 1975 and 1976 Plan Years, $16,000 and (ii) commencing with the 1977 Plan Year, the median annual compensation of all Participants during the Plan Year or $100,000, whichever is less. Such median compensation shall be determined as of the close of a Plan Year and shall be rounded to an even thousand dollars. Compensation shall also include the additional compensation listed below, for Participants in the Participating Company listed herein.

B.     Effective January 1, 2000 only the following additional compensation for the following Participating Companies shall be included in Compensation, as defined in this Schedule A.

     1.     PPL Electric Utilities Corporation (formerly PP&L, Inc.), PPL EnergyPlus, LLC (formerly PP&L EnergyPlus Co., LLC), PPL Services Corporation, PPL Generation, LLC, PPL Brunner Island, LLC, PPL Holtwood, LLC, PPL Martins Creek, LLC, PPL Montour, LLC, PPL Susquehanna, LLC, PPL Telcom, LLC (effective 2/5/01), PPLSolutions, LLC (effective 1/1/02), Lower Mount Bethel Energy, LLC (effective 9/30/02), PPL Edgewood Energy, LLC (effective 4/1/03), PPL Maine, LLC (effective 4/1/03) and PPL Wallingford Energy, LLC; (effective 4/1/03);

          a)          Any single sum award paid from the variable compensation fund created annually with a percentage of annualized base salaries in accordance with the Managers Compensation Plan.

     2.     PPL EnergyPlus, LLC (formerly PP&L EnergyPlus Co., LLC):

          a)     Any sales incentive award paid as a single sum on an annual basis.

     II.     Except as provided for in this Amendment No. 4, all other provisions of the Plan shall remain in full force and effect.

     IN WITNESS WHEREOF, this Amendment No. 4 is executed this _____ day of ________________, 2003.

PPL SERVICES CORPORATION

By:_______________________________
    Ronald Schwarz
    Vice President-Human Resources

EX-10

Exhibit 10(k)

Execution Version

AMENDED AND RESTATED PARTICIPATION AGREEMENT

dated as of July 17, 2001

among

PPL LARGE SCALE DISTRIBUTED GENERATION II, LLC,
as Lessee and Supervisory Agent,

LARGE SCALE DISTRIBUTED GENERATION II STATUTORY TRUST,
a Connecticut statutory trust, as Lessor,

STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT,
NATIONAL ASSOCIATION,
not in its individual capacity, except as expressly
stated herein, but solely as Trustee,

FIRST UNION NATIONAL BANK,
not in its individual capacity, except as expressly
stated herein, but solely as Administrative Agent,

THE FINANCIAL INSTITUTIONS NAMED ON SCHEDULE I HERETO,
as Certificate Holders,

and

THE FINANCIAL INSTITUTIONS NAMED ON SCHEDULE II HERETO,
as Lenders

FIRST UNION SECURITIES, INC.,
as Co-Arranger and Sole Book Manager

SALOMON SMITH BARNEY, INC.,
as Co-Arranger

CITIBANK, N.A.,
as Syndication Agent

THIS AMENDED AND RESTATED PARTICIPATION AGREEMENT (this "Participation Agreement"), dated as of July 17, 2001, is entered into by and among PPL Large Scale Distributed Generation II, LLC, a Delaware limited liability company, as Lessee and Supervisory Agent (together with its permitted successors and assigns, in its capacity as Lessee or Supervisory Agent, the "Lessee"); Large Scale Distributed Generation II Statutory Trust, a Connecticut statutory trust, as Lessor (the "Trust" or "Lessor"); State Street Bank and Trust Company of Connecticut, National Association, not in its individual capacity, except as expressly stated herein, but solely as Trustee of the Lessor (the "Trustee"); First Union National Bank, not in its individual capacity, except as expressly stated herein, but solely as Administrative Agent (the "Administrative Agent"); the financial institutions named on Schedule I hereto (together with their respective permitted successors, assigns and transferees, each, a "Certificate Holder", and collectively, the "Certificate Holders"); the financial institutions named on Schedule II hereto as Lenders (together with their permitted successors, assigns and transferees, each as a Lender under the Loan Agreement, a "Lender", and collectively, "Lenders").

W I T N E S S E T H:

A.   Lessee, Lessor, the Guarantors, the Certificate Holders, the Lenders and Administrative Agent are entering into this Participation Agreement and the other Operative Agreements to finance the purchase of Turbines and other Equipment under the Equipment Tranche, and the purchase, installation, development and construction of the Facilities under the Facility Tranche.

B.   The Lessor under the Trust Agreement has been created for the purpose of providing financing for the Acquisition and Construction of the Assets.

C.   Pursuant to the Lease, Lessor will lease to Lessee, and Lessee will lease from Lessor on each Applicable Base Term Commencement Date, the Assets pursuant to the Lease.

D.   On the date of the Initial Advance for Excepted Costs with respect to a Proposed Site, on each Site Acquisition Date with respect to a Facility (unless a Facility Lease Supplement was previously executed for such Facility in connection with an Advance for Excepted Costs) and on the date of each Initial Equipment Advance with respect to an Equipment Group, Lessor and Lessee will enter into a Facility Lease Supplement or Equipment Lease Supplement, as applicable.

E.   Notwithstanding the execution and delivery of the Lease and the Lease Supplements, Lessee will not be required to make scheduled payments of Basic Rent under the Lease with respect to any Facility or any Unit of an Equipment Group subject to a Lease Supplement until the Applicable Base Term Commencement Date has occurred for such Facility or Unit of an Equipment Group.

F.   Lessor, using amounts Funded by the Participants, will provide Advances during the Commitment Period to pay Asset Costs relating to the Acquisition and Construction of the Assets.

G.   The parties hereto desire to enter into this Participation Agreement and the other Operative Agreements for the purposes of amending and restating the Original Participation Agreement and the other Original Operative Agreements in their entirety to, among other things, provide for (i) the addition of new Participants, (ii) the increase of the Aggregate Commitment Amount to $1,060,000,000 and to provide for future increases of the Aggregate Commitment Amount to an amount not to exceed $1,200,000,000, (iii) the purchase by the new Certificate Holders of a portion of the Certificate Amounts and Certificate Commitments held by each of the Initial Certificate Holders, (iv) the purchase by the new Lenders of a portion of each of the Initial Lenders' Loans and (v) certain other modifications to the Original Participation Agreement and the other Original Operative Agreements.

H.   Subject to the terms and conditions of this Participation Agreement and the other Operative Agreements, the Certificate Holders are willing to provide to Lessor a portion of the fundings to finance the Assets and the other costs and expenses described herein.

I.   Subject to the terms and conditions of this Participation Agreement and the other Operative Agreements, the Lenders are willing to provide loans for the remaining portion of the fundings to finance the Assets and other costs and expenses described herein.

J.   To induce the Participants to provide the funds for such Advances and purchases and to enter into this Participation Agreement, the Trust Agreement, the Loan Agreement, each of the other Operative Agreements and the transactions contemplated hereby and thereby, the Guarantors desire to, and it is a condition to the effectiveness of the Overall Transaction that Guarantors, enter into and deliver to Administrative Agent, for the benefit of the Participants, the Guarantees.

K.   To secure the repayment of the Participants' respective Certificate Amounts and Loans and the other amounts due and payable by Lessee under the Operative Agreements, the Administrative Agent, on behalf of the Participants, will have the benefit of a Lien on the Trust Estate, including the Assets, and the other Collateral.

NOW, THEREFORE, in consideration of the mutual agreements contained in this Participation Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I
DEFINITIONS; INTERPRETATION

Section 1.1   Definitions; Interpretation. Unless the context shall otherwise require, capitalized terms used and not defined herein shall have the meanings assigned thereto in Appendix 1 hereto for all purposes hereof; and the rules of interpretation set forth in Appendix 1 hereto shall apply to this Participation Agreement.

ARTICLE II
SECOND DOCUMENT CLOSING DATE; ACQUISITION DATE

Section 2.1   Effectiveness of Agreement. This Participation Agreement shall be effective as of the earliest date (on or before July 19, 2001) (the "Second Document Closing Date") on which all of the conditions precedent thereto set forth in Appendix 2 hereto have been satisfied or waived by the applicable parties as set forth therein, and upon such effective date shall amend and completely restate and supersede the Original Participation Agreement.

Section 2.2   Acquisition and Lease of Assets. On the Document Closing Date, Lessee, in its capacity as Supervisory Agent, and Lessor entered into the Original Supervisory Agreement. Pursuant to the Supervisory Agreement, Lessee shall supervise the Acquisition of the Equipment and the Construction of the Facilities. On the Document Closing Date, Lessor and Lessee also entered into the Original Lease. Pursuant to the Lease, Lessor shall lease to Lessee on each Applicable Base Term Commencement Date, and Lessee shall lease from Lessor, commencing on each such date the Assets for the Term.

Section 2.3   Site Acquisition Cost Advances. Subject to the terms and conditions of this Participation Agreement (including the sufficiency of the Aggregate Available Commitment), on each Advance Date that constitutes a Site Acquisition Date, (i) the Lessor shall make an Advance, the proceeds of which shall be used to fund Site Acquisition Costs arising with respect to the Site identified by Lessee to be acquired on such Site Acquisition Date, or if Lessee or another PPL Group Member already owns the Land constituting the Site, the Lessor will enter into a Ground Lease with such Lessee or other PPL Group Member for such Site, and in either case, pay related Transaction Costs as set forth on the related Advance Request, and (ii) the Lessor and the Lessee shall enter into a Facility Lease Supplement for each such Site pursuant to which the Lessor shall lease (or with respect to a Site leased to the Lessor pursuant to a Ground Lease, sublease) to the Lessee such Site.

Section 2.4   Construction Cost Advances. Subject to the terms and conditions of this Participation Agreement (including the sufficiency of the Aggregate Available Commitment), on each Advance Date that the Lessee requests a Construction Advance, the Trustee shall make a Construction Advance, the proceeds of which shall be used to pay to the Person entitled thereto or reimburse the Lessee for the payment of Facility Costs, including to fund Capitalized Contingent Costs accrued during the Interest Period immediately preceding such Construction Advance and any Transaction Costs allocable to such Construction Advance.

Section 2.5   Equipment Cost Advances. Subject to the terms and conditions of this Participation Agreement (including the sufficiency of the Aggregate Available Commitment), on each Advance Date that Lessee requests an Equipment Advance, the Trustee shall make an Equipment Advance, the proceeds of which shall be used to pay to the Person entitled thereto or reimburse Lessee for the payment of Equipment Costs, including to fund Capitalized Contingent Costs accrued during the Interest Period immediately preceding such Equipment Advance and any Transaction Costs allocable to such Equipment Advance.

Section 2.6   Excepted Costs Advances. Subject to the terms and conditions of this Participation Agreement (including the sufficiency of the Aggregate Available Commitment), on each Advance Date that Lessee requests an Advance for Excepted Costs, the Trustee shall make an Advance, the proceeds of which shall be used to pay to the Person entitled thereto or reimburse Lessee for the payment of Excepted Costs, including to fund Capitalized Contingent Costs accrued during the Interest Period immediately preceding such Advance and any Transaction Costs allocable to such Advance for Excepted Costs.

Section 2.7   Participant Capitalized Costs Advances. Subject to the terms and conditions of this Participation Agreement (including the sufficiency of the Aggregate Available Commitment), on each Advance Date that Administrative Agent requests an Advance for Participant Capitalized Costs, the Trustee shall make an Advance, the proceeds of which shall be used to pay each Participant for the payment of its respective Participant Capitalized Costs, and any Transaction Costs incurred with respect to making such Advance.

Section 2.8   Increases and Purchases of Interests.

(a)   On the Second Document Closing Date, pursuant to the Certificate and Loan Transfer Instructions and conditioned on the receipt by the Initial Certificate Holders and Initial Lenders in immediately available funds of the amount set forth in the Certificate and Loan Transfer Instructions, the Initial Certificate Holders and Initial Lenders shall transfer to the new Certificate Holders and new Lenders, and the new Certificate Holders and new Lenders agree to acquire pursuant to the Certificate and Loan Transfer Instructions, the percentage of the Transferred Certificate and Loan Interests. The amounts received by each Initial Certificate Holder and Initial Lender from the new Certificate Holders and new Lenders, other than amounts to compensate the Initial Certificate Holders and Initial Lenders for accrued Yield and Interest (as set forth in the Certificate and Loan Transfer Instructions), in payment for the transfer by such Initial Certificate Holders and Initial Lenders to the new Certificate Holders and new Lenders shall be used to replenish the Available Commitments of each such Initial Certificate Holder and Initial Lender to the extent set forth in such Certificate and Loan Transfer Instructions. Effective as of the Second Document Closing Date and after giving effect to the transfers and purchases described below, the Commitment and the Commitment Percentage of each Certificate Holder shall be as set forth at Schedule I, and the Commitment and the Commitment Percentage of each Lender shall be as set forth at Schedule II.

(b)   Pursuant to Section 3.1(b) of the Participation Agreement, as of the Second Document Closing Date, Certificate Trustee shall issue new Notes and Certificates in favor of the Lenders and Certificate Holders to evidence the purchases and transfers provided for at Section 2.8(a).

ARTICLE III
FUNDING OF ADVANCES

Section 3.1   Fundings.

(a)   Amount of Fundings. Subject to the terms and conditions of this Participation Agreement and in reliance on the representations and warranties of each of the parties hereto contained herein or made pursuant hereto, upon receipt of an Advance Request, on each Advance Date each Certificate Holder shall acquire its interest in the Trust Estate and each Lender will assist in Funding Lessor's Advance, in each case by making available to Lessor by wire transfer in accordance with the instructions set forth in the Advance Request an amount equal to such Participant's Commitment Percentage of the aggregate amount of the requested Advance (unless any portion of such Advance consists of amounts described in clause (iii) of the next sentence of this Section 3.1(a), in which case such Participant will so make available funds equal to such Participant's Commitment Percentage of the portion of such Advance not consisting of Noneligible Accrued Amounts and each Certificate Holder will also make available funds equal to such Certificate Holder's Noneligible Accrued Amounts Commitment Percentage of the portion of the Advance consisting of Noneligible Accrued Amounts). Notwithstanding the foregoing, (i) the Funding by each Participant on such Advance Date shall not exceed such Participant's Available Commitment, (ii) before giving effect to such Advance, (x) the Advance to be made by Lessor to Lessee on such Advance Date does not exceed the Aggregate Available Commitments and the Aggregate Available Commitments shall not be less than the Unfunded Future Payment Amounts and (iii) with respect to any Noneligible Accrued Amounts otherwise payable on any Advance Date, the Certificate Holders shall (subject to clauses (i) and (ii) above) Fund on a pro rata basis the portion of such Advance equal to the aggregate amount of such Noneligible Accrued Amounts. No amounts paid or prepaid with respect to any Certificate Amount or the Loans may be readvanced, except amounts distributed to the Participants in reduction of their Loans pursuant to Section 5.3, but only to the extent such distribution is made from proceeds from a purchase by Lessee of a portion of the Assets pursuant to Section 18.1(d), 18.1(f), 18.1(h) or 18.1(i) of the Lease or the repayment of Excepted Costs pursuant to Section 3.5 of the Supervisory Agreement.

(b)   Notes and Certificates. Each Lender's Loan shall be evidenced by a separate Note issued to such Lender and repayable in accordance with, and with Interest accruing pursuant to, the terms of the Loan Agreement. The amounts made available by each Certificate Holder shall be evidenced by a separate Certificate issued by Lessor to each Certificate Holder. Each Certificate shall accrue Yield at the Yield Rate on the Certificate Amount thereof, payable as more fully set forth in the Trust Agreement and Section 5.3 hereof. The Notes and Certificates will be issued to each Lender and each Certificate Holder in a principal amount equal to such Lender's Loan Commitment (as specified in the column entitled "Commitment" on Schedule II) and such Certificate Holder's Certificate Commitment (as specified in the column entitled "Commitment" on Schedule I). Each Lender and Certificate Holder is authorized and entitled to make notations on their respective Notes and Certificates in accordance with the Loan Documents and the Trust Agreement, each of which notations shall constitute prima facie evidence of the accuracy of the information so noted, absent manifest error; provided that the failure to make any such recording or errors in such recordation, or to provide the calculations described at Section 3.2(b), shall not affect the obligation of the Lessor under such instrument or the corresponding obligation of the Lessee to pay Rent.

(c)   Fundings. Any Advance required to be made by the Lessor pursuant to any Operative Agreement shall be made by the Participants making a Funding directly to the Administrative Agent. Such Funding by the Participants to the Administrative Agent with respect to an Advance shall be deemed to constitute the required Funding from the Participants to Lessor, and the corresponding Advance by the Administrative Agent to any Person entitled to payments constituting Asset Costs, including Contingent Costs, Fees, Interest, Yield or Transaction Costs or deposits into the Project Collateral Accounts shall be deemed to constitute the required Advance by Lessor.

(d)   Advances; Limitations and Limits.

       (i)   Pursuant to Section 3.2, each Advance shall be used solely for the purposes set forth at Section 3.2(a) hereof.

       (ii)   The first Advance Date occurred on the Document Closing Date (the "Initial Advance Date"). An Advance Date shall occur on the Second Document Closing Date for an Advance which will include amounts sufficient to pay the respective Upfront Fees of the new Lenders and new Certificate Holders and all Transaction Expenses due and payable as of such date. Each Advance Date shall be a Business Day, and in the case of an Advance for Participant Capitalized Costs, a Payment Date, and there shall be no more than two Advances during any calendar month (excluding any Advance made solely to pay Participant Capitalized Costs). Each Advance (excluding any Advance made solely to pay Participant Capitalized Costs or the last Advance hereunder) shall be in a minimum amount equal to $1,000,000. Each Advance under the Facility Tranche shall be comprised solely of Asset Costs of the types and categories of costs and shall be subject to the limitations on amounts for each such type and category as set forth in the applicable Facility Budget or, with respect to an Advance for Excepted Costs, the portion of the Pro Forma Budget relating to the Proposed Site, for which an Advance is requested. Lessee shall not request an Advance with respect to Asset Costs (x) payable under any Major Project Agreement unless Lessee has satisfied the conditions with respect thereto in Section 4.1 of the Supervisory Agreement or (y) to be deposited into a Project Collateral Account or to pay fees to an issuer of a Project Letter of Credit unless Lessee shall have complied with the requirements of Section 10.2. Lessee shall not request an Advance and no Advance shall be made with respect to any Facility or Equipment Group or, if applicable, Unit of an Equipment Group, for which Lessee has delivered a Purchase Notice pursuant to Article XVIII of the Lease. The amount of any Site Acquisition Advance with respect to any Site shall be used solely to pay for the Site Acquisition Costs with respect to such Site incurred through and including such Advance Date with respect to such Site. Each Construction Advance requested by Lessee shall be used for payment of the Facility Costs with respect to the Facilities identified in the Advance Request for such Advance that may be incurred through and including such Advance Date with respect to such Facility, including, in the case of the Initial Construction Advance, any costs incurred by the Lessee prior to the Document Closing Date in connection with such Facility and to the extent provided for in the Facility Budget and for deposits into Project Collateral Accounts. Each Advance for Excepted Costs shall be used solely for payment of Excepted Costs with respect to the Proposed Site identified in the Advance Request for such Advance that may be incurred with respect to such Proposed Site. Each Advance for Equipment Costs or Facility Equipment Costs shall be used solely for payment of the purchase price for such Equipment and any related Equipment Costs and Transaction Costs incurred by Lessee in connection with the purchase of such Equipment. Each Advance for Facility Costs, Excepted Costs and Equipment Costs (including for Participant Capitalized Costs and Internal Costs) also shall be subject to the limitations on amounts and types of costs (plus any contingencies) that may be incurred with respect to such Facility, Proposed Site or Equipment Group as set forth in the applicable Facility Budget or Equipment Group Budget or with respect to a Proposed Site, the applicable portion of the Pro Forma Budget (as such Equipment Group Budgets, Facility Budget or Pro Forma Budget may be modified from time to time in accordance with the Supervisory Agreement). Advances to pay or reimburse Lessee or any PPL Group Member for Internal Costs of the type described in clauses (i) or (ii) of the definition of "Internal Costs" at Appendix 1 shall not exceed $2,500,000 in the aggregate. Subject to the foregoing limitations, each Advance (other than an Advance for Participant Capitalized Costs) may be used to acquire Sites, construct Facilities, or Fund Excepted Costs with respect to a Proposed Site located in or to acquire Units of Equipment which, following the Unit Completion Dates therefor, will be stored or installed only in a State of the United States of America or the District of Columbia. All remittances made by Certificate Holders and Lenders for the Funding of any Advance shall be made in immediately available federal funds by wire transfer to the Administrative Agent, on behalf of the Lessor, at the Administrative Agent's address for wires referred to in Schedule III hereto prior to 1:00 p.m. (New York City time) on the Advance Date specified in the relevant Advance Request; provided, that if the terms and conditions for such Advance set forth herein have not been satisfied by 1:00 p.m. (New York City time) on the Advance Date specified in such Advance Request, no Participant shall be obligated to maintain the availability of its funds for such Advance unless such Participant has received a satisfactory indemnity for the overnight investment of such funds. Promptly upon Administrative Agent's receipt of such funds from the Participants, subject to the conditions herein (including Section 3.2), Administrative Agent shall wire such funds on the applicable Advance Date to the Persons entitled thereto and to such accounts as Lessee shall have indicated in the Advance Request. The Funding by each Certificate Holder and each Lender to the Administrative Agent of its respective portion of an Advance shall constitute authorization and direction by such party to Administrative Agent to make an Advance pursuant to this Article III.

       (iii)   Notwithstanding anything contained herein or in any other Operative Agreement to the contrary, unless the Administrative Agent otherwise directs, in its sole discretion, Advances, other than Advances or portions of Advances payable to one or more Participants, shall be paid to the Lessee, who agrees to act as payment agent on behalf of Administrative Agent ("Payment Agent"), and Lessee shall use the Funds relating to each such Advance to pay amounts due and payable to Persons who are not Participants, in accordance with the payment and wire instructions set forth in each Advance Request.

(e)   Termination of Commitments. Notwithstanding anything in this Participation Agreement to the contrary, the Commitments shall terminate and Lessor shall not be obligated to make an Advance, and no Participant shall be obligated to make any Fundings, and no Advance Date may occur upon the occurrence of the earlier of (i) 2:00 p.m. (New York City time) on the last day of the Commitment Period and (ii) a termination of the Lenders' Commitments pursuant to Section 5.2 of the Loan Agreement.

Section 3.2   Payment of Asset Costs and Fees; Application and Allocation of Funds.

(a)   Payment of Asset Costs. Effective on the Document Closing Date and as provided for in the Supervisory Agreement, Lessee has been appointed as Lessor's agent to supervise the performance of the Manufacturers under the Equipment Contracts to which Lessor, or Lessee, as Supervisory Agent, is a party or to the extent that the interests in any such Equipment Contract are assigned to Lessor and to undertake or cause to be undertaken the Project Obligations. Lessee shall pay or cause to be paid as and to the extent provided for and subject to the limitations of Section 4.1 of the Supervisory Agreement all Asset Costs, as such costs become due. On the Initial Advance Date and on each subsequent Advance Date, upon the satisfaction of the terms and conditions of this Participation Agreement, Lessor shall make an Advance from funds made available by the Participants pursuant to Section 3.1(c) in the amount specified in the applicable Advance Request (i) to the extent such Asset Costs constitute Lessee Obligated Asset Costs which have been previously paid directly by Lessee (or another PPL Group Member) from Lessee's (or such other PPL Group Member's) own funds within sixty (60) days (or ninety (90) days solely to the extent such Asset Costs constitute Internal Costs) prior to such Advance, and either Lessee has not been reimbursed for such expenditures by an Advance hereunder or amounts have not been previously Advanced for the payment thereof pursuant to clause (iii) hereof, to Lessee to reimburse Lessee for such Asset Costs, and Lessee certifies to the foregoing in the applicable Advance Request; (ii) to the extent the Asset Costs have not been previously paid and are then due and payable, to the Person(s) entitled to the payment thereof, it being understood that, except as provided in clause (i) above or clause (iii) below, all Asset Costs payable under any Major Project Agreement shall be paid with proceeds of Advances directly to the applicable Manufacturer or Contractor by Administrative Agent or the Payment Agent on its behalf; (iii) to the extent such Asset Costs constitute Lessee Obligated Asset Costs which will become due and payable within sixty (60) days following such Advance Date and Lessee so requests such amount and certifies as to the foregoing in the applicable Advance Request, then to Lessee for the use by Lessee solely for the payment of such Lessee Obligated Asset Costs when due and payable to the Person entitled to payment thereunder; (iv) to Fund Capitalized Interest, Capitalized Yield, Capitalized Fees, Capitalized Contingent Costs and Contingent Costs then due and payable; provided, however, that all such Fundings for Capitalized Interest, Capitalized Yield, Rent, Capitalized Fees, Capitalized Contingent Costs, Contingent Costs or other Supplemental Rent (if any) payable to any Participant will be Funded to the Administrative Agent and paid by the Administrative Agent directly to the Participant to which such amount is due as provided for in Sections 3.3(c) and 3.4 and distributed pursuant to Section 5.3, and (v) to make direct deposits into Project Collateral Accounts pursuant to the applicable Project Collateral Agreements.

(b)   Allocations of Costs. The portion of each Advance for Capitalized Interest, Capitalized Yield and Capitalized Fees of the type set forth at Section 4.4(b)(ii) shall be deemed to be allocated among the Equipment Costs for each Uncompleted Unit then being financed under the Equipment Tranche and the Facility Costs and Excepted Costs for each Uncompleted Facility or Proposed Site (and further allocated to each Unit of the Facility Equipment for such Facility) then being financed under the Facility Tranche (and with a Facility, a Turbine), based on the outstanding balance (including all Capitalized Interest, Capitalized Yield and Capitalized Fees previously allocated to such categories pursuant to this Section 3.2(b)) of Equipment Costs, Excepted Costs or Facility Costs outstanding with respect to each such Uncompleted Facility, Uncompleted Unit or Proposed Site, as applicable, as of the last day of the Interest Period ending immediately preceding the Advance Date for such Advance, divided by the portion of the aggregate Asset Balance outstanding as of such date attributable to all Uncompleted Units, Uncompleted Facilities and Proposed Sites then being financed under the Facility Tranche and the Equipment Tranche, as applicable, in each case without regard to the Advance to be made on such Advance Date. The portion of each Advance constituting Capitalized Fees of the type set forth at Section 4.4(b)(i) or 4.4(c)(i), (ii), (iii) or (iv) and General Transaction Costs shall be deemed to be allocated with respect to each Facility, Proposed Site or Equipment Group, as applicable, among the respective Equipment Costs for each Uncompleted Unit then being financed under the Equipment Tranche and Facility Costs and Excepted Costs for each Uncompleted Facility or Proposed Site then being financed under the Facility Tranche, based on the aggregate estimated Asset Costs specified in the Facility Budget for each such Uncompleted Facility, the Equipment Group Budget for each such Uncompleted Unit or the applicable portion of the Pro Forma Budget for each such Proposed Site, as applicable (or, if requested by Lessee, such estimated Asset Costs as set forth in the original Facility Budgets or the Equipment Group Budgets taking into account any permitted adjustments pursuant to the Supervisory Agreement for each Uncompleted Facility then being financed under the Facility Tranche and Equipment Group then being financed under the Equipment Tranche), divided by an amount equal to the aggregate amount of estimated Asset Costs for all Uncompleted Units, Uncompleted Facilities and Proposed Sites then being financed under the Equipment Tranche or the Facility Tranche as specified in all such Facility Budgets, Equipment Group Budgets and applicable portions of the Pro Forma Budget. Upon adding any additional Uncompleted Facility, Proposed Site or Uncompleted Equipment Group, a portion of the General Transaction Costs, Fees of the type set forth at Section 4.4(b)(i) or 4.4(c)(i)(ii), (iii), or (iv) and Capitalized Contingent Costs, together with any Capitalized Costs accruing thereon previously allocated to any other Uncompleted Facility, Proposed Site or Uncompleted Equipment Group as provided for in the immediately preceding sentence, will be reallocated to such additional Uncompleted Facility, Proposed Site or Uncompleted Equipment Group by reapplying the calculation in the immediately preceding sentence to each Uncompleted Facility, Proposed Site or Uncompleted Equipment Group (including such additional Uncompleted Facility, Proposed Site or Uncompleted Equipment Group); provided, however, that the denominator used in such calculation shall include the estimated Asset Costs for such additional Uncompleted Facility, Proposed Site or Uncompleted Equipment Group as set forth in the applicable Facility Budget, Equipment Group Budget or portion of the Pro Forma Budget. Transaction Costs (other than General Transaction Costs) shall be allocated among the Site Acquisition Costs or other Facility Costs for each Uncompleted Facility, the Excepted Costs for each Proposed Site and the Equipment Costs for each Uncompleted Unit and shall be set forth in the related Advance Request.

         Upon any reallocation of any Unit or Units from an Equipment Group to another Equipment Group or to a Facility or a Proposed Site pursuant to a transfer permitted pursuant to Section 3.1(e) of the Supervisory Agreement, an amount equal to the product of the Unit Fraction for each Unit so transferred and the Capitalized Costs and Transaction Costs previously allocated to the Equipment Group from which such Unit is transferred will be allocated to the Equipment Group or Facility or Proposed Site to which such Unit is reallocated. Upon any reallocation of any Unit from a Proposed Site or an Uncompleted Facility to another Facility or Proposed Site or an Equipment Group, an amount equal to the Unit Costs previously advanced for each such Unit so transferred and the Capitalized Costs and Transaction Costs previously allocated to such Unit will be allocated to the Facility or Proposed Site or an Equipment Group to which such Unit is reallocated. Notwithstanding the foregoing, upon the reallocation of any Unit from a Proposed Site or an Equipment Group pursuant to the two immediately preceding sentences, General Transaction Costs shall not be reallocated unless, after giving effect to such reallocation, no Units remain in the Equipment Group or Proposed Site from which such Unit is being reallocated. Upon such date as a Proposed Site becomes an Uncompleted Facility, the Excepted Costs previously advanced for such Proposed Site (including any allocable Capitalized Costs and Transaction Costs) will be deemed allocated to such Uncompleted Facility as Facility Costs and shall no longer be treated as Excepted Costs for purposes of the limitation on the amount of aggregate Excepted Costs set forth at Section 6.2(p)(i)(D).

Upon any purchase of a Facility, Equipment Group or Unit pursuant to the Operative Agreements, the repayment of any Excepted Costs or upon any Event of Default or a request by Lessee, Administrative Agent or any Participant, the Administrative Agent shall perform the foregoing calculation or confirm the accuracy of any such calculation previously performed by Lessee, as Administrative Agent deems appropriate, based on the information provided by Lessee in its Advance Requests. The Administrative Agent's determination shall be conclusive and binding on Lessee, the Guarantors and the Participants, absent manifest error, and a copy of such allocation, showing such calculation in reasonable detail, shall be promptly provided to Lessee, Arranger and each Participant.

Section 3.3   Advance Dates.

(a)   Notice and Closing. Not later than 11:00 a.m. (New York City time) at least one (1) Business Day prior to the Initial Advance Date and at least five (5) Business Days (except as provided in Section 3.3(c) and except that such period may, in the sole discretion of the Administrative Agent, be reduced to three (3) Business Days) prior to each other Advance Date, Lessee shall deliver to Administrative Agent (which shall promptly forward a copy of such Advance Request to each Participant and Lessor) an irrevocable written Advance Request substantially in the form of Exhibit A (which Advance Request may relate to one or more types of Advances), setting forth:

       (i)   the proposed Advance Date;

       (ii)   the amount of the Advance requested and whether the Advance is a Site Acquisition Advance, a Construction Advance, an Advance for Excepted Costs and/or an Equipment Advance (including with respect to the foregoing Advances a statement of the amount thereof, if any, that constitutes Capitalized Contingent Costs, Transaction Costs related to each type of Advance, and a statement of the amount so related to each type of Advance to be allocated to the Facility Costs, the Equipment Costs and Excepted Costs for each Uncompleted Facility, each Proposed Site and each Uncompleted Unit then being funded under the Tranches and the amount of any deposits to be made pursuant to Section 10.2 into a Project Collateral Account with an indication of the amount to be deposited into each such account);

       (iii)   with respect to an Initial Equipment Advance or an Initial Advance for Facility Equipment, a description of the Equipment Group, if applicable, and the Units included in the Equipment Group or comprising such Facility Equipment to be acquired on or after such Advance Date, the Equipment Cost of each such Unit including the aggregate amount of Equipment Contract Purchase Amounts for each Equipment Group or Facility Equipment relating to a Facility and Non-Eligible Equipment Amounts, all other information with respect to such Advance required to be delivered pursuant to Article VI, or if such Advance is for a Completed Equipment Group, the information and deliveries set forth at Section 7.1;

       (iv)   with respect to a Site Acquisition Advance, a brief description of each Site and whether Lessor is to acquire fee simple title to or a ground leasehold interest in the related Land, and as of the date thereof, the anticipated date of Substantial Completion;

       (v)   if such Advance is to be used (x) to pay any Person or to reimburse Lessee for Transaction Costs, a description of the type and amount of each such Transaction Cost, or (y) to pay or reimburse Lessee or any PPL Group Member for Internal Costs, a description of the type and amount of such Internal Costs and the Uncompleted Facility to which such costs relate;

       (vi)   with respect to an Advance for Excepted Costs, information with respect to such Advance required to be delivered pursuant to Article VI;

       (vii)   the Interest Period selected for such Advance pursuant to Section 4.8;

       (viii)   any reallocation of Assets pursuant to Section 3.2(b);

       (ix)   a certification by Lessee that: (A) such Advance complies with the limitations and conditions set forth in Section 3.1(d) and all conditions to such Advance set forth in Article VI have been fully satisfied; (B) each Facility Budget and Equipment Group Budget is In Balance; (C) the aggregate amount to be funded by the Participants on such Advance Date together with all Advances made on all prior Advance Dates do not exceed the sum of (x) the Aggregate Commitment Amount plus (y) the Certificate Amounts and Loans repaid pursuant to Section 5.3 from the proceeds of a purchase pursuant to Article XVIII of the Lease, other than Sections 18.1(a), (e) or (g), to the extent the application of such proceeds resulted in a permanent reduction in the Aggregate Commitment Amount pursuant to Section 3.10 or a replenishment of the Aggregate Available Commitment pursuant to the final sentence of Section 3.1(a); (D) the aggregate Asset Costs requested on such Advance Date do not exceed the aggregate amounts set forth in the applicable Facility Budget, Equipment Group Budget or the applicable portion of the Pro Forma Budget and such specific Asset Costs do not exceed the applicable budget item for such costs (plus any reserve specifically for such item) in such budgets, taking into consideration any Savings and the remaining Contingency Reserve in respect of such costs (each such allocation so applied reducing thereafter the then remaining Contingency Reserve); (E) the Asset Costs constituting Lessee Obligated Asset Costs and described in Section 3.2(a)(iii) will be due and payable within the sixty (60) day period referred to therein following such Advance and will be used by Lessee only for the payment of such Asset Costs as described in the Advance Request; (F) there are no events of default or breaches under any Equipment Contract, any Facility EPC Agreements or any other Major Project Agreement or any other events, which, in any such case, might reasonably cause any Facility Completion Date or Equipment Completion Date not to occur on or prior to the earlier of the date specified in the applicable Facility Budget or Equipment Group Budget or the Outside Completion Date; (G) if any payments are due under any Equipment Contract, any Facility EPC Agreement or any other Major Project Agreement or any Supplemental Rent is then due and payable, such Advance Request includes funds for the payment of such amounts and all conditions under such Equipment Contract, such Facility EPC Agreement or such other Major Project Agreements, as applicable, to the payment of such Asset Costs have been satisfied; (H) all conditions to Lessee's right to request an Advance for Asset Costs or to the disbursement of all prior Advances in respect of Asset Costs, as applicable, pursuant to the Supervisory Agreement have been satisfied in all material respects to the extent not waived in accordance with the Operative Agreements; (I) other than Lessee Obligated Asset Costs of the type described at Section 3.2(a)(iii) and which were incurred and paid by Lessee from its own funds within the sixty (60) day period preceding such Advance (or ninety (90) days with respect to Internal Costs) and amounts to be deposited into Project Collateral Accounts, the amounts requested in the Advance are only for payment of Asset Costs presently due and payable; (J) after giving effect to such Advance, the Available Commitments equal or exceed the Unfunded Future Payment Amounts; and (K) the amounts requested in the Advance that constitute Internal Costs are in amounts properly allocable to the Uncompleted Facility to which they are being charged, do not exceed the market rates and costs which would be charged by qualified unrelated third parties providing such services, and relate solely to costs and expenses incurred for services provided prior to the Applicable Base Term Commencement Date for such Uncompleted Facility; and

       (x)   the wire transfer instructions for the disbursement of the appropriate amount of funds to Lessee or to such other Persons as may be entitled to such Advance are true and correct.

All documents and instruments required to be delivered on the Second Document Closing Date and in connection with the Advance made on such date pursuant to this Participation Agreement shall be delivered at the offices of Mayer, Brown & Platt, 1675 Broadway, New York, New York 10019-5820 Attention: Michael Sloyer, Esq. or at such other location as the Administrative Agent and Lessee may agree. All documents and instruments required to be delivered on any subsequent Advance Date pursuant to this Participation Agreement shall be delivered to the Administrative Agent, or at such other location as the Required Participants, Administrative Agent, Lessor and Lessee may agree.

Notwithstanding anything contained in clause (a) above to the contrary, at least once per month (which may correspond to the date on which an Advance Request is delivered and which may be included with an Advance Request) Lessee shall deliver a schedule to the Administrative Agent setting forth the amount of Capitalized Interest, Capitalized Yield and Capitalized Fees to be allocated to the Facility Costs, the Equipment Costs and the Excepted Costs for each Uncompleted Facility, each Proposed Site and each Uncompleted Unit then being funded under the Tranches.

(b)   Advance. On each Advance Date, and subject to the satisfaction of the conditions set forth in Article VI, Participants shall, as and to the extent provided herein, Fund the Advance by wire transfer directly to Administrative Agent. Notwithstanding the foregoing, in the event that Lessor elects, following an Event of Default, to cause the performance and completion of the Project Obligations with respect to one or more Facilities or Equipment Groups, including the purchase of all or any portion of the Equipment and the Construction of the Site Improvements, with respect to one or more Facilities, then Lessor may submit Advance Requests, the aggregate amount available to be Funded by the Participants shall equal the aggregate amount of the Available Commitments (without regard to the limitations in Section 3.3(a)(ix), but in all cases subject to the limitations and limits set forth in the second sentence of Section 3.1(a)), and such amounts shall be disbursed directly to Lessor or its designee for the payment of Asset Costs.

(c)   Participant Capitalized Costs Advances. At least five (5) Business Days prior to each Payment Date the Administrative Agent shall deliver a notice to Lessee, Lessor and each Participant detailing the amounts to be Funded by each Participant to pay the Participant Capitalized Costs which are due and payable on such date, together with the Interest Period selected for such Advance pursuant to Section 4.8, and the Funding of such Advance shall be made on such Advance Date, and upon the Administrative Agent's receipt of the Funds in respect of such Advance, the Administrative Agent shall distribute such Funds pursuant to Section 5.3(a) to pay the amounts, as applicable, described therein. Except as provided in Section 3.1 and as set forth below at Section 3.4, there shall be no conditions precedent.

Section 3.4   Capitalization of Certain Amounts.

(a)   During the Commitment Period with respect to each Uncompleted Facility and Uncompleted Unit being funded under the Facility Tranche or the Equipment Tranche on each date which is five (5) Business Days prior to any Payment Date, Lessee shall be deemed to have requested an Advance in an amount equal to Participant Capitalized Costs accrued on or with respect to the Loans and Certificate Amounts and Available Commitments during the immediately preceding Interest Period ending on such Payment Date and any Capitalized Contingent Costs then due and payable. The Advance Date with respect to each such Advance for such accrued Participant Capitalized Costs shall be the relevant Payment Date (subject to the terms and conditions for an Advance set forth in this Participation Agreement at Section 3.1 and as provided for below), and the proceeds of such Advance shall be applied to pay such accrued Capitalized Interest, Capitalized Yield, Capitalized Fees and Capitalized Contingent Costs. On each Advance Date on which each such Advance is being made for Participant Capitalized Costs or pursuant to Section 3.3(a) to pay any other Capitalized Contingent Costs, the Asset Costs Funded by the Participants and the Lease Supplement Balance for each Uncompleted Facility, Uncompleted Equipment Group and Proposed Site shall be increased by an amount equal to the Capitalized Interest, Capitalized Yield, Capitalized Fees and Capitalized Contingent Costs so Funded; provided, however, that if an Advance hereunder would exceed the limitations and limits set forth in the second sentence of Section 3.1(a), no Participant shall have any obligation to make such Advance. Unless Lessee otherwise notifies Administrative Agent in writing not later than three (3) Business Days prior to such Payment Date, the making of such Advance shall be deemed a certification by Lessee that such Advance satisfies the conditions at Section 3.1(d) and as to each of the matters set forth at Sections 3.3(a)(ix), (B), (C) and (I) are true and correct with respect to such Advance.

(b)   If any Participant shall request Lessor to capitalize the amount of any Claims relating to a Nonrelated Project Event or any loss or liability resulting from a Casualty or Condemnation occurring during the Commitment Period, any such amount shall be capitalized by automatically treating such amount as an Advance (funded by such Participant) and shall correspondingly increase the Participant Balance of such Participant and the Administrative Agent shall allocate such Advance to the Lease Supplement Balance for the applicable Uncompleted Facility, Uncompleted Unit or Proposed Site. Administrative Agent shall notify Lessee and each Participant of each amount so capitalized and treated as an Advance (and the related increase in Participant Balance and Asset Balance therein) under this Section 3.4 within fifteen (15) days after each such Advance.

Section 3.5   Non-Funding Lender's Portion.

(a)   In the event that any Lender (a "Defaulting Lender") fails to make available to the Administrative Agent on the applicable Advance Date an amount equal to such Lender's Commitment Percentage of the amount of the Advance required by the terms hereof to be funded on such Advance Date, or the Administrative Agent determines that a Lender will become a Defaulting Lender on the applicable Advance Date, the Administrative Agent shall promptly notify the Lessee thereof and the Lessee shall have the following options: (x) except in respect of any Advance pursuant to Section 3.4 and without in any way waiving the occurrence of any Payment Default, the Lessee may elect to postpone the Funding of the entire Advance (provided, however, that such postponement shall in no event relieve Lessee of its obligation to pay as Contingent Costs any Break Costs suffered or incurred by any Participant as a result of such postponement (other than to the extent of an amount equal to any payment thereof to the Defaulting Lender) as and to the extent required by and pursuant to Article XIV), or (y) the Lessee may elect to have the provisions of clause (b) of this Section 3.5 be applicable. In either event, the Lessee or the Administrative Agent may elect to have the Defaulting Lender replaced with a new Lender acceptable to the Lessee, and the Administrative Agent and the Defaulting Lender shall cooperate (at no cost to the Lessee, Lessor, Non-Defaulting Lenders (as defined below) and Administrative Agent) in replacing such Defaulting Lender. Any replacement of a Defaulting Lender shall not affect any claim, action or right Lessee may have against such Defaulting Lender.

(b)   Upon written request from the Lessee to the Administrative Agent, the Administrative Agent shall (i) promptly notify each other Lender (each, a "Non-Defaulting Lender"), (ii) specify the then Available Commitment (as used in this Section 3.5(b), the "Defaulted Lender Commitment Amount") of the Defaulting Lender and (iii) give to all Non-Defaulting Lenders the opportunity to increase their respective Commitments by notice in writing to Administrative Agent within five (5) Business Days of Administrative Agent's notice in clause (i) above. If the Non-Defaulting Lenders offer to increase their Commitments in an amount in the aggregate not less than the Commitment Shortfall but in no event greater than the Defaulted Lender Commitment Amount, Administrative Agent shall increase the Commitments of the participating Non-Defaulting Lenders on a pro-rata basis in accordance with the respective amounts by which such Non-Defaulting Lenders have offered to participate, it being understood that in no event shall the aggregate amount funded by any Lender exceed the amount of such Lender's Commitment, after giving effect to any increase in such Commitment pursuant to this sentence. In lieu thereof, if no Commitment Shortfall exists, Lessee may request that the Administrative Agent reallocate the Loan Commitments of the Non-Defaulting Lenders and increase the Non-Defaulting Lenders' Commitment Percentages so that the portion of such Advance and each future Advance to be made by the Lenders be made by the Non-Defaulting Lenders ratably on the basis of the reallocated Loan Commitments and Commitment Percentages.

As soon as practical after receipt of notices from Non-Defaulting Lenders electing to participate in the Defaulted Lender Commitment Amount in an amount not less than the Commitment Shortfall, but in no event greater than the Defaulted Lender Commitment or a reallocation of the Loan Commitments of the Non-Defaulting Lenders to the extent permitted above, Administrative Agent shall notify each participating Lender of its revised Loan Commitment or Commitment Percentage, as the case may be, Lessee may resubmit such Advance Request and each Lender shall transfer to Administrative Agent, in immediately available funds, its pro rata share of the requested Advance, determined in proportion to the revised Loan Commitments of the Lenders. The Aggregate Commitment Amount and Aggregate Available Commitment shall be deemed to be reduced to the extent that the Loan Commitments of the Non-Defaulting Lenders, following a revision of Loan Commitments or Commitment Percentages as provided for above, are less than the aggregate Loan Commitments of all Lenders (including the Defaulting Lender) prior to making any such revision. Following a revision of the Loan Commitments or Commitment Percentages and a reduction in the Aggregate Commitment Amount and Aggregate Available Commitments as described above, a Defaulting Lender shall not have the right to Fund its Defaulted Lender Commitment Amount with respect to such Advance or any future Advance, unless Administrative Agent and Lessee agree to reinstate such Lender's Commitment Amount, but only to the extent necessary to restore any adjustment in Commitment Percentages arising solely as a result of a reallocation as provided for above in this paragraph.

Unless (i) Non-Defaulting Lenders offer to increase their Loan Commitments in an amount not less than the Commitment Shortfall, (ii) the Defaulting Lender is replaced pursuant to Section 3.5(a), or (iii) if no Commitment Shortfall exists, Lessee requests that the Administrative Agent reallocate the Loan Commitments of the Non-Defaulting Lenders, no Non-Defaulting Lender or Certificate Holder shall be obligated to fund any Advances.

Section 3.6   Non-Funding Certificate Holder's Portion.

(a)   In the event that any Certificate Holder (a "Defaulting Certificate Holder") fails to Fund to the Administrative Agent on the applicable Advance Date an amount equal to such Certificate Holder's Commitment Percentage of the amount of the Advance required by the terms hereof to be funded on such Advance Date, or the Administrative Agent determines that a Certificate Holder will become a Defaulting Certificate Holder on the applicable Advance Date, the Administrative Agent shall promptly notify the Lessee thereof and the Lessee shall have either or both of the following options: (x) the Lessee may elect to postpone the funding of the entire Advance (provided, however, that such postponement shall in no event relieve Lessee of its obligation to pay as Contingent Costs any Break Costs suffered or incurred by any Participant as and to the extent required by and pursuant to Article XIV) (other than to the extent of an amount equal to any payment thereof to the Defaulting Certificate Holder), and/or (y) the Lessee may elect to have the provisions of clause (b) of this Section 3.6 be applicable. The Lessee or the Administrative Agent may elect to have the Defaulting Certificate Holder replaced with a new Certificate Holder acceptable to the Lessee, and the Administrative Agent and the Defaulting Certificate Holder shall cooperate (at no cost to the Lessor, Non-Defaulting Lenders and Administrative Agent) in replacing such Defaulting Certificate Holder.

(b)   Upon written request from the Lessee to the Administrative Agent, the Administrative Agent shall (i) promptly notify each other Certificate Holder (each, a "Non-Defaulting Certificate Holder"), (ii) specify the then Available Commitment (as used in this Section 3.6(b), the "Defaulted Certificate Holder Commitment Amount") of the Defaulting Certificate Holder and (iii) give to all Non-Defaulting Certificate Holders the opportunity to increase their respective Commitments by notice in writing to Administrative Agent within five (5) Business Days of Administrative Agent's notice in clause (i) above. If the Non-Defaulting Certificate Holders offer to increase their Commitments in the aggregate in an amount not less than the Commitment Shortfall but in no event greater than the Defaulted Certificate Holder Commitment Amount, Administrative Agent shall increase the Commitments of the participating Non-Defaulting Certificate Holders on a pro-rata basis in accordance with the respective amounts by which such Non-Defaulting Certificate Holders have offered to participate, it being understood that in no event shall the aggregate amount funded by any Certificate Holder exceed the amount of such Certificate Holder's Commitment, after giving effect to any increase in such Commitment pursuant to this sentence. In lieu thereof, if no Commitment Shortfall exists, Lessee may request that the Administrative Agent reallocate the Certificate Commitments of the Non-Defaulting Certificate Holders and increase the Non-Defaulting Certificate Holders' Commitment Percentages so that the portion of such Advance and each future Advance to be made by the Certificate Holders be made by the Non-Defaulting Certificate Holders ratably on the basis of the reallocated Certificate Commitments and Commitment Percentages.

As soon as practical after receipt of notices from Non-Defaulting Certificate Holders electing to participate in the Defaulted Certificate Holder Commitment Amount in an amount not less than the Commitment Shortfall but in no event greater than the Defaulted Certificate Holder Commitment Amount or a reallocation of the Certificate Commitments of the Non-Defaulting Certificate Holders to the extent permitted above, Administrative Agent shall notify each participating Certificate Holder of its revised Certificate Commitment or Commitment Percentage, as the case may be, Lessee may resubmit such Advance Request, and each Certificate Holder shall transfer to Administrative Agent, in immediately available funds, its pro rata share of the requested Advance, determined in proportion to the revised Certificate Commitments or Commitment Percentages, as the case may be, of the Certificate Holders. The Aggregate Commitment Amount and Aggregate Available Commitment shall be deemed to be reduced to the extent that the Certificate Commitments of the Non-Defaulting Certificate Holders, following a revision of Certificate Commitments or Commitment Percentages as provided for above, are less than the aggregate Certificate Commitments of all Certificate Holders (including the Defaulting Certificate Holder) prior to making any such revision. Following a revision of the Certificate Commitments or Commitment Percentage and a reduction in the Aggregate Commitment Amount and Aggregate Available Commitments as described above, a Defaulting Certificate Holder shall not have the right to fund its Defaulted Certificate Holder Commitment Amount with respect to such Advance or any future Advance, unless Administrative Agent and Lessee agree to reinstate such Certificate Holder's Commitment Amount, but only to the extent necessary to restore any adjustment in Commitment Percentages arising solely as a result of a reallocation as provided for above in this paragraph.

Unless (i) Non-Defaulting Certificate Holders offer to increase their Certificate Commitments in an amount not less than the Commitment Shortfall, or (ii) the Defaulting Certificate Holder is replaced pursuant to Section 3.6(a), or (iii) if no Commitment Shortfall exists, Lessee requests that the Administrative Agent reallocate the Certificate Commitments of the Non-Defaulting Certificate Holders, no Non-Defaulting Certificate Holder or Lender shall be obligated to fund any Advances.

Section 3.7   Additional Rights of Lessee. In the event Lessee receives notice from Administrative Agent of any Defaulted Amounts under either Section 3.5 or Section 3.6, or both, the Lessee shall have the rights set forth under Article XI in addition to any other rights that Lessee may have against any Defaulting Lender or Defaulting Certificate Holder, at law or equity.

Section 3.8   Cash Collateralization.

(a)   On the Cash Collateralization Date, Lessee shall deposit in a cash collateral account ("Cash Collateral Account") opened at a Qualified Financial Institution (the "Collateral Agent"), an amount in cash equal to 100% of the aggregate outstanding principal amount of the Class A Notes, excluding the Notes of any New Class A Noteholders (the "Required Cash Collateral Amount"). Such Cash Collateral Account shall be opened in the name of the Collateral Agent for the benefit of such Class A Noteholders. Lessee hereby grants to the Collateral Party, for the benefit of the Lessor and the Participants, a security interest in the Cash Collateral Account, such cash collateral and all amounts and instruments held in the Cash Collateral Account, any and all Permitted Investments, and any instruments acquired with such funds to secure the obligations of the Lessee under the Lease and the other Operative Agreements. Amounts held in such Cash Collateral Account may be invested in Permitted Investments at the direction of the Lessee, and such amounts, including any interest earned on such amounts, shall be applied by the Administrative Agent to the payment of the Obligations (except to the extent distributed to Lessee pursuant to Section 3.8(b)) when due under the Lease and the other Operative Agreements. Prior to the Cash Collateralization Date, Lessee shall execute and deliver to the Administrative Agent for the benefit of Lessor and the Participants, such further documents and instruments as the Administrative Agent may reasonably request to evidence the creation and perfection of the security interest in such Cash Collateral Account, including a Security Agreement, financing statements, acknowledgments, and an opinion of counsel, subject to standard exceptions, as to Collateral Party's first priority security interest in all such collateral.

(b)   If (i) on the last day of each March, June, September and December the aggregate amount of cash plus the fair market value of Permitted Investments in the Cash Collateral Account exceeds 100% of the aggregate outstanding principal amount of the Class A Notes, other than the Notes held by the New Class A Noteholders (such excess, the "Excess Collateral Amount"), (ii) at least five (5) Business Days prior to any such date specified in clause (i) above, Lessee shall have delivered a written notice to Administrative Agent requesting that any such Excess Collateral Amount be paid to it, and (iii) no Event of Default or Default shall have occurred and be continuing, then the Administrative Agent shall direct the Collateral Agent to cause an amount of cash (including cash proceeds from the liquidation of any Permitted Investments in the Cash Collateral Account) equal to the Excess Collateral Amount (calculated as of the date of withdrawal by the Collateral Agent, provided that prior to any withdrawal the Administrative Agent shall have determined that the calculation by the Collateral Agent is correct, such determination which shall be made by 2:00 p.m. on the date of the withdrawal provided that the Administrative Agent has received sufficient documentation supporting such calculation on or before 10:00 a.m. on the date of the withdrawal), less any penalty or charge applicable to the liquidation of the Permitted Investments being liquidated in connection therewith to be withdrawn from the Cash Collateral Account and paid to Lessee, provided that after giving effect to such withdrawal and the payment of any such penalties or charges, the amount on deposit in the Cash Collateral Account equals or exceeds the Required Cash Collateral Amount. The Administrative Agent shall not be liable to Lessee or any other Person for any losses (including loss of profits) arising from the liquidation of any Permitted Investments in order to pay the Excess Collateral Amount pursuant to the immediately preceding sentence.

Section 3.9   Refinancing. Lessee may, by written notice to Trustee, Administrative Agent, and each of the Participants, request that Trustee enter into documentation to refinance the Class A Notes in whole or in part with a bond facility (a "Replacement Facility") arranged by or on behalf of Lessee. Any Replacement Facility shall be in an aggregate principal amount and for a tenor equal to the Class A Notes being refinanced, and the holders of notes in the Replacement Facility shall assume the Loan Commitments and related Funding and other obligations of the Repaid Class A Noteholders under the Loan Agreement allocable to such Repaid Class A Noteholder's Class A Notes, and Guarantors and Lessee shall each execute and deliver to the Repaid Class A Noteholders a release in form and substance reasonably satisfactory to them, releasing each of them from such obligations following the date of such transfer. The terms and conditions of the documentation implementing any Replacement Facility shall be subject to the review and approval of the Certificate Holders, the Remaining Original Class A Noteholders, and the Class B Noteholders, which approval shall not be unreasonably withheld. The Certificate Holders, the Remaining Original Class A Noteholders and the Class B Noteholders may condition their approval solely (a) on a good faith determination that (i) the rights and obligations of the lenders in the Replacement Facility and the terms and conditions set forth in the documentation thereof will not expose the Certificate Holders, the Remaining Original Class A Noteholders and the Class B Noteholders to any new or additional expense, liability or obligation for which they are not fully indemnified by Lessee or the Guarantors and (ii) the substitution of the Loans with the Replacement Facility will not adversely affect the loan or investment value or accounting or tax treatment of the Certificate Holders', the Remaining Original Class A Noteholders' or Class B Noteholders' loans or investments, the rights and interests of the Certificate Holders, the Remaining Original Class A Noteholders, and the Class B Noteholders in the Collateral, or to make claims against the Lessee or the Guarantors. Any Replacement Facility shall be used solely for the repayment in whole or in part of Class A Notes including any accrued interest and other amounts due the Class A Noteholders whose Notes are repaid through and including the date such refinancing is consummated. All of the rights of the Class A Noteholders whose Notes are repaid under Article XIII shall survive the repayment of the Repaid Class A Notes. Immediately prior to the repayment of the Repaid Class A Notes, the parties participating in the Replacement Facility shall enter into documentation, reasonably satisfactory to the Certificate Holders, the Remaining Original Class A Noteholders and the Class B Noteholders, agreeing to be bound by and to assume all of the obligations of the Class A Noteholders whose Notes are repaid under the Operative Agreements and the Certificate Holders, Class B Noteholders and the Remaining Original Class A Noteholders shall receive from the Guarantors a written reaffirmation of the Guarantors' obligations under each of the Guarantees in form and substance satisfactory to the Certificate Holders, the Remaining Original Class A Noteholders and the Class B Noteholders, subject to the terms and conditions of the documentation implementing the Replacement Facility if approved by the other Participants as set forth above. Upon repayment of the Class A Notes to be repaid, the bonds or other instruments issued under the Replacement Facility shall be deemed "Class A Notes" for purposes of the Operative Agreements.

Section 3.10   Optional Commitment Reduction. At the option of the Lessee, from time to time during the Commitment Period, exercisable by written notice to the Administrative Agent (the "Commitment Reduction Notice"), the Lessee may request the Administrative Agent to reduce the Aggregate Available Commitment and Aggregate Commitment Amount, and the Administrative Agent shall notify the Participants of such request and the Participants shall each reduce the unused portion of their respective Commitments, subject, in the case of clauses (iii) and (iv) below, to the reasonable satisfaction of Administrative Agent of the following provisions:

       (i)   such notice from the Lessee shall specify the aggregate amount of such reduction for all Participants, which amount shall be either (x) $10,000,000 or an integral multiple of $1,000,000 in excess thereof, or (y) the remaining unfunded amount of the Available Commitments;

       (ii)   such notice shall specify the effective date of such reduction, such effective date to be a Payment Date not earlier than fifteen (15) Business Days after the date of such notice or such earlier date as may be acceptable to the Administrative Agent;

       (iii)   such notice shall specify if such notice is being given in connection with a purchase of Assets pursuant to Section 18.1(b) or (c) of the Lease;

       (iv)   in such notice, Lessee shall certify to the Lessor, each Participant and Administrative Agent: (A) that, after giving effect to such reduction, the remaining Available Commitments will equal or exceed the Unfunded Future Payment Amounts as of the effective date of such reduction and after giving effect to the purchase of Assets, if any, pursuant to Sections 18.1(b) or (c) of the Lease, (B) that the remaining Contingency Reserves, after such reduction of the Commitments are sufficient for reasonably foreseeable contingencies which might occur during the remaining course of Construction and Acquisition of the Equipment, including Break Costs and Default Completion Costs, if any, which may be incurred based on events occurring on or prior to the date of reduction, (C) the anticipated date on which the Construction and Acquisition of the Equipment and Facilities will be completed, and (D) that Lessee has satisfied all conditions specified in Article XVIII of the Lease to the purchase, if any, of Assets pursuant to Section 18.1(b) or (c) of the Lease, and such certificate shall be accompanied by such information and documentation as Administrative Agent may reasonably request to demonstrate the accuracy of such certifications;

       (v)   any such notice given in connection with a purchase of Assets pursuant to Section 18.1(b) or (c) of the Lease shall be irrevocable when given;

       (vi)   all fees, expenses, Transaction Costs and other amounts accrued with respect to the portion of the Commitments so reduced through the effective date of such reduction shall be paid in accordance with Section 15.18 (provided that, with respect to any such fee, cost or expense allocable to an Uncompleted Unit or Uncompleted Facility pursuant to Section 3.2(b), Lessee shall pay such amounts from the proceeds of Advances pursuant to the terms and subject to the conditions set forth in this Participation Agreement relating to Advances and provided amounts therefore are reserved for the applicable budget); and

       (vii)    (A) Except as provided for in Section 3.5 or 3.6, any reduction of the Available Commitments shall be made pro rata among the Lenders and the Certificate Holders based upon the amounts of their respective Commitments, and (B) unless such reduction was made solely for the purpose of continuing Advances pursuant to Section 3.5 or 3.6, reductions of the Available Commitments pursuant to this Section 3.10 may not be reinstated.

Following such reduction, the Administrative Agent shall reduce the Commitments of each Participant and amend Schedules I and II to reflect all such reductions.

Section 3.11   Optional Commitment Increase.

(a)   It is acknowledged and agreed among the parties that it is anticipated that the Commitments hereunder will be increased after the date hereof by the addition of new Participants, and the Commitments of the existing Participants may be increased, as contemplated by this Section 3.11(a); provided, that the Aggregate Commitment Amount shall not exceed $1,200,000,000. From time to time at the election of the Lessee, additional Participants may become party to this Participation Agreement and the applicable related Operative Agreements, as Certificate Holders or Lenders (provided that any proposed new Participant must meet the requirements set forth in the definition of "Eligible Assignee" to the reasonable satisfaction of the Administrative Agent) by virtue of the execution and delivery of a completed New Party Supplement substantially in the form of Exhibit Q-1 hereto in the case of Lenders and Exhibit Q-2 hereto in the case of Certificate Holders or in either case in such other form as may be agreed to by the Administrative Agent in its reasonable discretion, executed by the Lessee, such proposed new Participant, the Administrative Agent, and the Trustee. The Administrative Agent and the Trustee agree to execute and deliver such New Party Supplement promptly upon the request of the Lessee. Upon such execution by the Lessee, the proposed new Participant, the Administrative Agent, and the Trustee, each such new Participant shall become a Lender or Certificate Holder, as specified in such New Party Supplement, for all purposes hereunder and under the applicable related Operative Agreements as if originally a party hereto. In addition, the Commitment of any existing Participant may, at the request of the Lessee and with the consent of such Participant, from time to time be increased by the execution and delivery by such Participant (in its discretion), the Administrative Agent, the Trustee and the Lessee of a completed Participant Increase Supplement, substantially in the form of Exhibit R, or in such other form as may be agreed to by the Administrative Agent in its reasonable discretion, and upon such execution and delivery by such parties, the provisions hereof and of the other Operative Agreements which refer to such Commitment shall be deemed amended, mutatis mutandis, to reflect such increase in such Participant's Commitment. The Administrative Agent will cause Schedule I and Schedule II regarding Commitments and Commitment Percentages to be revised, with a copy sent to Lessee, each time a New Party Supplement or Participant Increase Supplement has been delivered in accordance with the terms of this Section 3.11(a). Notwithstanding anything contained herein or in any other Operative Agreement to the contrary, this Section 3.11 shall be of no further force and effect at such time as the Commitments are reduced for the first time pursuant to Section 3.10 unless such reduction is made solely for the purposes of continuing Advances pursuant to Section 3.5 or 3.6.

(b)   Upon the delivery of any New Party Supplement or Participant Increase Supplement, the Administrative Agent shall calculate the reallocation of outstanding Loans and Certificate Amounts such that, after giving effect to the increased Commitment represented by such supplement, each Participant holds its applicable share of Loans and Certificate Amounts based on the percentage its Loan Commitment or Certificate Commitment bears to the aggregate Loan Commitments or Certificate Commitments, as applicable (after giving effect to the increased Commitment). The Administrative Agent shall prepare a schedule showing proposed transfers of funds among the Participants to effect the reallocated Loans and Certificate Amounts, and shall provide a copy of such schedule to each Participant. Within ten (10) Business Days following the delivery of such schedule to the Participants, each Participant shall notify the Administrative Agent whether it agrees or disagrees with such calculation. Upon the expiration of such ten (10) Business Day period, the Administrative Agent shall either confirm to the Participants the correctness of the original schedule, or distribute to the Participants a corrected schedule. On the Payment Date following such confirmation or delivery of a corrected schedule, each Participant shall transfer funds to the other Participants if and to the extent reflected on such schedule, whereupon the Loans and Certificate Amounts, as applicable, of each such Participant shall be deemed reallocated as of such date. To the extent necessary to reflect such reallocated Loans and Certificate Amounts, as applicable, each Participant, the Administrative Agent and the Trustee shall cooperate to effect the exchange of Notes and Certificates, and the issuance of new Notes and Certificates, in each case pursuant to the applicable provisions of the Loan Agreement and the Trust Agreement, necessary to properly evidence the Loans and Certificate Amounts as so reallocated.

ARTICLE IV
YIELD; INTEREST

Section 4.1   Yield. The amount of the Certificate Amounts outstanding from time to time shall accrue Yield at the Yield Rate, calculated using the actual number of days elapsed and, during the initial Interest Period and when the Yield Rate is based on the LIBO Rate (Reserve Adjusted), a 360-day year basis and, at all other times, a 365- (or, if applicable, 366) day-year basis. If all or any portion of the Certificate Amounts outstanding, any Yield payable thereon or any other amount payable hereunder shall not be paid when due (whether at stated maturity, acceleration thereof or otherwise), such overdue amount shall bear interest at a rate per annum which is equal to the Overdue Rate.

Section 4.2   Interest on Loans. Each Loan shall accrue Interest computed and payable in accordance with the terms of the Loan Agreement.

Section 4.3   Payments of Rent; and Payments and Prepayments of Loans and Certificate Amounts.

(a)   The Lessor hereby directs the Lessee to pay to the Administrative Agent, pursuant to the terms of the Lease, the Rent (other than Excepted Payments, which the Lessor hereby directs the Lessee to make directly to the applicable Person entitled thereto) from time to time payable (which prior to the Applicable Base Term Commencement Date shall be paid for with Advances). Notwithstanding anything to the contrary herein or in any other Operative Agreement, except as provided for in the proviso at the end of this sentence and excluding amounts payable by other Persons which Lessee is required to pay over to Lessor, Administrative Agent or any Participant (i) Interest, Yield, Fees and Contingent Costs due and payable and which are allocable to Asset Costs funded for any Uncompleted Facility or Uncompleted Unit and (ii) any other Supplemental Rent, or prior to any Applicable Base Term Commencement Date which would following such date constitute Supplemental Rent, payable for or with respect to any Uncompleted Facility or Uncompleted Unit shall be payable solely from Advances pursuant to the terms and conditions of Section 3.1 to the extent of the Available Commitments; provided, however, that all payments or other amounts whether or not accruing prior to the Applicable Base Term Commencement Date for any Facility or Equipment Group (x) pursuant to Article XIII (other than with respect to Section 13.4), or (y) subject to Section 5.3 of the Supervisory Agreement, if applicable, payable by Lessee pursuant to Section 3.2(c), 3.4 or Article V of the Supervisory Agreement or Article XVI or Section 18.4 of the Lease, shall be the direct recourse obligations of Lessee and shall not be payable with Advances.

(b)   In the event that the Lessee pays any Lease Supplement Balance to the Lessor in connection with the Lessee's purchase of any Facility or Equipment Group in accordance with Section 15.1, 18.1 or Article XIX of the Lease, the Lessor will prepay the outstanding principal amount of the Loans and Certificate Amounts in an amount equal to such Lease Supplement Balance. Each of the Participants hereby acknowledges that its Loans or Certificate Amounts, as the case may be, may be so prepaid without any prepayment premium or charge (other than Break Costs, if any).

Section 4.4   Fees; Contingent Costs.

(a)   Lessee agrees to pay the fees set forth in this Section 4.4 (collectively, the "Fees"). During the Commitment Period, the Fees shall be paid solely with Advances pursuant to the terms and conditions set forth in Article III and Article VI.

(b)   Lessee agrees to pay the following fees (collectively, the "Commitment Fees") to the Persons indicated below (provided, however, that any Commitment Fees payable to the Participants shall be paid to the Administrative Agent on their behalf) from time to time during the Term:

       (i)   An "Upfront Fee" for the benefit of each Lender and Certificate Holder payable on the first Payment Date occurring on the date of or after such Person becomes a Participant.

       (ii)   An "Available Commitment Fee" payable quarterly in arrears on the last day of March, June, September and December of each year commencing on June 30, 2001 for the benefit of each Lender and Certificate Holder in an amount equal to the Available Commitment Fee accrued for the quarterly period ending on such quarterly payment dates. The Available Commitment Fee shall be equal to the Applicable Margin calculated on a per annum basis on an amount equal to the daily unused portion of the aggregate Commitment (computed on the basis of a year of 360 days and actual days elapsed).

The Administrative Agent shall provide to the Lessee from time to time not less than seven (7) Business Days prior to the due date(s) for each Available Commitment Fee, a written statement of the amount of the Available Commitment Fee then due, the due date therefor and the calculation thereof; provided, however, that Administrative Agent's failure to give such notice shall not relieve Lessee of its obligation to pay when due all Available Commitment Fees.

(c)   Other Fees. The Lessee also agrees to pay (i) to Trustee, for its own account, the fees set forth in the Trustee Fee Letter, payable in the amounts and on the dates set forth therein, (ii) to the Administrative Agent, for its own account, the fees set forth in the Syndication Letter, (iii) to the Arranger, the fees set forth in the Syndication Letter, and (iv) to Citicorp USA, Inc., the fees set forth in the letter dated April 30, 2001 among Citicorp USA, Inc., the Lessee, the Trust, PPL Corporation and the Administrative Agent. The fees payable pursuant to this Section 4.4(c) shall be payable in the amounts and on the dates set forth in each such letter.

Section 4.5   Obligations Several. The obligations of the Participants hereunder or elsewhere in the Operative Agreements shall be several and not joint; and no Participant shall be liable or responsible for the acts or defaults of any other party hereunder or under any other Operative Agreement.

Section 4.6   Highest Lawful Rate. It is the intention of the parties hereto to conform strictly to applicable usury laws and, anything herein to the contrary notwithstanding, the obligations of (x) Lessee to Lessor under this Participation Agreement and the Lease, (y) Lessor to the Certificate Holders under the Trust Agreement and the Certificates and to the Lenders under the Loan Agreement and the Notes, and (z) either Lessee or Lessor or any other party under any other Operative Agreement shall be subject to the limitation that payments of interest or of other amounts constituting interest under Applicable Laws shall not be required to the extent that receipt thereof would be in excess of the Highest Lawful Rate, or otherwise contrary to provisions of law applicable to the recipient limiting rates of interest which may be charged or collected by the recipient. Accordingly, if the transactions or the amount paid or otherwise agreed to be paid for the use, forbearance or detention of money under this Participation Agreement, the Lease, the Trust Agreement, the Certificates, the Loan Agreement, the Notes or any other Operative Agreement would exceed the Highest Lawful Rate or otherwise be usurious under Applicable Laws (including without limitation the federal and state laws of the United States of America, or of any other jurisdiction whose laws may be mandatorily applicable) with respect to the recipient of any such amount, then, in that event, notwithstanding anything to the contrary in this Participation Agreement, the Lease, the Trust Agreement, the Certificates, the Loan Agreement, the Notes or any other Operative Agreement, it is agreed as follows as to the recipient of any such amount:

(a)   the provisions of this Section 4.6 shall govern and control over any other provision in this Participation Agreement, the Lease, the Trust Agreement, the Certificates, the Loan Agreement, the Notes and any other Operative Agreement, and each provision set forth therein is hereby so limited;

(b)   the aggregate of all consideration which constitutes interest under Applicable Laws that is contracted for, charged or received under this Participation Agreement, the Lease, the Trust Agreement, the Certificates, the Loan Agreement, the Notes or any other Operative Agreement shall under no circumstances exceed the maximum amount of interest allowed by Applicable Laws (such maximum lawful interest rate, if any, with respect to such recipient herein called the "Highest Lawful Rate"), and all amounts owed under this Participation Agreement, the Lease, the Trust Agreement, the Certificates, the Loan Agreement, the Notes and any other Operative Agreement shall be held subject to reduction and: (i) the amount of interest which would otherwise be payable to the recipient hereunder and under the Lease, the Trust Agreement, the Certificates, the Loan Agreement, the Notes and any other Operative Agreement shall be automatically reduced to the amount allowed under Applicable Laws, and (ii) any unearned interest paid in excess of the Highest Lawful Rate shall be credited to the payor by the recipient (or, if such consideration shall have been paid in full, refunded to the payor);

(c)   all sums paid, or agreed to be paid for the use, forbearance and detention of the money under this Participation Agreement, the Lease, the Trust Agreement, the Certificates, the Loan Agreement, the Notes or any other Operative Agreement shall, to the extent permitted by Applicable Laws, be amortized, prorated, allocated and spread throughout the full term of such indebtedness until payment in full so that the actual rate of interest is uniform throughout the full term thereof; and

(d)   if at any time the interest, together with any other fees, late charges and other sums payable pursuant to or in connection with this Participation Agreement, the Lease, the Trust Agreement, the Certificates, the Loan Agreement, the Notes and any other Operative Agreement executed in connection herewith or therewith and deemed interest under Applicable Laws, exceeds that amount which would have accrued at the Highest Lawful Rate, the amount of interest and any such fees, charges and sums to accrue to the recipient of such interest, fees, charges and sums pursuant to the Operative Agreements shall be limited, notwithstanding anything to the contrary in the Operative Agreements, to that amount which would have accrued at the Highest Lawful Rate for the recipient, but any subsequent reductions, as applicable, shall not reduce the interest to accrue pursuant to the Operative Agreements below the recipient's Highest Lawful Rate until the total amount of interest payable to the recipient (including all consideration which constitutes interest) equals the amount of interest which would have been payable to the recipient (including all consideration which constitutes interest), plus the amount of fees which would have been received but for the effect of this Section 4.6.

Section 4.7   Extension of Maturity Date and Expiration Date.

(a)   Lessee may, by written request to Administrative Agent (which request Administrative Agent shall forward to each Participant not later than three (3) Business Days following Administrative Agent's receipt of such request) given not earlier than four hundred fifty (450) days and not later than three hundred sixty (360) days prior to the expiration of the Base Term (a "Base Term Extension Request") request that the Expiration Date be extended to June 30, 2013 with respect to all of the Assets, except Assets for which Lessee has given a Purchase Notice which has become irrevocable pursuant to Article XVIII of the Lease. No later than the date (the "Base Term Extension Response Date") which is forty-five (45) days after such request has been delivered to each Participant, each Participant shall notify Administrative Agent in writing whether or not it consents to such Base Term Extension Request, provided that any Participant that fails to so advise Administrative Agent on or prior to the Base Term Extension Response Date shall be deemed to have denied such Base Term Extension Request, and such Participant and any Participant that has notified Administrative Agent that it does not consent to the Base Term Extension Request shall be deemed to be a "Non-Consenting Participant", subject to Lessee's right, to the extent permitted pursuant to Section 4.7(b) to replace any Participant who does not consent to such Base Term Extension Request. The extension of the Expiration Date contemplated by any Base Term Extension Request shall become effective as of the first date (the "Base Term Extension Effective Date" with respect to such extension) on or after the Base Term Extension Response Date on which all of the following conditions have been satisfied or waived by each Participant (other than Non-Consenting Participants who have been replaced to the extent permitted pursuant to Section 4.7(b) below) and each Replacement Participant:

       (i)   on both the date of the Base Term Extension Request and the Base Term Extension Effective Date, (w) each of the representations and warranties made by Lessee in or pursuant to the Participation Agreement and each Guarantor in the Guarantees shall be true and correct in all material respects as if made on and as of each such date, except that any such representation or warranty which was expressly made only as of a specified date was true in all material respects only as of such date, (x) no Event of Default shall have occurred and be continuing, (y) Lessee shall not have elected the Sale Option and, with respect to the Lease Supplements to which the Base Term Extension Request applies, Lessee shall not have elected the Purchase Option; and (z) on each of such dates Administrative Agent shall have received a certificate of Lessee as to the matters relating to Lessee and Guarantor set forth in clauses (w), (x) and (y) above; and

       (ii)   each of the Participants (other than Non-Consenting Participants who have been replaced to the extent permitted pursuant to Section 4.7(b) below), and the Replacement Participants shall have consented to the Base Term Extension Request on or prior to the date which is 290 days prior to the expiration of the Base Term or, so long as Lessee has not elected the Sale Option, 270 days prior to the expiration of the Base Term.

(b)   At any time after the Base Term Extension Response Date and prior to 290 days prior to the expiration of the Base Term or, so long as Lessee has not elected the Sale Option, 270 days prior to the expiration of the Base Term, Lessee shall be permitted to replace any Non-Consenting Participant with a replacement bank or other financial institution (a "Replacement Participant") in accordance with Section 11.

Section 4.8   Determination of Rates and Interest Periods. The Lessee on behalf of Lessor shall select whether the rate of Interest and Yield for each Interest Period (the "Applicable Rate") will be determined by reference to the LIBO Rate or the Alternate Base Rate by giving notice (by telephone, promptly confirmed in writing) of that determination to the Administrative Agent no later than 10:00 a.m. (New York City time) (i) in the case of the LIBO Rate, on the third Business Day before the commencement of such Interest Period, and (ii) in the case of the Alternate Base Rate, on each Interest Reset Date. If the Lessee timely gives notice that the Applicable Rate be determined by reference to the LIBO Rate, Lessee shall also specify in such notice the applicable Interest Period. If the Lessee fails to timely give notice that the Applicable Rate be determined by reference to the LIBO Rate, then, as of the third Business Day prior to the commencement of the relevant Interest Period, the Lessee shall be deemed to have selected the Applicable Rate to be determined by reference to the LIBO Rate for a one (1) month Interest Period.

Section 4.9   Conversion of Applicable Rates. Subject to the notice requirement set forth in Section 4.8 and to the payment of all Break Costs (including the payment of Break Costs in the event the Lessee elects to convert the reference for the Applicable Rate from the LIBO Rate to the Alternate Base Rate after the Lessee shall have been deemed to have elected that the Applicable Rate be determined by reference to the LIBO Rate pursuant to the last sentence of Section 4.8), the Lessee may elect to convert the reference for the Applicable Rate from the LIBO Rate to the Alternate Base Rate, or elect a different Interest Period, on three (3) Business Days' prior notice to the Administrative Agent. Subject to the notice requirement set forth in Section 4.8, the Lessee may elect to convert the reference for the Applicable Rate from the Base Rate to the LIBO Rate on any Business Day.

Section 4.10   Number of Elections. All elections by Lessee hereunder shall be subject to the limitations set forth in the definition of "Interest Period."

ARTICLE V
CERTAIN INTENTIONS OF THE PARTIES

Section 5.1   Nature of Transaction. It is the intention of the parties that:

(a)   the Overall Transaction constitutes an operating lease from Lessor to Lessee for purposes of Lessee's financial reporting, including, without limitation, under Financial Accounting Standards Board Statement No. 13;

(b)   for all other purposes, including federal and all state and local income and transfer taxes, bankruptcy, insolvency, conservatorships and receiverships (including the substantive law upon which bankruptcy, conservatorship and insolvency and receivership proceedings are based) purposes:

       (i)   the Overall Transaction (including, without limitation, the transactions and activities during the Commitment Period referred to or contemplated by the Supervisory Agreement) constitutes a debt financing by the Participants to Lessee and preserves beneficial ownership in the Assets in Lessee, and the obligations of Lessee to pay Basic Rent shall be treated as payments of interest to the Participants, and the payment by Lessee of any amounts in respect of the Asset Balance shall be treated as payments of principal to the Participants;

       (ii)   the Lease provides for a security interest or Lien, as the case may be, in the Assets and the other Collateral, in favor of the Lessor, and for the benefit of the Participants, to secure Lessee's payment and performance of the Obligations; and

       (iii)   the Security Instruments create Liens on and security interests in the Assets and the other Collateral, for the benefit of all of the Participants to secure Lessor's payment and performance of the Loan Agreement, Trust Agreement, Notes, Certificates and other applicable Operative Agreements.

Nevertheless, Lessee acknowledges and agrees that none of Lessor, the Administrative Agent, Arranger or any Participant has made any representations or warranties concerning the tax, accounting or legal characteristics of the Operative Agreements or any aspect of the Overall Transaction and that Lessee has obtained and relied upon such tax, accounting and legal advice concerning the Operative Agreements and the Overall Transaction as it deems appropriate.

(c)   Specifically, without limiting the generality of clause (a), the parties hereto intend and agree that in the event of any insolvency, conservatorship or receivership proceedings or matters or a petition under the United States bankruptcy laws, or any other applicable insolvency, conservatorship or receivership laws or statute of the United States of America or any State or Commonwealth thereof affecting Lessee, Guarantor, Lessor, the Certificate Holders or the Lenders or any collection actions, the transactions evidenced by the Operative Agreements (including, without limitation, the Lease) constitute a financing made directly to Lessee by the Participants, in each case as unrelated third party lenders, and that Lessor holds title to the Assets for the benefit of the Participants to secure Lessee's obligations to repay such financing to the Participants and all other amounts due under any of the Operative Agreements.

Section 5.2   Amounts Due Under Lease. Anything else herein or elsewhere to the contrary notwithstanding, it is the intention of the Lessee, the Lessor, the Certificate Holders and the Lenders that: (i) the amount and timing of installments of Basic Rent due and payable from time to time under the Lease shall be equal to the aggregate payments due and payable as Interest on the Loans and Yield on the Certificate Amounts on each Payment Date; provided, however, that prior to the Applicable Base Term Commencement Date for any Uncompleted Facility or Uncompleted Unit, Lessee shall cause all Capitalized Costs and any other Supplemental Rent to be paid from Advances; (ii) if the Lessee elects the Early Termination Option, the Purchase Option or becomes obligated or otherwise elects to purchase the Assets or, to the extent permitted, certain Equipment or a Facility or a Proposed Site, the Loans, the Certificate Amounts, all accrued and unpaid Interest and Yield thereon, any Fees and all other obligations of the Lessee owing to the Lessor and the Participants shall be paid by the Lessee to the extent of the purchase amounts payable thereon; (iii) if the Lessee properly elects the Sale Option and subject to Articles XX and XXI of the Lease, the Lessee shall only be required to pay to the Administrative Agent the proceeds of the sale of the Assets, the Aggregate RVG Amount and any amounts due pursuant to Section 20.2 of the Lease (which aggregate amounts may be less than the unpaid principal of the Notes and Certificates), together with all other amounts due and payable as Supplemental Rent, but subject to the rights of the parties with respect to the Gross Proceeds as set forth at Section 5.3(d)(i); and (iv) upon an Event of Default resulting in an acceleration of the Lessee's obligation to purchase the Assets under the Lease or Supervisory Agreement, the amounts then due and payable by the Lessee under the Lease on a recourse basis shall include all amounts necessary to pay in full the Aggregate Permitted Asset Balance, it being understood that any difference between the Asset Balance and the Aggregate Permitted Asset Balance may be recovered from the proceeds from a sale of the Assets and the other Collateral subject to the terms and conditions of the Operative Agreements, plus all other amounts then due from the Lessee to the Participants under the Operative Agreements, subject, however, (x) prior to the Applicable Base Term Commencement Date to the limitation on Lessee's recourse liability at Section 5.3 of the Supervisory Agreement with respect to any Uncompleted Unit or Uncompleted Facility and (y) any applicable limitation on Lessee's recourse liability to the Aggregate Permitted Asset Balance set forth in the Operative Agreements.

Section 5.3   Distribution.

(a)   Except as otherwise provided in Section 5.3(g), each payment of Basic Rent (and any payment of interest on overdue installments of Basic Rent) and during the Commitment Period each Advance for Participant Capitalized Costs received by the Administrative Agent shall be distributed by the Administrative Agent to the Participants, in accordance with, and for application to, the amount of Interest, Yield and Fees then due on the Loans, Certificate Amounts and the Commitments of the Participants as well as any overdue Interest or Yield due to each Lender or Certificate Holder (to the extent permitted by Applicable Laws).

(b)   Any payment received by the Administrative Agent as a result of:

       (i)   the purchase of all or any portion of the Assets (including any Proposed Site) in connection with the Lessee's exercise of its Early Termination Option under Section 18.1 of the Lease or its Purchase Option under Section 19.1 of the Lease, or

       (ii)   except as specifically provided for in Section 5.3(c), (d)(iii) or (g), the Lessee's compliance with its obligation to purchase (or cause its designee to purchase) all or any portion of the Assets in accordance with the Lease, or

       (iii)   the payment of the Allocated Purchase Amount in accordance with Section 15.1 of the Lease or Section 3.4 of the Supervisory Agreement, or

       (iv)   the repayment of any Excepted Costs pursuant to Section 3.5 of the Supervisory Agreement,

shall be distributed by the Administrative Agent to pay in full, on a pro-rata basis, as applicable, the Participant Balance of each applicable Participant.

(c)   (i)   The payment by the Lessee of all or a portion of the Aggregate C&A Recourse Amount or any Lease Supplement Recourse Amount or the Aggregate Permitted Asset Balance or any Lease Supplement Permitted Balance shall be distributed by the Administrative Agent in the following amounts and order of priority:

first, on a pro rata basis based on their respective shares of the Loan Balance, to the Lenders for application to pay in full the Loan Balance owing to them; and

second, on a pro rata basis based on their respective shares of the Certificate Balance, to the Certificate Holders to pay in full the Certificate Balance; and

third, the balance, if any, shall be promptly distributed to, or as directed by, the Lessee.

(ii)   The payment by the Lessee of the Aggregate RVG Amount to the Administrative Agent in accordance with Section 20.1(j) of the Lease upon the Lessee's exercise of the Sale Option shall be distributed by the Administrative Agent in the following amounts and order of priority:

first, on a pro rata basis based on their respective shares of the Loan Balance attributable to the Class A Notes, to the Class A Noteholders for application to pay in full the Loan Balance owing to them; and

second, on a pro rata basis based on their respective shares of the Loan Balance attributable to the Class B Notes, to the Class B Noteholders for application to pay in full the Loan Balance owing to them; and

third, on a pro rata basis based on their respective shares of the Certificate Balance, to the Certificate Holders to pay in full the Certificate Balance; and

fourth, the balance, if any, shall be promptly distributed to, or as directed by, the Lessee.

(d)   (i)   Any payments received by the Administrative Agent as (A) Gross Proceeds from the sale of an Equipment Group or Facility leased under a Lease Supplement pursuant to the Lessee's exercise of the Sale Option pursuant to Article XX of the Lease and (B) with respect to each such Equipment Group or Facility, indemnification payments pursuant to Section 13.2 shall be distributed by the Administrative Agent in the funds so received in the following order of priority:

first, in an amount not to exceed the Lease Supplement Permitted Balance for such Lease Supplement, on a pro rata basis based on their respective shares of the Loan Balance attributable to the Class B Notes, to the Class B Noteholders for application to pay in full the Loan Balance owing to them, and

second, after application to such Lease Supplement Permitted Balance of the amounts paid under clause first, in an amount not to exceed such Lease Supplement Permitted Balance, on a pro rata basis based on their respective shares of the Loan Balance attributable to the Class A Notes, to the Class A Noteholders for application to pay in full the Loan Balance owing to them, and

third, after application to such Lease Supplement Permitted Balance of the amounts paid under clauses first and second, in an amount not to exceed such Lease Supplement Permitted Balance, on a pro rata basis based on their respective shares of the Certificate Balance, to the Certificate Holders to pay in full the Certificate Balance owing to them, and

fourth, to the Lessee to repay to Lessee in full the Lease Supplement RVG Amount for such Equipment Group or Facility to the extent previously paid by the Lessee, and

fifth, in an amount on a pro rata basis based on their respective shares of the Loan Balance, to the Lenders for application to pay in full the Loan Balance, and

sixth, in an amount on a pro rata basis based on their respective shares of the Certificate Balance, to the Certificate Holders to pay in full the Certificate Balance, and

seventh, the balance, if any, of such payment or amounts shall be promptly distributed to, or as directed by, the Lessee.

       (ii)   Any payments of Liquidated Damages or Rebates shall be paid over to Administrative Agent. Except as provided in Section 5.3(g), all Liquidated Damages and Rebates (other than Liquidated Damages used to repair a Facility in accordance with Section 2.4(g) of the Supervisory Agreement) received by Administrative Agent, and any amounts that may be distributed by the Administrative Agent to the Participants pursuant to a Project Collateral Account Agreement, shall be distributed by the Administrative Agent on the Payment Date immediately following the receipt by the Administrative Agent of any such payment, in the funds so received in the following order of priority:

first, on a pro rata basis based on their respective shares of the sum of the outstanding Loans and Certificate Amounts, as the case may be, to the Participants for application to pay in full the outstanding Loans and Certificate Amounts, and

second, the balance, if any, shall be promptly distributed to, or as directed by, the Lessee.

       (iii)   Any amounts that may be distributed by the Administrative Agent to the Participants from the Cash Collateral Account, not in excess of the Aggregate Permitted Asset Balance, shall be distributed by the Administrative Agent, on the Payment Date immediately following the receipt by the Administrative Agent of any such payment, in the funds so received in the following order of priority:

first, on a pro rata basis based on their respective shares of the outstanding Class A Notes, other than any New Class A Notes, to the holders of such Class A Notes for application to pay in full the portion of Loan Balance owing to them, and

second, on a pro rata basis based on their respective shares of the Loan Balance, to the other Lenders, including the holders of the New Class A Notes for application to pay in full the Loan Balance, and

third, on a pro rata basis based on their respective shares of the Certificate Balance, to the Certificate Holders to pay in full the Certificate Balance owing to them.

After payment of the foregoing amounts, any remaining balance in the Cash Collateral Account shall be promptly distributed to or as directed by the Lessee.

(e)   All payments of Supplemental Rent received by the Administrative Agent (excluding any amounts payable pursuant to the preceding provisions of this Section 5.3) shall be distributed promptly by the Administrative Agent upon receipt thereof to the Persons entitled thereto pursuant to the Operative Agreements.

(f)   Notwithstanding any other provision of this Section 5.3, any Excepted Payment (including Advances made during the Commitment Period to pay such amounts) received at any time by the Administrative Agent shall be distributed promptly to the Person entitled to receive such Excepted Payment pursuant to the Operative Agreements.

(g)   (i)   Except as provided in Section 5.3(d)(iii) above and Sections 5.3(g)(ii) and 5.3(g)(iii) below, if, on any date, an Event of Default exists, a payment is made of any amount (other than the Aggregate C&A Recourse Amount, any Lease Supplement Recourse Amount, the Aggregate Permitted Asset Balance, any Lease Supplement Permitted Balance or any amount pursuant to the Early Termination Option), including proceeds from the sale of Assets, then distributions of such amounts shall be made by the Administrative Agent in the following order of priority:

first, in an amount not to exceed the Aggregate Permitted Asset Balance, on a pro rata basis based on their respective shares of the Loan Balance, to the Lenders for application to pay in full the Loan Balance owing to them, and

second, in an amount which together with all amounts paid under clause first does not exceed the Aggregate Permitted Asset Balance, on a pro rata basis based on their respective shares of the Certificate Balance, to the Certificate Holders to pay in full the Certificate Balance owing to them, and

third, to the Lessee to pay in full the Aggregate C&A Recourse Amount or the Aggregate Permitted Asset Balance, as applicable, to the extent previously paid by the Lessee, and

fourth, on a pro rata basis based on their respective shares of the Loan Balance, to the Lenders for application to pay in full the Loan Balance owing to them, and

fifth, on a pro rata basis based on their respective shares of the Certificate Balance, to the Certificate Holders to pay in full the Certificate Balance owing to them, and

sixth, the balance, if any, of such payment or amounts shall be promptly distributed to, or as directed by, the Lessee.

       (ii)   Notwithstanding the provisions of Section 5.3(g)(i) above to the contrary, if, on any date, after a Construction Period Event of Default has occurred and is continuing, a payment is made of any amount attributable to the applicable Uncompleted Facility or Uncompleted Units (other than the Aggregate C&A Recourse Amount, any Lease Supplement Recourse Account, the Aggregate Permitted Asset Balance, any Lease Supplement Permitted Balance or any amount pursuant to the Early Termination Option), including proceeds from the sale of such Uncompleted Facility or Uncompleted Units, as the case may be, then distributions of such amounts shall be made by the Administrative Agent in the following order of priority:

first, in an amount not to exceed the Lease Supplement Permitted Balance applicable to such Uncompleted Facility or Uncompleted Units, on a pro rata basis based on their respective shares of the Loan Balance, to the Lenders for application to pay in full the Loan Balance owing to them, and

second, after application to such Lease Supplement Permitted Balance applicable to such Uncompleted Facility or Uncompleted Units of the amounts paid under clause first, in an amount not to exceed such Lease Supplement Permitted Balance applicable to such Uncompleted Facility or Uncompleted Units, on a pro rata basis based on their respective shares of the Certificate Balance, to the Certificate Holders to pay in full the Certificate Balance owing to them, and

third, to the Lessee to repay Lessee in full the Lease Supplement Recourse Amount for such Uncompleted Units or Uncompleted Facility, to the extent previously paid by the Lessee, and

fourth, on a pro rata basis based on their respective shares of the Loan Balance, to the Lenders for application to pay in full the Loan Balance, and

fifth, on a pro rata basis based on their respective shares of the Certificate Balance, to the Certificate Holders to pay in full the Certificate Balance, and

sixth, the balance, if any, of such payment or amounts shall be promptly distributed to, or as directed by, the Lessee.

Any amounts applicable to any Units for which the Unit Completion Date has occurred, shall be distributed pursuant to Section 5.3(g)(i) above.

       (iii)   Notwithstanding the provisions of Section 5.3(g)(i) above to the contrary, if, on any date, after an Event of Default has occurred and is continuing giving rise to a limitation on Lessee's liability pursuant to Section 16.3(a)(ii), proceeds are received by Administrative Agent from the sale by Lessor of a Completed Facility or Completed Equipment Group pursuant to Section 16.2 (other than a sale pursuant to Lessee's exercise of an Early Termination Option), then the distribution of the proceeds from the sale of such Completed Facility or Completed Equipment Group shall be made by the Administrative Agent in the following order of priority (it being understood that if an Event of Default exists with respect to any event, condition, matter or breach other than as specifically referred to in Section 16.3(a)(ii), such proceeds shall be distributed pursuant to Section 5.3(g)(i) above):

first, in an amount not to exceed the Lease Supplement Permitted Balance applicable to such Completed Facility or Completed Equipment Group, on a pro rata basis based on their respective shares of the Loan Balance, to the Lenders for application to pay in full the Loan Balance owing to them, and

second, after application to such Lease Supplement Permitted Balance applicable to such Completed Facility or Completed Equipment Group of the amounts paid under clause first, in an amount not to exceed such Lease Supplement Permitted Balance applicable to such Completed Facility or Completed Equipment Group, on a pro rata basis based on their respective shares of the Certificate Balance, to the Certificate Holders to pay in full the Certificate Balance owing to them, and

third, to the Lessee to repay Lessee in full the Lease Supplement RVG Amount for such Completed Facility or Completed Equipment Group, to the extent previously paid by the Lessee following such Event of Default, and

fourth, on a pro rata basis based on their respective shares of the Loan Balance, to the Lenders for application to pay in full the Loan Balance, and

fifth, on a pro rata basis based on their respective shares of the Certificate Balance, to the Certificate Holders to pay in full the Certificate Balance, and

sixth, the balance, if any, of such payment or amounts shall be promptly distributed to, or as directed by, the Lessee.

Any proceeds from a sale of Assets other than any such Completed Facility or Completed Equipment Group shall be distributed pursuant to Section 5.3(g)(i) above.

(h)   (i)   Any payment received by the Administrative Agent for which no provision as to the application thereof is made in the Operative Agreements or elsewhere in this Section 5.3 shall be distributed in accordance with Section 5.3(g).

       (ii)   Except as otherwise provided in Sections 5.3(a) and 5.3(f), all payments received and amounts realized by the Administrative Agent under the Lease or otherwise with respect to any Asset, or any proceeds thereof, to the extent received or realized at any time after an indefeasible payment in full of the Participant Balances of all of the Participants and all other amounts due and owing to the Participants, shall be distributed forthwith by the Administrative Agent in the order of priority set forth in Section 5.3(g)(ii), except that such payment shall be distributed omitting clauses "second," "third," "fourth" and "fifth" of such Section 5.3(g)(ii).

       (iii)   Any payment received by the Administrative Agent for which provision as to the application thereof is made in an Operative Agreement, but not elsewhere in this Section 5.3, shall be distributed forthwith by the Administrative Agent to the Person and for the purpose for which such payment was made in accordance with the terms of such Operative Agreement.

(i)   Except to the extent clause (g) is applicable thereto, any amounts payable to the Administrative Agent as a result of a Casualty or Condemnation pursuant to Section 15.1 the Lease or Section 3.4(a)(x) of the Supervisory Agreement shall be distributed as follows: (x) if a Termination Notice shall have been given, all amounts that are to be applied to the purchase price of the Assets in accordance with Section 15.1(b) of such Lease or Section 3.4(b) of the Supervising Agreement or any payment by Lessee pursuant to Section 3.4(c) of the Supervising Agreement shall be distributed by the Administrative Agent in accordance with Section 5.3(b); and (y) all amounts payable to the Lessee for the repair of damage caused by such Casualty or Condemnation in accordance with Section 14.1(a) of such Lease shall be distributed to, or as directed by, the Lessee.

(j)   To the extent any payment made to any Participant, personally, is insufficient to pay in full the Participant Balance of such Participant, then each such payment which is payable to a Lender shall first be applied to accrued Interest and then to principal outstanding on the Loans and each such payment which is payable to a Certificate Holder shall first be applied to accrued Yield and then to the Certificate Amounts, as applicable.

Section 5.4   Adjustments. (a) If any Participant (a "Benefitted Participant") shall at any time receive any payment of all or part of its Loans or Certificate Amounts, as applicable, or Interest or Yield thereon, as applicable, or receive any of the Collateral in respect thereof (whether voluntarily or involuntarily, by setoff, or otherwise), in an amount greater than the amount to which such Participant was entitled pursuant to Section 5.3 of this Participation Agreement, such Participant shall return such amount or Collateral to the Administrative Agent for distribution to the Person(s) entitled thereto in accordance with such Section 5.3; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Participant so that the excess payment or benefits returned by such Benefitted Participant exceed the remaining excess payment or benefits held by such Benefitted Participant, the excess payment or benefits, as applicable, returned by such Benefitted Participant shall be restored to the Benefitted Participant, to the extent of such recovery, but without interest.

ARTICLE VI
CONDITIONS PRECEDENT TO ADVANCES

Section 6.1   Conditions Precedent to the Initial Advance. The obligations of the Lessor (through the Administrative Agent) to make an Advance on the Initial Advance Date, the obligations of the Certificate Holders to Fund the related Certificate Amounts on the Initial Advance Date and the obligation of the Lenders to make the related Funding of their Loans on the Initial Advance Date are subject to the satisfaction or waiver on or prior to the Initial Advance Date of each of the following conditions precedent:

(a)   Lessee's Resolutions and Incumbency Certificate, Etc. The Lessee shall have delivered to the Administrative Agent (i) a good standing certificate with respect to Lessee from the Secretary of State of Delaware, issued by such office no earlier than thirty (30) days prior to the Initial Advance Date and (ii) an Officer's Certificate of Lessee substantially in the form of Exhibit G-1, attaching and certifying as to (A) the limited liability company authority for the execution, delivery and performance by Lessee of each Operative Agreement to which it is or will be a party, (B) its organizational documents, (C) its operating agreement and (D) the incumbency and signature of persons authorized to execute and deliver on its behalf the Operative Agreements to which it is a party.

(b)   PPL Corporation Resolutions and Incumbency Certificate, Etc. PPL Corporation shall have delivered to the Administrative Agent (i) a good standing certificate from the Secretary of State of Pennsylvania, issued by such office no earlier than thirty (30) days prior to the Initial Advance Date and (ii) an Officer's Certificate of Guarantor substantially in the form of Exhibit G-2, attaching and certifying as to (A) the corporate authority for the execution, delivery and performance by PPL Corporation of each Operative Agreement to which it is or will be a party, (B) its organizational documents, (C) its by-laws and (D) the incumbency and signature of persons authorized to execute and deliver on its behalf the Operative Agreements to which it is a party.

(c)   Trustee Documents. The Administrative Agent shall have received, each dated as of the Initial Advance Date (unless otherwise specified) and in form and substance satisfactory to the Agent and Lessee:

       (i)   a certificate of the Secretary or an Assistant Secretary of State Street Bank and Trust Company of Connecticut, National Association certifying (A) the organizational documents of State Street Bank and Trust Company of Connecticut, National Association, (B) the resolutions of the board of directors of State Street Bank and Trust Company of Connecticut, National Association approving the execution, delivery and performance of each Operative Agreement to which the Trustee is a party, and (c) the names and true signatures of the officers of State Street Bank and Trust Company of Connecticut, National Association authorized to sign each Operative Agreement to which the Trustee or the Lessor is a party and the other documents or certificates to be delivered hereunder and thereunder;

       (ii)   an Officer's Certificate of State Street Bank and Trust Company of Connecticut, National Association certifying as to the truth and correctness of the representations and warranties made by State Street Bank and Trust Company of Connecticut, National Association and the Lessor in each Operative Agreement;

       (iii)   a certificate of authority form the Comptroller of the Currency with respect to State Street Bank and Trust Company of Connecticut, National Association dated as of a recent date prior to the Initial Advance Date;

       (iv)   the Certificate of Existence of the Lessor issued by the State of Connecticut; and

       (v)   a favorable opinion of Bingham Dana LLP, counsel to the Trustee and the Lessor, addressed to the Agent, State Street Bank and Trust Company of Connecticut, National Association, the Lessor, each Lender, each Certificate Holder, and Lessee and the Guarantors.

(d)   Trustee Parent Documents. The Administrative Agent shall have received, each dated the Initial Advance Date (unless otherwise specified) and in form and substance satisfactory to the Administrative Agent and Lessee:

       (i)   a certificate of the Secretary or an Assistant Secretary of the Trustee Parent certifying (A) the organizational documents of the Trustee Parent, (B) the resolutions of the board of directors of the Trustee Parent approving the execution, delivery and performance of the Trustee Parent Guarantee and (C) the names and true signatures of the officers of the Trustee Parent authorized to sign the Trustee Parent Guarantee and the other documents or certificates to be delivered hereunder;

       (ii)   a certificate of good standing and legal existence from the Office of the Commissioner of Banking for the Commonwealth of Massachusetts with respect to the Trustee Parent dated as of a recent date prior to the Document Closing Date; and

       (iii)   a favorable opinion of Bingham Dana LLP, counsel to the Trustee Parent, addressed to the Administrative Agent, Trustee, the Trust, each Lender, each Certificate Holder, the Lessee and each Guarantors.

(e)   Opinions of Senior Counsel and Special Counsel to Lessee and PPL Corporation. The Lessee shall have delivered to the Administrative Agent, Lessor and each Participant opinions of the Senior Counsel to PPL Services Corporation, a wholly-owned subsidiary of PPL Corporation as to the matters set forth in Exhibit B-2, and the opinion of Orrick, Herrington & Sutcliffe LLP, special counsel to Lessee and PPL Corporation, as to the matters set forth in Exhibit B-3, which opinions shall be reasonably acceptable in form and substance to the Participants.

(f)   Lessee's Certificate. Lessee shall have delivered to the Administrative Agent a Certificate dated as of the Initial Advance Date in the form of Exhibit C-1 hereto.

(g)   Taxes. All taxes, fees and other charges in connection with the execution, delivery, recording, filing and registration of the Operative Agreements, if any, shall have been paid by or from an Advance, to the extent set forth in the Facility Budget applicable to each Facility, or provisions for such payment shall have been made by the Lessee to the satisfaction of the Administrative Agent.

(h)   Existing Turbine Contract. Copies of the executed Existing Turbine Contract and such other existing documentation and agreements with respect to the acquisition, manufacture, assembly, operation and use of the Equipment, as the Administrative Agent or Lessor may reasonably request, each certified by an Officer of the Lessee as being a true and correct copy thereof.

(i)   Appraisal Matters. Administrative Agent shall have received the appraisal (the "Initial Appraisal") prepared for and accepted by the Lessor under the Existing Warehouse Facility in form and substance satisfactory to each of the Participants which shall show (by the use of appraisal methods reasonably satisfactory to the Participants) the forecasted Fair Market Value of the Turbines and SCRs to be financed under the Equipment Tranche, as of the Unit Completion Date for such Equipment and as of a day occurring on or after the last day of the Base Term, which Fair Market Value as of the last day on or following the last day of the Base Term as set forth in the Initial Appraisal shall be equal to or exceed the Minimum Coverage Amount.

(j)   Filings and Recordings. All filings or recordings enumerated and described in Schedule 6.1(j) hereof, as well as all other filings and recordings necessary or advisable or reasonably requested by Administrative Agent to perfect the rights, titles and interests of Lessor, the Participants and Administrative Agent intended to be created by the Operative Agreements shall have been made in the appropriate places or offices, including any recordings and filings necessary to create, perfect, preserve and protect Lessor's interest in the Assets and any other property and interests included in the Trust Estate and Administrative Agent's interest in the Security Collateral. All recording and filing fees and taxes with respect to any recordings or filings made pursuant to this Section 6.1(j) shall have been paid in full by Lessee or will be funded by the Initial Advance, and satisfactory evidence thereof shall have been delivered to Lessor and Administrative Agent, or arrangements for such payment shall have been made by Lessee to the reasonable satisfaction of Administrative Agent.

(k)   Requirements of Law. In the reasonable opinion of the Lessor, the Administrative Agent and the Participants and their respective counsel, the Overall Transaction does not and will not violate in any material respect any Applicable Laws and does not and will not subject any such Person to any material adverse regulatory prohibitions or constraints or cause any such Person to violate any Applicable Laws.

(l)   Responsible Officer's Certificate of Lessee. The Administrative Agent shall have received a Responsible Officer's Certificate of the Lessee, in substantially the form of Exhibit D-1 attached hereto, dated as of the Initial Advance.

(m)   Responsible Officer's Certificate of PPL Corporation. The Administrative Agent shall have received a Responsible Officer's Certificate of PPL Corporation, in substantially the form of Exhibit D-3 attached hereto, dated as of the Initial Advance.

(n)   Initial Advance Date. The Initial Advance Date shall occur on or prior to May 3, 2001.

(o)   Liability Insurance. Commercial general liability insurance and all other types of liability insurance specified in and complying with the applicable provisions of Section 2.5(e) of the Supervisory Agreement shall be in full force and effect as evidenced by certificates of insurance, broker's reports or insurance binders delivered to Administrative Agent and Lessor, all in form and substance reasonably satisfactory to the Participants, and such insurance which shall name Administrative Agent, Lessor and each Participant as additional insureds.

(p)   Collateral Assignment. The Administrative Agent shall have received executed originals of the Collateral Assignment.

(q)   GE Documents. Copies of the executed GE Letter, Assignment and Assumption Agreement and Notice of Partial Assignment (the "GE Documents"), in form and substance satisfactory to the Administrative Agent.

(r)   Proceedings Satisfactory and Other Evidence. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated by the Operative Agreements and all documents, papers and authorizations relating thereto shall be satisfactory to the Administrative Agent, the Participants, the Lessor, Lessee, the Guarantors and their respective counsel.

All documents and instruments required to be delivered on the Initial Advance Date shall be delivered at the offices of Mayer, Brown & Platt, 1675 Broadway, New York, New York 10019-5820 Attention: Michael Sloyer, Esq., or at such other location as may be determined by the Administrative Agent and the Lessee.

Section 6.2   Conditions Precedent to each Advance. The obligations of the Lessor (through the Administrative Agent) to make an Advance on each Advance Date, the obligation of the Certificate Holders to Fund the related Certificate Amounts on such Advance Date, and the obligation of the Lenders to make the related Fundings of their Loans on such Advance Date are subject to satisfaction or waiver on or prior to such Advance Date of the following conditions precedent, except that the condition contained in clause (r) below need only be satisfied on or prior to the date specified therein:

(a)   Advance Request. The Administrative Agent shall have received a fully executed counterpart of the applicable Advance Request, executed by the Lessee, in accordance with Section 3.3(a). Each delivery of an Advance Request and the acceptance by the Lessee of the proceeds of such Advance shall constitute a representation and warranty by the Lessee hereunder and each Guarantor under their respective Guarantees that on the applicable Advance Date (both immediately before and after giving effect to the making of such Advance and the application of the proceeds thereof), in the case of the Lessee, the statements made by Lessee in Section 8.3 and in the case of each Guarantor, the representations and warranties made by each such Guarantor in the applicable Guarantee are true and correct in all material respects as of such date, and that the certifications given as of the Initial Advance Date as described at Exhibit D-1 and Exhibit D-3 are deemed to have been given and restated by the Lessee and the Guarantor, respectively, as of such Advance Date.

(b)   Fees. Administrative Agent, Lessor and Arranger shall have received all Fees due and payable pursuant to Section 4.4, and on the Advance Date occurring on the Second Document Closing Date, the new Lenders and Certificate Holders will have received payment of their respective Upfront Fees, or such payment will be made out of the requested Advance to the extent permitted pursuant to the terms hereof.

(c)   Representation and Warranties. On the applicable Advance Date, the representations and warranties of the Lessee in Section 8.2 and in each of the other Operative Agreements and of each Guarantor in the Guarantees shall be true and correct in all material respects as though made on and as of such date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date.

(d)   Litigation. No action or proceeding shall have been instituted, nor shall any action or proceeding be threatened, before any Governmental Authority, nor shall any order, judgment or decree have been issued or proposed to be issued by any Governmental Authority (i) to set aside, restrain, enjoin or prevent the full performance of this Participation Agreement, any other Operative Agreement or any transaction contemplated as part of the Overall Transaction, (ii) that questions the validity of the Operative Agreements or the rights or remedies of the Lessor, the Administrative Agent or the Participants with respect to the Lessee, the Guarantors, the Assets or the other Collateral under the Operative Agreements, or (iii) for which there is a reasonable possibility of an adverse decision which has had or would reasonably be expected to have a Material Adverse Effect.

(e)   No Default. Except with respect to the portion of an Advance of amounts specified in Section 3.2(a)(i) provided an Insolvency Event has not occurred, there shall not have occurred and be continuing any Default (excluding a Default relating solely to a Completed Facility or Unit in an Equipment Group for which the Unit Completion Date has occurred), Event of Default or Uninsured Loss nor shall the Lessor have given a Termination Notice pursuant to Section 3.4 of the Supervisory Agreement, and no Default or Event of Default will have occurred after giving effect to the making of the Advance requested by such Advance Request.

(f)   Commitment Amount. After giving effect to the applicable Advance, the aggregate amount of all Advances of all Participants shall not exceed the Available Commitment Amount and the aggregate amount of all Advances made by each Participant shall not exceed the Available Commitment of such Participant.

(g)   Transaction Costs. Lessee shall have paid, or to the extent provided in the applicable Equipment Budget, Facility Budget or Pro Forma Budget, made arrangements to pay by or from such Advance, all applicable Transaction Costs then due and payable.

(h)   Equipment Advances. For each Advance requesting Funds for Equipment Costs or Facility Equipment Costs due and payable under the Equipment Contracts, (i) a statement of the total amount requested by the applicable Manufacturer with respect to such Equipment Advance and (ii) the Equipment Costs in respect of which such Advance is requested shall be allocated to each Uncompleted Unit for which they have been or are being incurred and shall not exceed the applicable budget items plus the applicable Contingency Reserve set forth in the Equipment Group Budget for each Equipment Group.

(i)   Construction Advances. For each Advance requesting Funds for Facility Costs due and payable under the Project Agreements:

       (i)   The Facility Costs in respect of which such Construction Advance is requested shall be allocated to each Uncompleted Facility for which they have been incurred or are being incurred and shall not exceed the applicable budget items plus the applicable Contingency Reserves set forth in the Facility Budget for each such Uncompleted Facility;

       (ii)   Lessor and Administrative Agent shall have received on the date of each such Advance for each Uncompleted Facility, following the Initial Construction Advance for such Uncompleted Facility, an endorsement to the Title Policies for such Uncompleted Facility to which such Advance applies (i) indicating that since the date of the preceding Advance for Construction Costs there has been no change in the state of title (except changes approved by Administrative Agent), (ii) updating the Title Policies with respect to such Uncompleted Facility to the date of such Advance, and (iii) increasing the coverage of the Title Policies for such Uncompleted Facility by an amount equal to the portion of the Advance applicable to such Uncompleted Facility if the Title Policies do not by their own terms provide for such an increase; and

       (iii)   For each Uncompleted Facility to which such Construction Advance applies, the Administrative Agent shall have received a statement of the total amount of each invoice or draw request from the General Contractor or Manufacturer under any Major Project Agreement which is to be paid with the proceeds of such Construction Advance setting forth the amount due under such Major Project Agreement, in each case accompanied by a certification by Lessee as to the correctness of such invoiced amount.

(j)   Commitment Period. No Advance shall be made after the termination of the Commitment Period.

(k)   Consents and Approvals.

       (i)   All Governmental Actions and other approvals and consents required to be taken, given or obtained, as the case may be, by or from any Governmental Authority or another Person, or by or from any trustee or holder of any indebtedness or obligation of Lessee, each Guarantor and their respective affiliates, in each case that are necessary in connection with the execution and delivery of the Operative Agreements by such persons and that are necessary to have been obtained by such persons prior to such Advance Date in connection with any portion of the Overall Transaction shall have been taken, given or obtained (including, if applicable at such time, the satisfaction of the conditions and obligations under Section 9.1(h)), as the case may be, shall be in full force and effect, and the time for appeal with respect thereto shall have expired (or, if an appeal shall have been taken, the same shall have been dismissed) and shall not be subject to any pending proceedings or appeals (administrative, judicial or otherwise) except for any such governmental actions, approvals, consents, licensees or easements the failure of which to obtain or maintain could not reasonably be expected to cause a Material Adverse Effect.

       (ii)   All Governmental Actions and other approvals, consents, licenses and easements required to be taken, given or obtained, as the case may be, by or from any Governmental Authority or another Person, or by or from any trustee or holder of any indebtedness or obligation of Lessee or each Guarantor, that are necessary in connection with the acquisition of any Site, the performance at any Site of the Site Obligations, including the Construction of the Site Improvements and the related Equipment Obligations with respect to the Facility Equipment to be installed at such Site, in each case, and that are necessary to have been obtained prior to the applicable Advance Date shall have been taken, given or obtained, as the case may be, shall be in full force and effect, and the time for appeal with respect thereto shall have expired (or, if an appeal shall have been taken, the same shall have been dismissed) and shall not be subject to any pending proceedings or appeals (administrative, judicial or otherwise), except for any such Governmental Actions, approvals, consents, licenses or easements the failure of which to obtain or maintain could not reasonably be expected to cause a Material Adverse Effect.

(l)   Taxes. All taxes, charges, fees and costs, if any, payable in connection with the execution, delivery, recording and filing of the Operative Agreements and the transactions contemplated to be consummated on such Advance Date shall have been paid in full, or arrangements for such payment shall have been made to the satisfaction of the Administrative Agent.

(m)   No Material Adverse Change. Immediately prior to, and after giving effect to, such Advance, since December 31, 2000, there shall be no event, change or condition which would have a Material Adverse Effect, in the reasonable judgment of the Required Participants.

(n)   Force Majeure. No Force Majeure Event or Event of Loss exists with respect to any Uncompleted Unit or any Uncompleted Facility unless (i) such event or condition relates solely to an Uncompleted Unit or Uncompleted Facility for which funds are not being requested in such Advance, or if funds are being requested for any such Uncompleted Unit or Uncompleted Facility affected by a Force Majeure Event or Event of Loss, the amounts requested are (x) limited to the amounts reserved for in the applicable Equipment Budget or Facility Budget to pay the deductible provided for in the builder's risk policy insuring such event or loss, provided such deductible amount does not exceed the $350,000 aggregate limitation deductible for all Assets suffering Force Majeure Events as provided for at paragraph (A)(7)(f) of Schedule 2.5(e) to the Supervisory Agreement or (y) to fund Asset Costs for a portion of an Uncompleted Facility not affected by such event and Lessee certifies to Administrative Agent and Lessor that such amounts to be Advanced do not constitute Force Majeure Losses, and (ii) prior to such Advance, Lessee demonstrates to the reasonable satisfaction of Administrative Agent that there will be no Uninsured Loss with respect to any Force Majeure Event or Event of Loss, and such Force Majeure Event, Significant Casualty or Significant Condemnation will not cause the Substantial Completion of any Facility or the Unit Completion Date for any Unit of Equipment to occur later than the applicable Facility Outside Completion Date or the Equipment Group Outside Completion Date, except as permitted at Section 3.2(b) of the Supervisory Agreement.

(o)   Available Commitment. After giving effect to such Advance, the Aggregate Available Commitment shall equal or exceed the Unfunded Future Payment Amounts.

(p)   Excepted Cost Advances. For each Advance requesting Funds for Excepted Costs, Administrative Agent shall have received (i) a certificate from Lessee, (A) identifying the Proposed Site to which such Excepted Costs are being allocated, (B) identifying the Turbines allocated to such Proposed Site and the aggregate amount of Advances previously Funded with respect to such Turbines (the "Turbine Advance Amount"), (C) that such requested Advance for Excepted Costs, together with the sum of all prior Advances for Excepted Costs for such Proposed Site (including any Capitalized Costs related or otherwise allocated to such Advances, but excluding the installment payments paid to the manufacturer of the Turbines allocated to the Proposed Site) and the aggregate amount of Termination Payments which could become payable in the event of a cancellation or termination of all Project Agreements relating to such Proposed Site (other than those arising under the Turbine Agreement), does not exceed 25% of the Turbine Advance Amount for such Proposed Site and (D) that such requested Advance for Excepted Costs, together with all prior Advances for Excepted Costs for all Proposed Sites (including any Capitalized Costs related to such Advances, but excluding the installment payments paid to the manufacturer of the Turbines allocated to the Proposed Site) and the aggregate amount of Termination Payments which could become payable in the event of a cancellation or termination of all Project Agreements relating to all of the Proposed Sites (other than those arising under the Turbine Agreement), other than Repaid or Reallocated Excepted Costs, does not exceed in the aggregate five percent (5%) of the Aggregate Commitment Amount, (ii) with respect to the Initial Advance for a Proposed Site, (x) a Pro Forma Budget for such Proposed Site, and (y) from the Lessee all documents, instruments and certificates, in form and substance, satisfactory to the Administrative Agent, necessary for the Lessee to have complied with the provisions of Section 6.4(c) with respect to the perfection of the Lien of the Administrative Agent, the assignment of any contractual rights under any Equipment Contract relating to the Turbines allocated to such Proposed Site and evidence that the Lessee has exercised the purchase option, if any, under the relevant Equipment Contract pursuant to the terms thereof and (iii) an original counterpart of a Facility Lease Supplement (with sufficient copies for each Participant) executed by Lessor and Lessee with respect to such Proposed Site and which identifies the Proposed Site and the Turbines allocated to such Proposed Site on a schedule thereto, provided that only the Administrative Agent shall retain the copy thereof marked as the original executed counterpart for UCC purposes.

(q)   [Intentionally Deleted.]

(r)   Insurance Consultant Report. At least ten (10) Business Days prior to the earliest to occur of Shipment of any Unit or the commencement of any Construction, installation or Site Preparation or the delivery of any materials to a Site, Administrative Agent shall have received a report from the insurance consultant selected by Administrative Agent, in form and substance satisfactory to Administrative Agent, stating that the Assets and each of Administrative Agent, Lessor and the Participants will be properly and adequately insured pursuant to the requirements of Schedule 2.5(e) of the Supervisory Agreement and that the insurance required in such Schedule to be in place on such date has been secured.

(s)   [Intentionally Deleted.]

(t)   Appraisal Matters. With respect to the first Advance relating to any Unit not subject to the Initial Appraisal, the Administrative Agent shall have received and the Participants shall have reasonably approved an appraisal (the "Equipment Appraisal") performed by the Appraiser in form and substance satisfactory to each of the Participants which shall show (by the use of appraisal methods reasonably satisfactory to the Participants) the forecasted Fair Market Value of the Transformers and other Equipment to be financed under the Equipment Tranche, as of the Unit Completion Date for such Equipment and as of the last day of the Base Term, which Fair Market Value as of the last day of the Base Term shall equal or exceed the Minimum Coverage Amount.

(u)   [Intentionally Deleted.]

(v)   [Intentionally Deleted.]

(w)   [Intentionally Deleted.]

(x)   [Intentionally Deleted.]

(y)   Other University Park Deliveries. No later than July 31, 2001, Lessee shall have satisfied the conditions at Section 6.3 with respect to the University Park Site.

Section 6.3   Conditions Precedent to each Site Acquisition Date and each Site Acquisition Advance. Each Site Acquisition Date and the obligations of the Lessor to acquire or lease, as applicable, the Site and (through the Administrative Agent) to make the Initial Advance on the Site Acquisition Date for Site Acquisition Costs for such Site (a "Site Acquisition Advance"), the obligation of the Certificate Holders to Fund the related Certificate Amounts on such Advance Date, and the obligation of the Lenders to make the related Fundings of their Loans on such Advance Date are subject to satisfaction or waiver on or prior to such Site Acquisition Date or Advance Date, as the case may be, of the following conditions precedent:

(a)   Acquisition of each Site.

       (i)   As directed by the Lessee in writing to the Lessor prior to such Site Acquisition Date, the Lessor shall have (A) either (x) received a deed with respect to such Site, conveying to Lessor fee simple title thereto free of all Liens other than Permitted Liens, or (y) entered into a Ground Lease and Memorandum of Ground Lease with the PPL Group Member owner of such Site (it being understood that, except as set forth in the final paragraph of this Section 6.3, Lessor's obligation to enter into such documents will arise only upon the satisfaction or waiver of the other conditions in this Section 6.3) and (B) received a Hazardous Materials Indemnity for such Site executed by Lessee;

       (ii)   The Administrative Agent shall have received evidence reasonably satisfactory to it that the deed, Ground Lease or Memorandum of Ground Lease, as applicable, the Facility Lease Supplement or a recordable memorandum thereof, and a Mortgage and, in the case of a Ground Lease, a Ground Lease Mortgage, with respect to such Site shall have been recorded with the appropriate Governmental Authorities in the order in which such documents are listed in this clause (and the issuance of the title insurance policies in Section 6.3(e) below shall be satisfactory evidence of the foregoing), and the UCC Financing Statements with respect to the Site shall have been or are being filed with the appropriate Governmental Authorities; and

       (iii)   Without limitation of the other terms and conditions set forth in the form of Ground Lease set forth at Exhibit J, the term of each Ground Lease shall be equal to the greater of 40 years or the useful life (as set forth in the applicable Facility Appraisal) of the Facility to be constructed on the Site subject to such Ground Lease, unless a shorter term for such particular Ground Lease is approved by the Administrative Agent and the Required Participants and such shorter term is taken into account (in the Facility Appraisal for such Facility) in determining the fair market value of the Facility to be constructed on the applicable Site.

(b)   Environmental Report. At least five (5) Business Days prior to an Advance on a Site Acquisition Date, an Environmental Audit with respect to such Site shall have been received by and be satisfactory to the Administrative Agent, with a copy to Lessor, and the Administrative Agent shall receive a letter from the consultant performing the Environmental Audit which allows Administrative Agent, Lessor, and each Participant to rely on such report.

(c)   Searches. Administrative Agent shall have received reports, acceptable to the Administrative Agent and Lessor, as to Lessee and its Affiliates and such Site by the appropriate county filing or recording office of the county in which such Site is located, dated not earlier than ten (10) Business Days prior to the Advance on the Site Acquisition Date, of the results of a search of the applicable UCC files and any indices of Liens maintained by such office (including, if applicable, indices of judgment, revenue and tax liens); provided, that this subsection (c) shall be deemed to have been satisfied to the extent that such items are addressed (to the reasonable satisfaction of the Administrative Agent) in the Title Policies delivered pursuant to Section 6.3(e) below.

(d)   Survey. Lessee shall have delivered, or shall have caused to be delivered, to Administrative Agent and to the Title Insurance Company an ALTA survey of such Site in a form reasonably satisfactory to the Title Insurance Company (and including any applicable flood zone designation (with property annotations based on Federal Flood Insurance Rate Maps or the local equivalent) by scaled map location and graphic plotting) in order to issue the Title Policies and showing no state of facts unsatisfactory to Administrative Agent, in its reasonable judgment.

(e)   Title and Title Insurance. Lessor shall have received from the title insurance company selected by Lessee and reasonably acceptable to Administrative Agent an ALTA 1970 (if available without material additional premium) or if the ALTA 1970 is not available, ALTA 1992 (deleting by endorsement the creditors rights exception and arbitration provisions contained therein, if such deletions are available under applicable state law without material additional premium), owners or leasehold owner's, as applicable, policy of title insurance with respect to such Site and an ALTA 1970 (or, if the ALTA 1970 is not available, ALTA 1992 (deleting by endorsement the creditors rights exception and arbitration provisions contained therein if such deletions are available under applicable state law), in each case, without material additional premium) owner's policy of title insurance with respect to the Site and the Site Improvements (or an irrevocable commitment for the issuance thereof), reasonably acceptable in form and substance to Administrative Agent (the "Owner's Policy"), insuring that Trustee has good and marketable fee and title or a valid leasehold interest, as applicable, to such Site and title to the Site Improvements to be constructed thereon, subject to such exceptions to title as are reasonably acceptable to Administrative Agent, in an amount equal to the Facility Insurable Amount together with complete, legible copies of all encumbrances, maps and surveys of record. Administrative Agent, for the benefit of the Participants, shall have received from such title insurance company, an ALTA 1970 form of loan policy of title insurance (or an irrevocable commitment for the issuance thereof) (if available without material additional premium) or if the ALTA 1970 is not available, ALTA 1992 (deleting by endorsement the creditors rights exception and arbitration provisions contained therein, if such deletions are available under applicable state law without material additional premium) (the "Lenders' Policy"; together with the Owner's Policy, the "Title Policies"), reasonably acceptable in form and substance to Administrative Agent, insuring the Lien of the Mortgage as a valid first priority Lien against the Mortgaged Property subject to such exceptions to title as are reasonably acceptable to Administrative Agent, in an amount equal to the Facility Insurable Amount, together with complete, legible copies of all encumbrances and plats of record. The Title Policies shall be dated as of the Site Acquisition Date and, to the extent permitted under Applicable Laws, shall: (w) contain affirmative endorsements as to mechanics' liens, doing business, usury, Form 3.0 zoning (unless other evidence of zoning reasonably satisfactory to Administrative Agent is provided), Form B-1 comprehensive coverage, encroachments, the nonviolation of covenants and restrictions, rights of access and survey matters, (x) delete creditors' rights and survey exclusions, (y) contain endorsements regarding the effect of recharacterization and (z) contain such other endorsements reasonably requested by Administrative Agent. Notwithstanding the foregoing, provided that an Advance for Site Acquisition Costs is not requested prior to the date of the Initial Construction Advance applicable to such Site, Lessee's obligation to deliver the Lenders' Policy pursuant to this clause (e) shall instead be deemed a condition to the Initial Construction Advance pursuant to Section 6.4. If the foregoing sentence applies, the Owner's Policy delivered on the Site Acquisition Date pursuant to this clause (e) shall be in an amount equal to the purchase price paid by the applicable PPL Group Member for the fee interest in real property constituting such Site, provided that at the date the Lenders' Policy is delivered pursuant to Section 6.4, Lessee shall cause the Owner's Policy originally issued on the Site Acquisition Date to be reissued or amended to an amount not less than the Lenders' Policy.

(f)   Filings and Recordings. All filings and recordings enumerated and described in Schedule 6.3(f), as well as all other filings and recordings necessary or advisable, including precautionary financing statements and/or mortgage filings, reasonably deemed necessary by Administrative Agent, to perfect the rights, titles and interests of Lessor, the Participants and the Administrative Agent intended to be created by the Operative Agreements shall have been made in the appropriate places or offices, including any recordings and filings necessary to create, perfect, preserve and protect: (A) Lessor's interest in the Collateral and any other property and interests included in the Trust Estate, and (B) first priority liens for the benefit of Administrative Agent and the Participants on the Collateral, subject only to Permitted Liens. Upon Lessee's satisfaction of each of the conditions in this Section 6.3, including the filing and recordation of all filings and recordings contemplated in this Section 6.3(f) and described at Schedule 6.3(f), Lessor shall execute and deliver to the Title Insurance Company the Lessee Subordinated Mortgage for such Site with instructions to record such Lessee Subordinated Mortgage, in order of priority subordinate to each of the other recordings described in this Section 6.3(f) and Schedule 6.3(f). All recording and filing fees and taxes with respect to any recordings or filings made pursuant to this Section 6.3(f) with respect to such Site shall have been provided for in the Facility Budget provided pursuant to Section 6.4(b)(iii) below and paid in full by Lessee from Advances on or prior to such date, and satisfactory evidence thereof shall have been delivered to the Lessor and Administrative Agent, or arrangements for such payment shall have been made by Lessee to the reasonable satisfaction of Administrative Agent.

(g)   Opinion of Local Counsel. The Administrative Agent shall have received an opinion of local counsel to Lessee who shall be admitted to practice law in the state in which such Site is located, addressing, among other things, real estate matters (including providing notice to third parties of Lessor's interest under the Lease and rights of foreclosure and other remedies including lease or secured party remedies depending upon how the Lease is characterized), compliance with Applicable Laws (including usury laws and laws relating to Hazardous Substances) certain Governmental Actions (including regulatory issues), the non-applicability of State Utility Law to the Trust, Lessor, Administrative Agent and each Participant, that there be no request that any Participant, Lessor, Trustee or Administrative Agent, qualify as a foreign corporation or trust, and the enforceability of any Operative Agreements entered into by Lessee with respect to such Advance (including enforceability of decisions by New York courts), choice of law, submission to jurisdiction) and the perfection of any personal property liens relating thereto or with respect to the Facility or applicable Facility Lease Supplement, which opinion shall be reasonably acceptable in form and substance to the Administrative Agent.

(h)   Appraisal. If Lessor has purchased the fee interest in such Site, Administrative Agent shall have received and the Participants shall have reasonably approved an appraisal performed by the Appraiser and in form and substance satisfactory to each of the Participants which shall establish (by the use of appraisal methods satisfactory to the Participants) the Fair Market Value of such Site as of such date, which appraisal shall be prepared in accordance with FIRREA.

(i)   Facility Lease Supplement. The Administrative Agent shall receive an original counterpart of the Facility Lease Supplement (with sufficient copies for each Participant) executed by Lessee and Lessor with respect to the Site (or if such Site was a Proposed Site, an Amended and Restated Facility Lease Supplement); provided, that only the Administrative Agent shall retain the copy thereof marked as the original executed counterpart for UCC purposes.

(j)   Responsible Officer's Certificate of Lessee. The Administrative Agent shall have received a Responsible Officer's Certificate of the Lessee, in substantially the form of Exhibit D-1 attached hereto, dated as of the Site Acquisition Date.

(k)   Opinion of Special Counsel to Trustee. The Administrative Agent shall have received the opinion of Bingham Dana LLP, counsel to the Trustee, in form and substance reasonably satisfactory to Administrative Agent with respect to any Operative Agreements executed in such state or applicable state law issues to the extent not addressed in Lessee's counsel's opinion described in Section 6.3(g) above.

Notwithstanding the foregoing, solely with respect to the 22.6 acre Proposed Site commonly referred to as "University Park" located in the Village of University Park, Illinois (the "University Park Site"), following the acquisition of the University Park Site by a PPL Group Member and Lessee's satisfaction of the condition at Section 6.3(a)(ii) as it applies to the Memorandum of Ground Lease and the execution and delivery by Lessee of a Hazardous Materials Indemnity, (i) Lessor shall enter into a Ground Lease and Memorandum of Ground Lease (such Ground Lease, Memorandum of Ground Lease and Hazardous Materials Indemnity to be in form and substance reasonably satisfactory to Lessor and Administrative Agent) and (ii) the Administrative Agent shall have received a letter (Phase I Environmental Site Assessment Preliminary Findings Report) from the URS Corporation, attached hereto as Exhibit P; provided, however, that without limitation of the foregoing, by no later than July 3, 2001, Lessee shall cause an Environmental Audit for the University Park Site to be delivered and be satisfactory to the Administrative Agent, with a copy to Lessor, and the Administrative Agent shall receive a letter from the consultant performing the Environmental Audit which allows Administrative Agent, Lessor, and each Participant to rely on such report; provided, further, that no Site Acquisition Advance or Initial Construction Advance shall be made with respect to the University Park Site until all of the conditions at Section 6.3 (including the remaining conditions at Section 6.3(a)(ii)) and at Section 6.4, respectively, have been satisfied.

Section 6.4   Conditions Precedent to Initial Construction Advance for a Facility. The obligations of Lessor (through the Administrative Agent) to make the initial Advance for Construction Costs relating to any Facility (other than Excepted Costs) (the "Initial Construction Advance"), the obligation of the Certificate Holders to Fund the related Certificate Amounts on such Advance Date, and the obligation of the Lenders to make the related Fundings of their Loans on such Advance Date are subject to satisfaction or waiver on or prior to such Advance Date of the following conditions precedent:

(a)   Acquisition of Site; Designation of Equipment. A Site Acquisition Date shall have occurred with respect to the Site to which such Construction Advance applies. The acquisition of such Site may occur concurrently with the Initial Construction Advance for such Site. The Supervisory Agent shall have designated on or prior to such Advance the Units to be installed at such Site as part of such Facility and which are to be financed under the Facility Tranche with respect to such Facility. Such Units may include Units then being financed under the Equipment Tranche and reallocated to such Facility pursuant to Section 3.1(e) of the Supervisory Agreement. The Units allocated to any Facility shall be identified on a schedule to the Facility Lease Supplement.

(b)   Construction and Appraisal Matters. Lessee shall have delivered to Administrative Agent or, in the case of clause (iv) below, Administrative Agent shall have obtained and approved:

       (i)   a copy of the Facility Plans and Specifications applicable to such Facility and existing at such time, the first page of which shall be signed and all other pages thereof initialed by Lessee, as Supervisory Agent, and the applicable General Contractor;

       (ii)   a facility budget (the "Facility Budget") which shall set forth all Facility Equipment Costs, Construction Costs (including all hard and soft construction costs and the portion of the Aggregate Commitment Amount to be allocated to the Facility Tranche with respect to such Facility) and the Site Acquisition Costs, to be incurred in connection with the Site and the Construction of such Facility (together with a certificate by Lessee of the accuracy and, to its Actual Knowledge, the adequacy of the amounts set forth therein). The Facility Budget shall set forth general categories for each type of cost and expense and the portion of the Aggregate Commitment Amount to be allocated to each such category (including separate categories and amounts for the different types of payments which are to be made or which may become payable under the Equipment Contracts and the Major Project Agreements applicable to such Facility, including any amounts to be Advanced to make a deposit into a Project Collateral Account or to pay fees to any issuer of a Project Letter of Credit with respect to such Facility) and amounts necessary to Fund Transaction Costs and Capitalized Costs for such Facility through the Outside Completion Date, which establish reasonable separate Contingency Reserves for Project Changes and additional costs and expenses that may arise as a result of a change in any Major Project Agreements or the Facility Plans and Specifications, which Facility Budget and the information therein will be subject to the reasonable approval of the Administrative Agent;

       (iii)   an appraisal (the "Facility Appraisal") performed by the Appraiser and in form and substance satisfactory to the Administrative Agent which shall establish (by the use of appraisal methods reasonably satisfactory to the Administrative Agent) the "as-built" Fair Market Value of the Site (unless the Site is acquired by ground lease) together with the "as-built" Fair Market Value of the Site Improvements to be constructed on the Site (assuming Substantial Completion in accordance with the Facility Plans and Specifications and the Facility EPC Agreement, and excluding the value of the Interconnection Land and Interconnect Improvements to be held by or otherwise transferred to any utility) and the Facility Equipment to be installed at such Site, as contemplated in the applicable Facility Budget as of the applicable Outside Completion Date and as of the last day of the Base Term, which such value as of the last day of the Base Term shall be at least equal to the Minimum Coverage Amount. The Appraisal shall be prepared in accordance with FIRREA (to the extent applicable) and shall assume that all of the Site Improvements shall have been completed in a good and workmanlike manner, in compliance with Applicable Laws; and

       (iv)   Administrative Agent shall have obtained and approved a certificate from the Independent Engineer in which the Independent Engineer certifies that, based on its review of the EPC Agreements, the Equipment Contracts, Facility Budget, to the extent then available, all other Facility Materials and information, and a description of contracts and permits relating to the purchase, installation and construction of the Facility Equipment and the Site Improvements, including the Major Project Agreements relating thereto, (i) the amounts provided for in the Facility Budget will be sufficient to acquire (or lease) the applicable Site, the Facility Equipment to be installed at the Site, and to pay all of the Facility Costs (including Capitalized Costs) relating thereto, (ii) the amounts set forth in the Facility Budget as reserves for Project Changes and for contingencies are reasonable for a project of the type and size contemplated in the applicable Facility Materials, (iii) the Construction of the Site Improvements is capable of being completed by the earlier of the last date for Substantial Completion set forth in the Facility Budget and the Outside Completion Date, and (iv) upon Substantial Completion, the Lessor will own or have indefeasible rights to use all property and rights (including electrical, natural gas, water and sewer interconnections) all as necessary to own and operate the Facility in Commercial Operation.

(c)   Contractual Rights and Perfection of Liens Thereon.

       (i)   Lessee, as Supervisory Agent, or Lessor shall have entered into a Facility EPC Agreement for such Facility; and Administrative Agent shall have received a fully executed copy of such Facility EPC Agreement; and

       (ii)   Administrative Agent shall have received an assignment of each of the applicable Major Project Agreements then available, and Lessee shall have entered into Equipment Contracts with respect to the Facility Equipment related to such Facility and assigned its interests therein to Administrative Agent or, with respect to any such Equipment Contracts already existing as of such date, Lessee shall have caused to be assigned to Lessor, or Lessee as Supervisory Agent, all necessary contract rights under such existing contract applicable to such Equipment, and Lessor and Lessee shall have assigned such rights to the Administrative Agent; and Administrative Agent shall have received the consent of each General Contractor which is a party thereto substantially in the form attached as exhibits to the Supervisory Agreement (provided that such assignment and consent shall be substantially identical to that contained in the GE Documents with respect to any Equipment under the GE Contract that is assigned by Lessor), evidence that the Lessee has exercised the purchase option, if any, under the relevant contract pursuant to the terms thereof and any other Security Instruments reasonably required to perfect Administrative Agent's rights to such Major Project Agreement and related Facility Materials then available and the other Collateral, each of which shall have been duly executed, delivered and filed, as applicable.

(d)   Lessee's Certificate. Lessee shall have delivered to the Administrative Agent a Certificate dated as of the date of such Initial Construction Advance in the form of Exhibit C-2 hereto.

(e)   Insurance. Insurance complying with, and to the extent required to be in place on such Advance Date pursuant to, the provisions of Section 2.5(e) of the Supervisory Agreement shall be in full force and effect with respect to such Facility as evidenced by certificates of insurance, broker's reports or insurance binders delivered to Administrative Agent and Lessor, all in form and substance reasonably satisfactory to the Participants. The Administrative Agent shall have received a report from the insurance consultant, in form and substance satisfactory to the Administrative Agent, certifying that the insurance coverage required by the Supervisory Agreement is in place.

Section 6.5   Conditions Precedent to Initial Equipment Advance for an Equipment Group. The obligations of the Lessor (through the Administrative Agent) to make the initial Equipment Advance on an Advance Date for Equipment Costs for any Equipment Group (the "Initial Equipment Advance"), the obligation of the Certificate Holders to Fund the related Certificate Amounts on such Advance Date, and the obligation of the Lenders to make the related Fundings of their Loans on such Advance Date are subject to satisfaction or waiver on or prior to such Advance Date of the following conditions precedent:

(a)   Designation of Equipment. The Supervisory Agent shall have designated, in writing, on or prior to such Advance the Units to be allocated to such Equipment Group and shall certify that such Units satisfy the Required Equipment Mix and will become subject to the Equipment Lease Supplement for such Equipment Group. The Units allocated to such Equipment Group shall be identified on a schedule to the Equipment Lease Supplement.

(b)   Leased Units and Budget Matters. Lessee shall have delivered to the Administrative Agent:

       (i)   a budget (the "Equipment Group Budget") that sets forth all Equipment Costs and categories for each type of cost and expense and the portion of the Aggregate Commitment Amount to be allocated to the Equipment Tranche with respect to such Equipment Group (including separate categories and amounts for the different types of payments which are to be made or which may become payable under the Equipment Contracts for such Equipment and to Fund Transaction Costs if such Equipment relates to Uncompleted Units and Capitalized Costs relating thereto) and which establish reasonable Contingency Reserves for Change Orders, and, with respect to any Uncompleted Units, additional costs and expenses that may arise as a result of a change in the Units allocated to such Equipment Group;

       (ii)   Lessee, as Supervisory Agent, or Lessor shall have entered into Equipment Contracts with respect to the applicable Equipment and assigned its interest therein to the Administrative Agent, or, with respect to any such Equipment Contracts already existing as of such date, Lessee shall have caused to be assigned to Lessor or Lessee, as Supervisory Agent, all necessary contractual rights under any existing contract applicable to such Equipment, and Lessor and Lessee shall have assigned such rights to the Administrative Agent, and, except as provided for in Section 9.1(m), each Manufacturer shall have executed a consent to such assignment to the Administrative Agent, such assignment and consent the terms and conditions of which shall be substantially similar to those contained in the GE Documents (provided that such assignment and consent shall be substantially identical to that contained in the GE Documents with respect to any Equipment under the GE Contract that is assigned to Lessor), evidence that the Lessee has exercised the purchase option if any under the relevant contract pursuant to the terms thereof and to otherwise be in form and substance reasonably satisfactory to the Administrative Agent;

       (iii)    [Intentionally Omitted];

       (iv)    the Administrative Agent shall have received an original counterpart of the Equipment Lease Supplement (with sufficient copies for each Participant) executed by Lessee and Lessor with respect to the Units to be included in such Equipment Group; provided that only the Administrative Agent shall retain the copy thereof marked as the original executed counterpart for UCC purposes; and

       (v)   if the Unit Completion Date has occurred with respect to any Unit, Lessee shall have satisfied the conditions at Section 7.1.

ARTICLE VII
COMPLETION DELIVERIES

Section 7.1   Unit Deliveries. Within ten (10) Business Days (or such longer period as specified below) following Shipment of each Unit.

(a)   Bill of Sale. Lessee shall cause the applicable Manufacturer under the Equipment Contract to execute and deliver to Lessor a Bill of Sale for such Unit.

(b)   Notice of Location. Unless such Unit is a part of Facility Equipment subject to a Facility Lease Supplement, Lessee shall have delivered to the Administrative Agent and the Lessor written notice describing such Unit and setting forth (i) the address of the Facility, plant, building or structure at which such Unit together with the other Units comprising the applicable Equipment Group will be stored or installed and (ii) the name and mailing address of the PPL Group Member who owns such facility, plant, building or structure.

(c)   Estoppel Letter. Unless such Unit is a part of Facility Equipment subject to a Facility Lease Supplement, the PPL Group Member which owns such location, facility, plant, building or structure where such Unit is to be stored or installed shall have delivered to the Administrative Agent and the Lessor (in form and substance reasonably satisfactory to the Administrative Agent) an estoppel letter executed by such owner, acknowledging Lessor as the owner of such Unit of Equipment and the priority of the Lien of the Administrative Agent and authorizing the Administrative Agent (or its designees, agents and representatives) to enter such facility, plant, building or structure to remove such Unit of Equipment in connection with the exercise of any remedies under the Operative Agreements.

(d)   Searches. Not later than 30 days following such Shipment, Administrative Agent shall have received reports, acceptable to the Administrative Agent and Lessor, as to Lessee and such Units by the appropriate state and county filing or recording office of the county in which such Unit will be installed or stored, dated not earlier than ten (10) Business Days prior to the delivery of such report, of the results of a search of the applicable UCC files and any indices of Liens maintained by such office (including, if applicable, indices of judgment, revenue and tax liens).

(e)   Recording and Filing. Lessor shall have delivered to the Administrative Agent appropriate financing statements, if any, with respect to such Unit in proper form to be duly recorded and filed, satisfactory landlord consents and waivers with respect to the Equipment located at Sites which are not owned by a PPL Group Member, and all recording and filing fees and Taxes with respect to any such recording or filing shall have been paid in full (or arrangements, satisfactory to the Administrative Agent and the Lessor for such payment shall have been made).

(f)   Lessee's Certificate. Lessee shall furnish to Administrative Agent a Responsible Officer's Certificate of Lessee as follows:

       (i)   the representations and warranties of Lessee set forth in Section 8.2 as they may apply to the Unit as of the date of such Responsible Officer's Certificate are true and correct in all material respects as of such date;

       (ii)   no Event of Default or, with respect to such Unit, Default, Event of Loss or Force Majeure Event has occurred and is continuing; and

       (iii)   as of such date no condition exists that constitutes, or with the giving of notice or lapse of time or both would constitute, a breach or default by Lessee or Guarantor under any material indenture, mortgage, chattel mortgage, deed of trust, lease, conditional sales contract, loan or credit arrangement or other material agreement or instrument to which either is a party or by which Lessee or Guarantor or any of their respective properties may be bound, which individually or in the aggregate with all such defaults or breaches could have a Material Impairment as to such Unit.

(g)   Insurance. Unless such Unit is part of Facility Equipment subject to a Facility Lease Supplement, insurance complying with the provisions of Section 13.2 of the Lease and the applicable sections of the applicable Equipment Contract shall be in full force and effect with respect to such Units as evidenced by certificates of insurance, broker's reports or insurance binders delivered to Administrative Agent and Lessor.

Section 7.2   Deliveries Upon Substantial Completion of a Facility. With respect to each Facility, within ten (10) Business Days of the earlier of (i) Lessee's Certification of Substantial Completion or (ii) notice from Administrative Agent to Lessee that Administrative Agent will (unless Lessee promptly certifies Substantial Completion or reasonably satisfies Administrative Agent as to why Lessee cannot certify Substantial Completion) request a determination by the Independent Engineer described in the definition of the term "Substantial Completion," and Administrative Agent's receipt of such determination:

(a)   Lessee's Certification. Lessee shall furnish to Administrative Agent a Responsible Officer's Certificate of Supervisory Agent, in substantially the form of Exhibit D-2 attached hereto, dated as of the Facility Completion Date.

(b)   EPC Contractor's Certificate. Lessee shall furnish to Administrative Agent a certificate of the EPC Contractor under the Facility EPC Agreement for such Facility (substantially in the form of Exhibit F) dated at or about the Facility Completion Date for such Facility.

(c)   As-Built Survey; Title Insurance Endorsements. Lessee shall furnish to Administrative Agent and Lessor true, correct and complete copies, certified by the Supervisory Agent, of the following (to the extent not previously delivered to Lessor):

       (i)   an "as built" ALTA survey of such Facility, certified to Administrative Agent and Lessor, showing the location of the completed Site Improvements, the location of all points of access to such Site and the location of all easements affecting such Site and certifying that there are no encroachments of the Site Improvements or Facility Equipment onto any easements affecting such Site or onto any adjoining property (other than Permitted Liens) and that all applicable setback requirements and other restrictions have been complied with; and

       (ii)   a date-down endorsement, dated not earlier than the date of the Facility Completion Date for such Facility to the Title Policies.

ARTICLE VIII
REPRESENTATIONS AND WARRANTIES

Section 8.1   Representations and Warranties of the Participants. As of the date of its execution of this Participation Agreement, each Participant (or in the case of clause (k) below only, each Certificate Holder) represents and warrants, severally and only as to itself, to the other Participants, Lessor, the Administrative Agent and Lessee that:

(a)   ERISA. Such Participant is not and will not be making its Loans or funding Certificate Amounts hereunder, and is not performing its obligations under the Operative Agreements, with the assets of an "employee benefit plan" (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA or "plan" (as defined in Section 4975(e)(1) of the Code).

(b)   Status. Such Participant is a commercial bank, branch or agency of a foreign bank or other similar financial institution, or an Affiliate thereof, or is otherwise an entity which would satisfy the requirements set forth in the definition of "Eligible Assignee."

(c)   Power and Authority. Such Participant has the requisite power and authority to enter into and perform its obligations under the Operative Agreements to which it is a party.

(d)   Lessor Liens. There are no Lessor Liens attributable to such Participant on the Lease or the Assets.

(e)   Organization, Etc. Such Participant is validly organized and existing and, to the extent applicable, in good standing under the laws of the State or jurisdiction of its creation.

(f)   Investment. The Certificate or Note being acquired by such Participant is being acquired by such Participant for investment and not with a view to the resale or distribution of such interest or any part thereof, but without prejudice, however, to the right of such Participant at all times to sell or otherwise dispose of all or any part of such interest under a registration available under the Securities Act or under an exemption from such registration available under the Securities Act, it being understood that the disposition by the undersigned of the Certificate or Note to be purchased by such Participant shall, at all times, remain entirely within its control.

(g)   Offer of Securities, Etc. Neither such Participant nor any Person authorized to act on its behalf has, directly or indirectly, offered to sell the Notes, the Certificates or any other similar securities (the sale or offer of which would be integrated with the sale or offer of the Notes or the Certificates), for sale to, or solicited any offer to acquire any of the same from, any Person.

(h)   No Registration. Such Participant understands and acknowledges that the Notes and the Certificates have not been and will not be registered under the Securities Act in reliance upon the exemption provided in Section 4(2) of the Securities Act or any other applicable exemption, that the Notes and the Certificates have not and will not be registered or qualified under the securities or "blue sky" laws of any jurisdiction, that the Notes and the Certificates may be resold (which resale is not currently contemplated) or otherwise transferred only if so registered or qualified or if an exemption from registration or qualification is available, that none of the Lessee, the Lessor or the Administrative Agent is required to register the Notes or the Certificates and that any transfer must comply with the provisions of the Operative Agreements relating thereto. Such Participant will comply with all applicable federal and state securities laws in connection with any subsequent resale of the Notes or the Certificates held by it.

(i)   Institutional Investor. Such Participant is a sophisticated institutional investor and an "accredited investor" as defined in paragraph (1), (2), (3) or (7) of Rule 501(a) of the Securities Act, and has knowledge and experience in financial and business matters and is capable of evaluating the merits and risks of its investment in the Notes or the Certificates and is able to bear the economic risk of such investment. Such Participant has been given such information concerning the Notes and the Certificates, the other Operative Agreements, the Assets, the Lessor and the Lessee as it has requested.

(j)   Legend. Such Participant understands and acknowledges that the Note or Certificate which it is acquiring will bear a legend as set forth in the form of Note included in the Loan Agreement or the form of Certificate included in the Trust Agreement, as applicable.

(k)   Source of Funds. No portion of the amounts to be Funded by such Certificate Holder as a Certificate Holder for its Certificates has been or will be borrowed by it such that the lender's recourse in respect of such borrowing is or will be limited by the terms of such borrowing to such Certificate Holder's interest in the Lessor or to collateral with a value less than such borrowing and such Certificate Holder has not obtained and will not obtain residual value insurance or comparable guarantee with respect to its investment in its Certificates.

The making of any Loan or the advancing of any Certificate Amount on any Advance Date shall constitute an affirmation by the subject assignee or acquiring Participant of the preceding representations and warranties.

Section 8.2   Representations and Warranties of Lessee. Lessee represents and warrants to each of the other parties hereto as of the Document Closing Date that:

(a)   Organization; Existence; Compliance with Law. Lessee is a corporation or limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization.

(b)   Power; Authorization; Enforceable Obligations. The execution, delivery and performance by Lessee of this Participation Agreement and the other Operative Agreements to which Lessee is a party, are within the corporate or limited liability company powers of Lessee, have been duly authorized by all necessary company action, and do not contravene (i) Lessee's articles of incorporation or bylaws or Certificate of Formation or Operating Agreement, as applicable (ii) Applicable Laws, the violation of which would have a Material Adverse Effect or (iii) any material contractual or legal restriction binding on or affecting Lessee and does not result or require the creation of any Lien upon or with respect to any of Lessee's properties, other than as provided herein and in the Operative Agreements. This Participation Agreement has been, and each other Operative Agreement to be executed by Lessee will be, duly executed and delivered on behalf of the Lessee.

(c)   Approval and Consents. No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority is required for the due execution, delivery or performance by Lessee of this Participation Agreement and the Operative Agreements to which it is a party other than as may be required to be obtained, given, accomplished or renewed at any time or from time to time after the Document Closing Date.

(d)   Enforceability. This Participation Agreement is, and the other Operative Agreements when delivered hereunder or in connection herewith will be, legal, valid and binding obligations of Lessee, enforceable against Lessee, as applicable, in accordance with their respective terms, except as the enforceability thereof may be limited by equitable principles or bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally.

(e)   Regulation U. Lessee is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no Advances will be used to buy or carry any margin stock or to extend credit to others for the purpose of buying or carrying any margin stock.

(f)   Governmental Regulation. None of Lessee or its Subsidiaries is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940 as amended, or an "investment advisor" within the meaning of the Investment Company Act of 1940, as amended.

(g)   Compliance with Laws. [Intentionally Omitted]

(h)   Appraisal Data. As of the Document Closing Date, the information provided by Lessee and its Affiliates to the Appraiser and forming the basis for the conclusions set forth in the Appraisals, taken as a whole, was true and correct in all material respects and did not omit any information known and available to Lessee or its Affiliates necessary to make the information provided not materially misleading.

(i)   Patents, Trademarks. There are no patents, patent rights, trademarks, service marks, trade names, copyrights, licenses or other intellectual property rights with respect to any Asset that are necessary for the operation of such Asset, except to the extent that the Lessee has or will have, prior to the time required, rights in respect thereof without payment of royalties or other licensing payments (other than royalties or licensing payments reasonably approved by the Administrative Agent and included in the applicable Facility Budget or Equipment Group Budget during the Construction Period or otherwise included in the applicable Appraisal) which rights may be freely leased, licensed or otherwise provided to Lessor or any successor owner, lessee, user or operator of such Asset or any Unit.

(j)   Subjection to Government Regulation. None of Administrative Agent, Lessor, or any Participant will become subject to ongoing regulation (other than banking or insurance regulations) of its operations by any Governmental Authority solely by reason of entering into the Operative Agreements or (subject to the proviso in the next sentence) consummation or performance of the transactions contemplated thereby, except for regulation the applicability of which depends upon the existence of facts in addition to the ownership of, or the holding of any interest in, any Asset. Without limiting the foregoing, none of Lessor, Administrative Agent, Lessee or any Participant solely as a result of execution and delivery of the Operative Agreements or the performance or consummation of the transactions contemplated therein shall be or become (i) subject to regulation as a "holding company" or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company" within the meaning of PUHCA, (ii) subject to regulation as a "public utility," a "transmitting utility," or an "electric utility" within the meaning of the FPA, or (iii) subject to regulation under State Utility Law, provided that (i) the Lessor, Administrative Agent, Lessee and each Certificate Holder either obtains status as an "exempt wholesale generator" under PUHCA or receives a "No-Action letter" from the staff of the Securities and Exchange Commission confirming that such entity will not be considered a "public-utility company" under PUHCA, and (ii) the FERC issues a declaratory ruling that the Lessor, Administrative Agent and each Certificate Holder will not become subject to regulation as a "public utility" under the Federal Power Act by reason of entering into the Operative Agreements or consummation or performance of the transactions contemplated thereby, in each case prior to the commencement of sales of electricity from any Asset. Lessee will cooperate with Lessor, Administrative Agent and each Certificate Holder in order to enable each of them promptly, but in no event later than 30 days from the date hereof, to file either an application for "exempt wholesale generator" status with the FERC or a request for a "No-Action letter" from the staff of the Securities and Exchange Commission. Lessee will not be subject to regulation under State Utility Law, other than any such regulation that would not have a Material Adverse Effect.

(k)   Insolvency. Lessee is not entering into the Operative Agreements with the actual intent to hinder, delay or defraud its current or future creditors, nor does Lessee intend to or believe that it will incur, as a result of entering into this Agreement, debts beyond its ability to repay. Lessee is not as of the date of this Agreement "insolvent" as that term is defined in 11 U.S.C. § 101(34), nor will the consummation of the transactions contemplated by this Agreement render the Lessee insolvent (giving effect to the fair valuation of its assets) or result in the Lessee having unreasonably small capital for the conduct of its business.

(l)   No Transfer Taxes. No sales, use, excise, transfer or other tax, fee or imposition shall result from the sale or transfer of the Assets to, or purchase of any Asset by, Lessor, except such taxes, fees or impositions that will have been paid in full on or prior to the Equipment Completion Date with respect to any Equipment, and on or prior to the Facility Completion Date with respect to any Facility, and which are in either case described or provided for in the applicable Equipment Budget or Facility Budget.

(m)   Location of Chief Executive Office and Principal Place of Business, Etc. The chief executive office and principal place of business of Lessee is located at 11350 Random Hills Road, Suite 400, Fairfax, VA 22030-6044. Lessee keeps or will keep its company records concerning the Assets and the Operative Agreements at such chief executive office.

(n)   Title to Asset. Upon Shipment of each Unit, good and valid title to such Unit will be duly, validly and effectively conveyed and transferred to the Lessor, free and clear of all Liens (except Liens of the type described in clauses (a), (b) or (c) of the definition of "Permitted Liens"). Upon payment through Advances for and delivery of the materials and equipment to be provided by each EPC Contractor to complete the Site Improvements under each Facility EPC Agreement and the other Major Project Agreements (other than the Equipment Contracts until Shipment and the Interconnection Agreements), good and valid title to such materials and equipment will be held by the Lessor, free and clear of all Liens (except Liens of the type described in clauses (a), (b) or (c) of the definition of "Permitted Liens").

(o)   Creation of Liens. The Security Instruments will create a valid, and when the filings and recordings described in Schedule 6.1(j) have been made, first priority (subject only to Permitted Liens) perfected Liens in favor of the Administrative Agent, in the Collateral and no filing, recording, registration or notice with, or payment of any fees to, any federal or state Governmental Authority will be necessary to establish or, except for such filings and recordings as will be made pursuant to Schedule 6.1(j) and payment of fees in connection therewith, which fees Lessee has provided for in the applicable Equipment Budgets and Facility Budgets, to perfect, or give record notice of, the Lien in favor of the Administrative Agent to the extent such Lien may be perfected by filings or recordings.

(p)   Applicable Law. Lessee is in compliance with all laws, rules, regulations and orders (including ERISA and Environmental Laws) of any Governmental Authority except to the extent (A) such compliance is being contested in good faith by appropriate proceedings or (B) the violation of which would not have a Material Adverse Effect.

(q)   Facility Plans and Specifications. With respect to each Facility, upon Substantial Completion, fuel, electric distribution, water, sewer, telephone and drainage facilities, and all other utilities required to adequately service the Facility for its intended use will be available. No fire or other Casualty has occurred which has had a Material Adverse Effect. All utilities serving each Facility, or proposed to serve each Facility in accordance with the Facility Plans and Specifications for such Facility, are or will be located in, and vehicular access to each Facility is provided by, either public rights-of-way abutting the applicable Site or valid easements that run with the land and the benefit of which are part of the fee estate held by Lessor or the leasehold estate demised to Lessor under the Ground Lease. With respect to the Assets, all material licenses, approvals, authorizations, consents, permits (including, without limitation, building and environmental permits, licenses, approvals, authorizations and consents), easements and rights-of-way, including proof and dedication, required for (x) the use, treatment, storage, transport, disposal or disposition of any Hazardous Substance on, at, under or from the Assets during the Construction, (y) construction of the Site Improvements with respect to each Facility in accordance with the Facility Plans and Specifications and the Supervisory Agreement and (z) the use and operation of the Assets have either been obtained from the appropriate Governmental Authorities having jurisdiction or from private parties, as the case may be, or will be obtained from the appropriate Governmental Authorities having jurisdiction or from private parties, as the case may be, as and when necessary and in any event prior to the Facility Completion Date for each Facility and the Unit Completion Date for each Unit.

(r)   Flood Hazard Areas. If any Site is located in an area identified as a special flood hazard area by the Federal Emergency Management Agency or other applicable Governmental Authority, then, to the extent required by Applicable Laws, flood insurance has been obtained by Lessee in accordance with the National Flood Insurance Act of 1968, as amended.

(s)   Litigation. No litigation, arbitration or administrative proceeding against the Lessee is pending or, to the Lessee's knowledge, threatened, which, if determined adversely, questions the validity of or would materially and adversely affect the ability of the Lessee to perform any of its obligations under this Participation Agreement and under the other Operative Agreements.

(t)   ERISA. There have not been any "Reportable Events" which would adversely affect Lessee's ability to perform its obligations under the Operative Agreements.

(u)   Consents. No authorization, consent or approval from any Governmental Authority is required for the execution, delivery and performance by Lessee of this Participation Agreement or any other Operative Agreement to which Lessee is a party, except such authorizations, consents and approvals as have been obtained prior to the Document Closing Date and are in full force and effect as of the Document Closing Date.

(v)   Tax Returns. Lessee has filed or caused to be filed all federal, state, local and foreign tax returns or materials required to have been filed by it and has paid or caused to be paid all taxes due and payable by it and all assessments received by it, except taxes that are being contested in good faith by appropriate proceedings and for which Lessee shall have set aside on its books appropriate reserves with respect thereto in accordance with GAAP.

(w)   True and Complete Disclosure. Subject to the last sentence of this paragraph (w), the information furnished by or on behalf of Lessee to the Administrative Agent, the Lessor, each Participant or counsel in connection with any of the Operative Agreements or any transaction contemplated thereby does not, when taken as a whole, contain any untrue statement of material fact or omit to state any material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading in any material respect. There is no fact known to Lessee that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect that has not been disclosed herein, in the other Operative Agreements, or in a financial statement or other writing furnished to the Administrative Agent in connection with the transactions contemplated hereby or thereby. The parties hereto acknowledge and agree that any financial projections of the Guarantors, Lessee and/or their Subsidiaries provided by or on behalf of Lessee or the Guarantors to the Administrative Agent, the Lessor, and the Participants are forward-looking in nature, and although Lessee believes that the expectations and assumptions reflected in such financial projections are reasonable, they involve a number of risks and uncertainties and actual results may differ materially from the results set forth in such financial projections.

(x)   Compliance With Laws With Respect to the Equipment Groups and Facilities. The Lessee is not in violation of any law with respect to the Equipment Groups or Facilities or with respect to the conduct of its business relating to such Equipment Groups or Facilities or the Construction or Acquisition thereof, which violation would have a Material Adverse Effect, and each Unit and each Facility is in compliance in all material respects with all Applicable Laws. The Lessee has not received any notice of, or citation for, any violation of any Applicable Law in any material respect which violation would have a Material Adverse Effect, is not the subject of a Permitted Contest and has not been resolved, which notice or citation relates in any way to any Unit or any Facility. Assuming the representations and warranties of the Lessor are true and correct, the acquisition, ownership, leasing, installation, operation or use of any Unit or any Facility or any portion thereof by the Lessor or Lessee, in accordance with the terms of the Operative Agreements and applicable permits will not violate any law (other than banking or insurance laws applicable to Lessor), which violation would have a Material Adverse Effect.

(y)   Permitted Liens. None of the Permitted Liens will materially interfere with the intended use or possession of any Unit or any Facility or any part thereof or any other asset used in connection therewith or the intended use of or the exercise by the Lessor or the Administrative Agent of its rights under any Operative Agreement.

(z)   Assignment of Turbine Contract.

       (i)   Lessee has delivered to the Administrative Agent true and complete copies of the Existing Turbine Contract and the Seller Parent Guaranty dated September 29, 2000 issued by General Electric Company in favor of PPL Large Scale Distributed Generation Statutory Trust ("Assignor") guaranteeing the performance of GE under the Existing Turbine Contract (the "GE Guarantee") (the Existing Turbine Contract and the GE Guarantee are hereinafter referred to as the "Assigned Documents");

       (ii)   The Assigned Documents are in full force and effect and constitute the entire agreement between Assignor, GE and General Electric Company (the "GE Guarantor");

       (iii)   There have been no modifications, supplements, amendments or addenda to the Assigned Documents;

       (iv)   To Lessee's knowledge, no default or event has occurred which, with notice or lapse of time or both, if uncured, would constitute a default by Assignor, GE or General Electric Company under the Assigned Documents;

       (v)   All amounts due and payable by Assignor to GE under the Existing Turbine Contract have been paid in full as of the date each such amount was due;

       (vi)   All conditions under the Existing Turbine Contract with respect to (i) the assignment by Assignor to the Trust of its rights and obligations to the Units of Equipment designated under the Existing Turbine Contract as Units six (6) through seventeen (17) (the "Assigned Equipment") pursuant to the Assignment and Assumption Agreement and (ii) the collateral assignment of the Assigned Documents pursuant to the Collateral Assignment have been satisfied;

       (vii)   The Trust has succeeded to all of Assignor's right, title and interest in and to the Assigned Documents relating to the Assigned Equipment, free and clear of any Liens or other competing claims of any kind (other than Permitted Liens of the type described at clauses (a), (b) and (c) of the definition of Permitted Liens, or as otherwise contemplated by the Operative Agreements.

       (aa)   License to Test Power. There are sufficient funds allocated in each Facility Budget, pursuant to Section 2.4(c) of the Supervisory Agreement, to generate, transmit and test power as set forth therein.

Section 8.3   Representations of Lessee with Respect to Each Advance. The Lessee represents and warrants to each of the other parties as of each Advance Date (including the Initial Advance Date) on which an Advance is made as follows:

(a)   Representations and Warranties. The representations and warranties of the Lessee set forth in the Operative Agreements (including the representations and warranties set forth in Section 8.2; provided, however, that with respect to any Advance Date following the Initial Advance Date, the representations and warranties being made by Lessee pursuant to this Section 8.3 shall be deemed to exclude the representations and warranties at subsections 8.2(h), (i), (n), (o), (q), (u) or (y) to the extent the statements made in such subsections relate solely to a Unit or Facility for which Lessee has given an irrevocable Purchase Notice pursuant to Article XVIII of the Lease; provided, however, that the exclusion provided for in the foregoing proviso shall not apply to the extent that the breach or inaccuracy of the statements made in any such subsection of Section 8.2 could reasonably give rise to any liability of or claim against any of Agent, Trustee, Lessor or any Participant) are true and correct in all material respects on and as of such Advance Date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct on and as of such earlier date. No Event of Default has occurred and is continuing or with respect to any Uncompleted Unit or Uncompleted Facility, Significant Casualty, Significant Condemnation or Force Majeure Event has occurred and is continuing, or will occur as a result of, or after giving effect to, the Advance requested by the Advance Request on such date for which there would be an Uninsured Loss. The Lessee has not received a Termination Notice pursuant to the Supervisory Agreement.

(b)   Advance. Other than Lessee Obligated Asset Costs, the amount of the Advance requested represents amounts owed in respect of Asset Costs incurred on or prior to the date of such Advance and for which the Lessee has not previously been reimbursed by an Advance. The conditions precedent to such Advance and the related Certificate Amount and Loans set forth in Article VI have been satisfied or waived in accordance with the Operative Agreements.

Section 8.4   Representations and Warranties of Lessor. State Street Bank and Trust Company of Connecticut, National Association, in its individual capacity and not as Trustee (with the exception of the first sentence of subsection (f), which representation and warranty is made by State Street Bank and Trust Company of Connecticut, National Association solely in its trustee capacity) represents and warrants to the Lessee, each Guarantor, the Participants, and the Administrative Agent that the following statements are and shall be true and correct on and as of the Document Closing Date and on and as of each Advance Date:

(a)   Organization and Authority.

       (i)   State Street Bank and Trust Company of Connecticut, National Association is a national banking association duly organized, validly existing and in good standing under the laws of the United States of America.

       (ii)   State Street Bank and Trust Company of Connecticut, National Association has all requisite corporate power and authority to execute and deliver each Operative Agreement to which it is a party and to comply with the terms thereof and perform its obligations thereunder.

(b)   Pending Litigation. There is no pending or, to State Street Bank and Trust Company of Connecticut, National Association's knowledge, threatened, action, suit, investigation, litigation or proceeding affecting State Street Bank and Trust Company of Connecticut, National Association before any court, governmental agency or arbitrator that (i) could be reasonably likely to have a material adverse effect on State Street Bank and Trust Company of Connecticut, National Association or (ii) purports to affect the legality, validity or enforceability of this Participation Agreement or any of the other Operative Agreements or the consummation of the transactions contemplated hereby or thereby.

(c)   Authorization; No Conflict. The execution and delivery by State Street Bank and Trust Company of Connecticut, National Association of, and compliance by State Street Bank and Trust Company of Connecticut, National Association with all of the provisions of, each Operative Agreement to which it is a party and any other agreement entered into by State Street Bank and Trust Company of Connecticut, National Association in connection with any transaction contemplated by the Operative Agreements are within the powers of State Street Bank and Trust Company of Connecticut, National Association and are authorized by all proper and necessary corporate action and will not conflict with, result in any breach of any of the provisions of, or constitute a default under, any organization document of State Street Bank and Trust Company of Connecticut, National Association or any judgment, injunction, order or decree to which State Street Bank and Trust Company of Connecticut, National Association may be bound or which is applicable to any of State Street Bank and Trust Company of Connecticut, National Association's property or result in a violation of any Connecticut or federal Applicable Law governing the banking or trust powers of State Street Bank and Trust Company of Connecticut, National Association or in the creation of any Lien on any asset of State Street Bank and Trust Company of Connecticut, National Association (except as contemplated by the Operative Agreements).

(d)   Enforceability. Each Operative Agreement to which State Street Bank and Trust Company of Connecticut, National Association, in its individual capacity, is a party and any other agreement entered into by State Street Bank and Trust Company of Connecticut, National Association, in its individual capacity, in connection with any transaction contemplated by the Operative Agreement is the legal, valid and binding obligation of State Street Bank and Trust Company of Connecticut, National Association enforceable against State Street Bank and Trust Company of Connecticut, National Association in accordance with its terms, except as enforceability thereof may be limited by the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and by general principles of equity.

(e)   Consents. The nature of State Street Bank and Trust Company of Connecticut, National Association, its execution, delivery and performance of each Operative Agreement to which it is a party, its consummation of the transactions contemplated thereby, its compliance with the terms thereof or any circumstance in connection with the transactions contemplated thereby does not require the consent of any Person or the approval or authorization of, or filing, registration or qualification with, any federal or Connecticut state governmental authority governing the banking or trust powers of State Street Bank and Trust Company of Connecticut, National Association (other than such as have been obtained or will be obtained as required) as a condition to such execution, delivery, performance and compliance.

(f)   No Default. No event has occurred and no condition exists which, upon consummation of the transactions contemplated by any Operative Agreement, would constitute a default by the Trustee. State Street Bank and Trust Company of Connecticut, National Association is not in violation in any respect of any agreement or any other instrument, nor is State Street Bank and Trust Company of Connecticut, National Association in violation of its articles of association or any other instrument to which it is a party or by which it or any of its property may be bounded or affected which would have a material adverse effect on either the business, financial position or results of operation of State Street Bank and Trust Company of Connecticut, National Association or State Street Bank and Trust Company of Connecticut, National Association's ability to perform its obligations as Trustee under the Operative Agreement.

(g)   Securities Representation. State Street Bank and Trust Company of Connecticut, National Association has not directly or indirectly offered any Instrument, any interest under any Operative Agreement in the Lessor or any similar security for sale to, or solicited any offer to acquire the same from, anyone.

Section 8.5   Representations and Warranties of the Lessor. The Lessor hereby represents and warrants to the Lessee, each Guarantor, each Participant and the Administrative Agent that the following statements are and shall be true and correct on and as of the Document Closing Date and on and as of each Funding Date.

(a)   Chief Executive Office. The Lessor's principal place of business and the place where the documents, accounts and records relating to the transactions contemplated hereby are kept is located c/o State Street Bank and Trust Company of Connecticut, National Association, 225 Asylum Street, Hartford, CT 06103, Attention: Corporate Trust Department.

(b)   Due Organization, etc. The Lessor is a statutory trust duly organized and validly existing and in good standing under Connecticut statutory law and has full trust power and authority to execute, deliver and perform its obligations under each Operative Agreement to which it is or is to be a party and each other agreement, instrument and document to be executed and delivered by it in connection with or as contemplated by each such Operative Agreement to which it is or is to be a party.

(c)   Authorization; Enforceability. This Participation Agreement and each other Operative Agreement to which the Lessor is or is to be a party have been or will be, duly authorized executed and delivered by or on behalf of the Lessor and are, or upon execution and delivery will be, legal, valid and binding obligations of the Lessor, enforceable against the Lessor in accordance with their respective terms except as enforceability thereof may be limited by the effect of any applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting creditors' rights generally and by general principles of equity.

(d)   No Conflict. Neither the execution and delivery thereof, nor the consummation of the transactions contemplated thereby, nor compliance by the Lessor with any of the terms and provision thereof (i) requires any approval (other than as has been obtained), including any approval of any holders of any of its indebtedness or obligations, (ii) contravenes or will contravene any Applicable Law currently in effect applicable or binding on it (except no representations or warranty is made as to any Applicable Law to which, the Equipment, or any Facility directly or indirectly, may be subject because of the lines of business or other activities of the Lessee or any of its Affiliates) or (iii) results in any breach of or constitutes any default under, any indenture, mortgage, chattel mortgage, deed of trust, lease, conditional sales contract, loan or credit arrangement, other material agreement or instrument, corporate charter, by-laws or other agreement or instrument to which it is a party or by which it or its properties may be bound or affected.

(e)   Lessor Liens. The Equipment and Facilities financed by the Lessor are free and clear of all Lessor Liens attributable to the Lessor.

(f)   Litigation. There is no action, proceeding or investigation pending or, to the Lessor's knowledge, threatened affecting the Lessor which questions the validity of the Operative Agreements to which the Lessor is to be a party or any action taken or to be taken pursuant to the Operative Agreements to which the Lessor is or is to be a party, and there is no action, proceeding or investigation pending or, to the Lessor's knowledge, threatened which, if adversely determined, would have a material adverse effect on the Lessor or on the Lessor's ability to enforce its rights under any of the Operative Agreements.

(g)   Use of Proceeds. The Advances shall be used solely in accordance with the terms and provisions of the Operative Agreements.

(h)   Consents, etc. No authorization, consent, approval, license or exemption from, nor any filing, declaration or registration with, any Governmental Authority, is or will be required in connection with the execution and delivery by the Lessor of the Operative Agreements to which it is a party or the performance by the Lessor of its obligations under the Operative Agreements.

(i)   No Voluntary Bankruptcy. The Lessor shall not (i) commence any case, proceeding or action under any existing or future law of any jurisdiction (domestic or foreign) relating to bankruptcy, insolvency, reorganization, arrangement, winding up, liquidation, dissolution, composition or other relief with respect to the Lessor or its debts, or (ii) seek appointment of a receiver, trustee, custodian or other similar official for the Lessor or for the benefit of all or substantially all of its respective creditors.

ARTICLE IX
COVENANTS OF LESSEE

Section 9.1   General Covenants of Lessee. Lessee hereby covenants and agrees with Lessor, Administrative Agent and each of the Participants that it shall comply with the following provisions of this Section 9.1, it being understood that the following covenants are in addition to, and not by way of limitation of, any covenant set forth in the Lease.

(a)   Notice of Default. Lessee, shall upon obtaining knowledge thereof, give prompt written notice to the Administrative Agent of the occurrence of a Default or an Event of Default, specifying the nature and existence thereof and what action the Lessee proposes to take with respect thereto.

(b)   If requested by the Administrative Agent, (i) Lessor shall have received from the applicable Manufacturer an invoice or invoices for the Equipment Costs setting forth the invoiced purchase price installment of the Equipment then due and payable, and (ii) (A) receipts from any such other General Contractors and from all subcontractors engaged in the Construction with respect to any Facility evidencing that all sums previously advanced for Equipment Costs or Facility Costs have been expended for such costs and that no further amounts are owing with respect to such previously invoiced Facility Costs, and (B) copies of all documents required to be submitted to Lessee as of such date pursuant to the terms of each such Major Project Agreement.

(c)   Use of Proceeds. Lessee shall use each Advance hereunder exclusively for the purposes set forth herein and as described in the applicable Advance Request.

(d)   Preservation of Existence and Franchises. Lessee will do all things necessary to preserve and keep in full force and effect its existence and, to the extent necessary to perform its obligations under the Operative Agreements, its rights, franchises and authority.

(e)   Change of Name or Address. Lessee shall provide Lessor and Administrative Agent thirty days' prior written notice of any change in name, or the address of its chief executive office and principal place of business or the office where it keeps its records concerning its accounts, the Assets and the Operative Agreements.

(f)   Securities. Lessee shall not, nor shall Lessee permit anyone authorized to act on its behalf to, take any action which would subject the issuance or sale of the Notes or Certificates, the Assets or the Operative Agreements, or any security or lease, the offering of which, for purposes of the Securities Act or any state securities laws, would be deemed to be part of the same offering as the offering of the aforementioned items, to the registration requirements of Section 5 of the Securities Act or any state securities laws.

(g)   Rates. With respect to each determination of Interest and Yield pursuant to this Participation Agreement, the Loan Agreement, the Trust Agreement and Basic Rent under the Lease, Lessee agrees to be bound by Sections 2.5 and 2.6 of the Loan Agreement, Sections 2.4 and 2.5 of the Trust Agreement, and Sections 4.1, 4.2 and 4.6 hereof and the applicable definitions in Appendix 1.

(h)   Exempt Wholesale Generator Status. Not later than 120 days after the Document Closing Date hereof Lessee shall have (i) caused (x) the Lessor, Administrative Agent, Lessee and each Certificate Holder to either obtain status as an "exempt wholesale generator" under PUHCA or receive a "No-Action letter" from the staff of the Securities and Exchange Commission confirming that such entity will not be considered a "public-utility company" under PUHCA, and (y) the FERC to issue a declaratory ruling that the Lessor, Administrative Agent and each Certificate Holder will not become subject to regulation as a "public utility" under the Federal Power Act by reason of entering into the Operative Agreements or consummation or performance of the transactions contemplated thereby, in each case prior to the commencement of sales of electricity from any Asset (including any Unit at an Equipment Site), and (ii) provided an officer's certificate that the foregoing requirements have been satisfied and an opinion of counsel in form and substance reasonably acceptable to the Administrative Agent with respect to the foregoing matters and that no other approvals are required under the Federal Power Act or PUHCA for the consummation or performance of the transactions contemplated under the Operative Agreements. Once obtained, Lessee will not take any action that would adversely affect the ability of the Lessor to maintain either "exempt wholesale generator" status or exemption from the provisions of PUHCA, and Lessee shall, pursuant to Section 8.2(f), apply for "exempt wholesale status" and shall maintain either such status during the remaining term of the Lease unless Lessee obtains a "No-Action letter" from the staff of the Securities and Exchange Commission, or other assurances reasonably acceptable to the Administrative Agent, that the failure of the Lessee to maintain either of such status would not subject the Trust, Lessor, the Administrative Agent or any Participant to regulation as (1) a "holding company", or an "affiliate" or a "subsidiary company" of a "holding company". Lessee will not take any action that would subject the Trust, Lessor, Administrative Agent or any Participant or regulation as (1) a "public utility", a "transmitting utility", or an "electric utility" within the meaning of the FPA or (2) under State Utility Law. Lessee shall cause (i) each permitted sublessee, assign and operator to obtain and maintain "exempt wholesale generator" status during the term of the Lease unless (a) such sublessee, assign or operator is otherwise not subject to PUHCA or (b) Lessee obtains a "No-Action Letter" from the staff of the Securities and Exchange Commission or causes such sublessee, assign or operator to be exempt from the provisions of PUHCA, or delivers other assurances reasonably acceptable to the Administrative Agent, that the failure of such sublessee, assign or operator to obtain or maintain such status would not subject the Trust, Lessor, the Administrative Agent or any Participant to regulation as a "holding company", or an "affiliate" or a "subsidiary company" of a "holding company", or an "electric utility company" or a "public utility company", within the meaning of the PUHCA. Lessee shall cause each sublessee, assign and operator to not take any action that would subject the Trust, Lessor, Administrative Agent or any Participant to regulation (1) as a "public utility", a "transmitting utility", or an "electric utility" within the meaning of the FPA, or (2) under State Utility Law. Lessee will not take any action, and Lessee will cause each sublessee, assign and operator not to take any action, that would subject Lessee and sublessee, assign and operator to regulation under State Utility Law, other than any such regulation that would not have a Material Adverse Affect under the Operative Agreements.

(i)   Additional Information. Subject to confidentiality restrictions imposed by third parties, from time to time, with reasonable promptness, Lessee shall provide such information regarding the Lessee's business, affairs and financial condition as the Administrative Agent, the Trustee or any Participant may reasonably request.

(j)   Equipment Mix; Relocation of Units. At least five (5) days prior to moving, or causing to be removed, any Unit from the location of such Unit set forth in a prior notice delivered pursuant to Section 7.1(b) or any prior notice pursuant to this Section 9.1(j), Lessee shall (i)  provide a notice setting forth the new address at which such Unit will be located; provided that the Lessee shall not be obligated to provide such notice with respect to temporarily moving any Unit to another location for repair or service work, (ii) provide financing statements and Liens, and pay all filing fees and Taxes if such move or removal of any Unit requires new UCC-1 financing statements or Liens to be filed in order to perfect Lessor's and Administrative Agent's Liens in such Unit, and (iii) deliver to Administrative Agent an opinion of local counsel, in form and substance satisfactory to Agent, opining as to the continuance of Lessor's and Administrative Agent's perfected Lien in such Equipment. Lessee shall cause each Equipment Group to satisfy at all times the Required Equipment Mix.

(k)   Reporting Requirements. Simultaneously with the delivery by either Guarantor of the financial statements required to be furnished pursuant to Section 14.4 of the Guarantees, Lessee shall deliver to the Administrative Agent and Lessor a certificate of a principal financial officer of the Lessee to the effect that no Default or Event of Default has occurred and is continuing or describing any such Default or Event of Default and what action Lessee is taking with respect thereto.

(l)   Excepted Costs. Without limiting Lessee's rights and obligations contained in Section 3.5 of the Supervisory Agreement, on or prior to the applicable Construction Commencement Deadline of each Proposed Site, Lessee shall cause such Proposed Site to become a Construction Site and cause all Excepted Costs allocated to the Proposed Site to be allocated to such Construction Site unless prior to such date Lessee has repaid such Excepted Costs pursuant to Section 3.5 of the Supervisory Agreement.

(m)   [Intentionally Deleted.].

(n)   West Earl Facility. (i)   Lessee has informed Lessor and Administrative Agent that the Facility identified as West Earl in the Pro Forma Budget (the "West Earl Facility") will achieve Substantial Completion when the first eight Turbines (the "Pre-Completion Turbines") allocated to the West Earl Facility are installed and tested in accordance with the Existing Turbine Contract (such date to be the "West Earl Facility Completion Date"), notwithstanding the fact that the Pro Forma Budget contemplates the delivery of two (2) additional Turbines together with the related Site Improvements for such additional Turbines (such additional Turbines and related Site Improvements the "Post-Completion Assets") to be completed following the West Earl Facility Completion Date.

       (ii)   Lessee agrees that the Facility Materials to be delivered pursuant to Section 6.4 and thereafter in connection with the West Earl Facility Completion Date, including the applicable Facility Budget, Facility EPC Contract and Plans and Specifications, shall provide that Substantial Completion will occur for such Facility, including the Pre-Completion Turbines and the portion of the Site Improvements constituting Site Improvements, on the West Earl Facility Completion Date, whether or not the Post-Completion Assets are still in the process of being acquired, constructed or installed. The parties further agree that (i) the Facility Completion Date and Applicable Base Term Commencement Date will occur with respect to such Facility, including the Pre-Completion Turbines, the related Site Improvements and the Site Improvements relating to the Post-Completion Assets for all purposes under the Operative Agreements on the West Earl Facility Completion Date, (ii) the two (2) Turbines (including the other non-Turbine Units related thereto) included in the Post-Completion Assets will be the subject of a separate Equipment Lease Supplement and will achieve Unit Completion for each such Unit upon Shipment of the two (2) Turbines, at which time such Units and the amounts allocated thereto will be reallocated to the West Earl Facility and the applicable Facility Lease Supplement will be amended to include such Equipment, and (iii) notwithstanding the other provisions of the Operative Agreements, the proceeds from the sale of the Units subject to such separate Equipment Lease will be treated as proceeds from the Facility and may be applied to reduce amounts due under the Facility Lease Supplement pursuant to Section 5.3(d)(i) and Section 5.3(g)(i) or 5.3(g)(ii), as applicable.

(o)   Project Obligations. Without limitation of Lessee's obligations at Section 9.1(l), on or prior to the applicable Construction Commencement Deadline of each Proposed Site, Lessee shall cause each such Proposed Site to become a Construction Site or, prior to such date, cause Lessor and the Assets to be released from all liabilities and obligations then existing or which may arise in the future with respect to any Project Agreements relating to such Proposed Site, as designated by Administrative Agent, other than liabilities and obligations under an Equipment Contract to the extent related to a Unit allocated to a Construction Site or another Proposed Site in accordance with Section 3.1(e) of the Supervisory Agreement.

Section 9.2   Negative Covenants. Lessee hereby covenants and agrees with Lessor, Administrative Agent and each of the Participants that it shall comply with the following provisions of this Section 9.2 applicable to it, it being understood that the following covenants are in addition to, and not by way of limitation of, any covenant set forth in the Lease.

(a)   Liens, Etc. Lessee shall not, by any act or omission to act, incur or suffer to exist any Lien on the Assets other than Permitted Liens.

(b)   Mergers, Etc. Lessee shall not merge or consolidate with any person and shall at all times on and after June 5, 2001 remain a direct or indirect subsidiary of PPL Supply, in which PPL Supply shall own, directly or indirectly, and have the right to vote 100% of all of the outstanding voting stock, memberships or other equity interests of Lessee.

(c)   Sale of Assets, Etc. Lessee shall not sell, transfer, lease, assign or otherwise convey or dispose of all or substantially all of its assets (whether now owned or hereafter acquired) to an unrelated third party, in any single or series of transactions, whether or not related.

(d)   Nature of Business. Lessee shall not alter the character of its business from that of being predominantly in the energy business.

ARTICLE X
OTHER COVENANTS AND AGREEMENTS

Section 10.1   Covenants of the Participants, the Administrative Agent, the Lessor, Trustee and Lessee.

(a)   Lessor Liens. Each of the Participants (severally and not jointly with any other Participants), the Administrative Agent, the Lessor and State Street Bank and Trust Company of Connecticut, National Association hereby agrees that so long as this Participation Agreement is in effect it:

       (i)   will not create, incur, assume or suffer to exist any Lessor Lien attributable to it upon the Lease or the Assets (other than as contemplated by any of the Operative Agreements); and

       (ii)   will remove any Lessor Lien created or incurred by it and use its best efforts to remove any Lessor Lien attributable to it assumed or suffered to exist by it upon the Lease or the Assets (other than the Liens of the Security Instruments and such other Liens as are permitted or created by any of the Operative Agreements); provided, however, that any action taken pursuant to this clause (ii) shall not limit the Lessee's rights or remedies under any of the Operative Agreements. In the event of any Lessor Lien attributable to Lessor or Bank, in addition to complying with its obligations under this clause (ii), Trustee, in its trust capacity, or Bank, as applicable, will cause restitution to be made to the Trust Estate in the amount of any diminution of the value thereof as a result of such Lessor Lien.

(b)   Trust Agreement. Without prejudice to any right under the Trust Agreement of Trustee to resign, or the Certificate Holders' rights under the Trust Agreement to remove Trustee, each of the Certificate Holders and Trustee hereby agrees with Lessee (so long as no Event of Default shall have occurred and be continuing), the Lenders and Administrative Agent (i) not to terminate or revoke the trust created by the Trust Agreement, except as permitted in Section 6.1 of the Trust Agreement, prior to the later of the Expiration Date or the payment in full of the obligations under the Notes and Certificates, (ii) not to amend, supplement, terminate or revoke or otherwise modify any provision of the Trust Agreement prior to the Expiration Date in such a manner as to materially and adversely affect the rights of any such party, (iii) except as otherwise expressly authorized under the Operative Agreements, not to withdraw from the Trust Estate any funds other than amounts payable to it by Trustee as distributions of Basic Rent and Supplemental Rent without the prior written consent of each such party and (iv) to comply with all of the terms of the Trust Agreement applicable to it, the nonperformance of which could adversely affect such party.

(c)   Successor Trustee. Trustee or any successor may resign or be removed by the Participants as Trustee, a successor Trustee may be appointed, and a corporation may become Trustee under the Trust Agreement, only in accordance with the provisions of the Trust Agreement. Notwithstanding anything to the contrary contained in this Participation Agreement or the Trust Agreement, so long as no Event of Default shall be continuing, the appointment of a successor Trustee shall be subject to the consent of Lessee (such consent not to be unreasonably withheld or delayed).

(d)   Debt; Other Business. Trustee, on behalf of the Lessor, shall not contract for, create, incur or assume any debt, or enter into any business or other activity, other than pursuant to or under the Operative Agreements and, for the benefit of Lessee, Administrative Agent and the Lenders, agrees to be bound by Section 1.2(b) of the Trust Agreement.

(e)   Change of Principal Place of Business. Trustee shall give prompt notice to the Certificate Holders, Lessee and Administrative Agent, if Lessor's principal place of business or chief executive office, or the office where the records concerning the accounts or contract rights relating to the Overall Transaction are kept, shall cease to be located at the address set forth on Schedule III, or if it shall change its name or identity.

(f)   Loan Agreement. As between Lessor and Lessee, Lessor and each Participant hereby agree that, so long as the Lease is in effect, Lessor shall not consent to or permit any amendment of the terms and provisions of the Loan Agreement, any Security Instrument or any Note, whether or not any Event of Default shall have occurred and be continuing, if any such amendment or action would have the effect of increasing the obligations of Lessee or decreasing the rights of Lessee, in each case without the prior written consent of Lessee except that without such consent, Lessor may waive performance by Administrative Agent of obligations to Lessor, the non-performance of which does not adversely affect Lessee.

(g)   Acceptance of Provisions of Lease. The Participants, the Administrative Agent and Lessor hereby acknowledge and accept the provisions of Sections 15.2 and 20.1 of the Lease.

(h)   Depreciation. With respect to any taxable year or portion thereof, prior to the Expiration Date, neither the Lessor nor any Participant shall claim any federal or state or local tax attributes or benefits (including depreciation) relating to the Assets or otherwise claim ownership of the Equipment for federal, state or local tax purposes unless required to do so by an appropriate taxing authority or after a clearly applicable change in Applicable Laws or as a protective response to a proposed adjustment by a Governmental Authority; provided, however, that if an appropriate taxing authority shall require Lessor or any Participant to claim any such federal or state tax attributes or benefits or if it proposes to claim any such federal or state tax attributes or benefits as a protective response, such Person shall promptly notify Lessee thereof and shall permit Lessee to contest such requirement in a manner similar to the contest rights provided in, and subject to any applicable limitation to a contest contained in, Section 13.4(b).

(i)   Right of Setoff. Each of the Participants, the Trustee, in its individual capacity, and Administrative Agent, in its individual capacity, and Lessee covenants as to itself, not jointly with any other Person, that it shall not exercise, or attempt to exercise, any right of setoff, banker's lien, or the like, against any deposit account or property of any Guarantor, Lessee, or any of its Affiliates held or maintained by such Person without the prior written consent of the Administrative Agent, which, in the case of the Participants or the Lessor or Administrative Agent acting on their behalf, Administrative Agent shall base its decision to grant such consent solely upon a determination, upon the advice of its counsel, that such exercise shall not adversely affect the right of any other Participant to resort to any other right or remedy as a result of the application of state law.

(j)   Insolvency Proceedings. Each of the Participants, the Trustee, in its individual capacity, and Administrative Agent, in its individual capacity, and Lessee covenants as to itself, that it will not (i) commence any action, proceeding or other case with respect to the Lessor under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, arrangement, winding up, liquidation, dissolution, composition or other relief with respect to indebtedness, (ii) seek appointment of a receiver, trustee, custodian or other similar official with respect to the Lessor and for all or any substantial benefit of the creditors of the Lessor, or (iii) take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in this clause (j), except in each case, as expressly permitted pursuant to the Loan Agreement upon the occurrence of a Loan Event of Default.

(k)   Release of Documents. The Administrative Agent hereby agrees that, upon a sale of the Assets pursuant to Section 18 or Section 20.1 of the Lease and payment of all amounts due and owing from the Lessee under the Operative Agreements and the application of such amount to the Loans and Certificate Amounts as provided for at Section 6.2 of the Loan Agreement or repayment in full of all Loans and Certificate Amounts and all other amounts due and owing from Lessee under the Operative Agreements to Administrative Agent and the Participants, the Administrative Agent shall execute and deliver to the Lessee a release of any Security Instrument, and releases of all other Liens created by the Operative Agreements, and termination statements for any financing statements relating to the Assets or any of the Collateral which are then of record naming the Administrative Agent as secured party or assignee thereof.

(l)   Release of Liens. Administrative Agent hereby agrees with Lessee (so long as no Event of Default shall have occurred and be continuing), and the Lenders, except as otherwise expressly authorized or otherwise permitted under the Operative Agreements, not to release the Lien of any of the Security Instruments on the Collateral.

Section 10.2   Project Collateral Arrangements.

(a)   If as a condition to its entering into a Major Project Agreement (the "Applicable Project Agreement"), a General Contractor (the "Applicable Contractor") requires that all or part of the Termination Payments payable by Lessor and Supervisory Agent (the "Applicable Termination Payment Amounts") be collateralized, Lessor and Administrative Agent shall, upon request by Lessee, cause to be established a Project Collateral Account in which Lessor will fund with proceeds from Advances deposits into such account which shall not exceed at any time 10.1% of the Applicable Termination Payment Amounts due from time to time under the Applicable Project Agreement. Prior to depositing funds into a Project Collateral Account, Lessor, the Applicable Contractor and Administrative Agent shall execute and deliver a Project Collateral Account Agreement, which agreement shall be consented to and acknowledged by Lessee. Such Project Collateral Account Agreement shall permit Administrative Agent to direct amounts, other than Retained Amounts (as defined below) to be paid from the Project Collateral Account to make payments due and payable from time to time under the Applicable Project Agreement and to make payments under the Applicable Project Agreement to cure any defaults or breaches thereunder. For purposes of this Section 10.2(a), "Retained Amounts" means a portion of the funds to be deposited into the Project Collateral Account in an amount reasonably acceptable to Administrative Agent and Lessee which (i) pursuant to the terms of the Applicable Project Agreement, is required to be held throughout the term of such Project Agreement to secure Lessor's payment obligations under such Project Agreement, (ii) is provided for in the applicable Facility Budget and (iii) if not drawn upon, is required to be released to Lessor not later than Substantial Completion of the applicable Facility. Except for Excepted Interconnect Agreements relating to an Uncompleted Facility or a Proposed Site which in the aggregate represent not more than eight percent (8%) of the Asset Costs budgeted for such Uncompleted Facility or Proposed Site, each such Project Collateral Account Agreement also shall provide that the Applicable Contractor's claims against Lessor or Lessee shall be limited to the Project Collateral Account and the Project Agreement Indemnity or Project Letter of Credit described below.

(b)   All amounts in the Project Collateral Account shall be invested only in Permitted Investments. If an Event of Default has occurred and is continuing, then until all obligations are paid in full, the Administrative Agent may apply funds in a Project Collateral Account solely to the Obligations; provided, however, that while the applicable Project Agreement remains in effect, amounts on deposit in the Project Collateral Account may only be disbursed pursuant to the provisions of the applicable Project Collateral Account Agreement. It is agreed that, notwithstanding anything to the contrary in the Project Collateral Account Agreement, if any funds on deposit in the Project Collateral Account become available as a result of a reduction in the amount required to be on deposit in such Project Collateral Account pursuant to the Project Collateral Account Agreement, then Lessee shall cause such amounts to be applied to the next payment due under the applicable Project Agreement and Lessee's Advance Request for funds for payment of amounts due under such Applicable Project Agreement will reflect such application.

(c)   Concurrent with and as a condition precedent to Lessor's obligation to establish a Project Collateral Account and make deposits therein, Lessee shall execute and deliver to Administrative Agent, with executed copies for Lessor and the Applicable Contractor, a Project Agreement Indemnity, or in lieu of a Project Agreement Indemnity, Lessee may deliver to Lessor a Project Letter of Credit, with copies thereof to Administrative Agent and the Applicable Contractor and which shall be made payable to Lessor or its assignees named under a General Contractor Assignment. Lessee shall be solely liable for any reimbursement obligations under any Project Letter of Credit; provided, however, any fees payable to the issuer of such letter of credit may be funded with an Advance. Following Lessee's execution and delivery of a Project Agreement Indemnity or Project Letter of Credit, Lessor shall execute and deliver to the Applicable Contractor, with executed copies for Administrative Agent and Lessee, a General Contractor Assignment.

(d)   Lessor's and Administrative Agent's obligations to enter into any agreement described in this Section 10.2 or to make deposits as provided for herein shall be conditioned upon there being no Event of Default or Uninsured Loss existing, Lessee's satisfaction of Section 2.4 of the Supervisory Agreement, and Lessee demonstrating to the reasonable satisfaction of Administrative Agent that sufficient funds have been set aside and remain available in the applicable Facility Budget to fund the full amount of deposits necessary to pay the Applicable Termination Payment Amounts under each Applicable Project Agreement and all fees payable to the Project Letter of Credit issuers. Lessee shall cause to be executed, delivered and filed all financing statements and other filings, give such notices and deliver such legal opinions, as reasonably requested by Administrative Agent, to protect the parties' interests in the Project Collateral Accounts and the Project Collateral Agreements.

ARTICLE XI
LESSEE DIRECTIONS; REPLACEMENT OF PARTICIPANTS; RELEASE OF PPL CORPORATION GUARANTEE

Section 11.1   Lessee Directions. Each of the Participants, the Lessor and the Lessee hereby agree that, so long as no Default or Event of Default exists:

(a)   the Lessee shall have the right to replace any Lender or Certificate Holder with respect to which, (i) the right to pay interest by reference to the LIBO Rate shall be suspended under Section 14.1 or 14.2, (ii) there are or would be any claim to reimbursement or compensation under Section 14.3 or 14.5, (iii) Administrative Agent notifies Lessee that such Lender or Certificate Holder is a Defaulting Lender or Defaulting Certificate Holder under Section 3.5(b) or Section 3.6(b), (iv) such Participant fails to consent to a Base Term Extension Option Request pursuant to Section 4.7, or (v) a Downgrade Event (as defined below) shall have occurred;

(b)   the Lessee shall have the exclusive right to exercise the right under Section 11.1(a) above upon not less than three (3) Business Days' prior written notice (except that no prior written notice shall be required with respect to a Downgrade Event pursuant to clause (c) below) from the Lessee to the Lessor and Administrative Agent;

(c)   Replacement of Lender Due to Credit Rating Decline. If at any time any class of long-term senior unsecured debt issued by any Lender (a "Downgraded Lender") is rated BBB or lower by S&P or Baa2 or lower by Moody's (a "Downgrade Event"), then the Lessee may, subject to Section 12.1, at its sole cost and expense and effort, upon notice to such Downgraded Lender, the Administrative Agent and the Lessor, require such Downgraded Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 12), all its interests, rights and obligations under this Participation Agreement and the other Operative Agreements to one or more Eligible Assignees that shall assume such obligations; provided that (i) the Lessee shall have received the prior written consent of the Administrative Agent, which consent shall not be unreasonably withheld, and (ii) such Downgraded Lender shall have received payment of an amount equal to the Loan Balance of its Notes, accrued Interest thereon, accrued fees and all other amounts payable to such Downgraded Lender hereunder and under the other Operative Agreements from such Assignee(s) (to the extent of such outstanding Loan Balance and accrued Interest and fees) or, the Lessee (in the case of all other amounts). A Downgraded Lender shall not be required to make any such assignment and delegation if, prior thereto, the circumstances entitling the Lessee to require such assignment and delegation cease to apply.

(d)   the Administrative Agent and the Lessor hereby agree to reasonably cooperate with the Lessee, at Lessee's sole cost and expense (provided that, with respect to any such cost or expense allocable to an Uncompleted Unit or Uncompleted Facility pursuant to Section 3.2(b) of this Participation Agreement, Lessee shall pay such amounts from the proceeds of Advances pursuant to the terms and subject to the conditions set forth in this Participation Agreement relating to Advances), in Lessee's efforts to arrange one or more Replacement Participants as contemplated by this Section 11.1.

Section 11.2   Release of PPL Corporation Guarantee. On such date as PPL Supply has received confirmation of the Required Credit Rating from S&P and Moody's of at least (1) BBB and Baa3, respectively, or (2) BBB- and Baa2, respectively, and so long as no Default or Event of Default shall have occurred and be continuing, upon the request of PPL Corporation to Administrative Agent and upon satisfaction of each of the conditions set forth below, PPL Corporation shall be released and discharged from its obligations under its Guarantee and its Guarantee shall be terminated. The release of PPL Corporation under its Guarantee shall be subject to the satisfaction of the following conditions: (i) receipt by Administrative Agent of a Responsible Officer's Certificate from each Guarantor, certifying that, as of the date of such certification, PPL Supply has achieved the Required Credit Rating, (ii) receipt by Administrative Agent of evidence reasonably required by Administrative Agent to confirm the existence of such Required Credit Rating, (iii) receipt by Administrative Agent and each Participant of a document in form and substance reasonably satisfactory to Administrative Agent whereby PPL Supply acknowledges the release of PPL Corporation from and the termination of its Guarantee and a reaffirmation by PPL Supply of its obligations under its Guarantee, and (iv) the receipt by Administrative Agent and each Participant of an opinion of counsel of PPL Supply in form and substance reasonably satisfactory to Administrative Agent, with respect to the due execution, authorization and enforceability of the acknowledgment and reaffirmation. Promptly upon the request of the Guarantor following such release, the Administrative Agent shall execute and deliver any releases or other instruments to evidence or better confirm the release, discharge and termination contemplated in this Section 11.2. Each Participant and Lessor, by entering into this Participation Agreement, authorizes Administrative Agent to undertake their respective obligations set forth in this Section 11.2, and consents to the release of PPL Corporation from, and the termination of, the PPL Corporation Guarantee.

ARTICLE XII
TRANSFERS OF PARTICIPANTS' INTERESTS

Section 12.1   Assignments.

(a)   All or any part of the interest of any Lender in, to or under this Participation Agreement, the other Operative Agreements, the Assets or the Notes may with the prior written consent of Lessee (which consent shall not be unreasonably withheld or delayed and which consent shall not be required if any Event of Default has occurred and is continuing) be assigned or transferred by such Lender at any time to any Person; provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all such rights and obligations under the Loan Agreement (if applicable to such Lender); (ii) unless both parties to the assignment are Participants immediately prior to giving effect to the assignment, the amount of the Commitment of the assigning Lender being assigned pursuant to each such assignment shall not be less than $10,000,000 (or if less, the entire amount of such Participant's Commitment) and shall be an integral multiple of $1,000,000 (or such Participant's entire Commitment), (iii) each such assignment shall be to an Eligible Assignee, (iv) the Administrative Agent shall have received from the assignee/transferee or the assignor/transferor a transfer fee in the amount of $3,500; (v) each assignee or transferee shall have complied, as of the date of the transfer, with the delivery requirements of Section 12.3(a); and (vi) each assignee or transferee shall (A) acknowledge in writing, addressed and delivered to each of the parties to this Participation Agreement, that the obligations to be performed from and after the date of such transfer or assignment under this Participation Agreement and all other Operative Agreements are its obligations, including the obligations imposed by this Section 12.1(a), the transferor and transferee Participant shall deliver to the Lessee, the Administrative Agent and the Lessor an Assignment Agreement, in substantially the form of Exhibit E and an Investor's Letter in substantially the form of Schedule II to Exhibit E, each executed by the assignee or transferee) and (B) represent and warrant to Lessor, Administrative Agent, each Participant and the Lessee in writing each of the representations and warranties as set forth in Section 8.1 and that:

(w)   it has the requisite power and authority to accept such assignment or transfer;

(x)   it will not transfer any Note unless the proposed transferee makes the foregoing representations and covenants;

(y)   it will not take any action with respect to such Note that would violate any applicable securities laws; and

(z)   it will not assign or transfer any interest in its Note except in compliance with this Section 12.1.

Any transfer or assignment made in violation of the above requirements shall not be effective against the other parties to this Participation Agreement until such requirements are satisfied.

(b)   Any Certificate Holder may with the prior written consent of Lessee (which consent shall not be unreasonably withheld or delayed and which consent shall not be required if any Event of Default has occurred and is continuing) assign or transfer all or any part of its interest in, to and under this Participation Agreement, the other Operative Agreements and the Assets at any time to any Person; provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all such rights and obligations, (ii) unless both parties to the assignment are Participants immediately prior to giving effect to the assignment, the amount of the Commitment of the assigning Certificate Holder being assigned pursuant to each such assignment shall not be less than $1,000,000 (or if less, the entire amount of such Participant's Commitment) and shall be an integral multiple of $500,000 (or such Participant's entire Commitment), (iii) each such assignment shall be to an Eligible Assignee, (iv) the Administrative Agent shall have received from assignee/transferee or the assignor/transferor a transfer fee in the amount of $3,500; provided, however, that only one fee need be paid if transfers under both Section 12.1(a) and 12.1(b) are made concurrently, (v) each assignee or transferee shall have complied with the delivery requirements of Section 12.3(a); and (vi) each assignee or transferee (A) acknowledges that the obligations to be performed from and after the date of such transfer or assignment under this Participation Agreement and all other Operative Agreements are its obligations, including the obligations imposed by this Section 12.1(b) (and the transferor and transferee Certificate Holder shall deliver to the Lessee, the Lessor and Administrative Agent an Assignment Agreement, in substantially the form of Exhibit E and an Investor's Letter in substantially the form of Schedule II to Exhibit E, executed by the assignee or transferee) and (B) further represents and warrants to the Lessee, the Lessor, Administrative Agent and each Participant as set forth in Section 8.1 that:

(v)   it has the requisite power and authority to accept such assignment or transfer and to engage in the Overall Transaction;

(w)   it will not take any action with respect to its Certificate that would violate any applicable securities laws;

(x)   it will not assign or transfer any Certificate except in compliance with this Section 12.1(b); and

(y)   it will not transfer any Certificate unless the proposed transferee makes the foregoing representations and covenants.

Any transfer or assignment made in violation of the above requirements shall not be effective against the other parties to this Participation Agreement until such requirements are satisfied.

Section 12.2   Participations. Any Participant may at any time sell to one or more commercial banks or other Persons (each of such commercial banks and other Persons being herein called a "Sub-Participant") participating interests in all or a portion of its rights and obligations under this Participation Agreement, the other Operative Agreements, or its Notes or Certificates (including, without limitation, all or portion of the Rent owing to it); provided, however, that:

(a)   no participation contemplated in this Section 12.2 shall relieve such Participant from its obligations hereunder or under any other Operative Agreement;

(b)   such Participant shall remain solely responsible for the performance of its Commitment and such other obligations;

(c)   the Lessee, the Lessor and the Administrative Agent shall continue to deal solely and directly with such Participant in connection with such Participant's rights and obligations under this Participation Agreement and each of the other Operative Agreements;

(d)   each such Sub-Participant will make representations and warranties to the Participant that are consistent with Section 8.1, mutatis mutandis; and

(e)   no Sub-Participant, unless such Sub-Participant is an Affiliate of such Participant, or is itself a Participant, shall be entitled to require such Participant to take or refrain from taking any action hereunder or under any other Operative Agreement except to the extent any such action hereunder or thereunder would (A) reduce the principal or Certificate Amounts of or rate of Interest or Yield on or Fees in respect of any Loans or Certificate Amounts in which such Sub-Participant is participating or (B) postpone the date fixed for any payment of principal or Certificate Amounts (including extension of the Maturity Date or the date of any mandatory prepayment), Interest, Yield or Fees in respect of any Loans or Certificate Amounts in which such Sub-Participant is participating.

Section 12.3   Withholding Taxes; Disclosure of Information; Pledge Under Regulation A.

(a)   If any Participant or any assignee of, or Sub-Participant in, any Note or Certificate (each such assignee or Sub-Participant, a "Transferee") is organized under the laws of any jurisdiction other than the United States or any State thereof, then such Participant or Transferee, as applicable, shall (as a condition precedent to acquiring or participating in any Loan or Certificate) (i) furnish to the Lessor, the Administrative Agent and the Lessee in duplicate, for each taxable year of such Participant or Transferee during the Term, a properly completed and executed copy of either Internal Revenue Service Form W-8 ECI or Internal Revenue Service Form W-8 BEN and Internal Revenue Service Form W-9 and any additional form (or such other form) as is necessary to claim complete exemption from United States withholding taxes on all payments hereunder, and (ii) provide to the Lessor, the Administrative Agent and the Lessee a new Internal Revenue Service Form W-8 ECI or Internal Revenue Service Form W-8 BEN and Internal Revenue Service Form W-9 and any such additional form (or any successor form or forms) upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable United States laws and regulations and amendments duly executed and completed by such Participant or Transferee, and to comply at all times such Participant or Transferee shall beneficially own a Note or Certificate with all applicable United States laws and regulations and all provisions of any applicable tax treaty with regard to such withholding tax exemption. By its acceptance of a participation or assignment of a Participant's Note or Certificate, each Transferee shall be deemed bound by the provisions set forth in this Article XII and to represent on the date it becomes a Participant, that there is no applicable withholding requirement. Each Participant acknowledges that if any withholding ever applies to payments to such Participant, the Participant shall not be entitled to receive any additional interest or other payments to compensate the Participant for the amount withheld, other than as provided in Section 14.3.

(b)   Subject to Section 15.15 hereof, any Participant, Administrative Agent or the Lessor may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Article XII, disclose to the assignee or participant or proposed assignee or participant any information relating to the Lessee.

(c)   Anything in this Article XII to the contrary notwithstanding, any Participant may, without the consent of the Lessee, assign and pledge all or any portion of the Notes or Certificates held by it to any Federal Reserve Bank as collateral security pursuant to Regulation A of the F.R.S. Board.

ARTICLE XIII
INDEMNIFICATION

Section 13.1   Indemnification.

(a)   General Indemnification. Subject to the application of Section 13.1(b) with respect to any Uncompleted Unit or Uncompleted Facility and except as excluded in the final paragraph of this Section 13.1(a), the Lessee shall, whether or not any of the transactions contemplated hereby shall be consummated, pay and assume liability for, and hereby agrees to indemnify, protect, defend, save and keep harmless each Indemnitee from and against any and all Claims that may be imposed on, incurred by or asserted against such Indemnitee (whether because of action or omission by such Indemnitee), whether or not such Claim is covered by any other indemnification pursuant to this Article XIII, or such Indemnitee shall also be indemnified as to any such Claim by any other Person (but without duplication of any amounts received from any other Person), whenever such Claim arises or accrues, including whether or not such Claim arises or accrues at any time prior to or after the Expiration Date, in any way arising out of or relating to:

       (i)   any of the Operative Agreements or any of the transactions contemplated thereby or any investigation, litigation or proceeding in connection therewith, and any amendment, modification or waiver in respect thereof;

       (ii)   the Assets, including the Equipment, the Facility Equipment, the Sites, the Site Improvements or any part or portion thereof or interest therein;

       (iii)   the purchase, mortgaging, design, construction, preparation, installation, inspection, delivery, non-delivery, acceptance, rejection, purchase, ownership, possession, rental, lease, sublease, repossession, maintenance, repair, alteration, modification, addition or substitution, storage, transfer of title, redelivery, use, financing, refinancing, operation, condition, sale (including, without limitation, any sale or other transfer pursuant to the Lease or any of the Operative Agreements), return or other disposition of all or any part of any interest in any Asset and the Sites or the imposition of any Lien (or incurring of any liability to refund or pay over any amount as a result of any Lien) thereon, including, without limitation: (i) Claims or penalties arising from any violation of law or in tort (strict liability or otherwise), (ii) loss of or damage to the environment (including, without limitation, investigation costs, cleanup costs, response costs, remediation and removal costs, costs of corrective action, costs of financial assurance, and all other damages, costs, fees and expenses, fines and penalties, including natural resource damages), or death or injury to any Person, and all expenses associated with the protection of wildlife, aquatic species, vegetation, flora and fauna, and any mitigative action required by or under any Environmental Laws, (iii) any Claim resulting from or related to latent or other defects, whether or not discoverable, (iv) any Claims resulting from the existence or Release of any Hazardous Substance at or from any Asset, including any Site and any other site at which Equipment subject to any Equipment Lease Supplement is installed, (v) any Claim resulting from or related to the purchase of the Equipment, acquisition of any Site, Construction of the Site Improvements or the performance of any of the Project Obligations at any Site, (vi) any Claim based upon a violation or alleged violation of the terms of any restriction, easement, condition or covenant or other matter affecting title to any Asset, (vii) the making of any Modifications in violation of any standards imposed by any insurance policies required to be maintained by Lessee pursuant to the Lease which is in effect at any time with respect to the Assets or any part thereof, (viii) any Claim for patent, trademark or copyright infringement, or (ix) Claims arising from any public improvements with respect to any Site resulting in any change or special assessments being levied against such Site or any plans to widen, modify or realign any street or highway adjacent to such Site, or any Claim for utility "tap-in" fees; or

       (iv)   the offer, issuance, sale, transfer or delivery of the Notes or the Certificates;

       (v)   the transactions contemplated hereby or by any other Operative Agreement, in respect of the application of Parts 4 and 5 of Subtitle B of Title I of ERISA and any prohibited transaction described in Section 4975(c) of the Code;

       (vi)   the retaining or employment of any broker, finder or financial advisor by the Lessee to act on its behalf in connection with this Participation Agreement; or

       (vii)   any agreement, including any Project Agreement, entered into or assumed by Lessee in connection with any Asset, any Site, the purchase, Acquisition or Construction of any Equipment or Site Improvements (including any Claims by any party to any agreement relating to or part of the Existing Warehouse Facility, with respect to or relating to any Site Acquisition or Ground Lease or relating to or arising from any sublease or assignment by Lessee or its entering into any operations agreement (including, in connection with each of the matters described in this Section 13.1 to which this indemnity shall apply, matters based on or arising from the negligence of any Indemnitee).

       (viii)   the license granted to Supervisory Agent to generate, transmit and sell test power as set forth in Section 2.4(c) of the Supervisory Agreement and all activities of Lessee or any other Person with respect thereto.

It is expressly understood and agreed that the indemnity provided for herein shall survive the expiration or termination of, and shall be separate and independent from any remedy under, any Lease or any other Operative Agreement, but shall be subject to the final paragraph of this Section 13.1(a).

Notwithstanding the foregoing provisions of this Section 13.1(a), Lessee shall not be obligated to indemnify an Indemnitee under this Section 13.1(a), and Lessor shall not be required to indemnify a Participant Indemnitee under Section 13.1(b)(ii) for any Claim to the extent that such Claim is determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from: (i) the gross negligence or willful misconduct of such Indemnitee; (ii) the breach by such Indemnitee of its representations and warranties at Article VIII of this Participation Agreement or in any Investor Letter delivered by such Indemnitee pursuant to Section 12.1, or the breach by such Indemnitee of its covenants as set forth in this Participation Agreement or in any other Operative Agreement to which such Indemnitee is a party; (iii) any Claim resulting from the imposition of any Lessor Lien for which such Indemnitee is responsible for discharging under the Operative Agreements; (iv) any Claim for the recovery of Asset Costs with respect to an Uncompleted Unit or Uncompleted Facility to the extent such Claim arises solely as a result of an Event of Default with respect to such Uncompleted Facility or Uncompleted Unit prior to the Applicable Base Term Commencement Date for such Uncompleted Unit or such Uncompleted Facility, the recovery of which shall be governed by Article V of the Supervisory Agreement and Article XVI of this Participation Agreement, (v) any Claim to the extent attributable to acts or events occurring after the Expiration Date or the return or remarketing of the Assets so long as Lessor or the Participants are not exercising remedies against Lessee in respect of the Operative Agreements as a result of the occurrence and continuance of an Event of Default and (vi) any Taxes (other than (x) Taxes under ERISA or under Code provisions relating to ERISA and (y) as necessary to pay any amount required hereunder on an After-Tax Basis); provided, however, that nothing in the foregoing clauses (i) through (vi) shall be deemed to exclude or limit (x) any Claim that any Indemnitee may have under any Operative Agreement or Applicable Laws for damages from the Lessee or Guarantors for breach by Lessee or either Guarantor of its respective representations, warranties or covenants made or deemed made by it in any Operative Agreement or (y) any remedy under or right to damages pursuant to Section 16.2 of this Participation Agreement, Article XVI of the Lease or Article V of the Supervisory Agreement.

(b)   Notwithstanding the foregoing Section 13.1(a), to the extent any Claim under Section 13.1(a) relates to any act or omission relating to an Uncompleted Unit or an Uncompleted Facility, then prior to the Applicable Base Term Commencement Date with respect to such Uncompleted Facility or Uncompleted Unit, (i) the Lessee shall only be obligated to indemnify Lessor pursuant to Section 13.1(a) for such Claims, provided that such Claims shall include any Claim for which Lessor has an obligation to indemnify any Person pursuant to clause (ii) of this Section 13.1(b), and; provided further, that, Lessee's obligations under Section 13.1(a) during such period shall exclude Claims resulting solely from a Nonrelated Project Claim, and (ii) Lessor shall indemnify and keep harmless each Participant Indemnitee, Qualified Project Indemnitee or Tax Indemnitee from such Claims; provided, however, that the indemnification given by Lessor to any Qualified Project Indemnitee shall be limited to only those Claims for which Lessor has an obligation to provide indemnification to such Qualified Project Indemnitee pursuant to the terms of the applicable Project Agreement.

(c)   Lessor Indemnity. Lessor's obligation to indemnify and hold harmless any Participant Indemnitee or, in the case of any Project Agreement, Qualified Project Indemnitee under Section 13.1(b)(ii) or Tax Indemnitee under Section 13.4(a):

(A)   is not an individual or personal obligation of Lessor or Trustee, and nothing herein shall be construed as creating any liability on Lessor or Trustee, individually or personally, to pay, indemnify or hold harmless any Participant Indemnitee under this Article XIII;

(B)   is not an obligation binding on Lessor or claim on the Trust Estate except to the extent of any payment received from Lessee or paid by either Guarantor on Lessee's behalf, pursuant to Section 13.1(b)(i) or Section 13.4(a); and

(C)   shall be paid and discharged solely and exclusively from amounts paid by Lessee or paid by either Guarantor on Lessee's behalf, received by Lessor pursuant to Section 13.1(b)(i) or Section 13.4(a), and it is expressly agreed by each Participant Indemnitee, Qualified Project Indemnitee and Tax Indemnitee that the sole recourse of each such Person for payment or discharge of the indemnification obligations created under Section 13.1(b)(ii) or Section 13.4(a)(ii) shall be to such amounts paid by Lessee pursuant to Section 13.1(b)(i) and Section 13.4(a)(i); and

(D)   is the sole and exclusive right of each Participant Indemnitee, Qualified Project Indemnitee and Tax Indemnitee against Lessor or Trustee or the Trust Estate, and any right to proceed against Lessor or Trustee individually or otherwise or against the Trust Estate under common law, federal or state securities laws or otherwise for indemnification or contribution in connection with the matters covered by this Section 13.1(b) or Section 13.4(b) is hereby expressly waived by each Participant Indemnitee, Qualified Project Indemnitee and Tax Indemnitee (other than claims that may be made against Lessor, individually or personally, for fraud, gross negligence or willful misconduct).

Except as otherwise set forth in this Section 13.1(c), nothing in this Article XIII is intended as or shall be construed as a limitation on the right of any Indemnitee or Qualified Project Indemnitee to make indemnification, contribution or other claims of any kind against Lessee, to the extent that such claims otherwise may be made, with respect to any matter, including indemnification for Claims of the type referred to in Section 13.1(a).

To the extent that any payments made pursuant to Section 13.1(b)(ii) or Section 13.4(a) are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid by Lessor to a trustee, debtor in possession, receiver or other Person under any Bankruptcy Law, common law or equitable cause, then to such extent, the Indemnitee or Qualified Project Indemnitee who received any such payments from Lessor (or any portion thereof) shall repay any such amounts to Lessor, or as may otherwise be directed by a court of competent jurisdiction.

The indemnification obligations of Lessor under Section 13.1(b)(ii) and 13.4(a)(ii)shall survive and be reinstated to the same extent, for the same period and in the same manner as the indemnification obligations of Lessee.

The right of any Participant Indemnitee, Qualified Project Indemnitee or Tax Indemnitee to seek indemnification from Lessor under Section 13.1(b)(ii) or 13.4(b) is subject to and conditioned upon compliance by any such Indemnitee with the notice, cooperation, appointment of counsel, contest rights and other provisions in Section 13.3 and 13.4(b), unless waived by Lessee in writing, except that any reference in such Sections to Lessee shall be deemed to be a reference to Lessor.

Without limiting the foregoing, Lessor hereby, subject to the terms of this Section 13.1(c), grants to each Participant Indemnitee, each Tax Indemnitee and, to the extent provided for in the applicable Project Agreement or an agreement to be entered into pursuant to the last sentence of this paragraph, each Qualified Project Indemnitee a nonexclusive assignment of the right to enforce Lessor's indemnification rights under Sections 13.1(b)(i) and 13.4(a) with respect to Claims or Impositions of such Participant Indemnitees for which Lessor is indemnified under such Sections 13.1(b)(i) and 13.4(a). Lessee acknowledges and agrees that Lessor, (i) has indemnified the Participant Indemnitees and Tax Indemnitees under Sections 13.1(b)(ii) and 13.4(a), and (ii) has granted to such Participant Indemnitees a nonexclusive assignment of the right to enforce Lessor's indemnification rights under such Sections. Any Claim for indemnification to be made by any Participant Indemnitee or Tax Indemnitee by its exercise of the above described nonexclusive assignment will be brought on behalf of each Participant Indemnitee or Tax Indemnitee to be so indemnified by Administrative Agent following a demand by any such Participant Indemnitee or Tax Indemnitee, and solely for purposes of Section 13.3 and 13.4(b), Administrative Agent shall be deemed to be the Indemnitee or Tax Indemnitee as applicable. The agreements, acknowledgements and waivers required of each Qualified Project Indemnitee in this Section 13.1(c) shall be set forth in the writing to be executed by such Qualified Project Indemnitee as required in the definition of "Qualified Project Indemnitee."

Section 13.2   Nonconformance. If Lessee elects the Sale Option, an Event of Default occurs, or Lessee returns any Facility or Equipment Group to Lessor or Administrative Agent and after paying to Lessor, for the benefit of Participants, any amounts then due under the Operative Agreements with respect to such Equipment Group or Facility (including the Lease Supplement RVG Amount or the Lease Supplement Permitted Balance, as applicable) and the Lease Supplement Balance for any Facility or Equipment Group shall not have been reduced to zero, then Lessee shall promptly pay on the earlier of the Expiration Date or the date which is thirty (30) days following the delivery of the appraisal described below, an amount for each such Facility or Unit (the "Nonconformance Amount") not to exceed the applicable shortfall which such appraisal indicates is the result of any of the following events, circumstances, or conditions, whether or not permitted under the Lease: (i) the failure to maintain such Facility or Equipment Group as required by the Lease and the other Operative Agreements, in at least as good a condition as it was at the time of Substantial Completion for any Facility or the Unit Completion Date for a Unit, ordinary wear and tear excepted; (ii) the carrying out of or the failure to undertake any modifications, improvements, changes or Modifications to such Facility or Equipment Group whether or not permitted pursuant to the Operative Agreements or any change or modification to the Facility Plans and Specifications following the delivery of such Facility Plans and Specifications thereof pursuant to Article VI; (iii) any Modification to such Unit or Units in such Equipment Group following the Document Closing Date or any Modification to or restoration or rebuilding of such Facility or Equipment Group following the Facility Completion Date or Shipment Date, as applicable, whether or not permitted pursuant to the Operative Agreements; (iv) the existence of any environmental condition at or affecting such Facility or any Unit in the Equipment Group whether or not such condition existed on the Initial Advance Date; (v) any defect, exception, easement, restriction or other encumbrance on or title or ground lease interest to such Facility or any Unit in the Equipment Group, whether or not created or existing on the Initial Advance Date other than Permitted Liens of the type discussed in clauses (a) (other than such Liens relating to the rights and interests of Lessee), (b), (c) or (g) of the definition of Permitted Liens; (vi) the dependence of such Facility on any improvement or facility not fully located on a Site (other than government-provided utilities existing and benefiting such Facility as of the date hereof, the benefits of which are lost for reasons other than the fault of Lessee and which could not have been retained through the exercise by Lessee of commercially reasonable efforts to keep such utilities in place) and other than any improvement or facility which (x) if owned by Lessee, all of Lessee's rights and interest in and relating to such improvements or facilities are transferred to the purchaser under the Sale Option for such Facility or Equipment Group for the Gross Proceeds paid with respect thereto or if such Facility or any Unit in such Equipment Group is to be returned to Lessor that all such rights and interests are transferred without consideration to Administrative Agent or (y) if owed by a third party, the purchaser at such Sale Option or Administrative Agent, if such Facility or any Unit in such Equipment Group returned, is granted the indefeasible, right and interest to use such improvement, Units or facility in the same manner and scope for the same duration, and for such consideration on terms no less favorable, as was applicable to Lessee or its affiliates prior to such purchase or return); (vii) the failure by Lessee to comply with any Return Conditions or to cause all Facility Equipment to be in a condition to operate at Commercial Capacity at the date of any such appraisal hereunder; or (viii) the use of the Assets or any portion or part thereof by Lessee or any permitted sublessee, assign, operator or any PPL Group Member for any purpose or in any manner that adversely affected the Fair Market Value, utility, remaining useful life or residual value of any such Assets or portion or part thereof, other than ordinary wear and tear excepted. For purposes of making the determination provided for in this Section 13.2, Lessor shall cause to be delivered to Administrative Agent and Lessee within twenty (20) days of the occurrence of the event described in the first sentence of this Section 13.2 but in any event not less than 10 Business Days prior to the consummation of a sale of each Facility and Equipment Group, at Lessee's sole cost and expense, a report from an appraiser selected by the Required Participants and reasonably approved by Lessee, in form and substance satisfactory to the Required Participants and using approved methods satisfactory to the Required Participants, concerning the extent to which the fact that the actual Fair Market Value of each such Facility or Equipment Group as of the date of determination is less than the Fair Market Value anticipated for such date in the Initial Appraisal or Facility Appraisal, as applicable, originally delivered pursuant to Article VI of this Participation Agreement is due to any of the factors enumerated in the preceding sentence hereof. Any Nonconformance Amounts payable by Lessee shall be distributed in accordance with Section 5.3(d)(i).

Section 13.3   Proceedings in Respect of Claims. With respect to any amount that the Lessee is requested by an Indemnitee to pay by reason of Section 13.1, such Indemnitee shall, if so requested by the Lessee and prior to any payment, submit such additional information to the Lessee as Lessee may reasonably request and which is in the possession of such Indemnitee to substantiate properly the requested payment.

In case any action, suit or proceeding shall be brought against any Indemnitee, such Indemnitee shall promptly notify the Lessee of the commencement thereof provided that failure to notify Lessee shall not alter such Indemnitee's rights under this Section 13.3, except to the extent such failure increases the amounts payable by Lessee or precludes or materially impairs Lessee's ability to conduct a defense, and the Lessee shall be entitled, at its expense, to participate in, and, to the extent that the Lessee desires to, assume and control the defense thereof through its own counsel, which shall be subject to the reasonable approval of the Required Participants, on behalf of the Indemnitee; provided, however, that the Lessee shall have acknowledged in writing its obligation to fully indemnify such Indemnitee in respect of such action, suit or proceeding and shall provide such Indemnitee with all information with respect to such action, suit or proceeding as such Indemnitee shall reasonably request. Lessee must indicate its election to assume such defense by written notice to the Indemnitee within 90 days following receipt of Indemnitee's notice of the Claim, or in the case of a third party claim which requires a shorter time for response then within such shorter period as specified in the Indemnitee's notice of Claim, provided that such Indemnitee has given Lessee notice thereof. Lessee shall not be entitled to assume and control the defense of any such action, suit or proceeding if and to the extent that, (A) in the reasonable opinion of such Indemnitee after consultation with its counsel, (x) such action, suit or proceeding involves any risk of imposition of criminal liability on such Indemnitee or will involve a material risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Lien) on any Asset unless, in the case of civil liability, the Lessee shall have posted a bond or other security reasonably satisfactory to the relevant Indemnitees in respect to such risk or (y) the control of such action, suit or proceeding would involve an actual or potential conflict of interest, (B) such proceeding involves Claims not fully indemnified by the Lessee which the Lessee and the Indemnitee have been unable to sever from the indemnified Claim(s), provided that the Indemnitee has taken reasonable steps to sever such Claim(s), or (C) an Event of Default has occurred and is continuing. The Indemnitee may participate in a reasonable manner at its own expense and with its own counsel in any proceeding conducted by the Lessee in accordance with the foregoing. The Lessee shall not enter into any settlement or other compromise with respect to any Claim which is entitled to be indemnified under Section 13.1, without the prior written consent of the Indemnitee, which consent shall not be unreasonably withheld or delayed in the case of a money settlement not involving an admission of liability of such Indemnitee, unless the Indemnitee is fully released from such Claim and such Claim does not involve criminal liability of such Indemnitee.

The party controlling the defense shall consult in good faith with the other party and its counsel with respect to the defense and shall keep the non-controlling party reasonably informed as to the progress of the defense. Each Indemnitee shall supply the Lessee with such information and documents reasonably requested by the Lessee as are necessary or advisable for the Lessee to participate in any action, suit or proceeding to the extent permitted by Section 13.1, as applicable, and Lessee shall reimburse the Indemnitee for the reasonable out-of-pocket expenses of supplying such information and documents. Except during the occurrence of an Event of Default where Lessee and Guarantors shall have failed to provide indemnity and, if requested by an Indemnitee, collateral security, both in form, substance and in such amounts reasonably satisfactory to each Indemnitee, no Indemnitee shall enter into any settlement or other compromise with respect to any Claim which is entitled to be indemnified under Section 13.1, without the prior written consent of the Lessee, which consent shall not be unreasonably withheld, unless such Indemnitee waives its right to be indemnified under Section 13.1, with respect to such Claim, does not admit any criminal liability or civil liability on behalf of the Lessee or the Guarantors in connection with such Claim, and uses reasonable efforts to advise the Lessee on the status of proceedings from time to time during the pendency of such Claim.

Upon payment in full of any Claim by the Lessee or the Guarantors pursuant to Section 13.1, to or on behalf of an Indemnitee, the Lessee, without any further action, shall be subrogated to any and all claims that such Indemnitee may have relating thereto (other than claims in respect of insurance policies maintained by such Indemnitee at its own expense), and such Indemnitee shall execute such instruments of assignment and conveyance, evidence of claims and payment and such other documents, instruments and agreements as may be necessary to preserve any such claims and otherwise cooperate with the Lessee and give such further assurances as are necessary or advisable to enable the Lessee vigorously to pursue such claims.

Any amount payable to an Indemnitee pursuant to Section 13.1 shall be paid to such Indemnitee promptly upon receipt of a written demand therefor from such Indemnitee, accompanied by a written statement describing in reasonable detail the basis for such indemnity and the computation of the amount so payable.

Section 13.4   General Tax Indemnity.

(a)   Indemnification. Subject to the application of the immediately following sentence of this Section 13.4(a) and without limitation on any other rights of any Tax Indemnitee to indemnification under this Article XIII, the Lessee shall pay and assume liability for, and does hereby agree to indemnify, protect and defend the Assets and each Tax Indemnitee, and hold the Assets and each Tax Indemnitee harmless against, all Impositions. Notwithstanding the foregoing, to the extent any such Impositions relate to any act or omission relating to an Uncompleted Unit or an Uncompleted Facility which arises prior to the Applicable Base Term Commencement Date for such Uncompleted Facility or Uncompleted Unit, (i) the Lessee shall only be obligated to indemnify Lessor for such Impositions, provided that such Impositions for which Lessee has an obligation to indemnify shall include any Imposition for which Lessor has an obligation to indemnify any Tax Indemnitee pursuant to clause (ii) hereof, and (ii) Lessor shall indemnify and keep harmless each Tax Indemnitee from such Impositions on an After Tax Basis.

(b)   Contests. If any claim shall be made against any Tax Indemnitee or if any proceeding shall be commenced against any Tax Indemnitee (including a written notice of such proceeding) for any Imposition as to which the Lessee may have an indemnity obligation pursuant to this Section 13.4, or if any Tax Indemnitee shall determine that any Imposition for which the Lessee may have an indemnity obligation pursuant to this Section 13.4 may be payable, such Tax Indemnitee shall promptly (and in any event, within 15 days) notify the Lessee in writing (provided that failure to so notify the Lessee within 15 days shall not alter such Tax Indemnitee's rights under this Section 13.4, except to the extent such failure effectively precludes the ability to conduct a contest of any indemnified Taxes) and shall not take any action with respect to such claim, proceeding or Imposition without the written consent of the Lessee (such consent not to be unreasonably withheld or unreasonably delayed) for 30 days after the receipt of such notice by the Lessee; provided, however, that in the case of any such claim or proceeding, if such Tax Indemnitee shall be required by law or regulation to take action prior to the end of such 30-day period, such Tax Indemnitee shall in such notice to the Lessee, so inform the Lessee, and such Tax Indemnitee shall not take any action with respect to such claim, proceeding or Imposition without the consent of the Lessee (such consent not to be unreasonably withheld or unreasonably delayed) for 10 days after the receipt of such notice by the Lessee, unless the Tax Indemnitee shall be required by law or regulation to take action prior to the end of such 10-day period.

The Lessee shall be entitled for a period of 30 days from receipt of such notice from the Tax Indemnitee (or such shorter period as the Tax Indemnitee has notified the Lessee is required by law or regulation for the Tax Indemnitee to commence such contest), to request in writing that such Tax Indemnitee contest such Impositions, at the Lessee's expense. If (x) such contest can be pursued in the name of the Lessee and independently from any other proceeding involving a Tax liability of such Tax Indemnitee for which the Lessee has not agreed to indemnify such Tax Indemnitee, (y) such contest must be pursued in the name of the Tax Indemnitee, but can be pursued independently from any other proceeding involving a Tax liability of such Tax Indemnitee for which the Lessee has not agreed to indemnify such Tax Indemnitee or (z) the Tax Indemnitee so requests, then the Lessee shall be permitted to control the contest of such claim, provided that in the case of a contest described in any of clause (x), (y) or (z) if the Tax Indemnitee determines in good faith that such contest by the Lessee is reasonably likely to have a material adverse impact on the business or operations of the Tax Indemnitee and provides a written explanation to the Lessee of such determination, the Tax Indemnitee may elect to control or reassert control of the contest, and provided, further, that in determining the application of clauses (x) and (y) of this sentence, each Tax Indemnitee shall take any and all reasonable steps to segregate claims for any Impositions for which the Lessee indemnifies hereunder from Taxes for which the Lessee is not obligated to indemnify hereunder, so that the Lessee can control the contest of the former. In all other claims requested to be contested by the Lessee, the Tax Indemnitee shall control the contest of such claim, acting through counsel reasonably acceptable to the Lessee. In no event shall the Lessee be permitted to contest (or the Tax Indemnitee required to contest) any claim, (A) if such Tax Indemnitee provides the Lessee with a legal opinion of independent counsel that such action, suit or proceeding involves a risk of imposition of criminal liability or will involve a material risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Lien) on any Asset or any part of any thereof unless the Lessee shall have posted and maintained a bond or other security reasonably satisfactory to the relevant Tax Indemnitee in respect to such risk, (B) if an Event of Default has occurred and is continuing, unless the Lessee shall have posted and maintained a bond or other security reasonably satisfactory to the relevant Tax Indemnitee in respect of the Impositions subject to such claim and any and all expenses for which the Lessee is responsible hereunder reasonably foreseeable in connection with the contest of such claim, (C) unless the Lessee shall have provided the Tax Indemnitee with a written acknowledgement of liability if the contest shall prove unsuccessful (provided, however, that such acknowledgement shall not be binding if the contest is finally resolved on a basis from which it can be established that the Lessee would not have been liable to the Tax Indemnitee for an indemnity in the absence of such acknowledgment), (D) unless the Lessee shall have agreed to pay and shall pay (provided, that prior to the Applicable Base Term Commencement Date for such Facility or Equipment Group and pursuant to the terms and conditions in this Participation Agreement relating to Advances, Lessee shall request an Advance the proceeds of which shall be used to pay) to such Tax Indemnitee on demand all reasonable out-of-pocket costs, losses and expenses that such Tax Indemnitee may incur in connection with contesting such Imposition, including all reasonable legal, accounting and investigatory fees and disbursements as well as the Impositions which are the subject of such claim to the extent the contest is unsuccessful, or (E) if such contest shall involve the payment of the Impositions prior to the contest, unless the Lessee shall provide to the Tax Indemnitee an interest-free advance in an amount equal to the Imposition that the Indemnitee is required to pay (with no additional net after-tax costs (including Taxes) to such Tax Indemnitee). In addition, for Tax Indemnitee controlled contests, no contest shall be required: (A) unless the amount of the potential indemnity (taking into account all similar or logically related claims that have been or could be raised in any audit involving such Tax Indemnitee for which the Lessee may be liable to pay an indemnity under this Section 13.4(b)) exceeds $25,000 and (B) unless, if requested by the Tax Indemnitee, the Lessee shall have provided to the Tax Indemnitee an opinion of counsel selected by the Lessee (which may be in-house counsel, except, in the case of income taxes indemnified hereunder, which opinion shall be that of independent tax counsel selected by the Tax Indemnitee and reasonably acceptable to the Lessee) that a reasonable basis exists to contest such claim. In no event shall a Tax Indemnitee be required to appeal an adverse judicial determination to the United States Supreme Court.

The party conducting the contest shall consult in good faith with the other party and its counsel with respect to the contest of such claim for Impositions (or claim for refund) but the decisions regarding what actions to be taken shall be made by the controlling party in its sole judgment, provided, however, that if the Tax Indemnitee is the controlling party and the Lessee recommends the acceptance of a settlement offer made by the relevant Governmental Authority and such Tax Indemnitee rejects such settlement offer then the amount for which the Lessee will be required to indemnify such Tax Indemnitee with respect to the Impositions subject to such offer shall not exceed the amount which it would have owed if such settlement offer had been accepted. In addition, the controlling party shall keep the noncontrolling party reasonably informed as to the progress of the contest, and shall provide the noncontrolling party with a copy of (or appropriate excerpts from) any reports or claims issued by the relevant auditing agents or taxing authority to the controlling party thereof, in connection with such claim or the contest thereof.

Each Tax Indemnitee shall supply the Lessee with such information and documents reasonably requested by the Lessee as are necessary or advisable for the Lessee to participate in any action, suit or proceeding to the extent permitted by this Section 13.4(b), and the Lessee shall promptly reimburse such Indemnitee for the reasonable out-of-pocket expenses of supplying such information and documents. Except during the occurrence of an Event of Default where Lessee and the Guarantors shall have failed to provide indemnity and, if requested by an Indemnitee, collateral security, both in form, substance and in such amounts reasonably satisfactory to each Indemnitee, no Tax Indemnitee shall enter into any settlement or other compromise or fail to appeal an adverse ruling with respect to any claim which is entitled to be indemnified under this Section 13.4 (and with respect to which contest is required under this Section 13.4(b)) without the prior written consent of the Lessee, unless such Tax Indemnitee waives its right to be indemnified under this Section 13.4 with respect to such claim.

Notwithstanding anything contained herein to the contrary, a Tax Indemnitee will not be required to contest (and the Lessee shall not be permitted to contest) a claim with respect to any Imposition if (i) such Tax Indemnitee shall waive its right to indemnification under this Section 13.4 with respect to such claim (and any claim with respect to such year or any other taxable year, the contest of which is materially adversely affected as a result of such waiver) or (ii) such Imposition is the sole result of a claim of a continuing and consistent nature, which claim has previously been resolved against the relevant Tax Indemnitee (unless a change in law or facts has occurred since such prior adverse resolution and Lessee provides an opinion of independent tax counsel to the effect that it is more likely than not that such change in law or facts will result in a favorable resolution of the claim at issue).

(c)   Payments. (i)   To, or for the Account of, a Tax Indemnitee. Any Imposition indemnifiable under this Section 13.4 shall be paid directly when due to the applicable taxing authority if direct payment is practicable and permitted. If direct payment to the applicable taxing authority is not permitted or is otherwise not made, any amount payable to a Tax Indemnitee pursuant to Section 13.4 shall be paid within thirty (30) days after receipt of a written demand therefor from such Tax Indemnitee, accompanied by a written statement describing in reasonable detail the amount so payable, but not before two Business Days prior to the date that the relevant Impositions are due. Any payments made pursuant to this Section 13.4 shall be made directly to the Tax Indemnitee entitled thereto in immediately available funds at such bank or to such account as specified by the Tax Indemnitee in written directions to the Lessee, or, if no such direction shall have been given, by check of the Lessee payable to the order of the Tax Indemnitee by certified mail, postage prepaid at its address as set forth in this Participation Agreement. Upon the request of any Tax Indemnitee with respect to an Imposition that the Lessee is required to pay, the Lessee shall furnish to such Tax Indemnitee the original or a certified copy of a receipt for the Lessee's payment of such Imposition or such other evidence of payment as is reasonably acceptable to such Tax Indemnitee. Notwithstanding the foregoing, the Lessee shall not be required to make any indemnity payments with respect to an Imposition that is being contested prior to the conclusion of the contest, subject to clauses (D) and (E) of Section 13.4(b).

(ii)   To the Lessee. (x) If any Tax Indemnitee actually shall realize a Tax benefit (whether by way of deduction, credit, allocation or apportionment or otherwise) with respect to a Tax not indemnifiable hereunder which would not have been realized but for any Impositions with respect to which the Lessee has reimbursed or indemnified such Tax Indemnitee pursuant to the Operative Agreements, which benefit was not previously taken into account in determining the amount of the Lessee's payment to such Tax Indemnitee, such Tax Indemnitee shall pay to the Lessee (1) an amount equal to the amount of such Tax benefit, increased by (2) the Tax savings realized by such Tax Indemnitee as a result of its payment of the amount specified in clauses (1) and (2) (and net of any additional Taxes actually borne by such Tax Indemnitee as a result of such payment), with such Tax savings being calculated utilizing the same tax rate assumptions as specified in the definition of "After Tax Basis" (with the amount determined under (2) hereinafter referred to as the amount necessary in order to make a payment on a "Grossed-Up Basis"); provided, however, that as long as an Event of Default is continuing any such amounts may be applied against any amounts due and owing by Lessee under the Lease; provided further, however, that no Tax Indemnitee shall be required to pay to the Lessee any Tax benefit to the extent such payment would be greater than the amount of such Impositions in respect of which the reimbursement or indemnification was paid by the Lessee, reduced by all prior payments by such Tax Indemnitee under this Section 13.4(c)(ii)(x) in respect of such amount; any payment to the Lessee which is so limited shall, to the extent of such unpaid excess, be carried over and shall be available to offset any future obligations of the Lessee under this Section 13.4. If such repaid Tax benefit is thereafter lost, the additional Tax payable shall be treated as a Tax indemnifiable hereunder without regard to the exclusions set forth in clauses (i) through (x) of the definition of Impositions.

(y)   Upon receipt by a Tax Indemnitee of a refund or credit of all or part of any Impositions paid or indemnified against by the Lessee, which refund or credit was not previously taken into account in determining the amount of the Lessee's payment to such Tax Indemnitee, such Tax Indemnitee shall pay to the Lessee, on a Grossed-Up Basis, an amount equal to the amount of such refund, plus any interest received by or credited to such Tax Indemnitee with respect to such refund; provided, however, that as long as an Event of Default is continuing any such amounts may be applied against any amounts due and owing by Lessee under the Lease; provided, further, however, that no Tax Indemnitee shall be required to pay to the Lessee any refund or credit to the extent such refund or credit is greater than the amount of Impositions in respect of which payment or indemnification was made by the Lessee, reduced by all prior payments by such Tax Indemnitee under this Section 13.4(c)(ii)(y) in respect of such amount. If such repaid refund or credit is thereafter lost, the additional Tax payable shall be treated as a Tax indemnifiable hereunder without regard to the exclusions set forth in clauses (i) through (x) of the definition of Impositions.

(d)   Reports. In the case of any report, return or statement required to be filed with respect to any Impositions that are subject to indemnification under this Section 13.4 and of which the Lessee has knowledge, the Lessee shall promptly notify the Tax Indemnitee of such requirement and, at the Lessee's expense (i) if the Lessee is permitted (unless otherwise requested by the Tax Indemnitee) by Applicable Laws, timely file such report, return or statement in its own name or (ii) if such report, return or statement is required to be in the name of or filed by such Tax Indemnitee or the Tax Indemnitee otherwise requests that such report, return or statement be filed in the name of or by such Tax Indemnitee, the Lessee shall prepare such report, return or statement for filing by such Tax Indemnitee in such manner as shall be satisfactory to such Tax Indemnitee and send the same to the Tax Indemnitee for filing no later than 15 days prior to the due date therefor. In any case in which the Tax Indemnitee will file any such report, return or statement, the Lessee shall, upon written request of such Tax Indemnitee, provide such Tax Indemnitee with such information as is reasonably necessary to allow the Tax Indemnitee to file such report, return or statement.

(e)   Withholding Taxes.

       (i)   The Lessor or its agent shall withhold any Taxes required by Applicable Laws to be withheld on any payment to any Participant. The amount payable to the Trustee, the Certificate Holders, the Lenders, any other Participant or any Sub-Participant shall be reduced by the amount of any withholding Taxes required to be withheld by the Lessor or its agent pursuant to the preceding sentence, and except with respect to such Taxes for which Lessee is liable pursuant to Section 14.3, the Lessee and the Trustee shall have no liability or obligation to the Lessor, the Certificate Holders or the Lenders with respect to any such withholding Taxes.

       (ii)   If and to the extent the Lessor or its agent has in good faith attempted to comply with its obligation to withhold Taxes in accordance with clause (i) and a claim regarding withholding Taxes is made against the Lessor or its agent (and Lessor or its agent, after good faith efforts, have been unable to recover from the Participant in accordance with clause (iii) below the Taxes that should have been withheld), as between the Lessee and the Lessor (or its agent), the Lessee shall be responsible for, and the Lessee shall indemnify (provided that, prior to the Applicable Base Term Commencement Date for any Facility or Equipment Group with respect to any payment required to be made by Lessee hereunder not arising as a result of an act or omission by Lessee, Guarantor or their respective Affiliates, then pursuant to the terms and conditions concerning Advances set forth in this Participation Agreement Lessee shall request an Advance the proceeds of which shall be used to fund such payment) and hold harmless the Lessor (and its agent) (without duplication of any indemnification required by subsection (a)) on an After Tax Basis against, such claim to the extent, but only to the extent, the Lessor or its agent has actually paid funds to a taxing authority with respect to such withholding taxes or receives a demand for such payment from any taxing authority and subject to the contest rights set forth in Section 13.4(b).

       (iii)   Each Participant agrees to reimburse the Lessor and Administrative Agent for any withholding Taxes for which the Lessor or Administrative Agent becomes liable as a result of payments made to such Participant and, except with respect to such Taxes for which Lessee is liable pursuant to Section 14.3, to reimburse the Lessee for any Taxes or other amounts paid by the Lessee (A) pursuant to clause (ii) hereof and (B) to the extent Lessee has otherwise paid funds to a taxing authority with respect to any withholding taxes or receives a demand for such payment from any taxing authority.

       (iv)   For purposes of this Section 13.4(e), it shall be assumed that each Lease constitutes a loan for United States federal income tax purposes (as is the parties' intention).

Section 13.5   After Tax Basis. If an Indemnitee shall not be entitled to a corresponding and equal deduction with respect to any payment or Tax which Lessee is required to pay or reimburse under any other provision of this Article XIII (each such payment or reimbursement under this Article XIII, an "original payment") and which original payment constitutes income to such Indemnitee when accrued or received, then Lessee shall pay to, or for the account of, such Indemnitee on demand the amount of such original payment on an After Tax Basis.

Section 13.6   Environmental Indemnity. Notwithstanding the other provisions of this Article XIII, Lessee hereby agrees to indemnify, hold harmless and defend each Indemnitee from and against any and all Claims, losses, damages, liabilities, fines, penalties, charges, administrative and judicial proceedings (including informal proceedings) and orders, judgments, remedial action, requirements, enforcement actions of any kind, and all reasonable and documented costs and expenses incurred in connection therewith (including reasonable and documented attorneys' and/or paralegals' fees and expenses), including all costs incurred in connection with any investigation or monitoring of the condition of the Assets or any portion thereof, including each Site and Equipment Site, or any clean-up, remedial, removal or restoration work required or conducted by any Governmental Authority or required by Environmental Laws (collectively, "Environmental Claims"), arising in whole or in part, out of:

(a)   the presence on, under or around the Assets or any portion thereof, including any Site or Equipment Site, of any Hazardous Substance, or any releases or discharges of any Hazardous Substance on, under, from, onto or around the Assets, or any portion thereof or such Sites or Equipment Sites.

(b)   any activity, including, without limitation, construction (including construction of the Site Improvements), carried on or undertaken on or off the Assets or any portion thereof, including any Site or Equipment Site, and whether by Lessee or any of its Affiliates or any predecessor in title or any employees, agents, sublessees, contractors or subcontractors of Lessee, any of its Affiliates or any predecessor in title, or any other Persons (including such Indemnitee), in connection with the handling, treatment, removal, storage, decontamination, clean-up, transport or disposal of any Hazardous Substance that at any time are located or present on, under or around, or that at any time migrate, flow, percolate, diffuse or in any way move onto or under the Assets or any portion thereof, including any Site or Equipment Site, or any activity that aggravates or exacerbates existing environmental conditions or results in a violation of existing deed restrictions.

(c)   loss of or damage to any property or the environment arising from, or in any way related to, the Assets or any portion thereof, including any Site or Equipment Site, or Lessee or any of its Affiliates (including, without limitation, clean-up costs, response costs, remediation and removal costs, cost of corrective action, costs of financial assurance, fines and penalties and natural resource damages), or death or injury to any Person, and all expenses associated with the protection of wildlife, aquatic species, vegetation, flora and fauna, and any mitigative action required by or under Environmental Laws, in each case arising from, or in any way related to, the Assets or any portion thereof, including any Site or Equipment Site, Lessee, any of its Affiliates or the Overall Transaction or any portion thereof.

(d)   any claim concerning lack of compliance with Environmental Laws, or any act or omission causing an environmental condition that requires remediation or would allow any Governmental Authority to record a Lien against the Assets or any portion thereof.

(e)   any residual contamination on or under any of the Assets or any portion thereof, including any Site or Equipment Site, or affecting any natural resources, and any contamination of any property or natural resources arising in connection with the generation, use, handling, storage, transport or disposal of any such Hazardous Substance, in each case arising from, or in any way related to, the Assets or any portion thereof, including any Site or Equipment Site, Lessee, any of its Affiliates, or the Overall Transaction or any portion thereof, and irrespective of whether any of such activities were or will be undertaken in accordance with Applicable Laws.

Notwithstanding the foregoing provisions of this Section 13.6, Lessee shall not be obligated to indemnify an Indemnitee under this Section 13.6 for any Claim to the extent that such Claim is attributable to (i) the gross negligence or willful misconduct of such Indemnitee.

ARTICLE XIV
CONTINGENT LIBOR AND OTHER COSTS

Section 14.1   LIBO Rate Lending Unlawful. If any Participant shall determine (which determination shall, upon notice thereof to the Lessee and the Participants, be conclusive and binding on the Lessee absent manifest error) that the introduction of or any change in the interpretation of any law makes it unlawful, or any central bank or other Governmental Authority asserts that it is unlawful, for such Participant to make available, continue or maintain any Loan or Certificate Amount that bears Interest or Yield based upon the LIBO Rate, as the case may be, the obligation of such Participant to make available, continue or maintain any such Loan or Certificate Amount, as the case may be, shall, upon such determination, forthwith be suspended (provided that such Participant shall be obligated to make, continue or maintain any such Loan or Certificate Amount bearing Interest or Yield at the Alternate Base Rate as specified below) (unless such Participant determines in its sole discretion that it can continue to make any Loan or Certificate Amount based upon the LIBO Rate at one of its lending offices where such action would not be deemed unlawful) until such Participant shall notify the Lessee and the Lessor that the circumstances causing such suspension no longer exist and, to the extent required by any such introduction of or change in or in the interpretation of any law, all Loans or Certificate Amounts, as the case may be, of such Participant shall automatically bear Interest or accrue Yield at the Alternate Base Rate either (a) on the last day of the then current Interest Period applicable to such Loan or Certificate Amount, as the case may be, if such Participant may lawfully continue to maintain and fund such Loan or Certificate Amount, or (b) immediately if such Participant shall determine that it may not lawfully continue to maintain and fund such Loan or Certificate Amount, as the case may be, to such day thereto or sooner, if required by such law or assertion.

Section 14.2   Deposits Unavailable. If any of the Participants shall have determined that:

(a)   Dollar deposits in the relevant amount and for the relevant Interest Period are not available to such Participant in its relevant market; or

(b)   by reason of circumstances affecting such Participant's relevant market, adequate means do not exist for ascertaining the LIBO Rate applicable to such Participant's Loans or Certificate Amounts,

then, upon notice from such Participant to the Lessee and the other Participants, (i) the obligations of the Participants to make available Loans or Certificate Amounts, as the case may be, based on the LIBO Rate, shall be suspended and (ii) each outstanding Loan or Certificate Amount, as the case may be, shall begin to bear Interest or accrue Yield at the Alternate Base Rate on the last day of the then current Interest Period applicable thereto.

Section 14.3   Increased Costs, Etc. If any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in of any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any court, central bank, regulator or other Governmental Authority after the date hereof increases or would increase the cost (other than in respect of Taxes, except for withholding taxes imposed on actual or constructive payments to a Participant as the result of any change in law, regulation or treaty first enacted, promulgated or signed after the date the Participant acquires its Notes or Certificates, as the case may be, that prevents the Participant from being legally entitled to provide a statement or form evidencing such Participant's complete exemption from withholding as described in Section 12.3(a)(ii)), to any Participant of, or reduces or would reduce the amount of any sum receivable by, such Participant in respect of making available, continuing or maintaining (or of its obligation to make available, continue or maintain) with respect to, any Loans or Certificate Amounts, as the case may be, then the Lessee shall from time to time, within thirty (30) days of demand by such Participant together with the certificate referred to below (with a copy of such demand and certificate to the Administrative Agent), pay (provided, that prior to the Applicable Base Term Commencement Date for any Facility or Unit allocated to an Equipment Group and pursuant to the terms and conditions in this Participation Agreement relating to Advances, Lessee shall request an Advance the proceeds of which shall be used to pay increased costs attributable to Advances which Funded such Uncompleted Facility or Uncompleted Unit) to the Administrative Agent for the account of such Participant additional amounts sufficient to compensate such Participant for such increased cost; provided, that no Participant shall be entitled to demand such compensation more than ninety (90) days following the later of such Participant's incurrence or sufferance thereof and such Participant's actual knowledge of the event giving rise to such Participant's rights under this section; provided further, however, that the foregoing provision shall in no way limit the right of any Participant to demand or receive such compensation to the extent that such compensation relates to the retroactive application of any law, regulation, guideline or request if such demand is made within ninety (90) days after the implementation of such retroactive law, interpretation, guideline or request. A certificate as to the nature and amount of such increased cost, submitted to the Lessee and the Administrative Agent by such Participant in good faith, shall be conclusive and binding for all purposes, absent manifest error.

Section 14.4   Funding Losses. In the event any Participant shall incur any loss or out-of-pocket expense (including any Break Costs and any loss or out-of-pocket expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Participant to make available, continue or maintain any portion of the principal amount of any Loan or Certificate Amount, as the case may be) as a result of:

(a)   any conversion or repayment or prepayment of the principal amount of any Loans or Certificate Amounts, as the case may be, on a date other than the scheduled last day of the Interest Period applicable thereto; or

(b)   any Loans or Certificate Amounts, as the case may be, not being made in accordance with the Advance Request therefor (unless such failure to make such Loans or fund such Certificate Amounts, as the case may be, constitutes a breach by the applicable Participant of its obligations under Article III),

then, upon the written notice of such Participant to the Lessee (with a copy to the Lessor), the Lessee shall, within five days of its receipt thereof, pay (provided, that prior to the Applicable Base Term Commencement Date for any Facility or Unit allocated to an Equipment Group and pursuant to the terms and conditions of this Participation Agreement relating to Advances, Lessee shall request an Advance the proceeds of which shall be used to pay losses or out-of-pocket expenses attributable to Advances which Funded such Uncompleted Facility or Uncompleted Unit) directly to such Participant as Supplemental Rent such amount (determined on the basis of such Participant's standard practices) as will reimburse such Participant for such loss or out-of-pocket expense. Such written notice (which shall include calculations in sufficiently reasonable detail to indicate the incurrence and amount of such loss and out-of-pocket expense) shall be presumed correct and binding on the Lessee absent demonstrable error.

Section 14.5   Increased Capital Costs. If any Participant determines that compliance with any law or regulation or any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) issued, promulgated or made, as the case may be, after the date hereof affects or would affect the amount of capital required or expected to be maintained by such Participant or any corporation controlling such Participant and that the amount of such capital is increased by or based upon the existence of such Participant's Commitment hereunder and other commitments of this type or the Loans or Certificate Amounts, then, within 30 days of demand by such Participant together with the certificate referred to below (with a copy of such demand and certificate to the Administrative Agent), the Lessee shall pay (provided, that prior to the Applicable Base Term Commencement Date for any Facility or Unit allocated to an Equipment Group and pursuant to the terms and conditions in this Participation Agreement relating to Advances, Lessee shall request an Advance the proceeds of which shall be used to pay capital costs attributable to Advances or Commitments which Fund or are available to Fund such Uncompleted Facility or Uncompleted Unit) to the Administrative Agent for the account of such Participant, from time to time as specified by such Participant, additional amounts sufficient to compensate such Participant or such corporation in the light of such circumstances, to the extent that such Participant determines such increase in capital to be allocable to the existence of such Participant's Commitment hereunder or the Fundings made by such Participant hereunder, provided, that no Participant shall be entitled to demand such compensation more than one year following the later of such Participant's incurrence or sufferance thereof and such Participant's actual knowledge of the event giving rise to such Participant's rights under this Section; provided further, however, that the foregoing proviso shall in no way limit the right of any Participant to demand or receive such compensation to the extent that such compensation relates to the retroactive application of any law, regulation, guideline or request described above if such demand is made within one year after the implementation of such retroactive law, interpretation, guidelines or request. A certificate as to such amounts submitted to the Lessee and the Administrative Agent by such Participant in good faith shall be conclusive and binding for all purposes, absent manifest error.

Section 14.6   After Tax Basis. Lessee shall pay all amounts owing under this Article XIV on an After Tax Basis.

Section 14.7   Applicability of Certain Sections. The provisions of Sections 14.1 through 14.6 are applicable to the Lenders and the Certificate Holders in connection with any funding or maintenance thereof by reference to the LIBO Rate, and not otherwise.

Section 14.8   Funding Office. If the Lessee is required to pay additional amounts to or for the account of any Participant pursuant to Sections 14.1 to 14.3, to the extent applicable, then such Participant will agree to use reasonable efforts to change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the sole judgment of such Participant, is not otherwise disadvantageous to such Participant.

Section 14.9   Replacement of Participants. If any Participant shall make demand for payment under Section 14.3 or 14.5, or shall deliver any notice to the Administrative Agent pursuant to Section 14.1 resulting in the suspension of certain obligations of the Participants with respect to LIBO Rate Advances or shall refuse to consent to any amendment, modification or waiver which has been approved by the Required Participants but can only become effective upon the consent of all Participants then within sixty (60) days of such demand, notice or refusal, Lessee may demand that such Participant assign in accordance with this Section 14.9 to one or more Eligible Assignees designated by the Lessee all (but not less than all) of such Participant's Commitment(s), Fundings and its Note and Certificate, as applicable, within the next 30 days but such Participant shall be entitled to any amount which would have been due to it under Section 14.4 hereof if such Fundings had been prepaid rather than assigned. If any such Eligible Assignee designated by the Lessee shall fail to consummate such assignment on terms acceptable to such Participant and as otherwise provided in Sections 12.1(a) and 12.1(b), or if the Lessee shall fail to designate any such Eligible Assignee for all of such Participant's Commitment or Fundings, then such Participant may assign such Commitment and Fundings to any other Eligible Assignee in accordance with this Section 14.9 and as otherwise provided in Sections 12.1(a) and 12.1(b) during such 30-day period.

ARTICLE XV
MISCELLANEOUS

Section 15.1   Survival of Agreements. The representations, warranties, covenants, indemnities and agreements of the parties provided for in the Operative Agreements, and the parties' obligations under any and all thereof, shall survive the execution and delivery and the termination or expiration of this Participation Agreement and any of the other Operative Agreements, the transfer of any interest in the Assets as provided herein or in any other Operative Agreements (and shall not be merged into any conveyance or transfer document), any disposition of any interest of Lessor in the Assets or any portion thereof, the purchase and sale of the Notes or Certificates, payment therefor and any disposition thereof, and shall be and continue in effect notwithstanding any investigation made by any party hereto or to any of the other Operative Agreements and the fact that any such party may waive compliance with any of the other terms, provisions or conditions of any of the Operative Agreements.

Section 15.2   No Broker, Etc. Except for Lessee's dealing with First Union Securities, Inc., as Arranger, each of the parties hereto represents to the others that it has not retained or employed any arranger, broker, finder or financial advisor to act on its behalf in connection with this Participation Agreement, nor has it authorized any arranger, broker, finder or financial adviser retained or employed by any other Person so to act, nor has it incurred any fees or commissions to which Lessor, Administrative Agent or any Participant might be subjected by virtue of their entering into the Overall Transaction. Any party who is in breach of this representation shall indemnify and hold the other parties harmless from and against any liability arising out of such breach of this representation.

Section 15.3   Notices. Unless otherwise specified herein, all notices, requests, demands or other communications to or upon the respective parties hereto shall be in writing and shall be deemed to have been duly given and shall be effective: (i) in the case of notice by letter, the earlier of when delivered to the addressee by hand or courier if delivered on a Business Day and, if not delivered on a Business Day, the first Business Day thereafter or on the third Business Day after depositing the same in the mails, registered or certified mail, postage prepaid, return receipt requested, (ii) in the case of a prepaid delivery to a reputable national overnight air courier service, on the Business Day following such date of delivery, and (iii) in the case of notice by facsimile or bank wire, when receipt is confirmed if delivered on a Business Day and, if not delivered on a Business Day, the first Business Day thereafter, addressed as provided on Schedule III hereto, or to such other address as any of the parties hereto may designate by written notice.

Section 15.4   Counterparts. This Participation Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument.

Section 15.5   Amendments. Except as contemplated by Section 3.1 of the Supervisory Agreement or Section 15.23, no Operative Agreement nor any of the terms thereof may be terminated, amended, supplemented, waived or modified without the written agreement or consent of Lessor, Administrative Agent, Lessee and the Required Participants; provided, however, that Sections 6.2(b) and 15.20 hereof may not be terminated, amended, supplemented, waived or modified without the written agreement or consent of the Arranger; and provided, further, that such termination, amendment, supplement, waiver or modification shall require the written agreement or consent of each Participant if such termination, amendment, supplement, waiver or modification would:

(a)   modify any of the provisions of this Section 15.5, change the definition of "Required Participants" or modify or waive any provision of an Operative Agreement requiring action by each Participant;

(b)   amend, modify, waive or supplement any of the provisions of Sections 4.1, 4.2 and 5.3 hereof or Sections 2.5, 2.6 or 2.7 of the Loan Agreement;

(c)   reduce, modify, amend or waive any Fees or indemnities in favor of any Participant, including without limitation amounts payable pursuant to Article XIII, (except that any Person may consent to any reduction or waiver of any Fee or indemnity payable to it);

(d)   postpone, reduce or forgive, in whole or in part, any payment of Rent (other than pursuant to the terms of the Operative Agreements), any Loan or Certificate Amount, the Asset Balance, any Lease Supplement Permitted Balance, any Lease Supplement Balance, the Loan Balance, the Certificate Balance, the Aggregate C&A Recourse Amount, any Lease Supplement Recourse Amount, the Aggregate RVG Amount, any Lease Supplement RVG Amount, amounts due pursuant to Section 20.2 of the Lease, Interest or Yield or, subject to clause (c) above, any other amount payable to it under the Lease or this Participation Agreement, or modify the definition or method of calculation of Rent (other than pursuant to the terms of the Operative Agreements), Loans or Certificate Amounts, the Asset Balance, any Lease Supplement Permitted Balance, any Lease Supplement Balance, the Loan Balance, the Certificate Balance, the Aggregate C&A Recourse Amount, any Lease Supplement Recourse Amount, the Aggregate RVG Amount, any Lease Supplement RVG Amount, Asset Costs, Participant Balance or any other definition which would reduce the amounts payable to the Participants or any Indemnitee under the Operative Agreements;

(e)   consent to any assignment of the Lease or any other Operative Agreement by the Lessee releasing the Lessee from its obligations in respect of the payments of Rent, Loan Balance, Certificate Balance, Asset Balance, Lease Supplement Balance, Aggregate Permitted Asset Balance, Lease Supplement Permitted Balance, Aggregate C&A Recourse Amount, any Lease Supplement Recourse Amount, Aggregate RVG Amount, any Lease Supplement RVG Amount or changing the absolute and unconditional character of such obligations; or

(f)   release of any Lien granted by the Lessee or the Lessor under the Operative Agreements, except as provided in the Operative Agreements, or except as provided for in Section 11.2 release either Guarantor under either Guarantee or amend, release or waive compliance with the terms of either Guarantee, except for representations and warranties at Section 14 and the covenants at Section 15 of the PPL Corporation Guarantee and, with respect to the PPL Supply Guarantee, as contemplated at Section 15 therein.

Section 15.6   Loan Agreement and Related Obligations. The Lessee shall pay, as Supplemental Rent, when due, all costs, expenses and other amounts (other than principal and Interest on the Loans which are payable to the extent otherwise required by the Operative Agreements) required to be paid by the Lessor under the Loan Agreement, any Security Instrument, the Equipment Contracts, any Facility EPC Agreement and any other Major Project Agreements; provided, however, that prior to the Applicable Base Term Commencement Date for any Facility or Equipment Group, Lessee's obligations herein shall be subject to Section 4.3(a).

Section 15.7   Headings, Etc. The Table of Contents and headings of the various Articles and Sections of this Participation Agreement are for convenience of reference only and shall not modify, define, expand or limit any of the terms or provisions hereof.

Section 15.8   Parties in Interest. Except as expressly provided herein, none of the provisions of this Participation Agreement is intended for the benefit of any Person except the parties hereto. Except as otherwise specifically provided for in an Operative Agreement, the Lessee shall not assign or transfer any of its rights or obligations under the Operative Agreements without the prior written consent of the Required Participants. Except as provided in Section 12.1, the Participants shall not assign or transfer any of their respective rights or obligations under the Operative Agreements.

Section 15.9   GOVERNING LAW. THIS PARTICIPATION AGREEMENT SHALL IN ALL RESPECTS, EXCEPT AS SET FORTH IN THE PROVISO, BE GOVERNED BY THE INTERNAL LAW OF THE STATE OF NEW YORK AS TO ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES, EXCEPT TITLE 14 OF ARTICLE 5 OF THE NEW YORK GENERAL OBLIGATIONS LAW; PROVIDED, HOWEVER, THAT WITH RESPECT TO THE CREATION OF SECURITY INTERESTS AND THE PERFECTION OF LIENS IN THE CASH COLLATERAL ACCOUNT, ANY PROJECT COLLATERAL ACCOUNT AND AMOUNTS ON DEPOSIT THEREIN, SUCH MATTERS SHALL BE GOVERNED BY THE LAWS OF THE STATE WHERE SUCH CASH COLLATERAL ACCOUNT OR PROJECT COLLATERAL ACCOUNT IS LOCATED AND, TO THE EXTENT APPLICABLE, THE UNIFORM COMMERCIAL CODE OF SUCH STATE.

Section 15.10   Severability. Any provision of this Participation Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 15.11   Liability Limited. No Participant shall have any obligation to any other Participant or to the Lessee, the Lessor or the Administrative Agent with respect to the Overall Transaction, except those obligations of such Participant expressly set forth in the Operative Agreements or except as set forth in the instruments delivered in connection therewith, and no Participant shall be liable for performance by any other party hereto of such other party's obligations under the Operative Agreements, except as otherwise so set forth.

Section 15.12   Further Assurances. The parties hereto shall promptly cause to be taken, executed, acknowledged or delivered, at the sole expense of the Lessee, all such further acts, conveyances, documents and assurances as the other parties may from time to time reasonably request in order to carry out more effectively the intent and purposes of this Participation Agreement and the other Operative Agreements and the Overall Transaction, including, without limitation to establish, preserve, protect and perfect the title of Lessor in the Assets, the Lien of Lessor and Administrative Agent in the Collateral, and/or any Participant's rights under this Participation Agreement and the other Operative Agreements (including, without limitation, the preparation, execution and filing of any and all Uniform Commercial Code financing statements (including precautionary financing statements) and other filings or registrations which the parties hereto may from time to time reasonably request to be filed or effected). The Lessee, at its own expense (provided, that prior to the Applicable Base Term Commencement Date for any Facility or Equipment Group and pursuant to the terms and conditions in this Participation Agreement concerning Advances, Lessee shall request an Advance the proceeds of which shall be used to pay such expenses attributable to such Facility or Equipment Group) and without the need of any prior request from any other party, shall take such action as may be necessary (including any action specified in the preceding sentence), or (if the Lessor shall so request) as so requested, in order to maintain and protect all Liens and security interests provided for hereunder or under any other Operative Agreement.

Section 15.13   Submission to Jurisdiction. Each party hereto irrevocably and unconditionally:

(a)   submits for itself and its property in any legal action or proceeding relating to this Participation Agreement or any other Operative Agreement, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the United States District Court for the Southern District of New York and of any New York state court sitting in the borough of Manhattan, and appellate courts from any thereof;

(b)   consents that any such action or proceedings may be brought to such courts, and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same;

(c)   agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such party at its address set forth on Schedule III or at such other address of which the other parties hereto shall have been notified pursuant to Section 15.3; and

(d)   agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction.

Section 15.14  WAIVER OF JURY TRIAL. THE PARTIES HERETO VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS PARTICIPATION AGREEMENT OR ANY OTHER OPERATIVE AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY OF THE PARTIES HERETO AND THERETO. THE PARTIES HERETO HEREBY AGREE THAT THEY WILL NOT SEEK TO CONSOLIDATE ANY SUCH LITIGATION WITH ANY OTHER LITIGATION IN WHICH A JURY TRIAL HAS NOT OR CANNOT BE WAIVED. THE PROVISIONS OF THIS SECTION 15.14 HAVE BEEN FULLY NEGOTIATED BY THE PARTIES HERETO AND SHALL BE SUBJECT TO NO EXCEPTIONS. THE LESSEE ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER OPERATIVE AGREEMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTICIPANTS ENTERING INTO THIS PARTICIPATION AGREEMENT AND EACH OTHER OPERATIVE AGREEMENT.

Section 15.15  Confidentiality. Each party hereto shall keep confidential, and shall not disclose, any information not otherwise publicly available it obtains about the Lessee, the Guarantor or the books and records of Lessee, Guarantor and each of their Affiliates or relating to the Assets, except that such party may disclose such information (i) as required by Applicable Laws, (ii) to its attorneys, auditors, accountants and other professional advisors which have been informed as to the confidential nature of such information, (iii) in connection with the enforcement of the Operative Agreements, (iv) to any transferee or potential transferee permitted by the Operative Agreements, provided such transferee or potential transferee agrees to the terms of this sentence, and (v) to any federal or state banking authority or other regulatory authority having jurisdiction over any Participant or Administrative Agent or any of their respective Affiliates, and to any of their officers, employees and agents.

Section 15.16  Limited Liability of Bank. The parties hereto agree that Bank shall have no personal liability whatsoever to Lessee, the Certificate Holders, the Lenders, Administrative Agent or any of their respective successors and assigns for any Claim based on or in respect of this Participation Agreement or any of the other Operative Agreements or arising in any way from the Overall Transaction; provided, however, that Bank shall be liable in its individual capacity: (a) for its own willful misconduct or gross negligence (or negligence in the handling of funds), (b) for liabilities that may result from the inaccuracy or incorrectness of any representation or warranty made by it in its individual capacity in this Participation Agreement or in any certificate or document delivered pursuant hereto, or from the failure of Bank to perform the covenants and agreements set forth in Section 10.1 hereof or any other breach by Bank of any of its other covenants or obligations under any of the Operative Agreements, or (c) for any Tax based on or measured by any fees, commission or compensation received by it for actions contemplated by the Operative Agreements.

Section 15.17  Limited Liability of Administrative Agent. The parties hereto agree that Administrative Agent, in its individual capacity, shall have no personal liability whatsoever to Lessee, the Certificate Holders, the Lenders, Lessor or any of their respective successors and assigns for any Claim based on or in respect of this Participation Agreement or any of the other Operative Agreements or arising in any way from the Overall Transaction; provided, however, that Administrative Agent shall be liable in its individual capacity: (a) for its own willful misconduct or gross negligence (or negligence in the handling of funds) and, to each Participant for the breach of its obligations to such Participant in respect of the Operative Agreements and the Asset, (b) for liabilities that may result from the incorrectness of any representation or warranty expressly made by it in this Participation Agreement or from its failure to perform the covenants and agreements set forth in this Participation Agreement or any other Operative Agreement, or (c) for any Tax based on or measured by any fees, commission or compensation received by it for actions contemplated by the Operative Agreements. It is understood and agreed that, except as provided in the preceding proviso, Administrative Agent shall have no personal liability under any of the Operative Agreements as a result of acting pursuant to and consistent with any of the Operative Agreements.

Section 15.18  Payment of Transaction Costs and Other Costs.

(a)   Transaction Costs and Continuing Expenses. Subject to clause (b) below, as and when any portion of Transaction Costs becomes due and payable, including the continuing fees, expenses and disbursements (including reasonable counsel fees) of Lessor, as Lessor under the Lease and Trustee under the Trust Agreement, with respect to the administration of the Trust Estate and Administrative Agent under the Operative Agreements, such Transaction Costs shall be paid by Lessee as Supplemental Rent.

(b)   Payment by Advances. Subject to the other provisions of this Section 15.18 and pursuant to the terms and conditions in this Participation Agreement relating to Advances, Lessee shall request an Advance for the payment of any fees and expenses referenced in Section 15.18(a) or 15.18(c)(ii) payable or incurred prior to the Applicable Base Term Commencement Date for any Uncompleted Facility or Uncompleted Unit which shall be paid through Advances, and Lessee may seek reimbursement for Transaction Costs paid by Lessee prior to the Initial Advance Date for which Lessee has not been previously reimbursed, in each case to the extent there are Available Commitments and such Transaction Costs to be paid or reimbursed are reserved for in the Facility Budget for such Uncompleted Facility or the Equipment Group Budget for such Uncompleted Unit.

(c)   Amendments, Supplements and Appraisal. Without limitation of the foregoing, Lessee agrees to pay to the Participants, Lessor and Administrative Agent all reasonable costs and expenses (including reasonable legal fees and expenses of special counsel to Administrative Agent and Lessor and the document counsel for the Participants) incurred by any of them in connection with: (i) the considering, evaluating, investigating, negotiating and entering into or giving or withholding of any amendments or supplements or waivers or consents with respect to any Operative Agreement; (ii) any Event of Loss or termination of the Lease or any other Operative Agreement; (iii) the negotiation and documentation of any restructuring or "workout", whether or not consummated, of any Operative Agreement; (iv) the enforcement of the rights or remedies under the Operative Agreements; (v) any transfer by Lessor or a Participant of any interest in the Operative Agreements during the continuance of an Event of Default; or (vi) any Advance Date. Notwithstanding the foregoing, Lessee's obligation to make payments under this Section 15.18(c) prior to the Applicable Base Term Commencement Date for any Uncompleted Facility or Uncompleted Unit shall be subject to Section 16.3 with respect to clause (ii), (iv) or (v) above, Section 15.18(b) above with respect to clause (vi) above and Section 14.1 of the Lease with respect to clause (ii) above as it relates to an Event of Loss.

Section 15.19  Reproduction of Documents. This Participation Agreement, all documents constituting an Appendix, Schedule or Exhibit hereto, and all documents relating hereto received by a party hereto, including, without limitation: (a) consents, waivers and modifications that may hereafter be executed; (b) documents received by the Participants or Lessor in connection with the receipt and/or acquisition of any Asset; and (c) financial statements, certificates, and other information previously or hereafter furnished to Lessor, Administrative Agent or any Participant may be reproduced by the party receiving the same by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. Each of the parties hereto agrees and stipulates that, to the extent permitted by law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by such party in the regular course of business) and that, to the extent permitted by law, any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 15.19 shall not prohibit the Lessee, Guarantor or any other party hereto from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction.

Section 15.20  Role of Arranger. Each party hereto acknowledges hereby that it is aware of the fact that First Union Securities, Inc. has acted as an "arranger" with respect to the Overall Transaction. The parties hereto acknowledge and agree that Arranger and its Affiliates, including First Union National Bank, have not made any representations or warranties concerning, and that they have not relied upon Arranger as to, the tax, accounting or legal characterization or validity of (i) the Operative Agreements or (ii) any aspect of the Overall Transaction. The parties hereto acknowledge and agree that Arranger has no duties, express or implied, under the Operative Agreements in its capacity as Arranger. The parties hereto further agree that Section 5.1, Section 15.2, the first proviso in the first sentence of Section 15.5, Section 15.18(a), Section 17.6, and this Section 15.20 are for the express benefit of Arranger, and Arranger shall be entitled to rely thereon as if it were a party hereto.

Section 15.21  Deliveries to Participants. Lessee may fulfill its obligations hereunder and under each of the other Operative Agreements to provide any item (other than any notices) to any Participant by providing sufficient copies of such item directly to the Administrative Agent, along with the costs of postage, with instructions to the Administrative Agent to deliver such item to such Participant.

Section 15.22  Retention of Consultants. In connection with any matters to be determined or resolved by an independent engineer, an independent environmental consultant or other third party expert, Administrative Agent is hereby authorized to retain any such third party consultant reasonably acceptable to Lessee, at Lessee's cost and expense (which if incurred prior to the Applicable Base Term Commencement Date for any Uncompleted Facility or Uncompleted Unit and pursuant to the terms and conditions in this Participation Agreement relating to Advances, Lessee shall request an Advance the proceeds of which shall be used to pay such expenses which are attributable to such Facility or Equipment Group), in accordance with the terms of the Operative Agreement calling for or requiring the appointment of such third party consultant.

Section 15.23   "One Form of Action; Antideficiency Rules" in Effect. In the event that a Site or an Equipment Site is located in a jurisdiction in which the "one form of action rule" or any restrictions apply to the right of Lessor or Administrative Agent to make claims for a deficiency, is in effect, the parties hereto shall enter into such amendments, execute such documents and give such waivers as the Administrative Agent shall reasonably deem necessary or advisable to enable the exercise of rights and remedies with respect to the Assets and claims against Lessee and the Guarantors, including without limitation an unsecured environmental indemnity, in form and substance reasonably acceptable to Administrative Agent, having terms substantially similar to those at Exhibit N hereto, with such modifications as may be appropriate to account for the application of the "one form of action rule" as in effect in such jurisdiction.

Section 15.24  Limitations on Transferees' Liability. In any action or proceeding involving any state law, any federal bankruptcy, insolvency or reorganization law, or any other law affecting the rights of creditors generally, if the obligations of Lessee or any assignee or sublessee of Lessee (a "Transferee") under the Operative Agreements would otherwise be held or determined to be voidable, invalid or unenforceable as a fraudulent transfer or otherwise as a result or on account of the amount of its liability under the Operative Agreements, then, notwithstanding any other provision hereof to the contrary, the amount of such liability shall, without any further action by Lessee or such Transferee or any other Person, be automatically limited and reduced to the highest amount which is valid, enforceable and unavoidable.

Section 15.25  Transferees' Right to Subrogation and Reimbursement. In the event that any Assets, or the value thereof, are transferred or paid to Lessor or Administrative Agent in satisfaction of any Obligations of an Affiliate of Lessee or any Transferee (the "Affiliate Obligations"), Lessee or such Transferee shall be subrogated to Lessor's rights against the Guarantors under the Guarantees with respect to such Affiliate Obligations, and shall have a right to reimbursement from Guarantors with respect to such Affiliate Obligations; provided that such right of subrogation and right to reimbursement shall be subordinated in all respects to the rights of the Lessor under the Guarantees, including the right to payment in full of all amounts payable thereunder.

ARTICLE XVI
EVENTS OF DEFAULT

Section 16.1   Events of Default. The occurrence of any one or more of the following events (whether such event shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall constitute an "Event of Default":

(a)   the occurrence of a Payment Default; or

(b)   the Lessee shall fail to make payment of any Supplemental Rent (other than Supplemental Rent referred to in clause (a) of this Section 16.1) due and payable within fifteen (15) Business Days after receipt of notice thereof; or

(c)   (i) Lessee fails to apply any funds, including any Advance, paid by Lessor or Administrative Agent to Lessee or any other Person pursuant to an Advance Request to the payment of the appropriate Assets Costs, as applicable, in the manner and subject to the limitations set forth herein and in the other Operative Agreements or for the purposes set forth in the related Advance Request unless such funds are returned to the Administrative Agent or Lessee submits a new Advance Request for application of such Funds to another Asset Cost and in either case Lessee certifies that such funds were not required for the purposes specified in the original Advance Request; or there shall exist any other misapplication of funds relating to any Project Obligation or the Assets, including, but not limited to, fraud, illegal acts or willful misconduct by Lessee, its Affiliates or any other Lessee Person; or

(d)   Lessee shall fail to cause (i) Substantial Completion of any Facility to occur on or before the applicable Facility Outside Completion Date or (ii) the Unit Completion Date for all of the Units of any Equipment Group to occur prior to the applicable Equipment Group Outside Completion Date, subject in either case to Lessee's right to extend to the extent permitted and for the time period provided at Section 3.2(b) of the Supervisory Agreement; or

(e)   the Facility Budget for an Uncompleted Facility or Equipment Group Budget for an Uncompleted Equipment Group shall not be In Balance and such failure to be In Balance shall continue for a period of thirty (30) days after notification or certification of such condition by Lessee pursuant to the Supervisory Agreement or the Participation Agreement or Lessor's receipt from Administrative Agent of a notification of the determination by Administrative Agent of such failure pursuant to Section 5.4 of the Supervisory Agreement; or

(f)   any Major Project Agreement Default under any Project Agreement by any party thereto which is not cured within any applicable cure period provided under such Major Project Agreement to the extent such cure period is available for a default or breach; or

(g)   the Lessee shall fail to maintain insurance as and when required by Section 2.5(e) and Schedule 2.5(e) of the Supervisory Agreement or Article XIII of the Lease; or

(h)   any representation, warranty, certification or statement made or deemed made by Lessee or either Guarantor in any Operative Agreement to which the Lessee or either Guarantor is a party or any amendment thereof or in any certificate furnished by Lessee or either Guarantor pursuant to any such Operative Agreement shall prove to have been false in any material respect when so made, deemed made or furnished; or

(i)   unless the PPL Corporation Guarantee has been released by the Administrative Agent in accordance with Section 16 of the PPL Corporation Guarantee, the occurrence of any one or more of the following events:

     (a)   (i)   PPL Corporation shall fail to pay any principal or interest, regardless of amount, due in respect of any Debt in a principal amount in excess of $50,000,000.00, if such failure shall continue beyond any period of grace provided with respect to such Debt, or (ii) PPL Corporation shall fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Debt in a principal amount in excess of $50,000,000.00, if such failure shall continue beyond any period of grace or cure provided with respect to such Debt 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

     (b)   PPL Corporation shall fail within 60 days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $25,000,000 that is not stayed on appeal or otherwise being appropriately contested in good faith; or

     (c)   PPL Corporation shall fail to observe or perform any term, covenant or condition contained in Section 15.2, 15.5 or 15.8 of the PPL Corporation Guarantee.

(j)   the Lessee shall fail to observe or perform any material term, covenant or condition of the Lessee under the Lease or any other Operative Agreement (other than those described in any other clause of this Section 16.1) and such failure shall have continued for thirty (30) days after the earlier of receipt by Lessee of notice thereof and notification by Lessee of such event pursuant to Section 9.1(a); provided, however, that if such failure is capable of cure but cannot be cured by payment of money or cannot be cured by diligent efforts within such thirty (30)-day period, but such diligent efforts shall be properly commenced within such thirty (30)-day cure period and the Lessee is diligently pursuing, and shall continue to pursue diligently, remedy of such failure, the cure period shall be extended for such period as may be reasonable to remedy such failure with all reasonable diligence up to a maximum period of ninety (90) days after the notice of such default as contemplated above, but not to extend beyond the Expiration Date; or

(k)   Lessee shall fail to comply with any of the Return Conditions as of such date on which the Return Conditions are required to be satisfied; or

(l)   any authorization or approval or other action by any Governmental Authority required for the execution, delivery or performance of this Participation Agreement or any other Operative Agreement by Lessee, or either Guarantor shall fail to have been obtained or be terminated, revoked or rescinded or shall otherwise no longer be in full force and effect; or

(m)   the occurrence of an Insolvency Event; or

(n)   (i)   if Lessee elects the Sale Option, Lessee shall fail to sell all of the Assets on the Expiration Date in accordance with and satisfy each of the terms, covenants, conditions and agreements set forth at Articles XX and XXI in connection with and following its exercise of the Sale Option, including each of Lessee's obligations at Sections 20.1 and 21.1 or (ii) Lessee gives a Purchase Notice pursuant to Article XVIII, and Lessee fails to purchase the applicable portion of the Assets subject to such Purchase Notice within the time period provided for at Article XVIII; or

(o)   any Operative Agreement or the security interest and lien granted under any Operative Agreement (except in accordance with its terms), in whole or in part, terminates, ceases to be effective or ceases to be the legal, valid and binding enforceable obligation of Lessee, either Guarantor or any of their respective Affiliates, as the case may be; Lessee, either Guarantor, or any of their respective Affiliates, directly or indirectly, contests in any manner in any court the effectiveness, validity, binding nature or enforceability thereof; or the security interest and lien securing Lessee's obligations under the Operative Agreements, in whole or in part, ceases to be a perfected first priority security interest and lien (subject only to Permitted Liens); or

(p)   Lessee shall fail to observe or perform any term, covenant or condition of Lessee contained in Section 9.1(l) or (o) or Section 9.2(b), (c) or (d) or the last sentence of Section 3.8(a) of this Participation Agreement; or

(q)   a Change of Control shall have occurred; or

(r)   unless the PPL Corporation Guarantee has been released by the Administrative Agent in accordance with Section 16 thereof, PPL Corporation shall fail to observe or perform any material term, covenant or condition of PPL Corporation under the PPL Corporation Guarantee (other than those described in any other clause of this Section 16.1) and such failure shall have continued for thirty (30) days after receipt by PPL Corporation of notice thereof; or

(s)   PPL Supply shall fail to observe or perform any covenant or agreement contained in Section 15.1(a), (b) or (c), clause (ii) of Section 15.5 or Sections 15.9, 15.10, 15.13, 15.14 and 15.15 of the PPL Supply Guarantee;

(t)   PPL Supply shall fail to observe or perform any covenant or agreement contained in Section 15.1(d) of the PPL Supply Guarantee for 10 days after any such failure; or

(u)   PPL Supply shall fail to observe or perform any covenant or agreement contained in the PPL Supply Guarantee (other than those described in any other clause of this Section 16.1) for 30 days after written notice thereof has been given to PPL Supply by the Administrative Agent; or

(v)   PPL Supply or any Restricted Subsidiary (as defined in the PPL Supply Guarantee) 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

(w)   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

(x)   PPL Supply 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 PPL Supply or any such Restricted Subsidiary that is not stayed on appeal or otherwise being appropriately contested in good faith.

Section 16.2   Remedies. Upon the occurrence of any Event of Default and at any time thereafter, Lessor may, so long as such Event of Default is continuing, do one or more of the following as Lessor in its sole discretion shall determine, without limiting any other right or remedy Lessor may have on account of such Event of Default, but subject to the rights of Lessee to purchase the Assets pursuant to the terms and within the time periods as set forth in Section 18.1 of the Lease:

(a)   Without limiting any other remedies set forth in this Participation Agreement or in any of the other Operative Agreements, Lessor, Lessee and the Supervisory Agent agree that upon the occurrence of an Event of Default, Lessor shall have all the rights and may pursue any of the remedies provided to it in Section 16.1 of the Lease and Section 5.1 of the Supervisory Agreement, the terms and provisions of which Lease and Supervisory Agreement are incorporated herein by this reference; and Lessor may prepay or prefund any Project Agreement.

(b)   Lessor may sell all or any part of the Assets at public or private sale, as Lessor may determine, free and clear of any rights of Lessee with respect thereto, in which event Lessee's obligation to pay Basic Rent attributable to such Assets under the Lease for periods commencing after the date of such sale shall be terminated.

(c)   Lessor may demand, by written notice to Lessee, that Lessee pay to Lessor within twenty (20) days after receipt of such notice an amount equal to the Aggregate Permitted Asset Balance, and if such Aggregate Permitted Asset Balance is equal to the Asset Balance, Lessor shall convey the Assets to Lessee in accordance with Section 21.4 of the Lease. Lessor acknowledges and agrees that upon the declaration of an Event of Default, to the maximum extent permitted by law, and subject to the limitation on Lessor's obligations under Section 16.3, Lessee waives any right to contest that the payment of the amount described in the preceding sentence constitutes the correct liquidated recourse sum due upon acceleration of the Lease.

(d)   Upon the occurrence of the Event of Default described in Section 16.1(m), whether or not another Event of Default described in one or more other subsections of Section 16.1 shall have been or thereafter is declared, the Lease shall terminate immediately without notice and Lessee shall immediately pay to the Administrative Agent, on behalf of Lessor, as and for liquidated damages and without limitation on any other remedies provided for herein, an amount equal to the Aggregate Permitted Asset Balance.

(e)   To the maximum extent permitted by law, the Lessee hereby waives (x) the benefit of any appraisement, valuation, stay, extension, reinstatement and redemption laws now or hereafter in force and all rights of marshaling in the event of any sale of the Assets or any interest therein and (y) any rights now or in the future conferred by statute or otherwise which may require the Lessor to sell, lease or otherwise use the Assets in mitigation of the Lessor's damages or which may otherwise limit or modify any remedy of damages.

(f)   Lessor shall be entitled to enforce payment of the Loan Balance and Certificate Amounts and the performance of the Obligations and to exercise all rights and powers under this Participation Agreement or under any of the other Operative Agreements or other agreement or any laws now or hereafter in force, notwithstanding some or all of the Obligations may now or hereafter be secured, whether by mortgage, security agreement, pledge, lien, assignment or otherwise. Neither the acceptance of this Participation Agreement nor its enforcement, shall prejudice or in any manner affect Lessor's right to realize upon or enforce any security now or hereafter held by Lessor, it being agreed that Lessor shall be entitled to enforce this Participation Agreement and the Operative Agreements, and any security now or hereafter held by Lessor in such order and manner as Lessor may determine in its absolute discretion. No remedy herein conferred upon or reserved to Lessor is intended to be exclusive of any other remedy herein or by law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by any of the Operative Agreements to Lessor or to which it may otherwise be entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by Lessor. Without limiting the foregoing, each of the powers, rights and remedies as set forth or otherwise permitted pursuant to this Section 16.2 are independent of the provisions of Article XIII of this Participation Agreement and shall not be affected by any exclusion set forth at Section 13.1(b).

(g)   The proceeds derived from any sale of all or any part of the Assets after an Event of Default shall be distributed pursuant to Section 5.3(g). The amount realized by Lessor upon a sale of all or any part of the Assets shall be net of Lessor's sale expenses and other expenses reasonably and customarily incurred by Lessor in connection with Lessor holding and owning such Assets until such time as such Assets are sold.

(h)   If Lessor has possession of any Facility or Equipment Group but has neither sold nor foreclosed upon such Facility or Equipment Group within two (2) years after receipt of the Lease Supplement Permitted Balance for such Facility or Equipment Group, including pursuant to Section 16.2(d), Lessor will appoint a qualified independent sales agent to sell such Facility or Equipment Group, as the case may be, pursuant to the first bona fide offer received from a creditworthy offeror and for an all cash purchase price at the then fair market value of such Facility or Equipment Group, as the case may be, to the extent the conditions therefor are satisfied. Any proceeds resulting from the operation of this subsection (h) net of the costs and expenses of such sale and costs incurred to maintain the leased property will be applied in accordance with Section 5.3(g). Notwithstanding the foregoing in no event shall Lessor have any liability to Lessee for failure to sell all or any of the Assets pursuant to the foregoing criteria in this subsection (h) unless such failure is due to the gross negligence or willful misconduct of Lessor.

(i)   With respect to any Facility or Equipment Group, Lessor may require Supervisory Agent to (or Supervisory Agent shall be required to, if an Insolvency Event has occurred) immediately pay to Administrative Agent, on behalf of Lessor, as an amount for liquidated damages, an amount equal to the Lease Supplement Permitted Balance with respect to such Facility or Equipment Group and Supervisory Agent may at its election and provided an Insolvency Event has not occurred and Supervisory Agent has paid in full the foregoing amounts, within 10 Business Days after delivery by Lessor of notice of an Event of Default, exercise the option to purchase such Facility or Equipment Group from Lessor by paying immediately (but in any event within five (5) days after such 10 Business Day period) an amount equal to the excess of the (x) Lease Supplement Balance with respect to such Facility or Equipment Group as of the date of such payment over (y) the foregoing amounts paid by the Supervisory Agent. Unless Supervisory Agent shall have so exercised its purchase option, Lessor may cause such Facility or Equipment Group, as the case may be, to be sold in accordance with Section 16.2(b) or 16.2(g). If Supervisory Agent shall have so exercised its purchase option (and made all applicable payments in respect thereof, subject to the foregoing limitations and conditions), Lessor shall convey title to such Facility or Equipment Group to Supervisory Agent or its designee in accordance with Section 21.4 of the Lease assuming for these purposes that said Section of the Lease is then applicable.

Section 16.3   Limitation on Recourse Liability Prior to Applicable Base Term Commencement Date and With Respect to Certain Certifications and Representations.

(a)   (i)      Notwithstanding any other provision set forth in this Participation Agreement or any of the other Operative Agreements, in the event of the occurrence and continuance of an Event of Default relating to a Lease Supplement for an Uncompleted Facility or Uncompleted Equipment Group which occurs prior to the Applicable Base Term Commencement Date solely with respect to such Uncompleted Facility or an Uncompleted Unit in such Equipment Group, Lessee or the Supervisory Agent, as the case may be, shall not be required to pay more than the Lease Supplement Recourse Amount with respect to such Uncompleted Facility or Uncompleted Unit in such Equipment Group on a recourse basis with respect to any damages (which shall include Breakage Costs) arising from such Event of Default; and; provided, however, that if an Event of Default with respect to a Completed Facility or affecting an entire Completed Equipment Group is caused or arises solely as a result of a Force Majeure Event that also constitutes a Construction Period Event of Default under any of Section 16.1(d), (e) or (f) relating to an Uncompleted Facility or Uncompleted Equipment Group giving rise to an Uninsured Loss, unless Lessee gives a Purchase Notice to purchase the affected Uncompleted Facility or Uncompleted Unit, then Lessee's recourse liability under Section 16.2 of the Lease with respect to the Lease Supplement Balance applicable to the Lease Supplement for such Completed Facility or Completed Equipment Group affected by such Event of Default shall not exceed the applicable Lease Supplement Recourse Amount; provided, further, that the foregoing limitation on Lessee's recourse liability shall not apply as to any such Completed Facility or Completed Unit or serve to limit Lessor's right to demand and receive payment from Lessee on a recourse basis of the full Lease Supplement Permitted Balance with respect to such Facility or Equipment Group with respect to any other Event of Default then existing or thereafter arising.

     (ii)   Notwithstanding the foregoing, if, following the Applicable Base Term Commencement Date with respect to any Completed Facility, Lessor declares an Event of Default under Section 16.1(h) solely as a result of a breach of a certification given by Lessee with respect to the satisfaction of the condition precedent at Section 6.2(m) hereof or a breach of the representation or warranty at Section 14.4(b) of the PPL Supply Guarantee, or under Section 16.1(v)(ii) solely as a result of a Material Debt Agreement Limited Recourse Event, Lessee's recourse liability under Section 16.2 solely with respect to the Lease Supplement Balance applicable to the Lease Supplement for each such Completed Facility will not exceed the Lease Supplement RVG Amount for each such Completed Facility.

(b)   The limitations on Lessee's recourse liability set forth in Section 16.3(a) shall not apply (i) with respect to any Event of Default arising in whole or in part as a consequence of any Full Recourse Interim Event, (ii) with respect to the rights of parties to seek all damages or the recovery of any portion of each Lease Supplement Balance in excess of the applicable Lease Supplement Recourse Amount, or in the case of a Completed Facility or Completed Equipment Group, any portion of each Lease Supplement Balance in excess of the Lease Supplement RVG Amount, without regard to such limitations on Lessee's recourse liability, from the proceeds of such Uncompleted Facility or Uncompleted Equipment Group or in the case of such Completed Facility or Completed Equipment Group the proceeds of such Assets and any other Completed Facility or the Units of an Equipment Group which has achieved the Unit Completion Date, as the case may be, or, in either case, any other Collateral, or (iii) to any Claim for indemnity under Article XIII, subject in the case of Section 13.1 only to the limitations if applicable in the final paragraph of Section 13.1(a), or (i) any amounts for which Lessee is obligated to pay on a recourse basis pursuant to Section 4.3(a). Without limiting the foregoing, the limitations at Section 16.3(a)(ii) shall not apply if, at any time an Event of Default of the type described in Section 16.3(a)(ii) occurs or exists, an Event of Default (including under Section 16.1(h) or 16.1(v)(ii)) arises with respect to any event, condition, matter or breach other than as specifically referred to in Section 16.3(a)(ii).

ARTICLE XVII
THE ADMINISTRATIVE AGENT

Section 17.1   Appointment. Each Participant hereby irrevocably designates and appoints the Administrative Agent as the Agent of such Participant under this Participation Agreement and the other Operative Agreements, and each such Participant irrevocably authorizes the Administrative Agent, in such capacity, to take such action on its behalf under the provisions of this Participation Agreement and the other Operative Agreements and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Participation Agreement and the other Operative Agreements, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Participation Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein and in the other Operative Agreements, or any fiduciary relationship with any Participant or any other party to the Operative Agreements, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Participation Agreement or any other Operative Agreement or otherwise exist against the Administrative Agent.

Section 17.2   Delegation of Duties. The Administrative Agent may execute any of its duties under this Participation Agreement and the other Operative Agreements by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of its agents or attorneys-in-fact selected by it with reasonable care.

Section 17.3   Exculpatory Provisions. Neither the Administrative Agent (in its capacity as such) nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Participation Agreement or any other Operative Agreement, except for its or such Person's own willful misconduct or gross negligence (or negligence in the handling of funds) or (b) responsible in any manner to any of the Participants or any other party to the Operative Agreements for any recitals, statements, representations or warranties made by the Lessor or the Lessee or any officer thereof contained in this Participation Agreement or any other Operative Agreement 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 Participation Agreement or any other Operative Agreement, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Participation Agreement or any other Operative Agreement or for any failure of the Lessor or the Lessee to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender or any other party to the Operative Agreements to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Participation Agreement or any other Operative Agreement, or to inspect the properties, books or records of the Lessor or the Lessee.

Section 17.4   Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, Certificate, writing, resolution, notice, consent, certificate, affidavit, letter, facsimile message, statement, order or other document or other written communication 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 Lessor or the Lessee), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note or Certificate as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent, in accordance with the Loan Agreement or the Trust Agreement, as applicable. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Participation Agreement or any other Operative Agreement unless it shall first receive the advice or concurrence of the Required Participants, or it shall first be indemnified to its satisfaction by the applicable Participants 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 Participation Agreement and the other Operative Agreements in accordance with a request of the Required Participants, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Participants and all future holders of the applicable Notes or Certificates. Wherever in the Operative Agreements the consent or approval of the Administrative Agent is required, in giving any such consent or approval the Administrative Agent may rely upon, or make its approval subject to, the directions of or consent or approval from the Required Participants.

Section 17.5   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 unless the Administrative Agent has received notice from a Participant or the Lessor referring to this Participation Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall promptly give notice thereof to the Participants, the Lessor and the Lessee. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be directed by the Required Participants; provided, however, 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 Participants.

Section 17.6   Non-Reliance on Administrative Agent and Other Participants. Each Participant expressly acknowledges that neither the Administrative Agent nor the Arranger, nor any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates, has made any representations or warranties to it and that no act by the Administrative Agent or the Arranger hereinafter taken, including any review of the affairs of the Lessor or the Lessee, shall be deemed to constitute any representation or warranty by the Administrative Agent or the Arranger to any Participant. Each Participant represents to the Administrative Agent and the Arranger that it has, independently and without reliance upon the Administrative Agent, the Arranger or any other Participant, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Lessor and the Lessee and made its own decision to enter into this Participation Agreement. Each Participant also represents that it will, independently and without reliance upon the Administrative Agent or the Arranger or any other Participant, 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 Participation Agreement and the other Operative Agreements, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Lessor and the Lessee. Except for notices, reports and other documents expressly required to be furnished to the Participants by the Administrative Agent, neither the Administrative Agent nor the Arranger shall have any duty or responsibility to provide any Participant with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Lessor or the Lessee which may come into the possession of the Administrative Agent or the Arranger or any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates.

Section 17.7   Administrative Agent in its Individual Capacity. FUNB and any of its Affiliates, if acting as a holder of a Note and/or Certificate Holder, shall have the same rights and powers under any Note and/or Certificate, this Participation Agreement and the other Operative Agreements as any other Participant as though FUNB were not the Administrative Agent; and the term "Certificate Holder," "Lender" or "Participant" shall, unless otherwise expressly indicated, include FUNB in its individual capacity or any such Affiliate, and FUNB and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, Lessee, either Guarantor and any Subsidiary of Lessee or either Guarantor and any Person who may do business with or own securities of Lessee or either Guarantor or any Subsidiary of Lessee or either Guarantor, all as if FUNB were not the Administrative Agent and without and without any duty to account therefore to the Participants.

Section 17.8   Indemnification. The Participants agree to indemnify the Administrative Agent, ratably according to the respective aggregate principal and Certificate Amounts of the Notes and/or Certificates held by each Participant, as the case may be (or if the Notes and Certificates have been fully repaid and retired or if any Notes or Certificates are held by Persons which are not Participants, ratably according to either (i) the respective aggregate amounts of their Commitments, or (ii) if all such Commitments have terminated, the respective amounts of the Commitments so terminated), from and against any and all losses of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Participation Agreement, any other Operative Agreement or any action taken or omitted by Administrative Agent under this Participation Agreement or any other Operative Agreement, provided, that no Participant shall be liable to the Administrative Agent for any portion of such losses resulting from the Administrative Agent's gross negligence or willful misconduct. Without limiting the foregoing, each Participant agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including reasonable counsel fees) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Participation Agreement or any other Operative Agreement to the extent that the Administrative Agent is not reimbursed for such expenses by the Lessee.

Section 17.9   Successor Administrative Agent. The Administrative Agent may resign at any time by giving written notice thereof to the Participants and the Lessee and may be removed at any time with or without cause by the Required Participants. Upon any such resignation or removal, the Required Participants shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Participants, and shall have accepted such appointment, within thirty (30) days after the retiring Administrative Agent's giving of notice of resignation or the Required Participants' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Participants, appoint a successor Administrative Agent, which shall be a commercial bank described in clause (i) or (ii) of the definition of "Eligible Assignee" and having a combined capital and surplus of at least $150,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Participation Agreement. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article XVII 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. Notwithstanding the foregoing if no Event of Default and no Default, shall have occurred and be continuing, then no successor Administrative Agent shall be appointed under this Section 17.9 without the prior written consent of the Lessee, which consent shall not be unreasonably withheld or delayed.

[END OF PAGE]
[SIGNATURE PAGES FOLLOW]

IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written.

PPL LARGE SCALE DISTRIBUTED GENERATION II, LLC, as Lessee

By:                                                    
Name:                                                 
Title:                                                   

LARGE SCALE DISTRIBUTED GENERATION II STATUTORY TRUST, a Connecticut statutory trust, as Lessor

By:State Street Bank and Trust Company of Connecticut, National Association, not in its individual capacity, but solely as Trustee under the Second Amended and Restated Trust Agreement dated as of July __, 2001

By:                                                    
Name:                                                 
Title:                                                   

STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION, not in its individual capacity, except as expressly stated herein, but solely as Trustee

By:                                                    
Name:                                                 
Title:                                                   

FIRST UNION NATIONAL BANK, not in its individual capacity, except as expressly stated herein, but solely as Administrative Agent

By:                                                    
Name:                                                 
Title:                                                   

CERTIFICATE HOLDERS:

FIRST UNION NATIONAL BANK, as Certificate Holder

By:                                                    
Name:                                                 
Title:                                                   

BARCLAYS BANK PLC, as Certificate Holder

By:                                                    
Name:                                                 
Title:                                                   

CITICORP USA, INC., as Certificate Holder

By:                                                    
Name:                                                 
Title:                                                   

CSL LEASING, INC., as Certificate Holder

By:                                                    
Name:                                                 
Title:                                                   

WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH, as Certificate Holder

By:                                                    
Name:                                                 
Title:                                                   

By:                                                    
Name:                                                 
Title:                                                   

LENDERS:

FIRST UNION NATIONAL BANK, as Class A and Class B Lender

By:                                                    
Name:                                                 
Title:                                                   

BANK ONE, NA, as Class A and Class B Lender

By:                                                    
Name:                                                 
Title:                                                   

BARCLAYS BANK PLC, as Class A and Class B Lender

By:                                                    
Name:                                                 
Title:                                                   

CITICORP USA, INC., as Class A and Class B Lender

By:                                                    
Name:                                                 
Title:                                                   

THE BANK OF NOVA SCOTIA, as Class A Lender

By:                                                    
Name:                                                 
Title:                                                   

THE CHASE MANHATTAN BANK, as Class A and Class B Lender

By:                                                    
Name:                                                 
Title:                                                   

THE INDUSTRIAL BANK OF JAPAN, LIMITED, as Class A and Class B Lender

By:                                                    
Name:                                                 
Title:                                                   

TORONTO DOMINION (TEXAS), INC., as Class A and Class B Lender

By:                                                    
Name:                                                 
Title:                                                   

UNION BANK OF CALIFORNIA, N.A., as Class A and Class B Lender

By:                                                    
Name:                                                 
Title:                                                   

WESTDEUTSCHE LANDESBANK

GIROZENTRALE, NEW YORK BRANCH, as Class A and Class B Lender

By:                                                    
Name:                                                 
Title:                                                   

By:                                                    
Name:                                                 
Title:                                                   

APPENDIX 1
to
Participation Agreement

DEFINITIONS

APPENDIX 2
to
Participation Agreement

CONDITIONS PRECEDENT TO second DOCUMENT CLOSING DATE

(a)  Authorization, Execution and Delivery of Documents; No Default. The Participation Agreement, the Lease, the Supervisory Agreement, the Trust Agreement, the Reaffirmations, the Fee Letters, the Loan Agreement, Certificates and the Notes shall have been duly authorized, executed and delivered by each of the other parties thereto, shall (to the extent the form and substance thereof shall not be prescribed hereby) be in form and substance satisfactory to each Participant and an executed counterpart of each thereof (except for the Certificates and the Notes, originals of which shall only be delivered to the applicable Participant, and for each Fee Letter, originals and copies of which shall only be delivered to the parties thereto) shall have been received by each of the Participants, the Administrative Agent and the Lessor. Each Participant shall have received an original, duly executed Note and Certificate registered in such Participant's name. Each of the Operative Agreements listed in this clause (a) shall be in full force and effect as to all other parties and no Default or Event of Default shall have occurred or be continuing.

(b)  Approval and Consents. No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority is required for the due execution, delivery or performance by Lessee of this Participation Agreement and the Operative Agreements to which it is a party other than as may be required to be obtained, given, accomplished or renewed at any time or from time to time after the Second Document Closing Date.

(c)  Fees and Expenses.Lessee shall have paid or duly provided for payment from proceeds of the Advance on the Second Document Closing Date to the Persons entitled thereto, Transaction Expenses and Fees accrued as of the Second Document Closing Date (including the Upfront Fees payable to the new Participants) pursuant to and as set forth in Section 4.4 and in the second sentence of Section 3.2.

(d)  Opinions of Counsel to Lessee and Guarantor. The Lessee shall have delivered to the Administrative Agent, Lessor and each Participant the opinions of the Senior Counsel to Lessee and each Guarantor as to the matters set forth in Exhibit B-2, the opinion of Orrick, Herrington & Sutcliffe LLP, special counsel to Lessee and each Guarantor, as to the matters set forth in Exhibit B-3, and an opinion from Orrick, Herrington & Sutcliffe or another counsel to Lessee reasonably acceptable to Administrative Agent with respect to the creation, perfection and validity of Lessor's and Administrative Agent's security interest in the Collateral, which opinions shall be reasonably acceptable in form and substance to the Participants.

(e)  Opinion of Special Counsel to Lessor. The Administrative Agent shall have received an opinion of Bingham Dana LLP special counsel to the Lessor and Trustee, as to the matters set forth in Exhibit B-1, which opinion shall be reasonably acceptable in form and substance to the Participants.

(f)  Offeree Letter. Administrative Agent and Lessee shall have received a certificate, substantially in the form of Exhibit S, from the Arranger, dated the Second Document Closing Date, with respect to offerees of the Notes and the Certificates (the "Offeree Letter").

(g)  No Defaults, etc. There shall not have occurred and be continuing any Event of Default or any event or circumstance which could reasonably give rise to an Uninsured Loss.

(h)  Representations and Warranties. The representations and warranties of Lessee and Guarantor herein and in each of the other Operative Agreements shall be true and correct in all material respects as though made on and as of the Second Document Closing Date, except to the extent such representations and warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date.

(i)  Real Estate Documents. The Lessee shall have delivered to the Administrative Agent the Memorandum of Ground Lease, Ground Lease Mortgage and Mortgage, which shall be attached to this Participation Agreement as Exhibits K, L and M, respectively, the Memorandum of Lease Supplement which shall be attached to the Lease as Exhibit C thereto and the Project Agreement Contractual Provisions (as referred to in Section 2.3(a) of the Supervisory Agreement) which shall be attached to the Supervisory Agreement as Exhibit C thereto, such agreements which shall be in form and substance satisfactory to the Administrative Agent.

(j)  Insurance Schedule. The Lessee shall have delivered to the Administrative Agent Schedule 2.5(e) to the Supervisory Agreement, such Schedule which shall be in form and substance satisfactory to the Administrative Agent and the Participants.

(k)  Appraisal Reliance Letter. The Lessee shall have delivered to the Administrative Agent a letter from the Appraiser, dated as of the Document Closing Date, addressed to the Lessor, each Participant and the Administrative Agent stating that all such Persons and their successors and assigns may rely on the Initial Appraisal, such letter to be in form and substance reasonably satisfactory to the Administrative Agent.

(l)  Virginia Opinion. The Lessee shall have delivered to the Administrative Agent, Lessor and each Participant an opinion of local counsel to Lessee who shall be admitted to practice law in the state of Virginia with respect to the creation, perfection and validity of Lessor's and Administrative Agent's security interest in the Collateral, which opinion shall be reasonably acceptable in form and substance to the Administrative Agent.

(m)  EWG Application. The Lessee will have submitted an application to FERC seeking status as an "exempt wholesale generator" within the meaning of Section 32 of the Public Utility Holding Company Act of 1935, as amended ("PUHCA").

(n)  GE Consent. Lessee shall have delivered to Administrative Agent an executed consent from GE to the assignment by PPL Large Scale Distributed Generation II, LLC to Lessor of the Existing Turbine Contract, which consent shall be in form and substance mutually satisfactory to GE and the Administrative Agent.

(o)  Filings and Recordings. All filings or recordings, including any amendments, necessary or advisable or reasonably requested by Administrative Agent to perfect the rights, titles and interests of Lessor, the Participants and Administrative Agent intended to be created by the Operative Agreements shall have been made in the appropriate places or offices, including any recordings and filings necessary to create, perfect, preserve and protect Lessor's interest in the Assets and any other property and interests included in the Trust Estate and Administrative Agent's interest in the Security Collateral.

All documents and instruments required to be delivered on the Second Document Closing Date shall be delivered at the offices of Mayer, Brown & Platt, 1675 Broadway, New York, New York 10019-5820, Attn: Michael Sloyer, Esq., or at such other location as the Administrative Agent and Lessee may agree.

SCHEDULE I
TO
PARTICIPATION AGREEMENT

CERTIFICATE HOLDERS' COMMITMENTS

Certificate Holders	Certificate Commitment	Commitment Percentage	Noneligible Accrued Amounts Commitment Percentage
First Union National Bank	$15,267,458.54	1.016700902%	33.890030051%
Citicorp USA, Inc.	$15,267,458.54	1.016700902%	33.890030051%
Barclays Bank PLC	$ 6,313,097.00	0.420406016%	14.013533853%
Westdeutsche Landesbank Girozentrale	$ 6,313,097.00	0.420406016%	14.013533853%
CSL Leasing, Inc.	$ 1,888,888.92	0.125786164%	4.192872192%
Total Certificate Holders' Commitments:	$45,050,000.00	3.000000000%	100%

SCHEDULE II
TO
PARTICIPATION AGREEMENT

LENDERS' COMMITMENTS

Lenders	Loan Commitment	Allocation of Loan Commitment to Class A Notes	Allocation of Loan Commitment to Class B Notes	Commitment Percentage
First Union National Bank	$142,559,966.46	$120,676,048.54	$ 21,883,917.92	13.624628554%
Citicorp USA, Inc.	$142,559,966.46	120,676,048.54	21,883,917.92	13.624628554%
Barclays Bank PLC	$151,514,328.00	132,575,037.00	18,939,291.00	14.480407726%
Westdeutsche Landesbank Girozentrale	$151,514,328.00	132,575,037.00	18,939,291.00	14.480407726%
Bank One, NA	$110,000,000.00	95,352,480.42	14,647,519.58	10.512833147%
The Industrial Bank of Japan, Limited	$ 66,666,667.00	57,789,382.36	8,877,284.64	6.371414029%
The Bank of Nova Scotia	$ 25,000,000.00	25,000,000.00	---	2.389280261%
Toronto Dominion (Texas), Inc.	$150,000,000.00	130,026,109.66	19,973,890.34	14.335681565%
The Chase Manhattan Bank	$ 42,555,556.08	36,888,889.34	5,666,666.74	4.067086006%
Union Bank of California, N.A.	$ 32,579,188.00	28,240,967.14	4,338,220.86	3.113632432%
Total Loan Commitments:	$1,014,950,000.00	$879,800,000.00	$135,150,000.00	97.000000000%

SCHEDULE III
TO
PARTICIPATION AGREEMENT

NOTICE INFORMATION, PAYMENT OFFICES
AND APPLICABLE LENDING OFFICES

Lessee:

Notice Information:

PPL Large Scale Distributed Generation II, LLC
11350 Random Hills Road
Suite 400
Fairfax, VA 22030
Attention: Ralph Daley
Telephone: (703) 293-2626
Facsimile: (703) 293-2659

Payment Office (Address for Wires):

All payments to the Lessee with respect to the Operative Agreements shall be made by wire transfer of immediately available funds to an account designated by the Lessee in advance.

Guarantor:

Notice Information:

PPL Corporation
2 North 9th Street
Allentown, PA 18101
Attention:	James E. Abel
Title:	VP - Finance and Treasurer
Telephone:	(610) 774-5151
Facsimile:	(610) 774-5235
PPL Energy Supply, LLC
Two Ninth Street
Allentown, PA 18101
Telephone:	(610) 774-
Facsimile:	(610) 774-5235

Lessor:

Notice Information:

Large Scale Distribution Generation II Statutory Trust
c/o State Street Bank and Trust Company of Connecticut
National Association
225 Asylum Street, Goodwin Square
Hartford, CT 06103
Attention:	Corporate Trust Department
Telephone:	(860) 244-1800
Facsimile:	(860) 244-1889

with a copy to:

State Street Bank and Trust Company
2 Avenue de Lafayette
Boston, MA 02111
Attention:	Corporate Trust Department
Telephone:	(617) 662-1802
Facsimile:	(617) 662-1465

Payment Office (Address for Wires):

Bank:	State Street Bank and Trust Company
Address:	Boston, MA
ABA Routing No:	011000028
Account No:	99039901
Account Name:	Corporate Trust
Reference:	PPL Large Scale Distribution Generation II
	Statutory Trust

Administrative Agent:

First Union National Bank
Structured Products Loan Administration
201 S. College Street (CP-7)
Charlotte, North Carolina 28288
Attention:	Mark Mullis
Telephone:	(704) 374-6981
Facsimile:	(704) 383-7989

Payment Office (Address for Wires):

Bank:	First Union National Bank
Address:	Charlotte, NC
ABA Routing No:	053000219
Account No:	5000000021657
Attention:	Structured Products Loan Administration
Reference:	PPL Energy Supply, LLC

Certificate Holders:

First Union National Bank

Notice Information:

First Union National Bank
301 South College Street (TW-10)
Charlotte, NC 28288
Attention:	Jim Sharp
Title:	Associate
Telephone:	(704) 715-1540
Facsimile:	(704) 383-9106

Credit:

Attention:	Mike Kolosowsky
Title:	Director
Telephone:	(704) 383-8225
Facsimile:	(704) 383-9106

Payment Office (Address for Wires):

Bank:	First Union National Bank
Address:	Charlotte, NC
ABA Routing No:	053000219
Account No:	5000000021657
Attention:	Structured Products Loan Administration
Reference:	PPL Energy Supply, LLC

Barclays Bank PLC

Notice Information:

Barclays Bank PLC, New York Branch

222 Broadway

New York, NY 10038

Credit:

Attention:	Sydney Dennis
Phone:	(212) 412-2470
Facsimile:	(212) 412-7511

Payment Office (Address for Wires) and Applicable Lending Office:

Bank:	Barclays Bank PLC
Address:	222 Broadway, New York, NY
ABA Routing #:	026 002 574
Account #:	050-019104
Account Name:	Clsd Control Account
Reference:

Citicorp USA, Inc.

Notice Information:

388 Greenwich Street
21st Floor
New York, NY 10013
Attention:	Robert J. Harrity, Jr.
Phone:	(212) 816-8554
Facsimile:	(212) 816-8098

Credit:

Attention:	Gus Rigas
Phone:	(212) 816-8605
Facsimile:	(212) 816-8098

Payment Office (Address for Wires) and Applicable Lending Office:

Bank:	Citibank NA
ABA Routing #:	021000089
Account #:	39087254
Account Name:	PPL Energy Supply
Attn:	Karen Riley
Reference:	PPL Energy Supply

CSL Leasing Inc.

Notice Information:

The Chase Manhattan Bank
270 Park Avenue
23rd Floor
New York, NY 10017
Attention:	Robert M. Bowen
Phone:	(212) 270-4215
Facsimile:	(212) 270-3089

Credit:

Attention:	Robert M. Bowen
Phone:	(212) 270-4215
Facsimile:	(212) 270-3089

Payment Office (Address for Wires) and Applicable Lending Office:

Bank:	Chase Manhattan Bank
Address:	New York, NY 10017
ABA Routing #:	021000021
Account #:	9420
Account Name:	CMLN Dept.
Attention:	Doug Catron
Reference:	PPL Energy Supply, LLC

Westdeutsche Landesbank Girozentrale

Notice Information:

Westdeutsche Landesbank Girozentrale, New York Branch

1211 Avenue of the Americas

New York, NY 10036

Business/Credit Contact:

Attention:	Transaction Management Department
	Global Structured Finance/Americas
Phone:	(212) 597-1412
Facsimile:	(212) 921-5947

Payment Office (Address for Wires) and Applicable Lending Office

Bank:	Chase Manhattan Bank, New York
Address:	One Chase Manhattan Plaza
	New York, NY 10081
ABA Routing #:	021-000-121
Account #:	9201 06 0663
Account Name:	Westdeutsche Landesbank Girozentrale,
	New York Branch
Attention:	Phil Green/Arcadio Diaz
Reference:	PPL Synthetic; PPL Supply 364; PPL Supply 3 Year;
	PPL Electric 364

Lenders:

First Union National Bank

Notice Information:

First Union National Bank
301 South College Street (TW-10)
Charlotte, NC 28288
Attention:	Jim Sharp
Title:	Associate
Telephone:	(704) 715-1540
Facsimile:	(704) 383-9106

Credit:

Attention:	Mike Kolosowsky
Title:	Director
Telephone:	(704) 383-8225
Facsimile:	(704) 383-9106

Payment Office (Address for Wires):

Bank:	First Union National Bank
Address:	Charlotte, NC
ABA Routing No:	053000219
Account No:	5000000021657
Attention:	Structured Products Loan Administration
Reference:	PPL Energy Supply, LLC

Bank One, NA

Notice Information:

Bank One, NA
(Main Office-Chicago)
1 Bank One Plaza
Suite IL1-0363
Chicago, IL 60670
Attention:	Bridget Bollero
Title:	Customer Service Officer
Phone:	(312) 732-2332
Facsimile:	(312) 732-3055

Credit:

Attention:	Madeleine N. Pember
Title:	Vice President
Phone:	(312) 732-9727
Facsimile:	(312) 732-3055

Payment Office (Address for Wires) and Applicable Lending Office

Bank:	Bank One, NA
Address:	Chicago, IL
ABA Routing #:	071000013
Account #:	4811-5286-0000
Account Name:	LS2 OSD Money Transfers Incoming
Reference:	PPL Energy Supply, LLC
	PL Electric Utilities Corporation

Barclays Bank PLC

Notice Information:

Barclays Bank PLC, New York Branch

222 Broadway

New York, NY 10038

Credit:

Attention:	Sydney Dennis
Phone:	(212) 412-2470
Facsimile:	(212) 412-7511

Payment Office (Address for Wires) and Applicable Lending Office:

Bank:	Barclays Bank PLC
Address:	222 Broadway, New York, NY
ABA Routing #:	026 002 574
Account #:	050-019104
Account Name:	Clsd Control Account
Reference:

Citicorp USA, Inc.

Notice Information:

388 Greenwich St.
21st Floor
New York, NY 10013
Attention:	Robert J. Harrity, Jr.
Phone:	(212) 816-8554
Facsimile:	(212) 816-8098

Credit:

Attention:	Gus Rigas
Phone:	(212) 816-8605
Facsimile:	(212) 816-8098

Payment Office (Address for Wires) and Applicable Lending Office:

Bank:	Citibank NA
ABA Routing #:	021000089
Account #:	39087254
Account Name:	PPL Energy Supply
Attn:	Karen Riley
Reference:	PPL Energy Supply

The Bank of Nova Scotia

Notice Information:

The Bank of Nova Scotia
One Liberty Plaza
26th Floor
New York, NY 10006
Attention:	Randy Crath
Phone:	(212) 225-5231
Facsimile:	(212) 225-5090

Credit:

Attention:	Randy Crath
Phone:	(212) 225-5231
Facsimile:	(212) 225-5090

Payment Office (Address for Wires) and Applicable Lending Office:

Bank:	The Bank of Nova Scotia
Address:	New York, NY
ABA Routing #:	026002532
Account #:	GENRL 70
Account Name:	Loan Accounting
Reference:	PPL Energy Supply

The Chase Manhattan Bank

Notice Information:

The Chase Manhattan Bank
270 Park Avenue
23rd Floor
New York, NY 10017
Attention:	Robert M. Bowen
Phone:	(212) 270-4215
Facsimile:	(212) 270-3089

Credit:

Attention:	Robert M. Bowen
Phone:	(212) 270-4215
Facsimile:	(212) 270-3089

Payment Office (Address for Wires) and Applicable Lending Office:

Bank:	Chase Manhattan Bank
Address:	New York, NY 10017
ABA Routing #:	021000021
Account #:	9420
Account Name:	CMLN Dept.
Attention:	Doug Catron
Reference:	PPL Energy Supply, LLC

The Industrial Bank of Japan, Limited

Notice Information:

The Industrial Bank of Japan, Limited
1251 Avenue of the Americas
New York, NY 10020-1104
Attention:	Jun Shimmachi
Phone:	(212) 282-3413
Facsimile:	(212) 282-4488

Credit:

Attention:	Jun Shimmachi
Phone:	(212) 282-3413
Facsimile:	(212) 282-4488

Payment Office (Address for Wires) and Applicable Lending Office

Bank:	The Industrial Bank of Japan, Limited
Address:	New York, New York
ABA Routing #:	026008345
Account #:	N/A
Attention:	Christine Francese - CAD
Reference:	PPL Energy Supply/PPL Electric Utilities

Toronto Dominion (Texas), Inc.

Notice Information:

Toronto Dominion (Texas), Inc.
909 Fannin Street
17th Floor
Houston, Texas 77010
Attention:	Carolyn Faeth
Phone:	(713) 427-8520
Facsimile:	(713) 951-9921

Credit:

Attention: Philip Ghali
The Toronto-Dominion Bank
31 West 52nd Street
18th Floor
New York, NY 10019
Phone:	(212) 827-7710
Facsimile:	(212) 827-7264

Payment Office (Address for Wires) and Applicable Lending Office:

Bank:	Bank of America, New York
ABA Routing #:	026009593
Account #:	6550-6-52270
Account Name:	Toronto Dominion Bank, Houston
Reference:	PP&L Large Scale Dist II

Union Bank of California, N.A.

Notice Information:

Union Bank of California, N.A.
Energy Capital Services
445 S. Figueroa Street
15th Floor
Los Angeles, CA 90071
Attention:	Gohar Karapetyan/Ruby Gonzalez
	Commercial Loan Operations
Phone:	(323) 720-2679/7055
Facsimile:	(323) 724-6198

Credit:

Attention:	David Musicant
Title:	Senior Vice President
Phone:	(213) 236-5023
Facsimile:	(213) 236-4096

Payment Office (Address for Wires) and Applicable Lending Office

Bank:	Union Bank of California, N.A.
Address:	1980 Saturn Street
	Monterey Park, CA 91754
ABA Routing #:	122-000-496
Account #:	070-196431
Reference:	PPL Energy

Westdeutsche Landesbank Girozentrale

Notice Information:

Westdeutsche Landesbank Girozentrale, New York Branch

1211 Avenue of the Americas

New York, NY 10036

Credit:

Attention:	Transaction Management Department
	Global Structured Finance/Americas
Phone:	(212) 597-1412
Facsimile:	(212) 921-5947

Payment Office (Address for Wires) and Applicable Lending Office

Bank:	Chase Manhattan Bank, New York
Address:	One Chase Manhattan Plaza
	New York, NY 10081
ABA Routing #:	021-000-121
Account #:	9201 06 0663
Account Name:	Westdeutsche Landesbank Girozentrale,
	New York Branch
Attention:	Phil Green/Arcadio Diaz
Reference:	PPL Synthetic; PPL Supply 364; PPL Supply 3 Year;
	PPL Electric 364

SCHEDULE 6.1(j)

GOVERNMENTAL ACTIONS; FILINGS AND RECORDINGS
AS OF DOCUMENT CLOSING DATE

UCC Filings

Connecticut

	Debtor	Secured Party	Type of Filing	Filing Jurisdiction
1.	Lessee	Lessor	UCC-1	Secretary of State
2.	Lessee	Lessor, assigned to Administrative Agent	UCC-2 (Amendment)	Secretary of State
3.	Lessee/ Lessor	Administrative Agent	UCC-1	Secretary of State

Virginia

1.	Lessee	Lessor	UCC-1	Secretary of State
2.	Lessee	Lessor, assigned to Administrative Agent	UCC-2 (Assignment)	Secretary of State
3.	Lessee/ Lessor	Administrative Agent	UCC-1	Secretary of State
4.	Lessee/ Lessor	Administrative Agent	UCC-1	Fairfax County

Texas

1.	Lessee	Lessor	UCC-1	Secretary of State
2.	Lessee	Lessor, assigned to Administrative Agent	UCC-2 (Assignment)	Secretary of State
3.	Lessee/ Lessor	Administrative Agent	UCC-1	Secretary of State

Schedule 6.3(f)

FILINGS AND RECORDINGS

The following documents, as applicable, will be recorded in each jurisdiction where a Site is located:

1.  Deed

2.  Memorandum of Ground Lease

3.  Facility Lease Supplement

4.  Mortgage

5.  Ground Lease Mortgage

In addition to the foregoing, new UCC filings or amendments to existing UCC filings reasonably requested by Administrative Agent will be filed with the Secretary of State of Delaware.

[Other Governmental Actions, Filings and Recordings to be added once location of Site is determined]

Schedule 16.3(a)(ii)

CERTAIN MATERIAL DEBT AGREEMENT EVENTS OF DEFAULT

Montana Facility

Section 7(c) - violation of reps and warranties

Section 7(d) - violation of covenants

Section 7(e) - violation of additional covenants

Exclusions from 7d above:

Section 6.01 - Indebtedness

Section 6.02 - Liens

Section 6.04 - Asset Sales

Section 6.09 - Fiscal Year

Section 6.12 - Debt to Capital Ratio

PPL Credit Agreements

Section 7.01(c) - violation of certain covenants

Section 7.01(d) - violation of 6.01(d).

Section 7.01(e) - violation of all other covenants

Section 7.01(f) - violation of any representation

Section 7.01(l) - violation of Parent Guarantee

Exclusions from 7.01(c) above:

Section 6.13 - Consolidated Debt to Consolidated Capitalization Ratio

Section 6.14 - Interest Coverage Ratio

Section 6.15 - Indebtedness

Existing Warehouse Facility

Section 6.01(b) - violation of any rep

Section 6.01(c) - violation of certain agreements

Section 6.01(d) - violation of covenant

Section 6.01 (n) - an event of default under any other Operative Agreement

Section 6.01 (o)(ii) - cross default provision

Exclusions from above:

Section 8(b)(i)(2) and 8(b)(ii) of the Warehouse Parent Guarantee - Mergers

Section 8d of the Warehouse Parent Guarantee - Consolidated Indebtedness

EXHIBIT A
TO PARTICIPATION AGREEMENT

Form of Advance Request

EXHIBIT B-1
TO PARTICIPATION AGREEMENT

Form of Opinion of Special Counsel to Lessor and Trustee

EXHIBIT B-2
TO PARTICIPATION AGREEMENT

Forms of Opinion of Senior Counsel to Lessee and each Guarantor

EXHIBIT B-3
TO PARTICIPATION AGREEMENT

Form of Opinion of Orrick, Herrington & Sutcliffe LLP,

Special Counsel to Lessee and each Guarantor

EXHIBIT C-1
TO PARTICIPATION AGREEMENT

Form of Lessee's Initial Advance Date Certificate

EXHIBIT C-2

TO PARTICIPATION AGREEMENT

Form of Supervisory Agent's Certificate with respect to the Initial Construction Advance

EXHIBIT D-1
TO PARTICIPATION AGREEMENT

Form of Responsible Officer's Certificate of Lessee

EXHIBIT D-2
TO PARTICIPATION AGREEMENT

Form of Responsible Officer's Certificate of Supervisory Agent due on Facility Completion Date

EXHIBIT D-3
TO PARTICIPATION AGREEMENT

Form of Responsible Officer's Certificate of Guarantor

EXHIBIT E
TO PARTICIPATION AGREEMENT

Form of Assignment Agreement

EXHIBIT F
TO PARTICIPATION AGREEMENT

EPC Contractor Completion Certificate

EXHIBIT G-1
TO PARTICIPATION AGREEMENT

Form of Officer's Certificate of Lessee

EXHIBIT G-2
TO PARTICIPATION AGREEMENT

Form of Officer's Certificate of Guarantor

EXHIBIT H
TO PARTICIPATION AGREEMENT

Form of Collateral Assignment

EXHIBIT I
TO PARTICIPATION AGREEMENT

Pro Forma Budget

EXHIBIT J
TO PARTICIPATION AGREEMENT

Form of Ground Lease

EXHIBIT K
TO PARTICIPATION AGREEMENT

Form of Memorandum of Ground Lease

EXHIBIT L
TO PARTICIPATION AGREEMENT

Form of Ground Lease Mortgage

EXHIBIT M
TO PARTICIPATION AGREEMENT

Form of Mortgage

EXHIBIT N
TO PARTICIPATION AGREEMENT

Form of Hazardous Materials Indemnity

EXHIBIT O
TO PARTICIPATION AGREEMENT

Form of PPL Supply Guarantee

EXHIBIT P
TO PARTICIPATION AGREEMENT

Phase I Environmental Site Assessment Preliminary Findings Report

EXHIBIT Q-1
TO PARTICIPATION AGREEMENT

Form of New Party Supplement (Lender)

EXHIBIT Q-2
TO PARTICIPATION AGREEMENT

Form of New Party Supplement (Certificate Holder)

EXHIBIT R
TO PARTICIPATION AGREEMENT

Form of Participant Increase Supplement

EXHIBIT S
TO PARTICIPATION AGREEMENT

Form of Offeree Letter

EXHIBIT T
TO PARTICIPATION AGREEMENT

Form of Project Collateral Account Agreement

EXHIBIT U
TO PARTICIPATION AGREEMENT

Form of Project Agreement Indemnity

EXHIBIT V
TO PARTICIPATION AGREEMENT

Form of General Contractor Assignment

EXHIBIT W
TO PARTICIPATION AGREEMENT

Form of Reaffirmation

EXHIBIT X
TO PARTICIPATION AGREEMENT

Form of Lessee Subordinated Mortgage

Table of Contents
ARTICLE I		DEFINITIONS; INTERPRETATION		2
	Section 1.1		Definitions; Interpretation	2
ARTICLE II		SECOND DOCUMENT CLOSING DATE; ACQUISITION DATE		2
	Section 2.1		Effectiveness of Agreement	2
	Section 2.2		Acquisition and Lease of Assets	3
	Section 2.3		Site Acquisition Cost Advances	3
	Section 2.4		Construction Cost Advances	3
	Section 2.5		Equipment Cost Advances	3
	Section 2.6		Excepted Costs Advances	3
	Section 2.7		Participant Capitalized Costs Advances	4
	Section 2.8		Increases and Purchases of Interests	4
ARTICLE III		FUNDING OF ADVANCES		4
	Section 3.1		Fundings	4
	Section 3.2		Payment of Asset Costs and Fees; Application and Allocation of Funds	7
	Section 3.3		Advance Dates	10
	Section 3.4		Capitalization of Certain Amounts	13
	Section 3.5		Non-Funding Lender's Portion	13
	Section 3.6		Non-Funding Certificate Holder's Portion	15
	Section 3.7		Additional Rights of Lessee	16
	Section 3.8		Cash Collateralization	16
	Section 3.9		Refinancing	17
	Section 3.10		Optional Commitment Reduction	18
	Section 3.11		Optional Commitment Increase	20
ARTICLE IV		YIELD; INTEREST		21
	Section 4.1		Yield	21
	Section 4.2		Interest on Loans	21
	Section 4.3		Payments of Rent; and Payments and Prepayments of Loans and Certificate Amounts	21
	Section 4.4		Fees; Contingent Costs	22
	Section 4.5		Obligations Several	23
	Section 4.6		Highest Lawful Rate	23
	Section 4.7		Extension of Maturity Date and Expiration Date	24
	Section 4.8		Determination of Rates and Interest Periods	25
	Section 4.9		Conversion of Applicable Rates	25
	Section 4.10		Number of Elections	26
ARTICLE V		CERTAIN INTENTIONS OF THE PARTIES		26
	Section 5.1		Nature of Transaction	26
	Section 5.2		Amounts Due Under Lease	27
	Section 5.3		Distribution	27
	Section 5.4		Adjustments	33
ARTICLE VI		CONDITIONS PRECEDENT TO ADVANCES		34
	Section 6.1		Conditions Precedent to the Initial Advance	34
	Section 6.2		Conditions Precedent to each Advance	37
	Section 6.3		Conditions Precedent to each Site Acquisition Date and each Site Acquisition Advance	42
	Section 6.4		Conditions Precedent to Initial Construction Advance for a Facility	46
	Section 6.5		Conditions Precedent to Initial Equipment Advance for an Equipment Group	48
ARTICLE VII		COMPLETION DELIVERIES		50
	Section 7.1		Unit Deliveries	50
	Section 7.2		Deliveries Upon Substantial Completion of a Facility	51
ARTICLE VIII		REPRESENTATIONS AND WARRANTIES		52
	Section 8.1		Representations and Warranties of the Participants	52
	Section 8.2		Representations and Warranties of Lessee	53
	Section 8.3		Representations of Lessee with Respect to Each Advance	59
	Section 8.4		Representations and Warranties of Lessor	59
	Section 8.5		Representations and Warranties of the Lessor	61
ARTICLE IX		COVENANTS OF LESSEE		63
	Section 9.1		General Covenants of Lessee	63
	Section 9.2		Negative Covenants	66
ARTICLE X		OTHER COVENANTS AND AGREEMENTS		67
	Section 10.1		Covenants of the Participants, the Administrative Agent, the Lessor, Trustee and Lessee	67
	Section 10.2		Project Collateral Arrangements	69
ARTICLE XI		LESSEE DIRECTIONS; REPLACEMENT OF PARTICIPANTS; RELEASE OF PPL CORPORATION GUARANTEE		71
	Section 11.1		Lessee Directions	71
	Section 11.2		Release of PPL Corporation Guarantee	72
ARTICLE XII		TRANSFERS OF PARTICIPANTS' INTERESTS		72
	Section 12.1		Assignments	72
	Section 12.2		Participations	74
	Section 12.3		Withholding Taxes; Disclosure of Information; Pledge Under Regulation A	75
ARTICLE XIII		INDEMNIFICATION		75
	Section 13.1		Indemnification	75
	Section 13.2		Nonconformance	80
	Section 13.3		Proceedings in Respect of Claims	81
	Section 13.4		General Tax Indemnity	82
	Section 13.5		After Tax Basis	88
	Section 13.6		Environmental Indemnity	88
ARTICLE XIV		CONTINGENT LIBOR AND OTHER COSTS		89
	Section 14.1		LIBO Rate Lending Unlawful	89
	Section 14.2		Deposits Unavailable	90
	Section 14.3		Increased Costs, Etc	90
	Section 14.4		Funding Losses	91
	Section 14.5		Increased Capital Costs	91
	Section 14.6		After Tax Basis	92
	Section 14.7		Applicability of Certain Sections	92
	Section 14.8		Funding Office	92
	Section 14.9		Replacement of Participants	92
ARTICLE XV		MISCELLANEOUS		93
	Section 15.1		Survival of Agreements	93
	Section 15.2		No Broker, Etc	93
	Section 15.3		Notices	93
	Section 15.4		Counterparts	93
	Section 15.5		Amendments	93
	Section 15.6		Loan Agreement and Related Obligations	94
	Section 15.7		Headings, Etc	95
	Section 15.8		Parties in Interest	95
	Section 15.9		GOVERNING LAW	95
	Section 15.10		Severability	95
	Section 15.11		Liability Limited	95
	Section 15.12		Further Assurances	95
	Section 15.13		Submission to Jurisdiction	96
	Section 15.14		WAIVER OF JURY TRIAL	96
	Section 15.15		Confidentiality	97
	Section 15.16		Limited Liability of Bank	97
	Section 15.17		Limited Liability of Administrative Agent	97
	Section 15.18		Payment of Transaction Costs and Other Costs	98
	Section 15.19		Reproduction of Documents	98
	Section 15.20		Role of Arranger	99
	Section 15.21		Deliveries to Participants	99
	Section 15.22		Retention of Consultants	99
	Section 15.23		"One Form of Action; Antideficiency Rules" in Effect	99
	Section 15.24		Limitations on Transferees' Liability	100
	Section 15.25		Transferees' Right to Subrogation and Reimbursement	100
ARTICLE XVI		EVENTS OF DEFAULT		100
	Section 16.1		Events of Default	100
	Section 16.2		Remedies	104
	Section 16.3		Limitation on Recourse Liability Prior to Applicable Base Term Commencement Date and With Respect to Certain Certifications and Representations	106
ARTICLE XVII		THE ADMINISTRATIVE AGENT		107
	Section 17.1		Appointment	107
	Section 17.2		Delegation of Duties	107
	Section 17.3		Exculpatory Provisions	108
	Section 17.4		Reliance by Administrative Agent	108
	Section 17.5		Notice of Default	109
	Section 17.6		Non-Reliance on Administrative Agent and Other Participants	109
	Section 17.7		Administrative Agent in its Individual Capacity	109
	Section 17.8		Indemnification	110
	Section 17.9		Successor Administrative Agent	110

APPENDICES
APPENDIX 1	-	Definitions
APPENDIX 2	-	Conditions Precedent to Document Closing Date
SCHEDULES
SCHEDULE I	-	Certificate Holders' Commitments
SCHEDULE II	-	Lenders' Commitments
SCHEDULE III	-	Notice Information, Payment Offices and Applicable Lending Offices
SCHEDULE 6.1(j)	-	Governmental Actions; Filings and Recordings as of Document Closing Date
SCHEDULE 6.3(f)	-	Filings and Recordings
SCHEDULE 16.3(a)(ii)	-	Certain Material Debt Agreement Events of Default
EXHIBITS
EXHIBIT A	-	Form of Advance Request
EXHIBIT B-1	-	Form of Opinion of Special Counsel to Lessor and Trustee
EXHIBIT B-2	-	Form of Opinion of Senior Counsel to Lessee and Guarantor
EXHIBIT B-3	-	Form of Opinion of Orrick, Herrington & Sutcliffe LLP, Special Counsel to Guarantor and Lessee
EXHIBIT C-1	-	Form of Lessee's Initial Advance Date Certificate
EXHIBIT C-2	-	Form of Supervisory Agent's Certificate with respect to the Initial Construction Advance
EXHIBIT D-1	-	Form of Responsible Officer's Certificate of Lessee
EXHIBIT D-2	-	Form of Responsible Officer's Certificate of Supervisory Agent due on Facility Completion Date
EXHIBIT D-3	-	Form of Responsible Officer's Certificate of Guarantor
EXHIBIT E	-	Form of Assignment Agreement
EXHIBIT F	-	EPC Contractor Completion Certificate
EXHIBIT G-1	-	Form of Officer's Certificate of Lessee
EXHIBIT G-2	-	Form of Officer's Certificate of Guarantor
EXHIBIT H	-	Form of Collateral Assignment
EXHIBIT I	--	Pro Forma Budget
EXHIBIT J	-	Form of Ground Lease
EXHIBIT K	-	Form of Memorandum of Ground Lease
EXHIBIT L	-	Form of Ground Lease Mortgage
EXHIBIT M	-	Form of Mortgage
EXHIBIT N	-	Form of Hazardous Materials Indemnity
EXHIBIT O	-	Form of PPL Supply Guarantee
EXHIBIT P	--	Phase I Environmental Site Assessment Preliminary Findings Report
EXHIBIT Q-1	--	Form of New Party Supplement (Lender)
EXHIBIT Q-2	--	Form of New Party Supplement (Certificate Holder)
EXHIBIT R	--	Form of Participant Increase Supplement
EXHIBIT S	--	Form of Offeree Letter
EXHIBIT T	--	Form of Project Collateral Account Agreement
EXHIBIT U	-	Form of Project Agreement Indemnity
EXHIBIT V	-	Form of General Contractor Assignment
EXHIBIT W	-	Form of Reaffirmation
EXHIBIT X	-	Form of Lessee Subordinated Mortgage

Execution Version

APPENDIX 1
TO
AMENDED AND RESTATED PARTICIPATION AGREEMENT

PPL 2001 Lease Financing

DEFINITIONS AND INTERPRETATION

a)  Interpretation. In each Operative Agreement, unless a clear contrary intention appears:

    (i)  the singular number includes the plural number and vice versa;

    (ii)  reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by the Operative Agreements, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually;

    (iii)  reference to any gender includes the other gender;

    (iv)  reference to any agreement (including any Operative Agreement), document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms of the other Operative Agreements, and reference to any promissory note includes any promissory note which is an extension or renewal thereof or a substitute or replacement therefor;

            (i)  reference to any Applicable Laws means such Applicable Laws as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder and reference to any section or other provision of any Applicable Laws means that provision of such Applicable Laws from time to time in effect and constituting the substantive amendment, modification, codification, replacement or reenactment of such section or other provision;

            (ii)  reference in any Operative Agreement to any Article, Section, Appendix, Schedule or Exhibit means such Article or Section thereof or Appendix, Schedule or Exhibit thereto;

            (iii)   "hereunder", "hereof", "hereto" and words of similar import shall be deemed references to an Operative Agreement as a whole and not to any particular Article, Section or other provision thereof;

            (iv)   "including" (and with correlative meaning "include") means including without limiting the generality of any description preceding such term; and

            (v)   relative to the determination of any period of time, "from" means "from and including" and "to" means "to but excluding".

a)  Accounting Terms. In each Operative Agreement, unless expressly otherwise provided, accounting terms shall be construed and interpreted, and accounting determinations and computations shall be made, in accordance with GAAP.

b)  Conflict in Operative Agreements. If there is any conflict between any Operative Agreements, such Operative Agreement shall be interpreted and construed, if possible, so as to avoid or minimize such conflict, but, to the extent (and only to the extent) of such conflict, the Participation Agreement shall prevail and control.

c)  Legal Representation of the Parties. The Operative Agreements were negotiated by the parties with the benefit of legal representation and any rule of construction or interpretation otherwise requiring the Operative Agreement to be construed or interpreted against any party shall not apply to any construction or interpretation hereof or thereof.

d)  Defined Terms. Unless a clear contrary intention appears, terms defined herein have the respective indicated meanings when used in each Operative Agreement.

"Acceleration" is defined in Section 5.2(a) of the Loan Agreement.

"Acknowledgment of and Consent to Assignment" means an Acknowledgment of and Consent to Assignment in the form of Exhibit B to the Supervisory Agreement.

"Acquisition" means the supervision by Lessee of the manufacturing of and the acquisition and shipment of Equipment.

"Actual Knowledge" means, with respect to the Lessee or any PPL Group Member, the actual knowledge of any of the following persons: (i) with respect to facts or occurrences relating to the Assets, employees of the Lessee or any PPL Group Member regularly engaged in supervising the acquisition, construction, use, maintenance or operation of any of the Assets, and (ii) with respect to facts or occurrences unrelated to the Assets, any Responsible Officer of the Lessee or either Guarantor, as applicable.

"Adjusted Aggregate Available Commitment" means, as of the date of determination, the then Aggregate Available Commitment less the Unfunded Future Payment Amounts at such time.

"Adjusted Allocated Purchase Amount" means with respect to any Facility or Equipment Group the sum of (i) the applicable Lease Supplement Permitted Balance or with respect to any Uncompleted Facility or Uncompleted Equipment Group for which a Construction Period Event of Default has occurred which is not a Full Recourse Interim Event, the applicable Lease Supplement Recourse Amount plus (ii) any accrued amounts or amounts otherwise due and payable under Article XIII, and following the Applicable Base Term Commencement Date for a Facility or a Unit, amounts under Article XIV of the Participation Agreement.

"Administrative Agent" means First Union National Bank, or any successor pursuant to the terms of the Operative Agreements.

"Advance" means an advance by Lessor to Lessee of amounts Funded by the Participants pursuant to Article III of the Participation Agreement.

"Advance Date" means the Document Closing Date and any Business Day on which Advances are made under the Participation Agreement in accordance with Section 3.3 thereof.

"Advance Request" shall mean a written request by Lessee for an Advance pursuant to Section 3.3(a) of the Participation Agreement or a written notification by Administrative Agent pursuant to Section 3.3(c) of the Participation Agreement.

"Affected Ground Lessor" is defined in Section 3.8(a) of the Supervisory Agreement.

"Affiliate" means, when used with respect to a specified Person, another Person that directly or indirectly controls or is controlled by or is under common control with the Person specified. For this purpose, "control" of a Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting shares, by contract or otherwise.

"Affiliate Obligations" is defined in Section 15.25 of the Participation Agreement.

"After Tax Basis" means, with respect to any payment to be received (to the extent the receipt of such payment constitutes taxable income to such recipient), the amount of such payment increased so that, after deduction of the amount of all Taxes assuming for this purpose that the recipient of such payment is subject to taxation at the highest Federal and applicable state and local marginal rates applicable to widely held corporations for the year in which such income is taxable) required to be paid by the recipient (less any Tax savings realized, utilizing the same tax rate assumptions as set forth in the immediately preceding parenthetical phrase, and the present value of any Tax savings projected, utilizing the same tax rate assumptions as set forth in the immediately preceding parenthetical phrase, to be realized by the recipient as a result of the payment of the indemnified amount or the event giving rise to the payments) with respect to the receipt by the recipient o f such amounts, such increased payment (as so reduced) is equal to the payment otherwise required to be made.

"Aggregate Available Commitment" means, as of the date of determination, the amount of the Commitments that have not been Funded.

"Aggregate Commitment Amount" means One Billion Sixty Million Dollars ($1,060,000,000), as such amount may be increased pursuant to Section 3.11 of the Participation Agreement or reduced pursuant to Section 3.10 of the Participation Agreement.

"Aggregate C&A Recourse Amount" means, as of the date of determination, an amount equal to the sum of all of the Lease Supplement Recourse Amounts.

"Aggregate Permitted Asset Balance" means, as of the date of determination, an amount equal to the sum of all of the Lease Supplement Permitted Balances.

"Aggregate RVG Amount" means, as of the date of determination, an amount equal to the sum of all of the Lease Supplement RVG Amounts.

"Allocated Existing Transaction Costs" means, for each Unit for which contract rights are purchased by Lessor under the Existing Warehouse Facility, an amount equal to: Turbines ($30,727.85); SCR's ($4,071.50), Transformers ($2,155.50) and Spare Engines ($13,555.70).

"Allocated Purchase Amount" means (i) with respect to any Facility or Equipment Group, the product of the Purchase Amount and the Purchase Percentage applicable to such Facility or Equipment Group and (ii) with respect to any Unit in an Equipment Group, the Unit Fraction of the Allocated Purchase Amount for such Equipment Group.

"Alternate Base Rate" means, on any date with respect to any Loan or Certificate Amount, a fluctuating rate of interest per annum equal to the higher of (A) the rate of interest most recently announced by First Union National Bank in the United States from time to time as its corporate base rate for calculating interest on certain loans, which need not be the lowest interest rate charged by First Union National Bank, and (B) the Federal Funds Effective Rate most recently determined by Administrative Agent plus .50% per annum, plus the Applicable Margin. If either of the aforesaid rates or their equivalent changes from time to time after the Document Closing Date, the Alternate Base Rate shall be automatically increased or decreased, if appropriate and as the case may be, without notice to Lessee, Guarantors or the Lessor, as of the effective time of each change.

"Applicable Assignee" means, with respect to any Lease Supplement, the PPL Group Member which takes assignment of such Lease Supplement pursuant to Article VI of the Lease.

"Applicable Base Term Commencement Date" means, with respect to any Facility, the Base Term Commencement Date for such Facility and with respect to any Unit allocated to an Equipment Group, the Base Term Commencement Date for such Unit.

"Applicable Contractor" is defined in Section 10.2 of the Participation Agreement.

"Applicable Laws" at any time means all then existing applicable laws, rules, regulations (including Environmental Laws) statutes, treaties, codes, ordinances, permits, certificates, orders and licenses of and interpretations by any Governmental Authority, and applicable judgments, decrees, injunctions, writs, orders or like action of any court, arbitrator or other administrative, judicial or quasi-judicial tribunal or agency of competent jurisdiction (including those pertaining to health, safety or the environment (including, without limitation, wetlands)).

"Applicable Lending Office" means, for each Participant, the office of such Participant set forth as the Applicable Lending Office for such Participant on Schedule III to the Participation Agreement, or such other office of such Participant (or of an Affiliate of such Participant) as such Participant may from time to time specify to the Administrative Agent and Lessee by written notice as the office from which its Loans or Certificate Amounts, as applicable, accruing Interest or Yield, as applicable, at the LIBO Rate are made available and maintained.

"Applicable Maintenance Programs" means recommended Manufacturer maintenance programs, or another maintenance program(s) adopted by Lessee which (i) provide for standards and practices consistent with the assumptions set forth in the applicable Appraisal, (ii) are approved by the Independent Engineer as complying with maintenance standards and practices consistent with Prudent Industry Practice, and (iii) are as required to maintain in effect the applicable Manufacturers' warranties.

"Applicable Margin" means at all times during which any Applicable Rating Level set forth below is in effect, the rate per annum (except as provided below) set forth below next to such Applicable Rating Level:

Applicable Rating Level	Applicable Margin for Loans	Applicable Margin for Certificate Amounts	Applicable Margin for Available Commitment Fee
1	1.125%	2.000%	.250%
2	1.375%	2.250%	.300%
3	1.625%	2.500%	.350%
4	2.250%	3.000%	.500%

provided, that a change in the Applicable Margin resulting from a change in the Applicable Rating Level shall become effective upon the date of announcement of a change in the Moody's Rating or the S&P Rating; provided, however, that such Applicable Margin shall be increased to the percentages set forth in the Syndication Letter under the heading "Post Syndication Period Rate" while the provisions in the Syndication Letter under such heading which adjust the Applicable Margin, are applicable.

Until such time as PPL Supply achieves a senior unsecured long-term debt rating from S&P or Moody's, the Applicable Margin for the Available Commitment Fee and the Applicable Margin for the Loans and Certificate Amounts shall be based on the Applicable Rating Level 2.

"Applicable Material Debt Agreements" means each of the PPL Supply Credit Agreements, the Montana Facility and the Existing Warehouse Facility Agreement.

"Applicable Project Agreement" is defined in Section 10.2 of the Participation Agreement.

"Applicable Rate" is defined at Section 4.8 of the Participation Agreement.

"Applicable Rating Level" shall be determined in accordance with the then-applicable S&P Rating and the then-applicable Moody's Rating as follows:

S&P Rating/Moody's Rating	Applicable Rating Level
One of the following ratings shall be in effect: S&P Rating BBB+ or higher or Moody's Rating Baa1 or higher	1
One of the following ratings shall be in effect: S&P Rating BBB or higher or Moody's Rating Baa2 or higher	2
One of the following ratings shall be in effect: S&P Rating BBB- or higher or Moody's Rating Baa3 or higher	3
One of the following ratings shall be in effect: S&P Rating lower than BBB- or Moody's Rating lower than Baa3 or unrated	4

In the event that none of Applicable Rating Levels 1, 2, 3, or 4 shall be applicable, or neither a S&P Rating nor a Moody's Rating shall be in effect, then the Applicable Rating Level shall be Applicable Rating Level 4. The Applicable Rating Level shall be redetermined on the date of announcement of a change in the S&P Rating or the Moody's Rating.

Notwithstanding the above, if at any time there is a split in ratings between S&P and Moody's of one level, the applicable percentage shall be determined by the higher of the two ratings and if at any time there is a split between S&P and Moody's of two or more levels, the applicable level shall be one level above (i.e., one level lower pricing than) the lower of the S&P or Moody's rating.

Until such time as PPL Supply achieves a long-term unsecured debt rating from S&P or Moody's, Applicable Margin for the Available Commitment Fee and the Applicable Margin for the Loans and Certificate Amounts shall be based on the Applicable Rating Level 2.

"Applicable Termination Payment Amounts" is defined in Section 10.2 of the Participation Agreement.

"Applicable Utility" is defined in Section 3.8(a) of the Supervisory Agreement.

"Appraisals" means the Equipment Appraisal and the Facility Appraisals.

"Appraiser" means American Appraisal Associates, Inc. or another independent MAI appraiser selected by Administrative Agent and reasonably acceptable to Lessee.

"Arranger" means First Union Securities, Inc.

"Arranger Fee" means the fee payable to Arranger pursuant to the Syndication Letter.

"Asset Balance" means, as of any date of determination, an amount equal to the sum of the Loan Balance, the Certificate Balance and all other amounts owing by the Lessee or Lessor under the Operative Agreements (including without limitation, but without duplication, accrued and unpaid Rent).

"Asset Costs" means the costs incurred to purchase or install the Equipment, to construct the Site Improvements, to acquire the Sites and fund amounts accruing under the Ground Leases, including the aggregate all Facility Costs, Equipment Costs, Equipment Contract Purchase Amounts and all amounts payable under any Project Agreement and all Capitalized Costs and Transaction Costs.

"Asset Records" means those maintenance and other records relating to any of the Assets in the possession of Lessee.

"Assets" means, collectively, all of the Facilities, the Equipment Groups and all Turbines and any other Assets allocated to a Proposed Site then subject to the Lease or otherwise being financed under the Equipment Tranche or the Facility Tranche.

"Assignment" means that certain Assignment, dated as of April 30, 2001, between Large Scale Distributed Generation Statutory Trust and Lessor.

"Assignment and Assumption Agreement" means that certain Assignment and Assumption Agreement, dated as of April 30, 2001, between Large Scale Distributed Generation Statutory Trust and Lessor.

"Authorized Officer" means any officer of Lessor who shall be duly authorized to execute the Operative Agreements.

"Available Commitment" means (i) with respect to each Certificate Holder, the excess of (A) its Certificate Commitment, over (B) its aggregate Certificate Amounts outstanding, and (ii) with respect to each Lender, the excess of (A) its Loan Commitment, over (B) its aggregate Loans outstanding.

"Available Commitment Fee" is defined at Section 4.4(b)(ii) of the Participation Agreement.

"Bank" is defined in the preamble to the Trust Agreement.

"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended.

"Bankruptcy Default" means an Insolvency Event without regard to the cure or grace periods provided for within the definition of "Insolvency Event."

"Base Term" is defined in Section 2.3 of the Lease.

"Base Term Commencement Date" means the date which is the earlier of (i) with respect to each Facility, the Facility Completion Date therefor, (ii) with respect to any Unit allocated to an Equipment Group and each Unit which is included in the Post-Completion Assets described at Section 9.1(p) of the Participation Agreement, the Unit Completion Date for such Unit, or (iii) with respect to all Lease Supplements, the date an Insolvency Event occurs.

"Base Term Extension Effective Date" is defined at Section 4.7 of the Participation Agreement.

"Base Term Extension Request" is defined at Section 4.7 of the Participation Agreement.

"Base Term Extension Response Date" is defined at Section 4.7 of the Participation Agreement.

"Basic Rent" means, for any Payment Date on which Basic Rent is due, an amount equal to the sum of the aggregate amount of Interest and Yield payable under the Operative Agreements on such date on the Notes and the Certificates in respect of the applicable Interest Period.

"Beneficiary" and "Beneficiaries" is defined in Section 1 of each Guarantee.

"Benefitted Lender" is defined in Section 8.6 of the Loan Agreement.

"Benefitted Participant" is defined in Section 5.4 of the Participation Agreement.

"Bill of Sale" means a bill of sale in the form attached to the applicable Equipment Contract.

"Borrower" means Lessor, in its capacity as borrower under the Loan Agreement.

"Breakage Costs" means any costs or expenses incurred by any Agent, Lessor or any Participant in connection with the termination of an Equipment Contract, any Facility EPC Agreement or any of the other Project Agreements following the occurrence of an Event of Default, including all Termination Payments.

"Break Costs" means an amount equal to the amount, if any, required to compensate any Certificate Holder or any Lender for any additional losses (including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or funds acquired by any Certificate Holder or any Lender to fund its obligations under the Operative Agreements) it may reasonably incur as a result of (x) the Lessee's payment of Basic Rent other than on a Payment Date, (y) any Advance not being made on the date specified therefor in the applicable Advance Request (other than as a result of a breach by such Certificate Holder or such Lender, as the case may be, of its obligation under Section 3.1, 3.2 or 3.3, as the case may be, of the Participation Agreement to make Advances to the Lessee or make Certificate Amounts or Loans available to the Lessor) or (z) as a result of any conversion of the LIBO Rate during an Interest Period pursuant to and in accordance with the Operative Agreements. A statement as to the amount of such loss, cost or expense, prepared in good faith and in reasonable detail and submitted by any Certificate Holder or any Lender, as the case may be, to the Lessee, shall be presumed correct absent demonstrable error.

"Business Day" means (i) each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banks in Charlotte, North Carolina or New York, New York, are generally authorized or obligated, by law or executive order, to close and (ii) relative to any determination of the LIBO Rate, any day which is a Business Day under clause (i) and is also a day on which dealings in Dollars are carried on in the London interbank eurodollar market.

"Capitalized Contingent Costs" means all Contingent Costs due and payable to any Participant, Administrative Agent, or Lessor accruing during and for the period commencing on the Document Closing Date and ending on or before the Applicable Base Term Commencement Date for each Facility and each Unit allocated to an Equipment Group to the extent such amounts relate to or are reasonably allocable to such Assets, but excluding any Contingent Costs or other amounts for which Lessee has an obligation to pay directly as set forth in the proviso to the final sentence of Section 4.3(a) of the Participation Agreement.

"Capitalized Costs" means collectively Capitalized Interest, Capitalized Yield, Capitalized Fees and Capitalized Contingent Costs.

"Capitalized Fees" means all Fees allocated to and accruing during and for the period commencing on the Document Closing Date and ending on or before the Applicable Base Term Commencement Date for each Facility and each Unit allocated to an Equipment Group to the extent such amounts relate to or are reasonably allocable to such Assets.

"Capitalized Interest" means, with respect to the principal amounts under the Notes, all interest accruing on the portion of such principal attributable to Advances made during the period commencing on the Document Closing Date and ending on or before the Applicable Base Term Commencement Date for each Facility and each Unit allocated to an Equipment Group to the extent such amounts relate to or are reasonably allocable to such Assets. Interest accruing during such Interest Periods on the portion of principal under the Notes attributable to such Advances shall be treated as Capitalized Interest.

"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.

"Capitalized Yield" means, with respect to the Certificate Amounts, all Yield accruing on the portion of such Certificate Amounts attributable to Advances made during and for the period commencing on the Document Closing Date and ending on or before the Applicable Base Term Commencement Date for each Facility and each Unit allocated to an Equipment Group to the extent such amounts relate to or are reasonably allocable to such Assets. Yield accruing during such Interest Periods on the portion of Certificate Amounts attributable to such Advances shall be treated as Capitalized Yield.

"Caribou Joint Venture" means the transactions involving the contribution of certain assets related to, and interests in, the Martins Creek Units 1 and 2 generating facilities (including any associated common facilities), the Keystone and Conemaugh facilities, the Holtwood and Wallenpaupack facilities and the Griffith facilities to a subsidiary of PPL Supply, and the financing and other transactions related thereto.

"Cash Collateral Account Agreement" means the account agreement entered into by the Administrative Agent with the financial institution or trust company at which the Cash Collateral Account is maintained, in form and substance reasonably satisfactory to the Administrative Agent.

"Cash Collateral Account" has the meaning specified in Section 3.8 of the Participation Agreement.

"Cash Collateralization Date" means the fifth anniversary of the Document Closing Date.

"Casualty" means an event of damage or casualty relating to any portion of the Asset.

"Certificate" is defined at Section 2.1 of the Trust Agreement.

"Certificate Amount" means, with respect to any Certificate Holder as of any date of determination, the aggregate amount advanced by such Certificate Holder for the purchase of Certificates pursuant to Section 3.1 of the Participation Agreement, net of any distributions (other than distributions of Yield) with respect thereto.

"Certificate and Loan Transfer Instructions" means escrow or other instructions reasonably acceptable to Initial Lenders and Initial Certificate Holders for the transfer of (i) a portion of the outstanding Loans held by Initial Lenders and the related Commitments to the new Lenders and (ii) a portion of the outstanding Certificates held by the Initial Certificate Holders and the related Commitments to the new Certificate Holders and the payment for such Loans and Certificates in immediately available funds.

"Certificate Balance" means as of any date of determination an amount equal to the sum of the outstanding Certificate Amounts of all Certificate Holders, together with all accrued and unpaid Yield thereon.

"Certificate Commitment" means the Commitment of the Certificate Holders to make available Certificate Amounts in an aggregate principal amount set forth on Schedule I to the Participation Agreement.

"Certificate Holder" has the meaning set forth in the preamble to the Trust Agreement.

"Certificate Holders' Share" means a fraction, expressed as a percentage, the numerator of which is the aggregate Certificate Commitments of the Certificate Holders (including the Defaulting Certificate Holder's Certificate Commitment) and the denominator of which is equal to the Aggregate Commitment Amount.

"Certificate Holders' Unfunded Amount" means, at any date of determination, the Certificate Holders' Share of the Unfunded Future Payment Amounts.

"Certificate Register" is defined in Section 2.8(a) of the Trust Agreement.

"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 PPL Supply.

"Change Order" means, with respect to any Equipment Contract, any Facility EPC Agreement, or with respect to any other Project Agreement, any change order as defined in or contemplated by such contractor agreement.

"Claims" means any and all obligations, liabilities, losses, actions, suits, judgments, penalties, fines, claims, demands, settlements, costs and expenses (including, without limitation, reasonable legal fees and expenses) of any nature whatsoever.

"Class A Noteholders" has the meaning specified in the Loan Agreement.

"Class A Notes" has the meaning specified in the Loan Agreement.

"Class B Noteholders" has the meaning specified in the Loan Agreement.

"Class B Notes" has the meaning specified in the Loan Agreement.

"Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto.

"Collateral" means all of Lessee's right, title and interest in (i) the Assets, (ii) the Equipment Contracts, (iii) the Facility EPC Agreements, (iv) each other Project Agreement, (v) contracts and warranties relating to the Assets, (vi) the Lessor's interest in the Sites and Ground Leases, (vii) the Cash Collateral Account, Project Collateral Accounts (and all amounts on deposit therein and investments with respect thereto), Project Collateral Account and Indemnity Agreements, and all other Project Collateral, (viii) the Mortgaged Property, (ix) any rights to Liquidated Damages, rebates, offset or other warranty payments, or assignment under a purchase order, invoice or purchase agreement with any manufacturer of or contractor for any portion of the Collateral, including any Manufacturer under the Equipment Contracts, the EPC Contractors under the Facility EPC Agreements, and the General Contractors under any other Project Agreement and all rights to Rebates, (x) all insurance policies required to be maintained pursuant to the Lease or the Supervisory Agreement, (xi) all insurance and condemnation proceeds and awards relating to the Assets and all Other Available Amounts, and (xii) all products, excess successions, subleases, rents, issues, profits, products, returns, income, awards and proceeds of and from any or all of the foregoing (including proceeds from any of the foregoing), and to the extent not otherwise included, all payments under insurance (whether or not Lessee is the loss payee hereof) or any indemnity, warranty or guarantee payable by reason of loss or damage to or otherwise with respect to any of the foregoing.

"Collateral Agent" has the meaning specified in Section 3.8(a) of the Participation Agreement.

"Collateral Assignment" means the Collateral Assignment of Project Collateral, dated as of April 30, 2001, from Lessee to Lessor.

"Commercial Capacity" means operating at the Manufacturers' designed and intended capacity upon completion of appropriate testing by such Manufacturer as of the date of acceptance under the applicable Equipment Contract, subject to any reduction (i) resulting from such Manufacturer's failure to satisfy applicable performance standards for which such Manufacturer has paid liquidated damages in accordance with the applicable Equipment Contract and (ii) as such capacity may be reduced over time for normal wear and tear and degradation, but in the case of a reduction under this clause (ii), not more than three percent (3%) in the aggregate from capacity as of such acceptance.

"Commercial Operation" means the operation of the Equipment at Commercial Capacity other than sales of energy in connection with or incidental to start-up, commissioning, debugging or testing of such Equipment or the Facility at which such Equipment is installed.

"Commitment" means (i) as to any Lender, its Loan Commitment, and (ii) as to any Certificate Holder, its Certificate Commitment.

"Commitment Fees" is defined in Section 4.4(b) of the Participation Agreement.

"Commitment Percentage" means, as to any Participant, the percentage set forth opposite such Participant's name under the heading "Commitment Percentage" on Schedule I to the Participation Agreement, with respect to the Certificate Holders, or Schedule II to the Participation Agreement, with respect to the Lenders.

"Commitment Period" means a period commencing on the Document Closing Date and ending on June 30, 2003.

"Commitment Reduction Notice" has the meaning specified in Section 3.10 of the Participation Agreement.

"Commitment Shortfall" means, at any date of determination, (i) with respect to the Lenders, the amount, if any, by which the Lenders' Unfunded Amount exceeds the Lenders' aggregate Available Commitments after deducting the Defaulted Lender's Available Commitment and (ii) with respect to the Certificate Holders, the amount, if any, by which the Certificate Holders' Unfunded Amount exceeds the Certificate Holders' aggregate Available Commitments after deducting the Defaulted Certificate Holder's Commitment Amount.

"Completed Equipment Group" means an Equipment Group for which the Unit Completion Date has occurred for all of the Units in such Equipment Group.

"Completed Facility" means a Facility for which the Facility Completion Date has occurred.

"Completed Unit" means a Unit for which the Applicable Base Term Commencement Date has occurred.

"Condemnation" means any condemnation, requisition, confiscation, seizure or other taking or sale of the use or title to the Assets or any part thereof in, by or on account of any eminent domain proceeding or other action by any Governmental Authority or other Person under the power of eminent domain or otherwise or any transfer in lieu of or in anticipation thereof. A Condemnation shall be deemed to have "occurred" on the earliest of the dates that use or title is taken or transferred.

"Consolidated Capitalization of PPL Corporation" means the sum of (A) the Consolidated Indebtedness of PPL Corporation and (B)(i) the consolidated shareowners' equity (determined in accordance with GAAP) of the common, preferred stockholders of PPL Corporation and (ii) the aggregate amount of Hybrid Preferred Securities of PPL Corporation, except that for purposes of calculating the Consolidated Capitalization of PPL Corporation, Consolidated Indebtedness of PPL Corporation shall exclude Non-Recourse Indebtedness of PPL Corporation and Consolidated Capitalization of PPL Corporation shall exclude that portion of shareholder equity attributable to assets securing Non-Recourse Indebtedness of PPL Corporation.

"Consolidated Indebtedness of PPL Corporation" means the consolidated Indebtedness of PPL Corporation (determined in accordance with GAAP), except that for purposes of this definition (1) Consolidated Indebtedness of PPL Corporation shall exclude Non-Recourse Indebtedness of PPL Corporation and (2) Consolidated Indebtedness of PPL Corporation shall exclude any Hybrid Preferred Securities of PPL Corporation.

"Consolidated Net Worth" means common shareholders equity as determined in accordance with GAAP, and reported on each Guarantor's financial statements.

"Construction" means with respect to any Facility, the construction of the Site Improvements of any Facility and, where indicated in the Operative Agreements, the installation and testing of the Facility Equipment.

"Construction Advance" means an Advance Funded by the Participants pursuant to Article III of the Participation Agreement for the purpose of funding any Facility Costs provided for in the Facility Budget for a Facility.

"Construction Agreements" means each Facility EPC Agreement and each of the other agreements and documents entered into by Lessee, as Supervisory Agent, or by Lessor, at Lessee's request, to undertake or provide for Site Obligations, including the Construction.

"Construction Commencement Deadline" means the date with respect to each Proposed Site by which Lessee must commence Construction on such Proposed Site as identified in the Pro Forma Budget under the column "Construction Commencement Deadline".

"Construction Costs" means, with respect to any Facility, all of the costs incurred to complete Construction with respect to such Facility, including (a) Soft Costs and all Capitalized Costs and Transaction Costs allocated thereto pursuant to Section 3.2 of the Participation Agreement, (b) the costs of the equipment, component parts and construction materials for such Facility (other than Facility Equipment Costs), (c) the costs of all (i) utilities, (ii) insurance, (iii) real estate, property and excise tax assessments, (iv) transfer and document taxes arising from a transfer or release of any Assets prior to the Applicable Base Term Commencement Date or a transfer or release pursuant to Section 3.8 of the Supervisory Agreement, and (v) sales and use taxes on materials used in or otherwise incurred with respect to the Construction of such Facility, (d) Internal Costs, (e) without duplication of any of the foregoing, all amounts deposited in the Project Collateral Accounts, (f) the fees and costs and expenses incurred by Lessee and Lessor in connection with the Project Letters of Credit and (g) all Interconnection Land Costs.

"Construction Period" means (i) with respect to any Unit of Equipment comprising part of an Equipment Group, the date of the initial Equipment Advance for such Unit of Equipment and ending on the Unit Completion Date for such Unit and (ii) with respect to any Facility, the earlier to occur of (a) the commencement of Site Preparation (other than the erection of fencing and other temporary facilities) and (b) the date of the Initial Construction Advance for such Facility, and ending on the Facility Completion Date for such Facility.

"Construction Period Event of Default" means an Event of Default relating solely to an Uncompleted Facility or Uncompleted Unit, which Event of Default is of the type described at subsections 16.1(d), 16.1(e), 16.1(f), 16.1(j) (but only to the extent failure arises with respect to the Supervisory Agreement) or 16.1(l) of Article XVI of the Participation Agreement but in no event shall a Construction Period Event of Default include any Event of Default arising from or relating to a Full Recourse Interim Event.

"Construction Schedule" means a construction schedule, in critical path form, which details and schedules all material events necessary to control the Site Obligations, including the Construction, in the form delivered to and approved by the Participants prior to the initial Advance for Construction Costs for the applicable Facility, as it may be amended or modified in accordance with the terms of the Project Agreements and the Supervisory Agreement.

"Construction Site" means any Site for which (i) a Site Acquisition Date has occurred and (ii) the conditions precedent set forth at Section 6.4 of the Participation Agreement have been satisfied or waived.

"Contingency Reserve" means the Equipment Budget, Facility Budget or Pro Forma Budget line item identified as the "contingency reserve".

"Contingent Costs" means amounts payable to any Indemnitee pursuant to Sections 14.3, 14.4 and 14.5 of the Participation Agreement or which become due and payable to any Person pursuant to any provisions of Section 11.1(c), 15.12, 15.18(c) or 15.22 of the Participation Agreement.

"Corporate Trust Department" means the principal corporate trust office of the Trustee, Attention: Corporate Trust Administration, or at such other office at which the corporate trust business of the Trustee shall be administered which the Trustee shall have specified by notice in writing to Lessee, each Certificate Holder, Administrative Agent and each Lender.

"Corporation" means a corporation, association, company, joint stock company, limited liability company, partnership or business trust.

"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 Guaranties 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, condi tional 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, (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 or (e) obligations associated with the Caribou Joint Venture.

"Default" means any condition, occurrence or event which, after notice or lapse of time or both, would constitute an Event of Default.

"Default Completion Costs" means, with respect to any Facility (including any Proposed Site) or Equipment Group, all costs incurred by Administrative Agent, Lessor or the Participants in completing the Acquisition and/or Construction of any of the Assets subject to the Lease Supplement for such Facility or Equipment Group following an Event of Default in excess of those set forth in the applicable Facility Budget, Equipment Group Budget or Pro Forma Budget, including, without limitation, costs of removal and restoration of defective work, shut down and startup costs for any party under any of the Project Agreements, redesign, rebidding, repermitting and other costs incurred following such Event of Default in connection with any revision of any Facility Plans and Specifications, construction supervision costs, carry during any period of delay in the completion of the Site Improvements or the Shipment of a Unit beyond the applicable Facility Outside Completion Date or Equipm ent Group Outside Completion Date, together with any amounts paid by Supervisory Agent as Prepaid Rent for such costs pursuant to the Supervisory Agreement or any other funds used at the direction of Administrative Agent or Lessor for such purpose, including funds from the Project Collateral Accounts.

"Defaulted Certificate Holder Commitment Amount" is defined in Section 3.6(b) of the Participation Agreement.

"Defaulted Lender Commitment Amount" is defined in Section 3.5(b) of the Participation Agreement.

"Defaulting Certificate Holder" is defined in Section 3.6(a) of the Participation Agreement.

"Defaulting Lender" is defined in Section 3.5(a) of the Participation Agreement.

"Designated Office" means the office of the Lessor located at the address set forth on Schedule III to the Participation Agreement as its Designated Office.

"Document Closing Date" means May 3, 2001.

"Dollars" and "$" means dollars in lawful currency of the United States of America.

"Downgrade Event" has the meaning specified in Section11.1(c) of the Participation Agreement.

"Downgraded Lender" has the meaning specified in Section11.1(c) of the Participation Agreement.

"Early Termination Option" means the Lessee's option to purchase the Assets in accordance with the provisions of Section 18.1 of the Lease.

"Electric Interconnect Agreement" means an Interconnect Agreement of the type described in clause (i) of the definition of "Interconnect Agreement", including any development or construction agreement entered into in connection therewith.

"Eligible Accrued Costs" means, with respect to an Uncompleted Facility or Uncompleted Equipment Group from time to time as of any date of determination thereof, an amount equal to (i) the aggregate amount of accrued Asset Costs (but without duplication of any costs comprising such accrued Asset Costs) including those that have been paid or which are due and payable, and including all amounts which Lessor or Administrative Agent prefunds or prepays under any Project Agreement, and following an Event of Default, any Default Completion Costs, Termination Payments or Breakage Costs relating to any Project Agreement, in the case of an Uncompleted Facility or Equipment Contract, with respect to an Uncompleted Equipment Group, which may become payable, at any time prior to the Facility Completion Date or Unit Completion Date for each Unit in such Equipment Group, as applicable, as well as all costs incurred subsequent thereto for Final Completion Work, whether or not paid, including any amounts payable pursuant to the Project Collateral Account and Indemnity Agreements or into the Project Collateral Accounts and any Capitalized Costs accruing on the portion of any Advance deposited into the Project Collateral Accounts, but excluding all Noneligible Accrued Amounts, all Non-Capitalized Costs allocated to such Uncompleted Facility or Uncompleted Unit in an Uncompleted Equipment Group pursuant to Section 3.2(b) of the Participation Agreement, less (ii) all Force Majeure Losses applicable to such Uncompleted Facility or Uncompleted Unit, plus (iii) to the extent that the amounts in clause (i) are reduced by Force Majeure Losses in clause (ii) hereof, the amounts expended by Lessor, Administrative Agent, or Lessee from available insurance proceeds or Other Available Amounts to remedy the effects of such loss.

"Eligible Assignee" means (i) a commercial bank organized under the laws of the United States, or any State thereof; (ii) a commercial bank organized under the laws of any other country that is a member of the OECD or has concluded special lending arrangements with the International Monetary Fund associated with its general arrangements to Borrow, or a political subdivision of any such country, provided that such bank is acting through a branch or agency located in the United States; (iii) a finance company, insurance company or other financial institution or fund (whether a corporation, partnership or other entity) engaged generally in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business; (iv) the central bank of any country that is a member of the OECD; or (v) any Participant; provided, however, that (A) any such Person described in clause (i), (ii), (iii) or (iv) above shall also have combined capital and surplus (as established in its most recent report of condition to its primary regulator) of not less than $250,000,000 (or its equivalent in foreign currency), and (B) any Person described in clause (ii), (iii) or (iv) above shall, on the date on which it is to become a Participant hereunder, be entitled to receive payments hereunder without deduction or withholding of any United States Federal income taxes.

"Entire Ground Lessor Land" is defined in Section 3.8(b)(ii) of the Supervisory Agreement.

"Environmental Audit" means a Phase One environmental site assessment (the scope and performance of which meets or exceeds ASTM Standard Practice E1527-97 Standard Practice for Environmental Site Assessments: Phase One Environmental Site Assessment Process) of a Site and any additional environmental assessments requested by the Required Participants in good faith, including, without limitation, a Phase II environmental site assessment if recommended by the Phase I environmental site assessment.

"Environmental Claims" is defined in Section 13.6 of the Participation Agreement.

"Environmental Laws" means any federal, state or local laws, ordinances or codes, rules, orders, or regulations relating to pollution or protection of the environment, including, without limitation, laws relating to Hazardous Substances, laws relating to reclamation of land and waterways and laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or Hazardous Substances or wastes into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollution, contaminants, chemicals, or industrial, toxic or Hazardous Substances or wastes.

"Environmental Violation" means any activity, occurrence or condition that violates or results in non-compliance with any Environmental Law.

"EPC Contractor" means a contractor entering into a Facility EPC Agreement with Lessor or Lessee, as Supervisory Agent.

"Equipment" means, collectively, all of the Units being financed under either Tranche or subject to an Equipment Lease Supplement or Facility Lease Supplement.

"Equipment Acquisition Date" means, with respect to any Equipment Group or Unit of Equipment in such Equipment Group, the first date on which Lessor acquires any interest, including an interest in an Equipment Contract, in a Turbine to be included in such Equipment Group.

"Equipment Advance" means an Advance by Lessor of amounts Funded by the Participants pursuant to Article III of the Participation Agreement for the purpose of funding Equipment Costs.

"Equipment Appraisal" is defined in Section 6.2(t) of the Participation Agreement.

"Equipment Completion Date" means, with respect to any Equipment Group, the date on which a Unit Completion Date has occurred for all of the Turbines included in such Equipment Group.

"Equipment Contract Purchase Amounts" means the amounts paid by Lessor to the lessor under the Existing Warehouse Facility for the purchase of contract rights for one or more Units under an Existing Equipment Contract, which may include amounts to reimburse the transferor lessor for installment payments previously paid to the applicable Manufacturer for such Units and outstanding interest, yield, fees and the applicable Allocated Existing Transaction Costs which have been funded or capitalized under the Existing Warehouse Facility with respect to such Units, which amounts shall be set forth in a schedule to an Advance Request requesting Equipment Contract Purchase Amounts for such Units, which schedule will be substantially similar and based on calculations using the same methodology set forth in the schedule describing such amounts attached to the Advance Request delivered by Lessor on the Initial Advance Date.

"Equipment Contracts" means the Existing Equipment Contracts, and all other contracts to be entered into by or on behalf of Lessor, Lessee, and the manufacturer for any Equipment in accordance with the Participation Agreement and the Supervisory Agreement.

"Equipment Costs" means, with respect to Equipment allocated to any Equipment Group, all of the costs incurred in connection with the maintenance, purchase and shipment of such Equipment, including all transfer and sales taxes and all payments which become due and payable under the Equipment Contracts with respect to such Equipment, including, without limitation, all options, bonuses, charges and costs of Change Orders which are to be paid in connection with the Equipment Contracts, together with Capitalized Costs and Transaction Costs accrued prior to the Applicable Base Term Commencement Date for the Equipment Lease Supplement for such Equipment Group and allocated thereto pursuant to Section 3.2(b) of the Participation Agreement.

"Equipment Group" means Units (including Uncompleted Units) financed under the Equipment Tranche which are allocated by Lessee to an Equipment Lease Supplement and listed on the Schedule to such Lease Supplement; provided, however, an Equipment Group shall include all Turbines which under the Existing Equipment Contract or any other Equipment Contract are scheduled to be Shipped within any consecutive 90-day period following the Document Closing Date, and provided further, that the Spare Engines will be deemed together a separate Equipment Group to which no other Units will be allocated.

"Equipment Group Budget" has the meaning specified in Section 6.5(b)(i) of the Participation Agreement.

"Equipment Group Outside Completion Date" means, with respect to any Equipment Group, the date which is the earlier of (i) the outside date of the Unit Completion Dates for all the Units in an Equipment Group as set forth in the applicable Equipment Group Budget and (ii) the Outside Completion Date.

"Equipment Lease Supplement" means, with respect to each Equipment Group, an Equipment Lease Supplement substantially in the form of Exhibit A to the Lease together with all attachments and schedules thereto.

"Equipment Obligations" is defined at Section 2.1(a)(i) of the Supervisory Agreement.

"Equipment Records" means those maintenance and other records relating to the Equipment in the possession of the Lessee.

"Equipment Site" means a site owned or leased by a PPL Group Member on which such PPL Group Member operates an electrical generating facility and at which a Unit of an Equipment Group subject to an Equipment Lease Supplement is installed, or in the case of Spare Engines, are stored.

"Equipment Tranche" means the portion of the Aggregate Commitment Amount comprised of the Commitments, and the Advances made or to be made pursuant to such Commitments, allocated to the acquisition of Units in an Equipment Group pursuant to Section 6.5 of the Participation Agreement and, as of the date of determination, have not been allocated by the Lessee to a Facility or a Proposed Site.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time.

"ERISA Affiliate" means, with respect to any Person, any trade or business (whether or not incorporated) which is a "commonly controlled entity" within the meaning of the regulations under Section 414 of the Internal Revenue Code of 1986, as amended from time to time.

"ERISA Group" means PPL Supply and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with PPL Supply, are treated as a single employer under Section 414(b) or (c) of the Internal Revenue Code.

"ERISA Termination Event" means (i) a Reportable Event occurs with respect to a Plan, or (ii) if Guarantor or any of its ERISA Affiliates become at any time participants or a participating employer in a Multiemployer Plan, the withdrawal of the Guarantor or any of its ERISA Affiliates from a Multiemployer Plan or from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (iii) the filing of a notice of intent to terminate a Plan or a Multiemployer Plan under Section 4041 or 4041A of ERISA, or (iv) the institution of proceedings to terminate an ERISA Plan or a Multiemployer Plan by the PBGC, or (v) failure of any Plan to satisfy the minimum funding standards set forth in Section 412 of the Code, or (vi) any other event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer any ERISA Pla n or Multiemployer Plan.

"Estimated Facility Completion Date" means, with respect to any Uncompleted Facility, the date set forth in the initial Advance Request for such Facility by which Supervisory Agent has estimated it will complete Project Obligations and achieve Substantial Completion.

"Event of Default" is defined at Section 16.1 of the Participation Agreement.

"Event of Loss" means (i) a casualty, condemnation or Force Majeure Event affecting any Uncompleted Facility or Unit in an Equipment Group for which a Unit Completion Date has not occurred and which gives rise to an Uninsured Loss with respect to such Facility or Unit or (ii) any Significant Casualty, Significant Condemnation or Significant Environmental Violation.

"Excepted Costs" means, with respect to a Proposed Site, all Construction Costs, if any, relating to Site Preparation of such Proposed Site or for the procurement of equipment, component parts and materials for the applicable Facility, Soft Costs and Facility Equipment Costs with respect to such Proposed Site (including the Turbines allocated thereto), Transaction Costs related thereto, Capitalized Costs accruing thereon and with respect to the Proposed Sites identified as of the Second Document Closing Date, the General Transaction Costs and Fees payable on the Initial Advance Date and the Advance Date occurring on the Second Document Closing Date.

"Excepted Interconnect Agreement" means an Electric Interconnect Agreement or Gas Interconnect Agreement in which the utility that is party thereto agrees (in addition to the matters required by the Supervisory Agreement) that any claim by it against the Trust shall exclude the Assets constituting part of any Equipment Group or Facility other than the Facility to which such Interconnect Agreement relates.

"Excepted Payments" means:

(a)  all indemnity payments (including indemnity payments made pursuant to Article XIII of the Participation Agreement and to which the Lessor, any Participant or any of their respective Affiliates, agents, officers, directors or employees is entitled);

(b)  any amounts (including payments of the Aggregate C&A Recourse Amount or Lease Supplement Recourse Amount, Aggregate Permitted Asset Balance, Lease Supplement Permitted Balance or amounts payable by Lessee pursuant to Section 15.2 or Articles XVI, XVIII, XIX or XX of the Lease), other than Basic Rent, payable to Lessor, any Participant or Indemnitee under any Operative Agreement or to reimburse the Lessor, any Participant or any of their respective Affiliates (including the reasonable expenses of the Lessor, any Participant or such Affiliates incurred in connection with any such payment) for performing or complying with any of the obligations of the Lessee under and as permitted by any Operative Agreement;

(c)  any amount payable to any Participant by any transferee permitted under the Operative Agreements of the interest of any Participant as the purchase price of the Participant's interest (or a portion thereof);

(d)  any insurance proceeds (or payments with respect to self-insured risks or policy deductibles) under liability policies, other than such proceeds or payments payable to any Participant, Administrative Agent or the Lessor;

(e)  any insurance proceeds under policies maintained by the Lessor or any Participant in accordance with Section 13.4 of the Lease;

(f)  Transaction Costs or other amounts or expenses, Contingent Costs or Fees paid or payable to or for the benefit of the Lessor or any Participant;

(g)  any payments in respect of interest to the extent attributable to payments referred to in clauses (a) through (f) above.

"Excess Collateral Amount" is defined in Section 3.8(b) of the Participation Agreement.

"Exchange Act" means the Securities Exchange Act of 1934, and the regulations promulgated thereunder, in each case as amended from time to time.

"Existing Equipment Contracts" means collectively, the Existing Turbine Contract and the SCR Contract.

"Existing Turbine Contract" means the Purchase and Sale Agreement (66 Gas Turbine Generator Sets), dated as of September 29, 2000, entered into by and between Large Scale Distributed Generation Statutory Trust, a Connecticut statutory trust, as buyer, and GE, as seller.

"Existing Warehouse Facility" means the lease financing facility provided for in the Amended and Restated Participation Agreement dated as of November 30, 2000 among PPL Large Scale Distributed Generation, LLC, a Delaware limited liability company, as contract agent and lessee, Large Scale Distributed Generation Statutory Trust, as the trust, State Street Bank and Trust Company of Connecticut, National Association, as trustee, the noteholders named therein, the certificate holders named therein and Citibank, N.A., as agent (the "Existing Warehouse Facility Agreement"), the Parent Guarantee dated November 30, 2000 (the "Warehouse Parent Guarantee") and each of the other agreements entered into in connection therewith, all as amended, supplemented or otherwise modified from time to time.

"Existing Warehouse Facility Agreement" is defined in the definition of "Existing Warehouse Facility."

"Expiration Date" means June 30, 2008, as such date may be extended pursuant to Section 4.7 of the Participation Agreement.

"Facility" means (i) the Lessor's interest in a Site, (ii) all Site Improvements to be constructed on such Site and any interconnection improvements unless owned by a utility or otherwise transferred or released pursuant to Section 3.8 of the Supervisory Agreement and (iii) all Facility Equipment to be installed at such Site and which is allocated to the applicable Facility Lease Supplement pursuant to Section 6.4 of the Participation Agreement and such term shall also be deemed to include any Uncompleted Facility.

"Facility Appraisal" is defined at Section 6.4(b)(iii) of the Participation Agreement.

"Facility Budget" means, with respect to any Facility, the Facility Budget for such Facility delivered to the Administrative Agent pursuant to Section 6.4(b)(ii) of the Participation Agreement as approved by the Administrative Agent, as amended from time to time as permitted by the Operative Agreements.

"Facility Completion Date" means, with respect to any Facility, the date Substantial Completion is achieved.

"Facility Costs" means collectively the Site Acquisition Costs, the Construction Costs, and Facility Equipment Costs incurred with respect to a Facility.

"Facility EPC Agreement" or "EPC Agreement" means an engineering, procurement and construction agreement with respect to and providing for the Construction at one or more Facilities, as permitted by the Operative Agreements including, each such agreement for the management for such Construction.

"Facility Equipment" means, with respect to each Facility or Proposed Site, the Equipment allocated to such Facility or Proposed Site pursuant to Section 6.4 or 6.2(p) of the Participation Agreement and which becomes subject to the Facility Lease Supplement for such Facility or Proposed Site.

"Facility Equipment Costs" means, with respect to Facility Equipment allocated to any Facility or Proposed Site, all payments which become due and payable by Lessor under the Equipment Contracts (including any Equipment Contract Purchase Amounts) with respect to such Facility Equipment, including without limitation, all options, bonuses and changes which are to be paid in connection with the Equipment Contracts, together with Capitalized Costs and Transaction Costs accrued prior to the Applicable Base Term Commencement Date for a Facility and with respect to a Proposed Site, including with respect to any Unit reallocated from a Lease Supplement to another Lease Supplement pursuant to Section 3.1(e) of the Supervisory Agreement, any and all amounts advanced and allocated to the Assets subject to a Lease Supplement prior to the date of such reallocation.

"Facility Insurable Amount" means, with respect to any Facility, an amount equal to the greater of (i) the "as-built" Fair Market Value of the Facility (including the Site Improvements, Facility Equipment and, if applicable, the Site) set forth in the Facility Appraisal and (ii) the aggregate amount of the Facility Budget for such Facility.

"Facility Lease Supplement" means, with respect to any Facility, a Facility Lease Supplement substantially in the form of Exhibit B to the Lease together with all attachments and schedules thereto.

"Facility Materials" is defined in Recital B of the Supervisory Agreement.

"Facility Outside Completion Date" means, with respect to any Facility, the date which is the earlier of (i) the outside date for the Facility Completion Date set forth in the applicable Facility Budget and (ii) the Outside Completion Date.

"Facility Plans and Specifications" means, with respect to each Facility, the plans and specifications for the Construction of the Site Improvements for such Facility in the form delivered to and approved by the Administrative Agent pursuant to Section 6.4(b)(i) of the Participation Agreement as amended from time to time to reflect change orders permitted under the Supervisory Agreement.

"Facility Tranche" means the portion of the Aggregate Commitment Amount comprised of the Commitments and the Advances made or to be made pursuant to such Commitments that have been allocated by Lessee to a Facility pursuant to Section 6.4 of the Participation Agreement or a Proposed Site pursuant to Section 6.2(p) of the Participation Agreement.

"Facility Turbine Fraction" means, for purposes of determining the purchase price of a Turbine and the ancillary or related Units to be purchased pursuant to Section 18.1(g) of the Lease, a fraction the numerator of which is one and the denominator of which is the aggregate number of Turbines, including the Turbine to be purchased pursuant to Section 18.1(g) of the Lease, allocated to the applicable Facility.

"Fair Market Value" means with respect to the Assets or any portion thereof, as of the date of the determination, the fair market value (which in any event shall not be less than zero) as determined by an independent appraiser chosen by Lessor (at the direction of the Administrative Agent) and reasonably acceptable to Lessee that would be obtained in an arm's-length transaction between an informed and willing buyer (other than a buyer currently in possession) and an informed and willing seller, under no compulsion to buy or sell, and neither of which is related to Lessor, Administrative Agent or Lessee or any Affiliate thereof, for the purchase of the Assets or such portion thereof, as applicable. Such fair market value shall be calculated assuming that the Assets are in the condition and repair required to be maintained by the terms of the Lease (unless such fair market value is being determined for purposes of evaluating the items described in the Indemnity at Section 1 3.2 of the Participation Agreement, in which case this assumption shall not be made).

"Federal Funds Effective Rate" means, for any day, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such date (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal Funds brokers of recognized standing selected by the Administrative Agent.

"Fee Letters" means, collectively, the Syndication Letter, the Trustee Fee Letter and the Citicorp USA, Inc. fee letter referred to in Section 4.4(c)(iv) of the Participation Agreement.

"Fees" is defined in Section 4.4 of the Participation Agreement.

"Final Completion Date" means, with respect to a Facility, the date upon which all performance (other than performance relating to warranty obligations) required under the Equipment Contracts for all Facility Equipment allocated to such Facility, the Facility EPC Agreements and all other Project Agreements and all Equipment Obligations relating to such Facility Equipment have been fully performed including the completion of all punchlist items and Final Completion Work, and all payments required thereunder have been made with respect to such Facility.

"Final Completion Work" means, with respect to a Facility, any work that, subsequent to Substantial Completion, needs to be performed to achieve the Final Completion Date, or with respect to any Unit in an Equipment Group, to cause such Unit to be put In Service.

"Force Majeure Event" means, with respect to Construction of the Site Improvements or the Acquisition of a Unit in an Equipment Group, any event occurring following the commencement of the applicable Construction Period and prior to the Applicable Base Term Commencement Date for a Facility or a Unit in an Equipment Group (the existence of which at the date of the commencement of the applicable Construction Period was not known, or would not reasonably have been expected to be discovered through the exercise of commercially reasonable due diligence, by the Lessee, either Guarantor, or Lessee Person on Lessee's behalf, as applicable, taking into account the contemplated use of the Site Improvements at the Facility or the Equipment Group and the Acquisition or Construction thereof) beyond the control of Lessee, Guarantor or any other Lessee Person, including, but not limited to, general strikes (but not any strike or other job action involving employees of the Lessee, includi ng in its capacity as Supervisory Agent, either Guarantor, or any Lessee Person), acts of God, government activities or inactivities directly interfering with the Construction of the Site Improvements or the Acquisition of a Unit in an Equipment Group, any general inability to obtain labor or materials, civil commotion and enemy action; but excluding in all cases (i) any event, cause or condition that results from an act or omission of Lessee, either Guarantor or any other Lessee Person, a breach by Lessee, either Guarantor or any Lessee Person of its obligations, representations or warranties under the Operative Agreements or any other agreements to which it is a party, from any Lessee Person's financial condition or failure to pay, (ii) any event, cause or condition which could have been avoided or which could be remedied or mitigated through the exercise of commercially reasonable efforts or the commercially reasonable expenditure of funds (which expenditure of funds, in the case of such an even t, cause or condition arising on or after the Initial Advance Date, would have been paid with Funds available under the Facility Budget for such Facility or the Equipment Budget for such Equipment Group or Other Available Amounts) or other commercially reasonable action, election or arrangement which would correct or resolve the impact of such event, cause or condition on the Construction of the Site Improvements or the Acquisition of the Equipment Group, or (iii) any event, cause or condition which Lessee certifies does not constitute a Force Majeure Event.

"Force Majeure Loss" means the actual construction costs (including all Soft Costs) necessary to repair and restore damage caused by a Force Majeure Event with respect to the Site Improvements (or portion thereof) for any Facility or Units of an Equipment Group, as applicable, to the condition of such Site Improvements of a Facility or Units of any Equipment Group immediately prior to such Force Majeure Event (but excluding (i) all Capitalized Costs and other collateral costs and carrying costs whenever accrued, (ii) any amounts which Lessor or Administrative Agent prefunds or prepays or otherwise deposits or pays to the Manufacturer with respect to any Project Agreement, and (iii) provided that Lessor has not terminated the applicable Equipment Contract solely as a result of the condition or event giving rise to a termination of Supervisory Agent's rights under Section 3.6 of the Supervisory Agreement prior to the date Lessor or Assignor assigns its interes ts in such Equipment Contract to any other Person, any other losses or costs arising from such termination pursuant to Section 3.6 of the Supervisory Agreement or from an event or condition which gives rise to or upon which such a termination is based) as determined by the insurance company in assessing any such claim under any policy of insurance, or if such loss is not insured or is less than the deductible under the applicable policy of insurance, as determined by a nationally recognized independent appraiser selected by Administrative Agent.

"FPA" means the Federal Power Act.

"F.R.S. Board" means the Board of Governors of the Federal Reserve System or any successor thereto.

"Full Recourse Interim Event" means an event arising in whole or in part as a consequence of any of the following:

    (i)  any fraudulent act or omission of Lessee, either Guarantor or any other Lessee Person in connection with (x) the negotiation, execution, delivery, consummation and/or performance of any Operative Agreement or either Project Agreement or Equipment Contract; or (y) the acquisition, design, construction, installation or operation of any Facility, including the Site Improvements and the Facility Equipment, or the Acquisition of any Units in any Equipment Group;

    (ii)  the misapplication of any Advance or any portion thereof or any other funds made available to Lessee, either Guarantor or any other Lessee Person under any Operative Agreement, including pursuant to Section 3.1(d)(iii) of the Participation Agreement;

    (iii)  an Insolvency Event; or

    (iv)  Lessee, either Guarantor or any other Lessee Person shall willfully breach any of their respective obligations, covenants, representations or warranties under any Operative Agreement, any Project Agreement, any Equipment Contract or any other contractual agreement or Governmental Action relating to any Facility, Equipment Group, Proposed Site or the Construction thereon or Acquisition thereof.

"Fund," "Funded" or "Funding" means each funding by a Participant of a portion of the principal under its Note or a portion of its Certificate Amount (as the case may be) constituting a portion of any Advance as described in Article III of the Participation Agreement.

"Future Value" means the future value of any prior payment increased at the Lessee's Incremental Borrowing Rate from the date of payment to (a) for purposes of the calculation of any Lease Supplement Recourse Amount, the date of determination and (b) for purposes of the calculation of any Lease Supplement RVG Amount, the last day of the Base Term.

"GAAP" means United States generally accepted accounting principles (including principles of consolidation), in effect from time to time.

"Gas Interconnect Agreement" means an Interconnect Agreement of the type described at clause (ii) of the definition of "Interconnect Agreements" and any Construction Agreement or development agreement entered into in connection therewith.

"GE" means GE Packaged Power, Inc., a Connecticut corporation.

"GE Documents" has the meaning specified in Section 6.1(q) of the Participation Agreement.

"GE Letter" means that certain letter, dated April 30, 2001, from First Union Securities, Inc. to GE.

"General Contractor" means each Person entering into a Major Project Agreement with Lessor, Lessee, as Supervisory Agent, or any other PPL Group Member.

"General Contractor Assignment" means a General Contractor Assignment substantially in the form of Exhibit V to the Participation Agreement, pursuant to which Lessor assigns its right to enforce a Project Agreement Indemnity or a Project Letter of Credit, as applicable.

"General Indemnitee" or "Tax Indemnitee" means each Participant, the Lessor and the Trustee (in its individual capacity and as trustees), the Administrative Agent (in its individual capacity and as agent), the Arranger, First Union Securities, Inc., as Sole Book Manager, Citibank, N.A., as Syndication Agent, any additional, separate or co-trustee or co-agent appointed in accordance with the terms of the Trust Agreement or the Participation Agreement, and the respective Affiliates, successors, permitted assigns, permitted transferees, contractors, employees, officers, directors, shareholders, partners, participants, representatives and agents of each of the foregoing Persons; provided, however, that in no event shall Lessee, Guarantor or any of their Affiliates be a General Indemnitee or Tax Indemnitee.

"General Transaction Costs" means Transaction Costs which are not clearly allocable (i.e., costs of a type identified in any Facility Budget or Equipment Budget as being solely Construction Costs, Equipment Costs, Facility Equipment Costs or Site Acquisition Costs) to any of the Construction Costs, Equipment Costs, Facility Equipment Costs or Site Acquisition Costs for any Uncompleted Facility or Uncompleted Equipment Group.

"Governmental Action" means all permits, authorizations, registrations, consents, approvals, waivers, exceptions, variances, orders, judgments, written interpretations, decrees, licenses, exemptions, publications, filings, notices to and declarations of or with, or required by, any Governmental Authority, or required by any Applicable Laws, and shall include, without limitation, all environmental and operating permits and licenses that are required for the full use and operation of the Assets or any portion thereof.

"Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

"Grantee" is defined in the caption of the Security Agreement, to mean the Administrative Agent.

"Grantor" is defined in the caption of the Security Agreement to mean the Lessor and, to the extent of its interests, Lessee.

"Gross Proceeds" is defined in Section 20.1(l) of the Lease.

"Grossed-Up Basis" is defined in Section 13.4(c)(ii) of the Participation Agreement.

"Ground Lease" means any ground lease entered into between any PPL Group Member pursuant to which any Site is leased to Lessor, in form and substance reasonably acceptable to the Administrative Agent, Lessor and Lessee.

"Ground Lease Mortgage" means a mortgage dated as of the Site Acquisition Date for any Site subject to a Ground Lease, executed by the PPL Group Member owning such Site, for the benefit of Large Scale Distributed Generation II Statutory Trust and Administrative Agent substantially in the form of Exhibit L to the Participation Agreement.

"Ground Lessor Awards" means, with respect to any condemnation award or proceeds paid, which expressly include an amount to compensate the owner of a Site subject to a Ground Lease for its interest in such Site, an amount not to exceed the net present fair market value of the owner's reversionary interest in the Site, without regard to any improvements thereon, but in no event greater than Owner's depreciated cost basis, such amount to be determined by the Appraiser. Such PPL Group Member will be responsible for the cost of such Appraisal.

"Guarantees" means both of and "Guarantee" means either of, the PPL Supply Guarantee, the PPL Corporation Guarantee and/or the Participant Guarantee.

"Guaranty" 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 Guaranty shall not include endorsements for collection or deposit in the ordinary course o f business.

"Guarantors" means both of, and "Guarantor" means either of, PPL Supply, its successors and assigns, and any resulting or surviving corporation, and until such time as the PPL Corporation Guarantee is released pursuant to Section 11.2 of the Participation Agreement and Section 16 of the PPL Corporation Guarantee, PPL Corporation, its successors and assigns, and any resulting or surviving corporation.

"Hazardous Materials Indemnity" means a Hazardous Materials Indemnity Agreement substantially in the form attached as Exhibit N to the Participation Agreement.

"Hazardous Substance" means any substance, waste or material which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous by listing characteristic or definition under any Environmental Law, including petroleum, crude oil or any fraction thereof, petroleum derivatives, by-products and other hydrocarbons; or is or becomes regulated by any Governmental Authority, including any agency, department, commission, board or instrumentality of the United States or the state in which the Site is located or any political subdivision of either of the foregoing and also including asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls ("PCBs") and radon gas.

"Highest Lawful Rate" is defined in Section 4.6(b) of the Participation Agreement.

"Hybrid Preferred Securities of PPL Corporation" means (1) the preferred securities and subordinated debt described in the Prospectus dated as of April 3, 1997 of PP&L Capital Trust and PPL Electric Utilities Corporation (collectively, the "Existing TOPrS") and (2) any additional preferred securities and subordinated debt (with a maturity of at least twenty years) similar to the Existing TOPrS and in an aggregate amount not to exceed $100,000,000 issued by 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 PPL Electric Utilities Corporation, (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 PPL Electric Utilities Corporation or a S ubsidiary or PPL Electric Utilities Corporation, as the case may be, and (B) payments made from time to time on the subordinated debt.

"Impositions" shall have the same meaning as Taxes, except that Impositions shall neither mean nor include:

(i)  Taxes imposed upon a Tax Indemnitee (other than Taxes that are, or are in the nature of, sales, use, value added, rental, transfer, property or ad valorem taxes with respect to any Asset or any transfer thereof) that are imposed by any Governmental Authority and that are based upon or measured by the gross or net income or gross or net receipts (including any minimum taxes or taxes on, measured by or in the nature of capital, net worth, excess profits, items of tax preference, capital stock, franchise, business privilege or doing business taxes or any taxes in the nature of an intangibles tax, an ad valorem tax or property tax) imposed on a Participant, Sub-Participant, or any holder of a Note or Certificate by reason of owning or holding a Note or Certificate; provided that this clause (i) shall not be interpreted to prevent a payment from being made on an After Tax Basis if the payment is otherwise required to be so made;

    (ii)  any Tax to the extent, but only to such extent, it relates to any act, event or omission that occurs, or relates to a period, after the termination of any Lease Supplement (but not any Tax that relates to any period prior to the termination of such Lease Supplement with respect to the Assets to which such Tax relates);

    (iii)  any Tax for so long as, but only for so long as, it is being contested in accordance with the provisions of Section 13.4(b) of the Participation Agreement, provided that the foregoing shall not limit the Lessee's obligation under Section 13.4(b) of the Participation Agreement to advance to such Tax Indemnitee amounts with respect to Taxes that are being contested in accordance with Section 13.4(b) of the Participation Agreement or any expenses incurred by such Tax Indemnitee in connection with such contest;

    (iv)  any Taxes imposed upon a Tax Indemnitee with respect to any transfer, sale, financing or other disposition by such Tax Indemnitee of any interest in any Asset or any part thereof, or any interest therein or any interest or obligation under the Operative Agreements or any Note or Certificate, or from any sale, assignment, transfer or other disposition of any interest in a Tax Indemnitee or any Affiliate thereof, (other than any transfer in connection with (1) the exercise by the Lessee of its Early Termination Option or any termination option or other purchase of any Asset by the Lessee or the exercise by Lessee of the Sale Option, (2) the occurrence of an Event of Default, (3) a Casualty or Condemnation affecting any Asset or (4) any assignment, sublease, modification or addition of or to any Asset by the Lessee);

    (v)  any Taxes imposed on a Tax Indemnitee to the extent such Tax Indemnitee actually receives a credit (or otherwise has a reduction in a liability for Taxes) in respect thereof against Taxes that are not indemnified under the Participation Agreement (but only to the extent such credit is not taken into account in calculating the indemnity payment on an After Tax Basis);

    (vi)  any Taxes imposed against or payable by a Tax Indemnitee resulting from, or that would not have been imposed but for, the gross negligence or willful misconduct of such Tax Indemnitee;

    (vii)  Taxes imposed on or payable by a Tax Indemnitee to the extent such Taxes would not have been imposed but for a breach by the Tax Indemnitee or any Affiliate thereof of any representations, agreements, warranties or covenants set forth in the Operative Agreements (unless such breach is caused by the Lessee's breach of its representations, agreements, warranties or covenants set forth in the Operative Agreements);

    (viii)  Taxes to the extent resulting from such Tax Indemnitee's failure to comply with the provisions of Section 13.4(b) of the Participation Agreement, which failure effectively precludes the ability to conduct a contest pursuant to Section 13.4(b) of the Participation Agreement (unless such failure is caused by the Lessee's breach of its obligations);

    (ix)  Taxes which are included in Asset Costs if and to the extent actually paid and such Taxes are provided for in any Facility Budget or Equipment Budget;

    (x)  Taxes imposed on or with respect to or payable as a result of activities of a Tax Indemnitee unrelated to the Overall Transaction;

    (xi)  Taxes which are imposed with respect to an Uncompleted Facility or Uncompleted Equipment Group prior to the Applicable Base Term Commencement Date and arise solely as a result of a Nonrelated Project Event for such Facility or Equipment Group other than a Tax to the extent it is imposed on or relates to any Unit (or the Overall Transaction as it relates to such Unit) for which a Unit Completion Date has occurred;

    (xii)  Penalties, additions to Tax or interest imposed on a Tax Indemnitee attributable to such Indemnitee's failure to comply with any reporting, filing, or registration requirements (other than any such reports, filings, or registrations which the Lessee is required to file in accordance with Section 13.4(d) of Participation Agreement);

    (xiii)  Taxes or penalties imposed under Section 4975 of the Code or under Subtitle B of Title I of ERISA (unless imposed due to a Lessee misrepresentation); and

    (xiv)  Subject to Section 13.4(e) and 14.3 of the Participation Agreement, any withholding Tax imposed because the Tax Indemnitee is not a U.S. person within the meaning of Section 7701 of the Code.

Notwithstanding the foregoing, the exclusions from the definition of "Impositions" set forth in clauses (i), (ii), (iv) and (x) shall not apply (but the other exclusions shall apply) to any increase in Taxes imposed on a Tax Indemnitee net of any decrease in Taxes realized by such Tax Indemnitee, that in each case would not have occurred if on each Advance Date the Lessor and the Participants had advanced funds to the Lessee in the form of a loan secured by the Assets in an amount equal to the Asset Costs funded on such Advance Date, providing for debt service payments in timing and amount equal to the Basic Rent payable on each Payment Date with respect to the amount advanced and having a principal balance at the maturity of such loan in an amount equal to the then outstanding amount of the Loans and Certificate Amounts.

"In Balance" means, with respect to an Uncompleted Facility or Uncompleted Equipment Group, that: (1) the undisbursed portion of the Facility Budget or the Equipment Group Budget shall be sufficient to achieve Substantial Completion for the applicable Facility or Shipment for each Uncompleted Unit in the Equipment Group pursuant to the Project Agreements and the Facility Materials, as applicable, prior to the applicable Facility Outside Completion Date or Equipment Group Outside Completion Date, and to pay all Asset Costs, and (2) the undisbursed portion of each item described in the Facility Budget or the Equipment Group Budget, plus the reserve, if any, for that item, plus the Contingency Reserve (to the extent such reserve or Contingency Reserve has not theretofore been set aside by Supervisory Agent for the payment of overruns in other cost categories or change orders or amendments pursuant to Section 3.1 of the Supervisory Agreement) shall be sufficient to pay in full the costs to which each such amount in the Facility Budget or the Equipment Group Budget is allocated and to complete the Project Obligations including the Construction and Acquisition of each such item in accordance with the Project Agreements and the Facility Materials with respect to such Uncompleted Facility and the Equipment Contracts with respect to each Uncompleted Unit and prior to the Outside Completion Date.

"In Balance Calculation" is defined at Section 5.4 of the Supervisory Agreement.

"Indebtedness" of any Person means, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person with respect to deposits or advances of any kind, (c) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property or asset purchased by such Person, (e) all obligations of such Person issued or assumed as the deferred purchase price of property or services (excluding any trade accounts payable and accrued obligations incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed but shall not include any obligations that are withou t recourse to such Person, (g) all guarantees by such Person, (i) 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 (j) all obligations of such Person as an account party in respect of letters of credit and bankers' acceptances.

"Indemnitee" means any of a Lessor, a Participant Indemnitee, a General Indemnitee or a Tax Indemnitee, as applicable.

"Independent Engineer" means DAI Management Consultants, Inc. or any successor selected by Administrative Agent and reasonably acceptable to Lessee.

"Initial Advance" means the Advance made on the Initial Advance Date.

"Initial Advance Date" has the meaning specified in Section 3.1(d)(ii) of the Participation Agreement.

"Initial Appraisal" is defined at Section 6.1(i) of the Participation Agreement.

"Initial Certificate" means a Certificate issued by Lessor to any Initial Certificate Holder prior to the Second Document Closing Date.

"Initial Certificate Holders" means the Certificate Holders which entered into the Original Participation Agreement.

"Initial Construction Advance" has the meaning specified in Section 6.4 of the Participation Agreement.

"Initial Equipment Advance" has the meaning specified in Section 6.5 of the Participation Agreement.

"Initial Lender Loans" means the Loans made by the Initial Lenders prior to the Second Document Closing Date.

"Initial Lenders" means the Lenders which entered into the Original Participation Agreement.

"Initial Participants" means, collectively, the Initial Certificate Holders and the Initial Lenders.

"Initial Trust Agreement" is defined in Section 1.1 of the Trust Agreement.

"In Service" means that acceptance of the Equipment has occurred and the Equipment is in Commercial Operation.

"Insolvency Event" means Lessee, either Guarantor or PPL Electric shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against Lessee, either Guarantor or PPL Electric seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 120 days, or any of the a ctions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or Lessee, either Guarantor or PPL Electric shall take any corporate action to authorize or to consent to any of the actions set forth above in this definition.

"Inspecting Parties" is defined in Section 4.2(a) of the Lease.

"Insurance Requirements" means all terms and conditions of any insurance policy required by the Lease or the Supervisory Agreement to be maintained by the Lessee.

"Intended Use" means, with respect to each Unit, as a key component of a gas-fired electric power generation facility.

"Interconnect Agreement" means any agreements entered into by the Lessee, as Supervisory Agent, Lessor or any PPL Group Member with (i) an electric utility or independent system operator or other third party for the interconnection of any Facility to the electric transmission system of such electric utility of independent system operator or for transmission system upgrades of improvements necessary to provide transmission service for the electrical output of such Facility; (ii) a natural gas supplier or transporter for interconnection of such Facility to the supply of transportation systems of such natural gas supplier or transporter of or other third party for upgrades or improvements to a natural gas supplier or transporter's systems necessary to provide natural gas service to such Facility; or (iii) water and sewer system operators for the interconnection of such Facility to water and/or sewer system upgrades or improvements necessary to provide water and sewer ser vice to such Facility.

"Interconnection Improvements" is defined in Section 3.8(a) of the Supervisory Agreement.

"Interconnection Land" is defined in Section 3.8(a) of the Supervisory Agreement.

"Interconnection Land Costs" is defined in Section 3.8(b) of the Supervisory Agreement.

"Interest" means the interest accruing on the Loans as computed and payable in accordance with the terms of the Loan Agreement (including, without limitation, in accordance with Section 2.5 of the Loan Agreement).

"Interest Period" means, with respect to any amounts outstanding under the Notes and the Certificates that are funded on any Advance Date, the period beginning on (and including) the date on which an Advance is made or continued pursuant to Section 4.8 of the Participation Agreement and Sections 2.5 and 2.6 of the Loan Agreement and (a) at any time that the Applicable Rate is determined by reference to the LIBO Rate, shall end on (but exclude) the day which numerically corresponds to such date one, two, three or six months thereafter (or, if such month has no numerically corresponding day, on the last Business Day of such month), other than with respect to the Interest Periods outstanding as of the Business Day immediately preceding the Second Document Closing Date, which outstanding Interest Periods shall end on (but exclude) the Second Document Closing Date, and (b) at any time that the Applicable Rate is determined by reference to the Alternate Base Rate, cont inuing indefinitely until such time as (i) the Alternate Base Rate is converted to the LIBO Rate pursuant to Section 4.9 of the Participation Agreement or (ii) the LIBO Rate becomes available after having been suspended pursuant to Section 14.1 or 14.2 of the Participation Agreement, in either case as the Lessee may select in a written notice to the Administrative Agent pursuant to Section 4.8 of the Participation Agreement and Section 2.2 of the Loan Agreement; provided, however, that:

(a)  the Lessee shall not be permitted to select Interest Periods to be in effect at any one time which have expiration dates occurring on more than four different dates;

(b)  [Intentionally deleted]

(c)  if such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next following Business Day (unless such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the Business Day next preceding such numerically corresponding day); and

(d)  no Interest Period may end later than the Maturity Date.

"Interest Rate" means with respect to each Loan the interest rate calculated pursuant to Section 2.5(a) of the Loan Agreement.

"Interest Rate Protection Agreement" means any agreement providing for an interest rate swap, cap or collar, or for any other financial arrangement designed to protect against fluctuations in interest rates.

"Interest Reset Date" means the first day of each Interest Period.

"Internal Costs" means internal costs and expenses incurred by the Supervisory Agent (or any PPL Group Member, on its behalf) in its capacity as Supervisory Agent under the Supervisory Agency Agreement directly attributable to (i) the negotiation, execution, delivery and, except with respect to the Project Agreements, administration and performance of the Operative Agreements with respect to any Uncompleted Facility, (ii) the planning and development of each Uncompleted Facility and the negotiation, execution and delivery of the Project Agreements for each such Uncompleted Facility, (iii) the administration and performance of the obligations of the Lessor under the applicable Facility EPC Agreement and Project Agreements for each Uncompleted Facility, and (iv) the performance of project management, procurement, architectural, engineering, construction and environmental services directly relating to the Construction of each Uncompleted Facility.

"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, or any successor statute.

"Investment Company Act" means the Investment Company Act of 1940, as amended, together with the rules and regulations promulgated thereunder.

"Investor's Letter" is defined at Section 2.8(a) of the Trust Agreement.

"Land" means collectively, each of the Sites.

"Lease" means the Amended and Restated Master Facility and Equipment Lease dated as of July 17, 2001, between Lessor and Lessee.

"Lease Supplement" means either an Equipment Lease Supplement or a Facility Lease Supplement, as the case may be.

"Lease Supplement Balance" means, with respect to any Lease Supplement, an amount equal to the sum of the amount of the Loan Balance and the Certificate Balance attributable to Advances made in connection with the Facility or Equipment Group subject to such Lease Supplement including all Capitalized Costs and Transaction Costs and other amounts allocated to such Facility or Equipment Group pursuant to Section 3.2(b) of the Participation Agreement plus the ratable share based upon such Lease Supplement Balance and the Asset Balance of all other costs for Obligations of Lessee under the Operative Agreements (including, without limitation, but without duplication, accrued and unpaid Rent), all as determined by the Administrative Agent, in the exercise of its reasonable judgment.

"Lease Supplement Permitted Balance" means, with respect to any Lease Supplement, the Lease Supplement Balance minus the amount of any Force Majeure Loss arising from a Force Majeure Event relating to the Facility or a Unit within an Equipment Group (other than a Unit which Lessee has purchased or for which Lessee has given a Purchase Notice) occurring prior to the Applicable Base Term Commencement Date, with respect to the Facility or Unit within an Equipment Group subject to such Lease Supplement, plus the amount of proceeds of Other Available Amounts used to fund Asset Costs or otherwise applied to the remediation of such Force Majeure Loss.

"Lease Supplement Recourse Amount" means, from time to time, with respect to an Uncompleted Facility (including any Proposed Site) or Uncompleted Equipment Group, an amount to be determined as of the date of determination thereof equal to (i) (x) with respect to any Uncompleted Facility (including any Proposed Site), 89.9% of the Eligible Accrued Costs for such Facility plus 100% of Site Acquisition Costs and Interconnect Land Costs, if any, or (y) with respect to an Uncompleted Equipment Group, 89.9% of the Eligible Accrued Costs allocable to each Uncompleted Unit in such Equipment Group plus 100% of the Asset Costs allocable to each Unit in such Equipment Group for which the Applicable Base Term Commencement Date has occurred, plus (ii) all accrued Non-Project Default Costs relating to the Assets subject to the applicable Lease Supplement minus (iii) the Present Value, as of such date of determination, of unconditional obligations of Supervisory Agent which have bec ome payable by it with respect to such Facility or Equipment Group prior to the Applicable Base Term Commencement Date and that are not reimbursable by Lessor under the Operative Agreements, minus (iv) the sum of the Future Value of (A) Prepaid Rent paid by Lessee with respect to such Lease Supplement, and (B) Other Unreimbursed Lessee Funded Amounts provided that the payments or amounts Funded by Lessee for Other Unreimbursed Lessee Funded Amounts shall not serve to reduce the amounts in item (i) or (ii) above to the extent such payment arose from a Full Recourse Interim Event.

"Lease Supplement RVG Amount" means, as of any date of determination, with respect to each Lease Supplement (i) the product obtained by multiplying (x) the Lease Supplement Permitted Balance with respect to such Lease Supplement, by (y) eighty three percent (83%) less (ii) the Future Value of (A) Prepaid Rent, if any, paid by Lessee with respect to the Assets in such Lease Supplement, and (B) Other Unreimbursed Lessee Funded Amounts; provided that the payments or amounts funded by Lessee for Other Unreimbursed Lessee Funded Amounts shall not serve to reduce the amounts in item (i) above to the extent such payments arose from a Full Recourse Interim Event.

"Lease Supplement Specific Event of Default" means an Event of Default of the type described at subsections 16.1(d), 16.1(e), 16.1(f), 16.1(j) or 16.1(l) of Article XVI of the Participation Agreement relating to one or more Facilities or Equipment Groups but not all of the Assets.

"Lenders" means, collectively, each of the financial institutions named on Schedule II to the Participation Agreement.

"Lenders' Policy" is defined in Section 6.3(e) of the Participation Agreement.

"Lenders' Share" means a fraction, expressed as a percentage, the numerator of which is the aggregate Loan Commitments of the Lenders (including the Defaulting Lender's Loan Commitment) and the denominator of which is equal to the Aggregate Commitment Amount.

"Lenders' Unfunded Amount" means, at any date of determination, the Lenders' Share of the Unfunded Future Payment Amounts

"Lessee" means PPL Large Scale Distributed Generation II, LLC, a Delaware limited liability company, in its capacities as Lessee under the Lease and other Operative Agreements and as Supervisory Agent under the Supervisory Agreement.

"Lessee Obligated Asset Costs" means, with respect to any Uncompleted Facility or Uncompleted Equipment Group, Asset Costs of the types described in the Facility Budget or Equipment Group Budget for such Uncompleted Facility or Uncompleted Equipment Group aggregating not more than $15,000,000 at any date of determination, unless otherwise approved in writing by Administrative Agent prior to such date of determination, for all Equipment Groups and Facilities (including all Proposed Sites), and (x) which, unless otherwise approved in writing by Administrative Agent prior to such payment, are for the payment of Asset Costs not arising under any Equipment Contract, EPC Facility Agreement or Interconnect Agreement relating to electricity or natural Gas, and (y) with respect to Section 3.2(a)(iii) of the Participation Agreement, for which Lessee, individually and not in its capacity as Supervisory Agent, has a direct contractual or legally enforceable obligation to pay to a Person other than another PPL Group Member but excluding any amounts payable by Lessee or any other PPL Group Member under any Project Collateral Agreement or amounts payable by Lessee under Section 4.3(a) of the Participation Agreement.

"Lessee Person" means Lessee, any other PPL Group Member and any contractor or other person for which Lessee, or any other PPL Group Member has direct or indirect supervisory responsibility, including each manufacturer and General Contractor and any other contractor or subcontractor or other Person directly or indirectly performing work or providing services or materials on any Site, or relating to the Construction of any of the Assets or the manufacture or Acquisition of the Equipment (regardless of when such Person commenced performing such work or providing such services of materials, including any period prior to the Document Closing Date), and all of their respective officers, directors, shareholders, partners, employees, agents, consultants (relating to the Acquisition or on any Site with respect to the Construction), service-providers (relating to the Acquisition or on any Site with respect to the Construction), successors and assigns, and any Person controlled by a ny of the foregoing.

"Lessee's Incremental Borrowing Rate" means the rate used by the Lessee in calculating the 90% cost recovery test under FASB 13.

"Lessee Subordinated Mortgage" shall mean a mortgage in the form of Exhibit X to the Participation Agreement, securing Lessor's obligation to convey a Facility to Lessee following a purchase by Lessee pursuant to Sections 18.1(a) or 19.1(a) of the Lease or Section 3.4 of the Supervisory Agreement.

"Lessor" means Large Scale Distributed Generation II, Statutory Trust, a Connecticut statutory trust, as Lessor under the Lease.

"Lessor Financing Statements" means UCC financing statements appropriately completed and executed for filing in the applicable jurisdiction in order to protect the Lessor's interest under each Lease to the extent such Lease is a security agreement.

"Lessor Lien" means any Lien, true lease or sublease or disposition of title arising as a result of (a) any claim against the Lessor, Administrative Agent or any Participant not resulting from the Overall Transaction or otherwise contemplated by the Operative Agreements, (b) any act or omission of the Lessor, Administrative Agent or any Participant which is not required or permitted by the Operative Agreements or is in violation of any of the terms of the Operative Agreements, (c) any claim against the Lessor, Administrative Agent or any Participant with respect to Taxes or Transaction Costs against which Lessee is not required to indemnify the Lessor, Administrative Agent or any Participant, in its individual capacity, pursuant to Article XIII of the Participation Agreement, (d) any claim against the Lessor or Administrative Agent arising out of any transfer by the Lessor of all or any portion of the interest of the Lessor in the Assets or the Operative Agreements other t han the transfer of title to or possession of the Assets by the Lessor pursuant to and in accordance with the Operative Agreements, including pursuant to the exercise of remedies, or (e) any claim against any Participant arising out of any transfer by such Participant of any Note or Certificate, or any interest therein, other than in accordance with the Participation Agreement and, in the case of a transfer of any Note, in accordance with the Loan Agreement.

"Liabilities" is defined in Section 1 of each Guarantee.

"LIBO Rate" means with respect to any Interest Period at any time, the applicable London interbank offered rate for deposits in U.S. dollars appearing on Telerate Page 3750 as of 11:00 a.m. (London time) two (2) Business Days prior to the first day of such Interest Period, and having a maturity approximately equal to such Interest Period; or if no London interbank offered rate of such maturity then appears on Telerate Page 3750, then the rate equal to the London interbank offered rate for deposits in U.S. dollars maturing immediately before or immediately after such maturity, whichever is higher, as determined by the Administrative Agent from Telerate Page 3750; or if Telerate Page 3750 is not available, the applicable LIBO Rate for the relevant Interest Period shall be the rate determined by the Administrative Agent to be the arithmetic average of the rates at which First Union National Bank offers to place deposits in U.S. dollars with first-class banks in the Londo n interbank market at approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of such Interest Period, in the approximate amount of First Union National Bank's or its Affiliate's relevant portion of the aggregate outstanding principal amount of the Notes and Certificate Amounts and having a maturity approximately equal to such Interest Period.

"LIBO Rate (Reserve Adjusted)" means, relative to any Loan or Certificate Amount for any Interest Period, a rate per annum determined pursuant to the following formula:

LIBO Rate (Reserve Adjusted)	=	LIBO Rate
		1.00 - LIBOR Reserve Percentage

The LIBO Rate (Reserve Adjusted) for any Interest Period will be determined by the Administrative Agent, on the basis of the LIBOR Reserve Percentage in effect on, and the applicable LIBO Rate obtained by the Administrative Agent, two Business Days before the first day of such Interest Period.

"LIBOR Reserve Percentage" means, relative to any Interest Period, the reserve percentage (expressed as a decimal) equal to the maximum aggregate reserve requirements (including all basic, emergency, supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements) specified under regulations issued from time to time by the F.R.S. Board and then applicable to assets or liabilities consisting of and including "Eurocurrency Liabilities", as currently defined in Regulation D of the F.R.S. Board, having a term approximately equal or comparable to such Interest Period.

"Lien" means any mortgage, deed of trust, pledge, security interest, encumbrance, lien, easement, declaration or servitude of any kind, including, without limitation, any irrevocable license, conditional sale or other title retention agreement, any lease in the nature thereof, or any other right of or arrangement with any creditor to have its claim satisfied out of any specified property or asset with the proceeds therefrom prior to the satisfaction of the claims of the general creditors of the owner thereof, whether or not filed or recorded.

"Liquidated Damages" means the payment by any manufacturer of any liquidated damages pursuant to any Equipment Contract, the payment by any EPC Contractor of any liquidated damages pursuant to any Facility EPC Agreements or under any other Project Agreement or any other similar payments made to Lessor, Administrative Agent, Lessee, any Lessee Person, or their Affiliates.

"Loan Agreement" means the Amended and Restated Loan Agreement dated as of July 17, 2001, among Lessor, as Borrower thereunder, Administrative Agent, and the Lenders, as amended or modified from time to time.

"Loan Agreement Event of Default" is defined in Section 5.1 of the Loan Agreement.

"Loan Balance" means, as of any date of determination, an amount equal to the sum of the outstanding Loans of all Lenders, together with all accrued and unpaid Interest thereon.

"Loan Commitment" means the Commitments of the Lenders to make Loans to the Borrower on an Advance Date in an aggregate principal amount set forth on Schedule II to the Participation Agreement.

"Loan Documents" means the Loan Agreement and the Notes.

"Loans" means the Loans made by each Lender under and pursuant to Article II of the Loan Agreement.

"Major Project Agreement" means (i) each of the Equipment Contracts (including any rights assigned under any such agreement to purchase one or more Units being manufactured under such agreement), (ii) each Facility EPC Agreement, (iii) each of the Interconnect Agreements, (iv) each Project Agreement for the performance of civil, structural, mechanical or electrical work with respect to an Uncompleted Facility other than a subcontract entered into with the General Contractor who is required to provide such service under its Project Agreement unless such subcontract would otherwise constitute a Major Project Agreement pursuant to clauses (i), (ii), (v) or (vi) of this definition, (v) each Project Agreement for the manufacture or construction of a control electrical building(s) and (vi) each other Project Agreement calling for payments of $10,000,000 or more during the term of this Agreement or, upon full performance thereof, without regard to any Change Orders ther eunder.

"Major Project Agreement Default" means any material breach or default under any Major Project Agreement which could, or with notice and the passage of time could, result in a termination of, or permit the nondefaulting party to such Major Project Agreement to terminate, such Major Project Agreement.

"Manufacturer" or "Manufacturers" means each contractor or manufacturer party to an Existing Equipment Contract or any other Equipment Contract with Owner, Lessee, Lessor or, with respect to the Units, the lessor or lessee under the Existing Warehouse Facility.

"Material Adverse Effect" means a material adverse effect to (i) either of the Guarantors and their respective Subsidiaries taken as a whole, (ii) the ability or authority of Lessee or either of the Guarantors to perform its obligations under any of the Operative Agreements, (iii) the occurrence of the Facility Completion Date for any Facility or Unit Completion Date with respect to any of the Units of an Equipment Group on or prior to the earlier of the last date scheduled for such completion provided for in the applicable Facility Budget or Equipment Group Budget or the Outside Completion Date, for the amounts set forth in such Budget, (iv) the validity or enforceability of any of the Operative Agreements or any rights or remedies under any thereof, (v) the rights or interests of Administrative Agent, Lessor, or any Participant in the Assets or (vi) the Fair Market Value, use, utility, useful life or residual value of the Assets or any Unit.

"Material Debt" means each of the PPL Supply Credit Agreements and any other Debt of PPL Supply and/or one or more of its Restricted Subsidiaries in an a principal or face amount exceeding $40,000,000.

"Material Debt Agreement Limited Recourse Event" means (i) an "Event of Default" (as that term is defined in the Applicable Material Debt Agreements) under Section 7.01(f) of either PPL Supply Credit Agreement, Article VII(c) of the Montana Facility, or Section 6.01(b) of the Existing Warehouse Facility Agreement, provided that such Event of Default relates solely to a breach by a PPL Group Member of a certification, representation or warranty given by it pursuant to Section 4.02(e) or Section 5.04(c) of either PPL Supply Credit Agreement, Section 3.04(c) or Section 5.02(d) of the Montana Facility, Section 3.01(m) of the Existing Warehouse Facility Agreement, or Section 7(d) of the Warehouse Parent Guarantee or (ii) any other Event of Default listed at Schedule 16.3(a)(ii) to the Participation Agreement if (A) the Participants, in their capacity as Lenders under the Applicable Material Debt Agreement, requested or approved the declaration of such E vent of Default and (B) Lessee demonstrates that the Participants, in the exercise of their judgment as to whether such Event of Default occurred, failed to exercise such judgment in a commercially reasonable manner (it being understood that Lessee shall bear the burden of proof of such matter).

"Material Environmental Violation" is defined in Section 14.3 of the Lease and Section 3.3 of the Supervisory Agreement.

"Material Impairment" means an impairment, reduction, event, effect or condition which materially impacts or effects (i) the ability or authority of Lessee or either Guarantor to perform its obligations under any of the Operative Agreements, (ii) the occurrence of the Facility Completion Date for a Facility or the Unit Completion Date for Units of an Equipment Group on or prior to the earlier of the last date provided for in the applicable Facility Budget or Equipment Group Budget or the Outside Completion Date, for the amounts set forth in the Facility Budget or Equipment Budget, (iii) the validity or enforceability of any of the Operative Agreements or any rights or remedies under any thereof, (iv) the rights or interests of Administrative Agent, Lessor, or any Participant in any Facility or the Units of any Equipment Group or (v) the Fair Market Value, use, utility, useful life or residual value of the Assets or any Unit.

"Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $5,000,000.

"Maturity Date" means the Expiration Date, as extended from time to time.

"Memorandum of Ground Lease" means a Memorandum of Ground Lease in form and substance reasonably acceptable to the Administrative Agent and the Lessor.

"Memorandum of Lease Supplement" means the Memorandum of Lease Supplement and Supervisory Agreement; Mortgage in substantially the form of Exhibit C to the Lease, to be executed, acknowledged and delivered to Administrative Agent pursuant to Section 6.3(a)(ii) of the Participation Agreement.

"Minimum Coverage Amount" means with respect to each Equipment Group or Facility, an amount (such amount, including the amounts in clauses (x) and (y) of item (ii) below, to be estimated by Administrative Agent in the exercise of its reasonable judgment using information delivered to Administrative Agent under the Operative Agreements) equal to the product of (i) three (3) and (ii) the difference between (x) the aggregate amount of Advances which Administrative Agent estimates will be made with respect to such Equipment Group or Facility, including Capitalized Costs and all other amounts allocated to such Equipment Group or Facility pursuant to Section 3.2(b) of the Participation Agreement and (y) the estimated Lease Supplement RVG Amount.

"Modifications" is defined in Section 10.1 of the Lease.

"Montana Facility" means the Credit Agreement dated as of November 16, 1999, among PPL Montana, LLC, as Borrower, The Chase Manhattan Bank, as Administrative Agent, and the other lenders named therein.

"Moody's" means Moody's Investors Services, Inc. or any successor thereto.

"Moody's Rating" means the senior unsecured long-term debt rating of PPL Supply from Moody's.

"Mortgaged Property" means, as applicable, the property and rights and interests defined as "Encumbered Property" in the Mortgages.

"Mortgage" means a Mortgage, Deed of Trust or Deed to Secure Debt (as applicable), Security Agreement and Fixture Filing Statement, dated as of the date of a Site Acquisition for any Site, executed by Lessor and Lessee for the benefit of the Administrative Agent.

"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 Class A Notes" means Class A Notes which refinanced the Repaid Class A Notes pursuant to Section 3.9 of the Participation Agreement.

"New Class A Noteholders" means Class A Noteholders whose notes, the proceeds of which are used to repay the Repaid Class A Noteholders, are issued pursuant to Section 3.9 of the Participation Agreement.

"New Party Supplement" means a supplement to the Participation Agreement substantially in the form of Exhibit Q-1 or Exhibit Q-2 to the Participation Agreement and executed and delivered pursuant to Section 3.11 of the Participation Agreement.

"Non-Capitalized Costs" means, without duplication, Non-Capitalized Transaction Costs and Non-Eligible Equipment Amounts.

"Non-Capitalized Transaction Costs" means the Transaction Costs (other than Allocated Existing Transaction Costs) of the type described at clauses (a), (b), (c) to the extent relating to legal opinions or the preparation of filings relating to the Operative Agreements, (d), (f), (g) with respect to fees or premiums payable on the Lender's Policy, (m) of the definition of "Transaction Costs".

"Nonconformance Amount" is defined in Section 13.2 of the Participation Agreement.

"Non-Consenting Participant" is defined at Section 4.7 of the Participation Agreement.

"Non-Curable Defaults" is defined at Section 16.B of the Ground Leases.

"Non-Defaulting Certificate Holder" is defined in Section 3.6(b) of the Participation Agreement.

"Non-Defaulting Lender" is defined in Section 3.5(b) of the Participation Agreement.

"Noneligible Accrued Amounts" means the (i) Transaction Costs which are payable directly to any Participant if such Participant or an Affiliate of such Participant is also a Certificate Holder and (ii) Yield; provided, however, that in no event shall "Noneligible Accrued Amounts" include any Transaction Costs payable to any trustee, agent, representative or outside counsel of any Participant (provided such Transaction Costs are not payable to a Person that is considered an Affiliate of a Certificate Holder).

"Noneligible Accrued Amounts Commitment Percentage" means, as to each of the Certificate Holders, the percentage set forth opposite each such Certificate Holder's name under the heading "Noneligible Accrued Amounts Commitment Percentage" on Schedule I to the Participation Agreement (as such schedule may be amended from time to time in accordance with the Participation Agreement).

"Non-Eligible Equipment Amounts" means, with respect to any Unit for which Lessor has purchased contract rights from the lessor under the Existing Warehouse Facility, the portion of Equipment Contract Purchase Amounts relating to outstanding yield and fees funded by or capitalized by the Certificate Holders under the Existing Warehouse Facility and the Allocated Existing Transaction Costs relating to such Units.

"Non-Project Default Costs" means, with respect to any Uncompleted Unit or Uncompleted Facility following an Event of Default, all legal fees and costs and any other reasonable costs of negotiation, enforcement, termination, or any other action or proceeding in connection with any Project Agreements, or any act or agreement described in the definition of "Default Completion Costs".

"Non-Recourse Indebtedness of PPL Corporation" means (a) indebtedness that is nonrecourse to PPL Corporation, PPL Electric Utilities Corporation, PPL Capital Funding, Inc. or any of PPL Electric Utilities Corporation's Subsidiaries and (b) any transition bonds issued by PP&L Transition Bond Company LLC, a subsidiary of PPL Electric Utilities Corporation, or any similar special purpose company organized for the purpose of issuing bonds payable from revenues associated with intangible transition property created under the Pennsylvania Electricity Generation Customer Choice and Competition Act or other assets of PP&L Transition Bond Company LLC or any such other special purpose company, provided that (i) such bonds are nonrecourse to PPL Electric Utilities Corporation or any of its subsidiaries (other than PP&L Transition Bond Company LLC or any such other special purpose company) and (ii) the aggregate amount of such transition bonds shall not exceed $2,85 0,000,000.

"Nonrelated Project Claim" means any Claim arising as a direct or indirect consequence of any Nonrelated Project Event.

"Nonrelated Project Event" means, with respect to any Uncompleted Facility or Uncompleted Unit, any act or omission occurring prior to the Facility Completion Date for such Facility or Unit Completion Date with respect to such Unit (i) to the extent such act or omission is attributable to a Person, who is not a Lessee Person or an Affiliate thereof, or (ii) that would not constitute a breach by Lessee or either Guarantor of any of their respective obligations under any of the Operative Agreements, any Project Agreement or for which the Lessee does not otherwise have responsibility under the Supervisory Agreement.

"Nonseverable" means a Modification or part of a Modification which cannot be readily removed from any Site Improvements or any Unit without causing material damage to or materially impairing the Fair Market Value, utility, useful life or residual value thereof as set forth in the Appraisal for such Site Improvements or Unit delivered on or prior to the initial Advance Date for such Facility or Equipment Group, as reduced for any Liquidated Damages paid by any manufacturer under any Equipment Contract as compensation for diminution in Fair Market Value of the Equipment.

"Note Register" is defined in Section 2.8 of the Loan Agreement.

"Notes" is defined in Section 2.3 of the Loan Agreement.

"Notice of Partial Assignment" means that certain Notice of Partial Assignment, dated April 30, 2001 from Large Scale Distributed Generation Statutory Trust and acknowledged by GE Packaged Power, Inc.

"Obligations" means all obligations (monetary or otherwise) of the Lessee and the Guarantors arising under or in connection with any of the Operative Agreements.

"OECD" means the Organization for Economic Cooperation and Development.

"Operative Agreements" means the following:

a)  the Participation Agreement;

b)  the Lease;

c)  the Lease Supplements;

d)  the Loan Agreement;

e)  the Notes;

f)  the Certificates;

g)  the Equipment Contracts;

h)  the Security Instruments;

i)  the Trust Agreement;

j)  the Guarantees;

k)  the Fee Letters;

l)  the Supervisory Agreement;

m)  the Syndication Letter;

n)  the Facility EPC Agreements;

o)  the Memorandum of Lease Supplements;

p)  the Ground Leases;

q)  the Memorandum of Ground Leases;

r)  the Assignment and Assumption Agreement;

s)  the Trust Agreement;

t)  the Trustee Parent Guarantee;

u)  the GE Documents;

v)  the Project Collateral Agreements; and

w)  the Project Collateral Account and Indemnity Agreements.

"Original Executed Counterpart" is defined in Section 25.9 of the Lease.

"Original Lease" means the Master Facility and Equipment Lease dated as of April 30, 2001, between Lessor and Lessee.

"Original Loan Agreement" means the Loan Agreement dated as of April 30, 2001, among Lessor, as Borrower thereunder, Administrative Agent, and the Lenders, as amended or modified from time to time.

"Original Operative Agreements" means the Original Participation Agreement, Original Lease, Original Supervisory Agreement, Original PPL Corporation Guarantee, Original PPL Supply Guarantee, Original Loan Agreement and Original Trust Agreement.

"Original Participation Agreement" means the Participation Agreement dated as of April 30, 2001 among the Lessee; the Lessor; Large Scale Distributed Generation II Statutory Trust, not in its individual capacity, except as expressly set forth therein, but solely as Trustee; the Persons listed on Schedule I thereto, as Certificate Holders; the Persons listed on Schedule II thereto, as Lenders and the Administrative Agent

"Original PPL Corporation Guarantee" means the PPL Corporation Guarantee dated as of April 30, 2001, issued by PPL Corporation.

"Original PPL Supply Guarantee" means the PPL Supply Guarantee dated as of April 30, 2001, issued by PPL Supply.

"Original Supervisory Agreement" means the Master Supervisory Agreement (Equipment Groups and Facilities), dated as of April 30, 2001, between Lessor and Lessee, as Supervisory Agent.

"Original Trust Agreement" means the Amended and Restated Trust Agreement dated as of April 30, 2001, among Trustee and the Certificate Holders.

"Other Available Amounts" means any insurance proceeds available under related insurance policies maintained by or on behalf of the Lessee, Lessor or Administrative Agent, damages payable by a Person other than a PPL Group Member, including liquidated damages, letter of credit proceeds, proceeds under surety bonds, proceeds from condemnation or eminent domain proceedings or other similar proceedings and similar proceeds consisting of available cash which are payable to the Lessee, Lessor or Administrative Agent in settlement of a claim or other loss or for use in the Construction of the Facilities, the loss of the Site or the Construction or Acquisition of the Equipment.

"Other Unreimbursed Lessee Funded Amounts" means, as of any date of determination, with respect to any Lease Supplement, amounts, for which Lessee has not been reimbursed by Advances or Other Available Amounts, equal to the sum of (A) any amount funded by Lessee for Asset Costs under Section 3.2(c) of the Supervisory Agreement to restore a Unit in the applicable Uncompleted Equipment Group or Financed Improvements for the applicable Uncompleted Facility subject to such Lease Supplement or for Default Completion Costs for such Uncompleted Unit or Uncompleted Facility, (B) amounts paid by Lessee under a Project Agreement Indemnity or under a reimbursement agreement to an issuer of a Project Letter of Credit following a draw on such Project Letter of Credit, and (C) Cash Collateral actually distributed to the Participants pursuant to Section 3.8 of the Participation Agreement to the extent such amounts are allocable to and applied to reduce such Lease Supplement Per mitted Balance.

"Outside Completion Date" means June 30, 2003.

"Overall Transaction" means all the transactions and activities referred to in or contemplated by the Operative Agreements.

"Overdue Rate" means, with respect to any Loan or Certificate Amount, the Alternate Base Rate for such Loan or Certificate Amount plus 2.0% per annum.

"Owner" is defined at Section 2.1(a) of the Supervisory Agreement.

"Owner's Policy" is defined in Section 6.3(e) of the Participation Agreement.

"Parent Permitted Liens" means (a) Liens for taxes, assessments or governmental charges or levies to the extent not past due, or which are being contested in good faith in appropriate proceedings for which PPL Corporation has provided appropriate reserves for the payment thereof in accordance with GAAP; (b) pledges or deposits in the ordinary course of business to secure obligations under worker's compensation laws or similar legislation; (c) other pledges or deposits in the ordinary course of business (other than for borrowed monies) that, in the aggregate, are not material to PPL Corporation; (d) Liens imposed by law such as materialmen's, mechanics', carriers', workers' and repairmen's Liens and other similar Liens arising in the ordinary course of business for sums not yet due or currently being contested in good faith by appropriate proceedings; (e) attachment, judgment or other similar Liens arising in connection with court proceedings, provided that such Liens, in t he aggregate, shall not exceed $50,000,000 at any one time outstanding, and (f) other Liens not otherwise referred to in the foregoing clauses (a) through (e) above, provided that such other Liens do not secure at any time obligations in an aggregate amount in excess of $100,000,000 at any time outstanding.

"Participant Balance" means, with respect to any Participant as of any date of determination: (i) with respect to any Lender, the Loan Balance or (ii) with respect to any Certificate Holder, the Certificate Balance.

"Participant Capitalized Costs" means, collectively, Capitalized Interest, Capitalized Yield and Capitalized Fees.

"Participant Financing Statements" means UCC financing statements appropriately completed and executed for filing in the applicable jurisdiction in order to perfect a security interest in favor of the Administrative Agent for the benefit of the Participants in the Collateral.

"Participant Guarantee" means that certain Participant Guarantee dated as of April 30, 2001, issued by PPL Large Scale Distributed Generation II, LLC, a Delaware limited liability company.

"Participant Increase Supplement" means a supplement to the Participation Agreement substantially in the form of Exhibit R to the Participation Agreement, executed and delivered pursuant to Section 3.11 of the Participation Agreement.

"Participant Indemnitee" means each Participant, Administrative Agent (in its individual capacity and as agent), the Trust, Arranger, any additional, separate or co-agent or co-trustee appointed in accordance with the terms of the Participation Agreement, and their respective Affiliates, successors, permitted assigns, permitted transferees, permitted subparticipants, employees, officers, directors, shareholders, partners, participants, representatives and agents of each of the foregoing Persons; provided, however, that in no event shall Lessee, either Guarantor or any other PPL Group Member be a Participant Indemnitee.

"Participants" means, collectively, the Certificate Holders and the Lenders.

"Participation Agreement" means the Amended and Restated Participation Agreement dated as of July 17, 2001, among the Lessee as Lessee; the Lessor; Large Scale Distributed Generation II Statutory Trust, not in its individual capacity, except as expressly set forth therein, but solely as Trustee; the Persons listed on Schedule I thereto, as Certificate Holders; the Persons listed on Schedule II thereto, as Lenders and the Administrative Agent.

"Payment Agent" is defined in Section 3.1(d)(iii) of the Participation Agreement.

"Payment Date" means the last day of each Interest Period (and if such Interest Period shall exceed three months, the last day of the third month of such Interest Period). If such day is not a Business Day, then the Payment Date shall be the next following Business Day.

"Payment Default" means the failure (i) of Lessee to make any payment of (A) Basic Rent when due and such failure shall continue for a period of three (3) Business Days or (B) any amounts due pursuant to Sections 15.1, 18.1, 19.1(b) or 20.1 of the Lease when due, or (ii) of any Participant, Lessor or Administrative Agent to receive payment of any Interest, Yield, principal, Certificate Amounts, Fees or amounts which constitute Contingent Costs, including the failure to receive any Capitalized Costs, on the date any such amount is due and payable (for any reason, including as a result of the failure of any condition or the unavailability of funds for the purpose of Funding any Capitalized Interest, Capitalized Yield, Capitalized Fees or Capitalized, Contingent Costs) and, in the case of a failure of the type described in this clause (ii), such failure shall continue for three (3) Business Days; unless resulting from the failure of a Participant to Fund in accord ance with Sections 3.5 or 3.6 of the Participation Agreement, in which case such failure continues for fifteen (15) Business Days.

"Payment Office" means the office of each Participant and the Administrative Agent identified on Schedule III to the Participation Agreement as its Payment Office.

"PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA.

"Permitted Exceptions" means the exceptions set forth in the Owner's Policy and the Lender's Policy and accepted by the Participants pursuant to Section 6.3(e) of the Participation Agreement.

"Permitted Investments" means (i) full faith and credit obligations of the United States of America, or fully guaranteed as to interest and principal by the full faith and credit of the United States of America, maturing in not more than one year from the date such investment is made, (ii) certificates of deposit having a final maturity of not more than one year after the date of issuance thereof of a Participant or of any other commercial bank incorporated under the laws of the United States of America or any state thereof or the District of Columbia, which bank is a member of the Federal Reserve System and has a combined capital and surplus of not less than $500,000,000 and with a senior unsecured debt credit rating of at least "A" by Moody's Investors Service, Inc. and "A" by Standard & Poor's Ratings Group, (iii) commercial paper of the Participants having a remaining term until maturity of not more than 180 days from the date such investme nt is made, (iv) commercial paper of companies, banks, trust companies or national banking associations (in each case excluding Lessee and its Affiliates) incorporated or doing business under the laws of the United States or one of the States thereof, in each case having a remaining term until maturity of not more than 180 days from the date such investment is made and rated at least "P-1" by Moody's Investors Service, Inc. or at least "A-1" by Standard & Poor's Ratings Group and (v) repurchase agreements maturing within one year with any financial institution having combined capital and surplus of not less than $500,000,000 with any of the obligations described in clauses (i) through (iv) as collateral so long as title to the underlying obligations pass to Administrative Agent and such underlying securities shall be segregated in a custodial or trust account for the benefit of Administrative Agent.

"Permitted Lien" means (a) the respective rights and interests of Lessee, the Certificate Holders, Lessor, Administrative Agent and the Lenders, as provided in the Operative Agreements, (b) Lessor Liens, (c) Liens for Taxes either not yet due or being contested in good faith and by appropriate proceedings diligently conducted, so long as (i) no Event of Default shall have occurred and be continuing, (ii) such proceedings shall not involve any meaningful risk of the sale, forfeiture or loss of any of the Assets, the Trust Estate, title thereto or any interest therein and shall not interfere with the use or disposition of any of the Assets, the Trust Estate or the payment of Rent, (iii) such proceedings do not impair the perfection or priority of the Lien created by the Lease or the Security Instruments and (iv) any reserve or other appropriate provision required by GAAP shall have been made in respect of the Lien, (d) materialmen's, mechanics', workers', repairmen's, e mployees' or other like Liens arising in the ordinary course of business for amounts either not yet due or being contested in good faith and by appropriate proceedings so long as (i) no Event of Default shall have occurred and be continuing, (ii) such proceedings shall not involve any meaningful risk of the sale, forfeiture or loss of any of the Assets, the Trust Estate, title thereto or any interest therein and shall not interfere with the use or disposition of any Assets, the Trust Estate or the payment of Rent, (iii) such proceedings do not impair the perfection or priority of the Liens created by the Lease or the Security Instruments and (iv) any reserve or other appropriate provision required by GAAP shall have been made in respect of the Lien, (e) Liens arising after an Advance Date out of judgments or awards with respect to which at the time an appeal or proceeding for review is being prosecuted in good faith and either have been bonded to the satisfaction of Lessor and Administrative Agent or the enforcement of such Lien has been stayed pending such appeal or review, (f) the rights of any sublessee under a sublease expressly permitted pursuant to and subject to the terms of the Lease, (g) easements, rights of way and other encumbrances on title to real property permitted pursuant to Section 11.2 of the Lease and (h) interest in a Project Collateral Account granted to a General Contractor pursuant to the applicable Project Collateral Account Agreement.

"Person" means an individual, partnership, limited liability company, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency 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.

"Post-Completion Assets" is defined in Section 9.1(n) of the Participation Agreement.

"PPL Corporation" means PPL Corporation, a Pennsylvania corporation.

"PPL Corporation Guarantee" means the Amended and Restated PPL Corporation Guarantee dated as of July 17, 2001, issued by PPL Corporation.

"PPL Electric" means PPL Electric Utilities Corporation, a Pennsylvania corporation.

"PPL Group Member" means Lessee, each Guarantor and each of their Affiliates.

"PPL Supply" means PPL Energy Supply, LLC, a Delaware limited liability company.

"PPL Supply Credit Agreements" means the $600,000,000 364-Day Credit Agreement and $500,000,000 3 Year Credit Agreement, both dated as of June 26, 2001, among PPL Energy Supply, LLC, the Lenders from time to time party thereto, First Union National Bank, as Administrative Agent and Issuing Lender, Citibank, N.A., as Syndication Agent, and Barclays Bank PLC, Westdeutsche Landesbank Girozentrale, New York Branch and Bank One, N.A., as Documentation Agents.

"PPL Supply Guarantee" means the Amended and Restated PPL Supply Guarantee dated as of July 17, 2001, to be issued by PPL Supply.

"Pre-Completion Turbines" is defined in Section 9.1(n) of the Participation Agreement.

"Prepaid Rent" is defined at Section 5.3(b) of the Supervisory Agreement.

"Present Value" means the value at the date of determination of a specified amount payable in the future discounted at the Lessee's Incremental Borrowing Rate.

"Pro Forma Budget" means the Pro Forma Budget in the form of Exhibit S to the Participation Agreement.

"Project Agreement Indemnity" means an agreement substantially in the form of Exhibit U to the Participation Agreement, whereby Lessee agrees to indemnify Lessor for 89.9% of the Applicable Termination Payment Amounts due under the Applicable Project Agreement described in such Project Agreement Indemnity.

"Project Agreements" means each Equipment Contract, each Facility EPC Agreement, and each of the other Construction Agreements and other agreements and documents entered into by or on behalf of Lessor to undertake or provide for Project Obligations, including the Construction.

"Project Change" means a revision, amendment, modification to the Facility Plans and Specifications, the Project Schedule or any of the Project Agreements (including a Change Order under any Facility EPC Agreement, any Equipment Contract or any other Construction Agreement).

"Project Collateral" has the meaning set forth in the Collateral Assignment.

"Project Collateral Account" means a deposit account in which Administrative Agent shall have a first priority Lien, maintained at and under the sole dominion and control of the Administrative Agent subject to the rights of the Applicable Contractor under a Project Collateral Account Agreement.

"Project Collateral Account Agreement" means an agreement, substantially in the form of Exhibit T to the Participation Agreement, which grants to the Applicable Contractor the right under certain circumstances to demand payment from the Project Collateral Account described in such Project Collateral Account Agreement to pay the Applicable Termination Payment Amounts, subject to the cure and payment rights of Administrative Agent as set forth in the applicable Acknowledgment and Consent and as set forth in Section 10.2 of the Participation Agreement.

"Project Collateral Account and Indemnity Agreements" means, collectively, the Project Collateral Account Agreements, the Project Agreement Indemnities, the Project Letters of Credit, and all filings, financing statements and recordings made with respect thereto.

"Project Collateral Agreements" means the Collateral Assignment, the Equipment Contracts and the other Project Agreements.

"Project Letter of Credit" means a letter of credit issued to the Trust by a financial institution (such letter of credit and financial institution to comply with the applicable requirements in the Applicable Project Agreement or Project Collateral Account Agreement and to be reasonably satisfactory to Administrative Agent and the Applicable Contractor) with a face amount equal to 89.9% of the Applicable Termination Payment Amounts arising under the Applicable Project Agreement and for which Lessee shall be solely liable for all reimbursement obligations in the event such Project Letter of Credit is drawn upon.

"Project Obligations" is defined in Section 2.1(a) of the Supervisory Agreement.

"Proposed Site" means a location (which is to become a Site) identified by Supervisory Agent, as to which Supervisory Agent may request Advances of Excepted Costs, but which has not become a Construction Site.

"Prudent Industry Practice" means, at a particular time, (a) any of the practices, methods and acts engaged in or approved by a significant portion of the competitive electric generating industry at such time, or (b) with respect to any matter to which clause (a) does not apply, any of the practices, methods and acts which, in the exercise of reasonable judgment at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition. "Prudent Industry Practice" is not intended to be limited to the optimum practice, method or act to the exclusion of all others, but rather to be a spectrum of possible practices, methods or acts having due regard for, among other things, manufacturers' warranties and the requirements of any Governmental Authority of competent jurisdiction.

"PUHCA" means the Public Utility Holding Act of 1935, as amended.

"Purchase Amount" means, as of any date of determination, the sum of (a) the aggregate sum of the outstanding principal amount of the Loans of all of the Lenders and the outstanding Certificate Amounts of all of the Certificate Holders, plus (b) all accrued but unpaid Interest and Yield, plus (c) all other sums then due and payable under the Operative Agreements by Lessee, including without limitation all Supplemental Rent and any amounts due and owing pursuant to Article XIII, Article XIV or Article XV of the Participation Agreement.

"Purchase Notice" means a notice of purchase given by Lessee to Administrative Agent pursuant to Section 18.3 of the Lease.

"Purchase Option" is defined in Section 19.1(a) of the Lease.

"Purchase Percentage" means, with respect to any Facility or Equipment Group, as of the date of determination, the applicable Lease Supplement Balance, divided by the Asset Balance as of such date, stated as a percentage, all as reasonably determined by the Administrative Agent.

"Qualified Financial Institutions" means a bank organized under state or federal law with capital and surplus in excess of $500,000,000 and which is not a Participant or an Affiliate of a Participant.

"Qualified Project Indemnitee" means a General Contractor which agrees in a writing (such writing to be in form and substance reasonably satisfactory to Administrative Agent) on behalf of itself and its respective officers, directors, agents and employees for the benefit of Lessor, Administrative Agent and each Participant that (i) its right to demand indemnification from Lessor shall be limited solely to amounts that such General Contractor collects directly from Lessee, in Lessee's individual capacity and not as agent of Lessor, pursuant to Section 13.1(b) of the Participation Agreement, (ii) none of General Contractor or its respective officers, directors, agents or employees shall have any claim against Lessor or its assets, any funds paid to Lessor, Administrative Agent or any Participant under Article XIII of the Participation Agreement, or any other indemnity, or against any other remedy of or payment made to Lessor, Administrative Agent or any Participant by Lessee or either Guarantor, and (iii) it agrees to be bound by and subject to each of the applicable conditions, covenants and limitations set forth at Article XIII of the Participation Agreement, including Section 13.1(c) thereof, except to the extent Lessee waives as to Lessor in connection with an indemnity to be given by Lessor to a Qualified Project Indemnitee any defenses or other obligations (including the obligation to demand indemnification or to act within a specified time period) provided for in such Article XIII (other than any provision of Section 13.1(c), which may not be waived by Lessee). Supervisory Agent and Administrative Agent will reasonably cooperate to agree upon specific language incorporating the concepts set forth in items (i), (ii) and (iii) of this definition, which when incorporated into a Qualified Project Agreement or other agreement to be executed by the Applicable Contractor pursuant to the final paragraph of Section 13.1(c) of the Participation Agreement will be deemed to satisfy the requirements in the prior sentence and not require additional Administrative Agent consent. For purposes of this definition, "Qualified Project Agreement" means any Project Agreement which is not a Major Project Agreement and any Interconnect Agreement other than an Electric Interconnect Agreement or Gas Interconnect Agreement.

"Qualified Third Party Sublessees" means a solvent third party that is engaged either directly or through its Affiliates in the business of commercial power generation; including joint ventures (in which a PPL Group Member owns at least 50% of the capital stock (including the voting rights attached thereto)) between any PPL Group Member and another solvent commercial power generator; and in all other cases, as otherwise approved by the Administrative Agent at the direction of the Required Participants, with such approval not to be unreasonably withheld or delayed.

"Reaffirmation" means the reaffirmation executed and delivered by each Guarantor in the form of Exhibit W attached to the Participation Agreement.

"Rebates" means any payment to Lessor, Administrative Agent, PPL Group Member, Lessee Person or their Affiliates by (i) any manufacturer pursuant to any Equipment Contract or any General Contractor pursuant to any Project Agreement in the form of a rebate, price reduction or return or refund amount or (ii) any Governmental Authority as a refund, reduction or rebate of taxes relating to any Unit in an Equipment Group or a Facility and which accrues prior to the Applicable Base Term Commencement Date for such Unit or Facility, other than any such amount described in the foregoing items (i) or (ii) which relates directly to amounts funded by Lessee for which Lessee has not been reimbursed by an Advance, in which case Lessee's right to reimbursement shall be reduced by the amount of any Rebates paid to any PPL Group Member.

"Regulation U, T, or X" means Regulation U, T, or X, respectively, of the F.R.S. Board as from time to time in effect and any successor to all or a portion thereof.

"Release" means any release, pumping, pouring, emptying, injecting, escaping, leaching, dumping, seepage, spill, leak, flow, discharge, disposal or emission of a Hazardous Substance into the environment, including, without limitation, ambient air, surface water, ground water or land.

"Remaining Original Class A Notes" means the Class A Notes Outstanding after a refinancing pursuant to Section 3.9 of the Participation Agreement and which are not Repaid Class A Notes.

"Remedial Action Notice" means the notice given by the Administrative Agent to Lessee of the Administrative Agent's intent to foreclose upon, sell or take possession of any of the Assets following the occurrence of an Event of Default (other than an Insolvency Event), which shall include any notice or publication made pursuant to any Applicable Law.

"Rent" means, collectively, the Basic Rent and the Supplemental Rent, in each case payable under the Lease.

"Repaid Class A Noteholders" means Class A Noteholders whose Class A Notes were prepaid with the proceeds of the New Class A Notes.

"Repaid Class A Notes" means the Class A Notes which were repaid from the proceeds of the New Class A Notes pursuant to Section 3.9 of the Participation Agreement.

"Repaid or Reallocated Excepted Costs" means any Excepted Costs which have been allocated pursuant to Section 3.2(b) of the Participation Agreement to an Uncompleted Facility as a result of a Proposed Site becoming a Construction Site or which have been repaid pursuant to Section 3.5 of the Supervisory Agreement or as a result of a purchase pursuant to Section 18.1(i) of the Lease.

"Replacement Facility" is defined in Section 3.9 of the Participation Agreement.

"Replacement Participant" is defined at Section 4.7(b) of the Participation Agreement.

"Reportable Event" means any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the notice requirement has been waived by regulation.

"Required Cash Collateral Amount" is defined in Section 3.8(a) of the Participation Agreement.

"Required Credit Rating" means the senior, unsecured long-term debt rating of PPL Supply from Moody's or S&P.

"Required Equipment Mix" means, with respect to each Equipment Group (other than with respect to the Spare Engines) the following numbers and mix of Units (i) at least one (1) Turbine shall be allocated to such Equipment Group, (ii) the number of SCRs allocated to such Equipment Group may not exceed the number of Turbines allocated to such and (iii) for each Transformer allocated to such Equipment Group there must be at least two Turbines allocated to such Equipment Group.

"Required Modification" means any of the Modifications described in clause (i) of Section 10.1(a) of the Lease.

"Required Participants" means Participants whose aggregate Credit Exposures constitute more than 51% of the aggregate Credit Exposure (as hereinafter defined) of all Participants at such time. For purposes of the preceding sentence, the term "Credit Exposure" as applied to each such Participant means (i) at any time prior to the termination of the Commitments, the Commitment Percentage of such Participant multiplied by the Aggregate Commitment Amount and (ii) at any time after the termination of the Commitments, (x) in the case of a Participant that is a Certificate Holder, the outstanding amount of the Certificate Amount owed to such Participant, and (y) in the case of a Participant that is a Lender, the aggregate outstanding amount of Loans made by such Lender.

"Responsible Officer" means, relative to the Lessee or either Guarantor, those of its officers or employees responsible for the Assets whose signature and incumbency or position shall have been certified to the Participants, and the President, any Senior Vice President or Executive Vice President, any Vice President, the Secretary, the Treasurer, any Assistant Treasurer or the controller of Lessee or Guarantor and, relative to any other Person, the Chairman or Vice Chairman of the Board of Directors, the Chairman or Vice Chairman of the Executive Committee of the Board of Directors, the President, any Senior Vice President or Executive Vice President, Managing Director, Principal, any Vice President, the Secretary, the Treasurer, any Assistant Treasurer or comptroller of such Person.

"Responsible Officer's Certificate" means a certificate signed by any Responsible Officer, which certificate shall certify as true and correct the subject matter being certified to in such certificate.

"Retained Amounts" is defined at Section 10.2(a) of the Participation Agreement.

"Return Conditions" is defined in Section 21.3 of the Lease.

"Return Indemnity Agreement" is defined in Section 21.3(vii) of the Lease.

"S&P" means Standard & Poor's Ratings Group, a division of the McGraw-Hill Companies, Inc. or any successor thereto.

"S&P Rating" means the senior unsecured long-term debt rating of PPL Supply from S&P.

"Sale Option" is defined in Section 19.1(b) of the Lease.

"Savings" means the difference between the amount set forth for any line item in any Facility Budget or any Equipment Budget for the purchase, design, construction or other completion of the portion of an Uncompleted Facility or the Acquisition of an Equipment Group described in such line item and, if less, the actual cost to complete such portion of such Facility or Equipment Group, described in such line item.

"SCR" means the selective catalytic reduction device, forming part of the exhaust system of the turbine generator, used to reduce NOx emissions by passing the exhaust gases of the turbine over the surface of a catalyst. In some instances the SCR may also contain a CO reduction catalyst in addition to the NOx catalyst.

"SCR Contract" means that certain Purchase and Sale Agreement, dated as of February 22, 2001, and entered into by and between Large Scale Distribution Generation Statutory Trust, a Connecticut statutory trust as buyer, and Deltak L.L.C., a Delaware limited liability company, as seller.

"SEC" means the Securities and Exchange Commission.

"SEC Reports" means the reports filed by the Guarantors with the Securities and Exchange Commission on Form 10-K, Form 10-Q and/or Form 8-K (or any successor form(s) to any thereof).

"Second Document Closing Date" is defined in Section 2.1 of the Participation Agreement.

"Secured Obligations" is defined in Section 2.2 of the Security Agreement.

"Securities Act" means the Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder.

"Security Agreement" means the Security Agreement dated as of April 30, 2001, made by Lessor in favor of Administrative Agent pursuant to which Lessor assigns to, and creates a security interest in favor of, Administrative Agent in all of Lessor's right title and interest in and to the Security Collateral to secure repayment of the Loans and Lessor's payment and performance of its other obligations under the Participation Agreement and the other Operative Agreements, as amended or modified from time to time.

"Security Collateral" means all of the following property and interests in property, whether now existing or hereafter arising or acquired by Grantor, and wherever located:

(a)  all right, title and interest in the Trust Estate, including, without limitation, all of Grantor's right, title and interest in and to the following:

    (i)  all of the Assets;

    (ii)  the Lease including without limitation the security interest granted thereunder by Lessee in favor of Grantor;

    (iii)  all contracts necessary to purchase, operate and maintain the Assets, including, without limitation, all of Lessor's and Lessee's rights under the Project Agreements;

    (iv)  any rights to Liquidated Damages, rebates, offset or other warranty payments, or assignment under a purchase order, invoice or purchase agreement with any manufacturer of or contractor for any portion of the Security Collateral, including any manufacturer under the Equipment Contracts, the EPC Contractors under the Facility EPC Agreements, and the General Contractors under any other Project Agreement; and

    (v)  all of the other Collateral.

(b)  all books, records, writings, data bases, information and other property relating to, used or useful in connection with, evidencing, embodying, incorporating or referring to, any of the foregoing; and

(c)  all products, accessions, rents, issues, profits, returns, income and proceeds of and from any and all of the foregoing Collateral (including proceeds which constitute property of the types described in the foregoing clauses (a) and (b) and, to the extent not otherwise included, all payments under insurance (whether or not Grantee is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral).

"Security Instruments" means the Security Agreement, the UCC filings to perfect the liens intended to be created by the Security Agreement as described in Schedule 6.1(j) to the Participation Agreement, the Collateral Assignment and Mortgages, the Ground Lease Mortgages and the Project Collateral Account and Indemnity Agreements.

"Shipment" and "Shipped" means the date of shipment of any Unit or such earlier date when the earlier of risk of loss passes from Manufacturer to Owner or title passes to Owner as provided in the applicable Equipment Contract or if not so provided, by operation of law.

"Significant Casualty" means that any Facility or Unit in an Equipment Group shall suffer (i) damage or destruction resulting in an insurance settlement on the basis of an actual, constructive or compromised total loss, (ii) destruction or damage beyond repair, (iii) damage which, prior to the Applicable Base Term Commencement Date for any Facility or Unit in an Equipment Group, in Lessor's, and after the Applicable Base Term Commencement Date for any Facility or Unit in an Equipment Group, in Lessee's, good faith judgment, makes repair uneconomic or renders such Facility or Unit unfit for Lessee's commercial use, or (iv) theft, loss or disappearance of a material part of such Facility or Unit for a period in excess of 30 days.

"Significant Condemnation" means that (i) (x) title to all or any material portion of any Facility or Unit in an Equipment Group shall be taken or appropriated by a Governmental Authority under the power of eminent domain or otherwise, (y) all or any material portion of any Facility or Unit shall be taken, confiscated, seized or requisitioned for use by any Governmental Authority under the power of eminent domain or otherwise, and such taking, confiscation, seizure or requisition for use pursuant to this clause (y) is for a period that exceeds 180 days or, if less, the remaining portion of the Term, or (ii) as a result of any rule, regulation, order or other action by any Governmental Authority, the use of such Facility or Unit in commercial operation shall have been prohibited, directly or indirectly, for a period of 60 days.

"Significant Environmental Event" means an Environmental Violation the cost of remediation of which, in the reasonable judgment of an independent environmental consultant would exceed $5,000,000.

"Site" means any land acquired by Lessor by deed or as tenant under a ground lease on a Site Acquisition Date.

"Site Acquisition Advance" is defined in Section 6.3 of the Participation Agreement.

"Site Acquisition Costs" means , with respect to each Site, the sum of all costs required to be paid for the acquisition or lease of such Site, including all Transaction Costs and Taxes related to the acquisition or lease of a Site.

"Site Acquisition Date" means, with respect to each Facility, the date on which such Site is acquired by Lessor by purchase or lease.

"Site Improvements" means, with respect to each Facility, all required improvements at the applicable Site as described in the Facility Plans and Specifications, including all buildings, fixtures and equipment of every kind (other than the Equipment) existing at any time and from time to time to be constructed pursuant to the Supervisory Agreement, the Project Agreements, together with any and all easements, benefits and appurtenances or such improvements, including sidewalks, utility pipes, conduits and lines, and parking areas and roadways, the acquisition and/or development of a physical connection to the fuel providers' or other distribution facilities through which such fuel shall be delivered to the Facility Equipment and physical connections to the power grid for the installation and commercial operation of the Facility Equipment, but excluding any equipment and other property as is required to be purchased under any Interconnect Agreement to be owned by the counter party to such agreement.

"Site Obligations" is defined in Section 2.1(a)(ii) of the Supervisory Agreement.

"Site Preparation" means activities conducted at a Site consisting of initial grading and settling pond construction, drainage and catch basin installation, preparation of access roads, site laydown and parking areas, placement of construction trailers, running phone lines, acquiring construction power, fencing and other similar pre-construction activities.

"Soft Costs" means Construction Costs incurred for the production of the Facility Plans and Specifications, architectural and engineering fees, legal and accounting fees, permit and license fees and other such costs that are similar to the foregoing with respect to design and engineering of the Site Improvements for any Site and obtaining all required Governmental Actions for the use thereof as contemplated in the Operative Agreements.

"Spare Engines" means up to six spare engines which are subject to the Existing Turbine Contract and which are assigned by Lessee to Lessor and become Assets pursuant to the applicable provisions of the Participation Agreement.

"Sub-Participant" is defined in Section 12.2 of the Participation Agreement.

"Subsidiary" means, with respect to any Person, any corporation or other entity of which more than 50% of (i) the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether or not at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency) or (ii) other equity interest comparable to that described in the preceding clause (i) is at the time directly or indirectly owned by such Person, by such Person and one or more other Subsidiaries, or by one of more other Subsidiaries.

"Substantial Completion" means with respect to any Facility: (i) the substantial completion of the Project Obligations with respect to such Facility including the Construction (but subject to and not including completion of punchlist items or any Final Completion Work), in accordance with the Facility Plans and Specifications, except for changes permitted under the Supervisory Agreement, and in compliance in all material respects with all Applicable Laws and Insurance Requirements, or (ii) as determined in the reasonable judgment of the Independent Engineer following a request for such determination pursuant to Section 7.2 of the Participation Agreement, or (ii) the date Supervisory Agent shall have satisfied the requirements of either Section 7.2(a) or Section 7.2(b) of the Participation Agreement with respect to such Facility.

"Supervisory Agent" is defined in the preamble to the Supervisory Agreement.

"Supervisory Agent Related Event" is defined at Section 3.2(c) of the Supervisory Agreement.

"Supervisory Agreement" means the Amended and Restated Master Supervisory Agreement (Equipment Groups and Facilities), dated as of July 17, 2001, between Lessor and Lessee as Supervisory Agent.

"Supplemental Rent" means, with respect to any Lease Supplement, all amounts, liabilities and obligations (other than Basic Rent) which Lessee assumes or agrees to pay or is otherwise obligated to pay under the Lease or any other Operative Agreement (whether or not designated as Supplemental Rent or which any Operative Agreement provides will be paid with Advances) to Lessor, Administrative Agent, any Participant or any other Person, including, without limitation, Break Costs, any Lease Supplement Recourse Amount, any Lease Supplement RVG Amount, any Lease Supplement Balance, any Contingent Costs and all rent and other amounts payable under the Ground Lease.

"Syndication Completion Date" has the meaning specified in the Syndication Letter.

"Syndication Letter" means that certain letter agreement between PPL Supply and FUSI dated March 28, 2001, including any amendment or restatement of such letter which divides such letter into two or more letter agreements, separately addressing fees paid to FUSI and its Affiliates and the rights and obligations of the parties with respect to the syndication of the transaction.

"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.

"Tax Indemnitee" or "General Indemnitee" means each Participant, the Lessor and the Trustee (in their individual capacities and as trustees), the Administrative Agent (in its individual capacity and as agent), the Arranger, any additional, separate or co-trustee or co-agent appointed in accordance with the terms of the Trust Agreement or the Participation Agreement, and the respective Affiliates, successors, permitted assigns, permitted transferees, contractors, employees, officers, directors, shareholders, partners, participants, representatives and agents of each of the foregoing Persons; provided, however, that in no event shall Lessee, Guarantor or any of their Affiliates be a General Indemnitee or Tax Indemnitee.

"Taxes" means any and all liabilities, losses, expenses and costs of any kind whatsoever for fees, taxes, levies, imposts, duties, charges, assessments or withholdings of any nature whatsoever, including (i) real and personal property taxes, including personal property taxes on any property covered by the Lease or any Lease Supplement that is classified by Governmental Authorities as personal property, and real estate or ad valorem taxes in the nature of property taxes; (ii) sales taxes, use taxes and other similar taxes (including rent taxes and intangibles taxes); (iii) any excise taxes; (iv) real estate transfer taxes, conveyance taxes, mortgage taxes, intangible taxes, stamp taxes and documentary recording taxes and fees; (v) taxes that are or are in the nature of franchise, income, value added, gross receipts, privilege and doing business taxes, license and registration fees; and (vi) assessments on any Asset, including all assessments fo r public improvements or benefits, whether or not such improvements are commenced or completed within the Term, and in each case all interest, additions to tax and penalties thereon, which at any time may be levied, assessed or imposed by any Federal, state or local taxing authority upon or with respect to (a) any Tax Indemnitee, the Assets or any part thereof or interest therein, or the Lessee or any sublessee or user of the Assets; (b) the financing, refinancing, demolition, construction, substitution, subleasing, assignment, control, condition, servicing, maintenance, repair, ownership, possession, purchase, rental, lease, activity conducted on, delivery, insuring, use, operation, improvement, transfer, return or other disposition of the Assets or any part thereof or interest therein; (c) the Notes or Certificates or other indebtedness with respect to the Assets or any part thereof or interest therein or transfer thereof; (d) the rentals, receipts or earnings arising from the Assets or any part thereof or interest therein; (e) the Operative Agreements or any payment made or accrued pursuant thereto; (f) the income or other proceeds received with respect to the Assets or any part thereof or interest therein upon the sale or disposition thereof; (g) any contract relating to the construction, acquisition or delivery of the Site Improvements or the Equipment or any part thereof or interest therein; (h) the issuance of the Notes and Certificates; (i) any transaction contemplated by Section 10.1(k) of the Participation Agreement; or (j) otherwise in connection with the Overall Transaction.

"Term" is defined in Section 2.5 of the Lease.

"Termination Date" is defined in Sections 15.2(a) and 16.2(e) of the Lease.

"Termination Notice" is defined in Section 15.1(a) of the Lease and Section 3.4 of the Supervisory Agreement.

"Termination Payments" means any liquidated damage, termination, cancellation or similar payments owed by Lessor, Supervisory Agent or any PPL Group Member in connection with the cancellation or termination of a Project Agreement (including, to the extent Lessor, Supervisory Agent or any PPL Group Member has direct or indirect liability therefor or such amount is funded with proceeds of an Advance, any amount which may become payable by a Contractor or Manufacturer to any other Person) including all such amounts paid from any Project Collateral Account other than amounts paid to the Participants in reduction of their Loans or Certificate Amounts or pursuant to any Project Agreement Indemnity.

"Title Insurance Company" means a title insurance company for each Site selected by Lessee and approved by Administrative Agent.

"Title Policies" is defined in Section 6.3(e) of the Participation Agreement.

"Trade Obligations" means future obligations for the payment of goods or services or other obligations (other than obligations for borrowed money) incurred in the ordinary course of its energy marketing business.

"Tranche" means either of the Equipment Tranche or the Facility Tranche.

"Transaction Costs" means all reasonable costs and expenses incurred in connection with the preparation, execution and delivery of the Operative Agreements and the transactions contemplated by the Operative Agreements including without limitation:

(a)  the reasonable fees and expenses of (i) Mayer, Brown & Platt, as document counsel (it being understood that Lessee will not be obligated to pay legal fees and expenses for any additional counsel for any Participant) and (ii) Orrick, Herrington & Sutcliffe LLP;

(b)  the Arranger's Fee and Arranger's reasonable costs and expenses, including the reasonable costs and expenses incurred by the Arranger with respect to any syndication;

(c)  the reasonable fees and expenses of local counsel;

(d)  the initial and ongoing fees and reasonable expenses of the Lessor, Trustee, Administrative Agent and their special counsels;

(e)  all applicable appraisal fees and reasonable expenses;

(f)  search fees, recording fees, filing fees and Taxes incurred in connection with Lien searches and the filing of UCC financing statements, memoranda of lease, memoranda of ground lease and any and all mortgages, deeds of trust or other Operative Agreements;

(g)  any title fees, premiums and escrow costs and other expenses relating to the extent applicable to such title insurance incurred in connection with the Document Closing Date and the Advances as contemplated by the Operative Agreements, and any expenses incurred for analysis of the Asset Costs and inspection of the Sites;

(h)  the fees and costs of the Independent Engineer and the insurance consultant referred to at Section 6.1(q) of the Participation Agreement;

(i)  insurance premiums accruing prior to the Base Term Commencement Date with respect to the insurance required by the Supervisory Agreement;

(j)  costs and expenses for the survey of the Sites;

(k)  costs and expenses for the environmental reports of the Sites;

(l)  the Fees; and

(m)  any other reasonable out-of-pocket expenses of the Administrative Agent, the Arranger, Lessor and Trustee incurred in connection with the consummation of the Overall Transaction on the Document Closing Date.

"Transferee" is defined in Section 12.3(a) of the Participation Agreement.

"Transferred Loan Interests" means the interests of the Initial Lenders in the Initial Lender Loans which are being transferred pursuant to the Loan and Certificate Transfer Instructions.

"Transferred Certificate Interests" means the interests of the Initial Certificate Holders in the Initial Certificates which are being transferred pursuant to the Loan and Certificate Transfer Instructions.

"Transformer" means the main generator step-up transformer(s) used to raise the generator voltage of 13.6 Kv to the transmission voltage of the interconnecting system.

"Trust" means the trust created by the Trust Agreement.

"Trust Agreement" means the Second Amended and Restated Trust Agreement dated as of July 17, 2001, among Trustee and the Certificate Holders.

"Trust Estate" means all estate, right, title and interest of Lessor in, to and under the Assets, the Trust Agreement, the Lease, all of the other Operative Agreements, and the Collateral, including (i) all amounts (other than Excepted Payments) of Rent and other payment due or to become due of any kind for or with respect to the Assets or payable under any of the foregoing, (ii) any or all payments or proceeds received by Lessor after the termination of the Lease with respect to the Assets as the result of the sale, lease or other disposition thereof and (iii) proceeds of the Loans and the investments in the Certificates, all of which, together with any other moneys, proceeds or property at any time received by Lessor under or in connection with the Operative Agreements.

"Trustee" means State Street Bank and Trust Company of Connecticut, National Association, not in its individual capacity, but solely as trustee under the Trust Agreement, together with any individual trustee or co-trustee appointed pursuant to the terms of the Trust Agreement.

"Trustee Fee Letter" means the fee letter dated April 18, 2001, between Lessee and Trustee.

"Trustee Parent" means State Street Bank and Trust Company, a Massachusetts trust company.

"Trustee Parent Guarantee" means that certain Trustee Parent Guarantee dated as of April 30, 2001, issued by State Street Bank and Trust Company, a Massachusetts trust company, in favor of the beneficiaries described therein.

"Trustee Replacement Event" is defined in Section 5.3 of the Loan Agreement.

"Turbine Advance Amount" is defined in Section 6.2(p) of the Participation Agreement.

"Turbines" means the sixty-six (66) LM6000 gas turbine generator sets referred to in the Existing Turbine Contract.

"UCC Financing Statements" means collectively the Participant Financing Statements and the Lessor Financing Statements.

"Uncompleted Equipment Group" means, at any date of determination, any Equipment Group in respect of which the Applicable Base Term Commencement Dates under the applicable Equipment Lease Supplement for all of the Units in such Equipment Group have not occurred, including each Construction Site.

"Uncompleted Facility" means, at any date of determination, any Facility in respect of which the Applicable Base Term Commencement Date under the applicable Facility Lease Supplement has not yet occurred, including each Construction Site.

"Uncompleted Unit" means, at any date of determination, any Unit allocated to an Equipment Group in respect of which the Applicable Base Term Commencement Date has not occurred with respect to such Unit.

"Unfunded Future Payment Amounts" means, as of the date of determination, the sum of (i) the aggregate sum of all Facility Costs under all Facility Budgets, (including, without limitation, any Facility Equipment Costs and amounts described as Contingency Reserves) for which Advances have not been made, or for which Other Available Amounts in connection therewith are not available, (ii) the aggregate sum of all Equipment Costs under all Equipment Group Budgets for which Advances have not been made, and (iii) the aggregate sum of all Facility Equipment Costs to Fund the costs expected to cause all Units allocated to each Proposed Site to become Completed Units for which Advances have not been made.

"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.

"Uniform Commercial Code" and "UCC" means the Uniform Commercial Code as in effect in any applicable jurisdiction.

"Uninsured Loss" means the excess of (i) a Force Majeure Loss or loss, cost or expense resulting from a Casualty or Condemnation over (ii) the sum of (x) the insurance proceeds available to pay such Force Majeure Loss or Casualty or Condemnation loss, cost or expense, and (y) any insurance deductible applicable to such loss under insurance coverage then being carried by Lessee on behalf of Lessor pursuant to Section 2.5(e) of the Supervisory Agreement insuring for such type of loss to the extent such deductible amount is specifically provided for in Schedule 2.5(e) to the Supervisory Agreement, but only to the extent that there exists an amount (which has not yet been applied or set aside for any other loss, cost or expense) at least equal to such deductible amount specifically reserved for such type of deductible payment in the applicable Facility Budget or Equipment Group Budget and which is available to fund such deductible amount, and (z) with respect to loss, cost or expense resulting from a Casualty or Condemnation which Lessee certifies to Lessor and Administrative Agent did not constitute a Force Majeure Event, Savings, available amounts in the Contingency Reserve in the applicable Equipment Group Budget or Facility Budget which are not reserved or allocated to any other costs or expenses or Adjusted Aggregate Available Commitment which have been allocated to the applicable Facility Budget or Equipment Group Budget; provided that, with respect to this clause (z), Lessee demonstrates to the reasonable satisfaction of Administrative Agent that such funds are available to pay for any such shortfall and that Lessee has satisfied the applicable requirements at Section 3.1(b) and Section 3.1(c) of the Supervisory Agreement with respect thereto; and provided further, that the Adjusted Aggregate Available Commitment allocated to any Equipment Group Budget or Facility Budget for such purpose shall not exceed $2,000,000, unless Lessee delivers an apprai sal satisfying the requirements of Section 3.1(d) of the Supervisory Agreement and which indicates that the projected Fair Market Value of the applicable Equipment Group or Facility upon completion will not be less than the sum of (i) the aggregate amounts set forth in the applicable original Equipment Group Budget or Facility Budget together with any increases in such Equipment Group Budget or Facility Budget made prior to the date of such appraisal, including as a result of any Adjusted Aggregate Available Commitment amounts allocated thereto prior to such date, plus (ii) the amount of Adjusted Aggregate Available Commitment that Lessee intends to allocate to the applicable Equipment Group Budget or Facility Budget to pay such loss, cost or expense.

"Unit" means each of the Turbines, Transformers, SCRs, the Spare Engines and related units of equipment described in the Equipment Appraisal.

"Unit Completion Date" means the date on which any Unit is Shipped.

"Unit Costs" means, with respect to any Unit purchased under an Existing Equipment Contract, the applicable Equipment Contract Purchase Amounts and with respect to each other Unit, the invoice cost, Taxes, charges and Transaction Costs (other than General Transaction Costs) incurred with respect to such Unit.

"Unit Fraction" means, with respect to any Unit of an Equipment Group, a fraction the numerator of which is the Unit Cost of such Unit and the denominator of which is the sum of the Unit Costs of all of the Units in such Equipment Group.

"University Park Site" is defined in the final paragraph of Section 6.3 of the Participation Agreement.

"Upfront Fee" means, the fee payable to a Participant as provided for in a letter among Lessee, Arranger and such Participant; provided, however, that for First Union National Bank in its capacity as a Lender and Certificate Holder, such fee will be in the amount set forth in the Syndication Letter; and provided further that, with respect to such fees to be paid to the Participants on the Second Document Closing Date, such fees to each Participant will be in the amounts set forth in the notification attached to the Advance Request for such date.

"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.

"Warehouse Parent Guarantee" is defined in the definition of "Existing Warehouse Facility."

"West Earl Facility" is defined in Section 9.1(n) of the Participation Agreement.

"West Earl Facility Completion Date" is defined in Section 9.1(n) of the Participation Agreement.

"Wholly Owned Subsidiary" means any Subsidiary of which all of the equity securities or other ownership interests (other than, in the case of a corporation, directors' qualifying shares) are so owned or controlled.

"Yield" means, with respect to each Interest Period (a) the Yield Rate for such Interest Period multiplied by (b) the aggregate Certificate Amounts outstanding, as determined for the applicable Interest Period in accordance with Section 4.1 of the Participation Agreement.

"Yield Rate" means (A) the sum of the LIBO Rate (Reserve Adjusted) for such Interest Period, plus the Applicable Margin, or (B) if any Certificate Amounts bear interest at the Alternate Base Rate for such Interest Period, the Alternate Base Rate.

EX-10

Exhibit 10(m)

This Agreement for Lease is
Confidential and Proprietary

EXECUTION COPY

AGREEMENT FOR LEASE

between

LMB FUNDING, LIMITED PARTNERSHIP

and

LOWER MOUNT BETHEL ENERGY, LLC

Dated as of December 21, 2001

THIS AGREEMENT HAS BEEN ASSIGNED AS SECURITY
FOR INDEBTEDNESS OF OWNER. SEE SECTION 17.
This Agreement has been manually executed in 38 counterparts, numbered consecutively from 1 through 38, of which this is No. ___. To the extent, if any, that this Agreement constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction), no security interest in this Agreement may be created or perfected through the transfer or possession of any counterpart other than the original executed counterpart
which shall be the counterpart identified as counterpart No. ___.

AGREEMENT FOR LEASE

Agreement for Lease, dated as of December 21, 2001 (as the same may be amended, restated, modified or supplemented from time to time, "this Agreement"), between LMB FUNDING, LIMITED PARTNERSHIP, a Delaware limited partnership ("Owner"), formed by LMB Capital, Inc., its general partner, and LOWER MOUNT BETHEL ENERGY, LLC, a Delaware limited liability company ("Agent").

WHEREAS, Owner has acquired a leasehold interest in the Premises (hereinafter defined) pursuant to the Ground Lease (hereinafter defined); and

WHEREAS, contemporaneously with the execution of this Agreement, Owner and Agent propose to enter into the Lease (hereinafter defined), providing for the lease by Agent, as lessee, of the Project (hereinafter defined) which will be constructed and located on the Premises pursuant to the terms of this Agreement and the sublease by Owner to Agent of the Premises; and

WHEREAS, Owner desires to appoint Agent to act as agent for Owner in connection with the construction of the Project, and in connection with all matters related to such construction, and Agent wishes to accept such appointment;

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Owner and Agent hereby agree as follows:

SECTION 1.   DEFINITIONS

1.1.   Defined Terms. For the purposes of this Agreement each of the following terms shall have the meaning specified with respect thereto:

Accrued Default Obligations: Defined pursuant to paragraph (e) of subsection 11.2 hereof.

Accrued Project Termination Obligations: Defined pursuant to paragraph (e) of subsection 11.4 hereof.

Acquisition Certificate: The certificate delivered by Agent to Owner pursuant to paragraph (b) of Section 4 hereof in connection with a request for the Initial Advance, substantially in the form of Exhibit A hereto.

Acquisition Cost: The sum of (a) the aggregate amount of advances made pursuant to this Agreement and (b) all other costs of Owner (including costs incurred by Agent but reimbursed by Owner) with respect to the Project (except costs for which Owner has been reimbursed by Agent pursuant to the provisions of subsections 11.2 and 11.4 and Section 12 hereof) arising from the acquisition, construction, equipping, and financing thereof (including, without limitation, Financing Costs and Owner's out-of-pocket expenses and fee obligations, including, without limitation, the Management Fee that Owner is obligated to pay to Merrill Leasing pursuant to the terms of the Management Agreement, prior to the Effective Date). This definition of "Acquisition Cost" shall not include any Unrecovered Liabilities and Judgments.

Additional Rent: Defined pursuant to subsection 1.2 hereof.

Affiliate: Defined pursuant to subsection 1.2 hereof.

Agency Agreement: The Construction Agency Agreement dated as of August 11, 2000, as amended and restated by an Amended and Restated Construction Agency Agreement dated as of April 6, 2001, between Owner and Agent, as the same may be further amended, restated, modified or supplemented from time to time prior to the date hereof.

Agent: Lower Mount Bethel Energy, LLC, a Delaware limited liability company.

Agreement: This Agreement for Lease, as the same may be amended, restated, modified or supplemented from time to time.

Applicable Contracting Party: The contracting party identified in the applicable Land Improvement Contract, provided that such Person shall be an independent third party unaffiliated with Agent or the Guarantor.

Appraiser: KPMG, LLP, a limited liability partnership.

Assignee: The Collateral Trustee and any successor to the Collateral Trustee. For purposes of the definition of "Unrecovered Liabilities and Judgments", paragraph (n) of Section 4, subsection 8.4, subsection 8.5, subsection 8.6, subsection 8.7, subsection 8.9, subsection 8.12, subsection 8.13, subsection 8.26, paragraph (n) of subsection 8.27, subsection 9.7, subsection 9.8, subsection 9.12, paragraph (c) of subsection 11.1, paragraphs (d), (o) and (p) of subsection 11.3, paragraph (c) of Section 12, clause (iii) of paragraph (a) of Section 16, the last sentence of paragraph (b) of Section 17, the last sentence of subsection 18.3, subsection 18.4, subsection 18.9 and the Persons to whom certification is made in Exhibits A, B, C and D hereof, the term "Assignee" shall include each of the purchasers and holders from time to time of Owner's Senior Secured Notes and any other notes issued under any Note Purchase Agreement and each lender or other Person providing credit support to Owner under a Financing Arrangement entered into after the date hereof, and for purposes of subsection 9.4 hereof, the term "Assignee" shall include each Qualifying Assignee.

Available Commitment: At the time of determination, an amount equal to the difference between (a) the sum of (i) the aggregate commitment to lend under all Financing Arrangements and (ii) Owner's existing equity capital and additional equity capital contributions then available to Owner and (b) the sum of (i) the aggregate amount of all advances theretofore made pursuant to Section 3 hereof and (ii) Financing Costs theretofore incurred by Owner or accrued under all Financing Arrangements (other than Financing Costs which have been funded or reimbursed with advances under this Agreement).

Basic Rent: Defined pursuant to subsection 1.2 hereof.

Budget: The itemized budget for the Project prepared by Agent and delivered to Owner and attached hereto as Exhibit G, as amended from time to time, which shall include, without limitation, (a) all costs incurred by Agent in performing its duties under subsections 2.1 and 2.2 hereof, including, without limitation, the purchase price of component parts and construction materials, survey and survey inspection charges, appraisal, architectural, engineering, environmental analysis, soil analysis and market analysis fees, brokerage commissions, transfer fees and taxes that are customarily the responsibility of the purchaser, closing adjustments for taxes, utilities and the like, escrow and closing fees, recording and filing fees, the legal fees of Agent, and all related costs and expenses incurred in acquiring an interest in the Premises, whether incurred prior to or after the date hereof; (b) the costs incurred by Agent in its capacity as agent for Owner in connection with and pursuant to the terms of the EPC Contract (or any other construction contracts entered into by Agent in connection with the completion of the Project); (c) the costs of architects', attorneys', engineers' and other professionals' fees and disbursements in connection with the construction and construction financing of the Project, including, without limitation, the fees and disbursements of Agent's counsel in connection with this Agreement, the Lease and the transactions contemplated hereby and thereby and the duties of Agent hereunder, under the EPC Contract and in all other matters involving or reasonably related to this transaction; (d) the costs of all insurance, real estate, property and excise tax assessments, sales and use taxes on materials used in construction, and other operating and carrying costs paid or accrued by Agent or levied upon the Project, Agent or Owner in connection with the Project during the term of this Agreement; (e) costs of Agent's project representatives (inspectors, consultants, etc.) incurred by Agent in its capacity as agent for Owner; (f) the fees and disbursements of Owner's counsel in connection with the preparation, execution and delivery by Owner of this Agreement and the Lease, and the consummation of the transactions contemplated hereby or thereby; (g) any financing costs incurred by Agent in connection with its payment of any Project Costs prior to the date hereof and all other Financing Costs to be accrued during the term of this Agreement; (h) any internal out-of-pocket costs incurred by Agent in connection with the negotiation, execution and delivery of this Agreement, the Lease, the Construction Documents and the Project Contracts; (i) any and all other costs arising from or in connection with the construction of the Project during the term of this Agreement; (j) the fees and disbursements of counsel of Assignee incurred in connection with any Financing Arrangement; and (k) a reasonable contingency amount with respect to the foregoing items, which amount shall include Financing Costs and otherwise shall be allocated to unexpected increases in the costs associated with the Project, including, without limitation, the payment of any liquidated damages or any performance bonus pursuant to the terms of any Construction Document or Project Contract; provided that any modification or supplement to the Budget shall be made in compliance with the provisions of subsection 2.2 hereof.

Business Day: Defined pursuant to subsection 1.2 hereof.

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

Capital Lease Obligations: 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.

CERCLA: Defined pursuant to subsection 1.2 hereof.

CERCLIS: Defined pursuant to subsection 1.2 hereof.

Certificate of Increased Cost: The certificate delivered by Agent to Owner pursuant to paragraph (a) of Section 7 hereof in connection with a request for a Completion Advance, substantially in the form of Exhibit D hereto.

Certificate of Substantial Completion: The certificate delivered by Agent to Owner pursuant to paragraph (a) of Section  6 hereof in connection with a request for a Final Advance, substantially in the form of Exhibit C hereto.

Code: The Internal Revenue Code of 1986, as amended.

Collateral Indenture: The Indenture of Trust, Security Agreement and Collateral Assignment of Contracts, dated as of the date hereof, entered into by Owner and the Collateral Trustee, pursuant to which Owner has granted a security interest in certain collateral to the Collateral Trustee, as the same may be amended, restated, modified or supplemented from time to time in accordance with the terms thereof.

Collateral Trustee: State Street Bank and Trust Company of Connecticut, National Association, in its capacity as collateral trustee under the Collateral Indenture, and its successors.

Commercial Operation: The date upon which (i) Mechanical Completion (as defined in the EPC Contract) has occurred under the EPC Contract and the Project is mechanically complete and checkout and start-up have occurred as evidenced by the execution and delivery of a Notice of Mechanical Completion (as defined in the EPC Contract) and a certificate stating that the requirements to achieve Mechanical Completion have been met, in each case according to the procedures set forth in the EPC Contract, (ii) Substantial Completion (as defined in the EPC Contract) has occurred under the EPC Contract as evidenced by the execution and delivery of a Notice of Substantial Completion (as defined in the EPC Contract) and a certificate stating that the requirements to achieve Substantial Completion have been met, in each case according to the procedures set forth in the EPC Contract, and (iii) the assets included in the Project are capable of producing revenues from operation of the Project.

Completion Advance: Any advance made by Owner under Section 7 hereof.

Completion Amount: Defined pursuant to subsection 1.2 hereof.

Completion Date: September 30, 2004.

Consent: Defined pursuant to subsection 1.2 hereof.

Consolidated EBITDA: For any period, Consolidated Net Income for such period plus (in each case to the extent deducted in computing such Consolidated Net Income) (i) Consolidated Interest Expense, (ii) provisions for income taxes and (iii) provisions for depreciation and amortization (including amortization of goodwill).

Consolidated Interest Expense: For any period, the gross interest expense (including, without limitation, that attributable to Capital Lease Obligations or a Synthetic Lease) of the Guarantor 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 Guarantor 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: For any period, the net income (or net loss) of the Guarantor and its Consolidated Subsidiaries, determined on a consolidated basis for such period and in accordance with GAAP, excluding the effects of gains or losses on sales of assets (excluding sales of inventory in the ordinary course of business) and other non-cash extraordinary gains or losses as determined in accordance with GAAP.

Consolidated Subsidiary: 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.

Construction Documents: The collective reference to the EPC Contract, the Plans, the Permits, the Insurance Requirements, the Land Improvement Contracts, the Siemens Turbine Contract and all other agreements entered into by Agent with respect to constructing and equipping the Project (from and after each such agreement becomes effective).

Construction Drawdown Schedule: The schedule of projected construction drawdowns delivered to Owner pursuant to paragraph (v) of Section 4 hereof, a copy of which is attached as Exhibit H hereto.

Contaminant: Defined pursuant to subsection 1.2 hereof.

Corporation: A corporation, association, company, joint stock company, limited liability company, partnership or business trust.

Easements: The "Easements" as defined in the Ground Lease.

Effective Date: Defined pursuant to subsection 1.2 hereof.

Engineering Services Agreement: The Engineering Services Agreement, dated as of September 21, 2001, between Owner and the General Contractor, as amended by an Amended and Restated Engineering Services Agreement, dated as of November 19, 2001, between Owner and the General Contractor.

Environmental Approvals: Defined pursuant to subsection 1.2 hereof.

Environmental Consultant: Foster Wheeler Environmental Corporation, or such other nationally recognized environmental consultant selected by Agent and reasonably satisfactory in all respects to Owner and Assignee.

Environmental Damages: Defined pursuant to subsection 1.2 hereof.

Environmental Event: Defined pursuant to subsection 1.2 hereof.

Environmental Lien: Defined pursuant to subsection 1.2 hereof.

Environmental Matters: Defined pursuant to subsection 1.2 hereof.

Environmental Report: The Phase I Environmental Site Assessment and Compliance Report dated December 18, 2001 relating to the Premises, prepared by the Environmental Consultant and delivered to Owner and Assignee pursuant to paragraph (n) of Section 4 of this Agreement.

Environmental Requirements: Defined pursuant to subsection 1.2 hereof.

EPC Contract: The Engineering, Procurement and Construction Contract, dated as of December 20, 2001, between Owner and the General Contractor, as the same may be amended, restated, modified or supplemented from time to time in accordance with the terms hereof.

EPC Guaranty: The Guaranty, dated as of December 20, 2001, by Foster Wheeler LLC to Owner, guaranteeing the obligations of the General Contractor under the EPC Contract, as the same may be amended, restated, modified or supplemented from time to time in accordance with the terms hereof.

Equity Capital: Defined pursuant to subsection 1.2 hereof.

ERISA: The Employee Retirement Income Security Act of 1974, as amended from time to time.

Event of Default: Any of the events specified in subsection 11.1 hereof; provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied.

Event of Loss: Any of the following events: (a) loss of all or a substantial portion of the Project or the use thereof due to destruction or damage by fire or any other cause; (b) any event which results in an insurance settlement with respect to the Project on the basis of a total loss or constructive total loss; and (c) the condemnation or taking or requisition of title or requisition of use for an indefinite period or a period in excess of 180 days by any Governmental Authority which constitutes the taking of all or a substantial portion of the Project or all or a substantial portion of the Premises. A loss, condemnation or taking of a "substantial portion" of the Project or the Premises shall be deemed to occur if after such event, the remainder is not sufficient to permit operation of the Project on a commercially feasible basis in accordance with the Construction Documents, the Project Contracts and the Lease.

Event of Project Termination: Any of the events specified in subsection 11.3 hereof; provided that, any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied.

EWG: Defined pursuant to subsection 1.2 hereof.

FERC: The Federal Energy Regulatory Commission, or any successor agency thereto.

Final Advance: The advance made by Owner under Section 6 hereof.

Final Survey: Defined pursuant to paragraph (f) of Section 6 hereof.

Financing Arrangement: Defined pursuant to subsection 1.2 hereof.

Financing Costs: All interest costs (including, without limitation, interest at a default rate and any interest costs accruing after the commencement of a bankruptcy or similar proceeding), premiums, make-whole payments (including, without limitation, the Make-Whole Premium and Modified Call Premium (each as defined in the Note Purchase Agreement)), and other costs, fees and expenses incurred by Owner under all Financing Arrangements, and all costs and fees incurred in connection with obtaining and maintaining equity financing, including Return on Equity Capital, all fees payable to Owner's general partner under its partnership agreement and any premiums and make-whole payments incurred by Owner under its partnership agreement.

GAAP: United States generally accepted accounting principles applied on a consistent basis.

Gas Transportation Agreement: The Gas Transportation Agreement to be entered into by and between PPL Interstate Energy Company and Owner.

General Contractor: Foster Wheeler USA Corporation, a Delaware corporation.

Governmental Action: Defined pursuant to subsection 8.5 hereof.

Governmental Authority: Defined pursuant to subsection 1.2 hereof.

Ground Lease: Defined pursuant to subsection 1.2 hereof.

Guarantor: PPL Energy Supply, LLC, a Delaware limited liability company, and its successors and permitted assigns.

Guaranty: The Guaranty, dated as of the date hereof, by and between the Guarantor and Owner, as the same may be amended, restated, modified, or supplemented from time to time.

Indebtedness: Defined pursuant to subsection 1.2 hereof.

Indemnified Person: Defined pursuant to Section 12 hereof.

Initial Advance: The advance made by Owner under Section 4 hereof.

Insurance Broker: Marsh USA Inc., or such other nationally recognized insurance broker selected by Agent and reasonably satisfactory in all respects to Owner and Assignee.

Insurance Requirements: Defined pursuant to subsection 1.2 hereof.

Intellectual Property Rights: Collectively, all patents, patent applications, trademarks (whether registered or not), trademark applications, trade names, proprietary computer software or copyrights (or any licenses, permits or agreements with respect to any of the foregoing) necessary to construct, operate, lease or use the Project or any part thereof as contemplated by this Agreement, the Lease, the Construction Documents and the Project Contracts.

Interconnection Agreement: Defined pursuant to subsection 1.2 hereof.

Interconnection Facilities: The interconnections at or available to the Project for transmission of electricity and the supply of water, natural gas, and other necessary utilities and services, including, without limitation, the 230 kV switchyard facilities, which are necessary to connect and deliver the Project's output to the transmission system owned by PPL Electric Utilities Corporation.

Interest Rate Protection Agreements: Any agreement providing for an interest rate swap, cap or collar, or any other financial agreement designed to protect against fluctuations in interest rates.

Interim Advance: Any advance made by Owner under Section 5 hereof.

Interim Advance Certificate: The certificate delivered by Agent to Owner pursuant to paragraph (a) of Section 5(A) hereof in connection with a request for an Interim Advance, substantially in the form of Exhibit B hereto.

Land Improvement Contracts: Individually or collectively as the context may require (a) the Township Development Agreement; (b) the Interconnection Agreement; (c) the Reimbursement and Ownership Agreement; (d) the Gas Transportation Agreement; or (e) any other agreement with (i) an electric utility or independent system operator or other third party for the interconnection of the Project to the electric transmission system of such electric utility of independent system operator or for transmission system upgrades of improvements necessary to provide transmission service for the electrical output of the Project; (ii) a natural gas supplier or transporter for interconnection of the Project to the supply of transportation systems of such natural gas supplier or transporter of or other third party for upgrades or improvements to a natural gas supplier or transporter's systems necessary to provide natural gas service to the Project; or (iii) water and sewer system operators for the interconnection of the project to water and/or sewer system upgrades or improvements necessary to provide water and sewer service to the Project.

Lease: The Lease Agreement, dated as of the date hereof, by and between Owner, as lessor or sublessor, and Agent, as lessee or sublessee, as the case may be, as the same may be amended, restated, modified or supplemented from time to time.

Legal Requirements: The term "Legal Requirements" shall have the meaning set forth opposite such term in the Lease, except that the phrase "from the date hereof through the term of this Agreement" shall substitute for the phrase "from the date hereof through the Lease Term and any Renewal Term".

Lessee Note: The promissory note, dated December 21, 2001, from Agent, as borrower, in favor of Owner, as lender, evidencing the advances made by Owner to Agent thereunder, and any promissory note or notes of Agent issued in substitution thereof.

Lien: Defined pursuant to subsection 1.2 hereof.

Loss Payment: On the date of determination, an amount equal to the difference between (A) 89.9% of the sum of (i) all amounts included in the Acquisition Cost of the Project that are capitalized into the basis of the Project in accordance with GAAP, plus (ii) all Unreimbursed Project Costs, and (B) all Unreimbursed Project Costs.

Loss Payment Requirements: (a) Delivery by Agent to Owner of conveyancing, assignment, transfer, termination and other documents that are customary and sufficient to (i) convey and assign to Owner (or a designated assignee of Owner or Assignee) on the earlier of (x) the date that is sixty (60) days after Owner either terminates this Agreement or Agent's right to the use and possession of the Project pursuant to subsection 11.4 hereof or (y) the date Owner, or a designated assignee of Owner or Assignee, takes possession of the Project and assumes the obligations of Agent thereafter accruing under the Construction Documents and the Project Contracts pursuant to subsection 11.4 hereof, (A) good and marketable title to Agent's interest in the Project, free and clear of any Liens resulting from any fraudulent act, illegal act, misapplication of funds or willful misconduct on the part of Agent or any Person under the direct or indirect control of Agent, and (B) Agent's right, title and interest in the Construction Documents and the Project Contracts existing on such date and transferable by Agent (conditioned upon the assumption by Owner, or a designated assignee of Owner or Assignee, of Agent's obligations accruing under such Construction Documents and Project Contracts from and after such date), free and clear of any Liens resulting from any fraudulent act, illegal act, misapplication of funds or willful misconduct on the part of Agent or any Person under the direct or indirect control of Agent, and (ii) terminate on the earlier of (x) the date that is sixty (60) days after Owner terminates this Agreement or Agent's right to the use and possession of the Project pursuant to subsection 11.4 hereof or (y) the date Owner, or a designated assignee of Owner or Assignee, takes possession of the Project and assumes such obligations, all rights of Agent and all other Persons under the direct or indirect control of Agent (other than Owner and Assignee, any other Person as may be designated by Owner and Assignee's rights under the Construction Documents and the Project Contracts) in and to the Project;

(b)   Within a commercially reasonable period of time after Owner either terminates this Agreement or Agent's right to the use and possession of the Project pursuant to subsection 11.4 hereof, delivery by Agent to Owner of evidence that Agent's right, title and interest in all Permits and Intellectual Property Rights existing on such date and transferable by Agent have been transferred to Owner;

(c)   Within a commercially reasonable period of time after Owner either terminates this Agreement or Agent's right to the use and possession of the Project pursuant to subsection 11.4 hereof, delivery by Agent to Owner of all manuals, "as built" plans, design specifications and equipment inspection reports related to the Project, in each case, in Agent's possession or to which Agent has access; and

(d)   Delivery by Agent to Owner, within a commercially reasonable period of time after Owner either terminates this Agreement or Agent's right to the use and possession of the Project pursuant to subsection 11.4 hereof, of a Phase I environmental site assessment and compliance audit, and upon the reasonable request of Owner or Assignee, delivery by Agent within a commercially reasonable period of time, a Phase II environmental audit, each satisfactory in scope and content to Owner and Assignee (in each case, in their reasonable discretion), prepared by the Environmental Consultant, to the effect that (i) no Environmental Matters exist with respect to the Project or the Premises, the effect of which could adversely affect the construction, operation, ownership, use or value of the Project and (ii) subject to an allowance for ordinary wear and tear, the Project may be operated to its design capacity in accordance with the Construction Documents and the Project Contracts and in compliance with Environmental Requirements.

Majority Holders: Defined in the Note Purchase Agreement.

Management Agreement: The Management Agreement, dated as of the date hereof, between Owner and Merrill Leasing, as the same may be amended, restated, modified or supplemented from time to time.

Management Fee: (a) For each full semi-annual period commencing on or after the date hereof and ending on or prior to the Effective Date, an amount computed by multiplying the following:

   (i)   the Acquisition Cost at the end of such semi-annual period, multiplied by

    (ii)   a fraction having a numerator equal to the number of days in such semi-annual period and a denominator of 365, or in a leap year, 366, multiplied by

    (iii)   0.13%.

(b)   for any partial semi-annual period commencing on or after the date hereof and ending on or prior to the Effective Date, an amount computed by multiplying the following:

    (i)   the Acquisition Cost at the end of such partial semi-annual period, multiplied by

    (ii)   a fraction having a numerator equal to the number of days during such partial semi-annual period and a denominator of 365, or in a leap year, 366, multiplied by

    (iii)   0.13%.

Marketing Period: Defined pursuant to paragraph (g) of subsection 11.4 hereof.

Memorandum of Understanding: The Memorandum of Understanding, dated December 3, 1999, between PPL Corporation (successor-in-interest to PP&L Resources, Inc.) and Agent, as assigned to PPL Martins Creek, LLC pursuant to an Assignment and Assumption Agreement dated as of the date hereof.

Merrill: Merrill Lynch Money Markets Inc., a Delaware corporation.

Merrill Leasing: ML Leasing Equipment Corp., a Delaware corporation.

Merrill Lynch: Merrill Lynch & Co., Inc., a Delaware corporation.

1935 Act: Defined pursuant to subsection 1.2 hereof.

Note Purchase Agreement: Defined pursuant to subsection 1.2 hereof.

NPL: Defined pursuant to paragraph (h) of subsection 8.27 hereof.

Operation and Maintenance Agreement: The Operation and Maintenance Agreement for the Lower Mount Bethel Energy Project Sewage Treatment Facility, dated July 13, 2001, between Lower Mount Bethel Township and PPL Generation, LLC.

Operative Documents: This Agreement, the Lease, the Lessee Note and the Pledge Agreement.

Operator: Agent, or such other entity designated as successor operator of the Project by Agent that is, or is a member of a consolidated group that is, an experienced and reputable operator of electric generating assets in the United States.

Owner: LMB Funding, Limited Partnership, a Delaware limited partnership, or any successor or successors to all of its rights and obligations as Owner hereunder or its successor or successors.

Owner Lien: Any Lien or disposition of title (a) arising as a result of any willful act or knowing omission of Owner, or (b) which is otherwise claimed by or through Owner and which is not related to the Project constructed hereunder or the business of Agent, and which, in either case, is not permitted or contemplated by this Agreement, the Lease, any Financing Arrangement, the Construction Documents, the Project Contracts or the transactions contemplated thereby.

PCBs: Defined pursuant to paragraph (l) of subsection 8.27 hereof.

Permits: All consents, licenses, building and operating permits or other Governmental Actions required for ownership, leasing, construction, completion, and operation of the Project in accordance with and as contemplated by the Construction Documents, the Project Contracts, this Agreement and the Lease.

Permitted Contest: Defined pursuant to paragraph (a) of Section 16 hereof.

Permitted Liens: Defined pursuant to subsection 1.2 hereof.

Person: Defined pursuant to subsection 1.2 hereof.

Plans: The plans and specifications for the construction of the improvements incorporated in the EPC Contract; provided that, any amendments, modifications or supplements to the Plans, as well as any subsequent deviation from the Plans, shall be made in compliance with the provisions of subsection 2.2 hereof.

Pledge Agreement: The Pledge Agreement, dated as of the date hereof, by and between Agent, as pledgor, and Owner, as pledgee, as the same may be amended, restated, modified, or supplemented from time to time.

Potential Default: Any event which, but for the lapse of time, or giving of notice, or both, would constitute an Event of Default.

Potential Event of Project Termination: Any event which, but for the lapse of time, or giving of notice, or both, would constitute an Event of Project Termination.

Power Transformers Contract: The Power Transformers Contract, dated as of December 21, 2001, between Siemens Power Transmission & Distribution, Inc. and Owner, as the same may be amended, restated, modified or supplemented from time to time in accordance with the terms hereof.

PPL Retirement Plan: The defined benefit pension plan sponsored by PPL Services Corporation, most recently amended and restated effective July 1, 1999, bearing IRS Plan Identification Number (PIN) "001".

Premises: Defined pursuant to subsection 1.2 hereof.

Private Placement Memorandum: The Confidential Private Placement Memorandum dated November 2001, prepared with respect to the offering of the notes sold pursuant to the Note Purchase Agreement, together with the appendices thereto.

Project: Defined pursuant to subsection 1.2 hereof.

Project Contracts: The Siemens Turbine Contract, the Ground Lease, the EPC Contract, the EPC Guaranty, the Engineering Services Agreement, the Power Transformers Contract, the Township Development Agreement, the Operation and Maintenance Agreement, the Interconnection Agreement, the Memorandum of Understanding, the Replacement MOU Agreement (from and after the date such agreement becomes effective), the Reimbursement and Ownership Agreement, the Gas Transportation Agreement and any other agreement or agreements entered into by Agent necessary for the construction and operation of the Project (from and after the date each such agreement becomes effective). A list of the Project Contracts in existence on the date hereof is attached as Exhibit E hereto.

Project Costs: The aggregate amount of all costs and expenses described in clauses (a) through (k) of the definition of "Budget".

Qualifying Assignee: Defined pursuant to subsection 1.2 hereof.

Reimbursement Agreement: The Reimbursement Agreement, dated as of the date hereof, among Owner, Agent and Merrill Leasing, as the same may be amended, restated, modified or supplemented from time to time.

Reimbursement and Ownership Agreement: The Reimbursement, Construction and Ownership Agreement to be entered into by and between Owner and PPL Interstate Energy Company.

Release: Defined pursuant to subsection 1.2 hereof.

Released Improvements: Defined pursuant to paragraph (a) of subsection 18.12 hereof.

Released Land: Defined pursuant to paragraph (a) of subsection 18.12 hereof.

Remedial Action: Defined pursuant to subsection 1.2 hereof.

Replacement MOU Agreement: The agreement to be entered into by Agent and PPL Martins Creek, LLC, relating to the provision of certain services and facilities for the Project and replacing the Memorandum of Understanding.

Required Easements: The "Required Easements" as defined in the Ground Lease.

Responsible Officer: The President, Vice President or Secretary of Agent and any other officers or similar officials of Agent responsible for administering the obligations of Agent hereunder as designated in writing by Agent to Owner.

Return on Equity Capital: (a) For each full semi-annual period commencing on or after the date hereof and ending on or prior to the Effective Date, an amount computed by multiplying the following:

    (i)   the Equity Capital at the end of such semi-annual period, multiplied by

    (ii)   a fraction having a numerator equal to 180 and a denominator of 360, multiplied by

    (iii)   the decimal equivalent of a percentage equal to the Semi-Annual Cost of Project Equity.

(b)   for any partial semi-annual period commencing on or after the date hereof and ending on or prior to the Effective Date, an amount computed by multiplying the following:

    (i)   the Equity Capital at the end of such partial semi-annual period, multiplied by

    (ii)   a fraction having a numerator equal to the number of days during such partial semi-annual period (provided that, each full calendar month during such partial semi-annual period shall be deemed to be a 30-day month) and a denominator of 360, multiplied by

    (iii)   the decimal referred to in paragraph (a)(iii) above.

Semi-Annual Cost of Project Equity: Defined pursuant to subsection 1.2 hereof.

Siemens Turbine Contract: The Combined Cycle Power Island Equipment Supply Contract, dated as of August 11, 2000, between Siemens Westinghouse Power Corporation and Owner, as the same may be amended, restated, modified or supplemented from time to time in accordance with the terms hereof.

Subsidiary: Any Corporation a majority of the outstanding Voting Stock of which is owned, directly or indirectly, by the Guarantor or one or more other Subsidiaries of the Guarantor.

Substantial Completion: The satisfaction of all requirements of Section 6 hereof.

Survey: The current ALTA/ACSM Class A survey of the Premises, dated as of December 20, 2001, prepared by the Surveyor.

Surveyor: Hanover Engineering Associates, Inc.

Synthetic Lease: 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.

Termination Event: Either (i) the failure at any time of PPL Corporation or its successors to own, directly or indirectly, 50.01% or more of the outstanding Voting Stock in the Guarantor, or (ii) the Guarantor's ratio of Consolidated EBITDA to Consolidated Interest Expense shall be less than 2.0 to 1.0 for the four most recently ended consecutive fiscal quarters (except for the fiscal quarter ended September 30, 2001, at the end of which such ratio shall be measured for the most recently ended consecutive three fiscal quarters) of the Guarantor (taken as a single accounting period).

Termination Event Trigger: Defined pursuant to paragraph (p) of subsection 11.3 hereof.

Third-Party Project Event: Any Event of Default pursuant to paragraph (c) of subsection 11.1 hereof or any Event of Project Termination pursuant to paragraph (a), (c), (d), (e), or (o) of subsection 11.3 hereof that is not caused directly or indirectly by Agent, does not result directly or indirectly from Agent's actions or failures to act and is outside of Agent's control; provided, however, that no such Event of Default or Events of Project Termination described above shall qualify as a "Third-Party Project Event" unless (i) Agent has used its best efforts to remedy such Event of Default or Event of Project Termination during any grace or cure period applicable thereto in subsection 11.1 or 11.3 hereof, as the case may be, and (ii) Owner and Assignee shall not have waived such Event of Default or Event of Project Termination or extended the applicable grace or cure periods.

Title Company: Fidelity National Title Insurance Company of New York, or such other title insurance company as may be approved by Owner and Assignee in writing.

Township Development Agreement: The Land Development Improvements Agreement to be entered into by and between Lower Mount Bethel Township and Owner.

Unrecovered Liabilities and Judgments: All liabilities of Owner, each general and limited partner of Owner, Merrill Lynch, Merrill Leasing, each Assignee, and their respective successor or successors, and each Affiliate of each of them, and their respective successor or successors, and each Affiliate of each of them, and their respective officers, directors, trustees, incorporators, shareholders, partners (general and limited, including, without limitation, the general and the limited partners of Owner), employees, agents and servants, including, without limitation, taxes, losses, obligations, claims, damages (including, without limitation, Environmental Damages), penalties, premiums, make-whole payments, causes of action, suits, costs and expenses (including, without limitation, reasonable attorneys', experts', consultants' and accountants' fees and expenses) or judgments of any nature against any of the foregoing Persons arising during or relating to any period prior to the Effective Date and relating to or in any way arising out of (i) this Agreement and the Agency Agreement, (ii) all contracts and agreements entered into in accordance with this Agreement and the Agency Agreement, (iii) Owner's acquisition, ownership and financing of the Project, (iv) Owner's acquisition of a leasehold interest in the Premises pursuant to the Ground Lease, (v) the construction of the Project, (vi) a casualty, condemnation or force majeure event, (vii) the operation or use of the Premises or the Project by Agent or any agent, sublessee or subcontractor of Agent or (viii) the Construction Documents or the Project Contracts, and in each case arising or resulting directly or indirectly from events occurring prior to any termination of this Agreement, in each case to the extent that such Person has not received full indemnification for such liabilities or judgments by Agent (unless such liabilities or judgments have arisen from the gross negligence or willful misconduct of such Person or such Person's respective officers, directors, trustees, incorporators, shareholders, partners, employees, agents or servants acting on its behalf).

Unrecovered Termination Costs: At any time, an amount equal to the sum of (A) any amounts included in the Acquisition Cost of the Project that are not paid to Owner by Agent in connection with Agent's payment of the Loss Payment, plus (B) the remaining 10.1% of all of Owner's obligations, costs and expenses described in clause (i) of paragraph (e) of subsection 11.4 hereof, plus (C) in the case of an Event of Project Termination, 100% of the amounts described in clause (iii) of paragraph (e) of subsection 11.2 hereof, except that, for purposes of this definition, the term "Event of Project Termination" shall be substituted for the term "Event of Default" therein.

Unreimbursable Costs: Defined pursuant to Section 5(B) hereof.

Unreimbursed Project Costs: All Project Costs incurred by Agent and not yet reimbursed by Owner that are capitalizable into the basis of the Project in accordance with GAAP and which were not yet capitalized by Owner and included as an element of Acquisition Cost (including, without limitation, any payment or reimbursement obligation payable under a letter of credit, surety bond or other security instrument provided pursuant to the terms and conditions of a Project Contract as approved by Owner), as evidenced by a certificate from Agent, (i) stating the total amount of such expenditures, the date or dates on which such expenditures were incurred, the name and address of each party to whom the expenditures were tendered, and such additional information as shall be reasonably requested by Owner or Assignee and (ii) attaching true copies of unreimbursed invoices, receipted bills and other similar supporting documentation. Owner's good faith determination of the amount of Unreimbursed Project Costs shall be conclusive and binding, absent manifest error. This definition of "Unreimbursed Project Costs" shall not include any Unreimbursable Costs.

Voting Stock: 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.

1.2.   Other Definitional Provisions; Intent of Parties.

(a)   The terms "Additional Rent", "Affiliate", "Basic Rent", "Business Day", "CERCLA", "CERCLIS", "Completion Amount", "Consent", "Contaminant", "Effective Date", "Environmental Approvals", "Environmental Damages", "Environmental Event", "Environmental Lien", "Environmental Matters", "Environmental Requirements", "Equity Capital", "EWG", "Financing Arrangement", "Governmental Authority", "Ground Lease", "Indebtedness", "Insurance Requirements", "Interconnection Agreement", "Lien", "1935 Act", "Note Purchase Agreement", "Permitted Liens", "Person", "Premises", "Project", "Qualifying Assignee", "Release", "Remedial Action" and "Semi-Annual Cost of Project Equity" have the meanings set forth opposite those terms in the Lease, except that, for purposes of this Agreement, the terms "the Lessor", "the Lessee" and "this Lease" if used in those definitions in the Lease shall be deemed to be the terms "Owner", "Agent" and "this Agreement", respectively.

(b)   All terms defined in this Agreement shall have their defined meanings when used in any certificate or other document made or delivered pursuant hereto, unless otherwise defined therein.

(c)   The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section, subsection, paragraph, schedule and exhibit references are to this Agreement unless otherwise specified.

(d)   It is the intent of Agent and Owner that: (i) the Lease constitutes an operating lease from Owner to Agent for purposes of Agent's financial reporting, (ii) this Agreement and the Lease constitute a financing and this Agreement, the Lease and other transactions contemplated hereby preserve the ownership of the Project in Agent for all other purposes, including, without limitation, for federal and state income tax and bankruptcy purposes, and (iii) the Lease grants to Owner a Lien on the Project. Agent and Owner agree that Owner shall be deemed to have a valid and binding security interest in and Lien on the Project, free and clear of all Liens, other than Permitted Liens, as security for the obligations of Agent under the Lease and this Agreement (it being understood and agreed that Agent does hereby grant a Lien, and convey, transfer, assign, mortgage and warrant to Owner and its successors, transferees and assigns, for the benefit of Owner and its successors, transferees and assigns, on the Project and any proceeds or products thereof, to have and hold the same as collateral security for the payment and performance of the obligations of Agent under this Agreement and the Lease).

(e)   Specifically, without limiting the generality of paragraph (d) of this subsection 1.2, Agent and Owner intend and agree that in the event of any insolvency or receivership proceedings or a petition under the United States bankruptcy laws or any other applicable insolvency laws or statute of the United States of America or any State thereof affecting Agent, Owner, Assignee or any collection actions relating thereto, the transactions evidenced by this Agreement and the Lease shall be regarded secured as loans made by Owner to Agent.

(f)   It is the intent of Agent and Owner that, in the event Agent shall incur or take on any obligation to pay or discharge any Unreimbursable Costs, such action shall be regarded as a misapplication of funds for purposes of paragraphs (d) and (e) of subsection 11.1 hereof.

SECTION 2.   APPOINTMENT OF AGENT

2.1.   Appointment and Duties of Agent. Owner hereby appoints Agent as its agent for the acquisition, design, construction, repair, maintenance, equipping, and installation of the Project, including the performance of the obligations under the Siemens Turbine Contract, and the provision of security against harm and damage to the Project, and Agent hereby accepts such appointment. Agent agrees, all in accordance with its best business judgment and this Agreement, to supervise the good and workmanlike completion of the Project pursuant to this Agreement and the EPC Contract and in accordance with all applicable Legal Requirements and Insurance Requirements. Agent (or its Affiliate) will also enter into such other contracts, as agent for Owner (including all construction contracts, insurance, replacement construction contracts and subcontracts and contracts for the purchase of equipment and services), as are necessary for the completion of the Project pursuant to the EPC Contract and in accordance with all applicable Legal Requirements and Insurance Requirements; provided that (i) Agent shall, pursuant to the Pledge Agreement, collaterally assign to Owner, all of Agent's right, title and interest in all such contracts, and (ii) if any of such contracts could reasonably be expected to cause the Project Costs to exceed the Budget or adversely affect the performance of the General Contractor's obligations under the EPC Contract (including, without limitation, by providing a potential basis for a change order that would require the consent of Owner and Assignee pursuant to subsection 10.1 hereof, or a force majeure delay or similar relief thereunder) or of Siemens Westinghouse Power Corporation under the Siemens Turbine Contract, Agent shall be required to obtain the consent of Owner and Assignee to such contract prior to its execution of such contract. Agent and Owner hereby agree that, at such time as the EPC Contract provides for the transfer of title to any portion of the Project, title to such portion or portions of the Project shall automatically be transferred to Owner, at no cost to Owner, and Agent shall, upon the request of Owner, execute or cause such General Contractor to execute, as the case may be, a bill of sale or similar conveyance instrument to evidence such transfer of title. For purposes of this Agreement, Owner and Agent acknowledge and agree that Agent is acting in the capacity of a general construction agent. Owner hereby approves the Siemens Turbine Contract, the EPC Contract and each of the other Project Contracts listed on Exhibit E hereto and in existence on the date hereof.

2.2.   Cost and Completion of the Project. Agent agrees that the Acquisition Cost of the Project shall not exceed $455,043,969.20, provided that the Acquisition Cost of the Project may be increased by an amount up to $45,504,396 to provide for additional financing of cost overruns relating to construction of the Project as described in the immediately succeeding sentence. After receiving the Initial Advance, Agent may from time to time amend, modify or supplement the Plans or Budget, which amendment or modification may include a contingency amount of up to $45,504,396 to provide for additional financing of cost overruns relating to construction of the Project; provided that no amendment, modification or supplement shall (a) be made without Agent giving at least five (5) Business Days' prior written notice of such amendment, modification or supplement to Owner and Assignee and, if such amendment, modification or supplement shall have the effect of increasing the Budget, Agent, on or before entering into such amendment, modification or supplement, shall provide (x) an endorsement from the Title Company increasing the amount of coverage under the title policies delivered pursuant to Section 4 hereof in accordance with the amended Budget and (y) to the extent not previously authorized, letters to the benefit of Owner and Assignee from each reinsurer of the title policies delivered to Owner and Assignee pursuant to Section 4 hereof, in form and substance reasonably satisfactory to Owner and Assignee, pursuant to which each such reinsurer agrees to continue to act as a reinsurer of such title policies notwithstanding such endorsement and increase in the amount of coverage; (b) result in a breach under subsection 10.1 of this Agreement; (c) render Agent unable to perform all of its obligations under the Construction Documents, the Project Contracts, this Agreement or the Lease, or otherwise reasonably be expected to have a material adverse effect on (i) the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, (ii) the ability of Agent to observe and perform its obligations under this Agreement, the Lease, the Construction Documents or the Project Contracts in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner or (iii) the rights or interests of Owner or Assignee under this Agreement, the Lease, the Guaranty, the Construction Documents or the Project Contracts; or (d) result in a breach of the restriction contained in the first sentence of this subsection 2.2. In the event that any proposed amendment, modification or supplement to the Plans could reasonably be expected to result in (i) a material diminution in the value or usefulness of the Project, or (ii) result in a material adverse effect on the ability of Agent to perform its obligations under this Agreement, the Lease, the Construction Documents or the Project Contracts, Agent must obtain the prior consent of Owner and Assignee to any such amendment, modification or supplement. Agent shall promptly deliver to Owner and Assignee any such amended, modified or supplemented Plans or Budget. Owner acknowledges that Agent is not obligated to incur costs with respect to the construction of the Project in excess of the aggregate amount of all debt and equity commitments maintained by Owner.

2.3.   Lease of the Project.

(a)   When the requirements for Substantial Completion have been satisfied by Agent, Agent shall deliver to Owner and Assignee the Certificate of Substantial Completion, and Agent shall request the Final Advance which, subject to the provisions of paragraph (b) of this subsection 2.3, shall be sufficient to provide for payment of all the costs of constructing the Project and completing any open punch list items (other than those certain specifically identified and quantified costs that are not yet due to the General Contractor and which will be included as part of a Completion Advance, provided that the Available Commitment remaining after the Final Advance is equal to or exceeds the aggregate amount of all such identified and quantified costs). By delivery of the Certificate of Substantial Completion, Agent evidences the acceptability of the Project for lease by Agent under the Lease. If the conditions set forth in Section 6 hereof have been satisfied, Owner, within ten (10) Business Days of receipt of the Certificate of Substantial Completion, shall make the Final Advance. Execution and delivery by Agent of the Certificate of Substantial Completion shall constitute (i) acknowledgment by Agent that the Project has been accepted for lease by Agent as of the Effective Date, (ii) acknowledgment by Agent that the Project is subject to all of the covenants, terms and conditions of the Lease, and (iii) certification by Agent that the representations and warranties contained in Section 2 of the Lease are true and correct in all material respects on and as of the Effective Date as though made on and as of such date and that there exists on such date no (1) Event of Default, Event of Default (as defined in the Lease), Event of Loss, Event of Project Termination or Termination Event, or (2) Potential Default, Potential Default (as defined in the Lease) or Potential Event of Project Termination.

(b)   Subject to the terms of subsection 3.1 hereof, up to six (6) months after the Final Advance has been made, Agent may, by delivering a Certificate or Certificates of Increased Cost, request Completion Advances. On or before the fifth Business Day prior to the date upon which Agent receives the Final Advance, Agent shall designate the Completion Amount. After such designation the aggregate amount of all Completion Advances shall not exceed the Completion Amount. Agent's designation of the Completion Amount shall be accompanied by a calculation of the Completion Amount, which shall reflect all Unreimbursed Project Costs for which Agent expects to seek reimbursement hereunder after the Final Advance less the proceeds, if any, that Agent expects to receive from the disposition of excess construction materials. The Completion Amount shall in no event exceed the aggregate amount of Completion Advances that Agent is entitled to receive under the terms hereof. If no Completion Amount is designated as hereinabove provided, no Completion Advances will be made. Each Certificate of Increased Cost shall reflect all Unreimbursed Project Costs designated by Agent for payment by such Completion Advances, all costs incurred by Agent since the last advance to complete the Project, all costs incurred by Agent to discharge all retentions and to dispose of excess construction materials and all proceeds received by Agent since the last advance hereunder from the disposition of excess construction materials. In the event that the aggregate amount of Completion Advances made is less than the Completion Amount, on the day that is six (6) months after the date of the Final Advance, Exhibit D to the Lease shall be amended to decrease the Adjusted Acquisition Cost (as defined in the Lease) by the difference between the Completion Amount and the aggregate amount of Completion Advances made. The amount of any proceeds from the disposition of excess construction materials that exceeds the amount for such disposition included in the calculation of the Completion Amount shall reduce the amount of Completion Advances made by the amount of such excess, or, if the amount of such excess exceeds the Completion Amount, shall be paid to Owner. If any amounts are paid to Owner pursuant to the preceding sentence, the amount so paid shall be added to the decrease of Adjusted Acquisition Cost reflected on Exhibit D to the Lease pursuant to the second preceding sentence. Nothing in this subsection 2.3 shall relieve the General Contractor or any other contractor or subcontractor which are party to any contracts for the purchase of goods or services relating to the Project of any of its respective obligations thereunder.

2.4.   Powers of Agent. Agent shall have the right to act for and on behalf of Owner with full and complete authority to perform all obligations, to exercise all rights and give all consents under the Construction Documents, to appear before each applicable Governmental Authority to resolve issues related to the platting, zoning and use of the Project, to obtain all Permits and Intellectual Property Rights, and to grant and obtain easements for the benefit of the Project or which are deemed reasonably necessary by Agent for the intended use of the Project, provided that no such action shall be made without the prior written consent of Owner and Assignee to such action, unless Agent shall reasonably determine that any proposed action could not reasonably be expected to (i) result in a material diminution in the value or usefulness of the Project or (ii) result in a material adverse effect on the ability of Agent to perform its obligations under this Agreement, the Lease, the Construction Documents or the Project Contracts. In connection therewith, Owner shall cooperate with Agent with respect to all filings relating to the Project. In addition, Agent shall have the right to act for and on behalf of Owner with full and complete authority to appoint, employ and deal with the architects, engineers, consultants, contractors, vendors and suppliers; purchase and arrange for delivery of all materials, supplies, furniture, fixtures, and equipment; and to approve all related vouchers, invoices and statements relating to the Project.

SECTION 3.   ADVANCES

3.1.   Agreement to Make Advances. Subject to the conditions and upon the terms herein provided, including, without limitation, that the Available Commitment not be exceeded, Owner agrees to make available to Agent advances from time to time to pay or reimburse the Project Costs (including, without limitation, to reimburse Agent for any costs incurred with respect to the insurance policies (including deductibles paid by Agent thereon) required pursuant to subsection 9.3 of this Agreement), up to an aggregate principal amount not to exceed the maximum amount for the Project set forth in subsection 2.2 hereof. Agent agrees not to incur, in the aggregate, any Project Costs in excess of the sum of (i) the amount of Owner's debt and equity capitalization at such time and (ii) any other amount of debt financing and equity capital available to Owner at such time. Subject to the terms of this Agreement, Owner agrees to make (a) an Initial Advance in accordance with Section 4 of this Agreement, (b) Interim Advances from time to time in accordance with Section 5 of this Agreement, (c) a Final Advance in accordance with Section 6 of this Agreement and (d) Completion Advances in accordance with paragraph (b) of subsection 2.3 and Section 7 of this Agreement.

3.2.   Procedure for Advances. Agent shall give Owner notice in accordance with Sections 4, 5, 6 and 7 hereof, as the case may be, of its request for an advance pursuant to this Agreement, specifying a Business Day on which such advance is to be made and the amount of the advance and to whom payment is to be made if other than to Agent. Not later than 2:00 P.M. New York time on the date for the advance specified in such notice, provided all conditions to that advance have been satisfied (or waived by Owner and Assignee), Owner shall provide to Agent, or to vendors or suppliers identified to Owner's reasonable satisfaction, in immediately available funds, the amount of the advance then requested. Owner shall have no obligation to make advances (including Completion Advances) more often than once every calendar month.

3.3   Determination of Amounts of Advances.

(a)   Initial Advance. The amount of the Initial Advance shall be made in accordance with the Budget and the Acquisition Certificate, and shall be sufficient to pay or reimburse in full any Project Costs (other than Unreimbursed Project Costs which Agent has designated as not to be paid at the time of the Initial Advance) and rent incurred under the Ground Lease incurred by Agent on or prior to the date of the Initial Advance. All such costs for which the Initial Advance is requested shall be specifically set forth in the Budget attached to the Acquisition Certificate, and in the request for the Initial Advance, and Owner shall have no obligation to advance any funds in the Initial Advance which are not so specifically set forth in such documents.

(b)   Interim Advances. Disbursements for Project Costs shall be made as the same are incurred within the limits of the Budget, based upon the certifications of Agent contained in an Interim Advance Certificate.

(c)   Final Advance. The amount of the Final Advance shall be made in accordance with the Budget and the Certificate of Substantial Completion, and shall be sufficient, subject to the provisions of paragraph (d) of this subsection 3.3, for payment in full of all costs of designing, constructing, equipping and installing the Project (other than Unreimbursed Project Costs which Agent has not designated to be paid in the Final Advance and those estimated costs that are not yet due in connection with the designing, constructing, equipping and installing of the Project and which will be included as part of a Completion Advance in an amount not to exceed the amount of such estimate, provided that the sum of the Available Commitment remaining and any insurance or condemnation proceeds available to Owner after the Final Advance is equal to or exceeds the aggregate amount of all such estimated costs), free of all Liens other than Permitted Liens. Owner shall have no obligation to make the Final Advance unless all such costs as set forth in the Budget, the Certificate of Substantial Completion, and the request for the Final Advance shall not cause the Acquisition Cost (inclusive of all costs that are not yet due but will be subsequently included as part of a Completion Advance) to exceed the maximum amount for the Project set forth in subsection 2.2 hereof. Agent shall request the Final Advance within thirty (30) days of achieving Substantial Completion.

(d)   Completion Advances. The amount of each Completion Advance shall be made in accordance with and shall not exceed the amount set forth in the Certificate of Increased Cost, shall not cause the Acquisition Cost to exceed the maximum amount for the Project set forth in subsection 2.2 hereof, and shall be sufficient for payment in full of all costs that were not the subject of any previous advance, other than costs to be paid with the proceeds of a subsequent Completion Advance. Owner shall have no obligation to make a Completion Advance unless all such costs are adequately set forth in the Certificate of Increased Cost and will be sufficient for payment in full of all costs with respect to the Project, other than costs to be paid with the proceeds of a subsequent Completion Advance.

3.4.   Partial Advances. If any or all conditions precedent to any advance have not been satisfied on the applicable date for a requested advance, Owner in its sole discretion may, but shall have no obligation to (other than as provided in Section 5(B) hereof), disburse all or part of the requested advance.

3.5.   Available Commitment. If the cost to complete construction of the Project shall exceed the amount described in the first sentence of subsection 2.2 hereof, upon the agreement of Agent, Owner and Assignee, the Available Commitment may be increased by an amount sufficient to complete construction of the Project, and upon such increase Agent shall continue diligently to complete construction of the Project in accordance with this Agreement. Amounts advanced to Agent by Owner to complete construction of the Project shall be included as part of Acquisition Cost.

SECTION 4.   CONDITIONS PRECEDENT TO THE INITIAL
ADVANCE WITH RESPECT TO THE PROJECT

Owner's acquisition of the Project and Owner's obligation to make the Initial Advance shall both be subject to the satisfaction of the conditions set forth in this Section 4 and to the receipt by Owner and Assignee of the documents set forth in this Section 4, in each case, except as otherwise provided herein, in form and substance satisfactory to Owner and Assignee. Owner shall have at least ten (10) Business Days to review the Acquisition Certificate and its attachments prior to making any Initial Advance. For purposes of the Initial Advance, Permitted Liens shall not include any taxes, assessments, governmental charges or levies, except to the extent that such taxes, assessments, governmental charges or levies are due and payable but not yet delinquent or are being contested in a Permitted Contest and are included in the Budget.

The following are the documents to be received by Owner and Assignee and the conditions to be satisfied:

(a)   Lease, Guaranty, Consent, Pledge Agreement, Lessee Note and Related Documents. A fully executed copy of the Lease, the Guaranty, the Pledge Agreement, the Lessee Note, the Consent and any consent of the Guarantor as shall be reasonably requested by Owner or Assignee.

(b)   Acquisition Certificate. An Acquisition Certificate duly executed by Agent.

(c)   Ground Lease. An original duly executed copy of the Ground Lease (with the Premises not being subject to any Liens other than Permitted Liens), including a true and complete copy of the metes and bounds legal description of the Premises, and a copy of a fully executed short form or memorandum of the Ground Lease in the appropriate form for recording in the jurisdiction in which the Premises are located, which form shall be presented to the appropriate filing office on or before the date of the Initial Advance.

(d)   Memorandum of Lease. Two original counterparts of a memorandum of the Lease in the appropriate form for recording in the jurisdiction in which the Premises are located, executed by Agent, as lessee.

(e)   Certificates of Insurance and Insurance Letter. (i) Certificates of insurance or other evidence reasonably acceptable to Owner and Assignee certifying that the insurance on the Project required by subsection 9.3 hereof is in effect; and (ii) a letter from the Insurance Broker certifying as to, among other things, Agent's compliance with the provisions of subsection 9.3 hereof, which letter shall be satisfactory to Owner and Assignee in all respects.

(f)   Taxes. Certification by Agent that all due and payable taxes and assessments applicable to the Premises have been paid in full or are being contested by Agent as a Permitted Contest pursuant to paragraph (a) of Section 16 of this Agreement, and that all such taxes and assessments owed by Agent (or estimated amounts thereof) are included in the Budget.

(g)   Availability of Utilities. Certification by Agent that all utility services and facilities (including, without limitation, gas, electrical, water and sewage services, and Interconnection Facilities) (i) which are necessary and required during the construction period have been completed or will be available in such a manner that construction will not be impeded by a lack thereof and (ii) which are necessary for operation and occupancy of the Project are or will be completed in such a manner and at such a time as will assure the operation of the Project.

(h)   Flood Zone. A certification by the Surveyor on the Survey or an official of an appropriate Governmental Authority that the Premises are not located in any "special flood hazard area" as such term is used in the Flood Disaster Protection Act of 1973.

(i)   Permits. Except as set forth on Schedule 8.26, all Permits and Governmental Actions required for the construction and operation of the Project and for the use of the Premises in accordance with and as contemplated by the Construction Documents, the Project Contracts, this Agreement and the Lease have been or will be issued or obtained in such a manner that such construction, operation and use will not be impeded or delayed by a lack thereof and no liabilities or penalties shall result from a lack thereof. A list of the Permits and Governmental Actions which have not been or will not be issued or obtained as of the date of the Initial Advance is set forth on Schedule 4(i) hereto.

(j)   Survey. The Survey certified by the Surveyor to the Title Company, Agent, Owner and Assignee, with a metes and bounds description of the perimeter of the Premises, showing the location of all exceptions to title of the Project as set forth in the title insurance policies delivered to Owner and Assignee pursuant to paragraph (s) of this Section 4.

(k)   Site Plan. A site plan prepared on behalf of Agent, showing the proposed location of the Project to be constructed on the Premises.

(l)   Plans. A copy of the Plans and, if requested by Owner, such other specifications for the construction of the Project as are available to Agent.

(m)   Use of Proceeds, No Liens and Representations of Agent. (i) All costs and expenses which are the subject of the Initial Advance requested have been paid in full or will be paid in full out of the proceeds of the Initial Advance; (ii) all premiums and costs owing under any insurance policy pursuant to subsection 9.3 hereof have been paid in full or will be paid in full out of the proceeds of the Initial Advance, by the General Contractor or otherwise, and all such insurance policies are in full force and effect; (iii) there are no Liens on the Premises that are not Permitted Liens; (iv) all representations and warranties in this Agreement, in the Lease and in the various agreements, instruments and documents delivered to Owner by or on behalf of Agent in connection with the Initial Advance, are and remain true and correct on and as of the date of the Initial Advance as if made on and as of the date of the Initial Advance (except to the extent such representations and warranties are made expressly as to a specific earlier date, in which case such representations and warranties were true and correct as of such earlier date); and (v) no Event of Loss, Event of Default, Potential Default, Event of Project Termination, Potential Event of Project Termination or Termination Event under this Agreement has occurred and is continuing on the date such Initial Advance is to be made or will exist by reason of giving effect to such Initial Advance.

(n)   Environmental Report. The Environmental Report certified to Owner and each Assignee and otherwise satisfactory to Owner and each Assignee in all respects, prepared by the Environmental Consultant. The Environmental Report shall include, without limitation, a conclusion concerning the ability to obtain and operate the Project in compliance with all required Environmental Approvals, including the ability of the Project to achieve air emission limits and discharge or effluent limits contained in any Permit issued pursuant to any Environmental Requirement and a conclusion concerning the potential for soil, groundwater and other contamination at the Premises arising from prior operations and as may arise during the term of this Agreement and the Lease.

(o)   Opinions of Counsel for Agent and Guarantor. (i) An opinion of Orrick, Herrington & Sutcliffe LLP, counsel for Agent and Guarantor, (ii) an opinion of Robert W. Burke, Esq., in-house counsel of Agent, and (iii) an opinion of Michael A. McGrail, Esq., in-house counsel of Guarantor, in each case in form and substance reasonably satisfactory to Owner and Assignee.

(p)   Budget. A copy of the Budget and certification by Agent that such Budget is (i) true, complete and correct, (ii) accurately representative of all expected costs of the Project, and (iii) within the dollar limit set forth in the first sentence of subsection 2.2 hereof.

(q)   Request for Initial Advance. A duly executed request for advance, stating the total amount of the Initial Advance requested, the date on which the advance is to be made, the name and address of the party to whom the Initial Advance is to be tendered, wiring instructions and an itemization of the various costs constituting the amount of the Initial Advance in such detail as will be necessary to provide disbursement instructions, including an accounting of expenditures for costs shown on the Budget for which payment or reimbursement is being requested.

(r)   Project Contracts; Construction Documents. A fully executed and complete copy of each of the Construction Documents and the Project Contracts which have been executed prior to the date of the Initial Advance.

(s)   Title Insurance Policy. An irrevocable commitment from the Title Company to issue (i) an ALTA owner's policy covering Owner's leasehold interest in the Premises and covering Owner's fee ownership of the improvements with a pending improvements clause and (ii) a lender's policy with a pending disbursements clause for the benefit of each Assignee, in each case complying with the rules and regulations promulgated by the Pennsylvania Department of Insurance, issued by the Title Company in an amount at least equal to $455,043,969.20, and otherwise acceptable to Owner and Assignee in all respects (including such additional endorsements, including, without limitation, those endorsements listed on Schedule 4(s) hereto, as may be reasonably requested by Owner or Assignee), together with legible photocopies of all underlying documents of record affecting the Premises as disclosed in the exceptions to coverage described in the title insurance policies. Owner also shall have received evidence satisfactory to it that all premiums in respect of such policies have been paid as of the closing or will be paid out of the proceeds of the Initial Advance.

(t)   Representations and Warranties of Guarantor. All representations and warranties of the Guarantor in the Guaranty are and remain true and correct on and as of the date of the Initial Advance as if made on and as of the date of the Initial Advance (except to the extent such representations and warranties are made expressly as to a specific earlier date, in which case such representations and warranties were true and correct as of such earlier date), and no default under the Guaranty has occurred and is continuing on the date such Initial Advance is to be made or will exist by reason of giving effect to such Initial Advance.

(u)   Construction Drawdown Schedule. A copy of the Construction Drawdown Schedule prepared by Agent, which reflects Agent's best estimates as to the amount and timing of construction drawdowns at the time delivered.

(v)   Construction Progress. If requested by Owner, Owner and Assignee shall have received true copies of unpaid invoices, receipted bills and Lien waivers (to the extent such Lien waivers are required under any Project Contract), and such other reasonably available supporting information as Owner or Assignee may reasonably request.

(w)   No Other Security Interests. All materials and fixtures incorporated in the construction of the Project have been purchased so that title thereto may automatically be transferred to Owner, and there shall be no Liens on such materials and fixtures other than Permitted Liens.

(x)   Material Adverse Change. Since the date of the Private Placement Memorandum, there has been no change in the business, assets, properties, revenues, financial condition, operations or prospects of Agent which could reasonably be expected to have a material adverse effect on (i) the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, (ii) the ability of Agent to observe and perform its obligations under the Operative Documents, or any of the Construction Documents or the Project Contracts in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner, or (iii) the rights or interests of Owner or Assignee under the Operative Documents, the Guaranty, or any of the Construction Documents or the Project Contracts.

(y)   Conditions Precedent Under Project Contracts and Construction Documents. All conditions precedent to the effectiveness of each Construction Document and Project Contract in effect as of the date of the Initial Advance, have been satisfied in full (other than those (i) relating to completion of construction of the Project, (ii) which the failure to satisfy could not reasonably be expected to have a material adverse effect on Agent's ability to perform its obligations under any of the Construction Documents and Project Contracts or (iii) which will be fulfilled as a result of Agent's execution and delivery of and performance under this Agreement).

(z)   Intellectual Property Rights. All Intellectual Property Rights necessary for the use and operation of the Project in accordance with and as contemplated by the Construction Documents, the Project Contracts, this Agreement and the Lease have been or, prior to the Effective Date will have been, obtained and are or, prior to the Effective Date will be, in full force and effect. There has been no material breach under any such Intellectual Property Rights, and there are no pending or threatened claims or proceedings relating thereto which, if adversely determined, could reasonably be expected to have a material adverse effect on (i) the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, (ii) the ability of Agent to observe and perform its obligations under the Operative Documents, or any of the Construction Documents or the Project Contracts in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner or (iii) the rights or interests of Owner or Assignee under the Operative Documents, the Guaranty, or any of the Construction Documents or the Project Contracts.

(aa)   Required Easements. The Required Easements have been or, prior to the Effective Date will be, obtained and are or, prior to the Effective Date will be, in full force and effect and constitute all easements, rights-of-way and licenses contemplated to be in place under the Construction Documents, the Project Contracts, this Agreement and the Lease as of the date of the Initial Advance. There has been no material breach under any such Required Easements, and there are no pending or, to the best of Agent's knowledge, threatened claims or proceedings relating thereto which, if adversely determined, could reasonably be expected to have a material adverse effect on (i) the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, (ii) the ability of Agent to observe and perform its obligations under the Operative Documents, or any of the Construction Documents or the Project Contracts in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner or (iii) the rights or interests of Owner or Assignee under the Operative Documents, the Guaranty, or any of the Construction Documents or the Project Contracts.

(bb)   Appraisal. An appraisal prepared by the Appraiser and reasonably satisfactory to Owner and Assignee in all respects, which appraisal shall include an initial fair market valuation of at least $455,043,969.20 of the Project as constructed.

(cc)   Opinion of Local Pennsylvania Counsel. An opinion of Morgan, Lewis & Bockius LLP, special Pennsylvania counsel, in form and substance reasonably satisfactory to Owner and Assignee.

(dd)   Additional Matters. Such other documents and legal matters in connection with a request for the Initial Advance as are reasonably requested by Owner or Assignee.

SECTION 5.   CONDITIONS PRECEDENT TO OWNER'S OBLIGATION
TO MAKE INTERIM ADVANCES WITH RESPECT TO THE
PROJECT AFTER THE INITIAL ADVANCE

(A)   Owner's obligation to make any Interim Advance after the Initial Advance shall be subject to the satisfaction of the conditions set forth in this Section 5 and to the receipt by Owner and Assignee of the documents set forth in this Section 5. Owner shall have at least five (5) Business Days to review the Interim Advance Certificate and its attachments prior to making any Interim Advance.

The following are the documents to be received by Owner and Assignee and the conditions to be satisfied:

(a)   Interim Advance Certificate. An Interim Advance Certificate duly executed by Agent.

(b)   Use of Proceeds and Continuing Representations of Agent. (i) All costs and expenses which are the subject of the Interim Advance requested have been paid in full or will be paid in full out of the proceeds of the Interim Advance; (ii) all premiums and costs owing under any insurance policy pursuant to subsection 9.3 hereof have been paid in full by the General Contractor or otherwise or will be paid in full out of the proceeds of the Interim Advance, and all such insurance policies are in full force and effect; (iii) all representations and warranties in this Agreement (except for the representations and warranties made in subsections 8.9 and 8.26 hereof which shall not be made by Agent), in the Lease and in the various agreements, instruments and documents delivered to Owner by or on behalf of Agent in connection with the Interim Advance, are and remain true and correct in all material respects on and as of the date of the Interim Advance as if made on and as of the date of the Interim Advance (except to the extent such representations and warranties are made expressly as to a specific earlier date, in which case such representations and warranties were true and correct as of such earlier date); and (iv) no Event of Loss, Event of Default, Potential Default, Event of Project Termination, Potential Event of Project Termination or Termination Event under this Agreement, or default under any Project Contract or Construction Document has occurred and is continuing on the date such Interim Advance is to be made or will exist by reason of giving effect to such Interim Advance.

(c)   Construction Progress. Owner and Assignee shall have received, if requested by Owner, (i) all Monthly Progress Reports (as defined in the EPC Contract) delivered under the EPC Contract, (ii) true copies of unpaid invoices, receipted bills and Lien waivers (to the extent such Lien waivers are required under the EPC Contract or any other Project Contract), and such other reasonably available supporting information as Owner or Assignee may reasonably request and (iii) a certificate from Agent certifying to Owner and Assignee the amount of Unreimbursed Project Costs outstanding on the date of such Interim Advance.

(d)   No Other Security Interests. All materials and fixtures incorporated in the construction of the Project have been purchased so that title thereto may automatically be transferred to Owner pursuant to the EPC Contract, and there shall be no Liens on such materials and fixtures other than Permitted Liens.

(e)   Request for Interim Advance. A duly executed request for advance, stating the total amount of the Interim Advance requested, the date on which such Interim Advance is to be made, wiring instructions and a specific breakdown of items and costs for which the Interim Advance is being made.

(f)   Representations and Warranties of Guarantor. All representations and warranties of the Guarantor in the Guaranty (except for the representations and warranties made in Sections 4.5, 4.6, 4.8 and 4.9 thereof which shall not be made by the Guarantor) are and remain true and correct in all material respects on and as of the date of the Interim Advance as if made on and as of the date of such Interim Advance (except to the extent such representations and warranties are made expressly as to a specific earlier date, in which case such representations and warranties were true and correct as of such earlier date), and no default under the Guaranty has occurred and is continuing on the date such Interim Advance is to be made or will exist by reason of giving effect to such Interim Advance.

(g)   Satisfactory Title. A notice of title continuation or date-down endorsement issued by the Title Company in respect of Owner's title policy and Assignee's title policy indicating that, since the last advance, there have been no changes in the state of title, except for Permitted Liens and increasing the pending disbursements/improvements coverage to include the amount of such Interim Advance costs.

(B)   If Agent is unable to satisfy the conditions set forth in clause (b) or (f) of paragraph (A) of this Section 5, Agent shall promptly deliver to Owner and Assignee a notice describing in reasonable detail the conditions it is unable to satisfy, along with an Interim Advance Certificate that complies with the remaining provisions of paragraph (A) of this Section 5. Upon receipt of the notice described in the immediately preceding sentence, Owner shall remain obligated to make an Interim Advance to Agent to reimburse Agent for all Unreimbursed Project Costs incurred by Agent since the date of the last advance under this Agreement; provided, however, that (i) Agent shall not thereafter be entitled to incur any additional Project Costs for the period commencing on the date that is five (5) days after Agent's delivery of such notice (the "Unreimbursable Costs") until such time as Agent has satisfied all the conditions set forth in paragraph (A) of this Section 5 (including, without limitation, the conditions of clauses (b) and (f) of paragraph (A) of this Section 5), (ii) Agent shall, unless otherwise directed by Owner, promptly notify each of its contractors and subcontractors to immediately cease incurring any cost or expense relating to the Project, and (iii) Owner shall have no obligation to reimburse Agent for any Unreimbursable Costs.

SECTION 6.   CONDITIONS PRECEDENT TO THE FINAL
ADVANCE WITH RESPECT TO THE PROJECT

Owner's obligation to make the Final Advance shall be subject to the satisfaction of the conditions set forth in this Section 6 and to the receipt by Owner and Assignee of the documents set forth in this Section 6. When all of the conditions set forth in this Section 6 shall have been satisfied, Substantial Completion shall be deemed to occur. Owner shall have at least ten (10) Business Days to review the Certificate of Substantial Completion and its attachments prior to making the Final Advance.

The following are the documents to be received by Owner and Assignee and the conditions to be satisfied:

(a)   Certificate of Substantial Completion. A Certificate of Substantial Completion duly executed by Agent.

(b)   Final Advance. The Final Advance is sufficient to provide for the payment of all costs of constructing the Project (other than (1) the cost of completing any open Punch List (as defined in the EPC Contract) items), (2) Unreimbursed Project Costs not designated by Agent for payment by the Final Advance and (3) those estimated costs in connection with the designing, constructing, equipping and installing of the Project that are not yet due and which will be included as part of a Completion Advance in an amount not to exceed the amount of such estimate, provided that (i) the Available Commitment remaining after the Final Advance is equal to or exceeds the aggregate amount of all such estimated costs and (ii) Agent certifies, based upon its reasonable expectations, that (x) all costs in connection with the designing, constructing, equipping and installing of the Project that are not yet due will not exceed such estimated costs or (y) to the extent that such costs will exceed such estimated costs, such excess costs are Unreimbursed Project Costs).

(c)   Construction and Equipping of the Project. The Project (exclusive of Punch List (as defined in the EPC Contract) items), (i) shall have been completed (including all Performance Tests (as defined in the EPC Contract) required for Substantial Completion under the EPC Contract) in all material respects in accordance with the Plans, the terms of the Construction Documents and the Project Contracts, and (ii) shall have been constructed in accordance with generally accepted engineering and construction practices.

(d)   Permits. All Permits and Governmental Actions required for the occupancy, use and operation of the Project in the manner contemplated in paragraph (c) above and in accordance with and as contemplated by the Construction Documents, the Project Contracts and the Lease have been issued or obtained and are in full force and effect.

(e)   Liens. The Project has been completed in the manner contemplated in paragraph (c) above free of all Liens, except for Permitted Liens (all of which Permitted Liens are to be itemized as to the nature, amount, claimant and status thereof and provided that such Permitted Liens shall not include any mechanics' liens, other than those mechanics' liens that are (i) to be satisfied or discharged out of the proceeds of the Final Advance or a Completion Advance or (ii) subject to a Permitted Contest and fully bonded or otherwise fully secured), and there are no claims outstanding with respect to any Construction Document or Project Contract (other than any such claims that are itemized as to the nature, amount, claimant and status and are fully bonded or otherwise fully secured) and no current Permitted Contests (or, if any Permitted Contest exists, the nature, amount, claimant and status thereof).

(f)   Final Survey. A final as-built ALTA/ACSM Class A survey (the "Final Survey"), prepared by the Surveyor or another independent, licensed registered public land surveyor (reasonably satisfactory to Owner and Assignee) and certified to Owner and any Assignee, with a metes and bounds description of the perimeter of the Premises, and showing the completed Project (excluding the Released Improvements if already released), all servient and beneficial easements pertaining to the Premises, and indicating the location of access to the Premises. No encroachments are to exist by the Project onto premises outside the boundary lines of the Premises or by existing improvements located on adjacent premises onto the Premises other than those that are Permitted Liens or that may have been consented to by Owner and Assignee and all set-back requirements have been complied with. If any discrepancies exist between the legal description set forth on the Survey delivered pursuant to paragraph (j) of Section 4 hereof and the legal description set forth on the Final Survey delivered pursuant to this paragraph (f), Owner and Agent shall cooperate in amending the legal descriptions in all recorded documents creating or affecting the Premises, including, without limitation, any easements, to reflect the correct as-built description.

(g)   Utilities. Connection has been made to all appropriate utility facilities (including Interconnection Facilities) and the Project is capable of operation in the manner contemplated in paragraph (c) of this Section 6 and in accordance with and as contemplated by the Construction Documents, the Project Contracts and the Lease.

(h)   Use of Proceeds and Continuing Representations of Agent. (i) All costs and expenses which are the subject of the Final Advance requested have been paid in full or will be paid in full out of the proceeds of the Final Advance; (ii) all premiums and costs owing under any insurance policy pursuant to subsection 9.3 hereof have been paid in full by the General Contractor or otherwise or will be paid in full out of the proceeds of the Final Advance, and all such insurance policies are in full force and effect; (iii) all representations and warranties in this Agreement (except for the representations and warranties made in subsections 8.9 and 8.26 hereof which shall not be made by Agent), in the Lease and in the various agreements, instruments and documents delivered to Owner by or on behalf of Agent in connection with the Final Advance, are and remain true and correct in all material respects on and as of the date of the Final Advance as if made on and as of the date of the Final Advance (except to the extent such representations and warranties are made expressly as to a specific earlier date, in which case such representations and warranties were true and correct as of such earlier date); and (iv) no Event of Loss, Event of Default, Potential Default, Event of Project Termination, Potential Event of Project Termination or Termination Event under this Agreement has occurred and is continuing on the date such Final Advance is to be made or will exist by reason of giving effect to such Final Advance.

(i)   Request for Final Advance. A duly executed request for advance, stating the total amount of the Final Advance requested, the date on which such advance is to be made, wiring instructions and a breakdown of items and costs for which the Final Advance is to be made.

(j)   Satisfactory Title. A notice of title continuation or an endorsement issued by the Title Company in respect of Owner's title policy and Assignee's title policy, indicating that since the most recent notice of title continuation or endorsement issued by the Title Company in respect of an Interim Advance for the Premises, there have been no changes in the state of title, except for Permitted Liens, and no additional survey exceptions not theretofore specifically approved in writing by Owner and Assignee and increasing the pending disbursements/improvements coverage to account for other advances. Title to the Project shall have been or will be transferred to Owner pursuant to the EPC Contract and shall have been or will be vested solely in Owner upon final payment to the General Contractor under the EPC Contract. In addition, if Agent elects not to request a Completion Advance, Agent shall satisfy the requirements of paragraph (e) of Section 7 hereof.

(k)   Representations and Warranties of Guarantor. All representations and warranties of the Guarantor in the Guaranty (except for the representations and warranties made in Sections 4.5, 4.6, 4.8 and 4.9 thereof which shall not be made by the Guarantor) are and remain true and correct in all material respects on and as of the date of the Final Advance as if made on and as of the date of the Final Advance (except to the extent such representations and warranties are made expressly as to a specific earlier date, in which case such representations and warranties were true and correct as of such earlier date), and no default under the Guaranty has occurred and is continuing on the date such Final Advance is to be made or will exist by reason of giving effect to such Final Advance.

(l)   Commercial Operation. (i) Commercial Operation of the Project shall have been achieved, including, without limitation, satisfaction of (A) the Minimum Performance Guarantees, (B) the Emission Guarantees and (C) the Noise Compliance Guarantee (as each such term is defined in the EPC Contract), in each case according to the procedures set forth in the EPC Contract; (ii) no defective or uncompleted work shall exist that could reasonably be expected to materially and adversely affect the generation of electricity from the Project; (iii) the Project as constructed shall comply in all material respects with all Governmental Actions; and (iv) the Project shall be capable of operating in a manner consistent with prudent industry practices, all applicable Permits and all Legal Requirements and in accordance with the terms of this Agreement, the Lease and the Project Contracts. In addition, if Agent elects not to request a Completion Advance, Agent shall satisfy the requirements of paragraph (g) of Section 7 hereof.

(m)   Environmental Compliance. All compliance tests, emissions tests and certifications and other actions required by any Environmental Requirements as a precondition to Commercial Operation of the Project (including, without limitation, the performance criteria, emissions standards and reliability criteria required by the EPC Contract) shall have been successfully completed and all filings, notices and other submissions required under such Environmental Requirements shall have been fully and accurately completed and submitted to applicable Governmental Authorities as required by applicable Legal Requirements.

(n)   Intellectual Property Rights. All Intellectual Property Rights necessary for the use and operation of the Project in accordance with and as contemplated by the Projects Contracts, this Agreement and the Lease have been obtained and are in full force and effect.

(o)   Easements. The Easements have been obtained and are in full force and effect and are not subject to any Liens, other than Permitted Liens, and constitute all easements and rights-of-way (i) contemplated to be in place under the Construction Documents, the Project Contracts, this Agreement and the Lease as of the date of the Final Advance and (ii) which are necessary for Agent's performance of its obligations under this Agreement, the Lease, the Construction Documents and the Project Contracts.

(p)   Construction Progress. Owner and Assignee shall have received, if requested by Owner, (i) all Monthly Progress Reports (as defined in the EPC Contract) delivered under the EPC Contract, (ii) true copies of unpaid invoices, receipted bills and Lien waivers (to the extent such Lien waivers are required under the EPC Contract or any other Project Contract), and such other reasonably available supporting information as Owner or Assignee may reasonably request and (iii) a certificate from Agent certifying to Owner and Assignee the amount of Unreimbursed Project Costs outstanding on the date of the Final Advance.

(q)   No Other Security Interests. All materials and fixtures incorporated in the construction of the Project have been purchased so that title thereto may automatically be transferred to Owner pursuant to the EPC Contract, and there shall be no Liens on such materials and fixtures other than Permitted Liens.

(r)   Evidence of EWG Status. Agent shall furnish Owner and Assignee with evidence of the filing of an application for determination that Owner is an EWG under Section 32 of the 1935 Act, together with a determination issued by FERC of such EWG status, each in form and substance satisfactory to Owner and Assignee in their reasonable judgment.

SECTION 7.   CONDITIONS PRECEDENT TO COMPLETION
ADVANCES WITH RESPECT TO THE PROJECT

Owner's obligation to make Completion Advances shall be subject to the satisfaction of the conditions set forth in this Section 7 and to the receipt by Owner and Assignee of the documents set forth in this Section 7. Owner shall have at least five (5) Business Days to review the Certificate of Increased Cost and its attachments prior to making a Completion Advance.

The following are the documents to be received by Owner and Assignee and the conditions to be satisfied:

(a)   Certificate of Increased Cost. A Certificate of Increased Cost duly executed by Agent.

(b)   Completion Advance. The Completion Advance is sufficient to provide for the payment of (i) all costs of completing any open Punch List (as defined in the EPC Contract) items, and (ii) all costs in connection with the designing, constructing, equipping and installing of the Project that were not included as part of the Final Advance; provided that all such costs fall within the limits of the Budget.

(c)   Use of Proceeds and Continuing Representations of Agent. (i) All costs and expenses which are the subject of the Completion Advance requested have been paid in full or will be paid in full out of the proceeds of the Completion Advance; (ii) all premiums and costs owing under any insurance policy pursuant to subsection 9.3 hereof have been paid in full by the General Contractor or otherwise or will be paid in full out of the proceeds of the Completion Advance, and all such insurance policies are in full force and effect; (iii) all representations and warranties in this Agreement (except for the representations and warranties made in subsections 8.9 and 8.26 hereof which shall not be made by Agent), in the Lease and in the various agreements, instruments and documents delivered to Owner by or on behalf of Agent in connection with the Completion Advance, are and remain true and correct in all material respects on and as of the date of the Completion Advance as if made on and as of the date of the Completion Advance (except to the extent such representations and warranties are made expressly as to a specific earlier date, in which case such representations and warranties were true and correct as of such earlier date); and (iv) no Event of Loss, Event of Default, Potential Default, Event of Project Termination, Potential Event of Project Termination or Termination Event under this Agreement has occurred and is continuing on the date the Completion Advance is to be made or will exist by reason of giving effect to the Completion Advance.

(d)   Request for Completion Advance. A duly executed request for advance, stating the total amount of the Completion Advance requested, the date on which such advance is to be made, wiring instructions and a breakdown of items and costs for which the Completion Advance is to be made.

(e)   Satisfactory Title. A notice of title continuation or endorsement issued by the Title Company in respect of Owner's title policy and Assignee's title policy, indicating that since the notice of title continuation or endorsement issued by the Title Company in respect of the Final Advance, there have been no changes in the state of title, except for Permitted Liens and, with respect to the last Completion Advance only, a "Completion of Improvements" endorsement which removes the pending disbursements or pending improvements provision of the policy, as the case may be, and redates the survey coverage provided in the policy based on the Final Survey.

(f)   Representations and Warranties of Guarantor. All representations and warranties of the Guarantor in the Guaranty (except for the representations and warranties made in Sections 4.5, 4.6, 4.8 and 4.9 thereof which shall not be made by the Guarantor) are and remain true and correct in all material respects on and as of the date of the Completion Advance as if made on and as of the date of the Completion Advance (except to the extent such representations and warranties are made expressly as to a specific earlier date, in which case such representations and warranties were true and correct as of such earlier date), and no default under the Guaranty has occurred and is continuing on the date such Completion Advance is to be made or will exist by reason of giving effect to such Completion Advance.

(g)   Final Completion. At the time Agent requests its last Completion Advance, (i) Final Completion (as defined in the EPC Contract) shall have occurred as evidenced by the execution and delivery of a Notice of Final Completion (as defined in the EPC Contract) and a certificate stating that the requirements to achieve Final Completion have been met, in each case according to the procedures set forth in the EPC Contract; (ii) the Project shall have satisfied the Output Guarantee (as defined in the EPC Contract) according to the procedures set forth in the EPC Contract; and (iii) the Project shall have satisfied the Heat Rate Guarantee (as defined in the EPC Contract) according to the procedures set forth in the EPC Contract.

(h)   Construction Progress. If requested by Owner, Owner and Assignee shall have received (i) all Monthly Progress Reports (as defined in the EPC Contract) delivered under the EPC Contract and (ii) true copies of unpaid invoices, receipted bills and Lien waivers (to the extent such Lien waivers are required under the EPC Contract or any other Project Contract), and such other reasonably available supporting information as Owner or Assignee may reasonably request.

(i)   No Other Security Interests. All materials and fixtures incorporated in the construction of the Project have been purchased so that title thereto shall have vested solely in Owner, and there shall be no Liens on such materials and fixtures other than Permitted Liens. Title to the Project shall have vested solely in Owner in accordance with the terms of paragraph (j) of Section 6 hereof.

SECTION 8.   REPRESENTATIONS AND WARRANTIES OF AGENT

Agent represents and warrants to Owner as of the date hereof and on the date of each advance (other than with respect to the representation and warranty made in subsection 8.9 and subsection 8.26 hereof which shall apply only as of the date hereof and on the date of the Initial Advance), that:

8.1.   Corporate Matters. Agent (a) has been duly formed and is validly existing as a limited liability company in good standing under the laws of the State of Delaware, (b) has full power, authority and legal right to own and operate its properties and to conduct its business as presently conducted and to execute, deliver and perform its obligations under the Lease, this Agreement, any Consent, the Project Contracts, the Pledge Agreement, the Lessee Note and the Construction Documents, and (c) is duly qualified to do business as a foreign limited liability company in good standing in the Commonwealth of Pennsylvania and in each other jurisdiction in which its ownership or leasing of properties or the conduct of its business requires such qualification, except where the failure to so qualify would not impair the ability of Agent to conduct its business and to observe and perform its obligations under the Operative Documents, any of the Construction Documents or the Project Contracts or any Consent in a timely manner.

8.2.   Compliance with Other Instruments. The execution, delivery and performance by Agent of this Agreement, any Consent, the Project Contracts, the Pledge Agreement, the Lessee Note and the Construction Documents will not result in any violation of any provision of the certificate of formation or the operating agreement of Agent, do not require member approval or the approval or consent of any trustee or holders of indebtedness of Agent except such as have been obtained prior to the date hereof and will not conflict with or result in a breach of any terms or provisions of, or constitute a default under, or result in the creation or imposition of any Lien (other than a Permitted Lien) upon any property or assets of Agent under, any indenture, mortgage or other agreement or instrument to which Agent is a party or by which it or any of its property is bound, or any existing applicable law, rule, regulation, license, judgment, order or decree of any Governmental Authority or court having jurisdiction over Agent or any of its activities or properties.

8.3.   Binding Agreement. This Agreement and the Lease have been duly authorized, executed and delivered by Agent and, assuming the due authorization, execution and delivery of this Agreement and the Lease by Owner, each of this Agreement and the Lease is a legal, valid and binding obligation of Agent, enforceable against Agent according to its terms.

8.4.   Litigation. Except as set forth on Schedule 8.4 hereto, there is no action, suit, claim, or counterclaim, proceeding or investigation, at law or in equity, by or before any court, governmental body, agency, commission or other tribunal now pending or threatened against or affecting the Project, Agent, or any property or rights of Agent or questioning the enforceability of this Agreement, the Project Contracts or the Construction Documents, which could reasonably be expected to have a material adverse effect on (a) the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, (b) the ability of Agent to observe and perform its obligations under the Operative Documents, or any of the Construction Documents or the Project Contracts in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner, or (c) the rights or interests of Owner or Assignee under the Operative Documents, the Guaranty, or any of the Construction Documents or the Project Contracts.

8.5.   Governmental Consents. There are no consents, licenses, orders, authorizations, approvals, Environmental Approvals, Permits, waivers, extensions or variances of, or notices to or registrations or filings with any Governmental Authority or public body (each a "Governmental Action"), (a) which are or will be required in connection with the valid execution, delivery and performance of this Agreement, the Project Contracts or the Construction Documents, (b) which are or will be required in connection with any participation by Owner or Assignee in the transactions contemplated by the Project Contracts, the Construction Documents or the Operative Documents, (c) which are or will be required in connection with the acquisition or ownership by Owner of the Project and all equipment for use with respect thereto, (d) which are or will be required for the lease of the Project or the construction and operation of the Project in accordance with and as contemplated by the Project Contracts, the Construction Documents, this Agreement, and the Lease, or (e) which are or will be required to be obtained by Agent, Owner, Merrill, Merrill Leasing, Assignee or an Affiliate of the foregoing, during the term of this Agreement, the Lease or the Project Contracts, with respect to the Project or the Project Contracts, except such Governmental Actions (i) each of which (1) has been duly obtained, given or accomplished and is in full force and effect, with a true copy thereof delivered to Owner, or (2) is to be obtained but is not now required (but which will be obtained in the ordinary course of business on or before the time required), including, without limitation, orders granting Agent and Owner the status of an EWG, (ii) as may be required by applicable law not now in effect, (iii) as may be required as a result of the business, properties or activities of Owner, Merrill, Merrill Lynch, Merrill Leasing, any Assignee or any Affiliate of the foregoing and which are not solely dependent on the nature of the Project or the business of Agent, or (iv) as may be required by Owner, Assignee or any Affiliate of either, if energy generated at the Project is sold by any such Person upon the termination of this Agreement or after an Event of Default or an Event of Project Termination hereunder or in connection with the exercise of any remedy under which Owner or Assignee or any of their respective Affiliates would operate, possess or control the Project.

8.6.   Compliance with Legal Requirements and Insurance Requirements. The construction, operation, use, and physical condition of the Project (a) are in full compliance with all Insurance Requirements and all premiums due with respect to such Insurance Requirements have been paid, and (b) are in compliance with all Legal Requirements, except any Legal Requirements, the noncompliance with which, individually or in the aggregate, (A) will not place either Owner or any Assignee in any danger of civil liability which Owner or such Assignee is not adequately indemnified for by Agent or subject Owner or any Assignee to any danger of criminal liability as a result of failure to comply therewith, provided that, in the case of any such danger of criminal liability, any grace period in which to cure such non-compliance shall not be applicable and (B) could not reasonably be expected to have a material adverse effect on (i) the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, (ii) the ability of Agent to observe and perform its obligations under the Operative Documents, or any of the Construction Documents or the Project Contracts in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner, or (iii) the rights or interests of Owner or Assignee under the Operative Documents, the Guaranty, or any of the Construction Documents or the Project Contracts.

8.7.   No Default. Neither Agent nor the Guarantor is in violation of or in default under or with respect to any Legal Requirement in any respect which could reasonably be expected to have a material adverse effect on (a) the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, (b) the ability of Agent to observe and perform its obligations under the Operative Documents, or any of the Construction Documents or the Project Contracts in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner or (c) the rights or interests of Owner or Assignee under the Operative Documents, the Guaranty, or any of the Construction Documents or the Project Contracts.

8.8.   Liens. The Project is not subject to any Lien, except for Permitted Liens, and none of such Permitted Liens could reasonably be expected to materially interfere with the construction, use or possession of the Project or the use or exercise by Owner of its rights under this Agreement or any other document contemplated hereby or entered into in connection herewith.

8.9.   Changes. Since the date of the Private Placement Memorandum, there has been no change in the business, assets, properties, revenues, financial condition or operations of the Project or Agent which could reasonably be expected to have a material adverse effect on (a) the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, (b) the ability of Agent to observe and perform its obligations under the Operative Documents, or any of the Construction Documents or the Project Contracts in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner or (c) the rights or interests of Owner or Assignee under the Operative Documents, the Guaranty, or any of the Construction Documents or the Project Contracts.

8.10.   Availability of Utilities. All utility services and facilities necessary for the construction of the Project (including, without limitation, gas, electrical, water and sewage services and facilities) are available at the boundaries of the Premises or will be obtained in sufficient time to permit Agent to achieve Commercial Operation of the Project prior to the Completion Date, and all utility services and Interconnection Facilities necessary for the operation of the Project for its intended purpose will be available on commercially reasonable terms at or within the boundaries of the Premises prior to Commercial Operation.

8.11.   ERISA. Agent has not established and does not maintain or contribute to any employee benefit plan that is covered by Title IV of ERISA, except that Agent's employees may participate in the PPL Retirement Plan.

8.12.   Public Utility Holding Company Act. Agent is not and shall not become a "public-utility company" or a "holding company" within the meaning of the 1935 Act, is not and shall not become an Affiliate of a holding company registered under the 1935 Act (except that Agent may become an Affiliate of a holding company registered under the 1935 Act so long as the rights of Agent under the Project Contracts and the rights of Owner or Assignee under this Agreement or any other document contemplated hereby are not adversely affected), and is not and shall not become regulated as a public utility company or a holding company under any other Federal, state or local Legal Requirement (except that Agent may become regulated as a public utility company so long as the rights of Agent under the Project Contracts and the rights of Owner and Assignee under this Agreement and under any other documents contemplated hereby are not adversely affected).

8.13.   Regulation. Neither Owner nor any Assignee nor any of their respective Affiliates shall, solely by reason of (a) its entering into this Agreement or any other document contemplated hereby, (b) the acquisition, ownership, leasing or financing of the Project (or any part thereof) or (c) the operation of the Project (or any part thereof) during the term of this Agreement or Lease in accordance with and as contemplated by the Project Contracts and the Lease, be subject to financial, rate or other similar regulation as, a public utility, or an electric utility or a public utility holding company under a Legal Requirement (including any Legal Requirement (i) under the 1935 Act, (ii) imposed by any state or local public utility commission or other similar regulatory body, authority or group having jurisdiction over Owner or Agent or any such transactions or activities or (iii) under the Federal Power Act, as amended), except in connection with the exercise of any remedy under which Owner or Assignee or any of their respective Affiliates would operate, possess or control the Project (or any part thereof).

8.14.   Nature of Agent's Business. Agent (a) has not engaged in any business other than as contemplated by paragraph (ii)(j) of Section 2 of the Lease, (b) is not a party to any contract, operating lease, agreement or commitment other than as contemplated by subsection 10.5 hereof, and the Agency Agreement, the Construction Documents and the Project Contracts and (c) has not created, assumed or incurred any Indebtedness other than pursuant to this Agreement, the Lease, the Lessee Note, the Agency Agreement, the Construction Documents and the Project Contracts.

8.15.   Lease. The Lease has been duly authorized, executed and delivered by Agent and is a legal, valid and binding obligation of Agent, enforceable according to its terms.

8.16.   Construction Documents and Project Contracts. Each of the Construction Documents and the Project Contracts has been or will be duly authorized, executed and delivered by Agent and, assuming the due authorization, execution and delivery of the Construction Documents and the Project Contracts by the parties thereto other than Agent, each of the Construction Documents and the Project Contracts when executed and delivered is or will be, a legal, valid and binding obligation of Agent, enforceable according to its terms. Agent has not received notice from, nor is there any reasonable and good faith basis known to Agent for the receipt of a notice from, any party to a Construction Document or a Project Contract that (a) such party is terminating any Construction Document or Project Contract, (b) a default has occurred under any Construction Document or Project Contract or any Person has alleged that a default has occurred under any Construction Document or Project Contract or (c) there are any claims for damages existing as a result of Agent's performance of or its failure to perform any of its obligations under any Construction Document or Project Contract. No default on the part of Agent, or to Agent's knowledge, on the part of any other party thereto, has occurred and is continuing under any Construction Document or Project Contract on the date hereof.

8.17.   Status of Agent. Not less than fifty percent (50%) of the voting membership interests of Agent is owned (directly or indirectly) beneficially and of record by the Guarantor.

8.18.   Project Authorizations. Agent (or its contractors or subcontractors) has obtained, or shall in the ordinary course of business obtain prior to the time required, all certificates, Permits, licenses, authorizations and approvals required (a) in the construction and operation of the Project in accordance with and as contemplated by the Construction Documents, the Project Contracts, this Agreement and the Lease, and (b) for acquisition of equipment related to the Project for use with respect thereto. A list of all such certificates, Permits, licenses, authorizations and approvals required by all applicable law in effect on the date hereof is attached as Exhibit F hereto, which Exhibit F shall be updated on the date of each advance.

8.19.   Compliance with Construction Documents and Project Contracts. The physical condition of the Project as it is presently constructed and as it will be constructed pursuant to the requirements of the EPC Contract complies with all material requirements of each Construction Document and each Project Contract then in effect and will, at the time required, enable Agent to perform all obligations under the Construction Documents, the Project Contracts and the Lease in accordance with their respective terms.

8.20.   Pledge Agreement. The Pledge Agreement has been duly authorized, executed and delivered by Agent and, assuming the due authorization, execution and delivery of the Pledge Agreement by Owner, is a legal, valid and binding obligation of Agent, enforceable according to its terms. The Pledge Agreement creates a valid first priority security interest in the Collateral (as defined in the Pledge Agreement) now in existence, securing the payment of the Secured Obligations (as defined in the Pledge Agreement). All action necessary to perfect the security interest in the Collateral has been taken and such security interest has priority over any other Lien on the Collateral, except for Permitted Liens.

8.21.   Intellectual Property. All Intellectual Property Rights required for the construction and operation of the Project in accordance with and as contemplated by the Construction Documents, the Project Contracts, this Agreement and the Lease, have been or will in the ordinary course of business be timely obtained and, once obtained, will, to the extent required, remain in full force and effect. Agent owns or has, or will in the ordinary course of business timely obtain the right to use all technology, licenses, patents and other proprietary rights that are material and are required to construct the Project and to perform Agent's obligations under the Construction Documents and the Project Contracts without any conflict with the rights of others.

8.22.   Taxes. Agent has filed or caused to be filed all tax returns which are required to be filed by it and all such tax returns were true, correct and complete as of the date filed. Agent has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its assets and properties and has paid all other taxes, fees or other charges imposed on it by any Governmental Authority (except taxes, fees and charges subject to a Permitted Contest).

8.23.   Budgets. The Budget furnished to Owner and Assignee by or on behalf of Agent and the summaries of significant assumptions related thereto, if any (a) have been prepared with due care in accordance with prudent business practices, (b) fairly present Agent's expectations as to the matters covered thereby as of their date, (c) are based on assumptions that are reasonable as to all factual and legal matters material to the estimates therein (including Project Costs) and (d) are in all material respects consistent with the provisions of this Agreement, the Lease, the Construction Documents and the Project Contracts. To the best of Agent's knowledge, the Budget includes all costs and expenses that could reasonably be expected to be incurred in connection with the construction of the Project.

8.24.   Operation of the Project. The Project will, on and after the achievement of Substantial Completion, be able (a) to be operated in compliance with all existing material Governmental Actions, the Project Contracts and the Lease for a period of at least 20 years thereafter, and (b) to be mechanically operated in compliance with all existing material Governmental Actions for a period of at least 25 years thereafter.

8.25.   Lessee Note. The Lessee Note has been duly authorized, executed and delivered by Agent and is a legal, valid and binding obligation of Agent, enforceable according to its terms.

8.26.   Disclosure. Except as set forth on Schedule 8.26 hereto, there is no fact of which Agent is aware which could reasonably be expected to have a material adverse effect on (a) the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, (b) the ability of Agent to observe and perform its obligations under the Operative Documents, or any of the Construction Documents or the Project Contracts in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner, or (c) the rights or interests of Owner or Assignee under the Operative Documents, the Guaranty, or any of the Construction Documents or the Project Contracts, and which has not been set forth in this Agreement, the Lease or in the other documents, certificates and written statements furnished by Agent to Owner and Assignee prior to the date of execution of this Agreement in connection with the transactions contemplated hereby. The Private Placement Memorandum and all documents and information incorporated by reference therein, taken as a whole, does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading, in light of the circumstances under which they were made; provided, however, that no representation is given or made with regard to (i) any forecasts or projections included therein or omitted therefrom, (ii) any information, assumptions or conclusions contained in any expert reports or the summaries thereof, (iii) the descriptions of the tax consequences to the holders of the Notes, (iv) any information regarding Merrill Lynch and its Affiliates, (v) any changes to the documents referred to therein and attached thereto or (vi) any information concerning the Guarantor.

8.27.   Environmental.

Except as expressly identified in the Environmental Report or as set forth on Schedule 8.27 hereto:

(a)   Agent and the Project comply and have at all times complied in all material respects with all Environmental Requirements applicable to the Project. Subject to Agent's right to pursue a Permitted Contest pursuant to Section 16 hereof, Agent and the Project shall at all times during the term of this Agreement comply in all material respects with all Environmental Requirements applicable to the Project, including, without limitation, the use, maintenance and operation of the Project, and all activities and conduct of business related thereto, including, without limitation, the treatment, remediation, removal, transport, storage or disposal of any Contaminant, and no material capital expenditures not included in the Budget are anticipated to maintain or achieve compliance with Environmental Requirements;

(b)   Agent has obtained or has taken appropriate and timely steps, as required by Environmental Requirements, to obtain, and shall obtain and maintain all Environmental Approvals necessary for the construction and operation of the Project in compliance with all Environmental Requirements, or, in the case of Environmental Approvals necessary for operation, shall take such steps as are necessary to secure such Environmental Approvals prior to the time required under all Environmental Requirements, all such Environmental Approvals already obtained are in good standing, and Agent and the Project are currently in material compliance and shall remain in material compliance with all terms and conditions of such Environmental Approvals. No material change in the facts or circumstances reported or assumed in the applications for or the granting of such Environmental Approvals exists. There are no proceedings pending, or threatened, which would jeopardize the validity of or the ability of the Agent to obtain and comply with any such Environmental Approvals in a timely manner;

(c)   Agent has not received any notice that any of the third parties with which Agent has arranged, engaged or contracted to accept, treat, transport, store, dispose or remove any Contaminant generated or present at the Project, or which otherwise participate or have participated in activities or conduct related to the Project, were not properly permitted at the relevant time to perform the foregoing activities or conduct;

(d)   Agent has not received any notice that it or the Project is subject to any investigation, and neither Agent nor the Project is subject to any judicial or administrative proceeding, notice, order, judgment, decree or settlement, alleging or addressing in connection with the Project (i) any violation of any Environmental Requirements, (ii) any Remedial Action, or (iii) any Environmental Damages, claims or liabilities and costs arising from the Release or threatened Release of any Contaminant;

(e)   No Environmental Lien has attached to any portion of the Project, and Agent shall not cause or suffer any action or occurrence that will allow an Environmental Lien to attach to any portion of the Project;

(f)   Agent has not received, and does not have actual knowledge, after due inquiry, of any notice, claim or written communication from a Governmental Authority concerning (i) any alleged violation of any Environmental Requirements at the Project, whether or not corrected to the satisfaction of the appropriate authority, (ii) any alleged liability of Agent for Environmental Damages arising out of or related to the Project, or (iii) any alleged liability of Agent arising out of or related to the Project for the Release or threatened Release of a Contaminant at any location, and there exists no writ, injunction, decree, order or judgment outstanding, nor, to the actual knowledge of Agent, after due inquiry, any lawsuit, claim, proceeding, citation, directive, summons or investigation, pending or threatened, relating to the condition, ownership, use, maintenance or operation of the Project, or the suspected presence of Contaminants thereon or therefrom, nor to Agent's actual knowledge, after due inquiry, does there exist any basis for such lawsuit, claim, proceeding, citation, directive, summons or investigation being instituted or filed;

(g)   To the actual knowledge of Agent, after due inquiry, there has been no Release of any Contaminants which would constitute a violation of any Environmental Requirement with respect to the Project, result in Environmental Damages, or require any Remedial Action under any applicable Environmental Requirement, and Agent shall not cause or suffer any such Release during the term of this Agreement;

(h)   The Project is not listed or to the actual knowledge of Agent, proposed for listing on the National Priorities List ("NPL") pursuant to CERCLA or listed on CERCLIS or any similar state list of sites, and Agent is not aware of any conditions at the Project which, if known to a Governmental Authority, would qualify the Project for inclusion on any such list;

(i)   Neither Agent, nor to the actual knowledge of Agent, after due inquiry, any contractor engaged by Agent in connection with the Project has transported or arranged for the transport of any Contaminant from the Project to any facility or site for the purpose of treatment or disposal which (i) is included on the NPL, or (ii) to the actual knowledge of Agent, is or was, at the time of disposal, subject to a Remedial Action requirement (other than routine, anticipated regulatory requirements, including, but not limited to, closure and post-closure-related corrective action obligations applicable to closed solid waste management units at such facility) issued under the Federal Resource Conservation and Recovery Act or any state, local or foreign solid or hazardous waste regulatory law, or (iii) at the time of the disposal had received a notice of violation or was otherwise subject to a governmental enforcement action with respect to alleged violations of any Environmental Requirements, and Agent shall use reasonable efforts not to suffer or permit any such arrangement for treatment or disposal during the term of this Agreement;

(j)   Neither Agent nor, to the actual knowledge of Agent, after due inquiry, any contractor engaged by Agent in connection with the Project has engaged in or permitted, nor shall Agent engage in or permit, any operations or activities upon, or any use or occupancy of the Project or any portion thereof, for the purpose of or in any way involving the illegal or improper release, discharge, refining or dumping of any Contaminant or the illegal or improper handling, storage, use or disposal of any Contaminant, nor has Agent or to the actual knowledge of Agent, after due inquiry, any other Person caused any Contaminant to be deposited, released, stored, disposed, leached or otherwise come to be located on, under, in or about the Premises, nor to the actual knowledge of Agent, after due inquiry, has any Contaminant migrated from the Premises onto or underneath other properties which would require any Remedial Action under any applicable Environmental Requirement or give rise to any Environmental Damages;

(k)   To the actual knowledge of Agent, after due inquiry, there is not constructed, placed, deposited, stored, disposed nor located on the Project or the Premises any asbestos in any form which has become or threatens to become friable. Agent shall not cause or suffer the use of any asbestos-containing material in connection with the construction of the Project during the term of this Agreement;

(l)   To the actual knowledge of Agent, after due inquiry, there is not constructed, placed, deposited, released, stored, disposed, leached nor located on any of the Project any polychlorinated biphenyls ("PCBs") or transformers, capacitors, ballasts, or other equipment which contain dielectric fluid containing PCBs. Agent shall not cause or suffer the use of any article containing PCBs at or on the Project during the term of this Agreement;

(m)   Agent has no liability, and has neither received nor is otherwise aware of any notice, claim or other communication alleging liability on the part of Agent, for the violation of any Environmental Requirements, for Environmental Damages, or for the Release or threatened Release of any Contaminant in connection with the Project; and

(n)   None of the matters identified in the Environmental Report, individually or in the aggregate, could reasonably be expected to have a material adverse effect on (i) the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, (ii) the ability of Agent to observe and perform its obligations under the Operative Documents, or any of the Construction Documents or the Project Contracts in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner or (iii) the rights or interests of Owner or Assignee under the Operative Documents, the Guaranty, or any of the Construction Documents or the Project Contracts.

SECTION 9.   AFFIRMATIVE COVENANTS

Agent hereby agrees that, so long as this Agreement remains in effect, Agent shall keep and perform fully each and all of the following covenants:

9.1.   Performance under Other Agreements. Agent shall duly perform and observe, in all material respects, all of the covenants, agreements and conditions on its part to be performed and observed under the Project Contracts and the Construction Documents.

9.2.   No Encroachments. The Project shall be constructed entirely on the Premises or the various locations of the Easements and shall not encroach upon or overhang any property lying outside of the boundaries of the Premises or the Easements (unless such encroachment or overhang (i) is consented to by the affected property owner, (ii) does not render the Project unmarketable, (iii) does not cause a reduction in the fair market value of the Project, and (iv) does not adversely affect the use of the Project or any easement or right-of-way on the land of the affected property owner), and when erected shall be wholly within any building restriction lines, however established and will not encroach upon or overhang the property of any other Persons lying inside or outside the boundaries of the Premises or the Easements unless all licenses, permits or easements therefor have been obtained from the Persons whose property is burdened thereby. Furthermore, the foundations of the Project will not encroach upon, and the balance of the improvements comprising the Project shall be constructed so as not to interfere with (or to encroach upon unless any necessary consents are obtained from the benefited Persons), any utility lines, wires, poles, cables, fixtures, water mains, gas mains, pipes, roadways, concrete vaults, pedestrian walkways, pipe stations, guys, sewers or other equipment lying inside the boundaries of the Premises or the Easements as shown on the Survey, except to the extent expressly permitted by the burdened easement, license or right-of-way. Upon the reasonable request of Owner, Agent shall furnish from time to time satisfactory evidence of compliance with the foregoing covenants. If any discrepancies exist between the legal description set forth on the Survey and the Final Survey, Owner and Agent shall cooperate in amending the legal descriptions in all recorded documents creating or affecting the Premises, including, without limitation, the Ground Lease, to reflect the correct as-built description.

9.3.   Insurance.

(a)   Insurance with respect to the Project. Agent shall procure for Owner or, if such coverage is already in place, maintain (or cause to be procured and/or maintained) in full force and effect at all times throughout the term of this Agreement (and all costs relating thereto (including deductibles paid by Agent thereon) shall be reimbursed by Owner by means of advances under this Agreement and shall be capitalized by Owner as an element of the Acquisition Cost of the Project, provided, that insurance deductibles paid by Agent may not be capitalized by Owner as an element of the Acquisition Cost) insurance policies with insurance companies authorized to do business in the Commonwealth of Pennsylvania with a Best Insurance Reports rating of "A-" or better, or if not rated by Best, shall be of substantially equivalent financial strength and creditworthiness of insurance companies that maintain such ratings (or such other company acceptable to Owner and Assignee), with such deductibles as set forth below, or if not set forth below, as are approved by Owner and Assignee, and with such limits and coverage provisions as Agent shall deem reasonable, but in no event less than the limits and coverage provisions set forth below:

   (i)   Workers' Compensation and Employer's Liability Insurance. Workers' compensation and employer's liability insurance in accordance with and as required under the laws of the Commonwealth of Pennsylvania.

   (ii)   Commercial General Liability Insurance. Liability insurance on an occurrence (or AEGIS or EIM claims-made form) basis against claims for personal injury (including bodily injury and death) and property damage. Such insurance shall provide coverage for products-completed operations, blanket contractual, explosion, collapse and underground coverage, broad form property damage, personal injury insurance, and sudden and accidental seepage and pollution with a $1,000,000 minimum limit per occurrence for combined bodily injury and property damage with a maximum deductible that is consistent with prudent utility business practices, but in no event in excess of $500,000 per occurrence.

   (iii)   Automobile Liability Insurance. Automobile liability insurance against claims for personal injury (including bodily injury and death) and property damage covering all owned, leased non-owned and hired motor vehicles, including loading and unloading, with a $1,000,000 minimum limit per occurrence for combined bodily injury and property damage and containing appropriate no-fault insurance provisions wherever applicable.

   (iv)   Excess Liability Insurance. Excess liability insurance on an occurrence (or AEGIS or EIM claims-made form) basis covering claims in excess of the underlying insurance described in the foregoing clause (ii), with a $75,000,000 minimum limit per occurrence with a deductible not in excess of $500,000 per occurrence; provided, however, in the event the available limit of liability is less than $35,000,000 due to claims against such excess liability insurance, Agent shall purchase additional coverage so that the available limit of liability under such excess liability insurance is not less than $75,000,000.

         The insurance required in the foregoing clause (i) with respect to Employers Liability only, clauses (ii), (iii) and this clause (iv) may be satisfied either by the amounts specified or by any combination of primary and excess insurance, so long as the total amount of insurance meets the requirements specified above.

   (v)   All Risk Builders' Insurance. All Risk Builders' Risk Completed Value Non-Reporting Form Insurance including boiler and machinery, collapse coverage (including, but not limited to, earthquake, landslide, subsidence and volcanic eruption) and fire insurance with extended coverage, in an amount equal to not less than one hundred percent (100%) of the completed insurable value of the Project, and with a maximum deductible of $250,000 per occurrence, except that (1) during the operational testing period of the Project, such insurance shall be subject to a maximum deductible of $500,000 per occurrence and (2) during the operational testing period of the gas turbine generators, heat recovery steam generators and related equipment, such insurance shall be subject to a maximum deductible of $1,000,000 per occurrence; provided, that if the existing insurance policy is unilaterally cancelled by the insurance company providing such coverage, the deductible limit shall be based on such lesser amount as is commercially available in the insurance industry as supported by a letter from the Insurance Broker.

   (vi)   Environmental Impairment Liability Insurance. Environmental impairment liability insurance in an amount not less than $10,000,000 per occurrence. The parties acknowledge and agree that so long as Agent maintains sudden and accidental seepage and pollution coverage pursuant to clause (a)(ii), the requirements of this clause (a)(vi) shall be deemed satisfied.

(b)   Agent shall also maintain or cause to be maintained in full force and effect at all times insurance with respect to the Project as required by the terms of the EPC Contract.

(c)   Agent shall comply with the insurance provisions described in Section 10 of the Lease following paragraph (b) thereof, except that the terms "Owner", "Agent" and "this Agreement" shall substitute for the terms "the Lessor", "the Lessee" and for "this Lease", respectively, and the provisions of paragraphs (c)(v), (h), (i) and (n) of Section 10 of the Lease shall not be applicable prior to the Effective Date.

(d)   Agent covenants that it will not use, carry on construction with respect to, or occupy the Project or permit the use, construction, or occupancy of the Project at a time when the insurance required by paragraphs (a) and (b) of this subsection 9.3 is not in force with respect to the Project.

(e)   It is agreed that any insurance payments received as the result of the occurrence of (i) any Event of Loss, (ii) any partial damage or destruction of the Project, or (iii) any partial condemnation or taking of the Project by any Person or Governmental Authority having the power of eminent domain, shall be paid into and will be held in the Operating Account and applied in payment (or to reimburse Agent) for repairs or replacement in accordance with the terms of this Agreement. Agent shall be entitled, subject to the immediately preceding sentence, (1) to receive the amounts so deposited against certificates, invoices or bills reasonably satisfactory to Owner, delivered to Owner from time to time as such work or repair progresses, and (2) to direct the investment of the amounts so deposited as provided in paragraph (j) of Section 10 of the Lease.

9.4.   Inspection of Books and Records. Upon reasonable notice to Agent and the General Contractor and during reasonable business hours, Owner and Assignee or designated representatives of either of them shall have the right of entry and free access to the Project and the right to inspect all work done, labor performed and materials furnished in and about the Project, subject to Agent's and the General Contractor's reasonable safety policies and insurance requirements, and at reasonable times and on reasonable notice to Agent, the right to inspect all books, contracts and records of Agent relating to the Project. Notwithstanding the foregoing, neither Owner nor Assignee shall have any duty to make any such inspection.

9.5.   Expenses. Unless capitalized or required to be capitalized by Owner pursuant to clause (i) of the penultimate sentence of this subsection 9.5, Agent shall pay upon demand all obligations, costs and expenses incurred by Owner with respect to any and all transactions contemplated herein and the preparation of any document reasonably required hereunder and the prosecution or defense of any action or proceeding or other litigation affecting Agent or the Project, including (without limiting the generality of the foregoing) all Financing Costs not capitalized by Owner and amounts required to pay or reimburse Owner for its obligations, costs and expenses arising in connection with the termination of any Financing Arrangement (whether as a result of a default thereunder or otherwise), all interest (including, without limitation, interest at a default rate) and other costs, fees and expenses incurred by Owner under any Financing Arrangement (including any such accruing after the commencement of a bankruptcy or similar proceeding), costs incurred in connection with obtaining, maintaining and terminating Owner's equity financing and refinancing (including, without limitation, any amounts owing by Owner to its Partners as a result of a sale of limited partner interests by any limited partner of Owner or a modification of the terms of such equity financing), title and conveyancing charges, recording and filing fees and taxes, title search fees, rent under the Ground Lease, mortgage taxes, intangible personal property taxes, escrow fees, revenue and tax stamp expenses, insurance premiums, brokerage commissions, finders' fees, placement fees, court costs, surveyors', photographers', appraisers', architects', engineers', industry consultants', insurance advisors', rating agencies', accountants' and reasonable attorneys' fees and disbursements, and will reimburse to Owner all expenses paid by Owner of the nature described in this subsection 9.5 which have been incurred by Owner with respect to any and all of the transactions contemplated herein. In the event Agent shall fail to pay or reimburse Owner within fifteen (15) Business Days after presentation of a bill and demand for payment therefor, Owner may pay such expenses and any proceeds so applied shall be deemed advances under this Agreement, and deducted from the total funds available to Agent under this Agreement. Notwithstanding anything to the contrary contained in this subsection 9.5, (i) Agent shall not be required to pay or reimburse Owner for any of the foregoing obligations, costs and expenses which Owner has capitalized and included (or is required hereunder to capitalize and include) as an element of the Acquisition Cost and (ii) Agent shall not be required to pay or reimburse Owner, and Owner shall not capitalize and include as an element of the Acquisition Cost, any obligations, costs and expenses (including Unrecovered Liabilities and Judgments) incurred by Owner as a result of a casualty, condemnation or force majeure event (or interest accrued with respect thereto) with respect to the Project or any payments for which Agent would not be obligated to indemnify Owner or any other Indemnified Person under the provisions of Section 12 hereof or Section 11 of the Lease. Expenses incurred by Owner (including, without limitation, Financing Costs) in financing obligations, costs and expenses shall be payable by Agent hereunder, if not capitalized (or required to be capitalized hereunder) by Owner.

9.6.   Delivery of Information.

(a)   Agent shall deliver to Owner and Assignee from time to time, (i) promptly, and in any event within ten (10) days after request, such information available to Agent with respect to Agent's operations, business, properties, assets, financial condition or litigation as Owner or Assignee shall reasonably request; (ii) promptly, and in any event within ten (10) days after a Responsible Officer obtains actual knowledge of any Event of Default, Potential Default, Event of Loss, Event of Project Termination, Potential Event of Project Termination or Termination Event hereunder, a certificate of a Responsible Officer specifying the nature and period of existence of such Event of Default, Potential Default, Event of Loss, Event of Project Termination, Potential Event of Project Termination or Termination Event, and what action, if any, Agent or the Guarantor has taken, is taking, or proposes to take with respect thereto; (iii) promptly, and in any event within ten (10) days after a Responsible Officer obtains actual knowledge of any material adverse change in the financial condition or business of Agent, or of any liabilities or obligations arising as a result of tortious action or Environmental Damages related to the Project or as a result of governmental fines or obligations (other than taxes) or liabilities or obligations arising as a result of Environmental Matters, or of any litigation of the type described in subsection 8.4 hereof, a certificate of a Responsible Officer describing such change, liabilities, obligations or litigation, as the case may be, and what action, if any, Agent has taken, is taking, or proposes to take with respect thereto; (iv) promptly, and in any event not more than ten (10) days after the end of each fiscal year of Agent, a certificate of a Responsible Officer stating, to the best knowledge of such Responsible Officer after reasonable inquiry, whether there exists on the date of such certificate any Event of Default, Potential Default, Event of Loss, Event of Project Termination, Potential Event of Project Termination, Termination Event, default under any Project Contract or Construction Document, and if any Event of Default, Potential Default, Event of Loss, Event of Project Termination, Potential Event of Project Termination, Termination Event, or default under any Project Contract or Construction Document exists, specifying the nature and period of existence thereof and what action, if any, Agent or the Guarantor has taken, is taking or proposes to take with respect thereto; and (v) promptly, and in any event within ten (10) days after a Responsible Officer obtains actual knowledge of any legal, governmental or regulatory proceeding which if adversely determined could reasonably be expected to have a material adverse effect on (a) the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, (b) the ability of Agent to observe and perform its obligations under the Operative Documents, or any of the Construction Documents or the Project Contracts in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner or (c) the rights or interests of Owner or Assignee under the Operative Documents, the Guaranty, or any of the Construction Documents or the Project Contracts, a certificate of a Responsible Officer, describing each such proceeding and what action, if any, Agent has taken, is taking, or proposes to take with respect thereto.

(b)   Agent shall give notice to Owner and Assignee promptly upon the occurrence of:

   (i)   receipt of any notice given pursuant to any of the Construction Documents or other Project Contracts that a default by Agent has occurred thereunder;

   (ii)   issuance of any notice by Agent alleging that a default has occurred pursuant to any of the Construction Documents or any Project Contract;

   (iii)   obtaining knowledge of any condition which constitutes a delay for force majeure under any Construction Document or any Project Contract with respect to construction or completion of the Project;

   (iv)   the imposition of any Lien, other than Permitted Liens;

   (v)   receipt of notices from any party to any Construction Document or Project Contract that (i) such party desires to amend, modify or waive any term of any Construction Document or Project Contract (including any change orders under the EPC Contract), (ii) such party is commencing or proposes to commence any dispute resolution procedure under the terms of any Construction Document or Project Contract, (iii) such party is terminating or has proposed to terminate any Construction Document or Project Contract, (iv) a default or a force majeure event has occurred under any Construction Document or Project Contract or any Person has alleged that a default or a force majeure event has occurred under any Construction Document or Project Contract, or (v) there are claims for damages in excess of $100,000 existing as a result of Agent's performance of or its failure to perform any of its obligations under any Construction Document or Project Contract;

   (vi)   receipt of any material notices from the General Contractor under the EPC Contract or from Siemens Westinghouse Power Corporation under the Siemens Turbine Contract;

   (vii)   obtaining knowledge of any pending or threatened litigation or proceeding affecting the Project in which the amount of damages requested exceeds $1,000,000 or more or in which injunctive or similar relief is sought; and

   (viii)   obtaining actual knowledge of any litigation or proceeding affecting the General Contractor, Siemens Westinghouse Power Corporation or the Operator that could reasonably be expected, based upon facts actually known to Agent, to impair the ability of such party to perform its obligations under any of the Construction Documents or the Project Contracts.

         Each notice pursuant to paragraph (b) of this subsection 9.6 shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action, if any, Agent proposes to take with respect thereto.

(c)   Agent shall promptly furnish to Owner and Assignee:

   (i)   all material written communications relating to any pending or threatened investigations, claims or proceedings with respect to any material Governmental Action or proposing to amend, modify or affect any material Governmental Action then required to be in effect;

   (ii)   written notice of the occurrence of any event giving rise (or that could reasonably be expected to give rise) to a claim under any insurance policy maintained pursuant to the terms of this Agreement in an amount greater than $1,000,000 together with copies of any document relating thereto (including copies of any such claim) in the possession or control of Agent;

   (iii)   promptly after preparation thereof, any and all revisions to the Budget or the Construction Drawdown Schedule;

   (iv)    promptly after obtaining actual knowledge thereof, written notice of the occurrence of any event giving rise or that could reasonably be expected to give rise to the Project failing to achieve Substantial Completion (as defined in the EPC Contract) under the EPC Contract prior to the Completion Date;

   (v)   promptly upon its execution a copy of any Construction Document or Project Contract or replacement thereto;

   (vi)   promptly upon its execution a copy of the LNTP, if any, and the Full Notice to Proceed (each as defined in the EPC Contract) delivered or to be simultaneously delivered to the General Contractor pursuant to Section 2.1 of the EPC Contract authorizing the commencement of work on the Project; and

   (vii)   promptly upon its execution, a copy of the Replacement MOU Agreement.

9.7.   Conduct of Business and Maintenance of Existence. Agent shall preserve, renew and keep in full force and effect its legal existence (except as otherwise permitted herein), and maintain all rights, privileges and franchises material to the conduct of its business, and comply with all Legal Requirements, except any Legal Requirements, the noncompliance with which, individually or in the aggregate, (a) will not place either Owner or any Assignee in any danger of civil liability which Owner or such Assignee is not adequately indemnified for by Agent or subject Owner or any Assignee to any danger of criminal liability as a result of failure to comply therewith, provided that, in the case of any such danger of criminal liability, any grace period in which to cure such non-compliance shall not be applicable and (b) could not reasonably be expected to have a material adverse effect on (i) the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, (ii) the ability of Agent to observe and perform its obligations under the Operative Documents, or any of the Construction Documents or the Project Contracts in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner, or (iii) the rights or interests of Owner or Assignee under the Operative Documents, the Guaranty, or any of the Construction Documents or the Project Contracts; provided, however, that nothing contained in this subsection 9.7 shall prevent Agent from consummating any merger, consolidation or sale permitted by the provisions of subsection 10.2 hereof.

9.8.   Legal Requirements and Insurance Requirements. (a) Agent shall comply or shall cause compliance with every Insurance Requirement and Legal Requirement (including, without limitation, Environmental Requirements) affecting the execution, delivery and performance of this Agreement, the Project Contracts and the Construction Documents and the Project; and (b) Agent will not do or permit any act or thing which is contrary to any Insurance Requirement or which is contrary to any Legal Requirement, or which might impair, other than in the normal use thereof, the value or usefulness of the Project, except, in the case of (a) and (b) of this subsection, any Legal Requirements, the noncompliance with which, individually or in the aggregate, (i) will not place either Owner or any Assignee in any danger of civil liability which Owner or such Assignee is not adequately indemnified for by Agent or subject Owner or any Assignee to any danger of criminal liability as a result of failure to comply therewith, provided that, in the case of any such danger of criminal liability, any grace period in which to cure such non-compliance shall not be applicable and (ii) could not reasonably be expected to have a material adverse effect on (A) the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, (B) the ability of Agent to observe and perform its obligations under the Operative Documents, or any of the Construction Documents or the Project Contracts in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner or (C) the rights or interests of Owner or Assignee under the Operative Documents, the Guaranty, or any of the Construction Documents or the Project Contracts. Agent shall perform and observe all of the covenants set forth in subsections 8.27 and 9.16 of this Agreement and those sections rather than this subsection 9.8 shall apply to Environmental Requirements.

9.9.   Payment of Taxes. With respect to the Project, Agent shall make all required reports to the appropriate taxing authorities and shall pay and discharge during the term of this Agreement, on behalf of Owner, the taxes that Agent would be required to pay and discharge under paragraph (c) of Section 9 of the Lease (and all costs relating thereto shall be reimbursed by Owner by means of advances under this Agreement, and shall be capitalized by Owner as an element of the Acquisition Cost of the Project). Payment and discharge of such taxes shall be on the terms set forth in paragraph (c) of Section 9 of the Lease.

9.10.   Filings, Etc. Agent shall promptly and duly execute, deliver, file, and record, at Agent's expense, all such documents, statements, filings, and registrations, and take such further action as Owner shall from time to time reasonably request in writing in order to establish, perfect and maintain Owner's title to and interest in the Project and Assignee's interest in this Agreement or the Project as against Agent or any third party claiming by or through Agent in any applicable jurisdiction.

9.11.   Use of Proceeds. The proceeds of each advance shall be used by Agent for payment or reimbursement of costs specified in the applicable request for the advance and in accordance with the Budget.

9.12.   Compliance with Other Requirements. Agent shall use reasonable precautions to prevent loss or damage to the Project and to prevent injury to third Persons or property of third Persons, including, without limitation, the provision of security on and around the Project such that access to the Project is limited to employees of Agent, the General Contractor and subcontractors appointed to perform work in connection with the construction of the Project and to others to whom Agent elects to provide access in furtherance of Agent's business goals. If an Event of Loss shall occur, or the Project is partially damaged or destroyed by fire or any other cause, or the Project is subject to any partial condemnation or taking by any Person or Governmental Authority having the power of eminent domain, Agent shall promptly commence the restoration and reconstruction of the Project and Owner shall continue to be obligated to make advances to Agent pursuant to the terms of Section 5, 6 and 7 of this Agreement. Agent shall cooperate fully with Owner and all insurance companies providing insurance pursuant to subsection 9.3 hereof in the investigation and defense of any claims or suits arising from the ownership or operation of equipment or ownership, use, or occupancy of the Project; provided that nothing contained in this subsection 9.12 shall be construed as imposing on Owner any duty to investigate or defend any such claims or suits. Agent shall comply and shall use its reasonable best efforts to cause all Persons operating equipment on, using or occupying the Project, to comply with every Insurance Requirement and Legal Requirement regarding acquiring, titling, registering, leasing, subleasing, insuring, using, occupying, operating and disposing of the Project, and, if applicable, the licensing of operators thereof, except any Legal Requirements, the noncompliance with which, individually or in the aggregate, (a) will not place either Owner or any Assignee in any danger of civil liability which Owner or such Assignee is not adequately indemnified for by Agent or subject Owner or any Assignee to any danger of criminal liability as a result of failure to comply therewith, provided that, in the case of any such danger of criminal liability, any grace period in which to cure such non-compliance shall not be applicable and (b) could not reasonably be expected to have a material adverse effect on (i) the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, (ii) the ability of Agent to observe and perform its obligations under the Operative Documents, or any of the Construction Documents or the Project Contracts in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner, or (iii) the rights or interests of Owner or Assignee under the Operative Documents, the Guaranty, or any of the Construction Documents or the Project Contracts.

9.13.   Operation of Project. Agent shall, with respect to any testing of the Project at any time prior to the Effective Date, perform and observe, and cause the Operator to perform and observe during the term of this Agreement, on behalf of Owner, all of the agreements and conditions set forth in Sections 8 and 9 of the Lease (except that the provisions of all but the first two sentences of paragraph (d) of Section 8 and all of paragraphs (b) and (e) of Section 9 of the Lease shall not be applicable prior to the Effective Date) with respect to the Project (and all costs relating thereto shall be reimbursed by Owner by means of advances under this Agreement, and shall be capitalized by Owner as an element of the Acquisition Cost of the Project), except that this Agreement shall substitute the terms "Owner" for "the Lessor" and "Agent" for "the Lessee".

9.14.   Construction of Project. Agent agrees to cause the construction, maintenance, repair, equipping, use and operation of the Project in the manner and for the purpose contemplated hereby and by the Construction Documents and the Project Contracts. Agent shall comply in all material respects with all applicable Federal, state and local laws and regulations relating to the keeping of records for the Project.

9.15.   Technology. Agent shall maintain, or cause to be maintained, all Intellectual Property Rights and technology necessary in connection with the construction, operation and maintenance of the Project in accordance with the requirements of the Construction Documents and the Project Contracts.

9.16.   Lease Covenants. Agent shall perform and observe all of the agreements and conditions set forth in paragraphs (ii)(a), (ii)(b), (ii)(e), (ii)(f), (ii)(h), (ii)(i) and (ii)(l) of Section 2 of the Lease as if set forth in full herein.

9.17.   Governmental Approvals. Agent shall (a) duly obtain, or cause to be obtained, on or prior to such date as the same become legally required, and (b) thereafter maintain, or cause to be maintained, in effect as long as legally required, all authorizations, consents, approvals, waivers, exemptions, variances, registrations, leases, tariffs, certifications, franchises, permissions, Permits and licenses of, and filings and declarations with, and rulings by, any Governmental Authority (including, without limitation, Environmental Approvals and those with respect to zoning and other land use laws, ordinances and regulations) necessary for the construction, ownership and operation of the Project in accordance with and as contemplated by the Construction Documents, the Project Contracts, this Agreement and the Lease.

9.18.   Certain Obligations Upon Events of Project Termination. Commencing upon the occurrence of any Event of Project Termination, Agent shall satisfy all Loss Payment Requirements and shall, upon the request of Owner or Assignee, exercise all commercially reasonable efforts (a) to provide Owner (or a designated assignee of Owner or Assignee) with all manuals and other documents in Agent's possession or to which Agent has access relating to the services to be provided by the General Contractor or the Operator under the Construction Documents and the Project Contracts necessary to enable the Project to operate on commercially reasonable terms, (b) to provide Owner (or a designated assignee of Owner or Assignee) with any Construction Documents and Project Contracts, in each case to the extent assignable and not assigned to Owner (or a designated assignee of Owner or Assignee) pursuant to paragraph (a)(i)(B) of the definition of "Loss Payment Requirements" herein, (c) to provide Owner (or a designated assignee of Owner or Assignee) with any Permits or Intellectual Property Rights, in each case to the extent assignable and not assigned to Owner (or a designated assignee of Owner or Assignee) pursuant to paragraph (b) of the definition of "Loss Payment Requirements" herein that are necessary to enable the Project to operate on commercially reasonable terms in connection with its operation as an EWG and the sale of electricity at wholesale, (d) to provide Owner (or a designated assignee of Owner or Assignee) with any other permits, licenses or other Governmental Actions (in each case to the extent assignable) required to enable such party to operate the Project on commercially reasonable terms as an EWG in connection with the sale of electricity at wholesale and (e) to either negotiate in good faith with Owner (or a designated assignee of Owner or Assignee), or locate a third party reasonably acceptable to Owner and Assignee who is capable of operating the Project for Owner (or a designated assignee of Owner or Assignee), to operate the Project for Owner (or such designated assignee of Owner or Assignee) for fair market value compensation for such services. Agent's obligations contained in this subsection 9.18 shall survive the expiration or other termination of this Agreement until Owner receives payment of (i) all amounts owing pursuant to this Agreement, (ii) all losses, damages, costs and expenses (including, without limitation, attorneys' fees and expenses, commissions, filing fees and sales or transfer taxes) sustained by Owner hereunder with respect to the Project, (iii) all amounts owing under the Financing Arrangements and (iv) any unreimbursed costs incurred by Owner or Assignee with respect to the Project, the Construction Documents or the Project Contracts after the term of this Agreement.

9.19.   Further Assurances. Agent shall from time to time promptly execute and deliver to Owner all such documents and instruments and do all such other acts and things as Owner may reasonably request to obtain the full benefits of this Agreement, to exercise and enforce its rights and remedies hereunder and to protect Owner's rights and interest in and to the Project. Agent shall furnish to Owner upon request the contracts, bills of sale, statements, receipted vouchers and other agreements and documents under which Owner has title to any materials, fixtures or articles of personal property incorporated or intended to be incorporated in or required for the operation of the Project. Agent shall furnish Owner and any Assignee with such documents, reports, certificates, affidavits and other information, in form and substance satisfactory to Owner and any Assignee in their reasonable judgment, as Owner or any Assignee may require to evidence compliance by Agent with all of the provisions of this Agreement.

9.20.   Payment of Insurance Premiums. Agent shall apply the proceeds of each advance made by Owner under Sections 4, 5, 6 and 7 of this Agreement for payment in full of all amounts due and owing (if any) with respect to obtaining and maintaining all insurance policies required by the provisions of paragraph (a) of subsection 9.3 hereof such that all of the insurance required by subsection 9.3 hereof is in full force and effect for the entire term of this Agreement.

9.21.   Delivery of Replacement MOU Agreement. Agent shall deliver to Owner and Assignee on or prior to the date that is ninety (90) days from the date of this Agreement, a fully executed and complete copy of the Replacement MOU Agreement, in form and substance reasonably satisfactory to Owner and Assignee. For purposes of this Section 9.21, the following procedures shall apply. Agent shall deliver to counsel for Owner and counsel for the Note Purchasers (as defined in the Collateral Indenture) a proposed form of Replacement MOU Agreement on or prior to the date that is 45 days after the date of this Agreement, which proposed form shall be reviewed and commented upon by such counsel. On or prior to the date that is 90 days after the date of this Agreement, Agent shall deliver to the Owner and the Assignee, a fully executed and complete copy of the Replacement MOU Agreement, which Replacement MOU Agreement shall be reasonably satisfactory to the Owner and the Assignee in form and substance. Upon receipt of the Replacement MOU Agreement, the Owner shall request that the Assignee obtain the approval of such Replacement MOU Agreement by the Majority Holders in accordance with Section 4 of the Collateral Indenture.

SECTION 10.   NEGATIVE COVENANTS

Agent hereby agrees that, so long as this Agreement remains in effect, Agent shall not directly or indirectly:

10.1.   Changes in Plans. (a) Modify or supplement the Plans without the prior written consent of Owner and Assignee and (if required) of all Governmental Authorities which previously have approved the matters to be changed or (b) issue, direct, authorize, consent to or permit to be effective any change order under the EPC Contract that, in the case of (a) or (b) above, could reasonably be expected to have a material adverse effect on the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, without the prior written consent of Owner and Assignee.

10.2.   Prohibition of Fundamental Changes. Consolidate with or merge into any other Person except as set forth in Section 25 of the Lease, provided that the term "Owner" shall substitute for the term "the Lessor" and the term "Agent" shall substitute for the term "the Lessee".

10.3.   Assignment of Obligations. Assign any of its obligations hereunder to any other party.

10.4.   Project Contracts; Construction Documents. (a) Create, incur, assume or permit to exist any Lien (other than the Lien of the Pledge Agreement or any Permitted Lien) upon Agent's rights with respect to any Project Contract or Construction Document, or sell or assign Agent's interest in any Project Contract or Construction Document, other than as permitted pursuant to a Financing Arrangement and the Pledge Agreement, or (b) without the prior written consent of Owner and Assignee, terminate any Project Contract or Construction Document (except for the expiration of the EPC Contract in accordance with its terms) or amend, modify, supplement, restate, replace, grant any consent under, or grant or request any waiver pursuant to any Project Contract or Construction Document (other than change orders under the EPC Contract, in the manner and to the extent permitted under subsection 10.1 hereof, and any amendment, modification, supplement, restatement, consent or waiver which could not reasonably be expected to have a material adverse effect on (i) the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, (ii) the ability of Agent to observe and perform its obligations under the Operative Documents, or any of the Construction Documents or the Project Contracts in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner, or (iii) the rights or interests of Owner or Assignee under the Operative Documents, the Guaranty, or any of the Construction Documents or the Project Contracts).

10.5.   Agent's Business. Construct or operate any generation facility that is not subject to the terms of this Agreement or the Lease, or enter into any business other than (a) as contemplated by the terms of the Construction Documents and the Project Contracts, (b) the leasing and financing of the Project pursuant to the Lease, the Lessee Note and the documents incidental thereto, (c) the constructing, operating, maintaining, repairing and equipping of the Project as agent of Owner pursuant to this Agreement, and (d) matters incidental to the performance of its obligations under clauses (a), (b) and (c) of this sentence. Agent will not enter into any contract other than those contracts (A) contemplated by this Agreement or (B) in connection with matters contemplated by the foregoing clauses (a), (b), (c) and (d); provided that (i) to the extent that such assignment is permitted by the terms and conditions of each applicable contract (and Agent hereby acknowledges that it shall use commercially reasonable efforts to secure terms and conditions permitting such assignment in all contracts applicable to the Project), Agent shall collaterally assign to Owner all of Agent's right, title and interest in such contracts pursuant to the Pledge Agreement, and (ii) if such contract could reasonably be expected to cause the Project Costs to exceed the Budget or to materially and adversely affect the performance of the General Contractor's obligations under the EPC Contract (including, without limitation, by providing a potential basis for a change order or a force majeure delay or similar relief thereunder), Agent shall be required to obtain the consent of Owner and Assignee to such contract prior to its execution of such contract, which consent shall not be unreasonably withheld.

10.6.   No Liens. Agent shall not, without the prior written consent of Owner, create, incur, assume or permit to exist any Lien upon the Project or create any Lien upon the Premises other than Permitted Liens.

10.7.   Unreimbursable Costs. Agent shall not incur or take on any obligation to pay or discharge any Unreimbursable Costs, or seek reimbursement from Owner pursuant to Section 5, 6 or 7 hereof of any Unreimbursable Costs.

SECTION 11.   EVENTS OF DEFAULT AND EVENTS OF
PROJECT TERMINATION

11.1.   Events of Default. The occurrence of any of the following shall constitute an Event of Default:

(a)   Involuntary Bankruptcy, Etc. The entry of a decree or order for relief in respect of Agent by a court having jurisdiction in the premises or the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of Agent or of any substantial part of Agent's property, or ordering the winding up or liquidation of Agent's affairs, in an involuntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or state bankruptcy, insolvency or other similar law, and such decree or order remains unstayed and in effect for sixty (60) consecutive days; or the commencement against Agent of an involuntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or state bankruptcy, insolvency or other similar law, and the continuance of any such case unstayed and in effect for a period of sixty (60) consecutive days.

(b)   Voluntary Bankruptcy, Etc. Agent's insolvency (however evidenced), or Agent's admission of insolvency or bankruptcy, or the commencement by Agent of a voluntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or state bankruptcy, insolvency or other similar law, or the consent by Agent to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of Agent or of any substantial part of Agent's property, or the making by Agent of an assignment for the benefit of creditors, or the failure of Agent generally to pay its debts as such debts become due, or the taking of corporate action by Agent or the Guarantor in furtherance of any such action.

(c)   Environmental Matters. The occurrence of any event or circumstance relating to Environmental Matters that (A) has arisen directly or indirectly from Agent's actions or failures to act or from any actions or failures to act on the part of any contractors or subcontractors of Agent and (B) has had or will have a material adverse effect on (i) the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, (ii) the ability of Agent to observe and perform its obligations under the Operative Documents, or any of the Construction Documents or the Project Contracts in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner or (iii) the rights or interests of Owner or Assignee under the Operative Documents, the Guaranty, or any of the Construction Documents or the Project Contracts.

(d)   Other Events. Any of the events referred to in subsection 11.3 hereof shall occur as a result of any direct or indirect fraudulent act, illegal act, misapplication of funds or willful misconduct on the part of Agent or any Person directly or indirectly controlling Agent or under the direct or indirect control of Agent.

(e)   Other Defaults. Agent, or any Person under the direct or indirect control of Agent, shall, directly or indirectly, misapply funds relating to any advance hereunder in violation of the terms of this Agreement, including, without limitation, Agent's failure to comply with the covenant contained in subsection 9.20 hereof.

11.2.   Owner's Rights upon an Event of Default.

(a)   Upon the occurrence and continuation of any Event of Default, Owner may in its discretion declare this Agreement to be in default and do any one or more of the following (subject to the provisions of paragraphs (a) and (d) of Section 14 of this Agreement):

   (i)   terminate this Agreement and/or Owner's obligations to make any further advances hereunder;

   (ii)   take immediate possession of the Project and remove any equipment or property of Owner in the possession of Agent, wherever situated, and for such purpose, enter upon the Premises without liability to Agent for so doing;

   (iii)   whether or not any action has been taken under clause (i) or (ii) above, sell Owner's interest in the Project (with or without the concurrence or request of Agent);

   (iv)    hold, use, occupy, operate, repair, remove, lease, sublease or keep idle the Project as Owner in its sole discretion may determine, without any duty to mitigate damages with respect to any such action or inaction or with respect to any proceeds thereof; and

   (v)   exercise any other right or remedy which may be available under applicable law and in general proceed by appropriate judicial proceedings, either at law or in equity, to enforce the terms hereof or to recover damages provided for in this subsection 11.2.

(b)   Suit or suits for the recovery of any default in the payment of any sum due hereunder or for damages may be brought by Owner from time to time at Owner's election, and nothing herein contained shall be deemed to require Owner to await the date whereon this Agreement or the term hereof would have expired by limitation had there been no such default by Agent or no such termination or cancellation.

(c)   The receipt of any payments under this Agreement by Owner with knowledge of any breach of this Agreement by Agent or of any default by Agent in the performance of any of the terms, covenants or conditions of this Agreement, shall not be deemed to be a waiver of any provision of this Agreement.

(d)   No receipt of moneys by Owner from Agent after the termination or cancellation hereof in any lawful manner shall reinstate, continue or extend this Agreement, or operate as a waiver of the right of Owner to recover possession of the Project by proper suit, action, proceedings or remedy or operate as a waiver of the right to receive any and all amounts owing by Agent to or on behalf of Owner hereunder; it being agreed that, after the service of notice to terminate or cancel this Agreement, and the expiration of the time therein specified, if the default has not been cured in the meantime, or after the commencement of any suit, action or summary proceedings or of any other remedy, or after a final order, warrant or judgment for the possession of the Project, Owner may demand, receive and collect any moneys payable hereunder, without in any manner affecting such notice, proceedings, suit, action, order, warrant or judgment. Acceptance of the keys to the Project, or any similar act, by Owner, or any agent or employee of Owner, during the term hereof, shall not be deemed to be an acceptance of a surrender of the Project unless Owner and Assignee shall consent thereto in writing.

(e)   After any Event of Default, Agent shall be liable for, and Owner may recover from Agent, (i) all of Owner's obligations, costs and expenses incurred in connection with its obligations under this Agreement and for which Owner may demand payment or reimbursement pursuant to subsection 9.5 hereof (including any such costs and expenses arising after taking into account the application under the Financing Arrangements of any payments made under this subsection 11.2), (ii) all amounts payable pursuant to Section 12 hereof, and (iii) all costs and expenses (including, without limitation, attorneys' fees and expenses incurred by Owner and Assignee in connection with the exercise of their remedies hereunder, filing fees and sales or transfer taxes and all costs and expenses related to (x) the conduct of investigations, studies, sampling and/or testing of the Premises and (y) the taking of any action, including, without limitation, any remedial measures or other corrective action with respect to the Premises) sustained by Owner by reason of such Event of Default and the exercise of Owner's remedies with respect thereto, including, without limitation, in the event of a sale by Owner of its interest in the Project pursuant to this subsection 11.2, all costs and expenses associated with such sale. The amounts payable in clauses (i) through (iii) above are hereinafter sometimes referred to as the "Accrued Default Obligations".

(f)   After an Event of Default, Owner may sell its interest in the Project upon any terms that Owner deems satisfactory, free of any rights of Agent or any Person claiming through or under Agent (including, without limitation, any rights hereunder or under the Lease, the Construction Documents or the Project Contracts). In the event of any such sale, in addition to the Accrued Default Obligations, Owner shall be entitled to recover from Agent, as liquidated damages and not as a penalty, an amount equal to the Acquisition Cost, minus the proceeds of such sale received by Owner. Proceeds of sale received by Owner in excess of the Acquisition Cost shall be applied first, to the Accrued Default Obligations, second, to reimburse Agent for all Unreimbursed Project Costs, third, to satisfy all Unrecovered Liabilities and Judgments, and fourth, in payment to Agent; provided, however, that Agent shall remain liable from proceeds received pursuant to clause fourth above for any Unrecovered Liabilities and Judgments that arise after the payment of such proceeds to Agent to the extent such Unrecovered Liabilities and Judgments arise from or relate to acts or omissions occurring, or circumstances or conditions created or existing at any time as of or prior to the expiration or termination of this Agreement.

(g)   In the event of a sale pursuant to this subsection 11.2, upon receipt by Owner of the amounts payable hereunder and under the Lessee Note, Owner shall transfer all of Owner's right, title and interest in and to the Project to a purchaser other than Agent or to Agent, as the case may be.

(h)   As an alternative to any such sale, or if Agent converts the Project after an Event of Default, or if the Project is lost or destroyed at the time of or during the continuance of an Event of Default, in addition to the Accrued Default Obligations, Owner may cause Agent to pay to Owner, and Agent shall pay to Owner, as liquidated damages and not as a penalty, an amount equal to the Acquisition Cost plus an additional amount equal to 1.75% of the Acquisition Cost. In the event Owner receives payment of the Acquisition Cost plus an additional amount equal to 1.75% of the Acquisition Cost and the Accrued Default Obligations, Owner shall transfer all of Owner's right, title and interest in and to the Project, including without limitation, the delivery of the documents contemplated in Section 14 below, to Agent.

(i)   In the event Owner does not receive payment of an amount equal to the Acquisition Cost plus an additional amount equal to 1.75% of the Acquisition Cost, plus the Accrued Default Obligations, then, in addition to Owner's other rights in this subsection 11.2, Agent shall upon Owner's request (i) assign to Owner (or to an assignee designated by Owner or Assignee), at no cost, all right, title and interest of Agent in, to and under all Governmental Actions and Intellectual Property Rights needed for the equipping, maintenance, operation or use of the Project and obtained and held by Agent at that time, (ii) assign to Owner (or to a foreclosure purchaser designated by Owner or Assignee), at no cost, all right, title and interest of Agent in, to and under the Construction Documents and the Project Contracts, and in the event any additional consent of any party to a Construction Document or Project Contract is required as a precondition thereunder to an assignment to any other third party assignee designated by Owner or Assignee, use its best efforts to obtain any such required consent to such proposed non-foreclosure assignment and assumption of the Construction Documents and the Project Contracts, and (iii) assign to Owner, at no cost, all right, title and interest of Agent in, to and under all service agreements in existence at the time of such sale and transferable by Agent and easements available to Agent and transferable by Agent in connection with the equipping, maintenance, operation or use of the Project. Agent acknowledges that it would be difficult to ascertain the value to Owner of Agent's agreement to assign, transfer or have reissued to Owner such Governmental Actions and Intellectual Property Rights, to assign such Construction Documents and Project Contracts (and, if necessary, to obtain such consents to such assignment) and to assign to Owner such service agreements and easements or to adequately compensate Owner by an award of damages for Agent's failure to assign to Owner such Governmental Actions and Intellectual Property Rights, to assign such Construction Documents and Project Contracts (and, if necessary, to obtain such consents to such assignment) and to assign to Owner such service agreements and easements, and that therefore Owner would not have an adequate remedy at law for breach by Agent of its agreement hereunder to Owner. Accordingly, Agent acknowledges that Owner shall be entitled to obtain specific performance of Agent's obligation to assign to Owner such Governmental Actions and Intellectual Property Rights, to obtain such consents to such assignment, and to assign to Owner the service agreements and easements. In the event Agent fails to obtain any consents required in clause (ii) of the third preceding sentence, at the request of Owner or such purchaser, as the case may be, Agent shall agree to (1) at the expense of such purchaser or Owner, as the case may be, continue to perform under and maintain in full force and effect the Construction Documents and the Project Contracts and pay all sums received under the Construction Documents and the Project Contracts to such third party or Owner, as the case may be, (2) at the expense of such third party or Owner, as the case may be, and subject to receipt of indemnification reasonably acceptable to Agent, take all actions requested by such third party or Owner, as the case may be, with respect to such Construction Documents and Project Contracts (including all actions with respect to the enforcement of Agent's rights and remedies under such Construction Documents and Project Contracts), and (3) not amend, modify, supplement, waive a provision of, grant any consent under or terminate any such Construction Document or Project Contract without the prior written consent of such third party or Owner, as the case may be.

(j)   No remedy referred to in this subsection 11.2 is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to above or otherwise available to Owner at law or in equity, and the exercise in whole or in part by Owner of any one or more of such remedies shall not preclude the simultaneous or later exercise by Owner of any or all such other remedies. No waiver by Owner of any Event of Default hereunder shall in any way be, or be construed to be, a waiver of any future or subsequent Event of Default.

(k)   With respect to the termination of this Agreement as a result of an Event of Default, Agent hereby waives service or any notice or intention to re-enter. To the extent permitted by applicable law, Agent hereby waives any and all rights to recover or regain possession of the Project or to reinstate this Agreement as permitted or provided by or under any statute, law or decision now or hereafter in force and effect.

11.3.   Events of Project Termination. The occurrence of any one or more of the following (which does not constitute an Event of Default) shall constitute an Event of Project Termination:

(a)   Failure to Complete. If as of the close of business on the Completion Date, Substantial Completion has not occurred as herein provided.

(b)   Failure to Make Payments. Failure of Agent to pay amounts due to Owner at the time of any scheduled sale of the Project hereunder or upon any date of purchase or termination of the Project as contemplated herein under subsection 11.2, 11.4 (including, without limitation, failure to pay the Loss Payment when due) or Section 14 hereof, or failure of Agent to pay any other amount due hereunder within ten (10) days from demand for such payment.

(c)   Other Defaults. Agent shall default in the performance or observance of any other term, covenant, condition or obligation contained in this Agreement (other than a default arising under subsection 9.20 hereof which is an Event of Default under paragraph (e) of subsection 11.1 of this Agreement) and, in the case of such default (other than a default arising under subsection 9.3, 9.6(a)(ii), 9.6(a)(iii), 9.7, 9.16 or 9.18 hereof, each of which shall not be subject to any grace period, or as otherwise provided in this subsection 11.3), such default shall continue for thirty (30) days after the earlier of the date (i) Agent becomes aware of such default or (ii) written notice shall have been given to Agent by Owner or Assignee specifying such default and requiring such default to be remedied; provided, that if such default is of a nature that it is not capable of being cured by the payment of money or cannot with due diligence be cured within such thirty (30) day period, and if Agent shall have diligently commenced curing such default and proceeds diligently and in good faith thereafter to complete curing such default, then the time within which such default may be cured shall be extended for such period (not to exceed ninety (90) days) as is necessary to cure such default.

(d)   Defaults under Construction Documents. Any default by Agent shall occur under any of the Construction Documents (A) which could reasonably be expected to have a material adverse effect on (i) the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, (ii) the ability of Agent to observe and perform its obligations under the Operative Documents, or any of the Construction Documents or the Project Contracts in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner or (iii) the rights or interests of Owner or Assignee under the Operative Documents, the Guaranty, or any of the Construction Documents or the Project Contracts and (B) any required notice shall have been given and any applicable grace period shall have expired.

(e)   Negative Covenants. Agent shall default in the performance or observance of any agreement, covenant or condition contained in Section 10 hereof.

(f)   Misrepresentations. Any representation or warranty made by Agent in this Agreement or in any Consent or which is contained in any certificate furnished under or in connection with this Agreement shall prove to have been false, misleading or inaccurate in any material respect on or as of the date made or deemed made.

(g)   Declaration of Obligations. A default or event of default by Agent shall occur, the effect of which is that the holder or holders of any Indebtedness of Agent having a then outstanding principal balance in excess of $25,000,000, causes or declares any of such Indebtedness to become due prior to its stated maturity under the provisions of any agreement or agreements pursuant to which such Indebtedness was created.

(h)   Payment of Obligations. Agent shall default in any payment of principal of or interest on any Indebtedness of Agent having a then outstanding principal balance in excess of $25,000,000, beyond the period of grace, if any, under the provisions of any instrument or instruments or agreement or agreements pursuant to which such Indebtedness was created.

(i)   Undischarged Judgments. Final judgment or judgments for the payment of money in excess of $15,000,000 in the aggregate shall be rendered against Agent by any court of competent jurisdiction and the same shall remain undischarged for a period of thirty (30) days, during which execution of such judgment or judgments shall not be effectively stayed.

(j)   The Guaranty. (i) The Guaranty ceases to be in full force and effect prior to the termination thereof in accordance with its terms or the Guarantor asserts that the Guaranty is not in full force and effect, or (ii) an Event of Default (as defined in the Guaranty) shall occur under the Guaranty.

(k)   Guarantor Representations. Any representation or warranty made by the Guarantor in the Guaranty or in any certificate furnished under or in connection with the Guaranty or this Agreement shall prove to have been false, misleading or inaccurate in any material respect on or as of the date made or deemed made.

(l)   Event of Loss. An Event of Loss shall occur as a result of Agent's actions or failure to act and Agent shall fail to demonstrate to the reasonable satisfaction of Owner and Assignee that Substantial Completion of the Project will occur on or before the Completion Date.

(m)   The Pledge Agreement. (i) The Pledge Agreement ceases to be in full force and effect, (ii) Agent defaults in the performance of any obligation or covenant contained in the Pledge Agreement, any required notice of such default shall have been given, and any applicable grace period shall have expired, or (iii) the representation contained in the second and third sentences of subsection 8.20 shall at any time become untrue in any material respect and, in the case of clause (iii) above, such default shall continue for five (5) days after the earlier of the date (x) Agent becomes aware that such representation is untrue or (y) written notice shall have been given to Agent by Owner or Assignee specifying that such representation is untrue.

(n)   The Lessee Note. (i) The Lessee Note ceases to be in full force and effect, or (ii) Agent defaults in the due and punctual payment of any amount due under the Lessee Note.

(o)   Environmental Matters. The occurrence of any event or circumstance relating to Environmental Matters (other than any event or circumstance described in paragraph (c) of subsection 11.1 hereof) that has had or will have a material adverse effect on (i) the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, (ii) the ability of Agent to observe and perform its obligations under the Operative Documents, or any of the Construction Documents or the Project Contracts in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner or (iii) the rights or interests of Owner or Assignee under the Operative Documents, the Guaranty, or any of the Construction Documents or the Project Contracts.

(p)   Termination Event. (i) A Termination Event shall have occurred and (ii) such Termination Event shall not be waived by Owner and the Majority Holders within ten (10) Business Days after a written request for such waiver has been made to Owner and Assignee by Agent or the Guarantor (the occurrence of (i) and (ii) above being a "Termination Event Trigger").

11.4.   Owner's Rights upon Event of Project Termination. (a)   Upon the occurrence and continuation of any Event of Project Termination, Owner may do any one or more of the following (subject to the provisions of paragraph (c) of Section 14 of this Agreement):

   (i)   terminate this Agreement and/or Owner's obligations to make any further advances hereunder;

   (ii)   take immediate possession of the Project and remove any or all other equipment or property of Owner in the possession of Agent, wherever situated, and for such purpose, enter upon the Premises without liability to Agent for so doing;

   (iii)   whether or not any action has been taken under clause (i) or (ii) above, sell Owner's interest in the Project (with or without the concurrence or request of Agent);

   (iv)   hold, use, occupy, operate, repair, remove, lease or keep idle the Project as Owner in its sole discretion may determine, without any duty to mitigate damages with respect to any such action or inaction or with respect to any proceeds thereof; and

   (v)   exercise any other right or remedy which may be available under applicable law and in general proceed by appropriate judicial proceedings, either at law or in equity, to enforce the terms hereof or to recover damages provided for in this subsection 11.4 hereof.

(b)   Suit or suits for the recovery of any failure to pay any sum due hereunder or for damages may be brought by Owner from time to time at Owner's election, and nothing herein contained shall be deemed to require Owner to await the date whereon this Agreement or the term hereof would have expired by limitation had there been no such Event of Project Termination or no such termination or cancellation.

(c)   The receipt of any payments under this Agreement by Owner with knowledge of any Event of Project Termination shall not be deemed to be a waiver of any provision of this Agreement.

(d)   No receipt of moneys by Owner from Agent after the termination or cancellation hereof in any lawful manner shall reinstate, continue or extend this Agreement, or operate as a waiver of the right of Owner to recover possession of the Project by proper suit, action, proceedings or remedy or operate as a waiver of the right to receive any and all amounts owing by Agent to or on behalf of Owner hereunder; it being agreed that, after the service of notice to terminate or cancel this Agreement, and the expiration of the time therein specified, if the Event of Project Termination has not been cured in the meantime, or after the commencement of any suit, action or summary proceedings or of any other remedy, or after a final order, warrant or judgment for the possession of the Project, Owner may demand, receive and collect any moneys payable hereunder, without in any manner affecting such notice, proceedings, suit, action, order, warrant or judgment. Acceptance of the keys to the Project, or any similar act, by Owner, or any agent or employee of Owner, during the term hereof, shall not be deemed to be an acceptance of a surrender of the Project unless Owner and Assignee shall consent thereto in writing.

(e)   After any Event of Project Termination, Agent shall be liable for, and Owner may recover from Agent, (i) an amount equal to 89.9% of the sum of Owner's obligations, costs and expenses that are capitalizable into the basis of the Project in accordance with GAAP incurred in connection with its obligations under this Agreement and for which such obligations, costs and expenses Owner may demand payment or reimbursement pursuant to subsection 9.5 hereof (including any such costs and expenses arising after taking into account the application under the Financing Arrangements of any payments made under this subsection 11.4) and (ii) all amounts payable pursuant to Section 12 hereof. The amounts payable in clauses (i) and (ii) above are hereinafter sometimes referred to as the "Accrued Project Termination Obligations".

(f)   After an Event of Project Termination, in addition to the Accrued Project Termination Obligations, Owner shall be entitled to recover from Agent and Agent shall pay to Owner upon the occurrence of such Event of Project Termination, as liquidated damages and not as a penalty, an amount equal to the Loss Payment, which Owner shall use to pay all Financing Costs (other than any Return on Equity Capital) and any other amounts (including, without limitation, any make-whole payments) due with respect to any Financing Arrangement.

(g)   After an Event of Project Termination, Agent shall be required for a period of nine (9) months (the "Marketing Period") to use its best efforts commencing on the date of the Event of Project Termination to seek on behalf of Owner bona fide arm's length bids for the Project at the maximum possible purchase price from prospective purchasers who are financially capable of purchasing the Project for cash, on an as-is, non-installment sale basis, without warranty by, or recourse to, Owner, but free of Owner Liens. Agent shall notify Owner of the amount of each such bid, and the name and address of the party submitting such bid. In the event Owner receives a bid for the Project from such a prospective purchaser during the Marketing Period, Owner may arrange with Agent, at Owner's sole discretion, for a sale to be made to such purchaser prior to the end of the Marketing Period; provided, that if Owner does not receive any bona fide arm's length bids for the Project during the Marketing Period, the value of the Project shall be deemed to be zero and Owner shall have no further obligation to Agent under this Agreement, including, without limitation, under this subsection 11.4; and provided, further, that if Owner receives any such bona fide arm's length bids during the Marketing Period, and Owner elects not to sell the Project during the Marketing Period, a sale of the Project shall be deemed to have occurred for purposes of this subsection 11.4, the sales proceeds shall be deemed to equal the highest amount of all such bids and Owner shall have all the obligations with respect to such sales proceeds that are described in this subsection 11.4 as if such a sale had occurred. Upon the expiration of the Marketing Period, Owner may sell its interest in the Project upon any terms that Owner deems satisfactory, free of any rights of Agent or any Person claiming through or under Agent (including, without limitation, any rights hereunder or under the Lease, the Construction Documents or the Project Contracts).

(h)   In the event of a sale (or deemed sale) pursuant to paragraph (g) above, upon receipt by Owner of the amounts payable hereunder and under the Lessee Note, Owner shall transfer all of Owner's right, title and interest in and to the Project to a purchaser other than Agent or to Agent, as the case may be, and the sales proceeds (or cash equal to the deemed sales proceeds) from any such sale (or deemed sale) in excess of the sum of the Accrued Project Termination Obligations and the Unrecovered Termination Costs shall be disbursed by Owner on the earlier to occur of (i) the date of an actual sale pursuant to paragraph (g) above or (ii) at the end of the Marketing Period, as follows:

first, to pay all transfer taxes, transfer gains taxes, mortgage recording taxes, recording and filing fees, and all other similar taxes, fees, expenses and closing costs (including reasonable attorney fees) in connection with the conveyance of the Project to the purchaser;

second, to the extent any amounts remain outstanding after application of the Loss Payment pursuant to paragraph (f) above, to pay any Financing Costs (other than any Return on Equity Capital) and any other amounts (including, without limitation, any make-whole payments) due with respect to any Financing Arrangement;

third, to pay all amounts due to Merrill Leasing under the Reimbursement Agreement;

fourth, to reimburse any construction contractors and all other general creditors for all amounts due and owing to such construction contractors or such general creditors and not paid by Owner in connection with the acquisition and construction of the Project, provided such construction contractors or such general creditors deliver evidence reasonably satisfactory to Owner of such amounts; and

fifth, to reimburse Owner and the equity investors in Owner for all Return on Equity Capital, unpaid distributions and accrued dividends due and owing Owner and such equity investors and all fees due and owing to Owner's general partner under its partnership agreement.

The balance of such excess sales proceeds received by Owner from the sale of the Project shall be disbursed by Owner in the following order: (1) to Agent in an amount not to exceed the Loss Payment, (2) to reimburse all parties that have incurred Unrecovered Liabilities and Judgments, and (3) to Agent in an amount equal to all remaining proceeds; provided, that any amounts received by Agent pursuant to this clause (3) shall be owed by Agent to any Indemnified Person for any Unrecovered Liabilities and Judgments that arise after the payment of such excess proceeds to the extent such Unrecovered Liabilities and Judgments arise from or relate to acts or omissions occurring, or circumstances or conditions created or existing, at any time as of or prior to the expiration or termination of this Agreement.

(i)   If (i) the Project is converted, lost or destroyed by Agent after an Event of Project Termination as a result of any direct or indirect fraudulent act, illegal act, misapplication of funds or willful misconduct on the part of Agent or any Person under the direct or indirect control of Agent, or (ii) Agent shall fail to comply with the provisions of subsection 9.18 hereof or shall fail to satisfy each of the Loss Payment Requirements after an Event of Project Termination, in addition to the Accrued Project Termination Obligations, Owner may cause Agent to pay to Owner, and Agent shall pay to Owner, as liquidated damages and not as a penalty, an amount equal to the Acquisition Cost (net of any Loss Payment previously paid hereunder), plus an additional amount equal to 1.75% of the Acquisition Cost.

(j)   In the event Owner receives payment of the Acquisition Cost plus an additional amount equal to 1.75% of the Acquisition Cost, the Accrued Project Termination Obligations and all amounts described in clause (B) and (C) of the definition of Unrecovered Termination Costs, Owner shall transfer all of Owner's right, title and interest in and to the Project, including, without limitation, the delivery of the documents contemplated in Section 14 below, to Agent.

(k)   In the event Owner does not receive payment of an amount equal to the Acquisition Cost plus an additional amount equal to 1.75% of the Acquisition Cost, and the Accrued Project Termination Obligations and all amounts described in clause (B) and (C) of the definition of Unrecovered Termination Costs, then, in addition to Owner's other rights in this subsection 11.4, Agent shall upon Owner's request (i) assign to Owner (or to an assignee designated by Owner or Assignee), at no cost to Owner, Assignee or their respective designees, all right, title and interest of Agent in, to and under all Governmental Actions and Intellectual Property Rights (in each case to the extent assignable) needed for the equipping, maintenance, operation or use of the Project and obtained and held by Agent at that time, (ii) assign to Owner (or to a foreclosure purchaser designated by Owner or Assignee), at no cost to Owner, Assignee or their respective designees, all right, title and interest of Agent in, to and under the Construction Documents and the Project Contracts (in each case to the extent assignable), and in the event any additional consent of any party to a Construction Document or a Project Contract is required as a precondition thereunder to an assignment to any other third party assignee designated by Owner or Assignee, and use its best efforts to obtain any such required consent to such proposed non-foreclosure assignment and assumption of the Construction Documents and the Project Contracts, and (iii) assign to Owner (to the extent assignable), at no cost to Owner, Assignee or their respective designees, all right, title and interest of Agent in, to and under all service agreements in existence at the time of such sale and easements available to Agent in connection with the equipping, maintenance, operation or use of the Project. Agent acknowledges that it would be difficult to ascertain the value to Owner of Agent's agreement to assign, transfer or have reissued to Owner such Governmental Actions and Intellectual Property Rights, to assign such Construction Documents and Project Contracts (and, if necessary, to obtain such consents to such assignment) and to assign to Owner such service agreements and easements or to adequately compensate Owner by an award of damages for Agent's failure to assign to Owner such Governmental Actions and Intellectual Property Rights, to assign such Construction Documents and Project Contracts (and, if necessary, to obtain such consents to such assignment) and to assign to Owner such service agreements and easements, and that therefore Owner would not have an adequate remedy at law for breach by Agent of its agreement hereunder to Owner. Accordingly, Agent acknowledges that Owner shall be entitled to obtain specific performance of Agent's obligation to assign to Owner such Governmental Actions and Intellectual Property Rights, to obtain such consents to such assignment, and to assign to Owner the service agreements and easements. In the event Agent fails to obtain any consents required in clause (ii) of the third preceding sentence, at the request of Owner or such purchaser, as the case may be, Agent shall agree to (A) at the expense of such purchaser or Owner, as the case may be, continue to perform under and maintain in full force and effect the Construction Documents and the Project Contracts and pay all sums received under the Construction Documents and the Project Contracts to such third party or Owner, as the case may be, (B) at the expense of such third party or Owner, as the case may be, and subject to receipt of indemnification reasonably acceptable to Agent, take all actions requested by such third party or Owner, as the case may be, with respect to such Construction Documents and Project Contracts (including all actions with respect to the enforcement of Agent's rights and remedies under such Construction Documents and Project Contracts), and (C) not amend, modify, supplement, waive a provision of, grant any consent under or terminate any such Construction Documents and Project Contracts, without the prior written consent of such third party or Owner, as the case may be.

(l)   No remedy referred to in this subsection 11.4 is intended to be exclusive, but each shall be cumulative and in addition to any other right referred to above or otherwise available to Owner at law or in equity, and the exercise in whole or in part by Owner of any one or more of such rights shall not preclude the simultaneous or later exercise by Owner of any or all such other rights. No waiver by Owner of any Event of Project Termination hereunder shall in any way be, or be construed to be, a waiver of any future or subsequent Event of Project Termination.

(m)   With respect to the termination of this Agreement as a result of an Event of Project Termination, to the extent permitted by applicable law, Agent hereby waives any and all rights to recover or regain possession of the Project or to reinstate this Agreement as permitted or provided by or under any statute, law or decision now or hereafter in force and effect.

SECTION 12.   INDEMNITIES

(a)   Except as otherwise provided in paragraph (f) of this Section 12, Agent shall indemnify, defend, protect and hold harmless Owner and each successor or successors (each of the foregoing an "Indemnified Person") from and against any and all liabilities (including, without limitation, Environmental Damages and strict liability in tort), taxes, losses, obligations, claims (including, without limitation, Environmental Damages and strict liability in tort), damages, penalties, causes of action, suits, costs and expenses (including, without limitation, reasonable attorneys', experts', consultants' and accountants' fees and expenses) or judgments of any nature relating to or in any way arising out of:

   (i)   the ordering, delivery, acquisition, purchase agreement for the acquisition, construction, title on acquisition, rejection, installation, possession, titling, retitling, registration, re-registration, custody by Agent of title and registration documents, use, non-use, misuse, financing, lease, sublease, lease under the Ground Lease, security interest in, operation, transportation, securing, repair, control, leasehold interest in the Premises or disposition of the Project or any portion thereof;

   (i)   the Construction Documents, the Project Contracts or the Easements;

   (ii)   any of the claims, liabilities, demands, fees, taxes, violations of contract, or any other matter or situation described in or contemplated by the indemnification provisions of subparagraphs (a) and (b) of Section 11 of the Lease, except that this Agreement shall substitute the terms "Owner" for "the Lessor", "Agent" for "the Lessee, and "this Agreement" for "this Lease", as the context shall require and the term "Acquisition Cost" for purposes of this Section 12 shall mean Acquisition Cost as defined in this Agreement;

   (iii)   any breach of a representation, warranty or covenant made herein by Agent or which is contained in any certificate furnished by or on behalf of Agent under or in connection with this Agreement; and

   (iv)   any default in the performance or observance of any term, covenant, condition or obligation imposed upon Agent which is contained in this Agreement or any failure to comply with any term, covenant, condition or obligation imposed upon Agent which is contained in the Ground Lease, the Construction Documents, or any other Project Contract;

   provided, that Agent shall only have to indemnify such Indemnified Person for the matters described in this paragraph (a) to the extent caused directly or indirectly by, or resulting directly or indirectly from, Agent's actions or failure to act while in possession or control of the Premises or the Project. Agent and Owner hereby acknowledge and agree that, (A) as used in this Section 12, "Agent's actions or failure to act while in possession or control of the Premises or the Project" include any action or failure to act on the part of any contractors or subcontractors of Agent or any other Person permitted by Agent to enter upon the Premises, provided that, for purposes of this Section 12, Agent shall be deemed to be in possession and control of the Premises and Project as long as this Agreement is in effect, (B) Agent shall not be required to indemnify Owner under this Section 12 for Agent's failure to complete construction of the Project by the Completion Date (including any amount which could be considered to be or result from a failure to complete construction of the Project by the Completion Date, as determined by an independent arbiter or court of law), and (C) Agent shall not be required to indemnify Owner under this Section 12 to the extent that such amount would be excluded from Agent's indemnity under paragraph (b) of Section 11 of the Lease.

(b)   Without in any way limiting the generality of the foregoing paragraph (a), it is agreed that Agent shall also indemnify and hold harmless Owner and any successor or successors from and against all Environmental Damages of any nature relating to or in any way arising out of noncompliance with any applicable Environmental Requirements by Agent or otherwise with respect to the Premises or the Project, notwithstanding the fact that such noncompliance may be disclosed in the Environmental Report or on Schedule 8.27 hereto.

(c)   In addition to Agent's obligations set forth in the foregoing paragraph (b), Agent shall indemnify, defend, protect and hold harmless Owner, each general and limited partner of Owner, Merrill, Merrill Lynch, Merrill Leasing, each Assignee and their respective assigns and successors and each Affiliate thereof, and their respective officers, directors, incorporators, shareholders, partners, employees, agents and servants from and against any and all Environmental Damages relating to or in any way arising out of the Project arising from or relating to acts or omissions occurring, or circumstances or conditions created or existing, at any time as of or prior to August 11, 2000.

(d)   The indemnification required under this Section 12 shall be upon the terms provided in the paragraphs of Section 11 of the Lease following paragraph (b) thereof, except that (w) this Agreement shall substitute the terms in the same manner as described in subparagraph (a)(iii) above, (x) all references to "Indemnified Person" in the Lease shall mean any Person entitled to indemnity under this Section 12, (y) all references to "on or after the Effective Date" in the Lease shall mean "on or after the date of this Agreement", and (z) there shall be no duplication with respect to the indemnities provided hereunder and thereunder.

(e)   The indemnities contained in this Section 12 shall survive and not be affected by any expiration or termination of this Agreement.

(f)   Any indemnity claim under this Section 12 shall be construed as an indemnity only and shall not be (1) construed as a guaranty of the residual value of the Project beyond the Loss Payment or (2) the basis for the recovery of the Acquisition Cost or any of Owner's unpaid principal, interest, distributions or return of capital, as applicable, to any of Owner's lenders or equity investors.

SECTION 13.   LEASEHOLD INTEREST

(a)   The provisions of paragraphs (a) and (b) of Section 28 of the Lease shall govern the Ground Lease hereunder, except this Agreement shall substitute the terms "Owner" for "the Lessor" and "Agent" for "the Lessee" and "Section 13" for "Section 28".

SECTION 14.   PURCHASE OF THE PROJECT

(a)   Notwithstanding anything to the contrary contained in this Agreement, but subject to the terms and conditions of this Section 14, (i) at any time during the term of this Agreement, Agent (or the Guarantor as its designee) shall have the right, upon thirty (30) days' written notice to Owner, to purchase the Project at a price equal to the Acquisition Cost and (ii) during the continuance of an Event of Default or Event of Project Termination and upon the written request of Agent, which must be received by Owner not later than the later of (A) thirty (30) days following the occurrence of such Event of Default or Event of Project Termination, as the case may be, and (B) the date Owner or Assignee has delivered a notice to Agent that it has identified a proposed purchaser for the Project, Agent (or the Guarantor as its designee) shall have the right, not later than thirty (30) Business Days after Owner's timely receipt of such request, to purchase the Project at a price equal to its Acquisition Cost; provided, however, that if negotiations between Owner and the purchaser identified by Owner terminate and Owner has not identified another proposed purchaser, Agent (or the Guarantor as its designee) may thereafter exercise its purchase option under this paragraph (a) until such time as Owner or Assignee delivers a notice to Agent that it has identified a new proposed purchaser for the Project; provided further, however, that the purchase option contained in this paragraph (a) shall only be available to Agent if (x) in the reasonable judgment of counsel to Owner and Assignee, the purchase price and all other amounts paid by Agent will not in the circumstances in which such payment is made constitute a preferential payment or a voidable transfer or otherwise be subject to recapture pursuant to the provisions of the Federal Bankruptcy Code in a bankruptcy proceeding by or against Agent and will not otherwise result in the payment being subject to recapture from Owner or (y) the Guarantor has provided a guaranty of the payment of such purchase price and all other amounts required to be paid by Agent hereunder, which guaranty shall be in form and substance substantially similar to the Guaranty.

(b)   In connection with, and as a condition to, the purchase of the Project pursuant to this Section 14, on the date upon which such purchase occurs, (1) Agent shall pay to Owner an amount equal to the Acquisition Cost, plus all other amounts payable by Agent under this Agreement, including, without limitation, (i) all Accrued Default Obligations in the case of an Event of Default, or Accrued Project Termination Obligations in the case of an Event of Project Termination (in each case, after taking into account the application under the Financing Arrangements of such purchase price and other payments made hereunder), (ii) an amount equal to 1.75% of the Acquisition Cost in the case of (x) an Event of Default or (y) the events described in paragraph (i) of subsection 11.4 hereof, or an amount equal to all Unrecovered Liabilities and Judgments in the case of an Event of Project Termination (other than the events described in clause (y) above) and in all other cases, (iii) all amounts described in clause (C) of the definition of Unrecovered Termination Costs, and (iv) all transfer taxes, transfer gains taxes, mortgage recording taxes, if any, recording and filing fees and all other similar taxes, fees, expenses and closing costs (including reasonable attorney's fees) in connection with the conveyance of the Project to Agent and all other amounts owing hereunder as of the date of such purchase, and (2) when Owner transfers title, such transfer shall be of all of Owner's right, title and interest in and to the Project, but on an as-is, non-installment sale basis, without warranty by, or recourse to, Owner (but free of Owner Liens) and in accordance with the applicable provisions of this Section 14.

(c)   In addition to the Acquisition Cost plus all other amounts payable pursuant to paragraph (b) above, Agent shall pay at the time of purchase all other amounts payable by Agent under this Agreement, including, without limitation, all of Owner's obligations, costs and expenses incurred in connection with its obligations under this Agreement for which Owner may demand payment or reimbursement pursuant to subsection 9.5 hereof (including any such costs and expenses arising after taking into account the application under the Financing Arrangements of the purchase price and other payments made hereunder), all amounts payable pursuant to Section 12 hereof and all costs and expenses (including, without limitation, attorneys' fees and expenses, commissions, filing fees, sales or transfer taxes, transfer gains taxes, mortgage recording tax, if any, recording and filing fees and all other similar taxes, fees, expenses and closing costs) sustained by Owner by reason of such purchase or in connection with the conveyance of the Project to Agent and all other amounts owing hereunder after taking into account such purchase, and (ii) upon receipt of such amounts, Owner shall deliver to Agent a bill of sale and deed conveying to Agent all of Owner's interest in the Premises and the Project and, if applicable, any Construction Document or Project Contract and, to the extent transferable, any title insurance policies issued to Owner, along with an assignment or termination of the Ground Lease and when Owner transfers title, such transfer shall be on an as-is, non-installment sale basis, without warranty by, or recourse to, Owner, but free of Owner Liens.

(d)   So long as (i) no Event of Default or Event of Project Termination has occurred and is continuing (other than any Event of Default or Event of Project Termination that constitutes either a Third-Party Project Event or a Termination Event), and (ii) Agent has delivered to Owner and Assignee, within the time period required by paragraph (a) of this Section 14, a certificate from a Responsible Officer stating that either (A) Agent is exercising its purchase option described in this Section 14 to effect the sale of the Project in an arm's-length transaction to a third party purchaser that is not an Affiliate of Agent, (B) a Third-Party Project Event has occurred and is continuing, or (C) a Termination Event Trigger has occurred, then if the Guarantor (as Agent's designee) elects to purchase the Project pursuant hereto, the Guarantor has the option to assume the payment obligations of Owner with respect to any Financing Arrangement pursuant to the terms and conditions of such Financing Arrangement, in which case the cash portion of the purchase price to be paid by the Guarantor pursuant to paragraphs (b) and (c) of this Section 14 shall be reduced by an amount equal to the principal outstanding under such Financing Arrangement. In that event, Owner and Assignee shall execute and deliver documentation permitting the Guarantor to assume Owner's obligations under the Financing Arrangement, and to release Owner from all obligations in respect of the Financing Arrangement, this Agreement, the Lease, and all related documents, and Owner and Assignee shall take all such other actions (at Agent's cost and expense) as are reasonably necessary to permit such assumption by the Guarantor.

SECTION 15.   INTENTIONALLY DELETED

SECTION 16.   PERMITTED CONTESTS

(a)   Agent shall not be required, nor shall Owner have the right, to pay, discharge or remove any tax, assessment, levy, fee, rent, charge or Lien, or to comply or cause the Project to comply with any Legal Requirement applicable to the Project or the occupancy, use or operation thereof, so long as no Potential Default or Potential Event of Project Termination (unless such Potential Default or Potential Event of Project Termination is reasonably capable of being cured within the applicable grace period and could not reasonably be expected to have a material adverse effect on (1) the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, (2) the ability of Agent to observe and perform its obligations under the Operative Documents, or any of the Construction Documents or the Project Contracts in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner or (3) the rights or interests of Owner or Assignee under the Operative Documents, the Guaranty, or any of the Construction Documents or the Project Contracts) and no Event of Default, Event of Project Termination, Event of Loss or Termination Event exists under this Agreement, and, in the reasonable judgment of Agent's counsel, Agent shall have reasonable grounds to contest the existence, amount, applicability or validity thereof by appropriate proceedings, which proceedings (i) shall not involve any danger that the Project or any portion thereof would be subject to sale, forfeiture or loss, as a result of failure to comply therewith, (ii) shall not affect the payment of any sums due and payable hereunder, (iii) will not place either Owner or any Assignee in any danger of civil liability for which it is not adequately indemnified hereunder or subject Owner or any Assignee to any danger of criminal liability, (iv) if involving taxes, shall suspend the collection of the taxes (unless Agent has provided a bond for the full amount in dispute), and (v) shall not be prohibited by the provisions of any other instrument to which Agent or the Project is subject and shall not constitute a default thereunder (the "Permitted Contest"). Agent shall conduct all Permitted Contests in good faith and with due diligence and shall promptly after the final determination (including appeals) of any Permitted Contest (or, if earlier, upon any of the above criteria no longer being satisfied) pay and discharge all amounts which shall be determined to be payable therein. Owner shall, at no expense to Owner, cooperate in good faith with Agent with respect to all Permitted Contests conducted by Agent pursuant to this Section 16.

(b)   At least ten (10) Business Days prior to the commencement of any Permitted Contest, Agent shall notify Owner and Assignee in writing of any such proceeding in which the amount in contest exceeds $1,000,000, and shall describe such proceeding in reasonable detail.

SECTION 17.   SALE OR ASSIGNMENT BY OWNER

(a)   Owner shall have the right to obtain debt and equity financing for the acquisition and ownership of the Project by selling or assigning its right, title and interest in any or all amounts due from Agent or any third Person under this Agreement and granting a security interest in this Agreement and the Project to the Collateral Trustee or a lender or lenders under a Financing Arrangement, notice of the identity of which has been given to Agent; provided that any sale or assignment by Owner shall be made consistent with the terms of this Agreement and shall be subject to the rights and interests of Agent under this Agreement and the Lease.

(b)   Any Assignee shall, except as otherwise agreed by Owner and such Assignee, have all the rights, powers, privileges and remedies of Owner hereunder, and Agent's obligations as between itself and such Assignee hereunder shall not be subject to any claims or defense that Agent may have against Owner. Upon written notice to Agent of any such assignment, Agent shall thereafter make payments of any and all sums due hereunder to Assignee, to the extent specified in such notice, and such payments shall discharge the obligation of Agent to Owner hereunder to the extent of such payments. Anything contained herein to the contrary notwithstanding, no Assignee shall be obligated to perform any duty, covenant or condition required to be performed by Owner hereunder, and any such duty, covenant or condition shall be and remain the sole obligation of Owner, unless and until any Assignee has taken possession of the Premises or the Project or otherwise foreclosed upon Owner's interest therein or accepted a conveyance in lieu of foreclosure of the Premises or the Project pursuant to a Financing Arrangement.

SECTION 18.   GENERAL CONDITIONS

The following conditions shall be applicable throughout the term of this

Agreement:

18.1.   Survival. Except as otherwise provided in the Lease, all agreements, representations, warranties and covenants hereunder shall expire on the Effective Date, provided that (a) any obligations under this Agreement accrued at the time of or related to periods prior to the Effective Date (including, without limitation, all indemnities contained in Section 12 hereof and any obligation to pay Unrecovered Liabilities and Judgments) shall continue in full force and effect after the Effective Date, (b) any obligation under this Agreement which is expressly provided to be performed after or to survive the Effective Date shall continue in full force and effect after the Effective Date and (c)  if any Event of Default or Event of Project Termination occurs after the Effective Date, the provisions of subsections 11.2 and 11.4 of this Agreement shall not be applicable and Owner and Agent shall be subject to the rights and remedies under the Lease.

18.2.   No Waivers. No advance hereunder shall constitute a waiver of any of the conditions of Owner's obligation to make further advances nor, in the event Agent is unable to satisfy any such condition, shall any waiver of such condition have the effect of precluding Owner from thereafter declaring such inability to be an Event of Default or Event of Project Termination as herein provided. Any advance made by Owner and any sums expended by Owner pursuant to this Agreement shall be deemed to have been made pursuant to this Agreement, notwithstanding the existence of an uncured Event of Default or Event of Project Termination. No advance shall constitute a waiver of the right of Owner to require compliance with the covenant contained in subsection 10.1 hereof with respect to any such defects or material departures from any Plans not theretofore approved by Owner and Assignee. No advance at a time when an Event of Default or Event of Project Termination exists shall constitute a waiver of any right or remedy of Owner existing by reason of such Event of Default or Event of Project Termination, including, without limitation, the right to refuse to make further advances.

18.3.   Advances; Approvals. All conditions of the obligation of Owner to make advances hereunder are imposed solely and exclusively for the benefit of Owner and Assignee and their assigns, and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Owner will refuse to make advances in the absence of strict compliance with any or all thereof and no other Person shall, under any circumstances, be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by Owner, with the consent of Assignee and subject to the terms and conditions of any Financing Arrangements, at any time if in its sole discretion it deems it advisable to do so. Inspections and approvals of any Plans and the Project and the workmanship and materials used therein impose no responsibility or liability of any nature whatsoever on Owner or Assignee, and no Person shall, under any circumstances, be entitled to rely upon such inspections and approvals by Owner or Assignee for any reason.

18.4.   No Offsets, Etc. The obligations of Agent to pay all amounts payable by Agent pursuant to this Agreement (including specifically and without limitation amounts payable under Section 12 hereof) and to purchase the Project when required hereunder shall be absolute and unconditional under any and all circumstances of any character, and such amounts shall be paid without notice, demand, defense, set-off, deduction or counterclaim and without abatement, suspension, deferment, diminution or reduction of any kind whatsoever, except as herein expressly otherwise provided. The obligation of Agent to lease or sublease and pay Basic Rent and Additional Rent and any other amounts due under the Lease for the Project commencing upon the Effective Date is without any warranty or representation, express or implied, as to any matter whatsoever on the part of Owner or Assignee or any Affiliate of either, or anyone acting on behalf of any of them.

AGENT HAS SELECTED THE PROJECT ON THE BASIS OF ITS OWN JUDGMENT. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, UPON A TRANSFER OF OWNER'S INTEREST IN THE PROJECT TO AGENT, NEITHER OWNER NOR ANY ASSIGNEE NOR ANY AFFILIATE OF EITHER, NOR ANYONE ACTING ON BEHALF OF ANY OF THEM, MAKES ANY REPRESENTATION OR WARRANTY OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, AS TO THE SAFETY, TITLE, CONDITION, QUALITY, QUANTITY, FITNESS FOR USE, MERCHANTABILITY, CONFORMITY TO SPECIFICATION, OR ANY OTHER CHARACTERISTIC, OF THE PROJECT, OR AS TO WHETHER THE PROJECT, OR THE OWNERSHIP, USE, OCCUPANCY OR POSSESSION THEREOF COMPLIES WITH ANY LAWS, RULES, REGULATIONS OR REQUIREMENTS OF ANY KIND.

AS BETWEEN OWNER AND AGENT, ANY ASSIGNEE OR ANY INDEMNIFIED PERSON, AGENT ASSUMES ALL RISKS AND WAIVES ANY AND ALL DEFENSES, SET-OFFS, RECOUPMENTS, ABATEMENTS, DEDUCTIONS, COUNTERCLAIMS (OR OTHER RIGHTS), EXISTING OR FUTURE, AS TO AGENT'S OBLIGATION TO PAY ALL AMOUNTS PAYABLE HEREUNDER, INCLUDING, WITHOUT LIMITATION, ANY RELATING TO:

(A) THE SAFETY, TITLE, CONDITION, QUALITY, QUANTITY, FITNESS FOR USE, MERCHANTABILITY, CONFORMITY TO SPECIFICATION, OR ANY OTHER QUALITY OR CHARACTERISTIC OF THE PROJECT, LATENT OR NOT;

(B)   ANY SET-OFF, COUNTERCLAIM, RECOUPMENT, ABATEMENT, DEFENSE OR OTHER RIGHT WHICH AGENT MAY HAVE AGAINST OWNER, ANY ASSIGNEE OR ANY INDEMNIFIED PERSON FOR ANY REASON WHATSOEVER ARISING OUT OF THIS OR ANY OTHER TRANSACTION OR MATTER;

(C) ANY DEFECT IN TITLE OR OWNERSHIP OF THE PROJECT OR ANY TITLE ENCUMBRANCE NOW OR HEREAFTER EXISTING WITH RESPECT TO THE PROJECT;

(D) ANY FAILURE OR DELAY IN DELIVERY OR ANY LOSS, THEFT OR DESTRUCTION OF, OR DAMAGE TO THE PROJECT IN WHOLE OR IN PART, OR CESSATION OF THE USE OR POSSESSION OF THE PROJECT BY AGENT FOR ANY REASON WHATSOEVER AND OF WHATEVER DURATION, OR ANY CONDEMNATION, CONFISCATION, REQUISITION, SEIZURE, PURCHASE, TAKING OR FORFEITURE OF THE PROJECT, IN WHOLE OR IN PART;

(E) ANY INABILITY OR ILLEGALITY WITH RESPECT TO THE USE, OWNERSHIP, OCCUPANCY OR POSSESSION OF THE PROJECT BY AGENT;

(F) ANY INSOLVENCY, BANKRUPTCY, REORGANIZATION OR SIMILAR PROCEEDING BY OR AGAINST AGENT OR OWNER OR ANY ASSIGNEE;

(G) ANY FAILURE TO OBTAIN, OR EXPIRATION, SUSPENSION OR OTHER TERMINATION OF, OR INTERRUPTION TO, ANY REQUIRED LICENSES, PERMITS, CONSENTS, AUTHORIZATIONS, APPROVALS OR OTHER LEGAL REQUIREMENTS;

(H) THE INVALIDITY OR UNENFORCEABILITY OF THIS AGREEMENT OR ANY OTHER INFIRMITY HEREIN OR ANY LACK OF POWER OR AUTHORITY OF OWNER OR AGENT TO ENTER INTO THIS AGREEMENT; OR

(I) ANY OTHER CIRCUMSTANCES OR HAPPENING WHATSOEVER, WHETHER OR NOT SIMILAR TO ANY OF THE FOREGOING.

AGENT HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHTS WHICH IT MAY NOW HAVE OR WHICH AT ANY TIME HEREAFTER MAY BE CONFERRED UPON IT, BY STATUTE OR OTHERWISE, TO TERMINATE, CANCEL, QUIT, RESCIND OR SURRENDER THIS AGREEMENT EXCEPT IN ACCORDANCE WITH THE EXPRESS TERMS HEREOF. Each payment of any amount due hereunder made by Agent shall be final, and Agent, without waiving any other remedies it may have, will not seek or have any right to recover all or any part of such payment from Owner or any Assignee for any reason whatsoever. Notwithstanding anything contained herein to the contrary, the making of payments under this Agreement by Agent shall not be deemed to be a waiver of any claim or claims (including claims that otherwise would be a defense to payment or counterclaim) that Agent may assert against Owner or any other Person. Owner agrees to repay Agent amounts paid to Owner to the extent such payments were in error and are not required by any of the terms and provisions of this Agreement.

18.5.   No Recourse.

   Owner's obligations hereunder are intended to be the obligations of the limited partnership and of the corporation which is the general partner thereof only and no recourse for the payment of any amount due from Owner under this Agreement, the Ground Lease, any Project Contract, any Construction Document or any other agreement contemplated hereby, or for any claim based thereon or otherwise in respect thereof, shall be had against any limited partner of Owner or any incorporator, shareholder, officer, director or Affiliate, as such, past, present or future of such corporate general partner or any corporate limited partner or of any successor corporation to such corporate general partner or to any corporate limited partner of Owner, or against any direct or indirect parent corporation of such corporate general partner or of any limited partner of Owner or any other subsidiary or Affiliate or any such direct or indirect parent corporation or any incorporator, shareholder, officer or director, as such, past, present or future, of any such parent or other subsidiary or Affiliate. Nothing contained in this subsection 18.5 shall be construed to limit the exercise or enforcement, in accordance with the terms of this Agreement, the Lease, the Ground Lease, the Project Contracts and the Construction Documents and any other documents referred to herein, of rights and remedies against the limited partnership or the corporate general partner of Owner or the assets of the limited partnership or the corporate general partner of Owner.

18.6.   Notices.

(a)   All notices, offers, acceptances, approvals, waivers, requests, demands and other communications hereunder or under any other instrument, certificate or other document delivered in connection with the transactions described herein shall be in writing, shall be addressed as provided below and shall be considered as properly given (a) if delivered in person, (b) if sent by express courier service (including, without limitation, Federal Express, Emery, DHL, Airborne Express, and other similar express delivery services), (c) in the event overnight delivery services are not readily available, if mailed through the United States Postal Service, postage prepaid, registered or certified with return receipt requested, or (d) if sent by telecopy and confirmed; provided that, in the case of a notice by telecopy, the sender shall in addition confirm such notice by writing sent in the manner specified in clauses (a), (b) or (c) of this subsection 18.6. All notices shall be effective upon receipt by the addressee; provided, however, that, if any notice is tendered to an addressee and the delivery thereof is refused by such addressee, such notice shall be effective upon such tender. For the purposes of notice, the addresses of the parties shall be as set forth below; provided, however, that any party shall have the right to change its address for notice hereunder to any other location by giving written notice to the other party in the manner set forth herein. The initial addresses of the parties hereto are as follows:

If to Owner:

LMB Funding, Limited Partnership
c/o ML Leasing Equipment Corp.
Controller's Office
95 Greene Street, 7th Floor
Jersey City, New Jersey 07302
Attention:   Kira Toone Meertens
Telephone:   (201) 671-0334
Facsimile:   (201) 671-4511

   With a copy to:
ML Leasing Equipment Corp.
95 Greene Street, 7th Floor
Jersey City, New Jersey 07302
Attention:   William Fuhs

Facsimile:   (201) 671-4511

If to Agent:

Lower Mount Bethel Energy, LLC
c/o PPL Global, LLC
11350 Random Hills Road, Suite 400
Fairfax, VA 22030

Attention:   Chief Counsel
Telephone:   (703) 293-2614
Facsimile:   (703) 293-9227

with a copy to Assignee at such address as such Assignee may specify by written notice to Owner and Agent.

(b)   Owner shall within five (5) Business Days give to Agent a copy of all notices received by Owner pursuant to any Financing Arrangement and any other notices received with respect to the Project.

18.7.   Modifications. Neither this Agreement nor any provision hereof may be changed, waived or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver or termination is sought.

18.8.   Rights Cumulative. All rights, powers and remedies herein given to Owner are cumulative and not alternative, and are in addition to all statutes or rules of law; any forbearance or delay by Owner in exercising the same shall not be deemed to be a waiver thereof, and the exercise of any right or partial exercise thereof shall not preclude the further exercise thereof, and the same shall continue in full force and effect until specifically waived by an instrument in writing executed by Owner. All representations and covenants by Agent shall survive the making of the advances, and the provisions hereof shall be binding upon and inure to the benefit of the respective successors and permitted assigns, if any, of the parties hereto. Agent may not, however, assign its rights or obligations as agent hereunder, except as permitted by Section 25 of the Lease.

18.9   Governing Law.   THIS AGREEMENT HAS BEEN EXECUTED AND DELIVERED IN THE STATE OF NEW YORK. AGENT AND OWNER AGREE THAT, TO THE MAXIMUM EXTENT PERMITTED BY THE LAWS OF THE STATE OF NEW YORK AND PENNSYLVANIA, THIS AGREEMENT, AND THE RIGHTS AND DUTIES OF AGENT AND OWNER HEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING, WITHOUT LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW) IN ALL RESPECTS, INCLUDING, WITHOUT LIMITATION, IN RESPECT OF ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. EACH OF AGENT AND OWNER HEREBY IRREVOCABLY SUBMITS, FOR ITSELF AND ITS PROPERTIES, TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND THE SUPREME COURT OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF AGENT AND OWNER HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS AGREEMENT OR ANY DOCUMENT OR ANY INSTRUMENT REFERRED TO HEREIN OR THE SUBJECT MATTER HEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURT. THIS SUBMISSION TO JURISDICTION IS NONEXCLUSIVE AND DOES NOT PRECLUDE OWNER OR ANY ASSIGNEE OR AGENT FROM OBTAINING JURISDICTION OVER ONE ANOTHER IN ANY COURT OTHERWISE HAVING JURISDICTION. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF AGENT AND OWNER AGREES NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT. EACH OF AGENT AND OWNER AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL TO THE ADDRESS FOR NOTICES SET FORTH IN THIS AGREEMENT OR ANY METHOD AUTHORIZED BY THE LAWS OF NEW YORK. OWNER AND AGENT EXPRESSLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. OWNER AND AGENT ACKNOWLEDGE THAT THE PROVISIONS OF THIS SUBSECTION 18.9 HAVE BEEN BARGAINED FOR AND THAT THEY HAVE BEEN REPRESENTED BY COUNSEL IN CONNECTION THEREWITH.

18.10.   Captions. The captions in this Agreement are for convenience of reference only, and shall not be deemed to affect the meaning or construction of any of the provisions hereof.

18.11.   Maintenance of Equity. Owner covenants that at all times during the term of this Agreement, Owner's capitalization shall be such that at least three percent (3%) of its capitalization (including interest required to be capitalized in accordance with generally accepted accounting principles on the principal outstanding on any Financing Arrangement and net of any fees paid to the equity investors and any affiliates of the equity investors) will consist of cash contributions from Owner's general partner and limited partners.

18.12.   Released Land.

(a)   Owner and Agent acknowledge that certain of the Land Improvement Contracts may require that title to certain improvements relating to the Project (the "Released Improvements") and the land on which such Released Improvements are or will be located (the "Released Land") be transferred to the Applicable Contracting Party pursuant to the provisions of the applicable Land Improvement Contract.

(b)   Upon the request of Agent, and provided that no Event of Loss, Event of Default, Potential Default, Event of Project Termination, Potential Event of Project Termination or Termination Event under this Agreement and no Event of Loss, Event of Default or Potential Default under the Lease has occurred and is continuing, Owner shall cooperate with Agent to transfer the Released Improvements and the Released Land, as applicable, to the Applicable Contracting Party in an "as is" condition without warranty or representation of any kind, and without recourse to Owner, if (1) such transfer is required pursuant to the applicable Land Improvement Contract and (2) such transfer is customary in projects similar to the Project, including the release of the Released Improvements and/or the Released Land from the terms of the Lease, the Ground Lease and the provisions of any Financing Arrangements; provided, however, that after giving effect to such transfer and release (i) any such transfer or release will not cause the Project to fail to comply with the provisions of this Agreement, the Lease, the Construction Documents or the Project Contracts; (ii) Owner will have sufficient rights and interests in the Released Improvements and the Released Land as necessary to operate the Project in compliance with the provisions of this Agreement, the Lease, the Construction Documents and the Project Contracts, and (iii) such transfer and release will not (x) adversely impair the fair market value, utility, residual value or remaining useful life of the Project, or (y) materially adversely affect the ability of Agent to observe and perform its obligations under the Operative Documents, or any of the Construction Documents or the Project Contracts.

(c)   All Released Improvements are to be constructed in compliance with the terms of the applicable Land Improvement Contract, and all applicable terms, conditions and requirements of the Governmental Authorities.

(d)   Owner's release of the Released Improvements and/or the Released Land pursuant to any applicable Land Improvement Contract shall be subject to the satisfaction of the conditions set forth in this paragraph (d) and to the receipt by Owner and Assignee, in each case in form and substance reasonably satisfactory to Owner and Assignee, of the following documents:

   (i) an ALTA survey of the Premises showing a metes and bounds description of the portion of the Premises to be released as the Released Land and a metes and bounds description for the remainder of the Premises, which descriptions shall correspond to the legal descriptions set forth in the title endorsements referred to in clause (ii) below, the partial release and the deed to the Applicable Contracting Party;

   (ii) an endorsement to mortgagee's title insurance policy and Owner's alternative lender's policy from the Title Company insuring the validity of the lien of the lender's mortgage, this Agreement, the Lease and the Ground Lease in the event of recharacterization, with respect to the remainder of the Premises, without any impairment due to the partial release, as well as a separate tax lot endorsement;

   (iii) evidence that the Applicable Contracting Party has agreed to the legal description of the Released Land in the partial release and deed to the Applicable Contracting Party;

   (iv) an opinion of counsel to Agent stating that the execution of such instrument of release is authorized or permitted by this Agreement and the provisions of any Financing Arrangements and that all conditions precedent to such release under this subsection 18.12 have been met; and

   (v) a copy of the fully executed deed, in recordable form, to the Applicable Contracting Party.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written.

LMB FUNDING, LIMITED PARTNERSHIP

By: LMB Capital, Inc.,

Its General Partner

By:__________________________________

   Name:

   Title:

LOWER MOUNT BETHEL ENERGY, LLC

By:__________________________________

   Name:

   Title:

TABLE OF CONTENTS

SECTION 1.	DEFINITIONS		1
SECTION 2.		APPOINTMENT OF AGENT	17
SECTION 3.		ADVANCES	20
SECTION 4.		CONDITIONS PRECEDENT TO THE INITIAL ADVANCE WITH RESPECT TO THE PROJECT	22
SECTION 5.		CONDITIONS PRECEDENT TO OWNER'S OBLIGATION TO MAKE INTERIM ADVANCES WITH RESPECT TO THE PROJECT AFTER THE INITIAL ADVANCE	27
SECTION 6.		CONDITIONS PRECEDENT TO THE FINAL ADVANCE WITH RESPECT TO THE PROJECT	28
SECTION 7.		CONDITIONS PRECEDENT TO COMPLETION ADVANCES WITH RESPECT TO THE PROJECT	32
SECTION 8.		REPRESENTATIONS AND WARRANTIES OF AGENT	34
SECTION 9.		AFFIRMATIVE COVENANTS	42
SECTION 10.		NEGATIVE COVENANTS	52
SECTION 11.		EVENTS OF DEFAULT AND EVENTS OF PROJECT TERMINATION	54
SECTION 12.		INDEMNITIES	65
SECTION 13.		LEASEHOLD INTEREST	66
SECTION 14.		PURCHASE OF THE PROJECT	67
SECTION 15.		INTENTIONALLY DELETED	68
SECTION 16.		PERMITTED CONTESTS	68
SECTION 17.		SALE OR ASSIGNMENT BY OWNER	69
SECTION 18.		GENERAL CONDITIONS	70

Exhibit A	Form of Acquisition Certificate
Exhibit B	Form of Interim Advance Certificate
Exhibit C	Form of Certificate of Substantial Completion
Exhibit D	Form of Certificate of Increased Cost
Exhibit E	List of Project Contracts
Exhibit F	List of Permits and Project Authorizations
Exhibit G	Budget
Exhibit H	Construction Drawdown Schedule
Schedule 4(i)	Permits
Schedule 4(s)	Title Endorsements
Schedule 8.4	Litigation
Schedule 8.26	Disclosure
Schedule 8.27	Environmental Disclosure

EXHIBIT A

FORM OF ACQUISITION CERTIFICATE

LOWER MOUNT BETHEL ENERGY, LLC ("Agent"), Agent under a certain Agreement for Lease (the "Agreement"), dated as of December 21, 2001, entered into with LMB FUNDING, LIMITED PARTNERSHIP ("Owner"), delivers this Acquisition Certificate pursuant to Section 4 of the Agreement. All terms used in this Certificate shall have the meanings given to such terms in the Agreement. Agent hereby certifies to Owner and Assignee as follows:
1.   Ground Lease. Attached hereto at Tab 1 is an original duly executed copy of the Ground Lease (with the Premises not being subject to any Liens other than Permitted Liens), including a true and complete copy of the metes and bounds legal description of the Premises, and a copy of a fully executed short form or memorandum of the Ground Lease in the appropriate form for recording in the jurisdiction in which the Premises are located.

2.   Memorandum of Lease. Attached hereto at Tab 2 are two original counterparts of a memorandum of the Lease in the appropriate form for recording in the jurisdiction in which the Premises are located, executed by Agent, as lessee, and otherwise reasonably acceptable to Owner and Assignee.

3.   Certificates of Insurance and Insurance Letter. (a) Attached hereto at Tab 3 are certificates of insurance or other evidence reasonably acceptable to Owner and Assignee certifying that the insurance on the Project required by subsection 9.3 of the Agreement is in effect, and (b) attached hereto at Tab 4 is a letter from the Insurance Broker certifying as to, among other things, Agent's compliance with the provisions of subsection 9.3 of the Agreement.

4.   Taxes. All due and payable taxes and assessments applicable to the Premises have been paid in full or are being contested by Agent as a Permitted Contest pursuant to paragraph (a) of Section 16 of the Agreement, and all such taxes and assessments owed by Agent (or estimated amounts thereof) are included in the Budget.

5.   Availability of Utilities. All utility services and facilities (including, without limitation, gas, electrical, water and sewage services, and Interconnection Facilities) (a) which are necessary and required during the construction period have been completed or will be available in such a manner that construction will not be impeded by a lack thereof and (b) which are necessary for operation and occupancy of the Project are or will be completed in such a manner and at such a time as will assure the operation of the Project.

6.   Flood Zone. Attached hereto at Tab 5 is certification by the Surveyor on the Survey or an official of an appropriate Governmental Authority that the Premises are not located in any "special flood hazard area" as such term is used in the Flood Disaster Protection Act of 1973.

7.   Permits. Except as disclosed in Section 8.26 of the Agreement for Lease, all Permits and Governmental Actions required for the construction and operation of the Project and for the use of the Premises in accordance with and as contemplated by the Construction Documents, the Project Contracts, the Agreement and the Lease have been or will be issued or obtained in such a manner that such construction, operation and use will not be impeded or delayed by a lack thereof and no liabilities or penalties shall result from a lack thereof. A list of the Permits and Governmental Actions which have not been or will not be issued or obtained as of the date of this Initial Advance is set forth on Schedule 4(i) to the Agreement.

8.   Survey. Attached hereto at Tab 6 is the Survey complying with the requirements of paragraph (j) of Section 4 of the Agreement.

9.   Site Plan. Attached hereto at Tab 7 is a site plan prepared on behalf of Agent, showing the proposed location of the Project to be constructed on the Premises.

10.   Plans. Attached hereto at Tab 8 is a copy of the Plans and, as requested by Owner, such other specifications for the construction of the Project as are available to Agent.

11.   Use of Proceeds, No Liens and Representations of Agent. (a) All costs and expenses which are the subject of the Initial Advance requested have been paid in full or will be paid in full out of the proceeds of this Initial Advance; (b) all premiums and costs owing under any insurance policy pursuant to subsection 9.3 of the Agreement have been paid in full or will be paid in full out of the proceeds of this Initial Advance, by the General Contractor or otherwise, and all such insurance policies are in full force and effect; (c) there are no Liens on the Premises that are not Permitted Liens; (d) all representations and warranties in the Agreement, in the Lease and in the various agreements, instruments and documents delivered to Owner by or on behalf of Agent in connection with this Initial Advance, are and remain true and correct on and as of the date of this Initial Advance as if made on and as of the date of this Initial Advance (except to the extent such representations and warranties are made expressly as to a specific earlier date, in which case such representations and warranties were true and correct as of such earlier date); and (e) no Event of Loss, Event of Default, Potential Default, Event of Project Termination, Potential Event of Project Termination or Termination Event under the Agreement has occurred and is continuing on the date this Initial Advance is to be made or will exist by reason of giving effect to this Initial Advance.

12.   Environmental Report. Attached hereto at Tab 9 is the Environmental Report complying with paragraph (n) of Section 4 of the Agreement.

13.   Opinions of Counsel for Agent and Guarantor. (a) Attached hereto at Tab 10 is an opinion of Orrick, Herrington & Sutcliffe LLP, counsel for Agent and Guarantor, and (b) attached hereto at Tab 11 is an opinion of Robert W. Burke, Esq., in-house counsel of Agent, and (c) attached hereto at Tab 12 is an opinion of Michael A. McGrail, Esq., in-house counsel of Guarantor.

14.   Budget. Attached hereto at Tab 13 is a copy of the Budget, which Budget (a) is true, complete and correct, (b) is accurately representative of all expected costs of the Project, and (c) is within the dollar limit set forth in the first sentence of subsection 2.2 of the Agreement.

15.   Request for Initial Advance. Attached hereto at Tab 14 is a duly executed Request for Initial Advance complying with paragraph (q) of Section 4 of the Agreement.

16.   Project Contracts; Construction Documents. Attached hereto at Tab 15 is a fully executed and complete copy of each of the Construction Documents and the Project Contracts which have been executed prior to the date of this Initial Advance.

17.   Title Insurance Policy. Attached hereto at Tab 16 are copies of pro-forma policies of insurance complying with paragraph (s) of Section 4 of the Agreement.

18.   Representations and Warranties of Guarantor. All representations and warranties of the Guarantor set forth in the Guaranty are and remain true and correct on and as of the date of this Initial Advance as if made on and as of the date of this Initial Advance (except to the extent such representations and warranties are made expressly as to a specific earlier date, in which case such representations and warranties were true and correct as of such earlier date), and no default under the Guaranty has occurred and is continuing on the date this Initial Advance is to be made or will exist by reason of giving effect to this Initial Advance.

19.   Construction Drawdown Schedule. Attached hereto at Tab 17 is a copy of the Construction Drawdown Schedule prepared by Agent, which reflects Agent's best estimates as to the amount and timing of construction drawdowns on the date of this Initial Advance.

20.   Construction Progress. Attached hereto at Tab 18 are true copies of unpaid invoices, receipted bills and Lien waivers (to the extent such Lien waivers are required under any Project Contract) requested by Owner or Assignee, and such other reasonably available supporting information as Owner or Assignee may have reasonably requested.

21.   No Other Security Interests. All materials and fixtures incorporated in the construction of the Project have been purchased so that title thereto has automatically been transferred to Owner, and there are no Liens on such materials and fixtures other than Permitted Liens.

22.   Material Adverse Change. Since the date of the Private Placement Memorandum, there has been no change in the business, assets, properties, revenues, financial condition, operations or prospects of Agent which could reasonably be expected to have a material adverse effect on (a) the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, (b) the ability of Agent to observe and perform its obligations under the Operative Documents, or any of the Construction Documents or the Project Contracts in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner, or (c) the rights or interests of Owner or Assignee under the Operative Documents, the Guaranty, or any of the Construction Documents or the Project Contracts.

23.   Conditions Precedent Under Project Contracts. All conditions precedent to the effectiveness of each Construction Document and Project Contract in effect as of the date of this Initial Advance, have been satisfied in full (other than those (a) relating to completion of construction of the Project, (b) which the failure to satisfy could not reasonably be expected to have a material adverse effect on Agent's ability to perform its obligations under the Construction Documents and Project Contracts or (c) which will be fulfilled as a result of Agent's execution and delivery of and performance under the Agreement).

24.   Intellectual Property Rights. All Intellectual Property Rights necessary for the use and operation of the Project in accordance with and as contemplated by the Construction Documents, the Project Contracts, the Agreement and the Lease have been or, prior to the Effective Date will have been, obtained and are or, prior to the Effective Date will be, in full force and effect. There has been no material breach under any such Intellectual Property Rights, and there are no pending or threatened claims or proceedings relating thereto which, if adversely determined, could reasonably be expected to have a material adverse effect on (a) the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, (b) the ability of Agent to observe and perform its obligations under the Operative Documents, or any of the Construction Documents or the Project Contracts in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner, or (c) the rights or interests of Owner or Assignee under the Operative Documents, the Guaranty, or any of the Construction Documents or the Project Contracts.

25.   Required Easements. The Required Easements have been or, prior to the Effective Date will be, obtained and are or, prior to the Effective Date will be, in full force and effect and constitute all easements, rights-of-way and licenses contemplated to be in place under the Construction Documents, the Project Contracts, the Agreement and the Lease as of the date of this Initial Advance. There has been no material breach under any such Required Easements, and there are no pending or, to the best of Agent's knowledge, threatened claims or proceedings relating thereto which, if adversely determined, could reasonably be expected to have a material adverse effect on (a) the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, (b) the ability of Agent to observe and perform its obligations under the Operative Documents, or any of the Construction Documents or the Project Contracts in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner, or (c) the rights or interests of Owner or Assignee under the Operative Documents, the Guaranty, or any of the Construction Documents or the Project Contracts.

26.   Appraisal. Attached hereto at Tab 19 is an appraisal prepared by the Appraiser complying with paragraph (cc) of Section 4 of the Agreement.

27.   Opinion of Local Pennsylvania Counsel. Attached hereto at Tab 20 is an opinion of Morgan, Lewis & Bockius LLP, special Pennsylvania counsel.

28.   Additional Matters. Attached hereto at Tab 21 are such other documents and legal matters in connection with a request for the Initial Advance as are reasonably requested by Owner or Assignee.

Dated: ______________, ____.

LOWER MOUNT BETHEL ENERGY, LLC

By:__________________________________

   Name:

   Title:

EXHIBIT B

FORM OF INTERIM ADVANCE CERTIFICATE

LOWER MOUNT BETHEL ENERGY, LLC ("Agent"), Agent under a certain Agreement for Lease (the "Agreement"), dated as of December 21, 2001, entered into with LMB FUNDING, LIMITED PARTNERSHIP ("Owner"), delivers this Interim Advance Certificate pursuant to Section 5(A) of the Agreement. All terms used in this Certificate shall have the meanings given to such terms in the Agreement. Agent hereby certifies to Owner and Assignee as follows:

1.   Use of Proceeds and Continuing Representations of Agent. (a) All costs and expenses which are the subject of the Interim Advance requested have been paid in full or will be paid in full out of the proceeds of this Interim Advance; (b) all premiums and costs owing under any insurance policy pursuant to subsection 9.3 of the Agreement have been paid in full by the General Contractor or otherwise or will be paid in full out of the proceeds of this Interim Advance, and all such insurance policies are in full force and effect; (c) all representations and warranties in the Agreement (except for the representations and warranties made in subsections 8.9 and 8.26 thereof which shall not be made by Agent), in the Lease, and in the various agreements, instruments and documents delivered to Owner by or on behalf of Agent in connection with this Interim Advance, are and remain true and correct in all material respects on and as of the date of this Interim Advance as if made on and as of the date of this Interim Advance (except to the extent such representations and warranties are made expressly as to a specific earlier date, in which case such representations and warranties were true and correct as of such earlier date); and (d) no Event of Loss, Event of Default, Potential Default, Event of Project Termination, Potential Event of Project Termination or Termination Event under the Agreement, or default under any Project Contract or Construction Document has occurred and is continuing on the date this Interim Advance is to be made or will exist by reason of giving effect to this Interim Advance.

2.   Construction Progress. Attached hereto at Tab 1 are (a) all Monthly Progress Reports (as defined in the EPC Contract) delivered under the EPC Contract and requested by Owner or Assignee, (b) true copies of unpaid invoices, receipted bills and Lien waivers (to the extent such Lien waivers are required under the EPC Contract or any other Project Contract) requested by Owner or Assignee, and such other reasonably requested supporting information as has been requested by Owner or Assignee and (c) a certificate from Agent certifying to Owner and Assignee the amount of Unreimbursed Project Costs outstanding on the date of this Interim Advance.

3.   No Other Security Interests. All materials and fixtures incorporated in the construction of the Project have been purchased so that title thereto has automatically been transferred to Owner pursuant to the EPC Contract, and there are no Liens on such materials and fixtures other than Permitted Liens.

4.   Request for Interim Advance. Attached hereto at Tab 2 is a duly executed Request for Interim Advance complying with paragraph (e) of Section 5(A) of the Agreement.

5.   Representations and Warranties of Guarantor. All representations and warranties of the Guarantor in the Guaranty (except for the representations and warranties made in Sections 4.5, 4.6, 4.8 and 4.9 thereof which shall not be made by the Guarantor) are and remain true and correct in all material respects on and as of the date of this Interim Advance as if made on and as of the date of this Interim Advance (except to the extent such representations and warranties are made expressly as to a specific earlier date, in which case such representations and warranties were true and correct as of such earlier date), and no default under the Guaranty has occurred and is continuing on the date this Interim Advance is to be made or will exist by reason of giving effect to this Interim Advance.

6.   Satisfactory Title. Attached hereto at Tab 3 is a notice of title continuation or date-down endorsement issued by the Title Company and complying with paragraph (g) of Section 5(A) of the Agreement.

7.   List of Project Authorizations. Attached hereto at Tab 4 is a list of all certificates, Permits, licenses, authorizations and approvals required by all applicable law in effect on the date of this Interim Advance in substitution for Exhibit F to the Agreement pursuant to subsection 8.18 of the Agreement.

Dated: ______________, ____.

LOWER MOUNT BETHEL ENERGY, LLC

By:__________________________________

   Name:

   Title:

EXHIBIT C

FORM OF CERTIFICATE OF SUBSTANTIAL COMPLETION

LOWER MOUNT BETHEL ENERGY, LLC ("Agent"), Agent under a certain Agreement for Lease (the "Agreement"), dated as of December 21, 2001, entered into with LMB FUNDING, LIMITED PARTNERSHIP ("Owner"), delivers this Certificate of Substantial Completion pursuant to Section 6 of the Agreement. All terms used in this Certificate shall have the meanings given to such terms in the Agreement. Agent hereby certifies to Owner and Assignee as follows:

1.   Payment of All Costs. The Final Advance is sufficient to provide for the payment of all costs of constructing the Project (other than (a) the cost of completing any open Punch List (as defined in the EPC Contract) items), (b) Unreimbursed Project Costs not designated by Agent for payment by the Final Advance and (c) those estimated costs in connection with the designing, constructing, equipping and installing of the Project that are not yet due and which will be included as part of a Completion Advance in an amount not to exceed the amount of such estimate, provided that (i) the Available Commitment remaining after the Final Advance is equal to or exceeds the aggregate amount of all such estimated costs and (ii) Agent certifies, based upon its reasonable expectations, that (x) all costs in connection with the designing, constructing, equipping and installing of the Project that are not yet due will not exceed such estimated costs or (y) to the extent that such costs will exceed such estimated costs, such excess costs are Unreimbursed Project Costs).

2.   Construction and Equipping of the Project. The Project (exclusive of Punch List (as defined in the EPC Contract) items), (a) has been completed (including all Performance Tests (as defined in the EPC Contract) required for Substantial Completion under the EPC Contract) in all material respects in accordance with the Plans, the terms of the Construction Documents and the Project Contracts, and (b) has been constructed in accordance with generally accepted engineering and construction practices.

3.   Permits. All Permits and Governmental Actions required for the occupancy, use and operation of the Project in the manner contemplated in paragraph 2 above and in accordance with and as contemplated by the Construction Documents, the Project Contracts and the Lease have been issued or obtained and are in full force and effect.

4.   Liens. (a) The Project has been completed in the manner contemplated in paragraph 2 above free of all Liens, except for Permitted Liens (all of which Permitted Liens are itemized in Tab 1 attached hereto, as to the nature, amount, claimant and status thereof, and which Permitted Liens do not include any mechanics' Liens other than those mechanics' Liens that are (i) to be satisfied or discharged out of the proceeds of this Final Advance or a Completion Advance or (ii) subject to a Permitted Contest and bonded or otherwise secured to the satisfaction of Owner and Assignee); (b) there are no claims outstanding with respect to any Construction Document or Project Contract (other than claims which are itemized in Tab 2 attached hereto, as to the nature, amount, claimant and status thereof and which claims are bonded or otherwise secured to the satisfaction of Owner and Assignee); and (c) [there are no current Permitted Contests] [OR] [the Permitted Contests in existence as of the date of this Final Advance are itemized in Tab 3 attached hereto, as to the nature, amount, claimant and status thereof].

5.   Final Survey. Attached hereto at Tab 4 is the Final Survey complying with the requirements of paragraph (f) of Section 6 of the Agreement.

6.   Utilities. Connection has been made to all appropriate utility facilities (including Interconnection Facilities) and the Project is capable of operation in the manner contemplated in paragraph 2 above and in accordance with and as contemplated by the Construction Documents, the Project Contracts and the Lease.

7.   Use of Proceeds and Continuing Representations of Agent. (a) All costs and expenses which are the subject of the Final Advance requested have been paid in full or will be paid in full out of the proceeds of this Final Advance; (b) all premiums and costs owing under any insurance policy pursuant to subsection 9.3 of the Agreement have been paid in full by the General Contractor or otherwise or will be paid in full out of the proceeds of this Final Advance, and all such insurance policies are in full force and effect; (c) all representations and warranties in the Agreement (except for the representations and warranties made in subsections 8.9 and 8.26 thereof which shall not be made by Agent), in the Lease, and in the various agreements, instruments and documents delivered to Owner by or on behalf of Agent in connection with this Final Advance are and remain true and correct in all material respects on and as of the date of this Final Advance as if made on and as of the date of this Final Advance (except to the extent such representations and warranties are made expressly as to a specific earlier date, in which case such representations and warranties were true and correct as of such earlier date); and (d) no Event of Loss, Event of Default, Potential Default, Event of Project Termination, Potential Event of Project Termination or Termination Event under the Agreement has occurred and is continuing on the date this Final Advance is to be made or will exist by reason of giving effect to this Final Advance.

8.   Request for Final Advance. Attached hereto at Tab 5 is a duly executed Request for Final Advance complying with paragraph (i) of Section 6 of the Agreement.

9.   Satisfactory Title. Attached hereto at Tab 6 is a notice of title continuation or endorsement issued by the Title Company and complying with paragraph (j) of Section 6 of the Agreement.

10.   Representations and Warranties of Guarantor. All representations and warranties of the Guarantor in the Guaranty (except for the representations and warranties made in Sections 4.5, 4.6, 4.8 and 4.9 thereof which shall not be made by the Guarantor) are and remain true and correct in all material respects on and as of the date of this Final Advance as if made on and as of the date of this Final Advance (except to the extent such representations and warranties are made expressly as to a specific earlier date, in which case such representations and warranties were true and correct as of such earlier date), and no default under the Guaranty has occurred and is continuing on the date this Final Advance is to be made or will exist by reason of giving effect to this Final Advance.

11.   Commercial Operation. (a) Commercial Operation of the Project has been achieved, including, without limitation, satisfaction of (i) the Minimum Performance Guarantees, (ii) the Emission Guarantees and (iii) the Noise Compliance Guarantee (as each such term is defined in the EPC Contract), in each case according to the procedures set forth in the EPC Contract; (b) no defective or uncompleted work exists that could reasonably be expected to materially and adversely affect the generation of electricity from the Project; (c) the Project as constructed complies in all material respects with all Governmental Actions; and (d) the Project is capable of operating in a manner consistent with prudent industry practices, all applicable Permits and Legal Requirements and in accordance with the terms of the Agreement, the Lease and the Project Contracts. [In addition, only if Agent has elected not to request a Completion Advance, Agent shall satisfy the requirements of paragraph (g) of Section 7 of the Agreement.]

12.   Environmental Compliance. All compliance tests, emissions tests, and certifications and other actions required by any Environmental Requirements as a precondition to Commercial Operation of the Project (including, without limitation, the performance criteria, emissions standards and reliability criteria required by the EPC Contract) has been successfully completed and all filings, notices and other submissions required under such Environmental Requirements shall have been fully and accurately completed and submitted to applicable Governmental Authorities, as required by applicable Legal Requirements.

13.   Intellectual Property Rights. All Intellectual Property Rights necessary for the use and operation of the Project in accordance with and as contemplated by the Project Contracts, the Agreement and the Lease have been obtained and are in full force and effect.

14.   Easements. The Easements have been obtained and are in full force and effect and are not subject to any Liens other than Permitted Liens and constitute all easements, rights-of-way (i) contemplated to be in place under the Construction Documents, the Project Contracts, the Agreement and the Lease as of the date of this Final Advance and (ii) which are necessary for Agent's performance of its obligations under this Agreement, the Lease, the Construction Documents and the Project Contracts.

15.   Construction Progress. Attached hereto at Tab 7 are (a) copies of all Monthly Progress Reports (as defined in the EPC Contract) delivered under the EPC Contract and requested by Owner or Assignee, (b) true copies of unpaid invoices, receipted bills and Lien waivers (to the extent such Lien waivers are required under the EPC Contract or any other Project Contract) requested by Owner or Assignee, and such other reasonably available supporting information as shall have been reasonably requested by Owner or Assignee and (c) a certificate from Agent certifying to Owner and Assignee the amount of Unreimbursed Project Costs outstanding on the date of this Final Advance.

16.   No Other Security Interests. All materials and fixtures incorporated in the construction of the Project have been purchased so that title thereto has automatically been transferred to Owner pursuant to the EPC Contract, and there are no Liens on such materials and fixtures other than Permitted Liens.

17.   Evidence of EWG Status. Attached hereto as Tab 8 are copies of the filing of an application for determination that Owner is an EWG under Section 32 of the 1935 Act, together with a determination issued by FERC of such EWG status.

18.   List of Project Authorizations. Attached hereto at Tab 9 is a list of all certificates, Permits, licenses, authorizations and approvals required by all applicable law in effect on the date of this Final Advance in substitution for Exhibit F to the Agreement pursuant to subsection 8.18 of the Agreement.

Dated: ______________, _____.

LOWER MOUNT BETHEL ENERGY, LLC

By:__________________________________

   Name:

   Title:

EXHIBIT D

FORM OF CERTIFICATE OF INCREASED COST

   LOWER MOUNT BETHEL ENERGY, LLC ("Agent"), Agent under a certain Agreement for Lease (the "Agreement"), dated as of December 21, 2001, entered into with LMB FUNDING, LIMITED PARTNERSHIP ("Owner"), delivers this Certificate of Increased Cost pursuant to Section 7 of the Agreement. All terms used in this Certificate shall have the meanings given to such terms in the Agreement. Agent hereby certifies to Owner and Assignee as follows:

1.   Payment of All Costs. The Completion Advance is sufficient to provide for the payment of (a) all costs of completing any open Punch List (as defined in the EPC Contract) items, and (b) all costs in connection with the designing, constructing, equipping and installing of the Project that were not included as part of the Final Advance; provided that all such costs fall within the limits of the Budget.

2.   Use of Proceeds and Continuing Representations of Agent. (a) All costs and expenses which are the subject of the Completion Advance requested have been paid in full or will be paid in full out of the proceeds of this Completion Advance; (b) all premiums and costs owing under any insurance policy pursuant to subsection 9.3 of the Agreement have been paid in full by the General Contractor or otherwise or will be paid in full out of the proceeds of this Completion Advance, and all such insurance policies are in full force and effect; (c) all representations and warranties in the Agreement (except for the representations and warranties made in subsections 8.9 and 8.26 thereof which shall not be made by Agent), in the Lease, and in the various agreements, instruments and documents delivered to Owner by or on behalf of Agent in connection with this Completion Advance are and remain true and correct in all material respects on and as of the date of this Completion Advance as if made on and as of the date of this Completion Advance (except to the extent such representations and warranties are made expressly as to a specific earlier date, in which case such representations and warranties were true and correct as of such earlier date); and (d) no Event of Loss, Event of Default, Potential Default, Event of Project Termination, Potential Event of Project Termination or Termination Event under the Agreement has occurred and is continuing on the date this Completion Advance is to be made or will exist by reason of giving effect to this Completion Advance.

3.   Request for Completion Advance. Attached hereto at Tab 1 is a duly executed Request for Completion Advance complying with paragraph (d) of Section 7 of the Agreement.

4.   Satisfactory Title. Attached hereto at Tab 2 is a notice of title continuation or endorsement issued by the Title Company complying with paragraph (e) of Section 7 of the Agreement.

5.   Representations and Warranties of Guarantor. All representations and warranties of the Guarantor in the Guaranty (except for the representations and warranties made in Sections 4.5, 4.6, 4.8 and 4.9 thereof which shall not be made by the Guarantor) are and remain true and correct in all material respects on and as of the date of this Completion Advance as if made on and as of the date of this Completion Advance (except to the extent such representations and warranties are made expressly as to a specific earlier date, in which case such representations and warranties were true and correct as of such earlier date), and no default under the Guaranty has occurred and is continuing on the date this Completion Advance is to be made or will exist by reason of giving effect to this Completion Advance.

6.   Final Completion. (a) Final Completion (as defined in the EPC Contract) has occurred as evidenced by the Notice of Final Completion (as defined in the EPC Contract) and the certificate of Final Completion attached hereto at Tab 3; (b) [either] [the Project has satisfied the Output Guarantee (as defined in the EPC Contract)] [or] [the General Contractor has paid the OutPut Buydown Amount (as defined in the EPC Contract)]; and (c) [either] [the Project has satisfied the Heat Rate Guarantee (as defined in the EPC Contract)] [or] [the General Contractor has paid the Heat Rate Buydown Amount (as defined in the EPC Contract)].

7.   Construction Progress. Attached hereto at Tab 4 are (a) copies of all Monthly Progress Reports (as defined in the EPC Contract) delivered under the EPC Contract and requested by Owner or Assignee and (b) true copies of unpaid invoices, receipted bills and Lien waivers (to the extent such Lien waivers are required under the EPC Contract or any other Project Contract) requested by Owner or Assignee, and such other reasonably available supporting information as may have reasonably been requested by Owner or Assignee.

8.   No Other Security Interests. All materials and fixtures incorporated in the construction of the Project have been purchased so that title thereto has vested solely in Owner, and there are no Liens on such materials and fixtures other than Permitted Liens.

9.   List of Project Authorizations. Attached hereto at Tab 5 is a list of all certificates, Permits, licenses, authorizations and approvals required by all applicable law in effect on the date of this Completion Advance in substitution for Exhibit F to the Agreement pursuant to subsection 8.18 of the Agreement.

Dated: ______________, _____.

LOWER MOUNT BETHEL ENERGY, LLC

By:__________________________________

   Name:

EXHIBIT E

LIST OF PROJECT CONTRACTS

• The Engineering, Procurement and Construction Contract, dated as of December 20, 2001, between Owner and the General Contractor.

• The Guaranty, dated as of December 20, 2001, by Foster Wheeler LLC to Owner, guaranteeing the obligations of the General Contractor under the EPC Contract.

• The Engineering Services Agreement, dated as of September 21, 2001, between Owner and the General Contractor, as amended by an Amended and Restated Engineering Services Agreement, dated as of November 19, 2001, between Owner and the General Contractor.

• The Power Transformers Contract, dated as of December 21, 2001, between Siemens Power Transmission & Distribution, Inc. and Owner.

• The Combined Cycle Power Island Equipment Supply Contract, dated as of August 11, 2000, between Siemens Westinghouse Power Corporation and Owner (as assigned to the General Contractor in connection with the EPC Contract).

• The Ground Lease Agreement, dated as of December 21, 2001, between Agent, as ground lessor, and Owner, as ground lessee.

• The Operation and Maintenance Agreement for the Lower Mount Bethel Energy Project Sewage Treatment Facility, dated July 13, 2001, between Lower Mount Bethel Township and PPL Generation, LLC.

• The Land Development Improvements Agreement to be entered into by and between Lower Mount Bethel Township and Owner.

• The Interconnection Service Agreement, dated as of August 8, 2001, between PJM Interconnection, L.L.C. and Owner.

• The Memorandum of Understanding, dated December 3, 1999, between PPL Corporation (successor-in-interest to PP&L Resources, Inc.) and Agent, as assigned to PPL Martins Creek, LLC pursuant to an Assignment and Assumption Agreement dated as of the date hereof.

• The Reimbursement, Construction and Ownership Agreement to be entered into by and between Owner and PPL Interstate Energy Company.

• The Gas Transportation Agreement to be entered into by and between PPL Interstate Energy Company and Owner.
  

  
  

EXHIBIT F

LIST OF PERMITS AND PROJECT AUTHORIZATIONS

	Issuing
Permit	Agency	Description	Need	Status
Alternate Fuels Capability	DOE	Baseload facilities fueled by natural gas	Construction	Self certifying
				10-12-01
Toxic Chemical Release	EPA	Actual Release of Hazardous Materials	Operation	To be filed if necessary
Inventory Reporting
Notice of Proposed	FAA	Construction of Object Capable of	Construction	To be filed
Construction or Alteration		Affecting Navigable Air Space
Air Quality Plan Approval	PDEP	Air Quality permitting and new source review	Construction	Permit # 48-328-004 10-29-01; under appeal
Air Quality Operating Permit	PDEP	Operation of an air contamination source	Operation	To be filed
Title IV Acid Rain	PDEP	Fossil fuel generation units > 25 MW	Operation	To be filed
Operating Permit
Air Quality Plan Approval	PDEP	Air quality permitting to convert Martins Creek Station combustion turbines from oil to gas-fired	Operation	To be filed
Air Quality Operating Permit Modification	PDEP	Modification to PM-10 limit for Auxiliary Boiler 4B at Martins Creek Station	Operation	Permit # 48-00011 3-31-01
ERCs for NOx and VOC	PDEP	Emission reduction credits	Operation	To be obtained
Allowances for NOx	PDEP	Emission allowances	Operation	To be obtained
Allowances for SOx	EPA	Emission allowances	Operation	To be obtained
Water Quality Management Plan Part II Permit	PDEP	Wastewater treatment facility modifications	Construction	To be filed
NPDES Permit for Industrial Wastewater	PDEP	Discharge of Industrial Wastewater	Operation	Permit # PA 0012823 8-6-01
Preparedness, Prevention And Contingency Plan	PDEP	Required as part of NPDES permit	Operation	To be filed
NPDES General Storm Water Construction Permit	PDEP	Discharge of Storm Water	Construction	Issued
Sewage Disposal Permit	PDEP	On site sanitary sewage disposal	Operation	Permit # T092557 8-29-01
Public Water Supply	PDEP	Potable water supply distribution	Construction	To be filed
Storage Tanks	PDEP	Underground or above ground storage tanks	Construction	To be filed
Spill Prevention Control and Countermeasure Plan	PDEP	Prevention of releases of regulated substances from tanks	Operation	To be filed
Consumptive Water Use	DRBC	Withdrawal of water	Construction	Docket # D-99-54 3-7-00
Consumptive Water Use	DRBC	Drought Operating Plan	Operation	To be filed
Stack Approval	PDOT	Construction of object affecting navigable air space	Construction	To be filed
Archeological and Historical Review	PHMC	Activities that impact archeological or historical resources	Construction	4-6-98
Review of Threatened or Endangered Species	PDNI		Construction	8-30-99
Fire Safety Approval	Local Fire Marshal	Issuance of building or occupancy permits	Construction Operation	To be filed
Site Plan Approval	LMBT/NC	Site Development	Construction	10-26-01
Special Exception to Zoning	LMBT		Construction	2-21-01; as modified
Ordinance				on 7-13-01; under
				appeal
Building Permit	LMBT	Construction of foundations and structures	Construction	11/30/01
Occupancy Permit	LMBT	Construction and occupancy of	Operation	To be filed
		foundations and structures
E&S Control Plan	NC	Soil erosion and sedimentation control	Construction	10-4-01
Building Plan Approval	PDLI	Building Plans	Construction	To be filed
Occupancy Permit	PDLI	Conformance with Approved Building Plans	Operation	To be filed
Generator Identification Number	PDEP/EPA	Hazardous Waste Generation	Operation	To be filed
Section 32 of PUHCA	FERC	Exemption of wholesale generators from holding company regulation	Operation	To be filed
Section 205 of FPA	FERC	Market-based rate authority/market-based tariff	Operation	To be filed
FPA	FERC	Disclaimer of jurisdiction over passive owner Of FERC jurisdictional facilities	Operation	To be filed
Interconnection Approvals	PJM	Interconnection with power grid	Operation	To be filed

ACOE	Army Corps of Engineers
DOE	Department of Energy
EPA	US Environmental Protection Agency
FAA	Federal Aviation Administration
FERC	Federal Energy Regulatory Commission
FPA	Federal Power Act
NPDES	National Pollutant Discharge Elimination System Program
PHMC	Pennsylvania Historical and Museum Commission
PDEP	Pennsylvania Department of Environmental Protection
PDLI	Pennsylvania Department of Labor and Industry
PJM	PJM Interconnection, LLC
PNDI	Pennsylvania Natural Diversity Inventory
PDOT	Pennsylvania Department of Transportation
PUHCA	Public Utility Holding Company Act
DRBC	Delaware River Basin Commission
LMBT	Lower Mount Bethel Township
NC	Northampton County

This Agreement for Lease is Confidential and Proprietary

EXHIBIT G

BUDGET

Item	Amount ($OOOs)
Power Island Costs	$ 132,924
EPC Costs	196,865
Gas Line Costs	7,100
Interconnection Costs	1,750
Substation Costs	3,352
Infrastructure Services	2,010
NOX / VOX Off-sets	750
Spare Parts	5,011
Start-Up Costs	690
Contingency	23,688
Total Construction Costs	$ 374,139
Total Financing Costs	$ 5,803
Total Other Costs	$ 75,102
TOTAL COSTS	$ 455,044

This Agreement for Lease is Confidential and Proprietary

EXHIBIT H

CONSTRUCTION DRAWDOWN SCHEDULE

Date	Construction Expenses ($OOOs)
Dec-01	$ 163,610
Jan-02	16,698
Feb-02	19,902
Mar-02	21,875
Apr-02	14,417
May-02	16,743
Jun-02	29,093
Jul-02	20,106
Aug-02	20,745
Sep-02	9,911
Oct-02	10,129
Nov-02	8,049
Dec-02	25,723
Jan-03	7,956
Feb-03	7,493
Mar-03	563
Apr-03	6,401
May-03	1,142
Jun-03	25,555
Jul-03
	813
Aug-03	5 72
Sep-03	143
Oct-03	8,793
Nov-03	-
Dec-03	18,608
TOTAL	$ 455,044

SCHEDULE 4(i)
PERMITS

Toxic Chemical Release Inventory Reporting

Notice of Proposed Construction or Alteration

Air Quality Operating Permit

Title IV Acid Rain Operating Permit

Air Quality Plan Approval (to convert Martins Creek Station combustion turbines from oil to gas-fired)

ERCs for NOx and VOC

Allowances for NOx

Allowances for SOx

Water Quality Management Plan Part II Permit

Preparedness, Prevention, and Contingency Plan

Public Water Supply

Storage Tanks

Spill Prevention Control and Countermeasure Plan

Consumptive Water Use (Drought Operating Plan)

Stack Approval

Fire Safety Approval

Occupancy Permit

Building Plan Approval

Occupancy Permit

Generator Identification Number

Section 32 of PUHCA

Section 205 of FPA

FPA

Interconnection Approvals

SCHEDULE 4(s)

LIST OF TITLE ENDORSEMENTS

ALTA 9 Comprehensive Endorsement

Survey Endorsement

Land Same as Survey Endorsement

Access Endorsement

Address Endorsement

Due Execution Endorsement

Separate Tax Lot Endorsement

Environmental Protection Lien Endorsement

Internal Contiguity Endorsement

Pending Disbursements

Recharacterization (Lessor's policy only)

Special Synthetic Lease Endorsement

SCHEDULE 8.4

LITIGATION

• PPL Martins Creek, LLC and Lower Mount Bethel Energy, LLC v. Lower Mount Bethel Township Zoning Hearing Board v. Robert Taylor, Inc. and William A.Humphries, III. (Intervenors), C0048CV2001002703 (The appeal to the Zoning Ordinance Special Exception; all conflicts with the Township were settled pursuant to the court approved stipulation with regard to the noise condition).

• Robert Taylor and Mona Taylor v. Lower Mount Bethel Township, PPL Martins Creek, LLC and Lower Mount Bethel Energy, LLC, C0048CV2001006573 (the nuisance action).

• The Air Quality Plan Approval which was issued by the Commonwealth of Pennsylvania Department of Environmental Protection on October 29, 2001 was appealed on November 29, 2001.

• The Building Permit, which was issued by Lower Mount Bethel Township on November 30, 2001, may be appealed.

SCHEDULE 8.26

DISCLOSURE

• The Air Quality Plan Approval which was issued by the Commonwealth of Pennsylvania Department of Environmental Protection on October 29, 2001 was appealed on November 29, 2001.

• The Building Permit which was issued by Lower Mount Bethel Township on November 30, 2001 may be appealed.

• The Zoning Ordinance Special Exception which was issued on February 21, 2001, as modified by Stipulation on July 13, 2001, is currently the subject of an appeal to the Northampton County Court of Common Pleas regarding the noise condition.

SCHEDULE 8.27

ENVIRONMENTAL DISCLOSURE

• The Air Quality Plan Approval which was issued by the Commonwealth of Pennsylvania Department of Environmental Protection on October 29, 2001 was appealed on November 29, 2001.

• The Zoning Ordinance Special Exception which was issued on February 21, 2001, as modified by Stipulation on July 13, 2001, is currently the subject of an appeal to the Northampton County Court of Common Pleas regarding the noise condition.

EX-10

Exhibit 10(m)-1

EXECUTION VERSION

AMENDMENT NO. 1

Dated as of September 16, 2002

to

AGREEMENT FOR LEASE

Dated as of December 21, 2001

BETWEEN

LMB FUNDING, LIMITED PARTNERSHIP

as Owner

AND

LOWER MOUNT BETHEL ENERGY, LLC

as Agent

This Amendment No. 1 has been manually executed in 38 counterparts, numbered consecutively from 1 through 38, of which this is No. __. To the extent, if any, that this Amendment constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any jurisdiction), no security interest in this Amendment may be created or perfected through the transfer or possession of any counterpart other than the original executed counterpart which shall be the counterpart identified as counterpart No. 1.

Amendment No. 1 to Agreement for Lease ("Amendment No. 1"), dated as of September 16, 2002, between LMB FUNDING, LIMITED PARTNERSHIP, a Delaware limited partnership ("Owner"), and LOWER MOUNT BETHEL ENERGY, LLC, a Delaware limited liability company ("Agent"), amending the Original Agreement for Lease referred to below.

WHEREAS, Owner and Agent have heretofore entered into an Agreement for Lease, dated as of December 21, 2001 (the "Original Agreement for Lease") (the Original Agreement for Lease, as amended hereby and as may hereafter be further amended, modified, supplemented or restated from time to time, the "Agreement for Lease"); and

WHEREAS, Owner and Agent wish to amend the Original Agreement for Lease as hereinafter provided with the consent of the holders of the applicable percentage of the Notes;

NOW, THEREFORE, Owner and Agent hereby agree that the Original Agreement for Lease is amended as follows:

SECTION 1.   DEFINITIONS. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Original Agreement for Lease.

SECTION 2.   AMENDMENTS. The Original Agreement for Lease is hereby amended as follows:

2.1   Section 1 of the Original Agreement for Lease is amended by:

(i)    adding the following new definitions (to be inserted in appropriate alphabetical order in said subsection 1.1), which definitions read in their entirety as follows:

"DRBC: the Delaware River Basin Commission or any successor thereto.

Drought Conditions: any drought, reduced river flow or other water-related conditions or emergencies that are declared by the DRBC, PDEP or other Governmental Authority pursuant to any Legal Requirement and are applicable to the Project.

Easement Agreement: the Easement Agreement between PPL Martins Creek, LLC and Owner, dated September 11, 2002, as the same may be amended, modified, supplemented or restated from time to time in accordance with its terms, the terms of the Collateral Indenture and the terms of the Leasehold Mortgage (as defined in the Collateral Indenture).

PDEP: the Pennsylvania Department of Environmental Protection or any successor thereto.

Water Curtailment: any curtailment or cessation of Agent's or Owner's legal right or entitlement to use Delaware River water, in whole or in part, that is imposed under the terms of Agent's or Owner's water-related licenses or permits or applicable DRBC, PDEP or other Governmental Authority declarations or orders as a result of Drought Conditions.

Water Offset Rights: any ownership, contractual or other legal right or entitlement of Agent or Owner to store and/or release (or cause a third party to store and/or release) water into the Delaware River for the purpose of offsetting Agent or Owner's consumptive use of Delaware River water and reducing or avoiding a potential Water Curtailment.

(ii)   inserting the following at the end of the definition of "Assignee":

"and for the purposes of the first and last references to "Assignee" in clause (b) of subsection 10.4, the term "Assignee" shall mean the Majority Holders (as defined in the Note Purchase Agreement)."

(iii)   deleting the definition of "Gas Transportation Agreement" and inserting the following in its place:

"Gas Transportation Agreement: The Gas Transportation Agreement to be entered into by and between PPL Interstate Energy Company and Owner and/or Agent."

(iv)   deleting the definition of "Replacement MOU Agreement" and inserting the following in its place:

"Replacement MOU Agreement: the Water Services Agreement, dated as of September 16, 2002, entered into between PPL Martins Creek, LLC and Owner, as the same may be amended, modified, supplemented or restated from time to time in accordance with its terms and the terms of the Collateral Indenture, relating to the provision of certain water services for the Project and replacing the Memorandum of Understanding."

(v)   deleting the definition of "Project Contracts" and inserting the following in its place:

"Project Contracts: The Siemens Turbine Contract, the Ground Lease, the Easement Agreement, the EPC Contract, the EPC Guaranty, the Engineering Services Agreement, the Power Transformers Contract, the Township Development Agreement, the Operation and Maintenance Agreement, the Interconnection Agreement, the Replacement MOU Agreement, the Reimbursement and Ownership Agreement, the Gas Transportation Agreement and any other agreement or agreements entered into by Agent necessary for the construction and operation of the Project (from and after the date each such agreement becomes effective). A list of the Project Contracts in existence on the date hereof is attached as Exhibit E hereto."

2.2   Subsection 9.21 of the Original Agreement for Lease is amended by deleting such subsection in its entirety and inserting the following in its place:

"9.21. Replacement MOU Agreement and Easement Agreement. Agent agrees to comply with all of the obligations of the Owner under the Replacement MOU Agreement and the Easement Agreement; provided that, during the term of this Agreement, Agent shall not be obligated to make any payments thereunder unless it shall have received from Owner sufficient funds to make such payment."

2.3   Subsection 10.4 of the Original Agreement for Lease is amended by inserting the following at the end of the last parenthetical:

"; provided that amendments, modifications, supplements, restatements, consents or waivers which affect Sections 1.3, 2.2, 3.3, 3.4, 4.9, 5.3 or 5.4 of the Replacement MOU Agreement may only be made to the extent they are incidental, immaterial and not adverse to the Owner or Assignee unless the prior written consent of the Owner and the Assignee is obtained."

2.4   A new subsection 9.22 is added to the Original Agreement for Lease as follows:

"9.22. Acquisition of Water Offset Rights. Agent (i) acknowledges that the Project is subject to a potential Water Curtailment as a result of Drought Conditions and DRBC, PDEP or other Governmental Authority declarations or orders related thereto, and (ii) agrees that Agent shall be responsible for obtaining and maintaining Water Offset Rights on behalf of Owner for the purpose of reducing or avoiding a potential Water Curtailment with respect to the Project; provided that, during the term of this Agreement, Agent shall not be obligated to make any payments in connection with the Water Offset Rights unless it shall have received from Owner sufficient funds to make such payment. Agent further agrees to obtain the Water Offset Rights on behalf of Owner prior to the date upon which Mechanical Completion (as defined in the EPC Contract) has occurred under the EPC Contract. Agent and Owner confirm, acknowledge and agree that the Water Offset Rights are included in the definition of Collateral (as defined in the Pledge Agreement).

2.5   A new subsection 18.13 is added to the Original Agreement for Lease as follows:

"18.13   Rights to Electricity from Testing. Agent and Owner agree that Agent shall have a license to generate and hold the right to all test power generated during the start-up, testing and commissioning of the Project and the right to transmit and sell such test power."

2.6   Exhibit E and Exhibit F of the Original Agreement for Lease are deleted in their entirety and replaced with Exhibit A and Exhibit B to this Amendment No. 1 respectively.

SECTION 3.   MISCELLANEOUS.

3.1   This Amendment No. 1 may be executed in several counterparts, each of which when executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute but one and the same Amendment No. 1.

3.2   THIS AMENDMENT NO. 1 SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.

3.3   Upon the effectiveness of this Amendment No. 1 (i) each reference in the Original Agreement for Lease to "this Agreement", "hereunder", "hereof" or words of like import referring to the Original Agreement for Lease shall mean and be a reference to the Original Agreement for Lease as amended by this Amendment No. 1 and as may hereafter be further amended, modified, supplemented or restated from time to time and (ii) each reference in any other related agreements to the "Agreement for Lease", "thereunder", "thereof" or words of like import referring to the Original Agreement for Lease, shall mean and be a reference to the Original Agreement for Lease as amended by this Amendment No. 1 and as may hereafter be further amended, modified, supplemented or restated from time to time.

3.4   Except as provided herein, all provisions, terms and conditions of the Original Agreement for Lease shall remain in full force and effect. As amended hereby, the Original Agreement for Lease is ratified and confirmed in all respects.

[Signature Page Follows]

   IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed as of the date first above written.

LMB FUNDING, LIMITED PARTNERSHIP

By LMB Capital, Inc.,
        its General Partner

By:____________________________________
      Name:
      Title:

LOWER MOUNT BETHEL ENERGY, LLC

By:____________________________________
      Name:
      Title:

EXHIBIT A

[List of Project Contracts]

EXHIBIT B

[PERMITS/PROJECT AUTHORIZATIONS] EX-10 9 ppl10k_2003-exhibit10n.htm

Exhibit 10(n)

This Lease Agreement is
Confidential and Proprietary

EXECUTION COPY

CONFIDENTIAL AND PROPRIETARY

LEASE AGREEMENT

Dated as of December 21, 2001

BETWEEN

LMB FUNDING, LIMITED PARTNERSHIP

as Lessor

and

LOWER MOUNT BETHEL ENERGY, LLC

as Lessee

THIS LEASE HAS BEEN ASSIGNED AS SECURITY
FOR INDEBTEDNESS OF THE LESSOR. SEE SECTION 20.

This Lease has been manually executed in 38 counterparts, numbered consecutively from 1 through 38, of which this is No. ___. To the extent, if any, that this Lease constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction) no security interest in this Lease may be created or perfected through the transfer or possession of any counterpart other than the original executed counterpart which shall be the counterpart identified as counterpart No. __.

CONFIDENTIAL

LEASE AGREEMENT

Lease Agreement, dated as of December 21, 2001 (as the same may be amended, restated, modified or supplemented from time to time, "this Lease"), between LMB FUNDING, LIMITED PARTNERSHIP (the "Lessor"), a Delaware limited partnership formed by LMB Capital, Inc., its general partner, as lessor, and LOWER MOUNT BETHEL ENERGY, LLC, a Delaware limited liability company, as lessee (the "Lessee").

SECTION 1.   DEFINED TERMS

Unless the context otherwise requires, each term defined in this Section 1 shall, when used in this Lease, have the meaning indicated:

"Accrued Default Obligations" has the meaning set forth in paragraph (e) of Section 19 hereof.

"Accrued Termination Obligations" has the meaning set forth in paragraph (e) of Section 14 hereof.

"Acquisition Cost" means the Acquisition Cost (as defined in the Agreement for Lease) under the Agreement for Lease after making the Final Advance (as defined in the Agreement for Lease), plus the Completion Amount.

"Additional Rent" has the meaning set forth in paragraph (d) of Section 7 hereof.

"Adjusted Acquisition Cost" means, at the time of determination, the Acquisition Cost of the Project less (i) the aggregate amount of all Semi-Annual Rent Components theretofore included as portions of Basic Rent for any periods for which Basic Rent has been paid, and less (ii) any reduction in Adjusted Acquisition Cost provided for under subsection 2.3(b) of the Agreement for Lease (as adjusted pursuant to Section 3 of this Lease), paragraph (i) of Section 10 or paragraph (b) of Section 16 of this Lease.

"Affiliate" of any Person means any other Person controlling, controlled by or under direct or indirect common control with such Person. For the purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.

"Agency Agreement" has the meaning set forth in the Agreement for Lease.

"Agreement for Lease" means the Agreement for Lease, dated as of the date hereof, between the Lessor, as owner, and the Lessee, as agent, providing for the acquisition, construction and equipping of the Project, as the same may be amended, restated, modified or supplemented from time to time.

"Applicable Contracting Party" means the contracting party identified in the applicable Land Improvement Contract, provided that such Person shall be an independent third party unaffiliated with the Lessee or the Guarantor.

"Appraisal Procedure" means the following procedure whereby an independent appraiser shall be appointed by the Lessor and the Lessee, with the consent of Assignee, to determine (A) the amount of wear and tear in excess of that attributable to normal use of the Project to which the provisions of paragraph (b)(iii) or paragraph (c)(iii) or paragraph (d) of Section 12 apply or (B) the fair market rental value of the Project, if such determination is required under paragraph (d) of Section 13 of this Lease. If no such appraiser is appointed by the mutual agreement of the Lessor and the Lessee within thirty (30) days of the written request of either the Lessor or the Lessee that an appraiser be appointed, the Lessor and the Lessee shall each appoint an independent appraiser within thirty (30) days thereafter, and the two appraisers so appointed shall appoint a third independent appraiser. Each appraiser appointed pursuant to the foregoing procedure shall, within thirty (30) days after appointment of the last appraiser, independently determine the amount of wear and tear in excess of that attributable to normal use or the fair market value of the Project, as the case may be. If the Lessor or the Lessee shall fail to appoint an independent appraiser within the above-mentioned thirty (30) day period, the appraiser appointed by the other party shall determine such amount or value. If a single appraiser is appointed, such appraiser's determination shall be final. If three appraisers are appointed, the amounts or values determined by the three appraisers shall be averaged, the amount or value which differs the most from such average shall be excluded, the remaining two amounts or values shall be averaged and such average shall be final. The expenses of all appraisers shall be paid by the Lessee. Each appraiser appointed pursuant to an "Appraisal Procedure" shall have experience in appraising generation facilities similar to the Project.

"Assets" means the Lessee's interest in any and all assets or property of any kind, real or personal, tangible or intangible, now owned or hereafter acquired by the Lessee.

"Assignee" means the Collateral Trustee and any successor to the Collateral Trustee. For purposes of the definition of "Material Adverse Effect", paragraphs (i)(d), (i)(i), (i)(x), (ii)(h) and (ii)(i) of Section 2, paragraphs (a) and (b) of Section 5, paragraph (g) of Section 8, paragraph (b) of Section 9, clauses (iii) and (iv) of paragraph (b) of Section 10, the last sentence of clause (ii) of paragraph (c) of Section 10, clause (iv) (other than the last reference to Assignee therein) of paragraph (c) of Section 10, paragraph (g) of Section 10, Section 11, paragraph (a) of Section 14, the last sentence of paragraph (b) of Section 20, and clause (iii) of paragraph (a) of Section 27, the term "Assignee" shall include each of the purchasers and holders from time to time of the Lessor's Senior Secured Notes and any other notes issued under any Note Purchase Agreement and each lender or other Person providing credit support to the Lessor under a Financing Arrangement entered into after the date hereof; for purposes of paragraph (c) of Section 8, the term "Assignee" shall include each Qualifying Assignee; and for purposes of paragraph (n) of Section 10 and Section 12, the term "Assignee" shall mean the Majority Holders (as defined in the Note Purchase Agreement).

"Assignment" means each assignment agreement referred to in Section 20 hereof, between the Lessor and a third party, pursuant to which the Lessor assigns certain of its rights under this Lease to such third party, as the same may be amended, restated, modified or supplemented from time to time.

"Assumed Indebtedness Amount" has the meaning set forth in paragraph (d) of Section 12 hereof.

"Basic Rent" means:

(a)   At each Basic Rent Payment Date during the Lease Term, and in respect of each full semi-annual period ending on June 20 or December 20 in which such Basic Rent Payment Date occurs, the sum of the Semi-Annual Rent Component plus an amount (the "Variable Component of Basic Rent") equal to the sum of (X) plus (Y) plus (Z), where (X), (Y) and (Z) have the following meanings:

(X)   (i)   the Equity Capital before payment of Basic Rent for such semi-annual period, multiplied by

       (ii)   a fraction having a numerator equal to 180 and a denominator of 360, multiplied by

      (iii)   the decimal equivalent of a percentage equal to the Semi-Annual Cost of Project Equity.

(Y)   (i)   the Debt Capital before payment of Basic Rent for such semi-annual period, multiplied by

       (ii)   a fraction having a numerator equal to 180 and a denominator of 360, multiplied by

       (iii)   the decimal equivalent of a percentage equal to the Semi-Annual Cost of Project Debt.

(Z)   (i)   the Adjusted Acquisition Cost before payment of Basic Rent for such semi-annual period, multiplied by

       (ii)   a fraction having a numerator equal to the number of days in such semiannual period and a denominator of 365, or in a leap year, 366, multiplied by

       (iii)   0.13%.

(b)   For any partial semi-annual period during the Lease Term, an amount equal to the sum of (X) plus (Y) plus (Z), where (X), (Y) and (Z) have the following meanings:

(X)   (i)   the Equity Capital, multiplied by

       (ii)   a fraction having a numerator equal to the number of days the Project is under lease during such partial semi-annual period (provided that, each full calendar month during such partial semi-annual period shall be deemed to be a 30-day month) and a denominator of 360, multiplied by

       (iii)   the decimal equivalent of a percentage equal to the Semi-Annual Cost of Project Equity; provided that, if the Effective Date falls on or after the Lease Rate Date during such partial semi-annual period such decimal shall be the decimal determined as of the next succeeding Lease Rate Date.

(Y)   (i)   the Debt Capital, multiplied by

       (ii)   a fraction having a numerator equal to the number of days the Project is under lease during such partial semi-annual period (provided that, each full calendar month during such partial semi-annual period shall be deemed to be a 30-day month) and a denominator of 360, multiplied by

       (iii)   the decimal equivalent of a percentage equal to the Semi-Annual Cost of Project Debt; provided that, if the Effective Date falls on or after the Lease Rate Date during such partial semi-annual period, the Semi-Annual Cost of Project Debt shall be determined as of the next succeeding Lease Rate Date.

(Z)   (i)   the Adjusted Acquisition Cost, multiplied by

       (ii)   a fraction having a numerator equal to the number of days the Project is under lease during such partial semi-annual period and a denominator of 365, or in a leap year, 366, multiplied by

       (iii)   0.13%.

(c)   For each semi-annual period during the Renewal Term of the Project, if any, an amount equal to the fair market rental value thereof, determined as provided in paragraph (d) of Section 13 hereof.

"Basic Rent Payment Date" means June 20th and December 20th during the Lease Term or Renewal Term, or, if such day is not a Business Day, the next succeeding Business Day.

"Budget" has the meaning set forth in the Agreement for Lease.

"Business Day" means any day other than a Saturday, a Sunday or a day on which banking institutions in the City of New York or the City of Philadelphia are authorized by law to close.

"Capital Expenditures" means, for any period, the sum of the aggregate amount of all expenditures of the Lessee (other than expenditures made with the proceeds of casualty insurance) for fixed or capital assets made during such period which, in accordance with GAAP, would be classified as capital expenditures.

"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.

"Cash Proceeds" has the meaning set forth in paragraph (a) of Section 12 hereof.

"CERCLA" has the meaning set forth in paragraph (i)(m)(viii) of Section 2 hereof.

"CERCLIS" has the meaning set forth in paragraph (i)(m)(viii) of Section 2 hereof.

"Code" means the Internal Revenue Code of 1986, as amended.

"Collateral Indenture" means the Indenture of Trust, Security Agreement and Collateral Assignment of Contracts, dated as of the date hereof, entered into by the Lessor and the Collateral Trustee, pursuant to which the Lessor has granted a security interest in certain collateral to the Collateral Trustee, as the same may be amended, restated, modified or supplemented from time to time in accordance with the terms thereof.

"Collateral Trustee" means State Street Bank and Trust Company of Connecticut, National Association, in its capacity as collateral trustee under the Collateral Indenture, and its successors.

"Completion Advance" has the meaning set forth in the Agreement for Lease.

"Completion Amount" has the meaning set forth in paragraph (b) of Section 3 hereof.

"Computation Period" has the meaning set forth in the definition of Semi-Annual Cost of Project Debt in this Section 1.

"Consent" means each consent of the Lessee to an Assignment, pursuant to which the Lessee consents to the terms of such Assignment insofar as they relate to this Lease, as the same may be amended, restated, modified or supplemented from time to time.

"Consolidated EBITDA" means, for any period, Consolidated Net Income for such period plus (in each case to the extent deducted in computing such Consolidated Net Income) (i) Consolidated Interest Expense, (ii) provisions for income taxes and (iii) provisions for depreciation and amortization (including amortization of goodwill).

"Consolidated Interest Expense" means, for any period, the gross interest expense (including, without limitation, that attributable to Capital Lease Obligations or a Synthetic Lease) of the Guarantor 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 Guarantor 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 Guarantor and its Consolidated Subsidiaries, determined on a consolidated basis for such period and in accordance with GAAP, excluding the effects of gains or losses on sales of assets (excluding sales of inventory in the ordinary course of business) and other non-cash extraordinary gains or losses as determined in accordance with GAAP.

"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.

"Construction Documents" has the meaning set forth in Section 1 of the Agreement for Lease.

"Contaminant" means any pollutant or substance that is or may be harmful to human health, natural resources or the environment and any hazardous substance, radioactive substance, hazardous material, toxic substance, hazardous waste, medical waste, radioactive waste, special waste, industrial waste, petroleum or petroleum-derived substance or waste, asbestos, PCBs or any hazardous or toxic constituent thereof defined as such or, regulated under Environmental Requirements as harmful to human health, natural resources or the environment.

"Corporation" means a corporation, association, company, joint stock company, limited liability company, partnership or business trust.

"Damages" has the meaning set forth in the definition of Environmental Damages in this Section 1.

"Debt Capital" means, at the time of determination, an amount equal to Adjusted Acquisition Cost minus Equity Capital.

"Easements" means the "Easements" as defined in the Ground Lease.

"Effective Date" means the date provided in paragraph (a) of Section 3 of this Lease.

"Engineering Services Agreement" means the Engineering Services Agreement, dated as of September 21, 2001, between the Lessor and the General Contractor, as amended by an Amended and Restated Engineering Services Agreement, dated as of November 19, 2001, between the Lessor and the General Contractor.

"Environmental Approvals" means all Governmental Actions, Permits, consents, licenses, and other approvals or authorizations required under applicable Environmental Requirements.

"Environmental Consultant" has the meaning set forth in the Agreement for Lease.

"Environmental Damages" means any and all claims, judgments, damages (including, without limitation, punitive damages), losses, penalties, fines, interest, fees, liabilities (including, without limitation, strict liability), taxes, obligations, encumbrances, liens, costs and expenses (including, without limitation, costs and expenses of investigation and defense of any claim, whether or not such claim is ultimately defeated, and of any good faith settlement or judgment), of whatever kind or nature, contingent or otherwise, matured or unmatured, foreseeable or unforeseeable, direct or indirect, including, without limitation, reasonable attorneys' fees and disbursements and consultants' fees (collectively "Damages"), any of which are asserted, imposed or incurred at any time pursuant to Environmental Requirements, including, without limitation:

      (i)   Damages arising from the existence of any Contaminants at, on, under, or emanating from or migrating to the Project (including any damages resulting from the transportation or arrangement for disposal of any Contaminants to any other location), or compliance or noncompliance with, or violation of, Environmental Requirements;

      (ii)   Damages for personal injury or threatened personal injury (including sickness, disease or death), or injury or threatened injury to property or natural resources, foreseeable or unforeseeable, including, without limitation, the cost of demolition and rebuilding of any improvements on real property;

      (iii)   Reasonable fees incurred for the services of attorneys, consultants, contractors, doctors, experts, laboratories and all other reasonable costs incurred in connection with any damages as described in subparagraphs (i) and (ii) of this definition, and the investigation or remediation of Contaminants or the suspected presence of Contaminants or the violation or threatened violation of Environmental Requirements, including, but not limited to, the preparation of any feasibility studies or reports or the performance of any investigation, cleanup, treatment, remediation, removal, response, abatement, containment, closure, storage, disposal, transport, restoration or monitoring work required by any federal, state or local governmental agency or political subdivision, or otherwise expended in connection with such conditions, and including, without limitation, any reasonable attorneys' fees, costs and expenses incurred in enforcing this Lease or the Agreement for Lease or collecting any sums due hereunder or thereunder;

      (iv)    Damages associated with Environmental Matters; and

      (v)    Liability to any third person or Governmental Authority to indemnify such person or Governmental Authority for costs expended in connection with the items referenced in subparagraphs (i), (ii), (iii) and (iv) of this definition.

"Environmental Event" has the meaning set forth in paragraph (ii)(l) of Section 2 hereof.

"Environmental Lien" means a Lien in favor of any Governmental Authority for any (a) liability under any Environmental Requirement, or (b) damages arising from, or costs incurred by, such Governmental Authority in response to a Release or threatened Release of a Contaminant into the environment.

"Environmental Matters" means any matter, fact or situation relating to or arising from (a) any violation or alleged violation of, or failure to meet, an Environmental Requirement relating to the Project, (b) any Release or threatened Release of any Contaminant on, under, emanating to or from the Project or the presence of any Contaminant which has come to be located on, from or under the Project from another location, (c) the generation, treatment, transport or disposal of any Contaminant at, to or from the Project, (d) any injury to human health or safety or the environment by reason of the matters described in clauses (a), (b) and (c) above, or (e) any revocation, expiration, termination or failure to obtain or maintain any Environmental Approval applicable to or required for the Project.

"Environmental Report" means the Phase I Environmental Site Assessment and Compliance Report dated December 18, 2001 relating to the Premises, prepared by the Environmental Consultant (as defined in the Agreement for Lease) and delivered to the Lessor and Assignee pursuant to Section 4 of the Agreement for Lease.

"Environmental Requirements" means all applicable federal, state and local laws (including duties under the common law), statutes, codes, ordinances, rules, regulations, directives, binding policies, permits, authorizations or orders relating to or addressing the environment, natural resources or human health, including, but not limited to, any law, statute, code, ordinance, rule, regulation, directive, binding policy, permit, authorization or order relating to (a) the use, handling, disposal, Release or threatened Release of any Contaminant or (b) worker health.

"EPC Contract" means the Engineering, Procurement and Construction Contract, dated as of December 20, 2001, between the Lessor and the General Contractor, as the same may be amended, restated, modified or supplemented from time to time in accordance with the terms hereof.

"EPC Guaranty" means the Guaranty, dated as of December 20, 2001, by Foster Wheeler LLC to the Lessor, guaranteeing the obligations of the General Contractor under the EPC Contract, as the same may be amended, restated, modified or supplemented from time to time in accordance with the terms hereof.

"Equity Capital" means, at the time of determination, the aggregate amount of cash contributions to the Lessor's capitalization made by the Lessor's general partner and limited partners constituting a part of Adjusted Acquisition Cost, less the aggregate amount of any returns of capital made to such partners at such time.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time.

"Event of Default" has the meaning set forth in Section 18 hereof.

"Event of Loss" means any of the following events: (a) loss of all or a substantial portion of the Project or the use thereof due to destruction, damage beyond economical repair or rendition of the Project permanently unfit for the use contemplated by the Project Contracts on a commercially feasible basis for any reason whatsoever; and (b) any event which results in an insurance settlement with respect to the Project on the basis of a total loss or constructive total loss. A loss of a "substantial portion" of the Project or the Premises shall be deemed to occur if after such event, the remainder is not sufficient to permit operation of the Project on a commercially feasible basis in accordance with the Project Contracts and this Lease.

"EWG" means an Exempt Wholesale Generator, as defined in Section 32(a)(1) of the 1935 Act.

"Financing Arrangement" means each credit agreement, note purchase agreement, subordinated loan agreement, security agreement, indenture, mortgage, deed of trust and each other agreement or arrangement between the Lessor and a lender or lenders to the Lessor or other Person or Persons providing credit support to the Lessor or to debt issued by or on behalf of the Lessor related to the financing or refinancing of the Project, as any of the same may be amended, restated, modified or supplemented from time to time.

"GAAP" means United States generally accepted accounting principles applied on a consistent basis.

"Gas Transportation Agreement" means the Gas Transportation Agreement to be entered into by and between PPL Interstate Energy Company and the Lessor.

"General Contractor" means Foster Wheeler USA Corporation, a Delaware corporation.

"General Partner" means LMB Capital, Inc., a Delaware corporation.

"Governmental Action" has the meaning set forth in paragraph (i)(d) of Section 2 hereof.

"Governmental Authority" means any agency, department, court or other administrative, legislative or regulatory authority of any federal, state or local governmental body.

"Ground Lease" means the Ground Lease, dated as of the date hereof, between the Lessee, as ground lessor, and the Lessor, as ground lessee, relating to the Premises, which Ground Lease includes a legal description of the Premises and a description of the Easements, as the same may be amended, restated, modified or supplemented from time to time.

"Guarantor" means PPL Energy Supply, LLC, a Delaware limited liability company, and its successors and permitted assigns.

"Guaranty" means the Guaranty, dated as of the date hereof, by and between the Guarantor and the Lessor, as the same may be amended, restated, modified, or supplemented from time to time.

"Indebtedness" means for any Person (i) all indebtedness or other obligations of such Person for borrowed money and all indebtedness of such Person with respect to any other items (other than income taxes payable, deferred taxes, deferred credits and accounts payable which are not more than thirty (30) days past due, or if more than thirty (30) days past due, are being contested pursuant to a Permitted Contest) which would, in accordance with GAAP, be classified as a liability on the balance sheet of such Person, (ii) all obligations of such Person to pay the deferred purchase price of property or services, including any such obligations created under or arising out of any conditional sale or other title retention agreement, (iii) all obligations of such Person (contingent or otherwise) under reimbursement or similar agreements with respect to the issuance of letters of credit, (iv) all indebtedness or other obligations of such Person under or in respect of any swap, cap, collar or other financial hedging arrangement, (v) all indebtedness or other obligations of any other Person of the type specified in clause (i), (ii), (iii) or (iv) above, the payment or collection of which such Person has guaranteed (except by reason of endorsement for collection in the ordinary course of business) or in respect of which such Person is liable, contingently or otherwise, including, without limitation, liable by way of agreement to purchase products or securities, to provide funds for payment, to maintain working capital or other balance sheet conditions or otherwise to assure a creditor against loss, and (vi) all indebtedness or other obligations of any other Person of the type specified in clause (i), (ii), (iii), (iv) or (v) above secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien, upon or in property (including, without limitation, accounts and contract rights) owned by such Person, whether or not such Person has assumed or becomes liable for the payment of such indebtedness or obligations.

"Indemnified Person" has the meaning set forth in paragraph (a) of Section 11 hereof.

"Insurance Broker" means Marsh USA Inc., or such other nationally recognized insurance broker selected by the Lessee and reasonably satisfactory in all respects to the Lessor and Assignee.

"Insurance Requirements" means all insurance required to be obtained with respect to the Project pursuant to subsection 9.3 of the Agreement for Lease, if applicable, and Section 10 hereof and all terms of any insurance policy maintained by or on behalf of the Lessee or pursuant to a Construction Document or a Project Contract covering or applicable to the Project, all requirements of the issuer of any such policy, and all statutory requirements, orders, rules, regulations and other requirements of any governmental body related to insurance applicable to the Project.

"Intellectual Property Rights" means, collectively, all patents, patent applications, trademarks (whether registered or not), trademark applications, trade names, proprietary computer software or copyrights (or any licenses, permits or agreements with respect to any of the foregoing) necessary to construct, operate, lease or use the Project or any part thereof as contemplated hereby.

"Interconnection Agreement" means the Interconnection Service Agreement, dated as of August 8, 2001, between PJM Interconnection, L.L.C. and the Lessor.

"Interconnection Facilities" means the interconnections at or available to the Project for transmission of electricity and the supply of water, natural gas, and other necessary utilities and services, including, without limitation, the 230 kV switchyard facilities, which are necessary to connect and deliver the Project's output to the transmission system owned by PPL Electric Utilities Corporation.

"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.

"Land Improvement Contracts" means, individually or collectively as the context may require, (a) the Township Development Agreement; (b) the Interconnection Agreement; (c) the Reimbursement and Ownership Agreement; (d) the Gas Transportation Agreement; or (e) any other agreement with (i) an electric utility or independent system operator or other third party for the interconnection of the Project to the electric transmission system of such electric utility of independent system operator or for transmission system upgrades of improvements necessary to provide transmission service for the electrical output of the Project; (ii) a natural gas supplier or transporter for interconnection of the Project to the supply of transportation systems of such natural gas supplier or transporter of or other third party for upgrades or improvements to a natural gas supplier or transporter's systems necessary to provide natural gas service to the Project; or (iii) water and sewer system operators for the interconnection of the project to water and/or sewer system upgrades or improvements necessary to provide water and sewer service to the Project.

"Lease Rate Date" has the meaning set forth in paragraph (b) of Section 7 hereof.

"Lease Term" has the meaning set forth in Section 6 hereof.

"Legal Requirements" means all laws, judgments, decrees, ordinances and regulations of a Governmental Authority and any other rules, orders and determinations of a Governmental Authority and all requirements having the force of law, now or hereinafter enacted, made or issued by a Governmental Authority, whether or not presently contemplated, and applicable to the Project or the construction, ownership, operation or use thereof, including, without limitation, all requirements of labor laws and Environmental Requirements, compliance with which is required at any time by a Governmental Authority from the date hereof through the Lease Term and any Renewal Term, whether or not such compliance shall require structural, unforeseen or extraordinary changes to the Project or the operation, occupancy or use thereof.

"Lessee" has the meaning set forth in the first paragraph of this Lease.

"Lessee Note" means the promissory note, dated December 21, 2001, from the Lessee, as borrower, in favor of the Lessor, as lender, evidencing the advances made by the Lessor to the Lessee thereunder, and any promissory note or notes of the Lessee issued in substitution thereof.

"Lessor" means LMB Funding, Limited Partnership or any successor or successors to all of its rights and obligations as the Lessor hereunder and, for purposes of Section 11 hereof, shall include any partnership (general or limited), corporation, limited liability company, trust, individual or other entity which computes its liability for income or other taxes on a consolidated basis with LMB Funding, Limited Partnership or the income of which for purposes of such taxes is, or may be, determined or affected directly or indirectly by the income of the Lessor or its successor or successors.

"Lessor Lien" means any Lien or disposition of title (a) arising as a result of any willful act or knowing omission of the Lessor, or (b) which is otherwise claimed by or through the Lessor and which is not related to the Project leased hereunder or the business of the Lessee, and which, in either case, is not permitted or contemplated by this Lease, the Agreement for Lease, any Financing Arrangement, the Project Contracts or the transactions contemplated thereby.

"Lien" means any security interest, mortgage, pledge, hypothecation, assignment, encumbrance, lien (statutory or other, including without limitation mechanic's or materialmen's liens), or other security agreement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing).

"Majority Holders" has the meaning set forth in the Note Purchase Agreement.

"Make-Whole Premium" means an amount equal to the amount of Make-Whole Premium (as defined in the Note Purchase Agreement) payable by the Lessor at any time pursuant to the terms of the Note Purchase Agreement.

"Material Adverse Effect" where such definition is used means a material adverse effect on (i) the construction, operation, maintenance, leasing, ownership, use, all in accordance with the terms and conditions of the Project Contracts and the Construction Documents, in each case in effect on the date hereof, and this Lease or the value or regulatory status of the Project, (ii) the ability of the Lessee to observe and perform its obligations under the Operative Documents or the Project Contracts, in each case in effect on the date hereof, in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner, or (iii) the rights or interests of the Lessor or Assignee under the Operative Documents, the Guaranty or the Project Contracts.

"Memorandum of Understanding" means the Memorandum of Understanding, dated December 3, 1999, between PPL Corporation (successor in interest to PP&L Resources, Inc.) and the Lessee, as assigned to PPL Martins Creek, LLC pursuant to an Assignment and Assumption Agreement dated as of the date hereof.

"Merrill" means Merrill Lynch Money Markets Inc., a Delaware corporation.

"Merrill Leasing" means ML Leasing Equipment Corp., a Delaware corporation.

"Merrill Lynch" means Merrill Lynch & Co., Inc., a Delaware corporation.

"Modified Call Premium" means an amount equal to the amount of Modified Call Premium (as defined in the Note Purchase Agreement) payable by the Lessor at any time pursuant to the terms of the Note Purchase Agreement.

"1935 Act" means the Public Utility Holding Company Act of 1935, as amended, and the rules and regulations issued, published or promulgated from time to time thereunder.

"Note Purchase Agreement" means, collectively, the several Note Purchase Agreements, each dated as of the date hereof, between the Lessor and the purchasers of the Lessor's Senior Secured Notes due 2013, in respect of an aggregate principal amount of $436,918,000 of such notes, and any subsequent Note Purchase Agreements between the Lessor and the purchasers of any additional notes of the Lessor (whether senior or subordinate or secured or unsecured) in respect of an aggregate principal amount not to exceed $45,504,396 for financing any cost overruns as contemplated by subsection 2.2 of the Agreement for Lease, in each case as the same may be amended, restated, modified or supplemented from time to time.

"NPL" has the meaning set forth in paragraph (i)(m)(viii) of Section 2 hereof.

"Operating Account" has the meaning set forth in the Collateral Indenture.

"Operation and Maintenance Agreement" means the Operation and Maintenance Agreement for the Lower Mount Bethel Energy Project Sewage Treatment Facility, dated July 13, 2001, between Lower Mount Bethel Township and PPL Generation, LLC.

"Operative Documents" means this Lease, the Agreement for Lease, the Lessee Note and the Pledge Agreement.

"Operator" means the Lessee, or such other entity designated as successor operator of the Project by the Lessee that is, or is a member of a consolidated group that is, an experienced and reputable operator of electric generating assets in the United States.

"PCBs" has the meaning set forth in paragraph (i)(m)(xii) of Section 2 hereof.

"Permits" has the meaning set forth in the Agreement for Lease.

"Permitted Contest" has the meaning set forth in paragraph (a) of Section 27 hereof.

"Permitted Liens" means the following Liens and other matters affecting the Project: (a) Liens securing the payment of taxes, assessments and other governmental charges or levies which are either not delinquent or, if delinquent, are being contested by the Lessee in good faith as a Permitted Contest, in accordance with the provisions of Section 16 of the Agreement for Lease or Section 27 hereof, as applicable; (b) zoning and planning restrictions, subdivision and platting restrictions, easements, rights-of-way, licenses, reservations, covenants, conditions, waivers, restrictions on the use of the Project, minor encroachments or minor irregularities of title, none of which individually or in the aggregate could reasonably be expected to materially impair the intended use or value of the Project; (c) reservations of mineral interests, none of which individually or in the aggregate could reasonably be expected to materially impair the intended use or value of the Project; (d) the Liens created pursuant to any Financing Arrangement or the Lessee Note; (e) leases, easements and licenses in effect with respect to the Project which are permitted by this Lease or which are delivered to and accepted by the Lessor and Assignee on or before the Effective Date; (f) other exceptions to the title of the Project as set forth in the title insurance policy delivered to the Lessor and Assignee under Section 4 of the Agreement for Lease (as amended from time to time through one or more of the date-down endorsements previously approved by the Lessor and Assignee as expressly provided in Section 5, 6 or 7 of the Agreement for Lease), other than Liens securing the payment of taxes, assessments and other governmental charges or levies; (g) any Lessor Lien; (h) that certain subordinated Mortgage, Security Agreement and Fixture Filing Statement dated as of December 21, 2001 from the Lessor to the Lessee; and (i) such other or additional matters as may be approved in writing by the Lessor and each Assignee.

"Person" means any individual, corporation, partnership, limited liability company, private limited company, joint venture, association, joint-stock company, trust, unincorporated organization of government or any agency or political subdivision thereof.

"Pledge Agreement" means the Pledge Agreement, dated as of the date hereof, by and between the Lessee, as pledgor, and the Lessor, as pledgee, as the same may be amended, restated, modified or supplemented from time to time.

"Potential Default" means any event which, but for the lapse of time or giving of notice, or both, would constitute an Event of Default.

"Power Transformers Contract" means the Power Transformers Contract, dated as of December 21, 2001, between Siemens Power Transmission & Distribution, Inc. and the Lessor, as the same may be amended, restated, modified or supplemented from time to time in accordance with the terms hereof.

"PPL Retirement Plan" means the defined benefit pension plan sponsored by PPL Services Corporation, most recently amended and restated effective July 1, 1999, bearing IRS Plan Identification Number (PIN) "001".

"Premises" means the leasehold estate demised to the Lessor pursuant to the Ground Lease.

"Project" means the Premises and the improvements and equipment (including all related appliances, appurtenances, accessions, controls, Interconnection Facilities, transmission lines, if any, wiring, furnishings, materials and parts, and other related facilities and equipment, along with any replacements thereof) constructed thereon pursuant to the EPC Contract (or any other Construction Documents entered into by the Lessee) and the Agreement for Lease, which constitute an approximately 600 megawatt net combined-cycle, gas-fired electric generation facility known as the LMB Energy Power Project, consisting of two gas turbine generators, heat recovery steam generators and related equipment.

"Project Contracts" means the Siemens Turbine Contract, the Ground Lease, the EPC Contract, the EPC Guaranty, the Engineering Services Agreement, the Power Transformers Contract, the Township Development Agreement, the Operation and Maintenance Agreement, the Interconnection Agreement, the Memorandum of Understanding, the Replacement MOU Agreement (from and after the date such agreement becomes effective), the Reimbursement and Ownership Agreement, the Gas Transportation Agreement and any other agreement or agreements entered into by the Lessee necessary for the construction and operation of the Project (from and after the date each such agreement becomes effective). A list of the Project Contracts is attached as Exhibit B hereto.

"Qualifying Assignee" means (i) each Noteholder or other Person originally providing credit support to the Lessor pursuant to a Financing Arrangement (together with the Affiliates of such Noteholder or other Person and any collateral trustee or agent for any thereof), or (ii) any transferee of such Noteholder or other Person which, in either case of (i) or (ii), holds at least $25 million aggregate principal amount of indebtedness under such Financing Arrangement.

"Release" means the release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migrating into the indoor or outdoor environment of any Contaminant through or in the air, soil, surface water, groundwater, or any structure.

"Reimbursement and Ownership Agreement" means the Reimbursement, Construction and Ownership Agreement to be entered into by and between the Lessor and PPL Interstate Energy Company.

"Released Improvements" has the meaning set forth in paragraph (a) of Section 32 hereof.

"Released Land" has the meaning set forth in paragraph (a) of Section 32 hereof.

"Remedial Action" means actions required or otherwise undertaken by a Governmental Authority, or which are appropriate as a matter of prudent business practice and commercial reasonableness, to (i) clean up, remove, treat or in any other way address Contaminants in the indoor or outdoor environment; (ii) prevent the Release or threat of Release or minimize the further Release of Contaminants; (iii) investigate and determine if a remedial response is needed; or (iv) design such a response and post-remedial investigation, monitoring, operation, maintenance and care.

"Removable Improvements" has the meaning set forth in paragraph (d) of Section 9 hereof.

"Renewal Notice" has the meaning set forth in paragraph (d) of Section 13 hereof.

"Renewal Term" has the meaning set forth in paragraph (d) of Section 13 hereof.

"Replacement MOU Agreement" means the agreement to be entered into by the Lessee and PPL Martins Creek, LLC, relating to the provision of certain services and facilities for the Project and replacing the Memorandum of Understanding.

"Responsible Officer" shall mean the President, Vice President or Secretary of the Lessee and any other officers or similar officials of the Lessee responsible for administering the obligations of the Lessee hereunder as designated in writing by the Lessee to the Lessor.

"Semi-Annual Cost of Project Debt" means the weighted average percentage cost per annum (including as part of such cost any fees payable under or pursuant to any Financing Arrangements, but net of any investment earnings of the Lessor applied to the payment of costs) of borrowings outstanding under any Financing Arrangements (whether or not interest is accruing at a default rate) at any time during the period from and including the first day of the first month in the semi-annual period for which Basic Rent is being computed to and including the last day of the last month of the semi-annual period for which Basic Rent is being computed (the "Computation Period") to finance or refinance the acquisition and ownership of the Project.

"Semi-Annual Cost of Project Equity" means the weighted average percentage cost per annum (including as part of such cost distributions and any fees payable under or pursuant to the limited partnership agreement of the Lessor, but net of any investment earnings applied to the payment of costs) of equity contributions to the Lessor made pursuant to the limited partnership agreement at any time during the Computation Period to finance or refinance the acquisition and ownership of the Project.

"Semi-Annual Rent Component" means, with respect to each semi-annual period during the Lease Term, the amount (if any) set forth on Exhibit D hereto, as such Exhibit D may be amended from time to time pursuant to the terms of this Lease.

"Siemens Turbine Contract" means the Combined Cycle Power Island Equipment Supply Contract, dated as of August 11, 2000, between Siemens Westinghouse Power Corporation and the Lessor, as the same may be amended, restated, modified or supplemented from time to time in accordance with the terms hereof.

"Subsidiary" means any Corporation a majority of the outstanding Voting Stock of which is owned, directly or indirectly, by the Guarantor or one or more other Subsidiaries of the Guarantor.

"Substantial Completion" has the meaning set forth in the Agreement for Lease.

"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.

"Taking" has the meaning set forth in paragraph (a) of Section 16 hereof.

"Tax Advance" has the meaning set forth in paragraph (g)(iii) of Section 11 hereof.

"Tax Claim" has the meaning set forth in paragraph (g)(i) of Section 11 hereof.

"Taxes" has the meaning set forth in paragraph (b) of Section 11 hereof.

"Termination Covenants" means the following covenants made by the Lessee to the Lessor as a condition to the sale of the Project pursuant to Section 12 hereof: on the date of such sale (a) no Event of Loss, Taking, Event of Default, Potential Default or Termination Event shall have occurred and be continuing; (b) the Project shall not be undergoing any repairs, additions or alterations that could reasonably be expected to diminish the fair market value, utility or remaining economic useful life which the Project would have had at such time had such repair, addition or alteration not been undergoing (assuming the Project is in the condition required hereby); (c) the Project shall be in compliance with all Legal Requirements; (d) the Lessee shall, at its expense, deliver to the Lessor a Phase I environmental audit satisfactory in scope and content to the Lessor and Assignee (in each case in their reasonable discretion), to the effect that (i) no Environmental Matters exist with respect to the Project or the Premises as a result of the construction, operation and maintenance of the Project and (ii) the Project may be operated to its design capacity as of the Effective Date, subject to wear and tear attributable to ordinary use of the Project, in accordance with the Project Contracts and in compliance with Environmental Requirements; (e) the Lessee shall, at its expense, deliver to the Lessor and Assignee a report of a nationally recognized engineering firm reasonably satisfactory to the Lessor and Assignee, to the effect that the Project (i) has been maintained in accordance with the terms and conditions of Section 9 of this Lease and (ii) is capable of being operated and maintained in accordance with (1) the design specifications required by the EPC Contract as of the Effective Date, subject to wear and tear attributable to ordinary use of the Project, (2) the performance standards required under the EPC Contract as of the Effective Date (as modified or deemed modified to reflect any reduction in performance as a result of the payment of liquidated damages, according to the procedures set forth in the EPC Contract), subject to wear and tear attributable to ordinary use of the Project, (3) all Legal Requirements and (4) prudent industry practices; and (f) all Governmental Actions required for the operation of the Project shall have been obtained and shall be in full force and effect.

"Termination Event" means either (i) the failure at any time of PPL Corporation or its successors to own, directly or indirectly, 50.01% or more of the outstanding Voting Stock in the Guarantor, or (ii) the Guarantor's ratio of Consolidated EBITDA to Consolidated Interest Expense shall be less than 2.0 to 1.0 for the four most recently ended consecutive fiscal quarters (except for the fiscal quarter ended September 30, 2001, at the end of which such ratio shall be measured for the most recently ended consecutive three fiscal quarters) of the Guarantor (taken as a single accounting period).

"Termination Event Trigger" has the meaning set forth in paragraph (a) of Section 14 hereof.

"Termination Notice" has the meaning set forth in paragraph (a) of Section 12 hereof.

"Third-Party Project Event" means any Event of Default pursuant to paragraph (c) or (d) of Section 18(A) hereof that is not caused directly or indirectly by the Lessee, does not result directly or indirectly from the Lessee's actions or failures to act and is outside of the Lessee's control; provided, however, that no such Event of Default described above shall qualify as a "Third-Party Project Event" unless (i) the Lessee has used its best efforts to remedy such Event of Default during any grace or cure period applicable thereto in Section 18(A) hereof, and (ii) the Lessor and Assignee shall not have waived such Event of Default or extended the applicable grace or cure periods.

"Township Development Agreement" means the Land Development Improvements Agreement to be entered into by and between Lower Mount Bethel Township and the Lessor.

"Unrecovered Liabilities and Judgments" means all liabilities of an Indemnified Person, including, without limitation, taxes, losses, obligations, claims, damages (including, without limitation, Environmental Damages), penalties, premiums, make-whole payments, causes of action, suits, costs and expenses (including, without limitation, reasonable attorneys', experts', consultants' and accountants' fees and expenses) or judgments of any nature against an Indemnified Person relating to or in any way arising during the term of the Agreement for Lease and relating to or in any way arising out of (i) the Agreement for Lease and the Agency Agreement, (ii) all contracts and agreements entered into in accordance with the Agreement for Lease and the Agency Agreement (as defined in the Agreement for Lease), (iii) the Lessor's acquisition, ownership and financing of the Project, (iv) the Lessor's acquisition of a leasehold interest in the Premises pursuant to the Ground Lease, (v) the construction of the Project, (vi) a casualty, condemnation or force majeure event, (vii) the operation or use of the Premises or the Project by the Lessee or any agent, sublessee or subcontractor of the Lessee or (viii) the Construction Documents or the Project Contracts, and in each case arising or resulting directly or indirectly from events occurring prior to any termination of the Agreement for Lease, in each case to the extent that such Indemnified Person has not received full indemnification for such liabilities or judgments by the Lessee (unless such liabilities or judgments have arisen from the gross negligence or willful misconduct of such Indemnified Person or such Person's respective officers, directors, trustees, incorporators, shareholders, partners, employees, agents or servants acting on its behalf).

"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.

SECTION 2.   REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE

      (i)   The Lessee represents and warrants to the Lessor as of the Effective Date and on the date of each Completion Advance that:

(a)   Corporate Matters. The Lessee (i) has been duly formed and is validly existing as a limited liability company in good standing under the laws of the State of Delaware, (ii) has full power, authority and legal right to own and operate its properties and to conduct its business as presently conducted and to execute, deliver and perform its obligations under this Lease, the Agreement for Lease, each of the Project Contracts, the Pledge Agreement, the Lessee Note and any Consent, and (iii) is duly qualified to do business as a foreign limited liability company in good standing in the Commonwealth of Pennsylvania and in each other jurisdiction in which its ownership or leasing of properties or the conduct of its business requires such qualification except where the failure to so qualify would not impair the ability of the Lessee to observe and perform its obligations under the Operative Documents, any Project Contract or any Consent in a timely manner.

(b)   Binding Agreement. This Lease has been duly authorized, executed and delivered by the Lessee and, assuming the due authorization, execution and delivery of this Lease by the Lessor, this Lease is a legal, valid and binding obligation of the Lessee, enforceable against the Lessee according to its terms.

(c)   Compliance with Other Instruments. The execution, delivery and performance by the Lessee of this Lease, the Project Contracts, the Pledge Agreement, the Lessee Note and any Consent will not result in any violation of any provision of the certificate of formation or the operating agreement of the Lessee, do not require member approval or the approval or consent of any trustee or holders of indebtedness of the Lessee except such as have been obtained prior to the date hereof and will not conflict with or result in a breach of any terms or provisions of, or constitute a default under, or result in the creation or imposition of any Lien (other than a Permitted Lien) upon any property or assets of the Lessee under, any indenture, mortgage or other agreement or instrument to which the Lessee is a party or by which it or any of its property is bound, or any existing applicable law, rule, regulation, license, judgment, order or decree of any government, governmental body or court having jurisdiction over the Lessee or any of its activities or properties.

(d)   Governmental Consents. There are no consents, licenses, orders, authorizations, approvals, Environmental Approvals, Permits (as defined in the Agreement for Lease), waivers, extensions or variances of, or notices to or registrations or filings with any governmental or public body or authority (each a "Governmental Action"), (i) which are or will be required in connection with the valid execution, delivery and performance of this Lease or the Project Contracts, (ii) which are or will be required in connection with any participation by the Lessor or Assignee in the transactions contemplated by the Project Contracts or this Lease, (iii) which are or will be required in connection with the acquisition or ownership by the Lessor of the Project and all equipment for use with respect thereto, (iv) which are or will be required for the lease of the Project or the operation of the Project in accordance with and as contemplated by the Project Contracts and this Lease or (v) which are or will be required to be obtained by the Lessor, the Lessee, Merrill, Merrill Leasing, any Assignee or any Affiliate of the foregoing, during the term of this Lease, the Agreement for Lease or the Project Contracts, with respect to the Project or the Project Contracts, except such Governmental Actions (A) each of which (1) has been duly obtained, given or accomplished and is in full force and effect, with a true copy thereof delivered to the Lessor, or (2) is to be obtained but is not now required (but which is expected to be obtained in the ordinary course of business on or before the time required), including, without limitation, orders granting the Lessee and the Lessor the status of an EWG, (B) as may be required by applicable law not now in effect, (C) as may be required as a result of the business, properties or activities of Lessor, Merrill, Merrill Lynch, Merrill Leasing, any Assignee or any Affiliate of the foregoing and which are not solely dependent on the nature of the Project or the business of Lessee, or (D) as may be required by Lessor, Assignee or any Affiliate of either, if energy generated at the Project is sold by any such Person upon the termination of this Lease or after an Event of Default hereunder or in connection with the exercise of any remedy under which the Lessor or Assignee or any of their respective Affiliates would operate, possess or control the Project.

(e)   Intentionally Deleted.

(f)   Litigation. Except as set forth on Schedule 2(f) hereto, there is no action, suit, claim, counterclaim, proceeding or investigation, at law or in equity, by or before any court, governmental body, agency, commission or other tribunal now pending or threatened against or affecting the Project, the Lessee, or any property or rights of the Lessee or questioning the enforceability of this Lease or the Project Contracts, which could reasonably be expected to result in a Material Adverse Effect.

(g)   Intellectual Property. All Intellectual Property Rights required for the operation of the Project in accordance with and as contemplated by the Project Contracts or this Lease, have been or will in the ordinary course of business be timely obtained and, once obtained, will, to the extent required, remain in full force and effect. The Lessee owns or has, or will in the ordinary course of business timely obtain the right to use all technology, licenses, patents and other proprietary rights that are material and are required to perform the Lessee's obligations under the Project Contracts without any conflict with the rights of others.

(h)   Project Contracts. Each Project Contract to which the Lessee is a party has been or will be duly authorized, executed and delivered by the Lessee and, assuming the due authorization, execution and delivery of the Project Contracts by the other parties thereto, is or will be a legal, valid and binding obligation of the Lessee, enforceable against the Lessee according to its terms. The Lessee has not received notice from any party to a Project Contract that (i) such party is terminating any Project Contract, (ii) a default has occurred under any Project Contract or any Person has alleged that a default has occurred under any Project Contract or (iii) there are any claims for damages existing as a result of the Lessee's performance of or its failure to perform any of its obligations under any Project Contract. No default on the part of the Lessee, or to the Lessee's knowledge on the part of any other party thereto, has occurred and is continuing under any Project Contract on the date hereof.

(i)   Compliance with Legal Requirements and Insurance Requirements. The operation, use, and physical condition of the Project (i) are in full compliance with all Insurance Requirements and all premiums due with respect to such Insurance Requirements have been paid, and (ii) are in compliance with all Legal Requirements, except any Legal Requirements, the noncompliance with which, individually or in the aggregate, (A) will not place either the Lessor or any Assignee in any danger of civil liability which the Lessor or such Assignee is not adequately indemnified for by the Lessee or subject the Lessor or any Assignee to any danger of criminal liability as a result of failure to comply therewith, provided that, in the case of any such danger of criminal liability, any grace period in which to cure such non-compliance shall not be applicable and (B) could not reasonably be expected to result in a Material Adverse Effect.

(j)   Liens. The Project is not subject to any Lien, except for Permitted Liens, and none of such Permitted Liens could reasonably be expected to materially interfere with the use or possession of the Project or the use or exercise by the Lessor of its rights under this Lease or any other document contemplated hereby or entered into in connection herewith.

(k)   ERISA. The Lessee has not established and does not maintain or contribute to any employee benefit plan that is covered by Title IV of ERISA, except that the Lessee's employees may participate in the PPL Retirement Plan.

(l)   Status of Lessee. Not less than fifty percent (50%) of the voting membership interests of the Lessee is owned (directly or indirectly) beneficially and of record by the Guarantor.

(m)   Environmental.

Except as expressly identified in the Environmental Report or as set forth on Schedule 2(m) hereto:

      (i)   The Lessee and the Project comply and have at all times complied in all material respects with all Environmental Requirements applicable to the Project. Subject to the Lessee's right to pursue a Permitted Contest pursuant to Section 27 hereof, the Lessee and the Project shall at all times during the term of this Lease comply in all material respects with all Environmental Requirements applicable to the Project, including, without limitation, the use, maintenance and operation of the Project, and all activities and conduct of business related thereto, including, without limitation, the treatment, remediation, removal, transport, storage or disposal of any Contaminant;

      (ii)    The Lessee has obtained or has taken appropriate and timely steps, as required by Environmental Requirements, to obtain, and shall obtain and maintain all Environmental Approvals necessary for the construction and operation of the Project, all such Environmental Approvals already obtained are in good standing, and the Lessee and the Project are currently in material compliance and shall remain in material compliance with all terms and conditions of such Environmental Approvals. No material change in the facts or circumstances reported or assumed in the applications for or the granting of such Environmental Approvals exists. There are no proceedings pending, or threatened, with respect to the Lessee, the Operator or the Project which would jeopardize the validity of or ability of the Lessee to obtain and comply with any such Environmental Approvals in a timely manner;

      (iii)   The Lessee has not received any notice that any of the third parties with which the Lessee or the Operator has arranged, engaged or contracted to accept, treat, transport, store, dispose or remove any Contaminant generated or present at the Project, or which otherwise participate or have participated in activities or conduct related to the Project, were not properly permitted at the relevant time to perform the foregoing activities or conduct;

      (iv)   The Lessee has not received any notice that it or the Project is subject to any investigation, and none of the Lessee, the Operator or the Project is subject to any judicial or administrative proceeding, notice, order, judgment, decree or settlement, alleging or addressing in connection with the Project (A) any violation of any Environmental Requirements, (B) any Remedial Action, or (C) any Environmental Damages;

(v)   No Environmental Lien has attached to any portion of the Project, and the Lessee shall not cause or suffer any action or occurrence that will allow an Environmental Lien to attach to any portion of the Project;

      (vi)      The Lessee has not received, and does not have actual knowledge, after due inquiry, of any notice, claim or written communication from a Governmental Authority concerning (A) any alleged violation of any Environmental Requirements at the Project, whether or not corrected to the satisfaction of the appropriate authority, (B) any alleged liability of the Lessee for Environmental Damages arising out of or related to the Project, or (C) any alleged liability of the Lessee arising out of or related to the Project for the Release or threatened Release of a Contaminant at any location, and there exists no writ, injunction, decree, order or judgment outstanding, nor, to the actual knowledge of the Lessee, after due inquiry, any lawsuit, claim, proceeding, citation, directive, summons or investigation, pending or threatened, relating to the condition, ownership, use, maintenance or operation of the Project, or the suspected presence of Contaminants thereon or therefrom, nor, to the Lessee's actual knowledge, after due inquiry, does there exist any basis for such lawsuit, claim, proceeding, citation, directive, summons or investigation being instituted or filed;

      (vii)      To the actual knowledge of the Lessee, after due inquiry, there has been no Release of any Contaminants which would constitute a violation of any Environmental Requirement with respect to the Project, result in Environmental Damages, or require any Remedial Action under any applicable Environmental Requirements, and the Lessee shall not cause or suffer any such Release during the term of this Lease;

      (viii)      The Project is not listed or, to the actual knowledge of the Lessee, proposed for listing on the National Priorities List ("NPL") pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act, as amended ("CERCLA"), or listed on the Comprehensive Environmental Response Compensation Liability Information System List ("CERCLIS") or any similar state list of sites, and the Lessee is not aware of any conditions at the Project which, if known to a Governmental Authority, would qualify the Project for inclusion on any such list;

      (ix)      Neither the Lessee nor, to the actual knowledge of the Lessee, after due inquiry, any contractor engaged by the Lessee in connection with the Project has transported or arranged for the transport of any Contaminant from the Project to any facility or site for the purpose of treatment or disposal which (A) is included on the NPL, or, to the actual knowledge of the Lessee, (B) is or was, at the time of disposal, subject to a Remedial Action requirement (other than routine, anticipated regulatory requirements, including, but not limited to, closure and post-closure related corrective action obligations affecting closed solid waste management units at such facility) issued under the federal Resource Conservation and Recovery Act or any state, local or foreign solid or hazardous waste regulatory law, or (C) at the time of the disposal was subject to a governmental enforcement action with respect to alleged violations of any Environmental Requirements, and the Lessee shall exercise reasonable efforts not to suffer or permit any such arrangement for treatment or disposal during the term of this Lease;

      (x)      Neither the Lessee nor, to the actual knowledge of the Lessee, after due inquiry, any contractor engaged by the Lessee in connection with the Project has engaged in or permitted, nor shall the Lessee engage in or permit, any operations or activities upon, or any use or occupancy of the Project or any portion thereof, for the purpose of or in any way involving the illegal or improper release, discharge, refining or dumping of any Contaminant or the illegal or improper handling, storage, use or disposal of any Contaminant, nor has the Lessee or, to the actual knowledge of the Lessee, after due inquiry, any other Person caused any Contaminant to be deposited, released, stored, disposed, leached or otherwise come to be located on, under, in or about the Premises, nor to the actual knowledge of the Lessee has any Contaminant migrated from the Premises onto or underneath other properties which would require any Remedial Action under any applicable Environmental Requirements or give rise to any Environmental Damages;

      (xi)      To the actual knowledge of the Lessee, after due inquiry, there is not constructed, placed, deposited, stored, disposed nor located on the Project any asbestos in any form which has become or threatens to become friable. The Lessee shall not cause, suffer or permit the use of any asbestos-containing material in connection with the management or operation of the Project during the term of this Lease;

      (xii)      To the actual knowledge of the Lessee, after due inquiry, there is not constructed, placed, deposited, released, stored, disposed, leached nor located on the Project any polychlorinated biphenyls ("PCBs") or transformers, capacitors, ballasts, or other equipment which contain dielectric fluid containing PCBs. The Lessee shall not suffer, cause or permit the use of any article or material containing PCB's at or on the Project during the term of this Lease;

      (xiii)      The Lessee has no liability, and has neither received nor is otherwise aware of any notice, claim or other communication alleging liability on the part of the Lessee, for the violation of any Environmental Requirements, for Environmental Damages, or for the Release or threatened Release of any Contaminant in connection with the Project; and

      (xiv)      None of the matters identified in the Environmental Report, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

(n)   Project Authorizations. The Lessee (or its contractors or subcontractors) has obtained, or shall in the ordinary course of business obtain prior to the time required, all certificates, permits, licenses, authorizations and approvals, including Environmental Approvals, required (i) in the management and operation of the Project in accordance with and as contemplated by the Project Contracts or this Lease, and (ii) for acquisition of equipment related to the Project for use with respect thereto. A list of all such certificates, permits, licenses, authorizations and approvals required by all applicable law in effect on the date of this Lease is attached as Exhibit C hereto.

(o)   Compliance with Project Contracts. The physical condition of the Project as it is presently constructed and as it will be constructed pursuant to the requirements of the EPC Contract complies with all material requirements of each Project Contract then in effect and will, at the time required, enable the Lessee to perform all obligations under the Project Contracts and this Lease in accordance with their respective terms.

(p)   Pledge Agreement. The Pledge Agreement has been duly authorized, executed and delivered by the Lessee and, assuming the due authorization, execution and delivery of the Pledge Agreement by the Lessor, is a legal, valid and binding obligation of the Lessee, enforceable against the Lessee according to its terms. The Pledge Agreement creates a valid first priority security interest in the Collateral (as defined in the Pledge Agreement) now in existence, securing the payment of the Secured Obligations (as defined in the Pledge Agreement). All action necessary to perfect the security interest in the Collateral has been taken, and such security interest has priority over any other Lien on the Collateral, except for Permitted Liens.

(q)   Operation of the Project. The Project will, on and after the achievement of Commercial Operation (as such term is defined in the Agreement for Lease), be able in the Lessee's reasonable judgment (i) to be operated in material compliance with all existing material Governmental Actions, the Project Contracts and this Lease for a period of at least 20 years thereafter, and (ii) to be mechanically operated on a safe basis in compliance with all existing material Governmental Actions for a period of at least 25 years thereafter.

(r)   Utility Availability. All utilities, services, facilities and Interconnection Facilities required for the operation of the Project (including, but not limited to, potable water supply, gas, electric and telephone facilities) are available for use at the boundaries of the Premises or within a reasonable distance from the Premises, and arrangements on commercially reasonable terms have been, or shall be in the ordinary course of business, made for the provision of such services to the Project.

(s)   No Default. Neither the Lessee nor the Guarantor is in violation of or in default under or with respect to any Legal Requirement in any respect which could reasonably be expected to have a Material Adverse Effect.

(t)   Taxes. The Lessee has filed or caused to be filed all tax returns which are required to be filed by it and all such tax returns were true, correct and complete as of the date filed. The Lessee has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its assets and properties and has paid all other taxes, fees or other charges imposed on it by any Governmental Authority (except taxes, fees and charges subject to a Permitted Contest).

(u)   Nature of Lessee's Business. The Lessee (A) has not engaged in any business other than as contemplated by paragraph (ii)(j) of Section 2 herein, (B) is not a party to any contract, operating lease, agreement or commitment other than as contemplated by paragraph (ii)(j) of Section 2 herein, and the Agency Agreement, the Construction Documents and the Project Contracts and (C) has not created, assumed or incurred any Indebtedness other than pursuant to this Lease, the Agreement for Lease, the Lessee Note, and the Agency Agreement, the Construction Documents and the Project Contracts.

(v)   Lessee Note. The Lessee Note has been duly authorized, executed and delivered by the Lessee and is a legal, valid and binding obligation of the Lessee, enforceable against the Lessee according to its terms.

(w)   Public Utility Holding Company Act. The Lessee is not subject to regulation under the 1935 Act as a "public-utility company" or a "holding company", within the meaning of the 1935 Act.

(x)   Regulation. Neither the Lessor nor any Assignee nor any of their respective Affiliates is or will be, solely by reason of (i) its entering into this Lease or any other document contemplated hereby, (ii) the acquisition, ownership, leasing or financing of the Project (or any part thereof) or (iii) the operation of the Project (or any part thereof) during the term of this Lease or the Agreement for Lease in accordance with and as contemplated by the Project Contracts and this Lease, be subject to financial, rate or other similar regulation as, a public utility, or an electric utility or a public utility holding company under a Legal Requirement (including any Legal Requirement (A) under the 1935 Act, (B) imposed by any state or local public utility commission or other similar regulatory body, authority or group having jurisdiction over the Lessor or the Lessee or any such transactions or activities, or (C) under the Federal Power Act, as amended), except in connection with the exercise of any remedy under which the Lessor or Assignee or any of their respective Affiliates would operate, possess or control the Project (or any part thereof).

      (ii)   The Lessee covenants to the Lessor:

(a)   Limitation on Indebtedness. The Lessee will not incur, assume, suffer to exist, directly or indirectly guaranty or at any time be liable with respect to any Indebtedness except Indebtedness of the Lessee (i) evidenced by the Agency Agreement, this Lease, the Agreement for Lease and any Indebtedness specifically permitted by the Agency Agreement, this Lease, the Agreement for Lease or the Lessee Note or (ii) owing to an Affiliate of the Lessee or to the Guarantor, which Indebtedness is by its terms unsecured, subordinate and junior to the Indebtedness described in clause (i) above, so long as such Indebtedness contains and is subject to provisions not more favorable to obligee than those described on Schedule 2(a) hereto or on such other terms as are reasonably satisfactory to the Lessee, the Lessor and Assignee.

(b)   Distributions in Default. So long as an Event of Default pursuant to paragraph (a) of Section 18(A) of this Lease has occurred and is continuing, the Lessee will not make any distributions or return of capital of any kind to any of its equity investors or any payment of management fees or any payments of principal or interest on any Indebtedness (other than pursuant to this Lease, the Agreement for Lease and the Lessee Note).

(c)   Maintenance of Existence. The Lessee will maintain its legal existence and its good standing under the laws of the State of Delaware until the expiration or other termination of this Lease and the payment of all amounts owing hereunder.

(d)   Liens. The Lessee will not create, incur, assume or permit to exist any Lien upon any of its Assets, other than Permitted Liens.

(e)   Subsidiaries. The Lessee will not acquire or create an equity interest in any Person.

(f)   Pension Plans. The Lessee will not establish or become party to any employee benefit plan that is covered by Title IV of ERISA, except that the Lessee's employees may participate in the PPL Retirement Plan; provided, however, that the Lessee shall not make any contribution to the PPL Retirement Plan (i) that would be required in order to avoid incurring an accumulated funding deficiency pursuant to Section 412 of the Code, or (ii) to reimburse or indemnify any ERISA Affiliate (as defined by Section 414 of the Code) of the Lessee for such contributions being made on the Lessee's behalf.

(g)   Delivery of Information. The Lessee shall deliver to the Lessor and Assignee from time to time, (i) promptly, and in any event within ten (10) days after request, such information available to the Lessee with respect to the Lessee's operations, business, properties, assets, financial condition or litigation as the Lessor or Assignee shall reasonably request; (ii) promptly, and in any event within ten (10) days after a Responsible Officer obtains actual knowledge of any Event of Default, Potential Default, Termination Event, Event of Loss, or Taking, a certificate of a Responsible Officer specifying the nature and period of existence of such Event of Default, Potential Default, Termination Event, Event of Loss or Taking, and what action, if any, the Lessee or the Guarantor has taken, is taking, or proposes to take with respect thereto; (iii) promptly, and in any event within ten (10) days after a Responsible Officer obtains actual knowledge of any change in the financial condition or business of the Lessee which could reasonably be expected to result in a Material Adverse Effect, or of any Environmental Damages in excess of $5,000,000 or in respect of governmental fines or obligations (other than taxes) or liabilities or obligations arising as a result of Environmental Matters in excess of $5,000,000, or of any litigation of the type described in paragraph (i)(f) of this Section 2, a certificate of a Responsible Officer describing such change, liabilities, obligations or litigation, as the case may be, and what action, if any, the Lessee has taken, is taking, or proposes to take with respect thereto; (iv) promptly, and in any event not more than ten (10) days after the end of each fiscal quarter of the Lessee, a certificate of a Responsible Officer stating, to the best knowledge of such Responsible Officer after reasonable inquiry, whether there exists on the date of such certificate any Event of Default, Potential Default, Termination Event, Event of Loss, Taking, or default under any Project Contract which could reasonably be expected to result in a Material Adverse Effect, and if any Event of Default, Potential Default, Termination Event, Event of Loss, Taking, or such default under any Project Contract exists, specifying the nature and period of existence thereof and what action, if any, the Lessee or the Guarantor has taken, is taking, or proposes to take with respect thereto; (v) promptly, and in any event within ten (10) days after a Responsible Officer obtains actual knowledge of any legal, governmental or regulatory proceeding which if adversely determined could reasonably be expected to result in a Material Adverse Effect, a certificate of a Responsible Officer, describing each such proceeding and what action, if any, the Lessee has taken, is taking, or proposes to take with respect thereto; (vi) promptly, and in any event within five Business Days after the occurrence of any litigation or proceeding known to the Lessee affecting the Operator that if adversely determined could reasonably be expected to impair the ability of such party to perform its obligations under the Project Contracts; (vii) promptly, and in any event within ten (10) days after receipt, all written communications relating to any pending investigations, claims or proceedings with respect to any Governmental Action or proposing to amend, modify or affect any Governmental Action then required to be in effect with respect to the Project; (viii) promptly, and in any event within ten (10) days after its execution, a copy of any Project Contract or replacement thereof; and (ix) promptly, and in any event within five Business Days after the receipt thereof, any notices from any party to any Project Contract that (a) such party has proposed to amend, modify or waive any term of any Project Contract or any amendment, modification or waiver of any Project Contract has occurred, (b) such party is commencing or proposes to commence any dispute resolution procedure under the terms of any Project Contract, (c) such party has proposed to terminate any Project Contract or any termination of a Project Contract has occurred, (d) a default or a force majeure event has occurred under any Project Contract or any Person has alleged that a default or a force majeure event has occurred under any Project Contract, or (e) there are claims for damages existing as a result of the Lessee's performance of or its failure to perform any of its obligations under any Project Contract.

(h)   Public Utility Holding Company Act. The Lessee shall not become a "holding company" within the meaning of the 1935 Act, shall not become an Affiliate of a holding company registered under the 1935 Act (except that the Lessee may become an Affiliate of a holding company registered under the 1935 Act so long as the rights of the Lessee under the Project Contracts and the rights of the Lessor or any Assignee under this Lease or any other document contemplated hereby are not adversely affected), and shall not become regulated as a holding company under any other Federal, state or local Legal Requirement (except that the Lessee may become regulated as a public utility company so long as the rights of the Lessee under the Project Contracts and the rights of the Lessor and any Assignee under this Lease and any other documents contemplated hereby are not adversely affected).

(i)   Regulation. Neither the Lessor nor any Assignee nor any of their respective Affiliates shall, solely by reason of (i) its entering into this Lease or any other document contemplated hereby, (ii) the acquisition, ownership, leasing or financing of the Project (or any part thereof) or (iii) the operation of the Project (or any part thereof) during the term of this Lease or the Agreement for Lease in accordance with and as contemplated by the Project Contracts and this Lease, become subject to financial, rate or other similar regulation as, a public utility, or an electric utility or a public utility holding company under a Legal Requirement (including any Legal Requirement (A) under the 1935 Act, (B) imposed by any state or local public utility commission or other similar regulatory body, authority or group having jurisdiction over the Lessor or the Lessee or any such transactions or activities, or (C) under the Federal Power Act, as amended), except in connection with the exercise of any remedy under which the Lessor or Assignee or any of their respective Affiliates would operate, possess or control the Project (or any part thereof).

(j)   Lessee's Business. The Lessee shall not construct or operate any generation facility that is not subject to the terms of this Lease or the Agreement for Lease. The Lessee will not enter into any business other than (i) as contemplated by the terms of the Project Contracts, (ii) the constructing, operating, maintaining, repairing and equipping of the Project as agent of the Lessor pursuant to the Agreement for Lease, (iii) the leasing and financing of the Project pursuant to this Lease, the Lessee Note and the documents incidental hereto, and (iv) matters incidental to the performance of its obligations under clauses (i), (ii) and (iii) of this sentence. The Lessee shall not enter into any contract other than those contracts (1) contemplated by this Lease or (2) in connection with matters contemplated by the foregoing clauses (i), (ii), (iii) and (iv); provided that (a) to the extent that such assignment is permitted by the terms and conditions of each applicable contract (and the Lessee hereby acknowledges that it shall use commercially reasonable efforts to secure terms and conditions permitting such assignment in all contracts applicable to the Project), the Lessee shall collaterally assign to the Lessor, at no cost to the Lessor, all of the Lessee's right, title and interest in such contracts pursuant to the Pledge Agreement, and (b) if (x) such contract will materially and adversely affect the Lessee's ability to perform its obligations under this Lease or the Project Contracts, or (y) unless such contract is related to the operation, maintenance or repair of the Project, such contract involves Indebtedness or other obligations (contingent or otherwise) that after the Project achieves Substantial Completion would exceed in the aggregate $50,000 in any four year period, the Lessee shall be required to obtain the consent of the Lessor and Assignee to such contract prior to its execution.

(k)   Capital Expenditures. The Lessee will not make any Capital Expenditures with respect to the Project that could reasonably be expected to result in a Material Adverse Effect.

(l)   Notice of Environmental Events:

      (i)   The Lessee shall promptly, but in any case within ten (10) days of receiving actual notice thereof, notify the Lessor and Assignee if, on or after the Effective Date, (A) any Environmental Matter has occurred involving the Project or any part thereof (including, but not limited to, the presence, emission or unpermitted Release of Contaminants or the violation of any applicable Environmental Requirements) that if adversely determined could reasonably be expected to result in penalties or other liabilities in excess of $5,000,000 or (B) the Lessee has received notification that the Project or any part thereof is the subject of a proceeding that could reasonably be expected to result in any ordered remediation or corrective action or other liability related to an Environmental Matter, the cost of which liability could reasonably be expected to exceed $5,000,000 (each of (A) and (B) an "Environmental Event").

Following the receipt of a notice pursuant to clause (i) above, the Lessor and Assignee, in each case in their sole discretion, may require the Lessee to cause to be conducted by the Environmental Consultant, an environmental audit of the Project or related operation on which the Lessor or Assignee may rely, the scope of which audit shall be limited to confirming the magnitude and anticipated cost of the liability resulting from the Environmental Event and to provide a copy of such environmental consultant's report on its audit to the Lessor and Assignee.

      (ii)   The Lessee shall immediately initiate, or cause to be initiated at no cost to the Lessor or Assignee, such actions as may be necessary to comply in all respects with all applicable Environmental Requirements and to alleviate any significant risk to human health or the environment if the same arises from a condition on or in respect of the Project or any part thereof, whether existing prior to, on or after the date of this Lease. Once the Lessee commences such actions, the Lessee shall thereafter diligently and expeditiously proceed to comply materially and in a timely manner with all Environmental Requirements and to eliminate any significant risk to human health or the environment and shall, at the request of the Lessor or Assignee during the Lease Term, give periodic progress reports on its compliance efforts and actions.

(m)   Operation of Project. The Lessee shall obtain in a timely manner and maintain in full force and effect all Governmental Actions required to perform its obligations under the Project Contracts and will upon the reasonable request of the Lessor or Assignee provide a copy of each such Governmental Action to the Lessor and Assignee.

SECTION 3.   LEASE OF THE PROJECT

(a)   The date upon which the Lessee receives the Final Advance (as defined in the Agreement for Lease) under the Agreement for Lease shall be the "Effective Date". Prior to the Effective Date, the Project and the rights and obligations (including all rights and obligations arising under paragraphs (a) and (b) of Section 11 hereof) of the Lessor and the Lessee shall be governed only by the Agreement for Lease. From and after the Effective Date, the Lessor does hereby lease the Project (including a sublease of the Premises) to the Lessee for the Lease Term and any Renewal Term and the Project and the rights and obligations of the Lessor and the Lessee shall be governed by this Lease and not the Agreement for Lease, except to the extent otherwise expressly provided in this Lease and the Agreement for Lease. On the Effective Date, the Lessee shall be deemed to have certified that all representations and warranties of the Lessee contained in this Lease are true and correct in all material respects on and as of the Effective Date. As provided in paragraph (i) of Section 6 of the Agreement for Lease, on the Effective Date, Exhibit D to this Lease shall be amended, if necessary.

(b)   Up to six (6) months after the Final Advance (as defined in the Agreement for Lease), the Lessee may request Completion Advances under the Agreement for Lease by delivering a Certificate of Increased Cost (as defined in the Agreement for Lease) to the Lessor and otherwise complying with the terms of Section 7 of the Agreement for Lease. On or before the fifth Business Day prior to the date upon which the Lessee receives the Final Advance (as defined in the Agreement for Lease), the Lessee shall designate the maximum aggregate amount of all Completion Advances to be requested hereunder (the "Completion Amount"). After such designation the aggregate amount of all Completion Advances shall not exceed the Completion Amount. The provisions of paragraph (b) of subsection 2.3, paragraph (d) of subsection 3.3 and Section 7 of the Agreement for Lease shall govern (i) the designation of the Completion Amount, (ii) the making of Completion Advances and (iii) any amendments to Exhibit D to this Lease occasioned thereby. At the time each Completion Advance is made, the Lessee shall be deemed to have certified that all representations and warranties of the Lessee contained in this Lease are true and correct in all material respects on and as of such date.

SECTION 4.   OPERATING LEASE

(a)   It is the intent of the Lessee and the Lessor that: (i) this Lease constitutes an operating lease from the Lessor to the Lessee for purposes of the Lessee's financial reporting, (ii) this Lease constitutes a secured loan, and this Lease, the Agreement for Lease and other transactions contemplated hereby and thereby preserve the ownership of the Project in the Lessee for all other purposes, including, without limitation, federal, state and local income tax and bankruptcy purposes, and (iii) this Lease grants to the Lessor a Lien on the Project. The Lessee and the Lessor agree that the Lessor shall be deemed to have a valid and binding security interest in and Lien on the Project, free and clear of all Liens, other than Permitted Liens, as security for the obligations of the Lessee under this Lease and the Agreement for Lease (it being understood and agreed that the Lessee does hereby grant a Lien, and convey, transfer, assign, mortgage and warrant to the Lessor and its successors, transferees and assigns, for the benefit of the Lessor and its successors, transferees and assigns, on the Project and any proceeds or products thereof, to have and hold the same as collateral security for the payment and performance of the obligations of the Lessee under this Lease and the Agreement for Lease).

(b)   Specifically, without limiting the generality of paragraph (a) of this Section 4, the Lessee and the Lessor intend and agree that in the event of any insolvency or receivership proceedings or a petition under the United States bankruptcy laws or any other applicable insolvency laws or statute of the United States of America or any State thereof affecting the Lessee, the Lessor, any Assignee or any collection actions relating thereto, the transactions evidenced by the Agreement for Lease and this Lease shall be regarded as loans made by the Lessor to the Lessee.

SECTION 5.   ABSOLUTE OBLIGATION

(a)   The obligations of the Lessee to pay all amounts payable by the Lessee pursuant to this Lease (including specifically and without limitation amounts payable under Sections 7 and 11 hereof) shall be absolute and unconditional under any and all circumstances of any character, and such amounts shall be paid without notice, demand, defense, set-off, deduction or counterclaim and without abatement, suspension, deferment, diminution or reduction of any kind whatsoever, except as herein expressly otherwise provided. The obligation of the Lessee to lease the Project and pay Basic Rent, any Make-Whole Premium, any Modified Call Premium, Additional Rent and any other amounts due hereunder for the Project accepted for lease pursuant to this Lease is without any warranty or representation, express or implied, as to any matter whatsoever on the part of the Lessor or any Assignee or any Affiliate of either, or anyone acting on behalf of any of them.

THE LESSEE HAS SELECTED THE PROJECT ON THE BASIS OF ITS OWN JUDGMENT. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN UPON A TRANSFER OF THE LESSOR'S INTEREST IN THE PROJECT TO THE LESSEE OR A THIRD PARTY, NEITHER THE LESSOR NOR ANY ASSIGNEE NOR ANY AFFILIATE OF EITHER, NOR ANYONE ACTING ON BEHALF OF ANY OF THEM MAKES ANY REPRESENTATION OR WARRANTY OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, AS TO THE SAFETY, TITLE, CONDITION, QUALITY, QUANTITY, FITNESS FOR USE, MERCHANTABILITY, CONFORMITY TO SPECIFICATION, OR ANY OTHER CHARACTERISTIC, OF THE PROJECT, OR AS TO WHETHER THE PROJECT OR THE OWNERSHIP, USE, OCCUPANCY OR POSSESSION THEREOF COMPLIES WITH ANY LAWS, RULES, REGULATIONS OR REQUIREMENTS OF ANY KIND.

AS BETWEEN THE LESSEE AND THE LESSOR, ANY ASSIGNEE OR ANY INDEMNIFIED PERSON, THE LESSEE ASSUMES ALL RISKS AND WAIVES ANY AND ALL DEFENSES, SET-OFFS, DEDUCTIONS, COUNTERCLAIMS (OR OTHER RIGHTS), EXISTING OR FUTURE, AS TO THE LESSEE'S OBLIGATION TO PAY BASIC RENT AND ALL OTHER AMOUNTS PAYABLE HEREUNDER, INCLUDING, WITHOUT LIMITATION, ANY RELATING TO:

(A)   THE SAFETY, TITLE, CONDITION, QUALITY, FITNESS FOR USE, MERCHANTABILITY, CONFORMITY TO SPECIFICATION, OR ANY OTHER QUALITY OR CHARACTERISTIC OF THE PROJECT, LATENT OR NOT;

(B)   ANY SET-OFF, COUNTERCLAIM, RECOUPMENT, ABATEMENT, DEFENSE OR OTHER RIGHT WHICH THE LESSEE MAY HAVE AGAINST THE LESSOR, ANY ASSIGNEE OR ANY INDEMNIFIED PERSON FOR ANY REASON WHATSOEVER ARISING OUT OF THIS OR ANY OTHER TRANSACTION OR MATTER;

(C)   ANY DEFECT IN TITLE OR OWNERSHIP OF THE PROJECT OR ANY TITLE ENCUMBRANCE NOW OR HEREAFTER EXISTING WITH RESPECT TO THE PROJECT;

(D)   ANY FAILURE OR DELAY IN DELIVERY OR ANY LOSS, THEFT OR DESTRUCTION OF, OR DAMAGE TO, THE PROJECT, IN WHOLE OR IN PART, OR CESSATION OF THE USE OR POSSESSION OF THE PROJECT BY THE LESSEE FOR ANY REASON WHATSOEVER AND OF WHATEVER DURATION, OR ANY CONDEMNATION, CONFISCATION, REQUISITION, SEIZURE, PURCHASE, TAKING OR FORFEITURE OF THE PROJECT, IN WHOLE OR IN PART;

(E)   ANY INABILITY OR ILLEGALITY WITH RESPECT TO THE USE, OWNERSHIP, OCCUPANCY OR POSSESSION OF THE PROJECT BY THE LESSEE;

(F)   ANY INSOLVENCY, BANKRUPTCY, REORGANIZATION OR SIMILAR PROCEEDING BY OR AGAINST THE LESSEE OR THE LESSOR OR ANY ASSIGNEE;

(G)   ANY FAILURE TO OBTAIN, OR EXPIRATION, SUSPENSION OR OTHER TERMINATION OF, OR INTERRUPTION TO, ANY REQUIRED LICENSES, PERMITS, CONSENTS, AUTHORIZATIONS, APPROVALS OR OTHER LEGAL REQUIREMENTS;

(H)   THE INVALIDITY OR UNENFORCEABILITY OF THIS LEASE OR ANY OTHER INFIRMITY HEREIN OR ANY LACK OF POWER OR AUTHORITY OF THE LESSOR OR THE LESSEE TO ENTER INTO THIS CONTRACT;

(I)   THE INVALIDITY OR UNENFORCEABILITY OF ANY BILL OF SALE EXECUTED IN CONNECTION WITH THIS LEASE OR ANY OTHER INFIRMITY THEREIN OR LACK OF POWER OR AUTHORITY OF ANY PARTY THERETO TO ENTER INTO SUCH BILL OF SALE; OR

(J)   ANY OTHER CIRCUMSTANCES OR HAPPENING WHATSOEVER, WHETHER OR NOT SIMILAR TO ANY OF THE FOREGOING.

THE LESSEE HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHTS WHICH IT MAY NOW HAVE OR WHICH AT ANY TIME HEREAFTER MAY BE CONFERRED UPON IT, BY STATUTE OR OTHERWISE, TO TERMINATE, CANCEL, QUIT, RESCIND OR SURRENDER THIS LEASE EXCEPT IN ACCORDANCE WITH THE EXPRESS TERMS HEREOF. Each payment of Basic Rent, any Make-Whole Premium, Additional Rent and any other amount due hereunder made by the Lessee shall be final, and the Lessee, without waiving any other remedies it may have, will not seek or have any right to recover all or any part of such payment from the Lessor or any Assignee for any reason whatsoever. Notwithstanding anything contained herein to the contrary, the making of payments under this Lease by the Lessee shall not be deemed to be a waiver of any claim or claims (including claims that otherwise would be a defense to payment or a counterclaim) that the Lessee may assert against the Lessor or any other Person. The Lessor agrees to repay the Lessee amounts paid to the Lessor to the extent such payments were in error and are not required by any of the terms and provisions of this Lease.

(b)   Notwithstanding any other provision contained in this Lease, it is specifically understood and agreed that neither the Lessor nor any Assignee nor any Affiliate of either, nor anyone acting on behalf of any of them makes any warranties or representations or has any responsibility to disclose any relevant information nor, except as set forth in Section 21 of this Lease, has the Lessor or any Assignee or any Affiliate of either, or anyone acting on behalf of any of them made any covenants or undertakings or has any other responsibility or duty, as to the accounting treatment to be accorded the Lessee or as to the U.S. Federal or any state income or any other tax consequences, if any, to the Lessee as a result of or by virtue of the transactions contemplated by this Lease.

SECTION 6.   LEASE TERM

The "Lease Term" shall commence on the Effective Date and shall continue until December 21, 2013, unless terminated earlier pursuant to Section 12, 13, 15, 16 or 19 hereof.

SECTION 7.   RENT AND OTHER PAYMENTS

(a)   The Lessee hereby agrees to pay the Lessor on each Basic Rent Payment Date, in immediately available funds, as provided in paragraph (e) of this Section 7, Basic Rent for the semi-annual period (or part thereof) ending in the month in which such Basic Rent Payment Date falls; provided that, if the Effective Date is on or after the Lease Rate Date in any first partial semi-annual period of the Lease Term, Basic Rent for such partial semi-annual period shall be payable on the next succeeding Basic Rent Payment Date.

(b)   The Lessor shall furnish to the Lessee on the 16th day of each calendar month in which a Basic Rent Payment Date falls the Semi-Annual Cost of Project Debt for such semi-annual period, or, if such day is not a Business Day, on the next succeeding Business Day (the "Lease Rate Date"). At least two (2) days prior to each Basic Rent Payment Date, the Lessor shall furnish the Lessee with a summary of the calculations of Basic Rent for such Basic Rent Payment Date.

(c)   The Lessee hereby agrees to pay on demand all amounts (other than Basic Rent) payable by the Lessee hereunder, including, without limitation, all amounts payable to any Indemnified Person pursuant to Section 11 hereof.

(d)   Without prejudice to the full exercise by the Lessor of its rights under Sections 18 and 19 hereof, the Lessee shall pay to the Lessor from time to time, on demand, as additional rent ("Additional Rent") (i) amounts required to reimburse the Lessor for its obligations, costs and expenses (not previously included in Basic Rent or Acquisition Cost) incurred in acquiring, financing (including obtaining, maintaining and terminating equity financing and all fees payable to the Lessor's general partner under its partnership agreement) and maintaining security for and exercising remedies in connection with any such financing and leasing the Project (including, without limitation, all obligations, costs and expenses of the Lessor arising in connection with the termination of any Financing Arrangement (whether as a result of a default thereunder or otherwise)), all interest (including, without limitation, interest at a default rate), the Make-Whole Premium, the Modified Call Premium and other costs, fees and expenses incurred by the Lessor under any Financing Arrangement (including any such accruing after the commencement of a bankruptcy or similar proceeding), rent under the Ground Lease and amounts owing under any Construction Documents or Project Contracts, and (ii) to the extent legally enforceable, an amount computed by multiplying (A) all sums not paid by the Lessee to the Lessor as provided in this Lease on or before the date such payments are due, by (B) the decimal equivalent of the Semi-Annual Cost of Project Debt as most recently furnished by the Lessor, and by (C) a fraction having a numerator equal to the number of days in the period from but excluding such due date to and including the date of payment thereof (provided that, all full calendar months during such period shall be computed on the basis of a 30-day month) and a denominator of 360. The Lessee shall also pay to the Lessor on demand an amount equal to any expenses incurred by the Lessor in collecting such unpaid sums.

(e)   Basic Rent, any Make-Whole Premium, any Modified Call Premium, Additional Rent and any other amount payable by the Lessee to the Lessor shall be paid such that immediately available funds in the full amount due are available by not later than 2:00 p.m. (New York City time) on the date due, to the account of the Lessor at such bank, or to such account of such other Person at such bank, or otherwise as the Lessor may from time to time designate in writing.

SECTION 8.   RESTRICTED USE; COMPLIANCE WITH LAWS

(a)   The Lessee shall promptly and duly execute, deliver, file and record, at the Lessee's expense, all such documents, statements, filings and registrations, and take such further action, as the Lessor shall from time to time reasonably request in order to establish, perfect and maintain the Lessor's title to and interest in the Project (other than Removable Improvements) and Assignee's interest in this Lease or the Project as against the Lessee or any third party in any applicable jurisdiction.

      Equipment, machinery, apparatus, fixtures, structures and installations may be substituted for portions of the Project (other than Removable Improvements) if (i) the Lessor and Assignee consent to such substitution, such consent not to be unreasonably withheld or denied, (ii) such substitution is consistent with prudent business practices and could not reasonably be expected to adversely affect the Lessee's ability to perform its obligations under this Lease and the Project Contracts nor result in a reduction, individually or in the aggregate with all other substitutions, by more than a de minimis amount in the value, utility or remaining economic useful life of the Project (assuming the Project is in the condition required hereby), or (iii) such substitution is performed by the Lessee or the Operator in the normal course of operating and maintaining the Project in accordance with the Project Contracts and is consistent with prudent industry practices. As equipment, machinery, apparatus, fixtures, structures and installations are added to, or substituted for, portions of the Project (other than Removable Improvements), title to such additional or substitute equipment, machinery, apparatus, fixtures, structures and installations shall automatically be transferred to the Lessor and such equipment, machinery, apparatus, fixtures, structures and installations shall become a part of the Project and shall be subject to this Lease and title to the existing equipment, machinery, apparatus, fixtures, structures and installations which are being substituted for (other than Removable Improvements) shall be automatically released by the Lessor to the Lessee.

(b)   The Lessee shall use reasonable precautions to prevent loss or damage to the Project and to prevent injury to third persons or property of third persons. The Lessee shall cooperate fully with the Lessor and all insurance companies providing insurance pursuant to Section 10 hereof in the investigation and defense of any claims or suits arising from the ownership, operation, occupancy or use of the Project; provided that nothing contained in this paragraph (b) shall be construed as imposing on the Lessor any duty to investigate or defend any such claims or suits. The Lessee shall comply and shall use reasonable best efforts to cause all Persons using, operating or occupying the Project to comply with all Insurance Requirements and Legal Requirements applicable to the Project, to the Lessee or such Person in connection with such Person's use, operation or occupancy of the Project (as the case may be) and to the acquiring, titling, registering, leasing, insuring, using, occupying, operating and disposing of the Project or any part thereof, and the licensing of operators thereof; except any Legal Requirements, the noncompliance with which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

(c)   The Lessor and each Assignee, or any authorized representative of either, may, during reasonable business hours and upon reasonable notice to the Lessee and Operator from time to time inspect the Project and deeds, registration certificates, certificates of title and related documents, including as to Environmental Matters, covering the Project wherever the same may be located subject to the Lessee's and the Operator's reasonable safety policies and insurance requirements, but neither the Lessor nor Assignee shall have any duty to make any such inspection; provided, however, that so long as no Event of Default or Event of Project Termination under the Agreement for Lease and no Event of Default under the Lease, as the case may be, shall have occurred and be continuing, the Lessor and each Assignee shall only be entitled to make one such inspection in any twelve (12) month period.

(d)   The Lessee shall not, without the prior written consent of the Lessor, create, permit, or suffer to exist, any Lien upon the Project, other than Permitted Liens or Liens which are subject to a Permitted Contest, nor may it assign any right or interest herein or in the Project, excepted as contemplated herein. The Lessee shall not relinquish possession of the Project or any part thereof, except to the Operator, the General Contractor and to any other contractor for use in performing work on the Project for the Lessee pursuant to and in accordance with the Project Contracts; provided that such relinquishment of possession shall in no way affect the obligations of the Lessee or the rights of the Lessor hereunder and with respect to the Project. The Lessee may sublease the Project; provided that (A) each such sublease shall expressly be made subject and subordinate to the provisions hereof and shall by its terms be subject to termination upon the termination for any reason of this Lease, (B) no such sublease shall modify or limit any right or power of the Lessor or Assignee hereunder or affect or reduce any obligation of the Lessee hereunder, and all such obligations shall continue in full force and effect as obligations of a principal and not of a guarantor or surety, as though no such subletting had been made, (C) the Lessee gives the Lessor and Assignee a copy of any such sublease within thirty (30) days of entering into such sublease, and (D) any such sublease made otherwise than as expressly permitted by this paragraph (d), shall be void and of no force and effect. As additional security to the Lessor for the performance of the Lessee's obligations under this Lease, the Lessee hereby assigns to the Lessor all of its right, title and interest in and to all subleases permitted hereby. The Lessor shall have the present and continuing right to collect and enjoy all rents and other sums of money payable under any such sublease, and the Lessee hereby irrevocably assigns such rents and other sums to the Lessor as additional security for the benefit and protection of the Lessor; provided that, unless a Potential Default, an Event of Default, Termination Event, Event of Loss or Taking shall have occurred and be continuing hereunder, the Lessee shall be entitled to collect and enjoy such rents and other sums. Nothing contained in this Lease shall be construed as constituting the consent or request of the Lessor, express or implied, to or for the performance by any contractor, laborer, materialman or vendor of any labor or services or for the furnishing of any materials for any construction, alteration, addition, repair or demolition of or to the Project or any part thereof. Notice is hereby given that the Lessor will not be liable for any labor, services or materials furnished or to be furnished to the Lessee, or to anyone holding the Project or any part thereof through or under the Lessee.

(e)   If any Lien or charge of any kind or any judgment, decree or order of any court or other Governmental Authority (including, without limitation, any state or local tax lien affecting the Project), whether or not valid, shall be asserted or entered which would interfere with the due and timely payment of any sum payable or the exercise of any of the rights or the performance of any of the duties or responsibilities under this Lease, the Lessee shall, upon obtaining knowledge thereof or upon receipt of notice to that effect from the Lessor, take such action to prevent or terminate such interference.

(f)   So long as this Lease is in effect or thereafter if the Lessee remains as party to any Project Contract as a result of its failure to assign to the Lessor (or its designated purchaser) all right, title and interest of the Lessee in and to such Project Contract pursuant to the terms of this Lease, the Lessee shall not create, incur, assume or permit to exist any Lien upon the Lessee's rights or obligations with respect to any Project Contract (other than the Lien of the Pledge Agreement or any Permitted Lien), or sell or assign the Lessee's interest in any Project Contract, other than as permitted pursuant to a Financing Arrangement and the Pledge Agreement. The Lessee agrees that without the prior written consent of the Lessor and Assignee, no amendment, modification, supplement or restatement shall be made to any Project Contract, nor shall any Project Contract be terminated or replaced by a substitute agreement, nor shall the Lessee grant or request any waiver pursuant to any Project Contract other than any amendment, modification, supplement, restatement, consent or waiver which could not reasonably be expected to result in a Material Adverse Effect.

(g)   The Project shall be maintained and operated solely to generate electricity and to deliver electricity as contemplated by the Project Contracts. The Lessee shall at its own expense take all actions as may from time to time be necessary so that neither the Lessor, Assignee nor any of their Affiliates will, solely as a result of entering into this Lease or any other document contemplated hereby or entered into in connection herewith or the transactions contemplated hereby or thereby (including, without limitation, the acquisition, operation, leasing, ownership or financing of the Project (or any part thereof) or the delivery of electricity) be deemed to be, or be subject to regulation as, a public utility, an electric utility or a public utility holding company under any Legal Requirement. Except in connection with the exercise of any remedy under which the Lessor or Assignee or any of their respective Affiliates would operate, possess or control the Project (or any part thereof), the Lessee shall promptly and duly prepare and, if necessary and lawful, execute and file, and prepare for execution and filing by the Lessor, Assignee or any Affiliate thereof, such notices, applications and other documents as shall be necessary so that the Lessor, any Assignee or any such Affiliate, as the case may be, shall be free of all such regulation. The Lessor, Assignee or any Affiliate thereof shall cooperate with the Lessee with respect to all actions of the Lessee required by this paragraph (g).

SECTION 9.   MAINTENANCE, IMPROVEMENT AND REPAIR OF THE PROJECT

(a)   The Lessor, so long as no Event of Default shall have occurred and be continuing, hereby assigns and agrees to make available to the Lessee any and all rights the Lessor may have under any vendor's or manufacturer's warranties or undertakings with respect to any equipment constituting a part of the Project. If any Event of Default shall have occurred and be continuing, the assignment of such rights from the Lessor to the Lessee shall be deemed to be suspended.

(b)   The Lessee shall pay all costs, expenses, fees and charges incurred in connection with the ownership, use, operation, maintenance or occupancy of the Project. Except as otherwise provided in Section 15, the Lessee shall at all times, at its own expense, and subject to reasonable wear and tear, maintain the Project, or cause the Project to be maintained in accordance with prudent industry standards and any other standards required by this Lease and the Project Contracts. The Lessee hereby agrees to indemnify and hold the Lessor and any Assignee harmless from and against all costs, expenses, claims, losses, damages, fines or penalties, including reasonable counsel fees, arising out of or due to the Lessee's failure to fulfill its obligations under this paragraph (b).

(c)   The Lessee shall pay and discharge: (i) all Taxes, assessments, levies, fees, water and sewer rents and charges, and all other governmental charges, general and special, ordinary and extraordinary, foreseen and unforeseen, which are, at any time, imposed or levied upon or assessed against (A) the Project, (B) any Basic Rent, any Additional Rent or other sum payable hereunder or (C) this Lease, the leasehold estate hereby created, or which arises in respect of the ownership, operation, occupancy, possession or use of the Project; (ii) all gross receipts or similar Taxes (i.e., Taxes based upon gross income which fail to take into account all customary deductions (e.g., ordinary operating expenses, depreciation and interest) relating to the Project) imposed or levied upon, assessed against or measured by any Basic Rent or any Additional Rent or other sum payable hereunder and all New York Unincorporated Business Tax owing by the Lessor; (iii) all sales, value added, use and similar taxes at any time levied, assessed or payable on account of the acquisition, leasing or use of the Project; and (iv) all charges of utilities and communications services serving the Project. Notwithstanding the previous sentence, the Lessee shall not be required to pay any franchise, estate, inheritance, income or similar tax of the Lessor or any of its Affiliates (other than any tax referred to in clause (ii) above) unless such tax is imposed, levied or assessed in substitution for any other tax, assessment, charge or levy which the Lessee is required to pay pursuant to this paragraph (c); provided, however, that, if at any time during the term of this Lease, the method of taxation shall be such that there shall be levied, assessed or imposed on the Lessor a capital levy or other tax directly on the rents received therefrom, or upon the value of the Project or any present or any future improvement or improvements on the Project, then all such taxes, assessments, levies or charges or the part thereof so measured or based, shall be payable by the Lessee, and the Lessee shall pay and discharge the same as herein provided. The Lessee will furnish to the Lessor, promptly after demand therefor, proof of payment of all items referred to above which are payable by the Lessee. If any such assessments may legally be paid in installments, the Lessee may pay such assessment in installments. The Lessee will pay and discharge, or cause to be paid and discharged, all taxes, assessments and governmental charges or levies imposed upon it or its income or properties, prior to the date on which penalties attach thereto, except to the extent that any such tax, assessment, governmental charge or levy is the subject of a Permitted Contest. Notwithstanding anything contained herein to the contrary, this paragraph (c) is not intended to increase (and shall not be interpreted to increase) the Lessee's obligations to pay or indemnify for any Taxes beyond those obligations specified under the provisions of paragraph (b) of Section 11 hereof and, in the case of any conflict between this paragraph (c) and Section 11 with respect to Taxes, Section 11 shall control.

(d)   So long as no Potential Default, Event of Default, Termination Event, Event of Loss or Taking shall have occurred and be continuing, the Lessee may, at its expense, make or permit additions to and alterations to the Project; provided that unless the Lessee must make or permit such addition to or alteration to the Project in order to comply with any Legal Requirements (i) the fair market value of the Project shall not be lessened thereby by more than a de minimis amount nor the utility or useful life of the Project impaired below the utility or useful life thereof immediately prior to such action (assuming the Project was then of a condition and repair required to be maintained pursuant to paragraph (b) of Section 9 hereof) and (ii) such work shall be completed in a good and workmanlike manner in accordance with prudent engineering and construction practices and in compliance with all applicable Legal Requirements and Insurance Requirements. The Lessee may, so long as no Potential Default, Event of Default, Termination Event, Event of Loss or Taking has occurred and is continuing, remove any Removable Improvement in its entirety. "Removable Improvements", for the purposes hereof, shall mean any part that (i) is in addition to, and not in replacement of or substitution for, (x) any part originally incorporated or installed in or attached to the Project on the Effective Date (unless such part has become obsolete) or (y) any part in replacement of, or substitution for, any such part, (ii) is not required to be incorporated or installed in or attached or added to the Project pursuant to the terms of the Plans (as defined in the Agreement for Lease), the Project Contracts or this Lease and (iii) can be removed from the Project without adversely affecting the ability of the Project to operate in accordance with the Project Contracts and this Lease and without diminishing the value, utility or remaining economic useful life which the Project would have had at such time had such alteration, modification or addition not been made (assuming the Project is in the condition required hereby). Upon the removal by the Lessee of any Removable Improvement as provided in the immediately preceding two sentences, title thereto shall, without further act, vest in the Lessee and such Removable Improvement will no longer be deemed part of the Project. Any Removable Improvement not removed by the Lessee prior to the return of the Project to the Lessor hereunder shall remain the property of the Lessor.

(e)   The Lessee agrees to, or to cause the Operator to, maintain the Project at all times in such condition so as to enable the Project to be operated and maintained in accordance with prudent industry practices and any other standards required by the Project Contracts and this Lease. The Lessee shall obtain or cause to be obtained in a timely manner and maintain or cause to be maintained in full force and effect all Permits and Governmental Actions required for the ownership, leasing, operation and maintenance of the Project in accordance with and as contemplated by the Project Contracts and this Lease and as otherwise necessary to perform its obligations under the Project Contracts and will promptly upon the request of the Lessor or Assignee provide a copy of each such Governmental Action to the Lessor and Assignee. The Lessee shall obtain and maintain, or cause to be obtained and maintained, all patents, licenses and proprietary rights and technology necessary in connection with the operation and maintenance of the Project.

SECTION 10.   INSURANCE

(a)   Insurance pursuant to the Project Contracts. The Lessee shall maintain or cause to be maintained in full force and effect at all times insurance required by the terms of any of the Project Contracts.

(b)   Insurance by the Lessee.

      (i)   The Lessee shall procure at its own cost and expense or, if such coverage is already in place, maintain (or cause to be procured and/or maintained) in full force and effect at all times on and after the Effective Date (except with respect to the physical damage described in clause (ii) below), and continuing throughout the term of this Lease insurance policies with insurance companies authorized to do business in the Commonwealth of Pennsylvania with a Best Insurance Reports rating of "A-" or better, or if not rated by Best, such insurance companies shall be of substantially equivalent financial strength and creditworthiness of insurance companies that maintain such ratings (or such other company acceptable to the Lessor and Assignee), with such deductibles as set forth below, or if not set forth below, as are approved by the Lessor and Assignee, and with such limits and coverage as is consistent with prudent industry practices, but in no event less than the limits and coverage provisions set forth below:

            (1)   Workers' Compensation and Employer's Liability Insurance. Workers' compensation and employer's liability insurance, in accordance with and as required under the laws of the Commonwealth of Pennsylvania.

            (2)   Commercial General Liability Insurance. Liability insurance on an occurrence (or AEGIS or EIM claims-made form) basis against claims for personal injury (including bodily injury and death) and property damage. Such insurance shall provide coverage for products-completed operations, blanket contractual, explosion, collapse and underground coverage, broad form property damage, personal injury insurance, and sudden and accidental seepage and pollution with a $1,000,000 minimum limit per occurrence for combined bodily injury and property damage.

            (3)   Automobile Liability Insurance. Automobile liability insurance against claims for personal injury (including bodily injury and death) and property damage covering all owned, leased non-owned and hired motor vehicles, including loading and unloading, with a $1,000,000 minimum limit per occurrence for combined bodily injury and property damage and containing appropriate no-fault insurance provisions wherever applicable.

            (4)   Excess Liability Insurance. Excess liability insurance on an occurrence (or AEGIS or EIM claims-made form) basis covering claims in excess of the underlying insurance described in the foregoing subsections (2) and (3), with a $50,000,000 minimum limit per occurrence; provided, however, that in the event the available limit of liability is less than $35,000,000 due to claims against such excess liability insurance, the Lessee shall purchase additional coverage so that the available limit of liability under such excess liability insurance is not less than $50,000,000.

The insurance required in the foregoing subsections (1), (2), (3) and this subsection (4) may be satisfied by the Lessee purchasing coverage in the amounts specified or by any combination of primary and excess insurance, so long as the insurance meets the requirements specified above.

      (ii)   The Lessee shall procure at its own cost and expense or, if such coverage is already in place, maintain in full force and effect at all times on and after the Effective Date and continuing throughout the term of this Lease insurance policies with insurance companies authorized to do business in the Commonwealth of Pennsylvania with a Best Insurance Reports rating of "A-" or better, or if not rated by Best, such insurance companies shall be of substantially equivalent financial strength and creditworthiness of insurance companies that maintain such ratings (or such other company acceptable to the Lessor and Assignee), with such limits and coverage provisions sufficient to satisfy the requirements applicable to the Lessee in each of the Project Contracts, but in no event less than the limits and coverage provisions set forth below:

            (1)   All Risk Property Insurance. Property damage insurance on an "all risk" basis, boiler and machinery insurance on a comprehensive basis (covering all production machinery, including but not limited to pressure vessels, electrical turbines, generators, transformers and other related equipment, motors, air tanks, boilers, machinery, pressure piping or any other similar objects) including coverage against damage or loss caused by earth movement (including, but not limited to, earthquake, landslide, subsidence and volcanic eruption) fire, lightning and flood and providing coverage for (1) the Project in an amount equal to one hundred percent (100%) of the "full insurable value" of the Project, (2) transit including ocean marine transit, if applicable, with sub-limits of $5,000,000, (3) gas, steam and electrical transmission lines along with related equipment for which the Lessee has an insurable interest, (4) foundations and other property below the surface of the ground and (5) attorneys' fees, engineering and other consulting costs, and permit fees directly incurred in order to repair or replace damaged insured property in a minimum amount of $1,000,000. For purposes of this Section 10(b)(ii), "full insurable value" shall mean the full replacement value of the Project, including any improvements, equipment, spare parts, fuel and supplies, without deduction for physical depreciation and/or obsolescence. All such insurance may be subject to such reasonable and customary deductibles as is consistent with prudent industry practices after accounting for the size and value of the Project. Such insurance shall (1) not include any coinsurance provision, (2) provide for increased cost of construction and loss to undamaged property as the result of enforcement of building laws or ordinances, and (3) include debris removal with sub-limits not less than $1,000,000. The earth movement and flood coverage may be insured with a sub-limit of $100,000,000 (or such lesser amount as is reasonably and commercially available). The property damage coverage shall not contain an exclusion for freezing, mechanical breakdown, loss or damage or resultant damage caused by faulty workmanship, design or materials.

If the insurance company providing the physical damage insurance is different from the insurance company providing the boiler & machinery insurance required in this Section 10, then a joint loss agreement between such companies will be required and included as part of the respective policies.

            (2)   Environmental Impairment Liability Insurance. Environmental impairment liability insurance in an amount not less than $10,000,000 per occurrence. The parties acknowledge and agree that so long as the Lessee maintains sudden and accidental seepage and pollution coverage pursuant to paragraph (b)(i)(2), the requirements of this paragraph (b)(ii)(2) shall be deemed satisfied.

      (iii)   All policies of liability insurance required to be maintained by the Lessee under paragraphs (b)(i)(2), (3) and (4) of this Section 10 shall be endorsed as follows:

            (1)   To provide a severability of interest or cross liability clause;

            (2)   Such that the insurance shall be primary and not excess to or contributing with any insurance or self-insurance maintained by the Lessor, Merrill, Merrill Lynch, Merrill Leasing, the general partner of the Lessor and its officers, the limited partners of the Lessor or Assignee;

            (3)   To name Merrill, Merrill Lynch, Merrill Leasing, the general partner of the Lessor and its shareholders, officers and directors, the limited partners of the Lessor and Assignee and their respective officers (and such other Persons with an insurable interest in the Project as may be required by the Project Contracts) as additional insureds; and

            (4)   To name the Lessor and its officers as an additional insured.

      (iv)   All policies of insurance required to be maintained by the Lessee under paragraph (b)(ii) of this Section 10 shall name the Lessor as a named insured and name Merrill, Merrill Lynch, Merrill Leasing, the general partner of the Lessor and their respective officers, the limited partners of the Lessor and Assignee and their respective officers (and such other Persons with an insurable interest in the Project as may be required by the Project Contracts) as additional insureds.

      (v)   Waivers of Subrogation. The Lessee hereby waives any and all claims for recovery from the Lessor, Merrill, Merrill Lynch, Merrill Leasing, the general partner of the Lessor and its shareholders, officers and directors, the limited partners of the Lessor and Assignee and their respective officers, directors, members, trustees and employees for any and all loss or damage covered by any of the insurance policies to be maintained under this Lease to the extent that such loss or damage is recovered under any such policy. Inasmuch as the foregoing waiver will preclude the assignment of any such claim to the extent of such recovery, by subrogation (or otherwise), to an insurance company (or other Person), the Lessee shall give written notice of the terms of such waiver to each insurance company which has issued, or which may issue in the future, any such policy of insurance (if such notice is required by the insurance policy) and shall cause each such insurance policy to be properly endorsed by the issuer thereof, or to otherwise contain one or more provisions that prevent the invalidation of the insurance coverage provided thereunder by reason of such waiver.

In addition, all policies of insurance required by this Section 10 shall provide for waivers of subrogation by the insurers in favor of the Lessor, Merrill, MerrillLynch, Merrill Leasing, the general partner of the Lessor and its shareholders, officers and directors, the limited partners of the Lessor and Assignee and their respective officers, directors, members, trustees and employees (and such other Persons as may be required by the Project Contracts).

(c)   Additional Requirements.

      (i)   The Lessee shall promptly notify the Lessor and Assignee of any loss in excess of $1,000,000 covered by any insurance maintained pursuant to paragraph (b)(ii) of this Section 10.

      (ii)   All policies of insurance required to be maintained pursuant to paragraph (b)(ii) of this Section 10 shall provide that the Collateral Trustee and the Lessee shall be the loss payees thereunder (as their interests may appear) and that the proceeds of such policies shall be payable solely to the Operating Account pursuant to a standard first mortgage endorsement substantially equivalent to the Lenders Loss Payable Endorsement 438BFU or ISO endorsement CP12181091, without contribution. The Lessor and Assignee shall have the right to join the Lessee in adjusting any loss in excess of $5,000,000. All policies (other than in respect of liability or workers compensation insurance) shall insure the interests of the Lessor, Merrill, Merrill Lynch, Merrill Leasing, the general partner of the Lessor, the limited partners of the Lessor and Assignee regardless of any breach or violation by the Lessee or Lessor of any warranties, declarations or conditions contained in such policies, any action or inaction of the Lessee or the Lessor or others, or any foreclosure relating to the Project or any change in ownership of all or any portion of the Project.

      (iii)   A loss under any insurance required to be carried under paragraph (b)(ii) of this Section 10 shall be adjusted with the insurance companies, including the filing in a timely manner of appropriate proceedings by the Lessee, subject to the approval of the Lessor and Assignee if such loss is in excess of $5,000,000 (unless the amount of such adjustment is sufficient to fully repair the Project). In addition the Lessee may in its reasonable judgment consent to the settlement of any loss; provided that, in the event that the amount of the loss exceeds $5,000,000, the terms of such settlement shall be consented to by the Lessor and Assignee (unless the amount of such settlement is sufficient to fully repair the Project).

      (iv)   All policies of insurance required to be maintained pursuant to paragraph (b) of this Section 10 shall be endorsed so that if at any time they should be canceled, or coverage shall be reduced in a manner which affects the interests of the Lessor, Merrill, Merrill Lynch, Merrill Leasing, the general partner of the Lessor, the limited partners of the Lessor or Assignee, such cancellation or reductions shall not be effective as to the Lessor, Merrill, Merrill Lynch, Merrill Leasing, the general partner of the Lessor, officers and directors, the limited partners of the Lessor and Assignee for 30 days (except for non-payment of any premium, which shall be for 10 days), after receipt by the Lessor and Assignee of written notice from such insurer of such cancellation or reduction.

      (v)   The Lessee may, at its own cost and expense, prosecute any claim against any insurer or contest any settlement proposed by any insurer, and the Lessee may bring any such prosecution or contest in the name of the Lessor, the Lessee, or both, and the Lessor will join therein at the Lessee's request, provided that the Lessee shall indemnify the Lessor against any losses, costs or expenses (including reasonable attorney's fees) which the Lessor may incur in connection with such prosecution or contest.

(d)   Evidence of Insurance. On the date of this Lease and at least once each year, the Lessee shall furnish the Lessor and Assignee with (1) a certificate from the manager (or similar officer) of the Corporate Risk & Insurance Section of the Lessee, or an Affiliate thereof, certifying that all insurance required under this Section 10 or subsection 9.3(a) of the Agreement for Lease, as applicable, is in full force and effect and (2) a schedule of the insurance policies held by or for the benefit of the Lessee and required to be in force by the provisions of paragraph (b) of this Section 10. Upon request, the Lessee will promptly furnish the Lessor and Assignee with copies of all insurance policies, binders and cover notes or other evidence of such insurance relating to the insurance required to be maintained by the Lessee. The schedule of insurance shall include, to the extent such information is not included on the insurance certificates, the name of the insurance company, policy number, type of insurance, major limits of liability and expiration date of the insurance policies.

(e)   Reports. On the date of this Lease and upon the written request of the Lessor, concurrently with the furnishing of the certification referred to in paragraph (d) above, the Lessee shall furnish the Lessor and Assignee with a letter of the Insurance Broker substantially in the form of Exhibit E attached hereto, signed by a representative of the Insurance Broker. In addition, the Lessee will advise the Lessor and Assignee in writing promptly of any default in the payment of any premium and of any other act or omission known to the Lessee on the part of the Lessee which may invalidate or render unenforceable, in whole or in part, any insurance being maintained by the Lessee pursuant to paragraph (b) of this Section 10.

(f)   Failure to Maintain Insurance. In the event the Lessee fails to maintain the full insurance coverage required by paragraph (b) of this Section 10, the Lessor or Assignee, upon 30 days' prior notice (unless the aforementioned insurance would lapse within such period, in which event notice should be given as soon as reasonably possible) to the Lessee of any such failure, may (but shall not be obligated to) take out the required policies of insurance and pay the premiums on the same.

(g)   No Duty of the Lessor or Assignee to Verify or Review. No provision of this Section 10, or any provision of this Lease or any Project Contract, shall impose on the Lessor or Assignee any duty or obligation to verify the existence or adequacy of the insurance coverage maintained by the Lessee, nor shall the Lessor or Assignee be responsible for any representations or warranties made by or on behalf of the Lessee to any insurance company or underwriter. Any failure on the part of the Lessor or Assignee to pursue or obtain the evidence of insurance required by this Lease from the Lessee and/or failure of the Lessor or Assignee to point out any non-compliance of such evidence of insurance shall not constitute a waiver of any of the insurance requirements in this Lease.

(h)   Application of Insurance Proceeds for Loss or Taking. It is agreed that any insurance payments received as the result of the occurrence of (i) any Event of Loss, or (ii) any event of Taking described in paragraph (a) of Section 16 hereof, shall be paid to the Operating Account and disposed of as set forth in paragraph (c) of Section 15 hereof.

(i)   Application of Insurance Proceeds for Other than Loss or Taking. The insurance proceeds of any property damage loss to the Project or any event of Taking described in paragraph (b) of Section 16 hereof will be held in the Operating Account and applied in payment (or to reimburse the Lessee) for repairs or replacement in accordance with the terms of paragraph (b) of Section 15 hereof provided, that in the event that any insurance payments received pursuant to this paragraph (i) are less than $5,000,000, such payments shall be paid to, or retained by, the Lessee. The Lessee shall be entitled, subject to its compliance with the immediately succeeding sentence, (1) to receive the amounts so deposited against certificates, invoices or bills reasonably satisfactory to the Lessor, delivered to the Lessor from time to time as such work or repair progresses, and (2) to direct the investment of the amounts so deposited as provided in paragraph (j) of this Section 10. To the extent that the Lessor reasonably estimates that the cost of such work or repair shall exceed the amount of proceeds, the Lessee shall make adequate provisions for the payment thereof. Any moneys remaining in the aforesaid account after final payment for repairs has been made shall be used by the Lessor to reduce the Adjusted Acquisition Cost by such amount. Thereupon, the Lessor shall adjust the Adjusted Acquisition Cost to reflect such reduction.

(j)   Investment. The Lessor, at the Lessee's instruction, shall invest the amounts deposited with the Lessor pursuant to paragraph (i) of this Section 10 in any investments permitted under a Financing Arrangement. Such investments shall mature in such amounts and on such dates so as to provide that amounts shall be available on the draw dates sufficient to pay the amounts requested by and due to the Lessee. Any interest earned on investments of such funds shall be paid to the Lessee. The Lessor shall not be liable for any loss resulting from the liquidation of each and every such investment and the Lessee shall bear the risk of such loss, if any.

(k)   Application. Any amount referred to in paragraphs (h), (i) or (j) of this Section 10 which is payable to the Lessee shall not be paid to the Lessee or, if it has been previously paid to the Lessee, shall not be retained by the Lessee, if at any time of such payment a Potential Default, an Event of Default, Termination Event, Event of Loss or Taking shall have occurred and be continuing. In such event, all such amounts shall be paid to and held by the Lessor in the Operating Account as security for the obligations of the Lessee hereunder or, at the Lessor's option, applied by the Lessor toward payment of any of such obligations of the Lessee at the time due hereunder as the Lessor may elect. At such time as there shall not be continuing any Potential Default, Event of Default, Termination Event, Event of Loss or Taking, all such amounts at the time held by the Lessor in excess of the amount, if any, which the Lessor shall have elected to apply as above provided shall be paid to the Lessee.

(l)   "Claims Made" Policies for Certain Types of Insurance. If any liability insurance required under the provisions of this Section 10 is allowed to be written on a "claims made" basis, then such insurance shall include the following:

      (i)   The retroactive date (as such term is specified in each of such policies) shall be no later than the date of this Lease; and

      (ii)   each time any policy written on a "claims made" basis is not renewed or the retroactive date of such policy is to be changed, the Lessee shall obtain or cause to be obtained for each such policy or policies the broadest extended reporting period coverage, or "tail" reasonably available in the commercial insurance market for each such policy or policies, but in no event less than two years after the expiration of such policy or policies.

(m)   Use or Operation of the Project. The Lessee covenants that it will not use, occupy or operate the Project or permit the use, occupancy or operation of the Project at a time when the insurance required by this Section 10 is not in force.

(n)   Commercial Availability.

If any insurance required to be maintained by the Lessee pursuant to this Section 10 (including the limits or deductibles or any other terms under policies for such insurance) ceases to be available on a commercially reasonable basis, the Lessee may provide written notice to the Lessor and Assignee accompanied by a letter from the Insurance Broker stating that such insurance is unavailable on a commercially reasonable basis. The Lessee shall use its best efforts to provide notice not less than sixty (60) days prior to the scheduled date for renewal of any such policy, but in any event, the Lessee shall provide such notice promptly upon receipt of notice from the insurance company that such coverage will not be available on a commercially reasonable basis. Upon receipt of such notice by the Lessor and Assignee, the Lessor, Assignee and the Lessee shall immediately, and in good faith, propose an alternative to such insurance. In the event that the Lessor or Assignee is unwilling to accept such proposal, and the Lessor, Assignee and the Lessee cannot reach a resolution acceptable to all parties within ten (10) days, the Lessor, Assignee and the Lessee shall make arrangements for the formation of an insurance panel consisting of the Insurance Broker, the Lessor's insurance advisor (or broker), Assignee's insurance advisor (or broker) and an independent insurance expert from a nationally recognized insurance brokerage firm, chosen by the Lessee and reasonably acceptable to the Lessor and Assignee. Such independent expert shall conduct a separate review of the relevant insurance requirements of this Section 10 and the market for such insurance at the time, giving due consideration to the representations of all insurance advisors, and upon conclusion of such review shall issue a written report stating whether such insurance is available or unavailable on a commercially reasonable basis. If the insurance expert concludes that such insurance is not available on a commercially reasonable basis, the insurance expert shall provide a written recommendation (which shall include the amount and type of insurance which is available upon a commercially reasonable basis) not less than fifteen (15) days before the date for renewal of such insurance. The Lessee shall, prior to the expiration of the insurance then in effect, obtain the insurance required by this Section 10 that is available on a commercially reasonable basis. The recommendation of the insurance expert shall be conclusive and binding upon the Lessee and the Lessee shall, for the immediately succeeding one (1) year policy period, only be required to carry the insurance required by this Section 10 that the expert has certified is available on a commercially reasonable basis; provided that, if in the Lessor's and Assignee's reasonable judgment, keeping the insurance coverage at the level that is available on a commercially reasonable basis could reasonably be expected to result in a Material Adverse Effect, then the Lessee shall (i) obtain the insurance required by this Section 10 whether or not available on a commercially reasonable basis or (ii) obtain the insurance that is available on a commercially reasonable basis and provide collateral or credit support for the difference of a type and in an amount reasonably satisfactory to the Lessor and Assignee. For the purposes of this paragraph (n), insurance will be considered "not available on a commercially reasonable basis" if it is not obtainable or obtainable only at excessive costs which are not justified in terms of the risk to be insured and is generally not being carried by or applicable to projects or operations similar to the Project because of such excessive costs. All fees, costs and expenses associated with the insurance panel (including the review by the insurance expert) shall be for the sole account of the Lessee. The provisions of this paragraph shall not be applicable during the term of the Agreement for Lease.

SECTION 11.   INDEMNITIES

(a)   Except as otherwise provided in paragraph (j) of this Section 11, the Lessee shall indemnify, protect, defend and hold harmless the Lessor, each general and limited partner of the Lessor, Merrill, Merrill Lynch, Merrill Leasing, each Assignee, and their respective assigns and successors, and each Affiliate of each of them, and their respective officers, directors, trustees, incorporators, shareholders, partners (general and limited, including, without limitation, the general and limited partners of the Lessor), employees, agents and servants (each of the foregoing an "Indemnified Person") from and against any and all liabilities (including, without limitation, Environmental Damages and strict liability in tort), losses, obligations, claims (including, without limitation, Environmental Damages and strict liability in tort), damages, penalties, causes of action, suits, costs and expenses (including, without limitation, attorneys', experts', consultants' and accountants' fees and expenses) or judgments of any nature (other than Taxes) arising on or after the Effective Date and relating to or in any way arising out of:

      (i)   the purchasing, ordering, delivery, acquisition, construction, title on acquisition, rejection, installation, possession, titling, retitling, registration, re-registration, custody by the Lessee of title and registration documents, ownership, leasehold interest in the Premises, lease, sublease, lease under the Ground Lease, use, non-use, misuse, financing, operation, transportation, repair or control of the Project or any part thereof, accident, injury, death or property damage on or about the Project and the Project Contracts, (A) except to the extent that such costs are included in the Acquisition Cost or Adjusted Acquisition Cost of the Project, (B) except for any general administrative expenses of the Lessor, (C) except taxes with respect to which indemnification is excluded under paragraph (b) of this Section 11 and (D) except that this indemnity shall not increase any payment required to be made by the Lessee pursuant to paragraph (b)(iii)(A) or (c)(iii)(A) of Section 12 of this Lease;

      (ii)   the assertion of any claim or demand based upon any infringement or alleged infringement of any patent or other right, by or in respect of the Project or any part thereof; provided, however, that upon request of the Lessee, the Lessor will make available to the Lessee the Lessor's rights under any similar indemnification arising from any manufacturer's or vendor's warranties or undertakings with respect to any equipment constituting a part of the Project;

      (iii)   any violation, or alleged violation, by the Lessee of this Lease or the Project Contracts or of any contracts or agreements to which the Lessee is a party or by which it is bound or of any laws, rules, regulations, orders, writs, injunctions, decrees, consents, approvals, exemptions, authorizations, licenses and withholdings of objection, of any governmental or public body or authority and all other Legal Requirements applicable to the Project;

      (iv)   any and all Environmental Damages relating to or in any way arising out of the Project, including, without limitation:

            (A)   the violation or alleged violation of or compliance or non-compliance with any Environmental Requirements (i) in connection with the ownership or operation of the Project, and (ii) by any prior owner or operator of the Premises in connection with the ownership or operation of the Premises;

            (B)   the Release or threatened Release at, to or from any location of any Contaminants, or Remedial Action or corrective action (as the latter term is used in Section 3004(u), 3004(v), and 3008(h) of the Resource Conservation and Recovery Act or any equivalent state, local or foreign law) to address any Contaminants, (i) generated, treated, recycled, stored, processed, used or disposed by or on behalf of the Lessee at or in connection with the Project, (ii) generated, treated, recycled, stored, processed, used or disposed by or on behalf of any prior owner or operator of the Premises in connection with the ownership or operation of the Premises, (iii) transported by or on behalf of the Lessee or any other Person to or from the Project for treatment, recycling, processing, use or disposal at any location, or (iv) removed by any Person from any portion of the Project; and

            (C)   the presence of any Contaminant at, in, on or under the Project;

            (D)   the failure to report, disclose or remediate any of the foregoing or to comply with any applicable consent order or voluntary agreement with any Governmental Authority relating to any of the foregoing; and

            (E)   any allegations of any of the foregoing;

   (v)   any breach of a representation, warranty or covenant made herein by the Lessee or which is contained in any certificate furnished by or on behalf of the Lessee under or in connection with this Lease;

   (vi)   any default in the performance or observance of any term, covenant, condition or obligation by the Lessee contained in this Lease or any failure by the Lessee to comply with any term, covenant, condition or obligation contained in the Ground Lease; and

   (vii)   the Project Contracts or the Easements.

   (b)   The Lessee agrees (but in all events without duplication of indemnities) to indemnify, protect, defend and hold harmless each Indemnified Person for matters arising on or after the Effective Date and arising therefrom from and against all U.S. Federal, state, county, municipal, foreign or other fees and taxes of whatsoever nature, including, but not limited to, license, qualification, franchise, rental, withholding, sales, use, net income, gross income, gross receipts, ad valorem, business, personal property, real estate, value added, excise, motor vehicle, occupation fees and stamp or other taxes or tolls of any nature whatsoever, and penalties and interest thereon (hereinafter "Taxes"), whether assessed, levied against or payable by the Lessor or otherwise, with respect to the Project or the acquisition, purchase, sale, rental, use, operation, control or ownership of the Project (including, without limitation, any claim by any Governmental Authority for transfer tax, transfer gains tax, mortgage recording tax, filing or other similar taxes or fees in connection with the acquisition of the Project by the Lessor or otherwise in connection with this Lease) or measured in any way by the value thereof or by the business of, investment in, or ownership by the Lessor with respect thereto; provided that this indemnity shall not apply to the following:

      (i)      Taxes attributable to any period after expiration or other termination of the Lease Term, surrender of the Project to the Lessor in accordance with this Lease and the payment in full of all amounts payable by the Lessee hereunder;

      (ii)      Taxes that are included as a part of Adjusted Acquisition Cost;

      (iii)      Penalties, additions to tax or interest imposed on a Indemnified Person attributable to such Indemnified Person's failure to comply with any reporting, filing or registration requirements imposed under the Code or the Regulations promulgated thereunder (other than any such reports filings or registrations which the Lessee is required to file pursuant to the terms of this Lease);

      (iv)      Any U.S. withholding tax imposed because an Indemnified Person (or the beneficial owner thereof) is not a U.S. Person within the meaning of Section 7701 of the Code;

      (v)      Taxes that result from (a) any voluntary transfer by a partner of the Lessor of any of its interest in the Lessor, or by a holder of the Lessor's Senior Secured Notes of its interest in such Notes, or by the Lessor of any of its interest in the Project, in each case other than to which the Lessee consents or other than, with respect to any transfer by the Lessor of any interest in the Project, a transfer which is otherwise permitted or contemplated by this Lease, the Agreement for Lease, any Financing Arrangement or any document contemplated thereby, or (b) from any involuntary transfer of any of the foregoing interests in connection with any bankruptcy or other proceeding for the relief of debtors in which such Indemnified Person is the debtor or any foreclosure by a creditor of any Indemnified Person; provided, however, that any Indemnified Person shall be indemnified by the Lessee for such taxes if any such transfer occurs at any time after an Event of Loss, Termination Event or Event of Default hereunder shall have occurred and is continuing; or

      (iv)      Net income taxes (including capital gain, accumulated earnings, personal holding company, estate, minimum and alternative minimum taxes) imposed directly upon any Indemnified Person (including net income taxes based on or measured by compensation that any such Indemnified Person receives for its services), the Pennsylvania Capital Stock-Franchise Tax and taxes imposed by any jurisdiction other than Pennsylvania based on or measured by capital or net worth which is imposed in lieu of net income taxes.

(c)   The Lessee shall forthwith upon demand, reimburse any Indemnified Person for any sum or sums expended with respect to any item indemnified by the Lessee pursuant to paragraph (a) or (b) of this Section 11 or, upon request from any Indemnified Person, shall pay such item directly. Any payment made to, or on behalf of, any Indemnified Person pursuant to this Section 11 shall be increased to such amount as will, after taking into account all Taxes actually imposed with respect to the accrual or receipt of such payment (as the same may be increased pursuant to this sentence), and any savings in such Taxes actually realized by the Indemnified Person as a result of the payment or accrual of the amounts in respect of which the payment to or on behalf of the Indemnified Person hereunder is made, equal the amount of the payment. To the extent that the Lessee in fact indemnifies any Indemnified Person under the indemnity provisions of this Lease, the Lessee shall be subrogated to such Indemnified Person's rights in the affected transaction and shall have a right to determine the settlement of such indemnified claims therein.

(d)   The indemnities contained in this Section 11 shall not be affected by any termination or expiration of this Lease.

(e)   Notwithstanding any provisions of this Section 11 to the contrary, the Lessee shall not indemnify and hold harmless any Indemnified Person against any claims and liabilities to the extent arising (i) from the gross negligence or willful misconduct of such Indemnified Person or its respective officers, directors, trustees, incorporators, shareholders, partners, employees, agents and servants acting on its behalf, or (ii) as a result of acts or events arising exclusively after the earlier of (1) the expiration or termination of the Agreement for Lease and expiration or termination of this Lease and (2) the transfer of the Project to any third party and the voluntary release by the Assignee of its liens, except in all cases to the extent that the Lessor or Assignee is exercising remedies or is otherwise rightfully in possession or control of the Project.

(f)   In the event any Indemnified Person shall be a party defendant to any litigation for which indemnification may be sought against the Lessee, such Indemnified Person shall give prompt notice thereof to the Lessee by telephone and confirmed in writing and shall consult and cooperate, at the Lessee's expense, with the Lessee, and if such Indemnified Person shall not have appeared or pleaded to any such action then such Indemnified Person does hereby empower any attorney of any court of record appointed by the Lessee (who shall give prompt written notice to such Indemnified Person of such appointment) to appear for such Indemnified Person and in good faith and with due diligence defend such action, to enter counterclaims, to institute actions against third parties and to do all things necessary or desirable in the judgment of such attorney after consultation with such Indemnified Person and the Lessee to preserve the rights of such Indemnified Person and the Lessee, all at the Lessee's own cost and expense. No failure or delay of such Indemnified Person to give the notice required by this Section 11 shall excuse the obligation of the Lessee to indemnify such Indemnified Person with respect to such litigation except to the extent that any increase in liability is a direct result of such failure or delay.

   (g)   (i)   If a written claim for payment is made by any taxing authority against an Indemnified Person for any Taxes with respect to which the Lessee may be liable for indemnity hereunder (a "Tax Claim"), such Indemnified Person shall give the Lessee written notice of such Tax Claim promptly after its receipt, and shall furnish the Lessee with copies of such Tax Claim and all other writings received from the taxing authority to the extent relating to such claim, provided that failure so to notify the Lessee shall not relieve the Lessee of any obligation to indemnify such Indemnified Person hereunder unless such failure effectively precludes the ability to contest the Taxes. The Indemnified Person shall not pay such Tax Claim until at least 30 days after providing the Lessee with such written notice, unless required to do so by law or regulation.

      (ii)   Subject to paragraph (g)(iii) below, the Lessee will be entitled to contest (acting through counsel selected by the Lessee and reasonably acceptable to the Indemnified Person), and control the contest of, any Tax Claim if (x) the contest of the Tax Claim may be pursued in the name of the Lessee and independently from any other proceeding involving a Tax liability of such Indemnified Person for which the Lessee has not agreed to indemnify such Indemnified Person; (y) the contest of the Tax Claim must be pursued in the name of Indemnified Person but can be pursued independently from any other proceeding involving a Tax liability of such Indemnified Person for which the Lessee is not responsible (with the Indemnified Person agreeing to use reasonable efforts to sever the contest of any indemnified Tax from the contest of any unindemnified Tax so that the Lessee can control the contest of the indemnified Tax), or (z) the Indemnified Person requests that the Lessee control such contest; provided that in the case of a contest described in any of clause (x), (y), or (z), if the Indemnified Person determines in good faith that such contest by the Lessee could reasonably be determined to have a material adverse impact on the business or operations (other than Taxes) of the Indemnified Person and provides notice to the Lessee of such determination, the Indemnified Person may elect to control or reassert control of the contest, and provided, that by taking control of the contest, Lessee acknowledges that it is responsible for the Tax ultimately determined to be due by reason of such claim; provided, however, that in any case where the Lessee is not controlling the contest, such acknowledgement shall not be binding if the contest is resolved on a basis from which it can be established that the Lessee would not be liable for such tax in the absence of such acknowledgement. In the case of all other Tax Claims, subject to subsection (g)(iii) below, the Indemnified Person will contest the Tax Claim if the Lessee shall request that the Tax be contested and the following rules shall apply with respect to such contest:

            (1) the Indemnified Person will control the contest of such Tax Claim in good faith (acting through counsel selected by the Indemnified Person and reasonably acceptable to the Lessee);

            (2) at the Lessee's written request, if payment is made to the applicable taxing authority, the Indemnified Person shall use all reasonable efforts to obtain a refund thereof in appropriate administrative or judicial proceedings; and

            (3) the Indemnified Person shall not otherwise settle, compromise or abandon such contest without the Lessee's prior written consent except as provided in paragraph (g)(iv) below.

In either case, the party conducting such contest shall consult with and keep reasonably informed the other party and its designated counsel with respect to such Tax Claim, shall provide the other party with copies of (or appropriate excerpts from) any reports or claims issued by the relevant auditing agents or taxing authority and shall consider and consult in good faith with the other party regarding any request (a) to resist payment of Taxes if practical and (b) not to pay such Taxes except under protest if protest is necessary and proper (but the decision regarding what actions are to be taken shall be made by the controlling party in its sole judgment; provided, however, that (subject to subsection (g)(iv) below) if the Indemnified Person is the controlling party, such Indemnified Person may not settle the contest without the consent of the Lessee, which consent shall not be unreasonably withheld).

   (iii)   Notwithstanding the foregoing, in no event shall the Lessee be permitted or an Indemnified Person be required to contest (or to continue the contest of) any Tax Claim, unless:

            (1) within 30 days after notice by the Indemnified Person to the Lessee of such Tax Claim, the Lessee shall request in writing to the Indemnified Person that such Tax Claim be contested; provided that if a shorter period is required for taking action with respect to such Tax Claim and the Indemnified Person notifies the Lessee of such requirement, the Lessee shall use reasonable efforts to request such contest within such shorter period;

            (2) no Event of Default has occurred and is continuing;

            (3) there is (i) no risk of sale, forfeiture or loss of, or the creation of a Lien on the Project (other than a Permitted Lien) and (ii) no risk of the imposition of criminal penalties, in each case as a result of the contest of such Tax Claim; provided that clause (3)(i) shall not apply if the Tax is fully paid in either manner specified in clause (4) below or the Lessee posts security satisfactory to the Indemnified Person;

            (4) if such contest involves payment of such Tax, the Lessee will either advance to the Indemnified Person on an interest-free basis and with no after-tax cost to such Indemnified Person (a "Tax Advance") or pay such Indemnified Person the amount payable by the Lessee pursuant to paragraph (a) of this Section with respect to such Tax;

            (5) the Lessee agrees to pay (and pay on demand) all reasonable costs and expenses incurred by the Indemnified Person in connection with the contest of such claim (including all reasonable legal fees and disbursements);

            (6) the Indemnified Person has been provided at the Lessee's sole expense with an opinion of independent tax counsel selected by the Lessee and reasonably acceptable to the Indemnified Person to the effect that there is a reasonable basis for contesting such Tax Claim;

            (7) the amount of Taxes in controversy, taking into account the amount of all similar and logically related Taxes with respect to the transactions contemplated by the Financing Arrangements that could be raised in any other year (including any future year) not barred by the statute of limitations, exceeds $25,000; and

            (8) such Tax is the result of a claim of a continuing and consistent nature, which claim has previously been resolved against the relevant Indemnified Person (unless a change in law or facts has occurred since such prior adverse resolution and Lessee provides an opinion of independent tax counsel reasonably acceptable to such Indemnified Person to the effect that as a result of such change in law or facts the prior adverse resolution is no longer determinative of the issue);

            (9) such contest shall comply with the requirements for a Permitted Contest under Section 27(a);

            (10) in the case of a judicial appeal, no appeal to the U.S. Supreme Court shall be required of the Indemnified Person or shall be permitted by the Lessee.

      (iv)   Notwithstanding anything to the contrary contained in this Section 11(g), the Indemnified Person at any time may elect to decline to take any action or any further action with respect to a Tax Claim and may in its sole discretion settle or compromise any contest with respect to such Tax Claim without the Lessee's consent if the Indemnified Person:

            (1) waives its right to any indemnity payment by the Lessee pursuant to this Section 11(g) in respect of such Tax Claim (and any other claim for Taxes with respect to any other taxable year the contest of which is effectively precluded by the Indemnified Person's decision not to take (or not to take any further) action with respect to the Tax Claim), and

            (2) promptly repays to the Lessee any Tax Advance and any amount paid to such Indemnified Person under Section 11(b) above in respect of such Taxes, but not any costs or expenses with respect to any such contest.

Except as provided in the preceding sentence, any such waiver shall be without prejudice to the rights of the Indemnified Person with respect to any other Tax Claim.

(h)   If any report, statement or return is required to be filed by a Indemnified Person with respect to any Tax that is subject to indemnification under this Section 11, the Lessee will (1) notify the Indemnified Person in writing of such requirement not later than 30 days prior to the date such report, statement or return is required to be filed (determined without regard to extensions) and (2) if so directed by the Indemnified Person and if the return to be filed reflects only information in respect of the transactions contemplated by this Lease and the Financing Arrangements, prepare and furnish to such Indemnified Person not later than 30 days prior to the date such report, statement or return is required to be filed (determined without regard to extensions) a proposed form of such report, statement or return for filing by the Indemnified Person. Each Indemnified Person and the Lessee will timely provide the other with all information in its possession that the other party may reasonably require and request to satisfy it obligations under this paragraph (h).

(i)   If an Indemnified Person is not a party to this Lease, the Lessee may require such Indemnified Person to agree in writing, in a form reasonably acceptable to the Lessee, to the terms of this Section prior to making any payment to such Indemnified Person under this Section. Subject to the preceding sentence, the Lessee's obligations under this Section shall inure to the benefit of each and every Indemnified Person without regard to whether such Indemnified Person is a party to this Lease.

(j)   Any indemnity claim under this Section 11 shall be construed as an indemnity only and shall not be (1) construed as a guaranty of the residual value of the Project or (2) a basis for the recovery of the Adjusted Acquisition Cost or any of the Lessor's unpaid principal, interest, distributions or return of capital, as applicable, to any of the Lessor's lenders or equity investors.

SECTION 12.   LESSEE'S RIGHT TO TERMINATE

(a)   So long as the Lessee can satisfy the Termination Covenants, the Lessee shall have the right, upon eighteen (18) months' irrevocable notice to the Lessor (the "Termination Notice"), to terminate the lease of the Project as a whole (i) on the last day of the last month of the Lease Term or (ii) on any Basic Rent Payment Date during the Renewal Term, by arranging, at its own cost and expense, for the sale of the Project in an arm's-length transaction on the date of termination and the receipt by the Lessor of cash in an amount equal to the sale price of the Project (the "Cash Proceeds"). In the event the Lessee is unable to satisfy the Termination Covenants, the Lessee shall not terminate this Lease pursuant to this paragraph (a) unless the Lessee has obtained the prior written consent of the Lessor and Assignee to such termination of this Lease and the sale of the Project. In addition, if an Event of Default has occurred and is continuing, and, prior to the termination of this Lease pursuant to this paragraph (a), the Lessor arranges for the sale of the Project to a third party purchaser, the Termination Notice shall be invalidated and the Lessee shall no longer have the right to cause the termination of the lease of the Project and sale of the Project to its designee in accordance with the terms of this paragraph (a). At the time the Project is sold pursuant to this Section 12, the Lessor shall deliver the documents described in paragraph (i) of Section 29 hereof, and the Lessor's rights and obligations in respect of the Ground Lease shall be assumed by the purchaser, with the Lessor released from liability in respect thereof. In addition, (i) the Lessee shall assign to the purchaser, at no cost, all right, title and interest of the Lessee in, to and under all Governmental Actions and Intellectual Property Rights needed for the equipping, maintenance, operation or use of the Project and obtained and held by the Lessee at that time, (ii) the Lessee shall assign to the purchaser, at no cost, and the purchaser shall assume, all right, title and interest of the Lessee in, to and under the Project Contracts, and in the event any additional consent of any party to a Project Contract is required as a precondition thereunder to an assignment to any such non-foreclosure purchaser designated by the Lessee, to use its best efforts to obtain any such required consent to such proposed non-foreclosure assignment and assumption of the Project Contracts, and (iii) the Lessee shall assign to the purchaser, at no cost, all right, title and interest of the Lessee in, to and under all service agreements in existence at that time in connection with the equipping, maintenance, operation or use of the Project. In the event the Lessee fails to obtain any consents required in clause (ii) of the immediately preceding sentence, at the request of such purchaser, the Lessee shall agree to (1) at the expense of such purchaser, continue to perform under and maintain in full force and effect the Project Contracts and pay all sums received under the Project Contracts to such purchaser, (2) at the expense of such purchaser, and subject to the receipt of indemnification reasonably acceptable to the Lessee, take all actions requested by such purchaser with respect to such Project Contracts (including all actions with respect to the enforcement of the Lessee's rights and remedies under such Project Contracts), and (3) not amend, modify, supplement, waive a provision of, grant any consent under or terminate any such Project Contract without the prior written consent of such purchaser.

(b)   In the event the Lessee exercises its right to terminate the lease of the Project pursuant to this Section 12 on the last day of the last month of the Lease Term, or on any Basic Rent Payment Date during any Renewal Term, or the Lessee exercises its option under paragraph (f)(ii) of Section 13 to arrange for the Project to be sold and the date on which such option is exercised is on or before the last day of the last month of the Lease Term or during any Renewal Term and the Lessee chooses to effect a sale pursuant to this Section 12:

      (i)   if the Cash Proceeds are greater than the Adjusted Acquisition Cost, the Lessor shall pay to the Lessee the amount by which such Cash Proceeds exceed the Adjusted Acquisition Cost;

      (ii)   if the Cash Proceeds are equal to or less than the Adjusted Acquisition Cost, but greater than or equal to 29.48% of the Adjusted Acquisition Cost, the Lessee shall pay to the Lessor an amount equal to (A) the Adjusted Acquisition Cost less (B) the Cash Proceeds; and

      (iii)   if the Cash Proceeds are less than 29.48% of the Adjusted Acquisition Cost (or if there are no Cash Proceeds), the Lessee shall pay to the Lessor an amount equal to the sum of (A) 70.52% of the Adjusted Acquisition Cost and (B) the amount, if any, by which the residual value of the Project has been reduced by wear and tear in excess of that attributable to normal and proper use (the amount of such excess wear and tear to be such amount as the Lessor and the Lessee agree, or if no agreement is reached, the amount determined pursuant to the Appraisal Procedure).

(c)   All payments and credits referred to in paragraph (b) above shall be made on the termination date of the lease of the Project pursuant to this Section 12, and the parties shall account to each other for such payments and credits, and the Lessee shall pay to the Lessor (i) all Basic Rent payable and accrued through the date of termination of this Lease, (ii) any Additional Rent owing, (iii) all amounts payable pursuant to Sections 11, 24 and 26 hereof, (iv) all costs and expenses (including, without limitation, attorneys' fees and expenses, commissions, filing fees and sales or transfer taxes) sustained by the Lessor by reason of such sale, and (v) all other amounts owing hereunder (after taking into account the application under the Financing Arrangements of such purchase price and other payments hereunder), each as of the termination date; provided, however, that with respect to the amounts described in clause (iv) and (v) of this sentence, the Lessee shall not be obligated to pay any such amounts that, when combined with the amounts paid by the Lessee pursuant to paragraph (b) of this Section 12, exceed an amount equal to 70.52% of the Adjusted Acquisition Cost, plus the amount, if any, by which the residual value of the Project has been reduced by wear and tear in excess of that attributable to normal and proper use (the amount of such excess wear and tear to be such amount as the Lessor and the Lessee agree, or if no agreement is reached, the amount determined pursuant to the Appraisal Procedure). Upon receipt by the Lessor of the Cash Proceeds and all other amounts then due and owing hereunder, including, without limitation, the amount of excess wear and tear determined pursuant to paragraph (b)(iii) of Section 12, the Lessor shall transfer its interest in the Project to the purchaser at the sale designated by the Lessee. The "Cash Proceeds" referred to in paragraph (b) of this Section 12 shall mean the cash proceeds of sale without reduction for any amounts paid by the Lessee. In the event of a sale pursuant to this Section 12, neither the Lessee nor any Affiliate of the Lessee shall purchase the Project.

(d)   In its notice given pursuant to paragraph (a) of this Section 12, the Lessee shall advise the Lessor if the sale provided for in such notice will result in the applicability of paragraph (b)(iii) of Section 12 hereof. If the Lessee advises the Lessor that such paragraph will be applicable, the Lessor shall have the right to arrange for a sale of the Project to be made to a purchaser designated by the Lessor, if such purchaser will pay an amount greater than the amount offered by the Lessee's purchaser. Unless the Lessor shall arrange for such sale and shall give the Lessee notice thereof within thirty (30) days of the Lessor's receipt of the Lessee's notice, the Lessee may proceed with the sale to a purchaser designated by it. Within thirty (30) days of the Lessee's receipt of the Lessor's notice provided for in the preceding sentence, the Lessee may arrange for such sale to be made to another purchaser designated by it, if such purchaser shall pay an amount sufficient to render paragraph (b)(iii) of Section 12 hereof inapplicable.

1.  LESSEE'S RIGHTS OF PURCHASE AND RENEWAL

(a)   (i) At any time during the term of this Lease, the Lessee (or the Guarantor as its designee) shall have the right, upon thirty (30) days' written notice to the Lessor, to purchase the Project as a whole on any Basic Rent Payment Date for an amount equal to its Adjusted Acquisition Cost; and (ii) during the continuance of an Event of Default or upon the occurrence of a Termination Event Trigger and upon the written request of the Lessee, which must be received not later than the later of (A) thirty (30) days following the occurrence of such Event of Default or Termination Event Trigger and (B) the date the Lessor or Assignee has delivered a notice to the Lessee that it has identified a proposed purchaser for the Project, the Lessee (or the Guarantor as its designee) shall have the right, not later than thirty (30) Business Days after the Lessor's timely receipt of such request, to purchase the Project at a price equal to its Adjusted Acquisition Cost; provided, however, that if negotiations between the Lessor and the purchaser identified by the Lessor terminate and the Lessor has not identified another proposed purchaser, the Lessee (or the Guarantor as its designee) may thereafter exercise its purchase option under this paragraph (a) until such time as the Lessor or Assignee delivers a notice to the Lessee that it has identified a new proposed purchaser for the Project; provided, further, however, that the purchase option contained in this paragraph (a) shall only be available to the Lessee if (i) in the reasonable judgment of counsel to the Lessor and Assignee, the purchase price and all other amounts paid by the Lessee will not in the circumstances in which such payment is made constitute a preferential payment or a voidable transfer or otherwise be subject to recapture pursuant to the provisions of the Federal Bankruptcy Code in a bankruptcy proceeding by or against the Lessee and will not otherwise result in the payment being subject to recapture from the Lessor or (ii) the Guarantor has provided a guaranty of the payment of such purchase price and all other amounts required to be paid by the Lessee hereunder, which guaranty shall be in form and substance substantially similar to the Guaranty.

(b)   In connection with, and as a condition to, any purchase under paragraph (a) of this Section 13, on the date upon which such purchase occurs, (1) the Lessee shall pay to the Lessor (i) an amount equal to the Adjusted Acquisition Cost, (ii) all Basic Rent payable and accrued through the date of purchase, (iii) any Additional Rent, including, without limitation, any Make-Whole Premium or Modified Call Premium owing, (iv) all amounts payable pursuant to Sections 11, 24 and 26 hereof, (v) an amount equal to 1.75% of the Adjusted Acquisition Cost in the case of an Event of Default, or an amount equal to all Unrecovered Liabilities and Judgments in all other cases, (vi) all costs and expenses (including, without limitation, attorneys' fees and expenses, commissions, filing fees and sales or transfer taxes) sustained by the Lessor by reason of such purchase, and (vii) all other amounts owing hereunder (after taking into account the application under the Financing Arrangements of such purchase price and other payments hereunder) and (2) when the Lessor transfers title, such transfer shall be on an as-is, non-installment sale basis, without warranty by, or recourse to, the Lessor, but free of any Lessor Lien. At the time the Project is sold pursuant to paragraph (a) of this Section 13, the Lessor shall deliver the documents described in paragraph (i) of Section 29 hereof, and the Lessor's rights and obligations in respect of the Ground Lease and any other Project Contract shall be assumed by the Lessee, with the Lessor released from liability in respect of each thereof.

(c)   So long as (i) no Event of Default has occurred and is continuing (other than any Event of Default that constitutes a Third-Party Project Event), and (ii) the Lessee has delivered to the Lessor and Assignee, within the time period required by paragraph (a) of this Section 13, a certificate from a Responsible Officer stating that either (A) the Lessee is exercising its purchase option described in paragraph (a) of this Section 13 to effect the sale of the Project in an arm's-length transaction to a third party purchaser that is not an Affiliate of the Lessee, (B) a Third-Party Project Event has occurred and is continuing, or (C) a Termination Event Trigger has occurred, then if the Guarantor (as the Lessee's designee) elects to purchase the Project pursuant hereto, the Guarantor has the option to assume the outstanding indebtedness of the Lessor with respect to any Financing Arrangement pursuant to the terms and conditions of such Financing Arrangement, in which case the cash portion of the purchase price to be paid by the Guarantor pursuant to paragraph (b) of this Section 13 shall be reduced by an amount equal to the principal outstanding under such Financing Arrangement. Upon such assumption of indebtedness, the Lessor and Assignee shall execute and deliver documentation permitting the Guarantor to assume the Lessor's obligations under the Financing Arrangements, and to release the Lessor from all obligations in respect of the Financing Arrangement, this Lease, the Agreement for Lease, and all related documents, and the Lessor and Assignee shall take all such other actions (at the Lessee's cost and expense) as are reasonably necessary to permit such assumption by the Guarantor.

(d)   Subject to the Lessor's ability to arrange financing upon terms reasonably acceptable to the Lessor, so long as (i) no Event of Default, Termination Event, Event of Loss or Taking has occurred and is continuing and (ii) all amounts owing under any Financing Arrangements and all Equity Capital have been paid in full (after taking into account the application under the Financing Arrangements of all payments hereunder), the Lessee shall have the right, upon twelve (12) months' written notice to the Lessor (the "Renewal Notice"), to renew the lease of the Project for an additional term (the "Renewal Term") to be determined by the Lessee, commencing on the first day of the calendar month following the last day of the Lease Term, on the same terms and conditions (including, without limitation, being subject to all rights and remedies of the Lessor and Assignee relating to Events of Default and Events of Loss) as existed during the Lease Term, at the fair market value rental.

(e)   The fair market value rental of the Project for purposes of paragraph (d) of this Section 13 shall be an amount agreed to by the Lessor and the Lessee or, if they are unable to agree, an amount determined pursuant to the Appraisal Procedure.

(f)   In the event the Lessee does not deliver the Renewal Notice in accordance with the provisions of paragraph (d) of this Section 13, the Lessee shall take either of the following two actions: (i) purchase, on the last day of the Lease Term the Lessor's interest in the Project for cash at its Adjusted Acquisition Cost, in accordance with the provisions of paragraph (a) of this Section 13 (including the payment of all amounts described in paragraph (b) of this Section 13) or (ii) if the Lessee has provided the Termination Notice to the Lessor in a timely manner, arrange for the Project to be sold in accordance with the provisions of Section 12 hereof and with the consequences therein provided (including, without limitation, receipt by the Lessor of the Cash Proceeds and all other amounts described in such Section 12), except that such sale must occur on the last day of the Lease Term; provided, however, that if (A) the Lessee has provided the Termination Notice to the Lessor in a timely manner, (B) the Project is not sold pursuant to Section 12 hereof on the last day of the Lease Term and (C) the Lessee does not purchase the Project pursuant to clause (i) above on the last day of the Lease Term, then a sale of the Lessee's interest in the Project to the Lessor pursuant to Section 12 shall be deemed to occur, the Cash Proceeds shall be deemed to be $1, and the provisions of Section 12 and the eighth paragraph of Section 19 hereof shall be applicable.

SECTION 14.   TERMINATION EVENT TRIGGERS

(a)   If (i) any Termination Event shall have occurred and (ii) such Termination Event shall not be waived by the Lessor and the Majority Holders within ten (10) Business Days after a written request for such waiver has been made to the Lessor and Assignee by the Lessee or the Guarantor (the occurrence of (i) and (ii) above being a "Termination Event Trigger"), the Lessor may do any one or more of the following (subject to the provisions of paragraph (a) of Section 13 of this Lease):

      (i)   terminate the lease of the Project hereunder;

      (ii)   whether or not the lease of the Project is terminated, take immediate possession of the Project and remove any equipment or property of the Lessor in the possession of the Lessee, wherever situated, and for such purpose, enter upon the Premises without liability to the Lessee for so doing;

      (iii)   whether or not any action has been taken under clause (i) or (ii) above, sell the Project (with or without the concurrence or request of the Lessee);

      (iv)   hold, use, occupy, operate, repair, remove, lease or keep idle the Project as the Lessor in its sole discretion may determine, without any duty to mitigate damages with respect to any such action or inaction or with respect to any proceeds thereof; and

      (v)   exercise any other right or remedy which may be available under applicable law and in general proceed by appropriate judicial proceedings, either at law or in equity, to enforce the terms hereof.

(b)   Suit or suits for the recovery of any failure to pay any sum due hereunder or for damages may be brought by the Lessor from time to time at the Lessor's election, and nothing herein contained shall be deemed to require the Lessor to await the date whereon this Lease or the term hereof would have expired by limitation had there been no such Termination Event Trigger or no such termination or cancellation.

(c)   The receipt of any payments under this Lease by the Lessor with knowledge of any Termination Event Trigger shall not be deemed to be a waiver of any provision of this Lease.

(d)   No receipt of moneys by the Lessor from the Lessee after the termination or cancellation hereof in any lawful manner shall reinstate, continue or extend the Lease Term or the Renewal Term, or affect any notice theretofore given to the Lessee, or operate as a waiver of the right of the Lessor to enforce the payment of Basic Rent, any Make-Whole Premium, Modified Call Premium, Additional Rent or other charges payable hereunder, or operate as a waiver of the right of the Lessor to recover possession by proper suit, action, proceedings or remedy; it being agreed that, after the service of notice to terminate or cancel this Lease, and the expiration of the time therein specified, if the Termination Event has not been cured in the meantime, or after the commencement of any suit, action or summary proceedings or of any other remedy, or after a final order, warrant or judgment for the possession of the Project, the Lessor may demand, receive and collect any moneys payable hereunder, without in any manner affecting such notice, proceedings, suit, action, order, warrant or judgment. Acceptance of the keys to the Project, or any similar act, by the Lessor, or any agent or employee of the Lessor, during the term hereof, shall not be deemed to be an acceptance of a surrender of the Project unless the Lessor and Assignee shall consent thereto in writing.

(e)   After any Termination Event Trigger, the Lessee shall be liable for, and the Lessor may recover from the Lessee, (i) all Basic Rent payable and accrued through the date of termination of this Lease, (ii) any Additional Rent, including, without limitation, any Make-Whole Premium or Modified Call Premium owing, (iii) all amounts payable pursuant to Sections 11, 24 and 26 hereof, (iv) all costs and expenses (including, without limitation, attorneys' fees and expenses, commissions, filing fees and sales or transfer taxes and all costs and expenses related to (1) the conduct of investigations, studies, sampling and/or testing of the Premises and (2) the taking of any action, including, without limitation, any remedial measures with respect to the Premises, each as required by an Assignee pursuant to the terms of a Financing Arrangement) sustained by the Lessor by reason of such Termination Event Trigger and the exercise of the Lessor's remedies with respect thereto, including without limitation, in the event of a sale by the Lessor of its interest in the Project pursuant to this Section 14, all costs and expenses associated with such sale and (v) all other amounts owing hereunder. The amounts payable in clauses (i) through (v) above are hereinafter sometimes referred to as the "Accrued Termination Obligations".

(f)   After any Termination Event Trigger, the Lessor may sell its interest in the Project upon any terms that the Lessor deems satisfactory, free of any rights of the Lessee or any Person claiming through or under the Lessee (including, without limitation, any rights hereunder or under the Agreement for Lease or the Project Contracts). In the event of any such sale, in addition to the Accrued Termination Obligations, the Lessor shall be entitled to recover from the Lessee, as liquidated damages and not as a penalty, an amount equal to the Adjusted Acquisition Cost, minus the proceeds of sale received by the Lessor. Proceeds of sale (net of any unreimbursed costs or liabilities incurred by the Lessor or any Assignee with respect to the Project or Project Contracts after the termination of this Lease, which are not included in the Accrued Termination Obligations (after taking into account any revenues received from the operation of the Project)) received by the Lessor in excess of the Adjusted Acquisition Cost shall be applied first, to the Accrued Termination Obligations, second, to satisfy all Unrecovered Liabilities and Judgments and all other amounts required to be paid under this Section 14, and third, in payment to the Lessee; provided, however, that the Lessee shall remain liable from proceeds received pursuant to clause third above for any Unrecovered Liabilities and Judgments that arise after the payment of such excess proceeds to the extent such Unrecovered Liabilities and Judgments arise from or relate to acts or omissions occurring, or circumstances or conditions created or existing at any time as of or prior to the expiration or termination of this Lease.

   (g)   In the event of a sale pursuant to this Section 14, upon receipt by the Lessor of all amounts payable hereunder and under the Lessee Note, the Lessor shall transfer all of the Lessor's right, title and interest in and to the Project to a purchaser other than the Lessee or to the Lessee, as the case may be.

   (h)   As an alternative to any such sale, or if the Lessee converts the Project after a Termination Event Trigger, or if the Project suffers an Event of Loss or Taking or is otherwise lost or destroyed at the time of a Termination Event Trigger, in addition to the Accrued Termination Obligations, the Lessor may require the Lessee to pay to the Lessor, and the Lessee shall pay to the Lessor, as liquidated damages and not as a penalty, an amount equal to the Adjusted Acquisition Cost plus an additional amount equal to 1.75% of the Adjusted Acquisition Cost. In the event the Lessor receives payment from the Lessee of the Adjusted Acquisition Cost of the Project plus an additional amount equal to 1.75% of the Adjusted Acquisition Cost, and the Accrued Termination Obligations, the Lessor shall transfer all of the Lessor's right, title and interest in and to the Project to the Lessee.

   (i)   In the event the Lessor is not paid an amount equal to the Adjusted Acquisition Cost and an additional amount equal to 1.75% of the Adjusted Acquisition Cost, plus the Accrued Termination Obligations, then, in addition to the Lessor's other rights in this Section 14, the Lessee shall upon the Lessor's request (i) assign to the Lessor (or to an assignee designated by the Lessor or Assignee), at no cost, all right, title and interest of the Lessee in, to and under all Governmental Actions and Intellectual Property Rights needed for the equipping, maintenance, operation or use of the Project and obtained and held by the Lessee at that time, (ii) assign to the Lessor (or to a foreclosure purchaser designated by the Lessor or Assignee), at no cost, all right, title and interest of the Lessee in, to and under the Project Contracts, and in the event any additional consent of any party to a Project Contract is required as a precondition thereunder to an assignment to any other third party assignee designated by the Lessor or Assignee, use its best efforts to obtain any such required consent to such proposed non-foreclosure assignment and assumption of the Project Contracts; and (iii) assign to the Lessor, at no cost, all right, title and interest of the Lessee in, to and under all service agreements in existence at the time of such sale and transferable by the Lessee and any easements available to the Lessee and transferable by the Lessee in connection with the equipping, maintenance, operation or use of the Project. The Lessee acknowledges that it would be difficult to ascertain the value to the Lessor of the Lessee's agreement to assign, transfer or have reissued to the Lessor such Governmental Actions and Intellectual Property Rights, to assign such Project Contracts (and, if necessary, to obtain such consents to such assignment) and to assign to the Lessor such service agreements and easements or to adequately compensate the Lessor by an award of damages for the Lessee's failure to assign to the Lessor such Governmental Actions and Intellectual Property Rights, to assign such Project Contracts (and, if necessary, to obtain such consents to such assignment) and to assign to the Lessor such service agreements and easements, and that therefore the Lessor would not have an adequate remedy at law for breach by the Lessee of its agreement hereunder to the Lessor. Accordingly, the Lessee acknowledges that the Lessor shall be entitled to obtain specific performance of the Lessee's obligation to assign to the Lessor such Governmental Actions and Intellectual Property Rights, to obtain such consents to such assignment and to assign to the Lessor the service agreements and easements. In the event the Lessee fails to obtain any consents required in clause (ii) of the third preceding sentence, at the request of the Lessor or such purchaser, as the case may be, the Lessee shall agree to (A) at the expense of such purchaser or the Lessor, as the case may be, continue to perform under and maintain in full force and effect the Project Contracts and pay all sums received under the Project Contracts to such third party or the Lessor, as the case may be, (B) at the expense of such third party or the Lessor, as the case may be, and subject to the receipt of indemnification reasonably acceptable to the Lessee, take all actions requested by such third party or the Lessor, as the case may be, with respect to such Project Contracts (including all actions with respect to the enforcement of the Lessee's rights and remedies under such Project Contracts), and (C) not amend, modify, supplement, waive a provision of, grant any consent under or terminate any such Project Contract without the prior written consent of such third party or the Lessor, as the case may be.

(j)   No right referred to in this Section 14 intended to be exclusive, but each shall be cumulative and in addition to any other right referred to above or otherwise available to the Lessor at law or in equity, and the exercise in whole or in part by the Lessor of any one or more of such rights shall not preclude the simultaneous or later exercise by the Lessor of any or all such other rights.

(k)   No waiver by the Lessor of any Termination Event hereunder shall in any way be, or be construed to be, a waiver of any future or subsequent Termination Event.

(l)   With respect to the termination of this Lease as a result of any Termination Event Trigger, to the extent permitted by applicable law, the Lessee hereby waives any and all rights to recover or regain possession of the Project or to reinstate this Lease as permitted or provided by or under any statute, law or decision now or hereafter in force and effect.

SECTION 15.   LOSS OF OR DAMAGE TO THE PROJECT

(a)   The Lessee hereby assumes all risk of loss of or damage to the Project arising or occurring on or after the Effective Date, however caused. No loss of, or damage to, the Project shall impair any obligation of the Lessee under this Lease, which shall continue in full force and effect regardless of such loss or damage. The foregoing shall not be construed as requiring the Lessee to repair the Project when it is not otherwise required to do so under paragraphs (b) or (c) of this Section 15.

(b)   In the event of damage of any kind whatsoever to the Project (unless the same is damaged beyond repair) the Lessee, at its own cost and expense, shall place the same in good operating order, repair, condition and appearance. The Lessee's right to any proceeds paid under any insurance policy or policies required under Section 10 of this Lease with respect to any such damage to the Project which has been so placed by the Lessee in good operating order, repair, condition and appearance is governed by paragraph (i) of Section 10 hereof.

(c)   If, on or after the Effective Date, (A) an Event of Loss shall occur, or (B) a Taking as described in paragraph (a) of Section 16 shall occur, then in any such event, (i) the Lessee shall promptly notify the Lessor in writing of such event, (ii) within one hundred eighty (180) days of such event the Lessee shall pay to the Lessor an amount equal to the Adjusted Acquisition Cost and (iii) the Lease Term or Renewal Term shall continue until the Lessor receives payment from the Lessee of the amount payable pursuant to this paragraph (c) including, without limitation, (1) all Basic Rent payable and accrued through the date of purchase, (2) any Additional Rent owing, (3) all amounts payable pursuant to Sections 11, 24 and 26 hereof, (4) all costs and expenses (including, without limitation, attorneys' fees and expenses, commissions, filing fees and sales or transfer taxes) sustained by the Lessor by reason of such event and (5) all other amounts owing hereunder after taking into account the application under the Financing Arrangements of such payments hereunder, and shall thereupon terminate. Upon the payment by the Lessee of all amounts referred to in the immediately preceding sentence, (x)  insurance and condemnation proceeds up to an amount equal to the Adjusted Acquisition Cost of the Project (net of all collection costs), shall be paid by the Lessor to the Lessee, (y) the Lessee shall be subrogated to the Lessor's rights resulting from the events described in clauses (A) and (B) above, and (z) the Lessor shall deliver the documents described in paragraph (i) of Section 29 hereof, and the Lessor's rights and obligations in respect of the Ground Lease and any other Project Contract shall be assumed by the Lessee with the Lessor released from liability in respect thereof.

SECTION 16.   CONDEMNATION AND DEDICATION OF THE PROJECT; EASEMENTS

(a)   If, on or after the Effective Date, the use, occupancy or title to all or a substantial portion of the Project or all or a substantial portion of the Premises, is taken, requisitioned or sold in, by or on account of actual or threatened eminent domain proceedings or other action by any Person or Governmental Authority having the power of eminent domain (such events collectively referred to as a "Taking"), then the Lessee shall make the payment provided in, and the Lease Term or Renewal Term shall terminate as provided in, paragraph (c) of Section 15 hereof. The portion of the proceeds from any award or sale made in connection with such Taking attributable to the Lessor's interest in the Project shall be retained by the Lessor and, upon the payment by the Lessee of all amounts referred to in respect of clause (B) of paragraph (c) of Section 15 hereof, such amount shall be paid to the Lessee. A Taking shall be deemed to affect a "substantial portion" of the Project or the Premises if after such Taking the remainder is not sufficient to permit operation of the Project on a commercially feasible basis after taking into account the rental and other monetary obligations of the Lessee hereunder and under the Project Contracts.

(b)   If less than a substantial portion of the Project is subject to a Taking, then this Lease shall continue in effect as to the portion of the Project not taken and any net proceeds, so long as (i) no Potential Default, Event of Default, Termination Event or Event of Loss has occurred and is continuing, and (ii) the restoration of the Project is consistent with prudent business practices and that sufficient funds are available to complete such restoration, shall be paid to the Lessee for the restoration of the Project in accordance with paragraph (i) of Section 10 hereof; provided that, if either of the conditions set forth in clauses (i) or (ii) above are not satisfied, then the net proceeds shall be paid to the Lessor as security for the Lessee's obligations hereunder and if and to the extent that such proceeds are not applied to (or paid to the Lessee in reimbursement for) the restoration of the Project, the Adjusted Acquisition Cost shall be reduced by the Lessor by the amount of such proceeds. Thereupon, the Lessor shall adjust the Adjusted Acquisition Cost to reflect such reduction.

SECTION 17.   SURRENDER OF THE PROJECT

(a)   Subject to the provisions of Sections 12, 13, 15 and 19 hereof, upon termination of the lease of the Project under this Lease, the Lessee shall surrender the Project to the Lessor. The Project shall be surrendered in the condition required by paragraph (b) of Section 9.

(b)   Upon the surrender of the Project, the Lessee shall deliver to the Lessor or its designee all logs, manuals, inspection data, books and records or copies thereof and other information, which are necessary to operate the Project and which are in accordance with sound industry practice customarily retained (or that the Lessee actually did retain) or are required by law to be retained with respect to similar property and equipment, including, without limitation, all software and manuals applicable to the Project and all design plans, know-how, records and information used by the Lessee and the Operator during the prior 12 months of operation of the Project.

SECTION 18.   EVENTS OF DEFAULT

(A)   Events of Default. The occurrence of any of the following events of default shall constitute an "Event of Default" and shall give rise to the rights on the part of the Lessor described in Section 19 hereof:

(a)   Failure of the Lessee to pay amounts due to the Lessor at the time of any purchase, scheduled sale or deemed sale of the Project hereunder or under paragraph (c) of Section 15 hereof, or failure of the Lessee to pay Basic Rent, Make-Whole Premium or Modified Call Premium for more than five (5) days after such payment is due pursuant to Section 7 hereof or failure of the Lessee to pay any other amount payable by the Lessee hereunder for more than ten (10) days after such payment is due; or

(b)   Failure to maintain the insurance required by Section 10 hereof, or default in the performance of the covenants contained in paragraphs (ii)(a), (ii)(b), (ii)(c), (ii)(e), (ii)(f), (ii)(g)(ii) or (ii)(j) of Section 2, paragraph (f) of Section 8, paragraph (m) of Section 10 or Section 25; or

(c)   Default in the performance of any other obligation or covenant of the Lessee pursuant to this Lease or any Consent and (other than a default described in paragraph (b) of this Section 18(A), each of which shall not be subject to any grace period) the continuance of such default for thirty (30) days after the earlier of the date (i) the Lessee becomes aware of such default or (ii) written notice of such default shall have been given to the Lessee by the Lessor or Assignee specifying such default and requiring such default to be remedied; provided, if such default is of a nature that is not capable of being cured by the payment of money or cannot with due diligence be cured within such thirty (30) day period and, if the Lessee shall have diligently commenced curing such default and proceeds diligently and in good faith thereafter to complete curing such default, then the time within which such default may be cured shall be extended for such period (not to exceed ninety (90) days) as is necessary to cure such default; or

(d)   The occurrence of any event or circumstance relating to Environmental Matters (not otherwise covered under any other provision of this Section 18(A)) which could reasonably be expected to result in a Material Adverse Effect; or

(e)   Any representation or warranty made by the Lessee in this Lease or in any Consent or which is contained in any certificate furnished under or in connection with this Lease proves to be false, misleading or inaccurate on or as of the date made or deemed made, to the extent such false, misleading or inaccurate representation or warranty is material; or

(f)   (i) The Pledge Agreement ceases to be in full force and effect, (ii) the Lessee defaults in the performance of any obligation or covenant contained in the Pledge Agreement, any required notice of such default shall have been given, and any applicable grace period shall have expired, or (iii) the representation contained in the second and third sentences of paragraph (i)(p) of Section 2 shall at any time become untrue and, in the case of clause (iii) above, such default shall continue for five (5) days after the earlier of the date (A) the Lessee first gains actual knowledge that such representation is untrue or (B) written notice shall have been given to the Lessee by the Lessor or Assignee specifying that such representation is untrue; or

(g)   At any time prior to payment in full of all amounts owing under the Lessee Note, (i) the Lessee Note ceases to be in full force and effect, or (ii) the Lessee defaults in the due and punctual payment of any amount due under the Lessee Note; or

(h)   The entry of a decree or order for relief in respect of the Lessee by a court having jurisdiction in the premises or the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Lessee or of any substantial part of the Lessee's property, or ordering the winding up or liquidation of the Lessee's affairs, in an involuntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or state bankruptcy, insolvency or other similar law and such decree or order remains unstayed and in effect for sixty (60) consecutive days; or the commencement against the Lessee of an involuntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or state bankruptcy, insolvency or other similar law, and the continuance of any such case unstayed and in effect for a period of sixty (60) consecutive days; or

(i)   The Lessee's insolvency (however evidenced) or the Lessee's admission of insolvency or bankruptcy, or the commencement by the Lessee of a voluntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or state bankruptcy, insolvency or other similar law, or the consent by the Lessee to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Lessee or of any substantial part of the Lessee's property, or the making by the Lessee of an assignment for the benefit of creditors, or the failure of the Lessee generally to pay their debts as such debts become due, or the taking of corporate action by the Lessee or the Guarantor in furtherance of any such action; or

(j)   (i) The Guaranty ceases to be in full force and effect prior to the termination thereof in accordance with its terms or the Guarantor asserts that the Guaranty is not in full force and effect, or (ii) an Event of Default (as defined in the Guaranty) described in clauses (b) through (h) thereof shall occur under the Guaranty; or

(k)   Any representation or warranty made by the Guarantor in the Guaranty or in any Consent or which is contained in any certificate furnished under or in connection with the Guaranty or this Lease proves to be false or misleading on or as of the date made or deemed made and which could reasonably be expected to result in a Material Adverse Effect; or

(l)   An Event of Default (as defined in the Guaranty) described in clause (a) thereof shall occur under the Guaranty; or

(m)   A default or event of default by the Lessee shall occur, the effect of which is that the holder or holders of any Indebtedness of the Lessee (other than the Lessee Note) having a then outstanding principal balance in excess of $25,000,000, causes or declares any of such Indebtedness of the Lessee to become due prior to its stated maturity under the provisions of any agreement or agreements pursuant to which such Indebtedness was created; provided, however, that no Event of Default shall be deemed to have occurred under this paragraph (m) if the General Partner or its Affiliates, the Lessor's limited partners or their Affiliates or the lenders party to any Financing Arrangement or their respective Affiliates, either collectively or individually, has controlled (by vote, contract or otherwise) the acceleration of such Indebtedness prior to its stated maturity; or

(n)   The Lessee shall default in any payment of principal of or interest on any Indebtedness of the Lessee having a then outstanding principal balance in excess of $25,000,000, beyond the period of grace, if any, under the provisions of any instrument or instruments or agreement or agreements pursuant to which such Indebtedness was created; or

(o)   Final judgment or judgments for the payment of money in excess of $15,000,000 in the aggregate shall have been rendered against the Lessee by any court of competent jurisdiction and the same shall remain undischarged for a period of thirty (30) days during which execution of such judgment or judgments shall not be effectively stayed.

(B)      Determination of Certain Events of Default. The Lessor acknowledges that in making a determination that an Event of Default has occurred under paragraph (c), (d), (e), (f), (j)(ii), (k) or (m) of this Section 18(A), to the extent the Lessor exercises discretion in making such determination, it shall exercise such discretion in a commercially reasonable manner.

SECTION 19.   RIGHTS UPON DEFAULT

(a)   Upon the occurrence and continuation of any Event of Default the Lessor may do any one or more of the following (subject to the provisions of paragraphs (a) and (c) of Section 13 of this Lease):

      (i)   terminate the lease of the Project hereunder;

      (ii)   whether or not the lease of the Project is terminated, take immediate possession of the Project and remove any equipment or property of the Lessor in the possession of the Lessee, wherever situated, and for such purpose, enter upon the Premises without liability to the Lessee for so doing;

      (iii)   whether or not any action has been taken under clause (i) or (ii) above, sell the Project (with or without the concurrence or request of the Lessee);

      (iv)   hold, use, occupy, operate, repair, remove, lease or keep idle the Project as the Lessor in its sole discretion may determine, without any duty to mitigate damages with respect to any such action or inaction or with respect to any proceeds thereof; and

      (v)   exercise any other right or remedy which may be available under applicable law and in general proceed by appropriate judicial proceedings, either at law or in equity, to enforce the terms hereof.

(b)   Suit or suits for the recovery of any default in the payment of any sum due hereunder or for damages may be brought by the Lessor from time to time at the Lessor's election, and nothing herein contained shall be deemed to require the Lessor to await the date whereon this Lease or the term hereof would have expired by limitation had there been no such default by the Lessee or no such termination or cancellation.

(c)   The receipt of any payments under this Lease by the Lessor with knowledge of any breach of this Lease by the Lessee or of any default by the Lessee in the performance of any of the terms, covenants or conditions of this Lease, shall not be deemed to be a waiver of any provision of this Lease.

(d)   No receipt of moneys by the Lessor from the Lessee after the termination or cancellation hereof in any lawful manner shall reinstate, continue or extend the Lease Term or the Renewal Term, or affect any notice theretofore given to the Lessee, or operate as a waiver of the right of the Lessor to enforce the payment of Basic Rent, any Make-Whole Premium, Additional Rent or other charges payable hereunder, or operate as a waiver of the right of the Lessor to recover possession by proper suit, action, proceedings or remedy; it being agreed that, after the service of notice to terminate or cancel this Lease, and the expiration of the time therein specified, if the default has not been cured in the meantime, or after the commencement of any suit, action or summary proceedings or of any other remedy, or after a final order, warrant or judgment for the possession of the Project, the Lessor may demand, receive and collect any moneys payable hereunder, without in any manner affecting such notice, proceedings, suit, action, order, warrant or judgment. Acceptance of the keys to the Project, or any similar act, by the Lessor, or any agent or employee of the Lessor, during the term hereof, shall not be deemed to be an acceptance of a surrender of the Project unless the Lessor and Assignee shall consent thereto in writing.

(e)   After any Event of Default, the Lessee shall be liable for, and the Lessor may recover from the Lessee, (i) all Basic Rent payable and accrued through the date of termination of this Lease, (ii) any Additional Rent, including, without limitation, any Make-Whole Premium or Modified Call Premium owing, (iii) all amounts payable pursuant to Sections 11, 24 and 26 hereof, (iv) all costs and expenses (including, without limitation, attorneys' fees and expenses, commissions, filing fees and sales or transfer taxes and all costs and expenses related to (1) the conduct of investigations, studies, sampling and/or testing of the Premises and (2) the taking of any action, including, without limitation, any remedial measures with respect to the Premises, each as required by an Assignee pursuant to the terms of a Financing Arrangement) sustained by the Lessor by reason of such Event of Default and the exercise of the Lessor's remedies with respect thereto, including without limitation, in the event of a sale by the Lessor of its interest in the Project pursuant to this Section 19, all costs and expenses associated with such sale and (v) all other amounts owing hereunder. The amounts payable in clauses (i) through (v) above are hereinafter sometimes referred to as the "Accrued Default Obligations".

   (f)   After an Event of Default, the Lessor may sell its interest in the Project upon any terms that the Lessor deems satisfactory, free of any rights of the Lessee or any Person claiming through or under the Lessee (including, without limitation, any rights hereunder or under the Agreement for Lease or the Project Contracts). In the event of any such sale, in addition to the Accrued Default Obligations, the Lessor shall be entitled to recover from the Lessee, as liquidated damages and not as a penalty, an amount equal to the Adjusted Acquisition Cost, minus the proceeds of sale received by the Lessor. Proceeds of sale (net of any unreimbursed costs or liabilities incurred by the Lessor or any Assignee with respect to the Project or Project Contracts after the termination of this Lease, which are not included in the Accrued Default Obligations (after taking into account any revenues received from the operation of the Project)) received by the Lessor in excess of the Adjusted Acquisition Cost shall be applied first, to the Accrued Default Obligations, second, to satisfy all Unrecovered Liabilities and Judgments and all other amounts required to be paid under this Section 19, and third, in payment to the Lessee; provided, however, that the Lessee shall remain liable from proceeds received pursuant to clause third above for any Unrecovered Liabilities and Judgments that arise after the payment of such excess proceeds to the extent such Unrecovered Liabilities and Judgments arise from or relate to acts or omissions occurring, or circumstances or conditions created or existing at any time as of or prior to the expiration or termination of this Lease.

   (g)   In the event of a sale pursuant to this Section 19, upon receipt by the Lessor of all amounts payable hereunder and under the Lessee Note, the Lessor shall transfer all of the Lessor's right, title and interest in and to the Project to a purchaser other than the Lessee or to the Lessee, as the case may be.

   (h)   As an alternative to any such sale, or if the Lessee converts the Project after an Event of Default, or if the Project suffers an Event of Loss or Taking or is otherwise lost or destroyed at the time of or during the continuance of an Event of Default, in addition to the Accrued Default Obligations, the Lessor may require the Lessee to pay to the Lessor, and the Lessee shall pay to the Lessor, as liquidated damages and not as a penalty, an amount equal to the Adjusted Acquisition Cost plus an additional amount equal to 1.75% of the Adjusted Acquisition Cost. In the event the Lessor receives payment from the Lessee of the Adjusted Acquisition Cost of the Project plus an additional amount equal to 1.75% of the Adjusted Acquisition Cost, and the Accrued Default Obligations, the Lessor shall transfer all of the Lessor's right, title and interest in and to the Project to the Lessee.

   (i)   In the event the Lessor is not paid an amount equal to the Adjusted Acquisition Cost and an additional amount equal to 1.75% of the Adjusted Acquisition Cost, plus the Accrued Default Obligations, then, in addition to the Lessor's other rights in this Section 19, the Lessee shall upon the Lessor's request (i) assign to the Lessor (or to an assignee designated by the Lessor or Assignee), at no cost, all right, title and interest of the Lessee in, to and under all Governmental Actions and Intellectual Property Rights needed for the equipping, maintenance, operation or use of the Project and obtained and held by the Lessee at that time, (ii) assign to the Lessor (or to a foreclosure purchaser designated by the Lessor or Assignee), at no cost, all right, title and interest of the Lessee in, to and under the Project Contracts, and in the event any additional consent of any party to a Project Contract is required as a precondition thereunder to an assignment to any other third party assignee designated by the Lessor or Assignee, use its best efforts to obtain any such required consent to such proposed non-foreclosure assignment and assumption of the Project Contracts; and (iii) assign to the Lessor, at no cost, all right, title and interest of the Lessee in, to and under all service agreements in existence at the time of such sale and transferable by the Lessee and any easements available to the Lessee and transferable by the Lessee in connection with the equipping, maintenance, operation or use of the Project. The Lessee acknowledges that it would be difficult to ascertain the value to the Lessor of the Lessee's agreement to assign, transfer or have reissued to the Lessor such Governmental Actions and Intellectual Property Rights, to assign such Project Contracts (and, if necessary, to obtain such consents to such assignment) and to assign to the Lessor such service agreements and easements or to adequately compensate the Lessor by an award of damages for the Lessee's failure to assign to the Lessor such Governmental Actions and Intellectual Property Rights, to assign such Project Contracts (and, if necessary, to obtain such consents to such assignment) and to assign to the Lessor such service agreements and easements, and that therefore the Lessor would not have an adequate remedy at law for breach by the Lessee of its agreement hereunder to the Lessor. Accordingly, the Lessee acknowledges that the Lessor shall be entitled to obtain specific performance of the Lessee's obligation to assign to the Lessor such Governmental Actions and Intellectual Property Rights, to obtain such consents to such assignment and to assign to the Lessor the service agreements and easements. In the event the Lessee fails to obtain any consents required in clause (ii) of the third preceding sentence, at the request of the Lessor or such purchaser, as the case may be, the Lessee shall agree to (A) at the expense of such purchaser or the Lessor, as the case may be, continue to perform under and maintain in full force and effect the Project Contracts and pay all sums received under the Project Contracts to such third party or the Lessor, as the case may be, (B) at the expense of such third party or the Lessor, as the case may be, and subject to the receipt of indemnification reasonably acceptable to the Lessee, take all actions requested by such third party or the Lessor, as the case may be, with respect to such Project Contracts (including all actions with respect to the enforcement of the Lessee's rights and remedies under such Project Contracts), and (C) not amend, modify, supplement, waive a provision of, grant any consent under or terminate any such Project Contract without the prior written consent of such third party or the Lessor, as the case may be.

(j)   No remedy referred to in this Section 19 is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to above or otherwise available to the Lessor at law or in equity, and the exercise in whole or in part by the Lessor of any one or more of such remedies shall not preclude the simultaneous or later exercise by the Lessor of any or all such other remedies.

(k)   No waiver by the Lessor of any Event of Default hereunder shall in any way be, or be construed to be, a waiver of any future or subsequent Event of Default.

(l)   With respect to the termination of this Lease as a result of an Event of Default, to the extent permitted by applicable law, the Lessee hereby waives any and all rights to recover or regain possession of the Project or to reinstate this Lease as permitted or provided by or under any statute, law or decision now or hereafter in force and effect.

SECTION 20.   SALE OR ASSIGNMENT BY LESSOR

(a)   The Lessor shall have the right to obtain equity and debt financing for the acquisition and ownership of the Project by selling or assigning its right, title and interest in any or all amounts due from the Lessee or any third party under this Lease and granting a security interest in this Lease and the Project to the Collateral Trustee or a lender or lenders under a Financing Arrangement, notice of the identity of which shall be given to the Lessee; provided that, any sale or assignment by the Lessor shall be made consistent with the terms of this Lease and shall be subject to the rights and interests of the Lessee under this Lease and the Agreement for Lease.

(b)   Any Assignee shall, except as otherwise agreed by the Lessor and such Assignee, have all the rights, powers, privileges and remedies of the Lessor hereunder, and the Lessee's obligations as between itself and such Assignee hereunder shall not be subject to any claims or defense that the Lessee may have against the Lessor. Upon written notice to the Lessee of any such assignment, the Lessee shall thereafter make payments of Basic Rent, any Make-Whole Premium, Additional Rent and other sums due hereunder to Assignee, to the extent specified in such notice, and such payments shall discharge the obligation of the Lessee to the Lessor hereunder to the extent of such payments. Anything contained herein to the contrary notwithstanding, no Assignee shall be obligated to perform any duty, covenant or condition required to be performed by the Lessor hereunder, and any such duty, covenant or condition shall be and remain the sole obligation of the Lessor, unless and until Assignee has taken possession of the Premises or the Project or otherwise foreclosed upon the Lessor's interest therein or accepted a conveyance in lieu of foreclosure of the Premises or the Project pursuant to a Financing Arrangement.

SECTION 21.   INCOME TAXES

The Lessor agrees that it will not file any Federal, state or local income tax returns or state or local sales tax returns during the Lease Term or any Renewal Term with respect to the Project that are inconsistent with the treatment of the Lessee as owner of the Project for Federal, state and local income tax purposes and state and local sales tax purposes and the characterization of the transactions contemplated by the Financing Arrangements as a secured loan.

SECTION 22.   NOTICES AND REQUESTS

All notices, offers, acceptances, approvals, waivers, requests, demands and other communications hereunder or under any other instrument, certificate or other document delivered in connection with the transactions described herein shall be in writing, shall be addressed as provided below and shall be considered as properly given (a) if delivered in person, (b) if sent by express courier service (including, without limitation, Federal Express, Emery, DHL, Airborne Express, and other similar express delivery services), (c) in the event overnight delivery services are not readily available, if mailed through the United States Postal Service, postage prepaid, registered or certified with return receipt requested, or (d) if sent by telecopy and confirmed; provided that, in the case of a notice by telecopy, the sender shall in addition confirm such notice by writing sent in the manner specified in clause (a), (b) or (c) of this Section 22. All notices shall be effective upon receipt by the addressee; provided, however, that, if any notice is tendered to an addressee and the delivery thereof is refused by such addressee, such notice shall be effective upon such tender. For the purposes of notice, the addresses of the parties shall be as set forth below; provided, however, that any party shall have the right to change its address for notice hereunder to any other location by giving written notice to the other party in the manner set forth herein. The initial addresses of the parties hereto are as follows:

If to the Lessor:

LMB Funding, Limited Partnership
c/o ML Leasing Equipment Corp.
Controller's Office
95 Greene Street, 7th Floor
Jersey City, New Jersey 07302

Attention:   Kira Toone Meertens
Telephone:   (201) 671-0334
Facsimile:   (201) 671-4511

 With a copy to:

ML Leasing Equipment Corp.
95 Greene Street, 7th Floor
Jersey City, New Jersey 07302

Attention:   William Fuhs
Facsimile:   (201) 671-4511

If to the Lessee:

Lower Mount Bethel Energy, LLC
c/o PPL Global, LLC
11350 Random Hills Road, Suite 400
Fairfax, VA 22030

Attention:   Chief Counsel
Telephone:   (703) 293-2614
Facsimile:   (703) 293-9227

With a copy of all notices under this Section 22 to Assignee at such address as such Assignee may specify by written notice to the Lessor and the Lessee.

SECTION 23.   COVENANT OF QUIET ENJOYMENT

During the Lease Term or any Renewal Term hereunder and so long as no Event of Default shall have occurred and be continuing, the Lessor recognizes the Lessee's right to quiet enjoyment of the Project on the terms and conditions provided in this Lease without any interference from the Lessor or anyone claiming through or under the Lessor.

SECTION 24   RIGHT TO PERFORM FOR LESSEE

(a)   If the Lessee fails to perform or comply with any of its covenants or agreements contained in this Lease, and any period to cure such failure has expired without the Lessee curing such failure, the Lessor may, upon notice to the Lessee but without waiving or releasing any obligations or default, itself perform or comply with such covenant or agreement, and the amount of the reasonable expenses of the Lessor incurred in connection with such performance or compliance shall be payable by the Lessee, not later than ten (10) days after written notice by the Lessor.

(b)   Without in any way limiting the obligations of the Lessee hereunder, the Lessee hereby irrevocably appoints the Lessor as its agent and attorney at the time at which the Lessee is obligated to deliver possession of the Project to the Lessor, to demand and take possession of the Project in the name and on behalf of the Lessee from whomsoever shall be at the time in possession thereof.

SECTION 25.   MERGER, CONSOLIDATION OR SALE OF ASSETS

The Lessee may not consolidate with or merge into any other corporation or sell all or substantially all of its assets to any Person, except that the Lessee may consolidate with or merge into any other entity which is an Affiliate of the Lessee, or sell all or substantially all of its assets to any Person which is an Affiliate of the Lessee; provided, that following such consolidation, merger or sale of assets, (a) the surviving entity or transferee Person shall assume, by execution and delivery of an assignment and assumption agreement reasonably satisfactory to the Lessor and Assignee, the obligations of the Lessee hereunder and become successor to the Lessee, (b) the Guarantor shall own beneficially and of record greater than fifty percent (50%) of the capital stock or membership interests of the surviving entity or transferee Person, (c) the Guaranty shall be applicable to the obligations under this Lease with respect to the surviving entity or transferee Person, and (d) no Potential Default or Event of Default shall occur by reason of giving effect to such merger, consolidation or sale. The terms and provisions of this Lease shall be binding upon and inure to the benefit of the Lessee and its respective successors and assigns.

SECTION 26.   EXPENSES

The Lessee shall pay all of the out-of-pocket costs and expenses incurred by the Lessor and any Assignee in connection with this Lease, including, without limitation, the reasonable fees and disbursements of counsel to the Lessor and counsel to any Assignee.

SECTION 27.   PERMITTED CONTESTS

(a)   The Lessee shall not be required, nor shall the Lessor have the right, to pay, discharge or remove any tax, assessment, levy, fee, rent, charge or Lien, or to comply or cause the Project to comply with any Legal Requirements applicable thereto or the occupancy, use or operation thereof, so long as no Potential Default (unless such Potential Default is reasonably capable of being cured within the applicable grace period and could not reasonably be expected to have a material adverse effect on (a) the construction, operation, maintenance, leasing, ownership, use, value or regulatory status of the Project, (b) the ability of the Lessee to observe and perform its obligations under the Operative Documents or the Project Contracts in a timely manner or the ability of the Guarantor to perform its obligations under the Guaranty in a timely manner or (c) the rights or interests of the Lessor or Assignee under the Operative Documents, the Guaranty or the Project Contracts) and no Event of Default, Termination Event, Event of Loss or Taking exists under this Lease, and, in the reasonable judgment of the Lessee's counsel, the Lessee shall have reasonable grounds to contest the existence, amount, applicability or validity thereof by appropriate proceedings, which proceedings (i) shall not involve any danger that the Project or any portion thereof or any Basic Rent or any Additional Rent would be subject to sale, forfeiture or loss, as a result of failure to comply therewith, (ii) shall not affect the payment of any Basic Rent or any Additional Rent or other sums due and payable hereunder or result in any such sums being payable to any Person other than the Lessor or Assignee, (iii) will not subject either the Lessor or any Assignee to any danger of civil liability for which the Lessor or such Assignee is not adequately indemnified or subject the Lessor or any Assignee to any danger of criminal liability, (iv) if involving taxes, shall suspend the collection of the taxes (unless the Lessee has provided a bond for the full payment in dispute) and (v) shall not be prohibited by the provisions of any other instrument to which the Lessee or the Project is subject and shall not constitute a default thereunder (the "Permitted Contest"). The Lessee shall conduct all Permitted Contests in good faith and with due diligence and shall promptly after the final determination (including appeals) of any Permitted Contest (or, if earlier, upon any of the above criteria no longer being satisfied) pay and discharge all amounts which shall be determined to be payable therein. The Lessor shall, at no expense to the Lessor, cooperate in good faith with the Lessee with respect to all Permitted Contests conducted by the Lessee pursuant to this Section 27.

(b)   At least ten (10) Business Days prior to the commencement of any Permitted Contest, the Lessee shall notify the Lessor and Assignee in writing thereof if the amount in contest exceeds $1,000,000, and shall describe such proceeding in reasonable detail.

SECTION 28.   LEASEHOLD INTERESTS

(a)   The Lessee covenants and agrees to perform and to observe at all times prior to the expiration or termination of the Lease all of the terms, covenants, provisions, conditions and agreements of the Ground Lease on the Lessor's part as lessee and grantee thereunder to be performed and observed to the end that all things shall be done which are necessary to keep unimpaired the rights of the Lessor as lessee under the Ground Lease and as grantee with respect to the Easements.

(b)   The Lessor and the Lessee agree that during the term of the Agreement for Lease and this Lease the Lessor shall have no obligation or responsibility to provide services or equipment required to be provided or repairs or restorations required to be made in accordance with the provisions of the Ground Lease by the tenant or grantee thereunder. The Lessor shall in no event be liable to the Lessee during the term of the Agreement for Lease and this Lease nor shall the obligations of the Lessee hereunder be impaired or the performance thereof excused because of any failure or delay on the part of the Lessor as the tenant under the Ground Lease or as grantee with respect to the Easements in providing such services or equipment or making such restorations or repairs and such failure or delay shall not constitute a basis for any claim against the Lessor during the term of the Agreement for Lease and this Lease or any offset against any amount payable to the Lessor under this Lease.

SECTION 29.   MISCELLANEOUS

(a)   All agreements, indemnities, representations, warranties, covenants, and the obligation to pay Basic Rent, any Make-Whole Premium or Modified Call Premium, Additional Rent and other amounts contained in this Lease shall survive until the expiration or other termination of this Lease, provided that (i) any obligations under this Lease accrued at the time of or related to periods prior to such expiration or other termination (including, without limitation, any obligation to pay Unrecovered Liabilities and Judgments) shall survive such expiration or other termination, and (ii) any obligation under this Lease which is expressly provided to be performed after or to survive the expiration or termination of this Lease shall survive the expiration or other termination hereof.

(b)   This Lease and the instruments, documents or agreements referred to herein constitute the entire agreement between the parties and no representations, warranties, promises, guarantees or agreements, oral or written, express or implied, have been made by any party hereto with respect to this Lease or the Project, except as provided herein or therein.

(c)   This Lease may not be amended, modified or terminated, nor may any obligation hereunder be waived orally, and no such amendment, modification, termination or waiver shall be effective for any purpose unless it is in writing, signed by the party against whom enforcement thereof is sought. A waiver on one occasion shall not be construed to be a waiver with respect to any other occasion.

(d)   The captions in this Lease are for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Any provision of this Lease which is prohibited by law or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and the parties hereto shall negotiate in good faith appropriate modifications to reflect such changes as may be required by law, and, as nearly as possible, to produce the same economic, financial and tax effects as the provision which is prohibited or unenforceable; and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the Lessee and the Lessor hereby waive any provision of law which renders any provision hereof prohibited or unenforceable in any respect. THIS LEASE HAS BEEN EXECUTED AND DELIVERED IN THE STATE OF NEW YORK. THE LESSEE AND THE LESSOR AGREE THAT, TO THE MAXIMUM EXTENT PERMITTED BY THE LAW OF THE STATES OF NEW YORK AND PENNSYLVANIA, THIS LEASE, AND THE RIGHTS AND DUTIES OF THE LESSEE AND THE LESSOR HEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING, WITHOUT LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW) IN ALL RESPECTS, INCLUDING, WITHOUT LIMITATION, IN RESPECT OF ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. EACH OF THE LESSEE AND LESSOR HEREBY IRREVOCABLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND THE SUPREME COURT OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS LEASE OR THE TRANSACTIONS CONTEMPLATED HEREBY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE LESSEE AND THE LESSOR HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS LEASE OR ANY DOCUMENT OR ANY INSTRUMENT REFERRED TO HEREIN OR THE SUBJECT MATTER HEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURT. THIS SUBMISSION TO JURISDICTION IS NONEXCLUSIVE AND DOES NOT PRECLUDE THE LESSOR OR ANY ASSIGNEE OR THE LESSEE FROM OBTAINING JURISDICTION OVER ONE ANOTHER IN ANY COURT OTHERWISE HAVING JURISDICTION. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE LESSEE AND THE LESSOR AGREES NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT. EACH OF THE LESSEE AND THE LESSOR AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL TO THE ADDRESS FOR NOTICES SET FORTH IN THIS LEASE OR ANY METHOD AUTHORIZED BY THE LAWS OF NEW YORK. THE LESSOR AND THE LESSEE EXPRESSLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM RELATED TO THIS LEASE OR THE TRANSACTIONS CONTEMPLATED HEREBY. THE LESSOR AND THE LESSEE ACKNOWLEDGE THAT THE PROVISIONS OF THIS PARAGRAPH (D) OF SECTION 29 HAVE BEEN BARGAINED FOR AND THAT THEY HAVE BEEN REPRESENTED BY COUNSEL IN CONNECTION THEREWITH.

(e)   In connection with any sale of the Project pursuant to Section 12, 13, 15 or 19 of this Lease, when the Lessor transfers title, such transfer shall be on an as-is, non-installment sale basis, without warranty by, or recourse to, the Lessor, but free of any Lessor Lien.

(f)   In connection with the sale or purchase of the Project pursuant to Section 12, 13, 15 or 19 of this Lease, the Lessee or the Guarantor shall pay or the Lessee shall cause the purchaser of the Project to pay, in addition to the purchase price, all transfer taxes, transfer gains taxes, mortgage recording tax, if any, recording and filing fees and all other similar taxes, fees, expenses and closing costs (including reasonable attorneys' fees) in connection with the conveyance of the Project to the Lessee, the Guarantor or any purchaser.

(g)   The Lessor covenants that at all times during the term of this Lease, the Lessor's capitalization shall be such that at least three percent (3%) of its capitalization in accordance with GAAP (including interest required to be capitalized in accordance with GAAP on the principal outstanding on any Financing Arrangement, net of any fees paid to the equity investors and any affiliates of the equity investors) will consist of cash contributions from the Lessor's general partner and limited partners.

(h)   Each time that the Adjusted Acquisition Cost is increased or decreased pursuant to the terms of this Lease (other than a decrease in connection with the amortization of the Acquisition Cost of the Project as contemplated by this Lease), the Lessee and the Lessor shall promptly revise Exhibit D hereto to reflect such increase or decrease.

(i)   In connection with the purchase of the Project by the Lessee, the Guarantor or any third party pursuant to the provisions of this Lease, the Lessor shall deliver to the Lessee, the Guarantor or such third party, as the case may be, a bill of sale, deed or similar document assigning and conveying to the Lessee, the Guarantor or such third party, as the case may be, and the Lessee, the Guarantor or such third party, as the case may be, shall accept an assignment and conveyance of, the Lessor's interest in the Ground Lease, and each other Project Contract, such assignment, conveyance or other documents to be without warranty by, or recourse to, the Lessor, but free of any Lessor Lien (provided that the purchase price paid by the Lessee to the Lessor, exclusive of the other amounts payable hereunder in connection with such purchase, shall equal the Adjusted Acquisition Cost).

(j)   In the event of any Event of Default, the Lessee shall, to the extent required by the Lessor or Assignee, exercise all commercially reasonable efforts (i) to provide the Lessor (or a designated assignee of the Lessor or Assignee) with all manuals and other documents relating to the services to be provided by the Operator under the Project Contracts necessary to enable the Project to operate on commercially reasonable terms, (ii) to provide the Lessor (or a designated assignee of the Lessor or Assignee) with any Project Contracts and Intellectual Property Rights not assigned to the Lessor (or a designated assignee of the Lessor or Assignee) pursuant to the applicable terms hereof that are necessary to enable the Project to operate on commercially reasonable terms, (iii) to provide the Lessor (or a designated assignee of the Lessor or Assignee) with any permits, licenses or other Governmental Actions (to the extent not already provided to such party by the Lessee or Guarantor) that are necessary to enable the Project to operate on commercially reasonable terms in connection with its operation as an EWG and the sale of electricity at wholesale, including, without limitation, all permits, licenses or other Governmental Actions required to enable such party to operate the Project on commercially reasonable terms as an EWG in connection with the sale of electricity at wholesale, and (iv) to negotiate in good faith with the Lessor (or a designated assignee of the Lessor or Assignee), or exercise all commercially reasonable efforts to locate a third party reasonably acceptable to the Lessor and Assignee who is capable of operating the Project for the Lessor (or a designated assignee of the Lessor or Assignee), to operate the Project for the Lessor (or such designated assignee of the Lessor or Assignee), for fair market value compensation for such services. The Lessee's obligations contained in this paragraph (j) shall survive the expiration or other termination of this Lease until the Lessor receives payment of (1) all amounts payable pursuant to this Lease and the Agreement for Lease, (2) all costs and expenses (including, without limitation, attorneys' fees and expenses, commissions, filing fees and sales or transfer taxes) sustained by the Lessor hereunder with respect to the Project, (3) all amounts owing under the Financing Arrangements and (4) any unreimbursed costs incurred by the Lessor or Assignee with respect to the Project or the Project Contracts after the term of this Lease.

SECTION 30.   NO RECOURSE

The Lessor's obligations hereunder are intended to be the obligations of the limited partnership and of the corporation which is the general partner thereof only and no recourse for the payment of any amount due from the Lessor under this Lease, the Ground Lease, any Project Contract or any other agreement contemplated hereby, or for any claim based thereon or otherwise in respect thereof, shall be had against any limited partner of the Lessor or any incorporator, shareholder, officer, director or Affiliate, as such, past, present or future of such corporate general partner or of any corporate limited partner or of any successor corporation to such corporate general partner or any corporate limited partner of the Lessor, or against any direct or indirect parent corporation of such corporate general partner or of any limited partner of the Lessor or any other subsidiary or Affiliate of any such direct or indirect parent corporation or any incorporator, shareholder, officer or director, as such, past, present or future, of any such parent or other subsidiary or Affiliate. Nothing contained in this Section 30 shall be construed to limit the exercise or enforcement, in accordance with the terms of this Lease, the Project Contracts and any other documents referred to herein, of rights and remedies against the limited partnership or the corporate general partner of the Lessor or the assets of the limited partnership or the corporate general partner of the Lessor.

SECTION 31.   NO MERGER OF ESTATES

There shall be no merger of this Lease or of the leasehold estate hereby created with the fee estate in the Project by reason of the fact that the same person acquires or holds, directly or indirectly, this Lease or the leasehold estate hereby created or any interest herein or in such leasehold estate as well as the fee estate in the Project or any interest in such fee estate.

SECTION 32.   RELEASED LAND

(a)   The Lessor and the Lessee acknowledge that certain of the Land Improvement Contracts may require that title to certain improvements relating to the Project (the "Released Improvements") and the land on which such Released Improvements are or will be located (the "Released Land") be transferred to the Applicable Contracting Party pursuant to the provisions of the applicable Land Improvement Contract.

(b)   Upon the request of the Lessee, and provided that no Event of Loss, Termination Event, Event of Default or Potential Default under this Lease and no Event of Loss, Event of Default, Potential Default, Event of Project Termination or Potential Event of Project Termination under the Agreement for Lease has occurred and is continuing, the Lessor shall cooperate with the Lessee to transfer the Released Improvements and the Released Land, as applicable, to the Applicable Contracting Party in an "as is" condition without warranty or representation of any kind, and without recourse to the Lessor, if (1) such transfer is required pursuant to the applicable Land Improvement Contract and (2) such transfer is customary in projects similar to the Project, including the release of the Released Improvements and/or the Released Land from the terms of this Lease, the Ground Lease and the provisions of any Financing Arrangements; provided, however, that after giving effect to such transfer and release (i) any such transfer or release will not cause the Project to fail to comply with the provisions of this Lease, the Agreement for Lease, the Construction Documents or the Project Contracts; (ii) the Lessor will have sufficient rights and interests in the Released Improvements and the Released Land as necessary to operate the Project in compliance with the provisions of this Lease, the Agreement for Lease, the Construction Documents and the Project Contracts, and (iii) such transfer and release will not (x) adversely impair the fair market value, utility, residual value or remaining useful life of the Project, or (y) materially adversely affect the ability of the Lessee to observe and perform its obligations under the Operative Documents, or any of the Construction Documents or the Project Contracts.

(c)   All Released Improvements are to be constructed in compliance with the terms of the applicable Land Improvement Contract, and all applicable terms, conditions and requirements of the Governmental Authorities.

(d)   The Lessor's release of the Released Improvements and/or the Released Land pursuant to any applicable Land Improvement Contract shall be subject to the satisfaction of the conditions set forth in this paragraph (d) and to the receipt by the Lessor and Assignee, in each case in form and substance reasonably satisfactory to the Lessor and Assignee, of the following documents:

      (i) an ALTA survey of the Premises showing a metes and bounds description of the portion of the Premises to be released as the Released Land and a metes and bounds description for the remainder of the Premises, which descriptions shall correspond to the legal descriptions set forth in the title endorsements referred to in clause (ii) below, the partial release and the deed to the Applicable Contracting Party;

      (ii) an endorsement to mortgagee's title insurance policy and Lessor's alternative lender's policy from Fidelity National Title Insurance Company of New York insuring the validity of the lien of the lender's mortgage, this Lease, the Agreement for Lease and the Ground Lease in the event of recharacterization, with respect to the remainder of the Premises, without any impairment due to the partial release, as well as a separate tax lot endorsement;

      (iii) evidence that the Applicable Contracting Party has agreed to the legal description of the Released Land in the partial release and deed to the Applicable Contracting Party;

      (iv) an opinion of counsel to the Lessee stating that the execution of such instrument of release is authorized or permitted by this Lease and the provisions of any Financing Arrangements and that all conditions precedent to such release under this Section 32 have been met; and

      (v) a copy of the fully executed deed, in recordable form, to the Applicable Contracting Party.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the Lessor and the Lessee have caused this Lease to be executed and delivered as of the day and year first above written.

LMB FUNDING, LIMITED PARTNERSHIP

By LMB Capital, Inc.,
        its General Partner

By:____________________________________
      Name:
      Title:

LOWER MOUNT BETHEL ENERGY, LLC

By:____________________________________
      Name:
      Title:

SECTION 1.	DEFINED TERMS	1
SECTION 2.	REPRESENTATIONS, WARRANTIES AND COVENANTS OFLESSEE	19
SECTION 3.	LEASE OF THE PROJECT .	29
SECTION 4.	OPERATING LEASE	30
SECTION 5.	ABSOLUTE OBLIGATION	30
SECTION 6.	LEASE TERM	33
SECTION 7.	RENT AND OTHER PAYMENTS	33
SECTION 8.	RESTRICTED USE; COMPLIANCE WITH LAWS	34
SECTION 9.	MAINTENANCE, IMPROVEMENT AND REPAIR OF THE PROJECT	36
SECTION 10.	INSURANCE	39
SECTION 11.	INDEMNITIES	46
SECTION 12.	LESSEE'S RIGHT TO TERMINATE	53
SECTION 13.	LESSEE'S RIGHTS OF PURCHASE AND RENEWAL	56
SECTION 14.	TERMINATION EVENT TRIGGERS	58
SECTION 15.	LOSS OF OR DAMAGE TO THE PROJECT	61
SECTION 16.	CONDEMNATION AND DEDICATION OF THE PROJECT;EASEMENTS	62
SECTION 17.	SURRENDER OF THE PROJECT	63
SECTION 18.	EVENTS OF DEFAULT	63
SECTION 19.	RIGHTS UPON DEFAULT	65
SECTION 20.	SALE OR ASSIGNMENT BY LESSOR	69
SECTION 21.	INCOME TAXES	69
SECTION 22.	NOTICES AND REQUESTS	69
SECTION 23.	COVENANT OF QUIET ENJOYMENT	71
SECTION 24.	RIGHT TO PERFORM FOR LESSEE	71
SECTION 25.	MERGER, CONSOLIDATION OR SALE OF ASSETS	71
SECTION 26.	EXPENSES	72
SECTION 27.	PERMITTED CONTESTS	72
SECTION 28.	LEASEHOLD INTERESTS	72
SECTION 29.	MISCELLANEOUS	73
SECTION 30.	NO RECOURSE	76
SECTION 31.	NO MERGER OF ESTATES.	76
SECTION 32.	RELEASED LAND	76

Exhibit A -	Legal Description of Premises
Exhibit B -	List of Project Contracts
Exhibit C -	List of Permits and Project Authorizations
Exhibit D -	Semi-Annual Rent Component
Exhibit E -	Form of Insurance Broker Letter

Schedule 2(a) Limitation on Lessee Indebtedness
Schedule 2(f) Litigation Disclosure
Schedule 2(m) Environmental Disclosure

EXHIBIT A

LEGAL DESCRIPTION OF PREMISES4

EXHIBIT B

LIST OF PROJECT CONTRACTS

• The Engineering, Procurement and Construction Contract, dated as of December 20, 2001, between the Lessor and the General Contractor.

• The Guaranty, dated as of December 20, 2001, by Foster Wheeler LLC to the Lessor, guaranteeing the obligations of the General Contractor under the EPC Contract.

• The Engineering Services Agreement, dated as of September 21, 2001, between the Lessor and the General Contractor, as amended by an Amended and Restated Engineering Services Agreement, dated as of November 19, 2001, between the Lessor and the General Contractor.

• The Power Transformers Contract, dated as of December 21, 2001, between Siemens Power Transmission & Distribution, Inc. and the Lessor.

• The Combined Cycle Power Island Equipment Supply Contract, dated as of August 11, 2000, between Siemens Westinghouse Power Corporation and the Lessor.

• The Ground Lease Agreement, dated as of December 21, 2001, between the Lessee, as ground lessor, and the Lessor, as ground lessee.

• The Operation and Maintenance Agreement for the Lower Mount Bethel Energy Project Sewage Treatment Facility, dated July 13, 2001, between Lower Mount Bethel Township and PPL Generation, LLC.

• The Land Development Improvements Agreement to be entered into by and between Lower Mount Bethel Township and the Lessor.

• The Interconnection Service Agreement, dated as of August 8, 2001, between PJM Interconnection, L.L.C. and the Lessor.

• The Memorandum of Understanding, dated December 3, 1999, between PPL Corporation (successor-in-interest to PP&L Resources, Inc.) and the Lessee, as assigned to PPL Martins Creek, LLC pursuant to an Assignment and Assumption Agreement dated as of the date hereof.

• The Reimbursement, Construction and Ownership Agreement to be entered into by and between the Lessor and PPL Interstate Energy Company.

• The Gas Transportation Agreement to be entered into by and between PPL Interstate Energy Company and the Lessor.

EXHIBIT C

LIST OF PERMITS AND PROJECT AUTHORIZATIONS

Permit	Issuing Agency	Description	Need	Status
Alternate Fuels Capability	DOE	Baseload facilities fueled by natural gas	Construction	Self certifying 10-12-01
Toxic Chemical Release Inventory Reporting	EPA	Actual Release of Hazardous Materials	Operation	To be filed if necessary
Notice of Proposed Construction or Alteration	FAA	Construction of Object Capable of Affecting Navigable Air Space	Construction	To be filed
Air Quality Plan Approval	PDEP	Air Quality permitting and new source review	Construction	Permit # 48-328-00410-29-01; under appeal
Air Quality Operating Permit	PDEP	Operation of an air contamination source	Operation	To be filed
Title IV Acid Rain Operating Permit	PDEP	Fossil fuel generation units > 25 MW	Operation	To be filed
Air Quality Plan Approval	PDEP	Air quality permitting to convert Martins Creek Station combustion turbines from oil to gas-fired	Operation	To be filed
Air Quality Operating Permit Modification	PDEP	Modification to PM-10 limit for Auxiliary Boiler 4B at Martins Creek Station	Operation	Permit # 48-00011 3-31-01
ERCs for NOx and VOC	PDEP	Emission reduction credits	Operation	To be obtained
Allowances for NOx	PDEP	Emission allowances	Operation	To be obtained
Allowances for SOx	EPA	Emission allowances	Operation	To be obtained
Water Quality Management Plan	PDEP	Wastewater treatment facility modifications	Construction	To be filed
Part II Permit
NPDES Permit for Industrial Wastewater	PDEP	Discharge of Industrial Wastewater	Operation	Permit # PA 0012823 8-6-01
Preparedness, Prevention, And Contingency Plan	PDEP	Required as part of NPDES permit	Operation	To be filed
NPDES General Storm Water Construction Permit	PDEP	Discharge of Storm Water	Construction	Issued
Sewage Disposal Permit	PDEP	On site sanitary sewage disposal	Operation	Permit # T092557 8-29-01
Public Water Supply	PDEP	Potable water supply distribution	Construction	To be filed
Storage Tanks	PDEP	Underground or above ground storage tanks	Construction	To be filed
Spill Prevention Control and Countermeasure Plan	PDEP	Prevention of releases of regulated substances from tanks	Operation	To be filed
Consumptive Water Use	DRBC	Withdrawal of water	Construction	Docket # D-99-54 3-7-00
Consumptive Water Use	DRBC	Drought Operating Plan	Operation	To be filed
Stack Approval	PDOT	Construction of object affecting navigable air space	Construction	To be filed
Archeological and Historical Review	PHMC	Activities that impact archeological or historical resources	Construction	4-6-98
Review of Threatened or Endangered Species	PDNI		Construction	8-30-99
Fire Safety Approval	Local Fire Marshal	Issuance of building or occupancy permits	Construction Operation	To be filed
Site Plan Approval	LMBT/NC	Site Development	Construction	10-26-01
Special Exception to Zoning Ordinance	LMBT		Construction	2-21-01; as modified on 7-13-01; under appeal
Building Permit	LMBT	Construction of foundations and structures	Construction	11/30/01
Occupancy Permit	LMBT	Construction and occupancy of foundations and structures	Operation	To be filed
E&S Control Plan	NC	Soil erosion and sedimentation control	Construction	10-4-01
Building Plan Approval	PDLI	Building Plans	Construction	To be filed
Occupancy Permit	PDLI	Conformance with Approved Building Plans	Operation	To be filed
Generator Identification Number	PDEP/EPA	Hazardous Waste Generation	Operation	To be filed
Section 32 of PUHCA	FERC	Exemption of wholesale generators from holding company regulation	Operation	To be filed
Section 205 of FPA	FERC	Market-based rate authority/market-based tariff	Operation	To be filed
FPA	FERC	Disclaimer of jurisdiction over passive owner Of FERC jurisdictional facilities	Operation	To be filed
Interconnection Approvals	PJM	Interconnection with power grid	Operation	To be filed

ACOE	Army Corps of Engineers
DOE	Department of Energy
EPA	US Environmental Protection Agency
FAA	Federal Aviation Administration
FERC	Federal Energy Regulatory Commission
FPA	Federal Power Act
NPDES	National Pollutant Discharge Elimination System Program
PHMC	Pennsylvania Historical and Museum Commission
PDEP	Pennsylvania Department of Environmental Protection
PDLI	Pennsylvania Department of Labor and Industry
PJM	PJM Interconnection, LLC
PNDI	Pennsylvania Natural Diversity Inventory
PDOT	Pennsylvania Department of Transportation
PUHCA	Public Utility Holding Company Act
DRBC	Delaware River Basin Commission
LMBT	Lower Mount Bethel Township
NC	Northampton County

EXHIBIT D

SEMI-ANNUAL RENT COMPONENT

[As of the date of this Lease, there is no Semi-Annual Rent Component.]

EXHIBIT E

FORM OF INSURANCE BROKER LETTER

_______ __, ____

State Street Bank, as Collateral Trustee
(the "Trustee") for the Benefit of the Holders
(the "Holders") of LMB Funding, Limited Partnership's
Senior Notes due 20__; and

LMB Funding, Limited Partnership

Re:   Insurance review with respect to the Lease Agreement (the "Lease") between LMB Funding, Limited Partnership ("Funding"), as lessor and Lower Mount Bethel Energy, LLC ("Energy"), as lessee; and the Agreement for Lease (the "AFL") between Funding, as owner and Energy, as agent, each with respect to the Project (as defined in the Lease)                           

We have been provided with execution copies of the AFL and Lease and have reviewed the relevant parts of Section 9.3 of the AFL and Section 10 of the Lease, respectively. Based on our review, we can confirm that Energy's insurance coverage currently in place complies in all respects with the insurance requirements of [Section 9.3(a) of the AFL and the applicable provisions of Section 10 of the Lease] [OR] [Sections 10(b), (c)(ii), (c)(iv), (f) and (l) of the Lease]. The attached certificate(s) of insurance duly evidence Energy's insurance currently in place as required by [Section 9.3(a) of the AFL and the applicable provisions of Section 10 of the Lease] [OR] [Sections 10(b) , (c)(ii), (c)(iv), (f) and (l) of the Lease].

We can confirm that the deductible limits set forth in [Section 9.3(a) of the AFL] [OR] [Section 10(b) of the Lease] are based on the lowest amounts which are reasonably and commercially available in the insurance industry relating to entities owning and/or operating electric generating facilities as of the date of this letter.

We can also confirm that the requirements of [Section 9.3(a) of the AFL] [OR] [Section 10(b) of the Lease] are adequate and reasonable for the protection of the interests in the Project of Energy, Funding, the Collateral Trustee, the Holders and any other lender that may take a security interest in the Project and that the insurance required to be maintained is comparable in all respects with insurance carried by responsible owners and operators of properties similar to the Project.

Very truly yours,

SCHEDULE 2(a)

LIMITATION ON LESSEE INDEBTENESS

Subordinated Indebtedness shall be issued pursuant to, or evidenced by, an instrument containing provisions for the subordination of such Subordinated Indebtedness to all Senior Indebtedness of the Lessee, substantially as follows (without limitation as to further, not inconsistent, provisions if so desired):

SUBORDINATION OF INDEBTEDNESS.

General.

Notwithstanding any provision of this agreement or this Subordinated Note to the contrary, payments of the principal of and premium, if any, and interest on this Subordinated Note shall be subordinate and in right of payment to the prior payment in full, in cash or cash equivalents, of all Senior Indebtedness (as defined below) of the Lessee to the extent and in the manner provided in this Section.

Effects of Certain Defaults in Respect of Senior Indebtedness.

If the Lessee shall default in the payment of any principal of, or premium, if any, or interest on or other amount with respect to the Agency Agreement, the Agreement for Lease, the Lease and the Lessee Note and any unsubordinated Indebtedness specifically permitted by such documents (collectively "Senior Indebtedness") when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise, or if any other default or event of default with respect to any such Senior Indebtedness shall have occurred (each of the foregoing a "Senior Default"), and unless and until such Senior Default shall have been remedied or waived or shall have ceased to exist, no direct or indirect payment by the Lessee from any source whatsoever shall be made on account of the principal of, or premium, if any, or interest on or other amount with respect to, this Subordinated Note.

Limitation on Acceleration.

At any time when any Senior Indebtedness is outstanding, this Subordinated Note may not be declared to be due and payable before its stated maturity unless all Senior Indebtedness has become due and payable, whether automatically or by declaration, before its stated maturity and such declaration has not been rescinded.

Insolvency, Etc.

In the event of any liquidation, reorganization, dissolution, winding up or composition or readjustment of the Lessee or its securities (whether voluntary or involuntary, or in bankruptcy, insolvency, reorganization, liquidation, receivership proceedings, or upon a general assignment for the benefit of the Lessee's creditors or any other marshalling of the assets and liabilities of the Lessee, or otherwise), all Senior Indebtedness (including any claim for interest thereon accruing at the contract rate after the commencement of any such proceedings and any claim for additional interest that would have accrued thereon but for the commencement of such proceedings, whether or not, in either case, such claim shall be enforceable in such proceedings) shall first be paid in full in cash or cash equivalents before any direct or indirect payment or distribution, whether in cash or cash equivalents, securities or other property, is made in respect of this Subordinated Note, and any cash, securities or other property which would otherwise (but for these subordination provisions) be payable or deliverable in respect of this Subordinated Note directly or indirectly by the Lessee from any source whatsoever shall be paid or delivered directly to the holders of Senior Indebtedness in accordance with the priorities then existing among such holders until all Senior Indebtedness (including claims for interest and additional interest as aforesaid) shall have been paid in full in cash or cash equivalents.

Turnover of Payments.

If (a) any payment or distribution shall be collected or received by the holder of this Subordinated Note in contravention of any of the terms of this Subordinated Note and prior to the payment in full in cash or cash equivalents of all Senior Indebtedness at the time outstanding and (b) any holder of such Senior Indebtedness (or any authorized agent thereof) shall have notified the holder of this Subordinated Note of the facts by reason of which such collection or receipt so contravenes this Subordinated Note, the holder of this Subordinated Note will deliver such payment or distribution, to the extent necessary to pay all such Senior Indebtedness in full in cash or cash equivalents, to the holders of such Senior Indebtedness and, until so delivered, the same shall be held in trust by the holder of this Subordinated Note as the property of the holders of such Senior Indebtedness.

No Prejudice or Impairment.

No present or future holder of any Senior Indebtedness shall be prejudiced in the right to enforce subordination of this Subordinated Note by any act or failure to act on the part of the Lessee. Nothing contained herein shall impair, as between the Lessee and the holder of this Subordinated Note, the obligation of the Lessee to pay to the holder hereof the principal hereof and premium, if any, and interest hereon as and when the same shall become due and payable in accordance with the terms hereof, or, except as provided herein, prevent the holder of this Subordinated Note from exercising all rights, powers and remedies otherwise permitted by applicable law or thereunder upon the happening of an event of default in respect of this Subordinated Note, all subject to the rights of the holders of Senior Indebtedness as provided in this Section to receive cash, securities or other property otherwise payable or deliverable to the holder of this Subordinated Note directly or indirectly by the Lessee from any source whatsoever.

Payment of Senior Indebtedness, Subrogation, etc.

Upon the payment in full in cash or cash equivalents of all Senior Indebtedness, the holder of this Subordinated Note shall be subrogated to all rights of the holders of such Senior Indebtedness to receive any further payments or distributions applicable to Senior Indebtedness until this Subordinated Note shall have been paid in full in cash or cash equivalents, and, for the purposes of such subrogation, no payment or distribution received by the holders of Senior Indebtedness of cash, securities, or other property to which the holder of this Subordinated Note would have been entitled except for this Section shall, as between the Lessee and its creditors other than the holders of Senior Indebtedness, on the one hand, and the holder of this Subordinated Note, on the other hand, be deemed to be a payment or distribution by the Lessee on account of Senior Indebtedness.

Holder of Senior Indebtedness May Make Filings and Vote Claim, etc.

The holder of this Subordinated Note hereby (a) authorizes the holder or holders of at least a majority of the aggregate unpaid principal amount of all Senior Indebtedness, after the occurrence and during the continuance of any event described in Section 1.4, (i) to execute, verify, deliver and file any proofs of claim, consents, assignments or other instruments which any holder of Senior Indebtedness may at any time reasonably require in order to provide and realize upon any rights or claims pertaining to this Subordinated Note and (ii) to vote claims belonging to the holder of this Subordinated Note and (b) appoints any Person designated for such purpose by the holder or holders of at least a majority of the unpaid principal amount of all Senior Indebtedness as its attorney-in-fact for all such purposes.

Miscellaneous.

The subordination provisions contained in this Subordinated Note are for the benefit of the holders of Senior Indebtedness and, so long as any Senior Indebtedness is outstanding under any agreement, may not be rescinded, cancelled or modified adversely to the interests of the holders of Senior Indebtedness without the prior written consent thereto of the holders of the requisite percentages of Senior Indebtedness as provided in such agreements under which any Senior Indebtedness is outstanding.

SCHEDULE 2(f)

LITIGATION DISCLOSURE

[TO BE PROVIDED BY LESSEE ON THE EFFECTIVE DATE OF THIS LEASE]

SCHEDULE 2(m)

ENVIRONMENTAL DISCLOSURE

[TO BE PROVIDED BY LESSEE ON THE EFFECTIVE DATE OF THIS LEASE]

EX-10

Exhibit 10(n)

EX-10

Exhibit 10(n)-1

EXECUTION VERSION

AMENDMENT NO. 1

Dated as of September 16, 2002

to

LEASE AGREEMENT

Dated as of December 21, 2001

BETWEEN

LMB FUNDING, LIMITED PARTNERSHIP

as Lessor

AND

LOWER MOUNT BETHEL ENERGY, LLC

as Lessee

This Amendment No. 1 has been manually executed in 38 counterparts, numbered consecutively from 1 through 38, of which this is No. __. To the extent, if any, that this Amendment constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any jurisdiction), no security interest in this Amendment may be created or perfected through the transfer or possession of any counterpart other than the original executed counterpart which shall be the counterpart identified as counterpart No. 1.

Amendment No. 1 to Lease Agreement ("Amendment No. 1"), dated as of September 16, 2002, between LMB FUNDING, LIMITED PARTNERSHIP, a Delaware limited partnership ("Lessor"), and LOWER MOUNT BETHEL ENERGY, LLC, a Delaware limited liability company ("Lessee"), amending the Original Lease referred to below.

WHEREAS, Lessor and Lessee have heretofore entered into a Lease Agreement dated as of December 21, 2001 (the "Original Lease") (the Original Lease, as amended hereby and as may hereafter be further amended, modified, supplemented or restated from time to time, the "Lease"); and

WHEREAS, Lessor and Lessee wish to amend the Original Lease as hereinafter provided with the consent of the holders of the applicable percentage of the Notes;

NOW, THEREFORE, Lessor and Lessee hereby agree that the Original Lease is amended as follows:

SECTION 1.   DEFINITIONS. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Original Lease.

SECTION 2.   AMENDMENTS. The Original Lease is hereby amended as follows:

2.1   Section 1 of the Original Lease is amended by:

(i) deleting the definition of "Gas Transportation Agreement" and inserting the following in its place:

""Gas Transportation Agreement" means the Gas Transportation Agreement to be entered into by and between PPL Interstate Energy Company and Lessor and/or Lessee."

(ii) deleting the definition of "Premises" and inserting the following in its place:

""Premises" means collectively (a) the leasehold estate demised to the Lessor pursuant to the Ground Lease and (b) the easement rights granted to the Lessor pursuant to that certain Easement Agreement between PPL Martins Creek, LLC and Lessor, dated September 11, 2002, as the same may be amended from time to time."

(iii) inserting the phrase "the last sentence of paragraph (f) of Section 8," immediately before the phrase "paragraph (n) of Section 10 and Section 12, the term "Assignee" shall mean the Majority Holders (as defined in the Note Purchase Agreement)" at the end of the definition of "Assignee".

(iv) deleting the definition of "Replacement MOU Agreement" and inserting the following in its place:

""Replacement MOU Agreement" means that certain Water Services Agreement, dated as of September 16, 2002, entered into between PPL Martins Creek, LLC and Lessor, as the same may be amended, modified, supplemented or restated from time to time in accordance with the terms of the Collateral Indenture, relating to the provision of certain water services for the Project and replacing the Memorandum of Understanding."

(v) adding the following new definition (to be inserted in appropriate alphabetical order in said Section 1), which definition reads in its entirety as follows:

""Easement Agreement" the Easement Agreement between PPL Martins Creek, LLC and the Lessor, dated September 11, 2002, as the same may be amended, modified, supplemented or restated from time to time in accordance with its terms, the terms of the Collateral Indenture and the terms of the Leasehold Mortgage (as defined in the Collateral Indenture)."

(vi) deleting the definition of "Project Contracts" and inserting the following in its place:

""Project Contracts" means the Siemens Turbine Contract, the Ground Lease, the Easement Agreement, the EPC Contract, the EPC Guaranty, the Engineering Services Agreement, the Power Transformers Contract, the Township Development Agreement, the Operation and Maintenance Agreement, the Interconnection Agreement, the Replacement MOU Agreement, the Reimbursement and Ownership Agreement, the Gas Transportation Agreement and any other agreement or agreements entered into by the Lessee necessary for the construction and operation of the Project (from and after the date each such agreement becomes effective). A list of the Project Contracts is attached as Exhibit B hereto."

2.2    Paragraph (f) of Section 8 of the Original Lease is amended by inserting the following at the end of the last sentence thereof:

"; provided that amendments, modifications, supplements, restatements, consents or waivers which affect Sections 1.3, 2.2, 3.3, 3.4, 4.9, 5.3 or 5.4 of the Replacement MOU Agreement may only be made to the extent they are incidental, immaterial and not adverse to the Lessor or Assignee unless the prior written consent of the Assignee and the Lessor is obtained."

2.3    The first sentence of paragraph (e) of Section 9 of the Original Lease is amended by deleting such sentence in its entirety and inserting the following in its place:

"(e)    The Lessee agrees to, or to cause the Operator to, maintain the Project at all times in such condition so as to enable the Project to be operated and maintained in accordance with prudent industry practices and any other standards required by the Project Contracts and this Lease, and shall, as lessee under this Lease, comply or cause the Operator to comply with all of the obligations of the Lessor under the Replacement MOU Agreement. Lessee further agrees to, or cause the Operator to, maintain the Water Offset Rights (as defined in the Agreement for Lease) on behalf of Owner in accordance with any contractual or other legal right or entitlement giving rise to such Water Offset Rights, Legal Requirements and prudent industry practices."

2.4   Exhibit B and Exhibit C of the Original Lease are deleted in their entirety and replaced with Exhibit A and Exhibit B to this Amendment No. 1 respectively.

SECTION 3.   MISCELLANEOUS.

3.1   This Amendment No. 1 may be executed in several counterparts, each of which when executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute but one and the same Amendment No. 1.

3.2   THIS AMENDMENT NO. 1 SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.

3.3   Upon the effectiveness of this Amendment No. 1 (i) each reference in the Original Lease to "this Agreement", "hereunder", "hereof" or words of like import referring to the Original Lease shall mean and be a reference to the Original Lease as amended by this Amendment No. 1 and as may hereafter be further amended, modified, supplemented or restated from time to time and (ii) each reference in any other related agreements to the "Lease Agreement", "thereunder", "thereof" or words of like import referring to the Lease, shall mean and be a reference to the Original Lease as amended by this Amendment No. 1 and as may hereafter be further amended, modified, supplemented or restated from time to time.

3.4   Except as provided herein, all provisions, terms and conditions of the Original Lease shall remain in full force and effect. As amended hereby, the Original Lease is ratified and confirmed in all respects.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed as of the date first above written.

LMB FUNDING, LIMITED PARTNERSHIP

By LMB Capital, Inc.,
        its General Partner

By:____________________________________
      Name:
      Title:

LOWER MOUNT BETHEL ENERGY, LLC

By:____________________________________
      Name:
      Title:

EXHIBIT A

[Project Contracts]

EXHIBIT B

[Permits/Project Authorizations]

EX-10

Exhibit 10(q)-2

AMENDMENT NO. 2

TO

PPL CORPORATION

DIRECTORS DEFERRED COMPENSATION PLAN

WHEREAS, PP&L, Inc. ("PP&L") adopted the Pennsylvania Power & Light Company Directors Deferred Compensation Plan ("Plan") effective January 26, 1972; and

WHEREAS, the Plan was most recently amended and restated effective July 1, 2000, and subsequently amended by Amendment No. 1; and

WHEREAS, the Company desires to further amend the Plan;

NOW, THEREFORE, the Plan is hereby amended as follows:

I. Effective January 1, 2004, Paragraph 5(b) is amended to read:

5.   Mandatory Deferral.

(b)   A Participant may not convert any portion of such Participant's Stock Account attributable to the Mandatory Deferral Amount or dividends thereon, as described in Paragraph 7.1(c), to the Participant's Cash Account for a period of 3 years from the date such Mandatory Deferral Amount was credited to the Participant's Stock Account. Notwithstanding the above, any portion of a Participant's Stock Account attributable to an award of Stock Units granted by the Committee that must remain in Stock Units by its terms shall not be converted to a Participant's Cash Account until such time as is authorized by the Committee.

II.   Except as provided for in this Amendment No. 2, all other provisions of the Plan shall remain in full force and effect.

IN WITNESS WHEREOF, this Amendment No. 2 is executed this _____ day of December, 2003.

EMPLOYEE BENEFIT PLAN BOARD OF
PPL CORPORATION

By: __________________________________
      T. W. Hatten
      Chairman
      Employee Benefit Plan Board

EX-10

Exhibit 10(r)

PPL

OFFICERS DEFERRED COMPENSATION PLAN

EFFECTIVE JULY 1, 1985

Amended and Restated
Effective November 1, 2003

PPL

OFFICERS DEFERRED COMPENSATION PLAN

EFFECTIVE NOVEMBER 1, 2003

TABLE OF CONTENTS

PARAGRAPH				PAGE
	1.	Purpose		I-1
	2.	Definitions		II-1
		2.1	Account	II-1
		2.2	Affiliated Company or Affiliated Companies	II-1
		2.3	Cash Award	II-1
		2.4	Cash Compensation	II-1
		2.5	CLC	II-1
		2.6	Deferred Cash Award	II-1
		2.7	Deferred Cash Compensation	II-1
		2.8	ESOP	II-2
		2.9	Exchange Act	II-2
		2.10	Participant	II-2
		2.11	Participating Company	II-2
		2.12	Plan	II-2
		2.13	PPL	II-2
	II-2
		2.14	PPL Corporation	II-2
		2.15	Retirement Plan	II-2
		2.16	Savings Plan	II-2
		2.17	SERP	II-2
		2.18	Total Amount Payable	II-2
	3.	Eligibility		III-1
	4.	Deferred Cash Compensation and
		Deferred Cash Awards		IV-1
	5.	Account		V-1
	6.	Payment of Account - General Provisions		VI-1
	7.	Administration		VII-1
	8.	Miscellaneous		VIII-1
	9.	Termination or Amendment		IX-1
	10.	Effective Date		X-1

Article I
Purpose

1.1   The purpose of this Officers Deferred Compensation Plan is to provide certain executive officers of PPL and other Participating Companies a financially advantageous method to defer earned income. This Plan received account balances from the terminated PPL Montana Officers Deferred Compensation Plan and the terminated PPL Global Officers Deferred Compensation Plan, effective November 1, 2003, by reason of the merger of those two terminated Plans into this Plan as of that date.

Article II
Definitions

2.1.   "Account" means the account of Deferred Cash Compensation and Deferred Cash Awards established solely as a bookkeeping entry and maintained under Article V of this Plan. This account includes the balance of any account from the PPL Global Officers Deferred Compensation Plan and/or the PPL Montana Officers Deferred Compensation Plan as of the date those Plans were terminated and merged into this Plan.

2.2.   "Affiliated Company" or "Affiliated Companies" shall mean any parent or subsidiaries of PPL (or companies under common control with PPL) which are members of the same controlled group of corporations (within the meaning of section 1563(a) of the Code) as PPL or which are under common control with PPL (within the meaning of Section 414(c) of the Code).

2.3   "Cash Award" means any cash incentive awards payable prior to any deferrals under this Plan.

2.4   "Cash Compensation" means base salary prior to any deferrals to this Plan or a Savings Plan.

2.5   "CLC" means Corporate Leadership Council, the members of which are named by the Chairman and Chief Executive Officer of PPL Corporation.

2.6   "Deferred Cash Award" means the Cash Award of a Participant deferred under Article IV of this Plan.

2.7   "Deferred Cash Compensation" means the Cash Compensation of a Participant deferred under Article IV of this Plan.

2.8   "ESOP" means the PPL Employee Stock Ownership Plan.

2.9   "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time.

2.10   "Participant" means an eligible employee of a Participating Company who elects to defer Cash Compensation and/or Cash Awards under this Plan.

2.11   "Participating Company" means PPL and other Affiliated Company that is designated by the Board of Directors of PPL to adopt this Plan by action of its board of directors or other governing body, provided such participating company is also approved by the CLC.

2.12   "Plan" means this Officers Deferred Compensation Plan as set forth herein and as hereafter amended from time to time.

2.13   "PPL" means PPL Services Corporation.

2.14   "PPL Corporation" shall mean PPL Corporation.

2.15   "Retirement Plan" means the PPL Retirement Plan or PPL Subsidiary Retirement Plan.

2.16   " Savings Plan" means the PPL Deferred Savings Plan or PPL Subsidiary Savings Plan.

2.17   "SERP" means the PPL Supplemental Executive Retirement Plan.

2.18   "Total Amount Payable" means the amount credited to a Participant's Account plus the calculated rate of return pursuant to Section 5.1(e).

The masculine pronoun shall be deemed to include the feminine and the singular to include the plural unless a different meaning is plainly required by the context.

Article III
Eligibility

3.1   Any elected officer or other key employee of PPL or of a Participating Company who is designated as eligible in a resolution adopted by the Board of Directors of such Participating Company and is approved for participation in this Plan by the CLC.

Article IV
Deferred Cash Compensation and Deferred Cash Awards

4.1   Participant shall have the right to elect to have all, or a portion, of his Cash Compensation in excess of $75,000 deferred hereunder.

4.2   Participant shall have the right to elect to have all, or a portion, of his Cash Awards deferred hereunder.

4.3   Any election to defer future Cash Compensation and/or Cash Awards for the first calendar year that Participant is eligible to participate in this Plan shall be made by the Participant in writing by the thirtieth (30th) day following the date on which the Participant is first eligible to participate by filing with the CLC or its designee the appropriate election form. Any such election shall be limited to Cash Compensation earned and Cash Awards granted after the date of the election.

4.4   Any election to defer or change the amount of Cash Compensation and/or Cash Awards to be deferred for any subsequent calendar year after the first calendar year of eligibility may be made by Participant not later than December 31 of the year preceding the year Cash Compensation is earned and Cash Awards are granted, by filing with the CLC or its designee an election form; provided, however, that an election once made will be presumed to continue unless changed or revoked by Participant.

4.5   Participant may revoke his election to defer Cash Compensation and/or Cash Awards at any time by so notifying the CLC or its designee in writing not later than December 31 of the year preceding the year for which the revocation will be effective. For any subsequent calendar year, Participant may resume his election to defer if he files with the CLC an election form not later than December 31 of the year preceding such subsequent calendar year.

4.6   The deferral of Cash Compensation shall be made in equal amounts in each pay period during the calendar year in which such Cash Compensation is to be earned.

4.7   Any election is filed with the CLC and will be effective when actually received by the CLC or its designee.

4.8   Such an election, once made, will be irrevocable as to Cash Compensation and Cash Awards already deferred.

4.9   Deferred Cash Compensation and Deferred Cash Awards shall be subject to the rules set forth in this Plan, and each Participant shall have the right to receive cash payments on account of Deferred Cash Compensation and Deferred Cash Awards only in the amounts and under the circumstances hereinafter set forth.

Article V
Account

5.1   Solely for Participants ("Electric Employees") who are employees of PPL Electric Utilities Corporation and any subsidiaries thereof ("PPL Electric"), PPL Electric shall maintain an Account in the name of each Participant. For all Participants who are not Electric Employees, PPL or any Participating Company except PPL Electric ("PPL (Non-Electric)") shall maintain an Account in the name of each Participant. Such Account shall be maintained as set forth in this Article V.

5.2   For Electric Employees, PPL Electric, and for Participants who are not Electric Employees, PPL (Non-Electric) shall credit the Deferred Cash Compensation to the applicable Participant's Account on a daily basis for each business day as if Cash Compensation that would have been paid was paid over each business day of the calendar year.

5.3   For Electric Employees, PPL Electric, and for Participants who are not Electric Employees, PPL (Non-Electric) shall credit the Deferred Cash Award to the applicable Participant's Account as of the same day that all Cash Awards not being deferred are paid.

5.4   Participant's Account shall be credited in substantially equivalent frequency and with a calculated rate of return substantially equivalent to the rate of return that would have been realized had the Account been invested in one or more mutual fund choices offered by the Savings Plan under which Participant is eligible to contribute. The mutual fund or funds utilized to calculate the rate of return on the Participant's Account shall be that mutual fund or funds elected by the Participant in writing on an election form submitted to the CLC. The Participant may change investment choices in the same manner as may be permitted by the Savings Plan for a Participant's funds in that Plan.

Article VI
Payment of Account - General Provisions

6.1   The Total Amount Payable shall be payable to Participant:

(a)   When the Participant's employment with PPL terminates for any reason, including retirement; or

(b)   if Participant becomes totally disabled while employed by PPL or an Affiliated Company, as determined by the CLC in its discretion; within thirty (30) days of such event or in any other form, as elected by Participant. Such election must be made before the applicable Cash Compensation and/or Cash Award is deferred and may not be changed with respect to Cash Compensation and/or Cash Award once it has been deferred. If Participant has made no election, payments will commence within thirty (30) days after cessation of employment.

6.2      (a)   The Total Amount Payable shall be paid to Participant in a single sum or in annual installments up to a maximum of fifteen (15) years, or other forms approved by the CLC as elected by the Participant. Such election must be made before the applicable Cash Compensation and/or Cash Award is deferred and may not be changed with respect to Cash Compensation and/or Cash Award once it has been deferred.

(b)   All annual installments shall, except for the final payment, be not less than $5,000. To the extent necessary, the number of annual installments may be reduced to insure that annual installments are at least $5,000.

(c)   The amount of each annual installment shall be determined by dividing the Total Amount Payable less any payments already made to Participant by the remaining number of annual installments to be made (i.e., a 10 year payout shall pay 1/10 of the Total Amount Payable as the first installment, 1/9 as the second annual installment, etc.).

6.3      (a)   If Participant dies while employed by PPL or an Affiliated Company or before all installments have been paid underthis Article, payments shall be made within 30 days after Participant's death to the beneficiary designated in writing by Participant. Participant shall have a continuing power to designate a new beneficiary in the event of his death at any time prior to his death by written instrument delivered by Participant to the CLC without the consent or approval of any person theretofore named as his beneficiary. In the event the designated beneficiary does not survive Participant, payment will be made to an alternate beneficiary designated in writing by Participant. If no such designation is in effect at the time of death of Participant, or if no person so designated shall survive Participant, payment shall be made to Participant's estate.

(b)   Payments made to Participant's designated beneficiary will be made at the times and in the amounts as if Participant were living based on Participant's elected form of distribution; provided, however, if payments are to be made to Participant's estate, payment will be made in a single sum.

6.4   So long as there is a balance in Participant's Account, the balance shall be credited with the calculated rate of return pursuant to Section 5.6. For any installment or other payment from the Account, the calculated rate of return shall accrue until the last business day as may be practicable prior to that payment to Participant or his beneficiary.

6.5   The CLC may determine, in its sole discretion, that the Total Amount Payable shall be paid to a Participant or his beneficiary in different amounts or at different times than provided under this Plan if, in the opinion of the CLC, it would be necessary as the result of a personal emergency or hardship which results in a severe and immediate financial burden to the Participant in which case payment shall be made only to the extent necessary to alleviate the Participant's hardship.

ARTICLE VII
ADMINISTRATION

7.1   Administration. The CLC shall have the discretionary authority and final right to interpret, construe and make benefit determinations (including eligibility and amount) under the Plan. The decisions of the CLC are final and conclusive for all purposes. If one or more members of the CLC are disqualified by personal interest from taking part in a particular decision, the remaining member or members of the CLC (although less than a quorum) shall have full authority to act on the matter. The CLC shall have authority to delegate specified duties and responsibilities to specific members of the CLC, other PPL Committees, or other PPL management employees.

Article VIII
Miscellaneous.

8.1   If the person to receive payment is a minor, or is deemed by the CLC or is adjudged to be legally incompetent, the payments shall be made to the duly appointed guardian or committee of such minor or incompetent, or they may be made to such person or persons who the CLC believes are caring for or supporting such minors or incompetents.

8.2   Nothing in this Plan shall confer any right on any Participant to continue in PPL's or in an Affiliated Company's employ or to receive compensation, nor shall anything in this Plan affect in any way the right of PPL or an Affiliated Company to terminate any Participant's employment at any time.

8.3   The expenses of administration hereunder shall be borne by PPL.

8.4   This Plan shall be construed, administered and enforced according to the laws of the Commonwealth of Pennsylvania.

8.5   All payments from this Plan to Participant or a beneficiary of such Participant shall be made from the general assets of, for Electric Employees, PPL Electric, and for Participants who are not Electric Employees, PPL (Non-Electric). Except as set forth in the PPL Employee Non-qualified Plans Trust of April 1, 2001, this Plan shall not require any Participating Company or an Affiliated Company to set aside, segregate, earmark, pay into trust or special account or otherwise restrict the use of its assets in the operation of the business. Participant shall have no greater right or status than as an unsecured general creditor of PPL Electric, if an Electric Employee, or PPL (Non-Electric) if not an Electric Employee, with respect to any amounts owed to Participant hereunder.

8.6   All payments to persons entitled to benefits hereunder shall be made to such persons and shall not be grantable, transferable, pledged or otherwise assignable in anticipation of payment thereof, or subject to attachment, alienation, garnishment, levy, execution or other legal or equitable process in whole or in part, by the voluntary or involuntary acts of any such persons, or by operation of law, and shall not be liable or taken for any obligation of such person. PPL will observe the terms of the Plan unless and until ordered to do otherwise by a state or federal court. As a condition of participation, a Participant agrees to hold PPL harmless from any claim that arises out of PPL's obeying any such order whether such order effects a judgment of such court or is issued to enforce a judgment or order of another court.

8.7   Participant's benefits under the Retirement Plan, the Savings Plan, the ESOP, group life insurance, accidental death and disability, short-term disability, long-term disability and other similar employee benefit plans maintained by PPL will be provided based on Cash Compensation to Participant.

Article IX
Termination or Amendment

9.1   Each Participating Company shall have the power to amend the Plan by or pursuant to action of its board of directors, but any such amendment to the Plan must be approved by PPL, and shall only apply to those Participants who are employees of the Participating Company authorizing the amendment. Any amendment that significantly affects the cost of the Plan or significantly alters the benefit design or eligibility requirements of the Plan shall be adopted by both PPL and any Participating Company whose employees are affected. In addition, the CLC may adopt any amendment that does not significantly affect the cost of the Plan or significantly alter the benefit design or eligibility requirements of the Plan. Each amendment to the Plan will be binding on the Participating Company to which it applies. No termination or amendment shall (without Participant's consent) alter: a) Participant's right to payments of amounts previously credited to Participant's Account, which amounts shall continue to earn interest as provided for herein as though termination or amendment had not been effected, b) the amount or times of payment of such amounts which have commenced prior to the effective date of such termination or amendment, or c) the rights set forth in Article VI to designate beneficiaries in the event of Participant's death.

Article X
Effective Date.

10.1   The effective date of this Plan is November 1, 2003.

          Executed this ______ day of______________________, 2003.

PPL SERVICES CORPORATION

By:________________________________
          Ronald Schwarz
          Vice President-Human Resources

EX-10

Exhibit 10(s)

PPL

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

Amended and Restated
Effective as of July 1, 2003

PPL

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
AMENDED AND RESTATED EFFECTIVE JULY 1, 2003

TABLE OF CONTENTS

ARTICLE			PAGE
1.		Purpose	II-1
2.		Definitions	II-1
	(a)	Actuarial Equivalent	II-1
	(b)	Affiliated Company or Affiliated Companies	II-1
	(c)	Board of Directors	II-1
	(d)	PPL	II-1
	(e)	Benefits	II-1
	(f)	Cause	II-1
	(g)	CLC	II-2
	(h)	Early Retirement Reduction Factor	II-2
	(i)	Participant	II-3
	(j)	Participating Company	II-3
	(k)	Plan	II-4
	(l)	PPL Corporation	II-4
	(m)	Retiree
	(n)	Retirement
	(o)	Retirement Plan	II-5
	(p)	Supplemental Final Average Earnings
	(q)	Terminated Vested Participant	II-6
	(r)	Termination of Employment
	(s)	Years of Service
	(t)	Year(s) of Vesting Services	II-7
3.		Benefit Eligibility	III-1
4.		Amount of Benefit	IV-1
5.		Time of Payment	V-1
6.		Method of Payment	VI-1
7.		Preretirement Surviving Spouse Benefit	VII-1
8.		Administration	VIII-1
9.		Miscellaneous	IX-1
10.		Termination or Amendment	X-1
11.		Effective Date	XI-1
		Appendix A	A-1

PPL
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

WHEREAS, PPL Electric Utilities Corporation adopted the PPL Supplemental Executive Retirement Plan (the "Plan"), effective July 1, 1985, as amended and restated from time to time, for certain of its employees;

WHEREAS, PPL Electric Utilities Corporation withdrew as Plan Sponsor, and PPL Services Corporation ("PPL") accepted and assumed the duties of Plan Sponsor, effective July 1, 2000; and

WHEREAS, PPL desires at this time to amend and restate the Plan;

NOW, THEREFORE, effective as of July 1, 2003, the Plan is continued, amended and restated as hereinafter set forth:

ARTICLE I
PURPOSE

1.Purpose. The purpose of this Supplemental Executive Retirement Plan is to provide certain officers and key executives of PPL and Participating Companies with appropriate levels of retirement income so that total retirement income for such employees is competitive with other employers, to facilitate smooth and orderly transitions from key positions, and to attract and retain seasoned, mid-career executives.

ARTICLE II
DEFINITIONS

2.Definitions.

The following terms shall have the same definitions as they are given in the PPL Retirement Plan:

(a)Actuarial Equivalent.

(b)Affiliated Company or Affiliated Companies.

(c)Board of Directors (herein referred to as "Board").

(d)PPL.

The following terms shall have the following definitions under this PPL Supplemental Executive Retirement Plan:

(e)"Benefit" means the Benefit payable under this Plan calculated under Article 4.

(f)"Cause" for Participant's Termination of Employment by PPL or an Affiliated Company means

(1)the willful and continued failure by Participant to substantially perform Participant's duties with PPL or an Affiliated Company (other than any such failure resulting from Participant's incapacity due to physical or mental illness or, if applicable, any such actual or anticipated failure after the issuance of any "Notice of Termination for Good Reason" by the Participant pursuant to any severance agreement between Participant and PPL or an Affiliated Company) after a written demand for substantial performance is delivered to Participant by the Board, which demand specifically identifies the manner in which the Board believes that Participant has not substantially performed Participant's duties, or

(2)the willful engaging by Participant in conduct which is demonstrably and materially injurious to PPL or an Affiliated Company, monetarily or otherwise.

(3)For purposes of Subsections (1) and (2) of this definition, (A) no act, or failure to act, on Participant's part shall be deemed "willful" unless done, or omitted to be done, by Participant not in good faith and without reasonable belief that Participant's act, or failure to act, was in the best interest of PPL or the Affiliated Company, and (B) in the event of a dispute concerning the application of this provision, no claim by PPL or an Affiliated Company that Cause exists shall be given effect unless PPL or the Affiliated Company establishes to the Board by clear and convincing evidence that Cause exists.

(g)"CLC" shall mean the Corporate Leadership Council of PPL Corporation.

(h)"Early Retirement Reduction Factor" means the percentage that appears adjacent to the Participant's age below determined under the appropriate column.

(1)Column (1) shall apply to any Retiree.

(2)Column (2) shall apply to any Terminated Vested Participant.

	Percentage of Benefit Received
	(1)	(2)
Age When
Benefits		Terminated
Start	Retiree	Vested
60	100	100
59	95	90
58	90	80
57	85	70
56	80	60
55	75	50
54	70	N/A
53	65	N/A
52	60	N/A
51	55	N/A
50	50	N/A
49 or younger	N/A	N/A

(i)"Participant" means

(1)any elected officer or other key employee of PPL or of a Participating Company who is designated as eligible in a resolution adopted by the board of directors of such Participating Company and is approved for participation in this Plan by the CLC.

(2)any individual formerly described in Paragraph (1) who has not yet had a Termination of Employment, or any individual formerly described in Paragraph (1) who has had a Termination of Employment and is entitled to receive benefits under Article 3 of this Plan. All Participants of this Plan are listed in Appendix A.

(j)"Participating Company" means PPL Services Corporation, PPL Electric Utilities Corporation (prior to February 14, 2000, PP&L, Inc.), PPL EnergyPlus, LLC (prior to February 14, 2000, PP&L EnergyPlus Co., LLC), PPL Global, LLC, PPL Montana, LLC and each other Affiliated Company that is designated by the CLC to adopt this Plan by action of its board of directors or managers.

(k)"Plan" means this Supplemental Executive Retirement Plan, as amended from time to time.

(l)"PPL Corporation" means PPL Corporation (prior to February 14, 2000, PP&L Resources, Inc.).

(m)"Retiree" means a Participant who has a Termination of Employment after:

(1)attaining age 55 and completing at least 10 Years of Service, or

(2)attaining age 60, or

(3)attaining age 50, completing at least 10 Years of Service, and whom the CLC, unless the Participant is a member of the CLC, in its sole discretion, determines is entitled to an immediately payable Benefit. A Participant who is a member of the CLC who seeks to be a Retiree by reason of attaining age 50 and completing at least 10 Years of Service must be approved by the Compensation and Corporate Governance Committee of the Board of Directors of PPL Corporation.

(n)"Retirement" shall be deemed the reason for a Participant's Termination of Employment if such employment is terminated in accordance with PPL's or an Affiliated Company's retirement policy, including early retirement, generally applicable to its salaried employees.

(o)"Retirement Plan" means the PPL Retirement Plan, as amended from time to time.

(p)"Supplemental Final Average Earnings" means the following:

(1)Supplemental Final Average Earnings means twelve times the average of a Participant's "compensation" as defined in Paragraphs (A) through (B) below, from PPL and/or an Affiliated Company, for the 60 full consecutive months in the final 120 (or fewer) full consecutive months during which he is employed by PPL and/or an Affiliated Company. For this purpose, non-consecutive months interrupted by periods in which the Participant receives no "compensation" shall be treated as consecutive. For purposes of this Section, "compensation" shall include the following:

(A)the Participant's base salary from PPL and/or any Affiliated Company prior to any deferrals to the Officers Deferred Compensation Plan or any other nonqualified deferred compensation plan of an Affiliated Company or any Internal Revenue Code section 401(k) plan by which Participant is covered, plus

(B)the value of any cash grants attributable to any month used in the average, awarded to Participant pursuant to the executive incentive awards program initially approved by the Board on October 25, 1989 or any similar program maintained by an Affiliated Company.

(2)For the purposes of determining the Participant's "compensation" under Subsection (1) of this definition, the CLC will determine the amount of any cash grant awarded to the Participant under any incentive awards program, and prorate such amount over the year for which the award was granted.

Notwithstanding the foregoing, if a Participant transfers from a Participating Company to an Affiliated Company that is not a Participating Company after becoming a Participant, earnings with the Affiliated Company after the date of such transfer (or for the duration of each such transfer if the Participant transfers more than once) shall not count in the Participant's Supplemental Final Average Earnings.

(q)"Terminated Vested Participant" means a Participant:

(1)who has a Termination of Employment after attaining age 50 but not age 55, and completing at least 10 Years of Service, and

(2)whom the CLC (or Compensation and Corporate Governance Committee, if applicable), in its sole discretion, does not determine is entitled to an immediately payable Benefit.

(r)"Termination of Employment" means the Participant's termination of employment with PPL and all Affiliated Companies.

(s)"Years of Service" means the number of full and partial years used to calculate Participant's accrued benefit under the Retirement Plan, or which would be used to calculate an accrued benefit if the Participant were eligible to participate in the Retirement Plan but (1) excluding years prior to Participant's attainment of age 30, and (2) including service with any Affiliated Company prior to the Participant's most recently becoming a Participant eligible under this Plan, provided such service would otherwise be counted under the Retirement Plan, but excluding any such service with an Affiliated Company performed before the Affiliated Company became an Affiliated Company, and (3) including Supplemental Years of Service granted to the Participant as set forth in Appendix A.

(t)"Year(s) of Vesting Service" means (1) the number of full years used to calculate Participant's vested interest in his accrued benefit under the Retirement Plan, or which would be used if eligible under the Retirement Plan, but excluding any such service with an Affiliated Company performed before the Affiliated Company became an Affiliated Company, and (2) the number of Supplemental Years of Service, if any, that may have been granted to the Participant, as set forth in Appendix A.

ARTICLE III
BENEFIT ELIGIBILITY

3.Benefit Eligibility.

(a)A Participant shall be eligible for a Benefit if and only if, upon his Termination of Employment, he is either:

(1)a Retiree, or

(2)a Terminated Vested Participant.

(b)Notwithstanding Section 3(a), any Participant otherwise eligible for benefits shall forfeit any and all benefits under the Plan if such Participant's Termination of Employment is by PPL or an Affiliated Company for Cause.

ARTICLE IV
AMOUNT OF BENEFIT

4.Amount of Benefit.

(a)A Participant entitled to benefits under Article 3 will be paid a Benefit equal to an annual amount payable for the life of Participant calculated pursuant to Sections (b) through (f) below:

(b)The amount calculated under Subsection (1) and/or (2), as appropriate, and subject to (3):

(1)The sum of (A) plus (B):

(A)2.0% of Participant's Supplemental Final Average Earnings times his Years of Service up to 20, plus

(B)1.5% of Participant's Supplemental Final Average Earnings times his Years of Service in excess of 20 but not in excess of 30.

(2)With respect to any Participant who was an officer in a PPL Salary Group I through IV on December 31, 1997, or was a Participant in an Affiliated Company SERP and who had a vested accrued benefit under that SERP, such Participant shall have a Benefit equal to the amount calculated under Section 4(b)(1), or the amount indicated for the Participant as a Minimum Accrued Benefit in Appendix A, whichever is greater.

(c)The amount calculated under Section (b) shall be multiplied by the applicable Early Retirement Reduction Factor,

(d)With respect to all Participants, the amount calculated under Sections (b) and (c) shall be reduced by the following amounts, to the extent such amounts are accrued during periods for which the Participant is credited with Years of Service under this Plan:

(1)The Participant's vested accrued benefit under the Retirement Plan (but not including any temporary supplemental amounts payable under Section 5.3(b) of the Retirement Plan),

(A)expressed as a single life annuity, and

(B)expressed as a benefit payable at the same time as Participant's Benefit, except that in the event Participant commences benefits under this Plan prior to commencing benefits under the Retirement Plan, the reduction will be made as if Participant had commenced benefits under the Retirement Plan at the later of age 55 or commencement of benefits under this Plan, based on the early retirement factors, and interest and mortality assumptions used in the Retirement Plan. The amount of the reduction will not thereafter be changed upon Participant's actual commencement of benefits under the Retirement Plan.

For purposes of this Subsection (d)(1), the term "Retirement Plan" shall include any successor plan.

(2)The Participant's vested accrued benefit under any other nonqualified defined benefit plan maintained by PPL, expressed as a single life annuity payable at the same time as Participant's Benefit, based on the early retirement factors and interest and mortality rates used in such plan.

(3)With respect to those Participants who have service with an Affiliated Company, the Participant's vested accrued benefit not attributable to the Participant's Contributions, if any, under any tax-qualified employee benefit plan as defined by Section 401 of the Internal Revenue Code of 1986, as Amended. Such benefit shall be expressed as a single-life annuity payable at the same time as Participant's Benefit, based upon the definition of Actuarial Equivalent, if an account balance in a defined contribution plan, or based upon the plan's actuarial assumptions, if a defined benefit plan.

The best data available will be used to determine the amounts to be offset under this Section (4(d)(3)). The CLC has the absolute, discretionary power to make reasonable approximations and estimates to determine the value and amount of such offset amounts, applied uniformly to all similarly situated Participants.

(e)The amount calculated under Section (b) of this Article with respect to a Participant who has ceased to be an eligible Participant shall be calculated on the basis of his Years of Service as of the date of his ineligibility, and on the basis of his Supplemental Final Average Earnings and his Years of Vesting Service as of the date of his Termination of Employment.

(f)In the event that a Participant's benefits under any plan to which Section (d) of this Article refers are subject in whole or in part to a domestic relations order, Benefit payments shall be calculated and paid without regard to such order.

ARTICLE V
TIME OF PAYMENT

5.Time of Payment.

A Participant who is eligible for benefits under Article 3 shall start receiving Benefit payments on the date set forth below.

(a)A Retiree shall receive benefits as soon as administratively practicable following his Termination of Employment.

(b)A Terminated Vested Participant shall receive benefits as follows:

(1)If he has elected, and the CLC has approved, a single sum form of benefit under Article 6, such single sum shall be paid as soon as administratively practicable following his Termination of Employment.

(2)If he has elected an annuity form of benefit under Article 6, such annuity form shall start to be paid as soon as administratively practicable following his attainment of age 55.

(c)In the event that PPL Corporation distributes to its shareowners as a dividend a sufficient number of shares of PPL Corporation or an Affiliated Company, on a pro rata basis, in accordance with their PPL Corporation equity ownership, or in the event of the sale of up to 25% of the securities of PPL or an Affiliated Company in an initial public offering of securities registered under the Securities Act of 1933, such distribution or sale of shares resulting in a Spin-Off Company (the "Spun-Off Company"), with the effect that the Spun-Off Company no longer meets the definition of PPL or an Affiliated Company, and in connection with such distribution or sale, a Participant becomes an employee of the Spun-Off Company, the payment of any Benefit to which Participant (or his beneficiary) is entitled under the Plan shall be made or shall commence to be made no earlier than at such time as the Participant (or his beneficiary) is eligible to commence to receive to a distribution (either immediate or deferred) under the Retirement Plan or any successor plan.

ARTICLE VI
METHOD OF PAYMENT

6.Method of Payment.

(a)A Participant who is eligible to receive benefits under the Retirement Plan and who elects to receive such benefits at the time Benefit payments begin may elect to have his Benefit paid in one of the following forms of benefit, each of which shall be the Actuarial Equivalent of his Benefit:

(1)the form of annuity payment in which his Retirement Plan benefits are to be paid, (provided, however, if any monthly payment would be 100 dollars or less, the CLC, in its discretion, may elect to make such payments in such installments as the CLC may determine or in a single sum payment), or

(2)a single sum, if approved by CLC in its sole discretion.

(b)A Participant who is not eligible to receive benefits under the Retirement Plan or who has elected not to receive such benefits under the Retirement Plan at the time Benefit payments begin, may elect one of the following forms of benefit, which shall be the Actuarial Equivalent of his Benefit, provided, however, that if he elects an annuity form under Paragraph (1), (2) or (3) below, and if any monthly payment would be 100 dollars or less, the CLC, in its discretion, may elect to make such payments in such installments as the CLC may determine, or in a single sum payment:

(1)a single life annuity with equal monthly installments payable to the Participant for his lifetime; or

(2)a joint and survivor annuity with the Participant's designated beneficiary, payable in monthly installments to the Participant for his lifetime and with a specified percentage of the amount of such monthly installment payable after the death of the Participant to the designated beneficiary of such Participant, if then living, for the life of such designated beneficiary; or

(3)a single life annuity payable in equal monthly installments to the Participant for his lifetime, with 60, 120 or 180 monthly payments guaranteed, or

(4)a single sum, if approved by CLC in its sole discretion.

(c)A Participant may elect a form of benefit hereunder by filing written notice with the CLC at anytime at least 12 months prior to the first day of the calendar month for which a Benefit is first payable to Participant. The CLC may waive this requirement in its sole discretion. If a Participant described in Section (a) of this Article fails to elect a form of benefit within the prescribed time period, the benefit shall be paid in the form in which such Participant's Retirement Plan benefits are paid. If a Participant described in Section (b) of this Article fails to elect a form of benefit within this time period, the benefit shall be paid in the form of a single-life annuity if the Participant does not have a spouse on the date of benefit commencement and in the form of a 50% joint and survivor annuity with Participant's spouse as the beneficiary if the Participant has a spouse on the date of benefit commencement.

ARTICLE VII
PRERETIREMENT SURVIVING SPOUSE BENEFIT

7.Preretirement Surviving Spouse Benefit. In the event of the death of a Participant prior to the commencement of payment of the Participant's Benefit, the Participant's surviving spouse will be paid a supplemental spouse's annuity based on the Benefit and made in accordance with all the terms and conditions applicable to a qualified preretirement survivor annuity under the Retirement Plan. The supplemental annuity described in the preceding sentence shall not be payable if the Participant had less than 10 Years of Service at date of death or with respect to a Participant described in Section 3(b).

ARTICLE VIII
ADMINISTRATION

8.Administration. The CLC shall have the discretionary authority and final right to interpret, construe and make benefit determinations (including eligibility and amount) under the Plan. The decisions of the CLC are final and conclusive for all purposes. If one or more members of the CLC are disqualified by personal interest from taking part in a particular decision, the remaining member or members of the CLC (although less than a quorum) shall have full authority to act on the matter. The CLC shall have authority to delegate specified duties and responsibilities to the Executive Committee of the CLC, or other PPL Committees.

ARTICLE IX
MISCELLANEOUS

9.Miscellaneous.

(a)If any person to receive payment is a minor, or is deemed by the CLC or is adjudged to be legally incompetent, the payments shall be made to the duly appointed guardian or committee of such minor or incompetent, or they may be made to such person or persons who the CLC believes are caring for or supporting such minor or incompetent.

(b)All payments to persons entitled to benefits under this Plan shall be made to such persons and shall not be grantable, transferable or otherwise assignable in anticipation of payment thereof, in whole or in part, by the voluntary or involuntary acts of any such persons, or by operation of law, and shall not be liable or taken for any obligation of such person. PPL will observe the terms of the Plan unless and until ordered to do otherwise by a state or Federal court. As a condition of participation, Participant agrees to hold PPL harmless from any claim that arises out of PPL's obeying any such order whether such order effects a judgment of such court or is issued to enforce a judgment or order of another court.

(c)Nothing in this Plan shall confer any right on any Participant to continue in a Participating Company's employ or to receive compensation, nor shall anything in this Plan affect in any way the right of a Participating Company to terminate any Participant's employment at any time.

(d)The expenses of administration hereunder shall be borne by PPL.

(e)This Plan shall be construed, administered and enforced according to the laws of the Commonwealth of Pennsylvania.

(f)Solely for Participants who are employees of PPL Electric Utilities Corporation and any subsidiaries thereof ("PPL Electric") immediately prior to their termination of employment ("Electric Employees"), all payments from this Plan to an Electric Employee or a beneficiary of such an Electric Employee shall be made from the general assets of PPL Electric. For all Participants who are not Electric Employees, all payments from this Plan to a Participant or a beneficiary of such Participant shall be made from the general assets of PPL Corporation and all Participating Companies except PPL Electric ("PPL (Non-Electric"). Except as set forth in the PPL Employee Nonqualified Plans Trust of April 1, 2001, this Plan shall not require PPL, any Participating Company or an Affiliated Company to set aside, segregate, earmark, pay into trust or special account or otherwise restrict the use of its assets in the operation of the business. Participant shall have no greater right or status than as an unsecured creditor of PPL Electric, if an Electric Employee, or PPL (Non-Electric) if not an Electric Employee, with respect to any amounts owed to Participant hereunder.

(g)The masculine pronoun shall be deemed to include the feminine and the singular to include the plural unless a different meaning is plainly required by the context.

ARTICLE X
TERMINATION OR AMENDMENT

10.Termination or Amendment. The Board may, in its sole discretion, terminate and amend this Plan from time to time provided, however, that the Plan may not be terminated or amended to the prejudice or detriment of any Participant during the three (3) year period immediately following a Change in Control (as defined in the PPL Retirement Plan) (or, if later, thirty six (36) months from the consummation of the transaction giving rise to the Change in Control). Without limiting the generality of the foregoing, the proviso of the preceding sentence shall not, at any time or in any event, be amended or deleted. Subject to the foregoing, the CLC may adopt any amendment that does not significantly affect the cost of the Plan or significantly alter the benefit design or eligibility requirements of the Plan. Each amendment to the Plan will be binding on the Participating Company to which it applies. No termination or amendment shall (without Participant's consent) alter Participant's right to monthly payments which have commenced prior to the effective date of such termination or amendment. Prior to a Change in Control, the Board specifically reserves the right to terminate or amend this Plan to eliminate the right of any Participant to receive payment hereunder prior to the time when payments are in pay status under this Plan. Notwithstanding the foregoing, if PPL is liquidated, the CLC shall cause the amounts due hereunder to be paid in one or more installments or upon such other terms and conditions and at such other time as the CLC determines to be just and equitable, but in no event later than the time such amounts would otherwise have been paid.

ARTICLE XI
EFFECTIVE DATE

11.Effective Date. The original effective date of this Plan is July 1, 1985. The effective date of this amended and restated Plan is July 1, 2003.

Executed this _____ day of_______________, 2003.

PPL SERVICES CORPORATION

By:

Ronald Schwarz

Vice President-Human Resources

APPENDIX A
NOTE

Appendix A is an Excel document stored @ G:STAFCOMP\SERP\SERP Appendix A in Human Resources-Compensation. The original Appendix A, showing all plan participants as approved by William Hecht on behalf of the CLC, is stored in OGC's files with the original SERP Plan (approved by Ron Schwarz, VP-HR).

Due to the personal and confidential nature of this Appendix, participants will be provided with an individualized Appendix A only. An electronic copy of the individualized version for each of the participants is stored at the same G drive folder listed above; a hard copy will be stored in their individual file folder located in the Compensation section of the Human Resources Department.

EX-12

Exhibit 12(a)
PPL CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (Millions of Dollars)
					2003			2002			2001		2000		1999
Fixed charges, as defined:
	Interest on long-term debt				$	417		$	486		$	351	$	323	$	233
	Interest on short-term debt and   other interest					25			71			44		64		47
	Amortization of debt discount,   expense and premium - net					41			25			17		5		4
	Interest on capital lease obligations
			Charged to expense											4		9
			Capitalized													1
	Estimated interest component of   operating rentals					52			39			36		25		20
	Preferred security distributions of   subsidiaries on a pre-tax basis					45			79			64		31		30
				Total fixed charges	$	580		$	700		$	512	$	452	$	344
Earnings, as defined:
	Net income (a)				$	726		$	438		$	167	$	491	$	492
	Preferred security dividend requirements					29			67			52		26		26
	Less undistributed income (loss) of   equity method investments					(18	)		(23	)		20		74		56
						773			528			199		443		462
Add:
	Income taxes					170			210			261		294		174
	Amortization of capitalized interest   on capital leases													2		2
	Total fixed charges as above   (excluding capitalized interest,   capitalized interest on capital lease   obligations and preferred security   distributions of subsidiaries on a   pre-tax basis)					528			600			419		405		307
				Total earnings	$	1,471		$	1,338		$	879	$	1,144	$	945
Ratio of earnings to fixed charges						2.5			1.9			1.7		2.5		2.7
Ratio of earnings to combined fixed   charges and preferred stock   dividends (b)						2.5			1.9			1.7		2.5		2.7
(a)		Net income excludes extraordinary item, minority interest, loss from discontinued operations and the cumulative effects of changes in accounting principles.
(b)		PPL, the parent holding company, does not have any preferred stock outstanding; therefore, the ratio of earnings to combined fixed charges and preferred stock dividends is the same as the ratio of earnings to fixed charges.

EX-12

Exhibit 12(b)
PPL ENERGY SUPPLY, LLC AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Millions of Dollars)
				2003 (b)			2002 (b)			2001 (b)		2000 (b)		1999
Fixed charges, as defined:
	Interest on long-term debt			$	149		$	169		$	36	$	54	$	20
	Interest on short-term debt and   other interest				25			52			33		75		32
	Amortization of debt discount,   expense and premium - net				31			9			2		11		1
	Estimated interest component of   operating rentals				38			23			19		9
	Preferred security distributions of   subsidiaries on a pre-tax basis				8			12
			Total fixed charges	$	251		$	265		$	90	$	149	$	53
Earnings, as defined:
	Net income (loss) (a)			$	719		$	509		$	168	$	246	$	(20	)
	Preferred security dividend requirement				5			9
	Less undistributed income (loss) of   equity method investments				(15	)		(22	)		20		74		56
					739			540			148		172		(76	)
Add:
	Income taxes (benefit)				185			266			274		125		(29	)
	Total fixed charges as above   (excluding capitalized interest and   preferred security distributions   of subsidiaries on a pre-tax basis)				237			234			66		135		52
			Total earnings	$	1,161		$	1,040		$	488	$	432	$	(53	)
Ratio of earnings to fixed charges					4.6			3.9			5.4		2.9		(1.0	)
Deficiency														$	106
(a)		Net income (loss) excludes minority interest, loss from discontinued operations and the cumulative effects of changes in accounting principles.
(b)		Due to the corporate realignment on July 1, 2000, data in 2000 and subsequent years are not comparable to 1999.

EX-12

Exhibit 12(c)
PPL ELECTRIC UTILITIES CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Millions of Dollars)
					2003 (b)		2002 (b)		2001 (b)		2000 (b)		1999
Fixed charges, as defined:
	Interest on long-term debt				$	201	$	209	$	220	$	223	$	205
	Interest on short-term debt and   other interest					3		3		4		16		12
	Amortization of debt discount,   expense and premium - net					8		7		6		4		3
	Interest on capital lease obligations
			Charged to expense									4		9
			Capitalized											1
	Estimated interest component of   operating rentals					7		7		8		14		19
	Preferred security distributions of   subsidiaries on a pre-tax basis							13		23		23		23
				Total fixed charges	$	219	$	239	$	261	$	284	$	272
Earnings, as defined:
	Net income (a)				$	25	$	39	$	114	$	250	$	444
	Preferred security dividend   requirements					3		16		26		26		37
						28		55		140		276		481
Add:
	Income taxes					18		18		65		171		151
	Amortization of capitalized interest   on capital leases											2		2
	Total fixed charges as above   (excluding capitalized interest,   capitalized interest on capital lease   obligations and preferred security   distributions of subsidiaries on a   pre-tax basis)					219		225		238		257		243
				Total earnings	$	265	$	298	$	443	$	706	$	877
Ratio of earnings to fixed charges						1.2		1.2		1.7		2.5		3.2
(a)		Net income excludes extraordinary item and the cumulative effect of a change in accounting principle.
(b)		Due to the corporate realignment on July 1, 2000, data in 2000 and subsequent years are not comparable to 1999.

EX-12

Exhibit 12(d)
PPL MONTANA, LLC AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Millions of Dollars)
				2003		2002		2001		2000
Fixed charges, as defined:
	Interest expense on credit facility			$	1	$	2	$	2	$	18
	Amortization of debt expenses								1		3
	Amortization of wholesale energy commitments				4		4		6		7
	Estimated interest component of operating rentals				15		15		15		6
			Total fixed charges	$	20	$	21	$	24	$	34
Earnings, as defined:
	Net income (a)			$	69	$	47	$	103	$	86
Add:
	Income taxes				45		35		68		57
	Total fixed charges as above				20		21		24		34
			Total earnings	$	134	$	103	$	195	$	177
Ratio of earnings to fixed charges					6.7		4.9		8.1		5.2
(a)		Net income excludes extraordinary item and the cumulative effect of a change in accounting principle.

EX-21

Exhibit 21(a)
PPL Corporation
Subsidiaries of the Registrant
As of December 31, 2003

Company Name Business Conducted under Same Name	State or Jurisdiction of Incorporation/Formation
PMDC International Holdings, Inc	Delaware
PPL Brunner Island	Delaware
PPL Capital Funding Inc.	Delaware
PPL Electric Utilities Corporation	Pennsylvania
PPL Energy Funding Corporation	Pennsylvania
PPL EnergyPlus, LLC	Pennsylvania
PPL Energy Supply, LLC	Delaware
PPL Generation, LLC	Delaware
PPL Global, LLC	Delaware
PPL Investment Corp.	Delaware
PPL Montana Holdings, LLC	Delaware
PPL Montour, LLC	Delaware
PPL Susquehanna, LLC	Delaware
PPL Transition Bond Company, LLC	Delaware
WPD Investment Holdings Ltd.	United Kingdom

EX-21

Exhibit 21(b)
PPL Electric Utilities Corporation
Subsidiaries of the Registrant
As of December 31, 2003

Company Name Business Conducted under Same Name	State or Jurisdiction of Incorporation/Formation
PPL Transition Bond Company, LLC	Delaware

EX-23

Exhibit 23(a)

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-85716, 333-85716-01, 333-85716-02, 333-54504, 333-54504-01, 333-54504-02, 333-106200 and 106200-01), the Registration Statements on Form S-3D (Nos. 333-102845 and 333-48781), the Registration Statement on Form S-4 (No. 333-108450), and the Registration Statements on Form S-8 (Nos. 333-02003, 333-112453, 333-110372, and 333-95967) of PPL Corporation of our report dated February 2, 2004 relating to the consolidated financial statements and financial statement schedule of PPL Corporation, which appears in this Form 10-K.

PricewaterhouseCoopers LLP
Philadelphia, PA
March 1, 2004

EX-23

Exhibit 23(b)

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-106200 and 106200-01) of PPL Energy Supply, LLC of our report dated February 2, 2004 relating to the consolidated financial statements and financial statement schedule of PPL Energy Supply, LLC, which appears in this Form 10-K.

PricewaterhouseCoopers LLP
Philadelphia, PA
March 1, 2004

EX-23

Exhibit 23(c)

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-64880) of PPL Electric Utilities Corporation of our report dated February 2, 2004 relating to the consolidated financial statements and financial statement schedule of PPL Electric Utilities Corporation, which appears in this Form 10-K.

PricewaterhouseCoopers LLP
Philadelphia, PA
March 1, 2004

EX-24

Exhibit 24

PPL CORPORATION

2003 ANNUAL REPORT
TO THE SECURITIES AND EXCHANGE COMMISSION
ON FORM 10-K

POWER OF ATTORNEY

The undersigned directors of PPL Corporation, a Pennsylvania corporation, that is to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its 2003 Annual Report on Form 10-K, do hereby appoint each of William F. Hecht, John R. Biggar and Robert J. Grey their true and lawful attorney, with power to act without the other and with full power of substitution and resubstitution, to execute for them and in their names said Form 10-K Report and any and all amendments thereto, whether said amendments add to, delete from or otherwise alter said Form 10-K Report, or add or withdraw any exhibits or schedules to be filed therewith and any and all instruments in connection therewith. The undersigned hereby grant to each said attorney full power and authority to do and perform in the name of and on behalf of the undersigned, and in any and all capacities, any act and thing whatsoever required or necessary to be done in and about the premises, as fully and to all intents and purposes as the undersigned might do, hereby ratifying and approving the acts of each of the said attorneys.

IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seals this 27th day of February, 2004.

_______________________________ Frederick M. Bernthal	_______________________________ Stuart Heydt
_______________________________ John W. Conway	_______________________________ W. Keith Smith
_______________________________ E. Allen Deaver	_______________________________ Susan M. Stalnecker
_______________________________ Louise K. Goeser

EX-31

Exhibit 31(a)

CERTIFICATION
I, WILLIAM F. HECHT, the principal executive officer of PPL Corporation (the "registrant"), certify that:
1.	I have reviewed this annual report on Form 10-K of the registrant for the year ended December 31, 2003;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 1, 2004			/s/  William F. Hecht
			William F. Hecht Chairman, President and Chief Executive Officer PPL Corporation

EX-31

Exhibit 31(b)

CERTIFICATION
I, JOHN R. BIGGAR, the principal financial officer of PPL Corporation (the "registrant"), certify that:
1.	I have reviewed this annual report on Form 10-K of the registrant for the year ended December 31, 2003;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 1, 2004			/s/  John R. Biggar
			John R. Biggar Executive Vice President and Chief Financial Officer PPL Corporation

EX-31

Exhibit 31(c)

CERTIFICATION
I, WILLIAM F. HECHT, the principal executive officer of PPL Energy Supply, LLC (the "registrant"), certify that:
1.	I have reviewed this annual report on Form 10-K of the registrant for the year ended December 31, 2003;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 1, 2004			/s/  William F. Hecht
			William F. Hecht President PPL Energy Supply, LLC

EX-31

Exhibit 31(d)

CERTIFICATION
I, JAMES E. ABEL, the principal financial officer of PPL Energy Supply, LLC (the "registrant"), certify that:
1.	I have reviewed this annual report on Form 10-K of the registrant for the year ended December 31, 2003;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 1, 2004			/s/  James E. Abel
			James E. Abel Treasurer PPL Energy Supply, LLC

EX-31

Exhibit 31(e)

CERTIFICATION
I, JOHN F. SIPICS, the principal executive officer of PPL Electric Utilities Corporation (the "registrant"), certify that:
1.	I have reviewed this annual report on Form 10-K of the registrant for the year ended December 31, 2003;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 1, 2004			/s/  John F. Sipics
			John F. Sipics President PPL Electric Utilities Corporation

EX-31

Exhibit 31(f)

CERTIFICATION
I, JAMES E. ABEL, the principal financial officer of PPL Electric Utilities Corporation (the "registrant"), certify that:
1.	I have reviewed this annual report on Form 10-K of the registrant for the year ended December 31, 2003;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 1, 2004			/s/  James E. Abel
			James E. Abel Treasurer PPL Electric Utilities Corporation

EX-31

Exhibit 31(g)

CERTIFICATION
I, JAMES H. MILLER, the principal executive officer of PPL Montana, LLC (the "registrant"), certify that:
1.	I have reviewed this annual report on Form 10-K of the registrant for the year ended December 31, 2003;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 1, 2004			/s/  James H. Miller
			James H. Miller President PPL Montana, LLC

EX-31

Exhibit 31(h)

CERTIFICATION
I, JAMES E. ABEL, the principal financial officer of PPL Montana, LLC (the "registrant"), certify that:
1.	I have reviewed this annual report on Form 10-K of the registrant for the year ended December 31, 2003;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 1, 2004			/s/  James E. Abel
			James E. Abel Treasurer PPL Montana, LLC

EX-32

Exhibit 32(a)

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
FOR PPL CORPORATION'S 10-K FOR THE YEAR ENDED DECEMBER 31, 2003

In connection with the annual report on Form 10-K of PPL Corporation (the "Company") for the year ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), I, the principal executive officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:

• The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

• The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 1, 2004 /s/ William F. Hecht                                   
William F. Hecht
Chairman, President and
Chief Executive Officer
PPL Corporation

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32

Exhibit 32(b)

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
FOR PPL CORPORATION'S 10-K FOR THE YEAR ENDED DECEMBER 31, 2003

In connection with the annual report on Form 10-K of PPL Corporation (the "Company") for the year ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), I, the principal financial officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:

• The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

• The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 1, 2004 /s/ John R. Biggar                                   
John R. Biggar
Executive Vice President and
Chief Financial Officer
PPL Corporation

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32

Exhibit 32(c)

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
FOR PPL ENERGY SUPPLY, LLC'S 10-K FOR THE YEAR ENDED DECEMBER 31, 2003

In connection with the annual report on Form 10-K of PPL Energy Supply, LLC (the "Company") for the year ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), I, the principal executive officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:

• The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

• The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 1, 2004 /s/ William F. Hecht                                   
William F. Hecht
President PPL Energy Supply, LLC

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32

Exhibit 32(d)

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
FOR PPL ENERGY SUPPLY'S 10-K FOR THE YEAR ENDED DECEMBER 31, 2003

In connection with the annual report on Form 10-K of PPL Energy Supply, LLC (the "Company") for the year ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), I, the principal financial officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:

• The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

• The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 1, 2004 /s/ James E. Abel                                   
James E. Abel
Treasurer PPL Energy Supply, LLC

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32

Exhibit 32(e)

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
FOR PPL ELECTRIC UTILITIES CORPORATION'S 10-K FOR THE YEAR ENDED DECEMBER 31, 2003

In connection with the annual report on Form 10-K of PPL Electric Utilities Corporation (the "Company") for the year ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), I, the principal executive officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:

• The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

• The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 1, 2004 /s/ John F. Sipics                                   
John F. Sipics
President PPL Electric Utilities Corporation

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32

Exhibit 32(f)

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
FOR PPL ELECTRIC UTILITIES CORPORATION'S 10-K FOR THE YEAR ENDED DECEMBER 31, 2003

In connection with the annual report on Form 10-K of PPL Electric Utilities Corporation (the "Company") for the year ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), I, the principal financial officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:

• The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

• The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 1, 2004 /s/ James E. Abel                                   
James E. Abel
Treasurer PPL Electric Utilities Corporation

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32

Exhibit 32(g)

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
FOR PPL MONTANA, LLC'S 10-K FOR THE YEAR ENDED DECEMBER 31, 2003

In connection with the annual report on Form 10-K of PPL Montana, LLC (the "Company") for the year ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), I, the principal executive officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:

• The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

• The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 1, 2004 /s/ James H. Miller                                   
James H. Miller
President PPL Montana, LLC

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32

Exhibit 32(h)

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
FOR PPL MONTANA, LLC'S 10-K FOR THE YEAR ENDED DECEMBER 31, 2003

In connection with the annual report on Form 10-K of PPL Montana, LLC (the "Company") for the year ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), I, the principal financial officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:

• The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

• The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 1, 2004 /s/ James E. Abel                                   
James E. Abel
Treasurer PPL Montana, LLC

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99

Exhibit 99
PPL Corporation - Corporate Organization (Selected Subsidiaries)
PPL Corporation
	PPL Electric Utilities Corporation
		PPL Transition Bond Company, LLC
		CEP Commerce, LLC
	PPL Gas Utilities Corporation
	PPL Services Corporation
	PPL Capital Funding, Inc.
	PPL Properties, Inc.
	Ninth Street & Hamilton Corporation
	PPL Energy Funding Corporation
		CEP Reserves, Inc.
		PPL Ventures, LLC
			PPLSolutions, LLC
			PPL Telcom, LLC
		PPL Energy Supply, LLC
			PPL Investment Corporation
			PPL Global, LLC
				PMDC Chile, Inc. (includes Emel)
				PPLG U.S. Latin America, Inc. (includes Elfec and Integra)
				PPLG El Salvador (includes EC)
				PMDC International Holdings, Inc. (includes WPD)
			PPL EnergyPlus, LLC
				PPL Synfuel Investments, LLC
				PPL Energy Services Holdings, LLC
			PPL Generation, LLC
				PPL Holtwood, LLC
				PPL Maine, LLC
				PPL Interstate Energy Company
				PPL Montana Holdings, LLC (includes PPL Montana)
				PPL Susquehanna, LLC
				PPL Martins Creek, LLC
				PPL Brunner Island, LLC
				PPL Montour, LLC
					PPL Rights, Inc. (jointly owned by PPL Montour, PPL Martins Creek and PPL Brunner Island)
				Lower Mount Bethel Energy, LLC
				PPL Wallingford Energy LLC
				PPL Sundance Energy, LLC
				PPL Shoreham Energy, LLC
				PPL Edgewood Energy, LLC
				PPL Southwest Generation Holdings, LLC (50% owner of Griffith Energy)
				PPL Coal Holdings Corporation
				PPL Midwest Holdings, LLC (includes University Park)