PPL is an energy and utility holding company with headquarters in Allentown, Pennsylvania. Refer to "Item 1. Business - Background" in PPL's 2008 Form 10-K for descriptions of its reportable segments, which are Supply, International Delivery and Pennsylvania Delivery. Through its subsidiaries, PPL is primarily engaged in the generation and marketing of electricity in two key markets - the northeastern and western U.S. - and in the delivery of electricity in Pennsylvania and the U.K. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview" in PPL's Form 8-K dated September 9, 2009, for a discussion of PPL's strategy and the risks and challenges that it faces in its business. See "Forward-Looking Information," Note 10 to the Financial Statements and the remainder of Item 2 in this Form 10-Q, and "Item 1A. Risk Factors" in PPL's 2008 Form 10-K and the rest of Item 7 in PPL's Form 8-K dated September 9, 2009 for more information concerning the material risks and uncertainties that PPL faces in its businesses and with respect to its future earnings. PPL filed the September 2009 Form 8-K to revise certain information in Items 6, 7 and 8 in its 2008 Form 10-K to reflect discontinued operations and the retrospective application of certain accounting standards.

Market Events

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

Commodity Price Risk

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

Credit Risk

Credit risk is the risk that PPL would incur a loss as a result of nonperformance by counterparties of their contractual obligations. PPL maintains credit policies and procedures to limit counterparty credit risk. Conditions in the financial and commodity markets have generally increased PPL's exposure to credit risk. See Notes 13 and 14 to the Financial Statements, and "Risk Management - Energy Marketing & Trading and Other - Credit Risk" in PPL's Form 8-K dated September 9, 2009 for more information on credit risk.

Liquidity Risk

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

Valuations in Inactive Markets

Conditions in the financial markets have generally made it difficult to determine the fair value of certain assets and liabilities in inactive markets. Management has reviewed the activity in the energy and financial markets in which PPL transacts, concluding that all of these markets were active at September 30, 2009, with the exception of the market for auction rate securities. See Notes 13 and 18 to the Financial Statements and "Financial Condition - Liquidity and Capital Resources - Auction Rate Securities" for a discussion of these investments.

Securities Price Risk

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

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

The Economic Stimulus Package

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

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

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

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

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

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

Earnings

Net income attributable to PPL and the related EPS were:

                                    Three Months Ended         Nine Months Ended
                                      September 30,              September 30,
                                     2009          2008         2009         2008

Net income attributable to PPL   $      20       $  203     $     254      $  653
EPS - basic                      $    0.05       $ 0.54     $    0.67      $ 1.74
EPS - diluted                    $    0.05       $ 0.54     $    0.67      $ 1.73

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

Segment Results

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

                Three Months Ended September 30,    Nine Months Ended September 30,
                      2009               2008             2009              2008

Supply          $         (31 )       $    98       $         (12 )       $   297
International
Delivery                   24              73                 173             233
Pennsylvania
Delivery                   27              32                  93             123
Total           $          20         $   203       $         254         $   653

Supply Segment

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

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

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

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

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

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

Sept. 30, 2009 vs. Sept. 30,

                                  2008
                      Three Months      Nine Months
                         Ended             Ended

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

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

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

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

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

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

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

                       Three Months Ended
                          September 30,            Nine Months Ended September 30,
                     2009              2008            2009              2008

Unrealized
gains (losses)
from
energy-related
economic
activity
(Note 14)        $   (130 )       $         67     $   (168 )       $        121
Adjustments -
NDT
investments
(a)                                         (1 )         (1 )                 (5 )
Impairments
and other
impacts -
emission
allowances (b)                             (27 )        (15 )                (27 )
Impairments -
assets held
for sale and
other (c)                                               (36 )
Workforce
reduction
charge (Note
6)                                                       (6 )
Change in tax
accounting
method (Note
5)                    (25 )                             (25 )
Off-site
remediation of
ash basin leak
(Note 10)                                                                      1
Montana basin

(a) Represents other-than-temporary impairment charges on securities, including reversals of previous impairments when securities previously impaired were sold.
(b) 2008 includes charges related to annual nitrogen oxide allowances and put options recorded in the third quarter. See PPL's Form 8-K dated September 9, 2009 for additional information.

See "Nonrecurring Fair Value Measurements - Sulfur Dioxide Emission Allowances" in Note 13 to the Financial Statements for additional information on 2009 impairments.
(c) Includes a $34 million charge related to the Long Island generation business recorded in the second quarter of 2009.

Earnings Outlook

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

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

International Delivery Segment

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

International Delivery segment net income attributable to PPL was:

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

                       2009               2008             2009              2008

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

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

Sept. 30, 2009 vs. Sept. 30, 2008

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

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

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

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

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

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

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

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

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

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

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

Earnings Outlook

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

Pennsylvania Delivery Segment

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

Pennsylvania Delivery segment net income attributable to PPL was:

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

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

Sept. 30, 2009 vs. Sept. 30, 2008

                                               Nine Months
                     Three Months Ended           Ended

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