Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-Q
 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended September 30, 2006
 
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
       
       
 
Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
 
 
PPL Corporation
Yes  X   
No        
 
 
PPL Energy Supply, LLC
Yes  X   
No        
 
 
PPL Electric Utilities Corporation
Yes  X   
No        
 

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

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

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

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

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

 
PPL Corporation
Common stock, $.01 par value, 381,565,560 shares outstanding at October 31, 2006.
     
 
PPL Energy Supply, LLC
PPL Corporation indirectly holds all of the membership interests in PPL Energy Supply, LLC.
     
 
PPL Electric Utilities Corporation
Common stock, no par value, 66,368,056 shares outstanding and all held by PPL Corporation at October 31, 2006.
     

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

FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2006

Table of Contents
 
Page
   
GLOSSARY OF TERMS AND ABBREVIATIONS
i
   
FORWARD-LOOKING INFORMATION
1
   
PART I. FINANCIAL INFORMATION
 
 
Item 1. Financial Statements
 
   
PPL Corporation and Subsidiaries
 
     
2
     
3
     
4
   
PPL Energy Supply, LLC and Subsidiaries
 
     
6
     
7
     
8
   
PPL Electric Utilities Corporation and Subsidiaries
 
     
10
     
11
     
12
   
14
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
     
46
     
60
     
72
 
77
 
77
   
PART II. OTHER INFORMATION
 
 
77
 
77
 
78
   
79
   
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
 
     
80
     
81
     
82
   
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
     
83
     
85
     
87
   
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
     
89
     
91
     
93
GLOSSARY OF TERMS AND ABBREVIATIONS

PPL Corporation and its current and former subsidiaries
 

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 a majority ownership interest.

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).

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

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

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

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

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

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

PPL Gas Utilities - PPL Gas Utilities Corporation, a regulated utility subsidiary of PPL that specializes 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 that owns and operates U.S. generating facilities through various subsidiaries.

PPL Global - PPL Global, LLC, a subsidiary of PPL Energy Supply that owns and operates international energy businesses that are focused on the regulated distribution of electricity.

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

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

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

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

PPL Telcom - PPL Telcom, LLC, an indirect subsidiary of PPL and PPL Energy Supply that delivers high bandwidth telecommunication services 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 subsidiary of PPL Electric that was formed to issue transition bonds under the Customer Choice Act.

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

WPD - refers collectively to WPDH Limited and WPDL.

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.
 

Other terms and abbreviations

£ - British pounds sterling.

2005 Form 10-K - Annual Report to the SEC on Form 10-K for the year ended December 31, 2005.

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

ARO - asset retirement obligation.

Bcf - billion cubic feet.

Black Lung Trust - a trust account maintained under federal and state Black Lung legislation for the payment of claims related to disability or death due to pneumoconiosis.

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.

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

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

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

EMF - electric and magnetic field.

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

EPS - earnings per share.

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.

Fitch - Fitch, Inc.

FSP -   FASB Staff Position.

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

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.

LIBOR   -   London Interbank Offered Rate.

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

Moody's - Moody's Investors Service, Inc.

MW - megawatt, one thousand kilowatts.

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

NorthWestern - NorthWestern Energy Division, a Delaware corporation and a subsidiary 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.

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

NYMEX   - New York Mercantile Exchange.

PCB - polychlorinated biphenyl, an oil additive used in certain electrical equipment up to the late-1970s. It is now classified as a hazardous chemical.

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

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

PP&E   - property, plant and equipment.

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

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

PUHCA - Public Utility Holding Company Act of 1935, legislation passed by the U.S. Congress. Repealed effective February 2006 by the Energy Policy Act of 2005.

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.

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

SAB - Staff Accounting Bulletin.

SCR - selective catalytic reduction, a pollution control process.
 
SEC - Securities and Exchange Commission, a U.S. government agency whose primary mission is to protect investors and maintain the integrity of the securities markets.

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

S&P - Standard & Poor's Ratings Services.

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 may be available on qualified synthetic fuel 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.
FORWARD-LOOKING INFORMATION
 
Statements contained in this Form 10-Q concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are other than statements of historical facts are "forward-looking statements" within the meaning of the federal securities laws. Although PPL, PPL Energy Supply and PPL Electric believe that the expectations and assumptions reflected in these statements are reasonable, there can be no assurance that these expectations will prove to be correct. 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 "Item 1A. Risk Factors" in the companies' 2005 Form 10-K and in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q report, 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;
·
market prices for crude oil and the potential impact on synthetic fuel operations, synthetic fuel purchases from third parties and the phase-out of synthetic fuel tax credits;
·
weather conditions affecting generation production, customer energy usage and operating costs;
·
competition in retail and wholesale power markets;
·
liquidity of wholesale power markets;
·
the effect of any business or industry restructuring;
·
the profitability and liquidity, including access to capital markets and credit facilities, of PPL and its subsidiaries;
·
new accounting requirements or new interpretations or applications of existing requirements;
·
operation and availability of existing generation facilities and operating costs;
·
transmission and distribution system conditions and operating costs;
·
current and future environmental conditions and requirements and the related costs of compliance, including environmental capital expenditures and emission allowance and other expenses;
·
significant delays in the planned installation of pollution control equipment at certain coal-fired generating units in Pennsylvania due to weather conditions, contractor performance or other reasons;
·
market prices of commodity inputs for ongoing capital expenditures;
·
collective labor bargaining negotiations;
·
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;
·
any impact of hurricanes or other severe weather on PPL and its subsidiaries, including any impact on fuel prices;
·
receipt of necessary governmental permits, approvals and rate relief;
·
new state, federal or foreign legislation, including new tax legislation;
·
state, federal and foreign regulatory developments;
·
any impact of state, federal or foreign investigations applicable to PPL and its subsidiaries and the energy industry;
·
capital market conditions, including changes in interest rates, and decisions regarding capital structure;
·
stock price performance of PPL;
·
the market prices of equity securities and the impact on pension costs and resultant cash funding requirements for defined benefit pension plans;
·
securities and credit ratings;
·
foreign currency exchange rates;
·
the outcome of litigation against PPL and its subsidiaries;
·
potential effects of threatened or actual terrorism or war 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 and PPL Electric on file with the SEC.

New factors that could cause actual results to differ materially from those described in forward-looking statements emerge from time to time, and it is not possible for PPL, PPL Energy Supply or PPL Electric to predict all of such factors, or the extent to which any such factor or combination of factors may cause actual results to differ from those contained in any forward-looking statement. Any forward-looking statement speaks only as of the date on which such statement is made, and PPL, PPL Energy Supply and PPL Electric undertake no obligations to update the information contained in such statement to reflect subsequent developments or information.
Item 1. Financial Statements
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, except per share data)
   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
   
2006
 
2005
 
2006
 
2005
Operating Revenues
               
Utility
 
$
1,124
   
$
1,067
   
$
3,427
   
$
3,234
 
Unregulated retail electric
   
23
     
25
     
68
     
73
 
Wholesale energy marketing
   
446
     
336
     
1,164
     
865
 
Net energy trading margins
   
15
     
19
     
26
     
33
 
Energy-related businesses
   
144
     
173
     
490
     
480
 
Total
   
1,752
     
1,620
     
5,175
     
4,685
 
                                 
Operating Expenses
                               
Operation
                               
Fuel
   
249
     
270
     
702
     
679
 
Energy purchases
   
371
     
214
     
989
     
709
 
Other operation and maintenance (Note 10)
   
335
     
331
     
1,019
     
1,030
 
Amortization of recoverable transition costs
   
75
     
71
     
210
     
199
 
Depreciation
   
107
     
108
     
326
     
315
 
Taxes, other than income
   
74
     
73
     
214
     
214
 
Energy-related businesses
   
161
     
170
     
469
     
486
 
Total
   
1,372
     
1,237
     
3,929
     
3,632
 
                                 
Operating Income
   
380
     
383
     
1,246
     
1,053
 
                                 
Other Income - net
   
21
     
5
     
63
     
23
 
                                 
Interest Expense
   
125
     
127
     
365
     
387
 
                                 
Income from Continuing Operations Before Income Taxes, Minority Interest and Dividends on Preferred Securities of a Subsidiary
   
276
     
261
     
944
     
689
 
                                 
Income Taxes
   
41
     
64
     
219
     
138
 
                                 
Minority Interest
   
4
     
1
     
8
     
5
 
                                 
Dividends on Preferred Securities of a Subsidiary
   
5
     
1
     
10
     
2
 
                                 
Income from Continuing Operations
   
226
     
195
     
707
     
544
 
                                 
Loss (Income) from Discontinued Operations (net of income taxes)
           
(2
)
   
20
     
51
 
                                 
Net Income
 
$
226
   
$
197
   
$
687
   
$
493
 
                                 
Earnings Per Share of Common Stock:
                               
Income from Continuing Operations:
                               
Basic
 
$
0.59
   
$
0.51
   
$
1.86
   
$
1.44
 
Diluted
   
0.58
     
0.50
     
1.83
     
1.42
 
Net income:
                               
Basic
 
$
0.59
   
$
0.52
   
$
1.81
   
$
1.30
 
Diluted
   
0.58
     
0.51
     
1.78
     
1.29
 
                                 
Dividends Declared per Share of Common Stock
 
$
0.275
   
$
0.25
   
$
0.825
   
$
0.71
 
 
 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.
 
 

PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
   
Nine Months Ended September 30,
   
2006
 
2005
Cash Flows from Operating Activities
               
Net income
 
$
687
   
$
493
 
Adjustments to reconcile net income to net cash provided by operating activities
               
Pre-tax loss from the sale of the Sundance plant
           
72
 
Pre-tax loss from the sale of interest in the Griffith plant
   
40
         
Depreciation
   
326
     
318
 
Amortization - recoverable transition costs and other
   
234
     
223
 
Deferred income tax benefits and investment tax credits
   
(81
)
   
(42
)
Pension and other postretirement benefits
   
(28
)
   
(34
)
Realization of benefits related to Black Lung Trust assets
   
(36
)
       
Stock compensation expense
   
21
     
30
 
Accrual for PJM billing dispute
           
47
 
Accrual for remediation of ash basin leak
   
(11
)
   
33
 
Unrealized gain on derivatives and other hedging activities
   
(2
)
   
(26
)
Other
   
39
     
12
 
Change in current assets and current liabilities
               
Accounts receivable
   
(2
)
   
(85
)
Accounts payable
   
(14
)
   
95
 
Fuel, materials and supplies
   
(22
)
   
33
 
Other
   
100
     
(38
)
Other operating activities
               
Other assets
   
5
     
11
 
Other liabilities
   
2
     
(19
)
Net cash provided by operating activities
   
1,258
     
1,123
 
                 
Cash Flows from Investing Activities
               
Expenditures for property, plant and equipment
   
(859
)
   
(538
)
Proceeds from the sale of the Sundance plant
           
190
 
Proceeds from the sale of interest in the Griffith plant
   
115
         
Purchases of emission allowances
   
(68
)
   
(132
)
Proceeds from the sale of emission allowances
   
42
     
57
 
Purchases of nuclear decommissioning trust investments
   
(178
)
   
(166
)
Proceeds from the sale of nuclear decommissioning trust investments
   
166
     
155
 
Purchases of other marketable securities
   
(331
)
   
(19
)
Proceeds from the sale of other marketable securities
   
271
     
83
 
Net decrease (increase) in restricted cash
   
8
     
(20
)
Other investing activities
   
16
     
(9
)
Net cash used in investing activities
   
(818
)
   
(399
)
                 
Cash Flows from Financing Activities
               
Issuance of common stock
   
13
     
36
 
Issuance of long-term debt
   
800
     
224
 
Issuance of preference stock, net of issuance costs
   
245
         
Retirement of long-term debt
   
(757
)
   
(1,177
)
Payment of common stock dividends
   
(304
)
   
(252
)
Net (decrease) increase in short-term debt
   
(172
)
   
80
 
Other financing activities
   
(21
)
   
(20
)
Net cash used in financing activities
   
(196
)
   
(1,109
)
                 
Effect of Exchange Rates on Cash and Cash Equivalents
   
1
     
4
 
                 
Net Increase (Decrease) in Cash and Cash Equivalents
   
245
     
(381
)
Cash and Cash Equivalents at Beginning of Period
   
555
     
616
 
Cash and Cash Equivalents at End of Period
 
$
800
   
$
235
 
                 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

 

PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
   
September 30,
2006
 
December 31,
2005
Assets
               
                 
Current Assets
               
Cash and cash equivalents
 
$
800
   
$
555
 
Restricted cash
   
88
     
93
 
Accounts receivable (less reserve: 2006, $53; 2005, $87)
   
559
     
544
 
Unbilled revenues
   
397
     
479
 
Fuel, materials and supplies
   
369
     
346
 
Prepayments
   
105
     
53
 
Deferred income taxes
   
175
     
192
 
Price risk management assets
   
526
     
488
 
Other acquired intangibles
   
138
     
50
 
Other
   
153
     
110
 
Total Current Assets
   
3,310
     
2,910
 
                 
Investments
               
Investment in unconsolidated affiliates - at equity
   
49
     
56
 
Nuclear plant decommissioning trust funds
   
483
     
444
 
Other
   
7
     
8
 
Total Investments
   
539
     
508
 
                 
Property, Plant and Equipment
               
Electric plant in service
               
Transmission and distribution
   
8,552
     
7,984
 
Generation
   
8,693
     
8,761
 
General
   
748
     
646
 
     
17,993
     
17,391
 
Construction work in progress
   
524
     
259
 
Nuclear fuel
   
316
     
327
 
Electric plant
   
18,833
     
17,977
 
Gas and oil plant
   
369
     
349
 
Other property
   
304
     
289
 
     
19,506
     
18,615
 
Less: accumulated depreciation
   
7,960
     
7,699
 
Total Property, Plant and Equipment
   
11,546
     
10,916
 
                 
Regulatory and Other Noncurrent Assets
               
Recoverable transition costs
   
955
     
1,165
 
Goodwill
   
1,113
     
1,070
 
Other acquired intangibles
   
348
     
412
 
Price risk management assets
   
180
     
84
 
Other
   
866
     
861
 
Total Regulatory and Other Noncurrent Assets
   
3,462
     
3,592
 
                 
Total Assets
 
$
18,857
   
$
17,926
 
 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.
 
 
 
 
CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
   
September 30,
2006
 
December 31,
2005
Liabilities and Equity
               
                 
Current Liabilities
               
Short-term debt
 
$
43
   
$
214
 
Long-term debt
   
1,174
     
1,126
 
Accounts payable
   
543
     
542
 
Above market NUG contracts
   
66
     
70
 
Taxes
   
211
     
168
 
Interest
   
125
     
112
 
Dividends
   
110
     
96
 
Price risk management liabilities
   
558
     
533
 
Other
   
469
     
479
 
Total Current Liabilities
   
3,299
     
3,340
 
                 
Long-term Debt
   
6,016
     
5,955
 
                 
Long-term Debt with Affiliate Trust
   
89
     
89
 
                 
Deferred Credits and Other Noncurrent Liabilities
               
Deferred income taxes and investment tax credits
   
2,282
     
2,197
 
Price risk management liabilities
   
524
     
541
 
Accrued pension obligations
   
343
     
374
 
Asset retirement obligations
   
314
     
298
 
Above market NUG contracts
   
87
     
136
 
Other
   
454
     
471
 
Total Deferred Credits and Other Noncurrent Liabilities
   
4,004
     
4,017
 
                 
Commitments and Contingent Liabilities (Note 11)
               
                 
Minority Interest
   
58
     
56
 
                 
Preferred Securities of a Subsidiary
   
301
     
51
 
                 
Shareowners' Common Equity
               
Common stock - $0.01 par value (a)
   
4
     
4
 
Capital in excess of par value (b)
   
2,798
     
3,602
 
Treasury stock (a) (b)
           
(838
)
Earnings reinvested
   
2,553
     
2,182
 
Accumulated other comprehensive loss
   
(265
)
   
(532
)
Total Shareowners' Common Equity
   
5,090
     
4,418
 
                 
Total Liabilities and Equity
 
$
18,857
   
$
17,926
 
 
(a)
 
780 million shares authorized; 382 million shares issued and outstanding at September 30, 2006, and 380 million shares issued and outstanding, excluding 62 million shares held as treasury stock, at December 31, 2005.
(b)
 
See Note 2 for additional information on the retirement of all treasury stock in 2006.
 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

 
 
 
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
   
2006
 
2005
 
2006
 
2005
Operating Revenues
                               
Wholesale energy marketing
 
$
446
   
$
336
   
$
1,164
   
$
865
 
Wholesale energy marketing to affiliate
   
445
     
415
     
1,286
     
1,194
 
Utility
   
301
     
264
     
934
     
841
 
Unregulated retail electric
   
23
     
25
     
68
     
73
 
Net energy trading margins
   
15
     
19
     
26
     
33
 
Energy-related businesses
   
142
     
164
     
471
     
459
 
Total
   
1,372
     
1,223
     
3,949
     
3,465
 
                                 
Operating Expenses
                               
Operation
                               
Fuel
   
236
     
259
     
588
     
593
 
Energy purchases
   
317
     
152
     
834
     
509
 
Energy purchases from affiliate
   
41
     
41
     
119
     
111
 
Other operation and maintenance
   
254
     
254
     
753
     
756
 
Depreciation
   
73
     
76
     
224
     
220
 
Taxes, other than income
   
25
     
25
     
71
     
75
 
Energy-related businesses
   
160
     
162
     
453
     
463
 
Total
   
1,106
     
969
     
3,042
     
2,727
 
                                 
Operating Income
   
266
     
254
     
907
     
738
 
                                 
Other Income - net
   
24
     
9
     
69
     
28
 
                                 
Interest Expense
   
76
     
69
     
203
     
199
 
                                 
Interest Expense with Affiliates
   
3
     
5
     
9
     
18
 
                                 
Income from Continuing Operations Before Income Taxes and Minority Interest
   
211
     
189
     
764
     
549
 
                                 
Income Taxes
   
25
     
31
     
166
     
75
 
                                 
Minority Interest
   
4
     
1
     
8
     
5
 
                                 
Income from Continuing Operations
   
182
     
157
     
590
     
469
 
                                 
Loss (Income) from Discontinued Operations (net of income taxes)
           
(2
)
   
20
     
51
 
                                 
Net Income
 
$
182
   
$
159
   
$
570
   
$
418
 
                                 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.
 
 
 
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
   
Nine Months Ended September 30,
   
2006
 
2005
                 
Cash Flows from Operating Activities
               
Net income
 
$
570
   
$
418
 
Adjustments to reconcile net income to net cash provided by operating activities
               
Pre-tax loss from the sale of the Sundance plant
           
72
 
Pre-tax loss from the sale of interest in the Griffith plant
   
40
         
Depreciation
   
225
     
223
 
Amortization - energy commitments and other
   
5
     
4
 
Deferred income taxes and investment tax credits
   
23
     
50
 
Pension and other postretirement benefits
   
(35
)
   
(31
)
Stock compensation expense
   
15
     
19
 
Unrealized gain on derivatives and other hedging activities
   
(6
)
   
(25
)
Accrual for remediation of ash basin leak
   
(11
)
   
33
 
Other
   
19
     
21
 
Change in current assets and current liabilities
               
Accounts receivable
   
(13
)
   
(42
)
Accounts payable
   
(2
)
   
93
 
Fuel, materials and supplies
   
(22
)
   
31
 
Other
   
112
     
(59
)
Other operating activities
               
Other assets
           
8
 
Other liabilities
   
(23
)
   
(26
)
Net cash provided by operating activities
   
897
     
789
 
                 
Cash Flows from Investing Activities
               
Expenditures for property, plant and equipment
   
(584
)
   
(387
)
Proceeds from the sale of the Sundance plant
           
190
 
Proceeds from the sale of interest in the Griffith plant
   
115
         
Purchases of emission allowances
   
(68
)
   
(132
)
Proceeds from the sale of emission allowances
   
42
     
57
 
Purchases of nuclear decommissioning trust investments
   
(178
)
   
(166
)
Proceeds from the sale of nuclear decommissioning trust investments
   
166
     
155
 
Purchases of other marketable securities
   
(196
)
   
(15
)
Proceeds from the sale of other marketable securities
   
136
     
66
 
Net decrease (increase) in restricted cash
   
4
     
(11
)
Other investing activities
   
13
     
(13
)
Net cash used in investing activities
   
(550
)
   
(256
)
                 
Cash Flows from Financing Activities
               
Issuance of long-term debt
   
800
         
Retirement of long-term debt
   
(144
)
   
(209
)
Distributions to Member
   
(651
)
   
(206
)
Contributions from Member
   
116
     
50
 
Net (decrease) increase in short-term debt
   
(172
)
   
80
 
Net decrease in note payable to affiliate
   
(8
)
   
(495
)
Other financing activities
   
(20
)
   
(4
)
Net cash used in financing activities
   
(79
)
   
(784
)
                 
Effect of Exchange Rates on Cash and Cash Equivalents
   
1
     
4
 
                 
Net Increase (Decrease) in Cash and Cash Equivalents
   
269
     
(247
)
Cash and Cash Equivalents at Beginning of Period
   
227
     
357
 
Cash and Cash Equivalents at End of Period
 
$
496
   
$
110
 
                 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

 
 
 
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
   
September 30,
2006
 
December 31,
2005
Assets
               
                 
Current Assets
               
Cash and cash equivalents
 
$
496
   
$
227
 
Restricted cash
   
34
     
39
 
Accounts receivable (less reserve: 2006, $31; 2005, $65)
   
312
     
291
 
Unbilled revenues
   
263
     
300
 
Accounts receivable from affiliates
   
131
     
149
 
Collateral on PLR energy supply to affiliate
   
300
     
300
 
Fuel, materials and supplies
   
318
     
295
 
Prepayments
   
77
     
39
 
Deferred income taxes
   
129
     
166
 
Price risk management assets
   
525
     
487
 
Other acquired intangibles
   
138
     
50
 
Other
   
104
     
41
 
Total Current Assets
   
2,827
     
2,384
 
                 
Investments
               
Investment in unconsolidated affiliates - at equity
   
51
     
56
 
Nuclear plant decommissioning trust funds
   
483
     
444
 
Other
   
4
     
3
 
Total Investments
   
538
     
503
 
                 
Property, Plant and Equipment
               
Electric plant in service
               
Transmission and distribution
   
4,411
     
3,950
 
Generation
   
8,693
     
8,761
 
General
   
290
     
272
 
     
13,394
     
12,983
 
Construction work in progress
   
466
     
210
 
Nuclear fuel
   
316
     
327
 
Electric plant
   
14,176
     
13,520
 
Gas and oil plant
   
64
     
64
 
Other property
   
301
     
198
 
     
14,541
     
13,782
 
Less: accumulated depreciation
   
6,082
     
5,871
 
Total Property, Plant and Equipment
   
8,459
     
7,911
 
                 
Other Noncurrent Assets
               
Goodwill
   
1,058
     
1,015
 
Other acquired intangibles
   
233
     
283
 
Price risk management assets
   
174
     
80
 
Other
   
512
     
488
 
Total Other Noncurrent Assets
   
1,977
     
1,866
 
                 
Total Assets
 
$
13,801
   
$
12,664
 
 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
   
September 30,
2006
 
December 31,
2005
Liabilities and Equity
               
                 
Current Liabilities
               
Short-term debt
 
$
1
   
$
172
 
Note payable to affiliate
           
8
 
Long-term debt
   
341
     
445
 
Accounts payable
   
467
     
445
 
Accounts payable to affiliates
   
30
     
27
 
Above market NUG contracts
   
66
     
70
 
Taxes
   
163
     
72
 
Interest
   
103
     
79
 
Deferred revenue on PLR energy supply to affiliate
   
12
     
12
 
Price risk management liabilities
   
545
     
519
 
Other
   
301
     
313
 
Total Current Liabilities
   
2,029
     
2,162
 
                 
Long-term Debt
   
4,324
     
3,506
 
                 
Long-term Debt with Affiliate Trust
   
89
     
89
 
                 
Deferred Credits and Other Noncurrent Liabilities
               
Deferred income taxes and investment tax credits
   
1,328
     
1,157
 
Price risk management liabilities
   
500
     
523
 
Accrued pension obligations
   
210
     
232
 
Asset retirement obligations
   
314
     
298
 
Above market NUG contracts
   
87
     
136
 
Deferred revenue on PLR energy supply to affiliate
   
26
     
35
 
Other
   
329
     
321
 
Total Deferred Credits and Other Noncurrent Liabilities
   
2,794
     
2,702
 
                 
Commitments and Contingent Liabilities (Note 11)
               
                 
Minority Interest
   
58
     
56
 
                 
Member's Equity
   
4,507
     
4,149
 
                 
Total Liabilities and Equity
 
$
13,801
   
$
12,664
 
                 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.
 
 
 
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
   
2006
 
2005
 
2006
 
2005
Operating Revenues
                       
Retail electric
 
$
800
   
$
782
   
$
2,331
   
$
2,258
 
Wholesale electric
           
1
     
2
     
3
 
Wholesale electric to affiliate
   
41
     
41
     
119
     
111
 
Total
   
841
     
824
     
2,452
     
2,372
 
                                 
Operating Expenses
                               
Operation
                               
Energy purchases
   
53
     
63
     
155
     
201
 
Energy purchases from affiliate
   
445
     
415
     
1,286
     
1,194
 
Other operation and maintenance (Note 10)
   
81
     
77
     
266
     
268
 
Amortization of recoverable transition costs
   
75
     
71
     
210
     
199
 
Depreciation
   
29
     
28
     
86
     
83
 
Taxes, other than income
   
49
     
48
     
143
     
138
 
Total
   
732
     
702
     
2,146
     
2,083
 
                                 
Operating Income
   
109
     
122
     
306
     
289
 
                                 
Other Income - net
   
7
     
5
     
23
     
15
 
                                 
Interest Expense
   
34
     
39
     
108
     
132
 
                                 
Interest Expense with Affiliate
   
4
     
3
     
12
     
8
 
                                 
Income Before Income Taxes
   
78
     
85
     
209
     
164
 
                                 
Income Taxes
   
23
     
32
     
68
     
59
 
                                 
Net Income
   
55
     
53
     
141
     
105
 
                                 
Dividends on Preferred Securities
   
5
     
1
     
10
     
2
 
                                 
Income Available to PPL
 
$
50
   
$
52
   
$
131
   
$
103
 
 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

 
 
 
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
   
Nine Months Ended September 30,
   
2006
 
2005
                 
Cash Flows from Operating Activities
               
Net income
 
$
141
   
$
105
 
Adjustments to reconcile net income to net cash provided by operating activities
               
Depreciation
   
86
     
83
 
Stock compensation expense
   
4
     
7
 
Amortization - recoverable transition costs and other
   
226
     
216
 
Deferred income tax benefits and investment tax credits
   
(3
)
   
(5
)
Realization of benefits related to Black Lung Trust assets
   
(36
)
       
Pension and other postretirement benefits
   
7
         
Accrual for PJM billing dispute
           
47
 
Deferral of ice storm related costs
           
(12
)
Reversal of Hurricane Isabel costs deferral
   
11
         
Change in current assets and current liabilities
               
Accounts receivable
   
(4
)
   
(16
)
Accounts payable
   
(40
)
   
(39
)
Other
   
(33
)
   
(40
)
Other operating activities
               
Other assets
   
2
     
(3
)
Other liabilities
   
(1
)
   
18
 
Net cash provided by operating activities
   
360
     
361
 
                 
Cash Flows from Investing Activities
               
Expenditures for property, plant and equipment
   
(200
)
   
(125
)
Purchases of marketable securities
   
(122
)
       
Proceeds from the sale of marketable securities
   
122
     
10
 
Net decrease (increase) in restricted cash
   
3
     
(3
)
Other investing activities
   
3
     
2
 
Net cash used in investing activities
   
(194
)
   
(116
)
                 
Cash Flows from Financing Activities
               
Issuance of preference stock, net of issuance costs
   
245
         
Issuance of long-term debt
           
224
 
Retirement of long-term debt
   
(365
)
   
(497
)
Contribution from PPL
   
75
         
Repurchase of common stock from PPL
   
(200
)
       
Payment of common stock dividends to PPL
   
(84
)
   
(59
)
Other financing activities
   
(5
)
   
(11
)
Net cash used in financing activities
   
(334
)
   
(343
)
                 
Net Decrease in Cash and Cash Equivalents
   
(168
)
   
(98
)
Cash and Cash Equivalents at Beginning of Period
   
298
     
151
 
Cash and Cash Equivalents at End of Period
 
$
130
   
$
53
 
                 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

 
 
 
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
   
September 30,
2006
 
December 31,
2005
Assets
               
                 
Current Assets
               
Cash and cash equivalents
 
$
130
   
$
298
 
Restricted cash
   
42
     
42
 
Accounts receivable (less reserve: 2006, $20; 2005, $20)
   
233
     
224
 
Unbilled revenues
   
130
     
174
 
Accounts receivable from affiliates
   
1
     
10
 
Note receivable from affiliate
   
300
     
300
 
Prepayments
   
20
     
4
 
Prepayment on PLR energy supply from affiliate
   
12
     
12
 
Other
   
100
     
87
 
Total Current Assets
   
968
     
1,151
 
                 
Property, Plant and Equipment
               
Electric plant in service
               
Transmission and distribution
   
4,141
     
4,034
 
General
   
416
     
356
 
     
4,557
     
4,390
 
Construction work in progress
   
52
     
43
 
Electric plant
   
4,609
     
4,433
 
Other property
   
2
     
3
 
     
4,611
     
4,436
 
Less: accumulated depreciation
   
1,780
     
1,720
 
Total Property, Plant and Equipment
   
2,831
     
2,716
 
                 
Regulatory and Other Noncurrent Assets
               
Recoverable transition costs
   
955
     
1,165
 
Acquired intangibles
   
111
     
114
 
Prepayment on PLR energy supply from affiliate
   
26
     
35
 
Other
   
336
     
356
 
Total Regulatory and Other Noncurrent Assets
   
1,428
     
1,670
 
                 
Total Assets
 
$
5,227
   
$
5,537
 
 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

 
 
 
CONDENSED CONSOLIDATED BALANCE SHEETS
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
   
September 30,
2006
 
December 31,
2005
Liabilities and Equity
               
                 
Current Liabilities
               
Short-term debt
 
$
42
   
$
42
 
Long-term debt
   
552
     
434
 
Accounts payable
   
41
     
42
 
Accounts payable to affiliates
   
146
     
183
 
Taxes
   
36
     
76
 
Collateral on PLR energy supply from affiliate
   
300
     
300
 
Other
   
133
     
147
 
Total Current Liabilities
   
1,250
     
1,224
 
                 
Long-term Debt
   
1,494
     
1,977
 
                 
Deferred Credits and Other Noncurrent Liabilities
               
Deferred income taxes and investment tax credits
   
778
     
771
 
Other
   
162
     
190
 
Total Deferred Credits and Other Noncurrent Liabilities
   
940
     
961
 
                 
Commitments and Contingent Liabilities (Note 11)
               
                 
Shareowners' Equity
               
Preferred securities
   
301
     
51
 
Common stock - no par value (a)
   
364
     
1,476
 
Additional paid-in capital
   
424
     
354
 
Treasury stock (a)
           
(912
)
Earnings reinvested
   
454
     
406
 
Total Shareowners' Equity
   
1,543
     
1,375
 
                 
Total Liabilities and Equity
 
$
5,227
   
$
5,537
 

(a)
 
170 million shares authorized; 66 million shares issued and outstanding at September 30, 2006, and 78 million shares issued and outstanding, excluding 79 million shares held as treasury stock, at December 31, 2005. See Note 2 for additional information on the retirement of all treasury stock in 2006.
 
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.
 
 

Terms and abbreviations appearing in Combined Notes to Condensed Consolidated Financial Statements are explained in the glossary. Dollars are in millions, except per share data, unless otherwise noted.

1.  
Interim Financial Statements

(PPL, PPL Energy Supply and PPL Electric)

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. In the opinion of management, all adjustments (including normal, recurring accruals) considered necessary for a fair presentation in accordance with accounting principles generally accepted in the U.S. are reflected in the condensed consolidated financial statements. The Balance Sheets as of December 31, 2005, are derived from each Registrant ' s 2005 audited Balance Sheet. The financial statements and notes thereto should be read in conjunction with the financial statements and notes contained in each Registrant ' s 2005 Form 10-K. The results of operations for the three and nine months ended September 30, 2006, are not necessarily indicative of the results to be expected for the full year ending December 31, 2006, or other future periods, because results for interim periods can be disproportionately influenced by various factors and developments and seasonal variations.

(PPL and PPL Electric)

In January 2005, severe ice storms hit PPL Electric's service territory. The total cost of restoring service, excluding capitalized cost and regular payroll expenses, was $16 million. In August 2005, the PUC issued an order granting PPL Electric's petition for authority to defer and amortize for regulatory accounting and reporting purposes a portion of these storm costs subject to certain conditions. As a result of the PUC Order and in accordance with SFAS 71, "Accounting for the Effects of Certain Types of Regulation," in the third quarter of 2005, PPL Electric deferred $12 million of its previously expensed storm costs.

(PPL and PPL Energy Supply)

The classification of certain amounts in the September 30, 2005 and December 31, 2005 financial statements has been changed to conform to the presentation in the September 30, 2006 financial statements. On the Statements of Income, components of operating income and losses of the Sundance and Griffith plants were reclassified from certain line items to "Loss (Income) from Discontinued Operations." See Note 8 for further discussion.

In addition, based on clarifications of accounting guidance, the September 30, 2005 Statement of Cash Flows has been revised to reflect the purchases and sales of emission allowances, and the purchases and sales of investments in the nuclear decommissioning trust funds, on a gross basis within "Cash Flows from Investing Activities." Previously, these cash flows were presented on a net basis within "Cash Flows f rom Operating Activities . " The net impact of this revised presentation was to increase "Cash Flows from Operating Activities" and to decrease "Cash Flows from Investing Activities" by $86 million for the nine months ended September 30, 2005. This revision had no impact on "Cash and Cash Equivalents" for the periods reported. This revision is not considered by management to be material to the Financial Statements.

Also, see Note 3 for information on accounting adjustments recorded in the third quarter of 2006.

2.  
Summary of Significant Accounting Policies


The following accounting policy disclosures represent updates to the "Summary of Significant Accounting Policies" Note in each Registrant's 2005 Form 10-K.

Allowance for Doubtful Accounts (PPL and PPL Energy Supply)

At December 31, 2005, PPL's and PPL Energy Supply's significant specific reserves related to receivables from Enron Corporation (Enron), which filed for bankruptcy in 2001, and from the California ISO, which has withheld payment pending the outcome of regulatory proceedings arising from the California electricity supply situation that began in 2000. At December 31, 2005, the Enron and California ISO reserves accounted for 60% of PPL's total allowance for doubtful accounts and 80% of PPL Energy Supply's total allowance for doubtful accounts.

The reserves related to Enron were for claims against Enron North America and Enron Power Marketing (Enron Subsidiaries), and against Enron, which had guaranteed the Enron Subsidiaries' performance (Enron Corporation Guarantees).

In March 2006, the U.S. Bankruptcy Court approved agreements between Enron and PPL Energy Supply subsidiaries that settled the litigation between PPL Energy Supply and Enron regarding the validity and enforceability of the Enron Corporation Guarantees. As a result of the Bankruptcy Court's approval of the settlement of the Enron Corporation Guarantees litigation and an assessment of current market price quotes for the purchase of Enron claims, PPL Energy Supply reduced the associated allowance for doubtful accounts by $15 million or $9 million after tax ($0.03 per share for PPL).

In July 2006, PPL Energy Supply executed an agreement to assign its Enron claims to an independent third party for $17 million and further reduced the associated allowance for doubtful accounts in the second quarter of 2006 by $4 million, or $2 million after tax ($0.01 per share for PPL). PPL Energy Supply received the payment in July 2006. See "Guarantees and Other Assurances" in Note 11 for more information on PPL Energy Supply's potential repayment obligations related to the assignment.

At September 30, 2006, the California ISO reserves accounted for 32% of PPL's total allowance for doubtful accounts and 55% of PPL Energy Supply's total allowance for doubtful accounts.

Treasury Stock

(PPL)

In the second quarter of 2006, PPL retired all treasury shares, which totaled 62,174,729 shares, and restored them to authorized but unissued shares of common stock. "Capital in excess of par value" was reduced by $838 million as result of the retirement. Total "Shareowners' Common Equity" was not impacted. PPL expects that all shares of common stock acquired in the future will be restored to authorized but unissued shares of common stock upon acquisition.

(PPL Electric)

In the second quarter of 2006, PPL Electric retired all treasury shares, which totaled 90,932,326 shares, and restored them to authorized but unissued shares of common stock. "Common stock" was reduced by $1.1 billion as result of the retirement. Total "Shareowners' Equity" was not impacted. PPL Electric expects that all shares of common stock acquired in the future will be restored to authorized but unissued shares of common stock upon acquisition.

Regulation (PPL and PPL Electric)

In August 2006, the Commonwealth Court of Pennsylvania overturned the PUC's decision of December 2004 that allowed PPL Electric to recover, over a 10-year period, restoration costs incurred in connection with Hurricane Isabel in September 2003. As a result of the PUC's 2004 decision and in accordance with SFAS 71, "Accounting for the Effects of Certain Types of Regulation," PPL Electric had established a regulatory asset for the restoration costs. Effective January 1, 2005, PPL Electric began billing these costs to customers and amortizing the regulatory asset. The Commonwealth Court denied recovery of these costs because they were incurred when PPL Electric was subject to capped rates for transmission and distribution services, through December 31, 2004. As a result of the Court's decision, in the third quarter of 2006, PPL Electric recorded a charge of $11 million, or $7 million after tax ($0.02 per share for PPL), in "Other operation and maintenance" on the Statements of Income, reversed the remaining unamortized regulatory asset of $9 million and recorded a regulatory liability of $2 million for restoration costs previously billed to customers from January 2005 through August 2006.

Leases (PPL, PPL Energy Supply and PPL Electric)

In September 2006, PPL's subsidiaries terminated the master lease agreements under which they leased equipment, such as vehicles, computers, and office equipment. In addition, PPL and its subsidiaries purchased the equipment from the lessors at a negotiated price. Prior to the buyout, PPL subsidiaries had been directly charged or allocated a portion of the rental expense related to the assets they utilized. In connection with the buyout, ownership of the purchased equipment was reviewed and attributed to the subsidiaries based on usage of the equipment. As a result, "Property, Plant and Equipment" increased on the Balance Sheet by $107 million for PPL, $27 million for PPL Energy Supply and $52 million for PPL Electric.

At December 31, 2005, total future minimum rental payments included obligations of $98 million for PPL, $42 million for PPL Energy Supply and $54 million for PPL Electric related to these leases. See Note 10 in each Registrant's 2005 Form 10-K for a discussion of total future minimum rental payments.

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

See Note 18 for a discussion of new accounting standards recently adopted or pending adoption.

3.  
Segment and Related Information

(PPL and PPL Energy Supply)

See the "Segment and Related Information" note in each Registrant's 2005 Form 10-K for a discussion of reportable segments.

Financial data for the segments are:

   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
PPL
 
2006
 
2005
 
2006
 
2005
Income Statement Data
                               
Revenues from external customers
                         
 
Supply
 
$
608
   
$
528
   
$
1,684
   
$
1,395
 
 
International Delivery
   
320
     
283
     
998
     
897
 
 
Pennsylvania Delivery
   
824
     
809
     
2,493
     
2,393
 
       
1,752
     
1,620
     
5,175
     
4,685
 
Intersegment revenues
                               
 
Supply
   
445
     
415
     
1,286
     
1,194
 
 
Pennsylvania Delivery
   
41
     
41
     
121
     
113
 
                                 
Net Income
                               
 
Supply (a)
   
120
     
112
     
337
     
238
 
 
International Delivery
   
59
     
36
     
219
     
152
 
 
Pennsylvania Delivery
   
47
     
49
     
131
     
103
 
     
$
226
   
$
197
   
$
687
   
$
493
 

PPL
 
September 30,
2006
 
December 31,
2005
Balance Sheet Data
               
Total assets
               
 
Supply
 
$
7,852
   
$
7,118
 
 
International Delivery
   
5,586
     
5,089
 
 
Pennsylvania Delivery
   
5,419
     
5,719
 
   
$
18,857
   
$
17,926
 

   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
PPL Energy Supply
 
2006
 
2005
 
2006
 
2005
Income Statement Data
                               
Revenues from external customers
                         
 
Supply
 
$
1,052
   
$
940
   
$
2,951
   
$
2,568
 
 
International Delivery
   
320
     
283
     
998
     
897
 
       
1,372
     
1,223
     
3,949
     
3,465
 
Net Income
                               
 
Supply (a)
   
123
     
123
     
351
     
266
 
 
International Delivery
   
59
     
36
     
219
     
152
 
   
$
182
   
$
159
   
$
570
   
$
418
 

PPL Energy Supply
 
September 30,
2006
 
December 31,
2005
Balance Sheet Data
               
Total assets
               
 
Supply
 
$
8,215
   
$
7,575
 
 
International Delivery
   
5,586
     
5,089
 
   
$
13,801
   
$
12,664
 

(a)
 
2006 and 2005 include the results of discontinued operations. See Note 8 for additional information.

The net income of the International Delivery segment for the three and nine months ended September 30, 2006, reflects accounting adjustments related to prior periods. During the three months ended September 30, 2006, management determined that it had incorrectly applied the impacts of Chilean inflation in calculating depreciation and deferred income taxes on certain Chilean assets from 1997 through 2006. As a result, net income was increased by $5 million for the depreciation adjustment in the three months ended September 30, 2006, of which $4 million related to periods prior to 2006 and less than $1 million related to the first and second quarters of 2006. Net income was also increased by $9 million for the deferred income tax adjustment in the three months ended September 30, 2006, of which $8 million related to periods prior to 2006 and less than $1 million related to the first and second quarters of 2006. These adjustments are not considered by management to be material to the financial statements of prior periods and are not expected to be material to the financial statements for the full year 2006.

4.  
Earnings Per Share

(PPL)

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

·
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; and
·
convertible senior notes.

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

   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
   
2006
 
2005
 
2006
 
2005
Income (Numerator)
                               
Income from continuing operations
 
$
226
   
$
195
   
$
707