Fitch Affirms PPL's IDR at 'BBB'; Lowers Electric Utilities Preferred Stock to 'BBB'.

NEW YORK -- Fitch Ratings has affirmed the 'BBB' Issuer Default Ratings (IDR) and other debt ratings of PPL Corp. and its subsidiaries as shown below. In addition, Fitch has lowered the preferred stock ratings of PPL Electric Utilities Corp. to 'BBB' from 'BBB+' and assigned short-term IDR ratings of 'F2' to PPL Corp, PPL Capital Funding Corp. and PPL Electric Utilities Corp. The lower preferred stock rating reflects its junior position in the capital structure and does not reflect any change in credit quality. The Ratings Outlook for each entity remains stable.

Fitch has affirmed the following ratings:

PPL Corp

--IDR at 'BBB'.

PPL Capital Funding Inc.

--IDR at 'BBB';

--Senior Unsecured debt at 'BBB';

--Junior Subordinated debt at 'BBB-'

PPL Energy Supply, LLC 

--IDR at 'BBB';

--Short-term IDR at 'F2';

--Senior Unsecured debt at 'BBB+';

--Commercial Paper at 'F2'.

PPL Electric Utilities Corp.

--IDR at 'BBB';

--Secured debt at 'A-';

--Preference Stock at 'BBB'

--Commercial paper at 'F2'.

Fitch lowers the following rating:

PPL Electric Utilities Corp.

--Preferred Stock to 'BBB' from 'BBB+'.

Fitch assigns the following ratings:

PPL Corp

--Short-term IDR 'F2'.

PPL Capital Funding Corp.

--Short-term IDR 'F2'.

PPL Electric Utilities Corp.

--Short-term IDR 'F2'.

The consolidated ratings of PPL Corp. (PPL) reflect the substantial earnings and cash flow derived from regulated electric distribution operations and committed energy sales, including a full requirements supply contract between subsidiaries PPL Energy Supply, LLC (PPLES) and PPL Electric Utilities Corp. (PPLEU) that extends through 2009, the competitive advantage of the company's largely coal and nuclear generating fleet and a sound credit profile that supports the existing ratings. A substantial improvement in earnings and cash flow is expected in 2010, when the below market power supply contract between PPLEU and PPLES expires and the available energy is sold at prevailing market rates. The ratings also reflect the large capital requirements of PPLES for pollution control facilities that extend through 2009. The primary credit concerns are the potential for legislation that alters the regulatory process in Pennsylvania following the expiration of rate caps in 2009, the exposure to potentially stricter environmental regulations addressing greenhouse gas (GHG) emissions and commodity price exposure in the event of an extended nuclear or coal plant outage. Plans for a share buyback program in 2009, financed with a combination of cash flow and subsidiary debt, ahead of the expected rise in 2010 earnings and cash flow is also a potential concern.

The ratings of PPLES reflect the company's sound credit profile, the favorable competitive position of it's largely coal and nuclear generating fleet and the improving market fundamental in the PJM region where the majority of PPLES' assets are located. The ratings are further supported by expectations of significant improvement in earnings and cash flow in 2010 when the cap on affiliate PPLEU's generation supply costs and below market supply contract with PPLES expire. The improved cash flow should mitigate the added risk of increased merchant sales. PPLES has already contracted for a portion of PPLEU's supply needs in 2010 at prices that, on average, are approximately double the price in the existing supply contract that expires Dec. 31, 2009.

PPLES will have the opportunity for additional hedges at then prevailing market prices in four upcoming solicitations for power, two per year, to be conducted by PPLEU in 2008 and 2009. Although legislative changes in the scheduled transition to market based rates remains a possibility, the most likely risk to PPLES is a slower than expected rate of earnings and cash flow improvement rather than a decline in credit quality. The risk of an extended coal or nuclear outage remains the primary credit concern. With more than 50% of generation derived from coal-fired facilities, the company is also exposed to higher costs from the expected implementation of carbon regulations within the next several years. However, even with higher environmental compliance costs, gross margin and cash flow should improve meaningfully from current levels due to the price differential in expiring supply contracts and forward market prices. In addition, higher environmental compliance costs are likely to drive up power prices.

The ratings of PPLEU are consistent with the company's solid financial profile and also reflect the relative predictability of its earnings and cash flow due in large measure to the absence of any meaningful commodity exposure and a reasonable regulatory environment in Pennsylvania. A full requirements electricity supply contract with affiliate PPL EnergyPlus satisfies the company's provider of last resort obligation (POLR) through 2009 and eliminates commodity price exposure. After 2009, when generation rate caps expire, the market structure in Pennsylvania is uncertain and subject to legislative interference that could undermine full recovery of power procurement costs. The inability to fully recover power supply costs would, in all likelihood, have an adverse affect on ratings. Current ratings assume the cost of procuring power to meet PPLEU's POLR obligations after 2009 will be passed through to customers.

Holders of PPLEU's senior secured bonds also benefit from a package of structural enhancements and bond covenants that further reduce financial risk. The bond covenants restrict dividend payments to the parent if cash from operations interest coverage falls below 1.5 times (x), and limits the issuance of new debt or a merger if either would result in a ratings downgrade. Other structural enhancements include amendments to the Articles of Incorporation and By-Laws that effectively separate the accounts and assets of PPLEU from its parent PPL Corp. and its other affiliates and greatly reduce the likelihood of a consolidation of PPLEU in the case of a parent company or affiliate bankruptcy.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.