10-Q

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 June 30, 2004
	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 accelerated filers (as defined in Rule 12b-2 of the Act).

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

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, 188,908,802 shares outstanding at July 30, 2004, excluding 31,034,493 shares held as treasury stock
PPL Energy Supply, LLC	PPL Corporation indirectly holds all of the member interests in PPL Energy Supply, LLC.
PPL Electric Utilities Corporation	Common stock, no par value, 78,029,863 shares outstanding and all held by PPL Corporation at July 30, 2004, excluding 79,270,519 shares held as treasury stock

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

PPL CORPORATION
PPL ENERGY SUPPLY, LLC
PPL ELECTRIC UTILITIES CORPORATION

FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2004

Table of Contents

				Page
GLOSSARY OF TERMS AND ABBREVIATIONS
FORWARD-LOOKING INFORMATION				1
PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		PPL Corporation and Subsidiaries
			Condensed Consolidated Statement of Income	2
			Condensed Consolidated Statement of Cash Flows	3
			Condensed Consolidated Balance Sheet	4
		PPL Energy Supply, LLC and Subsidiaries
			Condensed Consolidated Statement of Income	6
			Condensed Consolidated Statement of Cash Flows	7
			Condensed Consolidated Balance Sheet	8
		PPL Electric Utilities Corporation and Subsidiaries
			Condensed Consolidated Statement of Income	10
			Condensed Consolidated Statement of Cash Flows	11
			Condensed Consolidated Balance Sheet	12
		Combined Notes to Condensed Consolidated Financial Statements		14
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
			PPL Corporation and Subsidiaries	39
			PPL Energy Supply, LLC and Subsidiaries	49
			PPL Electric Utilities Corporation and Subsidiaries	58
	Item 3. Quantitative and Qualitative Disclosures About Market Risk			61
	Item 4. Controls and Procedures			61
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings			61
	Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities			61
	Item 4. Submission of Matters to a Vote of Security Holders			62
	Item 6. Exhibits and Reports on Form 8-K			63
SIGNATURES				65
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
			PPL Corporation and Subsidiaries	66
			PPL Energy Supply, LLC and Subsidiaries	67
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
			PPL Corporation	68
			PPL Energy Supply, LLC	70
			PPL Electric Utilities Corporation	72
CERTIFICATES OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
			PPL Corporation	74
			PPL Energy Supply, LLC	76
			PPL Electric Utilities Corporation	78

GLOSSARY OF TERMS AND ABBREVIATIONS

£ - British pounds sterling.

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

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

APA - Asset Purchase Agreement.

ARB - Accounting Research Bulletin.

ARO - asset retirement obligation.

Bcf - billion cubic feet.

CEMAR - Companhia Energética do Maranhão, a Brazilian electric distribution company in which PPL Global had a majority ownership interest until the transfer of this interest in April 2004.

CGE - Compañia General de Electricidad, S.A., a distributor of electricity and natural gas with other industrial segments in Chile and Argentina in which PPL Global had an 8.7% direct and indirect minority ownership interest until the sale of this interest in March 2004.

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

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

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

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

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

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

1. It has (1) one or more underlyings and (2) one or more notional amounts or payment provisions or both. Those terms determine the amount of the settlement or settlements, and, in some cases, whether or not a settlement is required.
2. It requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors.
3. Its terms require or permit net settlement, it can readily be settled net by a means outside the contract, or it provides for delivery of an asset that puts the recipient in a position not substantially different from net settlement.

DIG - Derivatives Implementation Group.

EC - Electricidad de Centroamerica, S.A. de C.V., an El Salvadoran holding company and the majority owner of DelSur. EC was also the majority owner of El Salvador Telecom, S.A. de C.V. until the sale of this company in June 2004. PPL Global has 100% ownership of EC.

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

EMF - electric and magnetic fields.

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.

FSP - FASB Staff Position.

GAAP - generally accepted accounting principles.

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

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

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

ISO - Independent System Operator.

LIBOR - London Interbank Offered Rate.

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

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

MW - megawatt, one thousand kilowatts.

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

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

NPDES - National Pollutant Discharge Elimination System.

NRC - Nuclear Regulatory Commission, the federal agency that regulates operation of nuclear power facilities.

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

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

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

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

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

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

PP&E - property, plant and equipment.

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

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

PPL Capital Funding Trust I - a Delaware statutory business trust created to issue PEPS Units. This trust was terminated in June 2004.

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

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

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

PPL Energy Supply - PPL Energy Supply, LLC, 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 specializing in natural gas distribution, transmission and storage services, and the competitive sale of propane.

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

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

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

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

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

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

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

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

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

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

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

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

PURTA - the Pennsylvania Public Utility Realty Tax Act.

SCR - selective catalytic reduction, a pollution control process.

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

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

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

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

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

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

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

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

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

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

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

Forward-looking Information

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 the Management's Discussion and Analysis of Financial Condition and Results of Operations sections herein, the following are among the important factors that could cause actual results to differ materially from the forward-looking statements:

• market demand and prices for energy, capacity and fuel;
• weather conditions affecting customer energy usage and operating costs;
• competition in retail and wholesale power markets;
• the outcome of pending rate cases in Pennsylvania and in the U.K.;
• the effect of any business or industry restructuring;
• the profitability and liquidity of PPL and its subsidiaries;
• new accounting requirements or new interpretations or applications of existing requirements;
• operation of existing facilities and operating costs;
• environmental conditions and requirements;
• transmission and distribution system conditions and operating costs;
• development of new projects, markets and technologies;
• performance of new ventures;
• asset acquisitions and dispositions;
• political, regulatory or economic conditions in states, regions or countries where PPL or its subsidiaries conduct business;
• receipt of necessary governmental permits, approvals and rate relief;
• impact of state or federal investigations applicable to PPL and its subsidiaries and the energy industry;
• the outcome of litigation against PPL and its subsidiaries;
• capital market conditions and decisions regarding capital structure;
• stock price performance;
• the market prices of equity securities and resultant cash funding requirements for defined benefit pension plans;
• securities and credit ratings;
• state and federal regulatory developments;
• foreign exchange rates;
• new state or federal legislation, including new tax legislation;
• national or regional economic conditions, including any potential effects arising from terrorist attacks in the U.S., the situation in Iraq and any consequential hostilities or other hostilities; and
• the commitments and liabilities of PPL and its subsidiaries.

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

Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF INCOME
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars, except per share data)
				Three Months Ended June 30,				Six Months Ended June 30,
				2004		2003		2004		2003
Operating Revenues
	Utility			$	907	$	862	$	1,992	$	1,881
	Unregulated retail electric and gas				29		33		60		84
	Wholesale energy marketing				294		303		572		601
	Net energy trading margins				5		12		12		5
	Energy related businesses				127		129		246		256
	Total				1,362		1,339		2,882		2,827
Operating Expenses
	Operation
		Fuel			172		135		375		332
		Energy purchases			217		251		487		553
		Other operation and maintenance			320		324		636		601
		Amortization of recoverable transition costs			57		56		128		127
	Depreciation				102		92		201		188
	Taxes, other than income				64		60		121		125
	Energy related businesses				132		135		270		256
	Total				1,064		1,053		2,218		2,182
Operating Income					298		286		664		645
Other Income - net					19		23		31		31
Interest Expense					140		128		265		236
Income from Continuing Operations Before Income Taxes, Minority Interest and Distributions on Preferred Securities					177		181		430		440
Income Taxes					26		49		98		118
Minority Interest					2		1		4		2
Distributions on Preferred Securities							14		1		27
Income from Continuing Operations					149		117		327		293
Loss from Discontinued Operations (net of income taxes)					1		1		2		1
Income Before Cumulative Effect of a Change in    Accounting Principle					148		116		325		292
Cumulative Effect of a Change in Accounting Principle   (net of income taxes)											63
Net Income				$	148	$	116	$	325	$	355
Earnings Per Share of Common Stock:
	Income from Continuing Operations:
			Basic	$	0.82	$	0.68	$	1.81	$	1.73
			Diluted		0.82		0.67		1.81		1.72
	Net income:
			Basic	$	0.81	$	0.68	$	1.80	$	2.10
			Diluted		0.81		0.67		1.80		2.09
Dividends Declared per Share of Common Stock				$	0.41	$	0.385	$	0.82	$	0.77
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
			Six Months Ended June 30,
			2004			2003
Net Cash Provided by Operating Activities			$	628		$	498
Cash Flows from Investing Activities
	Expenditures for property, plant and equipment			(345	)		(358	)
	Investment in generating assets and electric energy projects			(30	)
	Proceeds from the sale of CGE			123
	Other investing activities - net			(15	)		6
		Net cash used in investing activities		(267	)		(352	)
Cash Flows from Financing Activities
	Issuance of common stock			589			411
	Issuance of long-term debt			15			986
	Retirement of long-term debt			(938	)		(404	)
	Retirement of preferred stock						(10	)
	Payment of common dividends			(141	)		(122	)
	Payment of preferred distributions			(1	)		(23	)
	Net increase (decrease) in short-term debt			4			(834	)
	Other financing activities - net			(7	)		(25	)
		Net cash used in financing activities		(479	)		(21	)
Net Increase (Decrease) In Cash and Cash Equivalents				(118	)		125
Cash and Cash Equivalents at Beginning of Period				476			245
Cash and Cash Equivalents at End of Period			$	358		$	370
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
			June 30, 2004		December 31, 2003
Assets
Current Assets
	Cash and cash equivalents		$	358	$	476
	Accounts receivable (less reserve: 2004, $93; 2003, $93)			523		555
	Unbilled revenues			353		341
	Fuel, materials and supplies - at average cost			270		256
	Prepayments			124		54
	Deferred income taxes			109		105
	Price risk management assets			148		90
	Other			100		143
				1,985		2,020
Investments
	Investment in unconsolidated affiliates - at equity			204		230
	Investment in unconsolidated affiliates - at cost					126
	Nuclear plant decommissioning trust fund			373		357
	Other			18		29
				595		742
Property, Plant and Equipment - net
	Electric plant in service
		Transmission and distribution		5,729		5,456
		Generation		3,893		3,362
		General		458		435
				10,080		9,253
	Construction work in progress			149		614
	Nuclear fuel			138		144
		Electric plant		10,367		10,011
	Gas and oil plant			209		205
	Other property			213		221
				10,789		10,437
Regulatory and Other Noncurrent Assets
	Recoverable transition costs			1,559		1,687
	Goodwill			1,079		1,068
	Other intangibles			245		243
	Other			982		926
				3,865		3,924
			$	17,234	$	17,123
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
		June 30, 2004			December 31, 2003
Liabilities and Equity
Current Liabilities
	Short-term debt	$	65		$	56
	Long-term debt		939			395
	Accounts payable		433			456
	Above market NUG contracts		73			74
	Taxes		139			178
	Interest		123			121
	Dividends		79			70
	Price risk management liabilities		160			82
	Other		334			337
			2,345			1,769
Long-term Debt (Note 6)			6,582			7,464
Long-term Debt with Affiliate Trusts (Note 6)			89			681
Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes and investment tax credits		2,286			2,205
	Above market NUG contracts		242			278
	Other		1,530			1,362
			4,058			3,845
Commitments and Contingent Liabilities
Minority Interest			53			54
Preferred Stock without Sinking Fund Requirements			51			51
Shareowners' Common Equity
	Common stock		2			2
	Capital in excess of par value		3,564			2,973
	Treasury stock		(837	)		(837	)
	Earnings reinvested		1,653			1,478
	Accumulated other comprehensive loss		(274	)		(297	)
	Capital stock expense and other		(52	)		(60	)
			4,056			3,259
		$	17,234		$	17,123
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENT OF INCOME
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
			Three Months Ended June 30,				Six Months Ended June 30,
			2004		2003		2004		2003
Operating Revenues
	Wholesale energy marketing		$	294	$	303	$	572	$	601
	Wholesale energy marketing to affiliates			346		328		756		717
	Utility			255		236		534		477
	Unregulated retail electric and gas			29		33		60		84
	Net energy trading margins			5		12		12		5
	Energy related businesses			122		126		236		251
	Total			1,051		1,038		2,170		2,135
Operating Expenses
	Operation
		Fuel		154		120		312		273
		Energy purchases		163		199		378		448
		Energy purchases from affiliates		39		38		77		83
		Other operation and maintenance		232		242		468		450
	Depreciation			73		64		142		133
	Taxes, other than income			24		22		50		43
	Energy related businesses			124		128		255		247
	Total			809		813		1,682		1,677
Operating Income				242		225		488		458
Other Income - net				28		26		39		42
Interest Expense				77		60		133		102
Income from Continuing Operations Before Income Taxes,   Minority Interest and Distributions on Preferred Securities				193		191		394		398
Income Taxes				33		55		85		106
Minority Interest				2		1		4		2
Distributions on Preferred Securities						2				4
Income from Continuing Operations				158		133		305		286
Loss from Discontinued Operations (net of income taxes)				1		1		2		1
Income Before Cumulative Effect of a Change in Accounting   Principle				157		132		303		285
Cumulative Effect of a Change in Accounting Principle   (net of income taxes)										63
Net Income			$	157	$	132	$	303	$	348
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
			Six Months Ended June 30,
			2004			2003
Net Cash Provided by Operating Activities			$	438		$	322
Cash Flows from Investing Activities
	Expenditures for property, plant and equipment			(234	)		(234	)
	Investment in generating assets and electric energy projects			(30	)
	Proceeds from the sale of CGE			123
	Net decrease in notes receivable from affiliates						428
	Other investing activities - net			(23	)		17
		Net cash provided by (used in) investing activities		(164	)		211
Cash Flows from Financing Activities
	Issuance of long-term debt			15			797
	Retirement of long-term debt			(663	)		(53	)
	Distributions to Member			(124	)		(650	)
	Contributions from Member			58			262
	Net decrease in short-term debt			(61	)		(819	)
	Net increase in note payable to affiliate			495
	Other financing activities - net			1			(12	)
		Net cash used in financing activities		(279	)		(475	)
Net Increase (Decrease) In Cash and Cash Equivalents				(5	)		58
Cash and Cash Equivalents at Beginning of Period				227			149
Cash and Cash Equivalents at End of Period			$	222		$	207
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
			June 30, 2004		December 31, 2003
Assets
Current Assets
	Cash and cash equivalents		$	222	$	227
	Accounts receivable (less reserve: 2004, $67; 2003, $68)			298		320
	Unbilled revenues			227		215
	Accounts receivable from affiliates			129		71
	Fuel, materials and supplies - at average cost			212		198
	Price risk management assets			145		88
	Other			132		158
				1,365		1,277
Investments
	Investment in unconsolidated affiliates - at equity			204		212
	Investment in unconsolidated affiliates - at cost					126
	Nuclear plant decommissioning trust fund			373		357
	Other			5		5
				582		700
Property, Plant and Equipment - net
	Electric plant in service
		Transmission and distribution		3,355		3,129
		Generation		3,893		3,362
		General		229		204
				7,477		6,695
	Construction work in progress			117		580
	Nuclear fuel			138		144
		Electric plant		7,732		7,419
	Gas and oil plant			21		21
	Other property			152		163
				7,905		7,603
Other Noncurrent Assets
	Goodwill			1,024		1,013
	Other intangibles			111		109
	Other			610		548
				1,745		1,670
			$	11,597	$	11,250
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Energy Supply, LLC and Subsidiaries
(Unaudited)
(Millions of Dollars)
		June 30, 2004		December 31, 2003
Liabilities and Equity
Current Liabilities
	Short-term debt			$	56
	Long-term debt	$	184		6
	Accounts payable		374		381
	Accounts payable to affiliates		41		53
	Above market NUG contracts		73		74
	Taxes		104		110
	Interest		78		74
	Deferred revenue on PLR energy supply to affiliate		12		12
	Price risk management liabilities		154		76
	Other		227		222
			1,247		1,064
Long-term Debt			3,348		4,140
Note Payable to Affiliate			495
Long-term Debt with Affiliate Trust			89		89
Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes and investment tax credits		1,119		1,012
	Above market NUG contracts		242		278
	Deferred revenue on PLR energy supply to affiliate		52		58
	Other		1,221		1,077
			2,634		2,425
Commitments and Contingent Liabilities
Minority Interest			53		54
Member's Equity			3,731		3,478
		$	11,597	$	11,250
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENT OF INCOME
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
			Three Months Ended June 30,				Six Months Ended June 30,
			2004		2003		2004		2003
Operating Revenues
	Retail electric		$	622	$	593	$	1,354	$	1,299
	Wholesale electric					7		4		15
	Wholesale electric to affiliate			39		37		76		76
	Total			661		637		1,434		1,390
Operating Expenses
	Operation
		Energy purchases		55		51		110		104
		Energy purchases from affiliate		346		327		756		714
		Other operation and maintenance		87		86		165		161
		Amortization of recoverable transition costs		57		56		128		127
	Depreciation			27		26		53		50
	Taxes, other than income			38		37		69		81
	Total			610		583		1,281		1,237
Operating Income				51		54		153		153
Other Income - net						1		1		4
Interest Expense				47		53		96		109
Income Before Income Taxes				4		2		58		48
Income Taxes				1		1		21		17
Income Before Distributions on Preferred Securities				3		1		37		31
Distributions on Preferred Securities						1		1		2
Income Available to PPL Corporation			$	3	$		$	36	$	29
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
			Six Months Ended June 30,
			2004			2003
Net Cash Provided by Operating Activities			$	185		$	233
Cash Flows from Investing Activities
	Expenditures for property, plant and equipment			(98	)		(113	)
	Net increase in notes receivable from affiliates						(10	)
	Other investing activities - net			7			1
		Net cash used in investing activities		(91	)		(122	)
Cash Flows from Financing Activities
	Issuance of long-term debt						190
	Retirement of long-term debt			(271	)		(291	)
	Contribution from parent						75
	Retirement of preferred stock						(10	)
	Payment of preferred distributions			(1	)		(2	)
	Payment of common dividends to PPL Corporation			(2	)		(19	)
	Net increase (decrease) in short-term debt			65			(15	)
	Other financing activities - net			(8	)		(8	)
		Net cash used in financing activities		(217	)		(80	)
Net Increase (Decrease) in Cash and Cash Equivalents				(123	)		31
Cash and Cash Equivalents at Beginning of Period				162			29
Cash and Cash Equivalents at End of Period			$	39		$	60
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
			June 30, 2004		December 31, 2003
Assets
Current Assets
	Cash and cash equivalents		$	39	$	162
	Accounts receivable (less reserve: 2004, $25; 2003, $24)			203		212
	Unbilled revenues			124		123
	Accounts receivable from affiliates			13		27
	Income tax receivable			35		35
	Materials and supplies - at average cost			32		30
	Prepayments			75		5
	Prepayment on PLR energy supply from affiliate			12		12
	Deferred income taxes			40		45
	Other			17		24
				590		675
Property, Plant and Equipment - net
	Electric plant in service
		Transmission and distribution		2,374		2,327
		General		225		226
				2,599		2,553
	Construction work in progress			29		31
		Electric plant		2,628		2,584
	Other property			4		5
				2,632		2,589
Regulatory and Other Noncurrent Assets
	Recoverable transition costs			1,559		1,687
	Intangibles			116		116
	Prepayment on PLR energy supply from affiliate			52		58
	Other			343		344
				2,070		2,205
			$	5,292	$	5,469
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

CONDENSED CONSOLIDATED BALANCE SHEET
PPL Electric Utilities Corporation and Subsidiaries
(Unaudited)
(Millions of Dollars)
		June 30, 2004			December 31, 2003
Liabilities and Equity
Current Liabilities
	Short-term debt	$	65
	Long-term debt		334		$	289
	Accounts payable		34			44
	Accounts payable to affiliates		125			92
	Taxes		56			86
	Interest		29			32
	Other		73			83
			716			626
Long-term Debt			2,333			2,648
Deferred Credits and Other Noncurrent Liabilities
	Deferred income taxes and investment tax credits		746			728
	Other		191			194
			937			922
Commitments and Contingent Liabilities
Preferred Stock without Sinking Fund Requirements			51			51
Shareowner's Common Equity
	Common stock		1,476			1,476
	Additional paid-in capital		361			361
	Treasury stock		(912	)		(912	)
	Earnings reinvested		337			304
	Capital stock expense and other		(7	)		(7	)
			1,255			1,222
		$	5,292		$	5,469
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of the financial statements.

Combined Notes to Condensed Consolidated Financial Statements

Terms and abbreviations appearing in Combined Notes to Condensed Consolidated Financial Statements are explained in the glossary. 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 Sheet as of December 31, 2003, is derived from each Registrant's 2003 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 Annual Report to the SEC on Form 10-K for the year ended December 31, 2003. The results of operations for the three and six months ended June 30, 2004, are not necessarily indicative of the results to be expected for the full year ending December 31, 2004, or other future periods, because results for interim periods can be disproportionately influenced by various factors and developments and seasonal variations.

   Certain amounts in the June 30, 2003, and December 31, 2003, financial statements have been reclassified to conform to the presentation in the June 30, 2004, financial statements.

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 Annual Report to the SEC on Form 10-K for the year ended December 31, 2003.

   Stock-Based Compensation (PPL, PPL Energy Supply and PPL Electric)

   Stock-based compensation expense, including awards granted to employees and an allocation of costs of awards granted to employees of PPL Services, was insignificant to net income and EPS under both the intrinsic value and fair value methods of accounting for stock-based compensation for the three and six months ended June 30, 2004 and 2003. Also, there would not have been a material impact on reported net income and EPS had the fair value method been used to account for all outstanding stock-based compensation awards in all periods.

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

   See Note 16 for a discussion of new accounting standards adopted in 2004 or pending adoption.

   Income Taxes

   Reconciliations of effective income tax rates for PPL and PPL Energy Supply are as follows:

   (PPL)

   		Three Months Ended June 30,						Six Months Ended June 30,
   		2004			2003			2004			2003
   Reconciliation of Income Tax Expense
   	Indicated federal income tax on pre-tax income before extraordinary item at statutory tax rate - 35%	$	62		$	63		$	151		$	154
   Increase/(decrease) due to:
   	State income taxes		(4	)		3						10
   	Amortization of investment tax credit		(2	)		(2	)		(5	)		(5	)
   	Difference related to income recognition of foreign affiliates (net of foreign income taxes)		(15	)		3			(18	)		(5	)
   	Federal income tax credits		(15	)		(14	)		(29	)		(26	)
   	Other					(4	)		(1	)		(10	)
   			(36	)		(14	)		(53	)		(36	)
   Total income tax expense		$	26		$	49		$	98		$	118
   Effective income tax rate			14.7%			27.1%			22.8%			26.8%

   (PPL Energy Supply)

   		Three Months Ended June 30,						Six Months Ended June 30,
   		2004			2003			2004			2003
   Reconciliation of Income Tax Expense
   	Indicated federal income tax on pre-tax income before extraordinary item at statutory tax rate - 35%	$	68		$	66		$	138		$	139
   Increase/(decrease) due to:
   	State income taxes		(2	)		2			(1	)		3
   	Amortization of investment tax credit		(2	)		(2	)		(4	)		(4	)
   	Difference related to income recognition of foreign affiliates (net of foreign income taxes)		(15	)		3			(18	)		(5	)
   	Federal income tax credits		(15	)		(14	)		(29	)		(26	)
   	Other		(1	)					(1	)		(1	)
   			(35	)		(11	)		(53	)		(33	)
   Total income tax expense		$	33		$	55		$	85		$	106
   Effective income tax rate			17.1%			28.8%			21.6%			26.6%

3. Segment and Related Information

   (PPL and PPL Energy Supply)

   See the "Segment and Related Information" Note in each Registrant's Annual Report to the SEC on Form 10-K for the year ended December 31, 2003, for a discussion of reportable segments.

   Financial data for the segments are as follows:

   (PPL)

   		Three Months Ended June 30,				Six Months Ended June 30,
   		2004		2003		2004		2003
   Income Statement Data
   Revenues from external customers
   	Supply	$	438	$	453	$	857	$	903
   	International		271		259		565		519
   	Delivery		653		627		1,460		1,405
   			1,362		1,339		2,882		2,827
   Intersegment revenues
   	Supply		346		328		756		717
   	Delivery		39		40		78		88
   Net Income
   	Supply (a)		80		90		169		241
   	International		66		26		114		77
   	Delivery		2				42		37
   		$	148	$	116	$	325	$	355

   		June 30, 2004		December 31, 2003
   Balance Sheet Data
   Total assets
   	Supply	$	6,667	$	6,491
   	International		5,093		4,942
   	Delivery		5,474		5,690
   		$	17,234	$	17,123

   (PPL Energy Supply)

   		Three Months Ended June 30,				Six Months Ended June 30,
   		2004		2003		2004		2003
   Income Statement Data
   Revenues from external customers
   	Supply	$	780	$	779	$	1,605	$	1,616
   	International		271		259		565		519
   			1,051		1,038		2,170		2,135
   Net Income
   	Supply (a)		91		106		189		271
   	International		66		26		114		77
   		$	157	$	132	$	303	$	348

   		June 30, 2004		December 31, 2003
   Balance Sheet Data
   Total assets
   	Supply	$	6,504	$	6,308
   	International		5,093		4,942
   		$	11,597	$	11,250

   (a) The six months ended June 30, 2003, includes the "Cumulative Effect of a Change in Accounting Principle" recorded in January 2003. See Note 14 for additional information.

   
   
4. Earnings Per Share

   (PPL)

   Basic EPS is calculated using the weighted-average number of common shares outstanding during the period. Diluted EPS is calculated using weighted average shares 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;

   • common stock purchase contracts that were a component of the PEPS Units and PEPS Units, Series B; and

   • convertible senior notes.

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

   		Three Months Ended June 30,				Six Months Ended June 30,
   		2004		2003		2004		2003
   Income (Numerator)
   Income from continuing operations		$	149	$	117	$	327	$	293
   	Loss from discontinued operations (net of tax)		1		1		2		1
   	Cumulative effect of a change in accounting principle (net of tax)								63
   Net Income		$	148	$	116	$	325	$	355
   Shares (Denominator)
   Shares for Basic EPS			182,962		171,892		180,437		169,482
   Add: Incremental shares:
   	Stock options and other share-based awards		562		649		585		579
   Shares for Diluted EPS			183,524		172,541		181,022		170,061
   Basic EPS
   Income from continuing operations		$	0.82	$	0.68	$	1.81	$	1.73
   	Loss from discontinued operations (net of tax)		0.01				0.01
   	Cumulative effect of a change in accounting principle (net of tax)								0.37
   Net Income		$	0.81	$	0.68	$	1.80	$	2.10
   Diluted EPS
   Income from continuing operations		$	0.82	$	0.67	$	1.81	$	1.72
   	Loss from discontinued operations (net of tax)		0.01				0.01
   	Cumulative effect of a change in accounting principle (net of tax)								0.37
   Net Income		$	0.81	$	0.67	$	1.80	$	2.09

   In May 2001, PPL and PPL Capital Funding Trust I issued 23 million PEPS Units that contained a purchase contract component for PPL's common stock. The purchase contracts were only dilutive if the average price of PPL's common stock exceeded a threshold appreciation price, which was adjusted for cash distributions on PPL common stock. The threshold appreciation price was initially set at $65.03 and was adjusted to $63.38 as of April 1, 2004, based on dividends paid on PPL's common stock since issuance. Since the average price did not exceed the threshold appreciation price, the purchase contracts were excluded from the diluted EPS calculations.

   In January 2004, PPL completed an exchange offer resulting in the exchange of approximately four million PEPS Units for PEPS Units, Series B. The primary difference in the units related to the debt component. The purchase contract components of both units, which were potentially dilutive, were identical. The threshold appreciation price for the purchase contract component of the PEPS Units, Series B was adjusted in the same manner as that of the PEPS Units and was $63.38 as a result of the adjustment as of April 1, 2004. Since the average price did not exceed the threshold appreciation price, the purchase contracts were excluded from the diluted EPS calculations. See Note 6 for a more detailed discussion of the exchange offer.

   In May 2003, PPL Energy Supply issued $400 million of 2.625% Convertible Senior Notes due 2023. The notes are guaranteed by PPL and can be converted into shares of PPL common stock if:

   • during any fiscal quarter starting after June 30, 2003, the market price of PPL's common stock trades at or above $59.67 per share over a certain period during the preceding fiscal quarter;

   • PPL calls the debt for redemption;

   • the holder exercises its right to put the debt on any five-year anniversary of the offering;

   • the long-term credit rating assigned to the notes by Moody's Investors Service, Inc. and Standard & Poor's Ratings Services falls below Ba2 and BB or the notes are not rated; or

   • certain specified corporate transactions occur, e.g., change in control and certain distributions to the holders of PPL common stock.

   The initial conversion rate is 20.1106 shares per $1,000 principal amount of notes. It will be adjusted if certain specified distributions, whether in the form of cash, stock, other equity interests, evidence of indebtedness or assets, are made to holders of PPL common stock. Additionally, the conversion rate can be increased by PPL if its Board of Directors has made a determination that to do so would be in the best interests of either PPL or holders of PPL common stock.

   Depending upon which of the conversion events identified above occurs, the Convertible Senior Notes can be settled in cash or shares. As none of these events has occurred, the Convertible Senior Notes were excluded from the diluted EPS calculations.

   The following number of stock options to purchase PPL common shares were excluded in the periods' computations of diluted EPS because the effect would have been antidilutive.

   	Three Months Ended June 30,		Six Months Ended June 30,
   (Thousands of Shares)	2004	2003	2004	2003
   Antidilutive stock options	1,153	1,673	1,526	1,694

   See Note 16 for a discussion of EITF Issue 03-6, "Participating Securities and the Two-Class Method under FASB Statement No. 128, 'Earnings Per Share'."

5. Comprehensive Income

   (PPL and Energy Supply)

   The following tables show the after-tax components of comprehensive income:

   		Three Months Ended June 30,						Six Months Ended June 30,
   		2004			2003			2004			2003
   PPL
   Net Income		$	148		$	116		$	325		$	355
   Other comprehensive income (loss):
   	Foreign currency translation adjustments		(28	)		32			50			17
   	Sale of CEMAR - currency translation adjustment		(4	)					(4	)
   	Sale of CGE - currency translation adjustment								10
   	Unrealized gain (loss) on available-for-sale securities		(1	)		13			(4	)		10
   	Unrealized gain (loss) on qualifying derivatives		6			(13	)		(29	)		14
   	Total other comprehensive income (loss)		(27	)		32			23			41
   Comprehensive Income		$	121		$	148		$	348		$	396

   		Three Months Ended June 30,						Six Months Ended June 30,
   		2004			2003			2004			2003
   PPL Energy Supply
   Net Income		$	157		$	132		$	303		$	348
   Other comprehensive income (loss):
   	Foreign currency translation adjustments		(28	)		32			50			17
   	Sale of CEMAR - currency translation adjustment		(4	)					(4	)
   	Sale of CGE - currency translation adjustment								10
   	Unrealized gain (loss) on available-for-sale securities		(1	)		11			(4	)		8
   	Unrealized gain (loss) on qualifying derivatives		(5	)		(5	)		(37	)		24
   	Total other comprehensive income (loss)		(38	)		38			15			49
   Comprehensive Income		$	119		$	170		$	318		$	397

   (PPL Electric)

   PPL Electric's comprehensive income approximates net income.

6. Credit Arrangements and Financing Activities

   Credit Arrangements

   (PPL, PPL Energy Supply and PPL Electric)

   In February 2004, PPL Energy Supply reduced the size of its $500 million three-year credit facility expiring in June 2004 to $200 million. In June 2004, PPL Energy Supply replaced this facility and its $300 million three-year facility expiring in June 2005 with an $800 million five-year facility expiring in June 2009. Also in June 2004, PPL Electric replaced its $200 million 364-day facility expiring in June 2004 with a $200 million five-year facility expiring in June 2009. At June 30, 2004, no cash borrowings were outstanding under any credit facilities of PPL Electric or PPL Energy Supply. Both PPL Electric and PPL Energy Supply have the ability to cause the lenders under their respective facilities to issue letters of credit. At June 30, 2004, PPL Electric had $42 million of letters of credit outstanding under its $100 million three-year facility expiring in June 2006, and PPL Energy Supply had $442 million of letters of credit outstanding under its $800 million five-year facility expiring in June 2009 and $84 million of letters of credit outstanding under its $300 million three-year facility expiring in June 2006. The letters of credit outstanding under PPL Energy Supply's $800 million five-year facility expiring in June 2009 include a $300 million letter of credit provided to PPL Electric to satisfy the performance assurance provisions under one of the PLR contracts. See Note 9 for additional information.

   (PPL and PPL Energy Supply)

   At June 30, 2004, WPD (South West) had no outstanding borrowings under its £100 million 364-day credit facility expiring in October 2004 or under its £150 million five-year credit facility expiring in October 2008.

   (PPL, PPL Energy Supply and PPL Electric)

   The subsidiaries of PPL are separate legal entities. PPL's subsidiaries are not liable for the debts of PPL. Accordingly, creditors of PPL may not satisfy their debts from the assets of the subsidiaries absent a specific contractual undertaking by a subsidiary to pay PPL's creditors or as required by applicable law or regulation. Similarly, absent a specific contractual undertaking or as required by applicable law or regulation, PPL is not liable for the debts of its subsidiaries. Accordingly, creditors of PPL's subsidiaries may not satisfy their debts from the assets of PPL absent a specific contractual undertaking by PPL to pay the creditors of its subsidiaries or as required by applicable law or regulation.

   Similarly, the subsidiaries of PPL Energy Supply and PPL Electric are separate legal entities. These subsidiaries are not liable for the debts of PPL Energy Supply and PPL Electric. Accordingly, creditors of PPL Energy Supply and PPL Electric may not satisfy their debts from the assets of their subsidiaries absent a specific contractual undertaking by a subsidiary to pay the creditors or as required by applicable law or regulation. In addition, absent a specific contractual undertaking or as required by applicable law or regulation, PPL Energy Supply and PPL Electric are not liable for the debts of their subsidiaries. Accordingly, creditors of these subsidiaries may not satisfy their debts from the assets of PPL Energy Supply or PPL Electric absent a specific contractual undertaking by that parent to pay the creditors of its subsidiaries or as required by applicable law or regulation.

   Financing Activities

   PEPS Units Transactions

   (PPL)

   In November 2003, PPL initiated an offer to exchange up to $573 million of its outstanding PEPS Units for up to $573 million of its PEPS Units, Series B and a cash payment by PPL of $0.375 for each validly tendered and accepted outstanding PEPS Unit. The exchange offer, which closed in January 2004, resulted in $99 million, or 17.28%, of the outstanding PEPS Units, being exchanged.

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

   Additionally, in February 2004, PPL Capital Funding issued $201 million of senior unsecured notes guaranteed by PPL in exchange for $185 million of the trust preferred securities of PPL Capital Funding Trust I and a payment of $400,000 in cash. The senior notes bear interest at a rate of 4.33% per year that is payable semi-annually on March 1 and September 1 of each year, from September 1, 2004, through the maturity date of March 1, 2009. The senior notes are not redeemable by PPL or PPL Capital Funding, and the holders will not be entitled to require PPL or PPL Capital Funding to repurchase the senior notes before maturity. The senior notes were issued in an SEC Rule 144A private offering to qualified institutional buyers and were exchanged in full for senior notes registered with the SEC pursuant to an exchange offer completed by PPL and PPL Capital Funding in July 2004. The registered senior notes issued pursuant to the exchange offer have the same terms as the senior notes issued in the 144A private offering.

   The January and February 2004 exchanges resulted in the cancellation of an aggregate of $284 million of the trust preferred securities and an aggregate of $9 million of PPL Capital Funding Trust I's common securities held by PPL Capital Funding, as well as a corresponding cancellation of the $293 million of PPL Capital Funding 7.29% subordinated notes due 2006 underlying these trust securities. The cancellation of the underlying PPL Capital Funding subordinate notes together with the issuance of the new PPL Capital Funding debt, as a result of the exchanges, resulted in a net decrease of $9 million of long-term debt, including "Long-term Debt with Affiliate Trusts," as reflected in the Balance Sheet. Following these exchanges, there remained outstanding $290 million of trust preferred securities and $9 million of trust common securities, as well as $299 million of underlying PPL Capital Funding 7.29% subordinated notes due 2006.

   In March 2004, PPL liquidated PPL Capital Funding Trust I, resulting in the cancellation of all of the outstanding trust preferred securities and the trust common securities. In exchange for the cancellation of the trust securities, PPL Capital Funding Trust I caused $290 million of underlying PPL Capital Funding 7.29% subordinated notes due 2006 to be distributed to the holders of the trust preferred securities and $9 million of PPL Capital Funding 7.29% subordinated notes due 2006, held by the trust, to be cancelled. The impact to PPL Capital Funding as a result of these cancellations was an additional net decrease of $9 million of long-term debt, including "Long-term Debt with Affiliate Trusts," as reflected in the Balance Sheet.

   In May 2004, pursuant to the terms of the PEPS Units, Series B, PPL remarketed approximately $99 million of the PPL Capital Funding notes due 2006 that were a component of the PEPS Units, Series B. The notes were remarketed at a price of 100.5% of their aggregate principal amount with a floating reset interest rate initially equal to 2.31%, which is three-month LIBOR plus a spread of 105 basis points, or 1.05%. Interest on the notes resets quarterly at three-month LIBOR plus a spread of 105 basis points, and is payable quarterly from May 18, 2004, through, but excluding, the maturity date of May 18, 2006. Under the terms of the PEPS Units, Series B, holders were entitled to surrender their PPL Capital Funding notes for remarketing in order to settle the purchase contract component of the PEPS Units, Series B in May 2004.

   (PPL and PPL Energy Supply)

   The purchase contract component of the PEPS Units and the PEPS Units, Series B settled in May 2004. Pursuant to the settlement of the purchase contracts, PPL issued an aggregate of approximately 11 million shares of its common stock and received aggregate proceeds of approximately $575 million. In June 2004, a subsidiary of PPL Energy Supply used these proceeds and cash on hand to purchase, for approximately $660 million, the Sundance and University Park generation assets that it had been leasing, through a synthetic lease arrangement, from a trust consolidated by PPL Energy Supply. Under the terms of the synthetic lease arrangement, the PPL Energy Supply subsidiary had the right at any time to purchase these assets for an amount sufficient to pay off the consolidated trust's related financing, including accrued and unpaid interest. Repayment of the consolidated trust's debt resulted in a loss of approximately $9 million pre-tax, which is reflected in "Interest Expense."

   Other Financing Activities

   (PPL)

   In April 2004, PPL Capital Funding repurchased $4 million of its 8-3/8% Medium-term Notes due 2007 at a market value of approximately $5 million. This repurchase resulted in a loss of approximately $1 million pre-tax, which is reflected in "Interest Expense."

   (PPL and PPL Energy Supply)

   During the six months ended June 30, 2004, a Bolivian subsidiary of PPL Global issued $13 million of bonds with interest rates varying from 6.8% to 7.4% and serial maturities from December 2005 to December 2008. In addition, the PPL Global subsidiary issued bonds denominated in UFVs (inflation-indexed bolivianos) totaling 13.5 million bolivianos (approximately $2 million at current exchange rates) maturing in December 2007. The proceeds of both issuances were used to repay intercompany loans, short-term bank borrowings, and $3.1 million of its multicurrency denominated Inter-American Development Bank note maturing in November 2009.

   At June 30, 2004, PPL Energy Supply had no commercial paper outstanding.

   During the six months ended June 30, 2004, PPL Energy Supply distributed approximately $124 million to its parent company, PPL Energy Funding, and received capital contributions of $58 million.

   In May 2004, PPL Energy Supply issued a $495 million note payable to an affiliate. The note matures in May 2006 with interest payable monthly in arrears at LIBOR plus 1%.

   (PPL and PPL Electric)

   In March 2004, PPL Electric retired approximately $25 million of its outstanding First Mortgage Bonds, 6.875% Series due March 2004, at par value. Also in March, PPL Electric redeemed approximately $6 million aggregate principal amount of its First Mortgage Bonds, 7.30% Series due 2024, at par value, through the application of cash deposited with the trustee to release certain transmission lines and other equipment from the lien of the 1945 First Mortgage Bond Indenture.

   In April 2004, PPL Electric completed an offer to repurchase its outstanding First Mortgage Bonds, 6-1/2% Series due 2005. Pursuant to the offer, PPL Electric repurchased approximately $41 million of the bonds at a market value of $43 million. PPL Electric also repurchased in the open market $45 million of 5-7/8% Senior Secured Bonds and $14 million of 6-1/4% Senior Secured Bonds at market values of $48 million and $16 million, respectively. These repurchases resulted in a loss of approximately $7 million pre-tax, which is reflected in other noncurrent assets as an unamortized loss on reacquired debt. The purpose of the repurchases was to reduce future interest expense.

   In August 2004, PPL Electric began participating in an asset-backed commercial paper (ABCP) program through which PPL Electric obtains financing by selling and contributing to a special purpose, wholly-owned subsidiary its accounts receivable, with certain exceptions, on an ongoing basis. PPL Electric's sale of the accounts receivable is an absolute transfer of the receivables and PPL Electric does not retain an interest in the receivables. The subsidiary, in turn, has pledged the receivables to secure loans to be made to it from time to time by a commercial paper conduit sponsored by a financial institution. PPL Electric will continue to perform certain record-keeping and cash collection functions with respect to the receivables in return for a servicing fee from the subsidiary. The subsidiary's borrowing limit under this program is $150 million. PPL Electric expects to use the proceeds from the ABCP program for general corporate purposes and to cash collateralize letters of credit. The subsidiary is a separate legal entity and its assets are not available for PPL Electric's creditors. However, for financial reporting purposes, the subsidiary's financial results will be consolidated in PPL Electric's financial statements.

   During the six months ended June 30, 2004, PPL Transition Bond Company made principal payments on transition bonds totaling $140 million.

   At June 30, 2004, PPL Electric had $65 million of commercial paper outstanding.

   Dividends (PPL)

   In February 2004, PPL announced an increase to its quarterly common stock dividend, effective April 1, 2004, from 38.5 cents per share to 41 cents per share (equivalent to $1.64 per annum). Future dividends, declared at the discretion of the Board of Directors, will be dependent upon future earnings, cash flows, financial requirements and other factors.

7. Acquisitions, Development and Divestitures

   Domestic Generation Projects (PPL and PPL Energy Supply)

   At December 31, 2003, PPL Generation had two remaining spare gas combustion turbine generators and related equipment, originally intended for use in a cancelled project. In February 2004, a subsidiary of PPL Generation sold one spare gas combustion turbine generator and related equipment for approximately $10 million. In June 2004, the subsidiary sold the other spare gas combustion turbine generator and related equipment for approximately $9 million. The net loss from these sales was insignificant.

   The turbine upgrade for PPL Susquehanna Unit 1 was completed in April 2004. This project provides a nominal power increase of 49 MW of generation capacity, of which PPL Susquehanna has a 90% undivided interest. Through June 30, 2004, a total of approximately $77 million had been incurred on the Unit 1 upgrade.

   In May 2004, the 600 MW Lower Mt. Bethel plant in eastern Pennsylvania was placed in service. Construction of the natural gas-fired power plant began in December 2001. Through June 30, 2004, approximately $456 million had been incurred on the plant construction.

   In 2003, PPL Maine entered into an agreement in principle with a coalition of government agencies and private groups to sell three of its nine hydroelectric dams in Maine. The parties reached a final agreement in June 2004 and submitted the plan to the FERC for approval. Under the agreement, a non-profit organization designated by the coalition would have a five-year option to purchase the dams for approximately $25 million, and PPL Maine would receive rights to increase energy output at its other hydroelectric dams in Maine. The coalition has announced plans to remove or bypass the dams subject to the agreement in order to restore runs of Atlantic salmon and other migratory fish to the Penobscot River. The agreement will require several approvals by the FERC.

   See Note 6 for a discussion of the June 2004 purchase of the Sundance and University Park generation assets from a consolidated trust.

   In June 2004, a subsidiary of PPL Generation agreed to sell the 450 MW Sundance power plant located in Pinal County, Arizona, to the Arizona Public Service Company for approximately $190 million in cash, subject to the receipt of various state and federal regulatory approvals and customary closing conditions. If the necessary regulatory approvals can be obtained, the sale is expected to close in the first quarter of 2005. It is expected that the proceeds of the sale would be used to reduce PPL's outstanding debt. Either party may terminate the agreement if the required state regulatory approvals are not obtained by December 31, 2004. If it becomes likely that the required regulatory approvals will be obtained, PPL will reassess the Sundance assets for possible impairment. PPL cannot predict whether or when the regulatory approvals for this transaction will be obtained, and whether or when this transaction will be consummated.

   International Energy Projects (PPL and PPL Energy Supply)

   Sale of CEMAR

   In 2001, PPL Global estimated that the long-term viability of its CEMAR investment was jeopardized and that there was minimal probability of positive future cash flows. At that time, PPL Global recorded an impairment loss in the carrying value of its net assets in CEMAR. In March 2002, PPL Global recorded a further impairment loss. In June 2002, PPL made a decision to exit the investment. At that time, PPL Global's remaining portion of its CEMAR investment was written-off.

   On August 21, 2002, ANEEL authorized an administrative intervention in CEMAR and fully assumed operational and financial control of the company. The intervener appointed by ANEEL initiated efforts to transfer the ownership interest in CEMAR to a new owner. Since PPL Global no longer controlled or managed CEMAR, it deconsolidated the assets and liabilities of CEMAR from its financial statements and stopped recording CEMAR's operating results at that time. As of February 11, 2003, due to the inability to discharge their obligations under the continuing intervention, PPL-related officers and directors of CEMAR resigned from their respective positions.

   In April 2004, PPL Global transferred its interest in CEMAR to two companies controlled by a private equity fund managed by GP Investimentos, a Brazilian private equity firm. The sale resulted in a credit of approximately $23 million, and is included in "Other Income - net" on the Statement of Income. This credit is a result of the reversal of the negative carrying value and the associated CTA.

   Discontinued Operations

   In December 2003, PPL Global's Board of Managers authorized PPL Global to sell its investment in a Latin American telecommunications company, and approved a plan of sale. It was determined that the viability of this non-strategic business was not economical. As a result, PPL Global recorded an $18 million write-down in the carrying value of the company's net assets to their estimated fair value of approximately $1 million.

   In June 2004, PPL Global sold this investment to local management for a nominal amount. The operating results of the Latin American telecommunications company, as well as an insignificant write-down of its net assets in 2004, are recorded as "Loss from Discontinued Operations" on the Statement of Income, approximately $2 million and $1 million for the six months ended June 30, 2004 and 2003.

   Other Sales

   In March 2004, PPL Global completed the sale of its minority interest in shares of CGE for approximately $123 million. The sale resulted in a charge of approximately $15 million pre-tax, which is included in operating expenses, as "Energy related businesses," on the Statement of Income. This charge was due primarily to the devaluation of the Chilean peso since the original acquisition in 2000.

   In June 2004, PPL Global completed the sale of its 50% ownership interest in nine small hydroelectric generating facilities in Spain for approximately $8 million. There was an insignificant loss on this transaction.

   DelSur Tender Offer

   In April 2004, EC launched a tender offer to acquire outstanding shares of DelSur for up to an aggregate purchase price of $17 million. The offer closed in May, with a purchase of 163,927 shares for approximately $5 million, increasing EC's ownership of DelSur by 5.34%. At June 30, 2004, EC owned approximately 85.9% of DelSur.

   Other (PPL)

   In June 2004, a PPL subsidiary evaluated its investment in a technology supplier for impairment. As a result of the evaluation, the subsidiary recorded an impairment charge of approximately $10 million pre-tax, which is included in "Other Income - net" on the Statement of Income.

8. Commitments and Contingent Liabilities

   Energy Purchases and Sales Commitments

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

   In 1998, PPL Electric recorded a loss accrual for above market contracts with NUGs of $854 million, due to its generation business being deregulated. Effective January 1999, PPL Electric began reducing this liability as an offset to "Energy purchases" on the Statement of Income. This reduction is based on the estimated timing of the purchases from the NUGs and projected market prices for this generation. The final existing NUG contract expires in 2014. In connection with the corporate realignment in 2000, the remaining balance of this liability was transferred to PPL EnergyPlus. At June 30, 2004, the remaining liability associated with the above market NUG contracts was $315 million.

   Wholesale Energy Commitments (PPL and PPL Energy Supply)

   As part of the purchase of generation assets from Montana Power, PPL Montana assumed a power purchase agreement and a power sales agreement, which were still in effect at June 30, 2004. In accordance with purchase accounting guidelines, PPL Montana recorded liabilities of $65 million as the estimated fair value of these agreements at the acquisition date. These liabilities are being reduced over the terms of the agreements, through 2010, as adjustments to "Wholesale energy marketing" revenues and "Energy purchases" on the Statement of Income. The unamortized balance of the liability related to the power purchase agreement at June 30, 2004, was $54 million and is included in "Deferred Credits and Other Noncurrent Liabilities - Other" on the Balance Sheet. The power sales agreement was re-evaluated under DIG Issue C20, "Scope Exceptions: Interpretation of the Meaning of Not Clearly and Closely Related in Paragraph 10(b) Regarding Contracts With a Price Adjustment Feature," and is now reflected at its fair value as a derivative instrument.

   On July 1, 2002, PPL EnergyPlus began to sell to NorthWestern an aggregate of 450 MW of energy to be supplied by PPL Montana. Under two five-year agreements, PPL EnergyPlus is supplying 300 MW of around-the-clock electricity and 150 MW of unit-contingent on-peak electricity. PPL Montana also makes short-term energy sales to NorthWestern. Following NorthWestern's credit downgrades to below investment grade in late-2002, PPL Montana and NorthWestern agreed to modify the payment provisions of the energy contracts such that NorthWestern would pay PPL Montana on a weekly basis, in arrears.

   In September 2003, NorthWestern filed a voluntary petition for relief seeking to reorganize under Chapter 11 of the U.S. Bankruptcy Code. NorthWestern made its filing in federal bankruptcy court in Delaware. Between the time of NorthWestern's last weekly payment and the bankruptcy filing date, PPL Montana made approximately $1.6 million of energy sales to NorthWestern.

   Following the date that NorthWestern filed for bankruptcy, PPL Montana and NorthWestern agreed to amend the power supply agreements to, among other things, eliminate the weekly payment arrangements and resume more typical monthly invoicing and payment arrangements. The amendments were contingent on NorthWestern's assumption of the power supply agreements in its bankruptcy proceeding.

   In September 2003, NorthWestern filed a motion with the bankruptcy court seeking, among other things, to assume the two five-year power supply agreements (as amended) and to pay PPL Montana for the approximately $1.6 million of energy sales made immediately prior to the time of the bankruptcy filing. In October 2003, the bankruptcy court entered an order granting NorthWestern's motion. NorthWestern has, in accordance with the terms of the judge's order, paid PPL Montana for the pre-filing energy sales, and the parties have resumed monthly invoicing and payment arrangements.

   In April 2003, the Maryland Public Service Commission authorized the competitive provision of the Standard Offer Service (SOS) to allow utilities to procure SOS for customers through the competitive selection of wholesale supply. In March 2004, PPL EnergyPlus was awarded an 11-month fixed-price SOS contract for customer load (approximately 60 MW) for Potomac Electric Power Company. This contract commenced in July 2004.

   As a result of New Jersey's Electric Discount and Energy Competition Act, the New Jersey Board of Public Utilities authorized and made available to power suppliers, on a competitive basis, the opportunity to provide Basic Generation Service (BGS) to all non-shopping New Jersey customers. In February 2003, PPL EnergyPlus was awarded a 34-month fixed-price BGS contract for a fixed percentage of customer load (approximately 1,000 MW) for Atlantic City Electric Company, Jersey Central Power & Light Company and Public Service Electric & Gas Company. In February 2003, PPL EnergyPlus was also awarded about 500 MW for a 10-month hourly energy price supply contract. These contracts commenced in August 2003. Additionally, in February 2004, PPL EnergyPlus was awarded a 12-month hourly energy price supply BGS contract for a fixed percentage of customer load (approximately 450 MW) for Atlantic City Electric Company, Jersey Central Power & Light Company and Public Service Electric & Gas Company. These contracts commenced in June 2004.

   In April 2003, PPL EnergyPlus entered into an agreement with Arizona Public Service Company to provide 112 MW of capacity and associated electricity from July through September of 2003 and 150 MW from June through September of 2004 and 2005. See Note 7 for information regarding the possible sale of the Sundance power plant to Arizona Public Service Company.

   In May 2003, PPL EnergyPlus entered into agreements with Tucson Electric Power Company to provide 37 MW of capacity and associated electricity from June through December of 2003 and 75 MW from January 2004 through December 2006.

   In May 2003, PPL EnergyPlus entered into a 20-year agreement with Community Energy, Inc. to purchase energy from its Bear Creek wind power project in northeastern Pennsylvania. The project is expected to produce up to 20 MW and be completed in 2005.

   In September 2003, Connecticut Light and Power Company (CL&P) issued a request for proposals seeking energy supply for CL&P's Transitional Standard Offer retail customer load. In October 2003, PPL EnergyPlus was awarded a three-year, fixed-price contract beginning in January 2004 to supply 12.5% of CL&P's Transitional Standard Offer load. During peak hours, PPL EnergyPlus' obligation to supply CL&P's Transitional Standard Offer load may reach 625 MW.

   Legal Matters

   (PPL, PPL Energy Supply and PPL Electric)

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

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

   In August 2001, a purported class-action lawsuit was filed by a group of shareholders of Montana Power against Montana Power, the directors of Montana Power, certain advisors and consultants of Montana Power and PPL Montana. The plaintiffs allege, among other things, that Montana Power was required to, and did not, obtain shareholder approval of the sale of Montana Power's generation assets to PPL Montana in 1999. Although most of the claims in the complaint are against Montana Power, its board of directors, and its consultants and advisors, two claims are asserted against PPL Montana. In the first claim, plaintiffs seek a declaration that because Montana Power shareholders did not vote on the 1999 sale of generating assets to PPL Montana, that sale "was null and void ab initio." The second claim alleges that PPL Montana was privy to and participated in a strategy whereby Montana Power would sell its generation assets to PPL Montana without first obtaining Montana Power shareholder approval, and that PPL Montana has made net profits in excess of $100 million as the result of this alleged illegal sale. In the second claim, plaintiffs request that the court impose a "resulting and/or constructive trust" on both the generation assets themselves and all profits, plus interest on the amounts subject to the trust. This lawsuit is currently pending in the U.S. District Court of Montana, Butte Division. In July 2004, the plaintiffs notified the District Court that the parties had reached a partial settlement of the case that would result in the dismissal of PPL Montana as a defendant. Under the terms of the proposed settlement, PPL Montana would not have to pay any amount to the plaintiffs. The settlement must still be reduced to writing and approved by the plaintiff class and the District Court. PPL and PPL Energy Supply cannot predict whether the settlement will be approved or the ultimate outcome of this matter if the settlement is not approved.

   NorthWestern Corporation Litigation (PPL and PPL Energy Supply)

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

   In September 2003, NorthWestern filed a petition in Delaware for reorganization under the U.S. Bankruptcy Code, which resulted in an automatic stay of PPL Montana's counterclaims against NorthWestern. In December 2003, NorthWestern filed a motion to transfer this litigation from the Montana federal district court to the federal district court in Delaware where NorthWestern's bankruptcy proceeding is pending. In March 2004, the Montana federal district court denied this motion to transfer. As a result of the court's decision and a prior stipulation of NorthWestern and PPL Montana in NorthWestern's bankruptcy proceeding, the automatic stay of PPL Montana's counterclaims has been lifted. This matter currently is scheduled for trial in the Montana federal district court in mid-2005. PPL and PPL Energy Supply cannot predict the outcome of this litigation.

   Montana Hydroelectric Litigation (PPL and PPL Energy Supply)

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

   Proposed Montana Energy Security Initiative (PPL and PPL Energy Supply)

   On April 30, 2004, the Montana Secretary of State certified, in accordance with applicable statutes, that it had approved the form of a proposed "Montana Energy Security Act" initiative. The proposed initiative was determined by the Montana Attorney General to be legally sufficient, but the initiative failed to qualify for the November 2004 statewide ballot because sufficient signatures were not obtained prior to June 18, 2004. Among the stated purposes of the proposed initiative was the creation of a Montana public power board, appointed by the governor, to determine whether it would be in the public interest to purchase electric and natural gas generation, transmission and distribution facilities in Montana on behalf of the state. The proposed initiative would have permitted the board to purchase such facilities, including any or all of PPL Montana's hydroelectric dams or coal-fired facilities, at fair market value.

   Regulatory Issues

   California ISO and Western Markets (PPL and PPL Energy Supply)

   Through its subsidiaries, PPL has made approximately $18 million of sales to the California ISO, of which $17 million has not been paid to PPL subsidiaries. Given the myriad of electricity supply problems presently faced by the California electric utilities and the California ISO, PPL cannot predict whether or when it will receive payment. As of June 30, 2004, PPL has fully reserved for possible underrecoveries of payments for these sales.

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

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

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

   In May 2003, the Port of Seattle filed a lawsuit in the U.S. District Court for the Western District of Washington against eighteen defendants, including PPL Montana. The lawsuit asserts claims against all defendants under the federal and state antitrust laws, the federal Racketeer Influenced and Corrupt Organizations Act and for common law fraud. The complaint centers on many of the same alleged activities that are the basis for the litigation arising out of the California electricity supply situation described above. The Port of Seattle is seeking actual, trebled and punitive damages, as well as attorneys' fees. In December 2003, this matter was transferred to the U.S. District Court for the Southern District of California for inclusion with proceedings already centralized and pending in that court. In May 2004, the District Court dismissed the action. In its appeal of this decision, the Port of Seattle expressly excluded PPL Montana, thereby making the District Court's dismissal final as to PPL Montana.

   In February 2004, the Montana Public Service Commission initiated a limited investigation of the Montana retail electricity market for the years 2000 and 2001, focusing on how that market was affected by transactions involving the possible manipulation of the electricity grid in the western U.S. The investigation includes all public utilities and licensed electricity suppliers in Montana, as well as other entities that may possess relevant information. Through its subsidiaries, PPL is a licensed electricity supplier in Montana and a wholesale supplier in the western U.S. In June 2004, the Montana Attorney General served PPL Montana and more than 20 other companies with subpoenas requesting documents, and PPL Montana currently is providing responsive documents to the Montana Attorney General. As with the other investigations taking place as a result of the issues arising out of the electricity supply situation in California and other western states, PPL and its subsidiaries believe that they have not engaged in any improper trading or marketing practices affecting the Montana retail electricity market.

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

   PJM Capacity Transactions (PPL, PPL Energy Supply and PPL Electric)

   In September 2002, PPL was served with a complaint filed by Utilimax.com, Inc., which was a member of PJM, in the U.S. District Court for the Eastern District of Pennsylvania against PPL and PPL EnergyPlus alleging, among other things, violations of the federal antitrust laws in connection with the pricing of installed capacity in the PJM daily market during the first quarter of 2001. The court dismissed the complaint with prejudice in July 2003, and Utilimax has appealed the court's dismissal to the U.S. Court of Appeals for the Third Circuit.

   In December 2002, PPL was served with a complaint against PPL, PPL EnergyPlus and PPL Electric filed in the U.S. District Court for the Eastern District of Pennsylvania by a group of 14 Pennsylvania boroughs that apparently alleges, in broad terms, similar violations of the federal antitrust laws. These boroughs were wholesale customers of PPL Electric. The claims of the boroughs are similar to those previously alleged by a single borough in litigation that is still pending in the same court. In addition, in November 2003, PPL and PPL EnergyPlus were served with a complaint which was filed in the same court by Joseph Martorano, III (d/b/a ENERCO), that also alleges violations of the federal antitrust laws in early 2001. The complaint indicates that ENERCO provides consulting and energy procurement services to clients in Pennsylvania and New Jersey.

   Each of the U.S. Department of Justice - Antitrust Division, the FERC and the Pennsylvania Attorney General conducted investigations regarding PPL's PJM capacity market transactions in early 2001 and did not find any reason to take action against PPL.

   Although PPL, PPL Energy Supply and PPL Electric believe the claims in these complaints are without merit, they cannot predict the outcome of these matters.

   New England Investigation (PPL and PPL Energy Supply)

   In January 2004, PPL became aware of an investigation by the Connecticut Attorney General and the FERC's Office of Market Oversight and Investigation (OMOI) regarding allegations that natural gas-fired generators located in New England illegally sold natural gas instead of generating electricity during the week of January 12, 2004. Subsequently, PPL and other generators were served with a data request by OMOI. The data request indicated that PPL was not under suspicion of a regulatory violation, but that OMOI was conducting an initial investigation. PPL has responded to this data request. PPL also has responded to data requests of ISO - New England and data requests served by subpoena from the Connecticut Attorney General. Both OMOI and ISO - New England have issued preliminary reports finding no regulatory or other violations concerning these matters. While PPL does not believe that it committed any regulatory or other violations concerning the subject matter of these investigations, PPL cannot predict the outcome of these investigations.

   PJM Billing (PPL, PPL Energy Supply and PPL Electric)

   In March 2004, an Exelon Corporation subsidiary, PECO Energy, Inc. (PECO), alleged that PJM had overcharged PECO by approximately $45 million, exclusive of interest, from April 1998 through May 2003 as a result of an error by PJM in the State Estimator Program used in connection with billing all PJM customers for certain transmission, spot market energy and ancillary services charges. PECO further alleged that PPL Electric or other PPL subsidiaries should be responsible for all these overcharges, plus interest. PPL, PECO and PJM have selected a mediator to conduct a non-binding mediation of the dispute pursuant to the dispute resolution procedures of the PJM Operating Agreement. Although participating in the discussions, PPL Electric and PPL Energy Supply do not believe that they or any PPL subsidiaries have any financial responsibility or liability to PJM or PECO as a result of PJM's alleged error. PJM has not taken a position on this matter. PPL Electric and PPL Energy Supply cannot predict the outcome of these discussions, whether any legal proceedings may result from these allegations, the outcome of such proceedings, or the ultimate impact on any PPL subsidiary.

   FERC Market-Based Rate Authority (PPL and PPL Energy Supply)

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

   In June 2004, FERC approved certain changes to its standards for granting market-based rate authority. As a result, PPL EnergyPlus will need to re-file for market-based rate authority under the new standards in November 2004. PPL EnergyPlus cannot predict the outcome of this filing.

   FERC Proposed Rules (PPL, PPL Energy Supply and PPL Electric)

   In July 2002, the FERC issued a Notice of Proposed Rulemaking entitled "Remedying Undue Discrimination through Open Access Transmission Service and Standard Electricity Market Design." The proposed rule is currently available for public comment and contains a proposed implementation date of July 31, 2003. However, since the issuance of the proposed rule, the FERC has delayed the implementation date. This far-reaching proposed rule, in its current form, purports to establish uniform transmission rules and a standard market design by, among other things:

   • enacting standard transmission tariffs and uniform market mechanisms,

   • monitoring and mitigating "market power,"

   • managing transmission congestion through pricing and tradable financial rights,

   • requiring independent operational control over transmission facilities,

   • forming state advisory committees on regional transmission organizations and resource adequacy, and

   • exercising FERC jurisdiction over all transmission service.

   In April 2003, the FERC issued a white paper describing certain modifications to the proposed rule. The FERC has requested comments and is holding numerous public comment sessions concerning the white paper.

   If adopted, this proposed rule may have a significant impact on PPL and its subsidiaries, which cannot be predicted at this time.

   In November 2003, the FERC adopted a proposed rule to require all existing and new electric market-based tariffs and authorizations to include provisions prohibiting the seller from engaging in anticompetitive behavior or the exercise of market power. The FERC order adopts a list of market behavior rules that apply to all electric market-based rate tariffs and authorizations, including those of PPL EnergyPlus and any other PPL subsidiaries that hold market-based rate authority. PPL does not expect this rule to have a significant impact on its subsidiaries.

   Wallingford Deactivation (PPL and PPL Energy Supply)

   In January 2003, PPL negotiated an agreement with the ISO - New England that would declare that four of the five units at PPL's Wallingford, Connecticut facility are "reliability must run" units and put those units under cost-based rates. This agreement and the cost-based rates are subject to the FERC's approval, and PPL filed a request with the FERC for such approval. PPL requested authority for cost-based rates because the current and anticipated wholesale prices in New England are insufficient to cover the costs of keeping these units available for operation. In March 2003, PPL filed an application with the New England Power Pool to temporarily deactivate these four units. In May 2003, the FERC denied PPL's request for cost-based rates in light of the FERC's changes to the market and bid mitigation rules of ISO - New England made in a similar case involving generating units owned by NRG Energy, Inc. PPL subsequently has explained to the FERC that its changes to the market and bid mitigation rules of ISO - New England will not provide sufficient revenues to PPL, and PPL continues to seek approval of its cost-based rates. However, PPL has informed the New England Power Pool that it will not pursue its request to temporarily deactivate certain Wallingford units. In February 2004, PPL appealed the FERC's denial of its request for cost-based rates to the U.S. Court of Appeals for the District of Columbia Circuit. PPL cannot predict the outcome of this matter.

   IRS Synthetic Fuels Tax Credits (PPL and PPL Energy Supply)

   PPL, through its subsidiaries, has interests in two synthetic fuel production facilities: the Somerset facility located in Pennsylvania and the Tyrone facility located in Kentucky. PPL receives tax credits pursuant to Section 29 of the Internal Revenue Code based on the sale of synthetic fuel from these facilities to unaffiliated third-party purchasers. Section 29 of the Internal Revenue Code provides tax credits for the production and sale of solid synthetic fuels produced from coal. To qualify for the Section 29 tax credits, the synthetic fuel must meet three primary conditions: (i) there must be a significant chemical change in the coal feedstock, (ii) the product must be sold to an unaffiliated entity, and (iii) the production facility must have been placed in service before July 1, 1998. Section 29 tax credits are currently scheduled to expire at the end of 2007.

   A PPL subsidiary owns and operates the Somerset facility. In November 2001, PPL received a private letter ruling from the IRS pursuant to which, among other things, the IRS concluded that the synthetic fuel produced at the Somerset facility qualifies for Section 29 tax credits. The Somerset facility uses the Covol technology to produce synthetic fuel, and the IRS issued the private letter ruling after its review and approval of that technology. In reliance on this private letter ruling, PPL has sold synthetic fuel produced at the Somerset facility resulting in an aggregate of approximately $175 million of tax credits as of June 30, 2004.

   PPL owns a limited partnership interest in the entity that owns and operates the Tyrone facility. In April 2004, this entity received a private letter ruling from the IRS. Similar to its conclusions relating to the Somerset facility, the IRS concluded that the synthetic fuel to be produced at the Tyrone facility qualifies for Section 29 tax credits. The Tyrone facility commenced commercial operations in the third quarter of 2004 after being relocated to Kentucky from Pennsylvania.

   PPL also purchases synthetic fuel from unaffiliated third parties, at prices below the market price of coal, for use at its coal-fired power plants.

   In June 2003, the IRS announced that it had reason to question the scientific validity of certain test procedures and results that have been presented to it by taxpayers with interests in synthetic fuel operations as evidence that the required significant chemical change has occurred, and that it was reviewing information regarding these test procedures and practices. In October 2003, the IRS announced that it had completed its review and determined that the test procedures and results used by taxpayers are scientifically valid, if the procedures are applied in a consistent and unbiased manner. The IRS indicated that it would require taxpayers to comply with certain sampling and data/record retention practices to obtain or maintain a ruling on significant chemical change.

   PPL believes that the October IRS announcement and its receipt of the private letter ruling for the Tyrone facility following this announcement confirms that PPL is justified in its reliance on the private letter rulings for the Somerset and Tyrone facilities and that the test results that PPL presented to the IRS in connection with its private letter rulings are scientifically valid. In addition, PPL believes that it has operated the Somerset facility in compliance with the private letter ruling and Section 29 of the Internal Revenue Code.

   In October 2003, following the IRS announcement, it was reported that the U.S. Senate Permanent Subcommittee on Investigations, of the Committee on Governmental Affairs, had begun an investigation of the synthetic fuel industry and its producers. That investigation is ongoing. PPL cannot predict when the investigation will be completed or the potential results of the investigation.

   Certain other owners or operators of synthetic fuel facilities have recently reported that the IRS has questioned whether their facilities were placed in service before July 1, 1998. Whether or not a facility meets the "in service" requirement is based on the particular facts and circumstances relating to the operation of that facility. PPL is not aware of the facts and circumstances relating to the operation of the facilities being questioned by the IRS or the specific IRS position in these other matters. However, PPL believes that the Tyrone and Somerset facilities meet the in service requirement.

   U.K. Electricity Regulation (PPL and PPL Energy Supply)

   The principal legislation governing the structure of the electricity industry in Great Britain is the Electricity Act 1989 (the "Electricity Act"), as amended by the Utilities Act 2000 (the "Utilities Act").

   The provisions in the Utilities Act include the replacement of individual gas and electricity regulators with the Gas and Electricity Markets Authority (the "Regulator"). The principal objective of the Regulator is to protect the interests of consumers, wherever appropriate, by promoting effective competition in electricity generation and supply. There currently is no competition in electricity distribution, but recently a small operator has applied to the Regulator for a license to operate in Great Britain.

   Each distribution business constitutes a natural regional monopoly and is subject to control on the prices it can charge and the quality of supply it must provide. The operations of WPD are regulated under its distribution licenses, pursuant to which income generated is subject to an allowed revenue regulatory framework that provides economic incentives to minimize operating, capital and financing costs. Under the Electricity Act, WPD is under a statutory duty to offer terms to connect any customer requiring electricity within their area and to maintain that connection. The allowed revenue that is recovered from electricity supply businesses through charges by the Distribution Network Operator (DNO) made for the use of the distribution network is regulated on the basis of the Retail Price Index (RPI) minus X formula. The allowed revenue is increased by RPI minus X during the tenure of each price control period. (RPI is a measure of inflation and equals the percentage change in the U.K. RPI between the six-month period of July to December in the previous year. The X factor is established by the Regulator following review and represents an annual efficiency factor.) The Regulator currently sets the Distribution Price Control Formula for five-year periods.

   The current Distribution Price Control Formula permits DNOs, within a review period, to partially retain additional revenues due to increased distribution of units and to retain all increases in operating profit due to efficient operations and the reduction of expenses (including financing costs). The Regulator may reduce this increase in operating profit through a one-off price reduction in the first year of the new pricing regime, if the Regulator determines that it is not a function of efficiency savings, or if genuine efficiency savings have been made and the Regulator determines that customers should benefit through lower prices.

   In December 1999, the Regulator published final price proposals for distribution price control for the 12 DNOs in England and Wales. These proposals represented a reduction to distribution prices of 20% for WPD (South West) and 26% for WPD (South Wales) effective April 2000, followed by a reduction in real terms (i.e., before inflation is taken into account) of 3% each year from April 2001. This price control is scheduled to operate until March 2005.

   Improvements in quality of supply form an important part of the final proposals. Revised targets for system performance, in terms of the security and availability of supply, were implemented with new targets for reductions in minutes lost and interruptions.

   The Regulator previously introduced a quality of service incentive plan for the period from April 2002 to March 2005. Companies may be penalized annually up to 2% of revenue for failing to meet their quality of supply targets for the incentive plan. The plan includes a mechanism for rewarding companies which exceed their targets based on their rate of improvement of performance during the period and a process for rewarding exceptional performance by specifying how the targets will be reset.

   Distribution businesses must also meet the Guaranteed and Overall Standards of Performance, which are set by the Regulator to ensure an appropriate level of quality of supply. If a company fails to provide the level of service specified, it must make a fixed payment to the retail customer affected.

   In July 2004, the Regulator published a report on the quality of supply from April 2002 through March 2003. The report confirms that WPD (South West) and WPD (South Wales) met or exceeded quality of service targets set by the Regulator.

   In June 2004, the Regulator published its initial distribution price control proposal for the next five-year price control period, which will commence April 1, 2005. This initial proposal is the latest step in the Regulator's ongoing price review of WPD and the other DNOs in England and Wales. The Regulator's review is expected to be completed in November 2004. The initial proposal acknowledged WPD's leading quality-of-service performance and provided an additional 1% in revenues because of WPD's reliability performance. PPL cannot predict the final outcome of the Regulator's review or how the Regulator's final decision will impact WPD's revenues.

   Environmental Matters - Domestic

   (PPL, PPL Energy Supply and PPL Electric)

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

   Air (PPL and PPL Energy Supply)

   The Clean Air Act deals, in part, with acid rain, attainment of federal ambient ozone standards and toxic air emissions in the U.S. PPL's subsidiaries are in substantial compliance with the Clean Air Act. The Bush administration and certain members of Congress have made proposals regarding possible amendments to the Clean Air Act. These amendments could require significant further reductions in nitrogen oxide, sulfur dioxide and mercury and could possibly require measures to limit carbon dioxide. The cost of these reductions could be substantial. The federal government is seeking commitments from many major industries to voluntarily reduce carbon dioxide emissions. In addition, several states have taken their own actions requiring mandatory carbon dioxide emission reductions. Pennsylvania and Montana have not, at this time, established any formal programs to address carbon dioxide and other greenhouse gases.

   The Pennsylvania DEP began requiring further seasonal (May-June) nitrogen oxide reductions to 80% from 1990 levels starting in 2003. This requirement is pursuant to the EPA's 1998 State Implementation Plan (SIP) call to 22 eastern states, including Pennsylvania, to revise their state implementation plans. PPL achieved the 2003 nitrogen oxide reductions with the installation of SCR technology on the Montour units, and may install SCR or other additional nitrogen oxide reduction technology on one or more Brunner Island units at a later date.

   The EPA has also developed new standards for ambient levels of ozone and fine particulates in the U.S. These standards have been upheld following court challenges. To facilitate attainment of these standards, the EPA has also proposed a rule (now called the Clean Air Interstate Rule - CAIR) for 28 midwestern and eastern states, including Pennsylvania, to reduce sulfur dioxide emissions by 40% and nitrogen oxide emissions by 55% from current required levels, starting in 2010. Starting in 2015, the proposed rule requires reductions in sulfur dioxide and nitrogen oxide of 70% and 65%, respectively, from current required levels. The proposed rule allows these reductions to be achieved through cap-and-trade programs, and is consistent with the Bush administration's proposed amendments to the Clean Air Act, except that it applies to only the 28 states. In order to meet requirements of the CAIR, PPL has been evaluating the installation of sulfur dioxide scrubbers at one or more of its Pennsylvania plants, as well as the installation of SCR technology at Brunner Island.

   The EPA has proposed mercury and nickel regulations and is expected to finalize these regulations in 2004. The proposed mercury regulations affect coal-fired plants. With respect to mercury, the EPA has proposed two alternative approaches: an emission trading program to take effect beginning January 2010 or a requirement to take effect in 2007 that every unit install maximum achievable control technology (MACT). The proposed nickel regulations impose MACT requirements on oil-fired units to take effect in 2007. The nickel regulations would affect Martins Creek Units 3 and 4. The cost of complying with these regulations is not now determinable, but could be significant.

   In 1999, the EPA initiated enforcement actions against several utilities, asserting that older, coal-fired power plants operated by those utilities have, over the years, been modified in ways that subject them to more stringent "New Source" requirements under the Clean Air Act. The EPA has since issued notices of violation and commenced enforcement activities against other utilities. The future direction of the EPA's enforcement initiative is presently unclear. Therefore, at this time, PPL is unable to predict whether such EPA enforcement actions will be brought with respect to any of its affiliates' plants. However, the EPA regional offices that regulate plants in Pennsylvania (Region III) and Montana (Region VIII) have indicated an intention to issue information requests to all utilities in their jurisdiction. The Region VIII office issued such a request to PPL Montana's Corette plant in 2000 and the Colstrip plant in 2003. The Region III office issued such a request to PPL Generation's Martins Creek plant in 2002. PPL and its subsidiaries have responded to the Corette and Martins Creek information requests and began responding to the Colstrip information request. The EPA has stayed further production of Colstrip documents pending discussion among the Colstrip owners and the EPA. The EPA has taken no further action following the Martins Creek and Corette submittals. PPL cannot presently predict what, if any, action the EPA might take in this regard. Should the EPA or any state initiate one or more enforcement actions against PPL or its subsidiaries, compliance with any such enforcement actions could result in additional capital and operating expenses which are not now determinable, but which could be significant.

   In 2003, the EPA issued changes to its "New Source" regulations that clarify what projects are exempt from "New Source" requirements as routine maintenance and repair. Under these clarifications, any project to replace existing equipment with functionally equivalent equipment would be considered routine maintenance and excluded from "New Source" review if the cost of the replaced equipment does not exceed 20% of the replacement cost of the entire process unit, the basic design is not changed and no permit limit is exceeded. These clarifications would substantially reduce the uncertainties under the prior "New Source" regulations; however, they have been stayed by the U.S. Court of Appeals for the District of Columbia Circuit. PPL is therefore continuing to operate under the "New Source" regulations as they existed prior to the EPA's clarifications.

   The New Jersey DEP and some New Jersey residents raised environmental concerns with respect to the Martins Creek plant, particularly with respect to sulfur dioxide emissions and the opacity of the plant's plume. These issues were raised in the context of an appeal by the New Jersey DEP of the Air Quality Plan Approval issued by the Pennsylvania DEP to the adjacent Lower Mt. Bethel facility. In October 2003, PPL finalized an agreement with the New Jersey DEP and the Pennsylvania DEP pursuant to which it will reduce sulfur dioxide emissions from its Martins Creek power plant. Under the agreement, PPL Martins Creek will shut down the plant's two coal-fired generating units by September 2007 and may repower them any time after shutting them down so long as it follows all applicable state and federal requirements, including installing the best available pollution control technology. Pursuant to the agreement, PPL Martins Creek began reducing the fuel sulfur content for the coal units as well as the plant's two oil-fired units in June 2004. In addition, PPL will donate to a non-profit organization 70% of the excess emission allowances and emission reduction credits that result from shutting down or repowering the coal units. As a result of the agreement, the New Jersey DEP withdrew its challenge to the Air Quality Plan Approval for the Lower Mt. Bethel facility. The agreement will not result in material costs to PPL. The agreement does not address the issues raised by the New Jersey DEP regarding the visible opacity of emissions from the Martins Creek plant. If it is determined that actions must be taken to address the visible opacity of these emissions, such actions could result in costs that are not now determinable, but which could be significant.

   In addition to the opacity concerns raised by the New Jersey DEP, the Pennsylvania DEP also has raised concerns about the opacity of emissions from the Martins Creek and Montour plants. PPL is discussing these concerns with the Pennsylvania DEP. If it is determined that actions must be taken to address the Pennsylvania DEP's concerns, such actions could result in costs that are not now determinable, but which could be significant.

   In December 2003, PPL Montana, as operator of the Colstrip facility, received an Administrative Compliance Order (ACO) from the EPA pursuant to the Clean Air Act. The ACO alleges that Units 3 and 4 of the facility have been in violation of the Clean Air Act permit at Colstrip since 1980. The permit required Colstrip to submit for review and approval by the EPA an analysis and proposal for reducing emissions of nitrogen oxide to address visibility concerns if and when the EPA promulgates Best Available Retrofit Technology requirements for nitrogen oxide. The EPA is asserting that regulations it promulgated in 1980 triggered this requirement. PPL believes that the ACO is unfounded and is discussing the matter with the EPA. The ACO does not expressly seek penalties, and it is unclear at this time what, if any, additional control technology the EPA may consider to be required. Accordingly, the costs to install any additional controls for nitrogen oxide, if required, are not now determinable, but could be significant. In addition, the Montana Department of Environmental Quality (DEQ) is questioning whether the permit limits for sulfur dioxide emissions from Colstrip Units 3 and 4 are too high under provisions of the Clean Air Act that limit allowable emissions from sources built after 1978. PPL is engaged in settlement negotiations on these matters with the EPA, the Montana DEQ and the Northern Cheyenne Tribe. PPL cannot predict the outcome of this matter.

   Water/Waste (PPL and PPL Energy Supply)

   Brunner Island's NPDES permit contains a provision requiring further studies on the thermal impact of the cooling water discharge from the plant. These studies are underway and are expected to be completed in 2006. The Pennsylvania DEP has stated that it believes the studies to date show that the temperature of the discharge must be lowered. The Pennsylvania DEP has also stated that it believes the plant is in violation of a permit condition prohibiting the discharge from changing the river temperature by more than two degrees per hour. PPL is discussing these matters with the agency. Depending on the outcome of these discussions, the plant could be subject to additional capital and operating costs that are not now determinable, but which could be significant.

   The Pennsylvania DEP has issued a water quality certification and NPDES permit to PPL Holtwood, LLC in the FERC license renewal proceeding for its Lake Wallenpaupack hydroelectric facility. PPL has appealed both the certification and the NPDES permit. The parties are close to a settlement of this appeal that, if finalized, would not impose significant additional costs on PPL.

   The EPA has significantly tightened the water quality standard for arsenic. The revised standard becomes effective in 2006. The revised standard may result in action by individual states that could require several PPL subsidiaries to either further treat wastewater or take abatement action at their power plants, or both. The cost of complying with any such requirements is not now determinable, but could be significant.

   The EPA recently finalized requirements for new or modified water intake structures. These requirements affect where generating facilities are built, establish intake design standards, and could lead to requirements for cooling towers at new and modified power plants. Another new rule that was finalized in July 2004 addresses existing structures. PPL does not believe that either of these rules will impose material costs on PPL subsidiaries. However, six northeastern states recently challenged the new rules for existing structures as being inadequate. If this challenge is successful, it could result in the EPA establishing stricter standards for existing structures that could impose material costs on PPL subsidiaries.

   Superfund and Other Remediation

   (PPL and PPL Energy Supply)

   Under the Pennsylvania Clean Streams Law, subsidiaries of PPL Generation are obligated to remediate acid mine drainage at former mine sites and may be required to take additional measures to prevent potential acid mine drainage at previously capped refuse piles. One PPL Generation subsidiary is pumping and treating mine water at two mine sites. Another PPL Generation subsidiary is installing passive wetlands treatment at a third site, and the Pennsylvania DEP has suggested that it may require that PPL Generation subsidiary to pump and treat the mine water at that third site. At June 30, 2004, a PPL Energy Supply subsidiary had accrued $29 million to cover the costs of pumping and treating groundwater at the two mine sites for 50 years and for installing passive wetlands treatment at the third site.

   (PPL, PPL Energy Supply and PPL Electric)

   In 1995, PPL Electric and PPL Generation entered into a consent order with the Pennsylvania DEP to address a number of sites that were not being addressed under another regulatory program such as Superfund, but for which PPL Electric or PPL Generation may be liable for remediation. This may include potential PCB contamination at certain PPL Electric substations and pole sites; potential contamination at a number of coal gas manufacturing facilities formerly owned or operated by PPL Electric; oil or other contamination which may exist at some of PPL Electric's former generating facilities; and potential contamination at abandoned power plant sites owned by PPL Generation. As of June 30, 2004, work has been completed for 97% of the sites included in the consent order. Additional sites formerly owned or operated by PPL Electric are added to the consent order on a case-by-case basis.

   In 1996, PPL Gas Utilities entered into a similar consent order with the Pennsylvania DEP to address a number of sites where subsidiaries of PPL Gas Utilities may be liable for remediation. The sites primarily include former coal gas manufacturing facilities. Subsidiaries of PPL Gas Utilities are also investigating the potential for any mercury contamination from gas meters and regulators. Accordingly, PPL Gas Utilities and the Pennsylvania DEP have agreed to add 72 meter/regulation sites to the consent order. As of June 30, 2004, PPL Gas Utilities had addressed 34% of the sites under its consent order.

   At June 30, 2004, PPL Electric and PPL Gas Utilities had accrued approximately $3 million and $8 million, representing the estimated amounts each will have to spend for site remediation, including those sites covered by each company's consent orders mentioned above. Depending on the outcome of investigations at sites where investigations have not begun or have not been completed, the costs of remediation and other liabilities could be substantial. PPL also could face other non-remediation liabilities at sites included in the consent order or other contaminated sites, the costs of which are not now determinable, but which could be significant.

   (PPL and PPL Energy Supply)

   In conjunction with its 1999 acquisition of generating assets from Montana Power, PPL Montana required Montana Power to prepare a Phase I and Phase II Environmental Site Assessment. The assessment identified various seepages from the freshwater pond and wastewater ponds at the Colstrip plant. Based upon that assessment and subsequent assessments by PPL Montana, certain groundwater remediation measures have been implemented. However, additional investigations are ongoing and additional remediation measures could be required at costs which are not now determinable, but which could be significant.

   In May 2003, approximately 50 plaintiffs brought an action in the Montana Second Judicial District Court, Butte-Silver Bow County, against PPL Montana and the other owners of the Colstrip plant alleging property damage from the seepage noted above. This action has been moved to the Montana Sixteenth Judicial District Court, Rosebud County. This action could result in PPL Montana and the other Colstrip owners being liable for damages and being required to take additional remedial measures beyond those noted above. The cost to PPL Montana of any such damages and remedial measures is not now determinable, but could be significant.

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

   Future cleanup or remediation work at sites currently under review, or at sites not currently identified, may result in material additional operating costs for PPL subsidiaries that cannot be estimated at this time.

   Asbestos (PPL and PPL Energy Supply)

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

   Electric and Magnetic Fields (PPL, PPL Energy Supply and PPL Electric)

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

   Lower Mt. Bethel (PPL and PPL Energy Supply)

   In August 2002, the Northampton County Court of Common Pleas issued a decision concerning the permissible noise levels from the Lower Mt. Bethel facility when it becomes operational. Specifically, the court's decision sets certain permissible noise levels required for plant operation. PPL appealed the court's decision to the Commonwealth Court, and an intervener in the lawsuit cross-appealed the court's decision. In May 2003, the Commonwealth Court remanded the case to the Court of Common Pleas for further findings of fact concerning the zoning application relating to the construction of the facility. In September 2003, the Court of Common Pleas ruled in PPL's favor while also reaffirming its decision on the noise levels, and the intervener appealed this ruling to the Commonwealth Court. In April 2004, the Commonwealth Court affirmed the decision of the Court of Common Pleas. The intervener has pending before the Supreme Court of Pennsylvania a Petition for Allowance of Appeal. The Lower Mt. Bethel facility was placed in service in May 2004.

   Environmental Matters - International (PPL and PPL Energy Supply)

   U.K.

   WPD's distribution businesses are subject to numerous regulatory and statutory requirements with respect to environmental matters. PPL believes that WPD has taken and continues to take measures to comply with the applicable laws and governmental regulations for the protection of the environment. There are no material legal or administrative proceedings pending against WPD with respect to environmental matters. See "Environmental Matters - Domestic - Electric and Magnetic Fields" for a discussion of EMFs.

   Latin America

   Certain of PPL's affiliates have electric distribution operations in Latin America. PPL believes that these affiliates have taken and continue to take measures to comply with the applicable laws and governmental regulations for the protection of the environment. There are no material legal or administrative proceedings pending against PPL's affiliates in Latin America with respect to environmental matters.

   Other

   Nuclear Insurance (PPL and PPL Energy Supply)

   PPL Susquehanna is a member of certain insurance programs which provide coverage for property damage to members' nuclear generating stations. Facilities at the Susquehanna station are insured against property damage losses up to $2.75 billion under these programs. PPL Susquehanna is also a member of an insurance program which provides insurance coverage for the cost of replacement power during prolonged outages of nuclear units caused by certain specified conditions. Under the property and replacement power insurance programs, PPL Susquehanna could be assessed retroactive premiums in the event of the insurers' adverse loss experience. At June 30, 2004, this maximum assessment was about $40 million.

   PPL Susquehanna's public liability for claims resulting from a nuclear incident at the Susquehanna station is limited to about $10.8 billion under provisions of The Price Anderson Amendments Act of 1988. PPL Susquehanna is protected against this liability by a combination of commercial insurance and an industry assessment program. In the event of a nuclear incident at any of the reactors covered by The Price Anderson Amendments Act of 1988, PPL Susquehanna could be assessed up to $201 million per incident, payable at $20 million per year.

   Guarantees and Other Assurances

   (PPL)

   PPL fully and unconditionally guarantees all of the debt securities of PPL Capital Funding, a wholly-owned financing subsidiary of PPL.

   (PPL, PPL Energy Supply and PPL Electric)

   The table below provides an update to those guarantees specifically disclosed in Note 14 to the Financial Statements contained in each Registrant's Annual Report to the SEC on Form 10-K for the year ended December 31, 2003. Not reflected in the table below is the guarantee by PPL of all of the obligations of PPL Capital Funding Trust I under its trust preferred securities that were a component of the PEPS Units. PPL was released from this guarantee upon cancellation of the trust preferred securities as discussed in Note 6.

   	Recorded Liability at					Exposure at
   			June 30, 2004	December 31, 2003		June 30,       2004 (a)			Expiration Date
   PPL
   Residual value guarantees of leased equipment						$	3			2005	(b)
   PPL Energy Supply (c)
   WPD LLP guarantee of obligations under SIUK Capital Trust I preferred securities							82	(d)		2027
   Letters of credit issued on behalf of affiliates							8	(e)		2005
   Support agreements to guarantee partnerships' obligations for the sale of coal							9			2007
   Potential retroactive premiums under nuclear insurance programs							40
   	Recorded Liability at					Exposure at
   			June 30, 2004	December 31, 2003		June 30,       2004 (a)			Expiration Date
   Nuclear claims under The Price Anderson Amendments Act of 1988							201	(f)
   Obligation to purchase commodities under option contracts							2			2004
   Contingent purchase price payments to former owners of synfuel projects		$   4			$   4		59			2007
   Residual value guarantees of leased equipment							4			2005	(b)
   WPD guarantee related to a contract assigned as part of a sale of one of its businesses							19			2005
   Guarantee of an unconsolidated entity's lease obligations (g)							2			2008
   PPL Electric (c)
   Guarantee of a portion of an unconsolidated entity's debt							7	(d)		2008
   Residual value guarantees of leased equipment		11			16		85			2005	(b)

   (a)	Represents the estimated maximum potential amount of future payments that could be required to be made under the guarantee.
   (b)	Although the expiration date noted is 2005, equipment of similar value is generally leased and guaranteed on an on-going basis.
   (c)	Other than the exceptions noted in (e) below, all guarantees of PPL Energy Supply and PPL Electric also apply to PPL on a consolidated basis.
   (d)	Reflects principal payments only.
   (e)	Represents letters of credit issued at the direction of PPL Energy Supply for the benefit of third parties for assurance against nonperformance by PPL and PPL Gas Utilities. This is not a guarantee by PPL on a consolidated basis.
   (f)	Amount is per incident.
   (g)	This guarantee was entered into in 2004. The maximum amount of potential payments is not explicitly stated in the related agreements.

   
   
9. Related Party Transactions

   Affiliate Trust (PPL)

   See Note 6 for a discussion of various transactions involving PPL Capital Funding subordinated notes that were held by PPL Capital Funding Trust I.

   PLR Contracts (PPL Energy Supply and PPL Electric)

   PPL Electric has power sales agreements with PPL EnergyPlus, effective January 1, 2002, to supply all of PPL Electric's PLR load through 2009. Under these contracts, PPL EnergyPlus provides electricity at the pre-determined capped prices that PPL Electric is authorized to charge its PLR customers. For the three months ended June 30, 2004 and 2003, these purchases totaled $346 million and $327 million. For the six months ended June 30, 2004 and 2003, these purchases totaled $756 million and $714 million. These purchases include nuclear decommissioning recovery and amortization of an up-front contract payment, and are included in the Statement of Income as "Energy purchases from affiliate" by PPL Electric, and as "Wholesale energy marketing to affiliates" revenues by PPL Energy Supply.

   Under one of the PLR contracts, PPL Electric is required to make performance assurance deposits with PPL EnergyPlus when the market price of electricity is less than the contract price by more than its contract collateral threshold. Conversely, PPL EnergyPlus is required to make performance assurance deposits with PPL Electric when the market price of electricity is greater than the contract price by more than its contract collateral threshold. At June 30, 2004, PPL Energy Supply was required to provide PPL Electric with performance assurance of $300 million, the maximum amount required under the contract. PPL Energy Supply caused a $300 million letter of credit to be issued under its bank credit facilities to satisfy this collateral requirement.

   In 2001, PPL Electric made a $90 million up-front payment to PPL EnergyPlus in connection with the PLR contracts. The up-front payment is being amortized by both parties over the term of the PLR contracts. The unamortized balance of this payment and other payments under the contract was $64 million at June 30, 2004, and $70 million at December 31, 2003. This balance is reported on the Balance Sheet as "Prepayment on PLR energy supply from affiliate" by PPL Electric, and as "Deferred revenue on PLR energy supply to affiliate" by PPL Energy Supply.

   NUG Purchases (PPL Energy Supply and PPL Electric)

   PPL Electric has a reciprocal contract with PPL EnergyPlus to sell electricity purchased under contracts with NUGs. PPL Electric purchases electricity from the NUGs at contractual rates and then sells the electricity at the same price to PPL EnergyPlus. For the three months ended June 30, 2004 and 2003, these NUG purchases totaled $39 million and $37 million. For the six months ended June 30, 2004 and 2003, these NUG purchases totaled $76 million for both periods. These amounts are included in the Statement of Income as "Wholesale electric to affiliate" revenues by PPL Electric, and as "Energy purchases from affiliates" by PPL Energy Supply.

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

   PPL Services provides corporate functions such as financial, legal, human resources and information services. PPL Services bills the respective PPL subsidiaries for the cost of such services when they can be specifically identified. The cost of these services that is not directly charged to PPL subsidiaries is allocated to certain of the subsidiaries based on an average of the subsidiaries' relative invested capital, operation and maintenance expenses, and number of employees. PPL Services allocated the following charges to PPL Energy Supply and PPL Electric:

   		Three Months Ended June 30,				Six Months Ended June 30,
   		2004		2003		2004		2003
   Direct expenses
   	PPL Energy Supply	$	24	$	24	$	48	$	45
   	PPL Electric		20		17		40		31
   Overhead costs
   	PPL Energy Supply		18		14		32		28
   	PPL Electric		7		7		13		13

   Intercompany Borrowings (PPL Energy Supply)

   PPL Energy Supply had no notes receivable at June 30, 2004, and through its financing subsidiary, PPL Investment Corporation, had a $2 million note receivable from PPL Energy Funding at December 31, 2003, with interest equal to the one-month LIBOR plus 3%. Interest earned on loans to affiliates, included in "Other Income - net" on the Statement of Income, was $1 million and $4 million for the three months ended June 30, 2004 and 2003, and was $1 million and $12 million for the six months ended June 30, 2004 and 2003.

   In May 2004, PPL Energy Supply issued a $495 million note payable to an affiliate. The note matures in May 2006 with interest payable monthly in arrears at LIBOR plus 1%.

   Trademark Royalties (PPL Energy Supply)

   In the fourth quarter of 2002, a PPL subsidiary that owns PPL trademarks began billing certain affiliates which use these trademarks. PPL Energy Supply was allocated $8 million and $9 million of this license fee for the three months ended June 30, 2004 and 2003, and $16 million and $20 million for the six months ended June 30, 2004 and 2003. The allocation of this license fee is primarily included in "Other operation and maintenance" on the Statement of Income.

10. Other Income - Net

    (PPL)

    The breakdown of PPL's "Other Income - net" was as follows:

    		Three Months Ended June 30,				Six Months Ended June 30,
    		2004		2003		2004		2003
    Other Income
    	Interest income	$	3	$	4	$	6	$	7
    	Sale of CEMAR (Note 7)		23				23
    	Realized earnings on nuclear decommissioning trust				6		4		8
    	Hyder-related activity				3		2		4
    	Gain by WPD on the disposition of property				3		1		3
    	Rental income				3				3
    	Legal claims				1				3
    	Gain on hedge activity		1				1
    	Equity earnings		1		1		2
    	Miscellaneous - Domestic		4		2		8		2
    	Miscellaneous - International		1		5		4		11
    	Total		33		28		51		41
    Other Deductions
    	Impairment of investment in technology supplier (Note 7)		10				10
    	Domestic project development costs				1				1
    	Taxes, other than income		1		1		1		1
    	Charitable contributions						2		1
    	Miscellaneous - Domestic		1				4		1
    	Miscellaneous - International		2		3		3		6
    	Total		14		5		20		10
    Other Income - net		$	19	$	23	$	31	$	31

    (PPL Energy Supply)

    The breakdown of PPL Energy Supply's "Other Income - net" was as follows:

    		Three Months Ended June 30,					Six Months Ended June 30,
    		2004		2003			2004		2003
    Other Income
    	Affiliated interest income	$	1	$	4		$	1	$	12
    	Sale of CEMAR (Note 7)		23					23
    	Realized earnings on nuclear decommissioning trust				6			4		8
    	Hyder-related activity				3			2		4
    	Gain by WPD on the disposition of property				3			1		3
    	Interest income		2		3			4		4
    	Rental income				3					3
    	Legal claims				1					3
    	Gain on hedge activity		1					1
    	Equity earnings		1		1			2		2
    	Miscellaneous - Domestic		2		1			3		(1	)
    	Miscellaneous - International		1		5			4		11
    	Total		31		30			45		49
    Other Deductions
    	Domestic project development costs				1					1
    	Taxes, other than income		1		1			1		1
    	Miscellaneous - Domestic				(1	)		2		(1	)
    	Miscellaneous - International		2		3			3		6
    	Total		3		4			6		7
    Other Income - net		$	28	$	26		$	39	$	42

11. Derivative Instruments and Hedging Activities

    Fair Value Hedges (PPL and PPL Energy Supply)

    PPL and PPL Energy Supply enter into financial or physical contracts to hedge a portion of the fair value of firm commitments of forward electricity sales. These contracts range in maturity through 2006. Additionally, PPL and PPL Energy Supply enter into financial contracts to hedge fluctuations in market value of existing debt issuances. These contracts range in maturity through 2029.

    PPL and PPL Energy Supply did not recognize any gains or losses resulting from hedges of firm commitments that no longer qualified as fair value hedges for the three and six months ended June 30, 2004 or 2003.

    PPL and PPL Energy Supply did not recognize any gains or losses resulting from the ineffective portion of fair value hedges for the three and six months ended June 30, 2004 or 2003.

    Cash Flow Hedges (PPL and PPL Energy Supply)

    PPL and PPL Energy Supply enter into financial and physical contracts, including forwards, futures and swaps, to hedge the price risk associated with electric, gas and oil commodities. These contracts range in maturity through 2010. Additionally, PPL and PPL Energy Supply enter into financial interest rate swap contracts to hedge interest expense associated with both existing and anticipated debt issuances. These swaps range in maturity through 2014 for PPL and 2010 for PPL Energy Supply. PPL and PPL Energy Supply also enter into foreign currency forward contracts to hedge exchange rates associated with firm commitments denominated in foreign currencies and to hedge the net investment of foreign operations. These forward contracts range in maturity through 2028.

    Cash flow hedges may be discontinued if it is probable that the original forecasted transaction will not occur by the end of the originally specified time period. Due to the extinguishment of a consolidated trust's debt related to the Sundance and University Park generating facilities in June 2004, interest rate swaps that hedged the interest payments on the debt were terminated. Therefore, PPL and PPL Energy Supply reclassified a $3 million pre-tax loss from other comprehensive income to "Interest Expense" on the Statement of Income. PPL and PPL Energy Supply did not discontinue any other cash flow hedges during the three and six months ended June 30, 2004. For the three and six months ended June 30, 2003, PPL and PPL Energy Supply discontinued certain cash flow hedges that resulted in a pre-tax loss of $11 million being reclassified from other comprehensive income into earnings (reported in "Interest Expense" on the Statement of Income).

    Due to hedge ineffectiveness, PPL and PPL Energy Supply reclassified amounts that were not significant from other comprehensive income (reported in "Wholesale energy marketing" revenues and "Energy purchases" on the Statement of Income) for the three and six months ended June 30, 2004. PPL and PPL Energy Supply recorded a net loss of $1 million in earnings for the three and six months ended June 30, 2003.

    As of June 30, 2004, the deferred net loss, after tax, on derivative instruments in "Accumulated other comprehensive loss" expected to be reclassified into earnings during the next twelve months was $10 million and $8 million for PPL and PPL Energy Supply.

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

    	Three Months Ended June 30,						Six Months Ended June 30,
    	2004			2003			2004			2003
    PPL
    Beginning accumulated derivative gain	$	1		$	34		$	36		$	7
    Net change associated with current period hedging activities and other		5			22			48			71
    Net change associated with hedges of net investments					(3	)		1			(3	)
    Net change from reclassification into earnings		1			(32	)		(78	)		(54	)
    Ending accumulated derivative gain	$	7		$	21		$	7		$	21
    PPL Energy Supply
    Beginning accumulated derivative gain	$	23		$	52		$	55		$	23
    Net change associated with current period hedging activities and other		(3	)		31			44			74
    Net change associated with hedges of net investments					(3	)		1			(3	)
    Net change from reclassification into earnings		(2	)		(33	)		(82	)		(47	)
    Ending accumulated derivative gain	$	18		$	47		$	18		$	47

    Related Implementation Issues (PPL and PPL Energy Supply)

    In June 2001, the FASB issued definitive guidance on DIG Issue C15, "Scope Exceptions: Normal Purchases and Normal Sales Exception for Certain Option-Type Contracts and Forward Contracts in Electricity." DIG Issue C15 provides additional guidance on the classification and application of derivative accounting rules relating to purchases and sales of electricity utilizing forward and option contracts. This guidance became effective as of July 1, 2001. In December 2001, the FASB revised the guidance in DIG Issue C15, principally related to the eligibility of options for the normal purchases and normal sales exception. The revised guidance was effective April 1, 2002. In November 2003, the FASB again revised the guidance in DIG Issue C15 to clarify the application of derivative accounting rules for contracts that may involve capacity. The guidance was effective January 1, 2004 for PPL. PPL had no financial statement impact from this revised guidance.

    PPL Energy Supply adopted the final provisions of EITF Issue 03-11, "Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not 'Held for Trading Purposes' as Defined in Issue No. 02-3," prospectively as of October 1, 2003. As a result of the adoption, non-trading bilateral sales of electricity at major market delivery points are netted with purchases that offset the sales at those same delivery points. A major market delivery point is any delivery point with liquid pricing available. The impact on PPL and PPL Energy Supply of applying EITF Issue 03-11 was a reduction of $61 million in "Wholesale energy marketing" revenues and "Energy purchases" for the three months ended June 30, 2004, and a reduction of $142 million in "Wholesale energy marketing" revenues and "Energy purchases" for the six months ended June 30, 2004.

    Credit Concentration

    (PPL and PPL Energy Supply)

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

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

    At June 30, 2004, PPL had a credit exposure of $274 million to energy trading partners. Eleven counterparties accounted for 66% of this exposure. No other individual counterparty accounted for more than 3% of the exposure. Eight of the eleven counterparties had an investment grade credit rating from Standard & Poor's Ratings Services (S&P). One counterparty was not rated by S&P. One non-investment grade counterparty of PPL Montana, NorthWestern, has filed for Chapter 11 bankruptcy protection. This contract has been affirmed by the bankruptcy court, and PPL Montana has been granted critical vendor status. NorthWestern has assumed the power supply agreements in its bankruptcy proceeding, and NorthWestern has remained current on all post-bankruptcy obligations with PPL Montana. See Note 8 under "Wholesale Energy Commitments" for additional information regarding the NorthWestern bankruptcy proceeding. The other non-investment grade counterparty is also current on its obligations under the existing contract.

    At June 30, 2004, PPL Energy Supply had a credit exposure of $268 million to energy trading partners. Eleven counterparties accounted for 67% of this exposure. No other individual counterparty accounted for more than 3% of the exposure. Eight of the eleven counterparties had an investment grade credit rating from S&P. One counterparty was not rated by S&P. One non-investment grade counterparty, NorthWestern, has filed for Chapter 11 bankruptcy protection, as discussed above. The other non-investment grade counterparty is also current on its obligations under the existing contract.

    PPL and PPL Energy Supply have the right to request collateral from each of these counterparties, except for one government agency, in the event their credit ratings fall below investment grade. PPL Montana and NorthWestern have mutually agreed not to request collateral from each other while NorthWestern's Chapter 11 bankruptcy proceeding is pending. It is also the policy of PPL and PPL Energy Supply to enter into netting agreements with all of their counterparties to minimize credit exposure.

    (PPL Energy Supply and PPL Electric)

    In past years, PPL Energy Supply has had an exposure to PPL Electric under the long-term contract to provide PPL Electric's PLR load. However, increases in electricity prices during 2004 have reversed this position. At June 30, 2004, PPL Electric had a mark-to-market exposure to PPL Energy Supply of $1.3 billion. In accordance with the terms of one of the PLR contracts, PPL Energy Supply provided PPL Electric with performance assurance through a letter of credit in the amount of $300 million, the maximum amount required under the contract. This is the only credit exposure for PPL Electric that has a mark-to-market element. No other counterparty accounts for more than 1% of PPL Electric's total exposure.

12. Pension and Other Postretirement Benefits

    (PPL and PPL Energy Supply)

    The components of net pension and other postretirement benefit costs (credits) were as follows:

    	Pension Benefits
    	Three Months Ended June 30,												Six Months Ended June 30,
    	2004						2003						2004						2003
    	Domestic			Intl.			Domestic			Intl.			Domestic			Intl.			Domestic			Intl.
    PPL
    Service cost	$	12		$	4		$	11		$	4		$	24		$	7		$	21		$	7
    Interest cost		28			36			26			31			56			72			52			62
    Expected return on plan assets		(38	)		(52	)		(36	)		(47	)		(75	)		(105	)		(72	)		(94	)
    Amortization of transition obligation		(1	)					(1	)					(2	)					(2	)
    Amortization of prior service cost		4			1			3			1			7			2			7			2
    Amortization of (gain)/loss		(2	)		1			(4	)					(3	)		3			(8	)
    Net periodic pension cost/(credit)	$	3		$	(10	)	$	(1	)	$	(11	)	$	7		$	(21	)	$	(2	)	$	(23	)
    PPL Energy Supply
    Service cost	$	1		$	4		$	1		$	4		$	2		$	7		$	1		$	7
    Interest cost		1			36			1			31			2			72			2			62
    Expected return on plan assets		(1	)		(52	)		(1	)		(47	)		(2	)		(105	)		(2)			(94	)
    Amortization of prior service cost					1						1						2						2
    Amortization of loss					1												3			1
    Net periodic pension cost/(credit)	$	1		$	(10	)	$	1		$	(11	)	$	2		$	(21	)	$	2		$	(23	)

    	Other Postretirement Benefits
    	Three Months Ended June 30,						Six Months Ended June 30,
    	2004			2003			2004			2003
    PPL
    Service cost	$	2		$	2		$	3		$	3
    Interest cost		7			7			14			14
    Expected return on plan assets		(4	)		(3	)		(9	)		(6)
    Amortization of transition obligation		2			2			4			4
    Amortization of prior service cost		1			2			2			4
    Amortization of loss		2			1			4			3
    Net other postretirement benefit cost	$	10		$	11		$	18		$	22

    Medicare Prescription Drug, Improvement and Modernization Act of 2003 (PPL, PPL Energy Supply and PPL Electric)

    In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law. The Act introduces a prescription drug benefit under Medicare Part D and also provides for a federal subsidy to sponsors of retiree health care benefit plans that provide an actuarially equivalent level of prescription drug benefits. The subsidy would be 28% of eligible drug costs for retirees that are over age 65 and covered under PPL's other postretirement benefit plans.

    In January 2004, the FASB issued FSP FAS 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003." FSP FAS 106-1 permitted companies to defer accounting for the effects of the Act, as the impact of the Act on the provisions of SFAS 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," had not been determined as of such time. PPL elected to defer recognizing the effects of the Act in accounting for its other postretirement benefit plans until authoritative guidance on the accounting for the federal subsidy was issued.

    In May 2004, the FASB issued FSP FAS 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003," which supersedes FSP FAS 106-1, details the accounting for the effects of the Act under SFAS 106 and requires certain disclosures. FSP FAS 106-2 is effective for the first interim or annual period beginning after June 15, 2004. Thus, the measures of PPL's accumulated postretirement benefit obligations and net postretirement benefit costs in the financial statements and accompanying notes do not reflect the effects of the Act.

    PPL has consulted with its independent actuary and determined that portions of certain of its other postretirement benefit plans provide benefits that may be actuarially equivalent to Medicare Part D benefits, pending final detailed guidance from the U.S. Department of Health and Human Services. For those plans that provide benefits that are at least actuarially equivalent to Medicare Part D, PPL will perform a remeasurement of its plan assets and accumulated benefit obligation as of July 1, 2004, resulting in an updated net periodic postretirement benefit cost for 2004, in accordance with the prospective adoption provisions allowed under FSP FAS 106-2. The impact of the Act on the postretirement benefit obligations and net postretirement benefit costs for PPL's other postretirement benefit plans is not expected to be material.

13. Goodwill

    (PPL and PPL Energy Supply)

    The changes in the carrying amounts of goodwill by segment were as follows:

    	PPL Energy Supply											PPL
    	Supply		International				Total			Delivery(a)		Total
    Balance at December 31, 2003	$	93	$	920			$	1,013		$	55	$	1,068
    Effect of foreign currency exchange rates				47				47					47
    Purchase accounting adjustments		1		(37	)	(b)		(36	)				(36	)
    Balance at June 30, 2004	$	94	$	930			$	1,024		$	55	$	1,079

    (a)	The Delivery segment is not part of PPL Energy Supply.
    (b)	Tax adjustments pursuant to EITF Issue 97-3, "Uncertainties Related to Income Taxes in a Purchase Business Combination."

    
    
14. Asset Retirement Obligations

    (PPL and PPL Energy Supply)

    PPL and PPL Energy Supply adopted SFAS 143, "Accounting for Asset Retirement Obligations," effective January 1, 2003. SFAS 143 addresses the accounting for obligations associated with the retirement of tangible long-lived assets. In connection with the adoption of SFAS 143, PPL and PPL Energy Supply recorded a cumulative effect of adoption that increased net income by $63 million.

    PPL and PPL Energy Supply's AROs are included in "Deferred Credits and Other Noncurrent Liabilities - Other" on the Balance Sheet. The changes in the carrying amounts of the AROs were as follows:

    ARO at December 31, 2003	$	242
    Accretion expense		9
    Settlement		(4	)
    ARO at June 30, 2004	$	247

    Funds in the nuclear decommissioning trust are legally restricted for purposes of settling PPL's and PPL Energy Supply's ARO related to the decommissioning of the Susquehanna station. PPL Electric collects authorized nuclear decommissioning costs through the CTC. These revenues are passed on to PPL EnergyPlus under the power supply agreements between PPL Electric and PPL EnergyPlus. Similarly, these revenues are passed on to PPL Susquehanna under a power supply agreement between PPL EnergyPlus and PPL Susquehanna. These revenues, less applicable taxes, are used to fund the nuclear decommissioning trust and can only be used for future decommissioning costs. The fair value of the nuclear decommissioning trust was $373 million as of June 30, 2004, and $357 million as of December 31, 2003.

15. Workforce Reduction

    (PPL, PPL Energy Supply and PPL Electric)

    In an effort to improve operational efficiency and reduce costs, PPL and its subsidiaries commenced a workforce reduction assessment in June 2002. The program was broad-based and impacted all employee groups except certain positions that are key to providing high-quality service to PPL's electricity delivery customers.

    During 2002 and 2003, PPL recorded total charges of $84 million. PPL Energy Supply recorded charges of $41 million in 2002. During 2002 and 2003, PPL Electric recorded total charges of $42 million, including the charges associated with implementation of the Automated Meter Reading project. There was no impact to earnings for the periods ended June 30, 2004 and 2003.

    As of June 30, 2004, 539 employees of PPL subsidiaries were terminated. An additional 64 positions, which are primarily bargaining unit, are being evaluated for termination over the next six months, due to the timing of PPL Electric's Automated Meter Reading project and the displacement program under the bargaining unit contract. The program provides primarily for enhanced early retirement benefits and/or one-time special pension separation allowances based on an employee's age and years of service. These features of the program are paid from the PPL Retirement Plan pension trust and increased PPL's pension liabilities in 2002 and 2003 when recorded. Substantially all of the accrued non-pension benefits have been paid.

16. New Accounting Standards

    FIN 46(R) (PPL, PPL Energy Supply and PPL Electric)

    In December 2003, the FASB issued Interpretation No. 46 (revised December 2003), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," which is known as FIN 46(R) and replaces FIN 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." See Note 22 to the Financial Statements contained in each Registrants' Annual Report to the SEC on Form 10-K for the year ended December 31, 2003, for a discussion of FIN 46 and the impact of its adoption for certain entities. FIN 46(R) does not change the general consolidation concepts of FIN 46. Among other things, FIN 46(R) clarifies certain provisions of FIN 46 and provides additional scope exceptions for certain types of businesses. FIN 46(R) provides that a public entity that is not a small business issuer should apply the provisions of FIN 46(R) to all entities no later than the end of the first reporting period that ends after March 15, 2004. PPL and its subsidiaries adopted FIN 46(R) for all entities effective March 31, 2004. This adoption did not have a material impact on the results of PPL and its subsidiaries.

    EITF Issue 03-1 (PPL, PPL Energy Supply and PPL Electric)

    In March 2004, the FASB ratified certain consensus in EITF Issue 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments." EITF Issue 03-1 provides guidance for determining when an investment in certain debt and equity securities is considered impaired, whether that impairment is other than temporary and the measurement of an impairment loss. EITF Issue 03-1 also contains disclosure requirements related to information about impairments that have not been recognized as other than temporary as well as disclosure requirements for investments accounted for under the cost method. The recognition and measurement provisions of EITF Issue 03-1 are required to be applied to other-than-temporary impairment evaluations as of the balance sheet date in reporting periods beginning after June 15, 2004. The disclosure provisions related to cost method investments are effective for annual financial statements for fiscal years ending after June 15, 2004, while all other disclosure provisions were effective for annual financial statements for fiscal years ending after December 15, 2003. PPL and its subsidiaries are in the process of evaluating the impact of adopting the recognition and measurement provisions of EITF Issue 03-1. The potential impact of adopting EITF Issue 03-1 for the third quarter of 2004 is not yet determinable, but could be material. The impact of adoption is dependent upon the fair value of debt and equity securities at the time of the impairment assessment. PPL and its subsidiaries cannot predict the fair values. However, if EITF Issue 03-1 had been effective as of June 30, 2004, PPL estimates that it would have incurred an other-than-temporary impairment charge of approximately $3 million, after tax.

    EITF Issue 03-6 (PPL)

    In March 2004, the FASB ratified EITF Issue 03-6, "Participating Securities and the Two-Class Method under FASB Statement No. 128, 'Earnings per Share'." EITF Issue 03-6 addresses a number of issues regarding the calculation of basic EPS by companies that have issued securities other than common stock that participate in dividends and earnings, which are known as participating securities. EITF Issue 03-6 requires participating securities to be included in the calculation of basic EPS using the two-class method and provides guidance in applying the two-class method. EITF Issue 03-6 is effective for reporting periods beginning after March 31, 2004, and it requires restatement of prior periods. PPL adopted EITF Issue 03-6 during the second quarter of 2004. The initial adoption did not have an impact on PPL.

    EITF Issue 03-16 (PPL, PPL Energy Supply and PPL Electric)

    In March 2004, the FASB ratified EITF Issue 03-16, "Accounting for Investments in Limited Liability Companies." EITF Issue 03-16 provides that an investment in a limited liability company (LLC) that maintains a specific ownership account for each investor should be viewed similarly to an investment in a limited partnership for purposes of determining whether a noncontrolling interest in the LLC should be accounted for using the cost or equity method. EITF Issue 03-16 is effective for reporting periods beginning after June 15, 2004, and is required to be applied as a change in accounting principle with a cumulative effect adjustment reflected in the period of adoption. PPL and its subsidiaries adopted EITF Issue 03-16 effective July 1, 2004. The adoption did not have a material impact on the results of PPL and its subsidiaries.

    FSP FAS 106-1 and FSP FAS 106-2 (PPL, PPL Energy Supply and PPL Electric)

    See Note 12 for a discussion of FSP FAS 106-1 and FSP FAS 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003."

PPL CORPORATION AND SUBSIDIARIES

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

Overview

PPL is an energy and utility holding company with headquarters in Allentown, PA. See Item 1, "Business - Background" in PPL's Annual Report to the SEC on Form 10-K for the year ended December 31, 2003, for descriptions of PPL's major segments. See Exhibit 99 in Item 15 in PPL's Form 10-K for the current corporate organization structure. Through its subsidiaries, PPL is primarily engaged in the generation and marketing of electricity in two key markets - the northeastern and western U.S. - and in the delivery of electricity in Pennsylvania, the U.K. and Latin America. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL's Annual Report to the SEC on Form 10-K for the year ended December 31, 2003, for an overview of PPL's strategy and the risks and challenges that it faces in its business.

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

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

Results of Operations

The following discussion, which explains significant changes in principal items on the Statement of Income, compares the three and six months ended June 30, 2004, with the comparable periods in 2003.

WPD's results, as consolidated in PPL's Statement of Income, are impacted by changes in foreign currency exchange rates. For the three and six months ended June 30, 2004, as compared with the same periods in 2003, changes in foreign exchange rates increased WPD's portion of revenue and expense line items by about 13% for both periods.

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

Earnings

Net income and the related EPS were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2004		2003		2004		2003
Net income	$	148	$	116	$	325	$	355
EPS - basic	$	0.81	$	0.68	$	1.80	$	2.10
EPS - diluted	$	0.81	$	0.67	$	1.80	$	2.09

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

			June 30, 2004 vs. June 30, 2003
			Three Months Ended			Six Months Ended
Domestic:
	Eastern U.S. margins		$	7		$	19
	Net energy trading margins			(4	)		4
	Northwestern U.S. margins			(5	)		(1	)
	Southwestern U.S. margins						1
	Delivery revenues (net of CTC/ITC amortization and interest on transition bonds)			2			2
	Operation and maintenance expenses			7			(13	)
	Depreciation			(5	)		(10	)
	Taxes, other than income (excluding gross receipts tax)			(1	)		6
	Interest expense and preferred distributions			(4	)		(7	)
	Realized earnings on nuclear decommissioning trust			(3	)		(2	)
	Other			6			3
		Total Domestic					2
International:
	U.K.
		Impact of changes in foreign currency exchange rates		6			13
		Other		2			4
	Latin America			5			6
	Other			3
		Total International		16			23
Unusual items				16			(55	)
			$	32		$	(30	)

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

		Three Months Ended June 30,				Six Months Ended June 30,
		2004			2003	2004			2003
Accounting change:
	ARO (Note 14)								$	63
Sale of CGE (Note 7)		$	1			$	(7	)
Sale of CEMAR (Note 7)			23				23
Discontinued operations (Note 7)			(2	)			(2	)
Impairment of investment in technology supplier (Note 7)			(6	)			(6	)
Total		$	16			$	8		$	63

The period to period changes in earnings components, including domestic gross energy margins by region and income statement line items, are discussed in the balance of "Results of Operations."

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

• Due to current electricity and natural gas price levels, there is a risk that PPL may be unable to recover its investment in new gas-fired generation facilities. Under GAAP, PPL does not believe that there is an impairment charge to be recorded for these facilities at this time. PPL is unable to predict the ultimate earnings impact of this issue, based upon future energy price levels, applicable accounting rules and other factors, but such impact may be material. In June 2004, a subsidiary of PPL Generation agreed to sell the 450 MW Sundance power plant to the Arizona Public Service Company. If the necessary regulatory approvals can be obtained, the sale is expected to close in the first quarter of 2005. If it becomes likely that the required regulatory approvals will be obtained, PPL will reassess the Sundance assets for possible impairment. PPL estimates that an impairment charge of about $47 million after-tax, or $0.25 per share, could be recorded in 2004 or 2005 depending on the timing of regulatory approvals. See Note 7 to the Financial Statements for additional information on the potential Sundance sale.
• Market prices for electricity and fuel may negatively impact energy margins and earnings.
• PPL is unable to predict whether future impairments of goodwill may be required for its domestic and international investments. While no goodwill impairments were required based on the annual review performed in the fourth quarter of 2003, future impairments may occur due to determinations of carrying value exceeding the fair value of these investments.
• PPL Electric has filed a proposal with the PUC to increase distribution rates by approximately $164 million and has notified the PUC that it plans to pass through to customers approximately $57 million in increased transmission charges that PPL Electric pays to PJM for transmission services. Transmission services are provided under the PJM Open Access Transmission Tariff, a rate schedule filed with and approved by the FERC. Under the federal "filed rate doctrine," such FERC-approved rates may be recovered from retail customers without a review of those rates by a state agency such as the PUC. In addition, PPL Electric's PUC-approved retail tariff permits the automatic pass-through of transmission charges. PPL Electric agreed to a cap on both of these charges until December 31, 2004, as part of its 1998 settlement under the PUC Final Order. Generation charges for customers who do not select an alternative energy supplier are fixed through 2009 and are not affected by these changes. The combination of the proposed distribution rate increase and transmission charge pass-through would result in an 8.1% increase over PPL Electric's present rates effective January 1, 2005. PPL Electric cannot predict the outcome of this proceeding.
• In July 2004, the EITF reached a tentative conclusion, under EITF Issue 04-8, "The Effect of Contingently Convertible Debt on Diluted Earnings per Share," regarding the inclusion of contingently convertible debt securities in diluted EPS calculations. If the conclusion is finalized and ratified by the FASB in its current form, beginning in the fourth quarter of 2004, PPL potentially would be required to include an additional eight million shares of common stock associated with PPL Energy Supply's 2.625% Convertible Senior Notes due 2023 in its calculation of diluted EPS, for current and relevant prior periods, as if the securities were converted as of the date of issuance (May 2003), despite the fact that the securities contain a market price trigger for conversion that has not yet been attained. PPL currently estimates that the inclusion of the additional shares would decrease its diluted EPS by $0.11 for 2004 and $0.10 for 2003. See Note 4 to the Financial Statements for a discussion of the convertible senior notes.
• Earnings in 2005 and beyond are expected to be impacted by a rate review of the delivery business of WPD (South West) and WPD (South Wales). PPL cannot predict the ultimate outcome of the rate review. See Note 8 to the Financial Statements for additional information.
• PPL has interests in two synthetic fuel facilities and receives tax credits pursuant to Section 29 of the Internal Revenue Code based on its sale of synthetic fuel to unaffiliated third-party purchasers. PPL has estimated that these facilities will contribute approximately $0.13 to its EPS in 2004, approximately $0.16 to its EPS in 2005 and 2006, and approximately $0.17 to its EPS in 2007. See Note 8 to the Financial Statements for a discussion of the IRS review of synthetic fuel production procedures.
• See Note 16 to the Financial Statements for new accounting standards, which have been issued but not yet adopted by PPL, that may impact future earnings.

Domestic Gross Energy Margins

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

			June 30, 2004 vs. June 30, 2003
			Three Months Ended			Six Months Ended
Utility revenues			$	45		$	111
Unregulated retail electric and gas revenues				(4	)		(24	)
Wholesale energy marketing revenues				(9	)		(29	)
Net energy trading margins				(7	)		7
Other revenue adjustments (a)				(29	)		(64	)
	Total revenues			(4	)		1
Fuel				37			43
Energy purchases				(34	)		(66	)
Other cost adjustments (a)				(3	)		(15	)
	Total cost of sales						(38	)
		Domestic gross energy margins	$	(4	)	$	39

(a) Adjusted to exclude the impact of any revenues and costs not associated with domestic gross energy margins, in particular, revenues and energy costs related to the international operations of PPL Global and the domestic delivery operations of PPL Electric and PPL Gas Utilities. Also adjusted to include gains on sales of emission allowances, which are included in "Other operation and maintenance" expenses on the Statement of Income.

Changes in Domestic Gross Energy Margins By Region

Domestic gross energy margins are generated through PPL's normal and hedge activities (non-trading), as well as trading activities. Non-trading margins are now discussed on a geographic basis rather than on an activity basis, as reported prior to 2004. A regional perspective more closely matches the internal view of how PPL's energy business is managed.

		June 30, 2004 vs. June 30, 2003
		Three Months Ended			Six Months Ended
Eastern U.S.		$	12		$	33
Northwestern U.S.			(9	)		(2	)
Southwestern U.S.						1
Net energy trading			(7	)		7
	Domestic gross energy margins	$	(4	)	$	39

Eastern U.S.

Eastern U.S. non-trading margins were higher for the three and six months ended June 30, 2004, compared with the same periods in 2003, due to retail volumes increasing 5% and 4% and wholesale volumes increasing 1% and 2%. Retail volumes increased primarily due to the return of customers who previously shopped for energy in the competitive market in Pennsylvania. In addition, retail energy prices increased about 1% in accordance with the schedule established by the PUC's Final Order. Wholesale volumes increased primarily due to serving new competitive load obligations in Connecticut and New Jersey.

Northwestern U.S.

Northwestern U.S. non-trading margins were lower for the three and six months ended June 30, 2004, compared with the same periods in 2003, primarily due to a retroactive coal price increase caused by an unfavorable arbitration ruling. Incremental expense of $6 million was recorded during the three months ended June 30, 2004, as a result of the ruling, most of which related to years 2001 to 2003. In addition, for the three months ended June 30, 2004, hydro generation was 16% lower than the same period in 2003 due to continuing drought conditions. For the six months ended June 30, 2004, a 4% increase in realized sales prices combined with a slight improvement in generation production contributed to lowering supply costs, that partially offset the retroactive coal price adjustment.

Southwestern U.S.

Southwestern U.S. non-trading margins were relatively flat for the three and six months ended June 30, 2004, compared with the same periods in 2003.

Net Energy Trading

PPL enters into certain energy contracts that meet the criteria of trading derivatives as defined by EITF Issue 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities." These physical and financial contracts cover trading activity associated with electricity, gas and oil. The $7 million decrease for the three months ended June 30, 2004, compared with the same period in 2003, was primarily due to a decrease in realized and unrealized gains on electricity positions. The $7 million increase for the six months ended June 30, 2004, compared with the same period in 2003, was due to a $3 million increase in electricity positions and a $4 million increase in gas and oil positions. The physical volumes associated with energy trading for the three months ended June 30, 2004, were 1,186 GWh and 1.8 Bcf, compared with 1,055 GWh and 3.4 Bcf for the three months ended June 30, 2003. Energy trading physical volumes for the six months ended June 30, 2004, were 2,180 GWh and 4.3 Bcf, compared with 2,269 GWh and 7.2 Bcf for the six months ended June 30, 2003.

Utility Revenues

The increases in utility revenues were attributable to the following:

			June 30, 2004 vs. June 30, 2003
			Three Months Ended			Six Months Ended
Domestic:
	Retail electric revenue (PPL Electric)
		PLR electric generation supply	$	27		$	57
		Electric delivery		3			3
		Other					(1	)
	Wholesale electric revenue (PPL Electric)			(7	)		(11	)
	Gas revenue (PPL Gas Utilities)			3			6
International:
	Retail electric delivery (PPL Global)
		U.K.		14			40
		Chile		7			19
		El Salvador		(2	)		(2	)
			$	45		$	111

The increase in utility revenues for the three months ended June 30, 2004, compared with the same period in 2003, was primarily due to:

• higher PLR revenues due to higher energy and capacity rates in 2004 compared with 2003, and a 5% increase in volumes, in part due to the return of customers previously served by alternate suppliers;
• higher WPD revenues in the U.K. primarily due to the change in foreign currency exchange rates;
• higher revenues in Chile due to higher energy prices, which are a pass-through to customer rates, the change in foreign currency exchange rates, and a 5% increase in sales volumes;
• higher PPL Gas Utilities revenues, primarily due to the increase in natural gas prices which are a pass-through to customer rates, partially offset by a decrease in volumes; and
• higher PPL Electric delivery revenues resulting from a 4% increase in delivery sales, in part due to warmer weather in the second quarter of 2004 compared to 2003; partially offset by
• lower wholesale electric revenues due to the expiration of all PPL Electric municipal purchase power agreements at the end of January 2004.

The increase in utility revenues for the six months ended June 30, 2004, compared with the same period in 2003, was primarily due to:

• higher PLR revenues due to higher energy and capacity rates in 2004 compared with 2003, and a 4% increase in volumes, in part due to the return of customers previously served by alternate suppliers;
• higher PPL Gas Utilities revenues, primarily due to the increase in natural gas prices which are a pass-through to customer rates, partially offset by a decrease in volumes;
• higher WPD revenues in the U.K. primarily due to the change in foreign currency exchange rates; and
• higher revenues in Chile due to higher energy prices, which are a pass-through to customer rates, the change in foreign currency exchange rates, and a 7% increase in sales volumes; partially offset by
• lower wholesale electric revenues due to the expiration of all PPL Electric municipal purchase power agreements at the end of January 2004.

Energy Related Businesses

Energy related businesses contributed $24 million less to operating income for the six months ended June 30, 2004, compared with the same period in 2003. The decrease was attributable to the following:

• a $15 million loss on the sale of CGE (see Note 7 to the Financial Statements);
• a $4 million decrease due to WPD contract terminations in 2003 and 2004;
• a $4 million decrease from mechanical contracting and engineering subsidiaries due to the continued decline in capital spending in commercial and industrial markets, lower margins experienced in those markets, and cost overruns at two major projects;
• a $2 million decrease from Latin American subsidiaries due primarily to lower dividends received and lower construction sales; and
• a $2 million higher pre-tax operating loss from synfuel projects; partially offset by
• a $5 million operating loss on some Hyder properties in the first quarter of 2003, which were subsequently sold in April 2003.

Other Operation and Maintenance

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

	June 30, 2004 vs. June 30, 2003
	Three Months Ended			Six Months Ended
Property damage and environmental insurance settlements which were recorded in 2003				$	12
Increase in foreign currency exchange rates	$	4			8
Decrease in domestic and international pension income		4			8
Outage costs associated with planned maintenance at the Montour and Conemaugh plants		4			7
Timing and extent of outage costs associated with the planned refueling and inspection at the Susquehanna station and of other nuclear-related expenses		(9	)		7
Lease expense on office building and parking garage		1			4
Decrease in lease expense due to consolidation of the lessor of the Sundance and University Park generation facilities due to FIN 46, "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51"		(6	)		(12	)
Decrease in other postretirement benefit expense		(1	)		(5	)
Impairment charge on transmission rights in 2003		(4	)		(4	)
Other		3			10
	$	(4	)	$	35

The decreases in net pension income for the three and six months ended June 30, 2004, compared with the same periods in 2003, were attributable to a reduction in the discount rate assumptions for PPL's domestic and international pension plans. Although financial markets have improved and PPL's domestic and international pension plans have experienced significant asset gains, interest rates on fixed-income obligations have continued to fall, requiring a further reduction in the discount rate assumption as of December 31, 2003. The reduction in the discount rate assumption has a significant impact on the measurement of plan obligations and net pension costs, which will result in PPL's recognition of lower levels of net pension income in 2004. See Note 12 to the Financial Statements for details of the costs of PPL's pension plans.

Depreciation

The increases in depreciation expense were primarily due to:

	June 30, 2004 vs. June 30, 2003
	Three Months Ended			Six Months Ended
Additions to PP&E	$	8		$	12
Consolidation of the lessor of the Sundance and University Park generation facilities due to FIN 46		4			8
Foreign currency exchange rates		3			7
2003 purchase accounting adjustments to WPD assets		(5	)		(14	)
	$	10		$	13

Taxes, Other Than Income

Taxes, other than income, increased by $4 million during the three months ended June 30, 2004, compared with the same period in 2003. The increase was primarily due to increases in WPD's property taxes, primarily related to the impact of changes in foreign currency exchange rates and an increase in property tax rates, as well as increases in domestic gross receipts tax and capital stock tax.

Taxes, other than income, decreased by $4 million during the six months ended June 30, 2004, compared with the same period in 2003. In the first quarter of 2004, PPL Electric reversed a $14 million accrued liability for 1998 and 1999 PURTA taxes that had been accrued based on potential exposure in the proceedings regarding the Susquehanna nuclear station tax assessment. The rights of the third party interveners to further appeal expired in 2004. This decrease was partially offset by increases in WPD's property taxes, primarily related to the impact of changes in foreign currency exchange rates, adjustments recorded in 2003 and an increase in property tax rates, as well as increases in domestic gross receipts tax and capital stock tax.

Other Income - net

See Note 10 to the Financial Statements for details of other income.

Financing Costs

The increase (decrease) in financing costs, which include "Interest Expense" and "Distributions on Preferred Securities," was primarily due to:

	June 30, 2004 vs. June 30, 2003
	Three Months Ended			Six Months Ended
Increase in interest expense due to consolidation of the lessors of the Sundance, University Park and Lower Mt. Bethel generation facilities, in accordance with FIN 46	$	10		$	16
Financing costs associated with the repayment of the consolidated trust's debt for the Sundance and University Park generation facilities		9			9
Increase in long-term debt interest expense from WPD's additional debt issuances in March and May 2003		11			25
Increase in long-term debt interest expense due to PPL Energy Supply's issuance of Convertible Senior Notes in May 2003		2			4
Decrease in interest expense due to hedging activities accounted for under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities"		(7	)		(8	)
Decrease in amortization expense		(3	)		(6	)
Decrease in short-term debt expense		(4	)		(11	)
Decrease in long-term debt interest expense due to net long-term debt retirements		(9	)		(15	)
Write-off of unamortized swap costs on WPD debt restructuring		(11	)		(11	)
	$	(2	)	$	3

Income Taxes

Income taxes decreased by $23 million and $20 million for the three and six months ended June 30, 2004, compared with the same periods in 2003. The decreases were due to:

• lower pre-tax book income, resulting in $2 million and $4 million decreases in income taxes for the three and six months ended June 30, 2004;
• differences in income recognition for tax purposes related to foreign affiliates, resulting in $17 million and $13 million reductions in income taxes for the three and six months ended June 30, 2004; and
• additional synthetic fuel tax credits recognized, resulting in $2 million and $3 million reductions in income taxes for the three and six months ended June 30, 2004.

See Note 2 to the Financial Statements for details on effective income tax rates.

Discontinued Operations

See "Discontinued Operations" in Note 7 to the Financial Statements for information regarding the losses recorded related to the sale of PPL Global's investment in a Latin American telecommunications company.

Cumulative Effect of a Change in Accounting Principle

PPL adopted SFAS 143, "Accounting for Asset Retirement Obligations," effective January 1, 2003. SFAS 143 addresses the accounting for obligations associated with the retirement of tangible long-lived assets. Application of the new rules resulted in a cumulative effect of adoption that increased net income by $63 million in 2003. See Note 21 to the Financial Statements in PPL's Annual Report to the SEC on Form 10-K for the year ended December 31, 2003, for additional information.

Financial Condition

Liquidity

At June 30, 2004, PPL had $358 million of cash and cash equivalents and $65 million of short-term debt. At December 31, 2003, PPL had $476 million of cash and cash equivalents and $56 million of short-term debt. The decrease in PPL's cash position was the net result of:

• the retirement of $938 million of long-term debt;
• $375 million of capital expenditures; and
• the payment of $142 million of common and preferred dividends; partially offset by
• $628 million of cash provided by operating activities;
• the issuance of $589 million of common stock;
• proceeds of $123 million from the sale of CGE; and
• the issuance of $15 million of long-term debt.

Rating Agency Decisions

Standard & Poor's Ratings Services (S&P), Moody's Investors Service, Inc. (Moody's) and Fitch Ratings (Fitch) periodically review the credit ratings on the debt and preferred securities of PPL and its subsidiaries. Based on their respective reviews, the rating agencies may make certain ratings revisions.

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

During the second quarter of 2004, S&P affirmed its BBB ratings on both PPL and PPL Energy Supply and revised its outlook on both entities from negative to stable. S&P also affirmed its BBB- rating on PPL Montana's Pass-Through Certificates due 2020 and revised its outlook from negative to stable. At the same time, S&P affirmed its A-/A2 rating and negative outlook on PPL Electric. Also, S&P indicated that the following ratings would remain unchanged following the aforementioned revision to PPL's outlook:

• WPDH Limited of BBB-/Negative/A-3;
• WPD (South West) of BBB+/Negative/A-2; and
• WPD (South Wales) of BBB+/Negative/A-2.

Subsequent Financings

In August 2004, PPL Electric began participating in an asset-backed commercial paper (ABCP) program through which PPL Electric obtains financing by selling and contributing to a subsidiary certain of its accounts receivable. The subsidiary pledges the accounts receivable to secure loans of up to an aggregate of $150 million from a commercial paper conduit sponsored by a financial institution. PPL Electric expects to use the proceeds from the ABCP program for general corporate purposes and to cash collateralize letters of credit. See Note 6 to the Financial Statements for additional information.

Other

The pension plans of WPD are subject to formal actuarial valuations every three years, which are used to determine funding requirements. WPD's two principal plans were the subject of a formal actuarial valuation as of March 31, 2004. Preliminary valuations show an actuarial deficit of approximately £250 million (approximately $454 million based on current exchange rates) that may need to be funded over approximately 14 years if markets and asset values do not recover. WPD expects to conclude the formal valuation process and agree on deficit contribution schedules with the Trustees of the plans by March 31, 2005.

WPD believes that its internally generated cash flow, combined with its bank credit facilities, provides sufficient resources to finance its cash requirements and to maintain appropriate available liquidity.

For additional information on PPL's liquidity, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL's Annual Report to the SEC on Form 10-K for the year ended December 31, 2003.

Risk Management - Energy Marketing & Trading and Other

Market Risk

Commodity Price Risk (Non-trading)

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Fair value of contracts outstanding at the beginning of the period	$	85		$	133		$	86		$	63
Contracts realized or otherwise settled during the period		(21	)		(15	)		(45	)		(60	)
Fair value of new contracts at inception
Other changes in fair values		24			(34	)		47			81
Fair value of contracts outstanding at the end of the period	$	88		$	84		$	88		$	84

"Contracts realized or otherwise settled during the period" relate to contracts entered into prior to April 1 for the three months ended June 30 and contracts entered into prior to January 1 for the six months ended June 30. These amounts do not reflect intra-period contracts that were entered into and settled during the periods.

"Other changes in fair values" represents changes in the market value that have occurred for contracts that were outstanding at the end of each period.

The following chart segregates estimated fair values of PPL's commodity derivative contracts that qualify for hedge accounting treatment at June 30, 2004, based on whether the fair values are determined by quoted market prices or other more subjective means.

	Fair Value of Contracts at Period-End Gains/(Losses)
	Maturity Less Than 1 Year		Maturity 1-3 Years		Maturity 4-5 Years			Maturity in Excess of 5 Years			Total Fair Value
Source of Fair Value
Prices actively quoted	$	7	$	3							$	10
Prices provided by other external sources		53		29	$	(3	)	$	(1	)		78
Prices based on models and other valuation methods
Fair value of contracts outstanding at the end of the period	$	60	$	32	$	(3	)	$	(1	)	$	88

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

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

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

As of June 30, 2004, PPL estimated that a 10% adverse movement in market prices across all geographic areas and time periods would have decreased the value of the commodity contracts in its non-trading portfolio by approximately $174 million. However, the change in the value of the non-trading portfolio would have been substantially offset by an increase in the value of the underlying commodity, the electricity generated, because these contracts serve to reduce the market risk inherent in the generation of electricity. Additionally, the value of PPL's unsold generation would be improved. Because PPL's electricity portfolio is generally in a net sales position, the adverse movement in prices is usually an increase in prices. Conversely, because PPL's commodity fuels portfolio is generally in a net purchase position, the adverse movement in prices is usually a decrease in prices. If both of these scenarios happened, the implied margins for the unsold generation would increase.

In accordance with its marketing strategy, PPL does not completely hedge its generation output or fuel requirements. PPL estimates that for its entire portfolio, including all generation and physical and financial energy positions, a 10% adverse change in power prices across all geographic zones and time periods would decrease expected 2004 gross margins by about $1 million. Similarly, a 10% adverse movement in all fossil fuel prices would decrease 2004 gross margins by $4 million.

Commodity Price Risk (Trading)

PPL's trading contracts mature at various times through 2006. The following chart sets forth PPL's net fair market value of trading contracts:

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Fair value of contracts outstanding at the beginning of the period	$	11		$	(16	)	$	3		$	(6	)
Contracts realized or otherwise settled during the period		(4	)		10			(7	)		9
Fair value of new contracts at inception					(2	)		4			(2	)
Other changes in fair values		5			1			12			(8	)
Fair value of contracts outstanding at the end of the period	$	12		$	(7	)	$	12		$	(7	)

"Contracts realized or otherwise settled during the period" relate to trading contracts entered into prior to April 1 for the three months ended June 30 and contracts entered into prior to January 1 for the six months ended June 30. These amounts do not reflect intra-period contracts that were entered into and settled during the periods.

The "Fair value of new contracts at inception" is usually zero, because they are entered into at current market prices. However, when PPL enters into an option contract, a premium is paid or received.

"Other changes in fair values" represents changes in the market value that have occurred for contracts that were outstanding at the end of each period.

As of June 30, 2004, the net loss on PPL's trading activities expected to be recognized in earnings during the next three months is $3 million.

The following chart segregates estimated fair values of PPL's trading portfolio at June 30, 2004, based on whether the fair values are determined by quoted market prices or other more subjective means.

	Fair Value of Contracts at Period-End Gains/(Losses)
	Maturity Less Than 1 Year		Maturity 1-3 Years		Maturity 4-5 Years	Maturity in Excess of 5 Years	Total Fair Value
Source of Fair Value
Prices actively quoted	$	1	$	1			$	2
Prices provided by other external sources				4				4
Prices based on models and other valuation methods		5		1				6
Fair value of contracts outstanding at the end of the period	$	6	$	6			$	12

As of June 30, 2004, PPL estimated that a 10% adverse movement in market prices across all geographic areas and time periods would have decreased the value of the commodity contracts in its trading portfolio by $9 million.

Interest Rate Risk

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

At June 30, 2004, PPL's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was estimated at $5 million.

PPL is also exposed to changes in the fair value of its U.S. and international debt portfolios. At June 30, 2004, PPL estimated that its potential exposure to a change in the fair value of its debt portfolio, through a 10% adverse movement in interest rates, was $221 million.

PPL utilizes various risk management instruments to reduce its exposure to adverse interest rate movements for future anticipated financing. While PPL is exposed to changes in the fair value of these instruments, they are designed such that any economic loss in value should generally be offset by interest rate savings at the time the future anticipated financing is completed. At June 30, 2004, PPL estimated that its potential exposure to a change in the fair value of these instruments, through a 10% adverse movement in interest rates, was approximately $7 million.

Foreign Currency Risk

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

PPL has adopted a foreign currency risk management program designed to hedge certain foreign currency exposures, including firm commitments, recognized assets or liabilities and net investments. In addition, PPL enters into financial instruments to protect against foreign currency translation risk.

PPL executed forward sale transactions for £17.7 million to hedge a portion of its net investment in WPDH Limited. The estimated value of these agreements as of June 30, 2004, was $5 million, being the amount PPL would pay to terminate the transactions.

To protect expected income in British pounds sterling, PPL entered into average rate forward sales contracts for £29 million. In conjunction with these forward contracts, PPL executed average rate purchase options of £20 million to mitigate the liquidity risk inherent in the average rate forwards. At June 30, 2004, the market value of these positions, representing the amount PPL would receive to terminate them, was insignificant.

To protect expected income in Chilean pesos, PPL entered into average rate forward sales contracts for 5.5 billion Chilean pesos. At June 30, 2004, the market value of these positions, representing the amount PPL would receive to terminate them, was insignificant.

WPDH Limited held a net position in cross-currency swaps totaling $1.3 billion to hedge the interest payments and value of its U.S. dollar-denominated bonds. The estimated value of this position at June 30, 2004, being the amount PPL would pay to terminate it, including accrued interest, was $197 million.

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

Nuclear Decommissioning Fund - Securities Price Risk

In connection with certain NRC requirements, PPL Susquehanna maintains trust funds to fund certain costs of decommissioning the Susquehanna station. As of June 30, 2004, these funds were invested primarily in domestic equity securities and fixed-rate, fixed-income securities and are reflected at fair value on PPL's Balance Sheet. The mix of securities is designed to provide returns to be used to fund Susquehanna's decommissioning and to compensate for inflationary increases in decommissioning costs. However, the equity securities included in the trusts are exposed to price fluctuation in equity markets, and the values of fixed-rate, fixed-income securities are exposed to changes in interest rates. PPL Susquehanna actively monitors the investment performance and periodically reviews asset allocation in accordance with its nuclear decommissioning trust policy statement. At June 30, 2004, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $27 million reduction in the fair value of the trust assets.

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

Credit Risk

Credit risk relates to the risk of loss that PPL would incur as a result of non-performance by counterparties of their contractual obligations. PPL maintains credit policies and procedures with respect to counterparties (including requirements that counterparties maintain certain credit ratings criteria) and requires other assurances in the form of credit support or collateral in certain circumstances in order to limit counterparty credit risk. However, PPL has concentrations of suppliers and customers among electric utilities, natural gas distribution companies and other energy marketing and trading companies. These concentrations of counterparties may impact PPL's overall exposure to credit risk, either positively or negatively, in that counterparties may be similarly affected by changes in economic, regulatory or other conditions. PPL records certain non-performance reserves to reflect the probability that a counterparty with contracts that are out of the money (from the counterparty's standpoint) will default in its performance, in which case PPL would have to sell into a lower-priced market or purchase from a higher-priced market. These reserves are reflected in the fair value of assets recorded in "Price risk management assets" on the Balance Sheet. PPL also records reserves to reflect the probability that a counterparty will not make payments for deliveries PPL has made but not yet billed. These reserves are reflected in "Unbilled revenues" on the Balance Sheet. PPL has also established a reserve with respect to certain sales to the California ISO for which PPL has not yet been paid, as well as a reserve related to PPL's exposure as a result of the Enron bankruptcy, which are reflected in "Accounts receivable" on the Balance Sheet. See Note 8 to the Financial Statements for additional information on the sales to the California ISO.

Related Party Transactions

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

Acquisitions, Development and Divestitures

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

At June 30, 2004, PPL had domestic generation projects under development which are expected to provide 218 MW of additional generation.

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

Environmental Matters

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

New Accounting Standards

See Note 16 to the Financial Statements for information on new accounting standards adopted in 2004 or pending adoption.

Application of Critical Accounting Policies

PPL's financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following accounting policies are particularly important to the financial condition or results of operations of PPL, and require estimates or other judgments of matters inherently uncertain: price risk management, pension and other postretirement benefits, asset impairment, leasing, loss contingencies and asset retirement obligations.

See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL's Annual Report to the SEC on Form 10-K for the year ended December 31, 2003, for a discussion of each critical accounting policy. PPL's senior management has reviewed these critical accounting policies, and the estimates and assumptions regarding them, with its Audit Committee. In addition, PPL's senior management reviewed the Form 10-K disclosures regarding the application of these critical accounting policies with the Audit Committee.

PPL ENERGY SUPPLY, LLC AND SUBSIDIARIES

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

Overview

PPL Energy Supply is an energy company with headquarters in Allentown, PA. See Item 1, "Business - Background" in PPL Energy Supply's Annual Report to the SEC on Form 10-K for the year ended December 31, 2003, for a description of PPL Energy Supply's domestic and international businesses. See Exhibit 99 in Item 15 in PPL Energy Supply's Form 10-K for a listing of its principal subsidiaries. Through its subsidiaries, PPL Energy Supply is primarily engaged in the generation and marketing of electricity in two key markets - the northeastern and western U.S. - and in the delivery of electricity in the U.K. and Latin America. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL Energy Supply's Annual Report to the SEC on Form 10-K for the year ended December 31, 2003, for an overview of PPL Energy Supply's strategy and the risks and challenges that it faces in its business.

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

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

Results of Operations

The following discussion, which explains significant changes in principal items on the Statement of Income, compares the three and six months ended June 30, 2004, with the comparable periods in 2003.

WPD's results, as consolidated in PPL Energy Supply's Statement of Income, are impacted by changes in foreign currency exchange rates. For the three and six months ended June 30, 2004, as compared with the same periods in 2003, changes in foreign exchange rates increased WPD's portion of revenue and expense line items by about 13% for both periods.

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

Earnings

Net income was as follows:

Three Months Ended June 30,				Six Months Ended June 30,
2004		2003		2004		2003
$	157	$	132	$	303	$	348

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

			June 30, 2004 vs. June 30, 2003
			Three Months Ended			Six Months Ended
Domestic:
	Eastern U.S. margins		$	7		$	19
	Net energy trading margins			(4	)		4
	Northwestern U.S. margins			(5	)		(1	)
	Southwestern U.S. margins						1
	Depreciation			(5	)		(7	)
	Interest expense			(10	)		(15	)
	Operation and maintenance expenses			8			(4	)
	Other income - affiliated interest			(2	)		(6	)
	Energy related businesses			(1	)		(3	)
	Realized earnings on nuclear decommissioning trust			(3	)		(2	)
	Other			2			(5	)
		Total Domestic		(13	)		(19	)
International:
	U.K.
		Impact of changes in foreign currency exchange rates		6			13
		Other		2			4
	Latin America			5			6
	Other			3
		Total International		16			23
Unusual items				22			(49	)
			$	25		$	(45	)

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

		Three Months Ended June 30,				Six Months Ended June 30,
		2004			2003	2004			2003
Accounting change:
	ARO (Note 14)								$	63
Sale of CGE (Note 7)		$	1			$	(7	)
Sale of CEMAR (Note 7)			23				23
Discontinued operations (Note 7)			(2	)			(2	)
Total		$	22			$	14		$	63

The period to period changes in earnings components, including domestic gross energy margins by region and income statement line items, are discussed in the balance of "Results of Operations."

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

• Due to current electricity and natural gas price levels, there is a risk that PPL Energy Supply may be unable to recover its investment in new gas-fired generation facilities. Under GAAP, PPL Energy Supply does not believe that there is an impairment charge to be recorded for these facilities at this time. PPL Energy Supply is unable to predict the ultimate earnings impact of this issue, based upon future energy price levels, applicable accounting rules and other factors, but such impact may be material. In June 2004, a subsidiary of PPL Generation agreed to sell the 450 MW Sundance power plant to the Arizona Public Service Company. If the necessary regulatory approvals can be obtained, the sale is expected to close in the first quarter of 2005. If it becomes likely that the required regulatory approvals will be obtained, PPL Energy Supply will reassess the Sundance assets for possible impairment. PPL Energy Supply estimates that an impairment charge of about $47 million after-tax could be recorded in 2004 or 2005 depending on the timing of regulatory approvals. See Note 7 to the Financial Statements for additional information on the potential Sundance sale.
• Market prices for electricity and fuel may negatively impact energy margins and earnings.
• PPL Energy Supply is unable to predict whether future impairments of goodwill may be required for its domestic and international investments. While no goodwill impairments were required based on the annual review performed in the fourth quarter of 2003, future impairments may occur due to determinations of carrying value exceeding the fair value of these investments.
• Earnings in 2005 and beyond are expected to be impacted by a rate review of the delivery business of WPD (South West) and WPD (South Wales). PPL Energy Supply cannot predict the ultimate outcome of the rate review. See Note 8 to the Financial Statements for additional information.
• PPL Energy Supply has interests in two synthetic fuel facilities and receives tax credits pursuant to Section 29 of the Internal Revenue Code based on its sale of synthetic fuel to unaffiliated third-party purchasers. PPL Energy Supply has estimated that these facilities will contribute approximately $23 million to earnings in 2004, approximately $30 million to earnings in 2005 and 2006, and approximately $32 million to earnings in 2007. See Note 8 to the Financial Statements for a discussion of the IRS review of synthetic fuel production procedures.
• See Note 16 to the Financial Statements for new accounting standards that may impact future earnings.

Domestic Gross Energy Margins

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

			June 30, 2004 vs. June 30, 2003
			Three Months Ended			Six Months Ended
Wholesale energy marketing revenues			$	(9	)	$	(29	)
Wholesale energy marketing to affiliates revenues				18			39
Unregulated retail electric and gas revenues				(4	)		(24	)
Net energy trading margins				(7	)		7
Other revenue adjustments (a)				(2	)		8
	Total revenues			(4	)		1
Fuel				34			39
Energy purchases				(36	)		(70	)
Energy purchases from affiliates				1			(6	)
Other cost adjustments (a)				1			(1	)
	Total cost of sales						(38	)
		Domestic gross energy margins	$	(4	)	$	39

(a) Adjusted to exclude the impact of any revenues and costs not associated with domestic gross energy margins, in particular, revenues and energy costs related to the international operations of PPL Global. Also adjusted to include gains on sales of emission allowances, which are included in "Other operation and maintenance" expenses on the Statement of Income.

Changes in Domestic Gross Energy Margins By Region

Domestic gross energy margins are generated through PPL's normal and hedge activities (non-trading), as well as trading activities. Non-trading margins are now discussed on a geographic basis rather than on an activity basis, as reported prior to 2004. A regional perspective more closely matches the internal view of how PPL's energy business is managed.

		June 30, 2004 vs. June 30, 2003
		Three Months Ended			Six Months Ended
Eastern U.S.		$	12		$	33
Northwestern U.S.			(9	)		(2	)
Southwestern U.S.						1
Net energy trading			(7	)		7
	Domestic gross energy margins	$	(4	)	$	39

Eastern U.S.

Eastern U.S. non-trading margins were higher for the three and six months ended June 30, 2004, compared with the same periods in 2003, due to retail volumes increasing 5% and 4% and wholesale volumes increasing 1% and 2%. Retail volumes increased primarily due to the return of customers who previously shopped for energy in the competitive market in Pennsylvania. In addition, retail energy prices increased about 1% in accordance with the schedule established by the PUC's Final Order. Wholesale volumes increased primarily due to serving new competitive load obligations in Connecticut and New Jersey.

Northwestern U.S.

Northwestern U.S. non-trading margins were lower for the three and six months ended June 30, 2004, compared with the same periods in 2003, primarily due to a retroactive coal price increase caused by an unfavorable arbitration ruling. Incremental expense of $6 million was recorded during the three months ended June 30, 2004, as a result of the ruling, most of which related to years 2001 to 2003. In addition, for the three months ended June 30, 2004, hydro generation was 16% lower than the same period in 2003 due to continuing drought conditions. For the six months ended June 30, 2004, a 4% increase in realized sales prices combined with a slight improvement in generation production contributed to lowering supply costs, that partially offset the retroactive coal price adjustment.

Southwestern U.S.

Southwestern U.S. non-trading margins were relatively flat for the three and six months ended June 30, 2004, compared with the same periods in 2003.

Net Energy Trading

PPL enters into certain energy contracts that meet the criteria of trading derivatives as defined by EITF Issue 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities." These physical and financial contracts cover trading activity associated with electricity, gas and oil. The $7 million decrease for the three months ended June 30, 2004, compared with the same period in 2003, was primarily due to a decrease in realized and unrealized gains on electricity positions. The $7 million increase for the six months ended June 30, 2004, compared with the same period in 2003, was due to a $3 million increase in electricity positions and a $4 million increase in gas and oil positions. The physical volumes associated with energy trading for the three months ended June 30, 2004, were 1,186 GWh and 1.8 Bcf, compared with 1,055 GWh and 3.4 Bcf for the three months ended June 30, 2003. Energy trading physical volumes for the six months ended June 30, 2004, were 2,180 GWh and 4.3 Bcf, compared with 2,269 GWh and 7.2 Bcf for the six months ended June 30, 2003.

Utility Revenues

The increases in utility revenues were attributable to the following:

			June 30, 2004 vs. June 30, 2003
			Three Months Ended			Six Months Ended
International:
	Retail electric delivery (PPL Global)
		U.K.	$	14		$	40
		Chile		7			19
		El Salvador		(2	)		(2	)
			$	19		$	57

The increases for both periods were primarily due to:

• higher WPD revenues in the U.K. primarily due to the change in foreign currency exchange rates; and
• higher revenues in Chile due to higher energy prices, which are a pass-through to customer rates, the change in foreign currency exchange rates, and increases in sales volumes of 5% and 7% for the three and six months ended June 30, 2004, compared with the same periods in 2003; partially offset by
• lower revenues in El Salvador due to lower energy prices, despite higher sales volumes.

Energy Related Businesses

Energy related businesses contributed $23 million less to operating income for the six months ended June 30, 2004, compared with the same period in 2003. The decrease was attributable to the following:

• a $15 million loss on the sale of CGE (see Note 7 to the Financial Statements);
• a $4 million decrease due to WPD contract terminations in 2003 and 2004;
• a $4 million decrease from mechanical contracting and engineering subsidiaries due to the continued decline in capital spending in commercial and industrial markets, lower margins experienced in those markets, and cost overruns at two major projects;
• a $2 million decrease from Latin American subsidiaries due primarily to lower dividends received and lower construction sales; and
• a $2 million higher pre-tax operating loss from synfuel projects; partially offset by
• a $5 million operating loss on some Hyder properties in the first quarter of 2003, which were subsequently sold in April 2003.

Other Operation and Maintenance

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

	June 30, 2004 vs. June 30, 2003
	Three Months Ended			Six Months Ended
Property damage and environmental insurance settlements which were recorded in 2003				$	12
Increase in foreign currency exchange rates	$	4			8
Outage costs associated with planned maintenance at the Montour and Conemaugh plants		4			7
Timing and extent of outage costs associated with the planned refueling and inspection at the Susquehanna station and of other nuclear-related expenses		(9	)		7
Decrease in domestic and international pension income		2			4
Decrease in lease expense due to consolidation of the lessor of the Sundance and University Park generation facilities due to FIN 46, "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51"		(6	)		(12	)
Impairment charge on transmission rights in 2003		(4	)		(4	)
Lower trademark license fees from a PPL subsidiary (Note 9)		(1	)		(4	)
	$	(10	)	$	18

The decreases in net pension income for the three and six months ended June 30, 2004, compared with the same periods in 2003, were attributable to a reduction in the discount rate assumptions for PPL Energy Supply's domestic and international pension plans. Although financial markets have improved and PPL Energy Supply's domestic and international pension plans have experienced significant asset gains, interest rates on fixed-income obligations have continued to fall, requiring a further reduction in the discount rate assumption as of December 31, 2003. The reduction in the discount rate assumption has a significant impact on the measurement of plan obligations and net pension costs, which will result in PPL Energy Supply's recognition of lower levels of net pension income in 2004. See Note 12 to the Financial Statements for details of the costs of PPL Energy Supply's pension plans.

Depreciation

The increases in depreciation expense were primarily due to:

	June 30, 2004 vs. June 30, 2003
	Three Months Ended			Six Months Ended
Additions to PP&E	$	7		$	8
Consolidation of the lessor of the Sundance and University Park generation facilities due to FIN 46		4			8
Foreign currency exchange rates		3			7
2003 purchase accounting adjustments to WPD assets		(5	)		(14	)
	$	9		$	9

Taxes, Other Than Income

Taxes, other than income, increased by $7 million during the six months ended June 30, 2004, compared with the same period in 2003. The increase was primarily due to an increase in domestic capital stock tax of $3 million and increases in WPD's property taxes of $5 million, primarily related to the impact of changes of foreign currency exchange rates, adjustments recorded in 2003 and an increase in property tax rates.

Other Income - net

See Note 10 to the Financial Statements for details of other income.

Financing Costs

The increases in financing costs, which include "Interest Expense" and "Distributions on Preferred Securities," were primarily due to:

	June 30, 2004 vs. June 30, 2003
	Three Months Ended			Six Months Ended
Increase in interest expense due to consolidation of the lessors of the Sundance, University Park and Lower Mt. Bethel generation facilities, in accordance with FIN 46	$	10		$	16
Financing costs associated with the repayment of the consolidated trust's debt for the Sundance and University Park generating facilities		9			9
Increase in long-term debt interest expense from WPD's additional debt issuances in March and May 2003		11			25
Increase in long-term debt interest expense due to the issuance of Convertible Senior Notes in May 2003		2			4
Increase in other long-term debt interest expense		2			3
Decrease in amortization expense		(4	)		(8	)
Decrease in short-term debt interest expense		(4	)		(11	)
Write-off of unamortized swap costs on WPD debt restructuring		(11	)		(11	)
	$	15		$	27

Income Taxes

Income taxes decreased by $22 million and $21 million for the three and six months ended June 30, 2004, compared with the same periods in 2003. The decreases were due to:

• lower pre-tax book income, resulting in a $4 million decrease in income taxes for the six months ended June 30, 2004;
• differences in income recognition for tax purposes related to foreign affiliates, resulting in $17 million and $13 million reductions in income taxes for the three and six months ended June 30, 2004; and
• additional synthetic fuel tax credits recognized, resulting in $2 million and $3 million reductions in income taxes for the three and six months ended June 30, 2004.

See Note 2 to the Financial Statements for details on effective income tax rates.

Discontinued Operations

See "Discontinued Operations" in Note 7 to the Financial Statements for information regarding the losses recorded related to the sale of PPL Global's investment in a Latin American telecommunications company.

Cumulative Effect of a Change in Accounting Principle

PPL Energy Supply adopted SFAS 143, "Accounting for Asset Retirement Obligations," effective January 1, 2003. SFAS 143 addresses the accounting for obligations associated with the retirement of tangible long-lived assets. Application of the new rules resulted in a cumulative effect of adoption that increased net income by $63 million in 2003. See Note 21 to the Financial Statements in PPL Energy Supply's Annual Report to the SEC on Form 10-K for the year ended December 31, 2003, for additional information.

Financial Condition

Liquidity

At June 30, 2004, PPL Energy Supply had $222 million of cash and cash equivalents and no short-term debt. At December 31, 2003, PPL Energy Supply had $227 million of cash and cash equivalents and $56 million of short-term debt. The decrease in PPL Energy Supply's cash position was the net result of:

• the retirement of $663 million of long-term debt;
• $264 million of capital expenditures;
• the distribution to Member of $124 million; and
• a decrease of $61 million in short-term debt; partially offset by
• $438 million of cash provided by operating activities;
• proceeds of $495 million from a note payable to an affiliate;
• proceeds of $123 million from the sale of CGE;
• the contribution from Member of $58 million; and
• the issuance of $15 million of long-term debt.

Rating Agency Decisions

Standard & Poor's Ratings Services (S&P), Moody's Investors Service, Inc. (Moody's) and Fitch Ratings (Fitch) periodically review the credit ratings on the debt and preferred securities of PPL Energy Supply and its subsidiaries. Based on their respective reviews, the rating agencies may make certain ratings revisions.

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

During the second quarter of 2004, S&P affirmed its BBB ratings on both PPL and PPL Energy Supply and revised its outlook on both entities from negative to stable. S&P also affirmed its BBB- rating on PPL Montana's Pass-Through Certificates due 2020 and revised its outlook from negative to stable. Also, S&P indicated that the following ratings would remain unchanged following the aforementioned revision to PPL Energy Supply's outlook:

• WPDH Limited of BBB-/Negative/A-3;
• WPD (South West) of BBB+/Negative/A-2; and
• WPD (South Wales) of BBB+/Negative/A-2.

Other

The pension plans of WPD are subject to formal actuarial valuations every three years, which are used to determine funding requirements. WPD's two principal plans were the subject of a formal actuarial valuation as of March 31, 2004. Preliminary valuations show an actuarial deficit of approximately £250 million (approximately $454 million based on current exchange rates) that may need to be funded over approximately 14 years if markets and asset values do not recover. WPD expects to conclude the formal valuation process and agree on deficit contribution schedules with the Trustees of the plans by March 31, 2005.

WPD believes that its internally generated cash flow, combined with its bank credit facilities, provides sufficient resources to finance its cash requirements and to maintain appropriate available liquidity.

For additional information on PPL Energy Supply's liquidity, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL Energy Supply's Annual Report to the SEC on Form 10-K for the year ended December 31, 2003.

Risk Management - Energy Marketing & Trading and Other

Market Risk

Commodity Price Risk (Non-trading)

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Fair value of contracts outstanding at the beginning of the period	$	84		$	129		$	86		$	58
Contracts realized or otherwise settled during the period		(20	)		(14	)		(44	)		(54	)
Fair value of new contracts at inception
Other changes in fair values		21			(31	)		43			80
Fair value of contracts outstanding at the end of the period	$	85		$	84		$	85		$	84

"Contracts realized or otherwise settled during the period" relate to contracts entered into prior to April 1 for the three months ended June 30 and contracts entered into prior to January 1 for the six months ended June 30. These amounts do not reflect intra-period contracts that were entered into and settled during the periods.

"Other changes in fair values" represents changes in the market value that have occurred for contracts that were outstanding at the end of each period.

The following chart segregates estimated fair values of PPL Energy Supply's commodity derivative contracts that qualify for hedge accounting treatment at June 30, 2004, based on whether the fair values are determined by quoted market prices or other more subjective means.

	Fair Value of Contracts at Period-End Gains/(Losses)
	Maturity Less Than 1 Year		Maturity 1-3 Years		Maturity 4-5 Years			Maturity in Excess of 5 Years			Total Fair Value
Source of Fair Value
Prices actively quoted	$	7	$	3							$	10
Prices provided by other external sources		52		27	$	(3	)	$	(1	)		75
Prices based on models and other valuation methods
Fair value of contracts outstanding at the end of the period	$	59	$	30	$	(3	)	$	(1	)	$	85

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

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

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

As of June 30, 2004, PPL Energy Supply estimated that a 10% adverse movement in market prices across all geographic areas and time periods would have decreased the value of the commodity contracts in its non-trading portfolio by approximately $174 million. However, the change in the value of the non-trading portfolio would have been substantially offset by an increase in the value of the underlying commodity, the electricity generated, because these contracts serve to reduce the market risk inherent in the generation of electricity. Additionally, the value of PPL Energy Supply's unsold generation would be improved. Because PPL Energy Supply's electricity portfolio is generally in a net sales position, the adverse movement in prices is usually an increase in prices. Conversely, because PPL Energy Supply's commodity fuels portfolio is generally in a net purchase position, the adverse movement in prices is usually a decrease in prices. If both of these scenarios happened, the implied margins for the unsold generation would increase.

In accordance with its marketing strategy, PPL Energy Supply does not completely hedge its generation output or fuel requirements. PPL Energy Supply estimates that for its entire portfolio, including all generation and physical and financial energy positions, a 10% adverse change in power prices across all geographic zones and time periods would decrease expected 2004 gross margins by about $1 million. Similarly, a 10% adverse movement in all fossil fuel prices would decrease 2004 gross margins by $4 million.

Commodity Price Risk (Trading)

PPL Energy Supply's trading contracts mature at various times through 2006. The following chart sets forth PPL Energy Supply's net fair market value of trading contracts:

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Fair value of contracts outstanding at the beginning of the period	$	11		$	(16	)	$	3		$	(6	)
Contracts realized or otherwise settled during the period		(4	)		10			(7	)		9
Fair value of new contracts at inception					(2	)		4			(2	)
Other changes in fair values		5			1			12			(8	)
Fair value of contracts outstanding at the end of the period	$	12		$	(7	)	$	12		$	(7	)

"Contracts realized or otherwise settled during the period" relate to trading contracts entered into prior to April 1 for the three months ended June 30 and contracts entered into prior to January 1 for the six months ended June 30. These amounts do not reflect intra-period contracts that were entered into and settled during the periods.

The "Fair value of new contracts at inception" is usually zero, because they are entered into at current market prices. However, when PPL Energy Supply enters into an option contract, a premium is paid or received.

"Other changes in fair values" represents changes in the market value that have occurred for contracts that were outstanding at the end of each period.

As of June 30, 2004, the net loss on PPL Energy Supply's trading activities expected to be recognized in earnings during the next three months is $3 million.

The following chart segregates estimated fair values of PPL Energy Supply's trading portfolio at June 30, 2004, based on whether the fair values are determined by quoted market prices or other more subjective means.

	Fair Value of Contracts at Period-End Gains/(Losses)
	Maturity Less Than 1 Year		Maturity 1-3 Years		Maturity 4-5 Years	Maturity in Excess of 5 Years	Total Fair Value
Source of Fair Value
Prices actively quoted	$	1	$	1			$	2
Prices provided by other external sources				4				4
Prices based on models and other valuation methods		5		1				6
Fair value of contracts outstanding at the end of the period	$	6	$	6			$	12

As of June 30, 2004, PPL Energy Supply estimated that a 10% adverse movement in market prices across all geographic areas and time periods would have decreased the value of the commodity contracts in its trading portfolio by $9 million.

Interest Rate Risk

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

At June 30, 2004, PPL Energy Supply's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was insignificant.

PPL Energy Supply is also exposed to changes in the fair value of its U.S. and international debt portfolio. At June 30, 2004, PPL Energy Supply estimated that its potential exposure to a change in the fair value of its debt portfolio, through a 10% adverse movement in interest rates, was $164 million.

PPL and PPL Energy Supply utilize various risk management instruments to reduce PPL Energy Supply's exposure to adverse interest rate movements for future anticipated financings. While PPL Energy Supply is exposed to changes in the fair value of these instruments, they are designed such that any economic loss in value should generally be offset by interest rate savings at the time the future anticipated financing is completed. At June 30, 2004, PPL Energy Supply estimated that its potential exposure to a change in the fair value of these instruments, through a 10% adverse movement in interest rates, was immaterial.

Foreign Currency Risk

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

PPL has adopted a foreign currency risk management program designed to hedge certain foreign currency exposures, including firm commitments, recognized assets or liabilities and net investments. In addition, PPL enters into financial instruments to protect against foreign currency translation risk.

PPL executed forward sale transactions for £17.7 million to hedge a portion of its net investment in WPDH Limited. The estimated value of these agreements as of June 30, 2004, was $5 million, being the amount PPL would pay to terminate the transactions.

To protect expected income in British pounds sterling, PPL entered into average rate forward sales contracts for £29 million. In conjunction with these forward contracts, PPL executed average rate purchase options of £20 million to mitigate the liquidity risk inherent in the average rate forwards. At June 30, 2004, the market value of these positions, representing the amount PPL would receive to terminate them, was insignificant.

To protect expected income in Chilean pesos, PPL entered into average rate forward sales contracts for 5.5 billion Chilean pesos. At June 30, 2004, the market value of these positions, representing the amount PPL would receive to terminate them, was insignificant.

WPDH Limited held a net position in cross-currency swaps totaling $1.3 billion to hedge the interest payments and value of its U.S. dollar-denominated bonds. The estimated value of this position at June 30, 2004, being the amount PPL would pay to terminate it, including accrued interest, was $197 million.

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

Nuclear Decommissioning Fund - Securities Price Risk

In connection with certain NRC requirements, PPL Susquehanna maintains trust funds to fund certain costs of decommissioning the Susquehanna station. As of June 30, 2004, these funds were invested primarily in domestic equity securities and fixed-rate, fixed-income securities and are reflected at fair value on PPL Energy Supply's Balance Sheet. The mix of securities is designed to provide returns to be used to fund Susquehanna's decommissioning and to compensate for inflationary increases in decommissioning costs. However, the equity securities included in the trusts are exposed to price fluctuation in equity markets, and the values of fixed-rate, fixed-income securities are exposed to changes in interest rates. PPL Susquehanna actively monitors the investment performance and periodically reviews asset allocation in accordance with its nuclear decommissioning trust policy statement. At June 30, 2004, a hypothetical 10% increase in interest rates and a 10% decrease in equity prices would have resulted in an estimated $27 million reduction in the fair value of the trust assets.

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

Credit Risk

Credit risk relates to the risk of loss that PPL Energy Supply would incur as a result of non-performance by counterparties of their contractual obligations. PPL Energy Supply maintains credit policies and procedures with respect to counterparties (including requirements that counterparties maintain certain credit ratings criteria) and requires other assurances in the form of credit support or collateral in certain circumstances in order to limit counterparty credit risk. However, PPL Energy Supply has concentrations of suppliers and customers among electric utilities, natural gas distribution companies and other energy marketing and trading companies. These concentrations of counterparties may impact PPL Energy Supply's overall exposure to credit risk, either positively or negatively, in that counterparties may be similarly affected by changes in economic, regulatory or other conditions. PPL Energy Supply records certain non-performance reserves to reflect the probability that a counterparty with contracts that are out of the money (from the counterparty's standpoint) will default in its performance, in which case PPL Energy Supply would have to sell into a lower-priced market or purchase from a higher-priced market. These reserves are reflected in the fair value of assets recorded in "Price risk management assets" on the Balance Sheet. PPL Energy Supply also records reserves to reflect the probability that a counterparty will not make payments for deliveries PPL Energy Supply has made but not yet billed. These reserves are reflected in "Unbilled revenues" on the Balance Sheet. PPL Energy Supply has also established a reserve with respect to certain sales to the California ISO for which PPL Energy Supply has not yet been paid, as well as a reserve related to PPL Energy Supply's exposure as a result of the Enron bankruptcy, which are reflected in "Accounts receivable" on the Balance Sheet. See Note 8 to the Financial Statements for additional information on the sales to the California ISO.

Related Party Transactions

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

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

Acquisitions, Development and Divestitures

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

At June 30, 2004, PPL Energy Supply had domestic generation projects under development which are expected to provide 218 MW of additional generation.

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

Environmental Matters

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

New Accounting Standards

See Note 16 to the Financial Statements for information on new accounting standards adopted in 2004 or pending adoption.

Application of Critical Accounting Policies

PPL Energy Supply's financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following accounting policies are particularly important to the financial condition or results of operations of PPL Energy Supply, and require estimates or other judgments of matters inherently uncertain: price risk management, pension and other postretirement benefits, asset impairment, leasing, loss contingencies and asset retirement obligations.

See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL Energy Supply's Annual Report to the SEC on Form 10-K for the year ended December 31, 2003, for a discussion of each critical accounting policy. PPL's senior management has reviewed these critical accounting policies, and the estimates and assumptions regarding them, with its Audit Committee. In addition, PPL's senior management reviewed the Form 10-K disclosures regarding the application of these critical accounting policies with the Audit Committee.

PPL ELECTRIC UTILITIES CORPORATION AND SUBSIDIARIES

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

Overview

PPL Electric provides electricity delivery service in eastern and central Pennsylvania. Its headquarters are in Allentown, Pennsylvania. See Item 1, "Business - Background" in PPL Electric's Annual Report to the SEC on Form 10-K for the year ended December 31, 2003, for a description of PPL Electric's business. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL Electric's Annual Report to the SEC on Form 10-K for the year ended December 31, 2003, for an overview of PPL Electric's strategy and the risks and challenges that it faces in its business.

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

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

Results of Operations

The following discussion, which explains significant changes in principal items on the Statement of Income, compares the three and six months ended June 30, 2004, with the comparable periods in 2003.

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

Earnings

Income available to PPL was as follows:

Three Months Ended June 30,			Six Months Ended June 30,
2004		2003	2004		2003
$	3	$	$	36	$	29

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

	June 30, 2004 vs. June 30, 2003
	Three Months Ended			Six Months Ended
Delivery revenues (net of CTC/ITC amortization and interest expense on transition bonds)	$	2		$	2
Operation and maintenance expenses					(2	)
Taxes, other than income		(1	)		7
Depreciation		(1	)		(2	)
Financing costs (excluding transition bond interest expense)		1			2
Other		2
	$	3		$	7

The period to period changes in earnings components are discussed in the balance of "Results of Operations."

PPL Electric has filed a proposal with the PUC to increase distribution rates by approximately $164 million and has notified the PUC that it plans to pass through to customers approximately $57 million in increased transmission charges that PPL Electric pays to PJM for transmission services. Transmission services are provided under the PJM Open Access Transmission Tariff, a rate schedule filed with and approved by the FERC. Under the federal "filed rate doctrine," such FERC-approved rates may be recovered from retail customers without a review of those rates by a state agency such as the PUC. In addition, PPL Electric's PUC-approved retail tariff permits the automatic pass-through of transmission charges. PPL Electric agreed to a cap on both of these charges until December 31, 2004, as part of its 1998 settlement under the PUC Final Order. Generation charges for customers who do not select an alternative energy supplier are fixed through 2009 and are not affected by these changes. The combination of the proposed distribution rate increase and transmission charge pass-through would result in an 8.1% increase over PPL Electric's present rates effective January 1, 2005. PPL Electric cannot predict the outcome of this proceeding.

PPL Electric had been using CashPoint Network Services, Inc. (CashPoint) to manage customer bill payment centers. In April 2004, PPL Electric terminated the use of CashPoint to collect bill payments because of financial uncertainties and processing irregularities. CashPoint's largest creditors forced it into involuntary bankruptcy. As of June 30, 2004, PPL Electric recorded a reserve of $1 million, representing the estimated amount of funds owed by CashPoint that will not be recovered.

Operating Revenues

Retail Electric

The increases in revenues from retail electric operations were attributable to the following:

	June 30, 2004 vs. June 30, 2003
	Three Months Ended			Six Months Ended
PLR electric generation supply	$	27		$	57
Electric delivery		3			3
Delivery and PLR Supply to PPL Generation		(1	)		(4	)
Other					(1	)
	$	29		$	55

The increases for both periods were primarily due to higher PLR revenues due to higher energy and capacity rates in 2004 compared with 2003, and a 5% and 4% increase in volumes for the three and six months ended June 30, 2004, in part due to the return of customers previously served by alternate suppliers.

Wholesale Electric

PPL Electric wholesale revenues were primarily derived from sales to municipalities. The $7 million and $11 million decreases in wholesale electric revenues for the three and six months ended June 30, 2004, compared with the same periods in 2003, were due to the expiration of all municipal purchase power agreements at the end of January 2004.

Energy Purchases from Affiliate

Energy purchases from affiliate increased by $19 million and $42 million for the three and six months ended June 30, 2004, compared with the same periods in 2003. The increases reflect an increase in PLR load for both periods in 2004, as well as higher prices for energy purchased under the power supply contracts with PPL EnergyPlus needed to support that load.

Depreciation

Depreciation increased by $3 million for the six months ended June 30, 2004, compared with the same period in 2003, primarily due to plant additions, including the Automated Meter Reading project.

Taxes, Other Than Income

In the first quarter of 2004, PPL Electric reversed a $14 million accrued liability for 1998 and 1999 PURTA taxes that had been accrued based on potential exposure in the proceedings regarding the Susquehanna nuclear station tax assessment. The rights of the third party interveners to further appeal expired in 2004. The reversal is the primary reason for the $12 million decrease in taxes, other than income, for the six months ended June 30, 2004, compared with the same period in 2003.

Interest Expense

Interest expense decreased by $6 million and $13 million for the three and six months ended June 30, 2004, compared with the same periods in 2003. These decreases were the net impact of retirements of First Mortgage Bonds, Pollution Control Bonds, Senior Secured Bonds and Transition Bonds in 2003 and 2004, partially offset by the issuance of $100 million of Senior Secured Bonds and $90 million of Pollution Control Bonds in 2003.

Income Taxes

Income taxes increased by $4 million for the six months ended June 30, 2004, compared with the same period in 2003, as a result of higher pre-tax book income.

Financial Condition

Liquidity

At June 30, 2004, PPL Electric had $39 million of cash and cash equivalents and $65 million of short-term debt. At December 31, 2003, PPL Electric had $162 million of cash and cash equivalents and no short-term debt. The decrease in cash and cash equivalents was the net result of:

• the retirement of $271 million of long-term debt; and
• $98 million of capital expenditures; partially offset by
• $185 million of cash provided by operating activities; and
• an increase of $65 million in short-term debt.

For additional information on PPL Electric's liquidity, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL Electric's Annual Report to the SEC on Form 10-K for the year ended December 31, 2003.

Subsequent Financing

In August 2004, PPL Electric began participating in an asset-backed commercial paper (ABCP) program through which PPL Electric obtains financing by selling and contributing to a subsidiary certain of its accounts receivable. The subsidiary pledges the accounts receivable to secure loans of up to an aggregate of $150 million from a commercial paper conduit sponsored by a financial institution. PPL Electric expects to use the proceeds from the ABCP program for general corporate purposes and to cash collateralize letters of credit. See Note 6 to the Financial Statements for additional information.

Risk Management

Market Risk

Commodity Price Risk - PLR Contracts

PPL Electric and PPL EnergyPlus have power supply agreements under which PPL EnergyPlus sells to PPL Electric (under a predetermined pricing arrangement) energy and capacity to fulfill PPL Electric's PLR obligation through 2009. As a result, PPL Electric has shifted any electric price risk relating to its PLR obligation to PPL EnergyPlus through 2009. See Note 9 to the Financial Statements for information on the PLR contracts.

Interest Rate Risk

PPL Electric has issued debt to finance its operations, which increases its interest rate risk. At June 30, 2004, PPL Electric's potential annual exposure to increased interest expense, based on a 10% increase in interest rates, was insignificant.

PPL Electric is also exposed to changes in the fair value of its debt portfolio. At June 30, 2004, PPL Electric estimated that its potential exposure to a change in the fair value of its debt portfolio, through a 10% adverse movement in interest rates, was approximately $21 million.

Related Party Transactions

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

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

Environmental Matters

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

New Accounting Standards

See Note 16 to the Financial Statements for information on new accounting standards adopted in 2004 or pending adoption.

Application of Critical Accounting Policies

PPL Electric's financial condition and results of operations are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. The following accounting policies are particularly important to the financial condition or results of operations of PPL Electric, and require estimates or other judgments of matters inherently uncertain: pension and other postretirement benefits and loss contingencies.

See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in PPL Electric's Annual Report to the SEC on Form 10-K for the year ended December 31, 2003, for a discussion of each critical accounting policy. PPL's senior management has reviewed these critical accounting policies, and the estimates and assumptions regarding them, with its Audit Committee. In addition, PPL's senior management reviewed the Form 10-K disclosures regarding the application of these critical accounting policies with the Audit Committee.

PPL CORPORATION
PPL ENERGY SUPPLY, LLC
PPL ELECTRIC UTILITIES CORPORATION

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Reference is made to "Risk Management - Energy Marketing & Trading and Other" in Management's Discussion and Analysis of Financial Condition and Results of Operations.

Item 4. Controls and Procedures
(a)	Evaluation of disclosure controls and procedures.
	The registrants' principal executive officers and principal financial officers, based on their evaluation of the registrants' disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) have concluded that, as of June 30, 2004, the registrants' disclosure controls and procedures are adequate and effective to ensure that material information relating to the registrants and their consolidated subsidiaries is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, particularly during the period for which this quarterly report has been prepared.
(b)	Change in internal controls over financial reporting.
	The registrants' principal executive officers and principal financial officers have concluded that there were no changes in the registrants' internal controls over financial reporting during the registrants' second fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrants' internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings
For additional information regarding various pending administrative and judicial proceedings involving regulatory, environmental and other matters, which information is incorporated by reference into this Part II, see:
	•	Item 3 "Legal Proceedings" in PPL's, PPL Energy Supply's and PPL Electric's Annual Report to the SEC on Form 10-K for the year ended December 31, 2003; and
	•	Note 8 of the registrants' "Combined Notes to Condensed Consolidated Financial Statements" in Part I of this report.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

Issuer Purchases of Equity Securities:

	(a)	(b)	(c)	(d)
Period	Total Number of Shares (or Units) Purchased (1)	Average Price Paid per Share (or Unit)	Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased under the Plans or Programs (2)
January 1 to January 31, 2004	5,751	$45.23
February 1 to February 29, 2004	1,703	$45.11
March 1 to March 31, 2004	37	$46.44
April 1 to April 30, 2004	-	-
May 1 to May 31, 2004 (3)	17	$51.94
June 1 to June 30, 2004	-	-
Total	7,508

(1)	Except for the shares acquired in May 2004, represents shares of common stock withheld by PPL at the request of its executive officers to pay taxes upon the vesting of the officers' restricted stock awards, as permitted under the terms of PPL's Incentive Compensation Plan and Incentive Compensation Plan for Key Employees.
(2)	Not applicable. PPL does not currently have in place any publicly announced plans or programs to purchase equity securities.
(3)	Represents shares of common stock acquired upon the settlement in May 2004 of the purchase contract component of the PEPS Units and PEPS Units, Series B.

Item 4. Submission of Matters to a Vote of Security Holders
	At PPL's Annual Meeting of Shareowners held on April 23, 2004, the shareowners:
	(1)	Elected the three nominees for the office of director. The votes for individual nominees were as follows:
				Number of Votes
				For		Withhold Authority
		William F. Hecht		142,849,348		3,887,320
		Stuart Heydt		141,280,636		5,456,032
		W. Keith Smith		141,956,618		4,780,050
	(2)	Ratified the appointment of PricewaterhouseCoopers LLP as independent auditors for the year ended December 31, 2004. The vote was 141,903,132 in favor and 3,537,680 against, with 1,295,856 abstaining.
	At PPL Electric's Annual Meeting of Shareowners held on April 20, 2004, the shareowners elected all eight nominees for the office of director. The votes for individual nominees were as follows:
			Number of Votes for
		John R. Biggar			78,029,863
		Paul T. Champagne			78,029,863
		Dean A. Christiansen			78,029,863
		Lawrence E. De Simone			78,029,863
		Robert J. Grey			78,029,863
		William F. Hecht			78,029,863
		James H. Miller			78,029,863
		John F. Sipics			78,029,863

Item 6. Exhibits and Reports on Form 8-K
(a)	Exhibits
	3	-	Bylaws of PPL Electric Utilities Corporation, as amended effective July 16, 2004
	*4(a)	-	Supplement, dated May 18, 2004, to Indenture dated November 1, 1997, among PPL Corporation, PPL Capital Funding, Inc. and JPMorgan Chase Bank (formerly known as Chase Manhattan Bank), as Trustee (Exhibit 4.7 to Registration Statement Nos. 333-116478, 333-116478-01 and 333-116478-02)
	10(a)	-	Asset Purchase Agreement, dated as of June 1, 2004, by and between PPL Sundance Energy, LLC, as Seller, and Arizona Public Service Company, as Purchaser
	10(b)	-	$800 million Five-Year Credit Agreement, dated as of June 22, 2004, among PPL Energy Supply, LLC, as Borrower, and the banks named therein
	10(c)	-	$200 million Five-Year Credit Agreement, dated as of June 22, 2004, among PPL Electric Utilities Corporation, as Borrower, and the banks named therein
	10(d)	-	Receivables Sale Agreement, dated as of August 1, 2004, between PPL Electric Utilities Corporation, as Originator, and PPL Receivables Corporation, as Buyer
	10(e)	-	Credit and Security Agreement, dated as of August 1, 2004, among PPL Receivables Corporation, as Borrower, PPL Electric Utilities Corporation, as Servicer, Blue Ridge Asset Funding Corporation, the Liquidity Banks from time to time party thereto and Wachovia Bank, National Association, as Agent
	12(a)	-	PPL Corporation and Subsidiaries, Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
	12(b)	-	PPL Energy Supply, LLC and Subsidiaries, Computation of Ratio of Earnings to Fixed Charges
	* - previously filed
	Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended June 30, 2004, filed by the following officers for the following companies:
	31(a)	-	William F. Hecht for PPL Corporation
	31(b)	-	John R. Biggar for PPL Corporation
	31(c)	-	William F. Hecht for PPL Energy Supply, LLC
	31(d)	-	James E. Abel for PPL Energy Supply, LLC
	31(e)	-	John F. Sipics for PPL Electric Utilities Corporation
	31(f)	-	James E. Abel for PPL Electric Utilities Corporation
	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for the quarterly period ended June 30, 2004, furnished by the following officers for the following companies:
	32(a)	-	William F. Hecht for PPL Corporation
	32(b)	-	John R. Biggar for PPL Corporation
	32(c)	-	William F. Hecht for PPL Energy Supply, LLC
	32(d)	-	James E. Abel for PPL Energy Supply, LLC
	32(e)	-	John F. Sipics for PPL Electric Utilities Corporation
	32(f)	-	James E. Abel for PPL Electric Utilities Corporation

(b)	Reports on Form 8-K
	The following Reports on Form 8-K were filed (*) or furnished (**), as indicated, during the three months ended June 30, 2004:
*	Report dated April 6, 2004 - PPL and PPL Electric
	Item 5.	Other Events
		Announced an offer by PPL Electric to repurchase for cash any and all of its $110 million outstanding principal amount of First Mortgage Bonds, 6-1/2% Series due 2005.
	Item 7.	Financial Statements and Exhibits
		Press release announcing the Tender Offer.
*	Report dated April 16, 2004 - PPL and PPL Electric
	Item 5.	Other Events
		Announced the completion of PPL Electric's offer to repurchase for cash any and all of its $110 million outstanding principal amount of First Mortgage Bonds, 6-1/2% Series due 2005.
	Item 7.	Financial Statements and Exhibits
		Press release announcing the completion of the Tender Offer.
**	Report dated April 28, 2004 - PPL
	Item 12.	Disclosure of Results of Operations and Financial Condition Reported PPL's results for the quarter ended March 31, 2004, and affirmed its 2004 earnings forecast.
	Item 7.	Financial Statements and Exhibits
		Press release regarding PPL's results for the first quarter ended March 31, 2004, and affirming its 2004 earnings forecast.
*	Report dated June 1, 2004 - PPL and PPL Energy Supply
	Item 5.	Other Events
		Announced that PPL Sundance Energy, LLC has agreed to sell the 450-megawatt Sundance power plant in Arizona to the Arizona Public Service Company for $190 million in cash, subject to the receipt of various state and federal regulatory approvals.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiaries.

	PPL Corporation
	(Registrant)
	PPL Energy Supply, LLC
	(Registrant)
	PPL Electric Utilities Corporation
	(Registrant)
Date: August 6, 2004	/s/  John R. Biggar
	John R. Biggar
	Executive Vice President and
	Chief Financial Officer
	(PPL Corporation)
	(principal financial officer)
	/s/  James E. Abel
	James E. Abel
	Treasurer
	(PPL Energy Supply, LLC)
	(principal financial officer)
	/s/  Mark D. Woods
	Mark D. Woods
	Controller
	(PPL Electric Utilities Corporation)
	(principal accounting officer)

EX-31

Exhibit 31(a)

CERTIFICATION
I, WILLIAM F. HECHT, the principal executive officer of PPL Corporation (the "registrant"), certify that:
1.	I have reviewed this quarterly report on Form 10-Q of the registrant for the quarter ended June 30, 2004;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 6, 2004			/s/  William F. Hecht
			William F. Hecht Chairman, President and Chief Executive Officer PPL Corporation

EX-31

Exhibit 31(b)

CERTIFICATION
I, JOHN R. BIGGAR, the principal financial officer of PPL Corporation (the "registrant"), certify that:
1.	I have reviewed this quarterly report on Form 10-Q of the registrant for the quarter ended June 30, 2004;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 6, 2004			/s/  John R. Biggar
			John R. Biggar Executive Vice President and Chief Financial Officer PPL Corporation

NAME="CORP32">

EX-31

Exhibit 31(c)

CERTIFICATION
I, WILLIAM F. HECHT, the principal executive officer of PPL Energy Supply, LLC (the "registrant"), certify that:
1.	I have reviewed this quarterly report on Form 10-Q of the registrant for the quarter ended June 30, 2004;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 6, 2004			/s/  William F. Hecht
			William F. Hecht President PPL Energy Supply, LLC

EX-31

Exhibit 31(d)

CERTIFICATION
I, JAMES E. ABEL, the principal financial officer of PPL Energy Supply, LLC (the "registrant"), certify that:
1.	I have reviewed this quarterly report on Form 10-Q of the registrant for the quarter ended June 30, 2004;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 6, 2004			/s/  James E. Abel
			James E. Abel Treasurer PPL Energy Supply, LLC

EX-31

Exhibit 31(e)

CERTIFICATION
I, JOHN F. SIPICS, the principal executive officer of PPL Electric Utilities Corporation (the "registrant"), certify that:
1.	I have reviewed this quarterly report on Form 10-Q of the registrant for the quarter ended June 30, 2004;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 6, 2004			/s/  John F. Sipics
			John F. Sipics President PPL Electric Utilities Corporation

EX-31

Exhibit 31(f)

CERTIFICATION
I, JAMES E. ABEL, the principal financial officer of PPL Electric Utilities Corporation (the "registrant"), certify that:
1.	I have reviewed this quarterly report on Form 10-Q of the registrant for the quarter ended June 30, 2004;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	c.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 6, 2004			/s/  James E. Abel
			James E. Abel Treasurer PPL Electric Utilities Corporation

EX-32

Exhibit 32(a)

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
FOR PPL CORPORATION'S 10-Q FOR THE QUARTER ENDED JUNE 30, 2004

In connection with the quarterly report on Form 10-Q of PPL Corporation (the "Company") for the quarter ended June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), I, the principal executive officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:

• The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

• The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 6, 2004 /s/ William F. Hecht                                   
William F. Hecht
Chairman, President and
Chief Executive Officer
PPL Corporation

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32

Exhibit 32(b)

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
FOR PPL CORPORATION'S 10-Q FOR THE QUARTER ENDED JUNE 30, 2004

In connection with the quarterly report on Form 10-Q of PPL Corporation (the "Company") for the quarter ended June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), I, the principal financial officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:

• The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

• The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 6, 2004 /s/ John R. Biggar                                    
John R. Biggar
Executive Vice President and
Chief Financial Officer
PPL Corporation

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32

Exhibit 32(c)

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
FOR PPL ENERGY SUPPLY, LLC'S 10-Q FOR THE QUARTER ENDED JUNE 30, 2004

In connection with the quarterly report on Form 10-Q of PPL Energy Supply, LLC (the "Company") for the quarter ended June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), I, the principal executive officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:

• The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

• The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 6, 2004 /s/ William F. Hecht                                   
William F. Hecht
President
PPL Energy Supply, LLC

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32

Exhibit 32(d)

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
FOR PPL ENERGY SUPPLY, LLC'S 10-Q FOR THE QUARTER ENDED JUNE 30, 2004

In connection with the quarterly report on Form 10-Q of PPL Energy Supply, LLC (the "Company") for the quarter ended June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), I, the principal financial officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:

• The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

• The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 6, 2004 /s/ James E. Abel                                     
James E. Abel
Treasurer
PPL Energy Supply, LLC

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32

Exhibit 32(e)

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
FOR PPL ELECTRIC UTILITIES CORPORATION'S 10-Q FOR THE QUARTER ENDED JUNE 30, 2004

In connection with the quarterly report on Form 10-Q of PPL Electric Utilities Corporation (the "Company") for the quarter ended June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), I, the principal executive officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:

• The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

• The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 6, 2004 /s/ John F. Sipics                                   
John F. Sipics
President
PPL Electric Utilities Corporation

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32

Exhibit 32(f)

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
FOR PPL ELECTRIC UTILITIES CORPORATION'S 10-Q FOR THE QUARTER ENDED JUNE 30, 2004

In connection with the quarterly report on Form 10-Q of PPL Electric Utilities Corporation (the "Company") for the quarter ended June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Covered Report"), I, the principal financial officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that:

• The Covered Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

• The information contained in the Covered Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 6, 2004 /s/ James E. Abel                                     
James E. Abel
Treasurer
PPL Electric Utilities Corporation

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-3.(I)

Exhibit 3

Bylaws of
PPL Electric Utilities Corporation

7/16/04

Table of Contents

Section		Page
ARTICLE I:   Offices and Fiscal Year
Section 1.01.	Registered Office	1
Section 1.02.	Fiscal Year	1
Section 1.03.	Corporate Seal	1
ARTICLE II:   Meetings of Shareholders
Section 2.01.	Place of Meeting	1
Section 2.02.	Annual Meeting	1
Section 2.03.	Special Meetings	1
Section 2.04.	Notice of Meetings	1
Section 2.05.	Quorum, Manner of Acting, and Adjournment	2
Section 2.06.	Organization	2
Section 2.07.	Voting and Proxies	2
Section 2.08.	Voting Lists	3
Section 2.09.	Judges of Election	3
Section 2.10.	Determination of Shareholders of Record	4
ARTICLE III:   Board of Directors
Section 3.01.	Authority, Number and Qualifications	4
Section 3.01.1.	Term of Office	4
Section 3.02.	Organization	4
Section 3.03.	Resignations	4
Section 3.04.	Vacancies	4
Section 3.05.	Removal by Shareholders	5
Section 3.06.	Place of Meeting	5
Section 3.07.	Organization Meeting	5
Section 3.08.	Regular Meetings	5
Section 3.09.	Special Meetings	5
Section 3.10.	Quorum, Manner of Acting, and Adjournment	5
Section 3.11.	Executive and Other Committees	6
Section 3.12.	Compensation	6
Section 3.13.	Nominations for Election of Directors and Proposed Business to be Transacted	6
ARTICLE IV:   Notice-Waivers-Meetings
Section 4.01.	Manner of Giving Notice	8
Section 4.02.	Waivers of Notice	9
Section 4.03.	Conference Telephone Meetings	9
ARTICLE V:   Officers
Section 5.01.	Number, Qualifications and Designation	9
Section 5.02.	Election and Term of Office	9
Section 5.03.	Resignations	10
Section 5.04.	Removal	10
Section 5.05.	Vacancies	10
Section 5.06.	General Powers	10
Section 5.07.	Compensation	10
Section 5.08.	Standard of Care	10

Table of Contents

Section			Page
ARTICLE VI:  Certificates of Stock, Transfer, Etc.
Section 6.01.	Issuance	10
Section 6.02.	Transfer	10
Section 6.03.	Share Certificates	10
Section 6.04.	Lost, Stolen, Mutilated or Destroyed Certificates	11
ARTICLE VII:  Indemnification of Directors, Officers, Etc.
Section 7.01.	Personal Liability of Directors	11
Section 7.02.	Indemnification of Directors and Officers	11
Section 7.03.	Indemnification of Persons Not Indemnified Under Section 7.02	12
ARTICLE VIII:   Amendments
Section 8.01.	Amendment of Bylaws	14
ARTICLE IX:  Separateness
Section 9.01.	Business Activities	14
Section 9.02.	Separateness Provisions	14
Section 9.03.	Director Actions	16
Section 9.04.	Definitions	16
Section 9.05.	Amendment of Certain Provisions	16

BYLAWS
OF
PPL ELECTRIC UTILITIES CORPORATION
(a Pennsylvania Corporation)

ARTICLE I

Offices and Fiscal Year

Section 1.01.    Registered Office.    The registered office of the corporation in the Commonwealth of Pennsylvania shall be at Two North Ninth Street, Allentown, Pennsylvania 18101.

Section 1.02.    Fiscal Year.    The fiscal year of the corporation shall begin on the first day of January in each year.

Section 1.03.    Corporate Seal.    The corporation shall have a corporate seal in the form of a circle containing the name of the corporation, the year of incorporation and such other details, if any, as approved by the board of directors.

ARTICLE II

Meetings of Shareholders

Section 2.01.    Place of Meeting.    All meetings of the shareholders of the corporation shall be held at the registered office of the corporation unless another place is designated by the board of directors in the notice of such meeting.

Section 2.02.    Annual Meeting.    The board of directors may fix the date and time of the annual meeting of the shareholders, but if no such date and time is fixed by the board the meeting for any calendar year shall be held on the fourth Wednesday in April in such year, at 2 o'clock P.M., and at said meeting the shareholders then entitled to vote shall elect directors and shall transact such other business as may properly be brought before the meeting.

Section 2.03.    Special Meetings.    Special meetings of the shareholders of the corporation for any purpose or purposes may be called at any time by the Chairman of the Board, if there be one, or, in the case of a vacancy in the office, the President; or by the board of directors.

Section 2.04.    Notice of Meetings.    Written notice of every meeting of the shareholders, whether annual or special, shall be given to each shareholder of record entitled to vote at the meeting, at least five days prior to the day named for the meeting; provided, however, that at least ten days written notice prior to the day of the meeting shall be given in the case of any annual or special meeting at which there is to be considered any amendment to the Articles of Incorporation of the corporation, the sale of all or substantially all of its assets, or its merger with or consolidation into any other corporation. Such notice shall specify the place, day and hour of the meeting and, in the case of a special meeting of shareholders, the general nature of the business to be transacted.

Section 2.05.    Quorum, Manner of Acting, and Adjournment.

(a) Quorum.    The presence in person or by proxy of shareholders entitled to cast a majority of the votes which all shareholders are entitled to cast on the particular matter shall constitute a quorum for the purposes of consideration and action on the matter. Shares of the corporation owned, directly or indirectly, by it and controlled, directly or indirectly, by the board of directors, as such, shall not be counted in determining the total number of outstanding shares for quorum purposes at any given time. The shareholders present at a duly organized meeting can continue to do business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum.

(b) Adjournments.    Any regular or special meeting of the shareholders, including one at which directors are to be elected and one which cannot be organized because a quorum has not attended, may be adjourned for such period and to such place as the shareholders present and entitled to vote shall direct.

Except as otherwise provided in the Articles of Incorporation, those shareholders entitled to vote who attend a meeting called for the election of directors that has been previously adjourned for lack of a quorum, although less than a quorum as fixed in this section, shall nevertheless constitute a quorum for the purpose of electing directors. Also, except as otherwise provided in the Articles of Incorporation, those shareholders entitled to vote who attend a meeting of shareholders that has been previously adjourned for one or more periods aggregating at least 15 days because of an absence of a quorum, although less than a quorum, shall nevertheless constitute a quorum for the purpose of acting upon any matter set forth in the notice of the meeting if the notice states that those shareholders who attend the adjourned meeting shall nevertheless constitute a quorum for the purpose of acting upon the matter.

(c) Action by Shareholders.    Except as otherwise provided in the Articles of Incorporation, a section of these bylaws adopted by the shareholders or the Business Corporation Law, whenever any corporate action is to be taken by vote of the shareholders, it shall be authorized upon receiving the affirmative vote of a majority of the votes cast by all shareholders entitled to vote thereon and, if any shareholders are entitled to vote thereon as a class, upon receiving the affirmative vote of a majority of the votes cast by the shareholders entitled to vote as a class.

Section 2.06.    Organization.    At every meeting of the shareholders, the Chairman of the Board, or, in the case of vacancy in the office or absence of the Chairman of the Board, one of the following directors or officers: a director designated by the Chairman, the president, an executive vice president, a senior vice president, any vice president, or a Chairman chosen by the shareholders entitled to cast a majority of the votes which all shareholders present in person or by proxy are entitled to cast, shall act as Chairman; and the secretary or a person appointed by the Chairman shall act as secretary.

Section 2.07    Voting and Proxies.    Except as otherwise provided by statute or in the Articles of Incorporation, every shareholder of record shall have the right to one vote for every share standing in his name on the books of the corporation.

In all elections for directors, every shareholder entitled to vote shall have the right to multiply the number of votes to which he may be entitled by the total number of directors to be elected in the same election by the holders of the class of shares of which his shares are a part, and he may cast the whole number of such votes for one candidate or he may distribute them among any two or more candidates. The candidates receiving the highest number of votes from each class or group of classes entitled to elect directors separately up to the number of directors to be elected in the same election by such class or group of classes shall be elected.

Every shareholder entitled to vote at a meeting of shareholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy. Every proxy shall be executed in writing by the shareholder or by his duly authorized attorney in fact and filed with the secretary of the corporation. A proxy, unless coupled with an interest, shall be revocable at will, notwithstanding any other agreement or any provision in the proxy to the contrary, but the revocation of a proxy shall not be effective until notice thereof has been given to the secretary of the corporation. No unrevoked proxy shall be valid after eleven months from the date of its execution, unless a longer time is expressly provided therein, but in no event shall any proxy, unless coupled with an interest, be voted on after three years from the date of its execution. A proxy shall not be revoked by the death or incapacity of the maker unless, before the vote is counted or the authority is exercised, written notice of such death or incapacity is given to the secretary of the corporation. A proxy coupled with an interest shall include an unrevoked proxy in favor of a creditor of a shareholder and such a proxy shall be valid as long as the debt owed by him to the creditor remains unpaid.

Section 2.08.    Voting Lists.    The officer or agent of the corporation having charge of the transfer books for shares of the corporation shall make a complete list of the shareholders entitled to vote at any meeting of shareholders, arranged in alphabetical order, with the address of and the number of shares held by each. The list shall be produced and kept open at the time and place of the meeting, and shall be subject to the inspection of any shareholder during the whole time of the meeting for the purposes thereof. In lieu of the making of such list, the corporation may make the information therein available at the meeting by any other means. The original share register or transfer book or a duplicate thereof, kept in Pennsylvania, shall be prima facie evidence as to who are the shareholders entitled to examine such list or share register or transfer book, or to vote, in person or by proxy, at any meeting of shareholders.

Section 2.09.    Judges of Election.    In advance of any meeting of shareholders, the board of directors may appoint one or three judges of election, who need not be shareholders. If judges of election be not so appointed, the chairman of the meeting may, and on the request of any shareholder or his proxy shall, appoint judges of election at the meeting. The judges of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies, receive votes or ballots, hear and determine all challenges and questions in any way arising in connection with nominations by shareholders or the right to vote, count and tabulate all votes, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. If there are three judges of election, the decision, act or certificate of a majority shall be effective in all respects as the decision, act or certificate of all.

On request of the chairman of the meeting or of any shareholder, the judges shall make a report in writing of any challenge or question or matter determined by them, and execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts stated therein.

Section 2.10.    Determination of Shareholders of Record.    The board of directors may fix a date as a record date for the determination of the shareholders entitled to notice of, or to vote at, any meeting of shareholders, which date, except in the case of an adjourned meeting, shall be not more than 90 days prior to the date of the meeting. Only shareholders of record on the date so fixed, and no others, shall be entitled to notice of, or to vote at, such meeting, notwithstanding any transfer of any shares on the books of the corporation after any such record date so fixed. When a determination of shareholders of record has been made for purposes of a meeting, the determination shall apply to any adjournment thereof unless the board of directors fixes a new record date for the adjourned meeting. The board of directors may similarly fix a record date for the determination of shareholders of record for any other purpose. If a record date is not fixed by the board of directors, the record date shall be as determined in the Business Corporation Law.

ARTICLE III

Board of Directors

Section 3.01.    Authority, Number and Qualifications.    The business and affairs of the corporation shall be managed under the direction of a board of directors. The board of directors shall consist of not less than six and not more than twenty directors, as shall be fixed from time to time by resolution of the board of directors. All directors of the corporation shall be natural persons of full age, but need not be residents of Pennsylvania. A director may also be an officer or employee of the corporation.

Section 3.01.1    Term of Office.    Each director shall hold office until the expiration of the term for which he or she was selected and until a successor shall have been elected and qualified or until his or her earlier death, resignation or removal.

Section 3.02.    Organization.    At every meeting of the Board of Directors, the Chairman of the Board, if there be one, or, in the case of a vacancy in the office or absence of the Chairman of the Board, the Vice Chairman, or a Chairman chosen by a majority of the directors present, shall preside, and the secretary, or any person appointed by the Chairman of the meeting, shall act as secretary.

Section 3.03.    Resignations.    Any director of the corporation may resign at any time by giving written notice to the Chairman of the Board, if there be one, or the President, or the secretary of the corporation. Such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 3.04.    Vacancies.    The board of directors may declare vacant the office of a director if he be declared of unsound mind by an order of court, or convicted of felony, or for any other proper cause.

Except as otherwise provided in the Articles of Incorporation, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the board of directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled solely by the majority vote of the directors then in office, although less than a quorum. Each director so chosen shall hold office until the next election of the class for which such director has been chosen, and until his or her successor has been selected and qualified or until his or her earlier death, resignation or removal.

If one or more directors shall resign from the board effective as of a future date, the directors then in office, including those who have so resigned, shall have power by the applicable vote to fill the vacancies, the vote thereon to take effect when the resignations become effective.

Section 3.05.    Removal by Shareholders.    Any director may be removed from office by vote of shareholders only upon the affirmative vote of the shareholders entitled to cast at least two-thirds of the votes which all shareholders would be entitled to cast at any annual election of directors and upon any additional vote of shareholders that may be required by law. No director elected by holders of the 4-1/2% Preferred Stock and the Series Preferred Stock of the Corporation or by the holders of the Preference Stock of the Corporation pursuant to the provisions of Article VI of the Articles of Incorporation may be removed pursuant to this Section 3.05.

Section 3.06.    Place of Meeting.    The board of directors may hold its meetings at such place or places within Pennsylvania, or elsewhere, as the board of directors may from time to time appoint, or as may be designated in the notice calling the meeting.

Section 3.07.    Organization Meeting.    Immediately after each annual election of directors or other meeting at which the entire board of directors is elected, the newly elected board of directors shall meet for the purpose of organization, election of officers, and the transaction of other business, at the place where said election of directors was held. Notice of such meeting need not be given. Such organization meeting may be held at any other time or place which shall be specified in a notice given as hereinafter provided for special meetings of the board of directors.

Section 3.08.    Regular Meetings.    Regular meetings of the board of directors shall be held at such time as shall be designated from time to time by the board of directors. At such meetings, the directors shall transact such business as may properly be brought before the meeting. Notice need not be given of regular meetings held at the registered office of the corporation. If held elsewhere, the notice requirements of Section 3.06 shall apply.

Section 3.09.    Special Meetings.    Special meetings of the board of directors shall be held whenever called by two or more of the directors or by the Chairman of the Board, if there be one, or, in the case of vacancy in the office or absence of the Chairman of the Board, the president. Notice of every special meeting of the board of directors shall be given to each director by telephone or in writing at least 24 hours (in the case of notice by telephone, telex, TWX or facsimile transmission) or 48 hours (in the case of notice by telegraph, courier service or express mail) or five days (in the case of notice by United States mail) before the time at which the meeting is to be held. Every such notice shall state the time and place of the meeting. Neither the business to be transacted at nor the purpose of any special meeting need be specified in a notice of the meeting.

Section 3.10.    Quorum, Manner of Acting, and Adjournment.    A majority of the directors in office shall be present at each meeting in order to constitute a quorum for the transaction of business. Except as otherwise provided in the Articles of Incorporation or by statute, the acts of a majority of the directors present at a meeting at which a quorum is present shall be the acts of the board of directors. In the absence of a quorum, a majority of the directors present may adjourn the meeting from time to time until a quorum be present, provided that the notice, if any, required by Sections 3.08 or 3.09 of this Article has been given. The directors shall act only as a board and the individual directors shall have no power as such, provided, however, that any action which may be taken at a meeting of the board may be taken without a meeting if a consent or consents in writing setting forth the action so taken shall be signed by all of the directors and shall be filed with the secretary of the corporation.

Section 3.11.    Executive and Other Committees.    The board of directors may, by resolution adopted by a majority of the directors in office, establish an Executive Committee and one or more other committees. Any committee, to the extent provided in such resolution, shall have and may exercise all of the powers and authority of the board of directors, except that no committee shall have any power or authority as to the following:

(1) The submission to shareholders of any action requiring approval of shareholders under the Business Corporation Law.

(2) The creation or filling of vacancies in the board of directors.

(3) The adoption, amendment or repeal of these bylaws.

(4) The amendment or repeal of any resolution of the board of directors that by its terms is amendable or repealable only by the board.

(5) Action on matters committed by a resolution of the board of directors to another committee of the board.

A majority of the directors in office designated to a committee shall be present at each meeting in order to constitute a quorum for the transaction of business. The acts of a majority of the committee members present at a meeting at which a quorum is present shall be the acts of the committee. Any action which may be taken at a meeting of a committee may be taken without a meeting if a consent or consents in writing setting forth the action so taken shall be signed by all of the committee members and shall be filed with the secretary of the corporation.

Each committee shall keep records of its proceedings.

Section 3.12.    Compensation.    The board of directors shall have the authority to fix the compensation of directors for their services as directors. A director may be a salaried officer of the corporation, but no employee shall receive a salary for serving as a director.

Section 3.13.    Nominations for Election of Directors and Proposed Business to be Transacted.

(a) Director Nominations.    Except as otherwise provided in or fixed by or pursuant to the provisions of Article VI of the Articles of Incorporation, nominations for the election of directors may be made by the board of directors or a committee appointed by the board of directors or by any shareholder entitled to vote in the election of directors generally. However, any shareholder entitled to vote in the election of directors generally may nominate one or more persons for election as directors at a meeting only if written notice (meeting the requirements hereinafter set forth) of such shareholder's intent to make such nomination or nominations has been given by the shareholder and received by the secretary of the corporation in the manner and within the time specified by this Subsection. The notice shall be delivered to the secretary of the corporation not later than (i) with respect to an election to be held at an annual meeting of shareholders, 75 days in advance of the date of such meeting; provided, however, that in the event that less than 85 days' notice or prior public disclosure of the date of the annual meeting is given, notice from the shareholders to be timely must be received not later than the tenth day following the date on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever first occurs, and (ii) with respect to an election to be held at a special meeting of shareholders for the election of directors, the close of business on the earlier of (A) the seventh day following the date on which notice of such meeting is first given to shareholders or (B) the fourth day prior to the meeting. In lieu of delivery to the secretary, the notice may be mailed to the secretary by certified mail, return receipt requested, but shall be deemed to have been given only upon actual receipt by the secretary. Each such notice shall set forth: (a) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the shareholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (d) such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had proxies been solicited with respect to such nominee by the management or board of directors of the corporation; and (e) the consent of each nominee to serve as a director of the corporation if so elected. If a judge or judges of election shall not have been appointed pursuant to these bylaws, the presiding officer of the meeting may, if the facts warrant, determine and declare to the meeting that any nomination made at the meeting was not made in accordance with the procedures of this Subsection and, in such event, the nomination shall be disregarded. Any decision by the presiding officer of the meeting made in good faith shall be conclusive and binding upon all shareholders of the corporation for any purpose.

(b) Proposed Business to be Transacted.    Except as otherwise provided in Section 3.13(a) of these bylaws, at any annual meeting or special meeting of shareholders, only such business as is properly brought before the meeting in accordance with this Subsection may be transacted. To be properly brought before any meeting, any proposed business that is to be brought pursuant to this Subsection must be either (i) specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the board of directors, (ii) otherwise properly brought before the meeting by or at the direction of the board of directors, or (iii) in the case of an annual meeting of shareholders, otherwise properly brought before the meeting by a shareholder (x) who is a shareholder of record on the date of giving notice provided for in these bylaws and on the record date for the determination of shareholders entitled to vote at such annual meeting, and (y) who complies with the notice provisions set forth in this Subsection. For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a shareholder's notice must be delivered to the secretary of the corporation not later than 75 days in advance of the date of such meeting; provided, however, that in the event that less than 85 days' notice or prior public disclosure of the date of the annual meeting is given, notice from the shareholders to be timely must be received not later than the tenth day following the date on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever first occurs. In lieu of delivery to the secretary, the notice may be mailed to the secretary by certified mail, return receipt requested, but shall be deemed to have been given only upon actual receipt by the secretary. A shareholder's notice to the secretary of the corporation, as required by this Subsection, shall set forth as to each matter the shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the shareholder proposing such business, (iii) the class, series and number of shares of the corporation's stock which are beneficially owned by the shareholder, (iv) a description of all arrangements or understandings between such shareholder and any other person or persons (including their names) in connection with the proposal of such business by such shareholder in such business, (v) all other information which would be required to be included in a proxy statement or other filing required to be filed with the Securities and Exchange Commission if, with respect to any such item of business, such shareholder were a participant in a solicitation subject to Regulation 14A under the Securities Exchange Act of 1934, as amended, and (vi) a representation that such shareholder intends to appear in person or by proxy at the annual meeting of shareholders to bring such business before the meeting. Except as provided in Section 3.13(a) of these bylaws, notwithstanding anything in the bylaws to the contrary, no business shall be conducted at any meeting of shareholders except in accordance with the procedures set forth in this Subsection, provided, however, that nothing in this Subsection shall be deemed to preclude discussion by any shareholders of any business properly brought before any such meeting. The presiding officer of a meeting may, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Subsection, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Any decision by the presiding officer of the meeting made in good faith shall be conclusive and binding upon all shareholders of the corporation for any purpose.

ARTICLE IV

Notice-Waivers-Meetings

Section 4.01    Manner of Giving Notice.

(a) General Rule.    Whenever written notice is required to be given to any person under the provisions of the Articles of Incorporation, these bylaws, or the Business Corporation Law, it may be given to the person, either personally or by sending a copy thereof by first-class or express mail, postage prepaid, or by telegram (with messenger service specified), telex or TWX (with answerback received) or courier service, charges prepaid, or by facsimile transmission, to the address (or to the telex, TWX or facsimile transmission telephone number) of the person appearing on the books of the corporation or, in the case of directors, supplied by the director to the corporation for the purpose of notice. Notice of any regular or special meeting of the shareholders (or any other notice required by the Articles of Incorporation, these bylaws, or the Business Corporation Law to be given to all shareholders or to all holders of a class or series of shares) may be given by any class of mail, postage prepaid, if the notice is deposited in the United States mail at least 20 days prior to the day named for the meeting or any corporate or shareholder action specified in the notice.

If the notice is sent by mail, telegraph or courier service, it shall be deemed to have been given to the person entitled thereto when deposited in the United States mail or with a telegraph office or courier service for delivery to that person or, in the case of telex or TWX, when dispatched or, in the case of facsimile transmission, when received. A notice of meeting shall specify the place, day and hour of the meeting and any other information required by any other provision of the Articles of Incorporation, these bylaws, or the Business Corporation Law.

(b) Adjourned Shareholder Meetings.    When a meeting of shareholders is adjourned, it shall not be necessary to give any notice of the adjourned meeting or of the business to be transacted at an adjourned meeting, other than by announcement at the meeting at which the adjournment is taken, unless the board fixes a new record date for the adjourned meeting or the Business Corporation Law requires notice of the business to be transacted and such notice has not previously been given.

Section 4.02.    Waivers of Notice.    Whenever any written notice is required to be given under the provisions of the Articles of Incorporation, these bylaws, or the Business Corporation Law, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Except in the case of a special meeting of shareholders, neither the business to be transacted at, nor the purpose of, the meeting need be specified in the waiver of notice of such meeting.

Attendance of a person, either in person or by proxy, at any meeting, shall constitute a waiver of notice of such meeting, except where a person attends a meeting for the express purpose of objecting to the transaction of any business because the meeting was not lawfully called or convened.

Section 4.03.    Conference Telephone Meetings.    One or more directors may participate in a meeting of the board, or of a committee of the board, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at such meeting.

ARTICLE V

Officers

Section 5.01.    Number, Qualifications and Designation.    The officers of the corporation shall be a president, a secretary, a treasurer, one or more vice presidents (including executive vice presidents and senior vice presidents) and such other officers as the business of the corporation may require, including one or more assistant officers. In addition, the board of directors may elect from among its number a Chairman of the Board who, if so elected, may be chief executive officer of the corporation. One person may hold more than one office. Officers may but need not be directors or shareholders of the corporation.

Section 5.02.    Election and Term of Office.    The officers of the corporation shall be elected by the board of directors, and each such officer shall hold his office until the next annual organization meeting of the directors (which is held immediately following the annual meeting of shareholders), or until his death, resignation, or removal.

Section 5.03.    Resignations.    Any officer may resign at any time by giving written notice to the board of directors, or to the Chairman of the Board, if there be one, or the President, or the secretary of the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 5.04.    Removal. Any officer may be removed, either for or without cause, by the board of directors whenever in the judgment of the board of directors the best interests of the corporation will be served thereby.

Section 5.05.    Vacancies. A vacancy in any office because of death, resignation, removal, disqualification, or any other cause, may be filled by the board of directors.

Section 5.06.    General Powers.    All officers of the corporation as between themselves and the corporation, shall, respectively have such authority and perform such duties in the management of the property and affairs of the corporation as may be determined by resolution of the board of directors.

Section 5.07.    Compensation.    The salaries or other compensation of the officers elected by the board of directors shall be fixed from time to time by the board of directors or in such manner as the board of directors shall from time to time provide.

Section 5.08.    Standard of Care.    In lieu of the standards of conduct otherwise provided by law, officers of the corporation shall be subject to the same standards of conduct, including standards of care and loyalty and rights of justifiable reliance, as shall at the time be applicable to directors of the corporation.

ARTICLE VI

Certificates of Stock, Transfer, Etc.

Section 6.01.    Issuance.    The share certificates of the corporation shall be numbered and registered in the share register and transfer books of the corporation as they are issued. They shall be signed, by facsimile or otherwise, by the Chairman of the Board, if there be one, or the president or a vice president and by the secretary or an assistant secretary or the treasurer or an assistant treasurer, and shall bear the corporate seal, which may be a facsimile, engraved or printed. In case any officer, transfer agent or registrar who has signed or authenticated, or whose facsimile signature or authentication has been placed upon any share certificate shall have ceased to be such officer, transfer agent or registrar because of death, resignation or otherwise, before the certificate is issued, the certificate may be issued with the same effect as if the officer, transfer agent or registrar had not ceased to be such at the date of its issue.

Section 6.02.    Transfer.    Transfers of shares shall be made on the books of the corporation upon surrender of the certificates therefor, endorsed by the person named in the certificate or by an attorney lawfully constituted in writing.

Section 6.03.    Share Certificates.    Certificates for shares of the corporation shall be in such form as provided by statute and approved by the board of directors.

Section 6.04.    Lost, Stolen, Mutilated or Destroyed Certificates.    In the event of loss, theft, mutilation or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the board of directors may have established concerning proof of such loss, theft, mutilation or destruction and concerning the giving, if required by such regulations, of a satisfactory bond or bonds of indemnity.

ARTICLE VII

Indemnification of Directors, Officers, Etc.

Section 7.01.    Personal Liability of Directors.

(a) To the fullest extent that the laws of the Commonwealth of Pennsylvania, as now in effect or as hereafter amended, permit elimination or limitation of the liability of directors, no director of the Company shall be personally liable for monetary damages as such for any action taken, or any failure to take any action, as a director.

(b) Any amendment or repeal of this Section 7.01 which has the effect of increasing directors' liability shall operate prospectively only, and shall not affect any action taken, or any failure to act, prior to its adoption.

Section 7.02.    Indemnification of Directors and Officers.

(a) Right to Indemnification.    Except as prohibited by law, every director and officer of the Company shall be entitled as of right to be indemnified by the Company against reasonable expense and any liability paid or incurred by such person in connection with any actual or threatened claim, action, suit or proceeding, civil, criminal, administrative, investigative or other, whether brought by or in the right of the Company or otherwise, in which he or she may be involved, as a party or otherwise, by reason of such person being or having been a director or officer of the Company or by reason of the fact that such person is or was serving at the request of the Company as a director, officer, employee, fiduciary or other representative of another corporation, partnership, joint venture, trust, employee benefit plan or other entity (such claim, action, suit or proceeding hereinafter being referred to as "action"). Such indemnification shall include the right to have expenses incurred by such person in connection with an action paid in advance by the Company prior to final disposition of such action, subject to such conditions as may be prescribed by law. Persons who are not directors or officers of the Company may be similarly indemnified in respect of service to the Company or to another such entity at the request of the Company to the extent the Board of Directors at any time denominates such person as entitled to the benefits of this Section 7.02. As used herein, "expense" shall include fees and expenses of counsel selected by such person; and "liability" shall include amounts of judgments, excise taxes, fines and penalties, and amounts paid in settlement.

(b) Right of Claimant to Bring Suit.    If a claim under paragraph (a) of this Section 7.02 is not paid in full by the Company within thirty days after a written claim has been received by the Company, the claimant may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim, and, if successful in whole or in part, the claimant shall also be entitled to be paid the expense of prosecuting such claim. It shall be a defense to any such action that the conduct of the claimant was such that under Pennsylvania law the Company would be prohibited from indemnifying the claimant for the amount claimed, but the burden of proving such defense shall be on the Company. Neither the failure of the Company (including its Board of Directors, independent legal counsel and its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because the conduct of the claimant was not such that indemnification would be prohibited by law, nor an actual determination by the Company (including its Board of Directors, independent legal counsel or its shareholders) that the conduct of the claimant was such that indemnification would be prohibited by law, shall be a defense to the action or create a presumption that the conduct of the claimant was such that indemnification would be prohibited by law.

(c) Insurance and Funding.    The Company may purchase and maintain insurance to protect itself and any person eligible to be indemnified hereunder against any liability or expense asserted or incurred by such person in connection with any action, whether or not the Company would have the power to indemnify such person against such liability or expense by law or under the provisions of this Section 7.02. The Company may create a trust fund, grant a security interest, cause a letter of credit to be issued or use other means (whether or not similar to the foregoing) to ensure the payment of such sums as may become necessary to effect indemnification as provided herein.

(d) Non-Exclusivity; Nature and Extent of Rights.    The right of indemnification provided for herein (l) shall not be deemed exclusive of any other rights, whether now existing or hereafter created, to which those seeking indemnification hereunder may be entitled under any agreement, bylaw or charter provision, vote of shareholders or directors or otherwise, (2) shall be deemed to create contractual rights in favor of persons entitled to indemnification hereunder, (3) shall continue as to persons who have ceased to have the status pursuant to which they were entitled or were denominated as entitled to indemnification hereunder and shall inure to the benefit of the heirs and legal representatives of persons entitled to indemnification hereunder and (4) shall be applicable to actions, suits or proceedings commenced after the adoption hereof, whether arising from acts or omissions occurring before or after the adoption hereof. The right of indemnification provided for herein may not be amended, modified or repealed so as to limit in any way the indemnification provided for herein with respect to any acts or omissions occurring prior to the effective date of any such amendment, modification or repeal.

Section 7.03.    Indemnification of Persons Not Indemnified Under Section 7.02.

(a) Scope.    The provisions of this Section 7.03 are applicable only to employees and other authorized representatives of the corporation who are not entitled to the benefits of Section 7.02 pursuant to either the terms of Section 7.02 or a resolution of the Board of Directors of this corporation.

(b) Employees; Third Party Actions.    The corporation shall indemnify any employee of the corporation who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was an authorized representative of the corporation (which, for the purposes of this Section 7.03, shall mean an employee or agent of the corporation, or a person who is or was serving at the request of the corporation as a director, officer, employee, fiduciary or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which that person reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.

(c) Employees; Derivative Actions.    The corporation shall indemnify any employee of the corporation who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was an authorized representative of the corporation, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the corporation unless and only to the extent that the court of common pleas of the county in which the registered office of the corporation is located or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court of common pleas or such other court shall deem proper.

(d) Other Authorized Representatives.    To the extent that an authorized representative of the corporation who is not an employee of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (b) and (c) of this Section 7.03 or in defense of any claim, issue or matter therein, such person shall be indemnified by the corporation against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. Such an authorized representative may, at the discretion of the corporation, be indemnified by the corporation in any other circumstances and to any extent if the corporation would be required by subsections (b) and (c) of this Section 7.03 to indemnify such person in such circumstances and to such extent if such person were or had been an employee of the corporation.

(e) Procedure for Effecting Indemnification.    Indemnification under subsections (b), (c) or (d) of this Section 7.03 shall be made when ordered by a court (in which case the expenses, including attorneys' fees, of the authorized representative in enforcing such right of indemnification shall be added to and be included in the final judgment against the corporation) or shall be made upon a determination that indemnification of the authorized representative is required or proper in the circumstances because such person has met the applicable standard of conduct set forth in subsections (b) and (c) of this Section 7.03. Such determination shall be made:

    (1) By the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or

    (2) If such a quorum is not obtainable, or, even if obtainable, a majority vote of a quorum of disinterested directors so direct, by independent legal counsel in a written opinion, or

    (3) By the shareholders.

(f) Advancing Expenses.    Expenses (including attorneys' fees) incurred in defending a civil or criminal action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding, upon receipt of an undertaking by or on behalf of an employee to repay such amount unless it shall ultimately be determined that such person is entitled to be indemnified by the corporation as required in this Section 7.03 or as authorized by law and may be paid by the corporation in advance on behalf of any other authorized representative when authorized by the board of directors upon receipt of a similar undertaking.

(g) Non-Exclusivity; Nature and Extent of Rights.    Each person who shall act as an authorized representative of the corporation and who is not entitled to the benefits of Section 7.02, shall be deemed to be doing so in reliance upon such rights of indemnification as are provided in this Section 7.03.

The indemnification provided by this Section 7.03 shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any agreement, vote of shareholders or disinterested directors, statute or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office or position, and shall continue as to a person who has ceased to be an authorized representative of the corporation and shall inure to the benefit of the heirs, executors and administrators of such a person.

ARTICLE VIII

Amendments

Section 8.01.    Amendment of Bylaws.    The directors may make, amend, alter or repeal these bylaws by a vote of the majority of the members of the board of directors at any regular or special meeting duly convened after notice of that purpose; subject, however, to the power of the shareholders to make, amend, and repeal these bylaws at any annual or special meeting duly convened after notice of that purpose.

ARTICLE IX

Separateness

Section 9.01.    Business Activities.    The corporation shall engage, whether directly or indirectly through subsidiaries only in (i) the electric transmission and distribution businesses and (ii) those business activities that are related to or arise out of its electric transmission and distribution businesses, except to the extent mandated by, or necessary to comply with obligations imposed by, applicable law or regulation.

Section 9.02.    Separateness Provisions.    (a) The funds and other assets of the corporation shall not be commingled with those of any other entity, and the corporation shall maintain its accounts separate from PPL Corporation, any other Affiliate of PPL Corporation and any other Person.

(b) The corporation shall not hold itself out as being liable for the debts of PPL Corporation, any other Affiliate of PPL Corporation or any other Person, and shall conduct its own business in its own name.

(c) The corporation shall act solely in its corporate name and through its duly authorized officers or agents in the conduct of its business, shall conduct its business so as not to mislead others as to the identity of the entity or assets with which they are concerned and shall otherwise hold itself out as a separate entity. The corporation shall correct any known misunderstanding regarding its separate identity.

(d) The corporation shall maintain separate records, books of account and financial statements, and shall not commingle its records and books of account with the records and books of account of PPL Corporation, any other Affiliate of PPL Corporation or any other Person.

(e) Whenever approval of the board of directors is required by the Articles of Incorporation or these bylaws or the Business Corporation Law of the Commonwealth of Pennsylvania for any corporate action of the corporation, such approval shall be obtained. The corporation shall observe all formalities required by the Articles of Incorporation and these bylaws and the Business Corporation Law.

(f) The corporation shall at all times ensure that its capitalization is adequate in light of its business and purpose.

(g) The corporation shall not guarantee or become obligated for the debts of PPL Corporation or any of PPL Corporations's other Affiliates or make its credit available to satisfy the obligations of, or pledge its assets for the benefit of, PPL Corporation or any of PPL Corporation's other Affiliates, with the exception of (i) any guarantee of the debts of an Affiliate of the corporation in effect as of the effective date of the corporation's Plan of Division or (ii) any guarantee of the debts of any direct or indirect subsidiary of the corporation.

(h) The corporation shall pay its own liabilities out of its own funds.

(i) The corporation shall maintain an arm's-length relationship with PPL Corporation and each other Affiliate of PPL Corporation.

(j) The corporation shall allocate fairly and reasonably any overhead for office space shared with PPL Corporation or any other Affiliate of PPL Corporation.

(k) The corporation shall use its own separate stationery, invoices, checks and other business forms.

(l) Until one year and one day after all of the securities outstanding under the corporation's Indenture dated as of August 1, 2001, to the Chase Manhattan Bank as Trustee, have been paid in full, the officers and directors shall make all decisions with respect to the business and daily operations of the corporation independent of, and not dictated by, PPL Corporation or any other Affiliate of PPL Corporation, in accordance with applicable law.

Nothing in this Section 9.02 shall be construed to mean that the corporation may not commingle its funds with the funds of any special purpose subsidiary of the corporation in connection with the corporation acting as servicer or administrator for such subsidiary; that the corporation may not be treated as being the obligor on indebtedness of any special purpose subsidiary of the corporation for tax or financial accounting or reporting purposes; or that the assets and liabilities of the corporation may not be consolidated with its subsidiaries and/or with PPL Corporation and the other Affiliates of PPL Corporation for tax or financial accounting or reporting purposes.

Failure of the corporation or any director or officer on behalf of the corporation to comply with any of the foregoing restrictions shall not affect the status of the corporation as a separate legal entity.

Section 9.03.    Director Actions.    Without limiting the generality of Section 9.02, the corporation shall be operated in such a manner as the directors deem reasonable and necessary or appropriate to preserve the separateness of the corporation from the business of PPL Corporation, as the holder of the common stock of the corporation, or any other Affiliate thereof.

Section 9.04.    Definitions.    Capitalized terms used in this Article IX and not defined in these Bylaws shall have the meanings specified in the Articles of Incorporation.

Section 9.05.    Amendment of Certain Provisions.    The provisions of this Article IX may be not amended, repealed or replaced without the prior unanimous approval of the directors, including the Independent Director.

EX-10

Exhibit 10(a)

ASSET PURCHASE AGREEMENT

by and between

PPL SUNDANCE ENERGY, LLC
as Seller

and

ARIZONA PUBLIC SERVICE COMPANY
as Purchaser

dated as of June 1, 2004

TABLE OF CONTENTS

ARTICLE I	DEFINITIONS; CONSTRUCTION	1
Section 1.1	Definitions	1
Section 1.2	Construction	1
ARTICLE II	PURCHASE AND SALE	2
Section 2.1	Purchase and Sale	2
Section 2.2	Excluded Assets	3
Section 2.3	Assumed Liabilities	3
Section 2.4	Excluded Liabilities	4
ARTICLE III	PURCHASE PRICE; CLOSING	5
Section 3.1	Purchase Price	5
Section 3.2	Proration	5
Section 3.3	Closing	7
Section 3.4	Closing Deliveries by Seller to Purchaser	7
Section 3.5	Closing Deliveries by Purchaser to Seller	8
Section 3.6	Allocation of Purchase Price	9
Section 3.7	Minimum Inventory Amount Adjustment	10
Section 3.8	Adjustment Disputes	10
Section 3.9	Change in Name	11
ARTICLE IV	REPRESENTATIONS AND WARRANTIES OF SELLER	11
Section 4.1	Organization, Standing and Power	11
Section 4.2	Authority	12
Section 4.3	No Conflicts	12
Section 4.4	Business	13
Section 4.5	Subsidiaries	13
Section 4.6	Legal Proceedings	13
Section 4.7	Compliance with Laws and Orders	13
Section 4.8	Liabilities	14
Section 4.9	Absence of Certain Changes or Events	14
Section 4.10	Taxes	14
Section 4.11	Regulatory Status	14
Section 4.12	Contracts	15
Section 4.13	Real Property	17
Section 4.14	Personal Property	20
Section 4.15	Permits	21
Section 4.16	Environmental Matters	21
Section 4.17	Insurance	22
Section 4.18	Intellectual Property	22
Section 4.19	Related Persons	22
Section 4.20	Brokers	22
Section 4.21	Employees	23
Section 4.22	Employee Benefits	23
Section 4.23	Improvements	23
ARTICLE V	REPRESENTATIONS AND WARRANTIES OF PURCHASER	24
Section 5.1	Corporate Existence	24
Section 5.2	Authority	24
Section 5.3	No Conflicts	24
Section 5.4	Legal Proceedings	25
Section 5.5	Compliance with Laws and Orders	25
Section 5.6	Brokers	25
Section 5.7	Financial Resources	25
ARTICLE VI	COVENANTS	25
Section 6.1	Regulatory and Other Approvals	25
Section 6.2	Access of Purchaser	27
Section 6.3	Certain Restrictions	28
Section 6.4	Further Assurances	29
Section 6.5	Employee and Employee Benefit Matters	29
Section 6.6	Insurance	31
Section 6.7	Seller's Covenants and Closing Conditions	31
Section 6.8	Purchaser's Covenants and Closing Conditions	32
Section 6.9	Exclusivity	32
Section 6.10	Risk of Loss	32
Section 6.11	Current Evidence of Title	34
Section 6.12	Transition Plan	36
Section 6.13	Updating	37
Section 6.14	Records	38
Section 6.15	Synthetic Lease Transaction	39
ARTICLE VII	TAX MATTERS	40
Section 7.1	Proration	40
Section 7.2	Cooperation	40
Section 7.3	Transfer Taxes	41
ARTICLE VIII	PURCHASER'S CONDITIONS TO CLOSING	41
Section 8.1	Representations and Warranties	41
Section 8.2	Performance	41
Section 8.3	Deliveries	41
Section 8.4	Orders and Laws	41
Section 8.5	Consents and Approvals	42
Section 8.6	Seller Material Adverse Effect	42
Section 8.7	Approvals of Governmental Authorities	42
Section 8.8	Transferred Permits	43
Section 8.9	Title Insurance	43
Section 8.10	Environmental Diligence	43
Section 8.11	Legal Opinion	43
ARTICLE IX	SELLER'S CONDITIONS TO CLOSING	44
Section 9.1	Representations and Warranties	44
Section 9.2	Performance	45
Section 9.3	Deliveries	45
Section 9.4	Orders and Laws	45
Section 9.5	Consents and Approvals	45
Section 9.6	Purchaser Material Adverse Effect	45
Section 9.7	Approvals of Governmental Authorities	45
Section 9.8	Legal Opinion	45
ARTICLE X	TERMINATION	46
Section 10.1	Termination	46
Section 10.2	Effect of Termination	48
ARTICLE XI	INDEMNIFICATION, LIMITATIONS OF LIABILITY,
	WAIVERS AND ARBITRATION	48
Section 11.1	Indemnification	48
Section 11.2	Waiver of Remedies	51
Section 11.3	Survival and Time Limitation	52
Section 11.4	Waiver of Other Representations; Limitations of Liability	52
Section 11.5	Procedure for Indemnification - Third-Party Claims	53
Section 11.6	Arbitration	54
ARTICLE XII	MISCELLANEOUS	56
Section 12.1	Notices	56
Section 12.2	Entire Agreement	57
Section 12.3	Expenses	57
Section 12.4	Public Announcements	57
Section 12.5	Confidential Information	58
Section 12.6	Disclosure	59
Section 12.7	Waiver; Remedies Cumulative	60
Section 12.8	Amendment	60
Section 12.9	No Third Party Beneficiary	60
Section 12.10	Assignment; Binding Effect	60
Section 12.11	Headings	60
Section 12.12	Invalid Provisions	60
Section 12.13	Counterparts; Facsimile	60
Section 12.14	Governing Law; Venue; and Jurisdiction	61
Section 12.15	Attorneys' Fees	61
APPENDIX I	DEFINITIONS	1
EXHIBITS AND SCHEDULES EXCLUDED
EXHIBIT A	FORM OF ASSUMPTION OF CERTAIN LIABILITIES	1
EXHIBIT B	FORM OF AFFIDAVIT OF PROPERTY VALUE	1
EXHIBIT C	FORM OF SPECIAL WARRANTY DEED	1
EXHIBIT D	FORM OF BILL OF SALE AND ASSIGNMENT OF CONTRACT RIGHTS	1
EXHIBIT E	FORM OF CERTIFICATION OF NON-FOREIGN STATUS	1
EXHIBIT F	FORM OF GUARANTY AGREEMENT	1

ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (this "Agreement") dated as of June 1, 2004 (the "Agreement Date") is made and entered into by and between PPL Sundance Energy, LLC, a Delaware limited liability company ("Seller"), and Arizona Public Service Company, an Arizona corporation ("Purchaser").

RECITALS

Seller owns a generating plant in Pinal County, Arizona, having a nominal generating capacity of 450 megawatts.

Seller desires to sell and assign to Purchaser, and Purchaser desires to purchase and assume from Seller, the Purchased Assets and the Assumed Liabilities (each as hereinafter defined) on the terms and subject to the conditions set forth herein.

STATEMENT OF AGREEMENT

Now, therefore, in consideration of the premises and the mutual representations, warranties, covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

ARTICLE I

DEFINITIONS; CONSTRUCTION

1.1    Definitions. Capitalized terms used in this Agreement have the meanings given to them in Appendix I to this Agreement.

1.2    Construction.

(a)    In this Agreement, unless expressly provided otherwise:

        (i)     Unless otherwise specified, all article, section, subsection, schedule, exhibit and appendix references used in this Agreement are to articles, sections, subsections, schedules, exhibits and appendices to this Agreement. The exhibits, schedules and appendices attached to this Agreement constitute a part of this Agreement and are incorporated herein for all purposes.

        (ii)    If a term is defined as one part of speech (such as a noun), it shall have a corresponding meaning when used as another part of speech (such as a verb). Unless the context of this Agreement clearly requires otherwise the singular shall include the plural and the plural shall include the singular wherever and as often as may be appropriate, and words importing the masculine gender shall include the feminine and neutral genders and vice versa. The words "includes" or "including" shall mean "including without limitation," the words "hereof," "hereby," "herein," "hereunder" and similar terms in this Agreement shall refer to this Agreement as a whole and not any particular section or article in which such words appear and any reference to a Law shall include any amendment thereof or any consolidation, amendment, reenactment, extension, replacement or successor thereto and any rules and regulations promulgated thereunder. References to "or" shall be deemed to be disjunctive but not necessarily exclusive (i.e., unless the context dictates otherwise, "or" shall be interpreted to mean "and/or" rather than "either/or"). Currency amounts referenced herein, unless otherwise specified, are in U.S. Dollars.

        (iii)    A reference to (A) a day (other than a Business Day) is a reference to a calendar day, (B) a month is a reference to a calendar month and (C) a year is a reference to a calendar year. A reference to a time is a reference to the time in effect in Phoenix, Arizona on the relevant date. When a period of time is specified to run from or after a given day or the day of an act or event, it is to be calculated exclusive of such day; and where a period of time is specified as commencing on a given day or the day of an act or event, it is to be calculated inclusive of such day. Whenever this Agreement refers to a number of days, such number shall refer to calendar days unless Business Days are specified. Whenever any action must be taken hereunder on or by a day that is not a Business Day, then such action may be validly taken on or by the next day that is a Business Day. A reference to a day (other than a Business Da y) is a reference to a period of time commencing at midnight Phoenix time and ending the following midnight Phoenix time. A reference to a Business Day is a reference to a period of time commencing at 9:00 a.m. Phoenix time on a Business Day and ending at 5:00 p.m. Phoenix time on the same Business Day.

        (iv)    All accounting terms used herein and not expressly defined herein shall have the meanings given to them under GAAP.

(b)    Time is of the essence in this Agreement.

(c)    Each Party acknowledges that it and its attorneys have been given an equal opportunity to negotiate the terms and conditions of this Agreement and that any rule of construction to the effect that ambiguities are to be resolved against the drafting Party or any similar rule operating against the drafter of an agreement shall not be applicable to the construction or interpretation of this Agreement.

ARTICLE II

PURCHASE AND SALE

2.1    Purchase and Sale. On the terms and subject to the conditions set forth in this Agreement, at the Closing, Seller shall sell, assign, convey, transfer and deliver to Purchaser, and Purchaser shall purchase and acquire from Seller, free and clear of all Liens (except for Permitted Liens, including the Permitted Liens set forth on Schedule 2.1), all of Seller's right, title and interest in, to and under the real and personal property, tangible or intangible, constituting the Purchased Assets.

2.2    Excluded Assets. Notwithstanding any provision herein to the contrary, the Purchased Assets shall not include the following (collectively, the "Excluded Assets"):

(a)    except for Prepayments, any cash, cash equivalents, certificates of deposit, bank deposits, commercial paper, securities, rights to payment, accounts receivable, rights to refunds, credits, offsets, in-kind or exchange arrangements, income, sales, payroll or other tax receivables, and any similar rights arising from or relating to the ownership or operation of the Business or the Project with respect to any period of time prior to the Closing;

(b)    all claims, causes of action, rights of recovery, rights of set-off, rights to refunds and similar rights of any kind in favor of Seller or any other Person arising from or relating to the ownership or operation of the Business or the Project with respect to any period of time prior to the Closing, including any refund of Taxes paid prior to the Closing (including refunds of Taxes received after the Closing) and described in Section 2.2(d) below, except for (i) any of the foregoing that relate to Assumed Liabilities and (ii) the Warranty Rights;

(c)    any rights of Seller or any other Person in the names "PPL" and "PPL Sundance Energy" or any other trade names, trademarks, service marks or logos;

(d)    any refund, credit penalty payment, adjustment or reconciliation (i) related to real property taxes, personal property taxes or other Taxes paid prior to the Closing Date in respect of the Purchased Assets or relating to the Business or the Project, whether such refund, adjustment or reconciliation is received as a payment or as a credit against future Taxes payable, or (ii) arising under the Transferred Contracts and relating to any period before the Closing Date;

(e)    the rights under any insurance policy arising out of and relating to events or periods prior to the Closing or which is not related to the Business or the Project, except to the extent such policy insures for events or occurrences that are included in the Assumed Liabilities;

(f)    the contracts, leases and other agreements set forth on Schedule 2.2(f) and any other contracts, leases or other agreements of Seller or any other Person not used or useful in, or related primarily to or necessary for, the Business or the Project (the "Excluded Contracts");

(g)    all books and records of Seller or any other Person other than the Books and Records;

(h)    the rights and assets described in Schedule 2.2(h) as not part of the Purchased Assets (the "Excluded Items"); and

(i)    the rights of Seller under this Agreement and the Ancillary Agreements.

2.3    Assumed Liabilities. On the Closing Date, Purchaser shall execute and deliver in favor of Seller the Assumption Agreement, pursuant to which Purchaser shall assume and agree to pay, perform and discharge when due the following Liabilities of Seller, whether direct or indirect, known or unknown (except as otherwise provided in Section 11.1(c) of this Agreement with respect to Environmental Liabilities and Tort Liabilities), absolute or contingent, accrued, fixed or otherwise, or whether due or to become due, solely to the extent such Liabilities accrue or arise from and after the Closing (except as otherwise specifically provided in Section 11.1(c) of this Agreement with respect to Environmental Liabilities and Tort Liabilities), other than Excluded Liabilities (as defined below), in accordance with the respective terms and subject to the respective conditions thereof (collectively, but excluding the Excluded Liabilities, the " Assumed Liabilities"):

(a)    all Liabilities of Seller under the Transferred Contracts, the Transferred Permits and the Transferred Intellectual Property, in each case in accordance with the terms thereof, except to the extent that such Liabilities, but for a breach or default by Seller, would have been paid, performed or otherwise discharged on or prior to the Closing Date or to the extent the same arise out of any such breach or default or out of any event which after the giving of notice would constitute a default by Seller;

(b)    any and all Liabilities associated with Continued Employees, to the extent provided in Section 6.5;

(c)    any Liability of Seller described on Schedule 2.3(c);

(d)    any Liability for Real Property and other Taxes attributable to the Purchased Assets, except to the extent of the proration provided for in Section 3.2;

(e)    subject to Section 11.1(c), any and all Environmental Liabilities, except for the Excluded Environmental Liabilities; and

(f)    subject to Section 11.1(c), any and all Tort Liabilities, except for the Excluded Tort Liabilities.

2.4    Excluded Liabilities. Except for the Assumed Liabilities, Purchaser shall not assume by virtue of this Agreement, the Assumption Agreement or any other Ancillary Agreement, or the transactions contemplated hereby or thereby, or otherwise, and shall have no liability for, any Liabilities of Seller (the "Excluded Liabilities"), including any of the following Liabilities:

(a)    any Liabilities of Seller in respect of any Excluded Assets or other assets of Seller that are not Purchased Assets;

(b)    any Liabilities in respect of Taxes attributable to the Purchased Assets for taxable periods ending on or before the Closing Date, except to the extent of the proration provided for in Section 3.2;

(c)    any Liabilities of Seller (i) arising from the violation, breach or default by Seller, prior to the Closing Date, of any Transferred Contract, Transferred Permit or Transferred Intellectual Property or (ii) in respect of any other contract, agreement, personal property lease, permit, license or other arrangement or instrument entered into by Seller;

(d)    subject to Section 3.2, any payment obligations of Seller, including accounts or notes payable, accruing or arising prior to the Closing Date;

(e)    any fines and penalties imposed by any Governmental Authority resulting from any act or omission by Seller or its Affiliates that occurred prior to the Closing Date;

(f)    any income Taxes attributable to income received by Seller;

(g)    any Liability of Seller arising as a result of its execution and delivery of this Agreement or any Ancillary Agreement, the performance of its obligations hereunder or thereunder, or the consummation by Seller of the transactions contemplated hereby or thereby;

(h)    any Liability of Seller based on Seller's acts or omissions after the Closing;

(i)    any and all Environmental Liabilities to the extent accruing, arising or occurring during the period of Seller's (or any of its Affiliates') ownership of the Real Property or operation of the Project, and any and all other Environmental Liabilities to the extent accruing, arising or occurring prior to the Closing and within Seller's Knowledge prior to the Closing (the "Excluded Environmental Liabilities"); and

(j)    any and all Tort Liabilities to the extent accruing, arising or occurring during the period of Seller's (or any of its Affiliates') ownership of the Real Property or operation of the Project, and any and all other Tort Liabilities to the extent accruing, arising or occurring prior to the Closing and within Seller's Knowledge prior to the Closing (the "Excluded Tort Liabilities").

ARTICLE III

PURCHASE PRICE; CLOSING

3.1    Purchase Price. At the Closing, Purchaser agrees to pay to Seller the sum of One Hundred Eighty-Nine Million Five Hundred Thousand and No/100 Dollars ($189,500,000.00), subject to adjustment pursuant to Section 3.7 and Section 10.1(g) (the "Purchase Price").

3.2    Proration.

(a)    Purchaser and Seller agree that, except as otherwise set forth in this Agreement, all of the items normally prorated, including those listed below, relating to the Business and the Purchased Assets shall be prorated as of the effective time of the Closing on the Closing Date, with Seller liable to the extent such items relate to any time period through the effective time of the Closing on the Closing Date, and Purchaser liable to the extent such items relate to any time period subsequent to the effective time of the Closing on the Closing Date:

(i)    any rent, Taxes and other items payable by or to Seller under any of the Transferred Contracts to be assigned to and assumed by Purchaser hereunder;

(ii)    any permit, license or registration fees with respect to any Transferred Permit; and

(iii)    charges for water, telephone, electricity and other utilities.

(b)    Purchaser and Seller agree that Property Taxes with respect to the Business or the ownership and the operations of the Purchased Assets or the Project shall be prorated as follows:

(i)    Seller shall be liable for and shall pay when due all Property Taxes having a lien date in the year before the calendar year of the Closing Date.

(ii)    Seller shall be liable for and shall pay when due all Property Taxes having a lien date in the same calendar year as the Closing Date; and

(iii)    Property Taxes having a lien date in the calendar year following the year of the Closing Date shall be paid by Purchaser; however, such Property Taxes shall be prorated with (A) Seller being liable for that portion of the Property Taxes calculated by multiplying (1) the final determined Property Tax liability by (2) the number of days beginning with January 1 in the year of Closing up to and including the Closing Date divided by three hundred sixty-five (365) days, and (B) Purchaser being liable for that portion of the Property Taxes calculated by multiplying (1) the final determined Property Tax liability by (2) the number of days after the Closing Date up to and including December 31 in the year of Closing divided by three hundred sixty-five (365) days. Schedule 3.2(b) illustrates the operation of this Section 3.2(b). After each payment of Property Taxes referred to in this Section 3.2(b)(iii) by Purchaser, Purchaser shall notify Seller in writing of the total amount of Property Taxes paid and, as to that payment, the prorated amount for which Seller is liable. Seller shall reimburse Purchaser such prorated amount within fifteen (15) days after receipt of the notice from Purchaser.

(c)    In the event that actual figures are not available at the Closing Date, prorations required by Section 3.2(a) shall be calculated as follows:

(i)    Such proration shall be based upon the actual fee, cost or amount of the specific item for the most recent preceding year (or appropriate period) for which an actual fee, cost or amount paid is available.

(ii)    Upon the request of either Seller or Purchaser, made within sixty (60) days of the date that any actual amount previously estimated in accordance with Section 3.2(c)(i) becomes available (the "Request Date"), the Parties shall (A) calculate the prorated amounts using the actual available amounts (the "Actual Prorated Amounts"), (B) calculate the difference between the originally estimated prorations (the "Estimated Prorated Amounts") and the Actual Prorated Amounts (the "Prorated Difference"), and (C) the Party that at Closing paid less than the Actual Prorated Amount due from such Party based upon the Estimated Prorated Amounts shall pay the Prorated Difference to the other Party within sixty (60) days of the Request Date.

3.3    Closing. The Closing shall take place in Phoenix at the offices of Moyes Storey at 10:00 A.M. Phoenix time, on the third Business Day after the conditions to Closing set forth in Articles VIII and IX (other than actions to be taken or items to be delivered at Closing) have been either satisfied or waived by the Party entitled to waive such conditions, or on such other date and at such other time and place as Purchaser and Seller mutually agree in writing. All actions scheduled in this Agreement for the Closing Date shall be deemed to occur simultaneously at the Closing. Subject to the provisions of Article X, failure to consummate the purchase and sale provided for in this Agreement on the date determined pursuant to this Section 3.3 will not result in the termination of this Agreement and will not relieve any Party of any obligation under this Agreement. The Closing shall be effective for all purposes as of 11:59:59 P.M. Phoenix time on the Closing Date.

3.4    Closing Deliveries by Seller to Purchaser. At the Closing (or, in the case of clause (j) below, simultaneously with the execution and delivery hereof), Seller shall deliver, or shall cause to be delivered, to Purchaser the following:

(a)    the Deed, duly executed by and acknowledged on behalf of Seller and in recordable form;

(b)    the Bill of Sale and Assignment of Rights, duly executed by Seller;

(c)    the Affidavit of Property Value, duly executed by and acknowledged on behalf of Seller;

(d)    the FIRPTA Affidavit, duly executed by and acknowledged on behalf of Seller;

(e)    a certificate of an officer of Seller, dated as of the Closing Date, setting forth and attesting to (i) the resolutions of the board of directors of the sole member of Seller authorizing the execution, delivery and performance of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby, (ii) the incumbency and signature of the officer(s) of Seller executing this Agreement and the Ancillary Agreements and (iii) the Original Cost and the Accumulated Provision for Depreciation and Amortization for the Purchased Assets as of the Closing Date;

(f)    a certificate of an officer of Seller, dated as of the Closing Date, as to the matters set forth in Sections 8.1 and 8.2;

(g)    a complete copy of the certificate of formation (and all amendments thereto) of Seller, certified by the Secretary of State of Delaware as of a date not more than five (5) Business Days prior to the Closing Date, and a complete copy of the Charter Documents (and all amendments thereto) of Seller as in effect on the Closing Date, certified by an officer of Seller;

(h)    certificates from appropriate Governmental Authorities, dated no earlier than five (5) Business Days prior to the Closing Date, as to the good standing and legal existence of Seller in the State of Delaware and as to the good standing and qualification to do business by Seller in the State of Arizona;

(i)    the consents, waivers, authorizations and approvals set forth on Schedules 4.3(b) and 4.3(c), in form and substance reasonably satisfactory to Purchaser;

(j)    a duly executed unconditional guaranty of Seller's obligations under Article X, Article XI and Section 12.15 in the form attached hereto as Exhibit F (the "Guaranty Agreement") from PPL Energy Supply;

(k)    a tax clearance certificate from the Arizona Department of Revenue, dated no earlier than five (5) Business Days prior to the Closing Date, with respect to Seller; and

(l)    such other documents as Purchaser may reasonably request to carry out the purposes of this Agreement.

3.5    Closing Deliveries by Purchaser to Seller. At the Closing, Purchaser shall deliver to Seller the following:

(a)    a wire transfer of immediately available funds (to such account as Seller shall have notified Purchaser of at least two (2) Business Days prior to the Closing Date) in the amount equal to the Purchase Price (plus or minus any prorated amounts calculated pursuant to Section 3.2(c));

(b)    the Affidavit of Property Value, duly executed by and acknowledged on behalf of Purchaser;

(c)    an assumption agreement (the "Assumption Agreement"), in the form attached hereto as Exhibit A, evidencing the assumption by Purchaser of the Assumed Liabilities, duly executed by Purchaser;

(d)    a certificate of an officer of Purchaser, dated as of the Closing Date, setting forth and attesting to (i) the resolutions of the board of directors of Purchaser authorizing the execution, delivery and performance of this Agreement and the Ancillary Agreements to which it is a party and the consummation of the transactions contemplated hereby and thereby, and (ii) the incumbency and signature of each officer of Purchaser executing this Agreement and the Ancillary Agreements to which it is a party;

(e)    a certificate of an officer of Purchaser, dated as of the Closing Date, as to the matters set forth in Sections 9.1 and 9.2;

(f)    a complete copy of Purchaser's articles of incorporation (and all amendments thereto), certified by the ACC as of a date not more than five (5) Business Days prior to the Closing Date, and a complete copy of the bylaws (and all amendments thereto) of Purchaser, certified by an officer of Purchaser;

(g)    a certificate from the ACC, dated no earlier than five (5) Business Days prior to the Closing Date, as to the good standing and legal existence of Purchaser in Arizona; and

(h)    such other documents as Seller may reasonably request to carry out the purposes of this Agreement.

3.6    Allocation of Purchase Price.

(a)    Seller and Purchaser agree that prior to the Closing, the Purchase Price shall be allocated among the Purchased Assets in accordance with an allocation schedule (the "Purchase Price Allocation Schedule") agreed upon by Purchaser and Seller, which shall be prepared in a manner required by Section 1060 of the Code and any other applicable Law and delivered by Purchaser to Seller prior to the Closing. Seller and Purchaser each shall prepare a mutually acceptable and substantially identical IRS Form 8594 "Asset Acquisition Statements Under Section 1060" consistent with the Purchase Price Allocation Schedule which the Parties shall use to report the transactions contemplated by this Agreement to the applicable Taxing Authorities. Each of Seller and Purchaser agrees to provide the other promptly with any other information required to complete IRS Form 8594. Each Party agrees that it shall not, without the consent of the other Party, take a position on any Tax Return, or before any Taxing Authority in connection with the examination of any Tax Return or in any subsequent judicial proceeding, that is in any manner inconsistent with the terms of the Purchase Price Allocation Schedule. In recognition of Seller's status as a disregarded entity for U.S. federal and Arizona income tax purposes, Purchaser agrees that Seller's responsibilities and obligations under this Section 3.6(a) shall be satisfied by Seller cooperating with its sole member with respect to such responsibilities and obligations.

(b)    If Purchaser and Seller are unable to agree upon the Purchase Price Allocation Schedule within fifteen (15) days prior to the scheduled Closing Date, Purchaser and Seller shall refer the matter to Independent Accountants, which shall determine the Purchase Price Allocation Schedule (including any valuations) in accordance with the provisions set forth in this Section 3.6(b). The Independent Accountants shall be instructed to deliver to Purchaser and Seller a written determination of the Purchase Price Allocation Schedule within ten (10) days from the date of referral thereof to the Independent Accountants. For purposes of this Section 3.6(b) and whenever the Independent Accountants are retained to resolve a dispute between the Parties under this Agreement, the Independent Accountants may determine the issues in dispute following such procedures, consistent with the provisions of this Agreement, as they deem appropriate in the circumstances and wi th reference to the amounts in issue. The Parties do not intend to impose any particular procedures upon the Independent Accountants, it being the desire of the Parties that any such disagreement shall be resolved as expeditiously and inexpensively as reasonably practicable. The Independent Accountants shall have no liability to the Parties in connection with such services except for acts of bad faith, willful misconduct or gross negligence, and the Parties shall provide such indemnities to the Independent Accountants as they may reasonably request. Except in the case of fraud or manifest error, the finding of the Independent Accountants shall be final and binding on the Parties. Purchaser and Seller shall share equally the fees and disbursements of the Independent Accountants in connection with resolving the dispute.

3.7    Minimum Inventory Amount Adjustment.

(a)    The Purchase Price will be increased on a dollar-for-dollar basis to the extent that the Post-Closing Inventory Amount Determination (as defined below) is greater than the Minimum Inventory Amount (provided that such increase shall in no event exceed $100,000) and decreased on a dollar-for-dollar basis to the extent that the Post-Closing Inventory Amount Determination is less than the Minimum Inventory Amount.

(b)    At least five (5) Business Days prior to the execution and delivery hereof, Seller shall have provided Purchaser with a certificate containing a description, part number, quantity on hand, average unit cost and extended value (quantity times average unit cost) with respect to each class of inventory as of the last day of each calendar month between January 1, 2003 and December 31, 2003. During the Interim Period, Purchaser will be entitled to conduct onsite test counts of the spare parts inventory in accordance with Section 6.2.

(c)    Within sixty (60) days after the Closing Date, Purchaser will deliver to Seller written notice (the "Inventory Adjustment Notice") of Purchaser's post-Closing determination of the spare parts in inventory as of the Closing Date (the "Post-Closing Inventory Amount Determination"), as derived from Purchaser's physical review of the spare parts in inventory, the records (financial and otherwise) relating to such spare parts, and the Transferred Contracts. The Inventory Adjustment Notice will contain reasonable detail as to how the Post-Closing Inventory Amount Determination was determined by Purchaser. Within twenty (20) days after Seller's receipt of the Inventory Adjustment Notice, Seller will notify Purchaser in writing of Seller's acceptance or rejection of the Post-Closing Inventory Amount Determination as set forth in the Inventory Adjustment Notice. Any notice of rejection by Seller must include the reasons f or such rejection and, if appropriate, Seller's proposed calculation of the Post-Closing Inventory Amount Determination. If (i) by written notice to Purchaser, Seller accepts the Post-Closing Inventory Amount Determination as set forth in the Inventory Adjustment Notice, or (ii) Seller fails to deliver any notice of acceptance or rejection of the Post-Closing Inventory Amount Determination within the prescribed twenty (20)-day period (which failure will result in Seller being deemed to have irrevocably accepted and agreed with the Post-Closing Inventory Amount Determination), the Post-Closing Inventory Amount Determination as set forth in the Inventory Adjustment Notice will be final and binding on the Parties.

3.8    Adjustment Disputes.

(a)    If Seller delivers written notice to Purchaser under Section 3.7(c) of rejection of the Post-Closing Inventory Amount Determination as set forth in the Inventory Adjustment Notice, Seller and Purchaser will promptly (and in any event within ten (10) Business Days after the date of delivery of Seller's notice of rejection to Purchaser) cause their respective representatives to confer with each other with a view to resolving any such matter. If such Parties' representatives are unable to resolve any such matter within thirty (30) days after the date of delivery of Seller's notice of rejection to Purchaser, Seller and Purchaser will refer the dispute to Independent Accountants for review and final determination of the Post-Closing Inventory Amount Determination. The Independent Accountants shall be instructed to deliver to Purchaser and Seller a written determination of the Post-Closing Inventory Amount Determination within ten (10) Business Days from the d ate of referral thereof to the Independent Accountants. The Independent Accountants may request of Seller or Purchaser such documents and information as may be necessary or appropriate for proper determination of any such matter, and such Parties will cooperate to promptly satisfy any such request. Except in the case of fraud or manifest error ,the determination by the Independent Accountants of the Post-Closing Inventory Amount Determination will be final and binding on the Parties. Seller and Purchaser will equally share the fees and disbursements of the Independent Accountants in undertaking such review and determination.

(b)    Within five (5) Business Days after the final agreement of Seller and Purchaser, the final determination by the Independent Accountants or the deemed acceptance by Seller (as the case may be) of the Post-Closing Inventory Amount Determination, either:

(i)    Purchaser will pay to Seller, by wire transfer of immediately available funds, the amount (if any) by which the Post-Closing Inventory Amount Determination exceeds the Minimum Inventory Amount (provided that such adjustment shall in no event exceed $100,000), or

(ii)    Seller will pay to Purchaser, by wire transfer of immediately available funds, the amount (if any) by which the Post-Closing Inventory Amount Determination is less than the Minimum Inventory Amount.

3.9    Change in Name. Not more than ten (10) Business Days after the Closing Date, Purchaser shall remove all signs or other indications of ownership at the Project or on the Purchased Assets that reference Seller.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SELLER

The representations and warranties contained in this Article IV are qualified by the disclosure made with respect to such representations and warranties in the Schedules attached hereto, to the extent that such disclosure specifically identifies, or that it is reasonably apparent that such disclosure relates to, the subsections that it qualifies. This Article IV and the Schedules shall be read together as an integrated provision. Subject to the foregoing, effective as of the Agreement Date and the Closing Date, Seller hereby represents and warrants to Purchaser that, except as disclosed in the Schedules:

4.1    Organization, Standing and Power. Seller is a limited liability company duly formed, validly existing and in good standing under the Laws of Delaware and has all requisite power and authority to conduct its business as it is now being conducted and to own, lease and operate the Business and the Purchased Assets. Seller is duly qualified or licensed to do business in each jurisdiction in which the ownership or operation of the Purchased Assets or the nature of the business conducted by it make such qualification or licensing necessary, except in those jurisdictions where the failure to be so qualified or licensed would not reasonably be expected to result in a material adverse effect on Seller's ability to perform its obligations hereunder. Seller has made available to Purchaser true, correct and complete copies of Seller's Charter Documents.

4.2    Authority. Seller has all requisite limited liability company power and authority to execute and deliver this Agreement and each of the Ancillary Agreements to which it is a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Seller of this Agreement and each Ancillary Agreement to which Seller is a party, and the performance by Seller of its obligations hereunder and thereunder, have been duly and validly authorized by all necessary limited liability company action. This Agreement and each of the Ancillary Agreements to which Seller is a party have been duly and validly executed and delivered by Seller and constitute the legal, valid and binding obligation of Seller enforceable against Seller in accordance with their respective terms, except that the enforcement hereof and thereof may be limited by bankruptcy, insolvency, reorganization, arra ngement, moratorium or other similar Laws relating to or affecting the rights of creditors generally, or by general equitable principles.

4.3    No Conflicts. The execution, delivery and performance by Seller of this Agreement and each of the Ancillary Agreements to which Seller is a party and the completion of the transactions contemplated hereby and thereby do not and will not:

(a)    conflict with or result in a violation or breach of any of the terms, conditions or provisions of the Charter Documents of Seller;

(b)    assuming the notices, consents and waivers set forth on Schedule 4.3(b) (the "Seller Consents") have been made or obtained:

(i)    violate, result in a breach of, constitute (with due notice or lapse of time or both) a default or cause any obligation, penalty, premium or right of termination, cancellation or acceleration to arise or accrue under, any Contract to which Seller is a party or by which it or any of the Purchased Assets may be bound, except for any such defaults or consents (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained or which would not, individually or in the aggregate, reasonably be expected to have a Seller Material Adverse Effect;

(ii)    result in the creation or imposition of any Lien upon any of the Purchased Assets;

(iii)    result in the cancellation, modification (except as contemplated by this Agreement), revocation or suspension of any Transferred Contract, Transferred Permit or Transferred Intellectual Property;

(iv)    require the consent, approval, or notification of, or registration or filing with, any third party; or

(v)    cause Purchaser, any of its Affiliates, or any of the Purchased Assets to become subject to, or liable for the payment of, any Tax relating to the operation of Seller, the Purchased Assets or the Business for any period ending or deemed to end on or before the Closing Date; and

(c)    assuming all required filings, approvals, consents, authorizations and notices set forth on Schedule 4.3(c) (collectively, the "Seller Approvals") have been made, obtained or given, (i) conflict with or result in a violation or breach of any term or provision of any Law or writ, judgment, order or decree applicable to Seller or its Assets, or (ii) require the consent, approval, or notification of, or registration or filing with, any Governmental Authority under any applicable Law.

4.4    Business. The Business is the only business operation carried on by Seller. Except for the Excluded Items, the Purchased Assets are sufficient to operate the Business as currently operated and constitute all the assets and rights that are used by Seller or any of its Affiliates in connection with the operation of the Business. All equipment included in the Purchased Assets (other than spare parts and other equipment not currently in service) and all buildings, structures and fixtures constituting part of the Project have been maintained by Seller in accordance with Good Operating Practices, except for ordinary wear and tear. There are no pending or, to Seller's Knowledge, threatened proceedings or governmental actions to condemn or take by power of eminent domain all or any part of the Purchased Assets. For purposes of this Agreement, "Seller's Knowledge" means the actual knowledge of the individuals named on Schedule 4.4, who Seller represents to be the persons generally responsible for the subject matters to which such knowledge is pertinent.

4.5    Subsidiaries. Seller does not have any subsidiaries or own equity interests in any Person.

4.6    Legal Proceedings.

(a)    Neither Seller nor any of its Affiliates has been served with notice of any Claim, and, to Seller's Knowledge, none has been threatened against any such Person, that (i) affects Seller or the Purchased Assets and would, individually or in the aggregate, if pursued or resulting in a judgment against Seller, reasonably be expected to have a Seller Material Adverse Effect or (ii) seeks a writ, judgment, order or decree restraining, enjoining or otherwise prohibiting or making illegal any of the transactions contemplated by this Agreement. Seller does not have any Knowledge of any facts that would reasonably be expected to form the basis for any such Claim, writ, judgment, order or decree.

(b)    Schedule 4.6(b) lists all of the currently pending legal proceedings before any Governmental Authority relating to the Project or the Business (but not, however, including any such legal proceedings that apply generically to the electric power industry or any segment thereof, or to participants within such industry or any such segment). To Seller's Knowledge, all currently effective filings relating to the Project or the Business heretofore made by Seller with any Governmental Authority were made in compliance with the Laws then applicable thereto and the information contained therein was true and correct in all material respects as of the respective dates of such filings.

4.7    Compliance with Laws and Orders. Seller is in compliance with all Laws and orders applicable to it, except where any such non-compliance would not, in the aggregate, reasonably be expected to have a Seller Material Adverse Effect; provided that this Section 4.7 does not address (a) Real Property, which is exclusively addressed by Section 4.13, or (b) Environmental Laws, which are exclusively addressed by Sections 4.15 and 4.16.

4.8    Liabilities. Except as disclosed on Schedule 4.8, Seller has no Liabilities that individually or in the aggregate exceed $100,000, excluding (i) Liabilities under the Transferred Contracts and Excluded Contracts, (ii) Liabilities under this Agreement, (iii) Liabilities under Seller's Permits listed on Schedule 4.15, (iv) Liabilities under this Agreement for which Seller is responsible, and (v) Liabilities incurred after the date hereof in accordance with the provisions contained in Article VI.

4.9    Absence of Certain Changes or Events. Except as set forth in Schedule 4.9, and except as otherwise contemplated by this Agreement, between December 31, 2003, and the Agreement Date, there has not been: (i) any Seller Material Adverse Effect; (ii) any damage, destruction or casualty loss, whether covered by insurance or not, which has had a Seller Material Adverse Effect; or (iii) any entry into any agreement, commitment or transaction (including any borrowing, capital expenditure or capital financing) by Seller or any of its Affiliates, which is material to the Business or operations of the Purchased Assets, except agreements, commitments or transactions in the ordinary course of business or as contemplated herein.

4.10    Taxes. All Tax Returns that are required to be filed on or before the Closing Date by, on behalf of or relating to Seller or its financial results have been or will be duly and timely filed or are the subject of a timely filed and valid extension. All Taxes that are shown to be due on such Tax Returns with respect to the Business have been or will be timely paid in full. All Property Taxes with respect to the Purchased Assets having a lien date in the year before the calendar year of the Closing Date have been or will be paid in full by Seller no later than the respective due dates for such Property Taxes. All Property Taxes with respect to the Purchased Assets having a lien date in the same year as the Closing Date have been or will be paid in full by Seller no later than the respective due dates for such Property Taxes. All Property Tax Returns with respect to the Purchased Assets have been or will be duly and timely filed by S eller for certain time periods, as set forth in Section 7.1(b). All withholding Tax requirements imposed on Seller have been satisfied in full in all respects. Seller does not have in force any waiver of any statute of limitations in respect of Taxes or any extension of time with respect to a Tax assessment or deficiency. There are no pending or active audits or, to Seller's Knowledge, threatened audits or proposed deficiencies or other claims for unpaid Taxes of Seller.

4.11    Regulatory Status.

(a)    Seller is qualified as an "exempt wholesale generator" and the Project is an "eligible facility," each within the meaning of Section 32(a) of the Public Utility Holding Company Act of 1935. Except as set forth on Schedule 4.11(a), Seller is not subject to regulation as a public utility or public service company (or similar designation) by the United States, any State of the United States, any foreign country or any municipality or any political subdivision of the foregoing.

(b)    Seller is not an "investment company," a company "controlled" by an "investment company" or an "investment advisor" within the meaning of the Investment Company Act of 1940.

4.12    Contracts.

(a)    Schedule 4.12(a) sets forth a complete and accurate list as of the Agreement Date of all of the following Transferred Contracts to which Seller or an Affiliate of Seller is a party relating to the Project or the Business or by which the Purchased Assets may be bound (collectively, "Material Contracts" and individually a "Material Contract"):

(i)    Contracts for the future purchase, exchange or sale of gas;

(ii)    Contracts for the future purchase, exchange or sale of power or ancillary services;

(iii)    Contracts for the future purchase, exchange, or sale of steam;

(iv)    Contracts for the future transportation or transmission of gas or electric power;

(v)    interconnection Contracts;

(vi)    Contracts (A) for the sale of any Asset or (B) that grant a right or option to purchase any Asset, other than Contracts entered into in the ordinary course of business relating to Assets with a value of less than $50,000 individually or $100,000 in the aggregate;

(vii)    Contracts (other than Contracts identified pursuant to Sections 4.12(a)(i) through (vi)) for the future provision of goods or services and requiring payments by Seller in excess of $50,000 for each individual Contract;

(viii)    Contracts under which Seller has created, incurred, assumed or guaranteed any outstanding indebtedness for borrowed money or any capitalized lease obligation, or under which Seller has imposed a security interest on any of its Assets, tangible or intangible, which security interest secures outstanding indebtedness for borrowed money;

(ix)    outstanding agreements of guaranty, surety or indemnification, direct or indirect, by Seller, or by any Affiliate of Seller for the benefit of Seller;

(x)    Contracts between Seller and any Affiliate of Seller relating to the future provision of goods or services by Seller to such Affiliate of Seller, or by such Affiliate of Seller to Seller;

(xi)    Any contract for consulting that provides for annual compensation by Seller in an amount in excess of $50,000 and which is not cancelable by Seller on ninety (90) days or less advance notice;

(xii)    outstanding futures, swap, collar, put, call, floor, cap, option or other Contracts that are intended to benefit from or reduce or eliminate the risk of fluctuations in the price of commodities, including electric power, gas or securities;

(xiii)    Contracts that purport to limit Seller's freedom to compete in any line of business or in any geographic area;

(xiv)    partnership, joint venture or limited liability company agreements; and

(xv)    Contracts conveying, granting, leasing or assigning to or by Seller an interest in real property.

(b)    Seller has provided Purchaser with, or access to, true and complete copies of all Material Contracts.

(c)    Each of the Material Contracts is in full force and effect in all material respects and constitutes a valid and binding obligation of Seller (or, if applicable, an Affiliate of Seller) and, to Seller's Knowledge, of the other parties thereto, and, except as disclosed in Schedule 4.12(c), each Transferred Contract may be transferred to Purchaser pursuant to this Agreement without the consent of the other parties thereto and without breaching any material terms thereof or resulting in the forfeiture or impairment of any rights thereunder.

(d)    Except as set forth in Schedule 4.12(d), there is not under any Material Contract any material default or event which, with notice or lapse of time or both, (i) would constitute a material default by Seller (or by any Affiliate of Seller which is a party thereto) or, to Seller's Knowledge, any other party thereto, (ii) would constitute a default by Seller (or by any Affiliate of Seller which is a party thereto) or, to Seller's Knowledge, any other party thereto which would give rise to an automatic termination, or the right of discretionary termination thereof, or (iii) would cause the acceleration of any of Seller's (or any of its Affiliates') obligations thereunder or result in the creation of any Lien (other than any Permitted Lien) on any of the Purchased Assets. There are no claims, actions, proceedings or investigations pending or, to Seller's Knowledge, threatened against Seller (or by any Affiliate of Seller which is a party thereto) or, to Seller 's Knowledge, any other party to any Material Contract before any Governmental Authority acting in an adjudicative capacity, in each case relating in any way to any Material Contract or the subject matter thereof. Seller has no Knowledge of any defense, offset or counterclaim arising under any Material Contract.

(e)    Schedule 4.12(e) details all warranties by any vendor, materialman, supplier, contractor or subcontractor relating to the Purchased Assets or any component thereof and specifies the following information with respect to each such warranty: (i) the item of equipment or other item of the Purchased Assets to which the warranty is applicable, but only to the extent such item has a value of $50,000 or more, (ii) the contract or agreement pursuant to which the warranty was given or made (a true and complete copy of each such contract or agreement has been provided to Purchaser); (iii) a description of any warranty work done under the applicable warranty, the date thereof and the applicable warranty period for the warranty work; and (iv) whether such warranty is transferable to Purchaser. Except as disclosed on Schedule 4.12(e), Seller has complied with all storage, installation, operation, maintenance and other requirements with respect to each item of equipment or other item of the Purchased Assets to which each warranty relates and each other condition to the continued effectiveness of each such warranty, and there are no events that have occurred or conditions applicable that constitute or may constitute a defense to the continuing effectiveness of each such warranty.

4.13    Real Property.

(a)    Transferred Real Property. Schedule 4.13(a) contains a true and complete list of all Real Property of Seller that is part of the Purchased Assets (including all rights of Seller relating to any rights of way, encumbrances or other such rights). Based solely upon the Existing Title Policies, Seller owns or leases (as tenant or lessee) all Real Property listed on Schedule 4.13(a), in each case free and clear of all Liens (except for Permitted Liens that do not affect the use or marketability of such Real Property) created by, through or under Seller, except as otherwise noted on Schedule 4.13(a) or as disclosed or listed in the Existing Title Policies, true and complete copies of which title policies have been made available for due diligence review by Purchaser.

(b)    Encumbrances and Improvements. Schedule 4.13(b) includes a description of all encumbrances, easements, licenses or rights of way of record (or, if not of record, of which Seller has Knowledge) granted on or appurtenant to or otherwise affecting the Real Property, and all plants, buildings, structures or other Improvements located thereon. All Liens, easements or rights of way that are not of public record, if any, would not reasonably be expected to have a Seller Material Adverse Effect. There are now in full force and effect duly issued certificates of occupancy permitting the Real Property and Improvements located thereon to be legally used and occupied as the same are now constituted. To Seller's Knowledge, and except for any items listed in the Existing Title Policies or the survey prepared by Superior Surveying Services, Inc., dated July 29, 2002 under Job #220649 (the "Existing Survey"): (i) no fact or condition ex ists which would prohibit or adversely affect the ordinary rights of access to and from the Real Property from and to the existing highways and roads; (ii) there is no pending or threatened restriction or denial, governmental or otherwise, upon such ingress and egress; (iii) there is not (A) any claim of adverse possession or prescriptive rights involving any of the Real Property, (B) any structure located on any Real Property which encroaches on or over the boundaries of neighboring or adjacent properties or (C) any structure of any other party which encroaches on or over the boundaries of any such Real Property; and (iv) no public improvements have been commenced and none are planned which in either case may result in special assessments or otherwise would, individually or in the aggregate, reasonably be expected to have a Seller Material Adverse Effect.

(c)    Real Property Leases. Except as set forth in Schedule 4.13(c), there are no real property leases, recorded or unrecorded (the "Real Property Leases"), relating to the Purchased Assets under which Seller is a lessee, lessor or under which Seller has any interest.

(d)    Approval. No state, municipal, or other governmental approval regarding the division, platting, or mapping of real estate is required as a prerequisite to the conveyance by Seller to Purchaser (or as a prerequisite to the recording of any conveyance document) of any Real Property pursuant to the terms hereof.

(e)    Governmental Restrictions; Condemnation. Seller has not received, and does not have Knowledge of, any notifications, restrictions, or stipulations from the United States of America, the State of Arizona, the County of Pinal, or any other Governmental Authority requiring any work to be done on the Real Property or threatening the use of the Real Property. There are no pending or, to Seller's Knowledge, threatened taking or condemnation proceedings affecting any portion of the Real Property. Seller is not subject to, and, to Seller's Knowledge, no basis exists for, any order, judgment, decree or governmental restriction that would adversely affect the transactions contemplated by this Agreement, the Real Property or the use of the Real Property in the manner presently being used by Seller. Seller has no Knowledge of any plan, study, litigation, action, proceeding or effort by any Governmental Authority or private party which in any way challenges, affect s or would challenge or affect the continuation of the present use of the Real Property specifically.

(f)    Title and Access. Based solely upon the Existing Title Policies, fee simple title to the Real Property is currently vested in Seller. Permanent, legal access as presently existing is available to the Real Property from a dedicated public right-of-way.

(g)    Knowledge of Adverse Title Matters. Except as set forth on Schedule 4.13(g), Seller has no Knowledge of any title defect, Lien, encumbrance, adverse claim, or other matter relating to the title to the Real Property or to the title insurance coverage for the Real Property which is not shown by the public records, the Existing Title Policies or the Existing Survey.

(h)    Absence of Liens. No Liens against the Real Property are pending, or to Seller's Knowledge, are threatened or have arisen or exist under federal or state Tax Law, any Environmental Law, or other applicable federal or state Law, other than Permitted Liens.

(i)    Utilities. All water, sewer, telephone, gas and electrical facilities that are presently installed to the Real Property line, are, to Seller's Knowledge, available and in good working order, and, to Seller's Knowledge, are in compliance with all applicable Laws of all Governmental Authorities having jurisdiction and with the rules and regulations of the relevant public utilities.

(j)    Zoning. The Real Property is zoned in part Industrial (CI-2), subject to an Industrial Use Permit for a natural gas electrical peaking power generation facility (including the stipulations listed in such permit), and in part General Rural Zone (GR).

(k)    Condition of Property. To Seller's Knowledge, except as set forth on Schedule 4.13(k), all of the improvements, buildings and fixtures on or part of the Real Property were constructed in a good and workmanlike manner, are structurally sound, and, for purposes of their use in the Business as currently conducted, are in good and proper working condition and repair, normal wear and tear excepted.

(l)    Insurance. Seller has not received any written (or, to Seller's Knowledge, any oral) notice from any insurance company of any defects or any inadequacies in the Real Property or any part thereof that would adversely affect the insurability of the Real Property. To Seller's Knowledge, the Real Property is in compliance with the material requirements of all insurance carriers currently providing insurance for the Real Property.

(m)    Compliance. Seller has complied, in all material respects, with all Laws, and all requirements and orders of Governmental Authorities, with respect to the Real Property and the operations presently being conducted by Seller upon the Real Property. Neither the Real Property, nor any improvement or building upon the Real Property, nor the continued maintenance or use of any portion of the Real Property for the Business, nor the current operations being conducted by Seller on the Real Property, violates, in any material respect, any such Laws, requirements and orders, including zoning or building Laws, ordinances, orders or regulations. Seller has obtained all material Permits currently required for the conduct of the current operations on the Real Property, all such Permits are in full force and effect, and Seller is, in all material respects, in compliance therewith. Notwithstanding any of the foregoing, this Section 4.13 does not address Environ mental Laws, which are exclusively addressed by Sections 4.15 and 4.16.

(n)    Archeological Artifacts and Endangered Species. To Seller's Knowledge, there are no historical or archeological materials or artifacts of any kind or any Indian ruins of any kind located on the Real Property. To Seller's Knowledge, no part of the Real Property is "critical habitat" as defined in the Federal Endangered Species Act, 16 U.S.C. §§ 1531 et seq., or in regulations promulgated thereunder, nor are any "endangered species" or "threatened species" located on the Real Property, as defined therein.

(o)    Americans with Disabilities Act. Seller has not received any written (or to Seller's Knowledge, any oral) notice of violation of, and the Real Property is in compliance in all material respects with, the Americans with Disabilities Act of 1990.

(p)    Special Districts. To Seller's Knowledge, except as set forth in Schedule 4.13(p), the Real Property is not located within any water conservation, irrigation, soil conservation, weed or insect abatement, or other similar district, or any special improvement district. To Seller's Knowledge, except as shown on the Survey, the Real Property is not within a flood plain, flood way or flood control district.

(q)    Taxes. To Seller's Knowledge, Seller does not have any liability for any Taxes, or any interest or penalty in respect thereof, of any nature that may be assessed against Purchaser or that are or may become a Lien against the Real Property, other than the lien for current real property Taxes not yet due and payable.

(r)    Mechanics' Liens. Except as described in Schedule 4.13(r), no work has been performed on or about the Real Property within six (6) months prior to the Agreement Date that would legally entitle any Person to file or record any mechanics' or materialmen's Liens.

(s)    Water Rights.

(i)    Seller holds all water rights appurtenant to the Property, including those certificated rights identified on Schedule 4.13(s)(i) attached hereto (collectively, the "Water Rights").

(ii)    Seller owns the wells ("Wells") and well sites further identified on Schedule 4.13(s)(ii).

(iii)    To Seller's Knowledge, the Water Rights remain appurtenant to the Real Property, and no Water Rights have been severed from that portion of the Real Property to which they are appurtenant.

(iv)    To Seller's Knowledge, to the extent that either Seller or Marcus D. Martin Farms, pursuant to that certain Lease Agreement by and between Marcus D. Martin d/b/a Marcus D. Martin Farms and Seller dated December 12, 2001 (the "Martin Farms Lease"), has used any groundwater at or for the Real Property, all such groundwater has been pumped pursuant to a Certificate of Grandfathered Groundwater Right (a "Water Rights Certificate") issued by the Arizona Department of Water Resources (the "DWR") solely for the purposes permitted by applicable Law pursuant to such Certificate in such a manner that the Water Rights are not subject to claims of abandonment or forfeiture.

(v)    All filings, registrations and assessments for the Water Rights appurtenant to the Real Property have been made and are current with all appropriate Governmental Authorities, including the DWR. As used herein, the phrase, "filings, registrations and assessments" includes registrations of Wells and all notifications of change of ownership forms necessary to assign, transfer or otherwise convey the reported ownership of the Water Rights and Wells from any previous owner to the Seller.

(vi)    To Seller's Knowledge, as of the date hereof, there are no charges, pump Taxes, groundwater withdrawal and use fees or assessments due or owing to any state agency including DWR for the Water Rights.

(vii)    As of the date hereof, there are no enforcement actions by DWR threatened or pending against Seller relating to the Water Rights, and to Seller's Knowledge, Seller is in material compliance with all water conservation rules, regulations and requirements as set forth in the applicable management plans for the Pinal County active management area.

(viii)    Seller has caused Annual Groundwater Withdrawal and Use Reports to be prepared and filed annually with DWR for each Water Right, pursuant to the rules and regulations promulgated by DWR.

4.14    Personal Property. Seller has good title to (or, with respect to those items of tangible personal property held pursuant to a lease, a good and valid leasehold interest in) all of its tangible personal property, including the tangible personal property listed on Schedule 4.14, free and clear of all Liens, except for Permitted Liens. The foregoing shall not apply with respect to any item of Intellectual Property, which is governed exclusively by Section 4.18. Seller has good title, free and clear of Liens (other than Permitted Liens), to the spare parts in inventory listed or disclosed on Schedule 4.14.

4.15    Permits.

(a)    Seller has obtained all material Permits required for the ownership and operation of the Project by Seller in the manner in which it is currently owned and operated. All such Permits are set forth on Schedule 4.15, are in full force and effect, and have not been amended except as set forth on Schedule 4.15 or for extensions in the ordinary course of business.

(b)    Seller is in compliance, in all material respects, with all Permits set forth on Schedule 4.15, and, except as set forth on Schedules 4.6(b) and 4.16(b), Seller has not received any written notification from any Governmental Authority alleging that it is in violation of any such Permits.

4.16    Environmental Matters.

(a)    Seller has made available to Purchaser, on a confidential basis in accordance with the terms and conditions of Section 12.5, true and complete copies of all environmental site assessment reports, studies and related documents in the possession of, or available to, Seller or its Affiliates and that relate to environmental matters in connection with the operation of the Project or the Real Property.

(b)    Except as set forth on Schedule 4.16(b):

(i)    Seller has not been served with notice of any Environmental Claims and, to Seller's Knowledge, no Environmental Claims are threatened against Seller by any Governmental Authority or other Person (including any private citizen's group) under any Environmental Laws;

(ii)    there has been no event or occurrence at the Project that has caused or reasonably would be expected to cause Seller to fail to comply with any applicable Environmental Laws in any material respect;

(iii)    there has been no Release of any Hazardous Material at or from the Project that could reasonably be expected to result in an Environmental Claim;

(iv)    there are not outstanding, nor have there been issued, any judgments, decrees or judicial orders relating to the Purchased Assets regarding (A) compliance with any Environmental Law or (B) the investigation or cleanup of Hazardous Materials under any Environmental Law;

(v)    Seller is, and at all times has been, in compliance with, in all material respects, and has not been and is not in violation of or liable in any material respect under, any Environmental Law in connection with the Business or the Purchased Assets;

(vi)    to Seller's Knowledge, there are no Environmental Liabilities associated with the Purchased Assets that would, individually or in the aggregate, reasonably be expected to have a Seller Material Adverse Effect; and

(vii)    Seller is and at all times has been in full compliance with all terms and conditions of the Certificate of Environmental Compatibility.

(c)    Seller makes no representation or warranty regarding any environmental matters except as expressly set forth in Sections 4.15 and 4.16.

4.17    Insurance. The Project and its tangible Assets are covered by insurance policies in such amounts and against such risks and losses as are consistent with Seller's historical practices. To Seller's Knowledge, except as set forth in Schedule 4.17, all such policies purchased or held by and insuring the Business or the Purchased Assets are in full force and effect, and all premiums with respect thereto covering all periods up to and including the date as of which this representation is being made have been paid. Seller has not received any written (or to Seller's Knowledge, any oral) notice of cancellation or termination with respect to any such policy which was not replaced on substantially similar terms prior to the date of such cancellation. Seller has provided to Purchaser a summary of the loss experience under each insurance policy insuring the Business or the Purchased Assets. Except as described in Schedule 4.17, Seller has n ot been refused any insurance with respect to the Business or the Purchased Assets nor, to Seller's Knowledge, has Seller's coverage been limited by any insurance carrier to which it has applied for any such insurance or with which it has carried insurance during the twelve (12) month period immediately preceding the Agreement Date.

4.18    Intellectual Property. Except for the Excluded Items:

(a)    Schedule 4.18 lists all issued patents and registered trademarks owned by Seller and currently used in the United States in the Business as currently conducted. As described on Schedule 4.18, Seller owns, or has the license or right to use for the Business, all material Intellectual Property currently used in the Business. The Parties acknowledge and agree that Purchaser shall not acquire in or in connection with the transactions contemplated by this Agreement or any of the Ancillary Agreements any trademarks or trade names using "PPL."

(b)    Seller has not received from any third party a claim in writing that Seller is infringing the Intellectual Property of such third party. To Seller's Knowledge, no third party is infringing any Intellectual Property owned or exclusively licensed by Seller.

4.19    Related Persons. Except as set forth on Schedule 4.19, no Affiliate of Seller has any interest in any of the Purchased Assets, and no Affiliate of Seller is a party to any Contract with Seller with respect to the Purchased Assets.

4.20    Brokers. Seller does not have any liability or obligation to pay fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which Purchaser could become liable or obligated.

4.21    Employees.

(a)    Each of the employees at the Project (each, a "Project Employee") is employed by PPL Montana. Schedule 4.21(a) sets forth, with respect to each Project Employee (including any Project Employee who is on a leave of absence or on layoff status): (i) the name and title of such Project Employee; (ii) the aggregate dollar amounts of the compensation (including wages, salary, commissions, fringe benefits, bonuses, profit-sharing payments and other payments or benefits of any type) received by such Project Employee from PPL Montana; (iii) such Project Employee's annualized compensation as of the Agreement Date; (iv) the number of hours of sick-time which such Project Employee has accrued as of the date hereof and the aggregate dollar amount thereof; and (v) the number of hours of vacation time which such Project Employee has accrued as of the date hereof and the aggregate dollar amount thereof.

(b)    Except as set forth on Schedule 4.21(b), neither PPL Montana nor Seller is a party to or bound by, or has ever been a party to or bound by, any employment contract or any union contract, collective bargaining agreement or similar contract with respect to the Project. The employment of the Project Employees is terminable by Seller at will and no employee is entitled to severance pay or other benefits following termination or resignation, except as otherwise provided by Law.

(c)    Seller has delivered to Purchaser accurate and complete copies of all employee manuals and handbooks, policy statements and other documents in Seller's possession relating to the terms and conditions of employment of the current Project Employees.

(d)    Schedule 4.21(d) sets forth the name of, and a general description of the services performed by, each independent contractor to whom Seller has made any payment in excess of $50,000 in the aggregate since January 1, 2003 for services rendered in respect of the Project.

4.22    Employee Benefits. Set forth on Schedule 4.22 is a complete and correct list of all Benefit Plans currently in effect with respect to the Project Employees. With respect to any "employee benefit plan," within the meaning of Section 3(3) of ERISA, that is sponsored, maintained or contributed to, or has been sponsored, maintained or contributed to within six (6) years prior to the Agreement Date, by any ERISA Affiliate, (a) no withdrawal liability, within the meaning of Section 4201 of ERISA, has been incurred, which withdrawal liability has not been satisfied, (b) no liability to the Pension Benefit Guaranty Corporation has been incurred by any such entity, which liability has not been satisfied, (c) no accumulated funding deficiency, whether or not waived, within the meaning of Section 302 of ERISA or Section 412 of the Code has been incurred, and (d) all contributions (including installments) to such plan required by Section 302 of ERISA and Section 412 of the Code have been timely made.

4.23    Improvements. Except as set forth in Schedule 4.23, Seller has not received any written notices from any Governmental Authority stating or alleging that any Improvements with respect to the Purchased Assets have not been constructed in compliance with applicable Law. Except as set forth in Schedule 4.23, no written notice has been received by Seller from any Governmental Authority requiring or advising as to the need for any repair, alteration, restoration or improvement of the Purchased Assets.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF PURCHASER

Effective as of the Agreement Date and the Closing Date, Purchaser hereby represents and warrants to Seller that:

5.1    Corporate Existence. Purchaser is a corporation duly organized, validly existing and in good standing under the Laws of the State of Arizona and has all requisite corporate power and authority to enter into this Agreement and each of the Ancillary Agreements to which it is a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. Purchaser is duly qualified or licensed to do business in each other jurisdiction where the nature of its business or the actions required to be performed by it hereunder makes such qualification or licensing necessary, except in those jurisdictions where the failure to be so qualified or licensed would not reasonably be expected to result in a material adverse effect on Purchaser's ability to perform its obligations hereunder. Purchaser has made available to Seller true, correct and complete copies of Purchaser's Charter Documents.

5.2    Authority. Purchaser has all requisite corporate power and authority to execute and deliver this Agreement and each of the Ancillary Agreements to which it is a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Purchaser of this Agreement and each of the Ancillary Agreements to which Purchaser is a party and the performance by Purchaser of its obligations hereunder and thereunder have been duly and validly authorized by all corporate action on behalf of Purchaser. This Agreement and each of the Ancillary Agreements to which Purchaser is a party have been duly and validly executed and delivered by Purchaser and constitute the legal, valid and binding obligation of Purchaser enforceable against Purchaser in accordance with their respective terms except that the enforcement hereof and thereof may be limited by bankruptcy, insolvency, reorganiza tion, arrangement, moratorium or other similar Laws relating to or affecting the rights of creditors generally, or by general equitable principles.

5.3    No Conflicts. The execution, delivery, and performance by Purchaser of this Agreement and each of the Ancillary Agreements to which Purchaser is a party and the completion of the transactions contemplated hereby and thereby do not and will not:

(a)    conflict with or result in a violation or breach of any of the terms, conditions or provisions of Purchaser's Charter Documents;

(b)    violate, result in a breach of, constitute (with due notice or lapse of time or both) a default or cause any obligation, penalty, premium or right of termination, cancellation or acceleration to arise or accrue under, any Contract to which Purchaser is a party or by which it or any of its Assets may be bound, except for any such defaults or consents (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained or which would not, individually or in the aggregate, reasonably be expected to have a Purchaser Material Adverse Effect; or

(c)    assuming all required filings, approvals, consents, authorizations and notices set forth in Schedule 5.3(c) (collectively, the "Purchaser Approvals") have been made, obtained or given, (i) conflict with or result in a material violation or breach of any term or provision of any Law or writ, judgment, order or decree applicable to Purchaser or its Assets, or (ii) require the consent, approval, or notification of, or registration or filing with, any Governmental Authority under any applicable Law, except for any such consents, approvals, notifications, registrations or filings which would not, individually or in the aggregate, reasonably be expected to have a Purchaser Material Adverse Effect.

5.4    Legal Proceedings. Neither Purchaser nor any of its Affiliates has been served with notice of any Claim, and, to Purchaser's Knowledge, none has been threatened against any such Person, that (a) affects Purchaser or its Assets and would, individually or in the aggregate, if pursued or resulting in a judgment against Purchaser, reasonably be expected to have a Purchaser Material Adverse Effect or (b) seeks a writ, judgment, order or decree restraining, enjoining or otherwise prohibiting or making illegal any of the transactions contemplated by this Agreement. Purchaser does not have any Knowledge of any facts that would reasonably be expected to form the basis for any such Claim, writ, judgment, order or decree. For purposes of this Agreement, "Purchaser's Knowledge" means the actual knowledge of the individuals named on Schedule 5.4, who Purchaser represents to be the persons generally responsible for the subject ma tters to which such knowledge is pertinent.

5.5    Compliance with Laws and Orders. Purchaser is in compliance with all Laws and orders applicable to Purchaser or its Assets, except where any non-compliance would not, in the aggregate, reasonably be expected to have a Purchaser Material Adverse Effect.

5.6    Brokers. Purchaser does not have any liability or obligation to pay fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which Seller could become liable or obligated.

5.7    Financial Resources. Subject to Purchaser's receipt of the ACC Order, Purchaser has cash or credit available, and will have cash available at the Closing, to enable it to purchase the Purchased Assets on the terms hereof.

ARTICLE VI

COVENANTS

6.1    Regulatory and Other Approvals.

(a)    Seller covenants that, from the date hereof until the earlier of the Closing or termination of this Agreement in accordance with its terms (the "Interim Period"), Seller will, in order to consummate the transactions contemplated hereby (including the transfer of the Transferred Permits to Purchaser), take such reasonable steps as are necessary or desirable, and proceed diligently and in good faith and use all reasonable efforts to expedite and obtain the Seller Approvals and Seller Consents, and to make all filings with, and to give all notices to, Governmental Authorities, and provide such other information and communications to such Governmental Authorities or other Persons, as such Governmental Authorities or other Persons may reasonably request in connection therewith. Purchaser covenants that, during the Interim Period, Purchaser will, in order to consummate the transactions contemplated hereby (including the transfer of the Transfer red Permits to Purchaser), take such reasonable steps as are necessary or desirable, and proceed diligently and in good faith and use all reasonable efforts to expedite and obtain the Purchaser Approvals, and to make all filings with, and to give all notices to, Governmental Authorities, and provide such other information and communications to such Governmental Authorities or other Persons, as such Governmental Authorities or other Persons may reasonably request in connection therewith. Without limiting the generality of the foregoing, each Party shall provide, and cause its respective Affiliates to provide, true and accurate information in a timely manner with respect to all filings with and notices to Governmental Authorities. Nothing in this Section 6.1(a) shall be construed to require (i) Purchaser to take any action with respect to filings with or notices to Governmental Authorities that in Purchaser's discretion could materially adversely affect any other proceeding with such Governmental Auth orities or (ii) Seller to take any action that would result in the transfer of a Permit to Purchaser prior to Closing. Each Party will cooperate fully in good faith with the other Party with respect to all filings that are required by Law or that such other Party elects to make in connection with the transactions contemplated under this Agreement. Each Party will also cooperate fully in good faith with the other in obtaining all material consents and approvals required under this Agreement.

(b)    Each Party will provide the other Party with a reasonable opportunity to review and provide prior comment upon any notices, filings or other submissions that the Party plans to deliver or submit to any Governmental Authority, and will promptly provide to such other Party a copy of any such notices or filings. Notwithstanding the foregoing, the Parties recognize that as a result of the short time frames available for the preparation and filing of many documents required to be filed in the proceedings seeking the ACC Order, each Party may be able to afford the other Party only a very brief opportunity for prior review of or comment on filings in such proceedings. Each Party will provide prompt notification to the other Party when any approval referred to in Section 6.1(a) is obtained, taken, made or given, as applicable, and will advise the other Party of any material communications with any Governmental Authority from which such approval is required regar ding any pending application or request for approval by such Governmental Authority of any of the transactions contemplated by this Agreement.

(c)    Each Party shall prepare, as soon as is reasonably practicable following the execution of this Agreement, all necessary filings in connection with the transactions contemplated by this Agreement that may be required to be made by such Party at FERC or under the HSR Act. Each Party shall submit such filings as soon as practicable, but, in the case of filings under the HSR Act, in no event later than thirty (30) days after the date that the Parties file their application with FERC, under Section 203 of the Federal Power Act of 1935, and Part 33 of the FERC Regulations (18 CFR Part 33), for the approval of the transactions contemplated by this Agreement. Unless the Parties agree otherwise at the time of filing, the Parties shall request expedited treatment of filings at FERC and early termination of the waiting period under the HSR Act. The Parties shall promptly make any appropriate or necessary subsequent or supplemental filings and shall cooperate in the prepa ration of such filings as is reasonably necessary and appropriate.

(d)    To the extent that any Transferred Contract or Transferred Permit is not assignable without the consent of another party, then this Agreement shall not constitute an assignment or attempted assignment thereof if such assignment or attempted transfer thereof would constitute a breach thereof or a default thereunder. Without limiting the provisions of Section 6.1(a), if any such consent shall not be obtained, or if any attempted assignment of a Transferred Contract or Transferred Permit would be ineffective or would impair Purchaser's rights and obligations such that Purchaser would not in effect acquire the benefit of substantially all of such rights and obligations, Seller shall cooperate with Purchaser in any reasonable arrangement, to the extent legally permissible, designed to provide for Purchaser the benefits intended to be assigned to Purchaser under the Transferred Contract or Transferred Permit, including enforcement at the cost and for the accoun t of Purchaser of any and all rights of Seller against the other party thereto arising out of the breach or cancellation thereof by such party or otherwise. If and to the extent that such arrangement is not made in a manner reasonably satisfactory to Purchaser, Purchaser shall have no obligation pursuant to Section 2.3 or otherwise with respect to such Transferred Contract or Transferred Permit. The provisions of this Section 6.1(d) shall not affect the right of Purchaser not to consummate the transactions contemplated by this Agreement if the conditions to Purchaser's obligations set forth in Section 8.5 have not been fulfilled.

6.2    Access of Purchaser. Seller covenants that, during the Interim Period, Seller will provide Purchaser and its Representatives with reasonable access, upon reasonable prior notice and during normal business hours, to the Project, all Contracts to which Seller is a party related to the Project or the Business or by which the Purchased Assets are bound, all Books and Records, including all environmental records, permits, and compliance audits relating to the Business or the Project, and the officers and employees of Seller or its Affiliates who have significant responsibility for Seller, but only to the extent that such access does not unreasonably interfere with the Business of Seller and that such access is reasonably related to the Purchaser's obligations and rights hereunder; provided that Seller shall have the right to (i) have a Representative of Seller present for any communication with employees or officers of Seller or its Affiliates an d (ii) impose reasonable restrictions and requirements upon Purchaser and its Representatives for safety purposes. Purchaser shall be entitled, at its sole cost and expense, to have the Real Property surveyed and to conduct physical inspections (including invasive testing procedures) of the Real Property. Purchaser shall provide Seller with not less than five (5) Business Days prior written notice of the date and time on which any such entry upon the Real Property is proposed to occur. Promptly upon completion of any such entry, Purchaser shall, at its sole cost and expense, repair any and all damage caused by such entry and restore any affected Real Property and any other affected property to its original condition. Purchaser hereby agrees to indemnify, defend and hold harmless Seller and its Representatives and Affiliates from and against any and all Losses, whether or not involving a third-party Claim, resulting from or arising out of or in connection with any entry upon the Real Property by Purchaser or any of its Affiliates or any of its or their respective Representatives, agents, contractors or subcontractors pursuant to this Section 6.2. The provisions of this Section 6.2 shall apply to the access and inspection by Purchaser of any and all portions of the Real Property leased by Seller to Marcus D. Martin d/b/a Marcus D. Martin Farms under the Martin Farms Lease. In addition to complying with the notice, repair and other provisions of this Section, Purchaser shall comply with any and all additional requirements set forth in the Martin Farms Lease, and any access and inspection by Purchaser to the portions of the Real Property leased under the Martin Farms Lease shall be subject to the rights of the tenant under such lease. Without limiting the foregoing, Seller shall take all actions that are reasonably necessary and appropriate to assist Purchaser in gaining access to and inspecting such portions of the Real Property in accordance with the terms and conditions of this Section.

6.3    Certain Restrictions. Seller covenants that, except as set forth in Schedule 6.3, during the Interim Period, Seller will operate and maintain the Business and the Purchased Assets in the usual and ordinary course consistent with Good Operating Practices. Without limiting the foregoing, during the Interim Period, Seller will not, without the prior consent of Purchaser, which consent shall not be unreasonably withheld or delayed:

(a)    permit, allow, or suffer to exist any Lien (other than a Permitted Lien) against any of the Purchased Assets;

(b)    grant any waiver of any material term under, or give any material consent with respect to, any Material Contract;

(c)    sell, lease (as lessor), transfer, convey or otherwise dispose of any Purchased Assets (including by way of merger, liquidation or dissolution) having an aggregate value in excess of $50,000, other than Purchased Assets used, consumed or replaced in the ordinary course of business consistent with Good Operating Practices or Purchased Assets which are replaced prior to the Closing;

(d)    other than trade payables incurred in the ordinary course of business or accounts payable pursuant to any Contract, incur, create, assume or otherwise become liable for indebtedness or issue any debt securities or assume or guarantee the obligations of any other Person;

(e)    change any accounting method or practice in a manner that is inconsistent with past practice except as may be required to meet the requirements of applicable Law or GAAP, in a way that would adversely affect the Business or Seller;

(f)    fail to maintain its limited liability company existence or consolidate with any other Person or acquire all or substantially all of the Assets of any other Person;

(g)    issue or sell any limited liability company membership interests;

(h)    liquidate, dissolve, recapitalize, reorganize, or otherwise wind up its business or operations;

(i)    purchase any securities of any Person, except for short-term investments made in the ordinary course of business;

(j)    enter into, terminate, extend or amend any Contract involving total consideration throughout its term in excess of $100,000 (other than Contracts entered into in the ordinary course which will be fully performed prior to Closing);

(k)    cancel any debts or waive any claims or rights with respect to the Purchased Assets having a value, individually or in the aggregate, in excess of $100,000;

(l)    enter into any collective bargaining or labor agreement;

(m)    make any material election with respect to Taxes;

(n)    amend or modify its Charter Documents;

(o)    make any material change in the operations of the Purchased Assets including the levels of inventory and materials and supplies customarily maintained by Seller;

(p)    enter into, terminate, extend or amend any real or personal property Tax agreement, treaty or settlement, except as required by applicable Law;

(q)    execute, enter into, terminate, extend or amend any agreement, order, decree or judgment relating to any material Permit, except as required by applicable Law or (in any case other than termination) except in the ordinary course of business consistent with past practices;

(r)    prohibit payment of or delay payment of or prohibit or delay discharge of any Liability that will be an Assumed Liability; or

(s)    agree or commit to do any of the foregoing.

Notwithstanding the foregoing, Seller may take commercially reasonable actions with respect to emergency situations so long as Seller shall, upon receipt of notice of any such actions, promptly inform Purchaser of any such emergency actions taken outside the ordinary course of business.

6.4    Further Assurances. Subject to the terms and conditions of this Agreement, each Party shall, upon request by the other Party at any time, or from time to time, after the Closing, and without further consideration, execute and deliver to such other Party such other instruments of sale, transfer, conveyance, assignment and confirmation, provide such materials and information and take such other actions as such other Party may reasonably request in order to consummate the transactions contemplated by this Agreement.

6.5    Employee and Employee Benefit Matters.

(a)    Schedule 6.5(a) sets forth a list of Project Employees that Seller and such Affiliates will make available to Purchaser at least thirty (30) Business Days before the Closing Date (the "Available Employees") for the purpose of discussing potential employment with Purchaser (which discussions the Parties agree shall not violate Section 12.5), together with each such Available Employee's name, current annual base compensation, job title, work location, hire date, vacation balance and sick leave balance, as of the date hereof. Prior to the Closing Date, Purchaser may make an offer of employment to any Available Employee, and each such offer shall include terms and provisions determined by Purchaser that are consistent with the provisions of this Section 6.5; provided, that subject to the following provisions of this Section 6.5, the foregoing shall not be construed to prevent Purchaser from changing the terms and conditions of employment of any Continued Employee (as hereinafter defined) following the Closing Date. Seller shall be responsible for, and shall indemnify and hold Purchaser harmless from and against, (i) all severance benefits payable under Seller's applicable severance policies to any Available Employees (or any other employee of Seller or its Affiliates) who do not accept or are not provided with an offer of employment with Purchaser or its Affiliates prior to or at Closing, and (ii) any accrued salary or incentive compensation or outstanding vacation or sick pay balance as of the Closing owing to any employee of Seller or its Affiliates, whether or not any such employee is provided with or accepts an offer of employment with Purchaser or its Affiliates. Purchaser shall be responsible for, and shall indemnify and hold Seller harmless from and against, any Losses caused by or resulting from any failure by Purchaser to offer employment to any Available Employee on any basis prohibited by ap plicable Law.

(b)    On or before five (5) Business Days prior to the Closing Date, Purchaser shall deliver to Seller a Schedule 6.5(b) that sets forth the names of the Available Employees who have agreed to accept employment with Purchaser effective as of the Closing Date (each, a "Continued Employee"); provided, that to be a Continued Employee, such employee must (i) accept Purchaser's offer to transfer employment to Purchaser under the terms provided in Purchaser's offer, and (ii) on the Closing Date, be actively at work, on wellness or sickness leave, short-term disability or an approved leave of absence.

(c)    Effective as of the Closing Date, the Continued Employees shall cease to participate in all "employee benefit plans" (within the meaning of Section 3(3) of ERISA) of Seller or its Affiliates (the "Seller Plans"). Purchaser shall not assume any of the Seller Plans.

(d)    From and after the Closing Date, Purchaser shall cause each Continued Employee to be provided with compensation and benefits on a basis substantially similar to those provided to similarly situated employees of Purchaser and its Affiliates. Purchaser shall cause each Continued Employee and his or her "eligible dependents" (as defined by the applicable group health plan of Purchaser or its Affiliates) to be covered under a group health plan maintained by Purchaser or an Affiliate of Purchaser that (i) provides medical benefits to the Continued Employee and such eligible dependents effective immediately upon the Closing Date and (ii) credits such Continued Employee and such eligible dependents, for the year during which such coverage under such group health plan begins, with any deductibles and co-payments already incurred during such year under a group health plan maintained by Seller or an Affiliate of Seller (provided, that for purposes of appl ying this clause (ii) with respect to any Continued Employee or eligible dependent, the Continued Employee or eligible dependent, as applicable, shall be responsible for providing the necessary information to Purchaser based on explanation of benefit forms received by the Continued Employee or the eligible dependent from the group health plan maintained by Seller or an Affiliate of Seller). Purchaser shall cause the employee benefit plans and programs maintained after the Closing by Purchaser and the Affiliates of Purchaser to recognize each Continued Employee's years of service and level of seniority prior to the Closing Date with Seller and the Affiliates of Seller for purposes of terms of employment and eligibility and vesting under such plans and programs (other than benefit accruals under any defined benefit pension plan). Purchaser shall cause each employee welfare benefit plan or program sponsored by Purchaser or an Affiliate of Purchaser in which the Continued Employees may be eligible to participa te on or after the Closing Date to waive any preexisting condition exclusion with respect to participation and coverage requirements applicable to Continued Employees and their eligible dependents.

(e)    Claims of Continued Employees and their eligible beneficiaries and dependents for medical, dental, prescription drug, life insurance, or other welfare benefits ("Welfare Benefits") (other than disability benefits) that are incurred before the Closing Date shall be the responsibility solely of Seller and the Seller Plans. Claims of Continued Employees and their eligible beneficiaries and dependents for Welfare Benefits (other than disability benefits) that are incurred from and after the Closing Date shall be the responsibility solely of Purchaser and its Affiliates. For purposes of this paragraph, a medical/dental claim shall be considered incurred on the date when the medical/dental services are rendered or medical/dental supplies are provided, and not when the condition arose or when the course of treatment began. Claims of individuals receiving long-term disability benefits under a Seller Plan as of the Closing Date shall be t he responsibility solely of Seller and the Seller Plans. Except as provided in the preceding sentence, claims of Continued Employees and their eligible beneficiaries and dependents for short-term or long-term disability benefits from and after the Closing Date shall be the responsibility solely of Purchaser and its Affiliates (without regard to whether the circumstances giving rise to such claim occurred before, on or after the Closing Date).

(f)    All claims for health care and dependent care flexible spending account benefits submitted on or after the Closing Date for expenses incurred prior to the Closing Date by Continued Employees shall be paid by Seller's or its Affiliates' health care and dependent care flexible spending account plan to the extent permitted in accordance with the terms of such plan.

(g)    Claims for workers' compensation benefits arising out of occurrences prior to the Closing Date shall be the responsibility of Seller. Claims for workers' compensation benefits for Continued Employees arising out of occurrences on or after the Closing Date shall be the responsibility of Purchaser.

6.6    Insurance. Seller shall maintain or cause to be maintained the insurance policies (or reasonably equivalent renewals or replacements thereof) covering the Project until the Closing. Neither Seller nor any of its Affiliates shall have any liability for any claims made or reported under such insurance policies after the Closing.

6.7    Seller's Covenants and Closing Conditions. Except as contemplated by this Agreement or with the prior written consent of Purchaser, during the Interim Period Seller shall use commercially reasonable efforts to:

(a)    take all actions that are reasonably necessary or appropriate to ensure that the representations and warranties in Article IV hereof remain true and correct in all respects at the Closing;

(b)    promptly advise Purchaser of any facts of which Seller has Knowledge that would cause any of Seller's representations and warranties to be untrue or would make the satisfaction of the conditions in Article VIII impossible or unlikely; and

(c)    bring about, as soon as practical after the date hereof, the satisfaction of all the conditions set forth in Article VIII.

6.8    Purchaser's Covenants and Closing Conditions. Except as contemplated by this Agreement or with the prior written consent of Seller, during the Interim Period Purchaser shall use commercially reasonable efforts to:

(a)    take all actions that are reasonably necessary or appropriate to ensure that the representations and warranties in Article V remain true and correct in all material respects at the Closing;

(b)    promptly advise Seller of any facts of which Purchaser has Knowledge that would cause any of Purchaser's representations and warranties to be untrue or would make the satisfaction of the conditions in Article IX impossible or unlikely; and

(c)    bring about, as soon as practical after the date hereof, the satisfaction of all the conditions set forth in Article IX.

6.9    Exclusivity. Seller covenants that it will not, and will not cause or permit its Affiliates or any of their respective Representatives to, directly or indirectly, (a) discuss, negotiate, undertake, authorize, recommend, propose or enter into, either as the proposed surviving, merged, acquiring or acquired entity, any transaction involving a merger, consolidation, business combination, purchase or disposition of any of the Purchased Assets or any equity interest in Seller other than the transactions contemplated by this Agreement and the Ancillary Agreements (an "Acquisition Transaction"), (b) facilitate, encourage, solicit or initiate discussions, negotiations or submissions of proposals or offers in respect of an Acquisition Transaction, (c) furnish or cause to be furnished, to any Person, any information concerning the business, operations, properties or Assets of Seller in connection with an Acquisition Transaction, or (d ) otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other Person to do or seek any of the foregoing; provided, however, that Affiliates of the Seller may engage in discussions or negotiations with, or furnish information concerning the Seller and its properties, assets and business to, any person which makes, or indicates in writing an intention to make, a proposal for an Acquisition Transaction if the Board of Directors of such Affiliate shall conclude in good faith on the basis of the advice of its outside counsel that the failure to take such action would violate the fiduciary obligations of such Board of Directors under applicable Law. Seller will inform Purchaser in writing immediately following the receipt by Seller, its Affiliates or any Representative of any substantial written proposal in respect of any Acquisition Transaction. Notwithstanding the foregoing, and without limiting the provisions of Section 6.3 , Seller shall be entitled from time to time and at any time prior to the Closing, without obligation of or liability to Purchaser, to market, sell and deliver capacity and energy products and services from the Project and any portion thereof for a term or terms ending not later than the Closing.

6.10    Risk of Loss.

(a)    From the date hereof until the Closing, all risk of loss or damage to the property included in the Purchased Assets shall be borne by Seller.

(b)    If, before the Closing any or all of the Purchased Assets are taken by eminent domain, or are the subject of a pending or, to Seller's Knowledge, contemplated taking or condemnation which has not been consummated, Seller shall notify Purchaser promptly in writing of such fact.

(i)    If such taking would reasonably be expected to have a Seller Material Adverse Effect, Purchaser and Seller shall negotiate in good faith to settle the loss resulting from such taking or condemnation (including by making a fair and equitable adjustment to the Purchase Price) and, upon such settlement, consummate the transactions contemplated by this Agreement pursuant to the terms of this Agreement. If no such settlement is reached within sixty (60) days after Seller has notified Purchaser of such taking or condemnation, then Purchaser or Seller may, if such taking relates to the Purchased Assets, terminate this Agreement pursuant to Section 10.1(h) hereof.

(ii)    If such taking or condemnation would not reasonably be expected to have a Seller Material Adverse Effect, Purchaser and Seller shall negotiate in good faith to settle the loss resulting from such taking or condemnation (including by making a fair and equitable adjustment to the Purchase Price or by transferring certain rights to the condemnation award, if any, to Purchaser) and, upon such settlement, consummate the transactions contemplated by this Agreement pursuant to the terms of this Agreement.

(c)    If, before the Closing, all or any material portion of the Purchased Assets are damaged or destroyed by fire or other casualty, Seller shall notify Purchaser promptly in writing of such fact.

(i)    If such damage or destruction would reasonably be expected to have a Seller Material Adverse Effect and Seller has not notified Purchaser of its intention to cure such damage or destruction within thirty (30) days after the occurrence of such damage or destruction, Purchaser and Seller shall negotiate in good faith to settle the loss resulting from such casualty (including by making a fair and equitable adjustment to the Purchase Price) and, upon such settlement, consummate the transactions contemplated by this Agreement pursuant to the terms of this Agreement. If no such settlement is reached within sixty (60) days after Seller has notified Purchaser of such casualty, then Purchaser or Seller may terminate this Agreement pursuant to Section 10.1(h) hereof.

(ii)    If such damage or destruction would not reasonably be expected to have a Seller Material Adverse Effect and Seller has not notified Purchaser of its intention to cure such damage or destruction within thirty (30) days after the occurrence of such damage or destruction, Purchaser and Seller shall negotiate in good faith to settle the loss resulting from such casualty (including by making a fair and equitable adjustment to the Purchase Price or by transferring certain rights to insurance proceeds, if any, to Purchaser) and, upon such settlement, consummate the transactions contemplated by this Agreement pursuant to the terms of this Agreement.

(d)    If the Parties fail to reach a settlement contemplated by Section 6.10(b)(ii) or Section 6.10(c)(ii) hereof, as applicable, within thirty (30) days after Seller has notified Purchaser of such taking or casualty, as the case may be, then the Purchase Price shall be adjusted downward by the amount of the fair market value of the portion of the Purchased Assets subject to the taking, condemnation or casualty loss, as determined by Independent Accountants for review and final determination of such fair market value. The Independent Accountants may request of Seller or Purchaser such documents and information as may be necessary or appropriate for proper determination of any such matter, and such Parties will cooperate to promptly satisfy any such request. The Independent Accountants shall be instructed to deliver to Purchaser and Seller a written determination of the fair market value within thirty (30) days from the date of referral thereof to the In dependent Accountants. Except in the case of fraud or manifest error, the determination by the Independent Accountants of such fair market value will be final and binding on the Parties. Seller and Purchaser will equally share the fees and disbursements of the Independent Accountants in undertaking such review and determination.

6.11    Current Evidence of Title.

(a)    As soon as is reasonably possible after the Agreement Date, and in no event later than thirty (30) Business Days after the Agreement Date, Seller shall furnish to Purchaser, for each parcel, tract or subdivided land lot of Real Property set forth on Schedule 4.13(a):

(i)    from Stewart Title Guaranty Company (the "Title Insurer"):

(A)    title commitments issued by the Title Insurer to insure title to all Real Property and Improvements in the amount of that portion of the Purchase Price allocated to the Real Property, covering such Real Property, naming Purchaser as the proposed insured and having an effective date after the Agreement Date, wherein the Title Insurer shall agree to issue, an ALTA 1992 form owner's extended coverage policy of title insurance (each a "Title Commitment"); and

(B)    complete and legible copies of all documents listed or disclosed in Schedule B to the Title Commitment (the "Title Exception Documents"); and

(ii)    at Purchaser's cost and expense, a survey of the Real Property made after the Agreement Date by a land surveyor licensed by the State of Arizona and bearing a certificate, signed and sealed by the surveyor, certifying to Seller, Purchaser and the Title Insurer that:

(A)    such survey was made (1) in accordance with "Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys," jointly established and adopted by ALTA and ACSM in 1992, and includes Items 1-4, 6, 7(a), 7(b)(1), 7(c), 8-11 and 13 of Table A thereof, and (2) pursuant to the Accuracy Standards (as adopted by ALTA and ACSM and in effect on the date of said certificate) of an "Urban" survey; and

(B)    such survey reflects the locations of all building lines, easements and areas affected by any Title Exception Documents affecting such Real Property as disclosed in the Title Commitment (identified by issuer, commitment number, and an effective date after the date hereof) as well as any encroachments onto the Real Property or by the Improvements onto any easement area or adjoining property (each a "Survey"); and

(iii)    The Title Commitment shall include the Title Insurer's standard requirements for issuing its title policy, which requirements, to the extent applicable to Seller, shall be met by Seller on or before the Closing Date (including those requirements that must be met by releasing or satisfying monetary Liens, but excluding requirements that are to be met solely by Purchaser).

(iv)    Seller shall pay the premium for a standard form owner's policy. Purchaser shall be responsible for the difference in premium between standard and extended coverage and for other endorsements and any other costs and expenses of such policy of title insurance.

(b)    If any of the following shall occur:

(i)    any Title Commitment or other evidence of title or search of the appropriate real estate records discloses that any party other than Seller has title to the insured estate covered by the Title Commitment;

(ii)    any title exception is disclosed in Schedule B to the Title Commitment that (A) is not one of the Permitted Liens and (B) Purchaser reasonably believes could have a material adverse effect on Purchaser's use and enjoyment of the Real Property described therein; or

(iii)    any Survey discloses any matter that Purchaser reasonably believes could have a material adverse effect on Purchaser's use and enjoyment of the Real Property described therein;

then Purchaser shall notify Seller in writing ("Purchaser's Notice") of such matters (any such matter of which Purchaser so provides Purchaser's Notice to Seller, a "Title Objection") within thirty (30) Business Days after receiving all of the Title Commitment, Survey and copies of Title Exception Documents for the Real Property covered thereby. Any such matter of which Purchaser fails to provide Purchaser's Notice to Seller within such period shall not constitute a Title Objection and shall be deemed to be acceptable to Purchaser and constitute a Permitted Lien for purposes of this Agreement.

(c)    Seller shall have ten (10) Business Days after receipt of Purchaser's Notice to notify Purchaser that either (i) Seller has elected to remove any Title Objection(s) from the title and provide Purchaser with evidence reasonably satisfactory to Purchaser of such removal, or provide Purchaser with evidence reasonably satisfactory to Purchaser that said exceptions will be removed on or before the Closing, or (ii) Seller has elected not to remove such Title Objections. Notwithstanding the provisions to the contrary contained in this Section 6.11(c), Seller shall remove all liens, mortgages, deeds of trust or other monetary liens and encumbrances (other than non-delinquent real estate taxes for the current year or special assessments or local improvement district assessments payable in installments which shall be paid or prorated to the Closing Date as provided in Section 3.2) prior to or upon Closing. If Seller gives Purchaser notice under the foregoin g clause (ii), Purchaser shall have ten (10) Business Days to elect to proceed with the purchase and take the Real Property subject to such Title Objections (which exceptions shall then constitute Permitted Liens), or to terminate this Agreement. If Purchaser shall fail to give Seller written notice of such election within said ten (10) Business Days, Purchaser shall be deemed to have waived any and all such Title Objections. If Seller shall give notice pursuant to the foregoing clause (i), Seller shall use commercially reasonable efforts to cure each Title Objection which is the subject of such notice prior to the Closing and take all steps required by the Title Insurer to eliminate each Title Objection as an exception to the Title Commitment. In the event that Seller shall thereafter fail to remove any such Title Objections from title prior to the Closing Date, and Purchaser is unwilling to take title subject thereto, Purchaser may elect to terminate this Agreement, and in the event of any such terminat ion, Seller shall be liable for payment of all title cancellation charges. Any Title Objection that the Title Company is willing to insure over on terms acceptable to Seller and Purchaser is herein referred to as an "Insured Exception." The Insured Exceptions, together with any title exception or matters disclosed by the Survey not objected to by Purchaser in the manner aforesaid, shall be deemed to be acceptable to Purchaser and shall constitute a Permitted Lien for purposes of this Agreement.

(d)    Nothing herein waives Purchaser's right to claim a breach of Section 4.13 or to claim a right to indemnification as provided in Article XI if Purchaser suffers Losses as a result of a misrepresentation with respect to the condition of title to the Real Property.

6.12    Transition Plan. Within ten (10) Business Days after the Agreement Date, Purchaser shall deliver to Seller a list of its proposed representatives to a joint transition team. Seller will add its representatives to such team within five (5) Business Days after receipt of Purchaser's list. Such team will be responsible for preparing as soon as reasonably practicable after the Agreement Date, and timely implementing, a transition plan which will identify and describe substantially all of the various transition activities that the Parties will cause to occur before and after the Closing and any other transfer of control matters that any Party reasonably believes should be addressed in such transition plan. If requested by either Party, the terms and conditions governing such transition activities will be more fully set forth in a transition agreement reasonably satisfactory to the Parties. Purchaser and Seller shall use commercially reasonable eff orts to cause their representatives on such transition team to cooperate in good faith and take all reasonable steps necessary to develop a mutually acceptable transition plan by no later than sixty (60) days after the Agreement Date.

6.13    Updating.

(a)    Each Party shall, from time to time prior to the Closing by written notice to the other Party, supplement or amend the Schedules to this Agreement to correct any matter that constitutes a breach of any representation or warranty made by such Party in Article IV or Article V, as the case may be, as of the Agreement Date. In the event that at any time either Party supplements or amends any Schedule pursuant to this Section 6.13(a), such Party shall: (i) concurrently with a notice provided to the other Party containing such supplement or amendment, specifically identify and provide a detailed description (including any supporting information, materials and data) of the breach such supplement or amendment is proposed to cure reasonably sufficient to enable the other Party to make an informed decision with respect to the consequences of such b reach and (ii) promptly, and in any event within two (2) Business Days of the request of the other Party, provide the other Party with any additional information, materials and data relating to such breach as may be reasonably requested by the other Party. Provided that the foregoing shall have been complied with, any such supplement or amendment shall, unless the other Party objects thereto in writing within a period of fifteen (15) Business Days after notice of such supplement or amendment, be deemed to cure, effective as of the Agreement Date, any applicable inaccuracy in such representation or warranty to the extent (and only to the extent) such inaccuracy has been specifically detailed as provided above, and to constitute a waiver by such other Party of any applicable breach of or default under this Agreement. Notwithstanding the foregoing, any such waiver shall not apply to the conditions set forth in Section 8.6 or Section 9.6 and no retroactive effect shall be given to any such supple ment or amendment for purposes of any determination as to the magnitude of, as the case may be, (1) any change in the Purchased Assets after the Agreement Date that, individually or in the aggregate with other such changes, has, or could reasonably be expected to have, a Seller Material Adverse Effect, or (2) any change in the business, assets, operations, property, performance or condition (financial or otherwise) of Purchaser after the Agreement Date which, individually or in the aggregate with other such changes, has, or could reasonably be expected to have, a Purchaser Material Adverse Effect. In the event that the other Party does so object in writing, the applicable Schedule supplement or amendment made pursuant to this Section 6.13(a) shall not be deemed to cure any inaccuracy of any representation or warranty made in this Agreement by the Party supplementing or amending such Schedule, and shall not be considered to constitute or give rise to a waiver by the other Party of any condition or obl igation set forth in this Agreement.

(b)    Each Party shall, from time to time prior to the Closing by written notice to the other Party, supplement or amend the Schedules to this Agreement with respect to any matter arising after the Agreement Date that, if existing at, or occurring on, the Agreement Date, would have been required to be set forth or described on any such Schedule. In the event that at any time either Party supplements or amends any Schedule pursuant to this Section 6.13(b), such Party shall: (i) concurrently with a notice provided to the other Party containing such supplement or amendment, specifically identify and provide a detailed description (including any supporting information, materials and data) of the breach such supplement or amendment is proposed to cure reasonably sufficient to enable the other Party to make an informed decision with respect to the consequences of such breach and (ii) promptly, and in any event within two (2) Business Days of the request of the other Party, provide the other Party with any additional information, materials and data relating to such breach as may be reasonably requested by the other Party. Any such supplement or amendment shall, effective immediately upon notice thereof to the other Party, be deemed to cure any applicable inaccuracy in such representation or warranty to the extent (and only to the extent) such inaccuracy has been specifically detailed as provided above, and any applicable breach of or default under this Agreement shall be deemed waived; provided that notwithstanding the foregoing, the foregoing waiver shall not apply to the conditions set forth in Section 8.6 or Section 9.6 and no retroactive effect shall be given to any such supplement or amendment for purposes of any determination as to the magnitude of, as the case may be, (1) any change in the Purchased Assets after the Agreement Date that, individually or in the aggregate with other such changes, has, or could reasonably be expected to have, a Seller Material Adverse Effect, or (2) any change in the business, assets, operations, property, performance or condition (financial or otherwise) of Purchaser after the Agreement Date which, individually or in the aggregate with other such changes, has, or could reasonably be expected to have, a Purchaser Material Adverse Effect. In the event that any Schedule to this Agreement is supplemented or amended pursuant to this Section 6.13(b), and the matter with respect to which such Schedule is supplemented or amended causes or results in an expense, fee or other type of cost to either Party, the Parties shall negotiate in good faith to determine how such expense, fee or other costs should fairly and reasonably be apportioned between the Parties. If the Parties are unable reasonably promptly to agree upon such apportionment of such expense, fee or other costs, the Parties' dispute with respect to such apportionment shall be resolved in accordance with the arbitration provisions of Section 11.6; provided, however, that if the Parties are unable reasonably promptly to agree upon such apportionment of such expense, fee or other costs, and such expense, fee or other costs must be paid prior to the Closing, the Parties shall, pending the Closing, share such expense, fee or other costs equally so as not to delay or prevent the Closing, subject to reimbursement of any overpayment following resolution of the Parties dispute in accordance with the arbitration provisions of Section 11.6.

(c)    Each Party shall notify the other Party promptly after becoming aware of any inaccuracy in or breach of any representation or warranty of such other Party under this Agreement.

(d)    Without limiting the generality of the foregoing, (i) Seller shall notify Purchaser promptly of the occurrence of any event which, to Seller's Knowledge, could reasonably be expected to result in a Seller Material Adverse Effect, and (ii) Purchaser shall notify Seller promptly of the occurrence of any event which, to Purchaser's Knowledge, could reasonably be expected to result in a Purchaser Material Adverse Effect.

6.14    Records.

(a)    On the Closing Date or as soon as practicable thereafter, Seller shall deliver or cause to be delivered to Purchaser all original agreements, documents, Books and Records and files, including records and files stored in electronic form (collectively, "Records"), if any, in the possession of Seller relating to the Business to the extent not then in the possession of Purchaser, provided that (i) Purchaser recognizes that certain Records may contain incidental information relating to Affiliates of Seller, and that Seller may retain such Records and shall provide copies of the relevant portions thereof to Purchaser and (ii) Records shall not include (A) documents or files relating to employees who are not Continued Employees or (B) employee documents or files afforded confidential treatment under any applicable Laws, except to the extent the affected employee consents in writing to the disclosure of the same to Purchaser.

(b)    Following the Closing, Purchaser shall permit Seller and its Representatives, during normal business hours and upon reasonable notice, to have reasonable access to personnel of Purchaser, and to examine and make copies of, all Records, in each case relating to transactions or events occurring prior to the Closing ("Pre-Closing Transactions") or transactions or events occurring subsequent to the Closing that are related to or arising out of Pre-Closing Transactions, to the extent such Pre-Closing Transactions relate to Excluded Liabilities or Excluded Assets or to the extent necessary to comply with applicable financial reporting obligations. Purchaser agrees that it shall retain all such Records for a period of seven (7) years following the Closing, or for such longer period following the Closing as may be required by applicable Law.

6.15    Synthetic Lease Transaction. Seller represents and warrants that, pursuant to the terms of an Amended and Restated Participation Agreement dated as of July 17, 2001 by and among PPL Large Scale Distributed Generation II, LLC, as Lessee and Supervisory Agent, Large Scale Distributed Generation II Statutory Trust, a Connecticut statutory trust, as Lessor, State Street Bank and Trust Company of Connecticut, National Association, as Trustee, First Union National Bank, as Administrative Agent, certain financial institutions, as Certificate Holders, and certain financial institutions, as Lenders, and various other related agreements, Seller and certain of its Affiliates entered into a synthetic lease arrangement (the "Synthetic Lease Transaction") for purposes of financing the acquisition and construction of the Project. The Synthetic Lease Transaction subjects the Purchased Assets to various Liens and leases. Seller covenants and agr ees that: (a) prior to the Closing, all right, title and interest in, to and under the Purchased Assets that are the subject of the Synthetic Lease Transaction shall be transferred to Seller; and (b) promptly following such transfer, Seller shall (i) provide notice thereof to Purchaser and (ii) update the Schedules as necessary and appropriate to reflect such transfer. Without limiting the provisions of Section 2.1, Seller covenants and agrees that, on the terms and subject to the conditions set forth in this Agreement, Seller shall, at the Closing, sell, assign, convey, transfer and deliver to Purchaser all of Seller's right, title and interest in the Purchased Assets free and clear of any and all Liens and leases (other than Permitted Liens) resulting from or arising out of or in connection with the Synthetic Lease Transaction. The Parties acknowledge and agree that Seller's representations and warranties in this Agreement with respect to the Purchased Assets that are the subject of the Synthetic Lease Transaction contemplate, and are cast as of the time period commencing immediately following, the transfer to Seller of all right, title and interest in, to and under the Purchased Assets that are the subject of the Synthetic Lease Transaction, which transfer shall in any event be effective no later than the Closing.

ARTICLE VII

TAX MATTERS

7.1    Proration.

(a)    With respect to Taxes to be prorated in accordance with Section 3.2(a) hereof only, Purchaser shall prepare and timely file all Tax Returns, if any, required to be filed with respect to the Purchased Assets, and shall duly and timely pay all such Taxes shown to be due on such Tax Returns; provided, however, that Seller shall file all of its federal and state income tax returns (including those reporting prorated income) and shall not be required to permit Purchaser to review or comment on any such income tax returns; provided, further, that any income Tax Returns that report Seller's income shall be prepared in accordance with Section 3.6 hereof. Purchaser shall make such Tax Returns that it prepares under this Section 7.1 available for Seller's review and comment no later than sixty (60) days prior to the due date for filing each such Tax Re turn, and shall not unreasonably refuse to accept any such comments or proposed changes. Within ten (10) days after receipt of such Tax Return, Seller shall pay to Purchaser Seller's proportionate share of the amount shown as due on such Tax Return as determined in accordance with Section 3.2 hereof.

(b)    With respect to Property Taxes to be prorated in accordance with Section 3.2(b) hereof only, (i) for all such Property Taxes having a lien date in the year before the calendar year of the Closing Date, Seller shall prepare and timely file all related Property Tax Returns required to be filed with respect to the Purchased Assets and Seller shall duly and timely pay all such Property Taxes; (ii) for all such Property Taxes having a lien date in the same calendar year of the Closing Date, Seller shall prepare and timely file all related Property Tax Returns required to be filed with respect to the Purchased Assets and Seller shall duly and timely pay all such Property Taxes; and (iii) for all such Property Taxes having a lien date in the year after the calendar year of the Closing Date, Seller shall prepare and file when due all related Property Tax Returns required to be filed with respect to the Purchased Assets, except that, if such Property Tax Returns ar e not due before the Closing Date, Seller shall prepare and file such Property Tax Returns on or before the Closing Date, and in either case Purchaser shall duly and timely pay all such Property Taxes, and shall be reimbursed for a portion thereof in accordance with Section 3.2(b)(iii). Seller shall, in good faith, prepare and timely file any such Property Tax Returns, including any affirmative claims for adjustments, reasonably and in good faith defend the values and adjustments filed, and preserve any and all appeal rights related to such returns. The Parties hereby acknowledge that, without regard to any other provision of this Agreement, all Property Tax Returns, documentation and supporting workpapers relating to any Property Taxes of Seller shall be proprietary to Seller and have not and will not be disclosed to Purchaser; provided, however, that (i) Seller shall, upon request of Purchaser, provide an estimate of Property Taxes to be paid, and (ii) the Party receiving the actual P roperty Tax bills or statements from the Taxing Authorities shall, upon request from the other Party, provide copies of such Property Tax bills or statements to the requesting Party.

7.2    Cooperation. Except as limited by Section 7.1(b), Seller and Purchaser shall provide each other with such assistance as may reasonably be requested by the other Party in connection with the preparation of any Tax Return, any audit or other examination by any Taxing Authority, or any judicial or administrative proceedings relating to liability for Taxes, and upon any such request the requested Party shall retain and provide the requesting Party with any records or information which may be relevant to such return, audit or examination, proceedings or determination. Except as required by applicable Law, any information obtained pursuant to this Section 7.2 or pursuant to any other Section hereof providing for the sharing of information or review of any Tax Return or other schedule relating to Taxes shall be kept confidential by the Parties in accordance with Section 12.5.

7.3    Transfer Taxes. Notwithstanding any other provision of this Agreement, responsibility for payment of any and all Transfer Taxes incurred in connection with this Agreement and the transactions contemplated hereby shall be borne by Seller. Seller shall, at its own expense, file, to the extent required by Law, all necessary Tax Returns and other documentation with respect to all such Transfer Taxes, and Purchaser will be entitled to review such return in advance and, if required by applicable Law, Purchaser shall join in the execution of any such Tax Returns or other required documentation.

ARTICLE VIII

PURCHASER'S CONDITIONS TO CLOSING

The obligation of Purchaser to purchase the Purchased Assets under this Agreement is subject to the fulfillment, at or before the Closing, of each of the following conditions (except to the extent waived in writing by Purchaser in its sole discretion):

8.1    Representations and Warranties. The representations and warranties made by Seller in Article IV of this Agreement shall be true and correct in all material respects (except for representations and warranties that contain a qualification as to materiality, which shall have been true and correct in all respects) as of the Agreement Date and shall be true and correct in all material respects (except for representations and warranties that contain a qualification as to materiality, which shall have been true and correct in all respects) as of the Closing Date as if made on the Closing Date or, in the case of representations and warranties made as of a specified date earlier than the Closing Date, on and as of such earlier date (after giving effect to any Schedule supplements or amendments delivered by Seller pursuant to Section 6.13 to the extent (and only to the extent) such Schedule supplements or amendments are expressly permitt ed to be taken into account in determining the accuracy of Seller's representations and warranties following compliance by the Parties with the terms and conditions set forth in Section 6.13).

8.2    Performance. Seller shall have performed and complied, in all material respects, with the agreements, covenants and obligations required by this Agreement to be so performed or complied with by Seller at or before the Closing.

8.3    Deliveries. Seller shall have made all deliveries required of it under Section 3.4 hereof.

8.4    Orders and Laws. There shall not be any litigation or proceedings (filed by a Person other than Purchaser or its Affiliates) or Law or order restraining, enjoining or otherwise prohibiting or making illegal or threatening to restrain, enjoin or otherwise prohibit or make illegal the consummation of any of the transactions contemplated by this Agreement or the Ancillary Agreements; provided, however, that this Section 8.4 is not intended to expand the scope of the conditions described in Section 8.7(b).

8.5    Consents and Approvals. The consents and approvals listed on Schedule 8.5 shall have been duly obtained, made or given and shall be in full force and effect.

8.6    Seller Material Adverse Effect. There shall not have occurred and be continuing any change in the business, Assets, operations, property, performance or condition (financial or otherwise) of Seller after the Agreement Date which, individually or in the aggregate with other such changes, has, or could reasonably be expected to have, a Seller Material Adverse Effect.

8.7    Approvals of Governmental Authorities.

(a)    All consents and approvals of Governmental Authorities required for the consummation of the transactions contemplated hereby or by the Ancillary Agreements, including the Seller Approvals and the Purchaser Approvals, shall have become Final Orders (other than the ACC Order, which must meet the conditions of Section 8.7(b) rather than becoming a Final Order, and approval under the HSR Act, which may be obtained by the expiration or early termination of the initial waiting period and shall not be required to be or become a Final Order) with such terms and conditions as shall have been imposed by the Governmental Authority issuing such Final Order, and such terms or conditions in the aggregate, could not reasonably be expected to have a material adverse effect on the Business, the Purchased Assets, or the business, assets, operations or condition (financial or otherwise) of Purchaser; provided, however, that this Section 8.7(a) is not int ended to expand the scope of the conditions described in Section 8.7(b).

(b)    Without limiting the provisions of Section 8.7(a), the ACC shall have issued one or more orders (collectively, the "ACC Order"), each of which orders shall (as determined by Purchaser in the reasonable exercise of its discretion) be substantially the same in form and substance as the orders requested by Purchaser in its applicable filings with the ACC, (i) approving the transactions contemplated hereby and by the Ancillary Documents and the regulatory treatment of the Purchased Assets, including, (A) to the extent Purchaser, in its sole discretion, determines such approval is necessary, Purchaser's financing of all or a portion of the Purchase Price, (B) authorization for the inclusion in Purchaser's rate base of the Purchased Assets at the Purchase Price plus the deferred costs described in clause (D) of this Section 8.7(b) without any direct or indirect disallowance, with such inclusion to be effective in Purchaser's next r ate case, (C) authorization for the timely recovery in Purchaser's retail rates of all reasonable costs of owning and operating the Purchased Assets, including the deferred costs described in clause (D) of this Section 8.7(b), with such recovery to be effective no later than Purchaser's next rate case, (D) an order authorizing deferral for future recovery in the Purchaser's next general rate proceeding of all capital and operating costs associated with the Purchased Assets, net of any savings produced by the Purchased Assets, and (E) a declaration that the Certificate of Environmental Compatibility is in full force and effect and a modification to Condition 16 of the Certificate of Environmental Compatibility to eliminate the self-executing nature of such Condition; and (ii) the ACC shall not have rescinded, altered or amended the ACC Order nor shall the ACC have taken or be in the process of taking any action that could result in the rescission, alteration or amendment of such ACC Order. The ACC Ord er shall not be required to be or become a Final Order.

8.8    Transferred Permits. Purchaser shall be satisfied that all Transferred Permits will be transferred to Purchaser or obtained by Purchaser effective as of or promptly after the Closing.

8.9    Title Insurance. Purchaser shall have received an unconditional and binding commitment to issue the policy of title insurance consistent with Section 6.11, dated the Closing Date, in an aggregate amount equal to the amount of the Purchase Price allocated to the Real Property, acknowledging the satisfaction of all requirements listed in ALTA Schedule B-1, amending the effective date to the date and time of recordation of the Deed conveying title to the Real Property to Purchaser with no exception for the gap between Closing and recordation, deleting or insuring over Title Objections as required pursuant to Section 6.11, attaching all reasonable endorsements available from the title company required by Purchaser in order to ensure provision of all coverage required pursuant to Section 6.11 and otherwise in form satisfactory to Purchaser insuring Purchaser's interest in each parcel of Real Property or interest therein to th e extent required by Section 6.11.

8.10    Environmental Diligence. Purchaser shall, within ninety (90) days following the Agreement Date, have completed, at its sole cost and expense, an environmental investigation of the Real Property (which may, in Purchaser's discretion, include environmental audits or any other similar invasive or non-invasive procedures, subject to Section 6.2), and shall have determined, in its sole discretion, that the results of such investigation are satisfactory to Purchaser. Purchaser shall provide written notice to Seller, not later than fifteen (15) days following the completion of such investigation but in any event not less than thirty (30) days prior to Closing, whether Purchaser has determined that it is satisfied with respect to the results of such investigation. No such investigation or assessment shall in any manner be deemed to relieve Seller of any obligations with respect to any warranties, representations, covenants or other undertakings m ade hereunder or to qualify any such warranties, representations or covenants, except to the extent that Purchaser has failed to comply with its obligations under Section 6.13(c) or 6.13(d). Purchaser shall have the right to extend the ninety (90)-day deadline set forth above upon a showing of good cause and with the consent of Seller (which consent shall not be unreasonably withheld).

8.11    Legal Opinion. Purchaser shall have received opinions from Preston Gates & Ellis LLP and Moyes Storey, dated the Closing Date and satisfactory in form and substance to Purchaser and its counsel, substantially to the effect that, when taken together:

(a)    Seller is a limited liability company duly formed, existing and in good standing under the Laws of the State of Delaware and has the requisite power and authority to execute and deliver this Agreement and the Ancillary Agreements and to consummate the transactions contemplated hereby and thereby; and the execution and delivery of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby have been duly authorized by requisite action taken on the part of Seller;

(b)    This Agreement and the Ancillary Agreements have been executed and delivered by Seller and (assuming that the required approvals of Governmental Authorities are obtained) are valid and binding obligations of Seller, enforceable against it in accordance with their respective terms, except that such enforcement thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting creditors' rights generally, and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity) and except to the extent that the right to indemnification and contribution contained therein may be limited by state or federal securities Laws or the public policy underlying such Laws;

(c)    The execution, delivery and performance of this Agreement and the Ancillary Agreements by Seller do not (i) constitute a violation of the Charter Documents of Seller or, (ii) to such counsel's knowledge, constitute a violation of or default under the Material Contracts; and

(d)    No declaration, filing or registration with, or notice to, or authorization, consent or approval of any Governmental Authority is necessary for the consummation by Seller of the transactions contemplated by this Agreement and the Ancillary Agreements to which it is a party other than (i) those that have been obtained and are in full force and effect with such terms and conditions as shall have been imposed by any applicable Governmental Authority, (ii) such declarations, filings or registrations, or notices, or authorizations, consents or approvals relating to Permits and (iii) such declarations, filings or registrations, or notices, or authorizations, consents or approvals which, if not obtained or made, would not, in the aggregate, reasonably be expected to have a Seller Material Adverse Effect. Any opinions relied upon by such counsel shall be delivered together with the opinion of such counsel. Such opinion may expressly rely as to matters of fact upon cert ificates furnished by Seller and by public officials.

ARTICLE IX

SELLER'S CONDITIONS TO CLOSING

The obligation of Seller to sell the Purchased Assets under this Agreement is subject to the fulfillment, at or before the Closing, of each of the following conditions (except to the extent waived in writing by Seller in its sole discretion):

9.1    Representations and Warranties. The representations and warranties made by Purchaser in Article V of this Agreement shall be true and correct in all material respects (except for representations and warranties that contain a qualification as to materiality, which shall have been true and correct in all respects) as of the Agreement Date and shall be true and correct in all material respects (except for representations and warranties that contain a qualification as to materiality, which shall have been true and correct in all respects) as of the Closing Date as if made on the Closing Date or, in the case of representations and warranties made as of a specified date earlier than the Closing Date, on and as of such earlier date (after giving effect to any Schedule supplements or amendments delivered by Purchaser pursuant to Section 6.13 to the extent (and only to the extent) such Schedule supplements or amendments are expressly permitted to be taken into account in determining the accuracy of Purchaser's representations and warranties following compliance by the Parties with the terms and conditions set forth in Section 6.13).

9.2    Performance. Purchaser shall have performed and complied, in all material respects, with the agreements, covenants and obligations required by this Agreement so to be performed or complied with by Purchaser at or before the Closing.

9.3    Deliveries. Purchaser shall have taken all actions and made all deliveries required of it under Sections 3.5.

9.4    Orders and Laws. There shall not be any litigation or proceedings (filed by a Person other than Seller or its Affiliates) or Law or order restraining, enjoining or otherwise prohibiting or making illegal or threatening to restrain, enjoin or otherwise prohibit or make illegal the consummation of any of the transactions contemplated by this Agreement or the Ancillary Agreements.

9.5    Consents and Approvals. The consents and approvals listed on Schedule 9.5 shall have been duly obtained, made or given and shall be in full force and effect.

9.6    Purchaser Material Adverse Effect. There shall not have occurred and be continuing any change in the business, Assets, operations, property, performance or condition (financial or otherwise) of Purchaser after the Agreement Date which, individually or in the aggregate with other such changes, has, or could reasonably be expected to have, a Purchaser Material Adverse Effect.

9.7    Approvals of Governmental Authorities. All consents and approvals of Governmental Authorities required for the consummation of the transactions contemplated hereby or by the Ancillary Agreements, including the Seller Approvals and the Purchaser Approvals, shall have become Final Orders (other than the ACC Order, which must meet the conditions of Section 8.7(b) rather than becoming a Final Order, and approval under the HSR Act, which may be obtained by the expiration or early termination of the initial waiting period and shall not be required to be or become a Final Order) with such terms and conditions as shall have been imposed by the Governmental Authority issuing such order, and such terms or conditions, in the aggregate, could not reasonably be expected to have a material adverse effect on the Business, the Purchased Assets, or the business, assets, operations or condition (financial or otherwise) of Seller.

9.8    Legal Opinion. Seller shall have received an opinion from Snell & Wilmer L.L.P., dated the Closing Date and satisfactory in form and substance to Seller and its counsel, substantially to the effect that:

(a)    Purchaser is a corporation duly formed, existing and in good standing under the Laws of the State of Arizona and has the requisite power and authority to execute and deliver this Agreement and the Ancillary Agreements and to consummate the transactions contemplated hereby and thereby; and the execution and delivery of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby have been duly authorized by requisite action taken on the part of Purchaser;

(b)    This Agreement and the Ancillary Agreements have been executed and delivered by Purchaser and (assuming that the required approvals of Governmental Authorities are obtained) are valid and binding obligations of Purchaser, enforceable against it in accordance with their respective terms, except that such enforcement thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting creditors' rights generally, and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity) and except to the extent that the right to indemnification and contribution contained therein may be limited by state or federal securities Laws or the public policy underlying such Laws;

(c)    The execution, delivery and performance of this Agreement and the Ancillary Agreements by Purchaser do not (i) constitute a violation of the Charter Documents of Purchaser or, (ii) to such counsel's knowledge, constitute a violation of or default under Purchaser's Applicable Contracts. "Purchaser's Applicable Contracts" means those agreements or instruments set forth on a schedule attached to such counsel's opinion and which have been identified by Purchaser to such counsel as all of the agreements and instruments which are material to the business or financial condition of Purchaser; and

(d)    No declaration, filing or registration with, or notice to, or authorization, consent or approval of any Governmental Authority is necessary for the consummation by Purchaser of the transactions contemplated by this Agreement and the Ancillary Agreements to which it is party other than (i) those that have been obtained and are in full force and effect with such terms and conditions as shall have been imposed by any applicable Governmental Authority, (ii) such declarations, filings or registrations, or notices, or authorizations, consents or approvals relating to Permits and (iii) such declarations, filings or registrations, or notices, or authorizations, consents or approvals which, if not obtained or made, would not, in the aggregate, reasonably be expected to have a Purchaser Material Adverse Effect. Any opinions relied upon by such counsel shall be delivered together with the opinion of such counsel. Such opinion may expressly rely as to matters of fact upon certificates furnished by Purchaser and by public officials.

ARTICLE X

TERMINATION

10.1    Termination. This Agreement may be terminated, and the transactions contemplated hereby may be abandoned, as follows:

(a)    at any time before the Closing, by mutual consent of Seller and Purchaser;

(b)    at any time before the Closing, by either Party effective upon notice to the other Party, in the event that any Law or order of any Governmental Authority becomes effective and continues in effect for sixty (60) days restraining, enjoining or otherwise prohibiting or making illegal the consummation of the transactions contemplated by this Agreement or the Ancillary Agreements;

(c)    by Purchaser, effective upon notice to Seller, if there has been a material violation or breach by Seller of any covenant, representation, or warranty contained in this Agreement which has rendered the satisfaction of any condition to the obligations of Purchaser to effect the Closing impossible and such violation or breach is not cured by the date which is thirty (30) days after receipt by Seller of notice specifying particularly such violation or breach, and such violation or breach has not been waived by Purchaser, provided that Purchaser may not terminate this Agreement if Purchaser is also at the time in such material violation or breach of any covenant, representation or warranty contained in this Agreement;

(d)    by Seller, effective upon notice to Purchaser, if there has been a material violation or breach by Purchaser of any covenant, representation, or warranty contained in this Agreement which has rendered the satisfaction of any condition to the obligations of Seller to effect the Closing impossible and such violation or breach (other than a breach by Purchaser of its obligation to pay the Purchase Price in accordance with the terms of Article III) is not cured by the date thirty (30) days after receipt by Purchaser of notice specifying particularly such violation or breach and such violation or breach has not been waived by Seller, provided that Seller may not terminate this Agreement if Seller is also at the time in such material violation or breach of any covenant, representation or warranty contained in this Agreement;

(e)    by Purchaser, effective upon notice to Seller, if any of the Purchaser Approvals shall have been denied (and a petition for rehearing or refiling of any application initially denied without prejudice shall also have been denied) and such denial was not caused by a breach of this Agreement by Purchaser;

(f)    by Seller, effective upon notice to Purchaser, if any of the Seller Approvals shall have been denied or refused (and a petition for rehearing or refiling of any application initially denied without prejudice shall also have been denied) and such denial or refusal was not caused by a breach of this Agreement by Seller;

(g)    (i) by either Party that is not in breach of this Agreement, by notice to the other Party on or before the close of business on January 10, 2005, if the conditions described in Section 8.7(b) have not been satisfied on or prior to the close of business on December 31, 2004, or (ii) automatically and without action by either Party, at the close of business on March 31, 2005 (the "Termination Date"), if the Closing shall not have occurred on or prior thereto, unless Seller, in its sole and absolute discretion, notifies Purchaser prior thereto that Seller has elected to extend the Termination Date for a period of 60 days; provided, however, that in the event of any such extension by Seller, the Purchase Price shall increase by the amount of Fifty Thousand and No/100 Dollars ($50,000.00) per day for each day from March 31, 2005 up to and including the Closing Date; provided, further, that, notwithstanding the foregoing, the right to terminate this Agreement under this Section 10.1(g) shall not be available to any Party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing Date to occur on or before such date; or

(h)    by either Party pursuant to Section 6.10, effective upon notice to the other Party.

10.2    Effect of Termination.

(a)    If this Agreement is validly terminated pursuant to Section 10.1, then:

(i)    the obligations of the Parties to consummate the transactions contemplated by this Agreement and the Ancillary Agreements shall terminate;

(ii)    all filings, applications and other submissions made to any Governmental Authority shall, to the extent reasonably practicable, be withdrawn from the Governmental Authority to which they were made by the Party making them; and

(iii)    Purchaser shall return all documents, work papers and other materials (and all copies thereof) obtained from Seller relating to the transactions contemplated by this Agreement and the Ancillary Agreements, whether so obtained before or after execution of this Agreement, and Purchaser shall ensure that all Seller Information received by Purchaser shall be treated in accordance with the requirements of Section 12.5.

(b)    If this Agreement is validly terminated pursuant to Section 10.1, then except as set forth in Section 10.2(c), there will be no liability or obligation on the part of Seller or Purchaser (or any of their respective Representatives or Affiliates). Without limiting the foregoing, Section 1.2 (Construction), Sections 4.20 and 5.6 (Brokers), Section 6.2 (Access of Purchaser), Section 11.2(b) (Non-reimbursable Damages), Section 11.2(c) (No Personal Liability), Section 11.6 (Arbitration), Section 12.3 (Expenses), Section 12.4 (Public Announcements), Section 12.5 (Confidential Information), Section 12.14 (Governing Law; Venue; and Jurisdiction) and Section 12.15 (Attorneys' Fees) will survive any such termination.

(c)    Notwithstanding any other provision of this Agreement to the contrary, if this Agreement is validly terminated by Purchaser pursuant to Section 10.1(c) or by Seller pursuant to Section 10.1(d), the terminating Party shall be entitled to all rights and remedies available to it, except that no Party shall have any liability for a breach of a representation or warranty if such Party used commercially reasonable efforts to cure such breach prior to the date of termination.

ARTICLE XI

INDEMNIFICATION, LIMITATIONS OF LIABILITY, WAIVERS AND ARBITRATION

11.1    Indemnification.

(a)    Subject to the limitations set forth in Section 11.1(c) and elsewhere in this Article XI, from and after the Closing, Seller hereby agrees to indemnify, defend and hold harmless Purchaser and its Representatives and Affiliates (collectively, the "Purchaser Indemnified Parties") from and against any and all Losses, whether or not involving a third-party Claim, resulting from or arising out of or in connection with:

(i)    any breach of a representation or warranty made by Seller in this Agreement;

(ii)    the breach by Seller of, or default in the performance by Seller of, any covenant, agreement or obligation to be performed by Seller pursuant to this Agreement or in any other certificate, document, writing or instrument delivered by Seller pursuant to this Agreement;

(iii)    any Benefit Plan established or maintained by Seller; and

(iv)    any Excluded Liability.

(b)    Subject to the limitations set forth in Section 11.1(c) and elsewhere in this Article XI, from and after the Closing Purchaser hereby agrees to indemnify, defend and hold harmless Seller and its Representatives and Affiliates (collectively, the "Seller Indemnified Parties") from and against any and all Losses, whether or not involving a third-party Claim, resulting from or arising out of or in connection with:

(i)    any breach of a representation or warranty made by Purchaser in this Agreement;

(ii)    the breach by Purchaser of, or default in the performance by Purchaser of, any covenant, agreement or obligation to be performed by Purchaser pursuant to this Agreement or in any other certificate, document, writing or instrument delivered by Purchaser pursuant to this Agreement;

(iii)    any Assumed Liability; and

(iv)    any entry upon the Real Property by Purchaser or any of its Affiliates or any of its or their respective Representatives, agents, contractors or subcontractors pursuant to Section 6.2.

(c)    Notwithstanding anything to the contrary contained in this Agreement, any and all Environmental Liabilities and Tort Liabilities (other than the Excluded Environmental Liabilities and the Excluded Tort Liabilities) shall be deemed to constitute Assumed Liabilities for all purposes of this Agreement (including for purposes of Sections 11.1(b)(iii), 11.4(b) and 11.4(c)); provided, however, that Seller agrees to indemnify, defend and hold harmless the Purchaser Indemnified Parties from and against any and all Losses, whether or not involving a third-party Claim, resulting from or arising out of or in connection with any such Environmental Liabilities or Tort Liabilities that accrue, arise or occur prior to the Closing ("Pre-Closing Environmental Liabilities/Tort Liabilities"); provided, further, that in no event shall Seller's aggregate liability arising out of its indemnification obligations f or or with respect to any such Pre-Closing Environmental Liabilities/Tort Liabilities exceed the amount of $3,500,000 in the aggregate; and provided, further, that Seller's indemnification obligations shall extend only to such Pre-Closing Environmental Liabilities/Tort Liabilities as are attributable to conditions existing at or prior to Closing, and Seller shall not be required to indemnify Purchaser for Losses to the extent attributable to acts or omissions of Purchaser resulting in any increase or aggravation of such Environmental Liabilities or Tort Liabilities, whether arising from a change in use of the Purchased Assets or otherwise. Notwithstanding anything to the contrary contained in Section 11.3 or any other provision of this Agreement, after the Closing, any assertion by Purchaser or any Purchaser Indemnified Party that Seller is liable to Purchaser or any Purchaser Indemnified Party for indemnification with respect to Losses for or with respect to any Pre-Closing Environment al Liabilities/Tort Liabilities must be made in writing and must be given to Seller (or not at all) on or prior to the earlier of the fifth anniversary of the Closing Date or the date on which the applicable statute of limitations expires with respect to the matters covered thereby.

(d)    The Parties acknowledge that Section 5 of the Martin Farms Lease provides as follows (with all capitalized terms used in the following paragraph having the meaning assigned thereto in the Martin Farms Lease):

Lessee, as a material part of the consideration for this Lease, hereby agrees to indemnify and hold Lessor entirely free and harmless from all liability, responsibility and obligations for any crop loss or damage or other loss, damage or injury to any person or property (whether arising during or after the lease term) that may arise from (a) Lessee's use of the Premises or from the acts or omissions of Lessee or its agents, employees, invitees or contractors, or from (b) Lessor's delivery to the Premises and Lessee's use of reuse water from the Power Plant or, as to claims brought by, through or on behalf of Lessee or persons or entities financing Lessee, any other act or omission of Lessor or Lessor's affiliated entities or persons arising from or related to the operation of the Power Plant and/or its water supply, treatment, storage, disposal and/or reuse systems and operations. The forgoing indemnity shall also apply to any and all damages, claims, losses, costs and expenses arising fr om or related to the acts or omissions set forth in this paragraph, including without limitation any attorneys' fees incurred by Lessor in defending against any such liability.

The Parties further acknowledge that Section 8.3 of the Martin Farms Lease provides as follows (with all capitalized terms used in the following paragraph having the meaning assigned thereto in the Martin Farms Lease):

Lessee agrees to indemnify and hold Lessor harmless from any and all claims, damages, fines, judgments, penalties, costs, liabilities or losses (including, without limitation, any and all sums paid for settlement of claims, attorneys' fees, consultant and expert fees) arising during or after the term of this Lease from or in connection with the presence of hazardous substances and/or contaminants in or on the Premises as the result of Lessee's actions or inactions, or those of its agents, invitees, employees or assigns, unless the hazardous substances are present solely as a result of the negligence, willful misconduct or other wrongful acts of the Lessor's agents, employees, contractors or invitees. This indemnification shall specifically include any and all costs due to hazardous substances that flow, diffuse, migrate or percolate into, onto or under the Premises after the Lease terminates. As used herein, "hazardous substance" means any substance that is toxic, ignitable, re active or corrosive, or is defined and/or regulated as "hazardous waste," "extremely hazardous waste," or "hazardous substance" pursuant to state, federal or local governmental law.

(The indemnity obligations set forth above in this Section 11.1(d) are hereinafter referred to collectively as the "Martin Farms Indemnity Obligations"). Without limiting any other provision of this Article XI, Purchaser agrees that, in the event that (i) the Martin Farms Lease is, in accordance with the intent of the Parties, included among the Transferred Contracts sold, assigned, conveyed, transferred and delivered by Seller to Purchaser pursuant to Section 2.1 of this Agreement, and (ii) at any time from and after the Closing Seller incurs any Claim by or Loss to Purchaser under Article XI of this Agreement for or in respect of any Losses that, in Seller's reasonable determination, fall within the scope of the Martin Farms Indemnity Obligations, Purchaser shall, promptly upon any request by Seller, assign, transfer and convey to Seller all right, title and interest of Purchaser for and with respect to any rights, claims and causes of action available under the Martin Farms Indemnity Obligations. In the event that Purchaser is not reasonably capable of effecting any such assignment, transfer and conveyance, or in the event that any such assignment, transfer or conveyance does not, in Seller's reasonable determination, provide Seller with a complete and effective remedy and right of action against the lessee under the Martin Farms Lease for or in respect of the Martin Farms Indemnity Obligations, Purchaser shall, upon any request by Seller and at Seller's sole cost and expense, actively and diligently pursue against the lessee under the Martin Farms Lease, for and on behalf of Seller, any and all Claims that are reasonably available to Purchaser under the Martin Farms Indemnity Obligations for or in respect of any such Losses. The legal counsel employed in any such action shall be selected by Seller in its sole discretion, and the fees and expenses of such counsel shall be paid exclusively by Seller. Purchaser shall cooperate fully wit h Seller and such counsel in the defense or compromise of such Claim, and in such event that Purchaser provides such cooperation no compromise or settlement of such Claims may be effected by Seller without Purchaser's consent unless there is not in connection therewith any finding or admission of any violation of Law or any violation of the rights of any Person by Purchaser. Purchaser covenants and agrees that it will not, without the prior consent of Seller, permit or agree to any amendment of the Martin Farms Lease that eliminates or in any way reduces the benefits and protections afforded by the Martin Farms Indemnity Obligations to the lessor under the Martin Farms Lease.

11.2    Waiver of Remedies.

(a)    The Parties hereby agree to limit their recourse for all matters, and not make any Claim for any Loss or other matter, under, relating to or arising out of this Agreement or any other document, agreement, certificate or other matter delivered pursuant hereto, whether based on contract, tort, strict liability, other Laws or otherwise, except (i) for Claims for indemnification pursuant to this Article XI , (ii) as permitted in Article X, or (iii) as permitted under Section 12.15 (Attorneys' Fees). From and after the Closing, the indemnification provisions of this Article XI shall be the sole and exclusive remedy of each Party (including the Seller Indemnified Parties and Purchaser Indemnified Parties) (i) for any breach of the other Party's representations, warranties or covenants contained in this Agreement or (ii) otherwise with respect to this Agree ment or the transactions contemplated hereby.

(b)    NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, UNDER NO CIRCUMSTANCES SHALL ANY PARTY BE LIABLE UNDER OR IN CONNECTION WITH THIS AGREEMENT FOR SPECIAL, PUNITIVE, EXEMPLARY, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES, OR LOST PROFITS, WHETHER BASED ON CONTRACT, TORT, STRICT LIABILITY, OTHER LAW OR OTHERWISE AND WHETHER OR NOT ARISING FROM SUCH PARTY'S SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT ("Non-reimbursable Damages").

(c)    Notwithstanding anything to the contrary contained in this Agreement, no Representative of Seller, Affiliate of Seller or Representative of any such Affiliate shall, except as provided in the Guaranty Agreement, have any personal liability to Purchaser or any other Person as a result of the breach of any representation, warranty, covenant or agreement of Seller contained herein and no Representative of Purchaser, Affiliate of Purchaser or Representative of any such Affiliate shall have any personal liability to Seller or any other Person as a result of the breach of any representation, warranty, covenant or agreement of Purchaser contained herein.

11.3    Survival and Time Limitation. The terms and provisions of this Agreement shall survive the Closing. Notwithstanding the foregoing, after the Closing, any assertion by Purchaser or any Purchaser Indemnified Party that Seller is liable to Purchaser or any Purchaser Indemnified Party for indemnification under the terms of this Agreement or otherwise in connection with the transactions contemplated in this Agreement must be made in writing and must be given to Seller (or not at all) on or prior to the date that is twenty-four (24) months after the Closing Date, except for (i) indemnification for breach of Seller's representations and covenants in Sections 4.10, 4.13(a), 4.14, 4.21, 6.5, 6.15 and 7.1, which shall survive for the limitations period provided under applicable Law, and (ii) indemnification for matters addressed in Section 11.1(a)(iii) or (iv), which must be made in writing and must be given to Seller (or not at all) on or prior to the date that is ninety (90) days after the date on which the applicable statute of limitations expires with respect to the matters covered thereby.

11.4    Waiver of Other Representations; Limitations of Liability.

(a)    NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, IT IS THE EXPRESS INTENT OF EACH PARTY HERETO THAT NEITHER PARTY IS MAKING ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, EXCEPT FOR THOSE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE IV AND ARTICLE V, RESPECTIVELY, AND THAT, EXCEPT FOR SUCH EXPRESS REPRESENTATIONS AND WARRANTIES, PURCHASER IS ACQUIRING THE PURCHASED ASSETS "AS IS" AND "WHERE IS." WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SELLER HEREBY EXPRESSLY DISCLAIMS ANY OTHER REPRESENTATION OR WARRANTY OF ANY KIND, INCLUDING ANY IMPLIED REPRESENTATION OR WARRANTY AS TO CONDITION, MERCHANTABILITY OR SUITABILITY FOR ANY PARTICULAR PURPOSE AS TO ANY OF THE PURCHASED ASSETS AND SELLER MAKES NO REPRESENTATION OR WARRANTY TO PURCHASER WITH RESPECT TO ANY FINANCIAL PROJECTION OR FORECAST RELATING TO THE PURCHASED ASSETS. WITH RESPECT TO ANY SUCH PROJECTION OR FORECAST DELIVERED BY OR ON BEHALF OF SELLER TO PURCHASER, PURCHASER ACKNOWLEDGES THAT (I) THERE ARE UNCERTAINTIES INHERENT IN ATTEMPTING TO MAKE SUCH PROJECTIONS AND FORECASTS, (II) IT IS FAMILIAR WITH SUCH UNCERTAINTIES, AND (III) IT HAS MADE ITS OWN EVALUATION OF THE ADEQUACY AND ACCURACY OF ALL SUCH PROJECTIONS AND FORECASTS FURNISHED TO IT.

(b)    Notwithstanding anything to the contrary contained in this Agreement, (i) Seller shall have no liability for its indemnification obligations under Section 11.1(a)(i) or Section 11.1(a)(ii) until the aggregate amount of all Losses incurred by the Purchaser Indemnified Parties equals or exceeds $1,000,000 (the "Threshold Amount"), in which event Seller shall be liable for all such Losses from dollar one; it being understood and agreed that the foregoing Threshold Amount shall not apply to (A) claims for indemnification relating to Excluded Liabilities, and (B) claims for indemnifications relating to Sections 3.2, 4.10, 4.13(a), 4.14, 4.21, 6.5, 6.15 and 7.1, in each case for which Seller shall be responsible from dollar one, whether or not the Threshold Amount has been reached and (ii) Purchaser shall have no liability for its indemnification obligations under Section 11.1(b)(i) or S ection 11.1(b)(ii) until the aggregate amount of all Losses incurred by the Seller Indemnified Parties equals or exceeds the Threshold Amount, in which event Purchaser shall be liable for all such Losses from dollar one; it being understood and agreed that the foregoing Threshold Amount shall not apply to (A) claims for indemnification relating to Assumed Liabilities, and (B) claims for indemnification relating to Sections 3.2, 6.5 and 7.1, in each case for which Purchaser shall be responsible from dollar one, whether or not the Threshold Amount has been reached; and

(c)    In no event shall (i) Seller's aggregate liability arising out of its indemnification obligations under Section 11.1(a)(i) and Section 11.1(a)(ii) exceed 50% of the Purchase Price; it being understood and agreed that the foregoing limitation shall not apply to claims for indemnification relating to Excluded Liabilities and any indemnifiable Losses related to such Excluded Liabilities shall not be deemed to count against or otherwise reduce such limitation on Seller's aggregate liability and (ii) Purchaser's aggregate liability arising out of its indemnification obligations under Section 11.1(b)(i) and Section 11.1(b)(ii) exceed 50% of the Purchase Price; it being understood and agreed that the foregoing limitation shall not apply to claims for indemnification relating to Assumed Liabilities and any indemnifiable Losses related to such Assumed Liabilities shall not be deemed to count against or otherwise reduce such limitation on Purcha ser's aggregate liability.

11.5    Procedure for Indemnification - Third-Party Claims.

(a)    If any Party shall claim indemnification hereunder arising from any Claim of a third party, the Party seeking indemnification (the "Indemnified Party") shall notify in writing the Party from which indemnification is sought (the "Indemnifying Party") of the basis for such Claim, setting forth the nature of the Claim in reasonable detail. The failure of the Indemnified Party to so notify the Indemnifying Party shall not relieve the Indemnifying Party of any indemnification obligation hereunder except to the extent that the defense of such Claim is materially prejudiced by the failure to give such notice.

(b)    If any proceeding is brought by a third party against an Indemnified Party and the Indemnified Party gives notice to the Indemnifying Party pursuant to Section 11.5(a), the Indemnifying Party shall be entitled to participate in such proceeding and, to the extent that it wishes, to assume the defense of such proceeding, if (i) the Indemnifying Party provides written notice to the Indemnified Party that the Indemnifying Party intends to undertake such defense, (ii) the Indemnifying Party conducts the defense of the third-party Claim actively and diligently with counsel reasonably satisfactory to the Indemnified Party and (iii) if the Indemnifying Party is a party to the proceeding, the Indemnifying Party has not determined in good faith that joint representation would be inappropriate because of a conflict in interest. The Indemnified Party shall, in its sole discretion, have the right to employ separate counsel (who may be selected by the Indemnified Party in its sole discretion) in any such action and to participate in the defense thereof, and the fees and expenses of such counsel shall be paid by such Indemnified Party. The Indemnified Party shall fully cooperate with the Indemnifying Party and its counsel in the defense or compromise of such Claim. If the Indemnifying Party assumes the defense of a proceeding, no compromise or settlement of such Claims may be effected by the Indemnifying Party without the Indemnified Party's consent unless (A) there is no finding or admission of any violation of Law or any violation of the rights of any Person and no effect on any other Claims that may be made against the Indemnified Party and (B) the sole relief provided is monetary damages that are paid in full by the Indemnifying Party.

(c)    If (i) the Indemnified Party gives notice to the Indemnifying Party of the commencement of any third-party legal proceeding and the Indemnifying Party does not, within ten (10) days after the Indemnified Party's notice is given, give notice to the Indemnified Party of the Indemnifying Party's election to assume the defense of such legal proceeding, (ii) any of the conditions set forth in clauses (i) through (iii) of Section 11.5(b) above become unsatisfied or (iii) an Indemnified Party determines in good faith that there is a reasonable probability that a legal proceeding may adversely affect it other than as a result of monetary damages for which it would be entitled to indemnification from the Indemnifying Party under this Agreement, the Indemnified Party shall (upon notice to the Indemnifying Party) have the right to undertake the defense, compromise or settlement of such claim; provided that the Indemnifying Party shall reimburse the Indemnified Party for the Indemnified Party's costs of defending against the third-party claim (including reasonable attorneys' fees and expenses) and the Indemnifying Party shall remain responsible for any indemnifiable amounts arising from or related to such third-party claim to the fullest extent provided in this Article XI. The Indemnifying Party may elect to participate in such legal proceedings, negotiations or defense at any time at its own expense.

11.6    Arbitration.

(a)    Any and all disputes between the Parties arising out of or relating to this Agreement (a "Dispute") must be resolved through the use of binding arbitration using three (3) arbitrators, selected in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA") as then in effect, as supplemented to the extent necessary to determine any procedural appeal questions by the Federal Arbitration Act (Title 9 of the United States Code), and shall be administered by AAA. If there is any inconsistency between this Section 11.6 and the Commercial Arbitration Rules or the Federal Arbitration Act, the terms of this Section 11.6 will control the rights and obligations of the Parties. If there is more than one (1) Arbitrable Dispute that involves the same facts and parties as the facts and parties with respect to which an arbitration has been initiated pursuant to this Agreement, such disputes shall be consolidated into the first arbitration initiated pursuant to this Agreement. No other arbitration shall be consolidated with any arbitration initiated pursuant to this Agreement without the agreement of the Parties or parties thereto. The Party initiating any Dispute must promptly notify AAA in writing of any such action.

(b)    Arbitration must be initiated within the applicable time limits set forth in this Agreement and not thereafter or if no time limit is given, within the time period allowed by the applicable statute of limitations. Arbitration may be initiated by either Seller or Purchaser ("Claimant") serving written notice on Purchaser or Seller, respectively ("Respondent") that Claimant elects to refer the Dispute to binding arbitration (the "Arbitrable Dispute").

(c)    Claimant's notice initiating binding arbitration must describe in reasonable detail the nature of the Arbitrable Dispute and the facts and circumstances relating thereto and identify the arbitrator Claimant has appointed. Respondent shall respond to Claimant within sixty (60) days after receipt of Claimant's notice, identifying the arbitrator Respondent has appointed. If Respondent fails for any reason to name an arbitrator within such sixty (60) day period, Claimant may upon notice to the AAA and the Respondent, request that the AAA office in Phoenix, Arizona select the Respondent's arbitrator, with the AAA giving due regard to the selection criteria set forth below and input from the Respondent in making such selection. The two (2) arbitrators so chosen shall select a third arbitrator within thirty (30) days after the second arbitrator has been appointed. If the two (2) arbitrators are unable to agree on a third arbitrator within such thirty (30) day select ion period, then either Party may, upon notice to the AAA and the other Party, request that the AAA office in Phoenix, Arizona select the third arbitrator, with the AAA giving due regard to the selection criteria set forth below and input from the Parties and other arbitrators in making such selection.

(d)    The AAA shall select the third arbitrator not later than thirty (30) days from the notice of request sent to the AAA in accordance with Section 11.6(c) above. In the event the AAA should fail to select the third arbitrator within such thirty (30) day period, then either Party may petition the Chief United States District Judge for the State of Arizona to select the third arbitrator. The Party making such petition shall provide a copy thereof to the other Party. The Chief Judge shall give due regard to the selection criteria set forth below and input from the Parties and other arbitrators in making such selection.

(e)    Subject to the arbitrators' award of costs to the prevailing party, Claimant shall pay the compensation and expenses of the arbitrator named by or for it, Respondent shall pay the compensation and expenses of the arbitrator named by or for it, and Claimant and Respondent shall each pay one-half (1/2) of the compensation and expenses of the third arbitrator. All arbitrators must be neutral parties who have never been officers, directors or employees of the Parties or any of their Affiliates. Each of the three (3) arbitrators must have not less than seven (7) years experience as an attorney or accountant handling complex business transactions and have formal training in dispute resolution.

(f)    The hearing will be conducted in Phoenix, Arizona, and commence within sixty (60) days after the selection of the third arbitrator. The Parties and the arbitrators should proceed diligently and in good faith in order that the award may be made as promptly as possible. The arbitrators shall determine the Arbitrable Disputes of the Parties and render a final award in accordance with the choice of Law set forth in this Agreement. The arbitrators shall render their decision within sixty (60) days following completion of the hearing. The arbitrators' decision shall be in writing and set forth the reasons for the award and shall include an award of costs to the prevailing Party (or an allocation of such costs between the Parties based upon the extent to which each prevails), including reasonable attorneys' fees and disbursements and the fees and expenses of the arbitrators. All statutes of limitations and defenses based upon passage of time applicable to any Arbit rable Dispute (including any counterclaim or setoff) shall be interrupted by the filing of the arbitration and suspended while the arbitration is pending. The terms of this Section 11.6 shall not create nor limit any obligations of a Party hereunder to defend, indemnify or hold harmless the other Party against Claims or Losses. In order to prevent irreparable harm, the arbitrators shall have the power to grant temporary or permanent injunctive or other equitable relief. A Party may, notwithstanding any other provision of this Agreement, seek temporary injunctive relief or other interim, provisional or interlocutory relief or any order in aid of arbitration from any court of competent jurisdiction; provided, that the Party seeking such relief shall (if arbitration has not already been commenced) simultaneously commence arbitration. Such court-ordered relief shall not continue more than ten (10) days after the appointment of the third arbitrator and in no event for longer than sixty (60) days . Except as provided in the Federal Arbitration Act, the decision of the arbitrators will be binding on and non-appealable by the Parties. Each Party agrees that any arbitration award against it may be enforced in any court of competent jurisdiction and that any Party may authorize any such court to enter judgment on the arbitrators' decisions. The arbitrators may not grant or award Non-reimbursable Damages.

ARTICLE XII

MISCELLANEOUS

12.1    Notices.

(a)    Unless this Agreement specifically requires otherwise, any notice, demand or request provided for in this Agreement, or served, given or made in connection with it, shall be in writing and shall be deemed properly served, given or made if delivered in person or sent by facsimile equipment providing confirmation of successful transmission or sent by registered or certified mail, postage prepaid, or by a nationally recognized overnight courier service that provides a receipt of delivery, in each case, to the applicable Party at the applicable address or number specified below:

If to Purchaser, to:
Arizona Public Service Company

P.O. Box 53999
Phoenix, Arizona 85072
Facsimile No.: (602) 250-3002
Attn: Corporate Secretary
With a copy to:
Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004
Facsimile No.: (602) 382-6070
Attn: Matthew P. Feeney

If to Seller to:

PPL Sundance Energy, LLC
303 North Broadway, Suite 400
Billings, Montana 59101
Facsimile No.: (406) 237-6930
Attn: David B. Kinnard
With a copy to:

PPL Services Corporation
Two North Ninth Street
Allentown, Pennsylvania 18101
Facsimile No.: (610) 774-6726
Attn: Eric W. Hurlocker

(b)    Notice given by personal delivery, mail or overnight courier pursuant to this Section 12.1 shall be effective upon physical receipt. Notice given by facsimile pursuant to this Section 12.1 shall be effective as of the date of confirmed delivery if delivered before 5:00 p.m. Phoenix time on any Business Day or on the next succeeding Business Day if confirmed delivery is after 5:00 p.m. Phoenix time on any Business Day or during any non-Business Day.

12.2    Entire Agreement. This Agreement and the Ancillary Agreements supersede all prior discussions, agreements and understandings between the Parties with respect to the subject matter hereof and thereof and contain the sole and entire agreement between the Parties with respect to the subject matter hereof and thereof. As of the execution of this Agreement by the Parties, the Confidentiality Agreement between Purchaser and PPL EnergyPlus dated as of February 10, 2004 shall be deemed fully replaced, merged in and superseded by this Agreement and the Ancillary Agreements as of the Agreement Date for all periods after the Agreement Date; provided, however, such Confidentiality Agreement shall remain in full force and effect with respect to any event or circumstance that is within the subject matter of such agreement and that occurred prior to the Agreement Date.

12.3    Expenses. Except as otherwise expressly provided in this Agreement, whether or not the transactions contemplated hereby are consummated, each Party will be responsible for, and will pay, its own costs and expenses incurred in anticipation of, relating to and in connection with the negotiation and execution of this Agreement and the transactions contemplated hereby.

12.4    Public Announcements. Except as may be required by Law or any applicable stock exchange rules, neither Party will issue or make any press releases or other public disclosures concerning this Agreement or the transactions contemplated hereby without first obtaining consent from the other Party, which consent shall not be unreasonably withheld, conditioned or delayed.

12.5    Confidential Information.

(a)    For a period of two (2) years from and after the Closing, Seller shall cause any data or information received at any time by Seller or its Affiliates or its or their Representatives from Purchaser, any data or information regarding Purchaser or its businesses, operations, financial conditions or prospects, and any data or information regarding the Purchase Price and other key financial terms of the transactions contemplated hereby and the discussions among the Parties relating thereto (any of the foregoing, "Purchaser Information"), to be maintained by Seller, its Affiliates and their respective Representatives in confidence, not to be utilized for any purpose (except, pending Closing, to prepare therefor) and not to be disclosed for any purpose. Without limiting the generality of the foregoing, Seller and Purchaser acknowledge that, during the Interim Period, Purchaser may conduct one or more solicitations or requests for proposals from third parties and that the foregoing restrictions concerning the Purchase Price and other financial terms are necessary in order to protect Purchaser's interest in the integrity of its acquisition activities.

(b)    From the Agreement Date until the Closing (or, if this Agreement is earlier terminated, then until two (2) years after the date of such termination, and in any event, in the case of any Seller Information not contained in the Purchased Assets, from the Agreement Date until a period two (2) years from and after the Closing), Purchaser shall cause any such data or information received at any time by Purchaser, its Affiliates or their respective Representatives from Seller, its Affiliates or their respective Representatives and any such data or information regarding Seller or its businesses, operations, financial conditions or prospects, and any data or information regarding the Purchase Price and other key financial terms of the transactions contemplated hereby and the discussions among the Parties relating thereto (any of the foregoing, "Seller Information"), to be maintained by Purchaser, its Affiliates and their respective Representatives in confidence, not to be utilized for any purposes (except pending Closing, to prepare therefor) and not to be disclosed for any purpose.

(c)    Purchaser and Seller acknowledge that the approvals of the Governmental Authorities that are required by this Agreement will likely necessitate the provision of Confidential Information to third parties in proceedings to obtain such approvals. Where a filing is made with any Governmental Authority for approval of this Agreement, the Party responsible for the filing shall request that the Governmental Authority approve a reasonable confidentiality agreement or protective order that will provide appropriate protections for any Confidential Information of the other Party.

(d)    Other than as provided in Section 12.5(c) and with respect to the obligations under Sections 12.5(a) and 12.5(b), in the event that the Party receiving Confidential Information (the "Receiving Party") is requested by any Governmental Authority to disclose any Confidential Information of the other Party (the "Disclosing Party"), the Receiving Party shall give the Disclosing Party prompt written notice of such requirement and shall not disclose any such Confidential Information without reasonable assurances from such Governmental Authority that such Confidential Information will be afforded reasonable confidentiality protections by such Governmental Authority. In the event that the Receiving Party becomes legally compelled (by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar process) to disclose any Confidential Information (or, in the case of any such disclosure to the ACC, the Receiving Party is required or requested to make such disclosure as a condition to the approval by the ACC contemplated by Section 8.7(b)), the Receiving Party shall give the Disclosing Party prompt written notice of such requirement so that the Disclosing Party may attempt to seek a protective order or other assurance that confidential treatment will be accorded to any such portion of such Confidential Information as may be required to be disclosed (and the Receiving Party shall cooperate reasonably with any such efforts by the Disclosing Party) or waive compliance with the terms of this Section 12.5. In the event that such protective order or other remedy is not timely obtained, the Receiving Party agrees to give the Disclosing Party written notice of the Confidential Information to be disclosed as far in advance of such disclosure as is reasonably practicable, and shall furnish only that portion of the Confidential Information for which the Disclosing Party has waived compliance with the relevant provisions of this Section 12.5, or which is in the opinion of the Receiving Party's legal counsel required to be disclosed in order to avoid a contempt order or other civil or criminal sanction or penalty.

(e)    Notwithstanding the foregoing, the confidentiality obligations set forth in this Section 12.5 shall not apply to any disclosure of information:

(i)    which at the time of disclosure is already in the public domain through no fault of the applicable Parties, their Affiliates or their respective Representatives;

(ii)    which after disclosure becomes part of the public domain through no act or fault of the applicable Parties or their Affiliates or their respective Representatives;

(iii)    if such information subsequently becomes known to the applicable Parties or their Affiliates through no breach of their obligations hereunder;

(iv)    which is independently developed by the applicable Parties or their Affiliates through no breach of their obligations hereunder; or

(v)    required by Law or stock exchange rules; provided that the applicable Parties shall use, and shall cause their applicable Affiliates, if any, to use, commercially reasonable efforts to give the other Parties prior notice of such disclosure in sufficient time to enable such other Parties to protect any such information.

12.6    Disclosure. Seller may, at its option, include in the Schedules items that are not material in order to avoid any misunderstanding, and any such inclusion, or any references to dollar amounts, shall not be deemed to be an acknowledgment or representation that such items are material, to establish any standard of materiality or to define further the meaning of such terms for purposes of this Agreement.

12.7    Waiver; Remedies Cumulative. Any term or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the Party waiving such term or condition. No waiver by any Party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. The failure of any Party to assert any of its rights under this Agreement shall not constitute a waiver of such rights. All remedies, either under this Agreement or by Law or otherwise afforded, will be cumulative and not alternative.

12.8    Amendment. This Agreement may be amended, supplemented or modified only by a written instrument duly executed by or on behalf of each Party, which written instrument indicates that such writing is intended to amend the terms of this Agreement.

12.9    No Third Party Beneficiary. The terms and provisions of this Agreement are intended solely for the benefit of the Parties and their respective successors or permitted assigns, and it is not the intention of the Parties to confer third-party beneficiary or similar rights upon any other Person.

12.10    Assignment; Binding Effect. Purchaser may assign its rights and obligations hereunder to an Affiliate; provided, however, that no such assignment shall release Purchaser from its obligations hereunder. Except as provided in the preceding sentence, neither this Agreement nor any right, interest or obligation hereunder may be assigned by either Party without the prior written consent of the other Party, and any attempt to do so will be null and void. Subject to this Section 12.10, this Agreement is binding upon, inures to the benefit of and is enforceable by the Parties and their respective successors and permitted assigns.

12.11    Headings. The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.

12.12    Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law, and if the rights or obligations of any Party under this Agreement will not be materially and adversely affected thereby, such provision will be fully severable, this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom and in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible.

12.13    Counterparts; Facsimile. This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together shall constitute one and the same instrument. Any facsimile copies hereof or signature hereon shall, for all purposes, be deemed originals.

12.14    Governing Law; Venue; and Jurisdiction.

(a)    This Agreement shall be governed by and construed in accordance with the Laws of the State of Arizona, without giving effect to any conflict or choice of law provision that would result in the imposition of another state's Law.

(b)    WITH RESPECT TO THE ENFORCEMENT OF ANY ARBITRATION AWARD PURSUANT TO SECTION 11.6, THE PARTIES HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT IN PHOENIX, ARIZONA.

(c)    WITH RESPECT TO THE ENFORCEMENT OF ANY ARBITRATION AWARD PURSUANT TO SECTION 11.6, EACH PARTY HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.

12.15    Attorneys' Fees. If either of the Parties shall bring an action to enforce the provisions of this Agreement, the prevailing Party shall be entitled to recover its reasonable attorneys' fees and expenses incurred in such action from the non-prevailing Party.

[signature page follows]

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officer of each Party as of the date first above written.

SELLER:

PPL SUNDANCE ENERGY, LLC

By:________________________________
Name:______________________________
Title:_______________________________

PURCHASER:

ARIZONA PUBLIC SERVICE COMPANY

By:________________________________
Name:______________________________
Title:_______________________________

APPENDIX I

DEFINITIONS

"AAA" has the meaning given to it in Section 11.6(a).

"ACC" means the Arizona Corporation Commission or any successor agency with jurisdiction over the rates and charges of Purchaser.

"ACC Order" has the meaning given to it in Section 8.7(b).

"Accumulated Provision for Depreciation and Amortization" means the net accumulated credit balance arising from provisions for depreciation or amortization of assets. The net balance reflects current and prior credits less charges.

"Acquisition Transaction" has the meaning given to it in Section 6.9.

"ACSM" means the American Congress on Surveying and Mapping, or its successor.

"Actual Prorated Amounts" has the meaning given to it in Section 3.2(c)(ii).

"Affidavit of Property Value" means the form of Affidavit of Property Value attached hereto as Exhibit B.

"Affiliate" means any Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the Person specified. For purposes of this definition, control of a Person means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person whether through ownership of voting securities or ownership interests, by contract or otherwise, and specifically with respect to a corporation, partnership or limited liability company, means direct or indirect ownership of more than 50% of the voting securities in such corporation or of the voting interests in a partnership or limited liability company.

"Agreement" has the meaning given to it in the recitals.

"Agreement Date" has the meaning given to it in the introduction to this Agreement.

"ALTA" means the American Land Title Association, or its successor.

"Ancillary Agreements" means the Assumption Agreement, the Affidavit of Property Value, the Deed, the Bill of Sale and Assignment of Rights, the Form of Certification of Non-Foreign Status, the Guaranty Agreement and such other documents, instruments, certificates or agreements as may be executed and delivered in connection with this Agreement or the foregoing.

"Arbitrable Dispute" has the meaning given to it in Section 11.6(b).

"Assets" of any Person means all assets and properties of every kind, nature, character and description (whether real, personal or mixed, whether tangible or intangible and wherever situated), including the goodwill related thereto, operated, owned or leased by such Person.

"Assumed Liabilities" has the meaning given to it in Section 2.3.

"Assumption Agreement" has the meaning given to it in Section 3.5(c).

"Available Employees" has the meaning given to it in Section 6.5(a).

"Benefit Plans" means (a) each "employee benefit plan," as such term is defined in Section 3(3) of ERISA, (b) each plan that would be an "employee benefit plan", as such term is defined in Section 3(3) of ERISA, if it was subject to ERISA, such as foreign plans and plans for directors, (c) each stock bonus, stock ownership, stock option, stock purchase stock appreciation rights, phantom stock, or other stock plan (whether qualified or nonqualified), and (d) each bonus or incentive compensation plan.

"Bill of Sale and Assignment of Rights" means the form of Bill of Sale and Assignment of Rights from Seller to Purchaser attached hereto as Exhibit D.

"Books and Records" means all books, operating records, operating, safety and maintenance manuals, engineering design plans, blueprints and as-built plans, specifications, procedures and similar items relating specifically to the Purchased Assets.

"Business" means the ownership and operation of the Project, including the generation and sale of electricity and capacity at or from the Project and the conduct of other activities related or incidental to the foregoing.

"Business Day" means a day other than Saturday, Sunday or any day on which banks located in the State of Arizona are authorized or obligated to close.

"Certificate of Environmental Compatibility" means the Decision of the Arizona Power Plant and Transmission Line Siting Committee and Certificate of Environmental Compatibility issued on April 11, 2001, and revised nunc pro tunc on June 25, 2001, by the Arizona Power Plant and Transmission Line Siting Committee in Case No. 107, Docket No. L-00000W-00-0107 (Decision No. 63863), as affirmed and approved on July 9, 2001 by the Arizona Corporation Commission, with respect to the Project.

"Charter Documents" means with respect to any Person, the articles of incorporation or organization and by-laws, the limited partnership agreement, the partnership agreement or the limited liability company agreement, or such other organizational documents of such Person, including those that are required to be registered or kept in the place of incorporation, organization or formation of such Person and which establish the existence of such Person as a legal entity.

"Claim" means any demand, claim, action, investigation, legal proceeding (whether at law or in equity) or arbitration.

"Claimant" has the meaning set forth in Section 11.6(b).

"Closing" means the closing of the transactions contemplated by this Agreement, as provided for in Section 3.3.

"Closing Date" means the date on which Closing occurs.

"Code" means the Internal Revenue Code of 1986, as amended.

"Confidential Information" means Seller Information or Purchaser Information, individually or collectively as the context may require.

"Continued Employee" has the meaning set forth in Section 6.5(b).

"Contract" means any written contract, lease, license, evidence of indebtedness, mortgage, indenture, purchase order, binding bid, letter of credit, security agreement or other legally binding arrangement.

"Credit Rating" means (i) with respect to any entity other than a financial institution, the current (A) rating issued or maintained by S&P or Moody's with respect to such entity's senior, unsecured debt securities or (B) corporate credit rating or long-term issuer rating issued or maintained with respect to such entity by S&P or Moody's, or (ii) if such entity is a financial institution, the ratings issued or maintained by S&P or Moody's with respect to such entity's long-term, unsecured, unsubordinated deposits.

"Deed" means the form of Special Warranty Deed from Seller to Purchaser attached hereto as Exhibit C.

"Disclosing Party" has the meaning given to it in Section 12.5(d).

"Dispute" has the meaning given to it in Section 11.6(a).

"DWR" has the meaning given to it in Section 4.13(s)(iv).

"Environmental Claim" means any Claim arising out of or related to any violation of Environmental Law, or in respect of any Environmental Conditions or Hazardous Materials.

"Environmental Condition" means the presence or Release to the environment, whether at the Real Property or otherwise, of Hazardous Materials, including any migration of Hazardous Materials through air, soil or groundwater at, to or from the Real Property or at, to or from any Off-Site Location, regardless of when such presence or Release occurred or is discovered.

"Environmental Law" means any Law relating to (i) facility siting, land use and environmental matters, (ii) the control of any pollutant, or protection of the air, water, or land, (iii) solid, gaseous or liquid waste generation, handling, treatment, storage, disposal or transportation, (iv) exposure to hazardous, toxic or other harmful substances, and (v) the protection and enhancement of the environment. Environmental Laws shall include the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.; the Clean Air Act, 42 U.S.C. § 7401 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. § 1471 et seq.; the Toxic Substances Control Act, 15 U.S.C. §§ 2601 through 2629; the Oil Pollution Act, 33 U.S.C. § 2701 et seq.; the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. § 11 001 et seq.; the Safe Drinking Water Act, 42 U.S.C. §§ 300f through 300j; Endangered Species Act, 16 U.S.C. §§ 1531 et seq.; Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. §§ 136 et seq.; Occupational Safety and Health Act; National Environmental Policy Act; Comprehensive Air Quality Act, A.R.S. §§ 49-401 et seq.; Arizona Emergency Planning and Community Right-to-Know Act, A.R.S. §§ 26-341 et seq.; Water Quality Control, A.R.S. §§ 49-201 to 391; Solid Waste Management, A.R.S. §§ 49-701 to 881; Hazardous Waste Disposal, A.R.S. §§ 49-901 to 971; Underground Storage Tank Act, A.R.S. §§ 49-1001 to 1073; Groundwater Management Act, A.R.S. §§45-401 to 704 and all similar Laws of any Governmental Authority having jurisdiction over the assets in question addressing pollution or protection of the environment and all amendments to such Laws and all regulations implementing any of the foregoing.

"Environmental Liabilities" means all Liabilities with respect to the Purchased Assets or the Business arising under or relating to Environmental Laws or relating to any Environmental Claim, including settlements, judgments, costs and expenses, including reasonable attorneys fees, whether based on common law or Environmental Laws.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.

"ERISA Affiliate" means any entity, trade or business that is a member of a group described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes Seller, or that is a member of the same "controlled group" as Seller pursuant to Section 4001(a)(14) of ERISA; provided, that Seller shall not be considered to be an ERISA Affiliate from and after the Closing Date.

"Estimated Prorated Amounts" has the meaning given to it in Section 3.2(c)(ii).

"Excluded Assets" has the meaning given to it in Section 2.2.

"Excluded Contracts" has the meaning given to it in Section 2.2(f).

"Excluded Environmental Liabilities" has the meaning given to it in Section 2.4(i).

"Excluded Items" has the meaning given to it in Section 2.2(h).

"Excluded Liabilities" has the meaning given to it in Section 2.4.

"Excluded Tort Liabilities" has the meaning given to it in Section 2.4(j).

"Existing Survey" has the meaning given to it in Section 4.13(b).

"Existing Title Policies" means (a) Title Insurance Policy No. O-993-2374088, dated September 21, 2001, by Stewart Title and Trust of Phoenix, Inc. insuring PPL Sundance Energy, LLC, and (b) Title Insurance Policy No. 0-9993-2407891, dated November 19, 2001, by Stewart Title and Trust of Phoenix, Inc. insuring PPL Sundance Energy, LLC.

"FERC" means the Federal Energy Regulatory Commission, or its successor.

"Final Order" means an action by a Governmental Authority as to which: (a) no request for stay of the action is pending, no such stay is in effect and if any time period is permitted by applicable Law for filing any request for such stay, such time period has expired; (b) no petition for rehearing, reconsideration or application for review of the action is pending and the time for filing any such petition or application has expired; (c) such Governmental Authority does not have the action under reconsideration or subject to rehearing on its own motion or otherwise and the time in which such reconsideration or rehearing is permitted has expired; and (d) no appeal to a court, or a request for stay by a court of the Governmental Authority's action is pending or in effect and the deadline for filing any such appeal or request has expired. For purposes of determining the consent and approval of Governmental Authorities under the HSR Act, a "Final Order" shall include the signing of any stipulation between the Governmental Authority and the Parties allowing consummation of the transactions contemplated hereby and by the Ancillary Documents.

"FIRPTA Affidavit" means an affidavit, signed by and acknowledged on behalf of Seller under penalties of perjury, certifying that Seller is not a nonresident alien, foreign corporation, foreign partnership, foreign trust, foreign estate, or other foreign person within the meaning of Section 1445 and 7701 of the Internal Revenue Code of 1986, as amended, and the associated Treasury Regulations.

"GAAP" means generally accepted accounting principles in the United States of America applied on a consistent basis.

"Good Operating Practices" means, with respect to the Project or the Purchased Assets, the practices, methods and acts generally engaged in or approved by a significant portion of the independent electric power industry in the WECC for similarly situated facilities in the WECC during a particular time period, or any of such practices, methods, and acts, which, in the exercise of reasonable judgment in light of the facts known or that reasonably should be known at the time a decision is made, would be expected to accomplish the desired result in a manner consistent with applicable Law, reliability, safety, environmental protection, economy and expedition, and taking into consideration the requirements of this Agreement, the Material Contracts and the other Contracts affecting the operation of the Project. Good Operating Practices are not intended to be limited to the optimum practices, methods or acts, to the exclusion of all others, but rather to include a spectrum of possible practices, methods or acts generally acceptable in the region during the relevant period in light of the circumstances.

"Governmental Authority" means any court, tribunal, authority, agency, commission, official or other instrumentality of the United States, or any domestic state, province, county, city or other political subdivision or similar governing entity, and including any governmental, quasi-governmental or non-governmental body administering, regulating or having general oversight over gas, electricity, power or other markets.

"Guaranty Agreement" has the meaning given to it in Section 3.4(j).

"Hazardous Material" means any chemicals, materials, substances, or items in any form, whether solid, liquid, gaseous, semisolid, or any combination thereof, whether waste materials, raw materials, chemicals, finished products, by-products, or any other materials or articles, which are listed or regulated as hazardous, toxic or dangerous or as waste or a contaminant, or are otherwise listed or regulated, or for which liability or standards of care are imposed, under any Environmental Law, including petroleum products, asbestos, PCBs, coal combustion by-products, urea formaldehyde foam insulation, lead-containing paints or coatings, and any substances included in the definition of "hazardous debris," "hazardous substances," "hazardous materials," "hazardous wastes," "toxic substances," "pollutants," "contaminants" or words of similar import, under any Environmental Law.

"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and regulations thereunder.

"Improvements" means all buildings, structures, fixtures and improvements located on the Real Property or included in the Purchased Assets, including those under construction as of the Closing Date.

"Indemnified Party" has the meaning given to it in Section 11.5(a).

"Indemnifying Party" has the meaning given to it in Section 11.5(a).

"Independent Accountants" means a nationally recognized firm of independent certified public accountants that is mutually acceptable to Seller and Purchaser.

"Insured Exception" has the meaning given to it in Section 6.11(c).

"Intellectual Property" means the following intellectual property rights, both statutory and common law rights, if applicable: (a) copyrights, and registrations and applications for registration thereof, (b) trademarks, trademark rights, service marks, service mark rights, trade names, trade name rights, slogans, domain names, logos and trade dress, and registrations and applications for registrations thereof, (c) patents, as well as any reissued and reexamined patents and extensions corresponding to the patents, and any patent rights and patent applications, as well as any related continuation, continuation in part and divisional applications and patents issuing therefrom and (d) trade secrets and confidential information, including ideas, designs, concepts, inventions, compilations of information, methods, techniques, procedures, processes and other know-how, whether or not patentable.

"Interim Period" has the meaning given to it in Section 6.1.

"Inventory Adjustment Notice" has the meaning given to it in Section 3.7(c).

"Investment Grade Entity" means an entity having a Credit Rating of BBB- or above from S&P and Baa3 or above from Moody's.

"Knowledge" when used in a particular representation or otherwise herein (a) with respect to Seller, means Seller's Knowledge, and (b) with respect to Purchaser, means Purchaser's Knowledge.

"Laws" means all laws, statutes, rules, regulations, ordinances, judgments, orders, decrees and other pronouncements having the effect of law of any Governmental Authority.

"Liability" with respect to any Person, any liability, indebtedness or obligation of such Person of any kind, character or description, whether known or unknown, absolute or contingent, accrued or unaccrued, disputed or undisputed, liquidated or unliquidated, secured or unsecured, joint or several, due or to become due, vested or unvested, executory, determined, determinable or otherwise, and whether or not the same is required to be accrued on the financial statements of such Person.

"Lien" means any mortgage; deed of trust; pledge; security interest; adverse possessory right; mechanic's, materialmen's or other lien; covenant, condition or restriction; charge or assessment; lease; easement; license; purchase option; right of first refusal; or any other matter affecting title of any nature whatsoever.

"Loss" means any and all judgments, losses, Liabilities, amounts paid in settlement, damages, fines, penalties, deficiencies, losses and expenses (including interest, court costs, reasonable fees and expenses of attorneys, accountants and other experts or other reasonable expenses of litigation or other proceedings or of any claim, default or assessment). For all purposes in this Agreement the term "Losses" does not include any Non-reimbursable Damages.

"Martin Farms Indemnity Obligations" has the meaning given to it in Section 11.1(d).

"Martin Farms Lease" has the meaning given to it in Section 4.13(s)(iv).

"Material Contract" or "Material Contracts" has the meaning given to it in Section 4.12(a).

"Minimum Inventory Amount" means one million fifty thousand dollars ($1,050,000).

"Moody's" means Moody's Investor Services, Inc., or any successor thereto.

"Non-reimbursable Damages" has the meaning given to it in Section 11.2(b).

"Off-Site Location" means any real property other than the Real Property.

"Original Cost" means the cost of utility property at the time such property was brought into service.

"Participation Agreement" has the meaning given to it in Section 6.15.

"Party" means each of Purchaser and Seller, individually; and "Parties" means Purchaser and Seller, collectively.

"Permits" means all licenses, permits, certificates of authority, authorizations, approvals, franchises, exemptions, variances, consents, orders, judgments or decrees granted by, or any notices to, declarations of, or filings or registrations with, any Governmental Authority under any provision of any applicable Laws.

"Permitted Lien" means (a) any Lien for Taxes not yet due or delinquent; (b) imperfections or irregularities of title and other Liens that would not, individually or in the aggregate, reasonably be expected to have a Seller Material Adverse Effect; (c) zoning, planning, entitlement, conservation restriction and other similar governmental limitations and restrictions; (d) any Lien to be released on or prior to Closing; (e) any statutory Lien (other than mechanics' or materialmen's Liens) arising in the ordinary course of business by operation of Law with respect to a Liability that is not yet due or delinquent; and (f) each item set forth on Schedule 2.1; provided, however, that Permitted Liens shall include (i) any Lien for Taxes and (ii) any statutory Lien, to the extent not otherwise included in clauses (a) and (e) above, but only if such are being contested in good faith by appropriate proceedings for which adequate reserves have been establi shed in accordance with GAAP.

"Person" means any natural person, corporation, general partnership, limited partnership, limited liability company, proprietorship, other business organization, trust, union, joint venture, association, whether or not a legal entity, and any Governmental Authority.

"Plant Acquisition Adjustment" means the difference between the cost to the utility of plant acquired as an operating unit or system by purchase, merger, consolidation, liquidation or otherwise, and the Original Cost of such plant less the amount(s) credited at the time of acquisition to Accumulated Provision for Depreciation and Amortization.

"Post-Closing Inventory Amount Determination" has the meaning given to it in Section 3.7(c).

"PPL Energy Supply" means PPL Energy Supply, LLC, a Delaware limited liability company and Affiliate of Seller.

"PPL EnergyPlus" means PPL EnergyPlus, LLC, a Pennsylvania limited liability company and Affiliate of Seller.

"PPL Montana" means PPL Montana, LLC, a Delaware limited liability company and Affiliate of Seller.

"Pre-Closing Environmental Liabilities/Tort Liabilities" has the meaning given to it in Section 11.1(c).

"Pre-Closing Transactions" has the meaning given to it in Section 6.14(b).

"Prepayments" means all advance payments, including but not limited to any advance payments made in connection with the Master Power Purchase and Sale Agreement Confirmation Letter, for a term beginning June 1, 2003, by and between Tucson Electric Power and PPL EnergyPlus, LLC, as amended by Amendment dated May 6, 2003, prepaid expenses, progress payments and deposits of Seller, rights to receive prepaid expenses, deposits or progress payments relating to the ownership, operation and maintenance of the Purchased Assets, but not including any prepaid expenses or deposits attributable to Excluded Assets.

"Project" means the 450 MW generating plant located on a site owned by Seller in Pinal County, Arizona, together with all auxiliary equipment, ancillary and associated facilities and equipment, electrical transformers, pipeline and electrical interconnection and metering facilities (whether owned or leased) that are located at such site, together with all other improvements that are located at such site.

"Project Employee" has the meaning given to it in Section 4.21(a).

"Property Tax Return" means any returns, declarations, reports, bills, claims for refund, information returns or other documents (including any related or supporting schedules, statements or information) filed or required to be filed in connection with the determination, assessment or collection of any Property Taxes or in connection with the administration of any statutes, laws, rules, regulations, orders or awards of any Governmental Authorities relating to any Property Taxes.

"Property Taxes" means any tax, imposition or assessment resulting from and relating to the assessment of real or personal property by any Governmental Authority.

"Prorated Difference" has the meaning given to it in Section 3.2(c)(ii).

"Purchase Price" has the meaning given to it in Section 3.1.

"Purchase Price Allocation Schedule" has the meaning given to it in Section 3.6.

"Purchased Assets" means, subject to the Permitted Liens, all of the right, title and interest in, to and under the real and personal property, tangible or intangible, constituting the Project or used principally for generation purposes in connection with the Project including the following assets owned by Seller: (i) the Real Property described on Schedule 4.13(a) as associated with the Project, together with all easements, rights of way and privileges (including water rights) relating to the Project; (ii) all inventories of fuels, supplies, materials and spares located on or in transit to the Real Property on the Closing Date or otherwise held for use principally in connection with the Project on the Closing Date; (iii) the machinery, equipment, vehicles, furniture and other personal property located on the Real Property or held for use principally in connection with the Project on the Closing Date, including the items of personal property included in Sc hedule 4.14 as being associated with the Project, and all Warranty Rights; (iv) the Transferred Contracts; (v) the Transferred Permits; (vi) the Transferred Intellectual Property; (vii) all Books and Records; (viii) all financial records relating primarily to the Purchased Assets, and plant in service, construction work in process, fuel inventory, spares and materials and supplies in inventory records; (ix) any emission reduction credits paid for or obtained for the Purchased Assets; (x) Prepayments; and (xi) all rights, privileges, claims, causes of action and options against any third parties (including indemnification, contribution and insurance claims) relating to any Purchased Assets or Assumed Liabilities.

"Purchaser" has the meaning given to it in the introduction to this Agreement.

"Purchaser Approvals" has the meaning given to it in Section 5.3(c).

"Purchaser Indemnified Parties" has the meaning given to it in Section 11.1(a).

"Purchaser Information" has the meaning given to it in Section 12.5(a).

"Purchaser Material Adverse Effect" means a material adverse effect on (i) the ability of Purchaser to perform its obligations under this Agreement, (ii) the validity or enforceability of this Agreement or any of the Ancillary Agreements, or (iii) the rights or remedies of Seller hereunder or thereunder.

"Purchaser's Applicable Contracts" has the meaning given to it in Section 9.8(c).

"Purchaser's Knowledge" has the meaning given to it in Section 5.4.

"Purchaser's Notice" has the meaning given to it in Section 6.11(b).

"Real Property" means the real property of which any of the Project is a part or on which the Project is located, together with all rights, privileges, easements and rights-of-way appurtenant thereto and Improvements thereon, as described in Schedule 4.13(a).

"Real Property Leases" has the meaning given to it in Section 4.13(c).

"Receiving Party" has the meaning given to it in Section 12.5(d).

"Records" has the meaning given to it in Section 6.14(a).

"Release" means any actual or threatened release, spill, emission, migration, leaking, pumping, injection, deposit, disposal or discharge of any Hazardous Materials into the environment, to the extent prohibited under applicable Environmental Laws.

"Representatives" means, with respect to any Person, such Person's officers, directors, employees, counsel, accountants, financial advisers, consultants and other advisers.

"Request Date" has the meaning given to it in Section 3.2(c)(ii).

"Respondent" has the meaning given to it in Section 11.6(b).

"S&P" means the Standard & Poor's Rating Group, a division of The McGraw-Hill Companies, Inc., or any successor thereto.

"Schedules" means the disclosure schedules prepared by Seller and attached to this Agreement.

"Seller" has the meaning given to it in the introduction to this Agreement.

"Seller Approvals" has the meaning given to it in Section 4.3(c).

"Seller Consents" has the meaning given to it in Section 4.3(b).

"Seller Indemnified Parties" has the meaning given to it in Section 11.1(b).

"Seller Information" has the meaning given to it in Section 12.5(b).

"Seller Material Adverse Effect" means an effect caused by any event, circumstance, condition, development, or occurrence, individually or in the aggregate, that is or is reasonably likely to be materially adverse to the Business, Purchased Assets or operations, performance or condition (financial or otherwise) of Seller or the Project, taken as a whole; provided that the following shall not be considered when determining whether a Seller Material Adverse Effect has occurred: any effect resulting from (i) any change resulting from changes in the international, national, regional or local wholesale or retail markets for electricity; (ii) any change resulting from changes in the international, national, regional or local markets for any fuel used at the Project; (iii) any change resulting from changes in the North American, national, regional or local electricity or gas transmission systems; (iv) any change in the financial condition or results of operations o f Seller caused by the pending sale of the Purchased Assets to Purchaser; or (v) any actions to be taken pursuant to or in accordance with this Agreement, excluding any actions taken by Seller pursuant to the "emergency situations" provision in the last paragraph of Section 6.3.

"Seller Plans" has the meaning given to it in Section 6.5(c).

"Seller's Knowledge" has the meaning given to it in Section 4.4.

"Survey" has the meaning given to it in Section 6.11(a)(ii)(B).

"Synthetic Lease Transaction" has the meaning given to it in Section 6.15.

"Tax" or "Taxes" means any federal, state, local or foreign income, gross receipts, ad valorem, sales, transaction privilege or use, employment, social security, disability, occupation, rent, property, severance, value added, transfer, capital stock, excise or other taxes, charges, fees, levies or other assessments imposed by or on behalf of any Taxing Authority, including any interest or penalty thereon, or any addition thereto.

"Tax Return" means any returns, declarations, reports, bills, claims for refund, information returns (including where permitted or required, any consolidated, combined or unitary returns) or other documents (including any related or supporting schedules, statements or information) filed or required to be filed in connection with the determination, assessment or collection of any Taxes or in connection with the administration of any statutes, laws, rules, regulations, orders or awards of any Governmental Authorities relating to any Taxes.

"Taxing Authority" means, with respect to any Tax, the Governmental Authority that imposes such Tax, and the Governmental Authority (if any) charged with the collection of such Tax for the Governmental Authority that imposes such Tax.

"Termination Date" has the meaning given to it in Section 10.1(g).

"Threshold Amount" has the meaning given to it in Section 11.4(b).

"Title Commitment" has the meaning given to it in Section 6.11(a)(i)(A).

"Title Exception Documents" has the meaning given to it in Section 6.11(a)(i)(B).

"Title Insurer" has the meaning given to it in Section 6.11(a)(i).

"Title Objection" has the meaning given to it in Section 6.11(b).

"Tort Liabilities" means all Liabilities (other than Environmental Liabilities) to third parties for personal injury or tort, or similar causes of action arising out of the Business or the ownership, lease, maintenance or operation of the Purchased Assets.

"Transfer Taxes" means all transfer, sales, transaction privilege, use, goods and services, value added, documentary, stamp duty, gross receipts, excise, transfer and conveyance Taxes and other similar Taxes, duties, fees or charges.

"Transferred Contracts" means all Contracts to which Seller (or any Affiliate of Seller) is a party and relating to the Business or by which the Purchased Assets may be bound (including the Material Contracts but excluding the Excluded Contracts), subject to receipt of necessary consents and approvals.

"Transferred Intellectual Property" means the Intellectual Property identified on Schedule 4.18 as "Transferred Intellectual Property," subject to receipt of necessary consents and approvals, and any plant drawings, equipment performance data, design criteria or maintenance records collected by the Seller's data collection or other information technology systems or software and relating to the Project, whether or not identified on Schedule 4.18 as "Transferred Intellectual Property."

"Transferred Permits" means the Permits identified on Schedule 4.15 as "Transferred Permits," subject to receipt of necessary consents and approvals.

"Warranty Rights" means warranties against manufacturers or vendors relating to the Purchased Assets, to the extent that such warranties relate specifically to the Project, are unexpired as of the Closing and are transferable, including those warranties set forth on Schedule 4.12(e).

"Water Rights" has the meaning given to it in Section 4.13(s)(i).

"Water Rights Certificate" has the meaning given to it in Section 4.13(s)(iv).

"WECC" means the Western Electricity Coordinating Council, or its successor.

"Welfare Benefits" has the meaning given to it in Section 6.5(e).

"Wells" has the meaning given to it in Section 4.13(s)(ii).

EX-10

Exhibit 10(b)

$800,000,000

FIVE-YEAR CREDIT AGREEMENT

dated as of June 22, 2004

among

PPL ENERGY SUPPLY, LLC,

THE LENDERS FROM TIME TO TIME PARTY HERETO,

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

BARCLAYS BANK PLC

and

CITIBANK, N.A.,
as Syndication Agents,

WACHOVIA CAPITAL MARKETS, LLC

and

BARCLAYS CAPITAL,
as Lead Arrangers,

and

JPMORGAN CHASE BANK

and

THE BANK OF NOVA SCOTIA,
as Documentation Agents

ARTICLE I		DEFINITIONS	1
	Section 1.01	Definitions	1
ARTICLE II		THE CREDITS	17
	Section 2.01	Commitments to Lend	17
	Section 2.02	Notice of Borrowings	17
	Section 2.03	Notice to Lenders; Funding of Loans	18
	Section 2.04	Noteless Agreement; Evidence of Indebtedness	19
	Section 2.05	Interest Rates	19
	Section 2.06	Fees	21
	Section 2.07	Adjustments of Commitments	22
	Section 2.08	Maturity of Loans; Mandatory Prepayments	25
	Section 2.09	Optional Prepayments and Repayments	26
	Section 2.10	General Provisions as to Payments	26
	Section 2.11	Funding Losses	27
	Section 2.12	Computation of Interest and Fees	27
	Section 2.13	Basis for Determining Interest Rate Inadequate, Unfair or Unavailable	27
	Section 2.14	Illegality	27
	Section 2.15	Increased Cost and Reduced Return	28
	Section 2.16	Taxes	29
	Section 2.17	Base Rate Loans Substituted for Affected Euro-Dollar Loans	31
ARTICLE III		Letters of Credit	32
	Section 3.01	Existing Letters of Credit	32
	Section 3.02	Additional Letters of Credit	32
	Section 3.03	Method of Issuance of Letters of Credit	32
	Section 3.04	Conditions to Issuance of Additional Letters of Credit	33
	Section 3.05	Purchase and Sale of Letter of Credit Participations	33
	Section 3.06	Drawings under Letters of Credit	33
	Section 3.07	Reimbursement Obligations	34
	Section 3.08	Duties of Issuing Lenders to Lenders; Reliance	34
	Section 3.09	Obligations of Lenders to Reimburse Issuing Lender for Unpaid Drawings	35
	Section 3.10	Funds Received from the Borrower in Respect of Drawn Letters of Credit	36
	Section 3.11	Obligations in Respect of Letters of Credit Unconditional	36
	Section 3.12	Indemnification in Respect of Letters of Credit	37
	Section 3.13	ISP98	37
ARTICLE IV		CONDITIONS	38
	Section 4.01	Conditions to Closing	38
	Section 4.02	Conditions to All Credit Events	39
ARTICLE V		REPRESENTATIONS AND WARRANTIES	40
	Section 5.01	Status	40
	Section 5.02	Authority; No Conflict	40
	Section 5.03	Legality; Etc	40
	Section 5.04	Financial Condition	41
	Section 5.05	Rights to Properties	41
	Section 5.06	Litigation	41
	Section 5.07	No Violation	42
	Section 5.08	ERISA	42
	Section 5.09	Governmental Approvals	42
	Section 5.10	Investment Company Act	42
	Section 5.11	Public Utility Holding Company Act	42
	Section 5.12	Restricted Subsidiaries, Etc	42
	Section 5.13	Tax Returns and Payments	42
	Section 5.14	Compliance with Laws	43
	Section 5.15	No Default	43
	Section 5.16	Environmental Matters	43
	Section 5.17	Reportable Transactions	44
	Section 5.18	Guarantees	44
ARTICLE VI		COVENANTS	44
	Section 6.01	Information	44
	Section 6.02	Maintenance of Property; Insurance	46
	Section 6.03	Conduct of Business and Maintenance of Existence	46
	Section 6.04	Compliance with Laws, Etc	46
	Section 6.05	Books and Records	47
	Section 6.06	Use of Proceeds	47
	Section 6.07	Restriction on Liens	47
	Section 6.08	Merger or Consolidation	50
	Section 6.09	Asset Sales	50
	Section 6.10	Transactions with Affiliates	50
	Section 6.11	Restrictive Agreements	51
	Section 6.12	Consolidated Debt to Consolidated Capitalization Ratio	51
	Section 6.13	Cash Interest Coverage Ratio	51
	Section 6.14	Indebtedness	51
ARTICLE VII		DEFAULTS	51
	Section 7.01	Events of Default	51
ARTICLE VIII		THE AGENTS	53
	Section 8.01	Appointment and Authorization	53
	Section 8.02	Individual Capacity	54
	Section 8.03	Delegation of Duties	54
	Section 8.04	Reliance by the Administrative Agent	54
	Section 8.05	Notice of Default	54
	Section 8.06	Non-Reliance on the Agents and Other Lenders	55
	Section 8.07	Exculpatory Provisions	55
	Section 8.08	Indemnification	56
	Section 8.09	Resignation; Successors	56
	Section 8.10	Administrative Agent's Fees; Arranger Fee	56
ARTICLE IX		MISCELLANEOUS	57
	Section 9.01	Notices	57
	Section 9.02	No Waivers; Non-Exclusive Remedies	58
	Section 9.03	Expenses; Indemnification	58
	Section 9.04	Sharing of Set-Offs	59
	Section 9.05	Amendments and Waivers	59
	Section 9.06	Successors and Assigns	60
	Section 9.07	Governing Law; Submission to Jurisdiction	62
	Section 9.08	Counterparts; Integration; Effectiveness	62
	Section 9.09	Generally Accepted Accounting Principles	63
	Section 9.10	Usage	63
	Section 9.11	WAIVER OF JURY TRIAL	64
	Section 9.12	Confidentiality	64
	Section 9.13	USA PATRIOT Act Notice	65

Appendices and Schedules:
	Commitment Appendix
	Schedule 3.01	Existing Letters of Credit
	Schedule 5.12	Restricted Subsidiaries, Etc.
	Schedule 5.18	Guarantees of Foreign Subsidiary Debt
	Schedule 6.07	Existing Liens
	Schedule 6.11	Restrictive Agreements
	Schedule 6.14	Existing Debt

Exhibits
	Exhibit A-1 -	Form of Notice of Borrowing
	Exhibit A-2 -	Form of Notice of Conversion/Continuation
	Exhibit A-3 -	Form of Letter of Credit Request
	Exhibit A-4 -	Form of Extension Letter
	Exhibit B -	Form of Revolving Note
	Exhibit C -	Form of Assignment and Assumption Agreement
	Exhibit D -	Forms of Opinion of Counsel for the Borrower

    FIVE-YEAR CREDIT AGREEMENT (this "Agreement") dated as of June 22, 2004 among PPL ENERGY SUPPLY, LLC, the LENDERS party hereto from time to time, WACHOVIA BANK, NATIONAL ASSOCIATION, as Administrative Agent and Issuing Lender, BARCLAYS BANK PLC AND CITIBANK, N.A., as Syndication Agents, WACHOVIA CAPITAL MARKETS, LLC and BARCLAYS CAPITAL (the investment banking division of Barclays Bank PLC), as Lead Arrangers, and JPMORGAN CHASE BANK and THE BANK OF NOVA SCOTIA, as Documentation Agents.

PPL ENERGY SUPPLY, LLC, a Delaware limited liability company (together with its successors, the "Borrower"), has requested and the Lenders (as hereinafter defined) have agreed to provide credit facilities to the Borrower in an aggregate principal amount of up to $800,000,000 for the purposes and on the terms and conditions set out in this Agreement.

ARTICLE I

DEFINITIONS

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

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

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

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

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

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

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

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

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

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

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

	Borrower's Ratings (S&P/Moody's)	Applicable Percentage for Commitment Fees	Applicable Percentage for Base Rate Loans	Applicable Percentage for Euro-Dollar Loans and Letter of Credit Fees
Category A	A-/A3 or higher	.150%	0%	.500%
Category B	BBB+/Baa1	.175%	0%	.625%
Category C	BBB/Baa2	.200%	0%	.875%
Category D	BBB-/Baa3	.275%	.125%	1.125%
Category E	BB+/Ba1 or lower or unrated	.325%	.500%	1.625%

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

	Ratings (S&P/Moody's)	Usage > 33 1/3% of Total Commitments
Category A	A-/A3 or higher	.125%
Category B	BBB+/Baa1	.125%
Category C	BBB/Baa2	.125%
Category D	BBB-/Baa3	.125%
Category E	BB+/Ba1 or lower or unrated	.125%

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

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

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

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

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

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

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

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

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

"Borrower" is defined in the Recital.

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

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

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

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

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

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

"Closing Date" means the date, not later than June 22, 2004, on which the Administrative Agent determines that the conditions specified in or pursuant to Section 4.01 have been satisfied.

"Commitment" means, with respect to any Lender, the commitment of such Lender to make Revolving Loans under this Agreement as set forth in the Commitment Appendix and to purchase participations in Letters of Credit pursuant to Article III hereof.

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

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

"Consolidated Capitalization" shall mean the sum of, without duplication, (A) the Consolidated Debt of the Borrower, (B) the consolidated shareowners' equity (determined in accordance with GAAP) of the common, preference and preferred stockholders of the Borrower and minority interests recorded on the Borrower's consolidated financial statements (excluding therefrom the effect of all unrealized gains and losses reported under Financial Accounting Standards Board Statement No. 133 in connection with forward contracts, futures contracts or other derivatives or commodity hedging agreements for the future delivery of electricity or capacity), (C) up to an aggregate amount of $200,000,000 of Hybrid Preferred Securities and (D) up to an aggregate amount of $200,000,000 of Equity-Linked Securities, except that for purposes of calculating Consolidated Capitalization of the Borrower, Consolidated Debt of the Borrower shall exclude Non-Recourse Debt and Consolidated Capitalization of the Borrower shall exclude that portion of shareholder equity attributable to assets securing Non-Recourse Debt.

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

"Consolidated Debt" means the consolidated Debt of the Borrower and its Consolidated Subsidiaries (determined in accordance with GAAP), except that for purposes of this definition (a) Consolidated Debt of the Borrower shall exclude Non-Recourse Debt and (b) Consolidated Debt of the Borrower shall exclude (i) up to an aggregate amount of $200,000,000 of Hybrid Preferred Securities and (ii) up to an aggregate amount of $200,000,000 of Equity-Linked Securities.

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

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

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

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

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

"Continuing Lender" means with respect to any event described in Section 2.07(b), a Lender which is not a Retiring Lender, and "Continuing Lenders" means any two or more of such Continuing Lenders.

"Corporation" means a corporation, association, company, joint stock company, limited liability company, partnership or business trust.

"Credit Event" means a Borrowing or the issuance, renewal or extension of a Letter of Credit.

"Current Revolving Termination Date" shall have the meaning set forth in Section 2.07(c)(i).

"Debt" of any Person means, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person with respect to deposits or advances of any kind, (iii) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (iv) all Guarantees by such Person of Debt of others, (v) all Capital Lease Obligations and Synthetic Leases of such Person, (vi) all obligations of such Person in respect of Interest Rate Protection Agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements (the amount of any such obligation to be the net amount that would be payable upon the acceleration, termination or liquidation thereof), but only to the extent that such net obligations exceed $75,000,000 in the aggregate and (vii) all obligations of such Person as an account party in respect of letters of credit and bankers' acceptances; provided, however, that "Debt" of such Person does not include (a) obligations of such Person under any installment sale, conditional sale or title retention agreement or any other agreement relating to obligations for the deferred purchase price of property or services (b) obligations under agreements relating to the purchase and sale of any commodity, including any power sale or purchase agreements, any commodity hedge or derivative (regardless of whether any such transaction is a "financial" or physical transaction), (c) any trade obligations or other obligations of such Person incurred in the ordinary course of business or (d) obligations of such Person under any lease agreement (including any lease intended as security) that is not a Capital Lease or a Synthetic Lease.

"Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default.

"Defaulting Lender" means at any time any Lender with respect to which a Lender Default is in effect at such time.

"Disclosure Qualification" means that (i) no representation, warranty or covenant is made with respect to any information concerning the Agent, any Lender any other lender or collateral agent, any direct or indirect members of, or any Affiliates or agents or other representatives of any of the foregoing, (ii) no representation, warranty or covenant is made with respect to the terms or effects of or any Person's (other than the Borrower's) rights or obligations under any agreement or document and (iii) any representation, warranty or covenant that is stated to be subject to the Disclosure Qualification in any materials provided to Lenders is subject to the foregoing clauses (i) to (ii) and to the additional qualifications, assumptions and disclaimers set forth in such materials.

"Documentation Agents" means JPMorgan Chase Bank and The Bank of Nova Scotia, in their capacity as documentation agents for the Lenders under this Agreement and under the other Loan Documents, and their respective successors in such capacity.

"Dollars" and the sign "$" means lawful money of the United States of America.

"Effective Date" means the date this Agreement becomes effective in accordance with Section 9.08.

"Eligible Assignee" means (i) a Lender; (ii) a commercial bank organized under the laws of the United States and having a combined capital and surplus of at least $100,000,000; (iii) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000; provided, that such bank is acting through a branch or agency located and licensed in the United States; or (iv) an Affiliate of a Lender that is an "accredited investor" (as defined in Regulation D under the Securities Act of 1933, as amended); provided, that upon and following the occurrence of an Event of Default, an Eligible Assignee shall mean any Person.

"Environmental Laws" means any and all federal, state and local statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses or other written governmental restrictions relating to the environment or to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or Hazardous Substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or Hazardous Substances or wastes.

"Environmental Liabilities" means all liabilities (including anticipated compliance costs) in connection with or relating to the business, assets, presently or previously owned, leased or operated property, activities (including, without limitation, off-site disposal) or operations of the Borrower or any of its Subsidiaries, whether vested or unvested, contingent or fixed, actual or potential, which arise under or relate to matters covered by Environmental Laws.

"Equity-Linked Securities" means any securities of the Borrower or any of its Subsidiaries which are convertible into, or exchangeable for, equity securities of the Borrower, such Subsidiary or PPL Corporation, including any securities issued by any of such Persons which are pledged to secure any obligation of any holder to purchase equity securities of the Borrower, any of its Subsidiaries or PPL Corporation.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute.

"ERISA Group" means the Borrower and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414(b) or (c) of the Internal Revenue Code.

"Euro-Dollar Lending Office" means, as to each Lender, its office, branch or Affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or Affiliate of such Lender as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Administrative Agent.

"Euro-Dollar Borrowing" means a Borrowing comprised of Euro-Dollar Loans.

"Euro-Dollar Loan" means a Loan in respect of which interest is computed on the basis of the Adjusted London Interbank Offered Rate pursuant to the applicable Notice of Borrowing or Notice of Conversion/Continuation.

"Euro-Dollar Reserve Percentage" of any Lender for the Interest Period of any LIBOR Rate Loan means the reserve percentage applicable to such Lender during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) then applicable to such Lender with respect to liabilities or assets consisting of or including "Eurocurrency Liabilities" (as defined in Regulation D). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage.

"Event of Default" has the meaning set forth in Section 7.01.

"Existing Credit Agreements" means the (i) $300,000,000 Three-Year Revolving Credit Agreement dated as of June 25, 2002 among the Borrower, Wachovia Bank, National Association, as Administrative Agent and Issuing Lender, Citibank, N.A., as Syndication Agent, WCM (successor to Wachovia Securities, Inc.) and Citigroup Global Markets, Inc. (successor to Salomon Smith Barney, Inc.), as Lead Arrangers, Bank One, N.A., Barclays Bank PLC and JPMorgan Chase Bank, as Documentation Agents, and the lenders from time to time party thereto, as amended through the date hereof and (ii) $200,000,000 Three-Year Revolving Credit Agreement dated as of June 26, 2001 among the Borrower, Wachovia Bank, National Association (successor to First Union National Bank), as Administrative Agent and Issuing Lender, Citibank, N.A., as Syndication Agent, Barclays Bank PLC, Westdeutsche Landesbank Gironzentrale, New York Branch, and Bank One, N.A., as Documentation Agents, and the lenders from time to time party thereto, as amended through the date hereof.

"Existing Debt" means the Debt outstanding on the Closing Date and listed on Schedule 6.14 hereto.

"Existing Letters of Credit" means the letters of credit issued before the Closing Date pursuant to the Existing Credit Agreements and listed in attached Schedule 3.01, and "Existing Letter of Credit" means any one of them.

"Existing Synthetic Lease Financing" means each of the following lease financings existing as of the date hereof, regardless of whether such financing constitutes a "Synthetic Lease" within the meaning of this Agreement: (i) the Lower Mount Bethel project and (ii) the lease financing involving PPL Large Scale Distributed Generation II, LLC.

"Extension Date" means, in the event the Revolving Termination Date or the Current Revolving Termination Date, as applicable, is extended pursuant to Section 2.07(c), either (i) in a year in which the Current Revolving Termination Date does not occur, the anniversary of the Closing Date occurring in any such year or (ii) in the year in which the Current Revolving Termination Date is scheduled to occur, the then Current Revolving Termination Date.

"Extension Letter" means a letter from the Borrower to the Administrative Agent requesting an extension of the Revolving Termination Date substantially in the form of Exhibit A-4 hereto.

"Federal Funds Rate" means for any day the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided, that (i) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average of quotations for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by the Administrative Agent.

"Fee Letter" means the letter designated as such dated as of April 29, 2004 by the Administrative Agent and WCM, as Lead Arranger and Joint Book Manager, addressed to and acknowledged and agreed to by the Borrower.

"Final Election Date" has the meaning set forth in Section 2.07(c)(i).

"Financial Projections" means (a) any forward looking statement (within the meaning of the Securities Act of 1933 and the rules and regulations thereunder) and (b) any "prospective financial statement, financial forecast or financial projection" (as defined in guidelines published by the American Institute of Certified Public Accountants).

"Foreign Subsidiary" means a Subsidiary which is not formed under the laws of the United States or any territory thereof.

"Fronting Fee" has the meaning set forth in Section 2.06(b).

"GAAP" means United States generally accepted accounting principles applied on a consistent basis.

"Governmental Authority" means any federal, state or local government, authority, agency, central bank, quasi-governmental authority, court or other body or entity, and any arbitrator with authority to bind a party at law.

"Group of Loans" means at any time a group of Loans consisting of (i) all Loans which are Base Rate Loans at such time or (ii) all Loans which are Euro-Dollar Loans of the same Type having the same Interest Period at such time; provided, that, if a Loan of any particular Lender is converted to or made as a Base Rate Loan pursuant to Sections 2.14 or 2.17, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been in if it had not been so converted or made.

"Guarantee" of or by any person means any obligation, contingent or otherwise, of such person guaranteeing or having the economic effect of guaranteeing any Debt of any other person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or to purchase (or to advance or supply funds for the purchase of) any security for payment of such Debt, (ii) to purchase or lease property, securities or services for the purpose of assuring the owner of such Debt of the payment of such Debt or (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Debt; provided, however, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business.

"Hazardous Substances" means any toxic, caustic or otherwise hazardous substance, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics.

"Hybrid Preferred Securities" means any trust preferred securities, or deferrable interest subordinated debt with a maturity of at least 20 years issued by the Borrower, or any business trusts, limited liability companies, limited partnerships (or similar entities) (i) all of the common equity, general partner or similar interests of which are owned (either directly or indirectly through one or more wholly owned Subsidiaries) at all times by the Borrower or any of its Subsidiaries, (ii) that have been formed for the purpose of issuing hybrid preferred securities and (iii) substantially all the assets of which consist of (A) subordinated debt of the Borrower or a Subsidiary of the Borrower, as the case may be, and (B) payments made from time to time on the subordinated debt.

"Indemnitee" has the meaning set forth in Section 9.03(b).

"Interest Period" means with respect to each Euro-Dollar Loan, a period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in the applicable Notice of Conversion/Continuation and ending one, two, three or six months thereafter, as the Borrower may elect in the applicable notice; provided, that:

(i)    any Interest Period which would otherwise end on a day which is not a Business Day shall, subject to clauses (iii) and (iv) below, be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;

(ii)    any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (iii) below, end on the last Business Day of a calendar month;

(iii)    if any Interest Period includes a date on which a payment of principal of the Loans is required (based on circumstances existing at the first day of such Interest Period) to be made under Section 2.08 but does not end on such date, then (x) the principal amount (if any) of each Euro-Dollar Loan required to be repaid on such date shall have an Interest Period ending on such date and (y) the remainder (if any) of each such Euro-Dollar Loan shall have an Interest Period determined as set forth above; and

(iv)    no Interest Period shall end after the Revolving Termination Date.

"Interest Rate Protection Agreements" means any agreement providing for an interest rate swap, cap or collar, or any other financial agreement designed to protect against fluctuations in interest rates.

"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, or any successor statute.

"Issuing Lender" means (i) Wachovia Bank, National Association, in its capacity as an issuer of Letters of Credit under Section 3.02, and its successor or successors in such capacity and (ii) each Lender listed in Schedule 3.01 hereto as the issuer of an Existing Letter of Credit.

"Lead Arrangers" means WCM and Barclays Capital (the investment banking division of Barclays Bank PLC), in their capacities as lead arrangers for the Lenders hereunder and under the other Loan Documents, and their successors in such capacity.

"Lender" means each bank or other lending institution listed in the Commitment Appendix as having a Revolving Commitment, each Eligible Assignee that becomes a Lender pursuant to Section 9.06(c) and their respective successors and shall include, as the context may require and each Issuing Lender in such capacity.

"Lender Default" means (i) the failure (which has not been cured) of any Lender to make available any Loan or any reimbursement for a drawing under a Letter of Credit which in either case it is obligated to make available under the terms and conditions of this Agreement or (ii) a Lender having notified the Administrative Agent and the Borrower that such Lender does not intend to comply with its obligations under Article II following the appointment of a receiver or conservator with respect to such Lender at the direction or request of any regulatory agency or authority.

"Letter of Credit" means an Existing Letter of Credit or an Additional Letter of Credit, and "Letters of Credit" means any combination of the foregoing.

"Letter of Credit Commitment" means the aggregate Revolving Commitment.

"Letter of Credit Fee" has the meaning set forth in Section 2.06(b).

"Letter of Credit Liabilities" means, for any Lender at any time, the product derived by multiplying (i) the sum, without duplication, of (A) the aggregate amount that is (or may thereafter become) available for drawing under all Letters of Credit outstanding at such time plus (B) the aggregate unpaid amount of all Reimbursement Obligations outstanding at such time by (ii) the quotient derived by dividing such Lender's Revolving Commitment by the aggregate of the Revolving Commitments of all Revolving Lenders.

"Letter of Credit Request" has the meaning set forth in Section 3.03.

"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance intended to confer or having the effect of conferring upon a creditor a preferential interest.

"Loan" means a Base Rate Loan or a Euro-Dollar Loan, and "Loans" means any combination of the foregoing.

"Loan Documents" means this Agreement and the Revolving Notes.

"London Interbank Offered Rate" means, for any Euro-Dollar Loan for any Interest Period, the interest rate for deposits in Dollars for a period of time comparable to such Interest Period which appears on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days before the first day of such Interest Period; provided, however, if more than one rate is specified on Telerate page 3750, the applicable rate shall be the arithmetic means of all such rates. If for any reason such rate is not available, the term "London Interbank Offered Rate" means for any Interest Period, the rate per annum appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days before the first day of such Interest Period for a period of time comparable to such Interest Period; provided, however, that if more than one such rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%). If for any reason the London interbank offered rate is not available on either Telerate page 3750 or Reuters Screen LIBO Page, the term "London Interbank Offered Rate" means for any Interest Period, the rate per annum at which deposits in Dollars are offered to Wachovia Bank, National Association in the London interbank market at approximately 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Loan of Wachovia Bank, National Association to which such Interest Period is to apply and for a period of time comparable to such Interest Period.

"Mandatory Letter of Credit Borrowing" has the meaning set forth on Section 3.09.

"Margin Stock" means "margin stock" as such term is defined in Regulation U.

"Material Adverse Effect" means (i) any material adverse effect upon the business, assets, financial condition or operations of the Borrower or the Borrower and its Subsidiaries, taken as a whole; (ii) a material adverse effect on the ability of the Borrower to perform its obligations under this Agreement, the Revolving Notes or the other Loan Documents or (iii) a material adverse effect on the validity or enforceability of this Agreement, the Revolving Notes or any of the other Loan Documents.

"Material Debt" means Debt (other than the Revolving Notes) of the Borrower and/or one or more of its Restricted Subsidiaries in a principal or face amount exceeding $40,000,000.

"Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $25,000,000.

"Moody's" means Moody's Investors Service, Inc., a Delaware corporation, and its successors or, absent any such successor, such nationally recognized statistical rating organization as the Borrower and the Administrative Agent may select.

"Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions.

"New Lender" means with respect to any event described in Section 2.07(b), an Eligible Assignee which becomes a Lender hereunder as a result of such event, and "New Lenders" means any two or more of such New Lenders.

"Non-Defaulting Lender" means each Lender other than a Defaulting Lender, and "Non-Defaulting Lenders" means any two or more of such Lenders.

"Non-Extending Lender" shall have the meaning set forth in Section 2.07(c)(i).

"Non-Recourse Debt" shall mean Debt that is nonrecourse to the Borrower or any Restricted Subsidiary.

"Non-U.S. Lender" has the meaning set forth in Section 2.16(e).

"Notice of Borrowing" has the meaning set forth in Section 2.02.

"Notice of Conversion/Continuation" has the meaning set forth in Section 2.05(d)(ii).

"Obligations" means:

(i)    all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any Loan, fees payable or Reimbursement Obligation under, or any Revolving Note issued pursuant to, this Agreement or any other Loan Document;

(ii)    all other amounts now or hereafter payable by the Borrower and all other obligations or liabilities now existing or hereafter arising or incurred (including, without limitation, any amounts which accrue after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on the part of the Borrower pursuant this Agreement or any other Loan Document;

(iii)    all expenses of the Agents as to which such Agents have a right to reimbursement under Section 9.03(a) hereof or under any other similar provision of any other Loan Document; and

(iv)    all amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement under Section 9.03 hereof or under any other similar provision of any other Loan Document;

together in each case with all renewals, modifications, consolidations or extensions thereof.

"Other Taxes" has the meaning set forth in Section 2.16(b).

"Parent" means PPL Corporation, a Pennsylvania corporation, and its successors.

"Participant" has the meaning set forth in Section 9.06(b).

"PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

"Permitted Business" with respect to any Person means a business that is the same or similar to the business of the Borrower or any Subsidiary as of the date hereof, or any business reasonably related thereto.

"Person" means an individual, a corporation, a partnership, an association, a limited liability company, a trust or an unincorporated association or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

"Plan" means at any time an employee pension benefit plan (including a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group.

"Prime Rate" means the rate of interest publicly announced by Wachovia Bank, National Association in Charlotte, North Carolina from time to time as its Prime Rate.

"Quarterly Date" means the last Business Day of each March, June, September and December.

"Refinanced Agreements" means the Existing Credit Agreements and all instruments, documents and agreements relating thereto, in all cases as in effect on the Closing Date.

"Register" has the meaning set forth in Section 9.06(e).

"Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System, as amended, or any successor regulation.

"Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as amended, or any successor regulation.

"Reimbursement Obligations" means at any time all obligations of the Borrower to reimburse the Issuing Lenders pursuant to Section 3.07 for amounts paid by the Issuing Lenders in respect of drawings under Letters of Credit, including any portion of any such obligation to which a Lender has become subrogated pursuant to Section 3.09.

"Replacement Date" has the meaning set forth in Section 2.07(b).

"Replacement Lender" has the meaning set forth in Section 2.07(b).

"Required Lenders" means at any time Non-Defaulting Lenders having at least 51% of the aggregate amount of the Revolving Commitments of all Non-Defaulting Lenders or, if the Revolving Commitments shall have been terminated, having at least 51% of the aggregate amount of the Revolving Outstandings of the Non-Defaulting Lenders at such time.

"Restricted Subsidiary" means each Subsidiary listed on Schedule 5.12 and each other Subsidiary designated by the Borrower as a "Restricted Subsidiary" in writing to the Administrative Agent; provided, that, each Restricted Subsidiary shall be a direct Wholly-Owned Subsidiary of the Borrower or a direct Wholly-Owned Subsidiary of a Restricted Subsidiary.

"Retiring Lender" means a Lender that ceases to be a Lender hereunder pursuant to the operation of Section 2.07(b).

"Revolving" means, when used with respect to (i) a Lender's Commitment, such Lender's Revolving Commitment, as such Revolving Commitment may be reduced from time to time pursuant to Sections 2.07, 2.08 or 9.06(c) or increased from time to time pursuant to Section 9.06(c), (ii) a Borrowing, a Borrowing made by the Borrower under Section 2.01, as identified in the Notice of Borrowing with respect thereto, or a Mandatory Letter of Credit Borrowing, (iii) a Loan, a Loan made under Section 2.01; provided, that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Conversion/Continuation, the term "Revolving Loan" shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be, and (iv) a Revolving Note, a promissory note, substantially in the form of Exhibit B hereto, issued at the request of a Lender evidencing the obligation of the Borrower to repay outstanding Revolving Loans.

"Revolving Outstandings" means at any time, with respect to any Lender, the sum of (i) the aggregate principal amount of such Lender's outstanding Revolving Loans plus (ii) the aggregate amount of such Lender's outstanding Letter of Credit Liabilities.

"Revolving Termination Date" means June 22, 2009 (or, if such day is not a Business Day, the next preceding Business Day), as extended from time to time pursuant to Section 2.07(c), or such earlier date upon which the Revolving Commitments shall have been terminated in their entirety in accordance with this Agreement.

"SEC" means the Securities and Exchange Commission.

"S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill, Inc., a New York corporation, and its successors or, absent any such successor, such nationally recognized statistical rating organization as the Borrower and the Administrative Agent may select.

"Special Purpose Subsidiary" means any Wholly-Owned Subsidiary (regardless of the form of organization) of the Borrower formed solely for the purpose of, and which engages in no other activities except those necessary for, effecting financings related to Synthetic Leases.

"Standby Letter of Credit" has the meaning set forth in Section 3.02.

"Subsidiary" means, any Corporation a majority of the outstanding Voting Stock of which is owned, directly or indirectly, by the Borrower or one or more other Subsidiaries of the Borrower.

"Syndication Agents" means Barclays Bank PLC and Citibank, N.A., in their capacities as syndication agents for the Lenders hereunder and under the other Loan Documents, and their successors in such capacity.

"Synthetic Lease" means any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product where such transaction is considered borrowed money indebtedness for tax purposes but is classified as an operating lease in accordance with GAAP.

"Taxes" has the meaning set forth in Section 2.16(a).

"Type", when used in respect of any Loan or Borrowing, shall refer to the rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined.

"Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA.

"United States" means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions.

"Voting Stock" means stock (or other interests) of a Corporation having ordinary voting power for the election of directors, managers or trustees thereof, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency.

"WCM" means Wachovia Capital Markets, LLC, and its successors and assigns.

"Wholly-Owned Subsidiary" means, with respect to any Person at any date, any Subsidiary of such Person all of the Voting Stock of which (except directors' qualifying shares) are at the time directly or indirectly owned by such Person.

ARTICLE II

THE CREDITS

Section 2.01    Commitments to Lend. Each Lender severally agrees, on the terms and conditions set forth in this Agreement, to make Revolving Loans to the Borrower pursuant to this Section 2.01 from time to time during the Availability Period in amounts such that its Revolving Outstandings shall not exceed its Revolving Commitment; provided, that, immediately after giving effect to each such Revolving Loan, the aggregate Revolving Outstandings of all Lenders shall not exceed the aggregate amount of the Revolving Commitments of all Lenders. Each Revolving Borrowing (other than Mandatory Letter of Credit Borrowings) shall be in an aggregate principal amount of $10,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the aggregate amount of the unused Revolving Commitments) and shall be made from the several Lenders ratably in proportion to their respective Revolving Commitments. Within the foregoing limits, the Borrower may borrow under this Section 2.01, repay, or, to the extent permitted by Section 2.09, prepay, Revolving Loans and reborrow under this Section 2.01.

Section 2.02    Notice of Borrowings. The Borrower shall give the Administrative Agent notice substantially in the form of Exhibit A-1 hereto (a "Notice of Borrowing") not later than (a) 11:30 A.M. (Charlotte, North Carolina time) on the date of each Base Rate Borrowing and (b) 12:00 Noon (Charlotte, North Carolina time) on the third Business Day before each Euro-Dollar Borrowing, specifying:

(i)    the date of such Borrowing, which shall be a Business Day;

(ii)    the aggregate amount of such Borrowing;

(iii)    the initial Type of the Loans comprising such Borrowing; and

(iv)    in the case of a Euro-Dollar Borrowing, the duration of the initial Interest Period applicable thereto, subject to the provisions of the definition of Interest Period.

Notwithstanding the foregoing, no more than 6 Groups of Euro-Dollar Loans shall be outstanding at any one time, and any Loans which would exceed such limitation shall be made as Base Rate Loans.

Section 2.03    Notice to Lenders; Funding of Loans.

(a)    Notice to Lenders. Upon receipt of a Notice of Borrowing, the Administrative Agent shall promptly notify each Lender of such Lender's ratable share (if any) of the Borrowing referred to in the Notice of Borrowing, and such Notice of Borrowing shall not thereafter be revocable by the Borrower.

(b)    Funding of Loans. Not later than (a) 1:00 P.M. (Charlotte, North Carolina time) on the date of each Base Rate Borrowing and (b) 12:00 Noon (Charlotte, North Carolina time) on the date of each Euro-Dollar Borrowing, each Lender participating therein shall make available its share of such Borrowing, in Federal or other funds immediately available in Charlotte, North Carolina, to the Administrative Agent at its address referred to in Section 9.01. Unless the Administrative Agent determines that any applicable condition specified in Article IV has not been satisfied, the Administrative Agent shall apply any funds so received in respect of Revolving Loans available to the Borrower at the Administrative Agent's address not later than (a) 3:00 P.M. (Charlotte, North Carolina time) on the date of each Base Rate Borrowing and (b) 2:00 P.M. (Charlotte, North Carolina time) on the date of each Euro-Dollar Borrowing.

(c)    Funding By the Administrative Agent in Anticipation of Amounts Due from the Lenders. Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing (except in the case of a Base Rate Borrowing, in which case prior to the time of such Borrowing) that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available to the Administrative Agent on the date of such Borrowing in accordance with subsection (b) of this Section, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such share available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount, together with interest thereon for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent at (i) a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.05, in the case of the Borrower, and (ii) the Federal Funds Rate, in the case of such Lender. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender's Loan included in such Borrowing for purposes of this Agreement.

(d)    Obligations of Lenders Several. The failure of any Lender to make a Loan required to be made by it as part of any Borrowing hereunder shall not relieve any other Lender of its obligation, if any, hereunder to make any Loan on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on such date of Borrowing.

Section 2.04    Noteless Agreement; Evidence of Indebtedness.

(a)    Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.

(b)    The Administrative Agent shall also maintain accounts in which it will record (a) the amount of each Loan made hereunder, the Type thereof and the Interest Period with respect thereto, (b) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (c) the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender's share thereof.

(c)    The entries maintained in the accounts maintained pursuant to paragraphs (a) and (b) above shall be prima facie evidence of the existence and amounts of the Obligations therein recorded; provided, however, that the failure of the Administrative Agent or any Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Obligations in accordance with their terms.

(d)    Any Lender may request that its Revolving Loans be evidenced by a Revolving Note. In such event, the Borrower shall prepare, execute and deliver to such Lender a Revolving Note payable to the order of such Lender. Thereafter, the Revolving Loans evidenced by such Revolving Note and interest thereon shall at all times (including after any assignment pursuant to Section 9.06(c)) be represented by one or more Revolving Notes payable to the order of the payee named therein or any assignee pursuant to Section 9.06(c), except to the extent that any such Lender or assignee subsequently returns any such Revolving Note for cancellation and requests that such Loans once again be evidenced as described in paragraphs (a) and (b) above.

Section 2.05    Interest Rates.

(a)    Interest Rate Options. The Loans shall, at the option of the Borrower and except as otherwise provided herein, be incurred and maintained as, or converted into, one or more Base Rate Loans or Euro-Dollar Loans.

(b)    Base Rate Loans. Each Loan which is made as, or converted into, a Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made as, or converted into, a Base Rate Loan until it becomes due or is converted into a Loan of any other Type, at a rate per annum equal to the sum of the Base Rate for such day plus the Applicable Percentage, if any, for Base Rate Loans for such day. Such interest shall be payable quarterly in arrears on each Quarterly Date and, with respect to the principal amount of any Base Rate Loan converted to a Euro-Dollar Loan, on the date such Base Rate Loan is so converted. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for such day.

(c)    Euro-Dollar Loans. Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of the Adjusted London Interbank Offered Rate for such Interest Period plus the Applicable Percentage for Euro-Dollar Loans for such day plus the Applicable Utilization Fee for such day, if any; provided, that if any Euro-Dollar Loan or any portion thereof shall, as a result of clause (iii) of the definition of Interest Period, have an Interest Period of less than one month, such portion shall bear interest during such Interest Period at the rate applicable to Base Rate Loans during such period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the sum of (A) the Adjusted London Interbank Offered Rate applicable to such Loan at the date such payment was due plus (B) the Applicable Percentage for Euro-Dollar Loans for such day plus (C) the Applicable Utilization Fee, if any (or, if the circumstance described in Section 2.13 shall exist, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day).

(d)    Method of Electing Interest Rates.

      (i)    Subject to Section 2.05(a), the Loans included in each Borrowing shall bear interest initially at the type of rate specified by the Borrower in the applicable Notice of Borrowing. Thereafter, with respect to each Group of Loans, the Borrower shall have the option (A) to convert all or any part of (y) so long as no Default or Event of Default is in existence on the date of conversion, outstanding Base Rate Loans to Euro-Dollar Loans and (z) outstanding Euro-Dollar Loans to Base Rate Loans; provided, that in each case that the amount so converted shall be equal to $10,000,000 or any larger multiple of $1,000,000, or (B) upon the expiration of any Interest Period applicable to outstanding Euro-Dollar Loans, so long as no Default or Event of Default is in existence on the date of continuation, to continue all or any portion of such Loans equal to $10,000,000 and any larger multiple of $1,000,000 in excess of that amount as Euro-Dollar Loans. The Interest Period of any Base Rate Loan converted to a Euro-Dollar Loan pursuant to clause (A) above shall commence on the date of such conversion. The succeeding Interest Period of any Euro-Dollar Loan continued pursuant to clause (B) above shall commence on the last day of the Interest Period of the Loan so continued. Euro-Dollar Loans may only be converted on the last day of the then current Interest Period applicable thereto or on the date required pursuant to Section 2.17.

      (ii)    The Borrower shall deliver a written notice of each such conversion or continuation (a "Notice of Conversion/Continuation") to the Administrative Agent no later than (A) 12:00 Noon (Charlotte, North Carolina time) at least three Business Days before the date of the proposed conversion to, or continuation of, a Euro-Dollar Loan and (B) 11:30 A.M. (Charlotte, North Carolina time) on the day of a conversion to a Base Rate Loan. A written Notice of Conversion/Continuation shall be substantially in the form of Exhibit A-2 attached hereto and shall specify: (A) the Group of Loans (or portion thereof) to which such notice applies, (B) the proposed conversion/continuation date (which shall be a Business Day), (C) the aggregate amount of the Loans being converted/continued, (D) an election between the Base Rate and the Adjusted London Interbank Offered Rate and (E) in the case of a conversion to, or a continuation of, Euro-Dollar Loans, the requested Interest Period. Upon receipt of a Notice of Conversion/Continuation, the Administrative Agent shall give each Lender prompt notice of the contents thereof and such Lender's pro rata share of all conversions and continuations requested therein. If no timely Notice of Conversion/Continuation is delivered by the Borrower as to any Euro-Dollar Loan, and such Loan is not repaid by the Borrower at the end of the applicable Interest Period, such Loan shall be converted automatically to a Base Rate Loan on the last day of the then applicable Interest Period.

(e)    Determination and Notice of Interest Rates. The Administrative Agent shall determine each interest rate applicable to the Loans hereunder. The Administrative Agent shall give prompt notice to the Borrower and the participating Lenders of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. Any notice with respect to Euro-Dollar Loans shall, without the necessity of the Administrative Agent so stating in such notice, be subject to adjustments in the Applicable Percentage applicable to such Loans after the beginning of the Interest Period applicable thereto. When during an Interest Period any event occurs that causes an adjustment in the Applicable Percentage applicable to Loans to which such Interest Period is applicable, the Administrative Agent shall give prompt notice to the Borrower and the Lenders of such event and the adjusted rate of interest so determined for such Loans, and its determination thereof shall be conclusive in the absence of manifest error.

Section 2.06    Fees.

(a)    Commitment Fees. The Borrower shall pay to the Administrative Agent for the account of each Lender a fee (the "Commitment Fee") for each day at a rate per annum equal to the Applicable Percentage for the Commitment Fee for such day. The Commitment Fee shall accrue from and including the Effective Date to but excluding the last day of the Availability Period on the amount by which such Lender's Revolving Commitment exceeds the sum of its Revolving Outstandings on such day, and shall be payable on the last day of each March, June, September and December and on the Revolving Termination Date.

(b)    Letter of Credit Fees. The Borrower shall pay to the Administrative Agent a fee (the "Letter of Credit Fee") for each day at a rate per annum equal to the Applicable Percentage for the Letter of Credit Fee for such day plus the Applicable Utilization Fee for such day, if any. The Letter of Credit Fee shall accrue from and including the Effective Date to but excluding the last day of the Availability Period on the aggregate amount available for drawing under any Letters of Credit outstanding on such day and shall be payable for the account of the Lenders ratably in proportion to their participations in such Letter(s) of Credit. In addition, the Borrower shall pay to each Issuing Lender a fee (the "Fronting Fee") in respect of each Letter of Credit issued by such Issuing Lender computed at the rate of .125% per annum on the average amount available for drawing under such Letter(s) of Credit. Fronting Fees shall be due and payable quarterly in arrears on each Quarterly Date and upon the first day after the Revolving Termination Date upon which no Letters of Credit remain outstanding. In addition, the Borrower agrees to pay to each Issuing Lender, upon each issuance of, payment under, and/or amendment of, a Letter of Credit, such amount as shall at the time of such issuance, payment or amendment be the administrative charges and expenses which such Issuing Lender is customarily charging for issuances of, payments under, or amendments to letters of credit issued by it.

(c)    Payments. Except as otherwise provided in this Section 2.06, accrued fees under this Section 2.06 in respect of Loans and Letter of Credit Liabilities shall be payable quarterly in arrears on each Quarterly Date, on the last day of the Availability Period and, if later, on the date the Loans and Letter of Credit Liabilities shall be repaid in their entirety. Fees paid hereunder shall not be refundable under any circumstances.

Section 2.07    Adjustments of Commitments.

(a)    Optional Termination or Reductions of Commitments (Pro-Rata). The Borrower may, upon at least three Business Days' prior written notice to the Administrative Agent, (i) terminate the Revolving Commitments, if there are no Revolving Outstandings at such time or (ii) ratably reduce from time to time by a minimum amount of $10,000,000 or any integral multiple of $5,000,000, the aggregate amount of the Revolving Commitments in excess of the aggregate Revolving Outstandings. Upon receipt of any such notice, the Administrative Agent shall promptly notify the Lenders. If the Revolving Commitments are terminated in their entirety, all accrued fees shall be payable on the effective date of such termination.

(b)    Optional Termination of Commitments (Non-Pro-Rata). If (i) any Lender has demanded compensation or indemnification pursuant to Sections 2.13, 2.14, 2.15 or 2.16, (ii) the obligation of any Lender to make Euro-Dollar Loans has been suspended pursuant to Section 2.14 or (iii) any Lender is a Defaulting Lender (each such Lender described in clauses (i), (ii) or (iii) being a "Retiring Lender"), the Borrower shall have the right, if no Default or Event of Default then exists, to replace such Lender with one or more Eligible Assignees (which may be one or more of the Continuing Lenders) (each a "Replacement Lender" and, collectively, the "Replacement Lenders") reasonably acceptable to the Administrative Agent. The replacement of a Retiring Lender pursuant to this Section 2.07(b) shall be effective on the tenth Business Day (the "Replacement Date") following the date of notice of such replacement to the Retiring Lender and each Continuing Lender through the Administrative Agent, subject to the satisfaction of the following conditions:

      (i)    the Replacement Lender shall have satisfied the conditions to assignment and assumption set forth in Section 9.06(c) (with all fees payable pursuant to Section 9.06(c) to be paid by the Borrower) and, in connection therewith, the Replacement Lender(s) shall pay:

            (A)    to the Retiring Lender an amount equal in the aggregate to the sum of (x) the principal of, and all accrued but unpaid interest on, all outstanding Loans of the Retiring Lender, (y) all unpaid drawings that have been funded by (and not reimbursed to) the Retiring Lender under Section 3.10, together with all accrued but unpaid interest with respect thereto and (z) all accrued but unpaid fees owing to the Retiring Lender pursuant to Section 2.07; and

             (B)    to the Issuing Lenders an amount equal to the aggregate amount owing by the Retiring Lender to the Issuing Lenders as reimbursement pursuant to Section 3.09, to the extent such amount was not theretofore funded by such Retiring Lender; and

      (ii)    the Borrower shall have paid to the Administrative Agent for the account of the Retiring Lender an amount equal to all obligations owing to the Retiring Lender by the Borrower pursuant to this Agreement and the other Loan Documents (other than those obligations of the Borrower referred to in clause (i)(A) above).

On the Replacement Date, each Replacement Lender that is a New Lender shall become a Lender hereunder, and the Retiring Lender shall cease to constitute a Lender hereunder; provided, that the provisions of this Agreement (including, without limitation, the provisions of Sections 2.11, 2.15, 2.16 and 9.03) shall continue to govern the rights and obligations of a Retiring Lender with respect to any Loans made, any Letters of Credit issued or any other actions taken by such Retiring Lender while it was a Lender.

In lieu of the foregoing, upon express written consent of a majority of the Continuing Lenders, the Borrower shall have the right to terminate the Revolving Commitment of a Retiring Lender in full. Upon payment by the Borrower to the Administrative Agent for the account of the Retiring Lender of an amount equal to the sum of (i) the aggregate principal amount of all Loans and Letter of Credit Liabilities held by the Retiring Lender and (ii) all accrued interest, fees and other amounts owing to the Retiring Lender hereunder, including, without limitation, all amounts payable by the Borrower to the Retiring Lender under Sections 2.11, 2.15, 2.16 or 9.03, such Retiring Lender shall cease to constitute a Lender hereunder; provided, that the provisions of this Agreement (including, without limitation, the provisions of Sections 2.11, 2.15, 2.16 and 9.03) shall continue to govern the rights and obligations of a Retiring Lender with respect to any Loans made, any Letters of Credit issued or any other actions taken by such Retiring Lender while it was a Lender.

(c)    Optional Extensions of Commitments.

     (i)    The Borrower may, by sending an Extension Letter to the Administrative Agent (in which case the Administrative Agent shall promptly deliver a copy to each of the Lenders), not less than 30 days and not more than 60 days prior to each anniversary of the Closing Date, request that the Lenders extend the Revolving Termination Date then in effect (the "Current Revolving Termination Date") so that it will occur one year after the Current Revolving Termination Date. Each Lender, acting in its sole discretion, shall, by notice to the Administrative Agent given (A) in a year in which the Current Revolving Termination Date does not occur, not later than any anniversary of the Closing Date and not more than 30 days prior to any anniversary of the Closing Date, or (B) in the year in which the Current Revolving Termination Date is scheduled to occur, not less than 15 days and not more than 30 days prior to the Current Revolving Termination Date (the last date described in clauses (A) and (B) of this Section 2.07(c)(i) on which a Lender may give notice of its intention to extend the Current Revolving Termination Date being referred to herein as the "Final Election Date"), advise the Administrative Agent in writing whether or not such Lender agrees to such extension (each Lender that so advises the Administrative Agent that it will not extend the Current Revolving Termination Date being referred to herein as a "Non-Extending Lender"); provided, that any Lender that does not advise the Administrative Agent by the Final Election Date shall be deemed to be a Non-Extending Lender. The election of any Lender to agree to such extension shall not obligate any other Lender to agree.

     (ii)    (A) If Lenders holding Revolving Commitments that aggregate at least 51% of the aggregate Commitments of the Lenders on or prior to the Final Election Date shall not have agreed to extend the Revolving Termination Date, then the Current Revolving Termination Date shall not be so extended and the outstanding principal balance of all loans and other amounts payable hereunder shall be due and payable on the Current Revolving Termination Date. (B) If (and only if) Lenders holding Revolving Commitments that aggregate at least 51% of the aggregate Commitment of the Lenders on or prior to the Final Election Date shall have agreed to extend the Current Revolving Termination Date, then the Revolving Termination Date applicable to the Lenders that are Continuing Lenders shall, as of the Extension Date, be the day that is one year after the Current Revolving Termination Date. In the event of such extension, the Commitment of each Non-Extending Lender shall terminate on the Current Revolving Termination Date applicable to such Non-Extending Lender, all Loans and other amounts payable hereunder to such Non-Extending Lender shall become due and payable on such Current Revolving Termination Date and the aggregate Commitment of the Lenders hereunder shall be reduced by the aggregate Commitments of Non-Extending Lenders so terminated on and after such Current Revolving Termination Date. Each Non-Extending Lender shall be required to maintain its original Commitment up to the Revolving Termination Date, or Current Revolving Termination Date, as applicable, for which such Non-Extending Lender had previously agreed upon.

     (iii)    In the event that the conditions of clause (B) of paragraph (ii) above have been satisfied, the Borrower shall have the right on or before the Extension Date, at its own expense, to require any Non-Extending Lender to transfer and assign without recourse or representation (except as to title and the absence of Liens created by it) (in accordance with and subject to the restrictions contained in Section 9.06(c)) all its interests, rights and obligations under the Loan Documents (including with respect to any Letter of Credit Liabilities) to one or more Eligible Assignees (which may include any Lender) (each, an "Additional Commitment Lender"), provided, that (x) such Additional Commitment Lender, if not already a Lender hereunder, shall be subject to the approval of the Administrative Agent (not to be unreasonably withheld), (y) such assignment shall become effective as of the Extension Date and (z) the Additional Commitment Lender shall pay to such Non-Extending Lender in immediately available funds on the effective date of such assignment the principal of and interest accrued to the date of payment on the Loans made by such Non-Extending Lender hereunder and all other amounts accrued for such Non-Extending Lender's account or owed to it hereunder. Notwithstanding the foregoing, no extension of the Revolving Termination Date shall become effective unless, on the Extension Date, the conditions set forth in Section 4.02 shall be satisfied (with all references in such paragraphs to the making of a Loan or issuance of a Letter of Credit being deemed to be references to the extension of the Commitments on the Extension Date) and the Administrative Agent shall have received a certificate to that effect dated the Extension Date and executed by a responsible officer of the Borrower.

Section 2.08    Maturity of Loans; Mandatory Prepayments.

(a)    Scheduled Repayments and Prepayments of Loans; Overline Repayments.

     (i)    The Revolving Loans shall mature on the Revolving Termination Date, and any Revolving Loans or Letter of Credit Liabilities then outstanding (together with accrued interest thereon and fees in respect thereof) shall be due and payable or, in the case of Letters of Credit, cash collateralized pursuant to Section 2.08(a)(ii), on such date.

     (ii)    If on any date the aggregate Revolving Outstandings exceed the aggregate amount of the Revolving Commitments, the Borrower shall prepay, and there shall become due and payable (together with accrued interest thereon), such date an aggregate principal amount of Loans equal to such excess. If the outstanding Revolving Loans have been repaid in full or the Revolving Termination Date shall have occurred and any Letter of Credit Liabilities remain outstanding, the Borrower shall cash collateralize any Letter of Credit Liabilities by depositing in a cash collateral account established and maintained (including the investments made pursuant thereto) by the Administrative Agent pursuant to a cash collateral agreement in form and substance satisfactory to the Administrative Agent such amounts as are necessary so that, after giving effect to the repayment of Revolving Loans and the cash collateralization of Letter of Credit Liabilities pursuant to this subsection, the aggregate Revolving Outstandings do not exceed the aggregate amount of the Revolving Commitments. In determining Revolving Outstandings for purposes of this clause (ii), Letter of Credit Liabilities shall be reduced to the extent that they are cash collateralized as contemplated by this Section 2.08(a)(ii).

(b)    Applications of Prepayments and Reductions.

     (i)    Each prepayment of Loans pursuant to this Section 2.08 shall be applied ratably to the respective Loans of all of the Lenders.

     (ii)    Each payment of principal of the Loans shall be made together with interest accrued on the amount repaid to the date of payment.

     (iii)    Each payment of the Loans shall be applied to such Group or Groups of Loans as the Borrower may designate (or, failing such designation, as determined by the Administrative Agent).

Section 2.09    Optional Prepayments and Repayments.

(a)    Prepayments of Loans. Subject to Section 2.11, the Borrower may (i) upon at least one Business Day's notice to the Administrative Agent, prepay any Base Rate Borrowing or (ii) upon at least three Business Days' notice to the Administrative Agent, prepay any Euro-Dollar Borrowing, in each case in whole at any time, or from time to time in part in amounts aggregating $10,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Lenders included in such Borrowing.

(b)    Notice to Lenders. Upon receipt of a notice of prepayment pursuant to Section 2.09(a), the Administrative Agent shall promptly notify each Lender of the contents thereof and of such Lender's ratable share (if any) of such prepayment, and such notice shall not thereafter be revocable by the Borrower.

Section 2.10    General Provisions as to Payments.

(a)    Payments by the Borrower. The Borrower shall make each payment of principal of and interest on the Loans and Letter of Credit Liabilities and fees hereunder (other than fees payable directly to the Issuing Lenders) not later than 12:00 Noon (Charlotte, North Carolina time) on the date when due, without set-off, counterclaim or other deduction, in Federal or other funds immediately available in Charlotte, North Carolina, to the Administrative Agent at its address referred to in Section 9.01. The Administrative Agent will promptly distribute to each Lender its ratable share of each such payment received by the Administrative Agent for the account of the Lenders. Whenever any payment of principal of or interest on the Base Rate Loans or Letter of Credit Liabilities or of fees shall be due on a day which is not a Business Day, the date for payment thereof shall be extended to the next succeeding Business Day. Whenever any payment of principal of or interest on the Euro-Dollar Loans shall be due on a day which is not a Business Day, the date for payment thereof shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time.

(b)    Distributions by the Administrative Agent. Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date, and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent that the Borrower shall not have so made such payment, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate.

Section 2.11    Funding Losses. If the Borrower makes any payment of principal with respect to any Euro-Dollar Loan pursuant to the terms and provisions of this Agreement (any conversion of a Euro-Dollar Loan to a Base Rate Loan pursuant to Section 2.17 being treated as a payment of such Euro-Dollar Loan on the date of conversion for purposes of this Section 2.11) on any day other than the last day of the Interest Period applicable thereto, or the last day of an applicable period fixed pursuant to Section 2.05(c), or if the Borrower fails to borrow, convert or prepay any Euro-Dollar Loan after notice has been given in accordance with the provisions of this Agreement, the Borrower shall reimburse each Lender within 15 days after demand for any resulting loss or expense incurred by it (and by an existing Participant in the related Loan), including, without limitation, any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or failure to borrow or prepay; provided, that such Lender shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error.

Section 2.12    Computation of Interest and Fees. Interest on Loans based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed. All other interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day).

Section 2.13    Basis for Determining Interest Rate Inadequate, Unfair or Unavailable. If on or prior to the first day of any Interest Period for any Euro-Dollar Loan: (a) Lenders having 50% or more of the aggregate amount of the Revolving Commitments advise the Administrative Agent that the Adjusted London Interbank Offered Rate as determined by the Administrative Agent, will not adequately and fairly reflect the cost to such Lenders of funding their Euro-Dollar Loans for such Interest Period; or (b) the Administrative Agent shall determine that no reasonable means exists for determining the Adjusted London Interbank Offered Rate, the Administrative Agent shall forthwith give notice thereof to the Borrower and the Lenders, whereupon until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Lenders to make Euro-Dollar Loans or to convert outstanding Loans into Euro-Dollar Loans shall be suspended; and (ii) each outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the last day of the current Interest Period applicable thereto. Unless the Borrower notifies the Administrative Agent at least two Domestic Business Days before the date of (or, if at the time the Borrower receives such notice the day is the date of, or the date immediately preceding, the date of such Euro-Dollar Borrowing, by 10:00 A.M. on the date of) any Euro-Dollar Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, such Borrowing shall instead be made as a Base Rate Borrowing.

Section 2.14    Illegality. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Lender (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Lender shall so notify the Administrative Agent, the Administrative Agent shall forthwith give notice thereof to the other Lenders and the Borrower, whereupon until such Lender notifies the Borrower and the Administrative Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Lender to make Euro-Dollar Loans, or to convert outstanding Loans into Euro-Dollar Loans, shall be suspended. Before giving any notice to the Administrative Agent pursuant to this Section, such Lender shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Lender, be otherwise disadvantageous to such Lender. If such notice is given, each Euro-Dollar Loan of such Lender then outstanding shall be converted to a Base Rate Loan either (i) on the last day of the then current Interest Period applicable to such Euro-Dollar Loan if such Lender may lawfully continue to maintain and fund such Loan to such day or (ii) immediately if such Lender shall determine that it may not lawfully continue to maintain and fund such Loan to such day.

Section 2.15    Increased Cost and Reduced Return.

(a)    Increased Costs. If after the date hereof, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System), special deposit, insurance assessment or similar requirement against Letters of Credit issued or participated in by, assets of, deposits with or for the account of or credit extended by, any Lender (or its Applicable Lending Office) or shall impose on any Lender (or its Applicable Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its Euro-Dollar Loans, its Revolving Notes, its obligation to make Euro-Dollar Loans or its obligations hereunder in respect of Letters of Credit, and the result of any of the foregoing is to increase the cost to such Lender (or its Applicable Lending Office) of making or maintaining any Euro-Dollar Loan, or of issuing or participating in any Letter of Credit, or to reduce the amount of any sum received or receivable by such Lender (or its Applicable Lending Office) under this Agreement or under its Revolving Notes with respect thereto, then, within 15 days after demand by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such Lender such additional amount or amounts, as determined by such Lender in good faith, as will compensate such Lender for such increased cost or reduction, solely to the extent that any such additional amounts were incurred by the Lender within 90 days of such demand.

(b)    Capital Adequacy. If any Lender shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Lender (or any Person controlling such Lender) as a consequence of such Lender's obligations hereunder to a level below that which such Lender (or any Person controlling such Lender) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy), then from time to time, within 15 days after demand by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender (or any Person controlling such Lender) for such reduction, solely to the extent that any such additional amounts were incurred by the Lender within 90 days of such demand.

(c)    Notices. Each Lender will promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, that will entitle such Lender to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Lender, be otherwise disadvantageous to such Lender. A certificate of any Lender claiming compensation under this Section and setting forth in reasonable detail the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Lender may use any reasonable averaging and attribution methods.

Section 2.16    Taxes.

(a)    Payments Net of Certain Taxes. Any and all payments by the Borrower to or for the account of any Lender or any Agent hereunder or under any other Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges and withholdings and all liabilities with respect thereto, excluding: (i) taxes imposed on or measured by the net income (including branch profits or similar taxes) of, and gross receipts, franchise or similar taxes imposed on, any Agent or any Lender by the jurisdiction (or subdivision thereof) under the laws of which such Lender or Agent is organized or in which its principal executive office is located or, in the case of each Lender, in which its Applicable Lending Office is located, and (ii) in the case of each Lender, any United States withholding tax imposed on such payments, but only to the extent that such Lender is subject to United States withholding tax at the time such Lender first becomes a party to this Agreement or changes its Applicable Lending Office (all such nonexcluded taxes, duties, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any other Loan Document to any Lender or any Agent, (i) the sum payable shall be increased as necessary so that after making all such required deductions (including deductions applicable to additional sums payable under this Section 2.16(a)) such Lender or Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Borrower shall furnish to the Administrative Agent, for delivery to such Lender, the original or a certified copy of a receipt evidencing payment thereof.

(b)    Other Taxes. In addition, the Borrower agrees to pay any and all present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies, which arise from any payment made pursuant to this Agreement, any Revolving Note or any other Loan Document or from the execution, delivery, registration or enforcement of, or otherwise with respect to, this Agreement, any Revolving Note or any other Loan Document (collectively, "Other Taxes").

(c)    Indemnification. The Borrower agrees to indemnify each Lender and each Agent for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 2.16(c)), whether or not correctly or legally asserted, paid by such Lender or Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto as certified in good faith to the Borrower by each Lender or Agent seeking indemnification pursuant to this Section 2.16(c). This indemnification shall be paid within 15 days after such Lender or Agent (as the case may be) makes demand therefor.

(d)    Refunds or Credits. If a Lender or Agent receives a refund, credit or other reduction from a taxation authority for any Taxes or Other Taxes for which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section 2.16, it shall within 15 days from the date of such receipt pay over the amount of such refund, credit or other reduction to the Borrower (but only to the extent of indemnity payments made or additional amounts paid by the Borrower under this Section 2.16 with respect to the Taxes or Other Taxes giving rise to such refund, credit or other reduction), net of all reasonable out-of-pocket expenses of such Lender or Agent (as the case may be) and without interest (other than interest paid by the relevant taxation authority with respect to such refund, credit or other reduction); provided, however, that the Borrower agrees to repay, upon the request of such Lender or Agent (as the case may be), the amount paid over to the Borrower (plus penalties, interest or other charges) to such Lender or Agent in the event such Lender or Agent is required to repay such refund or credit to such taxation authority.

(e)    Tax Forms and Certificates. On or before the date it becomes a party to this Agreement, from time to time thereafter if reasonably requested by the Borrower, and at any time it changes its Applicable Lending Office, each Lender organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia (a "Non-U.S. Lender") shall deliver to the Borrower and the Administrative Agent: (i) two properly completed and duly executed copies of Internal Revenue Service Form W-8 BEN, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to the benefits under an income tax treaty to which the United States is a party which exempts the Lender from United States withholding tax or reduces the rate of withholding tax on payments of interest for the account of such Lender or (ii) two properly completed and duly executed copies of Internal Revenue Service Form W-8 ECI, or any successor form prescribed by the Internal Revenue Service, certifying that the income receivable pursuant to this Agreement and the other Loan Documents is effectively connected with the conduct of a trade or business in the United States. In addition, each Non-U.S. Lender agrees that from time to time after the Closing Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to the Borrower and the Administrative Agent two new accurate and complete signed originals of Internal Revenue Service Form W-8 BEN or W-8 ECI, or successor forms, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Non-U.S. Lender to a continued exemption from or reduction in United States withholding tax with respect to payments under this Agreement and any other Loan Document, or it shall immediately notify the Borrower and the Administrative Agent of its inability to deliver any such Form or certificate.

(f)    Exclusions. The Borrower shall not be required to indemnify any Non-U.S. Lender or Agent, or to pay any additional amount to any Non-U.S. Lender or Agent, pursuant to Section 2.16(a), (b) or (c) in respect of Taxes or Other Taxes to the extent that the obligation to indemnify or pay such additional amounts would not have arisen but for the failure of such Non-U.S. Lender to comply with the provisions of subsection (e) above.

(g)    Mitigation. If the Borrower is required to pay additional amounts to or for the account of any Lender pursuant to this Section 2.16, then such Lender will use reasonable efforts (which shall include efforts to rebook the Revolving Loans held by such Lender to a new Applicable Lending Office, or through another branch or affiliate of such Lender) to change the jurisdiction of its Applicable Lending Office if, in the good faith judgment of such Lender, such efforts (i) will eliminate or, if it is not possible to eliminate, reduce to the greatest extent possible any such additional payment which may thereafter accrue and (ii) is not otherwise disadvantageous, in the sole determination of such Lender, to such Lender. Any Lender claiming any indemnity payment or additional amounts payable pursuant to this Section shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document reasonably requested in writing by the Borrower or to change the jurisdiction of its Applicable Lending Office if the making of such a filing or change would avoid the need for or reduce the amount of any such indemnity payment or additional amounts that may thereafter accrue and would not, in the sole determination of such Lender, be otherwise disadvantageous to such Lender.

(h)    Confidentiality. Nothing contained in this Section shall require any Lender or any Agent to make available any of its tax returns (or any other information that it deems to be confidential or proprietary).

Section 2.17    Base Rate Loans Substituted for Affected Euro-Dollar Loans. If (a) the obligation of any Lender to make or maintain, or to convert outstanding Loans to, Euro-Dollar Loans has been suspended pursuant to Section 2.14 or (b) any Lender has demanded compensation under Section 2.15(a) with respect to its Euro-Dollar Loans and, in any such case, the Borrower shall, by at least four Business Days' prior notice to such Lender through the Administrative Agent, have elected that the provisions of this Section shall apply to such Lender, then, unless and until such Lender notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer apply:

(i)    all Loans which would otherwise be made by such Lender as (or continued as or converted into) Euro-Dollar Loans shall instead be Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Lenders); and

(ii)    after each of its Euro-Dollar Loans has been repaid (or converted to a Base Rate Loan), all payments of principal that would otherwise be applied to repay such Euro-Dollar Loans shall be applied to repay its Base Rate Loans instead.

If such Lender notifies the Borrower that the circumstances giving rise to such notice no longer apply, the principal amount of each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the first day of the next succeeding Interest Period applicable to the related Euro-Dollar Loans of the other Lenders.

ARTICLE III

Letters of Credit

Section 3.01    Existing Letters of Credit. On the Closing Date, each Issuing Lender that has issued an Existing Letter of Credit shall be deemed, without further action by any party to this Agreement, to have sold to each Lender having a Revolving Commitment, and each such Lender shall be deemed, without further action by any party hereto, to have purchased from such Issuing Lender, without recourse or warranty, an undivided participation interest in such Existing Letter of Credit and the related Letter of Credit Liabilities in the proportion its Revolving Commitment bears to the aggregate Revolving Commitments.

Section 3.02    Additional Letters of Credit. The Issuing Lender agrees, on the terms and conditions set forth in this Agreement, to issue Letters of Credit from time to time before the 5th day prior to the Revolving Termination Date for the account, and upon the request, of the Borrower and in support of such obligations of the Borrower that are acceptable to the Issuing Lender (each such letter of credit, a "Standby Letter of Credit" and, collectively, the "Standby Letters of Credit"); provided, that, immediately after each Letter of Credit is issued, (A) the aggregate amount of the Letter of Credit Liabilities shall not exceed the Letter of Credit Commitment and (B) the Revolving Outstandings shall not exceed the aggregate amount of the Revolving Commitments.

Section 3.03    Method of Issuance of Letters of Credit. The Borrower shall give the Issuing Lender notice substantially in the form of Exhibit A-3 to this Agreement (a "Letter of Credit Request") of the requested issuance or extension of a Letter of Credit prior to 1:00 P.M. (Charlotte, North Carolina time) on the proposed date of the issuance or extension of Standby Letters of Credit (which shall be a Domestic Business Day) (or such shorter period as may be agreed by the Issuing Lender in any particular instance), specifying the date such Letter of Credit is to be issued or extended and describing the terms of such Letter of Credit and the nature of the transactions to be supported thereby. The extension or renewal of any Letter of Credit shall be deemed to be an issuance of such Letter of Credit, and if any Letter of Credit contains a provision pursuant to which it is deemed to be extended unless notice of termination is given by the Issuing Lender, the Issuing Lender shall timely give such notice of termination unless it has theretofore timely received a Letter of Credit Request and the other conditions to issuance of a Letter of Credit have theretofore been met with respect to such extension. No Letter of Credit shall have a term of more than one year; provided, that no Letter of Credit shall have a term extending or be so extendible beyond the fifth Business Day before the Revolving Termination Date.

Section 3.04    Conditions to Issuance of Additional Letters of Credit. The issuance by the Issuing Lender of each Additional Letter of Credit shall, in addition to the conditions precedent set forth in Article III, be subject to the conditions precedent that (i) such Letter of Credit shall be satisfactory in form and substance to the Issuing Lender, (ii) the Borrower shall have executed and delivered such other instruments and agreements relating to such Letter of Credit as the Issuing Lender shall have reasonably requested and (iii) the Issuing Lender shall have confirmed on the date of (and after giving effect to) such issuance that (A) the aggregate amount of all Letter of Credit Liabilities will not exceed the Letter of Credit Commitment and (B) the aggregate Revolving Outstandings will not exceed the aggregate amount of the Revolving Commitments. Notwithstanding any other provision of this Section 3.04, the Issuing Lender shall not be under any obligation to issue any Additional Letter of Credit if: any order, judgment or decree of any governmental authority shall by its terms purport to enjoin or restrain the Issuing Lender from issuing such Additional Letter of Credit, or any requirement of law applicable to the Issuing Lender or any request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over the Issuing Lender shall prohibit, or request that the Issuing Lender refrain from, the issuance of letters of credit generally or such Additional Letter of Credit in particular or shall impose upon the Issuing Lender with respect to such Additional Letter of Credit any restriction, reserve or capital requirement (for which the Issuing Lender is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the Issuing Lender any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the Issuing Lender in good faith deems material to it.

Section 3.05    Purchase and Sale of Letter of Credit Participations. Upon the issuance by an Issuing Lender of a Letter of Credit, such Issuing Lender shall be deemed, without further action by any party hereto, to have sold to each Lender, and each Lender shall be deemed, without further action by any party hereto, to have purchased from such Issuing Lender, without recourse or warranty, an undivided participation interest in such Letter of Credit and the related Letter of Credit Liabilities in the proportion its Revolving Commitment bears to the aggregate Revolving Commitments (although the Fronting Fee payable under Section 2.06(b) shall be payable directly to the Administrative Agent for the account of the applicable Issuing Lender, and the Lenders (other than such Issuing Lender) shall have no right to receive any portion of any such Fronting Fee) and any security therefor or guaranty pertaining thereto. Upon any change in the Revolving Commitments pursuant to Section 9.06(c), there shall be an automatic adjustment to the participations in all outstanding Letters of Credit and Letter of Credit Liabilities to reflect the adjusted Revolving Commitments of the assigning and assignee Lenders or of all Lenders having Revolving Commitments, as the case may be.

Section 3.06    Drawings under Letters of Credit. Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the applicable Issuing Lender shall determine in accordance with the terms of such Letter of Credit whether such drawing should be honored. If the Issuing Lender determines that any such drawing shall be honored, such Issuing Lender shall make available to such beneficiary in accordance with the terms of such Letter of Credit the amount of the drawing and shall notify the Borrower as to the amount to be paid as a result of such drawing and the payment date.

Section 3.07    Reimbursement Obligations. The Borrower shall be irrevocably and unconditionally obligated forthwith to reimburse the applicable Issuing Lender for any amounts paid by such Issuing Lender upon any drawing under any Letter of Credit, together with any and all reasonable charges and expenses which the Issuing Lender may pay or incur relative to such drawing and interest on the amount drawn at the rate applicable to Base Rate Loans for each day from and including the date such amount is drawn to but excluding the date such reimbursement payment is due and payable. Such reimbursement payment shall be due and payable (i) at or before 1:00 P.M. (Charlotte, North Carolina time) on the date the Issuing Lender notifies the Borrower of such drawing, if such notice is given at or before 10:00 A.M. (Charlotte, North Carolina time) on such date or (ii) at or before 10:00 A.M. (Charlotte, North Carolina time) on the next succeeding Business Day; provided, that no payment otherwise required by this sentence to be made by the Borrower at or before 1:00 P.M. (Charlotte, North Carolina time) on any day shall be overdue hereunder if arrangements for such payment satisfactory to the Issuing Lender, in its reasonable discretion, shall have been made by the Borrower at or before 1:00 P.M. (Charlotte, North Carolina time) on such day and such payment is actually made at or before 3:00 P.M. (Charlotte, North Carolina time) on such day. In addition, the Borrower agrees to pay to the Issuing Lender interest, payable on demand, on any and all amounts not paid by the Borrower to the Issuing Lender when due under this Section 3.07, for each day from and including the date when such amount becomes due to but excluding the date such amount is paid in full, whether before or after judgment, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day. Each payment to be made by the Borrower pursuant to this Section 3.07 shall be made to the Issuing Lender in Federal or other funds immediately available to it at its address referred to Section 9.01.

Section 3.08    Duties of Issuing Lenders to Lenders; Reliance. In determining whether to pay under any Letter of Credit, the relevant Issuing Lender shall not have any obligation relative to the Lenders participating in such Letter of Credit or the related Letter of Credit Liabilities other than to determine that any document or documents required to be delivered under such Letter of Credit have been delivered and that they substantially comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by an Issuing Lender under or in connection with any Letter of Credit shall not create for the Issuing Lender any resulting liability if taken or omitted in the absence of gross negligence or willful misconduct. Each Issuing Lender shall be entitled (but not obligated) to rely, and shall be fully protected in relying, on the representation and warranty by the Borrower set forth in the last sentence of Section 4.02 to establish whether the conditions specified in clauses (c), (d) and (e) of Section 4.02 are met in connection with any issuance or extension of a Letter of Credit. Each Issuing Lender shall be entitled to rely, and shall be fully protected in relying, upon advice and statements of legal counsel, independent accountants and other experts selected by such Issuing Lender and upon any Letter of Credit, draft, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopier, telex or teletype message, statement, order or other document believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary unless the beneficiary and the Borrower shall have notified such Issuing Lender that such documents do not comply with the terms and conditions of the Letter of Credit. Each Issuing Lender shall be fully justified in refusing to take any action requested of it under this Section in respect of any Letter of Credit unless it shall first have received such advice or concurrence of the Required Lenders as it reasonably deems appropriate or it shall first be indemnified to its reasonable satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take, or omitting or continuing to omit, any such action. Notwithstanding any other provision of this Section, each Issuing Lender shall in all cases be fully protected in acting, or in refraining from acting, under this Section in respect of any Letter of Credit in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant hereto shall be binding upon all Lenders and all future holders of participations in such Letter of Credit; provided, that this sentence shall not affect any rights the Borrower may have against the Issuing Lender or the Lenders that make such request.

Section 3.09    Obligations of Lenders to Reimburse Issuing Lender for Unpaid Drawings. If any Issuing Lender makes any payment under any Letter of Credit and the Borrower shall not have reimbursed such amount in full to such Issuing Lender pursuant to Section 3.07, the Issuing Lender shall promptly notify the Administrative Agent, and the Administrative Agent shall promptly notify each Lender (other than the relevant Issuing Lender), and each such Lender shall promptly and unconditionally pay to the Administrative Agent, for the account of such Issuing Lender, such Lender's share of such payment (determined by the proportion its Revolving Commitment bears to the aggregate Revolving Commitments) in Dollars in Federal or other immediately available funds, the aggregate of such payments relating to each unreimbursed amount being referred to herein as a "Mandatory Letter of Credit Borrowing"; provided, however, that no Lender shall be obligated to pay to the Administrative Agent its pro rata share of such unreimbursed amount for any wrongful payment made by the relevant Issuing Lender under a Letter of Credit as a result of acts or omissions constituting willful misconduct or gross negligence by such Issuing Lender. If the Administrative Agent so notifies a Lender prior to 11:00 A.M. (Charlotte, North Carolina time) on any Business Day, such Lender shall make available to the Administrative Agent at its address referred to in Section 9.01 and for the account of the relevant Issuing Lender such Lender's pro rata share of the amount of such payment by 3:00 P.M. (Charlotte, North Carolina time) on the Business Day following such Lender's receipt of notice from the Administrative Agent, together with interest on such amount for each day from and including the date of such drawing to but excluding the day such payment is due from such Lender at the Federal Funds Rate for such day (which funds the Administrative Agent shall promptly remit to such Issuing Lender). The failure of any Lender to make available to the Administrative Agent for the account of an Issuing Lender its pro rata share of any unreimbursed drawing under any Letter of Credit shall not relieve any other Lender of its obligation hereunder to make available to the Administrative Agent for the account of such Issuing Lender its pro rata share of any payment made under any Letter of Credit on the date required, as specified above, but no such Lender shall be responsible for the failure of any other Lender to make available to the Administrative Agent for the account of the Issuing Lender such other Lender's pro rata share of any such payment. Upon payment in full of all amounts payable by a Lender under this Section 3.09, such Lender shall be subrogated to the rights of the Issuing Lender against the Borrower to the extent of such Lender's pro rata share of the related Letter of Credit Liabilities (including interest accrued thereon). If any Lender fails to pay any amount required to be paid by it pursuant to this Section 3.09 on the date on which such payment is due, interest shall accrue on such Lender's obligation to make such payment, for each day from and including the date such payment became due to but excluding the date such Lender makes such payment, whether before or after judgment, at a rate per annum equal to (i) for each day from the date such payment is due to the third succeeding Business Day, inclusive, the Federal Funds Rate for such day as determined by the relevant Issuing Lender and (ii) for each day thereafter, the sum of 2% plus the rate applicable to its Base Rate Loans for such day. Any payment made by any Lender after 3:00 P.M. (Charlotte, North Carolina time) on any Business Day shall be deemed for purposes of the preceding sentence to have been made on the next succeeding Business Day.

Section 3.10    Funds Received from the Borrower in Respect of Drawn Letters of Credit. Whenever an Issuing Lender receives a payment of a Reimbursement Obligation as to which the Administrative Agent has received for the account of such Issuing Lender any payments from the Lenders pursuant to Section 3.09 above, such Issuing Lender shall pay the amount of such payment to the Administrative Agent, and the Administrative Agent shall promptly pay to each Lender which has paid its pro rata share thereof, in Dollars in Federal or other immediately available funds, an amount equal to such Lender's pro rata share of the principal amount thereof and interest thereon for each day after relevant date of payment at the Federal Funds Rate.

Section 3.11    Obligations in Respect of Letters of Credit Unconditional. The obligations of the Borrower under Section 3.07 above shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including, without limitation, the following circumstances:

(a)    any lack of validity or enforceability of this Agreement or any Letter of Credit or any document related hereto or thereto;

(b)    any amendment or waiver of or any consent to departure from all or any of the provisions of this Agreement or any Letter of Credit or any document related hereto or thereto;

(c)    the use which may be made of the Letter of Credit by, or any acts or omission of, a beneficiary of a Letter of Credit (or any Person for whom the beneficiary may be acting);

(d)    the existence of any claim, set-off, defense or other rights that the Borrower may have at any time against a beneficiary of a Letter of Credit (or any Person for whom the beneficiary may be acting), any Issuing Lender or any other Person, whether in connection with this Agreement or any Letter of Credit or any document related hereto or thereto or any unrelated transaction;

(e)    any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect whatsoever;

(f)    payment under a Letter of Credit against presentation to an Issuing Lender of a draft or certificate that does not comply with the terms of such Letter of Credit; provided, that the relevant Issuing Lender's determination that documents presented under such Letter of Credit comply with the terms thereof shall not have constituted gross negligence or willful misconduct of such Issuing Lender; or

(g)    any other act or omission to act or delay of any kind by any Issuing Lender or any other Person or any other event or circumstance whatsoever that might, but for the provisions of this subsection (g), constitute a legal or equitable discharge of the Borrower's obligations hereunder.

Nothing in this Section 3.11 is intended to limit the right of the Borrower to make a claim against any Issuing Lender for damages as contemplated by the proviso to the first sentence of Section 3.12.

Section 3.12    Indemnification in Respect of Letters of Credit. The Borrower hereby indemnifies and holds harmless each Lender (including each Issuing Lender) and the Administrative Agent from and against any and all claims, damages, losses, liabilities, costs or expenses which such Lender or the Administrative Agent may incur by reason of or in connection with the failure of any other Lender to fulfill or comply with its obligations to such Issuing Lender hereunder (but nothing herein contained shall affect any rights which the Borrower may have against such defaulting Lender), and none of the Lenders (including any Issuing Lender) nor the Administrative Agent, their respective affiliates nor any of their respective officers, directors, employees or agents shall be liable or responsible, by reason of or in connection with the execution and delivery or transfer of or payment or failure to pay under any Letter of Credit, including, without limitation, any of the circumstances enumerated in Section 3.11, as well as (i) any error, omission, interruption or delay in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, (ii) any error in interpretation of technical terms, (iii) any loss or delay in the transmission of any document required in order to make a drawing under a Letter of Credit, (iv) any consequences arising from causes beyond the control of such indemnitee, including without limitation, any government acts, or (v) any other circumstances whatsoever in making or failing to make payment under such Letter of Credit; provided, that the Borrower shall not be required to indemnify any Issuing Lender for any claims, damages, losses, liabilities, costs or expenses, and the Borrower shall have a claim against such Issuing Lender for direct (but not consequential) damages suffered by it, to the extent found by a court of competent jurisdiction in a final, non-appealable judgment or order to have been caused by (i) the willful misconduct or gross negligence of the Issuing Lender in determining whether a request presented under any Letter of Credit issued by it complied with the terms of such Letter of Credit or (ii) the Issuing Lender's failure to pay under any Letter of Credit issued by it after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit. Nothing in this Section 3.12 is intended to limit the obligations of the Borrower under any other provision of this Agreement.

Section 3.13    ISP98. The rules of the "International Standby Practices 1998" (the "ISP98") as published by the ICC most recently at the time of issuance of any Standby Letter of Credit shall apply to such Letter of Credit unless otherwise expressly provided in such Letter of Credit.

ARTICLE IV

CONDITIONS

Section 4.01    Conditions to Closing. The obligation of each Lender to make a Loan or issue a Letter of Credit on the occasion of the first Credit Event hereunder is subject to the satisfaction of the following conditions:

(a)    Effectiveness. This Agreement shall have become effective in accordance with Section 9.08.

(b)    Revolving Notes. On or prior to the Closing Date, the Administrative Agent shall have received a duly executed Revolving Note for the account of each Lender requesting delivery of a Revolving Note pursuant to Section 2.04.

(c)    Officers' Certificates. The Administrative Agent shall have received a certificate dated the Closing Date signed on behalf of the Borrower by the Chairman of the Board, the President, any Vice President or the Treasurer of the Borrower stating that (A) on the Closing Date and after giving effect to the Loans and Letters of Credit being made or issued on the Closing Date, no Default or Event of Default shall have occurred and be continuing and (B) the representations and warranties of the Borrower contained in the Loan Documents are true and correct on and as of the Closing Date.

(d)    Proceedings. On the Closing Date, the Administrative Agent shall have received (i) a copy of the Borrower's certificate of formation certified by the Secretary of State of the State of Delaware; (ii) a certificate of the Secretary of State of the State of Delaware, dated as of a recent date, as to the good standing of the Borrower; and (iii) a certificate of the Secretary or an Assistant Secretary of the Borrower dated the Closing Date and certifying (A) that attached thereto is a true, correct and complete copy of the limited liability company agreement of the Borrower, (B) as to the absence of dissolution or liquidation proceedings by or against the Borrower, (C) that attached thereto is a true, correct and complete copy of resolutions adopted by the managers of the Borrower authorizing the execution, delivery and performance of the Loan Documents to which the Borrower is a party and each other document delivered in connection herewith or therewith and that such resolutions have not been amended and are in full force and effect on the date of such certificate and (D) as to the incumbency and specimen signatures of each officer of the Borrower executing the Loan Documents to which the Borrower is a party or any other document delivered in connection herewith or therewith.

(e)    Opinions of Counsel. On the Closing Date, the Administrative Agent shall have received from counsel to the Borrower, opinions addressed to the Administrative Agent and each Lender, dated the Closing Date, substantially in the form of Exhibit D-1 hereto and covering such additional matters incident to the transactions contemplated hereby as the Administrative Agent or the Required Lenders may reasonably request.

(f)    Repayment of Refinanced Agreements. The Administrative Agent shall be satisfied that no later than as of the Closing Date, the commitments under the Refinanced Agreements shall be terminated, all loans outstanding under the Refinanced Agreements shall be repaid in full, together with accrued interest thereon (including, without limitation, any prepayment premium), all letters of credit issued thereunder shall be terminated or shall become Letters of Credit under this Agreement and all other amounts owing pursuant to the Refinanced Agreements shall be repaid in full.

(g)    Financial Statements. The Administrative Agent and each Lender shall have received and be satisfied with the (i) the audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries for the fiscal year ending December 31, 2003, audited by PricewaterhouseCoopers LLP, or other nationally recognized independent public accountants, and containing an opinion of such firm that such financial statements present fairly, in all material respects and in conformity with GAAP, the financial position and results of operations of the Borrower and its Consolidated Subsidiaries, and (ii) unaudited, consolidated, interim financial statements of the Borrower and its Consolidated Subsidiaries for the fiscal quarter ending March 31, 2004.

(h)    Consents. All necessary governmental (domestic or foreign), regulatory and third party approvals, if any, in connection with the transactions contemplated by this Agreement and the other Loan Documents shall have been obtained and remain in full force and effect, in each case without any action being taken by any competent authority which could restrain or prevent such transaction or impose, in the reasonable judgment of the Administrative Agent, materially adverse conditions upon the consummation of such transactions.

(i)    Borrower's Structure. The corporate and capital structure of the Borrower and its Subsidiaries, including, without limitation, the Borrower's direct or indirect ownership of the Restricted Subsidiaries, shall be satisfactory to the Administrative Agent in its reasonable discretion.

(j)    Payment of Fees. All costs, fees and expenses due to the Administrative Agent, the Lead Arrangers and the Lenders on or before the Closing Date shall have been paid.

(k)    Counsel Fees. The Administrative Agent shall have received full payment from the Borrower of the fees and expenses of Mayer, Brown, Rowe & Maw LLP described in Section 9.03 which are billed through the Closing Date.

(l)    Other Materials. The Administrative Agent shall have received such other assurances, certificates, documents, consents or opinions as the Administrative Agent, any Issuing Lender or the Required Lenders may reasonably request, in each case in form and substance satisfactory to the Administrative Agent.

Section 4.02    Conditions to All Credit Events. The obligation of any Lender to make a Loan on the occasion of any Borrowing, and the obligation of any Issuing Lender to issue (or renew or extend the term of) any Letter of Credit, is subject to the satisfaction of the following conditions:

(a)    the fact that the Closing Date shall have occurred;

(b)    receipt by the Administrative Agent of a Notice of Borrowing as required by Section 2.02, or receipt by the Issuing Lender of a Letter of Credit Request as required by Section 3.03;

(c)    the fact that, immediately before and after giving effect to such Credit Event, no Default or Event of Default shall have occurred and be continuing;

(d)    the fact that the representations and warranties of the Borrower contained in this Agreement and the other Loan Documents shall be true and correct on and as of the date of such Credit Event (except for the representations in Section 5.12 and Section 5.18, which shall be deemed only to relate to the matters referred to therein on and as of the Closing Date); provided, however, that in the event the proceeds of any Credit Event, other than with respect to the first Credit Event hereunder, are to be applied by the Borrower to repay maturing commercial paper issued by the Borrower, the representation and warranty set forth in Section 5.04(c) need not be true and correct on the date of any such Credit Event as to events or conditions occurring or arising after the Closing Date; and

(e)    since December 31, 2003, there shall have been no change in the business, assets, financial condition or operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, which materially adversely affects the ability of the Borrower to perform any of its obligations under this Agreement or any other Loan Document.

Each Credit Event under this Agreement shall be deemed to be a representation and warranty by the Borrower on the date of such Credit Event as to the facts specified in clauses (c), (d) and (e) of this Section.

ARTICLE V

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants that:

Section 5.01    Status. The Borrower is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and has the limited liability company authority to make and perform this Agreement and each other Loan Document to which it is a party.

Section 5.02    Authority; No Conflict. The execution, delivery and performance by the Borrower of this Agreement and each other Loan Document to which it is a party have been duly authorized by all necessary limited liability company action and do not violate (i) any provision of law or regulation, or any decree, order, writ or judgment, (ii) any provision of its limited liability company agreement, or (iii) result in the breach of or constitute a default under any indenture or other agreement or instrument to which the Borrower is a party.

Section 5.03    Legality; Etc. This Agreement and each other Loan Document (other than the Revolving Notes) to which the Borrower is a party constitute the legal, valid and binding obligations of the Borrower, and the Revolving Notes, when executed and delivered in accordance with this Agreement, will constitute legal, valid and binding obligations of the Borrower, in each case enforceable against the Borrower in accordance with their terms except to the extent limited by (a) bankruptcy, insolvency, fraudulent conveyance or reorganization laws or by other laws relating to or affecting the enforceability of creditors' rights generally and by general equitable principles which may limit the right to obtain equitable remedies regardless of whether enforcement is considered in a proceeding of law or equity or (b) any applicable public policy on enforceability of provisions relating to contribution and indemnification.

Section 5.04    Financial Condition.

(a)    Audited Financial Statements. The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of December 31, 2003 and the related consolidated statements of income and cash flows for the fiscal year then ended, reported on by PricewaterhouseCoopers LLP, copies of which have been delivered to each of the Administrative Agent and the Lenders, fairly present, in conformity with GAAP, the consolidated financial position of the Borrower as of such date and its consolidated results of operations and cash flows for such fiscal year.

(b)    Interim Financial Statements. The unaudited consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of March 31, 2004 and the related unaudited consolidated statements of income and cash flows for the three months then ended fairly present, in conformity with GAAP applied on a basis consistent with the financial statements referred to in subsection (a) of this Section, the consolidated financial position of the Borrower as of such date and its consolidated results of operations and cash flows for such three-month period (subject to normal year-end audit adjustments).

(c)    Material Adverse Change. Since December 31, 2003 there has been no change in the business, assets, financial condition or operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, that would materially and adversely affect the Borrower's ability to perform any of its obligations under this Agreement, the Revolving Notes or the other Loan Documents.

Section 5.05    Rights to Properties. The Borrower and its Restricted Subsidiaries have good and valid fee, leasehold, easement or other right, title or interest in or to all the properties necessary to the conduct of their business as conducted on the date hereof and as presently proposed to be conducted, except to the extent the failure to have such rights or interests would not have a Material Adverse Effect.

Section 5.06    Litigation. Except as disclosed in or contemplated by the Borrower's Form 10-K Report to the SEC for the year ended December 31, 2003 or in any subsequent Form 10-Q or 8-K Report or otherwise furnished in writing to the Administrative Agent, no litigation, arbitration or administrative proceeding against the Borrower is pending or, to the Borrower's knowledge, threatened, which, if adversely determined, would materially and adversely affect the ability of the Borrower to perform any of its obligations under this Agreement, the Revolving Notes or the other Loan Documents. There is no litigation, arbitration or administrative proceeding pending or, to the knowledge of the Borrower, threatened which questions the validity of this Agreement or the other Loan Documents to which it is a party.

Section 5.07    No Violation. No part of the proceeds of the borrowings by hereunder will be used, directly or indirectly by the Borrower for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or for any other purpose which violates, or which conflicts with, the provisions of Regulation U or X of said Board of Governors. The Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any such "margin stock".

Section 5.08    ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Material Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Material Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Material Plan, (ii) failed to make any contribution or payment to any Material Plan, or made any amendment to any Material Plan, which has resulted or could result in the imposition of a lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any material liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA.

Section 5.09    Governmental Approvals. No authorization, consent or approval from any Governmental Authority is required for the execution, delivery and performance by the Borrower of this Agreement, the Revolving Notes and the other Loan Documents to which it is a party, except such authorizations, consents and approvals as have been obtained prior to the Closing Date and are in full force and effect.

Section 5.10    Investment Company Act. The Borrower is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended.

Section 5.11   Public Utility Holding Company Act. The Borrower is not a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended.

Section 5.12    Restricted Subsidiaries, Etc. Set forth in Schedule 5.12 hereto is a complete and correct list as of the Closing Date of the Restricted Subsidiaries of the Borrower, together with, for each such Subsidiary, the jurisdiction of organization of such Subsidiary. Except as disclosed in Schedule 5.12 hereto, as of the Closing Date, (i) each such Subsidiary is a Wholly-Owned Subsidiary of the Borrower and (ii) each such Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all corporate or other organizational powers to carry on its businesses as now conducted.

Section 5.13    Tax Returns and Payments. The Borrower and each of its Restricted Subsidiaries has filed or caused to be filed all Federal, state, local and foreign income tax returns required to have been filed by it and has paid or caused to be paid all income taxes shown to be due on such returns except income taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or its Restricted Subsidiaries, as the case may be, shall have set aside on its books appropriate reserves with respect thereto in accordance with GAAP or that would not reasonably be expected to have a Material Adverse Effect.

Section 5.14    Compliance with Laws. To the knowledge of the Borrower or any of its Restricted Subsidiaries, the Borrower and each of its Restricted Subsidiaries is in compliance with all applicable laws, regulations and orders of any Governmental Authority, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including, without limitation, compliance with all applicable ERISA and Environmental Laws and the requirements of any permits issued under such Environmental Laws), except to the extent (a) such compliance is being contested in good faith by appropriate proceedings or (b) non-compliance would not reasonably be expected to materially and adversely affect its ability to perform any of its obligations under this Agreement, the Revolving Notes or any other Loan Document to which it is a party.

Section 5.15    No Default. No Default or Event of Default has occurred and is continuing.

Section 5.16    Environmental Matters.

(a)    Except (i) as disclosed in or contemplated by the Borrower's Form 10-K Report to the SEC for the year ended December 31, 2003 or in any subsequent Form 10-Q or 8-K Report or otherwise furnished to the Administrative Agent in writing, or (ii) to the extent that the liabilities of the Borrower and its Subsidiaries, taken as a whole, that relate to or could result from the matters referred to in clauses (a) through (c) of this Section 5.16, inclusive, would not reasonably be expected to result in a Material Adverse Effect, to the Borrower's or any of its Subsidiaries' knowledge:

     (i)    no notice, notification, citation, summons, complaint or order has been issued, no complaint has been filed, no penalty has been assessed nor is any investigation or review pending or threatened by any governmental or other entity with respect to any (A) alleged violation by the Borrower or any of its Subsidiaries of any Environmental Law, (B) alleged failure by the Borrower or any of its Subsidiaries to have any environmental permit, certificate, license, approval, registration or authorization required in connection with the conduct of its business or (C) generation, storage, treatment, disposal, transportation or release of Hazardous Substances;

     (ii)    no Hazardous Substance has been released (and no written notification of such release has been filed) (whether or not in a reportable or threshold planning quantity) at, on or under any property now or previously owned, leased or operated by the Borrower or any of its Subsidiaries; and

     (iii)    no property now or previously owned, leased or operated by the Borrower or any of its Subsidiaries or any property to which the Borrower or any of its Subsidiaries has, directly or indirectly, transported or arranged for the transportation of any Hazardous Substances, is listed or, to the Borrower's or any of its Subsidiaries' knowledge, proposed for listing, on the National Priorities List promulgated pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), on CERCLIS (as defined in CERCLA) or on any similar federal, state or foreign list of sites requiring investigation or clean-up.

(b)    To the Borrower's or any of its Subsidiaries' knowledge, there are no Environmental Liabilities that have resulted or could reasonably be expected to result in a Material Adverse Effect.

(c)    For purposes of this Section 5.16, the terms "the Borrower" and "Subsidiary" shall include any business or business entity (including a corporation) which is a predecessor, in whole or in part, of the Borrower or any of its Subsidiaries from the time such business or business entity became a Subsidiary of the Parent.

Section 5.17    Reportable Transactions. The Borrower does not intend to treat any of the transactions contemplated by this Agreement as a "reportable transaction" (within the meaning of Treasury Regulation Section 1.6011-4). In the event the Borrower takes or determines to take any action inconsistent with such intention, it will promptly notify the Administrative Agent thereof. If the Borrower so notifies the Administrative Agent, or if the Administrative Agent or any Lender determines that the any of the transactions contemplated by this Agreement constitutes a "reportable transaction," the Borrower acknowledges that each such Person may treat its extensions of credit as part of a transaction that is subject to Treasury Regulation Section 301.6112-1, and such Persons may maintain the lists and other records required by such Treasury Regulation.

Section 5.18    Guarantees. As of the Closing Date, except as set forth in Schedule 5.18 hereto, the Borrower has no Guarantees of any Debt of any Foreign Subsidiary of the Borrower other than such Debt not in excess of $25,000,000 in the aggregate.

ARTICLE VI

COVENANTS

The Borrower agrees that so long as any Lender has any Commitment hereunder or any amount payable hereunder or under any Revolving Note or other Loan Document remains unpaid or any Letter of Credit Liability remains outstanding:

Section 6.01    Information. The Borrower will deliver or cause to be delivered to each of the Lenders:

(a)    Annual Financial Statements. Promptly when available and in any event within 10 days after the date such information is required to be delivered to the SEC, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of income and cash flows for such fiscal year and accompanied by an opinion thereon by independent public accountants of recognized national standing, which opinion shall state that such consolidated financial statements present fairly the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of the date of such financial statements and the results of their operations for the period covered by such financial statements in conformity with GAAP applied on a consistent basis.

(b)    Quarterly Financial Statements. Promptly when available and in any event within 10 days after the date such information is required to be delivered to the SEC, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of income and cash flows for such fiscal quarter, all certified (subject to normal year-end audit adjustments) as to fairness of presentation, GAAP and consistency by any vice president, the treasurer or the controller of the Borrower.

(c)    Officer's Certificate. Simultaneously with the delivery of each set of financial statements referred to in subsections (a) and (b) above, a certificate of the chief accounting officer of the Borrower, (i) setting forth in reasonable detail the calculations required to establish compliance with the requirements of Sections 6.12 and 6.13 on the date of such financial statements and (ii) stating whether there exists on the date of such certificate any Default or Event of Default and, if any Default or Event of Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto.

(d)    Default. Forthwith upon acquiring knowledge of the occurrence of any Default or Event of Default, a certificate of a vice president or the treasurer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto.

(e)    Change in Borrower's Ratings. Upon the chief executive officer, the president, any vice president or any senior financial officer of the Borrower obtaining knowledge of any change in either Borrower's Rating, a notice of such Borrower's Rating in effect after giving effect to such change.

(f)    Securities Laws Filing. Promptly when available and in any event within 10 days after the date such information is required to be delivered to the SEC, a copy of any Form 10-K Report to the SEC and a copy of any Form 10-Q Report to the SEC, and promptly upon the filing thereof, any other filings with the SEC.

(g)    ERISA Matters. If and when any member of the ERISA Group: (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Material Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Material Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives, with respect to any Material Plan that is a Multiemployer Plan, notice of any complete or partial withdrawal liability under Title IV of ERISA, or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose material liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Material Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code with respect to a Material Plan, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA; or (vii) fails to make any payment or contribution to any Plan or makes any amendment to any Plan which has resulted or could result in the imposition of a lien or the posting of a bond or other security, a copy of such notice, a certificate of the chief accounting officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take.

(h)    Reportable Transactions. Promptly after the Borrower has provided the Administrative Agent with notice of the Borrower's intention to treat the Loans and/or Letters of Credit as being a "reportable transaction" (within the meaning of Treasury Regulation Section 1.6011-4), a duly completed copy of IRS Form 8886 or any successor form.

(i)    Other Information. From time to time such additional financial or other information regarding the financial condition, results of operations, properties, assets or business of the Borrower or any of its Subsidiaries as any Lender may reasonably request.

Section 6.02    Maintenance of Property; Insurance.

(a)    Maintenance of Properties. The Borrower will keep, and will cause each of its Restricted Subsidiaries to keep, all property useful and necessary in their respective businesses in good working order and condition, subject to ordinary wear and tear, unless the Borrower determines in good faith that the continued maintenance of any of such properties is no longer economically desirable and so long as the failure to so maintain such properties would not reasonably be expected to have a Material Adverse Effect.

(b)    Insurance. The Borrower will maintain, or cause to be maintained, insurance with financially sound (determined in the reasonable judgment of the Borrower) and responsible companies in such amounts (and with such risk retentions) and against such risks as is usually carried by owners of similar businesses and properties in the same general areas in which the Borrower and its Restricted Subsidiaries operate.

Section 6.03    Conduct of Business and Maintenance of Existence. The Borrower will (i) continue, and will cause each of its Restricted Subsidiaries to continue, to engage only in businesses of the same general type as now conducted by the Borrower and its Subsidiaries and businesses related thereto or arising out of such businesses, except to the extent that the failure to maintain any existing business would not have a Material Adverse Effect and (ii) except as otherwise permitted in Section 6.08, preserve, renew and keep in full force and effect, and will cause each of its Subsidiaries to preserve, renew and keep in full force and effect, their respective limited liability company (or other entity) existence and their respective rights, privileges and franchises necessary or material to the normal conduct of business, except, in each case, where the failure to do so could not reasonably be expected to have a Material Adverse Effect.

Section 6.04    Compliance with Laws, Etc. The Borrower will comply, and will cause each of its Restricted Subsidiaries to comply, with all applicable laws, regulations and orders of any Governmental Authority, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including, without limitation, compliance with all applicable ERISA and Environmental Laws and the requirements of any permits issued under such Environmental Laws), except to the extent (a) such compliance is being contested in good faith by appropriate proceedings or (b) non-compliance could not reasonably be expected to have a Material Adverse Effect.

Section 6.05    Books and Records. The Borrower (i) will keep, and will cause each of its Restricted Subsidiaries to keep, proper books of record and account in conformity with GAAP and (ii) will permit representatives of the Administrative Agent and each of the Lenders to visit and inspect any of their respective properties, to examine and make copies from any of their respective books and records and to discuss their respective affairs, finances and accounts with their officers, any employees and independent public accountants, all at such reasonable times and as often as may reasonably be desired; provided, that, the rights created in this Section 6.05 to "visit", "inspect", "discuss" and copy shall not extend to any matters which the Borrower deems, in good faith, to be confidential, unless the Administrative Agent and any such Lender agree in writing to keep such matters confidential.

Section 6.06    Use of Proceeds. The proceeds of the Loans made under this Agreement will be used by the Borrower for general corporate purposes, including as a commercial paper backstop, of the Borrower and its Subsidiaries. The Borrower will request the issuance of Letters of Credit solely for general corporate purposes of the Borrower and its Subsidiaries. No such use of the proceeds for general corporate purposes will be, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any Margin Stock within the meaning of Regulation U.

Section 6.07    Restriction on Liens. The Borrower will not, nor will it permit any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets of any kind (real or personal, tangible or intangible) of the Borrower or any such Restricted Subsidiary (including, without limitation, their Voting Stock), except:

(a)    Liens for taxes, assessments or governmental charges or levies not yet due or which are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books;

(b)    Liens imposed by law, such as carriers', landlords', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than 45 days past due or which are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books;

(c)    Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation;

(d)    easements (including, without limitation, reciprocal easement agreements and utility agreements), rights-of-way, covenants, consents, reservations, encroachments, variances and other restrictions, charges or encumbrances (whether or not recorded) affecting the use of real property;

(e)    Liens existing on the Closing Date and described in Schedule 6.07 hereto;

(f)    judgment Liens arising from judgments which secure payment of legal obligations that would not constitute a Default under Section 7.01;

(g)    any vendor's Liens, purchase money Liens or any other Lien on any property or asset acquired by the Borrower or any of its Restricted Subsidiaries after the date hereof existing on any such property or asset at the time of acquisition thereof (and not created in anticipation thereof); provided, that, in any such case no such Lien shall extend to or cover any other asset of the Borrower or such Restricted Subsidiaries, as the case may be;

(h)    Liens, deposits and/or similar arrangements to secure the performance of bids, tenders or contracts (other than contracts for borrowed money), public or statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business by the Borrower or any of its Restricted Subsidiaries, including Liens to secure obligations under agreements relating to the purchase and sale of any commodity (including power purchase and sale agreements, any commodity hedge or derivative regardless of whether any such transaction is a "financial" or "physical transaction");

(i)    Liens on assets of the Borrower and its Restricted Subsidiaries arising out of obligations or duties to any municipality or public authority with respect to any franchise, grant, license, permit or certificate.

(j)    rights reserved to or vested in any municipality or public authority to control or regulate any asset of the Borrower or any of its Restricted Subsidiaries or to use such asset in a manner which does not materially impair the use of such asset for the purposes for which it is held by the Borrower or any of its Restricted Subsidiaries;

(k)    irregularities in or deficiencies of title to any asset which do not materially adversely affect the use of such property by the Borrower or any of its Restricted Subsidiaries in the normal course of its business;

(l)    any Lien on any property or asset of any corporation or other entity existing at the time such corporation or entity is acquired, merged or consolidated or amalgamated with or into the Borrower or any of its Restricted Subsidiaries and not created in contemplation of such event;

(m)    any Lien on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring, constructing or improving such asset; provided, that any such Lien attaches to such asset, solely to extent of the value of the obligation secured by such Lien, concurrently with or within 180 days after the acquisition, construction or improvement thereof:

(n)    any Liens in connection with the issuance of tax-exempt industrial development or pollution control bonds or other similar bonds issued pursuant to Section 103(b) of the Internal Revenue Code of 1986, as amended, to finance all or any part of the purchase price of or the cost of constructing, equipping or improving property;

(o)    rights of lessees arising under leases entered into by the Borrower or any of its Restricted Subsidiaries as lessor, in the ordinary course of business;

(p)    any Liens on or reservations with respect to governmental and other licenses, permits, franchises, consents and allowances; any Liens on patents, patent licenses and other patent rights, patent applications, trade names, trademarks, copyrights, claims, credits, choses in action and other intangible property and general intangibles including, but not limited to, computer software;

(q)    any Liens on automobiles, buses, trucks and other similar vehicles and movable equipment; marine equipment; airplanes, helicopters and other flight equipment; and parts, accessories and supplies used in connection with any of the foregoing;

(r)    any Liens on furniture and furnishings; and computers and data processing, data storage, data transmission, telecommunications and other facilities, equipment and apparatus, which, in any case, are used primarily for administrative or clerical purposes;

(s)    Liens securing letters of credit entered into in the ordinary course of business;

(t)    Liens granted on the capital stock of Subsidiaries that are not Restricted Subsidiaries for the purpose of securing the obligations of such Subsidiaries;

(u)    Liens in addition to those permitted by clauses (a) through (t) on the property or assets of a Special Purpose Subsidiary arising in connection with any Existing Synthetic Lease Financing or the lease of such property or assets through one or more other Synthetic Lease financings;

(v)    Liens by any Wholly-Owned Subsidiary of the Borrower or any Restricted Subsidiary for the benefit of the Borrower or any such Restricted Subsidiary;

(w)    Liens on property which is the subject of a Capital Lease Obligation designating the Borrower or any of its Restricted Subsidiaries as lessee and all right, title and interest of the Borrower or any of its Restricted Subsidiaries in and to such property and in, to and under such lease agreement, whether or not such lease agreement is intended as a security; provided, that the aggregate fair market value of the obligations subject to such Liens shall not at any time exceed $500,000,000;

(x)    Liens on property which is the subject of one or more leases designating the Borrower or any of its Restricted Subsidiaries as lessee and all right, title and interest of the Borrower or any of its Restricted Subsidiaries in and to such property and in, to and under any such lease agreement, whether or not any such lease agreement is intended as a security;

(y)    Liens arising out of the refinancing, extension, renewal or refunding of any Debt or other obligation secured by any Lien permitted by clauses (a) through (x) of this Section; provided, that such Debt or other obligation is not increased and is not secured by any additional assets;

(z)    other Liens on assets or property of the Borrower or any of its Restricted Subsidiaries, other than Liens on the Voting Stock of the Borrower in its Restricted Subsidiaries, so long as the aggregate value of the obligations secured by such Liens does not exceed the greater of $250,000,000 or 15% of the total consolidated assets of the Borrower and its Consolidated Subsidiaries as of the most recent fiscal quarter of the Borrower for which financial statements are available.

Section 6.08    Merger or Consolidation. The Borrower will not merge with or into or consolidate with or into any other corporation or entity, unless (i) immediately after giving effect thereto, no event shall occur and be continuing which constitutes a Default or Event Default, (ii) the surviving or resulting Person, as the case may be, assumes and agrees in writing to pay and perform all of the obligations of the Borrower under this Agreement, (iii) substantially all of the consolidated assets and consolidated revenues of the surviving or resulting person, as the case may be, are anticipated to come from the utility or energy businesses and (iv) the surviving or resulting person, as the case may be, has senior long-term debt ratings from Moody's and S&P as available (or if the ratings of Moody's and S&P are not available, of such other rating agency as shall be acceptable to the Administrative Agent) at least equal to each Borrower's Rating at the end of the fiscal quarter immediately preceding the effective date of such consolidation or merger. No Restricted Subsidiary will merge or consolidate with any other Person if such Restricted Subsidiary is not the surviving or resulting Person, unless such other Person is (a) the Borrower or a successor of the Borrower permitted hereunder or (b) any other Person which is a Wholly-Owned Restricted Subsidiary of the Borrower or a successor of the Borrower permitted hereunder.

Section 6.09    Asset Sales. Except for the sale of assets required to be sold to conform with governmental requirements, the Borrower shall not, and shall not permit any of its Subsidiaries to, consummate any Asset Sale, if the aggregate net book value of all such Asset Sales consummated during the four calendar quarters immediately preceding any date of determination would exceed 25% of the total assets of the Borrower and its Consolidated Subsidiaries as of the beginning of the Borrower's most recently ended full fiscal quarter; provided, however, that any such Asset Sale will be disregarded for purposes of the 25% limitation specified above: (a) if any such Asset Sale is in the ordinary course of business of the Borrower and its Subsidiaries; (b) if the assets subject to any such Asset Sale are worn out or are no longer useful or necessary in connection with the operation of the businesses of the Borrower or its Subsidiaries; (c) if the assets subject to any such Asset Sale are being transferred to a Wholly-Owned Subsidiary of the Borrower; (d) if the proceeds from any such Asset Sale (i) are, within 12 months of such Asset Sale, invested or reinvested by the Borrower or any Subsidiary in a Permitted Business, (ii) are used by the Borrower or a Subsidiary to repay Debt of the Borrower or such Subsidiary, or (iii) are retained by the Borrower or its Subsidiaries; or (e) if, prior to any such Asset Sale, Moody's and S&P confirm the then current Borrower Ratings after giving effect to any such Asset Sale.

Section 6.10    Transactions with Affiliates. Neither the Borrower nor any of its Restricted Subsidiaries will enter into or permit to exist any arrangement or contract with any of their respective Affiliates unless such arrangement or contract (i) has been approved by a Governmental Authority or (ii) is fair and equitable to the Borrower or its Restricted Subsidiaries, as the case may be, and is an arrangement or contract of the kind which would be entered into by a prudent Person in the position of the Borrower or its Restricted Subsidiaries, as the case may be, with a Person which is not one of its Affiliates. In making any determination as to fairness, equity and prudence, effect shall be given to orders, rules or regulations or any administrative agency, regulatory authority or other governmental body having jurisdiction over the Borrower or its Subsidiaries.

Section 6.11    Restrictive Agreements. Except as set forth in Schedule 6.11, the Borrower will not permit any of its Restricted Subsidiaries to enter into or assume any agreement prohibiting or otherwise restricting the ability of any Restricted Subsidiary to pay dividends or other distributions on its respective equity and equity equivalents to the Borrower or any of its Restricted Subsidiaries.

Section 6.12    Consolidated Debt to Consolidated Capitalization Ratio. The ratio of Consolidated Debt of the Borrower to Consolidated Capitalization of the Borrower shall not exceed 65% at any time.

Section 6.13    Cash Interest Coverage Ratio. The Borrower's ratio of Consolidated Funds From Operations to Consolidated Cash Interest Expense shall not be less than 2.0 to 1.0 for the four most recently ended consecutive fiscal quarters of the Borrower (taken as a single accounting period).

Section 6.14    Indebtedness. The Borrower will not permit any of its Restricted Subsidiaries to incur, create, assume or permit to exist any Debt of such Restricted Subsidiaries except:

(a)    Existing Debt and any extensions, renewals or refinancings thereof;

(b)    Debt owing to the Borrower or a Wholly-Owned Restricted Subsidiary;

(c)    any Debt incurred in respect of Existing Synthetic Lease Financings;

(d)    Non-Recourse Debt; and

(e)    other Debt, the aggregate principal amount of which does not exceed $500,000,000 at any time.

ARTICLE VII

DEFAULTS

Section 7.01    Events of Default. If one or more of the following events (each an "Event of Default") shall have occurred and be continuing:

(a)    the Borrower shall fail to pay when due any principal of the Loans or shall fail to reimburse when due any drawing under any Letter of Credit; or

(b)    the Borrower shall fail to pay when due any interest on the Loans and Reimbursement Obligations, any fee or any other amount payable hereunder or under any other Loan Document for 5 days following the date such payment becomes due hereunder; or

(c)    the Borrower shall fail to observe or perform any covenant or agreement contained in Section 6.01(a), (b) or (c), clause (ii) of Section 6.05, or Sections 6.06, 6.08, 6.09, 6.12, 6.13 or 6.14; or

(d)    the Borrower shall fail to observe or perform any covenant or agreement contained in Section 6.01(d) for 10 days after any such failure; or

(e)    the Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement or any other Loan Document (other than those covered by clauses (a), (b), (c) or (d) above) for 30 days after written notice thereof has been given to the defaulting party by the Administrative Agent, or at the request of the Required Lenders; or

(f)    any representation, warranty or certification made by the Borrower in this Agreement or any other Loan Document or in any certificate, financial statement or other document delivered pursuant hereto or thereto shall prove to have been incorrect in any material respect when made or deemed made; or

(g)    the Borrower or any Restricted Subsidiary shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any Material Debt beyond any period of grace provided with respect thereto, or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Material Debt beyond any period of grace provided with respect thereto if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Debt or a trustee on its or their behalf to cause, such Debt to become due prior to its stated maturity; or

(h)    the Borrower or any Restricted Subsidiary of the Borrower shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay, or shall admit in writing its inability to pay, its debts as they become due, or shall take any corporate action to authorize any of the foregoing; or

(i)    an involuntary case or other proceeding shall be commenced against the Borrower or any Restricted Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Restricted Subsidiary under the Bankruptcy Code; or

(j)    any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $25,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could reasonably be expected to cause one or more members of the ERISA Group to incur a current payment obligation in excess of $25,000,000; or

(k)    the Borrower or any of its Restricted Subsidiaries shall fail within 60 days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $20,000,000, entered against the Borrower or any such Restricted Subsidiary that is not stayed on appeal or otherwise being appropriately contested in good faith; or

(l)    a Change of Control shall have occurred;

then, and in every such event, while such event is continuing, the Administrative Agent may (A) if requested by the Required Lenders, by notice to the Borrower terminate the Commitments, and the Commitments shall thereupon terminate, and (B) if requested by the Lenders holding more than 50% of the sum of the aggregate outstanding principal amount of the Loans and Letter of Credit Liabilities at such time, by notice to the Borrower declare the Loans (together with accrued interest and accrued and unpaid fees thereon) to be, and the Loans shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind (except as set forth in clause (A) above), all of which are hereby waived by the Borrower; provided, that, in the case of any Default or any Event of Default specified in clause 7.01(h) or 7.01(i) above with respect to the Borrower, without any notice to the Borrower or any other act by the Administrative Agent or any Lender, the Commitments shall thereupon terminate and the Loans (together with accrued interest and accrued and unpaid fees thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.

ARTICLE VIII

THE AGENTS

Section 8.01    Appointment and Authorization. Each Lender hereby irrevocably designates and appoints the Administrative Agent of to act as specified herein and in the other Loan Documents and to take such actions on its behalf under the provisions of this Agreement and the other Loan Documents and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. The Administrative Agent agrees to act as such upon the express conditions contained in this Article VIII. Notwithstanding any provision to the contrary elsewhere in this Agreement or in any other Loan Document, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein or in the other Loan Documents, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Administrative Agent. The provisions of this Article VIII are solely for the benefit of the Administrative Agent and Lenders, and no other Person shall have any rights as a third party beneficiary of any of the provisions hereof. For the sake of clarity, the Lenders hereby agree that neither the Syndication Agents, the Lead Arrangers nor the Documentation Agents shall have any duties or powers with respect to this Agreement or the other Loan Documents.

Section 8.02    Individual Capacity. The Administrative Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower and its Affiliates as though the Administrative Agent were not an Agent. With respect to the Loans made by it and all obligations owing to it, the Administrative Agent shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not an Agent, and the terms "Required Lenders", "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity.

Section 8.03    Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents or attorneys-in-fact. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care except to the extent otherwise required by Section 8.07.

Section 8.04    Reliance by the Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy or other electronic facsimile transmission, telex, telegram, cable, teletype, electronic transmission by modem, computer disk or any other message, statement, order or other writing or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders, or all of the Lenders, if applicable, as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders or all of the Lenders, if applicable, and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders.

Section 8.05    Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". If the Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided, that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders.

Section 8.06    Non-Reliance on the Agents and Other Lenders. Each Lender expressly acknowledges that no Agent or officer, director, employee, agent, attorney-in-fact or affiliate of any Agent has made any representations or warranties to it and that no act by any Agent hereafter taken, including any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by such Agent to any Lender. Each Lender represents to the Agents that it has, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, assets, operations, property, financial and other condition, prospects and creditworthiness of the Borrower and made its own decision to make its Loans hereunder and to enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, assets, operations, property, financial and other condition, prospects and creditworthiness of the Borrower. No Agent shall have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, assets, property, financial and other condition, prospects or creditworthiness of the Borrower which may come into the possession of such Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates.

Section 8.07    Exculpatory Provisions. The Administrative Agent shall not, and no officers, directors, employees, agents, attorneys-in-fact or affiliates of the Administrative Agent, shall (i) be liable for any action lawfully taken or omitted to be taken by it under or in connection with this Agreement or any other Loan Document (except for its own gross negligence, willful misconduct or bad faith) or (ii) be responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower or any of its officers contained in this Agreement, in any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document or for any failure of the Borrower or any of its officers to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Borrower. The Administrative Agent shall not be responsible to any Lender for the effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Agreement or any other Loan Document or for any representations, warranties, recitals or statements made by any other Person herein or therein or made by any other Person in any written or oral statement or in any financial or other statements, instruments, reports, certificates or any other documents in connection herewith or therewith furnished or made by the Administrative Agent to the Lenders or by or on behalf of the Borrower to the Administrative Agent or any Lender or be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the use of the proceeds of the Loans or of the existence or possible existence of any Default or Event of Default.

Section 8.08    Indemnification. The Lenders agree to indemnify the Administrative Agent, in its capacity as such, and hold the Administrative Agent, in its capacity as such, harmless ratably according to their respective Commitments from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs and reasonable expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the full payment of the obligations of the Borrower hereunder) be imposed on, incurred by or asserted against the Administrative Agent, in its capacity as such, in any way relating to or arising out of this Agreement or any other Loan Document, or any documents contemplated hereby or referred to herein or the transactions contemplated hereby or any action taken or omitted to be taken by the Administrative Agent under or in connection with any of the foregoing, but only to the extent that any of the foregoing is not paid by the Borrower; provided, that no Lender shall be liable to the Administrative Agent for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs or expenses or disbursements resulting from the gross negligence, willful misconduct or bad faith of the Administrative Agent. If any indemnity furnished to the Administrative Agent for any purpose shall, in the reasonable opinion of the Administrative Agent, be insufficient or become impaired, the Administrative Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. The agreement in this Section 8.08 shall survive the payment of all Loans, Letter of Credit Liabilities, fees and other obligations of the Borrower arising hereunder.

Section 8.09    Resignation; Successors. The Administrative Agent may resign as Administrative Agent upon 20 days' notice to the Lenders. Upon the resignation of the Administrative Agent, the Required Lenders shall appoint from among the Lenders a successor to the Administrative Agent, subject to prior approval by the Borrower (so long as no Event of Default exists) and the consent of the Required Lenders (such approval or consent, as the case may be, not to be unreasonably withheld), whereupon such successor Administrative Agent shall succeed to the rights, powers and duties of the retiring Administrative Agent, and the term "Administrative Agent" shall include such successor Administrative Agent effective upon its appointment, and the retiring Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any other Loan Document. After the retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement or any other Loan Document.

Section 8.10    Administrative Agent's Fees; Arranger Fee. The Borrower shall pay to the Administrative Agent for its own account and to WCM and Barclays Capital (the investment banking division of Barclays Bank PLC), in their capacity as Lead Arrangers, for their own account, fees in the amounts and at the times agreed upon between the Borrower, the Administrative Agent and WCM, respectively, pursuant to the Fee Letter, and between the Borrower and Barclays Capital (the investment banking division of Barclays Bank PLC) pursuant to that certain letter agreement dated as of May [ ], 2004.

ARTICLE IX

MISCELLANEOUS

Section 9.01    Notices. Except as otherwise expressly provided herein, all notices and other communications shall have been duly given and shall be effective (i) when delivered, (ii) when transmitted via telecopy (or other facsimile device) to the number set out below, (iii) the Business Day following the day on which the same has been delivered prepaid (or on an invoice basis) to a reputable national overnight air courier service or (iv) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid, in each case to the respective parties at the address or telecopy numbers, in the case of the Borrower and the Administrative Agent, set forth below, and, in the case of the Lenders, set forth on signature pages hereto, or at such other address as such party may specify by written notice to the other parties hereto:

if to the Borrower:

PPL Energy Supply, LLC
Two North Ninth Street
Allentown, PA 18101-1179
Attention: James E. Abel
Telephone: 610-774-5151
Facsimile: 610-774-5106

with a copy to:

PPL Energy Supply, LLC
Two North Ninth Street
Allentown, PA 18101-1179
Attention: Michael A. McGrail, Esq.
Telephone: 610-774-5644
Facsimile: 610-774-6726

if to the Administrative Agent:

Wachovia Bank, National Association
One Wachovia Center
301 South College Street - NC0760
Charlotte, North Carolina 28288
Attention: Mark Weir
Telephone: 704-383-6610
Facsimile: 704-374-4793

with a copy to:

Wachovia Bank, National Association
201 South College Street, 23^rd Floor
Charlotte, North Carolina 28288
Attention: Syndications Agency Services
Telephone: 704-383-3721
Facsimile: 704-383-0288

with a copy to:

Mayer, Brown, Rowe & Maw LLP
214 North Tryon Street, Suite 3800
Charlotte, North Carolina 28202
Attention: Raymond S. Koloski, Esq.
Telephone : 704-444-3601
Facsimile: 704-377-2033

Section 9.02    No Waivers; Non-Exclusive Remedies. No failure by any Agent or any Lender to exercise, no course of dealing with respect to, and no delay in exercising any right, power or privilege hereunder or under any Revolving Note or other Loan Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided herein and in the other Loan Documents shall be cumulative and not exclusive of any rights or remedies provided by law.

Section 9.03    Expenses; Indemnification.

(a)    Expenses. The Borrower shall pay (i) all out-of-pocket expenses of the Agents, including legal fees and disbursements of Mayer, Brown, Rowe & Maw LLP and any other local counsel retained by the Administrative Agent, in its reasonable discretion, in connection with the preparation, execution, delivery and administration of the Loan Documents, the syndication efforts of the Agents with respect thereto, any waiver or consent thereunder or any amendment thereof or any Default or alleged Default thereunder and (ii) if an Event of Default occurs, all reasonable out-of-pocket expenses incurred by the Agents and each Lender, including (without duplication) the fees and disbursements of outside counsel, in connection with such Event of Default and restructuring, workout, collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom; provided, that the Borrower shall not be liable for any legal fees or disbursements of any counsel for the Agents and the Lenders other than Mayer, Brown, Rowe & Maw LLP associated with the preparation, execution and delivery of this Agreement and the closing documents contemplated hereby.

(b)    Indemnity in Respect of Loan Documents. The Borrower agrees to indemnify the Agents and each Lender, their respective Affiliates and the respective directors, officers, trustees, agents and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs and expenses or disbursements of any kind whatsoever, including, without limitation, the reasonable fees and disbursements of counsel, which may at any time (including, without limitation, at any time following the payment of the obligations of the Borrower hereunder) be imposed on, incurred by or asserted against such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of the Loan Documents or any actual or proposed use of proceeds of Loans hereunder; provided, that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct as determined by a court of competent jurisdiction in a final, non-appealable judgment or order.

(c)    Indemnity in Respect of Environmental Liabilities. The Borrower agrees to indemnify each Lender and hold each Lender harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs and expenses or disbursements of any kind whatsoever (including, without limitation, reasonable expenses of investigation by engineers, environmental consultants and similar technical personnel and reasonable fees and disbursements of counsel) which may at any time (including, without limitation, at any time following the payment of the obligations of the Borrower hereunder) be imposed on, incurred by or asserted against such Lender in respect of or in connection with any and all Environmental Liabilities. Without limiting the generality of the foregoing, the Borrower hereby waives all rights of contribution or any other rights of recovery with respect to liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs and expenses and disbursements in respect of or in connection with Environmental Liabilities that it might have by statute or otherwise against any Lender.

Section 9.04    Sharing of Set-Offs. Each Lender agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Loan made or Revolving Note held by it and any Letter of Credit Liabilities which is greater than the proportion received by any other Lender in respect of the aggregate amount of principal and interest due with respect to any Loan, Revolving Note and Letter of Credit Liabilities made or held by such other Lender, the Lender receiving such proportionately greater payment shall purchase such participations in the Loan made or Revolving Notes and Letter of Credit Liabilities held by the other Lenders, and such other adjustments shall be made, in each case as may be required so that all such payments of principal and interest with respect to the Loan made or Revolving Notes and Letter of Credit Liabilities made or held by the Lenders shall be shared by the Lenders pro rata; provided, that nothing in this Section shall impair the right of any Lender to exercise any right of set-off or counterclaim it may have for payment of indebtedness of the Borrower other than its indebtedness hereunder.

Section 9.05    Amendments and Waivers. Any provision of this Agreement or the Revolving Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Lenders (and, if the rights or duties of the Administrative Agent or any Issuing Lenders are affected thereby, by the Administrative Agent or such Issuing Lender, as relevant); provided, that no such amendment or waiver shall, unless signed by all of the Lenders, (i) increase or decrease the Commitment of any Lender (except for a ratable decrease in the Commitments of all of the Lenders) or subject any Lender to any additional obligation (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or of mandatory reductions in the Commitments shall not constitute an increase of the Commitment of any Lender, and that an increase in the available portion of any Commitment of any Lender as in effect at any time shall not constitute an increase in such Commitment), (ii) reduce the principal of or rate of interest on any Loan (except in connection with a waiver of applicability of any post-default increase in interest rates) or the amount to be reimbursed in respect of any Letter of Credit or any interest thereon or any fees hereunder, (iii) postpone the date fixed for any payment of interest on any Loan or the amount to be reimbursed in respect of any Letter of Credit or any interest thereon or any fees hereunder or for any scheduled reduction or termination of any Commitment or (except as expressly provided in Article III) expiration date of any Letter of Credit, (iv) postpone or change the date fixed for any scheduled payment of principal of any Loan or (v) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Revolving Notes and Letter of Credit Liabilities, or the number of Lenders, which shall be required for the Lenders or any of them to take any action under this Section or any other provision of this Agreement.

Section 9.06    Successors and Assigns.

(a)    Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all of the Lenders, except to the extent any such assignment results from the consummation of a merger or consolidation permitted pursuant to Section 6.08 of this Agreement.

(b)    Participations. Any Lender may at any time grant to one or more banks or other financial institutions or special purpose funding vehicle (each a "Participant") participating interests in its Commitments and/or any or all of its Loans and Letter of Credit Liabilities. In the event of any such grant by a Lender of a participating interest to a Participant, whether or not upon notice to the Borrower and the Administrative Agent, such Lender shall remain responsible for the performance of its obligations hereunder, and the Borrower, the Issuing Lenders and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement pursuant to which any Lender may grant such a participating interest shall provide that such Lender shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided, that such participation agreement may provide that such Lender will not agree to any modification, amendment or waiver of this Agreement which would (i) extend the Revolving Termination Date, reduce the rate or extend the time of payment of principal, interest or fees on any Loan or Letter of Credit Liability in which such Participant is participating (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the Participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Commitments shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan or Letter of Credit Liability shall be permitted without the consent of any Participant if the Participant's participation is not increased as a result thereof) or (ii) allow the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement, without the consent of the Participant, except to the extent any such assignment results from the consummation of a merger or consolidation permitted pursuant to Section 6.08 of this Agreement. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article II with respect to its participating interest to the same extent as if it were a Lender, subject to the same limitations, and in no case shall any Participant be entitled to receive any amount payable pursuant to Article II that is greater that the amount the Lender granting such Participant's participating interest would have been entitled to receive had such Lender not sold such participating interest. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b).

(c)    Assignments Generally. Any Lender may at any time assign to one or more Eligible Assignees (each, an "Assignee") all, or a proportionate part (equivalent to an initial Commitment of not less than $5,000,000 or any larger multiple of $1,000,000), of its rights and obligations under this Agreement and the Revolving Notes with respect to its Revolving Loans and, if still in existence, its Revolving Commitment, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit C attached hereto executed by such Assignee and such transferor, with (and subject to) the consent of the Borrower, which shall not be unreasonably withheld, the Administrative Agent and the Issuing Lenders, which consent shall not be unreasonably withheld; provided, that if an Assignee is an Affiliate of such transferor Lender or was a Lender immediately prior to such assignment, no such consent of the Borrower shall be required; provided, further, that if at the time of such assignment a Default or an Event of Default has occurred and is continuing, no such consent of the Borrower shall be required. Upon execution and delivery of such instrument and payment by such Assignee to such transferor of an amount equal to the purchase price agreed between such transferor and such Assignee, such Assignee shall be a Lender party to this Agreement and shall have all the rights and obligations of a Lender with a Commitment as set forth in such instrument of assumption, and the transferor shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor, the Administrative Agent and the Borrower shall make appropriate arrangements so that, if required, a new Revolving Note is issued to the Assignee. In connection with any such assignment, the transferor shall pay to the Administrative Agent an administrative fee for processing such assignment in the amount of $3,500. If the Assignee is not incorporated under the laws of the United States or any state thereof, it shall deliver to the Borrower and the Administrative Agent certification as to exemption from deduction or withholding of any United States Taxes in accordance with Section 2.16.

(d)    Assignments to Federal Reserve Banks. Any Lender may at any time assign all or any portion of its rights under this Agreement and its Revolving Note to a Federal Reserve Bank. No such assignment shall release the transferor Lender from its obligations hereunder.

(e)    Register. The Borrower hereby designates the Administrative Agent to serve as the Borrower's agent, solely for purposes of this subsection 9.06(e), to (i) maintain a register (the "Register") on which the Administrative Agent will record the Commitments from time to time of each Lender, the Loans made by each Lender and each repayment in respect of the principal amount of the Loans of each Lender and to (ii) retain a copy of each Assignment and Assumption Agreement delivered to the Administrative Agent pursuant to this Section. Failure to make any such recordation, or any error in such recordation, shall not affect the Borrower's obligation in respect of such Loans. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Administrative Agent, the Issuing Lenders and the Lenders shall treat each Person in whose name a Loan and the Revolving Note evidencing the same is registered as the owner thereof for all purposes of this Agreement, notwithstanding notice or any provision herein to the contrary. With respect to any Lender, the assignment or other transfer of the Commitments of such Lender and the rights to the principal of, and interest on, any Loan made and any Revolving Note issued pursuant to this Agreement shall not be effective until such assignment or other transfer is recorded on the Register and, except to the extent provided in this subsection 9.06(e), otherwise complies with Section 9.06, and prior to such recordation all amounts owing to the transferring Lender with respect to such Commitments, Loans and Revolving Notes shall remain owing to the transferring Lender. The registration of assignment or other transfer of all or part of any Commitments, Loans and Revolving Notes for a Lender shall be recorded by the Administrative Agent on the Register only upon the acceptance by the Administrative Agent of a properly executed and delivered Assignment and Assumption Agreement and payment of the administrative fee referred to in Section 9.06(c). The Register shall be available for inspection by each of the Borrower and each Issuing Lender at any reasonable time and from time to time upon reasonable prior notice. In addition, at any time that a request for a consent for a material or substantive change to the Loan Documents is pending, any Lender wishing to consult with other Lenders in connection therewith may request and receive from the Administrative Agent a copy of the Register. The Borrower may not replace any Lender pursuant to Section 2.07(b), unless, with respect to any Revolving Notes held by such Lender, the requirements of subsection 9.06(c) and this subsection 9.06(e) have been satisfied.

Section 9.07    Governing Law; Submission to Jurisdiction. This Agreement and each Revolving Note shall be governed by and construed in accordance with the internal laws of the State of New York. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such court and any claim that any such proceeding brought in any such court has been brought in an inconvenient forum.

Section 9.08    Counterparts; Integration; Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement and the other Loan Documents constitute the entire agreement and understanding among the parties hereto and supersede any and all prior agreements and understandings, oral or written, relating to the subject matter hereof and thereof. This Agreement shall become effective upon receipt by the Administrative Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Administrative Agent in form satisfactory to it of telegraphic, telex, facsimile or other written confirmation from such party of execution of a counterpart hereof by such party).

Section 9.09    Generally Accepted Accounting Principles. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries most recently delivered to the Lenders; provided, that, if the Borrower notifies the Administrative Agent that the Borrower wishes to amend any covenant in Article VI to eliminate the effect of any change in GAAP on the operation of such covenant (or if the Administrative Agent notifies the Borrower that the Required Lenders wish to amend Article VI for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Lenders.

Section 9.10    Usage. The following rules of construction and usage shall be applicable to this Agreement and to any instrument or agreement that is governed by or referred to in this Agreement.

(a)    All terms defined in this Agreement shall have the defined meanings when used in any instrument governed hereby or referred to herein and in any certificate or other document made or delivered pursuant hereto or thereto unless otherwise defined therein.

(b)    The words "hereof", "herein", "hereunder" and words of similar import when used in this Agreement or in any instrument or agreement governed here shall be construed to refer to this Agreement or such instrument or agreement, as applicable, in its entirety and not to any particular provision or subdivision hereof or thereof.

(c)    References in this Agreement to "Article", "Section", "Exhibit", "Schedule" or another subdivision or attachment shall be construed to refer to an article, section or other subdivision of, or an exhibit, schedule or other attachment to, this Agreement unless the context otherwise requires; references in any instrument or agreement governed by or referred to in this Agreement to "Article", "Section", "Exhibit", "Schedule" or another subdivision or attachment shall be construed to refer to an article, section or other subdivision of, or an exhibit, schedule or other attachment to, such instrument or agreement unless the context otherwise requires.

(d)    The definitions contained in this Agreement shall apply equally to the singular and plural forms of such terms. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The word "will" shall be construed to have the same meaning as the word "shall". The term "including" shall be construed to have the same meaning as the phrase "including without limitation".

(e)    Unless the context otherwise requires, any definition of or reference to any agreement, instrument, statute or document contained in this Agreement or in any agreement or instrument that is governed by or referred to in this Agreement shall be construed (i) as referring to such agreement, instrument, statute or document as the same may be amended, supplemented or otherwise modified from time to time (subject to any restrictions on such amendments, supplements or modifications set forth in this Agreement or in any agreement or instrument governed by or referred to in this Agreement), including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and (ii) to include (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein. Any reference to any Person shall be construed to include such Person's successors and permitted assigns.

(f)    Unless the context otherwise requires, whenever any statement is qualified by "to the best knowledge of" or "known to" (or a similar phrase) any Person that is not a natural person, it is intended to indicate that the senior management of such Person has conducted a commercially reasonable inquiry and investigation prior to making such statement and no member of the senior management of such Person (including managers, in the case of limited liability companies, and general partners, in the case of partnerships) has current actual knowledge of the inaccuracy of such statement.

Section 9.11    WAIVER OF JURY TRIAL. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 9.12    Confidentiality. Each Lender agrees to hold all non-public information obtained pursuant to the requirements of this Agreement in accordance with its customary procedure for handling confidential information of this nature and in accordance with safe and sound banking practices; provided, that nothing herein shall prevent any Lender from disclosing such information (i) to any other Lender or to any Agent, (ii) to any other Person if reasonably incidental to the administration of the Loans and Letter of Credit Liabilities, (iii) upon the order of any court or administrative agency, (iv) upon the request or demand of any regulatory agency or authority, (v) which had been publicly disclosed other than as a result of a disclosure by any Agent or any Lender prohibited by this Agreement, (vi) in connection with any litigation to which any Agent, any Lender or any of their respective Subsidiaries or Affiliates may be party, (vii) to the extent necessary in connection with the exercise of any remedy hereunder, (viii) to such Lender's or Agent's Affiliates and their respective directors, officers, employees and agents including legal counsel and independent auditors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such information and instructed to keep such information confidential) and (ix) subject to provisions substantially similar to those contained in this Section, to any actual or proposed Participant or Assignee. Notwithstanding the foregoing, any Agent, any Lender or Mayer, Brown, Rowe & Maw LLP may circulate promotional materials and place advertisements in financial and other newspapers and periodicals or on a home page or similar place for dissemination of information on the Internet or worldwide web, in each case, after the closing of the transactions contemplated by this Agreement in the form of a "tombstone" or other release limited to describing the names of the Borrower or its Affiliates, or any of them, and the amount, type and closing date of such transactions, all at their sole expense.

Section 9.13    USA PATRIOT Act Notice. Each Lender that is subject to the Patriot Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub.L. 107-56 (signed into law October 26, 2001)) (the "Patriot Act"), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender or the Administrative Agent, as applicable, to identify the Borrower in accordance with the Patriot Act.

[Signature Pages to Follow]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

PPL ENERGY SUPPLY, LLC

By:                                      
Name:
Title:

 

WACHOVIA BANK, NATIONAL
       ASSOCIATION,
       as Administrative Agent

By:                                      
Name:
Title:

WACHOVIA BANK, NATIONAL
       ASSOCIATION,
       as Issuing Lender

By:                                      
Name:
Title:

WACHOVIA BANK, NATIONAL
       ASSOCIATION, as a Lender

By:                                      
Name:
Title:

 

______________________________,
as a Lender
(insert name of Lender)

By:                                      
Name:
Title:

     

Second signature block, if required

______________________________,
as a Lender
(insert name of Lender)

By:                                      
Name:
Title:

EX-10

Exhibit 10(c)

$200,000,000


FIVE-YEAR CREDIT AGREEMENT


dated as of June 22, 2004

among

PPL ELECTRIC UTILITIES CORPORATION,

THE LENDERS FROM TIME TO TIME PARTY HERETO,


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

BARCLAYS BANK PLC

and

CITIBANK, N.A.,
as Syndication Agents,

WACHOVIA CAPITAL MARKETS, LLC

and

CITIGROUP GLOBAL MARKETS, INC.,
as Lead Arrangers,

and

JPMORGAN CHASE BANK

and

THE BANK OF NOVA SCOTIA,

as Documentation Agents

ARTICLE I		DEFINITIONS	1
	Section 1.01	Definitions	1
ARTICLE II		THE CREDITS	16
	Section 2.01	Commitments to Lend	16
	Section 2.02	Notice of Borrowings	16
	Section 2.03	Notice to Lenders; Funding of Loans	17
	Section 2.04	Noteless Agreement; Evidence of Indebtedness	18
	Section 2.05	Interest Rates	18
	Section 2.06	Fees	20
	Section 2.07	Adjustments of Commitments	21
	Section 2.08	Maturity of Loans; Mandatory Prepayments	24
	Section 2.09	Optional Prepayments and Repayments	24
	Section 2.10	General Provisions as to Payments	25
	Section 2.11	Funding Losses	25
	Section 2.12	Computation of Interest and Fees	26
	Section 2.13	Basis for Determining Interest Rate Inadequate, Unfair or Unavailable	26
	Section 2.14	Illegality	26
	Section 2.15	Increased Cost and Reduced Return	27
	Section 2.16	Taxes	28
	Section 2.17	Base Rate Loans Substituted for Affected Euro-Dollar Loans	30
ARTICLE III		Letters of Credit	31
	Section 3.01	Existing Letters of Credit	31
	Section 3.02	Additional Letters of Credit	31
	Section 3.03	Method of Issuance of Letters of Credit	31
	Section 3.04	Conditions to Issuance of Additional Letters of Credit	31
	Section 3.05	Purchase and Sale of Letter of Credit Participations	32
	Section 3.06	Drawings under Letters of Credit	32
	Section 3.07	Reimbursement Obligations	32
	Section 3.08	Duties of Issuing Lenders to Lenders; Reliance	33
	Section 3.09	Obligations of Lenders to Reimburse Issuing Lender for Unpaid Drawings	34
	Section 3.10	Funds Received from the Borrower in Respect of Drawn Letters of Credit	35
	Section 3.11	Obligations in Respect of Letters of Credit Unconditional	35
	Section 3.12	Indemnification in Respect of Letters of Credit	36
	Section 3.13	ISP98	36
ARTICLE IV		CONDITIONS	36
	Section 4.01	Conditions to Closing	36
	Section 4.02	Conditions to All Credit Events	38
ARTICLE V		REPRESENTATIONS AND WARRANTIES	39
	Section 5.01	Status	39
	Section 5.02	Authority; No Conflict	39
	Section 5.03	Legality; Etc	39
	Section 5.04	Financial Condition	39
	Section 5.05	Litigation	40
	Section 5.06	No Violation	40
	Section 5.07	ERISA	40
	Section 5.08	Governmental Approvals	41
	Section 5.09	Investment Company Act	41
	Section 5.10	Public Utility Holding Company Act	41
	Section 5.11	Tax Returns and Payments	41
	Section 5.12	Compliance with Laws	41
	Section 5.13	No Default	41
	Section 5.14	Environmental Matters	41
	Section 5.15	Reportable Transactions	42
ARTICLE VI		COVENANTS	43
	Section 6.01	Information	43
	Section 6.02	Maintenance of Property; Insurance	44
	Section 6.03	Conduct of Business and Maintenance of Existence	45
	Section 6.04	Compliance with Laws, Etc	45
	Section 6.05	Books and Records	45
	Section 6.06	Use of Proceeds	45
	Section 6.07	Merger or Consolidation	45
	Section 6.08	Asset Sales	46
	Section 6.09	Transactions with Affiliates	46
	Section 6.10	Consolidated Debt to Consolidated Capitalization Ratio	46
ARTICLE VII		DEFAULTS	46
	Section 7.01	Events of Default	46
ARTICLE VIII		THE AGENTS	48
	Section 8.01	Appointment and Authorization	48
	Section 8.02	Individual Capacity	49
	Section 8.03	Delegation of Duties	49
	Section 8.04	Reliance by the Administrative Agent	49
	Section 8.05	Notice of Default	49
	Section 8.06	Non-Reliance on the Agents and Other Lenders	50
	Section 8.07	Exculpatory Provisions	50
	Section 8.08	Indemnification	51
	Section 8.09	Resignation; Successors	51
	Section 8.10	Administrative Agent's Fees; Arranger Fee	51
ARTICLE IX		MISCELLANEOUS	52
	Section 9.01	Notices	52
	Section 9.02	No Waivers; Non-Exclusive Remedies	53
	Section 9.03	Expenses; Indemnification	53
	Section 9.04	Sharing of Set-Offs	54
	Section 9.05	Amendments and Waivers	54
	Section 9.06	Successors and Assigns	55
	Section 9.07	Governing Law; Submission to Jurisdiction	57
	Section 9.08	Counterparts; Integration; Effectiveness	57
	Section 9.09	Generally Accepted Accounting Principles	57
	Section 9.10	Usage	58
	Section 9.11	WAIVER OF JURY TRIAL	59
	Section 9.12	Confidentiality	59
	Section 9.13	USA PATRIOT Act Notice	59

Appendices and Schedules:

Commitment Appendix

Schedules:
Schedule 3.01   - Existing Letters of Credit

Exhibits:

Exhibit A-1 -   Form of Notice of Borrowing
Exhibit A-2 -   Form of Notice of Conversion/Continuation
Exhibit A-3 -   Form of Letter of Credit Request
Exhibit A-4 -   Form of Extension Letter

Exhibit B -   Form of Revolving Note

Exhibit C -   Form of Assignment and Assumption Agreement

Exhibit D -   Forms of Opinion of Counsel for the Borrower

FIVE-YEAR CREDIT AGREEMENT (this "Agreement") dated as of June 22, 2004 among PPL ELECTRIC UTILITIES CORPORATION, the LENDERS party hereto from time to time, WACHOVIA BANK, NATIONAL ASSOCIATION, as Administrative Agent and Issuing Lender, BARCLAYS BANK PLC and CITIBANK, N.A., as Syndication Agents, WACHOVIA CAPITAL MARKETS, LLC and CITIGROUP GLOBAL MARKETS, INC., as Lead Arrangers, and JPMORGAN CHASE BANK and THE BANK OF NOVA SCOTIA, as Documentation Agents.

PPL ELECTRIC UTILITIES CORPORATION, a Pennsylvania corporation (together with its successors, the "Borrower"), has requested and the Lenders (as hereinafter defined) have agreed to provide credit facilities to the Borrower in an aggregate principal amount of up to $200,000,000 for the purposes and on the terms and conditions set out in this Agreement.

ARTICLE I

DEFINITIONS

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

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

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

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

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

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

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

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

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

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

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

	Borrower's Ratings (S&P/Moody's)	Applicable Percentage for Commitment Fees	Applicable Percentage for Base Rate Loans	Applicable Percentage for Euro-Dollar Loans and Letter of Credit Fees
Category A	A/A2 or higher	.105%	0%	.400%
Category B	A-/A3	.150%	0%	.500%
Category C	BBB+/Baa1	.175%	0%	.625%
Category D	BBB/Baa2	.200%	0%	.875%
Category E	BBB-/Baa3 or lower or unrated	.250%	.100%	1.125%

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

	Ratings (S&P/Moody's)	Usage > 33 1/3% of Total Commitments
Category A	A/A2 or higher	.100%
Category B	A-/A3	.125%
Category C	BBB+/Baa1	.125%
Category D	BBB/Baa2	.125%
Category E	BBB-/Baa3 or lower or unrated	.125%

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

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

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

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

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

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

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

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

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

"Borrower" is defined in the Recital.

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

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

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

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

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

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

"Closing Date" means the date, not later than June 22, 2004, on which the Administrative Agent determines that the conditions specified in or pursuant to Section 4.01 have been satisfied.

"Commitment" means, with respect to any Lender, the commitment of such Lender to make Revolving Loans under this Agreement as set forth in the Commitment Appendix and to purchase participations in Letters of Credit pursuant to Article III hereof.

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

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

"Consolidated Capitalization" shall mean the sum of, without duplication, (A) the Consolidated Debt of the Borrower, (B) the consolidated shareowners' equity (determined in accordance with GAAP) of the common, preference and preferred stockholders of the Borrower and minority interests recorded on the Borrower's consolidated financial statements (excluding therefrom the effect of all unrealized gains and losses reported under Financial Accounting Standards Board Statement No. 133 in connection with forward contracts, futures contracts or other derivatives or commodity hedging agreements for the future delivery of electricity or capacity, (C) up to an aggregate amount of $200,000,000 of Hybrid Preferred Securities and (D) up to an aggregate amount of $200,000,000 of Equity-Linked Securities, except that for purposes of calculating Consolidated Capitalization of the Borrower, Consolidated Debt of the Borrower shall exclude Non-Recourse Debt and Consolidated Capitalization of the Borrower shall exclude that portion of shareholder equity attributable to assets securing Non-Recourse Debt.

"Consolidated Debt" means the consolidated Debt of the Borrower and its Consolidated Subsidiaries (determined in accordance with GAAP), except that for purposes of this definition (a) Consolidated Debt of the Borrower shall exclude Non-Recourse Debt and (b) Consolidated Debt of the Borrower shall exclude (i) up to an aggregate amount of $200,000,000 of Hybrid Preferred Securities and (ii) up to an aggregate amount of $200,000,000 of Equity-Linked Securities.

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

"Continuing Lender" means with respect to any event described in Section 2.07(b), a Lender which is not a Retiring Lender, and "Continuing Lenders" means any two or more of such Continuing Lenders.

"Corporation" means a corporation, association, company, joint stock company, limited liability company, partnership or business trust.

"Credit Event" means a Borrowing or the issuance, renewal or extension of a Letter of Credit.

"Current Revolving Termination Date" has the meaning set forth in Section 2.07(c)(i).

"Debt" of any Person means, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person with respect to deposits or advances of any kind, (iii) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (iv) all Guarantees by such Person of Debt of others, (v) all Capital Lease Obligations and Synthetic Leases of such Person, (vi) all obligations of such Person in respect of Interest Rate Protection Agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements (the amount of any such obligation to be the net amount that would be payable upon the acceleration, termination or liquidation thereof), but only to the extent that such net obligations exceed $75,000,000 in the aggregate and (vii) all obligations of such Person as an account party in respect of letters of credit and bankers' acceptances; provided, however, that "Debt" of such Person does not include (a) obligations of such Person under any installment sale, conditional sale or title retention agreement or any other agreement relating to obligations for the deferred purchase price of property or services (b) obligations under agreements relating to the purchase and sale of any commodity, including any power sale or purchase agreements, any commodity hedge or derivative (regardless of whether any such transaction is a "financial" or physical transaction), (c) any trade obligations or other obligations of such Person incurred in the ordinary course of business or (d) obligations of such Person under any lease agreement (including any lease intended as security) that is not a Capital Lease or a Synthetic Lease.

"Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default.

"Defaulting Lender" means at any time any Lender with respect to which a Lender Default is in effect at such time.

"Dollars" and the sign "$" means lawful money of the United States of America.

"Documentation Agents" means JPMorgan Chase Bank and The Bank of Nova Scotia, in their capacity as documentation agents for the Lenders under this Agreement and under the other Loan Documents, and their respective successors in such capacity.

"Effective Date" means the date this Agreement becomes effective in accordance with Section 9.08.

"Eligible Assignee" means (i) a Lender; (ii) a commercial bank organized under the laws of the United States and having a combined capital and surplus of at least $100,000,000; (iii) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000; provided, that such bank is acting through a branch or agency located and licensed in the United States; or (iv) an Affiliate of a Lender that is an "accredited investor" (as defined in Regulation D under the Securities Act of 1933, as amended); provided, that upon and following the occurrence of an Event of Default, an Eligible Assignee shall mean any Person.

"Environmental Laws" means any and all federal, state and local statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses or other written governmental restrictions relating to the environment or to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or Hazardous Substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or Hazardous Substances or wastes.

"Environmental Liabilities" means all liabilities (including anticipated compliance costs) in connection with or relating to the business, assets, presently or previously owned, leased or operated property, activities (including, without limitation, off-site disposal) or operations of the Borrower or any of its Subsidiaries, whether vested or unvested, contingent or fixed, actual or potential, which arise under or relate to matters covered by Environmental Laws.

"Equity-Linked Securities" means any securities of the Borrower or any of its Subsidiaries which are convertible into, or exchangeable for, equity securities of the Borrower, such Subsidiary or PPL Corporation, including any securities issued by any of such Persons which are pledged to secure any obligation of any holder to purchase equity securities of the Borrower, any of its Subsidiaries or PPL Corporation.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute.

"ERISA Group" means the Borrower and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414(b) or (c) of the Internal Revenue Code.

"Euro-Dollar Lending Office" means, as to each Lender, its office, branch or Affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or Affiliate of such Lender as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Administrative Agent.

"Euro-Dollar Borrowing" means a Borrowing comprised of Euro-Dollar Loans.

"Euro-Dollar Loan" means a Loan in respect of which interest is computed on the basis of the Adjusted London Interbank Offered Rate pursuant to the applicable Notice of Borrowing or Notice of Conversion/Continuation.

"Euro-Dollar Reserve Percentage" of any Lender for the Interest Period of any LIBOR Rate Loan means the reserve percentage applicable to such Lender during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) then applicable to such Lender with respect to liabilities or assets consisting of or including "Eurocurrency Liabilities" (as defined in Regulation D). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage.

"Event of Default" has the meaning set forth in Section 7.01.

"Existing Credit Agreement" means the $200,000,000 364-Day Revolving Credit Agreement dated as of June 24, 2003 among the Borrower, Wachovia Bank, National Association, as Administrative Agent and Issuing Lender, Barclays Bank PLC and Citibank, N.A., as Syndication Agents, WCM (successor to Wachovia Securities, Inc.) and Citigroup Global Markets, Inc. as Lead Arrangers, Bank One, N.A., and JPMorgan Chase Bank, as Documentation Agents, and the lenders from time to time party thereto, as amended through the date hereof.

"Existing Letters of Credit" means the letters of credit issued before the Closing Date pursuant to the Existing Credit Agreement and listed in attached Schedule 3.01, and "Existing Letter of Credit" means any one of them.

"Extension Date" means, in the event the Revolving Termination Date or the Current Revolving Termination Date, as applicable, is extended pursuant to Section 2.07(c), either (i) in a year in which the Current Revolving Termination Date does not occur, the anniversary of the Closing Date occurring in any such year or (ii) in the year in which the Current Revolving Termination Date is scheduled to occur, the then Current Revolving Termination Date.

"Extension Letter" means a letter from the Borrower to the Administrative Agent requesting an extension of the Revolving Termination Date substantially in the form of Exhibit A-4 hereto.

"Federal Funds Rate" means for any day the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided, that (i) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average of quotations for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by the Administrative Agent.

"Fee Letter" means the letter designated as such dated as of April 29, 2004 by the Administrative Agent and WCM, as Lead Arranger and Joint Book Manager, addressed to and acknowledged and agreed to by the Borrower.

"Final Election Date" has the meaning set forth in Section 2.07(c)(i).

"Fronting Fee" has the meaning set forth in Section 2.06(b).

"GAAP" means United States generally accepted accounting principles applied on a consistent basis.

"Governmental Authority" means any federal, state or local government, authority, agency, central bank, quasi-governmental authority, court or other body or entity, and any arbitrator with authority to bind a party at law.

"Group of Loans" means at any time a group of Loans consisting of (i) all Loans which are Base Rate Loans at such time or (ii) all Loans which are Euro-Dollar Loans of the same Type having the same Interest Period at such time; provided, that, if a Loan of any particular Lender is converted to or made as a Base Rate Loan pursuant to Sections 2.14 or 2.17, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been in if it had not been so converted or made.

"Guarantee" of or by any person means any obligation, contingent or otherwise, of such person guaranteeing or having the economic effect of guaranteeing any Debt of any other person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or to purchase (or to advance or supply funds for the purchase of) any security for payment of such Debt, (ii) to purchase or lease property, securities or services for the purpose of assuring the owner of such Debt of the payment of such Debt or (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Debt; provided, however, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business.

"Hazardous Substances" means any toxic, caustic or otherwise hazardous substance, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics.

"Hybrid Preferred Securities" means any trust preferred securities, or deferrable interest subordinated debt with a maturity of at least 20 years issued by the Borrower, or any business trusts, limited liability companies, limited partnerships (or similar entities) (i) all of the common equity, general partner or similar interests of which are owned (either directly or indirectly through one or more wholly owned Subsidiaries) at all times by the Borrower or any of its Subsidiaries, (ii) that have been formed for the purpose of issuing hybrid preferred securities and (iii) substantially all the assets of which consist of (A) subordinated debt of the Borrower or a Subsidiary of the Borrower, as the case may be, and (B) payments made from time to time on the subordinated debt.

"Indemnitee" has the meaning set forth in Section 9.03(b).

"Interest Period" means with respect to each Euro-Dollar Loan, a period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in the applicable Notice of Conversion/Continuation and ending one, two, three or six months thereafter, as the Borrower may elect in the applicable notice; provided, that:

(i)   any Interest Period which would otherwise end on a day which is not a Business Day shall, subject to clauses (iii) and (iv) below, be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;

(ii)   any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (iii) below, end on the last Business Day of a calendar month;

(iii)   if any Interest Period includes a date on which a payment of principal of the Loans is required (based on circumstances existing at the first day of such Interest Period) to be made under Section 2.08 but does not end on such date, then (x) the principal amount (if any) of each Euro-Dollar Loan required to be repaid on such date shall have an Interest Period ending on such date and (y) the remainder (if any) of each such Euro-Dollar Loan shall have an Interest Period determined as set forth above; and

(iv)   no Interest Period shall end after the Revolving Termination Date.

"Interest Rate Protection Agreements" means any agreement providing for an interest rate swap, cap or collar, or any other financial agreement designed to protect against fluctuations in interest rates.

"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, or any successor statute.

"Issuing Lender" means (i) Wachovia Bank, National Association, in its capacity as an issuer of Letters of Credit under Section 3.02, and its successor or successors in such capacity and (ii) each Lender listed in Schedule 3.01 hereto as the issuer of an Existing Letter of Credit.

"Lead Arrangers" means WCM and Citigroup Global Markets, Inc., in their capacities as lead arrangers for the Lenders hereunder and under the other Loan Documents, and their successors in such capacity.

"Lender" means each bank or other lending institution listed in the Commitment Appendix as having a Revolving Commitment, each Eligible Assignee that becomes a Lender pursuant to Section 9.06(c) and their respective successors and shall include, as the context may require and each Issuing Lender in such capacity.

"Lender Default" means (i) the failure (which has not been cured) of any Lender to make available any Loan or any reimbursement for a drawing under a Letter of Credit which in either case it is obligated to make available under the terms and conditions of this Agreement or (ii) a Lender having notified the Administrative Agent and the Borrower that such Lender does not intend to comply with its obligations under Article II following the appointment of a receiver or conservator with respect to such Lender at the direction or request of any regulatory agency or authority.

"Letter of Credit" means an Existing Letter of Credit or an Additional Letter of Credit, and "Letters of Credit" means any combination of the foregoing.

"Letter of Credit Commitment" means the aggregate Revolving Commitment.

"Letter of Credit Fee" has the meaning set forth in Section 2.06(b).

"Letter of Credit Liabilities" means, for any Lender at any time, the product derived by multiplying (i) the sum, without duplication, of (A) the aggregate amount that is (or may thereafter become) available for drawing under all Letters of Credit outstanding at such time plus (B) the aggregate unpaid amount of all Reimbursement Obligations outstanding at such time by (ii) the quotient derived by dividing such Lender's Revolving Commitment by the aggregate of the Revolving Commitments of all Revolving Lenders.

"Letter of Credit Request" has the meaning set forth in Section 3.03.

"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance intended to confer or having the effect of conferring upon a creditor a preferential interest.

"Loan" means a Base Rate Loan or a Euro-Dollar Loan, and "Loans" means any combination of the foregoing.

"Loan Documents" means this Agreement and the Revolving Notes.

"London Interbank Offered Rate" means, for any Euro-Dollar Loan for any Interest Period, the interest rate for deposits in Dollars for a period of time comparable to such Interest Period which appears on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days before the first day of such Interest Period; provided, however, if more than one rate is specified on Telerate page 3750, the applicable rate shall be the arithmetic means of all such rates. If for any reason such rate is not available, the term "London Interbank Offered Rate" means for any Interest Period, the rate per annum appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days before the first day of such Interest Period for a period of time comparable to such Interest Period; provided, however, that if more than one such rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%). If for any reason the London interbank offered rate is not available on either Telerate page 3750 or Reuters Screen LIBO Page, the term "London Interbank Offered Rate" means for any Interest Period, the rate per annum at which deposits in Dollars are offered to Wachovia Bank, National Association in the London interbank market at approximately 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Loan of Wachovia Bank, National Association to which such Interest Period is to apply and for a period of time comparable to such Interest Period.

"Mandatory Letter of Credit Borrowing" has the meaning set forth on Section 3.09.

"Margin Stock" means "margin stock" as such term is defined in Regulation U.

"Material Adverse Effect" means (i) any material adverse effect upon the business, assets, financial condition or operations of the Borrower or the Borrower and its Subsidiaries, taken as a whole; (ii) a material adverse effect on the ability of the Borrower to perform its obligations under this Agreement, the Revolving Notes or the other Loan Documents or (iii) a material adverse effect on the validity or enforceability of this Agreement, the Revolving Notes or any of the other Loan Documents.

"Material Debt" means Debt (other than the Revolving Notes) of the Borrower in a principal or face amount exceeding $50,000,000.

"Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $25,000,000.

"Moody's" means Moody's Investors Service, Inc., a Delaware corporation, and its successors or, absent any such successor, such nationally recognized statistical rating organization as the Borrower and the Administrative Agent may select.

"Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions.

"New Lender" means with respect to any event described in Section 2.07(b), an Eligible Assignee which becomes a Lender hereunder as a result of such event, and "New Lenders" means any two or more of such New Lenders.

"Non-Defaulting Lender" means each Lender other than a Defaulting Lender, and "Non-Defaulting Lenders" means any two or more of such Lenders.

"Non-Extending Lender" has the meaning set forth in Section 2.07(c)(i).

"Non-Recourse Debt" shall mean (a) Debt that is nonrecourse to the Borrower or any Subsidiary of the Borrower and (b) any transition bonds issued by PPL Transition Bond Company LLC, a subsidiary of the Borrower, or any similar special purpose company organized for the purpose of issuing bonds payable from revenues associated with intangible transition property created under the PEGCCCA or other assets of PPL Transition Bond Company LLC or any such other special purpose company, provided that (i) such bonds are nonrecourse to the Borrower or any of its Subsidiaries (other than PPL Transition Bond Company LLC or any such other special purpose company) and (ii) the aggregate amount of such transition bonds shall not exceed $2,850,000,000.

"Non-U.S. Lender" has the meaning set forth in Section 2.16(e).

"Notice of Borrowing" has the meaning set forth in Section 2.02.

"Notice of Conversion/Continuation" has the meaning set forth in Section 2.05(d)(ii).

"Obligations" means:

(i)   all principal of and interest (including, without limitation, any interest which accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on any Loan, fees payable or Reimbursement Obligation under, or any Revolving Note issued pursuant to, this Agreement or any other Loan Document;

(ii)   all other amounts now or hereafter payable by the Borrower and all other obligations or liabilities now existing or hereafter arising or incurred (including, without limitation, any amounts which accrue after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Borrower, whether or not allowed or allowable as a claim in any such proceeding) on the part of the Borrower pursuant this Agreement or any other Loan Document;

(iii)   all expenses of the Agents as to which such Agents have a right to reimbursement under Section 9.03(a) hereof or under any other similar provision of any other Loan Document; and

(iv)   all amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement under Section 9.03 hereof or under any other similar provision of any other Loan Document;

together in each case with all renewals, modifications, consolidations or extensions thereof.

"Other Taxes" has the meaning set forth in Section 2.16(b).

"Participant" has the meaning set forth in Section 9.06(b).

"PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

"PEGCCCA" means the Pennsylvania Electricity Generation Customer Choice and Competition Act, and any successor statute, regulation or law.

"Permitted Business" with respect to any Person means a business that is the same or similar to the business of the Borrower or any Subsidiary as of the date hereof, or any business reasonably related thereto.

"Person" means an individual, a corporation, a partnership, an association, a limited liability company, a trust or an unincorporated association or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

"Plan" means at any time an employee pension benefit plan (including a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group.

"Prime Rate" means the rate of interest publicly announced by Wachovia Bank, National Association in Charlotte, North Carolina from time to time as its Prime Rate.

"PUC" has the meaning set forth in Section 4.01(h).

"PUC Order" has the meaning set forth in Section 4.01(h).

"Quarterly Date" means the last Business Day of each March, June, September and December.

"Refinanced Agreements" means the Existing Credit Agreement and all instruments, documents and agreements relating thereto, in all cases as in effect on the Closing Date.

"Register" has the meaning set forth in Section 9.06(e).

"Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System, as amended, or any successor regulation.

"Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as amended, or any successor regulation.

"Reimbursement Obligations" means at any time all obligations of the Borrower to reimburse the Issuing Lenders pursuant to Section 3.07 for amounts paid by the Issuing Lenders in respect of drawings under Letters of Credit, including any portion of any such obligation to which a Lender has become subrogated pursuant to Section 3.09.

"Replacement Date" has the meaning set forth in Section 2.07(b).

"Replacement Lender" has the meaning set forth in Section 2.07(b).

"Required Lenders" means at any time Non-Defaulting Lenders having at least 51% of the aggregate amount of the Revolving Commitments of all Non-Defaulting Lenders or, if the Revolving Commitments shall have been terminated, having at least 51% of the aggregate amount of the Revolving Outstandings of the Non-Defaulting Lenders at such time.

"Retiring Lender" means a Lender that ceases to be a Lender hereunder pursuant to the operation of Section 2.07(b).

"Revolving" means, when used with respect to (i) a Lender's Commitment, such Lender's Revolving Commitment, as such Revolving Commitment may be reduced from time to time pursuant to Sections 2.07, 2.08 or 9.06(c) or increased from time to time pursuant to Section 9.06(c), (ii) a Borrowing, a Borrowing made by the Borrower under Section 2.01, as identified in the Notice of Borrowing with respect thereto, or a Mandatory Letter of Credit Borrowing, (iii) a Loan, a Loan made under Section 2.01; provided, that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Conversion/Continuation, the term "Revolving Loan" shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be, and (iv) a Revolving Note, a promissory note, substantially in the form of Exhibit B hereto, issued at the request of a Lender evidencing the obligation of the Borrower to repay outstanding Revolving Loans.

"Revolving Outstandings" means at any time, with respect to any Lender, the sum of (i) the aggregate principal amount of such Lender's outstanding Revolving Loans plus (ii) the aggregate amount of such Lender's outstanding Letter of Credit Liabilities.

"Revolving Termination Date" means June 22, 2009 (or, if such day is not a Business Day, the next preceding Business Day), as extended from time to time pursuant to Section 2.07(c), or such earlier date upon which the Revolving Commitments shall have been terminated in their entirety in accordance with this Agreement.

"SEC" means the Securities and Exchange Commission.

"S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill, Inc., a New York corporation, and its successors or, absent any such successor, such nationally recognized statistical rating organization as the Borrower and the Administrative Agent may select.

"Standby Letter of Credit" has the meaning set forth in Section 3.02.

"Subsidiary" means, any Corporation a majority of the outstanding Voting Stock of which is owned, directly or indirectly, by the Borrower or one or more other Subsidiaries of the Borrower.

"Syndication Agents" means Barclays Bank PLC and Citibank, N.A., in their capacities as syndication agents for the Lenders hereunder and under the other Loan Documents, and their successors in such capacity.

"Synthetic Lease" means any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product where such transaction is considered borrowed money indebtedness for tax purposes but is classified as an operating lease in accordance with GAAP.

"Taxes" has the meaning set forth in Section 2.16(a).

"Type", when used in respect of any Loan or Borrowing, shall refer to the rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined.

"Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA.

"United States" means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions.

"Voting Stock" means stock (or other interests) of a Corporation having ordinary voting power for the election of directors, managers or trustees thereof, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency.

"WCM" means Wachovia Capital Markets, LLC, and its successors and assigns.

"Wholly-Owned Subsidiary" means, with respect to any Person at any date, any Subsidiary of such Person all of the Voting Stock of which (except directors' qualifying shares) are at the time directly or indirectly owned by such Person.

ARTICLE II

THE CREDITS

Section 2.01   Commitments to Lend. Each Lender severally agrees, on the terms and conditions set forth in this Agreement, to make Revolving Loans to the Borrower pursuant to this Section 2.01 from time to time during the Availability Period in amounts such that its Revolving Outstandings shall not exceed its Revolving Commitment; provided, that, immediately after giving effect to each such Revolving Loan, the aggregate Revolving Outstandings of all Lenders shall not exceed the aggregate amount of the Revolving Commitments of all Lenders. Each Revolving Borrowing (other than Mandatory Letter of Credit Borrowings) shall be in an aggregate principal amount of $10,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the aggregate amount of the unused Revolving Commitments) and shall be made from the several Lenders ratably in proportion to their respective Revolving Commitments. Within the foregoing limits, the Borrower may borrow under this Section 2.01, repay, or, to the extent permitted by Section 2.09, prepay, Revolving Loans and reborrow under this Section 2.01.

Section 2.02   Notice of Borrowings. The Borrower shall give the Administrative Agent notice substantially in the form of Exhibit A-1 hereto (a "Notice of Borrowing") not later than (a) 11:30 A.M. (Charlotte, North Carolina time) on the date of each Base Rate Borrowing and (b) 12:00 Noon (Charlotte, North Carolina time) on the third Business Day before each Euro-Dollar Borrowing, specifying:

   (i)   the date of such Borrowing, which shall be a Business Day;

   (ii)   the aggregate amount of such Borrowing;

   (iii)   the initial Type of the Loans comprising such Borrowing; and

   (iv)   in the case of a Euro-Dollar Borrowing, the duration of the initial Interest Period applicable thereto, subject to the provisions of the definition of Interest Period.

Notwithstanding the foregoing, no more than 6 Groups of Euro-Dollar Loans shall be outstanding at any one time, and any Loans which would exceed such limitation shall be made as Base Rate Loans.

Section 2.03   Notice to Lenders; Funding of Loans.

(a)   Notice to Lenders. Upon receipt of a Notice of Borrowing, the Administrative Agent shall promptly notify each Lender of such Lender's ratable share (if any) of the Borrowing referred to in the Notice of Borrowing, and such Notice of Borrowing shall not thereafter be revocable by the Borrower.

(b)   Funding of Loans. Not later than (a) 1:00 P.M. (Charlotte, North Carolina time) on the date of each Base Rate Borrowing and (b) 12:00 Noon (Charlotte, North Carolina time) on the date of each Euro-Dollar Borrowing, each Lender participating therein shall make available its share of such Borrowing, in Federal or other funds immediately available in Charlotte, North Carolina, to the Administrative Agent at its address referred to in Section 9.01. Unless the Administrative Agent determines that any applicable condition specified in Article IV has not been satisfied, the Administrative Agent shall apply any funds so received in respect of Revolving Loans available to the Borrower at the Administrative Agent's address not later than (a) 3:00 P.M. (Charlotte, North Carolina time) on the date of each Base Rate Borrowing and (b) 2:00 P.M. (Charlotte, North Carolina time) on the date of each Euro-Dollar Borrowing.

(c)   Funding By the Administrative Agent in Anticipation of Amounts Due from the Lenders. Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing (except in the case of a Base Rate Borrowing, in which case prior to the time of such Borrowing) that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available to the Administrative Agent on the date of such Borrowing in accordance with subsection (b) of this Section, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such share available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount, together with interest thereon for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent at (i) a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.05, in the case of the Borrower, and (ii) the Federal Funds Rate, in the case of such Lender. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender's Loan included in such Borrowing for purposes of this Agreement.

(d)   Obligations of Lenders Several. The failure of any Lender to make a Loan required to be made by it as part of any Borrowing hereunder shall not relieve any other Lender of its obligation, if any, hereunder to make any Loan on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on such date of Borrowing.

Section 2.04   Noteless Agreement; Evidence of Indebtedness.

(a)   Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.

(b)   The Administrative Agent shall also maintain accounts in which it will record (a) the amount of each Loan made hereunder, the Type thereof and the Interest Period with respect thereto, (b) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (c) the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender's share thereof.

(c)   The entries maintained in the accounts maintained pursuant to paragraphs (a) and (b) above shall be prima facie evidence of the existence and amounts of the Obligations therein recorded; provided, however, that the failure of the Administrative Agent or any Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Obligations in accordance with their terms.

(d)   Any Lender may request that its Revolving Loans be evidenced by a Revolving Note. In such event, the Borrower shall prepare, execute and deliver to such Lender a Revolving Note payable to the order of such Lender. Thereafter, the Revolving Loans evidenced by such Revolving Note and interest thereon shall at all times (including after any assignment pursuant to Section 9.06(c)) be represented by one or more Revolving Notes payable to the order of the payee named therein or any assignee pursuant to Section 9.06(c), except to the extent that any such Lender or assignee subsequently returns any such Revolving Note for cancellation and requests that such Loans once again be evidenced as described in paragraphs (a) and (b) above.

Section 2.05   Interest Rates.

(a)   Interest Rate Options. The Loans shall, at the option of the Borrower and except as otherwise provided herein, be incurred and maintained as, or converted into, one or more Base Rate Loans or Euro-Dollar Loans.

(b)   Base Rate Loans. Each Loan which is made as, or converted into, a Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made as, or converted into, a Base Rate Loan until it becomes due or is converted into a Loan of any other Type, at a rate per annum equal to the sum of the Base Rate for such day plus the Applicable Percentage, if any, for Base Rate Loans for such day. Such interest shall be payable quarterly in arrears on each Quarterly Date and, with respect to the principal amount of any Base Rate Loan converted to a Euro-Dollar Loan, on the date such Base Rate Loan is so converted. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for such day.

(c)   Euro-Dollar Loans. Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of the Adjusted London Interbank Offered Rate for such Interest Period plus the Applicable Percentage for Euro-Dollar Loans for such day plus the Applicable Utilization Fee for such day, if any; provided, that if any Euro-Dollar Loan or any portion thereof shall, as a result of clause (iii) of the definition of Interest Period, have an Interest Period of less than one month, such portion shall bear interest during such Interest Period at the rate applicable to Base Rate Loans during such period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the sum of (A) the Adjusted London Interbank Offered Rate applicable to such Loan at the date such payment was due plus (B) the Applicable Percentage for Euro-Dollar Loans for such day plus (C) the Applicable Utilization Fee, if any (or, if the circumstance described in Section 2.13 shall exist, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day).

(d)   Method of Electing Interest Rates.

   (i)   Subject to Section 2.05(a), the Loans included in each Borrowing shall bear interest initially at the type of rate specified by the Borrower in the applicable Notice of Borrowing. Thereafter, with respect to each Group of Loans, the Borrower shall have the option (A) to convert all or any part of (y) so long as no Default or Event of Default is in existence on the date of conversion, outstanding Base Rate Loans to Euro-Dollar Loans and (z) outstanding Euro-Dollar Loans to Base Rate Loans; provided, that in each case that the amount so converted shall be equal to $10,000,000 or any larger multiple of $1,000,000, or (B) upon the expiration of any Interest Period applicable to outstanding Euro-Dollar Loans, so long as no Default or Event of Default is in existence on the date of continuation, to continue all or any portion of such Loans equal to $10,000,000 and any larger multiple of $1,000,000 in excess of that amount as Euro-Dollar Loans. The Interest Period of any Base Rate Loan converted to a Euro-Dollar Loan pursuant to clause (A) above shall commence on the date of such conversion. The succeeding Interest Period of any Euro-Dollar Loan continued pursuant to clause (B) above shall commence on the last day of the Interest Period of the Loan so continued. Euro-Dollar Loans may only be converted on the last day of the then current Interest Period applicable thereto or on the date required pursuant to Section 2.17.

   (ii)   The Borrower shall deliver a written notice of each such conversion or continuation (a "Notice of Conversion/Continuation") to the Administrative Agent no later than (A) 12:00 Noon (Charlotte, North Carolina time) at least three Business Days before the date of the proposed conversion to, or continuation of, a Euro-Dollar Loan and (B) 11:30 A.M. (Charlotte, North Carolina time) on the day of a conversion to a Base Rate Loan. A written Notice of Conversion/Continuation shall be substantially in the form of Exhibit A-2 attached hereto and shall specify: (A) the Group of Loans (or portion thereof) to which such notice applies, (B) the proposed conversion/continuation date (which shall be a Business Day), (C) the aggregate amount of the Loans being converted/continued, (D) an election between the Base Rate and the Adjusted London Interbank Offered Rate and (E) in the case of a conversion to, or a continuation of, Euro-Dollar Loans, the requested Interest Period. Upon receipt of a Notice of Conversion/Continuation, the Administrative Agent shall give each Lender prompt notice of the contents thereof and such Lender's pro rata share of all conversions and continuations requested therein. If no timely Notice of Conversion/Continuation is delivered by the Borrower as to any Euro-Dollar Loan, and such Loan is not repaid by the Borrower at the end of the applicable Interest Period, such Loan shall be converted automatically to a Base Rate Loan on the last day of the then applicable Interest Period.

(e)   Determination and Notice of Interest Rates. The Administrative Agent shall determine each interest rate applicable to the Loans hereunder. The Administrative Agent shall give prompt notice to the Borrower and the participating Lenders of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. Any notice with respect to Euro-Dollar Loans shall, without the necessity of the Administrative Agent so stating in such notice, be subject to adjustments in the Applicable Percentage applicable to such Loans after the beginning of the Interest Period applicable thereto. When during an Interest Period any event occurs that causes an adjustment in the Applicable Percentage applicable to Loans to which such Interest Period is applicable, the Administrative Agent shall give prompt notice to the Borrower and the Lenders of such event and the adjusted rate of interest so determined for such Loans, and its determination thereof shall be conclusive in the absence of manifest error.

Section 2.06   Fees.

(a)   Commitment Fees. The Borrower shall pay to the Administrative Agent for the account of each Lender a fee (the "Commitment Fee") for each day at a rate per annum equal to the Applicable Percentage for the Commitment Fee for such day. The Commitment Fee shall accrue from and including the Effective Date to but excluding the last day of the Availability Period on the amount by which such Lender's Revolving Commitment exceeds the sum of its Revolving Outstandings on such day, and shall be payable on the last day of each March, June, September and December and on the Revolving Termination Date.

(b)   Letter of Credit Fees. The Borrower shall pay to the Administrative Agent a fee (the "Letter of Credit Fee") for each day at a rate per annum equal to the Applicable Percentage for the Letter of Credit Fee for such day plus the Applicable Utilization Fee for such day, if any. The Letter of Credit Fee shall accrue from and including the Effective Date to but excluding the last day of the Availability Period on the aggregate amount available for drawing under any Letters of Credit outstanding on such day and shall be payable for the account of the Lenders ratably in proportion to their participations in such Letter(s) of Credit. In addition, the Borrower shall pay to each Issuing Lender a fee (the "Fronting Fee") in respect of each Letter of Credit issued by such Issuing Lender computed at the rate of .125% per annum on the average amount available for drawing under such Letter(s) of Credit. Fronting Fees shall be due and payable quarterly in arrears on each Quarterly Date and upon the first day after the Revolving Termination Date upon which no Letters of Credit remain outstanding. In addition, the Borrower agrees to pay to each Issuing Lender, upon each issuance of, payment under, and/or amendment of, a Letter of Credit, such amount as shall at the time of such issuance, payment or amendment be the administrative charges and expenses which such Issuing Lender is customarily charging for issuances of, payments under, or amendments to letters of credit issued by it.

(c)   Payments. Except as otherwise provided in this Section 2.06, accrued fees under this Section 2.06 in respect of Loans and Letter of Credit Liabilities shall be payable quarterly in arrears on each Quarterly Date, on the last day of the Availability Period and, if later, on the date the Loans and Letter of Credit Liabilities shall be repaid in their entirety. Fees paid hereunder shall not be refundable under any circumstances.

Section 2.07   Adjustments of Commitments.

(a)   Optional Termination or Reductions of Commitments (Pro-Rata). The Borrower may, upon at least three Business Days' prior written notice to the Administrative Agent, (i) terminate the Revolving Commitments, if there are no Revolving Outstandings at such time or (ii) ratably reduce from time to time by a minimum amount of $10,000,000 or any integral multiple of $5,000,000, the aggregate amount of the Revolving Commitments in excess of the aggregate Revolving Outstandings. Upon receipt of any such notice, the Administrative Agent shall promptly notify the Lenders. If the Revolving Commitments are terminated in their entirety, all accrued fees shall be payable on the effective date of such termination.

(b)   Optional Termination of Commitments (Non-Pro-Rata). If (i) any Lender has demanded compensation or indemnification pursuant to Sections 2.13, 2.14, 2.15 or 2.16, (ii) the obligation of any Lender to make Euro-Dollar Loans has been suspended pursuant to Section 2.14 or (iii) any Lender is a Defaulting Lender (each such Lender described in clauses (i), (ii) or (iii) being a "Retiring Lender"), the Borrower shall have the right, if no Default or Event of Default then exists, to replace such Lender with one or more Eligible Assignees (which may be one or more of the Continuing Lenders) (each a "Replacement Lender" and, collectively, the "Replacement Lenders") reasonably acceptable to the Administrative Agent. The replacement of a Retiring Lender pursuant to this Section 2.07(b) shall be effective on the tenth Business Day (the "Replacement Date") following the date of notice of such replacement to the Retiring Lender and each Continuing Lender through the Administrative Agent, subject to the satisfaction of the following conditions:

   (i)   the Replacement Lender shall have satisfied the conditions to assignment and assumption set forth in Section 9.06(c) (with all fees payable pursuant to Section 9.06(c) to be paid by the Borrower) and, in connection therewith, the Replacement Lender(s) shall pay:

     (A)   to the Retiring Lender an amount equal in the aggregate to the sum of (x) the principal of, and all accrued but unpaid interest on, all outstanding Loans of the Retiring Lender, (y) all unpaid drawings that have been funded by (and not reimbursed to) the Retiring Lender under Section 3.10, together with all accrued but unpaid interest with respect thereto and (z) all accrued but unpaid fees owing to the Retiring Lender pursuant to Section 2.07; and

     (B)   to the Issuing Lenders an amount equal to the aggregate amount owing by the Retiring Lender to the Issuing Lenders as reimbursement pursuant to Section 3.09, to the extent such amount was not theretofore funded by such Retiring Lender; and

   (ii)   the Borrower shall have paid to the Administrative Agent for the account of the Retiring Lender an amount equal to all obligations owing to the Retiring Lender by the Borrower pursuant to this Agreement and the other Loan Documents (other than those obligations of the Borrower referred to in clause (i)(A) above).

On the Replacement Date, each Replacement Lender that is a New Lender shall become a Lender hereunder, and the Retiring Lender shall cease to constitute a Lender hereunder; provided, that the provisions of this Agreement (including, without limitation, the provisions of Sections 2.11, 2.15, 2.16 and 9.03) shall continue to govern the rights and obligations of a Retiring Lender with respect to any Loans made, any Letters of Credit issued or any other actions taken by such Retiring Lender while it was a Lender.

In lieu of the foregoing, upon express written consent of a majority of the Continuing Lenders, the Borrower shall have the right to terminate the Revolving Commitment of a Retiring Lender in full. Upon payment by the Borrower to the Administrative Agent for the account of the Retiring Lender of an amount equal to the sum of (i) the aggregate principal amount of all Loans and Letter of Credit Liabilities held by the Retiring Lender and (ii) all accrued interest, fees and other amounts owing to the Retiring Lender hereunder, including, without limitation, all amounts payable by the Borrower to the Retiring Lender under Sections 2.11, 2.15, 2.16 or 9.03, such Retiring Lender shall cease to constitute a Lender hereunder; provided, that the provisions of this Agreement (including, without limitation, the provisions of Sections 2.11, 2.15, 2.16 and 9.03) shall continue to govern the rights and obligations of a Retiring Lender with respect to any Loans made, any Letters of Credit issued or any other actions taken by such Retiring Lender while it was a Lender.

(c)   Optional Extensions of Commitments.

   (i)   The Borrower may, by sending an Extension Letter to the Administrative Agent (in which case the Administrative Agent shall promptly deliver a copy to each of the Lenders), not less than 30 days and not more than 60 days prior to each anniversary of the Closing Date, request that the Lenders extend the Revolving Termination Date then in effect (the "Current Revolving Termination Date") so that it will occur one year after the Current Revolving Termination Date. Each Lender, acting in its sole discretion, shall, by notice to the Administrative Agent given (A) in a year in which the Current Revolving Termination Date does not occur, not later than any anniversary of the Closing Date and not more than 30 days prior to any anniversary of the Closing Date, or (B) in the year in which the Current Revolving Termination Date is scheduled to occur, not less than 15 days and not more than 30 days prior to the Current Revolving Termination Date (the last date described in clauses (A) and (B) of this Section 2.07(c)(i) on which a Lender may give notice of its intention to extend the Current Revolving Termination Date being referred to herein as the "Final Election Date"), advise the Administrative Agent in writing whether or not such Lender agrees to such extension (each Lender that so advises the Administrative Agent that it will not extend the Current Revolving Termination Date being referred to herein as a "Non-Extending Lender"); provided, that any Lender that does not advise the Administrative Agent by the Final Election Date shall be deemed to be a Non-Extending Lender. The election of any Lender to agree to such extension shall not obligate any other Lender to agree.

   (ii)   (A) If Lenders holding Revolving Commitments that aggregate at least 51% of the aggregate Commitments of the Lenders on or prior to the Final Election Date shall not have agreed to extend the Revolving Termination Date, then the Current Revolving Termination Date shall not be so extended and the outstanding principal balance of all loans and other amounts payable hereunder shall be due and payable on the Current Revolving Termination Date. (B) If (and only if) Lenders holding Revolving Commitments that aggregate at least 51% of the aggregate Commitment of the Lenders on or prior to the Final Election Date shall have agreed to extend the Current Revolving Termination Date, then the Revolving Termination Date applicable to the Lenders that are Continuing Lenders shall, as of the Extension Date, be the day that is one year after the Current Revolving Termination Date. In the event of such extension, the Commitment of each Non-Extending Lender shall terminate on the Current Revolving Termination Date applicable to such Non-Extending Lender, all Loans and other amounts payable hereunder to such Non-Extending Lender shall become due and payable on such Current Revolving Termination Date and the aggregate Commitment of the Lenders hereunder shall be reduced by the aggregate Commitments of Non-Extending Lenders so terminated on and after such Current Revolving Termination Date. Each Non-Extending Lender shall be required to maintain its original Commitment up to the Revolving Termination Date, or Current Revolving Termination Date, as applicable, for which such Non-Extending Lender had previously agreed upon.

   (iii)   In the event that the conditions of clause (B) of paragraph (ii) above have been satisfied, the Borrower shall have the right on or before the Extension Date, at its own expense, to require any Non-Extending Lender to transfer and assign without recourse or representation (except as to title and the absence of Liens created by it) (in accordance with and subject to the restrictions contained in Section 9.06(c)) all its interests, rights and obligations under the Loan Documents (including with respect to any Letter of Credit Liabilities) to one or more Eligible Assignees (which may include any Lender) (each, an "Additional Commitment Lender"), provided, that (x) such Additional Commitment Lender, if not already a Lender hereunder, shall be subject to the approval of the Administrative Agent (not to be unreasonably withheld), (y) such assignment shall become effective as of the Extension Date and (z) the Additional Commitment Lender shall pay to such Non-Extending Lender in immediately available funds on the effective date of such assignment the principal of and interest accrued to the date of payment on the Loans made by such Non-Extending Lender hereunder and all other amounts accrued for such Non-Extending Lender's account or owed to it hereunder. Notwithstanding the foregoing, no extension of the Revolving Termination Date shall become effective unless, on the Extension Date, the conditions set forth in Section 4.02 shall be satisfied (with all references in such paragraphs to the making of a Loan or issuance of a Letter of Credit being deemed to be references to the extension of the Commitments on the Extension Date) and the Administrative Agent shall have received a certificate to that effect dated the Extension Date and executed by a responsible officer of the Borrower.

Section 2.08   Maturity of Loans; Mandatory Prepayments.

(a)   Scheduled Repayments and Prepayments of Loans; Overline Repayments.

   (i)   The Revolving Loans shall mature on the Revolving Termination Date, and any Revolving Loans or Letter of Credit Liabilities then outstanding (together with accrued interest thereon and fees in respect thereof) shall be due and payable or, in the case of Letters of Credit, cash collateralized pursuant to Section 2.08(a)(ii), on such date.

   (ii)   If on any date the aggregate Revolving Outstandings exceed the aggregate amount of the Revolving Commitments, the Borrower shall prepay, and there shall become due and payable (together with accrued interest thereon), such date an aggregate principal amount of Loans equal to such excess. If the outstanding Revolving Loans have been repaid in full or the Revolving Termination Date shall have occurred and any Letter of Credit Liabilities remain outstanding, the Borrower shall cash collateralize any Letter of Credit Liabilities by depositing in a cash collateral account established and maintained (including the investments made pursuant thereto) by the Administrative Agent pursuant to a cash collateral agreement in form and substance satisfactory to the Administrative Agent such amounts as are necessary so that, after giving effect to the repayment of Revolving Loans and the cash collateralization of Letter of Credit Liabilities pursuant to this subsection, the aggregate Revolving Outstandings do not exceed the aggregate amount of the Revolving Commitments. In determining Revolving Outstandings for purposes of this clause (ii), Letter of Credit Liabilities shall be reduced to the extent that they are cash collateralized as contemplated by this Section 2.08(a)(ii).

(b)   Applications of Prepayments and Reductions.

   (i)   Each prepayment of Loans pursuant to this Section 2.08 shall be applied ratably to the respective Loans of all of the Lenders.

   (ii)   Each payment of principal of the Loans shall be made together with interest accrued on the amount repaid to the date of payment.

   (iii)   Each payment of the Loans shall be applied to such Group or Groups of Loans as the Borrower may designate (or, failing such designation, as determined by the Administrative Agent).

Section 2.09   Optional Prepayments and Repayments.

(a)   Prepayments of Loans. Subject to Section 2.11, the Borrower may (i) upon at least one Business Day's notice to the Administrative Agent, prepay any Base Rate Borrowing or (ii) upon at least three Business Days' notice to the Administrative Agent, prepay any Euro-Dollar Borrowing, in each case in whole at any time, or from time to time in part in amounts aggregating $10,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Lenders included in such Borrowing.

(b)   Notice to Lenders. Upon receipt of a notice of prepayment pursuant to Section 2.09(a), the Administrative Agent shall promptly notify each Lender of the contents thereof and of such Lender's ratable share (if any) of such prepayment, and such notice shall not thereafter be revocable by the Borrower.

Section 2.10   General Provisions as to Payments.

(a)   Payments by the Borrower. The Borrower shall make each payment of principal of and interest on the Loans and Letter of Credit Liabilities and fees hereunder (other than fees payable directly to the Issuing Lenders) not later than 12:00 Noon (Charlotte, North Carolina time) on the date when due, without set-off, counterclaim or other deduction, in Federal or other funds immediately available in Charlotte, North Carolina, to the Administrative Agent at its address referred to in Section 9.01. The Administrative Agent will promptly distribute to each Lender its ratable share of each such payment received by the Administrative Agent for the account of the Lenders. Whenever any payment of principal of or interest on the Base Rate Loans or Letter of Credit Liabilities or of fees shall be due on a day which is not a Business Day, the date for payment thereof shall be extended to the next succeeding Business Day. Whenever any payment of principal of or interest on the Euro-Dollar Loans shall be due on a day which is not a Business Day, the date for payment thereof shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time.

(b)   Distributions by the Administrative Agent. Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date, and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent that the Borrower shall not have so made such payment, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate.

Section 2.11   Funding Losses. If the Borrower makes any payment of principal with respect to any Euro-Dollar Loan pursuant to the terms and provisions of this Agreement (any conversion of a Euro-Dollar Loan to a Base Rate Loan pursuant to Section 2.17 being treated as a payment of such Euro-Dollar Loan on the date of conversion for purposes of this Section 2.11) on any day other than the last day of the Interest Period applicable thereto, or the last day of an applicable period fixed pursuant to Section 2.05(c), or if the Borrower fails to borrow, convert or prepay any Euro-Dollar Loan after notice has been given in accordance with the provisions of this Agreement, the Borrower shall reimburse each Lender within 15 days after demand for any resulting loss or expense incurred by it (and by an existing Participant in the related Loan), including, without limitation, any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or failure to borrow or prepay; provided, that such Lender shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error.

Section 2.12   Computation of Interest and Fees. Interest on Loans based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed. All other interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day).

Section 2.13   Basis for Determining Interest Rate Inadequate, Unfair or Unavailable. If on or prior to the first day of any Interest Period for any Euro-Dollar Loan: (a) Lenders having 50% or more of the aggregate amount of the Revolving Commitments advise the Administrative Agent that the Adjusted London Interbank Offered Rate as determined by the Administrative Agent, will not adequately and fairly reflect the cost to such Lenders of funding their Euro-Dollar Loans for such Interest Period; or (b) the Administrative Agent shall determine that no reasonable means exists for determining the Adjusted London Interbank Offered Rate, the Administrative Agent shall forthwith give notice thereof to the Borrower and the Lenders, whereupon until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Lenders to make Euro-Dollar Loans or to convert outstanding Loans into Euro-Dollar Loans shall be suspended; and (ii) each outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the last day of the current Interest Period applicable thereto. Unless the Borrower notifies the Administrative Agent at least two Domestic Business Days before the date of (or, if at the time the Borrower receives such notice the day is the date of, or the date immediately preceding, the date of such Euro-Dollar Borrowing, by 10:00 A.M. on the date of) any Euro-Dollar Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, such Borrowing shall instead be made as a Base Rate Borrowing.

Section 2.14   Illegality. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Lender (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Lender shall so notify the Administrative Agent, the Administrative Agent shall forthwith give notice thereof to the other Lenders and the Borrower, whereupon until such Lender notifies the Borrower and the Administrative Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Lender to make Euro-Dollar Loans, or to convert outstanding Loans into Euro-Dollar Loans, shall be suspended. Before giving any notice to the Administrative Agent pursuant to this Section, such Lender shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Lender, be otherwise disadvantageous to such Lender. If such notice is given, each Euro-Dollar Loan of such Lender then outstanding shall be converted to a Base Rate Loan either (i) on the last day of the then current Interest Period applicable to such Euro-Dollar Loan if such Lender may lawfully continue to maintain and fund such Loan to such day or (ii) immediately if such Lender shall determine that it may not lawfully continue to maintain and fund such Loan to such day.

Section 2.15   Increased Cost and Reduced Return.

(a)   Increased Costs. If after the date hereof, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System), special deposit, insurance assessment or similar requirement against Letters of Credit issued or participated in by, assets of, deposits with or for the account of or credit extended by, any Lender (or its Applicable Lending Office) or shall impose on any Lender (or its Applicable Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its Euro-Dollar Loans, its Revolving Notes, its obligation to make Euro-Dollar Loans or its obligations hereunder in respect of Letters of Credit, and the result of any of the foregoing is to increase the cost to such Lender (or its Applicable Lending Office) of making or maintaining any Euro-Dollar Loan, or of issuing or participating in any Letter of Credit, or to reduce the amount of any sum received or receivable by such Lender (or its Applicable Lending Office) under this Agreement or under its Revolving Notes with respect thereto, then, within 15 days after demand by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such Lender such additional amount or amounts, as determined by such Lender in good faith, as will compensate such Lender for such increased cost or reduction, solely to the extent that any such additional amounts were incurred by the Lender within 90 days of such demand.

(b)   Capital Adequacy. If any Lender shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Lender (or any Person controlling such Lender) as a consequence of such Lender's obligations hereunder to a level below that which such Lender (or any Person controlling such Lender) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy), then from time to time, within 15 days after demand by such Lender (with a copy to the Administrative Agent), the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender (or any Person controlling such Lender) for such reduction, solely to the extent that any such additional amounts were incurred by the Lender within 90 days of such demand.

(c)   Notices. Each Lender will promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, that will entitle such Lender to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Lender, be otherwise disadvantageous to such Lender. A certificate of any Lender claiming compensation under this Section and setting forth in reasonable detail the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Lender may use any reasonable averaging and attribution methods.

Section 2.16   Taxes.

(a)   Payments Net of Certain Taxes. Any and all payments by the Borrower to or for the account of any Lender or any Agent hereunder or under any other Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges and withholdings and all liabilities with respect thereto, excluding: (i) taxes imposed on or measured by the net income (including branch profits or similar taxes) of, and gross receipts, franchise or similar taxes imposed on, any Agent or any Lender by the jurisdiction (or subdivision thereof) under the laws of which such Lender or Agent is organized or in which its principal executive office is located or, in the case of each Lender, in which its Applicable Lending Office is located, and (ii) in the case of each Lender, any United States withholding tax imposed on such payments, but only to the extent that such Lender is subject to United States withholding tax at the time such Lender first becomes a party to this Agreement or changes its Applicable Lending Office (all such nonexcluded taxes, duties, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any other Loan Document to any Lender or any Agent, (i) the sum payable shall be increased as necessary so that after making all such required deductions (including deductions applicable to additional sums payable under this Section 2.16(a)) such Lender or Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Borrower shall furnish to the Administrative Agent, for delivery to such Lender, the original or a certified copy of a receipt evidencing payment thereof.

(b)   Other Taxes. In addition, the Borrower agrees to pay any and all present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies, which arise from any payment made pursuant to this Agreement, any Revolving Note or any other Loan Document or from the execution, delivery, registration or enforcement of, or otherwise with respect to, this Agreement, any Revolving Note or any other Loan Document (collectively, "Other Taxes").

(c)   Indemnification. The Borrower agrees to indemnify each Lender and each Agent for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 2.16(c)), whether or not correctly or legally asserted, paid by such Lender or Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto as certified in good faith to the Borrower by each Lender or Agent seeking indemnification pursuant to this Section 2.16(c). This indemnification shall be paid within 15 days after such Lender or Agent (as the case may be) makes demand therefor.

(d)   Refunds or Credits. If a Lender or Agent receives a refund, credit or other reduction from a taxation authority for any Taxes or Other Taxes for which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section 2.16, it shall within 15 days from the date of such receipt pay over the amount of such refund, credit or other reduction to the Borrower (but only to the extent of indemnity payments made or additional amounts paid by the Borrower under this Section 2.16 with respect to the Taxes or Other Taxes giving rise to such refund, credit or other reduction), net of all reasonable out-of-pocket expenses of such Lender or Agent (as the case may be) and without interest (other than interest paid by the relevant taxation authority with respect to such refund, credit or other reduction); provided, however, that the Borrower agrees to repay, upon the request of such Lender or Agent (as the case may be), the amount paid over to the Borrower (plus penalties, interest or other charges) to such Lender or Agent in the event such Lender or Agent is required to repay such refund or credit to such taxation authority.

(e)   Tax Forms and Certificates. On or before the date it becomes a party to this Agreement, from time to time thereafter if reasonably requested by the Borrower, and at any time it changes its Applicable Lending Office, each Lender organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia (a "Non-U.S. Lender") shall deliver to the Borrower and the Administrative Agent: (i) two properly completed and duly executed copies of Internal Revenue Service Form W-8 BEN, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to the benefits under an income tax treaty to which the United States is a party which exempts the Lender from United States withholding tax or reduces the rate of withholding tax on payments of interest for the account of such Lender or (ii) two properly completed and duly executed copies of Internal Revenue Service Form W-8 ECI, or any successor form prescribed by the Internal Revenue Service, certifying that the income receivable pursuant to this Agreement and the other Loan Documents is effectively connected with the conduct of a trade or business in the United States. In addition, each Non-U.S. Lender agrees that from time to time after the Closing Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to the Borrower and the Administrative Agent two new accurate and complete signed originals of Internal Revenue Service Form W-8 BEN or W-8 ECI, or successor forms, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Non-U.S. Lender to a continued exemption from or reduction in United States withholding tax with respect to payments under this Agreement and any other Loan Document, or it shall immediately notify the Borrower and the Administrative Agent of its inability to deliver any such Form or certificate.

(f)   Exclusions. The Borrower shall not be required to indemnify any Non-U.S. Lender or Agent, or to pay any additional amount to any Non-U.S. Lender or Agent, pursuant to Section 2.16(a), (b) or (c) in respect of Taxes or Other Taxes to the extent that the obligation to indemnify or pay such additional amounts would not have arisen but for the failure of such Non-U.S. Lender to comply with the provisions of subsection (e) above.

(g)   Mitigation. If the Borrower is required to pay additional amounts to or for the account of any Lender pursuant to this Section 2.16, then such Lender will use reasonable efforts (which shall include efforts to rebook the Revolving Loans held by such Lender to a new Applicable Lending Office, or through another branch or affiliate of such Lender) to change the jurisdiction of its Applicable Lending Office if, in the good faith judgment of such Lender, such efforts (i) will eliminate or, if it is not possible to eliminate, reduce to the greatest extent possible any such additional payment which may thereafter accrue and (ii) is not otherwise disadvantageous, in the sole determination of such Lender, to such Lender. Any Lender claiming any indemnity payment or additional amounts payable pursuant to this Section shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document reasonably requested in writing by the Borrower or to change the jurisdiction of its Applicable Lending Office if the making of such a filing or change would avoid the need for or reduce the amount of any such indemnity payment or additional amounts that may thereafter accrue and would not, in the sole determination of such Lender, be otherwise disadvantageous to such Lender.

(h)   Confidentiality. Nothing contained in this Section shall require any Lender or any Agent to make available any of its tax returns (or any other information that it deems to be confidential or proprietary).

Section 2.17   Base Rate Loans Substituted for Affected Euro-Dollar Loans. If (a) the obligation of any Lender to make or maintain, or to convert outstanding Loans to, Euro-Dollar Loans has been suspended pursuant to Section 2.14 or (b) any Lender has demanded compensation under Section 2.15(a) with respect to its Euro-Dollar Loans and, in any such case, the Borrower shall, by at least four Business Days' prior notice to such Lender through the Administrative Agent, have elected that the provisions of this Section shall apply to such Lender, then, unless and until such Lender notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer apply:

   (i)   all Loans which would otherwise be made by such Lender as (or continued as or converted into) Euro-Dollar Loans shall instead be Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Lenders); and

   (ii)   after each of its Euro-Dollar Loans has been repaid (or converted to a Base Rate Loan), all payments of principal that would otherwise be applied to repay such Euro-Dollar Loans shall be applied to repay its Base Rate Loans instead.

If such Lender notifies the Borrower that the circumstances giving rise to such notice no longer apply, the principal amount of each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the first day of the next succeeding Interest Period applicable to the related Euro-Dollar Loans of the other Lenders.

ARTICLE III

Letters of Credit

Section 3.01   Existing Letters of Credit. On the Closing Date, each Issuing Lender that has issued an Existing Letter of Credit shall be deemed, without further action by any party to this Agreement, to have sold to each Lender having a Revolving Commitment, and each such Lender shall be deemed, without further action by any party hereto, to have purchased from such Issuing Lender, without recourse or warranty, an undivided participation interest in such Existing Letter of Credit and the related Letter of Credit Liabilities in the proportion its Revolving Commitment bears to the aggregate Revolving Commitments.

Section 3.02   Additional Letters of Credit. The Issuing Lender agrees, on the terms and conditions set forth in this Agreement, to issue Letters of Credit from time to time before the 5th day prior to the Revolving Termination Date for the account, and upon the request, of the Borrower and in support of such obligations of the Borrower that are acceptable to the Issuing Lender (each such letter of credit, a "Standby Letter of Credit" and, collectively, the "Standby Letters of Credit"); provided, that, immediately after each Letter of Credit is issued, (A) the aggregate amount of the Letter of Credit Liabilities shall not exceed the Letter of Credit Commitment and (B) the Revolving Outstandings shall not exceed the aggregate amount of the Revolving Commitments.

Section 3.03   Method of Issuance of Letters of Credit. The Borrower shall give the Issuing Lender notice substantially in the form of Exhibit A-3 to this Agreement (a "Letter of Credit Request") of the requested issuance or extension of a Letter of Credit prior to 1:00 P.M. (Charlotte, North Carolina time) on the proposed date of the issuance or extension of Standby Letters of Credit (which shall be a Domestic Business Day) (or such shorter period as may be agreed by the Issuing Lender in any particular instance), specifying the date such Letter of Credit is to be issued or extended and describing the terms of such Letter of Credit and the nature of the transactions to be supported thereby. The extension or renewal of any Letter of Credit shall be deemed to be an issuance of such Letter of Credit, and if any Letter of Credit contains a provision pursuant to which it is deemed to be extended unless notice of termination is given by the Issuing Lender, the Issuing Lender shall timely give such notice of termination unless it has theretofore timely received a Letter of Credit Request and the other conditions to issuance of a Letter of Credit have theretofore been met with respect to such extension. No Letter of Credit shall have a term of more than one year; provided, that no Letter of Credit shall have a term extending or be so extendible beyond the fifth Business Day before the Revolving Termination Date.

Section 3.04   Conditions to Issuance of Additional Letters of Credit. The issuance by the Issuing Lender of each Additional Letter of Credit shall, in addition to the conditions precedent set forth in Article III, be subject to the conditions precedent that (i) such Letter of Credit shall be satisfactory in form and substance to the Issuing Lender, (ii) the Borrower shall have executed and delivered such other instruments and agreements relating to such Letter of Credit as the Issuing Lender shall have reasonably requested and (iii) the Issuing Lender shall have confirmed on the date of (and after giving effect to) such issuance that (A) the aggregate amount of all Letter of Credit Liabilities will not exceed the Letter of Credit Commitment and (B) the aggregate Revolving Outstandings will not exceed the aggregate amount of the Revolving Commitments. Notwithstanding any other provision of this Section 3.04, the Issuing Lender shall not be under any obligation to issue any Additional Letter of Credit if: any order, judgment or decree of any governmental authority shall by its terms purport to enjoin or restrain the Issuing Lender from issuing such Additional Letter of Credit, or any requirement of law applicable to the Issuing Lender or any request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over the Issuing Lender shall prohibit, or request that the Issuing Lender refrain from, the issuance of letters of credit generally or such Additional Letter of Credit in particular or shall impose upon the Issuing Lender with respect to such Additional Letter of Credit any restriction, reserve or capital requirement (for which the Issuing Lender is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the Issuing Lender any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the Issuing Lender in good faith deems material to it.

Section 3.05   Purchase and Sale of Letter of Credit Participations. Upon the issuance by an Issuing Lender of a Letter of Credit, such Issuing Lender shall be deemed, without further action by any party hereto, to have sold to each Lender, and each Lender shall be deemed, without further action by any party hereto, to have purchased from such Issuing Lender, without recourse or warranty, an undivided participation interest in such Letter of Credit and the related Letter of Credit Liabilities in the proportion its Revolving Commitment bears to the aggregate Revolving Commitments (although the Fronting Fee payable under Section 2.06(b) shall be payable directly to the Administrative Agent for the account of the applicable Issuing Lender, and the Lenders (other than such Issuing Lender) shall have no right to receive any portion of any such Fronting Fee) and any security therefor or guaranty pertaining thereto. Upon any change in the Revolving Commitments pursuant to Section 9.06(c), there shall be an automatic adjustment to the participations in all outstanding Letters of Credit and Letter of Credit Liabilities to reflect the adjusted Revolving Commitments of the assigning and assignee Lenders or of all Lenders having Revolving Commitments, as the case may be.

Section 3.06   Drawings under Letters of Credit. Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the applicable Issuing Lender shall determine in accordance with the terms of such Letter of Credit whether such drawing should be honored. If the Issuing Lender determines that any such drawing shall be honored, such Issuing Lender shall make available to such beneficiary in accordance with the terms of such Letter of Credit the amount of the drawing and shall notify the Borrower as to the amount to be paid as a result of such drawing and the payment date.

Section 3.07   Reimbursement Obligations. The Borrower shall be irrevocably and unconditionally obligated forthwith to reimburse the applicable Issuing Lender for any amounts paid by such Issuing Lender upon any drawing under any Letter of Credit, together with any and all reasonable charges and expenses which the Issuing Lender may pay or incur relative to such drawing and interest on the amount drawn at the rate applicable to Base Rate Loans for each day from and including the date such amount is drawn to but excluding the date such reimbursement payment is due and payable. Such reimbursement payment shall be due and payable (i) at or before 1:00 P.M. (Charlotte, North Carolina time) on the date the Issuing Lender notifies the Borrower of such drawing, if such notice is given at or before 10:00 A.M. (Charlotte, North Carolina time) on such date or (ii) at or before 10:00 A.M. (Charlotte, North Carolina time) on the next succeeding Business Day; provided, that no payment otherwise required by this sentence to be made by the Borrower at or before 1:00 P.M. (Charlotte, North Carolina time) on any day shall be overdue hereunder if arrangements for such payment satisfactory to the Issuing Lender, in its reasonable discretion, shall have been made by the Borrower at or before 1:00 P.M. (Charlotte, North Carolina time) on such day and such payment is actually made at or before 3:00 P.M. (Charlotte, North Carolina time) on such day. In addition, the Borrower agrees to pay to the Issuing Lender interest, payable on demand, on any and all amounts not paid by the Borrower to the Issuing Lender when due under this Section 3.07, for each day from and including the date when such amount becomes due to but excluding the date such amount is paid in full, whether before or after judgment, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day. Each payment to be made by the Borrower pursuant to this Section 3.07 shall be made to the Issuing Lender in Federal or other funds immediately available to it at its address referred to Section 9.01.

Section 3.08   Duties of Issuing Lenders to Lenders; Reliance. In determining whether to pay under any Letter of Credit, the relevant Issuing Lender shall not have any obligation relative to the Lenders participating in such Letter of Credit or the related Letter of Credit Liabilities other than to determine that any document or documents required to be delivered under such Letter of Credit have been delivered and that they substantially comply on their face with the requirements of such Letter of Credit. Any action taken or omitted to be taken by an Issuing Lender under or in connection with any Letter of Credit shall not create for the Issuing Lender any resulting liability if taken or omitted in the absence of gross negligence or willful misconduct. Each Issuing Lender shall be entitled (but not obligated) to rely, and shall be fully protected in relying, on the representation and warranty by the Borrower set forth in the last sentence of Section 4.02 to establish whether the conditions specified in clauses (c), (d) and (e) of Section 4.02 are met in connection with any issuance or extension of a Letter of Credit. Each Issuing Lender shall be entitled to rely, and shall be fully protected in relying, upon advice and statements of legal counsel, independent accountants and other experts selected by such Issuing Lender and upon any Letter of Credit, draft, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopier, telex or teletype message, statement, order or other document believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary unless the beneficiary and the Borrower shall have notified such Issuing Lender that such documents do not comply with the terms and conditions of the Letter of Credit. Each Issuing Lender shall be fully justified in refusing to take any action requested of it under this Section in respect of any Letter of Credit unless it shall first have received such advice or concurrence of the Required Lenders as it reasonably deems appropriate or it shall first be indemnified to its reasonable satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take, or omitting or continuing to omit, any such action. Notwithstanding any other provision of this Section, each Issuing Lender shall in all cases be fully protected in acting, or in refraining from acting, under this Section in respect of any Letter of Credit in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant hereto shall be binding upon all Lenders and all future holders of participations in such Letter of Credit; provided, that this sentence shall not affect any rights the Borrower may have against the Issuing Lender or the Lenders that make such request.

Section 3.09   Obligations of Lenders to Reimburse Issuing Lender for Unpaid Drawings. If any Issuing Lender makes any payment under any Letter of Credit and the Borrower shall not have reimbursed such amount in full to such Issuing Lender pursuant to Section 3.07, the Issuing Lender shall promptly notify the Administrative Agent, and the Administrative Agent shall promptly notify each Lender (other than the relevant Issuing Lender), and each such Lender shall promptly and unconditionally pay to the Administrative Agent, for the account of such Issuing Lender, such Lender's share of such payment (determined by the proportion its Revolving Commitment bears to the aggregate Revolving Commitments) in Dollars in Federal or other immediately available funds, the aggregate of such payments relating to each unreimbursed amount being referred to herein as a "Mandatory Letter of Credit Borrowing"; provided, however, that no Lender shall be obligated to pay to the Administrative Agent its pro rata share of such unreimbursed amount for any wrongful payment made by the relevant Issuing Lender under a Letter of Credit as a result of acts or omissions constituting willful misconduct or gross negligence by such Issuing Lender. If the Administrative Agent so notifies a Lender prior to 11:00 A.M. (Charlotte, North Carolina time) on any Business Day, such Lender shall make available to the Administrative Agent at its address referred to in Section 9.01 and for the account of the relevant Issuing Lender such Lender's pro rata share of the amount of such payment by 3:00 P.M. (Charlotte, North Carolina time) on the Business Day following such Lender's receipt of notice from the Administrative Agent, together with interest on such amount for each day from and including the date of such drawing to but excluding the day such payment is due from such Lender at the Federal Funds Rate for such day (which funds the Administrative Agent shall promptly remit to such Issuing Lender). The failure of any Lender to make available to the Administrative Agent for the account of an Issuing Lender its pro rata share of any unreimbursed drawing under any Letter of Credit shall not relieve any other Lender of its obligation hereunder to make available to the Administrative Agent for the account of such Issuing Lender its pro rata share of any payment made under any Letter of Credit on the date required, as specified above, but no such Lender shall be responsible for the failure of any other Lender to make available to the Administrative Agent for the account of the Issuing Lender such other Lender's pro rata share of any such payment. Upon payment in full of all amounts payable by a Lender under this Section 3.09, such Lender shall be subrogated to the rights of the Issuing Lender against the Borrower to the extent of such Lender's pro rata share of the related Letter of Credit Liabilities (including interest accrued thereon). If any Lender fails to pay any amount required to be paid by it pursuant to this Section 3.09 on the date on which such payment is due, interest shall accrue on such Lender's obligation to make such payment, for each day from and including the date such payment became due to but excluding the date such Lender makes such payment, whether before or after judgment, at a rate per annum equal to (i) for each day from the date such payment is due to the third succeeding Business Day, inclusive, the Federal Funds Rate for such day as determined by the relevant Issuing Lender and (ii) for each day thereafter, the sum of 2% plus the rate applicable to its Base Rate Loans for such day. Any payment made by any Lender after 3:00 P.M. (Charlotte, North Carolina time) on any Business Day shall be deemed for purposes of the preceding sentence to have been made on the next succeeding Business Day.

Section 3.10   Funds Received from the Borrower in Respect of Drawn Letters of Credit. Whenever an Issuing Lender receives a payment of a Reimbursement Obligation as to which the Administrative Agent has received for the account of such Issuing Lender any payments from the Lenders pursuant to Section 3.09 above, such Issuing Lender shall pay the amount of such payment to the Administrative Agent, and the Administrative Agent shall promptly pay to each Lender which has paid its pro rata share thereof, in Dollars in Federal or other immediately available funds, an amount equal to such Lender's pro rata share of the principal amount thereof and interest thereon for each day after relevant date of payment at the Federal Funds Rate.

Section 3.11   Obligations in Respect of Letters of Credit Unconditional. The obligations of the Borrower under Section 3.07 above shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including, without limitation, the following circumstances:

(a)   any lack of validity or enforceability of this Agreement or any Letter of Credit or any document related hereto or thereto;

(b)   any amendment or waiver of or any consent to departure from all or any of the provisions of this Agreement or any Letter of Credit or any document related hereto or thereto;

(c)   the use which may be made of the Letter of Credit by, or any acts or omission of, a beneficiary of a Letter of Credit (or any Person for whom the beneficiary may be acting);

(d)   the existence of any claim, set-off, defense or other rights that the Borrower may have at any time against a beneficiary of a Letter of Credit (or any Person for whom the beneficiary may be acting), any Issuing Lender or any other Person, whether in connection with this Agreement or any Letter of Credit or any document related hereto or thereto or any unrelated transaction;

(e)   any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect whatsoever;

(f)   payment under a Letter of Credit against presentation to an Issuing Lender of a draft or certificate that does not comply with the terms of such Letter of Credit; provided, that the relevant Issuing Lender's determination that documents presented under such Letter of Credit comply with the terms thereof shall not have constituted gross negligence or willful misconduct of such Issuing Lender; or

(g)   any other act or omission to act or delay of any kind by any Issuing Lender or any other Person or any other event or circumstance whatsoever that might, but for the provisions of this subsection (g), constitute a legal or equitable discharge of the Borrower's obligations hereunder.

Nothing in this Section 3.11 is intended to limit the right of the Borrower to make a claim against any Issuing Lender for damages as contemplated by the proviso to the first sentence of Section 3.12.

Section 3.12   Indemnification in Respect of Letters of Credit. The Borrower hereby indemnifies and holds harmless each Lender (including each Issuing Lender) and the Administrative Agent from and against any and all claims, damages, losses, liabilities, costs or expenses which such Lender or the Administrative Agent may incur by reason of or in connection with the failure of any other Lender to fulfill or comply with its obligations to such Issuing Lender hereunder (but nothing herein contained shall affect any rights which the Borrower may have against such defaulting Lender), and none of the Lenders (including any Issuing Lender) nor the Administrative Agent, their respective affiliates nor any of their respective officers, directors, employees or agents shall be liable or responsible, by reason of or in connection with the execution and delivery or transfer of or payment or failure to pay under any Letter of Credit, including, without limitation, any of the circumstances enumerated in Section 3.11, as well as (i) any error, omission, interruption or delay in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, (ii) any error in interpretation of technical terms, (iii) any loss or delay in the transmission of any document required in order to make a drawing under a Letter of Credit, (iv) any consequences arising from causes beyond the control of such indemnitee, including without limitation, any government acts, or (v) any other circumstances whatsoever in making or failing to make payment under such Letter of Credit; provided, that the Borrower shall not be required to indemnify any Issuing Lender for any claims, damages, losses, liabilities, costs or expenses, and the Borrower shall have a claim against such Issuing Lender for direct (but not consequential) damages suffered by it, to the extent found by a court of competent jurisdiction in a final, non-appealable judgment or order to have been caused by (i) the willful misconduct or gross negligence of the Issuing Lender in determining whether a request presented under any Letter of Credit issued by it complied with the terms of such Letter of Credit or (ii) the Issuing Lender's failure to pay under any Letter of Credit issued by it after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit. Nothing in this Section 3.12 is intended to limit the obligations of the Borrower under any other provision of this Agreement.

Section 3.13   ISP98. The rules of the "International Standby Practices 1998" (the "ISP98") as published by the ICC most recently at the time of issuance of any Standby Letter of Credit shall apply to such Letter of Credit unless otherwise expressly provided in such Letter of Credit.

ARTICLE IV

CONDITIONS

Section 4.01   Conditions to Closing. The obligation of each Lender to make a Loan or issue a Letter of Credit on the occasion of the first Credit Event hereunder is subject to the satisfaction of the following conditions:

(a)   Effectiveness. This Agreement shall have become effective in accordance with Section 9.08.

(b)   Revolving Notes. On or prior to the Closing Date, the Administrative Agent shall have received a duly executed Revolving Note for the account of each Lender requesting delivery of a Revolving Note pursuant to Section 2.04.

(c)   Officers' Certificates. The Administrative Agent shall have received a certificate dated the Closing Date signed on behalf of the Borrower by the Chairman of the Board, the President, any Vice President or the Treasurer of the Borrower stating that (A) on the Closing Date and after giving effect to the Loans and Letters of Credit being made or issued on the Closing Date, no Default or Event of Default shall have occurred and be continuing and (B) the representations and warranties of the Borrower contained in the Loan Documents are true and correct on and as of the Closing Date.

(d)   Proceedings. On the Closing Date, the Administrative Agent shall have received (i) a copy of the Borrower's certificate of incorporation certified by the Secretary of State of the Commonwealth of Pennsylvania; (ii) a certificate of the Secretary of State of the Commonwealth of Pennsylvania, dated as of a recent date, as to the good standing of the Borrower; and (iii) a certificate of the Secretary or an Assistant Secretary of the Borrower dated the Closing Date and certifying (A) that attached thereto is a true, correct and complete copy of the articles of incorporation of the Borrower, (B) that attached thereto is a true, correct and complete copy of the by-laws of the Borrower, (C) as to the absence of dissolution or liquidation proceedings by or against the Borrower, (D) that attached thereto is a true, correct and complete copy of resolutions adopted by the board of directors of the Borrower authorizing the execution, delivery and performance of the Loan Documents to which the Borrower is a party and each other document delivered in connection herewith or therewith and that such resolutions have not been amended and are in full force and effect on the date of such certificate and (E) as to the incumbency and specimen signatures of each officer of the Borrower executing the Loan Documents to which the Borrower is a party or any other document delivered in connection herewith or therewith.

(e)   Opinions of Counsel. On the Closing Date, the Administrative Agent shall have received from counsel to the Borrower, opinions addressed to the Administrative Agent and each Lender, dated the Closing Date, substantially in the form of Exhibit D-1 hereto and covering such additional matters incident to the transactions contemplated hereby as the Administrative Agent or the Required Lenders may reasonably request.

(f)   Repayment of Refinanced Agreements. The Administrative Agent shall be satisfied that no later than as of the Closing Date, the commitments under the Refinanced Agreements shall be terminated, all loans outstanding under the Refinanced Agreements shall be repaid in full, together with accrued interest thereon (including, without limitation, any prepayment premium), all letters of credit issued thereunder shall be terminated or shall become Letters of Credit under this Agreement and all other amounts owing pursuant to the Refinanced Agreements shall be repaid in full.

(g)   Financial Statements. The Administrative Agent and each Lender shall have received and be satisfied with the (i) the audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries for the fiscal year ending December 31, 2003, audited by PricewaterhouseCoopers LLP, or other nationally recognized independent public accountants, and containing an opinion of such firm that such financial statements present fairly, in all material respects, the financial position and results of operations of the Borrower and its Consolidated Subsidiaries, prepared in conformity with GAAP, and (ii) unaudited, interim financial statements of the Borrower and its Consolidated Subsidiaries for the fiscal quarter ending March 31, 2004.

(h)   Consents. All necessary governmental (domestic or foreign), regulatory and third party approvals, including, without limitation, the order ("PUC Order") of the Pennsylvania Public Utility Commission ("PUC") dated May 27, 2004 authorizing borrowings hereunder, in connection with the transactions contemplated by this Agreement and the other Loan Documents shall have been obtained and remain in full force and effect, in each case without any action being taken by any competent authority which could restrain or prevent such transaction or impose, in the reasonable judgment of the Administrative Agent, materially adverse conditions upon the consummation of such transactions.

(i)   Borrower's Structure. The corporate and capital structure of the Borrower and its Subsidiaries shall be satisfactory to the Administrative Agent in its reasonable discretion.

(j)   Payment of Fees. All costs, fees and expenses due to the Administrative Agent, the Lead Arrangers and the Lenders on or before the Closing Date shall have been paid.

(k)   Counsel Fees. The Administrative Agent shall have received full payment from the Borrower of the fees and expenses of Mayer, Brown, Rowe & Maw LLP described in Section 9.03 which are billed through the Closing Date.

(l)   Other Materials. The Administrative Agent shall have received such other assurances, certificates, documents, consents or opinions as the Administrative Agent, any Issuing Lender or the Required Lenders may reasonably request, in each case in form and substance satisfactory to the Administrative Agent.

Section 4.02   Conditions to All Credit Events. The obligation of any Lender to make a Loan on the occasion of any Borrowing, and the obligation of any Issuing Lender to issue (or renew or extend the term of) any Letter of Credit, is subject to the satisfaction of the following conditions:

(a)   the fact that the Closing Date shall have occurred;

(b)   receipt by the Administrative Agent of a Notice of Borrowing as required by Section 2.02, or receipt by the Issuing Lender of a Letter of Credit Request as required by Section 3.03;

(c)   the fact that, immediately before and after giving effect to such Credit Event, no Default or Event of Default shall have occurred and be continuing;

(d)   the fact that the representations and warranties of the Borrower contained in this Agreement and the other Loan Documents shall be true and correct on and as of the date of such Credit Event; provided, however, that in the event the proceeds of any Credit Event, other than with respect to the first Credit Event hereunder, are to be applied by the Borrower to repay maturing commercial paper issued by the Borrower, the representation and warranty set forth in Section 5.04(c) need not be true and correct on the date of any such Credit Event as to events or conditions occurring or arising after the Closing Date; and

(e)   since December 31, 2003, there shall have been no change in the business, assets, financial condition or operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, which materially adversely affects the ability of the Borrower to perform any of its obligations under this Agreement or any other Loan Document.

Each Credit Event under this Agreement shall be deemed to be a representation and warranty by the Borrower on the date of such Credit Event as to the facts specified in clauses (c), (d) and (e) of this Section.

ARTICLE V

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants that:

Section 5.01   Status. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania and has the corporate authority to make and perform this Agreement and each other Loan Document to which it is a party.

Section 5.02   Authority; No Conflict. The execution, delivery and performance by the Borrower of this Agreement and each other Loan Document to which it is a party have been duly authorized by all necessary corporate action and do not violate (i) any provision of law or regulation, or any decree, order, writ or judgment, (ii) any provision of its articles of incorporation or by-laws, or (iii) result in the breach of or constitute a default under any indenture or other agreement or instrument to which the Borrower is a party.

Section 5.03   Legality; Etc. This Agreement and each other Loan Document (other than the Revolving Notes) to which the Borrower is a party constitute the legal, valid and binding obligations of the Borrower, and the Revolving Notes, when executed and delivered in accordance with this Agreement, will constitute legal, valid and binding obligations of the Borrower, in each case enforceable against the Borrower in accordance with their terms except to the extent limited by (a) bankruptcy, insolvency, fraudulent conveyance or reorganization laws or by other laws relating to or affecting the enforceability of creditors' rights generally and by general equitable principles which may limit the right to obtain equitable remedies regardless of whether enforcement is considered in a proceeding of law or equity or (b) any applicable public policy on enforceability of provisions relating to contribution and indemnification.

Section 5.04   Financial Condition.

(a)   Audited Financial Statements. The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of December 31, 2003 and the related consolidated statements of income and cash flows for the fiscal year then ended, reported on by PricewaterhouseCoopers LLP, copies of which have been delivered to each of the Administrative Agent and the Lenders, fairly present, in conformity with GAAP, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year.

(b)   Interim Financial Statements. The unaudited consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of March 31, 2004 and the related unaudited consolidated statements of income and cash flows for the three months then ended fairly present, in conformity with GAAP applied on a basis consistent with the financial statements referred to in subsection (a) of this Section, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such three-month period (subject to normal year-end audit adjustments).

(c)   Material Adverse Change. Since December 31, 2003 there has been no change in the business, assets, financial condition or operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, that would materially and adversely affect the Borrower's ability to perform any of its obligations under this Agreement, the Revolving Notes or the other Loan Documents.

Section 5.05   Litigation. Except as disclosed in or contemplated by the Borrower's Form 10-K Report to the SEC for the year ended December 31, 2003 or in any subsequent Form 10-Q or 8-K Report or otherwise furnished in writing to the Administrative Agent, no litigation, arbitration or administrative proceeding against the Borrower is pending or, to the Borrower's knowledge, threatened, which, if adversely determined, would materially and adversely affect the ability of the Borrower to perform any of its obligations under this Agreement, the Revolving Notes or the other Loan Documents. There is no litigation, arbitration or administrative proceeding pending or, to the knowledge of the Borrower, threatened which questions the validity of this Agreement or the other Loan Documents to which it is a party.

Section 5.06   No Violation. No part of the proceeds of the borrowings by hereunder will be used, directly or indirectly by the Borrower for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or for any other purpose which violates, or which conflicts with, the provisions of Regulation U or X of said Board of Governors. The Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any such "margin stock".

Section 5.07   ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Material Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Material Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Material Plan, (ii) failed to make any contribution or payment to any Material Plan or made any amendment to any Material Plan, which has resulted or could result in the imposition of a lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any material liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA.

Section 5.08   Governmental Approvals. No authorization, consent or approval from any Governmental Authority is required for the execution, delivery and performance by the Borrower of this Agreement, the Revolving Notes and the other Loan Documents to which it is a party, except such authorizations, consents and approvals, including, without limitation, the PUC Order, as have been obtained prior to the Closing Date and are in full force and effect.

Section 5.09   Investment Company Act. The Borrower is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended.

Section 5.10   Public Utility Holding Company Act. The Borrower is not a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended.

Section 5.11   Tax Returns and Payments. The Borrower has filed or caused to be filed all Federal, state, local and foreign income tax returns required to have been filed by it and has paid or caused to be paid all income taxes shown to be due on such returns except income taxes that are being contested in good faith by appropriate proceedings and for which the Borrower shall have set aside on its books appropriate reserves with respect thereto in accordance with GAAP or that would not reasonably be expected to have a Material Adverse Effect.

Section 5.12   Compliance with Laws. To the knowledge of the Borrower, the Borrower is in compliance with all applicable laws, regulations and orders of any Governmental Authority, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including, without limitation, compliance with all applicable ERISA and Environmental Laws and the requirements of any permits issued under such Environmental Laws), except to the extent (a) such compliance is being contested in good faith by appropriate proceedings or (b) non-compliance would not reasonably be expected to materially and adversely affect its ability to perform any of its obligations under this Agreement, the Revolving Notes or any other Loan Document to which it is a party.

Section 5.13   No Default. No Default or Event of Default has occurred and is continuing.

Section 5.14   Environmental Matters.

(a)   Except (i) as disclosed in or contemplated by the Borrower's Form 10-K Report to the SEC for the year ended December 31, 2003 or in any subsequent Form 10-Q or 8-K Report or otherwise furnished to the Administrative Agent in writing, or (ii) to the extent that the liabilities of the Borrower and its Subsidiaries, taken as a whole, that relate to or could result from the matters referred to in clauses (a) through (c) of this Section 5.14, inclusive, would not reasonably be expected to result in a Material Adverse Effect, to the Borrower's or any of its Subsidiaries' knowledge:

   (i)   no notice, notification, citation, summons, complaint or order has been issued, no complaint has been filed, no penalty has been assessed nor is any investigation or review pending or threatened by any governmental or other entity with respect to any (A) alleged violation by the Borrower or any of its Subsidiaries of any Environmental Law, (B) alleged failure by the Borrower or any of its Subsidiaries to have any environmental permit, certificate, license, approval, registration or authorization required in connection with the conduct of its business or (C) generation, storage, treatment, disposal, transportation or release of Hazardous Substances;

   (ii)   no Hazardous Substance has been released (and no written notification of such release has been filed) (whether or not in a reportable or threshold planning quantity) at, on or under any property now or previously owned, leased or operated by the Borrower or any of its Subsidiaries; and

   (iii)   no property now or previously owned, leased or operated by the Borrower or any of its Subsidiaries or any property to which the Borrower or any of its Subsidiaries has, directly or indirectly, transported or arranged for the transportation of any Hazardous Substances, is listed or, to the Borrower's or any of its Subsidiaries' knowledge, proposed for listing, on the National Priorities List promulgated pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), on CERCLIS (as defined in CERCLA) or on any similar federal, state or foreign list of sites requiring investigation or clean-up.

(b)   To the Borrower's or any of its Subsidiaries' knowledge, there are no Environmental Liabilities that have resulted or could reasonably be expected to result in a Material Adverse Effect.

(c)   For purposes of this Section 5.14, the terms "the Borrower" and "Subsidiary" shall include any business or business entity (including a corporation) which is a predecessor, in whole or in part, of the Borrower or of any of its Subsidiaries from the time such business or business entity became a Subsidiary of PPL Corporation.

Section 5.15   Reportable Transactions. The Borrower does not intend to treat any of the transactions contemplated by this Agreement as a "reportable transaction" (within the meaning of Treasury Regulation Section 1.6011-4). In the event the Borrower takes or determines to take any action inconsistent with such intention, it will promptly notify the Administrative Agent thereof. If the Borrower so notifies the Administrative Agent, or if the Administrative Agent or any Lender determines that the any of the transactions contemplated by this Agreement constitutes a "reportable transaction," the Borrower acknowledges that each such Person may treat its extensions of credit as part of a transaction that is subject to Treasury Regulation Section 301.6112-1, and such Persons may maintain the lists and other records required by such Treasury Regulation.

ARTICLE VI

COVENANTS

The Borrower agrees that so long as any Lender has any Commitment hereunder or any amount payable hereunder or under any Revolving Note or other Loan Document remains unpaid or any Letter of Credit Liability remains outstanding:

Section 6.01   Information. The Borrower will deliver or cause to be delivered to each of the Lenders:

(a)   Annual Financial Statements. Promptly when available and in any event within 10 days after the date such information is required to be delivered to the SEC, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of income and cash flows for such fiscal year and accompanied by an opinion thereon by independent public accountants of recognized national standing, which opinion shall state that such consolidated financial statements present fairly the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of the date of such financial statements and the results of their operations for the period covered by such financial statements in conformity with GAAP applied on a consistent basis.

(b)   Quarterly Financial Statements. Promptly when available and in any event within 10 days after the date such information is required to be delivered to the SEC, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of income and cash flows for such fiscal quarter, all certified (subject to normal year-end audit adjustments) as to fairness of presentation, GAAP and consistency by any vice president, the treasurer or the controller of the Borrower.

(c)   Officer's Certificate. Simultaneously with the delivery of each set of financial statements referred to in subsections (a) and (b) above, a certificate of the chief accounting officer of the Borrower, (i) setting forth in reasonable detail the calculations required to establish compliance with the requirements of Section 6.10 on the date of such financial statements and (ii) stating whether there exists on the date of such certificate any Default or Event of Default and, if any Default or Event of Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto.

(d)   Default. Forthwith upon acquiring knowledge of the occurrence of any Default or Event of Default, a certificate of a vice president or the treasurer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto.

(e)   Change in Borrower's Ratings. Upon the chief executive officer, the president, any vice president or any senior financial officer of the Borrower obtaining knowledge of any change in either Borrower's Rating, a notice of such Borrower's Rating in effect after giving effect to such change.

(f)   Securities Laws Filing. Promptly when available and in any event within 10 days after the date such information is required to be delivered to the SEC, a copy of any Form 10-K Report to the SEC and a copy of any Form 10-Q Report to the SEC, and promptly upon the filing thereof, any other filings with the SEC.

(g)   ERISA Matters. If and when any member of the ERISA Group: (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Material Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Material Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives, with respect to any Material Plan that is a Multiemployer Plan, notice of any complete or partial withdrawal liability under Title IV of ERISA, or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose material liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Material Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code with respect to a Material Plan, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA; or (vii) fails to make any payment or contribution to any Plan or makes any amendment to any Plan which has resulted or could result in the imposition of a lien or the posting of a bond or other security, a copy of such notice, a certificate of the chief accounting officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take.

(h)   Reportable Transactions. Promptly after the Borrower has provided the Administrative Agent with notice of the Borrower's intention to treat the Loans and/or Letters of Credit as being a "reportable transaction" (within the meaning of Treasury Regulation Section 1.6011-4), a duly completed copy of IRS Form 8886 or any successor form.

(i)   Other Information. From time to time such additional financial or other information regarding the financial condition, results of operations, properties, assets or business of the Borrower or of any of its Subsidiaries as any Lender may reasonably request.

Section 6.02   Maintenance of Property; Insurance.

(a)   Maintenance of Properties. The Borrower will keep all property useful and necessary in its businesses in good working order and condition, subject to ordinary wear and tear, unless the Borrower determines in good faith that the continued maintenance of any of such properties is no longer economically desirable and so long as the failure to so maintain such properties would not reasonably be expected to have a Material Adverse Effect.

(b)   Insurance. The Borrower will maintain, or cause to be maintained, insurance with financially sound (determined in the reasonable judgment of the Borrower) and responsible companies in such amounts (and with such risk retentions) and against such risks as is usually carried by owners of similar businesses and properties in the same general areas in which the Borrower operates.

Section 6.03   Conduct of Business and Maintenance of Existence. The Borrower will (i) continue to engage only in businesses of the same general type as now conducted by the Borrower and its Subsidiaries and businesses related thereto or arising out of such businesses, except to the extent that the failure to maintain any existing business would not have a Material Adverse Effect and (ii) except as otherwise permitted in Section 6.08, preserve, renew and keep in full force and effect, and will cause each of its Subsidiaries to preserve, renew and keep in full force and effect, their respective corporate (or other entity) existence and their respective rights, privileges and franchises necessary or material to the normal conduct of business, except, in each case, where the failure to do so could not reasonably be expected to have a Material Adverse Effect.

Section 6.04   Compliance with Laws, Etc. The Borrower will comply with all applicable laws, regulations and orders of any Governmental Authority, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including, without limitation, compliance with all applicable ERISA and Environmental Laws and the requirements of any permits issued under such Environmental Laws), except to the extent (a) such compliance is being contested in good faith by appropriate proceedings or (b) non-compliance could not reasonably be expected to have a Material Adverse Effect.

Section 6.05   Books and Records. The Borrower (i) will keep, and will cause each of its Subsidiaries to keep, proper books of record and account in conformity with GAAP and (ii) will permit representatives of the Administrative Agent and each of the Lenders to visit and inspect any of their respective properties, to examine and make copies from any of their respective books and records and to discuss their respective affairs, finances and accounts with their officers, any employees and independent public accountants, all at such reasonable times and as often as may reasonably be desired; provided, that, the rights created in this Section 6.05 to "visit", "inspect", "discuss" and copy shall not extend to any matters which the Borrower deems, in good faith, to be confidential, unless the Administrative Agent and any such Lender agree in writing to keep such matters confidential.

Section 6.06   Use of Proceeds. The proceeds of the Loans made under this Agreement will be used by the Borrower for general corporate purposes, including as a commercial paper backstop, of the Borrower and its Subsidiaries. The Borrower will request the issuance of Letters of Credit solely for general corporate purposes of the Borrower and its Subsidiaries. No such use of the proceeds for general corporate purposes will be, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any Margin Stock within the meaning of Regulation U.

Section 6.07   Merger or Consolidation. The Borrower will not merge with or into or consolidate with or into any other corporation or entity, unless (i) immediately after giving effect thereto, no event shall occur and be continuing which constitutes a Default or Event Default, (ii) the surviving or resulting Person, as the case may be, assumes and agrees in writing to pay and perform all of the obligations of the Borrower under this Agreement, (iii) substantially all of the consolidated assets and consolidated revenues of the surviving or resulting person, as the case may be, are anticipated to come from the utility or energy businesses and (iv) the surviving or resulting person, as the case may be, has senior long-term debt ratings from Moody's and S&P as available (or if the ratings of Moody's and S&P are not available, of such other rating agency as shall be acceptable to the Administrative Agent) at least equal to each Borrower's Rating at the end of the fiscal quarter immediately preceding the effective date of such consolidation or merger.

Section 6.08   Asset Sales. Except for the sale of assets required to be sold to conform with governmental requirements, the Borrower shall not consummate any Asset Sale, if the aggregate net book value of all such Asset Sales consummated during the four calendar quarters immediately preceding any date of determination would exceed 25% of the total assets of the Borrower and its Consolidated Subsidiaries as of the beginning of the Borrower's most recently ended full fiscal quarter; provided, however, that any such Asset Sale will be disregarded for purposes of the 25% limitation specified above: (a) if any such Asset Sale is in the ordinary course of business of the Borrower; (b) if the assets subject to any such Asset Sale are worn out or are no longer useful or necessary in connection with the operation of the businesses of the Borrower; (c) if the assets subject to any such Asset Sale are being transferred to a Wholly-Owned Subsidiary of the Borrower; (d) if the proceeds from any such Asset Sale (i) are, within 12 months of such Asset Sale, invested or reinvested by the Borrower in a Permitted Business, (ii) are used by the Borrower to repay Debt of the Borrower, or (iii) are retained by the Borrower; or (e) if, prior to any such Asset Sale, Moody's and S&P confirm the then current Borrower Ratings after giving effect to any such Asset Sale.

Section 6.09   Transactions with Affiliates. The Borrower will not enter into or permit to exist any arrangement or contract with any of its Affiliates unless such arrangement or contract (i) has been approved by a Governmental Authority or (ii) is fair and equitable to the Borrower and is an arrangement or contract of the kind which would be entered into by a prudent Person in the position of the Borrower with a Person which is not one of its Affiliates. In making any determination as to fairness, equity and prudence, effect shall be given to orders, rules or regulations of any administrative agency, regulatory authority or other governmental body having jurisdiction over the Borrower or its Subsidiaries.

Section 6.10   Consolidated Debt to Consolidated Capitalization Ratio. The ratio of Consolidated Debt of the Borrower to Consolidated Capitalization of the Borrower shall not exceed 70% at any time.

ARTICLE VII

DEFAULTS

Section 7.01   Events of Default. If one or more of the following events (each an "Event of Default") shall have occurred and be continuing:

(a)   the Borrower shall fail to pay when due any principal of the Loans or shall fail to reimburse when due any drawing under any Letter of Credit; or

(b)   the Borrower shall fail to pay when due any interest on the Loans and Reimbursement Obligations, any fee or any other amount payable hereunder or under any other Loan Document for 5 days following the date such payment becomes due hereunder; or

(c)   the Borrower shall fail to observe or perform any covenant or agreement contained in Section 6.01(a), (b) or (c), clause (ii) of Section 6.05 or Sections 6.06, 6.07, 6.08 or 6.10; or

(d)   the Borrower shall fail to observe or perform any covenant or agreement contained in Section 6.01(d) for 10 days after any such failure; or

(e)   the Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement or any other Loan Document (other than those covered by clauses (a), (b), (c) or (d) above) for 30 days after written notice thereof has been given to the defaulting party by the Administrative Agent, or at the request of the Required Lenders; or

(f)   any representation, warranty or certification made by the Borrower in this Agreement or any other Loan Document or in any certificate, financial statement or other document delivered pursuant hereto or thereto shall prove to have been incorrect in any material respect when made or deemed made; or

(g)   the Borrower shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any Material Debt beyond any period of grace provided with respect thereto, or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Material Debt beyond any period of grace provided with respect thereto if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Debt or a trustee on its or their behalf to cause, such Debt to become due prior to its stated maturity; or

(h)   the Borrower shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay, or shall admit in writing its inability to pay, its debts as they become due, or shall take any corporate action to authorize any of the foregoing; or

(i)   an involuntary case or other proceeding shall be commenced against the Borrower seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower under the Bankruptcy Code; or

(j)   any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $25,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could reasonably be expected to cause one or more members of the ERISA Group to incur a current payment obligation in excess of $25,000,000; or

(k)   the Borrower shall fail within 60 days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $20,000,000, entered against the Borrower that is not stayed on appeal or otherwise being appropriately contested in good faith; or

(l)   a Change of Control shall have occurred;

then, and in every such event, while such event is continuing, the Administrative Agent may (A) if requested by the Required Lenders, by notice to the Borrower terminate the Commitments, and the Commitments shall thereupon terminate, and (B) if requested by the Lenders holding more than 50% of the sum of the aggregate outstanding principal amount of the Loans and Letter of Credit Liabilities at such time, by notice to the Borrower declare the Loans (together with accrued interest and accrued and unpaid fees thereon) to be, and the Loans shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind (except as set forth in clause (A) above), all of which are hereby waived by the Borrower; provided, that, in the case of any Default or any Event of Default specified in clause 7.01(h) or 7.01(i) above with respect to the Borrower, without any notice to the Borrower or any other act by the Administrative Agent or any Lender, the Commitments shall thereupon terminate and the Loans (together with accrued interest and accrued and unpaid fees thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.

ARTICLE VIII

THE AGENTS

Section 8.01   Appointment and Authorization. Each Lender hereby irrevocably designates and appoints the Administrative Agent of to act as specified herein and in the other Loan Documents and to take such actions on its behalf under the provisions of this Agreement and the other Loan Documents and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. The Administrative Agent agrees to act as such upon the express conditions contained in this Article VIII. Notwithstanding any provision to the contrary elsewhere in this Agreement or in any other Loan Document, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein or in the other Loan Documents, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Administrative Agent. The provisions of this Article VIII are solely for the benefit of the Administrative Agent and Lenders, and no other Person shall have any rights as a third party beneficiary of any of the provisions hereof. For the sake of clarity, the Lenders hereby agree that neither the Syndication Agents, the Lead Arrangers nor the Documentation Agents shall have any duties or powers with respect to this Agreement or the other Loan Documents.

Section 8.02   Individual Capacity. The Administrative Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower and its Affiliates as though the Administrative Agent were not an Agent. With respect to the Loans made by it and all obligations owing to it, the Administrative Agent shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not an Agent, and the terms "Required Lenders", "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity.

Section 8.03   Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents or attorneys-in-fact. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care except to the extent otherwise required by Section 8.07.

Section 8.04   Reliance by the Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy or other electronic facsimile transmission, telex, telegram, cable, teletype, electronic transmission by modem, computer disk or any other message, statement, order or other writing or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders, or all of the Lenders, if applicable, as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders or all of the Lenders, if applicable, and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders.

Section 8.05   Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". If the Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided, that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders.

Section 8.06   Non-Reliance on the Agents and Other Lenders. Each Lender expressly acknowledges that no Agent or officer, director, employee, agent, attorney-in-fact or affiliate of any Agent has made any representations or warranties to it and that no act by any Agent hereafter taken, including any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by such Agent to any Lender. Each Lender represents to the Agents that it has, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, assets, operations, property, financial and other condition, prospects and creditworthiness of the Borrower and made its own decision to make its Loans hereunder and to enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, assets, operations, property, financial and other condition, prospects and creditworthiness of the Borrower. No Agent shall have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, assets, property, financial and other condition, prospects or creditworthiness of the Borrower which may come into the possession of such Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates.

Section 8.07   Exculpatory Provisions. The Administrative Agent shall not, and no officers, directors, employees, agents, attorneys-in-fact or affiliates of the Administrative Agent, shall (i) be liable for any action lawfully taken or omitted to be taken by it under or in connection with this Agreement or any other Loan Document (except for its own gross negligence, willful misconduct or bad faith) or (ii) be responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower or any of its officers contained in this Agreement, in any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document or for any failure of the Borrower or any of its officers to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Borrower. The Administrative Agent shall not be responsible to any Lender for the effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Agreement or any other Loan Document or for any representations, warranties, recitals or statements made by any other Person herein or therein or made by any other Person in any written or oral statement or in any financial or other statements, instruments, reports, certificates or any other documents in connection herewith or therewith furnished or made by the Administrative Agent to the Lenders or by or on behalf of the Borrower to the Administrative Agent or any Lender or be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the use of the proceeds of the Loans or of the existence or possible existence of any Default or Event of Default.

Section 8.08   Indemnification. The Lenders agree to indemnify the Administrative Agent, in its capacity as such, and hold the Administrative Agent, in its capacity as such, harmless ratably according to their respective Commitments from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs and reasonable expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the full payment of the obligations of the Borrower hereunder) be imposed on, incurred by or asserted against the Administrative Agent, in its capacity as such, in any way relating to or arising out of this Agreement or any other Loan Document, or any documents contemplated hereby or referred to herein or the transactions contemplated hereby or any action taken or omitted to be taken by the Administrative Agent under or in connection with any of the foregoing, but only to the extent that any of the foregoing is not paid by the Borrower; provided, that no Lender shall be liable to the Administrative Agent for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs or expenses or disbursements resulting from the gross negligence, willful misconduct or bad faith of the Administrative Agent. If any indemnity furnished to the Administrative Agent for any purpose shall, in the reasonable opinion of the Administrative Agent, be insufficient or become impaired, the Administrative Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. The agreement in this Section 8.08 shall survive the payment of all Loans, Letter of Credit Liabilities, fees and other obligations of the Borrower arising hereunder.

Section 8.09   Resignation; Successors. The Administrative Agent may resign as Administrative Agent upon 20 days' notice to the Lenders. Upon the resignation of the Administrative Agent, the Required Lenders shall appoint from among the Lenders a successor to the Administrative Agent, subject to prior approval by the Borrower (so long as no Event of Default exists) and the consent of the Required Lenders (such approval or consent, as the case may be, not to be unreasonably withheld), whereupon such successor Administrative Agent shall succeed to the rights, powers and duties of the retiring Administrative Agent, and the term "Administrative Agent" shall include such successor Administrative Agent effective upon its appointment, and the retiring Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any other Loan Document. After the retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement or any other Loan Document.

Section 8.10   Administrative Agent's Fees; Arranger Fee. The Borrower shall pay to the Administrative Agent for its own account and to WCM and Citigroup Global Markets, Inc., in their capacity as Lead Arrangers, for their own account, fees in the amounts and at the times agreed upon between the Borrower, the Administrative Agent and WCM, respectively, pursuant to the Fee Letter, and between the Borrower and Citigroup Global Markets, Inc. pursuant to that certain letter agreement dated as of June 14, 2004.

ARTICLE IX

MISCELLANEOUS

Section 9.01   Notices. Except as otherwise expressly provided herein, all notices and other communications shall have been duly given and shall be effective (i) when delivered, (ii) when transmitted via telecopy (or other facsimile device) to the number set out below, (iii) the Business Day following the day on which the same has been delivered prepaid (or on an invoice basis) to a reputable national overnight air courier service or (iv) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid, in each case to the respective parties at the address or telecopy numbers, in the case of the Borrower and the Administrative Agent, set forth below, and, in the case of the Lenders, set forth on signature pages hereto, or at such other address as such party may specify by written notice to the other parties hereto:

if to the Borrower:

PPL Electric Utilities Corporation
Two North Ninth Street
Allentown, PA 18101-1179
Attention: James E. Abel
Telephone: 610-774-5151
Facsimile: 610-774-5106

with a copy to:

PPL Energy Supply, LLC
Two North Ninth Street
Allentown, PA 18101-1179
Attention: Michael A. McGrail, Esq.
Telephone: 610-774-5644
Facsimile: 610-774-6726

if to the Administrative Agent:

Wachovia Bank, National Association
One Wachovia Center
301 South College Street - NC0760
Charlotte, North Carolina 28288
Attention: Mark Weir
Telephone: 704-383-6610
Facsimile: 704-374-4793

with a copy to:

Wachovia Bank, National Association
201 South College Street, 23rd Floor
Charlotte, North Carolina 28288
Attention: Syndications Agency Services
Telephone: 704-383-3721
Facsimile: 704-383-0288

with a copy to:

Mayer, Brown, Rowe & Maw LLP
214 North Tryon Street, Suite 3800
Charlotte, North Carolina 28202
Attention: Raymond S. Koloski, Esq.
Telephone : 704-444-3601
Facsimile: 704-377-2033

Section 9.02   No Waivers; Non-Exclusive Remedies. No failure by any Agent or any Lender to exercise, no course of dealing with respect to, and no delay in exercising any right, power or privilege hereunder or under any Revolving Note or other Loan Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided herein and in the other Loan Documents shall be cumulative and not exclusive of any rights or remedies provided by law.

Section 9.03   Expenses; Indemnification.

(a)   Expenses. The Borrower shall pay (i) all out-of-pocket expenses of the Agents, including legal fees and disbursements of Mayer, Brown, Rowe & Maw LLP and any other local counsel retained by the Administrative Agent, in its reasonable discretion, in connection with the preparation, execution, delivery and administration of the Loan Documents, the syndication efforts of the Agents with respect thereto, any waiver or consent thereunder or any amendment thereof or any Default or alleged Default thereunder and (ii) if an Event of Default occurs, all reasonable out-of-pocket expenses incurred by the Agents and each Lender, including (without duplication) the fees and disbursements of outside counsel, in connection with such Event of Default and restructuring, workout, collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom; provided, that the Borrower shall not be liable for any legal fees or disbursements of any counsel for the Agents and the Lenders other than Mayer, Brown, Rowe & Maw LLP associated with the preparation, execution and delivery of this Agreement and the closing documents contemplated hereby.

(b)   Indemnity in Respect of Loan Documents. The Borrower agrees to indemnify the Agents and each Lender, their respective Affiliates and the respective directors, officers, trustees, agents and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs and expenses or disbursements of any kind whatsoever, including, without limitation, the reasonable fees and disbursements of counsel, which may at any time (including, without limitation, at any time following the payment of the obligations of the Borrower hereunder) be imposed on, incurred by or asserted against such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of the Loan Documents or any actual or proposed use of proceeds of Loans hereunder; provided, that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct as determined by a court of competent jurisdiction in a final, non-appealable judgment or order.

(c)   Indemnity in Respect of Environmental Liabilities. The Borrower agrees to indemnify each Lender and hold each Lender harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs and expenses or disbursements of any kind whatsoever (including, without limitation, reasonable expenses of investigation by engineers, environmental consultants and similar technical personnel and reasonable fees and disbursements of counsel) which may at any time (including, without limitation, at any time following the payment of the obligations of the Borrower hereunder) be imposed on, incurred by or asserted against such Lender in respect of or in connection with any and all Environmental Liabilities. Without limiting the generality of the foregoing, the Borrower hereby waives all rights of contribution or any other rights of recovery with respect to liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs and expenses and disbursements in respect of or in connection with Environmental Liabilities that it might have by statute or otherwise against any Lender.

Section 9.04   Sharing of Set-Offs. Each Lender agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Loan made or Revolving Note held by it and any Letter of Credit Liabilities which is greater than the proportion received by any other Lender in respect of the aggregate amount of principal and interest due with respect to any Loan, Revolving Note and Letter of Credit Liabilities made or held by such other Lender, the Lender receiving such proportionately greater payment shall purchase such participations in the Loan made or Revolving Notes and Letter of Credit Liabilities held by the other Lenders, and such other adjustments shall be made, in each case as may be required so that all such payments of principal and interest with respect to the Loan made or Revolving Notes and Letter of Credit Liabilities made or held by the Lenders shall be shared by the Lenders pro rata; provided, that nothing in this Section shall impair the right of any Lender to exercise any right of set-off or counterclaim it may have for payment of indebtedness of the Borrower other than its indebtedness hereunder.

Section 9.05   Amendments and Waivers. Any provision of this Agreement or the Revolving Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Lenders (and, if the rights or duties of the Administrative Agent or any Issuing Lenders are affected thereby, by the Administrative Agent or such Issuing Lender, as relevant); provided, that no such amendment or waiver shall, unless signed by all of the Lenders, (i) increase or decrease the Commitment of any Lender (except for a ratable decrease in the Commitments of all of the Lenders) or subject any Lender to any additional obligation (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or of mandatory reductions in the Commitments shall not constitute an increase of the Commitment of any Lender, and that an increase in the available portion of any Commitment of any Lender as in effect at any time shall not constitute an increase in such Commitment), (ii) reduce the principal of or rate of interest on any Loan (except in connection with a waiver of applicability of any post-default increase in interest rates) or the amount to be reimbursed in respect of any Letter of Credit or any interest thereon or any fees hereunder, (iii) postpone the date fixed for any payment of interest on any Loan or the amount to be reimbursed in respect of any Letter of Credit or any interest thereon or any fees hereunder or for any scheduled reduction or termination of any Commitment or (except as expressly provided in Article III) expiration date of any Letter of Credit, (iv) postpone or change the date fixed for any scheduled payment of principal of any Loan or (v) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Revolving Notes and Letter of Credit Liabilities, or the number of Lenders, which shall be required for the Lenders or any of them to take any action under this Section or any other provision of this Agreement.

Section 9.06   Successors and Assigns.

(a)   Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all of the Lenders, except to the extent any such assignment results from the consummation of a merger or consolidation permitted pursuant to Section 6.07 of this Agreement.

(b)   Participations. Any Lender may at any time grant to one or more banks or other financial institutions or special purpose funding vehicle (each a "Participant") participating interests in its Commitments and/or any or all of its Loans and Letter of Credit Liabilities. In the event of any such grant by a Lender of a participating interest to a Participant, whether or not upon notice to the Borrower and the Administrative Agent, such Lender shall remain responsible for the performance of its obligations hereunder, and the Borrower, the Issuing Lenders and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement pursuant to which any Lender may grant such a participating interest shall provide that such Lender shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided, that such participation agreement may provide that such Lender will not agree to any modification, amendment or waiver of this Agreement which would (i) extend the Revolving Termination Date, reduce the rate or extend the time of payment of principal, interest or fees on any Loan or Letter of Credit Liability in which such Participant is participating (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the Participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Commitments shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan or Letter of Credit Liability shall be permitted without the consent of any Participant if the Participant's participation is not increased as a result thereof) or (ii) allow the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement, without the consent of the Participant, except to the extent any such assignment results from the consummation of a merger or consolidation permitted pursuant to Section 6.07 of this Agreement. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article II with respect to its participating interest to the same extent as if it were a Lender, subject to the same limitations, and in no case shall any Participant be entitled to receive any amount payable pursuant to Article II that is greater that the amount the Lender granting such Participant's participating interest would have been entitled to receive had such Lender not sold such participating interest. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b).

(c)   Assignments Generally. Any Lender may at any time assign to one or more Eligible Assignees (each, an "Assignee") all, or a proportionate part (equivalent to an initial Commitment of not less than $5,000,000 or any larger multiple of $1,000,000), of its rights and obligations under this Agreement and the Revolving Notes with respect to its Revolving Loans and, if still in existence, its Revolving Commitment, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit C attached hereto executed by such Assignee and such transferor, with (and subject to) the consent of the Borrower, which shall not be unreasonably withheld, the Administrative Agent and the Issuing Lenders, which consent shall not be unreasonably withheld; provided, that if an Assignee is an Affiliate of such transferor Lender or was a Lender immediately prior to such assignment, no such consent of the Borrower shall be required; provided, further, that if at the time of such assignment a Default or an Event of Default has occurred and is continuing, no such consent of the Borrower shall be required. Upon execution and delivery of such instrument and payment by such Assignee to such transferor of an amount equal to the purchase price agreed between such transferor and such Assignee, such Assignee shall be a Lender party to this Agreement and shall have all the rights and obligations of a Lender with a Commitment as set forth in such instrument of assumption, and the transferor shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor, the Administrative Agent and the Borrower shall make appropriate arrangements so that, if required, a new Revolving Note is issued to the Assignee. In connection with any such assignment, the transferor shall pay to the Administrative Agent an administrative fee for processing such assignment in the amount of $3,500. If the Assignee is not incorporated under the laws of the United States or any state thereof, it shall deliver to the Borrower and the Administrative Agent certification as to exemption from deduction or withholding of any United States Taxes in accordance with Section 2.16.

(d)   Assignments to Federal Reserve Banks. Any Lender may at any time assign all or any portion of its rights under this Agreement and its Revolving Note to a Federal Reserve Bank. No such assignment shall release the transferor Lender from its obligations hereunder.

(e)   Register. The Borrower hereby designates the Administrative Agent to serve as the Borrower's agent, solely for purposes of this subsection 9.06(e), to (i) maintain a register (the "Register") on which the Administrative Agent will record the Commitments from time to time of each Lender, the Loans made by each Lender and each repayment in respect of the principal amount of the Loans of each Lender and to (ii) retain a copy of each Assignment and Assumption Agreement delivered to the Administrative Agent pursuant to this Section. Failure to make any such recordation, or any error in such recordation, shall not affect the Borrower's obligation in respect of such Loans. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Administrative Agent, the Issuing Lenders and the Lenders shall treat each Person in whose name a Loan and the Revolving Note evidencing the same is registered as the owner thereof for all purposes of this Agreement, notwithstanding notice or any provision herein to the contrary. With respect to any Lender, the assignment or other transfer of the Commitments of such Lender and the rights to the principal of, and interest on, any Loan made and any Revolving Note issued pursuant to this Agreement shall not be effective until such assignment or other transfer is recorded on the Register and, except to the extent provided in this subsection 9.06(e), otherwise complies with Section 9.06, and prior to such recordation all amounts owing to the transferring Lender with respect to such Commitments, Loans and Revolving Notes shall remain owing to the transferring Lender. The registration of assignment or other transfer of all or part of any Commitments, Loans and Revolving Notes for a Lender shall be recorded by the Administrative Agent on the Register only upon the acceptance by the Administrative Agent of a properly executed and delivered Assignment and Assumption Agreement and payment of the administrative fee referred to in Section 9.06(c). The Register shall be available for inspection by each of the Borrower and each Issuing Lender at any reasonable time and from time to time upon reasonable prior notice. In addition, at any time that a request for a consent for a material or substantive change to the Loan Documents is pending, any Lender wishing to consult with other Lenders in connection therewith may request and receive from the Administrative Agent a copy of the Register. The Borrower may not replace any Lender pursuant to Section 2.07(b), unless, with respect to any Revolving Notes held by such Lender, the requirements of subsection 9.06(c) and this subsection 9.06(e) have been satisfied.

Section 9.07   Governing Law; Submission to Jurisdiction. This Agreement and each Revolving Note shall be governed by and construed in accordance with the internal laws of the State of New York. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such court and any claim that any such proceeding brought in any such court has been brought in an inconvenient forum.

Section 9.08   Counterparts; Integration; Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement and the other Loan Documents constitute the entire agreement and understanding among the parties hereto and supersede any and all prior agreements and understandings, oral or written, relating to the subject matter hereof and thereof. This Agreement shall become effective upon receipt by the Administrative Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Administrative Agent in form satisfactory to it of telegraphic, telex, facsimile or other written confirmation from such party of execution of a counterpart hereof by such party).

Section 9.09   Generally Accepted Accounting Principles. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries most recently delivered to the Lenders; provided, that, if the Borrower notifies the Administrative Agent that the Borrower wishes to amend any covenant in Article VI to eliminate the effect of any change in GAAP on the operation of such covenant (or if the Administrative Agent notifies the Borrower that the Required Lenders wish to amend Article VI for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Lenders.

Section 9.10   Usage. The following rules of construction and usage shall be applicable to this Agreement and to any instrument or agreement that is governed by or referred to in this Agreement.

(a)   All terms defined in this Agreement shall have the defined meanings when used in any instrument governed hereby or referred to herein and in any certificate or other document made or delivered pursuant hereto or thereto unless otherwise defined therein.

(b)   The words "hereof", "herein", "hereunder" and words of similar import when used in this Agreement or in any instrument or agreement governed here shall be construed to refer to this Agreement or such instrument or agreement, as applicable, in its entirety and not to any particular provision or subdivision hereof or thereof.

(c)   References in this Agreement to "Article", "Section", "Exhibit", "Schedule" or another subdivision or attachment shall be construed to refer to an article, section or other subdivision of, or an exhibit, schedule or other attachment to, this Agreement unless the context otherwise requires; references in any instrument or agreement governed by or referred to in this Agreement to "Article", "Section", "Exhibit", "Schedule" or another subdivision or attachment shall be construed to refer to an article, section or other subdivision of, or an exhibit, schedule or other attachment to, such instrument or agreement unless the context otherwise requires.

(d)   The definitions contained in this Agreement shall apply equally to the singular and plural forms of such terms. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The word "will" shall be construed to have the same meaning as the word "shall". The term "including" shall be construed to have the same meaning as the phrase "including without limitation".

(e)   Unless the context otherwise requires, any definition of or reference to any agreement, instrument, statute or document contained in this Agreement or in any agreement or instrument that is governed by or referred to in this Agreement shall be construed (i) as referring to such agreement, instrument, statute or document as the same may be amended, supplemented or otherwise modified from time to time (subject to any restrictions on such amendments, supplements or modifications set forth in this Agreement or in any agreement or instrument governed by or referred to in this Agreement), including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and (ii) to include (in the case of agreements or instruments) references to all attachments thereto and instruments incorporated therein. Any reference to any Person shall be construed to include such Person's successors and permitted assigns.

(f)   Unless the context otherwise requires, whenever any statement is qualified by "to the best knowledge of" or "known to" (or a similar phrase) any Person that is not a natural person, it is intended to indicate that the senior management of such Person has conducted a commercially reasonable inquiry and investigation prior to making such statement and no member of the senior management of such Person (including managers, in the case of limited liability companies, and general partners, in the case of partnerships) has current actual knowledge of the inaccuracy of such statement.

Section 9.11   WAIVER OF JURY TRIAL. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 9.12   Confidentiality. Each Lender agrees to hold all non-public information obtained pursuant to the requirements of this Agreement in accordance with its customary procedure for handling confidential information of this nature and in accordance with safe and sound banking practices; provided, that nothing herein shall prevent any Lender from disclosing such information (i) to any other Lender or to any Agent, (ii) to any other Person if reasonably incidental to the administration of the Loans and Letter of Credit Liabilities, (iii) upon the order of any court or administrative agency, (iv) upon the request or demand of any regulatory agency or authority, (v) which had been publicly disclosed other than as a result of a disclosure by any Agent or any Lender prohibited by this Agreement, (vi) in connection with any litigation to which any Agent, any Lender or any of their respective Subsidiaries or Affiliates may be party, (vii) to the extent necessary in connection with the exercise of any remedy hereunder, (viii) to such Lender's or Agent's Affiliates and their respective directors, officers, employees and agents including legal counsel and independent auditors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such information and instructed to keep such information confidential) and (ix) subject to provisions substantially similar to those contained in this Section, to any actual or proposed Participant or Assignee. Notwithstanding the foregoing, any Agent, any Lender or Mayer, Brown, Rowe & Maw LLP may circulate promotional materials and place advertisements in financial and other newspapers and periodicals or on a home page or similar place for dissemination of information on the Internet or worldwide web, in each case, after the closing of the transactions contemplated by this Agreement in the form of a "tombstone" or other release limited to describing the names of the Borrower or its Affiliates, or any of them, and the amount, type and closing date of such transactions, all at their sole expense.

Section 9.13   USA PATRIOT Act Notice. Each Lender that is subject to the Patriot Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub.L. 107-56 (signed into law October 26, 2001)) (the "Patriot Act"), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender or the Administrative Agent, as applicable, to identify the Borrower in accordance with the Patriot Act.

[Signature Pages to Follow]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

PPL ELECTRIC UTILITIES CORPORATION

By:    
Name:
Title:

WACHOVIA BANK, NATIONAL ASSOCIATION, as Administrative Agent

By:    
Name:
Title:

WACHOVIA BANK, NATIONAL ASSOCIATION, as Issuing Lender

By:    
Name:
Title:

WACHOVIA BANK, NATIONAL ASSOCIATION, as a Lender

By:   
Name:
Title:

___________________________, as a Lender
(insert name of Lender)

By:   
Name:
Title

second signature block, if required

___________________________, as a Lender
(insert name of Lender)

By:   
Name:
Title

EX-10

Exhibit 10(d)

RECEIVABLES SALE AGREEMENT

DATED AS OF AUGUST 1, 2004

between

PPL ELECTRIC UTILITIES CORPORATION,
as Originator,

and

PPL RECEIVABLES CORPORATION
as Buyer

TABLE OF CONTENTS

			Page
Article I Amounts and Terms of the Purchase			1
	Section 1.1	Initial Contribution of Receivables.	1
	Section 1.2	Purchase of Receivables.	2
	Section 1.3	Payment for the Purchase.	3
	Section 1.4	Purchase Price Credit Adjustments.	4
	Section 1.5	Payments and Computations, Etc.	5
	Section 1.6	Transfer of Records.	5
	Section 1.7	Characterization.	6
Article II Representations and Warranties			6
	Section 2.1	Representations and Warranties of Originator.	6
Article III Conditions of Purchase			11
	Section 3.1	Conditions Precedent to Purchase.	11
	Section 3.2	Conditions Precedent to Subsequent Payments.	11
Article IV Covenants			11
	Section 4.1	Affirmative Covenants of Originator.	11
	Section 4.2	Negative Covenants of Originator.	16
Article V Termination Events			18
	Section 5.1	Termination Events.	18
	Section 5.2	Remedies.	19
Article VI Indemnification			20
	Section 6.1	Indemnities by Originator.	20
	Section 6.2	Other Costs and Expenses.	22
Article VII Miscellaneous			22
	Section 7.1	Waivers and Amendments.	22
	Section 7.2	Notices.	22
	Section 7.3	Protection of Ownership Interests of Buyer.	23
	Section 7.4	Confidentiality.	23
	Section 7.5	Bankruptcy Petition.	24
	Section 7.6	Limitation of Liability.	25
	Section 7.7	CHOICE OF LAW.	25
	Section 7.8	CONSENT TO JURISDICTION.	25
	Section 7.9	WAIVER OF JURY TRIAL.	25
	Section 7.10	Integration; Binding Effect; Survival of Terms.	26
	Section 7.11	Counterparts; Severability; Section References.	26
	Section 7.12	Overdue Amounts.	27

Exhibits and Schedules Excluded

Exhibit I	Definitions
Exhibit II	Jurisdiction of Organization, Principal Place of Business; Chief Executive Office; Location(s) of Records; Federal Employer Identification Number; Other Names
Exhibit III	Reserved
Exhibit IV	Form of Compliance Certificate
Exhibit V	Summary of Credit and Collection Practices
Exhibit VI	Form of Subordinated Note
Exhibit VII	Form of Purchase Report
Schedules
Schedule A	Closing Documents

RECEIVABLES SALE AGREEMENT

THIS RECEIVABLES SALE AGREEMENT (this "Agreement"), dated as of August 1, 2004, is by and between PPL ELECTRIC UTILITIES CORPORATION, a Pennsylvania corporation ("Originator"), and PPL RECEIVABLES CORPORATION, a Delaware corporation (together with its successors and assigns hereunder, "Buyer"). Unless defined elsewhere herein, capitalized terms used in this Agreement shall have the meanings assigned to such terms in Exhibit I hereto (or, if not defined in Exhibit I hereto, the meaning assigned to such term in Exhibit I to the Credit Agreement).

PRELIMINARY STATEMENTS

Originator now owns, and from time to time hereafter will own, Receivables. Originator wishes to sell, assign, contribute or otherwise transfer to Buyer, and Buyer wishes to purchase from Originator, all of Originator's right, title and interest in and to such Receivables, together with the Related Security and Collections with respect thereto.

Originator and Buyer intend the transactions contemplated hereby to be true sales of the Receivables from Originator to Buyer, providing Buyer with the full benefits of ownership of the Receivables, and Originator and Buyer do not intend these transactions to be, or for any purpose to be characterized as, loans from Buyer to Originator.

Following the purchase of Receivables from Originator, Buyer will obtain loans secured by the Receivables, the associated Related Security and Collections pursuant to that certain Credit and Security Agreement, dated as of August 1, 2004 (as the same may from time to time hereafter be amended, supplemented, restated or otherwise modified, the "Credit Agreement"), among Buyer, Originator, as initial Servicer, Blue Ridge Asset Funding Corporation ("Blue Ridge"), and Wachovia Bank, National Association, as Agent (in such capacity, the "Agent").

NOW, THEREFORE, in consideration of the foregoing premises and the mutual agreements herein contained and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

Article I

Amounts and Terms of the Purchase

Section 1.1    Initial Contribution of Receivables.

On the date hereof, Originator does hereby contribute, assign, transfer, set-over and otherwise convey to Buyer, and Buyer does hereby accept from Originator, Receivables originated by Originator and existing as of the close of business on the Business Day immediately prior to the date hereof (the "Initial Cutoff Date") having an aggregate Outstanding Balance (the "Initial Contributed Receivables") as set forth on the report delivered by Originator to Buyer on the Initial Cut-Off Date, which report shall be substantially in eth form of Exhibit VII hereto (the "Initial Purchase Report"), together with all Related Security relating thereto and all Collections thereof.

Section 1.2    Purchase of Receivables.

(a)    Effective on the date hereof, in consideration for the Purchase Price and upon the terms and subject to the conditions set forth herein, Originator does hereby sell, assign, transfer, set-over and otherwise convey to Buyer, without recourse (except to the extent expressly provided herein), and Buyer does hereby purchase from Originator, all of Originator's right, title and interest in and to all Receivables existing as of the close of business on the Initial Cutoff Date (other than the Initial Contributed Receivables) and all Receivables thereafter arising through and including the Termination Date, together, in each case, with all Related Security relating thereto and all Collections thereof. In accordance with the preceding sentence, on the date hereof Buyer shall acquire all of Originator's right, title and interest in and to all Receivables existing as of the Initial Cutoff Date and thereafter arising through and including the Termination Date, together with all Related Security relating thereto and all Collections thereof. Buyer shall be obligated to pay the Purchase Price for the Receivables purchased hereunder in accordance with Section 1.3.

(b)    On each Monthly Reporting Date (and following the occurrence of a Downgrading Event with respect to the Servicer, at any time upon the request of the Buyer), Originator shall (or shall require the Servicer to) deliver to Buyer a report in substantially the form of Exhibit VII hereto (each such report, together with the Initial Purchase Report, being herein called a "Purchase Report") with respect to the Receivables sold and/or contributed by Originator to Buyer during the Settlement Period then most recently ended. In addition to, and not in limitation of, the foregoing, in connection with the payment of the Purchase Price for any Receivables purchased hereunder, Buyer may request that Originator deliver, and Originator shall deliver, such approvals, opinions, information or documents as Buyer may reasonably request.

(c)    It is the intention of the parties hereto that the Purchase of Receivables made hereunder shall constitute a sale and/or contribution, which sale and/or contribution, as the case may be, is absolute and irrevocable and provides Buyer with the full benefits of ownership of the Receivables. Except for the Purchase Price Credits owed pursuant to Section 1.4, the transfer of Receivables hereunder is made without recourse to Originator; provided, however, that Originator shall be liable to Buyer for all representations, warranties, covenants and indemnities made by Originator pursuant to the terms of the Transaction Documents to which Originator is a party, and such transfer does not constitute and is not intended to result in an assumption by Buyer or any assignee thereof of any obligation of Originator or any other Person arising in connection with the Receivables, the related Contracts and/or other Related Security or any other obligations of Originator. In view of the intention of the parties hereto that the Purchase of Receivables made hereunder shall constitute a sale and/or contribution of such Receivables rather than loans secured thereby, Originator agrees that it will, on or prior to the date hereof and in accordance with Section 4.1(e)(ii), mark its master data processing records relating to the Receivables with a legend acceptable to Buyer and to the Agent (as Buyer's assignee), evidencing that Buyer has acquired such Receivables as provided in this Agreement and to note in its financial statements that its Receivables have been absolutely transferred to Buyer. Upon the request of Buyer or the Agent (as Buyer's assignee), Originator will execute and file such UCC financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate to perfect and maintain the perfection of Buyer's ownership interest in the Receivables and the Related Security and Collections with respect thereto, or as Buyer or the Agent (as Buyer's assignee) may reasonably request.

Section 1.3    Payment for the Purchase.

(a)    The Purchase Price for the Purchase of Receivables in existence as of the close of business on the Initial Cutoff Date (other than the Initial Contributed Receivables) shall be payable in full by Buyer to Originator on the date hereof, and shall be paid to Originator in the following manner:

      (i)    by delivery of immediately available funds, to the extent of funds made available to Buyer in connection with proceeds of Loans received by the Buyer under the Credit Agreement; provided that a portion of such funds shall be offset by amounts owed by Originator to Buyer on account of the issuance of equity having a total value of not less than the Required Capital Amount, and

      (ii)    the balance, by delivery of the proceeds of a subordinated revolving loan from Originator to Buyer (a "Subordinated Loan") in an amount not to exceed the least of the remaining unpaid portion of such Purchase Price, the maximum Subordinated Loan (aggregated with all Subordinated Loans then outstanding to Originator) that could be borrowed without rendering Buyer's Net Worth less than the Required Capital Amount, and ten percent (10%) of such Purchase Price. Originator is hereby authorized by Buyer to endorse on the schedule attached to the Subordinated Note an appropriate notation evidencing the date and amount of each advance thereunder, as well as the date of each payment with respect thereto, provided that the failure to make such notation shall not affect any obligation of Buyer thereunder.

The Purchase Price for each Receivable coming into existence after the Initial Cutoff Date shall be due and owing in full by Buyer to Originator or its designee on the date each such Receivable came into existence (except that Buyer may, with respect to any such Purchase Price, offset against such Purchase Price any amounts owed by Originator to Buyer hereunder and which have become due but remain unpaid) and shall be paid to Originator in the manner provided in the following paragraphs (b), (c) and (d).

(b)    With respect to any Receivables coming into existence after the Initial Cutoff Date, on each Settlement Date, Buyer shall pay the Purchase Price therefor in accordance with Section 1.3(d) and in the following manner:

first, by delivery of immediately available funds, to the extent of funds available to Buyer from proceeds of Loans received by Buyer under the Credit Agreement or other cash on hand;

second, by delivery of the proceeds of a Subordinated Loan, provided that the making of any such Subordinated Loan shall be subject to the provisions set forth in Section 1.3(a)(ii); and

third, unless Originator or Buyer has declared the Termination Date to have occurred pursuant to this Agreement, by accepting a contribution to its capital in an amount equal to the remaining unpaid balance of such Purchase Price.

Subject to the limitations set forth in Section 1.3(a)(ii), Originator irrevocably agrees to advance each Subordinated Loan requested by Buyer on or prior to the Termination Date. The Subordinated Loans shall be evidenced by, and shall be payable in accordance with the terms and provisions of the Subordinated Note and shall be payable solely from funds which Buyer is not required under the Credit Agreement to set aside for the benefit of, or otherwise pay over to, the Agent for the benefit of the Secured Parties.

(c)    From and after the Termination Date, Originator shall not be obligated to (but may, at its option): sell Receivables to Buyer, or contribute Receivables to Buyer's capital pursuant to clause third of Section 1.3(b) unless Originator reasonably determines that the Purchase Price therefor will be satisfied with funds available to Buyer from sales of interests in the Receivables pursuant to the Credit Agreement, Collections, proceeds of Subordinated Loans, other cash on hand or otherwise.

(d)    Although the Purchase Price for each Receivable coming into existence after the Initial Cutoff Date shall be due and payable in full by Buyer to Originator on the date such Receivable came into existence, settlement of the Purchase Price between Buyer and Originator shall be effected on a monthly basis on the respective Settlement Date with respect to all Receivables coming into existence during the same Calculation Period and based on the information contained in the Purchase Report delivered by Originator for the Calculation Period then most recently ended. Although settlement shall be effected on each Settlement Date, increases or decreases in the amount owing under the Subordinated Note made pursuant to Section 1.3 and any contribution of capital by Originator to Buyer made pursuant to Section 1.3(b) shall be deemed to have occurred and shall be effective as of the last Business Day of the Calculation Period to which such settlement relates.

Section 1.4    Purchase Price Credit Adjustments.

If on any day:

(a)    the Outstanding Balance of a Receivable is:

      (i)    reduced as a result of any cash discount or any adjustment or otherwise by Originator or any Affiliate thereof, or as a result of any tariff or other governmental action, or

      (ii)    reduced or canceled as a result of a setoff in respect of any claim by any Person (whether such claim arises out of the same or a related transaction or an unrelated transaction), or

      (iii)    reduced on account of the obligation of Originator or any Affiliate thereof to pay the related Obligor any rebate or refund, or

      (iv)    less than the amount included in the calculations in any Purchase Report, or

(b)    any of the representations and warranties set forth in Section 2.1(f), Section 2.1(h), Section 2.1(i), Section 2.1(q), Section 2.1(r), Section 2.1(s) or Section 2.1(t) are not true when made or deemed made with respect to any Receivable,

then, in such event, Buyer shall be entitled to a credit (each, a "Purchase Price Credit") against the Purchase Price otherwise payable hereunder equal to the Outstanding Balance of such Receivable (calculated before giving effect to the applicable reduction or cancellation). If such Purchase Price Credit exceeds the Original Balance of the Receivables coming into existence on any day, then Originator shall pay the remaining amount of such Purchase Price Credit in cash immediately, provided that if the Termination Date has not occurred, Originator shall be allowed to deduct the remaining amount of such Purchase Price Credit from any indebtedness owed to it under the Subordinated Note.

Section 1.5    Payments and Computations, Etc.

All amounts to be paid or deposited by Buyer hereunder shall be paid or deposited in accordance with the terms hereof on the day when due in immediately available funds to the account of Originator designated from time to time by Originator or as otherwise directed by Originator. In the event that any payment owed by any Person hereunder becomes due on a day that is not a Business Day, then such payment shall be made on the next succeeding Business Day. If any Person fails to pay any amount hereunder when due, such Person agrees to pay, on demand, the Default Fee in respect thereof until paid in full; provided, however, that such Default Fee shall not at any time exceed the maximum rate permitted by applicable law. All computations of interest payable hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first but excluding the last day) elapsed.

Section 1.6    Transfer of Records.

(a)    In connection with the Purchase of Receivables hereunder, Originator hereby sells, transfers, assigns and otherwise conveys to Buyer all of Originator's right and title to and interest in the Records relating to all Receivables sold or contributed hereunder, without the need for any further documentation in connection with the Purchase; provided, however, certain consumer information related to the Receivables shall not be transferred to Buyer in accordance with Section 54.8 of the Pennsylvania Public Utility Commission Regulations. In connection with such transfer, Originator hereby grants to each of Buyer, the Agent and the Servicer an irrevocable, non-exclusive license to use, without royalty or payment of any kind, all software used by Originator to account for the Receivables, to the extent necessary to administer the Receivables, whether such software is owned by Originator or is owned by others and used by Originator under license agreements with respect thereto, provided that should the consent of any licensor of such software be required for the grant of the license described herein to be effective, Originator hereby agrees that upon the request of Buyer (or Buyer's assignee), Originator will use its reasonable efforts to obtain the consent of such third-party licensor. The license granted hereby shall be irrevocable until the indefeasible payment in full of all of Buyer's Obligations under the Credit Agreement.

(b)    Originator shall take such action requested by Buyer and/or the Agent (as Buyer's assignee), from time to time hereafter, that may be necessary or appropriate to ensure that Buyer has an enforceable ownership interest, and its assigns under the Credit Agreement have an enforceable ownership interest, in the Records relating to the Receivables purchased from Originator hereunder, and shall use its reasonable efforts to ensure that Buyer, the Agent and the Servicer each has an enforceable right (whether by license or sublicense or otherwise) to use all of the computer software used to account for the Receivables and/or to recreate such Records; provided, however, certain consumer information related to the Receivables shall not be available in accordance with Section 54.8 of the Pennsylvania Public Utility Commission Regulations.

Section 1.7    Characterization.

If, notwithstanding the intention of the parties expressed in Section 1.2(c), any sale or contribution by Originator to Buyer of Receivables hereunder shall be characterized as a secured loan and not a sale or contribution or such sale or contribution, as the case may be, shall for any reason be ineffective or unenforceable, then this Agreement shall be deemed to constitute a security agreement under the UCC and other applicable law. For this purpose and without being in derogation of the parties' intention that the sale of Receivables hereunder shall constitute a true sale and absolute assignment thereof, Originator hereby grants to Buyer a security interest in all of Originator's right, title and interest in, to and under all Receivables now existing and hereafter arising, all Collections and Related Security with respect thereto, all other rights and payments relating to the Receivables and all proceeds of the foregoing (collectively, the "Originator Collateral"), to secure the prompt and complete payment of a loan deemed to have been made in an amount equal to the Purchase Price of the Receivables together with all other obligations of Originator hereunder. Originator shall take such action as may be necessary or appropriate to ensure that such security interest is duly perfected and prior to all other Adverse Claims thereto. Buyer shall have, in addition to the rights and remedies which they may have under this Agreement, all other rights and remedies provided to a secured creditor under the UCC and other applicable law, which rights and remedies shall be cumulative.

Article II

Representations and Warranties

Section 2.1    Representations and Warranties of Originator.

Originator hereby represents and warrants to Buyer on the date hereof, on the date of each Purchase and on each date that any Receivable comes into existence that:

(a)    Status. It is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania, has taken no action in connection with, or in contemplation of, changing its jurisdiction of formation to any other jurisdiction and has the corporate authority to make and perform this Agreement and each other Transaction Document to which it is a party. This Agreement and each Transaction Document to which Originator is a party has been duly executed and delivered by such PPL Electric Party.

(b)    Legality; Etc. This Agreement and each other Transaction Document to which it is a party constitute the legal, valid and binding obligations of Originator, in each case enforceable against it in accordance with their terms except to the extent limited by (i) bankruptcy, insolvency, fraudulent conveyance or reorganization laws, or by other laws relating to or affecting the enforceability of creditors' rights generally and by general equitable principles which may limit the right to obtain equitable remedies regardless of whether enforcement is considered in a proceeding of law or equity or (ii) any applicable public policy on enforceability of provisions relating to contribution and indemnification.

(c)    Authority; No Conflict. The execution, delivery and performance by it of this Agreement and each other Transaction Document to which it is a party have been duly authorized by all necessary corporate or other action and do not violate (i) any provision of law or regulation, or any decree, order, writ or judgment, (ii) any provision of its articles of incorporation or by-laws or (iii) result in the breach of or constitute a default under any indenture or other agreement or instrument to which it is a party and do not result in the creation of or imposition of any Adverse Claim (other than as created by the Transaction Documents) on any of the assets of Originator or its Subsidiaries except, in any such case, where such contravention could not be reasonably expected to have a Material Adverse Effect. No transaction contemplated hereby requires compliance with any bulk sales act or similar law.

(d)    Governmental Approvals. No authorization, consent or approval from any Governmental Authority is required for the execution, delivery and performance by it of this Agreement and the other Transaction Documents to which it is a party, except such authorizations, consents and approvals, including, without limitation, the PUC Order, as have been obtained prior to the date hereof and are in full force and effect.

(e)    Litigation. Except as disclosed in or contemplated by Originator's Form 10-K Report to the SEC for the year ended December 31, 2003, or in any subsequent Form 10-K, 10-Q or 8-K Report or otherwise furnished in writing to the Agent, no litigation, arbitration or administrative proceeding against Originator is pending, or to Originator's knowledge, threatened, which would materially and adversely affect the ability of Originator to perform any of its obligations under this Agreement or the other Transaction Documents. There is no litigation, arbitration or administrative proceeding pending, or to the knowledge of Originator, threatened, which could have a material adverse effect on the legality, validity or enforceability of this Agreement or the other Transaction Documents to which it is a party, on the Buyer's ownership interest, or the Agent's security interest, for the benefit of the Secured Parties, in the Receivables generally or in any significant portion of the Receivables, the Related Security or the Collections with respect thereto, or the collectability of the Receivables generally or of any material portion of the Receivables.

(f)    Accuracy of Information. All information, certificates and statements heretofore furnished by the Originator or any of its Affiliates to the Buyer for purposes of or in connection with this Agreement, any of the other Transaction Documents or any transaction contemplated hereby or thereby, taken as a whole, and all such information, certificates and statements hereafter so furnished and taken as a whole, will be true, complete and accurate in all material respects on the date such information is stated or certified, except to the extent such information is stated to be as of an earlier date, and does not and will not contain any material misstatement of fact or omit to state a material fact or any fact necessary to make the statements contained therein not misleading in light of the circumstances under which such information was furnished; provided, however, that to the extent any such information was based upon or constitutes a forecast or projection, the Originator represents only that it acted in good faith and utilized reasonable assumptions and due care in the preparation of such information.

(g)    No Violation. No part of any Purchase Price payment hereunder will be used directly or indirectly for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or for any other purpose which violates, or which conflicts with, the provisions of Regulation U or X of said Board of Governors. It is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of extending credit for the purpose of purchasing or carrying any such "margin stock".

(h)    Good Title. Immediately prior to each Purchase hereunder and upon the creation of each Receivable coming into existence after the Initial Cutoff Date, it owns and has good and marketable title to the Originator Collateral, free and clear of any Adverse Claim, except as created by the Transaction Documents. There have been duly filed all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect Buyer's ownership interest in Originator Collateral.

(i)    Perfection.

      (i)    This Agreement creates a valid and continuing security interest (as defined in the UCC) in Originator Collateral in favor of Buyer, which security interest is prior to all other liens (other than Permitted Claims) and is enforceable as such as against creditors and purchasers from Originator.

      (ii)    All actions necessary under the UCC (or any comparable law) of all appropriate jurisdictions have been taken, including, without limitation, the filing of all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect its ownership interest in each Receivable, its Collections and the Related Security and the Buyer's security interest in Originator Collateral.

      (iii)    Other than the security interest granted to Buyer pursuant to this Agreement and any Permitted Claims, it has not pledged, assigned, sold, granted a security interest in, or otherwise conveyed any of Originator Collateral.

      (iv)    It is a "registered organization" as defined in Article 9 of the UCC as in effect in the State of New York (the "NY UCC") and, for purposes of Article 9 of the NY UCC, is "located" in the Commonwealth of Pennsylvania.

      (v)    It has not authorized the filing of and is not aware of any UCC financing statements against it that include a description of collateral covering Originator Collateral other than any filing or financing statement relating to the security interest granted to Buyer hereunder or any Permitted Claim or that has been terminated. It is not aware of any judgment or tax lien filings against it.

      (vi)    Each Receivable constitutes an "account" or "payment intangible" within the meaning of the UCC.

(j)    Places of Business and Locations of Records. Its principal places of business and chief executive office and the offices where it keeps all of its Records are located at the address(es) listed on Exhibit II attached hereto or such other locations of which Buyer has been notified in accordance with Section 4.2(a) in jurisdictions where all action required by Section 4.2(a) has been taken and completed. Its Federal Employer Identification Number is correctly set forth on Exhibit II attached hereto.

(k)    Collections. The conditions and requirements set forth in Section 4.1(i) have at all times been satisfied and duly performed. Except pursuant to PPL Electric's Mortgage and Deed of Trust, dated as of October 1, 1945, and PPL Electric's Indenture, dated as of August 1, 2001, in each case as amended and supplemented from time to time (respectively, the "1945 Mortgage" and the "2001 Mortgage" and collectively, the "PPL Electric Mortgages"), it has not granted a security interest in any Collection Account to any Person. Except as contemplated in Section 4.2(f), it has not granted any Person, other than Buyer, as contemplated by this agreement, dominion and control of any Collection Account, or, except for the grants under the PPL Electric Mortgages, the right to take dominion and control of any Collection Account at a future time or upon the occurrence of a future event.

(l)    Material Adverse Effect. Since December 31, 2003, no event has occurred that would have a Material Adverse Effect.

(m)    Names. The name in which it has executed this Agreement is identical to its name as indicated on the public record of its jurisdiction of organization which shows it to have been organized. In the past five (5) years, it has not used any organizational names, trade names or assumed names other than the name in which it has executed this Agreement and as listed on Exhibit II attached hereto.

(n)    Ownership of Buyer. It owns, directly or indirectly, 100% of the issued and outstanding equity interests of Buyer, free and clear of any Adverse Claim. Such equity interests are validly issued, fully paid and nonassessable, and there are no options, warrants or other rights to acquire securities of Buyer.

(o)    Not a Holding Company or an Investment Company. It is not a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. It is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended.

(p)    Compliance with Laws. To its knowledge, it is in compliance with all applicable laws, regulations and order of any Governmental Authority, domestic or foreign, in respect of the conduct of its business and ownership of its property (including, without limitation, compliance with all applicable ERISA and Environmental Laws and the requirements of any permits issued under such Environmental Laws) except to the extent (i) such compliance is being contested in good faith by appropriate proceedings or (ii) non-compliance could not reasonably be expected to have a Material Adverse Effect (except with respect to clause (i) of the definition thereof). No Receivable (including any related Contract) contravenes any applicable law, regulation or order of any Governmental Authority, domestic or foreign (including, without limitation, laws, rules and regulations relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy), and no part of such Contract is in violation of any such law, rule or regulation, except where such contravention or violation could not reasonably be expected to have a Material Adverse Effect.

(q)    Compliance with Credit and Collection Practices. It has complied with the Credit and Collection Practices in all material respects with regard to each Receivable and the related Contract, and has not made any change to such Credit and Collection Practices, except as permitted pursuant to Section 4.1(a)(vii).

(r)    Payments to Originator. With respect to each Receivable transferred to Buyer hereunder, the Purchase Price received by it constitutes reasonably equivalent value in consideration therefor. No transfer by it of any Receivable hereunder is or may be voidable under any section of the Bankruptcy Reform Act of 1978 (11 U.S.C. §§ 101 et seq.), as amended.

(s)    Enforceability of Contracts. Each Contract with respect to each Receivable is effective to create, and has created, a legal, valid and binding obligation of the related Obligor to pay the Outstanding Balance of the Receivable created thereunder and any accrued interest thereon, enforceable against the Obligor in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

(t)    Eligible Receivables. Each Receivable reflected in any Purchase Report as an Eligible Receivable was an Eligible Receivable on the date of its acquisition by Buyer hereunder.

(u)    Accounting. The manner in which it accounts for the transactions contemplated by this Agreement does not adversely affect the conclusions set forth in the bankruptcy opinions delivered to the Agent by counsel to Originator on the Closing Date (or if updated, any such updated opinion).

(v)    Collection Curves: The Collection Curves in respect of the ITC Receivables reflect its reasonable expectations relating to the subject matter thereof.

(w)    Sequestration Powers. The PUC has not taken action in connection with its sequestration powers and the taking of any such action is not reasonably foreseeable under the Competition Act in respect of it, any of its Affiliates or the Collections.

(x)    Sales Taxes. No transfer by it of any Receivable hereunder is or is intended to be a transfer of the Obligor's obligation to pay sales taxes with respect to such Receivable.

Article III

Conditions of Purchase

Section 3.1    Conditions Precedent to Purchase.

The Purchase under this Agreement is subject to the conditions precedent that Buyer shall have been capitalized with the Initial Contributed Receivables, Buyer shall have received on or before the Closing Date those documents listed on Schedule A attached hereto and all of the conditions to the effectiveness of the Credit Agreement shall have been satisfied or waived in accordance with the terms thereof.

Section 3.2    Conditions Precedent to Subsequent Payments.

Buyer's obligation to pay for Receivables coming into existence after the Initial Cutoff Date shall be subject to the further conditions precedent that: the Facility Termination Date shall not have occurred under the Credit Agreement; Buyer shall have received such other approvals, opinions or documents as it may reasonably request and on the date such Receivable came into existence, the following statements shall be true (and acceptance of the proceeds of any payment for such Receivable shall be deemed a representation and warranty by Originator that such statements are then true):

      (i)    the representations and warranties set forth in Article II are true and correct on and as of the date such Receivable came into existence as though made on and as of such date; and

      (ii)    no event has occurred and is continuing that will constitute a Termination Event or an Unmatured Termination Event.

Notwithstanding the foregoing conditions precedent, upon payment of the Purchase Price for any Receivable (whether by payment of cash, through an increase in the amounts outstanding under the Subordinated Note, by offset of amounts owed to Buyer and/or by offset of capital contributions), title to such Receivable and the Related Security and Collections with respect thereto shall vest in Buyer, whether or not the conditions precedent to Buyer's obligation to pay for such Receivable were in fact satisfied. The failure of Originator to satisfy any of the foregoing conditions precedent, however, shall give rise to a right of Buyer to rescind the related purchase and direct Originator to pay to Buyer an amount equal to the Purchase Price payment that shall have been made with respect to any Receivables related thereto.

Article IV

Covenants

Section 4.1    Affirmative Covenants of Originator.

Until the date on which this Agreement terminates in accordance with its terms, Originator hereby covenants, as to itself, as set forth below:

(a)    Financial Reporting. It will maintain, for itself and each of its Subsidiaries, a system of accounting established and administered in accordance with GAAP, and will furnish or cause to be furnished to Buyer:

      (i)    Annual Reporting. Promptly when available and in any event within ten (10) days after the date such information is required to be delivered to the Securities and Exchange Commission (or if not required to be so filed, within ninety (90) days after the close of each of its respective fiscal years), a consolidated balance sheet of Originator and its consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of income and cash flows for such fiscal year and accompanied by an opinion thereon by independent public accountants of recognized national standing, which opinion shall state that such financial statements present fairly the financial position of Originator and its Consolidated Subsidiaries as of the date of such financial statements and the results of their operations for the period covered by such financial statements in conformity with GAAP applied on a consistent basis.

      (ii)    Quarterly Reporting. Promptly when available and in any event within ten (10) days after the date required to be delivered to the Securities and Exchange Commission (or if not required to be so filed, within forty-five (45) days after the close of the first three (3) quarterly periods of each of its respective fiscal years), a consolidated balance sheet of Originator and its consolidated Subsidiaries as at the close of each of the first three (3) quarterly periods of each fiscal year of Originator and the related consolidated statements of income and cash flows for the period from the beginning of such fiscal year to the end of such quarter, all certified (subject to normal year-end audit adjustments) as to fairness of presentation, GAAP and consistency by its respective vice president, treasurer or controller.

      (iii)    Compliance Certificate. Together with the financial statements required hereunder, a compliance certificate in substantially the form of Exhibit IV attached hereto, signed by its Authorized Officer and dated the date of such annual financial statement or such quarterly financial statement, as the case may be.

      (iv)    Shareholders Statements and Reports. Promptly upon the furnishing thereof to its shareholders, copies of all financial statements, reports and proxy statements so furnished.

      (v)    S.E.C. Filings. Promptly upon the filing thereof, copies of all registration statements and annual, quarterly, monthly or other regular reports which it files with the Securities and Exchange Commission.

      (vi)    Copies of Notices. Promptly upon its receipt of any notice, request for consent, financial statements, certification, report or other communication under or in connection with any Transaction Document from any Person other than Buyer, the Agent or Blue Ridge, copies of the same.

      (vii)    Change in Credit and Collection Practices. At least thirty (30) days prior to the effectiveness of any change in or amendment to the Credit and Collection Practices which in any such case would be reasonably likely to adversely affect the collectibility of the Receivables or decrease the credit quality of any newly created Receivables, a notice indicating such proposed change or amendment and requesting Buyer's (and the Agent's, as Buyer's assignee) consent thereto.

      (viii)    PUC Filings. Promptly, upon the filing thereof, copies of all notices, requests, reports, statements, financial information, annual reconciliation filings, filings with respect to the ITC Bonds, the Receivables and the CTC Receivables which it files with, or receives from, the PUC.

      (ix)    Other Information. Promptly, from time to time, such other information, documents, Records or reports relating to the Receivables or the condition or operations, financial or otherwise, of it as Buyer may from time to time reasonably request in order to protect the interests of Buyer under or as contemplated by this Agreement.

(b)    Notices. It will notify Buyer in writing of any of the following promptly upon learning of the occurrence thereof, describing the same and, if applicable, the steps being taken with respect thereto:

      (i)    Termination Events or Unmatured Termination Events. The occurrence of each Termination Event and each Unmatured Termination Event, by a statement of its Authorized Officer.

      (ii)    Material Adverse Effect. The occurrence of any event or condition that has had, or could reasonably be expected to have, a Material Adverse Effect (other than as defined in clause (i) of the definition thereof).

      (iii)    ERISA Matters. If and when any member of the ERISA Group: (1) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Material Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Material Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (2) receives, with respect to any Material Plan that is a Multiemployer Plan, notice of any complete or partial withdrawal liability under Title IV of ERISA, or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (3) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose material liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Material Plan, a copy of such notice; (4) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code with respect to a Material Plan, a copy of such application; (5) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (6) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (7) fails to make any payment or contribution to any Plan or makes any amendment to any Plan which has resulted or could result in the imposition of a lien or the posting of a bond or other security, a copy of such notice, and a certificate of the chief accounting officer of Originator setting forth details as to such occurrence and action, if any, which Originator or applicable member of the ERISA Group is required or proposes to take.

      (iv)    Downgrade of Originator. The occurrence of any Downgrading Event with respect to Originator setting forth the nature of such change.

      (v)    Amendment to Final Order. The occurrence of any amendment or supplement to the Final Order of the PUC dated August 27, 1998, relating to the Originator.

      (vi)    Amendment to Five-Year Credit Agreement. The occurrence of any amendment or supplement to the Five-Year Credit Agreement or the ITC Bond Documents.

      (vii)    Exercise of Sequestration Powers. The taking of any action by the PUC in connection with its sequestration powers under the Competition Act in respect of Originator or any Affiliate thereof or the Collections.

      (viii)    Purpose for Entering the Transactions. Any change or modification in Originator's purpose in entering into the transactions contemplated by the Transaction Documents and simultaneously provide a full and complete description of such change or modification, which description shall be true and accurate in all material respects.

      (ix)    Accounting Treatment. Any change in either or both the proposed or actual accounting treatment of the transactions contemplated by the Transaction Documents and/or the effects that the transactions contemplated by the Transaction Documents will have on the financial statements of Originator or any Affiliate thereof.

      (x)    Correspondence Regarding Collection Curves. Copies of all correspondence between third parties (other than accountants, legal advisors and consultants) and any PPL Electric Party relating to the Collection Curves including, without limitation, the finalized Collection Curves for each year this Agreement is in effect.

(c)    Compliance with Laws and Preservation of Corporate Existence. Originator will comply with all applicable laws, regulations and orders of any Governmental Authority, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including, without limitation, compliance with all applicable ERISA and Environmental Laws and the requirements of any permits issued under such Environmental Laws), except to the extent (i) such compliance is being contested in good faith by appropriate proceedings or (ii) non-compliance could not reasonably be expected to have a Material Adverse Effect. Originator (i) continue to engage only in businesses of the same general type as now conducted by Originator and its Subsidiaries and businesses related thereto or arising out of such businesses, except to the extent that the failure to maintain any existing business would not have a Material Adverse Effect and (ii) will preserve, renew and keep in full force and effect, and will cause each of its Subsidiaries to preserve, renew and keep in full force and effect, their respective corporate (or other entity) existence and their respective rights, franchises and privileges necessary or material to the normal conduct of business, except, in each case, where the failure to do so could not reasonably be expected to have a Material Adverse Effect.

(d)    Audits. It will furnish to Buyer from time to time such information with respect to it and the Receivables as Buyer may reasonably request; provided, however, it is understood that certain consumer information related to the Receivables and the servicing thereof shall not be available for review by the Agent in accordance with Section 54.8 of the Pennsylvania Public Utility Commission Regulations. It will, from time to time during regular business hours as requested by Buyer, upon reasonable notice and at its sole cost, permit Buyer or their respective agents or representatives, to examine and make copies of and abstracts from all Records in the possession or under its control relating to the Receivables and the Related Security, including, without limitation, the related Contracts, and to visit its offices and properties for the purpose of examining such materials described in clause (i) above, and to discuss matters relating to its financial condition or the Receivables and the Related Security or its performance under any of the Transaction Documents or its performance under the Contracts and, in each case, with any of its officers or employees having knowledge of such matters; provided, however, it is understood that certain consumer information related to the Receivables and the servicing thereof shall not be available for review by Buyer in accordance with Section 54.8 of the Pennsylvania Public Utility Commission Regulations.

(e)    Keeping and Marking of Records and Books.

      (i)    It will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the immediate identification of each new Receivable and all Collections of and adjustments to each existing Receivable). It will give Buyer notice of any material change in the administrative and operating procedures referred to in the previous sentence.

      (ii)    It will on or prior to the date hereof, mark its master data processing records and other books and records relating to the Receivables with a legend, acceptable to Buyer, describing Buyer's ownership interests in the Receivables and further describing the Receivable Interests of the Agent (on behalf of the Secured Parties) under the Credit Agreement and upon the request of Buyer: mark each Contract with a legend describing Buyer's ownership interests in the Receivables and further describing the Receivable Interests of the Agent (on behalf of the Secured Parties) and deliver to Buyer all Contracts (including, without limitation, all multiple originals of any such Contract) relating to the Receivables.

(f)    Compliance with Contracts and Credit and Collection Practices. It will timely and fully perform and comply with all provisions, covenants and other promises required to be observed by it under the Contracts related to the Receivables, and comply with the Credit and Collection Practices in all material respects in regard to each Receivable and the related Contract.

(g)    Ownership. It will take all necessary action to establish and maintain, irrevocably in Buyer, legal and equitable title to the Receivables and the Collections and all of its right, title and interest in and to the Related Security associated with the Receivables, in each case, free and clear of any Adverse Claims other than Adverse Claims in favor of Buyer (including, without limitation, the filing of all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect Buyer's security interest in such Receivables, Related Security and Collections and such other action to perfect, protect or more fully evidence the security interest of Buyer as Buyer may reasonably request).

(h)    Secured Parties' Reliance. It acknowledges that the Agent and the Secured Parties are entering into the transactions contemplated by the Credit Agreement in reliance upon Buyer's identity as a legal entity that is separate from it and any Affiliates thereof. Therefore, from and after the date of execution and delivery of this Agreement, it will take all reasonable steps including, without limitation, all steps that Buyer or any assignee of Buyer may from time to time reasonably request to maintain Buyer's identity as a separate legal entity and to make it manifest to third parties that Buyer is an entity with assets and liabilities distinct from those of it and any Affiliates thereof and not just a division of it or any such Affiliate. Without limiting the generality of the foregoing and in addition to the other covenants set forth herein, it will not hold itself out to third parties as liable for the debts of Buyer nor purport to own the Receivables and other assets acquired by Buyer, will take all other actions necessary on its part to ensure that Buyer is at all times in compliance with the "separateness covenants" set forth in Section 7.1(i) of the Credit Agreement and will cause all tax liabilities arising in connection with the transactions contemplated herein or otherwise to be allocated between it and Buyer on an arm's-length basis and in a manner consistent with the procedures set forth in U.S. Treasury Regulations §§1.1502-33(d) and 1.1552-1.

(i)    Taxes. It will file all Federal, state, local and foreign tax returns required to be filed by it and will promptly pay or cause to be paid all taxes shown to be due on such returns and all governmental charges at any time due and owing, except any such taxes or charges that are being contested in good faith by appropriate proceedings and for which it shall have set aside on its books appropriate reserves with respect thereto in accordance with GAAP or that would not reasonably be expected to have a Material Adverse Effect. It will pay when due any taxes payable in connection with the Receivables, exclusive of taxes on or measured by income or gross receipts of Buyer.

Section 4.2    Negative Covenants of Originator.

Until the date on which this Agreement terminates in accordance with its terms, Originator hereby covenants that:

(a)    Change in Name, Jurisdiction of Organization, Offices and Records. It will not change its name as it appears in official filings in the jurisdiction of its organization, its status as a "registered organization" (within the meaning of Article 9 of any applicable enactment of the UCC) in such jurisdiction, its organizational identification number, if any, issued by its jurisdiction of organization, or its jurisdiction of organization unless it shall have: given Buyer at least forty-five (45) days' prior written notice thereof; at least ten (10) days prior to such change, delivered to Buyer all financing statements, instruments and other documents necessary to continue the perfection and priority of Buyer's interest in the Collateral and/or requested by Buyer in connection with such change or relocation and caused an opinion of counsel acceptable to Buyer to be delivered to Buyer not later than the effective date of such change, to the effect that Buyer's security interest is perfected and of first priority, such opinion to be in form and substance acceptable to Buyer in its sole discretion.

(b)    Change of Collection Account. It will not close any Collection Account or open a new bank account and designate the same as a Collection Account, unless Buyer shall have received, at least ten (10) days before the proposed effective date therefor, written notice of such addition, termination or change.

(c)    Modifications to Contracts and Credit and Collection Practices. Except in accordance with Section 4.1(a)(vii), it will not make any change to the Credit and Collection Practices that could adversely affect the collectibility of the Receivables or decrease the credit quality of any newly created Receivables. Except as otherwise permitted in its capacity as Servicer pursuant to the ITC Bonds Servicing Agreement, it will not extend, amend or otherwise modify the terms of any Receivable or any Contract related thereto other than in accordance with the Credit and Collection Practices.

(d)    Sales, Liens. It will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, or create or suffer to exist any Adverse Claim upon (including, without limitation, the filing of any financing statement) or with respect to, any Receivable, Related Security or Collections, or upon or with respect to any Contract under which any Receivable arises, or, except for the grants to the trustee pursuant to the 1945 Mortgage and the 2001 Mortgage, it has not granted a security interest in any Collection Account to any Person, or assigned any right to receive income with respect thereto (other than, in each case, the creation of a security interest therein in favor of Buyer provided for herein), and it will defend the right, title and interest of Buyer in, to and under any of the foregoing property, against all claims of third parties claiming through or under it.

(e)    Accounting for Purchase. It will not, and will not permit any Affiliate to, account for or treat (whether in financial statements or otherwise) the transactions contemplated hereby in any manner other than the transfer and/or contribution and absolute assignment of the Receivables and the Related Security by it to Buyer or in any other respect account for or treat the transactions contemplated hereby in any manner other than as a transfer and/or contribution and absolute assignment of the Receivables and the Related Security by it to Buyer except to the extent that such transactions are not recognized on account of consolidated financial reporting in accordance with generally accepted accounting principles.

(f)    Collections. It shall not enter into any agreement giving any Person dominion and control of any Collection Account without the prior consent of the Agent, which consent shall not be unreasonably withheld or delayed; provided that such agreement recognizes to the Agent's reasonable satisfaction the rights of the Agent in all Receivables and Related Security and provisions are contained therein that require the timely payment of all proceeds of the Receivables and Related Security to the Agent.

Article V

Termination Events

Section 5.1    Termination Events.

The occurrence of any one or more of the following events shall constitute a termination event (each, a "Termination Event"):

(a)    Originator shall fail to make any payment or deposit required to be made by it under the Transaction Documents when due and, for any such payment which is not in respect of principal, such failure shall continue for three (3) consecutive Business Days.

(b)    Any representation or warranty made by Originator in this Agreement, any other Transaction Document or in any other document delivered pursuant hereto or thereto shall prove to have been incorrect (or with respect to the representations and warranties contained in Sections 2.1(a), (c), (d), (g), (j), (k) or (s) hereof, or in Sections 5.1(a), (c), (d), (g), (j), (k) or (s) of the Credit Agreement, incorrect in any material manner) when made or deemed made.

(c)    Originator shall fail to perform or observe any covenant contained in Section 1.2(b) or Section 4.2 when due.

(d)    Originator shall fail to perform or observe any covenant contained in Section 4.1(a)(vii) or Section 4.1(b) hereof or Section 8.3 of the Credit Agreement and such failure shall continue for ten (10) consecutive Business Days following Originator's receipt of notice of such failure from the Buyer or Originator's actual knowledge of such failure.

(e)    Originator shall fail to perform or observe any other covenant or agreement under any Transaction Document (other than those referenced in Sections 5.1(a), (c) or (d)) and such failure shall continue for ten (10) consecutive Business Days following Originator's receipt of notice of such failure from the Buyer or for thirty (30) consecutive days following Originator's actual knowledge of such failure.

(f)    Originator shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any Material Indebtedness beyond any period of grace provided with respect thereto, or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Material Indebtedness beyond any period of grace provided with respect thereto if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee on its or their behalf to cause, such Indebtedness to become due prior to its stated maturity.

(g)    Originator or PPL Transition Bond Company LLC shall generally not pay its debts as such debts become due or shall admit in writing its inability to pay its debts generally or shall make a general assignment for the benefit of creditors.

(h)    An Event of Bankruptcy shall occur with respect to Originator or PPL Transition Bond Company LLC.

(i)    A Change of Control shall occur.

(j)    One or more final judgments for the payment of money in an amount in excess of $20,000,000, individually or in the aggregate, shall be entered against the Originator or PPL Transition Bond Company LLC and such judgment shall not be paid, bonded or otherwise discharged for sixty (60) consecutive days unless such judgment is stayed on appeal or otherwise being appropriately contested in good faith.

(k)    The Internal Revenue Service shall file notice of a lien pursuant to Section 6323 of the Tax Code with regard to any of the Receivables and Related Security and such lien shall continue until the earlier of seven (7) days after inception and knowledge by any Secured Party of such lien, or the PBGC shall, or shall indicate its intention to, file notice of a lien pursuant to Section 4068 of ERISA with regard to any of the Receivables and Related Security.

(l)    Any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $25,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could reasonably be expected to cause one or more members of the ERISA Group to incur a current payment obligation in excess of $25,000,000.

(m)    The PUC shall exercise its sequestration powers under the Competition Act with respect to Originator or the Collections.

Section 5.2    Remedies.

Upon the occurrence and during the continuation of a Termination Event, Buyer may declare the Termination Date to have occurred, whereupon the Termination Date shall forthwith occur, without demand, protest or further notice of any kind, all of which are hereby expressly waived by Originator; provided, however, that upon the occurrence of a Termination Event described in Section 5.1(e), or of an actual or deemed entry of an order for relief with respect to Originator under the Federal Bankruptcy Code, the Termination Date shall automatically occur, without demand, protest or any notice of any kind, all of which are hereby expressly waived by Originator. The aforementioned rights and remedies shall be without limitation and shall be in addition to all other rights and remedies of Buyer otherwise available under any other provision of this Agreement, by operation of law, at equity or otherwise, all of which are hereby expressly preserved, including, without limitation, all rights and remedies provided under the UCC, all of which rights shall be cumulative.

Article VI

Indemnification

Section 6.1    Indemnities by Originator.

Without limiting any other rights that Buyer may have hereunder or under applicable law, Originator hereby agrees to indemnify (and pay upon demand to) Buyer and its officers, directors, agents and employees (each an "Indemnified Party") from and against any and all damages, losses, claims, taxes, liabilities, costs, expenses and for all other amounts payable, including attorneys' fees (which attorneys may be employees of Buyer or any such assign) and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts") awarded against or incurred by any of them arising out of or as a result of this Agreement or the acquisition, either directly or indirectly, by Buyer of an interest in the Receivables (including, without limitation, any loss resulting from Originator's failure to pay any sales tax relating to any Receivable), excluding, however:

(a)    Indemnified Amounts to the extent a final judgment of a court of competent jurisdiction holds that such Indemnified Amounts resulted from gross negligence or willful misconduct on the part of the Indemnified Party seeking indemnification;

(b)    Indemnified Amounts to the extent the same includes losses in respect of Receivables that are uncollectible on account of the insolvency, bankruptcy or lack of creditworthiness of the related Obligor; or

(c)    taxes imposed by the jurisdiction in which such Indemnified Party's principal executive office is located, on or measured by the overall net income of such Indemnified Party to the extent that the computation of such taxes is consistent with the characterization for income tax purposes of the acquisition (either directly or indirectly) by Blue Ridge of Receivable Interests under the Credit Agreement as a loan or loans by Blue Ridge to Buyer secured by, among other things, the Receivables, the Related Security and the Collections;

provided, however, that nothing contained in this sentence shall limit the liability of Originator or limit the recourse of Buyer to Originator for amounts otherwise specifically provided to be paid by Originator under the terms of this Agreement. Without limiting the generality of the foregoing indemnification, but subject in each case to clauses (a), (b) and (c) above, Originator shall indemnify Buyer for Indemnified Amounts relating to or resulting from:

      (i)    any representation or warranty made by Originator (or any officers of Originator) under or in connection with any Purchase Report, this Agreement, any other Transaction Document or any other information or report delivered by Originator pursuant hereto or thereto for which Buyer has not received a Purchase Price Credit that shall have been false or incorrect when made or deemed made;

      (ii)    the failure by Originator to comply with any applicable law, rule or regulation with respect to any Receivable or Contract related thereto, or the nonconformity of any Receivable or Contract included therein with any such applicable law, rule or regulation or any failure of Originator to keep or perform any of its obligations, express or implied, with respect to any Contract;

      (iii)    any failure of Originator to perform its duties, covenants or other obligations in accordance with the provisions of this Agreement or any other Transaction Document;

      (iv)    any products liability, personal injury or damage, suit or other similar claim arising out of or in connection with merchandise, insurance or services that are the subject of any Contract or any Receivable;

      (v)    any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from delivery of electricity related to such Receivable or the furnishing or failure to furnish such electricity;

      (vi)    the commingling of Collections of Receivables at any time with other funds;

      (vii)    any investigation, litigation or proceeding related to or arising from this Agreement or any other Transaction Document, the transactions contemplated hereby, the use of the proceeds of the Purchase hereunder, the ownership of the Receivables or any other investigation, litigation or proceeding relating to Originator in which any Indemnified Party becomes involved as a result of any of the transactions contemplated hereby;

      (viii)    any inability to litigate any claim against any Obligor in respect of any Receivable as a result of such Obligor being immune from civil and commercial law and suit on the grounds of sovereignty or otherwise from any legal action, suit or proceeding;

      (ix)    the exercise by the PUC of its sequestration powers under the Competition Act in respect of Collections;

      (x)    any failure to vest and maintain vested in Buyer, or to transfer to Buyer, legal and equitable title to, and ownership of, the Receivables and the Collections, and all of Originator's right, title and interest in the Related Security associated with the Receivables, in each case, free and clear of any Adverse Claim;

      (xi)    the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivable, the Related Security and Collections with respect thereto, and the proceeds of any thereof, whether at the time of the Purchase or at any subsequent time;

      (xii)    any action or omission by Originator which reduces or impairs the rights of Buyer with respect to any Receivable or the value of any such Receivable;

      (xiii)    any attempt by any Person to void the Purchase hereunder under statutory provisions or common law or equitable action; and

      (xiv)    the failure of any Receivable reflected as an Eligible Receivable on any Purchase Report to be an Eligible Receivable at the time acquired by Buyer.

Section 6.2    Other Costs and Expenses.

Originator shall pay to Buyer on demand all costs and out-of-pocket expenses in connection with the preparation, execution, delivery and administration of this Agreement, the transactions contemplated hereby and the other documents to be delivered hereunder. Originator shall pay to Buyer on demand any and all costs and expenses of Buyer, if any, including reasonable counsel fees and expenses in connection with the enforcement of this Agreement and the other documents delivered hereunder and in connection with any restructuring or workout of this Agreement or such documents, or the administration of this Agreement following a Termination Event.

Article VII

Miscellaneous

Section 7.1    Waivers and Amendments.

(a)    No failure or delay on the part of Buyer in exercising any power, right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other further exercise thereof or the exercise of any other power, right or remedy. The rights and remedies herein provided shall be cumulative and nonexclusive of any rights or remedies provided by law. Any waiver of this Agreement shall be effective only in the specific instance and for the specific purpose for which given.

(b)    No provision of this Agreement may be amended, supplemented, modified or waived except in writing signed by Originator, Buyer and Agent and, to the extent required under the Credit Agreement, the Liquidity Banks or the Required Liquidity Banks. Any material amendment, supplement, modification of waiver will required satisfaction of the Rating Agency Condition.

Section 7.2    Notices.

All communications and notices provided for hereunder shall be in writing (including bank wire, or electronic facsimile transmission or similar writing) and shall be given to the other parties hereto at their respective addresses or facsimile numbers set forth on the signature pages hereof or at such other address or facsimile number as such Person may hereafter specify for the purpose of notice to each of the other parties hereto. Each such notice or other communication shall be effective if given by facsimile, upon the receipt thereof, if given by mail, three (3) Business Days after the time such communication is deposited in the mail with first class postage prepaid or if given by any other means, when received at the address specified in this Section 7.2.

Section 7.3    Protection of Ownership Interests of Buyer.

(a)    Originator agrees that from time to time, at its expense, it will promptly execute and deliver all instruments and documents, and take all actions, that may be necessary or desirable, or that Buyer may request, to perfect, protect or more fully evidence the interest of Buyer hereunder and the Receivable Interests, or to enable Buyer to exercise and enforce their rights and remedies hereunder. At any time, Buyer may, at Originator's sole cost and expense, direct Originator to notify the Obligors of Receivables of the ownership interests of Buyer under this Agreement and may also direct that payments of all amounts due or that become due under any or all Receivables be made directly to Buyer or its designee.

(b)    If Originator fails to perform any of its obligations hereunder, Buyer may (but shall not be required to) perform, or cause performance of, such obligations, and Buyer's (or such assigns') costs and expenses incurred in connection therewith shall be payable by Originator as provided in Section 6.2. Originator irrevocably authorizes Buyer at any time and from time to time in the sole discretion of Buyer, and appoints Buyer as its attorney(s)-in-fact, to act on behalf of Originator to execute on behalf of Originator as debtor and to file financing statements necessary or desirable in Buyer's sole discretion to perfect and to maintain the perfection and priority of the interest of Buyer in the Receivables and associated Related Security and Collections and to file a carbon, photographic or other reproduction of this Agreement or any financing statement with respect to the Receivables as a financing statement in such offices as Buyer in their sole discretion deem necessary or desirable to perfect and to maintain the perfection and priority of Buyer's interests in the Receivables. This appointment is coupled with an interest and is irrevocable.

(c)     (i) Originator hereby authorizes Buyer to file financing statements and other filing or recording documents with respect to the Receivables and Related Security (including any amendments thereto, or continuation or termination statements thereof), without the signature or other authorization of Originator, in such form and in such offices as Buyer reasonably determines appropriate to perfect or maintain the perfection of the ownership or security interests of Buyer hereunder, (ii) Originator acknowledges and agrees that it is not authorized to, and will not, file financing statements or other filing or recording documents with respect to the Receivables or, other than filings with respect to any Permitted Claims, the Related Security (including any amendments thereto, or continuation or termination statements thereof), without the express prior written approval by the Agent (as Buyer's assignee), consenting to the form and substance of such filing or recording document, and (iii) Originator approves, authorizes and ratifies any filings or recordings made by or on behalf of the Agent (as Buyer's assign) in connection with the perfection of the ownership or security interests in favor of Buyer or the Agent (as Buyer's assign).

Section 7.4    Confidentiality.

(a)    Originator shall maintain and shall cause each of its employees and officers to maintain the confidentiality of this Agreement and the other confidential or proprietary information with respect to the Agent and Blue Ridge and their respective businesses obtained by it or them in connection with the structuring, negotiating and execution of the transactions contemplated herein, except that Originator and its officers and employees may disclose such information to Originator's external accountants and attorneys and as required by any applicable law or order of any judicial or administrative proceeding.

(b)    Anything herein to the contrary notwithstanding, Originator hereby consents to the disclosure of any nonpublic information with respect to it to Buyer, the Agent, the Liquidity Banks or Blue Ridge by each other, by Buyer, the Agent, the Liquidity Banks or Blue Ridge to any prospective or actual assignee or participant of any of them and by the Agent to any rating agency, Commercial Paper dealer or provider of a surety, guaranty or credit or liquidity enhancement to Blue Ridge and to any officers, directors, employees, outside accountants and attorneys of any of the foregoing, provided each such Person is informed of the confidential nature of such information. In addition, Blue Ridge, the Liquidity Banks and the Agent may disclose any such nonpublic information pursuant to any law, rule, regulation, direction, request or order of any judicial, administrative or regulatory authority or proceedings (whether or not having the force or effect of law).

(c)    Buyer shall maintain and shall cause each of its employees and officers to maintain the confidentiality of this Agreement and the other confidential or proprietary information with respect to Originator, the Obligors and their respective businesses obtained by it in connection with the due diligence evaluations, structuring, negotiating and execution of the Transaction Documents, and the consummation of the transactions contemplated herein and any other activities of Buyer arising from or related to the transactions contemplated herein provided, however, that each of Buyer and its employees and officers shall be permitted to disclose such confidential or proprietary information: to the Agent, Blue Ridge and the Liquidity Banks, to any prospective or actual assignee or participant of the Agent, Blue Ridge or the Liquidity Banks, to any rating agency, provider of a surety, guaranty or credit or liquidity enhancement to Blue Ridge, to any officers, directors, employees, outside accountants and attorneys of any of the foregoing, and to the extent required pursuant to any applicable law, rule, regulation, direction, request or order of any judicial, administrative or regulatory authority or proceedings with competent jurisdiction (whether or not having the force or effect of law) so long as such required disclosure is made under seal to the extent permitted by applicable law or by rule of court or other applicable body.

Section 7.5    Bankruptcy Petition.

(a)    Originator and Buyer each hereby covenants and agrees that, prior to the date that is one year and one day after the payment in full of all outstanding senior indebtedness of Blue Ridge, it will not institute against, or join any other Person in instituting against, Blue Ridge any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States.

(b)    Originator covenants and agrees that, prior to the date that is one year and one day after the payment in full of all outstanding Obligations of Buyer under the Credit Agreement, it will not institute against, or join any other Person in instituting against, Buyer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States.

Section 7.6    Limitation of Liability.

Except with respect to any claim arising out of the willful misconduct or gross negligence of Blue Ridge, the Agent or any Liquidity Bank, no claim may be made by Originator or any other Person against Blue Ridge, the Agent or any Liquidity Bank or their respective Affiliates, directors, officers, employees, attorneys or agents for any special, indirect, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement, or any act, omission or event occurring in connection therewith; and Originator hereby waives, releases, and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.

Section 7.7    CHOICE OF LAW.

THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK (AND NOT THE LAW OF CONFLICTS, OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW).

Section 7.8    CONSENT TO JURISDICTION.

ORIGINATOR HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT EXECUTED BY ORIGINATOR PURSUANT TO THIS AGREEMENT AND ORIGINATOR HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF BUYER TO BRING PROCEEDINGS AGAINST ORIGINATOR IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY ORIGINATOR AGAINST BUYER OR ANY AFFILIATE THEREOF INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY DOCUMENT EXECUTED BY ORIGINATOR PURSUANT TO THIS AGREEMENT SHALL BE BROUGHT ONLY IN A COURT IN NEW YORK, NEW YORK.

Section 7.9    WAIVER OF JURY TRIAL.

TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT, ANY DOCUMENT EXECUTED BY ORIGINATOR PURSUANT TO THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR THEREUNDER.

Section 7.10    Integration; Binding Effect; Survival of Terms.

(a)    This Agreement and each other Transaction Document contain the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof superseding all prior oral or written understandings.

(b)    This Agreement shall be binding upon and inure to the benefit of Originator, Buyer and their respective successors and permitted assigns (including any trustee in bankruptcy). Originator may not assign any of its rights and obligations hereunder or any interest herein without the prior written consent of Buyer. Buyer may assign at any time its rights and obligations hereunder and interests herein to any other Person without the consent of Originator. Without limiting the foregoing, Originator acknowledges that Buyer, pursuant to the Credit Agreement, may assign to the Agent, for the benefit of the Secured Parties, its rights, remedies, powers and privileges hereunder and that the Agent may further assign such rights, remedies, powers and privileges to the extent permitted in the Credit Agreement. Originator agrees that the Agent, as the assignee of Buyer, shall, subject to the terms of the Credit Agreement, have the right to enforce this Agreement and to exercise directly all of Buyer's rights and remedies under this Agreement (including, without limitation, the right to give or withhold any consents or approvals of Buyer to be given or withheld hereunder) and Originator agrees to cooperate fully with the Agent in the exercise of such rights and remedies. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms and shall remain in full force and effect until terminated in accordance with its terms; provided, however, that the rights and remedies with respect to any breach of any representation and warranty made by Originator pursuant to Article II; the indemnification and payment provisions of Article VI; and Section 7.5 shall be continuing and shall survive any termination of this Agreement.

Section 7.11    Counterparts; Severability; Section References.

This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Delivery of an executed counterpart of a signature page by facsimile shall be effective as delivery of a manually executed counterpart of this Agreement. Any provisions of this Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Unless otherwise expressly indicated, all references herein to "Article," "Section," "Schedule" or "Exhibit" shall mean articles and sections of, and schedules and exhibits to, this Agreement.

Section 7.12    Overdue Amounts.

Each party hereto hereby agrees to pay to the other party interest at a per annum rate equal to the sum of the Prime Rate, plus 2% per annum with respect to all amounts which are due and owing by such party and which are not paid on the date that such amount first becomes due in accordance with this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have caused this Receivables Sale Agreement to be executed and delivered by their duly authorized officers as of the date hereof.

PPL ELECTRIC UTILITIES CORPORATION By:                                                   Name:                                              Title:
Address:	Two North Ninth Street Allentown, Pennsylvania 18101-1179
Attention:   Treasurer Telephone:   (610)774-5987 Fax:   (610)774-5235

PPL RECEIVABLES CORPORATION By:                                                   Name:                                              Title:
Address:	c/o Christopher J. Monigle PPL Receivables Corporation 3993 Howard Hughes Parkway Suite 250 Las Vegas, Nevada 89109

Exhibit I

Definitions

This is Exhibit I to the Agreement (as hereinafter defined). As used in the Agreement and the Exhibits and Schedules thereto, capitalized terms have the meanings set forth in this Exhibit I (such meanings to be equally applicable to the singular and plural forms thereof). If a capitalized term is used in the Agreement, or any Exhibit or Schedule thereto, and is not otherwise defined therein or in this Exhibit I, such term shall have the meaning assigned thereto in Exhibit I to the Credit Agreement (hereinafter defined).

Agent: As defined in the Preliminary Statements to the Agreement.

Agreement: The Receivables Sale Agreement, dated as of August 1, 2004, between Originator and Buyer, as the same may be amended, restated or otherwise modified.

Blue Ridge: As defined in the Preliminary Statements to the Agreement.

Buyer: As defined in the Preamble to the Agreement.

Calculation Period: Each calendar month or portion thereof which elapses during the term of the Agreement. The first Calculation Period shall commence on the date of the Purchases hereunder and the final Calculation Period shall terminate on the Termination Date.

Credit Agreement: The meaning set forth in the Preliminary Statements to the Agreement.

Credit and Collection Practices: Originator's credit and collection policies and practices relating to Contracts and Receivables existing on the date hereof and summarized in Exhibit V hereto, as modified from time to time in accordance with the Agreement.

Discount Factor: A percentage calculated to provide Buyer with a reasonable return on its investment in the Receivables after taking account of the time value of money based upon the anticipated dates of collection of the Receivables and the cost to Buyer of financing its investment in the Receivables during such period and the risk of nonpayment by the Obligors. Originator and Buyer may agree from time to time to change the Discount Factor based on changes in one or more of the items affecting the calculation thereof, provided that any change to the Discount Factor shall take effect as of the commencement of a Calculation Period, shall apply only prospectively and shall not affect the Purchase Price payment made prior to the Calculation Period during which Originator and Buyer agree to make such change.

Initial Contributed Receivables: As defined in Section 1.1.

Initial Cutoff Date: As defined in Section 1.1.

Net Worth: As of the last Business Day of each Calculation Period preceding any date of determination, the excess, if any, of the aggregate Outstanding Balance of the Receivables at such time, over the sum of the Aggregate Principal outstanding at such time, plus the aggregate outstanding principal balance of the Subordinated Loans (including any Subordinated Loan proposed to be made on the date of determination).

Original Balance: With respect to any Receivable coming into existence after the Initial Cutoff Date, the Outstanding Balance of such Receivable on the date it was created.

Originator: As defined in the Preamble to the Agreement.

Originator Collateral: As defined in Section 1.7.

PPL: PPL Electric Utilities Corporation.

Purchase: The purchase pursuant to Section 1.2(a) of the Agreement by Buyer from Originator of the Receivables and the Related Security and Collections related thereto, together with all related rights in connection therewith.

Purchase Price: With respect to the Purchase, the aggregate price to be paid by Buyer to Originator for such Purchase in accordance with Section 1.3 of the Agreement for the Receivables, Collections and Related Security being sold to Buyer, which price shall equal on any date the product of the Outstanding Balance of such Receivables on such date, multiplied by one minus the Discount Factor in effect on such date, minus any Purchase Price Credits to be credited against the Purchase Price otherwise payable in accordance with Section 1.4 of the Agreement.

Purchase Price Credit: As defined in Section 1.4.

Purchase Report: As defined in Section 1.2(b).

Receivable: All indebtedness and other obligations owed to Originator, excluding the ITC Receivables, the Nuclear Decommissioning Receivables and the ECP Contract Payments (at the times it arises, and before giving effect to any transfer or conveyance under this Agreement) or Buyer (after giving effect to the transfers under this Agreement) or in which Originator or Buyer has a security interest or other interest, including, without limitation, any indebtedness, obligation or interest constituting an account, payment intangible or general intangible, arising in connection with the sale of electricity to an Obligor by Originator, and further includes, without limitation, the obligation to pay any Finance Charges with respect thereto. Indebtedness and other rights and obligations arising from any one transaction, including, without limitation, indebtedness and other rights and obligations represented by an individual invoice, shall constitute a Receivable separate from a Receivable consisting of the indebtedness and other rights and obligations arising from any other transaction; provided, further, that any indebtedness, rights or obligations referred to in the immediately preceding sentence shall be a Receivable regardless or whether the account debtor or Originator treats such indebtedness, rights or obligations as a separate payment obligation.

Related Security: With respect to any Receivable:

(i)    all security interests or liens and property subject thereto from time to time, if any, purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all financing statements and security agreements describing any collateral securing such Receivable,

(ii)    all guaranties, letters of credit, insurance and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable whether pursuant to the Contract related to such Receivable or otherwise,

(iii)    all Contracts associated with such Receivable,

(iv)    all Records related to such Receivable, and

(v)    all proceeds of any of the foregoing.

Required Capital Amount: As of any date of determination, an amount equal to the greater of 3% of the Borrowing Limit under the Credit Agreement, and the product of 1.5 times the product of the Default Ratio times the Default Horizon Ratio, each as determined from the most recent Monthly Report received from the Servicer under the Credit Agreement, and the Outstanding Balance of all Receivables as of such date, as determined from the most recent Monthly Report received from the Servicer under the Credit Agreement.

Subordinated Loan: As defined in Section 1.3(a)(ii) of the Agreement.

Subordinated Note: A promissory note in substantially the form of Exhibit VI hereto as more fully described in Section 1.3 of the Agreement, as the same may be amended, restated, supplemented or otherwise modified from time to time.

Termination Date: The earliest to occur of the Facility Termination Date (as defined in the Credit Agreement), the Business Day immediately prior to the occurrence of a Termination Event set forth in Section 5.1(d), the Business Day specified in a written notice from Buyer to Originator following the occurrence of any other Termination Event, and the date which is 10 Business Days after Buyer's receipt of written notice from Originator that it wishes to terminate the facility evidenced by this Agreement.

Termination Event: As defined in Section 5.1 of the Agreement.

Unmatured Termination Event: An event which, with the passage of time or the giving of notice, or both, would constitute a Termination Event.

All accounting terms not specifically defined herein shall be construed in accordance with GAAP. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9.

EX-10

Exhibit 10(e)

CREDIT AND SECURITY AGREEMENT

DATED AS OF AUGUST 1, 2004

AMONG

PPL RECEIVABLES CORPORATION, AS BORROWER,

PPL ELECTRIC UTILITIES CORPORATION, AS SERVICER,

BLUE RIDGE ASSET FUNDING CORPORATION,

THE LIQUIDITY BANKS FROM TIME TO TIME PARTY HERETO

AND

WACHOVIA BANK, NATIONAL ASSOCIATION, AS AGENT

TABLE OF CONTENTS

		Page
Article I The Advances		1
Section 1.1	Credit Facility.	1
Section 1.2	Increases.	2
Section 1.3	Decreases.	2
Section 1.4	Deemed Collections; Borrowing Limit.	3
Section 1.5	Payment Requirements.	4
Section 1.6	Ratable Loans; Funding Mechanics; Liquidity Fundings.	4
Article II Payments and Collections		4
Section 2.1	Payments.	4
Section 2.2	Collections Prior to Amortization.	5
Section 2.3	Collections Following Amortization.	6
Section 2.4	Payment Rescission.	6
Article III Blue Ridge Funding		7
Section 3.1	CP Costs.	7
Section 3.2	Calculation of CP Costs.	7
Section 3.3	CP Costs Payments.	7
Section 3.4	Default Rate.	7
Article IV Liquidity Bank Funding		7
Section 4.1	Liquidity Bank Funding.	7
Section 4.2	Interest Payments.	8
Section 4.3	Selection and Continuation of Interest Periods.	8
Section 4.4	Liquidity Bank Interest Rates.	8
Section 4.5	Suspension of the LIBO Rate.	8
Section 4.6	Default Rate.	9
Article V Representations and Warranties		9
Section 5.1	Representations and Warranties of the PPL Electric Parties.	9
Article VI Conditions of Advances		14
Section 6.1	Conditions Precedent to Initial Advance.	14
Section 6.2	Conditions Precedent to All Advances.	14
Article VII Covenants		14
Section 7.1	Affirmative Covenants of the PPL Electric Parties.	14
Section 7.2	Negative Covenants of the PPL Electric Parties.	22
Article VIII Servicing		24
Section 8.1	Designation of Servicer.	24
Section 8.2	Duties of Servicer.	25
Section 8.3	Collections.	26
Section 8.4	Responsibilities of PPL Electric Parties.	26
Section 8.5	Monthly Reports.	26
Section 8.6	Servicing Fee.	26
Article IX Amortization Events		27
Section 9.1	Amortization Events.	27
Section 9.2	Remedies.	29
Article X Indemnification		29
Section 10.1	Indemnities by the PPL Electric Parties.	29
Section 10.2	Increased Cost and Reduced Return.	32
Section 10.3	Other Costs and Expenses.	32
Section 10.4	Allocations.	33
Article XI The Agent		33
Section 11.1	Authorization and Action.	33
Section 11.2	Delegation of Duties.	34
Section 11.3	Exculpatory Provisions.	34
Section 11.4	Reliance by Agent.	34
Section 11.5	Non-Reliance on Agent and Other Lenders.	35
Section 11.6	Reimbursement and Indemnification.	35
Section 11.7	Agent in its Individual Capacity.	35
Section 11.8	Successor Agent.	35
Article XII Assignments; Participations		36
Section 12.1	Assignments.	36
Section 12.2	Participations.	37
Article XIII Security Interest		37
Section 13.1	Grant of Security Interest.	37
Section 13.2	Termination after Final Payout Date.	37
Article XIV Miscellaneous		38
Section 14.1	Waivers and Amendments.	38
Section 14.2	Notices.	39
Section 14.3	Ratable Payments.	39
Section 14.4	Protection of Agent's Security Interest.	39
Section 14.5	Confidentiality.	40
Section 14.6	Bankruptcy Petition.	40
Section 14.7	Limitation of Liability.	41
Section 14.8	CHOICE OF LAW.	41
Section 14.9	CONSENT TO JURISDICTION.	41
Section 14.10	WAIVER OF JURY TRIAL.	42
Section 14.11	Integration; Binding Effect; Survival of Terms.	42
Section 14.12	Counterparts; Severability; Section References.	42
Section 14.13	Wachovia Roles.	42
Exhibits and Schedules Excluded
Exhibit I	Definitions
Exhibit II	Form of Borrowing Notice
Exhibit III	Places of Business of the PPL Electric Parties; Locations of Records; Federal Employer
	Identification Number(s); Organizational Identification Number(s)
Exhibit IV	Names of Collection Banks; Collection Accounts
Exhibit V	Form of Compliance Certificate
Exhibit VI	Nuclear Decommissioning Receivables Amortization Schedule
Exhibit VII	Form of Assignment Agreement
Exhibit VIII	Summary of Credit and Collection Practices
Exhibit IX	Form of Monthly Report
Exhibit X	Form of Contract(s)
Schedules
Schedule A	Commitments
Schedule B	Closing Documents

CREDIT AND SECURITY AGREEMENT

THIS CREDIT AND SECURITY AGREEMENT, dated as of August 1, 2004 is entered into by and among:

(a)    PPL RECEIVABLES CORPORATION, a Delaware corporation ("Borrower"),

(b)    PPL Electric Utilities Corporation, a Pennsylvania corporation ("PPL Electric"), as initial Servicer (the Servicer together with Borrower, the "PPL Electric Parties" and each, a "PPL Electric Party"),

(c)    The entities listed on Schedule A to this Agreement (together with any of their respective successors and assigns hereunder, the "Liquidity Banks"),

(d)    Blue Ridge Asset Funding Corporation, a Delaware corporation ("Blue Ridge"), and

(e)    Wachovia Bank, National Association, as agent for the Lenders hereunder or any successor agent hereunder (together with its successors and assigns hereunder, the "Agent").

Unless defined elsewhere herein, capitalized terms used in this Agreement shall have the meanings assigned to such terms in Exhibit I and if not defined in Exhibit I, shall have the meanings assigned to such terms in the Receivables Sale Agreement.

PRELIMINARY STATEMENTS

Borrower desires to borrow from the Lenders from time to time.

Blue Ridge may, in its absolute and sole discretion, make Advances to Borrower from time to time.

In the event that Blue Ridge declines to make any Advance, the Liquidity Banks shall, at the request of Borrower, make Advances from time to time.

Wachovia Bank, National Association has been requested and is willing to act as Agent on behalf of Blue Ridge and the Liquidity Banks in accordance with the terms hereof.

Article I

The Advances

Section 1.1    Credit Facility.

(a)    Upon the terms and subject to the conditions hereof, from time to time prior to the Facility Termination Date:

    (i)    Borrower may, at its option, request Advances from the Lenders in an aggregate principal amount at any one time outstanding not to exceed the lesser of the Aggregate Commitment and the Borrowing Base (such lesser amount, the "Borrowing Limit"); and

    (ii)    Blue Ridge may, at its option, make the requested Advance, or if Blue Ridge shall decline to make any Advance, except as otherwise provided in Section 1.2, the Liquidity Banks severally agree to make Loans in an aggregate principal amount equal to the requested Advance.

Each of the Advances, and all other Obligations, shall be secured by the Collateral as provided in Article XIII. It is the intent of Blue Ridge to fund all Advances by the issuance of Commercial Paper.

(b)    Borrower may, upon at least thirty (30) days' notice to the Agent, terminate in whole or reduce in part, ratably among the Liquidity Banks, the unused portion of the Aggregate Commitment; provided that each partial reduction of the Aggregate Commitment shall be in an amount equal to $10,000,000 (or a larger integral multiple of $1,000,000 if in excess thereof) and shall reduce the Commitments of the Liquidity Banks ratably in accordance with their respective Pro Rata Shares.

Section 1.2    Increases.

Borrower shall provide the Agent with at least two (2) Business Days' (or in the case of the Advance made on the Closing Date, one (1) Business Days') prior notice in a form set forth as Exhibit II hereto of each Advance (each, a "Borrowing Notice"). Each Borrowing Notice shall be subject to Section 6.2 hereof and, except as set forth below, shall be irrevocable and shall specify the requested increase in Aggregate Principal (which shall not be less than $1,000,000 or a larger integral multiple of $100,000) and the Borrowing Date and, in the case of an Advance to be funded by the Liquidity Banks, the requested Interest Rate and Interest Period. Following receipt of a Borrowing Notice, the Agent will determine whether Blue Ridge agrees to make the requested Advance. If Blue Ridge declines to make a proposed Advance, Borrower may cancel the Borrowing Notice or, in the absence of such a cancellation, the Advance will be made by the Liquidity Banks; provided, however, that in no event will more than four (4) Advances be made during any calendar month. On the date of each Advance, upon satisfaction of the applicable conditions precedent set forth in Article VI, Blue Ridge or the Liquidity Banks, as applicable, shall deposit into the Facility Account, in immediately available funds, no later than 2:00 p.m. (New York time), an amount equal to in the case of Blue Ridge, the principal amount of the requested Advance or in the case of a Liquidity Bank, such Liquidity Bank's Pro Rata Share of the principal amount of the requested Advance.

Section 1.3    Decreases.

Except as provided in Section 1.4, Borrower shall provide the Agent with prior written notice in conformity with the Required Notice Period (a "Reduction Notice") of any proposed reduction of Aggregate Principal. Such Reduction Notice shall designate the date (the "Proposed Reduction Date") upon which any such reduction of Aggregate Principal shall occur (which date shall give effect to the applicable Required Notice Period), and the amount of Aggregate Principal to be reduced which shall be applied ratably to the Loans of Blue Ridge and the Liquidity Banks in accordance with the amount of principal (if any) owing to Blue Ridge, on the one hand, and the amount of principal (if any) owing to the Liquidity Banks (ratably, based on their respective Pro Rata Shares), on the other hand (the "Aggregate Reduction"). Only one (1) Reduction Notice shall be outstanding at any time.

Section 1.4    Deemed Collections; Borrowing Limit.

(a)    If on any day:

    (i)    the Outstanding Balance of any Receivable is reduced as a result of any cash discount or any other adjustment by any Originator or any Affiliate thereof, or as a result of any tariff or other governmental or regulatory action, or

    (ii)    the Outstanding Balance of any Receivable is reduced or canceled as a result of a setoff in respect of any claim by the Obligor thereof (whether such claim arises out of the same or a related or an unrelated transaction), or

    (iii)    the Outstanding Balance of any Receivable is reduced on account of the obligation of any Originator or any Affiliate thereof to pay to the related Obligor any rebate or refund, or

    (iv)    the Outstanding Balance of any Receivable is less than the amount included in calculating the Net Pool Balance for purposes of any Monthly Report (for any reason other than such Receivable becoming a Defaulted Receivable), or

    (v)    any of the representations or warranties of Borrower set forth in Section 5.1(b), Section 5.1(e), Section 5.1(f), Section 5.1(h), Section 5.1(i), Section 5.1(q), Section 5.1(r), Section 5.1(s) or Section 5.1(t) were not true when made with respect to any Receivable,

then, on such day, Borrower shall be deemed to have received a Collection of such Receivable (A) in the case of clauses (i) - (iv) above, in the amount of such reduction or cancellation or the difference between the actual Outstanding Balance and the amount included in calculating such Net Pool Balance, as applicable; and (B) in the case of clause (v) above, in the amount of the Outstanding Balance of such Receivable and, effective as of the date on which the next succeeding Monthly Report is required to be delivered, the Borrowing Base shall be reduced by the amount of such Deemed Collection.

(b)    Borrower shall ensure that the Aggregate Principal at no time exceeds the Borrowing Limit. If at any time the Aggregate Principal exceeds the Borrowing Limit, Borrower shall pay to the Agent not later than the next succeeding Business Day an amount to be applied to reduce the Aggregate Principal (as allocated by the Agent), such that after giving effect to such payment the Aggregate Principal is less than or equal to the Borrowing Limit.

Section 1.5    Payment Requirements.

All amounts to be paid or deposited by any PPL Electric Party pursuant to any provision of this Agreement shall be paid or deposited in accordance with the terms hereof no later than 12:00 noon (New York time) on the day when due in immediately available funds, and if not received before 12:00 noon (New York time) shall be deemed to be received on the next succeeding Business Day. If such amounts are payable to a Lender they shall be paid to the Agent's Account, for the account of such Lender, until otherwise notified by the Agent. All computations of CP Costs, Interest, per annum fees calculated as part of any CP Costs, per annum fees hereunder and per annum fees under the Fee Letter shall be made on the basis of a year of 360 days for the actual number of days elapsed. If any amount hereunder shall be payable on a day which is not a Business Day, such amount shall be payable on the next succeeding Business Day.

Section 1.6    Ratable Loans; Funding Mechanics; Liquidity Fundings.

(a)    Each Advance hereunder shall consist of one or more Loans made by Blue Ridge and/or the Liquidity Banks.

(b)    Each Lender funding any Loan shall wire transfer the principal amount of its Loan to the Agent in immediately available funds not later than 12:00 noon (New York City time) on the applicable Borrowing Date and, subject to its receipt of such Loan proceeds, the Agent shall wire transfer such funds received by it to the account specified by Borrower in its Borrowing Request not later than 2:00 p.m. (New York City time) on such Borrowing Date.

(c)    While it is the intent of Blue Ridge to fund each requested Advance through the issuance of its Commercial Paper, the parties acknowledge that if Blue Ridge is unable, or determines that it is undesirable, to issue Commercial Paper to fund all or any portion of its Loans, or is unable to repay such Commercial Paper upon the maturity thereof, Blue Ridge may put all or any portion of its Loans to the Liquidity Banks at any time pursuant to the Liquidity Agreement to finance or refinance the necessary portion of its Loans through a Liquidity Funding to the extent available. The Liquidity Fundings may be Alternate Base Rate Loans or LIBO Rate Loans, or a combination thereof, selected by Borrower in accordance with Article IV. Regardless of whether a Liquidity Funding constitutes the direct funding of a Loan, an assignment of a Loan made by Blue Ridge or the sale of one or more participations in a Loan made by Blue Ridge, each Liquidity Bank participating in a Liquidity Funding shall have the rights of a "Lender" hereunder with the same force and effect as if it had directly made a Loan to Borrower in the amount of its Liquidity Funding.

(d)    Nothing herein shall be deemed to commit Blue Ridge to make Loans.

Article II

Payments and Collections

Section 2.1    Payments.

Borrower hereby promises to pay the following (collectively, the "Obligations"):

(a)    the Aggregate Principal on and after the Facility Termination Date as and when Collections are received;

(b)    the fees set forth in the Fee Letter on the dates specified therein;

(c)    all accrued and unpaid Interest on the Alternate Base Rate Loans on each Settlement Date applicable thereto;

(d)    all accrued and unpaid Interest on the LIBO Rate Loans on the last day of each Interest Period applicable thereto;

(e)    all accrued and unpaid CP Costs on the CP Rate Loans on each Settlement Date; and

(f)    all Broken Funding Costs and Indemnified Amounts upon demand.

Section 2.2    Collections Prior to Amortization.

(a)    On each Settlement Date prior to the Amortization Date, the Servicer shall deposit to the Agent's Account, for distribution to the Lenders, Collections equal to the sum of the following amounts for application to the Obligations in the order specified:

first, ratably to the payment of all accrued and unpaid CP Costs, Interest and Broken Funding Costs (if any) then due and owing,

second, ratably to the payment of all accrued and unpaid fees under the Fee Letter (if any) then due and owing,

third, to the accrued and unpaid Servicing Fee (so long as the Servicer is not PPL Electric or an Affiliate of PPL Electric),

fourth, if required under Section 1.3 or Section 1.4, to the ratable reduction of Aggregate Principal,

fifth, for the ratable payment of all other unpaid Obligations, if any, then due and owing, and

sixth, to the accrued and unpaid Servicing Fee (so long as the Servicer is PPL Electric or an Affiliate of PPL Electric).

(b)    Provided that (i) each of the conditions precedent set forth in Section 6.2 are satisfied and (ii) the Amortization Date has not occurred, any Collections received in excess of the amount necessary to make the payments required under Section 2.2(a) shall, after application in payment for new Receivables or otherwise in payment for obligations of the Borrower under this Agreement and the Receivables Sale Agreement, be distributed to Borrower or otherwise in accordance with Borrower's instructions.

Collections applied to the payment of Obligations shall be distributed in accordance with the aforementioned provisions, and, giving effect to each of the priorities set forth above in this Section 2.2(a), shall be shared ratably (within each priority) among the Agent and the Lenders in accordance with the amount of such Obligations owing to each of them in respect of each such priority.

Section 2.3    Collections Following Amortization.

On each day on which any of the conditions precedent set forth in Section 6.2 are not satisfied, the Amortization Date and each day thereafter, the Servicer shall set aside and hold in trust, for the Secured Parties, all Collections received on such day. On and after the Amortization Date, the Servicer shall, on each Settlement Date and on each other Business Day specified by the Agent (after deduction of any accrued and unpaid Servicing Fee as of such date): remit to the Agent's Account the amounts set aside pursuant to the preceding two sentences, and apply such amounts to reduce the Obligations as follows:

first, to the reimbursement of the Agent's costs of collection and enforcement of this Agreement,

second, ratably to the payment of all accrued and unpaid CP Costs, Interest and Broken Funding Costs,

third, ratably to the payment of all accrued and unpaid fees under the Fee Letter,

fourth, to the ratable reduction of Aggregate Principal,

fifth, for the ratable payment of all other unpaid Obligations, and

sixth, after the Obligations have been indefeasibly reduced to zero, to Borrower.

Collections applied to the payment of Obligations shall be distributed in accordance with the aforementioned provisions, and, giving effect to each of the priorities set forth above in this Section 2.3, shall be shared ratably (within each priority) among the Agent and the Lenders in accordance with the amount of such Obligations owing to each of them in respect of each such priority.

Section 2.4    Payment Rescission.

No payment of any of the Obligations shall be considered paid or applied hereunder to the extent that, at any time, all or any portion of such payment or application is rescinded by application of law or judicial authority, or must otherwise be returned or refunded for any reason. Borrower shall remain obligated for the amount of any payment or application so rescinded, returned or refunded, and shall promptly pay to the Agent (for application to the Person or Persons who suffered such rescission, return or refund) the full amount thereof, plus Interest on such amount at the Default Rate from the date of any such rescission, return or refunding.

Article III

Blue Ridge Funding

Section 3.1    CP Costs.

Borrower shall pay CP Costs with respect to the principal balance of Blue Ridge's Loans from time to time outstanding. Each Loan of Blue Ridge that is funded with Pooled Commercial Paper will accrue CP Costs each day on a pro rata basis, based upon the percentage share that the principal in respect of such Loan represents in relation to all assets held by Blue Ridge and funded substantially with related Pooled Commercial Paper.

Section 3.2    Calculation of CP Costs.

Not later than the 3^rd Business Day immediately preceding each Monthly Reporting Date, Blue Ridge shall calculate the aggregate amount of CP Costs applicable to its CP Rate Loans for the Calculation Period then most recently ended and shall notify Borrower of such aggregate amount.

Section 3.3    CP Costs Payments.

On each Settlement Date, Borrower shall pay to the Agent (for the benefit of Blue Ridge) an aggregate amount equal to all accrued and unpaid CP Costs in respect of the principal associated with all CP Rate Loans for the Calculation Period then most recently ended in accordance with Article II.

Section 3.4    Default Rate.

From and after the occurrence of (i) a Servicer Replacement Event, (ii) a Servicer Default or (iii) a Downgrading Event with respect to the Servicer, and during the continuance of (iv) an Amortization Event (other than as a result of a voluntary termination of either (x) the facility evidenced by this Agreement or (y) the facility evidenced by the Receivables Sale Agreement, except if in either case another Amortization Event has occurred or thereafter occurs), all Loans of Blue Ridge shall accrue Interest at the Default Rate and shall cease to be CP Rate Loans. With respect to clause (iv) above, the Agent will promptly notify Borrower of any Amortization Event with respect to which it intends to assess additional interest at the Default Rate; provided, however, that any failure to provide any such notice shall not prevent any such Loan from accruing interest at the Default Rate for the period during which such Amortization Event has occurred and is continuing.

Article IV

Liquidity Bank Funding

Section 4.1    Liquidity Bank Funding.

Prior to the occurrence of an Amortization Event, the outstanding principal balance of each Liquidity Funding shall accrue interest for each day during its Interest Period at either the LIBO Rate or the Alternate Base Rate in accordance with the terms and conditions hereof. Until Borrower gives notice to the Agent of another Interest Rate in accordance with Section 4.4, the initial Interest Rate for any Loan transferred to the Liquidity Banks by Blue Ridge pursuant to the Liquidity Agreement shall be the Alternate Base Rate (unless the Default Rate is then applicable). If the Liquidity Banks acquire by assignment from Blue Ridge any Loan pursuant to the Liquidity Agreement, each Loan so assigned shall be deemed to have an Interest Period commencing on the date of any such assignment.

Section 4.2    Interest Payments.

On the Settlement Date for each Liquidity Funding, Borrower shall pay to the Agent (for the benefit of the Liquidity Banks) an aggregate amount equal to the accrued and unpaid Interest for the entire Interest Period of each such Liquidity Funding in accordance with Article II.

Section 4.3    Selection and Continuation of Interest Periods.

(a)    With consultation from (and approval by) the Agent, Borrower shall from time to time request Interest Periods for the Liquidity Fundings, provided that if at any time any Liquidity Funding is outstanding, Borrower shall always request Interest Periods such that at least one Interest Period shall end on the date specified in clause (i) of the definition of Settlement Date.

(b)    Borrower or the Agent, upon notice to and consent by the other received at least three (3) Business Days prior to the end of an Interest Period (the "Terminating Tranche") for any Liquidity Funding, may, effective on the last day of the Terminating Tranche: divide any such Liquidity Funding into multiple Liquidity Fundings, combine any such Liquidity Funding with one or more other Liquidity Fundings that have a Terminating Tranche ending on the same day as such Terminating Tranche or combine any such Liquidity Funding with a new Liquidity Funding to be made by the Liquidity Banks on the day such Terminating Tranche ends.

Section 4.4    Liquidity Bank Interest Rates.

Borrower may select the LIBO Rate or the Alternate Base Rate for each Liquidity Funding. Borrower shall by 12:00 noon (New York time): at least three (3) Business Days prior to the expiration of any Terminating Tranche with respect to which the LIBO Rate is being requested as a new Interest Rate and at least one (1) Business Day prior to the expiration of any Terminating Tranche with respect to which the Alternate Base Rate is being requested as a new Interest Rate, give the Agent irrevocable notice of the new Interest Rate for the Liquidity Funding associated with such Terminating Tranche. Until Borrower gives notice to the Agent of another Interest Rate, the initial Interest Rate for any Loan transferred to the Liquidity Banks pursuant to the Liquidity Agreement shall be the Alternate Base Rate (unless the Default Rate is then applicable).

Section 4.5    Suspension of the LIBO Rate.

(a)    If any Liquidity Bank notifies the Agent that it has determined that funding its Pro Rata Share of the Liquidity Fundings at a LIBO Rate would violate any applicable law, rule, regulation, or directive of any governmental or regulatory authority, whether or not having the force of law, or that such LIBO Rate will not adequately and fairly reflect the cost of acquiring or maintaining a Liquidity Funding at such LIBO Rate, then the Agent shall suspend the availability of such LIBO Rate and require Borrower to select the Alternate Base Rate for any Liquidity Funding accruing Interest at such LIBO Rate.

(b)    If less than all of the Liquidity Banks give a notice to the Agent pursuant to Section 4.5(a), each Liquidity Bank which gave such a notice shall be obliged, at the request of Borrower, Blue Ridge or the Agent, to assign all of its rights and obligations hereunder to another Liquidity Bank or another funding entity nominated by Borrower or the Agent that is an Eligible Assignee willing to participate in this Agreement through the Liquidity Termination Date in the place of such notifying Liquidity Bank; provided that the notifying Liquidity Bank receives payment in full, pursuant to an Assignment Agreement, of all Obligations owing to it (whether due or accrued), and the replacement Liquidity Bank otherwise satisfies the requirements of Section 12.1(b).

Section 4.6    Default Rate.

From and after the occurrence of (i) a Servicer Replacement Event, (ii) a Servicer Default or (iii) a Downgrading Event with respect to the Servicer, and during the continuance of (iv) an Amortization Event (other than as a result of a voluntary termination of either (x) the facility evidenced by this Agreement or (y) the facility evidenced by the Receivables Sale Agreement, except if in either case another Amortization Event has occurred or thereafter occurs), all Liquidity Fundings shall accrue Interest at the Default Rate. With respect to clause (iv) above, the Agent will promptly notify Borrower of any Amortization Event with respect to which it intends to assess additional interest at the Default Rate; provided, however, that any failure to provide any such notice shall not prevent any such Liquidity Funding from accruing interest at the Default Rate for the period during which such Amortization Event has occurred and is continuing.

Article V

Representations and Warranties

Section 5.1    Representations and Warranties of the PPL Electric Parties.

Each PPL Electric Party hereby represents and warrants to the Agent and the Lenders, as to itself, as of the date hereof, as of the date of each Advance and as of each Settlement Date that:

(a)    Status. Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has taken no action in connection with, or in contemplation of, changing its jurisdiction of formation to any other jurisdiction. The Servicer is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania. Each such PPL Electric Party has the corporate authority to make and perform this Agreement and each other Transaction Document to which it is a party. This Agreement and each Transaction Document to which such PPL Electric Party is a party has been duly executed and delivered by such PPL Electric Party.

(b)    Legality; Etc. This Agreement and each other Transaction Document to which it is a party constitute the legal, valid and binding obligations of such PPL Electric Party, in each case enforceable against such PPL Electric Party in accordance with their terms except to the extent limited by (i) bankruptcy, insolvency, fraudulent conveyance or reorganization laws, or by other laws relating to or affecting the enforceability of creditors' rights generally and by general equitable principles which may limit the right to obtain equitable remedies regardless of whether enforcement is considered in a proceeding of law or equity or (ii) any applicable public policy on enforceability of provisions relating to contribution and indemnification.

(c)    Authority; No Conflict. The execution, delivery and performance by such PPL Electric Party of this Agreement and each other Transaction Document to which it is a party have been duly authorized by all necessary corporate or other action and (i) do not violate any provision of law or regulation, or any decree, order, writ or judgment, (ii) do not violate any provision of its articles of incorporation or by-laws, or (iii) result in the breach of or constitute a default under any indenture or other agreement or instrument to which it is a party and do not result in the creation of or imposition of any Adverse Claim (other than as created by the Transaction Documents) on any of the assets of such PPL Electric Party or its Subsidiaries, except, in any such case, where such contravention could not reasonably be expected to have a Material Adverse Effect. No transaction contemplated hereby requires compliance with any bulk sales act or similar law.

(d)    Governmental Approvals. No authorization, consent or approval from any Governmental Authority is required for the execution, delivery and performance by such PPL Electric Party of this Agreement and the other Transaction Documents to which it is a party, except such authorizations, consents and approvals, including, without limitation, the PUC Order, as have been obtained prior to the date hereof and are in full force and effect.

(e)    Litigation. No litigation, arbitration or administrative proceeding against Borrower is pending, or to Borrower's knowledge, threatened, which, if adversely determined, could reasonably be expected to have a Material Adverse Effect. Except as disclosed in or contemplated by PPL Electric's Form 10-K Report to the SEC for the year ended December 31, 2003, or in any subsequent Form 10-K, 10-Q or 8-K Report or otherwise furnished in writing to the Agent, no litigation, arbitration or administrative proceeding against PPL Electric is pending, or to PPL Electric's knowledge, threatened, which would materially and adversely affect the ability of the Borrower to perform any of its obligations under this Agreement or the other Transaction Documents. There is no litigation, arbitration or administrative proceeding pending, or to the knowledge of such PPL Electric Party, threatened, which could have a material adverse effect on the legality, validity or enforceability of the Agreement or the other Transaction Documents to which it is a party, on the Agent's security interest, for the benefit of the Secured Parties, in the Receivables generally or in any significant portion of the Receivables, the Related Security or the Collections with respect thereto, or the collectability of the Receivables generally or of any material portion of the Receivables.

(f)    Accuracy of Information. All information, certificates and statements heretofore furnished by such PPL Electric Party or any of its Affiliates to the Agent or the Lenders for purposes of or in connection with this Agreement, any of the other Transaction Documents or any transaction contemplated hereby or thereby, taken as a whole, and all such information, certificates and statements hereafter so furnished and taken as a whole, will be true, complete and accurate in all material respects on the date such information is stated or certified, except to the extent such information is stated to be as of an earlier date, and does not and will not contain any material misstatement of fact or omit to state a material fact or any fact necessary to make the statements contained therein not misleading in light of the circumstances under which such information was furnished; provided, however, that to the extent any such information was based upon or constitutes a forecast or projection, such PPL Electric Party represents only that it acted in good faith and utilized reasonable assumptions and due care in the preparation of such information.

(g)    No Violation. No part of the proceeds of any Advance hereunder will be used directly or indirectly for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or for any other purpose which violates, or which conflicts with, the provisions of Regulation U or X of said Board of Governors. Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of extending credit for the purpose of purchasing or carrying any such "margin stock".

(h)    Good Title. Borrower is the legal and beneficial owner of the Receivables and Related Security with respect thereto, free and clear of any Adverse Claim, except as created by the Transaction Documents. There have been duly filed all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect Borrower's ownership interest in each Receivable, its Collections and the Related Security.

(i)    Perfection. This Agreement is effective to create a valid security interest in favor of the Agent for the benefit of the Secured Parties in the Collateral to secure payment of the Obligations, free and clear of any Adverse Claim except as created by the Transactions Documents. All actions necessary under the UCC (or any comparable law) of all appropriate jurisdictions have been taken, including, without limitation, the filing of all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect the Agent's (on behalf of the Secured Parties) security interest in the Collateral. Borrower is a "registered organization" as defined in Article 9 of the UCC as in effect in the State of New York (the "NY UCC") and, for purposes of Article 9 of the NY UCC, is "located" in the State of Delaware.

(j)    Places of Business and Locations of Records. The principal places of business and chief executive office of such PPL Electric Party and the offices where it keeps all of its Records are located at the address(es) listed on Exhibit III or such other locations (of which the Agent has been notified in accordance with Section 7.2(a)) in jurisdictions where all action required by Section 14.4(a) has been taken and completed. Borrower's Federal Employer Identification Number is correctly set forth on Exhibit III.

(k)    Collections. The conditions and requirements set forth in Section 8.2 have at all times been satisfied and duly performed. The names, addresses and jurisdictions of organization of all Collection Banks, together with the account numbers of the accounts into which Collections are at any time deposited or held, are listed on Exhibit IV. Except pursuant to PPL Electric's Mortgage and Deed of Trust, dated as of October 1, 1945, and PPL Electric's Indenture, dated as of August 1, 2001, in each case as amended and supplemented from time to time (respectively, the "1945 Mortgage" and the "2001 Mortgage", and collectively, the "PPL Electric Mortgages"), the Servicer has not granted a security interest in any Collection Account to any Person. Except as contemplated by Section 7.2(k) of this Agreement, the Servicer has not granted dominion and control of any Collection Account, or, except for the grants under the PPL Electric Mortgages, the right to take dominion and control of any Collection Account at a future time or upon the occurrence of a future event.

(l)    Material Adverse Effect. The initial Servicer represents and warrants that since December 31, 2003, there has been no change in the business, assets, financial condition or operations of the initial Servicer and its Subsidiaries which materially adversely affects the ability of the initial Servicer to perform its obligations under this Agreement or any other Transaction Document, and Borrower represents and warrants that since the date of this Agreement, there has been no change in the business, assets, financial condition or operations of Borrower which materially adversely affects the ability of Borrower to perform its obligations under this Agreement or any other Transaction Document or the collectability of the Receivables generally or any material portion of the Receivables.

(m)    Names. The name in which Borrower has executed this Agreement is identical to the name of Borrower as indicated on the public record of its state of organization which shows Borrower to have been organized. In the past five (5) years, Borrower has not used any corporate names, trade names or assumed names other than the name in which it has executed this Agreement.

(n)    Ownership of Borrower. PPL Electric owns, directly or indirectly, 100% of the issued and outstanding capital stock of Borrower, free and clear of any Adverse Claim. Such capital stock is validly issued, fully paid and nonassessable, and there are no options, warrants or other rights to acquire securities of Borrower.

(o)    Not a Holding Company or an Investment Company. Such PPL Electric Party is not a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. Such PPL Electric Party is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended.

(p)    Compliance with Laws. Borrower is in compliance with all applicable laws, regulations and orders of any Governmental Authority, domestic or foreign, in respect of the conduct of its business and ownership of its property (including, without limitation, compliance with all applicable ERISA and Environmental Laws and the requirements of any permits issued under such Environmental Laws) except to the extent (i) such compliance is being contested in good faith by appropriate proceedings or (ii) non-compliance could not reasonably be expected to have a Material Adverse Effect. To the knowledge of the Servicer, it is in compliance with all applicable laws, regulations and order of any Governmental Authority, domestic or foreign, in respect of the conduct of its business and ownership of its property (including, without limitation, compliance with all applicable ERISA and Environmental Laws and the requirements of any permits issued under such Environmental Laws) except to the extent (i) such compliance is being contested in good faith by appropriate proceedings or (ii) non-compliance could not reasonably be expected to have a Material Adverse Effect (except with respect to clause (i) of the definition thereof). No Receivable (including any related Contract) contravenes any applicable law, regulation or order of any Governmental Authority, domestic or foreign (including, without limitation, laws, rules and regulations relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy), and no part of such Contract is in violation of any such law, rule or regulation, except where such contravention or violation could not reasonably be expected to have a Material Adverse Effect.

(q)    Compliance with Credit and Collection Practices. Such PPL Electric Party has complied in all material respects with the Credit and Collection Practices with regard to each Receivable and the related Contract, and has not made any change to such Credit and Collection Practices, except in accordance with Section 7.1(a)(vii).

(r)    Payments to Originator. With respect to each Receivable transferred to Borrower under the Receivables Sale Agreement, Borrower has given reasonably equivalent value to Originator in consideration therefor and such transfer was not made for or on account of an antecedent debt. No transfer by Originator of any Receivable under the Receivables Sale Agreement is or may be voidable under any section of the Bankruptcy Reform Act of 1978 (11 U.S.C. §§ 101 et seq.), as amended.

(s)    Enforceability of Contracts. Each Contract with respect to each Receivable is effective to create, and has created, a legal, valid and binding obligation of the related Obligor to pay the Outstanding Balance of the Receivable created thereunder and any accrued interest thereon, enforceable against the Obligor in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

(t)    Eligible Receivables. Each Receivable included in the Net Pool Balance as an Eligible Receivable on the date of any Monthly Report was an Eligible Receivable on such date.

(u)    Borrowing Limit. Immediately after giving effect to each Advance and each settlement on any Settlement Date hereunder, the Aggregate Principal is less than or equal to the Borrowing Limit.

(v)    Accounting. The manner in which such PPL Electric Party accounts for the transactions contemplated by this Agreement and the Receivables Sale Agreement does not adversely affect the conclusions set forth in the bankruptcy opinions delivered to Agent by counsel to the Originator on the Closing Date (or if updated, any such updated opinion).

(w)    Sequestration Powers. The PUC has not taken any action in connection with its sequestration powers under the Competition Act, and the taking of any such action is not reasonably foreseeable, in respect of Borrower, any Affiliate of Borrower or the Collections.

Article VI

Conditions of Advances

Section 6.1    Conditions Precedent to Initial Advance.

The initial Advance under this Agreement is subject to the conditions precedent that the Agent shall have received on or before the date of such Advance those documents listed on Schedule A to the Receivables Sale Agreement and those documents listed on Schedule B to this Agreement, the Rating Agency Condition shall have been satisfied and the Agent shall have received all fees and expenses required to be paid on such date pursuant to the terms of this Agreement and the Fee Letter.

Section 6.2    Conditions Precedent to All Advances.

Each Advance and each rollover or continuation of any Advance shall be subject to the further conditions precedent that the Servicer shall have delivered to the Agent on or prior to the date thereof, in form and substance satisfactory to the Agent, all Monthly Reports as and when due under Section 8.5; the Facility Termination Date shall not have occurred; the Agent shall have received such other approvals, opinions or documents as it may reasonably request; and on the date thereof, the following statements shall be true (and acceptance of the proceeds of such Advance shall be deemed a representation and warranty by Borrower that such statements are then true):

(i)    the representations and warranties set forth in Section 5.1 are true and correct on and as of the date of such Advance (or such Settlement Date, as the case may be), rollover or continuation of any Advance and as of the date of any Purchase by Borrower under the Sale Agreement as though made on and as of such date;

(ii)    no event has occurred and is continuing, or would result from such Advance (or the continuation thereof), that will constitute an Amortization Event, and no event has occurred and is continuing, or would result from such Advance (or the continuation thereof), rollover or continuation of any Advance or any Purchase by Borrower under the Sale Agreement, that would constitute an Unmatured Amortization Event; and

(iii)    after giving effect to such Advance, rollover or continuation of any Advance and any Purchase by Borrower under the Sale Agreement, the Aggregate Principal will not exceed the Borrowing Limit.

Article VII

Covenants

Section 7.1    Affirmative Covenants of the PPL Electric Parties.

Until the Final Payout date, each PPL Electric Party hereby covenants, as to itself, as set forth below:

(a)    Financial Reporting. Such PPL Electric Party will maintain, for itself and each of its Subsidiaries, a system of accounting established and administered in accordance with GAAP, and furnish or cause to be furnished to the Agent:

    (i)    Annual Reporting. Promptly when available and in any event within ten (10) days after the date such information is required to be delivered to the Securities and Exchange Commission (or if not required to be so filed, within ninety (90) days after the close of each of its respective fiscal years), a consolidated balance sheet of each PPL Electric Party as of the end of such fiscal year and the related statements of income and cash flows for such fiscal year (which in the case of any such statements of income and cash flows relating to PPL Electric may be on a consolidated basis) and (i) in the case of PPL Electric, shall be accompanied by an opinion thereon by independent public accountants of recognized national standing, which opinion shall state that such financial statements present fairly the financial position of PPL Electric as of the date of such financial statements and the results of its operations for the period covered by such financial statements in conformity with GAAP applied on a consistent basis and (ii) in the case of the Borrower, shall be accompanied by a certification by its principal financial or accounting officer that such financial statements present fairly the financial position of the Borrower as of the date of such financial statements and the results of its operations for the period covered by such financial statements in conformity with GAAP applied on a consistent basis.

    (ii)    Quarterly Reporting. Promptly when available and in any event within ten (10) days after the date required to be delivered to the Securities and Exchange Commission (or if not required to be so filed, within forty-five (45) days after the close of the first three (3) quarterly periods of each of its respective fiscal years), consolidated balance sheets of each of the PPL Electric Parties as at the close of each of the first three (3) quarterly periods of each fiscal year of each of the PPL Electric Parties and the related statements of income and cash flows for each such Person (which in the case of any such statements of income and cash flows relating to PPL Electric may be on a consolidated basis) for the period from the beginning of such fiscal year to the end of such quarter, all certified (subject to normal year-end audit adjustments) as to fairness of presentation, GAAP and consistency by its respective principal financial or accounting officer.

    (iii)    Compliance Certificate. Together with the financial statements required hereunder, a compliance certificate in substantially the form of Exhibit V signed by such PPL Electric Party's Authorized Officer and dated the date of such annual financial statement or such quarterly financial statement, as the case may be.

    (iv)    Shareholders Statements and Reports. Promptly upon the furnishing thereof to the shareholders of such PPL Electric Party, copies of all financial statements, reports and proxy statements so furnished.

    (v)    S.E.C. Filings. Promptly upon the filing thereof, copies of all registration statements and annual, quarterly, monthly or other regular reports which any PPL Electric Party files with the Securities and Exchange Commission.

    (vi)    Copies of Notices. Promptly upon its receipt of any notice, request for consent, financial statements, certification, report or other communication under or in connection with any Transaction Document from any Person other than the Agent or any Lender, copies of the same.

    (vii)    Change in Credit and Collection Practices. At least thirty (30) days prior to the effectiveness of any change in or amendment to the Credit and Collection Practices which in any such case would be reasonably likely to adversely affect the collectability of the Receivables or decrease the credit quality of any newly created Receivables, a notice indicating such proposed change or amendment and requesting the Agent's consent thereto.

    (viii)    PUC Filings. Promptly, upon the filing thereof, copies of all notices, requests, reports, statements, financial information, annual reconciliation filings, filings with respect to the ITC Bonds, the Receivables or the CTC Receivables which it files with, or receives from the PUC.

    (ix)    Other Information. Promptly, from time to time, such other information, documents, Records or reports relating to the Receivables or the condition or operations, financial or otherwise, of such PPL Electric Party as the Agent may from time to time reasonably request in order to protect the interests of the Agent and the Lenders under or as contemplated by this Agreement.

(b)    Notices. Such PPL Electric Party will notify the Agent in writing of any of the following promptly upon learning of the occurrence thereof, describing the same and, if applicable, the steps being taken with respect thereto:

    (i)    Amortization Events or Unmatured Amortization Events. The occurrence of each Amortization Event and each Unmatured Amortization Event, by a statement of an Authorized Officer of such PPL Electric Party.

    (ii)    Material Adverse Effect. The occurrence of any event or condition that has had, or could reasonably be expected to have, a Material Adverse Effect (other than as defined in clause (i) of the definition thereof).

    (iii)    Termination Date. The occurrence of the "Termination Date" under and as defined in the Receivables Sale Agreement.

    (iv)    Notices under Receivables Sale Agreement. Copies of all notices delivered or received by it under the Receivables Sale Agreement.

    (v)    Downgrade of Servicer. The occurrence of any Downgrading Event with respect to the Servicer setting forth the nature of such change.

    (vi)    Amendment to Final Order. The occurrence of any amendment or supplement to the Final Order of the PUC dated August 27, 1998, relating to PPL Electric.

    (vii)    Amendment of PPL Electric Agreements. The occurrence of any amendment or supplement to or modification of the Five-Year Credit Agreement or the ITC Bond Documents.

    (viii)    Exercise of Sequestration Powers. The taking of any action by the PUC in connection with its sequestration powers under the Competition Act in respect of Borrower or any Affiliate thereof or the Collections.

    (ix)    Purpose for Entering the Transactions. Any change or modification in Borrower's purpose in entering into the transactions contemplated by the Transaction Documents and simultaneously provide a full and complete description of such change or modification, which description shall be true and accurate in all material respects.

    (x)    Accounting Treatment. Any change in either or both the proposed or actual accounting treatment of the transactions contemplated by the Transaction Documents and/or the effects that the transactions contemplated by the Transaction Documents will have on the financial statements of Borrower or any Affiliate thereof.

    (xi)    Correspondence Regarding Collection Curves. Copies of all correspondence between third parties (other than accountants, legal advisors and consultants) and any PPL Electric Party relating to the Collection Curves including, without limitation, the finalized Collection Curves for each year this Agreement is in effect.

(c)    Compliance with Laws and Preservation of Corporate Existence. Such PPL Electric Party will comply with all applicable laws, regulations and orders of any Governmental Authority, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including, without limitation, compliance with all applicable ERISA and Environmental Laws and the requirements of any permits issued under such Environmental Laws), except to the extent (i) such compliance is being contested in good faith by appropriate proceedings or (ii) non-compliance could not reasonably be expected to have a Material Adverse Effect. Such PPL Electric Party will preserve, renew and keep in full force and effect their respective corporate (or other entity) existence and their respective rights, franchises and privileges necessary or material to the normal conduct of business, except, in each case, where the failure to do so could not reasonably be expected to have a Material Adverse Effect.

(d)    Audits. Such PPL Electric Party will furnish within a reasonable time to the Agent from time to time such information with respect to it and the Receivables as the Agent may reasonably request; provided, however, it is understood that certain consumer information related to the Receivables and the servicing thereof shall not be available for review by the Agent in accordance with Section 54.8 of the Pennsylvania Public Utility Commission Regulations. Such PPL Electric Party will, from time to time during regular business hours as requested by the Agent upon reasonable notice and at the sole cost of such PPL Electric Party, permit the Agent, or its agents or representatives (and shall cause each Originator to permit the Agent or its agents or representatives): to examine and make copies of and abstracts from all Records in the possession or under the control of such Person relating to the Collateral, including, without limitation, the related Contracts (it is understood that certain consumer information related to the Receivables and the servicing thereof shall not be available for review by the Agent in accordance with Section 54.8 of the Pennsylvania Public Utility Commission Regulations), and to visit the offices and properties of such Person for the purpose of examining such materials described in clause (i) above, and to discuss matters relating to such Person's financial condition or the Collateral or any Person's performance under any of the Transaction Documents or any Person's performance under the Contracts and, in each case, with any of the officers or employees of Borrower or the Servicer having knowledge of such matters (each of the foregoing examinations and visits, a "Review"); provided, however, that, so long as no Amortization Event or Downgrading Event with respect any PPL Electric Party has occurred and is continuing, the PPL Electric Parties shall only be responsible for the costs and expenses of one (1) Review in any one calendar year, and the Agent will not request more than four (4) Reviews in any one calendar year.

(e)    Keeping and Marking of Records and Books.

    (i)    The Servicer will (and will cause each Originator to) maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the immediate identification of each new Receivable and all Collections of and adjustments to each existing Receivable). The Servicer will (and will cause each Originator to) give the Agent notice of any material change in the administrative and operating procedures referred to in the previous sentence.

    (ii)    Such PPL Electric Party will (and will cause each Originator to): on or prior to the date hereof, mark its master data processing records and other books and records relating to the Loans with a legend, acceptable to the Agent, describing the Agent's security interest in the Collateral and upon the request of the Agent within a reasonable time following the occurrence of an Amortization Event: mark each Contract with a legend describing the Agent's security interest and deliver to the Agent all Contracts (including, without limitation, all multiple originals of any such Contract constituting an instrument) relating to the Receivables.

(f)    Compliance with Contracts and Credit and Collection Practices. Such PPL Electric Party will (and will cause Originator to) timely and fully perform and comply with all provisions, covenants and other promises required to be observed by it under the Contracts related to the Receivables, and comply in all material respects with the Credit and Collection Practices in regard to each Receivable and the related Contract.

(g)    Performance and Enforcement of Receivables Sale Agreement. Borrower will, and will require Originator to, perform each of their respective obligations and undertakings under and pursuant to the Receivables Sale Agreement, will purchase Receivables thereunder in strict compliance with the terms thereof and will vigorously enforce the rights and remedies accorded to Borrower under the Receivables Sale Agreement. Borrower will take all actions to perfect and enforce its rights and interests (and the rights and interests of the Agent and the Lenders as assignees of Borrower) under the Receivables Sale Agreement as the Agent may from time to time reasonably request, including, without limitation, making claims to which it may be entitled under any indemnity, reimbursement or similar provision contained in the Receivables Sale Agreement.

(h)    Ownership. Borrower will (or will cause Originator to) take all necessary action to vest legal and equitable title to the Collateral purchased under the Receivables Sale Agreement irrevocably in Borrower, free and clear of any Adverse Claims (other than Adverse Claims in favor of the Agent, for the benefit of the Secured Parties) including, without limitation, the filing of all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect Borrower's interest in such Collateral and such other action to perfect, protect or more fully evidence the interest of Borrower therein as the Agent may reasonably request), and establish and maintain, in favor of the Agent, for the benefit of the Secured Parties, a valid and perfected first priority security interest in all Collateral, free and clear of any Adverse Claims, including, without limitation, the filing of all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect the Agent's (for the benefit of the Secured Parties) security interest in the Collateral and such other action to perfect, protect or more fully evidence the interest of the Agent for the benefit of the Secured Parties as the Agent may reasonably request.

(i)    Lenders' Reliance. Borrower acknowledges that the Lenders are entering into the transactions contemplated by this Agreement in reliance upon Borrower's identity as a legal entity that is separate from Originator. Therefore, from and after the date of execution and delivery of this Agreement, Borrower shall take all reasonable steps, including, without limitation, all steps that the Agent or any Lender may from time to time reasonably request, to maintain Borrower's identity as a separate legal entity and to make it manifest to third parties that Borrower is an entity with assets and liabilities distinct from those of Originator and any Affiliates thereof (other than Borrower) and not just a division of Originator or any such Affiliate. Without limiting the generality of the foregoing and in addition to the other covenants set forth herein, Borrower will:

    (i)    hold itself out as a separate entity, conduct its own business in its own name and require that all full-time employees of Borrower, if any, identify themselves as such and not as employees of Originator (including, without limitation, by means of providing appropriate employees with business or identification cards identifying such employees as Borrower's employees) and correct any known misunderstanding regarding its status as a separate entity;

    (ii)    maintain a sufficient number of employees in light of its contemplated business operations and compensate all employees, consultants and agents directly, from Borrower's own funds, for services provided to Borrower by such employees, consultants and agents and, to the extent any employee, consultant or agent of Borrower is also an employee, consultant or agent of Originator or any Affiliate thereof, allocate the compensation of such employee, consultant or agent between Borrower and Originator or such Affiliate, as applicable, on a basis that reflects the services rendered to Borrower and Originator or such Affiliate, as applicable;

    (iii)    clearly identify its offices (by signage or otherwise) as its offices and, if such office is located in the offices of Originator, Borrower shall lease such office at a fair market rent;

    (iv)    have separate stationery, invoices and checks in its own name;

    (v)    conduct all transactions with Originator and the Servicer (including, without limitation, any delegation of its obligations hereunder as Servicer) strictly on an arm's-length basis, allocate all overhead expenses (including, without limitation, telephone and other utility charges) for items shared between Borrower and Originator on the basis of actual use to the extent practicable and, to the extent such allocation is not practicable, on a basis reasonably related to actual use;

    (vi)    at all times have a Board of Directors consisting of at least three (3) members, at least one (1) member of which is an Independent Director;

    (vii)    observe all corporate formalities as a distinct entity, and ensure that all corporate actions relating to the selection, maintenance or replacement of the Independent Director, the dissolution or liquidation of Borrower or the initiation of, participation in, acquiescence in or consent to any bankruptcy, insolvency, reorganization or similar proceeding involving Borrower, are duly authorized by unanimous vote of its Board of Directors (including the Independent Director);

    (viii)    maintain Borrower's books and records separate from those of any other Person or entity and otherwise readily identifiable as its own assets rather than assets of any other Person or entity;

    (ix)    prepare its financial statements separately from those of Originator and insure that any consolidated financial statements of Originator or any Affiliate thereof that include Borrower and that are filed with the Securities and Exchange Commission or any other governmental agency have notes clearly stating that Borrower is a separate corporate entity and that its assets will be available first and foremost to satisfy the claims of the creditors of Borrower;

    (x)    except as herein specifically otherwise provided, maintain the funds or other assets of Borrower separate from, and not commingled with, those of Originator or any Affiliate thereof and only maintain bank accounts or other depository accounts to which Borrower alone is the account party, into which Borrower alone makes deposits and from which Borrower alone (or the Agent hereunder) has the power to make withdrawals;

    (xi)    pay all of Borrower's operating expenses and other liabilities from Borrower's own assets (except for certain payments by Originator or other Persons pursuant to allocation arrangements that comply with the requirements of this Section 7.1(i));

    (xii)    operate its business and activities such that: it does not engage in any business or activity of any kind, or enter into any transaction or indenture, mortgage, instrument, agreement, contract, lease or other undertaking, other than the transactions contemplated and authorized by this Agreement and the Receivables Sale Agreement; and does not hold out its credit as being available to satisfy the obligations of others, pledge its assets for the benefit of any other entity, make loans or advances to any other entity, acquire obligations or securities of any of its shareholders or otherwise create, incur, guarantee, assume or suffer to exist any indebtedness or other liabilities, whether direct or contingent, other than as a result of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, the incurrence of obligations under this Agreement, the incurrence of obligations, as expressly contemplated in the Receivables Sale Agreement, to make payment to the Originator thereunder for the purchase of Receivables from Originator under the Receivables Sale Agreement, and the incurrence of operating expenses in the ordinary course of business of the type otherwise contemplated by this Agreement;

    (xiii)    maintain its corporate charter in conformity with this Agreement, such that it does not amend, restate, supplement or otherwise modify its Organizational Documents in any respect that would impair its ability to comply with the terms or provisions of any of the Transaction Documents, including, without limitation, Section 7.1(i) of this Agreement;

    (xiv)    maintain the effectiveness of, and continue to perform under the Receivables Sale Agreement, such that it does not amend, restate, supplement, cancel, terminate or otherwise modify the Receivables Sale Agreement, or give any consent, waiver, directive or approval thereunder or waive any default, action, omission or breach under the Receivables Sale Agreement or otherwise grant any indulgence thereunder, without (in each case) the prior written consent of the Agent;

    (xv)    maintain its corporate separateness such that it does not merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions, and except as otherwise contemplated herein) all or substantially all of its assets (whether now owned or hereafter acquired) to, or acquire all or substantially all of the assets of, any Person, nor at any time create, have, acquire, maintain or hold any interest in any Subsidiary;

    (xvi)    maintain at all times the Required Capital Amount and refrain from making any dividend, distribution, redemption of capital stock or payment of any subordinated indebtedness which would cause the Required Capital Amount to cease to be so maintained; and

    (xvii)    take such other actions as are necessary on its part to ensure that the facts and assumptions set forth in the opinion issued by Dewey Ballantine LLP, as counsel for Borrower, in connection with the closing or initial Advance under this Agreement and relating to substantive consolidation issues, and in the certificates accompanying such opinion, remain true and correct in all material respects at all times.

(j)    Taxes. Such PPL Electric Party will file all Federal, state, local and foreign tax returns required to be filed by it and will promptly pay or cause to be paid all taxes shown to be due on such returns and all governmental charges at any time due and owing, except any such taxes or charges that are being contested in good faith by appropriate proceedings and for which such PPL Electric Party shall have set aside on its books appropriate reserves with respect thereto in accordance with GAAP or that would not reasonably be expected to have a Material Adverse Effect. Borrower will pay when due any taxes payable in connection with the Receivables, exclusive of taxes on or measured by income or gross receipts of the Agent or any Lender.

(k)    Payment to Originator. With respect to any Receivable purchased by Borrower from Originator, such sale shall be effected under, and in strict compliance with the terms of, the Receivables Sale Agreement, including, without limitation, the terms relating to the amount and timing of payments to be made to Originator in respect of the purchase price for such Receivable.

Section 7.2    Negative Covenants of the PPL Electric Parties.

Until the Final Payout Date, each PPL Electric Party hereby covenants, as to itself, that:

(a)    Change in Name, Jurisdiction of Organization, Offices and Records. Borrower will not change its name as it appears in official filings in the jurisdiction of its organization, its status as a "registered organization" (within the meaning of Article 9 of any applicable enactment of the UCC) in such jurisdiction, its organizational identification number, if any, issued by its jurisdiction of organization, or its jurisdiction of organization unless it shall have: given the Agent at least forty-five (45) days' prior written notice thereof; at least ten (10) days prior to such change, delivered to the Agent all financing statements, instruments and other documents necessary to continue the perfection and priority of the Agent's interest in the Collateral and/or requested by the Agent in connection with such change or relocation and caused an opinion of counsel acceptable to Agent to be delivered to Agent not later than the effective date of such change, to the effect that Agent's security interest (for the benefit of the Secured Parties) is perfected and of first priority, such opinion to be in form and substance acceptable to Agent in their sole discretion.

(b)    Change of Collection Banks and Collection Accounts. No PPL Electric Party will, or permit Originator to close any Collection Account or open a new bank account and designate the same as a Collection Account, unless the Agent shall have received, at least ten (10) days before the proposed effective date therefor, written notice of such addition, termination or change.

(c)    Modifications to Contracts and Credit and Collection Practices. Except in accordance with Section 7.1(a)(vii), such PPL Electric Party will not, and will not permit Originator to, make any change to the Credit and Collection Practices that could adversely affect the collectability of the Receivables or decrease the credit quality of any newly created Receivables. Except as provided in Section 8.2(d), the Servicer will not, and will not permit Originator to, extend, amend or otherwise modify the terms of any Receivable or any Contract related thereto other than in accordance with the Credit and Collection Practices.

(d)    Sales, Liens. Borrower will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, or create or suffer to exist any Adverse Claim upon (including, without limitation, the filing of any UCC financing statement) or with respect to, any of the Collateral, or assign any right to receive income with respect thereto (other than, in each case, the creation of a security interest therein in favor of the Agent as provided for herein), and Borrower will defend the right, title and interest of the Secured Parties in, to and under any of the foregoing property, against all claims of third parties claiming through or under Borrower or Originator. Except for the grant of the security interest in favor of the trustee pursuant to PPL Electric's Mortgage and Deed of Trust, dated as of October 1, 1945, and PPL Electric's Indenture, dated as of August 1, 2001, in each case as amended and supplemented from time to time (respectively, the "1945 Mortgage" and the "2001 Mortgage"), the Borrower will not grant or suffer to exist a security interest in any Collection Account to any Person.

(e)    Use of Proceeds. Borrower will not use the proceeds of the Advances for any purpose other than paying for Receivables and Related Security under and in accordance with the Receivables Sale Agreement, including without limitation, making payments on the Subordinated Notes to the extent permitted thereunder and under the Receivables Sale Agreement, paying its ordinary and necessary operating expenses when and as due, and (iii) making Restricted Junior Payments to the extent permitted under this Agreement.

(f)    Termination Date Determination. Borrower will not designate the Termination Date, or send any written notice to Originator in respect thereof, without the prior written consent of the Agent, except with respect to the occurrence of such Termination Date arising pursuant to Section 5.1(d) of the Receivables Sale Agreement.

(g)    Restricted Junior Payments. Borrower will not make any Restricted Junior Payment if after giving effect thereto, Borrower's Net Worth would be less than the Required Capital Amount.

(h)    Borrower Indebtedness. Borrower will not incur or permit to exist any Indebtedness or liability on account of deposits except: the Obligations, the Subordinated Loans, and other current accounts payable arising in the ordinary course of business and not overdue.

(i)    Prohibition on Additional Negative Pledges. No PPL Electric Party will enter into or assume any agreement (other than this Agreement and the other Transaction Documents) prohibiting the creation or assumption of any Adverse Claim upon the Collateral except as contemplated by the Transaction Documents, or otherwise prohibiting or restricting any transaction contemplated hereby or by the other Transaction Documents.

(j)    Prohibition on Adverse Claims on Subordinated Note. No PPL Electric Party will enter into or assume any agreement creating any Adverse Claim upon the Subordinated Note.

(k)    Prohibition on Control Agreements. No PPL Electric Party will enter into any agreement giving any Person dominion and control of any Collection Account without the prior consent of the Agent, which consent shall not be unreasonably withheld or delayed; provided that such agreement recognizes (to the Agent's reasonable satisfaction) the rights of the Agent in all Receivables and Related Security and provisions are contained therein that require the timely payment of all proceeds of the Receivables and Related Security to the Agent.

Article VIII

Servicing

Section 8.1    Designation of Servicer.

(a)    The servicing, administration and collection of the Receivables shall be conducted by such Person (the "Servicer") so designated from time to time in accordance with this Section 8.1. PPL Electric is hereby designated as, and hereby agrees to perform the duties and obligations of, the Servicer pursuant to the terms of this Agreement until replaced in accordance with the provisions of this Agreement.

(b)    So long as a Person is acting as the Servicer hereunder, such Person shall be and remain primarily liable to the Agent and the Lenders for the full and prompt performance of all duties and responsibilities of the Servicer hereunder and the Agent and the Lenders shall be entitled to deal exclusively with such Person in matters relating to the discharge by the Servicer of its duties and responsibilities hereunder. The Agent and the Lenders shall not be required to give notice, demand or other communication to any Person other than PPL Electric in order for communication to the Servicer and its sub-servicer or other delegate with respect thereto to be accomplished. The Servicer may not employ agents or delegate to any other Person any of its obligations hereunder except with the prior written consent of the Agent and, in any such case, the Servicer shall be responsible for all actions taken by any sub-servicer or other delegate of the Servicer.

(c)    If (i) any Person is designated to replace PPL Electric as ITC Bonds Servicer under the ITC Bonds Servicing Agreement or (ii) any Governmental Authority shall act to replace PPL Electric as ITC Bonds Servicer or otherwise causes any transfer of all or any portion of the servicing duties or obligations under the ITC Bonds Servicing Agreement of PPL Electric to another Person in such a way as to materially reduce the scope of PPL Electric's duties as ITC Bonds Servicer under the ITC Bond Documents with respect to any of the ITC Receivables, then, such Person shall, provided such Person executes an amendment to this Agreement agreeing to undertake all duties of the Servicer hereunder on substantially the same terms and conditions (subject to such limitations on liability and to such indemnifications as are reasonably acceptable to the Agent and such successor Servicer) as PPL Electric has agreed to act as Servicer hereunder (including, without limitation, with respect to cost and scope of service provided), become the successor Servicer hereunder; provided, however, that if such Person does not so agree, then PPL Electric shall be deemed (effective as of the date such Person is designated as described in clause (i) or (ii) above, as applicable) to have resigned as Servicer hereunder and the Agent shall appoint a successor Servicer acceptable to the Agent. In addition, if the ITC Bond Documents are terminated for any reason (including upon repayment of the ITC Bonds), then, upon the occurrence of a Servicer Default, the Agent may designate as Servicer any Person acceptable to the Agent to succeed PPL Electric as Servicer.

Section 8.2    Duties of Servicer.

(a)    The Servicer shall take or cause to be taken all such actions as may be necessary or advisable to collect each Receivable from time to time, all in accordance with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Practices.

(b)    The Servicer, on a daily basis, shall set aside the Fixed Daily Amount by the close of each Business Day. Prior to each Settlement Date, the Servicer shall identify the Collections received for the applicable Calculation Period and, upon request of any Lender pursuant to Section 8.2(e), the Servicer shall promptly identify the Collections received by it for any given day.

(c)    The Servicer shall administer the Collections in accordance with the procedures described herein and in Article II. The Servicer shall hold in trust for the account of Borrower and the Lenders their respective shares of the Collections in accordance with Article II. The Servicer shall not deposit any Collections into an account other than a Collection Account at any time without the prior written consent of the Agent which consent shall be in the sole discretion of the Agent. Except for the grant of the security interest in favor of the trustee pursuant to PPL Electric's Mortgage and Deed of Trust, dated as of October 1, 1945, and PPL Electric's Indenture, dated as of August 1, 2001, in each case as amended and supplemented from time to time (respectively, the "1945 Mortgage" and the "2001 Mortgage"), the Servicer will not grant a security interest in any Collection Account to any Person.

(d)    The Servicer may, in accordance with the Credit and Collection Practices, extend the maturity of any Receivable or adjust the Outstanding Balance of any Receivable as the Servicer determines to be appropriate to maximize Collections thereof; provided, however, that such extension or adjustment shall not alter the status of such Receivable as a Delinquent Receivable or Defaulted Receivable or limit the rights of the Agent or the Lenders under this Agreement.

(e)    The Servicer shall hold in trust for Borrower and the Lenders all Records that evidence or relate to the Receivables, the related Contracts and Related Security or are otherwise necessary or desirable to collect the Receivables and shall, as soon as practicable upon demand of the Agent, make available to the Agent all such Records. The Servicer shall, subject to the first sentence of Section 8.2(b) hereof, as soon as practicable following receipt thereof turn over to Borrower any cash collections or other cash proceeds in accordance with Article II. The Servicer shall, from time to time at the request of any Lender, furnish to the Lenders (promptly after any such request) a calculation of the amounts identified as Collections pursuant to Article II and Section 8.2(b).

(f)    Any payment by an Obligor in respect of any indebtedness owed by it to Originator, other than indebtedness allocable to the ITC Receivables or the Nuclear Decommissioning Receivables, shall, except as otherwise specified by such Obligor or otherwise required by contract or law and unless otherwise instructed by the Agent, be applied as a Collection of any Receivable of such Obligor (starting with the oldest such Receivable) to the extent of any amounts then due and payable thereunder before being applied to any other receivable or other obligation of such Obligor.

(g)    In the event any payments relating to the Collateral are remitted directly to Borrower or any Affiliate of Borrower, Borrower will remit (or will cause all such payments to be remitted) directly to a Collection Account within two (2) Business Days following receipt thereof, and, at all times prior to such remittance, Borrower will itself hold or, if applicable, will cause such payments to be held in trust for the exclusive benefit of the Agent and the Lenders.

(h)    The Servicer hereby represents and warrants that it is maintaining all Collections solely in its capacity as Servicer, subject at all times to the ownership of the Borrower therein and the security interest therein of the Agent, for the benefit of the Secured Parties, that it retains bare legal title for the convenience of the parties hereto, and that such Collections are not intended to be or constitute property of the estate of the Servicer in any proceeding referenced in the definition of Event of Bankruptcy and are intended to constitute property of the type described in Section 541(d) of the Bankruptcy Code.

Section 8.3    Collections.

From and after the earliest to occur of an Amortization Event, a Downgrading Event with respect to the Servicer, a Servicer Default or a Servicer Replacement Event, the Servicer shall remit or cause to be remitted to the Agent, on each day, all Collections received on such day.

Section 8.4    Responsibilities of PPL Electric Parties.

Anything herein to the contrary notwithstanding, the exercise by the Agent and the Lenders of their rights hereunder shall not release the Servicer, Originator or Borrower from any of their respective duties or obligations with respect to any Receivables or under the related Contracts. The Lenders shall have no obligation or liability with respect to any Receivables or related Contracts, nor shall any of them be obligated to perform the obligations of Borrower.

Section 8.5    Monthly Reports.

The Servicer shall prepare and forward to the Agent on each Monthly Reporting Date (and following the occurrence of any Amortization Event, Servicer Replacement Event, Downgrading Event with respect to the Servicer or a Servicer Default, at any time upon the request of the Agent) a Monthly Report and an electronic file of the data contained therein and at such times as the Agent shall request, a listing by Obligor of all Receivables together with an aging of such Receivables.

Section 8.6    Servicing Fee.

As compensation for the Servicer's servicing activities on their behalf, the Lenders hereby agree to pay the Servicer the Servicing Fee, which fee shall be paid in arrears on each Settlement Date out of Collections.

Article IX

Amortization Events

Section 9.1    Amortization Events.

The occurrence of any one or more of the following events shall constitute an amortization event (each, an "Amortization Event"):

(a)    Any PPL Electric Party shall fail to make any payment or deposit required to be made by it under the Transaction Documents when due and, for any such payment or deposit which is not in respect of principal, such failure continues for three (3) consecutive Business Days.

(b)    Any representation or warranty made by any PPL Electric Party in any Transaction Document to which it is a party or in any other document delivered pursuant thereto shall prove to have been incorrect (or, with respect to the representations and warranties contained in Sections 5.1(a), (c), (d), (g), (j), (k) or (s) hereof, or in Sections 2.1(a), (c), (d), (g), (j), (k) or (s) of the Receivables Sale Agreement, incorrect in any material manner) when made or deemed made.

(c)    Any PPL Electric Party shall fail to perform or observe any covenant contained in Section 7.2 or Section 8.5 when due.

(d)    Any PPL Electric Party shall fail to perform or observe any covenant contained in Section 7.1(a)(vii), Section 7.1(b) or Section 8.3 and such failure shall continue for ten (10) consecutive Business Days following Borrower's receipt of notice of such failure from the Agent or Borrower's actual knowledge of such failure.

(e)    Any PPL Electric Party shall fail to perform or observe any other covenant or agreement under any Transaction Document (other than those referenced in Sections 9.1(a), (c) or (d)) and such failure shall continue for ten (10) consecutive Business Days following Borrower's receipt of notice of such failure from the Agent or for thirty (30) consecutive days following Borrower's actual knowledge of such failure.

(f)    Failure of Borrower to pay any Indebtedness (other than the Obligations) when due or the default by Borrower in the performance of any term, provision or condition contained in any agreement under which any such Indebtedness was created or is governed, the effect of which is to cause, or to permit the holder or holders of such Indebtedness to cause, such Indebtedness to become due prior to its stated maturity; or any such Indebtedness of Borrower shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the date of maturity thereof.

(g)    Failure by the Servicer or PPL Transition Bond Company LLC (i) to pay any principal or interest, regardless of amount, due in respect of any Material Indebtedness beyond any period of grace provided with respect thereto, or (ii) to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Material Indebtedness beyond any period of grace provided with respect thereto if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee on its or their behalf to cause, such Indebtedness to become due prior to its stated maturity

(h)    An Event of Bankruptcy shall occur with respect to any PPL Electric Party or PPL Transition Bond Company LLC.

(i)    As at the end of any Calculation Period:

    (i)    the three-month rolling average Delinquency Ratio shall exceed 6.00%,

    (ii)    the three-month rolling average Default Ratio shall exceed 1.75%, or

    (iii)    the three-month rolling average Dilution Ratio shall exceed 2.25%.

(j)    A Change of Control shall occur.

(k)     One or more final judgments for the payment of money in an aggregate amount of $11,625 or more shall be entered against Borrower or one or more final judgments for the payment of money in an amount in excess of $20,000,000, individually or in the aggregate, shall be entered against the Servicer or PPL Transition Bond Company LLC and such judgment shall not be paid, bonded or otherwise discharged for sixty (60) consecutive days unless such judgment is stayed on appeal or otherwise being appropriately contested in good faith.

(l)    The "Termination Date" under and as defined in the Receivables Sale Agreement shall occur under the Receivables Sale Agreement or Originator shall for any reason cease to transfer, or cease to have the legal capacity to transfer, or otherwise be incapable of transferring Receivables to Borrower under the Receivables Sale Agreement.

(m)    This Agreement shall terminate in whole or in part (except in accordance with its terms), or shall cease to be effective or to be the legally valid, binding and enforceable obligation of Borrower, or any Obligor shall directly or indirectly contest in any manner such effectiveness, validity, binding nature or enforceability, or the Agent for the benefit of the Lenders shall cease to have a valid and perfected first priority security interest in the Collateral.

(n)    On any Settlement Date, after giving effect to the turnover of Collections by the Servicer on such date and the application thereof to the Obligations in accordance with this Agreement, the Aggregate Principal shall exceed the Borrowing Limit.

(o)    [reserved].

(p)    The Internal Revenue Service shall file notice of a lien pursuant to Section 6323 of the Tax Code with regard to any of the Collateral and such lien shall not have been released within seven (7) days, or the PBGC shall, or shall indicate its intention to, file notice of a lien pursuant to Section 4068 of ERISA with regard to any of the Collateral.

(q)    Any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $25,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could reasonably be expected to cause one or more members of the ERISA Group to incur a current payment obligation in excess of $25,000,000.

(r)    Any event shall occur which materially and adversely impairs the ability of Originator to originate Receivables of a credit quality that is at least equal to the credit quality of the Receivables sold or contributed to Borrower on the date of this Agreement or has, or could be reasonably expected to have a Material Adverse Effect (other than as defined in clause (i) of the definition thereof).

(s)    The PUC shall exercise its sequestration powers under the Competition Act with respect to Originator or the Collections.

Section 9.2    Remedies.

Upon the occurrence and during the continuation of an Amortization Event, the Agent may, or upon the direction of the Required Liquidity Banks shall, take any of the following actions: declare the Amortization Date to have occurred, whereupon the Aggregate Commitment shall immediately terminate and the Amortization Date shall forthwith occur, all without demand, protest or further notice of any kind, all of which are hereby expressly waived by each PPL Electric Party; provided, however, that upon the occurrence of an Event of Bankruptcy with respect to any PPL Electric Party, the Amortization Date shall automatically occur, without demand, protest or any notice of any kind, all of which are hereby expressly waived by each PPL Electric Party, exercise all rights and remedies of a secured party upon default under the UCC and other applicable laws, and notify Obligors of the Agent's security interest in the Receivables and other Collateral. The aforementioned rights and remedies shall be without limitation, and shall be in addition to all other rights and remedies of the Agent and the Lenders otherwise available under any other provision of this Agreement, by operation of law, at equity or otherwise, all of which are hereby expressly preserved, including, without limitation, all rights and remedies provided under the UCC, all of which rights shall be cumulative.

Article X

Indemnification

Section 10.1    Indemnities by the PPL Electric Parties.

Without limiting any other rights that the Agent or any Lender may have hereunder or under applicable law, Borrower hereby agrees to indemnify (and pay upon demand to) the Agent, Blue Ridge, each of the Liquidity Banks and each of the respective assigns, officers, directors, agents and employees of the foregoing (each, an "Indemnified Party") from and against any and all damages, losses, claims, taxes, liabilities, costs, expenses and for all other amounts payable, including attorneys' fees (which attorneys may be employees of the Agent or such Lender) and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts") awarded against or incurred by any of them arising out of or as a result of this Agreement or the acquisition, either directly or indirectly, by a Lender of an interest in the Receivables, and the Servicer hereby agrees to indemnify (and pay upon demand to) each Indemnified Party for Indemnified Amounts awarded against or incurred by any of them arising out of the Servicer's activities as Servicer hereunder excluding, however, in all of the foregoing instances under the preceding clauses (a) and (b):

(i)    Indemnified Amounts to the extent a final judgment of a court of competent jurisdiction holds that such Indemnified Amounts resulted from gross negligence or willful misconduct on the part of the Indemnified Party seeking indemnification; or

(ii)    Indemnified Amounts to the extent the same includes losses in respect of Receivables that are uncollectible on account of the insolvency, bankruptcy or lack of creditworthiness of the related Obligor; or

(iii)    taxes imposed by the jurisdiction in which such Indemnified Party's principal executive office is located, on or measured by the overall net income of such Indemnified Party to the extent that the computation of such taxes is consistent with the characterization for income tax purposes of the acquisition by the Lenders of Loans as a loan or loans by the Lenders to Borrower secured by the Receivables, the Related Security, the Collection Accounts and the Collections;

provided, however, that nothing contained in this sentence shall limit the liability of any PPL Electric Party or limit the recourse of the Lenders to any PPL Electric Party for amounts otherwise specifically provided to be paid by such PPL Electric Party under the terms of this Agreement. Without limiting the generality of the foregoing indemnification, Borrower shall indemnify the Agent and the Lenders for Indemnified Amounts (including, without limitation, losses in respect of uncollectible receivables, regardless of whether reimbursement therefor would constitute recourse to Borrower or the Servicer) relating to or resulting from:

(A)    any representation or warranty made by any PPL Electric Party or Originator (or any officers of any such Person) under or in connection with this Agreement, any other Transaction Document or any other information or report delivered by any such Person pursuant hereto or thereto, which shall have been false or incorrect when made or deemed made;

(B)    the failure by Borrower, the Servicer or Originator to comply with any applicable law, rule or regulation with respect to any Receivable or Contract related thereto, or the nonconformity of any Receivable or Contract included therein with any such applicable law, rule or regulation or any failure of Originator to keep or perform any of its obligations, express or implied, with respect to any Contract;

(C)    any failure of Borrower, the Servicer or Originator to perform its duties, covenants or other obligations in accordance with the provisions of this Agreement or any other Transaction Document;

(D)    any products liability, personal injury or damage suit, or other similar claim arising out of or in connection with merchandise, insurance or services that are the subject of any Contract or any Receivable;

(E)    any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the delivery of electricity related to such Receivable or the furnishing or failure to furnish such electricity;

(F)    the commingling of Collections of Receivables with, or deposit in a Collection Account at any time of, other funds;

(G)    any investigation, litigation or proceeding related to or arising from this Agreement or any other Transaction Document, the transactions contemplated hereby, the use of the proceeds of any Advance, the Collateral or any other investigation, litigation or proceeding relating to Borrower, the Servicer or Originator in which any Indemnified Party becomes involved as a result of any of the transactions contemplated hereby;

(H)    any inability to litigate any claim against any Obligor in respect of any Receivable as a result of such Obligor being immune from civil and commercial law and suit on the grounds of sovereignty or otherwise from any legal action, suit or proceeding;

(I)    any failure of Borrower to acquire and maintain legal and equitable title to, and ownership of any of the Collateral from Originator, free and clear of any Adverse Claim (other than as created hereunder); or any failure of Borrower to give reasonably equivalent value to Originator under the Receivables Sale Agreement in consideration of the transfer by Originator of any Receivable, or any attempt by any Person to void such transfer under statutory provisions or common law or equitable action;

(J)    any failure to vest and maintain vested in the Agent for the benefit of the Lenders, or to transfer to the Agent for the benefit of the Secured Parties, a valid first priority perfected security interests in the Collateral, free and clear of any Adverse Claim (except as created by the Transaction Documents);

(K)    the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Collateral, and the proceeds thereof, whether at the time of any Advance or at any subsequent time;

(L)    any action or omission by any PPL Electric Party which reduces or impairs the rights of the Agent or the Lenders with respect to any Collateral or the value of any Collateral;

(M)    any attempt by any Person to void any Advance or the Agent's security interest in the Collateral under statutory provisions or common law or equitable action; and

(N)    the failure of any Receivable included in the calculation of the Net Pool Balance as an Eligible Receivable to be an Eligible Receivable at the time so included.

Section 10.2    Increased Cost and Reduced Return.

If after the date hereof, any Funding Source shall be charged any fee, expense or increased cost on account of the adoption of any applicable law, rule or regulation (including any applicable law, rule or regulation regarding capital adequacy) or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, or compliance with any request or directive (whether or not having the force of law) of any such Governmental Authority (a "Regulatory Change"): that subjects any Funding Source to any charge or withholding on or with respect to any Funding Agreement or a Funding Source's obligations under a Funding Agreement, or on or with respect to the Receivables, or changes the basis of taxation of payments to any Funding Source of any amounts payable under any Funding Agreement (except for changes in the rate of tax on the overall net income of a Funding Source or taxes excluded by Section 10.1) or that imposes, modifies or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of a Funding Source, or credit extended by a Funding Source pursuant to a Funding Agreement or that imposes any other condition the result of which is to increase the cost to a Funding Source of performing its obligations under a Funding Agreement, or to reduce the rate of return on a Funding Source's capital as a consequence of its obligations under a Funding Agreement, or to reduce the amount of any sum received or receivable by a Funding Source under a Funding Agreement or to require any payment calculated by reference to the amount of interests or loans held or interest received by it, then, upon demand by the Agent, Borrower shall pay to the Agent, for the benefit of the relevant Funding Source, such amounts charged to such Funding Source or such amounts to otherwise compensate such Funding Source for such increased cost or such reduction.

Section 10.3    Other Costs and Expenses.

Borrower shall pay to the Agent and Blue Ridge on demand all costs and out-of-pocket expenses in connection with the preparation, execution, delivery and administration of this Agreement, the transactions contemplated hereby and the other documents to be delivered hereunder, including without limitation, the cost of Blue Ridge's auditors auditing the books, records and procedures of Borrower, fees and out-of-pocket expenses of legal counsel for Blue Ridge and the Agent (which such counsel may be employees of Blue Ridge or the Agent) with respect thereto and with respect to advising Blue Ridge and the Agent as to their respective rights and remedies under this Agreement. Borrower shall pay to the Agent on demand any and all costs and expenses of the Agent and the Lenders, if any, including reasonable counsel fees and expenses in connection with the enforcement of this Agreement and the other documents delivered hereunder and in connection with any restructuring or workout of this Agreement or such documents, or the administration of this Agreement following an Amortization Event. Subject to the provisions of Section 10.4, Borrower shall reimburse Blue Ridge on demand for all other costs and expenses incurred by Blue Ridge ("Other Costs"), including, without limitation, the cost of auditing Blue Ridge's books by certified public accountants, the cost of rating the Commercial Paper by independent financial rating agencies, and the reasonable fees and out-of-pocket expenses of counsel for Blue Ridge or any counsel for any shareholder of Blue Ridge with respect to advising Blue Ridge or such shareholder as to matters relating to Blue Ridge's operations.

Section 10.4    Allocations.

Blue Ridge shall allocate the liability for Other Costs among Borrower and other Persons with whom Blue Ridge has entered into agreements to purchase interests in or finance receivables and other financial assets ("Other Customers"). If any Other Costs are attributable to Borrower and not attributable to any Other Customer, Borrower shall be solely liable for such Other Costs. However, if Other Costs are attributable to Other Customers and not attributable to Borrower, such Other Customer shall be solely liable for such Other Costs. All allocations to be made pursuant to the foregoing provisions of this Article X shall be made by Blue Ridge in its sole discretion and shall be binding on Borrower and the Servicer.

Article XI

The Agent

Section 11.1    Authorization and Action.

Each Lender hereby designates and appoints Wachovia to act as its agent under the Transaction Documents and under the Liquidity Agreement, and authorizes the Agent to take such actions as agent on its behalf and to exercise such powers as are delegated to the Agent by the terms of the Liquidity Agreement or the Transaction Documents, together with such powers as are reasonably incidental thereto. The Agent shall not have any duties or responsibilities, except those expressly set forth in the Liquidity Agreement or in any Transaction Document, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of the Agent shall be read into the Liquidity Agreement or any Transaction Document or otherwise exist for the Agent. In performing its functions and duties under the Liquidity Agreement and the Transaction Documents, the Agent shall act solely as agent for the Lenders and does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for any PPL Electric Party or any of such PPL Electric Party's successors or assigns. The Agent shall not be required to take any action that exposes the Agent to personal liability or that is contrary to the Liquidity Agreement or any Transaction Document or applicable law. The appointment and authority of the Agent hereunder shall terminate upon the indefeasible payment in full of all Obligations. Each Lender hereby authorizes the Agent to file each of the UCC financing statements on behalf of such Lender.

Section 11.2    Delegation of Duties.

The Agent may execute any of its duties under the Liquidity Agreement and each Transaction Document by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care.

Section 11.3    Exculpatory Provisions.

Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action lawfully taken or omitted to be taken by it or them under or in connection with the Liquidity Agreement or any Transaction Document (except for its, their or such Person's own gross negligence or willful misconduct), or responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any PPL Electric Party contained in the Liquidity Agreement, any Transaction Document or any certificate, report, statement or other document referred to or provided for in, or received under or in connection with, any Transaction Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of the Liquidity Agreement or any Transaction Document or any other document furnished in connection therewith, or for any failure of any PPL Electric Party to perform its obligations under any Transaction Document, or for the satisfaction of any condition specified in Article VI, or for the perfection, priority, condition, value or sufficiency of any collateral pledged in connection herewith. The Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements or covenants contained in, or conditions of, any Transaction Document, or to inspect the properties, books or records of the PPL Electric Parties. The Agent shall not be deemed to have knowledge of any Amortization Event or Unmatured Amortization Event unless the Agent has received notice from a PPL Electric Party or a Lender.

Section 11.4    Reliance by Agent.

The Agent shall in all cases be entitled to rely, and shall be fully protected in relying, upon any document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to Borrower), independent accountants and other experts selected by the Agent. The Agent shall in all cases be fully justified in failing or refusing to take any action under the Liquidity Agreement or any Transaction Document unless it shall first receive such advice or concurrence of Blue Ridge or the Required Liquidity Banks or all of the Lenders, as applicable, as it deems appropriate and it shall first be indemnified to its satisfaction by the Lenders, provided, that unless and until the Agent shall have received such advice, the Agent may take or refrain from taking any action, as the Agent shall deem advisable and in the best interests of the Lenders. The Agent shall in all cases be fully protected in acting, or in refraining from acting, in accordance with a request of Blue Ridge or the Required Liquidity Banks or all of the Lenders, as applicable, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders.

Section 11.5    Non-Reliance on Agent and Other Lenders.

Each Lender expressly acknowledges that neither the Agent, nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Agent hereafter taken, including, without limitation, any review of the affairs of any PPL Electric Party, shall be deemed to constitute any representation or warranty by the Agent. Each Lender represents and warrants to the Agent that it has and will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of Borrower and made its own decision to enter into the Liquidity Agreement, the Transaction Documents and all other documents related thereto.

Section 11.6    Reimbursement and Indemnification.

The Liquidity Banks agree to reimburse and indemnify the Agent and its officers, directors, employees, representatives and agents ratably according to their Pro Rata Shares, to the extent not paid or reimbursed by the PPL Electric Parties for any amounts for which the Agent, acting in its capacity as Agent, is entitled to reimbursement by the PPL Electric Parties hereunder and for any other expenses incurred by the Agent, in its capacity as Agent and acting on behalf of the Lenders, in connection with the administration and enforcement of the Liquidity Agreement and the Transaction Documents.

Section 11.7    Agent in its Individual Capacity.

The Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with Borrower or any Affiliate of Borrower as though the Agent were not the Agent hereunder. With respect to the making of Loans pursuant to this Agreement, the Agent shall have the same rights and powers under the Liquidity Agreement and this Agreement in its individual capacity as any Lender and may exercise the same as though it were not the Agent, and the terms "Liquidity Bank," "Lender," "Liquidity Banks" and "Lenders" shall include the Agent in its individual capacity.

Section 11.8    Successor Agent.

The Agent, upon five (5) days' notice to the PPL Electric Parties and the Lenders, may voluntarily resign and may be removed at any time, with or without cause, by the Required Liquidity Lenders; provided, however, that Wachovia shall not voluntarily resign as the Agent so long as any of the Liquidity Commitments remain in effect or Blue Ridge has any outstanding Loans. If the Agent (other than Wachovia) shall voluntarily resign or be removed as Agent under this Agreement, then the Required Liquidity Lenders during such five-day period shall appoint, from among the remaining Liquidity Banks, a successor Agent, whereupon such successor Agent shall succeed to the rights, powers and duties of the Agent and the term "Agent" shall mean such successor agent, effective upon its appointment, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement. Upon resignation or replacement of any Agent in accordance with this Section 11.8, the retiring Agent shall execute such UCC-3 assignments and amendments, and assignments and amendments of the Liquidity Agreement and the Transaction Documents, as may be necessary to give effect to its replacement by a successor Agent. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article XI and Article X shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement.

Article XII

Assignments; Participations

Section 12.1    Assignments.

(a)    Each of the Agent, the PPL Electric Parties and the Liquidity Banks hereby agrees and consents to the complete or partial assignment by Blue Ridge of all or any portion of its rights under, interest in, title to and obligations under this Agreement to the Liquidity Banks pursuant to the Liquidity Agreement.

(b)    Any Liquidity Bank may at any time and from time to time assign to one or more Eligible Assignees (each, a "Purchasing Liquidity Bank") all or any part of its rights and obligations under this Agreement pursuant to an assignment agreement substantially in the form set forth in Exhibit VII hereto (an "Assignment Agreement") executed by such Purchasing Liquidity Bank and such selling Liquidity Bank; provided, however, that any assignment of a Liquidity Bank's rights and obligations hereunder shall include a pro rata assignment of its rights and obligations under the Liquidity Agreement. The consent of Blue Ridge shall be required prior to the effectiveness of any such assignment. Each assignee of a Liquidity Bank must be an Eligible Assignee and agree to deliver to the Agent, promptly following any request therefor by the Agent or Blue Ridge, an enforceability opinion in form and substance satisfactory to the Agent and Blue Ridge. Upon delivery of an executed Assignment Agreement to the Agent, such selling Liquidity Bank shall be released from its obligations hereunder and under the Liquidity Agreement to the extent of such assignment. Thereafter the Purchasing Liquidity Bank shall for all purposes be a Liquidity Bank party to this Agreement and the Liquidity Agreement and shall have all the rights and obligations of a Liquidity Bank hereunder and thereunder to the same extent as if it were an original party hereto and thereto and no further consent or action by Borrower, the Lenders or the Agent shall be required.

(c)    Each of the Liquidity Banks agrees that in the event that it shall become a Downgraded Liquidity Bank, such Downgraded Liquidity Bank shall be obliged, at the request of Blue Ridge or the Agent, to collateralize its Commitment and its Liquidity Commitment in a manner acceptable to the Agent, or assign all of its rights and obligations hereunder and under the Liquidity Agreement to an Eligible Assignee nominated by the Agent or a PPL Electric Party and acceptable to Blue Ridge and willing to participate in this Agreement and the Liquidity Agreement through the Liquidity Termination Date in the place of such Downgraded Liquidity Bank; provided that the Downgraded Liquidity Bank receives payment in full, pursuant to an Assignment Agreement, of an amount equal to such Liquidity Bank's Pro Rata Share of the Obligations owing to the Liquidity Banks.

(d)    No PPL Electric Party may assign any of its rights or obligations under this Agreement without the prior written consent of the Agent and each of the Lenders and without satisfying the Rating Agency Condition.

Section 12.2    Participations.

Any Liquidity Bank may, in the ordinary course of its business at any time sell to one or more Persons (each, a "Participant") participating interests in its Pro Rata Share of the Aggregate Commitment, its Loans, its Liquidity Commitment or any other interest of such Liquidity Bank hereunder or under the Liquidity Agreement. Notwithstanding any such sale by a Liquidity Bank of a participating interest to a Participant, such Liquidity Bank's rights and obligations under this Agreement and the Liquidity Agreement shall remain unchanged, such Liquidity Bank shall remain solely responsible for the performance of its obligations hereunder and under the Liquidity Agreement, and the PPL Electric Parties, Blue Ridge and the Agent shall continue to deal solely and directly with such Liquidity Bank in connection with such Liquidity Bank's rights and obligations under this Agreement and the Liquidity Agreement. Each Liquidity Bank agrees that any agreement between such Liquidity Bank and any such Participant in respect of such participating interest shall not restrict such Liquidity Bank's right to agree to any amendment, supplement, waiver or modification to this Agreement, except for any amendment, supplement, waiver or modification described in Section 14.1(b)(i).

Article XIII

Security Interest

Section 13.1    Grant of Security Interest.

To secure the due and punctual payment of the Obligations, whether now or hereafter existing, due or to become due, direct or indirect, or absolute or contingent, including, without limitation, all Indemnified Amounts, in each case pro rata according to the respective amounts thereof, Borrower hereby grants to the Agent, for the benefit of the Secured Parties, a security interest in all assets of Borrower, including, without limitation, all of Borrower's right, title and interest, whether now owned and existing or hereafter arising in and to all of the Receivables, the Related Security, the Collections and all proceeds of the foregoing, subject to Permitted Claims (collectively, the "Collateral").

Section 13.2    Termination after Final Payout Date.

Each of the Secured Parties hereby authorizes the Agent, and the Agent hereby agrees, promptly after the Final Payout Date to execute and deliver to Borrower such UCC termination statements as may be necessary to terminate the Agent's security interest in and lien upon the Collateral, all at Borrower's expense. Upon the Final Payout Date, all right, title and interest of the Agent and the other Secured Parties in and to the Collateral shall terminate.

Article XIV

Miscellaneous

Section 14.1     Waivers and Amendments.

(a)    No failure or delay on the part of the Agent or any Lender in exercising any power, right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other further exercise thereof or the exercise of any other power, right or remedy. The rights and remedies herein provided shall be cumulative and nonexclusive of any rights or remedies provided by law. Any waiver of this Agreement shall be effective only in the specific instance and for the specific purpose for which given.

(b)    No provision of this Agreement may be amended, supplemented, modified or waived except in writing in accordance with the provisions of this Section 14.1(b). Blue Ridge, Borrower and the Agent, at the direction of the Required Liquidity Banks, may enter into written modifications or waivers of any provisions of this Agreement, provided, however, that no such modification or waiver shall:

    (i)    without the consent of each affected Lender, extend the Liquidity Termination Date or the date of any payment or deposit of Collections by Borrower or the Servicer, reduce the rate or extend the time of payment of Interest or any CP Costs (or any component of Interest or CP Costs), reduce any fee payable to the Agent for the benefit of the Lenders, except pursuant to Article XIII hereof, change the amount of the principal of any Lender, any Liquidity Bank's Pro Rata Share or any Liquidity Bank's Commitment, amend, modify or waive any provision of the definition of Required Liquidity Banks or this Section 14.1(b), consent to or permit the assignment or transfer by Borrower of any of its rights and obligations under this Agreement, change the definition of "Eligible Receivable," "Loss Reserve," "Dilution Reserve," "Yield Reserve," "Servicing Reserve," "Servicing Fee Rate," "Required Reserve" or "Required Reserve Factor Floor" or amend or modify any defined term (or any defined term used directly or indirectly in such defined term) used in clauses (A) through (G) above in a manner that would circumvent the intention of the restrictions set forth in such clauses; or

    (ii)    without the written consent of the then Agent, amend, modify or waive any provision of this Agreement if the effect thereof is to affect the rights or duties of such Agent,

and any material amendment, waiver or other modification of this Agreement shall require satisfaction of the Rating Agency Condition. Notwithstanding the foregoing, without the consent of the Liquidity Banks, but with the consent of Borrower, the Agent may amend this Agreement solely to add additional Persons as Liquidity Banks hereunder and the Agent, the Required Liquidity Banks and Blue Ridge may enter into amendments to modify any of the terms or provisions of Article XI, Article XII, Section 14.13 or any other provision of this Agreement without the consent of Borrower. Any modification or waiver made in accordance with this Section 14.1 shall apply to each of the Lenders equally and shall be binding upon the PPL Electric Parties, the Lenders and the Agent.

Section 14.2    Notices.

Except as provided in this Section 14.2, all communications and notices provided for hereunder shall be in writing (including bank wire, telecopy or electronic facsimile transmission or similar writing) and shall be given to the other parties hereto at their respective addresses or facsimile numbers set forth on the signature pages hereof or at such other address or facsimile number as such Person may hereafter specify for the purpose of notice to each of the other parties hereto. Each such notice or other communication shall be effective if given by facsimile, upon the receipt thereof, if given by mail, three (3) Business Days after the time such communication is deposited in the mail with first class postage prepaid or if given by any other means, when received at the address specified in this Section 14.2. Borrower hereby authorizes the Agent to effect Advances and Interest Period and Interest Rate selections based on telephonic notices made by any Person whom the Agent in good faith believes to be acting on behalf of Borrower. Borrower agrees to deliver promptly to the Agent a written confirmation of each telephonic notice signed by an authorized officer of Borrower; provided, however, the absence of such confirmation shall not affect the validity of such notice. If the written confirmation differs from the action taken by the Agent, the records of the Agent shall govern absent manifest error.

Section 14.3    Ratable Payments.

If any Lender, whether by setoff or otherwise, has payment made to it with respect to any portion of the Obligations owing to such Lender (other than payments received pursuant to Section 10.2 or Section 10.3 ) in a greater proportion than that received by any other Lender entitled to receive a ratable share of such Obligations, such Lender agrees, promptly upon demand, to purchase for cash without recourse or warranty a portion of such Obligations held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of such Obligations; provided that if all or any portion of such excess amount is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest.

Section 14.4    Protection of Agent's Security Interest.

(a)    Borrower hereby authorizes the filing of each of the financing statements provided for in Schedule B hereto. Borrower agrees that from time to time, at its expense, it will promptly authorize and deliver all instruments and documents, and take all actions, that may be necessary or desirable, or that the Agent may request, to perfect, protect or more fully evidence the Agent's security interest in the Collateral, or to enable the Agent or Blue Ridge to exercise and enforce their rights and remedies hereunder. At any time, the Agent may, or the Agent may direct Borrower or the Servicer to, notify the Obligors of Receivables, at Borrower's expense, of the security interests of the Agent under this Agreement and may also direct that payments of all amounts due or that become due under any or all Receivables be made directly to the Agent or its designee. Borrower or the Servicer (as applicable) shall, at the Agent's request, withhold the identities of the Agent and the Lenders in any such notification.

(b)    If any PPL Electric Party fails to perform any of its obligations hereunder, the Agent or any Lender may (but shall not be required to) perform, or cause performance of, such obligations, and the Agent's or such Lender's costs and expenses incurred in connection therewith shall be payable by Borrower as provided in Section 10.3. Each of the PPL Electric Parties hereby authorizes the Agent to file UCC financing statements and other filing or recording documents with respect to the Receivables and Related Security (including any amendments thereto, or continuation or termination statements thereof), without the signature or other authorization of such PPL Electric Party, in such form and in such offices as the Agent reasonably determines appropriate to perfect or maintain the perfection of the security interest of the Agent hereunder, acknowledges and agrees that it is not authorized to, and will not, file UCC financing statements or other filing or recording documents with respect to the Receivables or Related Security (including any amendments thereto, or continuation or termination statements thereof), without the express prior written approval by the Agent, consenting to the form and substance of such filing or recording document, and approves, authorizes and ratifies any filings or recordings made by or on behalf of the Agent in connection with the perfection of the security interests in favor of Borrower or the Agent.

Section 14.5    Confidentiality.

(a)    Each PPL Electric Party and each Lender shall maintain and shall cause each of its employees and officers to maintain the confidentiality of this Agreement and the other confidential or proprietary information with respect to the PPL Electric Parties, the Agent and the Lenders and their respective businesses obtained by it or them in connection with the structuring, negotiating and execution of the transactions contemplated herein, except that such PPL Electric Party and such Lender and its officers and employees may disclose such information to such PPL Electric Party's and such Lender's respective external accountants and attorneys and as required by any applicable law or order of any judicial or administrative proceeding.

(b)    Anything herein to the contrary notwithstanding, each PPL Electric Party hereby consents to the disclosure of any nonpublic information with respect to it to the Agent, the Liquidity Banks or Blue Ridge by each other, by the Agent or the Lenders to any prospective or actual assignee or participant of any of them and by the Agent to any rating agency, Commercial Paper dealer or provider of a surety, guaranty or credit or liquidity enhancement to Blue Ridge and to any officers, directors, employees, outside accountants and attorneys of any of the foregoing, provided that each such Person is informed of the confidential nature of such information. In addition, the Lenders and the Agent may disclose any such nonpublic information pursuant to any law, rule, regulation, direction, request or order of any judicial, administrative or regulatory authority or proceedings (whether or not having the force or effect of law).

Section 14.6    Bankruptcy Petition.

Borrower, the Servicer, the Agent and each Liquidity Bank hereby covenants and agrees that, prior to the date that is one year and one day after the payment in full of all outstanding senior indebtedness of Blue Ridge, it will not institute against, or join any other Person in instituting against, Blue Ridge any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States.

Section 14.7    Limitation of Liability.

Except with respect to any claim arising out of the willful misconduct or gross negligence of Blue Ridge, the Agent or any Liquidity Bank, no claim may be made by any PPL Electric Party or any other Person against Blue Ridge, the Agent or any Liquidity Bank or their respective Affiliates, directors, officers, employees, attorneys or agents for any special, indirect, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement, or any act, omission or event occurring in connection therewith; and each PPL Electric Party hereby waives, releases, and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.

Section 14.8    CHOICE OF LAW.

THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW.

Section 14.9    CONSENT TO JURISDICTION.

EACH PARTY TO THIS AGREEMENT HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT EXECUTED BY SUCH PERSON PURSUANT TO THIS AGREEMENT, AND EACH SUCH PARTY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST ANY PPL ELECTRIC PARTY IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY ANY PPL ELECTRIC PARTY AGAINST THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY DOCUMENT EXECUTED BY SUCH PPL ELECTRIC PARTY PURSUANT TO THIS AGREEMENT SHALL BE BROUGHT ONLY IN A COURT IN NEW YORK, NEW YORK.

Section 14.10    WAIVER OF JURY TRIAL.

EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT, ANY DOCUMENT EXECUTED BY ANY PPL ELECTRIC PARTY PURSUANT TO THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR THEREUNDER.

Section 14.11    Integration; Binding Effect; Survival of Terms.

(a)    This Agreement and each other Transaction Document contain the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof superseding all prior oral or written understandings.

(b)    This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns (including any trustee in bankruptcy). This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms and shall remain in full force and effect until terminated in accordance with its terms; provided, however, that the rights and remedies with respect to any breach of any representation and warranty made by any PPL Electric Party pursuant to Article V and the indemnification and payment provisions of Article X, and Section 14.5 and Section 14.6 shall be continuing and shall survive any termination of this Agreement.

Section 14.12    Counterparts; Severability; Section References.

This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Any provisions of this Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Unless otherwise expressly indicated, all references herein to "Article," "Section," "Schedule" or "Exhibit" shall mean articles and sections of, and schedules and exhibits to, this Agreement.

Section 14.13    Wachovia Roles.

Each of the Liquidity Banks acknowledges that Wachovia acts, or may in the future act: as administrative agent for Blue Ridge or any Liquidity Bank, as an issuing and paying agent for the Commercial Paper, to provide credit or liquidity enhancement for the timely payment for the Commercial Paper, and/or to provide other services from time to time for Blue Ridge or any Liquidity Bank (collectively, the "Wachovia Roles"). Without limiting the generality of this Section 14.13, each Liquidity Bank hereby acknowledges and consents to any and all Wachovia Roles and agrees that in connection with any Wachovia Role, Wachovia may take, or refrain from taking, any action that it, in its discretion, deems appropriate, including, without limitation, in its role as administrative agent for Blue Ridge, and the giving of notice of a mandatory purchase pursuant to the Liquidity Agreement.

[signature pages follow]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date hereof.

PPL RECEIVABLES CORPORATION

By:                                      
Name:
Title:

Address:PPL Receivables Corporation

3993 Howard Hughes Parkway

Suite 250

Las Vegas, Nevada 89109

Attention: Christopher J. Monigle

Telephone: (702)-866-2200

Fax: (702)866-2244

PPL ELECTRIC UTILITIES CORPORATION

By:                                      
Name:
Title:

Address:Two North Ninth Street

Allentown, Pennsylvania 18101-1179

Attention: Treasurer

Telephone: (610)774-5987

Fax: (610)774-5235

[additional signatures to follow]

BLUE RIDGE ASSET FUNDING CORPORATION as Attorney-In-Fact

By:                                      
Name:
Title:

Address:Blue Ridge Asset Funding Corporation

c/o Wachovia Bank, National Association

301 South College Street, TW-10

Charlotte, North Carolina 28288

Attention: Douglas R. Wilson

Telephone: (704) 374-2520

Fax: (704) 383-9579

WACHOVIA BANK,

NATIONAL ASSOCIATION,

as a Liquidity Bank and as Agent

By:                                      
Name:
Title:

Address:Wachovia Bank, National Association

191 Peachtree Street, N.E.

22^nd Floor, Mail Code GA8088

Atlanta, Georgia 30303

Attention: John Foxgrover

Telephone: (404) 332-4223

Fax: (404) 332-5152

[end of signatures]

Exhibit I

Definitions

As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

Adjusted Dilution Ratio: At any time, the rolling average of the Dilution Ratio for the 12 Calculation Periods then most recently ended.

Advance: A borrowing hereunder consisting of the aggregate amount of the several Loans made on the same Borrowing Date.

Adverse Claim: A lien, security interest, charge or encumbrance, or other right or claim in, of or on any Person's assets or properties in favor of any other Person, other than any Permitted Claim.

Affiliate: With respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person or any Subsidiary of such Person. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise.

Agent: As defined in the Preamble to this Agreement.

Agent's Account: Account #8735-098787 at Wachovia Bank, National Association, ABA #053100494.

Aggregate Commitment: On any date of determination, the aggregate amount of the Liquidity Banks' Commitments to make Loans hereunder. As of the Closing Date the Aggregate Commitment is $150,000,000.

Aggregate Principal: On any date of determination, the aggregate outstanding principal amount of all Advances outstanding on such date.

Aggregate Reduction: As defined in Section 1.3(b).

Agreement: This Credit and Security Agreement, as it may be amended or modified and in effect from time to time in accordance with the terms hereof.

Alternate Base Rate: For any day, the rate per annum equal to the higher as of such day of the Prime Rate, or one-half of one percent (0.50%) above the Federal Funds Effective Rate. For purposes of determining the Alternate Base Rate for any day, changes in the Prime Rate or the Federal Funds Effective Rate shall be effective on the date of each such change.

Alternate Base Rate Loan: A Loan which bears interest at the Alternate Base Rate or the Default Rate.

Alternate Supplier Charge: Any indebtedness arising out of the sale of electricity to an Obligor by, and owing to, an Energy Supplier other than Originator or any Affiliate of Originator that is invoiced by the Servicer together with the Receivables, and payments in respect of which are remitted by the Servicer to such Energy Supplier.

Amortization Date: The earliest to occur of the day on which any of the conditions precedent set forth in Section 6.2 are not satisfied, the Business Day immediately prior to the occurrence of an Event of Bankruptcy with respect to any PPL Electric Party, the Business Day specified in a written notice from the Agent following the occurrence of any other Amortization Event, and the date which is thirty (30) days after the Agent's receipt of written notice from Borrower that it wishes to terminate the facility evidenced by this Agreement.

Amortization Event: As defined in Article IX.

Applicable Margin: As defined in the Fee Letter.

Assignment Agreement: As defined in Section 12.1(b).

Authorized Officer: With respect to any Person, its president, corporate controller, treasurer, assistant treasurer or chief financial officer.

Blue Ridge: As defined in the Preamble to this Agreement.

Borrower: As defined in the Preamble to this Agreement.

Borrowing Base: On any date of determination, the Net Pool Balance as of the last day of the period covered by the most recent Monthly Report, minus the Required Reserve as of the last day of the period covered by the most recent Monthly Report, and minus Deemed Collections that have occurred since the most recent Cut-Off Date to the extent that such Deemed Collections exceed the Dilution Reserve.

Borrowing Date: A Business Day on which an Advance is made hereunder.

Borrowing Limit: As defined in Section 1.1(a)(i).

Borrowing Notice: As defined in Section 1.2.

Broken Funding Costs: For any CP Rate Loan or LIBO Rate Loan which: in the case of a CP Rate Loan, has its principal reduced without compliance by Borrower with the notice requirements hereunder, in the case of a CP Rate Loan or a LIBO Rate Loan, does not become subject to an Aggregate Reduction following the delivery of any Reduction Notice, in the case of a CP Rate Loan, is assigned under the Liquidity Agreement, or in the case of a LIBO Rate Loan, is terminated or reduced prior to the last day of its Interest Period, an amount equal to the excess, if any, of the CP Costs or Interest (as applicable) that would have accrued during the remainder of the Interest Periods or the tranche periods for Commercial Paper determined by the Agent to relate to such Loan (as applicable) subsequent to the date of such reduction, assignment or termination (or in respect of clause (ii) above, the date such Aggregate Reduction was designated to occur pursuant to the Reduction Notice) of the principal of such Loan if such reduction, assignment or termination had not occurred or such Reduction Notice had not been delivered, over the sum of to the extent all or a portion of such principal is allocated to another Loan, the amount of CP Costs or Interest actually accrued during the remainder of such period on such principal for the new Loan, and to the extent such principal is not allocated to another Loan, the income, if any, actually received during the remainder of such period by the holder of such Loan from investing the portion of such principal not so allocated. In the event that the amount referred to in clause (B) exceeds the amount referred to in clause (A), the relevant Lender or Lenders agree to pay to Borrower the amount of such excess. All Broken Funding Costs shall be due and payable hereunder upon demand.

Business Day: Any day on which banks are not authorized or required to close in New York, New York, Allentown, Pennsylvania or Atlanta, Georgia, and The Depository Trust Company of New York is open for business, and, if the applicable Business Day relates to any computation or payment to be made with respect to the LIBO Rate, any day on which dealings in dollar deposits are carried on in the London interbank market.

Budget Plan Receivable: Any indebtedness arising under any budget billing program whereby the Obligor pays a flat monthly payment for a 12-month period.

Budget Plan Receivable Liability Amount: On any day, the liability maintained by, or that should be maintained in accordance with GAAP, by the Originator in respect of Obligors of Budget Plan Receivables in respect of cumulative overpayments by such Obligors.

Calculation Period: A calendar month.

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

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

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

Collateral: As defined in Section 13.1.

Collection Account: The Facility Account and any account of PPL Electric into which any Collections are at any time deposited.

Collection Bank: At any time, the bank maintaining a Collection Account.

Collection Curve: At any time, the then applicable "collection curve" as defined in the ITC Bond Servicing Agreement.

Collections: With respect to any Receivable, all cash collections and other cash proceeds in respect of such Receivable, including, without limitation, all Finance Charges or other related amounts accruing in respect thereof and all cash proceeds of Related Security with respect to such Receivable.

Commercial Paper: Promissory notes of Blue Ridge issued by Blue Ridge in the commercial paper market.

Commitment: For each Liquidity Bank, the commitment of such Liquidity Bank to make Loans to Borrower hereunder in the event the Blue Ridge elects not to fund any Advance in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Liquidity Bank's name on Schedule A to this Agreement.

Competition Act: The Electricity Generation Customer Choice and Competition Act (66 P.A. C.S. § 2801 et seq.), as amended, and any successor statute thereto.

Contingent Obligation: Of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, including, without limitation, any comfort letter, operating agreement, take-or-pay contract or application for a letter of credit.

Contract: With respect to any Receivable, any and all instruments, agreements, invoices or other writings pursuant to which such Receivable arises or which evidences such Receivable.

CP Costs: For each day, the sum of discount or interest accrued on Pooled Commercial Paper on such day, plus any and all accrued commissions in respect of placement agents and Commercial Paper dealers, and issuing and paying agent fees incurred, in respect of such Pooled Commercial Paper for such day, plus other costs associated with funding small or odd-lot amounts with respect to all receivable financing facilities which are funded by Pooled Commercial Paper for such day, minus any accrual of income net of expenses received on such day from investment of collections received under all receivable financing facilities funded with Pooled Commercial Paper, minus any payment received on such day net of expenses in respect of Broken Funding Costs (or similar costs) related to the prepayment of any investment of Blue Ridge pursuant to the terms of any receivable purchase or financing facilities funded with Pooled Commercial Paper.

CP Rate Loan: For each Loan of Blue Ridge made to Borrower under the Agreement prior to the time, if any, when it is refinanced with a Liquidity Funding pursuant to the Liquidity Agreement, or the occurrence of an Amortization Event and the commencement of the accrual of Interest thereon at the Default Rate.

Credit and Collection Practices: Borrower's credit and collection policies and practices relating to Contracts and Receivables existing on the date hereof and summarized in Exhibit VIII hereto, as modified from time to time in accordance with this Agreement.

CTC Receivables: All indebtedness and other obligations owed to Originator related to or arising out of Originator's recovery of Competitive Transition Charges (as defined in Section 2803 of the Competition Act).

Cut-Off Date: The last day of a Calculation Period.

Days Sales Outstanding: As of any day, an amount equal to the product of 91, multiplied by the amount obtained by dividing the aggregate outstanding balance of Receivables as of the most recent Cut-Off Date, by the aggregate amount of Receivables created during the three (3) Calculation Periods including and immediately preceding such Cut-Off Date.

Deemed Collections: Collections deemed received by Borrower under Section 1.4(a).

Default Horizon Ratio: As of any Cut-Off Date, the ratio (expressed as a decimal) computed by dividing the aggregate sales generated by Originator during the four Calculation Periods ending on such Cut-Off Date, by the Net Pool Balance as of such Cut-off Date.

Default Rate: A rate per annum equal to the sum of the Alternate Base Rate plus 2.00%, changing when and as the Alternate Base Rate changes.

Default Ratio: As of any Cut-Off Date, the ratio (expressed as a percentage) computed by dividing the total amount of Receivables which became Defaulted Receivables during the Calculation Period that includes such Cut-Off Date, by the aggregate sales generated by Originator during the Calculation Period occurring four months prior to the Calculation Period ending on such Cut-Off Date.

Defaulted Receivable: A Receivable: as to which the Obligor thereof has suffered an Event of Bankruptcy; which, consistent with the Credit and Collection Practices, would be written off Borrower's books as uncollectible; or as to which any payment, or part thereof, remains unpaid for 121 days or more from the original invoice date for such payment.

Delinquency Ratio: At any time, a percentage equal to the aggregate Outstanding Balance of all Receivables that were Delinquent Receivables at such time divided by the aggregate Outstanding Balance of all Receivables at such time.

Delinquent Receivable: A Receivable as to which any payment, or part thereof, remains unpaid for 91-120 days from the original invoice date for such payment.

Deposit Receivable: Any indebtedness arising in respect of any obligation of an Obligor to pay a security or other deposit to Originator in respect of the delivery to such Obligor by Originator of any services.

Designated Obligor: An Obligor indicated by the Agent to Borrower in writing.

Dilution: The amount of any reduction or cancellation of the Outstanding Balance of a Receivable as described in Section 1.4(a).

Dilution Horizon Ratio: As of any Cut-off Date, a ratio (expressed as a decimal), computed by dividing the aggregate sales generated by the Originators during the Calculation Period ending on such Cut-Off Date, by the Net Pool Balance as of such Cut-Off Date.

Dilution Ratio: As of any Cut-Off Date, a ratio (expressed as a percentage), computed by dividing the total amount of decreases in Outstanding Balances due to Dilutions during the Calculation Period ending on such Cut-Off Date, by the aggregate sales generated by the Originators during the Calculation Period immediately preceding the Calculation Period ending on such Cut-Off Date.

Dilution Reserve: For any Calculation Period, the product (expressed as a percentage) of:

    (i)    the sum of (A) two (2) times the Adjusted Dilution Ratio as of the immediately preceding Cut-Off Date, plus (B) the Dilution Volatility Component as of the immediately preceding Cut-Off Date, times

    (ii)    the Dilution Horizon Ratio as of the immediately preceding Cut-Off Date.

Dilution Volatility Component: The product (expressed as a percentage) of the difference between the highest three (3)-month rolling average Dilution Ratio over the past 12 Calculation Periods and the Adjusted Dilution Ratio, and a fraction, the numerator of which is equal to the amount calculated in (i)(A) of this definition and the denominator of which is equal to the amount calculated in (i)(B) of this definition.

Downgraded Liquidity Bank: A Liquidity Bank with a rating of its short-term securities lower than (1) A-1 by S&P and (ii) P-1 by Moody's.

Downgrading Event: With respect to any Person means the lowering of the long-term issuer rating or senior secured long-term debt rating of such Person to below BBB- by S&P, or Baa3 by Moody's or the withdrawal by either S&P or Moody's of such rating of such Person.

Dual Month Revenue Adjustment: For each Calculation Period, the aggregate Outstanding Balance of all Receivables, Nuclear Decommissioning Receivables and ITC Receivables generated between the first Business Day of such Calculation Period and the third Business Day of such Calculation Period (both inclusive).

ECP Contract Payments: All fixed monthly payments and any other monies payable to PPL Electric, as seller, for an energy conservation project pursuant to that certain Master Purchase Agreement, dated as of July 1, 1999, between PPL Electric (f/k/a PP&L, Inc.), as seller, and BLC Corporation, as purchaser.

Eligible Assignee: A commercial bank having a combined capital and surplus of at least $250,000,000 with a rating of its (or its holding company's) short-term securities equal to or higher than A-1 by S&P and P-1 by Moody's.

Eligible Receivable: At any time, a Receivable, including, prior to the occurrence of a Downgrading Event with respect to the Servicer, Unbilled Receivables:

    (i)    the Obligor of which if a natural person, is a resident of the United States or, if a corporation or other business organization, is organized under the laws of the United States or any political subdivision thereof and has its chief executive office in the United States; is not an Affiliate of any of the parties hereto; is a government or a governmental subdivision or agency; provided, however, that Receivables as to which the Obligor is a government or a governmental subdivision or agency may account for no more than 10% of the aggregate Outstanding Balance of all Eligible Receivables as of any date of determination; and is not a Designated Obligor,

    (ii)    [reserved],

    (iii)    which is not owing from an Obligor as to which more than 25% of the aggregate Outstanding Balance of all Receivables owing from such Obligor are Defaulted Receivables,

    (iv)    which is not a Delinquent Receivable or a Defaulted Receivable,

    (v)    except for Unbilled Receivables prior to the occurrence of a Downgrading Event with respect to the Servicer, which by its terms is due and payable within thirty (30) days of the original billing date therefor and has not had its payment terms extended more than once,

    (vi)    which is an "account" or "payment intangible" within the meaning of Section 9-102(a)(2), Section 9-102(61) and Section 9-102(a)(11), respectively, of the UCC of all applicable jurisdictions,

    (vii)    which is denominated and payable only in United States dollars in the United States,

    (viii)    which arises under a Contract in substantially the form of one of the form contracts set forth on Exhibit X hereto or otherwise approved by the Agent in writing, which, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the related Obligor enforceable against such Obligor in accordance with its terms subject to no offset, counterclaim or other defense,

    (ix)    which arises under a Contract which does not require the Obligor under such Contract to consent to the transfer, sale, pledge or assignment of the rights and duties of Originator or any of its assignees under such Contract and does not contain a confidentiality provision that purports to restrict the ability of any Lender to exercise its rights under this Agreement, including, without limitation, its right to review the Contract,

    (x)    which arises under a Contract that contains an obligation to pay a specified sum of money, contingent only upon the provision of services by Originator,

    (xi)    which, together with the Contract related thereto, does not contravene in any material way any law, rule or regulation applicable thereto (including, without limitation, any law, rule and regulation relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which no part of the Contract related thereto is in violation of any such law, rule or regulation,

    (xii)    which satisfies all applicable requirements of the Credit and Collection Practices in all material respects,

    (xiii)    which was generated in the ordinary course of Originator's business,

    (xiv)    which arises solely from the delivery of electricity to the related Obligor by Originator, and not by any other Person (in whole or in part),

    (xv)    as to which the Agent has not notified Borrower that the Agent has determined that such Receivable or class of Receivables is not acceptable as an Eligible Receivable, including, without limitation, because such Receivable arises under a Contract that is not acceptable to the Agent,

    (xvi)    which is not subject to any dispute, counterclaim, right of rescission, set-off, counterclaim or any other defense (including defenses arising out of violations of usury laws) of the applicable Obligor against Originator or any other Adverse Claim; provided, however, that if such dispute, offset, counterclaim or defense affects only a portion of the Outstanding Balance of such Receivable, then such Receivable may be deemed an Eligible Receivable to the extent of the portion of such Outstanding Balance which is not so affected, and provided, further, that Receivables of any Obligor which has any accounts payable by Originator or by a wholly-owned Subsidiary of Originator (thus giving rise to a potential offset against such Receivables) may be treated as Eligible Receivables to the extent that the Obligor of such Receivables has agreed pursuant to a written agreement in form and substance satisfactory to the Agent, that such Receivables shall not be subject to such offset,

    (xvii)    as to which Originator has satisfied and fully performed all obligations on its part with respect to such Receivable required to be fulfilled by it, and no further action is required to be performed by any Person with respect thereto other than payment thereon by the applicable Obligor,

    (xviii)    as to which each of the representations and warranties contained in Section 5.1(f), Section 5.1(h), Section 5.1(i), Section 5.1(q), Section 5.1(r), Section 5.1(s) and Section 5.1(t) is true and correct,

    (xix)    all right, title and interest to and in which has been validly transferred by Originator directly to Borrower under and in accordance with the Receivables Sale Agreement, and Borrower has good and marketable title thereto free and clear of any Adverse Claim, and

    (xx)    which is not an Ineligible Receivable.

Energy Supplier: Any Person who is not the Originator.

Environmental Laws: Any and all federal, state and local statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses or other written governmental restrictions relating to the environment or to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or Hazardous Substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or Hazardous Substances or wastes.

ERISA: The Employee Retirement Income Security Act of 1974, as amended from time to time, and any rule or regulation issued thereunder.

ERISA Group: The Originator and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Originator, are treated as a single employer under Section 414(b) or (c) of the Internal Revenue Code.

Event of Bankruptcy: Shall be deemed to have occurred with respect to a Person if either:

    (i)    a case or other proceeding shall be commenced, without the application or consent of such Person, in any court, seeking the liquidation, reorganization, debt arrangement, dissolution, winding up, or composition or readjustment of debts of such Person, the appointment of a trustee, receiver, custodian, liquidator, assignee, sequestrator or the like for such Person or all or substantially all of its assets, or any similar action with respect to such Person under any law relating to bankruptcy, insolvency, reorganization, winding up or composition or adjustment of debts, and such case or proceeding shall continue undismissed, or unstayed and in effect, for a period of sixty (60) consecutive days; or an order for relief in respect of such Person shall be entered in an involuntary case under the federal bankruptcy laws or other similar laws now or hereafter in effect; or

    (ii)    such Person shall commence a voluntary case or other proceeding under any applicable bankruptcy, insolvency, reorganization, debt arrangement, dissolution or other similar law now or hereafter in effect, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee (other than a trustee under a deed of trust, indenture or similar instrument), custodian, sequestrator (or other similar official) for, such Person or for any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall be adjudicated insolvent, or admit in writing its inability to pay its debts generally as they become due, or, if a corporation or similar entity, its board of directors shall vote to implement any of the foregoing.

Facility Account: Borrower's account no. 9-990-011 at Mellon Bank, N.A.

Facility Termination Date: The earlier of the Liquidity Termination Date and the Amortization Date.

Federal Bankruptcy Code: Title 11 of the United States Code entitled "Bankruptcy," as amended and any successor statute thereto.

Federal Funds Effective Rate: For any period, a fluctuating interest rate per annum for each day during such period equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the preceding Business Day) by the Federal Reserve Bank of New York in the Composite Closing Quotations for U.S. Government Securities; or if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 11:30 a.m. (New York time) for such day on such transactions received by the Agent from three federal funds brokers of recognized standing selected by it.

Fee Letter: That certain letter agreement dated as of the date hereof among Borrower, PPL Electric and the Agent, as it may be amended or modified and in effect from time to time.

Final Payout Date: The date on which all Obligations have been paid in full and the Aggregate Commitment has been terminated.

Finance Charges: With respect to a Contract, any finance, interest, late payment charges or similar charges owing by an Obligor pursuant to such Contract.

Five-Year Credit Agreement: That certain Five-Year Credit Agreement, dated as of June 22, 2004, by and among Originator, the Lenders from time to time party thereto, Wachovia Bank, National Association, Barclays Bank PLC, Citibank, N.A., Wachovia Securities, Inc., CitiGroup Global Markets, Inc., JPMorgan Chase Bank and Bank One, N.A., as may be amended from time to time.

Fixed Daily Amount:    An amount equal to the estimated daily collections allocable to the ITC Receivables (which amount shall be determined by the Servicer based upon the Collection Curve and adjusted annually) and the Nuclear Decommissioning Receivables (which amount shall be, with respect to any month, the dollar amount for such month set forth in the amortization schedule attached as Exhibit VI hereto).

Funding Agreement: this Agreement, the Liquidity Agreement and any other agreement or instrument executed by any Funding Source with or for the benefit of Blue Ridge.

Funding Source: any Liquidity Bank or any insurance company, bank or other funding entity providing liquidity, credit enhancement or back-up purchase support or facilities to Blue Ridge.

GAAP: At any time, generally accepted accounting principles in effect in the United States of America at such time.

GENCO Receivable: Any Receivable arising out of the supply of electricity to an Obligor on a wholesale basis by Originator.

Governmental Authority: Any federal, state or local government, authority, agency, central bank, quasi-governmental authority, court or other body or entity, and any arbitrator with authority to bind a party at law.

Guarantee: Of or by any Person means any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for payment of such Indebtedness, (ii) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness or (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness; provided, however, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business.

Hazardous Substances: Any toxic, caustic or otherwise hazardous substance, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics.

Indebtedness: Of any Person means, without duplication, all obligations of such Person for borrowed money, all obligations of such Person with respect to deposits or advances of any kind, all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, all Guarantees by such Person of Indebtedness of others, all Capital Lease Obligations and Synthetic Leases of such Person, all obligations of such Person in respect of Interest Rate Protection Agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements (the amount of any such obligation to be the net amount that would be payable upon the acceleration, termination or liquidation thereof) and all obligations of such Person as an account party in respect of letters of credit and bankers' acceptances; provided, however, that "Indebtedness" of such Person does not include obligations of such Person under any installment sale, conditional sale or title retention agreement or any other agreement relating to obligations for the deferred purchase price of property or services obligations under agreements relating to the purchase and sale of any commodity, including any power sale or purchase agreements, any commodity hedge or derivative (regardless of whether any such transaction is a "financial" or physical transaction), any trade obligations or other obligations of such Person incurred in the ordinary course of business or obligations of such Person under any lease agreement (including any lease intended as security) that is not a Capital Lease or a Synthetic Lease.

Indemnified Amounts: As defined in Section 10.1.

Indemnified Party: As defined in Section 10.1.

Independent Director: A member of the Board of Directors of Borrower who is not at such time, and has not been at any time during the preceding five (5) years: a creditor, supplier, director, officer, employee, family member, manager or contractor of PPL Electric, Originator or any of their respective Subsidiaries or Affiliates (other than Borrower), a direct or indirect or beneficial owner, excluding de minimus ownership interests, (at the time of such individual's appointment as an Independent Director or at any time thereafter while serving as an Independent Director) of any of the outstanding common shares of Borrower, PPL Electric, Originator, or any of their respective Subsidiaries or Affiliates, having general voting rights, or a person who controls (whether directly, indirectly or otherwise), PPL Electric, Originator or any of their respective Subsidiaries or Affiliates (other than Borrower) or any creditor, supplier, employee, officer, director, manager or contractor of PPL Electric, Originator or any of their respective Subsidiaries or Affiliates (other than Borrower).

Ineligible Receivables: All Alternate Supplier Charges, Deposit Receivables, GENCO Receivables, Ineligible Unbilled Receivables, Late Payment Receivables, On-Track Receivables, Operation Help Receivables, Payment Agreement Receivables, Transferred Receivables and following the occurrence of a Downgrading Event with respect to the Servicer, all Unbilled Receivables.

Ineligible Unbilled Receivable: Any Unbilled Receivable, which Unbilled Receivable if billed would constitute a Payment Agreement Receivable, an On-Track Receivable or an Alternate Supplier Charge.

Interest: For each respective Interest Period relating to Loans of the Liquidity Banks, an amount equal to the product of the applicable Interest Rate for each Loan multiplied by the principal of such Loan for each day elapsed during such Interest Period, annualized on a 360 day basis.

Interest Period: With respect to any Loan held by a Liquidity Bank:

    (i)    if Interest for such Loan is calculated on the basis of the LIBO Rate, a period of one (1), two (2), three (3) or six (6) months, or such other period as may be mutually agreeable to the Agent and Borrower, commencing on a Business Day selected by Borrower or the Agent pursuant to this Agreement. Such Interest Period shall end on the day in the applicable succeeding calendar month which corresponds numerically to the beginning day of such Interest Period, provided, however, that if there is no such numerically corresponding day in such succeeding month, such Interest Period shall end on the last Business Day of such succeeding month; or

    (ii)    if Interest for such Loan is calculated on the basis of the Alternate Base Rate, a period commencing on a Business Day selected by Borrower and agreed to by the Agent, provided that no such period shall exceed one month.

If any Interest Period would end on a day which is not a Business Day, such Interest Period shall end on the next succeeding Business Day, provided, however, that in the case of Interest Periods corresponding to the LIBO Rate, if such next succeeding Business Day falls in a new month, such Interest Period shall end on the immediately preceding Business Day. In the case of any Interest Period for any Loan which commences before the Amortization Date and would otherwise end on a date occurring after the Amortization Date, such Interest Period shall end on the Amortization Date. The duration of each Interest Period which commences after the Amortization Date shall be of such duration as selected by the Agent.

Interest Rate: With respect to each Loan of the Liquidity Banks, the LIBO Rate, the Alternate Base Rate or the Default Rate, as applicable.

Interest Rate Protection Agreements: Any agreement providing for an interest rate swap, cap or collar, or any other financial agreement designed to protect against fluctuations in interest rates.

Interest Reserve: For any Calculation Period, the product (expressed as a percentage) of 1.5 times the Alternate Base Rate as of the immediately preceding Cut-Off Date times a fraction the numerator of which is the highest Days Sales Outstanding for the most recent 12 Calculation Periods and the denominator of which is 360.

ITC Bonds: Each series of Transition Bonds issued pursuant to the ITC Indenture and any related series supplements, as authorized by the PUC under Section 2812 of the Competition Act.

ITC Bond Documents: That certain Indenture, dated as of August 10, 1999 (the "ITC Indenture"), by and between PPL Transition Bond Company LLC and The Bank of New York, the ITC Bonds Servicing Agreement and each other Basic Document (as defined in the ITC Indenture), as each may be amended, supplemented, modified or amended and restated, and all other documents related thereto.

ITC Bonds Servicer: At any time the Person designated as "Servicer" (as defined in the ITC Bonds Servicing Agreement) pursuant to the ITC Bonds Servicing Agreement.

ITC Bonds Servicing Agreement: That certain Intangible Transition Property Servicing Agreement, dated as of August 10, 1999, by and between PPL Transition Bond Company LLC and PPL Electric, as such may be amended, supplemented, modified or amended and restated.

ITC Receivables: All "Intangible Transition Property", "Intangible Transition Charges" and "ITC Collections" (each as defined in the ITC Bonds Servicing Agreement) and all accounts receivable, payment intangibles and general intangibles arising in connection with the "Collateral" (as defined in the ITC Indenture).

Late Payment Receivables: Any indebtedness of Obligors pertaining to Receivables constituting late payment fees and/or service charges.

Lender: Blue Ridge and each Liquidity Bank.

LIBO Rate: For any Interest Period, the rate per annum determined on the basis of the offered rate for deposits in U.S. dollars of amounts equal or comparable to the principal amount of the related Loan offered for a term comparable to such Interest Period, which rates appear on a Bloomberg L.P. terminal, displayed under the address "US0001M <Index> Q <Go>" effective as of 11:00 A.M., London time, two (2) Business Days prior to the first day of such Interest Period, provided that if no such offered rates appear on such page, the LIBO Rate for such Interest Period will be the arithmetic average (rounded upwards, if necessary, to the next higher 1/100th of 1%) of rates quoted by not less than two major banks in New York, New York, selected by the Agent, at approximately 10:00 a.m.(New York time), two (2) Business Days prior to the first day of such Interest Period, for deposits in U.S. dollars offered by leading European banks for a period comparable to such Interest Period in an amount comparable to the principal amount of such Loan, divided by one minus the maximum aggregate reserve requirement (including all basic, supplemental, marginal or other reserves) which is imposed against the Agent in respect of Eurocurrency liabilities, as defined in Regulation D of the Board of Governors of the Federal Reserve System as in effect from time to time (expressed as a decimal), applicable to such Interest Period plus the Applicable Margin. The LIBO Rate shall be rounded, if necessary, to the next higher 1/16 of 1%.

LIBO Rate Loan: A Loan which bears interest at the LIBO Rate.

Liquidity Agreement: That certain Liquidity Asset Purchase Agreement dated as of August 1, 2004, by and among Blue Ridge, the Agent and the Liquidity Banks from time to time party thereto, as the same may be amended, restated and/or otherwise modified from time to time in accordance with the terms thereof.

Liquidity Banks: As defined in the Preamble in this Agreement.

Liquidity Commitment: As to each Liquidity Bank, its commitment under the Liquidity Agreement (which shall equal 102% of its Commitment hereunder).

Liquidity Funding: a purchase made by any Liquidity Bank pursuant to its Liquidity Commitment of all or any portion of, or any undivided interest in, a Blue Ridge Loan, or any Loan made by a Liquidity Bank in lieu of Blue Ridge pursuant to Section 1.1.

Liquidity Termination Date: The earlier to occur of the following:

    (i)    the date on which the Liquidity Banks' Liquidity Commitments expire, cease to be available to Blue Ridge or otherwise cease to be in full force and effect; or

    (ii)    the date on which a Liquidity Bank shall have become a Downgraded Liquidity Bank and shall have continued as a Downgraded Liquidity Bank for not less than thirty (30) days, and either the Downgraded Liquidity Bank shall not have been replaced by an Eligible Assignee pursuant to the Liquidity Agreement, or the Liquidity Commitment of such Downgraded Liquidity Bank shall not have been funded or collateralized in such a manner that will avoid a reduction in or withdrawal of the credit rating applied to the Commercial Paper to which such Liquidity Agreement applies by any of the rating agencies then rating such Commercial Paper.

Loan: Any loan made by a Lender to Borrower pursuant to this Agreement (including, without limitation, any Liquidity Funding). Each Loan shall either be a CP Rate Loan, an Alternate Base Rate Loan or a Eurodollar Rate Loan, selected in accordance with the terms of this Agreement.

Loss Reserve: For any Calculation Period, the product (expressed as a percentage) of 2.0, times the highest three-month rolling average Default Ratio during the twelve (12) Calculation Periods ending on the immediately preceding Cut-Off Date, times the Default Horizon Ratio as of the immediately preceding Cut-Off Date.

Material Adverse Effect: A material adverse effect on the financial condition or operations of any PPL Electric Party and its Subsidiaries, the ability of any PPL Electric Party to perform its obligations under this Agreement, the legality, validity or enforceability of this Agreement or any other Transaction Document, the Agent's security interest, for the benefit of the Secured Parties, in the Receivables generally or in any significant portion of the Receivables, the Related Security or the Collections with respect thereto, or the collectability of the Receivables generally or of any material portion of the Receivables.

Material Indebtedness: Indebtedness of any Person in a principal or face amount exceeding $50,000,000.

Material Plan: At any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $25,000,000.

Monthly Report: A report, in substantially the form of Exhibit IX hereto (appropriately completed), furnished by the Servicer to the Agent pursuant to Section 8.5.

Monthly Reporting Date: The 15^th day of each month after the date of this Agreement (or if any such day is not a Business Day, the next succeeding Business Day thereafter).

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

Multiemployer Plan: At any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions.

Net Pool Balance: At any time, the aggregate Outstanding Balance of all Eligible Receivables at such time reduced by the aggregate amount by which the Outstanding Balance of all Eligible Receivables of each Obligor and its Affiliates exceeds the Obligor Concentration Limit for such Obligor the aggregate Budget Plan Receivable Liability Amount and the Dual Month Revenue Adjustment.

Net Worth: As defined in the Receivables Sale Agreement.

Nuclear Decommissioning Receivables: The CTC Receivables arising out of the Originator's recovery of the portion of the Competitive Transition Charges that has been designated for the funding of the decommissioning of the Susquehanna Nuclear Power Plant.

Obligations: As defined in Section 2.1.

Obligor: A Person obligated to make payments pursuant to a Contract.

Obligor Concentration Limit: At any time, in relation to the aggregate Outstanding Balance of Receivables owed by any single Obligor and its Affiliates (if any), the applicable concentration limit shall be determined as follows for Obligors who have short term unsecured debt ratings currently assigned to them by S&P and Moody's (or in the absence thereof, the equivalent long term unsecured senior debt ratings), the applicable concentration limit shall be determined according to the following table:

S&P Rating	Moody's Rating	Allowable % of Eligible Receivables
A-1+	P-1	10%
A-1	P-1	8%
A-1	P-2	6%
A-2	P-1	6%
A-2	P-2	6%
A-2	P-3	6%
A-3	P-2	3%
A-3	P-3	3%
Below A-3 or Not Rated by either S&P or Moody's	Below P-3 or Not Rated by either S&P or Moody's	2%

; provided, however, that (i) if any Obligor has a split rating, the applicable rating will be the lower of the two, (ii) if any Obligor is not rated by either S&P or Moody's, the applicable Obligor Concentration Limit shall be the one set forth in the last line of the table above, and (iii) subject to satisfaction of the Rating Agency Condition and/or an increase in the percentage set forth in clause (i)(A) of the definition of "Required Reserve," upon Borrower's request from time to time, the Agent may agree to a higher percentage of Eligible Receivables for a particular Obligor and its Affiliates (each such higher percentage, a "Special Concentration Limit"), it being understood that any Special Concentration Limit may be cancelled by the Agent upon not less than five (5) Business Days' written notice to the PPL Electric Parties.

On-Track Receivable: Any Receivable arising out of the sale of electricity to an Obligor by Originator which Obligor pays a flat monthly fee for such electricity, which monthly fee is less than the full amount invoiced therefor, with the difference between the amount invoiced to the Obligor and the amount paid by the Obligor written off by Originator.

Operation Help Receivable: Any amounts accrued as a result of voluntary payments to Originator by Obligors to offset Originator's cost of providing electricity to underprivileged families.

Organizational Documents: For any Person, the documents for its formation and organization, which, for example, for a corporation are its corporate charter and bylaws, for a partnership are its certificate of partnership (if applicable) and partnership agreement, for a limited liability company are its certificate of formation or organization and its operating agreement, regulations or the like and for a trust is the trust agreement, declaration of trust, indenture or bylaws under which it is created.

Originator: PPL Electric Utilities Corporation (f/k/a PP&L, Inc.), in its capacity as a seller under the Receivables Sale Agreement.

Outstanding Balance: Of any Receivable at any time means the then outstanding principal balance thereof.

Participant: As defined in Section 12.2.

Payment Agreement Receivable: Any Receivable arising out of the sale of electricity to an Obligor by Originator for which individualized payment arrangements have been agreed to by such Obligor and Originator because of such Obligor's negative payment history.

PBGC: The Pension Benefit Guaranty Corporation, or any successor thereto.

Permitted Claims: Solely with respect to the Records, any rights, claims, liens, security interests or encumbrances of the trustees which may arise pursuant to the PPL Electric Mortgages.

Person: An individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof.

Plan: At any time an employee pension benefit plan (including a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group.

Pooled Commercial Paper: Commercial Paper notes of Blue Ridge subject to any particular pooling arrangement by Blue Ridge, but excluding Commercial Paper issued by Blue Ridge for a tenor and in an amount specifically requested by any Person in connection with any agreement effected by Blue Ridge.

PPL Electric: PPL Electric Utilities Corporation.

PPL Electric Mortgages: as defined in Section 5.1(k).

PPL Electric Parties: As defined in the preamble to this Agreement.

Prime Rate: A rate per annum equal to the prime rate of interest announced from time to time by Wachovia (which is not necessarily the lowest rate charged to any customer), changing when and as said prime rate changes.

Pro Rata Share: For each Liquidity Bank, a percentage equal to the Commitment of such Liquidity Bank, divided by the Aggregate Commitment.

Proposed Reduction Date: As defined in Section 1.3(a).

PUC: The Commonwealth of Pennsylvania Public Utility Commission.

PUC Order: The order of the PUC, dated March 18, 2004, authorizing each PPL Electric Party to enter this Agreement and each other Transaction Document.

Purchasing Liquidity Bank: As defined in Section 12.1(b).

Rating Agency Condition: That Blue Ridge has received written notice from S&P and Moody's that an amendment, a change or a waiver will not result in a withdrawal or downgrade of the then current ratings on Blue Ridge's Commercial Paper.

Receivable: All indebtedness and other obligations owed to Borrower or Originator, excluding the ITC Receivables, the Nuclear Decommissioning Receivables and the ECP Contract Payments (at the time such indebtedness or other obligation arises, and before giving effect to any transfer or conveyance under the Receivables Sale Agreement) or in which Borrower or an Originator has a security interest or other interest, including, without limitation, any indebtedness, obligation or interest constituting an account, payment intangible, instrument or general intangible, arising in connection with the sale of electricity to an Obligor by the Originator, and further includes, without limitation, the obligation to pay any Finance Charges with respect thereto. Indebtedness and other rights and obligations arising from any one transaction, including, without limitation, indebtedness and other rights and obligations represented by an individual invoice, shall constitute a Receivable separate from a Receivable consisting of the indebtedness and other rights and obligations arising from any other transaction; provided further, that any indebtedness, rights or obligations referred to in the immediately preceding sentence shall be a Receivable regardless of whether the account debtor or Borrower treats such indebtedness, rights or obligations as a separate payment obligation.

Receivables Sale Agreement: That certain Receivables Sale Agreement, dated as of August 1, 2004, by and between Originator and Borrower, as the same may be amended, restated or otherwise modified from time to time.

Records: With respect to any Receivable, all documents, books, records and other information (including, without limitation, computer programs, tapes, disks, punch cards, data processing software and related property and rights but excluding Contracts) relating to such Receivable, any Related Security therefor and the related Obligor.

Reduction Notice: As defined in Section 1.3.

Regulatory Change: As defined in Section 10.2.

Related Security: All of Borrower's right, title and interest in, to and under the Receivables Sale Agreement and with respect to any Receivable:

    (i)    all security interests or liens and property subject thereto from time to time, if any, purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all financing statements and security agreements describing any collateral securing such Receivable,

    (ii)    all guaranties, letters of credit, insurance and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable whether pursuant to the Contract related to such Receivable or otherwise,

    (iii)    all Contracts associated with such Receivable,

    (iv)    all Records related to such Receivable,

    (v)    all of Borrower's right, title and interest in, to and under the Receivables Sale Agreement in respect of such Receivable, and

    (vi)    all proceeds of any of the foregoing.

Required Capital Amount: As defined in the Receivables Sale Agreement.

Required Liquidity Banks: At any time, Liquidity Banks with Commitments in excess of 66-2/3% of the Aggregate Commitment.

Required Notice Period: The number of days required notice set forth below applicable to the Aggregate Reduction indicated below:

Aggregate Reduction	Required Notice Period
< 25% of the Aggregate Commitment	2 Business Days
> 25% but < 50% of the Aggregate Commitment	5 Business Days
> 50% of Aggregate Commitment	10 Business Days

Required Reserve: On any day during a Calculation Period, the product of the greater of the Required Reserve Factor Floor and the sum of the Loss Reserve, the Interest Reserve, the Dilution Reserve and the Servicing Reserve, times the Net Pool Balance as of the Cut-Off Date immediately preceding such Calculation Period.

Required Reserve Factor Floor: As defined in the Fee Letter.

Restricted Junior Payment: any dividend or other distribution, direct or indirect, on account of any shares of any class of capital stock of Borrower now or hereafter outstanding, except a dividend payable solely in shares of that class of stock or in any junior class of stock of Borrower, any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of capital stock of Borrower now or hereafter outstanding, any payment or prepayment of principal of, premium, if any, or interest, fees or other charges on or with respect to, and any redemption, purchase, retirement, defeasance, sinking fund or similar payment and any claim for rescission with respect to the Subordinated Loans, any payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of capital stock of Borrower now or hereafter outstanding, and any payment of management fees by Borrower (except for reasonable management fees to any Originator or its Affiliates in reimbursement of actual management services performed).

Review: As defined in Section 7.1(d)(ii).

S&P: Standard and Poor's Ratings Services, a division of The McGraw Hill Companies, Inc.

Secured Parties: All of the Lenders, the Agent and their respective successors and assigns.

Servicer: At any time the Person (which may be the Agent) then authorized pursuant to Section 8.1 to service, administer and collect Receivables.

Servicer Default: The occurrence of any Amortization Event with respect to the Servicer or the Originator described in Sections 9.1(a), (b), (d), (e), (h), (j), (k) or (m); and/or any Amortization Event described in Sections 9.1(c), (g), (i), (p), (q), (r) or (s).

Servicer Replacement Event: The occurrence of any of the events described in Section 8.1(c).

Servicing Fee: For each day in a Calculation Period:

    (i)    an amount equal to the Servicing Fee Rate (or, at any time while PPL Electric or one of its Affiliates is the Servicer, such lesser percentage as may be agreed between Borrower and the Servicer on an arms' length basis based on then prevailing market terms for similar services), times the aggregate Outstanding Balance of all Receivables at the close of business on the Cut-Off Date immediately preceding such Calculation Period, times 1/360; or

    (ii)    on and after the Servicer's reasonable request made at any time when PPL Electric or one of its Affiliates is no longer acting as Servicer hereunder, an alternative amount specified by the successor Servicer not exceeding 110% of such Servicer's reasonable costs and expenses of performing its obligations under this Agreement during the preceding Calculation Period, divided by the number of days in the current Calculation Period.

Servicing Fee Rate: 1.0% per annum.

Servicing Reserve: For any Calculation Period, the product (expressed as a percentage) of the Servicing Fee Rate, times a fraction, the numerator of which is the highest Days Sales Outstanding for the most recent twelve (12) Calculation Periods and the denominator of which is 360.

Settlement Date: the 2^nd Business Day after each Monthly Reporting Date, and the last day of the relevant Interest Period in respect of each Loan of the Liquidity Banks.

Settlement Period: in respect of each Loan of Blue Ridge, the immediately preceding Calculation Period, and in respect of each Loan of the Liquidity Banks, the entire Interest Period of such Loan.

Subordinated Loan: As defined in the Receivables Sale Agreement.

Subordinated Note: As defined in the Receivables Sale Agreement.

Subsidiary: Of a Person means any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or any partnership, association, limited liability company, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled.

Synthetic Lease: Any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product where such transaction is considered borrowed money indebtedness for tax purposes but is classified as an operating lease in accordance with GAAP.

Tax Code: The Internal Revenue Code of 1986, as the same may be amended from time to time.

Termination Date: As defined in the Receivables Sale Agreement.

Terminating Tranche: As defined in Section 4.3(b).

Transaction Documents: Collectively, this Agreement, each Borrowing Notice, the Receivables Sale Agreement, the Fee Letter, the Subordinated Note and all other instruments, documents and agreements executed and delivered in connection herewith.

Transferred Receivable: Any Receivable arising out of the sale of electricity to an Obligor by Originator, which Receivable is transferred from such Obligor's account to a new account established by such Obligor because the related Obligor changed its place of residence, disconnected electric service or otherwise closed such prior account.

UCC: The Uniform Commercial Code as from time to time in effect in the specified jurisdiction.

Unbilled Receivable: Any Receivable arising out of the sale of electricity to an Obligor by Originator, but for which an invoice has not yet been sent to the applicable Obligor; provided, that if an invoice for such amount is not mailed to such Obligor with in thirty (30) days after the rendering of such services, such Receivables shall not be an "Unbilled Receivable" and shall not be an Eligible Receivable.

Unfunded Liabilities: With respect to any Plan at any time, the amount (if any) by which the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA.

Unmatured Amortization Event: An event which, with the passage of time or the giving of notice, or both, would constitute an Amortization Event.

Wachovia: Wachovia Bank, National Association in its individual capacity.

All accounting terms not specifically defined herein shall be construed in accordance with GAAP. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9.

EX-12

Exhibit 12(a)
PPL CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (Millions of Dollars)
					12 Months Ended June 30,			12 Months Ended December 31,
					2004			2003			2002			2001		2000		1999
Fixed charges, as defined:
	Interest on long-term debt				$	481		$	417		$	486		$	351	$	323	$	233
	Interest on short-term debt and   other interest					15			25			71			44		64		47
	Amortization of debt discount,   expense and premium - net					15			41			25			17		5		4
	Interest on capital lease obligations
			Charged to expense														4		9
			Capitalized																1
	Estimated interest component of   operating rentals					44			52			39			36		25		20
	Preferred securities distributions of   subsidiaries on a pre-tax basis					6			45			79			64		31		30
				Total fixed charges	$	561		$	580		$	700		$	512	$	452	$	344
Earnings, as defined:
	Net income (a)				$	762		$	726		$	438		$	167	$	491	$	492
	Preferred security dividend   requirements					3			29			67			52		26		26
	Less undistributed income (loss) of   equity method investments					(15	)		(18	)		(23	)		20		74		56
						780			773			528			199		443		462
Add:
	Income taxes					150			170			210			261		294		174
	Amortization of capitalized interest   on capital leases																2		2
	Total fixed charges as above   (excluding capitalized interest,   capitalized interest on capital lease   obligations and preferred security   distributions of subsidiaries on   a pre-tax basis)					548			528			600			419		405		307
				Total earnings	$	1,478		$	1,471		$	1,338		$	879	$	1,144	$	945
Ratio of earnings to fixed charges						2.6			2.5			1.9			1.7		2.5		2.7
Ratio of earnings to combined fixed   charges and preferred stock   dividends (b)						2.6			2.5			1.9			1.7		2.5		2.7
(a)		Net income excludes extraordinary item, minority interest, loss from discontinued operations and the cumulative effects of changes in accounting principles.
(b)		PPL, the parent holding company, does not have any preferred stock outstanding; therefore, the ratio of earnings to combined fixed charges and preferred stock dividends is the same as the ratio of earnings to fixed charges.

EX-12

Exhibit 12(b)
PPL ENERGY SUPPLY, LLC AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Millions of Dollars)
				12 Months Ended June 30,			12 Months Ended December 31,
				2004			2003				2002				2001			2000 (b)			1999 (b)
Fixed charges, as defined:
	Interest on long-term debt		$		218			$	149			$	169			$	36		$	54		$	20
	Interest on short-term debt and   other interest				16				25				52				33			75			32
	Amortization of debt discount,   expense and premium - net				3				31				9				2			11			1
	Estimated interest component of   operating rentals				25				38				23				19			9
	Preferred securities distributions of   subsidiaries on a pre-tax basis				2				8				12
		Total fixed charges	$		264			$	251			$	265			$	90		$	149		$	53
Earnings, as defined:
	Net income (loss) (a)		$		740			$	719			$	509			$	168		$	246		$	(20	)
	Preferred security dividend   requirement				1				5				9
	Less undistributed income (loss)   of equity method investments				(16	)			(15	)			(22	)			20			74			56
					757				739				540				148			172			(76	)
Add:
	Income taxes (benefit)				164				185				266				274			125			(29	)
	Total fixed charges as above   (excluding capitalized interest   and preferred security distributions   of subsidiaries on a pre-tax basis)				256				237				234				66			135			52
		Total earnings	$		1,177			$	1,161			$	1,040			$	488		$	432		$	(53	)
Ratio of earnings to fixed charges					4.5				4.6				3.9				5.4			2.9			(1.0	)
Deficiency																						$	106
(a)	Net income (loss) excludes minority interest, loss from discontinued operations and the cumulative effects of changes in accounting principles.
(b)	Due to the corporate realignment on July 1, 2000, data in 2000 and 1999 are not comparable to subsequent years.