8-K

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


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                                    FORM 8-K

                             CURRENT REPORT PURSUANT
                          TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


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       Date of report (Date of earliest event reported): December 7, 2004

                                PSI ENERGY, INC.
             (Exact Name of Registrant as Specified in Its Charter)

    Commission       Registrant, State of Incorporation,      I.R.S. Employer
   File Number          Address and Telephone Number        Identification No.
- -----------------  --------------------------------------  --------------------
     1-3543                   PSI ENERGY, INC.                  35-0594457
                          (An Indiana Corporation)
                            1000 East Main Street
                          Plainfield, Indiana 46168
                              (513) 421-9500


Check  the  approriate  box  below  if  the  Form  8-K  filing  is  intended  to
simultaneously  satisfy the filing obligation of the registrant under any of the
following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)

[ ] Soliciting  material  pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))

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Item 2.03.  Creation of a Direct Financial  Obligation or an Obligation under an
Off-balance Sheet Arrangement of a Registrant

On December 7, 2004,  PSI Energy,  Inc.  (PSI)  borrowed the  proceeds  from the
Indiana Development Finance Authority's issuance of $77,125,000 principal amount
of its  Environmental  Revenue  Bonds,  Series 2004B and  $77,125,000  principal
amount of its  Environmental  Revenue Bonds,  Series 2004C, both due December 1,
2039 (for loans totaling $154,250,000). Payment of the principal of and interest
on the Bonds when due is insured by separate bond insurance  policies  issued by
XL Capital  Assurance.  The initial  interest rate for Series 2004B is 1.80% and
for Series 2004C is 1.85%.  The  interest  rates on both Series 2004B and Series
2004C will initially reset on January 11, 2005 and then every 35 days by auction
thereafter.  Because the  holders  cannot  tender the Bonds for  purchase by the
issuer while the Bonds are in the auction rate mode,  these debt obligations are
classified as long-term debt. PSI will use the proceeds from these borrowings to
assist in the  acquisition and  construction of solid waste disposal  facilities
located at various generating  stations in Indiana.  The proceeds are being held
in escrow by an independent trustee and will be drawn upon as the facilities are
built.

Copies of the loan  agreements are attached hereto as Exhibit 10-yyy and Exhibit
10-zzz and are incorporated into this Report by reference.

Item 9.01. Financial Statements and Exhibits

(c) Exhibits

The documents below are being filed on behalf of PSI.

       Exhibit No.   Registrant            Description of Document
       -----------   ----------            -----------------------

         10-yyy          PSI      Loan Agreement between PSI and the Indiana
                                  Development Finance Authority dated as of
                                  December 1, 2004, relating to Series 2004B.

         10-zzz          PSI      Loan Agreement between PSI and the Indiana
                                  Development Finance Authority dated as of
                                  December 1, 2004, relating to Series 2004C.





                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned hereunto duly authorized.

                                                      PSI ENERGY, INC.

Dated: December 9, 2004                 By     /s/ LYNN J. GOOD
                                           ------------------------------------
                                           Name: Lynn J. Good
                                           Title: Vice President and Controller



                                  EXHIBIT INDEX

  Exhibit No.                        Description
  -----------                        -----------

     10-yyy    Loan Agreement between PSI and the Indiana Development Finance
               Authority dated as of December 1, 2004, relating to Series 2004B.

     10-zzz    Loan Agreement between PSI and the Indiana Development Finance
               Authority dated as of December 1, 2004, relating to Series 2004C.

EX-99

                                 LOAN AGREEMENT



                                     between


                      INDIANA DEVELOPMENT FINANCE AUTHORITY


                                       and


                                PSI ENERGY, INC.


                         _______________________________



                                   $77,125,000
                      Indiana Development Finance Authority
                    Environmental Revenue Bonds, Series 2004B
                           (PSI Energy, Inc. Projects)

                         _______________________________


                                      Dated
                                      as of
                                December 1, 2004






                                TABLE OF CONTENTS

                                                                            Page

ARTICLE I.     DEFINITIONS.....................................................3

Section 1.1.   Use of Defined Terms............................................3
Section 1.2.   Definitions.....................................................3
Section 1.3.   Interpretation..................................................6
Section 1.4.   Captions and Headings...........................................7

ARTICLE II.    REPRESENTATIONS.................................................8

Section 2.1.   Representations of the Issuer...................................8
Section 2.2.   No Warranty by Issuer of Condition or Suitability
                 of the Projects...............................................8
Section 2.3.   Representations and Covenants of the Company....................8

ARTICLE III.   COMPLETION OF THE PROJECTS; ISSUANCE OF THE BONDS..............11

Section 3.1.   Acquisition, Construction and Installation.....................11
Section 3.2.   Project Descriptions...........................................11
Section 3.3.   Issuance of the Bonds; Application of Proceeds.................11
Section 3.4.   Disbursements from the Project Fund............................12
Section 3.5.   Company Required to Pay Costs in Event Project
               Fund Insufficient..............................................14
Section 3.6.   Completion Date................................................14
Section 3.7.   Investment of Fund Moneys......................................14
Section 3.8.   Agreement as to Ownership of Projects..........................15
Section 3.9.   Use of Projects................................................15
Section 3.10.  Rebate Fund....................................................15

ARTICLE IV.    LOAN BY ISSUER; LOAN PAYMENTS; ADDITIONAL PAYMENTS;
                 CREDIT FACILITY..............................................16

Section 4.1.   Loan Repayment.................................................16
Section 4.2.   Additional Payments............................................16
Section 4.3.   Place of Payments..............................................17
Section 4.4.   Obligations Unconditional......................................17
Section 4.5.   Assignment of Revenues and Agreement...........................17
Section 4.6.   Bond Insurance Policy; Liquidity Facility; Cancellation........17
Section 4.7.   Company's Option to Elect Rate Period; Changes in
                Auction Date and Length of Auction Periods....................18
Section 4.8.   Company's Obligation to Purchase Bonds.........................18

ARTICLE V.     ADDITIONAL AGREEMENTS AND COVENANTS............................19

Section 5.1.   Right of Inspection............................................19
Section 5.2.   Maintenance....................................................19
Section 5.3.   Removal of Portions of the Project Facilities..................19
Section 5.4.   Operation of Project Facilities................................19
Section 5.5.   Insurance......................................................20
Section 5.6.   Workers' Compensation Coverage.................................20
Section 5.7.   Damage; Destruction and Eminent Domain.........................20
Section 5.8.   Company to Maintain its Corporate Existence; Conditions
                 Under Which Exceptions Permitted.............................20
Section 5.9.   Indemnification................................................21
Section 5.10.  Company Not to Adversely Affect Exclusion of Interest on
                 Bonds From Gross Income For Federal Income Tax Purposes..... 23
Section 5.11.  Ownership of Projects; Use of Projects.........................23
Section 5.12.  Assignment by Company..........................................23

ARTICLE VI.    REDEMPTION.....................................................24

Section 6.1.   Optional Redemption............................................24
Section 6.2.   Extraordinary Optional Redemption..............................24
Section 6.3.   Mandatory Redemption...........................................26
Section 6.4.   Notice of Redemption...........................................26
Section 6.5.   Actions by Issuer..............................................26

ARTICLE VII.   EVENTS OF DEFAULT AND REMEDIES.................................27

Section 7.1.   Events of Default..............................................27
Section 7.2.   Remedies on Default............................................28
Section 7.3.   No Remedy Exclusive............................................28
Section 7.4.   Agreement to Pay Attorneys' Fees and Expenses..................29
Section 7.5.   No Waiver......................................................29
Section 7.6.   Notice of Default..............................................29

ARTICLE VIII.  MISCELLANEOUS..................................................30

Section 8.1.   Term of Agreement..............................................30
Section 8.2.   Amounts Remaining in Funds.....................................30
Section 8.3.   Notices........................................................30
Section 8.4.   Extent of Covenants of the Issuer; No Personal Liability.......30
Section 8.5.   Binding Effect.................................................31
Section 8.6.   Amendments and Supplements.....................................31
Section 8.7.   Continuing Disclosure..........................................31
Section 8.8.   Execution Counterparts.........................................31
Section 8.9.   Severability...................................................31
Section 8.10.  Governing Law..................................................31





                                 LOAN AGREEMENT

     THIS LOAN AGREEMENT is made and entered into as of December 1, 2004 between
the INDIANA  DEVELOPMENT  FINANCE  AUTHORITY (the "Issuer"),  a body politic and
corporate, not a state agency but an independent instrumentality of the State of
Indiana (the "State"),  and PSI ENERGY,  INC. (the "Company"),  a public utility
and corporation  duly organized and validly existing under the laws of the State
of Indiana. Capitalized terms used in the following recitals are used as defined
in Article I of this Agreement.

     WHEREAS,  Indiana  Code  4-4-10.9  and -11,  as  supplemented  and  amended
(collectively,  the "Act"),  authorizes and empowers the Issuer to issue revenue
bonds and to lend the proceeds  therefrom to a user or developer for the purpose
of  financing  the  cost  of  acquisition,   construction,  or  installation  of
industrial  development  projects,  and vests the Issuer with powers that may be
necessary to enable it to accomplish such purposes; and

     WHEREAS,  the Projects (as  hereinafter  defined) to be  undertaken  by the
Company will be of the character and will  accomplish  the purposes  provided by
the Act, will promote  opportunities for the abatement,  reduction or prevention
of  pollution  and the removal or  treatment of  substances  in materials  being
processed  that  otherwise  would cause  pollution  when used,  will not have an
adverse competitive effect on similar facilities  constructed or operating in or
near Floyd, Vermillion,  Knox, Vigo and Gibson Counties in the State of Indiana,
will create  opportunities for gainful  employment and will be to the benefit of
the  health,  safety,  morals  and  general  welfare of the  citizens  of Floyd,
Vermillion, Knox, Vigo and Gibson Counties and the State; and

     WHEREAS,   the  Issuer  has  prepared  a  report  describing  the  proposed
industrial  development  projects,  estimating  the number and expense of public
works or services  that would be made  necessary or  desirable,  estimating  the
total cost of the  proposed  industrial  development  projects,  estimating  the
number  of jobs to be  created  by the  projects  and the  resulting  additional
payroll and  describing the  industrial  development  projects and how they will
abate,  reduce,  or prevent  pollution,  and has  submitted  such  report to the
executive director or chairman of the planning commission of the county in which
each industrial development project is located; and

     WHEREAS, no written comments have been received from the executive director
or chairman of such plan commissions; and

     WHEREAS, on November 16, 2004, the Issuer adopted a resolution finding that
the  Projects  and the  proposed  financing  thereof  will be of  benefit to the
health,   safety,  morals,  and  general  welfare  of  the  citizens  of  Floyd,
Vermillion,  Knox, Vigo and Gibson Counties and the State, and complies with the
purposes and  provisions of the Act after giving  notice in accordance  with the
Act and the Internal Revenue Code of 1986, as amended, and after the Issuer held
a public  hearing on November 16, 2004,  with regard to the proposed  financing,
and having  received no adverse  comments  about the  Projects  or the  proposed
financing at the public hearing; and

     WHEREAS,  the Issuer  intends  to issue its  Environmental  Revenue  Bonds,
Series 2004B (PSI Energy,  Inc.  Projects) in the aggregate  principal amount of
Seventy-Seven  One Hundred  Twenty-Five  Thousand Million Dollars  ($77,125,000)
(the "Bonds")  pursuant to the Trust Indenture dated as of December 1, 2004 (the
"Indenture"),  between the Issuer and Deutsche Bank National Trust  Company,  as
trustee  (the  "Trustee"),  in order  to  obtain  funds  to loan to the  Company
pursuant to this Loan Agreement,  between the Issuer and the Company in order to
provide  funds  for (i)  financing  a portion  of the costs of the  acquisition,
construction  and  installation  of the Projects and (ii) paying  various  costs
incidental to such financing, including costs of issuance; and

     WHEREAS,  this Loan Agreement  provides for the repayment by the Company of
the loan of the  proceeds of the Bonds and further  provides for such loan to be
secured by the lien and security  interest  provided for in this Loan Agreement;
and

     WHEREAS,  pursuant to the Indenture,  the Issuer will assign certain of its
rights  under this Loan  Agreement  as security  for the Bonds which are payable
solely out of the payments to be made by the Company  under this Loan  Agreement
and the security  interests  granted  thereby,  except to the extent paid out of
Bond proceeds and proceeds of condemnation and insurance; and

     WHEREAS,  the  execution  and  delivery  of  this  Loan  Agreement  and the
Indenture  and the  issuance of the Bonds  thereunder  have been in all respects
duly and validly  authorized  by a  resolution  duly passed and  approved by the
Issuer.

     NOW   THEREFORE,   in   consideration   of  the  premises  and  the  mutual
representations and agreements hereinafter contained, the Issuer and the Company
agree as  follows  (provided  that any  obligation  of the  Issuer  or the State
created by or arising out of this  Agreement  shall never  constitute  a general
debt of the Issuer or the State or give rise to any  pecuniary  liability of the
Issuer or the State but shall be payable  solely out of Revenues,  including the
Loan Payments made pursuant hereto and moneys drawn under any Credit Facility):




                                   ARTICLE I.

                                   DEFINITIONS

Section 1.1. Use of Defined  Terms.  In addition to the words and terms  defined
elsewhere in this Agreement,  the Indenture or by reference to another document,
the words and terms set forth in Section 1.2 hereof  shall have the meanings set
forth therein  unless the context or use clearly  indicates  another  meaning or
intent.  Such definitions  shall be equally  applicable to both the singular and
plural forms of any of the words and terms defined therein.

Section 1.2. Definitions. As used herein:

          "Additional  Payments"  means the  amounts  required to be paid by the
     Company pursuant to the provisions of Section 4.2 hereof.

          "Administration  Expenses" means the compensation  (which compensation
     shall not be greater than that typically charged in similar  circumstances)
     and reimbursement of reasonable out-of-pocket expenses and advances payable
     to the Trustee,  the Registrar,  the Remarketing  Agent, the Broker-Dealer,
     the Auction Agent, any Paying Agent and any Authenticating Agent.

          "Agreement" means this Loan Agreement, as amended or supplemented from
     time to time.

          "Bond  Insurer" means XL Capital  Assurance Inc. an insurance  company
     incorporated under the laws of the State of New York.

          "Bond  Insurance  Policy" means the insurance  policy  relating to the
     Bonds issued by the Bond Insurer.

          "Completion  Date" means the date of completion of the Projects as set
     forth in the certificate to be furnished by the Company pursuant to Section
     3.6 hereof.

          "Construction  Period"  means the period  between the beginning of the
     acquisition,  construction,  installation, equipping and improvement of the
     Projects and the Completion Date.

          "Engineer"  means an engineer  (who may be an employee of the Company)
     or  engineering  firm  qualified to practice the  profession of engineering
     under the laws of the State.

          "Event of Default"  means any of the events  described  as an Event of
     Default in Section 7.1 hereof.

          "Force Majeure" means any of the following:

     (i)  acts of God; strikes, lockouts or other industrial disturbances;  acts
          of public enemies;  orders or restraints of any kind of the government
          of the  United  States  of  America  or of the  State  or any of their
          departments,  agencies,  political  subdivisions or officials,  or any
          civil or military authority; insurrections; civil disturbances; riots;
          epidemics;  landslides;  lightning;  earthquakes;  fires;  hurricanes;
          tornados;  storms; droughts;  floods; arrests; restraint of government
          and  people;   explosions;   breakage,   nuclear  accidents  or  other
          malfunction or accident to facilities,  machinery,  transmission pipes
          or  canals;  partial  or  entire  failure  of a  utility  serving  the
          Projects;  shortages of labor, materials,  supplies or transportation;
          or

     (ii) any cause,  circumstance or event not reasonably within the control of
          the Company.

          "Generating  Stations" means,  collectively,  the generating  stations
     described in Exhibit A hereto.

          "IDEM" means the Department of  Environmental  Management of the State
     and any successor body, agency, commission or department.

          "Indenture" means the Trust Indenture  related to the Bonds,  dated as
     of the same date as this Agreement,  between the Issuer and the Trustee, as
     amended or supplemented from time to time.

          "Insurance  Agreement"  means  the  Insurance  Agreement  between  the
     Company and the Bond Insurer as amended or supplemented from time to time.

          "Interest Rate for Advances"  means the interest rate per year payable
     on the Bonds.

          "Investment  Grade Rating"  means a long-term  debt rating by a Rating
     Agency that is included in one of the four highest  debt rating  categories
     of the Rating  Agency,  provided  that such  rating  categories  shall mean
     generic categories and without regard to or other qualifications of ratings
     within each such generic rating category such as "+", "-", "1", "2" or "3".

          "Issuance  Costs"  means all costs  incurred  in  connection  with the
     issuance and delivery of the Bonds that  constitute  issuance  costs within
     the meaning of Section 147(g) of the Code.

          "Liquidity  Facility"  means a  liquidity  facility  as defined in the
     Indenture.

          "Loan"  means the loan by the Issuer to the  Company  of the  proceeds
     received from the sale of the Bonds.

          "Loan Payment  Date" means any date on which any Bond Service  Charges
     are due and payable.

          "Loan Payments"  means the amounts  required to be paid by the Company
     in repayment of the Loan pursuant to Section 4.1 hereof.

          "Notice Address" means:

          (a)   As to the Issuer:    Indiana Development Finance Authority
                                     One North Capitol, Suite 900
                                     Indianapolis, Indiana  46204
                                     Attention:  Executive Director

          (b)   As to the Company:   PSI Energy, Inc.
                                     139 East Fourth Street
                                     Cincinnati, Ohio  45202
                                     Attention:  Treasurer

          (c)   As to the Trustee:   Deutsche Bank National Trust Company
                                     222 South Riverside Plaza, 24th Floor
                                     Chicago, IL  60606
                                     Attention: Corporate Trust Administration

or such additional or different address,  notice of which is given under Section
8.3 hereof.

          "Opinion  of Bond  Counsel"  means a  written  opinion  of  nationally
     recognized  bond  counsel  selected by the Company  and  acceptable  to the
     Trustee who is experienced in matters  relating to the exclusion from gross
     income for federal income tax purposes of interest on obligations issued by
     states and their political subdivisions. Bond Counsel may be counsel to the
     Trustee or the Company

          "Person"  or  words  importing   persons  mean  firms,   associations,
     partnerships   (including   without   limitation,   general   and   limited
     partnerships),  limited  liability  entities,  joint  ventures,  societies,
     estates, trusts,  corporations,  public or governmental bodies, other legal
     entities and natural persons.

          "Pollution Control Facility" or "Pollution  Control  Facilities" means
     those  facilities  which are  pollution  control  facilities  as defined in
     Section 24 of Chapter  10.9 of the Act and which  constitute  "solid  waste
     disposal facilities" as described in Section 142(a)(6) of the Code.

          "Projects" or "Project  Facilities"  means the real,  personal or real
     and personal  property,  including  undivided or other  interests  therein,
     identified in the Project  Descriptions,  financed with the proceeds of the
     Bonds,  all of which  constitute  "solid waste disposal  facilities"  under
     Section 142(a)(6) of the Code.

          "Project  Costs" means the costs of the Projects  specified in Section
     3.4 hereof.

          "Project   Descriptions"   means  the   descriptions  of  the  Project
     Facilities  attached  hereto as  Exhibit  A, as the same may be  amended in
     accordance with this Agreement.

          "Project  Purposes" means the purposes of Pollution Control Facilities
     and  related  facilities  as  described  in the  Act  and  as  particularly
     described in Exhibit A hereto.

          "Project Sites" means the sites of the Generating Stations.

          "Revenues" means (a) the Loan Payments,  (b) all other moneys received
     or to be received by the Issuer  (excluding any fees paid to the Issuer and
     all Unassigned Issuer Rights) or the Trustee in respect of repayment of the
     Loan, including without limitation,  all moneys and investments in the Bond
     Fund,  (c) any moneys and  investments  in the  Project  Fund,  and (d) all
     income and profit from the  investment  of the foregoing  moneys.  The term
     "Revenues" does not include any moneys or investments in the Rebate Fund or
     the Bond Purchase Fund.

          "State" means the State of Indiana.

          "Trustee"  means  Deutsche  Bank  National  Trust  Company,  a banking
     corporation  duly  organized  and  validly  existing  under the laws of the
     United States of America and duly  authorized to exercise  corporate  trust
     powers in the State,  until a  successor  Trustee  shall have  become  such
     pursuant to the  applicable  provisions of the  Indenture,  and  thereafter
     "Trustee"  shall  mean the  successor  Trustee.  "Principal  Office" of the
     Trustee shall mean the corporate trust office of the Trustee,  which office
     at the date of issuance of the Bonds is located at its Notice Address.

          "Unassigned  Issuer  Rights"  means all of the rights of the Issuer to
     receive  Additional  Payments  under  Section  4.2  hereof,  to  inspection
     pursuant to Section 5.1 hereof,  to be held harmless and indemnified  under
     Section 5.9 hereof, to be reimbursed for attorney's fees and expenses under
     Section 7.4 hereof and to give or withhold consent to amendments,  changes,
     modifications,  alterations and termination of this Agreement under Section
     8.6 hereof and its right to enforce such rights.

Section 1.3. Interpretation. Any reference herein to the State, to the Issuer or
to any member or officer of either includes entities or officials  succeeding to
their  respective  functions,  duties  or  responsibilities  pursuant  to  or by
operation of law or lawfully performing their functions.

          Any  reference to a section or provision  of the  Constitution  of the
     State or the Act,  or to a section,  provision  or  chapter of the  Indiana
     Code,  or to any  statute of the United  States of America,  includes  that
     section, provision or chapter as amended, modified,  revised,  supplemented
     or superseded from time to time; provided, that no amendment, modification,
     revision,  supplement or superseding section, provision or chapter shall be
     applicable solely by reason of this provision, if it constitutes in any way
     an impairment of the rights or  obligations of the Issuer,  the State,  the
     Holders, the Trustee,  the Registrar,  the Auction Agent, an Authenticating
     Agent,  a Paying Agent,  the Bond  Insurer,  the  Remarketing  Agent or the
     Company under this Agreement, the Indenture or the Bonds.

          Unless the context indicates  otherwise,  words importing the singular
     number  include  the plural  number,  and vice versa;  the terms  "hereof",
     "hereby", "herein",  "hereto",  "hereunder" and similar terms refer to this
     Agreement;  and the term "hereafter" means after, and the term "heretofore"
     means  before,  the date of  delivery  of the  Bonds.  Words of any  gender
     include  the  correlative  words of the  other  genders,  unless  the sense
     indicates otherwise.

Section 1.4. Captions and Headings.  The captions and headings in this Agreement
are used solely for  convenience  of  reference  and in no way define,  limit or
describe the scope or intent of any Articles, Sections, subsections,  paragraphs
or subparagraphs or clauses hereof.

                               (End of Article I)



                                  ARTICLE II.

                                 REPRESENTATIONS

Section 2.1.  Representations  of the Issuer. The Issuer represents that: (a) it
is a  body  politic  and  corporate,  not a  state  agency  but  an  independent
instrumentality  of the State of Indiana,  duly  organized and validly  existing
under  the  laws of the  State;  (b) it has  duly  accomplished  all  conditions
necessary  to be  accomplished  by it prior to the  issuance and delivery of the
Bonds and the execution and delivery of this Agreement and the Indenture; (c) it
is not in violation  of or in conflict  with any  provisions  of the laws of the
State which would impair its ability to carry out its  obligations  contained in
this  Agreement  or the  Indenture;  (d)  it is  empowered  to  enter  into  the
transactions  contemplated by this Agreement and the Indenture;  (e) it has duly
authorized  the  execution,  delivery and  performance of this Agreement and the
Indenture;  (f) it will do all  things  in its  power in order to  maintain  its
existence or assure the assumption of its  obligations  under this Agreement and
the Indenture by any successor public body; and (g) following reasonable notice,
a public  hearing was held on November  16, 2004 with respect to the issuance of
the Bonds as required by Section 147 of the Code.

Section 2.2. No Warranty by Issuer of Condition or  Suitability of the Projects.
The Issuer makes no warranty,  either express or implied,  as to the suitability
or utilization of the Projects for the Project Purposes,  or as to the condition
of the Project Facilities or that the Project Facilities are or will be suitable
for the Company's purposes or needs.

Section  2.3.   Representations  and  Covenants  of  the  Company.  The  Company
represents that:

     (a)  The Company has been duly  incorporated  and is validly  existing as a
          corporation  under the laws of the  State,  with  power and  authority
          (corporate  and other) to own its properties and conduct its business,
          to execute and deliver this  Agreement and to perform its  obligations
          under this Agreement.

     (b)  This Agreement has been duly authorized, executed and delivered by the
          Company and this Agreement  constitutes  the valid and legally binding
          obligations  of the  Company,  enforceable  in  accordance  with their
          terms,  subject,  as  to  enforcement,   to  bankruptcy,   insolvency,
          reorganization and other laws of general applicability  relating to or
          affecting creditors' rights and to general equity principles.

     (c)  The  execution,  delivery  and  performance  by the  Company  of  this
          Agreement and the consummation of the transactions contemplated hereby
          will not violate any provision of law or regulation  applicable to the
          Company,  or of any  writ  or  decree  of any  court  or  governmental
          instrumentality,  or of the  Amended  Articles  of  Consolidation,  as
          amended, or the By-laws of the Company, or of any mortgage, indenture,
          contract,  agreement  or other  undertaking  to which the Company is a
          party or which  purports to be binding upon the Company or upon any of
          its assets.

     (d)  The  Projects to be acquired,  constructed,  equipped,  installed  and
          improved  at the Project  Sites,  as  provided  under this  Agreement,
          constitute  Pollution Control Facilities under the Act, are consistent
          with and will  further  the  purposes  of the Act and will be  located
          entirely  within the State.  The Company will cause the Projects to be
          operated  and   maintained  in  such  manner  as  to  conform  to  all
          applicable,  if any, zoning,  planning,  building,  environmental  and
          other applicable governmental  regulations and all permits,  variances
          and  orders  issued  or  granted  pursuant   thereto,   including  the
          permit-to-install  for each portion of the  Projects,  which  permits,
          variances and orders have not been  withdrawn or otherwise  suspended,
          and to be consistent with the Act;

     (e)  It is expected that the Projects will be utilized as Pollution Control
          Facilities  under the Act  commencing  promptly  as  portions  thereof
          become  available for  utilization,  but in any event on or before the
          Completion Date;

     (f)  It presently intends to use or operate or cause to be used or operated
          the Projects in a manner  consistent  with the Project  Purposes until
          the date on which  the  Bonds  have  been  fully  paid and knows of no
          reason why the Projects will not be so operated.  The Company does not
          presently  intend to sell or otherwise  dispose of the Projects or any
          portion thereof

     (g)  At least 95% of the net  proceeds  (as  defined in Section  150 of the
          Code),  of the Bonds will be used to  provide  land or  property  of a
          character  subject to the allowance for  depreciation  for purposes of
          Section 167 of the Code. The Company will not request or authorize any
          disbursement  pursuant to Section 3.4 hereof,  which,  if paid,  would
          result  in less  than 95% of such  net  proceeds  being  so used.  The
          Issuance  Costs of the Bonds  financed  with the proceeds of the Bonds
          will not exceed 2% of the proceeds of the Bonds (within the meaning of
          Section 147(g) of the Code). None of the proceeds of the Bonds will be
          used to provide working capital.

     (h)  No portion of the Projects  have been acquired and placed in operation
          at substantially the level for which it was designed for more than one
          year prior to the date of delivery of the Bonds.

     (i)  In accordance  with Section 147(b) of the Code,  the weighted  average
          maturity  of the Bonds does not exceed  120% of the  weighted  average
          reasonably  expected economic life of the facilities being financed by
          the Bonds.

     (j)  None  of the  proceeds  of the  Bonds  will be  used  to  provide  any
          airplane;  skybox or other private  luxury box;  health club facility;
          any facility  primarily used for gambling;  or any store the principal
          business of which is the sale of alcoholic  beverages for  consumption
          off premises;

     (k)  The  Projects  have been and will be used wholly to control  pollution
          and  dispose  of  solid  waste  and  sewage  and was  designed  for no
          significant purpose other than pollution control and disposal of solid
          waste and sewage,  and the Projects  were not designed to result in an
          increase in  production  or capacity,  in a material  extension of the
          useful life of the Generating Stations or, in the case of the portions
          of  the  Projects  which  are  Pollution  Control  Facilities,  in the
          recovery of by-products of any substantial value.

     (l)  Less than 25% of the net  proceeds of the Bonds will be used  directly
          or  indirectly  to acquire land or any interest  therein,  and none of
          such land is being or will be used for farming purposes; no portion of
          the net  proceeds  of the  Bonds  will be  used  to  acquire  existing
          property or any interest therein unless the first use of such property
          or interest therein is pursuant to such acquisition;

     (m)  At no time will any funds  constituting gross proceeds of the Bonds be
          used in a manner  as  would  constitute  failure  of  compliance  with
          Section 148 of the Code.

     (n)  The Bonds are not and will not be  "federally  guaranteed"  within the
          meaning of Section 149(b) of the Code.

     (o)  It is not  anticipated  that  as of the  date  hereof,  there  will be
          created  any  "replacement  proceeds",  within the  meaning of Section
          1.148-1(c)  of the  Treasury  Regulations,  with respect to the Bonds;
          however, in the event that any such replacement proceeds are deemed to
          have been created,  such amounts will be invested in  compliance  with
          Section 148 of the Code.

     (p)  At least  95% of the  proceeds  of the Bonds  will be used to  provide
          "solid  waste  disposal  facilities"  within  the  meaning  of Section
          142(a)(6) of the Code;

     (q)  The  information  furnished  by the  Company and used by the Issuer in
          preparing the certification pursuant to Section 148 of the Code and in
          preparing the information  statement pursuant to Section 149(e) of the
          Code will be accurate  and  complete as of the date of issuance of the
          Bonds; and

     (r)  The Project  Facilities  do not include any office  except for offices
          (i) located on the  Project  Sites and (ii) not more than a de minimis
          amount  of the  functions  to be  performed  at which is not  directly
          related to the day-to-day operations of the Project Facilities.

                               (End of Article II)



                                  ARTICLE III.

                COMPLETION OF THE PROJECTS; ISSUANCE OF THE BONDS

Section 3.1. Acquisition,  Construction and Installation. The Company represents
and agrees  that it (a) has caused or will cause the  Projects  to be  acquired,
constructed  and installed on the Project  Sites in accordance  with the Project
Descriptions and in conformance  with all applicable,  valid and enforceable (i)
zoning, planning,  building,  environmental and other similar regulations of all
governmental authorities having jurisdiction over the Projects and (ii) permits,
variances  and orders  issued in respect of the Projects by IDEM,  noncompliance
with which  would have a material  adverse  effect on the  Company's  ability to
operate and  maintain  the  Projects or to perform  its  obligations  hereunder,
provided  that the Company  reserves the right to contest in good faith any such
regulations,  permits,  variances or orders, (b) will use its reasonable efforts
to cause the acquisition,  construction and installation of other facilities and
real and personal  property deemed  necessary in connection with the Projects to
the end that the Projects  will fulfill the Project  Purposes,  (c) will pay all
fees,  costs  and  expenses  incurred  in  such  acquisition,  construction  and
installation and (d) will use its reasonable  efforts to ask,  demand,  sue for,
levy,  recover  and  receive  all such  sums of money,  debts and other  demands
whatsoever  which may be due, owing and payable under the terms of any contract,
order,  receipt,  writing and  instruction in connection  with the  acquisition,
construction and installation of the Projects,  and to enforce the provisions of
any contract,  agreement,  obligation,  bond or other performance  security with
respect  thereto;  provided  that in all  instances the Company shall retain the
option of settlement  of any dispute.  Any amounts  received in connection  with
actions taken under clause (d) of the  preceding  sentence,  after  deduction of
expenses  incurred  in such  recovery,  prior  to the  Completion  Date and full
disposition  of the  Project  Fund in  accordance  with this  Agreement  and the
Indenture, shall be paid into the Project Fund.

          It is  understood  that the  Projects are those of the Company and any
     contracts  made by the Company with respect  thereto,  whether  acquisition
     contracts,  installation contracts or otherwise,  or any work to be done by
     the  Company  on the  Projects  are made or done by the  Company on its own
     behalf and not as agent or contractor for the Issuer.

Section 3.2. Project Descriptions.  The Project Descriptions may be changed from
time to time by, or with the  consent  of, the  Company  provided  that any such
change shall not  adversely  affect the  exclusion of interest on the Bonds from
gross income for federal income tax purposes.

Section 3.3. Issuance of the Bonds; Application of Proceeds. To provide funds to
make the Loan to the Company to assist the Company in the financing of a portion
of the costs of the Projects,  the Issuer will issue, sell and deliver the Bonds
to the Original Purchaser. The Bonds will be issued pursuant to the Indenture in
the aggregate  principal  amount,  will bear  interest,  will mature and will be
subject to  redemption as set forth  therein.  The Company  hereby  approves the
terms  and  conditions  of the  Indenture  and  the  Bonds,  and the  terms  and
conditions  under  which the  Bonds  will be  issued,  sold and  delivered.  The
Company, for the benefit of the Issuer and each Bondholder, shall do and perform
all acts and things  required or  contemplated  in the  Indenture  to be done or
performed by the Company.

          The  proceeds  from  the sale of the  Bonds  (other  than any  accrued
     interest) shall be loaned to the Company to assist the Company in financing
     a portion of the costs of the Projects.  Those  proceeds shall be deposited
     in the Project Fund.  Any accrued  interest  shall be deposited in the Bond
     Fund. Pending disbursement  pursuant to Section 3.4 hereof, the proceeds so
     deposited  in the  Project  Fund,  together  with any  investment  earnings
     thereon,  shall constitute a part of the Revenues assigned by the Issuer to
     the payment of Bond Service Charges as provided in the Indenture.

Section 3.4. Disbursements from the Project Fund. Disbursements from the Project
Fund  shall  be  made  only  to  reimburse  or pay the  Company,  or any  Person
designated by the Company, for the following Project Costs:

     (a)  Costs incurred  directly or indirectly  for or in connection  with the
          acquisition,  construction,  equipping, installation or improvement of
          the Projects,  including  but not limited to those costs  incurred for
          preliminary planning and studies,  architectural,  legal,  engineering
          and supervisory services,  labor,  services,  materials,  acquisition,
          construction and  installation,  recording of documents and title work
          relating to the Project Sites.

     (b)  Premiums  attributable  to all insurance  required to be taken out and
          maintained during the Construction Period with respect to the Projects
          and the premium on each surety bond, if any,  required with respect to
          work on the Projects.

     (c)  Taxes, assessments, interest on the Bonds and other charges in respect
          of  the  Projects   that  may  become  due  and  payable   during  the
          Construction Period for the Projects.

     (d)  Costs incurred directly or indirectly in seeking to enforce any remedy
          against  any  contractor  or  subcontractor  in respect of any default
          under any contract relating to the Projects.

     (e)  Financial, legal, accounting,  appraisal, printing and engraving fees,
          charges and expenses,  title insurance premiums, if any, and all other
          such fees,  charges  and  expenses  incurred  in  connection  with the
          authorization,  sale,  issuance  and  delivery  of the  Bonds  and the
          preparation  and delivery of the  Agreement,  the  Indenture and other
          related documents.

     (f)  Fees and expenses of the Trustee,  Authenticating  Agent, Paying Agent
          and Registrar (as such terms are defined in the Indenture),  including
          reasonable  counsel fees and  expenses,  properly  incurred  under the
          Indenture  that may become  due and  payable  during the  Construction
          Period, including the initial or acceptance fee of the Trustee.

     (g)  Any other incidental and necessary costs including without  limitation
          any  expenses,   fees  and  charges   relating  to  the   acquisition,
          construction or installation of the Projects.

     (h)  Payments made to the Rebate Fund.

     (i)  Any other expense permissible,  in the opinion of Bond Counsel,  under
          the Act.

          Any  disbursements  from the  Project  Fund for the payment of Project
     Costs  shall be made by the  Trustee  only  upon the  written  order of the
     Authorized Company Representative.  Each such written order shall be in the
     form of the disbursement  request attached hereto as Exhibit B and shall be
     consecutively  numbered.  In the  case of any  contract  providing  for the
     retention of a portion of the contract price, there shall be paid initially
     from the Project Fund only the net amount  remaining after deduction of any
     such portion, and when the amount of any such retention is due and payable,
     then such retention may be paid from the Project Fund.

          In  addition,   the  Company   shall  not  request  or  authorize  any
     disbursements  from the  Project  Fund prior to the  Completion  Date for a
     purpose or function other than to provide solid waste  disposal  facilities
     within  the  meaning  of  Section   142(a)(6)  of  the  Code,  unless  such
     disbursement  would not result in more than 5% of the net  proceeds  of the
     Bonds  (including  those  amounts  disbursed  pursuant to this Section 3.4)
     being used other than to provide solid waste disposal facilities  (treating
     Issuance  Costs so paid as being used other  than to  provide  solid  waste
     disposal  facilities),  unless  in  connection  with any such  disbursement
     request the Company provides the Trustee with an opinion of Bond Counsel or
     ruling of the Internal Revenue Service to the effect that such disbursement
     will not cause the interest on the Bonds to be included in the gross income
     of the Holders for federal income tax purposes.

          Receipt of a  disbursement  request,  in the form of the  disbursement
     request attached hereto as Exhibit B, shall be full  authorization  for the
     Trustee to make the disbursements  requested thereby, and the Trustee shall
     be entitled to rely without  further  inquiry on, and shall have no duty to
     check,  verify or  investigate,  the  statements  and  certifications  made
     therein or included therewith.

          Any moneys in the Project Fund remaining after the Completion Date and
     payment,  or  provision  for payment,  in full of the Project  Costs at the
     direction of the Authorized  Company  Representative  promptly shall be (a)
     used to acquire,  construct  or install such  additional  real and personal
     property comprising  Pollution Control Facilities as defined in the Act for
     use in  connection  with the Projects as is  designated  by the  Authorized
     Company  Representative  and  the  acquisition,   construction,  equipment,
     installation  and  improvement of which will be such as is permitted  under
     the Act,  (b) used for the  purchase  of Bonds in the open  market  for the
     purpose of  cancellation  at prices not  exceeding  the fair  market  value
     thereof plus  accrued  interest to the date of payment  therefor,  (c) paid
     into the Bond Fund to be applied to the payment of Bond Service  Charges on
     the Bonds or the redemption of the Bonds,  or (d) used for a combination of
     the foregoing as is provided in that direction or for any other purposes as
     are or may be permitted  under the Act;  provided  that, in all such cases,
     (A) those  moneys  shall be so used or applied only to the extent that such
     use or  application  will not,  in the  opinion of Bond  Counsel or under a
     ruling of the Internal Revenue  Service,  adversely affect the exclusion of
     the interest on the Bonds from the gross income of the Holders  thereof and
     (B) any money  remaining in the Project Fund  following  completion  of the
     Projects  shall be invested in  accordance  with the Code in such manner as
     not to adversely affect the exclusion of the interest on the Bonds from the
     gross income of the Holders thereof.

Section 3.5. Company  Required to Pay Costs in Event Project Fund  Insufficient.
If moneys in the Project Fund are not sufficient to pay all Project  Costs,  the
Company,  nonetheless,  will  complete  the Projects or cause the Projects to be
completed,  in order to  fulfill  the  Project  Purposes  and shall pay all such
additional  Project Costs from its own funds.  The Company shall not be entitled
to any reimbursement for any such additional  Project Costs from the Issuer, the
Trustee  or the  Holders of any of the Bonds,  nor shall it be  entitled  to any
abatement,  diminution or postponement of the Loan Payments. The Issuer does not
make any representation that the moneys which will be paid into the Project Fund
and which under the  provisions of this  Agreement will be available for payment
of Project Costs, will be sufficient to pay all the costs which will be incurred
in that connection. The Company agrees that if after exhaustion of the moneys in
the Project  Fund,  the Company  should pay  pursuant  hereto any portion of the
costs  listed  in  Section  3.4  hereof,   it  shall  not  be  entitled  to  any
reimbursement therefor from the State, the Issuer, the Trustee or the Holders of
any of the Bonds.

Section  3.6.  Completion  Date.  The  Company  shall  notify the Issuer and the
Trustee of the Completion Date by a certificate signed by the Authorized Company
Representative stating:

     (a)  the date on which the Projects  were  substantially  completed and all
          other  facilities  necessary in connection with the Projects have been
          acquired, constructed and installed;

     (b)  that the  acquisition,  construction  and installation of the Projects
          and such other  facilities have been  accomplished in such a manner as
          to conform  with all  applicable,  legal and valid  zoning,  planning,
          building, environmental and other similar governmental regulations, so
          as not to have a material  adverse effect on the Company's  ability to
          operate  the  Projects  for  the  Project  Purposes  and  perform  its
          obligations hereunder;

     (c)  that,  except as provided in clause (d) of this Section 3.6, all costs
          of that  acquisition  and  installation  then and  theretofore due and
          payable have been paid; and

     (d)  the amount which the Trustee  shall retain in the Project Fund for the
          payment  of  Project  Costs not yet due or for  liabilities  which the
          Company is  contesting or which  otherwise  should be retained and the
          reasons such amount should be retained.

That  certificate  may state that it is given  without  prejudice  to any rights
against third parties which then exist or subsequently  may come into being. The
Authorized  Company   Representative  shall  include  with  that  certificate  a
statement  describing  the items of personal  property  comprising a part of the
Projects.  The certificate  shall be delivered as promptly as practicable  after
the occurrence of the events and  conditions  referred to in clauses (a) through
(d) of this Section.

Section 3.7.  Investment  of Fund  Moneys.  At the oral  (confirmed  promptly in
writing) or written request of the Company,  any moneys held as part of the Bond
Fund, the Project Fund or the Rebate Fund shall be invested or reinvested by the
Trustee in Eligible Investments; provided, that such moneys shall be invested or
reinvested by the Trustee only in Eligible  Investments  which shall mature,  or
which shall be subject to redemption by the holder thereof at the option of such
holder,  not later than the date upon which the moneys so invested are needed to
make  payments  from those  Funds.  The Company  hereby  covenants  that it will
restrict that  investment  and  reinvestment  and the use of the proceeds of the
Bonds in such manner and to such extent, if any, as may be necessary so that the
Bonds will not constitute arbitrage bonds under Section 148 of the Code.

          The Company shall provide the Issuer with, and the Issuer may base its
     certificate  and  statement,  each as  authorized  by the Bond  Resolution,
     solely on a certificate of an appropriate officer,  employee or agent of or
     consultant  to the Company for inclusion in the  transcript of  proceedings
     for the Bonds, setting forth the reasonable  expectations of the Company on
     the date of delivery of and payment for the Bonds  regarding the amount and
     use of the proceeds of the Bonds and the facts, estimates and circumstances
     on which those expectations are based.

Section 3.8.  Agreement as to Ownership of Projects.  The Issuer  agrees that it
shall not have any  interest  in,  title to or  ownership of the Projects or the
Project Sites.

Section 3.9. Use of Projects.  The Issuer does hereby covenant and agree that it
will not take any  action,  or cause any action to be taken,  during the term of
this Agreement,  other than pursuant to Article VII of this Agreement or Article
VII of the Indenture,  to interfere with the Company's ownership of the Projects
or to prevent the Company from having possession,  custody, use and enjoyment of
the Projects, except such action as is requested by the Trustee in enforcing any
remedies available to it under this Agreement or the Indenture.

Section  3.10.  Rebate  Fund.  To the extent  required  by  Section  5.09 of the
Indenture, within five days after the end of the fifth Bond Year and every fifth
Bond  Year  thereafter,  and  within  five  days  after  payment  in full of all
outstanding  Bonds, the Company shall calculate the amount of Excess Earnings as
of the end of that Bond Year or the date of such  payment  and shall  notify the
Trustee of that amount. If the amount then on deposit in the Rebate Fund created
under the  Indenture  is less than the amount of Excess  Earnings  (computed  by
taking into account the amount or amounts, if any, previously paid to the United
States pursuant to Section 5.09 of the Indenture and this Section),  the Company
shall, within five days after the date of the aforesaid calculation,  pay to the
Trustee for deposit in the Rebate Fund an amount  sufficient to cause the Rebate
Fund to contain an amount equal to the Excess  Earnings.  The  obligation of the
Company to make such  payments  shall  remain in effect and be binding  upon the
Company notwithstanding the release and discharge of the Indenture.  The Company
shall obtain and keep such  records of the  computations  made  pursuant to this
Section as are required under Section 148(f) of the Code.

                              (End of Article III)



                                  ARTICLE IV.

                         LOAN BY ISSUER; LOAN PAYMENTS;
                      ADDITIONAL PAYMENTS; CREDIT FACILITY

Section 4.1. Loan  Repayment.  Upon the terms and conditions of this  Agreement,
the Issuer  agrees to make the Loan to the  Company.  The  proceeds  of the Loan
shall be  deposited  with  the  Trustee  pursuant  to  Section  3.3  hereof.  In
consideration  of and in repayment  of the Loan,  the Company  shall,  under all
circumstances and without reduction for any reason,  make, as Loan Payments,  to
the  Trustee for the account of the Issuer,  payments  which  correspond,  as to
time, and are equal in amount as of the Loan Payment Date, to the  corresponding
Bond Service  Charges  payable on the Bonds.  All Loan Payments  received by the
Trustee  shall be held and disbursed in  accordance  with the  provisions of the
Indenture  and this  Agreement  for  application  to the payment of Bond Service
Charges.

          The Company  shall be entitled to a credit  against the Loan  Payments
     required to be made on any Loan Payment Date to the extent that the balance
     of the Bond Fund is then in excess of amounts  required (a) for the payment
     of Bonds theretofore matured or theretofore called for redemption, or to be
     called for redemption pursuant to Section 6.1 hereof (b) for the payment of
     interest  for  which  checks or drafts  have been  drawn and  mailed by the
     Trustee or Paying  Agent,  and (c) to be  deposited in the Bond Fund by the
     Indenture for use other than for the payment of Bond Service Charges due on
     that Loan Payment Date.

          The Company's obligation to make Loan Payments shall be reduced to the
     extent of any  payments  made by the Bond Insurer to the Trustee in respect
     of the  principal  of,  premium,  if any, or interest on the Bonds when due
     pursuant to the Bond Insurance Policy,  provided, that the Bond Insurer has
     been  reimbursed  for such  payments  in  accordance  with the terms of the
     Insurance Agreement.

          Except  for  such  interest  of the  Company  as may  hereafter  arise
     pursuant to Section 8.2 hereof or Sections  5.07 or 5.08 of the  Indenture,
     the Company and the Issuer each acknowledge  that neither the Company,  the
     State nor the Issuer has any interest in the Bond Fund or the Bond Purchase
     Fund, and any moneys deposited  therein shall be in the custody of and held
     by the Trustee in trust for the benefit of the Holders.

Section  4.2.  Additional  Payments.  The Company  shall pay to the  Issuer,  as
Additional  Payments  hereunder,  any  and all  reasonable  costs  and  expenses
incurred  or to be paid by the  Issuer  in  connection  with  the  issuance  and
delivery of the Bonds or otherwise  related to actions taken by the Issuer under
this Agreement or the Indenture.

          The Company shall pay the Administration  Expenses to the Trustee, the
     Registrar,  the Remarketing  Agent, the Auction Agent, and any Paying Agent
     or Authenticating Agent, as appropriate, as Additional Payments hereunder.

          The Company may, without creating a default hereunder, contest in good
     faith the reasonableness of any such cost or expense incurred or to be paid
     by the  Issuer  and any  Administration  Expenses  claimed to be due to the
     Trustee,  the Registrar,  the Auction Agent,  the  Remarketing  Agent,  any
     Paying Agent or any Authenticating Agent.

          In the  event  the  Company  should  fail  to pay any  Loan  Payments,
     Additional Payments or Administration Expenses as provided herein when due,
     the payment in default shall continue as an obligation of the Company until
     the amount in default  shall have been fully paid  together  with  interest
     thereon during the default period at the Interest Rate for Advances.

Section  4.3.  Place of  Payments.  The  Company  shall  make all Loan  Payments
directly to the Trustee at its Principal  Office.  Additional  Payments shall be
made directly to the person or entity to whom or to which they are due.

Section 4.4. Obligations  Unconditional.  The obligations of the Company to make
Loan  Payments,  Additional  Payments and any  payments  required of the Company
under Section 5.09 of the Indenture shall be absolute and unconditional, and the
Company  shall make such  payments  without  abatement,  diminution or deduction
regardless  of  any  cause  or  circumstances   whatsoever  including,   without
limitation,  any defense, set-off,  recoupment or counterclaim which the Company
may  have or  assert  against  the  Issuer,  the  Trustee,  the  Registrar,  the
Remarketing Agent, the Auction Agent, the Paying Agent or any other Person.

Section 4.5. Assignment of Revenues and Agreement. To secure the payment of Bond
Service  Charges,  the  Issuer  shall,  by the  Indenture,  (a)  absolutely  and
irrevocably  assign to the Trustee,  its  successors  in trust and its and their
assigns  forever,  all of the Issuer's  rights and remedies under this Agreement
(except for the Unassigned Issuer Rights),  and (b) grant a security interest to
the Trustee,  its successors in trust and its and their assigns forever,  in all
of its rights to and interest in the Revenues including, without limitation, all
Loan Payments and other  amounts  receivable by or on behalf of the Issuer under
the Agreement in respect of repayment of the Loan. The Company hereby agrees and
consents to those assignments and that grant of a security interest.

Section 4.6. Bond Insurance Policy; Liquidity Facility; Cancellation.

     (a)  The  Company  agrees to support the  payment of the  principal  of and
          interest  on the  Bonds by  causing  the Bond  Insurance  Policy to be
          delivered to the Trustee on the date of the delivery of the Bonds.

     (b)  The Company may provide for the delivery of a Liquidity Facility.

     (c)  The Company may cancel any  Liquidity  Facility then in effect at such
          time and direct the  Trustee in writing to  surrender  such  Liquidity
          Facility to the  Liquidity  Facility  Issuer by which it was issued in
          accordance  with the Indenture;  provided,  that no such  cancellation
          shall become  effective and no such  surrender  shall take place until
          all Bonds  subject to  purchase  pursuant  to  Section  4.07(d) of the
          Indenture have been so purchased or redeemed with the proceeds of such
          Liquidity Facility.

Section 4.7. Company's Option to Elect Rate Period;  Changes in Auction Date and
Length of Auction  Periods.  The Company shall have, and is hereby granted,  the
option to elect to convert on any Conversion Date the interest rate borne by the
Bonds to another Variable Rate or to return to the Auction Rate, to be effective
for a Rate Period  pursuant to the provisions of Article II of the Indenture and
subject to the terms and conditions  set forth  therein.  The Company shall also
have the  option to direct  the  change of  Auction  Dates  and/or the length of
Auction Rate Periods (as such terms are defined in the  Indenture) in accordance
with the Indenture. To exercise such options, the Company shall give the written
notice required by the Indenture.

Section 4.8.  Company's  Obligation to Purchase Bonds. The Company hereby agrees
to pay or cause to be paid to the Trustee or the Paying Agent, on or before each
day on which Bonds may be or are required to be tendered for  purchase,  amounts
equal to the amounts to be paid by the Trustee or the Paying  Agent with respect
to the Bonds  tendered for purchase on such dates  pursuant to Article IV of the
Indenture;  provided,  however,  that the  obligation of the Company to make any
such  payment  under this  Section  shall be reduced by the amount of (A) moneys
paid by the  Remarketing  Agent as proceeds of the  remarketing of such Bonds by
the Remarketing Agent, (B) moneys drawn under a Liquidity Facility,  if any, for
the purpose of paying such purchase price and (C) other moneys made available by
the Company, as set forth in Section 4.08(b)(ii) of the Indenture.

                               (End of Article IV)



                                   ARTICLE V.

                       ADDITIONAL AGREEMENTS AND COVENANTS

Section 5.1. Right of Inspection. The Company agrees that, subject to reasonable
security and safety regulations and to reasonable requirements as to notice, the
Issuer and the  Trustee  and their or any of their  respective  duly  authorized
agents  shall have the right at all  reasonable  times to enter upon the Project
Sites to examine and inspect the Projects.

Section  5.2.  Maintenance.  The Company  shall use its best efforts to keep and
maintain the Project  Facilities,  including all  appurtenances  thereto and any
personal  property  therein  or  thereon,  in good  repair  and  good  operating
condition so that the Project  Facilities will continue to constitute  Pollution
Control  Facilities  for the  purposes of the  operation  thereof as required by
Section 5.4 hereof.

          So long as such  shall not be in  violation  of the Act or impair  the
     character of the Project  Facilities as Pollution  Control  Facilities  and
     provided there is continued compliance with applicable laws and regulations
     of governmental  entities having  jurisdiction  thereof,  the Company shall
     have  the  right to  remodel  the  Project  Facilities  or make  additions,
     modifications  and  improvements  thereto,  from time to time as it, in its
     discretion, may deem to be desirable for its uses and purposes, the cost of
     which remodeling,  additions,  modifications and improvements shall be paid
     by the Company and the same shall,  when made, become a part of the Project
     Facilities.

Section 5.3.  Removal of Portions of the Project  Facilities.  The Company shall
not be under  any  obligation  to  renew,  repair  or  replace  any  inadequate,
obsolete,  worn out,  unsuitable,  undesirable  or  unnecessary  portions of the
Project Facilities,  except that, subject to Section 5.4 hereof, it will use its
best  efforts to ensure the  continued  character of the Project  Facilities  as
Pollution Control Facilities. The Company shall have the right from time to time
to  substitute  personal  property or fixtures  for any  portions of the Project
Facilities, provided that the personal property or fixtures so substituted shall
not  impair  the  character  of the  Project  Facilities  as  Pollution  Control
Facilities.   Any  such  substituted   property  or  fixtures  shall,   when  so
substituted,  become a part of the Project  Facilities.  The Company  shall also
have the  right  to  remove  any  portion  of the  Project  Facilities,  without
substitution therefor; provided, that the Company shall deliver to the Trustee a
certificate  signed  by an  Engineer  describing  said  portion  of the  Project
Facilities  and stating that the removal of such  property or fixtures  will not
impair the character of the Project Facilities as Pollution Control Facilities.

Section 5.4. Operation of Project  Facilities.  The Company will, subject to its
obligations  and rights to  maintain,  repair or remove  portions of the Project
Facilities,  as provided in Sections 5.2 and 5.3 hereof, use its best efforts to
continue  operation of the Project  Facilities so long as and to the extent that
operation thereof is required to comply with laws or regulations of governmental
entities  having  jurisdiction  thereof or unless the Issuer shall have approved
the  discontinuance  of such operation (which approval shall not be unreasonably
withheld).  The  Company  agrees  that it will,  within  the  design  capacities
thereof,  use its best efforts to operate and maintain the Project Facilities in
accordance with all applicable,  valid and enforceable  rules and regulations of
governmental  entities having jurisdiction thereof;  provided,  that the Company
reserves the right to contest in good faith any such laws or regulations.

          Nothing in this  Agreement  shall prevent or restrict the Company,  in
     its sole discretion,  at any time, from  discontinuing or suspending either
     permanently or temporarily its use of any facility of the Company served by
     the Project  Facilities and in the event such  discontinuance or suspension
     shall render unnecessary the continued operation of the Project Facilities,
     the  Company  shall  have the right to  discontinue  the  operation  of the
     Project  Facilities  during  the  period  of  any  such  discontinuance  or
     suspension.

Section 5.5.  Insurance.  The Company  shall cause the Project  Facilities to be
kept  insured  against  fire or other  casualty to the extent  that  property of
similar  character  is usually so insured by  companies  similarly  situated and
operating like properties  (including  self-insurance  generally consistent with
industry practice),  to a reasonable amount by reputable insurance companies or,
in lieu of or supplementing such insurance in whole or in part, adopt some other
method or plan of  protection  against  loss by fire or other  casualty at least
equal in protection to the method or plan of protection  against loss by fire or
other casualty of companies similarly situated and operating  properties subject
to similar or greater fire or other  hazards or on which  properties an equal or
higher primary fire or other  casualty  insurance rate has been set by reputable
insurance companies.

Section  5.6.  Workers'  Compensation  Coverage.  Throughout  the  term  of this
Agreement,  the Company  shall  comply,  or cause  compliance,  with  applicable
workers' compensation laws of the State.

Section 5.7. Damage; Destruction and Eminent Domain. If, during the term of this
Agreement, the Project Facilities or any portion thereof is destroyed or damaged
in whole or in part by fire or other casualty, or title to, or the temporary use
of, the Project  Facilities or any portion  thereof shall have been taken by the
exercise  of the power of  eminent  domain,  the  Company  (unless it shall have
exercised its option to prepay the Loan Payments pursuant to Section 6.2 hereof)
shall promptly repair,  rebuild or restore the portion of the Project Facilities
so damaged, destroyed or taken with such changes,  alterations and modifications
(including the  substitution and addition of other property) as may be necessary
or desirable for the  administration  and operation of the Project Facilities as
Pollution  Control   Facilities  and  as  shall  not  impair  the  character  or
significance of the Project Facilities as furthering the purposes of the Act.

Section 5.8. Company to Maintain its Corporate Existence; Conditions Under Which
Exceptions  Permitted.  The  Company  agrees  that,  during  the  term  of  this
Agreement,  it will  maintain  its  corporate  existence,  will not  dissolve or
otherwise  dispose  of all or  substantially  all of its  assets  and  will  not
consolidate  with or merge into another  corporation or permit one or more other
corporations  to  consolidate  with or merge into it;  provided that the Company
may, without violating its agreement contained in this Section, consolidate with
or merge into another  corporation,  or permit one or more other corporations to
consolidate  with or merge  into it, or sell or  otherwise  transfer  to another
corporation all or substantially all of its assets as an entirety and thereafter
dissolve,  provided the surviving,  resulting or transferee corporation,  as the
case may be (if other than the Company), is a corporation organized and existing
under the laws of one of the states of the United States, and assumes in writing
all  of  the  obligations  of  the  Company  herein,  and,  if  not  an  Indiana
corporation, is qualified to do business in the State.

          If consolidation, merger or sale or other transfer is made as provided
     in this Section,  the  provisions  of this Section  shall  continue in full
     force and  effect  and no  further  consolidation,  merger or sale or other
     transfer  shall be made except in  compliance  with the  provisions of this
     Section.

Section 5.9. Indemnification.

     (a)  The Company  releases the Issuer from,  agrees that the Issuer and the
          State shall not be liable for,  and shall  indemnify,  defend and hold
          harmless  the Issuer and the State from and against  all  liabilities,
          claims,  costs, loss, penalty,  tax and expenses,  including attorneys
          fees and  expenses of any nature  imposed  upon,  incurred or asserted
          against the Issuer on account of: (i) the acceptance or administration
          of the  Indenture  by the Trustee or the  performance  of the Issuer's
          duties  thereunder,   except  with  respect  to  liability  from  such
          Trustee's  gross  negligence or willful  misconduct in connection with
          such action taken; (ii) any loss or damage to property or injury to or
          death of or loss by any  person  that may be  occasioned  by any cause
          whatsoever  pertaining to the  acquisition,  construction,  equipping,
          installation,  maintenance,  operation or use,  non-use,  condition or
          occupancy  of the  Projects  or a part  thereof;  (iii) any  breach or
          default on the part of the Company in the  performance of any covenant
          or  agreement  of the  Company  under  this Loan  Agreement,  the Bond
          Purchase  Agreement or any contract or other  document  related to the
          Projects or a part thereof,  or arising from any act or failure to act
          or  misrepresentation  by the Company, or any of the Company's agents,
          contractors,  servants,  employees or licensees; (iv) violation of any
          law, ordinance, or regulation arising out of the ownership, occupancy,
          or use of the Projects or a part thereof; (v) undertaking the Projects
          or the failure to undertake the Projects;  (vi) any act,  omitted act,
          or  misrepresentation  by the  Issuer  in  connection  with  or in the
          performance  of any  obligation  related  to the  issuance,  sale,  or
          delivery of (or failure to issue,  sell,  or deliver)  the Bonds under
          this Loan Agreement or the Indenture,  or any other agreement executed
          by or on behalf of the Issuer  (provided  that  nothing in this clause
          should be  construed  to  indemnify  or release  the  Issuer  from any
          liability   which  it  would  otherwise  have  had  arising  from  the
          intentional misrepresentation or willful misconduct on the part of the
          Issuer);  (vii) the authorization,  issuance,  failure to issue, sale,
          remarketing,  trading,  redemption or servicing of the Bonds,  and the
          provision of any information or certification  furnished in connection
          therewith concerning the Bonds, the Projects or the Company including,
          without  limitation,  the Official  Statement  (as defined in the Bond
          Purchase Agreement), any information furnished by the Company for, and
          included   in,  or  used  as  a  basis   for   preparation   of,   any
          certifications,  information  statements  or reports  furnished by the
          Issuer (including,  without limitation,  IRS Form 8038), and any other
          information or  certification  obtained from the Company to assure the
          exclusion  of the  interest  on the  Bonds  from  gross  income of the
          holders thereof for federal income tax purposes;  (viii) the Company's
          failure to comply with, any  requirement of this Loan Agreement or the
          Code  pertaining  to such  exclusion of that  interest,  including the
          covenants in Section 5.10 hereof and in the Tax Certificate;  and (ix)
          any claim,  action or  proceeding  brought with respect to the matters
          set forth in (i), (ii), (iii), (iv), (v), (vi), (vii) or (viii) above,
          except as limited or  excluded  based upon gross  negligence,  willful
          misconduct or intentional misrepresentation.

          The Company  agrees to indemnify the Trustee,  the Paying  Agent,  the
     Remarketing  Agent,  the Auction Agent and the Registrar (each  hereinafter
     referred to in this  Section as an  "indemnified  party")  for, and to hold
     each of them harmless against, all liabilities, claims, costs and expenses,
     incurred without gross negligence or willful  misconduct on the part of the
     indemnified  party on account of any action taken or omitted to be taken by
     the indemnified  party in accordance with the terms of this Loan Agreement,
     the Bonds or the  Indenture,  or any action taken at the request of or with
     the  consent  of the  Company,  including  the  costs and  expenses  of the
     indemnified  party in defending  itself  against any such claim,  action or
     proceeding brought in connection with the exercise or performance of any of
     its powers or duties under this Loan Agreement, the Bonds or the Indenture.

          In case any action or proceeding  is brought  against the Issuer or an
     indemnified  party in respect of which  indemnity may be sought  hereunder,
     the party seeking  indemnity  promptly  shall give notice of that action or
     proceeding  to the  Company,  and the Company  upon  receipt of that notice
     shall have the obligation and the right to assume the defense of the action
     or proceeding;  provided, that failure of a party to give that notice shall
     not relieve  the Company  from any of its  obligations  under this  Section
     unless that failure  prejudices  the defense of the action or proceeding by
     the Company.  At its own expense,  an indemnified party may employ separate
     counsel and  participate  in the defense;  provided,  however,  where it is
     ethically  inappropriate  for one firm to  represent  the  interests of the
     Issuer and any other  indemnified  party or parties,  the Company shall pay
     the Issuer's  legal expenses in connection  with the Issuer's  retention of
     separate  counsel.  The Company shall not be liable for any settlement made
     without the Company's consent.

          The  indemnification  set forth above is intended to and shall include
     the release  and  indemnification  of all  affected  officials,  directors,
     members, officers, employees,  attorneys, agents, successors and assigns of
     the Issuer,  the Trustee,  the Paying Agent,  the  Remarketing  Agent,  the
     Auction Agent and the  Registrar,  respectively,  past,  present or future.
     Each release and/or indemnification is intended to and shall be enforceable
     by the Issuer and the Trustee, the Paying Agent, the Remarketing Agent, the
     Auction Agent and the Registrar, respectively, to the full extent permitted
     by law.

     (b)  Notwithstanding the foregoing, the Company shall be entitled to pursue
          its remedies  against the Issuer for damages to the Company  resulting
          directly from personal  injury or property  damage caused by the gross
          negligence or willful misconduct of the Issuer.

     (c)  No  covenant or  agreement  contained  in the Bonds or this  Agreement
          shall be deemed to be a  covenant  or  agreement  of any member of the
          Issuer  or of any  officer  or  employee  of the  Issuer in his or her
          individual  capacity,  and  neither  the  Issuer  nor any  officer  or
          employee of the Issuer executing the Bonds shall be liable  personally
          on the Bonds or be subject to any personal liability or accountability
          by reason of the issuance of the Bonds.

     (d)  The  indemnity  set forth  herein  shall be in  addition  to any other
          obligations  of the Company to the holder or amounts due  hereunder to
          the  Issuer or at common  law or  otherwise,  and  shall  survive  any
          termination  of this  Agreement,  and the  payment of all  obligations
          hereunder.

Section  5.10.  Company Not to Adversely  Affect  Exclusion of Interest on Bonds
From Gross Income For Federal Income Tax Purposes.  The Company hereby covenants
and represents that it has taken and caused to be taken and shall take and cause
to be taken all actions that may be required of it for the interest on the Bonds
to be and remain  excluded  from the gross  income of the  Holders  for  federal
income tax  purposes,  and that it has not taken or permitted to be taken on its
behalf,  and  covenants  that it will not  take,  or  permit  to be taken on its
behalf,  any action which, if taken, would adversely affect that exclusion under
the provisions of the Code.

Section 5.11. Ownership of Projects;  Use of Projects. The Issuer agrees that it
does not have and shall not have any  interest  in, title to or ownership of the
Projects or the Project Site. The Issuer does hereby  covenant and agree that it
will not take any action, or cause any action to be taken on its behalf,  during
the term of this Agreement, other than pursuant to Article VII of this Agreement
or Article VII of the  Indenture,  to  interfere  with the  Company's  ownership
interest  in the  Projects or to prevent  the  Company  from having  possession,
custody,  use and enjoyment of the Projects,  except such action as is requested
by the Trustee in enforcing any remedies available to it under this Agreement or
the Indenture.

Section 5.12. Assignment by Company. Notwithstanding any other provision of this
Loan  Agreement,  this  Agreement  may be  assigned  in  whole or in part by the
Company and the  Projects  may be sold or  conveyed  by the Company  without the
necessity of obtaining the consent of either the Issuer or the Trustee and after
providing  written notice to the Issuer but,  subject,  however,  to each of the
following conditions:

     (a)  The Company must provide the Trustee and the Remarketing Agent with an
          Opinion of Bond Counsel that such action will not affect the exclusion
          of the interest on the Bonds for federal income tax purposes.

     (b)  The Company shall, within 30 days after execution thereof,  furnish or
          cause  to be  furnished  to the  Issuer  and the  Trustee  a true  and
          complete copy of each such assignment  together with any instrument of
          assumption.

     (c)  Any  assignment   from  the  Company  shall  not   materially   impair
          fulfillment of the Project Purposes to be accomplished by operation of
          the Projects as herein provided.



                               (End of Article V)


                                  ARTICLE VI.

                                   REDEMPTION

Section  6.1.  Optional  Redemption.  Provided  no Event of  Default  shall have
occurred and be  subsisting,  at any time and from time to time, the Company may
deliver  moneys to the  Trustee  in  addition  to Loan  Payments  or  Additional
Payments  required  to be made and  direct  the  Trustee  to use the  moneys  so
delivered for the purpose of calling Bonds for optional redemption in accordance
with  the  applicable   provisions  of  the  Indenture  providing  for  optional
redemption at the redemption price stated in the Indenture.  Pending application
for those  purposes,  any moneys so delivered  shall be held by the Trustee in a
special  account in the Bond Fund and delivery of those moneys shall not, except
as set forth in Section 4.1 hereof,  operate to abate or postpone  Loan Payments
or Additional  Payments  otherwise becoming due or to alter or suspend any other
obligations of the Company under this Agreement.

Section 6.2. Extraordinary Optional Redemption.  The Company shall have, subject
to the conditions  hereinafter  imposed, the option during a Term Rate Period to
direct the  redemption  of the Bonds in whole upon the  occurrence  of the event
described  below in paragraph  (c) and in part upon the  occurrence of the other
events  described  below in  accordance  with the  applicable  provisions of the
Indenture.  In the event that any of the events described below affect less than
all of the Project Facilities and the Generating  Stations which they serve, the
Bonds may be redeemed in an amount equal to the outstanding  principal amount of
the Bonds  multiplied by the  following  allocable  percentage  figures for each
Project Facility:  7% for the Gallagher  Generating Station,  48% for the Gibson
Generating  Station,  1%, for the Wabash River  Generating  Station,  1% for the
Edwardsport Generating Station, and 43% for the Cayuga Generating Station.

     (a)  The Project  Facilities or the  Generating  Stations  which they serve
          shall have been  damaged or  destroyed to such an extent that (1) such
          Project  Facilities or such  Generating  Station cannot  reasonably be
          expected to be restored, within a period of six consecutive months, to
          the condition thereof immediately preceding such damage or destruction
          or (2)  the  Company  is  reasonably  expected  to be  prevented  from
          carrying on its normal use and operation of such Project Facilities or
          such Generating Station for a period of six consecutive months.

     (b)  Title to, or the temporary use of, all or a significant part of one or
          more of the Project  Facilities or the  Generating  Station which they
          serve shall have been taken under the exercise of the power of eminent
          domain  to such an extent  that (1) such  Project  Facilities  or such
          Generating Station cannot reasonably be expected to be restored within
          a period  of six  consecutive  months  to a  condition  of  usefulness
          comparable to that existing  prior to the taking or (2) the Company is
          reasonably  expected to be prevented  from  carrying on its normal use
          and operation of such Project  Facilities or such  Generating  Station
          for a period of six consecutive months.

     (c)  As a result of any  changes  in the  Constitution  of the  State,  the
          Constitution  of the United  States of America or any state or federal
          laws or as a result of legislative or  administrative  action (whether
          state or federal) or by final  decree,  judgment or order of any court
          or  administrative  body (whether state or federal)  entered after any
          contest  thereof by the  Issuer or the  Company  in good  faith,  this
          Agreement  shall have become void or  unenforceable  or  impossible of
          performance  in accordance  with the intent and purpose of the parties
          as expressed in this Agreement.

     (d)  Unreasonable burdens or excessive  liabilities shall have been imposed
          upon the  Issuer or the  Company  with  respect  to one or more of the
          Project  Facilities or the Generating  Station which they serve or the
          operation thereof,  including,  without limitation,  the imposition of
          federal,  state or other ad valorem,  property,  income or other taxes
          other  than ad  valorem  taxes  at the  rates  presently  levied  upon
          privately  owned  property  used for the same general  purpose as such
          Project Facilities or such Generating Station.

     (e)  Changes  in the  economic  availability  of raw  materials,  operating
          supplies, energy sources or supplies or facilities (including, but not
          limited to,  facilities in connection  with the disposal of industrial
          wastes)  necessary  for the  operation  of one or more of the  Project
          Facilities or the Generating  Station which they serve for the Project
          Purposes  occur or  technological  or other  changes  occur  which the
          Company  cannot  reasonably  overcome  or  control  and  which  in the
          Company's  reasonable  judgment render such Project Facilities or such
          Generating Station uneconomic or obsolete for the Project Purposes.

     (f)  Any court or  administrative  body shall  enter a  judgment,  order or
          decree, or shall take administrative action,  requiring the Company to
          cease all or any substantial  part of its operations  served by one or
          more of the Project  Facilities or the  Generating  Station which they
          serve to such  extent that the  Company is or will be  prevented  from
          carrying on its normal  operations at such Project  Facilities or such
          Generating Station for a period of six consecutive months.

     (g)  The termination by the Company of operations at the Generating Station
          which is served by any of the Project Facilities.

          The amount  payable by the Company in the event of its exercise of the
     option granted in this Section shall be the sum of the following:

          (i)  An  amount  of  money  which,   when  added  to  the  moneys  and
               investments  held  to  the  credit  of the  Bond  Fund,  will  be
               sufficient pursuant to the provisions of the Indenture to pay, at
               100% of the principal amount thereof plus accrued interest to the
               redemption   date,  and   discharge,   all  or  such  portion  of
               Outstanding  Bonds  to be  redeemed  on the  earliest  applicable
               redemption date, that amount to be paid to the Trustee, plus

          (ii) An amount of money equal to the Additional  Payments  relating to
               those Bonds  accrued and to accrue until actual final payment and
               redemption  of those Bonds,  that amount or  applicable  portions
               thereof to be paid to the Trustee or to the Persons to whom those
               Additional Payments are or will be due.

The requirement of (ii) above with respect to Additional  Payments to accrue may
be met if  provisions  satisfactory  to the  Trustee and the Issuer are made for
paying those amounts as they accrue.

          The rights and options  granted to the Company in this  Section may be
     exercised  whether or not the  Company is in default  hereunder;  provided,
     that such  default  will not  relieve  the Company  from  performing  those
     actions  which are  necessary to exercise any such right or option  granted
     hereunder.

Section 6.3. Mandatory Redemption.  The Company shall deliver to the Trustee the
moneys  needed to redeem the Bonds in accordance  with any mandatory  redemption
provisions  relating  thereto  as may be set  forth in  Section  4.01(b)  of the
Indenture.

Section 6.4. Notice of Redemption. In order to exercise an option granted in, or
to  consummate  a redemption  required  by, this Article VI, the Company  shall,
within 180 days following the event  authorizing the exercise of such option, or
at any time during the  continuation of the condition  referred to in paragraphs
(c), (d) or (e) of Section 6.2 hereof,  or at any time that optional  redemption
of the Bonds is permitted under the Indenture as provided in Section 6.1 hereof,
or promptly upon the occurrence of a Determination  of Taxability,  give written
notice to the Issuer and the Trustee that it is exercising  its option to direct
the redemption of Bonds,  or that the redemption  thereof is required by Section
4.01(b) of the Indenture due to the occurrence of a Determination of Taxability,
as the case may be, in  accordance  with the Agreement  and the  Indenture,  and
shall specify  therein the date on which such  redemption  is to be made,  which
date shall not be more than 180 days from the date such  notice is  mailed.  The
Company shall make  arrangements  satisfactory  to the Trustee for the giving of
the  required  notice  of  redemption  to the  Holders  of the  Bonds,  in which
arrangements the Issuer shall cooperate.

Section 6.5. Actions by Issuer. Subject to Section 4.2 hereof, at the request of
the Company or the Trustee, the Issuer shall take all steps required of it under
the applicable provisions of the Indenture or the Bonds to effect the redemption
of all or a portion of the Bonds pursuant to this Article VI.

                               (End of Article VI)


                                  ARTICLE VII.

                         EVENTS OF DEFAULT AND REMEDIES

Section  7.1.  Events of  Default.  Each of the  following  shall be an Event of
Default:

     (a)  The  occurrence of an event of default as defined in Section 7.01 (a),
          (b), (c) or (d) of the Indenture;

     (b)  The Company  shall fail to observe  and  perform any other  agreement,
          term or condition contained in this Agreement, other than such failure
          as will have  resulted in an event of default  described  in (a) above
          and the  continuation  of that  failure  for a period of 90 days after
          notice  thereof  shall have been given to the Company by the Issuer or
          the Trustee,  or for such longer  period as the Issuer and the Trustee
          may agree to in writing;  provided,  that failure shall not constitute
          an Event of Default so long as the Company institutes  curative action
          within the  applicable  period and  diligently  pursues that action to
          completion within 150 days after the expiration of initial cure period
          as  determined  above,  or within such longer period as the Issuer and
          the Trustee may agree to in writing;

     (c)  The  receipt by the Trustee of written  notice  from the Bond  Insurer
          that an event of default  has  occurred  and is  continuing  under the
          Insurance Agreement; and

     (d)  By decree of a court of competent  jurisdiction  the Company  shall be
          adjudicated a bankrupt, or an order shall be made approving a petition
          or answer filed seeking  reorganization or readjustment of the Company
          under  the  federal  bankruptcy  laws or other law or  statute  of the
          United  States  of  America  or of the state of  incorporation  of the
          Company or of any other state, or, by order of such a court, a trustee
          in  bankruptcy,  a receiver or receivers  shall be appointed of all or
          substantially all of the property of the Company,  and any such decree
          or order shall have  continued  unstayed on appeal or otherwise and in
          effect for a period of sixty (60) days; and

     (e)  The Company  shall file a petition in  voluntary  bankruptcy  or shall
          make an  assignment  for the benefit of creditors or shall  consent to
          the  appointment  of a receiver or receivers of all or any part of its
          property,   or  shall  file  a  petition  seeking   reorganization  or
          readjustment under the Federal bankruptcy laws or other law or statute
          of the United States of America or any state thereof,  or shall file a
          petition to take advantage of any debtors' act.

          Notwithstanding  the foregoing,  if, by reason of Force  Majeure,  the
     Company is unable to perform or observe any  agreement,  term or  condition
     hereof which would give rise to an Event of Default  under  subsection  (b)
     hereof,  the Company shall not be deemed in default during the  continuance
     of such inability.  However,  the Company shall promptly give notice to the
     Trustee and the Issuer of the  existence  of an event of Force  Majeure and
     shall use its best efforts to remove the effects thereof; provided that the
     settlement of strikes or other  industrial  disturbances  shall be entirely
     within its discretion.

          The exercise of remedies  hereunder shall be subject to any applicable
     limitations  of  federal   bankruptcy  law  affecting  or  precluding  that
     declaration or exercise during the pendency of or immediately following any
     bankruptcy, liquidation or reorganization proceedings.

Section  7.2.  Remedies  on  Default.  Whenever  an Event of Default  shall have
happened and be subsisting,  either or both of the following  remedial steps may
be taken:

     (a)  The Issuer or the  Trustee may have  access to,  inspect,  examine and
          make copies of the books, records,  accounts and financial data of the
          Company, only, however, insofar as they pertain to the Projects; or

     (b)  The Issuer or the Trustee  may pursue all  remedies  now or  hereafter
          existing at law or in equity to recover  all  amounts,  including  all
          Loan Payments and Additional Payments and under Section 4.8 hereof the
          purchase price of Bonds tendered for purchase, then due and thereafter
          to become due under this Agreement,  or to enforce the performance and
          observance  of any other  obligation or agreement of the Company under
          this Agreement.

Notwithstanding  the  foregoing,  the Issuer  shall not be obligated to take any
step  which in its  opinion  will or might  cause it to expend  time or money or
otherwise  incur  liability  unless and until a satisfactory  indemnity bond has
been  furnished  to the Issuer at no cost or expense to the Issuer.  Any amounts
collected as Loan  Payments or applicable to Loan Payments and any other amounts
which would be applicable to payment of Bond Service Charges collected  pursuant
to action taken under this Section  shall be paid into the Bond Fund and applied
in accordance with the provisions of the Indenture or, if the outstanding  Bonds
have  been  paid  and  discharged  in  accordance  with  the  provisions  of the
Indenture,  shall be paid as  provided  in  Section  5.08 of the  Indenture  for
transfers of remaining amounts in the Bond Fund.

          The  provisions of this Section are subject to the further  limitation
     that the  rescission and annulment by the Trustee of its  declaration  that
     all of the Bonds are  immediately  due and payable also shall  constitute a
     rescission and annulment of any corresponding  declaration made pursuant to
     this Section and a rescission  and  annulment of the  consequences  of that
     declaration  and of the  Event  of  Default  with  respect  to  which  that
     declaration  has been made,  provided that no such rescission and annulment
     shall  extend to or affect any  subsequent  or other  default or impair any
     right consequent thereon.

Section 7.3. No Remedy  Exclusive.  No remedy  conferred upon or reserved to the
Issuer or the Trustee by this Agreement is intended to be exclusive of any other
available remedy or remedies, but each and every such remedy shall be cumulative
and shall be in addition to every other  remedy given under this  Agreement,  or
now or hereafter existing at law, in equity or by statute.  No delay or omission
to exercise any right or power accruing upon any default shall impair that right
or power or shall be  construed  to be a waiver  thereof,  but any such right or
power  may be  exercised  from  time  to  time  and as  often  as may be  deemed
expedient.  In order to entitle the Issuer or the Trustee to exercise any remedy
reserved to it in this  Article,  it shall not be  necessary to give any notice,
other than any notice  required by law or for which  express  provision  is made
herein.

Section  7.4.  Agreement to Pay  Attorneys'  Fees and  Expenses.  If an Event of
Default  should  occur and the  Issuer or the  Trustee  should  incur  expenses,
including  attorneys' fees, in connection with the enforcement of this Agreement
or the collection of sums due hereunder,  the Company shall be required,  to the
extent permitted by law, to reimburse the Issuer and the Trustee, as applicable,
for the expenses so incurred upon demand.

Section  7.5. No Waiver.  No failure by the Issuer or the Trustee to insist upon
the strict performance by the Company of any provision hereof shall constitute a
waiver of their  right to strict  performance  and no  express  waiver  shall be
deemed to apply to any other existing or subsequent  right to remedy the failure
by the Company to observe or comply with any provision hereof.

Section 7.6. Notice of Default. The Company shall notify the Trustee immediately
if it becomes aware of the  occurrence  of any Event of Default  hereunder or of
any fact, condition or event which, with the giving of notice or passage of time
or both, would become an Event of Default.

                              (End of Article VII)


                                 ARTICLE VIII.

                                  MISCELLANEOUS

Section 8.1. Term of Agreement. This Agreement shall be and remain in full force
and effect  from the date of  delivery  of the Bonds to the  Original  Purchaser
until such time as (i) all of the Bonds shall have been fully paid (or provision
made for such payment) and the  Indenture has been released  pursuant to Section
9.01 thereof and (ii) all other sums payable by the Company under this Agreement
shall have been paid;  provided,  however,  the obligations of the Company under
Sections 4.2 and 5.9 hereof shall survive any termination of this Agreement.

Section 8.2. Amounts  Remaining in Funds. Any amounts in the Bond Fund remaining
unclaimed  by the  Holders  of Bonds for four years  after the due date  thereof
(whether at stated maturity, by redemption,  upon acceleration or otherwise), at
the  option  of the  Company,  shall be  deemed  to belong to and shall be paid,
subject to Section 5.07 of the Indenture, at the written request of the Company,
to the Company by the Trustee. With respect to that principal of and any premium
and interest on the Bonds to be paid from moneys paid to the Company pursuant to
the preceding sentence,  the Holders of the Bonds entitled to those moneys shall
look solely to the Company for the payment of those moneys. Further, any amounts
remaining in the Bond Fund and any other special funds or accounts created under
this Agreement or the Indenture,  except the Rebate Fund, after all of the Bonds
shall be deemed to have been paid and  discharged  under the  provisions  of the
Indenture and all other amounts required to be paid under this Agreement and the
Indenture have been paid,  shall be paid to the Company to the extent that those
moneys  are in  excess  of the  amounts  necessary  to effect  the  payment  and
discharge of the Outstanding Bonds.

Section   8.3.   Notices.   All   notices,   certificates,   requests  or  other
communications  hereunder shall be in writing, except as provided in Section 3.4
hereof,  and shall be deemed to be sufficiently  given when mailed by registered
or certified mail,  postage  prepaid,  and addressed to the  appropriate  Notice
Address.  A  duplicate  copy of  each  notice,  certificate,  request  or  other
communication  given  hereunder to the Issuer,  the Company,  the Trustee or the
Bond Insurer  shall also be given to the others.  The Company,  the Issuer,  the
Trustee and any Credit Facility Issuer, by notice given hereunder, may designate
any further or different  addresses to which subsequent  notices,  certificates,
requests or other communications shall be sent.

Section  8.4.  Extent of  Covenants of the Issuer;  No Personal  Liability.  All
covenants,  obligations and agreements of the Issuer contained in this Agreement
or the Indenture  shall be effective to the extent  authorized  and permitted by
applicable law. No such covenant,  obligation or agreement shall be deemed to be
a covenant,  obligation or agreement of any present or future  member,  officer,
agent or employee of the Issuer in other than his official capacity, and neither
the members of the Issuer nor any official  executing  the Bonds shall be liable
personally   on  the  Bonds  or  be  subject  to  any   personal   liability  or
accountability  by reason of the issuance thereof or by reason of the covenants,
obligations  or agreements of the Issuer  contained in this  Agreement or in the
Indenture.

Section 8.5.  Binding  Effect.  This Agreement shall inure to the benefit of and
shall be binding in accordance  with its terms upon the Issuer,  the Company and
their respective  permitted  successors and assigns provided that this Agreement
may not be assigned by the Company (except as permitted under Sections 5.8, 5.12
or 5.13 hereof) and may not be assigned by the Issuer  except to (i) the Trustee
pursuant to the  Indenture or as otherwise may be necessary to enforce or secure
payment of Bond Service Charges or (ii) any successor public body to the Issuer.

Section 8.6. Amendments and Supplements.  Except as otherwise expressly provided
in this Agreement or the Indenture,  subsequent to the issuance of the Bonds and
prior  to all  conditions  provided  for in the  Indenture  for  release  of the
Indenture  having  been met,  this  Agreement  may not be  effectively  amended,
changed,  modified,  altered or terminated by the parties hereto except with the
consents  required by, and in accordance  with,  the provisions of Article XI of
the Indenture, as applicable.

Section 8.7. Continuing Disclosure. The Issuer hereby .acknowledges the entry by
the Company into the Continuing Disclosure Agreement under which the Company has
assumed  certain  obligations  for the benefit of the Holders of the Bonds.  The
Company  agrees to  perform  its  obligations  under the  Continuing  Disclosure
Agreement.  The  Company  acknowledges  and  agrees  that the  Issuer  is not an
"obligated  person" (as defined in the  Continuing  Disclosure  Agreement)  with
respect  to the Bonds and  represents  that the  Company  is the only  obligated
person with respect to the Bonds.  Notwithstanding  any other  provision of this
Agreement,  any  failure by the  Company  to comply  with any  provision  of the
Continuing Disclosure Agreement shall not be a failure or a default, or an Event
of Default, under this Agreement or the Indenture.

Section  8.8.  Execution  Counterparts.  This  Agreement  may be executed in any
number of  counterparts,  each of which shall be regarded as an original and all
of which shall constitute but one and the same instrument.

Section 8.9. Severability.  If any provision of this Agreement, or any covenant,
obligation  or  agreement  contained  herein  is  determined  by a  judicial  or
administrative  authority  to be invalid or  unenforceable,  that  determination
shall not affect any other provision, covenant, obligation or agreement, each of
which shall be construed and enforced as if the invalid or unenforceable portion
were not contained herein. That invalidity or unenforceability  shall not affect
any  valid  and  enforceable  application  thereof,  and  each  such  provision,
covenant,  obligation or agreement  shall be deemed to be effective,  operative,
made,  entered  into or taken in the manner and to the full extent  permitted by
law.

Section 8.10.  Governing  Law. This  Agreement  shall be deemed to be a contract
made under the laws of the State and for all  purposes  shall be governed by and
construed in accordance with the laws of the State.

                              (End of Article VIII)





          IN WITNESS  WHEREOF,  the  Issuer and the  Company  have  caused  this
     Agreement to be duly executed in their respective names, all as of the date
     hereinbefore written.

                                     INDIANA DEVELOPMENT FINANCE
                                     AUTHORITY


                                     By: ______________________________________
                                           Timothy J. Monger, Designee of
                                           Lieutenant Governor's Office

Attest:



________________________________
Cristine M. Klika, Executive Director

















            [Issuer's Signature Page to Series 2004B Loan Agreement]





                                 PSI ENERGY, INC.



                                 By: __________________________________________
                                       Wendy L. Aumiller
                                       Treasurer











            [Company's Signature Page to Series 2004B Loan Agreement]





                                    EXHIBIT A


                                    PROJECTS


Project 1

Miscellaneous improvements to and expansion of the waste handling facilities for
the Cayuga Generating  Station used in the collection,  transport,  and storage,
handling  and disposal of solid  waste.  Cayuga  Station is located in Vermilion
County, Indiana.

Project 2

Miscellaneous  improvements  to and  expansion  of the ash handling and disposal
facilities  for the  Edwardsport  Generating  Station  used  in the  collection,
transport, and disposal of bottom ash, pyrites, economizer ash, and precipitator
fly ash. Edwardsport Station is located in Knox County, Indiana.

Project 3

Miscellaneous  improvements  to and  expansion  of the ash handling and disposal
facilities  for the Wabash  River  Generating  Station  used in the  collection,
transport, and disposal of bottom ash, pyrites, economizer ash, and precipitator
fly ash. Wabash River Station is located in Vigo County, Indiana.

Project 4

Miscellaneous  improvements  to and expansion of the waste handling and disposal
facilities for the Gibson Generating Station used in the collection,  transport,
and disposal solid wastes as a result of scrubbing  sulfur dioxide from the flue
gas stream.  This  facility  also  includes  improvements  to and  expansion  of
facilities  used in the  collection,  transport,  and  disposal  of bottom  ash,
pyrites,  economizer ash, and precipitator fly ash. Gibson Station is located in
Gibson County, Indiana.

Project 5

This  facility  covers the  improvements  to and  expansion  of the solid  waste
disposal  facilities  for the Gibson  Generating  Station Unit #3 as a result of
installation of a flue gas desulphurization  system ("FGD System").  The removal
of  sulfur  dioxide  from the flue gas  stream  creates  a solid  waste  that is
collected,  processed,  transported,  and  stored  on site  in a waste  disposal
landfill. Gibson Station is located in Gibson County, Indiana.

Projects 6 & 7

Improvements  to and  expansion of the solid waste  disposal  facilities  at the
Cayuga Generating Station as a result of the installation of FGD Systems on both
Unit 1 and Unit 2, the  purpose of which is the removal of sulfur  dioxide  from
the flue gas of each  unit.  The  removal  of sulfur  dioxide  from the flue gas
stream  creates a solid waste that is  collected,  processed,  transported,  and
stored on site in a waste disposal landfill. In addition to the new FGD Systems,
a new landfill will be  constructed  to store the solid waste created by the FGD
Systems. Cayuga Station is located in Vermilion County, Indiana.

Project 8

Improvements  to and  expansion of the solid waste  disposal  facilities  at the
Gallagher  Generating  Station as a result of the  installation of polishing bag
house  systems  (PBH  Systems) on Units 1, 2, 3 & 4, the purpose of which is the
removal of fly ash from the flue gas stream of each unit. The removal of fly ash
creates a solid waste that is  collected,  transported,  and stored on site in a
waste disposal landfill. In addition to the new PBH Systems, a new landfill will
be constructed to store the solid waste collected by the PBH Systems.  Gallagher
Station is located in Floyd County, Indiana.

Projects 9 & 10

Improvements  to and  expansion of the solid waste  disposal  facilities  at the
Gibson Generating Station as a result of installation of new FGD Systems on Unit
1 and Unit 2, the  purpose of which is the  removal of sulfur  dioxide  from the
flue gas of each unit.  The removal of sulfur  dioxide  from the flue gas stream
creates a solid waste that is collected,  processed,  transported, and stored on
site in a waste  disposal  landfill.  The solid waste will be transported to and
stored in a new landfill,  currently under  construction  for the storage of all
the station's solid waste created by the FGD Systems.  Gibson Station is located
in Gibson County, Indiana.






                                       A-2




                                    EXHIBIT B

                          FORM OF DISBURSEMENT REQUEST

                    STATEMENT NO. ___ REQUESTING DISBURSEMENT
                     OF FUNDS FROM PROJECT FUND PURSUANT TO
                   SECTION 3.4 OF THE LOAN AGREEMENT DATED AS
               OF DECEMBER 1, 2004 BETWEEN THE INDIANA DEVELOPMENT
                     FINANCE AUTHORITY AND PSI ENERGY, INC.

     Pursuant to Section 3.4 of the Loan Agreement (the "Agreement") between the
Indiana  Development  Finance Authority (the "Issuer") and PSI Energy, Inc. (the
"Company"),  dated as of December 1, 2004, the  undersigned  Authorized  Company
Representative  hereby  authorizes  Deutsche Bank  National  Trust  Company,  as
trustee  (the  "Trustee"),  as  depository  of the Project  Fund  created by the
Indenture (the "Indenture") by and between the Issuer and the Trustee, to pay to
the Company out of the moneys  deposited in said Project Fund the  aggregate sum
of  $_______________ to pay the person(s) listed on Schedule I which may include
reimbursements to the Company, for the advances,  payments and expenditures made
by it in connection  with the items listed in Schedule I, which is  incorporated
herein by reference.

     The undersigned in connection with the foregoing  request for disbursements
from said Project Fund hereby certifies that:

     (a)  Each item is properly  payable out of the Project  Fund in  accordance
          with the terms and  conditions of the Agreement and none of such items
          for which  payment is  requested  has formed the basis for any payment
          heretofore made from said Project Fund.

     (b)  Each item for which payment is requested hereunder is or was necessary
          or  appropriate  in  connection  with the  acquisition,  construction,
          equipping,  installation or improvement of the Projects, as defined in
          the Indenture and Agreement,  or costs related thereto as permitted by
          the Agreement.

     (c)  This  document  evidences the approval of the  undersigned  Authorized
          Company Representative of each payment hereby authorized.

     (d)  Each item for which disbursement is requested hereunder,  and the cost
          for each item, is as described in the  information  statement filed by
          the Issuer in connection with the issuance of the Bonds (as defined in
          the Agreement),  as required by Section 149(e) of the Code (as defined
          in the  Agreement);  provided that if the  foregoing  statement is not
          true, the average reasonably  expected economic life of the facilities
          which have been and will be paid for with moneys in the  Project  Fund
          is not less than 5/6ths of the average maturity of the Bonds.

   This _______ day of _______________, ____.

                                         _____________________________
                                         Authorized Company Representative



                                   Schedule I


     TO STATEMENT NO. _______ REQUESTING DISBURSEMENT OF FUNDS FROM PROJECT FUND
     PURSUANT TO SECTION 3.4 OF THE LOAN AGREEMENT DATED AS OF DECEMBER 1, 2004,
     BETWEEN THE INDIANA DEVELOPMENT FINANCE AUTHORITY AND PSI ENERGY, INC.

   PAYEE                         AMOUNT                                 PURPOSE
   -----------------------------------------------------------------------------





                                       B-2

EX-99

                                 LOAN AGREEMENT


                                     between


                      INDIANA DEVELOPMENT FINANCE AUTHORITY


                                       and


                                PSI ENERGY, INC.


                         _______________________________



                                   $77,125,000
                      Indiana Development Finance Authority
                    Environmental Revenue Bonds, Series 2004C
                           (PSI Energy, Inc. Projects)

                         _______________________________


                                      Dated
                                      as of
                                December 1, 2004




                                TABLE OF CONTENTS

                                                                           Page


ARTICLE I.     DEFINITIONS....................................................3

Section 1.1.   Use of Defined Terms...........................................3
Section 1.2.   Definitions....................................................3
Section 1.3.   Interpretation.................................................6
Section 1.4.   Captions and Headings..........................................7

ARTICLE II.    REPRESENTATIONS................................................8

Section 2.1.   Representations of the Issuer..................................8
Section 2.2.   No Warranty by Issuer of Condition or Suitability
                 of the Projects..............................................8
Section 2.3.   Representations and Covenants of the Company...................8

ARTICLE III.   COMPLETION OF THE PROJECTS; ISSUANCE OF THE BONDS.............11

Section 3.1.   Acquisition, Construction and Installation....................11
Section 3.2.   Project Descriptions..........................................11
Section 3.3.   Issuance of the Bonds; Application of Proceeds................11
Section 3.4.   Disbursements from the Project Fund...........................12
Section 3.5.   Company Required to Pay Costs in Event Project
                 Fund Insufficient...........................................14
Section 3.6.   Completion Date...............................................14
Section 3.7.   Investment of Fund Moneys.....................................14
Section 3.8.   Agreement as to Ownership of Projects.........................15
Section 3.9.   Use of Projects...............................................15
Section 3.10.  Rebate Fund...................................................15

ARTICLE IV.    LOAN BY ISSUER; LOAN PAYMENTS; ADDITIONAL PAYMENTS;
                 CREDIT FACILITY.............................................16

Section 4.1.   Loan Repayment................................................16
Section 4.2.   Additional Payments...........................................16
Section 4.3.   Place of Payments.............................................17
Section 4.4.   Obligations Unconditional.....................................17
Section 4.5.   Assignment of Revenues and Agreement..........................17
Section 4.6.   Bond Insurance Policy; Liquidity Facility; Cancellation.......17
Section 4.7.   Company's Option to Elect Rate Period; Changes in Auction
                 Date and Length of Auction Periods..........................18
Section 4.8.   Company's Obligation to Purchase Bonds........................18

ARTICLE V.     ADDITIONAL AGREEMENTS AND COVENANTS...........................19

Section 5.1.   Right of Inspection...........................................19
Section 5.2.   Maintenance...................................................19
Section 5.3.   Removal of Portions of the Project Facilities.................19
Section 5.4.   Operation of Project Facilities...............................19
Section 5.5.   Insurance.....................................................20
Section 5.6.   Workers' Compensation Coverage................................20
Section 5.7.   Damage; Destruction and Eminent Domain........................20
Section 5.8.   Company to Maintain its Corporate Existence; Conditions
                 Under Which Exceptions Permitted............................20
Section 5.9.   Indemnification...............................................21
Section 5.10.  Company Not to Adversely Affect Exclusion of Interest on
                 Bonds From Gross Income For Federal Income Tax Purposes.....23
Section 5.11.  Ownership of Projects; Use of Projects........................23
Section 5.12.  Assignment by Company.........................................23

ARTICLE VI.    REDEMPTION....................................................24

Section 6.1.   Optional Redemption...........................................24
Section 6.2.   Extraordinary Optional Redemption.............................24
Section 6.3.   Mandatory Redemption..........................................26
Section 6.4.   Notice of Redemption..........................................26
Section 6.5.   Actions by Issuer.............................................26

ARTICLE VII.   EVENTS OF DEFAULT AND REMEDIES................................27

Section 7.1.   Events of Default.............................................27
Section 7.2.   Remedies on Default...........................................28
Section 7.3.   No Remedy Exclusive...........................................28
Section 7.4.   Agreement to Pay Attorneys' Fees and Expenses.................29
Section 7.5.   No Waiver.....................................................29
Section 7.6.   Notice of Default.............................................29

ARTICLE VIII.  MISCELLANEOUS.................................................30

Section 8.1.   Term of Agreement.............................................30
Section 8.2.   Amounts Remaining in Funds....................................30
Section 8.3.   Notices.......................................................30
Section 8.4.   Extent of Covenants of the Issuer; No Personal Liability......30
Section 8.5.   Binding Effect................................................31
Section 8.6.   Amendments and Supplements....................................31
Section 8.7.   Continuing Disclosure.........................................31
Section 8.8.   Execution Counterparts........................................31
Section 8.9.   Severability..................................................31
Section 8.10.  Governing Law.................................................31





                                 LOAN AGREEMENT

     THIS LOAN AGREEMENT is made and entered into as of December 1, 2004 between
the INDIANA  DEVELOPMENT  FINANCE  AUTHORITY (the "Issuer"),  a body politic and
corporate, not a state agency but an independent instrumentality of the State of
Indiana (the "State"),  and PSI ENERGY,  INC. (the "Company"),  a public utility
and corporation  duly organized and validly existing under the laws of the State
of Indiana. Capitalized terms used in the following recitals are used as defined
in Article I of this Agreement.

     WHEREAS,  Indiana  Code  4-4-10.9  and -11,  as  supplemented  and  amended
(collectively,  the "Act"),  authorizes and empowers the Issuer to issue revenue
bonds and to lend the proceeds  therefrom to a user or developer for the purpose
of  financing  the  cost  of  acquisition,   construction,  or  installation  of
industrial  development  projects,  and vests the Issuer with powers that may be
necessary to enable it to accomplish such purposes; and

     WHEREAS,  the Projects (as  hereinafter  defined) to be  undertaken  by the
Company will be of the character and will  accomplish  the purposes  provided by
the Act, will promote  opportunities for the abatement,  reduction or prevention
of  pollution  and the removal or  treatment of  substances  in materials  being
processed  that  otherwise  would cause  pollution  when used,  will not have an
adverse competitive effect on similar facilities  constructed or operating in or
near Floyd, Vermillion,  Knox, Vigo and Gibson Counties in the State of Indiana,
will create  opportunities for gainful  employment and will be to the benefit of
the  health,  safety,  morals  and  general  welfare of the  citizens  of Floyd,
Vermillion, Knox, Vigo and Gibson Counties and the State; and

     WHEREAS,   the  Issuer  has  prepared  a  report  describing  the  proposed
industrial  development  projects,  estimating  the number and expense of public
works or services  that would be made  necessary or  desirable,  estimating  the
total cost of the  proposed  industrial  development  projects,  estimating  the
number  of jobs to be  created  by the  projects  and the  resulting  additional
payroll and  describing the  industrial  development  projects and how they will
abate,  reduce,  or prevent  pollution,  and has  submitted  such  report to the
executive director or chairman of the planning commission of the county in which
each industrial development project is located; and

     WHEREAS, no written comments have been received from the executive director
or chairman of such plan commissions; and

     WHEREAS, on November 16, 2004, the Issuer adopted a resolution finding that
the  Projects  and the  proposed  financing  thereof  will be of  benefit to the
health,   safety,  morals,  and  general  welfare  of  the  citizens  of  Floyd,
Vermillion,  Knox, Vigo and Gibson Counties and the State, and complies with the
purposes and  provisions of the Act after giving  notice in accordance  with the
Act and the Internal Revenue Code of 1986, as amended, and after the Issuer held
a public  hearing on November 16, 2004,  with regard to the proposed  financing,
and having  received no adverse  comments  about the  Projects  or the  proposed
financing at the public hearing; and

     WHEREAS,  the Issuer  intends  to issue its  Environmental  Revenue  Bonds,
Series 2004C (PSI Energy,  Inc.  Projects) in the aggregate  principal amount of
Seventy-Seven  One Hundred  Twenty-Five  Thousand Million Dollars  ($77,125,000)
(the "Bonds")  pursuant to the Trust Indenture dated as of December 1, 2004 (the
"Indenture"),  between the Issuer and Deutsche Bank National Trust  Company,  as
trustee  (the  "Trustee"),  in order  to  obtain  funds  to loan to the  Company
pursuant to this Loan Agreement,  between the Issuer and the Company in order to
provide  funds  for (i)  financing  a portion  of the costs of the  acquisition,
construction  and  installation  of the Projects and (ii) paying  various  costs
incidental to such financing, including costs of issuance; and

     WHEREAS,  this Loan Agreement  provides for the repayment by the Company of
the loan of the  proceeds of the Bonds and further  provides for such loan to be
secured by the lien and security  interest  provided for in this Loan Agreement;
and

     WHEREAS,  pursuant to the Indenture,  the Issuer will assign certain of its
rights  under this Loan  Agreement  as security  for the Bonds which are payable
solely out of the payments to be made by the Company  under this Loan  Agreement
and the security  interests  granted  thereby,  except to the extent paid out of
Bond proceeds and proceeds of condemnation and insurance; and

     WHEREAS,  the  execution  and  delivery  of  this  Loan  Agreement  and the
Indenture  and the  issuance of the Bonds  thereunder  have been in all respects
duly and validly  authorized  by a  resolution  duly passed and  approved by the
Issuer.

     NOW   THEREFORE,   in   consideration   of  the  premises  and  the  mutual
representations and agreements hereinafter contained, the Issuer and the Company
agree as  follows  (provided  that any  obligation  of the  Issuer  or the State
created by or arising out of this  Agreement  shall never  constitute  a general
debt of the Issuer or the State or give rise to any  pecuniary  liability of the
Issuer or the State but shall be payable  solely out of Revenues,  including the
Loan Payments made pursuant hereto and moneys drawn under any Credit Facility):




                                   ARTICLE I.

                                   DEFINITIONS

Section 1.1. Use of Defined  Terms.  In addition to the words and terms  defined
elsewhere in this Agreement,  the Indenture or by reference to another document,
the words and terms set forth in Section 1.2 hereof  shall have the meanings set
forth therein  unless the context or use clearly  indicates  another  meaning or
intent.  Such definitions  shall be equally  applicable to both the singular and
plural forms of any of the words and terms defined therein.

Section 1.2. Definitions. As used herein:

     "Additional  Payments" means the amounts required to be paid by the Company
pursuant to the provisions of Section 4.2 hereof.

     "Administration  Expenses" means the compensation (which compensation shall
not be  greater  than that  typically  charged  in  similar  circumstances)  and
reimbursement of reasonable  out-of-pocket  expenses and advances payable to the
Trustee,  the Registrar,  the Remarketing Agent, the Broker-Dealer,  the Auction
Agent, any Paying Agent and any Authenticating Agent.

     "Agreement" means this Loan Agreement, as amended or supplemented from time
to time.

     "Bond  Insurer"  means XL  Capital  Assurance  Inc.  an  insurance  company
incorporated under the laws of the State of New York.

     "Bond  Insurance  Policy" means the insurance  policy relating to the Bonds
issued by the Bond Insurer.

     "Completion Date" means the date of completion of the Projects as set forth
in the  certificate  to be  furnished  by the  Company  pursuant  to Section 3.6
hereof.

     "Construction  Period"  means  the  period  between  the  beginning  of the
acquisition,  construction,  installation,  equipping  and  improvement  of  the
Projects and the Completion Date.

     "Engineer"  means an engineer  (who may be an  employee of the  Company) or
engineering  firm qualified to practice the profession of engineering  under the
laws of the State.

     "Event of Default" means any of the events described as an Event of Default
in Section 7.1 hereof.

     "Force Majeure" means any of the following:

          (i)  acts of God; strikes,  lockouts or other industrial disturbances;
               acts of public  enemies;  orders or restraints of any kind of the
               government of the United States of America or of the State or any
               of  their  departments,   agencies,   political  subdivisions  or
               officials,  or any civil or  military  authority;  insurrections;
               civil  disturbances;  riots;  epidemics;  landslides;  lightning;
               earthquakes;  fires;  hurricanes;   tornados;  storms;  droughts;
               floods; arrests;  restraint of government and people; explosions;
               breakage,  nuclear  accidents or other malfunction or accident to
               facilities,  machinery,  transmission pipes or canals; partial or
               entire  failure of a utility  serving the Projects;  shortages of
               labor, materials, supplies or transportation; or

          (ii) any  cause,  circumstance  or event  not  reasonably  within  the
               control of the Company.

     "Generating   Stations"  means,   collectively,   the  generating  stations
described in Exhibit A hereto.

     "IDEM" means the  Department of  Environmental  Management of the State and
any successor body, agency, commission or department.

     "Indenture" means the Trust Indenture related to the Bonds, dated as of the
same date as this Agreement,  between the Issuer and the Trustee,  as amended or
supplemented from time to time.

     "Insurance Agreement" means the Insurance Agreement between the Company and
the Bond Insurer as amended or supplemented from time to time.

     "Interest  Rate for  Advances"  means the interest rate per year payable on
the Bonds.

     "Investment  Grade Rating" means a long-term debt rating by a Rating Agency
that is included in one of the four highest debt rating categories of the Rating
Agency,  provided that such rating categories shall mean generic  categories and
without  regard to or other  qualifications  of ratings within each such generic
rating category such as "+", "-", "1", "2" or "3".

     "Issuance  Costs" means all costs incurred in connection  with the issuance
and delivery of the Bonds that  constitute  issuance costs within the meaning of
Section 147(g) of the Code.

     "Liquidity   Facility"  means  a  liquidity  facility  as  defined  in  the
Indenture.

     "Loan" means the loan by the Issuer to the Company of the proceeds received
from the sale of the Bonds.

     "Loan  Payment  Date" means any date on which any Bond Service  Charges are
due and payable.

     "Loan  Payments"  means the  amounts  required to be paid by the Company in
repayment of the Loan pursuant to Section 4.1 hereof.

     "Notice Address" means:

     (a)   As to the Issuer:          Indiana Development Finance Authority
                                      One North Capitol, Suite 900
                                      Indianapolis, Indiana  46204
                                      Attention:  Executive Director

     (b)   As to the Company:         PSI Energy, Inc.
                                      139 East Fourth Street
                                      Cincinnati, Ohio  45202
                                      Attention:  Treasurer

     (c)   As to the Trustee:         Deutsche Bank National Trust Company
                                      222 South Riverside Plaza, 24th Floor
                                      Chicago, IL  60606
                                      Attention: Corporate Trust Administration

or such additional or different address,  notice of which is given under Section
8.3 hereof.

     "Opinion of Bond Counsel" means a written opinion of nationally  recognized
bond  counsel  selected  by the  Company  and  acceptable  to the Trustee who is
experienced  in matters  relating to the exclusion from gross income for federal
income  tax  purposes  of  interest  on  obligations  issued by states and their
political  subdivisions.  Bond  Counsel  may be  counsel  to the  Trustee or the
Company

     "Person" or words importing persons mean firms, associations,  partnerships
(including  without  limitation,  general  and  limited  partnerships),  limited
liability entities, joint ventures,  societies,  estates, trusts,  corporations,
public or governmental bodies, other legal entities and natural persons.

     "Pollution Control Facility" or "Pollution Control  Facilities" means those
facilities  which are pollution  control  facilities as defined in Section 24 of
Chapter 10.9 of the Act and which constitute  "solid waste disposal  facilities"
as described in Section 142(a)(6) of the Code.

     "Projects"  or "Project  Facilities"  means the real,  personal or real and
personal property, including undivided or other interests therein, identified in
the Project Descriptions,  financed with the proceeds of the Bonds, all of which
constitute  "solid waste  disposal  facilities"  under Section  142(a)(6) of the
Code.

     "Project  Costs" means the costs of the  Projects  specified in Section 3.4
hereof.

     "Project  Descriptions"  means the  descriptions of the Project  Facilities
attached hereto as Exhibit A, as the same may be amended in accordance with this
Agreement.

     "Project  Purposes" means the purposes of Pollution Control  Facilities and
related  facilities  as  described in the Act and as  particularly  described in
Exhibit A hereto.

     "Project Sites" means the sites of the Generating Stations.

     "Revenues" means (a) the Loan Payments, (b) all other moneys received or to
be  received  by the  Issuer  (excluding  any fees  paid to the  Issuer  and all
Unassigned  Issuer  Rights) or the Trustee in respect of  repayment of the Loan,
including without  limitation,  all moneys and investments in the Bond Fund, (c)
any moneys and  investments  in the Project Fund,  and (d) all income and profit
from the  investment  of the  foregoing  moneys.  The term  "Revenues"  does not
include any moneys or investments in the Rebate Fund or the Bond Purchase Fund.

     "State" means the State of Indiana.

     "Trustee" means Deutsche Bank National Trust Company, a banking corporation
duly  organized  and  validly  existing  under the laws of the United  States of
America and duly  authorized  to exercise  corporate  trust powers in the State,
until a successor  Trustee  shall have become  such  pursuant to the  applicable
provisions of the Indenture,  and thereafter  "Trustee" shall mean the successor
Trustee. "Principal Office" of the Trustee shall mean the corporate trust office
of the Trustee,  which office at the date of issuance of the Bonds is located at
its Notice Address.

     "Unassigned Issuer Rights" means all of the rights of the Issuer to receive
Additional  Payments under Section 4.2 hereof, to inspection pursuant to Section
5.1 hereof,  to be held harmless and indemnified under Section 5.9 hereof, to be
reimbursed for attorney's fees and expenses under Section 7.4 hereof and to give
or withhold  consent to  amendments,  changes,  modifications,  alterations  and
termination of this Agreement  under Section 8.6 hereof and its right to enforce
such rights.

Section 1.3. Interpretation. Any reference herein to the State, to the Issuer or
to any member or officer of either includes entities or officials  succeeding to
their  respective  functions,  duties  or  responsibilities  pursuant  to  or by
operation of law or lawfully performing their functions.

     Any reference to a section or provision of the Constitution of the State or
the Act, or to a section,  provision or chapter of the Indiana  Code,  or to any
statute of the United States of America,  includes  that  section,  provision or
chapter as amended, modified,  revised,  supplemented or superseded from time to
time;  provided,  that  no  amendment,  modification,  revision,  supplement  or
superseding  section,  provision or chapter shall be applicable solely by reason
of this  provision,  if it constitutes in any way an impairment of the rights or
obligations of the Issuer, the State, the Holders,  the Trustee,  the Registrar,
the Auction Agent, an  Authenticating  Agent, a Paying Agent,  the Bond Insurer,
the Remarketing Agent or the Company under this Agreement,  the Indenture or the
Bonds.

     Unless the context indicates otherwise, words importing the singular number
include  the  plural  number,  and vice  versa;  the terms  "hereof",  "hereby",
"herein",  "hereto",  "hereunder" and similar terms refer to this Agreement; and
the term "hereafter"  means after, and the term "heretofore"  means before,  the
date of delivery of the Bonds. Words of any gender include the correlative words
of the other genders, unless the sense indicates otherwise.

Section 1.4. Captions and Headings.  The captions and headings in this Agreement
are used solely for  convenience  of  reference  and in no way define,  limit or
describe the scope or intent of any Articles, Sections, subsections,  paragraphs
or subparagraphs or clauses hereof.

                               (End of Article I)


                                  ARTICLE II.

                                 REPRESENTATIONS

Section 2.1.  Representations  of the Issuer. The Issuer represents that: (a) it
is a  body  politic  and  corporate,  not a  state  agency  but  an  independent
instrumentality  of the State of Indiana,  duly  organized and validly  existing
under  the  laws of the  State;  (b) it has  duly  accomplished  all  conditions
necessary  to be  accomplished  by it prior to the  issuance and delivery of the
Bonds and the execution and delivery of this Agreement and the Indenture; (c) it
is not in violation  of or in conflict  with any  provisions  of the laws of the
State which would impair its ability to carry out its  obligations  contained in
this  Agreement  or the  Indenture;  (d)  it is  empowered  to  enter  into  the
transactions  contemplated by this Agreement and the Indenture;  (e) it has duly
authorized  the  execution,  delivery and  performance of this Agreement and the
Indenture;  (f) it will do all  things  in its  power in order to  maintain  its
existence or assure the assumption of its  obligations  under this Agreement and
the Indenture by any successor public body; and (g) following reasonable notice,
a public  hearing was held on November  16, 2004 with respect to the issuance of
the Bonds as required by Section 147 of the Code.

Section 2.2. No Warranty by Issuer of Condition or Suitability of the
Projects.  The Issuer makes no warranty,  either  express or implied,  as to the
suitability or utilization  of the Projects for the Project  Purposes,  or as to
the condition of the Project  Facilities or that the Project  Facilities  are or
will be suitable for the Company's purposes or needs.

Section  2.3.   Representations  and  Covenants  of  the  Company.  The  Company
represents that:

     (a)  The Company has been duly  incorporated  and is validly  existing as a
          corporation  under the laws of the  State,  with  power and  authority
          (corporate  and other) to own its properties and conduct its business,
          to execute and deliver this  Agreement and to perform its  obligations
          under this Agreement.

     (b)  This Agreement has been duly authorized, executed and delivered by the
          Company and this Agreement  constitutes  the valid and legally binding
          obligations  of the  Company,  enforceable  in  accordance  with their
          terms,  subject,  as  to  enforcement,   to  bankruptcy,   insolvency,
          reorganization and other laws of general applicability  relating to or
          affecting creditors' rights and to general equity principles.

     (c)  The  execution,  delivery  and  performance  by the  Company  of  this
          Agreement and the consummation of the transactions contemplated hereby
          will not violate any provision of law or regulation  applicable to the
          Company,  or of any  writ  or  decree  of any  court  or  governmental
          instrumentality,  or of the  Amended  Articles  of  Consolidation,  as
          amended, or the By-laws of the Company, or of any mortgage, indenture,
          contract,  agreement  or other  undertaking  to which the Company is a
          party or which  purports to be binding upon the Company or upon any of
          its assets.

     (d)  The  Projects to be acquired,  constructed,  equipped,  installed  and
          improved  at the Project  Sites,  as  provided  under this  Agreement,
          constitute  Pollution Control Facilities under the Act, are consistent
          with and will  further  the  purposes  of the Act and will be  located
          entirely  within the State.  The Company will cause the Projects to be
          operated  and   maintained  in  such  manner  as  to  conform  to  all
          applicable,  if any, zoning,  planning,  building,  environmental  and
          other applicable governmental  regulations and all permits,  variances
          and  orders  issued  or  granted  pursuant   thereto,   including  the
          permit-to-install  for each portion of the  Projects,  which  permits,
          variances and orders have not been  withdrawn or otherwise  suspended,
          and to be consistent with the Act;

     (e)  It is expected that the Projects will be utilized as Pollution Control
          Facilities  under the Act  commencing  promptly  as  portions  thereof
          become  available for  utilization,  but in any event on or before the
          Completion Date;

     (f)  It presently intends to use or operate or cause to be used or operated
          the Projects in a manner  consistent  with the Project  Purposes until
          the date on which  the  Bonds  have  been  fully  paid and knows of no
          reason why the Projects will not be so operated.  The Company does not
          presently  intend to sell or otherwise  dispose of the Projects or any
          portion thereof

     (g)  At least 95% of the net  proceeds  (as  defined in Section  150 of the
          Code),  of the Bonds will be used to  provide  land or  property  of a
          character  subject to the allowance for  depreciation  for purposes of
          Section 167 of the Code. The Company will not request or authorize any
          disbursement  pursuant to Section 3.4 hereof,  which,  if paid,  would
          result  in less  than 95% of such  net  proceeds  being  so used.  The
          Issuance  Costs of the Bonds  financed  with the proceeds of the Bonds
          will not exceed 2% of the proceeds of the Bonds (within the meaning of
          Section 147(g) of the Code). None of the proceeds of the Bonds will be
          used to provide working capital.

     (h)  No portion of the Projects  have been acquired and placed in operation
          at substantially the level for which it was designed for more than one
          year prior to the date of delivery of the Bonds.

     (i)  In accordance  with Section 147(b) of the Code,  the weighted  average
          maturity  of the Bonds does not exceed  120% of the  weighted  average
          reasonably  expected economic life of the facilities being financed by
          the Bonds.

     (j)  None  of the  proceeds  of the  Bonds  will be  used  to  provide  any
          airplane;  skybox or other private  luxury box;  health club facility;
          any facility  primarily used for gambling;  or any store the principal
          business of which is the sale of alcoholic  beverages for  consumption
          off premises;

     (k)  The  Projects  have been and will be used wholly to control  pollution
          and  dispose  of  solid  waste  and  sewage  and was  designed  for no
          significant purpose other than pollution control and disposal of solid
          waste and sewage,  and the Projects  were not designed to result in an
          increase in  production  or capacity,  in a material  extension of the
          useful life of the Generating Stations or, in the case of the portions
          of  the  Projects  which  are  Pollution  Control  Facilities,  in the
          recovery of by-products of any substantial value.

     (l)  Less than 25% of the net  proceeds of the Bonds will be used  directly
          or  indirectly  to acquire land or any interest  therein,  and none of
          such land is being or will be used for farming purposes; no portion of
          the net  proceeds  of the  Bonds  will be  used  to  acquire  existing
          property or any interest therein unless the first use of such property
          or interest therein is pursuant to such acquisition;

     (m)  At no time will any funds  constituting gross proceeds of the Bonds be
          used in a manner  as  would  constitute  failure  of  compliance  with
          Section 148 of the Code.

     (n)  The Bonds are not and will not be  "federally  guaranteed"  within the
          meaning of Section 149(b) of the Code.

     (o)  It is not  anticipated  that  as of the  date  hereof,  there  will be
          created  any  "replacement  proceeds",  within the  meaning of Section
          1.148-1(c)  of the  Treasury  Regulations,  with respect to the Bonds;
          however, in the event that any such replacement proceeds are deemed to
          have been created,  such amounts will be invested in  compliance  with
          Section 148 of the Code.

     (p)  At least  95% of the  proceeds  of the Bonds  will be used to  provide
          "solid  waste  disposal  facilities"  within  the  meaning  of Section
          142(a)(6) of the Code;

     (q)  The  information  furnished  by the  Company and used by the Issuer in
          preparing the certification pursuant to Section 148 of the Code and in
          preparing the information  statement pursuant to Section 149(e) of the
          Code will be accurate  and  complete as of the date of issuance of the
          Bonds; and

     (r)  The Project  Facilities  do not include any office  except for offices
          (i) located on the  Project  Sites and (ii) not more than a de minimis
          amount  of the  functions  to be  performed  at which is not  directly
          related to the day-to-day operations of the Project Facilities.

                               (End of Article II)

                                  ARTICLE III.

                COMPLETION OF THE PROJECTS; ISSUANCE OF THE BONDS

Section 3.1. Acquisition,  Construction and Installation. The Company represents
and agrees  that it (a) has caused or will cause the  Projects  to be  acquired,
constructed  and installed on the Project  Sites in accordance  with the Project
Descriptions and in conformance  with all applicable,  valid and enforceable (i)
zoning, planning,  building,  environmental and other similar regulations of all
governmental authorities having jurisdiction over the Projects and (ii) permits,
variances  and orders  issued in respect of the Projects by IDEM,  noncompliance
with which  would have a material  adverse  effect on the  Company's  ability to
operate and  maintain  the  Projects or to perform  its  obligations  hereunder,
provided  that the Company  reserves the right to contest in good faith any such
regulations,  permits,  variances or orders, (b) will use its reasonable efforts
to cause the acquisition,  construction and installation of other facilities and
real and personal  property deemed  necessary in connection with the Projects to
the end that the Projects  will fulfill the Project  Purposes,  (c) will pay all
fees,  costs  and  expenses  incurred  in  such  acquisition,  construction  and
installation and (d) will use its reasonable  efforts to ask,  demand,  sue for,
levy,  recover  and  receive  all such  sums of money,  debts and other  demands
whatsoever  which may be due, owing and payable under the terms of any contract,
order,  receipt,  writing and  instruction in connection  with the  acquisition,
construction and installation of the Projects,  and to enforce the provisions of
any contract,  agreement,  obligation,  bond or other performance  security with
respect  thereto;  provided  that in all  instances the Company shall retain the
option of settlement  of any dispute.  Any amounts  received in connection  with
actions taken under clause (d) of the  preceding  sentence,  after  deduction of
expenses  incurred  in such  recovery,  prior  to the  Completion  Date and full
disposition  of the  Project  Fund in  accordance  with this  Agreement  and the
Indenture, shall be paid into the Project Fund.

     It is  understood  that  the  Projects  are  those of the  Company  and any
contracts  made  by  the  Company  with  respect  thereto,  whether  acquisition
contracts,  installation  contracts or otherwise,  or any work to be done by the
Company on the  Projects  are made or done by the  Company on its own behalf and
not as agent or contractor for the Issuer.

Section 3.2. Project Descriptions.  The Project Descriptions may be changed from
time to time by, or with the  consent  of, the  Company  provided  that any such
change shall not  adversely  affect the  exclusion of interest on the Bonds from
gross income for federal income tax purposes.

Section 3.3. Issuance of the Bonds; Application of Proceeds. To provide funds to
make the Loan to the Company to assist the Company in the financing of a portion
of the costs of the Projects,  the Issuer will issue, sell and deliver the Bonds
to the Original Purchaser. The Bonds will be issued pursuant to the Indenture in
the aggregate  principal  amount,  will bear  interest,  will mature and will be
subject to  redemption as set forth  therein.  The Company  hereby  approves the
terms  and  conditions  of the  Indenture  and  the  Bonds,  and the  terms  and
conditions  under  which the  Bonds  will be  issued,  sold and  delivered.  The
Company, for the benefit of the Issuer and each Bondholder, shall do and perform
all acts and things  required or  contemplated  in the  Indenture  to be done or
performed by the Company.

     The proceeds  from the sale of the Bonds (other than any accrued  interest)
shall be loaned to the Company to assist the  Company in  financing a portion of
the costs of the  Projects.  Those  proceeds  shall be  deposited in the Project
Fund.  Any  accrued  interest  shall  be  deposited  in the Bond  Fund.  Pending
disbursement  pursuant to Section 3.4 hereof,  the  proceeds so deposited in the
Project Fund, together with any investment earnings thereon,  shall constitute a
part of the  Revenues  assigned  by the Issuer to the  payment  of Bond  Service
Charges as provided in the Indenture.

Section 3.4. Disbursements from the Project Fund. Disbursements from the Project
Fund  shall  be  made  only  to  reimburse  or pay the  Company,  or any  Person
designated by the Company, for the following Project Costs:

     (a)  Costs incurred  directly or indirectly  for or in connection  with the
          acquisition,  construction,  equipping, installation or improvement of
          the Projects,  including  but not limited to those costs  incurred for
          preliminary planning and studies,  architectural,  legal,  engineering
          and supervisory services,  labor,  services,  materials,  acquisition,
          construction and  installation,  recording of documents and title work
          relating to the Project Sites.

     (b)  Premiums  attributable  to all insurance  required to be taken out and
          maintained during the Construction Period with respect to the Projects
          and the premium on each surety bond, if any,  required with respect to
          work on the Projects.

     (c)  Taxes, assessments, interest on the Bonds and other charges in respect
          of  the  Projects   that  may  become  due  and  payable   during  the
          Construction Period for the Projects.

     (d)  Costs incurred directly or indirectly in seeking to enforce any remedy
          against  any  contractor  or  subcontractor  in respect of any default
          under any contract relating to the Projects.

     (e)  Financial, legal, accounting,  appraisal, printing and engraving fees,
          charges and expenses,  title insurance premiums, if any, and all other
          such fees,  charges  and  expenses  incurred  in  connection  with the
          authorization,  sale,  issuance  and  delivery  of the  Bonds  and the
          preparation  and delivery of the  Agreement,  the  Indenture and other
          related documents.

     (f)  Fees and expenses of the Trustee,  Authenticating  Agent, Paying Agent
          and Registrar (as such terms are defined in the Indenture),  including
          reasonable  counsel fees and  expenses,  properly  incurred  under the
          Indenture  that may become  due and  payable  during the  Construction
          Period, including the initial or acceptance fee of the Trustee.

     (g)  Any other incidental and necessary costs including without  limitation
          any  expenses,   fees  and  charges   relating  to  the   acquisition,
          construction or installation of the Projects.

     (h)  Payments made to the Rebate Fund.

     (i)  Any other expense permissible,  in the opinion of Bond Counsel,  under
          the Act.

     Any  disbursements  from the Project Fund for the payment of Project  Costs
shall be made by the  Trustee  only  upon the  written  order of the  Authorized
Company  Representative.  Each such  written  order  shall be in the form of the
disbursement  request  attached  hereto as Exhibit B and shall be  consecutively
numbered.  In the case of any contract  providing for the retention of a portion
of the contract price,  there shall be paid initially from the Project Fund only
the net amount  remaining  after  deduction  of any such  portion,  and when the
amount of any such retention is due and payable, then such retention may be paid
from the Project Fund.

     In addition,  the Company shall not request or authorize any  disbursements
from the  Project  Fund prior to the  Completion  Date for a purpose or function
other than to provide  solid  waste  disposal  facilities  within the meaning of
Section 142(a)(6) of the Code, unless such disbursement would not result in more
than 5% of the net  proceeds of the Bonds  (including  those  amounts  disbursed
pursuant  to this  Section  3.4) being used  other than to provide  solid  waste
disposal facilities (treating Issuance Costs so paid as being used other than to
provide solid waste  disposal  facilities),  unless in connection  with any such
disbursement  request the Company  provides  the Trustee with an opinion of Bond
Counsel  or ruling of the  Internal  Revenue  Service  to the  effect  that such
disbursement  will not cause the  interest  on the Bonds to be  included  in the
gross income of the Holders for federal income tax purposes.

     Receipt of a disbursement  request, in the form of the disbursement request
attached  hereto as Exhibit B, shall be full  authorization  for the  Trustee to
make the disbursements  requested thereby,  and the Trustee shall be entitled to
rely  without  further  inquiry  on, and shall have no duty to check,  verify or
investigate,   the  statements  and  certifications  made  therein  or  included
therewith.

     Any moneys in the Project  Fund  remaining  after the  Completion  Date and
payment, or provision for payment, in full of the Project Costs at the direction
of the Authorized Company Representative  promptly shall be (a) used to acquire,
construct  or install such  additional  real and  personal  property  comprising
Pollution  Control  Facilities as defined in the Act for use in connection  with
the Projects as is designated by the Authorized  Company  Representative and the
acquisition, construction, equipment, installation and improvement of which will
be such as is permitted under the Act, (b) used for the purchase of Bonds in the
open market for the purpose of  cancellation  at prices not  exceeding  the fair
market value thereof plus accrued interest to the date of payment therefor,  (c)
paid into the Bond Fund to be applied to the payment of Bond Service  Charges on
the Bonds or the  redemption of the Bonds,  or (d) used for a combination of the
foregoing as is provided in that  direction or for any other  purposes as are or
may be permitted  under the Act;  provided  that,  in all such cases,  (A) those
moneys  shall  be so used  or  applied  only  to the  extent  that  such  use or
application  will not, in the  opinion of Bond  Counsel or under a ruling of the
Internal Revenue Service,  adversely affect the exclusion of the interest on the
Bonds from the gross income of the Holders  thereof and (B) any money  remaining
in the Project Fund  following  completion of the Projects  shall be invested in
accordance with the Code in such manner as not to adversely affect the exclusion
of the interest on the Bonds from the gross income of the Holders thereof.

Section 3.5. Company  Required to Pay Costs in Event Project Fund  Insufficient.
If moneys in the Project Fund are not sufficient to pay all Project  Costs,  the
Company,  nonetheless,  will  complete  the Projects or cause the Projects to be
completed,  in order to  fulfill  the  Project  Purposes  and shall pay all such
additional  Project Costs from its own funds.  The Company shall not be entitled
to any reimbursement for any such additional  Project Costs from the Issuer, the
Trustee  or the  Holders of any of the Bonds,  nor shall it be  entitled  to any
abatement,  diminution or postponement of the Loan Payments. The Issuer does not
make any representation that the moneys which will be paid into the Project Fund
and which under the  provisions of this  Agreement will be available for payment
of Project Costs, will be sufficient to pay all the costs which will be incurred
in that connection. The Company agrees that if after exhaustion of the moneys in
the Project  Fund,  the Company  should pay  pursuant  hereto any portion of the
costs  listed  in  Section  3.4  hereof,   it  shall  not  be  entitled  to  any
reimbursement therefor from the State, the Issuer, the Trustee or the Holders of
any of the Bonds.

Section  3.6.  Completion  Date.  The  Company  shall  notify the Issuer and the
Trustee of the Completion Date by a certificate signed by the Authorized Company
Representative stating:

     (a)  the date on which the Projects  were  substantially  completed and all
          other  facilities  necessary in connection with the Projects have been
          acquired, constructed and installed;

     (b)  that the  acquisition,  construction  and installation of the Projects
          and such other  facilities have been  accomplished in such a manner as
          to conform  with all  applicable,  legal and valid  zoning,  planning,
          building, environmental and other similar governmental regulations, so
          as not to have a material  adverse effect on the Company's  ability to
          operate  the  Projects  for  the  Project  Purposes  and  perform  its
          obligations hereunder;

     (c)  that,  except as provided in clause (d) of this Section 3.6, all costs
          of that  acquisition  and  installation  then and  theretofore due and
          payable have been paid; and

     (d)  the amount which the Trustee  shall retain in the Project Fund for the
          payment  of  Project  Costs not yet due or for  liabilities  which the
          Company is  contesting or which  otherwise  should be retained and the
          reasons such amount should be retained.

That  certificate  may state that it is given  without  prejudice  to any rights
against third parties which then exist or subsequently  may come into being. The
Authorized  Company   Representative  shall  include  with  that  certificate  a
statement  describing  the items of personal  property  comprising a part of the
Projects.  The certificate  shall be delivered as promptly as practicable  after
the occurrence of the events and  conditions  referred to in clauses (a) through
(d) of this Section.

Section 3.7.  Investment  of Fund  Moneys.  At the oral  (confirmed  promptly in
writing) or written request of the Company,  any moneys held as part of the Bond
Fund, the Project Fund or the Rebate Fund shall be invested or reinvested by the
Trustee in Eligible Investments; provided, that such moneys shall be invested or
reinvested by the Trustee only in Eligible  Investments  which shall mature,  or
which shall be subject to redemption by the holder thereof at the option of such
holder,  not later than the date upon which the moneys so invested are needed to
make  payments  from those  Funds.  The Company  hereby  covenants  that it will
restrict that  investment  and  reinvestment  and the use of the proceeds of the
Bonds in such manner and to such extent, if any, as may be necessary so that the
Bonds will not constitute arbitrage bonds under Section 148 of the Code.

     The  Company  shall  provide the Issuer  with,  and the Issuer may base its
certificate and statement, each as authorized by the Bond Resolution,  solely on
a certificate of an appropriate  officer,  employee or agent of or consultant to
the  Company for  inclusion  in the  transcript  of  proceedings  for the Bonds,
setting forth the reasonable expectations of the Company on the date of delivery
of and payment for the Bonds regarding the amount and use of the proceeds of the
Bonds and the facts, estimates and circumstances on which those expectations are
based.

Section 3.8.  Agreement as to Ownership of Projects.  The Issuer  agrees that it
shall not have any  interest  in,  title to or  ownership of the Projects or the
Project Sites.

Section 3.9. Use of Projects.  The Issuer does hereby covenant and agree that it
will not take any  action,  or cause any action to be taken,  during the term of
this Agreement,  other than pursuant to Article VII of this Agreement or Article
VII of the Indenture,  to interfere with the Company's ownership of the Projects
or to prevent the Company from having possession,  custody, use and enjoyment of
the Projects, except such action as is requested by the Trustee in enforcing any
remedies available to it under this Agreement or the Indenture.

Section  3.10.  Rebate  Fund.  To the extent  required  by  Section  5.09 of the
Indenture, within five days after the end of the fifth Bond Year and every fifth
Bond  Year  thereafter,  and  within  five  days  after  payment  in full of all
outstanding  Bonds, the Company shall calculate the amount of Excess Earnings as
of the end of that Bond Year or the date of such  payment  and shall  notify the
Trustee of that amount. If the amount then on deposit in the Rebate Fund created
under the  Indenture  is less than the amount of Excess  Earnings  (computed  by
taking into account the amount or amounts, if any, previously paid to the United
States pursuant to Section 5.09 of the Indenture and this Section),  the Company
shall, within five days after the date of the aforesaid calculation,  pay to the
Trustee for deposit in the Rebate Fund an amount  sufficient to cause the Rebate
Fund to contain an amount equal to the Excess  Earnings.  The  obligation of the
Company to make such  payments  shall  remain in effect and be binding  upon the
Company notwithstanding the release and discharge of the Indenture.  The Company
shall obtain and keep such  records of the  computations  made  pursuant to this
Section as are required under Section 148(f) of the Code.

                              (End of Article III)


                                  ARTICLE IV.

                         LOAN BY ISSUER; LOAN PAYMENTS;
                      ADDITIONAL PAYMENTS; CREDIT FACILITY

Section 4.1. Loan  Repayment.  Upon the terms and conditions of this  Agreement,
the Issuer  agrees to make the Loan to the  Company.  The  proceeds  of the Loan
shall be  deposited  with  the  Trustee  pursuant  to  Section  3.3  hereof.  In
consideration  of and in repayment  of the Loan,  the Company  shall,  under all
circumstances and without reduction for any reason,  make, as Loan Payments,  to
the  Trustee for the account of the Issuer,  payments  which  correspond,  as to
time, and are equal in amount as of the Loan Payment Date, to the  corresponding
Bond Service  Charges  payable on the Bonds.  All Loan Payments  received by the
Trustee  shall be held and disbursed in  accordance  with the  provisions of the
Indenture  and this  Agreement  for  application  to the payment of Bond Service
Charges.

     The  Company  shall be  entitled  to a  credit  against  the Loan  Payments
required to be made on any Loan  Payment  Date to the extent that the balance of
the Bond Fund is then in excess of amounts required (a) for the payment of Bonds
theretofore  matured or theretofore  called for redemption,  or to be called for
redemption  pursuant to Section  6.1 hereof (b) for the payment of interest  for
which  checks or drafts  have been  drawn and  mailed by the  Trustee  or Paying
Agent,  and (c) to be deposited in the Bond Fund by the  Indenture for use other
than for the payment of Bond Service Charges due on that Loan Payment Date.

     The  Company's  obligation  to make Loan  Payments  shall be reduced to the
extent of any payments made by the Bond Insurer to the Trustee in respect of the
principal of, premium, if any, or interest on the Bonds when due pursuant to the
Bond Insurance Policy,  provided,  that the Bond Insurer has been reimbursed for
such payments in accordance with the terms of the Insurance Agreement.

     Except for such interest of the Company as may hereafter  arise pursuant to
Section 8.2 hereof or Sections  5.07 or 5.08 of the  Indenture,  the Company and
the Issuer each acknowledge  that neither the Company,  the State nor the Issuer
has any  interest  in the Bond Fund or the Bond  Purchase  Fund,  and any moneys
deposited  therein  shall be in the  custody of and held by the Trustee in trust
for the benefit of the Holders.

Section  4.2.  Additional  Payments.  The Company  shall pay to the  Issuer,  as
Additional  Payments  hereunder,  any  and all  reasonable  costs  and  expenses
incurred  or to be paid by the  Issuer  in  connection  with  the  issuance  and
delivery of the Bonds or otherwise  related to actions taken by the Issuer under
this Agreement or the Indenture.

     The  Company  shall pay the  Administration  Expenses to the  Trustee,  the
Registrar,  the Remarketing  Agent,  the Auction Agent,  and any Paying Agent or
Authenticating Agent, as appropriate, as Additional Payments hereunder.

     The Company  may,  without  creating a default  hereunder,  contest in good
faith the  reasonableness  of any such cost or expense incurred or to be paid by
the Issuer and any Administration Expenses claimed to be due to the Trustee, the
Registrar,  the Auction Agent,  the Remarketing  Agent,  any Paying Agent or any
Authenticating Agent.

     In the event the Company should fail to pay any Loan  Payments,  Additional
Payments or Administration  Expenses as provided herein when due, the payment in
default  shall  continue as an  obligation  of the  Company  until the amount in
default shall have been fully paid together  with  interest  thereon  during the
default period at the Interest Rate for Advances.

Section  4.3.  Place of  Payments.  The  Company  shall  make all Loan  Payments
directly to the Trustee at its Principal  Office.  Additional  Payments shall be
made directly to the person or entity to whom or to which they are due.

Section 4.4. Obligations  Unconditional.  The obligations of the Company to make
Loan  Payments,  Additional  Payments and any  payments  required of the Company
under Section 5.09 of the Indenture shall be absolute and unconditional, and the
Company  shall make such  payments  without  abatement,  diminution or deduction
regardless  of  any  cause  or  circumstances   whatsoever  including,   without
limitation,  any defense, set-off,  recoupment or counterclaim which the Company
may  have or  assert  against  the  Issuer,  the  Trustee,  the  Registrar,  the
Remarketing Agent, the Auction Agent, the Paying Agent or any other Person.

Section 4.5. Assignment of Revenues and Agreement. To secure the payment of Bond
Service  Charges,  the  Issuer  shall,  by the  Indenture,  (a)  absolutely  and
irrevocably  assign to the Trustee,  its  successors  in trust and its and their
assigns  forever,  all of the Issuer's  rights and remedies under this Agreement
(except for the Unassigned Issuer Rights),  and (b) grant a security interest to
the Trustee,  its successors in trust and its and their assigns forever,  in all
of its rights to and interest in the Revenues including, without limitation, all
Loan Payments and other  amounts  receivable by or on behalf of the Issuer under
the Agreement in respect of repayment of the Loan. The Company hereby agrees and
consents to those assignments and that grant of a security interest.

Section 4.6. Bond Insurance Policy; Liquidity Facility; Cancellation.

     (a)  The  Company  agrees to support the  payment of the  principal  of and
          interest  on the  Bonds by  causing  the Bond  Insurance  Policy to be
          delivered to the Trustee on the date of the delivery of the Bonds.

     (b)  The Company may provide for the delivery of a Liquidity Facility.

     (c)  The Company may cancel any  Liquidity  Facility then in effect at such
          time and direct the  Trustee in writing to  surrender  such  Liquidity
          Facility to the  Liquidity  Facility  Issuer by which it was issued in
          accordance  with the Indenture;  provided,  that no such  cancellation
          shall become  effective and no such  surrender  shall take place until
          all Bonds  subject to  purchase  pursuant  to  Section  4.07(d) of the
          Indenture have been so purchased or redeemed with the proceeds of such
          Liquidity Facility.

Section 4.7. Company's Option to Elect Rate Period;  Changes in Auction Date and
Length of Auction  Periods.  The Company shall have, and is hereby granted,  the
option to elect to convert on any Conversion Date the interest rate borne by the
Bonds to another Variable Rate or to return to the Auction Rate, to be effective
for a Rate Period  pursuant to the provisions of Article II of the Indenture and
subject to the terms and conditions  set forth  therein.  The Company shall also
have the  option to direct  the  change of  Auction  Dates  and/or the length of
Auction Rate Periods (as such terms are defined in the  Indenture) in accordance
with the Indenture. To exercise such options, the Company shall give the written
notice required by the Indenture.

Section 4.8.  Company's  Obligation to Purchase Bonds. The Company hereby agrees
to pay or cause to be paid to the Trustee or the Paying Agent, on or before each
day on which Bonds may be or are required to be tendered for  purchase,  amounts
equal to the amounts to be paid by the Trustee or the Paying  Agent with respect
to the Bonds  tendered for purchase on such dates  pursuant to Article IV of the
Indenture;  provided,  however,  that the  obligation of the Company to make any
such  payment  under this  Section  shall be reduced by the amount of (A) moneys
paid by the  Remarketing  Agent as proceeds of the  remarketing of such Bonds by
the Remarketing Agent, (B) moneys drawn under a Liquidity Facility,  if any, for
the purpose of paying such purchase price and (C) other moneys made available by
the Company, as set forth in Section 4.08(b)(ii) of the Indenture.

                               (End of Article IV)


                                   ARTICLE V.

                       ADDITIONAL AGREEMENTS AND COVENANTS

Section 5.1. Right of Inspection. The Company agrees that, subject to reasonable
security and safety regulations and to reasonable requirements as to notice, the
Issuer and the  Trustee  and their or any of their  respective  duly  authorized
agents  shall have the right at all  reasonable  times to enter upon the Project
Sites to examine and inspect the Projects.

Section  5.2.  Maintenance.  The Company  shall use its best efforts to keep and
maintain the Project  Facilities,  including all  appurtenances  thereto and any
personal  property  therein  or  thereon,  in good  repair  and  good  operating
condition so that the Project  Facilities will continue to constitute  Pollution
Control  Facilities  for the  purposes of the  operation  thereof as required by
Section 5.4 hereof.

     So  long  as such  shall  not be in  violation  of the  Act or  impair  the
character of the Project Facilities as Pollution Control Facilities and provided
there  is  continued   compliance   with  applicable  laws  and  regulations  of
governmental  entities having jurisdiction  thereof,  the Company shall have the
right to remodel the Project  Facilities or make  additions,  modifications  and
improvements thereto, from time to time as it, in its discretion, may deem to be
desirable for its uses and purposes,  the cost of which  remodeling,  additions,
modifications and improvements  shall be paid by the Company and the same shall,
when made, become a part of the Project Facilities.

Section 5.3.  Removal of Portions of the Project  Facilities.  The Company shall
not be under  any  obligation  to  renew,  repair  or  replace  any  inadequate,
obsolete,  worn out,  unsuitable,  undesirable  or  unnecessary  portions of the
Project Facilities,  except that, subject to Section 5.4 hereof, it will use its
best  efforts to ensure the  continued  character of the Project  Facilities  as
Pollution Control Facilities. The Company shall have the right from time to time
to  substitute  personal  property or fixtures  for any  portions of the Project
Facilities, provided that the personal property or fixtures so substituted shall
not  impair  the  character  of the  Project  Facilities  as  Pollution  Control
Facilities.   Any  such  substituted   property  or  fixtures  shall,   when  so
substituted,  become a part of the Project  Facilities.  The Company  shall also
have the  right  to  remove  any  portion  of the  Project  Facilities,  without
substitution therefor; provided, that the Company shall deliver to the Trustee a
certificate  signed  by an  Engineer  describing  said  portion  of the  Project
Facilities  and stating that the removal of such  property or fixtures  will not
impair the character of the Project Facilities as Pollution Control Facilities.

Section 5.4. Operation of Project  Facilities.  The Company will, subject to its
obligations  and rights to  maintain,  repair or remove  portions of the Project
Facilities,  as provided in Sections 5.2 and 5.3 hereof, use its best efforts to
continue  operation of the Project  Facilities so long as and to the extent that
operation thereof is required to comply with laws or regulations of governmental
entities  having  jurisdiction  thereof or unless the Issuer shall have approved
the  discontinuance  of such operation (which approval shall not be unreasonably
withheld).  The  Company  agrees  that it will,  within  the  design  capacities
thereof,  use its best efforts to operate and maintain the Project Facilities in
accordance with all applicable,  valid and enforceable  rules and regulations of
governmental  entities having jurisdiction thereof;  provided,  that the Company
reserves the right to contest in good faith any such laws or regulations.

     Nothing in this  Agreement  shall  prevent or restrict the Company,  in its
sole  discretion,   at  any  time,  from   discontinuing  or  suspending  either
permanently or temporarily  its use of any facility of the Company served by the
Project  Facilities  and in the event such  discontinuance  or suspension  shall
render  unnecessary  the  continued  operation  of the Project  Facilities,  the
Company  shall  have the  right to  discontinue  the  operation  of the  Project
Facilities during the period of any such discontinuance or suspension.

Section 5.5.  Insurance.  The Company  shall cause the Project  Facilities to be
kept  insured  against  fire or other  casualty to the extent  that  property of
similar  character  is usually so insured by  companies  similarly  situated and
operating like properties  (including  self-insurance  generally consistent with
industry practice),  to a reasonable amount by reputable insurance companies or,
in lieu of or supplementing such insurance in whole or in part, adopt some other
method or plan of  protection  against  loss by fire or other  casualty at least
equal in protection to the method or plan of protection  against loss by fire or
other casualty of companies similarly situated and operating  properties subject
to similar or greater fire or other  hazards or on which  properties an equal or
higher primary fire or other  casualty  insurance rate has been set by reputable
insurance companies.

Section  5.6.  Workers'  Compensation  Coverage.  Throughout  the  term  of this
Agreement, the Company shall
comply, or cause compliance, with applicable workers' compensation laws of the State.

Section 5.7. Damage; Destruction and Eminent Domain. If, during the term of this
Agreement, the Project Facilities or any portion thereof is destroyed or damaged
in whole or in part by fire or other casualty, or title to, or the temporary use
of, the Project  Facilities or any portion  thereof shall have been taken by the
exercise  of the power of  eminent  domain,  the  Company  (unless it shall have
exercised its option to prepay the Loan Payments pursuant to Section 6.2 hereof)
shall promptly repair,  rebuild or restore the portion of the Project Facilities
so damaged, destroyed or taken with such changes,  alterations and modifications
(including the  substitution and addition of other property) as may be necessary
or desirable for the  administration  and operation of the Project Facilities as
Pollution  Control   Facilities  and  as  shall  not  impair  the  character  or
significance of the Project Facilities as furthering the purposes of the Act.

Section 5.8. Company to Maintain its Corporate Existence; Conditions Under Which
Exceptions  Permitted.  The  Company  agrees  that,  during  the  term  of  this
Agreement,  it will  maintain  its  corporate  existence,  will not  dissolve or
otherwise  dispose  of all or  substantially  all of its  assets  and  will  not
consolidate  with or merge into another  corporation or permit one or more other
corporations  to  consolidate  with or merge into it;  provided that the Company
may, without violating its agreement contained in this Section, consolidate with
or merge into another  corporation,  or permit one or more other corporations to
consolidate  with or merge  into it, or sell or  otherwise  transfer  to another
corporation all or substantially all of its assets as an entirety and thereafter
dissolve,  provided the surviving,  resulting or transferee corporation,  as the
case may be (if other than the Company), is a corporation organized and existing
under the laws of one of the states of the United States, and assumes in writing
all  of  the  obligations  of  the  Company  herein,  and,  if  not  an  Indiana
corporation, is qualified to do business in the State.

     If  consolidation,  merger or sale or other transfer is made as provided in
this Section,  the  provisions of this Section shall  continue in full force and
effect and no further  consolidation,  merger or sale or other transfer shall be
made except in compliance with the provisions of this Section.

Section 5.9. Indemnification.

     (a)  The Company  releases the Issuer from,  agrees that the Issuer and the
          State shall not be liable for,  and shall  indemnify,  defend and hold
          harmless  the Issuer and the State from and against  all  liabilities,
          claims,  costs, loss, penalty,  tax and expenses,  including attorneys
          fees and  expenses of any nature  imposed  upon,  incurred or asserted
          against the Issuer on account of: (i) the acceptance or administration
          of the  Indenture  by the Trustee or the  performance  of the Issuer's
          duties  thereunder,   except  with  respect  to  liability  from  such
          Trustee's  gross  negligence or willful  misconduct in connection with
          such action taken; (ii) any loss or damage to property or injury to or
          death of or loss by any  person  that may be  occasioned  by any cause
          whatsoever  pertaining to the  acquisition,  construction,  equipping,
          installation,  maintenance,  operation or use,  non-use,  condition or
          occupancy  of the  Projects  or a part  thereof;  (iii) any  breach or
          default on the part of the Company in the  performance of any covenant
          or  agreement  of the  Company  under  this Loan  Agreement,  the Bond
          Purchase  Agreement or any contract or other  document  related to the
          Projects or a part thereof,  or arising from any act or failure to act
          or  misrepresentation  by the Company, or any of the Company's agents,
          contractors,  servants,  employees or licensees; (iv) violation of any
          law, ordinance, or regulation arising out of the ownership, occupancy,
          or use of the Projects or a part thereof; (v) undertaking the Projects
          or the failure to undertake the Projects;  (vi) any act,  omitted act,
          or  misrepresentation  by the  Issuer  in  connection  with  or in the
          performance  of any  obligation  related  to the  issuance,  sale,  or
          delivery of (or failure to issue,  sell,  or deliver)  the Bonds under
          this Loan Agreement or the Indenture,  or any other agreement executed
          by or on behalf of the Issuer  (provided  that  nothing in this clause
          should be  construed  to  indemnify  or release  the  Issuer  from any
          liability   which  it  would  otherwise  have  had  arising  from  the
          intentional misrepresentation or willful misconduct on the part of the
          Issuer);  (vii) the authorization,  issuance,  failure to issue, sale,
          remarketing,  trading,  redemption or servicing of the Bonds,  and the
          provision of any information or certification  furnished in connection
          therewith concerning the Bonds, the Projects or the Company including,
          without  limitation,  the Official  Statement  (as defined in the Bond
          Purchase Agreement), any information furnished by the Company for, and
          included   in,  or  used  as  a  basis   for   preparation   of,   any
          certifications,  information  statements  or reports  furnished by the
          Issuer (including,  without limitation,  IRS Form 8038), and any other
          information or  certification  obtained from the Company to assure the
          exclusion  of the  interest  on the  Bonds  from  gross  income of the
          holders thereof for federal income tax purposes;  (viii) the Company's
          failure to comply with, any  requirement of this Loan Agreement or the
          Code  pertaining  to such  exclusion of that  interest,  including the
          covenants in Section 5.10 hereof and in the Tax Certificate;  and (ix)
          any claim,  action or  proceeding  brought with respect to the matters
          set forth in (i), (ii), (iii), (iv), (v), (vi), (vii) or (viii) above,
          except as limited or  excluded  based upon gross  negligence,  willful
          misconduct or intentional misrepresentation.

     The  Company  agrees to  indemnify  the  Trustee,  the  Paying  Agent,  the
Remarketing  Agent,  the  Auction  Agent  and the  Registrar  (each  hereinafter
referred to in this Section as an "indemnified  party") for, and to hold each of
them harmless against,  all liabilities,  claims,  costs and expenses,  incurred
without gross  negligence or willful  misconduct on the part of the  indemnified
party on account of any action  taken or omitted to be taken by the  indemnified
party in  accordance  with the  terms of this Loan  Agreement,  the Bonds or the
Indenture,  or any action  taken at the  request  of or with the  consent of the
Company,  including the costs and expenses of the indemnified party in defending
itself against any such claim,  action or proceeding  brought in connection with
the  exercise  or  performance  of any of its  powers or duties  under this Loan
Agreement, the Bonds or the Indenture.

     In case any  action or  proceeding  is  brought  against  the  Issuer or an
indemnified  party in respect of which  indemnity may be sought  hereunder,  the
party seeking indemnity  promptly shall give notice of that action or proceeding
to the  Company,  and the Company  upon  receipt of that  notice  shall have the
obligation  and the right to assume the  defense  of the  action or  proceeding;
provided,  that  failure of a party to give that  notice  shall not  relieve the
Company  from any of its  obligations  under this  Section  unless that  failure
prejudices  the defense of the action or proceeding  by the Company.  At its own
expense, an indemnified party may employ separate counsel and participate in the
defense; provided,  however, where it is ethically inappropriate for one firm to
represent  the  interests  of the  Issuer  and any  other  indemnified  party or
parties,  the Company shall pay the Issuer's legal  expenses in connection  with
the Issuer's retention of separate counsel.  The Company shall not be liable for
any settlement made without the Company's consent.

     The  indemnification  set forth above is intended to and shall  include the
release and  indemnification  of all  affected  officials,  directors,  members,
officers,  employees,  attorneys,  agents, successors and assigns of the Issuer,
the Trustee,  the Paying Agent, the Remarketing Agent, the Auction Agent and the
Registrar,   respectively,   past,  present  or  future.   Each  release  and/or
indemnification  is intended to and shall be  enforceable  by the Issuer and the
Trustee,  the Paying Agent,  the  Remarketing  Agent,  the Auction Agent and the
Registrar, respectively, to the full extent permitted by law.

     (b)  Notwithstanding the foregoing, the Company shall be entitled to pursue
          its remedies  against the Issuer for damages to the Company  resulting
          directly from personal  injury or property  damage caused by the gross
          negligence or willful misconduct of the Issuer.

     (c)  No  covenant or  agreement  contained  in the Bonds or this  Agreement
          shall be deemed to be a  covenant  or  agreement  of any member of the
          Issuer  or of any  officer  or  employee  of the  Issuer in his or her
          individual  capacity,  and  neither  the  Issuer  nor any  officer  or
          employee of the Issuer executing the Bonds shall be liable  personally
          on the Bonds or be subject to any personal liability or accountability
          by reason of the issuance of the Bonds.

     (d)  The  indemnity  set forth  herein  shall be in  addition  to any other
          obligations  of the Company to the holder or amounts due  hereunder to
          the  Issuer or at common  law or  otherwise,  and  shall  survive  any
          termination  of this  Agreement,  and the  payment of all  obligations
          hereunder.

Section  5.10.  Company Not to Adversely  Affect  Exclusion of Interest on Bonds
From Gross Income For Federal Income Tax Purposes.  The Company hereby covenants
and represents that it has taken and caused to be taken and shall take and cause
to be taken all actions that may be required of it for the interest on the Bonds
to be and remain  excluded  from the gross  income of the  Holders  for  federal
income tax  purposes,  and that it has not taken or permitted to be taken on its
behalf,  and  covenants  that it will not  take,  or  permit  to be taken on its
behalf,  any action which, if taken, would adversely affect that exclusion under
the provisions of the Code.

Section 5.11. Ownership of Projects;  Use of Projects. The Issuer agrees that it
does not have and shall not have any  interest  in, title to or ownership of the
Projects or the Project Site. The Issuer does hereby  covenant and agree that it
will not take any action, or cause any action to be taken on its behalf,  during
the term of this Agreement, other than pursuant to Article VII of this Agreement
or Article VII of the  Indenture,  to  interfere  with the  Company's  ownership
interest  in the  Projects or to prevent  the  Company  from having  possession,
custody,  use and enjoyment of the Projects,  except such action as is requested
by the Trustee in enforcing any remedies available to it under this Agreement or
the Indenture.

Section 5.12. Assignment by Company. Notwithstanding any other provision of this
Loan  Agreement,  this  Agreement  may be  assigned  in  whole or in part by the
Company and the  Projects  may be sold or  conveyed  by the Company  without the
necessity of obtaining the consent of either the Issuer or the Trustee and after
providing  written notice to the Issuer but,  subject,  however,  to each of the
following conditions:

     (a)  The Company must provide the Trustee and the Remarketing Agent with an
          Opinion of Bond Counsel that such action will not affect the exclusion
          of the interest on the Bonds for federal income tax purposes.

     (b)  The Company shall, within 30 days after execution thereof,  furnish or
          cause  to be  furnished  to the  Issuer  and the  Trustee  a true  and
          complete copy of each such assignment  together with any instrument of
          assumption.

     (c)  Any  assignment   from  the  Company  shall  not   materially   impair
          fulfillment of the Project Purposes to be accomplished by operation of
          the Projects as herein provided.



                               (End of Article V)


                                  ARTICLE VI.

                                   REDEMPTION

Section  6.1.  Optional  Redemption.  Provided  no Event of  Default  shall have
occurred and be  subsisting,  at any time and from time to time, the Company may
deliver  moneys to the  Trustee  in  addition  to Loan  Payments  or  Additional
Payments  required  to be made and  direct  the  Trustee  to use the  moneys  so
delivered for the purpose of calling Bonds for optional redemption in accordance
with  the  applicable   provisions  of  the  Indenture  providing  for  optional
redemption at the redemption price stated in the Indenture.  Pending application
for those  purposes,  any moneys so delivered  shall be held by the Trustee in a
special  account in the Bond Fund and delivery of those moneys shall not, except
as set forth in Section 4.1 hereof,  operate to abate or postpone  Loan Payments
or Additional  Payments  otherwise becoming due or to alter or suspend any other
obligations of the Company under this Agreement.

Section 6.2. Extraordinary Optional Redemption.  The Company shall have, subject
to the conditions  hereinafter  imposed, the option during a Term Rate Period to
direct the  redemption  of the Bonds in whole upon the  occurrence  of the event
described  below in paragraph  (c) and in part upon the  occurrence of the other
events  described  below in  accordance  with the  applicable  provisions of the
Indenture.  In the event that any of the events described below affect less than
all of the Project Facilities and the Generating  Stations which they serve, the
Bonds may be redeemed in an amount equal to the outstanding  principal amount of
the Bonds  multiplied by the  following  allocable  percentage  figures for each
Project Facility:  7% for the Gallagher  Generating Station,  48% for the Gibson
Generating  Station,  1%, for the Wabash River  Generating  Station,  1% for the
Edwardsport Generating Station, and 43% for the Cayuga Generating Station.

     (a)  The Project  Facilities or the  Generating  Stations  which they serve
          shall have been  damaged or  destroyed to such an extent that (1) such
          Project  Facilities or such  Generating  Station cannot  reasonably be
          expected to be restored, within a period of six consecutive months, to
          the condition thereof immediately preceding such damage or destruction
          or (2)  the  Company  is  reasonably  expected  to be  prevented  from
          carrying on its normal use and operation of such Project Facilities or
          such Generating Station for a period of six consecutive months.

     (b)  Title to, or the temporary use of, all or a significant part of one or
          more of the Project  Facilities or the  Generating  Station which they
          serve shall have been taken under the exercise of the power of eminent
          domain  to such an extent  that (1) such  Project  Facilities  or such
          Generating Station cannot reasonably be expected to be restored within
          a period  of six  consecutive  months  to a  condition  of  usefulness
          comparable to that existing  prior to the taking or (2) the Company is
          reasonably  expected to be prevented  from  carrying on its normal use
          and operation of such Project  Facilities or such  Generating  Station
          for a period of six consecutive months.

     (c)  As a result of any  changes  in the  Constitution  of the  State,  the
          Constitution  of the United  States of America or any state or federal
          laws or as a result of legislative or  administrative  action (whether
          state or federal) or by final  decree,  judgment or order of any court
          or  administrative  body (whether state or federal)  entered after any
          contest  thereof by the  Issuer or the  Company  in good  faith,  this
          Agreement  shall have become void or  unenforceable  or  impossible of
          performance  in accordance  with the intent and purpose of the parties
          as expressed in this Agreement.

     (d)  Unreasonable burdens or excessive  liabilities shall have been imposed
          upon the  Issuer or the  Company  with  respect  to one or more of the
          Project  Facilities or the Generating  Station which they serve or the
          operation thereof,  including,  without limitation,  the imposition of
          federal,  state or other ad valorem,  property,  income or other taxes
          other  than ad  valorem  taxes  at the  rates  presently  levied  upon
          privately  owned  property  used for the same general  purpose as such
          Project Facilities or such Generating Station.

     (e)  Changes  in the  economic  availability  of raw  materials,  operating
          supplies, energy sources or supplies or facilities (including, but not
          limited to,  facilities in connection  with the disposal of industrial
          wastes)  necessary  for the  operation  of one or more of the  Project
          Facilities or the Generating  Station which they serve for the Project
          Purposes  occur or  technological  or other  changes  occur  which the
          Company  cannot  reasonably  overcome  or  control  and  which  in the
          Company's  reasonable  judgment render such Project Facilities or such
          Generating Station uneconomic or obsolete for the Project Purposes.

     (f)  Any court or  administrative  body shall  enter a  judgment,  order or
          decree, or shall take administrative action,  requiring the Company to
          cease all or any substantial  part of its operations  served by one or
          more of the Project  Facilities or the  Generating  Station which they
          serve to such  extent that the  Company is or will be  prevented  from
          carrying on its normal  operations at such Project  Facilities or such
          Generating Station for a period of six consecutive months.

     (g)  The termination by the Company of operations at the Generating Station
          which is served by any of the Project Facilities.

     The amount  payable  by the  Company  in the event of its  exercise  of the
option granted in this Section shall be the sum of the following:

          (i)  An  amount  of  money  which,   when  added  to  the  moneys  and
               investments  held  to  the  credit  of the  Bond  Fund,  will  be
               sufficient pursuant to the provisions of the Indenture to pay, at
               100% of the principal amount thereof plus accrued interest to the
               redemption   date,  and   discharge,   all  or  such  portion  of
               Outstanding  Bonds  to be  redeemed  on the  earliest  applicable
               redemption date, that amount to be paid to the Trustee, plus

          (ii) An amount of money equal to the Additional  Payments  relating to
               those Bonds  accrued and to accrue until actual final payment and
               redemption  of those Bonds,  that amount or  applicable  portions
               thereof to be paid to the Trustee or to the Persons to whom those
               Additional Payments are or will be due.

The requirement of (ii) above with respect to Additional  Payments to accrue may
be met if  provisions  satisfactory  to the  Trustee and the Issuer are made for
paying those amounts as they accrue.

     The  rights and  options  granted to the  Company  in this  Section  may be
exercised  whether or not the Company is in default  hereunder;  provided,  that
such default will not relieve the Company from  performing  those  actions which
are necessary to exercise any such right or option granted hereunder.

Section 6.3. Mandatory Redemption.  The Company shall deliver to the Trustee the
moneys  needed to redeem the Bonds in accordance  with any mandatory  redemption
provisions  relating  thereto  as may be set  forth in  Section  4.01(b)  of the
Indenture.

Section 6.4. Notice of Redemption. In order to exercise an option granted in, or
to  consummate  a redemption  required  by, this Article VI, the Company  shall,
within 180 days following the event  authorizing the exercise of such option, or
at any time during the  continuation of the condition  referred to in paragraphs
(c), (d) or (e) of Section 6.2 hereof,  or at any time that optional  redemption
of the Bonds is permitted under the Indenture as provided in Section 6.1 hereof,
or promptly upon the occurrence of a Determination  of Taxability,  give written
notice to the Issuer and the Trustee that it is exercising  its option to direct
the redemption of Bonds,  or that the redemption  thereof is required by Section
4.01(b) of the Indenture due to the occurrence of a Determination of Taxability,
as the case may be, in  accordance  with the Agreement  and the  Indenture,  and
shall specify  therein the date on which such  redemption  is to be made,  which
date shall not be more than 180 days from the date such  notice is  mailed.  The
Company shall make  arrangements  satisfactory  to the Trustee for the giving of
the  required  notice  of  redemption  to the  Holders  of the  Bonds,  in which
arrangements the Issuer shall cooperate.

Section 6.5. Actions by Issuer. Subject to Section 4.2 hereof, at the request of
the Company or the Trustee, the Issuer shall take all steps required of it under
the applicable provisions of the Indenture or the Bonds to effect the redemption
of all or a portion of the Bonds pursuant to this Article VI.

                               (End of Article VI)


                                  ARTICLE VII.

                         EVENTS OF DEFAULT AND REMEDIES

Section  7.1.  Events of  Default.  Each of the  following  shall be an Event of
Default:

     (a)  The  occurrence of an event of default as defined in Section 7.01 (a),
          (b), (c) or (d) of the Indenture;

     (b)  The Company  shall fail to observe  and  perform any other  agreement,
          term or condition contained in this Agreement, other than such failure
          as will have  resulted in an event of default  described  in (a) above
          and the  continuation  of that  failure  for a period of 90 days after
          notice  thereof  shall have been given to the Company by the Issuer or
          the Trustee,  or for such longer  period as the Issuer and the Trustee
          may agree to in writing;  provided,  that failure shall not constitute
          an Event of Default so long as the Company institutes  curative action
          within the  applicable  period and  diligently  pursues that action to
          completion within 150 days after the expiration of initial cure period
          as  determined  above,  or within such longer period as the Issuer and
          the Trustee may agree to in writing;

     (c)  The  receipt by the Trustee of written  notice  from the Bond  Insurer
          that an event of default  has  occurred  and is  continuing  under the
          Insurance Agreement; and

     (d)  By decree of a court of competent  jurisdiction  the Company  shall be
          adjudicated a bankrupt, or an order shall be made approving a petition
          or answer filed seeking  reorganization or readjustment of the Company
          under  the  federal  bankruptcy  laws or other law or  statute  of the
          United  States  of  America  or of the state of  incorporation  of the
          Company or of any other state, or, by order of such a court, a trustee
          in  bankruptcy,  a receiver or receivers  shall be appointed of all or
          substantially all of the property of the Company,  and any such decree
          or order shall have  continued  unstayed on appeal or otherwise and in
          effect for a period of sixty (60) days; and

     (e)  The Company  shall file a petition in  voluntary  bankruptcy  or shall
          make an  assignment  for the benefit of creditors or shall  consent to
          the  appointment  of a receiver or receivers of all or any part of its
          property,   or  shall  file  a  petition  seeking   reorganization  or
          readjustment under the Federal bankruptcy laws or other law or statute
          of the United States of America or any state thereof,  or shall file a
          petition to take advantage of any debtors' act.

     Notwithstanding the foregoing,  if, by reason of Force Majeure, the Company
is unable to perform or observe any  agreement,  term or condition  hereof which
would give rise to an Event of Default under subsection (b) hereof,  the Company
shall  not be  deemed in  default  during  the  continuance  of such  inability.
However, the Company shall promptly give notice to the Trustee and the Issuer of
the  existence  of an event of Force  Majeure and shall use its best  efforts to
remove the effects  thereof;  provided  that the  settlement of strikes or other
industrial disturbances shall be entirely within its discretion.

     The  exercise  of  remedies  hereunder  shall be subject to any  applicable
limitations of federal  bankruptcy law affecting or precluding that  declaration
or exercise  during the pendency of or  immediately  following  any  bankruptcy,
liquidation or reorganization proceedings.

Section  7.2.  Remedies  on  Default.  Whenever  an Event of Default  shall have
happened and be subsisting,  either or both of the following  remedial steps may
be taken:

     (a)  The Issuer or the  Trustee may have  access to,  inspect,  examine and
          make copies of the books, records,  accounts and financial data of the
          Company, only, however, insofar as they pertain to the Projects; or

     (b)  The Issuer or the Trustee  may pursue all  remedies  now or  hereafter
          existing at law or in equity to recover  all  amounts,  including  all
          Loan Payments and Additional Payments and under Section 4.8 hereof the
          purchase price of Bonds tendered for purchase, then due and thereafter
          to become due under this Agreement,  or to enforce the performance and
          observance  of any other  obligation or agreement of the Company under
          this Agreement.

Notwithstanding  the  foregoing,  the Issuer  shall not be obligated to take any
step  which in its  opinion  will or might  cause it to expend  time or money or
otherwise  incur  liability  unless and until a satisfactory  indemnity bond has
been  furnished  to the Issuer at no cost or expense to the Issuer.  Any amounts
collected as Loan  Payments or applicable to Loan Payments and any other amounts
which would be applicable to payment of Bond Service Charges collected  pursuant
to action taken under this Section  shall be paid into the Bond Fund and applied
in accordance with the provisions of the Indenture or, if the outstanding  Bonds
have  been  paid  and  discharged  in  accordance  with  the  provisions  of the
Indenture,  shall be paid as  provided  in  Section  5.08 of the  Indenture  for
transfers of remaining amounts in the Bond Fund.

     The provisions of this Section are subject to the further  limitation  that
the rescission and annulment by the Trustee of its  declaration  that all of the
Bonds are  immediately  due and payable also shall  constitute a rescission  and
annulment of any  corresponding  declaration made pursuant to this Section and a
rescission  and annulment of the  consequences  of that  declaration  and of the
Event of Default with respect to which that declaration has been made,  provided
that no such  rescission and annulment  shall extend to or affect any subsequent
or other default or impair any right consequent thereon.

Section 7.3. No Remedy  Exclusive.  No remedy  conferred upon or reserved to the
Issuer or the Trustee by this Agreement is intended to be exclusive of any other
available remedy or remedies, but each and every such remedy shall be cumulative
and shall be in addition to every other  remedy given under this  Agreement,  or
now or hereafter existing at law, in equity or by statute.  No delay or omission
to exercise any right or power accruing upon any default shall impair that right
or power or shall be  construed  to be a waiver  thereof,  but any such right or
power  may be  exercised  from  time  to  time  and as  often  as may be  deemed
expedient.  In order to entitle the Issuer or the Trustee to exercise any remedy
reserved to it in this  Article,  it shall not be  necessary to give any notice,
other than any notice  required by law or for which  express  provision  is made
herein.

Section  7.4.  Agreement to Pay  Attorneys'  Fees and  Expenses.  If an Event of
Default  should  occur and the  Issuer or the  Trustee  should  incur  expenses,
including  attorneys' fees, in connection with the enforcement of this Agreement
or the collection of sums due hereunder,  the Company shall be required,  to the
extent permitted by law, to reimburse the Issuer and the Trustee, as applicable,
for the expenses so incurred upon demand.

Section  7.5. No Waiver.  No failure by the Issuer or the Trustee to insist upon
the strict performance by the Company of any provision hereof shall constitute a
waiver of their  right to strict  performance  and no  express  waiver  shall be
deemed to apply to any other existing or subsequent  right to remedy the failure
by the Company to observe or comply with any provision hereof.

Section 7.6. Notice of Default. The Company shall notify the Trustee immediately
if it becomes aware of the  occurrence  of any Event of Default  hereunder or of
any fact, condition or event which, with the giving of notice or passage of time
or both, would become an Event of Default.

                              (End of Article VII)

                                 ARTICLE VIII.

                                  MISCELLANEOUS

Section 8.1. Term of Agreement. This Agreement shall be and remain in full force
and effect  from the date of  delivery  of the Bonds to the  Original  Purchaser
until such time as (i) all of the Bonds shall have been fully paid (or provision
made for such payment) and the  Indenture has been released  pursuant to Section
9.01 thereof and (ii) all other sums payable by the Company under this Agreement
shall have been paid;  provided,  however,  the obligations of the Company under
Sections 4.2 and 5.9 hereof shall survive any termination of this Agreement.

Section 8.2. Amounts  Remaining in Funds. Any amounts in the Bond Fund remaining
unclaimed  by the  Holders  of Bonds for four years  after the due date  thereof
(whether at stated maturity, by redemption,  upon acceleration or otherwise), at
the  option  of the  Company,  shall be  deemed  to belong to and shall be paid,
subject to Section 5.07 of the Indenture, at the written request of the Company,
to the Company by the Trustee. With respect to that principal of and any premium
and interest on the Bonds to be paid from moneys paid to the Company pursuant to
the preceding sentence,  the Holders of the Bonds entitled to those moneys shall
look solely to the Company for the payment of those moneys. Further, any amounts
remaining in the Bond Fund and any other special funds or accounts created under
this Agreement or the Indenture,  except the Rebate Fund, after all of the Bonds
shall be deemed to have been paid and  discharged  under the  provisions  of the
Indenture and all other amounts required to be paid under this Agreement and the
Indenture have been paid,  shall be paid to the Company to the extent that those
moneys  are in  excess  of the  amounts  necessary  to effect  the  payment  and
discharge of the Outstanding Bonds.

Section   8.3.   Notices.   All   notices,   certificates,   requests  or  other
communications  hereunder shall be in writing, except as provided in Section 3.4
hereof,  and shall be deemed to be sufficiently  given when mailed by registered
or certified mail,  postage  prepaid,  and addressed to the  appropriate  Notice
Address.  A  duplicate  copy of  each  notice,  certificate,  request  or  other
communication  given  hereunder to the Issuer,  the Company,  the Trustee or the
Bond Insurer  shall also be given to the others.  The Company,  the Issuer,  the
Trustee and any Credit Facility Issuer, by notice given hereunder, may designate
any further or different  addresses to which subsequent  notices,  certificates,
requests or other communications shall be sent.

Section  8.4.  Extent of  Covenants of the Issuer;  No Personal  Liability.  All
covenants,  obligations and agreements of the Issuer contained in this Agreement
or the Indenture  shall be effective to the extent  authorized  and permitted by
applicable law. No such covenant,  obligation or agreement shall be deemed to be
a covenant,  obligation or agreement of any present or future  member,  officer,
agent or employee of the Issuer in other than his official capacity, and neither
the members of the Issuer nor any official  executing  the Bonds shall be liable
personally   on  the  Bonds  or  be  subject  to  any   personal   liability  or
accountability  by reason of the issuance thereof or by reason of the covenants,
obligations  or agreements of the Issuer  contained in this  Agreement or in the
Indenture.

Section 8.5.  Binding  Effect.  This Agreement shall inure to the benefit of and
shall be binding in accordance  with its terms upon the Issuer,  the Company and
their respective  permitted  successors and assigns provided that this Agreement
may not be assigned by the Company (except as permitted under Sections 5.8, 5.12
or 5.13 hereof) and may not be assigned by the Issuer  except to (i) the Trustee
pursuant to the  Indenture or as otherwise may be necessary to enforce or secure
payment of Bond Service Charges or (ii) any successor public body to the Issuer.

Section 8.6. Amendments and Supplements.  Except as otherwise expressly provided
in this Agreement or the Indenture,  subsequent to the issuance of the Bonds and
prior  to all  conditions  provided  for in the  Indenture  for  release  of the
Indenture  having  been met,  this  Agreement  may not be  effectively  amended,
changed,  modified,  altered or terminated by the parties hereto except with the
consents  required by, and in accordance  with,  the provisions of Article XI of
the Indenture, as applicable.

Section 8.7. Continuing Disclosure. The Issuer hereby .acknowledges the entry by
the Company into the Continuing Disclosure Agreement under which the Company has
assumed  certain  obligations  for the benefit of the Holders of the Bonds.  The
Company  agrees to  perform  its  obligations  under the  Continuing  Disclosure
Agreement.  The  Company  acknowledges  and  agrees  that the  Issuer  is not an
"obligated  person" (as defined in the  Continuing  Disclosure  Agreement)  with
respect  to the Bonds and  represents  that the  Company  is the only  obligated
person with respect to the Bonds.  Notwithstanding  any other  provision of this
Agreement,  any  failure by the  Company  to comply  with any  provision  of the
Continuing Disclosure Agreement shall not be a failure or a default, or an Event
of Default, under this Agreement or the Indenture.

Section  8.8.  Execution  Counterparts.  This  Agreement  may be executed in any
number of  counterparts,  each of which shall be regarded as an original and all
of which shall constitute but one and the same instrument.

Section 8.9. Severability.  If any provision of this Agreement, or any covenant,
obligation  or  agreement  contained  herein  is  determined  by a  judicial  or
administrative  authority  to be invalid or  unenforceable,  that  determination
shall not affect any other provision, covenant, obligation or agreement, each of
which shall be construed and enforced as if the invalid or unenforceable portion
were not contained herein. That invalidity or unenforceability  shall not affect
any  valid  and  enforceable  application  thereof,  and  each  such  provision,
covenant,  obligation or agreement  shall be deemed to be effective,  operative,
made,  entered  into or taken in the manner and to the full extent  permitted by
law.

Section 8.10.  Governing  Law. This  Agreement  shall be deemed to be a contract
made under the laws of the State and for all  purposes  shall be governed by and
construed in accordance with the laws of the State.

                              (End of Article VIII)




     IN WITNESS  WHEREOF,  the Issuer and the Company have caused this Agreement
to be duly executed in their respective  names, all as of the date  hereinbefore
written.

                                INDIANA DEVELOPMENT FINANCE
                                AUTHORITY


                                By: ___________________________________________
                                      Timothy J. Monger, Designee of
                                      Lieutenant Governor's Office

Attest:



________________________________
Cristine M. Klika, Executive Director










            [Issuer's Signature Page to Series 2004C Loan Agreement]



                                   PSI ENERGY, INC.



                                   By: ________________________________________
                                         Wendy L. Aumiller
                                         Treasurer









            [Company's Signature Page to Series 2004C Loan Agreement]




                                    EXHIBIT A


                                    PROJECTS


Project 1

Miscellaneous improvements to and expansion of the waste handling facilities for
the Cayuga Generating  Station used in the collection,  transport,  and storage,
handling  and disposal of solid  waste.  Cayuga  Station is located in Vermilion
County, Indiana.

Project 2

Miscellaneous  improvements  to and  expansion  of the ash handling and disposal
facilities  for the  Edwardsport  Generating  Station  used  in the  collection,
transport, and disposal of bottom ash, pyrites, economizer ash, and precipitator
fly ash. Edwardsport Station is located in Knox County, Indiana.

Project 3

Miscellaneous  improvements  to and  expansion  of the ash handling and disposal
facilities  for the Wabash  River  Generating  Station  used in the  collection,
transport, and disposal of bottom ash, pyrites, economizer ash, and precipitator
fly ash. Wabash River Station is located in Vigo County, Indiana.

Project 4

Miscellaneous  improvements  to and expansion of the waste handling and disposal
facilities for the Gibson Generating Station used in the collection,  transport,
and disposal solid wastes as a result of scrubbing  sulfur dioxide from the flue
gas stream.  This  facility  also  includes  improvements  to and  expansion  of
facilities  used in the  collection,  transport,  and  disposal  of bottom  ash,
pyrites,  economizer ash, and precipitator fly ash. Gibson Station is located in
Gibson County, Indiana.

Project 5

This  facility  covers the  improvements  to and  expansion  of the solid  waste
disposal  facilities  for the Gibson  Generating  Station Unit #3 as a result of
installation of a flue gas desulphurization  system ("FGD System").  The removal
of  sulfur  dioxide  from the flue gas  stream  creates  a solid  waste  that is
collected,  processed,  transported,  and  stored  on site  in a waste  disposal
landfill. Gibson Station is located in Gibson County, Indiana.

Projects 6 & 7

Improvements  to and  expansion of the solid waste  disposal  facilities  at the
Cayuga Generating Station as a result of the installation of FGD Systems on both
Unit 1 and Unit 2, the  purpose of which is the removal of sulfur  dioxide  from
the flue gas of each  unit.  The  removal  of sulfur  dioxide  from the flue gas
stream  creates a solid waste that is  collected,  processed,  transported,  and
stored on site in a waste disposal landfill. In addition to the new FGD Systems,
a new landfill will be  constructed  to store the solid waste created by the FGD
Systems. Cayuga Station is located in Vermilion County, Indiana.

Project 8

Improvements  to and  expansion of the solid waste  disposal  facilities  at the
Gallagher  Generating  Station as a result of the  installation of polishing bag
house  systems  (PBH  Systems) on Units 1, 2, 3 & 4, the purpose of which is the
removal of fly ash from the flue gas stream of each unit. The removal of fly ash
creates a solid waste that is  collected,  transported,  and stored on site in a
waste disposal landfill. In addition to the new PBH Systems, a new landfill will
be constructed to store the solid waste collected by the PBH Systems.  Gallagher
Station is located in Floyd County, Indiana.

Projects 9 & 10

Improvements  to and  expansion of the solid waste  disposal  facilities  at the
Gibson Generating Station as a result of installation of new FGD Systems on Unit
1 and Unit 2, the  purpose of which is the  removal of sulfur  dioxide  from the
flue gas of each unit.  The removal of sulfur  dioxide  from the flue gas stream
creates a solid waste that is collected,  processed,  transported, and stored on
site in a waste  disposal  landfill.  The solid waste will be transported to and
stored in a new landfill,  currently under  construction  for the storage of all
the station's solid waste created by the FGD Systems.  Gibson Station is located
in Gibson County, Indiana.






                                       A-2



                                    EXHIBIT B

                          FORM OF DISBURSEMENT REQUEST

                    STATEMENT NO. ___ REQUESTING DISBURSEMENT
                     OF FUNDS FROM PROJECT FUND PURSUANT TO
                   SECTION 3.4 OF THE LOAN AGREEMENT DATED AS
               OF DECEMBER 1, 2004 BETWEEN THE INDIANA DEVELOPMENT
                     FINANCE AUTHORITY AND PSI ENERGY, INC.

     Pursuant to Section 3.4 of the Loan Agreement (the "Agreement") between the
Indiana  Development  Finance Authority (the "Issuer") and PSI Energy, Inc. (the
"Company"),  dated as of December 1, 2004, the  undersigned  Authorized  Company
Representative  hereby  authorizes  Deutsche Bank  National  Trust  Company,  as
trustee  (the  "Trustee"),  as  depository  of the Project  Fund  created by the
Indenture (the "Indenture") by and between the Issuer and the Trustee, to pay to
the Company out of the moneys  deposited in said Project Fund the  aggregate sum
of  $_______________ to pay the person(s) listed on Schedule I which may include
reimbursements to the Company, for the advances,  payments and expenditures made
by it in connection  with the items listed in Schedule I, which is  incorporated
herein by reference.

     The undersigned in connection with the foregoing  request for disbursements
from said Project Fund hereby certifies that:

     (a)  Each item is properly  payable out of the Project  Fund in  accordance
          with the terms and  conditions of the Agreement and none of such items
          for which  payment is  requested  has formed the basis for any payment
          heretofore made from said Project Fund.

     (b)  Each item for which payment is requested hereunder is or was necessary
          or  appropriate  in  connection  with the  acquisition,  construction,
          equipping,  installation or improvement of the Projects, as defined in
          the Indenture and Agreement,  or costs related thereto as permitted by
          the Agreement.

     (c)  This  document  evidences the approval of the  undersigned  Authorized
          Company Representative of each payment hereby authorized.

     (d)  Each item for which disbursement is requested hereunder,  and the cost
          for each item, is as described in the  information  statement filed by
          the Issuer in connection with the issuance of the Bonds (as defined in
          the Agreement),  as required by Section 149(e) of the Code (as defined
          in the  Agreement);  provided that if the  foregoing  statement is not
          true, the average reasonably  expected economic life of the facilities
          which have been and will be paid for with moneys in the  Project  Fund
          is not less than 5/6ths of the average maturity of the Bonds.

         This _______ day of _______________, ____.

                                _____________________________
                                Authorized Company Representative

                                   Schedule I


TO STATEMENT  NO.  _______  REQUESTING  DISBURSEMENT  OF FUNDS FROM PROJECT FUND
PURSUANT  TO SECTION  3.4 OF THE LOAN  AGREEMENT  DATED AS OF  DECEMBER 1, 2004,
BETWEEN THE INDIANA DEVELOPMENT FINANCE AUTHORITY AND PSI ENERGY, INC.

   PAYEE                         AMOUNT                                 PURPOSE
- --------------------------------------------------------------------------------














                                       B-2