-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U/un9JF8+fg2Ed1y1GtxR1bXrUnUDF+YbYq24hCQ+5ZZpfwrVody0YlsVcLqZcXI i2CfZWFflD0uCoRWJG7dAA== 0001036050-01-000345.txt : 20010307 0001036050-01-000345.hdr.sgml : 20010307 ACCESSION NUMBER: 0001036050-01-000345 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010301 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PPL CORP CENTRAL INDEX KEY: 0000922224 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 232758192 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-11459 FILM NUMBER: 1558532 BUSINESS ADDRESS: STREET 1: TWO N NINTH ST CITY: ALLENTOWN STATE: PA ZIP: 18101 BUSINESS PHONE: 6107745151 MAIL ADDRESS: STREET 1: TWO N NINTH ST CITY: ALLENTOWN STATE: PA ZIP: 18101-1179 FORMER COMPANY: FORMER CONFORMED NAME: PP&L RESOURCES INC DATE OF NAME CHANGE: 19941123 10-K405 1 0001.txt PPL CORP CORPORATION FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 [NO FEE REQUIRED] OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to ___________ [NO FEE REQUIRED] Commission File Registrant; State of Incorporation; IRS Employer Number Address and Telephone Number Identification No. ------ ---------------------------- ------------------ 1-11459 PPL Corporation 23-2758192 (Exact name of Registrant as specified in its charter) (Pennsylvania) Two North Ninth Street Allentown, PA 18101 (610) 774-5151 1-905 PPL Electric Utilities Corporation 23-0959590 (Exact name of Registrant as specified in its charter) (Pennsylvania) Two North Ninth Street Allentown, PA 18101 (610) 774-5151 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered - ------------------- ------------------------ Common Stock of PPL Corporation New York & Philadelphia Stock Exchanges Preferred Stock of PPL Electric Utilities Corporation 4-1/2% New York & Philadelphia Stock Exchanges 3.35% Series Philadelphia Stock Exchange 4.40% Series New York & Philadelphia Stock Exchanges 4.60% Series Philadelphia Stock Exchange Company-Obligated Mandatorily Redeemable Securities of PPL Electric Utilities Corporation 8.20% Series ($25 stated value)(a) New York Stock Exchange 8.10% Series ($25 stated value)(b) New York Stock Exchange (a) Issued by PPL Capital Trust and guaranteed by PPL Electric Utilities Corporation (b) Issued by PPL Capital Trust II and guaranteed by PPL Electric Utilities Corporation Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. PPL Corporation [X] PPL Electric Utilities Corporation [X] Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. PPL Corporation Yes X No___ --- PPL Electric Utilities Corporation Yes X No___ --- As of January 31, 2001, PPL Corporation had 145,257,806 shares of its $.01 par value Common Stock outstanding, excluding 30,993,637 shares held as treasury stock. The aggregate market value of these common shares (based upon the average of the high and low price of these shares on the New York Stock Exchange on that date) held by non-affiliates was $6,007,136,567. PPL Corporation held all 102,230,382 outstanding common shares, no par value, of PPL Electric Utilities Corporation, excluding 55,070,000 shares held as treasury stock. The aggregate market value of the voting preferred stock held by non-affiliates of PPL Electric Utilities Corporation at January 31, 2001 was $82,880,271. Documents incorporated by reference: Registrants have incorporated herein by reference certain sections of PPL Corporation's 2001 Notice of Annual Meeting and Proxy Statement, and PPL Electric Utilities Corporation's 2001 Notice of Annual Meeting and Information Statement, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2000. Such Statements will provide the information required by Part III of this Report. PPL CORPORATION PPL ELECTRIC UTILITIES CORPORATION FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 2000 ------------------------------------ TABLE OF CONTENTS ----------------- This combined Form 10-K is separately filed by PPL Corporation and PPL Electric Utilities Corporation. Information contained herein relating to PPL Electric Utilities Corporation is filed by PPL Corporation and separately by PPL Electric Utilities Corporation on its own behalf. PPL Electric Utilities Corporation makes no representation as to information relating to PPL Corporation or its subsidiaries, except as it may relate to PPL Electric Utilities Corporation.
Item Page PART I ------ 1. Business........................................................................................................ 1 2. Properties...................................................................................................... 10 3. Legal Proceedings............................................................................................... 10 4. Submission of Matters to a Vote of Security Holders............................................................. 11 Executive Officers of the Registrants........................................................................... 12 PPL CORPORATION PART II ------- 5. Market for the Registrant's Common Equity and Related Stockholder Matters....................................... 15 6. Selected Financial and Operating Data........................................................................... 16 7. Review of the Financial Condition and Results of Operations..................................................... 17 7A. Quantitative and Qualitative Disclosures About Market Risk...................................................... 26 Report of Independent Accountants............................................................................... 27 Management's Report on Responsibility for Financial Statements.................................................. 28 8. Financial Statements and Supplementary Data Financial Statements: Consolidated Statement of Income for each of the Three Years Ended December 31, 2000, 1999 and 1998........................................................................... 29 Consolidated Statement of Cash Flows for each of the Three Years Ended December 31, 2000, 1999 and 1998........................................................................... 30 Consolidated Balance Sheet at December 31, 2000 and 1999........................................................ 31 Consolidated Statement of Shareowners' Common Equity for each of the Three Years Ended December 31, 2000, 1999 and 1998........................................................................... 33 Consolidated Statement of Preferred Stock at December 31, 2000 and 1999 ........................................ 34 Consolidated Statement of Company-Obligated Mandatorily Redeemable Securities at December 31, 2000 and 1999 ................................................................................ 35 Consolidated Statement of Long-Term Debt at December 31, 2000 and 1999 ......................................... 36 Notes to Consolidated Financial Statements...................................................................... 37 Supplemental Financial Statement Schedule: II - Valuation and Qualifying Accounts and Reserves for the Three Years Ended December 31, 2000................. 59 Quarterly Financial Data, Common Stock Price and Dividend Data.................................................. 60 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................ 61 PART III -------- 10. Directors and Executive Officers of the Registrant.............................................................. 61 11. Executive Compensation.......................................................................................... 61 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 61 13. Certain Relationships and Related Transactions.................................................................. 61
PPL ELECTRIC UTILITIES CORPORATION
PART II ------- 5. Market for the Registrant's Common Equity and Related Stockholder Matters....................................... 64 6. Selected Financial and Operating Data........................................................................... 65 7. Review of the Financial Condition and Results of Operations..................................................... 66 7A. Quantitative and Qualitative Disclosures About Market Risk...................................................... 72 Report of Independent Accountants............................................................................... 73 Management's Report on Responsibility for Financial Statements.................................................. 74 8. Financial Statements and Supplementary Data Financial Statements: Consolidated Statement of Income for each of the Three Years Ended December 31, 2000, 1999 and 1998........................................................................... 75 Consolidated Statement of Cash Flows for each of the Three Years Ended December 31, 2000, 1999 and 1998........................................................................... 76 Consolidated Balance Sheet at December 31, 2000 and 1999........................................................ 77 Consolidated Statement of Shareowner's Common Equity for each of the Three Years Ended December 31, 2000, 1999 and 1998........................................................................... 79 Consolidated Statement of Preferred Stock at December 31, 2000 and 1999 ........................................ 80 Consolidated Statement of Company-Obligated Mandatorily Redeemable Securities at December 31, 2000 and 1999 ................................................................................ 81 Consolidated Statement of Long-Term Debt at December 31, 2000 and 1999 ......................................... 82 Notes to Consolidated Financial Statements...................................................................... 83 Supplemental Financial Statement Schedule: II - Valuation and Qualifying Accounts and Reserves for the Three Years Ended December 31, 2000................. 92 Quarterly Financial Data........................................................................................ 93 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................ 94 PART III -------- 10. Directors and Executive Officers of the Registrant.............................................................. 94 11. Executive Compensation.......................................................................................... 94 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 94 13. Certain Relationships and Related Transactions.................................................................. 94 PART IV ------- 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................................ 95 Shareowner and Investor Information............................................................................. 97 Signatures...................................................................................................... 99 Exhibit Index................................................................................................... 101 Computation of Ratio of Earnings to Fixed Charges............................................................... 106
GLOSSARY OF TERMS AND ABBREVIATIONS AFUDC (Allowance for Funds Used During Construction) - the cost of equity and debt funds used to finance construction projects that is capitalized as part of construction cost. Aguaytia - Aguaytia Energy, LLC, a consortium of energy companies involved in the development of gas pipeline and generating units in Peru. Bangor Hydro - Bangor Hydro-Electric Company. BG&E - Baltimore Gas & Electric Company. BGG - Bolivian Generating Group, LLC, an energy consortium with a 50% interest in an electric generating company in Bolivia. CEMAR - Companhia Energetica do Maranhao, a Brazilian electric distribution holding company in which PPL Global has a majority ownership interest. CGE - Compania General Electricidad, SA, a distributor of energy in Chile and Argentina, in which PPL Global has a minority ownership interest. Clean Air Act (Federal Clean Air Act Amendments of 1990) - legislation enacted to address certain environmental issues including acid rain, ozone and toxic air emissions. CTC - competitive transition charge on customer bills to recover allowable transition costs under the Customer Choice Act. Customer Choice Act - (Pennsylvania Electricity Generation Customer Choice and Competition Act) - legislation enacted to restructure the state's electric utility industry to create retail access to a competitive market for generation of electricity. DelSur - Distribuidora Electricidad del Sur S.A., an electric distribution company in El Salvador, a majority of which is owned by EC. DEP - Pennsylvania Department of Environmental Protection. DOE - Department of Energy. DRIP - Dividend reinvestment plan. EC - Electricidad de Centroamerica, S.A. de C.V, an El Salvadoran holding company and the majority owner of Del Sur. PPL Global has 100% ownership of EC. EGS - electric generation supplier. EITF (Emerging Issues Task Force) - an organization that aids the FASB in identifying emerging issues that may require FASB action. Emel - Empresas Emel, S.A., a Chilean electric distribution holding company of which PPL Global has majority ownership. EMF - electric and magnetic fields. Energy Marketing Center - business unit responsible for marketing and trading wholesale energy and capacity. Effective July 1, 2000, the Energy Marketing Center is part of PPL EnergyPlus. Enrichment - the concentration of fissionable isotopes to produce a fuel suitable for use in a nuclear reactor. EPA - Environmental Protection Agency. EPS - Earnings per share. ESOP - Employee Stock Ownership Plan. Fabrication - the process which manufactures nuclear fuel assemblies for insertion into the reactor. FASB (Financial Accounting Standards Board) - a rulemaking organization that establishes financial accounting and reporting standards. FERC (Federal Energy Regulatory Commission) - federal agency that regulates interstate transmission and wholesale sales of electricity and related matters. GAAP - Generally accepted accounting principles. Hyder - Hyder plc, a subsidiary of WPDL and owner of South Wales Electricity plc, Welsh Water and other service-oriented businesses. IBEW - International Brotherhood of Electrical Workers. ICP - Incentive Compensation Plan. ISO - Independent System Operator. ITC - intangible transition charge on customer bills to recover intangible transition costs associated with securitizing stranded costs under the Customer Choice Act. JCP&L - Jersey Central Power & Light Company. LIBOR - London Interbank Offered Rate. Mirant - Mirant Corporation, formerly Southern Energy Inc., a diversified energy company based in Atlanta. PPL Global and Mirant jointly own WPDH and WPDL. Montana Power - The Montana Power Company, a Montana-based company engaged in diversified energy and communication-related businesses. Montana Power sold its generating assets to PPL Global in December 1999. NO\\x\\ - nitrogen oxide. NPDES - National Pollutant Discharge Elimination System. NRC (Nuclear Regulatory Commission) - federal agency that regulates operation of nuclear power facilities. NUGs - (Non-Utility Generators) - generating plants not owned by public utilities whose electrical output must be purchased by utilities under the PURPA if the plant meets certain criteria. OSM - United States Office of Surface Mining. PCB (Polychlorinated Biphenyl) - additive to oil used in certain electrical equipment up to the late-1970s. Now classified as a hazardous chemical. PJM (PJM Interconnection, LLC) - operates the electric transmission network and electric energy market in the mid-Atlantic region of the U.S. PLR - provider of last resort, referring to PPL Electric providing electricity to retail customers within its delivery territory who have chosen not to shop for electricity under the Customer Choice Act. PPL - PPL Corporation, the parent holding company of PPL Electric, PPL Energy Funding and other subsidiaries. PPL Capital Funding - PPL Capital Funding, Inc., a PPL financing subsidiary. PPL Capital Trust - a Delaware statutory business trust created to issue Preferred Securities, whose common securities are held by PPL Electric. PPL Capital Trust II - a Delaware statutory business trust created to issue Preferred Securities, whose common securities are held by PPL Electric. PPL Electric - PPL Electric Utilities Corporation, a regulated subsidiary which distributes and transmits electricity in its service territory, and provides electric supply to retail customers in this territory as a PLR. PPL Energy Funding - PPL Energy Funding Corporation, an unregulated subsidiary which, as of July 1, 2000, is the parent company for most of PPL's unregulated businesses. PPL EnergyPlus - PPL EnergyPlus, LLC, an unregulated subsidiary of PPL Energy Funding which markets wholesale electricity and supplies energy and energy services in newly deregulated markets. PPL Gas Utilities - PPL Gas Utilities Corporation, a regulated subsidiary specializing in natural gas distribution, transmission and storage services, and the sale of propane. PPL Generation - PPL Generation, LLC, an unregulated subsidiary of PPL Energy Funding which, effective July 1, 2000, owns and operates U.S. generating facilities through various subsidiaries. PPL Global - PPL Global, LLC, an unregulated subsidiary which invests in and develops domestic and international power projects, and owns and operates international projects. Effective June 30, 2000, PPL Global, Inc. became PPL Global, LLC. (Effective July 1, 2000, PPL Global became a subsidiary of PPL Energy Funding.) PPL Holtwood - PPL Holtwood, LLC, a subsidiary of PPL Generation which, effective July 1, 2000, owns PPL's hydroelectric generating operations in Pennsylvania. PPL Maine - PPL Maine, LLC, formerly Penobscot Hydro, LLC. PPL Maine, effective July 1, 2000, became a subsidiary of PPL Generation. PPL Montana - PPL Montana, LLC, an unregulated subsidiary which generates electricity for wholesale sales in Montana and the Northwest. Effective July 1, 2000, PPL Montana became a subsidiary of PPL Generation. PPL Services - PPL Services Corporation, an unregulated subsidiary of PPL which, as of July 1, 2000, provides shared services for PPL and its subsidiaries. PPL Susquehanna - PPL Susquehanna, LLC, the nuclear generating subsidiary of PPL Generation effective July 1, 2000. PPL Transition Bond Company - PPL Transition Bond Company, LLC, a wholly-owned subsidiary of PPL Electric, formed to issue transition bonds under the Customer Choice Act. Preferred Securities - Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely company debentures (issued by PPL Capital Trust and PPL Capital Trust II). PRP - potentially responsible parties under Superfund. PUC (Pennsylvania Public Utility Commission) - state agency that regulates certain ratemaking, services, accounting, and operations of Pennsylvania utilities. PUC Final Order - final order issued by the PUC on August 27, 1998, approving the settlement of PPL Electric Utilities' restructuring proceeding. PUHCA - Public Utility Holding Company Act of 1935. PURPA (Public Utility Regulatory Policies Act of 1978) - legislation passed by Congress to encourage energy conservation, efficient use of resources, and equitable rates. PURTA - Public Utility Realty Tax Act. SCR - selective catalytic reduction. SEC - Securities and Exchange Commission. SFAS (Statement of Financial Accounting Standards) - accounting and financial reporting rules issued by the FASB. SNCR - selective non-catalytic reduction. SO\\2\\ - sulfur dioxide. Superfund - federal and state environmental legislation that addresses remediation of contaminated sites. SWEB - the trading name for South Western Electricity plc, a British regional electric utility company. Following the sale of its supply business in 1999, SWEB was renamed Western Power Distribution. See WPD, below. Synfuel projects - production facilities that manufacture synthetic fuel from coal or coal byproducts. Favorable federal tax credits are available on qualified synfuel products. UGI - UGI Corporation. VEBA (Voluntary Employee Benefit Association Trust) - trust accounts for health and welfare plans for future payments to employees, retirees or their beneficiaries. WPD - Western Power Distribution, the trading name for South Western Electricity, plc, a British regional electric utility company. WPDH - WPD Holdings UK, a jointly owned subsidiary of PPL Global and Mirant. WPDH owns WPD. WPDL - Western Power Distribution Limited, a jointly owned subsidiary of PPL Global and Mirant. WPDL owns 100% of the common shares of Hyder. Forward-looking Information Certain statements contained in this Form 10-K concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are other than statements of historical facts are "forward-looking statements" within the meaning of the federal securities laws. Although PPL and PPL Electric believe that the expectations and assumptions reflected in these statements are reasonable, there can be no assurance that these expectations will prove to have been correct. These forward-looking statements involve a number of risks and uncertainties, and actual results may differ materially from the results discussed in the forward-looking statements. In addition to the specific factors discussed in the Review of the Financial Condition and Results of Operations sections herein, the following are among the important factors that could cause actual results to differ materially from the forward-looking statements: market demand and prices for energy, capacity and fuel; weather variations affecting customer energy usage; competition in retail and wholesale power markets; the effect of any business or industry restructuring; the profitability and liquidity of PPL and its subsidiaries; new accounting requirements or new interpretations or applications of existing requirements; operating performance of plants and other facilities; environmental conditions and requirements; system conditions and operating costs; development of new projects, markets and technologies; performance of new ventures; political, regulatory or economic conditions in countries where PPL or its subsidiaries conduct business; receipt of necessary governmental approvals; capital market conditions; stock price performance; foreign exchange rates; and the commitments and liabilities of PPL and its subsidiaries. Any such forward-looking statements should be considered in light of such important factors and in conjunction with PPL's and PPL Electric's other documents on file with the SEC. New factors that could cause actual results to differ materially from those described in forward-looking statements emerge from time to time, and it is not possible for PPL or PPL Electric to predict all of such factors, or the extent to which any such factor or combination of factors may cause actual results to differ from those contained in any forward-looking statement. Any forward-looking statement speaks only as of the date on which such statement is made, and neither PPL nor PPL Electric undertakes any obligation to update the information contained in such statement to reflect subsequent developments or information. (THIS PAGE LEFT BLANK INTENTIONALLY) PART I ------ ITEM 1. BUSINESS ---------------- BACKGROUND PPL Corporation (formerly PPL Resources, Inc.) is an energy and utility holding company that was incorporated in 1994. Through its subsidiaries, PPL generates electricity in power plants in the northeastern and western U.S.; markets wholesale or retail energy in 42 states and Canada; delivers electricity to 5.7 million customers in the U.S., U.K. and Latin America; and provides energy services for businesses in the mid-Atlantic and northeastern U.S. PPL Electric Utilities Corporation (formerly PP&L, Inc., incorporated in 1920) is a subsidiary of PPL and a regulated public utility. PPL Electric provides electricity delivery service in its service territory in Pennsylvania, and provides electricity supply to retail customers in that territory as a Provider of Last Resort under the Pennsylvania Customer Choice Act. Prior to July 1, 2000, PPL Electric also generated electricity at its power plants in Pennsylvania, and marketed wholesale and retail electricity (through PPL EnergyPlus) in deregulated markets. On July 1, 2000, PPL and PPL Electric completed a corporate realignment in order to effectively separate PPL Electric's regulated transmission and distribution operations from its recently deregulated generation operations, to better position the companies and their affiliates in the new competitive marketplace. See "Corporate Realignment" in each of the Review of the Financial Condition and Results of Operations sections for the key features of the corporate realignment. As a result of the corporate realignment, PPL is organized in segments consisting of Supply, Delivery and Development. In addition, certain corporate functions reside in PPL Services. See Exhibit 99 in Item 14 for the corporate organization before and after realignment. See Note 2 to PPL's Financial Statements for financial information about the new segments. Supply Segment - -------------- The Supply Segment consists of PPL Generation, which operates power plants to generate electricity, and PPL EnergyPlus, which markets this electricity and other power purchases and gas to unregulated wholesale and retail markets, primarily in the northeastern and western portions of the U.S. PPL Generation was established in the corporate realignment and, through subsidiaries, operates power plants in Pennsylvania, Montana and Maine. At December 31, 2000, PPL Generation had 9,678 megawatts of generating capacity. PPL Generation subsidiaries are subject to the jurisdiction of certain federal, regional, state and local regulatory agencies with respect to air and water quality, land use and other environmental matters. The Pennsylvania plants, with a total capacity of 8,425 megawatts, were transferred by PPL Electric to PPL Generation in the corporate realignment. These plants are fueled by nuclear reaction, coal, gas, oil and hydro power. The electricity from these plants is sold to PPL EnergyPlus under FERC-jurisdictional power purchase agreements. PPL Susquehanna, a subsidiary of PPL Generation, is subject to the jurisdiction of the NRC in connection with the operation of the two nuclear-fueled generating units at its Susquehanna station. PPL Susquehanna owns a 90% undivided interest in each of the Susquehanna units and Allegheny Electric Cooperative, Inc. owns a 10% undivided interest in each of those units. PPL Generation operates its Pennsylvania power plants in conjunction with the PJM. The Montana generating assets were acquired by PPL Montana in December 1999. (PPL Montana was transferred to PPL Generation in the corporate realignment.) These stations are fueled by coal and hydro power, and have a net 1 capacity of 1,157 megawatts. Under the terms of wholesale power transition agreements, PPL Montana provides the retail requirements of Montana Power, with excess generation available for wholesale marketing by PPL EnergyPlus. The transition agreements expire in 2001 and 2002. The Maine assets were acquired from Bangor Hydro in 1998. The oil and hydro powered stations have a total capacity of 96 megawatts. A portion of the output of the Maine generating assets is sold to meet the retail load requirements of Bangor Hydro. Refer to the "Power Supply" section for additional information regarding the various power plants operated by PPL Generation. Also refer to "Fuel Supply" for a discussion of fuel requirements and contractual arrangements. PPL EnergyPlus, a subsidiary of PPL Energy Funding, markets the electricity produced by PPL Generation, along with purchased power and gas, in wholesale and deregulated retail markets in order to take advantage of opportunities in the competitive energy marketplace. Prior to the corporate realignment, PPL EnergyPlus was a subsidiary of PPL Electric. PPL EnergyPlus operates a 24-hour a day trading floor and a marketing effort with responsibility for all wholesale power transactions. PPL EnergyPlus buys and sells energy at competitive prices. PPL EnergyPlus purchases electric capacity and energy at the wholesale level, and also sells electric capacity and energy at the wholesale level under FERC market-based tariffs. PPL EnergyPlus enters into these agreements to market available energy and capacity from PPL Generation's assets and to profit from market price fluctuations. PPL EnergyPlus is actively managing its portfolios to attempt to capture opportunities and to limit exposure to price fluctuations. PPL EnergyPlus also purchases and sells energy futures contracts as well as other commodity-based financial instruments in accordance with PPL's risk management policies, objectives and strategies. PPL EnergyPlus has a PUC license to act as an EGS in Pennsylvania. This license permits PPL EnergyPlus to offer retail electric and gas supply to customers throughout Pennsylvania. In 2000, PPL EnergyPlus was licensed, and supplied energy to industrial and commercial customers in Pennsylvania, New Jersey, Delaware, Maine and Montana. PPL EnergyPlus is also licensed to provide energy in Maryland and Massachusetts. At this time, PPL EnergyPlus has decided not to pursue residential customers in the competitive marketplace based on economic considerations. PPL EnergyPlus also provides energy services to commercial and industrial customers, through its mechanical contracting and engineering subsidiaries based in Pennsylvania and Massachusetts. Delivery Segment - ---------------- PPL Electric provides electricity delivery service to approximately 1.3 million customers in a 10,000 square mile territory in 29 counties of eastern and central Pennsylvania, with a population of approximately 2.6 million people. The largest cities in this territory are Allentown, Bethlehem, Harrisburg, Hazleton, Lancaster, Scranton, Wilkes-Barre and Williamsport. In addition to delivery of purchased power as a PLR, PPL Electric is delivering power supplied by licensed EGS' pursuant to the Customer Choice Act. The electric utility industry, including PPL Electric, has experienced a significant increase in the level of competition in the energy market. The Energy Act amended the PUHCA to create a new class of independent power producers, and amended the Federal Power Act to provide open access to electric transmission systems for wholesale transactions. In addition, the Customer Choice Act was enacted in Pennsylvania to restructure the state's electric utility industry in order to create retail access to a competitive market for the generation of electricity. See "PUC Restructuring and FERC Settlement" in Note 5 to PPL's Financial Statements and "Increasing Competition" in its Review of the Financial Condition and Results of Operations for additional discussion of competition-related developments. Competitive factors affecting PPL's results of operations include new market entrants, construction by others of generating assets, the actions of regulatory authorities, weather and other factors. PPL cannot predict the impact of these and other competitive factors on its future results of operations or financial position. 2 During 2000, about 62% of PPL Electric's operating revenue was derived from regulated electricity deliveries and supply as a PLR. About 35% of operating revenue in 2000 was from unregulated retail and wholesale sales. Assets related to these unregulated activities were transferred to the Supply Segment in the July 1, 2000 corporate realignment. The remaining 3% of operating revenues in 2000 were from energy related products and services and miscellaneous revenues. During 2000 about 48% of electricity delivery and PLR revenues were from residential customers, 32% from commercial customers, 19% from industrial customers and 1% from other customer classes. PPL Electric is subject to regulation as a public utility by the PUC and certain of its activities are subject to the jurisdiction of the FERC under Parts I, II and III of the Federal Power Act. PPL Electric is not a holding company under PUHCA, and PPL has been exempted by the SEC from the provisions of PUHCA applicable to it as a holding company. PPL Electric is also subject to the jurisdiction of certain federal, regional, state and local regulatory agencies with land use and other environmental matters. In addition, the domestic operations of PPL and its subsidiaries are subject to the Occupational Safety and Health Act of 1970. PPL Electric operates its transmission facilities as part of the PJM. PJM operates the electric transmission network and electric energy market in the mid-Atlantic region of the U.S. Bulk electricity is transmitted to wholesale users throughout a geographic area including all or part of Pennsylvania, New Jersey, Maryland, Delaware, Virginia and the District of Columbia. PPL Electric is also a party to the Mid-Atlantic Area Coordination Agreement, which provides for the coordinated planning of generation and transmission facilities by the companies included in the PJM. PJM serves as an ISO in order to accommodate greater competition and broader participation in the power pool. The purpose of the ISO is to separate operation of, and access to, the transmission grid from the PJM electric utilities' generation interests. The electric utilities continue to own the transmission assets, but the ISO directs the control and operation of the transmission facilities. PPL Gas Utilities, formerly Penn Fuel Gas, Inc., was acquired by PPL in 1998. PPL Gas Utilities provides natural gas and propane delivery to approximately 105,000 customers in Pennsylvania and Maryland. Development Segment - ------------------- The Development Segment reflects the activities of PPL Global. PPL Global develops domestic generation projects for PPL Generation. It also develops, owns and operates international energy projects. PPL Global's major domestic generation project to-date has been the acquisition of the Montana generating assets in 1999. This acquisition, at a total purchase price of $757 million, transferred to PPL Montana 1,315 gross megawatts of capacity including 11 hydroelectric facilities, a storage reservoir, the Corette coal-fired station, and ownership interests in three of the four units of the Colstrip coal-fired power plant. At December 31, 2000, PPL Global was in the process of developing approximately 2,350 megawatts of capacity in Pennsylvania, New York, Connecticut and Arizona. Two of these projects are expected to be operational in 2001, totaling 550 megawatts of capacity. These are the Wallingford, Connecticut project and the Griffith Energy project near Kingman, Arizona. The other projects are expected to be operational by 2003. PPL Global has also announced plans for another 1,800 megawatts of generation in Arizona and Washington state. PPL Global's major international projects include equity investments in two U.K. electricity transmission and distribution companies: WPD, which serves customers in England, and Hyder, which owns South Wales Electricity, serving customers in Wales. PPL Global jointly owns these investments with Mirant. 3 PPL Global also has consolidated investments in electricity transmission and distribution companies serving customers in Chile, El Salvador, Bolivia and Brazil. See Note 11 to PPL's Financial Statements for additional information on PPL Global's domestic and international acquisition activities in 2000. PPL Services - ------------ Various corporate functions reside in PPL Services, a new unregulated subsidiary established in the corporate realignment. PPL Services provides shared services for PPL and its subsidiaries. These services include financial, legal, human resources and information services. These services are direct-charged or allocated to the Supply, Delivery and Development segments. FINANCIAL CONDITION See "Earnings" and "Financial Indicators" in PPL's Review of the Financial Condition and Results of Operations for this information. Also, see these same sections in the PPL Electric report. CAPITAL EXPENDITURE REQUIREMENTS See "Financial Condition - Capital Expenditure Requirements" in PPL and PPL Electric's Review of the Financial Condition and Results of Operations for information concerning estimated capital expenditure requirements for the years 2001-2005. See Note 15 and Note 11 in the Notes to Financial Statements of PPL and PPL Electric, respectively, for information concerning estimates of the costs to comply with various environmental regulations. POWER SUPPLY PPL Generation's system capacity (winter rating) at December 31, 2000 was as follows: Net Megawatt Plant Capacity ----- -------- Pennsylvania - ------------ Nuclear-fueled steam station Susquehanna 1,995 (a) Coal-fired steam stations Montour 1,536 Brunner Island 1,473 Martins Creek 300 Keystone 210 (b) Conemaugh 194 (c) ------ Total coal-fired 3,713 ------ Gas and oil-fired steam station Martins Creek 1,640 Combustion turbines and diesels 454 Hydroelectric 146 ------ Total generating capacity 7,948 ------ Firm purchases Hydroelectric 139 (d) Qualifying facilities 338 ------ Total firm purchases 477 ------ Total system capacity - Pennsylvania 8,425 ------ Montana - ------- Coal-fired thermal stations Colstrip Units 1 & 2 307 (e) Colstrip Unit 3 222 (f) Coal-fired steam station Corette 154 ------ Total coal-fired 683 ------ Hydroelectric 474 ------ Total system capacity - Montana 1,157 (g) ------ Maine - ----- Oil-fired generating station Wyman Unit 4 52 (h) Hydroelectric 44 (i) ------- Total system capacity - Maine 96 ------- Total system capacity - PPL Generation 9,678 ======= ___________________________ (a) PPL's 90% undivided interest. (b) PPL's 12.34% undivided interest. (c) PPL's 11.39% undivided interest. In January 2001, PPL completed a purchase of 83MW of additional capacity, which brings PPL's ownership to 16.25%. (d) From Safe Harbor Water Power Corporation. (e) PPL's 50% undivided leasehold interest. (f) PPL's 30% undivided leasehold interest. (g) Gross capacity (before station use) equals 1,315 MW. (h) PPL's 8.33% undivided interest. (i) Includes PPL's 50% interest in the West Enfield Station. 4 The capacity of generating units is based upon a number of factors, including the operating experience and physical condition of the units, and may be revised from time to time to reflect changed circumstances. The system capacity shown in the preceding table does not reflect two-party sales and purchases, contractual bulk power sales to BG&E (as described in Note 6 to PPL's Financial Statements), or installed capacity credit sales and purchases with other utilities. The net effect of these transactions is to reduce Pennsylvania system capacity by 925 megawatts at the end of December 2000, to 7,500 megawatts. The net effect of Maine sales committed to Bangor Hydro is to reduce Maine's system capacity by 65 megawatts, to 31 megawatts. The West Enfield facility's output will be sold to Bangor Hydro through the year 2024. The Wyman Unit 4 output will be sold to Constellation through 2004. The output from other hydroelectric stations in Maine was sold to Bangor Hydro through March 2000. Bangor Hydro did not purchase the output after this date. PPL Montana has two transition agreements to supply wholesale electricity to Montana Power. One agreement provides for the sale of 200 megawatts from PPL Montana's leasehold interest in Colstrip Unit 3 until December 2001. The other agreement covers Montana Power's remaining native load commitments and lasts until the remaining load is zero, but in no event later than June 2002. As part of the purchase of generation assets from Montana Power, PPL Montana agreed to supply electricity to the United States government on behalf of the Flathead Irrigation Project (FLIP). Under the agreement, which expires in December 2010, the company is required to supply approximately 7.5 megawatts of capacity year round, with an additional 3.7 megawatts during April through October. During 2000, PPL Generation produced about 40.6 billion kWh in its Pennsylvania plants, with 56% of the energy generated by coal-fired stations, 39% from nuclear operations at the Susquehanna station, 3% from the Martins Creek gas and oil-fired station and 2% from hydroelectric stations. PPL EnergyPlus also purchased 28.2 billion kWh and had 31.0 billion kWh in non-system energy sales. During 2000, PPL Montana generated 8.2 billion kWh. Of this total, 4.9 billion kWh was from fossil generation, with the balance from PPL Montana's hydroelectric plants. During 2000, PPL Maine generated about 467 million kWh. Of this total, about 263 million kWh was from hydroelectric generation, with the balance from Maine's interest in the oil-fired Wyman Unit 4. PPL EnergyPlus purchases energy from, and sells energy to, other utilities and FERC-certified power marketers at market-based rates under power purchase and sales agreements. PPL EnergyPlus enters into these transactions on an hourly, daily, weekly, monthly or longer-term basis. PPL EnergyPlus has FERC authorization to sell electric energy, capacity and ancillary services at market-based rates to wholesale customers located both inside and outside the PJM control area. As of the end of 2000, 150 utilities and power marketers had signed power sales agreements under this tariff. Transactions under these agreements allow PPL EnergyPlus to make more efficient use of its generating resources and are intended to provide benefits to both PPL EnergyPlus and other parties. Under the market-based tariff, PPL EnergyPlus may also sell power purchased from third parties. PPL EnergyPlus also has an export license to sell capacity and/or energy to electric utilities in Canada. This export license allows PPL EnergyPlus to sell either its own capacity and energy not required to serve domestic obligations or power purchased from other utilities. FUEL SUPPLY Coal - Pennsylvania - ------------------- During 2000, about 57% of the coal delivered to PPL Generation's Pennsylvania stations was purchased under long-term contracts and 43% was obtained through open market purchases. These contracts provided PPL Generation with 5 about 4.2 million tons of coal in 2000 and are expected to provide 4.9 million tons in 2001. The amount of coal in inventory at PPL Generation's Pennsylvania generating stations varies from time to time depending on market conditions and plant operations. At December 31, 2000, Pennsylvania plants had sufficient supply for about 20 days of operations. The coal burned at PPL Generation's Pennsylvania power plants contains sulfur. Mechanical cleaning processes are utilized to reduce the sulfur content of the coal. The reduction of the sulfur content by either mechanical cleaning or blending has lowered the total sulfur content of the coal burned to levels which permit compliance with current SO\\2\\ emission regulations established by the DEP. At December 31, 2000, PPL Generation owned a 12.34% undivided interest in the Keystone station and an 11.39% undivided interest in the Conemaugh station. PPL Generation's Conemaugh ownership increased to 16.25% in January 2001, based on an additional 83 megawatt purchase. See Note 11 to PPL's Financial Statements for additional information. The owners of the Keystone station have a long-term contract with a coal supplier that provides 2.8 million tons per year until the contract expires at the end of 2004. The balance of the Keystone station requirements are purchased in the open market. The coal supply requirements for the Conemaugh station are being met from several sources through a blend of long-term and short-term contracts and spot market purchases. Coal - Montana - -------------- PPL Montana has a 50% leasehold interest in Colstrip Units 1 & 2 and a 30% leasehold interest in Unit 3. PPL Montana is party to a contract to purchase coal with defined quality characteristics and specifications. The contract for Units 1 & 2 is in effect through December 31, 2009. The contract for Unit 3 is in effect through December 31, 2019. PPL Montana owns the Corette power plant. The plant has a one-year contract to purchase low sulfur coal with defined quality characteristics and specifications. The contract expires in December 2001. At December 31, 2000, Montana Power continues to own a 30% leasehold interest in Colstrip Unit 4. Each party is responsible for its own fuel-related costs. Oil and Natural Gas - ------------------- PPL Generation's Martins Creek station Units 3 and 4 burn both oil and natural gas. During 2000, 100% of the oil requirements for the Martins Creek units were purchased on the spot market. At December 31, 2000, PPL Generation had no long-term agreements for these requirements. During 2000, all of the natural gas consumed at Martins Creek was purchased under short-term agreements. PPL Generation has no long-term agreements to purchase gas. Nuclear - ------- PPL Susquehanna has executed uranium supply and conversion agreements that satisfy 75% of the uranium requirements for the Susquehanna units in 2001, approximately 35% of the requirements for the period 2002-2003 and, including options, an additional 25% of the requirements for the period 2004-2007. Deliveries under these agreements are expected to provide sufficient uranium to permit Units 1 and 2 to operate into the first quarter of 2002. PPL Susquehanna has executed an agreement that satisfies all of its enrichment requirements through 2004. Assuming that the other uranium components of the nuclear fuel cycle are satisfied, deliveries under this agreement are expected to provide sufficient enrichment to permit Unit 1 to operate into the first quarter of 2006 and Unit 2 to operate into the first quarter of 2007. PPL Susquehanna has entered into an agreement that, including options, satisfies all of its fabrication requirements through 2006. Assuming that the uranium and other components of the nuclear fuel cycle are satisfied, deliveries under this agreement are expected to provide sufficient fabrication to permit Unit 1 to operate into the first quarter of 2008 and Unit 2 to operate into the first quarter of 2007. Federal law requires the federal government to provide for the permanent disposal of 6 commercial spent nuclear fuel. Under the Nuclear Waste Policy Act, the DOE initiated an analysis of a site in Nevada for a permanent nuclear waste repository. Progress on a proposed disposal facility has been slow, and the repository is not expected to be operational before 2010. Thus, expansion of Susquehanna's on-site spent fuel storage capacity was necessary. To support this expansion, PPL Susquehanna contracted for the design and construction of a spent fuel storage facility employing dry cask fuel storage technology. The facility is modular, so that additional storage capacity can be added as needed. The facility began receiving spent nuclear fuel in October 1999. PPL Susquehanna estimates that there is sufficient storage capacity in the spent nuclear fuel pools and the on-site dry spent fuel storage facility at Susquehanna to accommodate discharged fuel through the life of the plant, if necessary. Federal law also provides that generators of spent fuel are responsible for certain costs of disposal. In January 1997, PPL Electric joined over 30 other utilities in a lawsuit in the U.S. Court of Appeals for the District of Columbia Circuit seeking assurance of the DOE's performance of its contractual obligation to accept spent nuclear fuel and suspension of payment to that agency pending such performance. In November 1997, the Court denied the utilities' requested relief and held that the contracts between the utilities and the DOE provide a potentially adequate remedy if the DOE failed to begin disposal of spent nuclear fuel by January 31, 1998. However, the Court also precluded the DOE from arguing that its delay in contract performance was "unavoidable". The U.S. Congress is currently considering amendments to the Nuclear Waste Policy Act to address certain of the issues which have arisen between the DOE and the nuclear power industry regarding disposal of spent nuclear fuel as well as the ongoing litigation against DOE. PPL Generation is unable to predict the ultimate outcome of this proposed legislation or litigation. ENVIRONMENTAL MATTERS Certain PPL subsidiaries, including PPL Electric and PPL Generation subsidiaries, are subject to certain present and developing federal, regional, state and local laws and regulations with respect to air and water quality, land use and other environmental matters. See PPL's "Financial Condition - Capital Expenditure Requirements" in the Review of the Financial Condition and Results of Operations for information concerning environmental expenditures during 2000 and PPL's estimate of those expenditures during the years 2001-2005. PPL believes that its subsidiaries are in substantial compliance with applicable environmental laws and regulations. See "Environmental Matters" in Note 15 to PPL's Financial Statements for information concerning federal clean air legislation, groundwater degradation and waste water control at facilities owned by PPL's subsidiaries and PPL Electric's and PPL Gas Utilities' agreements with the DEP concerning remediation at certain sites. Other environmental laws, regulations and developments that may have a substantial impact on PPL's subsidiaries are discussed below. Air - --- The Clean Air Act includes, among other things, provisions that: (a) restrict the construction of, and revise the performance standards for, new and substantially modified coal-fired and oil-fired generating stations; and (b) authorize the EPA to impose substantial noncompliance penalties of up to $27,500 per day of violation for each facility found to be in violation of the requirements of an applicable state implementation plan. The state agencies administer the EPA's air quality regulations through the state implementation plans and have concurrent authority to impose penalties for non-compliance. In December 1997, international negotiators reached agreement in Kyoto, Japan to strengthen the 1992 United Nations Global Climate Change Treaty by adding legally-binding greenhouse gas emission limits. This Agreement - formally called the Kyoto Protocol - if ratified by the U.S. Senate and implemented, would require the United States to reduce its greenhouse gas emissions to 7% below 1990 levels by 2008 - 2012. Compliance under the Agreement, if implemented, could result in increased capital and operating expenses which 7 are not now determinable but which could be significant. Water - ----- To implement the requirements of the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977 and the Water Quality Act of 1987, the EPA has adopted regulations on effluent standards for steam electric stations. The states administer the EPA's effluent standards through state laws and regulations relating, among other things, to effluent discharges and water quality. The standards adopted by the EPA pursuant to the Clean Water Act may have a significant impact on existing facilities of certain PPL subsidiaries depending on the states' interpretation and future amendments to regulations. Pursuant to the Surface Mining and Reclamation Act of 1977, the OSM has adopted effluent guidelines which are applicable to PPL subsidiaries as a result of their past coal mining and coal processing activities. The EPA and the OSM limitations, guidelines and standards also are enforced through the issuance of NPDES permits. In accordance with the provisions of the Clean Water Act and the Reclamation Act of 1977, the EPA and the OSM have authorized the states to implement the NPDES program. Compliance with applicable water quality standards is assured by state review of NPDES permit conditions. Solid and Hazardous Waste - ------------------------- The provisions of Superfund authorize the EPA to require past and present owners of contaminated sites and generators of any hazardous substance found at a site to clean-up the site or pay the EPA or the state for the costs of clean-up. The generators and past owners can be liable even if the generator contributed only a minute portion of the hazardous substances at the site. Present owners can be liable even if they contributed no hazardous substances to the site. State laws such as the Pennsylvania Superfund statute also give state agencies broad authority to identify hazardous or contaminated sites and to order owners or responsible parties to clean-up the sites. If responsible parties cannot or will not perform the clean-up, the agency can hire contractors to clean-up the sites and then require reimbursement from the responsible parties after the clean-up is completed. Certain federal and state statutes, including Superfund and the Pennsylvania Hazardous Sites Cleanup Act, also empower certain governmental agencies, such as the EPA and the DEP, to seek compensation from the responsible parties for the lost value of damaged natural resources. The EPA and the DEP may file such compensation claims against the parties held responsible for cleanup of such sites. Such natural resource damage claims could result in material additional liabilities for PPL subsidiaries. Low-Level Radioactive Waste - --------------------------- Under federal law, each state is responsible for the disposal of low-level radioactive waste generated in that state. States may join in regional compacts to jointly fulfill their responsibilities. The states of Pennsylvania, Maryland, Delaware and West Virginia are members of the Appalachian States Low-Level Radioactive Waste Compact. Efforts to develop a regional disposal facility in Pennsylvania were suspended by the DEP in 1998. The Commonwealth retains the legal authority to resume the siting process should it be necessary. Low-level radioactive waste resulting from the operation of Susquehanna is currently being sent to Barnwell, South Carolina for disposal. In the event this or other emergent disposal options become unavailable or no longer cost-effective, the low-level radioactive waste will be stored on-site at Susquehanna. PPL Susquehanna cannot predict the future availability of low-level waste disposal facilities or the cost of such disposal. General - ------- Concerns have been expressed by some members of the scientific community and others regarding the potential health effects of EMFs. These fields are emitted by all devices carrying electricity, including electric transmission and distribution lines and substation equipment. Federal, state and local officials have focused attention on this issue. PPL and its subsidiaries support the current efforts to determine whether 8 EMFs cause any human health problems and is taking low cost or no cost steps to reduce EMFs, where practical, in the design of new transmission and distribution facilities. PPL is unable to predict what effect, if any, the EMF issue might have on its operations and facilities and the associated cost, or what, if any, liabilities it might incur related to the EMF issue. PPL and its subsidiaries are unable to predict the ultimate effect of evolving environmental laws and regulations upon its existing and proposed facilities and operations. In complying with statutes, regulations and actions by regulatory bodies involving environmental matters, including the areas of water and air quality, hazardous and solid waste handling and disposal and toxic substances, PPL's subsidiaries may be required to modify, replace or cease operating certain of their facilities. PPL's subsidiaries may also incur significant capital expenditures and operating expenses in amounts which are not now determinable, but which could be significant. FRANCHISES AND LICENSES PPL Electric is authorized to provide electric public utility service throughout its service area as a result of grants by the Commonwealth of Pennsylvania in corporate charters to PPL Electric and companies to which it has succeeded and as a result of certification by the PUC. PPL Electric is granted the right to enter the streets and highways by the Commonwealth subject to certain conditions. In general, such conditions have been met by ordinance, resolution, permit, acquiescence or other action by an appropriate local political subdivision or agency of the Commonwealth. PPL EnergyPlus also has an export license from the DOE to sell capacity and/or energy to electric utilities in Canada. PPL Susquehanna operates Units 1 and 2 pursuant to NRC operating licenses which expire in 2022 and 2024, respectively. PPL Holtwood operates two hydroelectric projects pursuant to licenses renewed by the FERC in 1980: Wallenpaupack (44,000 kilowatts capacity) and Holtwood (102,000 kilowatts capacity). The Wallenpaupack license expires in 2004 and the Holtwood license expires in 2014. PPL Holtwood owns one-third of the capital stock of Safe Harbor Water Power Corporation (Safe Harbor), which holds a project license which extends the operation of its hydroelectric plant until 2030. The total capacity of the Safe Harbor plant is 417,500 kilowatts, and PPL Electric is entitled by contract to one-third of the total capacity (139,000 kilowatts). The eleven hydroelectric facilities and one storage reservoir purchased from Montana Power in 1999 are licensed by FERC. These licenses expire periodically and the generating facilities must be relicensed at such times. The FERC license for the Mystic facility expires in 2009; the Thompson Falls and Kerr licenses expire in 2025 and 2035, respectively, and the license for the nine Missouri-Madison facilities expire in 2040. EMPLOYEE RELATIONS As of December 31, 2000, PPL and its subsidiaries had 11,893 full-time employees. This total included 3,330 in PPL Electric; 424 in PPL Gas Utilities; 2,398 in PPL Generation; 1,697 in PPL EnergyPlus (including the mechanical contractors); 45 in PPL Global; 3,056 in several Central and South American electric companies controlled by PPL Global; and 943 in PPL Services. Approximately 49%, or 4,297, of PPL's domestic workforce are members of labor unions, with four IBEW locals representing nearly 4,100 employees (including 2,535 of PPL Electric). The other unions primarily represent small locals of gas utility employees in Pennsylvania. The collective bargaining agreement with the largest union was negotiated in 1998 and expires in May 2002. Eight new three-year contracts with smaller locals in Pennsylvania were negotiated in 2000, and five additional agreements will expire during the first half of 2001, with the largest being for three locals representing about 320 PPL Montana employees. 9 ITEM 2. PROPERTIES ------------------ Refer to the "Property, Plant and Equipment" section of Note 1 to PPL's Financial Statements for information concerning investments in property, plant and equipment. On July 1, 2000, PPL and PPL Electric completed a corporate realignment in which PPL Electric transferred its electric generation and related assets to various unregulated PPL affiliates. In connection with this transfer, all of these assets were released from the lien of PPL Electric's mortgage. In addition, PPL Electric has electric transmission and distribution lines in public streets and highways pursuant to franchises and rights-of-way secured from property owners. For a description of PPL Electric's service territory, see Item 1, "BUSINESS - Background," and "BUSINESS - Power Supply." See these same sections for descriptions of PPL Generation's generating stations, and an overview of PPL Global's international investments. ITEM 3. LEGAL PROCEEDINGS ------------------------- See Item 1 "BUSINESS - Fuel Supply" for information concerning a lawsuit against the DOE for failure of that agency to perform certain contractual obligations. Pursuant to changes in PURTA enacted in 1999, PPL subsidiaries have filed a number of tax assessment appeals in various Pennsylvania counties where PPL generating plants are located. These appeals challenge existing local tax assessments, which now furnish the basis for payment of the PURTA tax on PPL's properties. Also, as of January 1, 2000, generation facilities are no longer taxed under PURTA, and these local assessments will be used directly to determine local real estate tax liability for PPL's power plants. In July 1999, PPL filed retroactive appeals for tax years 1998 and 1999, as permitted by the new law, as well as prospective appeals for 2000, as permitted under normal assessment procedures. Additional prospective appeals were filed in 2000 for the 2001 tax year. It is anticipated that assessment appeals will now be an annual occurrence. Hearings on the pending appeals were held by the boards of assessment appeals in each county, and decisions have now been rendered by most counties. To the extent the appeals were denied or PPL was not otherwise satisfied with the results, PPL filed further appeals from the board decisions with the appropriate county Courts of Common Pleas. Of all the pending proceedings, the most significant appeal concerns the assessed value of the Susquehanna nuclear station. The county assessment of the Susquehanna station indicated a market value of $3.9 billion. Based on this value, the annual local taxes for the Susquehanna station would have been about $70 million. However, PPL was able to reach a settlement with the local taxing authorities in late December 2000, for tax years 2000 and 2001. This settlement will result in the payment of annual local taxes of about $3 million. PPL and the local taxing authorities also reached a settlement concerning the 1998 and 1999 tax years which, if effectuated, would not result in any additional PURTA tax liability for PPL. This portion of the settlement with the local tax authorities is subject, however, to the outcome of claims asserted by certain intervenors which are described below. In August 2000, over PPL's objections, the court permitted Philadelphia City and County, the Philadelphia School District and the Southeastern Pennsylvania Transportation Authority (SEPTA) (collectively, the "Philadelphia parties") to intervene in the case. The Philadelphia parties have intervened because they believe a change in the assessment of the plant will affect the amount they would collect under PURTA for the tax years 1998 and 1999. As part of the change in the law, the local real estate assessment determines what the 1998 and 1999 PURTA payments by PPL will be. In November 2000, the Philadelphia parties submitted their own appraisal report, which indicates that the taxable fair market value of the Susquehanna Station under PURTA for 1998 and 1999 is approximately $2.3 billion. Based on this appraisal, PPL would have to pay up to 10 an extra $213 million in PURTA taxes for tax years 1998 and 1999. PPL's appeal of the Susquehanna station assessment for 1998 and 1999 is still pending in the Luzerne County Court of Common Pleas; trial commenced in December 2000, and is expected to continue in February 2001. As a result of these proceedings and potential appeals, a final determination of market value and the associated tax liability for 1998 and 1999 may not occur for several years. In the other assessment appeals pending in county courts, the local authorities have assessed PPL's generating plants at an aggregate market value amount of about $311 million for tax year 2000, for a total tax liability of about $5.2 million. PPL has estimated the aggregate market value of these plants at about $26 million for tax year 2000, for a total tax liability of about $460,000. As at the Susquehanna station, the school districts involved in these proceedings have issued interim tax bills at levels which are disputed by PPL. Final determinations of market value and associated tax liability in these proceedings may not occur for several years. See "Review of the Financial Condition and Results of Operation" for a description of the July 1, 2000 corporate realignment in which PPL Electric's generating plants were transferred to various PPL affiliates. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ----------------------------------------------------------- There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of 2000. 11 EXECUTIVE OFFICERS OF THE REGISTRANTS ------------------------------------- Officers of PPL and PPL Electric are elected annually by their Boards of Directors to serve at the pleasure of the respective Boards. There are no family relationships among any of the executive officers, or any arrangement or understanding between any executive officer and any other person pursuant to which the officer was selected. There have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions material to the evaluation of the ability and integrity of any executive officer during the past five years. Listed below are the executive officers as of December 31, 2000: PPL Corporation:
Effective Date of Election to Name Age Position Present Position ---- --- -------- ---------------- William F. Hecht 57 Chairman, President and Chief Executive Officer February 24, 1995 Francis A. Long 60 Executive Vice President February 24, 1995 John R. Biggar 56 Executive Vice President and Chief Financial Officer January 1, 2001 Robert J. Grey 50 Senior Vice President, General Counsel and Secretary March 1, 1996 Michael E. Bray/*/ 53 Vice Chair and President-PPL Electric Utilities Corporation July 1, 2000 Paul T. Champagne/*/ 42 President-PPL Global, LLC May 24, 1999 Lawrence E. De Simone/*/ 53 President-PPL EnergyPlus, LLC November 1, 1998 Joseph J. McCabe 50 Vice President and Controller August 1, 1995 James E. Abel 49 Vice President-Finance and Treasurer June 1, 1999
/*/ Messrs. Bray, Champagne and De Simone have been designated executive officers of PPL by virtue of their respective positions at PPL subsidiaries. In addition, effective February 5, 2001, James H. Miller was elected President of PPL Generation, LLC, and by virtue of that position is an executive officer of PPL. Prior to that time, Mr. Miller was Executive Vice President of USEC, Inc. 12 PPL Electric Utilities Corporation:
Effective Date of Election to Name Age Position Present Position ---- --- -------- ---------------- Michael E. Bray 53 Vice Chair and President July 1, 2000 Joseph J. McCabe 50 Vice President and Controller August 1, 1995 James E. Abel 49 Treasurer July 1, 2000
Each of the above officers, with the exception of Messrs. Bray, Champagne and De Simone, had been employed by PPL Electric Utilities for more than five years as of July 1, 2000. In connection with the July 1, 2000 corporate realignment, Messrs. Hecht, Long, Biggar, Grey, McCabe and Abel became employees of PPL Services Corporation, another PPL subsidiary; Messrs. Hecht, Long, Biggar and Grey ceased being officers of PPL Electric Utilities. Mr. Bray joined PPL Electric Utilities in April 2000. Prior to that time, he was President and Chief Executive Officer of Consolidated Edison Development, Inc. Mr. De Simone joined PPL EnergyPlus in November 1998. Prior to that time, he was Senior Vice President - Energy Services at Virginia Power Company. (Effective with the July 1, 2000 corporate realignment, PPL EnergyPlus became a principal PPL subsidiary and Mr. De Simone, as President of PPL EnergyPlus, became an executive officer of PPL.) Mr. Champagne became President of PPL Global in May 1999. Prior to that time, he was Vice President and Senior Development Officer of PPL Global. Prior to their election to the positions shown above, the following executive officers held other positions within PPL and PPL Electric Utilities since January 1, 1996. Mr. Hecht was Chairman, President and Chief Executive Officer (of PPL Electric Utilities); Mr. Biggar was Vice President - Finance, Vice President - Finance and Treasurer, Senior Vice President - Financial, and Senior Vice President and Chief Financial Officer; Mr. Grey was Vice President, General Counsel and Secretary; Mr. McCabe was Controller; and Mr. Abel was Manager - Treasury, Manager - Auditing, and Treasurer. 13 PPL CORPORATION AND SUBSIDIARIES 14 PART II ------- ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ------------------- Additional information for this item is set forth in the sections entitled "Quarterly Financial, Common Stock Price and Dividend Data" and "Shareowner and Investor Information" of this report. The number of common shareowners is set forth in the section entitled "Selected Financial and Operating Data" in Item 6. 15 ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
2000 (a) 1999 (a) 1998 (a) 1997 (a) 1996 PPL Corporation - ----------------------------------------------------------------------------------------------------------------------------------- Income Items -- millions Operating revenues ........................................ $ 5,683 $ 4,590 $ 3,786 $ 3,077 $ 2,926 Operating income (f)....................................... 1,202 872 827 800 810 Net income (loss).......................................... 498 432 (569) 296 329 Net income excluding nonrecurring items.................... 474 358 309 328 329 Balance Sheet Items -- millions (b) Property, plant and equipment, net......................... 5,948 5,624 4,480 6,820 6,960 Recoverable transition costs............................... 2,425 2,647 2,819 Total assets............................................... 12,360 11,174 9,607 9,485 9,670 Long-term debt............................................. 4,784 4,157 2,984 2,735 2,832 Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely company debentures....................... 250 250 250 250 Preferred stock With sinking fund requirements.......................... 47 47 47 47 295 Without sinking fund requirements....................... 50 50 50 50 171 Common equity.............................................. 2,012 1,613 1,790 2,809 2,745 Short-term debt............................................ 1,037 857 636 135 144 Total capital provided by investors........................ 8,180 6,974 5,757 6,026 6,187 Capital lease obligations (h).............................. 125 168 171 247 Financial Ratios Return on average common equity -- % (e)................... 27.14 16.89 10.98 11.69 12.30 Embedded cost rates (b) Long-term debt -- %..................................... 6.98 6.95 7.40 7.88 7.89 Preferred stock -- %.................................... 5.87 5.87 5.87 5.85 6.09 Preferred securities -- %............................... 8.44 8.44 8.44 8.43 Times interest earned before income taxes (e).............. 2.95 3.14 3.28 3.59 3.55 Ratio of earnings to fixed charges -- total enterprise basis (c), (e)............................... 2.66 2.80 3.10 3.51 3.45 Ratio of earnings to fixed charges and dividends on preferred stock --total enterprise basis (c), (e)....................... 2.55 2.64 2.77 3.11 2.90 Common Stock Data Number of shares outstanding -- thousands Year-end................................................ 145,041 143,697 157,412 166,248 162,665 Average................................................. 144,350 152,287 164,651 164,550 161,060 Number of record shareowners (b)........................... 91,777 91,553 100,458 117,293 123,290 Basic EPS (loss) - reported................................ $ 3.45 $ 2.84 ($3.46) $ 1.80 $ 2.05 Basic EPS - excluding nonrecurring items (e)............... $ 3.29 $ 2.35 $1.87 $ 2.00 $ 2.05 Diluted EPS (loss) - reported.............................. $ 3.44 $ 2.84 ($3.46) $ 1.80 $ 2.05 Diluted EPS - excluding nonrecurring items (e)............. $ 3.28 $ 2.35 $ 1.87 $ 2.00 $ 2.05 Dividends declared per share............................... $ 1.06 $ 1.00 $ 1.335 $ 1.67 $ 1.67 Book value per share (b)................................... $ 13.87 $ 11.23 $ 11.37 $ 16.90 $ 16.87 Market price per share (b)................................. $ 45.188 $ 22.875 $ 27.875 $ 23.938 $ 23 Dividend payout rate -- % (g).............................. 32 43 71 84 81 Dividend yield -- % (d).................................... 2.35 4.37 4.79 6.98 7.26 Price earnings ratio (g)................................... 13.78 9.73 14.91 11.97 11.22 Sales Data - millions of kWh Electric energy supplied - retail.......................... 41,493 36,637 31,651 31,964 32,307 Electric energy supplied - wholesale....................... 40,884 32,045 36,708 21,454 14,341 Electric energy delivered - retail......................... 37,642 35,987 32,144 31,964 32,307
(a) The earnings for each year, except for 1996, were affected by nonrecurring items. These adjustments affected net income and certain items under Financial Ratios and Common Stock Data. See "Earnings" in Review of the Financial Condition and Results of Operations for a description of nonrecurring items in 2000, 1999 and 1998. (b) At year-end. (c) Computed using earnings and fixed charges of PPL and its subsidiaries. Fixed charges consist of interest on short- and long-term debt, other interest charges, interest on capital lease obligations and the estimated interest component of other rentals. (d) Based on year-end market prices. (e) Based on earnings excluding nonrecurring items. (f) Operating income of 1997 and 1996 restated to conform to the current presentation. (g) Based on diluted EPS - excluding nonrecurring items. (h) PPL terminated its capital lease in 2000. See Note 1 for additional information. 16 PPL CORPORATION ITEM 7. REVIEW OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS ----------------------------------------------------------- PPL is a holding company with headquarters in Allentown, PA. See Item 1 "BUSINESS - Background" for descriptions of PPL's major segments. See Exhibit 99 in Item 14 for the corporate organization. Other subsidiaries may be formed by PPL to take advantage of new business opportunities. Corporate Realignment On July 1, 2000, PPL and PPL Electric completed a corporate realignment in order to effectively separate PPL Electric's regulated transmission and distribution businesses from its recently deregulated generation businesses and to better position the companies and their affiliates in the new competitive marketplace. The corporate realignment included the following key features: . PPL Electric contributed its generating and certain other related assets, along with associated liabilities, to new unregulated generating subsidiaries of PPL Generation. In connection with the contribution, PPL Energy Funding, the parent company of PPL Generation, assumed $670 million aggregate principal amount of PPL Electric's debt issued to affiliated companies. . PPL Electric also contributed assets associated with its wholesale energy marketing activities, along with associated liabilities, to its wholly-owned subsidiary, PPL EnergyPlus, and contributed its interest in PPL EnergyPlus to PPL Energy Funding. . PPL Electric distributed in a "tax-free spin-off" all of the outstanding shares of stock of PPL Energy Funding to PPL, which resulted in PPL Energy Funding becoming a wholly-owned subsidiary of PPL. . PPL's unregulated power subsidiary, PPL Global, also transferred its U.S. electric generating subsidiaries to PPL Generation. . PPL Electric entered into agreements with PPL EnergyPlus for the purchase of electricity to meet all of PPL Electric's requirements through 2001 as a PLR for customers who have not selected an alternative supplier under the Customer Choice Act. As a result of the corporate realignment, PPL Generation's principal business is owning and operating U.S. generating facilities through various subsidiaries; PPL EnergyPlus' principal business is unregulated wholesale and retail energy marketing; PPL Electric's principal businesses are the regulated transmission and distribution of electricity to serve retail customers in its franchised territory in eastern and central Pennsylvania, and the supply of electricity to retail customers in that territory as a PLR; and PPL Global's principal businesses are the acquisition and development of both U.S. and international energy projects, and ownership and operation of international energy projects. PPL Energy Funding serves as the parent company for substantially all of PPL's unregulated businesses, including PPL Generation, PPL EnergyPlus and PPL Global. Other subsidiaries of PPL and PPL Electric are generally aligned in the new corporate structure according to their principal business functions. The corporate realignment followed receipt of various regulatory approvals, including approvals from the PUC, the FERC, the NRC and the IRS. Results of Operations --------------------- The following discussion explains significant changes in principal items on the Consolidated Statement of Income, comparing 2000 to 1999, and 1999 to 1998. Certain items on the Consolidated Statement of Income have been impacted by the acquisition of Montana generating assets. PPL acquired the generating assets from Montana Power in December 1999. As such, the results of PPL Montana are included for the entire year in 2000, but only for the last two weeks of 1999. When discussing PPL's results of operations for 2000 compared with 1999, the results of PPL Montana for the year 2000 are eliminated for purposes of comparability. 17 Earnings 2000 1999 1998 ---- ---- ---- Earnings per share (basic) - excluding nonrecurring items $3.29 $2.35 $1.87 Nonrecurring items: Environmental insurance recoveries .16 Sale of Sunbury plant and related assets (Note 11) .28 Sale of SWEB supply business (Note 11) .42 Securitization (Note 5) .13 Write-down carrying value of investments (Note 11) (.34) PUC restructuring charge (Note 5) (5.56) FERC municipalities settlement (Note 5) (.19) Settlement with NUG .11 U.K. tax rate reduction .06 PPL Gas Utilities acquisition costs .03 Other impacts of restructuring .22 ----- ----- ------ Earnings (loss) per share (basic) - actual $3.45 $2.84 ($3.46) ===== ===== ====== The earnings of PPL for 2000, 1999 and 1998 were impacted by several nonrecurring items. Earnings in 2000 benefited by 16 cents per share from insurance settlements for past and potential future environmental exposures. In addition, the PUC restructuring adjustments provided a favorable impact of about 22 cents per share on earnings in the second half of 1998. The nonrecurring items without note references are discussed in "Other Income and (Deductions)." Excluding the effects of nonrecurring items, earnings per share were $3.29 in 2000 (or $3.28 diluted), compared with $2.35 in 1999. The adjusted earnings for 2000 represents a 94 cents per share improvement, or about 40%, compared with 1999. The earnings improvement was primarily due to: . higher margins on wholesale transactions, including PPL Montana; . the end of a one year 4% rate reduction for delivery customers in Pennsylvania; . gains on sales of emission allowances; . lower depreciation on certain fossil generating assets; and . fewer common shares outstanding. These earnings improvements in 2000 were partially offset by higher levels of interest expense, higher costs of wages and employee benefits, and the write-off of a regulatory asset related to Pennsylvania's 1998 electric choice program. Excluding the effects of nonrecurring items, 1999 earnings were $2.35 compared with $1.87 for 1998. The adjusted earnings for 1999 represents a 48 cents per share improvement, or about 26%, compared with 1998. This earnings improvement was primarily due to higher margins on wholesale energy and marketing activities, an increase in electricity supplied to commercial and industrial customers, lower taxes, lower depreciation on generation assets, increased earnings from unregulated operations, and the benefit of fewer common shares outstanding. In addition, 1998 earnings were adversely impacted by mild winter weather. The earnings improvements in 1999 were partially offset by a 4% rate reduction for electric delivery customers in Pennsylvania and by the loss of customers who shopped for alternate electric generation suppliers. In addition, 1998 earnings benefited from certain regulatory treatments that did not carry over to 1999. Operating Revenues Retail Electric and Gas - ----------------------- The increase (decrease) in retail revenues from electric and gas operations was attributable to the following (millions of dollars): 2000 vs. 1999 1999 vs. 1998 ------------- ------------- Retail Electric Revenue PPL Electric Electric delivery $ 28 $(179) PLR electric generation supply 32 (159) PPL EnergyPlus Electric generation supply 88 416 PPL Global Electric delivery 75 245 Other 3 25 ---- ---- 226 348 ---- ---- Retail Gas Revenue PPL Gas Utilities 25 74 PPL EnergyPlus 43 6 ---- ---- 68 80 ----- ---- Retail Revenues - total $294 $428 ==== ==== Operating revenues from retail electric operations increased by $226 million in 2000 compared with 1999. PPL EnergyPlus provided 15.5% more electricity to retail customers in 2000 as compared to 1999. Revenues from PPL Global were $75 million, or 31%, greater in 2000 as compared to 1999, due to the acquisition of CEMAR and higher sales volumes in Chile, El Salvador and Bolivia. Also contributing to the increase were higher PPL Electric retail delivery sales in 2000 compared with 1999, and the end of the one year 4% rate reduction for delivery customers. In addition, PPL Electric's PLR revenues were higher in 2000, as fewer customers selected a supplier other than PPL Electric. Operating revenues from retail electric operations increased by $348 million in 1999 compared with 18 1998. This was primarily due to the consolidation of Emel and EC results effective January 1, 1999. Also, PPL Electric and PPL EnergyPlus provided 6.5% more electricity to retail customers during 1999 as compared with 1998. Both PPL Gas Utilities and PPL EnergyPlus had higher retail gas sales for 2000 when compared to 1999. The increase in PPL Gas Utilities' revenues reflects greater demand, higher gas commodity costs and increased off-system revenues in 2000. PPL EnergyPlus' increase was related to intensified gas marketing efforts and increased retail pricing attributed to higher wholesale gas commodity costs. After eliminating the revenues of PPL Gas Utilities, which was acquired in August 1998, retail gas revenues increased by $6 million in 1999 compared with 1998. PPL Gas Utilities' two natural gas delivery subsidiaries reached a settlement with the PUC for a $9.3 million base rate increase, effective January 1, 2001. As a condition of the settlement, PPL Gas Utilities agreed to not increase natural gas delivery base rates in Pennsylvania for the next three years. Wholesale Energy Marketing and Trading - -------------------------------------- The increase (decrease) in revenues from wholesale energy marketing and trading activities was attributable to the following (millions of dollars): 2000 vs. 1999 1999 vs. 1998 ------------- ------------- PPL Electric/PPL EnergyPlus Bilaterial Sales $209 $38 PJM 39 Cost-based contracts (38) (71) Gas & oil sales (39) 223 PPL Montana 405 9 PPL Maine 67 15 Other (3) 3 ---- ---- $640 $217 ==== ==== After eliminating the revenues of PPL Montana, wholesale energy marketing and trading revenues increased by $235 million in 2000 compared to 1999. This was primarily due to higher bilateral sales revenues due to higher market pricing and increased sales volumes to other counterparties. Wholesale energy marketing and trading revenues increased by $217 million in 1999 compared with 1998. This increase was predominately due to an increase in wholesale gas revenues. This increase was, in part, due to greater demand for gas-fired generation and an increase in retail gas marketing activities. The decrease in revenues from cost-based contracts reflects the phase-down of the capacity and energy agreement with JCP&L. The contract expired in December 1999. Energy Related Businesses Energy related businesses (see Note 1 to Financial Statements) contributed $46 million to the 2000 operating income of PPL, which was a decrease of $14 million from 1999. This decrease was primarily due to operating losses incurred by PPL's synfuel projects. These and other losses were partially offset by increased operating income of the mechanical contracting and engineering subsidiaries, and higher equity earnings from PPL Global's international investments. Energy related businesses provided an additional $35 million to operating income in 1999 compared with 1998. This was primarily due to PPL Global's higher equity earnings from its investment in WPD, and additional operating income provided by the mechanical contracting and engineering subsidiaries. Fuel Fuel costs increased by $47 million in 2000 compared with 1999, and decreased by $11 million in 1999 compared with 1998. Electric fuel cost increased by $23 million in 2000 compared with 1999. Excluding PPL Montana, electric fuel costs decreased by $8 million during 2000 compared with 1999. The decrease was attributed to lower unit costs for nuclear generation, in part due to a $5 million accrual in 1999 for dry cask canisters for on-site spent fuel storage. The decrease from lower unit costs was partially offset by higher generation at Susquehanna. Electric fuel costs decreased by $44 million in 1999 compared with 1998. The decrease resulted from lower generation by PPL Generation's coal-fired and oil/gas fired units, as well as lower fuel prices for coal. The lower coal-fired generation resulted from units being dispatched less during off-peak periods, as a result of NOx allowances affecting the unit costs from May to September of 1999. The Holtwood plant closing and the Sunbury plant sale (See "Power Plant Operations" discussion) also contributed to the decrease in generation. In addition, PPL Generation entered into a rail contract which lowered coal freight prices effective June 1999. These decreases in 19 1999 were partially offset by higher fuel prices for nuclear and oil/gas-fired stations. The cost of natural gas and propane increased by $24 million in 2000 compared with 1999. This reflects higher sales by PPL Gas Utilities, and intensified gas marketing efforts by PPL EnergyPlus. The cost of natural gas and propane increased by $33 million in 1999 compared with 1998. This reflects the acquisition of PPL Gas Utilities in August 1998. The results for 1999 included a full year of operations of PPL Gas Utilities. Energy Purchases The increase in energy purchases was attributed to the following (millions of dollars): 2000 vs. 1999 1999 vs. 1998 ------------- ------------- PPL EnergyPlus $143 $309 PPL Maine 58 6 PPL Global 46 142 PPL Montana 121 1 Other 15 ---- ---- $383 $458 ==== ==== After excluding the impact of PPL Montana, energy purchases increased by $262 million during 2000, compared with 1999. This increase was attributed to higher wholesale prices for energy purchases needed to supply retail load obligations. Excluding the purchases made by Emel and EC, which were consolidated by PPL Global effective January 1, 1999, energy purchases increased by $316 million in 1999 when compared to 1998. The increase was primarily due to increased gas purchases by the Energy Marketing Center, additional wholesale purchases to support PPL EnergyPlus, and higher wholesale prices for electricity. These increases were partially offset by a decrease in the volume of electricity purchases. Other Operation Expenses Other operation expenses increased by $47 million in 2000 when compared to 1999. After eliminating the expenses of PPL Montana, other operation expenses decreased $30 million in 2000 when compared with 1999. This decrease was primarily the result of environmental insurance settlements, gains on the sale of emission allowances and reduced pension costs. These reductions were partially offset by increased expenses due to the CEMAR acquisition, a loss accrual under the Clean Air Act and increased costs of wages and other benefits. Other operation expenses increased by $69 million in 1999 compared with 1998. Operating expenses of acquired companies and certain regulatory impacts caused a substantial portion of this increase. These included: . PPL Global's consolidation of Emel and EC, effective January 1, 1999, which added about $25 million in operation expenses. . About $23 million of additional operation expenses of PPL Gas Utilities recorded in 1999 compared to 1998. PPL Gas Utilities was acquired in August 1998. . About $46 million of regulatory credits recorded in 1998. These credits were for the loss of revenue as a result of Pennsylvania's pilot Electric Choice Program and the deferral of undercollected energy costs. No similar items were reflected in 1999, as the pilot program was completed and energy costs were no longer recoverable through the Energy Cost Rate. Eliminating the effects of the above amounts, the other operation expenses of PPL decreased by $29 million in 1999 compared with 1998. This decrease was primarily due to PPL Electric's cost-cutting initiatives, gains on the sale of emission allowances and decreased load dispatching activities for system control. Maintenance Expenses Maintenance expenses increased by $46 million in 2000 from 1999. After eliminating the expenses of PPL Montana, maintenance expenses increased by $33 million in 2000 from 1999. This increase was primarily due to higher maintenance costs at the Susquehanna generating station, higher transmission and distribution line maintenance expenses and higher costs of wages. Maintenance expenses increased by $33 million in 1999 from 1998. About half of the increase was due to the consolidation of Emel and EC effective January 1, 1999 and the acquisition of PPL Gas Utilities in August 1998. The other half of this increase was due to higher costs of outage-related and other maintenance at PPL Electric's fossil and nuclear power plants, and additional expenses to maintain transmission and distribution facilities. 20 Power Plant Operations In April 1999, PPL Electric closed its Holtwood coal-fired generating station. The closing was part of an effort to reduce operating costs and position PPL for the competitive marketplace. The adjacent hydroelectric plant, owned by PPL Holtwood, continues to operate. In November 1999, PPL Electric sold its Sunbury plant and the principal assets of its wholly-owned coal processing subsidiary, Lady Jane Collieries, to Sunbury Holdings, LLC. PPL Electric received cash proceeds of $107 million for the assets, including coal inventory, which resulted in a one-time contribution to earnings of about 28 cents per share. Depreciation Depreciation increased by $4 million in 2000 compared with 1999. After eliminating the expenses of PPL Montana, depreciation decreased by $10 million in 2000 compared with 1999. This decrease was primarily due to a change in the estimated remaining useful lives of certain PPL generating plants. PPL subsidiaries periodically review the depreciable lives of their fixed assets. In conjunction with corporate realignment activities undertaken in early 2000, studies were conducted of depreciable lives of certain generation assets. These studies indicated that the estimated economic lives for certain generation assets were longer than currently used to calculate depreciation for financial statement purposes. Therefore, effective July 1, 2000, PPL Generation revised the estimated economic lives for fossil generation and pipeline assets. This change is expected to reduce depreciation expense by approximately $33 million per year for the next several years from previous levels. The reduction in depreciation expense in the second half of 2000 was partially offset by depreciation of CEMAR's transmission, distribution and other assets recorded subsequent to acquisition by PPL Global. Depreciation decreased by $81 million in 1999 compared with 1998. This decrease was mainly due to the write-down of generation-related assets in connection with the restructuring adjustments recorded in June 1998. The decrease was partially offset by depreciation associated with the acquisition of PPL Gas Utilities in August 1998 and the consolidation of Emel and EC effective January 1, 1999. Other Income and (Deductions) Other income of PPL decreased by $112 million in 2000 from 1999. PPL Electric's earnings in 2000 reflected a charge of $12 million resulting from a PUC ruling requiring the write-off of the regulatory asset for the loss incurred in Pennsylvania's pilot Electric Choice Program, and an adverse FERC decision regarding investments in PJM. PPL Generation also recorded a loss contingency for an unasserted claim against the company under the Clean Air Act. Other income in 1999 included PPL Global's share of the gain on the sale of SWEB's electrical supply business (which was $78 million pre-U.S. tax), and a $66 million pre-tax gain on the sale of PPL Electric's Sunbury plant and the principal assets of its wholly owned subsidiary, Lady Jane Collieries. These increases were partially offset by a $51 million write-down of certain of PPL Global's international investments: WPD, Aguaytia and BGG. The net impact of the charges in 2000, versus the credits to income in 1999, are the primary reasons for the decrease in other income between the periods. Other income in 1999 increased by $31 million from 1998. PPL recorded several favorable nonrecurring items in 1998, including a $30 million recovery from a NUG to settle a suit over disputed energy prices, a $9 million credit for a reduction in U.K. corporate tax rates and a $6 million credit to earnings to reverse the prior expensing of PPL Gas Utilities acquisition costs. However, there were larger credits to other income in 1999, as noted above. Financing Costs PPL experienced higher financing costs on long-term debt during the past few years, primarily associated with the issuance of $2.4 billion of transition bonds by PPL Transition Bond Company in August 1999, and the issuance of medium-term notes by PPL Capital Funding in 2000. Refer to Note 10 to the Financial Statements for more information. Interest on long-term debt and dividends on preferred stock increased from $219 million in 1997 to $349 million in 2000. Interest on short-term debt, net of capitalized interest and AFUDC borrowed funds, increased from $20 million in 1997 to $53 million in 2000. This increase reflects PPL Capital Funding's commercial paper program initiated in 1998. 21 Income Taxes Income tax expense increased by $120 million in 2000 compared with 1999. This was primarily due to an increase in pre-tax book income and a 1999 release of deferred taxes no longer required due to securitization. Income tax expense decreased by $85 million in 1999, compared with 1998. This was primarily due to a release of deferred income taxes no longer required due to securitization and tax changes relating to the 1998 restructuring write-off. Financial Condition ------------------- Energy Marketing and Trading Activities PPL, through its PPL EnergyPlus subsidiary, purchases and sells electric and energy at the wholesale level under FERC market-based tariffs throughout the U.S. PPL enters into agreements to market available energy and capacity from its generating assets in Pennsylvania, Maine and Montana with the expectation of profiting from market price fluctuations. If PPL were unable to deliver firm capacity and energy under these agreements, under certain circumstances it would be required to pay damages. These damages would be based on the difference between the market price to acquire replacement capacity or energy and the contract price of the undelivered capacity or energy. Depending on price volatility in the wholesale energy markets, such damages could be significant. Extreme weather conditions, unplanned power plant outages, transmission disruptions, non-performance by counterparties (or their counterparties) with which it has power contracts, and other factors could affect PPL's ability to meet its firm capacity or energy obligations, or cause significant increases in the market price of replacement capacity and energy. Although PPL attempts to mitigate these risks, there can be no assurance that it will be able to fully meet its firm obligations, that it will not be required to pay damages for failure to perform, or that it will not experience counterparty non-performance in the future. PPL attempts to mitigate risks associated with open contract positions by reserving generation capacity to deliver electricity to satisfy its net firm sales contracts and, when necessary, by purchasing firm transmission service. In addition, PPL adheres to its risk management policy and programs, including established credit policies to evaluate counterparty credit risk. To date, PPL has not experienced any significant losses due to non-performance by counterparties. Additionally, given the current electric energy situation in California, PPL has established a reserve to limit its exposure as a result of sales within that market area. See Note 19 to Financial Statements for discussion related to the California energy situation. On January 1, 1999, PPL adopted mark-to-market accounting for energy contracts executed for trading purposes, in accordance with EITF 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." Under mark-to-market accounting, gains and losses from changes in market prices on contracts executed for trading purposes are reflected in current earnings. The earnings effect of mark-to-market accounting was not significant in 1999. Under EITF 98-10, energy trading activities refer to energy contracts executed with the objective of generating profits on, or from exposure to, shifts or changes in market prices. Risk management activities refer to energy contracts that are designated as (and effective as) hedges of non-trading activities (i.e., marketing available capacity and energy and purchasing fuel for consumption). PPL adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS 138, effective January 1, 2001. See Note 18 to the Financial Statements for the effect of adopting SFAS 133. Market Risk Sensitive Instruments Quantitative and Qualitative Disclosures About Market Risk - ---------------------------------------------------------- PPL actively manages the market risk inherent in its commodity, debt, foreign currency and equity positions. The Board of Directors of PPL has adopted a risk management policy to manage the risk exposures related to energy prices, interest rates and foreign currency exchange rates. This policy established a Risk Management Committee comprised of certain executive officers which oversees the risk management function. Nonetheless, adverse changes in commodity prices, interest rates, foreign currency exchange rates and equity prices may result in losses in earnings, cash flows and/or fair values. The forward-looking information presented below provides only estimates of what may occur in the future, assuming certain adverse market conditions, due to reliance on model 22 assumptions. As a result, actual future results may differ materially from those presented. These disclosures are not precise indicators of expected future losses, but only indicators of reasonably possible losses. See Note 9 to the Financial Statements for a discussion of financial derivatives used to hedge debt issuances and retirements during 2000. Note 9 also describes hedge positions at December 31, 2000 to manage exposures to interest rate risk for anticipated debt issuances in the first quarter of 2001. Commodity Price Risk - -------------------- PPL's risk management program is designed to manage the risks associated with market fluctuations in the price of electricity, natural gas, oil and emission allowances. PPL's risk management policy and programs include risk identification and risk limits management, with measurement and controls for real-time risk monitoring. In 2000, PPL entered into fixed-price forward and option contracts that required physical delivery of the commodity, exchange-for-physical transactions and over-the-counter contracts (such as swap agreements where settlement is generally based on the difference between a fixed and index-based price for the underlying commodity). PPL expects to continue using such contracts in 2001. PPL enters into contracts to hedge the impact of market fluctuations on its energy-related assets, liabilities and other contractual arrangements. In addition, it executes these contracts to take advantage of market opportunities. PPL may at times create a net open position in its portfolio that could result in significant losses if prices do not move in the manner or direction anticipated. PPL uses various methodologies to simulate forward price curves in the energy markets to estimate the size and probability of changes in market value resulting from commodity price movements. The methodologies require several key assumptions, including selection of confidence levels, the holding period of the commodity positions, and the depth and applicability to future periods of historical commodity price information. At December 31, 2000, PPL estimated that a 10% adverse movement in market prices across all geographic areas and time periods could have decreased the value of its trading portfolio by approximately $6 million, as compared to a $1 million decrease at December 31, 1999. For PPL's non-trading portfolio, a 10% adverse movement in market prices across all geographic areas and time periods could have decreased the value of its non-trading portfolio by approximately $292 million at December 31, 2000, as compared to an $87 million decrease at December 31, 1999. However, this effect would have been offset by an inverse change in the value of the underlying commodity, the electricity generated. In addition to commodity price risk, PPL's commodity positions are also subject to operational and event risks including, among others, increases in load demand and forced outages at power plants. Commodity Price Risk - PPL Electric - ------------------------------------ On July 1, 2000, PPL and PPL Electric completed a corporate realignment and transferred generation assets to unregulated PPL affiliates. As part of the realignment, PPL Electric and PPL EnergyPlus entered into a long-term power sales agreement under which PPL EnergyPlus will sell PPL Electric, at a predetermined pricing arrangement, energy, capacity and ancillary services to fulfill its PLR obligation through 2001. As a result, PPL Electric has shifted any electric price risk to PPL EnergyPlus. PPL Electric is currently evaluating supply alternatives after 2001, including extension of the existing contract with PPL EnergyPlus, negotiation of a new contract or contracts with PPL EnergyPlus, or supply from other sources. Interest Rate Risk - ------------------ PPL and its subsidiaries, including PPL Electric, have issued debt to finance their operations. PPL has also issued debt to provide funds for unregulated energy investments, which also increases interest rate risk. PPL manages interest rate risk by using financial derivative products to adjust the mix of fixed and floating-rate interest rates in its debt portfolios, adjusting the duration of its debt portfolios and locking in U.S. treasury rates (and interest rate spreads over treasuries) in anticipation of future financing, when appropriate. Risk limits are designed to balance risk exposure to volatility in interest expense and losses in the fair value of PPL's and PPL Electric's debt portfolio due to changes in the absolute level of interest rates. See Note 9 to Financial Statements for a discussion of financial derivative instruments outstanding at December 31, 2000. 23 PPL's potential annual exposure to increased interest expense due to a 10% increase in interest rates was estimated at $6.7 million at December 31, 2000, and $4.9 million at December 31, 1999. PPL is also exposed to changes in the fair value of its debt portfolio. At December 31, 2000, PPL estimated that its potential exposure to a change in the fair value of its debt portfolio through a 10% adverse movement in interest rates was $65.6 million, compared with $61.3 million at December 31, 1999. PPL utilizes various risk management instruments to reduce its exposure to adverse interest rate movements for future anticipated financings. While PPL is exposed to changes in the fair value of these instruments, they are designed such that any economic loss in value should be offset by interest rate savings at the time the future anticipated financing is completed. At December 31, 2000, PPL estimated its potential exposure to a change in the fair value of these instruments, through a 10% adverse movement in interest rates, at $2.5 million, compared to $46.3 million at December 31, 1999. Market events that are inconsistent with historical trends could cause actual results to exceed estimated levels. Foreign Currency Risk - --------------------- PPL Global has investments in international energy-related distribution facilities. PPL Global is exposed to foreign currency risk primarily through investments in affiliates in Latin America and Europe. PPL has adopted a foreign currency risk management program designed to hedge foreign currency exposures including firm commitments, recognized assets or liabilities, forecasted transactions or net investments. At December 31, 2000, PPL had certain anticipated purchases of equipment which were, in part, payable in euros. As of December 31, 2000, PPL had entered into forward contracts for the purchase of 37 million euros. See Note 9 to the Financial Statements for additional information. Nuclear Decommissioning Fund - Securities Price Risk - ---------------------------------------------------- In connection with the corporate realignment, effective July 1, 2000, the nuclear decommissioning trust funds for the Susquehanna nuclear plant were transferred from PPL Electric to PPL Susquehanna. PPL Susquehanna maintains trust funds, as required by the NRC, to fund certain costs of decommissioning the Susquehanna station. At December 31, 2000, these funds were invested primarily in domestic equity securities and fixed-rate, fixed-income securities and are reflected at fair value on PPL's Consolidated Balance Sheet. The mix of securities is designed to provide returns to be used to fund Susquehanna's decommissioning and to compensate for inflationary increases in decommissioning costs. However, the equity securities included in the trusts are exposed to price fluctuation in equity markets, and the value of fixed rate, fixed income securities are exposed to changes in interest rates. PPL Susquehanna actively monitors the investment performance and periodically reviews asset allocation in accordance with its nuclear decommissioning trust policy statement. A hypothetical 10% increase in interest rates and 10% decrease in equity prices would have resulted in an $18.1 million reduction in the fair value of the trust assets at December 31, 2000, as compared to an $18.6 million reduction at December 31, 1999. PPL Electric's restructuring settlement agreement in 1998 provides for the collection of authorized nuclear decommissioning costs through the CTC. Additionally, PPL Electric is permitted to seek recovery from customers of up to 96% of any increases in these costs. Under the power purchase agreement between PPL Electric and PPL EnergyPlus, these recoveries would be passed on to PPL EnergyPlus. Similarly, these recoveries would be passed on to PPL Susquehanna under a power purchase agreement between PPL EnergyPlus and PPL Susquehanna. Therefore, PPL's securities price risk is expected to remain insignificant. 24 Capital Expenditure Requirements The schedule below shows PPL's current capital expenditure projections for the years 2001-2005 and actual spending for the year 2000 (millions of dollars): PPL Capital Expenditure Requirements Actual ----------------Projected-------------- 2000 2001 2002 2003 2004 2005 Construction expenditures 1) Generating facilities 2) $ 79 $ 387 $ 826 $ 473 $ 118 $ 107 Transmission and distribution facilities 148 155 164 166 169 182 Environmental 134 69 18 22 57 51 Other 35 94 40 41 37 35 ------ ------ ------ ----- ----- ------ Total Construction Expenditures 396 705 1,048 702 381 375 Nuclear fuel 44 59 54 55 57 57 ------ ------ ------ ----- ----- ------ Total Capital Expenditures $ 440 $ 764 $1,102 $ 757 $ 438 $ 432 ====== ====== ====== ===== ===== ====== 1) Construction expenditures include AFUDC and capitalized interest, which are expected to be less than $11 million in each of the years 2001-2005. 2) Includes the projected development costs for PPL Global's turbine generation projects. Some of these projects may ultimately be financed by parties who lease such projects back to PPL pursuant to leases that are not capitalized on PPL's financial statements. 3) This information excludes lease payments by PPL Montana under its sales/leaseback transaction. 4) This information excludes any equity investments by PPL Global. PPL's capital expenditure projections for the years 2001-2005 total about $3.5 billion. Capital expenditure plans are revised from time-to-time to reflect changes in conditions. Acquisitions and Development Refer to Note 11 to the Financial Statements for information regarding acquisitions and development activities. Additionally, in February 2001, WPDL and Glas executed a contract whereby Glas would purchase the water business for one British pound sterling and assume the water business' 1.8 billion British pounds sterling of debt. At December 31, 2000, PPL Global had investments in foreign facilities, including consolidated investments in Emel, EC, CEMAR and others. See Note 3 to the Financial Statements for information on PPL Global's unconsolidated investments accounted for under the equity method. Financing and Liquidity Cash and cash equivalents increased by $409 million more during 2000 compared with 1999. The reasons for this change were: . A $221 million increase in cash provided by operating activities, primarily due to an increase in operating income. . A $428 million decrease in cash used in investing activities, primarily due to lower acquisitions of generating assets. . A $240 million decrease in cash provided by various financing activities. From 1998 through 2000, PPL issued $4.1 billion of long-term debt (including $2.4 billion of securitized debt issued by PPL Transition Bond Company). For the same period, PPL issued $105 million of common stock, excluding stock issued in conjunction with the PPL Gas Utilities acquisition. From 1998 through 2000, PPL retired $2.5 billion of long-term debt and purchased $835 million of common shares. From 1998 through 2000, PPL Electric also incurred $128 million of obligations under capital leases. Refer to Note 10 to the Financial Statements for additional information on credit arrangements and financing activities in 2000. Also, in February 2001, PPL and PPL Capital Funding filed a $1.2 billion omnibus shelf registration statement with the SEC to register debt and equity securities. Financial Indicators Earnings for 2000, 1999 and 1998 were impacted by nonrecurring items. (See "Earnings" for additional information.) The following financial indicators reflect the elimination of these impacts from earnings, and provide an additional measure of the underlying earnings performance of PPL and its subsidiaries. 2000 1999 1998 ---- ---- ---- Earnings per share, diluted, as adjusted $ 3.28 $ 2.35 $ 1.87 Return on average common equity 27.14% 16.89% 10.98% Times interest earned before income taxes 2.95 3.14 3.28 Dividends declared per share $ 1.06 $ 1.00 $1.335 See Item 6 "Selected Financial and Operating Data" for additional financial indicators. 25 Environmental Matters See Note 15 to the Financial Statements for a discussion of environmental matters. Increasing Competition The electric utility industry has experienced, and will continue to experience, a significant increase in the level of competition in the energy supply market at both the state and federal level. Federal Activities - ------------------ PPL Electric, PPL EnergyPlus and certain subsidiaries of PPL Generation have authority from the FERC to sell specified ancillary services at market-based rates in the following markets: the New England power pool, the New York power pool, the market administered by the California ISO, and the PJM. PPL Electric, PPL EnergyPlus and certain subsidiaries of PPL Generation also have authority from the FERC to sell electric energy and capacity at market-based rates and to sell, assign or transfer transmission rights and associated ancillary services. PPL Electric has a FERC-filed code of conduct governing its relationship with such affiliates that engage in the sale and/or transmission of electric energy. State Activities - ---------------- Refer to Note 5 to the Financial Statements for a discussion of PPL Electric's PUC restructuring proceeding under the Customer Choice Act. Also refer to Note 17 to the Financial Statements regarding PPL Electric's transfer of its retail electric marketing function to PPL EnergyPlus. PPL EnergyPlus has a PUC license to act as a Pennsylvania EGS. This license permits PPL EnergyPlus to offer retail electric supply to participating customers in the service territory of PPL Electric and in the service territories of other Pennsylvania utilities. In 2000, PPL EnergyPlus served industrial and commercial customers in Pennsylvania, New Jersey, Delaware, Maine and Montana. PPL EnergyPlus is licensed to sell energy in Maryland and Massachusetts, and has filed an application for such a license in New York. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to "Quantitative and Qualitative Disclosures About Market Risk," in Review of the Financial Condition and Results of Operations, price risk management in Note 1 and Note 9. 26 Report of Independent Accountants To the Board of Directors and Shareowners of PPL Corporation: In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) on page 95 present fairly, in all material respects, the financial position of PPL Corporation and its subsidiaries ("PPL") at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 14(a)(2) present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the PPL's management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Philadelphia, PA January 29, 2001 27 PPL Corporation --------------- Management's Report on Responsibility for Financial Statements -------------------------------------------------------------- The management of PPL Corporation is responsible for the preparation, integrity and objectivity of the consolidated financial statements and all other sections of this annual report. The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, and the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission for regulated businesses. In preparing the financial statements, management makes informed estimates and judgments of the expected effects of events and transactions based upon currently available facts and circumstances. Management believes that the financial statements are free of material misstatement and present fairly the financial position, results of operations and cash flows of PPL. PPL's consolidated financial statements have been audited by PricewaterhouseCoopers LLP (PricewaterhouseCoopers), independent certified public accountants. PricewaterhouseCoopers' appointment as auditors was previously ratified by the shareowners. Management has made available to PricewaterhouseCoopers all PPL's financial records and related data, as well as the minutes of shareowners' and directors' meetings. Management believes that all representations made to PricewaterhouseCoopers during its audit were valid and appropriate. PPL maintains a system of internal control designed to provide reasonable, but not absolute, assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition and the prevention and detection of fraudulent financial reporting. The concept of reasonable assurance recognizes that the cost of a system of internal control should not exceed the benefits derived and that there are inherent limitations in the effectiveness of any system of internal control. Fundamental to the control system is the selection and training of qualified personnel, an organizational structure that provides appropriate segregation of duties, the utilization of written policies and procedures and the continual monitoring of the system for compliance. In addition, PPL maintains an internal auditing program to evaluate PPL's system of internal control for adequacy, application and compliance. Management considers the internal auditors' and PricewaterhouseCoopers' recommendations concerning its system of internal control and has taken actions which are believed to be cost-effective in the circumstances to respond appropriately to these recommendations. Management believes that PPL's system of internal control is adequate to accomplish the objectives discussed in this report. The Board of Directors, acting through its Audit Committee, oversees management's responsibilities in the preparation of the financial statements. In performing this function, the Audit Committee, which is composed of four independent directors, meets periodically with management, the internal auditors and the independent certified public accountants to review the work of each. The independent certified public accountants and the internal auditors have free access to the Audit Committee and to the Board of Directors, without management present, to discuss internal accounting control, auditing and financial reporting matters. Management also recognizes its responsibility for fostering a strong ethical climate so that PPL's affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is characterized and reflected in the business policies and guidelines of PPL's operating subsidiaries. These policies and guidelines address: the necessity of ensuring open communication within PPL; potential conflicts of interest; proper procurement activities; compliance with all applicable laws, including those relating to financial disclosure; and the confidentiality of proprietary information. William F. Hecht Chairman, President and Chief Executive Officer John R. Biggar Executive Vice President and Chief Financial Officer 28 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31, PPL Corporation and Subsidiaries (Millions of Dollars, except per share data)
2000 1999 1998 Operating Revenues Retail electric and gas................................................ $3,167 $2,873 $2,445 Wholesale energy marketing and trading................................. 2,080 1,440 1,223 Energy related businesses.............................................. 436 277 118 ------------ ------------- ------------ Total ................................................................. 5,683 4,590 3,786 ------------ ------------- ------------ Operating Expenses Operation Fuel.................................................................. 539 492 503 Energy purchases...................................................... 1,922 1,539 1,081 Other................................................................. 690 643 574 Amortization of recoverable transition costs.......................... 227 194 Maintenance............................................................ 261 215 182 Depreciation (Note 1).................................................. 261 257 338 Taxes, other than income (Note 7)...................................... 191 161 188 Energy related businesses.............................................. 390 217 93 ------------ ------------- ------------ Total.................................................................. 4,481 3,718 2,959 ------------ ------------- ------------ Operating Income........................................................ 1,202 872 827 ------------ ------------- ------------ Other Income and (Deductions) - Net..................................... (15) 97 66 ------------ ------------- ------------ Income Before Interest, Income Taxes and Minority Interest.............. 1,187 969 893 Interest Expense........................................................ 376 277 230 ------------ ------------- ------------ Income Before Income Taxes, Minority Interest and Extraodinary Items.... 811 692 663 Income Taxes (Note 7)................................................... 294 174 259 Minority Interest (Note 1).............................................. 4 14 ------------ ------------- ------------ Income Before Extraordinary Items....................................... 513 504 404 Extraordinary Items (net of income taxes) (Note 5)..................... 11 (46) (948) ------------ ------------- ------------ Income (Loss) Before Dividends on Preferred Stock....................... 524 458 (544) Preferred Stock Dividend Requirements................................... 26 26 25 ------------ ------------- ------------ Net Income (Loss)....................................................... $498 $432 ($569) ============ ============= ============ Basic Earnings Per Share of Common Stock (Note 4): Income Before Extraordinary Items...................................... $3.38 $3.14 $2.29 Extraordinary Items (net of tax)....................................... 0.07 (0.30) (5.75) ------------ ------------- ------------ Net Income (Loss)....................................................... $3.45 $2.84 ($3.46) ============ ============= ============ Diluted Earnings Per Share of Common Stock (Note 4):.................... Income Before Extraordinary Items...................................... $3.37 $3.14 $2.29 Extraordinary Items (net of tax)....................................... 0.07 (0.30) (5.75) ------------ ------------- ------------ Net Income (Loss)....................................................... $3.44 $2.84 ($3.46) ============ ============= ============ Dividends Declared per Share of Common Stock............................ $1.06 $1.00 $1.335
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. 29 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, PPL Corporation and Subsidiaries (Millions of Dollars)
2000 1999 1998 Cash Flows From Operating Activities Net income (loss) ........................................................... $ 498 $ 432 ($569) Extraordinary items (net of income taxes).................................... 11 (46) (948) ------- ------- ------ Net income before extraordinary items........................................ 487 478 379 Adjustments to reconcile net income to net cash provided by operating activities Depreciation............................................................. 261 257 338 Amortizations - recoverable transition costs and other................... 121 149 (3) Gain on sale of generating assets and electric energy projects........... (146) Minority interest........................................................ 4 14 Writedown of investments in electric energy projects..................... 51 Preferred stock dividend requirement..................................... 26 26 25 Equity in earnings of unconsolidated affiliates.......................... (80) (59) (49) Deferred income taxes and investment tax credits ........................ (59) (43) 12 Change in current assets and current liabilities ............................. 78 (82) (42) Other operating activities - net.............................................. 27 (1) (23) ------- ------- ------ Net cash provided by operating activities........................... 865 644 637 ------- ------- ------ Cash Flows From Investing Activities Expenditures for property, plant and equipment............................... (460) (318) (304) Sale of generating assets and electric energy projects...................... 221 Proceeds from sale/leaseback of generating assets............................ 410 Investment in generating assets and electric energy projects................. (570) (1,095) (306) Sale of nuclear fuel to trust................................................ 27 14 54 Purchases of available-for-sale securities................................... (11) (15) Sales and maturities of available-for-sale securities........................ 70 Loan to affiliated company................................................... (114) Other investing activities - net............................................. (33) (1) 16 ------- ------- ------ Net cash used in investing activities............................... (751) (1,179) (485) ------- ------- ------ Cash Flows From Financing Activities Issuance of long-term debt................................................... 1,000 2,620 495 Retirement of long-term debt................................................. (532) (1,644) (295) Issuance of common stock..................................................... 35 8 62 Purchase of treasury stock .................................................. (417) (419) Payments on capital lease obligations........................................ (11) (59) (58) Payment of common and preferred dividends ................................... (177) (180) (278) Termination of nuclear fuel lease............................................ (154) Net increase in short-term debt.............................................. 45 215 487 Other financing activities - net ............................................ 27 (70) (1) ------- ------- ------ Net cash provided by (used in) financing activities................. 233 473 (7) ------- ------- ------ Net Increase (Decrease) In Cash and Cash Equivalents ............................ 347 (62) 145 Cash and Cash Equivalents at Beginning of Period ........................... 133 195 50 ------- ------- ------ Cash and Cash Equivalents at End of Period .................................. $ 480 $ 133 $ 195 ======= ======= ====== Supplemental Disclosures of Cash Flow Information Cash paid during the period for: Interest (net of amount capitalized)......................................... $ 363 $ 267 $ 237 Income taxes................................................................. $ 266 $ 184 $ 248
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. 30 CONSOLIDATED BALANCE SHEET AT DECEMBER 31, PPL Corporation and Subsidiaries (Millions of Dollars)
2000 1999 Assets Current Assets Cash and cash equivalents (Note 1)............................................. $ 480 $ 133 Accounts receivable (less reserve: 2000, $70; 1999, $22)...................... 588 399 Notes receivable-affiliated company (Note 16).................................. 114 Unbilled revenues.............................................................. 279 310 Fuel, materials and supplies - at average cost................................. 197 200 Prepayments.................................................................... 40 119 Unrealized energy trading gains................................................ 79 26 Other.......................................................................... 168 106 -------- -------- 1,945 1,293 -------- -------- Investments Investment in unconsolidated affiliates at equity (Note 3)..................... 800 424 Investment in unconsolidated affiliates at cost................................ 46 Nuclear plant decommissioning trust fund (Notes 1 and 8)....................... 268 255 Other (Note 9)................................................................. 47 16 -------- -------- 1,161 695 -------- -------- Property, Plant and Equipment - net Electric utility plant in service - (Note 1) Transmission and distribution............................................ 2,841 2,462 Generation............................................................... 2,177 2,352 General.................................................................. 294 259 -------- -------- 5,312 5,073 Construction work in progress.................................................. 261 181 Nuclear fuel................................................................... 123 139 -------- -------- Electric utility plant................................................... 5,696 5,393 Gas and oil utility plant...................................................... 177 171 Other property................................................................. 75 60 -------- -------- 5,948 5,624 -------- -------- Regulatory Assets and Other Noncurrent Assets (Notes 1 and 5) Recoverable transition costs................................................... 2,425 2,647 Other.......................................................................... 881 915 -------- -------- 3,306 3,562 -------- -------- $ 12,360 $ 11,174 ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. 31 CONSOLIDATED BALANCE SHEET AT DECEMBER 31, PPL Corporation and Subsidiaries (Millions of Dollars)
2000 1999 Liabilities and Equity Current Liabilities Short-term debt (Note 10)......................................................... $902 $857 Note payable - affiliated company (Note 16)....................................... 135 Long-term debt.................................................................... 317 468 Above market NUG contracts (Notes 5 and 15)....................................... 93 99 Accounts payable.................................................................. 506 399 Taxes............................................................................. 223 110 Interest.......................................................................... 42 31 Dividends......................................................................... 45 43 Unrealized energy trading losses.................................................. 84 28 Other............................................................................. 164 245 ------------- -------------- 2,511 2,280 ------------- -------------- Long-term Debt (Note 10)................................................................. 4,467 3,689 ------------- -------------- Deferred Credits and Other Noncurrent Liabilities Deferred income taxes and investment tax credits (Note 7)......................... 1,412 1,548 Above market NUG contracts (Notes 5 and 15)....................................... 581 674 Other (Notes 1 and 8)............................................................ 976 959 ------------- -------------- 2,969 3,181 ------------- -------------- Commitments and Contingent Liabilities (Note 15) ------------- -------------- Minority Interest (Note 1)............................................................... 54 64 ------------- -------------- Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely company debentures....................................... 250 250 ------------- -------------- Preferred Stock With sinking fund requirements.................................................... 47 47 Without sinking fund requirements................................................. 50 50 ------------- -------------- 97 97 ------------- -------------- Shareowners' Common Equity Common stock...................................................................... 2 2 Capital in excess of par value.................................................... 1,895 1,860 Treasury stock (Note 1)........................................................... (836) (836) Earnings reinvested............................................................... 999 654 Accumulated other comprehensive income (Note 1)................................... (36) (55) Capital stock expense and other................................................... (12) (12) ------------- -------------- 2,012 1,613 ------------- -------------- $12,360 $11,174 ============= ==============
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. 32 CONSOLIDATED STATEMENT OF SHAREOWNERS' COMMON EQUITY PPL Corporation and Subsidiaries (Millions of Dollars)
For the Years Ended December 31, ----------------------------------------------------- 2000 1999 1998 ------------- -------------- ------------- Common stock at beginning of year.................................. $ 2 $ 2 $ 2 Issuance of common stock...................................... ------------- -------------- ------------- Common stock at end of year........................................ 2 2 2 ------------- -------------- ------------- Capital in excess of par value at beginning of year................ 1,860 1,866 1,669 Common stock issued through the ESOP, DRIP, and the ICP (a)... 35 8 62 Common stock issued for purchase of PPL Gas Utilities......... 135 Other......................................................... (14) ------------- -------------- ------------- Capital in excess of par value at end of year...................... 1,895 1,860 1,866 ------------- -------------- ------------- Treasury stock at beginning of year................................ (836) (419) Purchase of treasury stock.................................... (417) (419) ------------- -------------- ------------- Treasury stock at end of year...................................... (836) (836) (419) ------------- -------------- ------------- Earnings reinvested at beginning of year........................... 654 372 1,164 Net income (loss) (b)......................................... 498 432 (569) Cash dividends declared on common stock....................... (153) (150) (223) ------------- -------------- ------------- Earnings reinvested at end of year................................. 999 654 372 ------------- -------------- ------------- Accumulated other comprehensive income at beginning of year (c)............................................ (55) (4) Foreign currency translation adjustments, net of tax benefit of $6, $6, $3 (b)........................ 15 (51) 1 Unrealized gain (loss) on available-for-sale securities (b)............................................. 3 (2) Minimum pension liability adjustment (b)...................... 1 (3) ------------- -------------- ------------- Accumulated other comprehensive income at end of year...................................................... (36) (55) (4) ------------- -------------- ------------- Capital stock expense at beginning of year......................... (12) (27) (26) Other......................................................... 15 (1) ------------- -------------- ------------- Capital stock expense at end of year............................... (12) (12) (27) ------------- -------------- ------------- Total Shareowners' Common Equity................................... $2,012 $1,613 $1,790 ============= ============== ============= Common stock shares (thousands) at beginning of year (a)........................................... 143,697 157,412 166,248 Common stock issued through the ESOP, DRIP, and the ICP........................................... 1,344 282 2,604 Common stock issued for purchase of PPL Gas Utilities........................................... 5,556 Treasury stock purchased...................................... (13,997) (16,996) ------------- -------------- ------------- Common stock shares at end of year................................. 145,041 143,697 157,412 ============= ============== =============
(a) $.01 par value, 390 million shares authorized. Each share entitles the holder to one vote on any question presented to any shareowners' meeting. (b) Statement of Comprehensive Income (Note 1): Net income (loss) $498 $432 ($569) Other comprehensive income, net of tax: Foreign currency translation adjustments.................. 15 (51) 1 Unrealized gain (loss) on available-for-sale securities... 3 (2) Minimum pension liability adjustment...................... 1 (3) ------------- -------------- ------------- Total other comprehensive income.......................... 19 (51) (4) ------------- -------------- ------------- Comprehensive income (loss)............................... $517 $381 ($573) ============= ============== =============
(c) See Note 1 for disclosure of balances for each component of Accumulated Other Comprehensive Income. The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements 33 CONSOLIDATED STATEMENT OF PREFERRED STOCK AT DECEMBER 31, PPL Corporation and Subsidiaries (a) (Millions of Dollars)
Shares Outstanding Outstanding Shares 2000 1999 2000 Authorized PPL Electric Preferred Stock - $100 par, cumulative 4-1/2%................................................. $25 $25 247,658 629,936 Series................................................. 72 72 726,665 10,000,000 ----------- -------------- $97 $97 =========== ==============
Details of Preferred Stock (b)
Sinking Fund Optional Provisions Shares Redemption Shares to be Outstanding Outstanding Price Per Redeemed Redemption 2000 1999 2000 Share Annually Period With Sinking Fund Requirements Series Preferred 5.95% ................................. $ 1 $ 1 10,000 (c) 10,000 April 2001 6.125% ................................ 31 31 315,500 (c) (d) 2003-2008 6.15%.................................. 10 10 97,500 (c) 97,500 April 2003 6.33% ................................. 5 5 46,000 (c) 46,000 July 2003 ---------- ----------- $ 47 $ 47 ========== =========== Without Sinking Fund Requirements 4-1/2% Preferred......................... $ 25 $ 25 247,658 $110.00 Series Preferred 3.35%.................................. 2 2 20,605 103.50 4.40%.................................. 11 11 117,676 102.00 4.60%.................................. 3 3 28,614 103.00 6.75%.................................. 9 9 90,770 (c) ---------- ----------- $ 50 $ 50 ========== ===========
Increases (Decreases) in Preferred Stock There were no issuances or redemptions of preferred stock in 2000, 1999 or 1998. (a) Each share of PPL Electric's preferred stock entitles the holder to one vote on any question presented to PPL Electric's shareowner's meetings. There were also 10 million shares of PPL's preferred stock and 5 million shares of PPL Electric's preference stock authorized; none were outstanding at December 31, 2000 and 1999. (b) The involuntary liquidation price of the preferred stock is $100 per share. The optional voluntary liquidation price is the optional redemption price per share in effect, except for the 4-1/2% Preferred Stock for which such price is $100 per share (plus in each case any unpaid dividends). (c) These series of preferred stock are not redeemable prior to the following years: 5.95%, 2001; 6.125%, 6.15%, 6.33% and 6.75%, 2003. (d) Shares to be redeemed annually on October 1 as follows: 2003-2007, 57,500; 2008, 28,000. The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. 34 CONSOLIDATED STATEMENT OF COMPANY- OBLIGATED MANDATORILY REDEEMABLE SECURITIES AT DECEMBER 31, PPL Corporation and Subsidiaries (a) (Millions of Dollars)
Outstanding Outstanding 2000 1999 2000 Authorized Maturity (b) Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Company Debentures - $25 per security 8.10%.................. $150 $150 6,000,000 6,000,000 July 2027 8.20%.................. 100 100 4,000,000 4,000,000 April 2027 ----------- ---------- $250 $250 =========== ==========
(a) PPL Electric issued a total of $250 million of company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely company debentures by PPL Capital Trust and PPL Capital Trust II, two Delaware statutory business trusts. These preferred securities are supported by a corresponding amount of junior subordinated deferrable interest debentures issued by PPL Electric to the trusts. PPL Electric owns all of the common securities, representing the remaining undivided beneficial ownership interest in the assets of the trusts. The proceeds derived from the issuance of the preferred securities and the common securities were used by PPL Capital Trust and PPL Capital Trust II to acquire $103 million and $155 million principal amount of Junior Subordinated Deferrable Interest Debentures ("Subordinated Debentures"), respectively. PPL Electric has guaranteed all of the trusts' obligations under the preferred securities. The proceeds of the sale of these preferred securities were loaned by PPL Electric to PPL for the tender offer for PPL Electric's preferred stock. (b) The preferred securities are subject to mandatory redemption, in whole or in part, upon the repayment of the Subordinated Debentures at maturity or their earlier redemption. At the option of PPL Electric, the Subordinated Debentures are redeemable on and after April 1, 2002 (for the 8.20% securities) and July 1, 2002 (for the 8.10% securities) in whole at any time or in part from time to time. The amount of preferred securities subject to such mandatory redemption will be equal to the amount of related Subordinated Debentures maturing or being redeemed. The redemption price is $25 per security plus an amount equal to accumulated and unpaid distributions to the date of redemption. The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. 35 CONSOLIDATED STATEMENT OF LONG-TERM DEBT AT DECEMBER 31, PPL Corporation and Subsidiaries (Millions of Dollars)
Outstanding 2000 1999 Maturity (b) First Mortgage Bonds (a) 6% .............................................................. $ 125 June 1, 2000 7 3/4%........................................................... $ 28 28 May 1, 2002 6 7/8%........................................................... 19 19 February 1, 2003 6 7/8%........................................................... 25 25 March 1, 2004 6 1/2%........................................................... 125 125 April 1, 2005 6 1/8% to 7.70%.................................................. 350 (d) 350 2006-2010 7 3/8%........................................................... 10 10 2011-2015 9 1/4%........................................................... (c) 28 2016-2020 9 3/8 to 7.30%................................................... 88 88 2021-2025 First Mortgage Pollution Control Bonds (a) 6.40% Series H................................................... 90 90 November 1, 2021 5.50% Series I................................................... 53 53 February 15, 2027 6.40% Series J................................................... 116 116 September 1, 2029 6.15% Series K................................................... 55 55 August 1, 2029 ------------ ------------- 959 1,112 Series 1999-1 Transition Bonds 6.08 to 7.15%.................................................... 2,164 (e) 2,390 2001-2008 Medium-Term Notes 5.75 to 8.375%................................................... 1,487 (f) 597 2000-2007 Pollution Control Revenue Bonds...................................... 9 9 June 1, 2027 Unsecured Promissory Notes........................................... 16 17 2005-2022 Other Long-Term Debt................................................. 155 (g) 38 2001-2024 ----------- ------------ 4,790 4,163 Unamortized (discount) and premium - net ............................ (6) (6) ----------- ------------ 4,784 4,157 Less amount due within one year...................................... (317) (468) ----------- ------------ Total Long-Term Debt.............................................. $4,467 $ 3,689 =========== ============
(a) Substantially all owned transmission and distribution plant is subject to the lien of PPL Electric's Mortgage. (b) Aggregate long-term debt maturities through 2005 are (millions of dollars); 2001, $317; 2002, $507; 2003, $387; 2004, $418; 2005, $947. There are no bonds outstanding that have sinking fund requirements. (c) In April 2000, PPL Electric redeemed and retired all of its First Mortgage Bonds, 9-1/4 Series due 2019, at the aggregate par value of $27.6 million through the maintenance and replacement fund provisions of its mortgage. (d) In May 1998, PPL Electric issued $200 million First Mortgage Bonds, 6-1/8% Reset Put Securities Series due 2006. In connection with this issuance, PPL Electric assigned to a third party the option to call the bonds from the holders on May 1, 2001. These bonds will mature on May 1, 2006, but will be required to be surrendered by the existing holders on May 1, 2001 either through the exercise of the call option by the callholder or, if such option is not exercised, through the automatic exercise of a mandatory put by the trustee on behalf of the bondholders. (e) In August 1999, PPL Transition Bond Company issued $2.4 billion of transition bonds to securitize a portion of PPL Electric's stranded costs. The bonds were issued in eight different classes, with expected average lives of 1 to 8.7 years. Bond principal payments of $226 million were made in 2000. (f) During 2000, PPL Capital Funding issued the following series of medium-term notes: in February 2000, $500 million of 7.75% Series due 2005; in June 2000, $300 million of 8.375% Series due 2007; in August 2000, $25 million of 7.75% Series due 2002; in September 2000, $125 million and $50 million of two floating-rate issues with maturities of 2002. Retirements of $110 million were made in October 2000. (g) In 2000, PPL Global acquired a controlling interest in CEMAR. As a result, in the third quarter PPL Global consolidated the financial statements of CEMAR. The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. 36 PPL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Business and Consolidation PPL is an energy holding company based in Allentown, PA. PPL is the parent of PPL Energy Funding, PPL Electric, PPL Gas Utilities, PPL Services, and PPL Capital Funding. PPL Energy Funding serves as the holding company for PPL's principal unregulated subsidiaries: PPL Generation, PPL EnergyPlus and PPL Global. The principal business of PPL Generation is owning and operating U.S. generating facilities through various subsidiaries. The principal business of PPL EnergyPlus is unregulated wholesale and retail energy marketing. PPL Global's principal businesses are the acquisition and development of both U.S. and international energy projects, and the ownership and operation of international energy projects. PPL Electric is the principal regulated subsidiary of PPL. PPL Electric's principal businesses are the regulated transmission and distribution of electricity to serve retail customers in its service territory in eastern and central Pennsylvania, and the supply of electricity to retail customers in that territory as a PLR. PPL consolidates the financial statements of its affiliates when it has majority ownership and control. All significant intercompany transactions have been eliminated. Minority interests in operating results and equity ownership are reflected in the consolidated financial statements. The consolidated financial statements reflect the accounts of all controlled affiliates on a current basis, with the exception of certain PPL Global investments. It is the policy of PPL Global to record equity in earnings of affiliates on a lag, based on the availability of financial data on a U.S. GAAP basis. Earnings from WPDH and WPDL are recorded on a one-month lag. PPL Global has 51% equity ownership interests in these entities but has joint control of these investments with Mirant. Earnings from all other equity method investments are recorded on a three-month lag. PPL Global consolidates the results of Emel, EC, the Bolivian subsidiaries and other investments on a one-month lag. The results of CEMAR are consolidated on a three-month lag. Earnings from PPL Global's 2.9% investment in CGE are accounted for using the cost method. When ownership interest in an affiliate increases through a series of acquisitions and subsequently results in control, the equity method of accounting ceases to apply. In accordance with Accounting Research Bulletin 51, "Consolidated Financial Statements," the affiliate's results are included in the consolidated financial statements as though it were acquired at the beginning of the year. The portion of the affiliate's earnings owned by outside shareowners is included in "Minority Interest" in the consolidated financial statements. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Accounting Records The accounting records for PPL Electric and PPL Gas Utilities are maintained in accordance with the Uniform System of Accounts prescribed by the FERC and adopted by the PUC. Regulation Historically, PPL Electric accounted for its operations in accordance with the provisions of SFAS 71, which requires rate-regulated entities to reflect the effects of regulatory decisions in their financial statements. PPL Electric discontinued application of SFAS 71 for the generation portion of its business, effective June 30, 1998. In connection with the corporate realignment, effective July 1, 2000, the generating and certain other related assets, along with associated liabilities, were contributed to new unregulated subsidiaries of PPL Generation. PPL Gas Utilities and two PPL Global affiliates continue to be subject to SFAS 71. 37 Property, Plant and Equipment Following are the classes of PPL's Electric Utility Plant in Service with associated accumulated depreciation reserves, at December 31, 2000 and 1999 (millions of dollars): 2000 1999 ---- ---- Property, Plant and Equipment Generation $ 6,801 $ 6,837 Transmission and Distribution 3,521 3,836 General 460 415 -------- -------- 10,782 11,088 Less: Accumulated depreciation 5,470 6,015 -------- -------- Property, Plant and Equipment - net $ 5,312 $ 5,073 ======== ======== Property, plant and equipment is recorded at original cost, unless impaired, in which case the plant's basis is reduced to its estimated fair value. Property, plant and equipment acquired is recorded at the fair market value at acquisition date. Generation plant is reflected at the lower of cost or market value, as these assets are no longer subject to the provisions of SFAS 71. The other classes of property, plant and equipment, as well as items capitalized subsequent to an acquisition, are recorded at historical cost. PPL subsidiaries periodically review the depreciable lives of their fixed assets. In conjunction with the corporate realignment, studies were conducted of depreciable lives of certain generation assets. These studies indicated that the estimated economic lives for certain generation assets were longer than the lives used to calculate depreciation for financial statement purposes. Therefore, effective July 1, 2000, PPL Generation subsidiaries revised the estimated economic lives for fossil generation and pipeline assets. The effect of this change in 2000 was to increase net income by about $10 million, or 7 cents per share. AFUDC is capitalized as part of the construction costs for regulated projects. Capitalized interest is recorded for non-regulated construction projects in accordance with SFAS 34. The cost of repairs and replacements are charged to expense as incurred for non-regulated projects. When regulated property, plant and equipment is retired, the original cost plus the cost of retirement, less salvage, is charged to accumulated depreciation. When entire regulated operating units are sold or non-regulated plant is retired or sold, the costs of such assets and the related accumulated depreciation are removed from the balance sheet and the gain or loss, if any, is included in income, unless otherwise required by the FERC. Depreciation is computed over the estimated useful lives of property using various methods including the straight-line, composite, and group methods. The annual provisions for depreciation have been computed principally in accordance with the following ranges of asset lives: generation, 5-50 years; transmission and distribution, 15-80 years; and general, 10-80 years. Amortization of Goodwill Goodwill, which is included in "Regulatory Assets and Other Noncurrent Assets" on the Consolidated Balance Sheet, is amortized on a straight-line basis over a 40-year period, except for goodwill related to the CEMAR acquisition which is amortized on a straight-line basis over a 30-year period. The excess cost over fair value of PPL Global's investments in unconsolidated affiliates is amortized on a straight-line basis over a period not in excess of 40 years. Nuclear Decommissioning and Fuel Disposal An annual provision for PPL's share of the future cost to decommission the Susquehanna station, equal to the amount allowed in utility rates, is charged to depreciation expense. Such amounts are invested in external trust funds which can be used only for future decommissioning costs. See Note 8. Recoverable Transition Costs Based on the PUC Final Order, PPL Electric was amortizing its competitive transition (or stranded) costs over an 11-year transition period beginning January 1, 1999 and ending December 31, 2009. In August 1999, competitive transition costs of $2.4 billion were converted to intangible transition costs when securitized by the issuance of transition bonds. The intangible transition costs are being amortized over the life of the transition bonds, August 1999 through December 2008, in accordance with an amortization schedule filed with the PUC. The assets of PPL Transition Bond Company, including the intangible transition property, are not available to creditors of PPL or PPL Electric. The transition bonds are obligations of PPL Transition Bond Company and are non-recourse to PPL and PPL Electric. The remaining competitive transition costs are also being amortized based on an amortization schedule previously filed with the PUC, adjusted for 38 those competitive transition costs that were converted to intangible transition costs. As a result of the conversion of a significant portion of the competitive transition costs into intangible transition costs, amortization of substantially all of the remaining competitive transition costs will occur in 2009. Accounting for Price Risk Management PPL engages in price risk management activities for both energy trading and non-trading activities as defined by EITF 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." In 1999 and 2000, PPL entered into commodity forward and financial contracts for the physical purchase and sale of energy as well as energy contracts that can be settled financially. In 1998, these instruments were reflected in the financial statements using the accrual method of accounting. As of January 1, 1999, PPL adopted mark-to-market accounting for energy trading contracts, in accordance with EITF 98-10. Gains and losses from changes in market prices are reflected in "Energy Purchases" on the Consolidated Statement of Income. PPL used EITF 98-10 to account for its commodity forward and financial contracts and will adopt SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" on January 1, 2001. See Note 18 for additional information. PPL entered into interest rate derivative contracts to hedge its exposure to changes in the fair value of its assets or liabilities, its exposure to variability in expected cash flows associated with existing assets or liabilities, or forecasted transactions. The gains or losses on these derivatives have been deferred and are being recognized over the life of the debt, in accordance with SFAS 80, "Accounting for Futures Contracts." PPL and its subsidiaries also enter into foreign currency derivative contracts to hedge foreign currency exposures, including firm commitments, recognized assets or liabilities, forecasted transactions or net investments. Until PPL adopts SFAS 133, market gains and losses are recognized in accordance with SFAS 52, "Foreign Currency Translation," and are included in accumulated other comprehensive income on the Consolidated Balance Sheet. Leases Leased property of PPL capitalized on the Consolidated Balance Sheet at December 31, 1999, consisted solely of nuclear fuel. In March 2000, PPL Electric terminated its nuclear fuel lease and repurchased $154 million of nuclear fuel from the lessor energy trust. In July 2000, all nuclear fuel was transferred to PPL Susquehanna in connection with the corporate realignment. In July 2000, PPL Montana sold its investment in the Colstrip Steam Generation electric plant to owner lessors who are leasing the assets back to PPL Montana under four 36-year operating leases. The proceeds from this sale approximated $410 million. A gain of approximately $8 million was deferred, and is being amortized over the life of the lease. PPL Montana used the proceeds to reduce outstanding debt and make distributions to its parent, PPL Generation. PPL Montana leases a 50% interest in the Colstrip Units 1 and 2 and a 30% interest in Unit 3, through four non-cancelable operating leases. The leases provide two renewal options based on the economic useful life of the generation assets. The leases place certain restrictions on PPL Montana's ability to incur additional debt, sell assets and declare dividends, and require PPL Montana to maintain certain financial ratios related to cash flow and net worth. Future minimum lease payments are estimated as follows (millions of dollars): 2001, $43; 2002, $49; 2003, $47; 2004, $44; 2005, $38; and thereafter, $531. Payments on other leased property classified as operating leases are estimated as follows (millions of dollars): 2001, $55; 2002, $57; 2003, $59; 2004, $61; and 2005, $64. These leases include vehicles, office space, personal computers and other equipment. Revenue Recognition "Retail Electric and Gas" and "Wholesale Energy Marketing and Trading" revenues are recorded based on deliveries through the end of the calendar month. "Energy Related Businesses" revenue includes revenues from PPL Global, PPL Spectrum, and the mechanical contracting and engineering subsidiaries. PPL Global's revenue reflects its proportionate share of affiliate earnings under the equity method of accounting, as described in the Business and Consolidation section of this Note 1, and dividends 39 received from its investments accounted for using the cost method. PPL Spectrum and the mechanical contracting and engineering subsidiaries record profits from construction contracts on the percentage-of-completion method of accounting. Under the percentage-of-completion method, the relationship of actual costs incurred to total estimated costs of the contracts is applied to total income to be derived from the contracts. Income from time and material contracts is recognized currently as the work is performed. Costs include all direct material and labor costs and job-related overhead. Provisions for estimated loss on uncompleted contacts, if any, are made in the period in which such losses are determined. Income Taxes The income tax provision for PPL is calculated in accordance with SFAS 109, "Accounting for Income Taxes." The provision for PPL Electric's deferred income taxes for regulated assets is based upon the ratemaking principles reflected in rates established by the PUC and FERC. The difference in the provision for deferred income taxes for regulated assets and the amount that otherwise would be recorded under U.S. GAAP is deferred and included in taxes recoverable through future rates on the Consolidated Balance Sheet. See Note 7. PPL Electric deferred investment tax credits when utilized, and is amortizing the deferrals over the average lives of the related assets. PPL and its subsidiaries file a consolidated federal income tax return. Cash Equivalents All highly liquid debt instruments purchased with original maturities of three months or less are considered to be cash equivalents. Comprehensive Income Comprehensive income consists of net income and other comprehensive income, defined as changes in common equity from transactions not related to shareowners. Other comprehensive income consists of unrealized gains or losses on available-for-sale securities, the excess of additional pension liability over unamortized prior service costs and foreign currency translation adjustments recorded by PPL Global. Comprehensive income is reflected on the Consolidated Statement of Shareowners' Common Equity, and "Accumulated Other Comprehensive Income" is presented on the Consolidated Balance Sheet. The accumulated other comprehensive income of PPL at December 31, 2000 and 1999, respectively, consisted of (in millions): foreign currency translation adjustments, ($34) and ($50); unrealized gains on available-for-sale securities, $3 and $1; and adjustments to minimum pension liability, ($5) and ($6). Treasury Stock Treasury shares are reflected on the Consolidated Balance Sheet as an offset to common equity under the cost method of accounting. Management has no definitive plans for the future use of these shares. Treasury shares are not considered outstanding in calculating earnings per share. Foreign Currency Translation Assets and liabilities of international operations where the local currency is the functional currency have been translated at year-end exchange rates, and related revenues and expenses have been translated at average exchange rates prevailing during the year. Adjustments resulting from translation have been recorded in other comprehensive income. The effect of translation adjustments on other comprehensive income, net of income taxes, is disclosed in the Consolidated Statement of Shareowners' Common Equity. Gains or losses relating to foreign currency transactions are recognized in income currently. The aggregate transaction gain (loss) was not significant in 2000, 1999 or 1998. Project Development Costs In accordance with the American Institute of Certified Public Accountants' Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities", PPL Global expenses the costs of evaluating potential acquisition and development opportunities as incurred. Acquisition and development costs are capitalized upon approval of the investment by the PPL Global Board of Managers and the Finance Committee of PPL's Board of Directors or, if later, the achievement of sufficient project milestones such that the economic viability of the project is reasonably assured. The level of assurance needed for capitalization of such costs requires that all major 40 uncertainties be resolved and a high probability that the project will proceed as planned, or that such costs will be recoverable through long-term operations, a financing or a sale. The continued capitalization of project development and acquisition costs is subject to on-going risks related to successful completion. In the event that PPL Global determines that a particular project is no longer viable, previously capitalized costs are charged to expense in the period that such determination is made. Reclassification Certain amounts in the 1999 and 1998 financial statements have been reclassified to conform to the current presentation. 2. Segment and Related Information On July 1, 2000, PPL and PPL Electric completed a corporate realignment, in order to effectively separate PPL Electric's regulated transmission and distribution businesses from its recently deregulated generation businesses and to better position the companies and their affiliates in the new competitive marketplace. PPL's reportable segments have been revised to reflect this new corporate structure. After realignment, the new segments of PPL are Supply, Delivery and Development. The Supply group includes the domestic unregulated energy marketing and generation functions of PPL EnergyPlus and PPL Generation. The Delivery group includes the regulated electric and gas delivery businesses of PPL Electric and PPL Gas Utilities. The Development group includes PPL Global, the principal businesses of which are the acquisition and development of both U.S. and international energy projects, and the ownership and operation of international energy projects. The majority of PPL Global's international investments are located in the U.K., Chile, El Salvador and Brazil. Each segment includes an allocation of indirect corporate costs for services provided by PPL Services. These indirect costs include functions such as financial, legal, human resources, and information services. Prior to the corporate realignment, the reportable segments of PPL were PPL Electric, PPL Global and Other. Previously reported 1999 information has been restated to conform to the current presentation. Previously reported 1998 information has not been restated in terms of the new segments, due to the fact that electric rates were not unbundled to separate charges for generating, transmission and distribution services until January 1, 1999. Therefore, it is impracticable to restate 1998 information. Financial data for PPL's business segments are as follows (millions of dollars): 2000 1999 ---- ---- Income Statement data Revenues from external customers Supply................................. $3,945 $2,988 Delivery............................... 1,282 1,272 Development............................ 456 330 ------- ------- 5,683 4,590 Intersegment revenues N/A - There are no intersegment revenues. Equity in earnings of unconsolidated affiliates Development............................ 80 59 ------- ------- 80 59 Depreciation Supply................................. 136 137 Delivery............................... 104 102 Development............................ 21 18 ------- ------- 261 257 Amortizations - recoverable transition costs and other Supply................................. (107) (45) Delivery............................... 228 194 ------- ------- 121 149 Interest Revenue Development............................ 12 8 ------- ------- 12 8 Interest Expense Supply................................. 63 65 Delivery............................... 230 168 Development............................ 83 44 ------- ------- 376 277 Income Taxes Supply................................. 251 118 Delivery............................... 59 28 Development............................ (16) 28 ------- ------- 294 174 Extraordinary Items, net of income taxes Delivery............................... 11 (46) ------- ------- 11 (46) Net Income Supply................................. 368 220 Delivery............................... 113 177 Development............................ 17 35 ------- ------- 498 432 Net income excluding nonrecurring items (a) Supply................................. 368 178 Delivery............................... 89 158 Development............................ 17 22 ------- ------- 474 358 (a) Nonrecurring items: additions to (deductions from) net income 41 2000 1999 ---- ---- Supply Sale of Sunbury plant and related assets................................. 42 ------- -------- Delivery Environmental insurance settlement.... 24 Securitization........................ 19 ------- -------- Development SWEB sale of supply business.......... 64 Writedown of carrying value of certain investments......................... (51) ------- -------- ......................................... 13 ------- -------- $ 24 $ 74 ======= ======== Cash Flow Data Expenditures for property, plant & equipment Supply................................ $ 39 $ 43 Delivery.............................. 319 271 Development........................... 102 4 ------- -------- 460 318 Investment in generating assets and electric energy projects Supply................................ 870 Development........................... 570 225 ------- -------- $ 570 $ 1,095 December 31, ----------- 2000 1999 ---- ---- Balance Sheet data Cumulative net investment in unconsolidated affiliates at equity Supply................................ $ 17 $ 17 Development........................... 783 407 ------- -------- 800 424 Total assets Supply................................ 3,843 3,778 Delivery.............................. 6,049 5,972 Development........................... 2,468 1,424 ------- -------- $12,360 $ 11,174 ======= ======== Financial data for PPL's business segments under the old basis of segmentation were as follows (millions of dollars): 1999 1998 ---- ---- Income Statement data Operating Revenues PPL Electric........................... $ 3,952 $ 3,643 PPL Global............................. 330 47 Other and Eliminations................. 308 96 ------- -------- 4,590 3,786 Depreciation PPL Electric........................... 233 335 PPL Global............................. 18 Other and Eliminations................. 6 3 ------- -------- 257 338 1999 1998 ---- ---- Interest Expense PPL Electric........................... 214 196 PPL Global............................. 44 22 Other and Eliminations................. 19 12 ------- -------- 277 230 Income Taxes PPL Electric........................... 151 273 PPL Global............................. 29 (4) Other and Eliminations................. (6) (10) ------- -------- 174 259 Extraordinary Items, net of income taxes PPL Electric........................... (46) (948) ------- -------- (46) (948) Net Income (Loss) - actual PPL Electric........................... 398 (587) PPL Global............................. 37 15 Other and Eliminations................. (3) 3 ------- -------- 432 (569) Net Income (Loss) - excluding nonrecurring items (b) PPL Electric.......................... 337 304 PPL Global............................ 24 6 Other and Eliminations................ (3) ------- -------- 358 310 (b) Nonrecurring items: additions to (deductions from) net income PPL Electric Sale of Sunbury plant and related assets....................... 42 Securitization......................... 19 PUC restructuring charge............... (915) FERC municipality settlement........... (32) SER settlement......................... 18 Other impacts of restructuring......... 38 ------- -------- 61 (891) ------- -------- PPL Global SWEB sale of supply business........... 64 Writedown of carrying value of certain investments................ (51) U.K. income tax rate reduction......... 9 ------- -------- 13 9 ------- -------- Other and Eliminations PPL Gas Utilities acquisition costs..................... 3 ------- -------- $ 74 $ (879) ======= ======== 1999 1998 ---- ---- Cash Flow data Expenditures for property, plant & equipment PPL Electric.......................... $ 300 $ 297 PPL Global............................ 4 Other and Eliminations................ 14 7 ------- -------- 318 304 Investment in generating assets and electric energy projects PPL Global............................ 1,095 306 ------- -------- $ 1,095 $ 306 42 3. Investments in Unconsolidated Affiliates - at Equity PPL's investments in unconsolidated affiliates accounted for under the equity method were $800 million and $424 million at December 31, 2000 and 1999, respectively. The most significant investment was PPL Global's investment in WPDH, which was $479 million at December 31, 2000 and $303 million at December 31, 1999. At December 31, 2000 PPL Global had a 51% equity ownership interest in WPDH, but shared joint control with Mirant. Accordingly, PPL Global accounts for its investment in WPDH (and other investments where it has majority ownership but lacks voting control) under the equity method of accounting. Investments in unconsolidated affiliates accounted for under the equity method at December 31, 2000, and the effective equity ownership percentages, were as follows: PPL Global Bolivian Generating Group, LLC - 29.3% Latin American Energy & Electricity Fund I, LP - 16.6% Aguaytia Energy, LLC - 11.4% WPD Holdings UK - 51% Hidrocentrais Reunidas, LDA - 50% Hidro Iberica, B. V. - 50% Southwest Power Partners, LLC - 50% Western Power Distribution Limited - 51% PPL Generation Safe Harbor Water Power Corporation - 33.3% Bangor Pacific Hydro Associates - 50% Summarized below is financial information from the financial statements of these affiliates, as comprehended in the PPL consolidated financial statements for the periods noted (millions of dollars): Balance Sheet Data December 31, 2000 1999 ---- ---- Current Assets $ 396 $ 389 Noncurrent Assets 4,904 3,340 Current Liabilities 409 367 Noncurrent Liabilities 3,365 1,890 Income Statement Data 2000 1999 1998 ---- ---- ---- Revenues (a) $505 $1,130 $1,206 Operating Income 254 212 188 Net Income (a) 131 427 137 (a) The decrease in revenues and net income in 2000 were in part due to the sale of the supply business of WPD, formerly SWEB, in the fourth quarter of 1999. 4. Earnings Per Share SFAS 128, "Earnings Per Share," requires the disclosure of basic and diluted EPS. Basic EPS is calculated by dividing earnings available to common shareowners ("Net Income" on the PPL's Consolidated Statement of Income) by the weighted average number of common shares outstanding during the period. In the calculation of diluted EPS, weighted average shares outstanding are increased for additional shares that would be outstanding if potentially dilutive securities were converted to common stock. Potential dilutive securities for PPL consist of stock options granted under the incentive compensation plans (See Note 12) and stock units representing common stock granted under directors compensation programs. Reconciliations of the numerator and denominator for basic and diluted earnings per common share are shown below. 2000 1999 1998 ---- ---- ---- (Millions, except per Share Data) Income (Numerator) Earnings applicable to common stock- before extraordinary items $487 $478 $379 Extraordinary items 11 (46) (948) ---- ----- ---- Earnings applicable to common stock- after extraordinary items $498 $432 ($569) Shares(Denominator) Number of shares on which basic earnings per share is calculated = Weighted-average shares outstanding during year 144,350,221 152,287,390 164,650,872 Add- Incremental shares attributable to stock options 364,535 9,631 Add- Incremental shares attributable to stock units 66,841 58,938 48,180 Number of shares on which diluted earnings per share is calculated 144,781,597 152,355,959 164,699,052 Basic EPS before extraordinary items $3.38 $3.14 $2.29 Diluted EPS before extraordinary items $3.37 $3.14 $2.29 43 2000 1999 1998 ---- ---- ---- Basic EPS after extraordinary items $3.45 $2.84 ($3.46) Diluted EPS after extraordinary items $3.44 $2.84 ($3.46) 5. Extraordinary Items PUC Restructuring and FERC Settlement Historically, PPL Electric prepared its financial statements for its regulated operations in accordance with SFAS 71, which requires rate-regulated companies to reflect the effects of regulatory decisions in their financial statements. PPL Electric deferred certain costs pursuant to rate actions of the PUC and the FERC and recovered, or expected to recover, such costs in electric rates charged to customers. The EITF addressed the appropriateness of the continued application of SFAS 71 by entities in states that have enacted restructuring legislation similar to Pennsylvania's Customer Choice Act. The EITF came to a consensus on Issue No. 97-4, "Deregulation of the Pricing of Electricity - Issues Related to the Application of FASB Statements 71 and 101," which concluded that an entity should cease to apply SFAS 71 when a deregulation plan is in place and its terms are known. For PPL Electric, with respect to the generation portion of its business, this occurred effective June 30, 1998 based upon the outcome of the PUC restructuring proceeding. PPL Electric adopted SFAS 101 for the generation side of its business. SFAS 101 required a determination of impairment of plant assets performed in accordance with SFAS 121, and the elimination of all effects of rate regulation that were recognized as assets and liabilities under SFAS 71. PPL Electric performed impairment tests of its electric generation assets on a plant specific basis and determined that $2.388 billion of its generation plant was impaired at June 30, 1998. Impaired plant was the excess of the net plant investment at June 30, 1998 over the present value of the net cash flows during the remaining lives of the plants. Annual net cash flows were determined by comparing estimated generation sustenance costs to estimated regulated revenues for the remainder of 1998, market revenues for 1999 and beyond, and revenues from bulk power contracts. The net cash flows were then discounted to present value. In addition to the impaired generation plant, PPL Electric estimated that there were other stranded costs totaling $1.989 billion at June 30, 1998. This primarily included generation-related regulatory assets and liabilities and an estimated liability for above-market purchases under NUG contracts. The total estimated impairment described above was $4.377 billion. The PUC's Final Order in the restructuring proceeding, entered on August 27, 1998, permitted the recovery of $2.819 billion through the CTC on a present value basis, excluding amounts for nuclear decommissioning and consumer education, resulting in a net under-recovery of $1.558 billion. PPL Electric recorded an extraordinary charge for this under-recovery in June 1998. Under FERC Order 888, 16 small utilities which had power supply agreements with PPL Electric signed before July 11, 1994, requested and were provided with PPL Electric's current estimate of its stranded costs applicable to these customers if they were to terminate their agreements in 1999. Subject to certain conditions, FERC-approved settlement agreements executed with 15 of these customers provide for continued power supply by PPL Electric through January 2004. As a result of these settlements, PPL Electric, in the second quarter of 1998, recorded an extraordinary charge in the amount of $56 million. The extraordinary items related to the PUC restructuring proceeding and the FERC settlement are reflected on the Consolidated Statement of Income, net of income taxes. Details of amounts written-off in June 1998 were as follows (millions of dollars): Impaired generation-related assets $2,388 Above-market NUG contracts 854 Generation-related regulatory assets and other 1,135 ------ Total 4,377 Recoverable transition costs (a) (2,819) ------ Extraordinary item pre-tax - PUC 1,558 - FERC 56 ------ 1,614 Tax effects (666) ------ Extraordinary items $ 948 ====== (a) Excluding recoveries for nuclear decommissioning and consumer education expenditures. PPL Electric believes that the electric transmission and distribution operations continue to meet the requirements of SFAS 71 and that regulatory assets associated with these operations will continue to be recovered through rates from customers. At December 31, 2000, $277 million of net regulatory assets, other than the recoverable transition costs, 44 remain on PPL Electric's books. These regulatory assets will continue to be recovered through regulated transmission and distribution rates over periods ranging from one to 29 years. Extinguishment of Debt - Securitization In August 1999, PPL Transition Bond Company issued $2.4 billion of transition bonds to securitize a portion of PPL Electric's stranded costs. PPL Electric used a portion of the securitization proceeds to repurchase $1.5 billion of its first mortgage bonds. The premiums and related expenses to reacquire these bonds were $59 million, net of tax. PPL Electric's customers will benefit from securitization through an expected average rate reduction of approximately one percent for the period the transition bonds are outstanding. With securitization, a substantial portion of the CTC has been replaced with an ITC, which passes 75% of the net financing savings back to customers. In August 1999, PPL Electric released approximately $78 million of deferred income taxes associated with the CTC that was no longer required because of securitization. The net securitization impact of the bond repurchase and the tax change was a gain of $19 million. SFAS 4, "Reporting Gains and Losses from Extinguishment of Debt," requires that a material aggregate gain or loss from the extinguishment of debt be classified as an extraordinary item, net of the related income tax effect. The $59 million loss associated with the bond repurchase was treated as an extraordinary item. Details were as follows (millions of dollars): Reacquisition cost of debt $1,554 Net carrying amount of debt (1,454) ------- Extraordinary charge pre-tax 100 Tax effects (41) --------- Extraordinary charge $ 59 ======== The extraordinary charge related to extinguishment of debt was partially offset in December 1999 with a credit relating to wholesale power activity. In December 2000 there was an additional credit relating to wholesale power activity. 6. Sales to Other Electric Utilities As part of the corporate realignment on July 1, 2000, PPL Electric's contracts for sales to other electric utilities were assigned to PPL EnergyPlus, which was transferred to an unregulated subsidiary of PPL. See Note 17 for information on the corporate realignment. PPL EnergyPlus provided JCP&L with 300,000 kilowatts of capacity and related energy from the Pennsylvania generating units through November 2000, at which point the agreement was terminated. PPL EnergyPlus is reselling the returning capacity in wholesale markets. In August 1999, the FERC approved new interconnection and power supply agreements between PPL EnergyPlus and UGI. Under the new power supply agreement, effective August 1999, UGI purchases capacity from PPL EnergyPlus equal to UGI's PJM capacity obligation less the capacity reserve value of UGI's owned generation and an existing power purchase agreement. In 2000, UGI purchased a firm block of energy in addition to the capacity. This agreement terminated in February 2001. PPL EnergyPlus provides BG&E with 129,000 kilowatts, or 6.6%, of PPL Susquehanna's share of capacity and related energy from the Susquehanna station. Sales to BG&E will continue under existing agreements through May 2001. PPL Montana provides power to Montana Power under two wholesale transition sales agreements. These agreements expire in December 2001 and June 2002. PPL Montana supplied Montana Power with 5,096 million kWh in 2000. 7. Income and Other Taxes For 2000, 1999 and 1998 the corporate federal income tax rate was 35%, and the PA corporate net income tax rate was 9.99%. The tax effects of significant temporary differences comprising PPL's net deferred income tax liability were as follows (millions of dollars): 2000 1999 ---- ---- Deferred Tax Assets Deferred investment tax credits $ 66 $ 71 NUG contracts & buybacks 326 360 Accrued pension costs 106 108 Deferred foreign income taxes 86 Other 195 181 Valuation allowance (8) (6) ------ ------ 771 714 ------ ------ Deferred Tax Liabilities Electric utility plant - net 845 813 Restructuring - CTC 949 1,026 Taxes recoverable through future rates 102 107 Other 53 96 ------ ------ 1,949 2,042 ------ ------ Net deferred tax liability $1,178 $1,328 ====== ====== 45 Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to income from continuing operations for accounting purposes, and details of taxes other than income are as follows (millions of dollars): 2000 1999 1998 ---- ---- ---- Income Tax Expense Current-Federal $285 $178 $183 Current-State 57 36 64 Current-Foreign 11 10 ------ ------ ----- 353 224 247 ------ ------ ----- Deferred-Federal (52) 76 19 Deferred-State 12 (109) 3 Deferred-Foreign (4) ------ ----- ----- (44) (33) 22 ------ ----- ----- Investment tax credit, net-federal (15) (17) (10) ------ ----- ----- $294 $174 $259 ====== ===== ===== Total income tax expense-Federal $218 $237 $192 Total income tax expense-State 69 (73) 67 Total income tax expense-Foreign 7 10 ----- ----- ----- $294 $174 $259 ===== ===== ===== 2000 1999 1998 ---- ---- ---- Reconciliation of Income Tax Expense Indicated federal income tax on pre-tax income before extraordinary item at statutory tax rate - 35% $284 $242 $232 ------ ----- ----- Increase/(decrease) due to: State income taxes 45 (50) 43 Flow through of depreciation differences not previously normalized 2 3 9 Amortization of investment tax (11) (12) (10) credit Difference related to income recognition of foreign affiliates (15) (13) Foreign income taxes 7 6 Federal income tax credits (6) (1) Other (12) (15) (1) ------ ----- ----- 10 (68) 27 ------ ----- ----- Total income tax expense $294 $174 $259 ====== ===== ===== Effective income tax rate 36.3% 25.1% 39.1% In August 1999, PPL Electric released approximately $78 million of deferred income taxes associated with the CTC that were no longer required because of securitization. 2000 1999 1998 ---- ---- ---- Taxes Other than Income State gross receipts $128 $108 $105 State utility realty 6 13 41 State capital stock 23 13 18 Social security and other 34 27 24 ------ ----- ----- $191 $161 $188 ====== ===== ===== PPL does not record U.S. deferred income taxes on the undistributed earnings of its foreign subsidiaries and its 20% to 50% owned corporate joint ventures where management has determined that the earnings are permanently reinvested in the companies that produced them. The cumulative undistributed earnings are included in consolidated retained earnings on the balance sheet. The amount considered permanently reinvested at December 31, 2000 was $27.1 million. It is not practical to estimate the amount of taxes that might be payable on these foreign earnings if they were remitted to PPL. 8. Nuclear Decommissioning Costs The cost to decommission the Susquehanna station is based on a site-specific study to dismantle and decommission each unit immediately following final shutdown. PPL's 90% share of the total estimated cost of decommissioning the Susquehanna station was approximately $724 million in 1993 dollars. This estimate includes decommissioning the radiological portions of the station and the cost of removal of non-radiological structures and materials. The operating licenses for Units 1 and 2 expire in 2022 and 2024, respectively. Decommissioning costs are recorded as a component of depreciation expense. Beginning in January 1999, in accordance with the PUC Final Order, $130 million of decommissioning costs will be recovered from customers through the CTC over the 11-year life of the CTC rather than the remaining life of Susquehanna. The recovery will include a return on unamortized decommissioning costs. Decommissioning charges were $26 million in 2000, $27 million in 1999 and $12 million in 1998. Amounts collected from PPL Electric's customers for decommissioning, less applicable taxes, are deposited in external trust funds for investment and can be used only for future decommissioning costs. Accrued nuclear decommissioning costs were $280 million and $260 million at December 31, 2000 and 1999, respectively. In February 2000, the FASB issued a revised Exposure Draft on the accounting for obligations associated with the retirement of long-lived assets. The FASB expects to issue a final document during the second quarter of 2001. As a result, current industry accounting practices for decommissioning may change, including the possibility that the estimated cost for decommissioning could be recorded as a liability at the present value of the 46 estimated future cash outflows that will be required to satisfy those obligations. 9. Financial Instruments PPL utilized financial derivative products to hedge interest rate risk associated with anticipated debt issuances. In April 2000, PPL settled $180 million notional amount of treasury lock agreements and made a payment of $6 million under the terms of the agreements. In 2000, PPL settled $1.050 billion notional amount of forward-starting interest rate swaps. PPL received net proceeds of about $26 million. These amounts have been deferred on the balance sheet and are currently being amortized over the life of the medium-term notes. Of these total notional amounts, $270 million was in connection with the PPL Montana lease transaction and resulted in net proceeds of about $4 million, which also have been deferred on the balance sheet and are currently being amortized over the life of the lease. PPL also settled $125 million notional amount of interest rate swaps in the fourth quarter of 2000 and made a payment of about $3 million. Since the original transaction dates of these swaps, the anticipated debt they were expected to hedge was not issued. Therefore, the payment made on these swaps is recorded in current earnings. At December 31, 2000, PPL agreed to pay fixed rates between 5.90% - 6.138% on forward-starting swaps with notional amounts of $100 million and maturities of May 2006. PPL will receive a variable-rate interest payment based on either a 3-month or 6-month LIBOR rate through the maturity of these agreements. The estimated fair value of these agreements, which represents the estimated amount PPL would pay if it had terminated these agreements at December 31, 2000, was insignificant. PPL has also entered into interest rate swap agreements whereby PPL agreed to pay a floating interest rate and receive a fixed interest rate payment. These swaps are executed with the intent of adjusting the amount of floating-rate debt carried in PPL's liability portfolio. In 2000, PPL settled $915 million of these swaps and recorded a gain of approximately $2 million. At December 31, 2000, PPL had approximately $19 million notional amount of these swaps outstanding. The estimated fair value of these contracts, representing the amount PPL would pay if it terminated these agreements at December 31, 2000, was insignificant. During 2000, PPL entered into currency hedges related to the acquisition of Hyder shares in order to minimize its exposure to adverse foreign currency exchange rate fluctuations. PPL also entered into currency forward agreements to lock in the exchange rate on the purchase of 37 million euros. These positions were unwound in 2000. The net gain on these hedges was insignificant. Subsequently, new currency forward agreements for 37 million euros were entered into and remained outstanding at December 31, 2000, the estimated fair value of which was insignificant. The carrying amount on the Consolidated Balance Sheet and the estimated fair value of PPL's financial instruments are as follows (millions of dollars):
December 31, 2000 December 31, 1999 ----------------- ----------------- Carrying Fair Carrying Fair Amount Value Amount Value ------ ----- ------ ----- Assets Nuclear plant decommissioning trust fund (a) $ 268 $ 268 $ 255 $ 255 Financial investments (a) 6 6 1 1 Other investments (a) 41 41 15 15 Cash and cash equivalents (a) 486 480 133 133 Other financial instruments included in other current assets (a) 2 2 4 4 Liabilities Preferred stock with sinking fund requirements (b) 47 46 47 45 Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely company debentures (b) 250 250 250 217 Long-term debt (b) 4,784 4,804 4,157 4,189 Commercial paper and bank loans (a) 1,037 1,037 857 857
(a) The carrying value of these financial instruments generally is based on established market prices and approximates fair value. (b) The fair value generally is based on quoted market prices for the securities where available and estimates based on current rates offered to PPL where quoted market prices are not available. 10. Credit Arrangements & Financing Activities PPL Electric and PPL Capital Funding issue commercial paper and borrow from banks to provide short-term funds. PPL Capital Funding's commercial paper is guaranteed by PPL. At December 31, 2000, PPL Electric and PPL Capital Funding had $636 million of short-term debt outstanding at interest rates ranging from 7.17% to 7.94% per annum. In order to enhance liquidity, and as a credit back-stop to the commercial paper programs, PPL Electric, PPL 47 Capital Funding and PPL (as guarantor for PPL Capital Funding) share a 364-day $750 million credit facility and a five-year $300 million credit facility, each with a group of banks. At December 31, 2000, no borrowings were outstanding under either facility. In December 2000, PPL Capital Funding entered into a three-month $200 million credit facility. At December 31, 2000, PPL Capital Funding had borrowed $200 million under this facility to be used for general corporate purposes including making loans to PPL subsidiaries and reducing their debt balances. In January 2001, PPL Capital Funding entered into a three-month $200 million credit facility and subsequently borrowed this amount to use for the same general corporate purposes. Through December 31, 2000, PPL Capital Funding had issued $1 billion of medium-term notes, of which $825 million was issued at fixed rates between 7.75% and 8.375% and $175 million at floating rates tied to 3-month LIBOR. The proceeds from these issuances were used for general corporate purposes, including making loans to PPL subsidiaries and reducing commercial paper balances. In October 2000, PPL Capital Funding retired $110 million of medium-term notes consisting of three separate series with coupons between 5.86% and 5.90%. In April 2000, PPL Electric redeemed and retired all of its outstanding First Mortgage Bonds, 9-1/4% Series due 2019, at the aggregate par value of $27.6 million through the maintenance and replacement fund provisions of its Mortgage. In June 2000, PPL Electric paid and retired all $125 million aggregate principal amount of its outstanding First Mortgage Bonds, 6% Series due 2000. During 2000, PPL Transition Bond Company made principal payments on bonds totaling $226 million. In 1999, PPL Montana entered into $950 million of credit facilities, non-recourse to PPL, with a group of banks, including a $675 million 364-day facility and two revolving credit facilities totaling $275 million which mature in 2002. The purpose of these facilities was to provide bridge loan financing for the acquisition of the Montana assets and to fund PPL Montana's working capital needs. In July 2000, PPL Montana completed the sale of its investment in the Colstrip coal-fired plant to owner lessors, which are leasing the assets back to PPL Montana under four 36-year operating leases. The proceeds from the sale were approximately $410 million. PPL Montana used these proceeds to reduce outstanding debt and make distributions to its parent, PPL Generation. This sale-leaseback was financed with the private issuance of pass-through certificates due 2020. In November 2000, PPL Montana filed an S-4 registration statement with the SEC for the exchange of these certificates for registered securities. During 2000, PPL Montana reduced the amount of its credit facilities to $100 million. At December 31, 2000, no borrowings were outstanding under these facilities. PPL Montana has also obtained letters of credit in the aggregate amount of $71 million. In September 2000, a PPL Global subsidiary entered into an agreement with a lessor to lease turbine-generators and related equipment. See Note 11 for additional information. The turbines are being financed using a leasing structure that eliminates the need for cash outlays during the turbine manufacturing process and diversifies PPL's funding sources. In December 2000, PPL initiated a Structured Equity Shelf Program for the issuance of up to $100 million in PPL common stock in small amounts on a periodic basis. 11. Acquisitions, Development and Divestitures Domestic Generation Projects In November 1999, PPL Electric sold its Sunbury plant and the principal assets of its wholly-owned coal processing subsidiary, Lady Jane Collieries, to Sunbury Holdings, LLC. PPL Electric received cash proceeds of $107 million for these assets, which resulted in an after tax gain of about $42 million. In 1998, PPL Global signed definitive agreements with Montana Power, Portland General Electric Company ("Portland") and Puget Sound Energy, Inc. ("Puget") to acquire interests in 13 Montana power plants, with 2,372 gross megawatts of generating capacity, for a purchase price of $1.546 billion. The acquisition involved the Colstrip and Corette coal-fired plants, 11 hydroelectric facilities and a storage reservoir. The Puget and Portland agreements also provided for the acquisition of related transmission assets for an additional $126 million, subject to certain conditions. In December 1999, PPL Global completed the purchase of about 1,315 gross megawatts of generating assets from Montana Power for $757 million. This acquisition transferred to PPL Montana the 11 hydroelectric facilities, the storage reservoir, the Corette plant and Montana 48 Power's ownership interest in three of the four units of the Colstrip plant, along with other generation-related assets. PPL Global's acquisition of the Colstrip interests of Puget and Portland, totaling 1,057 additional megawatts, was subject to several conditions, primarily the receipt by Puget and Portland of satisfactory regulatory approvals from the state utility commissions in Washington and Oregon. However, these satisfactory regulatory approvals were not obtained. The acquisition agreements permitted each party to terminate the respective agreements if closing did not occur by April 30, 2000. Both of these acquisition agreements have now been terminated. The Montana Power Asset Purchase Agreement, which PPL Global assigned to PPL Montana, provided that if neither the Puget nor the Portland acquisitions were consummated, PPL Montana would be required to purchase a portion of Montana Power's interest in the 500-kilovolt Colstrip Transmission System for $97 million, subject to receipt of required regulatory approvals, which have been received. PPL Montana currently is in discussions with Montana Power to pursue alternatives to acquiring this entire interest in the Colstrip Transmission System as contemplated by the Asset Purchase Agreement. These discussions are ongoing; therefore, PPL Montana cannot predict whether it will buy all, or less than all, of Montana Power's interest in the Colstrip Transmission System or what the purchase price will be if a purchase occurs. In May 2000, PPL Global announced plans to install five compact, natural gas-fired electric generation facilities in eastern Pennsylvania totaling about 900 megawatts of capacity. The five facilities, with an estimated total cost between $450 and $500 million, will be peaking generators to be used during periods of high energy demand. These facilities are expected to be completed by the summer of 2002, pending necessary governmental approvals. PPL Global continues to pursue plans to build peaking capacity in New York state. The current emphasis is on a facility for 300 megawatts of capacity at a total capital cost of approximately $200 million. In September 2000, a PPL Global subsidiary entered into an arrangement that provides 30 turbine-generators for PPL's domestic expansion program. The gas-fired, 50-megawatt turbine-generators and related equipment, manufactured by General Electric, will provide PPL with flexibility in growing its electricity generation and marketing business in various regions of the U.S. General Electric will receive approximately $400 million under the terms of the arrangement. The turbines are being financed using a leasing structure, with the PPL Global subsidiary as the lessee, that eliminates the need for any cash outlays during the turbine manufacturing process and diversifies PPL's funding sources. The units are expected to go into service beginning in 2002. The arrangement also gives the lessor the option to purchase an additional 36 turbine-generators and lease them to the PPL Global subsidiary. In December 2000, PPL Global announced plans to develop a gas-fired plant in Pinal County, Arizona which will operate during times of intermediate and high demand for electricity. The facility will use combustion turbines that PPL recently acquired from General Electric (described above). The facility is expected to be in operation by summer 2002, pending necessary governmental approvals. The current emphasis is on a facility for 500 to 600 megawatts of capacity with an anticipated project cost of about $300 million. In December 2000, PPL Global signed an agreement to purchase Starbuck Power Company, LLC, from Northwest Power Enterprises, Inc., which will transfer the ownership and development rights for up to a 1,200-megawatt gas-fired, combined cycle power plant to be built in eastern Washington state. The facility, to be called PPL Starbuck, is expected to be in service by 2004, pending necessary governmental approvals. The expected cost of the facility is approximately $600 million. In January 2001, PPL Montour, LLC acquired an additional interest in the coal-fired Conemaugh Power Plant from Potomac Electric Power Company. Under the terms of the acquisition agreement, PPL Montour, LLC and a subsidiary of Allegheny Energy, Inc. jointly acquired a 9.72 percent interest in the 1,711 megawatt plant. The purchase increased PPL's ownership interest to 16.25% in the two-unit plant. PPL paid $78 million for its 83-megawatt share of the plant. International Distribution Projects In September 1999, PPL Global's U.K. subsidiary, SWEB, sold its electricity supply business to London 49 Electricity for about $264 million. PPL Global recorded an after tax gain from the sale of $64 million. The supply business provided about 15% of SWEB's annual earnings. PPL Global and Mirant continue joint ownership of the electric delivery business, which has been renamed WPD. WPD continues to own and operate an extensive power network in southwest Britain, transporting and delivering electricity to 1.4 million customers. In December 1999, the U.K.'s Office of Gas and Electricity Markets, the regulatory authority for electricity and natural gas distribution, announced the final price review for the electric distribution companies, including WPD. In this final price review, WPD was given a one-time rate cut of 19%, the lowest rate reduction among distribution companies in the U.K. The price cut is effective for five years starting in April 2000. As a result of this action, PPL Global evaluated the carrying value of its investment in WPD and the investment was written down by $36 million. In December 1999, in unrelated transactions, PPL Global wrote down the carrying value of two other international investments by a total of $16 million. At the end of June 2000, PPL Global finalized the acquisition of an 84.7% interest in CEMAR, an electricity distribution company in Brazil. The acquisition price was $289 million, financed initially with short-term debt. In accordance with its policy of recording the results of foreign operations on a lag basis, the operating results of CEMAR were consolidated on a three-month lag. WPDL submitted an offer to purchase shares of Hyder for 365 pence per share, or a total purchase price of 559 million British pounds sterling ($838 million based on current exchange rates at that time). Hyder is the owner of South Wales Electricity plc, an electric distribution company serving approximately 980,000 customers in Wales. Hyder also owns certain Welsh water and other service-oriented businesses. On September 15, 2000, WPDL's offer of 365 pence per share was declared unconditional in all respects and remained open for acceptance by Hyder shareowners through October 25, 2000. Designation of the increased offer as unconditional allowed WPDL to take operational control of Hyder. On September 29, 2000, WPDL closed on the purchase of approximately 110 million shares of Hyder for a total purchase price of about 395 million British pounds sterling ($584 million based on current exchange rates at that time). When combined with WPDL's existing ownership interest in Hyder, this purchase gave WPDL approximately 70% of Hyder's total outstanding shares. Subsequently, WPDL purchased the remaining shares of Hyder. PPL Global's ownership interest in WPDL is 51%, but it has joint control with Mirant, who's ownership interest is 49%. PPL Global's share of the acquisition cost was made from existing resources and facilities, of which approximately $100 million is expected to be repaid by the end of the first quarter of 2001. Based on a 51% ownership interest, PPL Global's share of the total investment in WPDL was $114 million. WPDL is actively pursuing a range of options with respect to Hyder's non-electric businesses. In this regard, WPDL is offering management of Hyder's water business in a competitive bid process, pursuant to European Union procurement rules. At the same time, WPDL has announced an agreement in principle with Welsh firm Glas Cymru Cyfyngedig (Glas) for the disposition of the water business. In January 2001, the U.K. regulator announced that it would not move to block Glas' plans for the water business. In October 2000, PPL Global announced a partnership with the Claro group, a key shareowner of CGE, a leading energy distribution company in Chile and Argentina. PPL Global had a 2.9% ownership interest in CGE at December 31, 2000. Under the terms of the partnership, the Claro group had the right to sell up to an additional 5.6% to PPL Global over the next two years. In January 2001, PPL Global purchased the additional 5.6 percent of CGE from the Claro group, bringing its total investment to about $141 million. CGE provides electricity delivery services to 1.4 million customers in Chile, and natural gas delivery services to 200,000 customers in Santiago. Other During 2000, PPL acquired three additional mechanical engineering and contracting firms in the northeast U.S. The purchase prices of these acquisitions were not significant. 12. Stock-Based Compensation Under the PPL Incentive Compensation Plan ("ICP") and the Incentive Compensation Plan for Key 50 Employees ("ICPKE") (together, the "Plans"), restricted shares of common stock as well as stock options may be granted to officers and other key employees of PPL, PPL Electric and other affiliated companies. Awards under the Plans are made in the common stock of PPL by the Compensation and Corporate Governance Committee of the Board of Directors in the case of the ICP, and by the PPL Corporate Leadership Council in the case of the ICPKE. Each Plan limits the number of shares available for awards to two percent of the outstanding common stock of PPL on the first day of each calendar year. The maximum number of options which can be awarded under each Plan to any single eligible employee in any calendar year is 1.5 million shares. Any portion of these options that has not been granted may be carried over and used in any subsequent year. If any award lapses or is forfeited or the rights to the participant terminate, any shares of common stock are again available for grant. Shares delivered under the Plans may be in the form of authorized and unissued common stock, common stock held in treasury by PPL or common stock purchased on the open market (including private purchases) in accordance with applicable securities laws. Restricted Stock Restricted shares of common stock are outstanding shares with full voting and dividend rights. However, the shares are subject to forfeiture or accelerated payout under Plan provisions for termination, retirement, disability and death. Restricted shares vest fully if control of PPL changes, as defined by the Plans. Restricted stock awards of 440,549, 108,890 and 107,198 shares, with per share weighted-average fair values of $21.30, $26.74, and $22.74, were granted in 2000, 1999 and 1998, respectively. Compensation expense for these three years was less than $3 million annually. At December 31, 2000, there were 607,009 restricted shares outstanding. These awards currently vest from three to twenty-one years from the date of grant. Stock Options Under the Plans, stock options may also be granted with an option exercise price per share not less than the fair market value of PPL's common stock on the date of grant. The options are exercisable beginning one year after the date of grant, assuming the individual is still employed by PPL or a subsidiary, in installments as determined by the Compensation and Corporate Governance Committee of the Board of Directors in the case of the ICP, and the Corporate Leadership Council in the case of the ICPKE. The Committee (or the Corporate Leadership Council, in the case of the ICPKE) has discretion to accelerate the exercisability of the options. All options expire no later than ten years from the grant date. The options become exercisable if control of PPL changes, as defined by the Plans. PPL applies Accounting Principles Board Opinion 25 "Accounting for Stock Issued to Employees" and related interpretations in accounting for stock options. Since stock options are granted at market price, no compensation cost has been recognized. Compensation calculated in accordance with the disclosure requirements of FASB 123, "Accounting for Stock-Based Compensation," was not significant. A summary of stock option activity follows:
2000 1999 ------------------- ------------------- Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price ------ ----- ------ ----- Outstanding at beginning of year 626,020 $26.84 Granted 1,501,110 $22.45 704,800 $26.85 Exercised (56,590) $26.84 Forfeited (101,239) $24.02 (78,780) $26.84 -------- ------- Outstanding at December 31, 1,969,301 $23.64 626,020 $26.85 Exercisable at December 31, 215,158 $26.03 13,570 $26.84
The weighted average fair values of options at their grant date during 2000 and 1999 were $3.35 and $2.37, respectively. The estimated fair value of each option granted is calculated using a modified Black-Scholes option-pricing model. The weighted average assumptions used in the model were as follows: 2000 1999 ---- ---- Risk-free interest rate 6.74% 5.61% Expected option term 10 yrs 10 yrs Expected stock volatility 19.79% 16.19% Dividend yield 5.70% 6.60% Outstanding options had a weighted-average remaining life of 8.6 years at December 31, 2000. 51 13. Retirement and Postemployment Benefits Pension and Other Postretirement Benefits PPL and its subsidiaries sponsor various pension and other postretirement and postemployment benefit plans. PPL Montana and PPL Maine (Penobscot Hydro) sponsor a separate, funded, noncontributory defined benefit plan, as do PPL Gas Utilities and its subsidiaries. The funded noncontributory defined benefit plan of PPL Electric became sponsored by various other PPL affiliated companies, in addition to PPL Electric, as a result of the realignment July 1, 2000. PPL and its subsidiaries also provide supplemental retirement benefits to directors, executives, and other key management employees through unfunded nonqualified retirement plans. Substantially all employees of PPL's subsidiaries will become eligible for certain health care and life insurance benefits upon retirement through contributory plans. Postretirement benefits under the PPL Retiree Health Plans (covering retirees of PPL Electric and various other affiliated PPL companies) and for the North Penn Gas Plans are paid from funded VEBA trust sponsored by the respective companies. The companies sponsoring the PPL Retiree Health Plans, and North Penn Gas, made contributions to the VEBA trusts of $30 million and $1 million, respectively, during 2000 and 1999. At December 31, 2000, PPL Electric had a regulatory asset of $6 million relating to postretirement benefits that is being amortized and recovered in rates with a remaining life of 12 years. Net pension and postretirement medical benefit costs were (millions of dollars):
Postretirement Pension Benefits Medical Benefits ------------------ ------------------ 2000 1999 1998 2000 1999 1998 ---- ---- ---- ---- ---- ---- Service cost $ 40 $ 42 $ 35 $ 5 $ 5 $ 4 Interest cost 86 78 69 22 19 16 Expected return on plan assets (113) (99) (87) (8) (7) (4) Net amortization and deferral (21) (9) (13) 12 12 9 ----- ---- ---- ---- ---- ---- Net periodic pension and postretirement benefit cost $ (8) $ 12 $ 4 $ 31 $ 29 $ 25 ===== ==== ==== ==== ==== ====
The net periodic pension cost charged to (or credited to) operating expense was $(6) million in 2000, $9 million in 1999 and $2 million in 1998. Retiree health and benefits costs charged to operating expense were approximately $25 million in 2000, $20 million in 1999 and $19 million in 1998. Costs in excess of the amounts charged to expense were charged to construction and other accounts. Postretirement medical costs at December 31, 2000 were based on the assumption that costs would increase 7.25% in 2000, then the rate of increase would decline gradually to 6% in 2006 and thereafter. A one-percentage point change in the assumed health care cost trend assumption would have the following effects (in millions): One Percentage Point Increase Decrease -------- -------- Effect on service cost and interest cost components $ 1 $ (1) Effect on postretirement benefit obligation 12 (10) The following assumptions were used in the valuation of the benefit obligations: Pension Benefits - ---------------- 2000 1999 1998 ---- ---- ---- Discount rate 7.5% 7.0% 6.25% Expected return on plan assets 9.2% 8.0% 8.0% Rate of compensation increase 4.75% 5.0% 5.0% Postretirement Medical Benefits - ------------------------------- 2000 1999 1998 ---- ---- ---- Discount rate 7.5% 7.0% 6.25% Expected return on plan assets 7.6% 6.35% 6.35% Rate of compensation increase 4.75% 5.0% 5.0% The funded status of the combined plans was as follows (millions of dollars):
Postretirement Pension Benefits Medical Benefits ---------------- ---------------- 2000 1999 2000 1999 ---- ---- ---- ---- Change in Benefit Obligation Benefit Obligation, January 1 $ 1,206 $1,232 $ 317 $ 303 Service cost 40 42 5 5 Interest cost 86 78 22 19 Plan amendments 13 2 18 Actuarial (gain)/loss (98) (127) (18) (15) Acquisitions/Divestitures 25* 2* Special termination benefits 3 Actual expense paid (4) (3) Net benefits paid (51) (46) (15) (15) ------- ----- ----- ----- Benefit Obligation, December 31 1,192 1,206 311 317 Change in Plan Assets Plan assets at fair value, January 1 1,799 1,627 130 104 Actual return on plan assets 44 201 2 9 Employer contributions 2 1 33 33 Acquisitions/Divestitures 3 19* Actual expense paid (4) (3) Net benefits paid (50) (46) (16) (16) ------- ----- ----- ----- Plan assets at fair value, December 31 1,794 1,799 149 130 Funded Status Funded Status of Plan 601 593 (162) (187) Unrecognized transition assets (40) (45) 104 113 Unrecognized prior service cost 114 110 27 33 Unrecognized net (gain)/loss (911) (906) 14 23 ------- ----- ----- ----- Asset/(liability) recognized (236) (248) (17) (18)
52
Postretirement Pension Benefits Medical Benefits ----------------- ---------------- 2000 1999 2000 1999 ---- ---- ---- ---- Amounts recognized in the Consolidated Balance Sheet consist of: Prepaid benefit cost 1 1 Accrued benefit liability (237) (250) (17) (18) Intangible asset 1 Additional minimum liability (9) (11) Accumulated other comprehensive income 9 11 ----- ----- ----- ----- Net Amount Recognized $(236) $(248) $ (17) $(18) ===== ===== ===== =====
*Acquisition of PPL Montana & Penobscot Hydro net of Sunbury divestiture. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were (in millions) $33, $29 and $0 respectively, as of December 31, 2000 and $41, $34 and $6 respectively, as of December 31, 1999. PPL Electric and its subsidiaries formerly engaged in coal mining accrued an additional liability for the cost of health care of their retired miners. At December 31, 2000, the liability was $20 million. The liability is the net of $53 million of estimated future benefit payments offset by $33 million of available assets in PPL Electric funded VEBA trusts. PPL subsidiaries engaged in the mechanical contracting business make contributions to various union sponsored multiemployer pension and health and welfare plans. Contributions of $10 million, $8 million and $1 million were made in 2000, 1999 and 1998 respectively. Savings Plans Substantially all employees of PPL's subsidiaries are eligible to participate in deferred savings plans (401k's). Company contributions to the plans charged to operating expense approximated $9 million in 2000, $6 million in 1999 and $4 million in 1998. Increasing contributions were the result of 1999 and 2000 enhancements to the matching formula for one of the PPL plans and a full year of participation in the plans for employees of PPL Montana in 2000. Employee Stock Ownership Plan PPL sponsors a non-leveraged employee Stock Ownership Plan (ESOP), in which substantially all employees of the pre-realignment PPL Electric are enrolled after one year of credited service. Dividends paid on ESOP shares are treated as ordinary dividends by PPL. Under existing income tax laws, PPL is permitted to deduct the amount of those dividends for income tax purposes and to contribute the resulting tax savings (dividend-based contribution) to the ESOP. The dividend-based contribution is used to buy shares of PPL's common stock and is expressly conditioned upon the deductibility of the contribution for federal income tax purposes. Contributions to the ESOP are allocated to eligible participants accounts as of the end of each year, based 75% on shares held in existing participants' accounts and 25% on the eligible participants' compensation. Amounts charged as compensation expense for ESOP contributions approximated $4 million in 2000, $4 million in 1999 and $6 million in 1998. However, these amounts were offset by the dividend-based contribution tax savings and had no impact on PPL's earnings. ESOP shares outstanding at December 31, 2000 totaled 5,377,849, or 4% of total common shares outstanding, and are included in all EPS calculations. Postemployment Benefits PPL Electric and various affiliated companies, after the corporate realignment, provide health and life insurance benefits to disabled employees and income benefits to eligible spouses of deceased employees. Postemployment benefits charged to operating expenses were not significant in 2000, 1999 or 1998. 14. Jointly Owned Facilities At December 31, 2000, subsidiaries of PPL owned undivided interests in the following facilities (millions of dollars):
Electric Utility Construction Ownership Plant in Other Accumulated Work in Interest Service Property Depreciation Progress -------- ------- -------- ------------ -------- PPL Generation - -------------- Generating Stations Susquehanna 90.00% $4,187 $3,504 $21 Keystone 12.34% 70 45 1 Wyman 8.33% 15 1 Conemaugh 11.39% 107 54 Merrill Creek Reservoir 8.37% 22 12
Each PPL Generation subsidiary, either on its own behalf or through another PPL affiliate, provided its own financing for its share of the facility. Each receives a portion of the total output of the generating stations equal to its percentage 53 ownership. The share of fuel and other operating costs associated with the stations is reflected on the Consolidated Statement of Income. On January 8, 2001, PPL Generation purchased an additional 83 megawatts of generation capacity at the Conemaugh Generating station. The addition brings PPL Generation's ownership to 16.25 percent. 15. Commitments and Contingent Liabilities Wholesale Energy Commitments As part of the purchase of generation assets from Montana Power, PPL Montana agreed to supply electricity to Montana Power under two wholesale transition service agreements. The agreements expire in 2001 and 2002. In addition, PPL Montana assumed a power purchase agreement, which expires in April 2010. In accordance with purchase accounting guidelines, PPL Montana recorded a liability of $111 million as an estimate of the fair value of the contracts at the acquisition date. The supply and purchase contracts are prospectively amortized over the contract terms as adjustments to "Wholesale Energy Marketing and Trading" revenues and "Energy Purchases", respectively. The unamortized balance at December 31, 2000 was $92 million and is included in "Other" in the "Deferred Credits and Other Noncurrent Liabilities" section of the Consolidated Balance Sheet. Liability for Above Market NUG Contracts At June 30, 1998, PPL Electric recorded a loss accrual for above market contracts with NUGs of $854 million. See Note 5 for further information. Effective January 1999, PPL Electric began reducing this liability as an offset to "Energy Purchases" on the Consolidated Statement of Income. This reduction is based on the estimated timing of the purchases from the NUGs and projected market prices for this generation. The final existing NUG contract expires in 2014. In connection with the corporate realignment, effective July 1, 2000, the remaining balance of this liability was transferred to PPL EnergyPlus. The liabilities associated with these above market NUG contracts were $674 million at December 31, 2000. Commitments - Acquisitions and Development Activities PPL Global and its subsidiaries have committed additional capital and extended loans to certain affiliates, joint ventures and partnerships in which they have an interest. At December 31, 2000, PPL Global and its subsidiaries had approximately $839 million of such commitments. The majority of these commitments are for the purchase of turbines from GE, as well as the January 2001 Conemaugh and CGE acquisitions, as discussed in Note 11. Nuclear Insurance PPL Susquehanna is a member of certain insurance programs which provide coverage for property damage to members' nuclear generating stations. Facilities at the Susquehanna station are insured against property damage losses up to $2.75 billion under these programs. PPL Susquehanna is also a member of an insurance program which provides insurance coverage for the cost of replacement power during prolonged outages of nuclear units caused by certain specified conditions. Under the property and replacement power insurance programs, PPL Susquehanna could be assessed retroactive premiums in the event of the insurers' adverse loss experience. At December 31, 2000, this maximum assessment was about $20 million. PPL Susquehanna's public liability for claims resulting from a nuclear incident at the Susquehanna station is limited to about $9.5 billion under provisions of The Price Anderson Amendments Act of 1988. PPL Susquehanna is protected against this liability by a combination of commercial insurance and an industry assessment program. In the event of a nuclear incident at any of the reactors covered by The Price Anderson Amendments Act of 1988, PPL Susquehanna could be assessed up to $176 million per incident, payable at $20 million per year. Environmental Matters Air - --- The Clean Air Act deals, in part, with acid rain, attainment of federal ambient ozone standards and toxic air emissions. PPL subsidiaries are in substantial compliance with the Clean Air Act. The DEP has finalized regulations requiring further seasonal (May-June) NOx reductions to 80% from 1990 levels starting in 2003. These further reductions are based on the requirements of the Northeast Ozone Transport Region Memorandum of Understanding and two EPA ambient ozone initiatives: the September 1998 EPA State Implementation Plan (SIP) call (i.e., EPA's requirement for states to revise their SIPs) issued 54 under Section 110 of the Clean Air Act, requiring reductions from 22 eastern states, including Pennsylvania; and the EPA's approval of petitions filed by Northeastern states, requiring reductions from sources in 12 Northeastern states and Washington D.C., including PPL sources. The EPA's SIP-call was substantially upheld by the D.C. Circuit Court of Appeals in an appeals proceeding. Although the Court extended the implementation deadline to May 2004, the DEP has not changed its rules accordingly. PPL expects to achieve the 2003 NOx reductions with the recent installation of SCR technology on the Montour units and possibly SCR or SNCR on a Brunner Island unit. The EPA has also developed new standards for ambient levels of ozone and fine particulates. These standards were challenged and remanded to the EPA by the D.C. Circuit Court of Appeals in 1999. However, on appeal to the United States Supreme Court, the D.C. Circuit Court's decision was reversed in part and remanded to the D.C. Circuit. The new particulates standard, if finalized, may require further reductions in SO2 for certain PPL subsidiaries and year-round NOx reductions commencing in 2010-2012 at SIP-call levels in Pennsylvania, and at slightly less stringent levels in Montana. The revised ozone standard, if finalized, is not expected to have a material effect on facilities of PPL subsidiaries. Under the Clean Air Act, the EPA has been studying the health effects of hazardous air emissions from power plants and other sources, in order to determine what emissions should be regulated and has determined that mercury emissions must be regulated. In this regard, EPA is expected to develop regulations by 2004. In 1999, the EPA initiated enforcement actions against several utilities, asserting that older, coal-fired power plants operated by those utilities have, over the years, been modified in ways that subject them to more stringent "New Source" requirements under the Clean Air Act. The EPA has since issued notices of violation and commenced enforcement activities against other utilities, and has threatened to continue expanding its enforcement actions. At this time PPL is unable to predict whether such EPA enforcement actions will be brought with respect to any of its affiliates' plants. However, the EPA regional offices that regulate plants in Pennsylvania (Region III) and Montana (Region VIII) have indicated an intention to issue information requests to all utilities in their jurisdiction, and the Region VIII office has issued such a request to PPL Montana's Corette plant. PPL cannot presently predict what, if any, action the EPA might take following PPL's responses to such information requests. Should the EPA initiate one or more enforcement actions against PPL, compliance with any such EPA enforcement actions could result in additional capital and operating expenses in amounts which are not now determinable, but which could be significant. The EPA is also proposing to revise its regulations in a way that will require power plants to meet "New Source" performance standards and/or undergo "New Source" review for many maintenance and repair activities that are currently exempted. Water and Waste - --------------- The final National Pollutant Discharge Elimination System permit for the Montour plant contains stringent limits for iron discharges. The results of a toxic reduction study show that additional water treatment facilities or operational changes are needed at this station. A plan for these changes is being developed and will be submitted to DEP in the fall of 2001. EPA has significantly lowered the water quality standard for arsenic. The lowered standard may require PPL Generation to further treat wastewater and/or take abatement action at several of its power plants, the cost of which is not now determinable, but could be significant. Capital expenditures through the year 2003 to correct groundwater degradation at fossil-fueled generating stations, and to address waste water control at PPL Generation's facilities, are included in the table of construction expenditures in the section entitled "Financial Condition - Capital Expenditure Requirements" in the Review of the Financial Condition and Results of Operations. Additional capital expenditures could be required beyond the year 2005 in amounts which are not now determinable but which could be significant. Actions taken to correct groundwater degradation, to comply with the environmental regulations and to address waste water control, are also expected to result in increased operating costs in amounts which are not now determinable but which could be significant. EPA's proposed requirements for new or modified water intake structures will affect where generating facilities are built, will establish intake design standards, and could lead to requirements for cooling towers at new power plants. These proposed regulations are expected to be finalized by August of 2001. In the worst case, the rule could require new or modified cooling towers at one or 55 more PPL stations. Another new rule, also expected in 2001, will address existing structures. Each of these rules could impose significant costs on PPL, which are not now determinable. Superfund and Other Remediation - ------------------------------- In 1995 PPL Electric entered into a consent order with the DEP to address a number of sites where it may be liable for remediation. This may include potential PCB contamination at certain PPL Electric substations and pole sites; potential contamination at a number of coal gas manufacturing facilities formerly owned and operated by PPL Electric; and oil or other contamination which may exist at some of PPL Electric's former generating facilities. In connection with the July 1, 2000 corporate realignment, PPL Electric's generation facilities were transferred to subsidiaries of PPL Generation. As of December 31, 2000, work has been completed on approximately three-quarters of the sites included in the consent order. In 1996, PPL Gas Utilities entered into a similar consent order with the DEP to address a number of sites where subsidiaries of PPL Gas Utilities may be liable for remediation. The sites primarily include former coal gas manufacturing facilities. Subsidiaries of PPL Gas Utilities are also investigating the potential for any mercury contamination from gas meters and regulators. Any sites will likely be addressed under the consent order. At December 31, 2000, PPL Electric, PPL Generation and PPL Gas Utilities had accrued approximately $20.3 million, representing the estimated amounts they will have to spend for site remediation, including those sites covered by each company's consent orders mentioned above. In October 1999, the Montana Supreme Court held in favor of several citizens' groups that the right to a clean and healthful environment is a fundamental right guaranteed by the Montana Constitution. The court's ruling could result in significantly more stringent environmental laws and regulations, as well as an increase in citizens' suits under Montana's environmental laws. The effect on PPL Montana of any such changes in laws or regulations or any such increase in legal actions are not currently determinable, but could be significant. Future cleanup or remediation work at sites currently under review, or at sites not currently identified, may result in material additional operating costs for PPL subsidiaries that cannot be estimated at this time. Under the Montana Power acquisition agreement, PPL Montana is indemnified by Montana Power for any pre-acquisition environmental liabilities. However, this indemnification is conditioned on certain circumstances that can result in PPL Montana and Montana Power sharing in certain costs within limits set forth in the agreement. General - ------- Due to the environmental issues discussed above or others, PPL subsidiaries may be required to modify, replace or cease operating certain facilities to comply with statutes, regulations and actions by regulatory bodies or courts. In this regard, PPL subsidiaries also may incur capital expenditures, operating expenses and other costs in amounts which are not now determinable, but which could be significant. Credit Support for Affiliated Companies PPL provides certain guarantees for its subsidiaries. Specifically, PPL guarantees all of the debt of PPL Capital Funding. As of December 31, 2000, PPL had guaranteed $1.5 billion of medium-term notes and $581 million of commercial paper issued by PPL Capital Funding. PPL had also guaranteed certain obligations of PPL EnergyPlus for up to $625 million under power purchase and sales agreements. PPL had also guaranteed certain obligations of other subsidiaries, totaling $473 million at December 31, 2000. Finally, PPL has caused lender banks, under its 364-day credit facility, to issue letters of credit in the aggregate amount of $125 million on behalf of PPL Montana. Source of Labor Supply As of December 31, 2000, PPL and its subsidiaries had 11,893 full-time employees. This included 3,330 in PPL Electric; 424 in PPL Gas Utilities; 2,398 in PPL Generation; 1,697 in PPL EnergyPlus; 45 in PPL Global; 3,056 in several Central and South American electric companies controlled by PPL Global; and 943 in PPL Services. Approximately 49%, or 4,297, of PPL's domestic workforce are members of labor unions, with four IBEW locals representing nearly 4,100. The other unions primarily represent small locals of gas utility employees in Pennsylvania. The bargaining agreement with the largest union was negotiated in 1998 and expires in May of 2002. Eight new three- 56 year contracts with smaller locals in Pennsylvania were negotiated in 2000 and five additional agreements will expire during the first half of 2001, with the largest being for three locals representing about 320 Montana employees. 16. Related Party Transactions A wholly-owned subsidiary of PPL Global extended a 90 million British pounds sterling loan facility to WPDH, an entity in which PPL Global has a 51% ownership interest and shares joint control with Mirant. This facility was subsequently reduced to 76.5 million pounds sterling. This facility provided funds that were loaned to WPDL as temporary financing for the acquisition of Hyder. The facility was entered into September 28, 2000 and expires September 25, 2001. Interest is reset monthly based on sterling LIBOR. This rate was 6.4% as of December 31, 2000. At December 31, 2000, WPDH had borrowed 76.5 million British pounds sterling (US $114 million at the foreign exchange rate on December 31, 2000.) At December 31, 2000, PPL Global had a $135 million note outstanding payable to an affiliate of WPDH. The note was denominated in U.S. dollars, and provided for interest at market rates. PPL Global repaid this note in January, 2001. 17. Corporate Realignment On July 1, 2000, PPL and PPL Electric completed a corporate realignment in order to effectively separate PPL Electric's regulated transmission and distribution businesses from its recently deregulated generation businesses and to better position the companies and their affiliates in the new competitive marketplace. The realignment included PPL Electric's transfer of certain generation and related assets, and associated liabilities, to affiliates at book value. The net book value of this transfer, recorded as a distribution on common shares from PPL Electric to its parent, PPL, was $271 million. PPL Energy Funding, a holding company for virtually all of PPL's unregulated businesses, assumed $670 million of debt that PPL Electric had issued to other subsidiaries of PPL. As a result of the corporate realignment, PPL Generation's principal business is owning and operating U.S. generating facilities through various subsidiaries; PPL EnergyPlus' principal business is wholesale and unregulated retail energy marketing; PPL Electric's principal businesses are the transmission and distribution of electricity to serve retail customers in its franchised territory in eastern and central Pennsylvania, and the supply of electricity to retail customers in that territory as a PLR, and PPL Global's principal businesses are the acquisition and development of both U.S. and international energy projects, and the ownership and operation of international energy projects. PPL Energy Funding serves as the holding company for substantially all of PPL's unregulated businesses, including PPL Generation, PPL EnergyPlus and PPL Global. Other subsidiaries of PPL and PPL Electric are generally aligned in the new corporate structure according to their principal business functions. The corporate realignment followed receipt of various regulatory approvals, including approvals from the PUC, the FERC, the NRC and the IRS. 18. Adoption of SFAS 133 On January 1, 2001, PPL will adopt SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires that every derivative instrument be recorded on the balance sheet as an asset or liability measured at its fair value and that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. PPL, through the use of a cross-functional project team, has completed the process of identifying all derivative instruments, determining their fair market values, designating and documenting hedge relationships, and evaluating the effectiveness of those hedge relationships. In accordance with the transition provisions of SFAS 133, PPL expects to record a cumulative-effect charge of $181.9 million in accumulated other comprehensive income to recognize at fair value all derivatives that are designated as cash flow hedging instruments. This adjustment includes a credit of $5.8 million for derivatives that were previously deferred on the balance sheet. A majority of PPL's fixed price commodity contracts meet the definition of derivatives under SFAS 133. PPL uses these contracts and other financial derivative instruments to mitigate commodity price risk related to the sale of electricity as well as the purchase of oil, gas and coal. PPL has designated many of these instruments as cash flow hedges of the anticipated purchases or sales of the commodity. PPL also uses certain financial derivative instruments to mitigate interest rate risk exposure for future financing. The most significant portion of the cumulative adjustment will be attributed to forward sales contracts and financial 57 swaps in which PPL has reserved and stands ready to deliver energy from the planned output of its wholly-owned generating units. In these cases, PPL will realize a margin that represents the difference between the sales price and the average cost of generation. Future changes in the fair market values of these derivative instruments, to the extent that the hedges are effective at mitigating the underlying commodity risk, will be recorded in other comprehensive income. At the date the underlying transaction occurs, the amounts accumulated in other comprehensive income will be reported in earnings. To the extent that the hedges are not effective, the ineffective portion of the changes in the fair market value will be recorded directly in earnings. PPL expects to reclassify into earnings during the next twelve months $144.7 million from the transition adjustment that was recorded in accumulated other comprehensive income. The cash flow hedges described above cover the period from January 2001 through December 2008. Under the terms of SFAS 133, PPL will also record at fair value certain derivative instruments that do not qualify as hedges. This is expected to result in a cumulative-effect credit to earnings of $10.6 million in recognition of these instruments. The cumulative-effect adjustment in earnings to recognize at fair value all derivatives that are designated as fair-value hedging instruments and the cumulative-effect adjustment to recognize the difference between the carrying values and fair values of related hedged liabilities are expected to be insignificant. 19. Sales to California Independent System Operator Through subsidiaries, PPL has made certain limited sales to the California Independent System Operator ("Cal ISO"), for which PPL has not yet been paid in full. Specifically, through January 2001, PPL has made approximately $18 million of sales to the Cal ISO. A small amount of these sales were ordered by the U.S. Secretary of Energy ("Secretary") between December 14, 2000 and February 7, 2001 pursuant to emergency authority granted to the Secretary pursuant to federal law. The Secretary has not exercised his emergency authority after February 7, 2001. PPL negotiated prices for a portion of the involuntary sales with the Cal ISO. The prices for the remaining ordered sales will be established in future proceedings at the FERC. Given the myriad of electricity supply problems presently faced by the California electric utilities and the Cal ISO, PPL cannot predict when it will receive payment for sales to the Cal ISO that have been made, or that may be required to be made in the future, or the final amounts of such payments. As of December 31, 2000, PPL has fully reserved for possible underrecoveries of payments for these sales. PPL may have to add to this reserve in future periods if it is required by the Secretary to continue to supply the Cal ISO. Litigation arising out of the California electric supply situation has been filed at the FERC and in California courts against sellers of energy to the Cal ISO. The plaintiffs and intervenors allege abuse of market power, among other things, and seek price caps on wholesale sales in California and other western power markets, refunds of excess profits allegedly earned on these sales, and other relief, including treble damages and attorneys' fees. Certain PPL subsidiaries have intervened in the FERC proceedings in order to protect their interests, but have not been named as a defendant in any of the court actions. PPL cannot predict whether any of its subsidiaries will eventually be named in these lawsuits or other lawsuits, the outcome of any such litigation or the ultimate impact on PPL or its subsidiaries of the California electricity supply situation. 58 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Balance at Additions Balance at -------------------------- Beginning Charged End of Description of Period to Income Other Deductions Period ----------- ------------------------------------- ---------------------------- (Millions of Dollars) PPL Corporation - --------------- Year Ended December 31, 2000 - ---------------------------- Reserves deducted from assets in the Balance Sheet Uncollectible accounts .......................... $22 $47 $26 (1) $25 $70 Obsolete inventory - Materials and supplies...... 3 5 4 4 Year Ended December 31, 1999 - ---------------------------- Reserves deducted from assets in the Balance Sheet Uncollectible accounts .......................... 16 22 16 22 Obsolete inventory - Materials and supplies...... 11 3 11 3 Year Ended December 31, 1998 - ---------------------------- Reserves deducted from assets in the Balance Sheet Uncollectible accounts .......................... 16 24 24 16 Obsolete inventory - Materials and supplies...... 12 1 11
(1) Includes the allowance for doubtful accounts recorded upon the acquisition of CEMAR by PPL Global. 59 QUARTERLY FINANCIAL, COMMON STOCK PRICE AND DIVIDEND DATA (Unaudited) PPL Corporation and Subsidiaries (Millions of Dollars, except per share data)
For the Quarters Ended (a) March 31 June 30 Sept. 30 Dec. 31 2000 Operating revenues...................................... $1,413 $1,297 $1,458 $1,515 Operating income........................................ 320 241 313 328 Net income before extraordinary items................... 142 92 136 117 Net income.............................................. 142 92 136 128 Earnings per common share-basic (b)..................... 0.99 0.64 0.94 0.88 Dividends declared per common share-basic (c)........... 0.265 0.265 0.265 0.265 Price per common share High.................................................. $24.00 $25.00 $44.44 $46.13 Low................................................... $18.38 $20.38 $21.94 $37.56 1999 Operating revenues...................................... $1,067 $1,004 $1,386 $1,133 Operating income........................................ 262 164 238 208 Net income before extraordinary items................... 120 63 161 134 Net income (loss)....................................... 120 63 102 147 Earnings per common share-basic (b)..................... 0.76 0.40 0.68 1.02 Dividends declared per common share (c)................. 0.25 0.25 0.25 0.25 Price per common share High.................................................. $28.50 $31.88 $32.00 $28.50 Low................................................... $24.75 $24.13 $25.38 $20.38
(a) Quarterly results can vary depending on weather and the forward pricing of power. In addition, earnings in 2000 and 1999 were affected by nonrecurring items. Accordingly, comparisons among quarters of a year may not be indicative of overall trends and changes in operations. (b) The sum of the quarterly amounts may not equal annual earnings per share due to changes in the number of common shares outstanding during the year or rounding. (c) PPL has paid quarterly cash dividends on its common stock in every year since 1946. The dividends paid per share in 2000 were $1.06 and in 1999 were $1.00. The most recent regular quarterly dividend paid by PPL was 26.5 cents per share (equivalent to $1.06 per annum) paid January 1, 2001. Future dividends, declared at the discretion of the Board of Directors, will be dependent upon future earnings, financial requirements and other factors. 60 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ------------------------ None PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ----------------------------------------------------------- Information for this item concerning directors of PPL will be set forth in the sections entitled "Nominees for Directors," and "Directors Continuing in Office" in PPL's 2001 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2000, and which information is incorporated herein by reference. Information required by this item concerning the executive officers of PPL is set forth at the end of Part I of this report. ITEM 11. EXECUTIVE COMPENSATION ------------------------------- Information for this item for PPL will be set forth in the sections entitled "Compensation of Directors," "Summary Compensation Table," "Option Grants in Last Fiscal Year" and "Retirement Plans for Executive Officers" in PPL's 2001 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2000, and which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ----------------------------------------------------------------------- Information for this item for PPL will be set forth in the section entitled "Stock Ownership" in PPL's 2001 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2000, and which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ------------------------------------------------------- Information for this item for PPL will be set forth in the section entitled "Certain Transactions Involving Directors or Executive Officers" in PPL's 2001 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2000, and which information is incorporated herein by reference. 61 (THIS PAGE LEFT BLANK INTENTIONALLY) 62 PPL ELECTRIC UTILITIES CORPORATION AND SUBSIDIARIES 63 PART II ------- ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ------------------- Additional information for this item is set forth in the sections entitled "Quarterly Financial Data" and "Shareowner and Investor Information" of this report. 64 ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
2000 (a), (f) 1999 (a) 1998 (a) 1997 (a) 1996 PPL Electric Utilities Corporation - ----------------------------------------------------------------------------------------------------------------------------------- Income Items -- millions Operating revenues .................................. $ 3,336 $ 3,952 $ 3,643 $ 3,049 $ 2,911 Operating income (e).................................. 669 749 801 790 809 Earnings (loss) available to PPL...................... 261 398 (587) 308 329 Excluding nonrecurring items........................ 237 337 301 313 329 Balance Sheet Items -- millions (b) Property, plant and equipment, net.................... 2,401 4,345 4,331 6,820 6,960 Recoverable transition costs.......................... 2,425 2,647 2,819 Total assets.......................................... 5,924 9,092 8,838 9,472 9,405 Long-term debt........................................ 3,126 3,505 2,569 2,633 Company-obligated mandatorily redeemable 2,832 preferred securities of subsidiary trusts holding solely company debentures........................... 250 250 250 250 Preferred stock With sinking fund requirements...................... 47 47 295 295 295 Without sinking fund requirements................... 50 50 171 171 171 Common equity......................................... 1,160 1,296 1,730 2,612 2,617 Short-term debt....................................... 59 183 91 45 10 Total capital provided by investors................... 4,692 5,331 5,106 6,006 5,925 Capital lease obligations (g)......................... 125 168 171 247 Financial Ratios Return on average common equity -- % (d).............. 18.35 17.90 11.45 11.91 12.95 Embedded cost rates (b) Long-term debt -- %................................. 6.88 6.97 7.56 7.91 7.89 Preferred stock -- %................................ 5.87 5.87 6.09 6.90 6.09 Preferred securities -- %........................... 8.44 8.44 8.44 8.43 Times interest earned before income taxes (d)......... 2.65 3.46 3.77 3.67 3.62 Ratio of earnings to fixed charges -- total enterprise basis (c), (d)........................... 2.47 3.10 3.53 3.47 3.50 Ratio of earnings to fixed charges and dividends on preferred stock --total enterprise basis (c), (d).................. 2.31 2.62 2.68 2.77 2.93 Sales Data Customers (thousands)(b).............................. 1,270 1,270 1,257 1,247 1,236 Electric energy sales delivered -- millions of kWh Residential ........................................ 11,924 11,704 11,156 11,434 11,849 Commercial ......................................... 11,565 11,002 10,597 10,309 10,288 Industrial ......................................... 10,224 10,179 10,227 10,078 10,016 Other .............................................. 194 160 164 143 154 ----------- ---------- ----------- ----------- --------- Service area sales ............................... 33,907 33,045 32,144 31,964 32,307 Wholesale energy sales ........................... 17,548 31,715 36,708 21,454 14,341 ----------- ---------- ----------- ----------- --------- Total electric energy sales delivered............. 51,455 64,760 68,852 53,418 46,648 ----------- ---------- ----------- ----------- ---------
(a) The earnings for each year, except for 1996, were affected by nonrecurring items. These adjustments affected earnings available to PPL and certain items in Financial Ratios. See "Earnings" in Review of the Financial Condition and Results of Operations for a description of nonrecurring items in 2000, 1999 and 1998. (b) At year-end. (c) Computed using earnings and fixed charges of PPL Electric and its subsidiaries. Fixed charges consist of interest on short- and long-term debt, other interest charges, interest on capital lease obligations and the estimated interest component of other rentals. (d) Based on earnings excluding nonrecurring items. (e) Operating income of 1997 and 1996 restated to conform to the current presentation. (f) Selected Financial and Operating Data for 2000 were affected by the corporate realignment on July 1, 2000. (g) PPL Electric terminated its capital lease in 2000. See Note 1 for additional information. (See "Corporate Realignment" in Review of Financial Condition and Results of Operations for additional discussion). 65 PPL ELECTRIC UTILITIES CORPORATION ITEM 7. REVIEW OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS ----------------------------------------------------------- Corporate Realignment On July 1, 2000, PPL and PPL Electric completed a corporate realignment in order to effectively separate PPL Electric's regulated transmission and distribution businesses from its recently deregulated generation businesses and to better position the companies and their affiliates in the new competitive marketplace. The corporate realignment included the following key features: . PPL Electric contributed its generating and certain other related assets, along with associated liabilities, to new unregulated generating subsidiaries of PPL Generation. In connection with the contribution, PPL Energy Funding, the parent company of PPL Generation, assumed $670 million aggregate principal amount of PPL Electric debt issued to affiliated companies. . PPL Electric also contributed assets associated with its wholesale energy marketing activities, along with associated liabilities, to its wholly-owned subsidiary, PPL EnergyPlus, and contributed its interest in PPL EnergyPlus to PPL Energy Funding. . PPL Electric distributed, in a "tax-free spin-off" all of the outstanding shares of stock of PPL Energy Funding to PPL, which resulted in PPL Energy Funding becoming a wholly-owned subsidiary of PPL. . PPL Electric entered into agreements with PPL EnergyPlus for the purchase of electricity to meet all of PPL Electric's requirements through 2001 as a PLR for customers who have not selected an alternative supplier under the Customer Choice Act. As a result of the corporate realignment, PPL Electric's principal businesses are the regulated transmission and distribution of electricity to serve retail customers in its franchised territory in eastern and central Pennsylvania, and the supply of electricity to retail customers in that territory as a PLR. Other subsidiaries of PPL and PPL Electric are generally aligned in the new corporate structure according to their principal business functions. The corporate realignment followed receipt of various regulatory approvals, including approvals from the PUC, the FERC, the NRC and the IRS. Results of Operations --------------------- The following discussion explains significant changes in principal items on the Consolidated Statement of Income comparing 2000 to 1999, and 1999 to 1998. Certain items on the Consolidated Statement of Income have been impacted by the corporate realignment undertaken by PPL and PPL Electric effective July 1, 2000. See Note 13 to the Financial Statements for information regarding the corporate realignment. The Consolidated Statement of Income of PPL Electric for 2000 includes the results of its remaining activities (the transmission and distribution of electricity in its service territory and the supply of electricity as a PLR in this territory under Pennsylvania's Customer Choice Act) for the second half of the year. The results for the first six months of 2000 and the entire year 1999 also include PPL Electric's former electric generation and unregulated wholesale and retail marketing functions. When discussing the results of operations for 2000 compared with 1999, the estimated results of operations of the electric generation and unregulated marketing assets during the second half of 1999 are eliminated for purposes of comparability. Earnings ($ Millions) 2000 1999 1998 ---- ---- ---- Earnings available to PPL- excluding nonrecurring items $ 237 $ 337 $ 301 Nonrecurring items: Environmental insurance recoveries 24 Sale of Sunbury plant and related assets 42 Securitization (Note 2) 19 PUC restructuring charge (Note 2) (915) FERC municipalities settlement (Note 2) (32) Settlement with NUG 18 PPL Gas Utilities acquisition costs 3 Other impacts of restructuring 38 ----- ----- ----- Earnings available to PPL - actual $ 261 $ 398 $(587) ===== ===== ===== The earnings of PPL Electric for 2000, 1999 and 1998 were impacted by several nonrecurring items. Earnings in 2000 benefited by $24 million from insurance settlements for past and potential future environmental exposures. Refer to specific Notes to Financial Statements for discussion of certain of these nonrecurring items. The nonrecurring items without note 66 references are discussed in "Other Income and (Deductions)." In addition, the PUC restructuring adjustments provided a favorable impact of about $38 million on earnings in the second half of 1998. The decrease in adjusted earnings in 2000 compared with 1999 was primarily due to the corporate realignment completed on July 1, 2000. (See "Corporate Realignment" for additional discussion). After eliminating the estimated results of the electric generation and marketing assets from the earnings in the second half of 1999, comparable earnings for 1999 would have been an estimated $228 million. The $237 million adjusted earnings for 2000 were $9 million higher than the estimated adjusted earnings for 1999. This increase was primarily due to higher margins on wholesale energy transactions, an end of the one year 4% rate reduction for delivery customers, a 2.6% increase in electric delivery sales, gains on sales of emission allowances and lower pension expenses. These earnings gains were partially offset by higher interest expense and income taxes, and the write-off of a regulatory asset for the loss incurred in the Retail Access Pilot Program. Excluding the effects of nonrecurring items, 1999 earnings were $337 million compared with $301 million for 1998. The adjusted earnings for 1999 represents a $36 million improvement compared with 1998. The earnings improvement was primarily due to higher margins on wholesale energy and marketing activities, an increase in electricity supplied to commercial and industrial customers, lower taxes and lower depreciation on generation assets. In addition, 1998 earnings were adversely impacted by mild winter weather. These earnings improvements in 1999 were partially offset by a 4% rate reduction for electric delivery customers in Pennsylvania and by the loss of customers who shopped for alternate electric generation suppliers. In addition, 1998 earnings benefited from certain regulatory treatments that did not carry over to 1999. Operating Revenues Retail Electric The increase (decrease) in revenues from electric operations was attributable to the following (millions of dollars): 2000 vs. 1999 1999 vs. 1998 ------------- ------------- PPL Electric Electric delivery $ 28 $(179) PLR electric generation supply 32 (159) PPL EnergyPlus Electric generation supply (155) 416 Other 6 25 ----- ----- $ (89) $ 103 ===== ===== After eliminating the revenues transferred in the corporate realignment from the results for the second half of 1999, operating revenues from retail electric operations increased by $150 million during 2000 compared with 1999. This was primarily due to an increase in PPL EnergyPlus' supply volumes in the first half of 2000 compared with the same period in 1999. This increase was driven by PPL EnergyPlus' marketing efforts in Pennsylvania and surrounding states that have been implemented to secure and retain end use customers in these deregulated states. Also contributing to the increase were higher PPL Electric retail delivery and PLR supply sales in 2000. This was due to increased usage by commercial and residential customers and fewer service territory customers selecting a supplier other than PPL Electric. Operating revenues from retail electric operations increased by $103 million in 1999 compared with 1998. This was due to PPL Electric and PPL EnergyPlus providing 6.5% more electricity to retail customers during 1999 compared with 1998. These revenue gains were partially offset by a one-year 4% reduction in PPL Electric's regulated rates, effective January 1, 1999, in connection with the PUC Final Order in PPL Electric's restructuring proceeding. Wholesale Energy Marketing and Trading - -------------------------------------- The increase (decrease) in revenues from wholesale energy marketing and trading activities was attributable to the following (millions of dollars): 2000 vs. 1999 1999 vs. 1998 ------------- ------------- PPL Electric Utilities Bilaterial Sales $(337) $ 36 PJM (44) Cost-based contracts (85) (69) Gas & oil sales (143) 229 Other (5) 1 NUG purchases sold to affiliate 84 ----- ---- $(530) $197 ===== ==== Wholesale energy marketing and trading revenues decreased by $530 million in 2000 compared with 1999. After eliminating the revenues transferred in the corporate realignment from the results for the second half of 1999, wholesale energy marketing and trading revenues increased by $153 million in 2000 compared with 1999. This was primarily due to increased bilateral sales revenues reflecting higher market pricing and sales volumes to other counterparties. Wholesale energy marketing and trading revenues increased by $197 million in 1999 compared with 1998. This increase was predominately due to wholesale gas revenues, which increased nearly four-fold. This increase was, in part, due to a need for more supply to meet the greater demand for gas-fired generation and an 67 increase in retail gas marketing activities. The decrease in revenues from cost-based contracts reflected the phase-down of the capacity and energy agreement with JCP&L by 189,000 kilowatts from 1998. The contract expired in December 1999. Fuel Electric fuel costs decreased by $245 million in 2000 compared with 1999. After eliminating the expenses associated with assets transferred in the corporate realignment from the results for the second half of 1999, electric fuel costs decreased by $20 million compared with 1999. This decrease was attributed to lower generation because of the Holtwood plant closing in April 1999, the sale of the Sunbury plant in November 1999, plant outages, and reduced operation of less economical units. In addition, lower nuclear fuel expense contributed to the decrease in electric fuel costs. During the first quarter of 1999, there was a charge of $5 million to accrue for the increase in estimated costs of dry cask canisters for the on-site spent fuel storage at the Susquehanna plant. Electric fuel costs decreased by $45 million in 1999 when compared to 1998. The decrease resulted from lower generation by PPL Electric's coal-fired and oil/gas fired units, as well as lower fuel prices for coal. The lower coal-fired generation resulted from units being dispatched less during off-peak periods, as a result of NOx allowances affecting the unit costs from May to September of 1999. The Holtwood plant closing and the Sunbury plant sale (See "Power Plant Operations" discussion) also contributed to the decrease in generation. In addition, PPL Electric entered into a rail contract which lowered coal freight prices effective June 1999. These decreases were partially offset by higher fuel prices for nuclear and oil/gas-fired stations. Energy Purchases Energy purchases increased by $22 million in 2000 compared with 1999. After eliminating the expenses of assets transferred in the corporate realignment from the results for the second half of 1999, energy purchases increased by $301 million during 2000 compared with 1999. During the first half of 2000, energy purchases increased by $166 million over the same period in 1999. This was primarily due to higher purchases to support PPL EnergyPlus' increased unregulated retail electric and gas sales. Also, higher per unit prices for these purchases contributed to the increase in energy purchases, coupled with recognized losses on certain long-term forward transactions. The remainder of the increase during 2000, $135 million, represents the estimated increase in PPL Electric's purchases to support its PLR load in the second half of 2000, as noted above. Energy purchases increased by $306 million in 1999 when compared to 1998. This increase was primarily due to increased gas purchases by the Energy Marketing Center, additional wholesale purchases to support PPL EnergyPlus, and higher wholesale prices for electricity. These increases were partially offset by a decrease in the volume of electricity purchases and the reduction of the liability for above-market NUG purchases. Other Operation Expenses Other operation expenses decreased by $230 million from 1999 to 2000. After eliminating the expenses associated with assets transferred in the corporate realignment from the results for the second half of 1999, other operation expenses decreased by $79 million during 2000 compared with 1999. This decrease was primarily the result of environmental insurance settlements, gains on the sale of emission allowances and a decrease in pension plan costs, offset by a loss accrual under the Clean Air Act and increased costs of wages and other benefits. Other operation expenses increased by $16 million from 1998 to 1999. About $46 million of regulatory credits were recorded in 1998. These credits were for the loss of revenue as a result of the pilot Electric Choice Program and the deferral of undercollected energy costs. No similar items were reflected in 1999, as the pilot program was completed and energy costs were no longer recoverable through the ECR. Eliminating the effects of these regulatory credits, other operation expenses of PPL Electric decreased by $30 million in 1999 compared with 1998. This decrease was primarily due to PPL Electric's cost-cutting initiatives, gains on the sale of emission allowances and decreased load dispatching activities for system control. Maintenance Expenses Maintenance expenses decreased by $52 million in 2000 from 1999. After eliminating the expenses associated with assets transferred in the corporate realignment from the results for the second half of 1999, maintenance expenses increased by $2 million during 2000 compared with 1999. Maintenance expenses increased by $15 million in 1999 from 1998. This increase was due to higher costs of outage-related and other maintenance at PPL Electric's fossil and nuclear power plants, and additional expenses to maintain transmission and distribution facilities. 68 Power Plant Operations In April 1999, PPL Electric closed its Holtwood coal-fired generating station. The closing was part of an effort to reduce operating costs and position PPL Electric for the competitive marketplace. The adjacent hydroelectric plant owned by PPL Holtwood continues to be operated. In November 1999, PPL Electric sold its Sunbury plant and the principal assets of its wholly-owned coal processing subsidiary, Lady Jane Collieries, to Sunbury Holdings, LLC. PPL Electric received cash proceeds of $107 million for the assets, including coal inventory, which resulted in a one-time contribution to earnings of about $42 million. Depreciation Depreciation decreased by $66 million in 2000 from 1999. After eliminating the expenses of assets transferred in the corporate realignment from the results for the second half of 1999, depreciation decreased by $3 million from 1999 to 2000. Depreciation decreased by $102 million in 1999 from 1998. This decrease was mainly due to the write-down of generation-related assets in connection with the restructuring adjustments recorded in June 1998. Other Income and (Deductions) Other income and (deductions) decreased by $80 million in 2000 from 1999. After eliminating the revenues and expenses of assets transferred in the corporate realignment from the results for the second half of 1999 (including a $66 million pre-tax gain on the sale of the Sunbury plant and related assets), other income decreased by $28 million during 2000 compared with 1999. This was primarily due to a charge of $12 million resulting from a PUC ruling requiring the write-off of the regulatory asset for the loss incurred in Pennsylvania's pilot Electric Choice Program, and an adverse FERC decision regarding investments at PJM. Other income in 1999 increased by $20 million from 1998. Other income in 1998 included a favorable nonrecurring item for a $30 million recovery from a NUG to settle a suit over disputed energy prices, and a $6 million credit to earnings to reverse the prior expensing of the PPL Gas Utilities acquisition costs. However, other income in 1999 included a $66 million pre-tax gain on the sale of the Sunbury plant and related assets. Financing Costs PPL Electric experienced higher financing costs associated with long-term debt during the past few years, primarily associated with the issuance of $2.4 billion of transition bonds by PPL Transition Bond Company in August 1999. Interest on long-term debt and dividends on preferred stock increased from $235 million in 1997 to $249 million in 2000, for a total increase of $14 million. Interest on short-term debt, net of capitalized interest and AFUDC borrowed funds, increased from $12 million in 1997 to $21 million in 2000. Income Taxes Income tax expense increased by $20 million in 2000 compared with 1999. After eliminating the estimated income associated with assets transferred in the corporate realignment from the results for the second half of 1999, income taxes increased by $68 million during 2000 compared with 1999. This was primarily due to a release of deferred taxes no longer required due to securitization recognized in the third quarter of 1999. Income tax expense decreased by $122 in 1999 compared with 1998. This was primarily due to a release of deferred income taxes no longer required due to securitization and tax changes relating to the second quarter 1998 restructuring write-off. Financial Condition ------------------- Energy Marketing and Trading Activities In connection with the corporate realignment, effective July 1, 2000, PPL Electric's unregulated energy marketing and trading activities were transferred to PPL EnergyPlus. Market Risk Sensitive Instruments Commodity Price Risk - -------------------- On July 1, 2000, PPL and PPL Electric completed a corporate realignment in which each transferred its generation assets to other unregulated PPL affiliates. As part of the realignment, PPL Electric and PPL EnergyPlus entered into a long-term power sales agreement under which PPL EnergyPlus will sell PPL Electric, pursuant to a predetermined pricing arrangement, energy, capacity and ancillary services to fulfill PPL Electric's PLR obligation through 2001. As a result, PPL Electric has shifted any electric price risk to PPL EnergyPlus. PPL Electric is currently evaluating supply alternatives after 2001, including extension of the existing contract with PPL EnergyPlus, negotiation of new contract or contracts with PPL EnergyPlus, or supply from other sources. 69 Interest Rate Risk - ------------------ PPL Electric has issued debt to finance its operations, which increases interest rate risk. At December 31, 2000, PPL Electric's potential annual exposure to increased interest expense due to a 10% increase in interest rates was estimated at $1.5 million. PPL Electric is also exposed to changes in the fair value of its debt portfolio. At December 31, 2000, PPL Electric estimated that its potential exposure to a change in the fair value of its debt portfolio, through a 10% adverse movement in interest rates, was about $20 million. Market events that are inconsistent with historical trends could cause actual results to differ from estimated levels. Nuclear Decommissioning Fund - Securities Price Risk - ---------------------------------------------------- In connection with the corporate realignment, effective July 1, 2000, the nuclear decommissioning fund was transferred to, and will be maintained by, PPL Susquehanna. Capital Expenditure Requirements The schedule below shows PPL Electric's current capital expenditure projections for the years 2001-2005 and actual spending for the year 2000 (millions of dollars). PPL Electric's Capital Expenditure Requirements Actual --------Projected-------- 2000 2001 2002 2003 2004 2005 ---- ---- ---- ---- ---- ---- Construction expenditures Generating facilities $ 23 Transmission and distribution facilities 132 $138 $149 $151 $154 $166 Environmental 65 Other 28 18 18 18 18 18 ---- ---- ---- ---- ---- ---- Total Construction Expenditures 248 156 167 169 172 184 Nuclear fuel 14 ---- ---- ---- ---- ---- ---- Total Capital Expenditures $262 $156 $167 $169 $172 $184 ==== ==== ==== ==== ==== ==== Construction expenditures include AFUDC which is expected to be less than $3 million in each of the years 2001-2005. PPL Electric's capital expenditure projections for the years 2001-2005 total about $848 million. Capital expenditure plans are revised from time to time to reflect changes in conditions. Financing and Liquidity Cash and cash equivalents increased by $194 million more during 2000 compared with the same period in 1999. The reasons for this change were: . A $158 million increase in cash provided by operating activities, primarily due to decreases in prepayments, accounts receivable and unbilled revenue. . A $177 million decrease in cash used in investing activities, primarily due to an increase in proceeds from the sales of nuclear fuel to the trust and an increase in loan repayments from affiliated companies. Also property, plant and equipment expenditures were lower in 2000, due to generation assets transferred to PPL Generation, as part of the corporate realignment. . A $141 million increase in cash used in financing activities. This increase was principally due to funds required to terminate the nuclear fuel lease, and cash of subsidiaries divested in the corporate realignment. From 1998 through 2000, PPL Electric issued $2.6 billion of long-term debt (including $2.4 billion of securitized debt issued by PPL Transition Bond Company), PPL Electric retired $2.1 billion of long-term debt and purchased $632 million of treasury shares. During the years 1998 through 2000, PPL Electric also incurred $128 million of obligations under capital leases. Refer to Note 7 to the Financial Statements for additional information on credit arrangements and financing activities in 2000. Financial Indicators Earnings for 2000, 1999, and 1998 were impacted by nonrecurring items and restructuring impacts. The following financial indicators for PPL Electric reflect the elimination of these impacts from earnings, and provide an additional measure of the underlying earnings performance of PPL Electric and its subsidiaries. For purposes of comparability with 2000, the results of businesses transferred in the corporate realignment were eliminated for the second half of 1999. 1999 adjusted for 2000 realignment 1999 1998 ---- ---------- ---- ---- Earnings available to PPL (adjusted, in millions) $ 237 $ 228 $ 337 $ 301 Times interest earned before income taxes 2.65 2.67 3.46 3.77 70 Environmental Matters See Note 11 to the Financial Statements for a discussion of environmental matters. Increasing Competition The electric utility industry has experienced, and will continue to experience, a significant increase in the level of competition in the energy supply market at both the state and federal level. State Activities - ---------------- Refer to Note 2 to the Financial Statements for a discussion of PPL Electric's PUC restructuring proceeding under the Customer Choice Act. Also refer to Note 13 to the Financial Statements regarding PPL Electric's transfer of its retail electric marketing function to PPL EnergyPlus. Federal Activities - ------------------ Refer to Note 13 to the Financial Statements regarding PPL Electric's transfer of its retail electric marketing function to PPL EnergyPlus. 71 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to "Quantitative and Qualitative Disclosures About Market Risk," in Review of the Financial Condition and Results of Operations, and Note 1 to the Financial Statements. 72 Report of Independent Accountants To the Board of Directors and Shareowner of PPL Electric Utilities Corporation: In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) on page 95 present fairly, in all material respects, the financial position of PPL Electric Utilities Corporation and its subsidiaries ("PPL Electric") at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 14(a)(2) present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the PPL Electric's management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Philadelphia, PA January 29, 2001 73 PPL Electric Utilities Corporation ---------------------------------- Management's Report on Responsibility for Financial Statements -------------------------------------------------------------- The management of PPL Electric Utilities Corporation is responsible for the preparation, integrity and objectivity of the consolidated financial statements and all other sections of this annual report. The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, and the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission for regulated businesses. In preparing the financial statements, management makes informed estimates and judgments of the expected effects of events and transactions based upon currently available facts and circumstances. Management believes that the financial statements are free of material misstatement and present fairly the financial position, results of operations and cash flows of PPL Electric. PPL Electric's consolidated financial statements have been audited by PricewaterhouseCoopers LLP (PricewaterhouseCoopers) independent certified public accountants. PricewaterhouseCoopers' appointment as auditors was previously ratified by the shareowners of PPL. Management has made available to PricewaterhouseCoopers all PPL Electric's financial records and related data, as well as the minutes of shareowners' and directors' meetings. Management believes that all representations made to PricewaterhouseCoopers during its audit were valid and appropriate. PPL Electric's maintains a system of internal control designed to provide reasonable, but not absolute, assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition and the prevention and detection of fraudulent financial reporting. The concept of reasonable assurance recognizes that the cost of a system of internal control should not exceed the benefits derived and that there are inherent limitations in the effectiveness of any system of internal control. Fundamental to the control system is the selection and training of qualified personnel, an organizational structure that provides appropriate segregation of duties, the utilization of written policies and procedures and the continual monitoring of the system for compliance. In addition, PPL Electric maintains an internal auditing program to evaluate PPL Electric's system of internal control for adequacy, application and compliance. Management considers the internal auditors' and PricewaterhouseCoopers' recommendations concerning its system of internal control and has taken actions which are believed to be cost-effective in the circumstances to respond appropriately to these recommendations. Management believes that PPL Electric's system of internal control is adequate to accomplish the objectives discussed in this report. The Board of Directors, acting through PPL Corporation's Audit Committee, oversees management's responsibilities in the preparation of the financial statements. In performing this function, the Audit Committee, which is composed of four independent directors, meets periodically with management, the internal auditors and the independent certified public accountants to review the work of each. The independent certified public accountants and the internal auditors have free access to PPL Corporation's Audit Committee and to the Board of Directors, without management present, to discuss internal accounting control, auditing and financial reporting matters. Management also recognizes its responsibility for fostering a strong ethical climate so that PPL Electric's affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is characterized and reflected in PPL Electric's business policies and guidelines. These policies and guidelines address: the necessity of ensuring open communication within PPL Electric; potential conflicts of interest; proper procurement activities; compliance with all applicable laws, including those relating to financial disclosure; and the confidentiality of proprietary information. Michael E. Bray Vice Chair and President Joseph J. McCabe Vice President and Controller 74 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31, PPL Electric Utilities Corporation and Subsidiaries (Millions of Dollars)
2000 1999 1998 Operating Revenues Retail electric................................................. $2,424 $2,513 $2,410 Wholesale energy marketing and trading.......................... 890 1,420 1,223 Energy related businesses....................................... 22 19 10 ---------------- ---------------- --------------- Total........................................................... 3,336 3,952 3,643 ---------------- ---------------- --------------- Operating Expenses Operation Fuel.......................................................... 200 445 490 Energy purchases.............................................. 1,409 1,387 1,081 Other......................................................... 349 579 563 Amortization of recoverable transition costs.................. 227 194 Maintenance..................................................... 143 195 180 Depreciation (Note 1)........................................... 167 233 335 Taxes, other than income (Note 4)............................... 149 153 185 Energy related businesses....................................... 23 17 8 ---------------- ---------------- --------------- Total........................................................... 2,667 3,203 2,842 ---------------- ---------------- --------------- Operating Income.................................................. 669 749 801 Other Income and (Deductions) - Net............................... 17 97 77 ---------------- ---------------- --------------- Income Before Interest and Income Taxes........................... 686 846 878 Interest Expense.................................................. 239 214 196 ---------------- ---------------- --------------- Income Before Income Taxes and Extraordinary Items................ 447 632 682 Income Taxes (Note 4)............................................. 171 151 273 ---------------- ---------------- --------------- Income Before Extraordinary Items................................. 276 481 409 Extraordinary Items (net of income taxes) (Note 2)................ 11 (46) (948) ---------------- ---------------- --------------- Net Income(Loss) Before Dividends on Preferred Stock.............. 287 435 (539) Dividends on Preferred Stock...................................... 26 37 48 ---------------- ---------------- --------------- Earnings Available to PPL Corporation............................. $261 $398 ($587) ================ ================ ===============
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. 75 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, PPL Electric Utilities Corporation and Subsidiaries (Millions of Dollars)
2000 1999 1998 Cash Flows From Operating Activities Net income (loss)..................................................... $287 $435 ($539) Extraordinary items (net of income taxes)............................. 11 (46) (948) ------------ ----------- ----------- Net income before extraordinary items................................. 276 481 409 Adjustments to reconcile net income to net cash provided by operating activities Depreciation...................................................... 167 233 335 Amortizations - recoverable transition costs and other............ 189 149 (3) Deferred income taxes and investment tax credits ................. (9) (73) 12 Gain on sale of generating assets................................. (65) Change in current assets and current liabilities ..................... 169 (73) 8 Other operating activities - net ..................................... 11 (7) (66) ------------ ----------- ----------- Net cash provided by operating activities.................... 803 645 695 ------------ ----------- ----------- Cash Flows From Investing Activities Expenditures for property, plant and equipment ....................... (242) (300) (297) Sales of nuclear fuel to trust........................................ 27 14 54 Sale of generating assets............................................. 99 Purchases of available-for-sale securities ........................... (15) Sales and maturities of available-for-sale securities................. 69 Purchases and sales of other financial investments - net.............. 16 Loan to parent........................................................ 142 (60) Other investing activities - net ..................................... (12) 1 6 ------------ ----------- ----------- Net cash used in investing activities........................ (69) (246) (183) ------------ ----------- ----------- Cash Flows From Financing Activities Issuance of long-term debt............................................ 2,419 200 Retirement of long-term debt.......................................... (380) (1,497) (266) Termination of nuclear fuel lease..................................... (154) Retirement of preferred stock......................................... (380) Purchase of treasury stock............................................ (632) Payments on capital lease obligations................................. (11) (59) (58) Payment of common and preferred dividends............................. (140) (231) (412) Cash of subsidiaries divested in corporate realignment (Note 13) (73) Net increase in short-term debt....................................... 239 92 35 Other financing activities - net ..................................... (90) 5 ------------ ----------- ----------- Net cash used in financing activities........................ (519) (378) (496) ------------ ----------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents....................... 215 21 16 Cash and Cash Equivalents at Beginning of Period...................... 52 31 15 ------------ ----------- ----------- Cash and Cash Equivalents at End of Period............................ $267 $ 52 $ 31 ============ =========== =========== Supplemental Disclosures of Cash Flow Information Cash paid during the period for: Interest (net of amount capitalized)............................. $227 $202 $208 Income taxes..................................................... $ 91 $192 $261
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. 76 CONSOLIDATED BALANCE SHEET AT DECEMBER 31, PPL Electric Utilities Corporation and Subsidiaries (Millions of Dollars)
2000 1999 Assets Current Assets Cash and cash equivalents (Note 1)........................................ $ 267 $ 52 Accounts receivable (less reserve: 2000, $16; 1999, $18)................. 173 207 Income tax receivable..................................................... 51 49 Unbilled revenues......................................................... 137 275 Fuel, materials and supplies - at average cost............................ 30 175 Prepayments............................................................... 4 87 Unrealized energy trading gains........................................... 26 Accounts receivable from parent and its affiliates (Note 12).............. 10 18 Other..................................................................... 44 78 -------------- -------------- 716 967 -------------- -------------- Investments Loan to parent and its affiliates......................................... 60 489 Nuclear plant decommissioning trust fund (Notes 1 and 5).................. 255 Investment in unconsolidated affiliate at equity ......................... 17 Other (Note 6)............................................................ 18 15 -------------- -------------- 78 776 -------------- -------------- Property, Plant and Equipment - net Electric utility plant in service (Note 1) Transmission and distribution........................................ 2,183 2,193 Generation........................................................... 1,620 General.............................................................. 180 208 -------------- -------------- 2,363 4,021 Construction work in progress............................................. 33 139 Nuclear fuel owned and leased............................................. 139 -------------- -------------- Electric utility plant............................................... 2,396 4,299 Gas and oil utility plant................................................. 26 Other property............................................................ 5 20 -------------- -------------- 2,401 4,345 -------------- -------------- Regulatory Assets and Other Noncurrent Assets (Notes 1 & 2) Recoverable transition costs.............................................. 2,425 2,647 Other..................................................................... 304 357 -------------- -------------- 2,729 3,004 -------------- -------------- $5,924 $9,092 ============== ==============
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. 77 CONSOLIDATED BALANCE SHEET AT DECEMBER 31, PPL Electric Utilities Corporation and Subsidiaries (Millions of Dollars)
2000 1999 Liabilities and Equity Current Liabilities Short-term debt (Note 7)................................................. $ 59 $ 183 Long-term debt........................................................... 240 352 Above market NUG contracts (Note 2)...................................... 99 Accounts payable......................................................... 62 284 Taxes.................................................................... 51 96 Interest................................................................. 20 20 Dividends................................................................ 23 6 Unrealized energy trading losses......................................... 28 Accounts payable to parent and its affiliates (Note 12).................. 108 Other.................................................................... 62 220 ------- ------- 625 1,288 ------- ------- Long-term Debt............................................................. 2,886 3,153 ------- ------- Deferred Credits and Other Noncurrent Liabilities Deferred income taxes and investment tax credits (Note 4)................ 724 1,528 Above market NUG contracts (Note 2)...................................... 674 Other (Notes 1 and 5).................................................... 182 806 ------- ------- 906 3,008 ------- ------- Commitments and Contingent Liabilities (Note 11)........................... ------- ------- Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely company debentures....................... 250 250 ------- ------- Preferred stock With sinking fund requirements........................................... 47 47 Without sinking fund requirements........................................ 50 50 ------- ------- 97 97 ------- ------- Shareowner's Common Equity Common stock............................................................. 1,476 1,476 Additional paid-in capital............................................... 55 55 Treasury stock (Note 1).................................................. (632) (632) Earnings reinvested...................................................... 277 419 Accumulated other comprehensive income (Note 1).......................... (6) Capital stock expense and other.......................................... (16) (16) ------- ------- 1,160 1,296 ------- ------- $ 5,924 $ 9,092 ======= =======
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. 78 CONSOLIDATED STATEMENT OF SHAREOWNER'S COMMON EQUITY PPL Electric Utilities Corporation and Subsidiaries (Millions of Dollars)
For the Years Ended December 31, ---------------------------------------- 2000 1999 1998 --------- --------- --------- Common stock at beginning of year......................................... $ 1,476 $ 1,476 $ 1,476 Issuance of common stock................................................ --------- --------- --------- Common stock at end of year............................................... 1,476 1,476 1,476 --------- --------- --------- Additional paid-in capital at beginning of year........................... 55 70 64 Capital contribution from PPL........................................... 6 Other................................................................... (15) --------- --------- --------- Additional paid-in capital at end of year................................. 55 55 70 --------- --------- --------- Treasury stock at beginning of year....................................... (632) Purchase of treasury stock.............................................. (632) --------- --------- --------- Treasury stock at end of year............................................. (632) (632) --------- --------- --------- Earnings reinvested at beginning of year.................................. 419 210 1,092 Net income (loss) (b)................................................... 261 398 (587) Common distribution in corporate realignment............................ (271) Cash dividends declared on common stock................................. (132) (189) (295) --------- --------- --------- Earnings reinvested at end of year........................................ 277 419 210 --------- --------- --------- Accumulated other comprehensive income at beginning of year............... (6) (6) Unrealized gain (loss) on available-for sale securites (b).............. (3) Minimum pension liability adjustment (c)................................ 6 (3) --------- --------- --------- Accumulated other comprehensive income at end of year..................... (6) (6) --------- --------- --------- Capital stock expense and other at beginning of year...................... (16) (20) (20) Other................................................................... 4 --------- --------- --------- Capital stock expense and other at end of year............................ (16) (16) (20) --------- --------- --------- Total Shareowner's Common Equity.......................................... $ 1,160 $ 1,296 $ 1,730 ========= ========= ========= Common stock shares (thousands) at beginning of year (a).................. 102,230 157,300 157,300 Treasury stock purchased................................................ (55,070) --------- --------- --------- Common stock shares at end of year........................................ 102,230 102,230 157,300 ========= ========= ========= (a) No par value. 170 million shares authorized. All common shares of PPL Electric stock are owned by PPL. (b) Statement of Comprehensive Income (Note 1): Net income (loss)....................................................... $ 261 $ 398 ($587) Other comprehensive income, net of tax: Unrealized gain (loss) on available-for-sale securities............... (3) Minimum pension liability adjustment.................................. 6 (3) --------- --------- --------- Total other comprehensive income........................................ 6 (6) --------- --------- --------- Comprehensive Income.................................................... $ 267 $ 398 ($593) ========= ========= ========= (c) The adjustment in 2000 represents the transfer of the minimum pension liability to PPL Services in the corporate realignment.
The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. 79 CONSOLIDATED STATEMENT OF PREFERRED STOCK AT DECEMBER 31, PPL Electric Utilities Corporation and Subsidiaries(a) (Millions of Dollars)
Shares Outstanding Outstanding Shares 2000 1999 2000 Authorized Preferred Stock -- $100 par, cumulative 4-1/2%..................................... $25 $25 247,658 629,936 Series..................................... 72 72 726,665 10,000,000 ------ ------- $97 $97 ====== =======
Details of Preferred Stock (b)
Sinking Fund Optional Provisions Shares Redemption Shares to be Outstanding Outstanding Price Per Redeemed Redemption 2000 1999 2000 Share Annually Period With Sinking Fund Requirements Series Preferred 5.95% ............................... $ 1 $ 1 10,000 (c) 10,000 April 2001 6.125% .............................. 31 31 315,500 (c) (d) 2003-2008 6.15%................................ 10 10 97,500 (c) 97,500 April 2003 6.33% ............................... 5 5 46,000 (c) 46,000 July 2003 ------- -------- $ 47 $ 47 ======= ======== Without Sinking Fund Requirements 4-1/2% Preferred...................... $ 25 $ 25 247,658 $110.00 Series Preferred 3.35%................................ 2 2 20,605 103.50 4.40%................................ 11 11 117,676 102.00 4.60%................................ 3 3 28,614 103.00 6.75%................................ 9 9 90,770 (c) ------- -------- $ 50 $ 50 ======= ========
Decreases in Preferred Stock
2000 1999 1998 Shares Amount Shares Amount Shares Amount 4-1/2% Preferred........................... (282,531) $ (28) Series Preferred 3.35%.................................... (21,178) (2) 4.40%.................................... (111,097) (12) 4.60%.................................... (34,386) (3) 5.95%.................................... (290,000) (29) 6.05%.................................... (250,000) (25) 6.125%................................... (834,500) (84) 6.15%.................................... (152,500) (15) 6.33%.................................... (954,000) (95) 6.75%.................................... (759,230) (76)
Decreases in Preferred Stock normally represent: (I) the redemption of stock pursuant to sinking fund requirements; or (ii) shares redeemed pursuant to optional provisions. There were no issuances or redemptions of preferred stock in 2000 or 1998 through these provisions. The decreases in 1999 indicated above represent PPL Electric's purchase and cancellation of its preferred stock which had been held by PPL. PPL Electric used $380 million of securitization proceeds to effect this repurchase. (a) Each share of PPL Electric's preferred stock entitles the holder to one vote on any question presented to PPL Electric's shareowners meetings. There were 5,000,000 shares of PPL Electric's preference stock authorized; none were outstanding at December 31, 2000 and 1999, respectively. (b) The involuntary liquidation price of the preferred stock is $100 per share. The optional voluntary liquidation price is the optional redemption price per share in effect, except for the 4-1/2% Preferred Stock for which such price is $100 per share (plus in each case any unpaid dividends). (c) These series of preferred stock are not redeemable prior to the following years: 5.95%, 2001; 6.125%, 6.15%, 6.33% and 6.75%, 2003. (d) Shares to be redeemed annually on October 1 as follows: 2003-2007, 57,500; 2008, 28,000 The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. 80 CONSOLIDATED STATEMENT OF COMPANY-OBLIGATED MANDATORILY REDEEMABLE SECURITIES AT DECEMBER 31, PPL Electric Utilities Corporation and Subsidiaries (a) (Millions of Dollars)
Outstanding Outstanding 2000 1999 2000 Authorized Maturity (b) Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Company Debentures - $25 per security 8.10%.................. $150 $150 6,000,000 6,000,000 July 2027 8.20%.................. 100 100 4,000,000 4,000,000 April 2027 ----------- ---------- $250 $250 =========== ==========
(a) PPL Electric issued a total of $250 million of company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely company debentures by PPL Capital Trust and PPL Capital Trust II, two Delaware statutory business trusts. These preferred securities are supported by a corresponding amount of junior subordinated deferrable interest debentures issued by PPL Electric to the trusts. PPL Electric owns all of the common securities, representing the remaining undivided beneficial ownership interest in the assets of the trusts. The proceeds derived from the issuance of the preferred securities and the common securities were used by PPL Capital Trust and PPL Capital Trust II to acquire $103 million and $155 million principal amount of Junior Subordinated Deferrable Interest Debentures, ("Subordinated Debentures") respectively. PPL Electric has guaranteed all of the trusts' obligations under the preferred securities. The proceeds of the sale of these preferred securities were loaned by PPL Electric to PPL for the tender offer for PPL Electric preferred stock. (b) The preferred securities are subject to mandatory redemption, in whole or in part, upon the repayment of the Subordinated Debentures at maturity or their earlier redemption. At the option of PPL Electric the Subordinated Debentures are redeemable on and after April 1, 2002 (for the 8.20% securities) and July 1, 2002 (for the 8.10% securities) in whole at any time or in part from time to time. The amount of preferred securities subject to such mandatory redemption will be equal to the amount of related Subordinated Debentures maturing or being redeemed. The redemption price is $25 per security plus an amount equal to accumulated and unpaid distributions to the date of redemption. The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements 81 CONSOLIDATED STATEMENT OF LONG-TERM DEBT AT DECEMBER 31, PPL Electric Corporation and Subsidiaries (Millions of Dollars)
Outstanding 2000 1999 Maturity(b) First Mortgage Bonds (a) 6% ...................................................... $125 June 1, 2000 7 3/4%................................................... $28 28 May 1, 2002 6 7/8%.................................................. 19 19 February 1, 2003 6 7/8%................................................... 25 25 March 1, 2004 6 1/2%................................................... 125 125 April 1, 2005 6 1/8% to 7.70%.......................................... 350 (d) 350 2006-2010 7.30% to 9 3/8%.......................................... 88 88 2021-2025 7 3/8%................................................... 10 10 2011-2015 9 1/4%................................................... (c) 28 2016-2020 First Mortgage Pollution Control Bonds (a) 6.40% Series H.......................................... 90 90 November 1, 2021 5.50% Series I.......................................... 53 53 February 15, 2027 6.40% Series J.......................................... 116 116 September 1, 2029 6.15% Series K.......................................... 55 55 August 1, 2029 -------- -------- 959 1,112 Series 1999-1 Transition Bonds 6.08 to 7.15%........................................... 2,164 (e) 2,390 2001-2008 Pollution Control Revenue Bonds........................... 9 9 June 1, 2027 -------- -------- 3,132 3,511 Unamortized (discount) and premium - net ................. (6) (6) -------- -------- 3,126 3,505 Less amount due within one year........................... (240) (352) -------- -------- Total Long-term debt................................... $2,886 $3,153 ======== ========
(a) Substantially all owned transmission and distribution plant is subject to the lien of PPL Electric's Mortgage. (b) Aggregate long-term debt maturities through 2005 are (millions of dollars): 2001, $240; 2002, $274; 2003, $275; 2004, $288; 2005, $391. There are no bonds outstanding that have sinking fund requirements. (c) In April 2000, PPL Electric redeemed and retired all of its First Mortgage Bonds, 9 1/4% Series due 2019, at par value of $28 million through the maintenance and replacement fund provisions of its Mortgage. (d) In May 1998, PPL Electric issued $200 million First Mortgage Bonds, 6-1/8% Reset Put Securities due 2006. In connection with this issuance, PPL Electric assigned to a third party the option to call the bonds from the holders on May 1, 2001. These bonds will mature on May 1, 2006, but will be required to be surrendered by the exiting holders on May 1, 2001 either through the exercise of the call option by the callholder or, if such option is not exercised, through the automatic exercise of a mandatory put by the trustee on behalf of the bondholders. (e) In August 1999, PPL Transition Bond Company issued $2.4 billion of transition bonds to securitize a portion of PPL Electric stranded costs. The bonds were issued in eight different classes, with expected average lives of 1 to 8.7 years. Bond principal payments of $226 million were made in 2000. The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. 82 PPL ELECTRIC UTILITIES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ 1. Summary of Significant Accounting Policies Business and Consolidation At December 31, 2000, PPL was the parent holding company of PPL Energy Funding, PPL Electric, PPL Gas Utilities, PPL Services and PPL Capital Funding. PPL Electric's principal businesses are the transmission and distribution of electricity to serve retail customers in its service territory in eastern and central Pennsylvania, and the supply of electricity to retail customers in this territory as a PLR. The consolidated financial statements include the accounts of PPL Electric and its direct and indirect wholly-owned subsidiaries. All significant intercompany transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with U. S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Accounting Records The accounting records for PPL Electric are maintained in accordance with the Uniform System of Accounts prescribed by the FERC and adopted by the PUC. Regulation Historically, PPL Electric accounted for its operations in accordance with the provisions of SFAS 71, which requires rate-regulated entities to reflect the effects of regulatory decisions in their financial statements. PPL Electric discontinued application of SFAS 71 for the generation portion of its business, effective June 30, 1998. In connection with the corporate realignment, effective July 1, 2000, the generating and certain other related assets, along with associated liabilities, were contributed to new unregulated subsidiaries of PPL Generation. Property, Plant and Equipment Following are the classes of PPL Electric's Electric Utility Plant in Service with associated accumulated depreciation reserves, at December 31, 2000 and 1999 (millions of dollars): 2000 1999 ---- ---- Property, Plant and Equipment Generation $6,105 Transmission and distribution $3,521 3,474 General 309 361 ------ ------ 3,830 9,940 Less: Accumulated depreciation 1,467 5,919 ------ ------ Property, Plant and Equipment - net $2,363 $4,021 ====== ====== In connection with the corporate realignment, effective July 1, 2000, generating plant and certain other related assets were contributed to new unregulated subsidiaries of PPL Generation. The other classes of property, plant and equipment at December 31, 2000 are recorded at historical cost. AFUDC is capitalized as part of the construction costs for regulated projects. When regulated property, plant and equipment is retired, the original cost plus the cost of retirement, less salvage, is charged to accumulated depreciation. When entire regulated operating units are sold, the costs of such assets and the related accumulated depreciation are removed from the balance sheet and the gain or loss, if any, is included in income, unless otherwise required by the FERC. Depreciation is computed over the estimated useful lives of property using various methods including the straight-line, composite, and group method. The annual provisions for depreciation have been computed principally in accordance with the following ranges of asset lives: transmission and distribution, 15-80 years, and general, 10-80 years. 83 Nuclear Decommissioning and Fuel Disposal An annual provision for PPL Electric's share of the future cost to decommission the Susquehanna station, equal to the amount allowed in utility rates, is charged to depreciation expense. Such amounts are invested in external trust funds which can be used only for future decommissioning costs. See Note 5. In connection with the corporate realignment, effective July 1, 2000, the generating and certain other related assets, along with associated liabilities, were transferred to new unregulated subsidiaries of PPL Generation. Recoverable Transition Costs Based on the PUC Final Order, PPL Electric was amortizing its competitive transition (or stranded) costs over an eleven-year transition period beginning January 1, 1999 and ending December 31, 2009. In August 1999, competitive transition costs of $2.4 billion were converted to intangible transition costs when securitized by the issuance of transition bonds. The intangible transition costs are being amortized over the life of the transition bonds, August 1999 through December 2008, in accordance with an amortization schedule filed with the PUC. The assets of PPL Transition Bond Company, including the intangible transition property, are not available to creditors of PPL or PPL Electric. The transition bonds are obligations of PPL Transition Bond Company and are non- recourse to PPL and PPL Electric. The remaining competitive transition costs are also being amortized based on an amortization schedule previously filed with the PUC, adjusted for those competitive transition costs that were converted to intangible transition costs. As a result of the conversion of a significant portion of the competitive transition costs into intangible transition costs, amortization of substantially all of the remaining competitive transition costs will occur in 2009. Liability for Above Market NUG Contracts At June 30, 1998, PPL Electric recorded a loss for above market contracts with NUGs. Effective January 1999, PPL Electric began reducing this liability as an offset to "Energy Purchases" on the Consolidated Statement of Income. This reduction was based on the estimated timing of the purchases from the NUGs and projected market prices for this generation. In connection with the corporate realignment, effective July 1, 2000, the remaining balance of this liability was transferred to PPL EnergyPlus. Accounting for Price Risk Management PPL Electric engages in price risk management activities for both energy trading and non-trading activities as defined by EITF 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." In 1999 and 2000, PPL Electric entered into commodity forward and financial contracts for the physical purchase and sale of energy as well as energy contracts that can be settled financially. In 1998, these instruments were reflected in the financial statements using the accrual method of accounting. As of January 1, 1999, PPL Electric adopted mark-to-market accounting for energy trading contracts, in accordance with EITF 98-10, and gains and losses from changes in market prices are reflected in "Energy Purchases" on the Consolidated Statement of Income. PPL Electric used EITF 98-10 to account for its commodity forward and financial contracts and will adopt SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" effective January 1, 2001. See Note 14 for additional information. On July 1, 2000, PPL and PPL Electric completed a corporate realignment in which PPL Electric transferred its generation assets to other unregulated PPL affiliates. As part of the realignment, PPL Electric and PPL EnergyPlus entered into a power sales agreement under which PPL EnergyPlus will sell energy, capacity and ancillary services to PPL Electric, pursuant to a predetermined pricing arrangement, to fulfill PPL Electric's PLR obligation. As a result, PPL Electric has shifted any electric price risk to PPL EnergyPlus through 2001. Leases Leased property of PPL Electric capitalized on the Consolidated Balance Sheet at December 31, 1999, consisted solely of nuclear fuel. In March 2000, PPL Electric terminated its nuclear fuel lease and repurchased $154 million of nuclear fuel from the lessor energy trust. In July 2000, all nuclear fuel was transferred to PPL Susquehanna, the new unregulated nuclear generating subsidiary of PPL Generation, in connection with the corporate realignment. See Note 13 for additional information. Payments on other leased property, which are classified as operating leases, are estimated as follows (millions of dollars): 2001, $24; 2002, $25; 2003, $26; 2004, $27; and 2005, $28. These leases include vehicles, personal computers and other equipment. 84 Revenue Recognition "Retail Electric" and "Wholesale Energy Marketing and Trading" revenues are recorded based on deliveries through the end of the calendar month. Income Taxes The provision for PPL Electric deferred income taxes for regulated assets is based upon the ratemaking principles reflected in rates established by the PUC and FERC. The difference in the provision for deferred income taxes for regulated assets and the amount that otherwise would be recorded under U.S. GAAP is deferred and included in taxes recoverable through future rates on the Consolidated Balance Sheet. See Note 4. PPL Electric deferred investment tax credits when utilized, and is amortizing the deferrals over the average lives of the related assets. PPL Electric and its wholly-owned subsidiaries file a consolidated federal income tax return. Cash Equivalents All highly liquid debt instruments purchased with original maturities of three months or less are considered to be cash equivalents. Comprehensive Income Comprehensive income consists of net income and other comprehensive income, defined as changes in common equity from transactions not related to shareowners. Other comprehensive income consists of unrealized gains or losses on available-for-sale securities and the excess of additional pension liability over unamortized prior service costs. Comprehensive income is reflected on the Consolidated Statement of Shareowner's Common Equity, and "Accumulated Other Comprehensive Income" is presented on the Consolidated Balance Sheet. The comprehensive income of PPL Electric was not materially different from net income for the years ended December 31, 2000, 1999 and 1998. Treasury Stock Treasury shares are reflected on the Consolidated Balance Sheet as an offset to common equity under the cost method of accounting. Management has no definitive plans for the future use of these shares. Reclassification Certain amounts in the 1999 and 1998 financial statements have been reclassified to conform to the current presentation. 2. Extraordinary Items PUC Restructuring and FERC Settlement Historically, PPL Electric prepared its financial statements for its regulated operations in accordance with SFAS 71, which requires rate-regulated companies to reflect the effects of regulatory decisions in their financial statements. PPL Electric deferred certain costs pursuant to rate actions of the PUC and the FERC and recovered, or expected to recover, such costs in electric rates charged to customers. The EITF addressed the appropriateness of the continued application of SFAS 71 by entities in states that have enacted restructuring legislation similar to Pennsylvania's Customer Choice Act. The EITF came to a consensus on Issue No. 97-4, "Deregulation of the Pricing of Electricity - Issues Related to the Application of FASB Statements 71 and 101," which concluded that an entity should cease to apply SFAS 71 when a deregulation plan is in place and its terms are known. For PPL Electric, with respect to the generation portion of its business, this occurred effective June 30, 1998 based upon the outcome of the PUC restructuring proceeding. PPL Electric adopted SFAS 101 for the generation side of its business. SFAS 101 required a determination of impairment of plant assets performed in accordance with SFAS 121, and the elimination of all effects of rate regulation that were recognized as assets and liabilities under SFAS 71. PPL Electric performed impairment tests of its electric generation assets on a plant specific basis and determined that $2.388 billion of its generation plant was impaired at June 30, 1998. Impaired plant was the excess of the net plant investment at June 30, 1998 over the present value of the net cash flows during the remaining lives of the plants. Annual net cash flows were determined by comparing estimated generation sustenance costs to estimated regulated revenues for the remainder of 1998, market revenues for 1999 and beyond, and revenues from bulk power contracts. The net cash flows were then discounted to present value. In addition to the impaired generation plant, PPL Electric estimated that there were other stranded costs totaling $1.989 billion at June 30, 1998. This 85 primarily included generation-related regulatory assets and liabilities and an estimated liability for above-market purchases under NUG contracts. The total estimated impairment described above was $4.377 billion. The PUC's Final Order in the restructuring proceeding, entered on August 27, 1998, permitted the recovery of $2.819 billion through the CTC on a present value basis, excluding amounts for nuclear decommissioning and consumer education, resulting in a net under-recovery of $1.558 billion. PPL Electric recorded an extraordinary charge for this under-recovery in June 1998. Under FERC Order 888, 16 small utilities which had power supply agreements with PPL Electric signed before July 11, 1994, requested and were provided with PPL Electric's current estimate of its stranded costs applicable to these customers if they were to terminate their agreements in 1999. Subject to certain conditions, FERC-approved settlement agreements executed with 15 of these customers provide for continued power supply by PPL Electric through January 2004. As a result of these settlements, PPL Electric, in the second quarter of 1998, recorded an extraordinary charge in the amount of $56 million. The extraordinary items related to the PUC restructuring proceeding and the FERC settlement are reflected on the Consolidated Statement of Income, net of income taxes. Details of amounts written-off in June 1998 were as follows (millions of dollars): Impaired generation-related assets $ 2,388 Above-market NUG contracts 854 Generation-related regulatory assets and other 1,135 ------- Total 4,377 Recoverable transition costs (a) (2,819) ------- Extraordinary item pre-tax - PUC 1,558 - FERC 56 ------- 1,614 Tax effects (666) ------- Extraordinary items $ 948 ======= (a) Excluding recoveries for nuclear decommissioning and consumer education expenditures. PPL Electric believes that the electric transmission and distribution operations continue to meet the requirements of SFAS 71 and that regulatory assets associated with these operations will continue to be recovered through rates from customers. At December 31, 2000, $277 million of net regulatory assets, other than the recoverable transition costs, remain on PPL Electric's books. These regulatory assets will continue to be recovered through regulated transmission and distribution rates over periods ranging from one to 29 years. Extinguishment of Debt - Securitization In August 1999, PPL Transition Bond Company issued $2.4 billion of transition bonds to securitize a portion of PPL Electric's stranded costs. PPL Electric used a portion of the securitization proceeds to repurchase $1.5 billion of its first mortgage bonds. The premiums and related expenses to reacquire these bonds were $59 million, net of tax. PPL Electric's customers will benefit from securitization through an expected average rate reduction of approximately one percent for the period the transition bonds are outstanding. With securitization, a substantial portion of the CTC has been replaced with an ITC, which passes 75% of the net financing savings back to customers. In August 1999, PPL Electric released approximately $78 million of deferred income taxes associated with the CTC that was no longer required because of securitization. The net securitization impact of the bond repurchase and the tax change was a gain of $19 million. SFAS 4, "Reporting Gains and Losses from Extinguishment of Debt," requires that a material aggregate gain or loss from the extinguishment of debt be classified as an extraordinary item, net of the related income tax effect. The $59 million loss associated with the bond repurchase was treated as an extraordinary item. Details were as follows (millions of dollars): Reacquisition cost of debt $ 1,554 Net carrying amount of debt (1,454) ------- Extraordinary charge pre-tax 100 Tax effects (41) ------- Extraordinary charge $ 59 ======= The extraordinary charge related to extinguishment of debt was partially offset in December 1999 with a credit relating to wholesale power activity. In December 2000 there was an additional extraordinary credit relating to wholesale power activity. 3. Sales to Other Electric Utilities As part of the corporate realignment on July 1, 2000, PPL Electric's contracts for sales to other electric utilities were assigned to PPL EnergyPlus, which was transferred to an unregulated subsidiary of PPL. See Note 13 for information on the corporate realignment. 86 4. Income and Other Taxes For 2000, 1999 and 1998 the corporate federal income tax rate was 35%, and the PA corporate net income tax rate was 9.99%. The tax effects of significant temporary differences comprising PPL Electric's net deferred income tax liability were as follows (millions of dollars): 2000 1999 ---- ---- Deferred Tax Assets Deferred investment tax credits $ 13 $ 71 NUG contracts & buybacks 8 337 Accrued pension costs 47 106 Contribution in aid of construction 32 27 Other 64 138 Valuation allowance (4) ------ ------ 164 675 ------ ------ Deferred Tax Liabilities Electric utility plant - net 479 811 Restructuring - CTC/ITC 223 1,026 Taxes recoverable through future rates 100 107 Reacquired debt costs 12 13 Other 8 31 ------ ------ 822 1,988 ------ ------ Net deferred tax liability $ 658 $1,313 ====== ====== Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to income from continuing operations for accounting purposes, and details of taxes other than income are as follows (millions of dollars): 2000 1999 1998 ---- ---- ---- Income Tax Expense Current-Federal $ 144 $ 190 $ 198 Current -State 35 35 64 ------ ------ ------ 179 225 262 ------ ------ ------ Deferred-Federal (10) 53 18 Deferred-State 10 (110) 3 ------ ------ ------ (57) 21 ------ ------ ------ Investment tax credit, net-federal (8) (17) (10) ------ ------ ------ Total $ 171 $ 151 $ 273 ====== ====== ====== Federal $ 126 $ 226 $ 206 State 45 (75) 67 ------ ------ ------ $ 171 $ 151 $ 273 ====== ====== ====== 2000 1999 1998 ---- ---- ---- Reconciliation of Income Tax Expense Indicated federal income tax on pre-tax income before extraordinary items at statutory tax rate - 35% $ 156 $ 221 $ 230 Increase/(decrease) due to: State income taxes 29 (51) 43 Flow through of depreciation differences not previously normalized 2 3 9 Amortization of investment tax credit (7) (12) (10) Research & experimentation income tax credits (1) Other (9) (10) 2 ------ ------ ------ 15 (70) 43 ------ ------ ------ Total income tax expense $ 171 $ 151 $ 273 ====== ====== ====== Effective income tax rate 38.3% 23.9% 40.0% In August 1999, PPL Electric released approximately $78 million of deferred income taxes associated with the CTC that were no longer required because of securitization. 2000 1999 1998 ---- ---- ---- Taxes Other Than Income State gross receipts $117 $105 $104 State utility realty 6 12 41 State capital stock 12 11 17 Social security and other 14 25 23 ---- ---- ---- $149 $153 $185 ==== ==== ==== 5. Nuclear Decommissioning Costs In connection with the corporate realignment, effective July 1, 2000, ownership and related liabilities regarding the operation and decommissioning of the Susquehanna nuclear station were transferred to PPL Susquehanna. 6. Financial Instruments The carrying amount on the Consolidated Balance Sheet and the estimated fair value of PPL Electric's financial instruments are as follows (millions of dollars): December 31, 2000 December 31, 1999 ----------------- ----------------- Carrying Fair Carrying Fair Amount Value Amount Value ------ ----- ------ ----- Assets Nuclear plant decommissioning trust fund (a) (b) $ 0 $ 0 $255 $255 Other investments (a) 18 18 15 15 Cash and cash equivalents (a) 267 267 52 52 Other financial instruments included in other current assets (a) 1 1 4 4 87 December 31, 2000 December 31, 1999 ----------------- ----------------- Carrying Fair Carrying Fair Amount Value Amount Value ------ ----- ------ ----- Liabilities Preferred stock with sinking fund requirements (c) 47 46 47 45 Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely company debentures (c) 250 250 250 217 Long-term debt (c) 3,126 3,147 3,505 3,539 Commercial paper and bank loans (c) 59 59 183 183 (a) The carrying value of these financial instruments generally is based on established market prices and approximates fair value. (b) The nuclear decommissioning fund was transferred to PPL Susquehanna in the corporate realignment. (c) The fair value generally is based on quoted market prices for the securities where available and estimates based on current rates offered to PPL Electric where quoted market prices are not available. 7. Credit Arrangements & Financing Activities PPL Electric issues commercial paper and borrows from banks to provide short-term funds for general corporate purposes. Bank borrowings generally bear interest at rates negotiated at the time of the borrowing. At December 31, 2000, PPL Electric had $55 million of commercial paper outstanding at interest rates ranging from 7.89% to 7.94%. In order to enhance liquidity, and as a credit back-stop to the commercial paper programs, PPL Electric, PPL Capital Funding and PPL (as guarantor for PPL Capital Funding) share a 364-day $750 million credit facility and a five-year $300 million credit facility, each with a group of banks. At December 31, 2000, no borrowings were outstanding under either facility. In April 2000, PPL Electric redeemed and retired all of its outstanding First Mortgage Bonds, 9-1/4% Series due 2019, at par value of $27.6 million through the maintenance and replacement fund provisions of its Mortgage. In June 2000, PPL Electric paid and retired all of its outstanding first mortgage bonds, 6% Series due 2000, at par value of $125 million. During 2000, PPL Transition Bond Company made principal payments on bonds totaling $226 million. 8. Stock- Based Compensation Under the PPL Incentive Compensation Plan ("ICP") and the Incentive Compensation Plan for Key Employees ("ICPKE") (together, the "Plans"), restricted shares of common stock as well as stock options may be granted to officers and other key employees of PPL, PPL Electric and other affiliated companies. Awards under the Plans are made in the common stock of PPL by the Compensation and Corporate Governance Committee of the Board of Directors in the case of the ICP, and by the PPL Corporate Leadership Council in the case of the ICPKE. Each Plan limits the number of shares available for awards to two percent of the outstanding common stock of PPL on the first day of each calendar year. The maximum number of options which can be awarded under each Plan to any single eligible employee in any calendar year is 1.5 million shares. Any portion of these options that has not been granted may be carried over and used in any subsequent year. If any award lapses or is forfeited or the rights to the participant terminate, any shares of common stock are again available for grant. Shares delivered under the Plans may be in the form of authorized and unissued common stock, common stock held in treasury by PPL or common stock purchased on the open market (including private purchases) in accordance with applicable securities laws. Restricted Stock Restricted shares of common stock are outstanding shares with full voting and dividend rights. However, the shares are subject to forfeiture or accelerated payout under Plan provisions for termination, retirement, disability and death. Restricted shares vest fully if control of PPL changes, as defined by the Plans. Restricted stock awards of 25,790, 13,380 and 10,690 shares, with per share weighted-average fair values of $20.46, $26.65, and $22.63, were granted to employees of PPL Electric in 2000, 1999 and 1998, respectively. Compensation expense for these three years was insignificant. At December 31, 2000, there were 49,860 restricted shares outstanding. These awards currently vest three years from the date of grant. Stock Options Under the Plans, stock options may also be granted with an option exercise price per share not less than the fair market value of PPL's common stock on the date of grant. The options are exercisable beginning 88 one year after the date of grant, assuming the individual is still employed by PPL or a subsidiary, in installments as determined by the Compensation and Corporate Governance Committee of the Board of Directors in the case of the ICP, and the Corporate Leadership Council in the case of the ICPKE. The Committee (or the Corporate Leadership Council, in the case of the ICPKE) has discretion to accelerate the exercisability of the options. All options expire no later than ten years from the grant date. The options become exercisable if control of PPL changes, as defined by the Plans. PPL applies Accounting Principles Board Opinion 25 "Accounting for Stock Issued to Employees" and related interpretations in accounting for stock options. Since stock options are granted at market price, no compensation cost has been recognized. Compensation calculated in accordance with the disclosure requirements of SFAS 123, "Accounting for Stock-Based Compensation," was not significant. A summary of stock option activity follows: 2000 1999 ------------------ ------------------- Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price ------ ----- ------ ----- Outstanding at beginning of year 47,090 $26.84 Granted 58,310 $22.65 47,090 $26.84 Exercised Forfeited Outstanding at December 31, 105,400 $24.53 47,090 $26.84 Exercisable at December 31, 15,699 $26.84 The weighted average fair values of options at their grant date during 2000 and 1999 were $3.37 and $2.37, respectively. The estimated fair value of each option granted is calculated using a modified Black-Scholes option-pricing model. The weighted average assumptions used in the model were as follows: 2000 1999 ---- ---- Risk-free interest rate 6.75% 5.61% Expected option term 10 yrs 10 yrs Expected stock volatility 19.66% 16.19% Dividend yield 5.70% 6.60% Outstanding options had a weighted-average remaining life of 8.7 years at December 31, 2000. 9. Retirement and Postemployment Benefits Pension and Other Postretirement Benefits In connection with the corporate realignment on July 1, 2000, sponsorship of the various pension and postretirement benefit plans was transferred from PPL Electric to PPL Services to provide for participation by any of the newly realigned companies. Substantially all employees of PPL Electric are covered by a defined benefit plan and will become eligible for certain health care and life insurance benefits upon retirement. PPL Electric was allocated its portion of the pension benefit obligation on July 1, 2000 and net periodic pension costs from July 1, 2000 to December 31, 2000. The net periodic pension cost charged to (or credited to) operating expense was $(6) million in 2000, $8 million in 1999, and $2 million in 1998. Costs in excess of the amounts charged to expense were charged to construction and other accounts. At December 31, 2000, the balance of PPL Electric's pension liability was $105 million. PPL Electric was also allocated its portion of the postretirement medical benefit obligation on July 1, 2000 and retiree health and benefit costs for July 1, 2000 to December 31, 2000. The retiree health and benefits costs charged to operating expense was $19 million in 2000, $20 million in 1999, and $19 million in 1998. Costs in excess of the amounts charged to expense were charged to construction and other accounts. At December 31, 2000, the balance of PPL Electric's postretirement medical liability was $5 million. PPL Electric has a regulatory asset of $6 million relating to postretirement benefits that is being amortized and recovered in rates with a remaining life of 12 years. PPL Electric also maintains an additional liability for the cost of health care of retired miners of former subsidiaries that had been engaged in coal mining. At December 31, 2000 the liability was $20 million. The liability is the net of $53 million of estimated future benefit payments offset by $33 million of available assets in a PPL Electric funded VEBA trust. Savings Plans Substantially all employees of PPL Electric and its subsidiaries are eligible to participate in deferred savings plans (401k's). Company contributions to the plans approximated $4 million in 2000, $4 million in 1999, and $3 million in 1998. Increasing 89 contributions were the result of a 1999 enhanced matching formula for the PPL Electric plans. Substantially all employees of PPL Electric are also eligible to participate in the PPL Employee Stock Ownership Plan. Postemployment Benefits PPL Electric provides health and life insurance benefits to disabled employees and income benefits to eligible spouses of deceased employees. Postemployment benefits charged to operating expenses were not significant in 2000, 1999 or 1998. 10. Jointly Owned Facilities PPL Electric transferred its ownership interest in joint-owned facilities to PPL Generation in the July 1, 2000 corporate realignment. See Note 13. 11. Commitments and Contingent Liabilities Nuclear Insurance In connection with the corporate realignment, effective July 1, 2000, ownership and operation of the Susquehanna nuclear station was transferred to PPL Susquehanna, which became the insured under existing nuclear insurance programs. Environmental Matters In connection with the corporate realignment, effective July 1, 2000, any air, water and residual waste contingent liabilities associated with the generation assets of PPL Electric were assumed by PPL Generation. Superfund and Other Remediation - ------------------------------- In 1995, PPL Electric entered into a consent order with the DEP to address a number of sites where PPL Electric may be liable for remediation. This may include potential PCB contamination at certain PPL Electric substations and pole sites; potential contamination at a number of coal gas manufacturing facilities formerly owned and operated by PPL Electric; and oil or other contamination which may exist at some of PPL Electric's former generating facilities. As of December 31, 2000, work has been completed on approximately three-quarters of the sites included in the consent order. At December 31, 2000, PPL Electric had accrued approximately $5 million, representing the amount it estimates it will have to spend for site remediation, including those sites covered by its consent order mentioned above. Guarantees of Affiliated Companies At December 31, 2000 and 1999, PPL Electric provided a guarantee in the amount of $12 million in support of Safe Harbor Water Power Corporation. Source of Labor Supply As of December 31, 2000, PPL Electric had a total of 3,330 full-time employees with approximately 76%, or 2,535, being members of the IBEW Local Union 1600. The agreement with the IBEW Local Union 1600 was negotiated in 1998 and expires in May 2002. 12. Related Party Transactions As part of the corporate realignment, PPL Electric entered into power sales agreements with PPL EnergyPlus for the purchase of electricity to meet its obligations as a PLR for customers who have not selected an alternative supplier under the Customer Choice Act. Under the terms of these agreements, this electricity is purchased by PPL Electric at the applicable shopping credits authorized by the PUC, plus nuclear decommissioning costs, less state taxes. These purchases totaled $540 million for the six months ended December 31, 2000, and are included in "Energy purchases" on the Consolidated Statement of Income. Also as part of the corporate realignment, PPL Electric executed a reciprocal contract with PPL EnergyPlus to sell electricity purchased under contracts with NUGs. PPL Electric purchases electricity from the NUGs at contractual rates, and then sells the electricity at the same price to PPL EnergyPlus. These revenues totaled $85 million for the six months ended December 31, 2000, and are included in Operating Revenues as "Wholesale energy marketing and trading" on the Consolidated Statement of Income. Lastly, corporate functions such as financial, legal, human resources and information services were transferred to PPL Services in the corporate realignment. PPL Services bills the respective PPL subsidiaries for the cost of such services when they can be specifically identified. The cost of these services that are not directly charged to PPL subsidiaries are allocated to certain of the subsidiaries based on the relative capital invested by PPL in these subsidiaries. During the period July 1, 90 2000 to December 31, 2000, PPL Services charged PPL Electric approximately $21.9 million for direct expenses, and allocated PPL Electric approximately $41.4 million of overhead costs. 13. Corporate Realignment On July 1, 2000, PPL and PPL Electric completed a corporate realignment in order to effectively separate PPL Electric's regulated transmission and distribution businesses from its recently deregulated generation businesses and to better position the companies and their affiliates in the new competitive marketplace. The realignment included PPL Electric's transfer of certain generation and related assets, along with the associated liabilities, to PPL Energy Funding, a wholly-owned subsidiary. PPL Electric then distributed its investment in PPL Energy Funding to PPL. The net book value of this transfer, recorded effective July 1, 2000, was $271 million. This $271 million non-cash dividend to PPL had a significant impact on the consolidated assets and liabilities of PPL Electric. As indicated on the Consolidated Statement of Cash Flows of PPL Electric, approximately $73 million of cash and cash equivalents of consolidated affiliates was divested as a result of the realignment distribution. The following major reductions in consolidated assets and liabilities resulted from the non-cash dividend (millions of dollars): Assets Cash and cash equivalents $ 73 Other current assets 331 Investments 578 Property, plant and equipment 1,969 Other noncurrent assets 16 ------ $2,967 ------ Liabilities and Equity Current liabilities $767 Deferred credits and other noncurrent liabilities 1,935 Minimum pension liability component of accumulated other comprehensive income (6) ------ $2,696 ------ Net Dividend $ 271 ====== As a result of the corporate realignment, PPL Electric's principal businesses are the transmission and distribution of electricity to serve retail customers in its franchised territory in eastern and central Pennsylvania, and the supply of electricity to retail customers in that territory as a PLR. Other subsidiaries of PPL and PPL Electric are generally aligned in the new corporate structure according to their principal business functions. The corporate realignment followed receipt of various regulatory approvals, including approvals from the PUC, the FERC, the NRC and the IRS. 14. Adoption of SFAS 133 In June 2000, the FASB issued SFAS 138, which amends certain implementation issues of SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." PPL Electric will adopt SFAS 133, as amended by SFAS 137 and SFAS 138, as of January 1, 2001. In an effort to assess the financial statement impact of the adoption of SFAS 133 and SFAS 138, PPL evaluated its current commodity contracts and financial instruments. Contract evaluations were performed by a PPL project team of representatives from PPL's major business lines. Additionally, an outside consultant was retained to provide guidance to the team. Contracts that were identified as derivatives under SFAS 133 and SFAS 138 were also evaluated to determine if hedge accounting treatment could be applied. Based upon this evaluation, it appears that as of December 31, 2000, contracts which meet the definition of a derivative will not have a significant impact on PPL Electric's results of operations or its financial position. 91 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Balance at Additions Balance at --------- Beginning Charged End of Description of Period to Income Other Deductions Period ----------- --------- --------- ----- ---------- ---------- (Millions of Dollars) PPL Electric Utilities Corporation - ---------------------------------- Year Ended December 31, 2000 - ---------------------------- Reserves deducted from assets in the Balance Sheet Uncollectible accounts.................................. 18 22 24 (1) 16 Obsolete inventory - Materials and supplies............. 2 1 3 Year Ended December 31, 1999 - ---------------------------- Reserves deducted from assets in the Balance Sheet Uncollectible accounts.................................. 15 22 19 18 Obsolete inventory - Materials and supplies............. 11 9 2 Year Ended December 31, 1998 - ---------------------------- Reserves deducted from assets in the Balance Sheet Uncollectible accounts.................................. 16 20 21 15 Obsolete inventory - Materials and supplies............. 12 1 11
(1) Includes $1 million transfer of PPL EnergyPlus' allowance for doubtful accounts due to the corporate realignment. 92 QUARTERLY FINANCIAL DATA (Unaudited) PPL Electric Utilities Corporation and Subsidiaries (Millions of Dollars)
For the Quarters Ended (a) March 31 June 30 Sept. 30 Dec. 31 2000 Operating revenues......................................... $1,127 $1,006 $ 570 $ 633 Operating income........................................... 268 217 100 84 Net income before extraordinary items...................... 137 102 31 6 Net income................................................. 137 102 31 17 Earnings available to PPL.................................. 131 95 25 10 1999 Operating revenues......................................... $ 968 $ 923 $1,128 $ 933 Operating income........................................... 237 148 190 174 Net income before extraordinary items...................... 120 73 166 122 Net income................................................. 120 73 107 135 Earnings available to PPL.................................. 108 61 101 128
(a) PPL Electric's business is seasonal in nature with peak sales periods generally occurring in the winter months. In addition, earnings in several quarters were affected by several nonrecurring items. Lastly, PPL Electric transferred its electric generation and related assets as part of a corporate realignment. Accordingly, comparisons among quarters of a year may not be indicative of overall trends and changes in operations. 93 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ------------------------ None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ----------------------------------------------------------- Information for this item concerning directors of PPL Electric will be set forth in the sections entitled "Nominees for Directors," and "Directors Continuing in Office" in PPL Electric's 2001 Notice of Annual Meeting and Information Statement, which will be filed with the SEC not later than 120 days after December 31, 2000, and which information is incorporated herein by reference. Information required by this item concerning the executive officers of PPL Electric is set forth at the end of Part I of this report. ITEM 11. EXECUTIVE COMPENSATION ------------------------------- Information for this item for PPL Electric will be set forth in the sections entitled "Compensation of Directors," "Summary Compensation Table," "Option Grants in Last Fiscal Year" and "Retirement Plans for Executive Officers" in PPL Electric's 2001 Notice of Annual Meeting and Information Statement, which will be filed with the SEC not later than 120 days after December 31, 2000, and which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ----------------------------------------------------------------------- Information for this item for PPL Electric will be set forth in the section entitled "Stock Ownership" in PPL Electric's 2001 Notice of Annual Meeting and Information Statement, which will be filed with the SEC not later than 120 days after December 31, 2000, and which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ------------------------------------------------------- Information for this item for PPL Electric will be set forth in the section entitled "Certain Transactions Involving Directors or Executive Officers" in PPL Electric's 2001 Notice of Annual Meeting and Information Statement, which will be filed with the SEC not later than 120 days after December 31, 2000, and which information is incorporated herein by reference. 94 PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K ---------------------------------- (a) The following documents are filed as part of this report: 1. Financial Statements - included in response to Item 8. PPL Corporation Report of Independent Accountants Consolidated Statement of Income for each of the Three Years Ended December 31, 2000, 1999 and 1998 Consolidated Statement of Cash Flows for each of the Three Years Ended December 31, 2000, 1999 and 1998 Consolidated Balance Sheet at December 31, 2000 and 1999 Consolidated Statement of Shareowners' Common Equity for each of the Three Years Ended December 31, 2000, 1999 and 1998 Consolidated Statement of Preferred Stock at December 31, 2000 and 1999 Consolidated Statement of Company-Obligated Mandatorily Redeemable Securities at December 31, 2000 and 1999 Consolidated Statement of Long-Term Debt at December 31, 2000 and 1999 Notes to Consolidated Financial Statements PPL Electric Utilities Corporation Report of Independent Accountants Consolidated Statement of Income for each of the Three Years Ended December 31, 2000, 1999 and 1998 Consolidated Statement of Cash Flows for each of the Three Years Ended December 31, 2000, 1999 and 1998 Consolidated Balance Sheet at December 31, 2000 and 1999 Consolidated Statement of Shareowner's Common Equity for each of the Three Years Ended December 31, 2000, 1999 and 1998 Consolidated Statement of Preferred Stock at December 31, 2000 and 1999 Consolidated Statement of Company-Obligated Mandatorily Redeemable Securities at December 31, 2000 and 1999 Consolidated Statement of Long-Term Debt at December 31, 2000 and 1999 Notes to Consolidated Financial Statements 2. Supplementary Data and Supplemental Financial Statement Schedule - included in response to Item 8. Schedule II - Valuation and Qualifying Accounts and Reserves for the Three Years Ended December 31, 2000 All other schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the financial statements or notes thereto. 3. Exhibits Exhibit Index on page 101. 95 (b) Reports on Form 8-K: The following Reports on Form 8-K were filed during the three months ended December 31, 2000: Report dated September 29, 2000 ------------------------------- Item 5. Other Events Hyder plc transaction Item 7. Financial Statement and Exhibits Audited consolidated financial information of Hyder plc, unaudited proforma consolidated financial information of PPL and consent of PricewaterhouseCoopers LLP. Report dated October 24, 2000 ----------------------------- Item 7. Financial Statements and Exhibits Information regarding PPL's strategic initiatives and third quarter earnings. Item 9. Regulation FD Disclosure Press Releases dated October 24, 2000 and October 25, 2000, regarding PPL's two strategic initiatives and its third quarter earnings. Report dated December 21, 2000 ------------------------------ Item 7. Financial Statements and Exhibits Sales Agency Agreement between PPL and UBS Warburg, LLC 96 SHAREOWNER AND INVESTOR INFORMATIO ---------------------------------- Annual Meetings: The annual meeting of shareowners of PPL Corporation is held each year on the fourth Friday of April. The 2001 meeting for PPL Corporation will be held on Friday, April 27, 2001, at Lehigh University's Stabler Arena, at the Goodman Campus Complex located in Lower Saucon Township, outside Bethlehem, Pennsylvania. The 2001 meeting for PPL Electric will be held Tuesday, April 24, 2001, in the North Auditorium of PPL's headquarters in Allentown, Pennsylvania. Proxy and Information Statement Material: A proxy statement and information statement and notice of PPL's and PPL Electric's annual meetings are mailed to all shareowners of record as of February 28, 2001. Dividends: The 2001 dates for consideration of the declaration of dividends on PPL common stock by the PPL Board of Directors or its Executive Committee and PPL Electric preferred stock by the PPL Electric Board of Directors are February 23, May 25, August 24 and November 16. Subject to the declaration, such dividends are paid on the first day of April, July, October and January. Dividend checks are mailed in advance of those dates with the intention that they arrive as close as possible to the payment dates. The 2001 record dates for dividends are expected to be March 9, June 8, September 10, and December 10. Direct Deposit of Dividends: Shareowners may choose to have their dividend checks deposited directly into their checking or savings account. Quarterly dividend payments are electronically credited on the dividend date, or the first business day thereafter. Dividend Reinvestment Plan: Shareowners may choose to have dividends on their PPL common stock or PPL Electric preferred stock reinvested in PPL common stock instead of receiving the dividend by check. Certificate Safekeeping: Shareowners participating in the Dividend Reinvestment Plan may choose to have their common stock certificates forwarded to PPL for safekeeping. Lost Dividend or Interest Checks: Dividend or interest checks lost by investors, or those that may be lost in the mail, will be replaced if the check has not been located by the 10th business day following the payment date. Transfer of Stock or Bonds: Stock or bonds may be transferred from one name to another or to a new account in the name of another person. Please contact Investor Services regarding transfer instructions. Bondholder Information: Much of the information and many of the procedures detailed here for shareowners also apply to bondholders. Questions related to bondholder accounts should be directed to Investor Services. Lost Stock or Bond Certificates: Please contact Investor Services for an explanation of the procedure to replace lost stock or bond certificates. PPL Summary Annual Report: Published and mailed in mid-March to all shareowners of record. Shareowner News: An easy-to-read newsletter containing current items of interest to shareowners -- published and mailed at the beginning of each quarter. Periodic Mailings: Letters regarding new investor programs, special items of interest, or other pertinent information are mailed on a non-scheduled basis as necessary. Duplicate Mailings: The summary annual report and other investor publications are mailed to each investor account. If you have more than one account, or if there is more than one investor in your household, you may contact Investor Services to request that only one publication be delivered to your address. Please provide account numbers for all duplicate mailings. Shareowner Information Line: Shareowners can get detailed corporate and financial information 24 hours a day using the Shareowner Information Line. They can hear timely recorded messages about earnings, dividends and other company news releases; request information by fax; and request printed materials in the mail. The toll-free Shareowner Information Line is 1-800-345-3085. Other PPL publications, such as the annual and quarterly reports to the Securities and Exchange Commission (Forms 10-K and 10-Q) will be mailed upon request. Shareowners can also obtain information from PPL's Internet home page (www.pplweb.com). Shareowners can access PPL Securities and 97 Exchange Commission filings, stock quotes and historical performance. Visitors to our website can provide their E-mail address and indicate their desire to receive future earnings or news releases automatically. Investor Services: For any questions you have or additional information you require about PPL and its subsidiaries, please call the Shareowner Information Line, or write to: Manager-Investor Services PPL Corporation Two North Ninth Street Allentown, PA 18101 Internet Access: For updated information throughout the year, check out our home page at http://www.pplweb.com. You may also contact Investor Services via E-mail at invserv@pplweb.com. - -------------------------------------------------------------------------------- Listed Securities: Fiscal Agents: New York Stock Exchange Stock Transfer Agents and Registrars PPL Corporation: Wells Fargo Bank Minnesota, N.A. Common Stock (Code: PPL) Shareowner Services 161 North Concord Exchange PPL Electric Utilities Corporation: South St. Paul, MN 55075-1139 4-1/2% Preferred Stock (Code: PPLPRB) PPL Services Corporation 4.40% Series Preferred Stock Investor Services Department (Code: PPLPRA) Dividend Disbursing Office and Dividend Reinvestment Plan Agent PPL Capital Trust: PPL Services Corporation 8.20% Preferred Securities Investor Services Department (Code: PPLPRC) Mortgage Bond Trustee PPL Capital Trust II: Bankers Trust Co. 8.10% Preferred Securities Attn: Security Transfer Unit (Code: PPLPRD) P.O. Box 291569 Nashville, TN 37229 Philadelphia Stock Exchange Bond Interest Paying Agent PPL Corporation: PPL Electric Utilities Corporation Common Stock Investor Services Department PPL Electric Utilities Corporation 4-1/2% Preferred Stock 3.35% Series Preferred Stock 4.40% Series Preferred Stock 4.60% Series Preferred Stock 98 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PPL Corporation --------------- (Registrant) By /s/ William F. Hecht - ---------------------------------- William F. Hecht - Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. TITLE ----- By /s/ William F. Hecht Principal Executive - ---------------------------------- Officer and Director William F. Hecht - Chairman, President and Chief Executive Officer By /s/ John R. Biggar Principal Financial - ---------------------------------- Officer John R. Biggar - Executive Vice President and Chief Financial Officer By /s/ Joseph J. McCabe Principal Accounting - ---------------------------------- Officer Joseph J. McCabe - Vice President and Controller Frederick M. Bernthal Elmer D. Gates Directors John W. Conway Stuart Heydt E. Allen Deaver Francis A. Long William J. Flood W. Keith Smith By /s/ William F. Hecht - ---------------------------------- William F. Hecht, Attorney-in-fact Date: March 1, 2001 99 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PPL Electric Utilities Corporation ---------------------------------- By /s/ Michael E. Bray - ------------------------------------------ Michael E. Bray - Vice Chair and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. TITLE ----- By /s/ Michael E. Bray Principal Executive Officer - ------------------------------------------- Michael E. Bray - and Director Vice Chair and President By /s/ James E. Abel Principal Financial - ------------------------------------------- James E. Abel - Officer Treasurer By /s/ Joseph J. McCabe - Principal Accounting - ------------------------------------------- Joseph J. McCabe Officer Vice President and Controller Directors: /s/ William F. Hecht /s/ Paul T. Champagne /s/Francis A. Long - ------------------------------ ---------------------- ------------------------ William F. Hecht Paul T. Champagne Francis A. Long /s/ John R. Biggar /s/ Robert J. Grey /s/ Lawrence De Simone - ------------------------------ ---------------------- ------------------------ John R. Biggar Robert J. Grey Lawrence De Simone /s/Michael E. Bray /s/ James H. Miller - ------------------------------ ---------------------- Michael E. Bray James H. Miller Date: March 1, 2001 100 EXHIBIT INDEX The following Exhibits indicated by an asterisk preceding the Exhibit number are filed herewith. The balance of the Exhibits have heretofore been filed with the Commission and pursuant to Rule 12(b)-32 are incorporated herein by reference. Exhibits indicated by a [_] are filed or listed pursuant to Item 601(b)(10)(iii) of Regulation S-K. 3(a)-1 - Articles of Incorporation of PPL Corporation (Exhibit B to Proxy Statement of PPL Electric Utilities Corporation and Prospectus of PPL Corporation, dated March 9, 1995) 3(a)-2 - Articles of Amendment of PPL Corporation (Exhibit 3.2 to Registration Statement Nos. 333-54504, 333-54504-01 and 333-54504-02) 3(a)-3 - Articles of Incorporation of PPL Electric Utilities Corporation (Exhibit 3(i) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended March 31, 1999) * 3(a)-4 - Articles of Amendment of PPL Electric Utilities Corporation 3(b)-1 - By-laws of PPL Corporation (Exhibit 3(ii)(a) to PPL Corporation Form 10-Q Report (File No. 1-905) for the quarter ended September 30, 1998) * 3(b)-2 - By-laws of PPL Electric Utilities Corporation * 4(a) - Amended and Restated Employee Stock Ownership Plan, effective January 1, 2000 4(b)-1 - Mortgage and Deed of Trust, dated as of October 1, 1945, between PPL Electric Utilities Corporation and Guaranty Trust Company of New York, as Trustee (now Bankers Trust Company, as successor Trustee) (Exhibit 2(a)-4 to Registration Statement No. 2-60291) 4(b)-2 - Supplement, dated as of July 1, 1954, to said Mortgage and Deed of Trust (Exhibit 2(b)-5 to Registration Statement No. 219255) 4(b)-3 - Supplement, dated as of July 1, 1991, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Form 8-K Report (File No. 1-905) dated July 29, 1991) 4(b)-4 - Supplement, dated as of May 1, 1992, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated June 1, 1992) 4(b)-5 - Supplement, dated as of November 1, 1992, to said Mortgage and Deed of Trust (Exhibit 4(b)-29 to PPL Electric Utilities Corporation Form 10-K Report (File 1-905) for the year ended December 31, 1992) 4(b)-6 - Supplement, dated as of February 1, 1993, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated February 16, 1993) 4(b)-7 - Supplement, dated as of April 1, 1993, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated April 30, 1993) 4(b)-8 - Supplement, dated as of October 1, 1993, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated October 29, 1993) 101 4(b)-9 - Supplement, dated as of February 15, 1994, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated March 11, 1994) 4(b)-10 - Supplement, dated as of March 1, 1994, to said Mortgage and Deed of Trust (Exhibit 4(b) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated March 11, 1994) 4(b)-11 - Supplement, dated as of March 15, 1994, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated March 30, 1994) 4(b)-12 - Supplement, dated as of September 1, 1994, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K (File No. 1- 905) dated October 3, 1994) 4(b)-13 - Supplement, dated as of October 1, 1994, to said Mortgage and Deed of Trust (Exhibit 4(a) to PPL Electric Utilities Corporation Form 8-K Report (File No. 1-905) dated October 3, 1994) 4(b)-14 - Supplement, dated as of August 1, 1995, to said Mortgage and Deed of Trust (Exhibit 6(a) to PPL Electric Utilities Corporation Form 10-Q Report (File No. 1-905) for the quarter ended September 30, 1995) 4(b)-15 - Supplement, dated as of April 1, 1997 to said Mortgage and Deed of Trust (Exhibit 4(b)-17 to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 1997) 4(b)-16 - Supplement, dated as of May 5, 1998, to said Mortgage and Deed of Trust (Exhibit 4.3 to PPL Electric Utilities Corporation Form 8-K Report (File No. I-905) dated May 1, 1998) 4(b)-17 - Supplement, dated as of June 1, 1999, to said Mortgage and Deed of Trust (Exhibit 4(b)-19 to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 1999) 4(c)-1 - Indenture, dated as of November 1, 1997, among PPL Corporation, PPL Capital Funding, Inc. and The Chase Manhattan Bank, as Trustee (Exhibit 4.1 to PPL Corporation 8-K Report (File No. 1-905) dated November 12, 1997) 4(c)-2 - Supplement, dated as of November 1, 1997, to said Indenture (Exhibit 4.2 to PPL Corporation 8-K Report (File No. 1-905) dated November 12, 1997) 4(c)-3 - Supplement, dated as of March 1, 1999, to said Indenture (Exhibit 4.3 to Registration Statement Nos. 333-87847, 333-87847-01 and 333-87847-02) 4(c)-4 - Supplement, dated as of October 1, 1999, to said Indenture (Exhibit 4(c)-4 to PPL Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 1999) 4(c)-5 - Supplement, dated as of June 1, 2000, to said Indenture (Exhibit 4 to PPL Corporation Form 10-Q Report (File No. 1-905) for the quarter ended June 30, 2000) 4(d)-1 - Junior Subordinated Indenture, dated as of April 1, 1997, between PPL Electric Utilities Corporation and The Chase Manhattan Bank, as Trustee (Exhibit 4.1 to Registration Statement No. 333-20661) 102 4(d)-2 - Amended and Restated Trust Agreement, dated as of April 8, 1997, among PPL Electric Utilities Corporation, The Chase Manhattan Bank, as Property Trustee, Chase Manhattan Bank (Delaware), as Delaware Trustee, and John R. Biggar and James E. Abel, as Administrative Trustees (Exhibit 4.4 to Registration Statement No. 333-20661) 4(d)-3 - Guarantee Agreement, dated as of April 8, 1997, between PPL Electric Utilities Corporation and The Chase Manhattan Bank, as Trustee (Exhibit 4.6 to Registration Statement No. 333-20661) 4(e)-1 - Amended and Restated Trust Agreement, dated as of June 13, 1997, among PPL Electric Utilities Corporation, The Chase Manhattan Bank, as Property Trustee, Chase Manhattan Bank (Delaware), as Delaware Trustee, and John R. Biggar and James E. Abel, as Administrative Trustees (Exhibit 4.4 to Registration Statement No. 333-27773) 4(e)-2 - Guarantee Agreement, dated as of June 13, 1997, between PPL Electric Utilities Corporation and The Chase Manhattan Bank, as Trustee (Exhibit 4.6 to Registration Statement No. 333-27773) 10(a) - Amended and Restated 364-Day Revolving Credit Agreement, dated as of June 28, 2000, among PPL Electric Utilities Corporation, PPL Capital Funding, Inc., PPL Corporation and the banks named therein (Exhibit 10 to PPL Corporation Form 10-Q Report (File No. 1-905) for the quarter ended September 30, 2000) 10(b)-1 - Five-Year Revolving Credit Agreement, dated as of November 20, 1997, among PPL Electric Utilities Corporation, PPL Capital Funding, Inc., PPL Corporation and the banks named therein (Exhibit 10(b) to PPL Corporation Form 10-K Report (File No.1-905) for the year ended December 31, 1997) 10(b)-2 - Amendment No. 1 to said Five-Year Revolving Credit Agreement (Exhibit 10(b)-1 to PPL Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 1999) * 10(c) - Credit Agreement, dated as of December 21, 2000, among PPL Capital Funding, Inc., PPL Corporation, Morgan Stanley Senior Funding, Inc., and the banks named therein * 10(d) - Credit Agreement, dated as of January 3, 2001, among PPL Capital Funding, Inc., PPL Corporation, Credit Suisse First Boston and the banks named therein 10(e) - Pollution Control Facilities Agreement, dated as of May 1, 1973, between PPL Electric Utilities Corporation and the Lehigh County Industrial Development Authority (Exhibit 5(z) to Registration Statement No. 2-60834) * 10(f) - Amended and Restated Operating Agreement of the PJM Interconnection, L.L.C., dated February 7, 2001 10(g)-1 - Capacity and Energy Sales Agreement, dated January 28, 1988, between PPL Electric Utilities Corporation and Baltimore Gas and Electric Company (Exhibit 10(e)-7 to PPL Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 1987) 10(g)-2 - First Supplement, effective November 1, 1988, to said Capacity and Energy Sales Agreement (Exhibit 10(i)-2 to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 1989) 103 10(g)-3 - Second Supplement, effective June 1, 1989, to said Capacity and Energy Sales Agreement (Exhibit 10(i)-3 to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 1989) 10(g)-4 - Third Supplement, effective June 1, 1991, to said Capacity and Energy Sales Agreement (Exhibit 10(g)-4 to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 1991) 10(g)-5 - Fourth Supplement, effective June 1, 1992, to said Capacity and Energy Sales Agreement (Exhibit 10(h)-5 to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 1997) 10(g)-6 - Fifth Supplement, effective July 15, 1993, to said Capacity and Energy Sales Agreement (Exhibit 10(h)-6 to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 1997) 10(g)-7 - Sixth Supplement, effective June 1, 1993, to said Capacity and Energy Sales Agreement (Exhibit 10(h)-7 to PPL Electric Utilities Corporation Form 10-K Report (File No. 1-905) for the year ended December 31, 1997) *[_]10(h) - Amended and Restated Directors Deferred Compensation Plan, effective February 14, 2000 *[_]10(i)-1 - Amended and Restated Officers Deferred Compensation Plan, effective February 14, 2000 *[_]10(i)-2 - Amendment No. 1 to said Officers Deferred Compensation Plan, effective July 1, 2000 *[_]10(i)-3 - Amendment No. 2 to said Officer's Deferred Compensation Plan, effective July 1, 2000 *[_]10(j)-1 - Amended and Restated Supplemental Executive Retirement Plan, effective October 1, 1999 *[_]10(j)-2 - Amendment No. 1 to said Supplemental Executive Retirement Plan, effective July 1, 2000 *[_]10(k) - Amended and Restated Incentive Compensation Plan, effective February 14, 2000 [_]10(l) - Short-Term Incentive Plan (Schedule B to Proxy Statement of PPL Corporation, dated March 12, 1999) [_]10(m) - Form of Severance Agreement entered into between PPL Corporation and Officers (Exhibit 10 to PPL Corporation Form 10-Q Report (File No. 1-905) for the quarter ended June 30, 1998) *[_]10(n) - Agreement, effective May 24, 2000, between PPL Corporation and Paul T. Champagne 10(o) - Equity Contribution Agreement among PPL Corporation, PPL Montana, LLC, and The Chase Manhattan Bank, as Trustee (Exhibit 10.15 to PPL Montana's Form S-4 on Registration Statement (File No. 333-50350) * 12(a) - PPL Corporation and Subsidiaries Computation of Ratio of Earnings to Fixed Charges * 12(b) - PPL Electric Utilities Corporation and Subsidiaries Computation of Ratio of Earnings to Fixed Charges 104 * 21(a) - Subsidiaries of PPL Corporation * 21(b) - Subsidiaries of PPL Electric Utilities Corporation * 23 - Consent of PricewaterhouseCoopers LLP * 24 - Power of Attorney * 99 - PPL Corporation Corporate Organization Before and After Realignment (Selected Subsidiaries) 105 EX-3.(A)-4 2 0002.txt ARTICLES OF AMENDMENT OF PPL ELECTRIC UTILITIES Microfilm Number _________________________ Filed with the Department of State on February 14, 2000 ----------------- Entity Number 273941 /s/ Kim Pizzingrilli ---------------------------- ------------------------------------------------------------ Secretary of the Commonwealth
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION DSCB:15-1915 (Rev 90) In compliance with the requirements of 15 Pa.C.S. (S). 1915 (relating to articles of amendment), the undersigned business corporation, desiring to amend its Articles, hereby states that: 1. The name of the corporation is: PP&L, Inc. --------------------------------------- ________________________________________________________________________________ 2. The (a) address of this corporation's current registered office in this Commonwealth or (b) name of its commercial registered office provider and the county of venue is (the Department is hereby authorized to correct the following information to conform to the records of the Department): (a) 2 N. 9th St., Allentown, PA 18101-1179, Lehigh ---------------------------------------------------------------------- Number and Street City State Zip County (b) c/o: __________________________________________________________________ Name of Commercial Registered Office Provider County For a corporation represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the corporation is located for venue and official publication purposes. 3. The statute by or under which it was incorporated is: Pennsylvania Business --------------------- Corporation Law --------------- 4. The date of its incorporation is: 6/4/20 --------------------------------------- 5. (Check, and if appropriate complete, one of the following): X The amendment shall be effective upon filing these Articles of --- Amendment in the Department of State. ___ The amendment shall be effective on: ______________ At ________________ Date Hour 6. (Check one of the following): ___ The amendment was adopted by the shareholders (or members) pursuant to 15 Pa.C.S. (S) 1914(a) and (b). x The amendment was adopted by the board of directors pursuant to 15 --- Pa.C.S. (S) 1914(c). 7. (Check, and if appropriate complete, one of the following): x The amendment adopted by the corporation, set forth in full, is as --- follows: The name of the corporation is PPL Electric Utilities Corporation. ----------------------------------------------------------------------- _______________________________________________________________________ _______________________________________________________________________ ___ The amendment adopted by the corporation is set forth in full in Exhibit A attached hereto and made a part hereof. 8. (Check if the amendment restates the Articles): ___ The restated Articles of Incorporation supersede the original Articles and all amendments thereto. IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by an authorized officer thereof this 14th ---- day of February , 2000. ----------- ---- PP&L, INC. -------------------------------------------------- (Name of Corporation) BY: /s/ James E. Abel ---------------------------------------------- James E. Abel (Signature) TITLE:____________________________________________ Vice President-Finance and Treasurer EX-3.(B)-2 3 0003.txt BYLAWS OF PPL ELECTRIC CORPORATION Bylaws of PPL Electric Utilities Corporation Table of Contents
Section................................................................... Page - -------------------------------------------------------------------------------- Article I: Offices and Fiscal Year Section 1.01 Registered Office......................................... 1 Section 1.02 Fiscal Year............................................... 1 Section 1.03 Corporate Seal............................................ 1 Article II: Meetings of Shareholders Section 2.01 Place of Meeting.......................................... 1 Section 2.02 Annual Meeting............................................ 1 Section 2.03 Special Meetings.......................................... 1 Section 2.04 Notice of Meetings........................................ 2 Section 2.05 Quorum, Manner of Acting, and Adjournment................. 2 Section 2.06 Organization.............................................. 3 Section 2.07 Voting and Proxies........................................ 3 Section 2.08 Voting Lists.............................................. 4 Section 2.09 Judges of Election........................................ 4 Section 2.10 Determination of Shareholders of Record................... 4 Article III: Board of Directors Section 3.01 Authority, Number and Qualifications...................... 5 Section 3.01 Term of Office............................................ 5 Section 3.02 Organization.............................................. 5 Section 3.03 Resignations.............................................. 5 Section 3.04 Vacancies................................................. 5 Section 3.05 Removal by Shareholders................................... 6 Section 3.06 Place of Meeting.......................................... 6 Section 3.07 Organization Meeting...................................... 6 Section 3.08 Regular Meetings.......................................... 6 Section 3.09 Special Meetings.......................................... 7 Section 3.10 Quorum, Manner of Acting, and Adjournment................. 7 Section 3.11 Executive and Other Committees............................ 7 Section 3.12 Compensation.............................................. 8 Section 3.13 Nominations for Election of Directors..................... 8 Article IV: Notice - Waivers - Meetings Section 4.01 Manner of Giving Notice................................... 10 Section 4.02 Waivers of Notice......................................... 11 Section 4.03 Conference Telephone Meetings............................. 11 Article V: Officers Section 5.01 Number, Qualifications and Designation.................... 12
-i- Section 5.02 Election and Term of Office............................... 12 Section 5.03 Resignations.............................................. 12 Section 5.04 Removal................................................... 12 Section 5.05 Vacancies................................................. 12 Section 5.06 General Powers............................................ 12 Section 5.07 Compensation.............................................. 12 Section 5.08 Standard of Care.......................................... 13 Article VI: Certificates of Stock, Transfer, Etc. Section 6.01 Issuance.................................................. 13 Section 6.02 Transfer.................................................. 13 Section 6.03 Share Certificates........................................ 13 Section 6.04 Lost, Stolen, Mutilated or Destroyed Certificates......... 13 Article VII: Indemnification of Directors, Officers, Etc. Section 7.01 Personal Liability of Directors........................... 14 Section 7.02 Indemnification of Directors and Officers................. 14 Section 7.03 Indemnification of Persons Not Indemnified Under Section 7.02.............................................. 16 Article VIII: Amendments Section 8.01 Amendment of Bylaws....................................... 19
-ii- BYLAWS OF PPL ELECTRIC UTILITIES CORPORATION (a Pennsylvania Corporation) ================================================================================ ARTICLE I Offices and Fiscal Year Section 1.01. Registered Office. The registered office of the ----------------- corporation in the Commonwealth of Pennsylvania shall be at Two North Ninth Street, Allentown, Pennsylvania 18101. Section 1.02. Fiscal Year. The fiscal year of the corporation shall ----------- begin on the first day of January in each year. Section 1.03. Corporate Seal. The corporation shall have a corporate -------------- seal in the form of a circle containing the name of the corporation, the year of incorporation and such other details, if any, as approved by the board of directors. ARTICLE II Meetings of Shareholders Section 2.01. Place of Meeting. All meetings of the shareholders of the ---------------- corporation shall be held at the registered office of the corporation unless another place is designated by the board of directors in the notice of such meeting. Section 2.02. Annual Meeting. The board of directors may fix the date -------------- and time of the annual meeting of the shareholders, but if no such date and time is fixed by the board the meeting for any calendar year shall be held on the fourth Wednesday in April in such year, at 2 o'clock P.M., and at said meeting the shareholders then entitled to vote shall elect directors and shall transact such other business as may properly be brought before the meeting. Section 2.03. Special Meetings. Special meetings of the shareholders of ---------------- the corporation for any purpose or purposes may be called at any time by the Chairman of the Board, if there be one, or, in the case of a vacancy in the office, the President; or by the board of directors. -1- Section 2.04. Notice of Meetings. Written notice of every meeting of ------------------ the shareholders, whether annual or special, shall be given to each shareholder of record entitled to vote at the meeting, at least five days prior to the day named for the meeting; provided, however, that at least ten days written notice prior to the day of the meeting shall be given in the case of any annual or special meeting at which there is to be considered any amendment to the Articles of Incorporation of the corporation, the sale of all or substantially all of its assets, or its merger with or consolidation into any other corporation. Such notice shall specify the place, day and hour of the meeting and, in the case of a special meeting of shareholders, the general nature of the business to be transacted. Section 2.05. Quorum, Manner of Acting, and Adjournment. ----------------------------------------- (a) Quorum. The presence in person or by proxy of shareholders entitled ------ to cast a majority of the votes which all shareholders are entitled to cast on the particular matter shall constitute a quorum for the purposes of consideration and action on the matter. Shares of the corporation owned, directly or indirectly, by it and controlled, directly or indirectly, by the board of directors, as such, shall not be counted in determining the total number of outstanding shares for quorum purposes at any given time. The shareholders present at a duly organized meeting can continue to do business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum. (b) Adjournments. Any regular or special meeting of the shareholders, ------------ including one at which directors are to be elected and one which cannot be organized because a quorum has not attended, may be adjourned for such period and to such place as the shareholders present and entitled to vote shall direct. Except as otherwise provided in the Articles of Incorporation, those shareholders entitled to vote who attend a meeting called for the election of directors that has been previously adjourned for lack of a quorum, although less than a quorum as fixed in this section, shall nevertheless constitute a quorum for the purpose of electing directors. Also, except as otherwise provided in the Articles of Incorporation, those shareholders entitled to vote who attend a meeting of shareholders that has been previously adjourned for one or more periods aggregating at least 15 days because of an absence of a quorum, although less than a quorum, shall nevertheless constitute a quorum for the purpose of acting upon any matter set forth in the notice of the meeting if the notice states that those shareholders who attend the adjourned meeting shall nevertheless constitute a quorum for the purpose of acting upon the matter. (c) Action by Shareholders. Except as otherwise provided in the ---------------------- Articles of Incorporation, a section of these Bylaws adopted by the shareholders or the Business Corporation Law, whenever any corporate action is to be taken by vote of the shareholders, it shall be authorized upon receiving the affirmative vote of a majority of -2- the votes cast by all shareholders entitled to vote thereon and, if any shareholders are entitled to vote thereon as a class, upon receiving the affirmative vote of a majority of the votes cast by the shareholders entitled to vote as a class. Section 2.06. Organization. At every meeting of the shareholders, the ------------ Chairman of the Board, or, in the case of vacancy in the office or absence of the Chairman of the Board, one of the following officers present in the order stated: the president, an executive vice president, a senior vice president, any vice president, or a chairman chosen by the shareholders entitled to cast a majority of the votes which all shareholders present in person or by proxy are entitled to cast, shall act as chairman; and the secretary or a person appointed by the chairman shall act as secretary. Section 2.07. Voting and Proxies. Except as otherwise provided by ------------------ statute or in the Articles of Incorporation, every shareholder of record shall have the right to one vote for every share standing in his name on the books of the corporation. In all elections for directors, every shareholder entitled to vote shall have the right to multiply the number of votes to which he may be entitled by the total number of directors to be elected in the same election by the holders of the class of shares of which his shares are a part, and he may cast the whole number of such votes for one candidate or he may distribute them among any two or more candidates. The candidates receiving the highest number of votes from each class or group of classes entitled to elect directors separately up to the number of directors to be elected in the same election by such class or group of classes shall be elected. Every shareholder entitled to vote at a meeting of shareholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy. Every proxy shall be executed in writing by the shareholder or by his duly authorized attorney in fact and filed with the secretary of the corporation. A proxy, unless coupled with an interest, shall be revocable at will, notwithstanding any other agreement or any provision in the proxy to the contrary, but the revocation of a proxy shall not be effective until notice thereof has been given to the secretary of the corporation. No unrevoked proxy shall be valid after eleven months from the date of its execution, unless a longer time is expressly provided therein, but in no event shall any proxy, unless coupled with an interest, be voted on after three years from the date of its execution. A proxy shall not be revoked by the death or incapacity of the maker unless, before the vote is counted or the authority is exercised, written notice of such death or incapacity is given to the secretary of the corporation. A proxy coupled with an interest shall include an unrevoked proxy in favor of a creditor of a shareholder and such a proxy shall be valid as long as the debt owed by him to the creditor remains unpaid. Section 2.08. Voting Lists. The officer or agent of the corporation ------------ having charge of the transfer books for shares of the corporation shall make a complete list of the shareholders entitled to vote at any meeting of shareholders, arranged in -3- alphabetical order, with the address of and the number of shares held by each. The list shall be produced and kept open at the time and place of the meeting, and shall be subject to the inspection of any shareholder during the whole time of the meeting for the purposes thereof. In lieu of the making of such list, the corporation may make the information therein available at the meeting by any other means. The original share register or transfer book or a duplicate thereof, kept in Pennsylvania, shall be prima facie evidence as to who are the shareholders entitled to examine such list or share register or transfer book, or to vote, in person or by proxy, at any meeting of shareholders. Section 2.09. Judges of Election. In advance of any meeting of ------------------ shareholders, the board of directors may appoint one or three judges of election, who need not be shareholders. If judges of election be not so appointed, the chairman of the meeting may, and on the request of any shareholder or his proxy shall, appoint judges of election at the meeting. The judges of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effect of proxies, receive votes or ballots, hear and determine all challenges and questions in any way arising in connection with nominations by shareholders or the right to vote, count and tabulate all votes, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. If there are three judges of election, the decision, act or certificate of a majority shall be effective in all respects as the decision, act or certificate of all. On request of the chairman of the meeting or of any shareholder, the judges shall make a report in writing of any challenge or question or matter determined by them, and execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts stated therein. Section 2.10. Determination of Shareholders of Record. The board of --------------------------------------- directors may fix a date as a record date for the determination of the shareholders entitled to notice of, or to vote at, any meeting of shareholders, which date, except in the case of an adjourned meeting, shall be not more than 90 days prior to the date of the meeting. Only shareholders of record on the date so fixed, and no others, shall be entitled to notice of, or to vote at, such meeting, notwithstanding any transfer of any shares on the books of the corporation after any such record date so fixed. When a determination of shareholders of record has been made for purposes of a meeting, the determination shall apply to any adjournment thereof unless the board of directors fixes a new record date for the adjourned meeting. The board of directors may similarly fix a record date for the determination of shareholders of record for any other purpose. If a record date is not fixed by the board of directors, the record date shall be as determined in the Business Corporation Law. ARTICLE III -4- Board of Directors Section 3.01. Authority, Number and Qualifications. The business and ------------------------------------ affairs of the corporation shall be managed under the direction of a board of directors. The board of directors shall consist of not less than six and not more than twenty directors, as shall be fixed from time to time by resolution of the board of directors. All directors of the corporation shall be natural persons of full age, but need not be residents of Pennsylvania. They shall be shareholders in the corporation. A director may also be an officer or employee of the corporation. Section 3.01.1 - Term of Office. Each director shall hold office until -------------- the expiration of the term for which he or she was selected and until a successor shall have been elected and qualified or until his or her earlier death, resignation or removal Section 3.02. Organization. At every meeting of the Board of ------------ Directors, the Chairman of the Board, if there be one, or, in the case of a vacancy in the office or absence of the Chairman of the Board, one of the following present in the order stated: the president, an executive vice president (in order of seniority in that position), or a chairman chosen by a majority of the directors present, shall preside, and the secretary, or, in his absence, any person appointed by the chairman of the meeting, shall act as secretary. Section 3.03. Resignations. Any director of the corporation may ------------ resign at any time by giving written notice to the Chairman of the Board, if there be one, or the President, or the secretary of the corporation. Such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 3.04. Vacancies. The board of directors may declare vacant --------- the office of a director if he be declared of unsound mind by an order of court, or convicted of felony, or for any other proper cause. Except as otherwise provided in the Articles of Incorporation, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the board of directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled solely by the majority vote of the directors then in office, although less than a quorum. Each director so chosen shall hold office until the next election of the class for which such director has been chosen, and until his or her successor has been selected and qualified or until his or her earlier death, resignation or removal. If one or more directors shall resign from the board effective as of a future date, the directors then in office, including those who have so resigned, shall have -5- power by the applicable vote to fill the vacancies, the vote thereon to take effect when the resignations become effective. Section 3.05. Removal by Shareholders. Any director may be removed from ----------------------- office by vote of shareholders only upon the affirmative vote of the shareholders entitled to cast at least two-thirds of the votes which all shareholders would be entitled to cast at any annual election of directors and upon any additional vote of shareholders that may be required by law. No director elected by holders of the 4-1/2% Preferred Stock and the Series Preferred Stock of the Corporation or by the holders of the Preference Stock of the Corporation pursuant to the provisions of Article VI of the Articles of Incorporation may be removed pursuant to this Section 3.05. Section 3.06. Place of Meeting. The board of directors may hold its ---------------- meetings at such place or places within Pennsylvania, or elsewhere, as the board of directors may from time to time appoint, or as may be designated in the notice calling the meeting. Section 3.07. Organization Meeting. Immediately after each annual -------------------- election of directors or other meeting at which the entire board of directors is elected, the newly elected board of directors shall meet for the purpose of organization, election of officers, and the transaction of other business, at the place where said election of directors was held. Notice of such meeting need not be given. Such organization meeting may be held at any other time or place which shall be specified in a notice given as hereinafter provided for special meetings of the board of directors. Section 3.08. Regular Meetings. Regular meetings of the board of ---------------- directors shall be held at such time as shall be designated from time to time by the board of directors. At such meetings, the directors shall transact such business as may properly be brought before the meeting. Notice need not be given of regular meetings held at the registered office of the corporation. If held elsewhere, the notice requirements of Section 3.06 shall apply. Section 3.09. Special Meetings. Special meetings of the board of ---------------- directors shall be held whenever called by two or more of the directors or by the Chairman of the Board, if there be one, or, in the case of vacancy in the office or absence of the Chairman of the Board, the president. Notice of every special meeting of the board of directors shall be given to each director by telephone or in writing at least 24 hours (in the case of notice by telephone, telex, TWX or facsimile transmission) or 48 hours (in the case of notice by telegraph, courier service or express mail) or five days (in the case of notice by United States mail) before the time at which the meeting is to be held. Every such notice shall state the time and place of the meeting. Neither the business to be transacted at nor the purpose of any special meeting need be specified in a notice of the meeting. -6- Section 3.10. Quorum, Manner of Acting, and Adjournment. A majority of ----------------------------------------- the directors in office shall be present at each meeting in order to constitute a quorum for the transaction of business. Except as otherwise provided in the Articles of Incorporation or by statute, the acts of a majority of the directors present at a meeting at which a quorum is present shall be the acts of the board of directors. In the absence of a quorum, a majority of the directors present may adjourn the meeting from time to time until a quorum be present, provided that the notice, if any, required by Sections 3.08 or 3.09 of this Article has been given. The directors shall act only as a board and the individual directors shall have no power as such, provided, however, that any action which may be taken at a meeting of the board may be taken without a meeting if a consent or consents in writing setting forth the action so taken shall be signed by all of the directors and shall be filed with the secretary of the corporation. Section 3.11. Executive and Other Committees. The board of directors ------------------------------ may, by resolution adopted by a majority of the directors in office, establish an Executive Committee and one or more other committees. Any committee, to the extent provided in such resolution, shall have and may exercise all of the powers and authority of the board of directors, except that no committee shall have any power or authority as to the following: (1) The submission to shareholders of any action requiring approval of shareholders under the Business Corporation Law. (2) The creation or filling of vacancies in the board of directors. (3) The adoption, amendment or repeal of these Bylaws. (4) The amendment or repeal of any resolution of the board of directors that by its terms is amendable or repealable only by the board. (5) Action on matters committed by a resolution of the board of directors to another committee of the board. A majority of the directors in office designated to a committee shall be present at each meeting in order to constitute a quorum for the transaction of business. The acts of a majority of the committee members present at a meeting at which a quorum is present shall be the acts of the committee. Any action which may be taken at a meeting of a committee may be taken without a meeting if a consent or consents in writing setting forth the action so taken shall be signed by all of the committee members and shall be filed with the secretary of the corporation. Each committee shall keep records of its proceedings. Section 3.12. Compensation. The board of directors shall have the ------------ authority to fix the compensation of directors for their services as directors. A director may be a -7- salaried officer of the corporation, but no employee shall receive a salary for serving as a director. Section 3.13. Nominations for Election of Directors and Proposed -------------------------------------------------- Business to be Transacted. - ------------------------- (a) Director Nominations. Except as otherwise provided in or fixed by --------------------- or pursuant to the provisions of Article VI of the articles of incorporation, nominations for the election of directors may be made by the board of directors or a committee appointed by the board of directors or by any shareholder entitled to vote in the election of directors generally. However, any shareholder entitled to vote in the election of directors generally may nominate one or more persons for election as directors at a meeting only if written notice (meeting the requirements hereinafter set forth) of such shareholder's intent to make such nomination or nominations has been given by the shareholder and received by the secretary of the corporation in the manner and within the time specified by this Subsection. The notice shall be delivered to the secretary of the corporation not later than (i) with respect to an election to be held at an annual meeting of shareholders, 75 days in advance of the date of such meeting; provided, however, that in the event that less than 85 days' -------- ------- notice or prior public disclosure of the date of the annual meeting is given, notice from the shareholders to be timely must be received not later than the tenth day following the date on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever first occurs, and (ii) with respect to an election to be held at a special meeting of shareholders for the election of directors, the close of business on the earlier of (A) the seventh day following the date on which notice of such meeting is first given to shareholders or (B) the fourth day prior to the meeting. In lieu of delivery to the secretary, the notice may be mailed to the secretary by certified mail, return receipt requested, but shall be deemed to have been given only upon actual receipt by the secretary. Each such notice shall set forth: (a) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the shareholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (d) such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had proxies been solicited with respect to such nominee by the management or board of directors of the corporation; and (e) the consent of each nominee to serve as a director of the corporation if so elected. If a judge or judges of election shall not have been appointed pursuant to these bylaws, the presiding officer of the meeting may, if the facts warrant, determine and declare to the meeting that any nomination made at the meeting was not made in accordance with the procedures of this Subsection and, in such event, the nomination shall be disregarded. -8- Any decision by the presiding officer of the meeting made in good faith shall be conclusive and binding upon all shareholders of the corporation for any purpose. (b) Proposed Business to be Transacted. Except as otherwise provided in ---------------------------------- Section 3.13(a) of these bylaws, at any annual meeting or special meeting of shareholders, only such business as is properly brought before the meeting in accordance with this Subsection may be transacted. To be properly brought before any meeting, any proposed business that is to be brought pursuant to this Subsection must be either (i) specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the board of directors, (ii) otherwise properly brought before the meeting by or at the direction of the board of directors, or (iii) in the case of an annual meeting of shareholders, otherwise properly brought before the meeting by a shareholder (x) who is a shareholder of record on the date of giving notice provided for in these bylaws and on the record date for the determination of shareholders entitled to vote at such annual meeting, and (y) who complies with the notice provisions set forth in this Subsection. For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a shareholder's notice must be delivered to the secretary of the corporation not later than 75 days in advance of the date of such meeting; provided, however, that in the -------- ------- event that less than 85 days' notice or prior public disclosure of the date of the annual meeting is given, notice from the shareholders to be timely must be received not later than the tenth day following the date on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever first occurs. In lieu of delivery to the secretary, the notice may be mailed to the secretary by certified mail, return receipt requested, but shall be deemed to have been given only upon actual receipt by the secretary. A shareholder's notice to the secretary of the corporation, as required by this Subsection, shall set forth as to each matter the shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the shareholder proposing such business, (iii) the class, series and number of shares of the corporation's stock which are beneficially owned by the shareholder, (iv) a description of all arrangements or understandings between such shareholder and any other person or persons (including their names) in connection with the proposal of such business by such shareholder in such business, (v) all other information which would be required to be included in a proxy statement or other filing required to be filed with the Securities and Exchange Commission if, with respect to any such item of business, such shareholder were a participant in a solicitation subject to Regulation 14A under the Securities Exchange Act of 1934, as amended, and (vi) a representation that such shareholder intends to appear in person or by proxy at the annual meeting of shareholders to bring such business before the meeting. Except as provided in Section 3.13(a) of these bylaws, notwithstanding anything in the bylaws to the contrary, no business shall be conducted at any meeting of shareholders except in accordance with the procedures set forth in this Subsection, provided, however, that nothing in this -------- ------- Subsection shall be deemed to preclude discussion by any shareholders -9- of any business properly brought before any such meeting. The presiding officer of a meeting may, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Subsection, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Any decision by the presiding officer of the meeting made in good faith shall be conclusive and binding upon all shareholders of the corporation for any purpose. ARTICLE IV Notice - Waivers - Meetings Section 4.01. Manner of Giving Notice. ----------------------- (a) General Rule. Whenever written notice is required to be given to ------------ any person under the provisions of the Articles of Incorporation, these Bylaws, or the Business Corporation Law, it may be given to the person, either personally or by sending a copy thereof by first-class or express mail, postage prepaid, or by telegram (with messenger service specified), telex or TWX (with answerback received) or courier service, charges prepaid, or by facsimile transmission, to the address (or to the telex, TWX or facsimile transmission telephone number) of the person appearing on the books of the corporation or, in the case of directors, supplied by the director to the corporation for the purpose of notice. Notice of any regular or special meeting of the shareholders (or any other notice required by the Articles of Incorporation, these Bylaws, or the Business Corporation Law to be given to all shareholders or to all holders of a class or series of shares) may be given by any class of mail, postage prepaid, if the notice is deposited in the United States mail at least 20 days prior to the day named for the meeting or any corporate or shareholder action specified in the notice. If the notice is sent by mail, telegraph or courier service, it shall be deemed to have been given to the person entitled thereto when deposited in the United States mail or with a telegraph office or courier service for delivery to that person or, in the case of telex or TWX, when dispatched or, in the case of facsimile transmission, when received. A notice of meeting shall specify the place, day and hour of the meeting and any other information required by any other provision of the Articles of Incorporation, these Bylaws, or the Business Corporation Law. (b) Adjourned Shareholder Meetings. When a meeting of shareholders is ------------------------------ adjourned, it shall not be necessary to give any notice of the adjourned meeting or of the business to be transacted at an adjourned meeting, other than by announcement at the meeting at which the adjournment is taken, unless the board fixes a new record -10- date for the adjourned meeting or the Business Corporation Law requires notice of the business to be transacted and such notice has not previously been given. Section 4.02. Waivers of Notice. Whenever any written notice is ----------------- required to be given under the provisions of the Articles of Incorporation, these bylaws, or the Business Corporation Law, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Except in the case of a special meeting of shareholders, neither the business to be transacted at, nor the purpose of, the meeting need be specified in the waiver of notice of such meeting. Attendance of a person, either in person or by proxy, at any meeting, shall constitute a waiver of notice of such meeting, except where a person attends a meeting for the express purpose of objecting to the transaction of any business because the meeting was not lawfully called or convened. Section 4.03. Conference Telephone Meetings. One or more directors may ----------------------------- participate in a meeting of the board, or of a committee of the board, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at such meeting. ARTICLE V Officers Section 5.01. Number, Qualifications and Designation. The officers of -------------------------------------- the corporation shall be a president, a secretary, a treasurer, one or more vice presidents (including executive vice presidents and senior vice presidents) and such other officers as the business of the corporation may require, including one or more assistant officers. In addition, the board of directors may elect from among its number a Chairman of the Board who, if so elected, may be chief executive officer of the corporation. One person may hold more than one office. Officers may but need not be directors or shareholders of the corporation. Section 5.02. Election and Term of Office. The officers of the --------------------------- corporation shall be elected by the board of directors, and each such officer shall hold his office until the next annual organization meeting of the directors (which is held immediately following the annual meeting of shareholders), or until his death, resignation, or removal. Section 5.03. Resignations. Any officer may resign at any time by ------------ giving written notice to the board of directors, or to the Chairman of the Board, if there be one, -11- or the President, or the secretary of the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5.04. Removal. Any officer may be removed, either for or ------- without cause, by the board of directors whenever in the judgment of the board of directors the best interests of the corporation will be served thereby. Section 5.05. Vacancies. A vacancy in any office because of death, --------- resignation, removal, disqualification, or any other cause, may be filled by the board of directors. Section 5.06. General Powers. All officers of the corporation as -------------- between themselves and the corporation, shall, respectively have such authority and perform such duties in the management of the property and affairs of the corporation as may be determined by resolution of the board of directors. Section 5.07. Compensation. The salaries or other compensation of the ------------ officers elected by the board of directors shall be fixed from time to time by the board of directors or in such manner as the board of directors shall from time to time provide. Section 5.08. Standard of Care. In lieu of the standards of conduct ---------------- otherwise provided by law, officers of the corporation shall be subject to the same standards of conduct, including standards of care and loyalty and rights of justifiable reliance, as shall at the time be applicable to directors of the corporation. ARTICLE VI Certificates of Stock, Transfer, Etc. Section 6.01. Issuance. The share certificates of the corporation shall -------- be numbered and registered in the share register and transfer books of the corporation as they are issued. They shall be signed, by facsimile or otherwise, by the Chairman of the Board, if there be one, or the president or a vice president and by the secretary or an assistant secretary or the treasurer or an assistant treasurer, and shall bear the corporate seal, which may be a facsimile, engraved or printed. In case any officer, transfer agent or registrar who has signed or authenticated, or whose facsimile signature or authentication has been placed upon any share certificate shall have ceased to be such officer, transfer agent or registrar because of death, resignation or otherwise, before the certificate is issued, the certificate may be issued with the same effect as if the officer, transfer agent or registrar had not ceased to be such at the date of its issue. -12- Section 6.02. Transfer. Transfers of shares shall be made on the books -------- of the corporation upon surrender of the certificates therefor, endorsed by the person named in the certificate or by an attorney lawfully constituted in writing. Section 6.03. Share Certificates. Certificates for shares of the ------------------ corporation shall be in such form as provided by statute and approved by the board of directors. Section 6.04. Lost, Stolen, Mutilated or Destroyed Certificates. In the ------------------------------------------------- event of loss, theft, mutilation or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the board of directors may have established concerning proof of such loss, theft, mutilation or destruction and concerning the giving, if required by such regulations, of a satisfactory bond or bonds of indemnity. ARTICLE VII Indemnification of Directors, Officers, Etc. Section 7.01. Personal Liability of Directors. ------------------------------- (a) To the fullest extent that the laws of the Commonwealth of Pennsylvania, as now in effect or as hereafter amended, permit elimination or limitation of the liability of directors, no director of the Company shall be personally liable for monetary damages as such for any action taken, or any failure to take any action, as a director. (b) Any amendment or repeal of this Section 7.01 which has the effect of increasing directors' liability shall operate prospectively only, and shall not affect any action taken, or any failure to act, prior to its adoption. Section 7.02. Indemnification of Directors and Officers. ----------------------------------------- (a) Right to Indemnification. Except as prohibited by law, every ------------------------ director and officer of the Company shall be entitled as of right to be indemnified by the Company against reasonable expense and any liability paid or incurred by such person in connection with any actual or threatened claim, action, suit or proceeding, civil, criminal, administrative, investigative or other, whether brought by or in the right of the Company or otherwise, in which he or she may be involved, as a party or otherwise, by reason of such person being or having been a director or officer of the Company or by reason of the fact that such person is or was serving at the request of the Company as a director, officer, employee, fiduciary or other representative of another corporation, partnership, joint venture, trust, employee benefit plan or other entity (such claim, action, suit or proceeding hereinafter being referred to as "action"). Such indemnification shall include the right to have expenses incurred by such person in connection with an action paid in -13- advance by the Company prior to final disposition of such action, subject to such conditions as may be prescribed by law. Persons who are not directors or officers of the Company may be similarly indemnified in respect of service to the Company or to another such entity at the request of the Company to the extent the Board of Directors at any time denominates such person as entitled to the benefits of this Section 7.02. As used herein, "expense" shall include fees and expenses of counsel selected by such person; and "liability" shall include amounts of judgments, excise taxes, fines and penalties, and amounts paid in settlement. (b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of ------------------------------- this Section 7.02 is not paid in full by the Company within thirty days after a written claim has been received by the Company, the claimant may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim, and, if successful in whole or in part, the claimant shall also be entitled to be paid the expense of prosecuting such claim. It shall be a defense to any such action that the conduct of the claimant was such that under Pennsylvania law the Company would be prohibited from indemnifying the claimant for the amount claimed, but the burden of proving such defense shall be on the Company. Neither the failure of the Company (including its Board of Directors, independent legal counsel and its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because the conduct of the claimant was not such that indemnification would be prohibited by law, nor an actual determination by the Company (including its Board of Directors, independent legal counsel or its shareholders) that the conduct of the claimant was such that indemnification would be prohibited by law, shall be a defense to the action or create a presumption that the conduct of the claimant was such that indemnification would be prohibited by law. (c) Insurance and Funding. The Company may purchase and maintain --------------------- insurance to protect itself and any person eligible to be indemnified hereunder against any liability or expense asserted or incurred by such person in connection with any action, whether or not the Company would have the power to indemnify such person against such liability or expense by law or under the provisions of this Section 7.02. The Company may create a trust fund, grant a security interest, cause a letter of credit to be issued or use other means (whether or not similar to the foregoing) to ensure the payment of such sums as may become necessary to effect indemnification as provided herein. (d) Non-Exclusivity; Nature and Extent of Rights. The right of -------------------------------------------- indemnification provided for herein (l) shall not be deemed exclusive of any other rights, whether now existing or hereafter created, to which those seeking indemnification hereunder may be entitled under any agreement, bylaw or charter provision, vote of shareholders or directors or otherwise, (2) shall be deemed to create contractual rights in favor of persons entitled to indemnification hereunder, (3) shall continue as to persons who have ceased to have the status pursuant to which they were entitled or were denominated as entitled to indemnification hereunder and shall inure to the benefit of -14- the heirs and legal representatives of persons entitled to indemnification hereunder and (4) shall be applicable to actions, suits or proceedings commenced after the adoption hereof, whether arising from acts or omissions occurring before or after the adoption hereof. The right of indemnification provided for herein may not be amended, modified or repealed so as to limit in any way the indemnification provided for herein with respect to any acts or omissions occurring prior to the effective date of any such amendment, modification or repeal. Section 7.03. Indemnification of Persons Not Indemnified Under ------------------------------------------------ Section 7.02. - ------------ (a) Scope. The provisions of this Section 7.03 are applicable only to ----- employees and other authorized representatives of the corporation who are not entitled to the benefits of Section 7.02 pursuant to either the terms of Section 7.02 or a resolution of the Board of Directors of this corporation. (b) Employees; Third Party Actions. The corporation shall indemnify any ------------------------------ employee of the corporation who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was an authorized representative of the corporation (which, for the purposes of this Section 7.03, shall mean an employee or agent of the corporation, or a person who is or was serving at the request of the corporation as a director, officer, employee, fiduciary or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which that person reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. (c) Employees; Derivative Actions. The corporation shall indemnify any ----------------------------- employee of the corporation who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was an authorized representative of the corporation, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a -15- manner such person reasonably believed to be in, or not opposed to, the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the corporation unless and only to the extent that the court of common pleas of the county in which the registered office of the corporation is located or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court of common pleas or such other court shall deem proper. (d) Other Authorized Representatives. To the extent that an authorized -------------------------------- representative of the corporation who is not an employee of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (b) and (c) of this Section 7.03 or in defense of any claim, issue or matter therein, such person shall be indemnified by the corporation against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. Such an authorized representative may, at the discretion of the corporation, be indemnified by the corporation in any other circumstances and to any extent if the corporation would be required by subsections (b) and (c) of this Section 7.03 to indemnify such person in such circumstances and to such extent if such person were or had been an employee of the corporation. (e) Procedure for Effecting Indemnification. Indemnification under --------------------------------------- subsections (b), (c) or (d) of this Section 7.03 shall be made when ordered by a court (in which case the expenses, including attorneys' fees, of the authorized representative in enforcing such right of indemnification shall be added to and be included in the final judgment against the corporation) or shall be made upon a determination that indemnification of the authorized representative is required or proper in the circumstances because such person has met the applicable standard of conduct set forth in subsections (b) and (c) of this Section 7.03. Such determination shall be made: (1) By the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) If such a quorum is not obtainable, or, even if obtainable, a majority vote of a quorum of disinterested directors so direct, by independent legal counsel in a written opinion, or (3) By the shareholders. (f) Advancing Expenses. Expenses (including attorneys' fees) incurred ------------------ in defending a civil or criminal action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding, upon receipt of an undertaking by or on behalf of an employee to repay such amount unless it shall -16- ultimately be determined that such person is entitled to be indemnified by the corporation as required in this Section 7.03 or as authorized by law and may be paid by the corporation in advance on behalf of any other authorized representative when authorized by the board of directors upon receipt of a similar undertaking. (g) Non-Exclusivity; Nature and Extent of Rights. Each person who shall -------------------------------------------- act as an authorized representative of the corporation and who is not entitled to the benefits of Section 7.02, shall be deemed to be doing so in reliance upon such rights of indemnification as are provided in this Section 7.03. The indemnification provided by this Section 7.03 shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any agreement, vote of shareholders or disinterested directors, statute or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office or position, and shall continue as to a person who has ceased to be an authorized representative of the corporation and shall inure to the benefit of the heirs, executors and administrators of such a person. ARTICLE VIII Amendments Section 8.01. Amendment of Bylaws. The directors may make, amend, alter ------------------- or repeal these bylaws by a vote of the majority of the members of the board of directors at any regular or special meeting duly convened after notice of that purpose; subject, however, to the power of the shareholders to make, amend, and repeal these bylaws at any annual or special meeting duly convened after notice of that purpose. -17- EX-4.(A) 4 0004.txt PPL EMPLOYEE STOCK OWNERSHIP PLAN 1/1/1975 PPL EMPLOYEE STOCK OWNERSHIP PLAN EFFECTIVE JANUARY 1, 1975 Amended and Restated Effective January 1, 2000 PPL EMPLOYEE STOCK OWNERSHIP PLAN EFFECTIVE January 1, 1975 TABLE OF CONTENTS -----------------
ARTICLE PAGE - ------- ---- I. PURPOSE....................................................................................... I-1 II. DEFINITIONS....................................................................................... II-1 2.1 Account.............................................................................. II-1 2.2 Additional Investment Credit......................................................... II-1 2.3 Affiliated Company or Affiliated Companies........................................... II-1 2.4 Average Contribution Percentage...................................................... II-2 2.5 Board of Directors................................................................... II-2 2.6 Code................................................................................. II-2 2.7 Compensation......................................................................... II-2 2.8 Contribution Percentage.............................................................. II-3 2.9 Credited Service..................................................................... II-3 2.10 Deferred Savings Plan................................................................ II-3 2.11 Dividend-based Contribution.......................................................... II-4 2.12 Effective Date....................................................................... II-4 2.13 Eligible Employee.................................................................... II-4 2.14 Employee............................................................................. II-4 2.15 Employee Benefit Plan Board.......................................................... II-4 2.16 Employee Savings Plan................................................................ II-5 2.17 ERISA................................................................................ II-5 2.18 Fund................................................................................. II-5 2.19 Highly Compensated Eligible Employee................................................. II-5 2.20 Hour of Service...................................................................... II-6 2.21 Limitation Year...................................................................... II-6 2.22 Matching Contributions............................................................... II-7 2.23 Market Value......................................................................... II-7 2.24 Officer.............................................................................. II-7 2.25 Participant.......................................................................... II-7 2.26 Participating Company................................................................ II-8
i 2.27 PAYSOP Contributions................................................................. II-8 2.28 Plan................................................................................. II-8 2.29 Plan Year............................................................................ II-8 2.31 PPL.................................................................................. II-8 2.30 PPL Corporation...................................................................... II-8 2.32 Qualified Military Service........................................................... II-8 2.33 Retirement Plan...................................................................... II-8 2.34 Returning Veteran.................................................................... II-9 2.35 Spouse............................................................................... II-9 2.36 Stock................................................................................ II-9 2.37 Total Disability..................................................................... II-9 2.38 TRASOP Contributions................................................................. II-9 2.39 Trust or Trust Agreement............................................................. II-9 2.40 Trustee.............................................................................. II-9 2.41 Uniformed Services................................................................... II-9 2.42 Valuation Date....................................................................... II-9 III. ELIGIBILITY..................................................................................... II-1 3.1 Eligibility.......................................................................... II-1 3.2 Participation........................................................................ II-1 3.3 Reemployment after Break of Service.................................................. II-2 3.4 Officers, Directors, and Shareholders................................................ II-2 3.5 Rights Affected...................................................................... II-2 3.6 Data................................................................................. II-2 IV. CONTRIBUTIONS TO THE FUND....................................................................... IV-1 4.1 TRASOP Contributions................................................................. IV-1 4.2 Matching Contributions............................................................... IV-2 4.3 PAYSOP Contributions................................................................. IV-4 4.4 Dividend-based Contribution.......................................................... IV-4 4.5 Investment in Stock.................................................................. IV-4 4.6 Limitation on Matching Contributions and TRASOP Contributions............................................................. IV-5 4.7 Prevention of Violation of Limitation on Matching Contributions and TRASOP Contributions........................................................................ IV-6 4.8 Suspension of Matching Contributions................................................. IV-8 V. ALLOCATION...................................................................................... V-1 5.1 Accounts............................................................................. V-1 5.2 Allocation of Contributions.......................................................... V-1
ii 5.3 Allocation of Earnings............................................................ V-3 5.4 Special Allocation Rule........................................................... V-3 5.5 Maximum Allocation ............................................................... V-4 VI. PARTICIPANTS' ACCOUNTS....................................................................... VI-1 6.1 Accounts ......................................................................... VI-1 6.2 Valuation......................................................................... VI-1 6.3 Accounting for Allocations........................................................ VI-1 VII. DISTRIBUTION................................................................................. VII-1 7.1 General........................................................................... VII-1 7.2 Death............................................................................. VII-1 7.3 Beneficiary Designation........................................................... VII-1 7.4 Disability ....................................................................... VII-2 7.5 Termination of Employment......................................................... VII-3 7.6 Valuation for Distribution........................................................ VII-3 7.7 Timing of Distribution............................................................ VII-3 7.8 Mode of Distribution.............................................................. VII-5 7.9 Withdrawals....................................................................... VII-5 7.10 Optional Direct Transfer of Eligible Rollover Distributions ...................... VII-7 VIII. ADMINISTRATION............................................................................... VIII-1 8.1 Administration by Employee Benefit Plan Board..................................... VIII-1 8.2 Duties and Powers of Employee Benefit Plan Board ................................. VIII-2 8.3 Reliance on Reports and Certificates.............................................. VIII-4 8.4 Functions......................................................................... VIII-4 8.5 Indemnification of the Employee Benefit Plan Board................................ VIII-4 8.6 Allocation of Fiduciary Responsibilities.......................................... VIII-5
iii IX. THE FUND........................................................................................ IX-1 9.1 Designation of Trustee .............................................................. IX-1 9.2 Exclusive Benefit.................................................................... IX-1 9.3 No Interest in Fund.................................................................. IX-1 9.4 Trustee.............................................................................. IX-1 9.5 Expenses............................................................................. IX-1 X. AMENDMENT OR TERMINATION OF THE PLAN............................................................ X-1 10.1 Amendment............................................................................ X-1 10.2 Termination.......................................................................... X-1 10.3 Special Rule......................................................................... X-2 10.4 Merger............................................................................... X-2 XI. TOP HEAVY PROVISIONS............................................................................ XI-1 11.1 General.............................................................................. XI-1 11.2 Definitions.......................................................................... XI-1 (a) "Aggregation Group"......................................................... XI-1 (b) "Determination Date"........................................................ XI-1 (c) "Key Employee".............................................................. XI-2 (d) "Key Employee Ratio"........................................................ XI-3 (e) "Non-Key Employee".......................................................... XI-4 (f) "Super Top Heavy Plan"...................................................... XI-4 (g) "Top Heavy Plan"............................................................ XI-5 11.3 Minimum Contributions for Non-Key Employees ....................................... XI-5 11.4 Social Security .................................................................... XI-6 11.5 Adjustment to Maximum Allocation Limitation .......................................................................... XI-6
iv XII. GENERAL PROVISIONS............................................................................ XII-1 12.1 No Employment Rights .............................................................. XII-1 12.2 Source of Benefits ................................................................ XII-1 12.3 Governing Law .................................................................... XII-1 12.4 Spendthrift Clause ................................................................ XII-1 12.5 Incapacity ........................................................................ XII-2 12.6 Gender and Number ................................................................ XII-3 12.7 Voting or Tendering Shares ........................................................ XII-3 12.8 Use of Loan Proceeds............................................................... XII-6 12.9 Put Option ........................................................................ XII-6 12.10 Compliance with Rule 16b-3......................................................... XII-8 XIII. TREATMENT OF RETURNING VETERANS 13.1 Applicability and Effective Date................................................... XIII-1 13.2 Eligibility to Participate......................................................... XIII-1 13.3 Restoration of TRASOP, PAYSOP, and Dividend-based Contributions.................... XIII-1 13.4 Restoration of Matching Contributions.............................................. XIII-2 13.5 Determination of Compensation...................................................... XIII-2 13.6 Application of Certain Limitations................................................. XIII-3 13.7 Administrative Rules and Procedures................................................ XIII-3 Schedule A ................................................................................... A-1
v WHEREAS, PPL Electric Utilities Corporation ("PPL") adopted the PPL Employee Stock Ownership Plan, effective January 1, 1975, for certain of its employees; and WHEREAS, PPL desires to amend and restate the PPL Employee Stock Ownership Plan; NOW, THEREFORE, effective January 1, 2000, except as may be provided to the contrary herein, the PPL Employee Stock Ownership Plan is continued, amended and restated as hereinafter set forth: ARTICLE I PURPOSE ------- 1.1 The purpose of this Plan is to provide Employees some ownership of stock ofPPL Corporation, without requiring any reduction in pay or other employee benefits, or the surrender of any other rights on the part of Employees, and to invest primarily in the stock of PPL Corporation. I-1 ARTICLE II DEFINITIONS ----------- 2.1 "Account" shall mean the separate record maintained at the direction of the Employee Benefit Plan Board which represents the individual interest of a Participant in the Fund. 2.2 "Additional Investment Credit" shall mean that portion of the investment tax credit provided for under the Code which is allowable as a tax credit by reason of the fact that PPL will make a contribution to the Plan equal in amount thereto and shall include (a) the one percent (1%) additional investment tax credit which is allowable without regard to Matching Contributions by Participants and (b) the one-half percent (0.5%) additional investment tax credit which is allowable if Matching Contributions are made by Participants. 2.3 "Affiliated Company" or "Affiliated Companies" shall mean with respect to any Participating Company, (a) any corporation that is a member of a controlled group of corporations, as determined under section 414(b) of the Code, which includes such Participating Company; (b) any member of an affiliated service group, as determined under section 414(m) of the Code, of which such Participating Company is a member; (c) any trade or business (whether or not incorporated) that is under common control with such Participating Company, as determined under section 414(c) of the Code; and (d) any other organization or entity which is required to be aggregated with the Participating Company under section 414(o) of the Code and regulations issued thereunder. "50% Affiliated Company" means an Affiliated Company, but determined with "more than II-1 50%" substituted for the phrase "at least 80%" in section 1563(a) of the Code, when applying sections 414(b) and (c) of the Code. 2.4 "Average Contribution Percentage" shall mean for a specified group of Eligible Employees for a Plan Year the average of the Contribution Percentages for such Eligible Employees for the Plan Year. 2.5 "Board of Directors" shall mean the Board of Directors of PPL or the Executive Committee of the Board of Directors with respect to any powers which have been assigned thereto by the Board of Directors. Effective upon the closing of the PPL Corporation corporate realignment pursuant to which PPL will separate its electric generation and energy marketing operations from its regulated electric transmission and distribution business, "Board of Directors" shall mean the Board of Directors of PPL Services Corporation. 2.6 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time or any predecessor or successor thereto. 2.7 "Compensation" shall have the meaning set forth in Schedule A, for Participants in the Participating Company listed therein. 2.8 "Contribution Percentage" shall mean the ratio of (a) the sum of an Eligible Employee's Matching Contributions and TRASOP Contributions under section 4.1(b) for the Plan Year, plus such other amounts required or (at the election of the Employee Benefit Plan Board) permitted to be taken into account in accordance with section 401(m) of the Code and governmental regulations thereunder, including in the case of a Highly Compensated Eligible Employee, (1) any employee contributions and employer matching II-2 contributions for the year under any other qualified retirement plan maintained by PPL or any Affiliated Company, and (2) at the election of the Employee Benefit Plan Board, any portion of the Eligible Employee's elective deferrals for the year under any other qualified retirement plan maintained by PPL or any Affiliated Company that may be disregarded without causing such plan to fail to satisfy the requirements of section 401(k)(3) of the Code, as adjusted in accordance with governmental regulations for purposes of Section 4.6(b), to (b) the Eligible Employee's compensation (as defined in section 414(s) of the Code, but subject to the limitation of section 401(a)(17) of the Code) for the Plan Year. 2.9 "Credited Service" shall mean that portion of an Employee's employment with PPL and all Affiliated Companies which is used to calculate the Employee's eligibility for participation and vesting status hereunder. 2.10 "Deferred Savings Plan" shall mean the PPL Electric Deferred Savings Plan. 2.11 "Dividend-based Contribution" shall mean the contribution made by a Participating Company or PPL Corporation in accordance with Section 4.4. 2.12 "Effective Date" shall mean January 1, 2000, the effective date of this amended and restated Plan, except as provided to the contrary herein. The Plan was effective originally on January 1, 1975. 2.13 "Eligible Employee" shall mean an Employee who has satisfied the eligibility requirements of Section 3.1. 2.14 "Employee" shall mean any person classified by a Participating Company as an employee of such Participating Company, including officers, shareholders, or directors II-3 who are employees, but excluding: (a) persons covered by a collective bargaining agreement unless such agreement specifically provides for participation under the Retirement Plan; (b) persons classified by the Participating Company as independent contractors, regardless of whether they are subsequently determined to be employees for employment tax or any other purpose. In no event shall the term "Employee" include persons classified by a Participating Company as independent contractors, regardless of whether they are subsequently determined to be employees for employment tax or any other reason, or persons classified by a Participating Company as leased employees, whether or not described in section 414(n) of the Code. For purposes of the preceding sentence, an "independent contractor" shall be an individual who is classified by the Participating Company in accordance with objective business criteria as an independent contractor in a good faith determination consistent with the factors set forth in Revenue Ruling 87-41 or any successor thereto, provided that the Participating Company has communicated to the individual that he has been engaged as an independent contractor rather than as an Employee. The foregoing exclusion is intended solely to prevent the retroactive participation by individuals classified in good faith as independent contractors in the event that such status should be determined, for employment tax or any other purposes, to be incorrect; (c) persons classified by the Participating Company as leased employees, whether or not as described in section 414(n) of the Code; (d) persons classified by the Participating Company as cooperative associates or II-4 college interns, as those terms are defined under Participating Company policy. 2.15 "Employee Benefit Plan Board" shall mean the Board described in Article VIII. 2.16 "Employee Savings Plan" shall mean the PPL Employee Savings Plan (prior to February 14, 2000, the PP&L Employee Savings Plan). 2.17 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time. 2.18 "Fund" shall mean the separate fund established for this Plan, administered under the Trust Agreement, out of which benefits payable under this Plan shall be paid. 2.19 "Highly Compensated Eligible Employee" shall mean an Eligible Employee who: (a) is a five-percent owner, as defined in section 416(i) of the Code, either for the current Plan Year or the immediately preceding Plan Year; or (b) (1) received more than $80,000 (as indexed) in Compensation from PPL or an Affiliated Company in the immediately preceding Plan Year, and (2) if so elected by PPL, was among the top 20% of Employees of PPL and Affiliated Companies ranked by Compensation (excluding Employees described in section 414(q)(5) of the Code to the extent (A) permitted under the Code and regulations thereunder and (B) elected by the Employee Benefit Plan Board, for purposes of identifying the number of Employees in the top 20%). For purposes of this Section 2.19 "Compensation" shall have the meaning set forth in section 415(c)(3) of the Code, but including amounts that would be excluded from an Employee's gross income under a II-5 plan described in section 125, 401(k) or 403(b) of the Code. 2.20 "Hour of Service" shall mean an hour for which: (a) an employee is directly or indirectly paid or entitled to payment by PPL or an Affiliated Company for the performance of employment duties; (b) back pay, irrespective of mitigation of damages, is either awarded or agreed to; or (c) an employee is directly or indirectly paid or entitled to payment by PPL or an Affiliated Company on account of a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty, or leave of absence. There shall be excluded from the foregoing those periods during which payments are made or due under a plan maintained solely for the purpose of complying with applicable workers' for the compensation, unemployment compensation or disability insurance laws. No more than 501 Hours of Service shall be credited under Subsection (c) on account of any single continuous period during which no duties are performed except to the extent otherwise provided in this Plan. An Hour of Service shall not be credited where an employee is being reimbursed solely for medical or medically related expenses. An Hour of Service shall be credited in accordance with the rules set forth in U.S. Department of Labor Reg. (S)2530.200b-2(b) and (c). Hours of Service shall also be credited for any individual who is considered a leased employee for purposes of this Plan under section 414(n) of the Code. Notwithstanding the foregoing, Hours of Service shall be credited for an employee for II-6 whom no records of hours are maintained on the basis of 45 Hours of Service for each week of employment. 2.21 "Limitation Year" shall mean the Plan Year or such other twelve- consecutive-month period as may be designated by PPL. 2.22 "Matching Contributions" shall mean the contributions made by Participants in accordance with Section 4.2. 2.23 "Market Value" shall mean, with respect to the Stock the average of the closing prices of the Stock based on consolidated trading as defined by the Consolidated Tape Association and reported as part of the consolidated trading prices of New York Stock Exchange listed securities for the twenty consecutive trading days immediately preceding the date on which the Stock is contributed to the Plan. 2.24 "Officer" shall mean those persons who are defined as officers in Rule 16a-1(f) promulgated under the Securities Exchange Act of 1934. 2.25 "Participant" shall mean an Employee entitled to participate in this Plan under Article III hereof or any former Employee for whom an Account is maintained under the Plan. 2.26 "Participating Company" shall mean PPL (prior to February 14, 2000, PP&L, Inc.), PPL EnergyPlus, LLC (prior to February 14, 2000, PP&L EnergyPlus Co., LLC) and each other Affiliated Company which is authorized by the Board to adopt this Plan by action of its board of directors. 2.27 "PAYSOP Contributions" shall mean the contributions made by PPL in accordance with Section 4.3. II-7 2.28 "Plan" shall mean the PPL Employee Stock Ownership Plan (prior to February 14, 2000, the PP&L Employee Stock Ownership Plan), an employee stock ownership plan within the meaning of section 4975(e)(7) of the Code, as set forth herein and as hereafter amended from time to time. 2.29 "Plan Year" shall mean the fiscal year of PPL, which shall commence each January 1 and end on the next following December 31. 2.30 "PPL" shall mean PPL Electric Utilities Corporation and its successors. Prior to February 14, 2000, "PPL" shall mean PP&L, Inc. 2.31 "PPL Corporation" shall mean PPL Corporation and its successors. Prior to February 14, 2000, "PPL Corporation" shall mean PP&L Resources, Inc. 2.32 "Qualified Military Service" means any service (either voluntary or involuntary) by an individual in the Uniformed Services if such individual is entitled to reemployment rights with a Participating Company with respect to such service. 2.33 "Retirement Plan" shall mean the PPL Retirement Plan. 2.34 "Returning Veteran" means a former Employee who on or after December 12, 1994, returns from Qualified Military Service to employment by a Participating Company within the period of time during which his reemployment rights are protected by law. 2.35 "Spouse" shall mean the person to whom a Participant is married on any date of reference. 2.36 "Stock" shall mean the common stock of PPL Corporation. 2.37 "Total Disability" shall mean a disability of a nature which renders a II-8 Participant eligible to participate in PPL's Long Term Disability Plan. 2.38 "TRASOP Contributions" shall mean the contributions made by PPL in accordance with Sections 4.1(a) and 4.1(b). 2.39 "Trust" or "Trust Agreement" shall mean the Agreement and Declaration of Trust, if any, executed under this Plan. 2.40 "Trustee" shall mean the corporate Trustee or one or more individuals collectively appointed and acting under the Trust Agreement, if any. 2.41 "Uniformed Services" means the Armed Forces, the Army National Guard and Air National Guard (when engaged in active duty for training, inactive duty training, or full-time National Guard duty), the commissioned corps of the Public Health Service, and any other category of persons designated by the President of the United States in time of war or emergency. 2.42 "Valuation Date" shall mean the last day of each Plan Year and each interim date on which a valuation of the Fund is made. II-9 ARTICLE III ELIGIBILITY ----------- 3.1 Eligibility. (a) All persons who were participants in the Plan immediately prior to the Effective Date and who are in the employ of a Participating Company on the Effective Date shall be Participants hereunder as of such date. All Employees as of the Effective Date (but who are not eligible to participate under the preceding sentence) who have completed one year of Credited Service shall be Participants as of that date. Other Employees shall become Participants on the first day of the calendar month next following the date on which an Employee completes one year of Credited Service, or if later, on which an individual becomes an Employee. A "year of Credited Service," for the purposes of this Article, shall require completion of at least 1,000 Hours of Service during the 12 months from commencement of employment. An Employee who fails to complete 1,000 Hours of Service during his initial 12 months of employment shall complete a year of Credited Service as of the end of any Plan Year in which he completes 1,000 Hours of Service; provided, however, that the first Plan Year during which such Employee shall have the opportunity to complete such 1,000 Hours of Service shall include the anniversary of his commencement of employment. (b) An Employee may elect in writing not to become a Participant by filing such election with the Employee Benefit Plan Board. 3.2 Participation. A Participant shall share in contributions under Article V for any Plan Year during which he (a) completes at least one Hour of Service and (b) III-1 receives Compensation. A Participant shall cease to be a Participant on the date on which his entire Account is distributed to him. Notwithstanding the foregoing, for Plan Year 1990, any Participant who is totally and permanently disabled shall share in contributions under Article V. 3.3 Reemployment after Break of Service. In the event a Participant ceases to be an Employee and subsequently again becomes an Employee, he shall be readmitted as a Participant as of the date of his reemployment. 3.4 Officers, Directors, and Shareholders. Officers, directors, and shareholders of a Participating Company who are Participants shall participate in the Plan on the same basis as other Participants. 3.5 Rights Affected. Except as expressly provided to the contrary in the Plan, any former Employee who has retired or whose employment has terminated before the Effective Date shall receive no additional rights as a result of this amended and restated Plan, but shall have his rights and benefits determined solely under the Plan as it existed prior to the Effective Date. However, any former Employee who has terminated employment and who is reemployed as an Employee after the Effective Date shall have the rights and benefits provided hereunder. 3.6 Data. Each Participant shall furnish to the Employee Benefit Plan Board such data as may be considered necessary by the Employee Benefit Plan Board for the determination of his rights and benefits under the Plan. III-2 ARTICLE IV CONTRIBUTIONS TO THE FUND ------------------------- 4.1 TRASOP Contributions. (a) With respect to each Plan Year, PPL shall contribute to the Plan an amount equal to the one percent (1%) Additional Investment Credit claimed on its United States corporation income tax return for such Plan Year which is allowable without regard to whether Matching Contributions are made by Participants. (b) Commencing with the 1977 Plan Year, PPL shall also contribute, with respect to each Plan Year, an amount equal to the one-half percent (0.5%) Additional Investment Credit claimed on its United States corporation income tax return for such Plan Year which is allowable if Matching Contributions are made by Participants. (c) Contributions pursuant to this Section 4.1 shall be made within 30 days following the due date (including extensions of time) for filing PPL's United States corporation income tax return for such Plan Year; provided, however, that if the Additional Investment Credit cannot be utilized in such Plan Year and results in a carryover to future years, the contribution with respect to the Additional Investment Credit carried over may be made no later than 30 days after the due date (including extensions of time) for filing PPL's federal corporation income tax return for the Plan Year to which such Additional Investment Credit is carried over. (d) If PPL is subsequently determined to be entitled to an Additional Investment Credit for any Plan Year that is larger than that claimed, PPL shall contribute, with respect to such Plan Year, an amount equal to the increase in the Additional Investment Credit IV-1 within 30 days of the date such determination becomes final. (e) If PPL is subsequently determined to be entitled to an Additional Investment Credit that is less than that claimed, or if any Additional Investment Credit is recaptured, PPL may reduce its contributions for the Plan Year (or any succeeding Plan Year) in which such determination or recapture becomes final by the amount of the reduction in, or recapture of, the Additional Investment Credit. (f) If the aggregate total amount of Matching Contributions by Participants with respect to a Plan Year, determined no later than the close of the second Plan Year following such Plan Year, is less than the aggregate total amount of PPL's TRASOP Contributions under Section 4.1(b) with respect to such Plan Year, the excess of such TRASOP Contributions over Matching Contributions may be withdrawn from the Plan by PPL. (g) Notwithstanding the foregoing, PPL shall not be under any obligation to make any TRASOP Contributions under the Plan with respect to any Plan Year in which it is not entitled to an Additional Investment Credit equal to the amount of such TRASOP Contributions. 4.2 Matching Contributions. (a) Commencing with the 1977 Plan Year, a Participant may elect to make Matching Contributions on a prospective basis, subject to Sections 4.6, 4.7 and 4.8. Such election shall be made on a form prescribed by the Employee Benefit Plan Board and shall specifically designate that the contributions are intended to be matched by TRASOP Contributions made by PPL under Section 4.1(b). IV-2 (b) The amount that a Participant may contribute as a Matching Contribution with respect to a Plan Year shall be determined by the Employee Benefit Plan Board, subject to Sections 4.6, 4.7 and 4.8. Initially, the amount which may be contributed by each Participant shall bear the same proportion to the total amount which may be contributed under this Section 4.2 as the amount of Compensation paid to such Participant bears to the total Compensation paid to all Participants during such Plan Year. If all Participants do not elect to, or fail to, contribute the maximum amount permitted, the Employee Benefit Plan Board may permit other Participants to elect to increase their contributions proportionately. (c) Matching Contributions by Participants may be made by payroll deductions or in cash and shall be made no later than the close of the second Plan Year following the Plan Year with respect to which they are made; provided, however, if PPL is determined to be entitled to an Additional Investment Credit that is larger than that claimed, additional Matching Contributions may be made by Participants who are still Employees no later than the second Plan Year following the Plan Year in which such determination becomes final. All Matching Contributions shall be invested in Stock each month. The Employee Benefit Plan Board may prescribe such rules and regulations with respect to Matching Contributions by Participants as it deems desirable. (d) If the aggregate total amount of Matching Contributions by Participants with respect to a Plan Year, determined as of the close of the second Plan Year following such Plan Year, is greater than the aggregate total amount of PPL's TRASOP Contributions under Section 4.1(b) with respect to such Plan Year, each Participant's proportionate IV-3 share of such excess shall be returned to him. (e) Any election by an Officer to make Matching Contributions must be made not less than six months prior to the allocation of such Matching Contributions to such Officers' account and such election shall be irrevocable. 4.3 PAYSOP Contributions. (a) For each Plan Year for which a tax credit is allowed under the Code, PPL may contribute to the Fund an amount up to one-half percent (0.5%) of the Compensation of all Participants for such Plan Year. Such amount shall be paid within 30 days following the due date (including extensions of time) for filing PPL's federal corporation income tax return for such Plan Year. (b) All PAYSOP Contributions shall remain in the Plan, as allocated, even though all or a part of the employee stock ownership credit for which such contributions may qualify under section 41 of the Code is redetermined. 4.4 Dividend-based Contribution. Commencing with the 1990 Plan Year, a Participating Company or PPL Corporation may contribute to the Plan an amount determined at the sole discretion of PPL or PPL Corporation relating to the reduction in taxes arising out of the payment of dividends to participants and the contribution thereof to the Plan. The Dividend-based Contribution is in addition to contributions made pursuant to Sections 4.1, 4.2 and 4.3. All contributions by PPL, PPL Corporation or a Participating Company are expressly conditioned upon their deductibility for federal income tax purposes. 4.5 Investment in Stock. All TRASOP, PAYSOP, Dividend-based, and IV-4 Matching Contributions may be in cash or in Stock; provided, however, that (a) if a Contribution is in cash, the Trustee shall use such Contribution to purchase Stock from PPL Corporation or others on or before the last day on which the Contribution could have been made under Section 4.1(c) and (b) if a Contribution is in Stock, the number of shares contributed will be determined by the Market Value of the Stock. 4.6 Limitation on Matching Contributions and TRASOP Contributions. (a) For any Plan Year, the Average Contribution Percentage for the Highly Compensated Eligible Employees shall not exceed the greater of (1) or (2) as follows: (1) The Average Contribution Percentage for all other Eligible Employees, multiplied by one hundred twenty-five percent (125%); or (2) The Average Contribution Percentage for all other Eligible Employees, multiplied by two hundred percent (200%); provided, however, the Average Contribution Percentage for the Highly Compensated Eligible Employees may not exceed the Average Contribution Percentage for all other Eligible Employees by more than two percentage points. (b) Effective January 1, 1989, for any Plan Year in which a Participant in this Plan is also a participant in any other qualified retirement plan maintained by PPL or any Affiliated Company under which the Participant makes elective deferrals, the sum of the actual deferral percentage (as defined in section 401(k)(3)(B) of the Code and regulations thereunder) and the Average Contribution Percentage for the Highly Compensated Eligible Employees shall not exceed the sum of: (1) One hundred twenty-five percent (125%) multiplied by the greater of IV-5 the actual deferral percentage or the Average Contribution Percentage for all other Eligible Employees; plus (2) The lesser of (A) Two hundred percent (200%) multiplied by the lesser of the actual deferral percentage or the Average Contribution Percentage for all other Eligible Employees; or (B) Two (2) percentage points plus the lesser of the actual deferral percentage or the Average Contribution Percentage for all other Eligible Employees. (c) The application of this Section 4.6 shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. 4.7 Prevention of Violation of Limitation on Matching Contributions and TRASOP Contributions. The Employee Benefit Plan Board shall monitor the level of Participants' Matching Contributions and TRASOP Contributions under Section 4.1(b) and elective deferrals, employee contributions, and employer matching contributions under any other qualified retirement plan maintained by PPL or any Affiliated Company to ensure against exceeding the limitations of Section 4.6 for any Plan Year. If the Employee Benefit Plan Board determines that the limitations of Section 4.6 may be or have been exceeded, it shall take the appropriate following actions for such Plan Year: (a) The Average Contribution Percentage for the Highly Compensated Eligible Employees shall be reduced to the extent necessary to satisfy at least one of the tests in Section 4.6(a) and the test in Section 4.6(b). IV-6 (b) The reduction shall be accomplished by reducing the maximum Contribution Percentage for any Highly Compensated Eligible Employee to an adjusted maximum Contribution Percentage, which shall be the highest Contribution Percentage that would cause one of the tests in Section 4.6(a) and the test in Section 4.6(b) to be satisfied, if each Highly Compensated Eligible Employee with a higher Contribution Percentage had instead the adjusted maximum Contribution Percentage, reducing the Highly Compensated Eligible Employees' Matching Contributions, TRASOP Contributions under Section 4.1(b), and employee contributions and employer matching contributions under any other qualified retirement plan maintained by PPL or any Affiliated Company in order of priority based on the dollar amount of each Eligible Highly Compensated Employee's Matching Contributions and TRASOP Contributions, beginning with the Highly Compensated Eligible Employee(s) with the highest dollar amount of Matching Contributions and TRASOP Contributions. (c) (1) To the extent practicable, the Employee Benefit Plan Board shall prospectively limit a Highly Compensated Eligible Employee's (A) voluntary employee contributions under the Employee Savings Plan, (B) voluntary employee contributions under the Deferred Savings Plan and (C) Matching Contributions to reduce his Contribution Percentage to his adjusted maximum Contribution Percentage. (2) In addition, not later than two and one half months after the close of the Plan Year for which such contributions were made, the remaining difference between a Highly Compensated Eligible Employee's Contribution Percentage and the Highly Compensated Eligible Employee's adjusted maximum contribution Percentage, with IV-7 earnings attributable thereto, shall be paid to the Highly Compensated Eligible Employee; provided, however, that, for any Participant who is also a Participant in any other qualified retirement plan maintained by PPL or any Affiliated Company under which the Participant makes elective deferrals or employee contributions or is credited with employer matching contributions for such year, the Employee Benefit Plan Board shall coordinate corrective actions under this Plan and such other plan for the year. 4.8 Suspension of Matching Contributions. In the event that a Participant takes a withdrawal from his salary reduction account under the Deferred Savings Plan or the Employee Savings Plan prior to his attainment of age 59 1/2, the Participant shall not be permitted to make any additional Matching Contributions under this Plan for a period of twelve (12) months commencing on the date of his receipt of the withdrawal. IV-8 ARTICLE V ALLOCATION ---------- 5.1 Accounts. A separate Account shall be created for each Participant. Separate subaccounts shall also be maintained with respect to the Stock acquired with (a) TRASOP and PAYSOP Contributions, (b) Matching Contributions and (c) Dividend-based Contributions. Additional subaccounts may be established at the Employee Benefit Plan Board's discretion. 5.2 Allocation of Contributions. Contributions made for any Plan Year shall be allocated among the Participants entitled to share in the allocation of contributions pursuant to Section 3.2 in accordance with the following rules. (a) All Stock acquired through TRASOP and PAYSOP Contributions made with respect to a Plan Year under Sections 4.1(a) and 4.3(a) shall be allocated, as of the close of such Plan Year, to the Account of each Participant (who was a Participant at any time during such Plan Year). The amount of such Stock allocated to each Participant's Account shall bear the same proportion to the total amount of such Stock allocated with respect to such Plan Year as the amount of the Compensation paid to such Participant bears to the total Compensation paid to all Participants during such Plan Year. (b) Stock acquired through TRASOP Contributions made with respect to a Plan Year under Section 4.1(b) and dividends thereon, shall be allocated, as of the close of such Plan Year, to the Account of each Participant (who made Matching Contributions for such Plan Year); such allocation shall be made no later than the end of the second Plan Year following the Plan Year with respect to which such Contributions were made. The V-1 amount of such Stock allocated to a Participant's Account as provided by this Section 5.2(b) shall bear the same proportion to the total amount of such Stock allocated with respect to such Plan Year as the amount of Matching Contributions made by such Participant bears to the total Matching Contributions made by all Participants with respect to such Plan Year. (c) Stock acquired with Matching Contributions by Participants shall be allocated to the Accounts of each Participant making such contributions. (d) Subject to Section 5.2(e), Stock acquired with the Dividend-based Contribution made with respect to a Plan Year shall be allocated, as of the close of such Plan Year, as follows: (1) 75% of the Dividend-based Contribution shall be allocated to the Account of each Participant to whom or on whose behalf dividends were paid at any time during the portion of such Plan Year in which the Participant was an Employee. The amount of such Stock allocated to each Participant's Account shall bear the same proportion to the total amount of such Stock allocated with respect to such Plan Year as the amount of dividends paid to such Participant during the portion of the Plan Year in which he was an Employee bears to the total amount of dividends paid to all Participants during the portion of such Plan Year in which they were Employees; and (2) 25% of the Dividend-based Contribution shall be allocated to the Account of each Participant who was a Participant at any time during V-2 such Plan Year. The amount of such Stock allocated to each Participant's Account shall bear the same proportion to the total amount of such Stock allocated with respect to such Plan Year as the amount of the Compensation paid to such Participant bears to the total Compensation paid to all Participants during such Plan Year. (e) In the event the allocation under Section 5.2(d)(1) above for any Plan Year discriminates in favor of the Highly Compensated Eligible Employees, as determined under section 401(a)(4) of the Code and regulations thereunder, then the percentage of the Dividend-based Contribution to be allocated under Section 5.2(d)(1) shall be decreased and the percentage to be allocated under Section 5.2(d)(2) shall be correspondingly increased until the allocation under Section 5.2(d)(1) no longer discriminates in favor of the Highly Compensated Eligible Employees. 5.3 Allocation of Earnings. Any dividends or other distributions on the Stock allocated to a Participant's Account shall be paid no later than 90 days after the close of the Plan Year to the Participant in cash either by the Trustee or directly by PPL, a Participating Company or PPL Corporation. 5.4 Special Allocation Rule. (a) The TRASOP and PAYSOP Contributions shall be allocated in accordance with Section 5.2; however, no more than one-third of TRASOP and PAYSOP Contributions with respect to a Plan Year may be allocated to the group of Employees consisting of Highly Compensated Eligible Employees. V-3 (b) No Participant may receive an allocation under the Dividend-based Contribution provided for in Section 5.2(d) above which equals or exceeds 5% of such Participant's Compensation for the Plan Year for which such allocation is being made. 5.5 Maximum Allocation. The provisions of this Section shall be construed to comply with section 415 of the Code. (a) Notwithstanding anything in this Article to the contrary, in no event shall the sum of (1) any Participating Company or PPL Corporation contributions and other employer contributions, (2) any forfeitures and (3) the Participant's own contributions, if any, allocated for any Limitation Year to any Participant under this and any other defined contribution plan maintained by PPL or any 50% Affiliated Company, exceed the lesser of (A) $30,000 plus the lesser of $30,000 or the value of the Stock contributed to the Plan for such Plan Year or (B) twenty-five percent (25%) of any Participant's compensation for the Limitation Year. Amounts described in sections 415(l) and 419A(d)(2) of the Code contributed for any Plan Year for the benefit of any Participant shall be treated as annual additions to the extent provided in such Sections. (b) If the amount otherwise allocable to the accounts of a Participant would exceed the amount described in Section 5.5(a) as a result of a reasonable error in estimating the Participant's Compensation, the Employee Benefit Plan Board shall determine which portion of such excess amount is attributable to the Participant's (1) voluntary employee contributions under the Employee Savings Plan, (2) voluntary employee contributions under the Deferred Savings Plan, (3) elective deferrals under the Employee Savings Plan, (4) elective deferrals under the Deferred Savings Plan, (5) V-4 Matching Contributions under Section 4.2, (6) Company Contributions under the Deferred Savings Plan and (7) TRASOP, PAYSOP, or Dividend-based Contributions under Article IV. (c) Amounts attributable to voluntary employee contributions under the Employee Savings Plan under Section 5.5(b)(1) and earnings thereon shall be returned to the Participant. (d) Amounts attributable to voluntary employee contributions under the Deferred Savings Plan under Section 5.5(b)(2) and earnings thereon shall be returned to the Participant. (e) Amounts attributable to elective deferrals under the Employee Savings Plan under Section 5.5(b)(3) shall be treated as voluntary employee contributions and, along with earnings thereon, returned to the Participant. (f) Amounts attributable to elective deferrals under the Deferred Savings Plan under Section 5.5(b)(4) shall be treated as voluntary employee contributions and, along with earnings thereon, returned to the Participant. (g) Amounts attributable to a Participant's Matching Contributions under Section 5.5(b)(5) and earnings thereon shall be returned to the Participant. (h) Amounts attributable to Company Contributions under the Deferred Savings Plan under Section 5.5(b)(6) will be held in a suspense account until the following Plan Year at which time the amounts will be used to reduce Company Contributions for the year. (i) Amounts attributable to excess TRASOP, PAYSOP, or Dividend-based V-5 Contributions under Section 5.5(b)(7) shall be allocated to the accounts of other Participants in accordance with Section 5.2. Any excess Contributions or Stock purchased with such Contributions which cannot be allocated in a Plan Year to Participants' Accounts shall be held in a suspense account until the Plan Year in which it is first possible to allocate such Contributions or Stock to Participants' Accounts. (j) (1) If in any Limitation Year beginning before January 1, 2000, a Participant in this Plan is also a participant in one or more qualified defined benefit plans maintained by PPL or any 50% Affiliated Company, the projected annual benefit under such qualified defined benefit plan or plans shall be reduced if necessary, so that the sum of the fractions described in (A) and (B) does not exceed 1.0 for such Limitation Year: (A) Defined Benefit Fraction - a fraction, the numerator of which is the Participant's projected annual benefit under the defined benefit pension plans in which he has participated, determined as of the close of the limitation years of such plans, and the denominator of which is the lesser of: (i) 1.25 x $90,000 or (ii) 140% of the Participant's highest average compensation over any three consecutive calendar years. For purposes of this Section, "projected annual benefit" shall mean the annual benefit to which a participant would be entitled under the terms of a qualified defined benefit plan if he had continued employment until his normal retirement date under such plan and if his compensation for the purpose of such plan continued at the same rate. (B) Defined Contribution Fraction - a fraction, the numerator of which is the sum of the annual additions to the Participant's accounts under all defined contribution plans sponsored by PPL or any 50% Affiliated Company for all limitation V-6 years, and the denominator of which is the sum of the lesser of the following amounts, determined for each of such Limitation Years and for each prior limitation year of service with PPL or 50% Affiliated Company: (i) 1.25 x $30,000 or (ii) 35% of the Participant's compensation for such limitation year. (2) If the Plan and the defined benefit plan referred to in Subsection (j)(1)(A) satisfied section 415 of the Code for the Limitation Year ended December 31, 1986, an amount shall be subtracted from the numerator of the fraction described in Subsection (j)(1)(B) (not exceeding such numerator). The amount to be subtracted shall be the product of: (A) the sum of the defined contribution fraction under Subsection (j)(1)(B) plus the defined benefit fraction under Subsection (j)(1)(A) as of December 31, 1986, minus one, multiplied by (B) the denominator of the defined contribution plan fraction under Subsection (j)(1)(B) as of December 31, 1986. (k) (1) The dollar limitations described in Subsections (a) and (j) shall be adjusted in accordance with governmental regulations prescribing the method and amount of such adjustments. (2) The dollar limitations described in Subsections (a) and (j) shall not reduce the annual additions to the Accounts of any Participant under the Plan prior to the Effective Date using the applicable maximum dollar limitations then in effect. (l) (1) To the extent that any qualified defined contribution was in existence on July 1, 1982, the Employee Benefit Plan Board may elect to apply Subsection (j)(1)(B) V-7 with respect to any Plan Year ending after December 31, 1982, by calculating the denominator under Subsection (j)(1)(B) for all Plan Years ending before January 1, 1983. The alternate amount shall be equal to the amount determined for the denominator under Subsection (j)(1)(B) as in effect for the Plan Year ending in 1982, multiplied by the "transition fraction." (2) The transition fraction shall be a fraction determined as follows: (A) The numerator shall consist of the lesser of: (i) $51,875, or (ii) thirty-five percent (35%) of the Participant's compensation for the Plan Year ending in 1981. (B) The denominator shall consist of the lesser of: (i) $41,500, or (ii) twenty-five percent (25%) of the Participant's compensation for the Plan Year ending in 1981. (m) For the purpose of this Section 5.5, "compensation" shall be defined in accordance with section 415(c)(3) of the Code and regulations thereunder so that, for years beginning on or after January 1, 1998, "compensation" shall also include amounts excluded from gross income under sections 125, 402(e)(3), 402(h)(1)(B) or 403(b). ARTICLE VI PARTICIPANTS' ACCOUNTS ---------------------- 6.1 Accounts. All contributions and earnings thereon may be invested in one commingled Fund for the benefit of all Participants. However, in order that the interest of each Participant may be accurately determined and computed, a separate Account shall be maintained for each Participant which shall represent his interest in the Fund. 6.2 Valuation. The value of each investment medium in the Fund shall be computed by the Trustee as of the close of business on each Valuation Date on the basis of the fair market value of all assets of the Fund. 6.3 Accounting for Allocations. The Employee Benefit Plan Board shall provide for the establishment of accounting procedures for the purpose of making the allocations, valuations and adjustments to Participants' Accounts provided for in this Article. From time to time, such procedures may be modified for the purpose of achieving equitable and nondiscriminatory allocations among the Accounts of Participants in accordance with the general concepts of the Plan and the provisions of this Article. VI-1 ARTICLE VII DISTRIBUTION ------------ 7.1 General. The interest of each Participant in the Fund shall be distributed in the manner, in the amount and at the time provided in this Article, except that in the event of termination of the Plan the provisions of Article X shall govern. Each Participant shall have a nonforfeitable right to all Stock allocated to his Account, except as set forth in Sections 4.1(f), 4.7(c) and 5.5. The provisions of this Article shall be construed in accordance with section 401(a)(9) of the Code and regulations thereunder. 7.2 Death. If a Participant dies either while in the employment of a Participating Company or after termination of employment but prior to the commencement of benefit payments, the full amount of his interest in the Fund shall be paid to the Participant's beneficiary in a single sum. 7.3 Beneficiary Designation. (a) Death benefits under the Plan shall be paid to the surviving Spouse of a Participant, including the Spouse of a Participant who has retired or whose employment has terminated before the Effective Date, (1) unless (A) such Spouse consents in writing not to receive such benefit and consents to the specific beneficiary designated by the Participant, (B) such consent acknowledges its own effect, and (C) such consent is witnessed by a Plan representative or notary public; or (2) unless the Participant establishes to the satisfaction of a Plan representative either that he has no Spouse, that his Spouse cannot be located, or that his Spouse's consent is not required under such other circumstances as are prescribed under governmental regulations. VII-1 (b) Except as provided in this Section, each Participant shall have the unrestricted right at any time to designate the beneficiary or beneficiaries who shall receive, upon or after his death, his interest in the Fund by executing and filing with the Employee Benefit Plan Board a written instrument in such form as may be prescribed by the Employee Benefit Plan Board for that purpose. Except as provided in this Section, the Participant shall have the unrestricted right to revoke and to change, at any time and from time to time, any beneficiaries previously designated by him by executing and filing with the Employee Benefit Plan Board a written instrument in such form as may be prescribed by the Employee Benefit Plan Board for that purpose. No designation, revocation or change of beneficiaries shall be valid and effective unless and until filed with the Employee Benefit Plan Board. If no designation is made, or if the beneficiaries named in such designation predecease the Participant, or if the beneficiary cannot be located by the Employee Benefit Plan Board, the interest of the deceased Participant shall be paid to the surviving spouse or if none, to the Participant's estate. The amount payable upon the death of a Participant shall be paid in Stock or cash as elected by the recipients. 7.4 Disability. (a) If a Participant suffers a Total Disability prior to his termination of employment with PPL and all Affiliated Companies and is on inactive status on account of such Total Disability, the full amount of his interest in the Fund shall be paid to him or applied for his benefit upon Participant's consent in writing to such payment or application VII-2 following the determination of his Total Disability in accordance with the provisions of this Article VII. (b) Total Disability shall be determined by the Employee Benefit Plan Board which may consult with a medical examiner selected by it. The medical examiner shall have the right to make such physical examinations and other investigations as may be reasonably required to determine Total Disability. 7.5 Termination of Employment. Upon a Participant's retirement or other termination of employment with PPL and all Affiliated Companies, he shall be entitled to receive his interest in the Fund. Subject to Subsection 7.7(b), (a) if the value of his interest in the Fund exceeds, or exceeded at the time of any prior distribution, $5,000, his interest shall not be paid to him or applied for his benefit until (1) he consents in writing to such payment or application, or (2) he attains his 65th birthday or (3) he dies; whichever occurs first; (b) otherwise, his interest shall be paid to him or applied for his benefit in a single sum within 60 days after such termination takes place. 7.6 Valuation for Distribution. For the purposes of paying the amounts to be distributed to a Participant or his beneficiaries under the provisions of this Article, the value of the Fund and the amount of the Participant's interest shall be determined in accordance with the provisions of Article VI as of the Valuation Date coincident with or next following the event which gives rise to a payment under this Article. There shall be added to such amount the additional contributions, if any, which are to be allocated to the Participant's Account pursuant to Article IV. 7.7 Timing of Distribution. VII-3 (a) Subject to Subsection (b), a Participant entitled to receive benefits under this Article shall commence to receive benefits as soon as administratively practicable, but in no event shall any Participant receive benefits later than the earliest of the dates determined under (1), (2) or (3) below: (1) the 60th day after the close of the Plan Year in which occurs the later of (A) the Participant's attainment of age 65 or (B) the Participant's termination of employment with PPL and all Affiliated Companies; (2) the April 1st after the end of the calendar year in which occurs the Participant's attainment of age 70 1/2; or (3) in the event of the Participant's death, December 31 of the calendar year following the year of the Participant's death. (b) A Participant who terminates employment with a Participating Company on or after age 55, and whose Account exceeds, or exceeded at the time of any prior distribution, $5,000, shall be entitled to defer payment of his benefits until a date not later than that specified in Section 7.7(a)(2). (c) The Employee Benefit Plan Board shall supply to each Participant who is entitled to distribution before his death or attainment of age 65 and the value of whose Account exceeds, or exceeded at the time of any prior distribution, $5,000, written information relating to his right to defer distribution under Section 7.4, 7.5 or 7.7(b). Such notice shall be furnished not less than 30 days nor more than 90 days prior to the Participant's benefit commencement date, except that such notice may be furnished less than 30 days prior to the Participant's benefit commencement date if (1) the Employee VII-4 Benefit Plan Board informs the Participant that the Participant has the right to a period of at least 30 days after receiving such notice to consider the decision whether to elect a distribution, and the mode in which he desires such distribution to be made, and (2) the Participant, after receiving such notice, affirmatively elects a distribution. 7.8 Mode of Distribution. The sole form of benefit under Sections 7.2, 7.4 and 7.5 shall be a single sum payment. Any additional Stock which is subsequently allocated to the Participant's Account shall be distributed within 60 days following the date on which such allocation is actually made. At the election of the Participant, all distributions will be either in cash or in full shares of Stock and cash in lieu of fractional shares based on the price at which the Trustee sells such Stock or the fair market value thereof, if the Stock is not sold. 7.9 Withdrawals. (a) A Participant may, by filing a written election with the Employee Benefit Plan Board, withdraw from his Account all Stock which has been allocated with respect to a Plan Year ending at least 84 months prior to the end of the Plan Year in which such election was made. The number of shares eligible for withdrawal during a Plan Year will be determined on or before October 1 of the preceding Plan Year. Elections must be received by the first day of March, June, September or December of the year in which the withdrawal is made. Payments of withdrawals under this Subsection 7.9(a) will be made within 60 days following the end of the quarter for which the election is made. (b) (1) Any Participant who has completed at least ten years of participation in the Plan and attained age 55 may elect within 90 days after the close of each Plan VII-5 Year in the election period (as defined in Subsection (b)(2) below) to withdraw 25% of his Account attributable to Stock acquired by or contributed to the Plan on or after December 31, 1986 to the extent such portion of his Account exceeds the sum of (A) the amount to which a prior election under this Subsection applies and (B) any amount withdrawn under Subsection (a) pursuant to an election made within 90 days after the close of any Plan Year in the election period. In the case of a Participant's final election, "50%" shall be substituted for "25%" in the preceding sentence to determine the amount the Participant may withdraw. The determination of the date on which Stock is acquired by or contributed to the Plan shall be made in accordance with section 401(a)(28) of the Code and regulations thereunder. (2) The election period for purposes of this Subsection is the six Plan Year period that begins with the Plan Year in which occurs the later of (A) the Participant's attainment of age 55 or (B) the first Plan Year in which the Participant has completed ten years of participation, except that the election period shall not begin before December 31, 1986. (3) Payments of withdrawals under this Subsection 7.9(b) will be made within 90 days following the end of the 90-day period during which the withdrawal election is made. (c) Notwithstanding the provisions of Section 7.9(a) and (b) above, Officers may not withdraw any Stock which has been in the Plan less than six months. Any election by an Officer to make a withdrawal pursuant to this Section 7.9 must be made not less than six months prior to the date of the withdrawal and such election shall be irrevocable. VII-6 7.10 Optional Direct Transfer of Eligible Rollover Distributions. (a) Except to the extent otherwise provided by section 401(a)(31) of the Code and regulations thereunder, a Participant or an alternate payee under a Qualified Domestic Relations Order who is the spouse or former spouse of a Participant, entitled to receive a withdrawal or distribution from the Plan may elect to have the Trustee transfer all or a portion of the amount to be distributed directly to: (1) an individual retirement account described in section 408(a) of the Code, (2) an individual retirement annuity described in section 408(b) of the Code (other than an endowment contract), (3) a qualified defined contribution retirement plan described in section 401(a) of the Code, the terms of which permit the acceptance of rollover contributions from this Plan, or (4) an annuity plan described in section 403(a), the terms of which permit the acceptance of rollover contributions from this Plan. A beneficiary entitled to receive a distribution from the Plan who is the spouse of a Participant shall have the right to transfer all or a portion of the amount to be distributed directly to a section 408(a) or 408(b) plan described in Subsections (a)(1) and (a)(2) above. (b) the Participant or beneficiary must specify the name of the plan to which the amount is to be transferred, on a form and in a manner prescribed by the Employee Benefit Plan Board. VII-7 (c) Subsection (a) shall not apply to the following distributions: (1) any distribution of Matching Contributions, (2) any distribution which is one of a series of substantially equal installments over either (1) a period of ten (10) years or more, or (2) a period equal to the life or life expectancy of the Participant or the joint lives or life expectancy of the Participant and his beneficiary, (3) that portion of any distribution after the Participant's Required Beginning Date that is required to be distributed to the Participant by the minimum distribution rules of section 401(a)(9) of the Code, or (4) such other distributions as may be exempted by applicable statute or regulation from the requirements of section 401(a)(31) of the Code. VII-8 ARTICLE VIII ADMINISTRATION -------------- 8.1 Administration by Employee Benefit Plan Board. (a) The Plan shall be administered by an Employee Benefit Plan Board, consisting of not more than five persons nor fewer than three persons. Members of the Employee Benefit Plan Board shall be appointed from time to time by the Board of Directors of PPL Corporation and shall serve at the pleasure of the Board of Directors of PPL Corporation. Vacancies shall be filled in the same manner as appointments. Any member of the Employee Benefit Plan Board may resign by delivering a written resignation to the Board of Directors or to the Secretary of the Employee Benefit Plan Board effective upon delivery or at any other future date specified therein. (b) The Employee Benefit Plan Board shall elect a chairman from its members and shall appoint a secretary who may be, but need not be, a member of the Employee Benefit Plan Board. The Employee Benefit Plan Board shall not receive any compensation for its services. (c) The Employee Benefit Plan Board may act at a meeting or in writing without a meeting. A majority of the members of the Employee Benefit Plan Board at the time in office shall constitute a quorum for the transaction of business at all meetings and a majority of those present at any meeting shall be required for action. All decisions by the Employee Benefit Plan Board arrived at without a meeting shall be made by the vote or assent of a majority of its members. No member of the Employee Benefit Plan Board may act, vote or otherwise influence a decision of the Employee Benefit Plan Board VIII-1 specifically relating to the Employee Benefit Plan Board member's own participation under the Plan. (d) The Employee Benefit Plan Board may adopt such rules and regulations as it deems desirable for the conduct of its affairs. All rules and decisions of the Employee Benefit Plan Board shall be uniformly and consistently applied. The Employee Benefit Plan Board shall have the final right of interpretation, construction and determination under the Plan and decisions of the Employee Benefit Plan Board are final and conclusive for all purposes. 8.2 Duties and Powers of Employee Benefit Plan Board and Administrative Committee. (a) In addition to the duties and powers described elsewhere hereunder, the Employee Benefit Plan Board shall have all such powers as may be necessary to discharge its duties hereunder including but not limited to the following specific duties and powers: (1) to retain such consultants, accountants, agents, clerical assistants and attorneys as may be deemed necessary or desirable to render statements, reports and advice with respect to the Plan and to assist the Employee Benefit Plan Board in complying with all applicable rules and regulations affecting the Plan. Any consultants, accountants, or attorneys may be the same as those retained by PPL; (2) to make such amendments as provided for in Article X; (3) to enact uniform and nondiscriminatory rules and regulations to carry out the provisions of the Plan; VIII-2 (4) to compute the amount of any distribution payable to a Participant or other amounts payable under the Plan and authorize disbursement from the Fund; (5) to interpret the provisions of the Plan; (6) to determine whether any domestic relations order received by the Plan is a qualified domestic relations order as provided in section 414(p) of the Code; (7) to evaluate administrative procedures; (8) to delegate such duties and powers as the Employee Benefit Plan Board shall determine from time to time to any person or persons or to an administrative committee. To the extent of any such delegation, the delegate shall have the duties, powers, authority, and discretion of the Employee Benefit Plan Board; and (9) to establish a claims procedure under which claims will be reviewed by the Manager-Employee Benefits of PPL (effective upon the closing of the PPL Corporation corporate realignment pursuant to which PPL will separate its electric generation and energy marketing operations from its regulated electric transmission and distribution business, by the Manager-Employee Benefits of PPL Services Corporation), or such other individual as may be designated by the Vice President-Human Resources of PPL (effective upon the closing of the PPL Corporation corporate realignment pursuant to which PPL will separate its electric generation and energy marketing operations from its regulated electric transmission and distribution business, by the Vice President-Human Resources of PPL Services Corporation) and under which each claimant shall receive notice in writing in the event any claim for benefits with respect to a Participant's participation in the Plan has been denied; such notice shall set VIII-3 forth the specific reasons for such denial. Such claims procedure shall also provide an opportunity for full and fair review by the Administrative Committee of the Employee Benefit Plan Board; (b) In addition, to any other duties and powers it may possess, the Administrative Committee of the Employee Benefit Plan Board shall have the following specific duties and powers: (1) to resolve questions or disputes relating to eligibility for distributions or the amount of distributions under the Plan; (2) to interpret the provisions of the Plan; The Employee Benefit Plan Board and the Administrative Committee of the Employee Benefit Plan Board shall have the discretionary authority and final right to interpret, construe and make benefit determinations (including eligibility and amount) under the Plan. The decisions of the Employee Benefit Plan Board and the Administrative Committee of the Employee Benefit Plan Board are final and conclusive for all purposes. 8.3 Reliance on Reports and Certificates. The members of the Employee Benefit Plan Board and the officers and directors of PPL, any Participating Company and PPL Corporation shall be entitled to rely upon all valuations, certificates and reports made by the Trustee or by any duly appointed accountant, and upon all opinions given by any duly appointed legal counsel. 8.4 Functions. The Employee Benefit Plan Board shall cause to be maintained such books of account, records and other data as may be necessary or advisable in its VIII-4 judgment for the purpose of the proper administration of the Plan. 8.5 Indemnification of the Employee Benefit Plan Board. Each member of the Employee Benefit Plan Board, the Administrative Committee, and each of their designees shall be indemnified by the Participating Companies against expenses (other than amounts paid in settlement to which a Participating Company does not consent) reasonably incurred by him in connection with any action to which he may be a party by reason of the delegation to him of administrative functions and duties, except in relation to matters as to which he shall be adjudged in such action to be personally guilty of negligence or willful misconduct in the performance of his duties. The foregoing right to indemnification shall be in addition to such other rights as the member of the Employee Benefit Plan Board, the Administrative Committee, and each of their designees may enjoy as a matter of law or by reason of insurance coverage of any kind. Rights granted hereunder shall be in addition to and not in lieu of any rights to indemnification to which the member of the Employee Benefit Plan Board, the Administrative Committee and each of their designees may be entitled pursuant to the bylaws of PPL. Service on the Employee Benefit Plan Board shall be deemed in partial fulfillment of the Employee Benefit Plan Board member's function as an employee, officer and/or director of PPL or PPL Corporation, if he serves in such other capacity as well. 8.6 Allocation of Fiduciary Responsibilities. A fiduciary shall have only those specific powers, duties, responsibilities and obligations as are specifically given under this Plan or the Trust Agreement. A fiduciary may serve in more than one fiduciary capacity with respect to the Plan. It is intended that each fiduciary shall be responsible for the VIII-5 proper exercise of the fiduciary's own powers, duties, responsibilities and obligations under this Plan and the Trust Agreement, and generally shall not be responsible for any act or failure to act of another fiduciary. VIII-6 ARTICLE IX THE FUND -------- 9.1 Designation of Trustee. PPL, by appropriate resolution of its Board of Directors, shall name and designate a Trustee and enter into a Trust Agreement with such Trustee. PPL shall have the power to amend the Trust Agreement, remove the Trustee, and designate a successor Trustee, all as provided in the Trust Agreement. All of the assets of the Plan shall be held by the Trustee for use in accordance with this Plan in providing for the benefits hereunder. 9.2 Exclusive Benefit. Prior to the satisfaction of all liabilities under the Plan in the event of termination of the Plan, no part of the corpus or income of the Fund shall be used for or diverted to purposes other than for the exclusive benefit of Participants and their beneficiaries except as expressly provided in this Plan and in the Trust Agreement. 9.3 No Interest in Fund. No persons shall have any interest in, or right to, any part of the assets or income of the Fund, except as to and to the extent expressly provided in this Plan and in the Trust Agreement. 9.4 Trustee. The Trustee shall be the fiduciary with respect to management and control of Plan assets held by it and shall have exclusive and sole responsibility for the custody and investment thereof in accordance with the Trust Agreement. 9.5 Expenses. All expenses of administration of this Plan shall be paid from the Fund unless they are paid directly by a Participating Company. IX-1 ARTICLE X AMENDMENT OR TERMINATION OF THE PLAN ------------------------------------ 10.1 Amendment. Each Participating Company shall have the power to amend the Plan by or pursuant to action of its board of directors, but any such amendment to the Plan must be approved by PPL Services Corporation, and shall only apply to those Participants who are employees of the Participating Company authorizing the amendment. Any amendment that significantly affects the cost of the Plan or significantly alters the benefit design or eligibility requirements of the Plan shall be adopted by both PPL Services Corporation and any Participating Company whose employees are affected. In addition, the Employee Benefit Plan Board may adopt any amendment that does not significantly affect the cost of the Plan or significantly alter the benefit design or eligibility requirements of the Plan. Each amendment to the Plan will be binding on the Participating Company to which it applies. Except as expressly provided elsewhere in the Plan, prior to the satisfaction of all liabilities with respect to the benefits provided under this Plan, no such amendment or termination shall cause any part of the monies contributed hereunder to revert to PPL or to be diverted to any purpose other than for the exclusive benefit of Participants and their beneficiaries. No amendment shall have the effect of retroactively depriving Participants of benefits already accrued under the Plan. Upon complete termination of the Plan without establishment or maintenance of a successor plan (other than an employee stock ownership plan as defined in section 4975(e)(7) of the Code), Participants may receive distribution of their Accounts. Amendments to the allocation formulas contained in Article V shall not be X-1 made more frequently than once every six months. 10.2 Termination. The Plan and the Fund forming part of the Plan may be terminated or contributions completely discontinued at any time by or pursuant to action of the board of directors of PPL Corporation. In the event of a termination, partial termination, or a complete discontinuance of contributions or in the event PPL Corporation is dissolved, liquidated, or adjudicated a bankrupt, the interest of the Participants, their estates and beneficiaries, shall be nonforfeitable and shall be fully vested, and distributions shall be made to them in full shares of Stock and cash in lieu of fractional shares based on the price at which the Trustee sells such Stock or the fair market value thereof. When all assets have been paid out by the Trustee, the Fund shall cease. Any distribution after termination of the Plan may be made at any time, and from time to time, in whole or in part in full shares of Stock and cash in lieu of fractional shares based on the price at which the Trustee sells such Stock or the fair market value thereof; provided, however, that no Stock may be distributed to a Participant within seven years after the month in which such Stock was allocated to the Participant's Account except in the case of the Participant's retirement, Total Disability, death or other termination of employment with PPL and all Affiliated Companies. In making such distributions, any and all determinations, divisions, appraisals, apportionments and allotments so made shall be final and conclusive. 10.3 Special Rule. In the event that the Plan is terminated in accordance with Section 10.2, unallocated amounts held in a suspense account described in Section 5.5 shall be allocated among Participants, subject to the limitations of Section 5.5, in the year X-2 of termination and amounts which cannot be allocated by reason of the limitations of Section 5.5 may be withdrawn from the Fund and returned to PPL or PPL Corporation. 10.4 Merger. The Plan shall not be merged with or consolidated with, or its assets be transferred to, any other qualified retirement plan unless each Participant would (assuming the Plan then terminated) receive a benefit after such merger, consolidation or transfer which is of actuarial value equal to or greater than the benefit he would have received from the value of his Account if the Plan had been terminated on the day before such merger, consolidation or transfer. No amounts shall be transferred to this Plan which would cause the Plan to be a direct or indirect transferee of a plan to which the joint and survivor annuity and pre-retirement survivor annuity requirements of sections 401(a)(11) and 417 of the Code apply. X-3 ARTICLE XI TOP HEAVY PROVISIONS -------------------- 11.1 General. The following provisions shall apply automatically to the Plan and shall supersede any contrary provisions for each Plan Year in which the Plan is a Top Heavy Plan. It is intended that this Article shall be construed in accordance with the provisions of section 416 of the Code. 11.2 Definitions. The following definitions shall supplement those set forth in Article II of the Plan: (a) "Aggregation Group" shall mean: (1) each plan (including a frozen plan or a plan which has been terminated during the 60-month period ending on the Determination Date) of PPL or an Affiliated Company in which a Key Employee is a participant, (2) each other plan (including a frozen plan or a plan which has been terminated during the 60-month period ending on the Determination Date) of PPL or an Affiliated Company which enables any plan in which a Key Employee participates to meet the requirements of section 401(a)(4) or 410 of the Code, and (3) each other plan (including a frozen plan or a plan which has been terminated during the 60-month period ending on the Determination Date) of PPL or an Affiliated Company which is included by the Employee Benefit Plan Board if the Aggregation Group, including such plan, would continue to meet the requirements of sections 401(a)(4) and 410 of the Code. (b) "Determination Date" shall mean the last day of the preceding Plan Year, XI-1 except for the first Plan Year, it shall mean the last day of that Plan Year. (c) "Key Employee" shall mean any employee, former employee or beneficiary of either who at any time during the 60-month period ending on the Determination Date is described in subparagraphs 1 through 4 below of this Subsection ll.2(c). Notwithstanding the foregoing, the number of persons described in Subsection (c)(2) for the entire 60-month period shall be limited to 10. (1) an officer of PPL having annual compensation, as defined in section 414(q)(7) of the Code, from PPL and all Affiliated Companies for a Plan Year during such period greater than fifty percent (50%) of the amount in effect under section 415(b)(1)(A) of the Code for the calendar year in which such Plan Year ends; (2) one of the ten employees with annual compensation, as defined in section 414(q)(7) of the Code, from PPL and all Affiliated Companies greater than the amount described in section 415(c)(1)(A) of the Code owning (or considered as owning within the meaning of section 318 of the Code) the largest interests in PPL or any Affiliated Company, provided that such interest exceeds one-half of one percent (.5%) of the total share ownership of PPL or Affiliated Company; (3) a five percent (5%) owner of PPL; or (4) a one percent (1%) owner of PPL who has annual compensation, as defined in section 414(q)(7) of the Code, from PPL and all Affiliated Companies, which in the aggregate is in excess of $150,000. The above determinations will be made in accordance with section 416(i) of the Code. No more than fifty (50) employees (or, if less, the greater of three employees or XI-2 ten percent (10%) of the greatest number of employees, including leased employees within the meaning of section 414(n) of the Code, but excluding employees described in section 414(q)(8) of the Code, employed by PPL and all Affiliated Companies during the 60-month period ending on the Determination Date) shall be treated as officers. (d) "Key Employee Ratio" shall mean the ratio for any Plan Year, calculated as of the Determination Date of such Plan Year, determined by comparing the amount described in Subsection (d)(1) with the amount described in Subsection (d)(2) after deducting from each such amount any portion thereof described in Subsection (d)(3). (1) The sum of (A) the present value of all accrued benefits of Key Employees under all qualified defined benefit plans included in the Aggregation Group, (B) the balances in all of the accounts of Key Employees under all qualified defined contribution plans included in the Aggregation Group, and (C) the amounts distributed from all plans in such Aggregation Group to or on behalf of any Key Employee during the period of five Plan Years ending on the Determination Date, except benefits paid on account of death in excess of the accrued benefit or account balances immediately prior to death. (2) The sum of (A) the present value of all accrued benefits of all participants under all qualified defined benefit plans included in the Aggregation Group, (B) the balances in all of the accounts of all participants under all qualified defined contribution plans included in the Aggregation Group and (C) the amounts distributed from all plans in such Aggregation Group to or on behalf of any participant during the period of five Plans Years ending on the Determination Date. XI-3 (3) The sum of (A) all rollover contributions (or fund to fund transfers) to the Plan by an Employee after December 31, 1983, from a plan sponsored by an employer which is not PPL or an Affiliated Company, (B) any amount that is included in Subsections (d)(1) and (2) for a person who is a Non- Key Employee as to the Plan Year of reference but who was a Key Employee as to any earlier Plan Year, and (C) for Plan Years beginning after December 31, 1984, any amount that is included in Subsections (d)(1) and (2) for a person who had not performed any services for PPL during the five-year period ending on the Determination Date. (4) The present value of accrued benefits under all qualified defined benefit plans included in the Aggregation Group shall be determined (A) on the basis of the 1971 TPF&C Forecast Mortality Table and an interest rate of six and one-half percent (6 1/2%) and (B) under the accrual method used for all qualified defined benefit plans maintained by PPL or any Affiliated Company, if a single method is used for all such plans, or otherwise, the slowest accrual method permitted under section 411 (b) (1) (C) of the Code. (e) "Non-Key Employee" shall mean any person who is an Employee or a former Employee of PPL or an Affiliated Company in any Plan Year but who is not a Key Employee as to that Plan Year. The term Non-Key Employee shall also include the beneficiaries of such persons. (f) "Super Top Heavy Plan" shall mean each plan in an Aggregation Group if, as of the applicable Determination Date, the Key Employee Ratio in the plan exceeds ninety percent (90%), determined in accordance with section 416 of the Code. XI-4 (g) "Top Heavy Plan" shall mean each plan in an Aggregation Group if, as of the applicable Determination Date, the Key Employee Ratio exceeds sixty percent (60%) determined in accordance with section 416 of the Code. 11.3 Minimum Contributions for Non-Key Employees. (a) In each Plan Year in which the Plan is a Top Heavy Plan, each Eligible Employee who is not a Key Employee (except an Eligible Employee who is not a Key Employee as to the Plan Year of reference but who was a Key Employee as to any earlier Plan Year or an Eligible Employee who is covered by a collective bargaining agreement) and who is actively employed by PPL on the last day of such Plan Year will receive a total minimum Company Contribution (including forfeitures) under all plans described in Section 11.2(a)(1) and (2) of not less than three percent (3%) of the Eligible Employee's annual compensation as defined in Section 5.5(m). Salary reduction contributions to such plans made on behalf of an Eligible Employee in plan years beginning after December 31, 1984 but before January 1, 1989, shall be deemed to be Company Contributions for the purpose of this Subsection. (b) The percentage set forth in Section 11.3(a) shall be reduced to the percentage at which contributions, including forfeitures are made (or are required to be made) for a Plan Year for the Key Employee for whom such percentage is the highest for such Plan Year. This percentage shall be determined for each Key Employee by dividing the contribution for such Key Employee by his compensation, as defined in Section 5.5(m), for the Plan Year, determined under Section 11.4. All defined contribution plans required to be included in an Aggregation Group shall be treated as one plan for the XI-5 purpose of this Section 11.3; however, this Section 11.3(b) shall not apply to any plan which is required to be included in an Aggregation Group if such plan enables a defined benefit plan in such group to meet the requirements of section 401(a)(4) or section 410 of the Code. (c) If a Non-Key Employee described in Subsection (a), participates in both a defined benefit plan and a defined contribution plan described in Sections 11.2(a)(1) and (2) maintained by PPL, PPL is not required to provide such Employee with both the minimum benefit and the minimum contribution. Regulations prescribed by the Secretary of the Treasury shall serve to prevent inappropriate omissions or duplications of minimum benefits or contributions. 11.4 Social Security. The Plan for each Plan Year in which it is a Top Heavy Plan, must meet the requirements of this Article XI without regard to any Social Security or similar contributions or benefits. 11.5 Adjustment to Maximum Allocation Limitation. (a) For each Plan Year in which the Plan is (1) a Super Top Heavy Plan or (2) a Top Heavy Plan and the Employee Benefit Plan Board does not make the election described in Subsection (c) and for which a similar election has not been made as to another plan in the Aggregation Group, the 1.25 factor in the defined benefit and defined contribution fractions described in Article V shall be reduced to 1.0. The adjustment described in this Subsection shall not apply to any Participant during the period in which the Participant earns no additional accrued benefit under any defined benefit plan and has no employer contributions, forfeitures, or voluntary contributions allocated in his XI-6 accounts under any defined contribution plan. (b) In the case of any Top Heavy Plan to which Section 5.5(l) applies, "$41,500" shall be substituted for "$51,875" in the calculation of the transition fraction. (c) If, in any Plan Year in which the Plan is a Top Heavy Plan but not a Super Top Heavy Plan, the Aggregation Group described in Sections 11.2(a)(1) and (2) also includes a defined benefit plan, the Employee Benefit Plan Board may elect to use a factor of 1.25 in computing the denominator of the defined benefit and defined contribution fractions described in Article V. In the event of such an election, the minimum Company Contribution described in Section 11.3(a) for each Non-Key Employee who is not covered under a defined benefit plan shall be increased from three percent (3%) to four percent (4%), and the minimum benefit described in Section 11.3(c) for each Non-Key Employee who is covered under a defined benefit plan shall be increased in accordance with the terms of such defined benefit plan. XI-7 ARTICLE XII GENERAL PROVISIONS ------------------ 12.1 No Employment Rights. Neither the action of PPL in establishing the Plan, nor any provisions of the Plan, nor any action taken by it or by the Employee Benefit Plan Board shall be construed as giving to any employee of a Participating Company the right to be retained in its employ, or any right to payment except to the extent of the benefits provided in the Plan to be paid from the Fund. 12.2 Source of Benefits. All benefits payable under the Plan shall be paid or provided for solely from the Fund, and neither any Participating Company nor PPL Corporation assume liability or responsibility therefor. 12.3 Governing Law. All questions pertaining to the validity, construction and operation of the Plan shall be determined in accordance with the laws of Pennsylvania, except to the extent superseded by ERISA. 12.4 Spendthrift Clause. (a) No benefit payable at any time under this Plan, and no interest or expectancy herein shall be anticipated, assigned, or alienated by any Participant or beneficiary, or be subject to attachment, garnishment, levy, execution or other legal or equitable process, except for (1) an amount necessary to satisfy a federal tax levy made pursuant to section 6331 of the Code and (2) any benefit payable pursuant to a domestic relations order within the meaning of the Code. (b) Any attempt to alienate or assign such benefit, whether presently or thereafter payable, shall be void. No benefit shall in any manner be liable for or subject to XII-1 the debts or liability of any Participant or beneficiary. If any Participant or beneficiary shall attempt to, or shall, alienate or assign his benefits under the Plan or any part thereof, or if by reason of his bankruptcy or other event happening at any time, such benefits would devolve upon anyone else or would not be enjoyed by him, then the Employee Benefit Plan Board may terminate payment of such benefit and hold or apply it to or for the benefit of the Participant or beneficiary. (c) The Employee Benefit Plan Board shall review any domestic relations order to determine whether it is qualified within the meaning of section 414(p) of the Code. An order shall not be qualified unless it complies with all applicable provisions of the Plan concerning mode of payment and manner of elections. Notwithstanding the preceding sentence and any restrictions on timing of distributions and withdrawals under the Plan, an order may provide for distribution immediately or at any other time specified in the order. 12.5 Incapacity. If the Employee Benefit Plan Board deems any Participant who is entitled to receive payments hereunder incapable of receiving or disbursing the same by reason of age, illness or infirmity or incapacity of any kind, the Employee Benefit Plan Board may direct the Trustee to apply such payment directly for the comfort, support and maintenance of such Participant or to pay the same to any responsible person caring for the Participant as determined by the Employee Benefit Plan Board to be qualified to receive and disburse such payments for the Participant's benefit, and the receipt of benefit such person shall be a complete acquittance for the payment of benefit. Payments pursuant to this Section 12.5 shall be complete discharge to the extent thereof XII-2 of any and all liability of the Participating Companies, PPL Corporation, the Employee Benefit Plan Board, the Administrative Committee (if any), the Trustee, and the Fund. 12.6 Gender and Number. Except where otherwise clearly indicated by context, the masculine shall include the feminine, the singular shall include the plural, and vice versa. 12.7 Voting or Tendering Stock. Each Participant (or, in the event of his or her death, his or her beneficiary) is, for purposes of this Section 12.7, hereby designated a "named fiduciary," within the meaning of section 403(a)(1) of ERISA with respect to his or her proportionate number of shares of Stock (such proportionate number of shares being determined at the respective times such fiduciary rights are exercisable, as set forth below). (a) Voting Rights. Each Participant (or beneficiary) shall have the right, to the extent of his or her proportionate number of shares of Stock (as determined in the last sentence of this Section 12.7(a)) to instruct the Trustee in writing as to the manner in which to vote such Stock at any stockholders' meeting of PPL Corporation. PPL shall use its best efforts to timely distribute or cause to be distributed to each Participant (or beneficiary) the information distributed to stockholders of PPL Corporation in connection with any such stockholders' meeting, together with a form requesting confidential instructions to the Trustee on how such shares of Stock shall be voted on each such matter. Upon timely receipt of such instructions, the Trustee shall, on each such matter, vote as directed the appropriate number of shares of Stock (including fractional shares). An individual's proportionate number of shares of Stock held in the trust shall be equal to XII-3 the product of multiplying the total number of shares of Stock by a fraction, the numerator of which shall be the respective number of shares of Stock which are held in such individual's account for which he or she provides instructions to the Trustee and the denominator of which shall be the number of shares of Stock in all such accounts for which instructions are provided to the Trustee. (b) Rights on Tender or Exchange Offer. Each Participant (or beneficiary) shall have the right, to the extent of his or her proportionate number of shares of Stock (as determined in the last sentence of this Section 12.7(b)) of shares to instruct the Trustee in writing as to the manner in which to respond to a tender or exchange offer with respect to such Stock. PPL shall use its best efforts to timely distribute or cause to be distributed to each such Participant (or beneficiary) the information distributed to stockholders of PPL Corporation in connection with any such tender or exchange offer. Upon timely receipt of such instructions, the Trustee shall respond as instructed with respect to such shares. If, and to the extent that, the Trustee shall not have received timely instructions from any individual given a right to instruct the Trustee with respect to certain shares of Stock by the first sentence of this Section 12.7(b), such individual shall be deemed to have timely instructed the Trustee not to tender or exchange such shares of Stock. An individual's proportionate number of shares of Stock shall be equal to the product of multiplying the total number of shares of Stock by a fraction, the numerator of which shall be the number of shares which are held in such individual's account and the denominator of which shall be the total number of shares of Stock. (c) Confidentiality. All instructions received by the Trustee from XII-4 individual participants (or beneficiaries) pursuant to this Section 12.7 shall be held by the Trustee in strict confidence and shall not be divulged or released to any person; provided, that, to the extent necessary for the operation of the Plan or compliance with applicable law, such instructions may be relayed by the Trustee to a recordkeeper, auditor or other person providing services to the Plan or responsible for monitoring compliance with applicable laws, if such person is either: (1) a person who is not a Participating Company or an Affiliated Company or an employee, officer or director of a Participating Company or an Affiliated Company and who agrees not to divulge such instructions to any other person, including a Participating Company, an Affiliated Company, or employees, officers and directors of a Participating Company or an Affiliated Company; or (2) a person who is an employee of a Participating Company or an Affiliated Company, if such person is specifically authorized by the Employee Benefit Plan Board to receive such information pursuant to confidentiality procedures designed to safeguard the confidentiality of such information. The Employee Benefit Plan Board shall be responsible for monitoring compliance with such procedures, for the adequacy of XII-5 such procedures, and for appointing an independent fiduciary to carry out activities relating to any situation that, in the determination of the Employee Benefit Plan Board, involves a potential for undue employer influence on Participants (or beneficiaries) with regard to their exercise of rights under this Section 12.7. 12.8 Use of Loan Proceeds. Subject to 12.9, no Stock acquired with the proceeds of an exempt loan (within the meaning of section 4975(e)(7) of the Code) shall be subject to a put, call, or other option or buy-sell or similar arrangement while held by or when distributed from the Plan, whether or not the Plan is an employee stock ownership plan at such time. 12.9 Put Option. In the event the Stock is ever not readily tradeable on an established market (whether or not the Plan is an employee stock ownership plan at such time), PPL or PPL Corporation shall issue a "put option" to each Participant or beneficiary receiving a distribution of Stock from the Plan. Such put option shall permit the Participant or beneficiary to sell such Stock to PPL or PPL Corporation, at any time during two option periods (described below), at the then fair-market value, as determined by an independent appraiser (as defined in section 401(a)(28) of the Code). The first put option period shall be a period of 60 days commencing on the date the Stock is distributed to the Participant or beneficiary. If the put option is not exercised within that period, it will temporarily lapse. Upon the close of the Plan Year in which such temporary lapse of the put option occurs, the Employee Benefit Plan Board shall establish the value of the Stock, XII-6 as determined by an independent appraiser, and shall notify each distributee who did not exercise the initial put option prior to its temporary lapse in the preceding Plan Year of the revised value of the Stock. The second period during which the put option may be exercised shall commence on the date such notice of revaluation is given and shall permanently terminate 60 days thereafter. The Trustee may be permitted by PPL to purchase Stock tendered to PPL or PPL Corporation under a put option. The Participant may elect that the payment for Stock sold pursuant to a put option shall be made in one of the following forms: (a) in substantially equal annual installments commencing within 30 days from the date of the exercise of the put option and over a period not exceeding five years, with interest payable at a reasonable rate on any unpaid installment balance, with adequate security provided, and without penalty for any prepayment of such installments; or (b) in a lump sum as soon as practicable after the exercise of the put option. The Trustee, on behalf of the Trust, may offer to purchase any shares of Stock (which are not sold pursuant to a put option) from any former Participant or beneficiary, at any time in the future, at their then fair-market value as determined by an independent appraiser. 12.10 Compliance with Rule 16b-3. With respect to Participants subject to section 16 of the Securities Exchange Act of 1934, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under XII-7 the 1934 Act. To the extent any provision of the Plan or action by the Board of Directors, the board of directors of PPL Corporation or Employee Benefit Plan Board involving such a Participant is deemed not to comply with an applicable condition of Rule 16b-3, it shall be deemed null and void to the extent permitted by law and deemed advisable by the Board of Directors, the board of directors of PPL Corporation or Employee Benefit Plan Board. XII-8 ARTICLE XIII TREATMENT OF RETURNING VETERANS ------------------------------- 13.1 Applicability and Effective Date. The rights of any Returning Veteran who resumes employment with a Participating Company on or after December 12, 1994 shall be modified as set forth in this Article. 13.2 Eligibility to Participate. For purposes of Section 3.1, (a) A Returning Veteran who was an Eligible Employee immediately prior to his Qualified Military Service shall be deemed to have remained an Eligible Employee throughout his Qualified Military Service. (b) A Returning Veteran who would have become an Eligible Employee during the period of his Qualified Military Service, but for the resulting absence from employment, shall be deemed to have become an Eligible Employee as of the date he would have become an Eligible Employee if he had not entered into Qualified Military Service. 13.3 Restoration of TRASOP, PAYSOP, and Dividend-based Contributions. With respect to any Plan Year for which a Returning Veteran would have been a Participant, but failed to share in TRASOP, PAYSOP, or Dividend-based Contributions under Sections 4.1, 4.3 and 4.4 solely by reason of his Qualified Military Service, the Participating Company shall contribute to such Participant's Account an amount equal to the TRASOP, PAYSOP, and Dividend-based Contributions that would have been allocated to his Account, but for his absence for Qualified Military Service. Such XIII-1 contribution shall not include the earnings that would have accrued on such amount. 13.4 Restoration of Matching Contributions. (a) Each Returning Veteran who, during his period of Qualified Military Service, would have been eligible to make Matching Contributions shall be permitted to contribute an amount equal to the Matching Contributions that he could have made during such absence from employment. Such "make-up" contributions shall be made during the period that begins with his reemployment by a Participating Company and ends with (1) the expiration of a period of five years, or (2) if shorter, a period of three times the period of Qualified Military Service. (b) Any make-up contributions described in Subsection (a) hereof shall be in addition to those Matching Contributions that the Participant may elect to make pursuant to Section 4.2. 13.5 Determination of Compensation. For purposes of determining the amount of any make-up contributions under Section 13.3 or Section 13.4 and for applying the limits of Section 5.5, a Participant's compensation during any period of Qualified Military Service shall be deemed to equal either: (a) the compensation he would have received but for such Qualified Military Service, based on the rate of pay he would have received from a Participating Company; or (b) if the amount described in (a) above is not reasonably certain, his average compensation from a Participating Company during the 12-month period immediately XIII-2 preceding the Qualified Military Service (or, if shorter, the period of employment immediately preceding the Qualified Military Service). Such amount shall be adjusted as necessary to reflect the length of the Participant's Qualified Military Service. 13.6 Application of Certain Limitations. (a) For purposes of applying the limitations of Section 5.5, any TRASOP, PAYSOP, or Dividend-based Contributions described in Section 13.3, and any make- up contributions described in Section 13.4, shall be treated as contributions for the Limitation Year to which they relate, rather than the Limitation Year in which they are actually made. (b) For purposes of applying the limitations of Section 4.6, any make-up contributions described in Section 13.4 shall be disregarded, both for the Plan Year to which the contributions relate, and for the Plan Year in which they are actually made. 13.7 Administrative Rules and Procedures. The Employee Benefit Plan Board shall establish such rules and procedures as it deems necessary or desirable to implement the provisions of this Article, provided that they are not in violation of the Uniformed Services Employment and Reemployment Rights Act of 1994, any regulations thereunder, or any other applicable law. Executed this day of, 2000. PPL ELECTRIC UTILITIES CORPORATION By Charles P. Pinto Vice President-Human Resources XIII-3 Schedule A ---------- A. For all Participating Companies, "Compensation" shall mean the annual compensation received by an Employee from a Participating Company as reported on Internal Revenue Service Form W-2 or a successor form plus the Employee's elective deferrals under the Employee Savings Plan or Deferred Savings Plan; provided, however, that Compensation shall not include bonuses or fringe benefits not normally included in compensation, such as tuition refunds, moving expenses, etc. and shall not, for purposes of allocation under Section 5.2(a), include any amount in excess of (i) for the 1975 and 1976 Plan Years, $16,000 and (ii) commencing with the 1977 Plan Year, the median annual compensation of all Participants during the Plan Year or $100,000, whichever is less. Such median compensation shall be determined as of the close of a Plan Year and shall be rounded to an even thousand dollars. Compensation shall also include the additional compensation listed below, for Participants in the Participating Company listed herein. B. Effective January 1, 2000 only the following additional compensation for the following Participating Companies shall be included in Compensation, as defined in this Schedule A. 1. PPL Electric Utilities Corporation (formerly PP&L, Inc.) and PPL EnergyPlus, LLC (formerly PP&L EnergyPlus Co., LLC); a) Any single sum award paid from the variable compensation fund created annually with a percentage of annualized base salaries in accordance with the Managers Compensation Plan. A-1 2. PPL EnergyPlus, LLC (formerly PP&L EnergyPlus Co., LLC): a) Any sales incentive award paid as a single sum on an annual basis. g:\steno\jac\plans\esopamre.doc 02/23/01 8:57 AM A-2 EX-10.(C) 5 0005.txt REVOLVING CREDIT AGREEMENT EXECUTION COPY -------------- Exhibit 10(C) ================================================================================ $200,000,000 REVOLVING CREDIT AGREEMENT Among PPL CAPITAL FUNDING, INC., as Borrower PPL CORPORATION, as Guarantor of the obligations of PPL Capital Funding, Inc. MORGAN STANLEY SENIOR FUNDING, INC., as Administrative Agent and THE BANKS NAMED HEREIN Dated as of December 21, 2000 MORGAN STANLEY SENIOR FUNDING, INC., as Lead Arranger and Book Manager ================================================================================ TABLE OF CONTENTS -----------------
Page ---- SECTION 1. AMOUNTS AND TERMS OF LOANS...................................................................... 1 -------------------------- 1.1 Commitments.................................................................................. 1 1.2 Notices of Borrowing......................................................................... 1 1.3 Disbursement of Funds........................................................................ 2 1.4 Repayment of Loans; Evidence of Debt......................................................... 2 1.5 Special Payment Provisions................................................................... 2 1.6 Compensation................................................................................. 3 1.7 Commitment Fee............................................................................... 3 1.8 Reductions in Total Commitments.............................................................. 3 SECTION 2. INTEREST........................................................................................ 4 -------- 2.1 Rates of Interest............................................................................ 4 2.2 Determination of Rate of Borrowing........................................................... 4 2.3 Interest Payment Dates....................................................................... 4 2.4 Conversions; Interest Periods................................................................ 5 2.5 Increased Costs, Illegality, Etc............................................................. 6 SECTION 3. PAYMENTS........................................................................................ 8 -------- 3.1 Payments on Non-Business Days................................................................ 8 3.2 Prepayments.................................................................................. 8 3.3 Method and Place of Payment, Etc............................................................. 9 3.4 Net Payments................................................................................. 9 SECTION 4. CONDITIONS PRECEDENT............................................................................ 10 -------------------- 4.1 Conditions to Effectiveness.................................................................. 10 4.2 Conditions to Each Loan to Finance Co........................................................ 11 SECTION 5. COVENANTS OF FINANCE CO. AND PARENT............................................................. 11 ----------------------------------- 5.1 Financial Statements......................................................................... 11 5.2 Mergers...................................................................................... 12 5.3 Ratings...................................................................................... 12 5.4 Liens........................................................................................ 12 5.5 Consolidated Indebtedness to Consolidated Capitalization..................................... 13 SECTION 6. EVENTS OF DEFAULT WITH RESPECT TO FINANCE CO.................................................... 13
SECTION 7. REPRESENTATIONS AND WARRANTIES OF FINANCE CO. AND PARENT........................................ 14 -------------------------------------------------------- SECTION 8. AGENT........................................................................................... 16 ----- 8.1 Appointment.................................................................................. 16 8.2 Nature of Duties............................................................................. 16 8.3 Rights, Exculpation, Etc..................................................................... 17 8.4 Reliance..................................................................................... 17 8.5 Indemnification.............................................................................. 17 8.6 The Agent, Individually...................................................................... 18 8.7 Resignation by the Agent..................................................................... 18 SECTION 9. PARENT GUARANTEE................................................................................ 18 ---------------- SECTION 10. MISCELLANEOUS................................................................................... 20 ------------- 10.1 Definitions.................................................................................. 20 10.2 Accounting Principles........................................................................ 27 10.3 Exercise of Rights........................................................................... 28 10.4 Amendment and Waiver......................................................................... 28 10.5 Expenses; Indemnification.................................................................... 28 10.6 Successors and Assigns....................................................................... 29 10.7 Notices, Requests, Demands................................................................... 30 10.8 Survival of Representations and Warranties................................................... 31 10.9 Governing Law................................................................................ 31 10.10 Counterparts................................................................................. 31 10.11 Terms Generally.............................................................................. 31 10.12 Effectiveness................................................................................ 31 10.13 Transfer of Office........................................................................... 31 10.14 Proration of Payments........................................................................ 31 10.15 Jurisdiction; Consent to Service of Process.................................................. 32 10.16 WAIVER OF JURY TRIAL......................................................................... 32 10.17 Headings Descriptive......................................................................... 33
ii Bank Address Schedule SCHEDULE I - Commitments EXHIBIT A - Form of Opinion of Senior Counsel of Finance Co. and Parent EXHIBIT B - Form of Opinion of Thelen Reid & Priest LLP EXHIBIT C - Form of Parent Compliance Certificate iii REVOLVING CREDIT AGREEMENT, dated as of December 21, 2000, among PPL CAPITAL FUNDING, INC., a Delaware corporation ("Finance Co."), as Borrower (the "Borrower"); PPL CORPORATION, a Pennsylvania corporation (the "Parent"), as guarantor of the obligations of Finance Co. hereunder; the banks listed on Schedule I hereto (each a "Bank" and collectively the "Banks"); and MORGAN STANLEY SENIOR FUNDING, INC., as administrative agent for the Banks to the extent and in the manner provided in (S) 8 below (in such capacity, the "Agent") (all capitalized terms used herein shall have the meanings specified therefor in (S) 10.1 unless otherwise defined herein). W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Borrower has requested that the Banks make available to the Borrower a revolving credit facility for working capital and other general corporate purposes of the Borrower, including investments in, or loans to, affiliates of the Borrower; WHEREAS, the Banks are willing to make available to the Borrower a revolving credit facility subject to and upon the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the Borrower, the Guarantor, the Banks and the Agent hereby agree as follows: SECTION 1. Amounts and Terms of Loans. -------------------------------------- 1.1 Commitments. Subject to and upon the terms and conditions herein set ---------------- forth, each Bank severally and not jointly agrees, at any time and from time to time prior to the Expiry Date, to make a loan or loans (each a "Loan" and collectively for all Banks, the "Loans") to the Borrower, as requested by the Borrower, which Loans (i) shall at the option of the Borrower be initially maintained as Base Rate Loans or Eurodollar Loans, provided that all the Loans made by all the Banks at any one Borrowing must be either all Base Rate Loans or all Eurodollar Loans, (ii) may be repaid and borrowed in accordance with the provisions hereof and (iii) shall not exceed in aggregate principal amount at any time outstanding each Bank's Commitment hereunder. 1.2 Notices of Borrowing. Whenever the Borrower desires to make a -------------------- Borrowing hereunder, it shall give to the Agent at the Payment Office (i) no later than 12:00 Noon (New York time) at least three Business Days' prior written notice or telephonic notice (confirmed in writing) of each Eurodollar Loan to be made hereunder and (ii) no later than 11:30 A.M. (New York time) on the date of such Borrowing written notice or telephonic notice (confirmed in writing) of each Base Rate Loan to be made hereunder. Each such notice (each a "Notice of Borrowing") shall state that the Borrowing is being made hereunder and shall specify the aggregate principal amount the Borrower desires to borrow hereunder, the date of Borrowing (which shall be a Business Day), the Type of Loans to be made pursuant to such Borrowing and the Interest Period to be applicable thereto. The Agent shall promptly give each Bank telephonic notice (confirmed in writing) of the proposed Borrowing, of such Bank's proportionate share thereof and of the other matters covered by a Notice of Borrowing. Each Borrowing shall be in an integral multiple of $1,000,000 and not less than $10,000,000 and shall be made from each Bank in the proportion which its respective Commitment bears to the Total Commitment except as otherwise specifically provided in (S) 2.5. The failure of any Bank to make any Loan required hereby shall not release any other Bank from its obligation to make Loans as provided herein. 1.3 Disbursement of Funds. No later than 12:00 Noon (New York time) (or, -------------------------- in the case of Base Rate Loans, 2:00 P.M. (New York time)) on the date specified in a Notice of Borrowing each Bank will make available the amount of its pro --- rata portion of the Loans requested to be made on such date in U.S. dollars and - ---- in immediately available funds, to the Agent at the Payment Office. The Agent will make available to the Borrower not later than 1:00 P.M. (New York time) (or, in the case of Base Rate Loans, 3:00 P.M. (New York time)) on such date at the Payment Office the aggregate of the amounts in immediately available funds made available by the Banks against delivery to the Agent at the Payment Office, or at such other office as the Agent may specify, of the documents and papers provided for herein. The Agent shall deliver the documents and papers received by it for the account of each Bank to such Bank or upon its order. 1.4 Repayment of Loans; Evidence of Debt. (a) The outstanding principal ------------------------------------ balance of each Loan shall be due and payable by the Borrower on the Expiry Date. Each Loan shall bear interest from the date thereof on the outstanding principal balance thereof as set forth in (S) 2.1. Each Bank shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness to such Bank resulting from each Loan made by such Bank from time to time to the Borrower, including the amounts of principal and interest payable and paid to such Bank from time to time under this Agreement. The Agent shall maintain the Register pursuant to (S) 1.4(b), and a subaccount for each Bank and the Borrower, in which Register and subaccounts (taken together) shall be recorded (i) the amount of each Loan made hereunder, the Type of each Loan made and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Bank hereunder and (iii) the amount of any sum received by the Agent hereunder from the Borrower and each Bank's share thereof. The entries made in the Register and accounts maintained pursuant to this (S) 1.4 shall be prima facie ----- ----- evidence of the existence and amounts of the obligations therein recorded; provided, however, that the failure of any Bank or the Agent to maintain such - -------- ------- account, such Register or such subaccount, as applicable, or any error therein shall not in any manner affect the obligations of the Borrower to repay the Loans in accordance with their terms. (b) The Agent shall maintain at the Payment Office a register for the recordation of the names and addresses of the Banks, the Commitments of the Banks from time to time, and the principal amount of the Loans owing to each Bank from the Borrower from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error. The Register shall be available for inspection by the Borrower, the Agent or any Bank at any reasonable time and from time to time upon reasonable prior notice. 1.5 Special Payment Provisions. Unless the Agent shall have been notified -------------------------- by any Bank prior to any date of a Borrowing that such Bank does not intend to make available to the Agent such Bank's portion of the Loans to be made on such date, the Agent may assume that such Bank has made such amount available to the Agent on such date of a Borrowing and the 2 Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is not in fact made available to the Agent by such Bank, the Agent shall be entitled to recover such amount on demand from such Bank. If such Bank does not pay such amount forthwith upon the Agent's demand therefor, the Agent shall promptly notify the Borrower and the Borrower shall pay such amount to the Agent. The Agent shall also be entitled to recover from such Bank or the Borrower, as the case may be, interest on such amount in respect of each day from the date such amount was made available by the Agent to the Borrower to the date such amount is recovered by the Agent, at a rate per annum equal to (i) in the case of such Bank, the Federal Funds Rate and (ii) in the case of the Borrower, the applicable rate provided in (S) 2.1 for the applicable Type of Loan. Nothing herein shall be deemed to relieve any Bank from its obligation to fulfill its Commitment hereunder or to prejudice any rights which the Borrower may have against any Bank as a result of the failure of such Bank to perform its obligations hereunder. 1.6 Compensation. The Borrower shall compensate each Bank, upon such ----------------- Bank's written request given promptly after learning of the same, for all losses, expenses and liabilities (including, without limitation, any interest paid by such Bank to lenders of funds borrowed by it to make or carry its Eurodollar Loans and any loss sustained by such Bank in connection with the re- employment of such funds), which the Bank sustains: (i) if for any reason (other than a failure of such Bank to perform its obligations) a Borrowing of any Eurodollar Loan does not occur on a date specified therefor in a Notice of Borrowing or Notice of Conversion (whether or not withdrawn or canceled pursuant to (S) 2.5 or otherwise), (ii) if any repayment or conversion (pursuant to (S) 2.5 or otherwise) of any of its Eurodollar Loans occurs on a date which is not the last day of the Interest Period applicable thereto, or (iii) without duplication of any amounts paid pursuant to (S) 2 hereof, as a consequence of any other default by the Borrower to repay its Eurodollar Loans when required by the terms of this Agreement. A certificate as to any amounts payable to any Bank under this (S) 1.6 submitted to the Borrower by such Bank shall show the amount payable and the calculations used to determine such amount and shall, absent manifest error, be final, conclusive and binding upon all parties hereto. 1.7 Commitment Fee. The Borrower agrees to pay to the Agent for pro rata ------------------- --- ---- distribution to each Bank a Commitment Fee (the "Commitment Fee"), for the period from the Closing Date until the Expiry Date or such earlier date as the Total Commitment shall be terminated by the Borrower, on the average daily unused amount of the Commitments, computed at the Applicable Commitment Fee Percentage per annum computed on the basis of the number of days actually elapsed over a year of 365 or 366 days and payable quarterly in arrears on the last day of each calendar quarter and on the Expiry Date or such earlier date as the Total Commitment shall be terminated by the Borrower. 1.8 Reductions in Total Commitments. (c) The Borrower shall have the ------------------------------------ right, upon at least 3 Business Days' prior written notice to the Agent at the Payment Office (which notice the Agent shall promptly transmit to each of the Banks), to reduce permanently the Total Commitment, in an aggregate amount equal to an integral multiple of $1,000,000 and not less than $10,000,000, or to terminate the unutilized portion of the Total Commitment, provided that (i) any -------- such reduction or termination shall apply proportionately to the Commitments of the Banks and (ii) no such termination or reduction shall be made that would reduce the Total Commitments to an amount less than the aggregate outstanding principal amount of Loans. 3 (d) The Total Commitment shall be automatically and permanently reduced on each date on which prepayment thereof is required to be made pursuant to (S)(S) 3.2(b)(i) or (ii) in an amount equal to such required prepayments, provided that any such reduction shall apply proportionately to the Commitments - -------- of the Banks. SECTION 2. Interest. -------------------- 2.1 Rates of Interest. (e) The Borrower agrees to pay interest in respect ---------------------- of the unpaid principal amount of each Base Rate Loan made to it from the date the proceeds thereof are made available to it until prepayment pursuant to (S) 3 or maturity (whether by acceleration or otherwise) at a rate per annum which shall be the Base Rate in effect from time to time. (f) The Borrower agrees to pay interest in respect of the unpaid principal amount of each Eurodollar Loan made to it from the date the proceeds thereof are made available to it until prepayment pursuant to (S) 3 or maturity (whether by acceleration or otherwise) at a rate per annum which shall be the relevant Quoted Rate plus the Applicable Eurodollar Margin plus the Applicable Utilization Fee, if any. (g) The Borrower agrees to pay interest in respect of overdue principal of, and (to the extent permitted by law) overdue interest in respect of, each Loan made to it, on demand, at a rate per annum which shall be 2% in excess of the Base Rate in effect from time to time. (h) Interest shall be computed on the actual number of days elapsed on the basis of a 360-day year; provided, however, that for any rate of interest -------- ------- determined by reference to the Prime Rate, interest shall be computed on the actual number of days elapsed on the basis of a year of 365 or 366 days. (i) In computing interest on the Loans, the date of the making of a Loan shall be included and the date of payment shall be excluded, provided, -------- however, that if a Loan is repaid on the same day on which it is made, such day - ------- shall nevertheless be included in computing interest thereon. 2.2 Determination of Rate of Borrowing. As soon as practicable after --------------------------------------- 10:00 A.M. (New York time) on the second Business Day prior to the commencement of any Interest Period with respect to a Eurodollar Loan, the Agent shall determine (which determination, absent manifest error, shall be final, conclusive and binding upon all parties) the rate of interest which shall be applicable to such Eurodollar Loan for the Interest Period applicable thereto and shall promptly give notice thereof (in writing or by telephone, confirmed in writing) to the Borrower and the Banks. In the event that there is no applicable rate for such Eurodollar Loan: (i) the Agent shall promptly give notice thereof (in writing or by telephone, confirmed in writing) to the Borrower and the Banks, (ii) such Loan shall be deemed to have been requested to be made as a Base Rate Loan and (iii) the rate applicable to such Loan shall be the Base Rate in effect from time to time. 2.3 Interest Payment Dates. Accrued interest shall be payable (i) in --------------------------- respect of each Eurodollar Loan, at the end of the Interest Period relating thereto and in respect of each Loan with an Interest Period of longer than 3 months, on each 3-month anniversary of the first day of such Interest Period, (ii) in respect of each Base Rate Loan, at the end of each Interest Period 4 relating thereto and (iii) in respect of each Loan, on any prepayment (on the amount prepaid), at maturity (whether by acceleration or otherwise) and, after maturity, on demand. 2.4 Conversions; Interest Periods. (j) The Borrower shall have the option ---------------------------------- to convert on any Business Day all or a portion at least equal to $10,000,000 of the outstanding principal amount of the Loans made to it pursuant to one or more Borrowings of one Type of Loans into a Borrowing or Borrowings of another Type of Loan, provided that (i) except as provided in (S) 2.5(b), Eurodollar Loans -------- may be converted into Base Rate Loans only on the last day of an Interest Period applicable thereto and no partial conversion of a Borrowing of Eurodollar Loans shall reduce the outstanding principal amount of the Loans pursuant to such Borrowing to less than $10,000,000 and (ii) Loans may only be converted into Eurodollar Loans if no Default or Event of Default with respect to the Borrower is in existence on the date of the conversion. Each such conversion shall be effected by the Borrower by giving the Agent at its Payment Office, prior to 12:00 Noon (New York time), at least three Business Days (or by 12:00 Noon on the same Business Day in the case of a conversion into Base Rate Loans) prior written notice (or telephonic notice promptly confirmed in writing) (each a "Notice of Conversion") specifying the Loans to be so converted, the Borrowing or Borrowings pursuant to which such Loans were made, the Type of Loans to be converted into and, if to be converted into a Borrowing of Eurodollar Loans, the Interest Period to be initially applicable thereto. The Agent shall give each Bank prompt notice of any such proposed conversion. (k) At the time the Borrower gives a Notice of Borrowing or Notice of Conversion in respect of the making of, or conversion into, a Borrowing of Eurodollar Loans (in the case of the initial Interest Period applicable thereto) or prior to 12:00 Noon (New York time) on the third Business Day prior to the expiration of an Interest Period applicable to a Borrowing of Eurodollar Loans (in the case of any subsequent Interest Period), the Borrower shall have the right to elect, by giving the Agent written notice (or telephonic notice promptly confirmed in writing), the Interest Period applicable to such Borrowing, which Interest Period shall, at the option of the Borrower, be a one, two, three or six month period or, subject to availability on the part of each Bank, such shorter period as ends on the Expiry Date. Notwithstanding anything to the contrary contained above: (i) the initial Interest Period for a Borrowing of Eurodollar Loans shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing of Base Rate Loans) and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires; (ii) if any Interest Period applicable to a Borrowing of Eurodollar Loans begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; (iii) no Interest Period in respect of a Borrowing of Loans shall extend beyond the Expiry Date; and 5 (iv) all Eurodollar Loans comprising a Borrowing shall at all times have the same Interest Period. If upon the expiration of any Interest Period, the Borrower has failed to elect a new Interest Period to be applicable to a Borrowing of Eurodollar Loans as provided above or is unable to elect a new Interest Period as a result of (S) 2.4(a)(ii) above, the Borrower shall be deemed to have elected to convert such Borrowing into a Borrowing of Base Rate Loans effective as of the expiration date of such current Interest Period. 2.5 Increased Costs, Illegality, Etc. (l) In the event that any Bank ------------------------------------- (including the Agent) shall have reasonably determined (which determination shall be final and conclusive and binding upon all parties but, with respect to the following clauses (i), (ii) and (iii), shall be made only after consultation with the Borrower and the Agent on the date of such determination) that: (i) on any date for determining the Quoted Rate for any Interest Period, by reason of any change after the date hereof affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the applicable interest rate by reference to the Quoted Rate; or (ii) at any time, by reason of (y) any change after the date hereof in any applicable law or governmental rule, regulation or order (or any interpretation thereof by a governmental authority or otherwise (provided -------- that, in the case of an interpretation not by a governmental authority, such interpretation shall be made in good faith and shall have a reasonable basis) and including the introduction of any new law or governmental rule, regulation or order), to the extent not provided for in clause (iii) below, or (z) in the case of Eurodollar Loans, other circumstances affecting such Bank or the interbank Eurodollar market or the position of such Bank in such market, the Quoted Rate shall not represent the effective pricing to such Bank for funding or maintaining the affected Eurodollar Loan; or (iii) at any time, by reason of the requirements of Regulation D or other official reserve requirements, the Quoted Rate shall not represent the effective pricing to such Bank for funding or maintaining the affected Eurodollar Loan; or (iv) at any time, that the making or continuance of any Eurodollar Loan has become unlawful by compliance by such Bank in good faith with any law, governmental rule, regulation, guideline or order, or would cause severe hardship to such Bank as a result of a contingency occurring after the date hereof which materially and adversely affects the interbank Eurodollar market; then, and in any such event, the Bank so affected shall on such date of determination give notice (by telephone confirmed in writing) to the Borrower and to the Agent (who shall give similar notice to each Bank) of such determination. Thereafter, (x) in the case of clause (i), (ii) or (iii) above, the Borrower shall pay to such Bank, upon written demand therefor, such additional amounts deemed in good faith by such Bank to be material (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Bank in its discretion shall determine) as shall be required to cause such Bank to receive interest with respect to its affected 6 Eurodollar Loan at a rate per annum equal to the then Applicable Eurodollar Margin in excess of the effective pricing to such Bank to make or maintain such Eurodollar Loan and (y) in the case of clause (iv), the Borrower shall take one of the actions specified in (S) 2.5(b) as promptly as possible and, in any event, within the time period required by law. A certificate as to additional amounts owed any such Bank, showing in reasonable detail the basis for the calculation thereof, submitted to the Borrower and the Agent by such Bank shall, absent manifest error, be final, conclusive and binding upon all of the parties hereto. (m) At any time that any of its Loans are affected by the circumstances described in (S) 2.5(a) the Borrower may (i) if the affected Eurodollar Loan is then being made pursuant to a Borrowing, cancel said Borrowing by giving the Agent notice thereof by telephone (confirmed in writing) on the same date that the Borrower was notified by the affected Bank pursuant to (S) 2.5(a) or (ii) if the affected Eurodollar Loan is then outstanding, upon at least 3 Business Days' written notice to the Bank, require the Bank to convert such Eurodollar Loan into a Base Rate Loan; provided that if more than one Bank -------- is affected at any time, then all affected Banks must be treated in the same manner pursuant to this (S) 2.5(b). (n) In the event that the Borrower shall be paying additional amounts to a Bank pursuant to (S) 2.5(a)(i), (ii) or (iii) or (S) 2.5(d) (and, in the case of (S) 2.5(d), such Bank has not eliminated the increased costs by designating a new Applicable Lending Office) or is unable to incur a Eurodollar Loan from such Bank because of the existence of a condition described in (S) 2.5(a)(iv) (any such Bank, an "Affected Bank") covering a period of 90 consecutive days, the Borrower, the Agent and the Affected Bank shall consult with a view towards (but being under no obligation to) amending this Agreement, with the consent of the Banks other than the Affected Bank (the "Unaffected Banks") which, at such time, have outstanding two-thirds of the aggregate principal amount of the Loans outstanding hereunder (exclusive of the aggregate principal amount of the Loans outstanding of the Affected Bank), to provide for (i) the termination of the Affected Bank's Commitment, provided that such -------- termination is accompanied by payment in full of the outstanding amount of all Loans of the Affected Bank, interest accrued on such amount to the date of payment and all other liabilities and obligations of the Borrower hereunder (including, without limitation, amounts payable pursuant to (S) 1.6, (S) 2.5(a) or (S) 2.5(d)) with respect to the Affected Bank, and (ii) the substitution of another bank for the Affected Bank and/or the increase, pro rata or otherwise, --- ---- of the Commitments of the Unaffected Banks or otherwise, so that the Total Commitment remains the amount which would be applicable in the absence of the occurrence of clause (i) of this (S) 2.5(c); provided that no Commitment of any -------- Unaffected Bank may be changed without the consent of such Bank. (o) If any Bank reasonably determines at any time that any applicable law or governmental rule, regulation, order or request (whether or not having the force of law) concerning capital adequacy, or any change in interpretation or administration thereof by any governmental authority, central bank or comparable agency, will have the effect of increasing the amount of capital required or expected to be maintained by such Bank based on the existence of such Bank's Commitment hereunder or its obligations hereunder, then promptly upon receipt of a written demand from such Bank meeting the requirements of this (S) 2.5(d), the Borrower agrees to pay such Bank such additional amounts as shall be required to compensate such Bank for the increased cost to such Bank of making Loans to the Borrower, as a result of such increase in capital for the first Compensation Period (as defined below). After the initial written demand for 7 payment in respect of this (S) 2.5(d) is delivered to the Borrower by such Bank, written demand for payment may be submitted for each Compensation Period thereafter that this Agreement remains in effect as to such Bank. Each such written demand shall (i) specify (a) the event pursuant to which such Bank is entitled to claim the additional amount, (b) the date on which the event occurred and became applicable to the Bank and (c) the Compensation Period for which the amount is due and (ii) set out in reasonable detail the basis and computation of such additional amount. Each period for which the additional amounts may be claimed by such Bank (a "Compensation Period") shall be the lesser of (x) the number of days actually elapsed since the date the event occurred and became applicable to such Bank or (y) 90 days. Payments made by the Borrower to any Bank in respect of this (S) 2.5(d) shall be made on the last day of the Compensation Period specified in each written demand with a final payment to be made on the date of termination of this Agreement as to such Bank. Provided that each Bank acts reasonably and in good faith and uses averaging and attribution methods which are reasonable in determining any additional amounts due under this (S) 2.5(d), such Bank's determination of compensation owing under this (S) 2.5(d) shall, absent manifest error, be final and conclusive and binding on all the parties hereto. No Bank shall be entitled to compensation under this (S) 2.5(d) for any costs incurred with respect to any date unless it shall have notified the Borrower that it will demand compensation for such costs not more than 60 days after the later of (i) such date and (ii) the date on which it shall have become aware of such costs. (p) Each Bank agrees that, upon the occurrence of any event giving rise to the operation of (S) 2.5(d) with respect to such Bank, such Bank shall, if requested by the Borrower, designate another Applicable Lending Office for any Loans affected by such event with the objective of eliminating, avoiding or mitigating the consequence of the event giving rise to the operation of such section; provided that such Bank and its Applicable Lending Office shall not, in -------- the sole judgment of such Bank, suffer any economic, legal or regulatory disadvantage. Nothing in this (S) 2.5(e) shall affect or postpone any of the obligations of the Borrower or the right of any Bank provided in (S) 2.5(d). SECTION 3. Payments. -------------------- 3.1 Payments on Non-Business Days. Whenever any payment to be made ---------------------------------- hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, if a payment of principal has been so extended, interest shall be payable on such principal at the applicable rate during such extension. 3.2 Prepayments. (q) Voluntary Prepayments. The Borrower shall have the ---------------- --------------------- right to prepay the Loans in whole or in part, without premium or penalty, from time to time pursuant to this (S) 3.2(a) on the following terms and conditions: (i) the Borrower shall give the Agent at the Payment Office at least 3 Business Days' prior written notice or telephonic notice (confirmed in writing) of its intent to prepay such Loans, which notice shall specify the amount of such prepayment and the specific Borrowing to be prepaid, which notice the Agent shall promptly transmit to each of the Banks; (ii) each prepayment shall be in an integral multiple of $1,000,000 and not less than $10,000,000 (or, if less, the amount then remaining outstanding in respect of the Borrowing being prepaid); (iii) each prepayment in respect of Loans made pursuant to one Borrowing shall be applied pro rata among the Banks on the basis of such Loans, --- ---- except as otherwise provided in (S) 2.5; and (iv) at the time of any prepayment, the Borrower shall pay all 8 interest accrued on the principal amount of said prepayment and, if the Borrower prepays any Eurodollar Loan on any day other than the last day of an Interest Period applicable thereto, the Borrower shall compensate the Banks for losses sustained as a result of such prepayment to the extent and as provided in (S) 1.6. (r) Mandatory Prepayments. (i) The Borrower shall, within 10 -------------------------- business days of receipt of Net Cash Proceeds (A) by the Parent or the Borrower from the issuance by the Parent or the Borrower of Specified Equity or (B) by the Parent, the Borrower or PPL Energy Supply from the issuance by the Parent, the Borrower or PPL Energy Supply of Specified Debt, prepay an aggregate outstanding principal amount of the Loans in an amount equal to the amount of such Net Cash Proceeds. The provisions set forth in (S)(S) 3.2(a)(iii) and (iv) shall be applicable to the prepayments made under this (S) 3.2(b). (ii) The Borrower shall, on each Business Day, prepay an aggregate principal amount of the Loans comprising part of the same Borrowings, in an amount equal to the amount by which the aggregate principal amount of the outstanding Loans exceeds the Total Commitment on such Business Day. 3.3 Method and Place of Payment, Etc. Except as expressly provided ------------------------------------- herein, all payments under this Agreement shall be made to the Agent for the ratable account of the Banks not later than Noon (New York time) on the date when due and shall be made in freely transferable U.S. dollars and in immediately available funds at the Payment Office (or, if such payment is made in respect of principal of or interest on any Eurodollar Loan, for the account of such non-U.S. office of the Agent as the Agent may from time to time direct). Unless the Agent shall have been notified by the Borrower prior to the date on which any payment to be made by the Borrower hereunder is due that the Borrower does not intend to remit such payment, the Agent may, at its discretion, assume that the Borrower has remitted such payment when so due and the Agent may, at its discretion and in reliance upon such assumption, make available to each Bank (for the account of its applicable lending office) on such payment date an amount equal to such Bank's share of such assumed payment. If the Borrower has not in fact remitted such payment to the Agent, each Bank shall forthwith on demand repay to the Agent the amount of such assumed payment made available to such Bank together with interest thereon in respect of each day from and including the date such amount was made available by the Agent to such Bank to the date such amount is repaid to the Agent at a rate per annum equal to the Federal Funds Rate. On the commencement date of each Interest Period and on each date occurring two Business Days prior to an Interest Payment Date, the Agent shall notify the Borrower of the amount of interest and/or fees due at the end of such Interest Period or on such Interest Payment Date (assuming, in the case of Base Rate Loans, that there is no change in the rate of interest applicable to the applicable Base Rate Loan); provided, however, that failure to so notify -------- ------- the Borrower shall not affect the Borrower's obligation to make any such payments. 3.4 Net Payments. All payments under this Agreement shall be made without ----------------- set-off or counterclaim and in such amounts as may be necessary in order that all such payments of principal and interest in connection with Loans (after deduction or withholding for or on account of (i) any present or future taxes, levies, imposts, duties or other charges of whatsoever nature imposed by any government or any political subdivision or taxing authority thereof, excluding any tax on or measured by the net income of a Bank pursuant to the income tax laws of the 9 jurisdiction where such Bank's principal or lending office is located or in which such Bank maintains a place of business (all such non-excluded taxes, levies, imposts, duties or other charges, the "Taxes") and (ii) any taxes on or measured by the net income payable by any such Bank with respect to the amount by which the payments required to be made by this (S) 3.4 exceed the amount otherwise specified to be paid under this Agreement) shall not be less than the amounts otherwise specified to be paid under this Agreement; and the Borrower further agrees to pay and to save the Agent and the Banks (and any participant, to the extent provided in Section 10.6(b)(B)) harmless, on an after-tax basis, from all liability for Taxes on or in connection with Loans or any payments thereunder, and any interest, penalties or additions with respect thereto, provided, however, that such interest, penalties and additions are not a result - -------- ------- of any action, omission or failure to act on the part of the Agent or the Banks. A certificate as to any additional amounts payable to any Bank under this (S) 3.4 submitted to the Borrower by such Bank shall show in reasonable detail the amount payable and the calculations used to determine such amount and shall, absent manifest error, be final, conclusive and binding upon all parties hereto. With respect to each deduction or withholding for or on account of any Taxes, the Borrower shall promptly furnish to each Bank such certificates, receipts and other documents as may be required (in the judgment of such Bank) to establish any tax credit to which such Bank may be entitled. SECTION 4. Conditions Precedent. -------------------------------- 4.1 Conditions to Effectiveness. On the Closing Date: -------------------------------- (b) The Agent shall have received from the general counsel or senior counsel of PPL a favorable opinion dated the Closing Date substantially in the form of Exhibit A hereto. (c) The Agent shall have received an opinion of Thelen Reid & Priest LLP, counsel for Finance Co. and Parent, addressed to the Agent and the Banks, dated the Closing Date, with respect to the enforceability of this Agreement against Finance Co., and with respect to the enforceability of the guarantee hereunder by Parent of the obligations of Finance Co. against Parent, substantially in the form of Exhibit B hereto. (d) All corporate and legal proceedings and all instruments in connection with the transactions contemplated by this Agreement (including resolutions of the Board of Directors of Finance Co. and Parent and certificates as to the incumbency of the officers signing this Agreement or any certificate delivered in connection herewith) shall be satisfactory in form and substance to the Agent, and the Agent shall have received all information and copies of all documents that it has requested, such documents where appropriate to be certified by proper corporate or governmental authorities. (e) The Agent shall have received from each of the Banks, Finance Co. and Parent a duly executed and delivered counterpart hereof. (f) The conditions set forth in (S) 4.2 (other than (S) 4.2(c)) shall have been satisfied. 10 (g) The Agent shall have received from the Parent a duly executed and delivered counterpart of the fee letter dated as of December 21, 2000 and shall have received any fees payable thereunder through the Closing Date. 4.2 Conditions to Each Loan to Finance Co. The obligation of each Bank to ------------------------------------------ make each Loan to Finance Co. (excluding any conversions of one Type of Loan to another Type pursuant to (S) 2.5(b)) hereunder is subject, at the time of the making of each such Loan (except as hereinafter indicated), to the satisfaction of the following conditions, with the making of each such Loan constituting a representation and warranty by Finance Co. that the conditions specified in (S)(S) 4.2(a), (b) and (d) below are then satisfied: (h) No Default. At the time of the making of each such Loan to ---------- Finance Co. and after giving effect thereto, there shall exist no Default or Event of Default. (i) Representations and Warranties. At the time of the making of ------------------------------ each such Loan to Finance Co. and after giving effect thereto, all representations and warranties contained in (S) 7 hereof shall be true and correct with the same force and effect as though such representations and warranties had been made as of such time. (j) Notice of Borrowing. The Agent shall have received a Notice of ------------------- Borrowing from Finance Co. as required by (S) 1.2. (k) No Adverse Change. Since December 31, 1999, there shall have ----------------- been no change in the business, assets, financial condition or operations of Parent and its Subsidiaries taken as a whole which materially and adversely affects the ability of Parent to perform any of its obligations hereunder. SECTION 5. Covenants of Finance Co. and Parent. While this Agreement ----------------------------------------------- is in effect and until the Total Commitment has been terminated and all obligations of Finance Co. and Parent hereunder shall have been paid in full, each of Finance Co. and Parent agrees that: 5.1 Financial Statements. Parent will furnish to each Bank: ------------------------- (l) within 120 days after the end of each fiscal year (i) an auditors' report, including a balance sheet as at the close of such fiscal year and statements of income, shareowners' common equity and cash flows for such year for Parent and its consolidated Subsidiaries prepared in conformity with GAAP, with an opinion expressed by PricewaterhouseCoopers LLP or other independent auditors of recognized standing selected by it and (ii) Parent's unconsolidated balance sheet as at the close of such fiscal year and statements of income, shareholders common equity and cash flows for such year; (m) within 60 days after the end of each of the first three quarters in each fiscal year, a balance sheet as at the close of such quarterly period and statements of income, shareowners' common equity and cash flows for such quarterly period for (i) Parent and its consolidated Subsidiaries prepared in conformity with GAAP, and (ii) Parent's unconsolidated balance sheet as at the close of such quarterly period and statements of income, shareowners' common equity and cash flow for such quarterly period; 11 (n) within 120 days after the end of each fiscal year, a copy of Parent's Form 10-K Report to the Securities and Exchange Commission ("SEC") and within 60 days after the end of each of the first three quarters in each fiscal year, a copy of Parent's Form 10-Q Report to the SEC; (o) from time to time, with reasonable promptness, such further information regarding Parent's business, affairs and financial condition as any Bank may reasonably request; and (p) upon acquiring knowledge of the existence of a Default or Event of Default with respect to Finance Co. a certificate of a financial officer of Parent and an officer of Finance Co. specifying: (i) the nature of such Default or Event of Default, (ii) the period of the existence thereof, and (iii) the actions that Parent and Finance Co. propose to take with respect thereto. The financial statements required to be furnished pursuant to clauses (a) and (b) above shall be accompanied by a certificate of a principal financial officer of Parent to the effect that no Default or Event of Default with respect to Finance Co. has occurred and is continuing. The financial statements required to be furnished pursuant to clause (a) above shall also be accompanied by a Compliance Certificate in the form of Exhibit C hereto ("Parent Compliance Certificate") demonstrating compliance with (S) 5.5. 5.2 Mergers. (i) (1) Parent will not merge or consolidate with any Person ------------ if Parent is not the survivor unless (a) the survivor assumes Parent's obligations hereunder, (b) substantially all of the consolidated assets and consolidated revenues of the survivor are anticipated to come from a utility or energy business or utility or energy businesses and (c) the senior unsecured debt ratings of the survivor by Moody's or S&P, as available (or if the ratings of Moody's and S&P are not available, of such other rating agency as shall be acceptable to the Required Banks), are at least equal to the ratings of Parent's senior unsecured debt immediately prior to such merger or consolidation; and (2) Parent will not dispose of any common stock of the Borrower or any securities convertible into common stock of the Borrower, except in connection with any merger or consolidation permitted under this (S) 5.2, and except that Parent shall be allowed to sell, transfer or otherwise dispose of PPL's common stock to PPL or any Subsidiary of Parent. (ii) Finance Co. will not merge into or consolidate with any other Person except (a) Parent or a successor of Parent permitted by this Section or (b) any other Person which is a wholly owned subsidiary of Parent or a successor of Parent permitted by this Section. 5.3 Ratings. Finance Co. and Parent will each use their best efforts to ------------ promptly notify the Banks upon obtaining knowledge of any change in, or cessation of, ratings of Parent's senior unsecured debt by Moody's or S&P. 5.4 Liens. Parent will not create, incur, or suffer to exist any Lien in ---------- or on the common stock of PPL or Finance Co. or on securities convertible into the common stock of PPL or Finance Co. (in either case, now or hereafter acquired) other than Permitted Liens. 12 5.5 Consolidated Indebtedness to Consolidated Capitalization. The ratio ------------------------------------------------------------- of Consolidated Indebtedness of Parent to Consolidated Capitalization of Parent shall not exceed 70% at any time. SECTION 6. Events of Default with Respect to Finance Co. -------------------------------------------- Each of the following events shall constitute an "Event of Default": 6.1 Representations, Etc. Any certificate furnished by Finance Co. -------------------- or Parent to the Banks pursuant hereto shall prove to have been incorrect in any material respect or any of the representations and warranties made by Finance Co. or Parent herein or in connection herewith shall prove to have been incorrect in any material respect when made; or 6.2 Principal and Interest. Either Finance Co. or Parent shall fail ---------------------- to make any payment of principal on any Loan to Finance Co. or any other payment payable by Finance Co. or Parent hereunder when due or, in the case of interest or fees, within 10 days of the due date thereof; or 6.3 Defaults by Finance Co. or Parent Under Other Agreements. -------------------------------------------------------- Finance Co. or Parent shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness in a principal amount in excess of $40,000,000, in the case of Indebtedness of Parent or Indebtedness of Finance Co. guaranteed by Parent or, in the case of Indebtedness of Finance Co. not guaranteed by Parent, $10,000,000, if such failure shall continue beyond any period of grace provided with respect thereto, or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument (including any term, covenant, condition or agreement herein) evidencing or governing any such Indebtedness in a principal amount in excess of, in the case of Indebtedness of Parent or Indebtedness of Finance Co. guaranteed by Parent, $40,000,000 or, in the case of Indebtedness of Finance Co. not guaranteed by Parent, $10,000,000, if such failure shall continue beyond any period of grace provided with respect thereto if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee on its or their behalf to cause, such Indebtedness to become due prior to its stated maturity; or 6.4 Judgments. Finance Co. or Parent shall fail within 60 days to --------- pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $25,000,000 that is not stayed on appeal or otherwise being appropriately contested in good faith; or 6.5 Bankruptcy, Etc. Finance Co. or Parent shall commence a --------------- voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy" as now or hereafter in effect or any successor thereto (the "Bankruptcy Code"); or an involuntary case shall be commenced against Finance Co. or Parent or such case shall be controverted but shall not be dismissed within 60 days after the commencement of the case; or Finance Co. or Parent shall not generally be paying its debts as they become due; or a custodian (as defined in the Bankruptcy Code) shall be appointed for, or shall take charge of, all or 13 substantially all of the property of Finance Co. or Parent or Finance Co. or Parent shall commence any other proceeding under any reorganization, arrangement, readjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to Finance Co. or Parent or there shall be commenced against Finance Co. or Parent any such proceeding which remains undismissed for a period of 60 days or Finance Co. or Parent shall be adjudicated in solvent or bankrupt; or Finance Co. or Parent shall fail to controvert in a timely manner any such case under the Bankruptcy Code or any such proceeding, or any order of relief or other order approving any such case or proceeding shall be entered; or Finance Co. or Parent by any act or failure to act shall indicate its consent to, approval of or acquiescence in any such case or proceeding or in the appointment of any custodian or the like for it or any substantial part of its property or shall suffer any such appointment to continue undischarged or unstayed for a period of 60 days; Finance Co. or Parent shall make a general assignment for the benefit of creditors; or any corporate action shall be taken by Finance Co. or Parent for the purpose of effecting any of the foregoing; or 6.6 Other Covenants. Finance Co. or Parent shall fail to perform or --------------- observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and any such failure shall remain unremedied for a period of 30 days after written notice thereof shall have been received by Finance Co. or Parent, as the case may be, from the Agent or the Required Banks. If any Event of Default as specified in this (S) 6 shall then be continuing, then either or both of the following actions may be taken: (i) the Agent, at the direction of the Required Banks, shall by written notice to Parent and Finance Co., declare the principal of and accrued interest in respect of all of the outstanding Loans to be, whereupon the same and all other amounts due hereunder shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by Parent and Finance Co., anything contained herein to the contrary notwithstanding, and (ii) the Agent, at the direction of the Required Banks, shall, by written notice to Parent and Finance Co., declare the Total Commitment terminated, whereupon the Commitment of each Bank and the obligation of each Bank to make its Loans hereunder shall terminate immediately and any accrued Commitment Fee owed shall forthwith become due and payable without any other notice of any kind; provided that if an Event of Default described in (S) 6.5 -------- shall occur with respect to Finance Co., the results which would otherwise occur only upon the giving of written notice by the Agent to Finance Co. as specified in clauses (i) and (ii) above shall occur automatically without the giving of any such notice and without any instruction by the Required Banks to give such notice. SECTION 7. Representations and Warranties of Finance Co. and Parent. -------------------------------------------------------------------- In order to induce the Banks to enter into this Agreement and to make the Loans to Finance Co. as provided for herein, each of Finance Co. and Parent makes the following representations and warranties to the Banks: 7.1 Corporate Status. Parent is duly incorporated, validly existing ---------------- and in good standing under the laws of the Commonwealth of Pennsylvania, and has the corporate power to make and perform this Agreement, and Finance Co. is duly incorporated, 14 validly existing and in good standing under the laws of the State of Delaware, and has the corporate power to make and perform this Agreement and to borrow hereunder. 7.2 Authority; No Conflict. The making and performance by Parent ---------------------- and Finance Co. of this Agreement have been duly authorized by all necessary corporate action and do not and will not violate any provision of law or regulation, or any decree, order, writ or judgment, or any provision of its charter or by-laws, or result in the breach of or constitute a default under any indenture or other agreement or instrument to which Parent or Finance Co., as the case may be, is a party. 7.3 Legality, Etc. This Agreement constitutes the legal, valid and ------------- binding obligation of each of Parent and Finance Co., enforceable against Parent or Finance Co., as the case may be, in accordance with its terms except to the extent limited by bankruptcy, insolvency or reorganization laws or by other laws relating to or affecting the enforceability of creditors' rights generally and by general equitable principles which may limit the right to obtain equitable remedies. 7.4 Financial Statements. The consolidated financial statements of -------------------- Parent for the year ended as at December 31, 1999, furnished to the Banks, fairly present Parent's consolidated financial position at December 31, 1999 and the results of its consolidated operations for the year then ended and were prepared in accordance with GAAP. Since that date there has been no adverse change in the business, assets, financial condition or operations of Parent that would materially and adversely affect its ability to perform any of its obligations hereunder. 7.5 Litigation. Except as disclosed in or contemplated by Parent's ---------- Form 10-K Report to the SEC for the year ended December 31, 1999, or in any subsequent Form 10-Q Report or otherwise furnished in writing to the Banks, no litigation, arbitration or administrative proceeding against Parent or Finance Co. is pending or, to Parent's knowledge, threatened, which, if determined adversely, would materially and adversely affect the ability of Parent to perform any of its obligations under this Agreement. There is no litigation, arbitration or administrative proceeding pending or, to the knowledge of Parent, threatened which questions the validity of this Agreement. 7.6 No Violation. No part of the proceeds of the borrowings by ------------ Finance Co. under this Agreement will be used, directly or indirectly by Finance Co. or any Subsidiary of Parent for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or for any other purpose which violates, or which conflicts with, the provisions of Regulation U or X of said Board of Governors. Neither Parent nor Finance Co. is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any such "margin stock." 7.7 ERISA. There have not been any "reportable events," as that ----- term is defined in Section 4043 of the Employee Retirement Income Security Act of 1974, as amended, which would result in a material liability to Parent. 15 7.8 Consents. No authorization, consent or approval from -------- governmental bodies or regulatory authorities is required for the making and performance by Parent or Finance Co. of this Agreement, except such authorizations, consents and approvals as have been obtained prior to the making of any Loans and are in full force and effect at the time of the making of each Loan. 7.9 Investment Company Act. Neither Parent nor Finance Co. is an ---------------------- "investment company" that is required to be registered under the Investment Company Act of 1940, as amended, in order not to be subject to the prohibitions of Section 7 of such Act. 7.10 Public Utility Holding Company Act. Parent is a "holding ---------------------------------- company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, but is exempt from such Act (except for the provisions of Section 9(a)(2) thereof) by virtue of an order of the SEC pursuant to Section 3(a)(1) thereof. Finance Co. is not a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 7.11 Tax Returns. Parent and Finance Co. have filed or caused to be ----------- filed all Federal, state, local and foreign tax returns or materials required to have been filed by it and has paid or caused to be paid all taxes due and payable by it and all assessments received by it, except taxes that are being contested in good faith by appropriate proceedings and for which Parent shall have set aside on its books appropriate reserves with respect thereto in accordance with GAAP. 7.12 Compliance with Laws. Each of Parent and Finance Co. is in -------------------- compliance with all laws, regulations and orders of any governmental authority except to the extent (A) such compliance is being contested in good faith by appropriate proceedings or (B) non-compliance would not reasonably be expected to materially and adversely affect its ability to perform any of its obligations hereunder. SECTION 8. Agent ----------------- 8.1 Appointment. The Banks hereby appoint Morgan Stanley Senior Funding, ---------------- Inc. as Agent (such term to include Agent acting as Agent) to act as herein specified. Each Bank hereby irrevocably authorizes, and each assignee of any Bank shall be deemed irrevocably to authorize, the Agent to take such action on their behalf under the provisions of this Agreement and any instruments, documents and agreements referred to herein (such instruments, documents and agreements being herein referred to as the "Loan Documents") and to exercise such powers hereunder and thereunder as are specifically delegated to the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder, or under the Loan Documents, by or through its agents or employees. 8.2 Nature of Duties. The duties of the Agent shall be mechanical and --------------------- administrative in nature. The Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Bank. Nothing in this Agreement or any of the Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations 16 respect of this Agreement or any of the Loan Documents except as expressly set forth herein. Each Bank shall make its own independent investigation of the financial condition and affairs of Finance Co. and Parent and each of their Subsidiaries in connection with the making and the continuance of the Loans hereunder and shall make its own appraisal of the creditworthiness of Parent and Finance Co.; and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Bank with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter. The Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible to any Bank for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care except to the extent otherwise required by (S) 8.3. 8.3 Rights, Exculpation, Etc. Neither the Agent nor any of its officers, ------------------------------ directors, employees, agents, attorneys-in-fact or affiliates shall be liable to any Bank for any action taken or omitted by it hereunder or under any of the Loan Documents, or in connection herewith or therewith, unless caused by its or their gross negligence or willful misconduct. The Agent shall not be responsible to any Bank for any recitals, statements, representations or warranties herein or for the execution, effectiveness, genuineness, validity, enforceability, collectibility, or sufficiency of this Agreement or any of the Loan Documents or the financial condition of Finance Co. or Parent. The Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any of the Loan Documents or the financial condition of Finance Co. or Parent, or the existence or possible existence of any Default or Event of Default. The Agent may at any time request instructions from the Banks with respect to any actions or approvals which by the terms of this Agreement or any of the Loan Documents the Agent is permitted or required to take or to grant, and if such instructions are requested, the Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from any action or withholding any approval under this Agreement or any of the Loan Documents until it shall have received such instructions from the Required Banks or all Banks, as required. Without limiting the foregoing, no Bank shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder or under any of the Loan Documents in accordance with the instructions of the Required Banks or all Banks, as required. 8.4 Reliance. The Agent shall be entitled to rely upon any written ------------- notice, statement, certificate, order or other document or any telephone message believed by it to be genuine and correct and to have been signed, sent or made by the proper Person, and, with respect to all legal matters pertaining to this Agreement or any of the Loan Documents and its duties hereunder or thereunder, upon advice of counsel selected by it. 8.5 Indemnification. To the extent that the Agent is not reimbursed and -------------------- indemnified by Parent or Finance Co., the Banks will reimburse and indemnify the Agent for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent, acting pursuant hereto, in any way relating to or arising out of this Agreement or any of the Loan Documents or any action taken or omitted by the Agent under 17 this Agreement or any of the Loan Documents, in proportion to their respective Commitments hereunder; provided, however, that no Bank shall be liable for any -------- ------- portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. The obligations of the Banks under this (S) 8.5 shall survive the payment in full of outstanding Loans and the termination of this Agreement. 8.6 The Agent, Individually. With respect to its Commitment hereunder ---------------------------- and the Loans made by it, the Agent shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Bank. The terms "Banks," "Required Banks" or any similar terms shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity as a Bank or one of the Required Banks. The Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with Finance Co. or Parent as if it were not acting pursuant hereto. 8.7 Resignation by the Agent. The Agent may resign from the performance ----------------------------- of all its functions and duties hereunder at any time by giving 30 Business Days' prior written notice to the Borrower, Parent and the Banks. Such resignation shall take effect upon the expiration of such 30 Business Day period or upon the earlier appointment of a successor. Upon any such resignation, the Required Banks shall appoint a successor Agent who shall be satisfactory to the Borrower and Parent and shall be an incorporated bank or trust company. In the event no such successor shall have been so appointed, then any notification, demand or other communication required or permitted to be given by the Agent on behalf of the Banks to the Borrower shall be sufficiently given if given by the Required Banks, and any notification, demand, other communication, document, statement, other paper or payment required to be made, given or furnished by Finance Co. or Parent to the Agent for distribution to the Banks shall be sufficiently made, given or furnished if made, given or furnished by Finance Co. or Parent, as applicable, directly to each Bank entitled thereto and, in the case of payments, in the amount to which each such Bank is entitled from the Borrower. All powers specifically delegated to the Agent by the terms hereof may be exercised by the Required Banks. SECTION 9. Parent Guarantee. ---------------------------- In order to induce the Banks to extend credit hereunder to Finance Co., Parent hereby irrevocably and unconditionally guarantees, as primary obligor and not merely as a surety, the Finance Co. Obligations. Parent further agrees that the due and punctual payment of the Finance Co. Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon its Guarantee hereunder notwithstanding any such extension or renewal of any Finance Co. Obligation. Parent waives presentment to, demand of payment from and protest to Finance Co. of any of the Finance Co. Obligations, and also waives notice of acceptance of its obligations and notice of protest for nonpayment. The obligations of Parent hereunder shall not be affected by (a) the failure of any Bank or the Agent to assert any claim or demand or to enforce any right or remedy against Finance Co. under the provisions of this Agreement or otherwise, (b) change or increase in the amount of any of the Finance Co. Obligations, whether or not consented to by 18 Parent, or (c) any rescission, waiver, amendment or modification of any of the terms or provisions of this Agreement or any other agreement. Parent further agrees that its agreement hereunder constitutes a promise of payment when due (whether or not any bankruptcy or similar proceeding shall have stayed the accrual or collection of any of the Finance Co. Obligations or operated as a discharge thereof) and not merely of collection, and waives any right to require that any resort be had by any Bank to any balance of any deposit account or credit on the books of any Bank in favor of any other person. The obligations of Parent hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever, by reason of the invalidity, illegality or unenforceability of the Finance Co. Obligations, any impossibility in the performance of the Finance Co. Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of Parent hereunder shall not be discharged or impaired or otherwise affected by the failure of the Agent or any Bank to assert any claim or demand or to enforce any remedy under this Agreement or any other agreement, by any waiver or modification in respect of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the Finance Co. Obligations, or by any other act or omission which may or might in any manner or to any extent vary the risk of Parent or otherwise operate as a discharge of Parent or Finance Co. as a matter of law or equity. Parent further agrees that its obligations hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Finance Co. Obligation is rescinded or must otherwise be restored by the Agent or any Bank upon the bankruptcy or reorganization of Finance Co. or otherwise. In furtherance of the foregoing and not in limitation of any other right which the Agent or any Bank may have at law or in equity against Parent by virtue hereof, upon the failure of Finance Co. to pay any Finance Co. Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, Parent hereby promises to and will, upon receipt of written demand by the Agent, forthwith pay, or cause to be paid, in cash the amount of such unpaid Finance Co. Obligation. Upon payment by Parent of any Finance Co. Obligation, each Bank shall, in a reasonable manner, assign the amount of such Finance Co. Obligation owed to it and so paid to Parent, such assignment to be pro tanto to the extent to which --- ----- the Finance Co. Obligation in question was discharged by Parent, or make such disposition thereof as Parent shall direct (all without recourse to any Bank and without any representation or warranty by any Bank). Upon payment by Parent of any sums as provided above, all rights of Parent against Finance Co. arising as a result thereof by way of right of subrogation or otherwise shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full of all the Finance Co. Obligations owed by Finance Co. to the Banks. 19 SECTION 10. Miscellaneous ------------- 10.1 Definitions. As used herein the following terms shall have the ----------------- meanings herein specified and shall include in the singular number the plural and in the plural number the singular: "Affected Bank" shall have the meaning assigned that term in (S) ------------- 2.5(c). "Agent" shall mean Morgan Stanley Senior Funding, Inc., and shall ----- include (i) any successor corporation thereto by merger, consolidation or otherwise and (ii) any successor to the Agent appointed pursuant to (S) 8.7. "Agreement" shall mean this Revolving Credit Agreement, as it may --------- from time to time be amended, supplemented or otherwise modified. "Applicable Commitment Fee Percentage" shall mean the percentage ------------------------------------ specified as such in the table in the definition of "Applicable Rate" opposite the highest rating category in which Parent's senior unsecured debt is assigned a rating by either of Moody's or S&P. "Applicable Eurodollar Margin" shall mean the margin specified as ---------------------------- such in the table in the definition of "Applicable Rate" opposite the highest rating category in which Parent's senior unsecured debt is assigned ratings by either of Moody's or S&P. "Applicable Lending Office" shall mean, with respect to each Bank, ------------------------- (i) such Bank's Base Rate Lending Office in the case of a Base Rate Loan and (ii) such Bank's Eurodollar Lending Office in the case of a Eurodollar Rate Loan. "Applicable Rate" shall mean and include the Applicable Commitment --------------- Fee Percentage for undrawn Commitments or Applicable Eurodollar Margin for any Loans and at any time will be determined based on the highest applicable Category set forth below (the highest category being Category A). ================================================================================ Applicable Commitment Applicable Criteria Ratings (S&P/Moody's) Fee Percentage Eurodollar Margin - -------------------------------------------------------------------------------- Category A: A- or better/ .080% .400% A3 or better - -------------------------------------------------------------------------------- Category B: BBB+/Baa1 .100% .450% - -------------------------------------------------------------------------------- Category C: BBB/Baa2 .125% .500% - -------------------------------------------------------------------------------- Category D: BBB-/Baa3 .150% .600% - -------------------------------------------------------------------------------- Category E: BB+ or below/ .200% .750% Ba1 or below ================================================================================ "Applicable Utilization Fee" shall mean on any day the applicable -------------------------- percentage specified as such in the table set forth below corresponding to (a) the percentage of the Total 20 Commitments represented by the aggregate outstanding Loans on such day and (b) the highest rating category in which Parent's senior unsecured debt is assigned ratings by either of Moody's or S&P: ================================================================================ Usage > 25% and Ratings 75% of Total Usage > 75% of Total Criteria (S&P/Moody's) Commitments Commitments - -------------------------------------------------------------------------------- Category A: A- or better/ .100% .200% A3 or better - -------------------------------------------------------------------------------- Category B: BBB+ / Baa1 .125% .250% - -------------------------------------------------------------------------------- Category C: BBB / Baa2 .150% .300% - -------------------------------------------------------------------------------- Category D: BBB- / Baa3 .250% .500% ================================================================================ "Bank" shall mean each Person listed on Schedule I hereto and any ---- other Person that shall have become a party hereto as a result of an assignment pursuant to Section 10.6(b)(A) hereto, other than any such Person that ceases to be a party hereto as a result of an assignment pursuant to Section 10.6(b)(A) hereto. "Bankruptcy Code" shall have the meaning assigned that term in (S) --------------- 6.5. "Base Rate" shall mean, for any day, a rate per annum equal to the --------- higher of (i) the Prime Rate and (ii) 1/2 of 1% plus the Federal Funds Rate, each as in effect from time to time. "Base Rate Lending Office" means, with respect to each Bank, the ------------------------ office of such Bank specified as its "Base Rate Lending Office" on the signature pages to the Agreement or such other office of such Bank as such Bank may from time to time specify as such to the Borrower and the Agent. "Base Rate Loan" shall mean any Loan during any period during which -------------- such Loan is bearing interest at the rates provided for in (S) 2.1(a). "Borrower" shall have the meaning assigned that term in the first -------- paragraph of this Agreement. "Borrowing" shall mean the incurrence of one Type of Loan to the --------- Borrower from all the Banks on a given date, all of which Eurodollar Loans shall have the same Interest Period, pursuant to (S) 1.2; provided, however, that -------- ------- Loans to the Borrower of a different Type extended by one or more Banks pursuant to (S) 2.5(b) shall be considered a part of the related Borrowing. 21 "Business Day" shall mean (i) for all purposes other than as covered ------------ by clause (ii) below, any day excluding Saturday, Sunday and any day on which banks in New York City are authorized by law or other governmental actions to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in U.S. dollar deposits in the London interbank Eurodollar market. "Capital Lease Obligations" of any person shall mean obligations of ------------------------- such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Closing Date" shall mean the date of this Agreement. ------------ "Commitment", for each Bank, shall mean the amount specified opposite ---------- its name on Schedule I hereto or in the assignment pursuant to which such Bank shall have assumed its Commitment, as applicable, such Commitment to be reduced by the amount of any reduction thereto effected pursuant to (S) 1.8, (S) 6 and/or (S) 10.6(b)(A). "Commitment Fee" shall have the meaning assigned that term in (S) 1.7. -------------- "Consolidated Capitalization of Parent" shall mean the sum of (A) the ------------------------------------- Consolidated Indebtedness of Parent and (B) (i) the consolidated shareowners' equity (determined in accordance with GAAP) of the common, preference and preferred stockholders of Parent and (ii) the aggregate amount of Hybrid Preferred Securities of Parent, except that for purposes of calculating Consolidated Capitalization of Parent, Consolidated Indebtedness of Parent shall exclude Non-Recourse Indebtedness of Parent and Consolidated Capitalization of Parent shall exclude that portion of shareholder equity attributable to assets securing Non-Recourse Indebtedness of Parent. "Consolidated Indebtedness of Parent" shall mean the consolidated ----------------------------------- Indebtedness of Parent (determined in accordance with GAAP), except that for purposes of this definition (1) Consolidated Indebtedness of Parent shall exclude Non-Recourse Indebtedness of Parent and (2) Consolidated Indebtedness of Parent shall exclude any Hybrid Preferred Securities of Parent. "Default" with respect to the Borrower, shall mean any event, act or ------- condition which with notice or lapse of time or both would constitute an Event of Default with respect to the Borrower. "Eligible Transferee" shall mean and include a commercial bank, ------------------- financial institution or other "accredited investor" (as defined in SEC Regulation D). "Eurodollar Lending Office" shall mean, with respect to each Bank, the ------------------------- office of such Bank specified as its "Eurodollar Lending Office" on the signature pages to the Agreement or such other office of such Bank as such Bank may from time to time specify as such to the Borrower and the Agent. 22 "Eurodollar Loan" shall mean any loan during any period during which --------------- such Loan is bearing interest at the rates provided for in (S) 2.1(b). "Event of Default" shall mean each of the Events of Default specified ---------------- in (S) 6. "Expiry Date" shall mean the earlier of June 21, 2001 and the ----------- termination in whole of the Total Commitments pursuant to (S) 1.8 or (S) 6. "Federal Funds Rate" shall mean for any day, a fluctuating interest ------------------ rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal Funds brokers of recognized standing selected by the Agent. "Finance Co." shall have the meaning assigned that term in the first ----------- paragraph of this Agreement. "Finance Co. Obligations" shall mean all obligations of Finance Co. ----------------------- under this Agreement to pay (i) the principal of and interest on the Loans when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, and (ii) all other payment obligations of Finance Co. hereunder. "GAAP" shall mean United States generally accepted accounting ---- principles applied on a consistent basis. "Guarantee" of or by any person shall mean any obligation, contingent --------- or otherwise, of such person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for payment of such Indebtedness, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness or (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness; provided, however, that the -------- ------- term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "Hybrid Preferred Securities of Parent" means (1) the preferred ------------------------------------- securities and subordinated debt described in the Prospectus dated as of April 3, 1997 of PP&L Capital Trust and PPL and the preferred securities and subordinated debt described in the Prospectus dated as of June 9, 1997 of PP&L Capital Trust II and PPL (collectively, the "Existing TOPrS") and (2) any additional preferred securities and subordinated debt (with a maturity of at least twenty years) similar to the Existing TOPrS and in an aggregate amount not to exceed $100,000,000, issued by business trusts, limited liability companies, limited partnerships (or similar entities) (i) all of the common equity, general partner or similar interests of which are owned (either 23 directly or indirectly through one or more wholly-owned Subsidiaries) at all times by Parent or PPL, (ii) that have been formed for the purpose of issuing hybrid preferred securities and (iii) substantially all the assets of which consist of (A) subordinated debt of Parent or a Subsidiary of Parent, as the case may be, and (B) payments made from time to time on the subordinated debt. "Indebtedness" of any person shall mean, without duplication, (a) all ------------ obligations of such person for borrowed money, (b) all obligations of such person with respect to deposits or advances of any kind, (c) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (d) all obligations of such person under conditional sale or other title retention agreements relating to property or assets purchased by such person, (e) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding any trade accounts payable and accrued obligations incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such person, whether or not the obligations secured thereby have been assumed but shall not include any obligations that are without recourse to such person, (g) all Guarantees by such person of Indebtedness of others, (h) all Capital Lease Obligations of such person, (i) all obligations of such person in respect of Interest Rate Protection Agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements (the amount of any such obligation to be the net amount that would be payable upon the acceleration, termination or liquidation thereof) and (j) all obligations of such person as an account party in respect of letters of credit and bankers' acceptances. "Interest Period" shall mean (a) as to any Eurodollar Loan, the --------------- period commencing on the date of such Loan or on the last day of the most recent Interest Period applicable thereto and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the Borrower may elect in a Notice of Borrowing or Notice of Conversion and (b) as to any Base Rate Loan, the period commencing on the date of such Loan and ending on the date 90 days thereafter or, if earlier, on the Expiry Date or the date of prepayment of such Loan. If any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day, provided that if any Interest Period applicable to a Borrowing of -------- Eurodollar Loans would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day. "Interest Rate Protection Agreement" shall mean any agreement ---------------------------------- providing for an interest rate swap, cap or collar, or for any other financial arrangement designed to protect against fluctuations in interest rates. "Lien" shall mean, with respect to any asset, (a) any mortgage, deed ---- of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vender or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. 24 "Loan" shall have the meaning assigned that term in (S) 1.1. ---- "Loan Documents" shall have the meaning assigned that term in (S) 8.1. -------------- "Moody's" shall mean Moody's Investors Service, Inc. or any successor ------- thereto. "Net Cash Proceeds" means, (i) with respect to the incurrence or ----------------- issuance of any Specified Debt by the Parent, the Borrower or PPL Energy Supply or (ii) with respect to the issuance of any Specified Equity by the Parent or the Borrower, the aggregate amount of cash received by or on behalf of such respective entities in connection with such transaction, after deducting therefrom only (without duplication) (a) reasonable and customary brokerage commissions, underwriting fees and discounts, legal fees, finder's fees and other similar fees and commissions and (b) the amount of taxes payable in connection with or as a result of such transaction, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid to a Person that is not an affiliate of such Person and are properly attributable to such transaction provided that the term "Net -------- Cash Proceeds" shall not include (i) the first $50,000,000 in the aggregate of cash received with respect to incurrences or issuances of Specified Debt and (ii) the first $50,000,000 in the aggregate of cash received with respect to issuances of Specified Equity. "Non-Recourse Indebtedness of Parent" shall mean (a) indebtedness that ----------------------------------- is nonrecourse to Parent, the Borrower or any of PPL's Subsidiaries and (b) any transition bonds issued by PP&L Transition Bond Company LLC, a subsidiary of PPL, or any similar special purpose company organized for the purpose of issuing bonds payable from revenues associated with intangible transition property created under the Pennsylvania Electricity Generation Customer Choice and Competition Act or other assets of PP&L Transition Bond Company LLC or any such other special purpose company, provided that (i) such bonds are nonrecourse to -------- PPL or any of its subsidiaries (other than PP&L Transition Bond Company LLC or any such other special purpose company) and (ii) the aggregate amount of such transition bonds shall not exceed $2,850,000,000. "Notice of Borrowing" shall have the meaning assigned that term in (S) ------------------- 1.2. "Notice of Conversion" shall have the meaning assigned that term in -------------------- (S) 2.4(a). "Parent" shall have the meaning assigned that term in the first ------ paragraph of this Agreement. "Payment Office" shall mean the office of the Agent located at 1633 -------------- Broadway, New York, New York 10019, or such other office as the Agent may hereafter designate in writing as such to the other parties hereto. "Permitted Liens" shall mean (a) Liens for taxes, assessments or --------------- governmental charges or levies to the extent not past due, or which are being contested in good faith in appropriate proceedings for which Parent has provided appropriate reserves for the payment thereof in accordance with GAAP; (b) pledges or deposits in the ordinary course of business to secure obligations under worker's compensation laws or similar legislation; (c) other pledges or deposits in the ordinary course of business (other than for borrowed monies) that, in the 25 aggregate, are not material to Parent; (d) Liens imposed by law such as materialmen's, mechanics', carriers', workers' and repairmen's Liens and other similar Liens arising in the ordinary course of business for sums not yet due or currently being contested in good faith by appropriate proceedings; (e) attachment, judgment or other similar Liens arising in connection with court proceedings, provided that such Liens, in the aggregate, shall not exceed $50,000,000 at any one time outstanding, and (f) other Liens not otherwise referred to in the foregoing clauses (a) through (e) above, provided that such -------- other Liens do not secure at any time obligations in an aggregate amount in excess of $100,000,000 at any time outstanding. "Persons" shall mean and include any individual, firm, corporation, ------- association, trust or other enterprise or any governmental or political subdivision or agency, department or instrument thereof. "PPL" shall mean PPL Electric Utilities Corporation, a Pennsylvania --- corporation. "PPL Energy Supply" shall mean PPL Energy Supply LLC, a Delaware ----------------- limited liability company, or a substitute entity established for the purposes of holding all the unregulated businesses of the Parent and providing financing therefor. "Prime Rate" shall mean the rate which Citibank, N.A. announces from ---------- time to time as its prime lending rate, such Prime Rate to change when and as such prime lending rate changes. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Citibank, N.A. may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. "Quoted Rate" shall mean, with respect to any Eurodollar Loan for any ----------- Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 A.M. (London time) 2 Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "Quoted Rate" with respect to such Eurodollar Loan for such ----------- Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Register" shall have the meaning provided in 1.4(b). -------- "Regulation D" shall mean Regulation D of the Board of Governors of ------------ the Federal Reserve System as from time to time in effect or any successor to all or a portion thereof establishing reserve requirements. "Required Banks" shall mean Banks having Loans the outstanding -------------- principal amount of which aggregate (or, if no Loans are outstanding, Banks with Commitments 26 aggregating) at least the majority of the aggregate outstanding principal amount of all Loans (or of the Total Commitment). "SEC" shall have the meaning assigned that term in (S) 5.1(c). --- "SEC Regulation D" shall mean Regulation D as promulgated under the ---------------- Securities Act of 1933, as amended, as the same may be in effect from time to time. "Specified Debt" shall mean, with respect to the Parent, the Borrower -------------- or PPL Energy Supply, any Indebtedness of the Parent, the Borrower or PPL Energy Supply, of the character described in clauses (a) or (c) of the definition thereof, but in each case excluding (i) commercial paper issuances and (ii) any such Indebtedness issued to or held by any affiliate of the Parent, the Borrower or PPL Energy Supply. "Specified Equity" shall mean, with respect to the Parent or the ---------------- Borrower, shares of capital stock of the Parent or the Borrower, or securities convertible into or exchangeable for the shares of capital stock of the Parent or the Borrower (but in each case excluding shares of common stock issued pursuant to the Parent's direct stock purchase and dividend reinvestment plan, structured equity shelf program and the Parent's stock plans for directors, officers and employees, and any capital stock issued to or held by a Person which immediately prior to such transaction was an affiliate of the Parent or the Borrower). "S&P" shall mean Standard & Poor's Ratings Group or any successor --- thereto. "Subsidiary" shall mean any company, partnership, association or other ---------- business entity in which any Person and its Subsidiaries now have or may hereafter acquire an aggregate of at least 50% of the voting stock or ownership interests. "Taxes" shall have the meaning assigned that term in (S) 3.4. ----- "Total Commitment" shall mean the aggregate of all the Commitments of ---------------- all the Banks. "Type" shall mean any type of Loan, i.e., whether a Loan is a Base ---- ---- Rate Loan or a Eurodollar Loan. "Unaffected Bank" shall have the meaning assigned that term in (S) --------------- 2.5(c). "written" or "in writing" shall mean any form of written communication ------- ---------- or a communication by means of telex, telecopier device, telegraph or cable. 10.2 Accounting Principles. All statements to be prepared and --------------------------- determinations to be made under this Agreement, including (without limitation) those pursuant to (S) 5, shall be prepared and made in accordance with generally accepted accounting principles applied on a basis consistent with the accounting principles reflected in the audited financial statements of Parent for the fiscal year ended December 31, 1999, referred to in (S) 7.4, except for changes in accounting principles consistent with GAAP. 27 10.3 Exercise of Rights. Neither the failure nor delay on the part of ------------------------ any of the Banks to exercise any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Banks would otherwise have. No notice to or demand on Finance Co. or Parent in any case shall entitle Finance Co. or Parent, as applicable, to any other or further notice or demand in similar or other circumstances or constitute a waiver of the right of the Banks to any other or further action in any circumstances without notice or demand. 10.4 Amendment and Waiver. Neither this Agreement nor any other Loan -------------------------- Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by Finance Co. and Parent, and the Required Banks, provided that no such -------- change, waiver, discharge or termination shall, without the consent of each Bank directly affected thereby, (i) extend the final scheduled maturity of any Loan, or reduce the rate or extend the time of payment of interest or Commitment Fees thereon (except in connection with a waiver of the applicability of any post- default increase in interest rates), or reduce the principal amount thereof (except to the extent repaid in cash), (ii) amend, modify or waive any provision of this (S) 10.4, (iii) reduce the percentage specified in the definition of Required Banks or (iv) consent to the assignment or transfer by Finance Co. or Parent of any of its rights and obligations under this Agreement or the release of Parent from its guarantee hereunder; provided further, that no such change, -------- ------- waiver, discharge or termination shall (x) increase the Commitments of any Bank over the amount thereof then in effect without the consent of such Bank (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or Events of Default shall not constitute an increase of the Commitment of any Bank) or (y) without the consent of the Agent, amend, modify or waive any provision of (S) 8 as such Section applies to such Agent or any other provision as such Section relates to the rights or obligations of such Agent. 10.5 Expenses; Indemnification. (s) The Borrower agrees to pay all ------------------------------- reasonable out-of-pocket expenses (i) of the Agent incurred in connection with the preparation, execution, delivery, enforcement and administration (exclusive of any internal overhead expenses) of this Agreement and any and all agreements supplementary hereto and the making and repayment of the Loans and the payment of interest, including, without limitation, the reasonable fees and expenses of Shearman & Sterling, counsel for the Agent and (ii) of the Agent and each Bank incurred in connection with the enforcement of this Agreement, including, without limitation, the reasonable fees and expenses of any counsel for any of the Banks with respect to such enforcement; provided that neither the Borrower -------- nor Parent shall be liable for any fees, charges or disbursements of any counsel for the Banks or the Agent other than Shearman & Sterling associated with the preparation, execution and delivery of this Agreement and the closing documentation contemplated hereby. (t) The Borrower further agrees to pay, and to save the Agent and the Banks harmless from all liability for, any stamp or other documentary taxes which may be payable in connection with the Borrower's execution or delivery of this Agreement, its borrowings hereunder, or the issuance of any notes or of any other instruments or documents provided for herein or delivered or to be delivered by it hereunder or in connection herewith. 28 (u) The Borrower agrees to indemnify the Agent and each Bank and each of their respective affiliates, directors, officers and employees (each such person being called an "Indemnitee") against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not the Agent or any Bank is a party thereto) which any of them may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby, the direct or indirect application or proposed application of the proceeds of any Loan; provided that such indemnification shall not extend -------- to disputes solely among the Agent and the Banks; and provided further that such -------- ------- indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee. (v) All obligations provided for in this (S) 10.5 shall survive any termination of this Agreement or the resignation, withdrawal or removal of any Bank. 10.6 Successors and Assigns. (w) This Agreement shall be binding upon and --------------------------- inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that neither Finance Co. nor Parent may -------- assign or transfer any of its interests hereunder, except to the extent any such assignment results from the consummation of a transaction permitted under (S) 5.2, without the prior written consent of the Banks and provided further that -------- ------- the right of each Bank to transfer, assign or grant participations in its rights and/or obligations hereunder shall be limited as set forth below in this (S) 10.6, provided that nothing in this (S) 10.6 shall prevent or prohibit any Bank -------- from pledging its rights under this Agreement and/or its Loans hereunder to a Federal Reserve Bank in support of borrowings made by such Bank from such Federal Reserve Bank. In order to facilitate such an assignment to a Federal Reserve Bank, the Borrower shall, at the request of the assigning Bank, duly execute and deliver to the assigning Bank a promissory note evidencing its Commitment or Loans made by the assigning Bank hereunder. (x) Each Bank shall have the right to transfer, assign or grant participations in all or any part of its remaining rights and obligations hereunder on the basis set forth below in this clause (b). (A) Assignments. Each Bank may assign all or a portion of its rights ----------- and obligations hereunder pursuant to this clause (b)(A) to (x) one or more Banks or any affiliates of any Bank or (y) one or more other Eligible Transferees, provided that (i) any such assignment pursuant to clause (y) -------- above shall be in the aggregate amount of at least $5,000,000, (ii) after giving effect to any such assignment pursuant to clause (x) or (y) above, no Bank shall have a Commitment of less than $5,000,000 unless such Bank's Commitment is reduced to zero pursuant to such assignment, and (iii) any assignment pursuant to clause (y) shall require the consent of the Borrower, which consent shall not be unreasonably withheld. Assignments will only be effective if the Agent shall have received a written notice from the assigning Bank and the assignee and payment of a nonrefundable assignment fee of $2,500 to the Agent by either the assigning Bank or the assignee. No later than five Business Days after its receipt of any written notice of assignment, the Agent will record such assignment, and the resultant effects thereof on 29 the Commitment of the assigning Bank and, in the case of an assignment, the assignee, in the Register, at which time such assignment shall become effective, provided that the Agent shall not be required to, and shall not, -------- so record any assignment in the Register on or after the date on which any proposed amendment, modification or supplement in respect of this Agreement has been circulated to the Banks for approval until the earlier of (x) the effectiveness of such amendment, modification or supplement in accordance with (S) 10.4 or (y) 30 days following the date on which such proposed amendment, modification or supplement was circulated to the Banks. Upon the effectiveness of any assignment pursuant to this clause (b)(A), the assignee will become a "Bank" for all purposes of this Agreement and the other Loan Documents with a Commitment as so recorded by the Agent in the Register, and to the extent of such assignment, the assigning Bank shall be relieved of its obligations hereunder with respect to the portion of its Commitment being assigned. (B) Participations. Each Bank may transfer, grant or assign -------------- participations in all or any part of such Bank's interests and obligations hereunder pursuant to this clause (b)(B) to any Eligible Transferee, provided that (i) such Bank shall remain a "Bank" for all purposes of this -------- Agreement and the transferee of such participation shall not constitute a Bank hereunder and (ii) no participant under any such participation shall have any rights under the Agreement or other Loan Document or any rights to approve any amendment to or waiver of this Agreement or any other Loan Document except to the extent such amendment or waiver would (x) extend the final scheduled maturity of any of the Loans or the Commitment in which such participant is participating, (y) reduce the interest rate (other than as a result of waiving the applicability of any post- default increases in interest rates) or Commitment Fee or other fees applicable to any of the Loans or Commitments in which such participant is participating or postpone the payment of any thereof or reduce the principal amount of any Loan (except to the extent repaid in cash) or (z) release Parent from its obligations as a guarantor hereunder. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Loan Documents (the participant's rights against the granting Bank in respect of such participation to be those set forth in the agreement with such Bank creating such participation) and all amounts payable by the Borrower hereunder shall be determined as if such Bank had not sold such participation, provided that such participant shall -------- be entitled to receive additional amounts under (S)(S) 1.6, 2.5 and 3.4 on the same basis as if it were a Bank but in no case shall be entitled to any amount greater than would have been payable had the Bank not sold such participations. (y) Each Bank hereby represents, and each Person that becomes a Bank pursuant to an assignment permitted by the preceding clause (b)(A) will upon its becoming party to this Agreement represent, that it is an Eligible Transferee which makes loans in the ordinary course of its business and that it will make or acquire Loans for its own account in the ordinary course of such business, provided that, subject to the preceding clauses (a) and (b), the disposition of - -------- any promissory notes or other evidences of or interests in Loans held by such Bank shall at all times be within its exclusive control. 10.7 Notices, Requests, Demands. All notices, requests, demands or other ------------------------------- communications to or upon the respective parties hereto shall be deemed to have been given or 30 made (i) in the case of notice by mail, when actually received, and (ii) in the case of telecopier notice sent over a telecopier machine owned or operated by a party hereto, when sent, in each case addressed to the party or parties to which such notice is given at their respective addresses shown below their signatures hereto or at such other address as such party may hereafter specify in writing to the others. No other method of giving notice is hereby precluded. 10.8 Survival of Representations and Warranties. All representations and ------------------------------------------------ warranties contained herein or otherwise made in writing by Finance Co. or Parent in connection herewith shall survive the execution and delivery of this Agreement. 10.9 Governing Law. This Agreement and the rights and obligations of the ------------------- parties under this Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of New York. 10.10 Counterparts. This Agreement may be executed in any number of ------------------ copies, and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instrument. Complete counterparts of this Agreement shall be lodged with the Borrower, Parent and the Agent. 10.11 Terms Generally. All references herein to the "date hereof", the --------------------- "date of this Agreement", or words of similar import, shall be construed as referring to December 21, 2000. 10.12 Effectiveness. This Agreement shall become effective on the Closing ------------------- Date. 10.13 Transfer of Office. (z) Each Bank may transfer and carry its Loans ------------------------ at, to or for the account of any branch office, subsidiary or affiliate of such Bank; provided that such Bank shall continue to bear all of its obligations -------- under this Agreement; and provided further that the Borrower shall not be -------- -------- responsible for costs arising under (S) 1.6, 2.5 or 3.4 resulting from any such transfer to the extent not otherwise applicable to such Bank prior to such transfer. (aa) Upon a Bank becoming aware of any event which will entitle it to any additional amount pursuant to (S) 2.5(a) or (S) 3.4, such Bank shall take all reasonable steps (including but not limited to making, maintaining or funding the affected Loan through another office of such Bank) to avoid or reduce the additional amount payable by the Borrower; provided that, such steps -------- will not result in any additional costs, liabilities or expenses (not reimbursable by the Borrower) to such Bank and are not otherwise inconsistent with the interests of such Bank determined in good faith. 10.14 Proration of Payments. The Bank agrees among themselves that, with --------------------------- respect to all amounts received by them which are applicable to the payment of principal of or interest on the Loans, equitable adjustment will be made so that, in effect, all such amounts will be shared ratably among the Banks on the basis of the amounts then owed each of them in respect of such obligation, whether received by voluntary payment, by realization upon security, by the exercise of any right of set-off or bankers' lien, by counterclaim or cross action, under or pursuant to this Agreement or otherwise. Each of the Banks agrees that if it should receive any payment on its Loans of a sum or sums in excess of its pro rata portion, then the Bank receiving such excess payment --- ---- shall purchase for cash from the other Banks an interest in the Loans of such Banks in such amount as shall result in a ratable participation by each of the Banks in the aggregate 31 unpaid amount of all outstanding Loans then held by all of the Banks. If all or any portion of such excess payment is thereafter recovered from such Bank, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. The Borrower agrees that any Bank so purchasing a participation from another Bank pursuant to this (S) 10.14 may exercise all its rights with respect to such participation as fully as if such Bank were the direct creditor of the Borrower in the amount of such participation. 10.15 Jurisdiction; Consent to Service of Process. (bb) Each of Finance --------------------------------------------------- Co. and Parent hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Agent or any Bank may otherwise have to bring any action or proceeding relating to this Agreement against any of Finance Co., Parent or their properties in the courts of any jurisdiction. (cc) Each of Finance Co. and Parent hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (a) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (dd) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 10.7. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. 10.16 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE -------------------------- FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. 32 10.17 Headings Descriptive. The headings of the various provisions of --------------------------- this Agreement are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. 33 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. PPL CAPITAL FUNDING, INC. By_____________________________ Name: Title: PPL CORPORATION, as Guarantor By_____________________________ Name: Title: MORGAN STANLEY SENIOR FUNDING, INC., Individually and as Agent By_____________________________ Name: Title: 34 Bank Address ------------ - ------------------------------------------------------------------------- Name of Bank and Address Phone Number(s) Fax Number(s) - ------------------------------------------------------------------------- Morgan Stanley Senior Funding, Inc. (212) 537-1470 (212) 537-1867 1633 Broadway New York, New York 10019 Attention: James Morgan - ------------------------------------------------------------------------- SCHEDULE I BANK COMMITMENT ---- ---------- MORGAN STANLEY SENIOR FUNDING, INC............ $200,000,000 TOTAL COMMITMENT.......... $200,000,000 36 EXHIBIT C PARENT COMPLIANCE CERTIFICATE PPL CORPORATION _____________ (date) The undersigned certifies, as of [ ], that the following information concerning PPL Corporation, a Pennsylvania corporation ("Parent") is true and correct: A. Consolidated Indebtedness of Parent: __________ B. Consolidated Capitalization of Parent: __________ C. Consolidated Indebtedness of Parent to Consolidated Capitalization of Parent (A divided by B): _________/1/ PPL CORPORATION By____________________________ Name: Title: _______________________ /1/ If such number is greater than .70, then a Default exists. LETTER AMENDMENT NO. 1 Dated as of January 4, 200l To the Banks and the Agent referred to below Ladies and Gentlemen: We refer to the REVOLVING CREDIT AGREEMENT, dated as of December 21, 2000 (the "Revolving Credit Agreement") entered into by and among PPL CAPITAL FUNDING, INC., a Delaware corporation ("Finance Co."), as borrower, PPL CORPORATION, a Pennsylvania corporation (the "Parent"), as guarantor of the obligations of Finance Co. under the Revolving Credit Agreement, the banks party thereto from time to time (each a "Bank" and collectively the "Banks") and MORGAN STANLEY SENIOR FUNDING, INC., as administrative agent for the Banks (in such capacity, the "Agent"). All capitalized terms used herein shall have the meanings specified therefor in (S)10.1 of the Revolving Credit Agreement unless otherwise defined herein. The Borrower has requested that the Banks amend and modify the Revolving Credit Agreement as hereinafter set forth. It is hereby agreed by you and us that (S)1.8 of the Revolving Credit Agreement shall be amended in full to read as follows: "1.8 Reductions in Total Commitment. (a) The Borrower shall have the ------------------------------ right, upon at least 3 Business Days' prior written notice to the Agent at the Payment Office (which notice the Agent shall promptly transmit to each of the Banks), to reduce permanently the Total Commitment hereunder, in an aggregate amount equal to an integral multiple of $1,000,000 and not less than $l0,000,000, or to terminate the unutilized portion of the Total Commitment, provided that (i) any such reduction or termination shall apply -------- proportionately to the Commitments of the Banks and (ii) no such termination or reduction shall be made that would reduce the Total Commitment to an amount less than the aggregate outstanding principal amount of Loans. (b) The Total Commitment shall be automatically and permanently reduced on each date on which prepayment thereof is required to be made to the extent set forth in (S)(S)3.2(b)(i), (ii) or (iii) in an amount equal to such required prepayments, provided that any such required reduction to -------- be applied to any Commitments hereunder shall be applied proportionately to the Commitments of the Banks. (c) The Total Commitment shall be automatically and permanently reduced on each date on which the Borrower shall have voluntarily reduced or voluntarily terminated commitments under the CSFB Facility, in an aggregate amount comparable to the amount of such reduction or termination under the CSFB Facility, provided that any such required reduction or -------- termination to be applied to any Commitments hereunder shall be applied proportionately to the Commitments of the Banks." It is hereby further agreed by you and us that (S)3.2 of the Revolving Credit Agreement shall be amended in full to read as follows: "3.2 Prepayments. (a) Voluntary Prepayments. The Borrower shall have ----------- --------------------- the right to prepay the Loans in whole or in part, without premium or penalty, from time to time pursuant to this (S)3.2(a) on the following terms and conditions: (i) the Borrower shall give the Agent at the Payment Office at least 3 Business Days' prior written notice or telephonic notice (confirmed in writing) of its intent to prepay such Loans, which notice shall specify the amount of such prepayment and the specific Borrowing to be prepaid, which notice the Agent shall promptly transmit to each of the Banks; (ii) each prepayment, to the extent applied to any Loans outstanding hereunder, shall be in an integral multiple of $1,000,000 and not less than $10,000,000 (or, if less, the amount then remaining outstanding in respect of the Borrowing being prepaid); (iii) each prepayment in respect of Loans made pursuant to one Borrowing shall be applied pro rata among the Banks on --- ---- the basis of such Loans, except as otherwise provided in (S)2.5; and (iv) at the time of any prepayment, the Borrower shall pay all interest accrued on the principal amount of said prepayment and, if the Borrower prepays any Eurodollar Loan on any day other than the last day of an Interest Period applicable thereto, the Borrower shall compensate the Banks for losses sustained as a result of such prepayment to the extent and as provided in (S)1.6. (b) Mandatory Prepayments. (i) The Borrower shall, within 10 business --------------------- days of receipt of Net Cash Proceeds (A) by the Parent or the Borrower from the issuance by the Parent or the Borrower of Specified Equity or (B) by the Parent, the Borrower or PPL Energy Supply from the issuance by the Parent, the Borrower or PPL Energy Supply of Specified Debt, prepay an aggregate outstanding principal amount of the Loans in an amount equal to the amount of such Net Cash Proceeds (or, if the CSFB Facility is outstanding, prepay Loans hereunder and loans thereunder, on a ratable basis, based on the total outstanding principal amounts thereof). The provisions set forth in (S)(S)3.2(a)(iii) and (iv) shall be applicable to the prepayments made under this (S)(S)3.2(b). (ii) The Borrower shall, on each Business Day, prepay an aggregate principal amount of the Loans comprising part of the same Borrowings, in an amount equal to the amount by which the aggregate principal amount of the outstanding Loans exceeds the Total Commitment on such Business Day. (iii) The Borrower shall, on each date on which the Borrower shall have voluntarily prepaid loans outstanding under the CSFB Facility, prepay an aggregate principal amount of the Loans hereunder comprising part of the same Borrowings, in an aggregate amount comparable to the amount of such prepayments under the CSFB Facility." It is hereby further agreed by you and us that (S)5.3 of the Revolving Credit Agreement shall be amended in full to read as follows: 2 "5.3 Ratings. Finance Co. and Parent will each notify the Banks as ------- soon as practicable upon obtaining knowledge of any change in, or cessation of, ratings of Parent's senior unsecured debt by Moody's or S&P." It is hereby further agreed by you and us that the Revolving Credit Agreement shall be amended by adding a new (S)5.6 to read as follows: "5.6 CSFB Facility. Borrower shall not cause any term of the CSFB ------------- Facility to be amended, waived or otherwise modified at its request or with its consent unless (i) it gives the Agent prior notice thereof, and (ii) Borrower and Parent offer to make or approve substantially identical amendments, waivers or modifications to this Agreement within three Business Days of any request by the Agent to do so (it being acknowledged that any collateral delivery may be made on an equal and ratable basis between the CSFB Facility and this Agreement)." It is hereby further agreed by you and us that (S)6.6 of the Revolving Credit Agreement shall be amended in full to read as follows: "6.6 Other Covenants. Finance Co. or Parent shall fail to perform or --------------- observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and any such failure shall remain unremedied for a period of 30 days (or, in the case of such a failure with respect to (S)5.6, 10 days) after written notice thereof shall have been received by Finance Co. or Parent, as the case may be, from the Agent or the Required Banks." It is hereby further agreed by you and us that (S)10.1 of the Revolving Credit Agreement shall be amended by adding the following definition in the appropriate alphabetical order: "CFSB Facility" shall mean, with respect to Borrower, any ------------- Indebtedness, up to $200,000,000.00, incurred by the Borrower pursuant to that certain credit agreement to be entered into by and among the Borrower, the Parent, as guarantor and Credit Suisse First Boston, as administrative agent for the banks party thereto." It is hereby further agreed by you and us that the definitions of "Expiry Date," "Specified Debt" and "Specified Equity" in (S)10.1 of the Revolving Credit Agreement shall be amended in full respectively to read as follows: "Expiry Date" shall mean the earlier of April 4, 2001 and the ----------- termination in whole of the Total Commitment pursuant to (S)1.8 or (S)6. "Specified Debt" shall mean, with respect to the Parent, the Borrower -------------- or PPL Energy Supply, any Indebtedness of the Parent, the Borrower or PPL Energy Supply, of the character described in clauses (a) or (c) of the definition thereof, but in each case excluding (i) commercial paper issuances, (ii) any such Indebtedness issued to or held by any affiliate of the Parent, the Borrower or PPL Energy Supply, and (iii) any such Indebtedness incurred by the Borrower pursuant to the CSFB Facility. "Specified Equity" shall mean, (a) with respect to the Parent or the ---------------- Borrower, shares of capital stock of the Parent or the Borrower, or securities convertible into or exchangeable for the shares of capital stock of the Parent or the Borrower (but in each 3 case excluding shares of common stock issued pursuant to the Parent's direct stock purchase and dividend reinvestment plan, structured equity shelf program and the Parent's stock plans for directors, officers and employees, and any capital stock issued to or held by a Person which immediately prior to such transaction was an affiliate of the Parent or the Borrower), and (b) with respect to the Parent, issuance of equity with proceeds exceeding $50,000,000 by a subsidiary, which is recorded on the books of the Parent and its consolidated subsidiaries as a minority interest." This Letter Amendment No. 1 shall become effective as of the date first above written when, and only when, (i) the Agent shall have received counterparts of this Letter Amendment No. 1 executed by the Borrower, Morgan Stanley Senior Funding, Inc., individually and as Agent, and the consent attached hereto executed by the Guarantor; (ii) the Agent shall have received from the Borrower a true and correct copy of the CSFB Facility in effect as of the closing date thereof, and the Agent shall be satisfied with the final terms and conditions of the CSFB Facility; and (iii) the Borrower shall have paid all accrued fees and expenses of the Agent (including fees and expenses of counsel to the Agent). Morgan Stanley Senior Funding, Inc. hereby represents, as of the date hereof, that it holds 100% of the Loans and Commitments outstanding under the Revolving Credit Agreement. On and after the effectiveness of this Letter Amendment No. 1, each reference in the Revolving Credit Agreement and each other Loan Document to "this Agreement", "hereunder", "thereunder", "hereof', "thereof or words of like import referring to the Revolving Credit Agreement shall mean and be a reference to the Revolving Credit Agreement, as amended by this Letter Amendment No. 1. The Revolving Credit Agreement and each other Loan Document is and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. The execution, delivery and effectiveness of this Letter Amendment No. 1 shall not, except as expressly provided herein, operate as a waiver of any right, power ,or remedy of any Bank or the Agent under the Revolving Credit Agreement or any other Loan Document, nor constitute a waiver of any provision of the Revolving Credit Agreement or any other Loan Document, and all of such rights, powers, remedies, or provisions are hereby expressly reserved. This Letter Amendment No. 1 may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Letter Amendment No. 1 by telecopier shall be effective as delivery of a manually executed counterpart of this Letter Amendment No. 1. This Letter Amendment No. 1 shall be governed by, and construed in accordance with, the laws of the State of New York. 4 Very truly yours, PPL CAPITAL FUNDING, INC. By ______________________________ Name: Title: Agreed as of the date first above written: MORGAN STANLEY SENIOR FUNDING, INC., Individually and as Agent By ______________________ Name: Title: CONSENT Dated as of January 4, 200l The undersigned in its capacity as Guarantor under (S)9 of the Revolving Credit Agreement dated as of December 21, 2000 (the "Parent Guarantee") in favor of the Banks (as defined in the Revolving Credit Agreement referred to in the foregoing Letter Amendment No. l), hereby consents to such Letter Amendment No. 1 and hereby confirms and agrees that notwithstanding the effectiveness of such Letter Amendment No. 1, the Parent Guarantee is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects. PPL CORPORATION, as Guarantor By __________________________ Name: Title: EX-10.(D) 6 0006.txt CREDIT AGREEMENT Exhibit 10(d) EXECUTION COPY ================================================================================ $200,000,000 CREDIT AGREEMENT Among PPL CAPITAL FUNDING, INC., as Borrower PPL CORPORATION, as Guarantor of the obligations of PPL Capital Funding, Inc. CREDIT SUISSE FIRST BOSTON, as Agent and THE BANKS NAMED HEREIN Dated as of January 3, 2001 CREDIT SUISSE FIRST BOSTON, as Lead Arranger and Book Manager ================================================================================ TABLE OF CONTENTS -----------------
Page ---- SECTION 1. AMOUNTS AND TERMS OF LOANS...................................................................... 1 -------------------------- 1.1 Commitments..................................................................................... 1 1.2 Notices of Borrowing............................................................................ 1 1.3 Disbursement of Funds........................................................................... 2 1.4 Repayment of Loans; Evidence of Debt............................................................ 2 1.5 Special Payment Provisions...................................................................... 3 1.6 Compensation.................................................................................... 3 1.7 Commitment Fee.................................................................................. 3 1.8 Reductions in Total Commitments................................................................. 4 SECTION 2. INTEREST........................................................................................ 4 -------- 2.1 Rates of Interest............................................................................... 4 2.2 Determination of Rate of Borrowing.............................................................. 5 2.3 Interest Payment Dates.......................................................................... 5 2.4 Conversions; Interest Periods................................................................... 5 2.5 Increased Costs, Illegality, Etc................................................................ 6 SECTION 3. PAYMENTS........................................................................................ 9 -------- 3.1 Payments on Non-Business Days................................................................... 9 3.2 Prepayments..................................................................................... 9 3.3 Method and Place of Payment, Etc................................................................ 9 3.4 Net Payments................................................................................... 10 SECTION 4. CONDITIONS PRECEDENT........................................................................... 11 -------------------- 4.1 Conditions to Effectiveness.................................................................... 11 4.2 Conditions to Each Loan to Borrower............................................................ 11 SECTION 5. COVENANTS OF BORROWER AND PARENT............................................................... 12 -------------------------------- 5.1 Financial Statements........................................................................... 12 5.2 Mergers........................................................................................ 13 5.3 Ratings........................................................................................ 13 5.4 Liens.......................................................................................... 13 5.5 Consolidated Indebtedness to Consolidated Capitalization....................................... 13 5.6 Morgan Stanley Revolving Credit Agreement...................................................... 13 SECTION 6. EVENTS OF DEFAULT WITH RESPECT TO BORROWER..................................................... 14 ------------------------------------------
SECTION 7. REPRESENTATIONS AND WARRANTIES OF BORROWER AND PARENT.......................................... 15 ----------------------------------------------------- SECTION 8. AGENT.......................................................................................... 17 ----- 8.1 Appointment.................................................................................... 17 8.2 Nature of Duties............................................................................... 17 8.3 Rights, Exculpation, Etc....................................................................... 18 8.4 Reliance....................................................................................... 18 8.5 Indemnification................................................................................ 18 8.6 The Agent, Individually........................................................................ 19 8.7 Resignation by the Agent....................................................................... 19 SECTION 9. PARENT GUARANTEE............................................................................... 19 ---------------- SECTION 10. MISCELLANEOUS.................................................................................. 21 ------------- 10.1 Definitions.................................................................................... 21 10.2 Accounting Principles.......................................................................... 29 10.3 Exercise of Rights............................................................................. 29 10.4 Amendment and Waiver........................................................................... 29 10.5 Expenses; Indemnification...................................................................... 30 10.6 Successors and Assigns......................................................................... 30 10.7 Notices, Requests, Demands..................................................................... 33 10.8 Survival of Representations and Warranties..................................................... 33 10.9 Governing Law.................................................................................. 33 10.10 Counterparts................................................................................... 33 10.11 Terms Generally................................................................................ 33 10.12 Effectiveness.................................................................................. 33 10.13 Transfer of Office............................................................................. 33 10.14 Proration of Payments.......................................................................... 34 10.15 Jurisdiction; Consent to Service of Process.................................................... 34 10.16 WAIVER OF JURY TRIAL........................................................................... 35 10.17 Headings Descriptive........................................................................... 35
ii Bank Address Schedule SCHEDULE I - Commitments EXHIBIT A - Form of Promissory Note EXHIBIT B - Form of Opinion of Senior Counsel of Borrower and Parent EXHIBIT C - Form of Opinion of Thelen Reid & Priest LLP EXHIBIT D - Form of Parent Compliance Certificate iii CREDIT AGREEMENT, dated as of January 3, 2001, among PPL CAPITAL FUNDING, INC., a Delaware corporation, as Borrower (the "Borrower"); PPL CORPORATION, a Pennsylvania corporation (the "Parent"), as guarantor of the obligations of Borrower hereunder; the banks listed on Schedule I hereto (each a "Bank" and collectively the "Banks"); and CREDIT SUISSE FIRST BOSTON, as administrative agent for the Banks to the extent and in the manner provided in (S) 8 below (in such capacity, the "Agent") (all capitalized terms used herein shall have the meanings specified therefor in (S) 10.1 unless otherwise defined herein). W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Borrower has requested that the Banks make available to the Borrower a credit facility for working capital and other general corporate purposes of the Borrower, including investments in, or loans to, affiliates of the Borrower; WHEREAS, the Banks are willing to make available to the Borrower a credit facility subject to and upon the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the Borrower, the Guarantor, the Banks and the Agent hereby agree as follows: SECTION 1. Amounts and Terms of Loans. -------------------------- 1.1 Commitments ----------- . Subject to and upon the terms and conditions herein set forth, each Bank severally and not jointly agrees, at any time and from time to time prior to the Expiry Date, to make a loan or loans (each a "Loan" and collectively for all Banks, the "Loans") to the Borrower, as requested by the Borrower, which Loans (i) shall at the option of the Borrower be initially maintained as Base Rate Loans or Eurodollar Loans, provided that all the Loans made by all the Banks at any one Borrowing must be either all Base Rate Loans or all Eurodollar Loans, (ii) shall be repaid in accordance with the provisions hereof and (iii) shall not exceed in aggregate principal amount at any time outstanding each Bank's Commitment hereunder. Amounts repaid may not be re-borrowed. 1.2 Notices of Borrowing. Whenever the Borrower desires to make a -------------------- Borrowing hereunder, it shall give to the Agent at the Payment Office (i) no later than 12:00 Noon (New York time) at least three Business Days' prior written notice or telephonic notice (confirmed in writing) of each Eurodollar Loan to be made hereunder and (ii) no later than 11:30 A.M. (New York time) on the date of such Borrowing written notice or telephonic notice (confirmed in writing) of each Base Rate Loan to be made hereunder. Each such notice (each a "Notice of Borrowing") shall state that the Borrowing is being made hereunder and shall specify the aggregate principal amount the Borrower desires to borrow hereunder, the date of Borrowing (which shall be a Business Day), the Type of Loans to be made pursuant to such Borrowing and the Interest Period to be applicable thereto. The Agent shall promptly give each Bank telephonic notice (confirmed in writing) of the proposed Borrowing, of such Bank's proportionate share thereof and of the other matters covered by a Notice of Borrowing. Each Borrowing shall be in an integral multiple of $1,000,000 and not less than $10,000,000 and shall be made from each Bank in the proportion which its respective Commitment bears to the Total Commitment except as otherwise specifically provided in (S) 2.5. The failure of any Bank to make any Loan required hereby shall not release any other Bank from its obligation to make Loans as provided herein. 1.3 Disbursement of Funds. No later than 12:00 Noon (New York time) (or, --------------------- in the case of Base Rate Loans, 2:00 P.M. (New York time)) on the date specified in a Notice of Borrowing each Bank will make available the amount of its pro --- rata portion of the Loans requested to be made on such date in U.S. dollars and - ---- in immediately available funds, to the Agent at the Payment Office. The Agent will make available to the Borrower not later than 1:00 P.M. (New York time) (or, in the case of Base Rate Loans, 3:00 P.M. (New York time)) on such date at the Payment Office the aggregate of the amounts in immediately available funds made available by the Banks against delivery to the Agent at the Payment Office, or at such other office as the Agent may specify, of the documents and papers provided for herein. The Agent shall deliver the documents and papers received by it for the account of each Bank to such Bank or upon its order. 1.4 Repayment of Loans; Evidence of Debt. (a) The outstanding principal ------------------------------------ balance of each Loan shall be due and payable by the Borrower on the Expiry Date. Each Loan shall bear interest from the date thereof on the outstanding principal balance thereof as set forth in (S) 2.1. Each Bank shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness to such Bank resulting from each Loan made by such Bank from time to time to the Borrower, including the amounts of principal and interest payable and paid to such Bank from time to time under this Agreement. The Agent shall maintain the Register pursuant to (S) 1.4(b), and a subaccount for each Bank and the Borrower, in which Register and subaccounts (taken together) shall be recorded (i) the amount of each Loan made hereunder, the Type of each Loan made and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Bank hereunder and (iii) the amount of any sum received by the Agent hereunder from the Borrower and each Bank's share thereof. The entries made in the Register and accounts maintained pursuant to this (S) 1.4 shall be prima facie ----- ----- evidence of the existence and amounts of the obligations therein recorded; provided, however, that the failure of any Bank or the Agent to maintain such - -------- ------- account, such Register or such subaccount, as applicable, or any error therein shall not in any manner affect the obligations of the Borrower to repay the Loans in accordance with their terms. (b) The Agent shall maintain at the Payment Office a register for the recordation of the names and addresses of the Banks, the Commitments of the Banks from time to time, and the principal amount of the Loans owing to each Bank from the Borrower from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error. The Register shall be available for inspection by the Borrower, the Agent or any Bank at any reasonable time and from time to time upon reasonable prior notice. (c) At the request of any Bank, the Borrower's obligation to repay any Loan shall be evidenced by delivery of one or more promissory notes, in substantially the form of Exhibit A. Such note shall be in the initial amount of such Bank's Commitment and stated to 2 mature on the Expiry Date and bear interest from its date until paid in full on the principal amount of the Loan outstanding thereunder payable at the rates and in the manner provided herein. 1.5 Special Payment Provisions. Unless the Agent shall have been notified -------------------------- by any Bank prior to any date of a Borrowing that such Bank does not intend to make available to the Agent such Bank's portion of the Loans to be made on such date, the Agent may assume that such Bank has made such amount available to the Agent on such date of a Borrowing and the Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is not in fact made available to the Agent by such Bank, the Agent shall be entitled to recover such amount on demand from such Bank. If such Bank does not pay such amount forthwith upon the Agent's demand therefor, the Agent shall promptly notify the Borrower and the Borrower shall pay such amount to the Agent. The Agent shall also be entitled to recover from such Bank or the Borrower, as the case may be, interest on such amount in respect of each day from the date such amount was made available by the Agent to the Borrower to the date such amount is recovered by the Agent, at a rate per annum equal to (i) in the case of such Bank, the Federal Funds Rate and (ii) in the case of the Borrower, the applicable rate provided in (S) 2.1 for the applicable Type of Loan. Nothing herein shall be deemed to relieve any Bank from its obligation to fulfill its Commitment hereunder or to prejudice any rights which the Borrower may have against any Bank as a result of the failure of such Bank to perform its obligations hereunder. 1.6 Compensation. The Borrower shall compensate each Bank, upon such ------------ written request given promptly after learning of the same, for all losses, expenses and liabilities (including, without limitation, any interest paid by such Bank to lenders of funds borrowed by it to make or carry its Eurodollar Loans and any loss sustained by such Bank in connection with the re- employment of such funds), which the Bank sustains: (i) if for any reason (other than a failure of such Bank to perform its obligations) a Borrowing of any Eurodollar Loan does not occur on a date specified therefor in a Notice of Borrowing or Notice of Conversion (whether or not withdrawn or canceled pursuant to (S) 2.5 or otherwise), (ii) if any repayment or conversion (pursuant to (S) 2.5 or otherwise) of any of its Eurodollar Loans occurs on a date which is not the last day of the Interest Period applicable thereto, or (iii) without duplication of any amounts paid pursuant to (S) 2 hereof, as a consequence of any other default by the Borrower to repay its Eurodollar Loans when required by the terms of this Agreement. A certificate as to any amounts payable to any Bank under this (S) 1.6 submitted to the Borrower by such Bank shall show the amount payable and the calculations used to determine such amount and shall, absent manifest error, be final, conclusive and binding upon all parties hereto. 1.7 Commitment Fee. The Borrower agrees to pay to the Agent for pro rata -------------- --- ---- distribution to each Bank a Commitment Fee (the "Commitment Fee"), for the period from the Closing Date until the Expiry Date or such earlier date as the Total Commitment shall be terminated by the Borrower, on the average daily unused amount of the Commitments, computed at the Applicable Commitment Fee Percentage per annum computed on the basis of the number of days actually elapsed over a year of 365 or 366 days and payable quarterly in arrears on the last day of each calendar quarter and on the Expiry Date or such earlier date as the Total Commitment shall be terminated by the Borrower. 3 1.8 Reductions in Total Commitments. (a) The Borrower shall have the ------------------------------- right, upon at least 3 Business Days' prior written notice to the Agent at the Payment Office (which notice the Agent shall promptly transmit to each of the Banks), to reduce permanently the Total Commitment, in an aggregate amount equal to an integral multiple of $1,000,000 and not less than $10,000,000, or to terminate the unutilized portion of the Total Commitment, provided that (i) any -------- such reduction or termination shall apply proportionately to the Commitments of the Banks and (ii) no such termination or reduction shall be made that would reduce the Total Commitments to an amount less than the aggregate outstanding principal amount of Loans. (b) The Total Commitment shall be automatically and permanently reduced on each date on which prepayment thereof is required to be made pursuant to (S)(S) 3.2(b)(i) or (ii) in an amount equal to such required prepayments, provided that any such reduction shall apply proportionately to the Commitments - -------- of the Banks. (c) The Total Commitment shall be automatically and permanently reduced on January 15, 2001 to an amount equal to the then aggregate outstanding principal amount of the Loan. (d) The Total Commitment shall be automatically and permanently reduced on each date on which the Borrower shall have voluntarily reduced or voluntarily terminated commitments under the Morgan Stanley Revolving Credit Agreement, in an aggregate amount comparable to the amount of such reduction or termination under the Morgan Stanley Revolving Credit Agreement, provided that -------- any such required reduction or termination to be applied to any Commitments hereunder shall be applied proportionately to the Commitments of the Banks. SECTION 2. Interest. -------- 2.1 Rates of Interest. (a) The Borrower agrees to pay interest in ------------------ respect of the unpaid principal amount of each Base Rate Loan made to it from the date the proceeds thereof are made available to it until prepayment pursuant to (S) 3 or maturity (whether by acceleration or otherwise) at a rate per annum which shall be the Base Rate in effect from time to time. (b) The Borrower agrees to pay interest in respect of the unpaid principal amount of each Eurodollar Loan made to it from the date the proceeds thereof are made available to it until prepayment pursuant to (S) 3 or maturity (whether by acceleration or otherwise) at a rate per annum which shall be the relevant Quoted Rate plus the Applicable Eurodollar Margin plus the Applicable Utilization Fee, if any. (c) The Borrower agrees to pay interest in respect of overdue principal of, and overdue interest in respect of, each Loan made to it, on demand, at a rate per annum which shall be 2% in excess of the Base Rate in effect from time to time. (d) Interest shall be computed on the actual number of days elapsed on the basis of a 360-day year; provided, however, that for any rate of interest -------- ------- determined by reference to the Prime Rate, interest shall be computed on the actual number of days elapsed on the basis of a year of 365 or 366 days. 4 (e) In computing interest on the Loans, the date of the making of a Loan shall be included and the date of payment shall be excluded, provided, -------- however, that if a Loan is repaid on the same day on which it is made, such day - ------- shall nevertheless be included in computing interest thereon. 2.2 Determination of Rate of Borrowing. As soon as practicable after ---------------------------------- 10:00 A.M. (New York time) on the second Business Day prior to the commencement of any Interest Period with respect to a Eurodollar Loan, the Agent shall determine (which determination, absent manifest error, shall be final, conclusive and binding upon all parties) the rate of interest which shall be applicable to such Eurodollar Loan for the Interest Period applicable thereto and shall promptly give notice thereof (in writing or by telephone, confirmed in writing) to the Borrower and the Banks. In the event that there is no applicable rate for such Eurodollar Loan: (i) the Agent shall promptly give notice thereof (in writing or by telephone, confirmed in writing) to the Borrower and the Banks, (ii) such Loan shall be deemed to have been requested to be made as a Base Rate Loan and (iii) the rate applicable to such Loan shall be the Base Rate in effect from time to time. 2.3 Interest Payment Dates. Accrued interest shall be payable (i) in ---------------------- respect of each Eurodollar Loan, at the end of the Interest Period relating thereto, (ii) in respect of each Base Rate Loan, at the end of each Interest Period relating thereto and (iii) in respect of each Loan, on any prepayment (on the amount prepaid), at maturity (whether by acceleration or otherwise) and, after maturity, on demand. 2.4 Conversions; Interest Periods. (a) The Borrower shall have the ----------------------------- option to convert on any Business Day all or a portion at least equal to $10,000,000 of the outstanding principal amount of the Loans made to it pursuant to one or more Borrowings of one Type of Loans into a Borrowing or Borrowings of another Type of Loan, provided that (i) except as provided in (S) 2.5(b), Eurodollar Loans may be converted into Base Rate Loans only on the last day of an Interest Period applicable thereto and no partial conversion of a Borrowing of Eurodollar Loans shall reduce the outstanding principal amount of the Loans pursuant to such Borrowing to less than $10,000,000 and (ii) Loans may only be converted into Eurodollar Loans if no Default or Event of Default with respect to the Borrower is in existence on the date of the conversion. Each such conversion shall be effected by the Borrower by giving the Agent at its Payment Office, prior to 12:00 Noon (New York time), at least three Business Days (or by 12:00 Noon on the same Business Day in the case of a conversion into Base Rate Loans) prior written notice (or telephonic notice promptly confirmed in writing) (each a "Notice of Conversion") specifying the Loans to be so converted, the Borrowing or Borrowings pursuant to which such Loans were made, the Type of Loans to be converted into and, if to be converted into a Borrowing of Eurodollar Loans, the Interest Period to be initially applicable thereto. The Agent shall give each Bank prompt notice of any such proposed conversion. (b) At the time the Borrower gives a Notice of Borrowing or Notice of Conversion in respect of the making of, or conversion into, a Borrowing of Eurodollar Loans (in the case of the initial Interest Period applicable thereto) or prior to 12:00 Noon (New York time) on the third Business Day prior to the expiration of an Interest Period applicable to a Borrowing of Eurodollar Loans (in the case of any subsequent Interest Period), the Borrower shall have the right to elect, by giving the Agent written notice (or telephonic notice promptly confirmed in 5 writing), the Interest Period applicable to such Borrowing, which Interest Period shall, at the option of the Borrower, be a one, two or three month period or, subject to availability on the part of each Bank, such shorter period as ends on the Expiry Date. Notwithstanding anything to the contrary contained above: (i) the initial Interest Period for a Borrowing of Eurodollar Loans shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing of Base Rate Loans) and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires; (ii) if any Interest Period applicable to a Borrowing of Eurodollar Loans begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; (iii) no Interest Period in respect of a Borrowing of Loans shall extend beyond the Expiry Date; and (iv) all Eurodollar Loans comprising a Borrowing shall at all times have the same Interest Period. If upon the expiration of any Interest Period, the Borrower has failed to elect a new Interest Period to be applicable to a Borrowing of Eurodollar Loans as provided above or is unable to elect a new Interest Period as a result of (S) 2.4(a)(ii) above, the Borrower shall be deemed to have elected to convert such Borrowing into a Borrowing of Base Rate Loans effective as of the expiration date of such current Interest Period. 2.5 Increased Costs, Illegality, Etc. (a) In the event that any Bank --------------------------------- (including the Agent) shall have reasonably determined (which determination shall be final and conclusive and binding upon all parties but, with respect to the following clauses (i), (ii) and (iii), shall be made only after consultation with the Borrower and the Agent on the date of such determination) that: (i) on any date for determining the Quoted Rate for any Interest Period, by reason of any change after the date hereof affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the applicable interest rate by reference to the Quoted Rate; or (ii) at any time, by reason of (y) any change after the date hereof in any applicable law or governmental rule, regulation or order (or any interpretation thereof by a governmental authority or otherwise (provided -------- that, in the case of an interpretation not by a governmental authority, such interpretation shall be made in good faith and shall have a reasonable basis) and including the introduction of any new law or governmental rule, regulation or order), to the extent not provided for in clause (iii) below, or (z) in the case of Eurodollar Loans, other circumstances affecting such Bank or the interbank Eurodollar market or the position of such Bank in such market, the Quoted Rate shall not represent the effective pricing to such Bank for funding or maintaining the affected Eurodollar Loan; or 6 (iii) at any time, by reason of the requirements of Regulation D or other official reserve requirements, the Quoted Rate shall not represent the effective pricing to such Bank for funding or maintaining the affected Eurodollar Loan; or (iv) at any time, that the making or continuance of any Eurodollar Loan has become unlawful by compliance by such Bank in good faith with any law, governmental rule, regulation, guideline or order, or would cause severe hardship to such Bank as a result of a contingency occurring after the date hereof which materially and adversely affects the interbank Eurodollar market; then, and in any such event, the Bank so affected shall on such date of determination give notice (by telephone confirmed in writing) to the Borrower and to the Agent (who shall give similar notice to each Bank) of such determination. Thereafter, (x) in the case of clause (i), (ii) or (iii) above, the Borrower shall pay to such Bank, upon written demand therefor, such additional amounts deemed in good faith by such Bank to be material (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Bank in its discretion shall determine) as shall be required to cause such Bank to receive interest with respect to its affected Eurodollar Loan at a rate per annum equal to the then Applicable Eurodollar Margin in excess of the effective pricing to such Bank to make or maintain such Eurodollar Loan and (y) in the case of clause (iv), the Borrower shall take one of the actions specified in (S) 2.5(b) as promptly as possible and, in any event, within the time period required by law. A certificate as to additional amounts owed any such Bank, showing in reasonable detail the basis for the calculation thereof, submitted to the Borrower and the Agent by such Bank shall, absent manifest error, be final, conclusive and binding upon all of the parties hereto. (b) At any time that any of its Loans are affected by the circumstances described in (S) 2.5(a) the Borrower may (i) if the affected Eurodollar Loan is then being made pursuant to a Borrowing, cancel said Borrowing by giving the Agent notice thereof by telephone (confirmed in writing) on the same date that the Borrower was notified by the affected Bank pursuant to (S) 2.5(a) or (ii) if the affected Eurodollar Loan is then outstanding, upon at least 3 Business Days' written notice to the Bank, require the Bank to convert such Eurodollar Loan into a Base Rate Loan; provided that if more than one Bank -------- is affected at any time, then all affected Banks must be treated in the same manner pursuant to this (S) 2.5(b). (c) In the event that the Borrower shall be paying additional amounts to a Bank pursuant to (S) 2.5(a)(i), (ii) or (iii) or (S) 2.5(d) (and, in the case of (S) 2.5(d), such Bank has not eliminated the increased costs by designating a new Applicable Lending Office) or is unable to incur a Eurodollar Loan from such Bank because of the existence of a condition described in (S) 2.5(a)(iv) (any such Bank, an "Affected Bank") covering a period of 90 consecutive days, the Borrower, the Agent and the Affected Bank shall consult with a view towards (but being under no obligation to) amending this Agreement, with the consent of the Banks other than the Affected Bank (the "Unaffected Banks") which, at such time, have outstanding two-thirds of the aggregate principal amount of the Loans outstanding hereunder (exclusive of the aggregate principal amount of the Loans outstanding of the Affected Bank), to provide for (i) the termination of the Affected Bank's Commitment, provided that such -------- termination is accompanied by payment in full of the outstanding amount of all Loans of the Affected Bank, interest accrued on such amount to the date of payment and all other liabilities and obligations of the Borrower 7 hereunder (including, without limitation, amounts payable pursuant to (S) 1.6, (S) 2.5(a) or (S) 2.5(d)) with respect to the Affected Bank, and (ii) the substitution of another bank for the Affected Bank and/or the increase, pro rata --- ---- or otherwise, of the Commitments of the Unaffected Banks or otherwise, so that the Total Commitment remains the amount which would be applicable in the absence of the occurrence of clause (i) of this (S) 2.5(c); provided that no Commitment -------- of any Unaffected Bank may be changed without the consent of such Bank. (d) If any Bank reasonably determines at any time that any applicable law or governmental rule, regulation, order or request (whether or not having the force of law) concerning capital adequacy, or any change in interpretation or administration thereof by any governmental authority, central bank or comparable agency, will have the effect of increasing the amount of capital required or expected to be maintained by such Bank based on the existence of such Bank's Commitment hereunder or its obligations hereunder, then promptly upon receipt of a written demand from such Bank meeting the requirements of this (S) 2.5(d), the Borrower agrees to pay such Bank such additional amounts as shall be required to compensate such Bank for the increased cost to such Bank of making Loans to the Borrower, as a result of such increase in capital for the first Compensation Period (as defined below). After the initial written demand for payment in respect of this (S) 2.5(d) is delivered to the Borrower by such Bank, written demand for payment may be submitted for each Compensation Period thereafter that this Agreement remains in effect as to such Bank. Each such written demand shall (i) specify (a) the event pursuant to which such Bank is entitled to claim the additional amount, (b) the date on which the event occurred and became applicable to the Bank and (c) the Compensation Period for which the amount is due and (ii) set out in reasonable detail the basis and computation of such additional amount. Each period for which the additional amounts may be claimed by such Bank (a "Compensation Period") shall be the lesser of (x) the number of days actually elapsed since the date the event occurred and became applicable to such Bank or (y) 90 days. Payments made by the Borrower to any Bank in respect of this (S) 2.5(d) shall be made on the last day of the Compensation Period specified in each written demand with a final payment to be made on the date of termination of this Agreement as to such Bank. Provided that each Bank acts reasonably and in good faith and uses averaging and attribution methods which are reasonable in determining any additional amounts due under this (S) 2.5(d), such Bank's determination of compensation owing under this (S) 2.5(d) shall, absent manifest error, be final and conclusive and binding on all the parties hereto. No Bank shall be entitled to compensation under this (S) 2.5(d) for any costs incurred with respect to any date unless it shall have notified the Borrower that it will demand compensation for such costs not more than 60 days after the later of (i) such date and (ii) the date on which it shall have become aware of such costs. (e) Each Bank agrees that, upon the occurrence of any event giving rise to the operation of (S) 2.5(d) with respect to such Bank, such Bank shall, if requested by the Borrower, designate another Applicable Lending Office for any Loans affected by such event with the objective of eliminating, avoiding or mitigating the consequence of the event giving rise to the operation of such section; provided that such Bank and its Applicable Lending Office shall not, in -------- the sole judgment of such Bank, suffer any economic, legal or regulatory disadvantage. Nothing in this (S) 2.5(e) shall affect or postpone any of the obligations of the Borrower or the right of any Bank provided in (S) 2.5(d). 8 SECTION 3. Payments. -------- 3.1 Payments on Non-Business Days. Whenever any payment to be made ----------------------------- hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, if a payment of principal has been so extended, interest shall be payable on such principal at the applicable rate during such extension. 3.2 Prepayments. (a) Voluntary Prepayments. The Borrower shall have ----------- --------------------- the right to prepay the Loans in whole or in part, without premium or penalty, from time to time pursuant to this (S) 3.2(a) on the following terms and conditions: (i) the Borrower shall give the Agent at the Payment Office at least 3 Business Days' prior written notice or telephonic notice (confirmed in writing) of its intent to prepay such Loans, which notice shall specify the amount of such prepayment and the specific Borrowing to be prepaid, which notice the Agent shall promptly transmit to each of the Banks; (ii) each prepayment shall be in an integral multiple of $1,000,000 and not less than $10,000,000 (or, if less, the amount then remaining outstanding in respect of the Borrowing being prepaid); (iii) each prepayment in respect of Loans made pursuant to one Borrowing shall be applied pro rata among the Banks on the basis of such Loans, --- ---- except as otherwise provided in (S) 2.5; and (iv) at the time of any prepayment, the Borrower shall pay all interest accrued on the principal amount of said prepayment and, if the Borrower prepays any Eurodollar Loan on any day other than the last day of an Interest Period applicable thereto, the Borrower shall compensate the Banks for losses sustained as a result of such prepayment to the extent and as provided in (S) 1.6. (b) Mandatory Prepayments. (i) The Borrower shall, within 10 --------------------- business days of receipt of Net Cash Proceeds (A) by the Parent or the Borrower from the issuance by the Parent or the Borrower of Specified Equity or (B) by the Parent, the Borrower or PPL Energy Supply from the issuance by the Parent, the Borrower or PPL Energy Supply of Specified Debt, prepay an aggregate outstanding principal amount of the Loans in an amount equal to the amount of such Net Cash Proceeds (or, if the Morgan Stanley Revolving Credit Agreement is outstanding, prepay Loans hereunder and Borrowings thereunder, on a ratable basis, based on the total outstanding principal amount thereof). The provisions set forth in (S)(S) 3.2(a)(iii) and (iv) shall be applicable to the prepayments made under this (S) 3.2(b). (ii) The Borrower shall, on each Business Day, prepay an aggregate principal amount of the Loans comprising part of the same Borrowings, in an amount equal to the amount by which the aggregate principal amount of the outstanding Loans exceeds the Total Commitment on such Business Day. (iii) The Borrower shall, on each date on which the Borrower shall have voluntarily prepaid loans outstanding under the Morgan Stanley Revolving Credit Agreement, prepay an aggregate principal amount of the Loans hereunder comprising part of the same Borrowings, in an aggregate amount comparable to the amount of such prepayments under the Morgan Stanley Revolving Credit Agreement. 3.3 Method and Place of Payment, Etc. Except as expressly provided -------------------------------- herein, all payments under this Agreement shall be made to the Agent for the ratable account of the Banks not later than Noon (New York time) on the date when due and shall be made in freely 9 transferable U.S. dollars and in immediately available funds at the Payment Office (or, if such payment is made in respect of principal of or interest on any Eurodollar Loan, for the account of such non-U.S. office of the Agent as the Agent may from time to time direct). Unless the Agent shall have been notified by the Borrower prior to the date on which any payment to be made by the Borrower hereunder is due that the Borrower does not intend to remit such payment, the Agent may, at its discretion, assume that the Borrower has remitted such payment when so due and the Agent may, at its discretion and in reliance upon such assumption, make available to each Bank (for the account of its applicable lending office) on such payment date an amount equal to such Bank's share of such assumed payment. If the Borrower has not in fact remitted such payment to the Agent, each Bank shall forthwith on demand repay to the Agent the amount of such assumed payment made available to such Bank together with interest thereon in respect of each day from and including the date such amount was made available by the Agent to such Bank to the date such amount is repaid to the Agent at a rate per annum equal to the Federal Funds Rate. On the commencement date of each Interest Period and on each date occurring two Business Days prior to an Interest Payment Date, the Agent shall notify the Borrower of the amount of interest and/or fees due at the end of such Interest Period or on such Interest Payment Date (assuming, in the case of Base Rate Loans, that there is no change in the rate of interest applicable to the applicable Base Rate Loan); provided, however, that failure to so notify the -------- ------- Borrower shall not affect the Borrower's obligation to make any such payments. 3.4 Net Payments. All payments under this Agreement shall be made ------------ without set-off or counterclaim and in such amounts as may be necessary in order that all such payments of principal and interest in connection with Loans (after deduction or withholding for or on account of (i) any present or future taxes, levies, imposts, duties or other charges of whatsoever nature imposed by any government or any political subdivision or taxing authority thereof, excluding any tax on or measured by the net income of a Bank pursuant to the income tax laws of the jurisdiction where such Bank's principal or lending office is located or in which such Bank maintains a place of business (all such non- excluded taxes, levies, imposts, duties or other charges, the "Taxes") and (ii) any taxes on or measured by the net income payable by any such Bank with respect to the amount by which the payments required to be made by this (S) 3.4 exceed the amount otherwise specified to be paid under this Agreement) shall not be less than the amounts otherwise specified to be paid under this Agreement; and the Borrower further agrees to pay and to save the Agent and the Banks (and any participant, to the extent provided in Section 10.6(b)(B)) harmless, on an after-tax basis, from all liability for Taxes on or in connection with Loans or any payments thereunder, and any interest, penalties or additions with respect thereto, provided, however, that such interest, penalties and additions are not -------- ------- a result of any action, omission or failure to act on the part of the Agent or the Banks. A certificate as to any additional amounts payable to any Bank under this (S) 3.4 submitted to the Borrower by such Bank shall show in reasonable detail the amount payable and the calculations used to determine such amount and shall, absent manifest error, be final, conclusive and binding upon all parties hereto. With respect to each deduction or withholding for or on account of any Taxes, the Borrower shall promptly furnish to each Bank such certificates, receipts and other documents as may be required (in the judgment of such Bank) to establish any tax credit to which such Bank may be entitled. 10 SECTION 4. Conditions Precedent. -------------------- 4.1 Conditions to Effectiveness. On the Closing Date: --------------------------- (a) The Agent shall have received from the general counsel or senior counsel of PPL a favorable opinion dated the Closing Date substantially in the form of Exhibit B hereto. (b) The Agent shall have received an opinion of Thelen Reid & Priest LLP, counsel for Borrower and Parent, addressed to the Agent and the Banks, dated the Closing Date, with respect to the enforceability of this Agreement against Borrower, and with respect to the enforceability of the guarantee hereunder by Parent of the obligations of Borrower against Parent, substantially in the form of Exhibit C hereto. (c) All corporate and legal proceedings and all instruments in connection with the transactions contemplated by this Agreement (including resolutions of the Board of Directors of Borrower and Parent and certificates as to the incumbency of the officers signing this Agreement or any certificate delivered in connection herewith) shall be satisfactory in form and substance to the Agent, and the Agent shall have received all information and copies of all documents that it has requested, such documents where appropriate to be certified by proper corporate or governmental authorities. (d) The Agent shall have received from each of the Banks, Borrower and Parent a duly executed and delivered counterpart hereof. (e) The conditions set forth in (S) 4.2 (other than (S) 4.2(c)) shall have been satisfied. (f) The Agent shall have received from the Borrower a true and correct copy of the Morgan Stanley Revolving Credit Agreement, in effect as of the Closing Date. 4.2 Conditions to Each Loan to Borrower The obligation of each Bank to ----------------------------------- make each Loan to Borrower (excluding any conversions of one Type of Loan to another Type pursuant to (S) 2.5(b)) hereunder is subject, at the time of the making of each such Loan (except as hereinafter indicated), to the satisfaction of the following conditions, with the making of each such Loan constituting a representation and warranty by Borrower that the conditions specified in (S)(S) 4.2(a), (b) and (d) below are then satisfied: (a) No Default. At the time of the making of each such Loan to ---------- Borrower and after giving effect thereto, there shall exist no Default or Event of Default. (b) Representations and Warranties. At the time of the making of ------------------------------ each Loan to Borrower and after giving effect thereto, all representations and warranties contained in (S) 7 hereof shall be true and correct with the same force and effect as though such representations and warranties had been made as of such time. (c) Notice of Borrowing. The Agent shall have received a Notice of ------------------- Borrowing from Borrower as required by (S) 1.2. 11 (d) No Adverse Change. Since December 31, 1999, there shall have ----------------- been no change in the business, assets, financial condition or operations of Parent and its Subsidiaries taken as a whole which materially and adversely affects the ability of Parent to perform any of its obligations hereunder. (e) Morgan Stanley Revolving Credit Agreement. The Agent shall ----------------------------------------- have received evidence in form and substance satisfactory to it that (S) 3.2(b) of the Morgan Stanley Revolving Credit Agreement has been amended, waived or modified to (i) permit application of Net Cash Proceeds ratably between the Banks under this Agreement and the lenders under the Morgan Stanley Revolving Credit Agreement and (ii) confirm that proceeds of Loans under this Agreement do not constitute "Specified Debt", as defined in the Morgan Stanley Revolving Credit Agreement. SECTION 5. Covenants of Borrower and Parent. While this Agreement -------------------------------- is in effect and until the Total Commitment has been terminated and all obligations of Borrower and Parent hereunder shall have been paid in full, each of Borrower and Parent agrees that: 5.1 Financial Statements. Parent will furnish to each Bank: -------------------- (a) within 120 days after the end of each fiscal year (i) an auditors' report, including a balance sheet as at the close of such fiscal year and statements of income, shareowners' common equity and cash flows for such year for Parent and its consolidated Subsidiaries prepared in conformity with GAAP, with an opinion expressed by PricewaterhouseCoopers LLP or other independent auditors of recognized standing selected by it and (ii) Parent's unconsolidated balance sheet as at the close of such fiscal year and statements of income, shareholders common equity and cash flows for such year; (b) within 60 days after the end of each of the first three quarters in each fiscal year, a balance sheet as at the close of such quarterly period and statements of income, shareowners' common equity and cash flows for such quarterly period for (i) Parent and its consolidated Subsidiaries prepared in conformity with GAAP, and (ii) Parent's unconsolidated balance sheet as at the close of such quarterly period and statements of income, shareowners' common equity and cash flow for such quarterly period; (c) within 120 days after the end of each fiscal year, a copy of Parent's Form 10-K Report to the Securities and Exchange Commission ("SEC") and within 60 days after the end of each of the first three quarters in each fiscal year, a copy of Parent's Form 10-Q Report to the SEC; (d) from time to time, with reasonable promptness, such further information regarding Parent's business, affairs and financial condition as any Bank may reasonably request; and (e) upon acquiring knowledge of the existence of a Default or Event of Default with respect to Borrower a certificate of a financial officer of Parent and an officer of Borrower specifying: (i) the nature of such Default or Event of Default, (ii) the 12 period of the existence thereof, and (iii) the actions that Parent and Borrower propose to take with respect thereto. The financial statements required to be furnished pursuant to clauses (a) and (b) above shall be accompanied by a certificate of a principal financial officer of Parent to the effect that no Default or Event of Default with respect to Borrower has occurred and is continuing. The financial statements required to be furnished pursuant to clause (a) above shall also be accompanied by a Compliance Certificate in the form of Exhibit D hereto ("Parent Compliance Certificate") demonstrating compliance with (S) 5.5. 5.2 Mergers. (i) (1) Parent will not merge or consolidate with any ------- Person if Parent is not the survivor unless (a) the survivor assumes Parent's obligations hereunder, (b) substantially all of the consolidated assets and consolidated revenues of the survivor are anticipated to come from a utility or energy business or utility or energy businesses and (c) the senior unsecured debt ratings of the survivor by Moody's or S&P, as available (or if the ratings of Moody's and S&P are not available, of such other rating agency as shall be acceptable to the Required Banks), are at least equal to the ratings of Parent's senior unsecured debt immediately prior to such merger or consolidation; and (2) Parent will not dispose of any common stock of the Borrower or any securities convertible into common stock of the Borrower, except in connection with any merger or consolidation permitted under this (S) 5.2, and except that Parent shall be allowed to sell, transfer or otherwise dispose of PPL's common stock to PPL or any Subsidiary of Parent. (ii) Borrower will not merge into or consolidate with any other Person except (a) Parent or a successor of Parent permitted by this Section or (b) any other Person which is a wholly owned subsidiary of Parent or a successor of Parent permitted by this Section. 5.3 Ratings. Borrower and Parent will each notify the Banks as soon as ------- practicable upon obtaining knowledge of any change in, or cessation of, ratings of Parent's senior unsecured debt by Moody's or S&P. 5.4 Liens. Parent will not create, incur, or suffer to exist any Lien in ----- or on the common stock of PPL or Borrower or on securities convertible into the common stock of PPL or Borrower (in either case, now or hereafter acquired) other than Permitted Liens. 5.5 Consolidated Indebtedness to Consolidated Capitalization. The ratio -------------------------------------------------------- of Consolidated Indebtedness of Parent to Consolidated Capitalization of Parent shall not exceed 70% at any time. 5.6 Morgan Stanley Revolving Credit Agreement. Borrower shall not cause ----------------------------------------- any term of the Morgan Stanley Revolving Credit Agreement to be amended, waived or otherwise modified at its request or with its consent unless (i) it gives the Agent prior notice thereof, and (ii) Borrower and Parent offer to make or approve substantially identical amendments, waivers or modifications to this Agreement within three Business Days of any request by the Agent to do so (it being acknowledged that any collateral delivery may be made on an equal and ratable basis between the Morgan Stanley Revolving Credit Agreement and this Agreement). 13 SECTION 6. Events of Default with Respect to Borrower ------------------------------------------ Each of the following events shall constitute an "Event of Default": 6.1 Representations, Etc. Any certificate furnished by Borrower or -------------------- Parent to the Banks pursuant hereto shall prove to have been incorrect in any material respect or any of the representations and warranties made by Borrower or Parent herein or in connection herewith shall prove to have been incorrect in any material respect when made; or 6.2 Principal and Interest. Either Borrower or Parent shall fail to ---------------------- make any payment of principal on any Loan to Borrower or any other payment payable by Borrower or Parent hereunder when due or, in the case of interest or fees, within 10 days of the due date thereof; or 6.3 Defaults by Borrower or Parent Under Other Agreements. Borrower ----------------------------------------------------- or Parent shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness in a principal amount in excess of $40,000,000, in the case of Indebtedness of Parent or Indebtedness of Borrower guaranteed by Parent or, in the case of Indebtedness of Borrower not guaranteed by Parent, $10,000,000, if such failure shall continue beyond any period of grace provided with respect thereto, or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument (including any term, covenant, condition or agreement herein) evidencing or governing any such Indebtedness in a principal amount in excess of, in the case of Indebtedness of Parent or Indebtedness of Borrower guaranteed by Parent, $40,000,000 or, in the case of Indebtedness of Borrower not guaranteed by Parent, $10,000,000, if such failure shall continue beyond any period of grace provided with respect thereto if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee on its or their behalf to cause, such Indebtedness to become due prior to its stated maturity; or 6.4 Judgments. Borrower or Parent shall fail within 60 days to pay, --------- bond or otherwise discharge any judgment or order for the payment of money in excess of $25,000,000 that is not stayed on appeal or otherwise being appropriately contested in good faith; or 6.5 Bankruptcy, Etc. Borrower or Parent shall commence a voluntary --------------- case concerning itself under Title 11 of the United States Code entitled "Bankruptcy" as now or hereafter in effect or any successor thereto (the "Bankruptcy Code"); or an involuntary case shall be commenced against Borrower or Parent or such case shall be controverted but shall not be dismissed within 60 days after the commencement of the case; or Borrower or Parent shall not generally be paying its debts as they become due; or a custodian (as defined in the Bankruptcy Code) shall be appointed for, or shall take charge of, all or substantially all of the property of Borrower or Parent or Borrower or Parent shall commence any other proceeding under any reorganization, arrangement, readjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to Borrower or Parent or there shall be commenced against Borrower or Parent any such proceeding which remains undismissed for a period of 60 days or Borrower or Parent 14 or there shall be commenced against Borrower or Parent any such proceeding which remains undismissed for a period of 60 days or Borrower or Parent shall be adjudicated in solvent or bankrupt; or Borrower or Parent shall fail to controvert in a timely manner any such case under the Bankruptcy Code or any such proceeding, or any order of relief or other order approving any such case or proceeding shall be entered; or Borrower or Parent by any act or failure to act shall indicate its consent to, approval of or acquiescence in any such case or proceeding or in the appointment of any custodian or the like for it or any substantial part of its property or shall suffer any such appointment to continue undischarged or unstayed for a period of 60 days; Borrower or Parent shall make a general assignment for the benefit of creditors; or any corporate action shall be taken by Borrower or Parent for the purpose of effecting any of the foregoing; 6.6 Other Covenants. Borrower or Parent shall fail to perform or --------------- observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and any such failure shall remain unremedied for a period of 30 days (or, in the case of such a failure with respect to Section 5.6, 10 days) after written notice thereof shall have been received by Borrower or Parent, as the case may be, from the Agent or the Required Banks. If any Event of Default as specified in this (S) 6 shall then be continuing, then either or both of the following actions may be taken: (i) the Agent, at the direction of the Required Banks, shall by written notice to Parent and Borrower, declare the principal of and accrued interest in respect of all of the outstanding Loans to be, whereupon the same and all other amounts due hereunder shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by Parent and Borrower, anything contained herein to the contrary notwithstanding, and (ii) the Agent, at the direction of the Required Banks, shall, by written notice to Parent and Borrower, declare the Total Commitment terminated, whereupon the Commitment of each Bank and the obligation of each Bank to make its Loans hereunder shall terminate immediately and any accrued Commitment Fee owed shall forthwith become due and payable without any other notice of any kind; provided -------- that if an Event of Default described in (S) 6.5 shall occur with respect to Borrower, the results which would otherwise occur only upon the giving of written notice by the Agent to Borrower as specified in clauses (i) and (ii) above shall occur automatically without the giving of any such notice and without any instruction by the Required Banks to give such notice. SECTION 7. Representations and Warranties of Borrower and Parent. ----------------------------------------------------- In order to induce the Banks to enter into this Agreement and to make the Loans to Borrower as provided for herein, each of Borrower and Parent makes the following representations and warranties to the Banks: 7.1 Corporate Status. Parent is duly incorporated, validly existing ---------------- and in good standing under the laws of the Commonwealth of Pennsylvania, and has the corporate power to make and perform this Agreement, and Borrower is duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has the corporate power to make and perform this Agreement and to borrow hereunder. 15 7.2 Authority; No Conflict. The making and performance by Parent and ---------------------- Borrower of this Agreement have been duly authorized by all necessary corporate action and do not and will not violate any provision of law or regulation, or any decree, order, writ or judgment, or any provision of its charter or by-laws, or result in the breach of or constitute a default under any indenture or other agreement or instrument to which Parent or Borrower, as the case may be, is a party. 7.3 Legality, Etc. This Agreement constitutes the legal, valid and ------------- binding obligation of each of Parent and Borrower, enforceable against Parent or Borrower, as the case may be, in accordance with its terms except to the extent limited by bankruptcy, insolvency or reorganization laws or by other laws relating to or affecting the enforceability of creditors' rights generally and by general equitable principles which may limit the right to obtain equitable remedies. 7.4 Financial Statements. The consolidated financial statements of -------------------- Parent for the year ended as at December 31, 1999, furnished to the Banks, fairly present Parent's consolidated financial position at December 31, 1999 and the results of its consolidated operations for the year then ended and were prepared in accordance with GAAP. Since that date there has been no adverse change in the business, assets, financial condition or operations of Parent that would materially and adversely affect its ability to perform any of its obligations hereunder. 7.5 Litigation. Except as disclosed in or contemplated by Parent's ---------- Form 10-K Report to the SEC for the year ended December 31, 1999, or in any subsequent Form 10-Q Report or otherwise furnished in writing to the Banks, no litigation, arbitration or administrative proceeding against Parent or Borrower is pending or, to Parent's knowledge, threatened, which, if determined adversely, would materially and adversely affect the ability of Parent to perform any of its obligations under this Agreement. There is no litigation, arbitration or administrative proceeding pending or, to the knowledge of Parent, threatened which questions the validity of this Agreement. 7.6 No Violation. No part of the proceeds of the borrowings by ------------ Borrower under this Agreement will be used, directly or indirectly by Borrower or any Subsidiary of Parent for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or for any other purpose which violates, or which conflicts with, the provisions of Regulation U or X of said Board of Governors. Neither Parent nor Borrower is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any such "margin stock." 7.7 ERISA. There have not been any "reportable events," as that term ----- is defined in Section 4043 of the Employee Retirement Income Security Act of 1974, as amended, which would result in a material liability to Parent. 7.8 Consents. No authorization, consent or approval from -------- governmental bodies or regulatory authorities is required for the making and performance by Parent or Borrower of this Agreement, except such authorizations, consents and approvals as have 16 been obtained prior to the making of any Loans and are in full force and effect at the time of the making of each Loan. 7.9 Investment Company Act. Neither Parent nor Borrower is an ---------------------- "investment company" that is required to be registered under the Investment Company Act of 1940, as amended, in order not to be subject to the prohibitions of Section 7 of such Act. 7.10 Public Utility Holding Company Act. Parent is a "holding ---------------------------------- company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, but is exempt from such Act (except for the provisions of Section 9(a)(2) thereof) by virtue of an order of the SEC pursuant to Section 3(a)(1) thereof. Borrower is not a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 7.11 Tax Returns. Parent and Borrower have filed or caused to be ------------ filed all Federal, state, local and foreign tax returns or materials required to have been filed by it and has paid or caused to be paid all taxes due and payable by it and all assessments received by it, except taxes that are being contested in good faith by appropriate proceedings and for which Parent shall have set aside on its books appropriate reserves with respect thereto in accordance with GAAP. 7.12 Compliance with Laws. Each of Parent and Borrower is in -------------------- compliance with all laws, regulations and orders of any governmental authority except to the extent (A) such compliance is being contested in good faith by appropriate proceedings or (B) non-compliance would not reasonably be expected to materially and adversely affect its ability to perform any of its obligations hereunder. SECTION 8. Agent. ----- 8.1 Appointment. The Banks hereby appoint Credit Suisse First Boston as ----------- Agent (such term to include Agent acting as Agent) to act as herein specified. Each Bank hereby irrevocably authorizes, and each assignee of any Bank shall be deemed irrevocably to authorize, the Agent to take such action on their behalf under the provisions of this Agreement and any instruments, documents and agreements referred to herein (such instruments, documents and agreements being herein referred to as the "Loan Documents") and to exercise such powers hereunder and thereunder as are specifically delegated to the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder, or under the Loan Documents, by or through its agents or employees. 8.2 Nature of Duties. The duties of the Agent shall be mechanical and ---------------- administrative in nature. The Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Bank. Nothing in this Agreement or any of the Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of this Agreement or any of the Loan Documents except as expressly set forth herein. Each Bank shall make its own independent investigation of the financial condition and affairs of Borrower and Parent and each of their Subsidiaries in connection with the making and the continuance of the Loans hereunder and shall make its own appraisal of the creditworthiness of 17 Parent and Borrower; and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Bank with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter. The Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible to any Bank for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care except to the extent otherwise required by (S) 8.3. 8.3 Rights, Exculpation, Etc. Neither the Agent nor any of its officers, ------------------------ directors, employees, agents, attorneys-in-fact or affiliates shall be liable to any Bank for any action taken or omitted by it hereunder or under any of the Loan Documents, or in connection herewith or therewith, unless caused by its or their gross negligence or willful misconduct. The Agent shall not be responsible to any Bank for any recitals, statements, representations or warranties herein or for the execution, effectiveness, genuineness, validity, enforceability, collectibility, or sufficiency of this Agreement or any of the Loan Documents or the financial condition of Borrower or Parent. The Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any of the Loan Documents or the financial condition of Borrower or Parent, or the existence or possible existence of any Default or Event of Default. The Agent may at any time request instructions from the Banks with respect to any actions or approvals which by the terms of this Agreement or any of the Loan Documents the Agent is permitted or required to take or to grant, and if such instructions are requested, the Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from any action or withholding any approval under this Agreement or any of the Loan Documents until it shall have received such instructions from the Required Banks or all Banks, as required. Without limiting the foregoing, no Bank shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder or under any of the Loan Documents in accordance with the instructions of the Required Banks or all Banks, as required. 8.4 Reliance. The Agent shall be entitled to rely upon any written -------- notice, statement, certificate, order or other document or any telephone message believed by it to be genuine and correct and to have been signed, sent or made by the proper Person, and, with respect to all legal matters pertaining to this Agreement or any of the Loan Documents and its duties hereunder or thereunder, upon advice of counsel selected by it. 8.5 Indemnification. To the extent that the Agent is not reimbursed and --------------- indemnified by Parent or Borrower, the Banks will reimburse and indemnify the Agent for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent, acting pursuant hereto, in any way relating to or arising out of this Agreement or any of the Loan Documents or any action taken or omitted by the Agent under this Agreement or any of the Loan Documents, in proportion to their respective Commitments hereunder; provided, however, that no Bank shall be -------- ------- liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. The 18 obligations of the Banks under this (S) 8.5 shall survive the payment in full of outstanding Loans and the termination of this Agreement. 8.6 The Agent, Individually. With respect to its Commitment hereunder and ----------------------- the Loans made by it, the Agent shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Bank. The terms "Banks," "Required Banks" or any similar terms shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity as a Bank or one of the Required Banks. The Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with Borrower or Parent as if it were not acting pursuant hereto. 8.7 Resignation by the Agent. The Agent may resign from the performance ------------------------ of all its functions and duties hereunder at any time by giving 30 Business Days' prior written notice to the Borrower, Parent and the Banks. Such resignation shall take effect upon the expiration of such 30 Business Day period or upon the earlier appointment of a successor. Upon any such resignation, the Required Banks shall appoint a successor Agent who shall be satisfactory to the Borrower and Parent and shall be an incorporated bank or trust company. In the event no such successor shall have been so appointed, then any notification, demand or other communication required or permitted to be given by the Agent on behalf of the Banks to the Borrower shall be sufficiently given if given by the Required Banks, and any notification, demand, other communication, document, statement, other paper or payment required to be made, given or furnished by Borrower or Parent to the Agent for distribution to the Banks shall be sufficiently made, given or furnished if made, given or furnished by Borrower or Parent, as applicable, directly to each Bank entitled thereto and, in the case of payments, in the amount to which each such Bank is entitled from the Borrower. All powers specifically delegated to the Agent by the terms hereof may be exercised by the Required Banks. SECTION 9. Parent Guarantee. ---------------- In order to induce the Banks to extend credit hereunder to Borrower, Parent hereby irrevocably and unconditionally guarantees, as primary obligor and not merely as a surety, the Borrower Obligations. Parent further agrees that the due and punctual payment of the Borrower Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon its Guarantee hereunder notwithstanding any such extension or renewal of any Borrower Obligation. Parent waives presentment to, demand of payment from and protest to Borrower of any of the Borrower Obligations, and also waives notice of acceptance of its obligations and notice of protest for nonpayment. The obligations of Parent hereunder shall not be affected by (a) the failure of any Bank or the Agent to assert any claim or demand or to enforce any right or remedy against Borrower under the provisions of this Agreement or otherwise, (b) change or increase in the amount of any of the Borrower Obligations, whether or not consented to by Parent, or (c) any rescission, waiver, amendment or modification of any of the terms or provisions of this Agreement or any other agreement. 19 Parent further agrees that its agreement hereunder constitutes a promise of payment when due (whether or not any bankruptcy or similar proceeding shall have stayed the accrual or collection of any of the Borrower Obligations or operated as a discharge thereof) and not merely of collection, and waives any right to require that any resort be had by any Bank to any balance of any deposit account or credit on the books of any Bank in favor of any other person. The obligations of Parent hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever, by reason of the invalidity, illegality or unenforceability of the Borrower Obligations, any impossibility in the performance of the Borrower Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of Parent hereunder shall not be discharged or impaired or otherwise affected by the failure of the Agent or any Bank to assert any claim or demand or to enforce any remedy under this Agreement or any other agreement, by any waiver or modification in respect of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the Borrower Obligations, or by any other act or omission which may or might in any manner or to any extent vary the risk of Parent or otherwise operate as a discharge of Parent or Borrower as a matter of law or equity. Parent further agrees that its obligations hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Borrower Obligation is rescinded or must otherwise be restored by the Agent or any Bank upon the bankruptcy or reorganization of Borrower or otherwise. In furtherance of the foregoing and not in limitation of any other right which the Agent or any Bank may have at law or in equity against Parent by virtue hereof, upon the failure of Borrower to pay any Borrower Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, Parent hereby promises to and will, upon receipt of written demand by the Agent, forthwith pay, or cause to be paid, in cash the amount of such unpaid Borrower Obligation. Upon payment by Parent of any Borrower Obligation, each Bank shall, in a reasonable manner, assign the amount of such Borrower Obligation owed to it and so paid to Parent, such assignment to be pro tanto to the extent to which --- ----- the Borrower Obligation in question was discharged by Parent, or make such disposition thereof as Parent shall direct (all without recourse to any Bank and without any representation or warranty by any Bank). Upon payment by Parent of any sums as provided above, all rights of Parent against Borrower arising as a result thereof by way of right of subrogation or otherwise shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full of all the Borrower Obligations owed by Borrower to the Banks. 20 SECTION 10. Miscellaneous. ------------- 10.1 Definitions. As used herein the following terms shall have the ----------- meanings herein specified and shall include in the singular number the plural and in the plural number the singular: "Advance" shall have the meaning assigned that term in (S) 10.6(d). ------- "Affected Bank" shall have the meaning assigned that term in (S) ------------- 2.5(c). "Agent" shall mean Credit Suisse First Boston, and shall include (i) ----- any successor corporation thereto by merger, consolidation or otherwise and (ii) any successor to the Agent appointed pursuant to (S) 8.7. "Agreement" shall mean this Credit Agreement, as it may from time to --------- time be amended, supplemented or otherwise modified. "Applicable Commitment Fee Percentage" shall mean the percentage ------------------------------------ specified as such in the table in the definition of "Applicable Rate" opposite the highest rating category in which Parent's senior unsecured debt is assigned a rating by either of Moody's or S&P. "Applicable Eurodollar Margin" shall mean the margin specified as such ---------------------------- in the table in the definition of "Applicable Rate" opposite the highest rating category in which Parent's senior unsecured debt is assigned ratings by either of Moody's or S&P. "Applicable Lending Office" shall mean, with respect to each Bank, (i) ------------------------- such Bank's Base Rate Lending Office in the case of a Base Rate Loan and (ii) such Bank's Eurodollar Lending Office in the case of a Eurodollar Rate Loan. "Applicable Rate" shall mean and include the Applicable Commitment Fee --------------- Percentage for undrawn Commitments or Applicable Eurodollar Margin for any Loans and at any time will be determined based on the highest applicable Category set forth below (the highest category being Category A). ================================================================================ Ratings Applicable Commitment Applicable Criteria (S&P/Moody's) Fee Percentage Eurodollar Margin - -------------------------------------------------------------------------------- Category A: A- or better/ .080% .400% A3 or better - -------------------------------------------------------------------------------- Category B: BBB+/Baa1 .100% .450% - -------------------------------------------------------------------------------- Category C: BBB/Baa2 .125% .500% - -------------------------------------------------------------------------------- Category D: BBB-/Baa3 .150% .600% - -------------------------------------------------------------------------------- Category E: BB+ or below/ Ba1 or below .200% .750% ================================================================================ 21 "Applicable Utilization Fee" shall mean on any day the applicable -------------------------- percentage specified as such in the table set forth below corresponding to (a) the percentage of the Total Commitments represented by the aggregate outstanding Loans on such day and (b) the highest rating category in which Parent's senior unsecured debt is assigned ratings by either of Moody's or S&P:
========================================================================= Criteria Ratings Usage * 25% and Usage * 75% of Total (S&P/Moody's) 75% of Total Commitments Commitments - ------------------------------------------------------------------------ Category A: A- or better/ .100% .200% A3 or better - ------------------------------------------------------------------------ Category B: BBB+ / Baa1 .125% .250% - ------------------------------------------------------------------------ Category C: BBB / Baa2 .150% .300% - ------------------------------------------------------------------------ Category D: BBB- / Baa3 .250% .500% =========================================================================
____________ * greater than sign "Bank" shall mean each Person listed on Schedule I hereto and any ---- other Person that shall have become a party hereto as a result of an assignment pursuant to Section 10.6(b)(A) hereto, other than any such Person that ceases to be a party hereto as a result of an assignment pursuant to Section 10.6(b)(A) hereto. "Bankruptcy Code" shall have the meaning assigned that term in (S) --------------- 6.5. "Base Rate" shall mean, for any day, a rate per annum equal to the --------- higher of (i) the Prime Rate and (ii) 1/2 of 1% plus the Federal Funds Rate, each as in effect from time to time. "Base Rate Lending Office" means, with respect to each Bank, the ------------------------ office of such Bank specified as its "Base Rate Lending Office" on the signature pages to the Agreement or such other office of such Bank as such Bank may from time to time specify as such to the Borrower and the Agent. "Base Rate Loan" shall mean any Loan during any period during which -------------- such Loan is bearing interest at the rates provided for in (S) 2.1(a). "Borrower" shall have the meaning assigned that term in the first -------- paragraph of this Agreement. "Borrower Obligations" shall mean all obligations of Borrower under -------------------- this Agreement to pay (i) the principal of and interest on the Loans when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, and (ii) all other payment obligations of Borrower hereunder. "Borrowing" shall mean the incurrence of one Type of Loan to the --------- Borrower from all the Banks on a given date, all of which Eurodollar Loans shall have the same Interest Period, 22 pursuant to (S) 1.2; provided, however, that Loans to the Borrower of a -------- ------- different Type extended by one or more Banks pursuant to (S) 2.5(b) shall be considered a part of the related Borrowing. "Business Day" shall mean (i) for all purposes other than as covered ------------ by clause (ii) below, any day excluding Saturday, Sunday and any day on which banks in New York City are authorized by law or other governmental actions to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in U.S. dollar deposits in the London interbank Eurodollar market. "Capital Lease Obligations" of any person shall mean obligations of ------------------------- such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Closing Date" shall mean the date of this Agreement. ------------ "Commitment", for each Bank, shall mean the amount specified opposite ---------- its name on Schedule I hereto or in the assignment pursuant to which such Bank shall have assumed its Commitment, as applicable, such Commitment to be reduced by the amount of any reduction thereto effected pursuant to (S) 1.8, (S) 6 and/or (S) 10.6(b)(A). "Commitment Fee" shall have the meaning assigned that term in (S) 1.7. -------------- "Consolidated Capitalization of Parent" shall mean the sum of (A) the ------------------------------------- Consolidated Indebtedness of Parent and (B) (i) the consolidated shareowners' equity (determined in accordance with GAAP) of the common, preference and preferred stockholders of Parent and (ii) the aggregate amount of Hybrid Preferred Securities of Parent, except that for purposes of calculating Consolidated Capitalization of Parent, Consolidated Indebtedness of Parent shall exclude Non-Recourse Indebtedness of Parent and Consolidated Capitalization of Parent shall exclude that portion of shareholder equity attributable to assets securing Non-Recourse Indebtedness of Parent. "Consolidated Indebtedness of Parent" shall mean the consolidated ----------------------------------- Indebtedness of Parent (determined in accordance with GAAP), except that for purposes of this definition (1) Consolidated Indebtedness of Parent shall exclude Non-Recourse Indebtedness of Parent and (2) Consolidated Indebtedness of Parent shall exclude any Hybrid Preferred Securities of Parent. "Default" with respect to the Borrower, shall mean any event, act or ------- condition which with notice or lapse of time or both would constitute an Event of Default with respect to the Borrower. "Eligible Transferee" shall mean and include a commercial bank, ------------------- financial institution or other "accredited investor" (as defined in SEC Regulation D). 23 "Eurodollar Lending Office" shall mean, with respect to each Bank, the ------------------------- office of such Bank specified as its "Eurodollar Lending Office" on the signature pages to the Agreement or such other office of such Bank as such Bank may from time to time specify as such to the Borrower and the Agent. "Eurodollar Loan" shall mean any loan during any period during which --------------- such Loan is bearing interest at the rates provided for in (S) 2.1(b). "Event of Default" shall mean each of the Events of Default specified ---------------- in (S) 6. "Expiry Date" shall mean the earlier of April 4, 2001 and the ----------- termination in whole of the Total Commitments pursuant to (S) 1.8 or (S) 6. "Federal Funds Rate" shall mean for any day, a fluctuating interest ------------------ rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal Funds brokers of recognized standing selected by the Agent. "GAAP" shall mean United States generally accepted accounting ---- principles applied on a consistent basis. "Granting Bank" shall have the meaning assigned that term in (S) ------------- 10.6(d). "Guarantee" of or by any person shall mean any obligation, contingent --------- or otherwise, of such person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for payment of such Indebtedness, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness or (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness; provided, however, that the -------- ------- term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "Hybrid Preferred Securities of Parent" means (1) the preferred ------------------------------------- securities and subordinated debt described in the Prospectus dated as of April 3, 1997 of PP&L Capital Trust and PPL and the preferred securities and subordinated debt described in the Prospectus dated as of June 9, 1997 of PP&L Capital Trust II and PPL (collectively, the "Existing TOPrS") and (2) any additional preferred securities and subordinated debt (with a maturity of at least twenty years) similar to the Existing TOPrS and in an aggregate amount not to exceed $100,000,000, issued by business trusts, limited liability companies, limited partnerships (or similar entities) (i) all of the common equity, general partner or similar interests of which are owned (either directly or indirectly through one or more wholly-owned Subsidiaries) at all times by Parent or 24 PPL, (ii) that have been formed for the purpose of issuing hybrid preferred securities and (iii) substantially all the assets of which consist of (A) subordinated debt of Parent or a Subsidiary of Parent, as the case may be, and (B) payments made from time to time on the subordinated debt. "Indebtedness" of any person shall mean, without duplication, (a) all ------------ obligations of such person for borrowed money, (b) all obligations of such person with respect to deposits or advances of any kind, (c) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (d) all obligations of such person under conditional sale or other title retention agreements relating to property or assets purchased by such person, (e) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding any trade accounts payable and accrued obligations incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such person, whether or not the obligations secured thereby have been assumed but shall not include any obligations that are without recourse to such person, (g) all Guarantees by such person of Indebtedness of others, (h) all Capital Lease Obligations of such person, (i) all obligations of such person in respect of Interest Rate Protection Agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements (the amount of any such obligation to be the net amount that would be payable upon the acceleration, termination or liquidation thereof) and (j) all obligations of such person as an account party in respect of letters of credit and bankers' acceptances. "Interest Period" shall mean (a) as to any Eurodollar Loan, the --------------- period commencing on the date of such Loan or on the last day of the most recent Interest Period applicable thereto and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2 or 3 months thereafter, as the Borrower may elect in a Notice of Borrowing or Notice of Conversion and (b) as to any Base Rate Loan, the period commencing on the date of such Loan and ending on the Expiry Date or the date of prepayment of such Loan. If any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day, provided that if any Interest Period -------- applicable to a Borrowing of Eurodollar Loans would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day. "Interest Rate Protection Agreement" shall mean any agreement ---------------------------------- providing for an interest rate swap, cap or collar, or for any other financial arrangement designed to protect against fluctuations in interest rates. "Lien" shall mean, with respect to any asset, (a) any mortgage, deed ---- of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vender or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. 25 "Loan" shall have the meaning assigned that term in (S) 1.1. ---- "Loan Documents" shall have the meaning assigned that term in (S) 8.1. -------------- "Moody's" shall mean Moody's Investors Service, Inc. or any successor ------- thereto. "Morgan Stanley Revolving Credit Agreement" means the Revolving Credit ----------------------------------------- Agreement, dated as of December 21, 2000, among the Borrower, the Parent, Morgan Stanley Senior Funding, Inc. and banks named therein. "Net Cash Proceeds" means, (i) with respect to the incurrence or ----------------- issuance of any Specified Debt by the Parent, the Borrower or PPL Energy Supply or (ii) with respect to the issuance of any Specified Equity by the Parent or the Borrower, the aggregate amount of cash received by or on behalf of such respective entities in connection with such transaction, after deducting therefrom only (without duplication) (a) reasonable and customary brokerage commissions, underwriting fees and discounts, legal fees, finder's fees and other similar fees and commissions and (b) the amount of taxes payable in connection with or as a result of such transaction, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid to a Person that is not an affiliate of such Person and are properly attributable to such transaction provided that the term "Net -------- Cash Proceeds" shall not include (i) the first $50,000,000 in the aggregate of cash received with respect to incurrences or issuances of Specified Debt and (ii) the first $50,000,000 in the aggregate of cash received with respect to issuances of Specified Equity. "Non-Recourse Indebtedness of Parent" shall mean (a) indebtedness that ----------------------------------- is nonrecourse to Parent, the Borrower or any of PPL's Subsidiaries and (b) any transition bonds issued by PP&L Transition Bond Company LLC, a subsidiary of PPL, or any similar special purpose company organized for the purpose of issuing bonds payable from revenues associated with intangible transition property created under the Pennsylvania Electricity Generation Customer Choice and Competition Act or other assets of PP&L Transition Bond Company LLC or any such other special purpose company, provided that (i) such bonds are nonrecourse to -------- PPL or any of its subsidiaries (other than PP&L Transition Bond Company LLC or any such other special purpose company) and (ii) the aggregate amount of such transition bonds shall not exceed $2,850,000,000. "Notice of Borrowing" shall have the meaning assigned that term in (S) ------------------- 1.2. "Notice of Conversion" shall have the meaning assigned that term in -------------------- (S) 2.4(a). "Parent" shall have the meaning assigned that term in the first ------ paragraph of this Agreement. "Payment Office" shall mean -------------- (i) for notice purpose, the office of the Agent located at Eleven Madison Avenue, New York, New York 10010-3629, Attention: Andrea E. Shkane or such other office as the Agent may hereafter designate in writing as such to the other parties hereto; and 26 (ii) for payment purposes, The Bank of New York, NY, SWIFT: IRVTUS3SN ABA 021 000 018, CHIPS 0001 A/C # 8900329262 A/C Name: CSFBNY-Loan Clearing "Permitted Liens" shall mean (a) Liens for taxes, assessments or --------------- governmental charges or levies to the extent not past due, or which are being contested in good faith in appropriate proceedings for which Parent has provided appropriate reserves for the payment thereof in accordance with GAAP; (b) pledges or deposits in the ordinary course of business to secure obligations under worker's compensation laws or similar legislation; (c) other pledges or deposits in the ordinary course of business (other than for borrowed monies) that, in the aggregate, are not material to Parent; (d) Liens imposed by law such as materialmen's, mechanics', carriers', workers' and repairmen's Liens and other similar Liens arising in the ordinary course of business for sums not yet due or currently being contested in good faith by appropriate proceedings; (e) attachment, judgment or other similar Liens arising in connection with court proceedings, provided that such Liens, in the aggregate, shall not exceed $50,000,000 at any one time outstanding, and (f) other Liens not otherwise referred to in the foregoing clauses (a) through (e) above, provided that such -------- other Liens do not secure at any time obligations in an aggregate amount in excess of $100,000,000 at any time outstanding. "Persons" shall mean and include any individual, firm, corporation, ------- association, trust or other enterprise or any governmental or political subdivision or agency, department or instrument thereof. "PPL" shall mean PPL Electric Utilities Corporation, a Pennsylvania --- corporation. "PPL Energy Supply" shall mean PPL Energy Supply LLC, a Delaware ----------------- limited liability company, or a substitute entity established for the purposes of holding all the unregulated businesses of the Parent and providing financing therefor. "Prime Rate" shall mean the rate which Citibank, N.A. announces from ---------- time to time as its prime lending rate, such Prime Rate to change when and as such prime lending rate changes. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Citibank, N.A. may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. "Quoted Rate" shall mean, with respect to any Eurodollar Loan for any ----------- Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 A.M. (London time) 2 Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at 27 such time for any reason, then the "Quoted Rate" with respect to such Eurodollar ----------- Loan for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Register" shall have the meaning provided in 1.4(b). -------- "Regulation D" shall mean Regulation D of the Board of Governors of ------------ the Federal Reserve System as from time to time in effect or any successor to all or a portion thereof establishing reserve requirements. "Required Banks" shall mean Banks having Loans the outstanding -------------- principal amount of which aggregate (or, if no Loans are outstanding, Banks with Commitments aggregating) at least the majority of the aggregate outstanding principal amount of all Loans (or of the Total Commitment). "SEC" shall have the meaning assigned that term in (S) 5.1(c). --- "SEC Regulation D" shall mean Regulation D as promulgated under the ---------------- Securities Act of 1933, as amended, as the same may be in effect from time to time. "SPC" shall have the meaning assigned that term in (S) 10.6(d). --- "Specified Debt" shall mean, with respect to the Parent, the Borrower -------------- or PPL Energy Supply, any Indebtedness of the Parent, the Borrower or PPL Energy Supply, of the character described in clauses (a) or (c) of the definition thereof, but in each case excluding (i) commercial paper issuances, (ii) any such Indebtedness issued to or held by any affiliate of the Parent, the Borrower or PPL Energy Supply, and (iii) any such indebtedness incurred by the Borrower pursuant to the Morgan Stanley Revolving Credit Agreement. "Specified Equity" shall mean, (a) with respect to the Parent or the ---------------- Borrower, shares of capital stock of the Parent or the Borrower, or securities convertible into or exchangeable for the shares of capital stock of the Parent or the Borrower (but in each case excluding shares of common stock issued pursuant to the Parent's direct stock purchase and dividend reinvestment plan, structured equity shelf program and the Parent's stock plans for directors, officers and employees, and any capital stock issued to or held by a Person which immediately prior to such transaction was an affiliate of the Parent or the Borrower), and (b) with respect to the Parent, issuance of equity with proceeds exceeding $50,000,000 by a subsidiary, which is recorded on the books of the Parent and its consolidated subsidiaries as a minority interest. "S&P" shall mean Standard & Poor's Ratings Group or any successor --- thereto. "Subsidiary" shall mean any company, partnership, association or other ---------- business entity in which any Person and its Subsidiaries now have or may hereafter acquire an aggregate of at least 50% of the voting stock or ownership interests. 28 "Taxes" shall have the meaning assigned that term in (S) 3.4. ----- "Total Commitment" shall mean the aggregate of all the Commitments of ---------------- all the Banks. "Type" shall mean any type of Loan, i.e., whether a Loan is a Base ---- ---- Rate Loan or a Eurodollar Loan. "Unaffected Bank" shall have the meaning assigned that term in (S) --------------- 2.5(c). "written" or "in writing" shall mean any form of written communication ------- ---------- or a communication by means of telex, telecopier device, telegraph or cable. 10.2 Accounting Principles. All statements to be prepared and --------------------- determinations to be made under this Agreement, including (without limitation) those pursuant to (S) 5, shall be prepared and made in accordance with generally accepted accounting principles applied on a basis consistent with the accounting principles reflected in the audited financial statements of Parent for the fiscal year ended December 31, 1999, referred to in (S) 7.4, except for changes in accounting principles consistent with GAAP. 10.3 Exercise of Rights. Neither the failure nor delay on the part of ------------------ any of the Banks to exercise any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Banks would otherwise have. No notice to or demand on Borrower or Parent in any case shall entitle Borrower or Parent, as applicable, to any other or further notice or demand in similar or other circumstances or constitute a waiver of the right of the Banks to any other or further action in any circumstances without notice or demand. 10.4 Amendment and Waiver. Neither this Agreement nor any other Loan -------------------- Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by Borrower and Parent, and the Required Banks, provided that no such -------- change, waiver, discharge or termination shall, without the consent of each Bank directly affected thereby, (i) extend the final scheduled maturity of any Loan, or reduce the rate or extend the time of payment of interest or Commitment Fees thereon (except in connection with a waiver of the applicability of any post- default increase in interest rates), or reduce the principal amount thereof (except to the extent repaid in cash), (ii) amend, modify or waive any provision of this (S) 10.4, (iii) reduce the percentage specified in the definition of Required Banks or (iv) consent to the assignment or transfer by Borrower or Parent of any of its rights and obligations under this Agreement or the release of Parent from its guarantee hereunder; provided further, that no such change, -------- ------- waiver, discharge or termination shall (x) increase the Commitments of any Bank over the amount thereof then in effect without the consent of such Bank (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or Events of Default shall not constitute an increase of the Commitment of any Bank) or (y) without the consent of the Agent, amend, modify or waive any 29 provision of (S) 8 as such Section applies to such Agent or any other provision as such Section relates to the rights or obligations of such Agent. 10.5 Expenses; Indemnification. (a) The Borrower agrees to pay all ------------------------- reasonable out-of-pocket expenses (i) of the Agent incurred in connection with the preparation, execution, delivery, enforcement and administration (exclusive of any internal overhead expenses) of this Agreement and any and all agreements supplementary hereto and the making and repayment of the Loans and the payment of interest, including, without limitation, the reasonable fees and expenses of Sullivan & Cromwell, counsel for the Agent and (ii) of the Agent and each Bank incurred in connection with the enforcement of this Agreement, including, without limitation, the reasonable fees and expenses of any counsel for any of the Banks with respect to such enforcement; provided that neither the Borrower -------- nor Parent shall be liable for any fees, charges or disbursements of any counsel for the Banks or the Agent other than Sullivan & Cromwell associated with the preparation, execution and delivery of this Agreement and the closing documentation contemplated hereby. (b) The Borrower further agrees to pay, and to save the Agent and the Banks harmless from all liability for, any stamp or other documentary taxes which may be payable in connection with the Borrower's execution or delivery of this Agreement, its borrowings hereunder, or the issuance of any notes or of any other instruments or documents provided for herein or delivered or to be delivered by it hereunder or in connection herewith. (c) The Borrower agrees to indemnify the Agent and each Bank and each of their respective affiliates, directors, officers and employees (each such person being called an "Indemnitee") against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not the Agent or any Bank is a party thereto) which any of them may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby, the direct or indirect application or proposed application of the proceeds of any Loan; provided that such indemnification shall not extend -------- to disputes solely among the Agent and the Banks; and provided further that such -------- ------- indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee. (d) All obligations provided for in this (S) 10.5 shall survive any termination of this Agreement or the resignation, withdrawal or removal of any Bank. 10.6 Successors and Assigns. (a) This Agreement shall be binding upon ---------------------- and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that neither Borrower nor Parent may -------- assign or transfer any of its interests hereunder, except to the extent any such assignment results from the consummation of a transaction permitted under (S) 5.2, without the prior written consent of the Banks and provided further that -------- ------- the right of each Bank to transfer, assign or grant participations in its rights and/or obligations hereunder shall be limited as set forth below in this (S) 10.6, provided that nothing in this (S) 10.6 shall prevent or prohibit any Bank -------- from pledging its rights under this Agreement and/or its Loans hereunder to a Federal Reserve Bank in support of borrowings made by such Bank from such 30 Federal Reserve Bank. In order to facilitate such an assignment to a Federal Reserve Bank, the Borrower shall, at the request of the assigning Bank, duly execute and deliver to the assigning Bank a promissory note evidencing its Commitment or Loans made by the assigning Bank hereunder. (b) Each Bank shall have the right to transfer, assign or grant participations in all or any part of its remaining rights and obligations hereunder on the basis set forth below in this clause (b). (A) Assignments. Each Bank may assign all or a portion of its rights ----------- and obligations hereunder pursuant to this clause (b)(A) to (x) one or more Banks or any affiliates of any Bank or (y) one or more other Eligible Transferees, provided that (i) any such assignment pursuant to clause (y) -------- above shall be in the aggregate amount of at least $5,000,000, (ii) after giving effect to any such assignment pursuant to clause (x) or (y) above, no Bank shall have a Commitment of less than $5,000,000 unless such Bank's Commitment is reduced to zero pursuant to such assignment, and (iii) any assignment pursuant to clause (y) shall require the consent of the Borrower, which consent shall not be unreasonably withheld. Assignments will only be effective if the Agent shall have received a written notice from the assigning Bank and the assignee and payment of a nonrefundable assignment fee of $2,500 to the Agent by either the assigning Bank or the assignee. No later than five Business Days after its receipt of any written notice of assignment, the Agent will record such assignment, and the resultant effects thereof on the Commitment of the assigning Bank and, in the case of an assignment, the assignee, in the Register, at which time such assignment shall become effective, provided that the Agent shall not -------- be required to, and shall not, so record any assignment in the Register on or after the date on which any proposed amendment, modification or supplement in respect of this Agreement has been circulated to the Banks for approval until the earlier of (x) the effectiveness of such amendment, modification or supplement in accordance with (S) 10.4 or (y) 30 days following the date on which such proposed amendment, modification or supplement was circulated to the Banks. Upon the effectiveness of any assignment pursuant to this clause (b)(A), the assignee will become a "Bank" for all purposes of this Agreement and the other Loan Documents with a Commitment as so recorded by the Agent in the Register, and to the extent of such assignment, the assigning Bank shall be relieved of its obligations hereunder with respect to the portion of its Commitment being assigned. (B) Participations. Each Bank may transfer, grant or assign -------------- participations in all or any part of such Bank's interests and obligations hereunder pursuant to this clause (b)(B) to any Eligible Transferee, provided that (i) such Bank shall remain a "Bank" for all purposes of this -------- Agreement and the transferee of such participation shall not constitute a Bank hereunder and (ii) no participant under any such participation shall have any rights under the Agreement or other Loan Document or any rights to approve any amendment to or waiver of this Agreement or any other Loan Document except to the extent such amendment or waiver would (x) extend the final scheduled maturity of any of the Loans or the Commitment in which such participant is participating, (y) reduce the interest rate (other than as a result of waiving the applicability of any post- default increases in interest rates) or Commitment Fee or other fees applicable to any of the 31 Loans or Commitments in which such participant is participating or postpone the payment of any thereof or reduce the principal amount of any Loan (except to the extent repaid in cash) or (z) release Parent from its obligations as a guarantor hereunder. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Loan Documents (the participant's rights against the granting Bank in respect of such participation to be those set forth in the agreement with such Bank creating such participation) and all amounts payable by the Borrower hereunder shall be determined as if such Bank had not sold such participation, provided that such participant shall -------- be entitled to receive additional amounts under (S)(S) 1.6, 2.5 and 3.4 on the same basis as if it were a Bank but in no case shall be entitled to any amount greater than would have been payable had the Bank not sold such participations. (c) Each Bank hereby represents, and each Person that becomes a Bank pursuant to an assignment permitted by the preceding clause (b)(A) will upon its becoming party to this Agreement represent, that it is an Eligible Transferee which makes loans in the ordinary course of its business and that it will make or acquire Loans for its own account in the ordinary course of such business, provided that, subject to the preceding clauses (a) and (b), the disposition of - -------- any promissory notes or other evidences of or interests in Loans held by such Bank shall at all times be within its exclusive control. (d) Notwithstanding anything to the contrary contained herein, any Bank (a "Granting Bank") may grant to a special purpose funding vehicle (an ------------- "SPC"), identified as such in writing from time to time by the Granting Bank to --- the Agent and the Borrower, the option to provide to the Borrower all or any part of any advance that such Granting Bank would otherwise be obligated to make to the Borrower pursuant to the Agreement (an "Advance"); provided that (i) ------- -------- nothing herein shall constitute a commitment by any SPC to make any Advance and (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Advance, the Granting Bank shall be obligated to make such Advance pursuant to the terms hereof. The making of an Advance by an SPC hereunder shall utilize the Commitment of the Granting Bank to the same extent, and as if, such Advance were made by such Granting Bank. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (All liability for which shall remain with the Granting Bank). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial papers or other senior indebtedness of any SPC, it will not institute against, or join any other Person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency, liquidation or similar proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this (S) 10.6, any SPC may (i) with notice to, but without the prior written consent of, the Borrower and the Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Advance to the Granting Bank or to any financial institutions (consented to by the Borrower and the Agent) providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Advances and (ii) disclose on a confidential basis any non-public information relating to its Advances to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC. This (S) 10.6(d) may not be amended without the written consent of any SPC which then holds an outstanding Advance. 32 Notwithstanding the foregoing provisions of this Section 10.6(d), (1) an SPC shall not be deemed to be a bank or a participant and shall have no rights under this Agreement except as provided in this Section 10.6(d), and in particular, but not by the way of limitation, shall have no rights to compensation for increased costs pursuant to Section 2.5 in excess of the amount which would otherwise have been payable to the Granting Bank if it had provided the Advances which were provided by the SPC, (2) the Granting Bank's obligations under this Agreement (including its Commitment to the Borrower hereunder) shall remain unchanged, (3) the Granting Bank shall remain solely responsible to the other parties hereto for the performance of such obligations, and (4) the Borrower, the Agent and the Banks shall continue to deal solely and directly with the Granting Bank in connection with such Granting Bank's rights and obligations under the Agreement. 10.7 Notices, Requests, Demands. All notices, requests, demands or other -------------------------- communications to or upon the respective parties hereto shall be deemed to have been given or made (i) in the case of notice by mail, when actually received, and (ii) in the case of telecopier notice sent over a telecopier machine owned or operated by a party hereto, when sent, in each case addressed to the party or parties to which such notice is given at their respective addresses shown below their signatures hereto or at such other address as such party may hereafter specify in writing to the others. No other method of giving notice is hereby precluded. 10.8 Survival of Representations and Warranties. All representations and ------------------------------------------ warranties contained herein or otherwise made in writing by Borrower or Parent in connection herewith shall survive the execution and delivery of this Agreement. 10.9 Governing Law. This Agreement and the rights and obligations of the ------------- parties under this Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of New York. 10.10 Counterparts. This Agreement may be executed in any number of ------------ copies, and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instrument. Complete counterparts of this Agreement shall be lodged with the Borrower, Parent and the Agent. 10.11 Terms Generally. All references herein to the "date hereof", the --------------- "date of this Agreement", or words of similar import, shall be construed as referring to January 3, 2001. 10.12 Effectiveness. This Agreement shall become effective on the Closing ------------- Date. 10.13 Transfer of Office. (a) Each Bank may transfer and carry its Loans ------------------ at, to or for the account of any branch office, subsidiary or affiliate of such Bank; provided that such Bank shall continue to bear all of its obligations -------- under this Agreement; and provided further that the Borrower shall not be -------- ------- responsible for costs arising under (S) 1.6, 2.5 or 3.4 resulting from any such transfer to the extent not otherwise applicable to such Bank prior to such transfer. (b) Upon a Bank becoming aware of any event which will entitle it to any additional amount pursuant to (S) 2.5(a) or (S) 3.4, such Bank shall take all reasonable steps (including but not limited to making, maintaining or funding the affected Loan through another office of such Bank) to avoid or reduce the additional amount payable by the Borrower; provided -------- 33 that, such steps will not result in any additional costs, liabilities or expenses (not reimbursable by the Borrower) to such Bank and are not otherwise inconsistent with the interests of such Bank determined in good faith. 10.14 Proration of Payments. The Banks agree among themselves that, --------------------- with respect to all amounts received by them which are applicable to the payment of principal of or interest on the Loans, equitable adjustment will be made so that, in effect, all such amounts will be shared ratably among the Banks on the basis of the amounts then owed each of them in respect of such obligation, whether received by voluntary payment, by realization upon security, by the exercise of any right of set-off or bankers' lien, by counterclaim or cross action, under or pursuant to this Agreement or otherwise. Each of the Banks agrees that if it should receive any payment on its Loans of a sum or sums in excess of its pro rata portion, then the Bank receiving such excess payment --- ---- shall purchase for cash from the other Banks an interest in the Loans of such Banks in such amount as shall result in a ratable participation by each of the Banks in the aggregate unpaid amount of all outstanding Loans then held by all of the Banks. If all or any portion of such excess payment is thereafter recovered from such Bank, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. The Borrower agrees that any Bank so purchasing a participation from another Bank pursuant to this (S) 10.14 may exercise all its rights with respect to such participation as fully as if such Bank were the direct creditor of the Borrower in the amount of such participation. 10.15 Jurisdiction; Consent to Service of Process. (a) Each of ------------------------------------------- Borrower and Parent hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Agent or any Bank may otherwise have to bring any action or proceeding relating to this Agreement against any of Borrower, Parent or their properties in the courts of any jurisdiction. (b) Each of Borrower and Parent hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (a) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 10.7. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. 34 10.16 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE -------------------- FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. 10.17 Headings Descriptive. The headings of the various provisions of -------------------- this Agreement are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. 35 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. PPL CAPITAL FUNDING, INC. By______________________________ Name: Title: PPL CORPORATION, as Guarantor By______________________________ Name: Title: CREDIT SUISSE FIRST BOSTON, Individually and as Agent By______________________________ Name: Title: By______________________________ Name: Title: Bank Address ------------ - -------------------------------------------------------------------------------- Name of Bank and Address Phone Number(s) Fax Number(s) - -------------------------------------------------------------------------------- Domestic Lending Office: - ----------------------- Credit Suisse First Boston (212) 325-2000 Eleven Madison Avenue New York, New York 10010-3629 Credit Contact: - -------------- Andrea E. Shkane, VP (212) 325-6513 (212) 325-8320 James H. Lee (212) 325-9104 (212) 325-8320 - -------------------------------------------------------------------------------- Administrative Contact: - ---------------------- Credit Suisse First Boston Five World Trade Center, 8/th/ Floor New York, New York 10048-0928 Attention: Jenaro Sarasola (212) 322-1384 (212) 335-0593 - -------------------------------------------------------------------------------- SCHEDULE I BANK COMMITMENT ---- ---------- CREDIT SUISSE FIRST BOSTON............................... $200,000,000 TOTAL COMMITMENT.................. $200,000,000 EXHIBIT A PROMISSORY NOTE [amount] [date] PPL Capital Funding, Inc., a Delaware corporation (the "Borrower"), for value received, hereby promises to pay to the order of Credit Suisse First Boston (the "Bank"), at the office of Credit Suisse First Boston, at Eleven Madison Avenue, New York, New York 10010-3629, in lawful money of the United States, the principal sum of [amount] Million and No/100 Dollars, by or on April 4, 2001, as defined in the Credit Agreement (hereinafter defined). This Note shall bear interest as set forth in the Credit Agreement. If interest or principal on the loan evidenced by this Note becomes due and payable on a day which is not a Business Day, as defined in the Credit Agreement, the maturity thereof shall be extended and interest shall be payable thereon at the rate specified in the Credit Agreement during such extension. This Note is one of the promissory notes referred to in that certain Credit Agreement, dated as of January 3, 2001 (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), among PPL Corporation, a Pennsylvania corporation (the "Parent"), PPL Capital Funding, Inc., a Delaware corporation (the "Borrower"), Credit Suisse First Boston, as agent and as a bank, and any other banks named therein, and is subject to prepayment in whole or in part and its maturity is subject to acceleration upon the terms provided in the Credit Agreement. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. This Note is not negotiable and may be assigned only upon the terms and conditions specified in the Credit Agreement. All changes in interest determination on the Loan made pursuant to the Credit Agreement and all payments of principal hereof may be indicated by the Bank upon the grid attached hereto which is a part of this Note. Such notations shall be presumptive as to the aggregate unpaid principal and interest due under this Loan. PPL CAPITAL FUNDING, INC. By___________________________ Name: Title: TERM LOAN AND PRINCIPAL PAYMENTS Aggregate Principal Amount of Loan: Borrowing Date: --------- ---------- --------- --------- Amount of Interest Amount of Unpaid Interest Period (if Principal Principal Notation Date Rate Basis applicable) Repaid Balance Total Made By - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- =============================================================================== EXHIBIT D PARENT COMPLIANCE CERTIFICATE PPL CORPORATION ____________ (date) The undersigned certifies, as of [ ], that the following information concerning PPL Corporation, a Pennsylvania corporation ("Parent") is true and correct: A. Consolidated Indebtedness of Parent: __________ B. Consolidated Capitalization of Parent: __________ C. Consolidated Indebtedness of Parent to Consolidated Capitalization of Parent (A divided by B): 1 --------- PPL CORPORATION By ________________________ Name: Title: __________________________ /1/ If such number is greater than .70, then a Default exists. EX-10.(F) 7 0007.txt AMENDED AND RESTATED OPERATING AGREEMENT OF PJM Exhibit 10(f) PJM Interconnection, L.L.C. First Revised Rate Schedule FERC No. 24 ================================================================================ Amended and Restated Operating Agreement of PJM Interconnection, L.L.C. Includes FERC-Approved Revisions As Of February 7, 2001. ================================================================================ Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 1 First Revised Rate Schedule FERC No. 24 OPERATING AGREEMENT - -------------------------------------------------------------------------------- TABLE OF CONTENTS 1. DEFINITIONS............................................................. 15 1.1 Act............................................................... 15 1.2 Affiliate......................................................... 15 1.3 Agreement......................................................... 15 1.4 Annual Meeting of the Members..................................... 15 1.5 Board Member...................................................... 15 1.6 Capacity Resource................................................. 15 1.7 Control Area...................................................... 16 1.8 Electric Distributor.............................................. 16 1.9 Effective Date.................................................... 16 1.10 Emergency........................................................ 16 1.11 End-Use Customer................................................. 16 1.12 FERC............................................................. 16 1.13 Finance Committee................................................ 17 1.14 Generation Owner................................................. 17 1.15 Good Utility Practice............................................ 17 1.16 Interconnection.................................................. 17 1.17 LLC.............................................................. 17 1.18 Load Serving Entity.............................................. 17 1.19 Locational Marginal Price........................................ 17 1.20 MAAC............................................................. 17 1.21 Market Buyer..................................................... 18 1.22 Market Participant............................................... 18 1.23 Market Seller.................................................... 18 1.24 Member........................................................... 18 1.25 Members Committee................................................ 18 1.26 NERC............................................................. 18 1.27 Office of the Interconnection.................................... 18 1.28 Operating Reserve................................................ 18 1.29 Original PJM Agreement........................................... 18 1.30 Other Supplier................................................... 18 1.31 PJM Board........................................................ 19 1.32 PJM Control Area................................................. 19 1.33 PJM Dispute Resolution Procedures................................ 19 1.34 PJM Interchange Energy Market.................................... 19 1.35 PJM Manuals...................................................... 19
Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 2 First Revised Rate Schedule FERC No. 24 1.36 PJM Tariff....................................................... 19 1.37 Planning Period.................................................. 19 1.38 President........................................................ 19 1.39 Related Parties.................................................. 19 1.40 Reliability Assurance Agreement.................................. 20 1.41 Sector Votes..................................................... 20 1.42 State............................................................ 20 1.43 System........................................................... 20 1.44 Transmission Facilities.......................................... 20 1.45 Transmission Owner............................................... 20 1.46 Transmission Owners Agreement.................................... 20 1.47 User Group....................................................... 20 1.48 Voting Member.................................................... 20 1.49 Weighted Interest................................................ 21 2. FORMATION, NAME; PLACE OF BUSINESS...................................... 21 2.1 Formation of LLC; Certificate of Formation........................ 21 2.2 Name of LLC....................................................... 22 2.3 Place of Business................................................. 22 2.4 Registered Office and Registered Agent............................ 22 3. PURPOSES AND POWERS OF LLC.............................................. 22 3.1 Purposes.......................................................... 22 3.2 Powers............................................................ 22 4. EFFECTIVE DATE AND TERMINATION.......................................... 23 4.1 Effective Date and Termination.................................... 23 4.2 Governing Law..................................................... 23 5. WORKING CAPITAL AND CAPITAL CONTRIBUTIONS............................... 23 5.1 Funding of Working Capital and Capital Contributions.............. 23 5.2 Contributions to Association...................................... 24 6. TAX STATUS AND DISTRIBUTIONS............................................ 24 6.1 Tax Status........................................................ 24 6.2 Return of Capital Contributions................................... 24 6.3 Liquidating Distribution.......................................... 25 7. PJM BOARD............................................................... 25 7.1 Composition....................................................... 25 7.2 Qualifications.................................................... 26 7.3 Term of Office.................................................... 26 7.4 Quorum............................................................ 26 7.5 Operating and Capital Budgets..................................... 27 7.5.1 Finance Committee........................................ 27 7.5.2 Adoption of Budgets...................................... 27
Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 3 First Revised Rate Schedule FERC No. 24 7.6 By-laws........................................................... 27 7.7 Duties and Responsibilities of the PJM Board...................... 27 8. MEMBERS COMMITTEE....................................................... 29 8.1 Sectors........................................................... 29 8.1.1 Designation.............................................. 29 8.1.2 Related Parties.......................................... 30 8.2 Representatives................................................... 30 8.2.1 Appointment.............................................. 30 8.2.2 Regulatory Authorities................................... 30 8.2.3 Initial Representatives.................................. 30 8.2.4 Change of or Substitution for a Representative........... 30 8.3 Meetings.......................................................... 31 8.3.1 Regular and Special Meetings............................. 31 8.3.2 Attendance............................................... 31 8.3.3 Quorum................................................... 31 8.4 Manner of Acting.................................................. 31 8.5 Chair and Vice Chair of the Members Committee..................... 32 8.5.1 Selection and Term....................................... 32 8.5.2 Duties................................................... 32 8.6 Other Committees.................................................. 32 8.7 User Groups....................................................... 32 8.8 Powers of the Members Committee................................... 33 9. OFFICERS................................................................ 33 9.1 Election and Term................................................. 33 9.2 President......................................................... 34 9.3 Secretary......................................................... 34 9.4 Treasurer......................................................... 34 9.5 Renewal of Officers; Vacancies.................................... 35 9.6 Compensation...................................................... 35 10. OFFICE OF THE INTERCONNECTION.......................................... 35 10.1 Establishment.................................................... 35 10.2 Processes and Organization....................................... 35 10.3 Confidential Information......................................... 35 10.4 Duties and Responsibilities...................................... 35 11. MEMBERS................................................................ 37 11.1 Management Rights................................................ 37 11.2 Other Activities................................................. 37 11.3 Member Responsibilities.......................................... 37 11.3.1 General................................................. 37
Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 4 First Revised Rate Schedule FERC No. 24 11.3.2 Facilities Planning and Operation...................... 38 11.3.3 Electric Distributors.................................. 39 11.3.4 Reports to the Office of the Interconnection........... 40 11.4 Regional Transmission Expansion Planning Protocol............... 40 11.5 Member Right to Petition........................................ 41 11.6 Membership Requirements......................................... 41 12. TRANSFERS OF MEMBERSHIP INTEREST....................................... 42 13. INTERCHANGE............................................................ 42 13.1 Interchange Arrangements with Non-Members....................... 42 13.2 Energy Market................................................... 42 14. METERING............................................................... 43 14.1 Installation, Maintenance and Reading of Meters................. 43 14.2 Metering Procedures............................................. 43 14.3 Integrated Megawatt-Hours....................................... 43 14.4 Meter Locations................................................. 43 15. ENFORCEMENT OF OBLIGATIONS............................................. 43 15.1 Failure to Meet Obligations..................................... 43 15.1.1 Termination of Market Buyer Rights..................... 43 15.1.2 Termination of Market Seller Rights.................... 43 15.1.3 Payment of Bills....................................... 44 15.2 Enforcement of Obligations...................................... 45 15.3 Obligations to a Member in Default.............................. 45 15.4 Obligations of a Member in Default.............................. 45 15.5 No Implied Waiver............................................... 45 16. LIABILITY AND INDEMNITY................................................ 46 16.1 Members......................................................... 46 16.2 LLC Indemnified Parties......................................... 47 16.3 Worker's Compensation Claims.................................... 48 16.4 Limitation of Liability......................................... 48 16.5 Resolution of Disputes.......................................... 48 16.6 Gross Negligence or Willful Misconduct.......................... 48 16.7 Insurance....................................................... 48 17. MEMBER REPRESENTATIONS, WARRANTIES AND COVENANTS....................... 48 17.1 Representations and Warranties.................................. 48 17.1.1 Organization and Existence............................. 49 17.1.2 Power and Authority.................................... 49 17.1.3 Authorization and Enforceability....................... 49 17.1.4 No Government Consents................................. 49 17.1.5 No Conflict or Breach.................................. 49 17.1.6 No Proceedings......................................... 49 17.2 Municipal Electric Systems...................................... 50
Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 5 First Revised Rate Schedule FERC No. 24 17.3 Survival........................................................ 50 18. MISCELLANEOUS PROVISIONS............................................... 50 18.1 [Reserved]...................................................... 50 18.2 Fiscal and Taxable Year......................................... 50 18.3 Reports......................................................... 50 18.4 Bank Accounts; Checks, Notes and Drafts......................... 50 18.5 Books and Records............................................... 51 18.6 Amendment....................................................... 51 18.7 Interpretation.................................................. 52 18.8 Severability.................................................... 52 18.9 Force Majeure................................................... 52 18.10 Further Assurances............................................. 52 18.11 Seal........................................................... 52 18.12 Counterparts................................................... 53 18.13 Costs of Meetings.............................................. 53 18.14 Notice......................................................... 53 18.15 Headings....................................................... 53 18.16 No Third-Party Beneficiaries................................... 53 18.17 Confidentiality................................................ 54 18.17.1 Party Access.......................................... 54 18.17.2 Required Disclosure................................... 55 18.17.3 Disclosure to FERC.................................... 55 18.18 Termination and Withdrawal..................................... 56 18.18.1 Termination........................................... 56 18.18.2 Withdrawal............................................ 56 18.18.3 Winding Up............................................ 56 SCHEDULE 1 - PJM INTERCHANGE ENERGY MARKET................................. 57 1. MARKET OPERATIONS....................................................... 57 1.1 Introduction..................................................... 57 1.2 Cost-based Offers................................................ 57 1.3 Definitions...................................................... 57 1.3.1 Day-ahead Energy Market................................. 57 1.3.1A Day-ahead Prices....................................... 57 1.3.1B Decrement Bid.......................................... 57 1.3.1C Dispatch Rate.......................................... 58 1.3.2 Equivalent Load......................................... 58 1.3.3 External Market Buyer................................... 58 1.3.4 External Resource....................................... 58 1.3.5 Fixed Transmission Right................................ 58 1.3.6 Generating Market Buyer................................. 58 1.3.7 Generator Forced Outage................................. 58 1.3.8 Generator Maintenance Outage............................ 58 1.3.9 Generator Planned Outage................................ 59
Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 6 First Revised Rate Schedule FERC No. 24 1.3.9A Increment Bid........................................... 59 1.3.10 Internal Market Buyer................................... 59 1.3.11 Inadvertent Interchange................................. 59 1.3.12 Market Operations Center................................ 59 1.3.13 Maximum Generation Emergency............................ 59 1.3.14 Minimum Generation Emergency............................ 59 1.3.14A NERC Interchange Distribution Calculator.............. 60 1.3.15 Network Resource........................................ 60 1.3.16 Network Service User.................................... 60 1.3.17 Network Transmission Service............................ 60 1.3.18 Normal Maximum Generation............................... 60 1.3.19 Normal Minimum Generation............................... 60 1.3.20 Offer Data.............................................. 60 1.3.21 Office of the Interconnection Control Center............ 60 1.3.22 Operating Day........................................... 60 1.3.23 Operating Margin........................................ 61 1.3.24 Operating Margin Customer............................... 61 1.3.25 PJM Interchange......................................... 61 1.3.26 PJM Interchange Export.................................. 61 1.3.27 PJM Interchange Import.................................. 61 1.3.28 PJM Open Access Same-time Information System............ 61 1.3.29 Point-to-Point Transmission Service..................... 62 1.3.30 Ramping Capability...................................... 62 1.3.30A Real-time Prices....................................... 62 1.3.30B Real-time Energy Market................................ 62 1.3.31 Regulation.............................................. 62 1.3.32 Spot Market Backup...................................... 62 1.3.33 Spot Market Energy...................................... 62 1.3.33A State Estimator........................................ 62 1.3.34 Transmission Congestion Charge.......................... 62 1.3.35 Transmission Congestion Credit.......................... 63 1.3.36 Transmission Customer................................... 63 1.3.37 Transmission Forced Outage.............................. 63 1.3.37A Transmission Loading Relief........................... 63 1.3.37B Transmission Loading Relief Customer.................. 63 1.3.38 Transmission Planned Outage............................. 63 1.4 Market Buyers..................................................... 63 1.4.1 Qualification............................................ 63 1.4.2 Submission of Information................................ 64 1.4.3 Fees and Costs........................................... 65 1.4.4 Office of the Interconnection Determination.............. 65 1.4.5 Existing Participants.................................... 65 1.4.6 Withdrawal............................................... 65
Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 7 First Revised Rate Schedule FERC No. 24 1.5 Market Sellers.................................................... 66 1.5.1 Qualification............................................ 66 1.5.2 Withdrawal............................................... 66 1.6 Office of the Interconnection..................................... 66 1.6.1 Operation of the PJM Interchange Energy Market........... 66 1.6.2 Scope of Services........................................ 67 1.6.3 Records and Reports...................................... 68 1.6.4 PJM Manuals.............................................. 68 1.7 General........................................................... 68 1.7.1 Market Sellers........................................... 68 1.7.2 Market Buyers............................................ 68 1.7.3 Agents................................................... 68 1.7.4 General Obligations of the Market Participants........... 69 1.7.5 Market Operations Center................................. 70 1.7.6 Scheduling and Dispatching............................... 70 1.7.7 Pricing.................................................. 71 1.7.8 Generating Market Buyer Resources........................ 71 1.7.9 Delivery to an External Market Buyer..................... 71 1.7.10 Other Transactions...................................... 71 1.7.11 Emergencies............................................. 72 1.7.12 Fees and Charges........................................ 72 1.7.13 Relationship to PJM Control Area........................ 72 1.7.14 PJM Manuals............................................. 73 1.7.15 Corrective Action....................................... 73 1.7.16 Recording............................................... 73 1.7.17 Operating Reserves...................................... 73 1.7.18 Regulation.............................................. 74 1.7.19 Ramping................................................. 74 1.7.20 Communication and Operating Requirements................ 75 1.8 Selection, Scheduling and Dispatch Procedure Adjustment Process... 76 1.8.1 PJM Dispute Resolution Agreement......................... 76 1.8.2 Market or Control Area Hourly Operational Disputes....... 76 1.9 Prescheduling..................................................... 77 1.9.1 Outage Scheduling........................................ 77 1.9.2 Planned Outages.......................................... 77 1.9.3 Generator Maintenance Outages............................ 78 1.9.4 Forced Outages........................................... 78 1.9.5 Market Participant Responsibilities...................... 78 1.9.6 Internal Market Buyer Responsibilities................... 79 1.9.7 Market Seller Responsibilities........................... 79 1.9.8 Office of the Interconnection Responsibilities........... 79
Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 8 First Revised Rate Schedule FERC No. 24 1.10 Scheduling....................................................... 80 1.10.1 General................................................. 80 1.10.1A Day-Ahead Energy Market Scheduling..................... 80 1.10.2 Pool-Scheduled Resources................................ 83 1.10.3 Self-scheduled Resources................................ 84 1.10.4 Capacity Resources...................................... 84 1.10.5 External Resources...................................... 85 1.10.6 External Market Buyers.................................. 85 1.10.6A Transmission Loading Relief Customers................. 86 1.10.7 Bilateral Transactions.................................. 86 1.10.8 Office of the Interconnection Responsibilities.......... 87 1.10.9 Hourly Scheduling....................................... 88 1.11 Dispatch......................................................... 89 1.11.1 Resource Output......................................... 89 1.11.2 Operating Basis......................................... 89 1.11.3 Pool-dispatched Resources............................... 89 1.11.3A Maximum Generation Emergency.......................... 90 1.11.4 Regulation.............................................. 90 1.11.5 PJM Open Access Same-time Information System............ 90 1.12 Dynamic Scheduling............................................... 91 2. CALCULATION OF LOCATIONAL MARGINAL PRICES............................... 91 2.1 Introduction...................................................... 91 2.2 General........................................................... 91 2.3 Determination of System Conditions Using the State Estimator...... 92 2.4 Determination of Energy Offers Used in Calculating Real-time Prices 92 2.5 Calculation of Real-time Prices................................... 93 2.6 Calculation of Day-ahead Prices................................... 94 2.7 Performance Evaluation............................................ 94 3. ACCOUNTING AND BILLING.................................................. 94 3.1 Introduction...................................................... 94 3.2 Market Buyers..................................................... 94 3.2.1 Spot Market Energy....................................... 94 3.2.2 Regulation............................................... 97 3.2.3 Operating Reserves....................................... 98 3.2.4 Transmission Congestion.................................. 101 3.2.5 Transmission Losses...................................... 101 3.2.6 Emergency Energy......................................... 102 3.2.7 Billing.................................................. 102 3.3 Market Sellers.................................................... 103 3.3.1 Spot Market Energy....................................... 103 3.3.2 Regulation............................................... 103 3.3.3 Operating Reserves....................................... 104 3.3.4 Emergency Energy......................................... 104 3.3.5 Billing.................................................. 104
Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 9 First Revised Rate Schedule FERC No. 24 3.4 Transmission Customers............................................ 104 3.4.1 Transmission Congestion.................................. 104 3.4.2 Transmission Losses...................................... 104 3.4.3 Billing.................................................. 105 3.5 Other Control Areas............................................... 105 3.5.1 Energy Sales............................................. 105 3.5.2 Operating Margin Sales................................... 105 3.5.3 Transmission Congestion.................................. 105 3.5.4 Billing.................................................. 106 3.6 Metering Reconciliation........................................... 106 3.6.1 Meter Correction Billing................................. 106 3.6.2 Meter Corrections Between Market Participants............ 106 3.6.3 500 kV Meter Errors...................................... 106 3.6.4 Meter Corrections Between Control Areas.................. 106 3.6.5 Meter Correction Data.................................... 106 3.6.6 Correction Limits........................................ 107 4. RATE TABLE.............................................................. 107 4.1 Offered Price Rates............................................... 107 4.2 Transmission Losses............................................... 107 4.3 Emergency Energy Purchases........................................ 107 5. CALCULATION OF TRANSMISSION CONGESTION CHARGES AND CREDITS.............. 107 5.1 Transmission Congestion Charge Calculation........................ 107 5.1.1 Calculation by Office of the Interconnection............. 107 5.1.2 General.................................................. 107 5.1.3 Network Service User Calculation......................... 107 5.1.4 Transmission Customer Calculation........................ 108 5.1.5 Operating Margin Customer Calculation.................... 108 5.1.6 Transmission Loading Relief Customer Calculation......... 108 5.1.7 Total Transmission Congestion Charges.................... 109 5.2 Transmission Congestion Credit Calculation........................ 109 5.2.1 Eligibility.............................................. 109 5.2.2 Fixed Transmission Rights................................ 109 5.2.3 Target Allocation for Network Service Users.............. 110 5.2.4 Target Allocation for other Holders...................... 111 5.2.5 Calculation of Transmission Congestion Credits........... 111 5.2.6 Distribution of Excess Congestion Charges................ 111 5.3 Unscheduled Transmission Service (Loop Flow)...................... 112 6. "MUST-RUN" FOR RELIABILITY GENERATION................................... 112 6.1 Introduction..................................................... 112 6.2 Identification of Facility Outages............................... 112 6.3 Dispatch for Local Reliability................................... 112 6.3.1 Request and Dispatch.................................... 112 6.3.2 Designation of Facilities............................... 113
Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 10 First Revised Rate Schedule FERC No. 24 6.4 Price Caps....................................................... 113 6.4.1 Applicability........................................... 113 6.4.2 Level................................................... 114 7. FIXED TRANSMISSION RIGHTS AUCTIONS...................................... 114 7.1 Auctions of Fixed Transmission Rights............................ 114 7.1.1 Auction Period and Scope of Auctions.................... 115 7.1.2 Frequency and Time of Auctions.......................... 115 7.1.3 Duration of Fixed Transmission Rights.................... 115 7.2 Fixed Transmission Rights Characteristics........................ 115 7.2.1 Reconfiguration of Fixed Transmission Rights............ 115 7.2.2 Specified Buses......................................... 115 7.2.3 Transmission Congestion Charges......................... 115 7.3 Auction Procedures............................................... 116 7.3.1 Role of the Office of the Interconnection............... 116 7.3.2 Notice of Offer......................................... 116 7.3.3 Pending Applications for Firm Service................... 116 7.3.4 On-Peak and Off-Peak Periods............................ 117 7.3.5 Offers and Bids......................................... 117 7.3.6 Determination of Winning Bids and Clearing Price........ 118 7.3.7 Announcements of Winners and Prices..................... 118 7.3.8 Auction Settlements..................................... 118 7.3.9 Allocation of Auction Revenues.......................... 119 7.4 Simultaneous Feasibility......................................... 119 SCHEDULE 2 - COMPONENTS OF COST............................................ 120 SCHEDULE 2 -- EXHIBIT A.................................................... 121 SCHEDULE 3 - ALLOCATION OF THE COST AND EXPENSES OF THE OFFICE OF THE INTERCONNECTION................................................... 123 SCHEDULE 4 - STANDARD FORM OF AGREEMENT TO BECOME A MEMBER OF THE LLC............................................................... 124 SCHEDULE 5 - PJM DISPUTE RESOLUTION PROCEDURES............................. 126 1. DEFINITIONS............................................................. 126 1.1 Alternate Dispute Resolution Committee............................ 126 1.2 MAAC Dispute Resolution Committee................................. 126 1.3 Related PJM Agreements............................................ 126 2. PURPOSES AND OBJECTIVES................................................. 126 2.1 Common and Uniform Procedures..................................... 126 2.2 Interpretation.................................................... 126 3. NEGOTIATION AND MEDIATION............................................... 127 3.1 When Required..................................................... 127 3.2 Procedures........................................................ 127 3.2.1 Initiation............................................... 127 3.2.2 Selection of Mediator.................................... 127 3.2 Procedures........................................................ 127 3.2.1 Initiation............................................... 127 3.2.2 Selection of Mediator.................................... 127
Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 11 First Revised Rate Schedule FERC No. 24 3.2.3 Advisory Mediator........................................ 127 3.2.4 Mediation Process........................................ 128 3.2.5 Mediator's Assessment.................................... 128 3.3 Costs............................................................. 129 4. ARBITRATION............................................................. 129 4.1 When Required..................................................... 129 4.2 Binding Decision.................................................. 129 4.3 Initiation........................................................ 129 4.4 Selection of Arbitrator(s)........................................ 129 4.5 Procedures........................................................ 130 4.6 Summary Disposition and Interim Measures.......................... 130 4.6.1 Lack of Good Faith Basis................................. 130 4.6.2 Discovery Limits......................................... 130 4.6.3 Interim Decision......................................... 130 4.7 Discovery of Facts................................................ 131 4.7.1 Discovery Procedures..................................... 131 4.7.2 Procedures Arbitrator.................................... 131 4.8 Evidentiary Hearing............................................... 131 4.9 Confidentiality................................................... 132 4.9.1 Designation.............................................. 132 4.9.2 Compulsory Disclosure.................................... 132 4.9.3 Public Information....................................... 132 4.10 Timetable........................................................ 133 4.11 Advisory Interpretations......................................... 133 4.12 Decisions........................................................ 133 4.13 Costs............................................................ 133 4.14 Enforcement...................................................... 134 5. ALTERNATE DISPUTE RESOLUTION COMMITTEE.................................. 134 5.1 Membership........................................................ 134 5.1.1 Representatives.......................................... 134 5.1.2 Term..................................................... 134 5.2 Voting Requirements............................................... 134 5.3 Officers.......................................................... 134 5.4 Meetings.......................................................... 135 5.5 Responsibilities.................................................. 135 SCHEDULE 6 - REGIONAL TRANSMISSION EXPANSION PLANNING PROTOCOL........... 136 1. REGIONAL TRANSMISSION EXPANSION PLANNING PROTOCOL....................... 136 1.1 Purpose and Objectives............................................ 136 1.2 Conformity with NERC and MAAC Criteria............................ 136 1.3 Establishment of Committees....................................... 136 1.4 Contents of the Regional Transmission Expansion Plan.............. 137 1.5 Procedure for Development of the Regional Transmission Expansion Plan.............................................................. 137
Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 12 First Revised Rate Schedule FERC No. 24 1.5.1 Commencement of the Process.............................. 137 1.5.2 Development of Scope, Assumptions and Procedures......... 137 1.5.3 Scope of Studies......................................... 138 1.5.4 Supply of Data........................................... 138 1.5.5 Coordination of the Regional Transmission Expansion Plan..................................................... 138 1.5.6 Development of the Recommended Regional Transmission Expansion Plan........................................... 139 1.6 Approval of the Final Regional Transmission Expansion Plan........ 139 1.7 Obligation to Build............................................... 140 1.8 Relationship to the PJM Control Area Open Access Transmission PJM Tariff........................................................ 141 SCHEDULE 7 - UNDERFREQUENCY RELAY OBLIGATIONS AND CHARGES.................. 142 1. UNDERFREQUENCY RELAY OBLIGATION......................................... 142 1.1 Application....................................................... 142 1.2 Obligations....................................................... 142 2. UNDERFREQUENCY RELAY CHARGES............................................ 142 3. DISTRIBUTION OF UNDERFREQUENCY RELAY CHARGES............................ 143 3.1 Share of Charges.................................................. 143 3.2 Allocation by the Office of the Interconnection................... 143 SCHEDULE 8 -DELEGATION OF RELIABILITY RESPONSIBILITIES..................... 144 1. DELEGATION.............................................................. 144 2. NEW PARTIES............................................................. 144 3. IMPLEMENTATION OF RELIABILITY ASSURANCE AGREEMENT....................... 144 SCHEDULE 9 - EMERGENCY PROCEDURE CHARGES................................... 146 1. EMERGENCY PROCEDURE CHARGE.............................................. 146 2. DISTRIBUTION OF EMERGENCY PROCEDURE CHARGES............................. 146 2.1 Complying Parties................................................. 146 2.2 All Parties....................................................... 146 SCHEDULE 10 - RESERVED..................................................... 147 SCHEDULE 11 - PJM CAPACITY CREDIT MARKETS.................................. 148 1. PURPOSES AND OBJECTIVES................................................ 148 1.1 PJM Capacity Credit Markets...................................... 148 1.2 Voluntary Use of PJM Capacity Credit Market...................... 148 1.3 Use of Capacity Credits.......................................... 148 2. DEFINITIONS............................................................ 148 2.1 [Reserved.]...................................................... 148 2.2 Buy Bid.......................................................... 148 2.3 Capacity Credit.................................................. 148 2.4 Capacity Credit Market Implementation Date....................... 149 2.5 Capacity Resources............................................... 149 2.6 Fixed Block...................................................... 149 2.7 Holiday.......................................................... 149 2.8 PJM Capacity Credit Market....................................... 149
Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 13 First Revised Rate Schedule FERC No. 24 2.9 PJM Daily Capacity Credit Market................................. 149 2.10 PJM Monthly Capacity Credit Market............................... 149 2.11 Sell Offer....................................................... 149 2.12 Unforced Capacity................................................ 149 2.13 Up-To Block...................................................... 149 3. PARTICIPATION IN THE PJM CAPACITY CREDIT MARKET......................... 150 3.1 Eligibility...................................................... 150 3.2 Effect of Withdrawal............................................. 150 4. RESPONSIBILITIES OF THE OFFICE OF THE INTERCONNECTION................... 150 4.1 Operation of the PJM Capacity Credit Market...................... 150 4.2 Records and Reports.............................................. 151 5. GENERAL PROVISIONS...................................................... 151 5.1 Market Sellers................................................... 151 5.2 Market Buyers.................................................... 151 5.3 Agents........................................................... 151 5.4 General Obligations of Market Participants....................... 151 5.5 Relationship of Capacity Credits to Capacity Obligations Imposed under the Reliability Assurance Agreement................ 152 5.6 Deficiency Charges............................................... 152 5.7 Fixed Transmission Rights........................................ 152 5.8 Confidentiality.................................................. 152 6. OPERATION OF THE PJM CAPACITY CREDIT MARKETS............................ 152 6.1 Content of Sell Offers........................................... 152 6.1.1 Specifications.......................................... 152 6.1.2 Market-based Offers..................................... 153 6.1.3 Availability of Capacity Credits for Sale............... 153 6.2 Content of Buy Bids.............................................. 153 6.3 Submission of Sell Offers and Buy Bids........................... 154 6.4 Conduct of PJM Capacity Credit Markets........................... 155 6.4.1 PJM Daily Capacity Credit Markets....................... 155 6.4.2 PJM Monthly Capacity Credit Markets..................... 155 6.5 Market Clearing Procedures....................................... 155 6.6 Settlement Procedures............................................ 156 6.7 Billing.......................................................... 156 6.8 Time Standard.................................................... 157 7. EFFECTIVE DATE AND TRANSITION........................................... 157 7.1 Effective Date................................................... 157 7.2 Transition Provisions............................................ 157 7.3 Capacity Credit.................................................. 157 7.4 Mandatory Sell Offers and Buy Bids............................... 157
Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 14 First Revised Rate Schedule FERC No. 24 AMENDED AND RESTATED Operating Agreement of PJM Interconnection, L.L.C. This Amended and Restated Operating Agreement of PJM Interconnection, L.L.C., dated as of this 2/nd/ day of June, 1997, amends and restates as of the Effective Date the Operating Agreement of PJM Interconnection, L.L.C. filed with the FERC on April 2, 1997, as amended. WHEREAS, certain of the Members have previously entered into an agreement, originally dated September 26, 1956, as amended and supplemented up to and including December 31, 1996, stating "their respective rights and obligations with respect to the coordinated operation of their electric supply systems and the interchange of electric capacity and energy among their systems" (such agreement as amended and supplemented being referred to as the "Original PJM Agreement"), and which coordinated operations and interchange came to be known as the PJM Interconnection (the "Interconnection"); and WHEREAS, pursuant to a resolution of June 16, 1993, an unincorporated association comprised of the parties to the Original PJM Agreement was formed for the purpose of implementation of the Original PJM Agreement as it then existed and as it subsequently has been amended and supplemented, such association being known as the "PJM Interconnection Association"; and WHEREAS, because of changes in federal law and policy, the Original PJM Agreement, together with other documents and agreements, was amended, restated and submitted to FERC on December 31, 1996 to restructure fundamental aspects of the operation of the Interconnection; and WHEREAS, so that the provisions of the Original PJM Agreement could be placed into effect consistent with a February 28, 1997 order of FERC, including those provisions related to the governance of the Interconnection, the parties to the Original PJM Agreement, along with the other interested parties, approved the conversion of the PJM Interconnection Association into the LLC pursuant to the provisions of the Delaware Limited Liability Company Act, as amended (the "Delaware LLC Act"), pursuant to a Certificate of Formation (the "Certificate of Formation") and a Certificate of Conversion (the "Certificate of Conversion"), each filed with the Delaware Secretary of State (the "Recording Office") on March 31, 1997; and WHEREAS, the Members wish to amend and restate the Operating Agreement of PJM Interconnection, L.L.C. adopted in connection with the formation of the LLC and as in effect immediately prior to the Effective Date in the form set forth below; and WHEREAS, the Members intend to form an Independent System Operator in accordance with the regulations of the Federal Energy Regulatory Commission; and Now, therefore, in consideration of the foregoing, and of the covenants and agreements hereinafter set forth, the Members hereby agree as follows: Issused By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 15 First Revised Rate Schedule FERC No. 24 1. DEFINITIONS Unless the context otherwise specifies or requires, capitalized terms used in this Agreement shall have the respective meanings assigned herein or in the Schedules hereto for all purposes of this Agreement (such definitions to be equally applicable to both the singular and the plural forms of the terms defined). Unless otherwise specified, all references herein to Sections, Schedules, Exhibits or Appendices are to Sections, Schedules, Exhibits or Appendices of this Agreement. As used in this Agreement: 1.1 Act. "Act" shall mean the Delaware Limited Liability Company Act, Title 6, (S)(S) 18-101 to 18-1109 of the Delaware Code. 1.2 Affiliate. "Affiliate" shall mean any two or more entities, one of which controls the other or that are under common control. "Control" shall mean the possession, directly or indirectly, of the power to direct the management or policies of an entity. Ownership of publicly-traded equity securities of another entity shall not result in control or affiliation for purposes of this Agreement if the securities are held as an investment, the holder owns (in its name or via intermediaries) less than 10 percent of the outstanding securities of the entity, the holder does not have representation on the entity's board of directors (or equivalent managing entity) or vice versa, and the holder does not in fact exercise influence over day-to-day management decisions. Unless the contrary is demonstrated to the satisfaction of the Members Committee, control shall be presumed to arise from the ownership of or the power to vote, directly or indirectly, ten percent or more of the voting securities of such entity. 1.3 Agreement. "Agreement" shall mean this Amended and Restated Operating Agreement of PJM Interconnection, L.L.C., including all Schedules, Exhibits, Appendices, addenda or supplements hereto, as amended from time to time. 1.4 Annual Meeting of the Members. "Annual Meeting of the Members" shall mean the meeting specified in Section 8.3.1 of this Agreement. 1.5 Board Member. "Board Member" shall mean a member of the PJM Board. 1.6 Capacity Resource. "Capacity Resource" shall mean the net capacity from owned or contracted for generating facilities all of which (i) are accredited to a Load Serving Entity pursuant to the procedures set forth in the Reliability Assurance Agreement and (ii) are committed to satisfy that Load Serving Entity's obligations under the Reliability Assurance Agreement and this Agreement. Issused By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 16 First Revised Rate Schedule FERC No. 24 1.7 Control Area. "Control Area" shall mean an electric power system or combination of electric power systems bounded by interconnection metering and telemetry to which a common automatic generation control scheme is applied in order to: (a) match the power output of the generators within the electric power system(s) and energy purchased from entities outside the electric power system(s), with the load within the electric power system(s); (b) maintain scheduled interchange with other Control Areas, within the limits of Good Utility Practice; (c) maintain the frequency of the electric power system(s) within reasonable limits in accordance with Good Utility Practice and the criteria of NERC and the applicable regional reliability council of NERC; (d) maintain power flows on transmission facilities within appropriate limits to preserve reliability; and (e) provide sufficient generating capacity to maintain operating reserves in accordance with Good Utility Practice. 1.8 Electric Distributor. "Electric Distributor" shall mean a Member that owns or leases with rights equivalent to ownership electric distribution facilities that are used to provide electric distribution service to electric load within the PJM Control Area. 1.9 Effective Date. "Effective Date" shall mean August 1, 1997, or such later date that FERC permits this Agreement to go into effect. 1.10 Emergency. "Emergency" shall mean: (i) an abnormal system condition requiring manual or automatic action to maintain system frequency, or to prevent loss of firm load, equipment damage, or tripping of system elements that could adversely affect the reliability of an electric system or the safety of persons or property; or (ii) a fuel shortage requiring departure from normal operating procedures in order to minimize the use of such scarce fuel; or (iii) a condition that requires implementation of emergency procedures as defined in the PJM Manuals. 1.11 End-Use Customer. "End-Use Customer" shall mean a Member that is a retail end-user of electricity within the PJM Control Area. 1.12 FERC. "FERC" shall mean the Federal Energy Regulatory Commission or any successor federal agency, commission or department exercising jurisdiction over this Agreement. Issused By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 17 First Revised Rate Schedule FERC No. 24 1.13 Finance Committee. "Finance Committee" shall mean the body formed pursuant to Section 7.5.1 of this Agreement. 1.14 Generation Owner. "Generation Owner" shall mean a Member that owns or leases with rights equivalent to ownership facilities for the generation of electric energy that are located within the PJM Control Area. Purchasing all or a portion of the output of a generation facility shall not be sufficient to qualify a Member as a Generation Owner. 1.15 Good Utility Practice. "Good Utility Practice" shall mean any of the practices, methods and acts engaged in or approved by a significant portion of the electric utility industry during the relevant time period, or any of the practices, methods and acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition. Good Utility Practice is not intended to be limited to the optimum practice, method, or act to the exclusion of all others, but rather is intended to include acceptable practices, methods, or acts generally accepted in the region. 1.16 Interconnection. "Interconnection" shall mean the coordinated operations and interchange resulting from the Original PJM Agreement as continued in this Agreement. 1.17 LLC. "LLC" shall mean PJM Interconnection, L.L.C., a Delaware limited liability company. 1.18 Load Serving Entity. "Load Serving Entity" shall mean an entity, including a load aggregator or power marketer, (1) serving end-users within the PJM Control Area, and (2) that has been granted the authority or has an obligation pursuant to state or local law, regulation or franchise to sell electric energy to end-users located within the PJM Control Area, or the duly designated agent of such an entity. 1.19 Locational Marginal Price. "Locational Marginal Price" shall mean the hourly integrated market clearing marginal price for energy at the location the energy is delivered or received, calculated as specified in Section 2 of Schedule 1 of this Agreement. 1.20 MAAC. "MAAC" shall mean the Mid-Atlantic Area Council, a reliability council under (S) 202 of the Federal Power Act established pursuant to the MAAC Agreement dated August 1, 1994, or any successor thereto. Issused By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. First Revised Sheet No. 18 First Revised Rate Schedule FERC No. 24 Superceding Original Sheet No. 18 1.21 Market Buyer. "Market Buyer" shall mean a Member that has met reasonable creditworthiness standards established by the Office of the Interconnection and that is otherwise able to make purchases in the PJM Interchange Energy Market or PJM Capacity Credit Market. 1.22 Market Participant. "Market Participant" shall mean a Market Buyer or a Market Seller, or both. 1.23 Market Seller. "Market Seller" shall mean a Member that has met reasonable creditworthiness standards established by the Office of the Interconnection and that is otherwise able to make sales in the PJM Interchange Energy Market or PJM Capacity Credit Market. 1.24 Member. "Member" shall mean an entity that satisfies the requirements of Section 11.6 of this Agreement and that (i) is a member of the LLC immediately prior to the Effective Date, or (ii) has executed an Additional Member Agreement in the form set forth in Schedule 4 hereof. 1.25 Members Committee. "Members Committee" shall mean the committee specified in Section 8 of this Agreement composed of representatives of all the Members. 1.26 NERC. "NERC" shall mean the North American Electric Reliability Council, or any successor thereto. 1.27 Office of the Interconnection. "Office of the Interconnection" shall mean the employees and agents of the LLC engaged in implementation of this Agreement and administration of the PJM Tariff, subject to the supervision and oversight of the PJM Board acting pursuant to this Agreement. 1.28 Operating Reserve. "Operating Reserve" shall mean the amount of generating capacity scheduled to be available for a specified period of an Operating Day to ensure the reliable operation of the PJM Control Area, as specified in the PJM Manuals. 1.29 Original PJM Agreement. "Original PJM Agreement" shall mean that certain agreement between certain of the Members, originally dated September 26, 1956, and as amended and supplemented up to and including December 31, 1996, relating to the coordinated operation of their electric supply systems and the interchange of electric capacity and energy among their systems. 1.30 Other Supplier. "Other Supplier" shall mean a Member that is (i) engaged in buying, selling or transmitting electric energy in or through the Interconnection or has a good faith intent to do so, and (ii) is not a Generation Owner, Electric Distributor, Transmission Owner or End-Use Customer. Issused By: Richard A. Drom Effective: December 23, 2000 Vice President, General Counsel Issued On: December 22, 2000 PJM Interconnection, L.L.C. Original Sheet No. 19 First Revised Rate Schedule FERC No. 24 1.31 PJM Board. "PJM Board" shall mean the Board of Managers of the LLC, acting pursuant to this Agreement. 1.32 PJM Control Area. "PJM Control Area" shall mean the Control Area recognized by NERC as the PJM Control Area. 1.33 PJM Dispute Resolution Procedures. "PJM Dispute Resolution Procedures" shall mean the procedures for the resolution of disputes set forth in Schedule 5 of this Agreement. 1.34 PJM Interchange Energy Market. "PJM Interchange Energy Market" shall mean the regional competitive market administered by the Office of the Interconnection for the purchase and sale of spot electric energy at wholesale in interstate commerce and related services established pursuant to Schedule 1 to this Agreement. 1.35 PJM Manuals. "PJM Manuals" shall mean the instructions, rules, procedures and guidelines established by the Office of the Interconnection for the operation, planning, and accounting requirements of the PJM Control Area and the PJM Interchange Energy Market. 1.36 PJM Tariff. "PJM Tariff" shall mean the PJM Open Access Transmission Tariff providing transmission service within the PJM Control Area, including any schedules, appendices, or exhibits attached thereto, as in effect from time to time. 1.37 Planning Period. "Planning Period" shall initially mean the 12 months beginning June 1 and extending through May 31 of the following year, or such other period established by the Reliability Committee established under the Reliability Assurance Agreement. 1.38 President. "President" shall have the meaning specified in Section 9.2. 1.39 Related Parties. "Related Parties" shall mean, solely for purposes of the governance provisions of this Agreement: (i) any generation and transmission cooperative and one of its distribution cooperative members; and (ii) any joint municipal agency and one of its members. For purposes of this Agreement, representatives of state or federal government agencies shall not be deemed Related Parties with respect to each other, and a public body's regulatory authority, if any, over a Member shall not be deemed to make it a Related Party with respect to that Member. Issused By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 20 First Revised Rate Schedule FERC No. 24 1.40 Reliability Assurance Agreement. "Reliability Assurance Agreement" shall mean that certain agreement, dated June 2, 1997 and as amended from time to time, establishing obligations, standards and procedures for maintaining the reliable operation of the PJM Control Area. 1.41 Sector Votes. "Sector Votes" shall mean the affirmative and negative votes of each sector on the Members Committee, as specified in Section 8.4. 1.42 State. "State" shall mean the District of Columbia and any State or Commonwealth of the United States. 1.43 System. "System" shall mean the interconnected electric supply system of a Member and its interconnected subsidiaries exclusive of facilities which it may own or control outside of the PJM Control Area. Each Member may include in its system the electric supply systems of any party or parties other than Members which are within the PJM Control Area, provided its interconnection agreements with such other party or parties do not conflict with such inclusion. 1.44 Transmission Facilities. "Transmission Facilities" shall mean facilities that: (i) are within the PJM Control Area; (ii) meet the definition of transmission facilities pursuant to FERC's Uniform System of Accounts or have been classified as transmission facilities in a ruling by FERC addressing such facilities; and (iii) have been demonstrated to the satisfaction of the Office of the Interconnection to be integrated with the PJM Control Area transmission system and integrated into the planning and operation of the PJM Control Area to serve all of the power and transmission customers within the PJM Control Area. 1.45 Transmission Owner. "Transmission Owner" shall mean a Member that owns or leases with rights equivalent to ownership Transmission Facilities. Taking transmission service shall not be sufficient to qualify a Member as a Transmission Owner. 1.46 Transmission Owners Agreement. "Transmission Owners Agreement" shall mean that certain agreement, dated June 2, 1997 and as amended from time to time, by and among Transmission Owners in the PJM Control Area providing for an open-access transmission tariff in the PJM Control Area, and for other purposes. 1.47 User Group. "User Group" shall mean a group formed pursuant to Section 8.7 of this Agreement. 1.48 Voting Member. "Voting Member" shall mean (i) a Member as to which no other Member is an Affiliate or Related Party, or (ii) a Member together with any other Members as to which it is an Affiliate or Related Party. Issused By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 21 First Revised Rate Schedule FERC No. 24 1.49 Weighted Interest. "Weighted Interest" shall be equal to (0.1(1/N) + 0.5(B/C) + 0.2(D/E) + 0.2(F/G)), where: N = the total number of Members B = the Member's internal peak demand for the previous calendar year C = the sum of factor B for all Members D = the Member's net installed generating capacity located in the PJM Control Area as of January 1 of the current calendar year E = the sum of factor D for all Members F = the sum of the Member's circuit miles of transmission facilities multiplied by the respective operating voltage for facilities 100 kV and above as of January 1 of the current calendar year G = the sum of factor F for all Members 2. FORMATION, NAME; PLACE OF BUSINESS 2.1 Formation of LLC; Certificate of Formation. The Members of the LLC hereby: (a) acknowledge the conversion of the PJM Interconnection Association into the LLC, a limited liability company pursuant to the Act, by virtue of the filing of both the Certificate of Formation and the Certificate of Conversion with the Recording Office, effective as of March 31, 1997; (b) confirm and agree to their status as Members of the LLC; (c) enter into this Agreement for the purpose of amending and restating the rights, duties, and relationship of the Members; and (d) agree that if the laws of any jurisdiction in which the LLC transacts business so require, the PJM Board also shall file, with the appropriate office in that jurisdiction, any documents necessary for the LLC to qualify to transact business under such laws; and (ii) agree and obligate themselves to execute, acknowledge, and cause to be filed for record, in the place or places and manner prescribed by law, any amendments to the Certificate of Formation as may be required, either by the Act, by the laws of any jurisdiction in which the LLC transacts business, or by this Agreement, to reflect changes in the information contained therein or otherwise to comply with the requirements of law for the continuation, preservation, and operation of the LLC as a limited liability company under the Act. Issused By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 22 First Revised Rate Schedule FERC No. 24 2.2 Name of LLC. The name under which the LLC shall conduct its business is "PJM Interconnection, L.L.C." 2.3 Place of Business. The location of the principal place of business of the LLC shall be 955 Jefferson Avenue, Valley Forge Corporate Center, Norristown, Pennsylvania 19403-2497. The LLC may also have offices at such other places both within and without the State of Delaware as the PJM Board may from time to time determine or the business of the LLC may require. 2.4 Registered Office and Registered Agent. The street address of the initial registered office of the LLC shall be 1209 Orange Street, Wilmington, Delaware 19801, and the LLC's registered agent at such address shall be The Corporation Trust Company. The registered office and registered agent may be changed by resolution of the PJM Board. 3. PURPOSES AND POWERS OF LLC 3.1 Purposes. The purposes of the LLC shall be: (a) to operate in accordance with FERC requirements as an Independent System Operator, comprised of the PJM Board, the Office of the Interconnection, and the Members Committee, with the authorities and responsibilities set forth in this Agreement; (b) as necessary for the operation of the Interconnection as specified above: (i) to acquire and obtain licenses, permits and approvals, (ii) to own or lease property, equipment and facilities, and (iii) to contract with third parties to obtain goods and services, provided that, the L.L.C. may procure goods and services from a Member only after open and competitive bidding; and (c) to engage in any lawful business permitted by the Act or the laws of any jurisdiction in which the LLC may do business and to enter into any lawful transaction and engage in any lawful activities in furtherance of the foregoing purposes and as may be necessary, incidental or convenient to carry out the business of the LLC as contemplated by this Agreement. 3.2 Powers. The LLC shall have the power to do any and all acts and things necessary, appropriate, advisable, or convenient for the furtherance and accomplishment of the purposes of the LLC, including, without limitation, to engage in any kind of activity and to enter into and perform obligations of any kind necessary to or in connection with, or incidental to, the accomplishment of the purposes of the LLC, so long as said activities and obligations may be lawfully engaged in or performed by a limited liability company under the Act. Issused By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 23 First Revised Rate Schedule FERC No. 24 4. EFFECTIVE DATE AND TERMINATION 4.1 Effective Date and Termination. (a) The existence of the LLC commenced on March 31, 1997, as provided in the Certificate of Formation and Certificate of Conversion which were filed with the Recording Office on March 31, 1997. This Agreement shall amend and restate the Operating Agreement of PJM Interconnection, L.L.C. as of the Effective Date. (b) The LLC shall continue in existence until terminated in accordance with the terms of this Agreement. The withdrawal or termination of any Member is subject to the provisions of Section 18.18 of this Agreement. (c) Any termination of this Agreement or withdrawal of any Member from the Agreement shall be filed with the FERC and shall become effective only upon the FERC's approval. 4.2 Governing Law. This Agreement and all questions with respect to the rights and obligations of the Members, the construction, enforcement and interpretation hereof, and the formation, administration and termination of the LLC shall be governed by the provisions of the Act and other applicable laws of the State of Delaware, and the Federal Power Act. 5. WORKING CAPITAL AND CAPITAL CONTRIBUTIONS 5.1 Funding of Working Capital and Capital Contributions. (a) The Office of the Interconnection shall attempt to obtain financing of up to twenty-five percent (25%) of the approved annual operating budget of the LLC adopted by the PJM Board pursuant to Section 7.5.2 of this Agreement to meet the working capital needs of the LLC, which shall be limited to such working capital needs that arise from timing in cash flows from interchange accounting, tariff administration and payment of the operating costs of the Office of the Interconnection. Such financing, which shall be non-recourse to the Members of the LLC and which shall be for a stated term without penalty for prepayment, may be obtained by borrowing the amount required at market-based interest rates, negotiated on an arm's length basis, (i) from a Member or Members or (ii) from a commercial lender, supported, if necessary, by credit enhancements provided by a Member or Members; provided, however, no Member shall be obligated to provide such financing or credit enhancements. The LLC shall make such filings and seek such approvals as necessary in order for the principal, interest and fees related to any such borrowing to be repaid through charges under the PJM Tariff as appropriate under Schedule 3 of this Agreement. Issused By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 24 First Revised Rate Schedule FERC No. 24 (b) In the event financing of the working capital needs of the Office of the Interconnection is unavailable on commercially reasonable terms, the PJM Board may require the Members to contribute capital in the aggregate up to five million two hundred thousand dollars ($5,200,000) for the working capital needs that could not be financed; provided that in such event each Member's obligation to contribute additional capital shall be in proportion to its Weighted Interest, multiplied by the amount so requested by the PJM Board. Each Member that contributes such capital shall be entitled to earn a return on the contribution to the extent such contribution has not been repaid, which return shall be at a fair market rate as determined by the PJM Board but in no event less than the current interest rate established pursuant to 18 C.F.R. (S) 35.19a(a)(2)(iii); provided further, that any Member not wanting to contribute the requested capital contribution may withdraw from the LLC upon 90 days written notice as provided in Section 18.18.2 of this Agreement. (c) Authority to borrow capital for LLC Operations. Nothing in Section 5.1(a) and (b) shall be construed to restrict the authority of the PJM Board to authorize the LLC to borrow or raise capital in excess of twenty-five percent of the approved annual operating budget of the LLC, for working capital or otherwise, as the PJM Board deems appropriate to fund the operations of the LLC, in accordance with the general powers of the LLC under Section 3.2 to enter into obligations of any kind to accomplish the purposes of the LLC. Nor shall anything in Section 5.1(a) and (b) in any way restrict the authority of the PJM Board to authorize the LLC to grant to lenders such security interests or other rights in assets or revenues received under the PJM Tariff with respect to the costs of operating the LLC and the Office of the Interconnection and to take such other actions as it deems necessary and appropriate to obtain such financing in accordance with such general powers of the LLC under Section 3.2. 5.2 Contributions to Association. All contributions prior to the Effective Date of the original Operating Agreement of PJM Interconnection, L.L.C. of cash or other assets to the PJM Interconnection Association by persons who are now or in the future may become Members of the LLC shall be deemed contributions by such Members to the LLC. 6. TAX STATUS AND DISTRIBUTIONS 6.1 Tax Status. The LLC shall make all necessary filings under the applicable Treasury Regulations to have the LLC taxed as a corporation. 6.2 Return of Capital Contributions. (a) In the event Members are required to contribute capital to the LLC in accordance with Section 5.1 herein, the LLC shall request the Transmission Owners to recover such working capital through charges under the PJM Tariff as provided in Schedule 3 of this Agreement. In the event all or a portion of the working capital is recovered pursuant to the PJM Tariff, such amount(s) shall be returned to the Members in accordance with their actual contributions. Issused By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 25 First Revised Rate Schedule FERC No. 24 (b) Except for return of capital contributions and liquidating distributions as provided in the foregoing section and Section 6.3 herein, respectively, the LLC does not intend to make any distributions of cash or other assets to its Members. 6.3 Liquidating Distribution. Upon termination or liquidation of the LLC, the cash or other assets of the LLC shall be distributed as follows: (a) first, in the event the LLC has any liabilities at the time of its termination or dissolution, the LLC shall liquidate such of its assets as is necessary to satisfy such liabilities; (b) second, any capital contribution in cash or in kind by any Member of the PJM Interconnection Association prior to the Effective Date shall be distributed by the LLC back to such Member in the form received by the PJM Interconnection Association; and (c) third, any remaining assets of the LLC shall be distributed to the Members in proportion to their Weighted Interests. 7. PJM BOARD 7.1 Composition. There shall be an LLC Board of Managers, referred to herein as the "PJM Board," composed of seven voting members, with the President as a non-voting member. The seven voting Board Members shall be elected by the Members Committee from a slate of candidates for the then-existing vacancies or expiring terms on the PJM Board. An independent consultant, retained by the Office of the Interconnection upon consideration of the advice and recommendations of the Members Committee, shall be directed to prepare a list of persons qualified and willing to serve on the PJM Board. Not later than 30 days prior to each Annual Meeting of the Members, the Office of the Interconnection shall distribute to the representatives on the Members Committee a slate from among the list proposed by the independent consultant, along with information on the background and experience of the persons on the slate appropriate to evaluating their fitness for service on the PJM Board. Elections for the PJM Board shall be held at each Annual Meeting of the Members, for the purpose of selecting the initial PJM Board in accordance with the provisions of Section 7.3(a), or selecting a person to fill the seat of a Board Member whose term is expiring. Should the Members Committee fail to elect a full PJM Board from the slate proposed by the independent consultant, the Office of the Interconnection shall direct the independent consultant, or a replacement consultant selected by the Office of the Interconnection, to propose a list for a slate of nominees for any vacancies on the PJM Board for consideration by the Members at the next regular meeting of the Members Committee. Issused By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 26 First Revised Rate Schedule FERC No. 24 7.2 Qualifications. A Board Member shall not be, and shall not have been at any time within five years of election to the PJM Board, a director, officer or employee of a Member or of an Affiliate or Related Party of a Member. Except as provided in the LLC's Standards of Conduct filed with the FERC, at any time while serving on the PJM Board, a Board Member shall have no direct business relationship or other affiliation with any Member or its Affiliates or Related Parties. Of the seven Board Members, four shall have expertise and experience in the areas of corporate leadership at the senior management or board of directors level, or in the professional disciplines of finance or accounting, engineering, or utility laws and regulation. Of the other three Board Members, one shall have expertise and experience in the operation or concerns of transmission dependent utilities, one shall have expertise and experience in the operation or planning of transmission systems, and one shall have expertise and experience in the area of commercial markets and trading and associated risk management. 7.3 Term of Office. (a) The persons serving as the Board of Managers of the LLC immediately prior to the Effective Date shall continue in office until the first Annual Meeting of the Members. At the first Annual Meeting of the Members, the then current members of the PJM Board who desire to continue in office shall be elected by the Members to serve until the second Annual Meeting of the Members or until their successors are elected, along with such additional persons as necessary to meet the composition requirements of Section 7.1 and the qualification requirements of Section 7.2. (b) A Board Member shall serve for a term of three years commencing with the Annual Meeting of the Members at which the Board Member was elected; provided, however, that two of the Board Members elected at the first Annual Meeting of the Members following the Effective Date shall be chosen by lot to serve a term of one year, three of such Board Members shall be chosen by lot to serve a term of two years and the final two such Board Members shall serve a term of three years. (c) Vacancies on the PJM Board occurring between Annual Meetings of the Members shall be filled by vote of the then remaining Board Members; a Board Member so selected shall serve until the next Annual Meeting at which time a person shall be elected to serve the balance of the term of the vacant Board Seat. Removal of a Board Member shall require the approval of the Members Committee. 7.4 Quorum. The presence in person or by telephone or other authorized electronic means of a majority of the voting Board Members shall constitute a quorum at all meetings of the PJM Board for the transaction of business except as otherwise provided by statute. If a quorum shall not be present, the Board Members then present shall have the power to adjourn the meeting from time to time, until a quorum shall be present. Provided a quorum is present at a meeting, the PJM Board shall act by majority vote of the Board Members present. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 27 First Revised Rate Schedule FERC No. 24 7.5 Operating and Capital Budgets. 7.5.1 Finance Committee. Not later than February 1 of each year, the entities specified below shall select the members of a Finance Committee. The Finance Committee shall be composed of one representative of the parties to the Reliability Assurance Agreement chosen by the parties to that agreement, one representative of the parties to the Transmission Owners Agreement chosen by the parties to that agreement, two representatives of the Members Committee chosen by the Members Committee and that are not representatives of an entity that is a party to the Transmission Owners Agreement or an Affiliate or Related Party of such an entity, one representative of the Office of the Interconnection selected by the President, and two Board Members selected by the PJM Board. The Members Committee shall endeavor to elect members of the Finance Committee that are broadly representative of the diversity of interests among the Members. The Office of the Interconnection shall prepare annual budgets in accordance with processes and procedures established by the PJM Board, and shall timely submit its budgets to the Finance Committee for review. The Finance Committee shall submit its analysis of and recommendations on the budgets to the PJM Board, with copies to the Members Committee. The Finance Committee shall also review and comment upon any additional or amended budgets prepared by the Office of the Interconnection at the request of the PJM Board or the Members Committee. 7.5.2 Adoption of Budgets. The PJM Board shall adopt, upon consideration of the advice and recommendations of the Finance Committee, operating and capital budgets for the LLC, and shall distribute to the Members for their information final annual budgets for the following fiscal year not later than 60 days prior to the beginning of each fiscal year of the LLC. 7.6 By-laws. To the extent not inconsistent with any provision of this Agreement, the PJM Board shall adopt such by-laws establishing procedures for the implementation of this Agreement as it may deem appropriate, including but not limited to by-laws governing the scheduling, noticing and conduct of meetings of the PJM Board, selection of a Chair and Vice Chair of the PJM Board, action by the PJM Board without a meeting, and the organization and responsibilities of standing and special committees of the PJM Board. Such by-laws shall not modify or be inconsistent with any of the rights or obligations established by this Agreement. 7.7 Duties and Responsibilities of the PJM Board. In accordance with this Agreement, the PJM Board shall supervise and oversee all matters pertaining to the Interconnection and the LLC, and carry out such other duties as are herein specified, including but not limited to the following duties and responsibilities: Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 28 First Revised Rate Schedule FERC No. 24 i) As its primary responsibility, ensure that the President, the other officers of the LLC, and Office of the Interconnection perform the duties and responsibilities set forth in this Agreement, including but not limited to those set forth in Sections 9.2 through 9.4 and Section 10.4 in a manner consistent with (A) the safe and reliable operation of the Interconnection, (B) the creation and operation of a robust, competitive, and non-discriminatory electric power market in the PJM Control Area, and (C) the principle that a Member or group of Members shall not have undue influence over the operation of the Interconnection; ii) Select the Officers of the LLC; iii) Adopt budgets for the LLC; iv) Approve the Regional Transmission Expansion Plan in accordance with the provisions of the Regional Transmission Expansion Planning Protocol set forth in Schedule 6 of this Agreement; v) On its own initiative or at the request of a User Group as specified herein, submit to the Members Committee such proposed amendments to this Agreement or any Schedule hereto, or a proposed new Schedule, as it may deem appropriate; vi) Petition FERC to modify any provision of this Agreement or any Schedule or practice hereunder that the PJM Board believes to be unjust, unreasonable, or unduly discriminatory under Section 206 of the Federal Power Act, subject to the right of any Member or the Members to intervene in any resulting proceedings; vii) Review for consistency with the creation and operation of a robust, competitive and non-discriminatory electric power market in the PJM Control Area any change to rate design or to non-rate terms and conditions proposed by Transmission Owners for filing under Section 205 of the Federal Power Act; viii) If and to the extent it shall deem appropriate, intervene in any proceeding at FERC initiated by the Members in accordance with Section 11.5(b), and participate in other state and federal regulatory proceedings relating to the interests of the LLC; ix) Review, in accordance with Section 15.1.3, determinations of the Office of the Interconnection with respect to events of default; x) Assess against the other Members in proportion to their Weighted Interest an amount equal to any payment to the Office of the Interconnection, including interest thereon, as to which a Member is in default; xi) Establish reasonable sanctions for failure of a Member to comply with its obligations under this Agreement; Issued By: Richard A. Drom Effective: November 10, 2000 Vic President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 29 First Revised Rate Schedule FERC No. 24 xii) Direct the Office of the Interconnection on behalf of the LLC to take appropriate legal or regulatory action against a Member (A) to recover any unpaid amounts due from the Member to the Office of the Interconnection under this Agreement and to make whole any Members subject to an assessment as a result of such unpaid amount, or (B) as may otherwise be necessary to enforce the obligations of this Agreement; xiii) Resolve claims by a Member that the Reliability Committee established by the Reliability Assurance Agreement has exercised its responsibilities in a manner inconsistent with the creation and operation of a robust, competitive and non-discriminatory electric power market in the PJM Control Area, upon due consideration of the views of the Member and of the Reliability Committee, and of the need to preserve the reliability of electric service in the PJM Control Area; xiv) Solicit the views of Members on, and commission from time to time as it shall deem appropriate independent reviews of, (a) the performance of the PJM Interchange Energy Market, (b) compliance by Market Participants with the rules and requirements of the PJM Interchange Energy Market, and (c) the performance of the Office of the Interconnection under performance criteria proposed by the Members Committee and approved by the PJM Board; and xv) Terminate a Member as may be appropriate under the terms of this Agreement. 8. MEMBERS COMMITTEE 8.1 Sectors. 8.1.1 Designation. Voting on the Members Committee shall be by sectors. The Members Committee shall be composed of five sectors, one for Generation Owners, one for Other Suppliers, one for Transmission Owners, one for Electric Distributors, and one for End-Use Customers, provided that there are at least five Members in each Sector. Except as specified in Section 8.1.2, each Voting Member shall have one vote. Each Voting Member shall, within thirty (30) days after the Effective Date or, if later, thirty (30) days after becoming a Member, and thereafter not later than 10 days prior to the Annual Meeting of the Members for each annual period beginning with the Annual Meeting of the Members, submit to the President a sealed notice of the sector in which it is qualified to vote or, if qualified to participate in more than one sector, its rank order preference of the sectors in which it wishes to vote, and shall be assigned to its highest-ranked sector that has the minimum number of Members specified above. If a Member is assigned to a sector other than its highest-ranked sector in accordance with the preceding sentence, its higher sector preference or preferences shall be honored as soon as a higher-ranked sector has five or more Members. A Voting Member may designate as its voting sector any sector for which it or its Affiliate or Related Party Members is qualified. The sector designations of the Voting Members shall be announced by the President at the Annual Meeting. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 30 First Revised Rate Schedule FERC No. 24 8.1.2 Related Parties. The Members in a group of Related Parties shall each be entitled to a vote, provided that all the Members in a group of Related Parties that chooses to exercise such rights shall be assigned to the Electric Distributor sector. 8.2 Representatives. 8.2.1 Appointment. Each Member may appoint a representative to serve on the Members Committee, with authority to act for that Member with respect to actions or decisions by the Members Committee. Each Member may appoint an alternate representative to act for that Member at meetings of the Members Committee in the absence of the representative. A Member participating in the PJM Interchange Energy Market through an agent may be represented on the Members Committee by that agent. A Member shall appoint its representative by giving written notice identifying its representative and alternate representative to the Office of the Interconnection. Members that are Affiliates or Related Parties may each appoint a representative and alternate representative to the Members Committee, but shall vote as specified in Section 8.1. 8.2.2 Regulatory Authorities. FERC and any other federal agency with regulatory authority over a Member, each State electric utility regulatory commission with regulatory jurisdiction within the PJM Control Area, and each office of consumer advocate from each State all or any part of the territory of which is within the PJM Control Area, may nominate one representative to serve as an ex officio non- voting member of the Members Committee. 8.2.3 Initial Representatives. Initial representatives to the Members Committee shall be appointed no later than 30 days after the Effective Date; provided, however, that each representative to the Management Committee under the Operating Agreement of PJM Interconnection, L.L.C. as in effect immediately prior to the Effective Date shall automatically become a representative to the Members Committee on the Effective Date unless replaced as specified in Section 8.2.4. An entity becoming a Member shall appoint a representative to the Members Committee no later than 30 days after becoming a Member. 8.2.4 Change of or Substitution for a Representative. Any Member may change its representative or alternate on the Members Committee at any time by providing written notice to the Office of the Interconnection identifying its replacement representative or alternate. Any representative to the Members Committee may, by written notice to the Chair, designate a substitute representative from that Member to act for him or her with respect to any matter specified in such notice. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 31 First Revised Rate Schedule FERC No. 24 8.3 Meetings. 8.3.1 Regular and Special Meetings. The Members Committee shall hold regular meetings, no less frequently than once each calendar quarter at such time and at such place as shall be fixed by the Chair. The Members Committee shall hold an Annual Meeting of the Members each calendar year at such time and place as shall be specified by the Chair. At the Annual Meeting of the Members, Board Members as necessary, officers of the Members Committee, and representatives to the Finance Committee shall be elected. The Members Committee may hold special meetings for one or more designated purposes within the scope of the authority of the Members Committee when called by the Chair on the Chair's own initiative, or at the request of five or more representatives on the Members Committee. The notice of a regular or special meeting shall be distributed to the representatives as specified in Section 18.14 of this Agreement not later than seven days prior to the meeting, shall state the time and place of the meeting, and shall include an agenda sufficient to notify the representatives of the substance of matters to be considered at the meeting; provided, however, that meetings may be called on shorter notice at the discretion of the Chair as the Chair shall deem necessary to deal with an emergency or to meet a deadline for action. 8.3.2 Attendance. Regular and special meetings may be conducted in person or by telephone, or other electronic means as authorized by the Members Committee. The attendance in person or by telephone or other electronic means of a representative or a duly designated substitute shall be required in order to vote. 8.3.3 Quorum. The attendance as specified in Section 8.3.2 of a majority of the Voting Members from each of at least three sectors that each have at least five Members shall constitute a quorum, however, a quorum shall only require one- third of the Voting Members, but not less than ten, from any sector that has more than 20 Voting Members. No action may be taken by the Members Committee at a meeting unless a quorum is present; provided, however, that if a quorum is not present, the Voting Members then present shall have the power to adjourn the meeting from time to time until a quorum shall be present. 8.4 Manner of Acting. (a) All matters brought up for a vote or approval by the Members Committee shall be stated in the form of a motion, which must be seconded. Only one motion may be pending at one time. (b) Each Sector shall be entitled to cast one and zero one-hundredths (1.00) Sector Votes. Each Voting Member shall be entitled to cast one (1) non- divisible vote in its sector. In the case of a Voting Member comprised of Affiliates or Related Parties, any representative, alternate or substitute of any of the Affiliated or Related Parties may cast the vote of the Voting Member. The Sector Vote of each sector shall be split into an affirmative component based on votes for the pending motion, and a negative component based on votes against the pending motion, in direct proportion to the votes cast within the sector for and against the pending motion, rounded to two decimal places. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 32 First Revised Rate Schedule FERC No. 24 (c) The sum of affirmative Sector Votes necessary to pass the pending motion shall be greater than (but not merely equal to) the product of .667 multiplied by the number of sectors that have at least five Members and that participated in the vote. (d) Voting Members not in attendance at the meeting as specified in Section 8.3.2 of this Agreement or abstaining shall not be counted as affirmative or negative votes. 8.5 Chair and Vice Chair of the Members Committee. 8.5.1 Selection and Term. The representatives or their alternates or substitutes on the Members Committee shall elect from among the representatives a Chair and a Vice Chair. The offices of Chair and Vice Chair shall be held for a term of one year and until succession to the office occurs as specified herein. Except as specified below, at each Annual Meeting of the Members the Vice Chair shall succeed to the office of Chair, and a new Vice Chair shall be elected. If the office of Chair becomes vacant, or the Chair leaves the employment of the Member for whom the Chair is the representative, or the Chair is no longer the representative of such Member, the Vice Chair shall succeed to the office of Chair, and a new Vice Chair shall be elected at the next regular or special meeting of the Members Committee, both such officers to serve until the second Annual Meeting of the Members following such succession or election to a vacant office. If the office of Vice Chair becomes vacant, or the Vice Chair leaves the employment of the Member for whom the Vice Chair is the representative, or the Vice Chair is no longer the representative of such Member, a new Vice Chair shall be elected at the next regular or special meeting of the Members Committee. 8.5.2 Duties. The Chair shall call and preside at meetings of the Members Committee, and shall carry out such other responsibilities as the Members Committee shall assign. The Chair shall cause minutes of each meeting of the Members Committee to be taken and maintained, and shall cause notices of meetings of the Members Committee to be distributed. The Vice Chair shall preside at meetings of the Members Committee in the absence of the Chair, and shall otherwise act for the Chair at the Chair's request. 8.6 Other Committees. (a) The Members Committee may form, select the membership, and oversee the activities, of an Operating Committee, a Planning Committee, and an Energy Market Committee as standing committees, and such other committees, subcommittees, task forces, working groups or other bodies as it shall deem appropriate, to provide advice and recommendations to the Members Committee or to the Office of the Interconnection as directed by the Members Committee. (b) The Members Committee shall elect representatives to the Alternate Dispute Resolution Committee as specified in the PJM Dispute Resolution Procedures. 8.7 User Groups. (a) Any five or more Members sharing a common interest may form a User Group, and may invite such other Members to join the User Group as the User Group shall deem appropriate. Notification of the formation of a User Group shall be provided to all members of the Members Committee. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 33 First Revised Rate Schedule FERC No. 24 (b) The Members Committee shall create a User Group composed of representatives of bona fide public interest and environmental organizations that are interested in the activities of the LLC and are willing and able to participate in such a User Group. Meetings of User Groups shall be open to all Members and the Office of the Interconnection. Notices and agendas of meetings of a User Group shall be provided to all Members that ask to receive them. (d) Any recommendation or proposal for action adopted by affirmative vote of three-fourths or more of the members of a User Group shall be circulated by the Office of the Interconnection to the representatives on the Members Committee and shall be considered by the Members Committee at its next regular meeting occurring not earlier than 30 days after the circulation of such notice. (e) If the Members Committee does not adopt a recommendation or proposal submitted to it by a User Group, upon vote of nine-tenths or more of the members of the User Group the recommendation or proposal may be submitted to the PJM Board for its consideration in accordance with Section 7.7(v). 8.8 Powers of the Members Committee. The Members Committee, acting by adoption of a motion as specified in Section 8.4, shall have the power to take the actions specified in this Agreement, including: i) Elect the members of the PJM Board; ii) In accordance with the provisions of Section 18.6 of this Agreement, amend any portion of this Agreement, including the Schedules hereto, or create new Schedules, and file any such amendments or new Schedules with FERC or other regulatory body of competent jurisdiction; iii) Terminate this Agreement; and iv) Provide advice and recommendations to the PJM Board and the Office of the Interconnection. 9. OFFICERS 9.1 Election and Term. The officers of the LLC shall consist of a President, a Secretary and a Treasurer. The PJM Board may elect such other officers as it deems necessary to carry out the business of the LLC. All officers shall be elected by the PJM Board and shall hold office until the next annual meeting of the PJM Board and until their successors are elected. Any number of offices may be held by the same person, except that the offices of the President and Treasurer may not be held by the same person. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 34 First Revised Rate Schedule FERC No. 24 9.2 President. The PJM Board shall appoint a President and Chief Executive Officer of the LLC (the "President"). The President shall direct and supervise the day-to-day operation of the LLC, and shall report to the PJM Board. The President shall be responsible for directing and supervising the Office of the Interconnection in the performance of the duties and responsibilities specified in Section 10.4. The President shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the LLC, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board to some other officer or agent of the LLC. In the absence of the President or in the event of his or her inability or refusal to act, and if a vice president has been appointed by the PJM Board, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the PJM Board in its Minutes) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice President shall perform such other duties and have such other powers as the PJM Board may from time to time prescribe. 9.3 Secretary. The Secretary shall attend all meetings of the PJM Board and record all the proceedings of the meetings of the PJM Board in a minute book to be kept for that purpose and shall perform like duties for the standing committees or special committees when required. He or she shall give, or cause to be given, notice of all special meetings of the PJM Board, and shall perform such other duties as may be prescribed by the PJM Board or President, under whose supervision he or she shall be. He or she shall have custody of the corporate seal of the LLC, and he or she, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and, when so affixed, it may be attested by his or her signature or by the signature of such assistant secretary. The PJM Board may give general authority to any other officer to affix the seal of the LLC and to attest the affixing by his or her signature. 9.4 Treasurer. The Treasurer shall have or arrange for the custody of the LLC's funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belongings to the LLC and shall deposit all moneys and other valuable effects in the name and to the credit of the LLC in such depositories as may be designated by the PJM Board. The Treasurer shall disburse the funds of the LLC as may be ordered by the PJM Board, taking proper vouchers for such disbursements, and shall render to the President and PJM Board at its regular meetings, or when the PJM Board so requires, an account of his or her transactions as Treasurer and of the financial condition of the LLC. If required by the Board, the Treasurer shall give the LLC a bond (which shall be renewed periodically) in such sum and with such surety or sureties as shall be satisfactory to the PJM Board for the faithful performance of the duties of his office and of the restoration to the LLC, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the LLC. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 35 First Revised Rate Schedule FERC No. 24 9.5 Renewal of Officers; Vacancies. Any officer elected or appointed by the PJM Board may be removed at any time by the affirmative vote of a majority of the PJM Board eligible to vote. Any vacancy occurring in any office of the LLC shall be filled by the PJM Board. 9.6 Compensation. The salaries of all officers and agents of the LLC, and the reasonable compensation of the PJM Board, shall be fixed by the PJM Board. 10. OFFICE OF THE INTERCONNECTION. 10.1 Establishment. The Office of the Interconnection shall implement this Agreement, administer the PJM Tariff, and undertake such other responsibilities as set forth herein. All personnel of the Office of the Interconnection shall be employees of the LLC or under contract thereto. The cost of the Office of the Interconnection and expenses associated therewith, including salaries and expenses of said personnel, space and any necessary facilities or other capital expenditures, shall be recovered in accordance with Schedule 3. The Office of the Interconnection shall adopt, publish and comply with standards of conduct that satisfy the regulations of FERC. 10.2 Processes and Organization. In order to carry out the responsibilities of the Office of the Interconnection for the safe and reliable operation of the Interconnection, the President may establish processes and organization for operating personnel and facilities as the President shall deem appropriate, and shall request such Members as the President shall deem appropriate to participate in such processes and organization. All such processes and organization shall be carried out in accordance with all applicable code of conduct or other functional separation requirements of FERC. 10.3 Confidential Information. The Office of the Interconnection shall comply with the requirements of Section 18.17 with respect to any proprietary or confidential information received from or about any Member. 10.4 Duties and Responsibilities. The Office of the Interconnection, under the direction of the President as supervised and overseen by the PJM Board, shall carry out the following duties and responsibilities, in accordance with the provisions of this Agreement: i) Administer and implement this Agreement; ii) Perform such functions in furtherance of this Agreement as the PJM Board, acting within the scope of its duties and responsibilities under this Agreement, may direct; iii) Prepare, maintain, update and disseminate the PJM Manuals; iv) Comply with MAAC and NERC operation and planning standards, principles and guidelines; Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 36 First Revised Rate Schedule FERC No. 24 v) Maintain an appropriately trained workforce, and such equipment and facilities, including computer hardware and software and backup power supplies, as necessary or appropriate to implement or administer this Agreement; vi) Direct the operation and coordinate the maintenance of the facilities of the Interconnection used for both load and reactive supply, so as to maintain reliability of service and obtain the benefits of pooling and interchange consistent with this Agreement and the Reliability Assurance Agreement; vii) Direct the operation and coordinate the maintenance of the bulk power supply facilities of the Interconnection with such facilities and systems of others not party to this Agreement in accordance with agreements between the LLC and such other systems to secure reliability and continuity of service and other advantages of pooling on a regional basis; viii) Perform interchange accounting and maintain records pertaining to the operation of the PJM Interchange Energy Market and the Interconnection; ix) Notify the Members of the receipt of any application to become a Member, and of the action of the Office of the Interconnection on such application, including but not limited to the completion of integration of a new Member's system into the PJM Control Area as specified in Section 11.6(f); x) Calculate the Weighted Interest of each Member; xi) Maintain accurate records of the sectors in which each Voting Member is entitled to vote, and calculate the results of any vote taken in the Members Committee; xii) Furnish appropriate information and reports as are required to keep the Members regularly informed of the outlook for, the functioning of, and results achieved by the Interconnection; xiii) File with FERC on behalf of the Members any amendments to this Agreement or the Schedules hereto, any new Schedules hereto, and make any other regulatory filings on behalf of the Members or the LLC necessary to implement this Agreement; xiv) At the direction of the PJM Board, submit comments to regulatory authorities on matters pertinent to the Interconnection; xv) Consult with the standing or other committees established pursuant to Section 8.6(a) on matters within the responsibility of the committee; xvi) Perform operating studies of the bulk power supply facilities of the Interconnection and make such recommendations and initiate such actions as may be necessary to maintain reliable operation of the Interconnection; xvii) Accept, on behalf of the Members, notices served under this Agreement; Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 37 First Revised Rate Schedule FERC No. 24 xviii) Perform those functions and undertake those responsibilities transferred to it under the Transmission Owners Agreement, including (A) direct the operation of the transmission facilities of the parties to the Transmission Owners Agreement, (B) administer the PJM Tariff, and (C) administer the Regional Transmission Expansion Planning Protocol set forth as Schedule 6 to this Agreement; xix) Perform those functions and undertake those responsibilities transferred to it under the Reliability Assurance Agreement, as specified in Schedule 8 of this Agreement; xx) Monitor the operation of the PJM Control Area, ensure that appropriate Emergency plans are in place and appropriate Emergency drills are conducted, declare the existence of an Emergency, and direct the operations of the Members as necessary to manage, alleviate or end an Emergency; xxi) Incorporate the grid reliability requirements applicable to nuclear generating units in the PJM Control Area planning and operating principles and practices; and xxii) Initiate such legal or regulatory proceedings as directed by the PJM Board to enforce the obligations of this Agreement. 11. MEMBERS 11.1 Management Rights. The Members or any of them shall not take part in the management of the business of, and shall not transact any business for, the LLC in their capacity as Members, nor shall they have power to sign for or to bind the LLC. 11.2 Other Activities. Except as otherwise expressly provided herein, any Member may engage in or possess any interest in another business or venture of any nature and description, independently or with others, even if such activities compete directly with the business of the LLC, and neither the LLC nor any Member hereof shall have any rights in or to any such independent ventures or the income or profits derived therefrom. 11.3 Member Responsibilities. 11.3.1 General. To facilitate and provide for the work of the Office of the Interconnection and of the several committees appointed by the Members Committee, each Member shall, to the extent applicable; Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 38 First Revised Rate Schedule FERC No. 24 (a) Maintain adequate records and, subject to the provisions of this Agreement for the protection of the confidentiality of proprietary or commercially sensitive information, provide data required for (i) coordination of operations, (ii) accounting for all interchange transactions, (iii) preparation of required reports, (iv) coordination of planning, including those data required for capacity accounting, (v) preparation of maintenance schedules, (vi) analysis of system disturbances, and (vii) such other purposes, including those set forth in Schedule 2, as will contribute to the reliable and economic operation of the Interconnection; (b) Provide such recording, telemetering, communication and control facilities as are required for the coordination of its operations with the Office of the Interconnection and those of the other Members and to enable the Office of the Interconnection to operate the PJM Control Area and otherwise implement and administer this Agreement, including equipment required in normal and Emergency operations and for the recording and analysis of system disturbances; (c) Provide adequate and properly trained personnel to (i) permit participation in the coordinated operation of the Interconnection, (ii) meet its obligation on a timely basis for supply of records and data, (iii) serve on committees and participate in their investigations, and (iv) share in the representation of the Interconnection in inter-regional and national reliability activities; (d) Share in the costs of committee activities and investigations (including costs of consultants, computer time and other appropriate items), communication facilities used by all the Members (in addition to those provided in the Office of the Interconnection), and such other expenses as are approved for payment by the PJM Board, such costs to be recovered as provided in Schedule 3; (e) Comply with the requirements of the PJM Manuals and all directives of the Office of the Interconnection to take any action for the purpose of managing, alleviating or ending an Emergency, and authorize the Office of the Interconnection to direct the transfer or interruption of the delivery of energy on their behalf to meet an Emergency and to implement agreements with other Control Areas interconnected with the PJM Control Area for the mutual provision of service to meet an Emergency, and be subject to the emergency procedure charges specified in Schedule 9 of this Agreement for any failure to follow the Emergency instructions of the Office of the Interconnection. 11.3.2 Facilities Planning and Operation. Consistent with and subject to the requirements of this Agreement, the PJM Tariff, the MAAC Agreement, the Reliability Assurance Agreement, the Transmission Owners Agreement, and the PJM Manuals, each Member shall cooperate with the other Members in the coordinated planning and operation of the facilities of its System within the PJM Control Area so as to obtain the greatest practicable degree of reliability, compatible economy and other advantages from such coordinated planning and operation. In furtherance of such cooperation each Member shall, as applicable: (a) Consult with the other Members and the Office of the Interconnection, and coordinate the installation of its electric generation and Transmission Facilities with those of such other Members so as to maintain reliable service in the PJM Control Area; Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 39 First Revised Rate Schedule FERC No. 24 (b) Coordinate with the other Members, the Office of the Interconnection and with others in the planning and operation of the regional facilities to secure a high level of reliability and continuity of service and other advantages; (c) Cooperate with the other Members and the Office of the Interconnection in the implementation of all policies and procedures established pursuant to this Agreement for dealing with Emergencies, including but not limited to policies and procedures for maintaining or arranging for a portion of a Member's Capacity Resources at least equal to the level established pursuant to the Reliability Assurance Agreement to have the ability to go from a shutdown condition to an operating condition and start delivering power without assistance from the power system; (d) Cooperate with the members of MAAC to augment the reliability of the bulk power supply facilities of the region and comply with MAAC and NERC operating and planning standards, principles and guidelines and the PJM Manuals; (e) Obtain or arrange for transmission service as appropriate to carry out this Agreement; (f) Cooperate with the Office of the Interconnection's coordination of the operating and maintenance schedules of the Member's generating and Transmission Facilities with the facilities of other Members to maintain reliable service to its own customers and those of the other Members and to obtain economic efficiencies consistent therewith; (g) Cooperate with the other Members and the Office of the Interconnection in the analysis, formulation and implementation of plans to prevent or eliminate conditions that impair the reliability of the Interconnection; and (h) Adopt and apply standards adopted pursuant to this Agreement and conforming to MAAC and NERC standards, principles and guidelines and the PJM Manuals, for system design, equipment ratings, operating practices and maintenance practices. 11.3.3 Electric Distributors. In addition to any of the foregoing responsibilities that may be applicable, each Member that is an Electric Distributor, whether or not that Member votes in the Members Committee in the Electric Distributor sector or meets the eligibility requirements for any other sector of the Members Committee, shall: (a) Accept, comply with or be compatible with all standards applicable within the PJM Control Area with respect to system design, equipment ratings, operating practices and maintenance practices as set forth in the PJM Manuals, or be subject to an interconnected Member's requirements relating to the foregoing, so that sufficient electrical equipment, control capability, information and communication are available to the Office of the Interconnection for planning and operation of the PJM Control Area; (b) Assure the continued compatibility of its local system energy management system monitoring and telecommunications systems to satisfy the technical requirements of interacting automatically or manually with the Office of the Interconnection as it directs the operation of the PJM Control Area; Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 40 First Revised Rate Schedule FERC No. 24 (c) Maintain or arrange for a portion of its connected load to be subject to control by automatic underfrequency, under-voltage, or other load-shedding devices at least equal to the levels established pursuant to the Reliability Assurance Agreement, or be subject to another Member's control for these purposes; (d) Provide or arrange for sufficient reactive capability and voltage control facilities to conform to Good Utility Practice and (i) to meet the reactive requirements of its system and customers and (ii) to maintain adequate voltage levels and the stability required by the bulk power supply facilities of the Interconnection; (e) Shed connected load, share Capacity Resources, initiate active load management programs, and take such other coordination actions as may be necessary in accordance with the directions of the Office of the Interconnection in Emergencies; (f) Maintain or arrange for a portion of its Capacity Resources at least equal to the level established pursuant to the Reliability Assurance Agreement to have the ability to go from a shutdown condition to an operating condition and start delivering power without assistance from the power system; (g) Provide or arrange through another Member for the services of a 24-hour local control center to coordinate with the Office of the Interconnection, each such control center to be furnished with appropriate telemetry equipment as specified in the PJM Manuals, and to be staffed by system operators trained and delegated sufficient authority to take any action necessary to assure that the system for which the operator is responsible is operated in a stable and reliable manner; (h) Provide to the Office of the Interconnection all System, accounting, customer tracking, load forecasting (including all load to be served from its System) and other data necessary or appropriate to implement or administer this Agreement or the Reliability Assurance Agreement; and (i) Comply with the underfrequency relay obligations and charges specified in Schedule 7 of this Agreement. 11.3.4 Reports to the Office of the Interconnection. Each Member shall report as promptly as possible to the Office of the Interconnection any changes in its operating practices and procedures relating to the reliability of the bulk power supply facilities of the Interconnection. The Office of the Interconnection shall review such reports, and if any change in an operating practice or procedure of the Member is not in accord with the established operating principles, practices and procedures for the Interconnection and such change adversely affects the Interconnection and regional reliability, it shall so inform such Member, and the other Members through their representative on the Operating Committee, and shall direct that such change be modified to conform to the established operating principles, practices and procedures. 11.4 Regional Transmission Expansion Planning Protocol. The Members shall participate in regional transmission expansion planning in accordance with the Regional Transmission Expansion Planning Protocol set forth in Schedule 6 to this Agreement. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. First Revised Sheet No. 41 First Revised Rate Schedule FERC No. 24 Superceding Original Sheet No. 41 11.5 Member Right to Petition. (a) Nothing herein shall deprive any Member of the right to petition FERC to modify any provision of this Agreement or any Schedule or practice hereunder that the petitioning Member believes to be unjust, unreasonable, or unduly discriminatory under Section 206 of the Federal Power Act, subject to the right of any other Member (a) to oppose said proposal, or (b) to withdraw from the LLC pursuant to Section 4.1. (b) Nothing herein shall be construed as affecting in any way the right of the Members, acting pursuant to a vote of the Members Committee as specified in Section 8.4, unilaterally to make an application to FERC for a change in any rate, charge, classification, tariff or service, or any rule or regulation related thereto, under section 205 of the Federal Power Act and pursuant to the rules and regulations promulgated by FERC thereunder, subject to the right of any Member that voted against such change in any rate, charge, classification, tariff or service, or any rule or regulation related thereto, in intervene in opposition to any such application. (c) Nothing in this Agreement shall preclude those Members joining in the proposal to utilize Locational Marginal Prices to deal with transmission congestion from (i) filing amendments to the Agreement necessary to implement the use of Locational Marginal Prices in the PJM Control Area in accordance with such orders or other directives as may be issued by FERC relating thereto, or (ii) implementing the provisions of Sections 1.7.21 and 5.2.2(d) of Schedule 1 to this Agreement, without further authorization or approval by the Members Committee. 11.6 Membership Requirements. (a) To qualify as a Member, an entity shall: i) Be a Transmission Owner a Generation Owner, an Other Supplier, an Electric Distributor, or an End-Use Customer; and ii) Accept the obligations set forth in this Agreement. (b) Certain Members that are Load Serving Entities are parties to the Reliability Assurance Agreement. Upon becoming a Member, any entity that is a Load Serving Entity and that wishes to become a Market Buyer shall also simultaneously execute the Reliability Assurance Agreement. (c) An entity that wishes to become a party to this Agreement shall apply, in writing, to the President setting forth its request, its qualifications for membership, its agreement to supply data as specified in this Agreement, its agreement to pay all costs and expenses in accordance with Schedule 3, and providing all information specified pursuant to the Schedules to this Agreement for entities that wish to become Market Participants. Any such application that meets all applicable requirements shall be approved by the President within sixty (60) days. Issued By: Richard A. Drom Effective: December 23, 2000 Vice President, General Counsel Issued On: December 22, 2000 PJM Interconnection, L.L.C. First Revised Sheet No. 42 First Revised Rate Schedule FERC No. 24 Superceding Original Sheet No. 42 (d) Nothing in this Section 11 is intended to remove, in any respect, the choice of participation by other utility companies or organizations in the operation of the Interconnection through inclusion in the System of a Member. (e) An entity whose application is accepted by the President pursuant to Section 11.6(c) shall execute a supplement to this Agreement in substantially the form prescribed in Schedule 4, which supplement shall be countersigned by the President and tendered for filing with FERC by the President. The entity shall become a Member effective on the date specified by FERC when accepting the supplement for filing. (f) Entities whose applications contemplate expansion or rearrangement of the PJM Control Area may become Members promptly as described in Sections 11.6(c) and 11.6(e) above, but the integration of the applicant's system into all of the operation and accounting provisions of this Agreement and the Reliability Assurance Agreement shall occur only after completion of all required installations and modifications of metering, communications, computer programming, and other necessary and appropriate facilities and procedures, as determined by the Office of the Interconnection. The Office of the Interconnection shall notify the other Members when such integration has occurred. (g) In accordance with the MAAC Agreement, a Member shall be a member of MAAC. 12. TRANSFERS OF MEMBERSHIP INTEREST The rights and obligations created by this Agreement shall inure to and bind the successors and assigns of such Member; provided, however, that the rights and obligations of any Member hereunder shall not be assigned without the approval of the Members Committee except as to a successor in operation of a Member's electric operating properties by reason of a merger, consolidation, reorganization, sale, spinoff, or foreclosure, as a result of which substantially all such electric operating properties are acquired by such a successor, and such successor becomes a Member. 13. INTERCHANGE 13.1 Interchange Arrangements with Non-Members. Any Member may enter into interchange arrangements with others who are not Members with respect to the delivery or receipt of capacity and energy to fulfill its obligations hereunder or for any other purpose, subject to the standards and requirements established in or pursuant to this Agreement. 13.2 Energy Market. The Office of the Interconnection shall administer an efficient energy market within the Interconnection, to be known as the PJM Interchange Energy Market, in which Members may buy and sell energy. The Office of the Interconnection will schedule in advance and dispatch generation on the basis of least-cost, security-constrained dispatch and the prices and operating characteristics offered by sellers within and into the Interconnection, continuing until sufficient generation is dispatched to serve the energy purchase requirements of the Interconnection and buyers out of the Interconnection, as well as the requirements of the Interconnection for ancillary services provided by such generation. Scheduling and dispatch shall be conducted in accordance with applicable schedules to the PJM Tariff and the Schedules to this Agreement. Issued By: Richard A. Drom Effective: January 1, 2000 Vice President, General Counsel Issued On: December 21, 2000 PJM Interconnection, L.L.C. Original Sheet No. 43 First Revised Rate Schedule FERC No. 24 14. METERING 14.1 Installation, Maintenance and Reading of Meters. The quantities of electric energy involved in determination of the amounts of the billing rendered hereunder shall be ascertained by means of meters installed, maintained and read either at the expense of the party on whose premises the meters are located or as otherwise provided for by agreement between the parties concerned. 14.2 Metering Procedures. Procedures with respect to maintenance, testing, calibrating, correction and registration records, and precision tolerance of all metering equipment shall be in accordance with Good Utility Practice. The expense of testing any meter shall be borne by the party owning such meter, except that when a meter tested upon request of another party is found to register within the established tolerance the party making the request shall bear the expense of such test. 14.3 Integrated Megawatt-Hours. All metering of energy required herein shall be the integration of megawatt hours in the clock hour, and the quantities thus obtained shall constitute the megawatt load for such clock hour; provided, however, that adjustment shall be made for other contractual obligations of any Member as may be required to determine the quantity to be accounted for hereunder, and for transmission losses. 14.4 Meter Locations. The meter locations to be used by the Members in determining their energy transactions on the Interconnection shall be as reasonably determined from time to time by the Member or the Office of the Interconnection. 15. ENFORCEMENT OF OBLIGATIONS 15.1 Failure to Meet Obligations. 15.1.1 Termination of Market Buyer Rights. The Office of the Interconnection shall terminate a Market Buyer's right to make purchases from the PJM Interchange Energy Market and PJM Capacity Credit Market if it determines that the Market Buyer does not continue to meet the obligations set forth in this Agreement, provided that the Office of the Interconnection has notified the Market Buyer of any such deficiency and afforded the Market Buyer a reasonable opportunity to cure it. The Office of the Interconnection shall reinstate a Market Buyer's right to make purchases from the PJM Interchange Energy Market and PJM Capacity Credit Market upon demonstration by the Market Buyer that it has come into compliance with the obligations set forth in this Agreement. 15.1.2 Termination of Market Seller Rights. The Office of the Interconnection shall not accept offers from a Market Seller that has not complied with the prices, terms, or operating characteristics of any of its prior scheduled transactions in the PJM Interchange Energy Market, unless such Market Seller has taken appropriate measures to the satisfaction of the Office of the Interconnection to ensure future compliance. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 44 First Revised Rate Schedule FERC No. 24 15.1.3 Payment of Bills. (a) A Member shall make full and timely payment, in accordance with the terms specified by the Office of the Interconnection, of all bills rendered in connection with or arising under or from this Agreement, any service or rate schedule, any tariff, or any services performed by the Office of the Interconnection, notwithstanding any disputed amount, but any such payment shall not be deemed a waiver of any right with respect to such dispute. With respect to any payment that the LLC is required to make to a Member in connection with or arising under this Agreement, any service or rate schedule, or any tariff, the LLC shall have a right of setoff equal to any amount that the Member is required to pay the LLC in connection with or arising under or from this Agreement, any service or rate schedule, any tariff, or any services performed by the Office of the Interconnection. Any Member that fails to make full and timely payment to the LLC, or otherwise fails to meet its financial or other obligations to a Member, the Office of the Interconnection or the LLC under this Agreement, shall upon expiration of the 10 day period specified below be in default. If the Office of the Interconnection concludes, upon its own initiative or the recommendation of or complaint by the Members Committee or any Member, that a Member is in breach of any obligation under this Agreement, the Office of the Interconnection shall so notify such Member and inform all other Members. The notified Member may remedy such asserted breach by: (i) paying all amounts assertedly due, along with interest on such amounts calculated in accordance with the methodology specified for interest on refunds in FERC's regulations at 18 C.F.R. (S) 35.19a(a)(2)(iii); and (ii) demonstration to the satisfaction of the Office of the Interconnection that the Member has taken appropriate measures to meet any other obligation of which it was deemed to be in breach; provided, however, that any such payment or demonstration may be subject to a reservation of rights, if any, to subject such matter to the PJM Dispute Resolution Procedures; and provided, further, that any such determination by the Office of the Interconnection may be subject to review by the PJM Board upon request of the Member involved or the Office of the Interconnection. If a Member has not remedied a breach by the 10th business day following receipt of the Office of the Interconnection's notice, or receipt of the PJM Board's decision on review, if applicable, then the Member shall be in default and, in addition to such other remedies as may be available to the LLC: i) A defaulting Market Participant shall be precluded from buying or selling energy in the PJM Interchange Energy Market until the default is remedied as set forth above; ii) A defaulting Member shall not be entitled to participate in the activities of any committee or other body established by the Members Committee or the Office of the Interconnection; and iii) A defaulting Member shall not be entitled to vote on the Members Committee or any other committee or other body established pursuant to this Agreement. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 45 First Revised Rate Schedule FERC No. 24 15.2 Enforcement of Obligations. If the Office of the Interconnection sends a notice to the PJM Board that a Member has failed to perform an obligation under this Agreement, the PJM Board shall initiate such action against such Member to enforce such obligation as the PJM Board shall deem appropriate. Subject to the procedures specified in Section 15.1, a Member's failure to perform such obligation shall be deemed to be a default under this Agreement. In order to remedy a default, but without limiting any rights the LLC may have against the defaulting Member, the PJM Board may assess against, and collect from, the Members not in default, in proportion to their Weighted Interest, an amount equal to the amount that the defaulting Member has failed to pay to the Office of the Interconnection, along with appropriate interest, but such assessment shall in no way relieve the defaulting Member of its obligations, and shall confer upon the Members Committee the right to recover the assessed amounts from the defaulting Member. In addition to any amounts in default, the defaulting Member shall be liable to the LLC for reasonable costs incurred in enforcing the defaulting Member's obligations. 15.3 Obligations to a Member in Default. The Members have no continuing obligation to provide the benefits of interconnected operations to a Member in default. 15.4 Obligations of a Member in Default. A Member found to be in default shall take all possible measures to mitigate the continued impact of the default on the Members not in default, including, but not limited to, loading its own generation to supply its own load to the maximum extent possible. 15.5 No Implied Waiver. A failure of a Member, the PJM Board, or the LLC to insist upon or enforce strict performance of any of the provisions of this Agreement shall not be construed as a waiver or relinquishment to any extent of such entity's right to assert or rely upon any such provisions, rights and remedies in that or any other instance; rather, the same shall be and remain in full force and effect. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 46 First Revised Rate Schedule FERC No. 24 16. LIABILITY AND INDEMNITY 16.1 Members. (a) As between the Members, except as may be otherwise agreed upon between individual Members with respect to specified interconnections, each Member will indemnify and hold harmless each of the other Members, and its directors, officers, employees, agents, or representatives, of and from any and all damages, losses, claims, demands, suits, recoveries, costs and expenses (including all court costs and reasonable attorneys' fees), caused by reason of bodily injury, death or damage to property of any third party, resulting from or attributable to the fault, negligence or willful misconduct of such Member, its directors, officers, employees, agents, or representatives, or resulting from, arising out of, or in any way connected with the performance of its obligations under this Agreement, excepting only, and to the extent, such cost, expense, damage, liability or loss may be caused by the fault, negligence or willful misconduct of any other Member. The duty to indemnify under this Agreement will continue in full force and effect notwithstanding the expiration or termination of this Agreement or the withdrawal of a Member from this Agreement, with respect to any loss, liability, damage or other expense based on facts or conditions which occurred prior to such termination or withdrawal. (b) The amount of any indemnity payment arising hereunder shall be reduced (including, without limitation, retroactively) by any insurance proceeds or other amounts actually recovered by the Member seeking indemnification in respect of the indemnified action, claim, demand, costs, damage or liability. If any Member shall have received an indemnity payment for an action, claim, demand, cost, damage or liability and shall subsequently actually receive insurance proceeds or other amounts for such action, claim, demand, cost, damage or liability, then such Member shall pay to the Member that made such indemnity payment the lesser of the amount of such insurance proceeds or other amounts actually received and retained or the net amount of the indemnity payments actually received previously. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 47 First Revised Rate Schedule FERC No. 24 16.2 LLC Indemnified Parties. (a) The LLC will indemnify and hold harmless the PJM Board, the LLC's officers, employees and agents, and any representatives of the Members serving on the Members Committee and any other committee created under Section 8 of this Agreement (all such Board Members, officers, employees, agents and representatives for purposes of this Section 16 being referred to as "LLC Indemnified Parties"), of and from any and all actions, claims, demands, costs (including consequential or indirect damages, economic losses and all court costs and reasonable attorneys' fees) and liabilities to any third parties, arising from, or in any way connected with, the performance of the LLC under this Agreement, or the fact that such LLC Indemnified Party was serving in such capacity, except to the extent that such action, claim, demand, cost or liability results from the willful misconduct of any LLC Indemnified Party with respect to participation in the misconduct. To the extent any dispute arises between any Member and the LLC arising from, or in any way connected with, the performance of the LLC under this Agreement, the Member and the LLC shall follow the PJM Dispute Resolution Procedures. To the extent that any such action, claim, demand, cost or liability arises from a Member's contractual or other obligation to provide electric service directly or indirectly to said third party, which obligation to provide service is limited by the terms of any tariff, service agreement, franchise, statute, regulatory requirement, court decision or other limiting provision, the Member designates the LLC and each LLC Indemnified Party a beneficiary of said limitation. (b) An LLC Indemnified Party shall not be personally liable for monetary damages for any breach of fiduciary duty by such LLC Indemnified Party, except that an LLC Indemnified Party shall be liable to the extent provided by applicable law (i) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, or (ii) for any transaction from which the LLC Indemnified Party derived an improper personal benefit. Notwithstanding (i) and (ii), indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the LLC if and to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. If applicable law is hereafter construed or amended to authorize the further elimination or limitation of the liability of LLC Indemnified Parties, then the liability of the LLC Indemnified Parties, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by law. No amendment to or repeal of this section shall apply to or have any effect on the liability or alleged liability of any LLC Indemnified Party or with respect to any acts or omissions occurring prior to such amendment or repeal. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the LLC, and with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. (c) The LLC may pay expenses incurred by an LLC Indemnified Party in defending a civil, criminal, administrative or investigative action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such LLC Indemnified Party to repay such amount if it shall ultimately be determined that such LLC Indemnified Party is not entitled to be indemnified by the LLC as authorized in this Section. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 48 First Revised Rate Schedule FERC No. 24 (d) In the event the LLC incurs liability under this Section 16.2 that is not adequately covered by insurance, such amounts shall be recovered pursuant to the PJM Tariff as provided in Schedule 3 of this Agreement. 16.3 Worker's Compensation Claims. Each Member shall be solely responsible for all claims of its own employees, agents and servants growing out of any Worker's Compensation Law. 16.4 Limitation of Liability. No Member or its directors, officers, employees, agents, or representatives shall be liable to any other Member or its directors, officers, employees, agents, or representatives, whether liability arises out of contract, tort (including negligence), strict liability, or any other cause of or form of action whatsoever, for any indirect, incidental, consequential, special or punitive cost, expense, damage or loss, including but not limited to loss of profits or revenues, cost of capital of financing, loss of goodwill or cost of replacement power, arising from such Member's performance or failure to perform any of its obligations under this Agreement or the ownership, maintenance or operation of its System; provided, however, that nothing herein shall be deemed to reduce or limit the obligations of any Member with respect to the claims of persons or entities that are not parties to this Agreement. 16.5 Resolution of Disputes. To the extent any dispute arises between one or more Members regarding any issue covered by this Agreement, the Members shall follow the dispute resolution procedures set forth in the PJM Dispute Resolution Procedures. 16.6 Gross Negligence or Willful Misconduct. Neither the LLC nor the LLC Indemnified Parties shall be liable to the Members or any of them for any claims, demands or costs arising from, or in any way connected with, the performance of the LLC under this Agreement other than actions, claims or demands based on gross negligence or willful misconduct; provided, however, that nothing herein shall limit or reduce the obligations of the LLC to the Members or any of them under the express terms of this Agreement or the PJM Tariff, including, but not limited to, those set forth in Sections 6.2 and 6.3 of this Agreement. 16.7 Insurance. The PJM Board shall be authorized to procure insurance against the risks borne by the LLC and the LLC Indemnified Parties, the cost of which shall be treated as a cost and expense of the LLC. 17. MEMBER REPRESENTATIONS, WARRANTIES AND COVENANTS 17.1 Representations and Warranties. Each Member makes the following representations and warranties to the LLC and each other Member, as of the Effective Date or such later date as such Member shall become admitted as a Member of the LLC. Issued By: Richard A Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 49 First Revised Rate Schedule FERC No. 24 17.1.1 Organization and Existence. Such Member is an entity duly organized, validly existing and in good standing under the laws of the state of its organization. 17.1.2 Power and Authority. Such Member has the full power and authority to execute, deliver and perform this Agreement and to carry out the transactions contemplated hereby. 17.1.3 Authorization and Enforceability. The execution and delivery of this Agreement by such Member and the performance of its obligations hereunder have been duly authorized by all requisite action on the part of the Member, and do not conflict with any applicable law or with any other agreement binding upon the Member. The Agreement has been duly executed and delivered by such Member and constitutes the legal, valid and binding obligation of such Member, enforceable against it in accordance with the terms thereof, except insofar as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting the enforcement of creditors' rights generally, and to general principles of equity whether such principles are considered in proceedings in law or in equity. 17.1.4 No Government Consents. No authorization, consent, approval or order of, notice to or registration, qualification, declaration or filing with, any governmental authority is required for the execution, delivery and performance by such Member of this Agreement or the carrying out by such Member of the transactions contemplated hereby other than such authorization, consent, approval or order of, notice to or registration, qualification, declaration or filing that is pending before such governmental authority. 17.1.5 No Conflict or Breach. None of the execution, delivery and performance by such Member of this Agreement, the compliance with the terms and provisions hereof and the carrying out of the transactions contemplated hereby, conflicts or will conflict with or will result in a breach or violation of any of the terms, conditions or provisions of any law, governmental rule or regulation or the charter documents or bylaws of such Member or any applicable order, writ, injunction, judgment or decree of any court or governmental authority against such Member or by which it or any of its properties, is bound, or any loan agreement, indenture, mortgage, bond, note, resolution, contract or other agreement or instrument to which such Member is a party or by which it or any of its properties is bound, or constitutes or will constitute a default thereunder or will result in the imposition of any lien upon any of its properties. 17.1.6 No Proceedings. There are no actions at law, suits in equity, proceedings or claims pending or, to the knowledge of the Member, threatened against the Member before any federal, state, foreign or local court, tribunal or government agency or authority that might materially delay, prevent or hinder the performance by the Member of its obligations hereunder. Issued By: Richard A Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 50 First Revised Rate Schedule FERC No. 24 17.2 Municipal Electric Systems. Any provisions of Section 17.1 notwithstanding, if any Member that is a municipal electric system believes in good faith that the provisions of Sections 5.1(b) and 16.1 of this Agreement may not lawfully be applied to that Member under applicable state law governing municipal activities, the Member may request a waiver of the pertinent provisions of the Agreement. Any such request for waiver shall be supported by an opinion of counsel for the Member to the effect that the provision of the Agreement as to which waiver is sought may not lawfully be applied to the Member under applicable state law. The PJM Board shall have the right to have the opinion of the Member's counsel reviewed by counsel to the LLC. If the PJM Board concludes that either or both of Sections 5.1(b) and 16.1 of this Agreement may not lawfully be applied to a municipal electric system Member, it shall waive the application of the affected provision or provisions to such municipal Member. Any Member not permitted by law to indemnify the other Members shall not be indemnified by the other Members. 17.3 Survival. All representations and warranties contained in this Section 17 shall survive the execution and delivery of this Agreement. 18. MISCELLANEOUS PROVISIONS 18.1 [Reserved.] 18.2 Fiscal and Taxable Year. The fiscal year and taxable year of the LLC shall be the calendar year. 18.3 Reports. Each year prior to the Annual Meeting of the Members, the PJM Board shall cause to be prepared and distributed to the Members a report of the LLC's activities since the prior report. 18.4 Bank Accounts; Checks, Notes and Drafts. (a) Funds of the LLC shall be deposited in an account or accounts of a type, in form and name and in a bank(s) or other financial institution(s) which are participants in federal insurance programs as selected by the PJM Board. The PJM Board shall arrange for the appropriate conduct of such accounts. Funds may be withdrawn from such accounts only for bona fide and legitimate LLC purposes and may from time to time be invested in such short-term securities, money market funds, certificates of deposit or other liquid assets as the PJM Board deems appropriate. All checks or demands for money and notes of the LLC shall be signed by any officer or by any other person designated by the PJM Board. (b) The Members acknowledge that the PJM Board may maintain LLC funds in accounts, money market funds, certificates of deposit, other liquid assets in excess of the insurance provided by the Federal Deposit Insurance Corporation, or other depository insurance institutions and that the PJM Board shall not be accountable or liable for any loss of such funds resulting from failure or insolvency of the depository institution. (c) Checks, notes, drafts and other orders for the payment of money shall be signed by such persons as the PJM Board from time to time may authorize. When the PJM Board so authorizes, the signature of any such person may be a facsimile. Issued By: Richard A Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 51 First Revised Rate Schedule FERC No. 24 18.5 Books and Records. (a) At all times during the term of the LLC, the PJM Board shall keep, or cause to be kept, full and accurate books of account, records and supporting documents, which shall reflect, completely, accurately and in reasonable detail, each transaction of the LLC. The books of account shall be maintained and tax returns prepared and filed on the method of accounting determined by the PJM Board. The books of account, records and all documents and other writings of the LLC shall be kept and maintained at the principal office of the Interconnection. (b) The PJM Board shall cause the Office of the Interconnection to keep at its principal office the following: i) A current list in alphabetical order of the full name and last known business address of each Member, the Weighted Interest of each Member, and the Members Committee sector of each Voting Member; ii) A copy of the Certificate of Formation and the Certificate of Conversion, and all Certificates of Amendment thereto; iii) Copies of the LLC's federal, state, and local income tax returns and reports, if any, for the three most recent years; and iv) Copies of the Operating Agreement, as amended, and of any financial statements of the LLC for the three most recent years. 18.6 Amendment. (a) Except as provided by law or otherwise set forth herein, this Agreement, including any Schedule hereto, may be amended, or a new Schedule may be created, only upon: (i) submission of the proposed amendment to the PJM Board for its review and comments; (ii) approval of the amendment or new Schedule by the Members Committee, after consideration of the comments of the PJM Board, in accordance with Section 8.4, or written agreement to an amendment of all Members not in default at the time the amendment is agreed upon; and (iii) approval and/or acceptance for filing of the amendment by FERC and any other regulatory body with jurisdiction thereof as may be required by law. If and as necessary, the Members Committee may file with FERC or other regulatory body of competent jurisdiction any amendment to this Agreement or to its Schedules or a new Schedule not filed by the Office of the Interconnection. (b) Notwithstanding the foregoing, an applicant eligible to become a Member in accordance with the procedures specified in this Agreement shall become a Member by executing a counterpart of this Agreement without the need for amendment of this Agreement or execution of such counterpart by any other Member. (c) Each of the following fundamental changes to the LLC shall require or be deemed to require an amendment to this Agreement and shall require the prior approval of FERC: i) Adoption of any plan of merger or consolidation; ii) Adoption of any plan of sale, lease or exchange of assets relating to all, or substantially all, of the property and assets of the LLC; Issued By: Richard A Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 52 First Revised Rate Schedule FERC No. 24 iii) Adoption of any plan of division relating to the division of the LLC into two or more corporations or other legal entities; iv) Adoption of any plan relating to the conversion of the LLC into a stock corporation; v) Adoption of any proposal of voluntary dissolution; or vi) Taking any action which has the purpose or effect of the adoption of any plan or proposal described in items (i), (ii), (iii), (iv) or (v) above. 18.7 Interpretation. Wherever the context may require, any noun or pronoun used herein shall include the corresponding masculine, feminine or neuter forms. The singular form of nouns, pronouns and verbs shall include the plural and vice versa. 18.8 Severability. Each provision of this Agreement shall be considered severable and if for any reason any provision is determined by a court or regulatory authority of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions of this Agreement shall continue in full force and effect and shall in no way be affected, impaired or invalidated, and such invalid, void or unenforceable provision shall be replaced with valid and enforceable provision or provisions which otherwise give effect to the original intent of the invalid, void or unenforceable provision. 18.9 Force Majeure. No Member shall be liable to any other Member for damages or otherwise be in breach of this Agreement to the extent and during the period such Member's performance is prevented by any cause or causes beyond such Member's control and without such Member's fault or negligence, including but not limited to any act, omission, or circumstance occasioned by or in consequence of any act of God, labor disturbance, act of the public enemy, war, insurrection, riot, fire, storm or flood, explosion, breakage or accident to machinery or equipment, or curtailment, order, regulation or restriction imposed by governmental, military or lawfully established civilian authorities; provided, however, that any such foregoing event shall not excuse any payment obligation. Upon the occurrence of an event considered by a Member to constitute a force majeure event, such Member shall use due diligence to endeavor to continue to perform its obligations as far as reasonably practicable and to remedy the event, provided that no Member shall be required by this provision to settle any strike or labor dispute. 18.10 Further Assurances. Each Member hereby agrees that it shall hereafter execute and deliver such further instruments, provide all information and take or forbear such further acts and things as may be reasonably required or useful to carry out the intent and purpose of this Agreement and as are not inconsistent with the terms hereof. 18.11 Seal. The seal of the LLC shall have inscribed thereon the name of the LLC, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Issued By: Richard A Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 53 First Revised Rate Schedule FERC No. 24 18.12 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together will constitute one instrument, binding upon all parties hereto, notwithstanding that all of such parties may not have executed the same counterpart. 18.13 Costs of Meetings. Each Member shall be responsible for all costs of its representative, alternate or substitute in attending any meeting. The Office of the Interconnection shall pay the other reasonable costs of meetings of the PJM Board and the Members Committee, and such other committees, subcommittees, task forces, working groups, User Groups or other bodies as determined to be appropriate by the Office of the Interconnection, which costs otherwise shall be paid by the Members attending. The Office of the Interconnection shall reimburse all Board Members for their reasonable costs of attending meetings. 18.14 Notice. (a) Except as otherwise expressly provided herein, notices required under this Agreement shall be in writing and shall be sent to a Member by overnight courier, hand delivery, telecopier or other reliable electronic means to the representative on the Members Committee of such Member at the address for such Member previously provided by such Member to the other Members or as otherwise directed by the Members Committee. Any such notice so sent shall be deemed to have been given (i) upon delivery if given by overnight couriers or hand delivery, or (ii) upon confirmation if given by telecopier or other reliable electronic means. (b) Notices, as well as copies of the agenda and minutes of all meetings of committees, subcommittees, task forces, working groups, User Groups, or other bodies formed under this Agreement, shall be posted in a timely fashion on and made available for downloading from the PJM website. 18.15 Headings. The section headings used in this Agreement are for convenience only and shall not affect the construction or interpretation of any of the provisions of this Agreement. 18.16 No Third-Party Beneficiaries. This Agreement is intended to be solely for the benefit of the Members and their respective successors and permitted assigns and, unless expressly stated herein, is not intended to and shall not confer any rights or benefits on any third party (other than successors and permitted assigns) not a signatory hereto. Issued By: Richard A Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 54 First Revised Rate Schedule FERC No. 24 18.17 Confidentiality. 18.17.1 Party Access. (a) No Member shall have a right hereunder to receive or review any documents, data or other information of another Member, including documents, data or other information provided to the Office of the Interconnection, to the extent such documents, data or information have been designated as confidential pursuant to the procedures adopted by the Office of the Interconnection or to the extent that they have been designated as confidential by such other Member; provided, however, a Member may receive and review any composite documents, data and other information that may be developed based on such confidential documents, data or information if the composite does not disclose any individual Member's confidential data or information. (b) Except as may be provided in this Agreement or in the PJM Open Access Transmission Tariff, the Office of the Interconnection shall not disclose to its Members or to third parties, any documents, data, or other information of a Member or entity applying for Membership, to the extent such documents, data, or other information has been designated confidential pursuant to the procedures adopted by the Office of the Interconnection or by such Member or entity applying for membership; provided that nothing contained herein shall prohibit the Office of the Interconnection from providing any such confidential information to its agents, representatives, or contractors to the extent that such person or entity is bound by an obligation to maintain such confidentiality. The Office of the Interconnection shall collect and use confidential information only in connection with its authority under this Agreement and the Open Access Transmission Tariff and the retention of such information shall be in accordance with PJM's data retention policies. (c) Nothing contained herein shall prevent the Office of the Interconnection from releasing a Member's confidential data or information to a third party provided that the Member has delivered to the Office of the Interconnection specific, written authorization for such release setting forth the data or information to be released, to whom such release is authorized, and the period of time for which such release shall be authorized. The Office of the Interconnection shall limit the release of a Member's confidential data or information to that specific authorization received from the Member. Nothing herein shall prohibit a Member from withdrawing such authorization upon written notice to the Office of the Interconnection who shall cease such release as soon as practicable after receipt of such withdrawal notice. Issued By: Richard A Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 55 First Revised Rate Schedule FERC No. 24 18.17.2 Required Disclosure. (a) Notwithstanding anything in the foregoing Section to the contrary, and subject to the provisions of Section 18.17.3, if a Member or the Office of the Interconnection is required by applicable law, or in the course of administrative or judicial proceedings other than FERC proceedings or investigations, to disclose to third parties other than the FERC or its staff, information that is otherwise required to be maintained in confidence pursuant to this Agreement, that Member or the Office of the Interconnection may make disclosure of such information; provided, however, that as soon as the Member or the Office of the Interconnection learns of the disclosure requirement and prior to making disclosure, that Member or the Office of the Interconnection shall notify the affected Member or Members of the requirement and the terms thereof and the affected Member or Members may direct, at their sole discretion and cost, any challenge to or defense against the disclosure requirement. The disclosing Member and the Office of the Interconnection shall cooperate with such affected Members to the maximum extent practicable to minimize the disclosure of the information consistent with applicable law. Each Member and the Office of the Interconnection shall cooperate with the affected Members to obtain proprietary or confidential treatment of such information by the person to whom such information is disclosed prior to any such disclosure. (b) Nothing in this Section 18.17 shall prohibit or otherwise limit the Office of the Interconnection's use of information covered herein if such information was: (i) previously known to the Office of the Interconnection without an obligation of confidentiality; (ii) independently developed by or for the Office of the Interconnection using nonconfidential information; (iii) acquired by the Office of the Interconnection from a third party which is not, to the Office of the Interconnection's knowledge, under an obligation of confidence with respect to such information; (iv) which is or becomes publicly available other than through a manner inconsistent with this Section 18.17. (c) The Office of the Interconnection shall impose on any contractors retained to provide technical support or otherwise to assist with the implementation or administration of this Agreement or of the Open Access Transmission Tariff a contractual duty of confidentiality consistent with this Agreement. A Member shall not be obligated to provide confidential or proprietary information to any contractor that does not assume such a duty of confidentiality, and the Office of the Interconnection shall not provide any such information to any such contractor without the express written permission of the Member providing the information. (d) Section 18.17.2(a) does not apply to disclosure of information to the FERC or its staff. Issued By: Richard A Drom Effective: October 24, 2000 Vice President, General Counsel Issued On: January 11, 2001 Filed to comply with order of the Federal Energy Regulatory Commission, Docket No. ER01-204, issued December 14, 2000, 93 FERC (para) 61,269 (2000) PJM Interconnection, L.L.C. Original Sheet No. 56 First Revised Rate Schedule FERC No. 24 18.17.3 Disclosure to FERC. Notwithstanding anything in this Section to the contrary, if the FERC or its staff, during the course of an investigation or otherwise, requests information from the Office of the Interconnection that is otherwise required to be maintained in confidence pursuant to this Agreement, the Office of the Interconnection shall provide the requested information to the FERC or its staff, within the time provided for in the request for information. In providing the information to the FERC or its staff, the Office of the Interconnection may, consistent with 18 C.F.R. (S) 388.112, request that the information be treated as confidential and non-public by the FERC and its staff and that the information be withheld from public disclosure. The Office of the Interconnection shall notify any affected Member(s) when it is notified by FERC or its staff, that a request for disclosure of, or decision to disclose, confidential information has been received, at which time the Office of Interconnection and the affected Member may respond before such information would be made public, pursuant to 18 C.F.R. (S) 388.112. 18.18 Termination and Withdrawal. 18.18.1 Termination. Upon termination of this Agreement, final settlement for obligations under this Agreement shall include the accounting for the period ending with the last day of the last month for which the Agreement was effective. 18.18.2 Withdrawal. Subject to the requirements of Section 4.1(c) of this Agreement and Section 1.4.6 of the Schedule 1 to this Agreement, any Member may withdraw from this Agreement upon 90 days notice to the Office of the Interconnection. 18.18.3 Winding Up. Any provision of this Agreement that expressly or by implication comes into or remains in force following the termination or expiration of this Agreement shall survive such termination or expiration. The surviving provisions shall include, but shall not be limited to: (i) those provisions necessary to permit the orderly conclusion, or continuation pursuant to another agreement, of transactions entered into prior to the decision to terminate this Agreement, (ii) those provisions necessary to conduct final billing, collection, and accounting with respect to all matters arising hereunder, and (iii) the indemnification provisions as applicable to periods prior to such termination or expiration. IN WITNESS whereof, the Members have caused this Agreement to be executed by their duly authorized representatives. Issued By: Richard A Drom Effective: October 24, 2000 Vice President, General Counsel Issued On: January 11, 2001 Filed to comply with order of the Federal Energy Regulatory Commission, Docket No. ER01-204, issued December 14, 2000, 93 FERC (para) 61,269 (2000) PJM Interconnection, L.L.C. Original Sheet No. 57 First Revised Rate Schedule FERC No. 24 SCHEDULE 1 ---------- PJM INTERCHANGE ENERGY MARKET ----------------------------- 1. MARKET OPERATIONS 1.1 Introduction. This Schedule sets forth the scheduling, other procedures, and certain general provisions applicable to the operation of the PJM Interchange Energy Market within the PJM Control Area. This Schedule addresses each of the three time-frames pertinent to the daily operation of the PJM Interchange Energy Market: Prescheduling, Scheduling, and Dispatch. 1.2 Cost-based Offers. Unless and until the FERC shall authorize the use of market-based prices in the PJM Interchange Energy Market, all offers for energy or other services to be sold on the PJM Interchange Energy Market from generating resources located within the PJM Control Area shall not exceed the variable cost of producing such energy or other service, as determined in accordance with Schedule 2 to this Agreement and applicable regulatory standards, requirements and determinations; provided that, a Market Seller may offer to the PJM Interchange Energy Market the right to call on energy from a resource the output of which has been sold on a bilateral basis, with the rate for such energy if called equal to the curtailment rate specified in the bilateral contract. 1.3 Definitions. 1.3.1 Day-ahead Energy Market. "Day-ahead Energy Market" shall mean the schedule of commitments for the purchase or sale of energy and payment of Transmission Congestion Charges developed by the Office of the Interconnection as a result of the offers and specifications submitted in accordance with Section 1.10 of this Schedule. 1.3.1A Day-ahead Prices. "Day-ahead Prices" shall mean the Locational Marginal Prices resulting from the Day-ahead Energy Market. 1.3.1B Decrement Bid. "Decrement Bid" shall mean a bid to purchase energy at a specified location in the Day-ahead Energy Market. An accepted Decrement Bid results in scheduled load at the specified location in the Day-ahead Energy Market. Issued By: Richard A Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 58 First Revised Rate Schedule FERC No. 24 1.3.1C Dispatch Rate. "Dispatch Rate" shall mean the control signal, expressed in dollars per megawatt-hour, calculated and transmitted continuously and dynamically to direct the output level of all generation resources dispatched by the Office of the Interconnection in accordance with the Offer Data. 1.3.2 Equivalent Load. "Equivalent Load" shall mean the sum of a Market Participant's net system requirements to serve its customer load in the PJM Control Area, if any, plus its net bilateral transactions. 1.3.3 External Market Buyer. "External Market Buyer" shall mean a Market Buyer making purchases of energy from the PJM Interchange Energy Market for consumption by end-users outside the PJM Control Area, or for load in the Control Area that is not served by Network Transmission Service. 1.3.4 External Resource. "External Resource" shall mean a generation resource located outside the metered boundaries of the PJM Control Area. 1.3.5 Fixed Transmission Right. "Fixed Transmission Right" shall mean a right to receive Transmission Congestion Credits as specified in Section 5.2.2 of this Schedule. 1.3.6 Generating Market Buyer. "Generating Market Buyer" shall mean an Internal Market Buyer that is a Load Serving Entity that owns or has contractual rights to the output of generation resources capable of serving the Market Buyer's load in the PJM Control Area, or of selling energy or related services in the PJM Interchange Energy Market or elsewhere. 1.3.7 Generator Forced Outage. "Generator Forced Outage" shall mean an immediate reduction in output or capacity or removal from service, in whole or in part, of a generating unit by reason of an Emergency or threatened Emergency, unanticipated failure, or other cause beyond the control of the owner or operator of the facility, as specified in the relevant portions of the PJM Manuals. A reduction in output or removal from service of a generating unit in response to changes in market conditions shall not constitute a Generator Forced Outage. 1.3.8 Generator Maintenance Outage. "Generator Maintenance Outage" shall mean the scheduled removal from service, in whole or in part, of a generating unit in order to perform necessary repairs on specific components of the facility, if removal of the facility meets the guidelines specified in the PJM Manuals. Issued By: Richard A Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C Original Sheet No. 59 First Revised Rate Schedule FERC No. 24 1.3.9 Generator Planned Outage. "Generator Planned Outage" shall mean the scheduled removal from service, in whole or in part, of a generating unit for inspection, maintenance or repair with the approval of the Office of the Interconnection in accordance with the PJM Manuals. 1.3.9A Increment Bid. "Increment Bid" shall mean an offer to sell energy at a specified location in the Day-ahead Energy Market. An accepted Increment Bid results in scheduled generation at the specified location in the Day-ahead Energy Market. 1.3.10 Internal Market Buyer. "Internal Market Buyer" shall mean a Market Buyer making purchases of energy from the PJM Interchange Energy Market for ultimate consumption by end- users inside the PJM Control Area that are served by Network Transmission Service. 1.3.11 Inadvertent Interchange. "Inadvertent Interchange" shall mean the difference between net actual energy flow and net scheduled energy flow into or out of the PJM Control Area, as determined and allocated each hour by the Office of the Interconnection in accordance with the procedures set forth in the PJM Manuals to each Electric Distributor that reports to the Office of the Interconnection its hourly net energy flows from metered tie lines. 1.3.12 Market Operations Center. "Market Operations Center" shall mean the equipment, facilities and personnel used by or on behalf of a Market Participant to communicate and coordinate with the Office of the Interconnection in connection with transactions in the PJM Interchange Energy Market or the operation of the PJM Control Area. 1.3.13 Maximum Generation Emergency. "Maximum Generation Emergency" shall mean an Emergency declared by the Office of the Interconnection in which the Office of the Interconnection anticipates requesting one or more Capacity Resources to operate at its maximum net or gross electrical power output, subject to the equipment stress limits for such Capacity Resource, in order to manage, alleviate, or end the Emergency. 1.3.14 Minimum Generation Emergency. "Minimum Generation Emergency" shall mean an Emergency declared by the Office of the Interconnection in which the Office of the Interconnection anticipates requesting one or more generating resources to operate at or below Normal Minimum Generation, in order to manage, alleviate, or end the Emergency. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C Original Sheet No. 60 First Revised Rate Schedule FERC No. 24 1.3.14A NERC Interchange Distribution Calculator. "NERC Interchange Distribution Calculator" shall mean the NERC mechanism that is in effect and being used to calculate the distribution of energy, over specific transmission interfaces, from energy transactions. 1.3.15 Network Resource. "Network Resource" shall have the meaning specified in the PJM Tariff. 1.3.16 Network Service User. "Network Service User" shall mean an entity using Network Transmission Service. 1.3.17 Network Transmission Service. "Network Transmission Service" shall mean transmission service provided pursuant to the rates, terms and conditions set forth in Part III of the PJM Tariff, or transmission service comparable to such service that is provided to a Load Serving Entity that is also a Regional Transmission Owner as that term is defined in the PJM Tariff. 1.3.18 Normal Maximum Generation. "Normal Maximum Generation" shall mean the highest output level of a generating resource under normal operating conditions. 1.3.19 Normal Minimum Generation. "Normal Minimum Generation" shall mean the lowest output level of a generating resource under normal operating conditions. 1.3.20 Offer Data. "Offer Data" shall mean the scheduling, operations planning, dispatch, new resource, and other data and information necessary to schedule and dispatch generation resources for the provision of energy and other services and the maintenance of the reliability and security of the transmission system in the PJM Control Area, and specified for submission to the PJM Interchange Energy Market for such purposes by the Office of the Interconnection. 1.3.21 Office of the Interconnection Control Center. "Office of the Interconnection Control Center" shall mean the equipment, facilities and personnel used by the Office of the Interconnection to coordinate and direct the operation of the PJM Control Area and to administer the PJM Interchange Energy Market, including facilities and equipment used to communicate and coordinate with the Market Participants in connection with transactions in the PJM Interchange Energy Market or the operation of the PJM Control Area. 1.3.22 Operating Day. "Operating Day" shall mean the daily 24 hour period beginning at midnight for which transactions on the PJM Interchange Energy Market are scheduled. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C Original Sheet No. 61 First Revised Rate Schedule FERC No. 24 1.3.23 Operating Margin. "Operating Margin" shall mean the incremental adjustments, measured in megawatts, required in PJM Control Area operations in order to accommodate, on a first contingency basis, an operating contingency in the PJM Control Area resulting from operations in an interconnected Control Area. Such adjustments may result in constraints causing Transmission Congestion Charges, or may result in Ancillary Services charges pursuant to the PJM Tariff. 1.3.24 Operating Margin Customer. "Operating Margin Customer" shall mean a Control Area purchasing Operating Margin pursuant to an agreement between such other Control Area and the LLC. 1.3.25 PJM Interchange. "PJM Interchange" shall mean the following, as determined in accordance with the Schedules to this Agreement: (a) for a Market Participant that is a Network Service User, the amount by which its hourly Equivalent Load exceeds, or is exceeded by, the sum of the hourly outputs of its operating generating resources; or (b) for a Market Participant that is not a Network Service User, the amount of its Spot Market Backup; or (c) the hourly scheduled deliveries of Spot Market Energy by a Market Seller from an External Resource; or (d) the hourly net metered output of any other Market Seller; or (e) the hourly scheduled deliveries of Spot Market Energy to an External Market Buyer; or (f) the hourly scheduled deliveries to an Internal Market Buyer that is not a Network Service User. 1.3.26 PJM Interchange Export. "PJM Interchange Export" shall mean the following, as determined in accordance with the Schedules to this Agreement: (a) for a Market Participant that is a Network Service User, the amount by which its hourly Equivalent Load is exceeded by the sum of the hourly outputs of its operating generating resources; or (b) for a Market Participant that is not a Network Service User, the amount of its Spot Market Backup sales; or (c) the hourly scheduled deliveries of Spot Market Energy by a Market Seller from an External Resource; or (d) the hourly net metered output of any other Market Seller. 1.3.27 PJM Interchange Import. "PJM Interchange Import" shall mean the following, as determined in accordance with the Schedules to this Agreement: (a) for a Market Participant that is a Network Service User, the amount by which its hourly Equivalent Load exceeds the sum of the hourly outputs of its operating generating resources; or (b) for a Market Participant that is not a Network Service User, the amount of its Spot Market Backup purchases; or (c) the hourly scheduled deliveries of Spot Market Energy to an External Market Buyer; or (d) the hourly scheduled deliveries to an Internal Market Buyer that is not a Network Service User. 1.3.28 PJM Open Access Same-time Information System. "PJM Open Access Same-time Information System" shall mean the electronic communication system for the collection and dissemination of information about transmission services in the PJM Control Area, established and operated by the Office of the Interconnection in accordance with FERC standards and requirements. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C Original Sheet No. 62 First Revised Rate Schedule FERC No. 24 1.3.29 Point-to-Point Transmission Service. "Point-to-Point Transmission Service" shall mean transmission service provided pursuant to the rates, terms and conditions set forth in Part II of the PJM Tariff. 1.3.30 Ramping Capability. "Ramping Capability" shall mean the sustained rate of change of generator output, in megawatts per minute. 1.3.30A Real-time Prices. "Real-time Prices" shall mean the Locational Marginal Prices resulting from the Office of the Interconnection's dispatch of the PJM Interchange Energy Market in the Operating Day. 1.3.30B Real-time Energy Market. "Real-time Energy Market" shall mean the purchase or sale of energy and payment of Transmission Congestion Charges for quantity deviations from the Day-ahead Energy Market in the Operating Day. 1.3.31 Regulation. "Regulation" shall mean the capability of a specific generating unit with appropriate telecommunications, control and response capability to increase or decrease its output in response to a regulating control signal, in accordance with the specifications in the PJM Manuals. 1.3.32 Spot Market Backup. "Spot Market Backup" shall mean the purchase of energy from, or the delivery of energy to, the PJM Interchange Energy Market in quantities sufficient to complete the delivery or receipt obligations of a bilateral contract that has been curtailed or interrupted for any reason. 1.3.33 Spot Market Energy. "Spot Market Energy" shall mean energy bought or sold by Market Participants through the PJM Interchange Energy Market at Locational Marginal Prices determined as specified in Section 2 of this Schedule. 1.3.33A State Estimator. "State Estimator" shall mean the computer model of power flows specified in Section 2.3 of this Schedule. 1.3.34 Transmission Congestion Charge. "Transmission Congestion Charge" shall mean a charge attributable to the increased cost of energy delivered at a given load bus when the transmission system serving that load bus is operating under constrained conditions, which shall be calculated and allocated as specified in Section 5.1 of this Schedule. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C Original Sheet No. 63 First Revised Rate Schedule FERC No. 24 1.3.35 Transmission Congestion Credit. "Transmission Congestion Credit" shall mean the allocated share of total Transmission Congestion Charges credited to each holder of Fixed Transmission Rights, calculated and allocated as specified in Section 5.2 of this Schedule. 1.3.36 Transmission Customer. "Transmission Customer" shall mean an entity using Point-to-Point Transmission Service. 1.3.37 Transmission Forced Outage. "Transmission Forced Outage" shall mean an immediate removal from service of a transmission facility by reason of an Emergency or threatened Emergency, unanticipated failure, or other cause beyond the control of the owner or operator of the transmission facility, as specified in the relevant portions of the PJM Manuals. A removal from service of a transmission facility at the request of the Office of the Interconnection to improve transmission capability shall not constitute a Forced Transmission Outage. 1.3.37A Transmission Loading Relief. "Transmission Loading Relief" shall mean NERC's procedures for preventing operating security limit violations, as implemented by PJM as the security coordinator responsible for maintaining transmission security for the PJM Control Area. 1.3.37B Transmission Loading Relief Customer. "Transmission Loading Relief Customer" shall mean an entity that, in accordance with Section 1.10.6A, has elected to pay Transmission Congestion Charges during Transmission Loading Relief in order to continue energy schedules over contract paths outside the PJM Control Area that are increasing the cost of energy in the PJM Control Area. 1.3.38 Transmission Planned Outage. "Transmission Planned Outage" shall mean any transmission outage scheduled in advance for a pre-determined duration and which meets the notification requirements for such outages specified in the PJM Manuals. 1.4 Market Buyers. 1.4.1 Qualification. (a) To become a Market Buyer, an entity shall submit an application to the Office of the Interconnection, in such form as shall be established by the Office of the Interconnection. (b) An applicant that is a Load Serving Entity or that will purchase on behalf of or for ultimate delivery to a Load Serving Entity shall establish to the satisfaction of the Office of the Interconnection that the end- users that will be served through energy and related services purchased in the PJM Interchange Energy Market, are located electrically within the PJM Control Area, or will be brought within the PJM Control Area prior to any purchases from the PJM Interchange Energy Market. Such applicant shall further demonstrate that: Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C Original Sheet No. 64 First Revised Rate Schedule FERC No. 24 i) The Load Serving Entity for the end users is obligated to meet the requirements of the Reliability Assurance Agreement; and ii) The Load Serving Entity for the end users has arrangements in place for Network Transmission Service or Point-To-Point Transmission Service for all PJM Interchange Energy Market purchases. (c) An applicant that is not a Load Serving Entity or purchasing on behalf of or for ultimate delivery to a Load Serving Entity shall demonstrate that: i) The applicant has obtained or will obtain Network Transmission Service or Point-to-Point Transmission Service for all PJM Interchange Energy Market purchases; and ii) The applicant's PJM Interchange Energy Market purchases ill ultimately be delivered to a load in another Control Area that is recognized by NERC and that complies with NERC's standards for operating and planning reliable bulk electric systems. (d) An applicant shall not be required to obtain transmission service for purchases from the PJM Interchange Energy Market to cover quantity deviations from its sales in the Day-ahead Energy Market. (e) All applicants shall demonstrate that: i) The applicant is capable of complying with all applicable metering, data storage and transmission, and other reliability, operation, planning and accounting standards and requirements for the operation of the PJM Control Area and the PJM Interchange Energy Market; ii) The applicant meets the creditworthiness standards established by the Office of the Interconnection, or has provided a letter of credit or other form of security acceptable to the Office of the Interconnection; and iii) The applicant has paid all applicable fees and reimbursed the Office of the Interconnection for all unusual or extraordinary costs of processing and evaluating its application to become a Market Buyer, and has agreed in its application to subject any disputes arising from its application to the PJM Dispute Resolution Procedures. (f) The applicant shall become a Market Buyer upon a final favorable determination on its application by the Office of the Interconnection as specified below, and execution by the applicant of counterparts of this Agreement. 1.4.2 Submission of Information. The applicant shall furnish all information reasonably requested by the Office of the Interconnection in order to determine the applicant's qualification to be a Market Buyer. The Office of the Interconnection may waive the submission of information relating to any of the foregoing criteria, to the extent the information in the Office of the Interconnection's possession is sufficient to evaluate the application against such criteria. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C Original Sheet No. 65 First Revised Rate Schedule FERC No. 24 1.4.3 Fees and Costs. The Office of the Interconnection shall require all applicants to become a Market Buyer to pay a uniform application fee, initially in the amount of $1,500, to defray the ordinary costs of processing such applications. The application fee shall be revised from time to time as the Office of the Interconnection shall determine to be necessary to recover its ordinary costs of processing applications. Any unusual or extraordinary costs incurred by the Office of the Interconnection in processing an application shall be reimbursed by the applicant. 1.4.4 Office of the Interconnection Determination. Upon submission of the information specified above, and such other information as shall reasonably be requested by the Office of the Interconnection, the Office of the Interconnection shall undertake an evaluation and investigation to determine whether the applicant meets the criteria specified above. As soon as practicable, but in any event not later than 60 days after submission of the foregoing information, or such later date as may be necessary to satisfy the requirements of the Reliability Assurance Agreement, the Office of the Interconnection shall notify the applicant and the members of the Members Committee of its determination, along with a written summary of the basis for the determination. The Office of the Interconnection shall respond promptly to any reasonable and timely request by a Member for additional information regarding the basis for the Office of the Interconnection's determination, and shall take such action as it shall deem appropriate in response to any request for reconsideration or other action submitted to the Office of the Interconnection not later than 30 days from the initial notification to the Members Committee. 1.4.5 Existing Participants. Any entity that was qualified to participate as a Market Buyer in the PJM Interchange Energy Market under the Operating Agreement of PJM Interconnection L.L.C. in effect immediately prior to the Effective Date shall continue to be qualified to participate as a Market Buyer in the PJM Interchange Energy Market under this Agreement. 1.4.6 Withdrawal. (a) An Internal Market Buyer that is a Load Serving Entity may withdraw from this Agreement by giving written notice to the Office of the Interconnection specifying an effective date of withdrawal not earlier than the effective date of (i) its withdrawal from the Reliability Assurance Agreement, or (ii) the assumption of its obligations under the Reliability Assurance Agreement by an agent that is a Market Buyer. (b) An External Market Buyer or an Internal Market Buyer that is not a Load Serving Entity may withdraw from this Agreement by giving written notice to the Office of the Interconnection specifying an effective date of withdrawal at least one day after the date of the notice. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C Original Sheet No. 66 First Revised Rate Schedule FERC No. 24 (c) Withdrawal from this Agreement shall not relieve a Market Buyer of any obligation to pay for electric energy or related services purchased from the PJM Interchange Energy Market prior to such withdrawal, to pay its share of any fees and charges incurred or assessed by the Office of the Interconnection prior to the date of such withdrawal, or to fulfill any obligation to provide indemnification for the consequences of acts, omissions or events occurring prior to such withdrawal; and provided, further, that withdrawal from this Agreement shall not relieve any Market Buyer of any obligations it may have under, or constitute withdrawal from, any other Related PJM Agreement. (d) A Market Buyer that has withdrawn from this Agreement may reapply to become a Market Buyer in accordance with the provisions of this Section 1.4, provided it is not in default of any obligation incurred under this Agreement. 1.5 Market Sellers. 1.5.1 Qualification. A Member that demonstrates to the Office of the Interconnection that the Member meets the standards for the issuance of an order mandating the provision of transmission service under section 211 of the Federal Power Act, as amended by the Energy Policy Act of 1992, may become a Market Seller upon execution of this Agreement and submission to the Office of the Interconnection of the applicable Offer Data in accordance with the provisions of this Schedule. All Members that are Market Buyers shall become Market Sellers upon submission to the Office of the Interconnection of the applicable Offer Data in accordance with the provisions of this Schedule. 1.5.2 Withdrawal. (a) A Market Seller may withdraw from this Agreement by giving written notice to the Office of the Interconnection specifying an effective date of withdrawal at least one day after the date of the notice; provided, however, that withdrawal shall not relieve a Market Seller of any obligation to deliver electric energy or related services to the PJM Interchange Energy Market pursuant to an offer made prior to such withdrawal, to pay its share of any fees and charges incurred or assessed by the Office of the Interconnection prior to the date of such withdrawal, or to fulfill any obligation to provide indemnification for the consequences of acts, omissions, or events occurring prior to such withdrawal; and provided, further, that withdrawal shall not relieve any entity that is a Market Seller and is also a Market Buyer of any obligations it may have as a Market Buyer under, or constitute withdrawal as a Market Buyer from, this Agreement or any other Related PJM Agreement. (b) A Market Seller that has withdrawn from this Agreement may reapply to become a Market Seller at any time, provided it is not in default with respect to any obligation incurred under this Agreement. 1.6 Office of the Interconnection. 1.6.1 Operation of the PJM Interchange Energy Market. The Office of the Interconnection shall operate the PJM Interchange Energy Market in accordance with this Agreement. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C Original Sheet No. 67 First Revised Rate Schedule FERC No. 24 1.6.2 Scope of Services. The Office of the Interconnection shall, on behalf of the Market Participants, perform the services pertaining to the PJM Interchange Energy Market specified in this Agreement, including but not limited to the following: i) Administer the PJM Interchange Energy Market as part of the PJM Control Area, including scheduling and dispatching of generation resources, accounting for transactions, rendering bills to the Market Participants, receiving payments from and disbursing payments to the Market Participants, maintaining appropriate records, and monitoring the compliance of Market Participants with the provisions of this Agreement, all in accordance with applicable provisions of the Office of the Interconnection Agreement, and the Schedules to this Agreement; ii) Review and evaluate the qualification of entities to be Market Buyers or Market Sellers under applicable provisions of this Agreement; iii) Coordinate, in accordance with applicable provisions of this Agreement, the Reliability Assurance Agreement, and the Transmission Owners Agreement, maintenance schedules for generation and transmission resources operated as part of the PJM Control Area; iv) Provide or coordinate the provision of ancillary services necessary for the operation of PJM Control Area or the PJM Interchange Energy Market; v) Determine and declare that an Emergency is expected to exist, exists, or has ceased to exist, in all or any part of the PJM Control Area, or in another Control Area interconnected directly or indirectly with the PJM Control Area, and serve as a primary point of contact for interested state or federal agencies; vi) Enter into (a) agreements for the transfer of energy in conditions constituting an Emergency in the PJM Control Area or in a Control Area interconnected with it, and the mutual provision of other support in such Emergency conditions with other Control Areas interconnected with the PJM Control Area, and (b) purchases of Emergency energy offered by Members from resources that are not Capacity Resources in conditions constituting an Emergency in the PJM Control Area; vii) Coordinate the curtailment or shedding of load, or other measures appropriate to alleviate an Emergency, in order to preserve reliability in accordance with NERC and MAAC principles, guidelines and standards, and to ensure the operation of the PJM Control Area in accordance with Good Utility Practice and the this Agreement; viii) Protect confidential information as specified in this Agreement; and Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C Original Sheet No. 68 First Revised Rate Schedule FERC No. 24 ix) Send a representative to meetings of the Members Committee or other Committees, subcommittees, or working groups specified in this Agreement or formed by the Members Committee when requested to do so by the chair or other head of such committee or other group. 1.6.3 Records and Reports. The Office of the Interconnection shall prepare and maintain such records and prepare such reports, including, but not limited to quarterly budget reports, as are required to document the performance of its obligations to the Market Participants hereunder in a form adopted by the Office of the Interconnection upon consideration of the advice and recommendations of the Members Committee. The Office of the Interconnection shall also produce special reports reasonably requested by the Members Committee and consistent with FERC's standards of conduct; provided, however, the Market Participants shall reimburse the Office of the Interconnection for the costs of producing any such report. Notwithstanding the foregoing, the Office of the Interconnection shall not be required to disclose confidential or commercially sensitive information in any such report. 1.6.4 PJM Manuals. The Office of the Interconnection shall prepare, maintain and update the PJM Manuals consistent with this Agreement. The PJM Manuals shall be available for inspection by the Market Participants, regulatory authorities with jurisdiction over the LLC or any Member, and the public. 1.7 General. 1.7.1 Market Sellers. Only Market Sellers shall be eligible to submit offers to the Office of the Interconnection for the sale of electric energy or related services in the PJM Interchange Energy Market. Market Sellers shall comply with the prices, terms, and operating characteristics of all Offer Data submitted to and accepted by the PJM Interchange Energy Market. 1.7.2 Market Buyers. Only Market Buyers shall be eligible to purchase energy or related services in the PJM Interchange Energy Market. Market Buyers shall comply with all requirements for making purchases from the PJM Interchange Energy Market. 1.7.3 Agents. A Market Participant may participate in the PJM Interchange Energy Market through an agent, provided that the Market Participant informs the Office of the Interconnection in advance in writing of the appointment of such agent. A Market Participant participating in the PJM Interchange Energy Market through an agent shall be bound by all of the acts or representations of such agent with respect to transactions in the PJM Interchange Energy Market, and shall ensure that any such agent complies with the requirements of this Agreement. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C Original Sheet No. 69 First Revised Rate Schedule FERC No. 24 1.7.4 General Obligations of the Market Participants. (a) In performing its obligations to the Office of the Interconnection hereunder, each Market Participant shall at all times (i) follow Good Utility Practice, (ii) comply with all applicable laws and regulations, (iii) comply with the applicable principles, guidelines, standards and requirements of FERC, NERC and MAAC, (iv) comply with the procedures established for operation of the PJM Interchange Energy Market and PJM Control Area and (v) cooperate with the Office of the Interconnection as necessary for the operation of the PJM Control Area in a safe, reliable manner consistent with Good Utility Practice. (b) Market Participants shall undertake all operations in or affecting the PJM Interchange Energy Market and the PJM Control Area, including but not limited to compliance with all Emergency procedures, in accordance with the power and authority of the Office of the Interconnection with respect to the operation of the PJM Interchange Energy Market and the PJM Control Area as established in this Agreement, and as specified in the Schedules to this Agreement and the PJM Manuals. Failure to comply with the foregoing operational requirements shall subject a Market Participant to such reasonable charges or other remedies or sanctions for non-compliance as may be established by the PJM Board, including legal or regulatory proceedings as authorized by the PJM Board to enforce the obligations of this Agreement. (c) The Office of the Interconnection may establish such committees with a representative of each Market Participant, and the Market Participants agree to provide appropriately qualified personnel for such committees, as may be necessary for the Office of the Interconnection to perform its obligations hereunder. (d) All Market Participants shall provide to the Office of the Interconnection the scheduling and other information specified in the Schedules to this Agreement, and such other information as the Office of the Interconnection may reasonably require for the reliable and efficient operation of the PJM Control Area and the PJM Interchange Energy Market, and for compliance with applicable regulatory requirements for posting market and related information. Such information shall be provided as much in advance as possible, but in no event later than the deadlines established by the Schedules to this Agreement, or by the Office of the Interconnection in conformance with such Schedules. Such information shall include, but not be limited to, maintenance and other anticipated outages of generation or transmission facilities, scheduling and related information on bilateral transactions and self-scheduled resources, and implementation of active load management, interruption of load, and other load reduction measures. The Office of the Interconnection shall abide by appropriate requirements for the non-disclosure and protection of any confidential or proprietary information given to the Office of the Interconnection by a Market Participant. Each Market Participant shall maintain or cause to be maintained compatible information and communications systems, as specified by the Office of the Interconnection, required to transmit scheduling, dispatch, or other time-sensitive information to the Office of the Interconnection in a timely manner. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection L.L.C Original Sheet No. 70 First International Schedule FERC No. 24 (e) Each Market Participant shall install and operate, or shall otherwise arrange for, metering and related equipment capable of recording and transmitting all voice and data communications reasonably necessary for the Office of the Interconnection to perform the services specified in this Agreement. A Market Participant that elects to be separately billed for its PJM Interchange shall, to the extent necessary, be individually metered in accordance with Section 14 of this Agreement, or shall agree upon an allocation of PJM Interchange between it and the Market Participant through whose meters the unmetered Market Participant's PJM Interchange is delivered. The Office of the Interconnection shall be notified of the allocation by the foregoing Market Participants. (f) Each Market Participant shall operate, or shall cause to be operated, any generating resources owned or controlled by such Market Participant that are within the PJM Control Area or otherwise supplying energy to or through the PJM Control Area in a manner that is consistent with the standards, requirements or directions of the Office of the Interconnection and that will permit the Office of the Interconnection to perform its obligations under this Agreement; provided, however, no Market Participant shall be required to take any action that is inconsistent with Good Utility Practice or applicable law. (g) Each Market Participant shall follow the directions of the Office of the Interconnection to take actions to prevent, manage, alleviate or end an Emergency in a manner consistent with this Agreement and the procedures of the PJM Control Area as specified in the PJM Manuals. (h) Each Market Participant shall obtain and maintain all permits, licenses or approvals required for the Market Participant to participate in the PJM Interchange Energy Market in the manner contemplated by this Agreement. 1.7.5 Market Operations Center. Each Market Participant shall maintain a Market Operations Center, or shall make appropriate arrangements for the performance of such services on its behalf. A Market Operations Center shall meet the performance, equipment, communications, staffing and training standards and requirements specified in this Agreement for the scheduling and completion of transactions in the PJM Interchange Energy Market and the maintenance of the reliable operation of the PJM Control Area, and shall be sufficient to enable (i) a Market Seller to perform all terms and conditions of its offers to the PJM Interchange Energy Market, and (ii) a Market Buyer to conform to the requirements for purchasing from the PJM Interchange Energy Market. 1.7.6 Scheduling and Dispatching. (a) The Office of the Interconnection shall schedule and dispatch in real-time generation economically on the basis of least-cost, security-constrained dispatch and the prices and operating characteristics offered by Market Sellers, continuing until sufficient generation is dispatched to serve the PJM Interchange Energy Market energy purchase requirements under normal system conditions of the Market Buyers, as well as the requirements of the PJM Control Area for ancillary services provided by such generation, in accordance with this Agreement. Scheduling and dispatch shall be conducted in accordance with this Agreement. Issued By: Richard A. Dorm Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection L.L.C Original Sheet No. 71 First International Schedule FERC No. 24 (b) The Office of the Interconnection shall undertake to identify any conflict or incompatibility between the scheduling or other deadlines or specifications applicable to the PJM Interchange Energy Market, and any relevant procedures of another Control Area, or any tariff (including the PJM Tariff). Upon determining that any such conflict or incompatibility exists, the Office of the Interconnection shall propose tariff or procedural changes, and undertake such other efforts as may be appropriate, to resolve any such conflict or incompatibility. 1.7.7 Pricing. The price paid for energy bought and sold in the PJM Interchange Energy Market will reflect the hourly Locational Marginal Price at each load and generation bus, determined by the Office of the Interconnection in accordance with this Agreement. Transmission Congestion Charges, which shall be determined by differences in Locational Marginal Prices in an hour caused by transmission constraints, shall be calculated and collected, and the revenues therefrom shall be disbursed, by the Office of the Interconnection in accordance with this Schedule. 1.7.8 Generating Market Buyer Resources. A Generating Market Buyer may elect to self-schedule its generation resources up to that Generating Market Buyer's Equivalent Load, in accordance with and subject to the procedures specified in this Schedule, and the accounting and billing requirements specified in Section 3 to this Schedule. 1.7.9 Delivery to an External Market Buyer. A purchase of Spot Market Energy by an External Market Buyer shall be delivered to a bus or busses at the border of the PJM Control Area specified by the Office of the Interconnection, or to load in the Control Area that is not served by Network Transmission Service, using Point-to-Point Transmission Service paid for by the External Market Buyer. Further delivery of such energy shall be the responsibility of the External Market Buyer. 1.7.10 Other Transactions. (a) Market Participants may enter into bilateral contracts for the purchase or sale of electric energy to or from each other or any other entity, subject to the obligations of Market Participants to make Capacity Resources available for dispatch by the Office of the Interconnection. Bilateral arrangements that contemplate the physical transfer of energy to or from a Market Participant shall be reported to and coordinated with the Office of the Interconnection in accordance with this Schedule. (b) Market Participants shall have Spot Market Backup with respect to all bilateral transactions that are not dynamically scheduled pursuant to Section 1.12 and that are curtailed or interrupted for any reason (except for curtailments or interruptions through active load management for load located within the PJM Control Area). Issued By: Richard A. Dorm Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection L.L.C Original Sheet No. 72 First International Schedule FERC No. 24 (c) To the extent the Office of the Interconnection dispatches a Generating Market Buyer's generation resources, such Generating Market Buyer may elect to net the output of such resources against its hourly Equivalent Load. Such a Generating Market Buyer shall be deemed a buyer from the PJM Interchange Energy Market to the extent of its PJM Interchange Imports, and shall be deemed a seller to the PJM Interchange Energy Market to the extent of its PJM Interchange Exports. 1.7.11 Emergencies. The Office of the Interconnection, with the assistance of the Members' dispatchers as it may request, shall be responsible for monitoring the operation of the PJM Control Area, for declaring the existence of an Emergency, and for directing the operations of Market Participants as necessary to manage, alleviate or end an Emergency. The standards, policies and procedures of the Office of the Interconnection for declaring the existence of an Emergency, including but not limited to a Minimum Generation Emergency, and for managing, alleviating or ending an Emergency, shall apply to all Members on a non- discriminatory basis. Actions by the Office of the Interconnection and the Market Participants shall be carried out in accordance with this Agreement, the NERC Operating Policies, MAAC reliability principles and standards, Good Utility Practice, and the PJM Manuals. A declaration that an Emergency exists or is likely to exist by the Office of the Interconnection shall be binding on all Market Participants until the Office of the Interconnection announces that the actual or threatened Emergency no longer exists. Consistent with existing contracts, all Market Participants shall comply with all directions from the Office of the Interconnection for the purpose of managing, alleviating or ending an Emergency. The Market Participants shall authorize the Office of the Interconnection to purchase or sell energy on their behalf to meet an Emergency, and otherwise to implement agreements with other Control Areas interconnected with the PJM Control Area for the mutual provision of service to meet an Emergency, in accordance with this Agreement. 1.7.12 Fees and Charges. Each Market Participant shall pay all fees and charges of the Office of the Interconnection for operation of the PJM Interchange Energy Market as determined by and allocated to the Market Participant by the Office of the Interconnection in accordance with Schedule 3. 1.7.13 Relationship to PJM Control Area. The PJM Interchange Energy Market operates within and subject to the requirements for the operation of the PJM Control Area. Issued By: Richard A. Dorm Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection L.L.C Original Sheet No. 73 First International Schedule FERC No. 24 1.7.14 PJM Manuals. The Office of the Interconnection shall be responsible for maintaining, updating, and promulgating the PJM Manuals as they relate to the operation of the PJM Interchange Energy Market. The PJM Manuals, as they relate to the operation of the PJM Interchange Energy Market, shall conform and comply with this Agreement, NERC operating policies, and MAAC reliability principles, guidelines and standards, and shall be designed to facilitate administration of an efficient energy market within industry reliability standards and the physical capabilities of the PJM Control Area. 1.7.15 Corrective Action. Consistent with Good Utility Practice, the Office of the Interconnection shall be authorized to direct or coordinate corrective action, whether or not specified in the PJM Manuals, as necessary to alleviate unusual conditions that threaten the integrity or reliability of the PJM Control Area or the regional power system. 1.7.16 Recording. Subject to the requirements of applicable State or federal law, all voice communications with the Office of the Interconnection Control Center may be recorded by the Office of the Interconnection and any Market Participant communicating with the Office of the Interconnection Control Center, and each Market Participant hereby consents to such recording. 1.7.17 Operating Reserves. (a) The following procedures shall apply to any generation unit subject to the dispatch of the Office of the Interconnection for which construction commenced before July 9, 1996. (b) The Office of the Interconnection shall schedule to the Operating Reserve and load-following objectives of the PJM Control Area and the PJM Interchange Energy Market in scheduling resources pursuant to this Schedule. A table of Operating Reserve objectives is calculated seasonally for various peak load levels and eight weekly periods and is published in the PJM Manuals. Reserve levels are probabilistically determined based on the season's historical load forecasting error and expected generation mix (including typical Planned and Forced/Unplanned Outages). Generating Units with quick start capability, as specified in the PJM Manuals, that are dispatched to maintain reliability by providing or maintaining spinning reserves or providing load following capability shall receive energy payments at the levels specified below. The energy payments specified below shall be considered the offered price for Spot Market Energy for purposes of Section 3.2.3(b) of this Schedule. The price offered or paid for the energy of units so dispatched shall not be considered in determining Locational Marginal Prices. (c) Payments for energy produced by a quick start generating unit dispatched as specified above shall be at the higher of the applicable Locational Marginal Price or one of the amounts specified below, as specified in advance by the Market Seller for the affected unit: Issued By: Richard A. Dorm Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection L.L.C Original Sheet No. 74 First International Schedule FERC No. 24 (i) The weighted average Locational Marginal Price at the generation bus at which energy from the capped resource was delivered during a specified number of hours during which the resource was dispatched for energy in economic merit order, the specified number of hours to be determined by the Office of the Interconnection and to be a number of hours sufficient to result in a price cap that reflects reasonably contemporaneous competitive market conditions for that unit; (ii) The incremental operating cost of the generation resource as determined in accordance with Schedule 2 of this Agreement and the PJM Manuals, plus 10% of such costs; or (iii) An amount determined by agreement between the Office of the Interconnection and the Market Seller. 1.7.18 Regulation. (a) Regulation shall be supplied from generators located within the metered electrical boundaries of the PJM Control Area. Generating Market Buyers, and Market Sellers offering Regulation, shall comply with applicable standards and requirements for Regulation capability and dispatch specified in the PJM Manuals. (b) The Office of the Interconnection shall obtain and maintain an amount of Regulation equal to the PJM Control Area Regulation objective as specified in the PJM Manuals. (c) The Regulation range of a unit shall be at least twice the amount of Regulation assigned. (d) A unit capable of automatic energy dispatch that is also providing Regulation shall have its energy dispatch range reduced by twice the amount of the Regulation provided. The amount of Regulation provided by a unit shall serve to redefine the Normal Minimum Generation and Normal Maximum Generation energy limits of that unit, in that the amount of Regulation shall be added to the unit's Normal Minimum Generation energy limit, and subtracted from its Normal Maximum Generation energy limit. (e) Qualified Regulation must satisfy the verification tests described in the PJM Manuals. 1.7.19 Ramping. A generator dispatched by the Office of the Interconnection pursuant to a control signal appropriate to increase or decrease the generator's megawatt output level shall be able to change output at the ramping rate specified in the Offer Data submitted to the Office of the Interconnection for that generator. Issued By: Richard A. Dorm Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection L.L.C Original Sheet No. 75 First International Schedule FERC No. 24 1.7.20 Communication and Operating Requirements. (a) Market Participants. Each Market Participant shall have, or shall arrange to have, its transactions in the PJM Interchange Energy Market subject to control by a Market Operations Center, with staffing and communications systems capable of real-time communication with the Office of the Interconnection during normal and Emergency conditions and of control of the Market Participant's relevant load or facilities sufficient to meet the requirements of the Market Participant's transactions with the PJM Interchange Energy Market, including but not limited to the following requirements as applicable. (b) Market Sellers selling from resources within the PJM Control Area shall: report to the Office of the Interconnection sources of energy available for operation; supply to the Office of the Interconnection all applicable Offer Data; report to the Office of the Interconnection units that are self-scheduled; report to the Office of the Interconnection bilateral sales transactions to buyers not within the PJM Control Area; confirm to the Office of the Interconnection bilateral sales to Market Buyers within the PJM Control Area; respond to the Office of the Interconnection's directives to start, shutdown or change output levels of generation units, or change scheduled voltages or reactive output levels; continuously maintain all Offer Data concurrent with on-line operating information; and ensure that, where so equipped, generating equipment is operated with control equipment functioning as specified in the PJM Manuals. (c) Market Sellers selling from resources outside the PJM Control Area shall: provide to the Office of the Interconnection all applicable Offer Data, including offers specifying amounts of energy available, hours of availability and prices of energy and other services; respond to Office of the Interconnection directives to schedule delivery or change delivery schedules; and communicate delivery schedules to the Market Seller's Control Area. (d) Market Participants that are Load Serving Entities or purchasing on behalf of Load Serving Entities shall: respond to Office of the Interconnection directives for load management steps; report to the Office of the Interconnection Capacity Resources to satisfy capacity obligations that are available for pool operation; report to the Office of the Interconnection all bilateral purchase transactions; respond to other Office of the Interconnection directives such as those required during Emergency operation. (e) Market Participants that are not Load Serving Entities or purchasing on behalf of Load Serving Entities shall: provide to the Office of the Interconnection requests to purchase specified amounts of energy for each hour of the Operating Day during which it intends to purchase from the PJM Interchange Energy Market, along with Dispatch Rate levels above which it does not desire to purchase; respond to other Office of the Interconnection directives such as those required during Emergency operation. Issued By: Richard A. Dorm Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection L.L.C Original Sheet No. 76 First International Schedule FERC No. 24 1.8 Selection, Scheduling and Dispatch Procedure Adjustment Process. 1.8.1 PJM Dispute Resolution Agreement. Subject to the condition specified below, any Member adversely affected by a decision of the Office of the Interconnection with respect to the operation of the PJM Interchange Energy Market, including the qualification of an entity to participate in that market as a buyer or seller, may seek such relief as may be appropriate under the PJM Dispute Resolution Procedures on the grounds that such decision does not have an adequate basis in fact or does not conform to the requirements of this Agreement. 1.8.2 Market or Control Area Hourly Operational Disputes. (a) Market Participants shall comply with all determinations of the Office of the Interconnection on the selection, scheduling or dispatch of resources in the PJM Interchange Energy Market, or to meet the operational requirements of the PJM Control Area. Complaints arising from or relating to such determinations shall be brought to the attention of the Office of the Interconnection not later than the end of the fifth business day after the end of the Operating Day to which the selection or scheduling relates, or in which the scheduling or dispatch took place, and shall include, if practicable, a proposed resolution of the complaint. Upon receiving notification of the dispute, the Office of the Interconnection and the Market Participant raising the dispute shall exert their best efforts to obtain and retain all data and other information relating to the matter in dispute, and to notify other Market Participants that are likely to be affected by the proposed resolution. Subject to confidentiality or other non-disclosure requirements, representatives of the Office of the Interconnection, the Market Participant raising the dispute, and other interested Market Participants, shall meet within three business days of the foregoing notification, or at such other or further times as the Office of the Interconnection and the Market Participants may agree, to review the relevant facts, and to seek agreement on a resolution of the dispute. (b) If the Office of the Interconnection determines that the matter in dispute discloses a defect in operating policies, practices or procedures subject to the discretion of the Office of the Interconnection, the Office of the Interconnection shall implement such changes as it deems appropriate and shall so notify the Members Committee. Alternatively, the Office of the Interconnection may notify the Members Committee of a proposed change and solicit the comments or other input of the Members. (c) If either the Office of the Interconnection, the Market Participant raising the dispute, or another affected Market Participant believes that the matter in dispute has not been adequately resolved, or discloses a need for changes in standards or policies established in or pursuant to the Operating Agreement, any of the foregoing parties may make a written request for review of the matter by the Members Committee, and shall include with the request the forwarding party's recommendation and such data or information (subject to confidentiality or other non-disclosure requirements) as would enable the Members Committee to assess the matter and the recommendation. The Members Committee shall take such action on the recommendation as it shall deem appropriate. Issued By: Richard A. Dorm Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection L.L.C Original Sheet No. 77 First International Schedule FERC No. 24 (d) Subject to the right of a Market Participant to obtain correction of accounting or billing errors, the LLC or a Market Participant shall not be entitled to actual, compensatory, consequential or punitive damages, opportunity costs, or other form of reimbursement from the LLC or any other Market Participant for any loss, liability or claim, including any claim for lost profits, incurred as a result of a mistake, error or other fault by the Office of the Interconnection in the selection, scheduling or dispatch of resources. 1.9 Prescheduling. The following procedures and principles shall govern the prescheduling activities necessary to plan for the reliable operation of the PJM Control Area and for the efficient operation of the PJM Interchange Energy Market. 1.9.1 Outage Scheduling. The Office of the Interconnection shall be responsible for coordinating and approving requests for outages of generation and transmission facilities as necessary for the reliable operation of the PJM Control Area, in accordance with the PJM Manuals. The Office of the Interconnection shall maintain records of outages and outage requests of these facilities. 1.9.2 Planned Outages. (a) A Generator Planned Outage shall be included in Generator Planned Outage schedules established prior to the scheduled start date for the outage, in accordance with standards and procedures specified in the PJM Manuals. (b) The Office of the Interconnection shall conduct Generator Planned Outage scheduling for Capacity Resources in accordance with the Reliability Assurance Agreement and the PJM Manuals and in consultation with the Members owning or controlling the output of Capacity Resources. A Market Participant shall not be expected to submit offers for the sale of energy or other services, or to satisfy delivery obligations, from all or part of a generation resource undergoing an approved Generator Planned Outage. If the Office of the Interconnection determines that approval of a Generator Planned Outage would significantly affect the reliable operation of the PJM Control Area, the Office of the Interconnection may withhold approval or withdraw a prior approval. Approval for a Generator Planned Outage of a Capacity Resource shall be withheld or withdrawn only as necessary to ensure the adequacy of reserves or the reliability of the PJM Control Area in connection with anticipated implementation or avoidance of Emergency procedures. If the Office of the Interconnection withholds or withdraws approval, it shall coordinate with the Market Participant owning or controlling the resource to reschedule the Generator Planned Outage of the Capacity Resource at the earliest practical time. The Office of the Interconnection shall if possible propose alternative schedules with the intent of minimizing the economic impact on the Market Participant of a Generator Planned Outage. Issued By: Richard A. Dorm Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection L.L.C Original Sheet No. 78 First International Schedule FERC No. 24 (c) The Office of the Interconnection shall conduct Planned Transmission Outage scheduling in accordance with procedures specified in the Transmission Owners Agreement and the PJM Manuals. If the Office of the Interconnection determines that transmission maintenance schedules proposed by one or more Members would significantly affect the efficient and reliable operation of the PJM Control Area, the Office of the Interconnection may propose alternative schedules, but such alternative shall minimize the economic impact on the Member or Members whose maintenance schedules the Office of the Interconnection proposes to modify. The Office of the Interconnection shall coordinate resolution of outage or other planning conflicts that may give rise to unreliable system conditions. The Members shall comply with all maintenance schedules established by the Office of the Interconnection. 1.9.3 Generator Maintenance Outages. A Market Participant may request approval for a Generator Maintenance Outage of any Capacity Resource from the Office of the Interconnection in accordance with the timetable and other procedures specified in the PJM Manuals. The Office of the Interconnection shall approve requests for Generator Maintenance Outages for a Capacity Resource unless the outage would threaten the adequacy of reserves in, or the reliability of, the PJM Control Area. A Market Participant shall not be expected to submit offers for the sale of energy or other services, or to satisfy delivery obligations, from a generation resource undergoing an approved full or partial Generator Maintenance Outage. 1.9.4 Forced Outages. (a) Each Market Seller that owns or controls a pool-scheduled resource, or Capacity Resource whether or not pool-scheduled, shall: (i) advise the Office of the Interconnection of a Generator Forced Outage suffered or anticipated to be suffered by any such resource as promptly as possible; (ii) provide the Office of the Interconnection with the expected date and time that the resource will be made available; and (iii) make a record of the events and circumstances giving rise to the Generator Forced Outage. A Market Seller shall not be expected to submit offers for the sale of energy or other services, or satisfy delivery obligations, from a generation resource undergoing a Generator Forced Outage. A Capacity Resource that does not deliver all or part of its scheduled energy shall be deemed to have experienced a Generator Forced Outage with respect to such undelivered energy, in accordance with standards and procedures for full and partial Generator Forced Outages specified in the Reliability Assurance Agreement and the PJM Manuals. (b) The Office of the Interconnection shall receive notification of Forced Transmission Outages, and information on the return to service, of Transmission Facilities in the PJM Control Area in accordance with standards and procedures specified in the Transmission Owners Agreement and the PJM Manuals. 1.9.5 Market Participant Responsibilities. Each Market Participant making a bilateral sale covering a period greater than the following Operating Day from a generating resource located within the PJM Control Area for delivery outside the PJM Control Area shall furnish to the Office of the Interconnection, in the form and manner specified in the PJM Manuals, information regarding the source of the energy, the load sink, the energy schedule, and the amount of energy being delivered. Issued By: Richard A. Dorm Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection L.L.C Original Sheet No. 79 First International Schedule FERC No. 24 1.9.6 Internal Market Buyer Responsibilities. Each Internal Market Buyer making a bilateral purchase covering a period greater than the following Operating Day shall furnish to the Office of the Interconnection, in the form an manner specified in the PJM Manuals, information regarding the source of the energy, the load sink, the energy schedule, and the amount of energy being delivered. Each Internal Market Buyer shall provide the Office of the Interconnection with details of any load management agreements with customers that allow the Office of the Interconnection to reduce load under specified circumstances. 1.9.7 Market Seller Responsibilities. (a) Not less than 30 days before a Market Seller's initial offer to sell energy from a given generation resource on the PJM Interchange Energy Market, the Market Seller shall furnish to the Office of the Interconnection the information specified in the Offer Data for new generation resources. (b) Market Sellers authorized and intending to request market- based start-up and no-load fees in their Offer Data shall submit a specification of such fees to the Office of the Interconnection for each generating unit as to which the Market Seller intends to request such fees. Any such specification shall be submitted on or before March 31 for the period April 1 through September 30, and on or before September 30 for the period October 1 through March 31, and shall remain in effect without change throughout each such period for which a specification was submitted. The Office of the Interconnection shall reject any request for start-up and no-load fees in a Market Seller's Offer Data that does not conform to the Market Seller's specification on file with the Office of the Interconnection. 1.9.8 Office of the Interconnection Responsibilities. (a) The Office of the Interconnection shall perform seasonal operating studies to assess the forecasted adequacy of generating reserves and of the transmission system, in accordance with the procedures specified in the PJM Manuals. (b) The Office of the Interconnection shall maintain and update tables setting forth Operating Reserve and other reserve objectives as specified in the PJM Manuals. (c) The Office of the Interconnection shall receive and process requests for firm and non-firm transmission service in accordance with procedures specified in the PJM Tariff. (d) The Office of the Interconnection shall maintain such data and information relating to generation and transmission facilities in the PJM Control Area as may be necessary or appropriate to conduct the scheduling and dispatch of the PJM Interchange Energy Market and PJM Control Area. (e) The Office of the Interconnection shall coordinate with other interconnected Control Area as necessary to manage, alleviate or end an Emergency. Issued By: Richard A. Dorm Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection L.L.C Original Sheet No. 80 First International Schedule FERC No. 24 1.10 Scheduling. 1.10.1 General. (a) The Office of the Interconnection shall administer scheduling processes to implement a Day-ahead Energy Market and a Real-time Energy market. (b) The Day-ahead Energy Market shall enable Market Participants to purchase and sell energy through the PJM Interchange Energy Market at Day- ahead Prices and enable transmission customers to reserve transmission service with Transmission Congestion Charges based on locational differences in Day- ahead Prices. Market Participants whose purchases and sales, and transmission customers whose transmission uses are scheduled in the Day-ahead Energy Market, shall be obligated to purchase or sell energy, or pay Transmission Congestion Charges, at the applicable Day-ahead Prices for the amounts scheduled. (c) In the Real-time Energy Market, Market Participants that deviate from the amounts of energy purchases or sales, or transmission customers that deviate from the transmission uses, scheduled in the Day-ahead Energy Market shall be obligated to purchase or sell energy, or pay Transmission Congestion Charges, for the amount of the deviations at the applicable Real-time Prices or price differences, unless otherwise specified by this Schedule. (d) The following scheduling procedures and principles shall govern the commitment of resources to the Day-ahead Energy Market and the Real- time Energy Market over a period extending from one week to one hour prior to the real-time dispatch. Scheduling encompasses the day-ahead and hourly scheduling process, through which the Office of the Interconnection determines the Day-ahead Energy Market and determines, based on changing forecasts of conditions and actions by Market Participants and system constraints, a plan to serve the hourly energy and reserve requirements of the Internal Market Buyers and the purchase requests of the External Market Buyers in the least costly manner, subject to maintaining the reliability of the PJM Control Area. Scheduling shall be conducted as specified below, subject to the following condition. If the Office of the Interconnection's forecast for the next seven days projects a likelihood of Emergency conditions, the Office of the Interconnection may commit, for all or part of such seven day period, to the use of generation resources with notification or start-up times greater than one day as necessary in order to alleviate or mitigate such Emergency, in accordance with the Market Sellers' offers for such units for such periods and the specifications in the PJM Manuals. 1.10.1A Day-Ahead Energy Market Scheduling. The following actions shall occur not later than 12:00 noon on the day before the Operating Day for which transactions are being scheduled, or such other deadline as may be specified by the Office of the Interconnection in order to comply with the practical requirements and the economic and efficiency objectives of the scheduling process specified in this Schedule. (a) Each Market Participant may submit to the Office of the Interconnection specifications of the amount and location of its customer loads and/or energy purchases to be included in the Day-ahead Energy Market for each hour of the next Operating Day, such specifications to comply with the requirements set forth in the PJM Manuals. Each Market Buyer shall inform the Office of the Interconnection of the prices, if any, at which it desires not to include its load in the Day-ahead Energy Market rather than pay the Day-ahead Price. Issued By: Richard A. Dorm Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 81 First Revised Rate Schedule FERC No. 24 (b) Each Generating Market Buyer shall submit to the Office of the Interconnection: (i) hourly schedules for resource increments, including hydropower units, self-scheduled by the Market Buyer to meet its Equivalent Load; and (ii) the Dispatch Rate at which each such self-scheduled resource will disconnect or reduce output, or confirmation of the Market Buyer's intent not to reduce output. (c) All Market Participants shall submit to the Office of the Interconnection schedules for any bilateral transactions involving use of generation or Transmission Facilities as specified below, and shall inform the Office of the Interconnection whether the transaction is to be included in the Day-ahead Energy market. Any Market Participant that elects to include a bilateral transaction in the Day-ahead Energy Market may specify the price (such price not to exceed the maximum price that may be specified in the PJM Manuals), if any, at which it will be wholly or partially curtailed rather than pay Transmission Congestion Charges. The foregoing price specification shall apply to the price difference between the specified bilateral transaction source and sink points in the day-ahead scheduling process only. Any Market Participant that elects not to include its bilateral transaction in the Day-ahead Energy Market shall inform the Office of the Interconnection if the parties to the transaction are not willing to incur Transmission Congestion Charges in the Real-time Energy Market in order to complete any such scheduled bilateral transaction. Scheduling of bilateral transactions shall be conducted in accordance with the specifications in the PJM Manuals and the following requirements: i) Internal Market Buyers shall submit schedules for all bilateral purchases for delivery within the PJM Control Area, whether from generation resources inside or outside the PJM Control Area; ii) Market Sellers shall submit schedules for bilateral sales to entities outside the PJM Control Area from generation within the PJM Control Area that is not dynamically scheduled to such entities pursuant to Section 1.12; and iii) In addition to the foregoing schedules for bilateral transactions, Market Participants shall submit confirmations of each scheduled bilateral transaction from each other party to the transaction in addition to the party submitting the schedule, or the adjacent Control Area. (d) Market Sellers wishing to sell into the Day-ahead Energy Market shall submit offers for the supply of energy (including energy from hydropower units), Regulation, Operating Reserves or other services for the following Operating Day. Offers shall be submitted to the Office of the Interconnection in the form specified by the Office of the Interconnection and shall contain the information specified in the Office of the Interconnection's Offer Data specification, as applicable. Market Sellers owning or controlling the output of a Capacity Resource that has not been rendered unavailable by a Generation Planned Outage, a Generator Maintenance Outage, or a Generation Forced Outage shall submit offers for the available capacity of such Capacity Resource, Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 82 First Revised Rate Schedule FERC No. 24 including any portion that is self-scheduled by the Generating Market Buyer claiming the resource as a Capacity Resource. The submission of offers for resource increments that are not Capacity Resources shall be optional, but any such offers must contain the information specified in the Office of the Interconnection's Offer Data specification, as applicable. Energy offered from generation resources that are not Capacity Resources shall not be supplied from resources that are included in or otherwise committed to supply the Operating Reserves of another Control Area. The foregoing offers: i) Shall specify the generation resource and energy for each hour in the offer period; ii) Shall specify the amounts and prices for the entire Operating Day for each resource component offered by the Market Seller to the Office of the Interconnection; iii) If based on energy from a specific generating unit, may specify start-up and no-load fees equal to the specification of such fees for such unit on file with the Office of the Interconnection; iv) Shall set forth any special conditions upon which the Market Seller proposes to supply a resource increment, including any curtailment rate specified in a bilateral contract for the output of the resource, or any cancellation fees; v) May include a schedule of offers for prices and operating data contingent on acceptance by the deadline specified in this Schedule, with a second schedule applicable if accepted after the foregoing deadline; vi) Shall constitute an offer to submit the resource increment to the Office of the Interconnection for scheduling and dispatch in accordance with the terms of the offer, which offer shall remain open through the Operating Day for which the offer is submitted; vii) Shall be final as to the price or prices at which the Market Seller proposes to supply energy or other services to the PJM Interchange Energy Market, such price or prices being guaranteed by the Market Seller for the period extending through the end of the following Operating Day; and viii) Shall not exceed an energy offer price of $1,000/megawatt- hour. (e) A Market Seller that wishes to make a resource available to sell Regulation service shall submit an offer for Regulation that shall specify the MW of Regulation being offered, the price of the offer in dollars per MWh, and such other information specified by the Office of the Interconnection as may be necessary to evaluate the offer and the resource's opportunity costs. The price of the offer shall not exceed $100 per MWh. Qualified Regulation capability must satisfy the verification tests specified in the PJM Manuals. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 83 First Revised Rate Schedule FERC No. 24 (f) Each Market Seller owning or controlling the output of a Capacity Resource shall submit a forecast of the availability of each such Capacity Resource for the next seven days. A Market Seller (i) may submit a non- binding forecast of the price at which it expects to offer a generation resource increment to the Office of the Interconnection over the next seven days, and (ii) shall submit a binding offer for energy, along with start-up and no-load fees, if any, for the next seven days or part thereof, for any generation resource with minimum notification or start-up requirement greater than 24 hours. (g) Each offer by a Market Seller of a Capacity Resource shall remain in effect for subsequent Operating Days until superseded or canceled. (h) The Office of the Interconnection shall post on the PJM Open Access Same-time Information System the total hourly loads scheduled in the Day- ahead Energy Market, as well as, its estimate of the combined hourly load of the Market Buyers for the next four days, and peak load forecasts for an additional three days. (i) All Market Participants may submit Increment Bids and/or Decrement Bids that apply to the Day-ahead Energy Market only. Such bids must comply with the requirements set forth in the PJM Manuals and must specify amount, location and price, if any, at which the Market Participant desires to purchase or sell energy in the Day-ahead Energy Market. 1.10.2 Pool-Scheduled Resources. Pool-scheduled resources are those resources for which Market Participants submitted offers to sell energy in the Day-ahead Energy Market and which the Office of the Interconnection scheduled in the Day-ahead Energy Market as well as generators committed by the Office of the Interconnection subsequent to the Day-ahead Energy Market. Such resources shall be committed to provide energy in the real-time dispatch unless the schedules for such units are revised pursuant to Sections 1.10.9 or 1.11. Pool-scheduled resources shall be governed by the following principles and procedures. (a) Pool-scheduled resources shall be selected by the Office of the Interconnection on the basis of the prices offered for energy and related services, start-up, no-load and cancellation fees, and the specified operating characteristics, offered by Market Sellers to the Office of the Interconnection by the offer deadline specified in Section 1.10.1A. (b) A resource that is scheduled by a Market Participant to support a bilateral sale, or that is self-scheduled by a Generating Market Buyer, shall not be selected by the Office of the Interconnection as a pool-scheduled resource except in an Emergency. (c) Market Sellers offering energy from hydropower or other facilities with fuel or environmental limitations may submit data to the Office of the Interconnection that is sufficient to enable the Office of the Interconnection to determine the available operating hours of such facilities. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 84 First Revised Rate Schedule FERC No. 24 (d) The Market Seller of a resource selected as a pool-scheduled resource shall receive payments or credits for energy or related services, or for start-up and no-load fees, from the Office of the Interconnection on behalf of the Market Buyers in accordance with Section 3 of this Schedule 1. Alternatively, the Market Seller shall receive, in lieu of start-up and no-load fees, its actual costs incurred, if any, up to a cap of the resource's start-up cost, if the Office of the Interconnection cancels its selection of the resource as a pool-scheduled resource and so notifies the Market Seller before the resource is synchronized. (e) Market Participants shall make available their pool-scheduled resources to the Office of the Interconnection for coordinated operation to supply the needs of the PJM Control Area for Operating Reserves. 1.10.3 Self-scheduled Resources. Self-scheduled resources shall be governed by the following principles and procedures. (a) Each Generating Market Buyer shall use all reasonable efforts, consistent with Good Utility Practice, not to self-schedule resources in excess of its Equivalent Load. (b) The offered prices of resources that are self-scheduled, or otherwise not following the dispatch orders of the Office of the Interconnection, shall not be considered by the Office of the Interconnection in determining Locational Marginal Prices. (c) Market Participants shall make available their self-scheduled resources to the Office of the Interconnection for coordinated operation to supply the needs of the PJM Control Area for Operating Reserves. (d) A Market Participant self-scheduling a resource in the Day- ahead Energy Market that does not deliver the energy in the Real-time Energy Market, shall replace the energy not delivered with energy from the Real-time Energy Market and shall pay for such energy at the applicable Real-time Price. 1.10.4 Capacity Resources. (a) A Capacity Resource selected as a pool-scheduled resource shall be made available for scheduling and dispatch at the direction of the Office of the Interconnection. A Capacity Resource that does not deliver energy as scheduled shall be deemed to have experienced a Generator Forced Outage to the extent of such energy not delivered. A Market Participant offering such Capacity Resource in the Day-ahead Energy Market shall replace the energy not delivered with energy from the Real-time Energy Market and shall pay for such energy at the applicable Real-time Price. (b) Energy from a Capacity Resource that has not been scheduled in the Day-ahead Energy Market may be sold on a bilateral basis by the Market Seller, may be self-scheduled, or may be offered for dispatch during the Operating Day in accordance with the procedures specified in this Schedule. A Capacity Resource that has not been scheduled in the Day-ahead Energy Market and that has been sold on a bilateral basis must be made available upon request to the Office of the Interconnection for scheduling and dispatch during the Operating Day if the Office of the Interconnection declares a Maximum Generation Emergency. Any such resource so scheduled and dispatched shall receive the applicable Real-time Price for energy delivered. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 85 First Revised Rate Schedule FERC No. 24 (c) A Capacity Resource that has been self-scheduled shall not receive payments or credits for start-up or no-load fees. 1.10.5 External Resources. (a) External Resources may submit offers to the PJM Interchange Energy Market, in accordance with the day-ahead and real-time scheduling processes specified above. An External Resource selected as a pool-scheduled resource shall be made available for scheduling and dispatch at the direction of the Office of the Interconnection, and except as specified below shall be compensated on the same basis as other pool-scheduled resources. External Resources that are not capable of dynamic dispatch shall, if selected by the Office of the Interconnection on the basis of the Market Seller's Offer Data, be block loaded on an hourly scheduled basis. Market Sellers shall offer External Resources to the PJM Interchange Energy Market on either a resource-specific or an aggregated resource basis. A Market Participant whose pool-scheduled resource does not deliver the energy scheduled in the Day-ahead Energy Market shall replace such energy not delivered as scheduled in the Day-ahead Energy Market shall replace such energy not delivered as scheduled in the Day-ahead Energy Market with energy from the PJM Real-time Energy Market and shall pay for such energy at the applicable Real-time Price. (b) Offers for External Resources from an aggregation of two or more generating units shall so indicate, and shall specify, in accordance with the Offer Data requirements specified by the Office of the Interconnection: (i) energy prices; (ii) hours of energy availability; (iii) a minimum dispatch level; (iv) a maximum dispatch level; and (v) unless such information has previously been made available to the Office of the Interconnection, sufficient information, as specified in the PJM Manuals, to enable the Office of the Interconnection to model the flow into the PJM Control Area of any energy from the External Resources scheduled in accordance with the Offer Data. If a Market Seller submits more than one offer on an aggregated resource basis, the withdrawal of any such offer shall be deemed a withdrawal of all higher priced offers for the same period. (c) Offers for External Resources on a resource-specific basis shall specify the resource being offered, along with the information specified in the Offer Data as applicable. 1.10.6 External Market Buyers. (a) Deliveries to an External Market Buyer not subject to dynamic dispatch by the Office of the Interconnection shall be delivered on a block loaded basis to the load bus or busses at the border of the PJM Control Area, or in the PJM Control Area with respect to an External Market Buyer's load within the PJM Control Area not served by Network Service, at which the energy is delivered to or for the External Market Buyer. External Market Buyers shall be charged or credited at either the Day-ahead Prices or Real-time Prices, whichever is applicable, for energy at the foregoing load bus or busses. (b) An External Market Buyer's hourly schedules for energy purchased from the PJM Interchange Energy Market shall conform to the ramping and other applicable requirements of the interconnection agreement between the PJM Control Area and the Control Area to which, whether as an intermediate or final point of delivery, the purchased energy will initially be delivered. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 86 First Revised Rate Schedule FERC No. 24 (c) The Office of the Interconnection shall curtail deliveries to an External Market Buyer if necessary to maintain appropriate reserve levels for the PJM Control Area as defined in the PJM Manuals, or to avoid shedding load in the PJM Control Area. 1.10.6A Transmission Loading Relief Customers. (a) An entity that desires to elect to pay Transmission Congestion Charges in order to continue its energy schedules during an Operating Day over contract paths outside the PJM Control Area in the event that PJM initiates Transmission Loading Relief that otherwise would cause PJM to request security coordinators to curtail such Member's energy schedules shall: (i) enter its election on OASIS by 12:00 p.m. of the day before the Operating Day, in accordance with procedures established by PJM, which election shall be applicable for the entire Operating Day; and (ii) if PJM initiates Transmission Loading Relief, provide to PJM, at such time and in accordance with procedures established by PJM, the hourly integrated energy schedules that impacted the PJM Control Area (as indicated from the NERC Interchange Distribution Calculator) during the Transmission Loading Relief. (b) If an entity has made the election specified in Section (a), then PJM shall not request security coordinators to curtail such entity's energy transactions, except as may be necessary to respond to Emergencies. (c) In order to make elections under this Section 1.10.6A, an entity must (i) have met the creditworthiness standards established by the Office of the Interconnection or provided a letter of credit or other form of security acceptable to the Office of the Interconnection, and (ii) have executed either the Agreement, a Service Agreement under the PJM Tariff, or other agreement committing to pay all Transmission Congestion Charges incurred under this Section. 1.10.7 Bilateral Transactions. Bilateral transactions as to which the parties have notified the Office of the Interconnection by the deadline specified in Section 1.10.1A that they elect not to be included in the Day-ahead Energy Market and that they are not willing to incur Transmission Congestion Charges in the Real-time Energy Market shall be curtailed by the Office of the Interconnection as necessary to reduce or alleviate transmission congestion. Bilateral transactions that were not included in the Day-ahead Energy Market and that are willing to incur congestion charges and bilateral transactions that were accepted in the Day- ahead Energy Market shall continue to be implemented during periods of congestion, except as may be necessary to respond to Emergencies. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 87 First Revised Rate Schedule FERC No. 24 1.10.8 Office of the Interconnection Responsibilities. (a) The Office of the Interconnection shall use its best efforts to determine (i) the least-cost means of satisfying the projected hourly requirements for energy, Operating Reserves, and other ancillary services of the Market Buyers, including the reliability requirements of the PJM Control Area, of the Day-ahead Energy Market, and (ii) the least-cost means of satisfying the Operating Reserve and other ancillary service requirements for any portion of the load forecast of the Office of the Interconnection for the Operating Day in excess of that scheduled in the Day-ahead Energy Market. In making these determinations, the Office of the Interconnection shall take into account: (i) the Office of the Interconnection's forecasts of PJM Interchange Energy Market and PJM Control Area energy requirements, giving due consideration to the energy requirement forecasts and purchase requests submitted by Market Buyers; (ii) the offers submitted by Market Sellers; (iii) the availability of limited energy resources; (iv) the capacity, location, and other relevant characteristics of self-scheduled resources; (v) the objectives of the PJM Control Area for Operating Reserves, as specified in the PJM Manuals; (vi) the requirements of the PJM Control Area for Regulation and other ancillary services, as specified in the PJM Manuals; (vii) the benefits of avoiding or minimizing transmission constraint control operations, as specified in the PJM Manuals; and (viii) such other factors as the Office of the Interconnection reasonably concludes are relevant to the foregoing determination. The Office of the Interconnection shall develop a Day-ahead Energy Market based on the foregoing determination, and shall determine the Day-ahead Prices resulting from such schedule. The Office of the Interconnection shall report the planned schedule for a hydropower resource to the operator of that resource as necessary for plant safety and security, and legal limitations on pond elevations. (b) Not later than 4:00 p.m. of the day before each Operating Day, or such earlier deadline as may be specified by the Office of the Interconnection in the PJM Manuals, the Office of the Interconnection shall: (i) post the aggregate Day-ahead Energy Market; (ii) post the Day-ahead Prices; and (iii) inform the Market Sellers and Market Buyers of their scheduled injections and withdrawals respectively. (c) Following posting of the information specified in Section 1.10.8(b), the Office of the Interconnection shall revise its schedule of generation resources to reflect updated projections of load, conditions affecting electric system operations in the PJM Control Area, the availability of and constraints on limited energy and other resources, transmission constraints, and other relevant factors. The Office of the Interconnection shall post on the PJM Open Access Same-time Information System at times specified in the PJM Manuals a revised forecast of the location and duration of any expected transmission congestion, and of the range of differences in Locational Marginal Prices between major subareas of the PJM Control Area expected to result from such transmission congestion. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 88 First Revised Rate Schedule FERC No. 24 (d) Market Buyers shall pay and Market Sellers shall be paid for the quantities of energy scheduled in the Day-ahead Energy Market at the Day- ahead Prices. 1.10.9 Hourly Scheduling. (a) Following the initial posting by the Office of the Interconnection of the Locational Marginal Prices resulting from the Day-ahead Energy Market, and subject to the right of the Office of the Interconnection to schedule and dispatch pool-scheduled resources and to direct that schedules be changed in an Emergency, a generation rebidding period shall exist from 4:00 p.m. to 6:00 p.m. on the day before each Operating Day. During the rebidding period, Market Participants may submit revisions to generation offer data for any generation resource that was not selected as a pool-scheduled resource in the Day-ahead Energy Market. Adjustments to Day-ahead Energy Markets shall be settled at the applicable Real-time Prices, and shall not affect the obligation to pay or receive payment for the quantities of energy scheduled in the Day- ahead Energy market at the applicable Day-ahead Prices. (b) A Market Participant may adjust the schedule of a resource under its dispatch control on an hour-to-hour basis beginning at 10:00 p.m. of the day before each Operating Day, provided that the Office of the Interconnection is notified not later than 60 minutes prior to the hour in which the adjustment is to take effect, as follows: i) A Generating Market Buyer may self-schedule any of its resource increments, including hydropower resources, not previously designated as self-scheduled and not selected as a pool- scheduled resource in the Day-ahead Energy Market; ii) A Market Participant may request the scheduling of a non-firm bilateral transaction; or iii) A Market Participant may request the scheduling of deliveries or receipts of Spot Market Energy; or iv) A Generating Market Buyer may remove from service a resource increment, including a hydropower resource, that it had previously designated as self-scheduled, provided that the Office of the Interconnection shall have the option to schedule energy from any such resource increment that is a Capacity Resource at the price offered in the scheduling process, with no obligation to pay any start-up fee. (c) With respect to a pool-scheduled resource that is included in the Day-ahead Energy Market, a Market Seller may not change or otherwise modify its offer to sell energy. (d) An External Market Buyer may refuse delivery of some or all of the energy it requested to purchase in the Day-ahead Energy Market by notifying the Office of the Interconnection of the adjustment in deliveries not later than 60 minutes prior to the hour in which the adjustment is to take effect, but any such adjustment shall not affect the obligation of the External Market Buyer to pay for energy scheduled on its behalf in the Day-ahead Energy Market at the applicable Day-ahead Prices. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 89 First Revised Rate Schedule FERC No. 24 (e) For each hour in the Operating Day, as soon as practicable after the deadlines specified in the foregoing subsection of this Section 1.10, the Office of the Interconnection shall provide External Market Buyers and External Market Sellers and parties to bilateral transactions with any revisions to their schedules for the hour. 1.11 Dispatch. The following procedures and principles shall govern the dispatch of the resources available to the Office of the Interconnection. 1.11.1 Resource Output. The Office of the Interconnection shall have the authority to direct any Market Seller to adjust the output of any pool-scheduled resource increment within the operating characteristics specified in the Market Seller's offer. The Office of the Interconnection may cancel its selection of, or otherwise release, pool-scheduled resources, subject to an obligation to pay any applicable start-up, no-load or cancellation fees. The Office of the Interconnection shall adjust the output of pool-scheduled resource increments as necessary: (a) to maintain reliability, and subject to that constraint, to minimize the cost of supplying the energy, reserves, and other services required by the Market Buyers and the operation of the PJM Control Area; (b) to balance load and generation, maintain scheduled tie flows, and provide frequency support within the PJM Control Area; and (c) to minimize unscheduled interchange not frequency related between the PJM Control Area and other Control Areas. 1.11.2 Operating Basis. In carrying out the foregoing objectives, the Office of the Interconnection shall conduct the operation of the PJM Control Area in accordance with the PJM Manuals, and shall: (i) utilize available generating reserves and obtain required replacements; and (ii) monitor the availability of adequate reserves. 1.11.3 Pool-dispatched Resources. (a) The Office of the Interconnection shall implement the dispatch of energy from pool-scheduled resources with limited energy by direct request. In implementing mandatory or economic use of limited energy resources, the Office of the Interconnection shall use its best efforts to select the most economic hours of operation for limited energy resources, in order to make optimal use of such resources consistent with the dynamic load-following requirements of the PJM Control Area and the availability of other resources to the Office of the Interconnection. (b) The Office of the Interconnection shall implement the dispatch of energy from other pool-dispatched resource increments, including generation increments from Capacity Resources the remaining increments of which are self- scheduled, by sending appropriate signals and instructions to the entity controlling such resources, in accordance with the PJM Manuals. Each Market Seller shall ensure that the entity controlling a pool-dispatched resource offered or made available by that Market Seller complies with the energy dispatch signals and instructions transmitted by the Office of the Interconnection. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 90 First Revised Rate Schedule FERC No. 24 1.11.3A Maximum Generation Emergency. If the Office of the Interconnection declares a Maximum Generation Emergency, all deliveries to load that is served by Point-to-Point Transmission Service outside the PJM Control Area from Capacity Resources may be interrupted in order to serve load in the PJM Control Area. 1.11.4 Regulation (a) A Market Buyer may satisfy its Regulation obligation from its own resources capable of performing Regulation service, by contractual arrangements with other Market Participants able to provide Regulation service, or by purchases from the PJM Interchange Energy Market at the rates set forth in Section 3.2.2. (b) The Office of the Interconnection shall obtain Regulation service from the least-cost alternatives available from either pool-scheduled or self-scheduled resources as needed to meet PJM Control Area requirements not otherwise satisfied by the Market Buyers. Resources offering to sell Regulation shall be selected to provide Regulation on the basis of each resource's regulation offer and the estimated opportunity cost of the resource providing regulation and in accordance with the Office of the Interconnection's obligation to minimize the total cost of energy, Operating Reserves, Regulation, and other ancillary services. Estimated opportunity costs shall be determined by the Office of the Interconnection on the basis of the expected value of the energy sales that would be foregone or uneconomic energy that would be produced by the resource in order to provide Regulation, in accordance with procedures specified in the PJM Manuals. If the Office of the Interconnection is not able to distinguish resources offering Regulation on the basis of their regulation offers and estimated opportunity costs, resources shall be selected on the basis of the quality of Regulation provided by the resource as determined by tests administered by the Office of the Interconnection. (c) The Office of the Interconnection shall dispatch resources for Regulation by sending Regulation signals and instructions to resources from which Regulation service has been offered by Market Sellers, in accordance with the PJM Manuals. Market Sellers shall comply with Regulation dispatch signals and instructions transmitted by the Office of the Interconnection and, in the event of conflict, Regulation dispatch signals and instructions shall take precedence over energy dispatch signals and instructions. Market Sellers shall exert all reasonable efforts to operate, or ensure the operation of, their resources supplying load in the PJM Control Area as close to desired output levels as practical, consistent with Good Utility Practice. 1.11.5 PJM Open Access Same-time Information System. The Office of the Interconnection shall update the information posted on the PJM Open Access Same-time Information System to reflect its dispatch of generation resources. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 91 First Revised Rate Schedule FERC No. 24 1.12 Dynamic Scheduling. (a) An entity that owns or controls a generating resource in the PJM Control Area may electrically remove all or part of the generating resource's output from the PJM Control Area through dynamic scheduling of the output to load outside the PJM Control Area. Such output shall not be available for economic dispatch by the Office of the Interconnection. (b) An entity requesting dynamic scheduling shall be responsible for arranging for the provision of signal processing and communications from the generator to the Office of the Interconnection and the other participating control area and complying with any other procedures established by the Office of the Interconnection regarding dynamic scheduling as set forth in the PJM Manuals. (c) An entity requesting dynamic scheduling shall be responsible for reserving amounts of firm transmission service necessary to deliver the range of the dynamic transfer and any required ancillary services. 2. CALCULATION OF LOCATIONAL MARGINAL PRICES 2.1 Introduction. The Office of the Interconnection shall calculate the price of energy at the load busses and generation busses in the PJM Control Area and at the interface busses between the PJM Control Area and adjacent Control Areas on the basis of Locational Marginal Prices. Locational Marginal Prices determined in accordance with this Section shall be calculated on a day-ahead basis for each hour of the Day-ahead Energy Market, and every five minutes during the Operating Day for the Real-time Energy Market. 2.2 General. The Office of the Interconnection shall determine the least cost security- constrained dispatch, which is the least costly means of serving load at different locations in the PJM Control Area based on actual operating conditions existing on the power grid and on the prices at which Market Sellers have offered to supply energy in the PJM Interchange Energy Market. Locational Marginal Prices for the generation and load busses in the PJM Control Area, including interconnections with other Control Areas, will be calculated based on the actual economic dispatch and the prices of energy offers. The process for the determination of Locational Marginal Prices shall be as follows: (a) To determine actual operating conditions on the power grid in the PJM Control Area, the Office of the Interconnection shall use a computer model of the interconnected grid that uses available metered inputs regarding generator output, loads, and power flows to model remaining flows and conditions, producing a consistent representation of power flows on the network. The computer model employed for this purpose, referred to as the State Estimator program, is a standard industry tool and is described in Section 2.3 below. It will be used to obtain information regarding the output of generation supplying energy to the PJM Control Area, loads at buses in the PJM Control Area, transmission losses, and power flows on binding transmission constraints for use in the calculation of Locational Marginal Prices. Additional information used in the calculation, including Dispatch Rates and real time schedules for external transactions between PJM and other Control Areas, will be obtained from the Office of the Interconnection's dispatchers. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 92 First Revised Rate Schedule FERC No. 24 (b) Using the prices at which energy is offered by Market Sellers to the PJM Interchange Energy Market, the Office of the Interconnection shall determine the offers of energy that will be considered in the calculation of Locational Marginal Prices. As described in Section 2.4 below, every offer of energy by a Market Seller from a resource that is following economic dispatch instructions of the Office of the Interconnection will be utilized in the calculation of Locational Marginal Prices. (c) Based on the system conditions on the PJM power grid, determined as described in (a), and the eligible energy offers, determined as described in (b), the Office of the Interconnection shall determine the least costly means of obtaining energy to serve the next increment of load at each bus in the PJM Control Area, in the manner described in Section 2.5 below. The result of that calculation shall be a set of Locational Marginal Prices based on the system conditions at the time. 2.3 Determination of System Conditions Using the State Estimator. Power system operations, including, but not limited to, the determination of the least costly means of serving load, depend upon the availability of a complete and consistent representation of generator outputs, loads, and power flows on the network. In calculating Locational Marginal Prices, the Office of the Interconnection shall obtain a complete and consistent description of conditions on the electric network in the PJM Control Area by using the most recent power flow solution produced by the State Estimator, which is also used by the Office of the Interconnection for other functions within power system operations. The State Estimator is a standard industry tool that produces a power flow model based on available real-time metering information, information regarding the current status of lines, generators, transformers, and other equipment, bus load distribution factors, and a representation of the electric network, to provide a complete description of system conditions, including conditions at busses for which real-time information is unavailable. The current version of the State Estimator includes over 1600 busses in the PJM Control Area, as well as interface busses with adjacent Control Areas. The Office of the Interconnection shall obtain a State Estimator solution every five minutes, which shall provide the megawatt output of generators and the loads at busses in the PJM Control Area, transmission line losses, and actual flows or loadings on constrained transmission facilities. External transactions between PJM and other Control Areas shall be included in the Locational Marginal Price calculation on the basis of the real time transaction schedules implemented by the Office of the Interconnection's dispatcher. 2.4 Determination of Energy Offers Used in Calculating Real-time Prices. (a) During the Operating Day, real-time Locational Marginal Prices derived in accordance with this Section shall be determined every five minutes and integrated hourly values of such determinations shall be the basis of sales and purchases of energy in the Real-time Energy Market and of Transmission Congestion Charges under the PJM Tariff not covered by the Day-ahead Energy Market. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 93 First Revised Rate Schedule FERC No. 24 (b) To determine the energy offers submitted to the PJM Interchange Energy Market that shall be used during the Operating Day to calculate the Real-time Prices, the Office of the Interconnection shall determine which resources are following its economic dispatch instructions. A resource will be considered to be following economic dispatch instructions and shall be included in the calculation of Real-time Prices if: i) the applicable price bid by a Market Seller for energy from the resource is less than or equal to the Dispatch Rate for the area of the PJM Control Area in which the resource is located; or ii) the resource is specifically requested to operate by the Office of the Interconnection's dispatcher. (c) In determining whether a resource satisfies the condition described in (b), the Office of the Interconnection will determine the bid price associated with an energy offer by comparing the actual megawatt output of the resource with the Market Seller's offer price curve. Because of practical generator response limitations, a resource whose megawatt output is not ten percent more than the megawatt level specified on the offer price curve for the applicable Dispatch Rate shall be deemed to be following economic dispatch instructions, but the energy price offer used in the calculation of Real-time Prices shall not exceed the applicable Dispatch Rate. Units that must be run for local area protection shall not be considered in the calculation of Real-time Prices. 2.5 Calculation of Real-time Prices. (a) The Office of the Interconnection shall determine the least costly means of obtaining energy to serve the next increment of load at each bus in the PJM Control Area represented in the State Estimator and each interface bus between the PJM Control Area and an adjacent Control Area, based on the system conditions described by the most recent power flow solution produced by the State Estimator program and the energy offers that are the basis for the Day- ahead Energy Market, or that are determined to be eligible for consideration under Section 2.4 in connection with the real-time dispatch, as applicable. This calculation shall be made by applying an incremental linear optimization method to minimize energy costs, given actual system conditions, a set of energy offers, and any binding transmission constraints that may exist. In performing this calculation, the Office of the Interconnection shall calculate the cost of serving an increment of load at each bus from each resource associated with an eligible energy offer as the sum of: (1) the price at which the Market Seller has offered to supply an additional increment of energy from the resource, and (2) the effect on transmission congestion costs (whether positive or negative) associated with increasing the output of the resource, based on the effect of increased generation from that resource on transmission line loadings. The energy offer or offers that can serve an increment of load at a bus at the lowest cost, calculated in this manner, shall determine the Real-time Price at that bus. (b) During the Operating Day, the calculation set forth in (a) shall be performed every five minutes, using the Office of the Interconnection's Locational Marginal Price program, producing a set of Real-time Prices based on system conditions during the preceding interval. The prices produced at five- minute intervals during an hour will be integrated to determine the Real-time Prices for that hour. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 94 First Revised Rate Schedule FERC No. 24 2.6 Calculation of Day-ahead Prices. For the Day-ahead Energy Market, day-ahead Locational Marginal Prices shall be determined on the basis of the least-cost, security-constrained dispatch, model flows and system conditions resulting from the load specifications, offers for generation, dispatchable load, Increment Bids, Decrement Bids, and bilateral transactions submitted to the Office of the Interconnection and scheduled in the Day-ahead Energy Market. Such prices shall be determined in accordance with the provisions of this Section applicable to the Day-ahead Energy Market and shall be the basis for purchases and sales of energy and Transmission Congestion Charges resulting from the Day-ahead Energy Market. This calculation shall be made for each hour in the Day-ahead Energy Market by applying a linear optimization method to minimize energy costs, given scheduled system conditions, scheduled transmission outages, and any transmission limitations that may exist. In performing this calculation, the Office of the Interconnection shall calculate the cost of serving an increment of load at each bus from each resource associated with an eligible energy offer as the sum of: (1) the price at which the Market Seller has offered to supply an additional increment of energy from the resource, and (2) the effect on transmission congestion costs (whether positive or negative) associated with increasing the output of the resource, based on the effect of increased generation from that resource on transmission line loadings. The energy offer or offers that can serve an increment of load at a bus at the lowest cost, calculated in this manner, shall determine the Day-ahead Price at that bus. 2.7 Performance Evaluation. The Office of the Interconnection shall undertake an evaluation of the foregoing procedures for the determination of Locational Marginal Prices, as well as the procedures for determining and allocating Fixed Transmission Rights and associated Transmission Congestion Charges and Credits, not less often than every two years, in accordance with the PJM Manuals. To the extent practical, the Office of the Interconnection shall retain all data needed to perform comparisons and other analyses of locational marginal pricing. The Office of the Interconnection shall report the results of its evaluation to the Market Participants, along with its recommendations, if any, for changes in the procedures. 3. ACCOUNTING AND BILLING 3.1 Introduction. This schedule sets forth the accounting and billing principles and procedures for the purchase and sale of services on the PJM Interchange Energy Market and for the operation of the PJM Control Area. 3.2 Market Buyers. 3.2.1 Spot Market Energy. (a) Market Buyers shall be charged for all load scheduled to be served from the PJM Interchange Energy Market in the Day-ahead Energy Market at the Day-ahead Prices applicable to each relevant load bus. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 95 First Revised Rate Schedule FERC No. 24 (b) Generating Market Buyers shall be paid for all energy scheduled to be delivered at the PJM Interchange Energy Market in the Day-ahead Energy Market at the Day-ahead Prices applicable to each relevant generation bus. (c) At the end of each hour during an Operating Day, the Office of the Interconnection shall calculate the load payment at each Market Buyer's load bus to be charged at Real-time Prices determined by the product of the hourly Real-time Price at the relevant bus times the Market Buyer's megawatts of load at the bus in the hour in excess of the load scheduled to be served at that bus in the hour in the Day-ahead Energy Market. To the extent that the load actually served at a load bus is less than the load scheduled to be served at that bus in the Day-ahead Energy Market, the Market Buyer shall be credited for the difference at the Real-time Price for the load bus at the time of the shortfall. The megawatts of load at each load bus shall be the sum of the megawatts of load for that bus of that Market Buyer as determined by the State Estimator, plus an allocated share of transmission losses, plus any megawatts of that Market Buyer's bilateral sales to purchasers outside the PJM Control Area attributable to that bus. The total load charge for each Market Buyer shall be the sum, for each of a Market Buyer's load buses, of the charges at Day-ahead Prices determined in accordance with the Day-ahead Energy Market as specified in Section 1.10.1a plus the charges at Real-time Prices determined as specified herein, net of any credits specified herein for each of the Market Buyer's load buses. (d) At the end of each hour during an Operating Day, the Office of the Interconnection shall calculate the generation revenue at each Generating Market Buyer's generation bus to be paid at Real-time Prices, determined by the product of the hourly Real-time Price at the relevant bus times the Generating Market Buyer's megawatts of generation at such generation bus in the hour, as determined by the State Estimator, in excess of the energy scheduled to be injected at that bus in that hour in the Day-ahead Energy Market. To the extent that the energy actually injected at the generation bus is less than the energy scheduled to be injected at that bus in the Day-ahead Energy Market, the Generating Market Buyer shall be debited for the difference at the Real-time Price for the generation bus at the time of the shortfall. The megawatts of generation at each generation bus shall be the sum of the megawatts of generation for that bus of that Generating Market Buyer as determined by the State Estimator, plus any megawatts of bilateral purchases of that Generating Market Buyer from sellers outside the PJM Control Area attributable to that bus. The total generation revenue for each Generating Market Buyer shall be the sum, for each of the Generating Market Buyer's generation busses, of the revenues at Day-ahead Prices determined in accordance with the Day-ahead Energy Market as specified in Section 1.10.1A plus the revenues at Real-time Prices determined as specified herein, net of any debits specified herein for each of the Market Buyer's generation buses. (e) At the end of each hour during an Operating Day, the Office of the Interconnection shall calculate a net bill for each Market Buyer, determined as the difference between its total load charges and its total generation revenue. The portions of the net bill attributable to net hourly PJM Interchange and to Transmission Congestion Charges in the Day-ahead Energy Market and the Real-time Energy Market shall be determined as set forth in this Section and in Section 5.1.3. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 96 First Revised Rate Schedule FERC No. 24 (f) At the end of each hour during an Operating Day, the Office of the Interconnection shall calculate the total amount of net hourly PJM Interchange for each Market Buyer, including Generating Market Buyers, in accordance with the PJM Manuals. For Internal Market Buyers that are Load Serving Entities or purchasing on behalf of Load Serving Entities, this calculation shall include determination of the net energy flows from: (i) tie lines; (ii) any generation resource the output of which is controlled by the Market Buyer but delivered to it over another entity's Transmission Facilities; (iii) any generation resource the output of which is controlled by another entity but which is directly interconnected with the Market Buyer's transmission system; (iv) deliveries pursuant to bilateral energy sales; (v) receipts pursuant to bilateral energy purchases; (vi) the Market Buyer's allocated share of energy purchased from another Control Area in connection with a Minimum Generation Emergency in such other Control Area as specified in Section 3.2.6(c); and (vii) an adjustment to account for the day-ahead PJM Interchange, calculated as the difference between scheduled withdrawals and injections by that Market Buyer in the Day-ahead Energy Market. For Electric Distributors that report hourly net energy flows from metered tie lines, this calculation also shall include 500 kV transmission losses and Inadvertent Interchange allocated to the Electric Distributor and shall exclude the energy delivered to load of other Network Customers and Transmission Customers. For External Market Buyers and Internal Market Buyers that are not Load Serving Entities or purchasing on behalf of Load Serving Entities, this calculation shall determine the energy scheduled hourly for delivery to the Market Buyer net of the amounts scheduled by the External Market Buyer in the Day-ahead Energy Market. (g) The Office of the Interconnection shall calculate Locational Marginal Prices in the form of Day-ahead Prices and Real-time Prices for each load and generation bus in the PJM Control Area, in accordance with Section 2 of this Schedule. (h) An Internal Market Buyer shall be charged for Spot Market Energy purchases to the extent of its hourly net purchases from the PJM Interchange Energy Market, determined as specified in Section 3.2.1(f) above. An External Market Buyer shall be charged for its Spot Market Energy purchases based on the energy delivered to it, determined as specified in Section 3.2.1(f) above. The Office of the Interconnection shall calculate an hourly weighted average Real-time Price for each such Market Buyer, based on the hourly average of the Market Buyer's Real-time Prices at each bus weighted by the Market Buyer's load deviations at the bus. The total charge shall be determined by the product of the hourly net amount of PJM Interchange Purchases times the hourly weighted-average Real-time Price for that Market Buyer. (i) A Generating Market Buyer shall be credited as a Market Seller for sales of Spot Market Energy to the extent of its hourly net sales into the PJM Interchange Energy Market, determined as specified in Section 3.2.1(f) above. The Office of the Interconnection shall calculate an hourly weighted average Real-time Price for each such Market Seller, based on the hourly average of the Market Sellers Real-time Prices at each bus weighted by the Market Buyer's generation deviations at each bus. The total credit shall be determined by the product of the hourly net amount of PJM Interchange Sales times the hourly weighted average Real-time Price for that Market Seller. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 97 First Revised Rate Schedule FERC No. 24 3.2.2 Regulation. (a) Each Internal Market Buyer that is a Load Serving Entity shall have an hourly Regulation objective equal to its pro rata share of the PJM Control Area Regulation requirements for the hour, based on the Market Buyer's total load in the PJM Control Area for the hour. An Internal Market Buyer that does not meet its hourly Regulation obligation shall be charged for Regulation dispatched by the Office of the Interconnection to meet such obligation at the Regulation market-clearing price determined in accordance with paragraph (c) of this section, plus the amounts, if any, described in paragraph (f) of this section. (b) A Generating Market Buyer supplying Regulation at the direction of the Office of the Interconnection in excess of its hourly Regulation obligation shall be credited for each increment of such Regulation at the higher of (i) the Regulation market-clearing price or (ii) the sum of the regulation offer and the unit-specific opportunity cost of the resource supplying the increment of Regulation, as determined by the Office of the Interconnection in accordance with procedures specified in the PJM Manuals. (c) The Regulation market-clearing price shall be determined at a time to be determined by the Office of the Interconnection which shall be no earlier than the day before the Operating Day and the market-clearing price each hour shall be equal to the highest sum of a resource's Regulation offer plus its estimated unit-specific opportunity costs from among the resources selected to provide Regulation. (d) In determining the Regulation market-clearing price, the estimated unit-specific opportunity costs of a resource offering to sell Regulation each hour shall be equal to the product of (i) the deviation of the set point of the resource that is expected to be required in order to provide Regulation from the resource's expected output level if it had been dispatched in economic merit order times (ii) the absolute value of the difference between the expected Locational Marginal Price at the generation bus for the resource and the offer price for energy from the resource (at the megawatt level of the Regulation set point for the resource) in the PJM Interchange Energy Market. (e) In determining the credit under subsection (b) to a Generating Market Buyer selected to provide Regulation and that actively follows the Office of the Interconnection's Regulation signals and instructions, the unit-specific opportunity cost of a resource shall be determined for each hour that the Office of the Interconnection requires a resource to provide Regulation and shall be equal to the product of (i) the deviation of the resource's output necessary to follow the Office of the Interconnection's Regulation signals from the resource's expected output level if it had been dispatched in economic merit order times (ii) the absolute value of the difference between the Locational Marginal Price at the generation bus for the resource and the offer price for energy from the resource (at the megawatt level of the Regulation set point for the resource) in the PJM Interchange Energy Market. (f) Any amounts credited for Regulation in an hour in excess of the Regulation market-clearing price in that hour shall be allocated and charged to each Internal Market Buyer that does not meet its hourly Regulation obligation in proportion to its purchases of Regulation in megawatt-hours during that hour. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 98 First Revised Rate Schedule FERC No. 24 3.2.3 Operating Reserves. (a) A Market Seller's pool-scheduled resources capable of providing operating reserves shall be credited as specified below based on the prices offered for the operation of such resource, provided that the resource was available for the entire time specified in the Offer Data for such resource. (b) The following determination shall be made for each pool- scheduled resource that is scheduled in the Day-ahead Energy Market: the total offered price for start-up and no-load fees and Spot Market Energy, determined on the basis of the resource's scheduled output, shall be compared to the total value of that resource's Spot Market Energy as determined by the Day-ahead Energy Market and the Day-ahead Prices applicable to the relevant generation bus in the Day-ahead Energy Market. Except as provided in Section 3.2.3(n), if the total offered price summed over all hours exceeds the total value summed over all hours, the difference shall be credited to the Market Seller. (c) The sum of the foregoing credits calculated in accordance with Section 3.2.3(b) plus any unallocated charges from Section 3.2.3(h) and 5.1.7, shall be the cost of Operating Reserves in the Day-ahead Energy Market. (d) The cost of Operating Reserves in the Day-ahead Energy Market shall be allocated and charged to each Market Participant in proportion to the sum of its (i) scheduled load and accepted Decrement Bids in the Day-ahead Energy Market in megawatt-hours for that Operating Day; and (ii) scheduled energy sales in the Day-ahead Energy Market from within the PJM Control Area to load outside the PJM Control Area in megawatt-hours for that Operating Day, but not including its bilateral transactions that are dynamically scheduled to load outside the PJM Control Area pursuant to Section 1.12. (e) At the end of each Operating Day, the following determination shall be made for each synchronized pool-scheduled resource of each Market Seller that operates as requested by the Office of the Interconnection and that is not committed solely for the purpose of providing spinning reserves: the total offered price for start-up and no-load fees and Spot Market Energy, determined on the basis of the lesser of the resource's (i) hourly output as determined by the State Estimator, or (ii) requested output as determined by the PJM dispatch. The total offered price shall be compared to the total value of that resource's energy in the Day-ahead Energy Market plus any credit or charge for quantity deviations, at PJM dispatch direction, from the Day-ahead Energy Market during the Operating Day. Except as provided in Section 3.2.3(m), if the total offered price exceeds the total value, the difference less any credit as determined pursuant to Section 3.2.3(b) and less any amounts credited for Regulation in excess of the Regulation offer plus the resources opportunity cost, shall be credited to the Market Seller. (f) A Market Seller's pool scheduled resource the output of which is reduced or suspended at the request of the Office of the Interconnection for the purpose of maintaining reliability within the PJM Control Area, shall be credited in an amount equal to (PAG - AG) x LT x (ULMP - UB) where: PAG equals the actual generation of the unit for the five minute period preceding the request; Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 99 First Revised Rate Schedule FERC No. 24 AG equals the actual generation of the unit until PJM cancels the request to reduce output; LT equals the length of time that the request to reduce output was effective; ULMP equals the LMP at the unit's bus; UB equals the unit bid for that unit whose output is reduced or suspended; and where ULMP - UB shall not be negative. (g) The sum of the foregoing credits, plus any cancellation fees paid in accordance with Section 1.10.2(d), such cancellation fees to be applied to the Operating Day for which the unit was scheduled, less any payments received from another Control Area for Operating Reserves, shall be the cost of Operating Reserves for the Real-time Energy Market in each Operating Day. (h) The cost of Operating Reserves for the Real-time Energy Market for each Operating Day shall be allocated and charged to each Market Participant in proportion to the sum of the absolute values of its (i) load deviations from the Day-ahead Energy Market in megawatt-hours during that Operating Day; (ii) generation deviations from the Day-ahead Energy Market for non-dispatchable generation resources, including External Resources, in megawatt-hours during the Operating Day; (iii) deviations from the Day-ahead Energy Market for bilateral transactions from outside the PJM Control Area for delivery within the PJM Control Area in megawatt-hours during the Operating Day; and (iv) deviations of energy sales from the Day-ahead Energy Market from within the PJM Control Area to load outside the PJM Control Area in megawatt-hours during that Operating Day, but not including its bilateral transactions that are dynamically scheduled to load outside the PJM Control Area pursuant to Section 1.12. (i) At the end of each Operating Day, Market Sellers shall be credited on the basis of their offered prices for synchronized condensing for any hydropower or combustion turbine units operated as synchronous condensers but producing no energy, as well as the credits calculated as specified in Section 3.2.3(b) for those generators committed solely for the purpose of providing spinning reserves, at the request of the Office of the Interconnection. (j) The sum of the foregoing credits as specified in Section 3.2.3(b) shall be the cost of Operating Reserves for synchronized condensing for the Operating Day in the PJM Control Area. (k) The cost of Operating Reserves for synchronized condensing for each Operating Day shall be allocated and charged to each Market Participant in proportion to the sum of its (i) deliveries of energy to load in the PJM Control Area, served under Network Transmission Service, in megawatt-hours during that Operating Day; and (ii) deliveries of energy sales from within the PJM Control Area to load outside the PJM Control Area in megawatt-hours during that Operating Day, but not including its bilateral transactions that are dynamically scheduled to load outside the PJM Control Area pursuant to Section 1.12. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 100 First Revised Rate Schedule FERC No. 24 (l) For any Operating Day in either, as applicable, the Day-ahead Energy Market or the Real-time Energy Market for which, for all or any part of such Operating Day, the Office of the Interconnection: (i) declares a Maximum Generation Emergency; (ii) issues an alert that a Maximum Generation Emergency may be declared ("Maximum Generation Emergency Alert"); or (iii) schedules units based on the anticipation of a Maximum Generation Emergency or a Maximum Generation Emergency Alert, the Operating Reserves credit otherwise provided by Section 3.2.3.(b) or Section 3.2.3(e) in connection with marked-based offers shall be limited as provided in paragraphs (n) or (m), respectively. The Office of the Interconnection shall provide timely notice on its internet site of the commencement and termination of any of the actions described in clause (i), (ii), or (iii) of this paragraph (l) (collectively referred to as "MaxGen Conditions"). Following the posting of notice of the commencement of a MaxGen Condition, a Market Seller may elect to submit a cost-based offer in accordance with Schedule 2 of the Operating Agreement, in which case paragraphs (m) and (n) shall not apply to such offer; provided, however, that such offer must be submitted in accordance with the deadlines in Section 1.10 for the submission of offers in the Day-ahead Energy Market or Real-time Energy Market, as applicable. Submission of a cost-based offer under such conditions shall not be precluded by Section 1.9.7(b); provided, however, that the Market Seller must return to compliance with Section 1.9.7(b) when it submits its bid for the first Operating Day after termination of the MaxGen Condition. (m) For the Real-time Energy Market, if the Effective Offer Price (as defined below) for a market-based offer is greater than $1,000/MWh, the Market Seller shall not receive any credit for Operating Reserves. If the Effective Offer Price is less than or equal to $1,000/MWh, the Market Seller shall receive credit for Operating Reserves determined in accordance with Section 3.2.3(e), subject to the limit on total compensation stated below. For purposes of this paragraph (m), the Effective Offer Price shall be the amount that, absent paragraphs (l) and (m), would have been credited for Operating Reserves for such Operating Day pursuant to Section 3.2.3(e) divided by the megawatthours of energy offered during the hours that the offer is economic, plus the offer for Spot Market Energy for the hours that the offer is economic. The hours that the offer is economic shall be the hours that the offer price for Spot Market Energy is less than or equal to the Real-time Price for the relevant generation bus. Notwithstanding any other provision in this paragraph, the total compensation to a Market Seller on any Operating Day that includes a MaxGen Condition shall not exceed $1,000/MWh during the hours that the unit is economic, where such total compensation in each such hour is defined as the amount that, absent paragraphs (l) or (m), would have been credited for Operating Reserves for such Operating Day pursuant to Section 3.2.3(e) divided by the number of hours that the offer is economic, plus the Real-time Price for such hour, and no Operating Reserves payments shall be made for any other hour of such Operating Day. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 101 First Revised Rate Schedule FERC No. 24 (n) For the Day-ahead Energy Market, if notice of a MaxGen Condition is provided prior to 12:00 noon on the day before the Operating Day for which transactions are being scheduled and the Effective Offer Price is greater than $1,000/MWh, the Market Seller shall not receive any credit for Operating Reserves. If notice of a MaxGen Condition is provided after 12:00 noon on the day before the Operating Day for which transactions are being scheduled and the Effective Offer Price is greater than $1,000/MWh, the Market Seller shall receive credit for Operating Reserves determined in accordance with Section 3.2.3(b), subject to the limit on total compensation stated below. If the Effective Offer Price is less than or equal to $1,000/MWh, regardless of when notice of a MaxGen Condition is provided, the Market Seller shall receive credit for Operating Reserves determined in accordance with Section 3.2.3(b), subject to the limit on total compensation stated below. For purposes of this paragraph (n), the Effective Offer Price shall be the amount that, absent paragraphs (l) and (n), would have been credited for Operating Reserves for such Operating Day divided by the megawatt hours of energy offered during the Specified Hours, plus the offer for Spot Market Energy during such hours. The Specified Hours shall be the lesser of: (1) the minimum run hours stated by the Market Seller in its Offer Data; and (2) either (i) for steam-electric generating units and for combined-cycle units when such units are operating in combined-cycle mode, the six consecutive hours of highest Day-ahead Price during such Operating Day when such units are running or (ii) for combustion turbine units and for combined-cycle units when such units are operating in combustion turbine mode, the two consecutive hours of highest Day-ahead Price during such Operating Day when such units are running. Notwithstanding any other provision in this paragraph, the total compensation to a Market Seller on any Operating Day that includes a MaxGen Condition shall not exceed $1,000/MWh during the Specified Hours, where such total compensation in each such hour is defined as the amount that, absent paragraphs (l) and (n), would have been credited for Operating Reserves for such Operating Day pursuant to Section 3.2.3(b) divided by the Specified Hours, plus the Day-ahead Price for such hour, and no Operating Reserves payments shall be made for any other hour of such Operating Day. 3.2.4 Transmission Congestion. Each Market Buyer shall be charged or credited for Transmission Congestion Charges as specified in Section 5 of this Schedule. 3.2.5 Transmission Losses. (a) Whenever the Office of the Interconnection has in place appropriate computer hardware, software, and other necessary resources to account for marginal losses in the dispatch of energy and the calculation of Locational Marginal Prices, loss accounting shall be determined on that basis, and the provisions of this Section shall be revised accordingly. Until such time, the following accounting provisions for losses shall apply. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 102 First Revised Rate Schedule FERC No. 24 (b) Each Internal Market Buyer that is a Load Serving Entity or purchasing on behalf of a Load Serving Entity shall be credited in an amount equal to its pro rata share of the hourly total amounts collected from Transmission Customers either as charges for transmission losses in the PJM Control Area as specified in Section 3.4.2 or for transmission losses supplied in kind in accordance with Section 3.4.2(c) based on the Locational Marginal Price at the interface where such losses were delivered. This credit shall be determined by the ratio of the Internal Market Buyer's total hourly load, divided by the total hourly load in the PJM Control Area. (c) PJM Control Area 500 kV losses shall be allocated to each Electric Distributor that reports hourly net energy flows from metered tie lines in proportion to its hourly load in the PJM Control Area. 3.2.6 Emergency Energy. (a) Internal Market Buyers shall be allocated a proportionate share of the net cost of Emergency energy purchased by the Office of the Interconnection. Such allocated share shall be determined in proportion to the amount of net PJM Interchange Imports by each Internal Market Buyer during the hour of each such energy purchase. (b) Net revenues in excess of Real-time Prices attributable to sales of energy in connection with Emergencies to other Control Areas shall be credited to Internal Market Buyers in proportion to the amount of net PJM Interchange Imports by each Internal Market Buyer during each hour of such energy sales. (c) The costs, revenues, and energy associated with hourly energy purchased from another Control Area in connection with a Minimum Generation Emergency in such other Control Area, shall be allocated to each Internal Market Buyer in proportion to its load in the PJM Control Area during the hour of such purchases. 3.2.7 Billing. (a) The Office of the Interconnection shall prepare a billing statement each billing cycle for each Market Buyer in accordance with the charges and credits specified in Sections 3.2.1 through 3.2.6 of this Schedule, and showing the net amount to be paid or received by the Market Buyer. Billing statements shall provide sufficient detail, as specified in the PJM Manuals, to allow verification of the billing amounts and completion of the Market Buyer's internal accounting. (b) If deliveries to a Market Buyer that has PJM Interchange meters in accordance with Section 14 of the Operating Agreement include amounts delivered for a Market Participant that does not have PJM Interchange meters separate from those of the metered Market Buyer, the Office of the Interconnection shall prepare a separate billing statement for the unmetered Market Participant based on the allocation of deliveries agreed upon between the Market Buyer and the unmetered Market Participant specified by them to the Office of the Interconnection. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 103 First Revised Rate Schedule FERC No. 24 3.3 Market Sellers. Except as provided in the following sentence, the accounting and billing principles and procedures applicable to Generating Market Buyers functioning as Market Sellers shall be as set forth in Section 3.2. This Section sets forth the accounting and billing principles and procedures applicable to all other Market Sellers, and to Generating Market Buyers functioning as Market Sellers with respect to any matters not specified in Section 3.2. 3.3.1 Spot Market Energy. (a) Market Sellers shall be paid for all energy scheduled to be delivered in the Day-ahead Energy Market at the Day-ahead Prices applicable to each relevant generation bus. (b) At the end of each hour during an Operating Day, the Office of the Interconnection shall determine the total net amount of energy delivered in the hour to the PJM Control Area by each of the Market Seller's resources, in accordance with the PJM Manuals and the calculation described in Section 3.2.1(f). (c) The Office of the Interconnection shall calculate Day-ahead and Real-time Prices for each generation and load bus in the PJM Control Area, including the bus at each point of interconnection between the PJM Control Area and each adjacent Control Area, in accordance with Section 2 of this Schedule. (d) A Market Seller shall be credited for Real-time sales of Spot Market Energy to the extent of its hourly net deliveries to the PJM Control Area of energy in excess of amounts scheduled in the Day-ahead Energy Market from the Market Seller's resources. For pool External Resources, the Office of the Interconnection shall model, based on an appropriate flow analysis, the hourly amounts delivered from each such resource to the corresponding interface point between the PJM Control Area and adjacent Control Areas. The total real- time generation revenues for each Market Seller shall be the sum of its credits determined by the product of (i) the hourly net amount of energy delivered to the PJM Control Area at the applicable generation or interface bus in excess of the amount scheduled to be delivered in that hour at that bus in the Day-ahead Energy Market from each of the Market Seller's resources, times (ii) the hourly Real-time Price at that bus. To the extent that the energy actually injected at a generation or interface bus in any hour is less than the energy scheduled to be injected at that bus in the Day-ahead Energy Market, the Market Seller shall be debited for the difference at the Real-time Price for the applicable bus at the time of the shortfall times the amount of the shortfall. The total generation revenue for each Market Seller shall be the sum, for each of the Market Seller's generation or interface buses, of the revenues at Day-ahead Prices determined in accordance with the Day-ahead Energy Market as specified in Section 3.3.1(a) plus the revenues at Real-time Prices determined as specified herein, net of any debits specified herein for each of the Market Seller's generation or interface buses. 3.3.2 Regulation. Each Market Seller that is also an Internal Market Buyer shall have an hourly Regulation objective and shall be credited or charged in connection therewith as specified in Section 3.2.2. All other Market Sellers supplying Regulation at the direction of the Office of the Interconnection shall be credited for each increment of such Regulation at the price specified in Section 3.2.2(b), as determined by the Office of the Interconnection in accordance with procedures specified in the PJM Manuals. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 104 First Revised Rate Schedule FERC No. 24 3.3.3 Operating Reserves. A Market Seller shall be credited for its pool-scheduled resources based on the prices offered for the operation of such resource, provided that the resource was available for the entire time specified in the Offer Data for such resource, in accordance with the procedures set forth in Section 3.2.3. 3.3.4 Emergency Energy. The costs and net revenues associated with hourly energy sales to other Control Areas in connection with a Minimum Generation Emergency in the PJM Control Area shall be allocated to Market Sellers in proportion to their sales to the PJM Interchange Energy Market from generation resources within the metered boundaries of the PJM Control Area in each hour in which such energy was sold to other Control Areas. 3.3.5 Billing. The Office of the Interconnection shall prepare a billing statement each billing cycle for each Market Seller in accordance with the charges and credits specified in Sections 3.3.1 through 3.3.4 of this Schedule, and showing the net amount to be paid or received by the Market Seller. Billing statements shall provide sufficient detail, as specified in the PJM Manuals, to allow verification of the billing amounts and completion of the Market Seller's internal accounting. 3.4 Transmission Customers. 3.4.1 Transmission Congestion. Each Transmission Customer shall be charged and credited for Transmission Congestion Charges as specified in Section 5 of this Schedule. 3.4.2 Transmission Losses. (a) Whenever the Office of the Interconnection has in place appropriate computer hardware, software, and other necessary resources to account for marginal losses in the dispatch of energy and the calculation of Locational Marginal Prices, loss accounting shall be determined on that basis, and the provisions of this Section shall be revised accordingly. Until such time, the following accounting provisions for losses shall apply. (b) Transmission Customers shall be charged for transmission losses in an amount equal to the product of (i) the Transmission Customer's megawatt-hours of deliveries using Point-to-Point Transmission Service, times (ii) the appropriate loss factor for deliveries using Point-to- Point Transmission Service, times (iii) the weighted average Day-ahead or Real- time Price, as applicable, for all load busses in the PJM Control Area. The foregoing average hourly loss factor shall be: (i) determined by the Office of the Interconnection from time to time as conditions affecting losses shall warrant; and (ii) calculated separately for on-peak and off-peak hours on the basis of the average ratio of losses to load served in each such period. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 105 First Revised Rate Schedule FERC No. 24 (c) A Transmission Customer may elect to pay for losses in kind, rounded off to the nearest whole megawatt, rather than as specified above if its total deliveries in an hour using Point-to-Point Transmission Service are greater than 200 megawatts. If it so elects, the Transmission Customer's specified source for the energy to be delivered using Point-to-Point Transmission Service may be scheduled to supply to the PJM Control Area boundary an amount of energy equal to the delivery schedule plus the amount of losses determined by applying the appropriate hourly loss factor as specified above to the delivered amount. 3.4.3 Billing. The Office of the Interconnection shall prepare a billing statement each billing cycle for each Transmission Customer in accordance with the charges and credits specified in Sections 3.4.1 through 3.4.2 of this Schedule, and showing the net amount to be paid or received by the Transmission Customer. Billing statements shall provide sufficient detail, as specified in the PJM Manuals, to allow verification of the billing amounts and completion of the Transmission Customer's internal accounting. 3.5 Other Control Areas. 3.5.1 Energy Sales. To the extent appropriate in accordance with Good Utility Practice, the Office of the Interconnection may sell energy to an interconnected Control Area as necessary to alleviate or end an Emergency in that Control Area. Such sales shall be made (i) only to Control Areas that have undertaken a commitment pursuant to a written agreement with the LLC to sell energy on a comparable basis to the PJM Control Area, and (ii) only to the extent consistent with the maintenance of reliability in the PJM Control Area. The Office of the Interconnection may decline to make such sales to a Control Area that the Office of the Interconnection determines does not have in place and implement Emergency procedures that are comparable to those followed in the PJM Control Area. If the Office of the Interconnection sells energy to an interconnected Control Area as necessary to alleviate or end an Emergency in that Control Area, such energy shall be sold at 150% of the Real-time Price at the bus or busses at the border of the PJM Control Area at which such energy is delivered. 3.5.2 Operating Margin Sales. The extent appropriate in accordance with Good Utility Practice, the Office of the Interconnection may sell Operating Margin to an interconnected Control Area as requested to alleviate an operating contingency resulting from the affect of the purchasing Control Area's operations on the dispatch of resources in the PJM Control Area. Such sales shall be made only to Control Areas that have undertaken a commitment pursuant to a written agreement with the Office of the Interconnection (i) to purchase Operating Margin whenever the purchasing Control Area's operations will affect the dispatch of resources in the PJM Control Area, and (ii) to sell Operating Margin on a comparable basis to the LLC. 3.5.3 Transmission Congestion. Each Control Area purchasing Operating Margin shall be assessed Transmission Congestion Charges as specified in Section 5.1.5 of this Schedule. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 106 First Revised Rate Schedule FERC No. 24 3.5.4 Billing. The Office of the Interconnection shall prepare a billing statement each billing cycle for each Control Area to which Emergency energy or Operating Margin was sold, and showing the net amount to be paid by such Control Area. Billing statements shall provide sufficient detail, as specified in the PJM Manuals, to allow verification of the billing amounts. 3.6 Metering Reconciliation. 3.6.1 Meter Correction Billing. Metering errors and corrections will be reconciled at the end of each month by a meter correction charge or credit. The monthly meter correction charge or credit shall be determined by the product of the positive or negative deviation in energy amounts, times the weighted average Locational Marginal Price for all load busses in the PJM Control Area. 3.6.2 Meter Corrections Between Market Participants. If a Market Participant or the Office of the Interconnection discovers a meter error affecting an interchange of energy with another Market Participant and makes the error known to such other Market Participant prior to the completion by the Office of the Interconnection of the accounting for the interchange, and if both Market Participants are willing to adjust hourly load records to compensate for the error and such adjustment does not affect other parties, an adjustment in load records may be made by the Market Participants in order to correct for the meter error, provided corrected information is furnished to the Office of the Interconnection in accordance with the Office of the Interconnection's accounting deadlines. No such adjustment may be made if the accounting for the Operating Day in which the interchange occurred has been completed by the Office of the Interconnection. 3.6.3 500 kV Meter Errors. Billing cycle accounting for 500 kV transmission losses shall be adjusted to account for errors in meters on 500 kV Transmission Facilities. 3.6.4 Meter Corrections Between Control Areas. An error between accounted for and metered interchange between a Party in the PJM Control Area and an entity in another Control Area shall be corrected by adjusting the hourly meter readings. If this is not practical, the error shall be accounted for by a correction at the end of the billing cycle. The Market Participant with ties to such other Control Area experiencing the error shall account for the full amount of the discrepancy and an appropriate debit or credit shall be applied equally among all Market Buyers. The Office of the Interconnection will adjust the actual interchange between the PJM Control Area and the other Control Area to maintain a proper record of inadvertent energy flow. Meter corrections on the 500 kV system between the PJM Control Area and other Control Areas shall be accounted for through the internal 500 kV system meter error allocation at the end of the billing cycle. 3.6.5 Meter Correction Data. Meter error data shall be submitted to the Office of the Interconnection not later than noon on the second working day of the Office of the Interconnection after the end of the billing cycle applicable to the meter correction. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.C.C. Original Sheet No. 107 First Revised Rate Schedule FERC No. 24 3.6.6 Correction Limits. A Market Participant may not assert a claim for an adjustment in billing as a result of a meter error for any error discovered more than two years after the date on which the metering occurred. Any claim for an adjustment in billing as a result of a meter error shall be limited to bills for transactions occurring in the most recent annual accounting period of the billing Market Participant in which the meter error occurred, and the prior annual accounting period. 4. RATE TABLE 4.1 Offered Price Rates. Spot Market Energy, Regulation, Operating Reserve, and Transmission Congestion are based on offers to the Office of the Interconnection specified in this Agreement. 4.2 Transmission Losses. Average loss factors shall be as specified in the PJM Tariff. 4.3 Emergency Energy Purchases. The pricing for Emergency energy purchases will be determined by the Office of the Interconnection and: (a) an adjacent Control Area, in accordance with an agreement between the Office of the Interconnection and such adjacent Control Area, or (b) a Member, in accordance with arrangements made by the Office of Interconnection to purchase energy offered by such Member from resources that are not Capacity Resources. 5. CALCULATION OF TRANSMISSION CONGESTION CHARGES AND CREDITS 5.1 Transmission Congestion Charge Calculation. 5.1.1 Calculation by Office of the Interconnection. When the transmission system is operating under constrained conditions, the Office of the Interconnection shall calculate Transmission Congestion Charges for each Network Service User, the PJM Interchange Energy Market, and each Transmission Customer. 5.1.2 General. The basis for the Transmission Congestion Charges shall be the differences in the Locational Marginal Prices between points of delivery and points of receipt, as determined in accordance with Section 2 of this Schedule. 5.1.3 Network Service User Calculation. Each Network Service User shall be charged for the increased cost of energy incurred by it during each constrained hour to deliver the output of its firm Capacity Resources or other owned or contracted for resources, its firm bilateral purchases, and its non-firm bilateral purchases as to which it has elected to pay Transmission Congestion Charges. The Transmission Congestion Charge for deliveries from each such source shall be the Network Service User's hourly net bill less its hourly net PJM Interchange payments or sales as determined in accordance with Section 3.2.1 or Sections 3.3 and 3.3.1 of this Schedule. Issued By: Richard A. Drom Vice President, General Counsel Effective: November 10, 2000 Issued By: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 108 First Revised Rate Schedule FERC No. 24 5.1.4 Transmission Customer Calculation. Each Transmission Customer using Firm Point-to-Point Transmission Service (as defined in the PJM Tariff), and each Transmission Customer using Non-Firm Point-to-Point Transmission Service (as defined in the PJM Tariff) that has elected to pay Transmission Congestion Charges, shall be charged for the increased cost of energy during constrained hours for the delivery of energy using Point-to-Point Transmission Service. Except as specified in this subsection, a Transmission Congestion Charge shall be assessed for transmission use scheduled in the Day-ahead Energy Market, calculated as the amount to be delivered multiplied by the difference between the Day-ahead Price at the delivery point or PJM Control Area boundary delivery interface and the Day-ahead Price at the source point or PJM Control Area boundary source interface. Transmission Congestion Charges shall be assessed for real-time transmission use in excess of the amounts scheduled for each hour in the Day-ahead Energy Market, calculated as the excess amount multiplied by the difference between the Real- time Price at the delivery point or PJM Control Area boundary delivery interface, and the Real-time Price at the source point or PJM Control Area boundary source interface. A Transmission Customer shall be credited for Transmission Congestion Charges for real-time transmission use falling below the amounts scheduled for each hour in the Day-ahead Energy Market, calculated as the shortfall amount multiplied by the difference between the Real-time Price at the delivery point or PJM Control Area boundary delivery interface, and the Real-time Price at the source point or PJM Control Area boundary source interface. Real-time deviations from the Point-to-Point Transmission Service scheduled in the Day-ahead Energy Market shall be determined by the lesser of the real-time injection or withdrawal associated with such transmission service. The Transmission Congestion Charge for Market Sellers using point-to-point transmission service for deliveries out of the PJM Control Area from generating resources within the PJM Control Area shall be the amount of its net bill less the Market Seller's net hourly PJM Interchange payments or sales as determined in accordance with Section 3.3 of this Schedule. 5.1.5 Operating Margin Customer Calculation. Each Control Area purchasing Operating Margin shall be assessed Transmission Congestion Charges for any the increase in the cost of energy resulting from the provision of Operating Margin. The Transmission Congestion Charge shall be the amount of Operating Margin purchased in an hour multiplied by the difference in the Real-time Price at what would be the delivery interface and the Real-time Price at what would be the source interface, if the operating contingency that was the basis for the purchase of Operating Margin had occurred in that hour. Operating Margin may be allocated among multiple source and delivery interfaces in accordance with an applicable load flow study. 5.1.6 Transmission Loading Relief Customer Calculation. (a) Each Transmission Loading Relief Customer shall be assessed Transmission Congestion Charges for any increase in the cost of energy in the PJM Control Area resulting from its energy schedules over contract paths outside the PJM Control Area during Transmission Loading Relief. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 109 First Revised Rate Schedule FERC No. 24 (b) The Transmission Congestion Charge shall be the total amount of energy specified in such energy schedules multiplied by the difference between a Locational Marginal Price calculated by the Office of the Interconnection for the energy schedule source location specified in the NERC Interchange Distribution Calculator and a Locational Marginal Price calculated by the Office of the Interconnection for the energy schedule sink location specified in the NERC Interchange Distribution Calculator. Transmission Congestion Charges that are less than zero shall be set equal to zero for Transmission Loading Relief Customers. (c) The Office of the Interconnection will determine the Locational Marginal Prices at the energy schedule source and sink locations external to PJM with reference to and based solely on the prices of energy in the PJM Control Area and at the interface buses between the PJM Control Area and adjacent Control Areas and the system conditions and actual power flow distributions as described by the PJM State Estimator program. The Office of the Interconnection will determine the Locational Marginal Prices at the external energy schedule source and sink locations and the resulting Congestion Charge based on the portion of the energy schedule that flows through the PJM Control Area as reflected by the flow distributions from the PJM State Estimator program. 5.1.7 Total Transmission Congestion Charges. The total Transmission Congestion Charges collected by the Office of the Interconnection each hour will be the aggregate net amounts determined as specified in this Schedule. The Office of the Interconnection shall collect Transmission Congestion Charges for each hour the transmission system operates under constrained conditions. 5.2 Transmission Congestion Credit Calculation. 5.2.1 Eligibility. (a) Except as provided in Section 5.2.1(b), each holder of a Fixed Transmission Right shall receive as a Transmission Congestion Credit a proportional share of the total Transmission Congestion Charges collected for each constrained hour. (b) If a holder of a Fixed Transmission Right between specified delivery and receipt buses acquired the Fixed Transmission Right in a Fixed Transmission Rights Auction (the procedures for which are set forth in Part 7 of this Schedule 1) and (i) had an Increment Bid and/or Decrement Bid that was accepted by the Office of the Interconnection for an applicable hour in the Day- ahead Energy Market for delivery or receipt at or near delivery or receipt buses of the Fixed Transmission Right; and (ii) the result of the acceptance of such Increment Bid or Decrement Bid is that the difference in locational marginal prices in the Day-ahead Energy Market between such delivery and receipt buses is greater than the difference in locational marginal prices between such delivery and receipt buses in the Real-time Energy Market, then the Market Participant shall not receive any Transmission Congestion Credit, associated with such Fixed Transmission Right in such hour, in excess of one divided by the number of hours in the applicable month multiplied by the amount that the Market Participant paid for the Fixed Transmission Right in the Fixed Transmission Rights Auction. Issued By: Richard A. Drom Effective: December 23, 2000 Vice President, General Counsel Issued On: December 22, 2000 PJM Interconnection, L.C.C. Original Sheet No. 109A First Revised Rate Schedule FERC No. 24 (c) For purposes of Section 5.2.1(b) a bus shall be considered at or near the Fixed Transmission Right delivery or receipt bus if seventy-five percent or more of the energy injected or withdrawn at that bus and which is withdrawn or injected at any other bus is reflected in the constrained path between the subject Fixed Transmission Right delivery and receipt buses that were acquired in the Fixed Transmission Rights Auction. 5.2.2 Fixed Transmission Rights. (a) Transmission Congestion Credits will be calculated based upon the Fixed Transmission Rights held at the time of the constrained hour. Allocations of Fixed Transmission Rights shall be made to each Network Service User and Transmission Customer as specified below. Issued By: Richard A. Drom Effective: December 23, 2000 Vice President, General Counsel Issued On: December 22, 2000 PJM Interconnection, L.L.C. Original Sheet No. 110 First Revised Rate Schedule FERC No. 24 (b) Subject to the provisions of Section B of Attachment K of the PJM Tariff, on an annual basis by such deadline established by the Office of the Interconnection, each Network Service User shall designate a subset of its Network Resources for which Fixed Transmission Rights will be assigned. Fixed Transmission Rights shall be assigned for each Network Resource in a number of megawatts equal to or less than the installed capacity summer megawatt rating of each designated Network Resource, determined at the PJM Control Area transmission bus at which the designated Network Resource is connected. Each Fixed Transmission Right shall be to the aggregate load busses of the Network Service User in a Zone or, with respect to Non-Zone Network Load, to the border of the PJM Control Area. The sum of each Network Service User's assigned Fixed Transmission Rights for a Zone must be equal to or less than the Network Service User's peak load for that Zone as determined under Section 34.1 of the Tariff. The sum of each Network Service User's Fixed Transmission Rights for Non-Zone Network Load must be equal to or less than the Network Service User's transmission responsibility for Non-Zone Network Load as determined under Section 34.1 of the Tariff. (c) Each Transmission Customer receiving firm Point-to-Point Transmission Service shall be assigned Fixed Transmission Rights; provided, however, that a Transmission Customer may notify the Office of Interconnection that it does not wish to receive any FTRs or wishes to receive FTRs only for certain Point or Points of Receipt and Point or Points of Delivery, in which event no FTRs or such reduced amount of FTRs shall be issued to the Transmission Customer. The Fixed Transmission Right for each instance of Point-to-Point Transmission Service shall be a number of megawatts equal to the megawatts of firm service being provided between the receipt and delivery points as to which the Transmission Customer has firm Point-to-Point Transmission Service. (d) A Fixed Transmission Right, or the right to Transmission Congestion Credits attributable to a Fixed Transmission Right, may be sold or otherwise transferred by agreement, subject to compliance with such procedures as may be established by the Office of the Interconnection for verification of the rights of the purchaser or transferee. 5.2.3 Target Allocation for Network Service Users. A target allocation of Transmission Congestion Credits for each Network Service User shall be determined for each of its Fixed Transmission Rights. Each Fixed Transmission Right shall be multiplied by the percent of the Network Service User's annual peak load assigned to each load bus multiplied by the difference calculated as the Network Service User's load bus Day-ahead Price minus the generation bus Day-ahead Price of the Network Resource associated with the Fixed Transmission Right. The total target allocation for each Fixed Transmission Right is the sum of the target allocations for each load bus. The total target allocation for each Network Service User for each hour is the sum of the total target allocations for each of the Network Service User's Fixed Transmission Rights. Issued By: Richard A. Drom Effective: December 24, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 111 First Revised Rate Schedule FERC No. 24 5.2.4 Target Allocation for other Holders. A target allocation of Transmission Congestion Credits for each Transmission Customer or entity holding an FTR acquired by other means shall be determined for each Fixed Transmission Right. Each Fixed Transmission Right shall be multiplied by the Day-ahead Price differences for the receipt and delivery points associated with the Fixed Transmission Right, calculated as the Day-ahead Price at the delivery point(s) minus the Locational Marginal Price at the receipt point(s). The total target allocation for the Transmission Customer for each hour shall be the sum of the target allocations associated with all of the Transmission Customer's Fixed Transmission Rights. 5.2.5 Calculation of Transmission Congestion Credits. (a) The total of all the target allocations determined as specified above shall be compared to the total Transmission Congestion Charges in each hour resulting from both the Day-ahead Energy Market and the Real-time Energy Market. If the total of the target allocations is less than the total of the Transmission Congestion Charges, the Transmission Congestion Credit for each Network Service User and Transmission Customer shall be equal to its target allocation. All remaining Transmission Congestion Charges shall be distributed as described below in Section 5.2.6 "Distribution of Excess Congestion Charges." (b) If the total of the target allocations is greater than the total Transmission Congestion Charges for the hour resulting from both the Day- ahead Energy Market and the Real-time Energy Market, each holder of Fixed Transmission Rights shall be assigned a share of the total Transmission Congestion Charges in proportion to its target allocations. 5.2.6 Distribution of Excess Congestion Charges. (a) Excess Transmission Congestion Charges accumulated in a month shall be distributed to each holder of Fixed Transmission Rights in proportion to, but not more than, any deficiency in the share of Transmission Congestion Charges received by the holder during that month as compared to its total target allocations for the month. (b) After the excess Transmission Congestion Charge distribution described in Section 5.2.6(a) is performed, any excess Transmission Congestion Charges remaining at the end of a month shall be distributed to each holder of Fixed Transmission Rights in proportion to, but not more than, any deficiency in the share of Transmission Congestion Charges received by the holder during the current calendar year, including previously distributed excess Transmission Congestion Charges, as compared to its total target allocation for the calendar year. (c) Any excess Transmission Congestion Charges remaining at the end of a calendar year shall be distributed to Network Service Users and Transmission Customers purchasing Firm Point-to-Point Transmission Service in proportion to their Demand Charges for Network Service and their charges for Reserved Capacity for Firm Point-to-Point Transmission Service. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 110 First Revised Rate Schedule FERC No. 24 5.3 Unscheduled Transmission Service (Loop Flow). (a) When there are agreements between the Members (or the Office of the Interconnection on behalf of the Members) and others for compensation to be paid or received for unscheduled transmission service (loop flow) into or out of the PJM Control Area, the net compensation received shall be included in the total Transmission Congestion Charges that are distributed in accordance with Section 5.2. (b) With respect to payments by the Office of the Interconnection to the New York Power Pool for the installation and operation of phase angle regulating facilities at Ramapo to control or limit unscheduled transmission service (loop flow), each Transmission Owner with revenue requirements under the PJM Tariff shall pay a share of the charges on a transmission revenue requirements ratio share basis. 6. "MUST-RUN" FOR RELIABILITY GENERATION 6.1 Introduction. The following procedures shall apply to any generation resource subject to the dispatch of the Office of the Interconnection that (a) is a generation resource for which construction commenced before July 9, 1996, and (b) as a result of transmission constraints, the Office of the Interconnection determines, in the exercise of Good Utility Practice, must be run in order to maintain the reliability of service in the PJM Control Area. The provisions of this Schedule shall otherwise apply to the scheduling, dispatch, operation and accounting treatment of such resources, to the extent not inconsistent with the provisions of this Section 6. 6.2 Identification of Facility Outages. Not later than one hour prior to the deadline specified in Section 1.10.1 of this Schedule, the Office of the Interconnection shall identify on the PJM Open Access Same-Time Information System any facility outage or other system condition which it has determined may give rise to a transmission constraint that may require, in order to maintain system reliability, the dispatch of one or more generation resources that otherwise would not be dispatched based on the merits of their offers to the PJM Interchange Energy Market. 6.3 Dispatch for Local Reliability. 6.3.1 Request and Dispatch. In addition to the dispatch of generation by the Office of the Interconnection to maintain reliability on transmission facilities directly monitored by it, a Member that owns or leases with rights equivalent to ownership Transmission Facilities as defined in this Agreement or the Transmission Owners Agreement and that operates a local control center in accordance with Section 11.3.3 of this Agreement or a Market Operations Center in accordance with Section 1.7.5 of this Schedule, may request the Office of the Interconnection to dispatch generation in order to maintain reliability on any such Transmission Facilities that are not then directly Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 113 First Revised Rate Schedule FERC No. 24 monitored by the Office of the Interconnection, subject to the rules and procedures in Section 6.3.2. The Office of the Interconnection shall dispatch generation to maintain reliability on such Transmission Facilities by incorporating the facilities in the State Estimator program described in Section 2.3 as set forth below, unless the Office of the Interconnection determines that such dispatch would adversely affect reliability in the PJM Control Area or would otherwise not be in accordance with Good Utility Practice. 6.3.2 Designation of Facilities. The following rules and procedures shall apply to a Member request that the Office of the Interconnection dispatch generation on one or more Transmission Facilities that are not then directly monitored by the Office of the Interconnection. a) The Transmission Facilities that are the subject of the request must be among the facilities that comprise the Transmission System under the PJM Tariff; b) The Member shall provide modeling information for such Transmission Facilities and provide sufficient telemetry to the Office of the Interconnection such that power flows are observable by the State Estimator program described in Section 2.3; provided, however, that if an unreliable constrained condition exists and time does not permit such modeling and telemetry, the Member and the Office of the Interconnection may agree to use a representative surrogate for such Transmission Facilities in order to allocate the costs of the dispatch of generation using Locational Marginal Prices to maintain reliability on such Transmission Facilities, provided further that the Member shall expeditiously provide the modeling data and install the necessary facilities to incorporate the Transmission Facilities into the State Estimator program; c) The request shall constitute a request that such Transmission Facilities become and remain monitored by the Office of the Interconnection and subject to its dispatch control for a period of not less than ninety (90) days; d) The Member shall comply with all other operating procedures established by the Office of the Interconnection regarding dispatch for local reliability as set forth in the PJM Manuals. 6.4 Price Caps. 6.4.1 Applicability. (a) Except as specified below, if in the day-ahead schedule determined by the Office of the Interconnection in accordance with Sections 1.10.8(a) and (b) of this Schedule any generation resource may be dispatched out of economic merit order to maintain system reliability as a result of limits on transmission capability, the prices for energy offered by such resource shall be capped at the levels specified below. If the Office of the Interconnection is able to do so, such prices shall be capped only during each hour when the transmission limit affects the schedule of the affected resource, and otherwise shall be capped for the entire Operating Day. The energy prices as capped shall be used to determine any Locational Marginal Price affected by the price of such resource. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 114 First Revised Rate Schedule FERC No. 24 (b) The energy bid price offered by any generation resource requested to be dispatched in accordance with Section 6.3 of this Schedule shall be capped at the levels specified below. If the Office of the Interconnection is able to do so, such prices shall be capped only during each hour when the affected resource is so scheduled, and otherwise shall be capped for the entire Operating Day. The energy prices as capped shall be used to determine any Locational Marginal Price affected by the price of such resource. (c) Generation resources subject to a price cap shall be paid for energy at the applicable Locational Marginal Price. (d) Price caps shall not be applicable to generation resources used to relieve the Western, Central and Eastern reactive limits in the PJM Control Area. In addition, price caps shall not be applicable to generation resources used to relieve any other transmission limit as to which the FERC has authorized the use of market based rates. 6.4.2 Level. The price cap shall be one of the amounts specified below, as specified in advance by the market Seller for the affected unit: (i) The weighted average Locational Marginal Price at the generation bus at which energy from the capped resource was delivered during a specified number of hours during which the resource was dispatched for energy in economic merit order, the specified number of hours to be determined by the Office of the Interconnection and to be a number of hours sufficient to result in a price cap that reflects reasonably contemporaneous competitive market conditions for that unit; (ii) The incremental operating cost of the generation resource as determined in accordance with Schedule 2 of this Agreement and the PJM Manuals, plus 10% of such costs; or (iii) An amount determined by agreement between the Office of the Interconnection and the Market Seller. 7. FIXED TRANSMISSION RIGHTS AUCTIONS 7.1 Auctions of Fixed Transmission Rights. Periodic auctions to allow Market Participants to acquire or sell Fixed Transmission Rights shall be conducted by the Office of the Interconnection in accordance with the provisions of this Section. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 115 First Revised Rate Schedule FERC No. 24 7.1.1 Auction Period and Scope of Auctions. The period covered by an auction shall be the one-month period next following the date that the auction is conducted. The Office of the Interconnection shall offer for sale in the auction any remaining Fixed Transmission Rights capability for the month after taking into account all of the Fixed Transmission Rights already outstanding at the time of the auction. In addition, any holder of a Fixed Transmission Right for the period covered by an auction may offer such Fixed Transmission Right for sale in such auction. Each monthly auction will consist of a separate auction for on-peak Fixed Transmission Rights and a separate auction for off-peak Fixed Transmission Rights. Market Participants may bid for and acquire any number of Fixed Transmission Rights, provided that all Fixed Transmission Rights awarded are simultaneously feasible with each other and with all Fixed Transmission Rights outstanding at the time of the auction and not sold into the auction. 7.1.2 Frequency and Time of Auctions. Fixed Transmission Rights auctions shall be held monthly. The bid and offer period shall open at 12:00 midnight (Eastern Prevailing Time) on the fifteenth (15th) business day preceding the month for which Fixed Transmission Rights are being auctioned and shall close at 12:00 midnight (Eastern Prevailing Time) on the tenth (10th) business day preceding the month for which Fixed Transmission Rights are being auctioned. 7.1.3 Duration of Fixed Transmission Rights. Each Fixed Transmission Right acquired in a Fixed Transmission Rights auction shall entitle the holder to credits of Transmission Congestion Charges for the one-month period for which the Fixed Transmission Rights were auctioned. 7.2 Fixed Transmission Rights Characteristics. 7.2.1 Reconfiguration of Fixed Transmission Rights. Through an appropriate linear programming model, the Office of the Interconnection shall reconfigure the Fixed Transmission Rights offered or otherwise available for sale in any auction to maximize the value to the bidders of the Fixed Transmission Rights sold, provided that any Fixed Transmission Rights acquired at auction shall be simultaneously feasible in combination with those Fixed Transmission Rights outstanding at the time of the auction and not sold in the auction. The linear programming model shall, while respecting transmission constraints and the maximum MW quantities of the bids and offers, select the set of simultaneously feasible Fixed Transmission Rights with the highest net total auction value as determined by the bids of buyers and taking into account the reservation prices of the sellers. 7.2.2 Specified Buses. Auction bids for Fixed Transmission Rights may specify any combination of receipt and delivery buses represented in the State Estimator model for which the Office of the Interconnection calculates and posts Locational Marginal Prices. Auction bids may specify receipt and delivery points from locations outside of the PJM Control Area to locations inside the PJM Control Area, from locations within the PJM Control Area to locations outside of the PJM Control Area, or to and from locations within the PJM Control Area. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 116 First Revised Rate Schedule FERC No. 24 7.2.3 Transmission Congestion Charges. Fixed Transmission Rights, whether acquired at auction or otherwise, shall entitle holders thereof to credits only for Transmission Congestion Charges, and shall not confer a right to credits for payments arising from or relating to transmission congestion made to any entity other than the Office of the Interconnection. 7.3 Auction Procedures. 7.3.1 Role of the Office of the Interconnection. Fixed Transmission Rights auctions shall be conducted by the Office of the Interconnection in accordance with standards and procedures set forth in the PJM Manuals, such standards and procedures to be consistent with the requirements of this Schedule. 7.3.2 Notice of Offer. A holder of a Fixed Transmission Right wishing to offer the Fixed Transmission Right for sale shall notify the Office of the Interconnection of any Fixed Transmission Rights to be offered. Each Fixed Transmission Right sold in an auction shall, at the end of the period for which the Fixed Transmission Rights were auctioned, revert to the offering holder or the entity to which the offering holder has transferred such Fixed Transmission Right, subject to the term of the Fixed Transmission Right itself and to the right of such holder or transferee to offer the Fixed Transmission Right in the next or any subsequent auction during the term of the Fixed Transmission Right. 7.3.3 Pending Applications for Firm Service. (a) Prior to the start of each auction bidding period, the Office of the Interconnection shall exert reasonable effort to complete its review of pending applications for Network Transmission Service and Firm Point- to-Point Transmission Service and to ascertain the corresponding Fixed Transmission Rights to be assigned to the entities receiving such service, subject to compliance with all applicable deadlines and other procedures by the applicant. Fixed Transmission Rights so assigned shall be included in the simultaneous feasibility test performed by the Office of the Interconnection for the auction. (b) Fixed Transmission Rights may be assigned to entities requesting Network Transmission Service or Firm Point-to-Point Transmission Service only if such Fixed Transmission Rights are simultaneously feasible with all outstanding Fixed Transmission Rights, including Fixed Transmission Rights effective for the then-current auction period. If an assignment of Fixed Transmission Rights pursuant to a pending application for Network Transmission Service or Firm Point-to-Point Transmission Service cannot be completed prior to an auction, Fixed Transmission Rights attributable to such transmission service shall not be assigned for the then-current auction period. If a Fixed Transmission Right cannot be assigned for this reason, the applicant may withdraw its application, or request that the Fixed Transmission Right be assigned effective with the start of the next auction period. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 117 First Revised Rate Schedule FERC No. 24 7.3.4 On-Peak and Off-Peak Periods. The Office of the Interconnection will conduct separate auctions simultaneously for on-peak and off-peak periods. On-Peak Fixed Transmission Rights shall cover the periods from 7:00 a.m. up to the hour ending at 11:00 p.m. on Mondays through Fridays, except holidays as defined in the PJM Manuals. Off-Peak Fixed Transmission Rights shall cover the periods from 11:00 p.m. up to the hour ending 7:00 a.m. on Mondays through Fridays and all hours on Saturdays, Sundays, and holidays as defined in the PJM Manuals. Each bid shall specify whether it is for an on-peak or off-peak period. 7.3.5 Offers and Bids. (a) Offers to sell and bids to purchase Fixed Transmission Rights shall be submitted during the period set forth in Section 7.1.2, and shall be in the form specified by the Office of the Interconnection in accordance with the requirements set forth below. (b) Offers to sell shall identify the specific Fixed Transmission Right, by megawatt quantity and receipt and delivery points, offered for sale. An offer to sell a specified megawatt quantity of Fixed Transmission Rights shall constitute an offer to sell a quantity of Fixed Transmission Rights equal to or less than the specified quantity. An offer to sell may not specify a minimum quantity being offered. Each offer may specify a reservation price, below which the offeror does not wish to sell the Fixed Transmission Right. Offers submitted by entities holding rights to Fixed Transmission Rights acquired other than by assignment in connection with reservations of Network Transmission Service or Firm Point-to-Point Transmission Service shall be subject to such reasonable standards for the verification of the rights of the offeror as may be established by the Office of the Interconnection. Offers shall be subject to such reasonable standards for the creditworthiness of the offeror or for the posting of security for performance as the Office of the Interconnection shall establish. (c) Bids to purchase shall specify the megawatt quantity, price per megawatt, and receipt and delivery points of the Fixed Transmission Right that the bidder wishes to purchase. A bid to purchase a specified megawatt quantity of Fixed Transmission Rights shall constitute a bid to purchase a quantity of Fixed Transmission Rights equal to or less than the specified quantity. A bid to purchase may not specify a minimum quantity that the bidder wishes to purchase. A bid may specify as receipt or delivery points any bus for which the Office of the Interconnection calculates and posts Locational Marginal Prices in accordance with Section 2 of this Schedule and may include Fixed Transmission Rights for which the associated Transmission Congestion Credits may have negative values. Bids shall be subject to such reasonable standards for the creditworthiness of the bidder or for the posting of security for performance as the Office of the Interconnection shall establish. (d) Bids and offers shall be specified to the nearest tenth of a megawatt and shall be greater than zero. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 118 First Revised Rate Schedule FERC No. 24 7.3.6 Determination of Winning Bids and Clearing Price. (a) At the close of the bidding period each month, the Office of the Interconnection will create a base Fixed Transmission Rights power flow model that includes all outstanding Fixed Transmission Rights that have been approved and confirmed for any portion of the month for which the auction was conducted and that were not offered for sale in the auction. The base Fixed Transmission Rights model also will include estimated uncompensated parallel flows into each interface point of the PJM Control Area and estimated scheduled transmission outages. (b) In accordance with the requirements of Section 7.4 of this Schedule and subject to all applicable transmission constraints and reliability requirements, the Office of the Interconnection shall determine the simultaneous feasibility of all outstanding Fixed Transmission Rights not offered for sale in the auction and of all Fixed Transmission Rights that could be awarded in the auction for which bids were submitted. The winning bids shall be determined from an appropriate linear programming model that, while respecting transmission constraints and the maximum MW quantities of the bids and offers, selects the set of simultaneously feasible Fixed Transmission Rights with the highest net total auction value as determined by the bids of buyers and taking into account the reservation prices of the sellers. In the event that there are two or more identical bids for the selected Fixed Transmission Rights and there are insufficient Fixed Transmission Rights to accommodate all of the identical bids, then each such bidder will receive a pro rata share of the Fixed Transmission Rights that can be awarded. (c) Fixed Transmission Rights shall be sold at the market- clearing price for Fixed Transmission Rights between specified pairs of receipt and delivery points, as determined by the bid value of the marginal Fixed Transmission Right that could not be awarded because it would not be simultaneously feasible. The linear programming model shall determine the clearing prices of all Fixed Transmission Rights paths based on the bid value of the marginal Fixed Transmission Rights, which are those Fixed Transmission Rights with the highest bid values that could not be awarded fully because they were not simultaneously feasible, and based on the flow sensitivities of each Fixed Transmission Rights path relative to the marginal Fixed Transmission Rights paths flow sensitivities on the binding transmission constraints. 7.3.7 Announcement of Winners and Prices. Within two (2) business days after the close of an auction, the Office of the Interconnection shall post the winning bidders, the megawatt quantity, and the receipt and delivery points for each Fixed Transmission Right awarded in the auction and the price at which each Fixed Transmission Right was awarded. Results of the on-peak auction and off-peak auction will be posted separately. The Office of the Interconnection shall not disclose the price specified in any bid to purchase or the reservation price specified in any offer to sell. 7.3.8 Auction Settlements. All buyers and sellers of Fixed Transmission Rights between the same points of receipt and delivery shall pay or be paid the market-clearing price, as determined in the auction, for such Fixed Transmission Rights. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 119 First Revised Rate Schedule FERC No. 24 7.3.9 Allocation of Auction Revenues. All auction revenues, net of payments to entities selling Fixed Transmission Rights into the auction, shall be allocated among the Regional Transmission Owners in proportion to their respective transmission revenue requirements. 7.4 Simultaneous Feasibility. The Office of the Interconnection shall make the simultaneous feasibility determinations specified herein using appropriate powerflow models of contingency-constrained dispatch. Such determinations shall take into account outages of both individual generation units and transmission facilities and shall be based on reasonable assumptions about the configuration and availability of transmission capability during the period covered by the auction that are not inconsistent with the determination of the deliverability of Capacity Resources under the Reliability Assurance Agreement. The goal of the simultaneous feasibility determination shall be to ensure that there are sufficient revenues from Transmission Congestion Charges to satisfy all Fixed Transmission Rights obligations for the auction period under expected conditions. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 120 First Revised Rate Schedule FERC No. 24 SCHEDULE 2 ---------- COMPONENTS OF COST ------------------ (a) Each Market Participant obligated to sell operating capacity on the PJM Interchange Energy Market at cost-based rates shall include the following components or their equivalent in the determination of costs for operating capacity supplied to or from the Interconnection: (1) Boilers ------- Firing-up cost; No-load cost during period of operation; Peak-prepared-for maintenance cost; Incremental labor cost; and Other incremental operating costs. (2) Machines -------- Starting cost from cold to synchronized operation; No-load cost during period of operation; Incremental labor cost; and Other incremental operating costs. (b) Each Member obligated to sell energy on the PJM Interchange Energy Market at cost-based rates shall include the following components or their equivalent in the determination of costs for energy supplied to the Interconnection: Incremental fuel cost; Incremental maintenance cost; Incremental labor cost; and Other incremental operating costs. (c) All fuel costs shall employ the marginal fuel price experienced by the Member. (d) The PJM Board, upon consideration of the advice and recommendations of the Members Committee, shall from time to time define in detail the method of determining the costs entering into the said components, and the Members shall adhere to such definitions in the preparation of incremental costs used on the Interconnection. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 121 First Revised Rate Schedule FERC No. 24 SCHEDULE 2 -- EXHIBIT A ---------- --------- EXPLANATION OF THE TREATMENT OF THE COSTS OF -------------------------------------------- EMISSION ALLOWANCES ------------------- The cost of emission allowances is included in "Other Incremental Operating Costs" pursuant to Schedule 2. The replacement cost of emission allowances will be used to recover the cost of emission allowances consumed as a result of producing energy for the Interconnection. Index - ----- Consistent with definitions promulgated by the PJM Board upon consideration of the advice and recommendations of the Members Committee under Schedule 2, each Member subject to Schedule 2 will determine and provide to the Interconnection its replacement cost of emission allowances, such cost to be an amount not exceeding the market price index published by Cantor-Fitzgerald Environmental Brokerage Services ("EBS"), or a PJM Board approved index in the event that EBS should cease publication of such index. As with all other components of cost required for accounting under this Agreement, each Member subject to Schedule 2 will use the same replacement cost of emissions allowances, so determined, as it uses for coordinating operation of its generating facilities hereunder. For each Member subject to Schedule 2, the cost of emissions allowances is included in the cost of energy supplied to or received from the Interconnection. Payment - ------- The Members subject to Schedule 2 waive the right of payment-in-kind for emission allowances for transactions wholly between the parties. Cash payments for emission allowances consumed in providing energy for the Interconnection shall be incorporated into and conducted pursuant to the billing procedures for energy prescribed by this Agreement. Calculation of Emission Allowance Amount and Cost - ------------------------------------------------- Pursuant to the letter from the PJM Interconnection to FERC dated June 26, 1995, the calculation of an annual average for the cost of emission allowances, described below, is required due to the profile of the PJM physical system and PJM Energy Management software system. Approximately five hundred and forty generating units comprise the PJM system, of which 9 units are Phase I units. Current real-time operational software and hardware tools used in the transaction of energy do not identify individual units, and therefore do not identify Phase I units. (The pool has contracted with a vendor to supply a new Energy Management System to be installed over the next several years.) It is currently not possible for system operators to provide actual individual unit emission allowance costs in real time transaction quotations. An average emission allowance cost based on a standard production cost study case will be used to calculate the average cost of emission allowances for each pool megawatt produced. This cost for the current year is less than 0.2 dollars per megawatt-hour. In summary, for the above-mentioned reasons, it is not practical nor cost effective to provide actual individual emission allowance costs in real-time transaction quotations. Therefore, the annual average method is proposed. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 122 First Revised Rate Schedule FERC No. 24 The Emission Allowances (Tons of SO\\2\\)associated with a transaction will be calculated by multiplying the magnitude of a transaction (MWhr) by an Emissions per MWHr Factor (Tons of SO\\2\\ per MWhr): Emission Transaction Emissions Allowances = Magnitude x per MWhr Used Factor (Tons of S0\\2\\) (MWhr) (Tons of S0\\2\\ per MWhr) The Emissions per MWHr Factor will be calculated by dividing the forecast annual emissions from all Phase I units (Tons of S0\\2\\) by the Forecast Annual Total PJM Energy Production (MWhr): Emissions per MWhr = Forecast Annual Phase I Unit Emissions (Tons of ----------------------------------------------- S0\\2\\) -------- Factor Forecast Annual Total PJM Energy Production (MWhr) (Tons of S0\\2\\ per MWhr) Likewise, the cost (Dollars) of the Emission Allowances for a transaction will be calculated by multiplying the transaction magnitude (MWhr) by a Charge per MWhr Factor (Dollars per MWHr). Cost of Emission Transaction Charge Allowances Used = Magnitude x per MWhr Factor (Dollars) (MWhr) (Dollars per MWhr) The Charge per MWhr Factor will be calculated by multiplying, for each Member subject to Schedule 2, its Forecast Annual Emissions (Tons of S0\\2\\)by its respective Emissions Allowance Replacement Cost (Dollars per Ton of S0\\2\\) to yield each the forecasted annual cost of emissions (Dollars). Then, the total of forecasted annual cost of emissions for each Member subject to Schedule 2 is divided by the Forecast Annual Total PJM Energy Production (MWhr) to determine the Charge per MWHr Factor (Dollars per MWHr). Charge per MWhr Factor = (sum of) (A x B) , where: ------- C A = Member's Forecasted Annual Emissions, (Tons of S0\\2\\) B = Emission Allowance Replacement Cost, (Dollars per Ton of SO\\2\\, per company) C = Forecast Annual PJM Energy Production, (MWhr) Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 123 First Revised Rate Schedule FERC No. 24 SCHEDULE 3 ---------- ALLOCATION OF THE COST AND EXPENSES ----------------------------------- OF THE OFFICE OF THE INTERCONNECTION ------------------------------------ (a) Each group of Affiliates, each group of Related Parties, and each Member that is not in such a group shall pay an annual membership fee, the proceeds of which shall be used to defray the costs and expenses of the LLC, including the Office of the Interconnection. The amount of the annual fee as of the Effective Date shall be $5,000. The amount of the annual membership fee shall be adjusted from time to time by the PJM Board to keep pace with inflation. (b) All remaining costs of the operation of the LLC and the Office of the Interconnection and the expenses, including, without limitation, the costs of any insurance and any claims not covered by insurance, associated therewith as provided in this Agreement shall be costs of PJM Interconnection, L.L.C. Administrative Services and shall be recovered as set forth in Schedule 9 to the PJM Tariff. Such costs may include costs associated with debt service, including the costs of funding reserve accounts or meeting coverage or similar requirements that financing covenants may necessitate. (c) An entity accepted for membership in the LLC shall pay all costs and expenses associated with additions and modifications to its own metering, communication, computer, and other appropriate facilities and procedures needed to effect the inclusion of the entity in the operation of the Interconnection. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 124 First Revised Rate Schedule FERC No. 24 SCHEDULE 4 ---------- STANDARD FORM OF AGREEMENT TO BECOME A MEMBER OF THE LLC -------------------------------------------------------- Any entity which wishes to become a Member of the LLC shall, pursuant to Section 11.6 of this Agreement, tender to the President an application, upon the acceptance of which it shall execute a supplement to this Agreement in the following form: Additional Member Agreement --------------------------- 1. This Additional Member Agreement (the "Supplemental Agreement"), dated as of __________________, is entered into among _____________ and the President of the LLC acting on behalf of its Members. 2. _____________ has demonstrated that it meets all of the qualifications required of a Member to the Operating Agreement. If expansion of the PJM Control Area is required to integrate ____________________'s facilities, a copy of Attachment J from the PJM Tariff marked to show changes in Control Area boundaries is attached hereto. ____________________ agrees to pay for all required metering, telemetering and hardware and software appropriate for it to become a member. 3. ______________________ agrees to be bound by and accepts all the terms of the Operating Agreement as of the above date. 4. _________________________ hereby gives notice that the name and address of its initial representative to the Members Committee under the Operating Agreement shall be: __________________________________________________________________ 5. The President of the LLC is authorized under the Operating Agreement to execute this Supplemental Agreement on behalf of the Members and to file it with regulatory authorities having jurisdiction. 6. The Operating Agreement is hereby amended to include ___________ as a Member of the LLC thereto, effective as of ___________________, _____. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 125 First Revised Rate Schedule FERC No. 24 IN WITNESS WHEREOF, _______________________ and the Members of the LLC have caused this Supplemental Agreement to be executed by their duly authorized representatives. Members of the LLC By: Name: Title: President By: Name: Title: Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 126 First Revised Rate Schedule FERC No. 24 SCHEDULE 5 ----------- PJM DISPUTE RESOLUTION PROCEDURES --------------------------------- 1. DEFINITIONS 1.1 Alternate Dispute Resolution Committee. "Alternate Dispute Resolution Committee" shall mean the Committee established pursuant to Section 5 of this Schedule. 1.2 MAAC Dispute Resolution Committee. "MAAC Dispute Resolution Committee" shall mean the committee established by the Mid-Atlantic Area Council to administer its industry-specific mechanism for resolving certain types of wholesale electricity disputes. 1.3 Related PJM Agreements. "Related PJM Agreements" shall mean this Agreement, the Transmission Owners Agreement, and the Reliability Assurance Agreement. 2. PURPOSES AND OBJECTIVES 2.1 Common and Uniform Procedures. The PJM Dispute Resolution Procedures are intended to establish common and uniform procedures for resolving disputes arising under the Related PJM Agreements. To the extent any of the foregoing agreements or the PJM Tariff contain dispute resolution provisions expressly applicable to disputes arising thereunder, however, this Agreement shall not supplant such provisions, which shall apply according to their terms. 2.2 Interpretation. To the extent permitted by applicable law, the PJM Dispute Resolution Procedures are to be interpreted to effectuate the objectives set forth in Section 2.1. To the extent permitted by these PJM Dispute Resolution Procedures, the Alternate Dispute Resolution Committee shall coordinate with the MAAC Dispute Resolution Committee, where appropriate, in order to conserve administrative resources and to avoid duplication of dispute resolution staffing. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 127 First Revised Rate Schedule FERC No. 24 3. NEGOTIATION AND MEDIATION 3.1 When Required. The parties to a dispute shall undertake good-faith negotiations to resolve any dispute as to a matter governed by one of the Related PJM Agreements. Each party to a dispute shall designate an executive with authority to resolve the matter in dispute to participate in such negotiations. Any dispute as to a matter governed by one of the Related PJM Agreements that has not been resolved through good-faith negotiation shall be subject to non-binding mediation prior to the initiation of arbitral, regulatory, judicial, or other dispute resolution proceedings as may be appropriate as provided by these PJM Dispute Resolution Procedures. 3.2 Procedures. 3.2.1 Initiation. If a dispute that is subject to the mediation procedures specified herein has not been resolved through good-faith negotiation, a party to the dispute shall notify the Alternate Dispute Resolution Committee in writing of the existence and nature of the dispute prior to commencing any other form of proceeding for resolution of the dispute. The Alternate Dispute Resolution Committee shall have ten calendar days from the date it first receives notification of the existence of a dispute from any of the parties to the dispute in which to distribute to the parties a list of mediators. 3.2.2 Selection of Mediator. The Chair of the Alternate Dispute Resolution Committee shall distribute to the parties by facsimile or other electronic means a list containing the names of seven mediators with mediation experience, or with technical or business experience in the electric power industry, or both, as it shall deem appropriate to the dispute. The Chair of the Alternate Dispute Resolution Committee may draw from the lists of mediators maintained by the MAAC Dispute Resolution Committee, as the Chair shall deem appropriate. The persons on the proposed list of mediators shall have no official, financial, or personal conflict of interest with respect to the issues in controversy, unless the interest is fully disclosed in writing to all participants in the mediation process and all such participants waive in writing any objection to the interest. The parties shall alternate in striking names from the list with the last name on the list becoming the mediator. The determination of which party shall have the first strike off the list shall be determined by lot. The parties shall have ten calendar days to complete the mediator selection process, unless the time is extended by mutual agreement. 3.2.3 Advisory Mediator. If the Alternate Dispute Resolution Committee deems it appropriate, it shall distribute two lists, one containing the names of seven mediators with mediation experience, and one containing the names of seven mediators with technical or business experience in the electric power industry. In connection with circulating the foregoing lists, the Alternate Dispute Resolution Committee shall specify one of the lists as containing the proposed mediators, and the other as a list of proposed advisors to assist the mediator in resolving the dispute. The parties shall then utilize the alternative strike procedure set forth above until one name remains on each list, with the last named persons serving as the mediator and advisor. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 128 First Revised Rate Schedule FERC No. 24 3.2.4 Mediation Process. The disputing parties shall attempt in good faith to resolve their dispute in accordance with procedures and a timetable established by the mediator. In furtherance of the mediation efforts, the mediator may: (a) Require the parties to meet for face-to-face discussions, with or without the mediator; (b) Act as an intermediary between the disputing parties; (c) Require the disputing parties to submit written statements of issues and positions; (d) If requested by the disputing parties at any time in the mediation process, provide a written recommendation on resolution of the dispute including, if requested, the assessment by the mediator of the merits of the principal positions being advanced by each of the disputing parties; and (e) Adopt, when appropriate, the Center for Public Resources Model ADR Procedures for the Meditation of Business Disputes (as revised from time to time) to the extent such Procedures are not inconsistent with any rule, standard, or procedure adopted by the Alternate Dispute Resolution Committee or with any provision of this Agreement. 3.2.5 Mediator's Assessment. (a) If a resolution of the dispute is not reached by the thirtieth day after the appointment of the mediator or such later date as may be agreed to by the parties, if not previously requested to do so the mediator shall promptly provide the disputing parties with a written, confidential, non-binding recommendation on resolution of the dispute, including the assessment by the mediator of the merits of the principal positions being advanced by each of the disputing parties. The recommendation may incorporate or append, if and as the mediator may deem appropriate, any recommendations or any assessment of the positions of the parties by the advisor, if any. Upon request, the mediator shall provide any additional recommendations or assessments the mediator shall deem appropriate. (b) At a time and place specified by the mediator after delivery of the foregoing recommendation, the disputing parties shall meet in a good faith attempt to resolve the dispute in light of the recommendation of the mediator. Each disputing party shall be represented at the meeting by a person with authority to settle the dispute, along with such other persons as each disputing party shall deem appropriate. If the disputing parties are unable to resolve the dispute at or in connection with this meeting, then: (i) any disputing party may commence such arbitral, judicial, regulatory or other proceedings as may be appropriate as provided in the PJM Dispute Resolution Procedures; and (ii) the recommendation of the mediator, and any statements made by any party in the mediation process, shall have no further force or effect, and shall not be admissible for any purpose, in any subsequent arbitral, administrative, judicial, or other proceeding. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 129 First Revised Rate Schedule FERC No. 24 3.3 Costs. Except as specified in Section 4.13, the costs of the time, expenses, and other charges of the mediator and any advisor, and of the mediation process, shall be borne by the parties to the dispute, with each side in a mediated matter bearing one-half of such costs, and each party bearing its own costs and attorney's fees incurred in connection with the mediation. 4. ARBITRATION 4.1 When Required. Any dispute as to a matter: (i) governed by one of the Related PJM Agreements that has not been resolved through the mediation procedures specified herein, (ii) involving a claim that one or more of the parties owes or is owed a sum of money, and (iii) the amount in controversy is less than $1,000,000.00, shall be subject to binding arbitration in accordance with the procedures specified herein. If the parties so agree, any other disputes as to a matter governed by a Related PJM Agreement may be submitted to binding arbitration in accordance with the procedures specified herein. 4.2 Binding Decision. Except as specified in Section 4.1, the resolution by arbitration of any dispute under this Agreement shall not be binding. 4.3 Initiation. A party or parties to a dispute which is subject to the arbitration procedures specified herein shall send a written demand for arbitration to the Chair of the Alternate Dispute Resolution Committee with a copy to the other party or parties to the dispute. The demand for arbitration shall state each claim for which arbitration is being demanded, the relief being sought, a brief summary of the grounds for such relief and the basis for the claim, and shall identify all other parties to the dispute. 4.4 Selection of Arbitrator(s). The parties to a dispute for which arbitration has been demanded may agree on any person to serve as a single arbitrator, or shall endeavor in good faith to agree on a single arbitrator from a list of arbitrators prepared for the dispute by the Alternate Dispute Resolution Committee and delivered to the parties by facsimile or other electronic means promptly after receipt by the Alternate Dispute Resolution Committee of a demand for arbitration. The Alternate Dispute Resolution Committee may draw from the lists of arbitrators maintained by the MAAC Dispute Resolution Committee, as the Alternate Dispute Resolution Committee deems appropriate. If the parties are unable to agree on a single arbitrator by the fourteenth day following delivery of the foregoing list of arbitrators or such other date as agreed to by the parties, then not later than the end of the seventh business day thereafter the party or parties demanding arbitration on the one hand, and the party or parties responding to the demand for arbitration on the other, shall each designate an arbitrator from a list for the dispute prepared by the Alternate Dispute Resolution Committee. The arbitrators so chosen shall then choose a third arbitrator. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 130 First Revised Rate Schedule FERC No. 24 4.5 Procedures. The Alternate Dispute Resolution Committee shall compile and make available to the arbitrator(s) and the parties standard procedures for the arbitration of disputes, which procedures (i) shall include provision, upon good cause shown, for intervention or other participation in the proceeding by any party whose interests may be affected by its outcome, (ii) shall conform to the requirements specified in these PJM Dispute Resolution Procedures, and (iii) may be modified or adopted for use in a particular proceeding as the arbitrator(s) deem appropriate. To the extent deemed appropriate by the Alternate Dispute Resolution Committee, the procedures adopted by the Alternate Dispute Resolution Committee shall be based on the American Arbitration Association Rules, to the extent such Rules are not inconsistent with any rule, standard or procedure adopted by the Alternate Dispute Resolution Committee, or with any provision of these PJM Dispute Resolution Procedures. Upon selection of the arbitrator(s), arbitration shall go forward in accordance with applicable procedures. 4.6 Summary Disposition and Interim Measures. 4.6.1 Lack of Good Faith Basis. The procedures for arbitration of a dispute shall provide a means for summary disposition of a demand for arbitration, or a response to a demand for arbitration, that in the reasoned opinion of the arbitrator(s) does not have a good faith basis in either law or fact. If the arbitrator(s) determine(s) that a demand for arbitration or response to a demand for arbitration does not have a good faith basis in either law or fact, the arbitrator(s) shall have discretion to award the costs of the time, expenses, and other charges of the arbitrator(s) to the prevailing party. 4.6.2 Discovery Limits. The procedures for the arbitration of a dispute shall provide a means for summary disposition without discovery of facts if there is no dispute as to any material fact, or with such limited discovery as the arbitrator(s) shall determine is reasonably likely to lead to the prompt resolution of any disputed issue of material fact. 4.6.3 Interim Decision. The procedures for the arbitration of a dispute shall permit any party to a dispute to request the arbitrator(s) to render a written interim decision requiring that any action or decision that is the subject of a dispute not be put into effect, or imposing such other interim measures as the arbitrator(s) deem necessary or appropriate, to preserve the rights and obligations secured by any of the Related PJM Agreements during the pendency of the arbitration proceeding. The parties shall be bound by such written decision pending the outcome of the arbitration proceeding. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 131 First Revised Rate Schedule FERC No. 24 4.7 Discovery of Facts. 4.7.1 Discovery Procedures. The procedures for the arbitration of a dispute shall include adequate provision for the discovery of relevant facts, including the taking of testimony under oath, production of documents and other things, and inspection of land and tangible items. The nature and extent of such discovery shall be determined as provided herein and shall take into account (i) the complexity of the dispute, (ii) the extent to which facts are disputed, and (iii) the amount in controversy. The forms and methods for taking such discovery shall be as described in the Federal Rules of Civil Procedure, except as modified by the procedures established by the Alternate Dispute Resolution Committee, the arbitrator(s) or agreement of the parties. 4.7.2 Procedures Arbitrator. The sole arbitrator, or the arbitrator selected by the arbitrators chosen by the parties, as the case may be (such arbitrator being hereafter referred to as the "Procedures Arbitrator"), shall be responsible for establishing the timing, amount, and means of discovery, and for resolving discovery and other pre-hearing disagreement. If a dispute involves contested issues of fact, promptly after the selection of the arbitrator(s) the Procedures Arbitrator shall convene a meeting of the parties for the purpose of establishing a schedule and plan of discovery and other pre-hearing actions. 4.8 Evidentiary Hearing. The procedures for the arbitration of a dispute shall provide for an evidentiary hearing, with provision for the cross-examination of witnesses, unless all parties consent to the resolution of the matter on the basis of a written record. The forms and methods for taking evidence shall be as described in the Federal Rules of Evidence, except as modified by the procedures established by the Alternate Dispute Resolution Committee, the arbitrator(s) or agreement of the parties. The arbitrator(s) may require such written or other submissions from the parties as shall be deemed appropriate, including submission of the direct testimony of witnesses in written form. The arbitrator(s) may exclude any evidence that is irrelevant, immaterial, unduly repetitious or prejudicial, or privileged. Any party or parties may arrange for the preparation of a record of the hearing, and shall pay the costs thereof. Such party or parties shall have no obligation to provide or agree to the provision of a copy of the record of the hearing to any party that does not pay an equal share of the cost of the record. At the request of any party, the arbitrator(s) shall determine a fair and equitable allocation of the costs of the preparation of a record between or among the parties to the proceeding willing to share such costs. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 132 First Revised Rate Schedule FERC No. 24 4.9 Confidentiality. 4.9.1 Designation. Any document or other information obtained in the course of an arbitral proceeding and not otherwise available to the receiving party, including any such information contained in documents or other means of recording information created during the course of the proceeding, may be designated "Confidential" by the producing party. The party producing documents or other information marked "Confidential" shall have twenty days from the production of such material to submit a request to the Procedures Arbitrator to establish such requirements for the protection of such documents or other information designated as "Confidential" as may be reasonable and necessary to protect the confidentiality and commercial value of such information and the rights of the parties, which requirements shall be binding on all parties to the dispute. Prior to the decision of the Procedures Arbitrator on a request for confidential treatment, documents or other information designated as "Confidential" shall not be used by the receiving party or parties, or the arbitrator(s), or anyone working for or on behalf of any of the foregoing, for any purpose other than the arbitration proceeding, and shall not be disclosed in any form to any person not involved in the arbitration proceeding without the prior written consent of the party producing the information or as permitted by the Procedures Arbitrator. 4.9.2 Compulsory Disclosure. Any party receiving a request or demand for disclosure, whether by compulsory process, discovery request, or otherwise, of documents or information obtained in the course of an arbitration proceeding that have been designated "Confidential" and that are subject to a non-disclosure requirement under these PJM Dispute Resolution Procedures or a decision of the Procedures Arbitrator, shall immediately inform the party from which the information was obtained, and shall take all reasonable steps, short of incurring sanctions or other penalties, to afford the person or entity from which the information was obtained an opportunity to protect the information from disclosure. Any party disclosing information in violation of these PJM Dispute Resolution Procedures or requirements established by the Procedures Arbitrator shall thereby waive any right to introduce or otherwise use such information in any judicial, regulatory, or other legal or dispute resolution proceeding, including the proceeding in which the information was obtained. 4.9.3 Public Information. Nothing in the Related PJM Agreements shall preclude the use of documents or information properly obtained outside of an arbitral proceeding, or otherwise public, for any legitimate purpose, notwithstanding that the information was also obtained in the course of the arbitral proceeding. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 133 First Revised Rate Schedule FERC No. 24 4.10 Timetable. Promptly after the selection of the arbitrator(s), the arbitrator(s) shall set a date for the issuance of the arbitral decision, which shall be not later than eight months (or such earlier date as may be agreed to by the parties to the dispute) from the date of the selection of the arbitrator(s), with other dates, including the dates for an evidentiary hearing or other final submissions of evidence, set in light of this date. The date for the evidentiary hearing or other final submission of evidence shall not be changed absent extraordinary circumstances. The arbitrator(s) shall have the power to impose sanctions, including dismissal of the proceeding for dilatory tactics or undue delay in completing the arbitral proceedings. 4.11 Advisory Interpretations. Except as to matters subject to decision in the arbitration proceeding, the arbitrator(s) may request as may be appropriate from any committee or subcommittee established under a Related PJM Agreement or by the Office of the Interconnection, an interpretation of any Related PJM Agreements, or of any standard, requirement, procedure, tariff, Schedule, principle, plan or other criterion or policy established by any committee or subcommittee. Except to the extent that the Office of the Interconnection is itself a party to a dispute, the arbitrator(s) may request the advice of the Office of the Interconnection with respect to any matter relating to a responsibility of the Office of the Interconnection under the Agreement or with respect to any of the Related PJM Agreements, or to the PJM Manuals. Any such interpretation or advice shall not relieve the arbitrator(s) of responsibility for resolving the dispute or deciding the arbitration proceeding in accordance with the standards specified herein. 4.12 Decisions. The arbitrator(s) shall issue a written decision, including findings of fact and the legal basis for the decision. The arbitral decision shall be based on (i) the evidence in the record, (ii) the terms of the Related PJM Agreements, as applicable, (iii) applicable United States federal and state law, including the Federal Power Act and any applicable FERC regulations and decisions, and international treaties or agreements as applicable, and (iv) relevant decisions in previous arbitration proceedings. The arbitrator(s) shall have no authority to revise or alter any provision of the Related PJM Agreements. Any arbitral decision issued pursuant to these PJM Dispute Resolution Procedures that affects matters subject to the jurisdiction of FERC under Section 205 of the Federal Power Act shall be filed with FERC. 4.13 Costs. Unless the arbitrator(s) shall decide otherwise, the costs of the time, expenses, and other charges of the arbitrator(s) shall be borne by the parties to the dispute, with each side on an arbitrated issue bearing its pro-rata share of such costs, and each party to an arbitral proceeding shall bear its own costs and fees. The arbitrator(s) may award all or a portion of the costs of the time, expenses, and other charges of the arbitrator(s), the costs of arbitration, attorney's fees, and the costs of mediation, if any, to any party that substantially prevails on an issue determined by the arbitrator(s) to have been raised without a substantial basis. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 134 First Revised Rate Schedule FERC No. 24 4.14 Enforcement. If the decision of the arbitrator(s) is binding, the judgment may be entered on such arbitral award by any court having jurisdiction thereof; provided, however, that within one year of the issuance of the arbitral decision any party affected thereby may request FERC or any other federal, state, regulatory or judicial authority having jurisdiction to vacate, modify, or take such other action as may be appropriate with respect to any arbitral decision that is based upon an error of law, or is contrary to the statutes, rules, or regulations administered or applied by such authority. Any party making or responding to, or intervening in proceedings resulting from, any such request, shall request the authority to adopt the resolution, if not clearly erroneous, of any issue of fact expressly or necessarily decided in the arbitral proceeding, whether or not the party participated in the arbitral proceeding. 5. ALTERNATE DISPUTE RESOLUTION COMMITTEE 5.1 Membership. 5.1.1 Representatives. The Alternate Dispute Resolution Committee shall be composed of two representatives selected by each of the following: (i) the Office of the Interconnection; (ii) the Members Committee; (iii) the parties to the Reliability Assurance Agreement; and (iv) the parties to the Transmission Owners Agreement. 5.1.2 Term. Representatives on the Alternate Dispute Resolution Committee shall serve for terms of three years and may serve additional terms. 5.2 Voting Requirements. Approval or adoption of measures by the Alternate Dispute Resolution Committee shall require two-thirds of the votes of the representatives present and voting. Two-thirds of the representatives on the Alternate Dispute Resolution Committee shall constitute a quorum for the conduct of business. 5.3 Officers. At the first meeting of the Alternate Dispute Resolution Committee, the representatives to the Alternate Dispute Resolution Committee shall choose a Chair and Vice Chair from among the representatives on the Committee. The Chair of the Alternate Dispute Resolution Committee shall preside at meetings of the Committee, and shall have the power to call meetings of the Committee and to exercise such other powers as are specified in this Agreement or are authorized by the Alternate Dispute Resolution Committee. The Vice Chair shall preside at meetings of the Alternate Dispute Resolution Committee in the absence of the Chair, and shall exercise such other powers as are delegated by the Chair. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 135 First Revised Rate Schedule FERC No. 24 5.4 Meetings. The Alternate Dispute Resolution Committee shall meet at such times and places as determined by the Committee, or at the call of the Chair. The Chair shall call a meeting of the Alternate Dispute Resolution Committee upon the request of two or more representatives on the Alternate Dispute Resolution Committee. 5.5 Responsibilities. The duties of the Alternate Dispute Resolution Committee include but are not limited to the following: i) Maintain a list of persons qualified by temperament and experience, and with technical or legal expertise in matters likely to be the subject of disputes, to serve as mediators or arbitrators under these PJM Dispute Resolution Procedures; ii) Determine the rates and other costs and charges that shall be paid to mediators, advisors and arbitrators for or in connection with their services; iii) Determine whether mediation is not warranted in a particular dispute; iv) Provide to disputing parties lists of mediators, advisors or arbitrators to resolve particular disputes; v) Compile and make available to parties to disputes, arbitrators, and other interested persons suggested procedures for the arbitration of disputes in accordance with Section 4.5; vi) Maintain and make available to parties to disputes, mediators, advisors, arbitrators, and other interested persons the written decisions required by Section 4.12; vii) Establish such procedures and schedules, in addition to those specified herein, as it shall deem appropriate to further the prompt, efficient, fair and equitable resolution of disputes; and viii) Provide such oversight and supervision of the dispute resolution processes and procedures instituted pursuant to the Related PJM Agreements as may be appropriate to facilitate the prompt, efficient, fair and equitable resolution of disputes. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 136 First Revised Rate Schedule FERC No. 24 SCHEDULE 6 ---------- REGIONAL TRANSMISSION EXPANSION PLANNING PROTOCOL ------------------------------------------------- 1. REGIONAL TRANSMISSION EXPANSION PLANNING PROTOCOL 1.1 Purpose and Objectives. This Regional Transmission Expansion Planning Protocol shall govern the process by which the Members shall rely upon the Office of the Interconnection to prepare a plan for the enhancement and expansion of the Transmission Facilities in order to meet the demands for firm transmission service in the PJM Control Area. The Regional Transmission Expansion Plan to be developed shall enable the transmission needs in the PJM Control Area to be met on a reliable, economic and environmentally acceptable basis. 1.2 Conformity with NERC and MAAC Criteria. (a) NERC establishes Planning Principles and Guides to promote the reliability and adequacy of the North American bulk power supply as related to the operation and planning of electric systems. (b) MAAC is responsible for ensuring the adequacy, reliability and security of the bulk electric supply systems in the MAAC region through coordinated operations and planning of generation and transmission facilities. Toward that end, it has adopted the NERC Planning Principles and Guides and has established detailed Reliability Principles and Standards for Planning the Bulk Electric Supply System of the MAAC Group . (c) The Regional Transmission Expansion Plan shall conform with the applicable reliability principles, guidelines and standards of NERC and MAAC in accordance with the procedures detailed in the PJM Manuals. 1.3 Establishment of Committees. (a) The Regional Transmission Owners shall supply representatives to the Planning Committee to provide the data, information, and analysis support necessary to perform studies as required. As used herein, "Regional Transmission Owner" shall be defined as it is in the PJM Open Access Transmission Tariff ("PJM Tariff"). (b) The Transmission Expansion Advisory Committee established by the Office of the Interconnection will provide input to the development of the Regional Transmission Expansion Plan. The Transmission Expansion Advisory Committee will invite participation by: (i) all Transmission Customers, as that term is defined in the PJM Tariff, and applicants for transmission service; (ii) any other entity proposing to provide Transmission Facilities to be integrated into the PJM Control Area; (iii) all Members; (iv) the agencies and offices of consumer advocates of the States in the PJM Control Area exercising regulatory authority over the rates, terms or conditions of electric service or the planning, siting, construction or operation of electric facilities and (v) any other interested entities or persons. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 137 First Revised Rate Schedule FERC No. 24 1.4 Contents of the Regional Transmission Expansion Plan. (a) The Office of the Interconnection shall prepare the Regional Transmission Expansion Plan, which shall consolidate the transmission needs of the region into a single plan which is assessed on the basis of maintaining the PJM Control Area's reliability in an economic and environmentally acceptable manner. (b) The Regional Transmission Expansion Plan shall reflect transmission enhancements and expansions, load and capacity forecasts and generation additions and retirements for the ensuing ten years. (c) The Regional Transmission Expansion Plan shall, as a minimum, include a designation of the Regional Transmission Owner or Owners or other entity that will own a transmission facility and how all reasonably incurred costs are to be recovered. (d) The Regional Transmission Expansion Plan shall (i) avoid unnecessary duplication of facilities; (ii) avoid the imposition of unreasonable costs on any Regional Transmission Owner or any user of Transmission Facilities; (iii) take into account the legal and contractual rights and obligations of the Regional Transmission Owners; (iv) provide, if appropriate, alternative means for meeting transmission needs in the PJM Control Area; and (v) provide for coordination with existing transmission systems and with appropriate interregional and local expansion plans. 1.5 Procedure for Development of the Regional Transmission Expansion Plan. 1.5.1 Commencement of the Process. (a) The Office of the Interconnection shall initiate the enhancement and expansion study process if (i) required as a result of a need for transfer capability identified by the Office of the Interconnection in its evaluation of requests for firm transmission service with a term of one year or more or as a result of the Office of the Interconnection's on-going evaluation of transmission system adequacy and performance; (ii) identified as a result of the MAAC reliability assessment or more stringent local reliability criteria, if any; (iii) constraints or available transfer capability shortage are identified by the Office of the Interconnection as a result of generation additions or retirements, evaluation of load forecasts or proposals for the addition of Transmission Facilities in the PJM Control Area; or (iv) expansion of the transmission system is proposed by the Regional Transmission Owners or others. (b) The Office of the Interconnection shall notify the Transmission Expansion Advisory Committee of the commencement of an enhancement and expansion study. The Transmission Expansion Advisory Committee shall notify the Office of the Interconnection in writing of any additional transmission considerations to be included. 1.5.2 Development of Scope, Assumptions and Procedures. Once the need for an enhancement and expansion study has been established, the Office of the Interconnection shall consult with the Transmission Expansion Advisory Committee to prepare the study's scope, assumptions and procedures. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 138 First Revised Rate Schedule FERC No. 24 1.5.3 Scope of Studies. In general, enhancement and expansion studies shall include: (a) An identification of existing and projected electric system limitations, with accompanying simulations to identify the costs of controlling those limitations. Potential enhancements and expansions will be proposed to mitigate limitations controlled by non-economic means. (b) Evaluation and analysis of potential enhancements and expansions, including alternatives thereto, needed to mitigate such limitations. (c) Engineering studies needed to determine the effectiveness and compliance (with reliability criteria) of recommended enhancements and expansions. 1.5.4 Supply of Data. (a) The Regional Transmission Owners shall provide to the Office of the Interconnection on an annual basis a 10-year forecast of summer and winter load and resources expected to be served by, or use, their Transmission Facilities. The forecast shall include to the extent known or reasonably capable of forecast: (i) a description of the total load to be served from each substation; (ii) the amount of any interruptible loads included in the total load (including conditions under which an interruption can be implemented and any limitations on the duration and frequency of interruptions); and (iii) a description of all generation resources to be located in the geographic region encompassed by the Regional Transmission Owner's transmission facilities, including unit sizes, VAR capability, operating restrictions, and any must-run unit designations required for system reliability or contract reasons. The data required under this section shall be provided in the form and manner specified by the Office of the Interconnection. (b) In addition to the foregoing, the Regional Transmission Owners, those entities requesting transmission service and any other entities proposing to provide Transmission Facilities to be integrated into the PJM Control Area shall supply any other information and data reasonably required by the Office of the Interconnection to perform the enhancement and expansion study. 1.5.5 Coordination of the Regional Transmission Expansion Plan. (a) The Regional Transmission Expansion Plan shall be developed in coordination with the transmission systems of the surrounding regional reliability councils and with the local transmission providers. (b) The Regional Transmission Expansion Plan shall be developed by the Office of the Interconnection in consultation with the Transmission Expansion Advisory Committee during the enhancement and expansion study process. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 139 First Revised Rate Schedule FERC No. 24 1.5.6 Development of the Recommended Regional Transmission Expansion Plan. (a) Upon completion of its studies and analysis, the Office of the Interconnection shall prepare a recommended enhancement and expansion plan for review by the Transmission Expansion Advisory Committee. The recommended plan shall include recommendations for cost responsibility, except for directly assigned costs, for any enhancement or expansion, based on the planning analysis and other input from participants, including any indications of a willingness to bear cost responsibility for an enhancement or expansion. (b) For the purposes of Section 1.5.6(a), any allocation of costs to all of the Regional Transmission Owners shall be proportional to the load within the Zones. Load shall be measured consistent with the loads utilized to develop the rates included in Attachment H to the PJM Tariff. (c) Any Regional Transmission Owner and other participants on the Transmission Expansion Advisory Committee may offer an alternative. (d) If the Office of the Interconnection adopts the alternative, based upon its review of the relative costs and benefits, the ability of the alternative to supply the required level of transmission service, and its impact on the reliability of the Transmission Facilities, the Office of the Interconnection shall make any necessary changes to the recommended plan. (e) If, based upon its review of the relative costs and benefits, the ability of the alternative to supply the required level of transmission service, and the alternative's impact on the reliability of the Transmission Facilities, the Office of the Interconnection does not adopt such alternative, the Regional Transmission Owner or Owners whose alternative or alternatives have not been accepted or to whom cost responsibility has been assigned and other participants on the Transmission Expansion Advisory Committee may require that its or their alternative(s) be submitted to Alternative Dispute Resolution. 1.6 Approval of the Final Regional Transmission Expansion Plan. (a) The PJM Board shall approve the final Regional Transmission Expansion Plan, including any alternatives therein, in accordance with the requirements of this Section 1.6. (b) If the facilities to be provided in the Regional Transmission Expansion Plan are acceptable, but the Regional Transmission Owners and other entities who have indicated a willingness to bear some or all of the cost responsibility cannot unanimously agree on the allocation of the costs of enhancements or expansions, the cost responsibility shall be allocated (a) to those entities who have indicated a willingness to bear some or all of the cost of responsibility, and (b) among the Regional Transmission Owners in accordance with the following guidelines: i) All of the costs of Transmission Facilities (other than transformers) with a nominal operating voltage of 500 kV or higher shall be allocated to all of the Regional Transmission Owners; Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 140 First Revised Rate Schedule FERC No. 24 ii) One-half of the costs of Transmission Facilities (other than transformers) with a nominal operating voltage of 230 kV or 345 kV shall be allocated to all Regional Transmission Owners and one-half of the costs of such facilities shall be allocated to the Regional Transmission Owners in whose Zone, as that term is defined in the PJM Tariff, the enhancement or expansion is to be located; iii) All of the costs of Transmission Facilities (other than transformers) with a nominal operating voltage below 230 kV shall be allocated to the Regional Transmission Owner or Owners in whose Zone the enhancement or expansion is located; and iv) One-half of the costs of transformers shall be allocated in accordance with the methodology specified in (a), (b), or (c) above, based upon the voltage at the high side of the transformer and one-half of the costs shall be allocated in accordance with the methodology specified in (a), (b), and (c) above based upon the voltage at the low side of the transformer, unless the low side of the transformer is less than 100 kV, in which case all of the costs of the transformer shall be allocated to the Regional Transmission Owner or Owners in whose Zone the transformer is located. If a Regional Transmission Expansion Plan is not approved, or if the transmission service requested by any entity is not included in an approved Regional Transmission Expansion Plan, nothing herein shall limit in any way the right of any entity to seek relief pursuant to the provisions of Section 211 of the Federal Power Act. (d) Following PJM Board approval, the final Regional Transmission Expansion Plan shall be submitted to MAAC for verification that all enhancements or expansions conform to all MAAC Reliability Principles and Standards. 1.7 Obligation to Build. (a) Subject to the requirements of applicable law, government regulations and approvals, including, without limitation, requirements to obtain any necessary state or local siting, construction and operating permits, to the availability of required financing, to the ability to acquire necessary right- of-way, and to the right to recover, pursuant to appropriate financial arrangements and tariffs or contracts, all reasonably incurred costs, plus a reasonable return on investment, Regional Transmission Owners designated as the appropriate entities to construct and own or finance enhancements or expansions specified in the Regional Transmission Expansion Plan shall construct and own or finance such facilities or enter into appropriate contracts to fulfill such obligations. (b) Nothing herein shall prohibit any Regional Transmission Owner from seeking to recover the cost of enhancements or expansions on an incremental cost basis or from seeking approval of such rate treatment from any regulatory agency with jurisdiction over such rates. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 141 First Revised Rate Schedule FERC No. 24 1.8 Relationship to the PJM Control Area Open Access Transmission PJM Tariff. Nothing herein shall modify the rights and obligations of an Eligible Customer or a Transmission Customer, as those terms are defined in the PJM Tariff, with respect to required studies and completion of necessary enhancements or expansions. An Eligible Customer or Transmission Customer electing to follow the procedures in the PJM Tariff instead of the procedures provided herein, shall also be responsible for the related costs. The enhancement and expansion study process under this Protocol shall be funded as a part of the operating budget of the Office of the Interconnection. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 142 First Revised Rate Schedule FERC No. 24 SCHEDULE 7 ---------- UNDERFREQUENCY RELAY OBLIGATIONS AND CHARGES -------------------------------------------- 1. UNDERFREQUENCY RELAY OBLIGATION 1.1 Application. The obligations of this Schedule apply to each Member that is an Electric Distributor, whether or not that Member participates in the Electric Distributor sector on the Members Committee or meets the eligibility requirements for any other sector of the Members Committee. 1.2 Obligations. Each Electric Distributor shall install or contractually arrange for underfrequency relays to interrupt at least 30 percent of its peak load with 10 percent of the load interrupted at each of three frequency levels: 59.3 Hz, 58.9 Hz and 58.5 Hz. Upon the request of the Reliability Committee, each Electric Distributor shall document that it has complied with the requirement for underfrequency load shedding relays. 2. UNDERFREQUENCY RELAY CHARGES If an Electric Distributor is determined to not have the required underfrequency relays, it shall pay an underfrequency relay charge of: Charge = D x R x 365 where D = the amount, in megawatts, the Electric Distributor is deficient; and R = the daily rate per megawatt, which shall be based on the annual carrying charges for a new combustion turbine generator, installed and connected to the transmission system, which daily deficiency rate as of the Effective Date shall be $58.400/per kilowatt-year or $160 per megawatt-day. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 143 First Revised Rate Schedule FERC No. 24 3. DISTRIBUTION OF UNDERFREQUENCY RELAY CHARGES 3.1 Share of Charges. Each Electric Distributor that has complied with the requirements for underfrequency relays imposed by this Agreement during a Planning Period, without incurring an underfrequency relay charge, shall share in any underfrequency relay charges paid by any other Electric Distributor that has failed to satisfy said obligation during such Planning Period. Such shares shall be in proportion to the number of megawatts of a Electric Distributor's load in the most recently completed month at the time of the peak for the PJM Control Area during that month rounded to the next higher whole megawatt, as established initially on the Effective Date and as updated at the beginning of each month thereafter. 3.2 Allocation by the Office of the Interconnection. In the event all of the Electric Distributors have incurred underfrequency relay charges during a Planning Period, the underfrequency relay charges shall be distributed among the Electric Distributors on an equitable basis as determined by the Office of the Interconnection. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 144 First Revised Rate Schedule FERC No. 24 SCHEDULE 8 ---------- DELEGATION OF RELIABILITY RESPONSIBILITIES ------------------------------------------ 1. DELEGATION The following responsibilities shall be delegated to the Office of the Interconnection by the parties to the Reliability Assurance Agreement. 2. NEW PARTIES With regard to the addition, withdrawal or removal of a party to the Reliability Assurance Agreement, the Office of the Interconnection shall: (a) Receive and evaluate the information submitted by entities that plan to serve loads within the PJM Control Area, including entities whose participation in the Agreement will expand the boundaries of the PJM Control Area, such evaluation to be conducted in accordance with the requirements of the Reliability Assurance Agreement; and (b) Evaluate the effects of the withdrawal or removal of a party from the Reliability Assurance Agreement. 3. IMPLEMENTATION OF RELIABILITY ASSURANCE AGREEMENT With regard to the implementation of the provisions of the Reliability Assurance Agreement, the Office of the Interconnection shall: (a) Receive all required data and forecasts from the parties to the Reliability Assurance Agreement and other owners of Capacity Resources; (b) Perform all calculations and analyses necessary to determine the Forecast Pool Requirement and the capacity obligations imposed under the Reliability Assurance Agreement, including periodic reviews of the capacity benefit margin for consistency with the Reliability Principles and Standards, as the foregoing terms are defined in the Reliability Assurance Agreement; (c) Monitor the compliance of each party to the Reliability Assurance Agreement with its obligations under the Reliability Assurance Agreement; (d) Keep cost records, and bill and collect any costs or charges due from the parties to the Reliability Assurance Agreement and distribute those charges in accordance with the terms of the Reliability Assurance Agreement; (e) Assist with the development of rules and procedures for determining and demonstrating the capability of Capacity Resources; (f) Establish the capability and deliverability of Capacity Resources consistent with the requirements of the Reliability Assurance Agreement; Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 145 First Revised Rate Schedule FERC No. 24 (g) Collect and maintain generator availability data; (h) Perform any other forecasts, studies or analyses required to administer the Reliability Assurance Agreement; (i) Coordinate maintenance schedules for generation resources operated as part of the PJM Control Area; (j) Determine and declare that an Emergency exists or has ceased to exist in all or any part of the PJM Control Area or announce that an Emergency exists or ceases to exist in a Control Area interconnected with the PJM Control Area; (k) Enter into agreements for (i) the transfer of energy in Emergencies in the PJM Control Area or in a Control Area interconnected with the PJM Control Area and (ii) mutual support in such Emergencies with other Control Areas interconnected with the PJM Control Area; and (l) Coordinate the curtailment or shedding of load, or other measures appropriate to alleviate an Emergency, to preserve reliability in accordance with FERC, NERC or MAAC principles, guidelines, standards and requirements and the PJM Manuals, and to ensure the operation of the PJM Control Area in accordance with Good Utility Practice. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President, General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 146 First Revised Rate Schedule FERC No. 24 SCHEDULE 9 ---------- EMERGENCY PROCEDURE CHARGES --------------------------- 1. EMERGENCY PROCEDURE CHARGE 1.1 Following an Emergency, the compliance of each Member with the instructions of the Office of the Interconnection shall be evaluated by the Office of the Interconnection. If, based on such evaluation, it is determined that a Member failed to comply with the instructions of the Office of the Interconnection to implement PJM emergency procedures, that Member shall demonstrate that it employed its best efforts to comply with such instructions. In the event a Member failed to employ its best efforts to comply with the instructions of the Office of the Interconnection, that Member shall pay (unless otherwise paid by the Member under the Reliability Assurance Agreement) an emergency procedure charge as follows: (a) For each megawatt of voltage reduction that was not implemented as directed, the Member shall pay 365 times the daily deficiency rate per megawatt set forth in Section A of Schedule 11 of the Reliability Assurance Agreement; (b) For each megawatt of load that was not dropped as directed, the Member shall pay 730 times the daily deficiency rate per megawatt set forth in Section A of Schedule 11 of the Reliability Assurance Agreement; and (c) For each megawatt of ALM (as defined in the Reliability Assurance Agreement) that was not implemented as directed and for each megawatt of a Capacity Resource that was not made available as directed despite being capable of producing energy at the time, and that is deliverable to the PJM Control Area in the case of a Capacity Resource located outside of the PJM Control Area, the Party shall pay 365 times the daily deficiency rate per megawatt set forth in Section A of Schedule 11 of the Reliability Assurance Agreement. 2. DISTRIBUTION OF EMERGENCY PROCEDURE CHARGES 2.1 Complying Parties. Each Member that has complied with the emergency procedures imposed by this Agreement during an Emergency, without incurring an emergency procedure charge, shall share in any emergency procedure charges paid by any other Member that has failed to satisfy said obligation during such Emergency in an equitable manner to be determined by the PJM Board. 2.2 All Parties. In the event all of the Members have incurred emergency procedure charges with respect to an Emergency, the emergency procedure charges related to that Emergency shall be distributed in an equitable manner as directed by the PJM Board. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 147 First Revised Rate Schedule FERC No. 24 SCHEDULE 10 - Reserved ----------- Reserved for future use. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 148 First Revised Rate Schedule FERC No. 24 SCHEDULE 11 ----------- PJM CAPACITY CREDIT MARKETS --------------------------- 1. PURPOSES AND OBJECTIVES 1.1 PJM Capacity Credit Markets. This Schedule sets forth the procedures applicable to the operation of the PJM Capacity Credit Markets. The PJM Capacity Credit Markets will allow Market Participants to buy and sell Capacity Credits at market clearing prices that are established by the PJM Capacity Credit Markets and made public by the Office of the Interconnection. The PJM Capacity Credit Markets shall be administered by the Office of Interconnection in accordance with the principles and procedures specified in this Schedule. 1.2 Voluntary Use of PJM Capacity Credit Market. Except as provided in Section 7.4, participation in any PJM Capacity Credit Market is voluntary. 1.3 Use of Capacity Credits. An entity may use Capacity Credits to meet all or part of its capacity obligations imposed under the Reliability Assurance Agreement. Such Capacity Credits may be used by themselves, or along with any other options for meeting capacity obligations imposed under the Reliability Assurance Agreement. 2. DEFINITIONS Unless the context otherwise specifies or requires, capitalized terms used in this Schedule shall have the respective meanings assigned herein or in the Agreement for all purposes of this Schedule (such definitions to be equally applicable to both the singular and the plural forms of the terms defined). 2.1 [Reserved.] 2.2 Buy Bid. "Buy Bid" shall mean a bid to buy Capacity Credits in a PJM Capacity Credit Market. 2.3 Capacity Credit. "Capacity Credit" shall, subject to the transition provision specified below, mean an entitlement to a specified number of megawatts of Unforced Capacity from a Capacity Resource for the purpose of satisfying capacity obligations imposed under the Reliability Assurance Agreement, such entitlement not to include any entitlement to the output of the Capacity Resource. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 1469 First Revised Rate Schedule FERC No. 24 2.4 Capacity Credit Market Implementation Date. "Capacity Credit Market Implementation Date" shall mean the date specified in Section 7.1 of this Schedule. 2.5 Capacity Resources. "Capacity Resources" shall have the meaning specified in the Reliability Assurance Agreement. 2.6 Fixed Block. "Fixed Block" shall mean a Sell Offer or Buy Bid for not more or less than a specified quantity of Capacity Credits. 2.7 Holiday. "Holiday" shall mean a federal or state holiday designated by the Office of the Interconnection for recognition in the conduct of PJM Daily Capacity Credit Markets. 2.8 PJM Capacity Credit Market. "PJM Capacity Credit Market" shall mean the PJM Daily Capacity Credit Market and the PJM Monthly Capacity Credit Market. 2.9 PJM Daily Capacity Credit Market. "PJM Daily Capacity Credit Market" shall mean a competitive market, administered by the Office of the Interconnection in accordance with the provisions of this Schedule, for the purchase and sale of Capacity Credits for the business day following the day on which the market is conducted and for each of any intervening weekend days or Holidays if the market is conducted on a Friday or the day before a Holiday. 2.10 PJM Monthly Capacity Credit Market. "PJM Monthly Capacity Credit Market" shall mean a competitive market, administered by the Office of the Interconnection in accordance with the provisions of this Schedule, for the purchase and sale of Capacity Credits for each or any of the twelve months following the month during which the market is conducted. 2.11 Sell Offer. "Sell Offer" shall mean an offer to sell Capacity Credits in a PJM Capacity Credit Market. 2.12 Unforced Capacity. "Unforced Capacity" shall have the meaning specified in the Reliability Assurance Agreement. 2.13 Up-To Block. "Up-To Block" shall mean a Sell Offer or Buy Bid for a quantity of Capacity Credits equal to or less than a specified quantity. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 150 First Revised Rate Schedule FERC No. 24 3. PARTICIPATION IN THE PJM CAPACITY CREDIT MARKET 3.1 Eligibility. A Member shall become eligible to participate in any of the PJM Capacity Credit Markets by becoming a Market Buyer or a Market Seller, or both as may be appropriate, in accordance with the provisions of Schedule 1 of the Agreement. In order to participate in any of the PJM Capacity Credit Markets, a Market Buyer also either must be (a) an entity that is or will become a Load Serving Entity in the PJM Control Area and a party to the Reliability Assurance Agreement, or (b) have a contractual obligation to sell capacity (including sales for resale) which will be used in the PJM Control Area. A Market Seller may participate in any PJM Capacity Credit Market only to the extent that it has Capacity Credits available to sell in excess of its capacity obligation imposed under the Reliability Assurance Agreement and other contractual obligations to sell capacity (including sales for resale), as determined in accordance with Section 6.1.3. 3.2 Effect of Withdrawal. Withdrawal from the Agreement shall not relieve a Market Participant of any obligation to furnish or pay for Capacity Credits incurred in connection with participation in a PJM Capacity Credit Market prior to such withdrawal, to pay its share of any fees and charges incurred or assessed by the Office of the Interconnection prior to the date of such withdrawal, or to fulfill any obligation to provide indemnification for the consequences of acts, omissions or events occurring prior to such withdrawal; and provided, further, that withdrawal from this Agreement shall not relieve any Market Participant of any obligations it may have under, or constitute withdrawal from, any Related PJM Agreement. 4. RESPONSIBILITIES OF THE OFFICE OF THE INTERCONNECTION 4.1 Operation of the PJM Capacity Credit Market. The Office of the Interconnection shall operate the PJM Capacity Credit Markets in accordance with the provisions of this Schedule and applicable provisions of the Agreement and the Reliability Assurance Agreement. Operation of the PJM Capacity Credit Markets shall include, but not be limited to, provision of the following services: i) Determining the qualification of entities to become Market Participants; ii) Administering the PJM Capacity Credit Markets; iii) Accounting for PJM Capacity Credit Market transactions, including but not limited to rendering bills to, receiving payments from, and disbursing payments to, participants in the PJM Capacity Credit Markets; iv) Maintaining such records of Sell Offers and Buy Bids, clearing price determinations, and other aspects of PJM Capacity Credit Market transactions, as may be appropriate to the administration of the PJM Capacity Credit Markets; and v) Monitoring compliance of participants in the PJM Capacity Credit Markets with the provisions of this Schedule and the Agreement. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 151 First Revised Rate Schedule FERC No. 24 4.2 Records and Reports. The Office of the Interconnection shall prepare and maintain such records as are required for the administration of the PJM Capacity Credit Markets. For each day of operation of the PJM Capacity Credit Markets, the Office of the Interconnection shall publish, as specified below: (i) the price, if determined, at which the PJM Capacity Credit Market cleared; (ii) the total volume of Capacity Credits purchased; and (iii) such other PJM Capacity Credit Market data as may be appropriate to the efficient and competitive operation of the PJM Capacity Credit Markets, consistent with preservation of the confidentiality of commercially sensitive or proprietary information. Publication of the foregoing information shall be by posting on the PJM web site. Such information shall remain available on the PJM web site for twelve months from the date of posting. The Office of the Interconnection shall not disclose commercially sensitive or proprietary information in any report or web site posting. 5. GENERAL PROVISIONS 5.1 Market Sellers. Only Market Sellers shall be eligible to submit Sell Offers. Market Sellers shall comply with the terms and conditions of all Sell Offers, as established by the Office of the Interconnection in accordance with this Schedule and the Agreement. 5.2 Market Buyers. Only Market Buyers shall be eligible to submit Buy Bids. Market Buyers shall comply with the terms and conditions of all Buy Bids, as established by the Office of the Interconnection in accordance with this Schedule and the Agreement. 5.3 Agents. A Market Participant may participate in the PJM Capacity Credit Markets through an agent, provided that the Market Participant informs the Office of the Interconnection in advance in writing of the appointment of such agent. A Market Participant participating in the PJM Capacity Credit Markets through an agent shall be bound by all of the acts or representations of such agent with respect to transactions in the PJM Capacity Credit Markets, and shall ensure that any such agent complies with the requirements of this Schedule and the Agreement. 5.4 General Obligations of Market Participants. Each Market Participant shall comply with all laws and regulations applicable to the operation of the PJM Capacity Credit Markets and the use of Capacity Credits, and shall comply with all applicable provisions of this Schedule, the Agreement, and the Reliability Assurance Agreement, and all procedures and requirements for the operation of the PJM Capacity Credit Markets and the PJM Control Area established by the Office of the Interconnection in accordance with the foregoing. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 152 First Revised Rate Schedule FERC No. 24 5.5 Relationship of Capacity Credits to Capacity Obligations Imposed under the Reliability Assurance Agreement. A megawatt of Capacity Credit shall satisfy a megawatt of capacity obligation imposed under the Reliability Assurance Agreement. Capacity Credits purchased from a PJM Capacity Credit Market shall not be adjusted for forced outages or other reasons. Because Capacity Credits are based on Capacity Resources, no further capability or deliverability demonstrations beyond those for the related Capacity Resource shall be required. 5.6 Deficiency Charges. If the Office of the Interconnection determines that the first Market Seller in a PJM Capacity Credit Market of a Capacity Credit did not have sufficient Unforced Capacity to support the Capacity Credit transaction at the time for which the Capacity Credit was applicable, any such deficiency shall be satisfied through payment of deficiency charges by such first Market Seller calculated as specified in the Reliability Assurance Agreement. Any amounts collected from such deficiency charges shall be distributed in accordance with the Reliability Assurance Agreement. 5.7 Fixed Transmission Rights. Acquisition of a Capacity Credit shall not entitle the holder to a Fixed Transmission Right. 5.8 Confidentiality. The following information submitted to the Office of the Interconnection in connection with any PJM Capacity Credit Market shall be deemed confidential information for purposes of Section 18.17 of the Agreement: (i) the terms and conditions of all Sell Offers and Buy Bids; and (ii) the terms and conditions of any bilateral transactions for capacity or Capacity Credits. 6. OPERATION OF THE PJM CAPACITY CREDIT MARKETS 6.1 Content of Sell Offers. 6.1.1 Specifications. Sell Offers shall specify: i) The quantity of Capacity Credits offered, in increments of 0.1 megawatt; ii) The minimum price, in dollars and cents per megawatt per day, that will be accepted by the seller; iii) Whether the offer is for a Fixed Block or an Up-To Block; iv) For a PJM Daily Capacity Credit Market conducted on a Friday or the day before a Holiday, the dates on which the offered Capacity Credits may be used; and v) For a PJM Monthly Capacity Credit Market, the month or months for which the offered Capacity Credits may be used. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 153 First Revised Rate Schedule FERC No. 24 6.1.2 Market-based Offers. A Market Seller that is authorized by FERC to sell electric generating capacity at market-based prices, or that is not required to have such authorization, may submit Sell Offers to PJM Capacity Credit Markets that specify market-based prices. 6.1.3 Availability of Capacity Credits for Sale. i) The Office of the Interconnection shall determine the maximum megawatts of Capacity Credits each Market Seller may offer in a PJM Capacity Credit Market, through verification of the availability of megawatts of capacity from: (a) Capacity Resources owned by or under contract to the Market Seller; (b) rights obtained in bilateral transactions; (c) the results of prior PJM Capacity Credit Markets; and (d) such other information as may be available to the Office of the Interconnection. The Office of the Interconnection may reject Sell Offers or portions of Sell Offers for Capacity Credits determined by it not to be available for sale. ii) The Office of the Interconnection shall determine the maximum amount of Capacity Credits available for sale in a PJM Capacity Credit Market as of the beginning of the period during which Buy Bids and Sell Offers are accepted for each market. To enable the Office of the Interconnection to make this determination, no bilateral transactions for capacity or Capacity Credits applicable to the period covered by a PJM Capacity Credit Market will be processed from the beginning of the period for submission of Sell Offers and Buy Bids for that market until completion of the clearing determination for that market. Processing of such bilateral transactions will recommence once all sales for that market are deemed final as specified below . iii) In order for a bilateral transaction for the purchase and sale of a Capacity Credit to be processed by the Office of the Interconnection, both parties to the transaction must notify the Office of the Interconnection of the transfer of the Capacity Credit from the seller to the buyer in accordance with procedures established by the Office of the Interconnection. 6.2 Content of Buy Bids. Buy Bids shall specify: i) The quantity of Capacity Credits desired, in increments of 0.1 megawatt; ii) The maximum price, in dollars and cents per megawatt per day, that will be paid by the buyer; iii) Whether the bid is for a Fixed Block or an Up-To Block; iv) For a PJM Daily Capacity Credit Market conducted on a Friday or the day before a Holiday, the dates for which Capacity Credits are desired; and v) For a PJM Monthly Capacity Credit Market, the month or months for which Capacity Credits are desired. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 154 First Revised Rate Schedule FERC No. 24 6.3 Submission of Sell Offers and Buy Bids. The submission of Sell Offers and Buy Bids shall be subject to the following requirements: i) A Sell Offer or Buy Bid that fails to specify price or quantity, or the date or months for which Capacity Credits are to be used if applicable, shall be rejected by the Office of the Interconnection. ii) A Sell Offer or Buy Bid that does not specify whether it is for a Full Block or an Up-To Block shall be deemed a Sell Offer or Buy Bid for an Up-To Block. iii) All Sell Offers and Buy Bids for a PJM Daily Capacity Market must be received by the Office of the Interconnection during a specified period, as determined by the Office of the Interconnection, on the day on which the market will be conducted. A Sell Offer or Buy Bid may be withdrawn by a notification of withdrawal received by the Office of the Interconnection at any time during the foregoing period, but may not be withdrawn after that period. iv) Sell Offers or Buy Bids for a PJM Daily Capacity Credit Market conducted on a Monday, Tuesday, Wednesday or Thursday that is not the day before a Holiday shall be for Capacity Credits applicable to the following day. v) Sell Offers or Buy Bids for a PJM Daily Capacity Credit Market conducted on a Friday or the day before a Holiday shall designate the date, to and including the next business day, to which the Capacity Credits are applicable. A separate PJM Daily Capacity Credit Market shall be conducted on such Friday or day before a Holiday for Capacity Credits applicable to each following day, to and including the next business day. vi) Sell Offers and Buy Bids for a PJM Monthly Capacity Credit Market must be received by the Office of the Interconnection during a specified period, as determined by the Office of the Interconnection, on the day of each month designated by the Office of the Interconnection for the conduct of a PJM Monthly Capacity Credit Market. A Sell Offer or Buy Bid may be withdrawn by a notification of withdrawal received by the Office of the Interconnection at any time during the foregoing period, but may not be withdrawn after that period. vii) Sell Offers and Buy Bids shall be submitted or withdrawn via the Internet site designated by the Office of the Interconnection; provided, however, that if that Internet site cannot be accessed at any time during the period specified in the foregoing paragraph, a Sell Offer or Buy Bid may be submitted or withdrawn by a facsimile transmitted to the number specified by the Office of the Interconnection. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 155 First Revised Rate Schedule FERC No. 24 6.4 Conduct of PJM Capacity Credit Markets. 6.4.1 PJM Daily Capacity Credit Markets. Following the submission of Sell Offers and Buy Bids in accordance with the specified deadline for PJM Daily Capacity Credit Markets, a PJM Daily Capacity Credit Market will be conducted each business day. Each such PJM Daily Capacity Credit Market will clear Sell Offers and Buy Bids for Capacity Credits for use the next business day, and for each of any intervening weekend days or Holidays. 6.4.2 PJM Monthly Capacity Credit Markets. Following the submission of Sell Offers and Buy Bids in accordance with the specified deadline for PJM Monthly Capacity Credit Markets, a PJM Monthly Capacity Credit Market will be conducted. Each such PJM Monthly Capacity Credit Market will clear Sell Offers and Buy Bids for Capacity Credits for use in each of the following twelve months. 6.5 Market Clearing Procedures. i) For purposes of the rank ordering and market clearing procedures described below, the Office of the Interconnection will: (a) evaluate all Sell Offers for a Fixed Block at the same price as one Sell Offer for a Fixed Block, with the quantity equal to the total quantity of the equally-priced Sell Offers; (b) evaluate all Sell Offers for an Up-To Block at the same price as one Sell Offer for an Up-to Block, with the quantity equal to the total quantity of the equally-priced Sell Offers; (c) evaluate all Buy Bids for a Fixed Block at the same price as one Buy Bid for a Fixed Block, with the quantity equal to the total quantity of the equally-priced Buy Bids; and (d) evaluate all Buy Bids for an Up-To Block at the same price as one Buy Bid for an Up-to Block, with the quantity equal to the total quantity of the equally-priced Buy Bids. ii) The Office of the Interconnection will rank order all Sell Offers and Buy Bids by price. Sell Offers will be ranked by lowest price first and then ranked in ascending price order. Buy Bids will be ranked by highest price first and then ranked in descending price order. Sell Offers or Buy Bids for Fixed Blocks will be given priority in the rank order relative to Sell Offers or Buy Bids for Up-To Blocks of equal price. iii) For purposes of the market clearing procedures described below, the Office of the Interconnection will not split or pro-rate: (a) a Sell Offer for a Fixed Block; (b) a combined set of Sell Offers deemed a single Sell Offer for a Fixed Block as specified above; (c) a Buy Bid for a Fixed Block; or (d) a combined set of Buy Bids deemed a single Buy Bid for a Fixed Block as specified above. iv) The Office of the Interconnection will determine the largest quantity of Sell Offers and Buy Bids for which the price of the marginal Sell Offer is equal to or less than the price of the marginal Buy Bid. If the marginal Sell Offer and the marginal Buy Bid are both for Up-to Blocks, or if either or both are for Fixed Blocks that can be satisfied without splitting or pro rating any such Fixed Block, the market will clear at price specified in the marginal Sell Offer. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 156 First Revised Rate Schedule FERC No. 24 v) If either the marginal Sell Offer or the marginal Buy Bid (including Sell Offers or Buy Bids that are combined as specified above) is for a Fixed Block that could not be purchased or sold in full, then that Sell Offer or Buy Bid will be removed from the rank order and the market clearing price redetermined as specified above. If both the marginal Sell Offer and the marginal Buy Bid (including Sell Offers or Buy Bids that are combined as specified above) are for Fixed Blocks that could not be purchased or sold in full, then both blocks will be removed from the rank order and the market clearing price redetermined as specified above. vi) If a marginal Sell Offer or Buy Bid is a combination of Sell Offers or Buy Bids deemed to be a single Sell Offer or Buy Bid for an Up-To Block as specified above, the quantity purchased or sold will be allocated among the combined Sell Offers or Buy Bids in proportion to the quantities offered in each of the combined Sell Offers or Buy Bids. vii) If all Sell Offers remaining in the rank order are at prices higher than the highest price of any Buy Bid remaining in the rank order, the market will be cleared with no transactions, and a market clearing price will not be determined. 6.6 Settlement Procedures. Upon determination of the market clearing price as specified above: (a) all Sell Offers at a price equal to or less than the market clearing price and not removed from the rank ordering and for which there is sufficient Buy Bid demand at or above the market clearing price will be deemed sold at the market clearing price, and all Buy Bids at a price equal to or greater than the market clearing price and not removed from the rank ordering and for which there is sufficient Sell Offer supply at or below the market clearing price will be deemed satisfied at the market clearing price, with any Up-To Blocks split and pro-rated as may be appropriate; and (b) the accounts of Market Sellers and Market Buyers will be credited or debited accordingly. The foregoing determinations shall be made, and all sales and purchases shall be deemed final, as of specified times, as designated by the Office of the Interconnection, on the day on which each PJM Capacity Market is conducted. 6.7 Billing. The Office of the Interconnection shall prepare a billing statement for each Market Participant in accordance with the charges and credits specified in this Schedule, and showing the net amount to be paid or received by each Market Participant. Billing statements for PJM Daily Capacity Markets shall be rendered following the end of each month for Capacity Credits bought and sold in the month just ended. Billing statements for PJM Monthly Capacity Credit Markets shall be rendered following the end of the month for which the Capacity Credit applies. Billing statements shall provide sufficient detail, as specified in the PJM Manuals, to allow verification of the billing amounts and completion of the Market Participant's internal accounting. Payment of statements shall be made in accordance with the Agreement. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 157 First Revised Rate Schedule FERC No. 24 6.8 Time Standard. All deadlines for the submission or withdrawal of Sell Offers or Buy Bids, or for other purposes specified in this Schedule, shall be determined by the time observed in the Eastern time zone. 7. EFFECTIVE DATE AND TRANSITION 7.1 Effective Date. The Capacity Credit Market Implementation Date shall be October 15, 1998, or as soon thereafter as the Office of the Interconnection can initiate trading in the PJM Capacity Credit Market. 7.2 Transition Provisions. To the extent that the Office of the Interconnection is not able to administer a PJM Capacity Credit Market in accordance with the standards and procedures specified above at the Capacity Credit Market Implementation Date, the Office of the Interconnection shall implement the foregoing standards and procedures if and to the extent practicable. The Office of the Interconnection shall thereafter conform to each of the standards and procedures specified above as soon as practicable. 7.3 Capacity Credit. Prior to the effective date of the provisions for Unforced Capacity under the Reliability Assurance Agreement, "Capacity Credit" shall mean an entitlement to a specified number of megawatts of Capacity from a Capacity Resource for the purpose of satisfying a capacity obligation imposed under the Reliability Assurance Agreement, and deficiency charges shall be determined in accordance with the then-current Reliability Assurance Agreement. 7.4 Mandatory Sell Offers and Buy Bids. For the Daily Capacity Credit Markets conducted with respect to the Operating Days between January 1, 1999 and May 31, 2001, there shall be the following mandatory Sell Offers and Buy Bids: i) Any Member that owns or has contracted for Capacity Credits or Capacity Resources shall be required to make Sell Offers in each Daily Capacity Credit Market to the full extent of the megawatts of capacity that it has available to sell in excess of its capacity obligations imposed under the Reliability Assurance Agreement and other contractual obligations to sell capacity, as determined in accordance with Section 6.1.3, as of the beginning of the period during which Buy Bids and Sell Offers are accepted. To the extent that any such megawatts of capacity available to a Member are not contained in such Sell Offers, PJM automatically will place for that Member a Sell Offer of an Up-To Block for such remaining amounts of capacity at a price of zero. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President General Counsel Issued On: November 9, 2000 PJM Interconnection, L.L.C. Original Sheet No. 158 First Revised Rate Schedule FERC No. 24 ii) A party to the Reliability Assurance Agreement shall be required to make Buy Bids in each Daily Capacity Credit Market for the amount of capacity that, as of the beginning of the period during which Buy Bids and Sell Offers are accepted, it lacks for purposes of meeting its capacity obligations imposed under the Reliability Assurance Agreement for the Operating Day covered by the Daily Capacity Credit Market. To the extent that a party to the Reliability Assurance Agreement does not place such Buy Bids, PJM automatically will place for that party a Buy Bid of an Up-To Block that, when added to its other Buy Bids, would meet its capacity obligations imposed under the Reliability Assurance Agreement, at a price equal to the then-current deficiency charge under the Reliability Assurance Agreement. iii) A party shall have only one position, either excess of or deficient of capacity obligations imposed under the Reliability Assurance Agreement, as determined by the Office of the Interconnection. Issued By: Richard A. Drom Effective: November 10, 2000 Vice President General Counsel Issued On: November 9, 2000 EX-10.(H) 8 0008.txt PPL CORP. DIRECTORS DEFERRED COMPENSATION PLAN Exhibit 10(h) PPL CORPORATION DIRECTORS DEFERRED COMPENSATION PLAN EFFECTIVE JANUARY 26, 1972 Amended and Restated Effective February 14, 2000 PPL CORPORATION DIRECTORS DEFERRED COMPENSATION PLAN ------------------------------------ 1. Purpose. The purpose of this Directors Deferred Compensation Plan is to provide certain Directors of PPL Corporation an additional means to increase their incomes after service as a Director, while at the same time increasing their equity interest in PPL Corporation, and to enable them to meet other important personal and financial needs. I-1 2. Definitions. (a) "Board of Directors" means the board of directors of PPL Corporation. (b) "Cash Account" means the account of Deferred Cash Compensation established for each Participant solely as a bookkeeping entry and described in Paragraph 7.2 of this Plan. (c) "Cash Compensation" means the cash compensation payable to a Director, including retainer, meeting fees and other fees payable for service as Director as requested by PPL Corporation, minus the Mandatory Deferral Amount. (d) "Committee" means two or more directors, who have been designated by the Board to act as the Committee and who qualify as "non-employee directors," under the rules of the Securities and Exchange Commission issued pursuant to section 16 of the Securities Exchange Act of 1934. (e) "Common Stock" means the Common Stock, without par value, of PPL Corporation. (f) "Compensation" means the total compensation payable to a Director, including retainer, meeting fees and other fees payable for service as Director. (g) "Deferred Cash Compensation" means the Cash Compensation of a Participant deferred under the terms of this Plan. (h) "Deferred Savings Plan" means the PPL Deferred Savings Plan. (i) "Director" means an individual elected to the Board of Directors who is not an employee of PPL Corporation or who served on the Board of Directors of PPL prior to the Effective Time and was not an employee of PPL. II-1 (j) "EBPB" means the Employee Benefit Plan Board, the members of which are appointed by the board of directors of PPL Corporation. (k) "Effective Time" means the date as defined in the Agreement and Plan of Exchange between PPL and PPL Corporation. (l) "Fair Market Value" on any date means the mean of the high and the low sale prices of Common Stock on the New York Stock Exchange composite tape on such date if such date is a day on which the common stock actually trades or otherwise on the next preceding date on which the common stock trades. If, as of any valuation date, the Common Stock is not traded on the New York Stock Exchange, valuations shall be based on the mean of the high and low sale prices on the principal national securities exchange on which the Common Stock is then traded or, if the Common Stock is not traded on any national securities exchange, on the mean of the high and low bid prices of the Common Stock in the over-the- counter market. (m) "Mandatory Deferral Amount" means a portion of the retainer fee payable to the Participant equal to an amount established by resolution of the Committee from time to time, but in no event later than December 31 of the calendar year preceding the calendar year in which the retainer fee is payable to the Participant. (n) "Participant" means an eligible Director of PPL Corporation, any or all of whose Compensation is deferred under this Plan. (o) "Plan" means this Directors Deferred Compensation Plan as set forth herein II-2 and as hereafter amended from time to time. (q) "PPL" means PPL Electric Utilities Corporation (prior to February 14, 2000, PP&L, Inc.). (p) "PPL Corporation" means PPL Corporation (prior to February 14, 2000, PP&L Resources, Inc.). (r) "Stock Account" means the account of Deferred Compensation established for each Participant solely as a bookkeeping entry and described in Paragraph 7.1 of this Plan. (s) "Stock Unit" means a unit equal in value from time-to-time to the Fair Market Value of one share of Common Stock. (t) "Total Amount Payable" means the amount credited to a Participant's Cash Account and the Participant's Stock Account. The masculine pronoun shall be deemed to include the feminine and the singular to include the plural unless a different meaning is plainly required by the context. II-3 3. Effective Date. The amendments to this Plan necessary to make it a Plan of PPL Corporation rather than PPL are effective as of the Effective Time. The Plan, as amended and restated to provide for a Stock Account, was effective as of January 1, 1998. III-1 4. Eligibility. All Directors of PPL Corporation who are or become duly elected Directors shall be eligible to participate in this Plan as of the effective date of first election as a Director. An employee of PPL or PPL Corporation who is a member of the Board of Directors who retires or otherwise terminates his employment but continues as a member of the Board shall be eligible to participate as of the date of his termination of employment with PPL or PPL Corporation. IV-1 5. Mandatory Deferral. (a) A Participant's Mandatory Deferral Amount shall automatically be deferred to such Participant's Stock Account on the date such amount would otherwise be payable to such Participant. Mandatory Deferral Amounts shall be subject to the rules set forth in this Plan, and each Participant shall have the right to receive payments of Common Stock on account of Mandatory Deferral Amounts under the circumstances hereinafter set forth. (b) A Participant may not convert any portion of such Participant's Stock Account attributable to the Mandatory Deferral Amount or dividends thereon, as described in Paragraph 7.1(c), to the Participant's Cash Account for a period of 3 years from the date such Mandatory Deferral Amount was credited to the Participant's Stock Account. V-1 6. Deferred Cash Compensation. (a) Participant shall have the right to elect to have all, or a portion, of his Cash Compensation deferred hereunder, either to his Stock Account or his Cash Account and may change the allocation between such accounts of any such Cash Compensation so deferred. The amount of Cash Compensation credited to either the Stock Account or the Cash Account will be limited to the Cash Compensation earned after the date of the election. (b) Any election to defer future Cash Compensation for the first calendar year that Participant is eligible to participate in this Plan shall be made by the Participant in writing by the thirtieth (30th) day following the date on which the Participant is first eligible to participate by filing with the EBPB the appropriate election form. Any such election shall be limited to Cash Compensation earned after the date of the election. (c) Any election to defer or change the amount of Cash Compensation to be deferred for any subsequent calendar year after the first calendar year of eligibility may be made by Participant not later than December 31 of the year preceding such calendar year by filing with the EBPB an election form; provided, however, that an election once made will be presumed to continue with respect to subsequent years unless changed or revoked by Participant. Participant, may, prior to December 31, 1994, elect to defer some or all of his Cash Compensation otherwise payable after July 1, 1995 to this Stock Account. VI-1 (d) Participant may revoke his election to defer Cash Compensation at any time by so notifying the EBPB in writing not later than December 31 of the year preceding the year for which the revocation will be effective. For any subsequent calendar year, Participant may resume his election to defer if he files with the EBPB an election form not later than December 31 of the year preceding such subsequent calendar year. (e) The deferral of Cash Compensation shall be made in amounts elected for the calendar year in which such Cash Compensation is to be earned, unless the election specifies otherwise. (f) Any election will be effective when actually received by PPL Services Corporation's Payroll Section. (g) An election, once made, will be irrevocable as to Cash Compensation already deferred. VI-2 7.1 Stock Account. PPL Corporation shall maintain a Stock Account in the name of each Participant. Such Stock Account shall be maintained as follows: (a) PPL Corporation shall credit to Participant's Stock Account the number of Stock Units equal to the Mandatory Deferral Amount on the date such amount would otherwise be payable to such Participant, divided by the Fair Market Value of one share of Common Stock on such date. (b) PPL Corporation shall credit to Participant's Stock Account, the number of Stock Units equal to the amount of Deferred Cash Compensation elected by Participant to be credited to his Stock Account, divided by the Fair Market Value of one share of Common Stock on such date. (c) As of each date a dividend or other distribution is paid or made on Common Stock to holders of record on and after the date of deferral hereunder, the Participant's Stock Account shall be credited with a number of additional Stock Units equal to the product of: (i) the amount of such dividend or distribution paid with respect to one share of Common Stock, multiplied by (ii) the number of Stock Units held by the Participant, divided by (iii) the Fair Market Value of one share of Common Stock on such date. If an in-kind dividend or distribution is made on Common Stock, the Fair Market Value of such in-kind dividend or distribution paid with respect to one share of Common Stock will be equal to the amount of the dividend or distribution for purposes of subparagraph (i) of this Section. (d) Subject to the limitations of Paragraph 5(b) and provided that such an election VII-1 is at least six months after the date of such Participant's last election, if any, to convert all or any portion of his Cash Account into interests in his Stock Account, a Participant may elect to convert all or any portion of his Stock Account into interests in such Participant's Cash Account by filing with the EBPB an election form. If such an election is made, the Participant's Cash Account shall be credited with an amount equal to the number of Stock Units being converted, multiplied by the Fair Market Value of one share of Common Stock on the date such amount is credited. 7.2 Cash Account. PPL Corporation shall maintain a Cash Account in the name of each Participant. Such Cash Account shall be maintained as follows: (a) PPL Corporation shall credit to Participant's Cash Account as of the same day on which the last Cash Compensation for the month would have been paid to said Participant an amount equal to the Deferred Cash Compensation elected by Participant to be credited to his Cash Account. (b) Participant's Cash Account shall be credited with interest monthly based on a rate of interest substantially equivalent to that applied on account balances in the Blended Interest Rate Fund in the Deferred Savings Plan or such other comparable fund as may be selected by the EBPB. (c) Provided that such an election is at least six months after the date of such Participant's last election, if any, to convert all or any portion of his Stock Account into interests in his Cash Account, a Participant may elect to convert all or any portion of his Cash Account into interests in such Participant's Stock VII-2 Account by filing with the EBPB an election form. If such an election is made, the Participant's Stock Account shall be credited with a number of Stock Units equal to the Cash Account amount to be converted, divided by the Fair Market Value of one share of Common Stock on such date. VII-3 8. Payment of Accounts. (a) The Total Amount Payable shall be payable at the election of the Participant within thirty (30) days after: (i) Participant ceases serving on the Board of Directors; or (ii) the later of: (A) the Participant's cessation of service on the Board of Directors; or (B) the age elected by the Participant, provided such age is not greater than 72. Such election must be made before the applicable Cash Compensation is deferred and may not be changed with respect to Cash Compensation once it has been deferred. The Participant may defer commencement of distribution until January of the next calendar year after such event occurs. If the Participant has made no election, payments will commence within thirty (30) days after a Participant ceases to be a Director. (b) (i) The Total Amount Payable shall be paid to the Participant in a single sum or, if elected by the Participant, in annual installments up to a maximum of ten (10) years. Such election must be made before the applicable Cash Compensation is deferred and may not be changed with respect to Cash Compensation once it has been deferred. (ii) Payments in respect of the Stock Account shall be made in Common Stock and payments in respect of the Cash Account shall be made in cash. A Participant shall receive a number of shares of Common Stock VIII-1 equal to the number of Stock Units in his Stock Account. (iii) All annual installments shall, except for the final payment, be not less than $5,000. To the extent necessary, the number of annual installments may be reduced to ensure that annual installments are at least $5,000. (iv) The amount of each annual installment shall be determined by dividing the Total Amount Payable less any payments already made to Participant by the remaining number of annual installments to be made (i.e., a 10-year payout shall pay 1/10 of the Total Amount Payable as the first installment, 1/9 as the second annual installment, etc.). (c) (i) If Participant dies while a Director or before all installments have been paid under Paragraph 8(b), payments shall be made to Participant's estate within 30 days after Participant's death. (ii) Payments made to Participant's estate will be made in a single sum. (d) As long as there is a balance in Participant's Cash Account, the balance shall be credited with interest pursuant to Paragraph 7.2(b). For any installment or other payment from the Cash Account, interest shall accrue up to the last day of the month prior to that payment to Participant or his estate. As long as there is a balance in Participant's Stock Account, the remaining balance shall be credited with dividend amounts pursuant to Paragraph 7.1(c). (e) The EBPB may determine, in its sole discretion, that the Total Amount Payable shall be paid to Participant or his estate in different amounts or at different times than provided under this Plan if, in the opinion of the EBPB, it would be VIII-2 necessary as the result of a personal emergency or hardship which results in a severe and immediate financial burden to the Participant, in which case payment shall be made only to the extent necessary to alleviate the Participant's hardship. Any determination by EBPB to change the amount or timing of a Participant's distribution shall not, however, result in the Participant receiving distributions in lesser amounts or over a longer period of time. VIII-3 9. Administration. The EBPB shall have the discretionary authority and final right to interpret, construe and make benefit determinations (including eligibility and amount) under the Plan. The decisions of the EBPB are final and conclusive for all purposes. IX-1 10. Miscellaneous. (a) If the person to receive payment is deemed by the EBPB or is adjudged to be legally incompetent, the payments shall be made to the duly appointed guardian or committee of such incompetent, or they may be made to such person or persons whom the EBPB believes are caring for or supporting the incompetent. (b) Nothing in this Plan shall confer any right on the Participant to continue as a Director. (c) The expenses of the administration hereunder shall be borne by PPL Corporation. (d) This Plan shall be construed, administered and enforced according to the laws of the Commonwealth of Pennsylvania. (e) All payments from this Plan shall be made from the general assets of PPL Corporation. This Plan shall not require PPL Corporation to set aside, segregate, earmark, pay into trust or special account or otherwise restrict the use of its assets in the operation of the business. Participants shall have no greater right or status than as an unsecured general creditor of PPL Corporation with respect to any amounts owed to Participant hereunder. (f) The Plan shall be unfunded. (g) All payments to persons entitled to benefits hereunder shall be made to such persons and shall not be grantable, transferable, pledged or otherwise assignable in anticipation of payment thereof, or subject to attachment, X-1 alienation, garnishment, levy, execution or other legal or equitable process in whole or in part, by the voluntary or involuntary acts of any such persons, or by operation of law, and shall not be liable or taken for any obligation of such person. PPL Corporation will observe the terms of the Plan unless and until ordered to do otherwise by a state or federal court. As a condition of participation, a Participant agrees to hold PPL Corporation harmless from any claim that arises out of PPL Corporation obeying any such order whether such order effects a judgment of such court or is issued to enforce a judgment or order of another court. (h) Participant's benefits under group life insurance, and other benefit plans as may be maintained by PPL Corporation for Directors will be provided based on all Compensation to Participant. X-2 11. Termination or Amendment. (a) The Committee may, in its discretion, terminate or amend this Plan from time to time. In addition, the EBPB may make such amendments to the Plan as it deems necessary or desirable except those amendments which substantially increase the cost of the Plan to PPL Corporation or significantly alter the benefit design or eligibility requirements of the Plan. No termination or amendment shall (without Participant's consent) alter: a) Participant's right to payments of amounts previously credited to Participant's Accounts, which amounts shall continue to earn interest or accumulate dividends as provided for herein as though termination or amendment had not been effected, or b) the amount or times of payment of such amounts which have commenced prior to the effective date of such termination or amendment; provided, however, that no such consent may accelerate the Participant's payments. Notwithstanding the foregoing, if PPL Corporation is liquidated, the EBPB shall have the right to determine the Total Amount Payable under Paragraph 8 to Participant, and to cause the amount so determined to be paid in one or more installments or upon such other terms and conditions and at such other time (not beyond the time provided for herein) as the EBPB determines to be just and equitable. Any determinations made pursuant to the preceding sentence shall be consistent as to all Participants. XI-1 Executed this ______ day of___________________, 2000. PPL CORPORATION By:_____________________________________ Charles P. Pinto Vice President-Human Resources XI-2 PPL CORPORATION DIRECTORS DEFERRED COMPENSATION PLAN EFFECTIVE JANUARY 26, 1972 TABLE OF CONTENTS -----------------
PARAGRAPH PAGE - --------- ---- 1. Purpose.............................................................. 1 2. Definitions.......................................................... 2 (a) Board of Directors........................................... II-1 (b) Cash Account................................................. II-1 (c) Cash Compensation............................................ II-1 (d) Committee.................................................... II-1 (e) Common Stock................................................. II-1 (f) Compensation................................................. II-1 (g) Deferred Cash Compensation................................... II-1 (h) Deferred Savings Plan........................................ II-1 (i) Director..................................................... II-2 (j) EBPB......................................................... II-2 (k) Effective Time............................................... II-2 (l) Fair Market Value............................................ II-2 (m) Mandatory Deferral Amount.................................... II-2 (n) Participant.................................................. II-3 (o) Plan......................................................... II-3 (p) PPL.......................................................... II-3 (q) PPL Corporation.............................................. II-3 (r) Stock Account................................................ II-3 (s) Stock Unit................................................... II-3 (t) Total Amount Payable......................................... II-3 3. Effective Date....................................................... 5 4. Eligibility.......................................................... 6 5. Mandatory Deferral................................................... 7 6. Deferred Cash Compensation........................................... 8 7.1 Stock Account........................................................ 10
-i- 7.2 Cash Account......................................................... 11 8. Payment of Accounts.................................................. 13 9. Administration....................................................... 16 10. Miscellaneous........................................................ 17 11. Termination or Amendment............................................. 19
-ii- EX-10.(I)-1 9 0009.txt PPL OFFICERS COMPENSATION PLAN 7/1/1985 PPL OFFICERS DEFERRED COMPENSATION PLAN EFFECTIVE JULY 1, 1985 Amended and Restated Effective February 14, 2000 PPL OFFICERS DEFERRED COMPENSATION PLAN EFFECTIVE JULY 1, 1985 TABLE OF CONTENTS -----------------
PARAGRAPH PAGE - --------- ---- 1. Purpose.................................................... 2. Definitions................................................ (a) Account............................................ II-1 (b) Affiliated Company or Affiliated Companies......... II-1 (c) Cash Award......................................... II-1 (d) Cash Compensation.................................. II-1 (e) Change in Control.................................. II-1 (f) Deferred Cash Award................................ II-2 (g) Deferred Cash Compensation......................... II-3 (h) Deferred Savings Plan.............................. II-3 (i) EBPB............................................... II-3 (j) ESOP............................................... II-3 (k) Participant........................................ II-3 (l) Participating Company.............................. II-3 (m) Plan............................................... II-3 (n) PPL................................................ II-3 (o) PPL Corporation.................................... II-3 (p) Retirement Plan.................................... II-3 (q) Total Amount Payable............................... II-3 3. Eligibility................................................ 4. Deferred Cash Compensation and Deferred Cash Awards....................................... 5. Account.................................................... 6. Payment of Account - General Provisions.................... 7. Supplemental Payments......................................
-i- 8. Administration............................................. 9. Miscellaneous.............................................. 10. Termination or Amendment................................... 11. Effective Date.............................................
-ii- PPL OFFICERS DEFERRED COMPENSATION PLAN ----------------------------------- 1. Purpose. The purpose of this Officers Deferred Compensation Plan is to provide certain executive officers of PPL and other Participating Companies an additional means to increase their incomes after retirement or disability, and in order to meet other important personal and financial needs. I-1 2. Definitions. (a) "Account" means the account of Deferred Cash Compensation and Deferred Cash Awards established solely as a bookkeeping entry and maintained under paragraph 5 of this Plan. (b) "Affiliated Company" or "Affiliated Companies" shall mean any parent or subsidiaries of PPL (or companies under common control with PPL) which are members of the same controlled group of corporations (within the meaning of section 1563(a) of the Code) as PPL or which are under common control with PPL (within the meaning of Section 414(c) of the Code). (c) "Cash Award" means any incentive awards payable under the executive incentive awards program prior to any deferrals under this Plan. (d) "Cash Compensation" means base salary prior to any deferrals to this Plan or the Deferred Savings Plan. (e) "Change in Control" means any one of the following events: (a) any change in control of PPL Corporation of a nature that would be required to be reported in response to Item 1(a) of Form 8-K under the Securities Exchange Act of 1934, as amended (the "Exchange Act"); (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of PPL Corporation cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period; (c) any person (within the meaning of section 13(d) of the Exchange Act) becomes the beneficial owner, directly or indirectly, of securities of PPL Corporation representing 20% or more of the combined II-1 voting power of PPL Corporation's then outstanding securities entitled to vote generally in the election of directors; (d) the approval by the stockholders of PPL Corporation of any merger or consolidation of PPL Corporation with any other corporation or the sale or other disposition of all or substantially all of the assets of PPL Corporation to any other person or persons unless, after giving effect thereto, (1) holders of PPL Corporation's then outstanding securities entitled to vote generally in the election of directors will own a majority of the outstanding stock entitled to vote generally in the election of directors of the continuing, surviving or transferee corporation or any parent (within the meaning of Rule 12b-2 under the Exchange Act) thereof and (2) the incumbent members of the Board of PPL Corporation as constituted immediately prior thereto shall constitute at least a majority of the directors of the continuing, surviving or transferee corporation and any parent thereof; or (e) the Board of PPL Corporation adopts a resolution to the effect that a "Change in Control" has occurred or is anticipated to occur. (f) "Deferred Cash Award" means the Cash Award of a Participant deferred under paragraph 4 of this Plan. (g) "Deferred Cash Compensation" means the Cash Compensation of a Participant deferred under paragraph 4 of this Plan. (h) "Deferred Savings Plan" means the PPL Deferred Savings Plan. (i) "EBPB" means Employee Benefit Plan Board, the members of which are appointed by the Board of Directors of PPL Corporation. (j) "ESOP" means the PPL Employee Stock Ownership Plan. (k) "Participant" means an eligible officer of a Participating Company who elects to defer Cash Compensation and/or Cash Awards under this Plan. II-2 (l) "Participating Company" means PPL Electric Utilities Corporation (prior to February 14, 2000, PP&L, Inc.), PPL EnergyPlus, LLC (prior to February 14, 2000, PP&L EnergyPlus Co., LLC), and each other Affiliated Company that is designated by the Board of Directors of PPL to adopt this Plan by action of its board of directors or other governing body. (m) "Plan" means this Officers Deferred Compensation Plan as set forth herein and as hereafter amended from time to time. (n) "PPL" means PPL Electric Utilities Corporation (prior to February 14, 2000, PP&L, Inc.). (o) "PPL Corporation" shall mean PPL Corporation (prior to February 14, 2000, PP&L Resources, Inc.). (p) "Retirement Plan" means the PPL Retirement Plan. (q) "Total Amount Payable" means the amount credited to a Participant's Account plus interest. The masculine pronoun shall be deemed to include the feminine and the singular to include the plural unless a different meaning is plainly required by the context. II-3 3. Eligibility. All officers of PPL in PPL Salary Grades I through IV and any officer of a Participating Company who is designated as eligible in a resolution adopted by the board of directors of such Participating Company shall be eligible to participate in this Plan. III-1 4. Deferred Cash Compensation and Deferred Cash Awards. (a) Participant shall have the right to elect to have all, or a portion, of his Cash Compensation in excess of $20,000 deferred hereunder. (b) Participant shall have the right to elect to have all, or a portion, of his Cash Awards deferred hereunder. (c) Any election to defer future Cash Compensation and/or Cash Awards for the first calendar year that Participant is eligible to participate in this Plan shall be made by the Participant in writing by the thirtieth (30th) day following the date on which the Participant is first eligible to participate by filing with the EBPB the appropriate election form. Any such election shall be limited to Cash Compensation and Cash Awards earned after the date of the election. (d) Any election to defer or change the amount of Cash Compensation and/or Cash Awards to be deferred for any subsequent calendar year after the first calendar year of eligibility may be made by Participant not later than December 31 of the year preceding such calendar year by filing with the EBPB an election form; provided, however, that an election once made will be presumed to continue unless changed or revoked by Participant. (e) Participant may revoke his election to defer Cash Compensation and/or Cash Awards at any time by so notifying the EBPB in writing not later than December 31 of the year preceding the year for which the revocation will be effective. For any subsequent calendar year, Participant may resume his election to defer if he files with the EBPB an election form not later than December 31 of the year preceding such subsequent calendar year. IV-1 (f) The deferral of Cash Compensation shall be made in equal amounts in each bi-weekly pay period during the calendar year in which such Cash Compensation is to be earned, unless the election specifies otherwise. (g) Any election is filed with the EBPB and will be effective when actually received by PPL Services Corporation's Payroll Section. (h) Such an election, once made, will be irrevocable as to Cash Compensation and Cash Awards already deferred. (i) Deferred Cash Compensation and Deferred Cash Awards shall be subject to the rules set forth in this Plan, and each Participant shall have the right to receive cash payments on account of Deferred Cash Compensation and Deferred Cash Awards only in the amounts and under the circumstances hereinafter set forth. IV-2 5. Account. PPL shall maintain an Account in the name of each Participant. Such Account shall be maintained as follows: (a) PPL shall credit the Deferred Cash Compensation to Participant's Account as of the same day on which the last Cash Compensation for the month would have been paid to said Participant. (b) PPL shall credit the Deferred Cash Award to Participant's Account as of the same day that all Cash Awards not being deferred are paid. (c) Within sixty (60) days of the close of any calendar year during which Participant authorized salary reduction contributions to the Deferred Savings Plan, PPL will credit Participant's Account with the difference, if any, between the Participating Company matching contributions Participant would have received for the prior calendar year under the Deferred Savings Plan if Participant had participated in the Deferred Savings Plan based on Participant's Cash Compensation and the actual Participating Company matching contributions allocated to Participant's Account in the Deferred Savings Plan for the prior calendar year. Participant will forfeit any such allocation to his Account if Participant terminates employment with all Participating Companies at a time when Participating Company matching contributions under the Deferred Savings Plan are not vested under that plan. (d) At the time when any allocations are made under ESOP for contributions under Article IV of that plan, PPL will credit Participant's Account with an amount equal to the difference, if any, between the value of PPL contributions that would have been made under ESOP based on Participant's Cash Compensation and the value of PPL contributions actually made for Participant under ESOP. V-1 (e) Participant's Account shall be credited with interest quarterly based on a rate of interest substantially equivalent to that applied on account balances in the Blended Interest Rate Fund in the Deferred Savings Plan or such other comparable fund as may be selected by the EBPB. V-2 6. Payment of Account - General Provisions (a) The Total Amount Payable shall be payable to Participant: (i) if Participant becomes totally disabled while employed by PPL or an Affiliated Company, as determined by the EBPB in its discretion; (ii) if Participant retires from PPL and all Affiliated Companies under the Retirement Plan; or (iii) if Participant resigns or otherwise ceases employment with PPL and all Affiliated Companies; within thirty (30) days of such event or in the January of the calendar year following such event, as elected by Participant. Such election must be made before the applicable Cash Compensation and/or Cash Award is deferred and may not be changed with respect to Cash Compensation and/or Cash Award once it has been deferred. If Participant has made no election, payments will commence within thirty (30) days after cessation of employment. (b) (i) The Total Amount Payable shall be paid to Participant in a single sum or in annual installments up to a maximum of fifteen (15) years, as elected by the Participant. Such election must be made before the applicable Cash Compensation and/or Cash Award is deferred and may not be changed with respect to Cash Compensation and/or Cash Award once it has been deferred. (ii) All annual installments shall, except for the final payment, be not less than $5,000. To the extent necessary, the number of annual VI-1 installments may be reduced to insure that annual installments are at least $5,000. (iii) The amount of each annual installment shall be determined by dividing the Total Amount Payable less any payments already made to Participant by the remaining number of annual installments to be made (i.e., a 10 year payout shall pay 1/10 of the Total Amount Payable as the first installment, 1/9 as the second annual installment, etc.). (c) (i) If Participant dies while employed by PPL or an Affiliated Company or before all installments have been paid under paragraph 5(b), payments shall be made within 30 days after Participant's death to the beneficiary designated in writing by Participant. Participant shall have a continuing power to designate a new beneficiary in the event of his death at any time prior to his death by written instrument delivered by Participant to the EBPB without the consent or approval of any person theretofore named as his beneficiary. In the event the designated beneficiary does not survive Participant, payment will be made to an alternate beneficiary designated in writing by Participant. If no such designation is in effect at the time of death of Participant, or if no person so designated shall survive Participant, payment shall be made to Participant's estate. (ii) Payments made to Participant's designated beneficiary will be made at the times and in the amounts as if Participant were living based on Participant's elected form of distribution; provided, however, if payments VI-2 are to be made to Participant's estate, payment will be made in a single sum. (d) So long as there is a balance in Participant's Account, the balance shall be credited with interest pursuant to paragraph 5(d). For any installment or other payment from the Account, interest shall accrue up to the last day of the month prior to that payment to Participant or his beneficiary. (e) The EBPB may determine, in its sole discretion, that the Total Amount Payable shall be paid to a Participant or his beneficiary in different amounts or at different times than provided under this Plan if, in the opinion of the EBPB, it would be necessary as the result of a personal emergency or hardship which results in a severe and immediate financial burden to the Participant in which case payment shall be made only to the extent necessary to alleviate the Participant's hardship. VI-3 7. Supplemental Payments. (a) Upon his retirement under the Retirement Plan or PPL's Supplemental Executive Retirement Plan or upon his death while still employed by PPL or an Affiliated Company, Participant and/or his beneficiaries shall be paid a monthly supplemental retirement benefit (or supplemental pre-retirement spouse's annuity, as the case may be) equal to the difference, if any, between the benefit which would have been payable to him under such plan if the Participant's Deferred Cash Compensation had been included in the Participant's compensation for such plan and the benefit actually payable to the Participant and/or his beneficiaries thereunder. Such supplemental retirement benefit shall be payable in accordance with all the terms and conditions applicable to the Participant's or his beneficiary's benefit under the Retirement Plan, including any optional form of payment. If such supplemental retirement payments would be less than one hundred dollars ($100) per month, the EBPB, in its discretion, may elect to make such monthly supplemental retirement payments in such installments as the EBPB may determine or in a single lump-sum payment. Notwithstanding the foregoing, in the event that Participant's benefits under the Retirement Plan are subject to a qualified domestic relations order, any supplemental retirement benefits payable under this paragraph shall be calculated and made without regard to such order. (b) Any Participant who terminates employment with PPL or an Affiliated Company (by retirement or otherwise) under circumstances where PPL or an Affiliated Company has requested or demanded such termination of employment for proper cause (including, without limitation, theft, fraud, breach of any fiduciary duty, misrepresentation, deceit, illegal or criminal act(s)) shall have no right to receive any payment from this Plan VII-1 under paragraph 7(a). The preceding sentence shall not apply to any Participant who terminates employment with PPL or an Affiliated Company within three (3) years after the effective date of a Change in Control. VII-2 8. Administration. The Employee Benefit Plan Board shall have the discretionary authority and final right to interpret, construe and make benefit determinations (including eligibility and amount) under the Plan. The decisions of the Employee Benefit Plan Board are final and conclusive for all purposes. If one or more members of the EBPB are disqualified by personal interest from taking part in a particular decision, the remaining member or members of the EBPB (although less than a quorum) shall have full power to act on the matter. VIII-1 9. Miscellaneous. (a) If the person to receive payment is a minor, or is deemed by the EBPB or is adjudged to be legally incompetent, the payments shall be made to the duly appointed guardian or committee of such minor or incompetent, or they may be made to such person or persons who the EBPB believes are caring for or supporting such minors or incompetents. (b) Nothing in this Plan shall confer any right on any Participant to continue in PPL's or in an Affiliated Company's employ or to receive compensation, nor shall anything in this Plan affect in any way the right of PPL or an Affiliated Company to terminate any Participant's employment at any time. (c) The expenses of administration hereunder shall be borne by PPL. (d) This Plan shall be construed, administered and enforced according to the laws of the Commonwealth of Pennsylvania. (e) All payments from this Plan shall be made from the general assets of PPL or an Affiliated Company. This Plan shall not require PPL or an Affiliated Company to set aside, segregate, earmark, pay into trust or special account or otherwise restrict the use of its assets in the operation of the business. Participant shall have no greater right or status than as an unsecured general creditor of PPL or an Affiliated Company with respect to any amounts owed to Participant hereunder. (f) All payments to persons entitled to benefits hereunder shall be made to such persons and shall not be grantable, transferable, pledged or otherwise assignable in anticipation of payment thereof, or subject to attachment, alienation, garnishment, levy, execution or other legal or equitable process in whole or in part, by the voluntary or IX-1 involuntary acts of any such persons, or by operation of law, and shall not be liable or taken for any obligation of such person. PPL will observe the terms of the Plan unless and until ordered to do otherwise by a state or federal court. As a condition of participation, a Participant agrees to hold PPL harmless from any claim that arises out of PPL's obeying any such order whether such order effects a judgment of such court or is issued to enforce a judgment or order of another court. (g) Participant's benefits under group life insurance, accidental death and disability, short-term disability, long-term disability and other similar employee benefit plans maintained by PPL will be provided based on Cash Compensation to Participant. IX-2 10. Termination or Amendment. The Board of Directors may, in its discretion, terminate and amend this Plan from time to time. In addition, the Employee Benefit Plan Board may make such amendments to the Plan as it deems necessary or desirable except those amendments which substantially increase the cost of the Plan to PPL or a Participating Company or significantly alter the benefit design or eligibility requirements of the Plan. Each amendment to the Plan will be binding on each Participating Company. No termination or amendment shall (without Participant's consent) alter: a) Participant's right to payments of amounts previously credited to Participant's Account, which amounts shall continue to earn interest as provided for herein as though termination or amendment had not been effected, b) the amount or times of payment of such amounts which have commenced prior to the effective date of such termination or amendment, or c) the rights set forth in paragraph 5 to designate beneficiaries in the event of Participant's death or alter Participant's right to monthly supplemental payments under paragraph 7; provided, however, that no such consent may accelerate the Participant's payments. Notwithstanding the foregoing, if PPL is liquidated, the EBPB shall have the right to determine the Total Amount Payable and any monthly supplemental payments payable under paragraph 7 to Participant, and to cause the amount so determined to be paid in one or more installments or upon such other terms and conditions and at such other time (not beyond the time provided for herein) as the EBPB determines to be just and equitable. Any determinations made pursuant to the preceding sentence shall be consistent as to all Participants. X-1 11. Effective Date. The effective date of this amended and restated Plan is February 14, 2000. Executed this ______ day of______________________, 2000. PPL ELECTRIC UTILITIES CORPORATION By:_____________________________________ Charles P. Pinto Vice President-Human Resources XI-1 AMENDMENT NO. 1 TO PPL SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN WHEREAS, PPL Services Corporation ("PPL") adopted the PPL Supplemental Executive Retirement Plan (the "Plan"), effective July 1, 2000, for certain of its employees; and WHEREAS, the Plan was amended and restated effective July 1, 2000; and WHEREAS, PPL desires to further amend the Plan; NOW, THEREFORE, the Plan is hereby amended as follows: 1. Effective July 1, 2000 the following sections of Articles 2 and 10 are amended to read: 2. DEFINITIONS. (d) "BOARD" means the Board of Directors of PPL Services Corporation. 10. TERMINATION OR AMENDMENT. The Board may, in its sole discretion, terminate and amend this Plan from time to time provided, however, that the Plan may not be terminated or amended to the prejudice or detriment of any Participant during the three (3) year period immediately following a Change in Control (or, if later, thirty six (36) months from the consummation of the transaction giving rise to the Change in Control). Without limiting the generality of the foregoing, the proviso of the preceding sentence shall not, at any time or in any event, be amended or deleted. Subject to the foregoing, the Employee Benefit Plan Board may adopt any amendment that does not significantly affect the cost of the Plan or significantly alter the -1- benefit design or eligibility requirements of the Plan. Each amendment to the Plan will be binding on the Participating Company to which it applies. No termination or amendment shall (without Participant's consent) alter Participants right to monthly payments which have commenced prior to the effective date of such termination or amendment. Prior to a Change in Control, the Board specifically reserves the right to terminate or amend this Plan to eliminate the right of any Participant to receive payment hereunder prior to the time when payments are in pay status under this Plan. Notwithstanding the foregoing, if PPL is liquidated, the EBPB shall cause the amounts due hereunder to be paid in one or more installments or upon such other terms and conditions and at such other time as the EBPB determines to be just and equitable, but in no event later than the time such amounts would otherwise have been paid. II. Except as provided for in this Amendment No. 1, all other provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, this Amendment No. 1 is executed this _____ day of ___________________________, 2000. PPL SERVICES CORPORATION By:______________________________ Charles P. Pinto Vice President-Human Resources -2- EX-10.(I)-2 10 0010.txt AMENDMENT NO. 1 TO PPL OFFICERS COMPENSATION PLAN Exhibit 10(1).2 AMENDMENT NO. 1 TO PPL OFFICERS DEFERRED COMPENSATION PLAN WHEREAS, PPL Services Corporation ("PPL") has adopted the PPL Officers Deferred Compensation Plan ("Plan") effective July 1, 2000; and WHEREAS, the Plan was amended and restated effective July 1, 2000; and WHEREAS, PPL desires to further amend the Plan; NOW, THEREFORE, the Plan is hereby amended as follows: I. Effective July 1, 2000, Article 10 is amended to read: 10. Termination or Amendment. Each Participating Company shall have the power to amend the Plan by or pursuant to action of its board of directors, but any such amendment to the Plan must be approved by PPL Services Corporation, and shall only apply to those Participants who are employees of the Participating Company authorizing the amendment. Any amendment that significantly affects the cost of the Plan or significantly alters the benefit design or eligibility requirements of the Plan shall be adopted by both PPL Services Corporation and any Participating Company whose employees are affected. In addition, the Employee Benefit Plan Board may adopt any amendment that does not significantly affect the cost of the Plan or significantly alter the benefit design or eligibility requirements of the Plan. Each amendment to the Plan will be binding on the Participating Company to which it applies. No termination or amendment shall (without Participant's consent) alter: a) Participant's right to payments of amounts previously credited to Participant's Account, which amounts shall continue to earn interest as provided -1- for herein as though termination or amendment had not been effected, b) the amount or times of payment of such amounts which have commenced prior to the effective date of such termination or amendment, or c) the rights set forth in paragraph 5 to designate beneficiaries in the event of Participant's death or alter Participant's right to monthly supplemental payments under paragraph 7; provided, however, that no such consent may accelerate the Participant's payments. Notwithstanding the foregoing, if PPL is liquidated, the EBPB shall have the right to determine the Total Amount Payable and any monthly supplemental payments payable under paragraph 7 to Participant, and to cause the amount so determined to be paid in one or more installments or upon such other terms and conditions and at such other time (not beyond the time provided for herein) as the EBPB determines to be just and equitable. Any determinations made pursuant to the preceding sentence shall be consistent as to all Participants. II. Except as provided for in this Amendment No. 1, all other provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, this Amendment No. 1 is executed this _____ day of _____________________, 2000. PPL SERVICES CORPORATION By:___________________________________ Charles P. Pinto Vice President - Human Resources -2- EX-10.(I)-3 11 0011.txt AMEND. NO.2 TO PPL OFFICERS COMPENSATION PLAN Exhibit 10(1)-3 AMENDMENT NO. 2 TO PPL OFFICERS DEFERRED COMPENSATION PLAN WHEREAS, PPL Services Corporation ("PPL") has adopted the PPL Officers Deferred Compensation Plan ("Plan") effective July 1, 2000; and WHEREAS, the Plan was amended and restated effective July 1, 2000, and subsequently amended by Amendment No. 1; and WHEREAS, PPL desires to further amend the Plan; NOW, THEREFORE, the Plan is hereby amended as follows: I. Effective December 1, 2000, Articles 2, 5 and 6 are amended to read: 2. Definitions. (q) "Total Amount Payable" means the amount credited to a Participant's Account plus the calculated rate of return pursuant to paragraph 5(e). 5. Account. PPL shall maintain an Account in the name of each Participant. Such Account shall be maintained as follows: (a) PPL shall credit the Deferred Cash Compensation to Participant's Account on a daily basis for each business day as if Cash Compensation that would have been paid was paid over each business day of the calendar year. (e) Participant's Account shall be credited in substantially equivalent frequency and with a calculated rate of return substantially equivalent to the rate of return that would have been realized had the Account been invested in one or more mutual fund choices offered by the PPL Deferred Savings Plan as of December 1, 2000. The mutual fund or funds utilized to calculate the rate of return on the Participant's Account shall be -1- that mutual fund or funds elected by the Participant in writing on an election form submitted to the EBPB. The Participant may change investment choices in the same manner as may be permitted by the PPL Deferred Savings Plan for Participant funds in that Plan as of December 1, 2000. 6. Payment of Account - General Provisions (d) So long as there is a balance in Participant's Account, the balance shall be credited with the calculated rate of return pursuant to paragraph 5(e). For any installment or other payment from the Account, the calculated rate of return shall accrue until the last business day as may be practicable prior to that payment to Participant or his beneficiary. II. Except as provided for in this Amendment No. 2, all other provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, this Amendment No. 2 is executed this _____ day of _____________________, 2000. PPL SERVICES CORPORATION By:__________________________________ Charles P. Pinto Vice President - Human Resources -2- EX-10.(J)-1 12 0012.txt PPL SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN PPL SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Amended and Restated Effective as of October 1, 1999 PPL SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AMENDED AND RESTATED EFFECTIVE OCTOBER 1, 1999 TABLE OF CONTENTS -----------------
ARTICLE PAGE - ------- ---- 1. Purpose................................................................. I-1 2. Definitions............................................................. II-1 (a) Actuarial Equivalent............................................... II-1 (b) Affiliated Company or Affiliated Companies......................... II-1 (c) Affiliated Company SERP (d) Board.............................................................. II-2 (e) Cause.............................................................. II-2 (f) Change in Control.................................................. II-3 (g) Change in Control Participant...................................... II-5 (h) Disability......................................................... II-6 (i) Displaced Participant.............................................. II-7 (j) Early Retirement Reduction Factor.................................. II-7 (k) EBPB............................................................... II-8 (l) Exchange Act....................................................... II-8 (m) Good Reason........................................................ II-8 (n) Officers Deferred Compensation Plan................................II-12 (o) Participant........................................................II-12 (p) Participating Company..............................................II-12 (q) Person.............................................................II-13 (r) Plan...............................................................II-13 (s) Potential Change in Control........................................II-13 (t) PPL................................................................II-14 (u) PPL Corporation....................................................II-14 (v) Projected Years of Service.........................................II-14 (w) Retiree............................................................II-14 (x) Retirement.........................................................II-15 (y) Retirement Plan....................................................II-15 (z) SERB...............................................................II-15 (aa) Supplemental Final Average Earnings................................II-15 (bb) Terminated Vested Participant......................................II-18 (cc) Termination of Employment..........................................II-18 (dd) Years of Service...................................................II-18 (ee) Year(s) of Vesting Services........................................II-19
-i- 3. Entitlement to Benefits................................................ III-1 4. Amount of Supplemental Executive Retirement Benefit.................... IV-1 5. Time of Payment........................................................ V-1 6. Method of Payment...................................................... VI-1 7. Death Benefit.......................................................... VII-1 8. Administration.........................................................VIII-1 9. Miscellaneous.......................................................... IX-1 10. Termination or Amendment............................................... X-1 11. Effective Date......................................................... XI-1 Appendix A............................................................. A-1
-ii- PPL SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN -------------------------------------- WHEREAS, PPL Electric Utilities Corporation ("PPL") adopted the PPL Supplemental Executive Retirement Plan (the "Plan"), effective July 1, 1985, as amended and restated from time to time, for certain of its employees; and WHEREAS, PPL desires at this time to amend and restate the Plan; NOW, THEREFORE, effective as of October 1, 1999, the Plan is continued, amended and restated as hereinafter set forth: ARTICLE I PURPOSE ------- 1. Purpose. The purpose of this Supplemental Executive Retirement Plan is to provide certain executive officers of PPL and Participating Companies with additional retirement income so that total retirement income for key officers is competitive with other employers and in order to facilitate early retirement from key positions carrying the most important responsibilities. I-1 ARTICLE II DEFINITIONS ----------- 2. Definitions. (a) "Actuarial Equivalent" means having or that which has equal actuarial value to the SERB based on the following. (1) For purposes of the annuity forms of benefit described in Article 6, a Participant's SERB as calculated under Article 4 shall be converted to an optional annuity form of benefit by using the assumptions and factors described in Schedule A of the Retirement Plan. (2) For purposes of the single sum form of benefit described in Article 6, the Participant's SERB as calculated under Article 4, shall be converted to a single sum by using the following factors: (A) An interest rate equal to the immediate annuity rate that would be used by the Pension Benefit Guaranty Corporation for purposes of determining a lump sum distribution upon plan termination, as in effect for the month in which the Participant's benefit commencement date occurs. (B) A mortality rate based on the 1983 GAM Unisex Table. (b) "Affiliated Company" or "Affiliated Companies" shall mean any parent or subsidiaries, other than PPL, of PPL (or companies under common control with PPL) which are members of the same controlled group of II-1 corporations (within the meaning of section 1563(a) of the Code) as PPL or are companies under common control with PPL (within the meaning of Section 414(c) of the Code). (c) "Affiliated Company SERP" shall mean a non-qualified defined benefit retirement plan for executives, other than this Plan, sponsored by an Affiliated Company. (d) "Board" means the Board of Directors of PPL Electric Utilities Corporation. (e) "Cause" for Participant's Termination of Employment by PPL or an Affiliated Company means (1) the willful and continued failure by Participant to substantially perform Participant's duties with PPL or an Affiliated Company (other than any such failure resulting from Participant's incapacity due to physical or mental illness or, if applicable, any such actual or anticipated failure after the issuance of any "Notice of Termination for Good Reason" by the Participant pursuant to any severance agreement between Participant and PPL or an Affiliated Company) after a written demand for substantial performance is delivered to Participant by the Board, which demand specifically identifies the manner in which the Board believes that Participant has not substantially performed Participant's duties, or II-2 (2) the willful engaging by Participant in conduct which is demonstrably and materially injurious to PPL or an Affiliated Company, monetarily or otherwise. (3) For purposes of Subsections (1) and (2) of this definition, (A) no act, or failure to act, on Participant's part shall be deemed "willful" unless done, or omitted to be done, by Participant not in good faith and without reasonable belief that Participant's act, or failure to act, was in the best interest of PPL or the Affiliated Company, and (B) in the event of a dispute concerning the application of this provision, no claim by PPL or an Affiliated Company that Cause exists shall be given effect unless PPL or the Affiliated Company establishes to the Board by clear and convincing evidence that Cause exists. (f) "Change in Control" means the occurrence of any one of the following events: (1) any change in the control of PPL Corporation of a nature that would be required to be reported in response to Item 1(a) of Form 8-K under the Exchange Act; (2) during any period of not more than two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of PPL Corporation and any new director (other than a director designated by a Person who has entered into an II-3 agreement with PPL Corporation to effect a transaction described in Paragraph (1), (3) or (4) of this definition) whose election by the Board of Directors of PPL Corporation or nomination for election by the shareowners of PPL Corporation was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved or recommended, cease for any reason to constitute at least a majority thereof; (3) any Person becomes the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of PPL Corporation representing 20% or more of the combined voting power of PPL Corporation's then outstanding securities entitled to vote generally in the election of directors; (4) the approval by the shareowners of PPL Corporation of any merger or consolidation of PPL Corporation with any other corporation or a plan of complete liquidation of PPL Corporation or the sale or other disposition of all or substantially all of the assets of PPL Corporation to any other person or persons unless, after giving effect thereto, (A) holders of PPL Corporation's then outstanding securities entitled to vote generally in the election of directors will own a majority of the outstanding stock entitled to vote generally in II-4 the election of directors of the continuing, surviving or transferee corporation or any parent (within the meaning of Rule 12b-2 under the Exchange Act) thereof, and (B) the incumbent members of the Board of Directors of PPL Corporation as constituted immediately prior thereto shall constitute at least a majority of the directors of the continuing, surviving or transferee corporation and any parent thereof; or (5) the Board of Directors of PPL Corporation adopts a resolution to the effect that a "Change in Control" has occurred or is anticipated to occur. (g) "Change in Control Participant" means the following: (1) a Participant whose Termination of Employment occurs after a Change in Control and within 36 months after the month in which the Change in Control occurs, unless such Termination of Employment is (A) by PPL or an Affiliated Company for Cause, (B) by reason of the Participant's death, Disability or Retirement, or (C) by the Participant without Good Reason, or (2) a Participant whose Termination of Employment occurs prior to a Change in Control (whether or not a Change in Control ever occurs) (A) at the request or direction of a Person who has entered into an agreement with PPL Corporation the consummation of which would constitute a Change in Control, or (B) at the II-5 Participant's initiative for Good Reason if the circumstance or event which constitutes Good Reason occurs at the direction of such Person or (C) the Participant's Termination of Employment is by PPL or an Affiliated Company without Cause or is by the Participant for Good Reason, and such Termination of Employment or the circumstance or event which constitutes Good Reason is otherwise in connection with or in anticipation of a Change in Control (whether or not a Change in Control occurs). For purposes of any determination regarding the applicability of the immediately preceding sentence, any position taken by the Participant shall be presumed to be correct unless PPL or an Affiliated Company establishes to the Board by clear and convincing evidence that such position is not correct. (h) "Disability" shall be deemed the reason for a Participant's Termination of Employment by PPL or an Affiliated Company, if, (1) as a result of the Participant's incapacity due to physical or mental illness, the Participant shall have been absent from the full-time performance of the Participant's duties with PPL and all Affiliated Companies for a period of six consecutive months, and (2), if applicable, PPL or an Affiliated Company shall have given the Participant any "Notice of Termination for Disability" required by any severance agreement between the Participant and PPL or an Affiliated Company, and, within thirty days after such "Notice of II-6 Termination," if any, is given, the Participant shall not have returned to the full-time performance of the Participant's duties. (i) "Displaced Participant" means a Participant who has a Termination of Employment after completing one or more Years of Vesting Service, and who qualifies for benefits pursuant to PPL's Displaced Managers Policy (SPM 606) and who executes a severance agreement and release as specified by the Participating Company. (j) "Early Retirement Reduction Factor" means the percentage that appears adjacent to the Participant's age below determined under the appropriate column. (1) Column (1) shall apply to any Retiree. (2) Column (2) shall apply to any Terminated Vested Participant. (3) Column (3) shall apply to any Change in Control Participant. Notwithstanding anything in this Section to the contrary, a Participant who meets the definition of a Retiree, a Terminated Vested Participant and/or a Displaced Participant, who also meets the definition of a Change in Control Participant, shall be treated as a Change in Control Participant for purposes of this Section. (4) Column (4) shall apply to any Displaced Participant. Notwithstanding Subsection (1) or (2), a Participant who meets the definition of a Retiree or a Terminated Vested Participant, but not the definition of a Change in Control Participant, who also meets II-7 the definition of a Displaced Participant, shall be treated as a Displaced Participant for purposes of this Section. Percentage of Benefit Received ------------------------------ (1) (2) (3) (4) Age When Change in Benefits Terminated Control Displaced Start Retiree Vested Participant Participant -------- ------- ---------- ----------- ----------- 60 100 100 100 100 59 95 90 95 100 58 90 80 90 100 57 85 70 85 100 56 80 60 80 100 55 75 50 75 100 54 70 N/A 70 100 53 65 N/A 65 100 52 60 N/A 60 100 51 55 N/A 55 100 50 50 N/A 50 100 49 or younger N/A N/A N/A N/A (k) "EBPB" means the Employee Benefit Plan Board, the members of which are appointed by the Board of Directors of PPL Corporation. (l) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. (m) "Good Reason" for Termination of Employment by a Participant means the occurrence (without the Participant's express written consent) after a Change in Control, or prior to a Change in Control under the circumstances described in paragraphs (B) and (C) of Section (2) of the definition of "Change in Control Participant" (treating all references in paragraphs (1) through (7) below to a "Change in Control" as references II-8 to a "Potential Change in Control"), of any one of the following acts by PPL or an Affiliated Company, or failures by PPL or an Affiliated Company to act: (1) the assignment to the Participant of any duties inconsistent with the Participant's status as an executive officer or key employee of PPL or an Affiliated Company or a substantial adverse alteration in the nature or status of the Participant's responsibilities from those in effect immediately prior to a Change in Control; (2) a reduction by PPL or an Affiliated Company of the Participant's annual base salary as in effect on the effective date of this amended and restated Plan, or as the same may be increased from time to time, except for across-the-board decreases uniformly affecting management, key employees and salaried employees of PPL or the Affiliated Company, or the business unit in which Participant is then employed; (3) the relocation of the Participant's principal work location to a location more than 30 miles from the vicinity of such work location immediately prior to a Change in Control or PPL's or an Affiliated Company's requiring the Participant to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on PPL's or an Affiliated Company's business to an extent substantially consistent with the II-9 Participant's present business travel obligations; (4) the failure by PPL or an Affiliated Company to pay to the Participant any portion of the Participant's current compensation or to pay to the Participant any portion of an installment of deferred compensation under any deferred compensation program of PPL or an Affiliated Company, within seven days of the date such compensation is due, except for across-the-board compensation deferrals uniformly affecting management, key employees and salaried employees of PPL or the Affiliated Company, or the business unit in which Participant is then employed; (5) the failure by PPL or an Affiliated Company to continue in effect any compensation or benefit plan in which the Participant participates immediately prior to a Change in Control which is material to the Participant's total compensation, or any substitute plans adopted prior to a Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by PPL or an Affiliated Company to continue the Participant's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Participant's participation relative to other participants, as existed II-10 immediately prior to the Change in Control, or (6) the failure by PPL or an Affiliated Company to continue to provide the Participant with benefits substantially similar to those enjoyed by the Participant under any of PPL's or an Affiliated Company's pension, savings, life insurance, medical, health and accident, or disability plans in which the Participant was participating immediately prior to a Change in Control, except for across-the-board changes to any such plans uniformly affecting all participants in such plans, the taking of any other action by PPL or an Affiliated Company which would directly or indirectly materially reduce any of such benefits or deprive the Participant of any material fringe benefit enjoyed by the Participant at the time of the Change in Control, or the failure by PPL or an Affiliated Company to provide the Participant with the number of paid vacation days to which the Participant is entitled on the basis of years of service with PPL or an Affiliated Company in accordance with PPL's or an Affiliated Company's normal vacation policy at the time of the Change in Control; or (7) any purported termination of the Participant's employment which is not effected pursuant to any "Notice of Termination" required by any severance agreement between the Participant and PPL or an Affiliated Company. II-11 The Participant's right to terminate his or her employment with PPL or an Affiliated Company for Good Reason shall not be affected by the Participant's incapacity due to physical or mental illness. The Participant's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. For purposes of any determination regarding the existence of Good Reason, any claim by the Participant that Good Reason exists shall be presumed correct unless PPL or an Affiliated Company establishes to the Board by clear and convincing evidence that Good Reason does exist. (n) "Officers Deferred Compensation Plan" means the PPL Officers Deferred Compensation Plan, as amended from time to time. (o) "Participant" means (1) any officer of PPL who is in a position in PPL Salary Group I through IV, and any officer of a Participating Company who is designated as eligible in a resolution adopted by the board of directors of such Participating Company. (2) any individual formerly described in Paragraph (1) who has not yet had a Termination of Employment, or (3) any individual formerly described in Paragraph (1) who has had a Termination of Employment and is entitled to receive benefits under II-12 Article 3 of this Plan. (p) "Participating Company" means PPL Electric Utilities Corporation (prior to February 14, 2000, PP&L, Inc.), PPL EnergyPlus, LLC (prior to February 14, 2000, PP&L EnergyPlus Co., LLC), and each other Affiliated Company that is designated by the Board to adopt this Plan by action of its board of directors. (q) "Person" shall have the meaning given in section 3(a)(9) of the Exchange Act, as modified and used in sections 13(d) and 14(d) thereof; however, a Person shall not include (1) PPL Corporation or any of its subsidiaries, (2) a trustee or other fiduciary holding securities under an employee benefit plan of PPL Corporation or any of its subsidiaries, (3) an underwriter temporarily holding securities pursuant to an offering of such securities, or (4) a corporation owned, directly or indirectly, by the shareowners of PPL Corporation in substantially the same proportions as their ownership of stock of PPL Corporation. (r) "Plan" means this Supplemental Executive Retirement Plan, as amended from time to time. (s) "Potential Change in Control" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (1) PPL Corporation enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; II-13 (2) any Person publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control; (3) any Person is or becomes the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of PPL Corporation representing 5% or more of the combined voting power of PPL Corporation's then outstanding securities entitled to vote generally in the election of directors; or (4) the Board of PPL Corporation adopts a resolution to the effect that, for purposes of this Plan, a Potential Change in Control has occurred. (t) "PPL" means PPL Electric Utilities Corporation (prior to February 14, 2000, PP&L, Inc.). (u) "PPL Corporation" means PPL Corporation (prior to February 14, 2000, PP&L Resources, Inc.). (v) "Projected Years of Service" means the number of full or partial twelve-month periods beginning on the date on which Participant attains the age of 30 and ending on the date Participant ceases to be employed by a Participating Company. (w) "Retiree" means a Participant who has a Termination of Employment after: (1) attaining age 55 and completing at least 10 Years of Service, or II-14 (2) attaining age 60, or (3) attaining age 50, completing at least 10 Years of Service, and whom the Compensation and Corporate Governance Committee of the Board, in its sole discretion, determines is entitled to an immediately payable SERB. (x) "Retirement" shall be deemed the reason for a Participant's Termination of Employment if such employment is terminated in accordance with PPL's or an Affiliated Company's retirement policy, including early retirement, generally applicable to its salaried employees. (y) "Retirement Plan" means the PPL Retirement Plan, as amended from time to time. (z) "SERB" means the Supplemental Executive Retirement Benefit payable under this Plan calculated under Article 4. (aa) "Supplemental Final Average Earnings" means the following: (1) Supplemental Final Average Earnings means twelve times the average of a Participant's "compensation" as defined in Paragraphs (A) through (C) below, from PPL and/or an Affiliated Company, for the 60 full consecutive months in the final 120 (or fewer) full consecutive months during which he is employed by PPL and/or an Affiliated Company. For this purpose, non-consecutive months interrupted by periods in which the Participant receives no II-15 "compensation" shall be treated as consecutive. For purposes of this Section, "compensation" shall include the following: (A) the Participant's base salary from PPL and/or any Affiliated Company prior to any deferrals to the Officers Deferred Compensation Plan or any other nonqualified deferred compensation plan of an Affiliated Company or any Internal Revenue Code section 401(k) plan by which Participant is covered, plus (B) the value of any cash grants attributable to any month used in the average, awarded to Participant pursuant to the executive incentive awards program initially approved by the Board on October 25, 1989 or any similar program maintained by an Affiliated Company, plus (C) with respect only to Participants who were officers in positions in PPL Salary Groups I through IV on December 31, 1997, the value of any Restricted Stock (including any dividends distributed on Restricted Stock during the Restriction Period) granted to Participant under the Incentive Compensation Plan attributable to any month prior to the dates set forth in (I) and (II) below. (I) For purposes of the benefit formula in Subsection 4(b)(1), each month prior to January 1, 1998. II-16 (II) For purposes of the benefit formula in Subsection 4(b)(2), each month prior to January 1, 2002. (2) For the purposes of determining the Participant's "compensation" under Subsection (1) of this definition, the EBPB will determine: (A) the value of any Restricted Stock under the Incentive Compensation Plan as of the Restricted Stock's Date of Grant (as defined by the Incentive Compensation Plan) and prorate such value over the year for which the Restricted Stock was granted; (B) the amount of any dividends distributed on Restricted Stock during the Restriction Period and prorate such amount over the period for which such dividends are paid; and (C) the amount of any cash grant awarded under the Participant incentive awards program and prorate such amount over the year for which the award was granted. (3) The Supplemental Final Average Earnings of a Displaced Participant who has less than 60 full consecutive months of employment shall be a reduced amount, equal to the difference of (A) minus (B), below. (A) (I) His total earnings as determined under Subsection (1) of this definition for his entire period of employment with PPL and Affiliated Companies, divided by II-17 (II) the number of years the Participant was employed by PPL and Affiliated Companies, including any fraction of a full year thereof, calculated by dividing the total number of full consecutive months of employment by 12. (B) (I) The amount determined in Paragraph (3)(A) immediately above, multiplied by (II) the Reduction Factor in Appendix A which corresponds with the Participant's total number of full consecutive months of employment with PPL and Affiliated Companies. (4) Notwithstanding the foregoing, if a Participant transfers from a Participating Company to an Affiliated Company that is not a Participating Company after becoming a Participant, earnings with the Affiliated Company after the date of such transfer (or the last of such transfers if the Participant transfers more than once) shall not count in the Participant's Supplemental Final Average Earnings. (bb) "Terminated Vested Participant" means a Participant: (1) who has a Termination of Employment after attaining age 50 but not age 55, and completing at least 10 Years of Service, and (2) whom the Board, in its sole discretion, does not determine is entitled to an immediately payable SERB. II-18 (cc) "Termination of Employment" means the Participant's termination of employment with PPL and all Affiliated Companies. (dd) "Years of Service" means the number of full and partial years used to calculate Participant's accrued benefit under the Retirement Plan, but (1) excluding years prior to Participant's attainment of age 30, and (2) including service with any Affiliated Company prior to the Participant's most recently becoming an officer of a Participating Company eligible under this Plan, provided such service would otherwise be counted under the Retirement Plan, but excluding any such service with an Affiliated Company performed before the Affiliated Company became an Affiliated Company. (ee) "Year(s) of Vesting Service" means the number of full years used to calculate Participant's vested interest in his accrued benefit under the Retirement Plan, but excluding any such service with an Affiliated Company performed before the Affiliated Company became an Affiliated Company. II-19 ARTICLE III ENTITLEMENT TO BENEFITS ----------------------- 3. Entitlement to Benefits. (a) Any officer of PPL who is in a position in PPL Salary Group I through IV immediately prior to his Termination of Employment or the date of his transfer to an Affiliated Company and any officer of a Participating Company who is designated as eligible in a resolution adopted by the board of directors of such Participating Company and remains such until his Termination of Employment or the date of his transfer to an Affiliated Company shall be entitled to a SERB benefit if and only if, upon his Termination of Employment, he is either: (1) a Retiree, (2) a Terminated Vested Participant, (3) a Change in Control Participant, or (4) a Displaced Participant. (b) Notwithstanding Section 3(a), any officer of PPL who is in a position in PPL Salary Group I through IV immediately prior to his Termination of Employment or the date of his transfer to an Affiliated Company and any officer of a Participating Company who is designated as eligible in a resolution adopted by the board of directors of such Participating Company and remains such until his Termination of Employment or the date of his transfer to an Affiliated Company and who terminates III-1 employment with a Participating Company on account of his death shall be entitled to the death benefit in Article 7 in lieu of any other benefit under the Plan. (c) Notwithstanding Section 3(a) or (b), if a Participant transfers from PPL to an Affiliated Company, he shall not be entitled to benefits under this Plan if, after such transfer, he is covered by an Affiliated Company SERP. (d) Notwithstanding Section 3(a) or (b), any Participant otherwise eligible for benefits shall forfeit any and all benefits under the Plan if such Participant's Termination of Employment is by PPL or an Affiliated Company for Cause. (e) All officers who are eligible for benefits under Section 3(a) and who are entitled to annual benefits of at least $44,000 in the aggregate from all PPL and Affiliated Company-sponsored pension, profit-sharing, savings or deferred compensation plans, shall terminate their employment with PPL and all Affiliated Companies no later than the first day of the month following attainment of age 65, unless PPL or Affiliated Company requests that employment be extended for up to one year. In such event, Participant must retire at the end of the extension, unless PPL or Affiliated Company requests additional extensions, at the end of which period Participant must retire. Any Participant requested to serve beyond the mandatory retirement date may decline to do so without affecting his benefit status under this Plan or any other PPL or Affiliated Company III-2 benefit program. Failure to accept benefits provided for in this Plan shall not affect the requirements of this paragraph. III-3 ARTICLE IV AMOUNT OF SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFIT --------------------------------------------------- 4. Amount of Supplemental Executive Retirement Benefit. (a) A Participant entitled to benefits under Article 3 will be paid a SERB equal to an annual amount payable for the life of Participant calculated pursuant to Sections (b) through (f) below: (b) The amount calculated under Subsection (1) and/or (2), as appropriate, and subject to (3): (1) The sum of (A) plus (B): (A) 2.0% of Participant's Supplemental Final Average Earnings times his Years of Service up to 20, plus (B) 1.5% of Participant's Supplemental Final Average Earnings times his Years of Service in excess of 20 but not in excess of 30. (2) With respect only to Participants who were officers in positions in PPL Salary Groups I through IV on December 31, 1997: (A) the benefit determined under Subsection (4)(b)(1) shall be calculated using Projected Years of Service instead of Years of Service; (B) such Participant's SERB shall not be less than the greater of (I) or (II) below: (I) (i) 2.7% of Participant's Supplemental Final Average IV-1 Earnings calculated as of the earlier of December 31, 2001 or the date Participant has a Termination of Employment or transfers to an Affiliated Company that is not a Participating Company times his Years of Service up to 20, plus (ii) 1.0% of Participant's Supplemental Final Average Earnings calculated as of the earlier of December 31, 2001 or the date Participant has a Termination of Employment or transfers to an Affiliated Company that is not a Participating Company, times his Years of Service in excess of 20 but not more than 30 less (iii) the annual amount payable as the maximum primary Social Security benefit payable to an individual aged 65 in the year of Participant's retirement whether or not received by Participant. (II) (i) 2.7% of Participant's Supplemental Final Average Earnings calculated as of the earlier of December 31, 2001 or the date Participant has a Termination of Employment or transfers to an Affiliated Company that is not a Participating Company, times his Projected Years of Service up to 20, plus (ii) 1.0% of Participant's Supplemental Final Average Earnings IV-2 calculated as of the earlier of December 31, 2001 or the date Participant has a Termination of Employment or transfers to an Affiliated Company that is not a Participating Company, times his Projected Years of Service in excess of 20 but not more than 30, less (iii) the annual amount payable as the maximum primary Social Security benefit payable to an individual aged 65 in the year of Participant's retirement whether or not received by Participant. (3) With respect to any Participant who was a participant in an Affiliated Company SERP prior to becoming a Participant, whose benefit under such Affiliated Company SERP was calculated using Projected Years of Service, the benefit determined under Subsection 4(b)(1) shall be calculated using Projected Years of Service instead of Years of Service. (c) The amount calculated under Section (b) shall be multiplied by the applicable Early Retirement Reduction Factor, (d) With respect to all Participants, the amount calculated under Sections (b) and (c) shall be reduced by the following amounts, to the extent such amounts are accrued during periods for which the Participant is credited with Years of Service or Projected Years of Service under this Plan: IV-3 (1) The Participant's vested accrued benefit under the Retirement Plan (but not including any temporary supplemental amounts payable under Section 5.3(b) of the Retirement Plan), (A) expressed as a single life annuity, and (B) expressed as a benefit payable at the same time as Participant's SERB, except that in the event Participant commences benefits under this Plan prior to commencing benefits under the Retirement Plan, the reduction will be made as if Participant had commenced benefits under the Retirement Plan at the later of age 55 or commencement of benefits under this Plan, based on the early retirement factors, and interest and mortality assumptions used in the Retirement Plan. The amount of the reduction will not thereafter be changed upon Participant's actual commencement of benefits under the Retirement Plan. For purposes of this Subsection (d)(1), the term "Retirement Plan" shall include any successor plan. (2) Supplemental payments to Participant under section 7(a) of the Officers Deferred Compensation Plan as if Participant had chosen a single life annuity under such Plan payable at the same time as Participant's SERB. IV-4 (3) The Participant's vested accrued benefit under any other nonqualified defined benefit plan maintained by PPL, expressed as a single life annuity payable at the same time as Participant's SERB, based on the early retirement factors and interest and mortality rates used in such plan. (e) With respect to those Participants who have service with an Affiliated Company, (1) The amount calculated under Sections (b), (c) and (d) shall be reduced by the following: (A) The Participant's vested accrued benefit under the Pension Plan for Employees of PPL Gas Utilities Corporation, PFG Gas, Inc., and North Penn Gas Company, and/or the Pennsylvania Mines Corporation Retirement Plan, determined as follows: (I) to the extent accrued during periods for which the Participant is credited with Years of Service or Projected Years of Service under this Plan, and (II) expressed as a single life annuity, and (III) expressed as a benefit payable at the same time as Participant's SERB, except that in the event Participant commences benefits under this Plan prior to commencing benefits under such other plan, the IV-5 reduction will be made as if Participant had commenced benefits under such other plan at the later of such plan's earliest retirement age or commencement of benefits under this Plan. The amount of the reduction will not thereafter be changed upon Participant's actual commencement of benefits under such plan, and (IV) based on the early retirement factors and interest and mortality rates used in such other plan. (B) The Participant's vested account under the PPL Subsidiary Savings Plan and the H.T. Lyons, Inc. 401(k) Plan, and their successors, determined as follows: (I) based on contributions other than the Participant's own elective deferrals or employee contributions and earnings thereon. (II) to the extent attributable to contributions made during periods for which these Participant is credited with Years of Service or Projected Years of Service under this Plan, (III) such account valued as of the date Participant's SERB benefit commences to be paid, but including any amounts distributed to or on behalf of Participant, IV-6 (IV) such account converted to a benefit expressed as a single life annuity for Participant's lifetime, commencing at the same time as Participant's SERB, based on the 30-year U.S. Treasury bond rate as of the month preceding the month SERB payments commence, and the 1983 Group Annuity Mortality Table (unisex): (C) The Participant's employer-derived benefit under any tax- qualified plan not listed in Paragraph (A) or (B) of this Subsection 5(e)(1) of an Affiliated Company who becomes an Affiliated Company after the effective date of this amended and restated Plan, to the extent that such plan is the primary tax-qualified retirement plan of such Affiliated Company, and such benefit is based on service counted under this Plan. If such plan is a defined benefit plan, the offset shall be calculated in a manner similar to that described in Paragraph (A) of this Subsection 5(e)(1). If such plan is a defined contribution plan, the offset shall be calculated in a manner similar to that described in Paragraph (B) of this Subsection 5(e)(1). (D) The Participant's vested accrued benefit under any nonqualified defined benefit plan maintained by an Affiliated IV-7 Company that was accrued prior to becoming an employee of a Participating Company, expressed as a single life annuity payable at the same time as Participant's SERB. (2) The best data available will be used to determine the amounts to be offset under this Section (e). The EBPB has the absolute, discretionary power to make reasonable approximations and estimates to determine the value and amount of such offset amounts, applied uniformly to all similarly situated Participants. If reasonable approximations and estimates of such amounts are necessary, the EBPB will so inform the Participant. A Participant may elect to have his SERB calculated without regard to the offsets described in this Section (e) with respect to contributions made to such plans and/or benefits accrued under such plans prior to the date the Participant first becomes employed by a Participating Company, in which case his Years of Service and Projected Years of Service shall not include service before the date the Participant first becomes employed by a Participating Company. (3) The amount calculated under Section (b) of this Article with respect to a Participant who has ceased to be an officer of a Participating Company eligible under the Plan by reason of a transfer to an Affiliated Company that is not a Participating Company shall be calculated on the basis of his Years of Service and/or Projected IV-8 Years of Service as of the date of his transfer, and on the basis of his Supplemental Final Average Earnings and his Years of Vesting Service as of the date of his Termination of Employment. (f) In the event that a Participant's benefits under any plan to which Section (d) or (e) of this Article refers are subject in whole or in part to a domestic relations order, SERB payments shall be calculated and paid without regard to such order. IV-9 ARTICLE V TIME OF PAYMENT --------------- 5. Time of Payment. A Participant who is eligible for benefits under Article 3 shall start receiving SERB payments on the date set forth below. (a) A Retiree shall receive benefits as soon as administratively practicable following his Termination of Employment. (b) A Terminated Vested Participant shall receive benefits as follows: (1) If he has elected a single sum form of benefit under Article 6, such single sum shall be paid as soon as administratively practicable following his Termination of Employment. (2) If he has elected an annuity form of benefit under Article 6, such annuity form shall start to be paid as soon as administratively practicable following his attainment of age 55; provided that if he also meets the definition of a Change in Control Participant or a Displaced Participant, such annuity form shall start to be paid as soon as administratively practicable following the later of age 50 or his Termination of Employment. (c) A Change in Control Participant or a Displaced Participant shall receive benefits as follows: V-1 (1) If he has elected a single sum form of benefit under Article 6, such single sum shall be paid as soon as administratively practicable following his Termination of Employment (2) If he has elected an annuity form of benefit under Article 6, such annuity form shall start to be paid as soon as administratively practicable following the later of his attainment of age 50 or his Termination of Employment. (d) In the event that PPL Corporation distributes to its shareowners as a dividend a sufficient number of shares of PPL Corporation or an Affiliated Company, on a pro rata basis, in accordance with their PPL Corporation equity ownership, or in the event of the sale of up to 25% of the securities of PPL or an Affiliated Company in an initial public offering of securities registered under the Securities Act of 1933, such distribution or sale of shares resulting in a Spin-Off Company (the "Spun-Off Company"), with the effect that the Spun-Off Company no longer meets the definition of PPL or an Affiliated Company, and in connection with such distribution or sale, a Participant becomes an employee of the Spun-Off Company, the payment of any SERB to which Participant (or his beneficiary) is entitled under the Plan shall be made or shall commence to be made no earlier than at such time as the Participant (or his beneficiary) is eligible to commence to receive to a distribution (either immediate or deferred) under the Retirement Plan or any successor plan. V-2 ARTICLE VI METHOD OF PAYMENT ----------------- 6. Method of Payment. (a) A Participant who is eligible to receive benefits under the Retirement Plan and who elects to receive such benefits at the time SERB payments begin may elect to have his SERB paid in one of the following forms of benefit, each of which shall be the Actuarial Equivalent of his SERB benefit: (1) the form of annuity payment in which his Retirement Plan benefits are to be paid, (provided, however, if any monthly payment would be 100 dollars or less, the EBPB, in its discretion, may elect to make such payments in such installments as the EBPB may determine or in a single sum payment), or (2) a single sum (b) A Participant who is not eligible to receive benefits under the Retirement Plan or who has elected not to receive such benefits under the Retirement Plan at the time SERB payments begin, may elect one of the following forms of benefit, which shall be the Actuarial Equivalent of his SERB benefit, provided, however, that if he elects an annuity form under Paragraph (1), (2) or (3) below, and if any monthly payment would be 100 dollars or less, the EBPB, in its discretion, may elect to make such payments in such installments as the EBPB may determine, or in a single sum payment: VI-1 (1) a single life annuity with equal monthly installments payable to the Participant for his lifetime; or (2) a joint and survivor annuity with the Participant's designated beneficiary, payable in monthly installments to the Participant for his lifetime and with a specified percentage of the amount of such monthly installment payable after the death of the Participant to the designated beneficiary of such Participant, if then living, for the life of such designated beneficiary; or (3) a single life annuity payable in equal monthly installments to the Participant for his lifetime, with 60, 120 or 180 monthly payments guaranteed, or (4) a single sum. (c) A Participant may elect a form of benefit hereunder by filing written notice with the EBPB at anytime at least 12 months prior to the first day of the calendar month for which a SERB is first payable to Participant. If a Participant described in Section (a) of this Article fails to elect a form of benefit within the prescribed time period, the benefit shall be paid in the form in which such Participant's Retirement Plan benefits are paid. If a Participant described in Section (b) of this Article fails to elect a form of benefit within this time period, the benefit shall be paid in the form of a single- life annuity if the Participant does not have a spouse on the date of benefit commencement and in the form of a 50% joint and survivor VI-2 annuity with Participant's spouse as the beneficiary if the Participant has a spouse on the date of benefit commencement. VI-3 ARTICLE VII DEATH BENEFIT ------------- 7. Death Benefit. If a pre-retirement spouse's annuity is payable under the Retirement Plan on account of Participant's death, the Participant's surviving spouse will be paid a supplemental spouse's annuity based on the SERB and made in accordance with all the terms and conditions applicable to such pre-retirement spouse's annuities under the Retirement Plan. The supplemental annuity described in the preceding sentence shall not be payable with respect to a Participant described in Section 3(c) or (d). VII-1 ARTICLE VIII ADMINISTRATION -------------- 8. Administration. The EBPB shall have the discretionary authority and final right to interpret, construe and make benefit determinations (including eligibility and amount) under the Plan. The decisions of the EBPB are final and conclusive for all purposes. If one or more members of the EBPB are disqualified by personal interest from taking part in a particular decision, the remaining member or members of the EBPB (although less than a quorum) shall have full authority to act on the matter. VIII-1 ARTICLE IX MISCELLANEOUS ------------- 9. Miscellaneous. (a) If any person to receive payment is a minor, or is deemed by the EBPB or is adjudged to be legally incompetent, the payments shall be made to the duly appointed guardian or committee of such minor or incompetent, or they may be made to such person or persons who the EBPB believes are caring for or supporting such minor or incompetent. (b) All payments to persons entitled to benefits under this Plan shall be made to such persons and shall not be grantable, transferable or otherwise assignable in anticipation of payment thereof, in whole or in part, by the voluntary or involuntary acts of any such persons, or by operation of law, and shall not be liable or taken for any obligation of such person. PPL will observe the terms of the Plan unless and until ordered to do otherwise by a state or Federal court. As a condition of participation, Participant agrees to hold PPL harmless from any claim that arises out of PPL's obeying any such order whether such order effects a judgment of such court or is issued to enforce a judgment or order of another court. (c) Nothing in this Plan shall confer any right on any Participant to continue in a Participating Company's employ or to receive compensation, nor shall anything in this Plan affect in any way the right of a Participating Company to terminate any Participant's employment at any time. IX-1 (d) The expenses of administration hereunder shall be borne by PPL. (e) This Plan shall be construed, administered and enforced according to the laws of the Commonwealth of Pennsylvania. (f) All payments from this Plan shall be made from the general assets of PPL. This Plan shall not require PPL to set aside, segregate, earmark, pay into trust or special account or otherwise restrict the use of its assets in the operation of the business. Participant shall have no greater right or status than as an unsecured creditor of PPL with respect to any amounts owed to Participant hereunder. (g) The masculine pronoun shall be deemed to include the feminine and the singular to include the plural unless a different meaning is plainly required by the context. IX-2 ARTICLE X TERMINATION OR AMENDMENT ------------------------ 10. Termination or Amendment. The Board may, in its sole discretion, terminate and amend this Plan from time to time provided, however, that the Plan may not be terminated or amended to the prejudice or detriment of any Participant during the three (3) year period immediately following a Change in Control (or, if later, thirty six (36) months from the consummation of the transaction giving rise to the Change in Control). Without limiting the generality of the foregoing, the proviso of the preceding sentence shall not, at any time or in any event, be amended or deleted. Subject to the foregoing, the Employee Benefit Plan Board may make such amendments to the Plan as it deems necessary or desirable except those amendments which substantially increase the cost of the Plan to PPL or a Participating Company or significantly alter the benefit design or eligibility requirements of the Plan. Each amendment to the Plan will be binding on each Participating Company. No termination or amendment shall (without Participant's consent) alter Participant's right to monthly payments which have commenced prior to the effective date of such termination or amendment. Prior to a Change in Control, the Board specifically reserves the right to terminate or amend this Plan to eliminate the right of any Participant to receive payment hereunder prior to the time when payments are in pay status under this Plan. Notwithstanding the foregoing, if PPL is liquidated, the EBPB shall cause the amounts due hereunder to be paid in one or more installments or upon such XI-1 other terms and conditions and at such other time as the EBPB determines to be just and equitable, but in no event later than the time such amounts would otherwise have been paid. XI-2 ARTICLE XI EFFECTIVE DATE -------------- 11. Effective Date. The original effective date of this Plan is July 1, 1985. The effective date of this amended and restated Plan is October 1, 1999. Executed this _____ day of_______________, 2000. PPL ELECTRIC UTILITIES CORPORATION By:_______________________________________ Charles P. Pinto Vice President-Human Resources Appendix A
# of Full Consecutive # of Full Consecutive Months of Employment Reduction Factor (%) Months of Employment Reduction Factor (%) - --------------------- -------------------- --------------------- -------------------- 60 0.0000 36 15.0000 59 0.4167 35 16.2500 58 0.8333 34 17.5000 57 1.2500 33 18.7500 56 1.6667 32 20.0000 55 2.0833 31 21.2500 54 2.5000 30 22.5000 53 2.9167 29 23.7500 52 3.3333 28 25.0000 51 3.7500 27 26.2500 50 4.1667 26 27.5000 49 4.5833 25 28.7500 48 5.0000 24 30.0000 47 5.8333 23 31.6667 46 6.6667 22 33.3333 45 7.5000 21 35.0000 44 8.3333 20 36.6667 43 9.1667 19 38.3333 42 10.0000 18 40.0000 41 10.8333 17 41.6667 40 11.6667 16 43.3333 39 12.5000 15 45.0000 38 13.3333 14 46.6667 37 14.1667 13 48.3333 12 50.0000
A-1 EX-10.(J)-2 13 0013.txt AMEND. NO. 1 TO PPL SUPPLEMENTAL EXECUTIVE RETIREM AMENDMENT NO. 1 TO PPL SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN WHEREAS, PPL Services Corporation ("PPL") adopted the PPL Supplemental Executive Retirement Plan (the "Plan"), effective July 1, 2000, for certain of its employees; and WHEREAS, the Plan was amended and restated effective July 1, 2000; and WHEREAS, PPL desires to further amend the Plan; NOW, THEREFORE, the Plan is hereby amended as follows: I. Effective July 1, 2000 the following sections of Articles 2 and 10 are amended to read: 2. Definitions. (d) "Board" means the Board of Directors of PPL Services Corporation. 10. Termination or Amendment. The Board may, in its sole discretion, terminate and amend this Plan from time to time provided, however, that the Plan may not be terminated or amended to the prejudice or detriment of any Participant during the three (3) year period immediately following a Change in Control (or, if later, thirty six (36) months from the consummation of the transaction giving rise to the Change in Control). Without limiting the generality of the foregoing, the proviso of the preceding sentence shall not, at any time or in any event, be amended or deleted. Subject to the foregoing, the Employee Benefit Plan Board may adopt any amendment that does not significantly affect the cost of the Plan or significantly alter the -1- benefit design or eligibility requirements of the Plan. Each amendment to the Plan will be binding on the Participating Company to which it applies. No termination or amendment shall (without Participant's consent) alter Participant's right to monthly payments which have commenced prior to the effective date of such termination or amendment. Prior to a Change in Control, the Board specifically reserves the right to terminate or amend this Plan to eliminate the right of any Participant to receive payment hereunder prior to the time when payments are in pay status under this Plan. Notwithstanding the foregoing, if PPL is liquidated, the EBPB shall cause the amounts due hereunder to be paid in one or more installments or upon such other terms and conditions and at such other time as the EBPB determines to be just and equitable, but in no event later than the time such amounts would otherwise have been paid. II. Except as provided for in this Amendment No. 1, all other provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, this Amendment No. 1 is executed this ____ day of _________________________, 2000. PPL SERVICES CORPORATION By:_______________________________ Charles P. Pinto Vice President-Human Resources -2- EX-10.(K) 14 0014.txt PPL CORPORATION INCENTIVE COMPENSATION PLAN Exhibit 10(k) PPL CORPORATION INCENTIVE COMPENSATION PLAN EFFECTIVE JANUARY 1, 1987 Amended and Restated effective February 14, 2000 PPL CORPORATION INCENTIVE COMPENSATION PLAN EFFECTIVE JANUARY 1, 1987 TABLE OF CONTENTS -----------------
SECTION PAGE - ------- ---- 1 Purpose ............................................................................... 1 2 Definitions............................................................................ 1 (a) Affiliated Company or Affiliated Companies..................................... II-1 (b) Award.......................................................................... II-1 (c) Board.......................................................................... II-1 (d) Cause.......................................................................... II-1 (e) Change in Control.............................................................. II-2 (f) Code........................................................................... II-3 (g) Committee...................................................................... II-4 (h) Common Stock................................................................... II-4 (i) Date of Grant.................................................................. II-4 (j) Disability or Disabled......................................................... II-4 (k) Eligible Employee.............................................................. II-4 (l) Exchange Act................................................................... II-4 (m) Fair Market Value.............................................................. II-4 (n) Good Reason.................................................................... II-5 (o) Incentive Stock Option......................................................... II-8 (p) Option or Stock Option......................................................... II-9 (q) Other Stock-Based Award........................................................ II-9 (r) Participant.................................................................... II-9 (s) Performance-Based Award........................................................ II-9 (t) Person......................................................................... II-9 (u) Plan........................................................................... II-9 (v) Potential Change in Control.................................................... II-9 (w) PPL............................................................................ II-10 (x) PPL Corporation................................................................ II-10 (y) Restricted Stock............................................................... II-10
-i- (z) Restriction Period................................................................ II-10 (aa) Retirement........................................................................ II-10 (bb) Termination............................................................................. II-10 3 Effective Date and Duration............................................................. 7 4 Administration of the Plan.............................................................. 7 5 Grant of Awards and Limitation of Number of Shares Awarded.............................. 8 6 Eligibility............................................................................. 8 7 Restricted Stock........................................................................ 9 8 Stock Options........................................................................... 10 9 Amendment of the Plan................................................................... 14 10 Miscellaneous Provisions................................................................ 14 11 Other Stock-Based Awards................................................................ 18
PPL CORPORATION INCENTIVE COMPENSATION PLAN SECTION 1. PURPOSE. The purpose of the PPL Corporation Incentive Compensation Plan (the "Plan") is to provide a method whereby officers and other key employees of PPL Corporation, PPL Electric Utilities Corporation and other Affiliated Companies may be awarded additional remuneration in a manner which increases their ownership interest, aligns their interest with that of shareowners and encourages them to remain in the employ of PPL Corporation or an Affiliated Company. The Plan was originally adopted byPPL Electric Utilities Corporation, effective January 1, 1987, and at that time was named the Pennsylvania Power & Light Company Incentive Compensation Plan. Sponsorship of the Plan is now being assumed by PPL Corporation and the Plan is hereby renamed as the PPL Corporation Incentive Compensation Plan. I-1 SECTION 2. DEFINITIONS. The following definitions are applicable to the Plan: (a) "Affiliated Company" or "Affiliated Companies" shall mean any parent or subsidiaries of PPL Corporation (or companies under common control with PPL Corporation) which are members of the same controlled group of corporations (within the meaning of Section 1563(a) of the Code) as PPL Corporation or are companies under common control with PPL Corporation (within the meaning of Section 414(c) of the Code). (b) "Award" means, individually or collectively, Options, Restricted Stock or other Stock-Based Award granted hereunder. (c) "Board" means the Board of Directors of PPL Corporation. (d) "Cause" for termination by PPL Corporation or an Affiliated Company of a Participant's employment means (i) the willful and continued failure by Participant to substantially perform Participant's duties with PPL Corporation or an Affiliated Company (other than any such failure resulting from Participant's incapacity due to physical or mental illness or, if applicable, any such actual or anticipated failure after the issuance of any "Notice of Termination for Good Reason" by the Participant pursuant to any severance agreement between Participant and PPL Corporation or an Affiliated Company) after a written demand for substantial performance is delivered to Participant by the Board, which demand specifically identifies the manner in which the Board believes that Participant has not substantially performed Participant's duties, or (ii) the willful engaging by Participant in II-1 conduct which is demonstrably and materially injurious to PPL Corporation or an Affiliated Company, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act or failure to act, on Participant's part shall be deemed "willful" unless done, or omitted to be done, by Participant not in good faith and without reasonable belief that Participant's act, or failure to act, was in the best interest of PPL Corporation or an Affiliated Company and (y) in the event of a dispute concerning the application of this provision, no claim by PPL Corporation or an Affiliated Company that Cause exists shall be given effect unless PPL Corporation or the Affiliated Company establishes to the Board by clear and convincing evidence that Cause exists. If at the time of determination, a Participant is employed by an Affiliated Company, for purposes of this definition, the board of directors of such Affiliated Company shall be substituted for the Board. (e) "Change in Control" means the occurrence of any one of the following events: (i) any change in the control of PPL Corporation of a nature that would be required to be reported in response to Item 1(a) of Form 8-K under the Exchange Act; (ii) during any period of not more than two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into an agreement with PPL Corporation to effect a transaction described in clause (i), (iii) or (iv) of this paragraph) whose election by the Board or nomination for election by PPL Corporation's shareowners was ap proved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who II-2 either were directors at the beginning of the period or whose election or nomination for election was previously so approved or recommended, cease for any reason to constitute at least a majority thereof; (iii) any Person becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of PPL Corporation representing 20% or more of the combined voting power of PPL Corporation's then outstanding securities entitled to vote generally in the election of directors; (iv) the consummation of any merger or consolidation of PPL Corporation with any other corporation or a plan of complete liquidation of PPL Corporation or the sale or other disposition of all or substantially all of the assets of PPL Corporation to any other person or persons unless, after giving effect thereto, (a) holders of PPL Corporation's then outstanding securities entitled to vote generally in the election of directors will own a majority of the outstanding stock entitled to vote gener ally in the election of directors of the continuing, surviving or transferee corporation or any parent (within the meaning of Rule 12b-2 under the Exchange Act) thereof and (b) the incumbent members of the Board as constituted immediately prior thereto shall constitute at least a majority of the directors of the continuing, surviving or transferee corporation and any parent thereof; or (v) the Board adopts a resolution to the effect that a "Change in Control" has occurred or is anticipated to occur. (f) "Code" means the Internal Revenue Code of 1986, as may be amended from time to time. Reference in the Plan to any section of the Code shall be deemed to include any amendments or successor provisions to such section and any regulations II-3 promulgated thereunder. (g) "Committee" means two or more non-employee directors, unless otherwise determined by the Board, who have been designated by the Board to act as the Committee and qualify as non-employee directors under the Exchange Act and outside directors under Section162(m) of the Code. (h) "Common Stock" means the common stock of PPL Corporation. (i) "Date of Grant" means the date on which the granting of an Award is authorized by the Committee or such later date as may be specified by the Committee in such authorization. (j) "Disability" or "Disabled" means the inability of the Participant to perform each and every duty pertaining to the Participant's regular occupation by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than six months. (k) "Eligible Employee" means any person employed by PPL Corporation or an Affiliated Company on a regularly scheduled basis during any portion of a period for which an Award can be made and who satisfies all of the requirements of Section 6. (l) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. Reference in this Plan to any section of the Exchange Act shall be deemed to include any amendments or successor provisions to such section and any rules promulgated thereunder. II-4 (m) "Fair Market Value" means the average of the high and low sale prices of the Common Stock as reflected in the New York Stock Exchange Composite Transactions on the date as of which Fair Market Value is being determined or, if no Common Stock is traded on the date as of which Fair Market Value is being determined, Fair Market Value shall be the average of the high and low sale prices of the Common Stock as reflected in the New York Stock Exchange Composite Transactions on the next preceding day on which the Common Stock was traded. (n) "Good Reason" for termination of Participant's employment with PPL Corporation or an Affiliated Company by such Participant means the occurrence (without Participant's express written consent) after a Change in Control or after a Potential Change in Control (treating all references to a "Change in Control" in paragraphs (a) through (g), below, as including references to a "Potential Change in Control" to the extent appropriate), of any one of the following acts or failures to act, by PPL Corporation or an Affiliated Company: (i) the assignment to Participant of any duties inconsistent with Participant's status as an executive officer or key employee of PPL Corporation or an Affiliated Company or a substantial adverse alteration in the nature or status of Participant's responsibilities from those in effect immediately prior to a Change in Control; (ii) a reduction by PPL Corporation or an Affiliated Company of Participant's annual base salary as in effect immediately prior to date the II-5 Change of Control or Potential Change of Control occurs or as the same may be increased from time to time, except that across-the-board decreases uniformly affecting management, key employees and salaried employees of PPL Corporation or an Affiliated Company, or the business unit in which Participant is then employed shall not be treated as Good Reason; (iii) the relocation of Participant's principal work location to a location more than 30 miles from such work location immediately prior to a Change in Control, or PPL Corporation's or an Affiliated Company's requiring the Participant to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on PPL Corporation's or an Affiliated Company's business to an extent substantially consistent with the Participant's present business travel obligations as in effect immediately prior to the Change in Control; (iv) the failure by PPL Corporation or an Affiliated Company to pay to Participant any portion of Participant's current compensation or to pay to Participant any portion of an installment of deferred compensation under any deferred compensation program of PPL Corporation or an Affiliated Company, within seven (7) days of the date such compensation is due, except for across-the-board compensation deferrals uniformly affecting management, key employees and salaried employees of PPL Corporation or an Affiliated Company, or the business unit in which Participant is then employed; II-6 (v) the failure by PPL Corporation or an Affiliated Company to continue in effect any compensation or benefit plan in which Participant participates immediately prior to a Change in Control which is material to Participant's total compensation, or any substitute plans adopted prior to a Change in Control, unless an equitable arrangement (embodied in an ongoing sub stitute or alternative plan) has been made with respect to such plan, or the failure by PPL Corporation or Affiliated Company to continue Participant's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of Participant's participation relative to other participants, as existed immediately prior to the Change in Control, (vi) the failure by PPL Corporation or an Affiliated Company to continue to provide Participant with benefits substantially similar to those enjoyed by Participant under any of PPL Corporation's or an Affiliated Company's pension, retirement, savings, life insurance, medical, health and accident, or disability plans in which Participant was participating immediately prior to a Change in Control, except for across-the-board changes to any such plans uniformly affecting all participants in such plans, the taking of any action by PPL Corporation or an Affiliated Company which would directly or indirectly materially reduce any of such benefits or deprive Participant of any material fringe benefit enjoyed by Participant immediately prior to a Change in Control, II-7 or the failure by PPL Corporation or an Affiliated Company to provide Participant with the number of paid vacation days to which Participant is entitled on the basis of years of service with PPL Corporation or an Affiliated Company in accordance with PPL Corporation's or an Affiliated Company's normal vacation policy in effect at the time of the Change in Control; or (vii) any purported termination of the Participant's employment which is not effected in the manner required by any severance agreement between the Participant and PPL Corporation or an Affiliated Company. Participant's right to terminate his or her employment with PPL Corporation or an Affiliated Company for Good Reason shall not be affected by Participant's incapacity due to physical or mental illness. Participant's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. For purposes of any determination regarding the existence of Good Reason, any claim by the Participant that Good Reason exists shall be presumed correct unless PPL Corporation or an Affiliated Company establishes to the Board by clear and convincing evidence that Good Reason does not exist. If at the time of any such determination, the Participant is employed by an Affiliated Company, such determination shall be made by the board of directors of such Affiliated Company, rather than the Board. (o) "Incentive Stock Option" means an incentive stock option within the II-8 meaning of Section 422 of the Code. (p) "Option" or "Stock Option" means either an Incentive Stock Option or a nonqualified stock option granted under Section 8 with respect to Common Stock. (q) "Other Stock-Based Award" means an award granted under Section 11. (r) "Participant" means an Eligible Employee who has been granted an Award under the Plan. (s) "Performance-Based Award" means an Other Stock-Based Award granted under Section 11. (t) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; provided, however, a Person shall not include (i) PPL Corporation or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of PPL Corporation or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareowners of PPL Corporation in substantially the same proportions as their ownership of stock of PPL Corporation. (u) "Plan" means the PPL Corporation Incentive Compensation Plan, as amended and restated. (v) "Potential Change in Control" means the occurrence of any one of the conditions set forth in the following clauses: (i) PPL Corporation enters into an agreement, the consummation of which would result in the occurrence of a Change in II-9 Control; (ii) any Person publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control; (iii) any Person is or becomes the beneficial owner, directly or indirectly, of securities of PPL Corporation representing 5% or more of the combined voting power of PPL Corporation then outstanding securities entitled to vote generally in the election of directors; or (iv) the Board adopts a resolution to the effect that, for purposes of this Plan, a Potential Change in Control has occurred. (w) "PPL" means PPL Electric Utilities Corporation (prior to February 14, 2000, PP&L, Inc.). (x) "PPL Corporation" means PPL Corporation (prior to February 14, 2000, PP&L Resources, Inc.). (y) "Restricted Stock" means Common Stock awarded to a Participant under Section 7. (z) "Restriction Period" means that period of time determined by the Committee pursuant to Section 7B that a Restricted Stock Award is subject to a restriction on its transfer. (aa) "Retirement" means (i) for a Participant who is entitled to benefits under the PPL Retirement Plan, termination of employment with PPL Corporation and all of its Affiliated Companies after satisfying the conditions for early retirement, normal II-10 retirement or late retirement under such plan; or (ii) for all other Participants, termination of employment with PPL Corporation and all of its Affiliated Companies after (a) attaining age 65, or (b) after attaining age 50, if the Committee, in its sole discretion determines that such termination constitutes "Retirement" for purposes of this Plan. (bb) "Termination" means a Participant's resignation or discharge from employment with PPL Corporation and all of its Affiliated Companies for any reason other than death, Disability or Retirement. II-11 SECTION 3. EFFECTIVE DATE AND DURATION. Upon the approval of the predecessor plan by the holders of a majority of the shares of 4 1/2% Preferred Stock, Series Preferred Stock, Preference Stock and Common Stock of PPL present (either in person or by proxy) at the 1987 Annual Meeting of shareowners, the predecessor plan became effective on January 1, 1987. This Plan was amended and restated effective as of January 1, 1999 upon the approval of the Plan by the holders of a majority of the shares of PPL Corporation Common Stock present (either in person or by proxy) at the 1999 Annual Meeting of Shareowners. Awards of Incentive Stock Options may be made under the Plan for a period of ten years after January 1, 1999. This Plan shall continue in effect until all matters relating to the payment of Awards and the administration of the Plan have been settled. The Plan was amended and restated effective February 14, 2000 to recognize the change in corporate names of PPL Corporation and PPL Electric Utilities Corporation. III-1 SECTION 4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Committee. The Committee shall have full power and authority to make Awards to Eligible Employees pursuant to the provisions of the Plan, to interpret the provisions of the Plan and to supervise the administration of the Plan and to delegate any of the foregoing responsibilities to any Person, who, in its sole discretion, it deems appropriate, provided such delegation is consistent with the requirements of Section 162(m) of the Internal Revenue Code, if applicable. All decisions made by the Committee pursuant to the provisions of the Plan shall be final, conclusive and binding upon all parties affected thereby. IV-1 SECTION 5. GRANT OF AWARDS AND LIMITATION OF NUMBER OF SHARES AWARDED. The Committee may, from time to time, grant Awards to one or more Eligible Employees, provided that: (i) subject to any adjustment pursuant to Section 10G and any limitation pursuant to Section 10H, the maximum number of shares of Common Stock subject to Awards (including Incentive Stock Options) shall not exceed annually 2% of the outstanding Common Stock of PPL Corporation on the first day of each calendar year commencing on and after January 1, 1999; (ii) the maximum number of Options awarded to any single Eligible Employee in any calendar year shall not exceed 1.5 million shares; provided that any portion of such maximum number of shares that has not been granted may be carried over and used in any subsequent year; (iii) to the extent that an Award lapses or is forfeited or the rights of the Participant to whom an Award was granted terminate, any shares of Common Stock subject to such Award shall again be available for the grant of an Award under the Plan; and (iv) shares delivered under the Plan may be authorized and unissued Common Stock, Common Stock held in the treasury of PPL Corporation or Common Stock purchased on the open market (including private purchases) in accordance with applicable securities laws. V-1 SECTION 6. ELIGIBILITY. A. Covered Employees. Officers and other key employees of PPL Corporation or an Affiliated Company (including officers or employees who are members of the Board or the Board of Directors of PPL Corporation and/or any Affiliated Company, but excluding directors who are not officers or employees). B. Selection of Participants. Subject to the provisions of the Plan, the Committee shall from time to time select from the Eligible Employees those to whom Awards shall be granted and determine the amount of such Award. No officer or employee of PPL Corporation or an Affiliated Company shall have any right to be granted an Award under the Plan. VI-1 SECTION 7. RESTRICTED STOCK. A. Grants of Restricted Stock. An Award of Restricted Stock shall be granted in the form of shares of Common Stock, restricted as provided in this Section 7. The Restricted Stock shall be issued without the payment of consideration by the Participant. The certificates for the Restricted Stock shall be issued in the name of the Participant to whom the Award is made, shall be retained by PPL Corporation on behalf of the Participant (together with a stock power endorsed in blank) and shall bear a restrictive legend prohibiting the sale, transfer, pledge or hypothecation of the Restricted Stock until the expiration of the Restriction Period. The Committee may also impose such other restrictions and conditions on the Restricted Stock as it deems appropriate. Upon the issuance to a Participant of Restricted Stock, the Participant shall have the right to vote the Restricted Stock and receive cash dividends distributable with respect to such Restricted Stock. Upon completion of the Restriction Period, all restrictions on the Award will expire and new certificates representing the Restricted Stock will be issued without the restrictive legend described in this Section 7. As a condition precedent to the receipt of these new certificates, the Participant (or the Participant's designated beneficiary or personal representative) will agree to make payment to PPL Corporation or an Affiliated Company of the amount of any federal, state or local taxes, payable by the Participant, which are required to be withheld by PPL Corporation or an Affiliated Company with VII-1 respect to the Award. B. Restriction Period. At the time a Restricted Stock Award is granted, the Committee shall establish a Restriction Period applicable to such Award which shall be not less than three years and not more than ten years from the Date of Grant, subject to the provisions of Section 7C. Each Restricted Stock Award may have a different Restriction Period. Notwithstanding the other provisions of this Section 7: (i) in the event of a Change in Control, the Restriction Periods on all Restricted Stock Awards previously granted shall lapse and; (ii) apart from a Change in Control, the Committee is also authorized, in its sole discretion to accelerate the time at which any or all of the restrictions on all or any part of a Restricted Stock Award shall lapse or to remove any or all of such restrictions whenever the Committee may decide that changes in tax or other laws or other circumstances arising after the granting of a Restricted Stock Award make such action appropriate; provided, however, that no acceleration or removal of restrictions pursuant to this clause (ii) shall result in payout of Common Stock to the Participant less than six months after the Date of Grant, except pursuant to Section 7C below upon the Termination, death, Disability or Retirement of the Participant. C. Forfeiture or Payout of Award. During the Restriction Period, Restricted Stock Awards are subject to forfeiture or payout (i.e., removal of restrictions) as indicated for each of the following events: (a) Termination - In this event, the Restricted Stock Award will be completely forfeited. VII-2 (b) Retirement - In this event, the Restricted Stock Award will be completely forfeited. (c) Disability - In this event, payout of the Restricted Stock Award will be prorated as if the Participant had maintained active employment until age 65. (d) Death - In this event, payout of the Restricted Stock Award will be prorated as if the Participant had maintained active employment until age 65. In any instance where payout of a Restricted Stock Award is to be prorated, the Committee may choose in its sole discretion to provide the Participant (or the Participant's estate) with the entire Award rather than the prorated portion thereof. Notwithstanding anything in this Section 7C to the contrary, in the event that prior to any payout of Common Stock a Participant described in paragraph (c) violates any noncompete agreements between Participant and PPL Corporation or an Affiliated Company, his Restricted Stock Award will be completely forfeited. Any Restricted Stock which is forfeited hereunder will be transferred to PPL Corporation. D. Section 83(b) Election. As a condition of receiving Restricted Stock, a Participant shall agree in writing to notify PPL Corporation within 30 days of the Date of Grant whether or not the Participant has made an election under Section 83(b) of the Code to report the value of the Restricted Stock as income on the Date of Grant. VII-3 SECTION 8. STOCK OPTIONS. A. Grant of Option. One or more Options may be granted to any Eligible Employee designated by the Committee in such amounts and subject to such terms and conditions as the Committee may from time to time, in its sole discretion, determine, but which are consistent with the terms of this Plan. B. Notification of the Grant of an Option. Each Option granted under the Plan shall be evidenced by a Notification of the Grant of an Option ("Notification"). The Notification shall contain such provisions as determined by the Committee, which may include, without limitation, provisions to qualify Incentive Stock Options as such under Section 422 of the Code; provided, however, that each Notification must at a minimum include the following terms and conditions: (i) that the Options are exercisable either in whole or in part, with a partial exercise not affecting the exercisability of the balance of the Option; (ii) every share of Common Stock purchased through the exercise of an Option shall be paid for in full at the time of the exercise; (iii) each Option shall cease to be exercisable, as to any share of Common Stock, upon the first to occur of (a) the Participant's purchase of the Common Stock to which the Option relates; or (b) the lapse of the Option; and (iv) unless authorized by the Committee, Options shall not be transferable by the Participant except by will or the laws of descent and distribution and shall be exercisable during the Participant's lifetime only by the Participant or by the Participant's guardian or legal representative. C. Exercise of an Option. A Participant shall exercise an Option by executing and delivering to PPL Corporation an "Election to Exercise an Option." The VIII-1 Election to Exercise an Option shall be in such form and shall contain such provisions consistent with the terms of this Plan and the Notification with respect to such Option as are determined by the Committee. Notwithstanding the foregoing, if the Committee determines that issuance of shares of Common Stock should be delayed pending (A) registration under federal or state securities laws, (B) the receipt of an opinion of counsel satisfactory to the Committee that an appropriate exemption from such registration is available, (C) the listing or inclusion of the shares of Common Stock on any securities exchange or an automated quotation system or (D) the consent or approval of any governmental regulatory body whose consent or approval is necessary in connection with the issuance of such Common Stock, the Committee may defer exercise of any Option granted hereunder until any of the events described in this sentence has occurred. D. Option Price. The Option price per share of Common Stock shall be set forth in the Notification, but shall not be less than 100% of the Fair Market Value per share as of the Date of Grant. E. Form of Payment. At the time of the exercise of the Option, the Option price shall be payable in United States dollars by (i) check, (ii) in other shares of Common Stock, (iii) by such other mode of payment as the Committee may approve, including payment through a broker in accordance with procedures permitted by Regulation T of the Federal Reserve Board, or (iv) in a combination of forms (i), (ii) and (iii). When Common Stock is used in full or partial payment of the Option price, it shall be valued at its Fair Market Value on the date the Option is exercised. VII-2 F. Other Terms and Conditions. Provided the Option price is paid in full, the Option shall be exercisable in whole or in part in such manner and during such period, as shall be set forth in the Notification. G. Right to Exercise. Each Participant must remain in the continuous employ of PPL Corporation or an Affiliated Company for one year from the date the Participant's Option is granted before the Participant can exercise any part thereof. Notwithstanding the foregoing, if a Change in Control occurs prior to the satisfaction of a Participant's one year of continuous employment requirement, that requirement shall no longer be applicable. Following the satisfaction of the one year of continuous employment requirement or following a Change in Control, whichever is applicable, the Option will be exercisable as follows: (a) Each Option shall be exercisable in its entirety or in such installments, which need not be equal, and upon such contingencies, as the Committee shall determine in its discretion, provided that in no event shall the right to exercise an Option extend beyond the day before the tenth anniversary of the Date of Grant, and further provided that in the event of a Change in Control, any portion of the Option that is not then exercisable shall become immediately exercisable following the Change in Control. The Committee is authorized, in its sole discretion, to accelerate the time at which all or any part of an Option may be exercisable. (b) The right to exercise a portion of the Option included in any exercisable installment is cumulative; once such right has become exercisable, it may be exercised in whole at any time or in part from time to time until the expiration of the Option VIII-3 term, including without limitation, any installment that becomes exercisable following a Change in Control. H. Term of Option. At the time an Option is granted, the Committee shall establish an Option term applicable to such Award. Except as otherwise provided in this Plan or in the Notification, the Option term for any Award shall not end later than the earliest of the following: (a) the date a Participant violates any non-compete agreement entered into by the Participant and PPL Corporation or an Affiliated Company; (b) the day before the tenth anniversary of the Date of Grant for such Award; or (c) the applicable date below: (1) Termination - The Option term with respect to all Awards to a Participant who has a Termination shall end on the date of such Termination; provided, however, that the Committee is authorized in its sole discretion to extend the Option term for a period of not more than 90 days after the date of Termination. (2) Retirement, Death or Disability - The Option term with respect to all Awards to a Participant who has a, death or Disability shall end 36 months after the date of such, death or Disability. The Option term with respect to all awards to a Participant who has a Retirement shall end on the earlier of the date specified in paragraph (a) or (b), above. (3) Change in Control - Notwithstanding anything in this Section 8H to the contrary, the Option term with respect to all Awards to a Participant whose VIII-4 employment terminates with PPL Corporation and all Affiliated Companies following a Change in Control shall end 36 months after the date Participant's employment terminates with PPL Corporation and all Affiliated Companies following the Change in Control. A Participant's employment shall be treated as having terminated following a Change in Control only if: (I) The Participant's employment terminates within 36 months after the month in which a Change in Control occurs, unless such termination of employment is (1) by PPL Corporation or an Affiliated Company for Cause, or (2) by the Participant without Good Reason, or (3) by reason of death, Disability or Retirement, or (II) The Participant's employment is terminated prior to a Change in Control (whether or not a Change in Control ever occurs) (A) by PPL Corporation or an Affiliated Company without Cause, at the request or direction of a Person who has entered into an agreement with PPL Corporation the consummation of which would constitute a Change in Control, or (B) at the Participant's initiative for Good Reason and the circumstance or event which constitutes Good Reason occurs at the direction of such Person, or (III) the Participant's employment is terminated by PPL Corporation or an Affiliated Company without Cause or by the Participant for Good Reason, and such termination or the circumstance or event which constitutes Good Reason is otherwise in connection with or in anticipation of a Change in Control (whether or not a Change in Control occurs). VIII-5 For purposes of any determination regarding the applicability of paragraphs (II) and (III), above, any position taken by the Participant shall be presumed to be correct unless PPL Corporation or an Affiliated Company establishes to the Board by clear and convincing evidence that such position is not correct. Moreover, if at the time of any such determination, a Participant is employed by an Affiliated Company, such determination shall be made by the board of directors of such Affiliated Company, rather than the Board. I. Rights as a Shareowner. A Participant or a transferee of a Participant shall have no rights as a shareowner with respect to any shares of Common Stock covered by an Option until the date of the issuance of a certificate for such shares of Common Stock. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 10G. J. Modification, Extension and Renewal of Options. Subject to the terms and conditions and within the limitations of the Plan, the Committee may modify, extend or renew outstanding Options granted under the Plan, or accept the exchange of outstanding Options (to the extent not theretofore exercised) for the granting of new Options in substitution therefor. Notwithstanding the foregoing, no modification of an Option shall, without the consent of the Participant, alter or adversely affect the rights or obligations of a Participant under any Option previously granted under the Plan. K. Early Disposition of Common Stock. If a Participant shall dispose of any VIII-6 shares of Common Stock purchased pursuant to an Incentive Stock Option within one year from the date the shares were acquired or within two years from the Date of Grant of the Option under which such shares of Common Stock were purchased, then, to provide PPL Corporation with the opportunity to claim the benefit of any income tax deduction which may be available to it under the circumstances, the Participant shall within ten days of such disposition notify PPL Corporation of the dates of acquisition and disposition of such shares of Common Stock, the number of shares so disposed and the consideration, if any, received therefor. L. Individual Dollar Limitations. In the case of an Incentive Stock Option, the aggregate fair market value (determined at the time such Option is granted) of the Common Stock with respect to which an Incentive Stock Option is exercisable for the first time by an Eligible Employee during any calendar year (whether under this Plan or another plan or arrangement of PPL Corporation or an Affiliated Company) shall not exceed $100,000 (or such other limit as may be in effect under the Code on the date of exercise). M. No Obligation to Exercise Option. The granting of an Option shall impose no obligation on the Participant to exercise such Option. VIII-7 SECTION 10. MISCELLANEOUS PROVISIONS. A. Nontransferability. No benefit or right provided under the Plan shall be subject to alienation or assignment by a Participant (or by any person entitled to such benefit pursuant to the terms of the Plan) or subject to attachment or other legal process of whatever nature. Any attempted alienation, assignment or attachment shall be void and of no effect. Payment shall be made only to the Participant entitled to receive the same or to the Participant's authorized legal representative. Deposit of any sum in any financial institution to the credit of any Participant (or of a person entitled to such sum pursuant to the terms of the Plan) shall constitute payment to that Participant (or such person). PPL Corporation and all Affiliated Companies will observe the terms of the Plan unless and until ordered to do otherwise by a state or federal court. As a condition of participation, each Participant agrees to hold PPL Corporation and all Affiliated Companies harmless from any claim that arises out of PPL Corporation's or an Affiliated Company's obeying any such order whether such order affects a judgment of such court or is issued to enforce a judgment or order of another court. B. No Employment Right. Neither this Plan nor any action taken hereunder shall be construed as giving any right to be retained as an employee of PPL Corporation or any Affiliated Company. C. Tax Withholding. Whenever under the Plan Common Stock is to be delivered pursuant to an Award, PPL Corporation may require as a condition of delivery that Participant remit an amount sufficient to satisfy all federal, state and local tax X-1 withholding requirements related thereto. In addition, PPL Corporation may deduct from any salary or other payment due to such Participant, an amount sufficient to satisfy all federal, state and local tax withholding requirements related to the delivery of Common Stock under the Plan. Without limiting the generality of the foregoing, Participant may elect to satisfy all or part of the foregoing withholding requirements by delivery of unrestricted shares of Common Stock owned by Participant for at least six months (or such other period as PPL Corporation may determine), having a Fair Market Value (determined as of the date of such delivery by Participant) equal to all or part of the amounts to be so withheld. As a condition of accepting such delivery, PPL Corporation may require Participant to furnish an opinion of counsel acceptable to PPL Corporation to the effect that such delivery will not result in Participant incurring any liability under Section 16(b) of the Exchange Act. Alternatively, PPL Corporation may permit any such delivery to be made by withholding shares of Common Stock from the shares otherwise issuable pursuant to the Award giving rise to the tax withholding obligation (in which event the shares shall be valued at their Fair Market Value on the date when the withholding taxes are otherwise due). D. Government and Other Regulations. The obligation of PPL Corporation to make payment for any Awards shall be subject to all applicable laws, rules and regulations, and to such approvals by any government agencies as the Committee may determine in its sole discretion to be required. E. Indemnification. Each person who is or at any time serves as a member of the Board, the Committee or PPL Corporation's Board of Directors shall be indemnified X-2 and held harmless by PPL Corporation against and from: (i) any loss, cost, liability or expense that may be imposed upon or reasonably incurred by such person in connection with or resulting from any claim, action, suit or proceeding to which such person may be a party or in which such person may be involved by reason of any action or failure to act under the Plan; and (ii) any and all amounts paid by such person in satisfaction of judgment in any such action, suit or proceeding relating to the Plan. Each person covered by this indemnification shall give PPL Corporation an opportunity, at its own expense, to handle and defend the same before such person undertakes to handle and defend it on such person's own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the bylaws of PPL Corporation, as a matter of law, or otherwise, or any power that PPL Corporation may have to indemnify such person or hold such person harmless. F. Reliance on Reports. Each member of the Board, the Committee and PPL Corporation's Board of Directors shall be fully justified in relying or acting in good faith upon any report made by the independent public accountants of, or counsel for, PPL Corporation and upon any other information furnished in connection with the Plan. In no event shall any person who is or shall have been a member of the Board, the Committee or PPL Corporation's Board of Directors be liable for any determination made or other action taken or any failure to act in reliance upon any such report or information or for any action taken, including without limitation the furnishing of information, or failure to act, if in good faith. G. Changes in Capital Structure. In the event of any change in the outstanding X-3 shares of Common Stock by reason of any stock dividend or split, recapitalization, combination or exchange of shares or other similar changes in the Common Stock, appropriate adjustments shall be made in the shares of Restricted Stock theretofore awarded to the Participants, the shares of Common Stock subject to outstanding and unexercised Options and the aggregate number of shares of Common Stock which may be awarded pursuant to the Plan. Such adjustments shall be conclusive and binding for all purposes. Additional shares of Restricted Stock issued to a Participant as the result of any such change shall bear the same restrictions as the shares of Common Stock to which they relate. H. New York Stock Exchange Requirements. In accordance with the requirements of the New York Stock Exchange (the "NYSE") for the listing of newly issued shares of Common Stock subject to Awards, the Committee may not grant Awards under the Plan to the extent that the aggregate number of shares subject to Awards granted after approval of the Plan at the 1999 Annual Meeting of shareowners of PPL Corporation would exceed 5% of the outstanding Common Stock of PPL Corporation on the date of such Annual Meeting, unless the issuance of the shares of Common Stock subject to any such additional Awards has been approved by the shareowners of PPL Corporation to the extent required by the rules of the NYSE. I. Company Successors. In the event PPL Corporation becomes a party to a merger, consolidation, sale of substantially all of its assets or any other corporate reorganization in which PPL Corporation will not be the surviving corporation or in which the holders of the Common Stock will receive securities of another corporation, then such X-4 other corporation shall assume the rights and obligations of PPL Corporation under this Plan. J. Governing Law. All matters relating to the Plan or to Awards granted hereunder shall be governed by the laws of the Commonwealth of Pennsylvania without regard to its conflict of laws principles. K. Relationship to Other Benefits. The value of Awards hereunder and dividends paid on the Common Stock during the Restriction Period, will be considered earnings for purposes of PPL's Supplemental Executive Retirement Plan to the extent provided for therein. Otherwise, Awards under the Plan shall not be taken into account in determining any benefits under any pension, retirement, profit sharing, disability or group insurance plan of PPL Corporation or any Affiliated Company except as may be required by federal tax law and regulation or to meet other applicable legal requirements. L. Expenses. The expenses of administering the Plan shall be borne by PPL Corporation and the Affiliated Companies whose Eligible Employees have been granted Awards. M. Titles and Headings. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. X-5 SECTION 11. OTHER STOCK-BASED AWARDS (a) Generally. The Committee, in its sole discretion, may grant awards of --------- Common Stock, awards of restricted shares and awards that are valued in whole or in part by reference to, or are otherwise based on the Fair Market Value of, Common Stock ("Other Stock-Based Awards"). Such Other Stock-Based Awards shall be in such form, and dependent on such conditions, as the Committee shall determine, including, without limitation, the right to receive one or more shares of Common Stock (or the equivalent cash value of such Common Stock) upon the completion of a specified period of service, the occurrence of an event and/or the attainment of performance objectives. Other Stock-Based Awards may be granted alone or in addition to any other Awards granted under the Plan. Subject to the provisions of the Plan, the Committee shall determine to whom and when Other Stock-Based Awards will be made; the amount of Common Stock to be awarded under (or otherwise related to) such Other Stock-Based Awards; whether such Other Stock-Based Awards shall be settled in cash, Common Stock or a combination of cash and Common Stock; and all other terms and conditions of such Awards (including, without limitation, the vesting provisions thereof). (b) Performance-Based Awards. Notwithstanding anything to the contrary ------------------------ herein, certain Other Stock-Based Awards granted under this Section 11 may be granted in a manner which is deductible by PPL Corporation under Section 162(m) of the Code (or any successor section thereto)("Performance-Based Awards"). A Participant's Performance-Based Award shall be determined based on the attainment of written XI-1 performance goals approved by the Committee for a performance period established by the Committee (i) while the outcome for that performance period is substantially uncertain and (ii) no more than 90 days after the commencement of the performance period to which the performance goal relates or, if less, the number of days which is equal to 25 percent of the relevant performance period. The performance goals, which must be objective, shall be based upon one or more of the following criteria: (i) earnings before or after taxes (including earnings before interest, taxes, depreciation and amortization); (ii) net income; (iii) operating income; (iv) earnings per share; (v) book value per share; (vi) return on stockholders' equity; (vii) expense management; (viii) return on investment before or after the cost of capital; (ix) improvements in capital structure; (x) profitability of an identifiable business unit or product; (xi) maintenance or improvement of profit margins; (xii) stock price; (xiii) market share; (xiv) revenues or sales; (xv) costs; (xvi) cash flow; (xvii) working capital; (xviii) changes in net assets (whether or not multiplied by a constant percentage intended to represent the cost of capital); (xix) return on assets; and (xx) independent industry ratings or assessments. The foregoing criteria may relate to PPL Corporation, one or more of its subsidiaries or one or more of its divisions, units, minority investments, partnerships, joint ventures, product lines or products or any combination of the foregoing, and may be applied on an absolute basis and/or be relative to one or more peer group companies or indices, or any combination thereof, all as the Committee shall determine. In addition, to the degree consistent with Section 162(m) of the Code (or any successor section thereto), the performance goals may be calculated without regard to extraordinary items or accounting changes. The maximum amount of a XI-2 Performance-Based Award to any Participant with respect to a fiscal year of PPL Corporation shall be 1.5 million shares; provided that any portion of such maximum number of shares that has not been granted may be carried over and used in any subsequent year. The Committee shall determine whether, with respect to a performance period, the applicable performance goals have been met with respect to a given Participant and, if they have, to so certify and ascertain the amount of the applicable Performance-Based Award. No Performance-Based Awards will be paid for such performance period until such certification is made by the Committee. The amount of the Performance-Based Award determined by the Committee for a performance period shall be paid to the Participant at such time as determined by the Committee in its sole discretion after the end of such performance period; provided, however, that a Participant may, if and to the -------- ------- extent permitted by the Committee and consistent with the provisions of Section 162(m) of the Code, elect to defer payment of a Performance-Based Award. Executed this ____ day of, 2000. PPL CORPORATION By: -------------------- Charles P. Pinto Vice President-Human Resources XI-3 EX-10.(N) 15 0015.txt RETENTION AGREEMENT Exhibit 10(n) RETENTION AGREEMENT THIS RETENTION AGREEMENT, effective as of May 24, 2000, is made and entered into between PPL Corporation ("PPL") and Paul T. Champagne (the "Executive"). WHEREAS, PPL recognizes the need to develop and retain the Executive; and WHEREAS, PPL has determined that certain steps should be taken to encourage the Executive to remain with PPL; NOW THEREFORE in consideration of the premises and the mutual covenants herein contained and intending to be legally bound, PPL and the Executive agree as follows: SECTION 1. DEFINITIONS. The following definitions are applicable to this Retention Agreement: 1.1 "Affiliated Company" or "Affiliated Companies" means any parent or majority or 50% owned subsidiaries of PPL (or companies, limited liability companies or other legal entities under common control with PPL) including entities that are members of the same controlled group of corporations (within the meaning of Section 1563(a) of the Code) as PPL. 1.2 "Board" means the Board of Directors of PPL. 1.3 "Change in Control" means the occurrence of any one of the following events: (i) any change in the control of PPL of a nature that would be required to be reported in response to Item 1 (a) of Form 8-K under the Exchange Act; (ii) during any period of not more than two consecutive years, individuals who at the beginning of such period constitute the Board and, any new director (other than a director designated by a Person who has entered into an agreement with PPL to effect a transaction described in clause (i), (iii) or (iv) of this paragraph) whose election by the Board or nomination for election by PPL's shareowners was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved or recommended, cease for any reason to constitute at least a majority thereof; (iii) any Person becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of PPL representing 20% or more of the combined voting power of PPL's then outstanding securities entitled to vote generally in the election of directors; (iv) the approval by the shareowners of PPL of any merger or consolidation of PPL or any direct or indirect subsidiary with any other corporation or a plan of complete liquidation of PPL or the sale or other disposition of all or substantially all of the assets of PPL to any other person or persons unless, after -1- giving effect thereto, (a) holders of PPL's then outstanding securities entitled to vote generally in the election of directors will own a majority of the outstanding stock entitled to vote generally in the election of directors of the continuing, surviving or transferee corporation or any parent (within the meaning of Rule 12b-2 under the Exchange Act) thereof and (b) the incumbent members of the Board as constituted immediately prior thereto shall constitute at least a majority of the directors of the continuing, surviving or transferee corporation and any parent thereof; or (v) the Board adopts a resolution to the effect that a "Change in Control" has occurred or is anticipated to occur. 1.4 "Code" means the Internal Revenue Code of 1986, as may be amended from time to time. 1.5 "Committee" means two or more non-employee directors, unless otherwise determined by the Board, who have been designated by the Board to act as the Committee and qualify as non-employee directors under the Exchange Act. 1.6 "Common Stock" means the common stock of PPL. 1.7 "Disability', or "Disabled" means the inability of the Executive to perform each and every duty pertaining to the Executive's regular occupation by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than six months. 1.8 "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. Reference in this Retention Agreement to any section of the Exchange Act shall be deemed to include any amendments or successor provisions to such section and any rules promulgated thereunder. 1.9 "Fair Market Value" means the average of the high and low sale prices of the Common Stock as reflected in the New York Stock Exchange Composite Transactions on the date as of which Fair Market Value is being determined or, if no Common Stock is traded on the date as of which Fair Market Value is being determined, Fair Market Value shall be the average of the high and low sale prices of the Common Stock as reflected in the New York Stock Exchange Composite Transactions on the next preceding day on which the Common Stock was traded. 1.10 "Good Reason" for termination of the Executive's employment with PPL or an Affiliated Company by such Executive means the occurrence (without the Executive's express written consent) after a Change in Control of any one of the following acts or failures to act, by PPL or an Affiliated Company: (i) a reduction by PPL or an Affiliated Company of the Executive's annual base salary as in effect immediately prior to the date the Change in Control occurs or as the same may be increased from time to time, except that across- the-board decreases uniformly affecting management, key employees and salaried employees of PPL or an -2- Affiliated Company, or the business unit in which the Executive is then employed, shall not be treated as Good Reason; (ii) the failure by PPL or an Affiliated Company to pay to the Executive any portion of the Executive's current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of PPL or an Affiliated Company, within seven (7) days of the date such compensation is due, except for across-the-board compensation deferrals uniformly affecting management, key employees and salaried employees of PPL or an Affiliated Company, or the business unit in which the Executive is then employed; (iii) the failure by PPL or an Affiliated Company to continue in effect any compensation or benefit plan in which the Executive participates immediately prior to a Change in Control which is material to the Executive's total compensation, or any substitute plans adopted prior to a Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by PPL or Affiliated Company to continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Executive's participation relative to other participants, as existed immediately prior to the Change in Control; (iv) the failure by PPL or an Affiliated Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of PPL's or an Affiliated Company's pension, retirement, savings, life insurance, medical, health and accident, or disability plans in which the Executive was participating immediately prior to a Change in Control, except for across-the-board changes to any such plans uniformly affecting all participants in such plans, the taking of any action by PPL or an Affiliated Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive immediately prior to a Change in Control, or the failure by PPL or an Affiliated Company to provide the Executive with the number of paid vacation days to which the Executive is entitled on the basis of years of service with PPL or an Affiliated Company in accordance with PPL's or an Affiliated Company's normal vacation policy in effect at the time of the Change in Control; or (v) any purported termination of the Executive's employment that is not effected in the manner required by any severance agreement between the Executive and PPL or an Affiliated Company. The Executive's right to terminate his or her employment with PPL or an Affiliated Company for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. -3- 1.11 "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; provided, however, a Person shall not include (i) PPL or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of PPL or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of PPL in substantially the same proportions as their ownership of stock of PPL. 1.12 "Termination for Cause" means (i) if a Change in Control has occurred, the termination by the Company of the Executive's employment due to (a) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a notice of termination for Good Reason by the Executive after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (b) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (a) and (b) of this definition, (x) no act, or failure to act, on the Executives part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company, and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the Board by clear and convincing evidence that Cause exists. (ii) If a Change in Control has not occurred, the termination by the Company of the Executive's employment due to the willful violation of any Company policy (including PPL's Standards of Conduct and Integrity or any successor thereto), violation of any lawful direction of PPL or an Affiliated Company, gross negligence in the performance of duties or commission of a felony. SECTION 2. RESTRICTED STOCK AWARDS 2.1 In order to induce the Executive to remain in the employ of PPL or an Affiliated Company, the Committee has authorized an award under Section 11 of the PP&L, Inc. Incentive Compensation Plan (the "Award") to the Executive of 30,000 shares of Common Stock ("Shares") with a restriction period that will lapse, unless the restrictions lapse sooner pursuant to Section 2.2, 2.3 or 2.4 of this Retention -4- Agreement, on May 23, 2018 (the "Lapse Date"), provided the Executive has remained in continuous employment with PPL or an Affiliated Company until such date. 2.2 In the event of the Executive's death or Disability while in the employ of PPL or an Affiliated Company prior to the Lapse Date, the Award will be prorated by multiplying the amount of shares that would have been free of restriction at the Lapse Date by a fraction, the numerator of which will be the years of actual service of the Executive from the date of the Award up to the date of death or Disability, and the denominator of which will be the number of years of service the Executive would have had if the Executive had maintained active employment from the date of the Award until the Lapse Date. 2.3 In the event of a Change in Control, the restriction on the Award shall lapse and the entire Award will be payable if and when a) the Executive's employment with PPL or an Affiliated Company is terminated by the acquiring company other than for cause as that term is defined in the Executive's change in control agreement with PPL or in a Termination for Cause as defined in this Retention Agreement if the Executive is not a party to a Change in Control Agreement with PPL; or b) the Executive terminates his employment with PPL or an Affiliated Company for Good Reason within three years after the Change in Control occurs. 2.4 As a condition of receiving the Award, the Executive shall agree in writing to notify PPL within 30 days of the date of execution of this Retention Agreement whether the Executive has made an election under Section 83(b) of the Code to report the value of the Shares as income on the date of the grant. An Award of Shares shall be restricted as provided herein. The Shares shall be issued without the payment of consideration by the Executive. The certificates for the Shares shall be issued in the name of the Executive to whom the Award is made, shall be retained, by PPL on behalf of the Executive (together with a stock power endorsed in blank) and shall bear a restrictive legend prohibiting the sale, transfer, pledge or hypothecation of the Shares until the Lapse Date. The Committee may also impose such other restrictions and conditions on the Shares as it deems appropriate. On the Lapse Date, if all conditions in this Retention Agreement have been met, all restrictions on the Award will expire and new certificates representing the Shares will be issued without the restrictive legend described in Section 4.11. As a condition precedent to the receipt of these new certificates, the Executive (or the Executive's designated beneficiary or personal representative) will agree to make payment to PPL or an Affiliated Company of the amount of any federal, state or local taxes, payable by the Executive, which are required to be withheld by PPL or an Affiliated Company with respect to the Award. SECTION 3. FORFEITURE OF AWARD -5- 3.1 Subject to Section 2.3(b) of this Retention Agreement, the Executive shall forfeit all rights to the Award if the Executive retires or resigns employment with PPL or an Affiliated Company prior to the Lapse Date, unless, in the case of a resignation, the Executive resigns to immediately assume, and does assume, another position with PPL or an Affiliated Company. 3.2 If the Executive's employment ends as a result of a Termination for Cause, the Executive shall forfeit all rights to the Award. 3.3 Any Shares which are forfeited hereunder will be transferred to PPL. SECTION 4. MISCELLANEOUS PROVISIONS. 4.1 Nontransferability. No benefit or right provided under this Retention Agreement shall be subject to alienation or assignment by an Executive (or by any person entitled to such benefit pursuant to the terms of the Retention Agreement) or subject to attachment or other legal process of whatever nature. Any attempted alienation, assignment or attachment shall be void and of no effect. Payment shall be made only to the Executive entitled to receive the same or to the Executive's authorized legal representative. PPL and all Affiliated Companies will observe the terms of this Retention Agreement unless and until ordered to do otherwise by a state or federal court. As a condition of participation, each Executive agrees to hold PPL and all Affiliated Companies harmless from any claim that arises out of PPL's or an Affiliated Company's obeying any such order whether such order affects a judgment of such court or is issued to enforce a judgment or order of another court. 4.2 No Employment Right. Neither this Retention Agreement nor any action taken hereunder shall be construed as giving any right to be retained as an employee of PPL or any Affiliated Company. 4.3 Tax Withholding. PPL may require, as a condition of delivery of the Award, that the Executive remit an amount sufficient to satisfy all federal, state and local tax withholding requirements related thereto. In addition, PPL may deduct from any salary or other payment due to such Executive, an amount sufficient to satisfy all federal, state and local tax withholding requirements related to the Award. Without limiting the generality of the foregoing, the Executive may elect to satisfy all or part of the foregoing withholding requirements by delivery of unrestricted shares of Common Stock owned by the Executive for at least six months (or such other period as PPL may determine), having a Fair Market Value (determined as of the date of such delivery by Executive) equal to all or part of the amounts to be so withheld. As a condition of accepting such delivery, PPL may require the Executive to furnish an opinion of counsel acceptable to PPL to the effect that such delivery will not result in the Executive incurring any liability under Section 16(b) of the Exchange Act. Alternatively, PPL may permit any such delivery to be made by withholding certain shares of the Award from the shares otherwise issuable pursuant to the Award giving rise to the tax withholding -6- obligation (in which event the shares shall be valued at their Fair Market Value on the date when the withholding taxes are otherwise due). 4.4 Government and Other Regulations. The obligation of PPL to make payment for the Award shall be subject to all applicable laws, rules and regulations, and to such approvals by any government agencies. 4.5 Changes in Capital Structure. In the event of any change in the outstanding shares of Common Stock by reason of any stock dividend or split, recapitalization, combination or exchange of shares or other similar changes in the Common Stock, appropriate adjustments shall be made to the number and/or kind of shares awarded under the Award, as may be determined by the Committee in its sole discretion. Such adjustments shall be conclusive and binding for all purposes. Additional Shares issued to the Executive as the result of any such change shall bear the same restrictions as the shares of Common Stock to which they relate. Without limiting the generality of the foregoing, in connection with a change in capital structure, the Committee may provide, in its sole discretion, for the cancellation of any outstanding Awards in exchange for payment in cash or other property of the Fair Market Value (on the date of such exchange) of the Shares covered by such Awards. 4.6 Company Successors. In the event PPL becomes a party to a merger, consolidation, sale of substantially all of its assets or any other corporate reorganization in which PPL will not be the surviving corporation or in which the holders of the Common Stock will receive securities of another corporation, then such other corporation shall assume the rights and obligations of PPL under this Retention Agreement. 4.7 Governing Law. All matters relating to this Retention Agreement and to the Award granted hereunder shall be governed by the laws of the Commonwealth of Pennsylvania without regard to its conflict of laws principles. 4.8 Relationship to Other Benefits. The Award shall not be taken into account in determining any benefits under any pension, retirement, profit sharing, disability or group insurance plan of PPL or any Affiliated Company except as may be required by federal tax law and regulation or to meet other applicable legal requirements. 4.9 Dividends and Voting Rights. Subject to the restrictions set forth in this Retention Agreement, the Executive shall possess all incidents of ownership of the Shares granted hereunder, including the right to receive dividends with respect to such Shares and the right to vote such Shares. 4.10 Administration. The Committee shall have final authority to interpret and construe this Retention Agreement and to make any and all determinations thereunder, and its decision shall be binding and conclusive upon the Executive and his legal representative in respect of any questions arising under this Retention Agreement. -7- The Committee shall have the authority to delegate any and all of its authority under this Retention Agreement to any employee or group of employees of PPL or Affiliated Company. 4.11 Certificate; Restrictive Legend. The Executive agrees that any certificate issued for Shares prior to the lapse of any outstanding restrictions relating thereto shall be inscribed with the following legend: This certificate and the shares of stock represented hereby are subject to the terms and conditions, including forfeiture provisions and restrictions against transfer (the "Restrictions"), contained in the Retention Agreement entered into between the registered owner and PPL. Any attempt to dispose of these shares in contravention of the Restrictions, including by way of sale, assignment, transfer, pledge, hypothecation or otherwise, shall be null and void and without effect. 4.12 Entire Agreement. This Retention Agreement contains the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and therein and supersedes all prior communications, representations and negotiations in respect thereto. 4.13 Titles and Headings. The titles and headings of the sections in this Retention Agreement are for convenience of reference only, and in the event of any conflict, the text of the Retention Agreement, rather than such titles or headings, shall control. PPL CORPORATION ________________________________ By:______________________________________ Paul T. Champagne William F. Hecht President & Chief Executive Officers -8- EX-12.(A) 16 0016.txt PPL CORPORATION COMPUTATION OF RATIO TO EARNINGS Exhibit 12(a) PPL CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Millions of Dollars)
2000 1999 (c) 1998 (c) 1997 (c) 1996 (c) -------------- ------------ ------------ ------------ ------------ Fixed charges, as defined: Interest on long-term debt....................... $ 323 $ 233 $ 203 $ 196 $ 207 Interest on short-term debt and other interest.............................. 64 47 33 26 17 Amortization of debt discount, expense and premium - net............................... 5 4 2 2 2 Interest on capital lease obligations Charged to expense............................. 4 9 8 9 13 Capitalized.................................... 1 2 2 2 Estimated interest component of operating rentals............................... 25 20 18 15 8 ------ ---------- ----- ----- ----- Total fixed charges.......................... $ 421 $ 314 $ 266 $ 250 $ 249 ====== ========== ===== ===== ===== Earnings, as defined: Net income (a)................................... $ 491 $ 492 $ 379 $ 296 $ 329 Preferred Stock Dividend Requirements.................................... 26 26 25 24 28 Less undistributed income of equity method investments............................. 74 56 3 (25) 8 ------ ---------- ----- ----- ----- 443 462 401 345 349 Add (Deduct): Income taxes..................................... 294 174 259 238 253 Amortization of capitalized interest on capital leases............................... 2 2 2 2 4 Total fixed charges as above (excluding capitalized interest on capital lease obligations)................... 421 313 264 248 247 ------ ----------- ----- ----- ----- Total earnings.............................. $1,160 $ 951 $ 926 $ 833 $ 853 ====== =========== ===== ===== ===== Ratio of earnings to fixed charges (b)...................................... 2.75 3.03 3.48 3.33 3.43 ====== =========== ====== ====== =====
(a) 2000, 1999 and 1998 net income excluding extraordinary items and minority interest. (b) Based on earnings excluding nonrecurring items, the ratio of earnings to fixed charges are: 2000, 2.66; 1999, 2.80; 1998, 3.10; and 1997, 3.51. (c) Ratio of earnings to fixed charges for years 1999 and prior were recalculated to give proper effect of undistributed earnings of equity method investments. EX-12.(B) 17 0017.txt PPL ELECTRIC UTILITIES COMPUTATION RATIO OF EARN Exhibit 12(b) PPL ELECTRIC UTILITIES CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Millions of Dollars)
2000 (d) 1999 (c) 1998 (c) 1997 (c) 1996 (c) --------- -------- -------- -------- -------- Fixed charges, as defined: Interest on long-term debt................................ $ 223 $ 205 $ 188 $ 195 $ 207 Interest on short-term debt and other interest...................................... 16 12 14 17 11 Amortization of debt discount, expense and premium - net....................................... 4 3 2 2 2 Interest on capital lease obligations Charged to expense .................................... 4 9 8 9 13 Capitalized ........................................... 1 2 2 2 Estimated interest component of operating rentals ....................................... 14 19 18 15 8 ----- ----- ----- ----- ----- Total fixed charges ................................. $ 261 $ 249 $ 232 $ 240 $ 243 ===== ===== ===== ===== ===== Earnings, as defined: Net income (a)........................................... $ 250 $ 444 $ 409 $ 348 $ 357 Less undistributed income of equity method investment......................................... ----- ----- ----- ----- ----- $ 250 $ 444 409 348 357 Add (Deduct): Income taxes ............................................. 171 151 273 248 251 Amortization of capitalized interest on capital leases ............................ 2 2 2 2 4 Total fixed charges as above (excluding capitalized interest on capital lease obligations) ......................... 260 248 230 238 241 ----- ----- ----- ----- ----- Total earnings .................................. $ 683 $ 845 $ 914 $ 836 $ 853 ===== ===== ===== ===== ===== Ratio of earnings to fixed charges (b) (c).......................................... 2.62 3.39 3.94 3.48 3.51 ===== ===== ===== ===== =====
(a) 2000, 1999 and 1998 net income excluding extraordinary items. (b) Based on earnings excluding nonrecurring items the ratio of earnings to fixed charges are: 2000, 2.47; 1999, 3.10; and 1998, 3.53. (c) Ratio of earnings to fixed charges for years 1999 and prior were recalculated to give proper effect of undistributed earnings of equity method investments. (d) Due to the corporate realignment on July 1, 2000, prior years are not comparable to 2000. EX-21.(A) 18 0018.txt PPL CORPORATION - SUBSIDIARIES OF THE REGISTRANT Exhibit 21(a) PPL Corporation Subsidiaries of the Registrant As of December 31, 2000 Company Name State or Jurisdiction of Business Conducted under Same Name Incorporation/Formation - --------------------------------------- --------------------------- PPL Electric Utilities Corporation Pennsylvania Two North Ninth Street Allentown, PA 18101 PPL Transition Bond Company, LLC Delaware Two North Ninth Street, GENA92, Room 3 Allentown, PA 18101 PPL Montana, LLC Delaware 303 North Broadway Suite 400 Billings, MT 59101 PPL Energy Funding Corporation Pennsylvania Two North Ninth Street Allentown, PA 18101 PPL Generation, LLC Delaware Two North Ninth Street Allentown, PA 18101 PPL Global, LLC Delaware 11350 Random Hills Road Suite 400 Fairfax, VA 22030 PPL Montour, LLC Delaware Two North Ninth Street Allentown, PA 18101 PPL Susquehanna, LLC Delaware Two North Ninth Street Allentown, PA 18101 EX-21.(B) 19 0019.txt PPL ELECTRIC UTILITIES SUBSIDIARIES OF REGISTRANT Exhibit 21(b) PPL Electric Utilities Corporation Subsidiaries of the Registrant As of December 31, 2000 Company Name State or Jurisdiction of Business Conducted under Same Name Incorporation/Formation - ---------------------------------------- ---------------------------- PPL Transition Bond Company, LLC Delaware Two North Ninth Street, GENA92, Room 3 Allentown, PA 18101 EX-23 20 0020.txt CONSENT OF PRICEWATERHOUSECOOPERS Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-48781, 333-54504, 333-54504-01, and 333-54504- 02) of PPL Corporation and in the Registration Statements on Form S-8 (Nos. 33- 50031, 333-02003 and 333-95967) of PPL Corporation of our report dated January 29, 2001 relating to the consolidated financial statements and financial statement schedules, which appears in this Form 10-K. PricewaterhouseCoopers LLP Philadelphia, Pennsylvania March 1, 2001 1 EX-24 21 0021.txt POWER OF ATTORNEY Exhibit 24 PPL CORPORATION 2000 ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K POWER OF ATTORNEY ----------------- The undersigned directors of PPL Corporation, a Pennsylvania corporation, that is to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its 2000 Annual Report on Form 10-K, do hereby appoint William F. Hecht, John R. Biggar and Robert J. Grey their true and lawful attorney, and each of them their true and lawful attorney, with power to act without the other and with full power of substitution and resubstitution, to execute for them and in their names said Form 10-K Report and any and all amendments thereto, whether said amendments add to, delete from or otherwise alter said Form 10-K Report, or add or withdraw any exhibits or schedules to be filed therewith and any and all instruments in connection therewith. The undersigned hereby grant to said attorneys and each of them full power and authority to do and perform in the name of and on behalf of the undersigned, and in any and all capacities, any act and thing whatsoever required or necessary to be done in and about the premises, as fully and to all intents and purposes as the undersigned might do, hereby ratifying and approving the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seals this 23rd day of February, 2001. /s/ Frederick M. Bernthal L.S. /s/ William F. Hecht L.S. - ----------------------------------- --------------------------------- Frederick M. Bernthal William F. Hecht /s/ John W. Conway L.S. /s/ Stuart Heydt L.S. - ----------------------------------- --------------------------------- John W. Conway Stuart Heydt /s/ E. Allen Deaver L.S. /s/ Frank A. Long L.S. - ----------------------------------- --------------------------------- E. Allen Deaver Frank A. Long /s/ William J. Flood L.S. /s/ W. Keith Smith L.S. - ------------------------------------ --------------------------------- William J. Flood W. Keith Smith /s/ Elmer D. Gates L.S. - ----------------------------------- Elmer D. Gates EX-99 22 0022.txt PPL CORPORATION CORPORATE ORGANIZATION Exhibit 99 PPL Corporation --------------- Corporate Organization Before and After Realignment --------------------------------------------------- (Selected Subsidiaries) (Before Realignment) -------------------- PPL Corporation PPL Electric Utilities Corporation PPL Transition Bond Company, LLC PPL Capital Trust PPL Capital Trust II PPL Energy Funding Corporation CEP Delaware, Inc. CEP Reserves, Inc. PPL Rights, Inc. CEP Commerce, LLC PPL Interstate Energy Company Pennsylvania Mines Corporation Realty Company of Pennsylvania PPL EnergyPlus, LLC PPL Synfuel Investments, LLC PPL Global, LLC PPL Generation Holdings, LLC PPL Maine, LLC PPL Montana Holdings, LLC PPL Montana, LLC PPL Spectrum, Inc. Burns Mechanical, Inc. H.T. Lyons, Inc. McClure Company McCarl's Inc. Western Mass. Holdings, Inc. PPL Capital Funding, Inc. PPL Gas Utilities Corporation PPL Corporation --------------- Corporate Organization Before and After Realignment --------------------------------------------------- (Selected Subsidiaries) (After Realignment) - ------------------- PPL Corporation Delivery Segment: ---------------- PPL Electric Utilities Corporation PPL Transition Bond Company, LLC PPL Capital Trust PPL Capital Trust II CEP Commerce, LLC PPL Gas Utilities Corporation Supply and Development Segments: ------------------------------- PPL Energy Funding Corporation CEP Delaware, Inc. CEP Reserves, Inc. Supply Segment: -------------- PPL EnergyPlus, LLC PPL Synfuel Investments, LLC PPL Spectrum, Inc. PPL Energy Services Holdings, LLC Burns Mechanical, Inc. H.T. Lyons, Inc. McClure Company McCarl's Inc. Western Mass. Holdings, Inc. PPL Generation, LLC PPL Holtwood, LLC Pennsylvania Mines Corporation PPL Maine, LLC PPL Interstate Energy Company Realty Company of Pennsylvania PPL Montana Holdings, LLC PPL Susquehanna, LLC PPL Montour, LLC PPL Martins Creek, LLC PPL Brunner Island, LLC PPL Rights, Inc. (jointly owned by PPL Montour, PPL Martins Creek, and PPL Brunner Island) Development Segment ------------------- PPL Global, LLC Corporate Segment: ----------------- PPL Services Corporation PPL Capital Funding, Inc. -----END PRIVACY-ENHANCED MESSAGE-----