POLLUTION CONTROL FACILITIES LOAN AGREEMENT

POLLUTION CONTROL FACILITIES LOAN AGREEMENT dated as of October 1, 2008 (the “Agreement”) between PENNSYLVANIA ECONOMIC DEVELOPMENT FINANCING AUTHORITY (the “Authority”) and PPL ELECTRIC UTILITIES CORPORATION, a Pennsylvania corporation (together with permitted successors and assigns, the “Company”).

Section 1.1     Background.   Pursuant to the Pennsylvania Economic Development Financing Law (Act No. 102, approved August 23, 1967, P.L. 251, as amended) (the “Act”), the Montour County Industrial Development Authority has authorized and approved the refunding of bonds previously issued to provide financing for certain costs of Project Facilities as described below through the issuance of the Issuer’s Pollution Control Revenue Refunding Bonds, Series 2008 (PPL Electric Utilities Corporation Project), in an aggregate principal amount of $90,000,000 (the “Bonds”).  The proceeds of the Bonds will be applied to currently refund a like principal amount of Pollution Control Revenue Refunding Bonds, Series 2003 (PPL Electric Utilities Corporation Project) (the “Prior Bonds”), issued by the Lehigh County Industrial Development Authority for the purpose of refunding certain prior bonds issued to finance the cost of certain air or water pollution control facilities or sewage or solid waste disposal facilities (collectively, the “Project Facilities”), as more particularly described on Exhibit A attached to this Agreement (defined below), on behalf of the Company, which was formerly known as Pennsylvania Power & Light Company.

In order to pay a portion of the costs of refunding the Prior Bonds, the Authority has agreed to issue $90,000,000 aggregate principal amount of Pennsylvania Economic Development Financing Authority Pollution Control Revenue Refunding Bonds, Series 2008 (PPL Electric Utilities Corporation Project) (the “Bonds”) on the terms and conditions set forth in the Trust Indenture (the “Indenture”) dated as of the date hereof made between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), as amended or supplemented from time to time.  The Company and the Authority are entering into this Agreement in order to provide for the issuance of the Bonds and the loan of the proceeds of the Bonds to the Company.

The obligation of the Company to repay the loan of the proceeds of the Bonds made pursuant hereto will be evidenced by the Company’s Pollution Control Facilities Note (Pennsylvania Economic Development Financing Authority) Series 2008 in the principal amount of $90,000,000 (the “Note”) issued to the Trustee as the assignee of the Authority under the Indenture.

The proceeds of the Prior Bonds were loaned to the Company pursuant to the terms of a Pollution Control Facilities Loan Agreement dated as of February 1, 2003 (the “Existing Agreement”) between the Lehigh County Industrial Development Authority and the Company.

The Company has transferred its interest in the Project Facilities associated with the Sunbury Station to an unrelated third party, and its interests in the remaining Project Facilities to affiliates of the Company.

Section 1.2     Definitions.    Terms used in this Agreement which are defined in the Indenture and are not otherwise defined in this Agreement shall have the meanings set forth in the Indenture unless the context or use clearly indicates another meaning or intent.  In addition to the terms defined in the recital clauses of this Agreement, as used herein:

“Additional Payments” means the amounts required to be paid by the Company pursuant to Section 3.4.

“Agreement” means this Pollution Control Facilities Loan Agreement, as amended or supplemented from time to time.

“Authority’s Fee” means an amount equal to 0.2% of the amount of the Loan.

“Authorized Representative” means, (i) with respect to the Authority, each person at the time designated to act on behalf of the Authority by written certificate furnished to the Trustee containing the specimen signature of such person and signed on behalf of the Authority by its Secretary or Assistant Secretary, (ii) with respect to the Company, each person at the time designated to act on behalf of the Company by written certificate furnished to the Trustee containing the specimen signature of such person and signed on behalf of the Company by its President, any Vice President, its Treasurer, its Secretary, any Assistant Treasurer or any Assistant Secretary and (iii) with respect to the Credit Facility Issuer, each person at the time designated to act on behalf of the Credit Facility Issuer by written certificate furnished to the Trustee containing the specimen signature of such person and signed on behalf of the Credit Facility Issuer by its President, Vice President, Manager, Treasurer, Secretary, Assistant Treasurer or Assistant Secretary.

“Company’s Tax Certificate” means the Certificate Regarding Federal Tax Matters of the Company executed on the Issue date with respect to matters necessary to establish and maintain the exclusion from gross income for Federal income tax purposes of the interest on the Bonds.

“Debt Service” means, for any period or payable at any time, the principal of, premium, if any, on and interest on the Bonds for that period or payable at the time whether due on an Interest Payment Date, at maturity or upon acceleration or redemption.

“Issue Date” means October 28, 2008.

“Loan” means the loan by the Authority to the Company of the proceeds of the Bonds pursuant to Section 3.1 in the original principal amount of $90,000,000.

“Loan Payments” means the amounts required to be paid by the Company in repayment of the Loan pursuant to Section 3.2.

“Local Entity” means the Montour County Industrial Development Authority.

“Misuse of Bond Proceeds” means the use of the proceeds of the Bonds for any purpose materially different from the purpose described to and approved by the Authority and to not be a “project” as defined in the Act.

“Project Approval” means the initial official action of the Local Entity declaring its intent with respect to the financing of the Project Facilities.  The date of the Project Approval is September 5, 2008.

“Purchase Payments” means the amounts required to be paid by the Company pursuant to Section 3.3.

“Related Person” shall have the meaning set forth in Section 144(a)(3) of the Code and shall include (to the extent there provided) any parent, subsidiary, affiliated corporation or unincorporated enterprise, majority shareholder and commonly owned entity.

“Remarketing Agreement” means the Remarketing Agreement between the Company and the Remarketing Agent relating to the Bonds, as the same may be amended, supplemented or replaced from time to time.

“Resolutions” means the resolutions of the Authority approving and authorizing the Bonds, the Indenture and this Agreement.

“Unassigned Authority’s Rights” means all of the rights of the Authority to receive Additional Payments under Section 3.4, to be held harmless and indemnified under Section 4.10, to be reimbursed for attorney’s fees and expenses under Section 6.4, to exercise remedies under Section 6.2 and to give or withhold consent to or approval of amendments, modifications, termination or assignment of this Agreement, or sale, transfer, assignment, lease (or assignment of lease) or other disposal of the Project Facilities, or other matters requiring consent or approval under Sections 4.1, 4.2, 4.4, 7.5 and 7.9.

Section 1.3     Company Representations.    The Company represents as of the date hereof that:

(a)   It is a corporation duly organized and existing under the laws of the Commonwealth of Pennsylvania, with full power and legal right to enter into this Agreement and the Note and the Senior Secured Bonds (as defined below) and perform its obligations hereunder and thereunder.  The making and performance of this Agreement, the Note and the Senior Secured Bonds on the part of the Company have been duly authorized by all necessary action.

(b)   The Project Facilities constitute “pollution control facilities” as defined in the Act and are consistent with the purposes of the Act.

(c)   Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will conflict in any material respect with or constitute a material violation or breach of, or a material default under, the Company’s articles of incorporation or by-laws, or any indenture or other material agreement or instrument to which the Company is a party or by which it or any of its property is bound.

(d)   This Agreement, the Note and the Senior Secured Bonds have been duly executed and delivered by the Company and constitute the valid and binding obligations of the Company enforceable in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other similar laws relating to or affecting the enforcement of creditors’ rights generally, to general equitable principles (whether considered in a proceeding in equity or at law) and by an implied covenant of good faith, fair dealing and reasonableness.

(e)   The Company is not a Disqualified Contractor.

(f)   A portion of the Project Facilities are located within the boundaries of the county, city, town, borough or township which organized the Local Entity (or within the boundaries of the county in which such city, town, borough or township is located or in which such Local Entity is certified by the Pennsylvania Industrial Development Authority to act as an industrial development agency as defined in the Act).

(g)   (i) All of the proceeds of the Prior Bonds were used to refund $90,000,000 aggregate principal amount of Pollution Control Revenue Refunding Bonds, 1992 Series A (Pennsylvania Power & Light Company Project) (the “1992A Bonds”), the proceeds of which were used to refund $20,000,000 aggregate principal amount of Pollution Control Revenue Bonds, 1980 Series B (Pennsylvania Power & Light Company Project) (the “1980B Bonds”) and $70,000,000 aggregate principal amount of Pollution Control Revenue Refunding Bonds, 1982 Series A (Pennsylvania Power & Light Company Project) (the “1982A Bonds”, and together with the 1980B Bonds, the “Project Bonds”), and (ii) at least 90% of the proceeds of the Prior Bonds (as allocated to original expenditures through the refunding of prior bonds) were issued to provide “pollution control facilities” and “solid waste disposal facilities” within the meaning of Sections 103(b)(4)(E) and (F) of the Internal Revenue Code of 1954, as amended, and in effect prior to the passage of the Tax Reform Act of 1986 (the “1954 Code”), and the applicable regulations thereunder.

(h)   Acquisition, construction and installation of the Project Facilities has been accomplished.

(i)   The Company and its affiliates have used or operated the Project Facilities in a manner consistent with the purposes of the Project Facilities and the Act and the Company knows of no reason why the Project Facilities will not be so operated.  With respect to the Project Facilities related to the Sunbury Station that the Company sold to an unrelated third party, the Company used or operated such Project Facilities when it owned them in a manner consistent with the purposes of the Project Facilities and the Act and, after due inquiry, the Company knows of no reason why such Project Facilities will not be so operated by any owner of the Sunbury Station.

(j)   The information furnished by the Company and used by the Issuer in preparing the certification pursuant to Section 148 of the Code and in preparing the Form 8038 information statement pursuant to Section 149(e) of the Code will be accurate and complete as of the Issue Date.

(k)   Neither the Prior Bonds nor the Bonds are or will be “federally guaranteed,” as defined in Section 149(b) of the Code; references to the Code and Sections of the Code (or, as applicable, to the 1954 Code and Sections thereof) include Sections 1312 and 1313 of the Tax Reform Act of 1986, relevant applicable regulations and proposed regulations thereunder and under the 1954 Code and any successor provisions to those Sections, regulations or proposed regulations and, in addition, all applicable official rulings and judicial determinations under the foregoing applicable to the Prior Bonds or the Bonds, as applicable.  No costs of the Project Facilities to be financed with the proceeds of the Bonds, except for certain preliminary costs such as architectural, engineering, surveying, soil testing and similar costs incurred before the start of construction of the Project Facilities,  have been paid by or on behalf of the Company, the Affiliates or any Related Person more than 60 days prior to April 15, 2005.

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

(m)   The proceeds derived from the sale of the Bonds (other than any accrued interest thereon) will be used exclusively to refund the outstanding principal amount of the Prior Bonds.  The principal amount of the Bonds does not exceed the outstanding principal amount of the Prior Bonds.  None of the proceeds (within the meaning of Section 147(g) of the Code) of the Bonds will be used to pay for any costs of issuance of the Bonds.

(n)   On the date of issuance and delivery of the Prior Bonds, the Company reasonably expected that all of the proceeds of such Prior Bonds would be used to carry out the governmental purposes of such issue within the three-year period beginning on the date such issue was issued and none of the proceeds of such issue, if any, were invested in nonpurpose investments having a substantially guaranteed yield for three years or more.

(o)   Neither the average maturity of the Prior Bonds nor the average maturity of the Bonds exceeds 120% of the average reasonably expected economic lives of the facilities financed or refinanced by the proceeds of the Bonds (determined under Section 147(b) of the Code).

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

(q)   The Company does not own or operate any of the Project Facilities.  Each affiliate of the Company that owns the Project Facilities has agreed with the Company that, for so long as it owns any of the Project Facilities, it will operate such Project Facilities in a manner consistent with the Company’s tax covenants in this Agreement and the other transaction documents relating to the issuance of the Bonds.  Notwithstanding the foregoing, nothing in any such agreement with such affiliate requires, and nothing in this Agreement shall require, the Company or any such affiliate to operate any portion of the Project Facilities, or prevents any such affiliate from selling all or any portion of the Project Facilities, or from merging or consolidating with another entity.  Nothing in this Agreement shall bind any affiliate of the Company that owns the Project Facilities or any portion thereof, or any purchasers of any portions of the Project Facilities or portions thereof sold.

Section 1.4     Authority Findings and Representations.    The Authority hereby confirms its findings and represents that:

(a)   The Authority is a public body corporate and politic established in the Commonwealth of Pennsylvania pursuant to the laws of the Commonwealth of Pennsylvania (including the Act).  Under the Act, the Authority has the power to enter into the Indenture, the Purchase Agreement and this Agreement and to carry out its obligations thereunder and to issue the Bonds to finance the Project Facilities.

(b)   By adoption of the Resolutions at one or more duly convened meetings of the Authority at which a quorum was present and acting throughout, the Authority has duly authorized the execution and delivery of the Indenture, the Purchase Agreement and this Agreement and performance of its obligations thereunder and the issuance of the Bonds.  Simultaneously with the execution and delivery of this Agreement, the Authority has duly executed and delivered the Indenture and issued and sold the Bonds.

(c)   Based on representations and information furnished to the Authority by or on behalf of the Company and the Local Entity, the Authority has found that the Company is qualified to be a beneficiary of financing provided by the Authority pursuant to the Act.

(d)   Based on representations and information furnished to the Authority by or on behalf of the Company, the Authority has found that the Project Facilities (i) will promote the public purposes of the Act, (ii) are located within the boundaries of the Commonwealth of Pennsylvania, and (iii) will constitute a project within the meaning of the Act.

(e)   The refunding of the Prior Bonds has been approved (1) by the Local Entity, as required by the Act, (2) by the Governor or Lieutenant Governor of the Commonwealth of Pennsylvania as the “applicable elected representative”, as that term is defined under the Code, after a public hearing held upon reasonable notice, as required by the Code, and (3) by the Authority by adoption of the Resolutions, as required by the Act.

(f)   The Authority has not and will not pledge the income and revenues derived from this Agreement other than pursuant to and as set forth in the Indenture.

Section 2.1     Issuance of Bonds; Application of Proceeds.    To provide funds to make the Loan for purposes of refunding the Prior Bonds, the Authority will issue the Bonds in the aggregate principal amount of $90,000,000.  The Bonds will be issued pursuant to the Indenture and will bear interest, mature and be subject to redemption all as set forth therein.  The Company hereby approves the terms and conditions of the Indenture and the Bonds, and the terms and conditions under which the Bonds will be issued, sold and delivered.

The proceeds from the sale of the Bonds (including any underwriting discount) shall be loaned to the Company pursuant to Section 3.1, and such proceeds (net of any underwriting discount) shall be paid over to the Trustee for the purpose of refunding the Prior Bonds as provided in the Indenture.

Section 2.2     Investment and Use of Fund Moneys.    At the written request of an Authorized Representative of the Company, any moneys held as part of the Bond Fund (except moneys representing principal of, or premium, if any, or interest on, any Bonds which are deemed paid under Section 16.01 of the Indenture) shall be invested or reinvested by the Trustee as provided in Section 8.02 of the Indenture.  The Authority and the Company each hereby covenants that it will restrict that investment and reinvestment and the use of the proceeds of the Bonds in such manner and to such extent, if any, as may be necessary, after taking into account reasonable expectations at the time of delivery of and payment for the Bonds, so that the Bonds will not constitute arbitrage bonds under Section 148 of the Code.

Any Authorized Representative of the Authority having responsibility for issuing the Bonds is authorized and directed, alone or in conjunction with an Authorized Representative of the Company and/or any other officer, partner, employee or agent of or consultant to the Authority or the Company, to give an appropriate certificate of the Authority pursuant to Section 148 of the Code, for inclusion in the transcript of proceedings for the issuance of the Bonds, setting forth the reasonable expectations of the Authority regarding the amount and use of the proceeds of the Bonds and the facts, estimates and circumstances on which those expectations are based, all as of the Issue Date.  The Company shall provide the Authority with, and the Authority’s certificate may be based on, a certificate of the Authorized Representative of the Company or other appropriate officer, partner, employee or agent of or consultant to the Company setting forth the reasonable expectations of the Company on the Issue Date regarding the amount and use of the proceeds of the Bonds and the facts, estimates and circumstances on which they are based.

Section 2.3     Rebate Fund.    The Company agrees to make such payments to the Trustee as are required of the Company under Section 6.04 of the Indenture.  The obligation of the Company to make such payments shall remain in effect and be binding upon the Company notwithstanding the release and discharge of the Indenture.

Section 3.1     Loan by Authority.    Upon the terms and conditions of this Agreement, the Authority will make the Loan to the Company on the Issue Date in a principal amount equal to the aggregate principal amount of the Bonds.  The Loan shall be deemed fully advanced upon disbursement of the Bond proceeds in accordance with Section 4.02 of the Indenture.

Section 3.2     Loan Payments .

(a)           In consideration of the issuance, sale and delivery of the Bonds by the Authority, the Company hereby agrees to pay to the Trustee for the account of the Authority Loan Payments in such amounts and manner so as to enable the Trustee to make payment of the principal of, and premium, if any, and accrued interest on the Bonds as the same shall become due and payable whether at stated maturity or by acceleration, redemption or otherwise in accordance with the terms of the Indenture; provided, however, that the obligation of the Company to make any Loan Payment hereunder shall be reduced by the amount of any reduction under the Indenture of the amount of the corresponding payment required to be made by the Authority of the principal of or premium, if any, or interest on the Bonds.  Pursuant to the Indenture, the Authority directs the Trustee to apply such Loan Payments in the manner provided in the Indenture.  Whenever payment or provision for payment has been made in respect of the principal of, or premium, if any, and interest on all of the Bonds, the Loan Payments shall be deemed paid in full.

(b)           The obligation of the Company to make the Loan Payments directly to the Trustee, as the assignee of the Authority under the Indenture, shall be evidenced by the Company’s Note substantially in the form of Exhibit B hereto, which shall be delivered concurrently with the delivery by the Authority of the Bonds.

(c)           Notwithstanding the foregoing, while any Credit Facility is in effect with respect to the Bonds, the Company’s obligation to make Loan Payments hereunder in respect of the principal of, and premium, if any, and accrued interest on the Bonds shall be deemed to have been satisfied to the extent that moneys shall have been paid by a Credit Facility Issuer to the Trustee for such payment in respect of the Bonds, which amounts may be reimbursed by the Company directly to such Credit Facility Issuer, and no Event of Default shall occur hereunder by reason of any failure of the Company to make any such Loan Payment to the Trustee under subsection (a) above unless the Trustee is notified by the Credit Facility Issuer of the Company’s failure to have reimbursed the Credit Facility Issuer (if any) in accordance with the terms of the Credit Facility.

To secure its obligations under the Note, concurrently with the issuance by the Issuer of the Bonds, the Company will execute and deliver to the Trustee the Company’s Senior Secured Bonds, Variable Rate Pollution Control Series 2008, which will contain principal, interest and redemption provisions corresponding to the principal, interest and redemption provisions of the Bonds (the “Senior Secured Bonds”).  The Senior Secured Bonds will be issued pursuant to Supplemental Indenture No. 9 dated as of October 1, 2008 which supplements the Company’s Indenture dated as of August 1, 2001, as supplemented (as so supplemented, the “Company Indenture”) to JPMorgan Chase Bank, as trustee (the “Company Indenture Trustee”).  Anything herein to the contrary notwithstanding, the obligation of the Company to make any payment of the principal of, or interest on, the Senior Secured Bonds shall be deemed to be satisfied and discharged to the extent of the corresponding payment (i) made by the Company to the Trustee pursuant to Section 3.2 of this Agreement and/or on the Note and/or (ii) made with moneys on deposit in any fund or account maintained under the Indenture for the payment of the principal or redemption price of, or interest on, the Bonds.

At the time any Bonds cease to be Outstanding (other than in connection with the cancellation thereof following an exchange or transfer or the authentication of other Bonds in lieu thereof pursuant to Section 2.09 of the Indenture), the Issuer shall cause the Trustee to surrender to the Company Indenture Trustee a corresponding principal amount of Senior Secured Bonds.

The Issuer shall not sell, assign or otherwise transfer the Senior Secured Bonds, except to the extent provided in Section 12.16 of the Indenture.  In view of the assignment referred to in Section 3.6 hereof, the Issuer agrees that (i) the Senior Secured Bonds shall be issued and delivered to, registered in the name of and owned and held by the Trustee for the benefit of the holders from time to time of the Bonds; (ii) the Indenture shall provide that the Trustee shall not sell, assign or transfer the Senior Secured Bonds except to a successor trustee under the Indenture, and shall surrender Senior Secured Bonds to the Company Indenture Trustee in accordance with the provisions of this Section 3.2 and Section 12.17(b) of the Indenture; and (iii) the Company may take such actions as it shall deem to be desirable to effect compliance with such restrictions on transfer, including the placing of any appropriate legend on each Senior Secured Bond and the issuance of stop-transfer instructions to the Company Indenture Trustee or any other transfer agent under the Company Indenture.  Any action taken by the Trustee in accordance with the provisions of Section 12.16 of the Indenture shall be binding upon the Company.

Section 3.3     Purchase Payments.    To the extent that moneys on deposit in the Remarketing Proceeds Account of the Purchase Fund established under the Indenture are insufficient to pay the full purchase price of Bonds payable pursuant to Section 5.03 of the Indenture on the applicable Purchase Date, the Company shall promptly pay to the Trustee as Purchase Payments for deposit in the Company Fund established under Section 5.07 of the Indenture amounts sufficient to cover such shortfalls in sufficient time to enable the Trustee to deliver to the Tender Agent the purchase price of Bonds payable pursuant to Section 5.03 of the Indenture; provided, however, that the obligation of the Company to make any Purchase Payment hereunder shall be deemed to have been satisfied to the extent that moneys shall have been paid by a Credit Facility Issuer to the Trustee for such payment in respect of the Bonds.

Section 3.4     Additional Payments.    The Company shall pay as Additional Payments hereunder:  (a) to the Authority, the Authority’s Fee on the Issue Date and any and all costs and expenses (including reasonable legal fees and expenses) incurred or to be paid by the Authority in connection with the issuance and delivery of the Bonds or otherwise related to actions taken by the Authority under this Agreement or the Indenture or any amendment thereof, supplement thereto or consent or waiver thereunder, including without limitation any annual charge made by a rating agency to maintain a rating on the Bonds; (b) to the Local Entity, the Local Entity’s fee on the Issue Date and any and all costs and expenses incurred or to be paid by the Local Entity in connection with the Project Facilities; and (c) to the Trustee, the Tender Agent, the Bond Registrar, the Paying Agent and their agents, their reasonable