CREDIT AND SECURITY AGREEMENT

Section 1.1   Credit Facility .

(a)   Upon the terms and subject to the conditions hereof, from time to time prior to the Facility Termination Date:

(i)   Borrower may, at its option, request Advances from the Lenders in an aggregate principal amount at any one time outstanding not to exceed the lesser of the Aggregate Commitment and the Borrowing Base (such lesser amount, the “ Borrowing Limit ”); and

(ii)   Victory may, at its option, make the requested Advance, or if Victory shall decline to make any Advance, except as otherwise provided in Section 1.2 , the Liquidity Banks severally agree to make Loans in an aggregate principal amount equal to the requested Advance.

(b)   Borrower may, upon at least thirty (30) days’ notice to the Agent, terminate in whole or reduce in part, ratably among the Liquidity Banks, the unused portion of the Aggregate Commitment; provided that each partial reduction of the Aggregate Commitment shall be in an amount equal to $10,000,000 (or a larger integral multiple of $1,000,000 if in excess thereof) and shall reduce the Commitments of the Liquidity Banks ratably in accordance with their respective Pro Rata Shares, and no such partial reduction shall reduce the Aggregate Commitment to an amount less than $25,000,000.

Section 1.2   Increases .

Section 1.3   Decreases .

Section 1.4   Deemed Collections; Borrowing Limit .

(a)   If on any day:

(i)   the Outstanding Balance of any Receivable is reduced as a result of any cash discount or any other adjustment by any Originator or any Affiliate thereof, or as a result of any tariff or other governmental or regulatory action, or

(ii)   the Outstanding Balance of any Receivable is reduced or canceled as a result of a setoff in respect of any claim by the Obligor thereof (whether such claim arises out of the same or a related or an unrelated transaction), or

(iii)   the Outstanding Balance of any Receivable is reduced on account of the obligation of any Originator or any Affiliate thereof to pay to the related Obligor any rebate or refund, or

(iv)   the Outstanding Balance of any Receivable is less than the amount included in calculating the Net Pool Balance for purposes of any Monthly Report (for any reason other than (x) such Receivable becoming a Defaulted Receivable or (y) due to the application of Collections received with respect to such Receivable), or

(v)   any Receivable is extended, amended or otherwise modified, or any term of the related Contract is amended, modified or waived, in either case, except to the extent expressly permitted pursuant to Section 8.2(d) , or

(vi)   any of the representations or warranties of Borrower set forth in Section 5.1(b) , Section 5.1(e) , Section 5.1(f) , Section 5.1(h) , Section 5.1(i) , Section 5.1(q) , Section 5.1(r) , Section 5.1(s) or Section 5.1(t) were not true when made with respect to any Receivable,

(b)   Borrower shall ensure that the Aggregate Principal at no time exceeds the Borrowing Limit.  If at any time the Aggregate Principal exceeds the Borrowing Limit, Borrower shall pay to the Agent not later than the next succeeding Business Day an amount to be applied to reduce the Aggregate Principal (as allocated by the Agent), such that after giving effect to such payment the Aggregate Principal is less than or equal to the Borrowing Limit.

Section 1.5   Payment Requirements .

(a)   All amounts to be paid or deposited by any PPL Electric Party pursuant to any provision of this Agreement shall be paid or deposited in accordance with the terms hereof no later than 12:00 noon (New York time) on the day when due in immediately available funds, and if not received before 12:00 noon (New York time) shall be deemed to be received on the next succeeding Business Day.  If such amounts are payable to a Lender they shall be paid to the Agent’s Account, for the account of such Lender, until otherwise notified by the Agent.

(b)   All computations of CP Costs, Interest, per annum fees calculated as part of any CP Costs, per annum fees hereunder and per annum fees under the Fee Letter shall be made on the basis of a year of 360 days for the actual number of days elapsed.  If any amount hereunder shall be payable on a day which is not a Business Day, such amount shall be payable on the next succeeding Business Day.

Section 1.6   Ratable Loans; Funding Mechanics; Liquidity Fundings .

(a)   Each Advance hereunder shall consist of one or more Loans made by Victory and/or the Liquidity Banks.

(b)   Each Lender funding any Loan shall wire transfer the principal amount of its Loan to the Agent in immediately available funds not later than 12:00 noon (New York City time) on the applicable Borrowing Date and, subject to its receipt of such Loan proceeds, the Agent shall wire transfer such funds received by it to the account specified by Borrower in its Borrowing Request not later than 2:00 p.m. (New York City time) on such Borrowing Date.

(c)   While it is the intent of Victory to fund each requested Advance through the issuance of its Commercial Paper, the parties acknowledge that if Victory is unable, or determines that it is undesirable, to issue Commercial Paper to fund all or any portion of its Loans, or is unable to repay such Commercial Paper upon the maturity thereof, Victory may (without the consent of any PPL Electric Party) sell, assign, participate or otherwise transfer all or any portion of its Loans to the Liquidity Banks at any time pursuant to the Liquidity Agreement to finance or refinance the necessary portion of its Loans through a Liquidity Funding to the extent available.  Victory agrees to notify (or to cause the Agent to notify) the PPL Electric Parties of any such sale, assignment, participation or other transfer promptly thereafter; provided , however , that no failure by Victory to deliver any such notice shall invalidate or otherwise affect the enforceability of any such sale, assignment, participation or other transfer.  The Liquidity Fundings may be Alternate Base Rate Loans or LIBO Rate Loans, or a combination thereof, selected by Borrower in accordance with Article IV .  Regardless of whether a Liquidity Funding constitutes the direct funding of a Loan, an assignment of a Loan made by Victory or the sale of one or more participations in a Loan made by Victory, each Liquidity Bank participating in a Liquidity Funding shall have the rights of a “Lender” hereunder with the same force and effect as if it had directly made a Loan to Borrower in the amount of its Liquidity Funding.

(d)   Nothing herein shall be deemed to commit Victory to make Loans or to fund or maintain any Loan through the issuance of Commercial Paper.

Section 2.1   Payments .

(a)   the Aggregate Principal on and after the Facility Termination Date as and when Collections are received;

(b)   the fees set forth in the Fee Letter on the dates specified therein;

(c)   all accrued and unpaid Interest on the Alternate Base Rate Loans on each Settlement Date applicable thereto;

(d)   all accrued and unpaid Interest on the LIBO Rate Loans on the last day of each Interest Period applicable thereto;

(e)   all accrued and unpaid CP Costs on the CP Rate Loans on each Settlement Date;

(f)   all Broken Funding Costs and Indemnified Amounts upon demand; and

(g)   any other amounts payable by the Borrower to the Secured Parties or any Indemnified Party hereunder or under any other Transaction Document.

Section 2.2   Collections Prior to Amortization .

(a)   On each Settlement Date prior to the Amortization Date, the Servicer shall distribute Collections equal to the sum of the following amounts for application to the Obligations in the order specified:

first , to the Lenders, ratably to the payment of all accrued and unpaid CP Costs, Interest and Broken Funding Costs (if any) then due and owing,

second , to the Lenders and the Agent, ratably to the payment of all accrued and unpaid fees under the Fee Letter (if any) then due and owing,

third , to the Servicer, the amount of any accrued and unpaid Servicing Fees (so long as the Servicer is not PPL Electric or an Affiliate of PPL Electric),

fourth , to the Lenders, if required under Section 1.3 or Section 1.4 , to the ratable reduction of Aggregate Principal,

fifth , to the Secured Parties and the other Indemnified Parties (as applicable), for the ratable payment of all other unpaid Obligations, if any, then due and owing, and

sixth , to the Servicer, the amount of any accrued and unpaid Servicing Fees (so long as the Servicer is PPL Electric or an Affiliate of PPL Electric).

(b)   Provided that (i) each of the conditions precedent set forth in Sections 6.3 are satisfied and (ii) the Amortization Date has not occurred, any Collections received in excess of the amount necessary to make the payments required under Section 2.2(a) shall, after application in payment for new Receivables or otherwise in payment for obligations of the Borrower under this Agreement and the Receivables Sale Agreement, be distributed to Borrower or otherwise in accordance with Borrower’s instructions.

Section 2.3   Collections Following Amortization .

first , to the Agent, to the reimbursement of the Agent’s costs of collection and enforcement of this Agreement,

second , to the Lenders, ratably to the payment of all accrued and unpaid CP Costs, Interest and Broken Funding Costs,

third , to the Lenders and the Agent, ratably to the payment of all accrued and unpaid fees under the Fee Letter,

fourth , to the Lenders, to the ratable reduction of Aggregate Principal,

fifth , to the Secured Parties and the other Indemnified Parties (as applicable), for the ratable payment of all other unpaid Obligations, and

sixth , after the Obligations have been indefeasibly reduced to zero, to Borrower.

Section 2.4   Payment Rescission .

Section 2.5   Maximum Lawful Rate .

Section 3.1   CP Costs .

Section 3.2   Calculation of CP Costs .

Section 3.3   CP Costs Payments .

Section 3.4   Default Rate .

Section 4.1   Liquidity Bank Funding .

Section 4.2   Interest Payments .

Section 4.3   Selection and Continuation of Interest Periods .

(a)   With consultation from (and approval by) the Agent, Borrower shall from time to time request Interest Periods for the Liquidity Fundings; provided that if at any time any Liquidity Funding is outstanding, Borrower shall always request Interest Periods such that at least one Interest Period shall end on the date specified in clause (i) of the definition of Settlement Date.

(b)   Borrower or the Agent, upon notice to and consent by the other (provided that if an Amortization Event or an Unmatured Amortization Event shall have occurred and is continuing, such consent of the Borrower shall not be required) received at least three (3) Business Days prior to the end of an Interest Period (the “ Terminating Tranche ”) for any Liquidity Funding, may, effective on the last day of the Terminating Tranche:  (i) divide any such Liquidity Funding into multiple Liquidity Fundings, (ii) combine any such Liquidity Funding with one or more other Liquidity Fundings that have a Terminating Tranche ending on the same day as such Terminating Tranche or (iii) combine any such Liquidity Funding with a new Liquidity Funding to be made by the Liquidity Banks on the day such Terminating Tranche ends.

Section 4.4   Liquidity Bank Interest Rates .

Section 4.5   Suspension of the LIBO Rate .

(a)   If any Liquidity Bank notifies the Agent that it has determined that funding its Pro Rata Share of the Liquidity Fundings at a LIBO Rate would violate any applicable law, rule, regulation, or directive of any governmental or regulatory authority, whether or not having the force of law, or that such LIBO Rate will not adequately and fairly reflect the cost of acquiring or maintaining a Liquidity Funding at such LIBO Rate, then the Agent shall suspend the availability of such LIBO Rate and require Borrower to select the Alternate Base Rate for any Liquidity Funding accruing Interest at such LIBO Rate.

(b)   If less than all of the Liquidity Banks give a notice to the Agent pursuant to Section 4.5(a) , each Liquidity Bank which gave such a notice shall be obliged, at the request of Borrower, Victory or the Agent, to assign all of its rights and obligations hereunder to (i) another Liquidity Bank or (ii) another funding entity nominated by Borrower or the Agent that is an Eligible Assignee willing to participate in this Agreement through the Liquidity Termination Date in the place of such notifying Liquidity Bank; provided that the notifying Liquidity Bank receives payment in full, pursuant to an Assignment Agreement, of all Obligations owing to it (whether due or accrued), and the replacement Liquidity Bank otherwise satisfies the requirements of Section 12.1(b) .

Section 4.6   Default Rate .

Section 5.1   Representations and Warranties of the PPL Electric Parties .

(a)   Status .  Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has taken no action in connection with, or in contemplation of, changing its jurisdiction of formation to any other jurisdiction.  The Servicer is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania.  Each such PPL Electric Party has the corporate authority to make and perform this Agreement and each other Transaction Document to which it is a party.  This Agreement and each Transaction Document to which such PPL Electric Party is a party has been duly executed and delivered by such PPL Electric Party.

(b)   Legality; Etc .  This Agreement and each other Transaction Document to which it is a party constitute the legal, valid and binding obligations of such PPL Electric Party, in each case enforceable against such PPL Electric Party in accordance with their terms except to the extent limited by (i) bankruptcy, insolvency, fraudulent conveyance or reorganization laws, or by other laws relating to or affecting the enforceability of creditors’ rights generally and by general equitable principles which may limit the right to obtain equitable remedies regardless of whether enforcement is considered in a proceeding of law or equity or (ii) any applicable public policy on enforceability of provisions relating to contribution and indemnification.

(c)   Authority; No Conflict .  The execution, delivery and performance by such PPL Electric Party of this Agreement and each other Transaction Document to which it is a party have been duly authorized by all necessary corporate or other action and (i) do not violate any provision of law or regulation, or any decree, order, writ or judgment, (ii) do not violate any provision of its articles of incorporation or by-laws, or (iii) result in the breach of or constitute a default under any indenture or other agreement or instrument to which it is a party and do not result in the creation of or imposition of any Adverse Claim (other than as created by the Transaction Documents) on any of the assets of such PPL Electric Party or its Subsidiaries, except, in any such case, where such contravention could not reasonably be expected to have a Material Adverse Effect.  No transaction contemplated hereby requires compliance with any bulk sales act or similar law.

(d)   Governmental Approvals .  No authorization, consent or approval from any Governmental Authority is required for the execution, delivery and performance by such PPL Electric Party of this Agreement and the other Transaction Documents to which it is a party, except such authorizations, consents and approvals, including, without limitation, the PUC Order, as have been obtained prior to the date hereof and are in full force and effect.

(e)   Litigation .  No litigation, arbitration or administrative proceeding against Borrower is pending, or to Borrower’s knowledge, threatened, which, if adversely determined, could reasonably be expected to have a Material Adverse Effect.  Except as disclosed in or contemplated by PPL Electric’s Form 10-K report to the Securities and Exchange Commission for the year ended December 31, 2007, or in any subsequent Form 10-K, 10-Q or 8-K report or otherwise furnished in writing to the Agent, no litigation, arbitration or administrative proceeding against PPL Electric is pending, or to PPL Electric’s knowledge, threatened, which would materially and adversely affect the ability of the Borrower to perform any of its obligations under this Agreement or the other Transaction Documents.  There is no litigation, arbitration or administrative proceeding pending, or to the knowledge of such PPL Electric Party, threatened, which could have a material adverse effect on the legality, validity or enforceability of the Agreement or the other Transaction Documents to which it is a party, on the Agent’s security interest, for the benefit of the Secured Parties, in the Receivables generally or in any significant portion of the Receivables, the Related Security or the Collections with respect thereto, or the collectability of the Receivables generally or of any material portion of the Receivables.

(f)   Accuracy of Information .  All information, certificates and statements heretofore furnished by, or on behalf of, such PPL Electric Party to the Agent or the Lenders for purposes of or in connection with this Agreement, any of the other Transaction Documents or any transaction contemplated hereby or thereby, taken as a whole, and all such information, certificates and statements hereafter so furnished and taken as a whole, will be true, complete and accurate in all material respects on the date such information is stated or certified, except to the extent such information is stated to be as of an earlier date, and does not and will not contain any material misstatement of fact or omit to state a material fact or any fact necessary to make the statements contained therein not misleading in light of the circumstances under which such information was furnished; provided , however , that to the extent any such information was based upon or constitutes a forecast or projection, such PPL Electric Party represents only that it acted in good faith and utilized reasonable assumptions and due care in the preparation of such information.

(g)   No Violation .  No part of the proceeds of any Advance hereunder will be used directly or indirectly for the purpose of purchasing or carrying any “margin stock” within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or for any other purpose which violates, or which conflicts with, the provisions of Regulation U or X of said Board of Governors.  Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of extending credit for the purpose of purchasing or carrying any such “margin stock”.

(h)   Good Title .  Borrower is the legal and beneficial owner of the Receivables and Related Security with respect thereto, free and clear of any Adverse Claim, except as created by the Transaction Documents.  There have been duly filed all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect Borrower’s ownership interest in each Receivable, its Collections and the Related Security.

(i)   Perfection .  This Agreement is effective to create a valid security interest in favor of the Agent for the benefit of the Secured Parties in the Collateral to secure payment of the Obligations, free and clear of any Adverse Claim except as created by the Transactions Documents.  All actions necessary under the UCC (or any comparable law) of all appropriate jurisdictions have been taken, including, without limitation, the filing of all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect the Agent’s (on behalf of the Secured Parties) security interest in the Collateral.  Borrower is a “registered organization” as defined in Article 9 of the UCC as in effect in the State of New York (the “ NY UCC ”) and, for purposes of Article 9 of the NY UCC, is “located” in the State of Delaware.

(j)   Places of Business and Locations of Records .  The principal places of business and chief executive office of such PPL Electric Party and the offices where it keeps all of its Records are located at the address(es) listed on Exhibit III or such other locations (of which the Agent has been notified in accordance with Section 7.2(a) ) in jurisdictions where all action required by Section 14.4(a) has been taken and completed.  Borrower’s Federal Employer Identification Number is correctly set forth on Exhibit III .

(k)   Collections .  The conditions and requirements set forth in Section 8.2 have at all times been satisfied and duly performed.  The names, addresses and jurisdictions of organization of all Collection Banks, together with the account numbers of the accounts into which Collections are at any time deposited or held, are listed on Exhibit IV .  Except pursuant to PPL Electric’s Mortgage and Deed of Trust, dated as of October 1, 1945, and PPL Electric’s Indenture, dated as of August 1, 2001, in each case as amended and supplemented from time to time (respectively, the “ 1945 Mortgage ” and the “ 2001 Mortgage ”, and collectively, the “ PPL Electric Mortgages ”), the Servicer has not granted a security interest in any Collection Account to any Person.  Except as contemplated by Section 7.2(k) of this Agreement, the Servicer has not granted dominion and control of any Collection Account, or, except for the grants under the PPL Electric Mortgages, the right to take dominion and control of any Collection Account at a future time or upon the occurrence of a future event.

(l)   Material Adverse Effect .  (i) The initial Servicer represents and warrants that since December 31, 2007, there has been no change in the business, assets, financial condition or operations of the initial Servicer and its Subsidiaries which materially adversely affects the ability of the initial Servicer to perform its obligations under this Agreement or any other Transaction Document, and (ii) Borrower represents and warrants that since the date of this Agreement, there has been no change in the business, assets, financial condition or operations of Borrower which materially adversely affects the ability of Borrower to perform its obligations under this Agreement or any other Transaction Document or the collectability of the Receivables generally or any material portion of the Receivables.

(m)   Names .  The name in which Borrower has executed this Agreement is identical to the name of Borrower as indicated on the public record of its state of organization which shows Borrower to have been organized.  In the past five (5) years, Borrower has not used any corporate names, trade names or assumed names other than the name in which it has executed this Agreement.

(n)   Ownership of Borrower .  PPL Electric owns, directly or indirectly, 100% of the issued and outstanding capital stock of Borrower, free and clear of any Adverse Claim.  Such capital stock is validly issued, fully paid and nonassessable, and there are no options, warrants or other rights to acquire securities of Borrower.

(o)   Not an Investment Company .  Such PPL Electric Party is not (i) required to register as an Investment Company or (ii) controlled by an Investment Company, under (and to such terms, as defined in) the Investment Company Act of 1940.

(p)   Compliance with Laws .  Borrower is in compliance with all applicable laws, regulations and orders of any Governmental Authority, domestic or foreign, in respect of the conduct of its business and ownership of its property (including, without limitation, compliance with all applicable ERISA and Environmental Laws and the requirements of any permits issued under such Environmental Laws) except to the extent (i) such compliance is being contested in good faith by appropriate proceedings or (ii) non-compliance could not reasonably be expected to have a Material Adverse Effect.  To the knowledge of the Servicer, it is in compliance with all applicable laws, regulations and order of any Governmental Authority, domestic or foreign, in respect of the conduct of its business and ownership of its property (including, without limitation, compliance with all applicable ERISA and Environmental Laws and the requirements of any permits issued under such Environmental Laws) except to the extent (i) such compliance is being contested in good faith by appropriate proceedings or (ii) non-compliance could not reasonably be expected to have a Material Adverse Effect (except with respect to clause (i) of the definition thereof).  No Receivable (including any related Contract) contravenes any applicable law, regulation or order of any Governmental Authority, domestic or foreign (including, without limitation, laws, rules and regulations relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy), and no part of such Contract is in violation of any such law, rule or regulation, except where such contravention or violation could not reasonably be expected to have a Material Adverse Effect.

(q)   Compliance with Credit and Collection Practices .  Such PPL Electric Party has complied in all material respects with the Credit and Collection Practices with regard to each Receivable and the related Contract, and has not made any change to such Credit and Collection Practices, except in accordance with Section 7.1(a)(vii) .

(r)   Payments to Originator .  With respect to each Receivable transferred to Borrower under the Receivables Sale Agreement, Borrower has given reasonably equivalent value to Originator in consideration therefor and such transfer was not made for or on account of an antecedent debt.  No transfer by Originator of any Receivable under the Receivables Sale Agreement is or may be voidable under any section of the Federal Bankruptcy Code.

(s)   Enforceability of Contracts .  Each Contract with respect to each Receivable is effective to create, and has created, a legal, valid and binding obligation of the related Obligor to pay the Outstanding Balance of the Receivable created thereunder and any accrued interest thereon, enforceable against the Obligor in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to or limiting creditors’ rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

(t)   Eligible Receivables .  Each Receivable included in the Net Pool Balance as an Eligible Receivable on the date of any Monthly Report was an Eligible Receivable on such date.

(u)   Borrowing Limit .  Immediately after giving effect to each Advance and each settlement on any Settlement Date hereunder, the Aggregate Principal is less than or equal to the Borrowing Limit.

(v)   Accounting .  The manner in which such PPL Electric Party accounts for the transactions contemplated by this Agreement and the Receivables Sale Agreement does not adversely affect the conclusions set forth in the bankruptcy opinions delivered to Agent by counsel to the Originator on the Closing Date (or if updated, any such updated opinion).

(w)   Sequestration Powers .  The PUC has not taken any action in connection with its sequestration powers under the Competition Act, and the taking of any such action is not reasonably foreseeable, in respect of Borrower, any Affiliate of Borrower or the Collections.

(x)   Ordinary Course of Business .  Each remittance of Collections by the Borrower under this Agreement in respect of principal and interest on the Loans and fees under the Fee Letter to the Lenders or the Agent will have been (i) in payment of a debt incurred by the Borrower in the ordinary course of business or financial affairs of the Borrower and (ii) made in the ordinary course of business or financial affairs of the Borrower.

Section 6.1   Conditions Precedent to Effectiveness .

Section 6.2   Conditions Precedent to Initial Advance .

Section 6.3   Conditions Precedent to All Advances .

(i)   the representations and warranties set forth in Section 5.1 are true and correct on and as of the date of such Advance (or such Settlement Date, as the case may be), rollover or continuation of any Advance and as of the date of any Purchase by Borrower under the Receivables Sale Agreement as though made on and as of such date;

(ii)   no event has occurred and is continuing, or would result from such Advance (or the continuation thereof), that will constitute an Amortization Event, and no event has occurred and is continuing, or would result from such Advance (or the continuation thereof), rollover or continuation of any Advance or any Purchase by Borrower under the Receivables Sale Agreement, that would constitute an Unmatured Amortization Event; and

(iii)   after giving effect to such Advance, rollover or continuation of any Advance and any Purchase by Borrower under the Receivables Sale Agreement, the Aggregate Principal will not exceed the Borrowing Limit.

Section 7.1   Affirmative Covenants of the PPL Electric Parties .

(a)   Financial Reporting .  Such PPL Electric Party will maintain, for itself and each of its Subsidiaries, a system of accounting established and administered in accordance with GAAP, and furnish or cause to be furnished to the Agent (it being understood that the posting of the information required in sub-clauses (i) , (ii) , (iv) and (v) of this clause (a) on PPL Electric’s website ( http://www.pplweb.com ) shall be deemed to be effective delivery thereof to the Agent):

(i)   Annual Reporting .  Promptly when available and in any event within ten (10) days after the date such information is required to be delivered to the Securities and Exchange Commission (or if not required to be so filed, within ninety (90) days after the close of each of its respective fiscal years), a consolidated balance sheet of each PPL Electric Party as of the end of such fiscal year and the related statements of income and cash flows for such fiscal year (which in the case of any such statements of income and cash flows relating to PPL Electric may be on a consolidated basis) and (i) in the case of PPL Electric, shall be accompanied by an opinion thereon by independent public accountants of recognized national standing, which opinion shall state that such financial statements present fairly the financial position of PPL Electric as of the date of such financial statements and the results of its operations for the period covered by such financial statements in conformity with GAAP applied on a consistent basis and (ii) in the case of the Borrower, shall be accompanied by a certification by its principal financial or accounting officer that such financial statements present fairly the financial position of the Borrower as of the date of such financial statements and the results of its operations for the period covered by such financial statements in conformity with GAAP applied on a consistent basis.

(ii)   Quarterly Reporting .  Promptly when available and in any event within ten (10) days after the date required to be delivered to the Securities and Exchange Commission (or if not required to be so filed, within forty-five (45) days after the close of the first three (3) quarterly periods of each of its respective fiscal years), consolidated balance sheets of each of the PPL Electric Parties as at the close of each of the first three (3) quarterly periods of each fiscal year of each of the PPL Electric Parties and the related statements of income and cash flows for each such Person (which in the case of any such statements of income and cash flows relating to PPL Electric may be on a consolidated basis) for the period from the beginning of such fiscal year to the end of such quarter, all certified (subject to normal year-end audit adjustments) as to fairness of presentation, GAAP and consistency by its respective principal financial or accounting officer.

(iii)   Compliance Certificate .  Together with the financial statements required hereunder, a compliance certificate in substantially the form of Exhibit V signed by such PPL Electric Party’s Authorized Officer and dated the date of such annual financial statement or such quarterly financial statement, as the case may be.

(iv)   Shareholders Statements and Reports .  Promptly upon the furnishing thereof to the shareholders of such PPL Electric Party, copies of all financial statements, reports and proxy statements so furnished.

(v)   S.E.C. Filings .  Promptly upon the filing thereof, copies of all registration statements and annual, quarterly, monthly or other regular reports which any PPL Electric Party files with the Securities and Exchange Commission.

(vi)   Copies of Notices .  Promptly upon its receipt of any notice, request for consent, financial statements, certification, report or other communication under or in connection with any Transaction Document from any Person other than the Agent or any Lender, copies of the same.

(vii)   Change in Credit and Collection Practices .  At least thirty (30) days prior to the effectiveness of any change in or amendment to the Credit and Collection Practices which in any such case would be reasonably likely to adversely affect the collectability of the Receivables or decrease the credit quality of any newly created Receivables, a notice (A) indicating such proposed change or amendment and (B) requesting the Agent’s consent thereto.

(viii)   PUC Filings .  Promptly, upon the filing thereof, copies of all notices, requests, reports, statements, financial information, annual reconciliation filings, filings with respect to the ITC Bonds, the Receivables or the CTC Receivables which it files with, or receives from the PUC.

(ix)   Other Information .  Promptly, from time to time, such other information, documents, Records or reports relating to the Receivables or the condition or operations, financial or otherwise, of such PPL Electric Party as the Agent may from time to time reasonably request in order to protect the interests of the Agent and the Lenders under or as contemplated by this Agreement.

(b)   Notices .  Such PPL Electric Party will notify the Agent in writing of any of the following promptly upon learning of the occurrence thereof, describing the same and, if applicable, the steps being taken with respect thereto:

(i)   Amortization Events or Unmatured Amortization Events .  The occurrence of each Amortization Event and each Unmatured Amortization Event, by a statement of an Authorized Officer of such PPL Electric Party.

(ii)   Material Adverse Effect .  The occurrence of any event or condition that has had, or could reasonably be expected to have, a Material Adverse Effect (other than as defined in clause (i) of the definition thereof).

(iii)   Termination Date .  The occurrence of the “Termination Date” under and as defined in the Receivables Sale Agreement.

(iv)   Notices under Receivables Sale Agreement .  Copies of all notices delivered or received by it under the Receivables Sale Agreement.

(v)   Downgrade of Servicer.   The occurrence of any Downgrading Event with respect to the Servicer setting forth the nature of such change.

(vi)   Amendment to Final Order .  The occurrence of any amendment or supplement to the Final Order of the PUC dated August 27, 1998, relating to PPL Electric.

(vii)   Amendment of PPL Electric Agreements .  The occurrence of any amendment or supplement to or modification of the Five-Year Credit Agreement or the ITC Bond Documents.

(viii)   Satisfaction of Certain Conditions Precedent .  Satisfaction of the conditions precedent to the initial Advance set forth in Section 6.2(a) and (b) .

(ix)   Exercise of Sequestration Powers .  The taking of any action by the PUC in connection with its sequestration powers under the Competition Act in respect of Borrower or any Affiliate thereof or the Collections.

(x)   Purpose for Entering the Transactions .  Any change or modification in Borrower’s purpose in entering into the transactions contemplated by the Transaction Documents and simultaneously provide a full and complete description of such change or modification, which description shall be true and accurate in all material respects.

(xi)   Accounting Treatment .  Any change in either or both the proposed or actual accounting treatment of the transactions contemplated by the Transaction Documents and/or the effects that the transactions contemplated by the Transaction Documents will have on the financial statements of Borrower or any Affiliate thereof.

(xii)   Correspondence Regarding Collection Curves .  Copies of all correspondence between third parties (other than accountants, legal advisors and consultants) and any PPL Electric Party relating to the Collection Curves including, without limitation, the finalized Collection Curves for each year this Agreement is in effect.

(c)   Compliance with Laws and Preservation of Corporate Existence .  Such PPL Electric Party will comply with all applicable laws, regulations and orders of any Governmental Authority, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including, without limitation, compliance with all applicable ERISA and Environmental Laws and the requirements of any permits issued under such Environmental Laws), except to the extent (i) such compliance is being contested in good faith by appropriate proceedings or (ii) non-compliance could not reasonably be expected to have a Material Adverse Effect.  Such PPL Electric Party will preserve, renew and keep in full force and effect their respective corporate (or other entity) existence and their respective rights, franchises and privileges necessary or material to the normal conduct of business, except, in each case, where the failure to do so could not reasonably be expected to have a Material Adverse Effect.

(d)   Audits .  Such PPL Electric Party will furnish within a reasonable time to the Agent from time to time such information with respect to it and the Receivables as the Agent may reasonably request; provided , however , it is understood that certain consumer information related to the Receivables and the servicing thereof shall not be available for review by the Agent in accordance with Section 54.8 of the Pennsylvania Public Utility Commission Regulations.  Such PPL Electric Party will, from time to time during regular business hours as requested by the Agent upon reasonable notice and at the sole cost of such PPL Electric Party, permit the Agent, or its agents or representatives (and shall cause each Originator to permit the Agent or its agents or representatives):  (i) to examine and make copies of, and abstracts from, all Records in the possession or under the control of such Person relating to the Collateral, including, without limitation, the related Contracts (it is understood that certain consumer information related to the Receivables and the servicing thereof shall not be available for review by the Agent in accordance with Section 54.8 of the Pennsylvania Public Utility Commission Regulations), and (ii) to visit the offices and properties of such Person for the purpose of examining such materials described in clause (i) above, and to discuss matters relating to such Person’s financial condition or the Collateral or any Person’s performance under any of the Transaction Documents or any Person’s performance under the Contracts and, in each case, with any of the officers or employees of Borrower or the Servicer having knowledge of such matters (each of the foregoing examinations and visits, a “ Review ”); provided , however , that, so long as no Amortization Event or Downgrading Event with respect any PPL Electric Party has occurred and is continuing, (A) the PPL Electric Parties shall only be responsible for the costs and expenses of one (1) Review in any one calendar year, and (B) the Agent will not request more than four (4) Reviews in any one calendar year.

(e)   Keeping and Marking of Records and Books .

(i)   The Servicer will (and will cause the Originator to) maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the immediate identification of each new Receivable and all Collections of and adjustments to each existing Receivable).  The Servicer will (and will cause each Originator to) give the Agent notice of any material change in the administrative and operating procedures referred to in the previous sentence.

(ii)   Such PPL Electric Party will (and will cause the Originator to):  (A) on or prior to the date hereof, mark its master data processing records and other books and records relating to the Loans with a legend, acceptable to the Agent, describing the Agent’s security interest in the Collateral and (B) upon the request of the Agent within a reasonable time following the occurrence of an Amortization Event:  (1) mark each Contract with a legend describing the Agent’s security interest and (2) deliver to the Agent all Contracts (including, without limitation, all multiple originals of any such Contract constituting an instrument) relating to the Receivables.

(f)   Compliance with Contracts and Credit and Collection Practices .  Such PPL Electric Party will (and will cause Originator to) timely and fully (i) perform and comply with all provisions, covenants and other promises required to be observed by it under the Contracts related to the Receivables, and (ii) comply in all material respects with the Credit and Collection Practices in regard to each Receivable and the related Contract.

(g)   Performance and Enforcement of Receivables Sale Agreement .  Borrower will, and will require Originator to, perform each of their respective obligations and undertakings under and pursuant to the Receivables Sale Agreement, will purchase Receivables thereunder in strict compliance with the terms thereof and will vigorously enforce the rights and remedies accorded to Borrower under the Receivables Sale Agreement.  Borrower will take all actions to perfect and enforce its rights and interests (and the rights and interests of the Agent and the Lenders as assignees of Borrower) under the Receivables Sale Agreement as the Agent may from time to time reasonably request, including, without limitation, making claims to which it may be entitled under any indemnity, reimbursement or similar provision contained in the Receivables Sale Agreement.

(h)   Ownership .  Borrower will (or will cause Originator to) take all necessary action to (i) vest legal and equitable title to the Collateral purchased under the Receivables Sale Agreement irrevocably in Borrower, free and clear of any Adverse Claims (other than Adverse Claims in favor of the Agent, for the benefit of the Secured Parties) including, without limitation, the filing of all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect Borrower’s interest in such Collateral and such other action to perfect, protect or more fully evidence the interest of Borrower therein as the Agent may reasonably request), and (ii) establish and maintain, in favor of the Agent, for the benefit of the Secured Parties, a valid and perfected first priority security interest in all Collateral, free and clear of any Adverse Claims, including, without limitation, the filing of all financing statements or other similar instruments or documents necessary under the UCC (or any comparable law) of all appropriate jurisdictions to perfect the Agent’s (for the benefit of the Secured Parties) security interest in the Collateral and such other action to perfect, protect or more fully evidence the interest of the Agent for the benefit of the Secured Parties as the Agent may reasonably request.

(i)   Lenders’ Reliance .  Borrower acknowledges that the Lenders are entering into the transactions contemplated by this Agreement in reliance upon Borrower’s identity as a legal entity that is separate from Originator.  Therefore, from and after the date of execution and delivery of this Agreement, Borrower shall take all reasonable steps, including, without limitation, all steps that the Agent or any Lender may from time to time reasonably request, to maintain Borrower’s identity as a separate legal entity and to make it manifest to third parties that Borrower is an entity with assets and liabilities distinct from those of Originator and any Affiliates thereof (other than Borrower) and not just a division of Originator or any such Affiliate.  Without limiting the generality of the foregoing and in addition to the other covenants set forth herein, Borrower will:

(i)   hold itself out as a separate entity, conduct its own business in its own name and require that all full-time employees of Borrower, if any, identify themselves as such and not as employees of Originator (including, without limitation, by means of providing appropriate employees with business or identification cards identifying such employees as Borrower’s employees) and correct any known misunderstanding regarding its status as a separate entity;

(ii)   maintain a sufficient number of employees in light of its contemplated business operations and compensate all employees, consultants and agents directly, from Borrower’s own funds, for services provided to Borrower by such employees, consultants and agents and, to the extent any employee, consultant or agent of Borrower is also an employee, consultant or agent of Originator or any Affiliate thereof, allocate the compensation of such employee, consultant or agent between Borrower and Originator or such Affiliate, as applicable, on a basis that reflects the services rendered to Borrower and Originator or such Affiliate, as applicable;

(iii)   clearly identify its offices (by signage or otherwise) as its offices and, if such office is located in the offices of Originator, Borrower shall lease such office at a fair market rent;

(iv)   have separate stationery, invoices and checks in its own name;

(v)   conduct all transactions with Originator and the Servicer (including, without limitation, any delegation of its obligations hereunder as Servicer) strictly on an arm’s-length basis, allocate all overhead expenses (including, without limitation, telephone and other utility charges) for items shared between Borrower and Originator on the basis of actual use to the extent practicable and, to the extent such allocation is not practicable, on a basis reasonably related to actual use;

(vi)   at all times have a Board of Directors consisting of at least three (3) members, at least one (1) member of which is an Independent Director;

(vii)   observe all corporate formalities as a distinct entity, and ensure that all corporate actions relating to (A) the dissolution or liquidation of Borrower or (B) the initiation of, participation in, acquiescence in or consent to any bankruptcy, insolvency, reorganization or similar proceeding involving Borrower, are duly authorized by unanimous vote of its Board of Directors (including the Independent Director);

(viii)   maintain Borrower’s books and records separate from those of any other Person or entity and otherwise readily identifiable as its own assets rather than assets of any other Person or entity;

(ix)   prepare its financial statements separately from those of Originator and insure that any consolidated financial statements of Originator or any Affiliate thereof that include Borrower and that are filed with the Securities and Exchange Commission or any other governmental agency have notes clearly stating that Borrower is a separate corporate entity and that its assets will be available first and foremost to satisfy the claims of the creditors of Borrower;

(x)   except as herein specifically otherwise provided, maintain the funds or other assets of Borrower separate from, and not commingled with, those of Originator or any Affiliate thereof and only maintain bank accounts or other depository accounts to which Borrower alone is the account party, into which Borrower alone makes deposits and from which Borrower alone (or the Agent hereunder) has the power to make withdrawals;

(xi)   pay all of Borrower’s operating expenses and other liabilities from Borrower’s own assets (except for certain payments by Originator or other Persons pursuant to allocation arrangements that comply with the requirements of this Section 7.1(i) );

(xii)   operate its business and activities such that:  it does not engage in any business or activity of any kind, or enter into any transaction or indenture, mortgage, instrument, agreement, contract, lease or other undertaking, other than the transactions contemplated and authorized by this Agreement and the Receivables Sale Agreement; and does not hold out its credit as being available to satisfy the obligations of others, pledge its assets for the benefit of any other entity, make loans or advances to any other entity, acquire obligations or securities of any of its shareholders or otherwise create, incur, guarantee, assume or suffer to exist any indebtedness or other liabilities, whether direct or contingent, other than (A) as a result of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, (B) the incurrence of obligations under this Agreement, (C) the incurrence of obligations, as expressly contemplated in the Receivables Sale Agreement, to make payment to the Originator thereunder for the purchase of Receivables from Originator under the Receivables Sale Agreement, and (D) the incurrence of operating expenses in the ordinary course of business of the type otherwise contemplated by this Agreement;

(xiii)   maintain its corporate charter in conformity with this Agreement, such that it does not amend, restate, supplement or otherwise modify its Organizational Documents in any respect that would impair its ability to comply with the terms or provisions of any of the Transaction Documents, including, without limitation, Section 7.1(i) of this Agreement;

(xiv)   maintain the effectiveness of, and continue to perform under the Receivables Sale Agreement, such that it does not amend, restate, supplement, cancel, terminate or otherwise modify the Receivables Sale Agreement, or give any consent, waiver, directive or approval thereunder or waive any default, action, omission or breach under the Receivables Sale Agreement or otherwise grant any indulgence thereunder, without (in each case) the prior written consent of the Agent;

(xv)   maintain its corporate separateness such that it does not merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions, and except as otherwise contemplated herein) all or substantially all of its assets (whether now owned or hereafter acquired) to, or acquire all or substantially all of the assets of, any Person, nor at any time create, have, acquire, maintain or hold any interest in any Subsidiary;

(xvi)   maintain at all times the Required Capital Amount and refrain from making any dividend, distribution, redemption of capital stock or payment of any subordinated indebtedness which would cause the Required Capital Amount to cease to be so maintained; and

(xvii)   take such other actions as are necessary on its part to ensure that the facts and assumptions set forth in the opinion issued by Dewey & LeBoeuf LLP, as counsel for Borrower, in connection with the closing or initial Advance under this Agreement and relating to substantive consolidation issues, and in the certificates accompanying such opinion, remain true and correct in all material respects at all times.

(j)   Taxes .  Such PPL Electric Party will file all Federal, state, local and foreign tax returns required to be filed by it and will promptly pay or cause to be paid all taxes shown to be due on such returns and all governmental charges at any time due and owing, except any such taxes or charges that are being contested in good faith by appropriate proceedings and for which such PPL Electric Party shall have set aside on its books appropriate reserves with respect thereto in accordance with GAAP or that would not reasonably be expected to have a Material Adverse Effect.  Borrower will pay when due any taxes payable in connection with the Receivables, exclusive of taxes on or measured by income or gross receipts of the Agent or any Lender.

(k)   Payment to Originator .  With respect to any Receivable purchased by Borrower from Originator, such sale shall be effected under, and in strict compliance with the terms of, the Receivables Sale Agreement, including, without limitation, the terms relating to the amount and timing of payments to be made to Originator in respect of the purchase price for such Receivable.

Section 7.2   Negative Covenants of the PPL Electric Parties .

(a)   Change in Name, Jurisdiction of Organization, Offices and Records .  Borrower will not change (i) its name as it appears in official filings in the jurisdiction of its organization, (ii) its status as a “registered organization” (within the meaning of Article 9 of any applicable enactment of the UCC) in such jurisdiction, (iii) its organizational identification number, if any, issued by its jurisdiction of organization, or (iv) its jurisdiction of organization unless it shall have:  (A) given the Agent at least forty-five (45) days’ prior written notice thereof; (B) at least ten (10) days prior to such change, delivered to the Agent all financing statements, instruments and other documents necessary to continue the perfection and priority of the Agent’s interest in the Collateral and/or requested by the Agent in connection with such change or relocation and (C) caused an opinion of counsel acceptable to Agent to be delivered to Agent not later than the effective date of such change, to the effect that Agent’s security interest (for the benefit of the Secured Parties) is perfected and of first priority, such opinion to be in form and substance acceptable to Agent in its sole discretion.

(b)   Change of Collection Banks and Collection Accounts .  No PPL Electric Party will, or permit Originator to, close any Collection Account or open a new bank account and designate the same as a Collection Account, unless the Agent shall have received, at least ten (10) days before the proposed effective date therefor, written notice of such addition, termination or change.

(c)   Modifications to Contracts and Credit and Collection Practices .  Except in accordance with Section 7.1(a)(vii) , such PPL Electric Party will not, and will not permit Originator to, make any change to the Credit and Collection Practices that could adversely affect the collectability of the Receivables or decrease the credit quality of any newly created Receivables.  Except as provided in Section 8.2(d) , the Servicer will not, and will not permit Originator to, extend, amend or otherwise modify the terms of any Receivable or any Contract related thereto other than in accordance with the Credit and Collection Practices.

(d)   Sales, Liens .  Borrower will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, or create or suffer to exist any Adverse Claim upon (including, without limitation, the filing of any UCC financing statement) or with respect to, any of the Collateral, or assign any right to receive income with respect thereto (other than, in each case, the creation of a security interest therein in favor of the Agent as provided for herein), and Borrower will defend the right, title and interest of the Secured Parties in, to and under any of the foregoing property, against all claims of third parties claiming through or under Borrower or Originator.  Except for the grants of the security interests in favor of the trustees pursuant to the PPL Electric Mortgages, the Borrower will not grant or suffer to exist a security interest in any Collection Account to any Person.

(e)   Use of Proceeds .  Borrower will not use the proceeds of the Advances for any purpose other than (i) paying for Receivables and Related Security under and in accordance with the Receivables Sale Agreement, including without limitation, making payments on the Subordinated Notes to the extent permitted thereunder and under the Receivables Sale Agreement, (ii) paying its ordinary and necessary operating expenses when and as due, and (iii) making Restricted Junior Payments to the extent permitted under this Agreement.

(f)   Termination Date Determination .  Borrower will not designate the Termination Date, or send any written notice to Originator in respect thereof, without the prior written consent of the Agent, except with respect to the occurrence of such Termination Date arising pursuant to Section 5.1(d) of the Receivables Sale Agreement.

(g)   Restricted Junior Payments .  Borrower will not make any Restricted Junior Payment if after giving effect thereto, Borrower’s Net Worth would be less than the Required Capital Amount.

(h)   Borrower Indebtedness .  Borrower will not incur or permit to exist any Indebtedness or liability on account of deposits except:  (i) the Obligations, (ii) the Subordinated Loans, and (iii) other current accounts payable arising in the ordinary course of business and not overdue.

(i)   Prohibition on Additional Negative Pledges .  No PPL Electric Party will enter into or assume any agreement (other than this Agreement and the other Transaction Documents) prohibiting the creation or assumption of any Adverse Claim upon the Collateral except as contemplated by the Transaction Documents, or otherwise prohibiting or restricting any transaction contemplated hereby or by the other Transaction Documents.

(j)   Prohibition on Adverse Claims on Subordinated Note .  No PPL Electric Party will enter into or assume any agreement creating any Adverse Claim upon the Subordinated Note.

(k)   Prohibition on Control Agreements .  No PPL Electric Party will enter into any agreement giving any Person dominion and control of any Collection Account without the prior written consent of the Agent; provided that such agreement recognizes (to the Agent’s reasonable satisfaction) the rights of the Agent in all Receivables and Related Security and provisions are contained therein that require the timely payment of all proceeds of the Receivables and Related Security to the Agent.

Section 8.1   Designation of Servicer .

(a)   The servicing, administration and collection of the Receivables shall be conducted by such Person (the “ Servicer ”) so designated from time to time in accordance with this Section 8.1 .  PPL Electric is hereby designated as, and hereby agrees to perform the duties and obligations of, the Servicer pursuant to the terms of this Agreement until replaced in accordance with the provisions of this Agreement.

(b)   So long as a Person is acting as the Servicer hereunder, (i) such Person shall be and remain primarily liable to the Agent and the Lenders for the full and prompt performance of all duties and responsibilities of the Servicer hereunder and (ii) the Agent and the Lenders shall be entitled to deal exclusively with such Person in matters relating to the discharge by the Servicer of its duties and responsibilities hereunder.  The Agent and the Lenders shall not be required to give notice, demand or other communication to any Person other than PPL Electric in order for communication to the Servicer and its sub-servicer or other delegate with respect thereto to be accomplished.  The Servicer may not employ agents or delegate to any other Person any of its obligations hereunder except with the prior written consent of the Agent and, in any such case, the Servicer shall be responsible for all actions taken by any sub-servicer or other delegate of the Servicer.

(c)   If (i) any Person is designated to replace PPL Electric as ITC Bonds Servicer under the ITC Bonds Servicing Agreement or (ii) any Governmental Authority shall act to replace PPL Electric as ITC Bonds Servicer or otherwise causes any transfer of all or any portion of the servicing duties or obligations under the ITC Bonds Servicing Agreement of PPL Electric to another Person in such a way as to materially reduce the scope of PPL Electric’s duties as ITC Bonds Servicer under the ITC Bond Documents with respect to any of the ITC Receivables, then, such Person shall, provided such Person executes an amendment to this Agreement agreeing to undertake all duties of the Servicer hereunder on substantially the same terms and conditions (subject to such limitations on liability and to such indemnifications as are reasonably acceptable to the Agent and such successor Servicer) as PPL Electric has agreed to act as Servicer hereunder (including, without limitation, with respect to cost and scope of service provided), become the successor Servicer hereunder; provided , however , that if such Person does not so agree, then PPL Electric shall be deemed (effective as of the date such Person is designated as described in clause (i) or (ii) above, as applicable) to have resigned as Servicer hereunder and the Agent shall appoint a successor Servicer acceptable to the Agent.  In addition, if the ITC Bond Documents are terminated for any reason (including upon repayment of the ITC Bonds), then, upon the occurrence of a Servicer Default, the Agent may designate as Servicer any Person acceptable to the Agent to succeed PPL Electric as Servicer.

Section 8.2   Duties of Servicer .

(a)   The Servicer shall take or cause to be taken all such actions as may be necessary or advisable to collect each Receivable from time to time, all in accordance with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Practices.

(b)   The Servicer, on a daily basis, shall set aside the Fixed Daily Amount by the close of each Business Day.  Prior to each Settlement Date, the Servicer shall identify the Collections received for the applicable Calculation Period and, upon request of any Lender pursuant to Section 8.2(e) , the Servicer shall promptly identify the Collections received by it for any given day.

(c)   The Servicer shall administer the Collections in accordance with the procedures described herein and in Article II .  The Servicer shall hold in trust for the account of Borrower and the Lenders their respective shares of the Collections in accordance with Article II .  The Servicer shall not deposit any Collections into an account other than a Collection Account at any time without the prior written consent of the Agent which consent shall be in the sole discretion of the Agent.  Except for the grants of the security interests in favor of the trustees pursuant to the PPL Electric Mortgages, the Servicer will not grant a security interest in any Collection Account to any Person.

(d)   The Servicer may, in accordance with the Credit and Collection Practices, extend the maturity of any Receivable or adjust the Outstanding Balance of any Receivable as the Servicer determines to be appropriate to maximize Collections thereof; provided , however , that such extension or adjustment shall not alter the status of such Receivable as a Delinquent Receivable or Defaulted Receivable or limit the rights of the Agent or the Lenders under this Agreement.

(e)   The Servicer shall hold in trust for Borrower and the Lenders all Records that (i) evidence or relate to the Receivables, the related Contracts and Related Security or (ii) are otherwise necessary or desirable to collect the Receivables and shall, as soon as practicable upon demand of the Agent, make available to the Agent all such Records.  The Servicer shall, subject to the first sentence of Section 8.2(b) hereof, apply any cash collections or other cash proceeds in respect of the Collateral in accordance with Article II .  The Servicer shall, from time to time at the request of any Lender, furnish to the Lenders (promptly after any such request) a calculation of the amounts identified as Collections pursuant to Article II and Section 8.2(b) .

(f)   Any payment by an Obligor in respect of any indebtedness owed by it to Originator, other than indebtedness allocable to the ITC Receivables or the Nuclear Decommissioning Receivables, shall, except as otherwise specified by such Obligor or otherwise required by contract or law and unless otherwise instructed by the Agent, be applied as a Collection of any Receivable of such Obligor (starting with the oldest such Receivable) to the extent of any amounts then due and payable thereunder before being applied to any other receivable or other obligation of such Obligor.

(g)   In the event any payments relating to the Collateral are remitted directly to Borrower or any Affiliate of Borrower, Borrower will remit (or will cause all such payments to be remitted) directly to a Collection Account within two (2) Business Days following receipt thereof, and, at all times prior to such remittance, Borrower will itself hold or, if applicable, will cause such payments to be held in trust for the exclusive benefit of the Agent and the Lenders.

(h)   The Servicer hereby represents and warrants that it is maintaining all Collections solely in its capacity as Servicer, subject at all times to the ownership of the Borrower therein and the security interest therein of the Agent, for the benefit of the Secured Parties, that it retains bare legal title for the convenience of the parties hereto, and that such Collections are not intended to be or constitute property of the estate of the Servicer in any proceeding referenced in the definition of Event of Bankruptcy and are intended to constitute property of the type described in Section 541(d) of the Federal Bankruptcy Code.

Section 8.3   Collections .

Section 8.4   Responsibilities of PPL Electric Parties .

Section 8.5   Monthly Reports .

Section 8.6   Servicing Fee .

Section 9.1   Amortization Events .

(a)   Any PPL Electric Party shall fail to make any payment or deposit required to be made by it under the Transaction Documents when due and, for any such payment or deposit which is not in respect of principal, such failure continues for three (3) consecutive Business Days.

(b)   Any representation or warranty made by any PPL Electric Party in any Transaction Document to which it is a party or in any other document delivered pursuant thereto shall prove to have been incorrect (or, with respect to the representations and warranties contained in Sections 5.1(a) , (c) , (d) , (g) , (j) , (k) or (s) hereof, or in Sections 2.1(a) , (c) , (d) , (g) , (j) , (k) or (s) of the Receivables Sale Agreement, incorrect in any material manner) when made or deemed made.

(c)   Any PPL Electric Party shall fail to perform or observe any covenant contained in Section 7.2 or Section 8.5 when due.

(d)   Any PPL Electric Party shall fail to perform or observe any covenant contained in Section 7.1(a)(vii) , Section 7.1(b) or Section 8.3 and such failure shall continue for ten (10) consecutive Business Days following Borrower’s receipt of notice of such failure from the Agent or Borrower’s actual knowledge of such failure.

(e)   Any PPL Electric Party shall fail to perform or observe any other covenant or agreement under any Transaction Document (other than those referenced in Sections 9.1(a) , (c) or (d) ) and such failure shall continue for ten (10) consecutive Business Days following Borrower’s receipt of notice of such failure from the Agent or for thirty (30) consecutive days following Borrower’s actual knowledge of such failure.

(f)   Failure of Borrower to pay any Indebtedness (other than the Obligations) when due or the default by Borrower in the performance of any term, provision or condition contained in any agreement under which any such Indebtedness was created or is governed, the effect of which is to cause, or to permit the holder or holders of such Indebtedness to cause, such Indebtedness to become due prior to its stated maturity; or any such Indebtedness of Borrower shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the date of maturity thereof.

(g)   Failure by the Servicer or PPL Transition Bond Company LLC (i) to pay any principal or interest, regardless of amount, due in respect of any Material Indebtedness beyond any period of grace provided with respect thereto, or (ii) to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Material Indebtedness beyond any period of grace provided with respect thereto if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee on its or their behalf to cause, such Indebtedness to become due prior to its stated maturity.

(h)   An Event of Bankruptcy shall occur with respect to any PPL Electric Party or PPL Transition Bond Company LLC.

(i)   As at the end of any Calculation Period:

(i)   the three-month rolling average Delinquency Ratio shall exceed 6.00%,

(ii)   the three-month rolling average Default Ratio shall exceed 2.50%, or

(iii) the three-month rolling average Dilution Ratio shall exceed 2.25%

(j)   A Change of Control shall occur.

(k)   (i) One or more final judgments for the payment of money in an aggregate amount of $11,625 or more shall be entered against Borrower or (ii) one or more final judgments for the payment of money in an amount in excess of $20,000,000, individually or in the aggregate, shall be entered against the Servicer or PPL Transition Bond Company LLC and such judgment shall not be paid, bonded or otherwise discharged for sixty (60) consecutive days unless such judgment is stayed on appeal or otherwise being appropriately contested in good faith.

(l)   The “Termination Date” under and as defined in the Receivables Sale Agreement shall occur under the Receivables Sale Agreement or Originator shall for any reason cease to transfer, or cease to have the legal capacity to transfer, or otherwise be incapable of transferring Receivables to Borrower under the Receivables Sale Agreement.

(m)   This Agreement shall terminate in whole or in part (except in accordance with its terms), or shall cease to be effective or to be the legally valid, binding and enforceable obligation of Borrower, or any Obligor shall directly or indirectly contest in any manner such effectiveness, validity, binding nature or enforceability, or the Agent for the benefit of the Lenders shall cease to have a valid and perfected first priority security interest in the Collateral.

(n)   On any day, after giving effect to the turnover of Collections by the Servicer on such date and the application thereof to the Obligations in accordance with this Agreement, the Aggregate Principal shall exceed the Borrowing Limit and if such day is not a Settlement Date, such condition shall have been continuing for five (5)