-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G3CH4zWgnh0g7VfzXAy6v7WVSDNHoFzHwP44FA+uEUPSWjA/Ef8WP6fS5HuA14vA GM4FpS9aMYqy7NRIhauogA== 0000922224-98-000009.txt : 19980304 0000922224-98-000009.hdr.sgml : 19980304 ACCESSION NUMBER: 0000922224-98-000009 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980303 SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: PP&L RESOURCES INC CENTRAL INDEX KEY: 0000922224 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 232758192 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-11459 FILM NUMBER: 98556152 BUSINESS ADDRESS: STREET 1: TWO N NINTH ST CITY: ALLENTOWN STATE: PA ZIP: 18101 BUSINESS PHONE: 6107745151 MAIL ADDRESS: STREET 1: TWO NORTH NINTH ST STREET 2: TWO NORTH NINTH STREET CITY: ALLENTOWN STATE: PA ZIP: 181011179 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _________ to Commission File Registrant; State of Incorporation; IRS Employer Number Address and Telephone Number Identification No. 1-11459 PP&L Resources, Inc. 23-2758192 (Exact name of Registrant as specified in its charter) (Pennsylvania) Two North Ninth Street Allentown, PA 18101 (610) 774-5151 1-905 PP&L, INC. 23-0959590 (Exact name of Registrant as specified in its charter) (Pennsylvania) Two North Ninth Street Allentown, PA 18101 (610) 774-5151 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Stock of PP&L Resources, Inc. New York & Philadelphia Stock Exchanges Preferred Stock of PP&L, Inc. 4-1/2% New York & Philadelphia Stock Exchanges 3.35% Series Philadelphia Stock Exchange 4.40% Series New York & Philadelphia Stock Exchanges 4.60% Series Philadelphia Stock Exchange Company-obligated Mandatorily Redeemable Securities of PP&L, Inc. 8.20% Series ($25 stated value)(a) New York Stock Exchange 8.10% Series ($25 stated value)(b) New York Stock Exchange (a) Issued by PP&L Capital Trust and guaranteed by PP&L, Inc. (b) Issued by PP&L Capital Trust II and guaranteed by PP&L, Inc. Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. PP&L Resources, Inc. [ X ] PP&L, Inc. [ X ] Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. PP&L Resources, Inc. Yes X No PP&L, Inc. Yes X No The aggregate market value of the voting common stock held by non- affiliates of PP&L Resources, Inc. at January 31, 1998 was $3,670,816,160. PP&L Resources, Inc. held all 157,300,382 outstanding common shares, no par value, of PP&L, Inc. The aggregate market value of the voting preferred stock held by non-affiliates of PP&L, Inc. at January 31, 1998 was $88,801,387. The number of shares of PP&L Resources, Inc. Common Stock, $.01 par value, outstanding on January 31, 1998 was 166,855,280. Documents incorporated by reference: Registrants have incorporated herein by reference certain sections of their 1998 Notices of Annual Meetings and Proxy Statements which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 1997. Such Proxy Statements will provide the information required by Part III of this Report. PP&L RESOURCES, INC. PP&L, INC. FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 1997 TABLE OF CONTENTS This combined Form 10-K is separately filed by PP&L Resources, Inc. and PP&L, Inc. Information contained herein relating to PP&L, Inc. is filed by PP&L Resources, Inc. and separately by PP&L, Inc. on its own behalf. PP&L, Inc. makes no representation as to information relating to PP&L Resources, Inc. or its subsidiaries, except as it may relate to PP&L, Inc. Item Page PART I 1. Business ............................................. 1 2. Properties ........................................... 14 3. Legal Proceedings .................................... 14 4. Submission of Matters to a Vote of Security Holders .. 18 Executive Officers of the Registrants ................ 19 PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters .................................. 21 6. Selected Financial Data .............................. 22 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ................. 24 8. Financial Statements and Supplementary Data Report of Independent Accountants .................. 41 Management's Report on Responsibility for Financial Statements ....................................... 42 Financial Statements: PP&L Resources, Inc. Consolidated Statement of Income for the Three Years Ended December 31, 1997........................... 44 Consolidated Statement of Cash Flows for the Three Years Ended December 31, 1997 .................... 45 Consolidated Balance Sheet at December 31, 1997 and 1996 ............................................. 46 Consolidated Statement of Shareowners' Common Equity for the Three Years Ended December 31, 1997 ...... 48 Consolidated Statement of Preferred Stock at December 31, 1997 and 1996 ....................... 49 Consolidated Statement of Company-Obligated Mandatorily Redeemable Securities at December 31, 1997 and 1996 ....................... 50 Consolidated Statement of Long-Term Debt at December 31, 1997 and 1996 ....................... 51 PP&L, Inc. Consolidated Statement of Income for the Three Years Ended December 31, 1997 .......................... 52 Consolidated Statement of Cash Flows for the Three Years Ended December 31, 1997 .................... 53 Consolidated Balance Sheet at December 31, 1997 and 1996 ............................................. 54 Consolidated Statement of Shareowner's Common Equity for the Three Years Ended December 31, 1997 ...... 56 Consolidated Statement of Preferred Stock at December 31, 1997 and 1996 ....................... 57 Consolidated Statement of Long-Term Debt at December 31, 1997 and 1996 ....................... 58 Notes to Financial Statements ...................... 59 Supplemental Financial Statement Schedule: II - Valuation and Qualifying Accounts and Reserves for the Three Years Ended December 31, 1997 ............................. 82 Quarterly Financial, Common Stock Price and Dividend Data ...................................... 83 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .................. 84 PART III 10. Directors and Executive Officers of the Registrants .. 85 11. Executive Compensation ............................... 85 12. Security Ownership of Certain Beneficial Owners and Management ................................ 85 13. Certain Relationships and Related Transactions ....... 86 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .................................. 87 Shareowner and Investor Information .................. 89 Signatures ........................................... 92 Exhibit Index ........................................ 93 Computation of Ratio of Earnings to Fixed Charges .... 104 Glossary of Terms and Abbreviations AFUDC (Allowance for Funds Used During Construction) - the cost of equity and debt funds used to finance construction projects that is capitalized as part of construction cost. Atlantic - Atlantic City Electric Company BG&E - Baltimore Gas & Electric Company CERCLA - Comprehensive Environmental Response, Compen-sation and Liability Act Clean Air Act (Federal Clean Air Act Amendments of 1990) - legislation enacted to address environmental issues including acid rain, ozone and toxic air emissions. CTC - Competitive transition charge Customer Choice Act - (Pennsylvania Electricity Generation Customer Choice and Competition Act) - legislation enacted to restructure the state's electric utility industry to create retail access to a competitive market for generation of electricity DEP - Pennsylvania Department of Environmental Protection District Court - United States District Court for the Eastern District of Pennsylvania. DOE - Department of Energy DRIP (Dividend Reinvestment Plan) - program available to shareowners of PP&L Resources' common stock and PP&L preferred stock to reinvest dividends in PP&L Resources' common stock instead of receiving dividend checks. ECR (Energy Cost Rate) - a tariff applied to PUC-jurisdictional customers to recover fuel and other energy costs. Effective January 1997, energy costs were rolled into base rates. EITF - Emerging Issues Task Force Emel - Empresas Emel, S.A., a Chilean electric distribution holding company EMF - Electric and Magnetic Fields Energy Act (Energy Policy Act of 1992) - legislation passed by Congress to promote competition in the electric energy market for bulk power. Energy Marketing Center - organization within PP&L responsible for marketing and trading wholesale energy EPA - Environmental Protection Agency ESOP - Employee Stock Ownership Plan FASB (Financial Accounting Standards Board) - a rulemaking organization that establishes financial accounting and reporting standards. FGD - Flue gas desulfurization equipment installed at coal-fired power plants to reduce sulfur dioxide emissions. FERC (Federal Energy Regulatory Commission) - federal agency that regulates interstate transmission and sale of electricity and related matters. GRT - Gross Receipts Tax H.T. Lyons - H.T. Lyons, Inc., a PP&L Resources' unregulated subsidiary specializing in heating, ventilating and air- conditioning. IBEW - International Brotherhood of Electrical Workers IEC (Interstate Energy Company) - a subsidiary of PP&L that operates an oil and gas pipeline ISO - Independent System Operator JCP&L - Jersey Central Power & Light Company Major utilities - Atlantic, BG&E and JCP&L MSHA - Mine Safety and Health Administration NOx - Nitrogen oxide NPDES - National Pollutant Discharge Elimination System NRC (Nuclear Regulatory Commission) - Federal agency that regulates operation of nuclear power facilities NUG (Non-Utility Generator) - generating plants not owned by regulated utilities. If the NUG meets certain criteria, its electrical output must be purchased by public utilities as required by PURPA. OCA - Pennsylvania Office of Consumer Advocate OSM - United States Office of Surface Mining OTS - PUC Office of Trial Staff Pa. CNI - Pennsylvania Corporate Net Income Tax PCB (Polychlorinated Biphenyl) - additive to oil used in certain electrical equipment up to the late-1970s. Now classified as a hazardous chemical. PECO - PECO Energy Company PFG - Penn Fuel Gas, Inc. PJM (PJM Interconnection, L.L.C.) - operates the electric transmission network and electric energy market in the mid- Atlantic region of U.S. Plan - PP&L's noncontributory defined benefit pension plan. PP&L - PP&L, Inc. (formerly Pennsylvania Power & Light Company) PP&L Capital Funding - PP&L Capital Funding, Inc., PP&L Resources' financing subsidiary PP&L Capital Trust - A Delaware statutory business trust created to issue Preferred Securities PP&L Capital Trust II -- A Delaware statutory business trust created to issue Preferred Securities PP&L Global - PP&L Global, Inc., a PP&L Resources' unregulated subsidiary which invests in and develops world-wide power projects (formerly Power Markets Development Company) PP&L Resources - PP&L Resources, Inc., the parent holding company of PP&L, PP&L Global, PP&L Spectrum and other subsidiaries PP&L Spectrum - PP&L Spectrum, Inc., a PP&L Resources' unregulated subsidiary which offers energy-related products and services (formerly Spectrum Energy Services Corporation) PP&L's Mortgage - PP&L's Mortgage and Deed of Trust, dated October 1, 1945 Preferred Securities - Company-obligated mandatorily re-deemable preferred securities of subsidiary trusts holding solely company debentures (issued by two Delaware statutory business trusts) PSE&G - Public Service Electric & Gas Company PUC (Pennsylvania Public Utility Commission) - state agency that regulates certain ratemaking, services, accounting, and operations of Pennsylvania utilities PUC Decision - final order issued by the PUC on September 27, 1995 pertaining to PP&L's base rate case filed in December 1994. PUHCA - Public Utility Holding Company Act of 1935 PURPA (Public Utility Regulatory Policies Act of 1978) - legislation passed by Congress to encourage energy conservation, efficient use of resources, and equitable rates. RCRA - 1976 Resource Conservation and Recovery Act SBRCA - Special Base Rate Credit Adjustment SEC - Securities and Exchange Commission SER - Schuylkill Energy Resources, Inc. SFAS (Statement of Financial Accounting Standards) - accounting and financial reporting rules issued by the FASB. SO2 - Sulfur dioxide STAS (State Tax Adjustment Surcharge) - rate adjustment mechanism to customer bills for changes in certain state taxes. Superfund - Federal and state legislation that addresses remediation of contaminated sites. SWEB - South Western Electricity plc, a British regional electric utility company. UGI - UGI Utilities, Inc. U.K. - United Kingdom VEBA (Voluntary Employee Benefit Association Trust) - trust accounts for health and welfare plans for future payments to employees, retirees or their beneficiaries. VERP - Voluntary Early Retirement Program PART I ITEM 1. BUSINESS Terms and abbreviations appearing in "BUSINESS" are explained in the glossary. BACKGROUND PP&L Resources is a holding company with headquarters in Allentown, PA. Its subsidiaries include PP&L, which provides electricity delivery service in eastern and central Pennsylvania, sells retail electricity throughout Pennsylvania and markets wholesale electricity throughout the eastern United States; PP&L Global, an international independent power company; PP&L Spectrum, which markets energy-related services and products; PP&L Capital Funding, which engages in financing for PP&L Resources and its subsidiaries; and H. T. Lyons, a heating, ventilating and air- conditioning firm which PP&L Resources acquired on January 22, 1998. Other subsidiaries may be formed by PP&L Resources to take advantage of new business opportunities. PP&L is PP&L Resources' principal subsidiary (approximately 96% of consolidated assets as of December 31, 1997), and the financial condition and results of operation of PP&L are currently the principal factors affecting the financial condition and results of operations of PP&L Resources. The electric utility industry, including PP&L, has experienced and will continue to experience a significant increase in the level of competition in the energy supply market. The Energy Act amended the PUHCA to create a new class of independent power producers, and amended the Federal Power Act to provide open access to electric transmission systems for wholesale transactions. In addition, in December 1996 the Customer Choice Act was enacted in Pennsylvania to restructure the state's electric utility industry in order to create retail access to a competitive market for the generation of electricity. PP&L has announced its support for full customer choice of their energy supplier for all customer classes. See "PUC Restructuring Proceeding" on page 27 and "Increasing Competition" on page 37 for a discussion of pending PUC and FERC proceedings on industry competition and PP&L's involvement in those proceedings. PP&L is subject to regulation as a public utility by the PUC and is subject in certain of its activities to the jurisdiction of the FERC under Parts I, II and III of the Federal Power Act. PP&L Resources and PP&L have been exempted by the SEC from the provisions of PUHCA applicable to them as holding companies. PP&L is subject to the jurisdiction of the NRC in connection with the operation of the two nuclear-fueled generating units at PP&L's Susquehanna station. PP&L owns a 90% undivided interest in each of the Susquehanna units and Allegheny Electric Cooperative, Inc. owns a 10% undivided interest in each of those units. In December 1997, Allegheny Electric Cooperative, Inc. issued a Request for Proposals for the sale of its assets, including its 10% interest in Susquehanna. This proposed sale is still pending. PP&L also is subject to the jurisdiction of certain federal, regional, state and local regulatory agencies with respect to air and water quality, land use and other environmental matters. The operations of PP&L are subject to the Occupational Safety and Health Act of 1970, and the coal cleaning and loading operations of a PP&L subsidiary are subject to the Federal Mine Safety and Health Act of 1977. PP&L provides electricity delivery service to approximately 1.2 million customers in a 10,000 square mile territory in 29 counties of eastern and central Pennsylvania (see Map on page 13), with a population of approximately 2.6 million persons. This service area has 129 communities with populations over 5,000, the largest cities of which are Allentown, Bethlehem, Harrisburg, Hazleton, Lancaster, Scranton, Wilkes-Barre and Williamsport. During 1997, about 97% of total operating revenue was derived from electric energy sales, with 33% coming from residential customers, 27% from commercial customers, 19% from industrial customers, 20% from wholesale sales and 1% from others. See "Increasing Competition" in the Review of the Financial Condition and Results of Operation on page 37 for a discussion of PP&L's participation in Pennsylvania's retail access pilot program under the Customer Choice Act. PP&L operates its generation and transmission facilities as part of the PJM. The PJM operates the electric transmission network and electric energy market in the mid-Atlantic region of the United States. Bulk electricity is transmitted to wholesale users throughout a geographic area including all or part of Pennsylvania, New Jersey, Maryland, Delaware, Virginia and the District of Columbia. In November 1997, the FERC ordered the restructuring of the PJM into an ISO, in order to accommodate greater competition and broader participation in the power pool. The purpose of the ISO is to separate operation of, and access to, the transmission grid from the PJM electric utilities' generation interests. The electric utilities will continue to own the transmission assets, but the ISO will be responsible for directing the control and operation of the transmission facilities. See "Increasing Competition" for further details on this FERC PJM order. To take advantage of opportunities in the competitive energy marketplace, PP&L created an Energy Marketing Center in 1995. The group operates a 24-hour trading floor and a marketing effort with responsibility for all PP&L wholesale power transactions. This Center has allowed PP&L to buy and sell energy at the most competitive prices and to expand these activities beyond PP&L's traditional service territory. The group is presently marketing and trading wholesale electricity in 22 states, including the east coast, midwest, and mid-Atlantic region. Wholly-owned subsidiary companies of PP&L principally are engaged in oil and gas pipeline operations and passive financial investing. FINANCIAL CONDITION See "Earnings", "Electric Energy Sales", and "Financial Indicators" in the Review of the Financial Condition and Results of Operations for this information. CAPITAL EXPENDITURE REQUIREMENTS See "Financial Condition - Capital Expenditure Requirements" on page 32 for information concerning PP&L's estimated capital expenditure requirements for the years 1998-2002. See "Environmental Matters" on page 35 and Note 16 to Financial Statements for information concerning PP&L's estimate of the cost to comply with the federal clean air legislation enacted in 1990, to address groundwater degradation and waste water control at PP&L facilities and to comply with solid waste disposal regulations adopted by the DEP. POWER SUPPLY PP&L's system capacity (winter rating) at December 31, 1997 was as follows: Net Kilowatt Plant Capacity Nuclear-fueled steam station Susquehanna 1,995,000 (a) Coal-fired steam stations Montour 1,525,000 Brunner Island 1,469,000 Sunbury 389,000 Martins Creek 300,000 Keystone 210,000 (b) Conemaugh 194,000 (c) Holtwood 73,000 Total coal-fired 4,160,000 Oil-fired steam station Martins Creek 1,592,000 Combustion turbines and diesels 364,000 Hydroelectric 146,000 Total generating capacity 8,257,000 Firm purchases Hydroelectric 139,000 (d) Qualifying facilities 338,000 Total firm purchases 477,000 Total system capacity 8,734,000 _____________________________ (a) PP&L's 90% undivided interest. (b) PP&L's 12.34% undivided interest. (c) PP&L's 11.39% undivided interest. (d) From Safe Harbor Water Power Corporation. The system capacity shown in the preceding tabulation does not reflect: (i) sales of capacity and energy to Atlantic; (ii) sales of capacity and energy to BG&E; (iii) sales of capacity and energy to JCP&L; or (iv) sales of capacity credits to other load serving entities for PJM installed capacity accounting purposes only, which capacity credit sales aggregated 586,000 kilowatts at December 31, 1997. Giving effect to the sales to Atlantic (129,000 kilowatts), BG&E (132,000 kilowatts), and JCP&L (567,000 kilowatts), PP&L's net system capacity at December 31, 1997 was 7,906,000 kilowatts. The capacity of generating units is based upon a number of factors, including the operating experience and physical condition of the units, and may be revised from time to time to reflect changed circumstances. During 1997, PP&L produced about 40.9 billion kWh in plants it owned. PP&L purchased 13.4 billion kWh under purchase agreements and received 1.4 billion kWh as power pool interchange. During the year, PP&L delivered about 2.2 billion kWh as pool interchange and about 13.4 billion kWh under purchase agreements. During 1997, 59.5% of the energy generated by PP&L's plants came from coal-fired stations, 36.9% from nuclear operations at the Susquehanna station, 2.1% from the Martins Creek oil-fired steam station and 1.5% from hydroelectric stations. The maximum one-hour demand recorded on PP&L's system is 6,506,000 kilowatts, which occurred on January 17, 1997. The maximum recorded one-hour summer demand is 6,046,000 kilowatts, which occurred on July 15, 1997. These peak demands do not include energy sold to Atlantic, BG&E or JCP&L. PP&L purchases and sells energy from other utilities and FERC- certified power marketers when it is economically desirable to do so. From time to time, PP&L enters into energy transactions with systems outside the PJM on a daily, weekly or monthly basis. The amount of energy purchased and sold in these transactions depends on a number of factors, including cost and the import capability of the transmission network. Under a compliance tariff approved by FERC for implementation starting April 1, 1997, PP&L has been providing open access of available capability on its transmission system for use by wholesale entities on a basis that is comparable with PP&L's own use of its transmission facilities. In June 1995, the FERC accepted a short-term capacity and/or energy sales tariff enabling PP&L to sell to other utilities and marketers. As of the end of 1997, 90 other parties have signed service agreements under this tariff. Transactions under these agreements allow PP&L to make more efficient use of its generating resources and provide benefits to both PP&L and the other utilities. At the end of 1996, PP&L filed with the FERC revisions to this cost- based tariff to unbundle the generation and transmission components of the existing rate schedules. PP&L also included in this filing a request for FERC approval to sell power purchased from third parties, which increases PP&L's capabilities for profitable wholesale trans- actions. In July 1997, the FERC accepted PP&L's application for authorization to sell electric energy and capacity at market-based rates to wholesale customers located both inside and outside the PJM control area. Thirty-one parties have signed service and power sales agreements for transactions under this market-based rates tariff. In January 1998, the United States Department of Energy approved PP&L's application for an export license to sell capacity and/or energy to electric utilities in Canada. This export license will allow PP&L to sell either its own capacity and energy not required to serve domestic obligations or power purchased from other utilities. See Note 5 to Financial Statements for additional information concerning the sale of capacity and energy to Atlantic, BG&E and JCP&L, the sale of capacity credits (but not energy) to other electric utilities in the PJM and the sale of transmission entitlements and the reservation of output from the Martins Creek units. In addition to 338,000 kilowatts of qualifying facility generation included in the total system capacity, PP&L is purchasing about 12,000 kilowatts of output from various other non-utility generating companies. The payments made to non-utility generating companies, all of whose facilities are located in PP&L's service area, are recovered from customers through base rate charges applicable to PUC- and FERC-jurisdictional customers. The PJM companies had 57.2 million kilowatts of installed generating capacity at December 31, 1997, and transmission line connections with neighboring power pools have the capability of transferring an additional 4 to 5 million kilowatts between the PJM and neighboring power pools. Through December 31, 1997, the maximum one-hour demand recorded on the PJM was approximately 49.4 million kilowatts, which occurred on July 15, 1997. PP&L is also a party to the Mid-Atlantic Area Coordination Agreement, which provides for the coordinated planning of generation and transmission facilities by the companies included in the PJM. FUEL SUPPLY Coal During 1997, PP&L's generating stations burned about 10 million tons of bituminous coal, anthracite and petroleum coke. About 63% of the coal delivered to PP&L's generating stations in 1997 was purchased under contracts and 37% was obtained through open market purchases. Contracts with non-affiliated coal producers provided PP&L with about 4.6 million tons of coal in 1997 and are expected to provide PP&L with about 4.3 million tons in both 1998 and 1999. PP&L's requirements for additional coal are expected to be obtained by contracts and market purchases. The amount of coal carried in inventory at PP&L's generating stations varies from time to time depending on market conditions and plant operations. As of December 31, 1997, PP&L's coal supply was sufficient for at least 32 days of operations. The coal burned in PP&L's generating stations contains both organic and pyritic sulfur. Mechanical cleaning processes are utilized to reduce the pyritic sulfur content of the coal. The reduction of the pyritic sulfur content by either mechanical cleaning or blending has lowered the total sulfur content of the coal burned to levels which permit compliance with current sulfur dioxide emission regulations established by the DEP. For information concerning PP&L's plans to achieve compliance with the federal clean air legislation enacted in 1990, see "Environmental Matters" on page 35 and Note 16 to Financial Statements. PP&L owns a 12.34% undivided interest in the Keystone station and an 11.39% undivided interest in the Conemaugh station, both of which are generating stations located in western Pennsylvania. The owners of the Keystone station have a long-term contract with a coal supplier to provide at least two-thirds of that station's requirements through 1999 and declining amounts thereafter until the contract expires at the end of 2004. The balance of the Keystone station requirements are purchased in the open market. The coal supply requirements for the Conemaugh station are being met from several sources through a blend of long-term and short-term contracts and spot market purchases. Oil and Natural Gas PP&L's oil and natural gas purchasing and sales functions are now performed by the Energy Marketing Center. The addition of oil and gas to the Center's electricity trading enhances wholesale and retail marketing efforts and provides a diversified energy portfolio to offer customers. Additionally, the new trading activities create opportunities to optimize electric generation efficiency and minimize fuel costs. During 1997, 100% of the oil requirements for the Martins Creek units was purchased on the spot market. As of December 31, 1997, PP&L had no long-term agreements for these requirements. During 1997, PP&L's Martins Creek station consumed about 2,800,000 mcf of natural gas. All of this natural gas was purchased and transported under short-term agreements that were one month or less in duration. PP&L does not have any long-term agreements to purchase gas or gas transportation. Nuclear The nuclear fuel cycle consists of the mining of uranium ore and its milling to produce uranium concentrates; the conversion of uranium concentrates to uranium hexafluoride; the enrichment of uranium hexafluoride; the fabrication of fuel assemblies; the utilization of the fuel assemblies in the reactor; the temporary storage of spent fuel; and the permanent disposal of spent fuel. PP&L has entered into uranium supply and conversion agreements that satisfy 100% of the uranium hexafluoride requirements for the Susquehanna units through 1998, approximately 45% of the requirements for the period 1999-2001 and, including options, approximately 25% of the requirements for the period 2002-2005. Deliveries under these agreements are expected to provide sufficient quantities of uranium hexafluoride to permit Unit 1 to operate into the first quarter of 2000 and Unit 2 to operate into the first quarter of 2001. PP&L has entered into an agreement that satisfies 100% of its enrichment requirements through 2004. Deliveries under this agreement are expected to provide sufficient enrichment to permit Unit 1 to operate into the first quarter of 2006 and Unit 2 to operate into the first quarter of 2007. PP&L has entered into an agreement that, including options, satisfies 100% of its fabrication requirements through 2006. Deliveries under this agreement are expected to provide sufficient fabrication to permit Unit 1 to operate into the first quarter of 2008 and Unit 2 to operate into the first quarter of 2007. PP&L estimates that there is sufficient storage capability in the spent fuel pools at Susquehanna to accommodate the fuel that is expected to be discharged through the end of 1999. Federal law requires the federal government to provide for the permanent disposal of commercial spent nuclear fuel. Pursuant to the requirements of that law, the DOE has initiated an analysis of a site in Nevada for a permanent nuclear waste repository. Progress on characterization of a proposed disposal facility has been slow, and the repository is not expected to be operational before 2010. Congress is considering new legislation designed to re-establish a schedule for the spent fuel disposal program. This legislation would authorize an above-ground interim storage facility, along with the permanent disposal facility, as part of an integrated disposal program. Even if this legislation is enacted and the DOE is successful in building and operating the interim storage facility, because of PP&L's position in the spent fuel shipping queue, expansion of Susquehanna's on-site spent fuel storage capability is necessary. To support this expansion, PP&L has contracted for the design and construction of a spent fuel storage facility employing dry fuel storage technology at the Susquehanna plant. The facility will be modular so that additional storage capacity can be added as needed. PP&L currently estimates that the new facility should be available to start receiving spent fuel in 1999. See "Financial Condition - Capital Expenditure Requirements" on page 32. Federal law also provides that the costs of spent nuclear fuel disposal are the responsibility of the generators of such wastes. PP&L includes in customer rates the fees charged by the DOE to fund the permanent disposal of spent nuclear fuel. In January 1997, PP&L joined over 30 other utilities in a lawsuit in the U.S. Court of Appeals for the District of Columbia Circuit seeking assurance of the DOE's performance of its contractual obligation to accept the spent nuclear fuel and suspension of the payment of fees to that agency pending such performance. In November 1997, the Court denied the utilities' requested relief and held that the contracts between the utilities and the DOE provide a potentially adequate remedy (i.e., monetary damages) if the DOE fails to begin disposal of spent nuclear fuel by January 31, 1998. However, the Court also precluded the DOE from arguing that its delay in contract performance was "unavoidable". YEAR 2000 COMPUTER ISSUE See "Year 2000 Computer Issue" in the Review of the Financial Condition and Results of Operation on page 40 for information. ENVIRONMENTAL MATTERS PP&L is subject to certain present and developing federal, regional, state and local laws and regulations with respect to air and water quality, land use and other environmental matters. See "Financial Condition - Capital Expenditure Requirements" on page 32 for information concerning environmental expenditures during 1997 and PP&L's estimate of those expenditures during the years 1998-2002. PP&L believes that it is presently in substantial compliance with applicable environmental laws and regulations. See "Environmental Matters" on page 35 and Note 16 to Financial Statements for information concerning federal clean air legislation enacted in 1990, groundwater degradation and waste water control at PP&L facilities, the DEP's solid waste disposal regulations and PP&L's agreement with the DEP concerning remediation at certain sites of past operations. Other environmental laws, regulations and developments that may have a substantial impact on PP&L are discussed below. Air The Clean Air Act includes, among other things, provisions that: (a) require the prevention of significant deterioration of existing air quality in regions where air quality is better than applicable ambient standards; (b) restrict the construction of and revise the performance standards for new coal-fired and oil-fired generating stations; and (c) authorize the EPA to impose substantial noncompliance penalties of up to $25,000 per day of violation for each facility found to be in violation of the requirements of an applicable state implementation plan. The DEP administers the EPA's air quality regulations through the Pennsylvania State Implementation Plan and has concurrent authority to impose penalties for noncompliance. At this time, PP&L is meeting all requirements of Phase I of the Clean Air Act. In December 1997, international negotiators reached agreement in Kyoto, Japan to strengthen the 1992 United Nations Global Climate Change Treaty by adding legally-binding greenhouse gas emission limits. This Agreement -- formally called the Kyoto Protocol -- if ratified by the U.S. Senate and implemented, would require the United States to reduce its greenhouse gas emissions to 7% below 1990 levels by the period 2008 to 2012. Compliance under the Agreement, if implemented, could result in increased capital and operating expenses for PP&L in amounts which are not now determinable but which could be material. Water To implement the requirements established by the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977 and the Water Quality Act of 1987, the EPA has adopted regulations including effluent standards for steam electric stations. The DEP administers the EPA's effluent standards through state laws and regulations relating, among other things, to effluent discharges and water quality. The standards adopted by the EPA pursuant to the Clean Water Act may have a significant impact on PP&L's existing facilities, depending on the DEP's interpretation and future amendments to its regulations. The EPA and DEP limitations, standards and guidelines for the discharge of pollutants from point sources into surface waters are implemented through the issuance of NPDES permits. PP&L has the NPDES permits necessary for the operation of its facilities. Pursuant to the Surface Mining and Reclamation Act of 1977, the OSM has adopted effluent guidelines which are applicable to PP&L subsidiaries as a result of their past coal mining and continued coal processing activities. The EPA and the OSM limitations, guidelines and standards also are enforced through the issuance of NPDES permits. In accordance with the provisions of the Clean Water Act and the Reclamation Act of 1977, the EPA and the OSM have authorized the DEP to implement the NPDES program for Pennsylvania sources. Compliance with applicable water quality standards is assured by DEP review of NPDES permit conditions. PP&L's subsidiaries have received NPDES permits for their mines and related facilities. Solid and Hazardous Waste The RCRA regulates the generation, transportation, treatment, storage and disposal of hazardous wastes. RCRA also imposes joint and several liability on generators of solid or hazardous waste for clean-up costs. A revision of RCRA in late-1984 lowered the threshold for the amount of on-site hazardous waste generation requiring regulation and incorporated underground tanks used for the storage of petroleum and petroleum products as regulated units. Based upon the results of a survey of its solid waste practices, PP&L in the past has filed notices with the EPA indicating that hazardous waste is occasionally generated at all of its steam electric generating stations and service centers. PP&L has established specific operating procedures for handling this hazardous waste. Therefore, at this time RCRA and related DEP regulations are not expected to have a significant additional impact on PP&L. The provisions of Superfund authorize the EPA to require past and present owners of contaminated sites and generators of any hazardous substance found at a site to clean up the site or pay the EPA or the state for the costs of clean-up. The generators and past owners can be liable even if the generator contributed only a minute portion of the hazardous substances at the site. Present owners can be liable even if they contributed no hazardous substances to the site. The Pennsylvania Superfund law also gives the DEP broad authority to identify hazardous or contaminated sites in Pennsylvania and to order owners or responsible parties to clean up the sites. If responsible parties cannot or will not perform the clean-up, the DEP can hire contractors to clean up the sites and then require reimbursement from the responsible parties after the clean-up is completed. To date, PP&L has principally been involved in federal, rather than state, Superfund sites. In 1996, PP&L completed removal of coal tar from one subsurface accumulation at a former coal gasification plant site in Monroe County, Pennsylvania and currently expects that significant additional remedial action will not be required. PP&L has entered into agreements with the adjacent property owner and DEP to share the past and future costs of remediating this site. PP&L's share of these costs, including future monitoring, is approximately $3 million, all of which has been spent or accrued. PP&L has removed coal tar in two brick pits on the site of a former gas plant and from river sediment adjacent to the site in Columbia, Pennsylvania. The cost of investigation and remediation of the areas of the site where such action has been required is estimated at $3 million, all of which has been spent or accrued. There also is coal tar contamination of the soil and groundwater at the site. Further remediation of these other areas of the site may be required, the costs of which are not now determinable but could be material. PP&L at one time also owned and operated several other gas plants in its service area. None of these sites is presently on the Superfund list. However, a few of them may be possible candidates for listing at a future date. PP&L expects to continue to investigate and, if necessary, remediate these sites. The cost of this work is not now determinable but could be material. See "LEGAL PROCEEDINGS" on page 14 for information concerning an EPA order and a complaint filed by the EPA in federal district court against PP&L and 35 unrelated parties for remediation of a Superfund site in Berks County, Pennsylvania; a complaint filed by PP&L and 16 unrelated parties in federal district court against other parties for contribution under Superfund relating to the Novak landfill Superfund site in Lehigh County, Pennsylvania and a related action by the EPA against PP&L and 29 unrelated parties to recover the agency's past and future costs at the Novak landfill site; an action by the EPA for reimbursement of the EPA's past response costs and remediation at the site of a former metal salvaging operation in Montour County, Pennsylvania; and PP&L's challenge to the DEP's right to collect fees for emissions from PP&L's coal-fired units. PP&L is involved in several other sites where it may be required, along with other parties, to contribute to investigation and remediation. Some of these sites have been listed by the EPA under Superfund, and others may be candidates for listing at a future date. Future investigation or remediation work at sites currently under review, or at sites currently unknown, may result in material additional operating costs which PP&L cannot estimate at this time. In addition, certain federal and state statutes, including Superfund and the Pennsylvania Hazardous Sites Cleanup Act, empower certain governmental agencies, such as the EPA and the DEP, to seek compensation from the responsible parties for the lost value of damaged natural resources. The EPA and the DEP may file such compensation claims against the parties, including PP&L, held responsible for cleanup of such sites. Such natural resource damage claims against PP&L could result in material additional liabilities. Low-Level Radioactive Waste Under federal law, each state is responsible for the disposal of low-level radioactive waste generated in that state. States may join in regional compacts to jointly fulfill their responsibilities. The states of Pennsylvania, Maryland, Delaware and West Virginia are members of the Appalachian States Low-Level Radioactive Waste Compact. Efforts to develop a regional disposal facility in Pennsylvania are currently underway. Low-level radioactive wastes resulting from the operation of Susquehanna are currently being sent to Barnwell, South Carolina for disposal. In the event that this disposal option becomes unavailable or no longer cost effective, the low-level radioactive waste will be stored on-site at Susquehanna. PP&L cannot predict the future availability of low-level waste disposal facilities or the cost of such disposal. General Concerns have been expressed by some members of the scientific community and others regarding the potential health effects of EMFs. These fields are emitted by all devices carrying electricity, including electric transmission and distribution lines and substation equipment. Federal, state and local officials have focused attention on this issue. PP&L supports the current efforts to determine whether EMFs cause any human health problems and is taking low cost or no cost steps to reduce EMFs, where practical, in the design of new transmission and distribution facilities. PP&L is unable to predict what effect, if any, the EMF issue might have on PP&L operations and facilities and the associated cost. In addition to the matters described above, PP&L and its subsidiaries have been cited from time to time for temporary violations of the DEP and EPA regulations with respect to air and water quality and solid waste disposal in connection with the operation of their facilities and may be cited for such violations in the future. As a result, PP&L and its subsidiaries may be subject to certain penalties which are not expected to be material in amount. PP&L is unable to predict the ultimate effect of evolving environmental laws and regulations upon its existing and proposed facilities and operations. In complying with statutes, regulations and actions by regulatory bodies involving environmental matters, including the areas of water and air quality, hazardous and solid waste handling and disposal and toxic substances, PP&L may be required to modify, replace or cease operating certain of its facilities. PP&L may also incur material capital expenditures and operating expenses in amounts which are not now determinable. FRANCHISES AND LICENSES PP&L has authority to provide electric public utility service throughout its entire service area as a result of grants by the Commonwealth of Pennsylvania in corporate charters to PP&L and companies to which it has succeeded and as a result of certification thereof by the PUC. In addition, the PUC has granted PP&L a license to act as an electric generation supplier throughout Pennsylvania in the state's retail access pilot program. PP&L has been granted the right to enter the streets and highways by the Commonwealth subject to certain conditions. In general, such conditions have been met by ordinance, resolution, permit, acquiescence or other action by an appropriate local political subdivision or agency of the Commonwealth. In January 1998, the United States Department of Energy approved PP&L's application for an export license to sell capacity and/or energy to electric utilities in Canada. PP&L operates Susquehanna Unit 1 and Unit 2 pursuant to NRC operating licenses which expire in 2022 and 2024, respectively. PP&L operates two hydroelectric projects pursuant to licenses which were renewed by the FERC in 1980: Wallenpaupack (44,000 kilowatts capacity) and Holtwood (102,000 kilowatts capacity). The Wallenpaupack license expires in 2004 and the Holtwood license expires in 2014. PP&L also owns one-third of the capital stock of Safe Harbor Water Power Corporation, which holds a project license which extends until 2030 for the operation of its hydroelectric plant. The total capability of the Safe Harbor plant is 417,500 kilowatts, and PP&L is entitled by contract to one-third of the total capacity (139,000 kilowatts). EMPLOYEE RELATIONS As of December 31, 1997, 4,113 of PP&L's 6,343 full-time employees were represented by the IBEW under a labor agreement which expires in May 1998. Page 13 contains a map of PP&L's service territory which shows its location, the location of each of PP&L's coal-fired, oil-fired, hydro and nuclear-fueled generating stations and the location of major population centers. ITEM 2. PROPERTIES The accompanying Map shows the location of PP&L's service area and generating stations. Reference is made to the "Utility Plant" section of Note 1 for information concerning investments in property, plant and equipment. Substantially all electric utility plant is subject to the lien of PP&L's Mortgage. For additional information concerning the properties of PP&L see Item 1, "BUSINESS - Power Supply" and "BUSINESS - Fuel Supply". ITEM 3. LEGAL PROCEEDINGS Reference is made to Notes to Financial Statements for information concerning rate matters and PP&L's restructuring proceeding before the PUC under the Customer Choice Act. Reference is made to "Increasing Competition" in the Review of the Financial Condition and Results of Operation on page 37 for information concerning pending proceedings before the FERC regarding wholesale customers and restructuring of the PJM. Reference is made to Item 1 "BUSINESS-Fuel Supply" for information concerning a lawsuit against the DOE for failure of that agency to perform certain contractual obligations. In August 1995, SER, one of the non-utility generating companies from which PP&L purchases power under the PURPA, brought suit against PP&L in the District Court. SER alleged that, since July 1994, PP&L has improperly curtailed power purchases from SER under the power purchase agreement between the parties. SER claims that such activity breached the power purchase agreement and violated the federal antitrust laws, among other counts. SER alleged that PP&L's actions resulted in loss of revenue from power sales of $1.6 million and an unquantified increase in its costs of operation. SER requested compensatory and punitive damages, as well as treble damages and attorneys' fees for alleged antitrust violations. In May 1996, the District Court granted PP&L's motion to dismiss the complaint. In May 1997, the U.S. Court of Appeals for the Third Circuit affirmed the District Court's dismissal of this suit. In November 1997, the United States Supreme Court denied SER's petition for a writ of certiorari. In December 1995, PP&L filed a petition with the PUC for a declaratory order that it had acted properly in curtailing purchases from SER and other NUGs during minimum generation emergencies on the PJM system. The PUC has stayed a determination in this case pending a FERC decision regarding PP&L's request to decertify SER as a qualifying cogeneration facility (see discussion below). In November 1995, PP&L initiated a civil action against SER in the Lehigh County Court of Common Pleas. The principal issue is whether SER and an affiliate of SER properly used the steam generated by the plant in accordance with the terms of the contract. Under the contract, if the steam was used properly, SER is entitled to a rate of 6.6 cents/kWh; if not, it is entitled to a rate of only 5.0 cents/kWh. The total annual difference in PP&L's payment under the two rates is about $9 million. In April 1996, the Court concluded that PP&L must seek a determination by the FERC prior to reducing the rate paid to SER. Accordingly, in July 1996 PP&L filed a motion with the FERC to revoke SER's status as a qualifying cogeneration facility. PP&L's motion alleges that SER has engaged in a conscious and continuing scheme to mislead PP&L and the FERC and that SER has never complied with the FERC's requirements for a qualifying cogeneration facility under PURPA. This motion is pending. In a related matter, in June 1996 SER filed a lawsuit against PP&L in the Court of Common Pleas of Lehigh County, Pennsylvania. In this lawsuit, SER restates its allegations concerning PP&L's procedures for curtailing power deliveries from SER during periods of minimum generation emergencies declared by the PJM. SER's claims include breach of contract, fraud, negligent misrepresentation and breach of duty of good faith and fair dealing. In addition, SER claims that public statements by PP&L were libelous. In January 1997, the Court stayed SER's state law claims against PP&L pending consideration by the PUC of PP&L's minimum generation petition and dismissed SER's libel claims. PP&L cannot predict the outcome of these proceedings. In April 1991, the U.S. Department of Labor through its MSHA issued citations to one of PP&L's coal-mining subsidiaries for alleged coal-dust sample tampering at one of the subsidiary's mines. The MSHA at the same time issued similar citations to more than 500 other coal-mine operators. Based on a review of its dust sampling procedures, the subsidiary is contesting all of the citations. It is believed at this time, based on the information available, that the MSHA allegations are without merit. Citations were also issued against the independent operator of another subsidiary mine, who is also contesting the citations issued with respect to that mine. The Administrative Law Judge assigned to the proceedings ordered that one case be tried against a single mine operator unrelated to PP&L to determine whether the MSHA could prove its general allegations regarding sample tampering. In April 1994, the Judge ruled in favor of the mine operator and vacated the 75 citations against it. The MSHA appealed the Judge's decision to the Mine Safety and Health Review Commission. In November 1995, the Commission affirmed the Judge's rulings in favor of the operator. The Secretary of Labor has appealed the Commission's decision to the U.S. Court of Appeals for the District of Columbia Circuit. PP&L cannot predict the outcome of these proceedings. In August 1994, PP&L filed a rate complaint with the federal Interstate Commerce Commission, now the Surface Transportation Board, challenging Consolidated Rail Corporation's (Conrail's) coal transportation rates from interchange points with connecting carriers to PP&L's power plants. In September 1995, PP&L amended its complaint to add the connecting carriers, CSX Corporation and Norfolk Southern Corporation, as additional defendants. As a result of a Surface Transportation Board ruling in December 1996, PP&L's complaint against Conrail alone was dismissed, but PP&L's case against Conrail, CSX and Norfolk Southern jointly continued. In September 1997, PP&L reached an agreement with the carriers to settle this case. Under the terms of the settlement, PP&L would pay lower coal transportation rates to the carriers. However, the settlement is conditioned on the outcome of the joint Norfolk Southern/CSX application to take control of Conrail, which is pending before the Surface Transportation Board. PP&L cannot predict the outcome of this proceeding or its ultimate impact on PP&L's coal transportation rates. In July 1997, UGI filed a lawsuit against PP&L requesting that the Court of Common Pleas of Luzerne County, Pennsylvania interpret the PP&L-UGI wholesale power supply agreement. Specifically, UGI has asked the court to declare that it is obligated to purchase from PP&L only that quantity of energy that represents the difference between the amount of UGI's requirements and the amount available to UGI from other sources. UGI also is requesting the court to find that the "energy requirements" of UGI under the power supply agreement do not include energy and capacity purchased by UGI's retail customers from sources other than UGI. PP&L has estimated the potential impact of this claim at up to $14 million between now and the termination of the agreement in 2001. PP&L is seeking recovery of the amount of this claim in UGI's current PUC restructuring proceeding. In August 1991, PP&L and 35 other unrelated parties received an EPA order under CERCLA requiring that certain remedial actions be taken at a former oil recovery site in Berks County, Pennsylvania, which has been included on the federal Superfund list. PP&L had been identified by the EPA as a potentially responsible party, along with over 100 other parties. The EPA order required remediation by the 36 named parties of four specific areas of the site. Remedial action under this order has been completed at a cost of approximately $2 million, of which PP&L's interim share was approximately $50,000. The EPA at the same time filed a complaint under Section 107 of CERCLA in the District Court against PP&L and the same 35 unrelated parties. The complaint asks the District Court to hold the parties jointly and severally liable for all EPA's past costs at the site and future costs of remediating some of the remaining areas of the site. The EPA claims it has spent approximately $21 million to date. PP&L and a group of the other named parties have sued in District Court approximately 460 other parties that have contributed waste to the site, demanding that these companies contribute to the clean-up costs. In July 1993, PP&L and 33 of the 35 unrelated parties received an EPA order under Section 106 of CERCLA requiring remediation of the remaining areas of the site identified by the EPA. The current estimate of remediating the remainder of the site is approximately $18 million. These costs would be shared among the responsible parties. PP&L and other parties to the lawsuit have reached a settlement among themselves and the federal government regarding these claims. PP&L's share of the settlement amount is not material. In December 1991, PP&L and 16 unrelated parties filed complaints against 64 other parties in District Court seeking reimbursement under CERCLA for costs the plaintiffs have incurred and will incur to investigate and remediate the Novak landfill site in Lehigh County, Pennsylvania. The complaints allege that the 64 defendants generated or transported substances disposed of at the Superfund site. A Remedial Investigation and Draft Feasibility Study for the site has been completed at a cost of approximately $3 million, of which PP&L's share was approximately $200,000. The EPA's selected remedy is currently estimated to cost approximately $20 million. The EPA has issued a 106 Order against PP&L and several other parties to implement this remedy. In January 1997, the EPA filed an action against PP&L and 29 other parties under section 107 of CERCLA to recover its costs at the site, which it alleges are in excess of $990,000. The parties have reached a tentative settlement of these actions. PP&L's allocated share is not material. In April 1993, PP&L received an order under Section 106 of CERCLA requiring that actions be taken at the site of a former metal salvaging operation in Montour County, Pennsylvania. The EPA has taken similar action with two other potentially responsible parties at the site. The cost of compliance with the order is currently estimated to be approximately $37 million. The EPA currently estimates that additional remediation work not covered by the order will cost an additional $36 million. In addition, the EPA has already incurred clean-up costs of approximately $5 million to date. The EPA had indicated that it will seek to recover these additional costs at a later date. PP&L's records indicate that scrap metal, wire and transformers were sold to the salvage operator between 1969 and 1971. Current information indicates that PP&L's contribution to the site, if any, is de minimis. PP&L has challenged the DEP's right to collect air emission fees for hazardous air pollutants (HAPs) from PP&L's coal-fired units and air emission fees for emissions from PP&L's Phase I affected units from 1995 through 1999. (Phase I affected units are those units designated by the Clean Air Act, or which voluntarily opt into the requirement, to make certain reductions in SO2 and NOx emissions by 1995; all others must make these reductions by 2000.) The HAPs emissions fees are approximately $200,000 per year. The emission fees for Phase I affected units from 1995 through 1999 are estimated at $1.6 million. Depending on the outcome of this litigation, PP&L may be subject to penalties and interest for withholding portions of fees assessed from 1994 to date. These penalties and interest are not likely to be material. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of 1997. EXECUTIVE OFFICERS OF THE REGISTRANTS Officers of PP&L Resources and PP&L are elected annually by their Boards of Directors to serve at the pleasure of the respective Boards. There are no family relationships among any of the executive officers, or any arrangement or understanding between any executive officer and any other person pursuant to which the officer was selected. There have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions material to the evaluation of the ability and integrity of any executive officer during the past five years. Listed below are the executive officers as of December 31, 1997: PP&L Resources, Inc.: Effective Date of Election to Name Age Position Present Position William F. Hecht 54 Chairman, President and Chief Executive February 24, 1995 Officer Frank A. Long 57 Executive Vice President February 24, 1995 Robert G. Byram* 52 Senior Vice President- Generation and Chief Nuclear Officer - PP&L April 1, 1997 Ronald E. Hill** 55 Senior Vice President- Financial August 1, 1996 Robert D. Fagan* 52 President - PP&L Global, Inc. December 20, 1995 Robert J. Grey 47 Senior Vice President, General Counsel and Secretary March 1, 1996 Joseph J. McCabe 47 Vice President and Controller August 1, 1995 PP&L, Inc.: Effective Date of Election to Name Age Position Present Position William F. Hecht 54 Chairman, President and Chief Executive Officer January 1, 1993 Frank A. Long 57 Executive Vice President and Chief Operating Officer January 1, 1993 Robert G. Byram 52 Senior Vice President- Generation and Chief Nuclear Officer April 1, 1997 Ronald E. Hill** 55 Senior Vice President- Financial January 1, 1994 John R. Biggar** 53 Vice President- Finance August 1, 1996 Robert J. Grey 47 Senior Vice President, General Counsel and Secretary March 1, 1996 Joseph J. McCabe 47 Vice President and Controller August 1, 1995 * Mr. Byram and Mr. Fagan have been designated executive officers of PP&L Resources by virtue of their respective positions at PP&L Resources subsidiaries. ** Effective January 28, 1998, John R. Biggar, Vice President- Finance of PP&L, was elected Senior Vice President-Financial and designated as the acting principal financial officer of PP&L Resources and PP&L pending the selection of a permanent successor to Ronald E. Hill, who has retired. Each of the above officers, with the exception of Mr. Fagan, Mr. Grey and Mr. McCabe, has been employed by PP&L for more than five years as of December 31, 1997. Mr. Fagan joined PP&L Global, Inc. - then a PP&L subsidiary - in November 1994. Prior to that time, he was Vice President and General Manager at Mission Energy Company. Mr. McCabe joined PP&L in May 1994 and was previously a partner of Deloitte & Touche LLP. Mr. Grey joined PP&L in March 1995. He had been General Counsel of Long Island Lighting Company since 1992. Prior to their election to the positions shown above, the following executive officers held other positions within PP&L since January 1, 1993: Mr. Byram was Senior Vice President - System Power & Engineering and Senior Vice President - Nuclear; Mr. Hill was Vice President, Comptroller and Senior Vice President - Financial and Treasurer of PP&L Resources; Mr. Biggar was Vice President-Finance and Vice President - Finance and Treasurer; Mr. Grey was Vice President, General Counsel and Secretary, and Mr. McCabe was Controller. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Additional information for this item is set forth in the sections entitled "Quarterly Financial, Common Stock Price and Dividend Data" on page 83 and "Shareowner and Investor Information" on pages 89 through 91 of this report. The number of common shareowners is set forth in the section entitled "Selected Financial and Operating Data" on page 22. ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
1997 (a) 1996 1995 (a) 1994 (a) 1993 PP&L RESOURCES, INC. Income Items -- millions Operating revenues ...................... $3,049 $2,910 $2,752 $2,725 $2,727 Operating income....................................... 545 556 574 501 563 Net Income ............................................ 296 329 323 216 (e) 314 (e) Balance Sheet Items -- millions (b) Property, plant and equipment, net....... 6,820 6,960 6,970 7,195 7,146 Total assets........................................... 9,485 9,670 9,492 9,372 9,454 Long-term debt......................................... 2,735 2,832 2,859 2,941 2,663 Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely company debentures.................... 250 Preferred stock With sinking fund requirements....................... 47 295 295 295 335 Without sinking fund requirements.................... 50 171 171 171 171 Common equity.......................................... 2,809 2,745 2,597 2,454 2,426 Short-term debt........................................ 135 144 89 74 202 Total capital provided by investors.................... 6,026 6,187 6,011 5,936 5,797 Capital lease obligations ............................. 171 247 220 225 249 Financial Ratios Return on average common equity -- % .... 10.61 12.30 12.81 8.73 13.06 Embedded cost rates (b) Long-term debt -- %.................................. 7.88 7.89 7.95 8.07 8.63 Preferred stock -- %................................. 7.71 6.09 6.09 6.07 6.30 Times interest earned before income taxes.............. 3.39 3.55 3.56 2.73 3.33 Ratio of earnings to fixed charges -- total enterprise basis (c)................................. 3.23 3.45 3.47 2.70 3.31 Ratio of earnings to fixed charges and dividends on preferred stock --total enterprise basis (c)........................ 2.85 2.90 2.91 2.27 2.71 Common Stock Data Number of shares outstanding -- thousands Year-end............................................. 166,248 162,665 159,403 155,482 152,132 Average.............................................. 164,550 161,060 157,649 153,458 151,904 Number of shareowners (b).............................. 117,293 123,290 128,075 132,632 130,677 Earnings per share .................................... $1.80 $2.05 $2.05 $1.41 $2.07 Dividends declared per share........................... $1.67 $1.67 $1.67 $1.67 $1.65 Book value per share (b)............................... $16.90 $16.87 $16.29 $15.79 $15.95 Market price per share (b)............................. $23.938 $23 $25 $19 $27 Dividend payout rate -- %.............................. 93 82 82 119 80 Dividend yield -- % (d)................................ 6.98 7.26 6.68 8.79 6.11 Price earnings ratio (d)............................... 13.30 11.22 12.20 13.48 13.04 (a) 1997, 1995 and 1994 earnings were affected by several one-time adjustments. This affected net income and certain items under Financial Ratios and Common Stock Data. See Financial Notes 4, 11, 12 and 15. (b) At year-end (c) Computed using earnings and fixed charges of PP&L Resources and its subsidiaries. Fixed charges consist of interest on short- and long-term debt, other interest charges, interest on capital lease obligations and the estimated interest component of other rentals. (d) Based on year-end market prices. (e) Restated to reflect formation of the holding company.
SELECTED FINANCIAL AND OPERATING DATA
1997 (a) 1996 1995 (a) 1994 (a) 1993 PP&L, Inc. Income Items -- millions Operating revenues ....................... $3,049 $2,910 $2,752 $2,725 $2,727 Operating income......................................... 545 556 574 501 563 Earnings available to PP&L Resources, Inc................ 308 329 324 215 (d) 314 (d) Balance Sheet Items -- millions (b) Property, plant and equipment, net........ 6,820 6,960 6,970 7,195 7,146 Total assets............................................. 9,472 9,405 9,424 9,321 9,454 Long-term debt........................................... 2,633 2,832 2,859 2,941 2,663 Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely company debentures...................... 250 Preferred stock With sinking fund requirements......................... 295 295 295 295 335 Without sinking fund requirements...................... 171 171 171 171 171 Common equity............................................ 2,612 2,617 2,528 2,404 2,426 Short-term debt.......................................... 45 10 89 74 202 Total capital provided by investors...................... 6,006 5,925 5,942 5,885 5,797 Capital lease obligations ............................... 171 247 220 225 249 Financial Ratios Return on average common equity -- % ..... 11.75 12.95 13.10 8.83 13.06 Embedded cost rates (b) Long-term debt -- %.................................... 7.91 7.89 7.95 8.07 8.63 Preferred stock -- %................................... 6.90 6.09 6.09 6.07 6.30 Times interest earned before income taxes................ 3.67 3.62 3.58 2.73 3.33 Ratio of earnings to fixed charges -- total enterprise basis (c)................................... 3.47 3.50 3.48 2.70 3.31 Ratio of earnings to fixed charges and dividends on preferred stock --total enterprise basis (c).......................... 2.77 2.93 2.92 2.26 2.71 Revenue Data Average price per kWh billed for service area sales - cents........................................ 7.36 7.38 7.21 7.24 7.37 Sales Data Customers (thousands)(b).................. 1,247 1,236 1,226 1,213 1,203 Electric energy sales billed -- millions of kWh Residential ........................................... 11,434 11,849 11,300 11,444 11,043 Commercial ............................................ 10,309 10,288 9,948 9,715 9,373 Industrial ............................................ 10,078 10,016 9,845 9,536 9,100 Other ................................................. 143 154 188 236 219 Service area sales .................................. 31,964 32,307 31,281 30,931 29,735 Wholesale energy sales .............................. 21,454 14,341 11,424 10,848 12,599 Total electric energy sales billed .................. 53,418 46,648 42,705 41,779 42,334 Number of Full-Time Employees (b).......................... 6,343 6,428 6,661 7,431 7,677 (a) 1997, 1995 and 1994 earnings were affected by several one-time adjustments. This affected earnings available to PP&L Resources and certain items in Financial Ratios. See Financial Notes 4, 12, and 15. (b) At year-end (c) Computed using earnings and fixed charges of PP&L and its subsidiaries. Fixed charges consist of interest on short- and long-term debt, other interest charges, interest on capital lease obligations and the estimated interest component of other rentals. (d) Prior years restated to reflect formation of the holding company.
ITEM 7. REVIEW OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PP&L RESOURCES, INC. AND PP&L, INC. PP&L Resources is a holding company with headquarters in Allentown, PA. Its subsidiaries include PP&L, which provides electricity delivery service in eastern and central Pennsylvania, sells retail electricity throughout Pennsylvania and markets wholesale electricity throughout the eastern United States; PP&L Global, an international independent power company; PP&L Spectrum, which markets energy-related services and products; PP&L Capital Funding, which engages in financing for PP&L Resources and its subsidiaries; and H. T. Lyons, a heating, ventilating and air-conditioning firm which PP&L Resources acquired on January 22, 1998. Other subsidiaries may be formed by PP&L Resources to take advantage of new business opportunities. The financial condition and results of operations of PP&L are currently the principal factors affecting the financial condition and results of operations of PP&L Resources. All fluctuations, unless specifically noted, are primarily due to activities of PP&L. All nonutility operating transactions are included in "Other Income and (Deductions)" on the Consolidated Statement of Income. Terms and abbreviations appearing in the Review of the Financial Condition and Results of Operations are explained in the glossary. Forward-looking Information Certain statements contained in this Form 10-K concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are other than statements of historical facts, are "forward-looking statements" within the meaning of the federal securities laws. Although PP&L Resources and PP&L believe that the expectations reflected in these statements are reasonable, there can be no assurance that these expectations will prove to have been correct. These forward-looking statements involve a number of risks and uncertainties, and actual results may differ materially from the results discussed in the forward- looking statements. The following are among the important factors that could cause actual results to differ materially from the forward-looking statements: state and federal regulatory developments, especially the PUC's final order on PP&L's April 1, 1997 restructuring filing; new state or federal legislation; national or regional economic conditions; weather variations affecting customer usage; competition in retail and wholesale power markets; the need for and effect of any business or industry restructuring; PP&L Resources' and PP&L's profitability and liquidity; new accounting requirements or new interpretations or applications of existing requirements; system conditions and operating costs; performance of new ventures; political, regulatory or economic conditions in foreign countries; exchange rates; and PP&L Resources' and PP&L's commitments and liabilities. Any such forward-looking statements should be considered in light of such important factors and in conjunction with PP&L Resources' and PP&L's other documents on file with the SEC. Results of Operations Earnings Earnings per share of common stock were $1.80 in 1997 and $2.05 in 1996 and 1995. Excluding the effects of weather and one-time adjustments, earnings were $2.03 per share in 1997, compared to $2.00 per share in 1996. The effect of milder weather in 1997 adversely impacted earnings in 1997 and colder than normal weather benefited earnings in 1996. The following table highlights the major items that impacted earnings for each of these years: 1997 1996 1995 Earnings per share - excluding weather and one-time adjustments $2.03 $2.00 $1.77 Weather variances on billed sales (0.03) 0.05 0.02 One-time adjustments: Windfall Profits Tax (0.23) U.K. Income Tax Rate Reduction 0.06 Penn Fuel Gas acquisition costs (0.03) PUC Decision 0.21 Workforce reduction programs (0.11) ECR purchased power costs 0.04 Gain on subsidiary coal reserves 0.12 Earnings per share - reported $1.80 $2.05 $2.05 Weather-normalized sales to service area customers remained relatively unchanged from the prior year, increasing by 0.2 percent. A major factor in this low growth was the shutdown of a large steel producing facility. Excluding steel-related sales losses, weather normalized service area energy sales would have increased by 1.1 percent in 1997 when compared to 1996. In 1997, higher revenues from bulk power sales and trading activity of the Energy Marketing Center offset the impact of the phase-down of contractual sales to JCP&L. Earnings also benefited from refinancing activities and, excluding one-time adjustments, the on-going operations of PP&L Global. A change in the regulatory treatment of energy costs (see "Operating Revenues" on page 27) and higher depreciation in 1997 partially offset these earnings gains. The earnings improvement in 1996 -- excluding weather and one-time adjustments -- was primarily due to higher revenues resulting from the base rate increase from the PUC Decision as well as higher sales to all service area classes. Earnings also benefited from lower interest expense due to refinancing efforts. These earnings gains were partially offset by a reduction in contractual bulk power sales to JCP&L, as well as higher wages and benefits and depreciation expense. The costs of establishing the organization and programs to meet retail competition in Pennsylvania are estimated to be approximately $35 million more in 1998 than in 1997. These expenses will adversely affect 1998 earnings. In addition, the settlement agreements with 16 small utilities, if approved by FERC as filed, would require PP&L to write off a portion of its stranded costs applicable to these customers. The amount of this write-off is currently estimated at approximately $28 million after-tax, or 17 cents per share of common stock. See Financial Note 3 for additional information. The reduction in contractual bulk power sales to JCP&L and other major utilities will also continue to adversely impact earnings over the next few years. However, the efforts of the Energy Marketing Center to resell the returning electric energy and capacity on the open market, along with its other energy trading activities, should continue to offset the loss in revenues from declining contractual sales. Finally, the Customer Choice Act and the regulatory and business developments related thereto could have a major impact on the future financial performance of PP&L. See "PUC Restructuring Proceeding" on page 27 for additional information. Electric Energy Sales The change in PP&L's electric energy sales was attributable to the following: 1997 1996 vs vs 1996 1995 (Millions of kWh) Service Area sales Residential (415) 548 Commercial 21 341 Industrial 62 171 Other (11) (34) Total Service Area Sales (343) 1,026 Wholesale Energy Sales 7,113 2,917 Total 6,770 3,943 Service area sales were 32.0 billion kWh for 1997, a decrease of 343 million kWh, or 1.1%, from 1996. Part of this decrease was attributable to milder weather in the first quarter of 1997 as compared to 1996. If normal weather had been experienced in both 1997 and 1996, total service area sales for 1997 would have increased by about 49 million kWh, or 0.2%, over 1996. Actual sales to residential customers in 1997 decreased 415 million kWh, or 3.5%, from 1996, compared with an increase in 1996 of 548 million kWh, or 4.8%, from 1995. Under normal weather conditions, the 1997 decrease would have been 0.9%. Weather-adjusted commercial sales increased 1.0% in 1997, and sales to industrial customers increased by 0.6% from 1996. Wholesale energy sales, which include sales to other utilities and energy marketers through contracts, spot market transactions or power pool arrangements, were 21.5 billion kWh for the year ended December 31, 1997, an increase of 7.1 billion kWh, or 49.6%, from 1996, despite the reduction in PP&L's contractual bulk power sales to JCP&L. This increase was primarily the result of increased generation from PP&L units and the increased activity of the Energy Marketing Center. See "Operating Revenues" for more information. Operating Revenues The change in total operating revenues was attributable to the following: 1997 1996 vs vs 1996 1995 (Millions of Dollars) Base Rate Revenues - Service Area Sales: Sales volume and sales mix effect $ (2) $ 57 Weather effect (31) 13 Unbilled revenues 17 (27) Rate increase - PUC Decision 0 76 Energy Revenues (30) 5 Wholesale Revenues Energy and capacity 139 27 Reservation charges and other 32 (7) Other, net 14 14 $139 $158 Operating revenues increased by $139 million, or 4.8%, in 1997 over 1996. Revenues from service area sales in 1997 were slightly lower than in 1996. This was the result of mild weather in the first quarter of 1997 compared to extremely cold weather during the first quarter of 1996. However, 1997 saw higher revenues from bulk power sales and the trading activities of PP&L's Energy Marketing Center. The efforts of the Energy Marketing Center essentially offset the reduced revenues from the phase- down of contractual sales to JCP&L. These increases were partially offset by a change in the regulatory treatment of energy costs by the PUC. Specifically, beginning January 1, 1997, underrecovered energy costs up to a cap of $31.5 million annually are no longer recorded as energy revenues but as regulatory credits, which are offsets to "Other Operating Expenses." To the extent that underrecovered energy costs -- primarily fuel and purchased power -- exceed the cap, earnings are adversely affected. Weather also had an unfavorable impact when comparing 1997 to 1996. Operating revenues increased by $158 million, or 5.8%, in 1996 over 1995. Base rate revenues were enhanced by the PUC Decision and strong sales growth in all customer classes. In addition, weather had a favorable impact when comparing 1996 to 1995. Also, 1996 revenues reflected increased sales to other utilities, primarily due to the one- year contract to supply energy to PSE&G. These increases were partially offset by the loss of revenue due to the phase-down of the capacity and energy agreement with JCP&L. PUC Restructuring Proceeding In December 1996, Pennsylvania enacted the Customer Choice Act to restructure its electric utility industry in order to create retail access to a competitive market for the generation of electricity. The Act includes the following major provisions: (1) all electric utilities in Pennsylvania are required to file a restructuring plan with the PUC to implement direct access to a competitive market for electric generation; (2) retail customer choice will be phased in over three years, beginning as early as January 1, 1999; (3) electric distribution companies will be the suppliers of last resort, and the PUC will ensure that adequate generation reserves exist to maintain reliable electric service; (4) retail rates generally will be capped for at least four-and-a-half years for transmission and distribution charges and for as long as nine years for generation charges; (5) utilities are permitted to recover PUC- approved transition or stranded costs through a non-bypassable Competitive Transition Charge (CTC); and (6) transition bonds may be issued to refinance the stranded costs, with a transition charge on customers bills to repay the bonds. Under the Customer Choice Act, the PUC is authorized to determine the amount of PP&L's stranded costs to be recovered through a CTC to be paid by all PUC-jurisdictional customers who receive transmission and distribution service from PP&L. Stranded costs are defined in the Customer Choice Act as "generation-related costs... which would have been recoverable under a regulated environment but which may not be recoverable in a competitive generation market and which the PUC determines will remain following mitigation by the electric utility." In accordance with the Customer Choice Act, PP&L filed its restructuring plan with the PUC on April 1, 1997. PP&L's restructuring plan includes a claim of $4.5 billion (on a net present value basis as of January 1, 1999) for stranded costs. Pursuant to the Customer Choice Act, this claim is comprised of the following categories: 1. Net plant investments and costs attributable to existing generation plants and facilities, costs of power purchases, disposal costs of spent nuclear fuel, retirement costs attributable to existing generating plants and employee-related transition costs; 2. Prudently incurred costs related to the cancellation, buyout, buydown or renegotiation of NUG contracts; and 3. Regulatory assets and other deferred charges typically recoverable under current regulatory practice and cost obligations under PUC-approved contracts with NUGs. The following are the components of PP&L's stranded cost claim as presented in the evidentiary record of the proceeding: Amount Category of Stranded Cost (Millions of Dollars) Nuclear Generation(a) $2,825 Fossil Generation(a) 670 NUG Contracts 651 Regulatory Assets 354 $4,500 (a) Includes deferred income taxes related to generation assets. In determining the appropriate amount of stranded cost recovery, the Customer Choice Act requires the PUC to consider the extent to which an electric utility has taken steps to mitigate stranded costs by appropriate means that are reasonable under the circumstances. Mitigation efforts undertaken over time prior to the enactment of the Customer Choice Act are to be considered of equal importance by the PUC in determining an electric utility's stranded costs as actions taken after the passage of the Customer Choice Act. In its restructuring plan, PP&L described its extensive efforts to mitigate its stranded costs, resulting in a reduction in its stranded cost claim of over $1 billion. Numerous parties have intervened in PP&L's restructuring proceeding. These parties are recommending stranded cost recovery by PP&L ranging from $695 million to $3.2 billion. In this regard, the PUC's OTS recommends that PP&L be permitted to recover $3.2 billion of its stranded costs; the PP&L Industrial Customer Alliance recommends recovery of $695 million; and the OCA recommends recovery of $1.1 billion. Under Pennsylvania law, the OCA and the OTS have advocacy roles in proceedings before the PUC. Testimony filed by the OCA and OTS carries no more weight than testimony filed by any other party in the proceeding. Evidentiary hearings in this matter were held in late-August. The PUC has revised the procedural schedule several times to permit continued settlement discussions among the parties. In February 1998, the parties filed their Main Briefs in the proceeding. Under the current schedule, the PUC's final order is due by June 4, 1998. PP&L cannot predict the ultimate outcome of this proceeding. The ultimate impact of the Customer Choice Act on PP&L's financial health will depend on numerous factors, including: 1. The PUC's final order in the restructuring proceeding, including the amount of stranded cost recovery approved by the PUC and the PUC's disposition of other issues raised; 2. The effect of the rate cap imposed under the provisions of the Customer Choice Act; 3. The actual market price of electricity over the transition period; 4. Future sales levels; and 5. The extent to which the regulatory framework established by the Customer Choice Act will continue to be applied. Under the Customer Choice Act, PP&L's rates to PUC-jurisdictional customers are capped at the level in effect on January 1, 1997 through mid-2001 for transmission and distribution services and through the year 2005 for generation services to customers who do not choose an alternative supplier. Applying the CTC proposed in its restructuring plan (which is restricted by the rate cap) through the year 2005, it is estimated that PP&L would collect approximately $4 billion (on a net present value basis as of January 1, 1999) of its stranded costs. The remaining $500 million would be reflected as lower cash flow to PP&L after the transition period than would have occurred with continued regulated rates. In this regard, it should be noted that PP&L's stranded cost claim included in the restructuring plan is based on a projection of future market prices and assumes a significant portion of PP&L's stranded costs will be recovered by way of increased market prices for electricity. This increase may or may not occur. To the extent that the market price of electricity does not increase as projected, or other projections do not actually occur, PP&L could experience a lower recovery of stranded costs. If the PUC's final order in the restructuring proceeding were to permit full recovery of PP&L's stranded costs, including full recovery of all regulatory assets and above-market NUG costs over the transition period, PP&L estimates that its net income over the transition period would be reduced by about 5% from amounts that were previously projected under historic cost-based regulation. However, the PUC's final order -- either as a result of a settlement or a fully-litigated proceeding -- may result in changes to components or assumptions in PP&L's restructuring plan that could have an adverse effect on the amount of the CTC, the amount of stranded costs that are recoverable through the CTC or the overall amount of revenues to be collected from customers. As a result of these uncertainties, PP&L cannot determine whether and to what extent it may be subject to a write- off or a reduction in revenues and earnings with respect to the restructuring proceeding. Based on the substantial amounts involved in the restructuring proceeding, should PP&L incur such a write-off or reduction in revenues and earnings, either one could be material in amount. Accordingly, PP&L Resources is unable to predict the ultimate effect of the Customer Choice Act or the PUC's final order in the restructuring proceeding on its financial position, its results of operation, future PP&L rate levels, the need or ability to issue securities to meet future capital requirements or the ability to maintain the common stock dividend at the current level. The Customer Choice Act permits the issuance of "transition bonds" securitized by customer revenues from an Intangible Transition Charge (ITC) to finance the payment of stranded costs. PP&L is considering whether to seek to securitize some portion of its stranded cost claim, which would require the approval of the PUC in a qualified rate order. Certain parties have brought actions in the Pennsylvania Commonwealth Court challenging the constitutionality of the Customer Choice Act. PP&L has intervened in these proceedings in support of the Customer Choice Act. Rate Matters Refer to Financial Note 4 for information regarding rate matters. Fuel Expense Fuel expense for 1997 increased by $18 million from the comparable period in 1996. This increase was primarily due to PP&L's coal-fired units operating at higher output to support increased wholesale electric market activity, resulting in an increase in total coal-fired generation for the year. The increase was slightly offset by a decrease in the unit fuel prices for coal-fired and gas-fired generation. Power Purchases Power purchases in 1997 increased $152 million over the comparable period in 1996. This increase was primarily due to greater quantities of power purchased from other utilities to meet increased trading activities of the Energy Marketing Center. Higher overall market prices of power during 1997 compared to 1996 contributed to the increase in purchased power costs. Power purchases in 1996 increased $61 million from 1995. The increase was primarily due to greater quantities of power purchased from PJM and other utilities, increased customer demand, planned and unplanned outages of PP&L generation stations, and attractive market prices for energy. Income Taxes Income tax expense for 1997 decreased $15 million, or 5.9%, from 1996. This was primarily due to a decrease in pre-tax book income of $52 million. Income tax expense for 1996 decreased $33 million, or 11.3%, from 1995. This was primarily due to a decrease in pre-tax book income of $25 million, and the recording of the tax benefits of research and experimental tax credits and deductions of $5 million. Other Operation, Maintenance and Depreciation Expense Other operation and maintenance expenses in 1997 decreased by $26 million from 1996. Excluding the effect of underrecovered energy costs, operation and maintenance expenses increased by $6 million in 1997. These increases were primarily due to costs associated with the pilot program, the PUC restructuring filing and the FERC transmission access filing. Prior to 1997, underrecovered energy costs were accrued as energy revenues. In 1997, these underrecovered costs were recorded as regulatory credits, which are reflected in the income statement as a reduction of "Other Operating Expense". This reflects a change in the regulatory treatment of undercollected energy costs by the PUC. Depreciation expenses in 1997 increased by $11 million from 1996. These increases were primarily due to depreciation on plant additions and amortization of newly implemented computer software. Other Income and (Deductions) Other income and deductions for 1997 decreased by $31 million from 1996. This decrease was primarily due to the windfall profits tax on PP&L Global's investment in SWEB, which resulted in a $37 million charge. Refer to "Windfall Profits Tax - PP&L Global" for further discussion. Other income and deductions for 1997 also includes a $6 million pre-tax charge for estimated costs associated with the acquisition of PFG. Partially offsetting these charges was a $10 million one-time tax benefit recorded by PP&L Global related to its investment in SWEB. This benefit was based on the reduction of the U.K. corporate income tax rate from 33% to 31%. Other income and deductions improved in 1996 compared with 1995, due to the equity earnings from PP&L Global's investment in SWEB and gains on the sale of investment securities by PP&L. Other income and deductions in 1995 reflected a gain on the sale of a PP&L subsidiary's undeveloped coal reserves, offset by the write-off of Susquehanna Unit 1 deferred operating expenses and carrying costs (net of energy savings) resulting from the PUC Decision and by expenses associated with evaluating and responding to PECO's unsolicited proposals to acquire PP&L Resources. Windfall Profits Tax - PP&L Global In July 1997, the U.K. assessed a windfall profits tax on privatized utilities. The tax is payable in two equal installments; the first installment was made on December 1, 1997 and the second one is due in December 1998. SWEB's windfall profits tax was approximately 90 million pounds sterling, or about $148 million. Based on PP&L Global's 25% ownership interest in SWEB, PP&L Resources incurred a one-time charge against earnings of $37 million, or 23 cents per share, in 1997. Subsidiary Coal Reserves In November 1995, PP&L sold the coal reserves of one of its subsidiaries for $52 million, which resulted in a $42 million gain, or $20 million after-tax. PP&L had acquired the reserves in 1974 with the intention of supplying future coal-fired generating stations, but later concluded that it would not develop these reserves for such purposes. In 1994, the reserves' carrying value was written down from $84 million to $10 million. Financing Costs In 1997, PP&L Resources continued to take advantage of opportunities to reduce its financing costs by retiring long-term debt with the proceeds from the sale of securities at a lower cost and repurchasing PP&L preferred stock. Interest on long-term debt and dividends on preferred stock decreased from $242 million in 1994 to $220 million in 1997, for a total decrease of $22 million. Financial Condition Capital Expenditure Requirements The schedule below shows PP&L's current capital expenditure projections for the years 1998-2002 and actual spending for the year 1997. PP&L's Capital Expenditure Requirements (a) Actual -------------Projected---------------- 1997 1998 1999 2000 2001 2002 (Millions of Dollars) Construction expenditures Generating facilities $ 64 $ 89 $ 66 $ 72 $ 84 $ 86 Transmission and distribution facilities 116 124 121 139 138 145 Environmental 12 15 14 6 5 3 Other 58 74 46 22 20 20 Total Construction Expenditures 250 302 247 239 247 254 Nuclear fuel owned and leased 60 63 60 63 65 67 Other leased property 35 22 22 22 22 22 Total Capital Expen- ditures $345 $387 $329 $324 $334 $343 (a) Construction expenditures include AFUDC which is expected to be less than $10 million in each of the years 1998-2002. PP&L's capital expenditure projections for the years 1998-2002 total about $1.7 billion. Capital expenditure plans are revised from time to time to reflect changes in conditions. Unregulated Investments PP&L Global continues to pursue opportunities to develop and acquire electric generation, transmission and distribution facilities in the United States and abroad. As of December 31, 1997, PP&L Global had investments and commitments in the amount of approximately $370 million in distribution, transmission and generation facilities in the United Kingdom, Bolivia, Peru, Argentina, Spain, Portugal and Chile. PP&L Global's principal investments to date are in SWEB and Emel. In July 1997, PP&L Global acquired a 25.05% interest in Emel at a cost of approximately $118 million. Emel is a Chilean holding company that has majority interests in six electric distribution companies located in Chile and Bolivia. Emel's electric distribution company holdings make it the third largest distributor of electricity in Chile and the second largest in Bolivia, serving a total of 535,000 customers in those countries. Under a shareholders' agreement, PP&L Global and another major shareholder, Las Espigas Group, jointly control Emel's board of directors. In January and February 1998, PP&L Global acquired an additional 300,000 shares in Emel at a cost of approximately $5 million, increasing its ownership interest to 27%. Also, in February 1998, PP&L Global and Emel acquired a 75% interest in Distributidora de Electricidad del Sur (DelSur), an electric distribution company serving 193,000 customers in El Salvador, for approximately $180 million. Under the purchase agreement, PP&L Global will directly acquire 37.5% of DelSur and Emel will acquire the other 37.5%. DelSur is one of five electricity distribution companies in El Salvador that are being privatized by the government. PP&L Resources' other unregulated subsidiary, PP&L Spectrum, offers energy-related products and services. Other subsidiaries may be formed by PP&L Resources to take advantage of new business opportunities. Acquisitions of Penn Fuel Gas, Inc. and H.T. Lyons, Inc. In June 1997, PP&L Resources entered into an agreement with Penn Fuel Gas, Inc. (PFG), a Pennsylvania corporation, pursuant to which PP&L Resources would acquire PFG. PFG, with nearly 100,000 customers in Pennsylvania and a few hundred customers in Maryland, distributes and stores natural gas and sells propane. Under the terms of the agreement, PFG would become a wholly-owned subsidiary of PP&L Resources. Upon consummation of the acquisition, each outstanding PFG common share would be converted into the right to receive between 6.968 and 8.516 shares of PP&L Resources' Common Stock, and each outstanding PFG preferred share would be converted into the right to receive between 0.682 and 0.833 shares of PP&L Resources' Common Stock. PP&L Resources expects to issue shares of its Common Stock valued at about $121 million to complete the transaction. The exact conversion rate and number of PP&L Resources' shares to be issued will be based on the market value of the Common Stock of PP&L Resources at the time of the merger. The transaction is expected to be treated as a pooling-of- interests for accounting and financial reporting purposes. The acquisition of PFG is subject to several conditions, including the receipt of required approvals by the PUC and the SEC. The Maryland Public Service Commission has determined not to institute proceedings on the matter. The U.S. Department of Justice and the Federal Trade Commission have granted early termination of the required waiting period for the acquisition under the Hart-Scott-Rodino Premerger Notification Act. In October 1997, PFG's shareholders approved the acquisition at a special shareholders meeting. The acquisition does not require the approval of PP&L Resources' shareholders. The acquisition is expected to be completed by mid-1998. In the third quarter of 1997, PP&L Resources recorded one-time, non- payroll related transaction costs associated with the acquisition of PFG of $6 million, which reduced earnings by about three cents per share. Additional charges may be incurred in connection with closing on this transaction, which are not expected to be material in amount. On January 22, 1998, PP&L Resources acquired H.T. Lyons, a heating, ventilating and air-conditioning firm in a cash transaction for an amount that is not material. Financing and Liquidity Net cash provided by operating activities decreased by $16 million in 1997 compared with 1996. Net cash provided by operating activities for 1996 increased $101 million over 1995. This increase was primarily due to higher operating revenues, which reflects the 3.8% base rate increase from the PUC Decision as well as higher sales to all customer classes. Lower interest expense also contributed to the increase. These increases were partially offset by higher fuel inventories. Net cash used in investing activities was $141 million lower in 1997 than 1996. This decrease was due primarily to lower construction expenditures by PP&L, liquidation of subsidiaries' long-term investments to make funds available for other investing and financing activities, and a reduction in the amount of equity funds invested by PP&L Global compared to 1996. Net cash used in investing activities was $119 million higher in 1996 than 1995. This increase was primarily due to PP&L Global's investment in SWEB, partially offset by lower construction expenditures by PP&L. Net cash used in financing activities was $257 million higher in 1997 than 1996. The increase was primarily due to PP&L Resources' purchase of PP&L preferred stock at a cost, including a premium and associated cost of purchase, of $380 million. Also, PP&L retired $210 million of long-term debt in 1997, compared with $145 million in 1996. These outflows were partially offset by PP&L's issuance of $250 million of Preferred Securities through two Delaware statutory business trusts. Net cash used in financing activities was $89 million lower in 1996 compared with 1995. This was largely due to higher proceeds from issuance of long-term debt in 1996. Additional financing activities in 1997 included PP&L's issuance of $9 million of Pollution Control Revenue Bonds and PP&L Resources' issuance of $102 million of Medium-term Notes. PP&L Resources also issued $76 million of common stock of which $69 million was issued through its DRIP and the remaining $7 million issued to PP&L's ESOP. For the years 1995-1997, PP&L issued $282 million of long-term debt. For the same period, PP&L and PP&L Resources issued a total of $234 million of common stock. Proceeds from security sales were used to retire $495 million of long-term debt to lower PP&L's financing costs and reduce short-term debt. During the years 1995-1997, PP&L also incurred $252 million of obligations under capital leases (primarily nuclear fuel). PP&L Capital Funding, a wholly-owned subsidiary of PP&L Resources, was formed in September 1997 to provide financing for PP&L Resources and its subsidiaries. The payment of principal, interest and premium, if any, with respect to debt securities issued by PP&L Capital Funding will be guaranteed by PP&L Resources. In November 1997, PP&L and PP&L Capital Funding established a new joint revolving credit facility with a group of 14 banks comprised of two separate revolving credit agreements -- a $150 million 364-day revolving credit agreement and a $300 million five-year revolving credit agreement. The new revolving credit facility replaced PP&L Resources' $300 million revolving credit agreement, PP&L's $250 million revolving credit agreement and three separate PP&L credit agreements totaling $45 million, all of which were terminated. At December 31, 1997, PP&L had no borrowings outstanding under the new revolving credit agreements, and PP&L Capital Funding had $90 million of borrowings outstanding under the five-year revolving credit agreement. See Note 10 for additional information on this credit facility. It is currently expected that the DRIP will continue in 1998 as necessary to provide equity funding for PP&L Global investments, and that PP&L's ESOP will provide proceeds of about $8 million in each of the years 1998 through 2002. Financial Indicators PP&L Resources earned a 10.61% return on average common equity during 1997, a decrease from the 12.30% earned in 1996. Excluding one- time adjustments, as described in "Earnings", the return on average common equity was 11.69% during 1997. The ratio of PP&L Resources' pre- tax income to interest charges was 3.39 for 1997, a decrease from 3.55 in 1996. Excluding one-time adjustments, the ratio of PP&L Resources' pre- tax income to interest charges was 3.53 in 1997, virtually unchanged from 1996. The annual per share dividend rate on common stock remained unchanged at $1.67 per share. The book value per share of common stock increased 0.2%, from $16.87 at the end of 1996 to $16.90 at the end of 1997. The ratio of the market price to book value of common stock was 142% at the end of 1997 compared with 136% at the end of 1996. Environmental Matters Air The Clean Air Act deals, in part, with acid rain, attainment of federal ambient ozone standards and toxic air emissions. PP&L has complied with the Phase I acid rain provisions required to be implemented by 1995 by installing continuous emission monitors on all units, burning lower sulfur coal and installing low nitrogen oxide burners on certain units. To comply with the year 2000 acid rain provisions, PP&L plans to purchase lower sulfur coal and use banked or purchased emission allowances instead of installing FGD on its wholly-owned units. PP&L has met the initial ambient ozone requirements of the Clean Air Act by reducing nitrogen oxide emissions by 40% through the use of low nitrogen oxide burners. Further seasonal (i.e., 5 month) nitrogen oxide reductions to 55% and 75% of 1990 levels for 1999 and 2003, respectively, are specified under the Northeast Ozone Transport Region's Memorandum of Understanding. The DEP has finalized regulations which require PP&L to reduce its ozone seasonal NOx by 57% beginning in 1999. The EPA has finalized new national standards for ambient levels of ground-level ozone and fine particulates. Based in part on the new ozone standard, the EPA has proposed NOx emission limits for 22 states, including Pennsylvania, which in effect requires approximately an 80% reduction from the 1990 level in Pennsylvania in the 2005-2012 timeframe. The new particulates standard may require further reductions in both NOx and SO2 and may extend the reductions from seasonal to year round. The Clean Air Act requires the EPA to study the health effects of hazardous air emissions from power plants and other sources. Depending on the outcome of these studies, PP&L may be required to take additional action. Expenditures to meet the 2000 acid rain and 1999 NOx reduction requirements are included in the table of projected construction expenditures in the section "Financial Condition - Capital Expenditure Requirements". PP&L currently estimates that additional capital expenditures and operating costs for environmental compliance under the Clean Air Act will be incurred beyond 2002 in amounts which are not now determinable but which could be material. Water and Residual Waste DEP residual waste regulations set forth requirements for existing ash basins at PP&L's coal-fired generating stations. Any new ash disposal facility must meet the rigid siting and design standards set forth in the regulations. To address these DEP regulations, PP&L has installed dry fly ash handling systems at most of its power stations, which eliminate the need for ash basins. In other cases, PP&L has modified the existing facilities to allow continued operation of the ash basins under a new DEP permit. Any groundwater contamination caused by the basins must also be addressed. Groundwater degradation related to fuel oil leakage from underground facilities and seepage from coal refuse disposal areas and coal storage piles has been identified at several PP&L generating stations. Remedial work is substantially completed at two generating stations. At this time, the only other remedial work being planned is to abate a localized groundwater degradation problem at Montour. The recently issued final NPDES permit for the Montour station contains stringent limits for iron and chlorine discharges. Depending on the results of a toxic reduction study to be conducted, additional water treatment facilities or operational changes may be needed at this station. Capital expenditures through the year 2002 to comply with the residual waste regulations, correct groundwater degradation at fossil- fueled generating stations, and address waste water control at PP&L facilities are included in the table of construction expenditures in the section "Financial Condition - Capital Expenditure Requirements". In this regard, PP&L currently estimates that $6.5 million of additional capital expenditures may be required in the next four years to close some of the ash basins and address other ash basin issues at various generating plants. Additional capital expenditures could be required beyond the year 2002 in amounts which are not now determinable but which could be material. Actions taken to correct groundwater degradation, to comply with the DEP's regulations and to address waste water control are also expected to result in increased operating costs in amounts which are not now determinable but which could be material. Superfund and Other Remediation In 1995, PP&L entered into a consent order with the DEP to address a number of sites where PP&L may be liable for remediation of contamination. This may include potential PCB contamination at certain PP&L substations and pole sites; potential contamination at a number of coal gas manufacturing facilities formerly owned and operated by PP&L; and oil or other contamination which may exist at some of PP&L's former generating facilities. As of December 31, 1997, PP&L has completed work on nearly half of the sites included in the agreement. At December 31, 1997, PP&L had accrued $8.1 million, representing the amount PP&L can reasonably estimate it will have to spend to remediate sites involving the removal of hazardous or toxic substances including those covered by the consent order mentioned above. Future cleanup or remediation work at sites currently under review, or at sites not currently identified, may result in material additional operating costs which PP&L cannot estimate at this time. In addition, certain federal and state statutes, including Superfund and the Pennsylvania Hazardous Sites Cleanup Act, empower certain governmental agencies, such as the EPA and the DEP, to seek compensation from the responsible parties for the lost value of damaged natural resources. The EPA and the DEP may file such compensation claims against the parties, including PP&L, held responsible for cleanup of such sites. Such natural resource damage claims against PP&L could result in material additional liabilities. General Due to the environmental issues discussed above or other environmental matters, PP&L may be required to modify, replace or cease operating certain facilities to comply with statutes, regulations and actions by regulatory bodies or courts. In this regard, PP&L also may incur capital expenditures, operating expenses and other costs in amounts which are not now determinable but which could be material. Increasing Competition Background The electric utility industry has experienced and will continue to experience a significant increase in the level of competition in the energy supply market. PP&L has publicly expressed its support for full customer choice of electricity suppliers for all customer classes. PP&L is actively involved in efforts at both the state and federal levels to encourage a smooth transition to full competition. PP&L believes that this transition to full competition should provide for the recovery of a utility's stranded costs, which are generation-related costs that traditionally would be recoverable in a regulated environment, but which may not be recoverable in a competitive electric generation market. Pennsylvania Activities Reference is made to "PUC Restructuring Proceeding" for a discussion of PP&L's April 1997 filing of its restructuring plan pursuant to the Customer Choice Act. In February 1997, PP&L filed a proposed retail access pilot program with the PUC in accordance with the applicable provisions of the Customer Choice Act and PUC guidelines. A number of the major parties, including PP&L, entered into a joint settlement agreement resolving all of the issues in the Pennsylvania utilities' pilot proceedings. In August 1997, the PUC issued an order modifying this settlement and modifying and approving PP&L's pilot program. In October 1997, PP&L submitted its pilot program compliance filing to the PUC. Retail customers participating in the PP&L and other pilot programs began to receive power from their supplier of choice in November 1997. Under its pilot program, approximately 60,000 PP&L residential, commercial and industrial customers have chosen their electric supplier. PP&L will continue to provide all transmission and distribution, customer service and back-up energy supply services to participating customers in its service area. Only those alternative suppliers licensed by the PUC and in compliance with the state tax obligations set forth in the Customer Choice Act may participate in the pilot programs. To date, approximately 50 suppliers have obtained such licenses to participate in the pilot programs. In June 1997, the PUC approved PP&L's application for a license to act as an electric generation supplier. This license permits PP&L to participate in the various retail access pilot programs of PP&L and of the other Pennsylvania utilities, and PP&L currently is offering electric supply to the participating customers of those utilities throughout the state. PP&L has exceeded its goals in all classes for acquisition of customers in the pilot program. Federal Activities Legislation has been introduced in the U.S. Congress that would give all retail customers the right to choose among competitive suppliers of electricity as early as 2000. In addition, in April 1996 the FERC adopted rules on competition in the wholesale electricity market primarily dealing with open access to transmission lines, recovery of stranded costs, and information systems for displaying available transmission capability (FERC Orders 888 and 889). These rules required all electric utilities to file open access transmission tariffs by July 9, 1996. The rules also provided that utilities are entitled to recover from certain wholesale requirements customers all "legitimate, verifiable, prudently incurred stranded costs." The FERC has provided recovery mechanisms for wholesale stranded costs, including stranded costs resulting from municipalization. Wholesale contracts signed after July 11, 1994 must contain explicit provisions addressing recovery of stranded costs if the utility wishes to seek such recovery. For requirements contracts signed before that date, a utility may seek recovery if it can show that it had a reasonable expectation of continuing to serve the customer after the contract term. Finally, the rules required that power pools file pool-wide open access transmission tariffs and modified bilateral coordination agreements reflecting the removal of discriminatory provisions by December 31, 1996. In March 1997, the FERC issued Orders 888-A and 889-A. Among other things, these orders required utilities to make certain changes to the non-rate terms and conditions of their open access transmission tariffs. In compliance with Order 888-A, in July 1997 PP&L filed a revised open access transmission tariff. Under FERC Order 888, 16 small utilities which have power supply agreements with PP&L signed before July 11, 1994, requested and were provided with PP&L's current estimate of its stranded costs applicable to these customers if they were to terminate their agreements in 1999. PP&L has now executed settlement agreements with these customers, which will be filed with the FERC for approval. These settlement agreements provide for continued power supply by PP&L through January 2004. If FERC approves the agreements as filed, PP&L would be required to write off a portion of its stranded costs applicable to these customers. The amount of this write-off is currently estimated at approximately $28 million after-tax, or 17 cents per share of common stock. FERC action on this matter is not expected until the second quarter of 1998. In December 1996, the PJM companies submitted a compliance filing with the FERC, which proposed a pool-wide pro forma transmission tariff and a revised interconnection agreement and transmission owners agreement designed to accommodate open, non-discriminatory participation in the pool. The FERC accepted the PJM tariff and proposed rates, subject to refund, and they went into effect on March 1, 1997. In June 1997, all of the PJM companies except PECO (the PJM Supporting Companies) filed proposals with the FERC to amend the PJM tariff and restructure the PJM pool. PECO filed a separate request with the FERC to amend the PJM tariff. Furthermore, PECO and certain electric marketers submitted significantly different proposals to restructure the PJM pool. In November 1997, the FERC approved, with certain modifications, the PJM Supporting Companies' proposals for transforming the PJM into an ISO. In summary, the FERC order: (i) approved the PJM's open access transmission rates based on geographic zones, but required PJM to file a single PJM system-wide rate proposal by 2002; (ii) accepted the PJM Supporting Companies' methodology to price transmission when the system is congested and to charge these congestion costs to system users in addition to the open access transmission rates, but ordered PJM to file an additional proposal to address concerns raised over price certainty for buyers and sellers during periods of congestion; (iii) determined that the ISO is to operate both the transmission system and the power exchange which provides for the purchase and sale of spot energy within the PJM market; and (iv) accepted the PJM Supporting Companies' proposal regarding mandatory installed capacity obligations for all entities serving firm retail and wholesale load within PJM, but rejected their proposal for allocating the capacity benefits which result from PJM's ability to import power from other regional power pools. The PJM Supporting Companies and numerous other parties have filed requests for amendment and/or rehearing of virtually every portion of the FERC's PJM ISO order. PP&L also has filed its own request for amendment and/or rehearing. PP&L's primary issue with the FERC's order relates to a requirement that existing wholesale contracts for sales service and transmission service be modified to have the new PJM transmission tariff applied to service under these existing contracts. If PP&L were required to modify these existing contracts and apply the PJM tariff to them, PP&L could lose as much as $3-4 million in transmission revenues in 1998 -- but a lesser amount in the following years -- from several wholesale sales and transmission service contracts that were negotiated prior to industry deregulation. In July 1997, the FERC accepted a new wholesale power tariff that permits PP&L to sell capacity and energy at market-based rates, both inside and outside the PJM area, subject to certain conditions. This tariff allows PP&L to become more active in the wholesale market with utilities and other entities, and removes pricing restrictions which in the past had limited PP&L to charging at or below cost-based rates. In September 1997, PP&L filed a request with the FERC to lower the applicable PP&L revenue requirement currently set forth in the PJM open access transmission tariff. The new revenue requirement results from PP&L's use of the same test year and cost support data used in the PUC restructuring proceeding. PP&L requested that the new revenue requirement take effect on November 1, 1997. In February 1998, the FERC accepted the proposed rates, subject to refund, and set the amount of the decrease in the revenue requirement for hearing. In September 1997, PP&L also filed a request with the FERC to approve new revenue requirements and rates for the PP&L open access transmission tariff under FERC Order 888. No customers currently take service under that tariff. As with the PJM tariff filing, the new revenue requirements and rates requested by PP&L are based on the same test year and cost support data used by PP&L in its PUC restructuring proceeding. In February 1998, the FERC rejected PP&L's tariff as unnecessary, in light of the PJM open access transmission tariff. In January 1998, the United States Department of Energy approved PP&L's application for an export license to sell capacity and/or energy to electric utilities in Canada. This export license allows PP&L to sell either its own capacity and energy not required to serve domestic obligations or power purchased from other utilities. Year 2000 Computer Issue PP&L Resources and its subsidiaries utilize software and related technologies throughout their businesses. In the year 2000, computer software systems will face a potentially serious problem with recognizing calendar dates. Without corrective action, this problem could result in computer shutdown or erroneous calculations. In 1996, PP&L Resources began assessing the Year 2000 implications on its business systems. During 1997, plans and procedures were developed for achieving compliance, and remediation efforts began. As of the end of 1997, approximately one-third of the software applications have been made Year 2000 compliant. The project is expected to be completed on a timely basis, and the computer systems are expected to be fully Year 2000 compliant, with anticipated future costs of approximately $12 million. (Address and phone number appears here) Thirty South Seventeenth Street Philadelphia, PA 19103-4094 Telephone 215 575 5000 (Price Waterhouse LLP logo appears here) Report of Independent Accountants February 2, 1998 To the Shareowners and Board of Directors of PP&L Resources, Inc. and to the Shareowners and Board of Directors of PP&L, Inc. In our opinion, the accompanying consolidated financial statements listed in the index appearing under Item 14(a)(1) and (2) on page 87, present fairly, in all material respects, the consolidated financial position of PP&L Resources, Inc. and its subsidiaries (PP&L Resources) at December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 and the consolidated financial position of PP&L, Inc. and its subsidiaries (PP&L) at December 31, 1997 and 1996 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of management of PP&L Resources and PP&L; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. (Signed) Price Waterhouse LLP PRICE WATERHOUSE LLP PP&L Resources, Inc. Management's Report on Responsibility for Financial Statements The management of PP&L Resources, Inc. is responsible for the preparation, integrity and objectivity of the consolidated financial statements and all other sections of this annual report. The financial statements were prepared in accordance with generally accepted accounting principles and the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission. In preparing the financial statements, management makes informed estimates and judgments of the expected effects of events and transactions based upon currently available facts and circumstances. Management believes that the financial statements are free of material misstatement and present fairly the financial position, results of operations and cash flows of PP&L Resources. PP&L Resources' consolidated financial statements have been audited by Price Waterhouse LLP (Price Waterhouse), independent certified public accountants, whose report with respect to the financial statements appears on page 41. Price Waterhouse's appointment as auditors was previously ratified by the shareowners. Management has made available to Price Waterhouse all PP&L Resources' financial records and related data, as well as the minutes of shareowners' and directors' meetings. Management believes that all representations made to Price Waterhouse during its audit were valid and appropriate. PP&L Resources maintains a system of internal control designed to provide reasonable, but not absolute, assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition and the prevention and detection of fraudulent financial reporting. The concept of reasonable assurance recognizes that the cost of a system of internal control should not exceed the benefits derived and that there are inherent limitations in the effectiveness of any system of internal control. Fundamental to the control system is the selection and training of qualified personnel, an organizational structure that provides appropriate segregation of duties, the utilization of written policies and procedures and the continual monitoring of the system for compliance. In addition, PP&L Resources maintains an internal auditing program to evaluate PP&L Resources' system of internal control for adequacy, application and compliance. Management considers the internal auditors' and Price Waterhouse's recommendations concerning its system of internal control and has taken actions which are believed to be cost- effective in the circumstances to respond appropriately to these recommendations. Management believes that PP&L Resources' system of internal control is adequate to accomplish the objectives discussed in this report. The Board of Directors, acting through its Audit and Corporate Responsibility Committee, oversees management's responsibilities in the preparation of the financial statements. In performing this function, the Audit and Corporate Responsibility Committee, which is composed of five independent directors, meets periodically with management, the internal auditors and the independent certified public accountants to review the work of each. The independent certified public accountants and the internal auditors have free access to the Audit and Corporate Responsibility Committee and to the Board of Directors, without management present, to discuss internal accounting control, auditing and financial reporting matters. Management also recognizes its responsibility for fostering a strong ethical climate so that PP&L Resources' affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is characterized and reflected in the business policies and guidelines of PP&L Resources' operating subsidiaries. These policies and guidelines address: the necessity of ensuring open communication within PP&L Resources; potential conflicts of interest; proper procurement activities; compliance with all applicable laws, including those relating to financial disclosure; and the confidentiality of proprietary information. /s/William F. Hecht William F. Hecht Chairman, President and Chief Executive Officer /s/John R. Biggar John R. Biggar Senior Vice President-Financial PP&L, Inc. Management's Report on Responsibility for Financial Statements The management of PP&L, Inc. is responsible for the preparation, integrity and objectivity of the consolidated financial statements and all other sections of this annual report. The financial statements were prepared in accordance with generally accepted accounting principles and the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission. In preparing the financial statements, management makes informed estimates and judgments of the expected effects of events and transactions based upon currently available facts and circumstances. Management believes that the financial statements are free of material misstatement and present fairly the financial position, results of operations and cash flows of PP&L. PP&L's consolidated financial statements have been audited by Price Waterhouse LLP (Price Waterhouse), independent certified public accountants, whose report with respect to the financial statements appears on page 41. Price Waterhouse's appointment as auditors was previously ratified by the shareowners. Management has made available to Price Waterhouse all PP&L's financial records and related data, as well as the minutes of shareowners' and directors' meetings. Management believes that all representations made to Price Waterhouse during its audit were valid and appropriate. PP&L maintains a system of internal control designed to provide reasonable, but not absolute, assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition and the prevention and detection of fraudulent financial reporting. The concept of reasonable assurance recognizes that the cost of a system of internal control should not exceed the benefits derived and that there are inherent limitations in the effectiveness of any system of internal control. Fundamental to the control system is the selection and training of qualified personnel, an organizational structure that provides appropriate segregation of duties, the utilization of written policies and procedures and the continual monitoring of the system for compliance. In addition, PP&L maintains an internal auditing program to evaluate PP&L's system of internal control for adequacy, application and compliance. Management considers the internal auditors' and Price Waterhouse's recommendations concerning its system of internal control and has taken actions which are believed to be cost-effective in the circumstances to respond appropriately to these recommendations. Management believes that PP&L's system of internal control is adequate to accomplish the objectives discussed in this report. The Board of Directors, acting through PP&L Resources' Audit and Corporate Responsibility Committee, oversees management's responsibilities in the preparation of the financial statements. In performing this function, the Audit and Corporate Responsibility Committee, which is composed of five independent directors, meets periodically with management, the internal auditors and the independent certified public accountants to review the work of each. The independent certified public accountants and the internal auditors have free access to PP&L Resources' Audit and Corporate Responsibility Committee and to the Board of Directors, without management present, to discuss internal accounting control, auditing and financial reporting matters. Management also recognizes its responsibility for fostering a strong ethical climate so that PP&L's affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is characterized and reflected in PP&L's business policies and guidelines. These policies and guidelines address: the necessity of ensuring open communication within PP&L; potential conflicts of interest; proper procurement activities; compliance with all applicable laws, including those relating to financial disclosure; and the confidentiality of proprietary information. /s/William F. Hecht William F. Hecht Chairman, President and Chief Executive Officer /s/John R. Biggar John R. Biggar Senior Vice President-Financial ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED STATEMENT OF INCOME PP&L Resources, Inc. and Subsidiaries (Millions of Dollars, except per share data)
1997 1996 1995 Operating Revenues (Notes 1, 4 and 5)............................. $3,049 $2,910 $2,752 Operating Expenses Operation Fuel............................................................ 466 448 451 Power purchases................................................. 504 352 291 Other........................................................... 525 544 504 Maintenance....................................................... 184 191 186 Depreciation (including amortized depreciation) (Notes 1 and 9) ................................................ 374 363 349 Income taxes (Note 6)............................................. 247 253 262 Taxes, other than income (Note 6)................................. 204 203 201 Voluntary early retirement program (Note 4) ......................... (66) 2,504 2,354 2,178 Operating Income................................. 545 556 574 Other Income and (Deductions) Other - net ................................... 18 21 (16) Income taxes (Note 6) ............................................ 9 (24) Gain on sale of coal mining assets (Note 15)......................... 42 Windfall profits tax - PP&L Global (Note 11) ..................... (37) (10) 21 2 Income Before Interest Charges and Dividends on Preferred Stock .................................................. 535 577 576 Interest Charges Long-term debt................................. 196 207 213 Short-term debt and other......................................... 19 13 12 215 220 225 Preferred Stock Dividend Requirements............................... 24 28 28 Net Income....................................... $296 $329 $323 Earnings Per Share of Common Stock (a)........... $1.80 $2.05 $2.05 Average Number of Shares Outstanding (thousands)............... 164,550 161,060 157,649 Dividends Declared Per Share of Common Stock..................... $1.67 $1.67 $1.67 (a) Based on average number of shares outstanding. See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS PP&L Resources, Inc. and Subsidiaries (Millions of Dollars)
1997 1996 1995 Cash Flows From Operating Activities Net income.............................................. $296 $329 $323 Adjustments to reconcile net income to net cash provided by operating activities Depreciation................................................................ 377 366 352 Amortization of property under capital leases............................... 68 86 79 Regulatory debits and credits .............................................. (36) (10) (42) Deferred income taxes and investment tax credits............................ 18 16 Voluntary early retirement program ........................................................ (66) Change in current assets and current liabilities Fuel inventories.......................................................... 11 (14) 43 Other..................................................................... (13) (35) (30) Other operating activities -- net........................................... 56 71 17 Net cash provided by operating activities............................... 777 793 692 Cash Flows From Investing Activities Property, plant and equipment expenditures.............. (310) (360) (403) Proceeds from sale of nuclear fuel to trust................................... 60 93 44 Proceeds from sale of coal reserves......................................................... 52 Purchases of available-for-sale securities ................................... (72) (600) (303) Sales and maturities of available-for-sale securities ........................ 111 631 301 Investment in electric energy projects........................................ (152) (201) (12) Purchases and sales of other financial investments - net...................... 76 Other investing activities -- net....................... (4) 5 8 Net cash used in investing activities................................... (291) (432) (313) Cash Flows From Financing Activities Issuance of long-term debt.............................. 111 116 55 Issuance of common stock...................................................... 76 77 81 Issuance of Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely company debentures................................................... 250 Retirement of long-term debt............................ (210) (145) (140) Purchase of subsidiary's preferred stock (net of premium and associated costs) .............................................. (369) Payments on capital lease obligations................... (68) (86) (79) Common and preferred dividends paid........................................... (298) (296) (290) Net increase (decrease) in short-term debt.................................... (9) 55 15 Other financing activities -- net............................................. (20) (1) (11) Net cash used in financing activities................................... (537) (280) (369) Net Increase(Decrease) in Cash and Cash Equivalents................ (51) 81 10 Cash and Cash Equivalents at Beginning of Period................................ 101 20 10 Cash and Cash Equivalents at End of Period...................................... $50 $101 $20 Supplemental Disclosures of Cash Flow Information Cash paid during the year for: Interest (net of amount capitalized)........................................ $208 $213 $218 Income taxes................................................................ $244 $286 $257 See accompanying Notes to Financial Statements.
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, PP&L Resources, Inc. and Subsidiaries (Millions of Dollars)
Assets 1997 1996 Property, Plant and Equipment Electric utility plant in service - at original cost..... $9,984 $9,824 Accumulated depreciation (Notes 1 and 9).................................... (3,570) (3,337) 6,414 6,487 Construction work in progress - at cost ...................................... 185 172 Nuclear fuel owned and leased - net of amortization ......................... 167 170 Other leased property - net of amortization ........................................... 76 Electric utility plant - net ............................................... 6,766 6,905 Other property - (net of depreciation, amortization and depletion: 1997, $57; 1996, $54)........................................ 54 55 6,820 6,960 Investments Investment in and advances to electric energy projects -- at equity (Note 1) ............................................. 360 224 Affiliated companies - at equity (Note 1)..................................... 17 17 Nuclear plant decommissioning trust fund (Notes 1 and 7)...................... 163 128 Financial investments (Notes 1 and 8) ........................................ 52 133 Other-at cost or less (Note 8) ............................................... 13 18 605 520 Current Assets Cash and cash equivalents (Note 1) ...................... 50 101 Current financial investments (Notes 1 and 8)................................. 6 73 Accounts receivable (less reserve: 1997, $16; 1996, $25) Customers .................................................................. 190 196 Other ...................................................................... 48 49 Unbilled revenues Customers................................................................... 90 85 Other ...................................................................... 37 17 Fuel, materials and supplies - at average cost ............................... 200 201 Deferred income taxes (Note 6)................................................ 22 21 Other ........................................................................ 52 40 695 783 Regulatory Assets and Other Noncurrent Assets (Note 9)......................... 1,365 1,407 $9,485 $9,670 See accompanying Notes to Financial Statements. Liabilities 1997 1996 Capitalization Common equity Common stock ............................................................... $2 $2 Capital in excess of par value ............................................ 1,669 1,596 Earnings reinvested......................................................... 1,164 1,143 Capital stock expense and other ............................................ (26) 4 2,809 2,745 Preferred stock With sinking fund requirements ............................................. 47 295 Without sinking fund requirements .......................................... 50 171 Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely company debentures ......................................................... 250 Long-term debt .......................................... 2,585 2,802 5,741 6,013 Current Liabilities Short-term debt (Note 10) ............................... 135 144 Long-term debt due within one year ........................................... 150 30 Capital lease obligations due within one year ................................ 58 81 Accounts payable ............................................................. 140 133 Taxes accrued ................................................................ 40 53 Interest accrued ............................................................. 62 61 Dividends payable ............................................................ 76 75 Other ........................................................................ 108 78 769 655 Deferred Credits and Other Noncurrent Liabilities Deferred investment tax credits (Note 6) ................ 199 209 Deferred income taxes (Note 6) ............................................... 2,022 2,052 Capital lease obligations .................................................... 113 166 Other (Notes 1, 4 and 7)...................................................... 641 575 2,975 3,002 Commitments and Contingent Liabilities (Note 16) .............................. $9,485 $9,670 See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF SHAREOWNERS' COMMON EQUITY PP&L Resources, Inc. and Subsidiaries (Millions of Dollars)
Capital Common Stock Outstanding in Excess Earnings Capital Stock Shares (a) Amount of Par Value Reinvested Expense & Other Balance at December 31, 1994. 155,481,962 $2 $1,433 $1,024 $(4) Net income..................................... 323 Cash dividends declared on common stock.............................. (264) Common stock issued (b) ............ 3,921,304 80 Other............................................... 3 Balance at December 31, 1995. 159,403,266 $2 $1,513 $1,083 $(1) Net income..................................... 329 Cash dividends declared on common stock.............................. (269) Common stock issued (b) ............ 3,262,150 77 Other............................................... 6 5 Balance at December 31, 1996. 162,665,416 $2 $1,596 $1,143 $4 Net income..................................... 296 Cash dividends declared on common stock.............................. (275) Common stock issued (b) ... 3,582,868 76 Other...................... (3) (30) Balance at December 31, 1997........ 166,248,284 $2 $1,669 $1,164 $(26) (a) $.01 par value, 390,000,000 shares authorized. Each share entitles the holder to one vote on any question presented to any shareowners' meeting. (b) Common Stock issued through the ESOP and the DRIP. See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF PREFERRED STOCK AT DECEMBER 31, PP&L Resources, Inc. and Subsidiaries (a) (Millions of Dollars)
Shares Outstanding Outstanding Shares 1997(b) 1996 1997 (b) Authorized PP&L Preferred Stock - $100 par, cumulative 4-1/2%........................... $25 $53 530,189 629,936 Series........................... 72 413 4,133,556 10,000,000 $97 $466 Details of Preferred Stock (c) Optional Sinking Fund Redemption Provisions Shares Price Per Shares to be Outstanding Outstanding Share Redeemed Redemption 1997 (b) 1996 1997 (b) 1997 Annually (f) Period With Sinking Fund Requirements Series Preferred 5.95% ................... $1 $30 300,000 (d) 10,000 April 2001 6.05%............................ 25 250,000 (d) 6.125% .................. 31 115 1,150,000 (d) (e) 2003-2008 6.15%.................... 10 25 250,000 (d) 100,000 April 2003 6.33% ................... 5 100 1,000,000 (d) 50,000 July 2003 $47 $295 Without Sinking Fund Requirements 4-1/2% Preferred........... $25 $53 530,189 $110.00 Series Preferred 3.35%.................... 2 4 41,783 103.50 4.40%.................... 11 23 228,773 102.00 4.60%.................... 3 6 63,000 103.00 6.75%.................... 9 85 850,000 (d) $50 $171 Increases(Decreases) in Preferred Stock There were no issuances or redemptions of preferred stock in 1997, 1996 or 1995. (a) Each share of PP&L's preferred stock entitles the holder to one vote on any question presented to PP&L's shareowners' meetings. There were 10,000,000 shares of Resources' preferred stock and 5,000,000 shares of PP&L's preference stock authorized; none were outstanding at December 31, 1997 and 1996, respectively. (b) In 1997, PP&L Resources acquired 79.10% ($369 million par value) of the outstanding preferred stock of PP&L in a tender offer. At December 31, 1997, these shares have not been retired or redeemed. The par value of PP&L preferred stock acquired by PP&L Resources has been eliminated for purposes of providing consolidated financial statements. (c) The involuntary liquidation price of the preferred stock is $100 per share. The optional voluntary liquidation price is the optional redemption price per share in effect, except for the 4-1/2% Preferred Stock for which such price is $100 per share (plus in each case any unpaid dividends). (d) These series of preferred stock are not redeemable prior to the following years: 5.95%, 2001; 6.05%, 2002; 6.125%, 6.15%, 6.33% and 6.75%, 2003. (e) Shares to be redeemed annually on October 1 as follows: 2003-2007, 57,500; 2008, 22,500. (f) After giving effect to the preferred stock tender offer. See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF COMPANY-OBLIGATED MANDATORILY REDEEMABLE SECURITIES AT DECEMBER 31, PP&L Resources, Inc. and Subsidiaries (a) PP&L, Inc. and Subsidiaries (a) (Millions of Dollars)
Outstanding 1997 1996 1997 Authorized Maturity (b) Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Company Debentures - $25 per security 8.10%........ $150 $0 6,000,000 6,000,000 July 2002 8.20%..................... 100 0 4,000,000 4,000,000 April 2002 $250 $0 (a) PP&L arranged for the issuance of a total of $250 million of Company-obligated mandatorily redeemable Preferred Securities of subsidiary trusts holding solely company debentures by PP&L Capital Trust and PP&L Capital Trust II, two Delaware statutory business trusts. These Preferred Securities are supported by a corresponding amount of junior subordinated deferrable interest debentures issued by PP&L to the trusts. PP&L owns all of the common securities, representing the remaining undivided beneficial ownership interest in the assets of the trusts. The proceeds derived from the issuance of the Preferred Securities and the common securities were used by PP&L Capital Trust and PP&L Capital Trust II to acquire $103 million and $155 million principal amount of Junior Subordinated Deferrable Interest Debentures, respectively. PP&L has guaranteed all of the trusts' obligations under the Preferred Securities. The proceeds of the sale of these Preferred Securities were loaned by PP&L to PP&L Resources for the tender offer for PP&L preferred stock. (b) The Preferred Securities are subject to mandatory redemption, in whole or in part, upon the repayment of the Subordinated Debentures at maturity or their earlier redemption. At the option of the Company, the Subordinated Debentures are redeemable on and after the dates shown above in whole at any time or in part from time to time. The amount of Preferred Securities subject to such mandatory redemption will be equal to the amount of related Subordinated Debentures maturing or being redeemed. The redemption price is $25 per security plus an amount equal to accumulated and unpaid distributions to the date of redemption. See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF LONG-TERM DEBT AT DECEMBER 31, PP&L Resources, Inc. and Subsidiaries (Millions of Dollars)
Outstanding 1997 1996 Maturity(b) First Mortgage Bonds (a) 6 3/4% .................................. $30 November 1, 1997(c) 5 1/2%.................................................... $150 150 April 1, 1998 7%....................................................................... 40 January 1, 1999(c) 6%........................................................ 125 125 June 1, 2000 7 1/4% .................................................................. 60 February 1, 2001(c) 7 3/4%.................................................... 150 150 May 1, 2002 6 1/2% to 7 1/2%.......................................... 525 605 2003-2007 (c) 7.70%..................................................... 200 200 2008-2012 (d) 7 3/8%.................................................... 100 100 2013-2017 8 1/2% to 9 3/8% ......................................... 465 465 2018-2022 6 3/4% to 7 7/8% ......................................... 500 500 2023-2027 First Mortgage Pollution Control Bonds (a) 6.40% Series H........................... 90 90 November 1, 2021 5.50% Series I............................................ 53 53 February 15, 2027 6.40% Series J............................................ 116 116 September 1, 2029 6.15% Series K............................................ 55 55 August 1, 2029 2,529 2,739 Medium Term Notes (e) 6.79%.................................... 100 November 22, 2004 6.84%..................................................... 2 November 20, 2007 Unsecured promissory notes ................................. 116 116 Pollution Control Revenue Bonds............................. 9 (f) 2,756 2,855 Unamortized (discount) and premium -- net .................. (21) (23) 2,735 2,832 Less amount due within one year............................. 150 30 Total long-term debt ..................................... $2,585 $2,802 __________________________________________ (a) Substantially all owned electric utility plant is subject to the lien of PP&L's Mortgage. (b) Aggregate long-term debt maturities through 2002 are (millions of dollars): 1998, $150; 2000, $125; 2002, $150. There are no bonds outstanding that have sinking fund requirements. (c) In 1997, PP&L redeemed the $30 million of 6 3/4% mortgage bonds of the optional redemption price of 100% of the principal amount. Three series were redeemed under the maintenance and replacement fund provisions: $40 million of the 7% series due in 1999, $60 million of the 7 1/4% series due in 2001, and $80 million of the 7 1/2% series due in 2003. (d) Any registered owner of these bonds has the right to require PP&L to redeem such owner's bonds on October 1, 1999 at a price of 100% of the principal amount. (e) In 1997, PP&L Capital Funding issued two tranches of Medium-Term Notes. The proceeds derived from the issuance of these notes were used to pay down loans made under PP&L Resources' revolving credit agreement. (f) In 1997, the Indiana County Industrial Development Authority issued $62 million of Pollution Control Revenue Bonds. Of this amount, $9 million relates to PP&L's share of the financing of scrubber costs at the Conemaugh Station. The proceeds were used to retire the interim financing previously arranged for the Conemaugh project. See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF INCOME PP&L, Inc. and Subsidiaries (Millions of Dollars)
1997 1996 1995 Operating Revenues (Notes 1, 4 and 5)............................. $3,049 $2,910 $2,752 Operating Expenses Operation Fuel.......................................................... 466 448 451 Power purchases............................................... 504 352 291 Other......................................................... 525 544 504 Maintenance..................................................... 184 191 186 Depreciation (including amortized depreciation) (Notes 1 and 9) .............................................. 374 363 349 Income taxes (Note 6)........................................... 247 253 262 Taxes, other than income (Note 6)............................... 204 203 201 Voluntary early retirement program (Note 4) ........................ (66) 2,504 2,354 2,178 Operating Income.................................................. 545 556 574 Other Income and (Deductions) Other - net .................................. 11 17 (12) Income taxes (Note 6) .......................................... (1) (2) (26) Gain on sale of coal mining assets (Note 15) ....................... 42 10 15 4 Income Before Interest Charges.................................... 555 571 578 Interest Charges Long-term debt................................ 195 207 213 Short-term debt and other....................................... 12 7 13 207 214 226 Net Income........................................................ 348 357 352 Dividends on Preferred Stock...................................... 40 28 28 Earnings Available to PP&L Resources, Inc. ..................... $308 $329 $324 See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS PP&L, Inc. and Subsidiaries (Millions of Dollars)
1997 1996 1995 Cash Flows From Operating Activities Net income........................................ $348 $357 $352 Adjustments to reconcile net income to net cash provided by operating activities Depreciation....................................................... 377 366 352 Amortization of property under capital leases...................... 68 86 79 Regulatory debits and credits ..................................... (36) (10) (42) Deferred income taxes and investment tax credits.......................................................... 20 (1) 16 Voluntary early retirement program ............................................ (66) Change in current assets and current liabilities Fuel inventories................................................. 11 (14) 43 Other............................................................ (25) (38) (28) Other operating activities -- net.................................. 23 53 (10) Net cash provided by operating activities...................... 786 799 696 Cash Flows From Investing Activities Property, plant and equipment expenditures........ (310) (360) (403) Proceeds from sales of nuclear fuel to trust......................... 60 93 44 Proceeds from sale of coal reserves............................................. 52 Purchases of available-for-sale securities .......................... (72) (90) (81) Sales and maturities of available-for-sale securities......................................................... 88 93 80 Purchases and sales of other financial investments - net.................................................. 76 Loan to parent ................................... (375) Other investing activities -- net................. (4) 5 7 Net cash used in investing activities.......................... (537) (259) (301) Cash Flows From Financing Activities Issuance of long-term debt........................ 9 116 55 Issuance of Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely company debentures ......................................... 250 Issuance of common stock and capital contribution from parent........................................... 7 32 60 Retirement of long-term debt......................................... (210) (145) (140) Payments on capital lease obligations................................ (67) (86) (79) Common and preferred dividends paid.................................. (344) (296) (290) Net increase (decrease) in short-term debt........................... 35 (79) 15 Other financing activities -- net.................................... (9) (2) (10) Net cash used in financing activities.......................... (329) (460) (389) Net Increase(Decrease) in Cash and Cash Equivalents................... (80) 80 6 Cash and Cash Equivalents at Beginning of Period....................... 95 15 9 Cash and Cash Equivalents at End of Period............................. $15 $95 $15 Supplemental Disclosures of Cash Flow Information Cash paid during the year for Interest (net of amount capitalized)............................... $201 $208 $218 Income taxes....................................................... $253 $289 $258 See accompanying Notes to Financial Statements.
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, PP&L, Inc. and Subsidiaries (Millions of Dollars)
Assets 1997 1996 Property, Plant and Equipment Electric utility plant in service - at original cost.... $9,984 $9,824 Accumulated depreciation (Notes 1 and 9)................................... (3,570) (3,337) 6,414 6,487 Construction work in progress - at cost ..................................... 185 172 Nuclear fuel owned and leased - net of amortization ......................... 167 170 Other leased property - net of amortization ............................................ 76 Electric utility plant - net ............................................... 6,766 6,905 Other property - (net of depreciation, amortization and depletion: 1997, $57; 1996, $54)...................................... 54 55 6,820 6,960 Investments Affiliated companies - at equity (Note 1) .............. 17 17 Nuclear plant decommissioning trust fund (Notes 1 and 7)..................... 163 128 Loan to parent .............................................................. 375 Financial investments (Notes 1 and 8) .................. 52 133 Other - at cost or less (Note 8) ............................................ 13 10 620 288 Current Assets Cash and cash equivalents (Note 1) ..................... 15 95 Current financial investments (Notes 1 and 8)................................ 6 51 Accounts receivable (less reserve: 1997, $16; 1996, $25) Customers ................................................................. 188 196 Other ..................................................................... 64 44 Unbilled revenues Customers ................................................................. 90 85 Other ..................................................................... 36 17 Fuel, material and supplies - at average cost ............................... 200 201 Deferred income taxes (Note 6)............................................... 22 21 Other ....................................................................... 49 40 670 750 Regulatory Assets and Other Noncurrent Assets (Note 9)........................ 1,362 1,407 $9,472 $9,405 See accompanying Notes to Financial Statements. Liabilities 1997 1996 Capitalization Common equity Common stock .............................................................. $1,476 $1,476 Additional paid-in capital ................................................ 64 57 Earnings reinvested ....................................................... 1,092 1,094 Capital stock expense and other .......................................... (20) (10) 2,612 2,617 Preferred stock With sinking fund requirements ............................................ 295 295 Without sinking fund requirements ......................................... 171 171 Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely company debentures ........................................................ 250 Long-term debt ......................................... 2,483 2,802 5,811 5,885 Current Liabilities Short-term debt (Note 10) .............................. 45 10 Long-term debt due within one year .......................................... 150 30 Capital lease obligations due within one year ............................... 58 81 Accounts payable ............................................................ 148 132 Taxes accrued ............................................................... 40 55 Interest accrued ............................................................ 59 60 Dividends payable ........................................................... 81 75 Other ....................................................................... 107 78 688 521 Deferred Credits and Other Noncurrent Liabilities Deferred investment tax credits (Note 6) ............... 199 209 Deferred income taxes (Note 6) .............................................. 2,022 2,050 Capital lease obligations .................................................. 113 166 Other (Notes 1, 4 and 7) .................................................... 639 574 2,973 2,999 Commitments and Contingent Liabilities (Note 16) ................................... $9,472 $9,405 See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF SHAREOWNER'S COMMON EQUITY PP&L, INC. AND SUBSIDIARIES (Millions of Dollars)
Additional Common Stock Outstanding Paid-in Earnings Capital Stock Shares (a) Amount Capital Reinvested Expense & Other Balance at December 31, 1994............... 155,481,962 $1,441 $0 $973 $(10) Net income.................................................................. 352 Cash dividends declared Preferred stock.......................................................... (28) Common stock........................................................... (263) Common stock issued (b) ............................... 1,818,420 35 Capital contribution from PP&L Resources................. 25 Other............................................................................ 3 Balance at December 31, 1995............... 157,300,382 $1,476 $25 $1,034 $(7) Net income.................................................................. 357 Cash dividends declared Preferred stock.......................................................... (28) Common stock........................................................... (269) Capital contribution from PP&L Resources................. 32 Other............................................................................ (3) Balance at December 31, 1996............... 157,300,382 $1,476 $57 $1,094 $(10) Net income.................................................................. 348 Cash dividends declared Preferred stock.......................................................... (40) Common stock........................... (275) Dividends to PP&L Resources ........... (35) Capital contribution from PP&L Resources. 7 Other.................................... (10) Balance at December 31, 1997............................. 157,300,382 $1,476 $64 $1,092 $(20) (a) No par value. 170,000,000 shares authorized. As of April 27, 1995, all holders of PP&L common stock became holders of PP&L Resources common stock, all PP&L common stock was acquired by PP&L Resources. (b) Common Stock was issued through the ESOP and DRIP. See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF PREFERRED STOCK AT DECEMBER 31, PP&L, Inc. and Subsidiaries(a) (Millions of Dollars)
Shares Outstanding Outstanding Shares 1997 1996 1997 Authorized Preferred Stock -- $100 par, cumulative 4-1/2%.......... $53 $53 530,189 629,936 Series.......................... 413 413 4,133,556 10,000,000 $466 $466 Details of Preferred Stock (b) Optional Sinking Fund Redemption Provisions Shares Price Per Shares to be Outstanding Outstanding Share Redeemed Redemption 1997 1996 1997 1997 Annually Period With Sinking Fund Requirements Series Preferred 5.95% ................... $30 $30 300,000 (c) 300,000 April 2001 6.05%.................... 25 25 250,000 (c) 250,000 April 2002 6.125% .................. 115 115 1,150,000 (c) (d) 2003-2008 6.15%.................... 25 25 250,000 (c) 250,000 April 2003 6.33% ................... 100 100 1,000,000 (c) (e) 2003-2008 $295 $295 Without Sinking Fund Requirements 4-1/2% Preferred........... $53 $53 530,189 $110.00 Series Preferred 3.35%.................... 4 4 41,783 103.50 4.40%.................... 23 23 228,773 102.00 4.60%.................... 6 6 63,000 103.00 6.75%.................... 85 85 850,000 (c) $171 $171 Increases (Decreases) in Preferred Stock There were no issuances or redemptions of preferred stock in 1997, 1996 or 1995. (a) Each share of PP&L's preferred stock entitles the holder to one vote on any question presented to PP&L's shareowners' meetings. There were 5,000,000 shares of PP&L's preference stock authorized; none were outstanding at December 31, 1997 and 1996, respectively. (b) The involuntary liquidation price of the preferred stock is $100 per share. The optional voluntary liquidation price is the optional redemption price per share in effect, except for the 4-1/2% Preferred Stock for which such price is $100 per share (plus in each case any unpaid dividends). (c) These series of preferred stock are not redeemable prior to the following years: 5.95%, 2001; 6.05%, 2002; 6.125%, 6.15%, 6.33% and 6.75%, 2003. (d) Shares to be redeemed annually on October 1 as follows: 2003-2007, 57,500; 2008, 862500 (e) Shares to be redeemed annually on July 1 as follows: 2003-2007, 50,000; 2008, 750,000. See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF LONG-TERM DEBT AT DECEMBER 31, PP&L, Inc. and Subsidiaries (Millions of Dollars)
Outstanding 1997 1996 Maturity(b) First Mortgage Bonds (a) 6 3/4% ................................. $30 November 1, 1997(c) 5 1/2%.................................................. $150 150 April 1, 1998 7%.................................................................... 40 January 1, 1999(c) 6%...................................................... 125 125 June 1, 2000 7 1/4% ............................................................... 60 February 1, 2001(c) 7 3/4%.................................................. 150 150 May 1, 2002 6 1/2% to 7 1/2%........................................ 525 605 2003-2007 (c) 7.70%................................................... 200 200 2008-2012 (d) 7 3/8%.................................................. 100 100 2013-2017 8 1/2% to 9 3/8% ....................................... 465 465 2018-2022 6 3/4% to 7 7/8% ....................................... 500 500 2023-2027 First Mortgage Pollution Control Bonds (a) 6.40% Series H.......................... 90 90 November 1, 2021 5.50% Series I.......................................... 53 53 February 15, 2027 6.40% Series J.......................................... 116 116 September 1, 2029 6.15% Series K.......................................... 55 55 August 1, 2029 2,529 2,739 Unsecured promissory notes ............................... 116 116 Pollution Control Revenue Bonds........................... 9 (e) 2,654 2,855 Unamortized (discount) and premium -- net ................ (21) (23) 2,633 2,832 Less amount due within one year........................... 150 30 Total long-term debt ................................... $2,483 $2,802 __________________________________________ (a) Substantially all owned electric utility plant is subject to the lien of PP&L's Mortgage. (b) Aggregate long-term debt maturities through 2002 are (millions of dollars): 1998, $150; 2000, $125; 2002, $150. There are no bonds outstanding that have sinking fund requirements. (c) In 1997, PP&L redeemed the $30 million of 6 3/4% mortgage bonds at the optional redemption price of 100% of the principal amount. Three series were redeemed under the maintenance and replacement fund provisions: $40 million of the 7% series due in 1999, $60 million of the 7 1/4% series due in 2001, and $80 million of the 7 1/2% series due in 2003. (d) Any registered owner of these bonds has the right to require PP&L to redeem such owner's bonds on October 1, 1999 at a price of 100% of the principal amount. (e) In 1997, the Indiana County Industrial Development Authority issued $62 million of Pollution Control Revenue Bonds. Of this amount, $9 million relates to PP&L's share of the financing of scrubber costs at the Conemaugh Station. The proceeds were used to retire the interim financing previously arranged for the Conemaugh project. See accompanying Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS Terms and abbreviations appearing in Notes to Financial Statements are explained in the glossary. 1. Summary of Significant Accounting Policies Business and Consolidation As of December 31, 1997, PP&L Resources was the parent holding company of PP&L, PP&L Global, PP&L Spectrum and PP&L Capital Funding. PP&L's financial condition and results of operations are currently the principal factors affecting PP&L Resources' financial condition and results of operations. PP&L is an operating electric utility serving customers in central eastern Pennsylvania. All nonutility operating transactions are included in "Other Income and (Deductions)" on the Consolidated Statements of Income. The consolidated financial statements include the accounts of PP&L Resources and its direct and indirect subsidiaries. All significant intercompany transactions have been eliminated. Less than 50% owned affiliates are accounted for using the equity method. These affiliates consist principally of Safe Harbor Water Power Corporation and investments held by PP&L Global. Reclassification Certain amounts from prior years' financial statements have been reclassified to conform to the current year presentation. Management's Estimates These financial statements have been prepared using information available including certain information which represents management's best estimates of existing conditions. Actual results could differ from these estimates. Accounting Records The accounting records for PP&L, the principal subsidiary of PP&L Resources, are maintained in accordance with the Uniform System of Accounts prescribed by the FERC and adopted by the PUC. Regulation PP&L prepares its financial statements in accordance with the provisions of SFAS 71, "Accounting for the Effects of Certain Types of Regulation." SFAS 71 requires a rate-regulated entity to reflect the effects of regulatory decisions in its financial statements. In accordance with SFAS 71, PP&L has deferred certain costs pursuant to the rate actions of the PUC and the FERC and is recovering or expects to recover such costs in electric rates charged to customers. These deferred costs or "regulatory assets" are enumerated and discussed in Note 9. To the extent that PP&L concludes that recovery of a regulatory asset is no longer probable due to regulatory treatment, the effects of competition or other factors, the amount would have to be written off against income. PP&L will discontinue application of SFAS 71 for the generation portion of its business upon the issuance of the PUC's restructuring order. See Note 3 for additional information. Utility Plant Additions to utility plant and replacement of units of property are capitalized at cost. The cost of funds used to finance construction projects or AFUDC is capitalized as part of construction cost. The cost of units of property retired or replaced is charged to accumulated depreciation. Expenditures for maintenance and repairs of property and the cost of replacing items determined to be less than an entire unit of property are charged to operating expense. Major classes of electric utility plant in service and their respective balances are (millions of dollars): 1997 1996 Production $6,305 $6,303 Transmission 392 386 Distribution 2,891 2,774 General 328 303 Other 68 58 $9,984 $9,824 For financial statement purposes, depreciation is being provided over the estimated useful lives of property using a straight-line method for all property except for certain property at the Susquehanna steam station. The other portion of the Susquehanna property is depreciated at an annual rate of $173 million from October 1995 through December 1998, after which depreciation is scheduled to decline by $71 million annually. Provisions for depreciation, as a percent of average depreciable property, approximated 3.8% in 1997 and 1996 and 3.7% in 1995. Nuclear Decommissioning and Fuel Disposal An annual provision for PP&L's share of the future cost to decommission the Susquehanna station, equal to the amount allowed for ratemaking purposes, is charged to operating expense. Such amounts are invested in external trust funds which can be used only for future decommissioning costs. See Notes 4 and 7. The DOE is responsible for the permanent storage and disposal of spent nuclear fuel removed from nuclear reactors. PP&L pays the DOE a fee for future disposal services and recovers such costs in customer rates. PP&L has joined other utilities in a federal lawsuit to suspend payments to the DOE and to place the fees in escrow unless that department begins accepting nuclear fuel as agreed to in its contract with the utilities. Financial Investments Securities subject to the requirements of SFAS 115 "Accounting for Certain Investments in Debt and Equity Securities" are carried at fair value, determined at the balance sheet date. Net unrealized gains on available-for-sale securities are included in common equity. Net unrealized gains and losses on trading securities are included in income. Net unrealized gains and losses on securities that are not available for unrestricted use due to regulatory or legal reasons are reflected in the related asset and liability accounts. Realized gains and losses on the sale of securities are recognized utilizing the specific cost identification method. Investments in financial limited partnerships are accounted for under the equity method of accounting and venture capital investments are recorded at cost. See Note 8. Premium on Reacquired Long-Term Debt Premiums paid and expenses incurred by PP&L to redeem long-term debt are deferred and amortized over the life of the new debt issue or the remaining life of the retired debt when the redemption is not financed by a new issue. Capital Leases Leased property of PP&L capitalized on the Consolidated Balance Sheet is recorded at the present value of future lease payments and is amortized so that the total of interest on the lease obligation and amortization of the leased property equals the rental expense allowed for ratemaking purposes. Future lease payments for nuclear fuel are based on the quantity of electricity produced at the Susquehanna Station. The maximum amount of nuclear fuel available for lease under current arrangements is $200 million. In April 1997, capital leases for vehicles, personal computers, and other property were reclassified as operating leases. This reclassification resulted from a revised agreement between PP&L and its leasing companies. The new leases did not meet any of the classification criteria to be deemed capital leases according to FASB No. 13. Revenues Electric revenues are recorded based on the amounts of electricity delivered to customers through the end of each calendar month. This includes amounts customers will be billed for electricity delivered from the time meters were last read to the end of the month. During 1997, PP&L's ECR and STAS were zero. The SBRCA ended in June 1997. Approximately 97% of operating revenues were derived from electric energy sales, with 33% coming from residential customers, 27% from commercial customers, 19% from industrial customers, 20% from wholesale sales and 1% from others. Income Taxes PP&L Resources and its subsidiaries file a consolidated federal income tax return. Income taxes are allocated to operating expenses and other income and deductions on the Consolidated Statements of Income. The provision for PP&L's deferred income taxes is based upon the ratemaking principles reflected in rates established by the PUC and FERC. The difference in the provision for deferred income taxes and the amount that otherwise would be recorded under generally accepted accounting principles is deferred and included in taxes recoverable through future rates on the Consolidated Balance Sheet. See Note 6. Investment tax credits were deferred when utilized and are amortized over the average lives of the related property. Pension Plan and Other Postretirement and Postemployment Benefits PP&L has a noncontributory pension plan covering substantially all employees. Subsidiary companies of PP&L formerly engaged in coal mining have a noncontributory pension plan for substantially all non-bargaining, full-time employees. Funding is based upon actuarially determined computations that take into account the amount deductible for income tax purposes and the minimum contribution required under the Employee Retirement Income Security Act of 1974. PP&L Global has a non-qualified retirement plan for its corporate officers. For information on other postretirement and postemployment benefits, see Note 13. Cash Equivalents All highly liquid debt instruments purchased with original maturities of three months or less are considered to be cash equivalents. 2. PUC Restructuring Proceeding In December 1996, Pennsylvania enacted the Customer Choice Act to restructure its electric utility industry in order to create retail access to a competitive market for the generation of electricity. The Act includes the following major provisions: (1) all electric utilities in Pennsylvania are required to file a restructuring plan with the PUC to implement direct access to a competitive market for electric generation; (2) retail customer choice will be phased in over three years, beginning as early as January 1, 1999; (3) electric distribution companies will be the suppliers of last resort, and the PUC will ensure that adequate generation reserves exist to maintain reliable electric service; (4) retail rates generally will be capped for at least four-and-a-half years for transmission and distribution charges and for as long as nine years for generation charges; (5) utilities are permitted to recover PUC- approved transition or stranded costs through a non-bypassable Competitive Transition Charge (CTC); and (6) transition bonds may be issued to refinance the stranded costs, with a transition charge on customers bills to repay the bonds. Under the Customer Choice Act, the PUC is authorized to determine the amount of PP&L's stranded costs to be recovered through a CTC to be paid by all PUC-jurisdictional customers who receive transmission and distribution service from PP&L. Stranded costs are defined in the Customer Choice Act as "generation-related costs... which would have been recoverable under a regulated environment but which may not be recoverable in a competitive generation market and which the PUC determines will remain following mitigation by the electric utility." In accordance with the Customer Choice Act, PP&L filed its restructuring plan with the PUC on April 1, 1997. PP&L's restructuring plan includes a claim of $4.5 billion (on a net present value basis as of January 1, 1999) for stranded costs. Pursuant to the Customer Choice Act, this claim is comprised of the following categories: 1. Net plant investments and costs attributable to existing generation plants and facilities, costs of power purchases, disposal costs of spent nuclear fuel, retirement costs attributable to existing generating plants and employee-related transition costs; 2. Prudently incurred costs related to the cancellation, buyout, buydown or renegotiation of NUG contracts; and 3. Regulatory assets and other deferred charges typically recoverable under current regulatory practice and cost obligations under PUC-approved contracts with NUGs. The following are the components of PP&L's stranded cost claim as presented in the evidentiary record of the proceeding: Amount Category of Stranded Cost (Millions of Dollars) Nuclear Generation(a) $2,825 Fossil Generation(a) 670 NUG Contracts 651 Regulatory Assets 354 $4,500 (a) Includes deferred income taxes related to generation assets. In determining the appropriate amount of stranded cost recovery, the Customer Choice Act requires the PUC to consider the extent to which an electric utility has taken steps to mitigate stranded costs by appropriate means that are reasonable under the circumstances. Mitigation efforts undertaken over time prior to the enactment of the Customer Choice Act are to be considered of equal importance by the PUC in determining an electric utility's stranded costs as actions taken after the passage of the Customer Choice Act. In its restructuring plan, PP&L described its extensive efforts to mitigate its stranded costs, resulting in a reduction in its stranded cost claim of over $1 billion. Numerous parties have intervened in PP&L's restructuring proceeding. These parties are recommending stranded cost recovery by PP&L ranging from $695 million to $3.2 billion. In this regard, the PUC's OTS recommends that PP&L be permitted to recover $3.2 billion of its stranded costs; the PP&L Industrial Customer Alliance recommends recovery of $695 million; and the OCA recommends recovery of $1.1 billion. Under Pennsylvania law, the OCA and the OTS have advocacy roles in proceedings before the PUC. Testimony filed by the OCA and OTS carries no more weight than testimony filed by any other party in the proceeding. Evidentiary hearings in this matter were held in late-August. The PUC has revised the procedural schedule several times to permit continued settlement discussions among the parties. In February 1998, the parties filed their Main Briefs in the proceeding. Under the current schedule, the PUC's final order is due by June 4, 1998. PP&L cannot predict the ultimate outcome of this proceeding. The ultimate impact of the Customer Choice Act on PP&L's financial health will depend on numerous factors, including: 1. The PUC's final order in the restructuring proceeding, including the amount of stranded cost recovery approved by the PUC and the PUC's disposition of other issues raised; 2. The effect of the rate cap imposed under the provisions of the Customer Choice Act; 3. The actual market price of electricity over the transition period; 4. Future sales levels; and 5. The extent to which the regulatory framework established by the Customer Choice Act will continue to be applied. Under the Customer Choice Act, PP&L's rates to PUC-jurisdictional customers are capped at the level in effect on January 1, 1997 through mid-2001 for transmission and distribution services and through the year 2005 for generation services to customers who do not choose an alternative supplier. Applying the CTC proposed in its restructuring plan (which is restricted by the rate cap) through the year 2005, it is estimated that PP&L would collect approximately $4 billion (on a net present value basis as of January 1, 1999) of its stranded costs. The remaining $500 million would be reflected as lower cash flow to PP&L after the transition period than would have occurred with continued regulated rates. In this regard, it should be noted that PP&L's stranded cost claim included in the restructuring plan is based on a projection of future market prices and assumes a significant portion of PP&L's stranded costs will be recovered by way of increased market prices for electricity. This increase may or may not occur. To the extent that the market price of electricity does not increase as projected, or other projections do not actually occur, PP&L could experience a lower recovery of stranded costs. If the PUC's final order in the restructuring proceeding were to permit full recovery of PP&L's stranded costs, including full recovery of all regulatory assets and above-market NUG costs over the transition period, PP&L estimates that its net income over the transition period would be reduced by about 5% from amounts that were previously projected under historic cost-based regulation. However, the PUC's final order -- either as a result of a settlement or a fully-litigated proceeding -- may result in changes to components or assumptions in PP&L's restructuring plan that could have an adverse effect on the amount of the CTC, the amount of stranded costs that are recoverable through the CTC or the overall amount of revenues to be collected from customers. As a result of these uncertainties, PP&L cannot determine whether and to what extent it may be subject to a write- off or a reduction in revenues and earnings with respect to the restructuring proceeding. Based on the substantial amounts involved in the restructuring proceeding, should PP&L incur such a write-off or reduction in revenues and earnings, either one could be material in amount. Accordingly, PP&L Resources is unable to predict the ultimate effect of the Customer Choice Act or the PUC's final order in the restructuring proceeding on its financial position, its results of operation, future PP&L rate levels, the need or ability to issue securities to meet future capital requirements or the ability to maintain the common stock dividend at the current level. The Customer Choice Act permits the issuance of "transition bonds" securitized by customer revenues from an Intangible Transition Charge (ITC) to finance the payment of stranded costs. PP&L is considering whether to seek to securitize some portion of its stranded cost claim, which would require the approval of the PUC in a qualified rate order. Certain parties have brought actions in the Pennsylvania Commonwealth Court challenging the constitutionality of the Customer Choice Act. PP&L has intervened in these proceedings in support of the Customer Choice Act. 3. Accounting for the Effects of Certain Types of Regulation The FASB's Emerging Issues Task Force (EITF) has addressed the appropriateness of the continued application of SFAS 71 by utilities in states that have enacted restructuring legislation similar to the Customer Choice Act. The EITF issued its statement 97-4 (Deregulation of the Pricing of Electricity -- Issues Related to the Application of FASB Statements 71 and 101), which concluded that utilities should discontinue application of SFAS 71 for the generation portion of their business when a deregulation plan is in place and its terms are known. For PP&L, this will be upon the issuance of the PUC's restructuring order expected to be no later than mid-1998. One of the EITF's key conclusions is that utilities should continue to carry some or all of their regulatory assets and liabilities that originated in the generation portion of the business if the regulatory cash flows to realize and settle them will be derived from the regulated portion of the business (e.g., transmission and distribution). In addition, costs or obligations of the generation portion of the business that are incurred after application of SFAS 71 ceases and that are covered by the regulated cash flows for the portion of the business that remains regulated on a cost of service basis would also meet the criteria to be considered regulatory assets or liabilities. PUC Proceedings The Customer Choice Act establishes a definitive process for transition to market-based pricing for electric generation. This transition effectively includes cost-of-service based ratemaking during the transition period, subject to a rate cap. Rates will include a non- bypassable CTC, which is designed to give utilities the opportunity to recover their stranded costs during the transition period. Given the current regulatory environment, PP&L's electric transmission and distribution businesses are expected to remain regulated on a cost-of-service basis and, as a result, the provisions of SFAS 71 should continue to apply to those businesses. The impact of the discontinuance of application of SFAS 71 to the generation portion of PP&L's business will depend to a large degree on the outcome of the restructuring proceeding currently pending before the PUC. See Financial Note 2 for a discussion of the potential financial impacts of that proceeding. FERC Proceedings Under FERC Order 888, 16 small utilities which have power supply agreements with PP&L signed before July 11, 1994, requested and were provided with PP&L's current estimate of its stranded costs applicable to these customers if they were to terminate their agreements in 1999. PP&L has now executed settlement agreements with these customers, which will be filed with the FERC for approval. These settlement agreements provide for continued power supply by PP&L through January 2004. If FERC approves the agreements as filed, PP&L would be required to write off a portion of its stranded costs applicable to these customers. The amount of this write-off is currently estimated at approximately $28 million after-tax, or 17 cents per share of common stock. FERC action on this matter is not expected until the second quarter of 1998. 4. Rate Matters Base Rate Filing with the PUC In 1995, the PUC issued a final order with respect to the base rate case filed by PP&L in December 1994. The PUC Decision increased PUC jurisdictional rates by about $85 million annually, or 3.8%. The PUC Decision permitted the levelization of depreciation expense for the Susquehanna station, recovery of retiree health care costs and costs of the 1994 voluntary early retirement program and revised costs to decommission Susquehanna SES. The order also permitted recovery of deferred operating and capital costs, net of energy savings, for Susquehanna Unit 2 but disallowed similar costs for Unit 1. The PUC also rejected PP&L's request to include in the ECR the cost of capacity billed to other utilities after the contractual arrangements with these utilities expire. The OCA appealed three issues from the PUC Decision to the Pennsylvania Commonwealth Court. In May 1997, the Commonwealth Court issued its decision on the OCA's appeal. Two of the issues, recovery of SFAS 106 deferrals and the carrying charges and operating expenses for Susquehanna Unit 2 from commercial operation until the plant was recognized in rates, were decided in PP&L's favor. The third issue was the recovery of Pennsylvania Gross Receipts Tax (GRT) on uncollectible revenues. PP&L had requested an allowance for GRT on the full amount of revenue approved by the PUC, while the OCA had proposed a $745,000 annualized adjustment to disallow GRT on revenues that PP&L will not be able to collect. The PUC had rejected the OCA's proposed adjustment. The Commonwealth Court reversed the PUC Decision and remanded that issue to the PUC for adjustment of the allowance. FERC - Major Utility Rates In January 1996, PP&L filed a request with the FERC to incorporate a change in the method of calculating depreciation under its contracts with four major electric utility customers (Atlantic, BG&E, JCP&L, and UGI). PP&L also sought to increase the charges to those customers for nuclear decommissioning costs. A settlement of this case was approved by the FERC in June 1997, under terms which have no material effect on PP&L. 5. Sales to Other Electric Utilities PP&L provides Atlantic with 125,000 kilowatts of capacity (summer rating) and related energy from its wholly owned coal-fired stations. Sales to Atlantic will expire in March 1998. PP&L provided JCP&L with 567,000 kilowatts of capacity and related energy from all of its generating units during 1997. This amount will decline by 189,000 kilowatts per year until the end of the agreement on December 31, 1999. PP&L expects to be able to resell the capacity and energy at market prices. PP&L provides BG&E with 129,000 kilowatts or 6.6 percent of its share of capacity and related energy from the Susquehanna station. Sales to BG&E will continue through May 2001. In June 1997, PP&L began a sale of capacity and energy to JCP&L pursuant to an agreement which provides that JCP&L will purchase 150,000 kilowatts of capacity and energy for 12 months, increasing to 200,000 kilowatts in June 1998, and then to 300,000 kilowatts in June 1999 through the end of the agreement in May 2004. Prices for this energy and capacity reflect market conditions. In July 1997, FERC accepted a new wholesale power tariff that permits PP&L to sell capacity and energy at market-based rates, both inside and outside the PJM area, subject to certain conditions. This tariff allows PP&L to become more active in the wholesale market with utilities and other entities, and removes pricing restrictions which in the past had limited PP&L to charging at or below cost-based rates. Sales of capacity and energy have been made under this new tariff. In January 1998, the United States Department of Energy approved PP&L's application for an export license to sell capacity and/or energy to electric utilities in Canada. This export license allows PP&L to sell either its own capacity and energy not required to serve domestic obligations or power purchased from other utilities. 6. Income Taxes For 1997, 1996 and 1995, the corporate federal income tax rate was 35%, and the Pa. CNI rate was 9.99%. The tax effects of significant temporary differences comprising PP&L Resources' net deferred income tax liability were as follows (millions of dollars): 1997 1996 Deferred tax assets Deferred investment tax credits $ 82 $ 86 Accrued pension costs 77 67 Other 66 75 Valuation allowance (6) (6) 219 222 Deferred tax liabilities Electric utility plant - net 1,755 1,788 Other property - net 9 9 Taxes recoverable through future rates 377 399 Reacquired debt costs 43 46 Other 35 11 2,219 2,253 Net deferred tax liability $2,000 $2,031 Details of the components of income tax expense, a reconciliation of federal income taxes derived from statutory tax rates applied to income from continuing operations for accounting purposes, and details of taxes, other than income are as follows (millions of dollars): Income Tax Expense 1997 1996 1995 Included in Operating Expenses Provision - Federal $169 $189 $195 State 59 64 62 228 253 257 Deferred - Federal 20 4 9 State 9 6 6 29 10 15 Investment tax credit, net - Federal (10) (10) (10) 247 253 262 Included in Other Income and Deductions Provision (credit) - Federal (6) (1) 8 State (2) 1 4 (8) 0 12 Deferred - Federal (1) 1 10 State 0 (1) 2 (1) 0 12 (9) 0 24 Total income tax expense - Federal 172 183 212 State 66 70 74 $238 $253 $286 Reconciliation of Income Tax Expense Indicated federal income tax on pre-tax income at statutory tax rate - 35% $195 $213 $223 Increase (decrease) due to: State income taxes 40 44 50 Flow through of depreciation differences not previously normalized 22 20 16 Amortization of investment tax credit (10) (10) (10) Research & experimentation income tax credits (1) (5) Other (8) (9) 7 43 40 63 Total income tax expense $238 $253 $286 Effective income tax rate 42.7% 41.5% 44.9% Taxes, Other Than Income State gross receipts $104 $105 $102 State utility realty 46 44 46 State capital stock 34 34 33 Social security and other 20 20 20 $204 $203 $201 7. Nuclear Decommissioning Costs PP&L's most recent estimate of the cost to decommission the Susquehanna station was completed in 1993 and was a site-specific study, based on immediate dismantlement and decommissioning of each unit following final shutdown. The study indicates that PP&L's 90% share of the total estimated cost of decommissioning the Susquehanna station is approximately $724 million in 1993 dollars. The estimated cost includes decommissioning the radiological portions of the station and the cost of removal of nonradiological structures and materials. The operating licenses for Units 1 and 2 expire in 2022 and 2024, respectively. Decommissioning costs charged to operating expense were $12 million in both 1997 and 1996 and $8 million in 1995 and are based upon amounts included in customer rates. The increase in 1996 is a result of the PUC Decision, in which recovery of decommissioning costs was based on the cost estimates in the 1993 site-specific study. Rates charged to small utilities reflect the estimated cost of decommissioning in the 1993 study. In January 1996, PP&L filed with the FERC to increase its decommissioning rate to reflect the projected cost of decommissioning the Susquehanna station. A settlement of this case was approved by the FERC in June 1997. See Note 4 for further information. Amounts collected from customers for decommissioning, less applicable taxes, are deposited in external trust funds for investment and can be used only for future decommissioning costs. The market value of securities held and accrued income in the trust funds at December 31, 1997 and 1996 aggregated approximately $163 million and $128 million, respectively. The trust funds experienced, on a fair market value basis, a $24 million net gain in 1997, which includes net unrealized appreciation of $18 million, and a net gain in 1996 of $6 million, which includes net unrealized appreciation of $2 million. The trust fund activity is reflected in the nuclear plant decommissioning trust fund and in other noncurrent liabilities on the Consolidated Balance Sheet. Accrued nuclear decommissioning costs were $166 million and $130 million at December 31, 1997 and 1996, respectively. The FASB issued an exposure draft on the accounting for liabilities related to closure and removal of long-lived assets, including decommissioning of nuclear power plants. As a result, current industry accounting practices for decommissioning may change, including the possibility that the estimated cost for decommissioning could be recorded as a liability at the present value of the estimated future cash outflows that will be required to satisfy those obligations. Due to FASB's recognition that these issues intertwine with other unresolved accounting issues, FASB has not yet determined when it will issue another exposure draft or a final statement. 8. Financial Instruments The carrying amount shown on the Consolidated Balance Sheet and the estimated fair value of PP&L Resources' financial instruments are as follows (millions of dollars): December 31, 1997 December 31, 1996 Carrying Fair Carrying Fair Amount Value Amount Value Assets Nuclear plant decommis- sioning trust fund (a) $163 $163 $128 $128 Financial investments (a) 58 62 206 206 Other investments 13 13 18 18 Cash and cash equivalents 50 50 101 101 Other financial instru- ments included in other current assets 3 3 2 2 Liabilities Preferred stock with sinking fund require- ments (b) 47 49 295 294 Company-obligated manda- torily redeemable preferred securities of subsidiary trusts holding solely company debentures (b) 250 256 - - Long-term debt (b) 2,735 2,895 2,832 2,885 Commercial paper and bank loans 135 135 144 144 (a) The carrying value of these financial instruments generally is based on established market prices and approximates fair value. (b) The fair value generally is based on quoted market prices for the securities where available and estimates based on current rates offered to PP&L Resources where quoted market prices are not available. 9. Regulatory Assets The following regulatory assets were reflected in the PP&L Consolidated Balance Sheet (millions of dollars): 1997 1996 Deferred depreciation $ 71 $ 140 Deferred operating and carrying costs - Susquehanna 15 17 Utility plant carrying charges - net of amortization 19 21 Reacquired debt costs 103 110 Taxes recoverable through future rates 909 963 Assessment for decommissioning uranium enrichment facilities 28 30 Postretirement benefits other than pensions 25 28 Voluntary early retirement program 36 49 ECR undercollection 49 17 Buyout of NUG contracts 84 Other 20 24 $1,359 $1,399 As of December 31, 1997, substantially all of PP&L's regulatory assets are being recovered through rates charged to customers over periods ranging from 3 to 35 years. In December 1996, Pennsylvania passed restructuring legislation which permits utilities to recover approved regulatory assets as transition or stranded costs. See Note 2 "PUC Restructuring Proceeding". For a discussion of taxes recoverable through future rates, postretirement benefits other than pensions, assessment for decommissioning uranium enrichment facilities, VERP, and additional information on the PUC Decision, see Notes 4, 6, and 13. 10. Credit Arrangements & Financing Activities PP&L issues commercial paper and, from time to time, borrows from banks to provide short-term funds required for general corporate purposes. In addition, certain subsidiaries also borrow from banks to obtain short-term funds. Bank borrowings generally bear interest at rates negotiated at the time of the borrowing. PP&L's weighted average interest rate on short-term borrowings was 6.6% and 4.9% at December 31, 1997 and 1996, respectively. PP&L currently has authorization from the FERC to issue up to $750 million of short-term debt. In April 1997, PP&L redeemed $210 million principal amount of four series of first mortgage bonds. Three of the series of first mortgage bonds were redeemed under the maintenance and replacement fund provisions of the mortgage. These series of bonds consisted of $40 million principal amount of the 7% series due 1999; $60 million principal amount of the 7-1/4% series due 2001; and $80 million principal amount of the 7-1/2% series due 2003. The fourth series, $30 million principal amount of the 6-3/4% series due 1997, was redeemed under the optional redemption provisions of that series. In April 1997, PP&L instituted a short-term bond program in order to meet certain short-term working capital requirements and to accomplish other corporate purposes. Under this program, a total of $800 million of short-term bonds (having maturities not in excess of 30 days) were issued from time to time, with no more than $150 million of such bonds outstanding at any one time. No such bonds were outstanding at December 31, 1997. In March and April 1997, PP&L Resources acquired 79.10% ($369 million par value) of the outstanding preferred stock of PP&L in a tender offer. By obtaining a majority of the 4-1/2% Preferred Stock and a majority of the combined amount of the 4-1/2% Preferred Stock and Series Preferred Stock (collectively, the Preferred Stock), PP&L Resources will be able to waive certain restrictive provisions contained in PP&L's Articles of Incorporation, including limitations on PP&L's ability to increase the authorized number of shares of Preferred Stock, merge or consolidate with other corporations, and issue additional Preferred Stock and unsecured debt. To provide financing for a portion of this tender offer, PP&L arranged for the issuance of a total of $250 million of "Company- obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely company debentures" (Preferred Securities) by two Delaware statutory business trusts. These securities consist of four million shares of 8.20% Preferred Securities issued by PP&L Capital Trust to the public in April 1997 at $25 per share, for proceeds of $100 million; and six million shares of 8.10% Preferred Securities issued by PP&L Capital Trust II to the public in June 1997 at $25 per share, for proceeds of $150 million. PP&L owns all of the common securities of both trusts. The sole asset of PP&L Capital Trust is $103 million of PP&L's 8.20% junior subordinated deferrable interest debentures (Junior Subordinated Debentures), due April 1, 2027, and the sole asset of PP&L Capital Trust II is $155 million of PP&L's 8.10% Junior Subordinated Debentures, due July 1, 2027. The obligations of PP&L under the Junior Subordinated Debentures, the indenture under which the Junior Subordinated Debentures were issued, the trust agreements of the trusts and the guarantees by PP&L of payment of the Preferred Securities, in the aggregate, constitute a full and unconditional guarantee by PP&L of each trust's Preferred Securities. PP&L Capital Funding, a wholly-owned subsidiary of PP&L Resources, was formed in September 1997 to provide financing for PP&L Resources and its subsidiaries. The payment of principal, interest and premium, if any, with respect to debt securities issued by PP&L Capital Funding will be guaranteed by PP&L Resources. In November 1997, PP&L and PP&L Capital Funding established a new joint revolving credit facility with a group of 14 banks comprised of two separate revolving credit agreements -- a $150 million 364-day revolving credit agreement and a $300 million five-year revolving credit agreement. Under the terms of these credit agreements, either company can borrow at interest rates based on Eurodollar deposit rates or the prime rate, and the respective obligations of each company are several and not joint. The new revolving credit facility replaced PP&L Resources' $300 million revolving credit agreement, PP&L's $250 million revolving credit agreement and three separate PP&L credit agreements totaling $45 million, all of which were terminated. At December 31, 1997, PP&L had no borrowings outstanding under the new revolving credit agreements, and PP&L Capital Funding had $90 million of borrowings outstanding under the five-year revolving credit agreement. PP&L Capital Funding has registered $400 million of debt securities with the SEC. It is expected that these debt securities will be issued from time to time as medium-term notes to provide long-term debt financing for PP&L Resources and its unregulated subsidiaries. In this regard, in November 1997 PP&L Capital sold $100 million of medium-term notes having a seven-year term and $2 million of medium-term notes having a ten-year term. The proceeds from these sales of medium-term notes were used to repay bank borrowings incurred by PP&L Resources under its prior revolving credit agreement that had been used to provide interim financing for the capital needs of PP&L Global. PP&L leases its nuclear fuel from a trust. The maximum financing capacity of the trust under existing credit arrangements is $200 million. 11. Windfall Profits Tax - PP&L Global In July 1997, the U.K. assessed a windfall profits tax on privatized utilities. The tax is payable in two equal installments; the first installment was made on December 1, 1997 and the second one is due in December 1998. SWEB's windfall profits tax was approximately 90 million pounds sterling, or about $148 million. Based on PP&L Global's 25% ownership interest in SWEB, PP&L Resources incurred a one-time charge against earnings of $37 million, or 23 cents per share, in 1997. 12. Acquisitions of Penn Fuel Gas, Inc. and H.T. Lyons, Inc. In June 1997, PP&L Resources entered into an agreement with Penn Fuel Gas, Inc. (PFG), a Pennsylvania corporation, pursuant to which PP&L Resources would acquire PFG. PFG, with nearly 100,000 customers in Pennsylvania and a few hundred customers in Maryland, distributes and stores natural gas and sells propane. Under the terms of the agreement, PFG would become a wholly-owned subsidiary of PP&L Resources. Upon consummation of the acquisition, each outstanding PFG common share would be converted into the right to receive between 6.968 and 8.516 shares of PP&L Resources' Common Stock, and each outstanding PFG preferred share would be converted into the right to receive between 0.682 and 0.833 shares of PP&L Resources' Common Stock. PP&L Resources expects to issue shares of its Common Stock valued at about $121 million to complete the transaction. The exact conversion rate and number of PP&L Resources' shares to be issued will be based on the market value of the Common Stock of PP&L Resources at the time of the merger. The transaction is expected to be treated as a pooling-of- interests for accounting and financial reporting purposes. The acquisition of PFG is subject to several conditions, including the receipt of required approvals by the PUC and the SEC. The Maryland Public Service Commission has determined not to institute proceedings on the matter. The U.S. Department of Justice and the Federal Trade Commission have granted early termination of the required waiting period for the acquisition under the Hart-Scott-Rodino Premerger Notification Act. In October 1997, PFG's shareholders approved the acquisition at a special shareholders meeting. The acquisition does not require the approval of PP&L Resources' shareholders. The acquisition is expected to be completed by mid-1998. In the third quarter of 1997, PP&L Resources recorded one-time, non- payroll related transaction costs associated with the acquisition of PFG of $6 million, which reduced earnings by about three cents per share. Additional charges may be incurred in connection with closing on this transaction, which are not expected to be material in amount. On January 22, 1998, PP&L Resources acquired H.T. Lyons, a heating, ventilating and air-conditioning firm in a cash transaction for an amount that is not material. 13. Pension Plan and Other Postretirement and Postemployment Benefits Pension Plan PP&L has a funded noncontributory defined benefit pension plan covering substantially all employees. Benefits are based upon a participant's earnings and length of participation in the Plan, subject to meeting certain minimum requirements. PP&L has an unfunded supplemental retirement plan for certain management employees. A similar plan for directors was terminated December 31, 1996. Benefit payments pursuant to these supplemental plans are made directly by PP&L. At December 31, 1997, the projected benefit obligation of these supplemental plans was approximately $23 million. PP&L Global has established, effective December 1, 1994, a non-qualified retirement plan for its corporate officers. The cost of the plan was immaterial in 1997. The components of PP&L's net periodic pension cost for the three plans were (millions of dollars): 1997 1996 1995 Service cost-benefits earned during the period $ 32 $ 32 $ 27 Interest cost 64 61 58 Actual return on plan assets (254) (146) (241) Net amortization and deferral 166 68 167 Net periodic pension cost $ 8 $ 15 $ 11 The net periodic pension cost charged to operating expenses was $5 million in 1997, $9 million in 1996 and $6 million in 1995. The balance was charged to construction and other accounts. The funded status of PP&L's Plan was (millions of dollars): December 31 1997 1996 Fair value of plan assets $1,396 $1,187 Actuarial present value of benefit obligations: Accumulated benefit obligation-vested 762 695 Effect of projected future compensation 200 191 Projected benefit obligation 962 886 Plan assets in excess of projected benefit obligation 434 301 Unrecognized transition assets (being amortized over 23 years) (54) (59) Unrecognized prior service cost 52 55 Unrecognized net gain (636) (495) Accrued expense $ (204) $(198) The weighted average discount rate used in determining the actuarial present value of projected benefit obligations was 6.75% and 7.0% on December 31, 1997 and 1996, respectively. The rate of increase in future compensation used in determining the actuarial present value of projected benefit obligations was 5.0% on December 31, 1997 and 1996. The assumed long-term rates of return on assets used in determining pension cost in 1997 and 1996 was 8.0%. Plan assets consist primarily of common stocks, government and corporate bonds and temporary cash investments. PP&L's subsidiaries formerly engaged in coal mining have a noncontributory defined benefit pension plan covering substantially all non-bargaining unit, full-time employees, which is fully funded, primarily by group annuity contracts with insurance companies. This plan was amended to freeze benefit increases effective June 1996. In addition, the companies are liable under federal and state laws to pay black lung benefits to claimants and dependents with respect to approved claims, and are members of a trust which was established to facilitate payment of such liabilities. Such costs were not material in 1997, 1996 and 1995. Postretirement Benefits Other Than Pensions Substantially all employees of PP&L and its subsidiaries will become eligible for certain health care and life insurance benefits upon retirement. PP&L sponsors four health and welfare benefit plans that cover substantially all management and bargaining unit employees upon retirement. One plan provides for retiree health care benefits to certain management employees, another plan provides retiree health care benefits to bargaining unit employees, a third plan provides retiree life insurance benefits to certain management employees up to a specified amount and a fourth plan provides retiree life insurance benefits to bargaining unit employees. Dollar limits have been established for the amount PP&L will contribute annually toward the cost of retiree health care for employees retiring after March 1993. The PUC Decision in 1995 permitted recovery of the PUC- jurisdictional amount of retiree health care costs resulting from the adoption of SFAS 106. In addition, the PUC Decision permitted PP&L to recover, over a period of about 17 years, the amount of SFAS 106 costs that would have been deferred from January 1, 1993 through September 30, 1995, pursuant to a PUC order but for a Commonwealth Court decision that PP&L could not recover these deferred costs. As a result of the PUC Decision, which provided for recovery of $27 million of previously expensed SFAS 106 costs, PP&L recorded a $16 million after-tax credit to income in the third quarter of 1995. In December 1993, PP&L established a separate VEBA for each of the four health and welfare benefit plans for retirees. After making initial contributions, additional funding of the trusts was deferred pending resolution of PP&L's ability to recover the costs of the plans in rates. Continued funding of these trusts was subject to the resolution of the OCA appeal of the PUC Decision. In 1997, the Pennsylvania Supreme Court ruled that the Commonwealth Court's decision to uphold the PUC Decision is now final. In December 1997, PP&L contributed an additional $31 million to these VEBAs. The following table sets forth the plans' combined funded status reconciled with the amount shown on PP&L Resources' Consolidated Balance Sheet as of December 31 (millions of dollars): 1997 1996 Accumulated postretirement benefit obligation: Retirees $137 $123 Fully eligible active plan participants 21 19 Other active plan participants 79 85 237 227 Plan assets at fair value, primarily temporary cash investments 64 31 Accumulated postretirement benefit obligation in excess of plan assets 173 196 Unrecognized prior service costs (4) (5) Unrecognized net loss (11) (12) Unrecognized transition obligation (being amortized over 20 years) (131) (139) Accrued postretirement benefit cost $ 27 $ 40 The net periodic postretirement benefit cost included the following components (millions of dollars): 1997 1996 1995 Service cost - benefits attributed to service during the period $ 4 $ 4 $ 4 Interest cost on accumulated postretirement benefit obligation 17 15 15 Actual return on plan assets (2) (1) (2) Net amortization and deferral 10 9 9 Net periodic postretirement benefit cost $29 $27 $26 Retiree health and benefits costs charged to operating expenses were approximately $23 million in 1997, $20 million in 1996, and a net credit of approximately $17 million in 1995 (reflecting both a $32 million credit due to the PUC Decision and costs applicable to contractual agreements with other major utilities). Costs in excess of the amount charged to expense were charged to construction and other accounts. For measurement purposes, an 8% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1998; the rate was assumed to decrease gradually to 6% by 2006 and remain at that level thereafter. Increasing the assumed health care cost trend rates by 1% in each year would increase the accumulated postretirement benefit obligation as of December 31, 1997, by about $11 million and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by about $1 million. In determining the accumulated postretirement benefit obligation, the weighted average discount rate used was 6.75% and 7.0% on December 31, 1997 and 1996, respectively. The trusts that are holding the plan assets, except for retiree health care benefits to certain management employees, are tax-exempt. The expected long-term rate of return on plan assets for the tax-exempt trusts was 6.5% on December 31, 1997 and 1996. PP&L and its subsidiaries formerly engaged in coal mining accrued an additional liability for the cost of health care of retired miners previously employed by them. The liability, based on the present value of future benefits, was estimated at $51 million and $54 million as of December 1997 and 1996, respectively. In December 1997, PP&L contributed $25 million to a VEBA to partially fund these health care costs. Postemployment Benefits PP&L provides health and life insurance benefits to disabled employees and income benefits to eligible spouses of deceased employees. Postemployment benefits charged to operating expenses were not material. 14. Jointly Owned Facilities At December 31, 1997, PP&L or its subsidiary owned undivided interests in the following facilities (millions of dollars): Merrill -----Generating Stations------ Creek Susquehanna Keystone Conemaugh Reservoir Ownership interest 90.00% 12.34% 11.39% 8.37% Electric utility plant in service $4,060 $68 $103 Other property $22 Accumulated depreciation 1,160 37 40 9 Construction work in progress 67 1 Each participant in these facilities provides its own financing. PP&L receives a portion of the total output of the generating stations equal to its percentage ownership. PP&L's share of fuel and other operating costs associated with the stations is reflected on the PP&L Consolidated Statement of Income. In December 1997, Allegheny Electric Cooperative, Inc. issued a Request for Proposals for the sale of its assets, including its 10% interest in Susquehanna. This proposed sale is still pending. The Merrill Creek Reservoir provides water during periods of low river flow to replace water from the Delaware River used by PP&L and other utilities in the production of electricity. 15. Subsidiary Coal Reserves In November 1995, PP&L sold the coal reserves of one of its subsidiaries for $52 million, which resulted in a $42 million gain, or $20 million after-tax. PP&L had acquired the reserves in 1974 with the intention of supplying future coal-fired generating stations, but later concluded that it would not develop these reserves for such purposes. In 1994, the reserves' carrying value was written down from $84 million to $10 million. 16. Commitments and Contingent Liabilities Construction Expenditures PP&L's construction expenditures for the period 1998-2002 are estimated to aggregate $1.3 billion, including AFUDC. For discussion pertaining to construction expenditures, see Review of Financial Condition and Results of Operations under the caption "Financial Condition -- Capital Expenditure Requirements" on page 32. Nuclear Insurance PP&L is a member of certain insurance programs which provide coverage for property damage to members' nuclear generating stations. Facilities at the Susquehanna station are insured against property damage losses up to $2.75 billion under these programs. PP&L is also a member of an insurance program which provides insurance coverage for the cost of replacement power during prolonged outages of nuclear units caused by certain specified conditions. Under the property and replacement power insurance programs, PP&L could be assessed retroactive premiums in the event of the insurers' adverse loss experience. The maximum amount PP&L could be assessed under these programs at December 31, 1997 was about $31 million. PP&L's public liability for claims resulting from a nuclear incident at the Susquehanna station is limited to about $8.9 billion under provisions of The Price Anderson Amendments Act of 1988. PP&L is protected against this liability by a combination of commercial insurance and an industry assessment program. In the event of a nuclear incident at any of the reactors covered by The Price Anderson Amendments Act of 1988, PP&L could be assessed up to $151 million per incident, payable at a rate of $20 million per year, plus an additional 5% surcharge, if applicable. Environmental Matters Air The Clean Air Act deals, in part, with acid rain, attainment of federal ambient ozone standards and toxic air emissions. PP&L has complied with the Phase I acid rain provisions required to be implemented by 1995 by installing continuous emission monitors on all units, burning lower sulfur coal and installing low nitrogen oxide burners on certain units. To comply with the year 2000 acid rain provisions, PP&L plans to purchase lower sulfur coal and use banked or purchased emission allowances instead of installing FGD on its wholly-owned units. PP&L has met the initial ambient ozone requirements of the Clean Air Act by reducing nitrogen oxide emissions by 40% through the use of low nitrogen oxide burners. Further seasonal (i.e., 5 month) nitrogen oxide reductions to 55% and 75% of 1990 levels for 1999 and 2003, respectively, are specified under the Northeast Ozone Transport Region's Memorandum of Understanding. The PA DEP has finalized regulations which require PP&L to reduce its ozone seasonal NOx by 57% beginning in 1999. The EPA has finalized new national standards for ambient levels of ground-level ozone and fine particulates. Based in part on the new ozone standard, the EPA has proposed NOx emission limits for 22 states, including Pennsylvania, which in effect requires approximately an 80% reduction from the 1990 level in Pennsylvania in the 2005-2012 timeframe. The new particulates standard may require further reductions in both NOx and SO2 and may extend the reductions from seasonal to year round. The Clean Air Act requires the EPA to study the health effects of hazardous air emissions from power plants and other sources. Depending on the outcome of these studies, PP&L may be required to take additional action. Expenditures to meet the 2000 acid rain and 1999 NOx reduction requirements are included in the table of projected construction expenditures in the section "Financial Condition - Capital Expenditure Requirements" in the Review of the Financial Condition and Results of Operations. PP&L currently estimates that additional capital expen- ditures and operating costs for environmental compliance under the Clean Air Act will be incurred beyond 2002 in amounts which are not now determinable but which could be material. Water and Residual Waste DEP residual waste regulations set forth requirements for existing ash basins at PP&L's coal-fired generating stations. Any new ash disposal facility must meet the rigid siting and design standards set forth in the regulations. To address these DEP regulations, PP&L has installed dry fly ash handling systems at most of its power stations, which eliminate the need for ash basins. In other cases, PP&L has modified the existing facilities to allow continued operation of the ash basins under a new DEP permit. Any groundwater contamination caused by the basins must also be addressed. Groundwater degradation related to fuel oil leakage from underground facilities and seepage from coal refuse disposal areas and coal storage piles has been identified at several PP&L generating stations. Remedial work is substantially completed at two generating stations. At this time, the only other remedial work being planned is to abate a localized groundwater degradation problem at Montour. The recently issued final NPDES permit for the Montour station contains stringent limits for iron and chlorine discharges. Depending on the results of a toxic reduction study to be conducted, additional water treatment facilities or operational changes may be needed at this station. Capital expenditures through the year 2002 to comply with the residual waste regulations, correct groundwater degradation at fossil- fueled generating stations, and address waste water control at PP&L facilities are included in the table of construction expenditures in the section "Financial Condition - Capital Expenditure Requirements" in the Review of the Financial Condition and Results of Operations. In this regard, PP&L currently estimates that $6.5 million of additional capital expenditures may be required in the next four years to close some of the ash basins and address other ash basin issues at various generating plants. Additional capital expenditures could be required beyond the year 2002 in amounts which are not now determinable but which could be material. Actions taken to correct groundwater degradation, to comply with the DEP's regulations and to address waste water control are also expected to result in increased operating costs in amounts which are not now determinable but which could be material. Superfund and Other Remediation In 1995, PP&L entered into a consent order with the DEP to address a number of sites where PP&L may be liable for remediation of contamination. This may include potential PCB contamination at certain PP&L substations and pole sites; potential contamination at a number of coal gas manufacturing facilities formerly owned and operated by PP&L; and oil or other contamination which may exist at some of PP&L's former generating facilities. As of December 31, 1997, PP&L has completed work on nearly half of the sites included in the agreement. At December 31, 1997, PP&L had accrued $8.1 million, representing the amount PP&L can reasonably estimate it will have to spend to remediate sites involving the removal of hazardous or toxic substances including those covered by the consent order mentioned above. Future cleanup or remediation work at sites currently under review, or at sites not currently identified, may result in material additional operating costs which PP&L cannot estimate at this time. In addition, certain federal and state statutes, including Superfund and the Pennsylvania Hazardous Sites Cleanup Act, empower certain governmental agencies, such as the EPA and the DEP, to seek compensation from the responsible parties for the lost value of damaged natural resources. The EPA and the DEP may file such compensation claims against the parties, including PP&L, held responsible for cleanup of such sites. Such natural resource damage claims against PP&L could result in material additional liabilities. General Due to the environmental issues discussed above or other environmental matters, PP&L may be required to modify, replace or cease operating certain facilities to comply with statutes, regulations and actions by regulatory bodies or courts. In this regard, PP&L also may incur capital expenditures, operating expenses and other costs in amounts which are not now determinable but which could be material. Loan Guarantees of Affiliated Companies PP&L Global has guaranteed a subsidiary's pro rata share of the outstanding portion of certain debt issuances of an affiliate. At December 31, 1997, $13 million of such loans were guaranteed by PP&L Global. PP&L Global's guarantee is expected to increase to $18 million during 1998, as the affiliate draws down the balance of its debt facility. IEC has arrangements with banks under which the banks may lend funds to IEC on an uncommitted basis. PP&L has been authorized by the PUC to guarantee up to $45 million of these bank loans or to lend up to $45 million under a fixed rate loan agreement with PP&L. IEC has been authorized by the PUC to have a maximum of $45 million outstanding at any one time under both of these loan arrangements. In addition, PP&L Spectrum has a $1 million line of credit, which is guaranteed by PP&L Resources. Source of Labor Supply At December 31, 1997, PP&L had a total of 6,343 full-time employees. Approximately 65 percent of these full-time employees are represented by the IBEW. The labor agreement with the IBEW expires in May 1998. 17. New Accounting Standards During 1997, the FASB issued SFAS 128, Earnings Per Share; SFAS 129, Disclosure of Information about Capital Structure; SFAS 130, Reporting Comprehensive Income; and SFAS 131, Disclosures About Segments of an Enterprise and Related Information. SFAS 128 and SFAS 129 are effective for financial statements issued for periods ending after December 15, 1997, however these statements cause no additional disclosures. SFAS 130 and SFAS 131 are effective in 1998. The adoption of these statements is not expected to have a material impact on PP&L Resources' or PP&L's financial statements. PP&L Resources, Inc. PP&L, Inc. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E Deductions from Balance Additions Reserves - at Charges Losses or Balance at Beginning Charged to Other Expenses End of Description of Period to Income Accounts Applicable Period (Millions of Dollars) Year Ended December 31, 1997 Reserves deducted from assets in the Balance Sheet Uncollectible accounts ............................ $25 $17 $26 $16 Year Ended December 31, 1996 Reserves deducted from assets in the Balance Sheet Uncollectible accounts ............................ 35 20 30 25 Obsolete inventory - Materials and supplies........ 15 15 0 Year Ended December 31, 1995 Reserves deducted from assets in the Balance Sheet Uncollectible accounts ............................ 29 25 19 35 Obsolete inventory - Materials and supplies........ 0 15 15
QUARTERLY FINANCIAL, COMMON STOCK PRICE AND DIVIDEND DATA (Unaudited) PP&L Resources, Inc. and Subsidiaries (Millions of Dollars, except per share data)
For the Quarters Ended (a) March 31 June 30 Sept. 30 Dec. 31 1997 Operating revenues..................... $786 $686 $778 $799 Operating income....................... 171 118 133 123 Net income............................. 117 65 42 72 Earnings per common share (b).......... 0.72 0.39 0.25 0.44 Dividends declared per common share (c) 0.4175 0.4175 0.4175 0.4175 Price per common share High....................................... 24 20 7/8 23 1/16 24 1/4 Low.................................. 20 19 19 7/16 20 1996 Operating revenues..................... $789 $669 $715 $737 Operating income............................. 176 120 136 124 Net income................................... 116 61 79 73 Earnings per common share (b)................ 0.73 0.38 0.49 0.45 Dividends declared per common share (c)...... 0.4175 0.4175 0.4175 0.4175 Price per common share High....................................... 26 24 1/2 24 24 1/2 Low........................................ 23 1/2 22 21 5/8 21 7/8 (a) PP&L's electric utility business is seasonal in nature with peak sales periods generally occurring in the winter months. In addition earnings in several quarters were affected by several one-time adjustments. Accordingly, comparisons among quarters of a year may not be indicative of overall trends and changes in operations. (b) The sum of the quarterly amounts may not equal annual earnings per share due to changes in the number of common shares outstanding during the year or rounding. (c) PP&L Resources has paid quarterly cash dividends on its common stock in every year since 1946. The dividends paid per share in 1997 and 1996 were $1.67. The most recent regular quarterly dividend paid by PP&L Resources was 41.75 cents per share (equivalent to $1.67 per annum) paid January 1, 1998. Future dividends will be dependent upon future earnings, financial requirements and other factors.
QUARTERLY FINANCIAL DATA (Unaudited) PP&L, Inc. and Subsidiaries (Millions of Dollars)
For the Quarters Ended (a) March 31 June 30 Sept. 30 Dec. 31 1997 Operating revenues..................... $786 $686 $778 $799 Operating income....................... 171 118 133 123 Net income ............................ 120 70 81 77 Earnings available to PP&L Resources... 113 61 69 65 1996 Operating revenues..................... $789 $669 $715 $737 Operating income............................. 176 120 136 124 Net income .................................. 125 69 86 77 Earnings available to PP&L Resources......... 118 62 79 70 (a) PP&L's electric utility business is seasonal in nature with peak sales periods generally occurring in the winter months. Accordingly, comparisons among quarters of a year may not be indicative of overall trends and changes in operations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information for this item concerning directors of PP&L Resources will be set forth in the sections entitled "Nominees for Directors" and "Directors Continuing in Office" in PP&L Resources' 1998 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 1997, and which information is incorporated herein by reference. Information required by this item concerning the executive officers of PP&L Resources is set forth on pages 19 through 20 of this report. Information for this item concerning directors of PP&L will be set forth in the sections entitled "Nominees for Directors" and "Directors Continuing in Office" in PP&L's 1998 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 1997, and which information is incorporated herein by reference. Information required by this item concerning the executive officers of PP&L is set forth on pages 19 through 20 of this report. ITEM 11. EXECUTIVE COMPENSATION Information for this item for PP&L Resources will be set forth in the sections entitled "Compensation of Directors," "Summary Compensation Table" and "Retirement Plans for Executive Officers" in PP&L Resources' 1998 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 1997, and which information is incorporated herein by reference. Information for this item for PP&L will be set forth in the sections entitled "Compensation of Directors," "Summary Compensation Table" and "Retirement Plans for Executive Officers" in PP&L's 1998 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 1997, and which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information for this item for PP&L Resources will be set forth in the section entitled "Stock Ownership" in PP&L Resources' 1998 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 1997, and which information is incorporated herein by reference. Information for this item for PP&L will be set forth in the section entitled "Stock Ownership" in PP&L's 1998 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 1997, and which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information for this item for PP&L Resources will be set forth in the section entitled "Certain Transactions Involving Directors or Executive Officers" in PP&L Resources' 1998 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 1997, and which information is incorporated herein by reference. Information for this item for PP&L will be set forth in the section entitled "Certain Transactions Involving Directors or Executive Officers" in PP&L's 1998 Notice of Annual Meeting and Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 1997, and which information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial Statements - included in response to Item 8. PP&L Resources, Inc. Report of Independent Accountants Consolidated Statement of Income for the Three Years Ended December 31, 1997 Consolidated Statement of Cash Flows for the Three Years Ended December 31, 1997 Consolidated Balance Sheet at December 31, 1997 and 1996 Consolidated Statement of Shareowners' Common Equity for the Three Years Ended December 31, 1997 Consolidated Statement of Preferred Stock at December 31, 1997 and 1996 Consolidated Statement of Company-Obligated Mandatorily Redeemable Securities at December 31, 1997 and 1996 Consolidated Statement of Long-Term Debt at December 31, 1997 and 1996 Notes to Financial Statements PP&L, Inc. Report of Independent Accountants Consolidated Statement of Income for the Three Years Ended December 31, 1997 Consolidated Statement of Cash Flows for the Three Years Ended December 31, 1997 Consolidated Balance Sheet at December 31, 1997 and 1996 Consolidated Statement of Shareowner's Common Equity for the Three Years Ended December 31, 1997 Consolidated Statement of Preferred Stock at December 31, 1997 and 1996 Consolidated Statement of Company-Obligated Mandatorily Redeemable Securities at December 31, 1997 and 1996 Consolidated Statement of Long-Term Debt at December 31, 1997 and 1996 Notes to Financial Statements 2. Supplementary Data and Supplemental Financial Statement Schedule - included in response to Item 8. Schedule II - Valuation and Qualifying Accounts and Reserves for the Three Years Ended December 31, 1997 All other schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the financial statements or notes thereto. 3. Exhibits Exhibit Index on page 93. (b) Reports on Form 8-K: The following Reports on Form 8-K were filed during the three months ended December 31, 1997: Report dated October 24, 1997 Item 5. Other Events Information regarding a schedule extension in PP&L's restructuring case. Report dated November 12, 1997 Item 5. Other Events Information regarding the distribution, from time to time, of up to $400 million aggregate principal amount of Medium- Term Notes, Series A of PP&L Capital Funding. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits Exhibits relating to the $400 million aggregate principal amount of Medium-Term Notes, Series A of PP&L Capital Funding. Report dated December 3, 1997 Item 5. Other Events Information regarding a schedule extension in PP&L's restructuring case. Report dated December 24, 1997 Item 5. Other Events Information regarding a schedule extension in PP&L's restructuring case. SHAREOWNER AND INVESTOR INFORMATION Annual Meetings: The annual meetings of shareowners of PP&L Resources and PP&L are held each year on the fourth Friday of April. The 1998 annual meetings will be held on Friday, April 24, 1998, at Lehigh University's Stabler Arena, at the Goodman Campus Complex located in Lower Saucon Township, outside Bethlehem, PA. Proxy Material: A proxy statement and notice of PP&L Resources' and PP&L's annual meetings are mailed to all shareowners of record as of February 27, 1998. Dividends: The 1998 dates for consideration of the declaration of dividends by the board of directors or its finance committee are February 27, May 22, August 28 and November 20. Subject to the declaration, dividends are paid on the first day of April, July, October and January. Dividend checks are mailed in advance of those dates with the intention that they arrive as close as possible to the payment dates. The 1998 record dates for dividends are expected to be the 10th day of March, June, September and December. Direct Deposit of Dividends: Shareowners may choose to have their dividend checks deposited directly into their checking or savings account. Quarterly dividend payments are electronically credited on the dividend date, or the first business day thereafter. Dividend Reinvestment Plan: Shareowners may choose to have dividends on their PP&L Resources common stock or PP&L preferred stock reinvested in PP&L Resources common stock instead of receiving the dividend by check. Certificate Safekeeping: Shareowners participating in the Dividend Reinvestment Plan may choose to have their common stock certificates forwarded to PP&L for safekeeping. Lost Dividend or Interest Checks: Dividend or interest checks lost by investors, or those that may be lost in the mail, will be replaced if the check has not been located by the 10th business day following the payment date. Transfer of Stock or Bonds: Stock or bonds may be transferred from one name to another or to a new account in the name of another person. Please contact Investor Services regarding transfer instructions. Bondholder Information: Much of the information and many of the procedures detailed here for shareowners also apply to bondholders. Questions related to bondholder accounts should be directed to Investor Services. Lost Stock or Bond Certificates: Please contact Investor Services for an explanation of the procedure to replace lost stock or bond certificates. PP&L Resources Summary Annual Report: published and mailed in mid-March to all shareowners of record. Shareowners' Newsletter: an easy-to-read newsletter containing current items of interest to shareowners -- published and mailed at the beginning of each quarter. Periodic Mailings: Letters regarding new investor programs, special items of interest, or other pertinent information are mailed on a non-scheduled basis as necessary. Duplicate Mailings: The summary annual report and other investor publications are mailed to each investor account. If you have more than one account, or if there is more than one investor in your household, you may contact Investor Services to request that only one publication be delivered to your address. Please provide account numbers for all duplicate mailings. Shareowner Information Line: Shareowners can get detailed corporate and financial information 24 hours a day using the Shareowner Information Line. They can hear timely recorded messages about earnings, dividends and other company news releases; request information by fax; and request printed materials in the mail. The toll-free Shareowner Information Line is 1-800-345-3085. With the introduction of the Shareowner Information Line, PP&L Resources will no longer publish the Quarterly Review. Replacing these quarterly mailings with an enhanced information service is part of the company's effort to improve the quality and timeliness of shareowner communications. Other PP&L Resources publications, such as the annual and quarterly reports to the Securities and Exchange Commission (Forms 10-K and 10-Q) will be mailed upon request. There will be no change in the mailing of annual reports, proxy statements or dividend checks. Another part of this new service is an enhanced Internet home page (www.papl.com). Shareowners can access PP&L Resources' Securities and Exchange Commission filings, stock quotes and historical performance. Visitors to our website can provide their E-mail address and indicate their desire to receive future earnings or news releases automatically at the time of their release. Investor Services: For any questions you have or additional information you require about PP&L Resources and its subsidiaries, please call the Shareowner Information Line, or write to: George I. Kline Manager-Investor Services PP&L, Inc. Two North Ninth Street Allentown, PA 18101 Internet Access: For updated information throughout the year, check out our home page at http://www.papl.com. You may also contact Investor Services via E-mail at invserv@papl.com. Security Analyst and Institutional Investor Inquiries: Members of the financial community seeking additional information may contact: Timothy J. Paukovits Investor Relations Manager Phone: (610) 774-4124 Fax: (610) 774-5106 E-mail: tjpaukovits@papl.com Listed Securities: Fiscal Agents: New York Stock Exchange Stock Transfer Agents and Registrars PP&L Resources, Inc.: Norwest Bank Minnesota, N.A. Common Stock (Code: PPL) Shareowner Services 161 North Concord Exchange PP&L, Inc.: South St. Paul, MN 55075 4-1/2% Preferred Stock (Code: PPLPRB) PP&L, Inc. 4.40% Series Preferred Stock Investor Services Department (Code: PPLPRA) Dividend Disbursing Office and Dividend Reinvestment Plan Agent PP&L Capital Trust: PP&L, Inc. 8.20% Preferred Securities Investor Services Department (Code: PPLPRC) Mortgage Bond Trusteee PP&L Capital Trust II: Bankers Trust Co. 8.10% Preferred Securities Attn: Security Transfer Unit (Code: PPLPRD) P.O. Box 291569 Nashville, TN 37229 Philadelphia Stock Exchange PP&L Resources, Inc.: Bond Interest Paying Agent Common Stock PP&L, Inc. Investor Services Department PP&L, Inc. 4-1/2% Preferred Stock 3.35% Series Preferred Stock 4.40% Series Preferred Stock 4.60% Series Preferred Stock SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PP&L Resources, Inc. (Registrant) PP&L, Inc. (Registrant) By /s/William F. Hecht William F. Hecht - Chairman, President and Chief Executive Officer (PP&L Resources, Inc. and PP&L, Inc.) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. TITLE By /s/William F. Hecht Principal Executive William F. Hecht - Chairman, President Officer and Director and Chief Executive Officer (PP&L Resources, Inc. and PP&L, Inc.) By /s/John R. Biggar Principal Financial John R. Biggar - Senior Vice President - Officer Financial(PP&L Resources, Inc. and PP&L, Inc.) By /s/Joseph J. McCabe Principal Accounting Joseph J. McCabe - Vice President and Officer Controller(PP&L Resources, Inc. and PP&L, Inc.) E. Allen Deaver Clifford L. Jones Nance K. Dicciani Ruth Leventhal William J. Flood Marilyn Ware Lewis Directors Elmer D. Gates Frank A. Long Stuart Heydt Norman Robertson By /s/William F. Hecht William F. Hecht, Attorney-in-fact Date: March 3, 1998 EXHIBIT INDEX The following Exhibits indicated by an asterisk preced- ing the Exhibit number are filed herewith. The balance of the Exhibits have heretofore been filed with the Commission and pursuant to Rule 12(b)-32 are incorporated herein by reference. Exhibits indicated by a # are filed or listed pursuant to Item 601(b)(10)(iii) of Regulation S-K. 3(a)-1 - Articles of Incorporation of PP&L Resources, Inc. (Exhibit B to Proxy Statement of PP&L and Prospectus of Resources, dated March 9, 1995) 3(a)-2 - Restated Articles of Incorporation of PP&L, Inc. (Exhibit A to Proxy Statement of PP&L and Prospectus of Resources, dated March 9, 1995) *3(a)-3 - Articles of Amendment of PP&L, Inc., dated September 12, 1997 3(b)-1 - By-laws of PP&L Resources, Inc. (Exhibit 3.2 to Registration Statement No. 33-57949) 3(b)-2 - By-laws of PP&L, Inc. (Exhibit 3(ii) to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1993) 4(a)-1 - Amended and Restated Employee Stock Ownership Plan, dated October 26, 1988 (Exhibit 4(b) to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1988) 4(a)-2 - Amendment No. 1 to said Employee Stock Ownership Plan, effective January 1, 1989 (Exhibit 4(b)-2 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1989) 4(a)-3 - Amendment No. 2 to said Employee Stock Ownership Plan, effective January 1, 1990 (Exhibit 4(b)-3 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1989) 4(a)-4 - Amendment No. 3 to said Employee Stock Ownership Plan, effective January 1, 1991 (Exhibit 4(b)-4 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1990) 4(a)-5 - Amendment No. 4 to said Employee Stock Ownership Plan, effective January 1, 1991 (Exhibit 4(a)-5 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991) 4(a)-6 - Amendment No. 5 to said Employee Stock Ownership Plan, effective October 23, 1991 (Exhibit 4(a)-6 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991) 4(a)-7 - Amendment No. 6 to said Employee Stock Ownership Plan, effective January 1, 1990 and January 1, 1992 (Exhibit 4(a)-7 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991) 4(a)-8 - Amendment No. 7 to said Employee Stock Ownership Plan, effective January 1, 1992 (Exhibit 4(a)-8 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991) 4(a)-9 - Amendment No. 8 to said Employee Stock Ownership Plan, effective July 1, 1992 (Exhibit 4(a)-9 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1992) 4(a)-10 - Amendment No. 9 to said Employee Stock Ownership Plan, effective January 1, 1993 (Exhibit 4(a)-10 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1992) 4(a)-11 - Amendment No. 10 to said Employee Stock Ownership Plan, effective January 1, 1993 (Exhibit 4(a)-11 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1993) 4(a)-12 - Amendment No. 11 to said Employee Stock Ownership Plan, effective January 1, 1994 (Exhibit 4(a)-12 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1994) 4(a)-13 - Amendment No. 12 to said Employee Stock Ownership Plan, effective January 1, 1994 (Exhibit 4(a)-13 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1994) 4(a)-14 - Amendment No. 13 to said Employee Stock Ownership Plan, effective April 27, 1995 (Exhibit 4(a)-14 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1995) 4(a)-15 - Amendment No. 14 to said Employee Stock Ownership Plan, effective January 1, 1989 and January 1, 1995 (Exhibit 4(a)-14 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1994) 4(a)-16 - Amendment No. 15 to said Employee Stock Ownership Plan, effective October 25, 1995 (Exhibit 4(a)-16 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1995) 4(a)-17 - Amendment No. 16 to said Employee Stock Ownership Plan, effective January 1, 1989 (Exhibit 4(a)-17 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1996) 4(a)-18 - Amendment No. 17 to said Employee Stock Ownership Plan, effective January 1, 1996 (Exhibit 4(a)-18 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1996) *4(a)-19 - Amendment No. 18 to said Employee Stock Ownership Plan, effective December 12, 1994, January 1, 1997, January 1, 1998, and January 1, 2000 *4(a)-20 - Amendment No. 19 to said Employee Stock Ownership Plan, effective January 1, 1998 4(b)-1 - Mortgage and Deed of Trust, dated as of October 1, 1945, between PP&L and Guaranty Trust Company of New York, as Trustee (now Bankers Trust Company, as successor Trustee) (Exhibit 2(a)-4 to Registration Statement No. 2- 60291) 4(b)-2 - Supplement, dated as of July 1, 1954, to said Mortgage and Deed of Trust (Exhibit 2(b)-5 to Registration Statement No. 219255) 4(b)-3 - Supplement, dated as of October 1, 1989, to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form 8-K Report (File No. 1-905) dated November 6, 1989) 4(b)-4 - Supplement, dated as of July 1, 1991, to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form 8-K Report (File No. 1-905) dated July 29, 1991) 4(b)-5 - Supplement, dated as of May 1, 1992, to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form 8-K Report (File No. 1-905) dated June 1, 1992) 4(b)-6 - Supplement, dated as of November 1, 1992, to said Mortgage and Deed of Trust (Exhibit 4(b)-29 to PP&L's Form 10-K Report (File 1-905) for the year ended December 31, 1992) 4(b)-7 - Supplement, dated as of February 1, 1993, to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form 8-K Report (File No. 1-905) dated February 16, 1993) 4(b)-8 - Supplement, dated as of April 1, 1993, to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form 8-K Report (File No. 1-905) dated April 30, 1993) 4(b)-9 - Supplement, dated as of June 1, 1993, to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form 8-K Report (File No. 1-905) dated July 7, 1993) 4(b)-10 - Supplement, dated as of October 1, 1993, to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form 8-K Report (File No. 1-905) dated October 29, 1993) 4(b)-11 - Supplement, dated as of February 15, 1994, to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form 8-K Report (File No. 1-905) dated March 11, 1994) 4(b)-12 - Supplement, dated as of March 1, 1994, to said Mortgage and Deed of Trust (Exhibit 4(b) to PP&L's Form 8-K Report (File No. 1-905) dated March 11, 1994) 4(b)-13 - Supplement, dated as of March 15, 1994, to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form 8-K Report (File No. 1-905) dated March 30, 1994) 4(b)-14 - Supplement, dated as of September 1, 1994, to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form 8-K (File No. 1-905) dated October 3, 1994) 4(b)-15 - Supplement, dated as of October 1, 1994, to said Mortgage and Deed of Trust (Exhibit 4(a) to PP&L's Form 8-K Report (File No. 1-905) dated October 3, 1994) 4(b)-16 - Supplement, dated as of August 1, 1995, to said Mortgage and Deed of Trust (Exhibit 6(a) to PP&L's Form 10-Q Report (File No. 1-905) for the quarter ended September 30, 1995) *4(b)-17 - Supplement, dated as of April 1, 1997 to said Mortgage and Deed of Trust 4(c)-1 - Indenture, dated as of November 1, 1997, among PP&L Resources, Inc., PP&L Capital Funding, Inc. and The Chase Manhattan Bank as Trustee (Exhibit 4.1 to PP&L's 8- K (File No. 1-905) dated November 12, 1997) 4(c)-2 - Supplement, dated as of November 1, 1997, to said Indenture (Exhibit 4.2 to PP&L's 8-K (File No. 1-905) dated November 12, 1997) 4(d)-1 - Junior Subordinated Indenture, dated as of April 1, 1997, between PP&L, Inc. and The Chase Manhattan Bank, as Trustee (Exhibit 4.1 to Registration Statement No. 333-20661) 4(d)-2 - Amended and Restated Trust Agreement, dated as of April 8, 1997, among PP&L, Inc., The Chase Manhattan Bank, as Property Trustee, Chase Manhattan Bank (Delaware), as Delaware Trustee, and John R. Biggar and James E. Abel, as Administrative Trustees (Exhibit 4.4 to Registration Statement No. 333-20661) 4(d)-3 - Guarantee Agreement, dated as of April 8, 1997, between PP&L, Inc. and The Chase Manhattan Bank, as Trustee (Exhibit 4.6 to Registration Statement No. 333-20661) 4(e)-1 - Amended and Restated Trust Agreement, dated as of June 13, 1997, among PP&L, Inc., The Chase Manhattan Bank, as Property Trustee, Chase Manhattan Bank (Delaware), as Delaware Trustee, and John R. Biggar and James E. Abel, as Administrative Trustees (Exhibit 4.4 to Registration Statement No. 333-27773) 4(e)-2 - Guarantee Agreement, dated as of June 13, 1997, between PP&L, Inc. and The Chase Manhattan Bank, as Trustee (Exhibit 4.6 to Registration Statement No. 333-27773) *10(a) - 364-Day Revolving Credit Agreement, dated as of November 20, 1997, between PP&L, Inc., PP&L Capital Funding, Inc. and PP&L Resources, Inc. and the Banks named therein *10(b) - Five-Year Revolving Credit Agreement, dated as of November 20, 1997, between PP&L, Inc., PP&L Capital Funding, Inc. and PP&L Resources, Inc. and the banks named therein 10(c) - Credit Agreement, dated as of March 14, 1996, between PP&L, Inc. and The First National Bank of Chicago (Exhibit 10(c) to PP&L, Inc.'s Form 10-K Report (File No. 1- 905) for the year ended December 31, 1996) 10(d) - Pollution Control Facilities Agreement, dated as of May 1, 1973, between PP&L, Inc. and the Lehigh County Industrial Development Authority (Exhibit 5(z) to Registration Statement No. 2-60834) *10(e) - Operating Agreement of the PJM Interconnection, dated as of June 2, 1997 and revised as of December 31, 1997 10(f) - Capacity and Energy Sales Agreement, dated June 29, 1983, between PP&L, Inc. and Atlantic City Electric Company (Exhibit 10(f)-2 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1983) 10(g)-1 - Capacity and Energy Sales Agreement, dated March 9, 1984, between PP&L, Inc. and Jersey Central Power & Light Company (Exhibit l0(f)-3 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1984) 10(g)-2 - First Supplement, effective February 28, 1986, to said Capacity and Energy Sales Agreement (Exhibit 10(e)-4 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1986) 10(g)-3 - Second Supplement, effective January 1, 1987, to said Capacity and Energy Sales Agreement (Exhibit 10(g)-3 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1989) 10(g)-4 - Amendments to Exhibit A, effective October 1, 1987, to said Capacity and Energy Sales Agreement (Exhibit 10(e)-6 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1987) 10(g)-5 - Third Supplement, effective December 1, 1988, to said Capacity and Energy Sales Agreement (Exhibit 10(g)-5 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1989) 10(g)-6 - Fourth Supplement, effective December 1, 1988, to said Capacity and Energy Sales Agreement (Exhibit 10(g)-6 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1989) 10(h)-1 - Capacity and Energy Sales Agreement, dated January 28, 1988, between PP&L, Inc. and Baltimore Gas and Electric Company (Exhibit 10(e)-7 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1987) 10(h)-2 - First Supplement, effective November 1, 1988, to said Capacity and Energy Sales Agreement (Exhibit 10(i)-2 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1989) 10(h)-3 - Second Supplement, effective June 1, 1989, to said Capacity and Energy Sales Agreement (Exhibit 10(i)-3 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1989) 10(h)-4 - Third Supplement, effective June 1, 1991, to said Capacity and Energy Sales Agreement (Exhibit 10(g)-4 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991) *10(h)-5 - Fourth Supplement, effective June 1, 1992, to said Capacity and Energy Sales Agreement *10(h)-6 - Fifth Supplement, effective July 15, 1993, to said Capacity and Energy Sales Agreement *10(h)-7 - Sixth Supplement, effective June 1, 1993, to said Capacity and Energy Sales Agreement #10(i) - Amended and Restated Directors Deferred Compensation Plan, effective July 1, 1995 (Exhibit C to Proxy Statement of PP&L and Prospectus of Resources, dated March 9, 1995) #10(i)-1 - Amendment No. 1 to said Amended and Restated Directors Deferred Compensation Plan, effective November 1, 1996 (Exhibit 10(j)-1 to PP&L, Inc.'s Form 10-K Report (File No. 1-905) for the year ended December 31, 1996) #10(i)-2 - Amendment No. 2 to said Amended and Restated Directors Deferred Compensation Plan, effective January 1, 1997 (Exhibit 10(j)-2 to PP&L, Inc.'s Form 10-K Report (File No. 1-905) for the year ended December 31, 1996) *#10(i)-3 - Amendment No. 3 to said Amended Directors Deferred Compensation Plan, effective January 1, 1998 #10(j)-1 - Amended and Restated Deferred Compensation Plan for Executive Officers, effective January 1, 1990 (Exhibit 10(s) to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1990) #10(j)-2 - Amendment No. 1 to said Officers Deferred Compensation Plan, effective January 1, 1991 (Exhibit 10(j)-2 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991) #10(j)-3 - Amendment No. 2 to said Officers Deferred Compensation Plan, effective October 23, 1991 (Exhibit 10(j)- 3 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1991) #10(j)-4 - Amendment No. 3 to said Officers Deferred Compensation Plan, effective January 1, 1992 and April 1, 1992 (Exhibit 10(j)-4 to PP&L's Form 10-K Report (File No. 1- 905) for the year ended December 31, 1991) #10(j)-5 - Amendment No. 4 to said Officers Deferred Compensation Plan, effective January 1, 1995 (Exhibit 10(j)-5 to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1994) #10(j)-6 - Amendment No. 5 to said Officers Deferred Compensation Plan, effective January 1, 1996 (Exhibit 10(l)-6 to PP&L, Inc.'s Form 10-K Report (File No. 1-905) for the year ended December 31, 1996) #10(k) - Amended and Restated Supplemental Executive Retirement Plan, effective August 31, 1995 (Exhibit 10(k) to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1995) #10(k)-1 - Amendment No. 1 to said Amended and Restated Supplemental Executive Retirement Plan, effective July 1, 1996 (Exhibit 10(m)-1 to PP&L, Inc.'s Form 10-K Report (File No. 1-905) for the year ended December 31, 1996) #10(l) - Amended and Restated Executive Retirement Security Plan, effective August 31, 1995 (Exhibit 10(l) to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1995) #10(l)-1 - Amendment No. 1 to said Amended and Restated Executive Retirement Security Plan, effective January 1, 1996 (Exhibit 10(n)-1 to PP&L, Inc.'s Form 10-K Report (File No. 1-905) for the year ended December 31, 1996) #10(m)-1 - Amended and Restated Incentive Compensation Plan, effective January 1, 1995 (Exhibit D to Proxy Statement of PP&L and Prospectus of Resources, dated March 9, 1995) #10(m)-2 - Amendment No. 1 to said Amended and Restated Incentive Compensation Plan, effective April 27, 1995 (Exhibit 10(m)-2 to PP&L's Form 10-K Report (File No. 1- 905) for the year ended December 31, 1995) #10(m)-3 - Amendment No. 2 to said Amended and Restated Incentive Compensation Plan, effective January 1, 1996 (Exhibit 10(o)-3 to PP&L, Inc.'s Form 10-K Report (File No. 1-905) for the year ended December 31, 1996) #10(m)-4 - Amendment No. 3 to said Amended and Restated Incentive Compensation Plan, effective January 1, 1997 (Exhibit 10(o)-4 to PP&L, Inc.'s Form 10-K Report (File No. 1-905) for the year ended December 31, 1996) #10(n) - Description of Executive Compensation Incentive Award Program (Exhibit 10(p) to PP&L Form 10-K Report (File No. 1-905) for the year ended December 31, 1996) 1/ 1/This description is provided pursuant to 17 C.F.R. Section 229.601(b)(10)(iii)(A). 10(o) - Nuclear Fuel Lease, dated as of February 1, 1982, between PP&L, as lessee, and Newton I. Waldman, not in his individual capacity, but solely as Cotrustee of the Pennsylvania Power & Light Energy Trust, as lessor (Exhibit 10(g) to PP&L's Form 10-K Report (File No. 1-905) for the year ended December 31, 1981) *12(a) - PP&L Resources, Inc. and Subsidiaries Computation of Ratio of Earnings to Fixed Charges *12(b) - PP&L, Inc. and Subsidiaries Computation of Ratio of Earnings to Fixed Charges *23 - Consent of Price Waterhouse LLP *24 - Power of Attorney *27 - Financial Data Schedule EX-3 2 Exhibit 3(a)-3 Articles of Amendment-Domestic Business Corporation DSCB:15-1915 (Rev. 91) In compliance with the requirements of 15 Pa.C.S. Section 1915 (related to articles of amendment), the undersigned business corporation, desiring to amend its Articles, hereby states that: 1. The name of the corporation is: Pennsylvania Power & Light Company. 2. The (a) address of this corporation's current registered office in this Commonwealth or (b) name of its commercial registered office provider and the county of venue is (the Department is hereby authorized to correct the following information to conform to the records of the Department): (a) Two North Ninth Street, Allentown, PA 18101 Lehigh Number and Street City State Zip County (b) c/o: __________________________________________________ Name of Commercial Registered Office Provider County For a corporation represented by a commercial registered office provider, the county in (b) shall be deemed the county in which the corporation is located for venue and official publication purposes. 3. The statute by or under which it was incorporated is: PA Business Corporation Law of 1988 4. The date of its Incorporation is: June 4, 1920 5. (Check, and if appropriate complete, one of the following): _X_ The amendment shall be effective upon filing these Articles of Amendment in the Department of State. ___ The amendment shall be effective on: _____________(date) at ________________(hour). 6. (Check one of the following): ___ The amendment was adopted by the shareholders (or members) pursuant to 15 Pa.C.S. Section 1914(a) and (b). _X_ The amendment was adopted by the board of directors pursuant to 15 Pa. C.S. Section 1914 (c). 7. (Check, and if appropriate complete, one of the following): _X_ The amendment adopted by the corporation, set forth in full, is as follows: "The name of the corporation is PP&L, Inc." ___ The amendment adopted by the corporation is set forth in full in Exhibit A attached hereto and made a part hereof. 8. (Check if the amendment restates the Articles): ___ The restated Articles of Incorporation supersede the original Articles and all amendments thereto. IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by a duly authorized officer thereof this 12th day of September, 1997. Pennsylvania Power & Light Company (Name of Corporation) BY: /s/ Robert J. Grey Robert J. Grey (Signature) TITLE: Senior Vice President, General Counsel and Secretary Microfilm Number 9768-838 and 9768-839 Entity Number 273941 Filed with the Department of State on September 12, 1997 /s/ ________________________________ Secretary of the Commonwealth EX-4 3 AMENDMENT NO. 18 TO PENNSYLVANIA POWER & LIGHT COMPANY EMPLOYEE STOCK OWNERSHIP PLAN WHEREAS, Pennsylvania Power & Light Company ("Company") has adopted the Pennsylvania Power & Light Company Employee Stock Ownership Plan ("Plan") effective January 1, 1975; and WHEREAS, the Plan was amended and restated effective Janu- ary 1, 1987, and subsequently amended by Amendment Nos. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16 and 17; and WHEREAS, the Company desires to further amend the Plan; NOW, THEREFORE, the Plan is hereby amended as follows: I. Effective December 12, 1994, the following sections of Articles II are amended to read: 2.31 "Qualified Military Service" means any service (either voluntary or involuntary) by an individual in the Uniformed Ser- vices if such individual is entitled to reemployment rights with the Company with respect to such service. 2.34 "Returning Veteran" means a former Employee who on or after December 12, 1994, returns from Qualified Military Service to employment by the Company within the period of time during which his reemployment rights are protected by law. 2.41 "Uniformed Services" means the Armed Forces, the Army National Guard and Air National Guard (when engaged in active duty for training, inactive duty training, or full-time National Guard duty), the commissioned corps of the Public Health Service, and any other category of persons designated by the President of the United States in time of war or emergency. II. Effective December 12, 1994, Article XIII is added to read: ARTICLE XIII TREATMENT OF RETURNING VETERANS 13.1 Applicability and Effective Date. The rights of any Returning Veteran who resumes employment with the Company on or after December 12, 1994 shall be modified as set forth in this Article. 13.2 Eligibility to Participate. For purposes of Section 3.1, (a) A Returning Veteran who was an Eligible Employee imme- diately prior to his Qualified Military Service shall be deemed to have remained an Eligible Employee throughout his Qualified Military Service. (b) A Returning Veteran who would have become an Eligible Employee during the period of his Qualified Military Service, but for the resulting absence from employment, shall be deemed to have become an Eligible Employee as of the date he would have become an Eligible Employee if he had not entered into Qualified Military Service. 13.3 Restoration of TRASOP, PAYSOP, and Dividend-based Con- tributions. With respect to any Plan Year for which a Returning Veteran would have been a Participant, but failed to share in TRASOP, PAYSOP, or Dividend-based Contributions under Sections 4.1, 4.3 and 4.4 solely by reason of his Qualified Military Ser- vice, the Company shall contribute to such Participant's Account an amount equal to the TRASOP, PAYSOP, and Dividend-based Contri- butions that would have been allocated to his Account, but for his absence for Qualified Military Service. Such contribution shall not include the earnings that would have accrued on such amount. 13.4 Restoration of Matching Contributions. (a) Each Returning Veteran who, during his period of Quali- fied Military Service, would have been eligible to make Matching Contributions shall be permitted to contribute an amount equal to the Matching Contributions that he could have made during such absence from employment. Such "make-up" contributions shall be made during the period that begins with his reemployment by the Company and ends with (1) the expiration of a period of five years, or (2) if shorter, a period of three times the period of Qualified Military Service. (b) Any make-up contributions described in Subsection (a) hereof shall be in addition to those Matching Contributions that the Participant may elect to make pursuant to Section 4.2. 13.5 Determination of Compensation. For purposes of deter- mining the amount of any make-up contributions under Section 13.3 or Section 13.4 and for applying the limits of Section 5.5, a Participant's compensation during any period of Qualified Mili- tary Service shall be deemed to equal either: (a) the compensation he would have received but for such Qualified Military Service, based on the rate of pay he would have received from the Company; or (b) if the amount described in (a) above is not reasonably certain, his average compensation from the Company during the 12-month period immediately preceding the Qualified Military Service (or, if shorter, the period of employment immediately preceding the Qualified Military Service). Such amount shall be adjusted as necessary to reflect the length of the Participant's Qualified Military Service. 13.6 Application of Certain Limitations. (a) For purposes of applying the limitations of Section 5.5, any TRASOP, PAYSOP, or Dividend-based Contributions described in Section 13.3, and any make-up contributions described in Section 13.4, shall be treated as contributions for the Limitation Year to which they relate, rather than the Limita- tion Year in which they are actually made. (b) For purposes of applying the limitations of Section 4.6, any make-up contributions described in Section 13.4 shall be disregarded, both for the Plan Year to which the contributions relate, and for the Plan Year in which they are actually made. 13.7 Administrative Rules and Procedures. The Employee Benefit Plan Board shall establish such rules and procedures as it deems necessary or desirable to implement the provisions of this Article, provided that they are not in violation of the Uniformed Services Employment and Reemployment Rights Act of 1994, any regulations thereunder, or any other applicable law. III. Effective January 1, 1997, Articles II and IV are amended to read: 2.8 "Compensation" shall mean the annual compensation received by an Employee from the Company as reported on Internal Revenue Service Form W-2 or a successor form plus the Employee's elective deferrals under the Employee Savings Plan or Deferred Savings Plan; provided, however, that Compensation shall not include fringe benefits not normally included in compensation, such as tuition refunds, moving expenses, etc. and shall not, for purposes of allocation under Section 5.2(a), include any amount in excess of (i) for the 1975 and 1976 Plan Years, $16,000 and (ii) commencing with the 1977 Plan Year, the median annual com- pensation of all Participants during the Plan Year or $100,000, whichever is less. Such median compensation shall be determined as of the close of a Plan Year and shall be rounded to an even thousand dollars. For an MCP Employee, Compensation shall also include the full amount of any single-sum award paid to the Par- ticipant from the fund credited annually with a percentage of annualized base pay salaries in accordance with the Managers Compensation Plan. 2.15 "Employee" shall mean any person employed by the Company including officers, shareholders, or directors who are employees, but excluding (a) persons covered by a collective bargaining agreement unless such agreement specifically provides for participation under the Retirement Plan, (b) leased employees whether or not described in Section 414(n) of the Code, and (c) persons classified by the Company as independent contractors, regardless of whether they are subsequently determined to be employees for employment tax or any other purpose. 2.20 "Highly Compensated Eligible Employee" shall mean an Eligible Employee who: (a) is a five-percent owner, as defined in section 416(i) of the Code, either for the current Plan Year or the immediately preceding Plan Year; or (b)(1) received more than $80,000 (as indexed) in Compensation from the Company or an Affiliated Company in the immediately preceding Plan Year, and (2) if so elected by the Company, was among the top 20% of Employees of the Company and Affiliated Companies ranked by Compensation (excluding Employees described in section 414(q)(5) of the Code to the extent (A) permitted under the Code and regulations thereunder and (B) elected by the Employee Benefit Plan Board, for purposes of identifying the number of Employees in the top 20%). For purposes of this Section 2.20 "compensation" shall have the meaning set forth in Section 415(c)(3) of the Code, but including amounts that would be excluded from an Employee's gross income under a plan described in Section 125, 401(k) or 403(b) of the Code. 4.7 Prevention of Violation of Limitation on Matching Contributions and TRASOP Contributions. The Employee Benefit Plan Board shall monitor the level of Participants' Matching Contributions and TRASOP Contributions under Section 4.1(b) and elective deferrals, employee contributions, and employer matching contributions under any other qualified retirement plan main- tained by the Company or any Affiliated Company to ensure against exceeding the limitations of Section 4.6 for any Plan Year. If the Employee Benefit Plan Board determines that the limitations of Section 4.6 may be or have been exceeded, it shall take the appropriate following actions for such Plan Year: (a) The Average Contribution Percentage for the Highly Com- pensated Eligible Employees shall be reduced to the extent neces- sary to satisfy at least one of the tests in Section 4.6(a) and the test in Section 4.6(b). (b) The reduction shall be accomplished by reducing the maximum Contribution Percentage for any Highly Compensated Elig- ible Employee to an adjusted maximum Contribution Percentage, which shall be the highest Contribution Percentage that would cause one of the tests in Section 4.6(a) and the test in Section 4.6(b) to be satisfied, if each Highly Compensated Eligible Employee with a higher Contribution Percentage had instead the adjusted maximum Contribution Percentage, reducing the Highly Compensated Eligible Employees' Matching Contributions, TRASOP Contributions under Section 4.1(b), and employee contributions and employer matching contributions under any other qualified retirement plan maintained by the Company or any Affiliated Com- pany in order of priority based on the dollar amount of each Eligible Highly Compensated Employee's Matching Contributions and TRASOP Contributions, beginning with the Highly Compensated Eligible Employee(s) with the highest dollar amount of Matching Contributions and TRASOP Contributions. IV. Effective January 1, 1998, Article V is amended to read: 5.5 Maximum Allocation. The provisions of this Section shall be construed to comply with Section 415 of the Code. (m) For the purpose of this Section 5.5, "compensation" shall be defined in accordance with Section 415(c)(3) of the Code and regulations thereunder so that, for years beginning on or after January 1, 1998, "compensation" shall also include amounts excluded from gross income under Sections 125, 402(e)(3), 402(h)(1)(B) or 403(b). V. Effective January 1, 2000, Article V is amended to read: 5.5 Maximum Allocation. The provisions of this Section shall be construed to comply with Section 415 of the Code. (j)(1) If in any Limitation Year beginning before January 1, 2000, a Participant in this Plan is also a participant in one or more qualified defined benefit plans maintained by the Company or any 50% Affiliated Company, the projected annual benefit under such qualified defined benefit plan or plans shall be reduced if necessary, so that the sum of the fractions described in (A) and (B) does not exceed 1.0 for such Limitation Year: (A) Defined Benefit Fraction -- a fraction, the numerator of which is the Participant's projected annual benefit under the defined benefit pension plans in which he has participated, determined as of the close of the limitation years of such plans, and the denominator of which is the lesser of: (i) 1.25 x $90,000 or (ii) 140% of the Participant's highest average compensation over any three consecutive calendar years. For purposes of this Section, "projected annual benefit" shall mean the annual benefit to which a participant would be entitled under the terms of a qualified defined benefit plan if he had continued employment until his normal retirement date under such plan and if his compensation for the purpose of such plan continued at the same rate. (B) Defined Contribution Fraction -- A fraction, the numerator of which is the sum of the annual additions to the Participant's accounts under all defined contribution plans sponsored by the Company or any 50% Affiliated Company for all limitation years, and the denominator of which is the sum of the lesser of the following amounts, determined for each of such Limitation Years and for each prior limitation year of service with the Company or 50% Affiliated Company: (i) 1.25 x $30,000 or (ii) 35% of the Participant's compensation for such limitation year. (2) If the Plan and the defined benefit plan referred to in Subsection (j)(1)(A) satisfied Section 415 of the Code for the Limitation Year ended December 31, 1986, an amount shall be subtracted from the numerator of the fraction described in Subsection (j)(1)(B) (not exceeding such numerator). The amount to be subtracted shall be the product of: (A) the sum of the defined contribution fraction under Subsection (j)(1)(B) plus the defined benefit fraction under Subsection (j)(1)(A) as of December 31, 1986, minus one, multiplied by (B) the denominator of the defined contribution plan fraction under Subsection (j)(1)(B) as of December 31, 1986. VI. Except as provided for in this Amendment No. 18, all other provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, this Amendment No. 18 is executed this 24th day of July, 1997. PENNSYLVANIA POWER & LIGHT COMPANY /s/ John M. Chappelear By:_______________________________ John M. Chappelear Vice President-Investments & Pensions EX-4 4 AMENDMENT NO. 19 TO PENNSYLVANIA POWER & LIGHT COMPANY EMPLOYEE STOCK OWNERSHIP PLAN WHEREAS, Pennsylvania Power & Light Company ("Company") has adopted the Pennsylvania Power & Light Company Employee Stock Ownership Plan ("Plan") effective January 1, 1975; and WHEREAS, the Plan was amended and restated effective Janu- ary 1, 1987, and subsequently amended by Amendment Nos. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17 and 18; and WHEREAS, the Company desires to further amend the Plan; NOW, THEREFORE, the Plan is hereby amended as follows: I. Effective January 1, 1998, the following sections of Article VII are amended to read: 7.5 Termination of Employment. Upon a Participant's retirement or other termination of employment with the Company and all Affiliated Companies, he shall be entitled to receive his interest in the Fund. Subject to Subsection 7.7(b), (a) if the value of his interest in the Fund exceeds, or exceeded at the time of any prior distribution, $5,000, his interest shall not be paid to him or applied for his benefit until (1) he consents in writing to such payment or application, or (2) he attains his 65th birthday or (3) he dies; whichever occurs first; (b) otherwise, his interest shall be paid to him or applied for his benefit in a single sum within 60 days after such termination takes place. 7.7 Timing of Distribution. (a) Subject to Subsection (b), a Participant entitled to receive benefits under this Article shall commence to receive benefits as soon as administratively practicable, but in no event shall any Participant receive benefits later than the earliest of the dates determined under (1), (2) or (3) below: (1) the 60th day after the close of the Plan Year in which occurs the later of (A) the Participant's attainment of age 65 or (B) the Participant's termination of employment with the Company and all Affiliated Companies; (2) the April 1st after the end of the calendar year in which occurs the Participant's attainment of age 70-1/2; or (3) in the event of the Participant's death, December 31 of the calendar year following the year of the Participant's death. (b) A Participant who terminates employment with the Company on or after age 55, and whose Account exceeds, or exceeded at the time of any prior distribution, $5,000, shall be entitled to defer payment of his benefits until a date not later than that specified in Section 7.7(a)(2). (c) The Employee Benefit Plan Board shall supply to each Participant who is entitled to distribution before his death or attainment of age 65 and the value of whose Account exceeds, or exceeded at the time of any prior distribution, $5,000, written information relating to his right to defer distribution under Section 7.4, 7.5 or 7.7(b). Such notice shall be furnished not less than 30 days nor more than 90 days prior to the Participant's benefit commencement date, except that such notice may be furnished less than 30 days prior to the Participant's benefit commencement date if (1) the Employee Benefit Plan Board informs the Participant that the Participant has the right to a period of at least 30 days after receiving such notice to consider the decision whether to elect a distribution, and the mode in which he desires such distribution to be made, and (2) the Participant, after receiving such notice, affirmatively elects a distribution. II. Except as provided for in this Amendment No. 19, all other provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, this Amendment No. 19 is executed this 26th day of November, 1997. PP&L, INC. /s/ John M. Chappelear By:_______________________________ John M. Chappelear Vice President-Investments & Pensions EX-4 5 PENNSYLVANIA POWER & LIGHT COMPANY TO BANKERS TRUST COMPANY (successor to Morgan Guaranty Trust Company of New York, formerly Guaranty Trust Company of New York) As Trustee under Pennsylvania Power & Light Company's Mortgage and Deed of Trust, Dated as of October 1, 1945 _________________________ Sixty-fifth Supplemental Indenture Providing among other things for First Mortgage Bonds, Short-Term Series A _________________________ Dated as of April 1, 1997 SIXTY-FIFTH SUPPLEMENTAL INDENTURE SIXTY-FIFTH SUPPLEMENTAL INDENTURE, dated as of the 1st day of April, 1997 made and entered into by and between PENNSYLVANIA POWER & LIGHT COMPANY, a corporation of the Commonwealth of Pennsylvania, whose address is Two North Ninth Street, Allentown, Pennsylvania 18101 (hereinafter sometimes called the Company), and BANKERS TRUST COMPANY (successor to MORGAN GUARANTY TRUST COMPANY OF NEW YORK, formerly GUARANTY TRUST COMPANY OF NEW YORK), a corporation of the State of New York, whose address is 4 Albany Street, New York, New York 10006 (hereinafter sometimes called the Trustee), as Trustee under the Mortgage and Deed of Trust, dated as of October 1, 1945 (hereinafter called the Mortgage and, together with any indentures supplemental thereto, hereinafter called the Indenture), which Mortgage was executed and delivered by Pennsylvania Power & Light Company to secure the payment of bonds issued or to be issued under and in accordance with the provisions of the Mortgage, reference to which said Mortgage is hereby made, this instrument (hereinafter called the Sixty-fifth Supplemental Indenture) being supplemental thereto; WHEREAS, said Mortgage was or is to be recorded in various Counties in the Commonwealth of Pennsylvania, which Counties include or will include all Counties in which this Sixty-fifth Supplemental Indenture is to be recorded; and WHEREAS, an instrument, dated August 5, 1994, was executed by the Company appointing Bankers Trust Company as Trustee in succession to said Morgan Guaranty Trust Company of New York (resigned) under the Indenture, and by Bankers Trust Company accepting said appointment, which instrument was or is to be recorded in various Counties in the Commonwealth of Pennsylvania; and WHEREAS, by the Mortgage the Company covenanted that it would execute and deliver such supplemental indenture or indentures and such further instruments and do such further acts as might be necessary or proper to carry out more effectually the purposes of the Indenture and to make subject to the lien of the Indenture any property thereafter acquired and intended to be subject to the lien thereof; and WHEREAS, the Company executed and delivered as supplements to the Mortgage, the following supplemental indentures: Designation Dated as of First Supplemental Indenture.......... July 1, 1947 Second Supplemental Indenture......... December 1, 1948 Third Supplemental Indenture.......... February 1, 1950 Fourth Supplemental Indenture......... March 1, 1953 Fifth Supplemental Indenture.......... August 1, 1955 Sixth Supplemental Indenture.......... December 1, 1961 Seventh Supplemental Indenture........ March 1, 1964 Eighth Supplemental Indenture......... June 1, 1966 Ninth Supplemental Indenture.......... November 1, 1967 Tenth Supplemental Indenture.......... December 1, 1967 Eleventh Supplemental Indenture....... January 1, 1969 Twelfth Supplemental Indenture........ June 1, 1969 Thirteenth Supplemental Indenture..... March 1, 1970 Fourteenth Supplemental Indenture..... February 1, 1971 Fifteenth Supplemental Indenture...... February 1, 1972 Sixteenth Supplemental Indenture...... January 1, 1973 Seventeenth Supplemental Indenture.... May 1, 1973 Eighteenth Supplemental Indenture..... April 1, 1974 Nineteenth Supplemental Indenture..... October 1, 1974 Twentieth Supplemental Indenture...... May 1, 1975 Twenty-first Supplemental Indenture... November 1, 1975 Twenty-second Supplemental Indenture.. December 1, 1976 Twenty-third Supplemental Indenture... December 1, 1977 Twenty-fourth Supplemental Indenture.. April 1, 1979 Twenty-fifth Supplemental Indenture... April 1, 1980 Twenty-sixth Supplemental Indenture... June 1, 1980 Twenty-seventh Supplemental Indenture. June 1, 1980 Twenty-eighth Supplemental Indenture.. December 1, 1980 Twenty-ninth Supplemental Indenture... February 1, 1981 Thirtieth Supplemental Indenture...... February 1, 1981 Thirty-first Supplemental Indenture... September 1, 1981 Thirty-second Supplemental Indenture.. April 1, 1982 Thirty-third Supplemental Indenture... August 1, 1982 Thirty-fourth Supplemental Indenture.. October 1, 1982 Thirty-fifth Supplemental Indenture... November 1, 1982 Thirty-sixth Supplemental Indenture... February 1, 1983 Thirty-seventh Supplemental Indenture. November 1, 1983 Thirty-eighth Supplemental Indenture.. March 1, 1984 Thirty-ninth Supplemental Indenture... April 1, 1984 Fortieth Supplemental Indenture....... August 15, 1984 Forty-first Supplemental Indenture.... December 1, 1984 Forty-second Supplemental Indenture... June 15, 1985 Forty-third Supplemental Indenture.... October 1, 1985 Forty-fourth Supplemental Indenture... January 1, 1986 Forty-fifth Supplemental Indenture.... February 1, 1986 Forty-sixth Supplemental Indenture.... April 1, 1986 Forty-seventh Supplemental Indenture.. October 1, 1986 Forty-eighth Supplemental Indenture... March 1, 1988 Forty-ninth Supplemental Indenture.... June 1, 1988 Fiftieth Supplemental Indenture....... January 1, 1989 Fifty-first Supplemental Indenture.... October 1, 1989 Fifty-second Supplemental Indenture... July 1, 1991 Fifty-third Supplemental Indenture.... May 1, 1992 Fifty-fourth Supplemental Indenture... November 1, 1992 Fifty-fifth Supplemental Indenture.... February 1, 1993 Fifty-sixth Supplemental Indenture.... April 1, 1993 Fifty-seventh Supplemental Indenture.. June 1, 1993 Fifty-eighth Supplemental Indenture... October 1, 1993 Fifty-ninth Supplemental Indenture.... February 15, 1994 Sixtieth Supplemental Indenture....... March 1, 1994 Sixty-first Supplemental Indenture.... March 15, 1994 Sixty-second Supplemental Indenture... September 1, 1994 Sixty-third Supplemental Indenture.... October 1, 1994 Sixty-fourth Supplemental Indenture... August 1, 1995 which supplemental indentures were or are to be recorded in various Counties in the Commonwealth of Pennsylvania; and WHEREAS, the Company executed and delivered its Supplemental Indenture, dated July 1, 1954, creating a security interest in certain personal property of the Company, pursuant to the provisions of the Pennsylvania Uniform Commercial Code, as a supplement to the Mortgage, which Supplemental Indenture was filed in the Office of the Secretary of the Commonwealth of Pennsylvania on July 1, 1954, and all subsequent supplemental indentures were so filed; and WHEREAS, in addition to the property described in the Mortgage, as heretofore supplemented, the Company has acquired certain other property, rights and interests in property; and WHEREAS, the Company has heretofore issued, in accordance with the provisions of the Mortgage, as supplemented, the following series of First Mortgage Bonds: Principal Principal Amount Amount Series Issued Outstanding 3% Series due 1975............ $93,000,000 None 2-3/4% Series due 1977........ 20,000,000 None 3-1/4% Series due 1978........ 10,000,000 None 2-3/4% Series due 1980........ 37,000,000 None 3-1/2% Series due 1983........ 25,000,000 None 3-3/8% Series due 1985........ 25,000,000 None 4-5/8% Series due 1991........ 30,000,000 None 4-5/8% Series due 1994........ 30,000,000 None 5-5/8% Series due 1996........ 30,000,000 None 6-3/4% Series due 1997........ 30,000,000 None 6-1/2% Series due 1972........ 15,000,000 None 7% Series due 1999............ 40,000,000 None 8-1/8% Series due June 1, 1999 40,000,000 None 9% Series due 2000............ 50,000,000 None 7-1/4% Series due 2001........ 60,000,000 None 7-5/8% Series due 2002........ 75,000,000 None 7-1/2% Series due 2003........ 80,000,000 None Pollution Control Series A.... 28,000,000 None 9-1/4% Series due 2004........ 80,000,000 None 10-1/8% Series due 1982....... 100,000,000 None 9-3/4% Series due 2005........ 125,000,000 None 9-3/4% Series due Nov. 1, 2005 100,000,000 None 8-1/4% Series due 2006....... 150,000,000 None 8-1/2% Series due 2007....... 100,000,000 None 9-7/8% Series due 1983-1985. 100,000,000 None 15-5/8% Series due 2010..... 100,000,000 None 11-3/4% Series due 1984..... 30,000,000 None Pollution Control Series B.... 70,000,000 None Pollution Control Series C.... 20,000,000 None 14% Series due Dec. 1, 1990 125,000,000 None 15% Series due 1984-1986...... 50,000,000 None 14-3/4% Series A due 1986..... 30,000,000 None 14-3/4% Series B due 1986..... 20,000,000 None 16-1/2% Series due 1987-1991.. 52,000,000 None 16-1/8% Series due 1992....... 100,000,000 None 16-1/2% Series due 1986-1990.. 92,500,000 None 13-1/4% Series due 2012....... 100,000,000 None Pollution Control Series D.... 70,000,000 None 12-1/8% Series due 1989-1993.. 50,000,000 None 13-1/8% Series due 2013....... 125,000,000 None Pollution Control Series E.... 37,750,000 None 13-1/2% Series due 1994....... 125,000,000 None Pollution Control Series F.... 115,500,000 None 12-3/4% Series due 2014....... 125,000,000 None Pollution Control Series G.... 55,000,000 None 12% Series due 2015........... 125,000,000 None 10-7/8% Series due 2016....... 125,000,000 None 9-5/8% Series due 1996........ 125,000,000 None 9% Series due 2016............ 125,000,000 None 9-1/2% Series due 2016........ 125,000,000 None 9-1/4% Series due 1998........ 125,000,000 None 9-5/8% Series due 1998........ 125,000,000 None 10% Series due 2019........... 125,000,000 None 9-1/4% Series due 2019........ 250,000,000 $215,000,000 9-3/8% Series due 2021........ 150,000,000 99,750,000 7-3/4% Series due 2002........ 150,000,000 150,000,000 8-1/2% Series due 2022........ 150,000,000 150,000,000 Pollution Control Series H.... 90,000,000 90,000,000 6-7/8% Series due 2003........ 100,000,000 100,000,000 7-7/8% Series due 2023........ 200,000,000 200,000,000 5-1/2% Series due 1998........ 150,000,000 150,000,000 6-1/2% Series due 2005........ 125,000,000 125,000,000 6% Series due 2000............ 125,000,000 125,000,000 6-3/4% Series due 2023........ 150,000,000 150,000,000 Pollution Control Series I.... 53,250,000 53,250,000 6.55% Series due 2006......... 150,000,000 150,000,000 7.30% Series due 2024......... 150,000,000 150,000,000 6-7/8% Series due 2004........ 150,000,000 150,000,000 7-3/8% Series due 2014........ 100,000,000 100,000,000 Pollution Control Series J.... 115,500,000 115,500,000 7.70% Series due 2009......... 200,000,000 200,000,000 Pollution Control Series K.... 55,000,000 55,000,000 which bonds are also sometimes called bonds of the First through Seventy-second Series, respectively; and WHEREAS, Section 8 of the Mortgage provides that the form of each series of bonds (other than the First Series) issued thereunder shall be established by Resolution of the Board of Directors of the Company and that the form of such series, as established by said Board of Directors, shall specify the descriptive title of the bonds and various other terms thereof, and may also contain such provisions not inconsistent with the provisions of the Indenture as the Board of Directors may, in its discretion, cause to be inserted therein expressing or referring to the terms and conditions upon which such bonds are to be issued and/or secured under the Indenture; and WHEREAS, Section 120 of the Mortgage provides, among other things, that any power, privilege or right expressly or impliedly reserved to or in any way conferred upon the Company by any provision of the Indenture, whether such power, privilege or right is in any way restricted or is unrestricted, may be in whole or in part waived or surrendered or subjected to any restriction if at the time unrestricted or to additional restriction if already restricted, and the Company may enter into any future covenants, limitations or restrictions for the benefit of any one or more series of bonds issued thereunder, or the Company may cure any ambiguity contained therein or in any supplemental indenture or may establish the terms and provisions of any series of bonds other than said First Series, by an instrument in writing executed and acknowledged by the Company in such manner as would be necessary to entitle a conveyance of real estate to record in all of the States in which any property at the time subject to the lien of the Indenture shall be situated; and WHEREAS, the Company now desires to create a new series of bonds and to add to its covenants and agreements contained in the Mortgage, as heretofore supplemented, certain other covenants and agreements to be observed by it and to alter and amend in certain respects the covenants and provisions contained in the Mortgage; and WHEREAS, the execution and delivery by the Company of this Sixty-fifth Supplemental Indenture, and the terms of the bonds of the Seventy-third Series, hereinafter referred to, have been duly authorized by the Board of Directors of the Company by appropriate Resolutions of said Board of Directors; NOW, THEREFORE, THIS INDENTURE WITNESSETH: That Pennsylvania Power & Light Company, in consideration of the premises and of One Dollar to it duly paid by the Trustee at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, and in further evidence of assurance of the estate, title and rights of the Trustee and in order further to secure the payment both of the principal of and interest and premium, if any, on the bonds from time to time issued under the Indenture, according to their tenor and effect and the performance of all the provisions of the Indenture (including any modification made as in the Mortgage provided) and of said bonds, hereby grants, bargains, sells, releases, conveys, assigns, transfers, mortgages, pledges, sets over and confirms (subject, however, to Excepted Encumbrances as defined in Section 6 of the Mortgage) unto Bankers Trust Company, as Trustee under the Indenture, and to its successor or successors in said trust, and to said Trustee and its successors and assigns forever, all property, real, personal and mixed, of the kind or nature specifically mentioned in the Mortgage, as heretofore supplemented, or of any other kind or nature, acquired by the Company after the date of the execution and delivery of the Sixty-fourth Supplemental Indenture (except any herein or in the Mortgage, as heretofore supplemented, expressly excepted and except any which may not lawfully be mortgaged or pledged under the Indenture), now owned or, subject to the provisions of Section 87 of the Mortgage, hereafter acquired by the Company (by purchase, consolidation, merger, donation, construction, erection or in any other way) and wheresoever situated, including (without in anywise limiting or impairing by the enumeration of the same the scope and intent of the foregoing) all lands, power sites, flowage rights, water rights, water locations, water appropriations, ditches, flumes, reservoirs, reservoir sites, canals, raceways, dams, dam sites, aqueducts, and all other rights or means for appropriating, conveying, storing and supplying water; all rights of way and roads; all plants for the generation of electricity by steam, water and/or other power; all power houses, gas plants, street lighting systems, standards and other equipment incidental thereto, telephone, radio and television systems, air-conditioning systems and equipment incidental thereto, water works, water systems, steam heat and hot water plants, substations, lines, service and supply systems, bridges, culverts, tracks, ice or refrigeration plants and equipment, offices, buildings and other structures and the equipment thereof; all machinery, engines, boilers, dynamos, electric, gas and other machines, regulators, meters, transformers, generators, motors, electrical, gas and mechanical appliances, conduits, cables, water, steam heat, gas or other pipes, gas mains and pipes, service pipes, fittings, valves and connections, pole and transmission lines, wires, cables, tools, implements, apparatus, furniture and chattels; all municipal and other franchises, consents or permits; all lines for the transmission and distribution of electric current, gas, steam heat or water for any purpose including towers, poles, wires, cables, pipes, conduits, ducts and all apparatus for use in connection therewith; all real estate, lands, easements, servitudes, licenses, permits, franchises, privileges, rights of way and other rights in or relating to real estate or the occupancy of the same and (except as herein or in the Mortgage, as heretofore supplemented, expressly excepted) all the right, title and interest of the Company in and to all other property of any kind or nature appertaining to and/or used and/or occupied and/or enjoyed in connection with any property hereinbefore or in the Mortgage, as heretofore supplemented, described. TOGETHER with all and singular the tenements, hereditaments, prescriptions, servitudes, and appurtenances belonging or in anywise appertaining to the aforesaid property or any part thereof, with the reversion and reversions, remainder and remainders and (subject to the provisions of Section 57 of the Mortgage) the tolls, rents, revenues, issues, earnings, income, product and profits thereof, and all the estate, right, title and interest and claim whatsoever, at law as well as in equity, which the Company now has or may hereafter acquire in and to the aforesaid property and franchises and every part and parcel thereof. IT IS HEREBY AGREED by the Company that, subject to the provisions of Section 87 of the Mortgage and to the extent permitted by law, all the property, rights, and franchises acquired by the Company (by purchase, consolidation, merger, donation, construction, erection or in any other way) after the date hereof, except any herein or in the Mortgage, as heretofore supplemented, expressly excepted, shall be and are as fully granted and conveyed hereby and as fully embraced within the lien hereof and the lien of the Indenture, as if such property, rights and franchises were now owned by the Company and were specifically described herein and conveyed hereby. IT IS HEREBY DECLARED by the Company that all the property, rights and franchises now owned or hereafter acquired by the Company have been, or are, or will be owned or acquired with the intention to use the same in carrying on the business or branches of business of the Company, and it is hereby declared that it is the intention of the Company that all thereof, except any herein or in the Mortgage, as heretofore supplemented, expressly excepted, shall (subject to the provisions of Section 87 of the Mortgage and to the extent permitted by law) be embraced within the lien of this Sixty-fifth Supplemental Indenture and the lien of the Indenture. PROVIDED that the following are not and are not intended to be now or hereafter granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, pledged, set over or confirmed hereunder and are hereby expressly excepted from the lien and operation of this Sixty-fifth Supplemental Indenture and from the lien and operation of the Indenture, viz: (1) cash, shares of stock, bonds, notes and other obligations and other securities not hereafter specifically pledged, paid, deposited, delivered or held under the Indenture or covenanted so to be; (2) goods, wares, merchandise, equipment, apparatus, materials, or supplies held for the purpose of sale or other disposition in the usual course of business; fuel, oil and similar materials and supplies consumable in the operation of any of the properties of the Company; construction equipment acquired for temporary use; all aircraft, rolling stock, trolley coaches, buses, motor coaches, automobiles and other vehicles and materials and supplies held for the purposes of repairing or replacing (in whole or part) any of the same; all timber, minerals, mineral rights and royalties; (3) bills, notes and accounts receivable, judgments, demands and choses in action, and all contracts, leases and operating agreements not specifically pledged under the Indenture or covenanted so to be; the Company's contractual rights or other interest in or with respect to tires not owned by the Company; (4) the last day of the term of any lease or leasehold which may be or become subject to the lien of the Indenture; and (5) electric energy, gas, steam, ice, and other materials or products generated, manufactured, produced or purchased by the Company for sale, distribution or use in the ordinary course of its business; provided, however, that the property and rights expressly excepted from the lien and operation of the Indenture in the above subdivisions (2) and (3) shall (to the extent permitted by law) cease to be so excepted in the event and as of the date that the Trustee or a receiver or trustee shall enter upon and take possession of the Mortgaged and Pledged Property in the manner provided in Article XIII of the Mortgage by reason of the occurrence of a Default as defined in Section 65 thereof, as supplemented by the provisions of this Sixty-fifth Supplemental Indenture. TO HAVE AND TO HOLD all such properties, real, personal and mixed, granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, pledged, set over or confirmed by the Company as aforesaid, or intended so to be, unto Bankers Trust Company, as Trustee, and its successors and assigns forever. IN TRUST NEVERTHELESS for the same purposes and upon the same terms, trusts and conditions and subject to and with the same provisos and covenants as are set forth in the Mortgage, as heretofore supplemented, this Sixty-fifth Supplemental Indenture being supplemental to the Mortgage. AND IT IS HEREBY COVENANTED by the Company that all the terms, conditions, provisos, covenants and provisions contained in the Mortgage, as heretofore supplemented, shall affect and apply to the property hereinbefore described and conveyed and to the estate, rights, obligations and duties of the Company and the Trustee and the beneficiaries of the trust with respect to said property, and to the Trustee and its successors as Trustee of said property in the same manner and with the same effect as if the said property had been owned by the Company at the time of the execution of the Mortgage, and had been specifically and at length described in and conveyed to the Trustee by the Mortgage as a part of the property therein stated to be conveyed. The Company further covenants and agrees to and with the Trustee and its successors in said trust under the Indenture, as follows: ARTICLE I Seventy-third Series of Bonds SECTION 1. There shall be a series of bonds designated "Short-Term Series A" (herein sometimes referred to as the "Seventy-third Series"), each of which shall also bear the descriptive title First Mortgage Bonds, and the form thereof, which shall be established by Resolution of the Board of Directors of the Company, shall contain suitable provisions with respect to the matters hereinafter in this Section specified. Bonds of the Seventy-third Series shall be limited to $800 million in aggregate principal amount (with no more than $150 million in aggregate principal amount to be Outstanding at any one time), except as provided in Section 16 of the Mortgage, and shall be issued as fully registered bonds in denominations of One Thousand Dollars and in any multiple or multiples of One Thousand Dollars; each bond of the Seventy-third Series shall mature on a date not more than sixty days from the date of issue, shall bear interest at such rate or rates and have such other terms and provisions not inconsistent with the Mortgage as the Board of Directors may determine in accordance with one or more resolutions filed with the Trustee and one or more written orders referring to this Sixty-fifth Supplemental Indenture; the principal of and interest on each said bond to be payable at the office or agency of the Company in the Borough of Manhattan, The City of New York, and interest on each said bond to be also payable at the office of the Company in the City of Allentown, Pennsylvania, in such coin or currency of the United States of America as at the time of payment is legal tender for public and private debts. Bonds of the Seventy-third Series shall be dated as in Section 10 of the Mortgage provided. Notwithstanding the foregoing, so long as there is no existing default in the payment of interest on the bonds of the Seventy- third Series, the person in whose name any bond of the Seventy- third Series is registered at the close of business on any Record Date with respect to any interest payment date shall be entitled to receive the interest payable on such interest payment date; provided that, interest payable on the maturity date will be payable to the person to whom the principal thereof shall be payable. "Record Date" for bonds of the Seventy-third Series, shall mean the business day next preceding the corresponding interest payment date. "Original Interest Accrual Date" with respect to bonds of the Seventy-third Series of a designated interest rate and maturity shall mean the date of first authentication of Bonds of a designated interest rate and maturity unless the written order filed for such bonds with the Trustee on or before such date shall specify another date from which interest shall accrue, in which case "Original Interest Accrual Date" shall mean such other date specified in the written order for Bonds of such designated interest rate and maturity. (I) Each holder of a bond of the Seventy-third Series, except as may be provided in the written order requesting authentication and delivery of such bond, consents that the bonds of the Seventy- third Series may be redeemable at the option of the Company or pursuant to the requirements of the Indenture in whole at any time, or in part from time to time, prior to maturity, without notice provided in Section 52 of the Indenture, at the principal amount of the bonds to be redeemed, in each case, together with accrued interest to the date fixed for redemption by the Company in a notice delivered on or before the date fixed for redemption by the Company to the Trustee and to the holders of the bonds to be redeemed. (II) At the option of the registered owner, any bonds of the Seventy-third Series, upon surrender thereof, for cancellation, at the office or agency of the Company in the Borough of Manhattan, The City of New York, shall be exchangeable for a like aggregate principal amount of bonds of the same series, interest rate, maturity and other terms of other authorized denominations. Bonds of the Seventy-third Series shall be transferable, upon the surrender thereof for cancellation, together with a written instrument of transfer in form approved by the registrar duly executed by the registered owner or by his duly authorized attorney, at the office or agency of the Company in the Borough of Manhattan, The City of New York; provided that such transfer shall not result in any security being required to be registered under the Securities Act of 1933, as amended, and an opinion of counsel satisfactory to the Company to such effect shall have been provided to the Company. Upon any transfer or exchange of bonds of the Seventy-third Series, the Company may make a charge therefor sufficient to reimburse it for any tax or taxes or other governmental charge, as provided in Section 12 of the Mortgage, but the Company hereby waives any right to make a charge in addition thereto for any exchange or transfer of bonds of the Seventy-third Series. ARTICLE II Maintenance and Replacement Fund Covenant - Dividend Covenant - Other Related Provisions of the Mortgage SECTION 2. Subject to the provisions of Section 3 hereof, the Company covenants and agrees that the provisions of Section 39 of the Mortgage, which were to remain in effect so long as any bonds of the First Series remained Outstanding, shall remain in full force and effect so long as any bonds of the Seventy-third Series are Outstanding. Clause (d) of subsection (II) of Section 4 of the Mortgage, as heretofore amended, is hereby further amended by inserting the words "and Seventy-third Series" after the words "and Seventy- second Series" each time such words appear therein. Clause (6) and clause (e) of Section 5 of the Mortgage and Section 29 of the Mortgage, as heretofore amended, are hereby further amended by inserting therein "Seventy-third," before "Seventy-second," each time such words occur therein. ARTICLE III Miscellaneous Provisions SECTION 3. The Company reserves the right to make such amendments to the Mortgage, as supplemented, as shall be necessary in order to delete subsection (I) of Section 39 of the Mortgage, and each holder of bonds of the Seventy-third Series hereby consents to such deletion without any other or further action by any holder of bonds of the Seventy-third Series. SECTION 4. The terms defined in the Mortgage, as heretofore supplemented, shall, for all purposes of this Sixty-fifth Supplemental Indenture, have the meanings specified in the Mortgage, as heretofore supplemented. SECTION 5. Whenever in this Sixty-fifth Supplemental Indenture either of the parties hereto is named or referred to, this shall, subject to the provisions of Articles XVI and XVII of the Mortgage, be deemed to include the successors and assigns of such party, and all the covenants and agreements in this Sixty- third Supplemental Indenture contained by or on behalf of the Company, or by or on behalf of the Trustee shall, subject as aforesaid, bind and inure to the respective benefits of the respective successors and assigns of such parties, whether so expressed or not. SECTION 6. So long as any bonds of the Seventy-third Series remain Outstanding, unless this provision shall have been waived in writing by the holders of seventy per centum (70%) in aggregate principal amount of bonds of the Seventy-third Series Outstanding at the time of such consent, subdivision (c) of Section 65 of the Mortgage shall read as follows: "(c) Failure to pay interest or premium, if any, upon or principal (whether at maturity as therein expressed or by declaration, or otherwise) of any Outstanding Qualified Lien Bonds or of any outstanding indebtedness secured by any mortgage or other lien (not included in the term Excepted Encumbrances) prior to the lien of this Indenture, existing upon any property of the Company which is subject to the lien and operation of this Indenture continued beyond the period of grace, if any, specified in such mortgage or Qualified Lien or other lien securing the same;" SECTION 7. A breach of a specified covenant or agreement of the Company contained in this Sixty-fifth Supplemental Indenture shall become a Default under the Indenture upon the happening of the events provided in Section 65(g) of the Mortgage with respect to such a covenant or agreement. SECTION 8. The Trustee hereby accepts the trusts herein declared, provided, created or supplemented and agrees to perform the same upon the terms and conditions herein and in the Mortgage, as heretofore supplemented, set forth and upon the following terms and conditions: The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Sixty- fifth Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. Each and every term and condition contained in Article XVII of the Mortgage, as heretofore amended by said First through Sixty-fourth Supplemental Indentures, shall apply to and form part of this Sixty-fifth Supplemental Indenture with the same force and effect as if the same were herein set forth in full with such omissions, variations and insertions, if any, as may be appropriate to make the same conform to the provisions of this Sixty-fifth Supplemental Indenture. SECTION 9. Nothing in this Sixty-fifth Supplemental Indenture, expressed or implied, is intended, or shall be construed, to confer upon, or to give to, any person, firm or corporation, other than the parties hereto and the holders of the bonds and coupons Outstanding under the Indenture, any right, remedy or claim under or by reason of this Sixty-fifth Supplemental Indenture or by any covenant, condition, stipulation, promise or agreement hereof, and all the covenants, conditions, stipulations, promises and agreements in this Sixty-fifth Supplemental Indenture contained by or on behalf of the Company shall be for the sole and exclusive benefit of the parties hereto, and of the holders of the bonds and coupons Outstanding under the Indenture. SECTION 10. This Sixty-fifth Supplemental Indenture shall be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. PENNSYLVANIA POWER & LIGHT COMPANY does hereby constitute and appoint JOHN R. BIGGAR, Vice President - Finance of PENNSYLVANIA POWER & LIGHT COMPANY, to be its attorney for it, and in its name and as and for its corporate act and deed to acknowledge this Sixty-fifth Supplemental Indenture before any person having authority by the laws of the Commonwealth of Pennsylvania to take such acknowledgment, to the intent that the same may be duly recorded, and BANKERS TRUST COMPANY does hereby constitute and appoint ROBERT CAPORALE, a Vice President of BANKERS TRUST COMPANY, to be its attorney for it, and in its name and as and for its corporate act and deed to acknowledge this Sixty-fifth Supplemental Indenture before any person having authority by the laws of the Commonwealth of Pennsylvania to take such acknowledgment, to the intent that the same may be duly recorded. IN WITNESS WHEREOF, PENNSYLVANIA POWER & LIGHT COMPANY has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by its President or one of its Vice Presidents, and its corporate seal to be attested by its Secretary or one of its Assistant Secretaries for and in its behalf, in the City of Allentown, Pennsylvania, and BANKERS TRUST COMPANY has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by one of its Vice Presidents or one of its Trust Officers, and its corporate seal to be attested by one of its Assistant Vice Presidents, in The City of New York, as of the day and year first above written. PENNSYLVANIA POWER & LIGHT COMPANY By: /s/John Biggar Vice President Attest: /s/Diane M. Koch Assistant Secretary BANKERS TRUST COMPANY, as Trustee By /s/Robert Caporale Vice President Attest: /s/Scott Thiel Assistant Vice President COMMONWEALTH OF PENNSYLVANIA ) ) ss.: COUNTY OF LEHIGH ) On this 9th day of April, 1997, before me, a notary public, the undersigned officer, personally appeared JOHN R. BIGGAR, who acknowledged himself to be a Vice President of PENNSYLVANIA POWER & LIGHT COMPANY, a corporation and that he, as such Vice President, being authorized to do so, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself as Vice President. In witness whereof, I hereunto set my hand and official seal. /s/Francine Greenzweig Notary Public STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On this 9th day of April, 1997, before me, a notary public, the undersigned officer, personally appeared ROBERT CAPORALE, who acknowledged himself to be a Vice President of BANKERS TRUST COMPANY, a corporation and that he, as such Vice President, being authorized to do so, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself as Vice President. In witness whereof, I hereunto set my hand and official seal. /s/Sharon V. Alston SHARON V. ALSTON Notary Public, State of New York No. 31-4966275 Qualified in New York County Commission Expires May 7, 1998 Bankers Trust Company hereby certifies that its precise name and address as Trustee hereunder are: Bankers Trust Company 4 Albany Street New York, New York 10006 BANKERS TRUST COMPANY By /s/Scott Thiel Trust Officer EX-10 6 EXECUTION COPY PP&L, INC. PP&L CAPITAL FUNDING, INC., as Borrowers PP&L RESOURCES, INC., as Guarantor of the obligations of PP&L Capital Funding, Inc. $150,000,000 364-DAY REVOLVING CREDIT AGREEMENT _________________ Dated as of November 20, 1997 [CS&M #6700-601] TABLE OF CONTENTS Page SECTION 1. Amounts and Terms of Loans ............. 1 1.1 Commitments ............................. 1 1.2 Notices of Borrowing .................... 2 1.3 Disbursement of Funds ................... 2 1.4 Repayment of Loans; Evidence of Debt..... 3 1.5 Special Payment Provisions............... 4 1.6 Fees .................................... 5 1.7 Reductions in Total Commitments ......... 6 1.8 Compensation ............................ 6 SECTION 1A. Letters of Credit. ...................... 6 SECTION 2. Interest ................................ 11 2.1 Rates of Interest ....................... 11 2.2 Determination of Rate of Borrowing....... 12 2.3 Interest Payment Dates .................. 12 2.4 Conversions; Interest Periods ........... 13 2.5 Increased Costs, Illegality, Etc. ....... 14 2.6 Extension of Expiry Date ................ 18 SECTION 3. Payments ................................ 20 3.1 Payments on Non-Business Days ........... 20 3.2 Voluntary Prepayments ................... 20 3.3 Method and Place of Payment, Etc. ....... 21 3.4 Net Payments ............................ 21 SECTION 4. Conditions Precedent .................... 22 4.1 Conditions to Effectiveness ............ 22 4.2A Conditions to Each Loan to PPL and Each Issuance of Letter of Credit on behalf of PPL .......................... 24 4.2B Conditions to Each Loan to Finance Co. and Each Issuance of a Letter of Credit on behalf of Finance Co. ........ 25 SECTION 5.A Covenants of PPL ....................... 26 5.1A Financial Statements ................... 26 5.2A Mergers ................................ 27 5.3A Ratings ................................ 27 5.4A Consolidated Indebtedness to Consolidated Capitalization............. 27 SECTION 5.B Covenants of Finance Co. and Resources.. 28 5.1B Financial Statements ................... 28 5.2B Mergers ................................ 29 5.3B Ratings ................................ 30 5.4B Liens .................................. 30 5.5B Consolidated Indebtedness to Consolidated Capitalization ............ 30 SECTION 6.A Events of Default for PPL .............. 30 6.1A Representations, Etc. .................. 30 6.2A Principal and Interest ................. 30 6.3A Defaults by PPL Under Other Agreements . 30 6.4A Judgments .............................. 31 6.5A Bankruptcy, Etc. ....................... 31 6.6A Other Covenants ........................ 32 SECTION 6.B Events of Default for Finance Co. ..... 32 6.1B Representations, Etc. ................. 32 6.2B Principal and Interest ................ 32 6.3B Defaults by PPL, Finance Co. or Resources Under This Agreement or Other Agreements ...................... 32 6.4B Judgments ............................. 33 6.5B Bankruptcy, Etc. ...................... 33 6.6B Other Covenants ....................... 34 6.7B Events of Default With Respect to PPL . 34 SECTION 7.A Representations and Warranties of PPL . 35 7.1A Corporate Status ...................... 35 7.2A Authority; No Conflict ................ 36 7.3A Legality, Etc. ........................ 36 7.4A Financial Statements .................. 36 7.5A Litigation ............................ 36 7.6A No Violation .......................... 36 7.7A ERISA ................................. 37 7.8A Consents .............................. 37 7.9A Subsidiaries .......................... 37 7.10A Investment Company Act ................ 37 7.11A Public Utility Holding Company Act .... 37 7.12A Tax Returns ........................... 37 7.13A Compliance with Laws .................. 38 SECTION 7.B Representations and Warranties of Finance Co. and Resources ............. 38 7.1B Corporate Status ...................... 38 7.2B Authority; No Conflict ................ 38 7.3B..Legality, Etc. ........................ 38 7.4B Financial Statements .................. 39 7.5B Litigation ............................ 39 7.6B No Violation .......................... 39 7.7B ERISA ................................. 39 7.8B Consents .............................. 40 7.9B Investment Company Act ................ 40 7.10B Public Utility Holding Company Act .... 40 7.11B Tax Returns ........................... 40 7.12B Compliance with Laws .................. 40 SECTION 8. Agent ................................. 41 8.1 Appointment ........................... 41 8.2 Nature of Duties ...................... 41 8.3 Rights, Exculpation, Etc. ............. 42 8.4 Reliance .............................. 42 8.5 Indemnification ....................... 43 8.6 The Agent, Individually ............... 43 8.7 Resignation by the Agent .............. 43 SECTION 9. Resources' Guarantee .................. 44 SECTION 10. Miscellaneous ......................... 46 10.1 Definitions ........................... 46 10.2 Accounting Principles ................. 58 10.3 Exercise of Rights .................... 58 10.4 Amendment and Waiver .................. 59 10.5 Expenses; Indemnification ............. 59 10.6 Successors and Assigns ................ 60 10.7 Notices, Requests, Demands ............ 64 10.8 Survival of Representations and Warranties ............................ 64 10.9 Governing Law ......................... 64 10.10 Counterparts .......................... 64 10.11 Effectiveness ......................... 65 10.12 Transfer of Office .................... 65 10.13 Proration of Payments ................. 65 10.14 Jurisdiction; Consent to Service of Process ............................ 66 10.15 WAIVER OF JURY TRIAL .................. 67 10.16 Headings Descriptive .................. 67 EXHIBIT A - Form of Opinion of general counsel or senior counsel of PPLC, Finance Co. and Resources EXHIBIT B - Form of Opinion of Reid & Priest LLP EXHIBIT C - Form of Extension Letter EXHIBIT D1- Form of PPL Compliance Certificate EXHIBIT D2- Form of Resources Compliance Certificate 364-DAY REVOLVING CREDIT AGREEMENT, dated as of November 20, 1997, among PP&L, INC., a Pennsylvania corporation ("PPL"), and PP&L CAPITAL FUNDING, INC., a Delaware corporation ("Finance Co."), as Borrowers; PP&L RESOURCES, INC., a Pennsylvania corporation ("Resources"), as guarantor of the obligations of Finance Co. hereunder; the banks listed on Schedule I hereto (each a "Bank" and collectively the "Banks"); and THE CHASE MANHATTAN BANK, as fronting bank (in such capacity, the "Fronting Bank"), as collateral agent (in such capacity, the "Collateral Agent") and as Agent for the Banks to the extent and in the manner provided in Section 8 below (in such capacity, the "Agent") (all capitalized terms used herein shall have the meanings specified therefor in Section 10.1 unless otherwise defined herein). W I T N E S S E T H : WHEREAS, subject to and upon the terms and conditions set forth herein, the Banks are willing to make available to PPL and Finance Co. the credit facility herein provided for working capital and other general corporate purposes of the Borrowers, including investments in, or loans to, affiliates of the Borrowers; NOW, THEREFORE, it is agreed: SECTION 1. Amounts and Terms of Loans. 1.1 Commitments. Subject to and upon the terms and conditions herein set forth, each Bank severally and not jointly agrees, at any time and from time to time prior to the Expiry Date, as such date may be extended pursuant to Section 2.6, to make a loan or loans (each a "Loan" and collectively for all Banks, the "Loans") to PPL or Finance Co., as requested by such Borrower, which Loans (i) shall at the option of PPL or Finance Co., as applicable, be initially maintained as Base Rate Loans or Eurodollar Loans, provided that all the Loans made by all the Banks at any one Borrowing to a Borrower hereunder must be either all Base Rate Loans or all Eurodollar Loans, (ii) may be repaid and borrowed in accordance with the provisions hereof and (iii) shall not exceed in aggregate principal amount at any time outstanding the difference between such Bank's Commitment and the L/C Exposure of such Bank at such time. 1.2 Notices of Borrowing. Whenever a Borrower desires to make a Borrowing hereunder, it shall give the Agent at the Payment Office (i) no later than 12:00 Noon (New York time) at least three Business Days' prior written notice or telephonic notice (confirmed in writing) of each Eurodollar Loan to be made hereunder and (ii) no later than 10:00 A.M. (New York time) on the date of such Borrowing written notice or telephonic notice (confirmed in writing) of each Base Rate Loan to be made hereunder. Each such notice (each a "Notice of Borrowing") shall state that the Borrowing is being made hereunder and shall specify the aggregate principal amount the applicable Borrower desires to borrow hereunder, the date of Borrowing (which shall be a Business Day), the Type of Loans to be made pursuant to such Borrowing and the Interest Period to be applicable thereto. The Agent shall promptly give each Bank telephonic notice (confirmed in writing) of the proposed Borrowing, of such Bank's proportionate share thereof and of the other matters covered by the Notice of Borrowing. Each Borrowing shall be in an integral multiple of $500,000 and not less than $10,000,000 and shall be made from each Bank in the proportion which its respective Commitment bears to the Total Commitment except as otherwise specifically provided in Section 2.5. The failure of any Bank to make any Loan required hereby shall not release any other Bank from its obligation to make Loans as provided herein. 1.3 Disbursement of Funds. (a) No later than 12:00 Noon (New York time) (or, in the case of Base Rate Loans, 2:00 P.M. (New York time)) on the date specified in each Notice of Borrowing each Bank will make available the amount of its pro rata portion of the Loans requested to be made on such date in U.S. dollars and in immediately available funds, to the Agent at the Payment Office. The Agent will make available to the applicable Borrower not later than 1:00 P.M. (New York time) (or, in the case of Base Rate Loans, 3:00 P.M. (New York time)) on such date at the Payment Office the aggregate of the amounts in immediately available funds made available by the Banks against delivery to the Agent at the Payment Office, or at such other office as the Agent may specify, of the documents and papers provided for herein. The Agent shall deliver the documents and papers received by it for the account of each Bank to such Bank or upon its order. (b) If the Fronting Bank shall not have received from a Borrower the payment required to be made by such Borrower pursuant to Section 1A(e) within the time specified in such Section, the Fronting Bank will promptly notify the Agent of the L/C Disbursement and the Agent will promptly notify each Bank of such L/C Disbursement and its Applicable Percentage thereof. Not later than 2:00 P.M. (New York time) on such date (or, if such Bank shall have received such notice later than 12:00 Noon (New York time) on any day, no later than 10:00 A.M. (New York time) on the immediately following Business Day), each Bank will make available the amount of its Applicable Percentage of such L/C Disbursement (it being understood that such amount shall be deemed to constitute a Base Rate Loan of such Bank and such payment shall be deemed to have reduced the L/C Exposure) in immediately available funds, to the Agent at the Payment Office, and the Agent will promptly pay to the Fronting Bank amounts so received by it from the Banks. The Agent will promptly pay to the Fronting Bank any amounts received by it from such Borrower pursuant to Section 1A(e) prior to the time that any Bank makes any payment pursuant to this paragraph (b), and any such amounts received by the Agent thereafter will be promptly remitted by the Agent to the Banks that shall have made such payments and to the Fronting Bank, as their interests may appear. If any Bank shall not have made its Applicable Percentage of such L/C Disbursement available to the Agent as provided above, such Bank agrees to pay interest on such amount, for each day from and including the date such amount is required to be paid in accordance with this paragraph to but excluding the date such amount is paid, to the Agent for the account of the Fronting Bank at, for the first such day, the Federal Funds Rate, and for each day thereafter, the Base Rate. 1.4 Repayment of Loans; Evidence of Debt. (a) The outstanding principal balance of each Loan shall be payable by the Borrower to which such Loan was made on the Expiry Date, subject to the provisions of Section 2.6. Each Loan shall bear interest from the date thereof on the outstanding principal balance thereof as set forth in Section 2.1. Each Bank shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness to such Bank resulting from each Loan made by such Bank from time to time to each Borrower, including the amounts of principal and interest payable and paid to such Bank from time to time under this Agreement. The Agent shall maintain the Register pursuant to Section1.4(b), and a subaccount for each Bank and each Borrower, in which Register and subaccounts (taken together) shall be recorded (i) the amount of each Loan made hereunder, the Type of each Loan made and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the applicable Borrower to each Bank hereunder and (iii) the amount of any sum received by the Agent hereunder from each Borrower and each Bank's share thereof. The entries made in the Register and accounts maintained pursuant to this Section 1.4 shall be prima facie evidence of the existence and amounts of the obligations therein recorded; provided, however, that the failure of any Bank or the Agent to maintain such account, such Register or such subaccount, as applicable, or any error therein shall not in any manner affect the obligations of each Borrower to repay the Loans in accordance with their terms. The obligations of the Borrowers with respect to their respective Loans shall be several, not joint. (b) The Agent shall maintain at the Payment Office a register for the recordation of the names and addresses of the Banks, the Commitments of the Banks from time to time, and the principal amount of the Loans owing to each Bank from each Borrower from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error. The Register shall be available for inspection by each Borrower, the Agent or any Bank at any reasonable time and from time to time upon reasonable prior notice. 1.5 Special Payment Provisions. Unless the Agent shall have been notified by any Bank prior to any date of a Borrowing that such Bank does not intend to make available to the Agent such Bank's portion of the Loans to be made on such date, the Agent may assume that such Bank has made such amount available to the Agent on such date of a Borrowing and the Agent may, in reliance upon such assumption, make available to the applicable Borrower a corresponding amount. If such amount is not in fact made available to the Agent by such Bank, the Agent shall be entitled to recover such amount on demand from such Bank. If such Bank does not pay such amount forthwith upon the Agent's demand therefor, the Agent shall promptly notify the applicable Borrower and the applicable Borrower shall pay such amount to the Agent. The Agent shall also be entitled to recover from such Bank or the applicable Borrower, as the case may be, interest on such amount in respect of each day from the date such amount was made available by the Agent to the applicable Borrower to the date such amount is recovered by the Agent, at a rate per annum equal to (i) in the case of such Bank, the Federal Funds Rate and (ii) in the case of either Borrower, the applicable rate provided in Section 2.1 for the applicable Type of Loan. Nothing herein shall be deemed to relieve any Bank from its obligation to fulfill its Commitment hereunder or to prejudice any rights which the applicable Borrower may have against any Bank as a result of the failure of such Bank to perform its obligations hereunder. 1.6 Fees. (a) The Borrowers agree to pay to the Agent for pro rata distribution to each Bank a Commitment Fee (the "Commitment Fee"), for the period from the Closing Date until the Expiry Date (or such earlier date as the Total Commitment shall be terminated as to both Borrowers), on the average daily unused amount of the Commitments, computed at the Applicable Commitment Fee Percentage per annum computed on the basis of the number of days actually elapsed over a year of 365 or 366 days and payable quarterly in arrears on the last day of each calendar quarter and on the Expiry Date (or such earlier date as the Total Commitment shall be terminated as to both Borrowers). (b) Each Borrower agrees to pay to the Agent for pro rata distribution to each Bank a fee (an "L/C Participation Fee"), for the period from the Closing Date until the Expiry Date (or such earlier date as all Letters of Credit shall be canceled or expire and the Total Commitment shall be terminated as to both Borrowers), on that portion of the average daily L/C Exposure attributable to Letters of Credit issued for the account of such Borrower (excluding the portion thereof attributable to unreimbursed L/C Disbursements), at the rate per annum equal to the Applicable Eurodollar Margin from time to time in effect for such Borrower and payable quarterly in arrears on the last day of each calendar quarter and on the date on which the Total Commitment shall be terminated as provided herein. All L/C Participation Fees shall be computed on the basis of the number of days actually elapsed over a year of 365 or 366 days. 1.7 Reductions in Total Commitments. The Borrowers shall have the right, upon at least 3 Business Days' prior written notice to the Agent at the Payment Office (which notice the Agent shall promptly transmit to each of the Banks), to reduce permanently the Total Commitment, in an aggregate amount equal to an integral multiple of $1,000,000 and not less than $10,000,000, or to terminate the unutilized portion of the Total Commitment, provided that (i) any such reduction or termination shall apply proportionately to the Commitments of the Banks and (ii) no such termination or reduction shall be made that would reduce the Total Commitments to an amount less than the sum of the aggregate outstanding principal amount of Loans and the aggregate L/C Exposure. 1.8 Compensation. The applicable Borrower shall compensate each Bank, upon such Bank's written request given promptly after learning of the same, for all losses, expenses and liabilities (including, without limitation, any interest paid by such Bank to lenders of funds borrowed by it to make or carry its Eurodollar Loans and any loss sustained by such Bank in connection with the re-employment of such funds), which the Bank sustains: (i) if for any reason (other than a failure of such Bank to perform its obligations) a Borrowing of any Eurodollar Loan does not occur on a date specified therefor in a Notice of Borrowing or notice of conversion (whether or not withdrawn or canceled pursuant to Section 2.5 or otherwise), (ii) if any repayment or conversion (pursuant to Section 2.5 or otherwise) of any of its Eurodollar Loans occurs on a date which is not the last day of the Interest Period applicable thereto, or (iii) without duplication of any amounts paid pursuant to Section 2 hereof, as a consequence of any other default by such Borrower to repay its Eurodollar Loans when required by the terms of this Agreement. A certificate as to any amounts payable to any Bank under this Section 1.8 submitted to the applicable Borrower by such Bank shall show the amount payable and the calculations used to determine such amount and shall, absent manifest error, be final, conclusive and binding upon all parties hereto. SECTION 1A. Letters of Credit. (a) General. A Borrower may from time to time request the issuance of Letters of Credit for its own account (for obligations of such Borrower or any of its Subsidiaries, or in the case of Finance Co., for any of Resources' Subsidiaries (other than PPL and its Subsidiaries)), denominated in dollars, in form reasonably acceptable to the Agent and the Fronting Bank, at any time and from time to time while the Commitments remain in effect. This Section shall not be construed to impose an obligation upon the Fronting Bank to issue any Letter of Credit that is inconsistent with the terms and conditions of this Agreement. (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. In order to request the issuance of a Letter of Credit (or to amend, renew or extend an existing Letter of Credit), the applicable Borrower shall hand deliver or telecopy to the Fronting Bank and the Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, the date of issuance, amendment, renewal or extension, the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) below), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare such Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if, and upon issuance, amendment, renewal or extension of each Letter of Credit the applicable Borrower shall be deemed to represent and warrant that, after giving effect to such issuance, amendment, renewal or extension (A) the L/C Exposure shall not exceed $5,000,000 and (B) the Aggregate Credit Exposure shall not exceed the Total Commitment. (c) Expiration Date. Each Letter of Credit shall expire at the close of business on the date that is five Business Days prior to the Expiry Date, unless such Letter of Credit expires by its terms on an earlier date. (d) Participations. By the issuance of a Letter of Credit and without any further action on the part of the Fronting Bank or the Banks, the Fronting Bank hereby grants to each Bank, and each such Bank hereby acquires from the Fronting Bank, a participation in such Letter of Credit equal to such Bank's Applicable Percentage from time to time of the aggregate amount available to be drawn under such Letter of Credit, effective upon the issuance of such Letter of Credit. In consideration and in furtherance of the foregoing, each Bank hereby absolutely and unconditionally agrees to pay to the Agent, for the account of the Fronting Bank, such Bank's proportionate share of each L/C Disbursement made by the Fronting Bank and not reimbursed by the applicable Borrower forthwith on the date due as provided in Section 1.3(b). Each Bank acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or an Event of Default or the termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) Reimbursement. If the Fronting Bank shall make any L/C Disbursement in respect of a Letter of Credit, the applicable Borrower shall pay to the Agent an amount equal to such L/C Disbursement not later than two hours after the applicable Borrower shall have received notice from the Fronting Bank that payment of such draft will be made, or, if the applicable Borrower shall have received such notice later than 10:00 A.M. (New York time) on any Business Day, not later than 10:00 A.M. (New York time) on the immediately following Business Day. (f) Obligations Absolute. The applicable Borrower's obligations to reimburse L/C Disbursements as provided in paragraph (e) above shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under any and all circumstances whatsoever, and irrespective of: (i) any lack of validity or enforceability of any Letter of Credit or any Loan Document, or any term or provision therein; (ii) any amendment or waiver of or any consent to departure from all or any of the provisions of any Letter of Credit or any Loan Document; (iii) the existence of any claim, setoff, defense or other right that the applicable Borrower, any other party guaranteeing, or otherwise obligated with, either Borrower or any subsidiary or other affiliate thereof or any other person may at any time have against the beneficiary under any Letter of Credit, the Fronting Bank, the Agent or any Bank or any other person, whether in connection with this Agreement, any other Loan Document or any other related or unrelated agreement or transaction; (iv) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (v) payment by the Fronting Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit; and (vi) any other act or omission to act or delay of any kind of the Fronting Bank, the Banks, the Agent or any other person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of the applicable Borrower's obligations hereunder. Without limiting the generality of the foregoing, it is expressly understood and agreed that the absolute and unconditional obligation of the Borrowers hereunder to reimburse L/C Disbursements will not be excused by the gross negligence or wilful misconduct of the Fronting Bank. However, the foregoing shall not be construed to excuse the Fronting Bank from liability to the applicable Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the applicable Borrower to the extent permitted by applicable law) suffered by the applicable Borrower that are caused by the Fronting Bank's gross negligence or wilful misconduct in determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof; it is understood that the Fronting Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary and, in making any payment under any Letter of Credit (i) the Fronting Bank's exclusive reliance on the documents presented to it under such Letter of Credit as to any and all matters set forth therein, including reliance on the amount of any draft presented under such Letter of Credit, whether or not the amount due to the beneficiary thereunder equals the amount of such draft and whether or not any document presented pursuant to such Letter of Credit proves to be insufficient in any respect, if such document on its face appears to be in order, and whether or not any other statement or any other document presented pursuant to such Letter of Credit proves to be forged or invalid or any statement therein proves to be inaccurate or untrue in any respect whatsoever and (ii) any noncompliance in any immaterial respect of the documents presented under such Letter of Credit with the terms thereof shall, in each case, be deemed not to constitute wilful misconduct or gross negligence of the Fronting Bank. (g) Disbursement Procedures. The Fronting Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Fronting Bank shall as promptly as possible give telephonic notification, confirmed by telecopy, to the Agent and the applicable Borrower (and, if the applicable Borrower is Finance Co., Resources) of such demand for payment and whether the Fronting Bank has made or will make an L/C Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the applicable Borrower of its obligation to reimburse the Fronting Bank and the Banks with respect to any such L/C Disbursement. The Agent shall promptly give each Bank notice thereof. (h) Interim Interest. If the Fronting Bank shall make any L/C Disbursement in respect of a Letter of Credit, then, unless the applicable Borrower shall reimburse such L/C Disbursement in full on the date thereof, the unpaid amount thereof shall bear interest for the account of the Fronting Bank, for each day from and including the date of such L/C Disbursement, to but excluding the earlier of the date of payment by the applicable Borrower or the date on which interest shall commence to accrue on the Base Rate Loans resulting from such L/C Disbursement as provided in Section 1.3(b), at the rate per annum that would apply to such amount if such amount were a Base Rate Loan. (i) Cash Collateralization. If any Event of Default with respect to a Borrower shall occur and be continuing, such Borrower shall, on the Business Day it receives notice from the Agent or the Required Banks thereof and of the amount to be deposited, deposit in an account with the Collateral Agent, for the benefit of the Banks, an amount in cash equal to the portion of the L/C Exposure attributable to Letters of Credit issued for the account of such Borrower and outstanding as of such date. Such deposit shall be held by the Collateral Agent as collateral for the payment and performance of the obligations under this Agreement. The Collateral Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Such deposits shall not bear interest. Moneys in such account shall automatically be applied by the Agent to reimburse the Fronting Bank for L/C Disbursements attributable to Letters of Credit issued for the account of the Borrower depositing such moneys for which the Fronting Bank has not been reimbursed, and any remaining amounts will either (i) be held for the satisfaction of the reimbursement obligations of such Borrower for the L/C Exposure at such time or (ii) if the maturity of the Loans of such Borrower has been accelerated, be applied to satisfy the obligations of such Borrower under this Agreement. If a Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to such Borrower within three Business Days after all Events of Default have been cured or waived. SECTION 20 Interest. 2.1 Rates of Interest. (a) Each Borrower agrees to pay interest in respect of the unpaid principal amount of each Base Rate Loan made to it from the date the proceeds thereof are made available to it until prepayment pursuant to Section 3 or maturity (whether by acceleration or otherwise) at a rate per annum which shall be the Base Rate in effect from time to time. (b) Each Borrower agrees to pay interest in respect of the unpaid principal amount of each Eurodollar Loan made to it from the date the proceeds thereof are made available to it until prepayment pursuant to Section 3 or maturity (whether by acceleration or otherwise) at a rate per annum which shall be the relevant Quoted Rate plus the Applicable Eurodollar Margin. (c) Each Borrower agrees to pay interest in respect of overdue principal of, and (to the extent permitted by law) overdue interest in respect of, each Loan made to it, on demand, at a rate per annum which shall be 2% in excess of the Base Rate in effect from time to time. (d) Interest shall be computed on the actual number of days elapsed on the basis of a 360-day year; provided, however, that for any rate of interest determined by reference to the Prime Rate, interest shall be computed on the actual number of days elapsed on the basis of a year of 365 or 366 days. (e) In computing interest on the Loans, the date of the making of a Loan shall be included and the date of payment shall be excluded, provided, however, that if a Loan is repaid on the same day on which it is made, such day shall nevertheless be included in computing interest thereon. 2.2 Determination of Rate of Borrowing. As soon as practicable after 10:00 A.M. (New York time) on the second Business Day prior to the commencement of any Interest Period with respect to a Eurodollar Loan, the Agent shall determine (which determination, absent manifest error, shall be final, conclusive and binding upon all parties) the rate of interest which shall be applicable to such Eurodollar Loan for the Interest Period applicable thereto and shall promptly give notice thereof (in writing or by telephone, confirmed in writing) to the applicable Borrower and the Banks. In the event that there is no applicable rate for such Eurodollar Loan: (i) the Agent shall promptly give notice thereof (in writing or by telephone, confirmed in writing) to the applicable Borrower and the Banks and (ii) such Loan shall be deemed to have been requested to be made as a Base Rate Loan and (iii) the rate applicable to such Loan shall be the Base Rate in effect from time to time. 2.3 Interest Payment Dates. Accrued interest shall be payable (i) in respect of each Eurodollar Loan, at the end of the Interest Period relating thereto and in respect of each Loan with an Interest Period of longer than 3 months, on each 3-month anniversary of the first day of such Interest Period, (ii) in respect of each Base Rate Loan, at the end of each Interest Period relating thereto and (iii) in respect of each Loan, on any prepayment (on the amount prepaid), at maturity (whether by acceleration or otherwise) and, after maturity, on demand. 2.4 Conversions; Interest Periods. (a) Each Borrower shall have the option to convert on any Business Day, all or a portion at least equal to $10,000,000 of the outstanding principal amount of the Loans made to it pursuant to one or more Borrowings of one Type of Loans into a Borrowing or Borrowings of another Type of Loan, provided that (i) except as provided in Section 2.5(b), Eurodollar Loans may be converted into Base Rate Loans only on the last day of an Interest Period applicable thereto and no partial conversion of a Borrowing of Eurodollar Loans shall reduce the outstanding principal amount of the Loans pursuant to such Borrowing to less than $10,000,000 and (ii) Loans may only be converted into Eurodollar Loans if no Default or Event of Default with respect to such Borrower is in existence on the date of the conversion. Each such conversion shall be effected by such Borrower by giving the Agent at its Payment Office, prior to 12:00 Noon (New York time), at least three Business Days (or by 12:00 Noon on the same Business Day in the case of a conversion into Base Rate Loans) prior written notice (or telephonic notice promptly confirmed in writing) (each a "Notice of Conversion") specifying the Loans to be so converted, the Borrowing or Borrowings pursuant to which such Loans were made, the Type of Loans to be converted into and, if to be converted into a Borrowing of Eurodollar Loans, the Interest Period to be initially applicable thereto. The Agent shall give each Bank prompt notice of any such proposed conversion affecting any of its Loans. (b) At the time a Borrower gives a Notice of Borrowing or Notice of Conversion in respect of the making of, or conversion into, a Borrowing of Eurodollar Loans (in the case of the initial Interest Period applicable thereto) or prior to 12:00 Noon (New York time) on the third Business Day prior to the expiration of an Interest Period applicable to a Borrowing of Eurodollar Loans (in the case of any subsequent Interest Period), such Borrower shall have the right to elect, by giving the Agent written notice (or telephonic notice promptly confirmed in writing), the Interest Period applicable to such Borrowing, which Interest Period shall, at the option of such Borrower, be a one, two, three or six month period or, subject to availability on the part of each Bank, such shorter period as ends on the Expiry Date. Notwithstanding anything to the contrary contained above: (i) the initial Interest Period for any Borrowing of Eurodollar Loans shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing of Base Rate Loans) and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires; (ii) if any Interest Period applicable to a Borrowing of Eurodollar Loans begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; (iii) no Interest Period in respect of any Borrowing of Loans shall extend beyond the Expiry Date; and (iv) all Eurodollar Loans comprising a Borrowing shall at all times have the same Interest Period. If upon the expiration of any Interest Period, a Borrower has failed to elect a new Interest Period to be applicable to the respective Borrowing of Eurodollar Loans as provided above or is unable to elect a new Interest Period as a result of Section 2.4(a)(ii) above, such Borrower shall be deemed to have elected to convert such Borrowing into a Borrowing of Base Rate Loans effective as of the expiration date of such current Interest Period. 2.5 Increased Costs, Illegality, Etc. (a) In the event that any Bank (including the Agent and the Fronting Bank) shall have reasonably determined (which determination shall be final and conclusive and binding upon all parties but, with respect to the following clauses (i), (ii) and (iii), shall be made only after consultation with the applicable Borrower and the Agent on the date of such determination) that: (i) on any date for determining the Quoted Rate for any Interest Period, by reason of any change after the date hereof affecting the interbank Eurodollar market or affecting the position of such Bank (if a Reference Bank), in such market, adequate and fair means do not exist for ascertaining the applicable interest rate by reference to the Quoted Rate; or (ii) at any time, by reason of (y) any change after the date hereof in any applicable law or governmental rule, regulation or order (or any interpretation thereof by a governmental authority or otherwise (provided that, in the case of an interpretation not by a governmental authority, such interpretation shall be made in good faith and shall have a reasonable basis) and including the introduction of any new law or governmental rule, regulation or order), to the extent not provided for in clause (iii) below, or (z) in the case of Eurodollar Loans, other circumstances affecting such Bank or the interbank Eurodollar market or the position of such Bank in such market, the Quoted Rate shall not represent the effective pricing to such Bank for funding or maintaining the affected Eurodollar Loan; or (iii) at any time, by reason of the requirements of Regulation D or other official reserve requirements, the Quoted Rate shall not represent the effective pricing to such Bank for funding or maintaining the affected Eurodollar Loan; or (iv) at any time, that the making or continuance of any Eurodollar Loan or the issuance of any Letter of Credit has become unlawful by compliance by such Bank or by the Fronting Bank in good faith with any law, governmental rule, regulation, guideline or order, or would cause severe hardship to such Bank or to the Fronting Bank as a result of a contingency occurring after the date hereof which materially and adversely affects the interbank Eurodollar market; then, and in any such event, the Bank so affected shall on such date of determination give notice (by telephone confirmed in writing) to each applicable Borrower and to the Agent (who shall give similar notice to each Bank) of such determination. Thereafter, (x) in the case of clause (i), (ii) or (iii) above, each applicable Borrower shall pay to such Bank, upon written demand therefor, such additional amounts deemed in good faith by such Bank to be material (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Bank in its discretion shall determine) as shall be required to cause such Bank to receive interest with respect to its affected Eurodollar Loan at a rate per annum equal to the then Applicable Eurodollar Margin in excess of the effective pricing to such Bank to make or maintain such Eurodollar Loan and (y) in the case of clause (iv), each applicable Borrower shall take one of the actions specified in Section 2.5(b) as promptly as possible and, in any event, within the time period required by law. A certificate as to additional amounts owed any such Bank, showing in reasonable detail the basis for the calculation thereof, submitted to each applicable Borrower and the Agent by such Bank shall, absent manifest error, be final, conclusive and binding upon all of the parties hereto. (b) At any time that any of its Loans are affected by the circumstances described in Section 2.5(a) each applicable Borrower may (i) if the affected Eurodollar Loan is then being made pursuant to a Borrowing, cancel said Borrowing by giving the Agent notice thereof by telephone (confirmed in writing) on the same date that such Borrower was notified by the affected Bank pursuant to Section 2.5(a) or (ii) if the affected Eurodollar Loan is then outstanding, upon at least 3 Business Days' written notice to the Bank, require the Bank to convert such Eurodollar Loan into a Base Rate Loan; provided that if more than one Bank is affected at any time, then all affected Banks must be treated in the same manner pursuant to this Section 2.5(b). (c) In the event that a Borrower shall be paying additional amounts to a Bank pursuant to Section 2.5(a)(i), (ii) or (iii) or Section 2.5(d) (and, in the case of Section 2.5(d), such Bank has not eliminated the increased costs by designating a new Applicable Lending Office) or is unable to incur a Eurodollar Loan from such Bank because of the existence of a condition described in Section 2.5(a)(iv) (any such Bank, an "Affected Bank") covering a period of 90 consecutive days, the Borrowers, the Agent and the Affected Bank shall consult with a view towards (but being under no obligation to) amending this Agreement, with the consent of the Banks other than the Affected Bank (the "Unaffected Banks") which, at such time, have outstanding two-thirds of the aggregate principal amount of the Loans outstanding hereunder (exclusive of the aggregate principal amount of the Loans outstanding of the Affected Bank), to provide for (i) the termination of the Affected Bank's Commitment, provided that such termination is accompanied by payment in full of the outstanding amount of all Loans of the Affected Bank, interest accrued on such amount to the date of payment and all other liabilities and obligations of the Borrowers hereunder (including, without limitation, amounts payable pursuant to Section 1.8, Section 2.5(a) or Section 2.5(d)) with respect to the Affected Bank, and (ii) the substitution of another bank for the Affected Bank and/or the increase, pro rata or otherwise, of the Commitments of the Unaffected Banks or otherwise, so that the Total Commitment remains the amount which would be applicable in the absence of the occurrence of clause (i) of this Section 2.5(c); provided that no Commitment of any Unaffected Bank may be changed without the consent of such Bank. (d) If any Bank reasonably determines at any time that any applicable law or governmental rule, regulation, order or request (whether or not having the force of law) concerning capital adequacy, or any change in interpretation or administration thereof by any governmental authority, central bank or comparable agency, will have the effect of increasing the amount of capital required or expected to be maintained by such Bank based on the existence of such Bank's Commitment hereunder or its obligations hereunder or under any Letter of Credit, then promptly upon receipt of a written demand from such Bank meeting the requirements of this Section 2.5(d), the applicable Borrowers agree to pay such Bank such additional amounts as shall be required to compensate such Bank for the increased cost to such Bank of making Loans to (or issuing Letters of Credit for the account of) the Borrowers, as a result of such increase in capital for the first Compensation Period (as defined below). After the initial written demand for payment in respect of this Section 2.5(d) is delivered to the applicable Borrowers by such Bank, written demand for payment may be submitted for each Compensation Period thereafter that this Agreement remains in effect as to such Bank. Each such written demand shall (i) specify (a) the event pursuant to which such Bank is entitled to claim the additional amount, (b) the date on which the event occurred and became applicable to the Bank and (c) the Compensation Period for which the amount is due and (ii) set out in reasonable detail the basis and computation of such additional amount. Each period for which the additional amounts may be claimed by such Bank (a "Compensation Period") shall be the lesser of (x) the number of days actually elapsed since the date the event occurred and became applicable to such Bank or (y) 90 days. Payments made by the applicable Borrowers to any Bank in respect of this Section 2.5(d) shall be made on the last day of the Compensation Period specified in each written demand with a final payment to be made on the date of termination of this Agreement as to such Bank. Provided that each Bank acts reasonably and in good faith and uses averaging and attribution methods which are reasonable in determining any additional amounts due under this Section 2.5(d), such Bank's determination of compensation owing under this Section 2.5(d) shall, absent manifest error, be final and conclusive and binding on all the parties hereto. No Bank shall be entitled to compensation under this Section 2.5(d) for any costs incurred with respect to any date unless it shall have notified the applicable Borrowers that it will demand compensation for such costs not more than 60 days after the later of (i) such date and (ii) the date on which it shall have become aware of such costs. (e) Each Bank agrees that, upon the occurrence of any event giving rise to the operation of Section 2.5(d) with respect to such Bank, such Bank shall, if requested by the Borrowers, designate another Applicable Lending Office for any Loans affected by such event with the objective of eliminating, avoiding or mitigating the consequence of the event giving rise to the operation of such section; provided that such Bank and its Applicable Lending Office shall not, in the sole judgment of such Bank, suffer any economic, legal or regulatory disadvantage. Nothing in this Section 2.5(e) shall affect or postpone any of the obligations of a Borrower or the right of any Bank provided in Section 2.5(d). 2.6 Extension of Expiry Date. (i) The Borrowers may, by sending an Extension Letter to the Agent (in which case the Agent shall promptly deliver a copy to each of the Banks), not less than 30 days and not more than 45 days prior to the Expiry Date then in effect (the "Current Expiry Date"), request that the Banks extend the Expiry Date so that it will occur 364 days after the Current Expiry Date. Each Bank, acting in its sole discretion, shall, by notice to the Agent given not less than 20 days and not more than 30 days prior to the Current Expiry Date, advise the Agent in writing whether or not such Bank agrees to such extension (each Bank that so advises the Agent that it will not extend the Expiry Date being referred to herein as a "Non-extending Bank"); provided that any Bank that does not advise the Agent by the 20th day prior to the Current Expiry Date shall be deemed to be a Non-extending Bank. The election of any Bank to agree to such extension shall not obligate any other Bank to agree. (ii) (A) If Banks holding Commitments that aggregate at least 51% of the Total Commitment on that 20th day prior to the Current Expiry Date shall not have agreed to extend the Expiry Date, then the Current Expiry Date shall not be so extended and the outstanding principal balance of all loans and other amounts payable hereunder shall be payable on the Current Expiry Date. (B) If (and only if) Banks holding Commitments that aggregate at least 51% of the Total Commitment on the 20th day prior to the Current Expiry Date shall have agreed to extend the Expiry Date, then the Expiry Date applicable to the Banks that are not Non-extending Banks shall be the day that is 364 days after the Current Expiry Date. In the event of such extension, the Commitment of each Non-extending Bank shall terminate on the Current Expiry Date, all Loans and other amounts payable hereunder to such Non-extending Banks shall become due and payable on the Current Expiry Date and the Total Commitment of the Banks hereunder shall be reduced by the Commitments of Non- extending Banks so terminated on and after such Current Expiry Date. (iii) In the event that the conditions of clause (B) of paragraph (ii) above have been satisfied, the Borrowers shall have the right on or before the Current Expiry Date, at their own expense, to require any Non-extending Bank to transfer and assign without recourse (except as to title and the absence of Liens created by it) (in accordance with and subject to the restrictions contained in Section 10.6) all its interests, rights and obligations under this Agreement (including with respect to any L/C Exposure) to one or more other banks or other financial institutions (which may include any Bank) (each, an "Additional Commitment Bank"), provided that (x) such Additional Commitment Bank, if not already a Bank hereunder, shall be subject to the approval of the Agent (not to be unreasonably withheld), (y) such assignment shall become effective as of the Current Expiry Date and (z) the Additional Commitment Bank, shall pay to such Non-extending Bank in immediately available funds on the effective date of such assignment the principal of and interest accrued to the date of payment on the Loans made by such Non-extending Bank hereunder and all other amounts accrued for such Non-extending Bank's account or owed to it hereunder. Notwithstanding the foregoing, no extension of the Expiry Date shall become effective unless, on the Current Expiry Date the conditions set forth in paragraphs (a), (b) and (d) of Sections 4.2A and 4.2B shall be satisfied (with all references in such paragraphs to the making of a Loan or issuance of a Letter of Credit being deemed to be references to the extension of the Commitments on the Current Expiry Date) and the Agent shall have received a certificate to that effect dated the Current Expiry Date and executed by a responsible officer of each of the Borrowers and Resources. SECTION 3. Payments. 3.1 Payments on Non-Business Days. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, if a payment of principal has been so extended, interest shall be payable on such principal at the applicable rate during such extension. 3.2 Voluntary Prepayments. Each Borrower shall have the right to prepay its Loans in whole or in part, without premium or penalty, from time to time pursuant to this Section 3.2 on the following terms and conditions: (i) the applicable Borrower shall give the Agent at the Payment Office at least 3 Business Days' prior written notice or telephonic notice (confirmed in writing) of its intent to prepay such Loans, which notice shall specify the amount of such prepayment and the specific Borrowing to be prepaid, which notice the Agent shall promptly transmit to each of the Banks; (ii) each prepayment shall be in an integral multiple of $1,000,000 and not less than $10,000,000 (or, if less, the amount then remaining outstanding in respect of the Borrowing being prepaid); (iii) each prepayment in respect of Loans made pursuant to one Borrowing shall be applied pro rata among the Banks on the basis of such Loans, except as otherwise provided in Section 2.5; (iv) at the time of any prepayment, the applicable Borrower shall pay all interest accrued on the principal amount of said prepayment and, if the applicable Borrower prepays any Eurodollar Loan on any day other than the last day of an Interest Period applicable thereto, the applicable Borrower shall compensate the Banks for losses sustained as a result of such prepayment to the extent and as provided in Section 1.8. 3.3 Method and Place of Payment, Etc. Except as expressly provided herein, all payments under this Agreement shall be made to the Agent for the ratable account of the Banks not later than Noon (New York time) on the date when due and shall be made in freely transferable U.S. dollars and in immediately available funds at the Payment Office (or, if such payment is made in respect of principal of or interest on any Eurodollar Loan, for the account of such non-U.S. office of the Agent as the Agent may from time to time direct). Unless the Agent shall have been notified by the applicable Borrower prior to the date on which any payment to be made by the applicable Borrower hereunder is due that the applicable Borrower does not intend to remit such payment, the Agent may, at its discretion, assume that the applicable Borrower has remitted such payment when so due and the Agent may, at its discretion and in reliance upon such assumption, make available to each Bank (for the account of its applicable lending office) on such payment date an amount equal to such Bank's share of such assumed payment. If the applicable Borrower has not in fact remitted such payment to the Agent, each Bank shall forthwith on demand repay to the Agent the amount of such assumed payment made available to such Bank together with interest thereon in respect of each day from and including the date such amount was made available by the Agent to such Bank to the date such amount is repaid to the Agent at a rate per annum equal to the Federal Funds Rate. On the commencement date of each Interest Period and on each date occurring two Business Days prior to an Interest Payment Date, the Agent shall notify the applicable Borrower of the amount of interest and/or fees due at the end of such Interest Period or on such Interest Payment Date (assuming, in the case of Base Rate Loans, that there is no change in the rate of interest applicable to the applicable Base Rate Loan); provided, however, that failure to so notify the applicable Borrower shall not affect such Borrower's obligation to make any such payments. 3.4 Net Payments. All payments under this Agreement shall be made without set-off or counterclaim and in such amounts as may be necessary in order that all such payments of principal and interest in connection with Loans (after deduction or withholding for or on account of (i) any present or future taxes, levies, imposts, duties or other charges of whatsoever nature imposed by any government or any political subdivision or taxing authority thereof, other than any tax (except such taxes referred to in clause (ii) below) on or measured by the net income of a Bank pursuant to the income tax laws of the jurisdiction where such Bank's principal or lending office is located or in which such Bank maintains a place of business (collectively the "Taxes") and (ii) deduction of an amount equal to any taxes on or measured by the net income payable by any such Bank with respect to the amount by which the payments required to be made by this Section 3.4 exceed the amount otherwise specified to be paid under this Agreement) shall not be less than the amounts otherwise specified to be paid under this Agreement. A certificate as to any additional amounts payable to any Bank under this Section 3.4 submitted to the applicable Borrower by such Bank shall show in reasonable detail the amount payable and the calculations used to determine such amount and shall, absent manifest error, be final, conclusive and binding upon all parties hereto. With respect to each deduction or withholding for or on account of any Taxes, the applicable Borrower shall promptly furnish to each Bank such certificates, receipts and other documents as may be required (in the judgment of such Bank) to establish any tax credit to which such Bank may be entitled. SECTION 4. Conditions Precedent. 4.1 Conditions to Effectiveness. On the Closing Date: (a) The Agent shall have received from the general counsel or senior counsel of PPL a favorable opinion dated the Closing Date substantially in the form of Exhibit A hereto. (b) The Agent shall have received an opinion of Reid & Priest LLP, counsel for PPL, Finance Co. and Resources, addressed to the Agent, the Fronting Bank and the Banks, dated the Closing Date, with respect to the enforceability of this Agreement against PPL and Finance Co., and with respect to the enforceability of the guarantee hereunder by Resources of the obligations of Finance Co. against Resources, substantially in the form of Exhibit B hereto. (c) All corporate and legal proceedings and all instruments in connection with the transactions contemplated by this Agreement (including resolutions of the Board of Directors of PPL, Finance Co. and Resources and certificates as to the incumbency of the officers signing this Agreement or any certificate delivered in connection herewith) shall be satisfactory in form and substance to the Agent, and the Agent shall have received all information and copies of all documents that it has requested, such documents where appropriate to be certified by proper corporate or governmental authorities. (d) The Agent shall have received from each of the Banks, the Fronting Bank, PPL, Finance Co. and Resources a duly executed and delivered counterpart hereof. (e) The conditions set forth in Sections 4.2A and 4.2B (other than Section 4.2A(c) and Section 4.2B(c)) shall have been satisfied. (f) The Agent shall have received evidence satisfactory to it of the termination of the Revolving Credit Agreement dated as of August 30, 1994, among PPL, the banks party thereto and The Chase Manhattan Bank (as successor by merger to Chemical Bank), as agent for the banks. (g) The Agent shall have received evidence satisfactory to it of the termination of the Revolving Credit Agreement dated as of May 30, 1996, as amended as of May 27, 1997, among Resources, the banks party thereto and The Chase Manhattan Bank as fronting bank, collateral agent and agent for the banks. (h) The Agent shall have received a certificate signed by appropriate officers of PPL stating that all regulatory approvals necessary to permit PPL to enter into this Agreement and to perform its obligations hereunder have been obtained and are in full force and effect and attaching evidence of all such regulatory approvals. 4.2A Conditions to Each Loan to PPL and Each Issuance of a Letter of Credit for the account of PPL. The obligation of each Bank to make each Loan to PPL (excluding any conversions of one Type of Loan to another Type pursuant to Section 2.5(b)) and of the Fronting Bank to issue each Letter of Credit for the account of PPL hereunder is subject, at the time of the making of each such Loan and the issuance of each such Letter of Credit (except as hereinafter indicated), to the satisfaction of the following conditions, with the making of each such Loan and the issuance of each such Letter of Credit constituting a representation and warranty by PPL that the conditions specified in Sections 4.2A(a), (b), (d) and (e) below are then satisfied: (a) No Default. At the time of the making each such Loan to PPL, and the issuance of each Letter of Credit for the account of PPL and after giving effect thereto, there shall exist no Default or Event of Default with respect to PPL. (b) Representations and Warranties. At the time of the making of each such Loan to PPL and the issuance of each such Letter of Credit for the account of PPL and after giving effect thereto, all representations and warranties contained in Section 7A hereof shall be true and correct with the same force and effect as though such representations and warranties had been made as of such time. (c) Notice of Borrowing. The Agent shall have received Notice of Borrowing from PPL as required by Section 1.2 or, in the case of the issuance of a Letter of Credit, the Fronting Bank and the Agent shall have received a notice from PPL requesting the issuance of such Letter of Credit as required by Section 1A(b). (d) No Adverse Change. Since December 31, 1996, there shall have been no change in the business, assets, financial condition or operations of PPL and its Subsidiaries taken as a whole which materially and adversely affects the ability of PPL to perform any of its obligations hereunder. (e) Regulatory Approval. The making of such Loan to PPL or the issuance of such Letter of Credit for the account of PPL shall not cause the aggregate dollar amount of Loans and Letters of Credit outstanding for the account of PPL to exceed the amount of such obligations for which PPL has obtained the necessary regulatory approval. 4.2B Conditions to Each Loan to Finance Co. and Each Issuance of a Letter of Credit for the account of Finance Co. The obligation of each Bank to make each Loan to Finance Co. (excluding any conversions of one Type of Loan to another Type pursuant to Section 2.5(b)) and of the Fronting Bank to issue each Letter of Credit for the account of Finance Co. hereunder is subject, at the time of the making of each such Loan and the issuance of each such Letter of Credit (except as hereinafter indicated), to the satisfaction of the following conditions, with the making of each such Loan and the issuance of each such Letter of Credit constituting a representation and warranty by Finance Co. that the conditions specified in Sections 4.2B(a), (b) and (d) below are then satisfied: (a) No Default. At the time of the making of each such Loan to Finance Co. and the issuance of each Letter of Credit for the account of Finance Co. and after giving effect thereto, there shall exist no Default or Event of Default with respect to Finance Co. (b) Representations and Warranties. At the time of the making of each such Loan to Finance Co. and the issuance of each such Letter of Credit for the account of Finance Co. and after giving effect thereto, all representations and warranties contained in Section 7B hereof shall be true and correct with the same force and effect as though such representations and warranties had been made as of such time. (c) Notice of Borrowing. The Agent shall have received Notice of Borrowing from Finance Co. as required by Section 1.2 or, in the case of the issuance of a Letter of Credit, the Fronting Bank and the Agent shall have received a notice from Finance Co. requesting the issuance of such Letter of Credit as required by Section 1A(b). (d) No Adverse Change. Since December 31, 1996, there shall have been no change in the business, assets, financial condition or operations of Resources and its Subsidiaries taken as a whole which materially and adversely affects the ability of Resources to perform any of its obligations hereunder. SECTION 5.A Covenants of PPL. While this Agreement is in effect and until the Total Commitment has been terminated with respect to PPL, all obligations of PPL hereunder shall have been paid in full and all Letters of Credit issued for the account of PPL shall have been canceled or have expired and all amounts drawn thereunder shall have been reimbursed in full, PPL agrees that: 5.1A Financial Statements. PPL will furnish to each Bank: (a) within 120 days after the end of each fiscal year an auditors' report, including a balance sheet as at the close of such fiscal year and statements of income, shareowners' common equity and cash flows for such year for PPL and its consolidated Subsidiaries prepared in conformity with GAAP, with an opinion expressed by Price Waterhouse LLP or other independent auditors of recognized standing selected by it; (b) within 60 days after the end of each of the first three quarters in each fiscal year, a balance sheet as at the close of such quarterly period and statements of income, shareowners' common equity and cash flows for such quarterly period for itself and its consolidated Subsidiaries prepared in conformity with GAAP; (c) within 120 days after the end of each fiscal year, a copy of its Form 10-K Report to the Securities and Exchange Commission ("SEC") and within 60 days after the end of each of the first three quarters in each fiscal year, a copy of its Form 10-Q Report to the SEC; (d) from time to time, with reasonable promptness, such further information regarding its business, affairs and financial condition as any Bank and the Fronting Bank may reasonably request; and (e) upon acquiring knowledge of the existence of a Default or Event of Default with respect to it a certificate of a financial officer specifying: (i) the nature of such Default or Event of Default, (ii) the period of the existence thereof, and (iii) the actions that PPL proposes to take with respect thereto. The financial statements required to be furnished pursuant to clauses (a) and (b) above shall be accompanied by a certificate of a principal financial officer of PPL to the effect that no Default or Event of Default with respect to it has occurred and is continuing. The financial statements required to be furnished pursuant to clause (a) above shall also be accompanied by a Compliance Certificate in the form of Exhibit D-1 hereto ("PPL Compliance Certificate") demonstrating compliance with Section 5.4A. 5.2A Mergers. PPL will not merge or consolidate with any Person if PPL is not the survivor unless (a) the survivor assumes the obligations of PPL hereunder, (b) the survivor is a utility whose business is not substantially different in character or composition from that of PPL and (c) the senior secured debt ratings of the survivor by Moody's and S&P as available (or if the ratings of Moody's and S&P are not available, of such other rating agency as shall be acceptable to the Agent), are at least equal to the ratings of PPL's First Mortgage Bonds (or other senior secured debt) immediately prior to such merger or consolidation. 5.3A Ratings. PPL will use its best efforts to promptly notify the Banks upon obtaining knowledge of any change in, or cessation of, ratings of PPL's First Mortgage Bonds (or other senior secured debt) by Moody's or S&P. 5.4A Consolidated Indebtedness to Consolidated Capitalization. The ratio of Consolidated Indebtedness of PPL to Consolidated Capitalization of PPL shall not exceed 70% at any time. SECTION 5.B Covenants of Finance Co. and Resources. While this Agreement is in effect and until the Total Commitment has been terminated with respect to Finance Co., all obligations of Finance Co. and Resources hereunder shall have been paid in full and all Letters of Credit issued for the account of Finance Co. shall have been canceled or have expired and all amounts drawn thereunder shall have been reimbursed in full, each of Finance Co. and Resources agrees that: 5.1B Financial Statements. Resources will furnish to each Bank: (a) within 120 days after the end of each fiscal year (i) an auditors' report, including a balance sheet as at the close of such fiscal year and statements of income, shareowners' common equity and cash flows for such year for Resources and its consolidated Subsidiaries prepared in conformity with GAAP, with an opinion expressed by Price Waterhouse LLP or other independent auditors of recognized standing selected by it and (ii) Resources' unconsolidated balance sheet as at the close of such fiscal year and statements of income, shareholders common equity and cash flows for such year; (b) within 60 days after the end of each of the first three quarters in each fiscal year, a balance sheet as at the close of such quarterly period and statements of income, shareowners' common equity and cash flows for such quarterly period for (i) Resources and its consolidated Subsidiaries prepared in conformity with GAAP, and (ii) Resources' unconsolidated balance sheet as at the close of such quarterly period and statements of income, shareowners' common equity and cash flow for such quarterly period; (c) within 120 days after the end of each fiscal year, a copy of Resources' Form 10-K Report to the Securities and Exchange Commission ("SEC") and within 60 days after the end of each of the first three quarters in each fiscal year, a copy of Resources' Form 10-Q Report to the SEC; (d) from time to time, with reasonable promptness, such further information regarding Resources' business, affairs and financial condition as any Bank and the Fronting Bank may reasonably request; and (e) upon acquiring knowledge of the existence of a Default or Event of Default with respect to Finance Co. a certificate of a financial officer of Resources and an officer of Finance Co. specifying: (i) the nature of such Default or Event of Default, (ii) the period of the existence thereof, and (iii) the actions that Resources and Finance Co. propose to take with respect thereto. The financial statements required to be furnished pursuant to clauses (a) and (b) above shall be accompanied by a certificate of a principal financial officer of Resources to the effect that no Default or Event of Default with respect to Finance Co. has occurred and is continuing. The financial statements required to be furnished pursuant to clause (a) above shall also be accompanied by a Compliance Certificate in the form of Exhibit D-2 hereto ("Resources Compliance Certificate") demonstrating compliance with Section 5.5B. 5.2B Mergers. (i) (1) Resources will not merge or consolidate with any Person if Resources is not the survivor unless (a) the survivor assumes Resources' obligations hereunder, (b) substantially all of the consolidated assets and consolidated revenues of the survivor are anticipated to come from a utility business or utility businesses and (c) the senior unsecured debt ratings of the survivor by Moody's or S&P, as available (or if the ratings of Moody's and S&P are not available, of such other rating agency as shall be acceptable to the Required Banks), are at least equal to the ratings of Resource's senior unsecured debt immediately prior to such merger or consolidation; (2) Resources will not dispose of any common stock of either Borrower or any securities convertible into common stock of either Borrower, except in connection with any merger or consolidation permitted under this Section 5.2B or under Section 5.2A, and except that Resources shall be allowed to sell, transfer or otherwise dispose of PPL's common stock to PPL. (ii) Finance Co. will not merge into or consolidate with any other Person except (a) Resources or a successor of Resources permitted by this Section or (b) any other Person which is a wholly owned subsidiary of Resources or a successor of Resources permitted by this Section. 5.3B Ratings. Finance Co. and Resources will each use their best efforts to promptly notify the Banks upon obtaining knowledge of any change in, or cessation of, ratings of Resources' senior unsecured debt by Moody's or S&P. 5.4B Liens. Resources will not create, incur, or suffer to exist any Lien in or on the common stock of PPL or Finance Co. or on securities convertible into the common stock of PPL or Finance Co. (in either case, now or hereafter acquired) other than Permitted Liens. 5.5B Consolidated Indebtedness to Consolidated Capitalization. The ratio of Consolidated Indebtedness of Resources to Consolidated Capitalization of Resources shall not exceed 70% at any time. SECTION 6.A Events of Default with Respect to PPL. Each of the following events shall constitute an "Event of Default" with respect to PPL: 6.1A Representations, Etc. Any certificate furnished by PPL to the Banks and the Fronting Bank pursuant hereto shall prove to have been incorrect in any material respect or any of the representations and warranties made by PPL herein or in connection herewith shall prove to have been incorrect in any material respect when made; or 6.2A Principal and Interest. PPL shall fail to make any payment of principal on any of its Loans or any other payment payable by PPL hereunder (including the reimbursement of any L/C Disbursement) when due or, in the case of interest or fees, within 10 days of the due date thereof; or 6.3A Defaults by PPL Under Other Agreements. PPL shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness in a principal amount in excess of $50,000,000 beyond any period of grace provided with respect thereto, or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Indebtedness in a principal amount in excess of $50,000,000 beyond any period of grace provided with respect thereto if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee on its or their behalf to cause, such Indebtedness to become due prior to its stated maturity; or 6.4A Judgments. PPL shall fail within 60 days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $25,000,000 that is not stayed on appeal or otherwise being appropriately contested in good faith; or 6.5A Bankruptcy, Etc. PPL shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy" as now or hereafter in effect or any successor thereto (the "Bankruptcy Code"); or an involuntary case shall be commenced against PPL or such case shall be controverted but shall not be dismissed within 60 days after the commencement of the case; or PPL shall not generally be paying its debts as they become due; or a custodian (as defined in the Bankruptcy Code) shall be appointed for, or shall take charge of, all or substantially all of the property of PPL or PPL shall commence any other proceeding under any reorganization, arrangement, readjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to PPL or there shall be commenced against PPL any such proceeding which remains undismissed for a period of 60 days or PPL shall be adjudicated insolvent or bankrupt; or PPL shall fail to controvert in a timely manner any such case under the Bankruptcy Code or any such proceeding, or any order of relief or other order approving any such case or proceeding shall be entered; or PPL by any act or failure to act shall indicate its consent to, approval of or acquiescence in any such case or proceeding or in the appointment of any custodian or the like for it or any substantial part of its property or shall suffer any such appointment to continue undischarged or unstayed for a period of 60 days; or PPL shall make a general assignment for the benefit of creditors; or any corporate action shall be taken by PPL for the purpose of effecting any of the foregoing; or 6.6A Other Covenants. PPL shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and any such failure shall remain unremedied for a period of 30 days after written notice thereof shall have been received by PPL from the Agent or the Required Banks. SECTION 6.B Events of Default with Respect to Finance Co. Each of the following events shall constitute an "Event of Default" with respect to Finance Co.: 6.1B Representations, Etc. Any certificate furnished by Finance Co. or Resources to the Banks and the Fronting Bank pursuant hereto shall prove to have been incorrect in any material respect or any of the representations and warranties made by Finance Co. or Resources herein or in connection herewith shall prove to have been incorrect in any material respect when made; or 6.2B Principal and Interest. Either Finance Co. or Resources shall fail to make any payment of principal on any Loan to Finance Co. or any other payment payable by Finance Co. or Resources hereunder (including the reimbursement of any L/C Disbursement) when due or, in the case of interest or fees, within 10 days of the due date thereof; or 6.3B Defaults by Finance Co. or Resources Under Other Agreements. Finance Co. or Resources shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness in a principal amount in excess of $40,000,000, in the case of Indebtedness of Resources or Indebtedness of Finance Co. guaranteed by Resources or, in the case of Indebtedness of Finance Co. not guaranteed by Resources, $10,000,000, if such failure shall continue beyond any period of grace provided with respect thereto, or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument (including any term, covenant, condition or agreement herein) evidencing or governing any such Indebtedness in a principal amount in excess of, in the case of Indebtedness of Resources or Indebtedness of Finance Co. guaranteed by Resources, $40,000,000 or, in the case of Indebtedness of Finance Co. not guaranteed by Resources, $10,000,000, if such failure shall continue beyond any period of grace provided with respect thereto if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee on its or their behalf to cause, such Indebtedness to become due prior to its stated maturity; or 6.4B Judgments. Finance Co. or Resources shall fail within 60 days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $25,000,000 that is not stayed on appeal or otherwise being appropriately contested in good faith; or 6.5B Bankruptcy, Etc. Finance Co. or Resources shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy" as now or hereafter in effect or any successor thereto (the "Bankruptcy Code"); or an involuntary case shall be commenced against Finance Co. or Resources or such case shall be controverted but shall not be dismissed within 60 days after the commencement of the case; or Finance Co. or Resources shall not generally be paying its debts as they become due; or a custodian (as defined in the Bankruptcy Code) shall be appointed for, or shall take charge of, all or substantially all of the property of Finance Co. or Resources or Finance Co. or Resources shall commence any other proceeding under any reorganization, arrangement, readjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to Finance Co. or Resources or there shall be commenced against Finance Co. or Resources any such proceeding which remains undismissed for a period of 60 days or Finance Co. or Resources shall be adjudicated insolvent or bankrupt; or Finance Co. or Resources shall fail to controvert in a timely manner any such case under the Bankruptcy Code or any such proceeding, or any order of relief or other order approving any such case or proceeding shall be entered; or Finance Co. or Resources by any act or failure to act shall indicate its consent to, approval of or acquiescence in any such case or proceeding or in the appointment of any custodian or the like for it or any substantial part of its property or shall suffer any such appointment to continue undischarged or unstayed for a period of 60 days; Finance Co. or Resources shall make a general assignment for the benefit of creditors; or any corporate action shall be taken by Finance Co. or Resources for the purpose of effecting any of the foregoing; or 6.6B Other Covenants. Finance Co. or Resources shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and any such failure shall remain unremedied for a period of 30 days after written notice thereof shall have been received by Finance Co. or Resources, as the case may be, from the Agent or the Required Banks; or 6.7B Events of Default with Respect to PPL. An Event of Default shall occur with respect to PPL. If any Event of Default with respect to PPL as specified in Section 6A shall then be continuing, then either or both of the following actions may be taken: (i) the Agent, at the direction of the Required Banks, shall by written notice to PPL, declare the principal of and accrued interest in respect of all of PPL's outstanding Loans to be, whereupon the same and all other amounts due from PPL hereunder shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by PPL, anything contained herein to the contrary notwithstanding, and (ii) the Agent, at the direction of the Required Banks, shall by written notice to PPL, declare the Total Commitment as to PPL terminated, whereupon the Commitment of each Bank (insofar as it is available to PPL) and the obligation of each Bank to make its Loans hereunder to PPL and the obligation of the Fronting Back to issue Letters of Credit for the account of PPL hereunder shall terminate immediately and any accrued Commitment Fee owed by PPL shall forthwith become due and payable without any other notice of any kind; provided that if an Event of Default described in Section 6.5A shall occur with respect to PPL, the results which would otherwise occur only upon the giving of written notice by the Agent to PPL as specified in clauses (i) and (ii) above shall occur automatically without the giving of any such notice and without any instruction by the Required Banks to give such notice. If any Event of Default with respect to Finance Co. as specified in Section 6B shall then be continuing, then either or both of the following actions may be taken: (i) the Agent, at the direction of the Required Banks, shall by written notice to Resources and Finance Co., declare the principal of and accrued interest in respect of all of Finance Co.'s outstanding Loans to be, whereupon the same and all other amounts due from Resources or Finance Co. hereunder shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by Resources and Finance Co., anything contained herein to the contrary notwithstanding, and (ii) the Agent, at the direction of the Required Banks, shall, by written notice to Resources and Finance Co., declare the Total Commitment as to Finance Co. terminated (insofar as it is available to Finance Co.), whereupon the Commitment of each Bank and the obligation of each Bank to make its Loans to Finance Co. hereunder and the obligations of the Fronting Bank to issue Letters of Credit for the account of Finance Co. shall terminate immediately and any accrued Commitment Fee owed by Finance Co. shall forthwith become due and payable without any other notice of any kind; provided that if an Event of Default described in Section 6.5B shall occur with respect to Finance Co., the results which would otherwise occur only upon the giving of written notice by the Agent to Finance Co. as specified in clauses (i) and (ii) above shall occur automatically without the giving of any such notice and without any instruction by the Required Banks to give such notice. SECTION 7.A Representations and Warranties of PPL. In order to induce the Banks and the Fronting Bank to enter into this Agreement and to make the Loans to PPL and issue the Letters of Credit for the account of PPL, in each case, as provided for herein, PPL makes the following representations and warranties to the Banks and the Fronting Bank: 7.1A Corporate Status. It is duly incorporated, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania, and has the corporate power to make and perform this Agreement and to borrow hereunder. 7.2A Authority; No Conflict. The making and performance by it of this Agreement have been duly authorized by all necessary corporate action and do not and will not violate any provision of law or regulation, or any decree, order, writ or judgment, or any provision of its charter or by-laws, or result in the breach of or constitute a default under any indenture or other agreement or instrument to which it is a party. 7.3A Legality, Etc. This Agreement constitutes the legal, valid and binding obligation of PPL, enforceable in accordance with its terms except to the extent limited by bankruptcy, insolvency or reorganization laws or by other laws relating to or affecting the enforceability of credi- tors' rights generally and by general equitable principles which may limit the right to obtain equitable remedies. 7.4A Financial Statements. The consolidated financial statements of PPL and its consolidated Subsidiaries for the year ended as at December 31, 1996, furnished to the Banks, fairly present its consolidated financial position at December 31, 1996 and the results of its consolidated opera- tions for the year then ended and were prepared in accordance with GAAP. Since that date there has been no adverse change in the business, assets, financial condition or operations of PPL that would materially and adversely affect the ability of PPL to perform any of its obligations hereunder. 7.5A Litigation. Except as disclosed in or contemplated by PPL's Form 10-K Report to the SEC for the year ended December 31, 1996 or in any subsequent Form 10-Q Report or otherwise furnished in writing to the Banks, no litigation, arbitration or administrative proceeding is pending or, to its knowledge, threatened, which, if determined adversely to PPL, would materially and adversely affect its ability to perform any of its obligations under this Agreement. There is no litigation, arbitration or administrative proceeding pending or, to the knowledge of PPL, threatened which questions the validity of this Agreement. 7.6 A No Violation. No part of the proceeds of the borrowings by PPL under this Agreement or of any Letter of Credit issued for its account will be used, directly or in- directly by PPL 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 Regulations G, U or X of said Board of Governors. PPL is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any such "margin stock." 7.7A ERISA. There have not been any "reportable events," as that term is defined in Section 4043 of the Employee Retirement Income Security Act of 1974, as amended, which would result in a material liability to PPL. 7.8A Consents. No authorization, consent or approval from governmental bodies or regulatory authorities is required for the making and performance by PPL of this Agreement, except such authorizations, consents and approvals as have been obtained prior to the making of any Loans or the issuance of any Letters of Credit and are in full force and effect at the time of the making of each Loan and the issuance of each Letter of Credit. 7.9A Subsidiaries. The assets of all Subsidiaries of PPL do not comprise in the aggregate more than 20% of the total consolidated assets of PPL. 7.10A Investment Company Act. PPL is not an "investment company" that is required to be registered under the Investment Company Act of 1940, as amended, in order not to be subject to the prohibitions of Section 7 of such Act. 7.11A Public Utility Holding Company Act. PPL is a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, but is exempt from such Act (except for the provisions of Section 9(a)(2) thereof) by virtue of an order of the SEC pursuant to Section 3(a)(2) thereof. 7.12A Tax Returns. PPL has filed or caused to be filed all Federal, state, local and foreign tax returns or materials required to have been filed by it and has paid or caused to be paid all taxes due and payable by it and all assessments received by it, except taxes that are being contested in good faith by appropriate proceedings and for which PPL shall have set aside on its books appropriate reserves with respect thereto in accordance with GAAP. 7.13A Compliance with Laws. PPL is in compliance with all laws, regulations and orders of any governmental authority except to the extent (A) such compliance is being contested in good faith by appropriate proceedings or (B) non-compliance would not reasonably be expected to materially and adversely affect its ability to perform any of its obligations hereunder. SECTION 7.B Representations and Warranties of Finance Co. and Resources. In order to induce the Banks and the Fronting Bank to enter into this Agreement and to make the Loans to Finance Co. and issue the Letters of Credit for the account of Finance Co., in each case as provided for herein, each of Finance Co. and Resources makes the following representations and warranties to the Banks and the Fronting Bank: 7.1B Corporate Status. Resources is duly incorporated, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania, and has the corporate power to make and perform this Agreement, and Finance Co. is duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has the corporate power to make and perform this Agreement and to borrow hereunder. 7.2B Authority; No Conflict. The making and performance by Resources and Finance Co. of this Agreement have been duly authorized by all necessary corporate action and do not and will not violate any provision of law or regulation, or any decree, order, writ or judgment, or any provision of its charter or by-laws, or result in the breach of or constitute a default under any indenture or other agreement or instrument to which Resources or Finance Co., as the case may be, is a party. 7.3B Legality, Etc. This Agreement constitutes the legal, valid and binding obligation of each of Resources and Finance Co., enforceable against Resources or Finance Co., as the case may be, in accordance with its terms except to the extent limited by bankruptcy, insolvency or reorganization laws or by other laws relating to or affecting the enforceability of creditors' rights generally and by general equitable principles which may limit the right to obtain equitable remedies. 7.4B Financial Statements. The consolidated financial statements of Resources for the year ended as at December 31, 1996, furnished to the Banks, fairly present Resources' consolidated financial position at December 31, 1996 and the results of its consolidated operations for the year then ended and were prepared in accordance with GAAP. Since that date there has been no adverse change in the business, assets, financial condition or operations of Resources that would materially and adversely affect its ability to perform any of its obligations hereunder. 7.5B Litigation. Except as disclosed in or contemplated by Resources's Form 10-K Report to the SEC for the year ended December 31, 1996, or in any subsequent Form 10-Q Report or otherwise furnished in writing to the Banks, no litigation, arbitration or administrative proceeding against Resources or Finance Co. is pending or, to Resources' knowledge, threatened, which, if determined adversely, would materially and adversely affect the ability of Resources to perform any of its obligations under this Agreement. There is no litigation, arbitration or administrative proceeding pending or, to the knowledge of Resources, threatened which questions the validity of this Agreement. 7.6B No Violation. No part of the proceeds of the borrowings by Finance Co. under this Agreement or of any Letter of Credit issued for its account will be used, directly or indirectly by Finance Co. or any Subsidiary of Resources 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 Regulations G, U or X of said Board of Governors. Neither Resources nor Finance Co. is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any such "margin stock." 7.7B ERISA. There have not been any "reportable events," as that term is defined in Section 4043 of the Employee Retirement Income Security Act of 1974, as amended, which would result in a material liability to Resources. 7.8B Consents. No authorization, consent or approval from governmental bodies or regulatory authorities is required for the making and performance by Resource or Finance Co. of this Agreement, except such authorizations, consents and approvals as have been obtained prior to the making of any Loans or the issuance of any Letters of Credit and are in full force and effect at the time of the making of each Loan and the issuance of each Letter of Credit. 7.9B Investment Company Act. Neither Resources nor Finance Co. is an "investment company" that is required to be registered under the Investment Company Act of 1940, as amended, in order not to be subject to the prohibitions of Section 7 of such Act. 7.10B Public Utility Holding Company Act. Resources is a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, but is exempt from such Act (except for the provisions of Section 9(a)(2) thereof) by virtue of an order of the SEC pursuant to Section 3(a)(1) thereof. Finance Co. is not a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 7.11B Tax Returns. Resources and Finance Co. have filed or caused to be filed all Federal, state, local and foreign tax returns or materials required to have been filed by it and has paid or caused to be paid all taxes due and payable by it and all assessments received by it, except taxes that are being contested in good faith by appropriate proceedings and for which Resources shall have set aside on its books appropriate reserves with respect thereto in accordance with GAAP. 7.12B Compliance with Laws. Each of Resources and Finance Co. is in compliance with all laws, regulations and orders of any governmental authority except to the extent (A) such compliance is being contested in good faith by appropriate proceedings or (B) non-compliance would not reasonably be expected to materially and adversely affect its ability to perform any of its obligations hereunder. SECTION 8. Agent. 8.1 Appointment. The Banks hereby appoint The Chase Manhattan Bank as Agent (such term to include Agent acting as Agent) to act as herein specified. Each Bank and the Fronting Bank hereby irrevocably authorizes, and each assignee of any Bank or the Fronting Bank shall be deemed irrevocably to authorize, the Agent to take such action on their behalf under the provisions of this Agreement and any instruments, documents and agreements referred to herein (such instruments, documents and agreements being herein referred to as the "Loan Documents") and to exercise such powers hereunder and thereunder as are specifically delegated to the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder, or under the Loan Documents, by or through its agents or employees. 8.2 Nature of Duties. The duties of the Agent shall be mechanical and administrative in nature. The Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Bank or of the Fronting Bank. Nothing in this Agreement or any of the Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of this Agreement or any of the Loan Documents except as expressly set forth herein. Each Bank and the Fronting Bank shall make its own independent investigation of the financial condition and affairs of PPL, Finance Co. and Resources and each of their Subsidiaries in connection with the making and the continuance of the Loans and the issuance of Letters of Credit hereunder and shall make its own appraisal of the creditworthiness of PPL, Resources and Finance Co.; and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Bank or the Fronting Bank with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or the issuance of Letters of Credit or at any time or times thereafter. The Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible to any Bank or the Fronting Bank for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care except to the extent otherwise required by Section 8.3. 8.3 Rights, Exculpation, Etc. Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be liable to any Bank or to the Fronting Bank for any action taken or omitted by it hereunder or under any of the Loan Documents, or in connection herewith or therewith, unless caused by its or their gross negligence or willful misconduct. The Agent shall not be responsible to any Bank or to the Fronting Bank for any recitals, statements, representations or warranties herein or for the execution, effectiveness, genuineness, validity, enforceability, collectibility, or sufficiency of this Agreement or any of the Loan Documents or the financial condition of PPL, Finance Co. or Resources. The Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any of the Loan Documents or the financial condition of PPL, Finance Co. or Resources, or the existence or possible existence of any Default or Event of Default. The Agent may at any time request instructions from the Banks with respect to any actions or approvals which by the terms of this Agreement or any of the Loan Documents the Agent is permitted or required to take or to grant, and if such instructions are requested, the Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from any action or withholding any approval under this Agreement or any of the Loan Documents until it shall have received such instructions from the Required Banks or all Banks, as required. Without limiting the foregoing, no Bank shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder or under any of the Loan Documents in accordance with the instructions of the Required Banks or all Banks, as required. 8.4 Reliance. The Agent shall be entitled to rely upon any written notice, statement, certificate, order or other document or any telephone message believed by it to be genuine and correct and to have been signed, sent or made by the proper Person, and, with respect to all legal matters pertaining to this Agreement or any of the Loan Documents and its duties hereunder or thereunder, upon advice of counsel selected by it. 8.5 Indemnification. To the extent that the Agent is not reimbursed and indemnified by PPL, Resources or Finance Co., the Banks will reimburse and indemnify the Agent for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent, acting pursuant hereto, in any way relating to or arising out of this Agreement or any of the Loan Documents or any action taken or omitted by the Agent under this Agreement or any of the Loan Documents, in proportion to their respective Commitments hereunder; provided, however, that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or wilful misconduct. The obligations of the Banks under this Section 8.5 shall survive the payment in full of outstanding Loans, the expiration of any Letter of Credit and the termination of this Agreement. 8.6 The Agent, Individually. With respect to its Commitment hereunder and the Loans made by it, the Agent shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Bank. The terms "Banks," "Required Banks" or any similar terms shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity as a Bank or one of the Required Banks. The Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with PPL, Finance Co. or Resources as if it were not acting pursuant hereto. 8.7 Resignation by the Agent. The Agent may resign from the performance of all its functions and duties hereunder at any time by giving 30 Business Days' prior written notice to each Borrower, Resources and the Banks. Such resignation shall take effect upon the expiration of such 30 Business Day period or upon the earlier appointment of a successor. Upon any such resignation, the Required Banks shall appoint a successor Agent who shall be satisfactory to the Borrowers and Resources and shall be an incorporated bank or trust company. In the event no such successor shall have been so appointed, then any notification, demand or other communication required or permitted to be given by the Agent on behalf of the Banks to the Borrowers hereunder shall be sufficiently given if given by the Required Banks, and any notification, demand, other communication, document, statement, other paper or payment required to be made, given or furnished by PPL, Finance Co. or Resources to the Agent for distribution to the Banks shall be sufficiently made, given or furnished if made, given or furnished by PPL, Finance Co. or Resources, as applicable, directly to each Bank entitled thereto and, in the case of payments, in the amount to which each such Bank is entitled from the applicable Borrower. All powers specifically delegated to the Agent by the terms hereof may be exercised by the Required Banks. SECTION 9. Resources Guarantee. In order to induce the Banks to extend credit hereunder to Finance Co., Resources hereby irrevocably and unconditionally guarantees, as primary obligor and not merely as a surety, the Finance Co. Obligations. Resources further agrees that the due and punctual payment of the Finance Co. Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon its Guarantee hereunder notwithstanding any such extension or renewal of any Finance Co. Obligation. Resources waives presentment to, demand of payment from and protest to Finance Co. of any of the Finance Co. Obligations, and also waives notice of acceptance of its obligations and notice of protest for nonpayment. The obligations of Resources hereunder shall not be affected by (a) the failure of any Bank or the Agent to assert any claim or demand or to enforce any right or remedy against Finance Co. under the provisions of this Agreement or otherwise, (b) change or increase in the amount of any of the Finance Co. Obligations, whether or not consented to by Resources, or (c) any rescission, waiver, amendment or modification of any of the terms or provisions of this Agreement or any other agreement. Resources further agrees that its agreement hereunder constitutes a promise of payment when due (whether or not any bankruptcy or similar proceeding shall have stayed the accrual or collection of any of the Finance Co. Obligations or operated as a discharge thereof) and not merely of collection, and waives any right to require that any resort be had by any Bank to any balance of any deposit account or credit on the books of any Bank in favor of any other person. The obligations of Resources hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever, by reason of the invalidity, illegality or unenforceability of the Finance Co. Obligations, any impossibility in the performance of the Finance Co. Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of Resources hereunder shall not be discharged or impaired or otherwise affected by the failure of the Agent or any Bank to assert any claim or demand or to enforce any remedy under this Agreement or any other agreement, by any waiver or modification in respect of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the Finance Co. Obligations, or by any other act or omission which may or might in any manner or to any extent vary the risk of Resources or otherwise operate as a discharge of Resources or Finance Co. as a matter of law or equity. Resources further agrees that its obligations hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Finance Co. Obligation is rescinded or must otherwise be restored by the Agent or any Bank upon the bankruptcy or reorganization of Finance Co or otherwise. In furtherance of the foregoing and not in limitation of any other right which the Agent or any Bank may have at law or in equity against Resources by virtue hereof, upon the failure of Finance Co. to pay any Finance Co. Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, Resources hereby promises to and will, upon receipt of written demand by the Agent, forthwith pay, or cause to be paid, in cash the amount of such unpaid Finance Co. Obligation. Upon payment by Resources of any Finance Co. Obligation, each Bank shall, in a reasonable manner, assign the amount of such Finance Co. Obligation owed to it and so paid to Resources, such assignment to be pro tanto to the extent to which the Finance Co. Obligation in question was discharged by Resources, or make such disposition thereof as Resources shall direct (all without recourse to any Bank and without any representation or warranty by any Bank). Upon payment by Resources of any sums as provided above, all rights of Resources against Finance Co. arising as a result thereof by way of right of subrogation or otherwise shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full of all the Finance Co. Obligations owed by Finance Co. to the Banks. SECTION 10. Miscellaneous. 10.1 Definitions. As used herein the following terms shall have the meanings herein specified and shall include in the singular number the plural and in the plural number the singular: "5-Year Agreement" shall mean the $300,000,000 5-Year Revolving Credit Agreement among PPL, Finance Co., Resources, as guarantor of the obligations of Finance Co., the banks from time to time party thereto and The Chase Manhattan Bank, as fronting bank, collateral agent and as agent for the banks party thereto. "Affected Bank" shall have the meaning assigned that term in Section 2.5(c). "Agent" shall mean The Chase Manhattan Bank and shall include (i) any successor corporation thereto by merger, consolidation or otherwise and (ii) any successor to the Agent appointed pursuant to Section 8.7. "Aggregate Credit Exposure" shall mean the aggregate amount of the Banks' Credit Exposures. "Agreement" shall mean this Revolving Credit Agreement, as it may from time to time be amended, supplemented or otherwise modified. "Applicable Commitment Fee Percentage" shall mean for the Borrowers, the percentage specified as such in the table in the definition of "Applicable Rate" opposite the highest rating category in which PPL's First Mortgage Bonds have been assigned a rating by either of Moody's or S&P. "Applicable Eurodollar Margin" shall mean (i) for PPL, the margin specified as such in the table in the definition of "Applicable Rate" opposite the highest rating category in which PPL's First Mortgage Bonds have been assigned ratings by either of Moody's or S&P or (ii) for Finance Co., the margin specified as such in the table in the definition of "Applicable Rate" opposite the highest rating category in which Resources' senior unsecured debt has been assigned ratings by either of Moody's or S&P. "Applicable Lending Office" shall mean, with respect to each Bank, (i) such Bank's Base Rate Lending Office in the case of a Base Rate Loan and (ii) such Bank's Eurodollar Lending Office in the case of a Eurodollar Rate Loan. "Applicable Percentage" of any Bank at any time shall mean the percentage of the Total Commitment represented by such Bank's Commitment. In the event the Commitments shall have expired or been terminated, the Applicable Percentages shall be determined on the basis of the Commitments most recently in effect, but giving effect to assignments pursuant to Section 10.6. "Applicable Rate" shall mean and include the Applicable Commitment Fee Percentage for undrawn Commitments or Applicable Eurodollar Margin for any Loans or issued Letters of Credit and at any time will be determined based on the highest applicable Category set forth below (the highest category being Category A). Applicable Commitment Applicable Fee Eurodollar Criteria Percentage Margin Category A: A- or better/ A3 or better .080% .300% Category B: BBB+/Baa1 .100% .350% Category C: BBB/Baa2 .125% .400% Category D: BBB-/Baa3 .150% .450% Category E: BB+ or below/ Ba1 or below .200% .625% "Bank" shall have the meaning assigned that term in the first paragraph in this Agreement. "Bankruptcy Code" shall have the meaning assigned that term in Section 6.5. "Base Rate" shall mean, for any day, a rate per annum equal to the higher of (i) the Prime Rate and (ii) 1/2 of 1% plus the Federal Funds Rate, each as in effect from time to time. "Base Rate Lending Office" means, with respect to each Bank, the office of such Bank specified as its "Base Rate Lending Office" on the signature pages to the Agreement or such other office of such Bank as such Bank may from time to time specify as such to the Borrowers and the Agent. "Base Rate Loan" shall mean any Loan during any period during which such Loan is bearing interest at the rates provided for in Section 2.1(a). "Borrower" shall mean either PPL or Finance Co. and "Borrowers" shall mean PPL and Finance Co. "Borrowing" shall mean the incurrence of one Type of Loan to a Borrower from all the Banks on a given date, all of which Eurodollar Loans shall have the same Interest Period, pursuant to Section 1.2; provided, however, that Loans to a Borrower of a different Type extended by one or more Banks pursuant to Section 2.5(b) shall be considered a part of the related Borrowing. "Business Day" shall mean (i) for all purposes other than as covered by clause (ii) below, any day excluding Saturday, Sunday and any day on which banks in New York City are authorized by law or other governmental actions to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in U.S. dollar deposits in the London interbank Eurodollar market. "Capital Lease Obligations" of any person shall mean obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Closing Date" shall mean November 20, 1997. "Commitment", for each Bank, shall mean the amount specified opposite its name on Schedule I hereto, such Commitment to be reduced by the amount of any reduction thereto effected pursuant to Section 1.7, Section 6 and/or Section 10.6(b)(A). "Commitment Fee" shall have the meaning assigned that term in Section 1.6(a). "Consolidated Capitalization of PPL" shall mean the sum of (A) the Consolidated Indebtedness of PPL and (B)(i) the consolidated shareowners' equity (determined in accordance with GAAP) of the common, preference and preferred stockholders of PPL and (ii) the aggregate amount of Hybrid Preferred Securities of PPL, except that for purposes of calculating Consolidated Capitalization of PPL, Consolidated Indebtedness of PPL shall exclude Non-Recourse Indebtedness of PPL and Consolidated Capitalization of PPL shall exclude that portion of shareholder equity attributable to assets securing Non- Recourse Indebtedness of PPL. "Consolidated Capitalization of Resources" shall mean the sum of (A) the Consolidated Indebtedness of Resources and (B)(i) the consolidated shareowners' equity (determined in accordance with GAAP) of the common, preference and preferred stockholders of Resources and (ii) the aggregate amount of Hybrid Preferred Securities of Resources, except that for purposes of calculating Consolidated Capitalization of Resources, Consolidated Indebtedness of Resources shall exclude Non-Recourse Indebtedness of Resources and Consolidated Capitalization of Resources shall exclude that portion of shareholder equity attributable to assets securing Non-Recourse Indebtedness of Resources. "Consolidated Indebtedness of PPL" shall mean the consolidated Indebtedness of PPL (determined in accordance with GAAP), except that for purposes of this definition (1) Consolidated Indebtedness of PPL shall exclude Non-Recourse Indebtedness of PPL and (2) Consolidated Indebtedness of PPL shall exclude any Hybrid Preferred Securities of PPL. "Consolidated Indebtedness of Resources" shall mean the consolidated Indebtedness of Resources (determined in accordance with GAAP), except that for purposes of this definition (1) Consolidated Indebtedness of Resources shall exclude Non-Recourse Indebtedness of Resources and (2) Consolidated Indebtedness of Resources shall exclude any Hybrid Preferred Securities of Resources. "Credit Exposure", for each Bank at any time, shall mean the aggregate principal amount at such time of all outstanding Loans of such Bank to the Borrowers plus the aggregate amount at such time of such Bank's L/C Exposure. "Default" with respect to a Borrower, shall mean any event, act or condition which with notice or lapse of time or both would constitute an Event of Default with respect to that Borrower. "Eligible Transferee" shall mean and include a commercial bank, financial institution or other "accredited investor" (as defined in SEC Regulation D). "Eurodollar Lending Office" shall mean, with respect to each Bank, the office of such Bank specified as its "Eurodollar Lending Office" on the signature pages to the Agreement or such other office of such Bank as such Bank may from time to time specify as such to the Borrowers and the Agent. "Eurodollar Loan" shall mean any loan during any period during which such Loan is bearing interest at the rates provided for in Section 2.1(b). "Event of Default" shall mean with respect to PPL each of the Events of Default specified in Section 6A and with respect to Finance Co., each of the Events of Default specified in Section 6B. "Expiry Date" shall mean the date 364 days from the date hereof subject to extension pursuant to Section 2.6. "Extension Letter" shall mean a letter from the Borrowers requesting an extension of the Expiry Date substantially in the form of Exhibit C hereto. "Federal Funds Rate" shall mean for any day, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal Funds brokers of recognized standing selected by the Agent. "Finance Co." shall have the meaning assigned that term in the first paragraph of this Agreement. "Finance Co. Obligations" shall mean all obligations of Finance Co. under this Agreement to pay (i) the principal of and interest on the Loans and LC Disbursements when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, and (ii) all other payment obligations of Finance Co. hereunder. "First Mortgagee Bonds" shall mean the first mortgage bonds issued by PPL pursuant to its Mortgage and Deed of Trust dated as of October 1, 1945, as supplemented. "GAAP" shall mean United States generally accepted accounting principles applied on a consistent basis. "Guarantee" of or by any person shall mean any obligation, contingent or otherwise, of such person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for payment of such Indebtedness, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness or (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness; provided, however, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "Hybrid Preferred Securities of PPL" means (1) the preferred securities and subordinated debt described in the Prospectus dated as of April 3, 1997 of PP&L Capital Trust and PPL and the preferred securities and subordinated debt described in the Prospectus dated as of June 9, 1997 of PP&L Capital Trust II and PPL (collectively, the "Existing TOPrS") and (2) any additional preferred securities and subordinated debt (with a maturity of at least twenty years) similar to the Existing TOPrS and in an aggregate amount not to exceed $100,000,000, issued by business trusts, limited liability companies, limited partnerships (or similar entities) (i) all of the common equity, general partner or similar interests of which are owned (either directly or indirectly through one or more wholly-owned Subsidiaries) at all times by PPL, (ii) that have been formed for the purpose of issuing hybrid preferred securities and (iii) substantially all the assets of which consist of (A) subordinated debt of PPL or a Subsidiary of PPL, as the case may be, and (B) payments made from time to time on the subordinated debt. "Hybrid Preferred Securities of Resources" means (1) the preferred securities and subordinated debt described in the Prospectus dated as of April 3, 1997 of PP&L Capital Trust and PPL and the preferred securities and subordinated debt described in the Prospectus dated as of June 9, 1997 of PP&L Capital Trust II and PPL (collectively, the "Existing TOPrS") and (2) any additional preferred securities and subordinated debt (with a maturity of at least twenty years) similar to the Existing TOPrS and in an aggregate amount not to exceed $100,000,000, issued by business trusts, limited liability companies, limited partnerships (or similar entities) (i) all of the common equity, general partner or similar interests of which are owned (either directly or indirectly through one or more wholly-owned Subsidiaries) at all times by Resources or PPL, (ii) that have been formed for the purpose of issuing hybrid preferred securities and (iii) substantially all the assets of which consist of (A) subordinated debt of Resources or a Subsidiary of Resources, as the case may be, and (B) payments made from time to time on the subordinated debt. "Indebtedness" of any person shall mean, without duplication, (a) all obligations of such person for borrowed money, (b) all obligations of such person with respect to deposits or advances of any kind, (c) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (d) all obligations of such person under conditional sale or other title retention agreements relating to property or assets purchased by such person, (e) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable and accrued obligations incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien or property owned or acquired by such person, whether or not the obligations secured thereby have been assumed but shall not include any obligations that are without recourse to such person, (g) all Guarantees by such person of Indebtedness of others, (h) all Capital Lease Obligations of such person, (i) all obligations of such person in respect of Interest Rate Protection Agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements (the amount of any such obligation to be the amount that would be payable upon the acceleration, termination or liquidation thereof) and (j) all obligations of such person as an account party in respect of letters of credit and bankers' acceptances. "Interest Period" shall mean (a) as to any Eurodollar Loan, the period commencing on the date of such Loan and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the applicable Borrower may elect in a Notice of Borrowing or Notice of Conversion and (b) as to any Base Rate Loan, the period commencing on the date of such Loan and ending on the date 90 days thereafter or, if earlier, on the Expiry Date or the date of prepayment of such Loan. If any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day, provided that if any Interest Period applicable to a Bor- rowing of Eurodollar Loans would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day. "Interest Rate Protection Agreement" shall mean any agreement providing for an interest rate swap, cap or collar, or for any other financial arrangement designed to protect against fluctuations in interest rates. "L/C Commitment" shall mean the commitment of the Fronting Bank to issue Letters of Credit pursuant to Section 1A. "L/C Disbursement" shall mean a payment or disbursement made by the Fronting Bank pursuant to a Letter of Credit. "L/C Exposure" shall mean at any time the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate principal amount of all L/C Disbursements that have not yet been reimbursed at such time. The L/C Exposure of any Bank at any time shall mean its Applicable Percentage of the aggregate L/C Exposure at such time. "L/C Participation Fee" shall have the meaning assigned to such term in Section 1.6(b). "Letter of Credit" shall mean any letter of credit issued pursuant to Section 1A. "Lien" shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vender or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan" shall have the meaning assigned that term in Section 1.1. "Loan Documents" shall have the meaning assigned that term in Section 8.1. "Moody's" shall mean Moody's Investors Service, Inc. or any successor thereto. "Non-Recourse Indebtedness of PPL" shall mean indebtedness that is nonrecourse to PPL or any of its Subsidiaries. "Non-Recourse Indebtedness of Resources" shall mean indebtedness that is nonrecourse to Resources, either Borrower or any of PPL's Subsidiaries. "Notice of Borrowing" shall have the meaning assigned that term in Section 1.2. "Notice of Conversion" shall have the meaning assigned that term in Section 2.4(a). "Payment Office" shall mean the office of the Agent located at 270 Park Avenue, New York, New York 10017, or such other office as the Agent may hereafter designate in writing as such to the other parties hereto. "Permitted Liens" shall mean (a) Liens for taxes, assessments or governmental charges or levies to the extent not past due, or which are being contested in good faith in appropriate proceedings for which Resources has provided appropriate reserves for the payment thereof in accordance with GAAP; (b) pledges or deposits in the ordinary course of business to secure obligations under worker's compensation laws or similar legislation; (c) other pledges or deposits in the ordinary course of business (other than for borrowed monies) that, in the aggregate, are not material to Resources; (d) Liens imposed by law such as materialmen's, mechanics', carriers', workers' and repairmen's Liens and other similar Liens arising in the ordinary course of business for sums not yet due or currently being contested in good faith by appropriate proceedings; (e) attachment, judgment or other similar Liens arising in connection with court proceedings, provided that such Liens, in the aggregate, shall not exceed $50,000,000 at any one time outstanding, and (f) other Liens not otherwise referred to in the foregoing clauses (a) through (e) above, provided that such other Liens do not secure at any time obligations in an aggregate amount in excess of $100,000,000 at any time outstanding. "Persons" shall mean and include any individual, firm, corporation, association, trust or other enterprise or any governmental or political subdivision or agency, department or instrument thereof. "PPL" shall have the meaning assigned that term in the first paragraph of this Agreement. "Prime Rate" shall mean the rate which The Chase Manhattan Bank announces from time to time as its prime lending rate, such Prime Rate to change when and as such prime lending rate changes. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. The Chase Manhattan Bank may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. "Quoted Rate" shall mean, with respect to any Eurodollar Loan for any Interest Period, the average rate (rounded upwards to the nearest 1/16 of 1%) at which dollar deposits approximately equal in principal amount to the Agent's portion of such Eurodollar Loan and for a maturity comparable to such Interest Period are offered to the principal London office of the Reference Banks in immediately available funds in the London interbank market at approximately 11:00 A.M. (London time) 2 Business Days prior to the commencement of such Interest Period, without any addition to such offered quotation to give effect to the reserve requirements established for Eurodollar transactions by Regulation D. Each Reference Bank shall use its best efforts to furnish rates to the Agent as contemplated hereby. If any one of the Reference Banks shall be unable or otherwise fail to supply such rates to the Agent upon its request, the applicable rate shall be determined on the basis of the rates submitted by the remaining two Reference Banks. If more than one Reference Bank shall be unable or otherwise fail to supply such rates, there shall be no applicable rate. "Reference Banks" shall mean The Chase Manhattan Bank, Citibank, N.A. and Morgan Guaranty Trust Company. "Register" shall have the meaning provided in 1.4(b). "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect or any successor to all or a portion thereof establishing reserve requirements. "Required Banks" shall mean Banks having Loans the outstanding principal amount of which aggregate (or, if no Loans are outstanding, Banks with Commitments aggregating) at least the majority of the aggregate outstanding principal amount of all Loans (or of the Total Commitment). "Resources" shall have the meaning assigned that term in the first paragraph of this Agreement. "SEC" shall have the meaning assigned that term in Section 5.1(c). "SEC Regulation D" shall mean Regulation D as promulgated under the Securities Act of 1933, as amended, as the same may be in effect from time to time." "S&P" shall mean Standard & Poor's Ratings Group or any successor thereto. "Subsidiary" shall mean any company, partnership, association or other business entity in which any Person and its Subsidiaries now have or may hereafter acquire an aggregate of at least 50% of the voting stock or ownership interests. "Taxes" shall have the meaning assigned that term in Section 3.4. "Total Commitment" shall mean the aggregate of all the Commitments of all the Banks. "Type" shall mean any type of Loan, i.e., whether a Loan is a Base Rate Loan or a Eurodollar Loan. "Unaffected Bank" shall have the meaning assigned that term in Section 2.5(c). "written" or "in writing" shall mean any form of written communication or a communication by means of telex, telecopier device, telegraph or cable. 10.2 Accounting Principles. All statements to be prepared and determinations to be made under this Agreement, including (without limitation) those pursuant to Section 5, shall be prepared and made in accordance with generally accepted accounting principles applied on a basis consistent with the accounting principles reflected in the audited financial statements of PPL and Resources for the fiscal year ended December 31, 1996, referred to in Section 7.4, except for changes in accounting principles consistent with GAAP. 10.3 Exercise of Rights. Neither the failure nor delay on the part of any of the Banks or the Fronting Bank to exercise any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Banks would otherwise have. No notice to or demand on PPL, Finance Co. or Resources in any case shall entitle PPL, Finance Co. or Resources, as applicable, to any other or further notice or demand in similar or other circumstances or constitute a waiver of the right of the Banks or the Fronting Bank to any other or further action in any circumstances without notice or demand. 10.4 Amendment and Waiver. Neither this Agreement nor any other Loan Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by PPL, Finance Co. and Resources, and the Required Banks, provided that no such change, waiver, discharge or termination shall, without the consent of each Bank directly affected thereby, (i) extend the final scheduled maturity of any Loan (except as provided for in Section 2.6), or reduce the rate or extend the time of payment of interest or Commitment Fees thereon (except in connection with a waiver of the applicability of any post- default increase in interest rates), or reduce the principal amount thereof (except to the extent repaid in cash), (ii) amend, modify or waive any provision of this Section 10.4, (iii) reduce the percentage specified in the definition of Required Banks or (iv) consent to the assignment or transfer by PPL, Finance Co. or Resources of any of its rights and obligations under this Agreement or the release of Resources from its guarantee hereunder; provided further, that no such change, waiver, discharge or termination shall (x) increase the Commitments of any Bank over the amount thereof then in effect without the consent of such Bank (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or Events of Default shall not constitute an increase of the Commitment of any Bank) or (y) without the consent of the Agent, amend, modify or waive any provision of Section 8 as such Section applies to such Agent or any other provision as such Section relates to the rights or obligations of such Agent. 10.5 Expenses; Indemnification. (a) The Borrowers agree to pay all reasonable out-of-pocket expenses (i) of the Agent and the Fronting Bank incurred in connection with the preparation, execution, delivery, enforcement and administration (exclusive of any internal overhead expenses) of this Agreement and any and all agreements supplementary hereto and the making and repayment of the Loans, the issuance of the Letters of Credit and the payment of interest, including, without limitation, the reasonable fees and expenses of Cravath, Swaine & Moore, counsel for the Agent and (ii) of the Agent, the Fronting Bank and each Bank incurred in connection with the enforcement of this Agreement, including, without limitation, the reasonable fees and expenses of any counsel for any of the Banks with respect to such enforcement; provided that none of the Borrowers or Resources shall be liable for any fees, charges or disbursements of any counsel for the Banks or the Agent other than Cravath, Swaine & Moore associated with the preparation, execution and delivery of this Agreement and the closing documentation contemplated hereby. (b) The Borrowers further agree to pay, and to save the Agent, the Fronting Bank and the Banks harmless from all liability for, any stamp or other documentary taxes which may be payable in connection with the Borrowers' execution or delivery of this Agreement, their borrowings hereunder or Letters of Credit, or the issuance of any notes or of any other instruments or documents provided for herein or delivered or to be delivered by each of them hereunder or in connection herewith. (c) The Borrowers agree to indemnify the Agent, the Fronting Bank and each Bank and each of their respective affiliates, directors, officers and employees (each such person being called an "Indemnitee") against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not the Agent, the Fronting Bank or any Bank is a party thereto) which any of them may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby, the direct or indirect application or proposed application of the proceeds of any Loan hereunder or the issuance of Letters of Credit; provided that such indemnification shall not extend to disputes solely among the Agent, the Fronting Bank and the Banks; and provided further that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee. (d) All obligations provided for in this Section 10.5 shall survive any termination of this Agreement or the resignation, withdrawal or removal of any Bank. 10.6 Successors and Assigns. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that none of PPL, Finance Co. or Resources may assign or transfer any of its interests hereunder, except to the extent any such assignment results from the consummation of a transaction permitted under Section 5.2, without the prior written consent of the Banks and provided further that the right of each Bank to transfer, assign or grant participations in its rights and/or obligations hereunder shall be limited as set forth below in this Section 10.6, provided that nothing in this Section 10.6 shall prevent or prohibit any Bank from pledging its rights under this Agreement and/or its Loans hereunder to a Federal Reserve Bank in support of borrowings made by such Bank from such Federal Reserve Bank. In order to facilitate such an assignment to a Federal Reserve Bank, the Borrowers shall, at the request of the assigning Bank, duly execute and deliver to the assigning Bank a promissory note evidencing its Commitment or Loans made by the assigning Bank hereunder. (b) Each Bank shall have the right to transfer, assign or grant participations in all or any part of its remaining rights and obligations hereunder on the basis set forth below in this clause (b). (A) Assignments. Each Bank may assign all or a portion of its rights and obligations hereunder pursuant to this clause (b)(A) to (x) one or more Banks or any affiliates of any Bank or (y) one or more other Eligible Transferees, provided that (i) any such assignment pursuant to clause (y) above shall be in the aggregate amount of at least $5,000,000, (ii) after giving effect to any such assignment pursuant to clause (x) or (y) above, no Bank shall have a Commitment of less than $5,000,000 unless such Bank's Commitment is reduced to zero pursuant to such assignment, (iii) the assigning Bank shall not assign any of its rights and obligations under this Agreement without assigning the same percentage of its rights and obligations under the 5-Year Agreement, provided that no Banks shall be required to make an assignment under the 5-Year Agreement with respect to assignments made pursuant to Section 2.6 hereunder, (iv) any assignment pursuant to clause (y) shall require the consent of the Borrowers, which consent shall not be unreasonably withheld, and provided further, that, so long as no Loans or interest thereon shall be outstanding and no Default or Event of Default shall have occurred with respect to PPL, Finance Co. or Resources and then be continuing, the Borrowers may at their option terminate the portion of such assigning Bank's Commitment proposed to be assigned pursuant to clause (y) above in lieu of consenting to such assignment, and the Total Commitment shall be reduced in the amount of such termination. Assignments or terminations of all or any portion of any Bank's Commitment pursuant to this clause (b)(A) will only be effective if the Agent shall have received a written notice from the assigning Bank and the assignee, or, in the case of a termination, the Borrowers, and, in the case of an assignment, payment of a nonrefundable assignment fee of $2,500 to the Agent by either the assigning Bank or the assignee. No later than five Business Days after its receipt of any written notice of assignment or termination, the Agent will record such assignment or termination, and the resultant effects thereof on the Commitment of the assigning or terminating Bank and, in the case of an assignment, the assignee, in the Register, at which time such assignment or termination shall become effective, provided that the Agent shall not be required to, and shall not, so record any assignment or termination in the Register on or after the date on which any proposed amendment, modification or supplement in respect of this Agreement has been circulated to the Banks for approval until the earlier of (x) the effectiveness of such amendment, modification or supplement in accordance with Section 10.4 or (y) 30 days following the date on which such proposed amendment, modification or supplement was circulated to the Banks. Upon the effectiveness of any assignment or termination pursuant to this clause (b)(A), (x) the assignee, in the case of an assignment, will become a "Bank" for all purposes of this Agreement and the other Loan Documents with a Commitment as so recorded by the Agent in the Register, and to the extent of such assignment or termination, the assigning or terminating Bank shall be relieved of its obligations hereunder with respect to the portion of its Commitment being assigned or terminated. (B) Participations. Each Bank may transfer, grant or assign participations in all or any part of such Bank's interests and obligations hereunder pursuant to this clause (b)(B) to any Eligible Transferee, provided that (i) such Bank shall remain a "Bank" for all purposes of this Agreement and the transferee of such participation shall not constitute a Bank hereunder and (ii) no participant under any such participation shall have any rights under the Agreement or other Loan Document or any rights to approve any amendment to or waiver of this Agreement or any other Loan Document except to the extent such amendment or waiver would (x) extend the final scheduled maturity of any of the Loans or the Commitment in which such participant is participating, (y) reduce the interest rate (other than as a result of waiving the applicability of any post-default increases in interest rates) or Commitment Fee or other fees applicable to any of the Loans or Commitments in which such participant is participating or postpone the payment of any thereof or reduce the principal amount of any Loan (except to the extent repaid in cash) or (z) release Resources from its obligations as a guarantor hereunder. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Loan Documents (the participant's rights against the granting Bank in respect of such participation to be those set forth in the agreement with such Bank creating such participation) and all amounts payable by each of the Borrowers hereunder shall be determined as if such Bank had not sold such participation, provided that such participant shall be entitled to receive additional amounts under Sections 1.8 and 2.5 on the same basis as if it were a Bank but in no case shall be entitled to any amount greater than would have been payable had the Bank not sold such participations. (c) Each Bank hereby represents, and each Person that becomes a Bank pursuant to an assignment permitted by the preceding clause (b)(A) will upon its becoming party to this Agreement represent, that it is an Eligible Transferee which makes loans in the ordinary course of its business and that it will make or acquire Loans for its own account in the ordinary course of such business, provided that, subject to the preceding clauses (a) and (b), the disposition of any promissory notes or other evidences of or interests in Loans held by such Bank shall at all times be within its exclusive control. 10.7 Notices, Requests, Demands. All notices, requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been given or made (i) in the case of notice by mail, when actually received, and (ii) in the case of telecopier notice sent over a telecopier machine owned or operated by a party hereto, when sent, in each case addressed to the party or parties to which such notice is given at their respective addresses shown below their signatures hereto or at such other address as such party may hereafter specify in writing to the others. No other method of giving notice is hereby precluded. 10.8 Survival of Representations and Warranties. All representations and warranties contained herein or otherwise made in writing by PPL, Finance Co. or Resources in connection herewith shall survive the execution and delivery of this Agreement. 10.9 Governing Law. This Agreement and the rights and obligations of the parties under this Agreement (other than as relates to Letters of Credit) shall be governed by and construed and interpreted in accordance with the laws of the State of New York. Each Letter of Credit shall be governed by, and construed and interpreted in accordance with the laws or rules designated in such Letter of Credit, or if no such laws or rules are designated, the Uniform Customs and Practice for Documentary Credits (1993 revision), International Chamber of Commerce, publication no. 500 (the "Uniform Customs") and, as to matters not governed by the Uniform Customs, the laws of the State of New York. 10.10 Counterparts. This Agreement may be executed in any number of copies, and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instrument. Complete counterparts of this Agreement shall be lodged with each Borrower, Resources and the Agent. 10.11 Effectiveness. This Agreement shall become effective on the Closing Date. 10.12 Transfer of Office. (a) Each Bank may transfer and carry its Loans at, to or for the account of any branch office, subsidiary or affiliate of such Bank; provided that such Bank shall continue to bear all of its obligations under this Agreement; and provided further that the Borrowers shall not be responsible for costs arising under Sections 1.8, 2.5 or 3.4 resulting from any such transfer to the extent not otherwise applicable to such Bank prior to such transfer. (b) Upon a Bank becoming aware of any event which will entitle it to any additional amount pursuant to Section 2.5(a) or Section 3.4, such Bank shall take all reasonable steps (including but not limited to making, maintaining or funding the affected Loan through another office of such Bank) to avoid or reduce the additional amount payable by the applicable Borrower; provided that, such steps will not result in any additional costs, liabilities or expenses (not reimbursable by the applicable Borrower) to such Bank and are not otherwise inconsistent with the interests of such Bank determined in good faith. 10.13 Proration of Payments. The Banks agree among themselves that, with respect to all amounts received by them which are applicable to the payment of principal of or interest on the Loans, equitable adjustment will be made so that, in effect, all such amounts will be shared ratably among the Banks on the basis of the amounts then owed each of them in respect of such obligation, whether received by voluntary payment, by realization upon security, by the exercise of any right of set- off or bankers' lien, by counterclaim or cross action, under or pursuant to this Agreement or otherwise. Each of the Banks agrees that if it should receive any payment on its Loans of a sum or sums in excess of its pro rata portion (other than as expressly contemplated by Section 2.6(ii)), then the Bank receiving such excess payment shall purchase for cash from the other Banks an interest in the Loans of such Banks in such amount as shall result in a ratable participation by each of the Banks in the aggregate unpaid amount of all outstanding Loans then held by all of the Banks. If all or any portion of such excess payment is thereafter recovered from such Bank, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. The Borrowers agree that any Bank so purchasing a participation from another Bank pursuant to this Section 10.13 may exercise all its rights with respect to such participation as fully as if such Bank were the direct creditor of the Borrowers in the amount of such participation. 10.14 Jurisdiction; Consent to Service of Process. (a) Each of PPL, Finance Co. and Resources hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Agent, the Fronting Bank or any Bank may otherwise have to bring any action or proceeding relating to this Agreement against any of PPL, Finance Co., Resources or its properties in the courts of any jurisdiction. (b) Each of PPL, Finance Co. and Resources hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (a) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 10.7. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. 10.15 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. 10.16 Headings Descriptive. The headings of the various provisions of this Agreement are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. PP&L, INC., By /s/ John R. Biggar Name: Title: Vice President Finance PP&L CAPITAL FUNDING, INC., By /s/ R.E. Hill Name: Title: President PP&L RESOURCES, INC., By /s/ James E. Abel Name: Title: Treasurer THE CHASE MANHATTAN BANK, Individually and as Agent and Fronting Bank By /s/ Thomas Kozlark Name: Title: Vice President CITIBANK, N.A. By /s/ Robert J. Harrity, Jr. Name: Title: Managing Director THE BANK OF NEW YORK By /s/ John N. Watt Name: Title: Vice President THE BANK OF NOVA SCOTIA By /s/ J. Alan Edwards Name: Title: Authorized Signatory CORESTATES BANK, N.A. By /s/ Anthony D. Braxton Name: Title: Vice President CREDIT SUISSE FIRST BOSTON By /s/ J. Scott Karro Name: Title: Associate By /s/ Eric J. Eckholdt Name: Title: Associate DEUTSCHE BANK AG, NEW YORK BRANCH and/or CAYMAN ISLANDS BRANCH By /s/ Gabrielle C. Upton Name: Title: Assistant Vice President By /s/ Steven A. Cohen Name: Title: Vice President THE FIRST NATIONAL BANK OF CHICAGO By /s/ Kenneth J. Bauer Name: Title: Authorized Agent FIRST UNION NATIONAL BANK By /s/ Michael J. Kolosowsky Name: Title: Vice President FUJI BANK LIMITED By /s/ Toshiaki Yakura Name: Title: Senior Vice President MORGAN GUARANTY TRUST COMPANY By /s/ Philip S. Detjens Name: Title: Vice President MELLON BANK, N.A. By /s/ A. Gary Chace Name: Title: Senior Vice President NATIONSBANK, N.A. By /s/ Gretchen P. Burud Name: Title: Vice President TORONTO DOMINION (TEXAS), INC. By /s/ Darlene Riedel Name: Title: Vice President Bank Address Schedule Name of Bank and Address Phone Number(s) Fax Number(s) The Chase Manhattan Bank Attn: Jaimin Patel 270 Park Avenue New York, NY 10017 (212) 270-1354 (212) 270-2101 The Bank of New York Attn: John Watt One Wall Street New York, NY 10286 (212) 635-7533 (212) 635-7533 The Bank of Nova Scotia Attn: Phil Adsetts One Liberty Plaza 26th Floor New York, NY 10006 (212) 225-5010 (212) 225-5090 Citibank, N.A. Attn: Phil Kron Jean Chastain 399 Park Avenue 9th Floor New York, NY 10043 (212) 559-1500 (212) 793-6130 Corestates Bank, N.A. Attn: Anthony Braxton Jon Peterson Widener Bldg. (215) 786-4353 (215) 786-7721 1339 Chestnut Street (215) 786-7799 (215) 786-7704 Philadelphia, PA 19101-7618 Credit Suisse First Boston Attn: James Moran 11 Madison Avenue 20th Floor New York, NY 10010 (212) 325-9176 (212) 325-8314 Deutsche Bank AG Attn: Gabrielle Upton Rosemary Kelley 31 West 52nd Street 24th Floor (212) 469-7368 (212) 469-4638 New York, NY 10019 (212) 469-8677 The First National Bank of Chicago Attn: Kenneth Bauer Madeleine Pember One First National Plaza Suite 0360 (312) 732-6282 (312) 732-3055 Chicago, IL 60670 (312) 732-9727 First Union National Bank Attn: Brian Tate 301 South College Street 5th Floor Charlotte, NC 28288-0735 (704) 383-0510 (704) 383-6670 Fuji Bank Limited Attn: Michael Gebauer Mark Olson Two World Trade Center (212) 898-2064 (212) 321-9407 New York, NY 10048 (212) 898-2066 Morgan Guaranty Trust Company Attn: Philip Detjens 60 Wall Street New York, NY 10005 (212) 648-8454 (212) 648-5014 Mellon Bank, N.A. Attn: Mary Ellen Usher A. Gary Chace 1 Mellon Bank Center Suite 4425 (412) 236-1203 (412) 236-1840 Pittsburgh, PA 15258-0001 (412) 236-2786 NationsBank, N.A. Attn: Brenda Tate Andrew Hemsley 100 North Tyron Street 8th Floor (704) 386-1644 (704) 386-1270 Charlotte, NC 28255 (704) 386-0710 Toronto Dominion (Texas), Inc. Attn: Katherine Lucey 31 West 52nd Street New York, NY 10019-6101 (212) 468-0785 (212) 262-1929 SCHEDULE I BANK COMMITMENT THE CHASE MANHATTAN BANK ...................... $15,000,000 CITIBANK, N.A. ................................ $15,000,000 THE BANK OF NEW YORK .......................... $10,000,000 THE BANK OF NOVA SCOTIA ....................... $10,000,000 CORESTATES BANK, N.A. ......................... $10,000,000 CREDIT SUISSE FIRST BOSTON .................... $10,000,000 DEUTSCHE BANK AG .............................. $10,000,000 THE FIRST NATIONAL BANK OF CHICAGO ............ $10,000,000 FIRST UNION NATIONAL BANK ..................... $10,000,000 FUJI BANK LIMITED. ............................ $10,000,000 MORGAN GUARANTY TRUST COMPANY ................. $10,000,000 MELLON BANK, N.A. ............................. $10,000,000 NATIONSBANK, N.A. ............................. $10,000,000 TORONTO DOMINION (TEXAS), INC. ................ $10,000,000 TOTAL COMMITMENT ...... $150,000,000 EXHIBIT A OPINION OF GENERAL COUNSEL OR SENIOR COUNSEL FOR PPL, FINANCE CO. AND RESOURCES The opinion of Counsel for PPL, Finance Co. and Resources, referred to in Section 4.1(b) of the 364-Day Revolving Credit Agreement among PPL, Finance Co., Resources, as guarantor of the obligations of Finance Co., the banks from time to time party thereto and The Chase Manhattan Bank, as fronting bank, collateral agent and as agent for the banks thereto and the 5-Year Revolving Credit Agreement among PPL, Finance Co., Resources, as guarantor of the obligations of Finance Co., the banks from time to time party thereto and The Chase Manhattan Bank, as fronting bank, collateral agent and as agent for the banks thereto (each individually an "Agreement" and together, the "Agreements") shall be to the effect that (terms used herein shall have the meanings specified therefor in the Agreements): 1. Each of PPL and Resources is duly incorporated, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania and each of PPL and Finance Co. has the corporate power to make and perform the Agreements and to borrow under the Agreements and Resources has the corporate power to guarantee the obligations of Finance Co. under the Agreements. 2. The making and performance by each of PPL and Finance Co. of the Agreements, and the guarantee by Resources of the obligations of Finance Co. under the Agreements have been duly authorized by all necessary corporate action and do not and will not violate any provision of law or regulation, or any decree, order, writ or judgment, or any provision of its charter or by-laws, or result in the breach of or constitute a default under any indenture or other agreement or instrument known to such counsel to which any of them is a party. 3. The Agreements constitute the legal, valid and binding obligations of PPL, Finance Co. and Resources enforceable in accordance with their respective terms except to the extent limited by bankruptcy, insolvency or reorganization laws or by other laws relating to or affecting the enforceability of creditors' rights generally and by general equitable principles. 4. Except as disclosed in or contemplated by PPL's or Resources' Form 10-K Report to the Securities and Exchange Commission for the year 1996, no litigation, arbitration or administrative proceeding is pending or, to the knowledge of such counsel, threatened, which, if determined adversely to PPL or Resources, would materially and adversely affect the ability of PPL or Resources to perform any of its obligations under the Agreements. There is no litigation, arbitration or administrative proceeding pending or, to the knowledge of such counsel, threatened which questions the validity of the Agreements. 5. Neither PPL nor Finance Co. is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System. 6. There have not been any "reportable events," as that term is defined in Section 4043 of the Employee Retirement Income Security Act of 1974, as amended, which would result in a material liability of PPL or Resources. 7. No authorization, consent or approval from governmental bodies or regulatory authorities is required for the making and performance of the Agreement by PPL, Finance Co. or Resources or by PPL or Finance Co. for the borrowings thereunder, except such authorizations, consents and approvals as have been obtained prior to the making of any Loans and are in full force and effect, all of which are listed on Annex I hereto. EXHIBIT B To Each of the Banks party to the Revolving Credit Agreements referred to below, and The Chase Manhattan Bank, as Fronting Bank, as Collateral Agent and as Agent for such Banks Re: $150,000,000 364-Day Revolving Credit Agreement $300,000,000 5-Year Revolving Credit Agreement Dear Ladies and Gentlemen: We have acted as Counsel to PP&L, Inc. ("PPL"), PP&L Capital Funding, Inc. ("Finance Co.") and PP&L Resources, Inc. (individually "Resources" and collectively with PPL and Finance Co, the "Loan Parties") in connection with the 364- Day Revolving Credit Agreement dated November [ ], 1997 among the Loan Parties, the Banks listed on Schedule I thereto, and you as Fronting Bank, as Collateral Agent and as Agent for such Banks and the 5-Year Revolving Credit Agreement dated November [ ], 1997 among the Loan Parties, the Banks listed on Schedule I thereto, and you as Fronting Bank, as Collateral Agent and as Agent for such Banks (individually each an "Agreement" and collectively, the "Agreements"). We are familiar with the Agreements and the other documents executed and delivered by the Loan Parties in connection with the Agreements. We have also examined such other documents and satisfied ourselves as to such other matters as we have deemed necessary in order to render this opinion. Based on the foregoing, we are of the opinion that Finance Co. is duly incorporated, validly existing and in good standing under the laws of Delaware and Finance Co. has the corporate power to make and perform the Agreements and to borrower under the Agreements. We are also of the opinion that the Agreements constitute the legal, valid and binding obligations of the Loan Parties enforceable in accordance with their terms except to the extent limited by bankruptcy, insolvency or reorganization laws or by other laws relating to or affective the enforceability of creditors' rights generally and by general equitable principles. We are members of the New York Bar and do not hold ourselves out as experts on the laws of the Commonwealth of Pennsylvania. Insofar as the opinions set forth herein are affected by the laws of the Commonwealth of Pennsylvania, we have relied upon the opinion of even date herewith addressed to you by [ ]. In rendering his opinion, [ ] is hereby authorized to rely on this opinion as to matters of New York law addressed herein as if it were addressed to him. This opinion is not being delivered for the benefit of, nor may it be relied upon by, any person to which it is not specifically addressed or to which reliance has not been expressly authorized in writing. Very truly yours, EXHIBIT C [Form of Extension Letter] [Date]1) The Chase Manhattan Bank 270 Park Avenue New York, NY 10017 Attention: The Chase Manhattan Bank, as Agent, as Fronting Bank and as Collateral Agent, and the Banks party to the Credit Agreement Re: Extension of Expiry Date Ladies and Gentlemen: Reference is hereby made to that certain 364-Day Revolving Credit Agreement (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement") dated as of November [ ], 1997, among PP&L, Inc. ("PPL"), PP&L Capital Funding, Inc. ("Finance Co.") and PP&L Resources, Inc. ("Resources"), the banks party thereto (the "Banks"), The Chase Manhattan Bank, as fronting bank, as collateral agent and as agent for the Banks. Terms used and not defined herein shall have the meaning assigned to such terms in the Credit Agreement. 1. Prior to giving effect to the extension referred to below, the Expiry Date is __________ (the "Current Expiry Date"). 2. PPL and Finance Co. hereby request that the Expiry Date be extended to _________.2) ____________________ 1) This Letter shall be delivered to the Agent not less than 30 and not more than 45 days prior to the Current Expiry Date. 2) Such date shall be 364 days after the Current Expiry Date. 3. Pursuant to Section 2.6 of the Credit Agreement, such extension of the Current Expiry Date shall become effective on the 20th day prior to the Current Expiry Date if (and only if) Banks holding Commitments that aggregate at least 51% of the Total Commitment on such date shall have agreed to such extension as evidenced by their signatures below. This letter may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one instrument. The delivery by telecopy of an executed counterpart hereof shall be effective as delivery of an original manually executed counterpart. Very truly yours, PP&L, Inc. PP&L Capital Funding, Inc. By: By: ______________________ ______________________ ______________________ ______________________ Name: Name: Title: Title: Exhibit C Page 3 PP&L Resources, Inc. By: ______________________ ______________________ Name: Title: Acknowledged and agreed to as of the date noted above: THE CHASE MANHATTAN BANK, individually and as [BANK] Agent, Collateral Agent and Fronting Bank, By: By: ______________________ ______________________ ______________________ ______________________ Name: Name: Title: Title: EX-10 7 CONFORMED COPY ___________________________________________________________ PP&L, INC. PP&L CAPITAL FUNDING, INC., as Borrowers PP&L RESOURCES, INC., as Guarantor of the obligations of PP&L Capital Funding, Inc. $300,000,000 5-YEAR REVOLVING CREDIT AGREEMENT _________________ Dated as of November 20, 1997 ___________________________________________________________ [CS&M #6700-601] TABLE OF CONTENTS Page SECTION 1. Amounts and Terms of Loans ............ 1 1.1 Commitments ........................... 1 1.2 Notices of Borrowing .................. 2 1.3 Disbursement of Funds ................. 2 1.4 Repayment of Loans; Evidence of Debt .................................. 3 1.5 Special Payment Provisions ............ 4 1.6 Fees .................................. 5 1.7 Reductions in Total Commitments ....... 5 1.8 Compensation .......................... 6 SECTION 1A. Letters of Credit ..................... 6 SECTION 2. Interest .............................. 11 2.1 Rates of Interest ..................... 11 2.2 Determination of Rate of Borrowing .... 12 2.3 Interest Payment Dates ................ 12 2.4 Conversions; Interest Periods ......... 12 2.5 Increased Costs, Illegality, Etc. ..... 14 SECTION 3. Payments .............................. 18 3.1 Payments on Non-Business Days ......... 18 3.2 Voluntary Prepayments ................. 18 3.3 Method and Place of Payment, Etc. ..... 19 3.4 Net Payments .......................... 20 SECTION 4. Conditions Precedent .................. 20 4.1 Conditions to Effectiveness ........... 20 4.2A Conditions to Each Loan to PPL and Each Issuance of Letter of Credit on behalf of PPL ......................... 22 4.2B Conditions to Each Loan to Finance Co. and Each Issuance of a Letter of Credit on behalf of Finance Co. ....... 23 SECTION 5.A Covenants of PPL ...................... 24 5.1A Financial Statements .................. 24 5.2A Mergers ............................... 25 5.3A Ratings ............................... 26 5.4A Consolidated Indebtedness to Consolidated Capitalization ........... 26 SECTION 5.B Covenants of Finance Co. and Resources ............................. 26 5.1B Financial Statements .................. 26 5.2B Mergers ............................... 27 5.3B Ratings ............................... 28 5.4B Liens ................................. 28 5.5B Consolidated Indebtedness to Consolidated Capitalization ........... 28 SECTION 6.A Events of Default for PPL ............. 28 6.1A Representations, Etc. ................. 28 6.2A Principal and Interest ................ 29 6.3A Defaults by PPL Under Other Agreements. 29 6.4A Judgments ............................. 29 6.5A Bankruptcy, Etc. ...................... 29 6.6A Other Covenants ....................... 30 SECTION 6.B Events of Default for Finance Co. ..... 30 6.1B Representations, Etc. ................. 30 6.2B Principal and Interest ................ 30 6.3B Defaults by PPL, Finance Co. or Resources Under This Agreement or Other Agreements ...................... 30 6.4B Judgments ............................. 31 6.5B Bankruptcy, Etc. ...................... 31 6.6B Other Covenants ....................... 32 6.7B Events of Default With Respect to PPL ................................ 32 SECTION 7.A Representations and Warranties of PPL ................................... 33 7.1A Corporate Status ...................... 34 7.2A Authority; No Conflict ................ 34 7.3A Legality, Etc. ........................ 34 7.4A Financial Statements .................. 34 7.5A Litigation ............................ 34 7.6A No Violation .......................... 35 7.7A ERISA ................................. 35 7.8A Consents .............................. 35 7.9A Subsidiaries .......................... 35 7.10A Investment Company Act ............... 35 7.11A Public Utility Holding Company Act ... 35 7.12A Tax Returns .......................... 36 7.13A Compliance with Laws ................. 36 SECTION 7.B Representations and Warranties of Finance Co. and Resources ............. 36 7.1B Corporate Status ...................... 36 7.2B Authority; No Conflict ................ 36 7.3B Legality, Etc. ........................ 37 7.4B Financial Statements .................. 37 7.5B Litigation ............................ 37 7.6B No Violation .......................... 37 7.7B ERISA ................................. 38 7.8B Consents .............................. 38 7.9B Investment Company Act ................ 38 7.10B Public Utility Holding Company Act ... 38 7.11B Tax Returns .......................... 38 7.12B Compliance with Laws ................. 38 SECTION 8. Agent .................................. 39 8.1 Appointment ............................ 39 8.2 Nature of Duties ....................... 39 8.3 Rights, Exculpation, Etc. .............. 40 8.4 Reliance ............................... 40 8.5 Indemnification ........................ 41 8.6 The Agent, Individually ................ 41 8.7 Resignation by the Agent ............... 41 SECTION 9. Resources' Guarantee ................... 42 SECTION 10. Miscellaneous ......................... 44 10.1 Definitions ........................... 44 10.2 Accounting Principles ................. 56 10.3 Exercise of Rights .................... 56 10.4 Amendment and Waiver .................. 56 10.5 Expenses; Indemnification ............. 57 10.6 Successors and Assigns ................ 58 10.7 Notices, Requests, Demands ............ 61 10.8 Survival of Representations and Warranties ............................ 62 10.9 Governing Law ......................... 62 10.10 Counterparts ......................... 62 10.11 Effectiveness ........................ 62 10.12 Transfer of Office ................... 63 10.13 Proration of Payments ................ 63 10.14 Jurisdiction; Consent to Service of Process .............................. 64 10.15 WAIVER OF JURY TRIAL ................. 64 10.16 Headings Descriptive ................. 65 EXHIBIT A -- Form of Opinion of general counsel or senior counsel of PPLC, Finance Co. and Resources EXHIBIT B -- Form of Opinion of Reid & Priest LLP EXHIBIT D1 - Form of PPL Compliance Certificate EXHIBIT D2 - Form of Resources Compliance Certificate 5-YEAR REVOLVING CREDIT AGREEMENT, dated as of November 20, 1997, among PP&L, INC., a Pennsylvania corporation ("PPL"), and PP&L CAPITAL FUNDING, INC., a Delaware corporation ("Finance Co."), as Borrowers; PP&L RESOURCES, INC., a Pennsylvania corporation ("Resources"), as guarantor of the obligations of Finance Co. hereunder; the banks listed on Schedule I hereto (each a "Bank" and collectively the "Banks"); and THE CHASE MANHATTAN BANK, as fronting bank (in such capacity, the "Fronting Bank"), as collateral agent (in such capacity, the "Collateral Agent") and as Agent for the Banks to the extent and in the manner provided in Section 8 below (in such capacity, the "Agent") (all capitalized terms used herein shall have the meanings specified therefor in Section 10.1 unless otherwise defined herein). W I T N E S S E T H : WHEREAS, subject to and upon the terms and condi- tions set forth herein, the Banks are willing to make available to PPL and Finance Co. the credit facility herein provided for working capital and other general corporate purposes of the Borrowers, including investments in, or loans to, affiliates of the Borrowers; NOW, THEREFORE, it is agreed: SECTION 1. Amounts and Terms of Loans. 1.1 Commitments. Subject to and upon the terms and conditions herein set forth, each Bank severally and not jointly agrees, at any time and from time to time prior to the Expiry Date, to make a loan or loans (each a "Loan" and collectively for all Banks, the "Loans") to PPL or Finance Co., as requested by such Borrower, which Loans (i) shall at the option of PPL or Finance Co., as applicable, be initially maintained as Base Rate Loans or Eurodollar Loans, provided that all the Loans made by all the Banks at any one Borrowing to a Borrower hereunder must be either all Base Rate Loans or all Eurodollar Loans, (ii) may be repaid and borrowed in accordance with the provisions hereof and (iii) shall not exceed in aggregate principal amount at any time outstanding the difference between such Bank's Commitment and the L/C Exposure of such Bank at such time. 1.2 Notices of Borrowing. Whenever a Borrower desires to make a Borrowing hereunder, it shall give the Agent at the Payment Office (i) no later than 12:00 Noon (New York time) at least three Business Days' prior written notice or telephonic notice (confirmed in writing) of each Eurodollar Loan to be made hereunder and (ii) no later than 10:00 A.M. (New York time) on the date of such Borrowing written notice or telephonic notice (confirmed in writing) of each Base Rate Loan to be made hereunder. Each such notice (each a "Notice of Borrowing") shall state that the Borrowing is being made hereunder and shall specify the aggregate principal amount the applicable Borrower desires to borrow hereunder, the date of Borrowing (which shall be a Business Day), the Type of Loans to be made pursuant to such Borrowing and the Interest Period to be applicable thereto. The Agent shall promptly give each Bank tele- phonic notice (confirmed in writing) of the proposed Borrowing, of such Bank's proportionate share thereof and of the other matters covered by the Notice of Borrowing. Each Borrowing shall be in an integral multiple of $500,000 and not less than $10,000,000 and shall be made from each Bank in the proportion which its respective Commitment bears to the Total Commitment except as otherwise specifically provided in Section 2.5. The failure of any Bank to make any Loan required hereby shall not release any other Bank from its obligation to make Loans as provided herein. 1.3 Disbursement of Funds. (a) No later than 12:00 Noon (New York time) (or, in the case of Base Rate Loans, 2:00 P.M. (New York time)) on the date specified in each Notice of Borrowing each Bank will make available the amount of its pro rata portion of the Loans requested to be made on such date in U.S. dollars and in immediately available funds, to the Agent at the Payment Office. The Agent will make available to the applicable Borrower not later than 1:00 P.M. (New York time) (or, in the case of Base Rate Loans, 3:00 P.M. (New York time)) on such date at the Payment Office the aggregate of the amounts in immedi- ately available funds made available by the Banks against delivery to the Agent at the Payment Office, or at such other office as the Agent may specify, of the documents and papers provided for herein. The Agent shall deliver the documents and papers received by it for the account of each Bank to such Bank or upon its order. (b) If the Fronting Bank shall not have received from a Borrower the payment required to be made by such Borrower pursuant to Section 1A(e) within the time specified in such Section, the Fronting Bank will promptly notify the Agent of the L/C Disbursement and the Agent will promptly notify each Bank of such L/C Disbursement and its Applicable Percentage thereof. Not later than 2:00 P.M. (New York time) on such date (or, if such Bank shall have received such notice later than 12:00 Noon (New York time) on any day, no later than 10:00 A.M. (New York time) on the immediately following Business Day), each Bank will make available the amount of its Applicable Percentage of such L/C Disbursement (it being understood that such amount shall be deemed to constitute a Base Rate Loan of such Bank and such payment shall be deemed to have reduced the L/C Exposure) in immediately available funds, to the Agent at the Payment Office, and the Agent will promptly pay to the Fronting Bank amounts so received by it from the Banks. The Agent will promptly pay to the Fronting Bank any amounts received by it from such Borrower pursuant to Section 1A(e) prior to the time that any Bank makes any payment pursuant to this paragraph (b), and any such amounts received by the Agent thereafter will be promptly remitted by the Agent to the Banks that shall have made such payments and to the Fronting Bank, as their interests may appear. If any Bank shall not have made its Applicable Percentage of such L/C Disbursement available to the Agent as provided above, such Bank agrees to pay interest on such amount, for each day from and including the date such amount is required to be paid in accordance with this paragraph to but excluding the date such amount is paid, to the Agent for the account of the Fronting Bank at, for the first such day, the Federal Funds Rate, and for each day thereafter, the Base Rate. 1.4 Repayment of Loans; Evidence of Debt. (a) The outstanding principal balance of each Loan shall be payable by the Borrower to which such Loan was made on the Expiry Date. Each Loan shall bear interest from the date thereof on the outstanding principal balance thereof as set forth in Section 2.1. Each Bank shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness to such Bank resulting from each Loan made by such Bank from time to time to each Borrower, including the amounts of principal and interest payable and paid to such Bank from time to time under this Agreement. The Agent shall maintain the Register pursuant to Section 1.4(b), and a subaccount for each Bank and each Borrower, in which Register and subaccounts (taken together) shall be recorded (i) the amount of each Loan made hereunder, the Type of each Loan made and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the applicable Borrower to each Bank hereunder and (iii) the amount of any sum received by the Agent hereunder from each Borrower and each Bank's share thereof. The entries made in the Register and accounts maintained pursuant to this Section 1.4 shall be prima facie evidence of the existence and amounts of the obligations therein recorded; provided, however, that the failure of any Bank or the Agent to maintain such account, such Register or such subaccount, as applicable, or any error therein shall not in any manner affect the obligations of each Borrower to repay the Loans in accordance with their terms. The obligations of the Borrowers with respect to their respective Loans shall be several, not joint. (b) The Agent shall maintain at the Payment Office a register for the recordation of the names and addresses of the Banks, the Commitments of the Banks from time to time, and the principal amount of the Loans owing to each Bank from each Borrower from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error. The Register shall be available for inspection by each Borrower, the Agent or any Bank at any reasonable time and from time to time upon reasonable prior notice. 1.5 Special Payment Provisions. Unless the Agent shall have been notified by any Bank prior to any date of a Borrowing that such Bank does not intend to make available to the Agent such Bank's portion of the Loans to be made on such date, the Agent may assume that such Bank has made such amount available to the Agent on such date of a Borrowing and the Agent may, in reliance upon such assumption, make available to the applicable Borrower a corresponding amount. If such amount is not in fact made available to the Agent by such Bank, the Agent shall be entitled to recover such amount on demand from such Bank. If such Bank does not pay such amount forthwith upon the Agent's demand therefor, the Agent shall promptly notify the applicable Borrower and the applicable Borrower shall pay such amount to the Agent. The Agent shall also be entitled to recover from such Bank or the applicable Borrower, as the case may be, interest on such amount in respect of each day from the date such amount was made available by the Agent to the applicable Borrower to the date such amount is recovered by the Agent, at a rate per annum equal to (i) in the case of such Bank, the Federal Funds Rate and (ii) in the case of either Borrower, the applicable rate provided in Section 2.1 for the applicable Type of Loan. Nothing herein shall be deemed to relieve any Bank from its obligation to fulfill its Commitment hereunder or to prejudice any rights which the applicable Borrower may have against any Bank as a result of the failure of such Bank to perform its obligations hereunder. 1.6 Fees. (a) The Borrowers agree to pay to the Agent for pro rata distribution to each Bank a Commitment Fee (the "Commitment Fee"), for the period from the Closing Date until the Expiry Date (or such earlier date as the Total Commitment shall be terminated as to both Borrowers), on the average daily unused amount of the Commitments, computed at the Applicable Commitment Fee Percentage per annum computed on the basis of the number of days actually elapsed over a year of 365 or 366 days and payable quarterly in arrears on the last day of each calendar quarter and on the Expiry Date (or such earlier date as the Total Commitment shall be terminated as to both Borrowers). (b) Each Borrower agrees to pay to the Agent for pro rata distribution to each Bank a fee (an "L/C Participation Fee"), for the period from the Closing Date until the Expiry Date (or such earlier date as all Letters of Credit shall be canceled or expire and the Total Commitment shall be terminated as to both Borrowers), on that portion of the average daily L/C Exposure attributable to Letters of Credit issued for the account of such Borrower (excluding the portion thereof attributable to unreimbursed L/C Disbursements), at the rate per annum equal to the Applicable Eurodollar Margin from time to time in effect for such Borrower and payable quarterly in arrears on the last day of each calendar quarter and on the date on which the Total Commitment shall be terminated as provided herein. All L/C Participation Fees shall be computed on the basis of the number of days actually elapsed over a year of 365 or 366 days. 1.7 Reductions in Total Commitments. The Borrowers shall have the right, upon at least 3 Business Days' prior written notice to the Agent at the Payment Office (which notice the Agent shall promptly transmit to each of the Banks), to reduce permanently the Total Commitment, in an aggregate amount equal to an integral multiple of $1,000,000 and not less than $10,000,000, or to terminate the unutilized portion of the Total Commitment, provided that (i) any such reduction or termination shall apply proportionately to the Commitments of the Banks and (ii) no such termination or reduction shall be made that would reduce the Total Commitments to an amount less than the sum of the aggregate outstanding principal amount of Loans and the aggregate L/C Exposure. 1.8 Compensation. The applicable Borrower shall compensate each Bank, upon such Bank's written request given promptly after learning of the same, for all losses, expenses and liabilities (including, without limitation, any interest paid by such Bank to lenders of funds borrowed by it to make or carry its Eurodollar Loans and any loss sustained by such Bank in connection with the re-employment of such funds), which the Bank sustains: (i) if for any reason (other than a failure of such Bank to perform its obligations) a Borrowing of any Eurodollar Loan does not occur on a date specified therefor in a Notice of Borrowing or notice of conversion (whether or not withdrawn or canceled pursuant to Section 2.5 or otherwise), (ii) if any repayment or conversion (pursuant to Section 2.5 or otherwise) of any of its Eurodollar Loans occurs on a date which is not the last day of the Interest Period applicable thereto, or (iii) without duplication of any amounts paid pursuant to Section 2 hereof, as a consequence of any other default by such Borrower to repay its Eurodollar Loans when required by the terms of this Agreement. A certificate as to any amounts payable to any Bank under this Section 1.8 submitted to the applicable Borrower by such Bank shall show the amount payable and the calculations used to determine such amount and shall, absent manifest error, be final, conclusive and binding upon all parties hereto. SECTION 1A. Letters of Credit. (a) General. A Borrower may from time to time request the issuance of Letters of Credit for its own account (for obligations of such Borrower or any of its Subsidiaries, or in the case of Finance Co., for any of Resources' Subsidiaries (other than PPL and its Subsidiaries)), denominated in dollars, in form reasonably acceptable to the Agent and the Fronting Bank, at any time and from time to time while the Commitments remain in effect. This Section shall not be construed to impose an obligation upon the Fronting Bank to issue any Letter of Credit that is inconsistent with the terms and conditions of this Agreement. (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. In order to request the issuance of a Letter of Credit (or to amend, renew or extend an existing Letter of Credit), the applicable Borrower shall hand deliver or telecopy to the Fronting Bank and the Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, the date of issuance, amendment, renewal or extension, the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) below), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare such Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if, and upon issuance, amendment, renewal or extension of each Letter of Credit the applicable Borrower shall be deemed to represent and warrant that, after giving effect to such issuance, amendment, renewal or extension (A) the L/C Exposure shall not exceed $5,000,000 and (B) the Aggregate Credit Exposure shall not exceed the Total Commitment. (c) Expiration Date. Each Letter of Credit shall expire at the close of business on the date that is five Business Days prior to the Expiry Date, unless such Letter of Credit expires by its terms on an earlier date. (d) Participations. By the issuance of a Letter of Credit and without any further action on the part of the Fronting Bank or the Banks, the Fronting Bank hereby grants to each Bank, and each such Bank hereby acquires from the Fronting Bank, a participation in such Letter of Credit equal to such Bank's Applicable Percentage from time to time of the aggregate amount available to be drawn under such Letter of Credit, effective upon the issuance of such Letter of Credit. In consideration and in furtherance of the foregoing, each Bank hereby absolutely and unconditionally agrees to pay to the Agent, for the account of the Fronting Bank, such Bank's proportionate share of each L/C Disbursement made by the Fronting Bank and not reimbursed by the applicable Borrower forthwith on the date due as provided in Section 1.3(b). Each Bank acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or an Event of Default or the termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) Reimbursement. If the Fronting Bank shall make any L/C Disbursement in respect of a Letter of Credit, the applicable Borrower shall pay to the Agent an amount equal to such L/C Disbursement not later than two hours after the applicable Borrower shall have received notice from the Fronting Bank that payment of such draft will be made, or, if the applicable Borrower shall have received such notice later than 10:00 A.M. (New York time) on any Business Day, not later than 10:00 A.M. (New York time) on the immediately following Business Day. (f) Obligations Absolute. The applicable Borrower's obligations to reimburse L/C Disbursements as provided in paragraph (e) above shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under any and all circumstances whatsoever, and irrespective of: (i) any lack of validity or enforceability of any Letter of Credit or any Loan Document, or any term or provision therein; (ii) any amendment or waiver of or any consent to departure from all or any of the provisions of any Letter of Credit or any Loan Document; (iii) the existence of any claim, setoff, defense or other right that the applicable Borrower, any other party guaranteeing, or otherwise obligated with, either Borrower or any subsidiary or other affiliate thereof or any other person may at any time have against the beneficiary under any Letter of Credit, the Fronting Bank, the Agent or any Bank or any other person, whether in connection with this Agreement, any other Loan Document or any other related or unrelated agreement or transaction; (iv) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (v) payment by the Fronting Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit; and (vi) any other act or omission to act or delay of any kind of the Fronting Bank, the Banks, the Agent or any other person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of the applicable Borrower's obligations hereunder. Without limiting the generality of the foregoing, it is expressly understood and agreed that the absolute and unconditional obligation of the Borrowers hereunder to reimburse L/C Disbursements will not be excused by the gross negligence or wilful misconduct of the Fronting Bank. However, the foregoing shall not be construed to excuse the Fronting Bank from liability to the applicable Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the applicable Borrower to the extent permitted by applicable law) suffered by the applicable Borrower that are caused by the Fronting Bank's gross negligence or wilful misconduct in determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof; it is understood that the Fronting Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary and, in making any payment under any Letter of Credit (i) the Fronting Bank's exclusive reliance on the documents presented to it under such Letter of Credit as to any and all matters set forth therein, including reliance on the amount of any draft presented under such Letter of Credit, whether or not the amount due to the beneficiary thereunder equals the amount of such draft and whether or not any document presented pursuant to such Letter of Credit proves to be insufficient in any respect, if such document on its face appears to be in order, and whether or not any other statement or any other document presented pursuant to such Letter of Credit proves to be forged or invalid or any statement therein proves to be inaccurate or untrue in any respect whatsoever and (ii) any noncompliance in any immaterial respect of the documents presented under such Letter of Credit with the terms thereof shall, in each case, be deemed not to constitute wilful misconduct or gross negligence of the Fronting Bank. (g) Disbursement Procedures. The Fronting Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Fronting Bank shall as promptly as possible give telephonic notification, confirmed by telecopy, to the Agent and the applicable Borrower (and, if the applicable Borrower is Finance Co., Resources) of such demand for payment and whether the Fronting Bank has made or will make an L/C Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the applicable Borrower of its obligation to reimburse the Fronting Bank and the Banks with respect to any such L/C Disbursement. The Agent shall promptly give each Bank notice thereof. (h) Interim Interest. If the Fronting Bank shall make any L/C Disbursement in respect of a Letter of Credit, then, unless the applicable Borrower shall reimburse such L/C Disbursement in full on the date thereof, the unpaid amount thereof shall bear interest for the account of the Fronting Bank, for each day from and including the date of such L/C Disbursement, to but excluding the earlier of the date of payment by the applicable Borrower or the date on which interest shall commence to accrue on the Base Rate Loans resulting from such L/C Disbursement as provided in Section 1.3(b), at the rate per annum that would apply to such amount if such amount were a Base Rate Loan. (i) Cash Collateralization. If any Event of Default with respect to a Borrower shall occur and be continuing, such Borrower shall, on the Business Day it receives notice from the Agent or the Required Banks thereof and of the amount to be deposited, deposit in an account with the Collateral Agent, for the benefit of the Banks, an amount in cash equal to the portion of the L/C Exposure attributable to Letters of Credit issued for the account of such Borrower and outstanding as of such date. Such deposit shall be held by the Collateral Agent as collateral for the payment and performance of the obligations under this Agreement. The Collateral Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Such deposits shall not bear interest. Moneys in such account shall automatically be applied by the Agent to reimburse the Fronting Bank for L/C Disbursements attributable to Letters of Credit issued for the account of the Borrower depositing such moneys for which the Fronting Bank has not been reimbursed, and any remaining amounts will either (i) be held for the satisfaction of the reimbursement obligations of such Borrower for the L/C Exposure at such time or (ii) if the maturity of the Loans of such Borrower has been accelerated, be applied to satisfy the obligations of such Borrower under this Agreement. If a Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to such Borrower within three Business Days after all Events of Default have been cured or waived. SECTION 20 Interest. 2.1 Rates of Interest. (a) Each Borrower agrees to pay interest in respect of the unpaid principal amount of each Base Rate Loan made to it from the date the proceeds thereof are made available to it until prepayment pursuant to Section 3 or maturity (whether by acceleration or otherwise) at a rate per annum which shall be the Base Rate in effect from time to time. (b) Each Borrower agrees to pay interest in respect of the unpaid principal amount of each Eurodollar Loan made to it from the date the proceeds thereof are made available to it until prepayment pursuant to Section 3 or maturity (whether by acceleration or otherwise) at a rate per annum which shall be the relevant Quoted Rate plus the Applicable Eurodollar Margin. (c) Each Borrower agrees to pay interest in respect of overdue principal of, and (to the extent permitted by law) overdue interest in respect of, each Loan made to it, on demand, at a rate per annum which shall be 2% in excess of the Base Rate in effect from time to time. (d) Interest shall be computed on the actual number of days elapsed on the basis of a 360-day year; provided, however, that for any rate of interest determined by reference to the Prime Rate, interest shall be computed on the actual number of days elapsed on the basis of a year of 365 or 366 days. (e) In computing interest on the Loans, the date of the making of a Loan shall be included and the date of payment shall be excluded, provided, however, that if a Loan is repaid on the same day on which it is made, such day shall nevertheless be included in computing interest thereon. 2.2 Determination of Rate of Borrowing. As soon as practicable after 10:00 A.M. (New York time) on the second Business Day prior to the commencement of any Interest Period with respect to a Eurodollar Loan, the Agent shall determine (which determination, absent manifest error, shall be final, conclusive and binding upon all parties) the rate of interest which shall be applicable to such Eurodollar Loan for the Interest Period applicable thereto and shall promptly give notice thereof (in writing or by telephone, confirmed in writing) to the applicable Borrower and the Banks. In the event that there is no applicable rate for such Eurodollar Loan: (i) the Agent shall promptly give notice thereof (in writing or by telephone, confirmed in writing) to the applicable Borrower and the Banks and (ii) such Loan shall be deemed to have been requested to be made as a Base Rate Loan and (iii) the rate applicable to such Loan shall be the Base Rate in effect from time to time. 2.3 Interest Payment Dates. Accrued interest shall be payable (i) in respect of each Eurodollar Loan, at the end of the Interest Period relating thereto and in respect of each Loan with an Interest Period of longer than 3 months, on each 3-month anniversary of the first day of such Interest Period, (ii) in respect of each Base Rate Loan, at the end of each Interest Period relating thereto and (iii) in respect of each Loan, on any prepayment (on the amount prepaid), at maturity (whether by acceleration or otherwise) and, after maturity, on demand. 2.4 Conversions; Interest Periods. (a) Each Borrower shall have the option to convert on any Business Day, all or a portion at least equal to $10,000,000 of the outstanding principal amount of the Loans made to it pursuant to one or more Borrowings of one Type of Loans into a Borrowing or Borrowings of another Type of Loan, provided that (i) except as provided in Section2.5(b), Eurodollar Loans may be converted into Base Rate Loans only on the last day of an Interest Period applicable thereto and no partial conversion of a Borrowing of Eurodollar Loans shall reduce the outstanding principal amount of the Loans pursuant to such Borrowing to less than $10,000,000 and (ii) Loans may only be converted into Eurodollar Loans if no Default or Event of Default with respect to such Borrower is in existence on the date of the conversion. Each such conversion shall be effected by such Borrower by giving the Agent at its Payment Office, prior to 12:00 Noon (New York time), at least three Business Days (or by 12:00 Noon on the same Business Day in the case of a conversion into Base Rate Loans) prior written notice (or telephonic notice promptly confirmed in writing) (each a "Notice of Conversion") specifying the Loans to be so converted, the Borrowing or Borrowings pursuant to which such Loans were made, the Type of Loans to be converted into and, if to be converted into a Borrowing of Eurodollar Loans, the Interest Period to be initially applicable thereto. The Agent shall give each Bank prompt notice of any such pro- posed conversion affecting any of its Loans. (b) At the time a Borrower gives a Notice of Borrowing or Notice of Conversion in respect of the making of, or conversion into, a Borrowing of Eurodollar Loans (in the case of the initial Interest Period applicable thereto) or prior to 12:00 Noon (New York time) on the third Business Day prior to the expiration of an Interest Period applicable to a Borrowing of Eurodollar Loans (in the case of any subsequent Interest Period), such Borrower shall have the right to elect, by giving the Agent written notice (or telephonic notice promptly confirmed in writing), the Interest Period applicable to such Borrowing, which Interest Period shall, at the option of such Borrower, be a one, two, three or six month period or, subject to availability on the part of each Bank, such shorter period as ends on the Expiry Date. Notwithstanding anything to the contrary contained above: (i) the initial Interest Period for any Borrowing of Eurodollar Loans shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing of Base Rate Loans) and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires; (ii) if any Interest Period applicable to a Borrowing of Eurodollar Loans begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; (iii) no Interest Period in respect of any Borrowing of Loans shall extend beyond the Expiry Date; and (iv) all Eurodollar Loans comprising a Borrowing shall at all times have the same Interest Period. If upon the expiration of any Interest Period, a Borrower has failed to elect a new Interest Period to be applicable to the respective Borrowing of Eurodollar Loans as provided above or is unable to elect a new Interest Period as a result of Section 2.4(a)(ii) above, such Borrower shall be deemed to have elected to convert such Borrowing into a Bor- rowing of Base Rate Loans effective as of the expiration date of such current Interest Period. 2.5 Increased Costs, Illegality, Etc. (a) In the event that any Bank (including the Agent and the Fronting Bank) shall have reasonably determined (which determination shall be final and conclusive and binding upon all parties but, with respect to the following clauses (i), (ii) and (iii), shall be made only after consultation with the applicable Borrower and the Agent on the date of such determination) that: (i) on any date for determining the Quoted Rate for any Interest Period, by reason of any change after the date hereof affecting the interbank Eurodollar market or affecting the position of such Bank (if a Reference Bank), in such market, adequate and fair means do not exist for ascertaining the applicable interest rate by reference to the Quoted Rate; or (ii) at any time, by reason of (y) any change after the date hereof in any applicable law or governmental rule, regulation or order (or any interpretation thereof by a governmental authority or otherwise (provided that, in the case of an interpretation not by a governmental authority, such interpretation shall be made in good faith and shall have a reasonable basis) and including the introduction of any new law or governmental rule, regulation or order), to the extent not provided for in clause (iii) below, or (z) in the case of Eurodollar Loans, other circumstances affecting such Bank or the interbank Eurodollar market or the position of such Bank in such market, the Quoted Rate shall not represent the effective pricing to such Bank for funding or maintaining the affected Eurodollar Loan; or (iii) at any time, by reason of the requirements of Regulation D or other official reserve requirements, the Quoted Rate shall not represent the effective pricing to such Bank for funding or maintaining the affected Eurodollar Loan; or (iv) at any time, that the making or continuance of any Eurodollar Loan or the issuance of any Letter of Credit has become unlawful by compliance by such Bank or by the Fronting Bank in good faith with any law, governmental rule, regulation, guideline or order, or would cause severe hardship to such Bank or to the Fronting Bank as a result of a contingency occurring after the date hereof which materially and adversely affects the interbank Eurodollar market; then, and in any such event, the Bank so affected shall on such date of determination give notice (by telephone con- firmed in writing) to each applicable Borrower and to the Agent (who shall give similar notice to each Bank) of such determination. Thereafter, (x) in the case of clause (i), (ii) or (iii) above, each applicable Borrower shall pay to such Bank, upon written demand therefor, such additional amounts deemed in good faith by such Bank to be material (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Bank in its discretion shall determine) as shall be required to cause such Bank to receive interest with respect to its affected Eurodollar Loan at a rate per annum equal to the then Applicable Eurodollar Margin in excess of the effective pricing to such Bank to make or maintain such Eurodollar Loan and (y) in the case of clause (iv), each applicable Borrower shall take one of the actions specified in Section 2.5(b) as promptly as possible and, in any event, within the time period required by law. A certificate as to additional amounts owed any such Bank, showing in reasonable detail the basis for the calculation thereof, submitted to each applicable Borrower and the Agent by such Bank shall, absent manifest error, be final, conclusive and binding upon all of the parties hereto. (b) At any time that any of its Loans are affected by the circumstances described in Section 2.5(a) each applicable Borrower may (i) if the affected Eurodollar Loan is then being made pursuant to a Borrowing, cancel said Borrowing by giving the Agent notice thereof by telephone (confirmed in writing) on the same date that such Borrower was notified by the affected Bank pursuant to Section 2.5(a) or (ii) if the affected Eurodollar Loan is then outstanding, upon at least 3 Business Days' written notice to the Bank, require the Bank to convert such Eurodollar Loan into a Base Rate Loan; provided that if more than one Bank is affected at any time, then all affected Banks must be treated in the same manner pursuant to this Section 2.5(b). (c) In the event that a Borrower shall be paying additional amounts to a Bank pursuant to Section 2.5(a)(i), (ii) or (iii) or Section 2.5(d) (and, in the case of Section 2.5(d), such Bank has not eliminated the increased costs by designating a new Applicable Lending Office) or is unable to incur a Eurodollar Loan from such Bank because of the existence of a condition described in Section 2.5(a)(iv) (any such Bank, an "Affected Bank") covering a period of 90 consecutive days, the Borrowers, the Agent and the Affected Bank shall consult with a view towards (but being under no obligation to) amending this Agreement, with the consent of the Banks other than the Affected Bank (the "Unaffected Banks") which, at such time, have outstanding two-thirds of the aggregate principal amount of the Loans outstanding hereunder (exclusive of the aggregate principal amount of the Loans outstanding of the Affected Bank), to provide for (i) the termination of the Affected Bank's Commitment, provided that such termination is accompanied by payment in full of the outstanding amount of all Loans of the Affected Bank, interest accrued on such amount to the date of payment and all other liabilities and obligations of the Borrowers hereunder (including, without limitation, amounts payable pursuant to Section 1.8, Section 2.5(a) or Section 2.5(d)) with respect to the Affected Bank, and (ii) the substitution of another bank for the Affected Bank and/or the increase, pro rata or otherwise, of the Commitments of the Unaffected Banks or otherwise, so that the Total Commitment remains the amount which would be applicable in the absence of the occurrence of clause (i) of this Section 2.5(c); provided that no Commitment of any Unaffected Bank may be changed without the consent of such Bank. (d) If any Bank reasonably determines at any time that any applicable law or governmental rule, regulation, order or request (whether or not having the force of law) concerning capital adequacy, or any change in interpretation or administration thereof by any governmental authority, central bank or comparable agency, will have the effect of increasing the amount of capital required or expected to be maintained by such Bank based on the existence of such Bank's Commitment hereunder or its obligations hereunder or under any Letter of Credit, then promptly upon receipt of a written demand from such Bank meeting the requirements of this Section 2.5(d), the applicable Borrowers agree to pay such Bank such additional amounts as shall be required to compensate such Bank for the increased cost to such Bank of making Loans to (or issuing Letters of Credit for the account of) the Borrowers, as a result of such increase in capital for the first Compensation Period (as defined below). After the initial written demand for payment in respect of this Section 2.5(d) is delivered to the applicable Borrowers by such Bank, written demand for payment may be submitted for each Compensation Period thereafter that this Agreement remains in effect as to such Bank. Each such written demand shall (i) specify (a) the event pursuant to which such Bank is entitled to claim the additional amount, (b) the date on which the event occurred and became applicable to the Bank and (c) the Compensation Period for which the amount is due and (ii) set out in reasonable detail the basis and computation of such additional amount. Each period for which the additional amounts may be claimed by such Bank (a "Compensation Period") shall be the lesser of (x) the number of days actually elapsed since the date the event occurred and became applicable to such Bank or (y) 90 days. Payments made by the applicable Borrowers to any Bank in respect of this Section 2.5(d) shall be made on the last day of the Compensation Period specified in each written demand with a final payment to be made on the date of termination of this Agreement as to such Bank. Provided that each Bank acts reasonably and in good faith and uses averaging and attribution methods which are reasonable in determining any additional amounts due under this Section 2.5(d), such Bank's determination of compensation owing under this Section 2.5(d) shall, absent manifest error, be final and conclusive and binding on all the parties hereto. No Bank shall be entitled to compensation under this Section 2.5(d) for any costs incurred with respect to any date unless it shall have notified the applicable Borrowers that it will demand compensation for such costs not more than 60 days after the later of (i) such date and (ii) the date on which it shall have become aware of such costs. (e) Each Bank agrees that, upon the occurrence of any event giving rise to the operation of Section 2.5(d) with respect to such Bank, such Bank shall, if requested by the Borrowers, designate another Applicable Lending Office for any Loans affected by such event with the objective of eliminating, avoiding or mitigating the consequence of the event giving rise to the operation of such section; provided that such Bank and its Applicable Lending Office shall not, in the sole judgment of such Bank, suffer any economic, legal or regulatory disadvantage. Nothing in this Section 2.5(e) shall affect or postpone any of the obligations of a Borrower or the right of any Bank provided in Section 2.5(d). SECTION 3. Payments. 3.1 Payments on Non-Business Days. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, if a payment of principal has been so extended, interest shall be payable on such principal at the applicable rate during such extension. 3.2 Voluntary Prepayments. Each Borrower shall have the right to prepay its Loans in whole or in part, without premium or penalty, from time to time pursuant to this Section 3.2 on the following terms and conditions: (i) the applicable Borrower shall give the Agent at the Payment Office at least 3 Business Days' prior written notice or telephonic notice (confirmed in writing) of its intent to prepay such Loans, which notice shall specify the amount of such prepayment and the specific Borrowing to be prepaid, which notice the Agent shall promptly transmit to each of the Banks; (ii) each prepayment shall be in an integral multiple of $1,000,000 and not less than $10,000,000 (or, if less, the amount then remaining outs- tanding in respect of the Borrowing being prepaid); (iii) each prepayment in respect of Loans made pursuant to one Borrowing shall be applied pro rata among the Banks on the basis of such Loans, except as otherwise provided in Section 2.5; (iv) at the time of any prepayment, the applicable Borrower shall pay all interest accrued on the principal amount of said prepayment and, if the applicable Borrower prepays any Eurodollar Loan on any day other than the last day of an Interest Period applicable thereto, the applicable Borrower shall compensate the Banks for losses sustained as a result of such prepayment to the extent and as provided in Section 1.8. 3.3 Method and Place of Payment, Etc. Except as expressly provided herein, all payments under this Agreement shall be made to the Agent for the ratable account of the Banks not later than Noon (New York time) on the date when due and shall be made in freely transferable U.S. dollars and in immediately available funds at the Payment Office (or, if such payment is made in respect of principal of or interest on any Eurodollar Loan, for the account of such non-U.S. office of the Agent as the Agent may from time to time direct). Unless the Agent shall have been notified by the applicable Borrower prior to the date on which any payment to be made by the applicable Borrower hereunder is due that the applicable Borrower does not intend to remit such payment, the Agent may, at its discretion, assume that the applicable Borrower has remitted such payment when so due and the Agent may, at its discretion and in reliance upon such assumption, make available to each Bank (for the account of its applicable lending office) on such payment date an amount equal to such Bank's share of such assumed payment. If the applicable Borrower has not in fact remitted such payment to the Agent, each Bank shall forthwith on demand repay to the Agent the amount of such assumed payment made available to such Bank together with interest thereon in respect of each day from and including the date such amount was made available by the Agent to such Bank to the date such amount is repaid to the Agent at a rate per annum equal to the Federal Funds Rate. On the commencement date of each Interest Period and on each date occurring two Business Days prior to an Interest Payment Date, the Agent shall notify the applicable Borrower of the amount of interest and/or fees due at the end of such Interest Period or on such Interest Payment Date (assuming, in the case of Base Rate Loans, that there is no change in the rate of interest applicable to the applicable Base Rate Loan); provided, however, that failure to so notify the applicable Borrower shall not affect such Borrower's obligation to make any such payments. 3.4 Net Payments. All payments under this Agreement shall be made without set-off or counterclaim and in such amounts as may be necessary in order that all such payments of principal and interest in connection with Loans (after deduction or withholding for or on account of (i) any present or future taxes, levies, imposts, duties or other charges of whatsoever nature imposed by any government or any political subdivision or taxing authority thereof, other than any tax (except such taxes referred to in clause (ii) below) on or measured by the net income of a Bank pursuant to the income tax laws of the jurisdiction where such Bank's principal or lending office is located or in which such Bank maintains a place of business (collectively the "Taxes") and (ii) deduction of an amount equal to any taxes on or measured by the net income payable by any such Bank with respect to the amount by which the payments required to be made by this Section 3.4 exceed the amount otherwise specified to be paid under this Agreement) shall not be less than the amounts otherwise specified to be paid under this Agreement. A certificate as to any additional amounts payable to any Bank under this Section 3.4 submitted to the applicable Borrower by such Bank shall show in reasonable detail the amount payable and the calculations used to determine such amount and shall, absent manifest error, be final, conclusive and binding upon all parties hereto. With respect to each deduction or withholding for or on account of any Taxes, the applicable Borrower shall promptly furnish to each Bank such certificates, receipts and other documents as may be required (in the judgment of such Bank) to establish any tax credit to which such Bank may be entitled. SECTION 4. Conditions Precedent. 4.1 Conditions to Effectiveness. On the Closing Date: (a) The Agent shall have received from the general counsel or senior counsel of PPL a favorable opinion dated the Closing Date substantially in the form of Exhibit A hereto. (b) The Agent shall have received an opinion of Reid & Priest LLP, counsel for PPL, Finance Co. and Resources, addressed to the Agent, the Fronting Bank and the Banks, dated the Closing Date, with respect to the enforceability of this Agreement against PPL and Finance Co., and with respect to the enforceability of the guarantee hereunder by Resources of the obligations of Finance Co. against Resources, substantially in the form of Exhibit B hereto. (c) All corporate and legal proceedings and all instruments in connection with the transactions contemplated by this Agreement (including resolutions of the Board of Directors of PPL, Finance Co. and Resources and certificates as to the incumbency of the officers signing this Agreement or any certificate delivered in connection herewith) shall be satisfactory in form and substance to the Agent, and the Agent shall have received all information and copies of all documents that it has requested, such documents where appropriate to be certified by proper corporate or governmental authorities. (d) The Agent shall have received from each of the Banks, the Fronting Bank, PPL, Finance Co. and Resources a duly executed and delivered counterpart hereof. (e) The conditions set forth in Sections 4.2A and 4.2B (other than Section 4.2A(c) and Section 4.2B(c)) shall have been satisfied. (f) The Agent shall have received evidence satisfactory to it of the termination of the Revolving Credit Agreement dated as of August 30, 1994, among PPL, the banks party thereto and The Chase Manhattan Bank (as successor by merger to Chemical Bank), as agent for the banks. (g) The Agent shall have received evidence satisfactory to it of the termination of the Revolving Credit Agreement dated as of May 30, 1996, as amended as of May 27, 1997, among Resources, the banks party thereto and The Chase Manhattan Bank as fronting bank, collateral agent and agent for the banks. (h) The Agent shall have received a certificate signed by appropriate officers of PPL stating that all regulatory approvals necessary to permit PPL to enter into this Agreement and to perform its obligations hereunder have been obtained and are in full force and effect and attaching evidence of all such regulatory approvals. 4.2A Conditions to Each Loan to PPL and Each Issuance of a Letter of Credit for the account of PPL. The obligation of each Bank to make each Loan to PPL (excluding any conversions of one Type of Loan to another Type pursuant to Section 2.5(b)) and of the Fronting Bank to issue each Letter of Credit for the account of PPL hereunder is subject, at the time of the making of each such Loan and the issuance of each such Letter of Credit (except as hereinafter indicated), to the satisfaction of the following conditions, with the making of each such Loan and the issuance of each such Letter of Credit constituting a representation and warranty by PPL that the conditions specified in Sections 4.2A(a), (b), (d) and (e) below are then satisfied: (a) No Default. At the time of the making each such Loan to PPL, and the issuance of each Letter of Credit for the account of PPL and after giving effect thereto, there shall exist no Default or Event of Default with respect to PPL. (b) Representations and Warranties. At the time of the making of each such Loan to PPL and the issuance of each such Letter of Credit for the account of PPL and after giving effect thereto, all representations and warranties contained in Section 7A hereof shall be true and correct with the same force and effect as though such representa- tions and warranties had been made as of such time. (c) Notice of Borrowing. The Agent shall have received Notice of Borrowing from PPL as required by Section 1.2 or, in the case of the issuance of a Letter of Credit, the Fronting Bank and the Agent shall have received a notice from PPL requesting the issuance of such Letter of Credit as required by Section 1A(b). (d) No Adverse Change. Since December 31, 1996, there shall have been no change in the business, assets, financial condition or operations of PPL and its Subsidiaries taken as a whole which materially and adversely affects the ability of PPL to perform any of its obligations hereunder. (e) Regulatory Approval. The making of such Loan to PPL or the issuance of such Letter of Credit for the account of PPL shall not cause the aggregate dollar amount of Loans and Letters of Credit outstanding for the account of PPL to exceed the amount of such obligations for which PPL has obtained the necessary regulatory approval. 4.2B Conditions to Each Loan to Finance Co. and Each Issuance of a Letter of Credit for the account of Finance Co. The obligation of each Bank to make each Loan to Finance Co. (excluding any conversions of one Type of Loan to another Type pursuant to Section 2.5(b)) and of the Fronting Bank to issue each Letter of Credit for the account of Finance Co. hereunder is subject, at the time of the making of each such Loan and the issuance of each such Letter of Credit (except as hereinafter indicated), to the satisfaction of the following conditions, with the making of each such Loan and the issuance of each such Letter of Credit constituting a representation and warranty by Finance Co. that the conditions specified in Sections 4.2B(a), (b) and (d) below are then satisfied: (a) No Default. At the time of the making of each such Loan to Finance Co. and the issuance of each Letter of Credit for the account of Finance Co. and after giving effect thereto, there shall exist no Default or Event of Default with respect to Finance Co. (b) Representations and Warranties. At the time of the making of each such Loan to Finance Co. and the issuance of each such Letter of Credit for the account of Finance Co. and after giving effect thereto, all representations and warranties contained in Section 7B hereof shall be true and correct with the same force and effect as though such repre- sentations and warranties had been made as of such time. (c) Notice of Borrowing. The Agent shall have received Notice of Borrowing from Finance Co. as required by Section 1.2 or, in the case of the issuance of a Letter of Credit, the Fronting Bank and the Agent shall have received a notice from Finance Co. requesting the issuance of such Letter of Credit as required by Section 1A(b). (d) No Adverse Change. Since December 31, 1996, there shall have been no change in the business, assets, financial condition or operations of Resources and its Subsidiaries taken as a whole which materially and adversely affects the ability of Resources to perform any of its obligations hereunder. SECTION 5.A Covenants of PPL. While this Agreement is in effect and until the Total Commitment has been terminated with respect to PPL, all obligations of PPL hereunder shall have been paid in full and all Letters of Credit issued for the account of PPL shall have been canceled or have expired and all amounts drawn thereunder shall have been reimbursed in full, PPL agrees that: 5.1A Financial Statements. PPL will furnish to each Bank: (a) within 120 days after the end of each fiscal year an auditors' report, including a balance sheet as at the close of such fiscal year and statements of income, shareowners' common equity and cash flows for such year for PPL and its consolidated Subsidiaries prepared in conformity with GAAP, with an opinion expressed by Price Waterhouse LLP or other independent auditors of recognized standing selected by it; (b) within 60 days after the end of each of the first three quarters in each fiscal year, a balance sheet as at the close of such quarterly period and statements of income, shareowners' common equity and cash flows for such quarterly period for itself and its consolidated Subsidiaries prepared in conformity with GAAP; (c) within 120 days after the end of each fiscal year, a copy of its Form 10-K Report to the Securities and Exchange Commission ("SEC") and within 60 days after the end of each of the first three quarters in each fiscal year, a copy of its Form 10-Q Report to the SEC; (d) from time to time, with reasonable promptness, such further information regarding its business, affairs and financial condition as any Bank and the Fronting Bank may reasonably request; and (e) upon acquiring knowledge of the existence of a Default or Event of Default with respect to it a certificate of a financial officer specifying: (i) the nature of such Default or Event of Default, (ii) the period of the existence thereof, and (iii) the actions that PPL proposes to take with respect thereto. The financial statements required to be furnished pursuant to clauses (a) and (b) above shall be accompanied by a certificate of a principal financial officer of PPL to the effect that no Default or Event of Default with respect to it has occurred and is continuing. The financial statements required to be furnished pursuant to clause (a) above shall also be accompanied by a Compliance Certificate in the form of Exhibit D-1 hereto ("PPL Compliance Certificate") demonstrating compliance with Section 5.4A. 5.2A Mergers. PPL will not merge or consolidate with any Person if PPL is not the survivor unless (a) the survivor assumes the obligations of PPL hereunder, (b) the survivor is a utility whose business is not substantially different in character or composition from that of PPL and (c) the senior secured debt ratings of the survivor by Moody's and S&P as available (or if the ratings of Moody's and S&P are not available, of such other rating agency as shall be acceptable to the Agent), are at least equal to the ratings of PPL's First Mortgage Bonds (or other senior secured debt) immediately prior to such merger or consolidation. 5.3A Ratings. PPL will use its best efforts to promptly notify the Banks upon obtaining knowledge of any change in, or cessation of, ratings of PPL's First Mortgage Bonds (or other senior secured debt) by Moody's or S&P. 5.4A Consolidated Indebtedness to Consolidated Capitalization. The ratio of Consolidated Indebtedness of PPL to Consolidated Capitalization of PPL shall not exceed 70% at any time. SECTION 5.B Covenants of Finance Co. and Resources. While this Agreement is in effect and until the Total Commitment has been terminated with respect to Finance Co., all obligations of Finance Co. and Resources hereunder shall have been paid in full and all Letters of Credit issued for the account of Finance Co. shall have been canceled or have expired and all amounts drawn thereunder shall have been reimbursed in full, each of Finance Co. and Resources agrees that: 5.1B Financial Statements. Resources will furnish to each Bank: (a) within 120 days after the end of each fiscal year (i) an auditors' report, including a balance sheet as at the close of such fiscal year and statements of income, shareowners' common equity and cash flows for such year for Resources and its consolidated Subsidiaries prepared in conformity with GAAP, with an opinion expressed by Price Waterhouse LLP or other independent auditors of recognized standing selected by it and (ii) Resources' unconsolidated balance sheet as at the close of such fiscal year and statements of income, shareholders common equity and cash flows for such year; (b) within 60 days after the end of each of the first three quarters in each fiscal year, a balance sheet as at the close of such quarterly period and statements of income, shareowners' common equity and cash flows for such quarterly period for (i) Resources and its consolidated Subsidiaries prepared in conformity with GAAP, and (ii) Resources' unconsolidated balance sheet as at the close of such quarterly period and statements of income, shareowners' common equity and cash flow for such quarterly period; (c) within 120 days after the end of each fiscal year, a copy of Resources' Form 10-K Report to the Securities and Exchange Commission ("SEC") and within 60 days after the end of each of the first three quarters in each fiscal year, a copy of Resources' Form 10-Q Report to the SEC; (d) from time to time, with reasonable promptness, such further information regarding Resources' business, affairs and financial condition as any Bank and the Fronting Bank may reasonably request; and (e) upon acquiring knowledge of the existence of a Default or Event of Default with respect to Finance Co. a certificate of a financial officer of Resources and an officer of Finance Co. specifying: (i) the nature of such Default or Event of Default, (ii) the period of the existence thereof, and (iii) the actions that Resources and Finance Co. propose to take with respect thereto. The financial statements required to be furnished pursuant to clauses (a) and (b) above shall be accompanied by a certificate of a principal financial officer of Resources to the effect that no Default or Event of Default with respect to Finance Co. has occurred and is continuing. The financial statements required to be furnished pursuant to clause (a) above shall also be accompanied by a Compliance Certificate in the form of Exhibit D-2 hereto ("Resources Compliance Certificate") demonstrating compliance with Section 5.5B. 5.2B Mergers. (i) (1) Resources will not merge or consolidate with any Person if Resources is not the survivor unless (a) the survivor assumes Resources' obligations hereunder, (b) substantially all of the consolidated assets and consolidated revenues of the survivor are anticipated to come from a utility business or utility businesses and (c) the senior unsecured debt ratings of the survivor by Moody's or S&P, as available (or if the ratings of Moody's and S&P are not available, of such other rating agency as shall be acceptable to the Required Banks), are at least equal to the ratings of Resource's senior unsecured debt immediately prior to such merger or consolidation; (2) Resources will not dispose of any common stock of either Borrower or any securities convertible into common stock of either Borrower, except in connection with any merger or consolidation permitted under this Section 5.2B or under Section 5.2A, and except that Resources shall be allowed to sell, transfer or otherwise dispose of PPL's common stock to PPL. (ii) Finance Co. will not merge into or consolidate with any other Person except (a) Resources or a successor of Resources permitted by this Section or (b) any other Person which is a wholly owned subsidiary of Resources or a successor of Resources permitted by this Section. 5.3B Ratings. Finance Co. and Resources will each use their best efforts to promptly notify the Banks upon obtaining knowledge of any change in, or cessation of, ratings of Resources' senior unsecured debt by Moody's or S&P. 5.4B Liens. Resources will not create, incur, or suffer to exist any Lien in or on the common stock of PPL or Finance Co. or on securities convertible into the common stock of PPL or Finance Co. (in either case, now or hereafter acquired) other than Permitted Liens. 5.5B Consolidated Indebtedness to Consolidated Capitalization. The ratio of Consolidated Indebtedness of Resources to Consolidated Capitalization of Resources shall not exceed 70% at any time. SECTION 6.A Events of Default with Respect to PPL. Each of the following events shall constitute an "Event of Default" with respect to PPL: 6.1A Representations, Etc. Any certificate furn- ished by PPL to the Banks and the Fronting Bank pursuant hereto shall prove to have been incorrect in any material respect or any of the representations and warranties made by PPL herein or in connection herewith shall prove to have been incorrect in any material respect when made; or 6.2A Principal and Interest. PPL shall fail to make any payment of principal on any of its Loans or any other payment payable by PPL hereunder (including the reimbursement of any L/C Disbursement) when due or, in the case of interest or fees, within 10 days of the due date thereof; or 6.3A Defaults by PPL Under Other Agreements. PPL shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness in a principal amount in excess of $50,000,000 beyond any period of grace provided with respect thereto, or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Indebtedness in a principal amount in excess of $50,000,000 beyond any period of grace provided with respect thereto if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee on its or their behalf to cause, such Indebtedness to become due prior to its stated maturity; or 6.4A Judgments. PPL shall fail within 60 days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $25,000,000 that is not stayed on appeal or otherwise being appropriately contested in good faith; or 6.5A Bankruptcy, Etc. PPL shall commence a vol- untary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy" as now or hereafter in effect or any successor thereto (the "Bankruptcy Code"); or an involuntary case shall be commenced against PPL or such case shall be controverted but shall not be dismissed within 60 days after the commencement of the case; or PPL shall not generally be paying its debts as they become due; or a custodian (as defined in the Bankruptcy Code) shall be appointed for, or shall take charge of, all or substantially all of the property of PPL or PPL shall commence any other proceeding under any reorganization, arrangement, readjustment of debt, relief of debtors, dissolution, insol- vency or liquidation or similar law of any jurisdiction whe- ther now or hereafter in effect relating to PPL or there shall be commenced against PPL any such proceeding which remains undismissed for a period of 60 days or PPL shall be adjudicated insolvent or bankrupt; or PPL shall fail to controvert in a timely manner any such case under the Bankruptcy Code or any such proceeding, or any order of relief or other order approving any such case or proceeding shall be entered; or PPL by any act or failure to act shall indicate its consent to, approval of or acquiescence in any such case or proceeding or in the appointment of any custodian or the like for it or any substantial part of its property or shall suffer any such appointment to continue undischarged or unstayed for a period of 60 days; or PPL shall make a general assignment for the benefit of credi- tors; or any corporate action shall be taken by PPL for the purpose of effecting any of the foregoing; or 6.6A Other Covenants. PPL shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and any such failure shall remain unremedied for a period of 30 days after written notice thereof shall have been received by PPL from the Agent or the Required Banks. SECTION 6.B Events of Default with Respect to Finance Co. Each of the following events shall constitute an "Event of Default" with respect to Finance Co.: 6.1B Representations, Etc. Any certificate furn- ished by Finance Co. or Resources to the Banks and the Fronting Bank pursuant hereto shall prove to have been incorrect in any material respect or any of the representations and warranties made by Finance Co. or Resources herein or in connection herewith shall prove to have been incorrect in any material respect when made; or 6.2B Principal and Interest. Either Finance Co. or Resources shall fail to make any payment of principal on any Loan to Finance Co. or any other payment payable by Finance Co. or Resources hereunder (including the reimbursement of any L/C Disbursement) when due or, in the case of interest or fees, within 10 days of the due date thereof; or 6.3B Defaults by Finance Co. or Resources Under Other Agreements. Finance Co. or Resources shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness in a principal amount in excess of $40,000,000, in the case of Indebtedness of Resources or Indebtedness of Finance Co. guaranteed by Resources or, in the case of Indebtedness of Finance Co. not guaranteed by Resources, $10,000,000, if such failure shall continue beyond any period of grace provided with respect thereto, or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument (including any term, covenant, condition or agreement herein) evidencing or governing any such Indebtedness in a principal amount in excess of, in the case of Indebtedness of Resources or Indebtedness of Finance Co. guaranteed by Resources, $40,000,000 or, in the case of Indebtedness of Finance Co. not guaranteed by Resources, $10,000,000, if such failure shall continue beyond any period of grace provided with respect thereto if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee on its or their behalf to cause, such Indebtedness to become due prior to its stated maturity; or 6.4B Judgments. Finance Co. or Resources shall fail within 60 days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $25,000,000 that is not stayed on appeal or otherwise being appropriately contested in good faith; or 6.5B Bankruptcy, Etc. Finance Co. or Resources shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy" as now or hereafter in effect or any successor thereto (the "Bankruptcy Code"); or an involuntary case shall be commenced against Finance Co. or Resources or such case shall be controverted but shall not be dismissed within 60 days after the commencement of the case; or Finance Co. or Resources shall not generally be paying its debts as they become due; or a custodian (as defined in the Bankruptcy Code) shall be appointed for, or shall take charge of, all or substantially all of the property of Finance Co. or Resources or Finance Co. or Resources shall commence any other proceeding under any reorganization, arrangement, readjustment of debt, relief of debtors, dissolution, insol- vency or liquidation or similar law of any jurisdiction whe- ther now or hereafter in effect relating to Finance Co. or Resources or there shall be commenced against Finance Co. or Resources any such proceeding which remains undismissed for a period of 60 days or Finance Co. or Resources shall be adjudicated insolvent or bankrupt; or Finance Co. or Resources shall fail to controvert in a timely manner any such case under the Bankruptcy Code or any such proceeding, or any order of relief or other order approving any such case or proceeding shall be entered; or Finance Co. or Resources by any act or failure to act shall indicate its consent to, approval of or acquiescence in any such case or proceeding or in the appointment of any custodian or the like for it or any substantial part of its property or shall suffer any such appointment to continue undischarged or unstayed for a period of 60 days; Finance Co. or Resources shall make a general assignment for the benefit of credi- tors; or any corporate action shall be taken by Finance Co. or Resources for the purpose of effecting any of the fore- going; or 6.6B Other Covenants. Finance Co. or Resources shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and any such failure shall remain unremedied for a period of 30 days after written notice thereof shall have been received by Finance Co. or Resources, as the case may be, from the Agent or the Required Banks; or 6.7B Events of Default with Respect to PPL. An Event of Default shall occur with respect to PPL. If any Event of Default with respect to PPL as specified in Section 6A shall then be continuing, then either or both of the following actions may be taken: (i) the Agent, at the direction of the Required Banks, shall by written notice to PPL, declare the principal of and accrued interest in respect of all of PPL's outstanding Loans to be, whereupon the same and all other amounts due from PPL hereunder shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by PPL, anything contained herein to the contrary notwithstanding, and (ii) the Agent, at the direction of the Required Banks, shall by written notice to PPL, declare the Total Commitment as to PPL terminated, whereupon the Commitment of each Bank (insofar as it is available to PPL) and the obligation of each Bank to make its Loans hereunder to PPL and the obligation of the Fronting Back to issue Letters of Credit for the account of PPL hereunder shall terminate immediately and any accrued Commitment Fee owed by PPL shall forthwith become due and payable without any other notice of any kind; provided that if an Event of Default described in Section 6.5A shall occur with respect to PPL, the results which would otherwise occur only upon the giving of written notice by the Agent to PPL as specified in clauses (i) and (ii) above shall occur auto- matically without the giving of any such notice and without any instruction by the Required Banks to give such notice. If any Event of Default with respect to Finance Co. as specified in Section 6B shall then be continuing, then either or both of the following actions may be taken: (i) the Agent, at the direction of the Required Banks, shall by written notice to Resources and Finance Co., declare the principal of and accrued interest in respect of all of Finance Co.'s outstanding Loans to be, whereupon the same and all other amounts due from Resources or Finance Co. hereunder shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by Resources and Finance Co., anything contained herein to the contrary notwithstanding, and (ii) the Agent, at the direction of the Required Banks, shall, by written notice to Resources and Finance Co., declare the Total Commitment as to Finance Co. terminated (insofar as it is available to Finance Co.), whereupon the Commitment of each Bank and the obligation of each Bank to make its Loans to Finance Co. hereunder and the obligations of the Fronting Bank to issue Letters of Credit for the account of Finance Co. shall terminate immediately and any accrued Commitment Fee owed by Finance Co. shall forthwith become due and payable without any other notice of any kind; provided that if an Event of Default described in Section 6.5B shall occur with respect to Finance Co., the results which would otherwise occur only upon the giving of written notice by the Agent to Finance Co. as specified in clauses (i) and (ii) above shall occur automatically without the giving of any such notice and without any instruction by the Required Banks to give such notice. SECTION 7.A Representations and Warranties of PPL. In order to induce the Banks and the Fronting Bank to enter into this Agreement and to make the Loans to PPL and issue the Letters of Credit for the account of PPL, in each case, as provided for herein, PPL makes the following representations and warranties to the Banks and the Fronting Bank: 7.1A Corporate Status. It is duly incorporated, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania, and has the corporate power to make and perform this Agreement and to borrow hereunder. 7.2A Authority; No Conflict. The making and performance by it of this Agreement have been duly authorized by all necessary corporate action and do not and will not violate any provision of law or regulation, or any decree, order, writ or judgment, or any provision of its charter or by-laws, or result in the breach of or constitute a default under any indenture or other agreement or instrument to which it is a party. 7.3A Legality, Etc. This Agreement constitutes the legal, valid and binding obligation of PPL, enforceable in accordance with its terms except to the extent limited by bankruptcy, insolvency or reorganization laws or by other laws relating to or affecting the enforceability of credi- tors' rights generally and by general equitable principles which may limit the right to obtain equitable remedies. 7.4A Financial Statements. The consolidated financial statements of PPL and its consolidated Subsidiaries for the year ended as at December 31, 1996, furnished to the Banks, fairly present its consolidated financial position at December 31, 1996 and the results of its consolidated operations for the year then ended and were prepared in accordance with GAAP. Since that date there has been no adverse change in the business, assets, financial condition or operations of PPL that would materially and adversely affect the ability of PPL to perform any of its obligations hereunder. 7.5A Litigation. Except as disclosed in or con- templated by PPL's Form 10-K Report to the SEC for the year ended December 31, 1996 or in any subsequent Form 10-Q Report or otherwise furnished in writing to the Banks, no litigation, arbitration or administrative proceeding is pending or, to its knowledge, threatened, which, if determined adversely to PPL, would materially and adversely affect its ability to perform any of its obligations under this Agreement. There is no litigation, arbitration or administrative proceeding pending or, to the knowledge of PPL, threatened which questions the validity of this Agreement. 7.6A No Violation. No part of the proceeds of the borrowings by PPL under this Agreement or of any Letter of Credit issued for its account will be used, directly or indirectly by PPL 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 Regulations G, U or X of said Board of Governors. PPL is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any such "margin stock." 7.7A ERISA. There have not been any "reportable events," as that term is defined in Section 4043 of the Employee Retirement Income Security Act of 1974, as amended, which would result in a material liability to PPL. 7.8A Consents. No authorization, consent or approval from governmental bodies or regulatory authorities is required for the making and performance by PPL of this Agreement, except such authorizations, consents and approvals as have been obtained prior to the making of any Loans or the issuance of any Letters of Credit and are in full force and effect at the time of the making of each Loan and the issuance of each Letter of Credit. 7.9A Subsidiaries. The assets of all Subsidiaries of PPL do not comprise in the aggregate more than 20% of the total consolidated assets of PPL. 7.10A Investment Company Act. PPL is not an "investment company" that is required to be registered under the Investment Company Act of 1940, as amended, in order not to be subject to the prohibitions of Section 7 of such Act. 7.11A Public Utility Holding Company Act. PPL is a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, but is exempt from such Act (except for the provisions of Section 9(a)(2) thereof) by virtue of an order of the SEC pursuant to Section 3(a)(2) thereof. 7.12A Tax Returns. PPL has filed or caused to be filed all Federal, state, local and foreign tax returns or materials required to have been filed by it and has paid or caused to be paid all taxes due and payable by it and all assessments received by it, except taxes that are being contested in good faith by appropriate proceedings and for which PPL shall have set aside on its books appropriate reserves with respect thereto in accordance with GAAP. 7.13A Compliance with Laws. PPL is in compliance with all laws, regulations and orders of any governmental authority except to the extent (A) such compliance is being contested in good faith by appropriate proceedings or (B) non-compliance would not reasonably be expected to materially and adversely affect its ability to perform any of its obligations hereunder. SECTION 7.B Representations and Warranties of Finance Co. and Resources. In order to induce the Banks and the Fronting Bank to enter into this Agreement and to make the Loans to Finance Co. and issue the Letters of Credit for the account of Finance Co., in each case as provided for herein, each of Finance Co. and Resources makes the following representations and warranties to the Banks and the Fronting Bank: 7.1B Corporate Status. Resources is duly incorporated, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania, and has the corporate power to make and perform this Agreement, and Finance Co. is duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has the corporate power to make and perform this Agreement and to borrow hereunder. 7.2B Authority; No Conflict. The making and performance by Resources and Finance Co. of this Agreement have been duly authorized by all necessary corporate action and do not and will not violate any provision of law or regulation, or any decree, order, writ or judgment, or any provision of its charter or by-laws, or result in the breach of or constitute a default under any indenture or other agreement or instrument to which Resources or Finance Co., as the case may be, is a party. 7.3B Legality, Etc. This Agreement constitutes the legal, valid and binding obligation of each of Resources and Finance Co., enforceable against Resources or Finance Co., as the case may be, in accordance with its terms except to the extent limited by bankruptcy, insolvency or reorganization laws or by other laws relating to or affecting the enforceability of creditors' rights generally and by general equitable principles which may limit the right to obtain equitable remedies. 7.4B Financial Statements. The consolidated financial statements of Resources for the year ended as at December 31, 1996, furnished to the Banks, fairly present Resources' consolidated financial position at December 31, 1996 and the results of its consolidated operations for the year then ended and were prepared in accordance with GAAP. Since that date there has been no adverse change in the business, assets, financial condition or operations of Resources that would materially and adversely affect its ability to perform any of its obligations hereunder. 7.5B Litigation. Except as disclosed in or con- templated by Resources's Form 10-K Report to the SEC for the year ended December 31, 1996, or in any subsequent Form 10-Q Report or otherwise furnished in writing to the Banks, no litigation, arbitration or administrative proceeding against Resources or Finance Co. is pending or, to Resources' knowledge, threatened, which, if determined adversely, would materially and adversely affect the ability of Resources to perform any of its obligations under this Agreement. There is no litigation, arbitration or administrative proceeding pending or, to the knowledge of Resources, threatened which questions the validity of this Agreement. 7.6B No Violation. No part of the proceeds of the borrowings by Finance Co. under this Agreement or of any Letter of Credit issued for its account will be used, directly or indirectly by Finance Co. or any Subsidiary of Resources 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 Regulations G, U or X of said Board of Governors. Neither Resources nor Finance Co. is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any such "margin stock." 7.7B ERISA. There have not been any "reportable events," as that term is defined in Section 4043 of the Employee Retirement Income Security Act of 1974, as amended, which would result in a material liability to Resources. 7.8B Consents. No authorization, consent or approval from governmental bodies or regulatory authorities is required for the making and performance by Resource or Finance Co. of this Agreement, except such authorizations, consents and approvals as have been obtained prior to the making of any Loans or the issuance of any Letters of Credit and are in full force and effect at the time of the making of each Loan and the issuance of each Letter of Credit. 7.9B Investment Company Act. Neither Resources nor Finance Co. is an "investment company" that is required to be registered under the Investment Company Act of 1940, as amended, in order not to be subject to the prohibitions of Section 7 of such Act. 7.10B Public Utility Holding Company Act. Resources is a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, but is exempt from such Act (except for the provisions of Section 9(a)(2) thereof) by virtue of an order of the SEC pursuant to Section 3(a)(1) thereof. Finance Co. is not a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 7.11B Tax Returns. Resources and Finance Co. have filed or caused to be filed all Federal, state, local and foreign tax returns or materials required to have been filed by it and has paid or caused to be paid all taxes due and payable by it and all assessments received by it, except taxes that are being contested in good faith by appropriate proceedings and for which Resources shall have set aside on its books appropriate reserves with respect thereto in accordance with GAAP. 7.12B Compliance with Laws. Each of Resources and Finance Co. is in compliance with all laws, regulations and orders of any governmental authority except to the extent (A) such compliance is being contested in good faith by appropriate proceedings or (B) non-compliance would not reasonably be expected to materially and adversely affect its ability to perform any of its obligations hereunder. SECTION 8. Agent. 8.1 Appointment. The Banks hereby appoint The Chase Manhattan Bank as Agent (such term to include Agent acting as Agent) to act as herein specified. Each Bank and the Fronting Bank hereby irrevocably authorizes, and each assignee of any Bank or the Fronting Bank shall be deemed irrevocably to authorize, the Agent to take such action on their behalf under the provisions of this Agreement and any instruments, documents and agreements referred to herein (such instruments, documents and agreements being herein referred to as the "Loan Documents") and to exercise such powers hereunder and thereunder as are specifically delegated to the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder, or under the Loan Documents, by or through its agents or employees. 8.2 Nature of Duties. The duties of the Agent shall be mechanical and administrative in nature. The Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Bank or of the Fronting Bank. Nothing in this Agreement or any of the Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of this Agreement or any of the Loan Documents except as expressly set forth herein. Each Bank and the Fronting Bank shall make its own independent investigation of the financial condition and affairs of PPL, Finance Co. and Resources and each of their Subsidiaries in connection with the making and the continuance of the Loans and the issuance of Letters of Credit hereunder and shall make its own appraisal of the creditworthiness of PPL, Resources and Finance Co.; and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Bank or the Fronting Bank with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or the issuance of Letters of Credit or at any time or times thereafter. The Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible to any Bank or the Fronting Bank for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care except to the extent otherwise required by Section 8.3. 8.3 Rights, Exculpation, Etc. Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be liable to any Bank or to the Fronting Bank for any action taken or omitted by it hereunder or under any of the Loan Documents, or in connection herewith or therewith, unless caused by its or their gross negligence or willful misconduct. The Agent shall not be responsible to any Bank or to the Fronting Bank for any recitals, statements, representations or warranties herein or for the execution, effectiveness, genuineness, validity, enforceability, collectibility, or sufficiency of this Agreement or any of the Loan Documents or the financial condition of PPL, Finance Co. or Resources. The Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any of the Loan Documents or the financial condition of PPL, Finance Co. or Resources, or the existence or possible existence of any Default or Event of Default. The Agent may at any time request instructions from the Banks with respect to any actions or approvals which by the terms of this Agreement or any of the Loan Documents the Agent is permitted or required to take or to grant, and if such instructions are requested, the Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from any action or withholding any approval under this Agreement or any of the Loan Documents until it shall have received such instructions from the Required Banks or all Banks, as required. Without limiting the foregoing, no Bank shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder or under any of the Loan Documents in accordance with the instructions of the Required Banks or all Banks, as required. 8.4 Reliance. The Agent shall be entitled to rely upon any written notice, statement, certificate, order or other document or any telephone message believed by it to be genuine and correct and to have been signed, sent or made by the proper Person, and, with respect to all legal matters pertaining to this Agreement or any of the Loan Documents and its duties hereunder or thereunder, upon advice of counsel selected by it. 8.5 Indemnification. To the extent that the Agent is not reimbursed and indemnified by PPL, Resources or Finance Co., the Banks will reimburse and indemnify the Agent for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent, acting pursuant hereto, in any way relating to or arising out of this Agreement or any of the Loan Documents or any action taken or omitted by the Agent under this Agreement or any of the Loan Documents, in proportion to their respective Commitments hereunder; provided, however, that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or wilful misconduct. The obligations of the Banks under this Section 8.5 shall survive the payment in full of outstanding Loans, the expiration of any Letter of Credit and the termination of this Agreement. 8.6 The Agent, Individually. With respect to its Commitment hereunder and the Loans made by it, the Agent shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Bank. The terms "Banks," "Required Banks" or any similar terms shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity as a Bank or one of the Required Banks. The Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with PPL, Finance Co. or Resources as if it were not acting pursuant hereto. 8.7 Resignation by the Agent. The Agent may resign from the performance of all its functions and duties hereunder at any time by giving 30 Business Days' prior written notice to each Borrower, Resources and the Banks. Such resignation shall take effect upon the expiration of such 30 Business Day period or upon the earlier appointment of a successor. Upon any such resignation, the Required Banks shall appoint a successor Agent who shall be satisfactory to the Borrowers and Resources and shall be an incorporated bank or trust company. In the event no such successor shall have been so appointed, then any notifica- tion, demand or other communication required or permitted to be given by the Agent on behalf of the Banks to the Borrowers hereunder shall be sufficiently given if given by the Required Banks, and any notification, demand, other communication, document, statement, other paper or payment required to be made, given or furnished by PPL, Finance Co. or Resources to the Agent for distribution to the Banks shall be sufficiently made, given or furnished if made, given or furnished by PPL, Finance Co. or Resources, as applicable, directly to each Bank entitled thereto and, in the case of payments, in the amount to which each such Bank is entitled from the applicable Borrower. All powers spec- ifically delegated to the Agent by the terms hereof may be exercised by the Required Banks. SECTION 9. Resources Guarantee. In order to induce the Banks to extend credit hereunder to Finance Co., Resources hereby irrevocably and unconditionally guarantees, as primary obligor and not merely as a surety, the Finance Co. Obligations. Resources further agrees that the due and punctual payment of the Finance Co. Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon its Guarantee hereunder notwithstanding any such extension or renewal of any Finance Co. Obligation. Resources waives presentment to, demand of payment from and protest to Finance Co. of any of the Finance Co. Obligations, and also waives notice of acceptance of its obligations and notice of protest for nonpayment. The obligations of Resources hereunder shall not be affected by (a) the failure of any Bank or the Agent to assert any claim or demand or to enforce any right or remedy against Finance Co. under the provisions of this Agreement or otherwise, (b) change or increase in the amount of any of the Finance Co. Obligations, whether or not consented to by Resources, or (c) any rescission, waiver, amendment or modification of any of the terms or provisions of this Agreement or any other agreement. Resources further agrees that its agreement hereunder constitutes a promise of payment when due (whether or not any bankruptcy or similar proceeding shall have stayed the accrual or collection of any of the Finance Co. Obligations or operated as a discharge thereof) and not merely of collection, and waives any right to require that any resort be had by any Bank to any balance of any deposit account or credit on the books of any Bank in favor of any other person. The obligations of Resources hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever, by reason of the invalidity, illegality or unenforceability of the Finance Co. Obligations, any impossibility in the performance of the Finance Co. Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of Resources hereunder shall not be discharged or impaired or otherwise affected by the failure of the Agent or any Bank to assert any claim or demand or to enforce any remedy under this Agreement or any other agreement, by any waiver or modification in respect of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the Finance Co. Obligations, or by any other act or omission which may or might in any manner or to any extent vary the risk of Resources or otherwise operate as a discharge of Resources or Finance Co. as a matter of law or equity. Resources further agrees that its obligations hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Finance Co. Obligation is rescinded or must otherwise be restored by the Agent or any Bank upon the bankruptcy or reorganization of Finance Co or otherwise. In furtherance of the foregoing and not in limitation of any other right which the Agent or any Bank may have at law or in equity against Resources by virtue hereof, upon the failure of Finance Co. to pay any Finance Co. Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, Resources hereby promises to and will, upon receipt of written demand by the Agent, forthwith pay, or cause to be paid, in cash the amount of such unpaid Finance Co. Obligation. Upon payment by Resources of any Finance Co. Obligation, each Bank shall, in a reasonable manner, assign the amount of such Finance Co. Obligation owed to it and so paid to Resources, such assignment to be pro tanto to the extent to which the Finance Co. Obligation in question was discharged by Resources, or make such disposition thereof as Resources shall direct (all without recourse to any Bank and without any representation or warranty by any Bank). Upon payment by Resources of any sums as provided above, all rights of Resources against Finance Co. arising as a result thereof by way of right of subrogation or otherwise shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full of all the Finance Co. Obligations owed by Finance Co. to the Banks. SECTION 10. Miscellaneous. 10.1 Definitions. As used herein the following terms shall have the meanings herein specified and shall include in the singular number the plural and in the plural number the singular: "364-Day Agreement" shall mean the $150,000,000 364-Day Revolving Credit Agreement among PPL, Finance Co., Resources, as guarantor of the obligations of Finance Co., the banks from time to time party thereto and The Chase Manhattan Bank, as fronting bank, collateral agent and as agent for the banks party thereto. "Affected Bank" shall have the meaning assigned that term in Section 2.5(c). "Agent" shall mean The Chase Manhattan Bank and shall include (i) any successor corporation thereto by merger, consolidation or otherwise and (ii) any successor to the Agent appointed pursuant to Section 8.7. "Aggregate Credit Exposure" shall mean the aggregate amount of the Banks' Credit Exposures. "Agreement" shall mean this Revolving Credit Agreement, as it may from time to time be amended, supplemented or otherwise modified. "Applicable Commitment Fee Percentage" shall mean for the Borrowers, the percentage specified as such in the table in the definition of "Applicable Rate" opposite the highest rating category in which PPL's First Mortgage Bonds have been assigned a rating by either of Moody's or S&P. "Applicable Eurodollar Margin" shall mean (i) for PPL, the margin specified as such in the table in the definition of "Applicable Rate" opposite the highest rating category in which PPL's First Mortgage Bonds have been assigned ratings by either of Moody's or S&P or (ii) for Finance Co., the margin specified as such in the table in the definition of "Applicable Rate" opposite the highest rating category in which Resources' senior unsecured debt has been assigned ratings by either of Moody's or S&P. "Applicable Lending Office" shall mean, with respect to each Bank, (i) such Bank's Base Rate Lending Office in the case of a Base Rate Loan and (ii) such Bank's Eurodollar Lending Office in the case of a Eurodollar Rate Loan. "Applicable Percentage" of any Bank at any time shall mean the percentage of the Total Commitment represented by such Bank's Commitment. In the event the Commitments shall have expired or been terminated, the Applicable Percentages shall be determined on the basis of the Commitments most recently in effect, but giving effect to assignments pursuant to Section 10.6. "Applicable Rate" shall mean and include the Applicable Commitment Fee Percentage for undrawn Commitments or Applicable Eurodollar Margin for any Loans or issued Letters of Credit and at any time will be determined based on the highest applicable Category set forth below (the highest category being Category A). Criteria Applicable Applicable Commitment Eurodollar Fee Margin Percentage Category A: A- or better/ .110% .300% A3 or better Category B: BBB+/Baa1 .130% .350% Category C: BBB/Baa2 .150% .400% Category D: BBB-/Baa3 .1875% .450% Category E: BB+ or below/ .250% .625% Ba1 or below "Bank" shall have the meaning assigned that term in the first paragraph in this Agreement. "Bankruptcy Code" shall have the meaning assigned that term in Section 6.5. "Base Rate" shall mean, for any day, a rate per annum equal to the higher of (i) the Prime Rate and (ii) 1/2 of 1% plus the Federal Funds Rate, each as in effect from time to time. "Base Rate Lending Office" means, with respect to each Bank, the office of such Bank specified as its "Base Rate Lending Office" on the signature pages to the Agreement or such other office of such Bank as such Bank may from time to time specify as such to the Borrowers and the Agent. "Base Rate Loan" shall mean any Loan during any period during which such Loan is bearing interest at the rates provided for in Section 2.1(a). "Borrower" shall mean either PPL or Finance Co. and "Borrowers" shall mean PPL and Finance Co. "Borrowing" shall mean the incurrence of one Type of Loan to a Borrower from all the Banks on a given date, all of which Eurodollar Loans shall have the same Interest Period, pursuant to Section 1.2; provided, however, that Loans to a Borrower of a different Type extended by one or more Banks pursuant to Section 2.5(b) shall be considered a part of the related Borrowing. "Business Day" shall mean (i) for all purposes other than as covered by clause (ii) below, any day excluding Saturday, Sunday and any day on which banks in New York City are authorized by law or other governmental actions to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in U.S. dollar deposits in the London interbank Eurodollar market. "Capital Lease Obligations" of any person shall mean obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Closing Date" shall mean November 20, 1997. "Commitment", for each Bank, shall mean the amount specified opposite its name on Schedule I hereto, such Commitment to be reduced by the amount of any reduction thereto effected pursuant to Section 1.7, Section 6 and/or Section 10.6(b)(A). "Commitment Fee" shall have the meaning assigned that term in Section 1.6(a). "Consolidated Capitalization of PPL" shall mean the sum of (A) the Consolidated Indebtedness of PPL and (B)(i) the consolidated shareowners' equity (determined in accordance with GAAP) of the common, preference and preferred stockholders of PPL and (ii) the aggregate amount of Hybrid Preferred Securities of PPL, except that for purposes of calculating Consolidated Capitalization of PPL, Consolidated Indebtedness of PPL shall exclude Non-Recourse Indebtedness of PPL and Consolidated Capitalization of PPL shall exclude that portion of shareholder equity attributable to assets securing Non-Recourse Indebtedness of PPL. "Consolidated Capitalization of Resources" shall mean the sum of (A) the Consolidated Indebtedness of Resources and (B)(i) the consolidated shareowners' equity (determined in accordance with GAAP) of the common, preference and preferred stockholders of Resources and (ii) the aggregate amount of Hybrid Preferred Securities of Resources, except that for purposes of calculating Consolidated Capitalization of Resources, Consolidated Indebtedness of Resources shall exclude Non-Recourse Indebtedness of Resources and Consolidated Capitalization of Resources shall exclude that portion of shareholder equity attributable to assets securing Non-Recourse Indebtedness of Resources. "Consolidated Indebtedness of PPL" shall mean the consolidated Indebtedness of PPL (determined in accordance with GAAP), except that for purposes of this definition (1) Consolidated Indebtedness of PPL shall exclude Non-Recourse Indebtedness of PPL and (2) Consolidated Indebtedness of PPL shall exclude any Hybrid Preferred Securities of PPL. "Consolidated Indebtedness of Resources" shall mean the consolidated Indebtedness of Resources (determined in accordance with GAAP), except that for purposes of this definition (1) Consolidated Indebtedness of Resources shall exclude Non-Recourse Indebtedness of Resources and (2) Consolidated Indebtedness of Resources shall exclude any Hybrid Preferred Securities of Resources. "Credit Exposure", for each Bank at any time, shall mean the aggregate principal amount at such time of all outstanding Loans of such Bank to the Borrowers plus the aggregate amount at such time of such Bank's L/C Exposure. "Default" with respect to a Borrower, shall mean any event, act or condition which with notice or lapse of time or both would constitute an Event of Default with respect to that Borrower. "Eligible Transferee" shall mean and include a commercial bank, financial institution or other "accredited investor" (as defined in SEC Regulation D). "Eurodollar Lending Office" shall mean, with respect to each Bank, the office of such Bank specified as its "Eurodollar Lending Office" on the signature pages to the Agreement or such other office of such Bank as such Bank may from time to time specify as such to the Borrowers and the Agent. "Eurodollar Loan" shall mean any loan during any period during which such Loan is bearing interest at the rates provided for in Section 2.1(b). "Event of Default" shall mean with respect to PPL each of the Events of Default specified in Section 6A and with respect to Finance Co., each of the Events of Default specified in Section 6B. "Expiry Date" shall mean the date five years from the date hereof. "Federal Funds Rate" shall mean for any day, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal Funds brokers of recognized standing selected by the Agent. "Finance Co." shall have the meaning assigned that term in the first paragraph of this Agreement. "Finance Co. Obligations" shall mean all obligations of Finance Co. under this Agreement to pay (i) the principal of and interest on the Loans and LC Disbursements when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, and (ii) all other payment obligations of Finance Co. hereunder. "First Mortgagee Bonds" shall mean the first mortgage bonds issued by PPL pursuant to its Mortgage and Deed of Trust dated as of October 1, 1945, as supplemented. "GAAP" shall mean United States generally accepted accounting principles applied on a consistent basis. "Guarantee" of or by any person shall mean any obligation, contingent or otherwise, of such person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for payment of such Indebtedness, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness or (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness; provided, however, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "Hybrid Preferred Securities of PPL" means (1) the preferred securities and subordinated debt described in the Prospectus dated as of April 3, 1997 of PP&L Capital Trust and PPL and the preferred securities and subordinated debt described in the Prospectus dated as of June 9, 1997 of PP&L Capital Trust II and PPL (collectively, the "Existing TOPrS") and (2) any additional preferred securities and subordinated debt (with a maturity of at least twenty years) similar to the Existing TOPrS and in an aggregate amount not to exceed $100,000,000, issued by business trusts, limited liability companies, limited partnerships (or similar entities) (i) all of the common equity, general partner or similar interests of which are owned (either directly or indirectly through one or more wholly-owned Subsidiaries) at all times by PPL, (ii) that have been formed for the purpose of issuing hybrid preferred securities and (iii) substantially all the assets of which consist of (A) subordinated debt of PPL or a Subsidiary of PPL, as the case may be, and (B) payments made from time to time on the subordinated debt. "Hybrid Preferred Securities of Resources" means (1) the preferred securities and subordinated debt described in the Prospectus dated as of April 3, 1997 of PP&L Capital Trust and PPL and the preferred securities and subordinated debt described in the Prospectus dated as of June 9, 1997 of PP&L Capital Trust II and PPL (collectively, the "Existing TOPrS") and (2) any additional preferred securities and subordinated debt (with a maturity of at least twenty years) similar to the Existing TOPrS and in an aggregate amount not to exceed $100,000,000, issued by business trusts, limited liability companies, limited partnerships (or similar entities) (i) all of the common equity, general partner or similar interests of which are owned (either directly or indirectly through one or more wholly-owned Subsidiaries) at all times by Resources or PPL, (ii) that have been formed for the purpose of issuing hybrid preferred securities and (iii) substantially all the assets of which consist of (A) subordinated debt of Resources or a Subsidiary of Resources, as the case may be, and (B) payments made from time to time on the subordinated debt. "Indebtedness" of any person shall mean, without duplication, (a) all obligations of such person for borrowed money, (b) all obligations of such person with respect to deposits or advances of any kind, (c) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (d) all obligations of such person under conditional sale or other title retention agreements relating to property or assets purchased by such person, (e) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable and accrued obligations incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien or property owned or acquired by such person, whether or not the obligations secured thereby have been assumed but shall not include any obligations that are without recourse to such person, (g) all Guarantees by such person of Indebtedness of others, (h) all Capital Lease Obligations of such person, (i) all obligations of such person in respect of Interest Rate Protection Agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements (the amount of any such obligation to be the amount that would be payable upon the acceleration, termination or liquidation thereof) and (j) all obligations of such person as an account party in respect of letters of credit and bankers' acceptances. "Interest Period" shall mean (a) as to any Eurodollar Loan, the period commencing on the date of such Loan and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the applicable Borrower may elect in a Notice of Borrowing or Notice of Conversion and (b) as to any Base Rate Loan, the period commencing on the date of such Loan and ending on the date 90 days thereafter or, if earlier, on the Expiry Date or the date of prepayment of such Loan. If any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day, provided that if any Interest Period applicable to a Borrowing of Eurodollar Loans would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day. "Interest Rate Protection Agreement" shall mean any agreement providing for an interest rate swap, cap or collar, or for any other financial arrangement designed to protect against fluctuations in interest rates. "L/C Commitment" shall mean the commitment of the Fronting Bank to issue Letters of Credit pursuant to Section 1A. "L/C Disbursement" shall mean a payment or disbursement made by the Fronting Bank pursuant to a Letter of Credit. "L/C Exposure" shall mean at any time the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate principal amount of all L/C Disbursements that have not yet been reimbursed at such time. The L/C Exposure of any Bank at any time shall mean its Applicable Percentage of the aggregate L/C Exposure at such time. "L/C Participation Fee" shall have the meaning assigned to such term in Section 1.6(b). "Letter of Credit" shall mean any letter of credit issued pursuant to Section 1A. "Lien" shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vender or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan" shall have the meaning assigned that term in Section 1.1. "Loan Documents" shall have the meaning assigned that term in Section 8.1. "Moody's" shall mean Moody's Investors Service, Inc. or any successor thereto. "Non-Recourse Indebtedness of PPL" shall mean indebtedness that is nonrecourse to PPL or any of its Subsidiaries. "Non-Recourse Indebtedness of Resources" shall mean indebtedness that is nonrecourse to Resources, either Borrower or any of PPL's Subsidiaries. "Notice of Borrowing" shall have the meaning assigned that term in Section 1.2. "Notice of Conversion" shall have the meaning assigned that term in Section 2.4(a). "Payment Office" shall mean the office of the Agent located at 270 Park Avenue, New York, New York 10017, or such other office as the Agent may hereafter designate in writing as such to the other parties hereto. "Permitted Liens" shall mean (a) Liens for taxes, assessments or governmental charges or levies to the extent not past due, or which are being contested in good faith in appropriate proceedings for which Resources has provided appropriate reserves for the payment thereof in accordance with GAAP; (b) pledges or deposits in the ordinary course of business to secure obligations under worker's compensation laws or similar legislation; (c) other pledges or deposits in the ordinary course of business (other than for borrowed monies) that, in the aggregate, are not material to Resources; (d) Liens imposed by law such as materialmen's, mechanics', carriers', workers' and repairmen's Liens and other similar Liens arising in the ordinary course of business for sums not yet due or currently being contested in good faith by appropriate proceedings; (e) attachment, judgment or other similar Liens arising in connection with court proceedings, provided that such Liens, in the aggregate, shall not exceed $50,000,000 at any one time outstanding, and (f) other Liens not otherwise referred to in the foregoing clauses (a) through (e) above, provided that such other Liens do not secure at any time obligations in an aggregate amount in excess of $100,000,000 at any time outstanding. "Persons" shall mean and include any individual, firm, corporation, association, trust or other enterprise or any governmental or political subdivision or agency, department or instrument thereof. "PPL" shall have the meaning assigned that term in the first paragraph of this Agreement. "Prime Rate" shall mean the rate which The Chase Manhattan Bank announces from time to time as its prime lending rate, such Prime Rate to change when and as such prime lending rate changes. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. The Chase Manhattan Bank may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. "Quoted Rate" shall mean, with respect to any Eurodollar Loan for any Interest Period, the average rate (rounded upwards to the nearest 1/16 of 1%) at which dollar deposits approximately equal in principal amount to the Agent's portion of such Eurodollar Loan and for a maturity comparable to such Interest Period are offered to the principal London office of the Reference Banks in immediately available funds in the London interbank market at approximately 11:00 A.M. (London time) 2 Business Days prior to the commencement of such Interest Period, without any addition to such offered quotation to give effect to the reserve requirements established for Eurodollar transactions by Regulation D. Each Reference Bank shall use its best efforts to furnish rates to the Agent as contemplated hereby. If any one of the Reference Banks shall be unable or otherwise fail to supply such rates to the Agent upon its request, the applicable rate shall be determined on the basis of the rates submitted by the remaining two Reference Banks. If more than one Reference Bank shall be unable or otherwise fail to supply such rates, there shall be no applicable rate. "Reference Banks" shall mean The Chase Manhattan Bank, Citibank, N.A. and Morgan Guaranty Trust Company. "Register" shall have the meaning provided in 1.4(b). "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect or any successor to all or a portion thereof establishing reserve requirements. "Required Banks" shall mean Banks having Loans the outstanding principal amount of which aggregate (or, if no Loans are outstanding, Banks with Commitments aggregating) at least the majority of the aggregate outstanding principal amount of all Loans (or of the Total Commitment). "Resources" shall have the meaning assigned that term in the first paragraph of this Agreement. "SEC" shall have the meaning assigned that term in Section 5.1(c). "SEC Regulation D" shall mean Regulation D as promulgated under the Securities Act of 1933, as amended, as the same may be in effect from time to time." "S&P" shall mean Standard & Poor's Ratings Group or any successor thereto. "Subsidiary" shall mean any company, partnership, association or other business entity in which any Person and its Subsidiaries now have or may hereafter acquire an aggregate of at least 50% of the voting stock or ownership interests. "Taxes" shall have the meaning assigned that term in Section 3.4. "Total Commitment" shall mean the aggregate of all the Commitments of all the Banks. "Type" shall mean any type of Loan, i.e., whether a Loan is a Base Rate Loan or a Eurodollar Loan. "Unaffected Bank" shall have the meaning assigned that term in Section 2.5(c). "written" or "in writing" shall mean any form of written communication or a communication by means of telex, telecopier device, telegraph or cable. 10.2 Accounting Principles. All statements to be prepared and determinations to be made under this Agreement, including (without limitation) those pursuant to Section 5, shall be prepared and made in accordance with generally accepted accounting principles applied on a basis consistent with the accounting principles reflected in the audited financial statements of PPL and Resources for the fiscal year ended December 31, 1996, referred to in Section 7.4, except for changes in accounting principles consistent with GAAP. 10.3 Exercise of Rights. Neither the failure nor delay on the part of any of the Banks or the Fronting Bank to exercise any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Banks would otherwise have. No notice to or demand on PPL, Finance Co. or Resources in any case shall entitle PPL, Finance Co. or Resources, as applicable, to any other or further notice or demand in similar or other circum- stances or constitute a waiver of the right of the Banks or the Fronting Bank to any other or further action in any circumstances without notice or demand. 10.4 Amendment and Waiver. Neither this Agreement nor any other Loan Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by PPL, Finance Co. and Resources, and the Required Banks, provided that no such change, waiver, discharge or termination shall, without the consent of each Bank directly affected thereby, (i) extend the final scheduled maturity of any Loan or reduce the rate or extend the time of payment of interest or Commitment Fees thereon (except in connection with a waiver of the applicability of any post-default increase in interest rates), or reduce the principal amount thereof (except to the extent repaid in cash), (ii) amend, modify or waive any provision of this Section 10.4, (iii) reduce the percentage specified in the definition of Required Banks or (iv) consent to the assignment or transfer by PPL, Finance Co. or Resources of any of its rights and obligations under this Agreement or the release of Resources from its guarantee hereunder; provided further, that no such change, waiver, discharge or termination shall (x) increase the Commitments of any Bank over the amount thereof then in effect without the consent of such Bank (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or Events of Default shall not constitute an increase of the Commitment of any Bank) or (y) without the consent of the Agent, amend, modify or waive any provision of Section 8 as such Section applies to such Agent or any other provision as such Section relates to the rights or obligations of such Agent. 10.5 Expenses; Indemnification. (a) The Borrowers agree to pay all reasonable out-of-pocket expenses (i) of the Agent and the Fronting Bank incurred in connection with the preparation, execution, delivery, enforcement and administration (exclusive of any internal overhead expenses) of this Agreement and any and all agreements supplementary hereto and the making and repayment of the Loans, the issuance of the Letters of Credit and the payment of interest, including, without limitation, the reasonable fees and expenses of Cravath, Swaine & Moore, counsel for the Agent and (ii) of the Agent, the Fronting Bank and each Bank incurred in connection with the enforcement of this Agreement, including, without limitation, the reasonable fees and expenses of any counsel for any of the Banks with respect to such enforcement; provided that none of the Borrowers or Resources shall be liable for any fees, charges or disbursements of any counsel for the Banks or the Agent other than Cravath, Swaine & Moore associated with the preparation, execution and delivery of this Agreement and the closing documentation contemplated hereby. (b) The Borrowers further agree to pay, and to save the Agent, the Fronting Bank and the Banks harmless from all liability for, any stamp or other documentary taxes which may be payable in connection with the Borrowers' execution or delivery of this Agreement, their borrowings hereunder or Letters of Credit, or the issuance of any notes or of any other instruments or documents provided for herein or delivered or to be delivered by each of them hereunder or in connection herewith. (c) The Borrowers agree to indemnify the Agent, the Fronting Bank and each Bank and each of their respective affiliates, directors, officers and employees (each such person being called an "Indemnitee") against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not the Agent, the Fronting Bank or any Bank is a party thereto) which any of them may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby, the direct or indirect application or proposed application of the proceeds of any Loan hereunder or the issuance of Letters of Credit; provided that such indemnification shall not extend to disputes solely among the Agent, the Fronting Bank and the Banks; and provided further that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee. (d) All obligations provided for in this Section 10.5 shall survive any termination of this Agreement or the resignation, withdrawal or removal of any Bank. 10.6 Successors and Assigns. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that none of PPL, Finance Co. or Resources may assign or transfer any of its interests hereunder, except to the extent any such assignment results from the consummation of a transaction permitted under Section 5.2, without the prior written consent of the Banks and provided further that the right of each Bank to transfer, assign or grant participations in its rights and/or obligations hereunder shall be limited as set forth below in this Section 10.6, provided that nothing in this Section 10.6 shall prevent or prohibit any Bank from pledging its rights under this Agreement and/or its Loans hereunder to a Federal Reserve Bank in support of borrowings made by such Bank from such Federal Reserve Bank. In order to facilitate such an assignment to a Federal Reserve Bank, the Borrowers shall, at the request of the assigning Bank, duly execute and deliver to the assigning Bank a promissory note evidencing its Commitment or Loans made by the assigning Bank hereunder. (b) Each Bank shall have the right to transfer, assign or grant participations in all or any part of its remaining rights and obligations hereunder on the basis set forth below in this clause (b). (A) Assignments. Each Bank may assign all or a portion of its rights and obligations hereunder pursuant to this clause (b)(A) to (x) one or more Banks or any affiliates of any Bank or (y) one or more other Eligible Transferees, provided that (i) any such assignment pursuant to clause (y) above shall be in the aggregate amount of at least $5,000,000, (ii) after giving effect to any such assignment pursuant to clause (x) or (y) above, no Bank shall have a Commitment of less than $5,000,000 unless such Bank's Commitment is reduced to zero pursuant to such assignment, (iii) the assigning Bank shall not assign any of its rights and obligations under this Agreement without assigning the same percentage of its rights and obligations under the 364-Day Agreement, (iv) any assignment pursuant to clause (y) shall require the consent of the Borrowers, which consent shall not be unreasonably withheld, and provided further, that, so long as no Loans or interest thereon shall be outstanding and no Default or Event of Default shall have occurred with respect to PPL, Finance Co. or Resources and then be continuing, the Borrowers may at their option terminate the portion of such assigning Bank's Commitment proposed to be assigned pursuant to clause (y) above in lieu of consenting to such assignment, and the Total Commitment shall be reduced in the amount of such termination. Assignments or terminations of all or any portion of any Bank's Commitment pursuant to this clause (b)(A) will only be effective if the Agent shall have received a written notice from the assigning Bank and the assignee, or, in the case of a termination, the Borrowers, and, in the case of an assignment, payment of a nonrefundable assignment fee of $2,500 to the Agent by either the assigning Bank or the assignee. No later than five Business Days after its receipt of any written notice of assignment or termination, the Agent will record such assignment or termination, and the resultant effects thereof on the Commitment of the assigning or terminating Bank and, in the case of an assignment, the assignee, in the Register, at which time such assignment or termination shall become effective, provided that the Agent shall not be required to, and shall not, so record any assignment or termination in the Register on or after the date on which any proposed amendment, modification or supplement in respect of this Agreement has been circulated to the Banks for approval until the earlier of (x) the effectiveness of such amendment, modification or supplement in accordance with Section 10.4 or (y) 30 days following the date on which such proposed amendment, modification or supplement was circulated to the Banks. Upon the effectiveness of any assignment or termination pursuant to this clause (b)(A), (x) the assignee, in the case of an assignment, will become a "Bank" for all purposes of this Agreement and the other Loan Documents with a Commitment as so recorded by the Agent in the Register, and to the extent of such assignment or termination, the assigning or terminating Bank shall be relieved of its obligations hereunder with respect to the portion of its Commitment being assigned or terminated. (B) Participations. Each Bank may transfer, grant or assign participations in all or any part of such Bank's interests and obligations hereunder pursuant to this clause (b)(B) to any Eligible Transferee, provided that (i) such Bank shall remain a "Bank" for all purposes of this Agreement and the transferee of such participation shall not constitute a Bank hereunder and (ii) no participant under any such participation shall have any rights under the Agreement or other Loan Document or any rights to approve any amendment to or waiver of this Agreement or any other Loan Document except to the extent such amendment or waiver would (x) extend the final scheduled maturity of any of the Loans or the Commitment in which such participant is participating, (y) reduce the interest rate (other than as a result of waiving the applicability of any post-default increases in interest rates) or Commitment Fee or other fees applicable to any of the Loans or Commitments in which such participant is participating or postpone the payment of any thereof or reduce the principal amount of any Loan (except to the extent repaid in cash) or (z) release Resources from its obligations as a guarantor hereunder. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Loan Documents (the participant's rights against the granting Bank in respect of such participation to be those set forth in the agreement with such Bank creating such participation) and all amounts payable by each of the Borrowers hereunder shall be determined as if such Bank had not sold such participation, provided that such participant shall be entitled to receive additional amounts under Section 1.8 and Section 2.5 on the same basis as if it were a Bank but in no case shall be entitled to any amount greater than would have been payable had the Bank not sold such participations. (c) Each Bank hereby represents, and each Person that becomes a Bank pursuant to an assignment permitted by the preceding clause (b)(A) will upon its becoming party to this Agreement represent, that it is an Eligible Transferee which makes loans in the ordinary course of its business and that it will make or acquire Loans for its own account in the ordinary course of such business, provided that, subject to the preceding clauses (a) and (b), the disposition of any promissory notes or other evidences of or interests in Loans held by such Bank shall at all times be within its exclusive control. 10.7 Notices, Requests, Demands. All notices, requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been given or made (i) in the case of notice by mail, when actually received, and (ii) in the case of telecopier notice sent over a telecopier machine owned or operated by a party hereto, when sent, in each case addressed to the party or parties to which such notice is given at their respective addresses shown below their signatures hereto or at such other address as such party may hereafter specify in writing to the others. No other method of giving notice is hereby precluded. 10.8 Survival of Representations and Warranties. All representations and warranties contained herein or otherwise made in writing by PPL, Finance Co. or Resources in connection herewith shall survive the execution and delivery of this Agreement. 10.9 Governing Law. This Agreement and the rights and obligations of the parties under this Agreement (other than as relates to Letters of Credit) shall be governed by and construed and interpreted in accordance with the laws of the State of New York. Each Letter of Credit shall be governed by, and construed and interpreted in accordance with the laws or rules designated in such Letter of Credit, or if no such laws or rules are designated, the Uniform Customs and Practice for Documentary Credits (1993 revision), International Chamber of Commerce, publication no. 500 (the "Uniform Customs") and, as to matters not governed by the Uniform Customs, the laws of the State of New York. 10.10 Counterparts. This Agreement may be executed in any number of copies, and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instrument. Complete counterparts of this Agreement shall be lodged with each Borrower, Resources and the Agent. 10.11 Effectiveness. This Agreement shall become effective on the Closing Date. 10.12 Transfer of Office. (a) Each Bank may transfer and carry its Loans at, to or for the account of any branch office, subsidiary or affiliate of such Bank; provided that such Bank shall continue to bear all of its obligations under this Agreement; and provided further that the Borrowers shall not be responsible for costs arising under Section 1.8, 2.5 or 3.4 resulting from any such transfer to the extent not otherwise applicable to such Bank prior to such transfer. (b) Upon a Bank becoming aware of any event which will entitle it to any additional amount pursuant to Section 2.5(a) or Section 3.4, such Bank shall take all reasonable steps (including but not limited to making, maintaining or funding the affected Loan through another office of such Bank) to avoid or reduce the additional amount payable by the applicable Borrower; provided that, such steps will not result in any additional costs, liabilities or expenses (not reimbursable by the applicable Borrower) to such Bank and are not otherwise inconsistent with the interests of such Bank determined in good faith. 10.13 Proration of Payments. The Banks agree among themselves that, with respect to all amounts received by them which are applicable to the payment of principal of or interest on the Loans, equitable adjustment will be made so that, in effect, all such amounts will be shared ratably among the Banks on the basis of the amounts then owed each of them in respect of such obligation, whether received by voluntary payment, by realization upon security, by the exercise of any right of set- off or bankers' lien, by counterclaim or cross action, under or pursuant to this Agreement or otherwise. Each of the Banks agrees that if it should receive any payment on its Loans of a sum or sums in excess of its pro rata portion, then the Bank receiving such excess payment shall purchase for cash from the other Banks an interest in the Loans of such Banks in such amount as shall result in a ratable participation by each of the Banks in the aggregate unpaid amount of all outstanding Loans then held by all of the Banks. If all or any portion of such excess pay- ment is thereafter recovered from such Bank, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. The Borrowers agree that any Bank so purchasing a participation from another Bank pursuant to this Section 10.13 may exercise all its rights with respect to such participation as fully as if such Bank were the direct creditor of the Borrowers in the amount of such participation. 10.14 Jurisdiction; Consent to Service of Process. (a) Each of PPL, Finance Co. and Resources hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Agent, the Fronting Bank or any Bank may otherwise have to bring any action or proceeding relating to this Agreement against any of PPL, Finance Co., Resources or its properties in the courts of any jurisdiction. (b) Each of PPL, Finance Co. and Resources hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (a) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 10.7. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. 10.15 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREE- MENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. 10.16 Headings Descriptive. The headings of the various provisions of this Agreement are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. PP&L, INC., By /s/ John R. Biggar Name: Title: Vice President Finance PP&L CAPITAL FUNDING, INC., By /s/ R.E. Hill Name: Title: President PP&L RESOURCES, INC., By /s/ James E. Abel Name: Title: Treasurer THE CHASE MANHATTAN BANK, Individually and as Agent and Fronting Bank By /s/ Thomas Kozlark Name: Title: Vice President CITIBANK, N.A. By/s/Robert J. Harrity, Jr. Name: Title: Managing Director THE BANK OF NEW YORK By /s/ John N. Watt Name: Title: Vice President THE BANK OF NOVA SCOTIA By /s/ J. Alan Edwards Name: Title: Authorized Signatory CORESTATES BANK, N.A. By /s/ Anthony D. Braxton Name: Title: Vice President CREDIT SUISSE FIRST BOSTON By /s/ J. Scott Karro Name: Title: Associate By /s/ Eric J. Eckholdt Name: Title: Associate DEUTSCHE BANK AG, NEW YORK BRANCH and/or CAYMAN ISLANDS BRANCH By /s/ Gabrielle C. Upton Name: Title: Assistant Vice President By /s/ Steven A. Cohen Name: Title: Vice President THE FIRST NATIONAL BANK OF CHICAGO By /s/ Kenneth J. Bauer Name: Title: Authorized Agent FIRST UNION NATIONAL BANK By /s/Michael J. Kolosowsky Name: Title: Vice President FUJI BANK LIMITED By /s/ Toshiaki Yakura Name: Title: Senior Vice President MORGAN GUARANTY TRUST COMPANY By /s/ Philip S. Detjens Name: Title: Vice President MELLON BANK, N.A. By /s/ A. Gary Chace Name: Title: Senior Vice President NATIONSBANK, N.A. By /s/ Gretchen P. Burud Name: Title: Vice President TORONTO DOMINION (TEXAS), INC. By /s/ Darlene Riedel Name: Title: Vice President Bank Address Schedule Name of Bank and Address Phone Number(s) Fax Number(s) The Chase Manhattan Bank Attn: Jaimin Patel 270 Park Avenue New York, NY 10017 (212) 270-1354 (212) 270-2101 The Bank of New York Attn: John Watt One Wall Street New York, NY 10286 (212) 635-7533 (212) 635-7533 The Bank of Nova Scotia Attn: Phil Adsetts One Liberty Plaza 26th Floor New York, NY 10006 (212) 225-5010 (212) 225-5090 Citibank, N.A. Attn: Phil Kron Jean Chastain 399 Park Avenue 9th Floor New York, NY 10043 (212) 559-1500 (212) 793-6130 Corestates Bank, N.A. Attn: Anthony Braxton Jon Peterson Widener Bldg. 1339 Chestnut Street Philadelphia, PA 19101-7618 (215) 786-4353 (215) 786-7799 (215) 786-7721 (215) 786-7704 Credit Suisse First Boston Attn: James Moran 11 Madison Avenue 20th Floor New York, NY 10010 (212) 325-9176 (212) 325-8314 Deutsche Bank AG Attn: Gabrielle Upton Rosemary Kelley 31 West 52nd Street 24th Floor New York, NY 10019 (212) 469-7368 (212) 469-8677 (212) 469-4638 The First National Bank of Chicago Attn: Kenneth Bauer Madeleine Pember One First National Plaza Suite 0360 Chicago, IL 60670 (312) 732-6282 (312) 732-9727 (312) 732-3055 First Union National Bank Attn: Brian Tate 301 South College Street 5th Floor Charlotte, NC 28288-0735 (704) 383-0510 (704) 383-6670 Fuji Bank Limited Attn: Michael Gebauer Mark Olson Two World Trade Center New York, NY 10048 (212) 898-2064 (212) 898-2066 (212) 321-9407 Morgan Guaranty Trust Company Attn: Philip Detjens 60 Wall Street New York, NY 10005 (212) 648-8454 (212) 648-5014 Mellon Bank, N.A. Attn: Mary Ellen Usher A. Gary Chace 1 Mellon Bank Center Suite 4425 Pittsburgh, PA 15258-0001 (412) 236-1203 (412) 236-2786 (412) 236-1840 NationsBank, N.A. Attn: Brenda Tate Andrew Hemsley 100 North Tyron Street 8th Floor Charlotte, NC 28255 (704) 386-1644 (704) 386-0710 (704) 386-1270 Toronto Dominion (Texas), Inc. Attn: Katherine Lucey 31 West 52nd Street New York, NY 10019-6101 (212) 468-0785 (212) 262-1929 SCHEDULE I BANK COMMITMENT THE CHASE MANHATTAN BANK $30,000,000 CITIBANK, N.A. $30,000,000 THE BANK OF NEW YORK $20,000,000 THE BANK OF NOVA SCOTIA $20,000,000 CORESTATES BANK, N.A. $20,000,000 CREDIT SUISSE FIRST BOSTON $20,000,000 DEUTSCHE BANK AG $20,000,000 THE FIRST NATIONAL BANK OF CHICAGO $20,000,000 FIRST UNION NATIONAL BANK $20,000,000 FUJI BANK LIMITED. $20,000,000 MORGAN GUARANTY TRUST COMPANY $20,000,000 MELLON BANK, N.A. $20,000,000 NATIONSBANK, N.A. $20,000,000 TORONTO DOMINION (TEXAS), INC. $20,000,000 TOTAL COMMITMENT $300,000,000 EXHIBIT A OPINION OF GENERAL COUNSEL OR SENIOR COUNSEL FOR PPL, FINANCE CO. AND RESOURCES The opinion of Counsel for PPL, Finance Co. and Resources, referred to in Section 4.1(b) of the 364-Day Revolving Credit Agreement among PPL, Finance Co., Resources, as guarantor of the obligations of Finance Co., the banks from time to time party thereto and The Chase Manhattan Bank, as fronting bank, collateral agent and as agent for the banks thereto and the 5- Year Revolving Credit Agreement among PPL, Finance Co., Resources, as guarantor of the obligations of Finance Co., the banks from time to time party thereto and The Chase Manhattan Bank, as fronting bank, collateral agent and as agent for the banks thereto (each individually an "Agreement" and together, the "Agreements") shall be to the effect that (terms used herein shall have the meanings specified therefor in the Agreements): 1. Each of PPL and Resources is duly incorporated, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania and each of PPL and Finance Co. has the corporate power to make and perform the Agreements and to borrow under the Agreements and Resources has the corporate power to guarantee the obligations of Finance Co. under the Agreements. 2. The making and performance by each of PPL and Finance Co. of the Agreements, and the guarantee by Resources of the obligations of Finance Co. under the Agreements have been duly authorized by all necessary corporate action and do not and will not violate any provision of law or regulation, or any decree, order, writ or judgment, or any provision of its charter or by- laws, or result in the breach of or constitute a default under any indenture or other agreement or instrument known to such counsel to which any of them is a party. 3. The Agreements constitute the legal, valid and binding obligations of PPL, Finance Co. and Resources enforceable in accordance with their respective terms except to the extent limited by bankruptcy, insolvency or reorganization laws or by other laws relating to or affecting the enforceability of creditors' rights generally and by general equitable principles. 4. Except as disclosed in or contemplated by PPL's or Resources' Form 10-K Report to the Securities and Exchange Commission for the year 1996, no litigation, arbitration or administrative proceeding is pending or, to the knowledge of such counsel, threatened, which, if determined adversely to PPL or Resources, would materially and adversely affect the ability of PPL or Resources to perform any of its obligations under the Agreements. There is no litigation, arbitration or admin- istrative proceeding pending or, to the knowledge of such counsel, threatened which questions the validity of the Agreements. 5. Neither PPL nor Finance Co. is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System. 6. There have not been any "reportable events," as that term is defined in Section 4043 of the Employee Retirement Income Security Act of 1974, as amended, which would result in a material liability of PPL or Resources. 7. No authorization, consent or approval from governmental bodies or regulatory authorities is required for the making and performance of the Agreement by PPL, Finance Co. or Resources or by PPL or Finance Co. for the borrowings thereunder, except such authorizations, consents and approvals as have been obtained prior to the making of any Loans and are in full force and effect, all of which are listed on Annex I hereto. EXHIBIT B To Each of the Banks party to the Revolving Credit Agreements referred to below, and The Chase Manhattan Bank, as Fronting Bank, as Collateral Agent and as Agent for such Banks Re: $150,000,000 364-Day Revolving Credit Agreement $300,000,000 5-Year Revolving Credit Agreement Dear Ladies and Gentlemen: We have acted as Counsel to PP&L, Inc. ("PPL"), PP&L Capital Funding, Inc. ("Finance Co.") and PP&L Resources, Inc. (individually "Resources" and collectively with PPL and Finance Co, the "Loan Parties") in connection with the 364- Day Revolving Credit Agreement dated November [ ], 1997 among the Loan Parties, the Banks listed on Schedule I thereto, and you as Fronting Bank, as Collateral Agent and as Agent for such Banks and the 5-Year Revolving Credit Agreement dated November [ ], 1997 among the Loan Parties, the Banks listed on Schedule I thereto, and you as Fronting Bank, as Collateral Agent and as Agent for such Banks (individually each an "Agreement" and collectively, the "Agreements"). We are familiar with the Agreements and the other documents executed and delivered by the Loan Parties in connection with the Agreements. We have also examined such other documents and satisfied ourselves as to such other matters as we have deemed necessary in order to render this opinion. Based on the foregoing, we are of the opinion that Finance Co. is duly incorporated, validly existing and in good standing under the laws of Delaware and Finance Co. has the corporate power to make and perform the Agreements and to borrower under the Agreements. We are also of the opinion that the Agreements constitute the legal, valid and binding obligations of the Loan Parties enforceable in accordance with their terms except to the extent limited by bankruptcy, insolvency or reorganization laws or by other laws relating to or affective the enforceability of creditors' rights generally and by general equitable principles. We are members of the New York Bar and do not hold ourselves out as experts on the laws of the Commonwealth of Pennsylvania. Insofar as the opinions set forth herein are affected by the laws of the Commonwealth of Pennsylvania, we have relied upon the opinion of even date herewith addressed to you by [ ]. In rendering his opinion, [ ] is hereby authorized to rely on this opinion as to matters of New York law addressed herein as if it were addressed to him. This opinion is not being delivered for the benefit of, nor may it be relied upon by, any person to which it is not specifically addressed or to which reliance has not been expressly authorized in writing. Very truly yours, EX-10 8 AMENDED AND RESTATED OPERATING AGREEMENT OF PJM INTERCONNECTION, L.L.C. Dated June 2, 1997 (Revised December 31, 1997) DRAFT: 12/18/97 OPERATING AGREEMENT TABLE OF CONTENTS 1. DEFINITIONS .......................................................... 2 1.1 Act................................................ 2 1.2 Affiliate.......................................... 2 1.3 Agreement.......................................... 2 1.4 Annual Meeting of the Members...................... 2 1.5 Board Member....................................... 2 1.6 Capacity Resource.................................. 2 1.7 Control Area....................................... 3 1.8 Electric Distributor............................... 3 1.9 Effective Date. ................................... 3 1.10 Emergency......................................... 3 1.11 End-Use Customer.................................. 3 1.12 FERC.............................................. 3 1.13 Finance Committee................................. 4 1.14 Generation Owner.................................. 4 1.15 Good Utility Practice............................. 4 1.16 Interconnection................................... 4 1.17 LLC............................................... 4 1.18 Load Serving Entity............................... 4 1.19 Locational Marginal Price......................... 4 1.20 MAAC.............................................. 4 1.21 Market Buyer...................................... 5 1.22 Market Participant................................ 5 1.23 Market Seller..................................... 5 1.24 Member............................................ 5 1.25 Members Committee................................. 5 1.26 NERC.............................................. 5 1.27 Office of the Interconnection..................... 5 1.28 Operating Reserve................................. 5 1.29 Original PJM Agreement............................ 5 1.30 Other Supplier.................................... 6 1.31 PJM Board......................................... 6 1.32 PJM Control Area.................................. 6 1.33 PJM Dispute Resolution Procedures................. 6 1.34 PJM Interchange Energy Market..................... 6 1.35 PJM Manuals....................................... 6 1.36 PJM Tariff........................................ 6 1.37 Planning Period................................... 6 1.38 President......................................... 6 1.39 Related Parties................................... 7 1.40 Reliability Assurance Agreement................... 7 1.41 Sector Votes...................................... 7 1.42 State............................................. 7 1.43 System............................................ 7 1.44 Transmission Facilities........................... 7 1.45 Transmission Owner................................ 7 1.46 Transmission Owners Agreement..................... 8 1.47 User Group........................................ 8 1.48 Voting Member..................................... 8 1.49 Weighted Interest................................. 8 2. FORMATION, NAME; PLACE OF BUSINESS..................... 8 2.1 Formation of LLC; Certificate of Formation. ....... 8 2.2 Name of LLC........................................ 9 2.3 Place of Business.................................. 9 2.4 Registered Office and Registered Agent............. 9 3. PURPOSES AND POWERS OF LLC............................. 9 3.1 Purposes........................................... 9 3.2 Powers............................................ 10 4. EFFECTIVE DATE AND TERMINATION........................ 10 4.1 Effective Date and Termination.....................10 4.2 Governing Law..................................... 10 5. WORKING CAPITAL AND CAPITAL CONTRIBUTIONS ............ 11 5.1 Funding of Working Capital and Capital Contributions............................. 11 5.2 Contributions to Association...................... 11 6. TAX STATUS AND DISTRIBUTIONS.......................... 11 6.1 Tax Status........................................ 11 6.2 Return of Capital Contributions................... 12 6.3 Liquidating Distribution.......................... 12 7. PJM BOARD............................................. 12 7.1 Composition....................................... 12 7.2 Qualifications.................................... 13 7.3 Term of Office.................................... 13 7.4 Quorum............................................ 13 7.5 Operating and Capital Budgets..................... 14 7.5.1 Finance Committee............................... 14 7.5.2 Adoption of Budgets............................. 14 7.6 By-laws........................................... 14 7.7 Duties and Responsibilities of the PJM Board. .... 14 8. MEMBERS COMMITTEE..................................... 16 8.1 Sectors........................................... 16 8.1.1 Designation..................................... 16 8.1.2 Related Parties................................. 17 8.2 Representatives................................... 17 8.2.1 Appointment..................................... 17 8.2.2 Regulatory Authorities.......................... 17 8.2.3 Initial Representatives......................... 17 8.2.4 Change of or Substitution for a Representative.. 17 8.3 Meetings.......................................... 18 8.3.1 Regular and Special Meetings.................... 18 8.3.2 Attendance...................................... 18 8.3.3 Quorum.......................................... 18 8.4 Manner of Acting.................................. 18 8.5 Chair and Vice Chair of the Members Committee..... 19 8.5.1 Selection and Term.............................. 19 8.5.2 Duties.......................................... 19 8.6 Other Committees.................................. 19 8.7 User Groups....................................... 20 8.8 Powers of the Members Committee................... 20 9. OFFICERS.............................................. 21 9.1 Election and Term................................. 21 9.2 President......................................... 21 9.3 Secretary......................................... 21 9.4 Treasurer......................................... 22 9.5 Renewal of Officers; Vacancies.................... 22 9.6 Compensation...................................... 22 10. OFFICE OF THE INTERCONNECTION........................ 22 10.1 Establishment.................................... 22 10.2 Processes and Organization....................... 23 10.3 Confidential Information......................... 23 10.4 Duties and Responsibilities...................... 25 11. MEMBERS.............................................. 25 11.1 Management Rights................................ 25 11.2 Other Activities................................. 25 11.3 Member Responsibilities.......................... 25 11.3.1 General........................................ 25 11.3.2 Facilities Planning and Operation.............. 26 11.3.3 Electric Distributors.......................... 27 11.3.4 Reports to the Office of the Interconnection... 28 11.4 Regional Transmission Expansion Planning Protocol 28 11.5 Member Right to Petition......................... 28 11.6 Membership Requirements.......................... 29 12. TRANSFERS OF MEMBERSHIP INTEREST..................... 30 13. INTERCHANGE.......................................... 30 13.1 Interchange Arrangements with Non-Members. ...... 30 13.2 Energy Market.................................... 30 14. METERING............................................. 30 14.1 Installation, Maintenance and Reading of Meters.. 30 14.2 Metering Procedures.............................. 30 14.3 Integrated Megawatt-Hours........................ 31 14.4 Meter Locations.................................. 31 15. ENFORCEMENT OF OBLIGATIONS........................... 31 15.1 Failure to Meet Obligations...................... 31 15.1.1 Termination of Market Buyer Rights. ........... 31 15.1.2 Termination of Market Seller Rights. .......... 31 15.1.3 Payment of Bills............................... 32 15.2 Enforcement of Obligations....................... 33 15.3 Obligations to a Member in Default............... 33 15.4 Obligations of a Member in Default............... 33 15.5 No Implied Waiver................................ 33 16. LIABILITY AND INDEMNITY.............................. 34 16.1 Members.......................................... 34 16.2 LLC Indemnified Parties.......................... 35 16.3 Worker' Compensation Claims...................... 36 16.4 Limitation of Liability.......................... 36 16.5 Resolution of Disputes........................... 36 16.6 Gross Negligence or Willful Misconduct........... 36 16.7 Insurance........................................ 37 17. MEMBER REPRESENTATIONS, WARRANTIES AND COVENANT...... 37 17.1 Representations and Warranties................... 37 17.1.1 Organization and Existence..................... 37 17.1.2 Power and Authority............................ 37 17.1.3 Authorization and Enforceability............... 37 17.1.4 No Government Consents......................... 37 17.1.5 No Conflict or Breach.......................... 37 17.1.6 No Proceedings................................. 38 17.2 Municipal Electric Systems....................... 38 17.3 Survival......................................... 38 18. MISCELLANEOUS PROVISIONS............................. 38 18.1 Transmission Owners Rights....................... 38 18.2 Fiscal and Taxable Year.......................... 38 18.3 Reports.......................................... 38 18.4 Bank Accounts; Checks, Notes and Drafts.......... 39 18.5 Books and Records................................ 39 18.6 Amendment........................................ 40 18.7 Interpretation................................... 40 18.8 Severability..................................... 40 18.9 Force Majeure.................................... 41 18.10 Further Assurances.............................. 41 18.11 Seal............................................ 41 18.12 Counterparts.................................... 41 18.13 Costs of Meetings............................... 41 18.14 Notice.......................................... 42 18.15 Headings........................................ 42 18.16 No Third-Party Beneficiaries.................... 42 18.17 Confidentiality................................. 42 18.17.1 Party Access.................................. 42 18.17.2 Required Disclosure........................... 43 18.18 Termination and Withdrawal...................... 43 18.18.1 Termination................................... 43 18.18.2 Withdrawal.................................... 43 18.18.3 Winding Up.................................... 44 SCHEDULE 1 - PJM INTERCHANGE ENERGY MARKET ............... 1 1. MARKET OPERATIONS...................................... 1 1.1 Introduction....................................... 1 1.2 Cost-based Offers.................................. 1 1.3 Definitions........................................ 1 1.3.1 Dispatch Rate.................................... 1 1.3.2 Equivalent Load.................................. 1 1.3.3 External Market Buyer............................ 1 1.3.4 External Resource................................ 2 1.3.5 Fixed Transmission Right......................... 2 1.3.6 Generating Market Buyer.......................... 2 1.3.7 Generator Forced Outage.......................... 2 1.3.8 Generator Maintenance Outage..................... 2 1.3.9 Generator Planned Outage......................... 2 1.3.10 Internal Market Buyer........................... 2 1.3.11 Inadvertent Interchange......................... 2 1.3.12 Market Operations Center........................ 3 1.3.13 Maximum Generation Emergency.................... 3 1.3.14 Minimum Generation Emergency.................... 3 1.3.15 Network Resource................................ 3 1.3.16 Network Service User............................ 3 1.3.17 Network Transmission Service.................... 3 1.3.18 Normal Maximum Generation....................... 3 1.3.19 Normal Minimum Generation....................... 3 1.3.20 Offer Data...................................... 3 1.3.21 Office of the Interconnection Control Center.... 4 1.3.22 Operating Day.................................. 4 1.3.23 Operating Margin............................... 4 1.3.24 Operating Margin Customer...................... 4 1.3.25 PJM Interchange................................ 4 1.3.26 PJM Interchange Export......................... 4 1.3.27 PJM Interchange Import......................... 5 1.3.28 PJM Open Access Same-time Information System... 5 1.3.29 Point-to-Point Transmission Service. .......... 5 1.3.30 Ramping Capability............................. 5 1.3.31 Regulation..................................... 5 1.3.32 Regulation Class............................... 5 1.3.33 Spot Market Energy............................. 5 1.3.34 Transmission Congestion Charge................. 5 1.3.35 Transmission Congestion Credit................. 6 1.3.36 Transmission Customer.......................... 6 1.3.37 Transmission Forced Outage..................... 6 1.3.38 Transmission Planned Outage.................... 6 1.4 Market Buyers..................................... 6 1.4.1 Qualification................................... 6 1.4.2 Submission of Information....................... 7 1.4.3 Fees and Costs.................................. 7 1.4.4 Office of the Interconnection Determination..... 8 1.4.5 Existing Participants........................... 8 1.4.6 Withdrawal...................................... 8 1.5 Market Sellers.................................... 9 1.5.1 Qualification................................... 9 1.5.2 Withdrawal...................................... 9 1.6 Office of the Interconnection..................... 9 1.6.1 Operation of the PJM Interchange Energy Market...9 1.6.2 Scope of Services............................... 9 1.6.3 Records and Reports............................ 10 1.6.4 PJM Manuals.................................... 11 1.7 General.......................................... 11 1.7.1 Market Sellers................................. 11 1.7.2 Market Buyers.................................. 11 1.7.3 Agents......................................... 11 1.7.4 General Obligations of the Market Participants. 11 1.7.5 Market Operations Center....................... 13 1.7.6 Scheduling and Dispatching..................... 13 1.7.7 Pricing........................................ 13 1.7.8 Generating Market Buyer Resources.............. 13 1.7.9 Delivery to an External Market Buyer........... 13 1.7.10 Other Transactions............................ 14 1.7.11 Emergencies................................... 14 1.7.12 Fees and Charges.............................. 14 1.7.13 Relationship to PJM Control Area.............. 14 1.7.14 PJM Manuals................................... 15 1.7.15 Corrective Action............................. 15 1.7.16 Recording..................................... 15 1.7.17 Operating Reserves............................ 15 1.7.18 Regulation.................................... 15 1.7.19 Ramping....................................... 16 1.7.20 Communication and Operating Requirements...... 16 1.7.21 Multi-settlement System....................... 17 1.8 Selection, Scheduling and Dispatch Procedure Adjustment Process..................... 17 1.8.1 PJM Dispute Resolution Agreement............... 17 1.8.2 Market or Control Area Hourly Operational Disputes. ......................... 17 1.9 Prescheduling.................................... 18 1.9.1 Outage Scheduling.............................. 18 1.9.2 Planned Outages................................ 18 1.9.3 Generator Maintenance Outages.................. 19 1.9.4 Forced Outages................................. 19 1.9.5 Market Participant Responsibilities............ 20 1.9.6 Internal Market Buyer Responsibilities......... 20 1.9.7 Market Seller Responsibilities................. 20 1.9.8 Office of the Interconnection Responsibilities. 20 1.10 Scheduling...................................... 21 1.10.1 Day-Ahead Scheduling.......................... 21 1.10.2 Pool-Scheduled Resources...................... 23 1.10.3 Self-scheduled Resources...................... 24 1.10.4 Capacity Resources............................ 24 1.10.5 External Resources............................ 25 1.10.6 External Market Buyers........................ 26 1.10.7 Bilateral Transactions........................ 26 1.10.8 Office of the Interconnection Responsibilities.27 1.10.9 Hourly Scheduling............................. 27 1.11 Dispatch........................................ 28 1.11.1 Resource Output............................... 28 1.11.2 Operating Basis............................... 28 1.11.3 Pool-dispatched Resources..................... 29 1.11.4 Regulation.................................... 29 1.11.5 PJM Open Access Same-time Information System.. 29 2. CALCULATION OF LOCATIONAL MARGINAL PRICES............ 30 2.1 Introduction..................................... 30 2.2 General.......................................... 30 2.3 Determination of System Conditions Using the State Estimator.............................. 31 2.4 Determination of Energy Offers Used in Calculating Locational Marginal Prices........... 31 2.5 Calculation of Locational Marginal Prices........ 32 2.6 Performance Evaluation........................... 32 3. ACCOUNTING AND BILLING............................... 33 3.1 Introduction..................................... 33 3.2 Market Buyers.................................... 33 3.2.1 Spot Market Energy............................. 33 3.2.2 Regulation..................................... 34 3.2.3 Operating Reserves............................. 35 3.2.4 Transmission Congestion........................ 35 3.2.5 Transmission Losses............................ 35 3.2.6 Emergency Energy............................... 36 3.2.7 Billing........................................ 36 3.3 Market Sellers................................... 36 3.3.1 Spot Market Energy............................. 37 3.3.2 Regulation..................................... 37 3.3.3 Operating Reserves............................. 37 3.3.4 Emergency Energy............................... 37 3.3.5 Billing........................................ 38 3.4 Transmission Customers........................... 38 3.4.1 Transmission Congestion........................ 38 3.4.2 Transmission Losses............................ 38 3.4.3 Billing........................................ 38 3.5 Other Control Areas.............................. 39 3.5.1 Energy Sales................................... 39 3.5.2 Operating Margin Sales......................... 39 3.5.3 Transmission Congestion........................ 39 3.5.4 Billing........................................ 39 3.6 Metering Reconciliation.......................... 39 3.6.1 Meter Correction Billing....................... 39 3.6.2 Meter Corrections Between Market Participants.. 40 3.6.3 500 kV Meter Errors............................ 40 3.6.4 Meter Corrections Between Control Areas........ 40 3.6.5 Meter Correction Data.......................... 40 3.6.6 Correction Limits.............................. 40 4. RATE TABLE........................................... 41 4.1 Offered Price Rates.............................. 41 4.2 Transmission Losses.............................. 41 4.3 Emergency Energy Purchases....................... 41 5. CALCULATION OF TRANSMISSION CONGESTION CHARGES AND CREDITS......................................... 42 5.1 Transmission Congestion Charge Calculation ...... 42 5.1.1 Calculation by Office of the Interconnection... 42 5.1.2 General........................................ 42 5.1.3 Network Service User Calculation. ............. 42 5.1.4 Transmission Customer Calculation.............. 42 5.1.5 Operating Margin Customer Calculation.......... 42 5.1.6 Total Transmission Congestion Charges.......... 43 5.2 Transmission Congestion Credit Calculation....... 43 5.2.1 Eligibility.................................... 43 5.2.2 Fixed Transmission Rights...................... 43 5.2.3 Target Allocation for Network Service Users.... 44 5.2.4 Target Allocation for other Holders............ 44 5.2.5 Calculation of Transmission Congestion Credits. 44 5.2.6 Distribution of Excess Congestion Charges...... 44 SCHEDULE 2 - COMPONENTS OF COST.......................... 1 SCHEDULE 3 - ALLOCATION OF OI COSTS...................... 1 SCHEDULE 4 - STANDARD MEMBERSHIP AGREEMENT............... 1 SCHEDULE 5 - DISPUTE RESOLUTION PROCEDURE................ 1 1. DEFINITIONS........................................... 1 1.1 Alternate Dispute Resolution Committee............ 1 1.2 MAAC Dispute Resolution Committee................. 1 1.3 Related PJM Agreements............................ 1 2. PURPOSES AND OBJECTIVES............................... 1 2.1 Common and Uniform Procedures..................... 1 2.2 Interpretation.................................... 1 3. NEGOTIATION AND MEDIATION............................. 2 3.1 When Required..................................... 2 3.2 Procedures........................................ 2 3.2.1 Initiation...................................... 2 3.2.2 Selection of Mediator........................... 2 3.2.3 Advisory Mediator............................... 2 3.2.4 Mediation Process............................... 3 3.2.5 Mediator's Assessment........................... 3 3.3 Costs............................................. 4 4. ARBITRATION........................................... 4 4.1 When Required..................................... 4 4.2 Binding Decision.................................. 4 4.3 Initiation........................................ 4 4.4 Selection of Arbitrator(s)........................ 4 4.5 Procedures........................................ 5 4.6 Summary Disposition and Interim Measures.......... 5 4.6.1 Lack of Good Faith Basis........................ 5 4.6.2 Discovery Limits................................ 5 4.6.3 Interim Decision................................ 5 4.7 Discovery of Facts................................ 6 4.7.1 Discovery Procedures............................ 6 4.7.2 Procedures Arbitrator........................... 6 4.8 Evidentiary Hearing............................... 6 4.9 Confidentiality................................... 7 4.9.1 Designation..................................... 7 4.9.2 Compulsory Disclosure........................... 7 4.9.3 Public Information.............................. 7 4.10 Timetable........................................ 8 4.11 Advisory Interpretations......................... 8 4.12 Decisions........................................ 8 4.13 Costs............................................ 8 4.14 Enforcement...................................... 9 5. ALTERNATE DISPUTE RESOLUTION COMMITTEE ............... 9 5.1 Membership........................................ 9 5.1.1 Representatives................................. 9 5.1.2 Term............................................ 9 5.2 Voting Requirements............................... 9 5.3 Officers.......................................... 9 5.4 Meetings......................................... 10 5.5 Responsibilities................................. 10 SCHEDULE 6 - REGIONAL TRANSMISSION EXPANSION PLANNING PROTOCOL..................................... 1 1. REGIONAL TRANSMISSION EXPANSION PLANNING PROTOCOL..... 1 1.1 Purpose and Objectives............................ 1 1.2 Conformity with NERC and MAAC Criteria............ 1 1.3 Establishment of Committees....................... 1 1.4 Contents of the Regional Transmission Expansion Plan.................................... 2 1.5 Procedure for Development of the Regional Transmission Expansion Plan....................... 2 1.5.1 Commencement of the Process..................... 2 1.5.2 Development of Scope, Assumptions and Procedures...................................... 3 1.5.3 Scope of Studies................................ 3 1.5.4 Supply of Data.................................. 3 1.5.5 Coordination of the Regional Transmission Expansion Plan.................................. 3 1.5.6 Development of the Recommended Regional Transmission Expansion Plan..................... 3 1.6 Approval of the Final Regional Transmission Expansion Plan ...................... 4 1.7 Obligation to Build .............................. 5 1.8 Relationship to the PJM Control Area Open Access Transmission PJM Tariff............... 5 SCHEDULE 7 - UNDERFREQUENCY RELAY OBLICATIONS AND CHARGES........................................... 1 1. UNDERFREQUENCY RELAY OBLIGATION....................... 1 1.1 Application....................................... 1 1.2 Obligations....................................... 1 2. UNDERFREQUENCY RELAY CHARGES.......................... 1 3. DISTRIBUTION OF UNDERFREQUENCY RELAY CHARGES.......... 2 3.1 Share of Charges.................................. 2 3.2 Allocation by the Office of the Interconnection... 2 SCHEDULE 8 -DELEGATION OF RELIABILITY RESPONSIBILITIES... 1 1. DELEGATION............................................ 1 2. NEW PARTIES........................................... 1 3. IMPLEMENTATION OF RELIABILITY ASSURANCE AGREEMENT. ... 1 SCHEDULE 9 - EMERGENCY PROCEDURE CHARGES ................ 1 1. EMERGENCY PROCEDURE CHARGE............................ 1 2. DISTRIBUTION OF EMERGENCY PROCEDURE CHARGES .......... 1 2.1 Complying Parties................................. 1 2.2 All Parties....................................... 1 AMENDED AND RESTATED OPERATING AGREEMENT of PJM INTERCONNECTION, L.L.C. This Amended and Restated Operating Agreement of PJM Interconnection, L.L.C., dated as of this 2 nd day of June, 1997, amends and restates as of the Effective Date the Operating Agreement of PJM Interconnection, L.L.C. filed with the FERC on April 2, 1997, as amended. WHEREAS, certain of the Members have previously entered into an agreement, originally dated September 26, 1956, as amended and supplemented up to and including December 31, 1996, stating "their respective rights and obligations with respect to the coordinated operation of their electric supply systems and the interchange of electric capacity and energy among their systems" (such agreement as amended and supplemented being referred to as the "Original PJM Agreement"), and which coordinated operations and interchange came to be known as the PJM Interconnection (the "Interconnection"); and WHEREAS, pursuant to a resolution of June 16, 1993, an unincorporated association comprised of the parties to the Original PJM Agreement was formed for the purpose of implementation of the Original PJM Agreement as it then existed and as it subsequently has been amended and supplemented, such association being known as the "PJM Interconnection Association"; and WHEREAS, because of changes in federal law and policy, the Original PJM Agreement, together with other documents and agreements, was amended, restated and submitted to FERC on December 31, 1996 to restructure fundamental aspects of the operation of the Interconnection; and WHEREAS, so that the provisions of the Original PJM Agreement could be placed into effect consistent with a February 28, 1997 order of FERC, including those provisions related to the governance of the Interconnection, the parties to the Original PJM Agreement, along with the other interested parties, approved the conversion of the PJM Interconnection Association into the LLC pursuant to the provisions of the Delaware Limited Liability Company Act, as amended (the "Delaware LLC Act"), pursuant to a Certificate of Formation (the "Certificate of Formation") and a Certificate of Conversion (the "Certificate of Conversion"), each filed with the Delaware Secretary of State (the "Recording Office") on March 31, 1997; and WHEREAS, the Members wish to amend and restate the Operating Agreement of PJM Interconnection, L.L.C. adopted in connection with the formation of the LLC and as in effect immediately prior to the Effective Date in the form set forth below; and WHEREAS, the Members intend to form an Independent System Operator in accordance with the regulations of the Federal Energy Regulatory Commission; and Now, therefore, in consideration of the foregoing, and of the covenants and agreements hereinafter set forth, the Members hereby agree as follows: DEFINITIONS Unless the context otherwise specifies or requires, capitalized terms used in this Agreement shall have the respective meanings assigned herein or in the Schedules hereto for all purposes of this Agreement (such definitions to be equally applicable to both the singular and the plural forms of the terms defined). Unless otherwise specified, all references herein to Sections, Schedules, Exhibits or Appendices are to Sections, Schedules, Exhibits or Appendices of this Agreement. As used in this Agreement: 1.1 Act. "Act" shall mean the Delaware Limited Liability Company Act, Title 6, Section 18-101 to 18-1109 of the Delaware Code. 1.2 Affiliate. "Affiliate" shall mean any two or more entities, one of which controls the other or that are under common control. "Control" shall mean the possession, directly or indirectly, of the power to direct the management or policies of an entity. Ownership of publicly-traded equity securities of another entity shall not result in control or affiliation for purposes of this Agreement if the securities are held as an investment, the holder owns (in its name or via intermediaries) less than 10 percent of the outstanding securities of the entity, the holder does not have representation on the entity's board of directors (or equivalent managing entity) or vice versa, and the holder does not in fact exercise influence over day-to-day management decisions. Unless the contrary is demonstrated to the satisfaction of the Members Committee, control shall be presumed to arise from the ownership of or the power to vote, directly or indirectly, ten percent or more of the voting securities of such entity. 1.3 Agreement. "Agreement" shall mean this Amended and Restated Operating Agreement of PJM Interconnection, L.L.C., including all Schedules, Exhibits, Appendices, addenda or supplements hereto, as amended from time to time. 1.4 Annual Meeting of the Members. "Annual Meeting of the Members" shall mean the meeting specified in Section 8.3.1 of this Agreement. 1.5 Board Member. "Board Member" shall mean a member of the PJM Board. 1.6 Capacity Resource. "Capacity Resource" shall mean the net capacity from owned or contracted for generating facilities all of which (i) are accredited to a Load Serving Entity pursuant to the procedures set forth in the Reliability Assurance Agreement and (ii) are committed to satisfy that Load Serving Entity's obligations under the Reliability Assurance Agreement and this Agreement. 1.7 Control Area. "Control Area" shall mean an electric power system or combination of electric power systems bounded by interconnection metering and telemetry to which a common automatic generation control scheme is applied in order to: (a) match the power output of the generators within the electric power system(s) and energy purchased from entities outside the electric power system(s), with the load within the electric power system(s); (b) maintain scheduled interchange with other Control Areas, within the limits of Good Utility Practice; (c) maintain the frequency of the electric power system(s) within reasonable limits in accordance with Good Utility Practice and the criteria of NERC and the applicable regional reliability council of NERC; (d) maintain power flows on transmission facilities within appropriate limits to preserve reliability; and (e) provide sufficient generating capacity to maintain operating reserves in accordance with Good Utility Practice. 1.8 Electric Distributor. "Electric Distributor" shall mean a Member that owns or leases with rights equivalent to ownership electric distribution facilities that are used to provide electric distribution service to electric load within the PJM Control Area. 1.9 Effective Date. "Effective Date" shall mean August 1, 1997, or such later date that FERC permits this Agreement to go into effect. 1.10 Emergency. "Emergency" shall mean: (i) an abnormal system condition requiring manual or automatic action to maintain system frequency, or to prevent loss of firm load, equipment damage, or tripping of system elements that could adversely affect the reliability of an electric system or the safety of persons or property; or (ii) a fuel shortage requiring departure from normal operating procedures in order to minimize the use of such scarce fuel; or (iii) a condition that requires implementation of emergency procedures as defined in the PJM Manuals. 1.11 End-Use Customer. "End-Use Customer" shall mean a Member that is a retail end- user of electricity within the PJM Control Area. 1.12 FERC. "FERC" shall mean the Federal Energy Regulatory Commission or any successor federal agency, commission or department exercising jurisdiction over this Agreement. 1.13 Finance Committee. "Finance Committee" shall mean the body formed pursuant to Section 0 of this Agreement. 1.14 Generation Owner. "Generation Owner" shall mean a Member that owns or leases with rights equivalent to ownership facilities for the generation of electric energy that are located within the PJM Control Area. Purchasing all or a portion of the output of a generation facility shall not be sufficient to qualify a Member as a Generation Owner. 1.15 Good Utility Practice. "Good Utility Practice" shall mean any of the practices, methods and acts engaged in or approved by a significant portion of the electric utility industry during the relevant time period, or any of the practices, methods and acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition. Good Utility Practice is not intended to be limited to the optimum practice, method, or act to the exclusion of all others, but rather is intended to include acceptable practices, methods, or acts generally accepted in the region. 1.16 Interconnection. "Interconnection" shall mean the coordinated operations and interchange resulting from the Original PJM Agreement as continued in this Agreement. 1.17 LLC. "LLC" shall mean PJM Interconnection, L.L.C., a Delaware limited liability company. 1.18 Load Serving Entity. "Load Serving Entity" shall mean an entity, including a load aggregator or power marketer, (1) serving end-users within the PJM Control Area, and (2) that has been granted the authority or has an obligation pursuant to state or local law, regulation or franchise to sell electric energy to end-users located within the PJM Control Area, or the duly designated agent of such an entity. 1.19 Locational Marginal Price. "Locational Marginal Price"' shall mean the hourly integrated market clearing marginal price for energy at the location the energy is delivered or received, calculated as specified in Section 0 of Schedule 1 of this Agreement. 1.20 MAAC. "MAAC" shall mean the Mid-Atlantic Area Council, a reliability council under Section 202 of the Federal Power Act established pursuant to the MAAC Agreement dated August 1, 1994, or any successor thereto. 1.21 Market Buyer. "Market Buyer" shall mean a Member that has met reasonable creditworthiness standards established by the Office of the Interconnection and that is otherwise able to make purchases in the PJM Interchange Energy Market. 1.22 Market Participant. "Market Participant"' shall mean a Market Buyer or a Market Seller, or both. 1.23 Market Seller. "Market Seller" shall mean a Member that has met reasonable creditworthiness standards established by the Office of the Interconnection and that is otherwise able to make sales in the PJM Interchange Energy Market. 1.24 Member. "Member" shall mean an entity that satisfies the requirements of Section 11.6 of this Agreement and that (i) is a member of the LLC immediately prior to the Effective Date, or (ii) has executed an Additional Member Agreement in the form set forth in Schedule 4 hereof. 1.25 Members Committee. "Members Committee" shall mean the committee specified in Section 8 of this Agreement composed of representatives of all the Members. 1.26 NERC. "NERC" shall mean the North American Electric Reliability Council, or any successor thereto. 1.27 Office of the Interconnection. "Office of the Interconnection" shall mean the employees and agents of the LLC engaged in implementation of this Agreement and administration of the PJM Tariff, subject to the supervision and oversight of the PJM Board acting pursuant to this Agreement. 1.28 Operating Reserve. "Operating Reserve" shall mean the amount of generating capacity scheduled to be available for a specified period of an Operating Day to ensure the reliable operation of the PJM Control Area, as specified in the PJM Manuals. 1.29 Original PJM Agreement. "Original PJM Agreement" shall mean that certain agreement between certain of the Members, originally dated September 26, 1956, and as amended and supplemented up to and including December 31, 1996, relating to the coordinated operation of their electric supply systems and the interchange of electric capacity and energy among their systems. 1.30 Other Supplier. "Other Supplier" shall mean a Member that is (i) a seller, buyer or transmitter of electric capacity or energy in, from or through the PJM Control Area, and (ii) is not a Generation Owner, Electric Distributor, Transmission Owner or End-Use Customer. 1.31 PJM Board. "PJM Board" shall mean the Board of Managers of the LLC, acting pursuant to this Agreement. 1.32 PJM Control Area. "PJM Control Area" shall mean the Control Area recognized by NERC as the PJM Control Area. 1.33 PJM Dispute Resolution Procedures "PJM Dispute Resolution Procedures" shall mean the procedures for the resolution of disputes set forth in Schedule 5 of this Agreement. 1.34 PJM Interchange Energy Market. "PJM Interchange Energy Market" shall mean the regional competitive market administered by the Office of the Interconnection for the purchase and sale of spot electric energy at wholesale in interstate commerce and related services established pursuant to Schedule 1 to this Agreement. 1.35 PJM Manuals. "PJM Manuals" shall mean the instructions, rules, procedures and guidelines established by the Office of the Interconnection for the operation, planning, and accounting requirements of the PJM Control Area and the PJM Interchange Energy Market. 1.36 PJM Tariff. "PJM Tariff" shall mean the PJM Open Access Transmission Tariff providing transmission service within the PJM Control Area, including any schedules, appendices, or exhibits attached thereto, as in effect from time to time. 1.37 Planning Period. "Planning Period" shall initially mean the 12 months beginning June 1 and extending through May 31 of the following year, or such other period established by the Reliability Committee established under the Reliability Assurance Agreement. 1.38 President. "President" shall have the meaning specified in Section 9.2. 1.39 Related Parties. "Related Parties" shall mean, solely for purposes of the governance provisions of this Agreement: (i) any generation and transmission cooperative and one of its distribution cooperative members; and (ii) any joint municipal agency and one of its members. For purposes of this Agreement, representatives of state or federal government agencies shall not be deemed Related Parties with respect to each other, and a public body's regulatory authority, if any, over a Member shall not be deemed to make it a Related Party with respect to that Member. 1.40 Reliability Assurance Agreement. "Reliability Assurance Agreement" shall mean that certain agreement, dated June 2, 1997 and as amended from time to time, establishing obligations, standards and procedures for maintaining the reliable operation of the PJM Control Area. 1.41 Sector Votes. "Sector Votes" shall mean the affirmative and negative votes of each sector on the Members Committee, as specified in Section 8.4. 1.42 State. "State" shall mean the District of Columbia and any State or Commonwealth of the United States. 1.43 System. "System" shall mean the interconnected electric supply system of a Member and its interconnected subsidiaries exclusive of facilities which it may own or control outside of the PJM Control Area. Each Member may include in its system the electric supply systems of any party or parties other than Members which are within the PJM Control Area, provided its interconnection agreements with such other party or parties do not conflict with such inclusion. 1.44 Transmission Facilities. "Transmission Facilities" shall mean facilities that: (i) are within the PJM Control Area; (ii) meet the definition of transmission facilities pursuant to FERC's Uniform System of Accounts or have been classified as transmission facilities in a ruling by FERC addressing such facilities; and (iii) have been demonstrated to the satisfaction of the Office of the Interconnection to be integrated with the PJM Control Area transmission system and integrated into the planning and operation of the PJM Control Area to serve all of the power and transmission customers within the PJM Control Area. 1.45 Transmission Owner. "Transmission Owner" shall mean a Member that owns or leases with rights equivalent to ownership Transmission Facilities. Taking transmission service shall not be sufficient to qualify a Member as a Transmission Owner. 1.46 Transmission Owners Agreement. "Transmission Owners Agreement" shall mean that certain agreement, dated June 2, 1997 and as amended from time to time, by and among Transmission Owners in the PJM Control Area providing for an open-access transmission tariff in the PJM Control Area, and for other purposes. 1.47 User Group. "User Group" shall mean a group formed pursuant to Section 0 of this Agreement. 1.48 Voting Member "Voting Member" shall mean (i) a Member as to which no other Member is an Affiliate or Related Party, or (ii) a Member together with any other Members as to which it is an Affiliate or Related Party. 1.49 Weighted Interest. "Weighted Interest" shall be equal to (0.1(1/N) + 0.5(B/C) + 0.2(D/E) + 0.2(F/G)), where: N = the total number of Members B = the Member's internal peak demand for the previous calendar year C = the sum of factor B for all Members D = the Member's net installed generating capacity located in the PJM Control Area as of January 1 of the current calendar year E = the sum of factor D for all Members F = the sum of the Member's circuit miles of transmission facilities multiplied by the respective operating voltage for facilities 100 kV and above as of January 1 of the current calendar year G = the sum of factor F for all Members 2. FORMATION, NAME; PLACE OF BUSINESS 2.1 Formation of LLC; Certificate of Formation. The Members of the LLC hereby: (a) acknowledge the conversion of the PJM Interconnection Association into the LLC, a limited liability company pursuant to the Act, by virtue of the filing of both the Certificate of Formation and the Certificate of Conversion with the Recording Office, effective as of March 31, 1997; (b) confirm and agree to their status as Members of the LLC; (c) enter into this Agreement for the purpose of amending and restating the rights, duties, and relationship of the Members; and (d) agree that if the laws of any jurisdiction in which the LLC transacts business so require, the PJM Board also shall file, with the appropriate office in that jurisdiction, any documents necessary for the LLC to qualify to transact business under such laws; and (ii) agree and obligate themselves to execute, acknowledge, and cause to be filed for record, in the place or places and manner prescribed by law, any amendments to the Certificate of Formation as may be required, either by the Act, by the laws of any jurisdiction in which the LLC transacts business, or by this Agreement, to reflect changes in the information contained therein or otherwise to comply with the requirements of law for the continuation, preservation, and operation of the LLC as a limited liability company under the Act. 2.2 Name of LLC. The name under which the LLC shall conduct its business is "PJM Interconnection, L.L.C." 2.3 Place of Business. The location of the principal place of business of the LLC shall be 955 Jefferson Avenue, Valley Forge Corporate Center, Norristown, Pennsylvania 19403-2497. The LLC may also have offices at such other places both within and without the State of Delaware as the PJM Board may from time to time determine or the business of the LLC may require. 2.4 Registered Office and Registered Agent. The street address of the initial registered office of the LLC shall be 1209 Orange Street, Wilmington, Delaware 19801, and the LLC's registered agent at such address shall be The Corporation Trust Company. The registered office and registered agent may be changed by resolution of the PJM Board. 3. PURPOSES AND POWERS OF LLC 3.1 Purposes. The purposes of the LLC shall be: (a) to operate in accordance with FERC requirements as an Independent System Operator, comprised of the PJM Board, the Office of the Interconnection, and the Members Committee, with the authorities and responsibilities set forth in this Agreement; (b) as necessary for the operation of the Interconnection as specified above: (i) to acquire and obtain licenses, permits and approvals, (ii) to own or lease property, equipment and facilities, and (iii) to contract with third parties to obtain goods and services, provided that, the L.L.C. may procure goods and services from a Member only after open and competitive bidding; and (c) to engage in any lawful business permitted by the Act or the laws of any jurisdiction in which the LLC may do business and to enter into any lawful transaction and engage in any lawful activities in furtherance of the foregoing purposes and as may be necessary, incidental or convenient to carry out the business of the LLC as contemplated by this Agreement. 3.2 Powers. The LLC shall have the power to do any and all acts and things necessary, appropriate, advisable, or convenient for the furtherance and accomplishment of the purposes of the LLC, including, without limitation, to engage in any kind of activity and to enter into and perform obligations of any kind necessary to or in connection with, or incidental to, the accomplishment of the purposes of the LLC, so long as said activities and obligations may be lawfully engaged in or performed by a limited liability company under the Act. 4. EFFECTIVE DATE AND TERMINATION 4.1 Effective Date and Termination. (a) The existence of the LLC commenced on March 31, 1997, as provided in the Certificate of Formation and Certificate of Conversion which were filed with the Recording Office on March 31, 1997. This Agreement shall amend and restate the Operating Agreement of PJM Interconnection, L.L.C. as of the Effective Date. (b) The LLC shall continue in existence until terminated in accordance with the terms of this Agreement. The withdrawal or termination of any Member is subject to the provisions of Section 0 of this Agreement. (c) Any termination of this Agreement or withdrawal of any Member from the Agreement shall be filed with the FERC and shall become effective only upon the FERC's approval. Governing Law. This Agreement and all questions with respect to the rights and obligations of the Members, the construction, enforcement and interpretation hereof, and the formation, administration and termination of the LLC shall be governed by the provisions of the Act and other applicable laws of the State of Delaware, and the Federal Power Act. 5. WORKING CAPITAL AND CAPITAL CONTRIBUTIONS 1 Funding of Working Capital and Capital Contributions. (a) The Office of the Interconnection shall attempt to obtain financing of up to five million two hundred thousand dollars ($5,200,000) to meet the working capital needs of the LLC, which shall be limited to such working capital needs that arise from timing in cash flows from interchange accounting, tariff administration and payment of the operating costs of the Office of the Interconnection. Such financing, which shall be non-recourse to the Members of the LLC and which shall be for a stated term without penalty for prepayment, may be obtained by borrowing the amount required at market-based interest rates, negotiated on an arm's length basis, (i) from a Member or Members or (ii) from a commercial lender, supported, if necessary, by credit enhancements provided by a Member or Members; provided, however, no Member shall be obligated to provide such financing or credit enhancements. The LLC shall make such filings and seek such approvals as necessary in order for the principal, interest and fees related to any such borrowing to be repaid through charges under the PJM Tariff as appropriate under Schedule 3 of this Agreement. (b) In the event financing of the working capital needs of the Office of the Interconnection is unavailable on commercially reasonable terms, the PJM Board may require the Members to contribute capital in the aggregate up to five million two hundred thousand dollars ($5,200,000) for the working capital needs that could not be financed; provided that in such event each Member's obligation to contribute additional capital shall be in proportion to its Weighted Interest, multiplied by the amount so requested by the PJM Board. Each Member that contributes such capital shall be entitled to earn a return on the contribution to the extent such contribution has not been repaid, which return shall be at a fair market rate as determined by the PJM Board but in no event less than the current interest rate established pursuant to 18 C.F.R. Section 35.19a(a)(2)(iii); provided further, that any Member not wanting to contribute the requested capital contribution may withdraw from the LLC upon 90 days written notice as provided in Section 18.18.2 of this Agreement. 5.2 Contributions to Association. All contributions prior to the Effective Date of the original Operating Agreement of PJM Interconnection, L.L.C. of cash or other assets to the PJM Interconnection Association by persons who are now or in the future may become Members of the LLC shall be deemed contributions by such Members to the LLC. 6. TAX STATUS AND DISTRIBUTIONS 6.1 Tax Status. The LLC shall make all necessary filings under the applicable Treasury Regulations to have the LLC taxed as a corporation. 6.2 Return of Capital Contributions. (a) In the event Members are required to contribute capital to the LLC in accordance with Section 5.1 herein, the LLC shall request the Transmission Owners to recover such working capital through charges under the PJM Tariff as provided in Schedule 3 of this Agreement. In the event all or a portion of the working capital is recovered pursuant to the PJM Tariff, such amount(s) shall be returned to the Members in accordance with their actual contributions. (b) Except for return of capital contributions and liquidating distributions as provided in the foregoing section and Section 6.3 herein, respectively, the LLC does not intend to make any distributions of cash or other assets to its Members. 6.3 Liquidating Distribution. Upon termination or liquidation of the LLC, the cash or other assets of the LLC shall be distributed as follows: (a) first, in the event the LLC has any liabilities at the time of its termination or dissolution, the LLC shall liquidate such of its assets as is necessary to satisfy such liabilities; (b) second, any capital contribution in cash or in kind by any Member of the PJM Interconnection Association prior to the Effective Date shall be distributed by the LLC back to such Member in the form received by the PJM Interconnection Association; and (c) third, any remaining assets of the LLC shall be distributed to the Members in proportion to their Weighted Interests. 7. PJM BOARD 7.1 Composition. There shall be an LLC Board of Managers, referred to herein as the "PJM Board," composed of seven voting members, with the President as a non-voting member. The seven voting Board Members shall be elected by the Members Committee from a slate of candidates for the then-existing vacancies or expiring terms on the PJM Board. An independent consultant, retained by the Office of the Interconnection upon consideration of the advice and recommendations of the Members Committee, shall be directed to prepare a list of persons qualified and willing to serve on the PJM Board. Not later than 30 days prior to each Annual Meeting of the Members, the Office of the Interconnection shall distribute to the representatives on the Members Committee a slate from among the list proposed by the independent consultant, along with information on the background and experience of the persons on the slate appropriate to evaluating their fitness for service on the PJM Board. Elections for the PJM Board shall be held at each Annual Meeting of the Members, for the purpose of selecting the initial PJM Board in accordance with the provisions of Section 7.3(a), or selecting a person to fill the seat of a Board Member whose term is expiring. Should the Members Committee fail to elect a full PJM Board from the slate proposed by the independent consultant, the Office of the Interconnection shall direct the independent consultant, or a replacement consultant selected by the Office of the Interconnection, to propose a list for a slate of nominees for any vacancies on the PJM Board for consideration by the Members at the next regular meeting of the Members Committee. 7.2 Qualifications. A Board Member shall not be, and shall not have been at any time within five years of election to the PJM Board, a director, officer or employee of a Member or of an Affiliate or Related Party of a Member. Except as provided in the LLC's Standards of Conduct filed with the FERC, at any time while serving on the PJM Board, a Board Member shall have no direct business relationship or other affiliation with any Member or its Affiliates or Related Parties. Of the seven Board Members, four shall have expertise and experience in the areas of corporate leadership at the senior management or board of directors level, or in the professional disciplines of finance or accounting, engineering, or utility laws and regulation. Of the other three Board Members, one shall have expertise and experience in the operation or concerns of transmission dependent utilities, one shall have expertise and experience in the operation or planning of transmission systems, and one shall have expertise and experience in the area of commercial markets and trading and associated risk management. 7.3 Term of Office. (a) The persons serving as the Board of Managers of the LLC immediately prior to the Effective Date shall continue in office until the first Annual Meeting of the Members. At the first Annual Meeting of the Members, the then current members of the PJM Board who desire to continue in office shall be elected by the Members to serve until the second Annual Meeting of the Members or until their successors are elected, along with such additional persons as necessary to meet the composition requirements of Section 7.1 and the qualification requirements of Section 7.2. (b) A Board Member shall serve for a term of three years commencing with the Annual Meeting of the Members at which the Board Member was elected; provided, however, that two of the Board Members elected at the first Annual Meeting of the Members following the Effective Date shall be chosen by lot to serve a term of one year, three of such Board Members shall be chosen by lot to serve a term of two years and the final two such Board Members shall serve a term of three years. (c) Vacancies on the PJM Board occurring between Annual Meetings of the Members shall be filled by vote of the then remaining Board Members; a Board Member so selected shall serve until the next Annual Meeting at which time a person shall be elected to serve the balance of the term of the vacant Board Seat. Removal of a Board Member shall require the approval of the Members Committee. 7.4 Quorum. The presence in person or by telephone or other authorized electronic means of a majority of the voting Board Members shall constitute a quorum at all meetings of the PJM Board for the transaction of business except as otherwise provided by statute. If a quorum shall not be present, the Board Members then present shall have the power to adjourn the meeting from time to time, until a quorum shall be present. Provided a quorum is present at a meeting, the PJM Board shall act by majority vote of the Board Members present. 7.5 Operating and Capital Budgets. 7.5.1 Finance Committee. Not later than February 1 of each year, the entities specified below shall select the members of a Finance Committee. The Finance Committee shall be composed of one representative of the parties to the Reliability Assurance Agreement chosen by the parties to that agreement, one representative of the parties to the Transmission Owners Agreement chosen by the parties to that agreement, two representatives of the Members Committee chosen by the Members Committee and that are not representatives of an entity that is a party to the Transmission Owners Agreement or an Affiliate or Related Party of such an entity, one representative of the Office of the Interconnection selected by the President, and two Board Members selected by the PJM Board. The Members Committee shall endeavor to elect members of the Finance Committee that are broadly representative of the diversity of interests among the Members. The Office of the Interconnection shall prepare annual budgets in accordance with processes and procedures established by the PJM Board, and shall timely submit its budgets to the Finance Committee for review. The Finance Committee shall submit its analysis of and recommendations on the budgets to the PJM Board, with copies to the Members Committee. The Finance Committee shall also review and comment upon any additional or amended budgets prepared by the Office of the Interconnection at the request of the PJM Board or the Members Committee. 7.5.2 Adoption of Budgets. The PJM Board shall adopt, upon consideration of the advice and recommendations of the Finance Committee, operating and capital budgets for the LLC, and shall distribute to the Members for their information final annual budgets for the following fiscal year not later than 60 days prior to the beginning of each fiscal year of the LLC. 7.6 By-laws. To the extent not inconsistent with any provision of this Agreement, the PJM Board shall adopt such by-laws establishing procedures for the implementation of this Agreement as it may deem appropriate, including but not limited to by-laws governing the scheduling, noticing and conduct of meetings of the PJM Board, selection of a Chair and Vice Chair of the PJM Board, action by the PJM Board without a meeting, and the organization and responsibilities of standing and special committees of the PJM Board. Such by-laws shall not modify or be inconsistent with any of the rights or obligations established by this Agreement. 7.7 Duties and Responsibilities of the PJM Board. In accordance with this Agreement, the PJM Board shall supervise and oversee all matters pertaining to the Interconnection and the LLC, and carry out such other duties as are herein specified, including but not limited to the following duties and responsibilities: i) As its primary responsibility, ensure that the President, the other officers of the LLC, and Office of the Interconnection perform the duties and responsibilities set forth in this Agreement, including but not limited to those set forth in Sections 9.2 through 9.4 and Section 10.4 in a manner consistent with (A) the safe and reliable operation of the Interconnection, (B) the creation and operation of a robust, competitive, and non- discriminatory electric power market in the PJM Control Area, and (C) the principle that a Member or group of Members shall not have undue influence over the operation of the Interconnection; ii) Select the Officers of the LLC; iii) Adopt budgets for the LLC; iv) Approve the Regional Transmission Expansion Plan in accordance with the provisions of the Regional Transmission Expansion Planning Protocol set forth in Schedule 6 of this Agreement. v) On its own initiative or at the request of a User Group as specified herein, submit to the Members Committee such proposed amendments to this Agreement or any Schedule hereto, or a proposed new Schedule, as it may deem appropriate; vi) Petition FERC to modify any provision of this Agreement or any Schedule or practice hereunder that the PJM Board believes to be unjust, unreasonable, or unduly discriminatory under Section 206 of the Federal Power Act, subject to the right of any Member or the Members to intervene in any resulting proceedings; vii) Review for consistency with the creation and operation of a robust, competitive and non-discriminatory electric power market in the PJM Control Area any change to rate design or to non-rate terms and conditions proposed by Transmission Owners for filing under Section 205 of the Federal Power Act. viii) If and to the extent it shall deem appropriate, intervene in any proceeding at FERC initiated by the Members in accordance with Section 11.5(b), and participate in other state and federal regulatory proceedings relating to the interests of the LLC; ix) Review, in accordance with Section 15.1.3, determinations of the Office of the Interconnection with respect to events of default; x) Assess against the other Members in proportion to their Weighted Interest an amount equal to any payment to the Office of the Interconnection, including interest thereon, as to which a Member is in default; xi) Establish reasonable sanctions for failure of a Member to comply with its obligations under this Agreement; xii) Direct the Office of the Interconnection on behalf of the LLC to take appropriate legal or regulatory action against a Member (A) to recover any unpaid amounts due from the Member to the Office of the Interconnection under this Agreement and to make whole any Members subject to an assessment as a result of such unpaid amount, or (B) as may otherwise be necessary to enforce the obligations of this Agreement; xiii) Resolve claims by a Member that the Reliability Committee established by the Reliability Assurance Agreement has exercised its responsibilities in a manner inconsistent with the creation and operation of a robust, competitive and non- discriminatory electric power market in the PJM Control Area, upon due consideration of the views of the Member and of the Reliability Committee, and of the need to preserve the reliability of electric service in the PJM Control Area. xiv) Solicit the views of Members on, and commission from time to time as it shall deem appropriate independent reviews of, (A) the performance of the PJM Interchange Energy Market, (B) compliance by Market Participants with the rules and requirements of the PJM Interchange Energy Market, and (C) the performance of the Office of the Interconnection under performance criteria proposed by the Members Committee and approved by the PJM Board; and xv) Terminate a Member as may be appropriate under the terms of this Agreement. 8. MEMBERS COMMITTEE 8.1 Sectors. 8.1.1 Designation. Voting on the Members Committee shall be by sectors. The Members Committee shall be composed of five sectors, one for Generation Owners, one for Other Suppliers, one for Transmission Owners, one for Electric Distributors, and one for End-Use Customers, provided that there are at least five Members in each Sector. Except as specified in Section 8.1.2, each Voting Member shall have one vote. Each Voting Member shall, within thirty (30) days after the Effective Date or, if later, thirty (30) days after becoming a Member, and thereafter not later than 10 days prior to the Annual Meeting of the Members for each annual period beginning with the Annual Meeting of the Members, submit to the President a sealed notice of the sector in which it is qualified to vote or, if qualified to participate in more than one sector, its rank order preference of the sectors in which it wishes to vote, and shall be assigned to its highest-ranked sector that has the minimum number of Members specified above. If a Member is assigned to a sector other than its highest-ranked sector in accordance with the preceding sentence, its higher sector preference or preferences shall be honored as soon as a higher- ranked sector has five or more Members. A Voting Member may designate as its voting sector any sector for which it or its Affiliate or Related Party Members is qualified. The sector designations of the Voting Members shall be announced by the President at the Annual Meeting. 8.1.2 Related Parties. The Members in a group of Related Parties shall each be entitled to a vote, provided that all the Members in a group of Related Parties that chooses to exercise such rights shall be assigned to the Electric Distributor sector. 8.2 Representatives. 8.2.1 Appointment. Each Member may appoint a representative to serve on the Members Committee, with authority to act for that Member with respect to actions or decisions by the Members Committee. Each Member may appoint an alternate representative to act for that Member at meetings of the Members Committee in the absence of the representative. A Member participating in the PJM Interchange Energy Market through an agent may be represented on the Members Committee by that agent. A Member shall appoint its representative by giving written notice identifying its representative and alternate representative to the Office of the Interconnection. Members that are Affiliates or Related Parties may each appoint a representative and alternate representative to the Members Committee, but shall vote as specified in Section 8.1. 8.2.2 Regulatory Authorities. FERC and any other federal agency with regulatory authority over a Member, each State electric utility regulatory commission with regulatory jurisdiction within the PJM Control Area, and each office of consumer advocate from each State all or any part of the territory of which is within the PJM Control Area, may nominate one representative to serve as an ex officio non-voting member of the Members Committee. 8.2.3 Initial Representatives. Initial representatives to the Members Committee shall be appointed no later than 30 days after the Effective Date; provided, however, that each representative to the Management Committee under the Operating Agreement of PJM Interconnection, L.L.C. as in effect immediately prior to the Effective Date shall automatically become a representative to the Members Committee on the Effective Date unless replaced as specified in Section 8.2.4. An entity becoming a Member shall appoint a representative to the Members Committee no later than 30 days after becoming a Member. 8.2.4 Change of or Substitution for a Representative. Any Member may change its representative or alternate on the Members Committee at any time by providing written notice to the Office of the Interconnection identifying its replacement representative or alternate. Any representative to the Members Committee may, by written notice to the Chair, designate a substitute representative from that Member to act for him or her with respect to any matter specified in such notice. 8.3 Meetings. 8.3.1 Regular and Special Meetings. The Members Committee shall hold regular meetings, no less frequently than once each calendar quarter at such time and at such place as shall be fixed by the Chair. The Members Committee shall hold an Annual Meeting of the Members each calendar year at such time and place as shall be specified by the Chair. At the Annual Meeting of the Members, Board Members as necessary, officers of the Members Committee, and representatives to the Finance Committee shall be elected. The Members Committee may hold special meetings for one or more designated purposes within the scope of the authority of the Members Committee when called by the Chair on the Chair's own initiative, or at the request of five or more representatives on the Members Committee. The notice of a regular or special meeting shall be distributed to the representatives as specified in Section 18.13 of this Agreement not later than seven days prior to the meeting, shall state the time and place of the meeting, and shall include an agenda sufficient to notify the representatives of the substance of matters to be considered at the meeting; provided, however, that meetings may be called on shorter notice at the discretion of the Chair as the Chair shall deem necessary to deal with an emergency or to meet a deadline for action. 8.3.2 Attendance. Regular and special meetings may be conducted in person or by telephone, or other electronic means as authorized by the Members Committee. The attendance in person or by telephone or other electronic means of a representative or a duly designated substitute shall be required in order to vote. 8.3.3 Quorum. The attendance as specified in Section 8.3.2 of a majority of the Voting Members from each of at least three sectors that each have at least five Members shall constitute a quorum. No action may be taken by the Members Committee at a meeting unless a quorum is present; provided, however, that if a quorum is not present, the Voting Members then present shall have the power to adjourn the meeting from time to time until a quorum shall be present. 8.4 Manner of Acting. (a) All matters brought up for a vote or approval by the Members Committee shall be stated in the form of a motion, which must be seconded. Only one motion may be pending at one time. b) Each Sector shall be entitled to cast one and zero one- hundredths (1.00) Sector Votes. Each Voting Member shall be entitled to cast one (1) non-divisible vote in its sector. In the case of a Voting Member comprised of Affiliates or Related Parties, any representative, alternate or substitute of any of the Affiliated or Related Parties may cast the vote of the Voting Member. The Sector Vote of each sector shall be split into an affirmative component based on votes for the pending motion, and a negative component based on votes against the pending motion, in direct proportion to the votes cast within the sector for and against the pending motion, rounded to two decimal places. (c) The sum of affirmative Sector Votes necessary to pass the pending motion shall be greater than (but not merely equal to) the product of .667 multiplied by the number of sectors that have at least five Members and that participated in the vote. d) Voting Members not in attendance at the meeting as specified in Section 8.3.2 of this Agreement or abstaining shall not be counted as affirmative or negative votes. 8.5 Chair and Vice Chair of the Members Committee. 8.5.1 Selection and Term. The representatives or their alternates or substitutes on the Members Committee shall elect from among the representatives a Chair and a Vice Chair. The offices of Chair and Vice Chair shall be held for a term of one year and until succession to the office occurs as specified herein. Except as specified below, at each Annual Meeting of the Members the Vice Chair shall succeed to the office of Chair, and a new Vice Chair shall be elected. If the office of Chair becomes vacant, or the Chair leaves the employment of the Member for whom the Chair is the representative, or the Chair is no longer the representative of such Member, the Vice Chair shall succeed to the office of Chair, and a new Vice Chair shall be elected at the next regular or special meeting of the Members Committee, both such officers to serve until the second Annual Meeting of the Members following such succession or election to a vacant office. If the office of Vice Chair becomes vacant, or the Vice Chair leaves the employment of the Member for whom the Vice Chair is the representative, or the Vice Chair is no longer the representative of such Member, a new Vice Chair shall be elected at the next regular or special meeting of the Members Committee. 8.5.2 Duties. The Chair shall call and preside at meetings of the Members Committee, and shall carry out such other responsibilities as the Members Committee shall assign. The Chair shall cause minutes of each meeting of the Members Committee to be taken and maintained, and shall cause notices of meetings of the Members Committee to be distributed. The Vice Chair shall preside at meetings of the Members Committee in the absence of the Chair, and shall otherwise act for the Chair at the Chair's request. 8.6 Other Committees. (a) The Members Committee may form, select the membership, and oversee the activities, of an Operating Committee, a Planning Committee, and an Energy Market Committee as standing committees, and such other committees, subcommittees, task forces, working groups or other bodies as it shall deem appropriate, to provide advice and recommendations to the Members Committee or to the Office of the Interconnection as directed by the Members Committee. (b) The Members Committee shall elect representatives to the Alternate Dispute Resolution Committee as specified in the PJM Dispute Resolution Procedures. 8.7 User Groups. (a) Any five or more Members sharing a common interest may form a User Group, and may invite such other Members to join the User Group as the User Group shall deem appropriate. Notification of the formation of a User Group shall be provided to all members of the Members Committee. (b) The Members Committee shall create a User Group composed of representatives of bona fide public interest and environmental organizations that are interested in the activities of the LLC and are willing and able to participate in such a User Group. Meetings of User Groups shall be open to all Members and the Office of the Interconnection. Notices and agendas of meetings of a User Group shall be provided to all Members that ask to receive them. (d) Any recommendation or proposal for action adopted by affirmative vote of three-fourths or more of the members of a User Group shall be circulated by the Office of the Interconnection to the representatives on the Members Committee and shall be considered by the Members Committee at its next regular meeting occurring not earlier than 30 days after the circulation of such notice. (e) If the Members Committee does not adopt a recommendation or proposal submitted to it by a User Group, upon vote of nine- tenths or more of the members of the User Group the recommendation or proposal may be submitted to the PJM Board for its consideration in accordance with Section 7.7(v). 8.8 Powers of the Members Committee. The Members Committee, acting by adoption of a motion as specified in Section 8.4, shall have the power to take the actions specified in this Agreement, including: i) Elect the members of the PJM Board; ii) In accordance with the provisions of Section 18.6 of this Agreement, amend any portion of this Agreement, including the Schedules hereto, or create new Schedules, and file any such amendments or new Schedules with FERC or other regulatory body of competent jurisdiction; iii) Terminate this Agreement; and iv) Provide advice and recommendations to the PJM Board and the Office of the Interconnection. 9. OFFICERS 9.1 Election and Term. The officers of the LLC shall consist of a President, a Secretary and a Treasurer. The PJM Board may elect such other officers as it deems necessary to carry out the business of the LLC. All officers shall be elected by the PJM Board and shall hold office until the next annual meeting of the PJM Board and until their successors are elected. Any number of offices may be held by the same person, except that the offices of the President and Treasurer may not be held by the same person. 9.2 President. The PJM Board shall appoint a President and Chief Executive Officer of the LLC (the "President"). The President shall direct and supervise the day-to-day operation of the LLC, and shall report to the PJM Board. The President shall be responsible for directing and supervising the Office of the Interconnection in the performance of the duties and responsibilities specified in Section 10.4. The President shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the LLC, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board to some other officer or agent of the LLC. In the absence of the President or in the event of his or her inability or refusal to act, and if a vice president has been appointed by the PJM Board, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the PJM Board in its Minutes) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice President shall perform such other duties and have such other powers as the PJM Board may from time to time prescribe. 9.3 Secretary. The Secretary shall attend all meetings of the PJM Board and record all the proceedings of the meetings of the PJM Board in a minute book to be kept for that purpose and shall perform like duties for the standing committees or special committees when required. He or she shall give, or cause to be given, notice of all special meetings of the PJM Board, and shall perform such other duties as may be prescribed by the PJM Board or President, under whose supervision he or she shall be. He or she shall have custody of the corporate seal of the LLC, and he or she, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and, when so affixed, it may be attested by his or her signature or by the signature of such assistant secretary. The PJM Board may give general authority to any other officer to affix the seal of the LLC and to attest the affixing by his or her signature. 9.4 Treasurer. The Treasurer shall have or arrange for the custody of the LLC's funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belongings to the LLC and shall deposit all moneys and other valuable effects in the name and to the credit of the LLC in such depositories as may be designated by the PJM Board. The Treasurer shall disburse the funds of the LLC as may be ordered by the PJM Board, taking proper vouchers for such disbursements, and shall render to the President and PJM Board at its regular meetings, or when the PJM Board so requires, an account of his or her transactions as Treasurer and of the financial condition of the LLC. If required by the Board, the Treasurer shall give the LLC a bond (which shall be renewed periodically) in such sum and with such surety or sureties as shall be satisfactory to the PJM Board for the faithful performance of the duties of his office and of the restoration to the LLC, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the LLC. 9.5 Renewal of Officers; Vacancies. Any officer elected or appointed by the PJM Board may be removed at any time by the affirmative vote of a majority of the PJM Board eligible to vote. Any vacancy occurring in any office of the LLC shall be filled by the PJM Board. 9.6 Compensation. The salaries of all officers and agents of the LLC, and the reasonable compensation of the PJM Board, shall be fixed by the PJM Board. 10. OFFICE OF THE INTERCONNECTION. 10.1 Establishment. The Office of the Interconnection shall implement this Agreement, administer the PJM Tariff, and undertake such other responsibilities as set forth herein. All personnel of the Office of the Interconnection shall be employees of the LLC or under contract thereto. The cost of the Office of the Interconnection and expenses associated therewith, including salaries and expenses of said personnel, space and any necessary facilities or other capital expenditures, shall be recovered in accordance with Schedule 3. The Office of the Interconnection shall adopt, publish and comply with standards of conduct that satisfy the regulations of FERC. 10.2 Processes and Organization. In order to carry out the responsibilities of the Office of the Interconnection for the safe and reliable operation of the Interconnection, the President may establish processes and organization for operating personnel and facilities as the President shall deem appropriate, and shall request such Members as the President shall deem appropriate to participate in such processes and organization. All such processes and organization shall be carried out in accordance with all applicable code of conduct or other functional separation requirements of FERC. 10.3 Confidential Information. The Office of the Interconnection shall comply with the requirements of Section 18.17 with respect to any proprietary or confidential information received from or about any Member. 10.4 Duties and Responsibilities. The Office of the Interconnection, under the direction of the President as supervised and overseen by the PJM Board, shall carry out the following duties and responsibilities, in accordance with the provisions of this Agreement: i) Administer and implement this Agreement; ii) Perform such functions in furtherance of this Agreement as the PJM Board, acting within the scope of its duties and responsibilities under this Agreement, may direct; iii) Prepare, maintain, update and disseminate the PJM Manuals; iv) Comply with MAAC and NERC operation and planning standards, principles and guidelines; v) Maintain an appropriately trained workforce, and such equipment and facilities, including computer hardware and software and backup power supplies, as necessary or appropriate to implement or administer this Agreement; vi) Direct the operation and coordinate the maintenance of the facilities of the Interconnection used for both load and reactive supply, so as to maintain reliability of service and obtain the benefits of pooling and interchange consistent with this Agreement and the Reliability Assurance Agreement; vii) Direct the operation and coordinate the maintenance of the bulk power supply facilities of the Interconnection with such facilities and systems of others not party to this Agreement in accordance with agreements between the LLC and such other systems to secure reliability and continuity of service and other advantages of pooling on a regional basis; viii) Perform interchange accounting and maintain records pertaining to the operation of the PJM Interchange Energy Market and the Interconnection; ix) Notify the Members of the receipt of any application to become a Member, and of the action of the Office of the Interconnection on such application, including but not limited to the completion of integration of a new Member's system into the PJM Control Area as specified in Section 11.6(f); x) Calculate the Weighted Interest of each Member; xi) Maintain accurate records of the sectors in which each Voting Member is entitled to vote, and calculate the results of any vote taken in the Members Committee; xii) Furnish appropriate information and reports as are required to keep the Members regularly informed of the outlook for, the functioning of, and results achieved by the Interconnection; xiii) File with FERC on behalf of the Members any amendments to this Agreement or the Schedules hereto, any new Schedules hereto, and make any other regulatory filings on behalf of the Members or the LLC necessary to implement this Agreement; xiv) At the direction of the PJM Board, submit comments to regulatory authorities on matters pertinent to the Interconnection; xv) Consult with the standing or other committees established pursuant to Section 8.6(a) on matters within the responsibility of the committee; xvi) Perform operating studies of the bulk power supply facilities of the Interconnection and make such recommendations and initiate such actions as may be necessary to maintain reliable operation of the Interconnection; xvii) Accept, on behalf of the Members, notices served under this Agreement; xviii) Perform those functions and undertake those responsibilities transferred to it under the Transmission Owners Agreement, including (A) direct the operation of the transmission facilities of the parties to the Transmission Owners Agreement, (B) administer the PJM Tariff, and (C) administer the Regional Transmission Expansion Planning Protocol set forth as Schedule 6 to this Agreement. xix) Perform those functions and undertake those responsibilities transferred to it under the Reliability Assurance Agreement, as specified in Schedule 8 of this Agreement. xx) Monitor the operation of the PJM Control Area, ensure that appropriate Emergency plans are in place and appropriate Emergency drills are conducted, declare the existence of an Emergency, and direct the operations of the Members as necessary to manage, alleviate or end an Emergency; xxi) Incorporate the grid reliability requirements applicable to nuclear generating units in the PJM Control Area planning and operating principles and practices; and xxii) Initiate such legal or regulatory proceedings as directed by the PJM Board to enforce the obligations of this Agreement. 11. MEMBERS 11.1 Management Rights. The Members or any of them shall not take part in the management of the business of, and shall not transact any business for, the LLC in their capacity as Members, nor shall they have power to sign for or to bind the LLC. 11.2 Other Activities. Except as otherwise expressly provided herein, any Member may engage in or possess any interest in another business or venture of any nature and description, independently or with others, even if such activities compete directly with the business of the LLC, and neither the LLC nor any Member hereof shall have any rights in or to any such independent ventures or the income or profits derived therefrom. 11.3 Member Responsibilities. 11.3.1 General. To facilitate and provide for the work of the Office of the Interconnection and of the several committees appointed by the Members Committee, each Member shall, to the extent applicable; (a) Maintain adequate records and, subject to the provisions of this Agreement for the protection of the confidentiality of proprietary or commercially sensitive information, provide data required for (i) coordination of operations, (ii) accounting for all interchange transactions, (iii) preparation of required reports, (iv) coordination of planning, including those data required for capacity accounting, (v) preparation of maintenance schedules, (vi) analysis of system disturbances, and (vii) such other purposes, including those set forth in Schedule 2, as will contribute to the reliable and economic operation of the Interconnection; (b) Provide such recording, telemetering, communication and control facilities as are required for the coordination of its operations with the Office of the Interconnection and those of the other Members and to enable the Office of the Interconnection to operate the PJM Control Area and otherwise implement and administer this Agreement, including equipment required in normal and Emergency operations and for the recording and analysis of system disturbances; (c) Provide adequate and properly trained personnel to (i) permit participation in the coordinated operation of the Interconnection, (ii) meet its obligation on a timely basis for supply of records and data, (iii) serve on committees and participate in their investigations, and (iv) share in the representation of the Interconnection in inter-regional and national reliability activities; (d) Share in the costs of committee activities and investigations (including costs of consultants, computer time and other appropriate items), communication facilities used by all the Members (in addition to those provided in the Office of the Interconnection), and such other expenses as are approved for payment by the PJM Board, such costs to be recovered as provided in Schedule 3; (e) Comply with the requirements of the PJM Manuals and all directives of the Office of the Interconnection to take any action for the purpose of managing, alleviating or ending an Emergency, and authorize the Office of the Interconnection to direct the transfer or interruption of the delivery of energy on their behalf to meet an Emergency and to implement agreements with other Control Areas interconnected with the PJM Control Area for the mutual provision of service to meet an Emergency, and be subject to the emergency procedure charges specified in Schedule 9 of this Agreement for any failure to follow the Emergency instructions of the Office of the Interconnection. 11.3.2 Facilities Planning and Operation. Consistent with and subject to the requirements of this Agreement, the PJM Tariff, the MAAC Agreement, the Reliability Assurance Agreement, the Transmission Owners Agreement, and the PJM Manuals, each Member shall cooperate with the other Members in the coordinated planning and operation of the facilities of its System within the PJM Control Area so as to obtain the greatest practicable degree of reliability, compatible economy and other advantages from such coordinated planning and operation. In furtherance of such cooperation each Member shall, as applicable: (a) Consult with the other Members and the Office of the Interconnection, and coordinate the installation of its electric generation and Transmission Facilities with those of such other Members so as to maintain reliable service in the PJM Control Area; (b) Coordinate with the other Members, the Office of the Interconnection and with others in the planning and operation of the regional facilities to secure a high level of reliability and continuity of service and other advantages; (c) Cooperate with the other Members and the Office of the Interconnection in the implementation of all policies and procedures established pursuant to this Agreement for dealing with Emergencies, including but not limited to policies and procedures for maintaining or arranging for a portion of a Member's Capacity Resources at least equal to the level established pursuant to the Reliability Assurance Agreement to have the ability to go from a shutdown condition to an operating condition and start delivering power without assistance from the power system; (d) Cooperate with the members of MAAC to augment the reliability of the bulk power supply facilities of the region and comply with MAAC and NERC operating and planning standards, principles and guidelines and the PJM Manuals; (e) Obtain or arrange for transmission service as appropriate to carry out this Agreement; (f) Cooperate with the Office of the Interconnection's coordination of the operating and maintenance schedules of the Member's generating and Transmission Facilities with the facilities of other Members to maintain reliable service to its own customers and those of the other Members and to obtain economic efficiencies consistent therewith; (g) Cooperate with the other Members and the Office of the Interconnection in the analysis, formulation and implementation of plans to prevent or eliminate conditions that impair the reliability of the Interconnection; and (h) Adopt and apply standards adopted pursuant to this Agreement and conforming to MAAC and NERC standards, principles and guidelines and the PJM Manuals, for system design, equipment ratings, operating practices and maintenance practices. 11.3.3 Electric Distributors. In addition to any of the foregoing responsibilities that may be applicable, each Member that is an Electric Distributor, whether or not that Member votes in the Members Committee in the Electric Distributor sector or meets the eligibility requirements for any other sector of the Members Committee, shall: (a) Accept, comply with or be compatible with all standards applicable within the PJM Control Area with respect to system design, equipment ratings, operating practices and maintenance practices as set forth in the PJM Manuals, or be subject to an interconnected Member's requirements relating to the foregoing, so that sufficient electrical equipment, control capability, information and communication are available to the Office of the Interconnection for planning and operation of the PJM Control Area; (b) Assure the continued compatibility of its local system energy management system monitoring and telecommunications systems to satisfy the technical requirements of interacting automatically or manually with the Office of the Interconnection as it directs the operation of the PJM Control Area; (c) Maintain or arrange for a portion of its connected load to be subject to control by automatic underfrequency, under- voltage, or other load-shedding devices at least equal to the levels established pursuant to the Reliability Assurance Agreement, or be subject to another Member's control for these purposes; (d) Provide or arrange for sufficient reactive capability and voltage control facilities to conform to Good Utility Practice and (i) to meet the reactive requirements of its system and customers and (ii) to maintain adequate voltage levels and the stability required by the bulk power supply facilities of the Interconnection; (e) Shed connected load, share Capacity Resources, initiate active load management programs, and take such other coordination actions as may be necessary in accordance with the directions of the Office of the Interconnection in Emergencies; (f) Maintain or arrange for a portion of its Capacity Resources at least equal to the level established pursuant to the Reliability Assurance Agreement to have the ability to go from a shutdown condition to an operating condition and start delivering power without assistance from the power system; (g) Provide or arrange through another Member for the services of a 24-hour local control center to coordinate with the Office of the Interconnection, each such control center to be furnished with appropriate telemetry equipment as specified in the PJM Manuals, and to be staffed by system operators trained and delegated sufficient authority to take any action necessary to assure that the system for which the operator is responsible is operated in a stable and reliable manner; (h) Provide to the Office of the Interconnection all System, accounting, customer tracking, load forecasting and other data necessary or appropriate to implement or administer this Agreement or the Reliability Assurance Agreement; and (i) Comply with the underfrequency relay obligations and charges specified in Schedule 7 of this Agreement. 11.3.4 Reports to the Office of the Interconnection. Each Member shall report as promptly as possible to the Office of the Interconnection any changes in its operating practices and procedures relating to the reliability of the bulk power supply facilities of the Interconnection. The Office of the Interconnection shall review such reports, and if any change in an operating practice or procedure of the Member is not in accord with the established operating principles, practices and procedures for the Interconnection and such change adversely affects the Interconnection and regional reliability, it shall so inform such Member, and the other Members through their representative on the Operating Committee, and shall direct that such change be modified to conform to the established operating principles, practices and procedures. 11.4 Regional Transmission Expansion Planning Protocol. The Members shall participate in regional transmission expansion planning in accordance with the Regional Transmission Expansion Planning Protocol set forth in Schedule 6 to this Agreement. 11.5 Member Right to Petition. (a) Nothing herein shall deprive any Member of the right to petition FERC to modify any provision of this Agreement or any Schedule or practice hereunder that the petitioning Member believes to be unjust, unreasonable, or unduly discriminatory under Section 206 of the Federal Power Act, subject to the right of any other Member (a) to oppose said proposal, or (b) to withdraw from the LLC pursuant to Section 4.1. (b) Nothing herein shall be construed as affecting in any way the right of the Members, acting pursuant to a vote of the Members Committee as specified in Section 8.4, unilaterally to make an application to FERC for a change in any rate, charge, classification, tariff or service, or any rule or regulation related thereto, under section 205 of the Federal Power Act and pursuant to the rules and regulations promulgated by FERC thereunder, subject to the right of any Member that voted against such change in any rate, charge, classification, tariff or service, or any rule or regulation related thereto, in intervene in opposition to any such application. (c) Nothing in this Agreement shall preclude those Members joining in the proposal to utilize Locational Marginal Prices to deal with transmission congestion from (i) filing amendments to the Agreement necessary to implement the use of Locational Marginal Prices in the PJM Control Area in accordance with such orders or other directives as may be issued by FERC relating thereto, or (ii) implementing the provisions of Sections 1.7.21 and 5.2.2(d) of Schedule 1 to this Agreement, without further authorization or approval by the Members Committee. 11.6 Membership Requirements. (a) To qualify as a Member, an entity shall: i) Be a Transmission Owner within the PJM Control Area or an Eligible Customer under the PJM Tariff; ii) If not a Transmission Owner, be a Generation Owner, an Other Supplier, an Electric Distributor, or an End-Use Consumer; iii) Be engaged in buying, selling or transmitting electric energy in or through the Interconnection or have a good faith intent to do so; and iv) Accept the obligations set forth in this Agreement. (b) Certain Members that are Load Serving Entities are parties to the Reliability Assurance Agreement. Upon becoming a Member, any entity that is a Load Serving Entity and that wishes to become a Market Buyer shall also simultaneously execute the Reliability Assurance Agreement. (c) An entity that wishes to become a party to this Agreement shall apply, in writing, to the President setting forth its request, its qualifications for membership, its agreement to supply data as specified in this Agreement, its agreement to pay all costs and expenses in accordance with Schedule 3, and providing all information specified pursuant to the Schedules to this Agreement for entities that wish to become Market Participants. Any such application that meets all applicable requirements shall be approved by the President within sixty (60) days. (d) Nothing in this Section 11 is intended to remove, in any respect, the choice of participation by other utility companies or organizations in the operation of the Interconnection through inclusion in the System of a Member. (e) An entity whose application is accepted by the President pursuant to Section 11.6(c) shall execute a supplement to this Agreement in substantially the form prescribed in Schedule 4, which supplement shall be countersigned by the President and tendered for filing with FERC by the President. The entity shall become a Member effective on the date specified by FERC when accepting the supplement for filing. (f) Entities whose applications contemplate expansion or rearrangement of the PJM Control Area may become Members promptly as described in Sections 11.6(c) and 11.6(e) above, but the integration of the applicant's system into all of the operation and accounting provisions of this Agreement and the Reliability Assurance Agreement shall occur only after completion of all required installations and modifications of metering, communications, computer programming, and other necessary and appropriate facilities and procedures, as determined by the Office of the Interconnection. The Office of the Interconnection shall notify the other Members when such integration has occurred. 12. TRANSFERS OF MEMBERSHIP INTEREST The rights and obligations created by this Agreement shall inure to and bind the successors and assigns of such Member; provided, however, that the rights and obligations of any Member hereunder shall not be assigned without the approval of the Members Committee except as to a successor in operation of a Member's electric operating properties by reason of a merger, consolidation, reorganization, sale, spinoff, or foreclosure, as a result of which substantially all such electric operating properties are acquired by such a successor, and such successor becomes a Member. 13. INTERCHANGE 13.1 Interchange Arrangements with Non-Members. Any Member may enter into interchange arrangements with others who are not Members with respect to the delivery or receipt of capacity and energy to fulfill its obligations hereunder or for any other purpose, subject to the standards and requirements established in or pursuant to this Agreement. 13.2 Energy Market. The Office of the Interconnection shall administer an efficient energy market within the Interconnection, to be known as the PJM Interchange Energy Market, in which Members may buy and sell energy. The Office of the Interconnection will schedule in advance and dispatch generation on the basis of least-cost, security-constrained dispatch and the prices and operating characteristics offered by sellers within and into the Interconnection, continuing until sufficient generation is dispatched to serve the energy purchase requirements of the Interconnection and buyers out of the Interconnection, as well as the requirements of the Interconnection for ancillary services provided by such generation. Scheduling and dispatch shall be conducted in accordance with applicable schedules to the PJM Tariff and the Schedules to this Agreement. 14. METERING 14.1 Installation, Maintenance and Reading of Meters. The quantities of electric energy involved in determination of the amounts of the billing rendered hereunder shall be ascertained by means of meters installed, maintained and read either at the expense of the party on whose premises the meters are located or as otherwise provided for by agreement between the parties concerned. 14.2 Metering Procedures. Procedures with respect to maintenance, testing, calibrating, correction and registration records, and precision tolerance of all metering equipment shall be in accordance with Good Utility Practice. The expense of testing any meter shall be borne by the party owning such meter, except that when a meter tested upon request of another party is found to register within the established tolerance the party making the request shall bear the expense of such test. 14.3 Integrated Megawatt-Hours All metering of energy required herein shall be the integration of megawatt hours in the clock hour, and the quantities thus obtained shall constitute the megawatt load for such clock hour; provided, however, that adjustment shall be made for other contractual obligations of any Member as may be required to determine the quantity to be accounted for hereunder, and for transmission losses. 14.4 Meter Locations. The meter locations to be used by the Members in determining their energy transactions on the Interconnection shall be as reasonably determined from time to time by the Member or the Office of the Interconnection. 15. ENFORCEMENT OF OBLIGATIONS 15.1 Failure to Meet Obligations. 15.1.1 Termination of Market Buyer Rights. The Office of the Interconnection shall terminate a Market Buyer's right to make purchases from the PJM Interchange Energy Market if it determines that the Market Buyer does not continue to meet the obligations set forth in this Agreement, provided that the Office of the Interconnection has notified the Market Buyer of any such deficiency and afforded the Market Buyer a reasonable opportunity to cure it. The Office of the Interconnection shall reinstate a Market Buyer's right to make purchases from the PJM Interchange Energy Market upon demonstration by the Market Buyer that it has come into compliance with the obligations set forth in this Agreement. 15.1.2 Termination of Market Seller Rights. The Office of the Interconnection shall not accept offers from a Market Seller that has not complied with the prices, terms, or operating characteristics of any of its prior scheduled transactions in the PJM Interchange Energy Market, unless such Market Seller has taken appropriate measures to the satisfaction of the Office of the Interconnection to ensure future compliance. 15.1.3 Payment of Bills. (a) A Member shall make full and timely payment, in accordance with the terms specified by the Office of the Interconnection, of all bills rendered in connection with transactions in the PJM Interchange Energy Market or other services performed by the Office of the Interconnection, notwithstanding any disputed amount, but any such payment shall not be deemed a waiver of any right with respect to such dispute. Any Member that fails to make such payment, or otherwise fails to meet its financial or other obligations to a Member, the Office of the Interconnection or the LLC under this Agreement, shall upon expiration of the 30 day period specified below be in default. If the Office of the Interconnection concludes, upon its own initiative or the recommendation of or complaint by the Members Committee or any Member, that a Member is in breach of any obligation under this Agreement, the Office of the Interconnection shall so notify such Member and inform all other Members. The notified Member may remedy such asserted breach by: (i) paying all amounts assertedly due, along with interest on such amounts calculated in accordance with the methodology specified for interest on refunds in FERC's regulations at 18 C.F.R. Section 35.19a(a)(2)(iii); and (ii) demonstration to the satisfaction of the Office of the Interconnection that the Member has taken appropriate measures to meet any other obligation of which it was deemed to be in breach; provided, however, that any such payment or demonstration may be subject to a reservation of rights, if any, to subject such matter to the PJM Dispute Resolution Procedures; and provided, further, that any such determination by the Office of the Interconnection may be subject to review by the PJM Board upon request of the Member involved or the Office of the Interconnection. If a Member has not remedied a breach by the 30th day following receipt of the Office of the Interconnection's notice, or receipt of the PJM Board's decision on review, if applicable, then the Member shall be in default and, in addition to such other remedies as may be available to the LLC: i) A defaulting Market Participant shall be precluded from buying or selling energy in the PJM Interchange Energy Market until the default is remedied as set forth above. ii) A defaulting Member shall not be entitled to participate in the activities of any committee or other body established by the Members Committee or the Office of the Interconnection. iii) A defaulting Member shall not be entitled to vote on the Members Committee or any other committee or other body established pursuant to this Agreement. 15.2 Enforcement of Obligations. If the Office of the Interconnection sends a notice to the PJM Board that a Member has failed to perform an obligation under this Agreement, the PJM Board shall initiate such action against such Member to enforce such obligation as the PJM Board shall deem appropriate. Subject to the procedures specified in Section 15.1, a Member's failure to perform such obligation shall be deemed to be a default under this Agreement. In order to remedy a default, but without limiting any rights the LLC may have against the defaulting Member, the PJM Board may assess against, and collect from, the Members not in default, in proportion to their Weighted Interest, an amount equal to the amount that the defaulting Member has failed to pay to the Office of the Interconnection, along with appropriate interest, but such assessment shall in no way relieve the defaulting Member of its obligations, and shall confer upon the Members Committee the right to recover the assessed amounts from the defaulting Member. In addition to any amounts in default, the defaulting Member shall be liable to the LCC for reasonable costs incurred in enforcing the defaulting Member's obligations. 15.3 Obligations to a Member in Default. The Members have no continuing obligation to provide the benefits of interconnected operations to a Member in default. 15.4 Obligations of a Member in Default. A Member found to be in default shall take all possible measures to mitigate the continued impact of the default on the Members not in default, including, but not limited to, loading its own generation to supply its own load to the maximum extent possible. 15.5 No Implied Waiver. A failure of a Member, the PJM Board, or the LLC to insist upon or enforce strict performance of any of the provisions of this Agreement shall not be construed as a waiver or relinquishment to any extent of such entity's right to assert or rely upon any such provisions, rights and remedies in that or any other instance; rather, the same shall be and remain in full force and effect. 16. LIABILITY AND INDEMNITY 16.1 Members. (a) As between the Members, except as may be otherwise agreed upon between individual Members with respect to specified interconnections, each Member will indemnify and hold harmless each of the other Members, and its directors, officers, employees, agents, or representatives, of and from any and all damages, losses, claims, demands, suits, recoveries, costs and expenses (including all court costs and reasonable attorneys' fees), caused by reason of bodily injury, death or damage to property of any third party, resulting from or attributable to the fault, negligence or willful misconduct of such Member, its directors, officers, employees, agents, or representatives, or resulting from, arising out of, or in any way connected with the performance of its obligations under this Agreement, excepting only, and to the extent, such cost, expense, damage, liability or loss may be caused by the fault, negligence or willful misconduct of any other Member. The duty to indemnify under this Agreement will continue in full force and effect notwithstanding the expiration or termination of this Agreement or the withdrawal of a Member from this Agreement, with respect to any loss, liability, damage or other expense based on facts or conditions which occurred prior to such termination or withdrawal. (b) The amount of any indemnity payment arising hereunder shall be reduced (including, without limitation, retroactively) by any insurance proceeds or other amounts actually recovered by the Member seeking indemnification in respect of the indemnified action, claim, demand, costs, damage or liability. If any Member shall have received an indemnity payment for an action, claim, demand, cost, damage or liability and shall subsequently actually receive insurance proceeds or other amounts for such action, claim, demand, cost, damage or liability, then such Member shall pay to the Member that made such indemnity payment the lesser of the amount of such insurance proceeds or other amounts actually received and retained or the net amount of the indemnity payments actually received previously. 16.2 LLC Indemnified Parties. (a) The LLC will indemnify and hold harmless the PJM Board, the LLC's officers, employees and agents, and any representatives of the Members serving on the Members Committee and any other committee created under Section 8 of this Agreement (all such Board Members, officers, employees, agents and representatives for purposes of this Section 160 being referred to as "LLC Indemnified Parties"), of and from any and all actions, claims, demands, costs (including consequential or indirect damages, economic losses and all court costs and reasonable attorneys' fees) and liabilities to any third parties, arising from, or in any way connected with, the performance of the LLC under this Agreement, or the fact that such LLC Indemnified Party was serving in such capacity, except to the extent that such action, claim, demand, cost or liability results from the willful misconduct of any LLC Indemnified Party with respect to participation in the misconduct. To the extent any dispute arises between any Member and the LLC arising from, or in any way connected with, the performance of the LLC under this Agreement, the Member and the LLC shall follow the PJM Dispute Resolution Procedures. To the extent that any such action, claim, demand, cost or liability arises from a Member's contractual or other obligation to provide electric service directly or indirectly to said third party, which obligation to provide service is limited by the terms of any tariff, service agreement, franchise, statute, regulatory requirement, court decision or other limiting provision, the Member designates the LLC and each LLC Indemnified Party a beneficiary of said limitation. (b) An LLC Indemnified Party shall not be personally liable for monetary damages for any breach of fiduciary duty by such LLC Indemnified Party, except that an LLC Indemnified Party shall be liable to the extent provided by applicable law (i) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, or (ii) for any transaction from which the LLC Indemnified Party derived an improper personal benefit. Notwithstanding (i) and (ii), indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the LLC if and to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. If applicable law is hereafter construed or amended to authorize the further elimination or limitation of the liability of LLC Indemnified Parties, then the liability of the LLC Indemnified Parties, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by law. No amendment to or repeal of this section shall apply to or have any effect on the liability or alleged liability of any LLC Indemnified Party or with respect to any acts or omissions occurring prior to such amendment or repeal. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the LLC, and with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. (c) The LLC may pay expenses incurred by an LLC Indemnified Party in defending a civil, criminal, administrative or investigative action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such LLC Indemnified Party to repay such amount if it shall ultimately be determined that such LLC Indemnified Party is not entitled to be indemnified by the LLC as authorized in this Section. (d) In the event the LLC incurs liability under this Section 16.2 that is not adequately covered by insurance, such amounts shall be recovered pursuant to the PJM Tariff as provided in Schedule 3 of this Agreement. 16.3 Worker' Compensation Claims. Each Member shall be solely responsible for all claims of its own employees, agents and servants growing out of any Worker's Compensation Law. 16.4 Limitation of Liability. No Member or its directors, officers, employees, agents, or representatives shall be liable to any other Member or its directors, officers, employees, agents, or representatives, whether liability arises out of contract, tort (including negligence), strict liability, or any other cause of or form of action whatsoever, for any indirect, incidental, consequential, special or punitive cost, expense, damage or loss, including but not limited to loss of profits or revenues, cost of capital of financing, loss of goodwill or cost of replacement power, arising from such Member's performance or failure to perform any of its obligations under this Agreement or the ownership, maintenance or operation of its System; provided, however, that nothing herein shall be deemed to reduce or limit the obligations of any Member with respect to the claims of persons or entities that are not parties to this Agreement. 16.5 Resolution of Disputes. To the extent any dispute arises between one or more Members regarding any issue covered by this Agreement, the Members shall follow the dispute resolution procedures set forth in the PJM Dispute Resolution Procedures. 16.6 Gross Negligence or Willful Misconduct. Neither the LLC nor the LLC Indemnified Parties shall be liable to the Members or any of them for any claims, demands or costs arising from, or in any way connected with, the performance of the LLC under this Agreement other than actions, claims or demands based on gross negligence or willful misconduct; provided, however, that nothing herein shall limit or reduce the obligations of the LLC to the Members or any of them under the express terms of this Agreement or the PJM Tariff, including, but not limited to, those set forth in Sections 6.2 and 6.3 of this Agreement. 16.7 Insurance. The PJM Board shall be authorized to procure insurance against the risks borne by the LLC and the LLC Indemnified Parties, the cost of which shall be treated as a cost and expense of the LLC. 17. MEMBER REPRESENTATIONS, WARRANTIES AND COVENANTS 17.1 Representations and Warranties. Each Member makes the following representations and warranties to the LLC and each other Member, as of the Effective Date or such later date as such Member shall become admitted as a Member of the LLC. 17.1.1 Organization and Existence. Such Member is an entity duly organized, validly existing and in good standing under the laws of the state of its organization. 17.1.2 Power and Authority. Such Member has the full power and authority to execute, deliver and perform this Agreement and to carry out the transactions contemplated hereby. 17.1.3 Authorization and Enforceability. The execution and delivery of this Agreement by such Member and the performance of its obligations hereunder have been duly authorized by all requisite action on the part of the Member, and do not conflict with any applicable law or with any other agreement binding upon the Member. The Agreement has been duly executed and delivered by such Member and constitutes the legal, valid and binding obligation of such Member, enforceable against it in accordance with the terms thereof, except insofar as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting the enforcement of creditors' rights generally, and to general principles of equity whether such principles are considered in proceedings in law or in equity. 17.1.4 No Government Consents. No authorization, consent, approval or order of, notice to or registration, qualification, declaration or filing with, any governmental authority is required for the execution, delivery and performance by such Member of this Agreement or the carrying out by such Member of the transactions contemplated hereby other than such authorization, consent, approval or order of, notice to or registration, qualification, declaration or filing that is pending before such governmental authority. 17.1.5 No Conflict or Breach. None of the execution, delivery and performance by such Member of this Agreement, the compliance with the terms and provisions hereof and the carrying out of the transactions contemplated hereby, conflicts or will conflict with or will result in a breach or violation of any of the terms, conditions or provisions of any law, governmental rule or regulation or the charter documents or bylaws of such Member or any applicable order, writ, injunction, judgment or decree of any court or governmental authority against such Member or by which it or any of its properties, is bound, or any loan agreement, indenture, mortgage, bond, note, resolution, contract or other agreement or instrument to which such Member is a party or by which it or any of its properties is bound, or constitutes or will constitute a default thereunder or will result in the imposition of any lien upon any of its properties. 17.1.6 No Proceedings. There are no actions at law, suits in equity, proceedings or claims pending or, to the knowledge of the Member, threatened against the Member before any federal, state, foreign or local court, tribunal or government agency or authority that might materially delay, prevent or hinder the performance by the Member of its obligations hereunder. 17.2 Municipal Electric Systems. Any provisions of Section 17.1 notwithstanding, if any Member that is a municipal electric system believes in good faith that the provisions of Sections 5.1(b) and 16.1 of this Agreement may not lawfully be applied to that Member under applicable state law governing municipal activities, the Member may request a waiver of the pertinent provisions of the Agreement. Any such request for waiver shall be supported by an opinion of counsel for the Member to the effect that the provision of the Agreement as to which waiver is sought may not lawfully be applied to the Member under applicable state law. The PJM Board shall have the right to have the opinion of the Member's counsel reviewed by counsel to the LLC. If the PJM Board concludes that either or both of Sections 5.1(b) and 16.1 of this Agreement may not lawfully be applied to a municipal electric system Member, it shall waive the application of the affected provision or provisions to such municipal Member. Any Member not permitted by law to indemnify the other Members shall not be indemnified by the other Members. 17.3 Survival. All representations and warranties contained in this Section 17 shall survive the execution and delivery of this Agreement. 18. MISCELLANEOUS PROVISIONS 18.1 [Reserved.] 18.2 Fiscal and Taxable Year. The fiscal year and taxable year of the LLC shall be the calendar year. 18.3 Reports. Each year prior to the Annual Meeting of the Members, the PJM Board shall cause to be prepared and distributed to the Members a report of the LLC's activities since the prior report. 18.4 Bank Accounts; Checks, Notes and Drafts. (a) Funds of the LLC shall be deposited in an account or accounts of a type, in form and name and in a bank(s) or other financial institution(s) which are participants in federal insurance programs as selected by the PJM Board. The PJM Board shall arrange for the appropriate conduct of such accounts. Funds may be withdrawn from such accounts only for bona fide and legitimate LLC purposes and may from time to time be invested in such short-term securities, money market funds, certificates of deposit or other liquid assets as the PJM Board deems appropriate. All checks or demands for money and notes of the LLC shall be signed by any officer or by any other person designated by the PJM Board. (b) The Members acknowledge that the PJM Board may maintain LLC funds in accounts, money market funds, certificates of deposit, other liquid assets in excess of the insurance provided by the Federal Deposit Insurance Corporation, or other depository insurance institutions and that the PJM Board shall not be accountable or liable for any loss of such funds resulting from failure or insolvency of the depository institution. (c) Checks, notes, drafts and other orders for the payment of money shall be signed by such persons as the PJM Board from time to time may authorize. When the PJM Board so authorizes, the signature of any such person may be a facsimile. 18.5 Books and Records. (a) At all times during the term of the LLC, the PJM Board shall keep, or cause to be kept, full and accurate books of account, records and supporting documents, which shall reflect, completely, accurately and in reasonable detail, each transaction of the LLC. The books of account shall be maintained and tax returns prepared and filed on the method of accounting determined by the PJM Board. The books of account, records and all documents and other writings of the LLC shall be kept and maintained at the principal office of the Interconnection. (b) The PJM Board shall cause the Office of the Interconnection to keep at its principal office the following: i) A current list in alphabetical order of the full name and last known business address of each Member, the Weighted Interest of each Member, and the Members Committee sector of each Voting Member; ii) A copy of the Certificate of Formation and the Certificate of Conversion, and all Certificates of Amendment thereto; iii) Copies of the LLC's federal, state, and local income tax returns and reports, if any, for the three most recent years; and iv) Copies of the Operating Agreement, as amended, and of any financial statements of the LLC for the three most recent years. 18.6 Amendment. (a) Except as provided by law or otherwise set forth herein, this Agreement, including any Schedule hereto, may be amended, or a new Schedule may be created, only upon: (i) submission of the proposed amendment to the PJM Board for its review and comments; (ii) approval of the amendment or new Schedule by the Members Committee, after consideration of the comments of the PJM Board, in accordance with Section 8.4, or written agreement to an amendment of all Members not in default at the time the amendment is agreed upon; and (iii) approval and/or acceptance for filing of the amendment by FERC and any other regulatory body with jurisdiction thereof as may be required by law. If and as necessary, the Members Committee may file with FERC or other regulatory body of competent jurisdiction any amendment to this Agreement or to its Schedules or a new Schedule not filed by the Office of the Interconnection. (b) Notwithstanding the foregoing, an applicant eligible to become a Member in accordance with the procedures specified in this Agreement shall become a Member by executing a counterpart of this Agreement without the need for amendment of this Agreement or execution of such counterpart by any other Member. (c) Each of the following fundamental changes to the LLC shall require or be deemed to require an amendment to this Agreement and shall require the prior approval of FERC: i) Adoption of any plan of merger or consolidation; ii) Adoption of any plan of sale, lease or exchange of assets relating to all, or substantially all, of the property and assets of the LLC; iii) Adoption of any plan of division relating to the division of the LLC into two or more corporations or other legal entities; iv) Adoption of any plan relating to the conversion of the LLC into a stock corporation; v) Adoption of any proposal of voluntary dissolution; or vi) Taking any action which has the purpose or effect of the adoption of any plan or proposal described in items (i), (ii), (iii), (iv) or (v) above. 18.7 Interpretation. Wherever the context may require, any noun or pronoun used herein shall include the corresponding masculine, feminine or neuter forms. The singular form of nouns, pronouns and verbs shall include the plural and vice versa. 18.8 Severability. Each provision of this Agreement shall be considered severable and if for any reason any provision is determined by a court or regulatory authority of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions of this Agreement shall continue in full force and effect and shall in no way be affected, impaired or invalidated, and such invalid, void or unenforceable provision shall be replaced with valid and enforceable provision or provisions which otherwise give effect to the original intent of the invalid, void or unenforceable provision. 18.9 Force Majeure. No Member shall be liable to any other Member for damages or otherwise be in breach of this Agreement to the extent and during the period such Member's performance is prevented by any cause or causes beyond such Member's control and without such Member's fault or negligence, including but not limited to any act, omission, or circumstance occasioned by or in consequence of any act of God, labor disturbance, act of the public enemy, war, insurrection, riot, fire, storm or flood, explosion, breakage or accident to machinery or equipment, or curtailment, order, regulation or restriction imposed by governmental, military or lawfully established civilian authorities; provided, however, that any such foregoing event shall not excuse any payment obligation. Upon the occurrence of an event considered by a Member to constitute a force majeure event, such Member shall use due diligence to endeavor to continue to perform its obligations as far as reasonably practicable and to remedy the event, provided that no Member shall be required by this provision to settle any strike or labor dispute. 18.10 Further Assurances. Each Member hereby agrees that it shall hereafter execute and deliver such further instruments, provide all information and take or forbear such further acts and things as may be reasonably required or useful to carry out the intent and purpose of this Agreement and as are not inconsistent with the terms hereof. 18.11 Seal. The seal of the LLC shall have inscribed thereon the name of the LLC, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. 18.12 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together will constitute one instrument, binding upon all parties hereto, notwithstanding that all of such parties may not have executed the same counterpart. 18.13 Costs of Meetings. Each Member shall be responsible for all costs of its representative, alternate or substitute in attending any meeting. The Office of the Interconnection shall pay the other reasonable costs of meetings of the PJM Board and the Members Committee, and such other committees, subcommittees, task forces, working groups, User Groups or other bodies as determined to be appropriate by the Office of the Interconnection, which costs otherwise shall be paid by the Members attending. The Office of the Interconnection shall reimburse all Board Members for their reasonable costs of attending meetings. 18.14 Notice. (a) Except as otherwise expressly provided herein, notices required under this Agreement shall be in writing and shall be sent to a Member by overnight courier, hand delivery, telecopier or other reliable electronic means to the representative on the Members Committee of such Member at the address for such Member previously provided by such Member to the other Members or as otherwise directed by the Members Committee. Any such notice so sent shall be deemed to have been given (i) upon delivery if given by overnight couriers or hand delivery, or (ii) upon confirmation if given by telecopier or other reliable electronic means. (b) Notices, as well as copies of the agenda and minutes of all meetings of committees, subcommittees, task forces, working groups, User Groups, or other bodies formed under this Agreement, shall be posted in a timely fashion on and made available for downloading from the PJM website. 18.15 Headings. The section headings used in this Agreement are for convenience only and shall not affect the construction or interpretation of any of the provisions of this Agreement. 18.16 No Third-Party Beneficiaries. This Agreement is intended to be solely for the benefit of the Members and their respective successors and permitted assigns and, unless expressly stated herein, is not intended to and shall not confer any rights or benefits on any third party (other than successors and permitted assigns) not a signatory hereto. 18.17 Confidentiality. 18.17.1 Party Access. No Member shall have a right hereunder to receive or review any documents, data or other information of another Member, including documents, data or other information provided to the Office of the Interconnection, to the extent such documents, data or information have been designated as confidential pursuant to the procedures adopted by the Office of the Interconnection or to the extent that they have been designated as confidential by such other Member; provided, however, a Member may receive and review any composite documents, data and other information that may be developed based on such confidential documents, data or information if the composite does not disclose any individual Member's confidential data or information. 18.17.2 Required Disclosure. (a) Notwithstanding anything in the foregoing Section to the contrary, if a Member or the Office of the Interconnection is required by applicable law, or in the course of administrative or judicial proceedings, to disclose information that is otherwise required to be maintained in confidence pursuant to this Agreement, that Member or the Office of the Interconnection may make disclosure of such information; provided, however, that as soon as the Member or the Office of the Interconnection learns of the disclosure requirement and prior to making disclosure, that Member or the Office of the Interconnection shall notify the affected Member or Members of the requirement and the terms thereof and the affected Member or Members may direct, at their sole discretion and cost, any challenge to or defense against the disclosure requirement The disclosing Member and the Office of the Interconnection shall cooperate with such affected Members to the maximum extent practicable to minimize the disclosure of the information consistent with applicable law. Each Member and the Office of the Interconnection shall cooperate with the affected Members to obtain proprietary or confidential treatment of such information by the person to whom such information is disclosed prior to any such disclosure. (b) The Office of the Interconnection shall endeavor to impose on any contractors retained to provide technical support or otherwise to assist with the implementation or administration of this Agreement a contractual duty of confidentiality consistent with this Agreement. A Member shall not be obligated to provide confidential or proprietary information to any contractor that does not assume such a duty of confidentiality, and the Office of the Interconnection shall not provide any such information to any such contractor without the express written permission of the Member providing the information. 18.18 Termination and Withdrawal. 18.18.1 Termination. Upon termination of this Agreement, final settlement for obligations under this Agreement shall include the accounting for the period ending with the last day of the last month for which the Agreement was effective. 18.18.2 Withdrawal. Subject to the requirements of Section 4.1(c) of this Agreement and Section 1.4.6 of the Schedule 1 to this Agreement, any Member may withdraw from this Agreement upon 90 days notice to the Office of the Interconnection. 18.18.3 Winding Up. Any provision of this Agreement that expressly or by implication comes into or remains in force following the termination or expiration of this Agreement shall survive such termination or expiration. The surviving provisions shall include, but shall not be limited to: (i) those provisions necessary to permit the orderly conclusion, or continuation pursuant to another agreement, of transactions entered into prior to the decision to terminate this Agreement, (ii) those provisions necessary to conduct final billing, collection, and accounting with respect to all matters arising hereunder, and (iii) the indemnification provisions as applicable to periods prior to such termination or expiration. IN WITNESS whereof, the Members have caused this Agreement to be executed by their duly authorized representatives. SCHEDULE 1 PJM INTERCHANGE ENERGY MARKET (Revises and replaces former Schedules 7.01 and 7.03) Issued: June 2, 1997 Effective: August 1, 1997 1. MARKET OPERATIONS 1.1 Introduction. This Schedule sets forth the scheduling, other procedures, and certain general provisions applicable to the operation of the PJM Interchange Energy Market within the PJM Control Area. This Schedule addresses each of the three time-frames pertinent to the daily operation of the PJM Interchange Energy Market: Prescheduling, Scheduling, and Dispatch. 1.2 Cost-based Offers. Unless and until the FERC shall authorize the use of market- based prices in the PJM Interchange Energy Market, all offers for energy or other services to be sold on the PJM Interchange Energy Market from generating resources located within the PJM Control Area shall not exceed the variable cost of producing such energy or other service, as determined in accordance with Schedule 2 to this Agreement and applicable regulatory standards, requirements and determinations; provided that, a Market Seller may offer to the PJM Interchange Energy Market the right to call on energy from a resource the output of which has been sold on a bilateral basis, with the rate for such energy if called equal to the curtailment rate specified in the bilateral contract. 1.3 Definitions. 1.3.1 Dispatch Rate. "Dispatch Rate" shall mean the control signal, expressed in dollars per megawatt-hour, calculated and transmitted continuously and dynamically to direct the output level of all generation resources dispatched by the Office of the Interconnection in accordance with the Offer Data. 1.3.2 Equivalent Load. "Equivalent Load" shall mean the sum of an Internal Market Buyer's net system requirements to serve its customer load in the PJM Control Area, plus its net bilateral transactions. 1.3.3 External Market Buyer. "External Market Buyer" shall mean a Market Buyer making purchases of energy from the PJM Interchange Energy Market for consumption by end-users outside the PJM Control Area, or for load in the Control Area that is not served by Network Transmission Service. 1.3.4 External Resource. "External Resource" shall mean a generation resource located outside the metered boundaries of the PJM Control Area. 1.3.5 Fixed Transmission Right. "Fixed Transmission Right" shall mean a number determined as specified in Section 0 of this Schedule. 1.3.6 Generating Market Buyer. "Generating Market Buyer" shall mean an Internal Market Buyer that owns or has contractual rights to the output of generation resources capable of serving the Market Buyer's load in the PJM Control Area, or of selling energy or related services in the PJM Interchange Energy Market or elsewhere. 1.3.7 Generator Forced Outage. "Generator Forced Outage" shall mean an immediate reduction in output or capacity or removal from service, in whole or in part, of a generating unit by reason of an Emergency or threatened Emergency, unanticipated failure, or other cause beyond the control of the owner or operator of the facility, as specified in the relevant portions of the PJM Manuals. A reduction in output or removal from service of a generating unit in response to changes in market conditions shall not constitute a Generator Forced Outage. 1.3.8 Generator Maintenance Outage. "Generator Maintenance Outage" shall mean the scheduled removal from service, in whole or in part, of a generating unit in order to perform necessary repairs on specific components of the facility, if removal of the facility meets the guidelines specified in the PJM Manuals. 1.3.9 Generator Planned Outage. "Generator Planned Outage" shall mean the scheduled removal from service, in whole or in part, of a generating unit for inspection, maintenance or repair with the approval of the Office of the Interconnection in accordance with the PJM Manuals. 1.3.10 Internal Market Buyer. "Internal Market Buyer" shall mean a Market Buyer making purchases of energy from the PJM Interchange Energy Market for consumption by end-users inside the PJM Control Area. 1.3.11 Inadvertent Interchange. "Inadvertent Interchange" shall mean the difference between net actual energy flow and net scheduled energy flow into or out of the PJM Control Area, as determined and allocated each hour by the Office of the Interconnection in accordance with the procedures set forth in the PJM Manuals. 1.3.12 Market Operations Center. "Market Operations Center" shall mean the equipment, facilities and personnel used by or on behalf of a Market Participant to communicate and coordinate with the Office of the Interconnection in connection with transactions in the PJM Interchange Energy Market or the operation of the PJM Control Area. 1.3.13 Maximum Generation Emergency. "Maximum Generation Emergency" shall mean an Emergency declared by the Office of the Interconnection in which the Office of the Interconnection anticipates requesting one or more Capacity Resources to operate at its maximum net or gross electrical power output, subject to the equipment stress limits for such Capacity Resource, in order to manage, alleviate, or end the Emergency. 1.3.14 Minimum Generation Emergency. "Minimum Generation Emergency" shall mean an Emergency declared by the Office of the Interconnection in which the Office of the Interconnection anticipates requesting one or more generating resources to operate at or below Normal Minimum Generation, in order to manage, alleviate, or end the Emergency. 1.3.15 Network Resource. "Network Resource" shall have the meaning specified in the PJM Tariff. 1.3.16 Network Service User. "Network Service User" shall mean an entity using Network Transmission Service. 1.3.17 Network Transmission Service. "Network Transmission Service" shall mean transmission service provided pursuant to the rates, terms and conditions set forth in Part III of the PJM Tariff, or transmission service comparable to such service that is provided to a Load Serving Entity that is also a Regional Transmission Owner as that term is defined in the PJM Tariff. 1.3.18 Normal Maximum Generation. "Normal Maximum Generation" shall mean the highest output level of a generating resource under normal operating conditions. 1.3.19 Normal Minimum Generation. "Normal Minimum Generation" shall mean the lowest output level of a generating resource under normal operating conditions. 1.3.20 Offer Data. "Offer Data" shall mean the scheduling, operations planning, dispatch, new resource, and other data and information necessary to schedule and dispatch generation resources for the provision of energy and other services and the maintenance of the reliability and security of the transmission system in the PJM Control Area, and specified for submission to the PJM Interchange Energy Market for such purposes by the Office of the Interconnection. 1.3.21 Office of the Interconnection Control Center. "Office of the Interconnection Control Center" shall mean the equipment, facilities and personnel used by the Office of the Interconnection to coordinate and direct the operation of the PJM Control Area and to administer the PJM Interchange Energy Market, including facilities and equipment used to communicate and coordinate with the Market Participants in connection with transactions in the PJM Interchange Energy Market or the operation of the PJM Control Area. 1.3.22 Operating Day. "Operating Day" shall mean the daily 24 hour period beginning at midnight for which transactions on the PJM Interchange Energy Market are scheduled. .3.23 Operating Margin. "Operating Margin" shall mean the incremental adjustments, measured in megawatts, required in PJM Control Area operations in order to accommodate, on a first contingency basis, an operating contingency in the PJM Control Area resulting from operations in an interconnected Control Area. Such adjustments may result in constraints causing Transmission Congestion Charges, or may result in Ancillary Services charges pursuant to the PJM Tariff. 1.3.24 Operating Margin Customer. "Operating Margin Customer' shall mean a Control Area purchasing Operating Margin pursuant to an agreement between such other Control Area and the LLC. 1.3.25 PJM Interchange. "PJM Interchange" shall mean the following, as determined in accordance with the Schedules to this Agreement: (a) the amount by which an Internal Market Buyer's hourly Equivalent Load exceeds, or is exceeded by, the sum of the hourly outputs of the Internal Market Buyer's operating generating resources; or (b) the hourly scheduled deliveries of Spot Market Energy by an External Market Seller; or (c) the hourly net metered output of any other Market Seller; or (d) the hourly scheduled deliveries of Spot Market Energy to an External Market Buyer. 1.3.26 PJM Interchange Export. "PJM Interchange Export" shall mean the following, as determined in accordance with Schedules to this Agreement: (a) the amount by which an Internal Market Buyer's hourly Equivalent Load is exceeded by the sum of the hourly outputs of the Internal Market Buyer's operating generating resources; or (b) the hourly scheduled deliveries of Spot Market Energy by a Market Seller from an External Resource; or (c) the hourly net metered output of any other Market Seller. 1.3.27 PJM Interchange Import. "PJM Interchange Import" shall mean the following, as determined in accordance with the Schedules to this Agreement: (a) the amount by which an Internal Market Buyer's hourly Equivalent Load exceeds the sum of the hourly outputs of the Internal Market Buyer's operating generating resources; or (b) the hourly scheduled deliveries of Spot Market Energy to an External Market Buyer. 1.3.28 PJM Open Access Same-time Information System. "PJM Open Access Same-time Information System" shall mean the electronic communication system for the collection and dissemination of information about transmission services in the PJM Control Area, established and operated by the Office of the Interconnection in accordance with FERC standards and requirements. 1.3.29 Point-to-Point Transmission Service. "Point-to-Point Transmission Service" shall mean transmission service provided pursuant to the rates, terms and conditions set forth in Part II of the PJM Tariff. 1.3.30 Ramping Capability. "Ramping Capability" shall mean the sustained rate of change of generator output, in megawatts per minute. 1.3.31 Regulation. "Regulation" shall mean the capability of a specific generating unit with appropriate telecommunications, control and response capability to increase or decrease its output in response to a regulating control signal, in accordance with the specifications in the PJM Manuals. 1.3.32 Regulation Class. "Regulation Class" shall mean a subset of the generation units capable of providing Regulation to the PJM Control Area determined by a range of costs for providing Regulation as specified by the Office of the Interconnection using procedures specified in the PJM Manuals. 1.3.33 Spot Market Energy. "Spot Market Energy" shall mean energy bought or sold by Market Participants through the PJM Interchange Energy Market at Locational Marginal Prices determined as specified in Section 2 of this Schedule. 1.3.34 Transmission Congestion Charge. "Transmission Congestion Charge" shall mean a charge attributable to the increased cost of energy delivered at a given load bus when the transmission system serving that load bus is operating under constrained conditions, which shall be calculated and allocated as specified in Section 5.1 of this Schedule. 1.3.35 Transmission Congestion Credit. "Transmission Congestion Credit" shall mean the allocated share of total Transmission Congestion Charges credited to each holder of Fixed Transmission Rights, calculated and allocated as specified in Section 5.2 of this Schedule. 1.3.36 Transmission Customer. "Transmission Customer" shall mean an entity using Point-to- Point Transmission Service. 1.3.37 Transmission Forced Outage. "Transmission Forced Outage" shall mean an immediate removal from service of a transmission facility by reason of an Emergency or threatened Emergency, unanticipated failure, or other cause beyond the control of the owner or operator of the transmission facility, as specified in the relevant portions of the PJM Manuals. A removal from service of a transmission facility at the request of the Office of the Interconnection to improve transmission capability shall not constitute a Forced Transmission Outage. 1.3.38 Transmission Planned Outage. "Transmission Planned Outage" shall mean any transmission outage scheduled in advance for a pre-determined duration and which meets the notification requirements for such outages specified in the PJM Manuals. 1.4 Market Buyers. 1.4.1 Qualification. (a) To become a Market Buyer, an entity shall submit an application to the Office of the Interconnection, in such form as shall be established by the Office of the Interconnection. (b) An applicant that is a Load Serving Entity or that will purchase on behalf of a Load Serving Entity shall establish to the satisfaction of the Office of the Interconnection that the end-users as to which it or its principal is the Load Serving Entity, and which will be served through energy and related services purchased in the PJM Interchange Energy Market, are located electrically within the PJM Control Area, or will be brought within the PJM Control Area prior to any purchases from the PJM Interchange Energy Market by the Load Serving Entity or its agent. Such applicant shall further demonstrate that: i) The foregoing Load Serving Entity (the applicant or its principal) is obligated to meet the requirements of the Reliability Assurance Agreement; and ii) The foregoing Load Serving Entity has arrangements in place for Network Transmission Service or Point-To-Point Transmission Service for all PJM Interchange Energy Market purchases. (c) An applicant that is not a Load Serving Entity or purchasing on behalf of a Load Serving Entity shall demonstrate that: i) The applicant has obtained or will obtain Network Transmission Service or Point-to-Point Transmission Service for all PJM Interchange Energy Market purchases; and ii) The applicant's PJM Interchange Energy Market purchases will ultimately be delivered to a load in another Control Area that is recognized by NERC and that complies with NERC's standards for operating and planning reliable bulk electric systems. (d) All applicants shall demonstrate that: i) The applicant is capable of complying with all applicable metering, data storage and transmission, and other reliability, operation, planning and accounting standards and requirements for the operation of the PJM Control Area and the PJM Interchange Energy Market; ii) The applicant meets the creditworthiness standards established by the Office of the Interconnection, or has provided a letter of credit or other form of security acceptable to the Office of the Interconnection; and iii) The applicant has paid all applicable fees and reimbursed the Office of the Interconnection for all unusual or extraordinary costs of processing and evaluating its application to become a Market Buyer, and has agreed in its application to subject any disputes arising from its application to the PJM Dispute Resolution Procedures. (e) The applicant shall become a Market Buyer upon a final favorable determination on its application by the Office of the Interconnection as specified below, and execution by the applicant of counterparts of this Agreement. 1.4.2 Submission of Information. The applicant shall furnish all information reasonably requested by the Office of the Interconnection in order to determine the applicant's qualification to be a Market Buyer. The Office of the Interconnection may waive the submission of information relating to any of the foregoing criteria, to the extent the information in the Office of the Interconnection's possession is sufficient to evaluate the application against such criteria. 1.4.3 Fees and Costs. The Office of the Interconnection shall require all applicants to become a Market Buyer to pay a uniform application fee, initially in the amount of $1,500, to defray the ordinary costs of processing such applications. The application fee shall be revised from time to time as the Office of the Interconnection shall determine to be necessary to recover its ordinary costs of processing applications. Any unusual or extraordinary costs incurred by the Office of the Interconnection in processing an application shall be reimbursed by the applicant. 1.4.4 Office of the Interconnection Determination. Upon submission of the information specified above, and such other information as shall reasonably be requested by the Office of the Interconnection, the Office of the Interconnection shall undertake an evaluation and investigation to determine whether the applicant meets the criteria specified above. As soon as practicable, but in any event not later than 60 days after submission of the foregoing information, or such later date as may be necessary to satisfy the requirements of the Reliability Assurance Agreement, the Office of the Interconnection shall notify the applicant and the members of the Members Committee of its determination, along with a written summary of the basis for the determination. The Office of the Interconnection shall respond promptly to any reasonable and timely request by a Member for additional information regarding the basis for the Office of the Interconnection's determination, and shall take such action as it shall deem appropriate in response to any request for reconsideration or other action submitted to the Office of the Interconnection not later than 30 days from the initial notification to the Members Committee. 1.4.5 Existing Participants. Any entity that was qualified to participate as a Market Buyer in the PJM Interchange Energy Market under the Operating Agreement of PJM Interconnection L.L.C. in effect immediately prior to the Effective Date shall continue to be qualified to participate as a Market Buyer in the PJM Interchange Energy Market under this Agreement. 1.4.6 Withdrawal. (a) An Internal Market Buyer may withdraw from this Agreement by giving written notice to the Office of the Interconnection specifying an effective date of withdrawal not earlier than the effective date of (i) its withdrawal from the Reliability Assurance Agreement, or (ii) the assumption of its obligations under the Reliability Assurance Agreement by an agent that is a Market Buyer. (b) An External Market Buyer may withdraw from this Agreement by giving written notice to the Office of the Interconnection specifying an effective date of withdrawal at least one day after the date of the notice. (c) Withdrawal from this Agreement shall not relieve a Market Buyer of any obligation to pay for electric energy or related services purchased from the PJM Interchange Energy Market prior to such withdrawal, to pay its share of any fees and charges incurred or assessed by the Office of the Interconnection prior to the date of such withdrawal, or to fulfill any obligation to provide indemnification for the consequences of acts, omissions or events occurring prior to such withdrawal; and provided, further, that withdrawal from this Agreement shall not relieve any Market Buyer of any obligations it may have under, or constitute withdrawal from, any other Related PJM Agreement. (d) A Market Buyer that has withdrawn from this Agreement may reapply to become a Market Buyer in accordance with the provisions of this Section 0, provided it is not in default of any obligation incurred under this Agreement. 1.5 Market Sellers. 1.5.1 Qualification. A Member that demonstrates to the Office of the Interconnection that the Member meets the standards for the issuance of an order mandating the provision of transmission service under section 211 of the Federal Power Act, as amended by the Energy Policy Act of 1992, may become a Market Seller upon execution of this Agreement and submission to the Office of the Interconnection of the applicable Offer Data in accordance with the provisions of this Schedule. All Members that are Market Buyers shall become Market Sellers upon execution of the PJM Dispute Resolution Agreement and submission to the Office of the Interconnection of the applicable Offer Data in accordance with the provisions of this Schedule. 1.5.2 Withdrawal. (a) A Market Seller may withdraw from this Agreement by giving written notice to the Office of the Interconnection specifying an effective date of withdrawal at least one day after the date of the notice; provided, however, that withdrawal shall not relieve a Market Seller of any obligation to deliver electric energy or related services to the PJM Interchange Energy Market pursuant to an offer made prior to such withdrawal, to pay its share of any fees and charges incurred or assessed by the Office of the Interconnection prior to the date of such withdrawal, or to fulfill any obligation to provide indemnification for the consequences of acts, omissions, or events occurring prior to such withdrawal; and provided, further, that withdrawal shall not relieve any entity that is a Market Seller and is also a Market Buyer of any obligations it may have as a Market Buyer under, or constitute withdrawal as a Market Buyer from, this Agreement or any other Related PJM Agreement. (b) A Market Seller that has withdrawn from this Agreement may reapply to become a Market Seller at any time, provided it is not in default with respect to any obligation incurred under this Agreement. 1.6 Office of the Interconnection. 1.6.1 Operation of the PJM Interchange Energy Market The Office of the Interconnection shall operate the PJM Interchange Energy Market in accordance with this Agreement. 1.6.2 Scope of Services. The Office of the Interconnection shall, on behalf of the Market Participants, perform the services pertaining to the PJM Interchange Energy Market specified in this Agreement, including but not limited to the following: i) Administer the PJM Interchange Energy Market as part of the PJM Control Area, including scheduling and dispatching of generation resources, accounting for transactions, rendering bills to the Market Participants, receiving payments from and disbursing payments to the Market Participants, maintaining appropriate records, and monitoring the compliance of Market Participants with the provisions of this Agreement, all in accordance with applicable provisions of the Office of the Interconnection Agreement, and the Schedules to this Agreement; ii) Review and evaluate the qualification of entities to be Market Buyers or Market Sellers under applicable provisions of this Agreement; iii) Coordinate, in accordance with applicable provisions of this Agreement, the Reliability Assurance Agreement, and the Transmission Owners Agreement, maintenance schedules for generation and transmission resources operated as part of the PJM Control Area; iv) Provide or coordinate the provision of ancillary services necessary for the operation of PJM Control Area or the PJM Interchange Energy Market; v) Determine and declare that an Emergency is expected to exist, exists, or has ceased to exist, in all or any part of the PJM Control Area, or in another Control Area interconnected directly or indirectly with the PJM Control Area, and serve as a primary point of contact for interested state or federal agencies; vi) Enter into agreements for the transfer of energy in conditions constituting an Emergency in the PJM Control Area or in a Control Area interconnected with it, and the mutual provision of other support in such Emergency conditions with other Control Areas interconnected with the PJM Control Area, in accordance with the Schedules to this Agreement; vii) Coordinate the curtailment or shedding of load, or other measures appropriate to alleviate an Emergency, in order to preserve reliability in accordance with NERC and MAAC principles, guidelines and standards, and to ensure the operation of the PJM Control Area in accordance with Good Utility Practice and the this Agreement; viii) Protect confidential information as specified in this Agreement; and ix) Send a representative to meetings of the Members Committee or other Committees, subcommittees, or working groups specified in this Agreement or formed by the Members Committee when requested to do so by the chair or other head of such committee or other group. 1.6.3 Records and Reports. The Office of the Interconnection shall prepare and maintain such records and prepare such reports, including, but not limited to quarterly budget reports, as are required to document the performance of its obligations to the Market Participants hereunder in a form adopted by the Office of the Interconnection upon consideration of the advice and recommendations of the Members Committee. The Office of the Interconnection shall also produce special reports reasonably requested by the Members Committee and consistent with FERC's standards of conduct; provided, however, the Market Participants shall reimburse the Office of the Interconnection for the costs of producing any such report. Notwithstanding the foregoing, the Office of the Interconnection shall not be required to disclose confidential or commercially sensitive information in any such report. 1.6.4 PJM Manuals. The Office of the Interconnection shall prepare, maintain and update the PJM Manuals consistent with this Agreement. The PJM Manuals shall be available for inspection by the Market Participants, regulatory authorities with jurisdiction over the LLC or any Member, and the public. 1.7 General. 1.7.1 Market Sellers. Only Market Sellers shall be eligible to submit offers to the Office of the Interconnection for the sale of electric energy or related services in the PJM Interchange Energy Market. Market Sellers shall comply with the prices, terms, and operating characteristics of all Offer Data submitted to and accepted by the PJM Interchange Energy Market. 1.7.2 Market Buyers. Only Market Buyers shall be eligible to purchase energy or related services in the PJM Interchange Energy Market. Market Buyers shall comply with all requirements for making purchases from the PJM Interchange Energy Market. 1.7.3 Agents. A Market Participant may participate in the PJM Interchange Energy Market through an agent, provided that the Market Participant informs the Office of the Interconnection in advance in writing of the appointment of such agent. A Market Participant participating in the PJM Interchange Energy Market through an agent shall be bound by all of the acts or representations of such agent with respect to transactions in the PJM Interchange Energy Market, and shall ensure that any such agent complies with the requirements of this Agreement. 1.7.4 General Obligations of the Market Participants. (a) In performing its obligations to the Office of the Interconnection hereunder, each Market Participant shall at all times (i) follow Good Utility Practice, (ii) comply with all applicable laws and regulations, (iii) comply with the applicable principles, guidelines, standards and requirements of FERC, NERC and MAAC, (iv) comply with the procedures established for operation of the PJM Interchange Energy Market and PJM Control Area and (v) cooperate with the Office of the Interconnection as necessary for the operation of the PJM Control Area in a safe, reliable manner consistent with Good Utility Practice. (b) Market Participants shall undertake all operations in or affecting the PJM Interchange Energy Market and the PJM Control Area, including but not limited to compliance with all Emergency procedures, in accordance with the power and authority of the Office of the Interconnection with respect to the operation of the PJM Interchange Energy Market and the PJM Control Area as established in this Agreement, and as specified in the Schedules to this Agreement and the PJM Manuals. Failure to comply with the foregoing operational requirements shall subject a Market Participant to such reasonable charges or other remedies or sanctions for non-compliance as may be established by the PJM Board, including legal or regulatory proceedings as authorized by the PJM Board to enforce the obligations of this Agreement. (c) The Office of the Interconnection may establish such committees with a representative of each Market Participant, and the Market Participants agree to provide appropriately qualified personnel for such committees, as may be necessary for the Office of the Interconnection to perform its obligations hereunder. (d) All Market Participants shall provide to the Office of the Interconnection the scheduling and other information specified in the Schedules to this Agreement, and such other information as the Office of the Interconnection may reasonably require for the reliable and efficient operation of the PJM Control Area and the PJM Interchange Energy Market, and for compliance with applicable regulatory requirements for posting market and related information. Such information shall be provided as much in advance as possible, but in no event later than the deadlines established by the Schedules to this Agreement, or by the Office of the Interconnection in conformance with such Schedules. Such information shall include, but not be limited to, maintenance and other anticipated outages of generation or transmission facilities, scheduling and related information on bilateral transactions and self-scheduled resources, and implementation of active load management, interruption of load, and other load reduction measures. The Office of the Interconnection shall abide by appropriate requirements for the non-disclosure and protection of any confidential or proprietary information given to the Office of the Interconnection by a Market Participant. Each Market Participant shall maintain or cause to be maintained compatible information and communications systems, as specified by the Office of the Interconnection, required to transmit scheduling, dispatch, or other time-sensitive information to the Office of the Interconnection in a timely manner. (e) Each Market Participant shall install and operate, or shall otherwise arrange for, metering and related equipment capable of recording and transmitting all voice and data communications reasonably necessary for the Office of the Interconnection to perform the services specified in this Agreement. A Market Participant that elects to be separately billed for its PJM Interchange shall be individually metered in accordance with Section 0 of this Agreement, or shall agree upon an allocation of PJM Interchange between it and the Market Participant through whose meters the unmetered Market Participant's PJM Interchange is delivered. The Office of the Interconnection shall be notified of the allocation by the foregoing Market Participants. (f) Each Market Participant shall operate, or shall cause to be operated, any generating resources owned or controlled by such Market Participant that are within the PJM Control Area or otherwise supplying energy to or through the PJM Control Area in a manner that is consistent with the standards, requirements or directions of the Office of the Interconnection and that will permit the Office of the Interconnection to perform its obligations under this Agreement; provided, however, no Market Participant shall be required to take any action that is inconsistent with Good Utility Practice or applicable law. (g) Each Market Participant shall follow the directions of the Office of the Interconnection to take actions to prevent, manage, alleviate or end an Emergency in a manner consistent with this Agreement and the procedures of the PJM Control Area as specified in the PJM Manuals. (h) Each Market Participant shall obtain and maintain all permits, licenses or approvals required for the Market Participant to participate in the PJM Interchange Energy Market in the manner contemplated by this Agreement. 1.7.5 Market Operations Center. Each Market Participant shall maintain a Market Operations Center, or shall make appropriate arrangements for the performance of such services on its behalf. A Market Operations Center shall meet the performance, equipment, communications, staffing and training standards and requirements specified in this Agreement for the scheduling and completion of transactions in the PJM Interchange Energy Market and the maintenance of the reliable operation of the PJM Control Area, and shall be sufficient to enable (i) a Market Seller to perform all terms and conditions of its offers to the PJM Interchange Energy Market, and (ii) a Market Buyer to conform to the requirements for purchasing from the PJM Interchange Energy Market. 1.7.6 Scheduling and Dispatching. (a) The Office of the Interconnection shall schedule and dispatch generation economically on the basis of least-cost, security-constrained dispatch and the prices and operating characteristics offered by Market Sellers, continuing until sufficient generation is dispatched to serve the PJM Interchange Energy Market energy purchase requirements under normal system conditions of the Market Buyers, as well as the requirements of the PJM Control Area for ancillary services provided by such generation, in accordance with this Agreement. Scheduling and dispatch shall be conducted in accordance with this Agreement. (b) The Office of the Interconnection shall undertake to identify any conflict or incompatibility between the scheduling or other deadlines or specifications applicable to the PJM Interchange Energy Market, and any relevant procedures of another Control Area, or any tariff (including the PJM Tariff). Upon determining that any such conflict or incompatibility exists, the Office of the Interconnection shall propose tariff or procedural changes, and undertake such other efforts as may be appropriate, to resolve any such conflict or incompatibility. 1.7.7 Pricing. The price paid for energy bought and sold in the PJM Interchange Energy Market will reflect the hourly Locational Marginal Price at each load and generation bus, determined by the Office of the Interconnection in accordance with this Agreement. Transmission Congestion Charges, which shall be determined by differences in Locational Marginal Prices in an hour caused by transmission constraints, shall be calculated and collected, and the revenues therefrom shall be disbursed, by the Office of the Interconnection in accordance with this Schedule. 1.7.8 Generating Market Buyer Resources. A Generating Market Buyer may elect to self-schedule its generation resources up to that Generating Market Buyer's Equivalent Load, in accordance with and subject to the procedures specified in this Schedule, and the accounting and billing requirements specified in Section 0 to this Agreement. 1.7.9 Delivery to an External Market Buyer. A purchase of Spot Market Energy by an External Market Buyer shall be delivered to a bus or busses at the border of the PJM Control Area specified by the Office of the Interconnection, or to load in the Control Area that is not served by Network Transmission Service, using Point-to-Point Transmission Service paid for by the External Market Buyer. Further delivery of such energy shall be the responsibility of the External Market Buyer. 1.7.10 Other Transactions. Market Participants may enter into bilateral contracts for the purchase or sale of electric energy to or from each other or any other entity, subject to the obligations of Internal Market Buyers to make Capacity Resources available for dispatch by the Office of the Interconnection. Bilateral arrangements that contemplate the physical transfer of energy to or from a Market Participant shall be reported to and coordinated with the Office of the Interconnection in accordance with this Schedule. To the extent the Office of the Interconnection dispatches a Generating Market Buyer's generation resources, such Generating Market Buyer may elect to net the output of such resources against its hourly Equivalent Load. Such a Generating Market Buyer shall be deemed a buyer from the PJM Interchange Energy Market to the extent of its PJM Interchange Imports, and shall be deemed a seller to the PJM Interchange Energy Market to the extent of its PJM Interchange Exports. 1.7.11 Emergencies. he Office of the Interconnection, with the assistance of the Member's dispatchers as it may request, shall be responsible for monitoring the operation of the PJM Control Area, for declaring the existence of an Emergency, and for directing the operations of Market Participants as necessary to manage, alleviate or end an Emergency. The standards, policies and procedures of the Office of the Interconnection for declaring the existence of an Emergency, including but not limited to a Minimum Generation Emergency, and for managing, alleviating or ending an Emergency, shall apply to all Members on a non-discriminatory basis. Actions by the Office of the Interconnection and the Market Participants shall be carried out in accordance with this Agreement, the NERC Operating Policies, MAAC reliability principles and standards, Good Utility Practice, and the PJM Manuals. A declaration that an Emergency exists or is likely to exist by the Office of the Interconnection shall be binding on all Market Participants until the Office of the Interconnection announces that the actual or threatened Emergency no longer exists. Consistent with existing contracts, all Market Participants shall comply with all directions from the Office of the Interconnection for the purpose of managing, alleviating or ending an Emergency. The Market Participants shall authorize the Office of the Interconnection to purchase or sell energy on their behalf to meet an Emergency, and otherwise to implement agreements with other Control Areas interconnected with the PJM Control Area for the mutual provision of service to meet an Emergency, in accordance with this Agreement. 1.7.12 Fees and Charges. Each Market Participant shall pay all fees and charges of the Office of the Interconnection for operation of the PJM Interchange Energy Market as determined by and allocated to the Market Participant by the Office of the Interconnection in accordance with Schedule 3. 1.7.13 Relationship to PJM Control Area. The PJM Interchange Energy Market operates within and subject to the requirements for the operation of the PJM Control Area. 1.7.14 PJM Manuals. The Office of the Interconnection shall be responsible for maintaining, updating, and promulgating the PJM Manuals as they relate to the operation of the PJM Interchange Energy Market. The PJM Manuals, as they relate to the operation of the PJM Interchange Energy Market, shall conform and comply with this Agreement, NERC operating policies, and MAAC reliability principles, guidelines and standards, and shall be designed to facilitate administration of an efficient energy market within industry reliability standards and the physical capabilities of the PJM Control Area. 1.7.15 Corrective Action. Consistent with Good Utility Practice, the Office of the Interconnection shall be authorized to direct or coordinate corrective action, whether or not specified in the PJM Manuals, as necessary to alleviate unusual conditions that threaten the integrity or reliability of the PJM Control Area or the regional power system. 1.7.16 Recording. Subject to the requirements of applicable State or federal law, all voice communications with the Office of the Interconnection Control Center may be recorded by the Office of the Interconnection and any Market Participant communicating with the Office of the Interconnection Control Center, and each Market Participant hereby consents to such recording. 1.7.17 Operating Reserves. The Office of the Interconnection shall schedule to the Operating Reserve and load-following objectives of the PJM Control Area in scheduling resources pursuant to this Schedule. A table of Operating Reserve objectives is calculated seasonally for various peak load levels and eight weekly periods and is published in the PJM Manuals. Reserve levels are probabilistically determined based on the season's historical load forecasting error and expected generation mix (including typical Planned and Forced/Unplanned Outages). 1.7.18 Regulation. (a) Regulation shall be supplied from generators located within the metered electrical boundaries of the PJM Control Area. Generating Market Buyers, and Market Sellers offering Regulation, shall comply with applicable standards and requirements for Regulation capability and dispatch specified in the PJM Manuals. (b) The Office of the Interconnection shall obtain and maintain an amount of Regulation equal to the PJM Control Area Regulation objective as specified in the PJM Manuals. (c) The Regulation range of a unit shall be at least twice the amount of Regulation assigned. (d) A unit capable of automatic energy dispatch that is also providing Regulation shall have its energy dispatch range reduced by twice the amount of the Regulation provided. The amount of Regulation provided by a unit shall serve to redefine the Normal Minimum Generation and Normal Maximum Generation energy limits of that unit, in that the amount of Regulation shall be added to the unit's Normal Minimum Generation energy limit, and subtracted from its Normal Maximum Generation energy limit. (e) Qualified Regulation must satisfy the verification tests described in the PJM Manuals. 1.7.19 Ramping. A generator dispatched by the Office of the Interconnection pursuant to a control signal appropriate to increase or decrease the generator's megawatt output level shall be able to change output at the ramping rate specified in the Offer Data submitted to the Office of the Interconnection for that generator. 1.7.20 Communication and Operating Requirements. (a) Market Participants. Each Market Participant shall have, or shall arrange to have, its transactions in the PJM Interchange Energy Market subject to control by a Market Operations Center, with staffing and communications systems capable of real-time communication with the Office of the Interconnection during normal and Emergency conditions and of control of the Market Participant's relevant load or facilities sufficient to meet the requirements of the Market Participant's transactions with the PJM Interchange Energy Market, including but not limited to the following requirements as applicable. (b) Market Sellers selling from resources within the PJM Control Area shall: report to the Office of the Interconnection sources of energy available for operation; supply to the Office of the Interconnection all applicable Offer Data; report to the Office of the Interconnection units that are self-scheduled; report to the Office of the Interconnection bilateral sales transactions to buyers not within the PJM Control Area; confirm to the Office of the Interconnection bilateral sales to Market Buyers within the PJM Control Area; respond to the Office of the Interconnection's directives to start, shutdown or change output levels of generation units, or change scheduled voltages or reactive output levels; continuously maintain all Offer Data concurrent with on-line operating information; and ensure that, where so equipped, generating equipment is operated with control equipment functioning as specified in the PJM Manuals. (c) Market Sellers selling from resources outside the PJM Control Area shall: provide to the Office of the Interconnection all applicable Offer Data, including offers specifying amounts of energy available, hours of availability and prices of energy and other services; respond to Office of the Interconnection directives to schedule delivery or change delivery schedules; and communicate delivery schedules to the Market Seller's Control Area. (d) Internal Market Buyers shall: provide to the Office of the Interconnection forecasts of load to be served as required by the Office of the Interconnection; respond to Office of the Interconnection directives for load management steps; report to the Office of the Interconnection Capacity Resources to satisfy capacity obligations that are available for pool operation; report to the Office of the Interconnection all bilateral purchase transactions; respond to other Office of the Interconnection directives such as those required during Emergency operation. (e) External Market Buyers shall: provide to the Office of the Interconnection requests to purchase specified amounts of energy for each hour of the Operating Day during which it intends to purchase from the PJM Interchange Energy Market, along with Dispatch Rate levels above which it does not desire to purchase; respond to other Office of the Interconnection directives such as those required during Emergency operation. 1.7.21 Multi-settlement System. The PJM Interchange Energy Market shall be enhanced by an amendment to this Schedule, to be filed with FERC not later than December 31, 1997, that will provide for the implementation of a multi-settlement system as soon thereafter as shall be determined by the Office of the Interconnection to be reasonably practical. Such a system will provide an opportunity for Market Participants to commit and obtain commitments to energy prices and transmission congestion charges at certain specified deadlines in advance of the Office of the Interconnection's real-time dispatch. The Members specified in Section 11.5(c) of the Agreement, working with the Office of the Interconnection, shall develop the details of the implementation of such a multi- settlement system. 1.8 Selection, Scheduling and Dispatch Procedure Adjustment Process. 1.8.1 PJM Dispute Resolution Agreement. Subject to the condition specified below, any Member adversely affected by a decision of the Office of the Interconnection with respect to the operation of the PJM Interchange Energy Market, including the qualification of an entity to participate in that market as a buyer or seller, make seek such relief as may be appropriate under the PJM Dispute Resolution Procedures on the grounds that such decision does not have an adequate basis in fact or does not conform to the requirements of this Agreement. 1.8.2 Market or Control Area Hourly Operational Disputes. (a) Market Participants shall comply with all determinations of the Office of the Interconnection on the selection, scheduling or dispatch of resources in the PJM Interchange Energy Market, or to meet the operational requirements of the PJM Control Area. Complaints arising from or relating to such determinations shall be brought to the attention of the Office of the Interconnection not later than the end of the fifth business day after the end of the Operating Day to which the selection or scheduling relates, or in which the scheduling or dispatch took place, and shall include, if practicable, a proposed resolution of the complaint. Upon receiving notification of the dispute, the Office of the Interconnection and the Market Participant raising the dispute shall exert their best efforts to obtain and retain all data and other information relating to the matter in dispute, and to notify other Market Participants that are likely to be affected by the proposed resolution. Subject to confidentiality or other non-disclosure requirements, representatives of the Office of the Interconnection, the Market Participant raising the dispute, and other interested Market Participants, shall meet within three business days of the foregoing notification, or at such other or further times as the Office of the Interconnection and the Market Participants may agree, to review the relevant facts, and to seek agreement on a resolution of the dispute. (b) If the Office of the Interconnection determines that the matter in dispute discloses a defect in operating policies, practices or procedures subject to the discretion of the Office of the Interconnection, the Office of the Interconnection shall implement such changes as it deems appropriate and shall so notify the Members Committee. Alternatively, the Office of the Interconnection may notify the Members Committee of a proposed change and solicit the comments or other input of the Members. (c) If either the Office of the Interconnection, the Market Participant raising the dispute, or another affected Market Participant believes that the matter in dispute has not been adequately resolved, or discloses a need for changes in standards or policies established in or pursuant to the Operating Agreement, any of the foregoing parties may make a written request for review of the matter by the Members Committee, and shall include with the request the forwarding party's recommendation and such data or information (subject to confidentiality or other non-disclosure requirements) as would enable the Members Committee to assess the matter and the recommendation. The Members Committee shall take such action on the recommendation as it shall deem appropriate. (d) Subject to the right of a Market Participant to obtain correction of accounting or billing errors, the LLC or a Market Participant shall not be entitled to actual, compensatory, consequential or punitive damages, opportunity costs, or other form of reimbursement from the LLC or any other Market Participant for any loss, liability or claim, including any claim for lost profits, incurred as a result of a mistake, error or other fault by the Office of the Interconnection in the selection, scheduling or dispatch of resources. 1.9 Prescheduling. The following procedures and principles shall govern the prescheduling activities necessary to plan for the reliable operation of the PJM Control Area and for the efficient operation of the PJM Interchange Energy Market. 1.9.1 Outage Scheduling. The Office of the Interconnection shall be responsible for coordinating and approving requests for outages of generation and transmission facilities as necessary for the reliable operation of the PJM Control Area, in accordance with the PJM Manuals. The Office of the Interconnection shall maintain records of outages and outage requests of these facilities. 1.9.2 Planned Outages. (a) A Generator Planned Outage shall be included in Generator Planned Outage schedules established prior to the scheduled start date for the outage, in accordance with standards and procedures specified in the PJM Manuals. (b) The Office of the Interconnection shall conduct Generator Planned Outage scheduling for Capacity Resources in accordance with the Reliability Assurance Agreement and the PJM Manuals and in consultation with the Members owning or controlling the output of Capacity Resources. A Market Participant shall not be expected to submit offers for the sale of energy or other services, or to satisfy delivery obligations, from all or part of a generation resource undergoing an approved Generator Planned Outage. If the Office of the Interconnection determines that approval of a Generator Planned Outage would significantly affect the reliable operation of the PJM Control Area, the Office of the Interconnection may withhold approval or withdraw a prior approval. Approval for a Generator Planned Outage of a Capacity Resource shall be withheld or withdrawn only as necessary to ensure the adequacy of reserves or the reliability of the PJM Control Area in connection with anticipated implementation or avoidance of Emergency procedures. If the Office of the Interconnection withholds or withdraws approval, it shall coordinate with the Market Participant owning or controlling the resource to reschedule the Generator Planned Outage of the Capacity Resource at the earliest practical time. The Office of the Interconnection shall if possible propose alternative schedules with the intent of minimizing the economic impact on the Market Participant of a Generator Planned Outage. (c) The Office of the Interconnection shall conduct Planned Transmission Outage scheduling in accordance with procedures specified in the Transmission Owners Agreement and the PJM Manuals. If the Office of the Interconnection determines that transmission maintenance schedules proposed by one or more Members would significantly affect the efficient and reliable operation of the PJM Control Area, the Office of the Interconnection may propose alternative schedules, but such alternative shall minimize the economic impact on the Member or Members whose maintenance schedules the Office of the Interconnection proposes to modify. The Office of the Interconnection shall coordinate resolution of outage or other planning conflicts that may give rise to unreliable system conditions. The Members shall comply with all maintenance schedules established by the Office of the Interconnection. 1.9.3 Generator Maintenance Outages A Market Participant may request approval for a Generator Maintenance Outage of any Capacity Resource from the Office of the Interconnection in accordance with the timetable and other procedures specified in the PJM Manuals. The Office of the Interconnection shall approve requests for Generator Maintenance Outages for a Capacity Resource unless the outage would threaten the adequacy of reserves in, or the reliability of, the PJM Control Area. A Market Participant shall not be expected to submit offers for the sale of energy or other services, or to satisfy delivery obligations, from a generation resource undergoing an approved full or partial Generator Maintenance Outage. 1.9.4 Forced Outages (a) Each Market Seller that owns or controls a pool- scheduled resource, or Capacity Resource whether or not pool- scheduled, shall: (i) advise the Office of the Interconnection of a Generator Forced Outage suffered or anticipated to be suffered by any such resource as promptly as possible; (ii) provide the Office of the Interconnection with the expected date and time that the resource will be made available; and (iii) make a record of the events and circumstances giving rise to the Generator Forced Outage. A Market Seller shall not be expected to submit offers for the sale of energy or other services, or satisfy delivery obligations, from a generation resource undergoing a Generator Forced Outage. A Capacity Resource that does not deliver all or part of its scheduled energy shall be deemed to have experienced a Generator Forced Outage with respect to such undelivered energy, in accordance with standards and procedures for full and partial Generator Forced Outages specified in the Reliability Assurance Agreement and the PJM Manuals. (b) The Office of the Interconnection shall receive notification of Forced Transmission Outages, and information on the return to service, of Transmission Facilities in the PJM Control Area in accordance with standards and procedures specified in the Transmission Owners Agreement and the PJM Manuals. 1.9.5 Market Participant Responsibilities. Each Market Participant making a bilateral sale covering a period greater than the following Operating Day from a generating resource located within the PJM Control Area for delivery outside the PJM Control Area shall furnish to the Office of the Interconnection, in the form and manner specified in the PJM Manuals, information regarding the source of the energy, the load sink, the energy schedule, and the amount of energy being delivered. 1.9.6 Internal Market Buyer Responsibilities. Each Internal Market Buyer making a bilateral purchase covering a period greater than the following Operating Day shall furnish to the Office of the Interconnection, in the form an manner specified in the PJM Manuals, information regarding the source of the energy, the load sink, the energy schedule, and the amount of energy being delivered. Each Internal Market Buyer shall provide the Office of the Interconnection with details of any load management agreements with customers that allow the Office of the Interconnection to reduce load under specified circumstances. 1.9.7 Market Seller Responsibilities (a) Not less than 30 days before a Market Seller's initial offer to sell energy from a given generation resource on the PJM Interchange Energy Market, the Market Seller shall furnish to the Office of the Interconnection the information specified in the Offer Data for new generation resources. (b) Market Sellers authorized and intending to request market-based start-up and no-load fees in their Offer Data shall submit a specification of such fees to the Office of the Interconnection for each generating unit as to which the Market Seller intends to request such fees. Any such specification shall be submitted on or before March 31 for the period April 1 through September 30, and on or before September 30 for the period October 1 through March 31, and shall remain in effect without change throughout each such period for which a specification was submitted. The Office of the Interconnection shall reject any request for start-up and no-load fees in a Market Seller's Offer Data that does not conform to the Market Seller's specification on file with the Office of the Interconnection. 1.9.8 Office of the Interconnection Responsibilities (a) The Office of the Interconnection shall perform seasonal operating studies to assess the forecasted adequacy of generating reserves and of the transmission system, in accordance with the procedures specified in the PJM Manuals. (b) The Office of the Interconnection shall maintain and update tables setting forth Operating Reserve and other reserve objectives as specified in the PJM Manuals. (c) The Office of the Interconnection shall receive and process requests for firm and non-firm transmission service in accordance with procedures specified in the PJM Tariff. (d) The Office of the Interconnection shall maintain such data and information relating to generation and transmission facilities in the PJM Control Area as may be necessary or appropriate to conduct the scheduling and dispatch of the PJM Interchange Energy Market and PJM Control Area. (e) The Office of the Interconnection shall coordinate with other interconnected Control Area as necessary to manage, alleviate or end an Emergency. 1.10 Scheduling. The following scheduling procedures and principles shall govern the commitment of resources to the PJM Interchange Energy Market over a period extending from one week to one day prior to the Operating Day that transactions are to take place. Scheduling encompasses the day-ahead and hourly scheduling process, through which the Office of the Interconnection determines, based on changing forecasts of conditions and actions by Market Participants and system constraints, a plan to serve the hourly energy and reserve requirements of the Internal Market Buyers and the purchase requests of the External Market Buyers in the least costly manner, subject to maintaining the reliability of the PJM Control Area. Scheduling shall be conducted as specified below, subject to the following condition. If the Office of the Interconnection's forecast for the next seven days projects a likelihood of Emergency conditions, the Office of the Interconnection may commit, for all or part of such seven day period, to the use of generation resources with notification or start-up times greater than one day as necessary in order to alleviate or mitigate such Emergency, in accordance with the Market Sellers' offers for such units for such periods and the specifications in the PJM Manuals. 1.10.1 Day-Ahead Scheduling. The following actions shall occur not later than 12:00 noon on the day before the Operating Day for which transactions are being scheduled. (a) Each Internal Market Buyer shall submit to the Office of the Interconnection forecasts of its customer loads for the next Operating Day as required by the PJM Manuals. If an Internal Market Buyer expects to curtail load at a specific Dispatch Rate, it should specify the Dispatch Rate and estimated load curtailment. (b) An External Market Buyer shall submit to the Office of the Interconnection requests to purchase specified amounts of energy for each hour of the Operating Day during which it intends to purchase from the PJM Interchange Energy Market, along with Dispatch Rate levels above which it does not desire to purchase, in accordance with the specifications set forth in the PJM Manuals. (c) Each Generating Market Buyer shall submit to the Office of the Interconnection: (i) hourly schedules for resource increments, including hydropower units, self-scheduled by the Market Buyer to meet its Equivalent Load; and (ii) the Dispatch Rate at which each such self-scheduled resource will disconnect or reduce output, or confirmation of the Market Buyer's intent not to reduce output. (d) All Market Participants shall submit to the Office of the Interconnection schedules for any bilateral transactions involving use of generation or Transmission Facilities as specified below, and shall inform the Office of the Interconnection if the parties to the transaction are not willing to incur Transmission Congestion Charges in order to complete any such scheduled bilateral transaction. Scheduling of bilateral transactions shall be conducted in accordance with the specifications in the PJM Manuals and the following requirements: i) Internal Market Buyers shall submit schedules for all bilateral purchases for delivery within the PJM Control Area, whether from generation resources inside or outside the PJM Control Area; ii) Market Sellers shall submit schedules for bilateral sales to entities outside the PJM Control Area from generation within the PJM Control Area; and iii) In addition to the foregoing schedules for bilateral transactions, Market Participants shall submit confirmations of each scheduled bilateral transaction from each other party to the transaction in addition to the party submitting the schedule, or the adjacent Control Area. (e) Market Sellers wishing to sell on the PJM Interchange Energy Market shall submit offers for the supply of energy (including energy from hydropower units), Regulation, Operating Reserves or other services for the following Operating Day. Offers shall be submitted to the Office of the Interconnection in the form specified by the Office of the Interconnection and shall contain the information specified in the Office of the Interconnection's Offer Data specification, as applicable. Market Sellers owning or controlling the output of a Capacity Resource that has not been rendered unavailable by a Generation Planned Outage, a Generator Maintenance Outage, or a Generation Forced Outage shall submit offers for the available capacity of such Capacity Resource, including any portion that is self- scheduled by the Generating Market Buyer claiming the resource as a Capacity Resource. The submission of offers for resource increments that are not Capacity Resources shall be optional, but any such offers must contain the information specified in the Office of the Interconnection's Offer Data specification, as applicable. Energy offered from generation resources that are not Capacity Resources shall not be supplied from resources that are included in or otherwise committed to supply the Operating Reserves of another Control Area. The foregoing offers: i) Shall specify the generation resource and energy for each hour in the offer period; ii) Shall specify the amounts and prices for the entire Operating Day for each resource component offered by the Market Seller to the Office of the Interconnection; iii) If based on energy from a specific generating unit, may specify start-up and no-load fees equal to the specification of such fees for such unit on file with the Office of the Interconnection; iv) Shall set forth any special conditions upon which the Market Seller proposes to supply a resource increment, including any curtailment rate specified in a bilateral contract for the output of the resource, or any cancellation fees; v) May include a schedule of offers for prices and operating data contingent on acceptance by the deadline specified in this Schedule, with a second schedule applicable if accepted after the foregoing deadline; vi) Shall constitute an offer to submit the resource increment to the Office of the Interconnection for scheduling and dispatch in accordance with the terms of the offer, which offer shall remain open through the Operating Day for which the offer is submitted; vii) Shall be final as to the price or prices at which the Market Seller proposes to supply energy or other services to the PJM Interchange Energy Market, such price or prices being guaranteed by the Market Seller for the period extending through the end of the following Operating Day; and viii) Shall not exceed an energy offer price of $1,000/megawatt-hour. (f) A Market Seller that wishes to sell Regulation service shall submit an offer for Regulation that shall specify the MW of Regulation being offered and the Regulation Class from which such Regulation is being offered. The range of costs defining Regulation Classes, and the average cost for each Regulation Class, shall be determined periodically by the Office of the Interconnection on the basis of prior energy bid prices and appropriate fuel indices, in accordance with procedures specified in the PJM Manuals. Qualified Regulation capability must satisfy the verification tests specified in the PJM Manuals. (g) Each Market Seller owning or controlling the output of a Capacity Resource shall submit a forecast of the availability of each such Capacity Resource for the next seven days. A Market Seller (i) may submit a non-binding forecast of the price at which it expects to offer a generation resource increment to the Office of the Interconnection over the next seven days, and (ii) shall submit a binding offer for energy, along with start-up and no-load fees, if any, for the next seven days or part thereof, for any generation resource with minimum notification or start-up requirement greater than 24 hours. (h) Each offer by a Market Seller of a Capacity Resource shall remain in effect for subsequent Operating Days until superseded or canceled. (i) The Office of the Interconnection shall post on the PJM Open Access Same-time Information System its estimate of the combined hourly load of the Market Buyers for the next four days, and peak load forecasts for an additional three days. 1.10.2 Pool-Scheduled Resources. Pool-scheduled resources shall be governed by the following principles and procedures. (a) Pool-scheduled resources shall be selected by the Office of the Interconnection on the basis of the prices offered for energy and related services, start-up, no-load and cancellation fees, and the specified operating characteristics, offered by Market Sellers to the Office of the Interconnection by the 12:00 noon offer deadline. (b) A resource that is scheduled by a Market Participant to support a bilateral sale, or that is self-scheduled by a Generating Market Buyer, shall not be selected by the Office of the Interconnection as a pool-scheduled resource except in an Emergency. (c) Market Sellers offering energy from hydropower or other facilities with fuel or environmental limitations may submit data to the Office of the Interconnection that is sufficient to enable the Office of the Interconnection to determine the available operating hours of such facilities. (d) The Market Seller of a resource selected as a pool- scheduled resource shall receive payments or credits for energy or related services, or for start-up and no-load fees, from the Office of the Interconnection on behalf of the Market Buyers in accordance with Schedule 3 to this Agreement. Alternatively, the Market Seller shall receive any cancellation fee reflected in the Market Seller's offer in lieu of start-up and no-load fees, if any, if the Office of the Interconnection cancels its selection of the resource as a pool-scheduled resource and so notifies the Market Seller before the resource is synchronized. (e) Market Participants shall make available their pool- scheduled resources to the Office of the Interconnection for coordinated operation to supply the needs of the PJM Control Area for Operating Reserves. 1.10.3 Self-scheduled Resources. Self-scheduled resources shall be governed by the following principles and procedures. Each Generating Market Buyer shall use all reasonable efforts, consistent with Good Utility Practice, not to self- schedule resources in excess of its Equivalent Load. (b) The offered prices of resources that are self-scheduled, or otherwise not following the dispatch orders of the Office of the Interconnection, shall not be considered by the Office of the Interconnection in determining Locational Marginal Prices. (c) Market Participants shall make available their self- scheduled resources to the Office of the Interconnection for coordinated operation to supply the needs of the PJM Control Area for Operating Reserves. 1.10.4 Capacity Resources. (a) A Capacity Resource selected as a pool-scheduled resource shall be made available for scheduling and dispatch at the direction of the Office of the Interconnection. A Capacity Resource that does not deliver energy as scheduled shall be deemed to have experienced a Generator Forced Outage to the extent of such energy not delivered. (b) Energy from a Capacity Resource that has not been selected as a pool-scheduled resource may be sold on a bilateral basis by the Market Seller, or may be self-scheduled. A Capacity Resource that has not been selected as a pool-scheduled resource and that has been sold on a bilateral basis must be made available upon request to the Office of the Interconnection for scheduling and dispatch if the Office of the Interconnection declares a Maximum Generation Emergency. Any such resource so scheduled and dispatched shall receive the applicable Locational Marginal Price for energy delivered. (c) A Capacity Resource that has been self-scheduled shall not receive payments or credits for start-up or no-load fees. 1.10.5 External Resources. (a) External Resources may submit offers to the PJM Interchange Energy Market, in accordance with the day-ahead scheduling process specified above. An External Resource selected as a pool-scheduled resource shall be made available for scheduling and dispatch at the direction of the Office of the Interconnection, and except as specified below shall be compensated on the same basis as other pool-scheduled resources. External Resources that are not capable of dynamic dispatch shall, if selected by the Office of the Interconnection on the basis of the Market Seller's Offer Data, be block loaded on an hourly scheduled basis. Market Sellers shall offer External Resources to the PJM Interchange Energy Market on either a resource-specific or an aggregated resource basis. (b) Offers for External Resources from an aggregation of two or more generating units shall so indicate, and shall specify, in accordance with the Offer Data requirements specified by the Office of the Interconnection: (i) energy prices; (ii) hours of energy availability; (iii) a minimum dispatch level; (iv) a maximum dispatch level; and (v) unless such information has previously been made available to the Office of the Interconnection, sufficient information, as specified in the PJM Manuals, to enable the Office of the Interconnection to model the flow into the PJM Control Area of any energy from the External Resources scheduled in accordance with the Offer Data. If a Market Seller submits more than one offer on an aggregated resource basis, the withdrawal of any such offer shall be deemed a withdrawal of all higher priced offers for the same period. A Market Seller offering energy from External Resources on an aggregated basis and that does not deliver energy as scheduled by the Office of the Interconnection shall be assessed a non- delivery charge as specified below. (c) Offers for External Resources on a resource-specific basis shall specify the resource being offered, along with the information specified in the Offer Data as applicable. A Market Seller offering an External Resource on a resource-specific basis that does not deliver energy as scheduled by the Office of the Interconnection shall be assessed a non-delivery charge as specified below, unless the resource being offered has suffered a Generator Forced Outage. The burden shall be on the Market Seller to demonstrate to the reasonable satisfaction of the Office of the Interconnection that the resource being offered has experienced a Generator Forced Outage. (d) Subject to the conditions specified in this paragraph, the non-delivery charge for External Resources that do not deliver energy as scheduled shall be calculated hourly as follows: Pro-rated start-up plus hourly no-load fees specified in the Offer Data + [offered minimum dispatch level x (Locational Marginal Price - offered energy price) x 110%]. For purposes of the foregoing calculation: (i) the Locational Marginal Price shall be the Locational Marginal Price at the buses at which the energy from the External Resource should have been delivered to the PJM Control Area; (ii) if the Locational Marginal Price less the offered energy price is less than zero, this difference shall be set to zero; and (iii) start-up and no-load fees shall be subject to the requirements of this Schedule. Payments or credits for non-delivery charges shall be used by the Office of the Interconnection to reduce or offset PJM Control Area costs for Operating Reserves. 1.10.6 External Market Buyers. (a) Deliveries to an External Market Buyer not subject to dynamic dispatch by the Office of the Interconnection shall be delivered on a block loaded basis to the load bus or busses at the border of the PJM Control Area, or in the PJM Control Area with respect to an External Market Buyer's load within the PJM Control Area not served by Network Service, at which the energy is delivered to or for the External Market Buyer. External Market Buyers shall be charged the Locational Marginal Price for energy at the foregoing load bus or busses. (b) An External Market Buyer's hourly schedules for energy purchased from the PJM Interchange Energy Market shall conform to the ramping and other applicable requirements of the interconnection agreement between the PJM Control Area and the Control Area to which, whether as an intermediate or final point of delivery, the purchased energy will initially be delivered. (c) The Office of the Interconnection shall curtail deliveries to an External Market Buyer if necessary to maintain appropriate reserve levels for the PJM Control Area as defined in the PJM Manuals, or to avoid shedding load in the PJM Control Area. (d) An External Market Buyer that does not take delivery of the amounts of energy specified in its request to purchase shall be assessed a non-delivery charge, or if using Point-to-Point service within the PJM Control Area shall pay for imbalance service as specified in the Tariff. The non-delivery charge shall be calculated as the summation for all applicable busses of the product of (i) the Locational Marginal Price at each load bus at which delivery was not taken, times (ii) the amount of energy not taken each hour at such bus. The non-delivery charge shall not apply to deliveries curtailed by the Office of the Interconnection in accordance with this Schedule, or for periods when the Dispatch Rate exceeds the maximum value specified by the External Market Buyer in accordance with this Schedule. Payments or credits for non-delivery charges shall be used by the Office of the Interconnection to reduce or offset PJM Control Area costs for Operating Reserves. 1.10.7 Bilateral Transactions. Bilateral transactions as to which the parties have notified the Office of the Interconnection by 12:00 p.m. of the day before the Operating Day that they are not willing to incur Transmission Congestion Charges shall be curtailed by the Office of the Interconnection as necessary to reduce or alleviate transmission congestion. Bilateral transactions willing to incur congestion charges shall continue to be implemented during periods of congestion, except as may be necessary to respond to Emergencies. 1.10.8 Office of the Interconnection Responsibilities. (a) The Office of the Interconnection shall use its best efforts to determine the least-cost means of satisfying the projected hourly requirements for energy, Operating Reserves, and other ancillary services of the Market Buyers, including the reliability requirements of the PJM Control Area. In making this determination, the Office of the Interconnection shall take into account: (i) the Office of the Interconnection's forecasts of PJM Interchange Energy Market and PJM Control Area energy requirements, giving due consideration to the energy requirement forecasts and purchase requests submitted by Market Buyers; (ii) the offers submitted by Market Sellers; (iii) the availability of limited energy resources; (iv) the capacity, location, and other relevant characteristics of self-scheduled resources; (v) the objectives of the PJM Control Area for Operating Reserves, as specified in the PJM Manuals; (vi) the requirements of the PJM Control Area for Regulation and other ancillary services, as specified in the PJM Manuals; (vii) the benefits of avoiding or minimizing transmission constraint control operations, as specified in the PJM Manuals; and (viii) such other factors as the Office of the Interconnection reasonably concludes are relevant to the foregoing determination. The Office of the Interconnection shall develop a schedule of generation resources based on the foregoing determination. The Office of the Interconnection shall report the planned schedule for a hydropower resource to the operator of that resource as necessary for plant safety and security, and legal limitations on pond elevations. (b) Not later than 4:00 p.m. of the day before each Operating Day, or such earlier deadline as may be specified by the Office of the Interconnection in the PJM Manuals, the Office of the Interconnection shall: (i) post on the PJM Open Access Same-time Information System its forecast of the location and duration of any expected transmission congestion, and of the range of differences in Locational Marginal Prices between major subareas of the PJM Control Area expected to result from such transmission congestion; and (ii) inform each Market Seller whether its offer or offers have been accepted. (c) The Office of the Interconnection shall revise its schedule of generation resources to reflect updated projections of load, conditions affecting electric system operations in the PJM Control Area, the availability of and constraints on limited energy and other resources, transmission constraints, and other relevant factors. The Office of the Interconnection shall post on the PJM Open Access Same-time Information System at times specified in the PJM Manuals a revised forecast of the location and duration of any expected transmission congestion, and of the range of differences in Locational Marginal Prices between major subareas of the PJM Control Area expected to result from such transmission congestion. 1.10.9 Hourly Scheduling (a) Following the initial posting of the Office of the Interconnection's transmission congestion forecast, and subject to the right of the Office of the Interconnection to schedule and dispatch pool-scheduled resources and to direct that schedules be changed in an Emergency, a Market Participant may adjust the schedule of a resource under its dispatch control on an hour-to- hour basis beginning at 10:00 p.m. of the day before each Operating Day, provided that the Office of the Interconnection is notified not later than 60 minutes prior to the hour in which the adjustment is to take effect, as follows: i) A Generating Market Buyer may self-schedule any of its resource increments, including hydropower resources, not previously designated as self-scheduled and not selected as a pool-scheduled resource; ii) A Market Participant may request the scheduling of a non-firm bilateral transaction; or iii) A Generating Market Buyer may remove from service a resource increment, including a hydropower resource, that it had previously designated as self-scheduled, provided that the Office of the Interconnection shall have the option to schedule energy from any such resource increment that is a Capacity Resource at the price offered in the scheduling process, with no obligation to pay any start-up fee. (b) An External Market Buyer may refuse delivery of some or all of the energy it requested to purchase by notifying the Office of the Interconnection of the adjustment in deliveries not later than 60 minutes prior to the hour in which the adjustment is to take effect. Any such refusal of delivery shall be subject to non-delivery charges in accordance with this Schedule. 1.11 Dispatch. The following procedures and principles shall govern the dispatch of the resources available to the Office of the Interconnection. 1.11.1 Resource Output. The Office of the Interconnection shall have the authority to direct any Market Seller to adjust the output of any pool- scheduled resource increment within the operating characteristics specified in the Market Seller's offer. The Office of the Interconnection may cancel its selection of, or otherwise release, pool-scheduled resources, subject to an obligation to pay any applicable start-up, no-load or cancellation fees. The Office of the Interconnection shall adjust the output of pool- scheduled resource increments as necessary: (a) to maintain reliability, and subject to that constraint, to minimize the cost of supplying the energy, reserves, and other services required by the Market Buyers and the operation of the PJM Control Area; (b) to balance load and generation, maintain scheduled tie flows, and provide frequency support within the PJM Control Area; and (c) to minimize unscheduled interchange not frequency related between the PJM Control Area and other Control Areas. 1.11.2 Operating Basis. In carrying out the foregoing objectives, the Office of the Interconnection shall conduct the operation of the PJM Control Area in accordance with the PJM Manuals, and shall: (i) utilize available generating reserves and obtain required replacements; and (ii) monitor the availability of adequate reserves. 1.11.3 Pool-dispatched Resources (a) The Office of the Interconnection shall implement the dispatch of energy from pool-scheduled resources with limited energy by direct request. In implementing mandatory or economic use of limited energy resources, the Office of the Interconnection shall use its best efforts to select the most economic hours of operation for limited energy resources, in order to make optimal use of such resources consistent with the dynamic load-following requirements of the PJM Control Area and the availability of other resources to the Office of the Interconnection. (b) The Office of the Interconnection shall implement the dispatch of energy from other pool-dispatched resource increments, including generation increments from Capacity Resources the remaining increments of which are self-scheduled, by sending appropriate signals and instructions to the entity controlling such resources, in accordance with the PJM Manuals. Each Market Seller shall ensure that the entity controlling a pool-dispatched resource offered or made available by that Market Seller complies with the energy dispatch signals and instructions transmitted by the Office of the Interconnection. 1.11.4 Regulation (a) A Market Buyer may satisfy its Regulation obligation from its own resources capable of performing Regulation service, by contractual arrangements with other Market Participants able to provide Regulation service, or by purchases from the PJM Interchange Energy Market. (b) The Office of the Interconnection shall obtain Regulation service from the least-cost alternatives available from either pool-scheduled or self-scheduled resources as needed to meet PJM Control Area requirements not otherwise satisfied by the Market Buyers. (c) The Office of the Interconnection shall dispatch resources for Regulation by sending Regulation signals and instructions to resources from which Regulation service has been offered by Market Sellers, in accordance with the PJM Manuals. Market Sellers shall comply with Regulation dispatch signals and instructions transmitted by the Office of the Interconnection and, in the event of conflict, Regulation dispatch signals and instructions shall take precedence over energy dispatch signals and instructions. Market Sellers shall exert all reasonable efforts to operate, or ensure the operation of, their resources supplying load in the PJM Control Area as close to desired output levels as practical, consistent with Good Utility Practice. 1.11.5 PJM Open Access Same-time Information System. The Office of the Interconnection shall update the information posted on the PJM Open Access Same-time Information System to reflect its dispatch of generation resources. 2. CALCULATION OF LOCATIONAL MARGINAL PRICES 2.1 Introduction. The Office of the Interconnection shall calculate the price of energy at the load busses and generation busses in the PJM Control Area and at the interface busses between the PJM Control Area and adjacent Control Areas on the basis of Locational Marginal Prices. Locational Marginal Prices determined in accordance with this Section shall be calculated every five minutes and integrated hourly values of such calculations shall be the basis of sales and purchases of energy in the PJM Interchange Energy Market and of Transmission Congestion Charges under the PJM Tariff. 2.2 General. The Office of the Interconnection shall determine the least cost security-constrained dispatch, which is the least costly means of serving load at different locations in the PJM Control Area based on actual operating conditions existing on the power grid and on the prices at which Market Sellers have offered to supply energy in the PJM Interchange Energy Market. Locational Marginal Prices for the generation and load busses in the PJM Control Area, including interconnections with other Control Areas, will be calculated based on the actual economic dispatch and the prices of energy offers. The process for the determination of Locational Marginal Prices shall be as follows: (a) To determine actual operating conditions on the power grid in the PJM Control Area, the Office of the Interconnection shall use a computer model of the interconnected grid that uses available metered inputs regarding generator output, loads, and power flows to model remaining flows and conditions, producing a consistent representation of power flows on the network. The computer model employed for this purpose, referred to as the State Estimator program, is a standard industry tool and is described in Section 2.3 below. It will be used to obtain information regarding the output of generation supplying energy to the PJM Control Area, loads at buses in the PJM Control Area, transmission losses, and power flows on binding transmission constraints for use in the calculation of Locational Marginal Prices. Additional information used in the calculation, including Dispatch Rates and real time schedules for external transactions between PJM and other Control Areas, will be obtained from the Office of the Interconnection's dispatchers. (b) Using the prices at which energy is offered by Market Sellers to the PJM Interchange Energy Market, the Office of the Interconnection shall determine the offers of energy that will be considered in the calculation of Locational Marginal Prices. As described in Section 2.4 below, every offer of energy by a Market Seller from a resource that is following economic dispatch instructions of the Office of the Interconnection will be utilized in the calculation of Locational Marginal Prices. (c) Based on the system conditions on the PJM power grid, determined as described in (a), and the eligible energy offers, determined as described in (b), the Office of the Interconnection shall determine the least costly means of obtaining energy to serve the next increment of load at each bus in the PJM Control Area, in the manner described in Section 2.5 below. The result of that calculation shall be a set of Locational Marginal Prices based on the system conditions at the time. 2.3 Determination of System Conditions Using the State Estimator. Power system operations, including, but not limited to, the determination of the least costly means of serving load, depend upon the availability of a complete and consistent representation of generator outputs, loads, and power flows on the network. In calculating Locational Marginal Prices, the Office of the Interconnection shall obtain a complete and consistent description of conditions on the electric network in the PJM Control Area by using the most recent power flow solution produced by the State Estimator, which is also used by the Office of the Interconnection for other functions within power system operations. The State Estimator is a standard industry tool that produces a power flow model based on available real-time metering information, information regarding the current status of lines, generators, transformers, and other equipment, bus load distribution factors, and a representation of the electric network, to provide a complete description of system conditions, including conditions at busses for which real-time information is unavailable. The current version of the State Estimator includes over 1600 busses in the PJM Control Area, as well as interface busses with adjacent Control Areas. The Office of the Interconnection shall obtain a State Estimator solution every five minutes, which shall provide the megawatt output of generators and the loads at busses in the PJM Control Area, transmission line losses, and actual flows or loadings on constrained transmission facilities. External transactions between PJM and other Control Areas shall be included in the Locational Marginal Price calculation on the basis of the real time transaction schedules implemented by the Office of the Interconnection's dispatcher. 2.4 Determination of Energy Offers Used in Calculating Locational Marginal Prices. (a) To determine the energy offers submitted to the PJM Interchange Energy Market that shall be used to calculate the Locational Marginal Prices, the Office of the Interconnection shall determine which resources are following its economic dispatch instructions. A resource will be considered to be following economic dispatch instructions and shall be included in the calculation of Locational Marginal Prices if: i) the price bid by a Market Seller for energy from the resource is less than or equal to the Dispatch Rate for the area of the PJM Control Area in which the resource is located; or ii) the resource is specifically requested to operate by the Office of the Interconnection's dispatcher. (b) In determining whether a resource satisfies the condition described in (a), the Office of the Interconnection will determine the bid price associated with an energy offer by comparing the actual megawatt output of the resource with the Market Seller's offer price curve. Because of practical generator response limitations, a resource whose megawatt output is not ten percent more than the megawatt level specified on the offer price curve for the applicable Dispatch Rate shall be deemed to be following economic dispatch instructions, but the energy price offer used in the calculation of Locational Marginal Prices shall not exceed the applicable Dispatch Rate. Units that must be run for local area protection shall not be considered in the calculation of Locational Marginal Prices. 2.5 Calculation of Locational Marginal Prices. (a) The Office of the Interconnection shall determine the least costly means of obtaining energy to serve the next increment of load at each bus in the PJM Control Area represented in the State Estimator and each interface bus between the PJM Control Area and an adjacent Control Area, based on the system conditions described by the most recent power flow solution produced by the State Estimator program and the energy offers determined to be eligible for consideration under Section 2.4. This calculation shall be made by applying an incremental linear optimization method to minimize energy costs, given actual system conditions, a set of energy offers, and any binding transmission constraints that may exist. In performing this calculation, the Office of the Interconnection shall calculate the cost of serving an increment of load at each bus from each resource associated with an eligible energy offer as the sum of: (1) the price at which the Market Seller has offered to supply an additional increment of energy from the resource, and (2) the effect on transmission congestion costs (whether positive or negative) associated with increasing the output of the resource, based on the effect of increased generation from that resource on transmission line loadings. The energy offer or offers that can serve an increment of load at a bus at the lowest cost, calculated in this manner, shall determine the Locational Marginal Price at that bus. (b) The calculation set forth in (a) shall be performed every five minutes, using the Office of the Interconnection's Locational Marginal Price program, producing a set of Locational Marginal Prices based on system conditions during the preceding interval. The prices produced at five-minute intervals during an hour will be integrated to determine the Locational Marginal Prices for that hour, which will determine prices in the PJM Interchange Energy Market and Transmission Congestion Costs under the PJM Tariff. 2.6 Performance Evaluation. The Office of the Interconnection shall undertake an evaluation of the foregoing procedures for the determination of Locational Marginal Prices, as well as the procedures for determining and allocating Fixed Transmission Rights and associated Transmission Congestion Charges and Credits, not less often than every two years, in accordance with the PJM Manuals. To the extent practical, the Office of the Interconnection shall retain all data needed to perform comparisons and other analyses of locational marginal pricing. The Office of the Interconnection shall report the results of its evaluation to the Market Participants, along with its recommendations, if any, for changes in the procedures. 3. ACCOUNTING AND BILLING 3.1 Introduction. This schedule sets forth the accounting and billing principles and procedures for the purchase and sale of services on the PJM Interchange Energy Market and for the operation of the PJM Control Area. 3.2 Market Buyers. 3.2.1 Spot Market Energy. (a) At the end of each hour during an Operating Day, the Office of the Interconnection shall calculate the load payment for each Market Buyer's load bus. The load payment at each bus shall be the product of the Market Buyer's megawatts of load at such load bus in the hour times the Locational Marginal Price at the bus. The megawatts of load at each load bus shall be the sum of the megawatts of load for that bus of that Market Buyer as determined by the State Estimator, plus an allocated share of transmission losses, plus any megawatts of that Market Buyer's bilateral sales to purchasers outside the PJM Control Area attributable to that bus. The total load payment for each Market Buyer shall be the sum of the load payments for each of a Market Buyer's load busses. (b) At the end of each hour during an Operating Day, the Office of the Interconnection shall calculate the generation revenue for each Generating Market Buyer's generation bus. The generation revenue at each generation bus shall be the product of the Generating Market Buyer's megawatts of generation at such generation bus in the hour times the Locational Marginal Price at the bus. The megawatts of generation at each generation bus shall be the sum of the megawatts of generation for that bus of that Generating Market Buyer as determined by the State Estimator, plus any megawatts of bilateral purchases of that Generating Market Buyer from sellers outside the PJM Control Area attributable to that bus. The total generation revenue for each Generating Market Buyer shall be the sum of the generation revenues for each of the Generating Market Buyer's generation busses. (c) At the end of each hour during an Operating Day, the Office of the Interconnection shall calculate a net bill for each Market Buyer, determined as the difference between its total load payment and its total generation revenue. The portions of the net bill attributable to net hourly PJM Interchange and to Transmission Congestion Charges shall be determined as set forth below. (d) At the end of each hour during an Operating Day, the Office of the Interconnection shall calculate the total amount of net hourly PJM Interchange for each Market Buyer, including Generating Market Buyers, in accordance with the PJM Manuals. For Internal Market Buyers, this calculation shall include determination of the net energy flows from: (i) tie lines; (ii) any generation resource the output of which is controlled by the Market Buyer but delivered to it over another entity's Transmission Facilities; (iii) any generation resource the output of which is controlled by another entity but which is directly interconnected with the Market Buyer's transmission system; (iv) 500 kV transmission losses; (v) deliveries pursuant to bilateral energy sales; (vi) receipts pursuant to bilateral energy purchases; (vii) Inadvertent Interchange allocated to the Market Buyer; and (viii) the Market Buyer's allocated share of energy purchased from another Control Area in connection with a Minimum Generation Emergency in such other Control Area as specified in Section 0(0). For External Market Buyers, this calculation shall determine the energy delivered pursuant to the External Market Buyer's purchase request. (e) The Office of the Interconnection shall calculate Locational Marginal Prices for each load and generation bus in the PJM Control Area, in accordance with Section 0 of this Schedule. (f) An Internal Market Buyer shall be charged for Spot Market Energy purchases to the extent of its hourly net PJM Interchange Imports, determined as specified above. An External Market Buyer shall be charged for its Spot Market Energy purchases based on the energy delivered to it, determined as specified above. The Office of the Interconnection shall calculate an hourly weighted average Locational Marginal Price for each such Market Buyer, based on the Locational Marginal Price at each load bus and the Market Buyer's load at that bus. The total charge shall be the Market Buyer's total net PJM Interchange Imports times the weighted average Locational Marginal Price. (g) A Generating Market Buyer shall be credited as a Market Seller for sales of Spot Market Energy to the extent of its hourly net PJM Interchange Exports, determined as specified above. The total credit shall be the sum of the credits determined by the product of (i) the hourly net amount of energy of PJM Interchange Exports at the applicable generation bus from each of the Generating Market Buyer's generation resources determined to be making such deliveries, times (ii) the hourly Locational Marginal Price at that generation bus. If the Office of the Interconnection dispatches energy to serve load in the PJM Control Area, the pool-dispatched generation resources determined to be making deliveries into PJM Interchange of such Generating Market Buyer shall be those that have the highest Locational Marginal Prices of the Market Seller's generation resources. (h) If energy in excess of a Generating Market Buyer's Equivalent Load flows to the PJM Control Area from a self- scheduled resource, the Generating Market Buyer shall receive a payment or credit for such excess energy at a rate equal to the lesser of (i) 95% of the Locational Marginal Price at the delivery bus for such energy, or (ii) the Locational Marginal Price at the delivery bus for such energy if the Locational Marginal Price is negative. For purposes of the foregoing calculation, such excess energy shall be deemed to have been delivered from the Generating Market Buyer's self-scheduled resource or resources with the lowest Locational Marginal Price or Prices at the time of delivery. Revenues attributable to the difference between the market clearing price in the PJM Interchange Energy Market and payments or credits for excess energy from self-scheduled resources shall be used by the Office of the Interconnection to reduce or offset PJM Control Area costs for Operating Reserves. 3.2.2 Regulation. (a) Each Internal Market Buyer shall have an hourly Regulation objective equal to its pro rata share of the PJM Control Area Regulation requirements for the hour, based on the Market Buyer's total load in the PJM Control Area for the hour. A Generating Market Buyer supplying Regulation at the direction of the Office of the Interconnection in excess of its hourly Regulation obligation shall be credited for each increment of such Regulation at the price in that hour for the Regulation Class from which the Regulation was supplied, as determined by the Office of the Interconnection in accordance with procedures specified in the PJM Manuals. An Internal Market Buyer that does not meet its hourly Regulation obligation shall be charged for Regulation dispatched by the Office of the Interconnection to meet such obligation at the average price paid by the Office of the Interconnection for Regulation. 3.2.3 Operating Reserves. (a) A Market Seller's pool-scheduled resources capable of providing operating reserves shall be credited as specified below based on the prices offered for the operation of such resource, provided that the resource was available for the entire time specified in the Offer Data for such resource. (b) At the end of each Operating Day, the following determination shall be made for each synchronized pool-scheduled resource of each Market Seller: the total offered price for start-up and no-load fees and Spot Market Energy, determined on the basis of the resource's actual output or available and requested time and type of operation, shall be compared to the total value of that resource's Spot Market Energy. If the total offered price exceeds the total value, the difference shall be credited to the Market Seller. Market Sellers shall also be credited on the basis of their offered prices for synchronized condensing for any hydropower or combustion turbine units operated as synchronous condensers at the request of Office of the Interconnection but producing no energy. (c) The sum of the foregoing credits, plus any cancellation fees paid in accordance with Section 1.10.2(d), less any amounts received in accordance with Sections 1.10.5(d), 1.10.6(d) and 3.2.1(h) of this Schedule and payments received from another Control Area for Operating Reserves or from users of Point-to- Point Transmission Service within the PJM Control Area for imbalance service, shall be the cost of Operating Reserves for the PJM Control Area for each Operating Day. (d) The cost of Operating Reserves for each Operating Day shall be allocated and charged to each Market Buyer in proportion to its total load during that Operating Day in the PJM Control Area. 3.2.4 Transmission Congestion. Each Market Buyer shall be charged or credited for Transmission Congestion Charges as specified in Section 5 of this Schedule. 3.2.5 Transmission Losses. (a) Whenever the Office of the Interconnection has in place appropriate computer hardware, software, and other necessary resources to account for marginal losses in the dispatch of energy and the calculation of Locational Marginal Prices, loss accounting shall be determined on that basis, and the provisions of this Section shall be revised accordingly. Until such time, the following accounting provisions for losses shall apply. (b) Each Internal Market Buyer shall be credited in an amount equal to its pro rata share of the hourly total amounts collected from Transmission Customers either as charges for transmission losses in the PJM Control Area as specified in Section 3.4.2 or for transmission losses supplied in kind in accordance with Section 3.4.2(c) based on the Locational Marginal Price at the interface where such losses were delivered. This credit shall be determined by the ratio of the Internal Market Buyer's total hourly load, divided by the total hourly load in the PJM Control Area. (c) PJM Control Area 500 kV losses shall be allocated to each Internal Market Buyer in proportion to its hourly load in the PJM Control Area. 3.2.6 Emergency Energy. (a) Internal Market Buyers shall be allocated a proportionate share of the net cost of Emergency energy purchased by the Office of the Interconnection. Such allocated share shall be determined in proportion to the amount of net PJM Interchange Imports by each Internal Market Buyer during the hour of each such energy purchase. (b) Net revenues in excess of Locational Marginal Prices attributable to sales of energy in connection with Emergencies to other Control Areas shall be credited to Internal Market Buyers in proportion to the amount of net PJM Interchange Imports by each Internal Market Buyer during each hour of such energy sales. (c) The costs, revenues, and energy associated with hourly energy purchased from another Control Area in connection with a Minimum Generation Emergency in such other Control Area, shall be allocated to each Internal Market Buyer in proportion to its load in the PJM Control Area during the hour of such purchases. 3.2.7 Billing. (a) The Office of the Interconnection shall prepare a billing statement each billing cycle for each Market Buyer in accordance with the charges and credits specified in Sections 3.2.1 through 3.2.6 of this Schedule, and showing the net amount to be paid or received by the Market Buyer. Billing statements shall provide sufficient detail, as specified in the PJM Manuals, to allow verification of the billing amounts and completion of the Market Buyer's internal accounting. (b) If deliveries to a Market Buyer that has PJM Interchange meters in accordance with Section 14 of the Operating Agreement include amounts delivered for a Market Participant that does not have PJM Interchange meters separate from those of the metered Market Buyer, the Office of the Interconnection shall prepare a separate billing statement for the unmetered Market Participant based on the allocation of deliveries agreed upon between the Market Buyer and the unmetered Market Participant specified by them to the Office of the Interconnection. 3.3 Market Sellers. Except as provided in the following sentence, the accounting and billing principles and procedures applicable to Generating Market Buyers functioning as Market Sellers shall be as set forth in Section 3.2. This Section sets forth the accounting and billing principles and procedures applicable to all other Market Sellers, and to Generating Market Buyers functioning as Market Sellers with respect to any matters not specified in Section 3.2. 3.3.1 Spot Market Energy. (a) At the end of each hour during an Operating Day, the Office of the Interconnection shall determine the total net amount of hourly energy delivered to the PJM Control Area by each pool-scheduled or pool-dispatched resource of each Market Seller, in accordance with the PJM Manuals and the calculation described in Section 3.2.1(d). (b) The Office of the Interconnection shall calculate Locational Marginal Prices for each generation and load bus in the PJM Control Area, including the bus at each point of interconnection between the PJM Control Area and each adjacent Control Area, in accordance with Section 0 of this Schedule. (c) A Market Seller shall be credited for sales of Spot Market Energy to the extent of its hourly net deliveries of energy to the PJM Control Area from the Market Seller's pool- scheduled or pool-dispatched resources. For pool-scheduled resources that are External Resources, the Office of the Interconnection shall model, based on an appropriate flow analysis, the hourly amounts delivered from each such resource to the corresponding interface point between the PJM Control Area and adjacent Control Areas. The total credit for each Market Seller shall be the sum of its credits determined by the product of (i) the hourly net amount of energy delivered to the PJM Control Area at the applicable generation or interface bus from each of the Market Seller's pool-scheduled or pool-dispatched resources, times (ii) the hourly Locational Marginal Price at that bus. (d) Market Sellers, including Generating Market Buyers, shall be charged for non-delivery of Spot Market Energy from resources that are not Capacity Resources, as specified in Section 1.10.5(d) of this Schedule. 3.3.2 Regulation. Each Market Seller that is also an Internal Market Buyer shall have an hourly Regulation objective as specified in Section 3.2.2(a), and shall be credited or charged in connection therewith as specified in Section 3.2.2(b). All other Market Sellers supplying Regulation at the direction of the Office of the Interconnection shall be credited for each increment of such Regulation at the price in that hour for the Regulation Class from which the Regulation was supplied, as determined by the Office of the Interconnection in accordance with procedures specified in the PJM Manuals. 3.3.3 Operating Reserves. A Market Seller shall be credited for its pool-scheduled resources based on the prices offered for the operation of such resource, provided that the resource was available for the entire time specified in the Offer Data for such resource, in accordance with the procedures set forth in Section 3.2.3(b). 3.3.4 Emergency Energy. The costs and net revenues associated with hourly energy sales to other Control Areas in connection with a Minimum Generation Emergency in the PJM Control Area shall be allocated to Market Sellers in proportion to their sales to the PJM Interchange Energy Market from generation resources within the metered boundaries of the PJM Control Area in each hour in which such energy was sold to other Control Areas. 3.3.5 Billing. The Office of the Interconnection shall prepare a billing statement each billing cycle for each Market Seller in accordance with the charges and credits specified in Sections 3.3.1 through 3.3.4 of this Schedule, and showing the net amount to be paid or received by the Market Seller. Billing statements shall provide sufficient detail, as specified in the PJM Manuals, to allow verification of the billing amounts and completion of the Market Seller's internal accounting. 3.4 Transmission Customers. 3.4.1 Transmission Congestion. Each Transmission Customer shall be charged and credited for Transmission Congestion Charges as specified in Section 5 of this Schedule. 3.4.2 Transmission Losses (a) Whenever the Office of the Interconnection has in place appropriate computer hardware, software, and other necessary resources to account for marginal losses in the dispatch of energy and the calculation of Locational Marginal Prices, loss accounting shall be determined on that basis, and the provisions of this Section shall be revised accordingly. Until such time, the following accounting provisions for losses shall apply. (b) Transmission Customers other than entities that are also Internal Market Buyers shall be charged for transmission losses in an amount equal to the product of (i) the Transmission Customer's megawatt-hours of deliveries using Point-to-Point Transmission Service, times (ii) the appropriate loss factor for deliveries using Point-to-Point Transmission Service, times (iii) the weighted average Locational Marginal Price for all load busses in the PJM Control Area. The foregoing average hourly loss factor shall be: (i) determined by the Office of the Interconnection from time to time as conditions affecting losses shall warrant; and (ii) calculated separately for on-peak and off-peak hours on the basis of the average ratio of losses to load served in each such period. (c) A Transmission Customer may elect to pay for losses in kind, rounded off to the nearest whole megawatt, rather than as specified above if its total deliveries in an hour using Point- to-Point Transmission Service are greater than 200 megawatts. If it so elects, the Transmission Customer's specified source for the energy to be delivered using Point-to-Point Transmission Service may be scheduled to supply to the PJM Control Area boundary an amount of energy equal to the delivery schedule plus the amount of losses determined by applying the appropriate hourly loss factor as specified above to the delivered amount. 3.4.3 Billing. The Office of the Interconnection shall prepare a billing statement each billing cycle for each Transmission Customer in accordance with the charges and credits specified in Sections 0 through 0 of this Schedule, and showing the net amount to be paid or received by the Transmission Customer. Billing statements shall provide sufficient detail, as specified in the PJM Manuals, to allow verification of the billing amounts and completion of the Transmission Customer's internal accounting. 3.5 Other Control Areas. 3.5.1 Energy Sales. To the extent appropriate in accordance with Good Utility Practice, the Office of the Interconnection may sell energy to an interconnected Control Area as necessary to alleviate or end an Emergency in that Control Area. Such sales shall be made (i) only to Control Areas that have undertaken a commitment pursuant to a written agreement with the LLC to sell energy on a comparable basis to the PJM Control Area, and (ii) only to the extent consistent with the maintenance of reliability in the PJM Control Area. The Office of the Interconnection may decline to make such sales to a Control Area that the Office of the Interconnection determines does not have in place and implement Emergency procedures that are comparable to those followed in the PJM Control Area. If the Office of the Interconnection sells energy to an interconnected Control Area as necessary to alleviate or end an Emergency in that Control Area, such energy shall be sold at 150% of the Locational Marginal Price at the bus or busses at the border of the PJM Control Area at which such energy is delivered. 3.5.2 Operating Margin Sales. The extent appropriate in accordance with Good Utility Practice, the Office of the Interconnection may sell Operating Margin to an interconnected Control Area as requested to alleviate an operating contingency resulting from the affect of the purchasing Control Area's operations on the dispatch of resources in the PJM Control Area. Such sales shall be made only to Control Areas that have undertaken a commitment pursuant to a written agreement with the Office of the Interconnection (i) to purchase Operating Margin whenever the purchasing Control Area's operations will affect the dispatch of resources in the PJM Control Area, and (ii) to sell Operating Margin on a comparable basis to the LLC. 3.5.3 Transmission Congestion. Each Control Area purchasing Operating Margin shall be assessed Transmission Congestion Charges as specified in Section 5.1.5 of this Schedule. 3.5.4 Billing. The Office of the Interconnection shall prepare a billing statement each billing cycle for each Control Area to which Emergency energy or Operating Margin was sold, and showing the net amount to be paid by such Control Area. Billing statements shall provide sufficient detail, as specified in the PJM Manuals, to allow verification of the billing amounts. 3.6 Metering Reconciliation. 3.6.1 Meter Correction Billing. Metering errors and corrections will be reconciled at the end of each month by a meter correction charge or credit. The monthly meter correction charge or credit shall be determined by the product of the positive or negative deviation in energy amounts, times the weighted average Locational Marginal Price for the affected Market Buyer. 3.6.2 Meter Corrections Between Market Participants. If a Market Participant or the Office of the Interconnection discovers a meter error affecting an interchange of energy with another Market Participant and makes the error known to such other Market Participant prior to the completion by the Office of the Interconnection of the accounting for the interchange, and if both Market Participants are willing to adjust hourly load records to compensate for the error and such adjustment does not affect other parties, an adjustment in load records may be made by the Market Participants in order to correct for the meter error, provided corrected information is furnished to the Office of the Interconnection in accordance with the Office of the Interconnection's accounting deadlines. No such adjustment may be made if the accounting for the Operating Day in which the interchange occurred has been completed by the Office of the Interconnection. 3.6.3 500 kV Meter Errors. Billing cycle accounting for 500 kV transmission losses shall be adjusted to account for errors in meters on 500 kV Transmission Facilities. 3.6.4 Meter Corrections Between Control Areas. An error between accounted for and metered interchange between a Party in the PJM Control Area and an entity in another Control Area shall be corrected by adjusting the hourly meter readings. If this is not practical, the error shall be accounted for by a correction at the end of the billing cycle. The Market Participant with ties to such other Control Area experiencing the error shall account for the full amount of the discrepancy and an appropriate debit or credit shall be applied equally among all Market Buyers. The Office of the Interconnection will adjust the actual interchange between the PJM Control Area and the other Control Area to maintain a proper record of inadvertent energy flow. Meter corrections on the 500 kV system between the PJM Control Area and other Control Areas shall be accounted for through the internal 500 kV system meter error allocation at the end of the billing cycle. 3.6.5 Meter Correction Data. Meter error data shall be submitted to the Office of the Interconnection not later than noon on the second working day of the Office of the Interconnection after the end of the billing cycle applicable to the meter correction. 3.6.6 Correction Limits. A Market Participant may not assert a claim for an adjustment in billing as a result of a meter error for any error discovered more than two years after the date on which the metering occurred. Any claim for an adjustment in billing as a result of a meter error shall be limited to bills for transactions occurring in the most recent annual accounting period of the billing Market Participant in which the meter error occurred, and the prior annual accounting period. 4. RATE TABLE 4.1 Offered Price Rates. Spot Market Energy, Regulation, Operating Reserve, and Transmission Congestion are based on offers to the Office of the Interconnection specified in this Agreement. 4.2 Transmission Losses. Average loss factors shall be as specified in the PJM Tariff. 4.3 Emergency Energy Purchases. The pricing for Emergency energy purchases will be determined by the Office of the Interconnection and the adjacent Control Area, in accordance with an agreement between the Office of the Interconnection and such adjacent Control Area that complies with this Agreement. 5. CALCULATION OF TRANSMISSION CONGESTION CHARGES AND CREDITS 5.1 Transmission Congestion Charge Calculation 5.1.1 Calculation by Office of the Interconnection. When the transmission system is operating under constrained conditions, the Office of the Interconnection shall calculate Transmission Congestion Charges for each Network Service User, the PJM Interchange Energy Market, and each Transmission Customer. 5.1.2 General. The basis for the Transmission Congestion Charges shall be the Locational Marginal Prices determined in accordance with Section 2 of this Schedule. 5.1.3 Network Service User Calculation. Each Network Service User shall be charged for the increased cost of energy incurred by it during each constrained hour to deliver the output of its firm Capacity Resources or other owned or contracted for resources, its firm bilateral purchases, and its non-firm bilateral purchases as to which it has elected to pay Transmission Congestion Charges. The Transmission Congestion Charge for deliveries from each such source shall be the Network Service User's hourly net bill less its hourly net PJM Interchange payments or sales as determined in accordance with Section 3.2.1 or Sections 3.3 and 3.3.1 of this Schedule. 5.1.4 Transmission Customer Calculation. Each Transmission Customer using Firm Point-to-Point Transmission Service (as defined in the PJM Tariff), and each Transmission Customer using Non-Firm Point-to-Point Transmission Service (as defined in the PJM Tariff) that has elected to pay Transmission Congestion Charges, shall be charged for the increased cost of energy during constrained hours for the delivery of energy using Point-to-Point Transmission Service. The Transmission Congestion Charge for each such delivery shall be the delivery amount multiplied by the difference between the Locational Marginal Price at the delivery interface and the Locational Marginal Price at the source interface, or for Market Sellers using point-to-point transmission service for deliveries out of the PJM Control Area from generating resources within the PJM Control Area shall be the amount of its net bill less its net hourly PJM Interchange payments or sales as determined in accordance with Section 3.3 of this Schedule. 5.1.5 Operating Margin Customer Calculation. Each Control Area purchasing Operating Margin shall be assessed Transmission Congestion Charges for any the increase in the cost of energy resulting from the provision of Operating Margin. The Transmission Congestion Charge shall be the amount of Operating Margin purchased in an hour multiplied by the difference in the Locational Marginal Price at what would be the delivery interface and the Locational Marginal Price at what would be the source interface, if the operating contingency that was the basis for the purchase of Operating Margin had occurred in that hour. Operating Margin may be allocated among multiple source and delivery interfaces in accordance with an applicable load flow study. 5.1.6 Total Transmission Congestion Charges. The total Transmission Congestion Charges collected by the Office of the Interconnection each hour will be the sum of the amounts determined as specified in this Schedule. The Office of the Interconnection shall collect Transmission Congestion Charges for each hour the transmission system operates under constrained conditions. 5.2 Transmission Congestion Credit Calculation. 5.2.1 Eligibility. Each Transmission Customer using firm Point-to-Point Transmission Service and each Network Service User shall receive as a Transmission Congestion Credit a proportional share of the total Transmission Congestion Charges collected for each constrained hour. 5.2.2 Fixed Transmission Rights (a) Transmission Congestion Credits will be calculated based upon the Fixed Transmission Rights of each Network Service User and Transmission Customer, determined as specified below. (b) Each Network Service User shall designate a subset of its Network Resources for which Fixed Transmission Rights will be assigned. The Fixed Transmission Right for each Network Resource shall be a number of megawatts equal to or less than the installed capacity summer megawatt rating of each designated Network Resource, determined at the PJM Control Area transmission bus at which the designated Network Resource is connected to the aggregate load busses of the Network Service User. The sum of each Network Service User's Fixed Transmission Rights must be equal to or less than the Network Service User's projected annual peak load. (c) Each Transmission Customer receiving firm Point-to-Point Transmission Service shall be assigned Fixed Transmission Rights. The Fixed Transmission Right for each instance of Point-to-Point Transmission Service shall be a number of megawatts equal to the megawatts of firm service being provided between the receipt and delivery points as to which the Transmission Customer has firm Point-to-Point Transmission Service. (d) The foregoing assignment of Fixed Transmission Rights shall be enhanced by an amendment to this Schedule, to be filed with FERC not later than December 31, 1997, that will provide for an auction of Fixed Transmission Rights over and above those FTRs obtained and retained by Network Service Users and Transmission Customers then receiving firm Point-to-Point Transmission Service (including firm Point-to-Point transmission service for existing bilateral contracts), such auction to be implemented as soon after December 31, 1997 as shall be determined by the Office of the Interconnection to be reasonably practical. For so long as Fixed Transmission Rights are assigned on the basis of Network Transmission Service and firm Point-to-Point Transmission Service, any Fixed Transmission Rights awarded pursuant to an auction shall be simultaneously feasible with all Network Transmission Service and firm Point-to-Point Transmission Service obligations. The Members specified in Section 11.5(c) of the Agreement, working with the Office of the Interconnection, shall develop the details of the implementation of such an auction, including but not limited to the nature of the bidding process, the frequency of auctions, and the duration of the Fixed Transmission Rights purchased at auction. 5.2.4 Target Allocation for Network Service Users. A target allocation of Transmission Congestion Credits for each Network Service User shall be determined for each of its Fixed Transmission Rights. Each Fixed Transmission Right shall be multiplied by the percent of the Network Service User's annual peak load assigned to each load bus multiplied by the difference calculated as the Network Service User's load bus Locational Marginal Price minus the generation bus Locational Marginal Price of the Network Resource associated with the Fixed Transmission Right. The total target allocation for each Fixed Transmission Right is the sum of the target allocations for each load bus. The total target allocation for each Network Service User for each hour is the sum of the total target allocations for each of the Network Service User's Fixed Transmission Rights. 5.2.4 Target Allocation for other Holders. A target allocation of Transmission Congestion Credits for each Transmission Customer or entity holding an FTR acquired by other means shall be determined for each Fixed Transmission Right. Each Fixed Transmission Right shall be multiplied by the hourly Locational Marginal Price differences for the receipt and delivery points associated with the Fixed Transmission Right, calculated as the Locational Marginal Price at the delivery point(s) minus the Locational Marginal Price at the receipt point(s). The total target allocation for the Transmission Customer for each hour shall be the sum of the target allocations associated with all of the Transmission Customer's Fixed Transmission Rights. 5.2.5 Calculation of Transmission Congestion Credits (a) The total of all the target allocations determined as specified above shall be compared to the total Transmission Congestion Charges in each hour. If the total of the target allocations is less than the total of the Transmission Congestion Charges, the Transmission Congestion Credit for each Network Service User and Transmission Customer shall be equal to its target allocation. All remaining Transmission Congestion Charges shall be distributed as described below in Section 5.2.6 "Distribution of Excess Congestion Charges." (b) If the total of the target allocations is greater than the total Transmission Congestion Charges for the hour, each holder of Fixed Transmission Rights shall receive a share of the total Transmission Congestion Charges in proportion to its target allocations. 5.2.6 Distribution of Excess Congestion Charges (a) Excess Transmission Congestion Charges accumulated in a month shall be distributed to each holder of Fixed Transmission Rights in proportion to, but not more than, any deficiency in the share of Transmission Congestion Charges received by the holder during that month as compared to its total target allocations for the month. (b) Any excess Transmission Congestion Charges remaining at the end of a month shall be distributed to Network Service Users and Transmission Customers purchasing Firm Point-to-Point Transmission Service in proportion to their Demand Charges for Network Service and their charges for Reserved Capacity for Firm Point-to-Point Transmission Service. SCHEDULE 2 Revision No. 2 COMPONENTS OF COST Issued: June 2, 1997 Effective: August 1, 1997 (a) Each Market Participant obligated to sell operating capacity on the PJM Interchange Energy Market at cost-based rates shall include the following components or their equivalent in the determination of costs for operating capacity supplied to or from the Interconnection: (1) Boilers Firing-up cost; No-load cost during period of operation; Peak-prepared-for maintenance cost; Incremental labor cost; and Other incremental operating costs. (2) Machines Starting cost from cold to synchronized operation; No-load cost during period of operation; Incremental labor cost; and Other incremental operating costs. b) Each Member obligated to sell energy on the PJM Interchange Energy Market at cost-based rates shall include the following components or their equivalent in the determination of costs for energy supplied to the Interconnection: Incremental fuel cost; Incremental maintenance cost; Incremental labor cost; and Other incremental operating costs. (c) All fuel costs shall employ the marginal fuel price experienced by the Member. (d) The PJM Board, upon consideration of the advice and recommendations of the Members Committee, shall from time to time define in detail the method of determining the costs entering into the said components, and the Members shall adhere to such definitions in the preparation of incremental costs used on the Interconnection. SCHEDULE 2 -- EXHIBIT A EXPLANATION OF THE TREATMENT OF THE COSTS OF EMISSION ALLOWANCES Issued: June 2, 1997 Effective: August 1, 1997 The cost of emission allowances is included in "Other Incremental Operating Costs" pursuant to Schedule 2. The replacement cost of emission allowances will be used to recover the cost of emission allowances consumed as a result of producing energy for the Interconnection. Index Consistent with definitions promulgated by the PJM Board upon consideration of the advice and recommendations of the Members Committee under Schedule 2, each Member subject to Schedule 2 will determine and provide to the Interconnection its replacement cost of emission allowances, such cost to be an amount not exceeding the market price index published by Cantor- Fitzgerald Environmental Brokerage Services ("EBS"), or a PJM Board approved index in the event that EBS should cease publication of such index. As with all other components of cost required for accounting under this Agreement, each Member subject to Schedule 2 will use the same replacement cost of emissions allowances, so determined, as it uses for coordinating operation of its generating facilities hereunder. For each Member subject to Schedule 2, the cost of emissions allowances is included in the cost of energy supplied to or received from the Interconnection. Payment The Members subject to Schedule 2 waive the right of payment-in-kind for emission allowances for transactions wholly between the parties. Cash payments for emission allowances consumed in providing energy for the Interconnection shall be incorporated into and conducted pursuant to the billing procedures for energy prescribed by this Agreement. Calculation of Emission Allowance Amount and Cost Pursuant to the letter from the PJM Interconnection to FERC dated June 26, 1995, the calculation of an annual average for the cost of emission allowances, described below, is required due to the profile of the PJM physical system and PJM Energy Management software system. Approximately five hundred and forty generating units comprise the PJM system, of which 9 units are Phase I units. Current real-time operational software and hardware tools used in the transaction of energy do not identify individual units, and therefore do not identify Phase I units. (The pool has contracted with a vendor to supply a new Energy Management System to be installed over the next several years.) It is currently not possible for system operators to provide actual individual unit emission allowance costs in real time transaction quotations. An average emission allowance cost based on a standard production cost study case will be used to calculate the average cost of emission allowances for each pool megawatt produced. This cost for the current year is less than 0.2 dollars per megawatt-hour. In summary, for the above-mentioned reasons, it is not practical nor cost effective to provide actual individual emission allowance costs in real-time transaction quotations. Therefore, the annual average method is proposed. The Emission Allowances (Tons of SO2)associated with a transaction will be calculated by multiplying the magnitude of a transaction (MWhr) by an Emissions per MWHr Factor (Tons of SO2 per MWhr): Emission Transaction Emissions Allowances = Magnitude x per MWhr Used Factor (Tons of S0 2 ) (MWhr) (Tons of SO2 per MWhr) The Emissions per MWHr Factor will be calculated by dividing the forecast annual emissions from all Phase I units (Tons of S02) by the Forecast Annual Total PJM Energy Production (MWhr): Emissions per MWhr = Forecast Annual Phase I Unit Emissions (Tons of S0 2 ) Factor Forecast Annual Total PJM Energy Production (MWhr) (Tons of S02 per MWhr) Likewise, the cost (Dollars) of the Emission Allowances for a transaction will be calculated by multiplying the transaction magnitude (MWhr) by a Charge per MWhr Factor (Dollars per MWHr). Cost of Emission Transaction Charge Allowances Used = Magnitude x per MWhr Factor (Dollars) (MWhr) (Dollars per MWhr) The Charge per MWhr Factor will be calculated by multiplying, for each Member subject to Schedule 2, its Forecast Annual Emissions (Tons of S02)by its respective Emissions Allowance Replacement Cost (Dollars per Ton of S02) to yield each the forecasted annual cost of emissions (Dollars). Then, the total of forecasted annual cost of emissions for each Member subject to Schedule 2 is divided by the Forecast Annual Total PJM Energy Production (MWhr) to determine the Charge per MWHr Factor (Dollars per MWHr). Charge per MWhr Factor = S (A x B) , where: C A = Member's Forecasted Annual Emissions, (Tons of SO2) B = Emission Allowance Replacement Cost, (Dollars per Ton of SO2 , per company) C = Forecast Annual PJM Energy Production, (MWhr) SCHEDULE 3 Revision No. 6 ALLOCATION OF THE COST AND EXPENSES OF THE OFFICE OF THE INTERCONNECTION Issued: June 2, 1997 Effective: August 1, 1997 (a) Each group of Affiliates, each group of Related Parties, and each Member that is not in such a group shall pay an annual membership fee, the proceeds of which shall be used to defray the costs and expenses of the LLC, including the Office of the Interconnection. The amount of the annual fee as of the Effective Date shall be $5,000. The amount of the annual membership fee shall be adjusted from time to time by the PJM Board to keep pace with inflation. (b) All remaining costs of the operation of the LLC and the Office of the Interconnection and the expenses, including, without limitation, the costs of any insurance and any claims not covered by insurance, associated therewith as provided in this Agreement shall be costs of Scheduling, System Control and Dispatching Service under the PJM Tariff and shall be recovered pursuant to the PJM Tariff. (c) An entity accepted for membership in the LLC shall pay all costs and expenses associated with additions and modifications to its own metering, communication, computer, and other appropriate facilities and procedures needed to effect the inclusion of the entity in the operation of the Interconnection. SCHEDULE 4 Revision No. 1 STANDARD FORM OF AGREEMENT TO BECOME A MEMBER OF THE LLC Issued: June 2, 1997 Effective: August 1, 1997 Any entity which wishes to become a Member of the LLC shall, pursuant to Section 0 of this Agreement, tender to the President an application, upon the acceptance of which it shall execute a supplement to this Agreement in the following form: Additional Member Agreement 1. This Additional Member Agreement (the "Supplemental Agreement"), dated as of __________________, is entered into among _____________ and the President of the LLC acting on behalf of its Members. 2. _____________ has demonstrated that it meets all of the qualifications required of a Member to the Operating Agreement. If expansion of the PJM Control Area is required to integrate ____________________'s facilities, a copy of Attachment J from the PJM Tariff marked to show changes in Control Area boundaries is attached hereto. ____________________ agrees to pay for all required metering, telemetering and hardware and software appropriate for it to become a member. 3. ______________________ agrees to be bound by and accepts all the terms of the Operating Agreement as of the above date. 4. _________________________ hereby gives notice that the name and address of its initial representative to the Members Committee under the Operating Agreement shall be: ________________________________________________________________ 5. The President of the LLC is authorized under the Operating Agreement to execute this Supplemental Agreement on behalf of the Members and to file it with regulatory authorities having jurisdiction. 6. The Operating Agreement is hereby amended to include ___________ as a Member of the LLC thereto, effective as of ___________________, _____. IN WITNESS WHEREOF, _______________________ and the Members of the LLC have caused this Supplemental Agreement to be executed by their duly authorized representatives. Members of the LLC By: Name: Title: President By: Name: Title: SCHEDULE 5 Revision No. 1 PJM DISPUTE RESOLUTION PROCEDURES Issued: June 2, 1997 Effective: August 1, 1997 1. DEFINITIONS 1.1 Alternate Dispute Resolution Committee. "Alternate Dispute Resolution Committee" shall mean the Committee established pursuant to Section 0 of this Schedule. 1.2 MAAC Dispute Resolution Committee. "MAAC Dispute Resolution Committee" shall mean the committee established by the Mid-Atlantic Area Council to administer its industry-specific mechanism for resolving certain types of wholesale electricity disputes. 1.3 Related PJM Agreements. "Related PJM Agreements" shall mean this Agreement, the Transmission Owners Agreement, and the Reliability Assurance Agreement. 2. PURPOSES AND OBJECTIVES 2.1 Common and Uniform Procedures. The PJM Dispute Resolution Procedures are intended to establish common and uniform procedures for resolving disputes arising under the Related PJM Agreements. To the extent any of the foregoing agreements or the PJM Tariff contain dispute resolution provisions expressly applicable to disputes arising thereunder, however, this Agreement shall not supplant such provisions, which shall apply according to their terms. 2.2 Interpretation. To the extent permitted by applicable law, the PJM Dispute Resolution Procedures are to be interpreted to effectuate the objectives set forth in Section 2.1. To the extent permitted by these PJM Dispute Resolution Procedures, the Alternate Dispute Resolution Committee shall coordinate with the MAAC Dispute Resolution Committee, where appropriate, in order to conserve administrative resources and to avoid duplication of dispute resolution staffing. NEGOTIATION AND MEDIATION 3.1 When Required. The parties to a dispute shall undertake good-faith negotiations to resolve any dispute as to a matter governed by one of the Related PJM Agreements. Each party to a dispute shall designate an executive with authority to resolve the matter in dispute to participate in such negotiations. Any dispute as to a matter governed by one of the Related PJM Agreements that has not been resolved through good-faith negotiation shall be subject to non-binding mediation prior to the initiation of arbitral, regulatory, judicial, or other dispute resolution proceedings as may be appropriate as provided by these PJM Dispute Resolution Procedures. 3.2 Procedures. 3.2.1 Initiation. If a dispute that is subject to the mediation procedures specified herein has not been resolved through good-faith negotiation, a party to the dispute shall notify the Alternate Dispute Resolution Committee in writing of the existence and nature of the dispute prior to commencing any other form of proceeding for resolution of the dispute. The Alternate Dispute Resolution Committee shall have ten calendar days from the date it first receives notification of the existence of a dispute from any of the parties to the dispute in which to distribute to the parties a list of mediators. 3.2.2 Selection of Mediator. The Chair of the Alternate Dispute Resolution Committee shall distribute to the parties by facsimile or other electronic means a list containing the names of seven mediators with mediation experience, or with technical or business experience in the electric power industry, or both, as it shall deem appropriate to the dispute. The Chair of the Alternate Dispute Resolution Committee may draw from the lists of mediators maintained by the MAAC Dispute Resolution Committee, as the Chair shall deem appropriate. The persons on the proposed list of mediators shall have no official, financial, or personal conflict of interest with respect to the issues in controversy, unless the interest is fully disclosed in writing to all participants in the mediation process and all such participants waive in writing any objection to the interest. The parties shall alternate in striking names from the list with the last name on the list becoming the mediator. The determination of which party shall have the first strike off the list shall be determined by lot. The parties shall have ten calendar days to complete the mediator selection process, unless the time is extended by mutual agreement. 3.2.3 Advisory Mediator. If the Alternate Dispute Resolution Committee deems it appropriate, it shall distribute two lists, one containing the names of seven mediators with mediation experience, and one containing the names of seven mediators with technical or business experience in the electric power industry. In connection with circulating the foregoing lists, the Alternate Dispute Resolution Committee shall specify one of the lists as containing the proposed mediators, and the other as a list of proposed advisors to assist the mediator in resolving the dispute. The parties shall then utilize the alternative strike procedure set forth above until one name remains on each list, with the last named persons serving as the mediator and advisor. 3.2.4 Mediation Process. The disputing parties shall attempt in good faith to resolve their dispute in accordance with procedures and a timetable established by the mediator. In furtherance of the mediation efforts, the mediator may: (a) Require the parties to meet for face-to-face discussions, with or without the mediator; (b) Act as an intermediary between the disputing parties; (c) Require the disputing parties to submit written statements of issues and positions; (d) If requested by the disputing parties at any time in the mediation process, provide a written recommendation on resolution of the dispute including, if requested, the assessment by the mediator of the merits of the principal positions being advanced by each of the disputing parties; and (e) Adopt, when appropriate, the Center for Public Resources Model ADR Procedures for the Meditation of Business Disputes (as revised from time to time) to the extent such Procedures are not inconsistent with any rule, standard, or procedure adopted by the Alternate Dispute Resolution Committee or with any provision of this Agreement. 3.2.5 Mediator's Assessment. (a) If a resolution of the dispute is not reached by the thirtieth day after the appointment of the mediator or such later date as may be agreed to by the parties, if not previously requested to do so the mediator shall promptly provide the disputing parties with a written, confidential, non-binding recommendation on resolution of the dispute, including the assessment by the mediator of the merits of the principal positions being advanced by each of the disputing parties. The recommendation may incorporate or append, if and as the mediator may deem appropriate, any recommendations or any assessment of the positions of the parties by the advisor, if any. Upon request, the mediator shall provide any additional recommendations or assessments the mediator shall deem appropriate. (b) At a time and place specified by the mediator after delivery of the foregoing recommendation, the disputing parties shall meet in a good faith attempt to resolve the dispute in light of the recommendation of the mediator. Each disputing party shall be represented at the meeting by a person with authority to settle the dispute, along with such other persons as each disputing party shall deem appropriate. If the disputing parties are unable to resolve the dispute at or in connection with this meeting, then: (i) any disputing party may commence such arbitral, judicial, regulatory or other proceedings as may be appropriate as provided in the PJM Dispute Resolution Procedures; and (ii) the recommendation of the mediator, and any statements made by any party in the mediation process, shall have no further force or effect, and shall not be admissible for any purpose, in any subsequent arbitral, administrative, judicial, or other proceeding. 3.3 Costs. Except as specified in Section 0, the costs of the time, expenses, and other charges of the mediator and any advisor, and of the mediation process, shall be borne by the parties to the dispute, with each side in a mediated matter bearing one-half of such costs, and each party bearing its own costs and attorney's fees incurred in connection with the mediation. 4. ARBITRATION 4.1 When Required. Any dispute as to a matter: (i) governed by one of the Related PJM Agreements that has not been resolved through the mediation procedures specified herein, (ii) involving a claim that one or more of the parties owes or is owed a sum of money, and (iii) the amount in controversy is less than $1,000,000.00, shall be subject to binding arbitration in accordance with the procedures specified herein. If the parties so agree, any other disputes as to a matter governed by a Related PJM Agreement may be submitted to binding arbitration in accordance with the procedures specified herein. 4.2 Binding Decision. Except as specified in Section 0, the resolution by arbitration of any dispute under this Agreement shall not be binding. 4.3 Initiation. A party or parties to a dispute which is subject to the arbitration procedures specified herein shall send a written demand for arbitration to the Chair of the Alternate Dispute Resolution Committee with a copy to the other party or parties to the dispute. The demand for arbitration shall state each claim for which arbitration is being demanded, the relief being sought, a brief summary of the grounds for such relief and the basis for the claim, and shall identify all other parties to the dispute. 4.4 Selection of Arbitrator(s). The parties to a dispute for which arbitration has been demanded may agree on any person to serve as a single arbitrator, or shall endeavor in good faith to agree on a single arbitrator from a list of arbitrators prepared for the dispute by the Alternate Dispute Resolution Committee and delivered to the parties by facsimile or other electronic means promptly after receipt by the Alternate Dispute Resolution Committee of a demand for arbitration. The Alternate Dispute Resolution Committee may draw from the lists of arbitrators maintained by the MAAC Dispute Resolution Committee, as the Alternate Dispute Resolution Committee deems appropriate. If the parties are unable to agree on a single arbitrator by the fourteenth day following delivery of the foregoing list of arbitrators or such other date as agreed to by the parties, then not later than the end of the seventh business day thereafter the party or parties demanding arbitration on the one hand, and the party or parties responding to the demand for arbitration on the other, shall each designate an arbitrator from a list for the dispute prepared by the Alternate Dispute Resolution Committee. The arbitrators so chosen shall then choose a third arbitrator. 4.5 Procedures. The Alternate Dispute Resolution Committee shall compile and make available to the arbitrator(s) and the parties standard procedures for the arbitration of disputes, which procedures (i) shall include provision, upon good cause shown, for intervention or other participation in the proceeding by any party whose interests may be affected by its outcome, (ii) shall conform to the requirements specified in these PJM Dispute Resolution Procedures, and (iii) may be modified or adopted for use in a particular proceeding as the arbitrator(s) deem appropriate. To the extent deemed appropriate by the Alternate Dispute Resolution Committee, the procedures adopted by the Alternate Dispute Resolution Committee shall be based on the American Arbitration Association Rules, to the extent such Rules are not inconsistent with any rule, standard or procedure adopted by the Alternate Dispute Resolution Committee, or with any provision of these PJM Dispute Resolution Procedures. Upon selection of the arbitrator(s), arbitration shall go forward in accordance with applicable procedures. 4.6 Summary Disposition and Interim Measures. 4.6.1 Lack of Good Faith Basis. The procedures for arbitration of a dispute shall provide a means for summary disposition of a demand for arbitration, or a response to a demand for arbitration, that in the reasoned opinion of the arbitrator(s) does not have a good faith basis in either law or fact. If the arbitrator(s) determine(s) that a demand for arbitration or response to a demand for arbitration does not have a good faith basis in either law or fact, the arbitrator(s) shall have discretion to award the costs of the time, expenses, and other charges of the arbitrator(s) to the prevailing party. 4.6.2 Discovery Limits. The procedures for the arbitration of a dispute shall provide a means for summary disposition without discovery of facts if there is no dispute as to any material fact, or with such limited discovery as the arbitrator(s) shall determine is reasonably likely to lead to the prompt resolution of any disputed issue of material fact. 4.6.3 Interim Decision. The procedures for the arbitration of a dispute shall permit any party to a dispute to request the arbitrator(s) to render a written interim decision requiring that any action or decision that is the subject of a dispute not be put into effect, or imposing such other interim measures as the arbitrator(s) deem necessary or appropriate, to preserve the rights and obligations secured by any of the Related PJM Agreements during the pendency of the arbitration proceeding. The parties shall be bound by such written decision pending the outcome of the arbitration proceeding. 4.7 Discovery of Facts. 4.7.1 Discovery Procedures. The procedures for the arbitration of a dispute shall include adequate provision for the discovery of relevant facts, including the taking of testimony under oath, production of documents and other things, and inspection of land and tangible items. The nature and extent of such discovery shall be determined as provided herein and shall take into account (i) the complexity of the dispute, (ii) the extent to which facts are disputed, and (iii) the amount in controversy. The forms and methods for taking such discovery shall be as described in the Federal Rules of Civil Procedure, except as modified by the procedures established by the Alternate Dispute Resolution Committee, the arbitrator(s) or agreement of the parties. 4.7.2 Procedures Arbitrator. The sole arbitrator, or the arbitrator selected by the arbitrators chosen by the parties, as the case may be (such arbitrator being hereafter referred to as the "Procedures Arbitrator"), shall be responsible for establishing the timing, amount, and means of discovery, and for resolving discovery and other pre-hearing disagreement. If a dispute involves contested issues of fact, promptly after the selection of the arbitrator(s) the Procedures Arbitrator shall convene a meeting of the parties for the purpose of establishing a schedule and plan of discovery and other pre-hearing actions. 4.8 Evidentiary Hearing. The procedures for the arbitration of a dispute shall provide for an evidentiary hearing, with provision for the cross- examination of witnesses, unless all parties consent to the resolution of the matter on the basis of a written record. The forms and methods for taking evidence shall be as described in the Federal Rules of Evidence, except as modified by the procedures established by the Alternate Dispute Resolution Committee, the arbitrator(s) or agreement of the parties. The arbitrator(s) may require such written or other submissions from the parties as shall be deemed appropriate, including submission of the direct testimony of witnesses in written form. The arbitrator(s) may exclude any evidence that is irrelevant, immaterial, unduly repetitious or prejudicial, or privileged. Any party or parties may arrange for the preparation of a record of the hearing, and shall pay the costs thereof. Such party or parties shall have no obligation to provide or agree to the provision of a copy of the record of the hearing to any party that does not pay an equal share of the cost of the record. At the request of any party, the arbitrator(s) shall determine a fair and equitable allocation of the costs of the preparation of a record between or among the parties to the proceeding willing to share such costs. 4.9 Confidentiality. 4.9.1 Designation. Any document or other information obtained in the course of an arbitral proceeding and not otherwise available to the receiving party, including any such information contained in documents or other means of recording information created during the course of the proceeding, may be designated "Confidential" by the producing party. The party producing documents or other information marked "Confidential" shall have twenty days from the production of such material to submit a request to the Procedures Arbitrator to establish such requirements for the protection of such documents or other information designated as "Confidential" as may be reasonable and necessary to protect the confidentiality and commercial value of such information and the rights of the parties, which requirements shall be binding on all parties to the dispute. Prior to the decision of the Procedures Arbitrator on a request for confidential treatment, documents or other information designated as "Confidential" shall not be used by the receiving party or parties, or the arbitrator(s), or anyone working for or on behalf of any of the foregoing, for any purpose other than the arbitration proceeding, and shall not be disclosed in any form to any person not involved in the arbitration proceeding without the prior written consent of the party producing the information or as permitted by the Procedures Arbitrator. 4.9.2 Compulsory Disclosure. Any party receiving a request or demand for disclosure, whether by compulsory process, discovery request, or otherwise, of documents or information obtained in the course of an arbitration proceeding that have been designated "Confidential" and that are subject to a non-disclosure requirement under these PJM Dispute Resolution Procedures or a decision of the Procedures Arbitrator, shall immediately inform the party from which the information was obtained, and shall take all reasonable steps, short of incurring sanctions or other penalties, to afford the person or entity from which the information was obtained an opportunity to protect the information from disclosure. Any party disclosing information in violation of these PJM Dispute Resolution Procedures or requirements established by the Procedures Arbitrator shall thereby waive any right to introduce or otherwise use such information in any judicial, regulatory, or other legal or dispute resolution proceeding, including the proceeding in which the information was obtained. 4.9.3 Public Information. Nothing in the Related PJM Agreements shall preclude the use of documents or information properly obtained outside of an arbitral proceeding, or otherwise public, for any legitimate purpose, notwithstanding that the information was also obtained in the course of the arbitral proceeding. 4.10 Timetable. Promptly after the selection of the arbitrator(s), the arbitrator(s) shall set a date for the issuance of the arbitral decision, which shall be not later than eight months (or such earlier date as may be agreed to by the parties to the dispute) from the date of the selection of the arbitrator(s), with other dates, including the dates for an evidentiary hearing or other final submissions of evidence, set in light of this date. The date for the evidentiary hearing or other final submission of evidence shall not be changed absent extraordinary circumstances. The arbitrator(s) shall have the power to impose sanctions, including dismissal of the proceeding for dilatory tactics or undue delay in completing the arbitral proceedings. 4.11 Advisory Interpretations. Except as to matters subject to decision in the arbitration proceeding, the arbitrator(s) may request as may be appropriate from any committee or subcommittee established under a Related PJM Agreement or by the Office of the Interconnection, an interpretation of any Related PJM Agreements, or of any standard, requirement, procedure, tariff, Schedule, principle, plan or other criterion or policy established by any committee or subcommittee. Except to the extent that the Office of the Interconnection is itself a party to a dispute, the arbitrator(s) may request the advice of the Office of the Interconnection with respect to any matter relating to a responsibility of the Office of the Interconnection under the Agreement or with respect to any of the Related PJM Agreements, or to the PJM Manuals. Any such interpretation or advice shall not relieve the arbitrator(s) of responsibility for resolving the dispute or deciding the arbitration proceeding in accordance with the standards specified herein. 4.12 Decisions. The arbitrator(s) shall issue a written decision, including findings of fact and the legal basis for the decision. The arbitral decision shall be based on (i) the evidence in the record, (ii) the terms of the Related PJM Agreements, as applicable, (iii) applicable United States federal and state law, including the Federal Power Act and any applicable FERC regulations and decisions, and international treaties or agreements as applicable, and (iv) relevant decisions in previous arbitration proceedings. The arbitrator(s) shall have no authority to revise or alter any provision of the Related PJM Agreements. Any arbitral decision issued pursuant to these PJM Dispute Resolution Procedures that affects matters subject to the jurisdiction of FERC under Section 205 of the Federal Power Act shall be filed with FERC. 4.13 Costs. Unless the arbitrator(s) shall decide otherwise, the costs of the time, expenses, and other charges of the arbitrator(s) shall be borne by the parties to the dispute, with each side on an arbitrated issue bearing its pro-rata share of such costs, and each party to an arbitral proceeding shall bear its own costs and fees. The arbitrator(s) may award all or a portion of the costs of the time, expenses, and other charges of the arbitrator(s), the costs of arbitration, attorney's fees, and the costs of mediation, if any, to any party that substantially prevails on an issue determined by the arbitrator(s) to have been raised without a substantial basis. 4.14 Enforcement. If the decision of the arbitrator(s) is binding, the judgment may be entered on such arbitral award by any court having jurisdiction thereof; provided, however, that within one year of the issuance of the arbitral decision any party affected thereby may request FERC or any other federal, state, regulatory or judicial authority having jurisdiction to vacate, modify, or take such other action as may be appropriate with respect to any arbitral decision that is based upon an error of law, or is contrary to the statutes, rules, or regulations administered or applied by such authority. Any party making or responding to, or intervening in proceedings resulting from, any such request, shall request the authority to adopt the resolution, if not clearly erroneous, of any issue of fact expressly or necessarily decided in the arbitral proceeding, whether or not the party participated in the arbitral proceeding. 5. ALTERNATE DISPUTE RESOLUTION COMMITTEE 5.1 Membership. 5.1.1 Representatives. The Alternate Dispute Resolution Committee shall be composed of two representatives selected by each of the following: (i) the Office of the Interconnection; (ii) the Members Committee; (iii) the parties to the Reliability Assurance Agreement; and (iv) the parties to the Transmission Owners Agreement. 5.1.2 Term. Representatives on the Alternate Dispute Resolution Committee shall serve for terms of three years and may serve additional terms. 5.2 Voting Requirements. Approval or adoption of measures by the Alternate Dispute Resolution Committee shall require two-thirds of the votes of the representatives present and voting. Two-thirds of the representatives on the Alternate Dispute Resolution Committee shall constitute a quorum for the conduct of business. 5.3 Officers. At the first meeting of the Alternate Dispute Resolution Committee, the representatives to the Alternate Dispute Resolution Committee shall choose a Chair and Vice Chair from among the representatives on the Committee. The Chair of the Alternate Dispute Resolution Committee shall preside at meetings of the Committee, and shall have the power to call meetings of the Committee and to exercise such other powers as are specified in this Agreement or are authorized by the Alternate Dispute Resolution Committee. The Vice Chair shall preside at meetings of the Alternate Dispute Resolution Committee in the absence of the Chair, and shall exercise such other powers as are delegated by the Chair. 5.4 Meetings. The Alternate Dispute Resolution Committee shall meet at such times and places as determined by the Committee, or at the call of the Chair. The Chair shall call a meeting of the Alternate Dispute Resolution Committee upon the request of two or more representatives on the Alternate Dispute Resolution Committee. 5.5 Responsibilities. The duties of the Alternate Dispute Resolution Committee include but are not limited to the following: i) Maintain a list of persons qualified by temperament and experience, and with technical or legal expertise in matters likely to be the subject of disputes, to serve as mediators or arbitrators under these PJM Dispute Resolution Procedures; ii) Determine the rates and other costs and charges that shall be paid to mediators, advisors and arbitrators for or in connection with their services; iii) Determine whether mediation is not warranted in a particular dispute; iv) Provide to disputing parties lists of mediators, advisors or arbitrators to resolve particular disputes; v) Compile and make available to parties to disputes, arbitrators, and other interested persons suggested procedures for the arbitration of disputes in accordance with Section 4.5; vi) Maintain and make available to parties to disputes, mediators, advisors, arbitrators, and other interested persons the written decisions required by Section 4.12; vii) Establish such procedures and schedules, in addition to those specified herein, as it shall deem appropriate to further the prompt, efficient, fair and equitable resolution of disputes; and viii) Provide such oversight and supervision of the dispute resolution processes and procedures instituted pursuant to the Related PJM Agreements as may be appropriate to facilitate the prompt, efficient, fair and equitable resolution of disputes. SCHEDULE 6 Revision No. 1 REGIONAL TRANSMISSION EXPANSION PLANNING PROTOCOL Issued: June 2, 1997 Effective: August 1, 1997 1. REGIONAL TRANSMISSION EXPANSION PLANNING PROTOCOL Purpose and Objectives This Regional Transmission Expansion Planning Protocol shall govern the process by which the Members shall rely upon the Office of the Interconnection to prepare a plan for the enhancement and expansion of the Transmission Facilities in order to meet the demands for firm transmission service in the PJM Control Area. The Regional Transmission Expansion Plan to be developed shall enable the transmission needs in the PJM Control Area to be met on a reliable, economic and environmentally acceptable basis. 1.2 Conformity with NERC and MAAC Criteria (a) NERC establishes Planning Principles and Guides to promote the reliability and adequacy of the North American bulk power supply as related to the operation and planning of electric systems. (b) MAAC is responsible for ensuring the adequacy, reliability and security of the bulk electric supply systems in the MAAC region through coordinated operations and planning of generation and transmission facilities. Toward that end, it has adopted the NERC Planning Principles and Guides and has established detailed Reliability Principles and Standards for Planning the Bulk Electric Supply System of the MAAC Group. (c) The Regional Transmission Expansion Plan shall conform with the applicable reliability principles, guidelines and standards of NERC and MAAC in accordance with the procedures detailed in the PJM Manuals. 1.3 Establishment of Committees (a) The Regional Transmission Owners shall supply representatives to the Planning Committee to provide the data, information, and analysis support necessary to perform studies as required. As used herein, "Regional Transmission Owner" shall be defined as it is in the PJM Open Access Transmission PJM Tariff ("PJM Tariff"). (b) The Transmission Expansion Advisory Committee established by the Office of the Interconnection will provide input to the development of the Regional Transmission Expansion Plan. The Transmission Expansion Advisory Committee will invite participation by: (i) all Transmission Customers, as that term is defined in the PJM Tariff, and applicants for transmission service; (ii) any other entity proposing to provide Transmission Facilities to be integrated into the PJM Control Area; (iii) all Members; (iv) the agencies and offices of consumer advocates of the States in the PJM Control Area exercising regulatory authority over the rates, terms or conditions of electric service or the planning, siting, construction or operation of electric facilities and (v) any other interested entities or persons. 1.4 Contents of the Regional Transmission Expansion Plan (a) The Office of the Interconnection shall prepare the Regional Transmission Expansion Plan, which shall consolidate the transmission needs of the region into a single plan which is assessed on the basis of maintaining the PJM Control Area's reliability in an economic and environmentally acceptable manner. (b) The Regional Transmission Expansion Plan shall reflect transmission enhancements and expansions, load and capacity forecasts and generation additions and retirements for the ensuing ten years. (c) The Regional Transmission Expansion Plan shall, as a minimum, include a designation of the Regional Transmission Owner or Owners or other entity that will own a transmission facility and how all reasonably incurred costs are to be recovered. (d) The Regional Transmission Expansion Plan shall (i) avoid unnecessary duplication of facilities; (ii) avoid the imposition of unreasonable costs on any Regional Transmission Owner or any user of Transmission Facilities; (iii) take into account the legal and contractual rights and obligations of the Regional Transmission Owners; (iv) provide, if appropriate, alternative means for meeting transmission needs in the PJM Control Area; and (v) provide for coordination with existing transmission systems and with appropriate interregional and local expansion plans. 1.5 Procedure for Development of the Regional Transmission Expansion Plan 1.5.1 Commencement of the Process (a) The Office of the Interconnection shall initiate the enhancement and expansion study process if (i) required as a result of a need for transfer capability identified by the Office of the Interconnection in its evaluation of requests for firm transmission service with a term of one year or more or as a result of the Office of the Interconnection's on-going evaluation of transmission system adequacy and performance; (ii) identified as a result of the MAAC reliability assessment or more stringent local reliability criteria, if any; (iii) constraints or available transfer capability shortage are identified by the Office of the Interconnection as a result of generation additions or retirements, evaluation of load forecasts or proposals for the addition of Transmission Facilities in the PJM Control Area; or (iv) expansion of the transmission system is proposed by the Regional Transmission Owners or others. (b) The Office of the Interconnection shall notify the Transmission Expansion Advisory Committee of the commencement of an enhancement and expansion study. The Transmission Expansion Advisory Committee shall notify the Office of the Interconnection in writing of any additional transmission considerations to be included. 1.5.2 Development of Scope, Assumptions and Procedures Once the need for an enhancement and expansion study has been established, the Office of the Interconnection shall consult with the Transmission Expansion Advisory Committee to prepare the study's scope, assumptions and procedures. 1.5.3 Scope of Studies In general, enhancement and expansion studies shall include: (a) An identification of existing and projected electric system limitations, with accompanying simulations to identify the costs of controlling those limitations. Potential enhancements and expansions will be proposed to mitigate limitations controlled by non-economic means. (b) Evaluation and analysis of potential enhancements and expansions, including alternatives thereto, needed to mitigate such limitations. (c) Engineering studies needed to determine the effectiveness and compliance (with reliability criteria) of recommended enhancements and expansions. 1.5.4 Supply of Data The Regional Transmission Owners, those entities requesting transmission service and any other entities proposing to provide Transmission Facilities to be integrated into the PJM Control Area shall supply such information and data reasonably required by the Office of the Interconnection to perform the enhancement and expansion study. 1.5.5 Coordination of the Regional Transmission Expansion Plan (a) The Regional Transmission Expansion Plan shall be developed in coordination with the transmission systems of the surrounding regional reliability councils and with the local transmission providers. (b) The Regional Transmission Expansion Plan shall be developed by the Office of the Interconnection in consultation with the Transmission Expansion Advisory Committee during the enhancement and expansion study process. 1.5.6 Development of the Recommended Regional Transmission Expansion Plan (a) Upon completion of its studies and analysis, the Office of the Interconnection shall prepare a recommended enhancement and expansion plan for review by the Transmission Expansion Advisory Committee. The recommended plan shall include recommendations for cost responsibility, except for directly assigned costs, for any enhancement or expansion, based on the planning analysis and other input from participants, including any indications of a willingness to bear cost responsibility for an enhancement or expansion. (b) For the purposes of Section 1.5.6(a), any allocation of costs to all of the Regional Transmission Owners shall be proportional to the load within the Zones. Load shall be measured consistent with the loads utilized to develop the rates included in Attachment H to the PJM Tariff. (c) Any Regional Transmission Owner and other participants on the Transmission Expansion Advisory Committee may offer an alternative. (d) If the Office of the Interconnection adopts the alternative, based upon its review of the relative costs and benefits, the ability of the alternative to supply the required level of transmission service, and its impact on the reliability of the Transmission Facilities, the Office of the Interconnection shall make any necessary changes to the recommended plan. (e) If, based upon its review of the relative costs and benefits, the ability of the alternative to supply the required level of transmission service, and the alternative's impact on the reliability of the Transmission Facilities, the Office of the Interconnection does not adopt such alternative, the Regional Transmission Owner or Owners whose alternative or alternatives have not been accepted or to whom cost responsibility has been assigned and other participants on the Transmission Expansion Advisory Committee may require that its or their alternative(s) be submitted to Alternative Dispute Resolution. 1.6 Approval of the Final Regional Transmission Expansion Plan (a) The PJM Board shall approve the final Regional Transmission Expansion Plan, including any alternatives therein, in accordance with the requirements of this Section 1.6. (b) If the facilities to be provided in the Regional Transmission Expansion Plan are acceptable, but the Regional Transmission Owners and other entities who have indicated a willingness to bear some or all of the cost responsibility cannot unanimously agree on the allocation of the costs of enhancements or expansions, the cost responsibility shall be allocated (a) to those entities who have indicated a willingness to bear some or all of the cost of responsibility, and (b) among the Regional Transmission Owners in accordance with the following guidelines: i) All of the costs of Transmission Facilities (other than transformers) with a nominal operating voltage of 500 kV or higher shall be allocated to all of the Regional Transmission Owners; ii) One-half of the costs of Transmission Facilities (other than transformers) with a nominal operating voltage of 230 kV or 345 kV shall be allocated to all Regional Transmission Owners and one-half of the costs of such facilities shall be allocated to the Regional Transmission Owners in whose Zone, as that term is defined in the PJM Tariff, the enhancement or expansion is to be located; iii) All of the costs of Transmission Facilities (other than transformers) with a nominal operating voltage below 230 kV shall be allocated to the Regional Transmission Owner or Owners in whose Zone the enhancement or expansion is located; iv) One-half of the costs of transformers shall be allocated in accordance with the methodology specified in (a), (b), or (c) above, based upon the voltage at the high side of the transformer and one-half of the costs shall be allocated in accordance with the methodology specified in (a), (b), and (c) above based upon the voltage at the low side of the transformer, unless the low side of the transformer is less than 100 kV, in which case all of the costs of the transformer shall be allocated to the Regional Transmission Owner or Owners in whose Zone the transformer is located. If a Regional Transmission Expansion Plan is not approved, or if the transmission service requested by any entity is not included in an approved Regional Transmission Expansion Plan, nothing herein shall limit in any way the right of any entity to seek relief pursuant to the provisions of Section 211 of the Federal Power Act. (d) Following PJM Board approval, the final Regional Transmission Expansion Plan shall be submitted to MAAC for verification that all enhancements or expansions conform to all MAAC Reliability Principles and Standards. 1.7 Obligation to Build (a) Subject to the requirements of applicable law, government regulations and approvals, including, without limitation, requirements to obtain any necessary state or local siting, construction and operating permits, to the availability of required financing, to the ability to acquire necessary right- of-way, and to the right to recover, pursuant to appropriate financial arrangements and tariffs or contracts, all reasonably incurred costs, plus a reasonable return on investment, Regional Transmission Owners designated as the appropriate entities to construct and own or finance enhancements or expansions specified in the Regional Transmission Expansion Plan shall construct and own or finance such facilities or enter into appropriate contracts to fulfill such obligations. (b) Nothing herein shall prohibit any Regional Transmission Owner from seeking to recover the cost of enhancements or expansions on an incremental cost basis or from seeking approval of such rate treatment from any regulatory agency with jurisdiction over such rates. 1.8 Relationship to the PJM Control Area Open Access Transmission PJM Tariff Nothing herein shall modify the rights and obligations of an Eligible Customer or a Transmission Customer, as those terms are defined in the PJM Tariff, with respect to required studies and completion of necessary enhancements or expansions. An Eligible Customer or Transmission Customer electing to follow the procedures in the PJM Tariff instead of the procedures provided herein, shall also be responsible for the related costs. The enhancement and expansion study process under this Protocol shall be funded as a part of the operating budget of the Office of the Interconnection. SCHEDULE 7 Revision No. 1 UNDERFREQUENCY RELAY OBLICATIONS AND CHARGES Issued: June 2, 1997 Effective: August 1, 1997 1. UNDERFREQUENCY RELAY OBLIGATION 1.1 Application. The obligations of this Schedule apply to each Member that is an Electric Distributor, whether or not that Member participates in the Electric Distributor sector on the Members Committee or meets the eligibility requirements for any other sector of the Members Committee. 1.2 Obligations. Each Electric Distributor shall install or contractually arrange for underfrequency relays to interrupt at least 30 percent of its peak load with 10 percent of the load interrupted at each of three frequency levels: 59.3 Hz, 58.9 Hz and 58.5 Hz. Upon the request of the Reliability Committee, each Electric Distributor shall document that it has complied with the requirement for underfrequency load shedding relays. 2. UNDERFREQUENCY RELAY CHARGES If an Electric Distributor is determined to not have the required underfrequency relays, it shall pay an underfrequency relay charge of: Charge = D x R x 365 where D = the amount, in megawatts, the Electric Distributor is deficient; and R = the daily rate per megawatt, which shall be based on the annual carrying charges for a new combustion turbine generator, installed and connected to the transmission system, which daily deficiency rate as of the Effective Date shall be $58.400/per kilowatt-year or $160 per megawatt-day. 3. DISTRIBUTION OF UNDERFREQUENCY RELAY CHARGES 3.1 Share of Charges. Each Electric Distributor that has complied with the requirements for underfrequency relays imposed by this Agreement during a Planning Period, without incurring an underfrequency relay charge, shall share in any underfrequency relay charges paid by any other Electric Distributor that has failed to satisfy said obligation during such Planning Period. Such shares shall be in proportion to the number of megawatts of a Electric Distributor's load in the most recently completed month at the time of the peak for the PJM Control Area during that month rounded to the next higher whole megawatt, as established initially on the Effective Date and as updated at the beginning of each month thereafter. 3.2 Allocation by the Office of the Interconnection. In the event all of the Electric Distributors have incurred underfrequency relay charges during a Planning Period, the underfrequency relay charges shall be distributed among the Electric Distributors on an equitable basis as determined by the Office of the Interconnection. SCHEDULE 8 Revision No. 1 DELEGATION OF RELIABILITY RESPONSIBILTIES Issued: June 2, 1997 Effective: August 1, 1997 1. DELEGATION The following responsibilities shall be delegated to the Office of the Interconnection by the parties to the Reliability Assurance Agreement. 2. NEW PARTIES With regard to the addition, withdrawal or removal of a party to the Reliability Assurance Agreement, the Office of the Interconnection shall: (a) Receive and evaluate the information submitted by entities that plan to serve loads within the PJM Control Area, including entities whose participation in the Agreement will expand the boundaries of the PJM Control Area, such evaluation to be conducted in accordance with the requirements of the Reliability Assurance Agreement; and (b) Evaluate the effects of the withdrawal or removal of a party from the Reliability Assurance Agreement. 3. IMPLEMENTATION OF RELIABILITY ASSURANCE AGREEMENT. With regard to the implementation of the provisions of the Reliability Assurance Agreement, the Office of the Interconnection shall: (a) Receive all required data and forecasts from the parties to the Reliability Assurance Agreement; (b) Perform all calculations and analyses necessary to determine the Forecast Pool Requirement, the Forecast Zone Requirement and the Forecast LSE Obligation, including periodic reviews of the capacity benefit margin for consistency with the Reliability Principles and Standards, as the foregoing terms are defined in the Reliability Assurance Agreement; (c) Monitor the compliance of each party to the Reliability Assurance Agreement with its obligations under the Reliability Assurance Agreement; (d) Keep cost records, and bill and collect any costs or charges due from the parties to the Reliability Assurance Agreement and distribute those charges in accordance with the terms of the Reliability Assurance Agreement; (e) Assist with the development of rules and procedures for determining and demonstrating the capability of Capacity Resources; (f) Establish the capability and deliverability of Capacity Resources consistent with the requirements of the Reliability Assurance Agreement; (g) Collect and maintain generator availability data; (h) Perform any other studies or analyses required to administer the Reliability Assurance Agreement; (i) Coordinate maintenance schedules for generation resources operated as part of the PJM Control Area; (j) Determine and declare that an Emergency exists or has ceased to exist in all or any part of the PJM Control Area or in a Control Area interconnected with the PJM Control Area; (k) Enter into agreements for (i) the transfer of energy in Emergencies in the PJM Control Area or in a Control Area interconnected with the PJM Control Area and (ii) mutual support in such Emergencies with other Control Areas interconnected with the PJM Control Area; and (l) Coordinate the curtailment or shedding of load, or other measures appropriate to alleviate an Emergency, to preserve reliability in accordance with FERC, NERC or MAAC principles, guidelines, standards and requirements and the PJM Manuals, and to ensure the operation of the PJM Control Area in accordance with Good Utility Practice. SCHEDULE 9 Revision No. 1 EMERGENCY PROCEDURE CHARGES Issued: June 2, 1997 Effective: August 1, 1997 EMERGENCY PROCEDURE CHARGE Following an Emergency, the compliance of each Member with the instructions of the Office of the Interconnection shall be evaluated by the Office of the Interconnection. If, based on such evaluation, it is determined that a Member failed to comply with the instructions of the Office of the Interconnection to implement voltage reductions or to drop load, that Member shall demonstrate that it employed its best efforts to comply with such instructions. In the event a Member failed to employ its best efforts to comply with the instructions of the Office of the Interconnection, that Member shall pay an emergency procedure charge as follows: (a) For each megawatt of voltage reduction that was not implemented as directed, the Member shall pay 365 times the daily deficiency rate per megawatt based on the annual carrying charges for a new combustion turbine generator, installed and connected to the transmission system, which daily deficiency rate as of the Effective Date shall be $58.400/per kilowatt-year or $160 per megawatt-day; and (b) For each megawatt of load that was not dropped as directed, the Member shall pay 730 times the daily deficiency rate per megawatt based on the annual carrying charges for a new combustion turbine generator, installed and connected to the transmission system, which daily deficiency rate as of the Effective Date shall be $58.400/per kilowatt-year or $160 per megawatt-day. 2. DISTRIBUTION OF EMERGENCY PROCEDURE CHARGES 2.1 Complying Parties. Each Member that has complied with the emergency procedures imposed by this Agreement during an Emergency, without incurring an emergency procedure charge, shall share in any emergency procedure charges paid by any other Member that has failed to satisfy said obligation during such Emergency in an equitable manner to be determined by the PJM Board. 2.2 All Parties. In the event all of the Members have incurred emergency procedure charges with respect to an Emergency, the emergency procedure charges related to that Emergency shall be distributed in an equitable manner as directed by the PJM Board. EX-10 9 Exhibit 10(h)-5 FOURTH SUPPLEMENT TO THE CAPACITY AND ENERGY SALES AGREEMENT FROM PENNSYLVANIA POWER & LIGHT COMPANY (PP&L) TO BALTIMORE GAS & ELECTRIC COMPANY (BG&E) Fourth Supplement (Fourth Supplemental Agreement) dated July 2, 1992 to the Capacity and Energy Sales Agreement (Basic Agreement), dated January 28, 1988, as supplemented by a First Supplemental Agreement dated August 10, 1988, and by a Third Supplemental Agreement dated May 24, 1991 between Pennsylvania Power & Light Company and Baltimore Gas & Electric Company. 1. This supplemental agreement shall become effective on June 1, 1992, unless otherwise ordered by the Federal Energy Regulatory Commission. The terms and conditions of the Basic Agreement, as supplemented by the First Supplemental Agreement and the Second Supplemental Agreement, and the Third Supplemental Agreement, shall remain in full force and effect, except as amended herein. 2. Exhibit C Revision No. 2 shall be amended to read: "The Installed Capacity Rate shall be $193 per megawatt per day." Such amended Exhibit C Revision No. 2 is reflected on Exhibit C Revision No. 3, attached hereto and made a part hereof, which supersedes Exhibit C Revision No. 2. PENNSYLVANIA POWER & LIGHT COMPANY By: ___/s/_______________________ WITNESS: Name: __F. A. Long________________ Sr. Vice President- System Power & _________________________ Title:__Engineering_______________ Cheryl D. Cincilla BALTIMORE GAS AND ELECTRIC COMPANY By: __/s/________________________ WITNESS: Name: __Herbert D. Coss, Jr.______ Vice President-Electric Interconnection & _________________________ Title: _Transmission______________ EXHIBIT C REVISION NO. 3 INSTALLED CAPACITY RATE The Installed Capacity Rate shall be $193 per megawatt per day. EX-10 10 EXHIBIT 10(h)-6 FIFTH SUPPLEMENT TO THE CAPACITY AND ENERGY SALES AGREEMENT FROM PENNSYLVANIA POWER & LIGHT COMPANY (PP&L) TO BALTIMORE GAS & ELECTRIC COMPANY (BG&E) Fifth Supplement (Fifth Supplemented Agreement) dated as of the 13th day of July, 1993 to the Capacity and Energy Sales Agreement (Basic Agreement) dated January 28, 1988, as supplemented. WHEREAS, the Parties intend to amend the Basic Agreement, as supplemented, to change the rate of return on common equity thereunder to 11%. NOW, THEREFORE, the Parties hereby agree and covenant to amend the Basic Agreement, as supplemented, as follows: 1. This Fifth Supplemental Agreement shall become effective on July 15, 1993, unless otherwise ordered by the Federal Energy Regulatory Commission. All terms and conditions of the Basic Agreement, as supplemented shall remain in full force and effect, unless specifically revised by this Fifth Supplemental Agreement. 2. The only revision to the Basic Agreement, as supplemented, made by this Fifth Supplemental Agreement is that in Exhibit A subpart (B)(2) 12.75% shall be replace by 11%. BALTIMORE GAS & ELECTRIC COMPANY /s/ WITNESS: By: ____________________________ Name: _Herbert D. Coss, Jr._____ _________________________ Title: Vice President Margaret W. Krubbel PENNSYLVANIA POWER & LIGHT COMPANY /s/ WITNESS: By: ______________________________ Name: _Raymond F. Suhocki_________ _________________________ Title: Vice President-System Power Cheryl D. Cincilla EX-10 11 Exhibit 10(h)-7 SIXTH SUPPLEMENT TO THE CAPACITY AND ENERGY SALES AGREEMENT FROM PENNSYLVANIA POWER & LIGHT COMPANY (PP&L) TO BALTIMORE GAS AND ELECTRIC COMPANY (BG&E) Supplement dated as of the 2nd day of August 1993, to the Capacity and Energy Sales Agreement (Basic Agreement), dated January 28, 1988 between Pennsylvania Power & Light Company and Baltimore Gas & Electric Company. 1. This supplemental agreement shall become effective on June 1, 1993, unless otherwise ordered by the Federal Energy Regulatory Commission. The terms and conditions of the Basic Agreement as heretofore supplemented and amended shall remain in full force and effect, except as amended herein. 2. Exhibit C shall be amended to read: "The Installed Capacity Rate shall be $201 per megawatt per day." Such amended Exhibit C is reflected on Exhibit C Revision No. 4, attached hereto and made a part hereof, which supersedes Exhibit C Revision No. 3. PENNSYLVANIA POWER & LIGHT COMPANY /s/ WITNESS: By: ______________________________ Name: _Raymond F. Suhocki_________ _________________________ Title: Vice President-System Power Cheryl D. Cincilla BALTIMORE GAS & ELECTRIC COMPANY /s/ WITNESS: By: ____________________________ Name: _Herbert D. Coss, Jr._____ _________________________ Title: Vice President Margaret W. Krubbel EXHIBIT C REVISION NO. 4 INSTALLED CAPACITY RATE The Installed Capacity Rate shall be $201 per megawatt day. EX-10 12 AMENDMENT NO. 3 TO PP&L RESOURCES, INC. DIRECTORS DEFERRED COMPENSATION PLAN WHEREAS, PP&L, Inc. ("PP&L") adopted the Pennsylvania Power & Light Company Directors Deferred Compensation Plan ("Plan") effective January 26, 1972; and WHEREAS, PP&L Resources, Inc. ("Company") adopted the Plan as amended and restated effective April 26, 1995, and the Plan was subsequently amended by Amendment No. 1 and 2; and WHEREAS, the Company desires to further amend the Plan; NOW, THEREFORE, the Plan is hereby amended as follows: I. Effective January 1, 1998, Articles 2 and 6 are amended to read: 2. Definitions. (n) "Mandatory Deferral Amount" means a portion of the retainer fee payable to the Participant equal to an amount established by resolution of the Committee from time to time, but in no event later than December 31 of the calendar year preceding the calendar year in which the retainer fee is payable to the Participant. 6. Deferred Cash Compensation. (c) Any election to defer or change the amount of Cash Compensation to be deferred for any subsequent calendar year after the first calendar year of eligibility may be made by Participant not later than December 31 of the year preceding such calendar year by filing with the EBPB an election form; provided, however, that an election once made will be presumed to continue with respect to subsequent years unless changed or revoked by Participant. Participant, may, prior to December 31, 1994, elect to defer some or all of his Cash Compensation otherwise payable after July 1, 1995 to this Stock Account. II. Except as provided for in this Amendment No. 3, all other provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, this Amendment No. 3 is executed this 23rd day of February, 1998. PP&L RESOURCES, INC. By: /s/John M. Chappelear John M. Chappelear Chairman Employee Benefit Plan Board EX-12 13 Exhibit 12(a) PP&L RESOURCES, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Millions of Dollars)
1997 1996 1995 1994 1993 Fixed charges, as defined: Interest on long-term debt ............ $196 $207 $213 $214 $226 Interest on short-term debt and other interest ................. 25 17 18 18 13 Amortization of debt discount, expense and premium - net.................... 2 2 2 2 2 Interest on capital lease obligations Charged to expense ................ 9 13 15 12 9 Capitalized ....................... 2 2 2 1 1 Estimated interest component of operating rentals ................... 15 8 8 6 5 Proportionate share of fixed charges of 50-percent-or-less-owned persons ............................. 1 1 1 1 1 Total fixed charges ........... $250 $250 $259 $254 $257 Earnings, as defined: Net income ............................ $296 $329 $323 $216 $314 Preferred and Preference Stock Dividend Requirements......................... 24 28 28 28 34 Less undistributed income of less than 50-percent-owned persons ....... - - - - - 320 357 351 244 348 Add (Deduct): Federal income taxes .................. 169 189 195 198 163 State income taxes .................... 59 64 62 77 64 Deferred income taxes ................. 29 10 15 (45) 22 Investment tax credit - net ........... (10) (10) (10) (12) (14) Income taxes on other income and deductions - net .................... (9) 0 24 (38) (1) Amortization of capitalized interest on capital leases .......... 2 4 5 9 12 Total fixed charges as above (excluding capitalized interest on capital lease obligations) ....... 248 248 257 253 256 Total earnings ................ $808 $862 $899 $686 $850 Ratio of earnings to fixed charges ............................... 3.23 3.45 3.47 2.70 3.31
EX-12 14 Exhibit 12(b) PP&L, INC. AND SUBSIDIARIES, CONSOLIDATED COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Millions of Dollars)
1997 1996 1995 1994 1993 Fixed charges, as defined: Interest on long-term debt ............ $195 $207 $213 $214 $226 Interest on short-term debt and other interest ................. 17 11 18 18 13 Amortization of debt discount, expense and premium - net.................... 2 2 2 2 2 Interest on capital lease obligations Charged to expense ................ 9 13 15 12 9 Capitalized ....................... 2 2 2 1 1 Estimated interest component of operating rentals ................... 15 8 8 6 5 Proportionate share of fixed charges of 50-percent-or-less-owned persons ............................. 1 1 1 1 1 Total fixed charges ........... $241 $244 $259 $254 $257 Earnings, as defined: Net income ............................ $348 $357 $352 $243 $348 Less undistributed income of less than 50-percent-owned persons ...... - 348 357 352 243 348 Add (Deduct): Federal income taxes .................. 169 189 195 199 163 State income taxes .................... 59 64 62 77 64 Deferred income taxes ................. 29 10 15 (45) 22 Investment tax credit - net ........... (10) (10) (11) (12) (14) Income taxes on other income and deductions - net .................... 1 (2) 26 (38) (1) Amortization of capitalized interest on capital leases .......... 2 4 6 9 12 Total fixed charges as above (excluding capitalized interest on capital lease obligations) ....... 239 243 257 253 256 Total earnings ................ $837 $855 $902 $686 $850 Ratio of earnings to fixed charges ............................... 3.47 3.50 3.48 2.70 3.31
EX-23 15 Exhibit 23 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 33-59405) of PP&L Resources, Inc. and of the Registration Statements on Form S-3 (No. 333- 20661 and No. 333-27773) of PP&L, Inc., in the Registration Statement on Form S-4 (No. 333-33565) of PP&L Resources, Inc. and in the Registration Statements on Form S-8 (No. 33- 50031, No. 333-02003, No. 333-38003 and No. 333-38003-01) of PP&L Resources, Inc. of our report dated February 2, 1998 appearing on Page 41 of this Form 10-K. PRICE WATERHOUSE LLP Philadelphia, Pennsylvania March 3, 1998 EX-24 16 Exhibit 24 PP&L RESOURCES, INC. PP&L, INC. 1997 ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K POWER OF ATTORNEY The undersigned directors of PP&L Resources, Inc. and PP&L, Inc., both Pennsylvania corporations, which are to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, their 1997 Annual Report on Form 10-K, do hereby appoint William F. Hecht, John R. Biggar and Robert J. Grey their true and lawful attorney, and each of them their true and lawful attorney, with power to act without the other and with full power of substitution and resubstitution, to execute for them and in their names said Form 10-K Report and any and all amendments thereto, whether said amendments add to, delete from or otherwise alter said Form 10-K Report, or add or withdraw any exhibits or schedules to be filed therewith and any and all instruments in connection therewith. The undersigned hereby grant to said attorneys and each of them full power and authority to do and perform in the name of and on behalf of the undersigned, and in any and all capacities, any act and thing whatsoever required or necessary to be done in and about the premises, as fully and to all intents and purposes as the undersigned might do, hereby ratifying and approving the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seals this 27th day of February, 1998. /s/ E. Allen Deaver L.S. /s/ Clifford L. Jones L.S. E. Allen Deaver Clifford L. Jones /s/ Nance K. Dicciani L.S. /s/ Ruth Leventhal L.S. Nance K. Dicciani Ruth Leventhal /s/ William J. Flood L.S. /s/ Marilyn Ware Lewis L.S. William J. Flood Marilyn Ware Lewis /s/ Elmer D. Gates L.S. /s/ Frank A. Long L.S. Elmer D. Gates Frank A. Long /s/ William F. Hecht L.S. /s/ Norman Robertson L.S. William F. Hecht Norman Robertson /s/ Stuart Heydt L.S. Stuart Heydt EX-27 17
UT This schedule contains summary financial information extracted from the consolidated statement of income, consolidated balance sheet, and consolidated statement of cash flows for the form 10-K dated December 31, 1997 and is qualified in its entirety by reference to such financial statements. 0000922224 PP&L RESOURCES, INC. 1,000,000 YEAR DEC-31-1997 DEC-31-1997 PER-BOOK 6,766 659 695 1,365 0 9,485 2 1,643 1,164 2,809 297 50 2,585 90 0 45 150 0 113 58 3,288 9,485 3,049 247 2,257 2,504 545 (10) 535 215 320 24 296 275 196 777 1.80 1.80
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