Exhibit 10.4

Execution Version

 

 

 

ENVIRONMENTAL CONTROL PROPERTY SERVICING AGREEMENT

between

PE ENVIRONMENTAL FUNDING LLC

and

THE POTOMAC EDISON COMPANY

Servicer

Dated as of December 23, 2009

 

 

 

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TABLE OF CONTENTS

 

ARTICLE I DEFINITIONS    1

SECTION 1.01 Definitions

   1 ARTICLE II APPOINTMENT AND AUTHORIZATION OF SERVICER    2

SECTION 2.01 Appointment of Servicer; Acceptance of Appointment

   2

SECTION 2.02 Authorization

   2

SECTION 2.03 Dominion and Control Over Environmental Control Property

   2 ARTICLE III BILLING SERVICES    3

SECTION 3.01 DUTIES OF SERVICER

   3

SECTION 3.02 Collection of Environmental Control Charges

   4

SECTION 3.03 Servicing and Maintenance Standards

   4

SECTION 3.04 Monthly and Quarterly Servicer’s Certificates

   4

SECTION 3.05 Annual Reports on Servicing Compliance and Attestation, Notices of
Servicer Defaults

   5

SECTION 3.06 Annual Report by Independent Public Accountants

   6

SECTION 3.07 Additional Servicer Reporting Requirements

   6

SECTION 3.08 Environmental Control Property Documentation

   7

SECTION 3.09 Computer Records; Audits of Documentation

   7

SECTION 3.10 Defending Environmental Control Property Against Claims

   8

SECTION 3.11 Opinions of Counsel

   8 ARTICLE IV TRUE-UP ADJUSTMENTS    9

SECTION 4.01 Routine True-Up Adjustments

   9

SECTION 4.02 Non-Routine True-Up Adjustments

   9 ARTICLE V THE SERVICER    10

SECTION 5.01 Representations and Warranties of Servicer

   10

SECTION 5.02 Indemnities of Servicer; Release of Claims

   12

SECTION 5.03 Merger or Consolidation of, or Assumption of the Obligations of,
Servicer

   13

SECTION 5.04 Assignment of Servicer’s Obligations

   14

SECTION 5.05 Limitation on Liability of Servicer and Others

   14

SECTION 5.06 Potomac Edison Not To Resign as Servicer

   15

SECTION 5.07 Defending Environmental Control Property Against Claims

   15

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SECTION 5.08 Servicing Fee

   15

SECTION 5.09 Servicer Advances

   16

SECTION 5.10 Subservicing

   16

SECTION 5.11 Remittances

   17

SECTION 5.12 Payment Date Statements

   18

SECTION 5.13 Schedule Revision Date Schedules

   18

SECTION 5.14 Protection of Title

   18 ARTICLE VI SERVICER DEFAULT    18

SECTION 6.01 Servicer Default

   18

SECTION 6.02 Notice of Servicer Default

   20

SECTION 6.03 Waiver of Past Defaults

   20

SECTION 6.04 Appointment of Successor

   20

SECTION 6.05 Cooperation with Successor

   21

SECTION 6.06 Servicer Default Under Related Transaction

   21 ARTICLE VII MISCELLANEOUS PROVISIONS    21

SECTION 7.01 Amendment

   21

SECTION 7.02 Notices

   23

SECTION 7.03 Limitations on Rights of Others

   24

SECTION 7.04 Severability

   24

SECTION 7.05 Separate Counterparts

   24

SECTION 7.06 Headings

   24

SECTION 7.07 GOVERNING LAW

   24

SECTION 7.08 Assignment to Indenture Trustee

   24

SECTION 7.09 Nonpetition Covenants

   25

SECTION 7.10 Termination

   25

SECTION 7.11 Limitation of Liability

   25

EXHIBITS

 

EXHIBIT A    Servicing Obligations EXHIBIT B    Pending Litigation ANNEX 1   
Form of Routine Adjustment Request ANNEX 2    Form of Monthly Servicer’s
Certificate ANNEX 3    Form of Quarterly Servicer’s Certificate ANNEX 4    Form
of Officer’s Certificate ANNEX 5    Form of Assessment of Servicing Criteria
ANNEX 6    Form of Regulation AB Compliance Certification APPENDIX A    Master
Definitions APPENDIX A-1    Supplemental Master Definitions

 

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ENVIRONMENTAL CONTROL PROPERTY SERVICING AGREEMENT dated as of December 23,
2009, between PE Environmental Funding LLC, a Delaware limited liability company
(the “Issuer”), and The Potomac Edison Company (“Potomac Edison”), a Maryland
and Virginia corporation, doing business as Allegheny Power, as the servicer of
the Environmental Control Property (together with each successor to Potomac
Edison (in the same capacity) pursuant to Section 5.03 or 6.04, the “Servicer”).

WHEREAS the Servicer is willing to service the Environmental Control Property
purchased from the Seller by the Issuer from time to time in accordance with the
Sale Agreement;

WHEREAS the Issuer, in connection with ownership of the Environmental Control
Property, desires to engage the Servicer to carry out the functions described
herein;

WHEREAS the PSCWV or its attorney will enforce this Agreement pursuant to the
Financing Order for the benefit of the Customers to the extent permitted by
applicable Requirements of Law;

WHEREAS the Environmental Control Bonds will not be “asset-backed securities”
within the meaning of Regulation AB, but the Issuer nevertheless has committed
to comply with all substantive ongoing periodic disclosure requirements that
would apply under Regulation AB if the Environmental Control Bonds were
“asset-backed securities”; and

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein
contained and intending to be legally bound hereby, the parties hereto agree as
follows:

ARTICLE I

DEFINITIONS

SECTION 1.01 Definitions.

(a) “Agreement” means this Environmental Control Property Servicing Agreement,
together with all Exhibits, Annexes and Appendices hereto, as the same may be
amended, supplemented or otherwise modified from time to time.

(b) Capitalized terms used but not otherwise defined in this Agreement have the
meanings assigned to them in Appendix A and Appendix A-1 to this Agreement. To
the extent there is a conflict between definitions included in Appendix A and
Appendix A-1, the definitions in Appendix A-1 shall control.

(c) Non-capitalized terms used in this Agreement which are defined in the
Statute, as the context requires, have the meanings assigned to such terms in
the Statute, but without giving effect to amendments to the Statute after the
date hereof which have a material adverse effect on the Issuer or the
Environmental Control Bondholders.

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(d) All terms defined in this Agreement have the defined meanings when used in
any certificate or document made or delivered pursuant hereto unless otherwise
defined herein.

(e) The words “hereof,” “herein,” “hereunder” and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement; Section, Annex, Schedule and Exhibit
references contained in this Agreement are references to Sections, Annexes,
Schedules and Exhibits in or to this Agreement unless otherwise specified; and
the term “including” shall mean “including without limitation.”

(f) The definitions contained in this Agreement are applicable to the singular
as well as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such terms.

ARTICLE II

APPOINTMENT AND AUTHORIZATION OF SERVICER

SECTION 2.01 Appointment of Servicer; Acceptance of Appointment.

Subject to Section 5.04 and Article VI, the Issuer hereby appoints the Servicer,
and the Servicer hereby accepts such appointment, to perform the Servicer’s
obligations pursuant to this Agreement on behalf of and for the benefit of the
Issuer in accordance with the terms of this Agreement. This appointment and the
Servicer’s acceptance thereof may not be revoked except in accordance with the
express terms of this Agreement.

SECTION 2.02 Authorization.

With respect to all or any portion of the Environmental Control Property, the
Servicer shall be, and hereby is, authorized and empowered by the Issuer to
(a) execute and deliver, on behalf of itself or the Issuer, as the case may be,
any and all instruments, documents or notices, and (b) on behalf of itself or
the Issuer, as the case may be, make any filing and participate in proceedings
of any kind with any Governmental Authorities, including with the PSCWV. The
Issuer shall furnish the Servicer with such documents as have been prepared by
the Servicer for execution by the Issuer, and with the other documents as may be
in the Issuer’s possession, as necessary or appropriate to enable the Servicer
to carry out its duties hereunder. Upon the written request of the Servicer, the
Issuer shall furnish the Servicer with any powers of attorney or other documents
necessary or appropriate to enable the Servicer to carry out its duties
hereunder.

SECTION 2.03 Dominion and Control Over Environmental Control Property.

Notwithstanding any other provision herein, the Servicer and the Issuer agree
that the Issuer shall have dominion and control over the Environmental Control
Property. The Servicer hereby agrees that it shall not take any action that is
not authorized by this Agreement or applicable Requirements of Law, that is not
consistent with its customary procedures and practices, or that shall impair the
rights of the Issuer in the Environmental Control Property, in each case unless
such action is required by applicable Requirements of Law.

 

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ARTICLE III

BILLING SERVICES

SECTION 3.01 Duties of Servicer. The Servicer shall have the following duties:

(a) Duties of Servicer Generally. The Servicer will manage, service, administer
and make collections in respect of the Environmental Control Property. The
Servicer’s duties will include (i) calculating and billing the Environmental
Control Charges, collecting Environmental Control Charge Payments, and remitting
all Environmental Control Charge Collections to the Indenture Trustee;
(ii) responding to inquiries by Customers, Third Parties, the PSCWV, or any
Governmental Authority with respect to the Environmental Control Property,
including the Environmental Control Charges; (iii) accounting for Environmental
Control Charge Collections, investigating delinquencies, processing and
depositing collections and making periodic remittances, furnishing periodic
reports to the Issuer, the Indenture Trustee, the PSCWV and the Rating Agencies;
(iv) selling defaulted or written off accounts in accordance with the Servicer’s
usual and customary practices; and (v) taking action in connection with True-Up
Adjustments according to the procedures set forth herein and in Exhibit A
hereto. Anything to the contrary notwithstanding, the duties of the Servicer set
forth in this Agreement shall be qualified in their entirety by applicable
Requirements of Law as may be in effect at the time such duties are to be
performed. Without limiting the generality of this Section 3.01(a), in
furtherance of the foregoing, the Servicer hereby agrees that it shall also
have, and shall comply with, the duties and responsibilities relating to data
acquisition, usage, demand and bill calculation, billing, customer service
functions, collections, payment processing and remittance set forth in Exhibit A
hereto.

(b) Notification of Laws and Regulations. The Servicer shall immediately notify
the Issuer, the Indenture Trustee and the Rating Agencies in writing of
Requirements of Law hereafter promulgated that have a material adverse effect on
the Servicer’s ability to perform its duties under this Agreement.

(c) Other Information. Upon the reasonable request of the Issuer, the Indenture
Trustee, the PSCWV or any Rating Agency, the Servicer shall provide to the
Issuer, the Indenture Trustee or such Rating Agency, as the case may be, any
public financial information in respect of the Servicer, or any material
information regarding the Environmental Control Property to the extent it is
reasonably available to the Servicer, as may be reasonably necessary and
permitted by applicable Requirements of Law, for the Issuer, the Indenture
Trustee, the PSCWV or such Rating Agency to monitor the performance by the
Servicer hereunder. In addition, so long as any of the Environmental Control
Bonds of any Series are Outstanding, the Servicer shall provide the Issuer, the
Indenture Trustee and the PSCWV within a reasonable time after written request
therefor, any information available to the Servicer or reasonably obtainable by
it that is necessary to calculate the Environmental Control Charges applicable
to each Rate Schedule.

 

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(d) Preparation of Reports to be Filed with the Commission. The Servicer shall
prepare or cause to be prepared any reports required to be filed by the Issuer
under the securities laws, including without limitation, if so required, each
Quarterly Servicer’s Certificate described in Section 3.04, the Officer’s
Certificate of annual compliance described in Section 3.05, the Annual
Accountant’s Report described in Section 3.06, and any certification required by
Section 302 of the Sarbanes-Oxley Act of 2002 and Item 601 of Regulation S-K
under the Exchange Act.

SECTION 3.02 Collection of Environmental Control Charges.

(a) The Servicer shall use all reasonable efforts consistent with its customary
servicing procedures to collect all amounts owed in respect of Environmental
Control Charges, as and when the same shall become due and shall follow such
collection procedures as it follows with respect to collection activities that
the Servicer conducts for itself or others. The Servicer shall not change the
amount of or reschedule the due date of any scheduled payment of Environmental
Control Charges, except as contemplated in this Agreement or as required by
applicable Requirements of Law; provided, however, that the Servicer may take
any of the foregoing actions to the extent that such action would be in
accordance with customary billing and collection practices of the Servicer with
respect to billing and collection activities that it conducts for itself.

(b) Upon a partial payment of amounts billed, including amounts billed under
special contracts, such partial payments shall be allocated first to the Billed
Environmental Control Charge, including any past-due Environmental Control
Charges.

SECTION 3.03 Servicing and Maintenance Standards.

The Servicer shall (a) manage, service, administer and make collections in
respect of the Environmental Control Property with reasonable care and in
material compliance with applicable Requirements of Law using the same degree of
care and diligence that the Servicer exercises with respect to billing and
collection activities that the Servicer conducts for itself and others;
(b) follow standards, policies and procedures in performing its duties as
Servicer that are customary in the Servicer’s industry; (c) use all reasonable
efforts, consistent with its customary servicing procedures, to enforce and
maintain rights in respect of the Environmental Control Property; and
(d) calculate Environmental Control Charges in compliance with applicable
Requirements of Law, except where the failure to comply with any of the
foregoing would not have a material adverse affect on the Issuer’s or the
Indenture Trustee’s interest in the Environmental Control Property. The Servicer
shall follow such customary and usual practices and procedures as it shall deem
necessary or advisable in its servicing of all or any portion of the
Environmental Control Property, which, in the Servicer’s judgment, may include
the taking of legal action pursuant to Section 3.09 hereof or otherwise.

SECTION 3.04 Monthly and Quarterly Servicer’s Certificates.

The Servicer will provide to the Issuer, the Indenture Trustee, the PSCWV and
each of the Rating Agencies, so long as any Environmental Control Bonds of any
Series are Outstanding, (a) not later than 15 days after the end of each month
after the Environmental Control Bonds are issued (excluding December, 2009), or
if such day is not a Business Day, the following Business Day, a written report
substantially in the form of Annex 2 hereto (the “Monthly Servicer’s
Certificate”); and (b) not later than 15 days following the end of each calendar
quarter after the Environmental Control Bonds are issued, a written report
substantially in the form of Annex 3 hereto (the “Quarterly Servicer’s
Certificate”).

 

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SECTION 3.05 Annual Reports on Servicing Compliance and Attestation, Notices of
Servicer Defaults.

(a) On or before March 31 of each year beginning March 31, 2010, and including
the March 31 following the Final Maturity Date of all Series of Environmental
Control Bonds, the Servicer shall deliver: (i) to the Issuer, the Indenture
Trustee, the PSCWV and each Rating Agency, an Officers’ Certificate
substantially in the form of Annex 4 attached hereto, stating that (A) a review
of the activities of the Servicer during the preceding calendar year (or
relevant portion thereof) and of its performance under this Agreement has been
made under such officers’ supervision and (B) to the best of such officers’
knowledge, based on such review, the Servicer has complied with all its
obligations under this Agreement in all material respects throughout such period
or, if there has been a Servicer Default, or an act or omission, which with
either the passage of time or the giving of notice, could become a Servicer
Default, specifying each such event of default or act or omission known to such
authorized officer and the nature and status thereof; (ii) to the Issuer and the
PSCWV, a report regarding the Servicer’s assessment of compliance with the
servicing criteria during the immediately preceding calendar year, as required
under Rules 13a-18 and 15d-18 of the Exchange Act and Item 1122 of Regulation
AB. Such report shall be addressed to the Issuer and the PSCWV and signed by an
authorized officer of the Servicer, and shall address each of the servicing
criteria specified on a certification substantially in the form of Annex 5
hereto delivered to the Issuer concurrently with the execution of this
agreement; (iii) to the Issuer and the PSCWV, a report of a registered public
accounting firm reasonably acceptable to the Issuer that attests to, and reports
on, the assessment of compliance made by the Servicer and delivered pursuant to
the preceding clause (ii), as described in Section 3.06 hereof; and (iv) to the
Issuer, the Administrator and any other person that will be responsible for
signing the Regulation AB Compliance Certification, a certification in the form
attached hereto as Annex 6, as required by Rules 13a-14(d) and 15d-14(d) under
the Exchange Act (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) on
behalf of the Issuer. The Servicer acknowledges that the parties identified in
this clause (a)(iv) may rely on the certification provided by the Servicer
pursuant to such clause in signing a Sarbanes Certification and filing such with
the PSCWV. In addition, pursuant to Section 5.10, the Servicer shall cause each
subservicer “participating in the servicing function” within the meaning of
Item 1122 of Regulation AB to deliver to the Issuer an assessment of compliance
and accountants’ attestation as and when provided in clauses (ii) and (iii) of
this paragraph.

The requirements of clauses (ii) through (iv) above shall be applicable only so
long as the Issuer is required to make such filings under the Exchange Act.

(b) Each assessment of compliance provided by a subservicer pursuant to
Section 3.05(a) shall address each of the servicing criteria specified on a
certification substantially in the form of Annex 5 hereto delivered to the
Issuer concurrently with the execution of this Agreement by such subservicer or,
in the case of a subservicer subsequently appointed as such, on or prior to the
date of such appointment. An assessment of compliance provided by a subservicer
pursuant to Section 3.05(a) need not address any elements of the servicing
criteria other than those specified by the Servicer pursuant to Section 5.10.

 

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(c) The Servicer shall deliver to the Issuer, the Indenture Trustee, the PSCWV
and each Rating Agency, promptly after having obtained knowledge thereof, but in
no event later than five Business Days thereafter, written notice in an
Officers’ Certificate of any Servicer Default and any event which with the
giving of notice or lapse of time, or both, would become a Servicer Default
under Section 6.01.

SECTION 3.06 Annual Report by Independent Public Accountants.

(a) Servicer shall cause a firm of independent certified public accountants
(which may also provide other services to the Servicer, Potomac Edison or the
Seller) to prepare, and the Servicer shall deliver to the Issuer, the Indenture
Trustee, the PSCWV and each Rating Agency, on or before March 31 of each year,
beginning March 31, 2010 to and including the March 31 following the Final
Maturity Date of all Series of Environmental Control Bonds, a report addressed
to the Servicer (the “Annual Accountant’s Report”), which may be included as
part of the Servicer’s customary auditing activities, to the effect that such
firm has performed certain procedures agreed to between the Servicer and such
firm in connection with the Servicer’s compliance with its obligations under
this Agreement during the preceding calendar year ended December 31 (or, in the
case of the first Annual Accountant’s Report, the period of time from the 2009
Sale Date for the Series B Environmental Control Bonds until December 31, 2009),
identifying the results of such procedures and including any exceptions noted.
In addition, so long as the Issuer is required to make such filings under the
Exchange Act, the Annual Accountant’s Report will include a report that attests
to, and reports on, the assessment made by the Servicer as to its compliance
with the servicing criteria set forth in (d) of Item 1122 of Regulation AB
hereto and that such attestation of the assessment of compliance was in
accordance with Rules 1-02(a)(3) and 2-02(g) of Regulation S-X under the
Securities Act and the Exchange Act and was made in accordance with standards
for attestation engagements issued or adopted by the Public Company Accounting
Oversight Board. In the event that the accounting firm providing such report
requires the Indenture Trustee to agree or consent to the procedures performed
by such firm, the Issuer shall direct the Indenture Trustee in writing to so
agree; it being understood and agreed that the Indenture Trustee will deliver
such letter of agreement or consent in conclusive reliance upon the direction of
the Issuer, and the Indenture Trustee will not make any independent inquiry or
investigation as to, and shall have no obligation or liability in respect of the
sufficiency, validity or correctness of, such procedures.

(b) The Annual Accountant’s Report shall also indicate that the accounting firm
providing such report is Independent of the Servicer within the meaning of the
Code of Professional Conduct of the American Institute of Certified Public
Accountants or any superseding or amended standard adopted by the Public Company
Accounting Oversight Board.

SECTION 3.07 Additional Servicer Reporting Requirements.

The Servicer shall prepare, procure, deliver and/or file, or cause to be
prepared, procured, delivered or filed, any reports, attestations, exhibits,
certificates or other documents required to be delivered or filed with the SEC
(and/or any other Governmental Authority) by the Issuer under the federal
securities or other applicable laws or in accordance with the Basic Documents,
including, but without limiting the generality of foregoing, filing with the
SEC, if applicable, a copy or copies of (i) the Monthly Servicer’s Certificates
described in Section 3.04 (under Form 10-D

 

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or any other applicable form), (ii) the Payment Date Statements described in
Section 3 of Exhibit A hereto (under Form 10-D or any other applicable form),
(iii) the annual statements of compliance, attestation reports and other
certificates described in Section 3.05, and (iv) the Annual Accountant’s Report
(and any attestation required under Regulation AB) described in Section 3.06. In
addition, the appropriate officer or officers of the Servicer shall (in its
separate capacity as Servicer) sign the Sponsor’s annual report on Form 10-K
(and any other applicable SEC or other reports, attestations, certifications and
other documents), to the extent that the Servicer’s signature is required by,
and consistent with, the federal securities law and/or any other applicable law.

SECTION 3.08 Environmental Control Property Documentation.

To assure uniform quality in servicing the Environmental Control Property and to
reduce administrative costs, the Servicer shall keep on file, in accordance with
its customary procedures, all Environmental Control Property Documentation.

SECTION 3.09 Computer Records; Audits of Documentation.

(a) Safekeeping. The Servicer shall maintain accurate and complete accounts,
records and computer systems pertaining to the Environmental Control Property
and the Environmental Control Property Documentation in accordance with its
standard accounting procedures and in sufficient detail to permit the Annual
Reconciliation between Estimated Environmental Control Charge Collections and
Actual Environmental Control Charge Collections in accordance with Section 5.11
and to enable the Issuer to comply with this Agreement and the Indenture. The
Servicer shall conduct, or cause to be conducted, periodic audits of the
Environmental Control Property Documentation held by it under this Agreement and
of the related accounts, records and computer systems, in such a manner as shall
enable the Issuer and the Indenture Trustee, as pledgee of the Issuer, to verify
the accuracy of the Servicer’s record keeping. The Servicer shall promptly
report to the Issuer, the PSCWV and the Indenture Trustee any failure on the
Servicer’s part to hold the Environmental Control Property Documentation and
maintain its accounts, records and computer systems as herein provided and
promptly take appropriate action to remedy any such failure. Nothing herein
shall be deemed to require an initial review or any periodic review by the
Issuer or the Indenture Trustee of the Environmental Control Property
Documentation.

(b) Maintenance of and Access to Records. The Servicer shall maintain the
Environmental Control Property Documentation at 1310 Fairmont Avenue, Fairmont,
West Virginia 26554 or at such other office as shall be specified to the Issuer,
the Indenture Trustee and the PSCWV by written notice not later than 30 days
prior to any change in location. The Servicer shall permit the Issuer, the
Indenture Trustee and the PSCWV or their respective duly authorized
representatives, attorneys, agents or auditors at any time during normal
business hours as the Issuer, the Indenture Trustee or the PSCWV shall
reasonably request to inspect, audit and make copies of and abstracts from the
Servicer’s records regarding the Environmental Control Property, including the
Environmental Control Charges and the Environmental Control Property
Documentation. The failure of the Servicer to provide access to such information
as a result of an obligation or applicable Requirements of Law prohibiting
disclosure of information regarding customers shall not constitute a breach of
this Section 3.09(b).

 

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SECTION 3.10 Defending Environmental Control Property Against Claims.

The Servicer, on behalf of the Environmental Control Bondholders, shall
institute any action or proceeding necessary to compel performance by the PSCWV
or the State of West Virginia of any of their obligations or duties under the
Statute or the Financing Order with respect to the Environmental Control
Property. The costs of any such action shall be payable from the Collection
Account as an Operating Expense in accordance with the priorities set forth in
Section 8.02(e) of the Indenture at the time such costs are incurred. The
Servicer’s obligations pursuant to this Section 3.10 shall survive and continue
notwithstanding the fact that the payment of Operating Expenses pursuant to the
priorities set forth in Section 8.02(e) of the Indenture may be delayed (it
being understood that the Servicer shall not be required to advance its own
funds to satisfy its obligations hereunder).

SECTION 3.11 Opinions of Counsel.

With respect to the Series B Environmental Control Bonds, the Servicer shall
deliver to the Issuer, the PSCWV and the Indenture Trustee:

(a) promptly after the execution and delivery of this Agreement and of each
amendment hereto, promptly after the execution of the Sale Agreement and of each
amendment thereto, and on the 2009 Sale Date, an Opinion of Counsel either
(i) to the effect that, in the opinion of such counsel, all filings, including
filings with the PSCWV pursuant to the Statute, that are necessary to fully
preserve and protect the interests of the applicable Indenture Trustee in the
Environmental Control Property have been executed and filed, and reciting the
details of such filings or referring to prior Opinions of Counsel in which such
details are given, or (ii) to the effect that, in the opinion of such counsel,
no such action shall be necessary to preserve and protect such interest; and

(b) within 90 days after the beginning of each calendar year beginning with the
first calendar year beginning more than three months after the 2009 Sale Date,
an Opinion of Counsel, dated as of a date during such 90-day period, either
(i) to the effect that, in the opinion of such counsel, all filings with the
PSCWV pursuant to the Statute, have been executed and filed that are necessary
to preserve fully and protect fully the interest of the applicable Indenture
Trustee in the Environmental Control Property, and reciting the details of such
filings or referring to prior Opinions of Counsel in which such details are
given, or (ii) to the effect that, in the opinion of such counsel, no such
action shall be necessary to preserve and protect such interest.

Each Opinion of Counsel referred to in clause (a) or (b) above shall specify any
action necessary (as of the date of such opinion) to be taken in the following
year to preserve and protect such interest.

 

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ARTICLE IV

TRUE-UP ADJUSTMENTS

SECTION 4.01 Routine True-Up Adjustments.

(a) With respect to each series of Environmental Control Bonds, the Servicer
shall file a True-Up Adjustment Filing with the PSCWV at the following times:
(i) at least 15 days prior to each Semi-Annual True-Up Adjustment Date; and
(ii) at least 15 days prior to each Quarterly True-Up Adjustment Date and each
Monthly True-Up Adjustment Date.

(b) For the purpose of filing any Semi-Annual True-Up Adjustment Filing, the
Servicer shall (i) update assumptions of projected future usage and demand of
electricity by Customers, expected delinquencies and Write-offs and future
expenses relating to Environmental Control Property and the Environmental
Control Bonds; (ii) calculate the Periodic Bond Payment Requirement based upon
such updated assumptions; and (iii) determine the Environmental Control Charge
to be charged on and after the applicable True-Up Adjustment Date.

(c) Each True-Up Adjustment Filing shall be substantially in the form of Annex 1
to this Servicing Agreement.

(d) The Servicer shall (i) take all reasonable actions and make all reasonable
efforts in order to effectuate any Routine True-Up Adjustment to the
Environmental Control Charge and (ii) promptly send to the Indenture Trustee
copies of all material notices and documents relating to such Routine True-Up
Adjustment.

(e) On the same date that the Servicer files any True-Up Adjustment Filing with
the PSCWV, if the Routine True-Up Adjustment is intended to result in an
increase in the amount of the Environmental Control Charge, the Servicer shall
give public notice through the publication of a Class I legal advertisement in
Kanawha County, will respond to any comments to such publication and will attend
any hearing held in connection with any such True-Up Adjustment Filing.

SECTION 4.02 Non-Routine True-Up Adjustments.

(a) Whenever the Servicer determines that the existing True-Up Mechanism should
be amended or revised to more accurately project and generate adequate
collections of Environmental Control Charge Payments, the Servicer shall file a
Non-Routine True-Up Adjustment Filing with the PSCWV designating the adjustments
to such True-Up Mechanism and any corresponding adjustments to the Environmental
Control Charges, subject to the review and approval of the PSCWV pursuant to the
Financing Order, and the Servicer shall notify the Rating Agencies as promptly
as possible of the filing of any such Non-Routine True-Up Adjustment Filing.
Subject to clause (c) below, the Servicer shall also file for a Non-Routine
True-Up Adjustment Filing at the direction of the PSCWV.

(b) The Servicer shall take all reasonable actions and make all reasonable
efforts to secure any Non-Routine True-Up Adjustments.

 

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(c) The Servicer shall implement any resulting adjustments to the True-Up
Mechanism and any resulting revised Environmental Control Charges as of the
effective date of the Non-Routine True-Up Adjustment Filing. If any Non-Routine
True-Up Adjustment Filing is denied by the PSCWV, the Servicer shall notify the
Issuer, the Indenture Trustee and the Rating Agencies (not later than five days
after the Servicer’s receipt of the PSCWV’s order denying such Non-Routine
True-Up Adjustment Filing).

(d) The Servicer shall notify the Issuer, the Indenture Trustee and the Rating
Agencies of any request for a Non-Routine True-Up Adjustment initiated by the
PSCWV within five days of receipt of such request and shall take all necessary
actions to prevent the implementation of such an adjustment if it would violate
the State Pledge.

ARTICLE V

THE SERVICER

SECTION 5.01 Representations and Warranties of Servicer.

The Servicer makes the following representations and warranties as of the 2009
Sale Date relating to the Series B Environmental Control Bonds, on which the
Issuer and the PSCWV (on behalf of the Customers) has relied and will rely in
acquiring the Environmental Control Property. The representations and warranties
shall survive the sale of any of the Environmental Control Property to the
Issuer and the pledge thereof to the Indenture Trustee pursuant to the
Indenture.

(a) Organization and Good Standing. The Servicer is a corporation duly
organized, validly existing and in good standing under the laws of the states of
its incorporation, with the corporate power and authority to own its properties
and to conduct its business as such properties are currently owned and such
business is presently conducted, and has the power, authority and legal right to
service the Environmental Control Property.

(b) Due Qualification. The Servicer is duly qualified to do business as a
foreign corporation in good standing or equivalent status, and has obtained all
necessary licenses and approvals in, all foreign jurisdictions in which the
ownership or lease of property or the conduct of its business (including the
servicing of the Environmental Control Property as required by this Agreement)
requires such qualifications, licenses or approvals (except where the failure to
so qualify or obtain such licenses and approvals would not be reasonably likely
to have a material adverse effect on the Servicer’s business, operations,
assets, revenues, properties or prospects or materially and adversely affect the
servicing of the Environmental Control Property).

(c) Power and Authority. The Servicer has the corporate power and authority to
execute and deliver this Agreement and to carry out its terms; and the
execution, delivery and performance of this Agreement have been duly authorized
by the Servicer by all necessary corporate action.

 

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(d) Binding Obligation. This Agreement constitutes a legal, valid and binding
obligation of the Servicer enforceable against the Servicer in accordance with
its terms subject to bankruptcy, receivership, insolvency, fraudulent transfer,
reorganization, moratorium or other laws affecting creditors’ rights generally
from time to time in effect and to general principles of equity (regardless of
whether considered in a proceeding in equity or at law).

(e) No Violation. The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof shall not conflict with,
result in any breach of any of the terms and provisions of, nor constitute (with
or without notice or lapse of time) a default under, the articles of
incorporation or by-laws of the Servicer, or any other material indenture,
agreement or other instrument to which the Servicer is a party or by which it
shall be bound; nor result in the creation or imposition of any Lien upon any of
its properties pursuant to the terms of any such indenture, agreement or other
instrument (except as contemplated in the Indenture and as set forth in the Sale
Agreement); nor violate any law or any order, rule or regulation applicable to
the Servicer of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having jurisdiction
over the Servicer or its properties.

(f) Approvals. Except for filings with the PSCWV for revised Environmental
Control Charges, pursuant to Article IV and Annex 1 hereto and the filing of
financing statements or continuation statements under the UCC, no approval,
authorization, consent, order or other action of, or filing with, any court,
federal or state regulatory body, administrative agency or other governmental
instrumentality is required in connection with the execution and delivery by the
Servicer of this Agreement, the performance by the Servicer of the transactions
contemplated hereby or the fulfillment by the Servicer of the terms hereof,
except those that have been obtained or made.

(g) No Proceedings. Except as described in Exhibit B, to the Servicer’s
knowledge, there are no proceedings or investigations pending or, to the
Servicer’s best knowledge, threatened before any court, federal or state
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the Servicer or its properties: (i) seeking to prevent
issuance of the bonds or the consummation of the transactions contemplated by
this Agreement, any other Basic Document or, if applicable, any Additional
Indenture or subsequent sale agreement, (ii) seeking any determination or ruling
that might materially and adversely affect the performance by the Servicer of
its obligations under, or the validity or enforceability against the Servicer
of, this Agreement, any other Basic Document or, if applicable, any Additional
Indenture or subsequent sale agreement, or (iii) relating to the Servicer and
which might have a material adverse affect on the federal or state income, gross
receipts or franchise tax attributes of the Environmental Control Bonds.

(h) Reports and Certificates. Each report and certificate delivered in
connection with any filing made to the PSCWV by the Servicer on behalf of the
Issuer with respect to Environmental Control Charges or True-Up Adjustments will
constitute a representation and warranty by the Servicer that each such report
or certificate, as the case may be, is true and correct in all material
respects; provided, however, that to the extent any such report or certificate
is based in part upon or contains assumptions, forecasts or other predictions of
future events, the representation and warranty of the Servicer with respect
thereto will be limited to the representation and warranty that such
assumptions, forecasts or other predictions of future events are reasonable
based upon historical performance and the facts known to the Servicer on the
date such report or certificate is delivered.

 

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SECTION 5.02 Indemnities of Servicer; Release of Claims.

(a) The Servicer shall be liable in accordance herewith only to the extent of
the obligations specifically undertaken by the Servicer under this Agreement.

(b) The Servicer shall indemnify the Issuer and the Indenture Trustee, for
itself and on behalf of the Environmental Control Bondholders for which it acts
as Indenture Trustee, and each of their respective managers, members, officers,
directors, employees and agents for, and defend and hold harmless each such
Person from and against, any and all Losses that may be imposed upon, incurred
by or asserted against any such Person as a result of (i) the Servicer’s willful
misconduct, bad faith or negligence in the performance of its duties under this
Agreement or (ii) the Servicer’s material breach of any of its obligations,
duties, representations or warranties that results in a Servicer Default under
this Agreement and (iii) litigation and related expenses relating to its status
and obligations as Servicer.

The Servicer shall not be liable for any Losses resulting from the willful
misconduct, bad faith or negligence of any Person indemnified pursuant to this
Section 5.02 (each, an “Indemnified Party”) or resulting from a breach of a
representation or warranty made by such Indemnified Party in any of the Basic
Documents that gives rise to the Servicer’s breach. The Environmental Control
Bondholders shall be entitled to enforce their rights and remedies against the
Servicer under this Section 5.02 solely through a case of action brought for
their benefit by the Indenture Trustee. The Servicer’s indemnification under
this Section 5.02(b) shall survive the termination of this Agreement, and any
amounts paid with respect thereto shall be remitted and deposited with the
Indenture Trustee for deposit into the Collection Account

(c) The Servicer shall indemnify the PSCWV, on behalf of the Customers, for any
Losses they incur by reason of the Servicer’s willful misconduct, bad faith or
negligence including without limitation Losses attributable to higher
Environmental Control Charges imposed on customers by reason of additional
Operating Expenses, for example the Issuer’s higher Servicing Fees payable to a
Successor Servicer. The PSCWV shall be entitled to enforce Section 5.02(c) for
the benefit of Customers, and Customers may not enforce this indemnity. The
Servicer’s indemnification under this Section 5.02(c) shall survive the
termination of this Agreement, and any amounts paid with respect thereto shall
be remitted and deposited with the Indenture Trustee for deposit into the
Collection Account, unless otherwise directed by the PSCWV.

(d) The Servicer shall indemnify the Indenture Trustee and its officers,
directors and agents for, and defend and hold harmless each such Person from and
against, any and all Losses that may be imposed upon, incurred by or asserted
against any such Person as a result of the acceptance or performance of the
trusts and duties contained herein and in the other Basic Documents to which the
Indenture Trustee is a party, except to the extent that any such Loss shall be
due to the willful misconduct, bad faith or negligence of the Indenture Trustee.
The foregoing indemnity is extended to the Indenture Trustee solely in its
individual capacity and not for the benefit of the Environmental Control
Bondholders or any other Person. Such amounts shall be deposited and distributed
in accordance with the Indenture.

 

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(e) The Servicer’s indemnification obligations under Sections 5.02(b),(c) and
(d) for events occurring prior to the removal or resignation of the Indenture
Trustee, or the termination of this Agreement with respect to the Issuer, shall
survive the resignation or removal of the Indenture Trustee or the termination
of this Agreement with respect to the Issuer, and shall include reasonable
costs, fees and expenses of investigation and litigation (including the Issuer’s
and the Indenture Trustee’s reasonable attorneys’ fees and expenses).

(f) Except to the extent expressly provided for in this Agreement or the other
Basic Documents (including the Servicer’s claims with respect to the Servicing
Fees and the Seller’s claim for payment of the purchase price of the
Environmental Control Property), the Servicer hereby releases and discharges the
Issuer (including its respective managers, members, officers, directors and
agents, if any) and the Indenture Trustee (including its officers, directors and
agents) (collectively, the “Released Parties”) from any and all actions, claims
and demands whatsoever, which the Servicer, in its capacity as Servicer, shall
or may have against any such Person relating to the Environmental Control
Property or the Servicer’s activities with respect thereto other than any
actions, claims and demands arising out of the willful misconduct, bad faith or
negligence of the Released Parties.

(g) If any action, claim, demand or proceeding (including any governmental
investigation) shall be brought or asserted against an Indemnified Party
entitled to any indemnification provided for under this Section 5.02, such
Indemnified Party shall promptly notify the Servicer in writing; provided,
however, that failure to give such notification shall not affect the
indemnification provided hereunder except to the extent the Servicer shall have
been actually prejudiced as a result of such failure.

SECTION 5.03 Merger or Consolidation of, or Assumption of the Obligations of,
Servicer.

Any Person (a) into which the Servicer may be merged or consolidated and which
succeeds to any material part of the electric distribution business of the
Servicer, (b) which results from the division of the Servicer into two or more
Persons and which succeeds to any material part of the electric distribution
business of the Servicer, (c) which may result from any merger or consolidation
to which the Servicer shall be a party and which succeeds to any material part
of the electric distribution business of the Servicer, (d) which may succeed to
the properties and assets of the Servicer substantially as a whole and which
succeeds to any material part of the electric distribution business of the
Servicer or (e) which may otherwise succeed to any material part of the electric
distribution business of the Servicer, which Person in any of the foregoing
cases executes an agreement of assumption to perform every obligation of the
Servicer hereunder, shall be the successor to the Servicer under this Agreement
without further act on the part of any of the parties to this Agreement;
provided, however, that (i) immediately after giving effect to such transaction,
no representation and warranty made pursuant to Section 5.01 shall have been
breached and no Servicer Default, and no event which, after notice or lapse of
time, or both, would become a Servicer Default, shall have occurred and be
continuing, (ii) the Servicer shall have delivered to the Issuer, the PSCWV and
the Indenture Trustee an Officers’ Certificate

 

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and an Opinion of Counsel stating that such consolidation, merger or succession
and such agreement of assumption comply with this Section 5.03 and that all
conditions precedent provided for in this Agreement relating to such transaction
have been complied with, (iii) the Rating Agencies shall have received prior
written notice of such transaction, (iv) the Servicer shall have delivered to
the Issuer, the Indenture Trustee, the PSCWV and each Rating Agency an Opinion
of Counsel either stating that, in the opinion of such counsel, (A) all filings,
including filings with the PSCWV pursuant to the Statute, have been executed and
filed that are necessary to preserve fully and protect fully the interests of
the Issuer in the Environmental Control Property and reciting the details of
such filings or (B) no such action shall be necessary to preserve and protect
such interests. Notwithstanding anything herein to the contrary, the execution
of the above referenced agreement of assumption and compliance with clauses (i),
(ii), (iii) and (iv) above shall be conditions precedent to the consummation of
the transactions referred to in clause (a), (b), (c), (d) or (e) above.

SECTION 5.04 Assignment of Servicer’s Obligations.

The Servicer may not assign its obligations hereunder to any successor unless
either (i) the Rating Agency Condition has been satisfied and the PSCWV has
approved such assignment, or (ii) the Servicer is replaced by a Successor
Servicer pursuant to Section 6.04.

SECTION 5.05 Limitation on Liability of Servicer and Others.

(a) Neither the Servicer nor any of its directors, officers, employees or agents
shall be liable to the Issuer or its managers, the Indenture Trustee, the
Environmental Control Bondholders, the PSCWV or any other Person, except as
provided under this Agreement, for any action taken or for refraining from the
taking of any action pursuant to this Agreement or for errors in judgment;
provided, however, that this provision shall not protect either the Servicer or
any other Person against any liability that would otherwise be imposed by reason
of willful misconduct, bad faith or negligence in the performance of its duties
or by reason of reckless disregard of obligations and duties under this
Agreement and provided further that nothing in this Section 5.05 shall limit the
Servicer’s liabilities or obligations of the Servicer to indemnify as set forth
in Section 5.02 of this Agreement. The Servicer and any of its directors,
officers, employees or agents may rely in good faith on the advice of counsel
reasonably acceptable to the Indenture Trustee or on any document of any kind,
prima facie properly executed and submitted by any Person, respecting any
matters arising under this Agreement.

(b) The Servicer acknowledges that the PSCWV has authority to enforce all
provisions of this Agreement for the benefit of Customers, including without
limitation the enforcement of Section 5.02(c), provided that such enforcement is
consistent with the State Pledge.

(c) Except as provided in this Agreement, the Servicer shall not be under any
obligation to appear in, prosecute or defend any legal action that is not
incidental to its duties to service the Environmental Control Property in
accordance with this Agreement or related to its obligation to pay
indemnification, and that in its reasonable opinion may cause it to incur any
expense or liability.

 

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SECTION 5.06 Potomac Edison Not To Resign as Servicer.

Subject to the provisions of Sections 5.03 and 5.04, Potomac Edison shall not
resign from the obligations and duties hereby imposed on it as Servicer under
this Agreement except upon a determination that the performance of its duties
under this Agreement shall no longer be permissible under applicable
Requirements of Law. Notice of any such determination permitting the resignation
of Potomac Edison shall be communicated to the Issuer, the PSCWV, the Indenture
Trustee and each Rating Agency at the earliest practicable time (and, if such
communication is not in writing, shall be confirmed in writing at the earliest
practicable time), and any such determination shall be evidenced by an Opinion
of Counsel to such effect delivered to the Issuer, the PSCWV and the Indenture
Trustee concurrently with or promptly after such notice. No such resignation
shall become effective until a Successor Servicer has been approved by the PSCWV
and shall have assumed the servicing obligations and duties hereunder of Potomac
Edison in accordance with Section 6.04.

SECTION 5.07 Defending Environmental Control Property Against Claims.

The Servicer shall institute any action or proceeding necessary to compel
performance by each Third Party (at the earliest possible time) of any of their
respective obligations or duties under applicable Requirements of Law with
respect to the Environmental Control Property. In addition, the Servicer shall
institute any action or proceeding necessary to compel performance by the PSCWV
or the State of West Virginia, or any political subdivision, agency or other
instrumentality of the State of West Virginia, of any of their respective
obligations or duties under applicable Requirements of Law with respect to the
Environmental Control Property. The Servicer further agrees to take such legal
or administrative actions, including without limitation defending against or
instituting and pursuing legal actions and appearing or testifying at hearings
or similar proceedings, as may be reasonably necessary to block or overturn any
attempts to cause a repeal of, modification of or supplement to the Statute or
any Financing Order. In any of the aforementioned actions or proceedings, the
Servicer shall not be required to advance its own funds to institute any such
actions or proceedings and the Servicer’s obligations pursuant to this
Section 5.07 shall continue for only so long as the Servicer is being reimbursed
on a current basis for its costs and expenses incurred in undertaking such
obligations. In any proceedings related to the exercise of the power of eminent
domain by any municipality to acquire a portion of Potomac Edison’s electric
distribution facilities, the Servicer shall assert that the court ordering such
condemnation must treat such municipality as a successor to Potomac Edison under
the Statute and Financing Order. The costs and expenses of any action described
in this Section 5.07 shall be payable from the Collection Account as an
Operating Expense in accordance with Section 8.02(e) of the Indenture.

SECTION 5.08 Servicing Fee.

(a) Issuer agrees to pay the Servicer, solely to the extent amounts are
available therefor in accordance with the Indenture, the Servicing Fee with
respect to the Series B Environmental Control Bonds issued by the Issuer. The
Servicing Fee with respect to a Series for a Payment Date shall be as follows:
so long as Potomac Edison acts as the Servicer, the Servicing Fee will be
0.05% per annum of the initial principal balance of the Environmental Control
Bonds, payable semi-annually, in arrears; if a Successor Servicer is appointed,
the Servicing Fee will be based on an amount approved by the PSCWV, but not in
excess of a per annum rate equal to 1.25% of the initial principal balance of
the Environmental Control Bonds.

 

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(b) The Servicing Fee set forth in Section 5.08(a) above and the expenses
provided for in Section 5.08(c) below shall be paid to the Servicer by the
Indenture Trustee, on each Payment Date in accordance with the priorities set
forth in Section 8.02(e) of the Indenture, by wire transfer of immediately
available funds from the Collection Account to an account designated by the
Servicer. Any portion of the Servicing Fee not paid on such date shall be added
to the Servicing Fee payable on the subsequent Payment Date.

(c) The Issuer shall pay all expenses incurred by the Servicer in connection
with its activities hereunder (including any fees to and disbursements by
accountants, counsel, or any other Person, any taxes imposed on the Servicer
(other than taxes based on the Servicer’s net income) and any expenses incurred
in connection with reports to Environmental Control Bondholders, subject to the
priorities set forth in Section 8.02(e) of the Indenture). Except for filing
fees and fees and expenses for attorneys, accountants, printing or other
professional services retained by the Issuer, (or procured by the Servicer on
behalf of the Issuer) to meet the Issuer’s obligations under the Basic
Documents, the Servicer shall be required to pay all expenses incurred by the
Servicer in performing its activities hereunder from the Servicer’s own
resources, without additional reimbursement as Operating Expenses in accordance
with Section 8.02(e) of the Indenture.

SECTION 5.09 Servicer Advances.

The Servicer shall not make any advances of interest on or principal of any
series of the Bonds.

SECTION 5.10 Subservicing.

The Servicer may at any time appoint a subservicer to perform all or any portion
of its obligations as Servicer hereunder; provided, however, that the Servicer
shall not permit any Third Party to bill or collect Environmental Control
Charges on behalf of the Issuer except (a) as a subcontractor under the active
supervision of the Servicer or (b) as required by applicable Requirement of Law
and to the extent permitted by applicable Requirement of Law or regulation,
after written notice of such appointment is furnished to the Rating Agencies;
provided further, however, that the Servicer shall remain obligated and be
liable to the Issuer, the Indenture Trustee, and the Environmental Control
Bondholders and the PSCWV for the servicing and administering of the
Environmental Control Property in accordance with the provisions hereof without
diminution of such obligation and liability by virtue of the appointment of such
subservicer and to the same extent and under the same terms and conditions as if
the Servicer alone were servicing and administering the Environmental Control
Property. The fees and expenses of the subservicer shall be as agreed between
the Servicer and its subservicer from time to time, and none of the Issuer (or
its members or managers), the Indenture Trustee, any Environmental Control
Bondholder or the PSCWV shall have any responsibility therefor.

 

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SECTION 5.11 Remittances.

(a) Subject to Section 5.11(b), the Servicer shall remit daily all Estimated
Environmental Control Charge Collections (from whatever source) and all proceeds
of other Collateral of the Issuer, if any, received by the Servicer to the
Indenture Trustee under the Indenture, for deposit pursuant to the Indenture.

(b) Notwithstanding the foregoing clause (a), as long as (i) Potomac Edison or
any successor to Potomac Edison’s electric distribution business remains the
Servicer, (ii) no Servicer Default has occurred and is continuing and
(iii) (A) Potomac Edison or such successor maintains a long-term rating of “A+”
or better by Standard & Poor’s, a long-term rating of “A2” or better by Moody’s
and a long-term rating of “A” or better by Fitch, if rated by Fitch, or a
short-term rating of “A-1” by Standard & Poor’s, a short-term rating of “P-1” by
Moody’s and a short-term rating of “F1” by Fitch, if rated by Fitch or (B) the
Rating Agency Condition shall have been satisfied with respect to all Rating
Agencies (to which prior written notice will be sent) (and any conditions or
limitations imposed by such Rating Agencies in connection therewith are complied
with), the Servicer need not make the daily remittances required by such clause
(a), but in lieu thereof, shall remit all Estimated Environmental Control Charge
Collections (from whatever source) and all proceeds of other Collateral of such
Issuer, if any, received by the Servicer during any Collection Period to the
Indenture Trustee, for deposit pursuant to the Indenture, not later than the
Business Day immediately preceding the 25th day of each month.

(c) On or before each Remittance Date where the Servicer is not remitting a
fixed sum on each date during the Billing Period, the Servicer will prepare and
furnish to the Issuer and the Indenture Trustee a statement setting forth the
aggregate amount remitted or to be remitted by the Servicer to the Indenture
Trustee for deposit on such Remittance Date pursuant to this Section 5.11 and
the Indenture.

(d) On or before each Reconciliation Date, the Servicer will reconcile Actual
Environmental Control Charge Collections with Estimated Environmental Control
Charge Collections in respect of the immediately preceding Reconciliation
Period. The Servicer shall calculate the amount of any Remittance Shortfall or
Excess Remittance for the immediately preceding Reconciliation Period, shall
allocate such Remittance Shortfall or Excess Remittance to each outstanding
Series ratably based on the Environmental Control Charges billed for such Series
for such Reconciliation Period, and (A) if a Remittance Shortfall exists, the
Servicer shall make a supplemental remittance, to the applicable General
Subaccount of the applicable Collection Account for each Series within two
(2) Servicer Business Days, or (B) if an Excess Remittance exists, the Servicer
shall be entitled either (i) to reduce the amount of (A) each Daily Remittance,
or, (B) if Potomac Edison has satisfied the conditions of Section 5.11(b), each
Monthly Remittance, which the Servicer subsequently remits to the applicable
General Subaccount of the applicable Collection Account for application to the
amount of such Excess Remittance until the balance of such Excess Remittance has
been reduced to zero, the amount of such reduction becoming the property of the
Servicer or (ii) so long as such withdrawal would not cause the amounts on
deposit in the applicable General Subaccount or the applicable Excess Funds
Subaccount for any Series to be insufficient for the payment of the next
installment of interest on the Environmental Control Bonds or principal due at
maturity on the next Payment Date or upon acceleration on or before the next
Payment Date, to be paid immediately from such General Subaccount or Excess
Funds Subaccount such Series’ allocable share of the amount of

 

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such Excess Remittance, such payment becoming the property of the Servicer. If
there is a Remittance Shortfall, the amount which the Servicer remits to the
applicable General Subaccounts of the applicable Collection Accounts on the
relevant date set forth above shall be increased by the amount of such
Remittance Shortfall, provided that remittance of such increase will be the sole
financial responsibility of the Servicer and shall neither be considered an
Operating Expense nor be paid out of the Collection Account or included in the
calculation of True-Up Adjustments.

SECTION 5.12 Payment Date Statements.

At least three Business Days before each Payment Date with respect to each
Series of Environmental Control Bonds, the Servicer shall prepare and furnish to
the Issuer and the Indenture Trustee a statement setting forth the amounts to be
paid to Environmental Control Bondholders of such Series pursuant to
Section 8.02(e) of the Indenture, as well as all other amounts to be paid
pursuant to Section 8.02(e) of the Indenture, including the Capital Equity
Return to be paid to the Seller.

SECTION 5.13 Schedule Revision Date Schedules.

Prior to each Schedule Revision Date, the Servicer shall deliver to the Issuer
replacement Schedules A and replacement Schedules B to each Series Supplement to
which such Schedule Revision Date applies, adjusted to reflect the event giving
rise to such Schedule Revision Date and setting forth the Expected Sinking Fund
Schedule for each Payment Date applicable thereto.

SECTION 5.14 Protection of Title.

The Servicer shall execute and file such filings, including filings with the
PSCWV pursuant to the Statute, and cause to be executed and filed such filings,
all in such manner and in such places as may be required by law fully to
preserve, maintain, and protect the interests of the Issuer in the Environmental
Control Property, including all filings required under the Statute relating to
the transfer of the ownership or security interest in the Environmental Control
Property by the Seller to the Issuer or any security interest granted by the
Issuer in the Environmental Control Property. The Servicer shall deliver (or
cause to be delivered) to the Issuer file-stamped copies of, or filing receipts
for, any document filed as provided above, as soon as available following such
filing.

ARTICLE VI

SERVICER DEFAULT

SECTION 6.01 Servicer Default.

If any one of the following events (a “Servicer Default”) shall occur and be
continuing:

(a) any failure by the Servicer to remit to the Indenture Trustee on behalf of
the Issuer any required remittance that shall continue unremedied for a period
of five Business Days after written notice of such failure is received by the
Servicer from the Issuer or Indenture Trustee; or

 

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(b) any failure by the Servicer or, so long as the Seller and the Servicer are
the same Person, the Seller, as applicable, duly to observe or perform in any
material respect any other covenant or agreement of the Servicer or the Seller,
as the case may be, set forth in this Agreement or any other Basic Document to
which it is a party, which failure shall (i) materially and adversely affect the
Environmental Control Property or the rights of Environmental Control
Bondholders and (ii) continue unremedied for a period of 60 days after written
notice of such failure shall have been given to the Servicer, the PSCWV or the
Seller, as the case may be, by the Issuer or the Indenture Trustee or after
discovery of such failure by an officer of the Servicer, the PSCWV or the
Seller, as the case may be; or

(c) any representation or warranty made by the Servicer in this Agreement shall
prove to have been incorrect in a material respect when made, which has a
material adverse effect on the Issuer or the Environmental Control Bondholders
and which material adverse effect continues unremedied for a period of 60 days
after the date on which written notice thereof shall have been given to the
Servicer by the Issuer, the PSCWV or the Indenture Trustee; or

(d) an Insolvency Event occurs with respect to the Servicer;

then, and in each and every case, so long as the Servicer Default shall not have
been remedied, the Indenture Trustee, as assignee of the Issuer, may, or at the
direction of the Environmental Control Bondholders of a majority of the
Outstanding principal amount of the Environmental Control Bonds of all Series or
by the PSCWV, by notice then given in writing to the Servicer (a “Termination
Notice”) shall terminate all the Servicer’s rights and obligations (other than
the indemnification obligations set forth in Section 5.02 hereof and the
Servicer’s obligation under Section 6.04 to continue performing its functions as
Servicer until a Successor Servicer is appointed) of the Servicer under this
Agreement. In addition, upon a Servicer Default described in Section 6.01(a),
the Issuer or the Indenture Trustee may apply to the PSCWV or any court of
competent jurisdiction to order the sequestration and payment of Environmental
Control Charge Collections arising with respect to the Environmental Control
Property for the benefit of the Environmental Control Bondholders, the Issuer,
the Indenture Trustee, and any other assignee and financing parties (each as
defined in the Statute). The Trustee shall not give a Termination Notice upon
instruction of the PSCWV unless the Rating Agency Condition is satisfied.

On or after the receipt by the Servicer of a Termination Notice, all authority
and power of the Servicer under this Agreement, whether with respect to the
Environmental Control Property, including the Environmental Control Charges, or
otherwise, shall, upon appointment of a Successor Servicer pursuant to
Section 6.04, without further action, pass to and be vested in such Successor
Servicer and, without limitation, the Indenture Trustee is hereby authorized and
empowered to execute and deliver, on behalf of the predecessor Servicer, as
attorney-in-fact or otherwise, any and all documents and other instruments, and
to do or accomplish all other acts or things necessary or appropriate to effect
the purposes of such Termination Notice, including, but not limited to,
completing the transfer of the Environmental Control Property Documentation and
related documents. The predecessor Servicer shall cooperate with the Successor
Servicer, the Indenture Trustee and the Issuer in effecting the termination of
the responsibilities and rights of the predecessor Servicer under this
Agreement, including the transfer to the Successor Servicer for administration
by it of all cash amounts that are then held by the predecessor Servicer for
remittance to the Collection Account or the Seller, or that are thereafter be
received by it. As soon as practicable after receipt by the Servicer of such
Termination Notice, the Servicer shall deliver the Environmental Control
Property Documentation to the Successor Servicer.

 

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All reasonable costs and expenses (including attorneys fees and expenses)
incurred in connection with transferring the Environmental Control Property
Documentation to the Successor Servicer and amending this Agreement to reflect
such succession as Servicer pursuant to this Section shall be paid by the
predecessor Servicer upon presentation of reasonable documentation of such costs
and expenses. Termination of Potomac Edison as Servicer shall not terminate
Potomac Edison’s rights or obligations as Seller under the Sale Agreement.

SECTION 6.02 Notice of Servicer Default.

The Servicer shall deliver to the Issuer, the PSCWV, a Responsible Officer of
the Indenture Trustee and each Rating Agency promptly after having obtained
knowledge thereof, but in no event later than five Business Days thereafter,
written notice in an Officers’ Certificate of any event or circumstance (such as
a breach of any representation or warranty made by the Servicer in this
Agreement) which, if not remedied, would become a Servicer Default under
Section 6.01.

SECTION 6.03 Waiver of Past Defaults.

The Indenture Trustee, with the written consent of the PSCWV and the
Environmental Control Bondholders of a majority of the Outstanding principal
amount of the Environmental Control Bonds of all Series, may waive, in writing,
any default by the Servicer in the performance of its obligations hereunder and
its consequences, except a default in making any required remittances to the
Indenture Trustee of Environmental Control Charge Collections from Environmental
Control Property in accordance with Section 5.11 of this Agreement. Upon any
such waiver of a past default, such default shall cease to exist, and any
Servicer Default arising therefrom shall be deemed to have been remedied for
every purpose of this Agreement. No such waiver shall extend to any subsequent
or other default or impair any right consequent thereto.

SECTION 6.04 Appointment of Successor.

(a) In the event of the Servicer’s termination hereunder, the Indenture Trustee,
as assignee of the Issuer, at the direction of the Environmental Control
Bondholders of a majority of the outstanding principal amount of the
Environmental Control Bonds or the PSCWV, shall appoint a Successor Servicer,
and the Successor Servicer shall accept its appointment by a written assumption
in form acceptable to the Issuer and the Indenture Trustee. If, within 30 days
after the delivery of the Termination Notice, a Successor Servicer shall not
have been appointed and accepted such appointment, the Indenture Trustee may
petition a court of competent jurisdiction to appoint a Successor Servicer under
this Agreement. A Person shall qualify as a Successor Servicer only if (i) such
Person is permitted under PSCWV Regulations to perform the duties of the
Servicer pursuant to the Statute, the Financing Order and this Agreement,
(ii) the Rating Agency Condition has been satisfied with respect to all Rating
Agencies, (iii) such Person enters into a servicing agreement with the Issuer
having substantially the same provisions as this Agreement, and (iv) if
applicable, its compensation is approved or acquiesced to by the PSCWV pursuant
to Section 5.08(a) hereof.

 

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(b) Notwithstanding the Servicer’s receipt of a Termination Notice, pursuant to
Section 6.01 or the Servicer’s resignation in accordance with the terms of this
Agreement, the predecessor Servicer shall continue to perform its functions as
Servicer under this Agreement and shall be entitled to receive the requisite
portion of the Servicing Fees, until a Successor Servicer shall have assumed, in
writing, the obligations of the Servicer hereunder as described below.

(c) Upon appointment, the Successor Servicer shall be the successor in all
respects to the predecessor Servicer and shall be subject to all the
responsibilities, duties and liabilities arising thereafter relating thereto
placed on the predecessor Servicer and shall be entitled to the Servicing Fees
and all the rights granted to the predecessor Servicer by the terms and
provisions of this Agreement.

(d) The Successor Servicer may not resign unless it is prohibited from serving
as such by applicable Requirements of Law.

SECTION 6.05 Cooperation with Successor.

The Servicer covenants and agrees with the Issuer that it will, on an ongoing
basis, cooperate with the Successor Servicer and provide whatever information
is, and take whatever actions are, reasonably necessary to assist the Successor
Servicer in performing its obligations hereunder.

SECTION 6.06 Servicer Default Under Related Transaction.

If a “servicer default” shall occur under the Environmental Control Property
Servicing Agreement dated as of December 23, 2009, between Monongahela Power
Company, as servicer, and MP Environmental Funding LLC, as issuer, and it
becomes necessary to find a successor servicer under such agreement, the
Servicer agrees to assume such role as successor servicer under such servicing
agreement in accordance with the terms thereof, including, for avoidance doubt,
for the same servicing fee provided for thereunder.

ARTICLE VII

MISCELLANEOUS PROVISIONS

SECTION 7.01 Amendment.

(a) Subject to Section 7.01(b) below, this Agreement may be amended by the
Servicer and the Issuer, with the consent of the Indenture Trustee and the
satisfaction of the Rating Agency Condition. Promptly after the execution of any
such amendment and consent, the Issuer shall furnish written notification of the
substance of such amendment or consent to each of the Rating Agencies. Prior to
the execution of any amendment to this Agreement, the Issuer and the Indenture
Trustee shall be entitled to receive and rely upon an Opinion of Counsel stating
that the execution of such amendment is authorized or permitted by this
Agreement and the

 

21

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Opinion of Counsel referred to in Section 3.10. Subject to paragraph (b) below,
the Issuer and the Indenture Trustee may, but shall not be obligated to, enter
into any such amendment which affects their own rights, duties or immunities
under this Agreement or otherwise.

(b) Notwithstanding anything to the contrary in Section 7.01(a), nor any waiver
required by Section 6.03 hereof, no amendment or modification of this Agreement
shall be effective except upon satisfaction of the conditions precedent in this
Section 7.01(b).

(i) PSCWV Condition. At least 16 days prior to the effectiveness of any such
amendment or modification, and after obtaining the other necessary approvals set
forth in Section 7.01(a), except for the consent of the Indenture Trustee and
the Environmental Control Bondholders if the consent of the Environmental
Control Bondholders is required or sought by the Indenture Trustee in connection
with such amendment or modification, the Issuer shall have delivered to the
PSCWV’s executive director and general counsel written notification of any
proposed amendment or modification, which notification shall contain:

(A) a reference to Case Nos. 05-0402-E-CN and 05-0750-E-PC and any other case
number under which a Financing Order has been issued;

(B) an Officer’s Certificate stating that the proposed amendment or modification
has been approved by all parties to this Agreement; and

(C) a statement identifying the person to whom the PSCWV is to address any
response to the proposed amendment or to request additional time.

(ii) The PSCWV or its authorized representative shall, within 15 days of
receiving the notification complying with Section 7.01(b)(i) above, either:

(A) provide notice of its determination that the proposed amendment or
modification will not under any circumstances have the effect of increasing the
ongoing qualified costs related to the Environmental Control Bonds,

(B) provide notice of its consent or lack of consent to the person specified in
Section 7.01(b)(i)(C) above, or

(C) be conclusively deemed to have consented to the proposed amendment or
modification,

unless, within 15 days of receiving the notification complying with
Section 7.01(b)(i) above, the PSCWV or its authorized representative delivers to
the office of the person specified in Section 7.01(b)(i)(C) above with a written
statement requesting an additional amount of time not to exceed 15 days in which
to consider whether to consent to the proposed amendment or

 

22

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modification. If the PSCWV or its authorized representative requests an
extension of time in the manner set forth in the preceding sentence, then the
PSCWV shall either provide notice of its consent or lack of consent or notice of
its determination that the proposed amendment or modification will not under any
circumstances increase ongoing qualified costs to the person specified in
Section 7.01(b)(i)(C) above not later than the last day of such extension of
time or be conclusively deemed to have consented to the proposed amendment or
modification on the last day of such extension of time. Any amendment or
modification requiring the consent of the PSCWV shall become effective on the
later of (i) the date proposed by the parties to such amendment or modification
or (ii) the first day after the expiration of the 15-day period provided for in
this Section 7.01(b)(ii), or, if such period has been extended pursuant hereto,
the first day after the expiration of such period as so extended.

(c) For the purpose of this Section 7.01, an “authorized representative” of the
PSCWV means any person authorized to act on behalf of the PSCWV, as evidenced by
an Opinion of Counsel (which may be the general counsel) to the PSCWV.

SECTION 7.02 Notices.

(a) All demands, notices and communications upon or to the Servicer, the Issuer,
the Indenture Trustee or the Rating Agencies under this Agreement shall be in
writing, delivered personally, via facsimile, reputable overnight courier or by
first class mail, postage prepaid, and shall be deemed to have been duly given
upon receipt,

(i) in the case of the Servicer, to The Potomac Edison Company, 800 Cabin Hill
Drive, Greensburg, Pennsylvania 15601, Attention of Amanda J. Skov, Esq.;

(ii) in the case of the Issuer or the Indenture Trustee, at the address provided
for notices or communications to such Person in the Indenture;

(iii) in the case of Moody’s, to Moody’s Investors Service, Inc., ABS Monitoring
Department, 99 Church Street, New York, New York 10007;

(iv) in the case of Standard & Poor’s, to Standard & Poor’s Ratings Services, a
division of The McGraw-Hill Companies, Inc., 55 Water Street, 42nd Floor, New
York, New York 10041, Attention of Asset Backed Surveillance Department;

(v) in the case of Fitch, to Fitch Ratings, One State Street Plaza, New York,
New York 10004, Attention of ABS Surveillance; or, as to each of the foregoing,
at such other address as shall be designated by written notice to the other
parties; and

(vi) in the case of the PSCWV, Public Service Commission of West Virginia, 201
Brooks Street, Charleston, West Virginia 25323, Attention: Executive Secretary.

 

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SECTION 7.03 Limitations on Rights of Others.

The provisions of this Agreement are solely for the benefit of the Servicer, the
Seller, the Issuer (including its managers and members), the Indenture Trustee,
on behalf of itself and the Environmental Control Bondholders, and the PSCWV, on
behalf of itself and the Customers, and nothing in this Agreement, whether
express or implied, shall be construed to give to any other Person any legal or
equitable right, remedy or claim in any Collateral or under or in respect of
this Agreement or any covenants, conditions or provisions contained herein.
Notwithstanding anything to the contrary contained herein, for the avoidance of
doubt, any right, remedy or claim to which any Customer may be entitled pursuant
to the Financing Order and this Agreement may be asserted or exercised only by
the PSCWV for the benefit of such Customer.

SECTION 7.04 Severability.

Any provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

SECTION 7.05 Separate Counterparts.

This Agreement may be executed by the parties hereto in separate counterparts,
each of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute but one and the same instrument.

SECTION 7.06 Headings.

The headings of the various Articles and Sections herein are for convenience of
reference only and shall not define or limit any of the terms or provisions
hereof.

SECTION 7.07 GOVERNING LAW.

THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
WEST VIRGINIA, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.

SECTION 7.08 Assignment to Indenture Trustee.

The Servicer hereby acknowledges and consents to the mortgage, pledge,
assignment and grant of a security interest by the Issuer to the Indenture
Trustee pursuant to the Indenture for the benefit of the Environmental Control
Bondholders of all right, title and interest of the Issuer in, to and under the
Environmental Control Property owned by the Issuer and the proceeds thereof and
of any and all of the Issuer’s rights hereunder to the Indenture Trustee. In no
event shall the Indenture Trustee have any liability for the representations,
warranties, covenants, agreements or other obligations of the Issuer, hereunder
or in any of the certificates, notices or agreements delivered pursuant hereto,
as to all of which recourse shall be had solely to the assets of the Issuer.

 

24

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SECTION 7.09 Nonpetition Covenants.

Notwithstanding any prior termination of this Agreement or the Indenture, but
subject to a court of competent jurisdiction’s rights, upon application by the
Issuer or the Indenture Trustee, to order the sequestration and payment of
Environmental Control Revenues arising with respect to the Environmental Control
Property, notwithstanding any bankruptcy, reorganization or other insolvency
proceedings with respect to the debtor, pledgor or transferor of the
Environmental Control Property pursuant to Section 24-2-4e(k)(4) of the Statute,
the Servicer shall not, prior to the date which is one year and one day after
the termination of the Indenture, petition or otherwise invoke or cause the
Issuer to invoke the process of any court or government authority for the
purpose of commencing or sustaining an involuntary case against the Issuer under
the federal or state bankruptcy, insolvency or similar law or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Issuer or any substantial part of the property of the
Issuer, or ordering the winding up or liquidation of the affairs of the Issuer.

SECTION 7.10 Termination.

This Agreement shall terminate when all Environmental Control Bonds issued by
the Issuer have been retired, redeemed or defeased in full, and all Operating
Expenses and other amounts owed by the Issuer under the Indenture have been paid
in full.

SECTION 7.11 Limitation of Liability.

It is expressly understood and agreed by the parties hereto that this Agreement
is executed and delivered by U.S. Bank National Association, not individually or
personally but solely as Indenture Trustee for the benefit of the Environmental
Control Bondholders, in the exercise of the powers and authority conferred and
vested in it, and nothing herein contained shall be construed as creating any
liability on U.S. Bank National Association, individually or personally, to
perform any covenant either expressed or implied contained herein, all such
liability, if any, being expressly waived by the parties who are signatories to
this Agreement and by any Person claiming by, through or under such parties;
provided, however, that this provision shall not protect U.S. Bank National
Association against any liability that would otherwise be imposed by reason of
willful misconduct, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations or duties under this Agreement.

 

25

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective officers as of the day and year first above
written.

 

PE ENVIRONMENTAL FUNDING LLC,

Issuer

by  

/s/ Barry E. Pakenham

  Name:   Barry E. Pakenham   Title:   Treasurer

THE POTOMAC EDISON COMPANY,

Servicer

by  

/s/ Barry E. Pakenham

  Name:   Barry E. Pakenham   Title:   Treasurer

Acknowledged and Accepted:

 

U.S. BANK NATIONAL ASSOCIATION, not in its individual capacity but solely as
Indenture Trustee on behalf of the Environmental Control Bondholders. by  

/s/ Meliss A. Rosal

  Name:   Melissa A. Rosal   Title:   Vice President

 

26

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EXHIBIT A

SERVICING OBLIGATIONS

The Servicer agrees to comply with the following with respect to PE
Environmental Funding LLC, as Issuer:

SECTION 1. Definitions.

Capitalized terms used herein and not otherwise defined shall have the meanings
set forth in Appendix A to the Indenture dated as of April 11, 2007 between the
Issuer and U.S. Bank National Association, as Indenture Trustee.

SECTION 2. Indenture Trustee and Servicer Payment Date Statements.

At least three Business Days before each date on which distributions to the
Indenture Trustee and Servicer are to be made pursuant to Sections 8.02(e) and
(h) of the Indenture, the Servicer shall provide the Indenture Trustee with a
statement setting forth the amounts to be distributed to each of the Indenture
Trustee and Servicer pursuant to such Sections.

SECTION 3. Payment Date Statements.

At least three Business Days before each Payment Date, the Servicer shall
provide to the Issuer, the Indenture Trustee and each Rating Agency, a statement
indicating:

 

  1. the amount to be paid to Environmental Control Bondholders of each Series
and Class in respect of principal on such Payment Date in accordance with
Section 8.02 of the Indenture and each Series Supplement thereto;

 

  2. the amount to be paid to Environmental Control Bondholders of each Series
and Class in respect of interest on such Payment Date in accordance with
Section 8.02 of the Indenture and each Series Supplement thereto;

 

  3. the Environmental Control Bond Balance and the Projected Environmental
Control Bond Balance for each Series and Class as of that Payment Date (in each
case, after giving effect to the payments on such Payment Date);

 

  4. the amount on deposit in the General Subaccount for each Series and the
Scheduled Funding for each Series, as of that Payment Date (after giving effect
to the transfers to be made from or into the General Subaccount on such Payment
Date);

 

  5. the amount on deposit in the Capital Subaccount for each Series as of that
Payment Date (after giving effect to the transfers to be made from or into the
Capital Subaccount on such Payment Date);

 

Exhibit A-1

--------------------------------------------------------------------------------

  6. the amount on deposit in the Reserve Subaccount for each Series as of that
Payment Date (after giving effect to the transfers to be made from or into the
Reserve Subaccount on such Payment Date);

 

  7. the amount, if any, on deposit in the Excess Funds Subaccount as of that
Payment Date (after giving effect to the transfers to be made from or into the
Reserve Subaccount on such Payment Date);

 

  8. the amounts paid to the Indenture Trustee since the preceding Payment Date
pursuant to Section 8.02(e) of the Indenture;

 

  9. the amounts paid to the Servicer since the preceding Payment Date pursuant
to Section 8.02(e) of the Indenture; and

 

  10. the amount of any other transfers and payments to be made on such Payment
Date pursuant to Sections 8.02(d), (e), (f), (g) and (i) of the Indenture; and

 

  11. the then-current Environmental Control Charge for each rate class.

SECTION 4. Remittance Date Statements.

At least one Business Day before each Remittance Date, and in the case of Daily
Remittances, on the last Remittance Date of such month, the Servicer shall
prepare and furnish to the Issuer and the Indenture Trustee a statement setting
forth the aggregate amount remitted or to be remitted by the Servicer to the
Indenture Trustee (net of any payments owed to the Servicer in accordance with
Section 5.11(d) of the Servicing Agreement) for deposit on such Remittance Date
pursuant to the Indenture.

SECTION 5. True-Up Adjustments.

 

  (a) Prior to each Calculation Date, the Servicer shall calculate

 

  (i) the Environmental Control Bond Balance as of such Calculation Date (a
written copy of which shall be delivered by the Servicer to the Indenture
Trustee within five Business Days following such Calculation Date) and

 

  (ii) the revised Environmental Control Charge with respect to the
Environmental Control Property in respect of each True-Up Adjustment Date such
that the Servicer projects that Environmental Control Charge Collections
therefrom allocable to the Issuer will be sufficient so that:

 

  (A) the Environmental Control Bond Balance on the Payment Date immediately
preceding the next True-Up Adjustment Date will equal the Projected
Environmental Control Bond Balance as of such date or, if earlier with respect
to any Series or Class of Environmental Control Bonds, as of the Payment Date
immediately preceding the Expected Final Payment Date therefor;

 

Exhibit A-2

--------------------------------------------------------------------------------

  (B) the amount on deposit in the General Subaccount on the Payment Date
immediately preceding the next True-Up Adjustment Date will equal the Periodic
Bond Payment Requirement for such date or, if earlier with respect to any Series
or Tranche of Environmental Control Bonds, as of the Payment Date immediately
preceding the Expected Final Payment Date therefor;

 

  (C) the amount on deposit in the Reserve Subaccount on the Payment Date
immediately preceding the next True-Up Adjustment Date will equal its required
level for such date or, if earlier with respect to any Series or Tranche of
Environmental Control Bonds, as of the Payment Date immediately preceding the
Expected Final Payment Date therefor;

 

  (E) the amount on deposit in the Capital Subaccount on the Payment Date
immediately preceding the next True-Up Adjustment Date will equal its required
level for such date or, if earlier with respect to any Series or Tranche of
Environmental Control Bonds, as of the Payment Date immediately preceding the
Expected Final Payment Date therefor;

 

  (F) the amount on deposit in the Excess Funds Subaccount on the Payment Date
immediately preceding the next True-Up Adjustment Date, will equal zero; and

 

  (G) the Environmental Control Charge Collections will provide for
(i) amortization of the remaining outstanding principal balance of each Series
in accordance with the Expected Sinking Fund Schedule therefor, (ii) payment of
all Operating Expenses of the Issuer when due in accordance with the Indenture
and (iii) deposits to the General Subaccount such that the balance therein will
equal the Periodic Bond Payment Requirement on each Payment Date.

 

  (b) On each Semi-Annual Calculation Date, the Servicer shall file a
Semi-Annual True-Up Adjustment Filing with the PSCWV. On each Quarterly
Calculation Date and Monthly Calculation Date, the Servicer may file a Quarterly
True-Up Adjustment Filing or Monthly True-Up Adjustment Filing, as the case may
be, if necessary. Each True-Up Adjustment Filing shall include the data
specified in the Statute and the Financing Order.

 

Exhibit A-3

--------------------------------------------------------------------------------

  (c) On each True-Up Adjustment Date, the Servicer shall

 

  (i) take all reasonable actions and make all reasonable efforts to effectuate
all adjustments to the Environmental Control Charge either approved by the PSCWV
or effective on an interim basis pending final approval and

 

  (ii) promptly send to the Indenture Trustee copies of all material notices and
documents relating to such adjustments.

 

  (d) If deemed appropriate by the Servicer to protect Environmental Control
Bondholders and to remedy a significant and recurring variance between Actual
Environmental Control Charge Collections and Estimated Environmental Control
Charge Collections, as authorized by the Financing Order, the Servicer shall
file Non-Routine True-Up Adjustments to the Environmental Control Charge (as
defined in the Financing Order) to accommodate material changes to the True-Up
Mechanism. Such filings shall be made at least 90 days prior to the proposed
effective date of the proposed adjustments. The Servicer shall provide notice of
such non-routine adjustment and resulting change to the Environmental Control
Charge to Fitch.

 

Exhibit A-4

--------------------------------------------------------------------------------

ATTACHMENT A

SERVICING PROCEDURES

The Servicer agrees to comply with the following servicing procedures to assess
its compliance with applicable servicing criteria.

SECTION 1. Definitions.

(a) Whenever used in this Attachment A, the following words and phrases shall
have the following meanings:

Applicable MDMA means, with respect to each Customer, the meter data management
agent or Third Party, if any, providing meter reading services for that
Customer’s account.

Applicable Third Party means, with respect to each Customer, the Third Party, if
any, providing billing or metering services to that Customer.

Billed Environmental Control Charges means the amounts billed to Customers
pursuant to the Environmental Control Charge, whether billed directly to such
Customers by the Servicer or indirectly through a Third Party.

Bills means each of the periodic bills and the Closing Bills issued to Customers
or Third Parties by Potomac Edison.

Budget Billing Plan means a levelized payment plan offered by Potomac Edison,
which, if elected by a Customer, provides for level monthly Bill charges to such
Customer. For residential Customers, this charge is calculated by calculating
actual electricity charges for the previous year and dividing this amount by
twelve. The number which results from this calculation is charged to the
residential Customer each month. In the twelfth month, Potomac Edison bills the
residential Customer for actual use in that month, adjusted for any excess or
deficit the Customer has paid Potomac Edison over the prior eleven months. If
the Customer owes Potomac Edison $4 or more over the normal budget amount, that
Customer has the option of repaying the full amount in the twelfth month, or
spreading the amount of this deficit in equal installments over the first four
months of the Customer’s next budget year. The procedure is similar for small
industrial and commercial Customers.

Closing Bill means the final bill issued to a Customer at the time service is
terminated.

Environmental Control Charge Effective Date means the date on which the initial
Environmental Control Charge goes into effect pursuant to the Financing Order.

Net Write-Off Percent means the number (expressed as a percent) equal to

 

  •  

the amount by which Write-Offs attributable to a particular billing period
exceed Write-Off recoveries attributable to such billing period, divided by

 

  •  

the total billed revenue attributable to such billing period.

 

Attachment A-1

--------------------------------------------------------------------------------

Servicer Policies and Practices means, with respect to the Servicer’s duties
under this Exhibit A, the policies and practices of the Servicer applicable to
such duties that the Servicer follows with respect to comparable assets that it
services for itself.

True-Up Adjustment Filing has, with respect to the Issuer, the meaning given to
such term in Appendix A.

Variables includes the following variables used in calculating True-Up
Adjustments:

 

  •  

the estimated Net Write-Off Percent; and

 

  •  

the projected billed consumption to which the Environmental Control Charge
applies.

Write-Offs means arrears that remain unpaid by Customers generally as of 45 days
after the issuance of the Closing Bills containing such charges, unless payment
arrangements are made and are being kept.

SECTION 2. Data Acquisition.

 

  (a) Installation and Maintenance of Meters. Except to the extent that a Third
Party is responsible for such services, the Servicer shall use its best efforts
to cause to be installed, replaced and maintained meters in such places and in
such condition as will enable the Servicer to obtain usage measurements for each
Customer approximately every thirty days or as provided in the applicable
tariff.

 

  (b) Meter Reading. At least once each calendar month, the Servicer shall
obtain usage measurements from the Applicable MDMA for each Customer; provided,
however, that the Servicer may determine any Customer’s usage on the basis of
estimates in accordance with applicable PSCWV Regulations.

 

  (c) Cost of Metering. The Issuer shall not be obligated to pay any costs
associated with the metering duties set forth in this Section 2, including, but
not limited to, the costs of installing, replacing and maintaining meters, nor
shall the Issuer be entitled to any credit against the Servicing Fee for any
cost savings realized by the Servicer or any Third Party as a result of new
metering and/or billing technologies.

SECTION 3. Usage and Bill Calculation.

The Servicer shall obtain a calculation of each Customer’s usage (which may be
based on data obtained from such Customer’s meter read or on usage estimates
determined in accordance with applicable PSCWV Regulations) at least once each
calendar month and shall determine therefrom each Customer’s individual charge
relating to the Environmental Control Charge to be included on such Customer’s
Bill pursuant to the Financing Order and PSCWV Regulations.

 

Attachment A-2

--------------------------------------------------------------------------------

SECTION 4. Billing.

The Servicer shall implement the Environmental Control Charge as of the
Environmental Control Charge Effective Date and shall thereafter bill each
Customer or the Applicable Third Party for the respective Customer’s outstanding
current and past due charges relating to the Environmental Control Charge,
accruing until all payments of principal and interest on each Series of
Environmental Control Bonds and all other costs and expenses related to such
Series have been paid in accordance with the Indenture, all in accordance with
the following:

 

  (a) Frequency of Bills; Billing Practices. In accordance with the Servicer’s
then-existing Servicer Policies and Practices, as such Servicer Policies and
Practices may be modified from time to time, the Servicer shall generate and
issue a Bill to each Customer, or to an Applicable Third Party, for such
Customer’s respective Environmental Control Charge as a general practice once
approximately every 60 days or such other time period as allowed by the PSCWV,
at the same time, with the same frequency and on the same Bill as that
containing the Servicer’s own charges to such Customer or Third Party, as the
case may be. In the event that the Servicer makes any material modification to
these practices, it shall notify the Issuer, the Indenture Trustee and the
Rating Agencies as soon as practicable, and in no event later than 60 Business
Days after such modification goes into effect; provided, however, that

 

  (i) the Servicer may not make any modification that will materially adversely
affect the Environmental Control Bondholders and

 

  (ii) the Rating Agencies shall receive prior notice of any modification that
would change the frequency with which Bills are issued or would change any
tariff charged.

 

  (b) Format.

 

  (i) Each Bill to a Customer shall contain the charge corresponding to the
Environmental Control Charge owed by such Customer for the billing period. The
Customer’s Bill will contain in text or in a footnote, text substantially to the
effect that a portion of the monthly charge representing that Environmental
Control Property is being collected on behalf of the Issuer as owner of the
Environmental Control Property.

 

  (ii) The Servicer shall deliver to the Applicable Third Party itemized charges
for such Customer including the amount of such Customer’s Environmental Control
Charge to be remitted by the Servicer to the Issuer.

 

Attachment A-3

--------------------------------------------------------------------------------

  (iii) The Servicer shall conform to such requirements in respect of the
format, structure and text of Bills delivered to Customers and Third Parties as
applicable PSCWV Regulations shall from time to time prescribe. To the extent
that Bill format, structure and text are not prescribed by the Statute, other
applicable Requirements of Law, the Servicer shall, subject to clauses (i) and
(ii) above, determine the format, structure and text of all Bills in accordance
with its reasonable business judgment, its Servicer Policies and Practices with
respect to its own charges and prevailing industry standards.

 

  (c) Delivery. The Servicer shall deliver all Bills to Customers

 

  (i) by United States mail in such class or classes as are consistent with the
Servicer Policies and Practices followed by the Servicer with respect to its own
charges or

 

  (ii) by any other means, whether electronic or otherwise, that the Servicer
may from time to time use to present its own charges to its Customers.

In the case of Customers that have elected Consolidated Third Party Billing, the
Servicer shall deliver all Bills to the Applicable Third Parties by such means
as are prescribed by applicable PSCWV Regulations, or, if not prescribed by
applicable PSCWV Regulations, by such means as are mutually agreed upon by the
Servicer and the Applicable Third Party and are consistent with PSCWV
Regulations. The Servicer or a Third Party, as applicable, shall pay from its
own funds all costs of issuance and delivery of all Bills, including but not
limited to printing and postage costs as the same may increase or decrease from
time to time.

SECTION 5. Customer Service Functions.

The Servicer shall handle all Customer inquiries and other Customer service
matters according to the same procedures it uses to service Customers with
respect to its own charges.

SECTION 6. Collections; Payment Processing; Remittance.

 

  (a) Collection Efforts; Policies; Procedures.

 

  (i) The Servicer shall use reasonable efforts to collect all Billed
Environmental Control Charges from Customers and Third Parties as and when the
same become due and shall follow such collection procedures as it follows with
respect to comparable assets that it services for itself or others, including,
as follows:

 

  (A) The Servicer shall prepare and deliver overdue notices to Customers and
Third Parties in accordance with applicable PSCWV Regulations and the Servicer
Policies and Practices.

 

Attachment A-4

--------------------------------------------------------------------------------

  (B) The Servicer shall apply late payment charges to outstanding Customer and
Third Party balances in accordance with applicable PSCWV Regulations. All late
payment charges collected shall be payable to and retained by the Servicer as a
component of its compensation under the Servicing Agreement, and the Issuer
shall not have any right to share in the same.

 

  (C) The Servicer shall deliver verbal and written final call notices in
accordance with applicable PSCWV Regulations and Servicer Policies and
Practices.

 

  (D) The Servicer shall adhere to and carry out disconnection policies in
accordance with the Competition Act, other applicable law and PSCWV Regulations
and Servicer Policies and Practices.

 

  (E) The Servicer may employ the assistance of collections agents in accordance
with applicable PSCWV Regulations and Servicer Policies and Practices.

 

  (F) The Servicer shall apply Customer and Third Party deposits, Customers’
letters of credit and Customer posted surety bonds to the payment of delinquent
accounts in accordance with applicable PSCWV Regulations and Servicer Policies
and Practices and according to the priorities set forth in Sections 6(b)(ii),
(iii) and (iv) of this Exhibit A.

 

  (G) The Servicer shall promptly take all necessary action in accordance with
applicable PSCWV Regulations to terminate billing of Environmental Control
Charges by Third Parties whose payments are 30 or more days delinquent, or as
the then current PSCWV Regulations and any billing services agreements allow,
and to resume, prospectively, to collect the Billed Environmental Control
Charges directly from the applicable Customers. At such time, the Servicer will
apply the Third Party’s security deposit to satisfy charges billed previously by
the Third Party which remain outstanding, including outstanding Environmental
Control Charges.

 

  (ii) The Servicer shall not waive any late payment charge or any other fee or
charge relating to delinquent payments, if any, or waive, vary or modify any
terms of payment of any amounts payable by a Customer, in each case unless such
waiver or action:

 

  (A) would be in accordance with the Servicer’s customary practices or those of
any Successor Servicer with respect to comparable assets that it services for
itself and for others;

 

Attachment A-5

--------------------------------------------------------------------------------

  (B) would not materially adversely affect the rights of the Environmental
Control Bondholders; and

 

  (C) would comply with applicable Requirements of Law;

 

    provided, however, that notwithstanding anything in the Servicing Agreement
or this Exhibit A to the contrary, the Servicer is authorized to write off any
Billed Environmental Control Charges in accordance with its Servicer Policies
and Practices.

 

  (iii) The Servicer shall accept payment from Customers in respect of Billed
Environmental Control Charges in such forms and methods and at such times and
places as it accepts for payment of its own charges. The Servicer shall accept
payment from Third Parties in respect of Billed Environmental Control Charges in
such forms and methods and at such times and places as the Servicer and each
Third Party shall mutually agree in accordance with applicable PSCWV
Regulations.

 

  (b) Payment Processing; Allocation; Priority of Payments.

 

  (i) The Servicer shall post all payments received to Customer accounts as
promptly as practicable, and, in any event, substantially all payments shall be
posted no later than two Business Days after receipt.

 

  (ii) Subject to clause (iii) below, the Servicer shall apply payments received
to each Customer’s or Third Party’s account in proportion to the charges
contained on the outstanding Bill to such Customer or Third Party.

 

  (iii) Any amounts collected by the Servicer that represent partial payments of
the total Bill to a Customer or Third Party shall be allocated in accordance
with the priorities set forth in Section 3.02(b) of the Servicing Agreement.

 

  (iv) The Servicer shall hold all over-payments for the benefit of the Issuer
and shall apply such funds to future Bill charges in accordance with clauses
(ii) and (iii) above as such charges become due.

 

Attachment A-6

--------------------------------------------------------------------------------

  (v) For Customers on a Budget Billing Plan, the Servicer shall treat
Environmental Control Charge Collections received from such Customers as if such
Customers had been billed for the Environmental Control Charge in the absence of
the Budget Billing Plan. Partial payment of a Budget Billing Plan payment shall
be allocated according to clause (iii) above, and overpayment of a Budget
Billing Plan payment shall be allocated according to clause (iv) above.

 

  (c) Accounts; Records.

 

  (i) The Servicer shall maintain accounts and records as to the Environmental
Control Property accurately and in accordance with its standard accounting
procedures and in sufficient detail to permit reconciliation between payments or
recoveries with respect to the Environmental Control Property and the amounts
from time to time remitted to the Collection Account in respect of the
Environmental Control Property.

 

  (ii) The Servicer shall maintain accounts and records as to Third Parties
performing billing for Customers accurately and in accordance with its standard
accounting procedures and in sufficient detail to permit reconciliation between
payments or recoveries with respect to the Environmental Control Property and
amounts owed by such Customers in respect of the Environmental Control Charge.

 

  (d) Investment of Environmental Control Charge Collections. Any and all
interest accrued on Environmental Control Charge Collections prior to the
remittance of such Environmental Control Charge Collections to the Issuer or
Indenture Trustee shall be remitted by the Servicer to the Indenture Trustee for
deposit in the Excess Funds Subaccount.

 

  (e) Calculation of Collections; Determination of Aggregate Remittance Amount.

 

  (i) On or before each Remittance Date, the Servicer shall calculate the
Estimated Environmental Control Charge Collections received by the Servicer from
or on behalf of Customers during prior Collection Periods in respect of all
previously Billed Environmental Control Charges.

 

  (ii) In accordance with Section 4.01 of the Servicing Agreement and Annex 1,
the Servicer shall update the Variables and shall prepare True-Up Adjustment
Filings to reflect the updated Variables when required to do so pursuant to
Annex 1.

 

Attachment A-7

--------------------------------------------------------------------------------

  (f) Remittances.

 

  (i) The Servicer shall make remittances to the Issuer in accordance with
Section 5.11 of the Servicing Agreement.

 

  (ii) In the event of any change of account or change of institution affecting
the remittances, the Issuer shall provide written notice thereof to the Servicer
by the earlier of

 

  •  

five Business Days from the effective date of such change, or

 

  •  

five Business Days prior to the next applicable Remittance Date.

 

Attachment A-8

--------------------------------------------------------------------------------

EXHIBIT B

PENDING LITIGATION

None.

 

Exhibit B-1

--------------------------------------------------------------------------------

ANNEX 1

FORM OF ROUTINE ADJUSTMENT REQUEST

DATE:

[Executive Secretary]

Public Service Commission of West Virginia

201 Brooks Street, P.O. Box 812

Charleston, WV 25323

Re: Case Nos. 05-0402-E-CN and 05-0750-E-PC

Dear __________________:

As required by Section 24-2-4e(e) of the West Virginia Code §§ 24-2-4e(a)
through and including 24-2-4e(v) and pursuant to the orders dated April 7,
2006, June 13, 2006, January 17, 2007 and September 30, 2009 in Case Nos.
05-0402-E-CN and 05-0750-E-PC (the “Financing Order”), The Potomac Edison
Company (the “Company”) as Servicer (or any Successor Servicer) of the
Environmental Control Property, and on behalf of the Indenture Trustee under the
Indenture, dated as of April 11, 2007 between the Issuer and the Indenture
Trustee, as amended, modified or supplemented from time to time, as assignee of
PE Environmental Funding LLC hereby proposes an adjustment to the Environmental
Control Charges (the “ECC” or “Environmental Control Charges”). Capitalized
terms used but not otherwise defined herein have the meanings given such terms
in the Servicing Agreement dated as of December 23, 2009 between the Issuer and
the Company, as amended, modified or supplemented from time to time, or in
Appendix A thereto.

This proposed adjustment is intended to satisfy Section 24-2-4e(e) and the
Financing Order by ensuring that the ECC will recover amounts sufficient to
timely provide all payments of debt service and other required amounts and
charges in connection with the Environmental Control Bonds during the upcoming
Remittance Period.

Using the formula approved by the Public Service Commission of West Virginia
(the “PSCWV”) in the Financing Order, this filing modifies the variables used in
the ECC and provides the resulting adjusted ECC. Attachments B-1 [and B-2]
hereto show the resulting values of the ECC, as calculated in accordance with
the Joint Stipulation, as modified by the Financing Order, such modified
Environmental Control Charges to be effective as of the first day of the
upcoming Remittance Period. The calculations of these values are appended to the
Attachments hereto.

In accordance with the Financing Order, the proposed adjustments to the charges
will be effective automatically on the first day of the upcoming Remittance
Period. In the event that, prior to the first day of the upcoming Remittance
Period, it is determined by the PSCWV that a mathematical error in the
application of the formula-based mechanism exists, the Company shall correct
such error and make any necessary corrections to the adjustments of the
Environmental Control Charges. These adjusted Environmental Control Charges, as
corrected, shall in any

 

Annex 1-1

--------------------------------------------------------------------------------

event take effect on the first day of the upcoming Remittance Period. [For
Quarterly True-Up Adjustments and Monthly True-Up Adjustments, on the fifteenth
day of the quarter or month next succeeding the date of the Routine Adjustment
Request.]

Respectfully submitted,

Attachment

 

Annex 1-2

--------------------------------------------------------------------------------

ATTACHMENT A TO ANNEX 1

Table I below shows the current assumptions for each of the variables used in
the Environmental Control Charge calculation.

INPUT VALUES FOR ENVIRONMENTAL CONTROL CHARGE

 

(a) Measure Date

 

(b) For each Rate Schedule:

 

  (i) Weighted average days outstanding data

 

  (ii) Estimated Net Write-Off Percent

 

  (iii) Projected billed revenue to which Environmental Control Charges apply

 

  (iv) Annual class generation level MWh energy

 

  (v) Forecasted annual class customer level MWh energy

 

  (vi) Annual class generation level 12 CP MW demand

 

  (vii) Forecasted annual class customer level demand

 

(c) Retail energy weighting ratio

 

(d) Retail demand weighting ratio

 

(e) Total generation level MWh energy (excl. wholesale)

 

(f) Total generation level 12 CP MW demand (excl. wholesale)

 

(g) Expected annual Write-Offs

 

(h) Annual ongoing transaction expenses

 

(i) Current Environmental Control Bonds outstanding balance

 

(j) Expected Environmental Control Bonds outstanding balance as of __/__/__

 

(k) Accrued but unpaid Environmental Control Bonds interest

 

(l) Deferred unpaid Environmental Control Bonds principal

 

(m) Unpaid ongoing transaction cost

 

(n) Capital Subaccount balance as of __/__/__

 

(o) Reserve Subaccount balance as of __/__/__

 

(p) Available True-Up Excess Funds Amount

 

(q) Accrued but unpaid Capital Equity Return

 

(r) federal corporate income tax rate

 

(s) Applicable state and local tax rates

 

Attachment A-1 to Annex 1

--------------------------------------------------------------------------------

ANNEX 2

FORM OF MONTHLY SERVICER’S CERTIFICATE

PE Environmental Funding LLC

$21,510,000 Senior Secured ROC Bonds, Environmental Control Series B

Pursuant to Section 3.04 of the Servicing Agreement dated as of December 23,
2009 (as the same may be amended, supplemented or otherwise modified from time
to time, the “Servicing Agreement”) between The Potomac Edison Company, as
Servicer, and PE Environmental Funding LLC, as Issuer, the Servicer does hereby
certify as follows:

Capitalized terms used in this Monthly Servicer’s Certificate have their
respective meanings as set forth in the Servicing Agreement. References herein
to certain sections and subsections are references to the respective sections of
the Servicing Agreement.

Billing Period: [            ]

 

1.   Current Billing Period      [___________ ]    CUSTOMER CLASS [ ] of [    ]:
[            ]    2.   Rate Schedule #[    ] kWh Billed      [___________ ]  3.
  Rate Schedule #[    ] Weighted Average      [___________ ]    Environmental
Control Charge      Billed Environmental Control Charge Collections    4.   Rate
Schedule #[    ] Billed Environmental Control Charge Collections    $
[__________ ]    Estimated Environmental Control Charge Collections    5.   Rate
Schedule #[    ] Environmental Control Charge Collections    $ [__________ ]  6.
 

Total Residential Net Write-offs

as % of Billed Environmental Control Charge Collections

[    ] CUSTOMER CLASS [ ] OF [ ]: [            ]

     [__________ ]%  7.   Rate Schedule #[    ] kWh Billed      [___________ ] 
8.   Rate Schedule #[    ] Weighted Average      [___________ ]    Environmental
Control Charge    9.   Rate Schedule #[    ] kWh Billed      [___________ ]  10.
  Rate Schedule #[    ] Weighted Average      [___________ ]    Environmental
Control Charge    11.   Rate Schedule #[    ] kWh Billed      [___________ ] 
12.   Rate Schedule #[    ] Weighted Average      [___________ ]   
Environmental Control Charge    13.   Rate Schedule #[    ] kWh Billed     
[___________ ]  14.   Rate Schedule #[    ] Weighted Average      [___________
]    Environmental Control Charge      Billed Environmental Control Charge
Collections   

 

Annex 2-1

--------------------------------------------------------------------------------

15.    Rate Schedule #[    ] Billed Environmental Control Charge Collections   
$ [__________ ]  16.    Rate Schedule #[    ] Billed Environmental Control
Charge Collections    $ [__________ ]  17.    Rate Schedule #[    ] Billed
Environmental Control Charge Collections    $ [__________ ]  18.    Rate
Schedule #[    ] Billed Environmental Control Charge Collections    $
[__________ ]  19.    Total Commercial Billed Environmental Control Charge
Collections    $ [__________ ]     Estimated Environmental Control Charge
Collections    20.    Rate Schedule #[    ] Environmental Control Charge
Collections    $ [__________ ]  21.    Rate Schedule #[    ] Environmental
Control Charge Collections    $ [__________ ]  22.    Rate Schedule #[    ]
Environmental Control Charge Collections    $ [__________ ]  23.    Rate
Schedule #[    ] Environmental Control Charge Collections    $ [__________ ] 
24.    Total Commercial Environmental Control Charge Collections    $
[__________ ]  25.   

Total Commercial Net Write-offs as

a % of Billed Revenues [            ]

CUSTOMER CLASS [    ] OF [    ]: [            ]

     [__________ ]%  26.    Rate Schedule #[    ] kWh Billed      [__________ ] 
27.    Rate Schedule #[    ] Weighted Average      [__________ ]    
Environmental Control Charge    28.    Rate Schedule #[    ] kWh Billed     
[__________ ]  29.    Rate Schedule #[    ] Weighted Average      [__________ ] 
   Environmental Control Charge    30.    Rate Schedule #[    ] kWh Billed     
[__________ ]  31.    Rate Schedule #[    ] Weighted Average      [__________ ] 
   Environmental Control Charge    32.    Rate Schedule #[    ] kWh Billed     
[__________ ]  33.    Rate Schedule #[    ] Weighted Average      [__________ ] 
   Environmental Control Charge    34.    Rate Schedule #[    ] kWh Billed     
[__________ ]  35.    Rate Schedule #[    ] Weighted Average      [__________ ] 
   Environmental Control Charge    36.    Rate Schedule #[    ] kWh Billed     
[__________ ]  37.    Rate Schedule #[    ] Weighted Average      [__________ ] 
   Environmental Control Charge    38.    Street Lighting Rate Schedules     
[__________ ]  39.    Street Lighting Weighted Average      [__________ ]    
Environmental Control Charge       Billed Environmental Control Charge
Collections    40.    Rate Schedule #[    ] Billed Environmental Control Charge
Collections    $ [__________ ]  41.    Rate Schedule #[    ] Billed
Environmental Control Charge Collections    $ [__________ ]  42.    Rate
Schedule #[    ] Billed Environmental Control Charge Collections    $
[__________ ]  43.    Rate Schedule #[    ] Billed Environmental Control Charge
Collections    $ [__________ ]  44.    Rate Schedule #[    ] Billed
Environmental Control Charge Collections    $ [__________ ]  45.    Rate
Schedule #[    ] Billed Environmental Control Charge Collections    $
[__________ ]  46.    Street Lighting Rate Schedules Billed Environmental
Control Charge Collections    $ [__________ ]              47.    Total
Industrial Billed Environmental Control Charge Collections    $ [__________ ] 
   Estimated Environmental Control Charge Collections   

 

Annex 2-2

--------------------------------------------------------------------------------

48.    Rate Schedule #[    ] Environmental Control Charge Collections    $
[__________ ]  49.    Rate Schedule #[    ] Environmental Control Charge
Collections    $ [__________ ]  50.    Rate Schedule #[    ] Environmental
Control Charge Collections    $ [__________ ]  51.    Rate Schedule #[    ]
Environmental Control Charge Collections    $ [__________ ]  52.    Rate
Schedule #[    ] Environmental Control Charge Collections    $ [__________ ] 
53.    Rate Schedule #[    ] Environmental Control Charge Collections    $
[__________ ]  54.    Street Lighting Rate Schedules Environmental Control
Charge Collections    $ [__________ ]              55.    Total Industrial
Environmental Control Charge Collections    $ [__________ ]  56.    Total
Industrial Net Write-offs as a % of Billed Environmental Control Charge
Collections [    ]      [__________ ]%     AGGREGATE ESTIMATED ENVIRONMENTAL
CONTROL CHARGE COLLECTIONS       Aggregate Environmental Control Charge
Remittances for [Month, Year] Billing Period    $ [__________ ]     Aggregate
Environmental Control Charge Remittances for [Month, Year] Billing Period    $
[__________ ]     Aggregate Environmental Control Charge Remittances for [Month,
Year] Billing Period       Aggregate Environmental Control Charge Remittances
for [Month, Year] Billing Period                   Aggregate Environmental
Control Charge Remittances to Date    $ [__________ ] 

IN WITNESS HEREOF, the undersigned has duly executed and delivered this Monthly
Servicer’s Certificate this [__] day of [                        ].

 

   Name: Title:

 

Annex 2-3

--------------------------------------------------------------------------------

ANNEX 3

FORM OF QUARTERLY SERVICER’S CERTIFICATE

Quarterly Servicer’s Certificate

PE Environmental Funding LLC

$21,510,000 Senior Secured ROC Bonds, Environmental Control Series B (“Series B

Environmental Control Bonds”)

Pursuant to Section 3.04 of the Servicing Agreement dated as of December 23,
2009 (as the same may be amended, supplemented or otherwise modified from time
to time, the “Servicing Agreement”) between The Potomac Edison Company, as
Servicer, and PE Environmental Funding LLC, as Issuer, the Servicer does hereby
certify as follows:

Capitalized terms used in this Quarterly Servicer’s Certificate have their
respective meanings as set forth in the Servicing Agreement. References herein
to certain sections and subsections are references to the respective sections of
the Servicing Agreement.

Billing Periods: [                        ]

Payment Date: [                        ]

 

1.    Collections Allocable and Aggregate Amounts Available for the Current
Payment Date:       i.    Balance of Remittances for the [    ] Collection
Period    $ [________ ]     ii.    Remittances for the [    ] Collection Period
   $ [________ ]     iii a.    Remittances for the [    ] Collection Period    $
[________ ]     iii b.    Part [    ] Remittance for ‘Daily Remittance
Provision’    $ [________ ]     iv.    Net Earnings on General Subaccount    $
[________ ]     v.    Net Earnings on Capital Subaccount    $ [________ ]    
vi.    Net Earnings on Reserve Subaccount    $ [________ ]     vii.    Net
Earnings on True-Up Excess Funds Subaccount    $ [________ ]     viii.   
General Subaccount Balance    $ [________ ]     ix.    True-Up Excess Funds
Subaccount Balance    $ [________ ]     x.    Reserve Subaccount Balance    $
[________ ]     xi.    Capital Subaccount Balance    $ [________ ]     xii.   
Collection Account Balance    $ [________ ]  2.    Outstanding Principal Balance
and Collection Account Balance as of Prior Payment Date:       v.    Series B
Environmental Control Bond Principal Balance    $ [________ ]     vi.    General
Subaccount Balance    $ [________ ] 

 

Annex 3-1

--------------------------------------------------------------------------------

   vii.    True-Up Excess Funds Subaccount Balance    $[________]    viii.   
Capital Subaccount Balance    $[________]    ix.    Reserve Subaccount Balance
   $[________]    x.    Collection Account Balance    $[________] 3.    Required
Funding/Payments as of Current Payment Date:       v.    Projected Environmental
Control Bond Balance    $[________]    vi.    Required Series B Coupon (5.127%
per annum rate)    $[________]    x.    Required Capital Subaccount Funding   
$[________]    xi.    Required Reseve Subaccount Funding    $[________] 4.   
Allocation of Remittances as of Current Payment Date Pursuant to Section 8.02(d)
of the Indenture:       i.    Cumulative Monthly Administration Fee during
Relevant Quarter    $[________]    ii.    Indenture Fees and Expenses *   
$[________]    iii.    Independent Director’s Fee **    $[________]    iv.   
Servicing Fee    $[________]    v.    Operating Expenses (subject to $[    ]
cap)    $[________]    vi.    Quarterly Interest    $[________]       1.   
Series B Environmental Control Bond Coupon Payment    $[________]    vii.   
Principal Due and Payable    $[________]    viii.    Scheduled Quarterly
Principal    $[________]       1.    Series B Environmental Control Bond
Principal Payment    $[________]    ix.    Operating Expenses (in excess of
$[    ])    $[________]    x.    Funding of Capital Subaccount (to required
level)    $[________]    xi.    Funding of Reserve Subaccount (to required
level)    $[________]    xii.    Required Dividend Distributions to [    ]   
$[________]    xiii.    Deposits to True-Up Excess Funds Subaccount   
$[________]    xiv.    Released to Issuer upon Series Retirement: Collection
Account    $[________] 5.   

Outstanding Principal Balance and Collection Account Balance as of Current
Payment Date:

(after giving effect to payments to be made on such payment date):

      i.    Series B Environmental Control Bond Principal Balance    $[________]
   ii.    True-Up Excess Funds Subaccount Balance    $[________]

 

Annex 3-2

--------------------------------------------------------------------------------

   iii.    Capital Subaccount Balance    $ [________ ]     iv.    Reserve
Subaccount Balance    $ [________ ]     v.    General Subaccount Balance    $
[________ ]     vi.    Collection Account Balance    $ [________ ]       

*       $[    ] per quarter, in advance plus expenses, in arrears.

        

**     Independent Director’s Fee is paid in advance, first quarter.
([Quarter/Year], directly by Issuer to directors)

   6.    Subaccount Draws as of Current Payment Date (if applicable, pursuant to
Section 8.02(d) of the Indenture):       i.    True-Up Excess Funds Subaccount
   $ [________ ]     ii.    Capital Subaccount    $ [________ ]     iii.   
Reserve Subaccount    $ [________ ]     iv.    Total Draws    $ [________ ]  7.
   Shortfalls In Interest and Principal Payments as of Current Payment Date:   
   i.    Quarterly Interest    $ [________ ]       

1.      Series B Environmental Control Bond Coupon Payment

   $ [________ ]     ii.    Quarterly Principal    $ [________ ]       

1.      Series B Environmental Control Bond Principal Payment

   $ [________ ]  8.    Shortfalls in Required Subaccount Levels as of Current
Payment Date:       i.    Capital Subaccount    $ [________ ]     ii.    Reserve
Subaccount    $ [________ ]  9.    Additional Customer Data         

i.       Number of Ratepayers*

        

ii.      Aging of Receivables*

        

iii.    Variances from Forecast for Individual, Industrial and Commercial
Customer Classes**

        

*       To be provided semi-annually.

        

**     To be provided annually.

  

IN WITNESS HEREOF, the undersigned has duly executed and delivered this
Quarterly Servicer’s Certificate this [__] day of
[                                ].

 

   Name: Title:

 

Annex 3-3

--------------------------------------------------------------------------------

ANNEX 4

FORM OF OFFICER’S CERTIFICATE

$21,510,000

PE Environmental Funding LLC

SENIOR SECURED ROC BONDS, ENVIRONMENTAL CONTROL SERIES B

THE POTOMAC EDISON COMPANY

OFFICER’S CERTIFICATE

Pursuant to Section 3.05(a) of the Servicing Agreement dated as of December 23,
2009 between PE Environmental Funding LLC, as Issuer, and The Potomac Edison
Company (the “Company”), as Servicer (as the same may be amended, supplemented
or otherwise modified from time to time, the “Servicing Agreement”; capitalized
terms used but not defined herein have the meanings assigned thereto in the
Servicing Agreement), each of the undersigned, [Authorized Officer], the duly
elected [                        ] of and [Authorized Officer], the
[                        ] of the Company, having carefully examined the
Servicing Agreement including Section 3.05 thereof, and the definitions in the
Servicing Agreement relating thereto and certain other corporate documents and
records, and having made such examination or investigation as they consider
necessary to enable the undersigned to express any informed opinion, certifies
that:

(i) a review of the activities of the Company during the period from January 1,
[                        ] through December 31, [                        ] and
of its performance under the Servicing Agreement has been made under the
supervision of the undersigned, and

(ii) to the best of the knowledge of the undersigned, based on such review, the
Company has complied with all conditions and covenants under the Servicing
Agreement throughout such period [or, if there has been an Event of Default, or
an act or omission, which with either the passage of time or the giving of
notice, could become an Event of Default, specify such event of default or act
or omission known to such authorized officer and the nature and status thereof].

IN WITNESS WHEREOF, the undersigned have executed this certificate this [__] day
of [                        ].

 

By:       Name:   Title: By:       Name:   Title:

 

Annex 4-1

--------------------------------------------------------------------------------

ANNEX 5

FORM OF ASSESSMENT OF SERVICING CRITERIA

I, ________________________________, the _______________________ of the
Servicer, am responsible for assessing the Servicer’s compliance with the
servicing criteria set forth in Item 1122(d) of Regulation AB [that would apply
if the Bonds were “asset-backed securities” under Item 1101(c) of Regulation AB]
(the “Servicing Criteria”).

With respect to each of the Servicing Criteria, I have made the following
assessment of the Servicing Criteria in accordance with Item 1122(d) of
Regulation AB, with such discussion regarding the performance of such Servicing
Criteria during the fiscal year covered by the Issuer’s Form 10-K Report (such
fiscal year, the “Assessment Period”):

[N.B.: the descriptions are for reference as to how the form will be used on an
ongoing basis for filing with the SEC]

 

    

Servicing Criteria

  

Applicable Servicing Criteria

Reference

  

Criteria

        General Serving Considerations    1122(d)(1)(i)    Policies and
procedures are instituted to monitor any performance or other triggers and
events of default in accordance with the transaction agreements.    Applicable;
assessment below. [Assessment: cover true-up compliance here] 1122(d)(1)(ii)   
If any material servicing activities are outsourced to third parties, policies
and procedures are instituted to monitor the third party’s performance and
compliance with such servicing activities.    Not applicable; no servicing
activities were outsourced. 1122(d)(1)(iii)    Any requirements in the
transaction agreements to maintain a back-up servicer for the environmental
control property are maintained.    Not applicable; documents do not provided
for a back-up servicer. 1122(d)(1)(iv)    A fidelity bond and errors and
omissions policy is in effect on the party participating in the servicing
function throughout the reporting period in the amount of coverage required by
and otherwise in accordance with the terms of the transaction agreements.    Not
applicable; rules of the Commission govern performance requirements of persons
handling customer collections. [Utility to confirm bonding requirements under
current rules and regulations.]     

Servicing Criteria

  

Applicable Servicing Criteria

Reference

  

Criteria

        Cash Collection and Administration    1122(d)(2)(i)    Payments on
environmental control property are deposited into the appropriate custodial bank
accounts and related bank clearing accounts no more than two business days
following receipt, or such other number of days specified in the transaction
agreements.    Applicable; assessment below [Assessment: estimated collections
were remitted from the Servicer to the Trustee each business day in accordance
with Section 5.10 of the Servicing Agreement.]

 

Annex 5-1

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Servicing Criteria

  

Applicable Servicing Criteria

Reference

  

Criteria

     1122(d)(2)(ii)    Disbursements made via wire transfer on behalf of an
obligor or to an investor are made only by authorized personnel.    Applicable;
assessment below.[Assessment: Wire transfers to the Trustee were made by
authorized personnel.] 1122(d)(2)(iii)    Advances of funds or guarantees
regarding collections, cash flows or distributions, and any interest or other
fees charged for such advances, are made, reviewed and approved as specified in
the transaction agreements.    Applicable, but no current assessment required;
no advances by the Servicer or the Trustee are permitted under the transaction
documents. 1122(d)(2)(iv)    The related accounts for the transaction, such as
cash reserve accounts or accounts established as a form of
overcollateralization, are separately maintained (e.g., with respect to
commingling of cash) as set forth in the transaction agreements.    Applicable,
but no current assessment is required; no reserve accounts are held by the
Servicer. Excess funds and other transaction accounts are maintained and applied
by the Trustee in accordance with the Indenture. 1122(d)(2)(v)    Each custodial
account is maintained at a federally insured depository institution as set forth
in the transaction agreements. For purposes of this criterion, “federally
insured depository institution” with respect to a foreign financial institution
means a foreign financial institution that meets the requirements of Rule
13k-1(b)(1) of the Securities Exchange Act.    Applicable, but no current
assessment required; all “custodial accounts” were maintained by the Trustee and
invested in accordance with indenture requirements. 1122(d)(2)(vi)    Unissued
checks are safeguarded so as to prevent unauthorized access.    Not applicable;
all transfers made by wire transfer. 1122(d)(2)(vii)    Reconciliations are
prepared on a monthly basis for all asset-backed securities related bank
accounts, including custodial accounts and related bank clearing accounts. These
reconciliations are (A) mathematically accurate; (B) prepared within 30 calendar
days after the bank statement cutoff date, or such other number of days
specified in the transaction agreements; (C) reviewed and approved by someone
other than the person who prepared the reconciliation; and (D) contain
explanations for reconciling items. These reconciling items are resolved within
90 calendar days of their original identification, or such other number of days
specified in the transaction agreements.    Partially applicable;
reconciliations of estimated environmental control charge collections with
actual environmental control charge collections are made on an annual basis as
required by Section 5.11 of the Servicing Agreement; assessment below.

 

Annex 5-2

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Servicing Criteria

  

Applicable Servicing Criteria

Reference

  

Criteria

        Investor Remittances and Reporting    1122(d)(3)(i)    Reports to
investors, including those to be filed with the Commission, are maintained in
accordance with the transaction agreements and applicable Commission
requirements. Specifically, such reports (A) are prepared in accordance with
timeframes and other terms set forth in the transaction agreements; (B) provide
information calculated in accordance with the terms specified in the transaction
agreements; (C) are filed with the Commission as required by its rules and
regulations; and (D) agree with investors’ or the trustee’s records as to the
total unpaid principal balance and number of pledged assets serviced by the
Servicer.    Applicable; assessment below. 1122(d)(3)(ii)    Amounts due to
investors are allocated and remitted in accordance with timeframes, distribution
priority and other terms set forth in the transaction agreements.    Applicable;
assessment below. [Assessment: Servicer has provided applicable instructions to
the trustee to allocate and remit funds to investors.] 1122(d)(3)(iii)   
Disbursements made to an investor are posted within two business days to the
Servicer’s investor records, or such other number of days specified in the
transaction agreements.    Not applicable; transaction documents do not permit
Servicer to disburse payments to investors. 1122(d)(3)(iv)    Amounts remitted
to investors per the investor reports agree with cancelled checks, or other form
of payment, or custodial bank statements.    Not applicable; bondholders are
paid by the Indenture Trustee in accordance with terms of the Indenture.   
Asset Administration    1122(d)(4)(i)    Collateral or security on environmental
control property is maintained as required by the transaction agreements or
related documents.    Applicable; assessment below. [Assessment: Servicer has
performed true-up adjustments of Environmental Control Charges in accordance
with Section 4.01 of the Servicing Agreement.] 1122(d)(4)(ii)    Environmental
control property and related documents are safeguarded as required by the
transaction agreements.    Applicable; assessment below. [Assessment: Servicer
has maintained custody over all environmental control property records in
accordance with Section 3.08 of the Servicing Agreement.] 1122(d)(4)(iii)    Any
additions, removals or substitutions to the assets are made, reviewed and
approved in accordance with any conditions or requirements in the transaction
agreements.    Applicable but no current assessment required; no removals or
substitutions of pledged assets are contemplated or allowed under the
transaction documents.

 

Annex 5-3

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Servicing Criteria

  

Applicable Servicing Criteria

Reference

  

Criteria

     1122(d)(4)(iv)    Payments on pledged assets, including any payoffs, made
in accordance with the related environmental control property documents are
posted to the Servicer’s obligor records maintained no more than two business
days after receipt, or such other number of days specified in the transaction
agreements, and allocated to principal, interest or other items (e.g., escrow)
in accordance with the environmental control transaction documents.   
Applicable; assessment below. [Assessment: The Servicer posted substantially all
environmental control charge payments to customer accounts within two business
days as required by Section 6(b) of Exhibit A—Payment Processing: Allocation;
Priority of Payments] 1122(d)(4)(v)    The Servicer’s records regarding the
environmental control property agree with the Servicer’s records with respect to
an obligor’s unpaid principal balance.    Not applicable; because underlying
obligation (environmental control charge) is not an interest bearing instrument
1122(d)(4)(vi)    Changes with respect to the terms or status of an obligor’s
environmental control property are made, reviewed and approved by authorized
personnel in accordance with the transaction agreements and related asset
documents.    Applicable; assessment below [Assessment: Servicer has not waived
or modified term of payment except in accordance with Section 6(a)(ii) of
Exhibit A-Servicing Procedures] 1122(d)(4)(vii)    Loss mitigation or recovery
actions (e.g., forbearance plans, modifications and deeds in lieu of
foreclosure, foreclosures and repossessions, as applicable) are initiated,
conducted and concluded in accordance with the timeframes or other requirements
established by the transaction agreements.    Applicable; assessment below.
[Assessment: Loss mitigation or recovery actions have been conducted in
accordance with Section 6(a) of Exhibit A— Collections: Payment Processing;
Remittance] 1122(d)(4)(viii)    Records documenting collection efforts are
maintained during the period any pledged asset is delinquent in accordance with
the transaction agreements. Such records are maintained on at least a monthly
basis, or such other period specified in the transaction agreements, and
describe the entity’s activities in monitoring delinquent environmental control
charges including, for example, phone calls, letters and payment rescheduling
plans in cases where delinquency is deemed temporary (e.g., illness or
unemployment).    Applicable, but does not require assessment. No explicit
documentation requirement with respect to delinquent accounts are imposed under
the transactional documents due to availability of “true-up” mechanism; and any
such documentation is maintained in accordance with applicable PSCWV rules and
regulations. 1122(d)(4)(ix)    Adjustments to interest rates or rates of return
for environmental control property with variable rates are computed based on the
related environmental control property documents.    Not applicable;
environmental control charges are not interest bearing instruments.

 

Annex 5-4

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Servicing Criteria

  

Applicable Servicing Criteria

Reference

  

Criteria

     1122(d)(4)(x)    Regarding any funds held in trust for an obligor (such as
escrow accounts): (A) such funds are analyzed, in accordance with the obligor’s
environmental control property documents, on at least an annual basis, or such
other period specified in the transaction agreements; (B) interest on such funds
is paid, or credited, to obligors in accordance with applicable environmental
control property documents and state laws; and (C) such funds are returned to
the obligor within 30 calendar days of full repayment of the related
environmental control property, or such other number of days specified in the
transaction agreements.    Applicable, but does not require assessment; Servicer
maintains customer deposits in accordance with the PSCWV rules and regulations.
1122(d)(4)(xi)    Payments made on behalf of an obligor (such as tax or
insurance payments) are made on or before the related penalty or expiration
dates, as indicated on the appropriate bills or notices for such payments,
provided that such support has been received by the Servicer at least 30
calendar days prior to these dates, or such other number of days specified in
the transaction agreements.    Not applicable. 1122(d)(4)(xii)    Any late
payment penalties in connection with any payment to be made on behalf of an
obligor are paid from the Servicer’s funds and not charged to the obligor,
unless the late payment was due to the obligor’s error or omission.    Not
applicable; Servicer cannot make advances of its own funds on behalf of
customers under the transactional documents. 1122(d)(4)(xiii)    Disbursements
made on behalf of an obligor are posted within two business days to the
obligor’s records maintained by the Servicer, or such other number of days
specified in the transaction agreements.    Not applicable; Servicer cannot make
advances of its own funds on behalf of customers to pay principal or interest on
the bonds. [See Section 5.09. these costs are borne by the Servicer, not
advanced by the Servicer.] 1122(d)(4)(xiv)    Delinquencies, charge-offs and
uncollectible accounts are recognized and recorded in accordance with the
transaction agreements.    Applicable; assessment below. [Assessment: Servicer
has reconciled actual collections of environmental control charges and estimated
remittances on or before March 1 of the following year, per Section 5.11 of the
Servicing Agreement [need to include]. Servicer has applied partial payments in
accordance with Section 3.02(b) and Section 6(b) of Exhibit A—Payment
Processing: Allocation; Priority of Payments] 1122(d)(4)(xv)    Any external
enhancement or other support, identified in Item 1114(a)(1) through (3) or Item
1115 of Regulation AB, is maintained as set forth in the transaction agreements.
   Not Applicable: No external credit support or derivatives were employed [or:
Applicable; assessment below.]

 

Annex 5-5

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With respect to each of the applicable Servicing Criteria, I have made the
following assessment in accordance with Item 1122(d) of Regulation AB, with such
discussion regarding the performance of such Servicing Criteria during the
fiscal year covered by the Issuer’s Form 10-K Report (such fiscal year the
“Assessment Period”).

1. Item 1122(d)(1)(i) : [include narrative of assessment]

2. [Continue enumeration of applicable Servicing Criteria with appropriate
narrative of assessment]

Based on the aforementioned Servicing Criteria, I find that the Servicer has
fulfilled all of the applicable servicing obligations under the Servicing
Agreement in all material respects through the Assessment Period, with the
exception of the following instance(s) of material noncompliance:

1. [Include narrative of any material noncompliance with servicing obligations]

A registered public accounting firm has issued an attestation report on the
party’s assessment of compliance with the applicable servicing criteria as of
and for the period ending the end of the Assessment Period.

 

Date: By:       Name:

 

Annex 5-6

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ANNEX 6

FORM OF REGULATION AB COMPLIANCE CERTIFICATION

 

  Re: Servicing Agreement dated as of December 23, 2009 (the “Servicing
Agreement”), between PE Environmental Funding LLC, as issuer (the “Issuer”), and
The Potomac Edison Company (the “Servicer”).

I, ________________________________, the _______________________ of the
Servicer, certify to Issuer and the Administrator, [and other required parties]
and their officers, with the knowledge and intent that they will rely upon this
certification, that:

1. I have reviewed the servicer compliance statement of the Servicer provided in
accordance with Item 1123 of Regulation AB as it would apply if the
Environmental Control Bonds were “asset-backed securities” under Item 1101(c) of
Regulation AB (the “Compliance Statement”) and Section 3.05(a)(iv) of the
Servicing Agreement, the report on assessment of the Company’s compliance with
the servicing criteria set forth in Item 1122(d) of Regulation AB (the
“Servicing Criteria”), provided in accordance with Rules 13a-18 and 15d-18 under
Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Item 1122
of Regulation AB (the “Servicing Assessment”), the registered public accounting
firm’s attestation report provided in accordance with Rules 13a-18 and 15d-18
under the Exchange Act and Section 1122(b) of Regulation AB (the “Attestation
Report”), and all servicing reports, officer’s certificates and other
information relating to the servicing of the Environmental Control Property
during 20[ ] that were delivered by the Servicer to the [Issuer] [Administrator]
[Indenture Trustee] pursuant to the Agreement (collectively, the “Servicing
Information”);

2. Based on my knowledge, the Servicing Information, taken as a whole, does not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in the light of the circumstances under
which such statements were made, not misleading with respect to the period of
time covered by the company Servicing Information;

3. Based on my knowledge, all of the Servicing Information required to be
provided by the Servicer under the Agreement has been provided to the [Issuer]
[Administrator] [Indenture Trustee];

4. I am responsible for reviewing the activities performed by the Servicer as
servicer under the Agreement, and based on my knowledge and the compliance
review conducted in preparing the Compliance Statement and except as disclosed
in the Compliance Statement, the Servicing Assessment or the Attestation Report,
the Servicer has fulfilled its obligations under the Agreement in all material
respects; and

 

Annex 6-1

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5. The Compliance Statement required to be delivered by the Servicer pursuant to
the Agreement, and the Servicing Assessment and Attestation Report required to
be provided by the Servicer and by any subservicer pursuant to the Agreement,
have been provided to the [Issuer] [Administrator] [Indenture Trustee]. Any
material instances of noncompliance described in such reports have been
disclosed to the [Issuer] [Administrator] [Indenture Trustee]. Any material
instance of noncompliance with the Servicing Criteria has been disclosed in such
reports.

 

Date: By:       Name:   Title:

 

Annex 6-2

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APPENDIX A

to

SERVICING AGREEMENT

Master Definitions

 

Appendix A-1

--------------------------------------------------------------------------------

APPENDIX A-1

to

SERVICING AGREEMENT

Supplemental Master Definitions

 

Appendix A-1-1