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Exhibit 10.3

 

ADMINISTRATION AGREEMENT

 

This ADMINISTRATION AGREEMENT, dated as of September 18, 2019 (this
“Administration Agreement”), is entered into by and between AEP Texas INC. (“AEP
Texas”), as administrator (in such capacity, the “Administrator”), and AEP TEXAS
RESTORATION FUNDING LLC, a Delaware limited liability company (the “Issuer”).
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in Appendix A to the Indenture (as defined
below).

 

W I T N E S S E T H:

 

WHEREAS, the Issuer is issuing System Restoration Bonds pursuant to that certain
Indenture (including Appendix A thereto) dated as of the date hereof (the
“Indenture”), by and between the Issuer and U.S. Bank National Association, a
national banking association, in its capacity as indenture trustee (the
“Indenture Trustee”) and in its separate capacity as a securities intermediary
(the “Securities Intermediary”), as the same may be amended, restated,
supplemented or otherwise modified from time to time, and the Series Supplement;

 

WHEREAS, the Issuer has entered into certain agreements in connection with the
issuance of the System Restoration Bonds, including (i) the Indenture, (ii) the
Transition Property Servicing Agreement, dated as of September 18, 2019 (the
“Servicing Agreement”), by and between the Issuer and AEP Texas, as Servicer,
(iii) the Transition Property Purchase and Sale Agreement, dated as of September
18, 2019 (the “Sale Agreement”), by and between the Issuer and AEP Texas, as
Seller and (iv) the other Basic Documents to which the Issuer is a party,
relating to the System Restoration Bonds (the Indenture, the Servicing
Agreement, the Sale Agreement and the other Basic Documents to which the Issuer
is a party, as such agreements may be amended and supplemented from time to
time, being referred to hereinafter collectively as the “Related Agreements”);

 

WHEREAS, pursuant to the Related Agreements, the Issuer is required to perform
certain duties in connection with the Related Agreements, the System Restoration
Bonds and the System Restoration Bond Collateral pledged to the Indenture
Trustee pursuant to the Indenture;

 

WHEREAS, the Issuer has no employees, other than its officers and managers, and
does not intend to hire any employees, and consequently desires to have the
Administrator perform certain of the duties of the Issuer referred to in the
preceding clauses and to provide such additional services consistent with the
terms of this Administration Agreement and the Related Agreements as the Issuer
may from time to time request; and

 

WHEREAS, the Administrator has the capacity to provide the services and the
facilities required thereby and is willing to perform such services and provide
such facilities for the Issuer on the terms set forth herein;

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NOW, THEREFORE, in consideration of the mutual covenants contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:

 

1.             Duties of the Administrator – Management Services. The
Administrator hereby agrees to provide the following corporate management
services to the Issuer and to cause third parties to provide professional
services required for or contemplated by such services in accordance with the
provisions of this Administration Agreement:

 

(a)          furnish the Issuer with ordinary clerical, bookkeeping and other
corporate administrative services necessary and appropriate for the Issuer,
including, without limitation, the following services:

 

(i)          maintain at the Premises (as defined below) general accounting
records of the Issuer (the “Account Records”), subject to year-end audit, in
accordance with generally accepted accounting principles, separate and apart
from its own accounting records, prepare or cause to be prepared such quarterly
and annual financial statements as may be necessary or appropriate and arrange
for year-end audits of the Issuer's financial statements by the Issuer's
independent accountants;

 

(ii)         prepare and, after execution by the Issuer, file with the
Securities and Exchange Commission (the “Commission”) and any applicable state
agencies documents required to be filed by the Issuer with the Commission and
any applicable state agencies, including, without limitation, periodic reports
required to be filed under the Securities Exchange Act of 1934, as amended;

 

(iii)        prepare for execution by the Issuer and cause to be filed such
income, franchise or other tax returns of the Issuer as shall be required to be
filed by applicable law (the “Tax Returns”) and cause to be paid on behalf of
the Issuer from the Issuer's funds any taxes required to be paid by the Issuer
under applicable law;

 

(iv)        prepare or cause to be prepared for execution by the Issuer’s
Managers minutes of the meetings of the Issuer’s Managers and such other
documents deemed appropriate by the Issuer to maintain the separate limited
liability company existence and good standing of the Issuer (the “Company
Minutes”) or otherwise required under the Related Agreements (together with the
Account Records, the Tax Returns, the Company Minutes, the LLC Agreement, and
the Certificate of Formation, the “Issuer Documents”); and any other documents
deliverable by the Issuer thereunder or in connection therewith; and

 

(v)         hold, maintain and preserve at the Premises (or such other place as
shall be required by any of the Related Agreements) executed copies (to the
extent applicable) of the Issuer Documents and other documents executed by the
Issuer thereunder or in connection therewith;

 

(b)          take such actions on behalf of the Issuer, as are necessary or
desirable for the Issuer to keep in full effect its existence, rights and
franchises as a limited liability company under the laws of the state of
Delaware and obtain and preserve its qualification to do business in each
jurisdiction in which it becomes necessary to be so qualified;

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(c)           take such actions on the behalf of the Issuer as are necessary for
the issuance and delivery of the System Restoration Bonds;

 

(d)           provide for the performance by the Issuer of its obligations under
each of the Related Agreements, and prepare, or cause to be prepared, all
documents, reports, filings, instruments, notices, certificates and opinions
that it shall be the duty of the Issuer to prepare, file or deliver pursuant to
the Related Agreements;

 

(e)           to the full extent allowable under applicable law, enforce each of
the rights of the Issuer under the Related Agreements, at the direction of the
Indenture Trustee;

 

(f)            provide for the defense, at the direction of the Issuer's
Managers, of any action, suit or proceeding brought against the Issuer or
affecting the Issuer or any of its assets;

 

(g)           provide office space (the “Premises”) for the Issuer and such
reasonable ancillary services as are necessary to carry out the obligations of
the Administrator hereunder, including telecopying, duplicating and word
processing services;

 

(h)           undertake such other administrative services as may be
appropriate, necessary or requested by the Issuer; and

 

(i)            provide such other services as are incidental to the foregoing or
as the Issuer and the Administrator may agree.

 

In providing the services under this Section 1 and as otherwise provided under
this Administration Agreement, the Administrator will not knowingly take any
actions on behalf of the Issuer which (i) the Issuer is prohibited from taking
under the Related Agreements, or (ii) would cause the Issuer to be in violation
of any federal, state or local law or the LLC Agreement.

 

In performing its duties hereunder, the Administrator shall use the same degree
of care and diligence that the Administrator exercises with respect to
performing such duties for its own account and, if applicable, for others.

 

2.             Compensation. As compensation for the performance of the
Administrator’s obligations under this Administration Agreement (including the
compensation of Persons serving as Manager(s), other than the Independent
Manager(s), and officers of the Issuer, but, for the avoidance of doubt,
excluding the performance by AEP Texas of its obligations in its capacity as
Servicer), the Administrator shall be entitled to $100,000 annually (the
“Administration Fee”), payable by the Issuer in installments of $50,000 on each
Payment Date. In addition, the Administrator shall be entitled to be reimbursed
by the Issuer for all costs and expenses of services performed by unaffiliated
third parties and actually incurred by the Administrator in connection with the
performance of its obligations under this Administration Agreement in accordance
with Section 3 (but, for the avoidance of doubt, excluding any such costs and
expenses incurred by AEP Texas in its capacity as Servicer), to the extent that
such costs and expenses are supported by invoices or other customary
documentation and are reasonably allocated to the Issuer (“Reimbursable
Expenses”).

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3.             Third Party Services. Any services required for or contemplated
by the performance of the above-referenced services by the Administrator to be
provided by unaffiliated third parties (including independent auditors' fees and
counsel fees) may, if provided for or otherwise contemplated by the Financing
Order and if the Issuer deems it necessary or desirable, be arranged by the
Issuer or by the Administrator at the direction (which may be general or
specific) of the Issuer. Costs and expenses associated with the contracting for
such third-party professional services may be paid directly by the Issuer or
paid by the Administrator and reimbursed by the Issuer in accordance with
Section 2, or otherwise as the Administrator and the Issuer may mutually
arrange.

 

4.             Additional Information to be Furnished to the Issuer. The
Administrator shall furnish to the Issuer from time to time such additional
information regarding the System Restoration Bond Collateral as the Issuer shall
reasonably request.

 

5.             Independence of the Administrator. For all purposes of this
Administration Agreement, the Administrator shall be an independent contractor
and shall not be subject to the supervision of the Issuer with respect to the
manner in which it accomplishes the performance of its obligations hereunder.
Unless expressly authorized by the Issuer, the Administrator shall have no
authority, and shall not hold itself out as having the authority, to act for or
represent the Issuer in any way and shall not otherwise be deemed an agent of
the Issuer.

 

6.             No Joint Venture. Nothing contained in this Administration
Agreement (a) shall constitute the Administrator and the Issuer as partners or
co-members of any partnership, joint venture, association, syndicate,
unincorporated business or other separate entity, (b) shall be construed to
impose any liability as such on either of them or (c) shall be deemed to confer
on either of them any express, implied or apparent authority to incur any
obligation or liability on behalf of the other.

 

7.             Other Activities of Administrator. Nothing herein shall prevent
the Administrator or any of its members, managers, officers, employees,
subsidiaries or affiliates from engaging in other businesses or, in its sole
discretion, from acting in a similar capacity as an Administrator for any other
person or entity even though such person or entity may engage in business
activities similar to those of the Issuer.

 

8.             Term of Agreement; Resignation and Removal of Administrator.

 

(a)           This Administration Agreement shall continue in force until the
payment in full of the System Restoration Bonds and any other amount which may
become due and payable under the Indenture, upon which event this Administration
Agreement shall automatically terminate.

 

(b)           Subject to Sections 8(e) and 8(f), the Administrator may resign
its duties hereunder by providing the Issuer with at least sixty (60) days’
prior written notice.

 

(c)           Subject to Sections 8(e) and 8(f), the Issuer may remove the
Administrator without cause by providing the Administrator with at least sixty
(60) days’ prior written notice.

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(d)          Subject to Sections 8(e) and 8(f), at the sole option of the
Issuer, the Administrator may be removed immediately upon written notice of
termination from the Issuer to the Administrator if any of the following events
shall occur:

 

(i)          the Administrator shall default in the performance of any of its
duties under this Administration Agreement and, after notice of such default,
shall fail to cure such default within ten (10) days (or, if such default cannot
be cured in such time, shall (A) fail to give within ten (10) days such
assurance of cure as shall be reasonably satisfactory to the Issuer and (B) fail
to cure such default within thirty (30) days thereafter);

 

(ii)         a court of competent jurisdiction shall enter a decree or order for
relief, and such decree or order shall not have been vacated within sixty (60)
days, in respect of the Administrator in any involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or such court shall appoint a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official for the Administrator or any
substantial part of its property or order the winding-up or liquidation of its
affairs; or

 

(iii)        the Administrator shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, shall consent to the entry of an order for relief in an involuntary case
under any such law, shall consent to the appointment of a receiver, liquidator,
assignee, trustee, custodian, sequestrator or similar official for the
Administrator or any substantial part of its property, shall consent to the
taking of possession by any such official of any substantial part of its
property, shall make any general assignment for the benefit of creditors or
shall fail generally to pay its debts as they become due.

 

The Administrator agrees that if any of the events specified in clauses (ii) or
(iii) of this Section 8(d) shall occur, it shall give written notice thereof to
the Issuer and the Indenture Trustee as soon as practicable but in any event
within seven (7) days after the happening of such event.

 

(e)          No resignation or removal of the Administrator pursuant to this
Section 8 shall be effective until a successor Administrator has been appointed
by the Issuer, and such successor Administrator has agreed in writing to be
bound by the terms of this Administration Agreement in the same manner as the
Administrator is bound hereunder.

 

(f)           The appointment of any successor Administrator shall be effective
only after satisfaction of the Rating Agency Condition with respect to the
proposed appointment.

 

9.             Action upon Termination, Resignation or Removal. Promptly upon
the effective date of termination of this Administration Agreement pursuant to
Section 8(a), the resignation of the Administrator pursuant to Section 8(b) or
the removal of the Administrator pursuant to Section 8(c) or 8(d), the
Administrator shall be entitled to be paid a pro-rated portion of the annual fee
described in Section 2 hereof through the date of termination and all
Reimbursable Expenses incurred by it through the date of such termination,
resignation or removal. The Administrator shall forthwith upon such termination
pursuant to Section 8(a) deliver to the Issuer all property and documents of or
relating to the System Restoration Bond Collateral then in the custody of the
Administrator. In the event of the resignation of the Administrator pursuant to
Section 8(b) or the removal of the Administrator pursuant to Section 8(c) or
8(d), the Administrator shall cooperate with the Issuer and take all reasonable
steps requested to assist the Issuer in making an orderly transfer of the duties
of the Administrator.

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10.           Administrator’s Liability. Except as otherwise provided herein,
the Administrator assumes no liability other than to render or stand ready to
render the services called for herein, and neither the Administrator nor any of
its members, managers, officers, employees, subsidiaries or affiliates shall be
responsible for any action of the Issuer or any of the members, managers,
officers, employees, subsidiaries or affiliates of the Issuer (other than the
Administrator itself). The Administrator shall not be liable for nor shall it
have any obligation with regard to any of the liabilities, whether direct or
indirect, absolute or contingent of the Issuer or any of the members, managers,
officers, employees, subsidiaries or affiliates of the Issuer (other than the
Administrator itself).

 

11.           INDEMNITY.

 

(a)           SUBJECT TO THE PRIORITY OF PAYMENTS SET FORTH IN THE INDENTURE,
THE ISSUER SHALL INDEMNIFY THE ADMINISTRATOR, ITS MEMBERS, MANAGERS, OFFICERS,
EMPLOYEES AND AFFILIATES AGAINST ALL LOSSES, CLAIMS, DAMAGES, PENALTIES,
JUDGMENTS, LIABILITIES AND EXPENSES (INCLUDING, WITHOUT LIMITATION, ALL EXPENSES
OF LITIGATION OR PREPARATION THEREFOR WHETHER OR NOT THE ADMINISTRATOR IS A
PARTY THERETO) WHICH ANY OF THEM MAY PAY OR INCUR ARISING OUT OF OR RELATING TO
THIS ADMINISTRATION AGREEMENT AND THE SERVICES CALLED FOR HEREIN; PROVIDED,
HOWEVER, THAT SUCH INDEMNITY SHALL NOT APPLY TO ANY SUCH LOSS, CLAIM, DAMAGE,
PENALTY, JUDGMENT, LIABILITY OR EXPENSE RESULTING FROM THE ADMINISTRATOR’S
NEGLIGENCE OR WILLFUL MISCONDUCT IN THE PERFORMANCE OF ITS OBLIGATIONS
HEREUNDER.

 

(b)           THE ADMINISTRATOR SHALL INDEMNIFY THE ISSUER, ITS MEMBERS,
MANAGERS, OFFICERS AND EMPLOYEES AGAINST ALL LOSSES, CLAIMS, DAMAGES, PENALTIES,
JUDGMENTS, LIABILITIES AND EXPENSES (INCLUDING, WITHOUT LIMITATION, ALL EXPENSES
OF LITIGATION OR PREPARATION THEREFOR WHETHER OR NOT THE ISSUER IS A PARTY
THERETO) WHICH ANY OF THEM MAY INCUR AS A RESULT OF THE ADMINISTRATOR’S
NEGLIGENCE OR WILLFUL MISCONDUCT IN THE PERFORMANCE OF ITS OBLIGATIONS
HEREUNDER.

 

12.           Notices. Any notice, report or other communication given hereunder
shall be in writing and addressed as follows:

 

(a) if to the Issuer, to:

 

AEP Texas Restoration Funding LLC

539 N. Carancahua Street, Suite 1700

Corpus Christi, Texas 78401
Attention: Manager

Telephone: (361) 881-5399

Facsimile: (361) 880-6128

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(b) if to the Administrator, to:

 

AEP Texas Inc.

1 Riverside Plaza

Columbus, Ohio 43215
Attention: Treasurer

Telephone: (614) 716-1000

Facsimile: (614) 716-2807

 

(c) if to the Indenture Trustee, to the Corporate Trust Office;

 

or to such other address as any party shall have provided to the other parties
in writing. Any notice required to be in writing hereunder shall be deemed given
if such notice is mailed by certified mail, postage prepaid, or hand-delivered
to the address of such party as provided above.

 

13.           Amendments. This Administration Agreement may be amended from time
to time by a written amendment duly executed and delivered by each of the Issuer
and the Administrator with ten Business Days’ prior written notice given to the
Rating Agencies and, if the contemplated amendment may in the judgment of the
PUCT increase ongoing Qualified Costs, the consent of the PUCT pursuant to
Section 14, but without the consent of any of the Holders, (i) to cure any
ambiguity, to correct or supplement any provisions in this Administration
Agreement or for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions in this Administration Agreement or
of modifying in any manner the rights of the Holders; provided, however, that
the Issuer and the Indenture Trustee shall receive an Officer’s Certificate
stating that the execution of such amendment shall not adversely affect in any
material respect the interests of any Holder and that all conditions precedent
have been satisfied or (ii) to conform the provisions hereof to the description
of this Administration Agreement in the Prospectus.

 

In addition, this Administration Agreement may be amended from time to time by a
written amendment duly executed and delivered by each of the Issuer and the
Administrator with the prior written consent of the Indenture Trustee, the
satisfaction of the Rating Agency Condition and, if the contemplated amendment
may in the judgment of the PUCT increase ongoing Qualified Costs, the consent of
the PUCT pursuant to Section 14; provided that any such amendment may not
adversely affect the interest of any Holder in any material respect without the
consent of the Holders of a majority of the outstanding principal amount of the
System Restoration Bonds. Promptly after the execution of any such amendment or
consent, the Issuer shall furnish copies of such amendment or consent to each of
the Rating Agencies.

 

14.           PUCT Condition. Notwithstanding anything to the contrary in
Section 13, no amendment or modification of this Agreement shall be effective
unless the process set forth in this Section 14 has been followed.

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(a)          At least thirty-one (31) days prior to the effectiveness of any
such amendment or modification and after obtaining the other necessary approvals
set forth in Section 13 above (except that the consent of the Indenture Trustee
may be subject to the consent of Holders if such consent is required or sought
by the Indenture Trustee in connection with such amendment or modification), the
Administrator shall have delivered to the PUCT’s executive director and general
counsel written notification of any proposed amendment or modification, which
notification shall contain:

 

(i)          a reference to Docket No. 49308;

 

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

 

(iii)        a statement identifying the person to whom the PUCT or its staff is
to address any response to the proposed amendment or modification or to request
additional time; and

 

(iv)        a statement as to the possible effect of the amendment or
modification on the ongoing qualified costs.

 

(b)          The PUCT or its staff shall, within thirty (30) days of receiving
the notification complying with Section 14(a) above, either:

 

(i)          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 System Restoration Bonds,

 

(ii)         provide notice of its consent or lack of consent to the person
specified in Section 14(a)(iii) above, or

 

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

 

unless, within thirty (30) days of receiving the notification complying with
Section 14(a) above, the PUCT or its staff delivers to the office of the person
specified in Section 14(a)(iii) above a written statement requesting an
additional amount of time not to exceed thirty (30) days in which to consider
whether to consent to the proposed amendment or modification. If the PUCT or its
staff requests an extension of time in the manner set forth in the preceding
sentence, then the PUCT 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 14(a)(iii) above no 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 PUCT shall become
effective on the later of (i) the date proposed by the parties to such amendment
or modification and (ii) the first day after the expiration of the thirty
(30)-day period provided for in this Section 14(b), or, if such period has been
extended pursuant hereto, the first day after the expiration of such period as
so extended.

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(c)           Following the delivery of a notice to the PUCT by the
Administrator under Section 14(a) above, the Administrator shall have the right
at any time to withdraw from the PUCT further consideration of any notification
of a proposed amendment or modification. Such withdrawal shall be evidenced by
the prompt written notice thereof by the Administrator to the PUCT, the
Indenture Trustee, the Issuer and the Servicer.

 

15.           Successors and Assigns. This Administration Agreement may not be
assigned by the Administrator unless such assignment is previously consented to
in writing by the Issuer and the Indenture Trustee and subject to the
satisfaction of the Rating Agency Condition in connection therewith. Any
assignment with such consent and satisfaction, if accepted by the assignee,
shall bind the assignee hereunder in the same manner as the Administrator is
bound hereunder. Notwithstanding the foregoing, this Administration Agreement
may be assigned by the Administrator without the consent of the Issuer or the
Indenture Trustee and without satisfaction of the Rating Agency Condition to a
corporation or other organization that is a successor (by merger,
reorganization, consolidation or purchase of assets) to the Administrator,
including without limitation any Permitted Successor; provided that such
successor or organization executes and delivers to the Issuer an Agreement in
which such corporation or other organization agrees to be bound hereunder by the
terms of said assignment in the same manner as the Administrator is bound
hereunder. Subject to the foregoing, this Administration Agreement shall bind
any successors or assigns of the parties hereto. Upon satisfaction of all of the
conditions of this Section 15, the preceding Administrator shall automatically
and without further notice be released from all of its obligations hereunder.

 

16.           Governing Law. This Administration Agreement shall be construed in
accordance with the laws of the State of Texas, 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.

 

17.           Headings. The Section headings hereof have been inserted for
convenience of reference only and shall not be construed to affect the meaning,
construction or effect of this Administration Agreement.

 

18.           Counterparts. This Administration Agreement may be executed in
counterparts, each of which when so executed shall be an original, but all of
which together shall constitute but one and the same Administration Agreement.

 

19.           Severability. Any provision of this Administration Agreement that
is prohibited or unenforceable in any jurisdiction shall 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.

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20.           Nonpetition Covenant. Notwithstanding any prior termination of
this Administration Agreement, the Administrator covenants that it shall not,
prior to the date which is one year and one day after payment in full of the
System Restoration Bonds, acquiesce, 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
any 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 its property, or
ordering the winding up or liquidation of the affairs of the Issuer.

 

21.           Assignment to Indenture Trustee. The Administrator hereby
acknowledges and consents to any mortgage, pledge, assignment and grant of a
security interest by the Issuer to the Indenture Trustee for the benefit of the
Secured Parties pursuant to the Indenture of any or all of the Issuer’s rights
hereunder and the assignment of any or all of the Issuer’s rights hereunder to
the Indenture Trustee for the benefit of the Secured Parties. For the avoidance
of doubt, the Indenture Trustee is a third-party beneficiary of this Agreement
and is entitled to the rights and benefits hereunder and may enforce the
provisions hereof as if it were a party hereto.

 

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IN WITNESS WHEREOF, the parties have caused this Administration Agreement to be
duly executed and delivered as of the day and year first above written.

 

  AEP TEXAS RESTORATION FUNDING LLC, as Issuer         By: /s/ Renee V. Hawkins
 
Name: Renee V. Hawkins  
Title: Assistant Treasurer         AEP TEXAS INC., as Administrator         By:

/s/ Renee V. Hawkins  
Name: Renee V. Hawkins  
Title: Assistant Treasurer

 

Signature Page to

Administration Agreement

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