Exhibit
10.1 


 


STORM RECOVERY
PROPERTY SERVICING AGREEMENT


 


by and between


 


DUKE ENERGY
CAROLINAS NC STORM FUNDING LLC,


 


Issuer


 


and


 


DUKE ENERGY
CAROLINAS, LLC,


 


Servicer


 


Acknowledged
and Accepted by


 


THE BANK OF
NEW YORK MELLON TRUST COMPANY, NATIONAL ASSOCIATION, as Indenture Trustee


 


Dated as of
[ ], 2021


 






     

     


    

 








TABLE OF CONTENTS


 


	 	Page
	 	 
	ARTICLE I            DEFINITIONS AND RULES OF CONSTRUCTION	1
	 	Section 1.01.	Definitions and Rules of Construction	1
	 	 	 	 
	ARTICLE II           APPOINTMENT AND AUTHORIZATION	2
	 	Section 2.01.	Appointment of Servicer; Acceptance of Appointment	2
	 	Section 2.02.	Authorization	2
	 	Section 2.03.	Dominion and Control Over the Storm Recovery Property	2
	 	 	 	 
	ARTICLE III         ROLE OF SERVICER	3
	 	Section 3.01.	Duties of Servicer	3
	 	Section 3.02.	Servicing and Maintenance Standards	5
	 	Section 3.03.	Annual Reports on Compliance with Regulation AB	6
	 	Section 3.04.	Annual Report by Independent Registered Public Accountants	7
	 	 	 	 
	ARTICLE IV         SERVICES RELATED TO TRUE-UP ADJUSTMENTS	7
	 	Section 4.01.	True-Up Adjustments	7
	 	Section 4.02.	Limitation of Liability	10
	 	 	 	 
	ARTICLE V           THE STORM RECOVERY PROPERTY	11
	 	Section 5.01.	Custody of Storm Recovery Property Records	11
	 	Section 5.02.	Duties of Servicer as Custodian	11
	 	Section 5.03.	Custodian’s Indemnification	13
	 	Section 5.04.	Effective Period and Termination	13
	 	Section 5.05.	Third-Party Suppliers	13
	 	 	 	 
	ARTICLE VI         THE SERVICER	14
	 	Section 6.01.	Representations and Warranties of Servicer	14
	 	Section 6.02.	Indemnities of Servicer; Release of Claims	16
	 	Section 6.03.	Binding Effect of Servicing Obligations	18
	 	Section 6.04.	Limitation on Liability of Servicer and Others	19
	 	Section 6.05.	Duke Energy Carolinas Not to Resign as Servicer	19
	 	Section 6.06.	Servicing Compensation	20
	 	Section 6.07.	Compliance with Applicable Law	21
	 	Section 6.08.	Access to Certain Records and Information Regarding Storm Recovery Property	21
	 	Section 6.09.	Appointments	22



 






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	 	Section 6.10.	No Servicer Advances	22
	 	Section 6.11.	Remittances	22
	 	Section 6.12.	Maintenance of Operations	22
	 	 	 	 
	ARTICLE VII        DEFAULT	23
	 	Section 7.01.	Servicer Default	23
	 	Section 7.02.	Appointment of Successor	25
	 	Section 7.03.	Waiver of Past Defaults	25
	 	Section 7.04.	Notice of Servicer Default	25
	 	Section 7.05.	Cooperation with Successor	25
	 	 	 	 
	ARTICLE VIII       MISCELLANEOUS PROVISIONS	26
	 	Section 8.01.	Amendment	26
	 	Section 8.02.	Maintenance of Accounts and Records	27
	 	Section 8.03.	Notices	28
	 	Section 8.04.	Assignment	28
	 	Section 8.05.	Limitations on Rights of Others	28
	 	Section 8.06.	Severability	29
	 	Section 8.07.	Separate Counterparts	29
	 	Section 8.08.	Governing Law	29
	 	Section 8.09.	Assignment to Indenture Trustee	29
	 	Section 8.10.	Nonpetition Covenants	29
	 	Section 8.11.	Limitation of Liability	29
	 	Section 8.12.	Rule 17g-5 Compliance	29
	 	Section 8.13.	Indenture Trustee Actions	29



 


EXHIBITS


 


	Exhibit A	Servicing Procedures
	Exhibit B	Form of Monthly Servicer’s Certificate
	Exhibit C	Form of Semi-Annual Servicer’s Certificate
	Exhibit D	Form of Servicer Certificate
	Exhibit E	Form of Certificate of Compliance
	Exhibit F	Expected Sinking Fund Schedule



 


APPENDIX


 


	Appendix A	Definitions and Rules of Construction



 






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This STORM RECOVERY PROPERTY SERVICING AGREEMENT,
dated as of [ ], 2021, is by and between DUKE ENERGY CAROLINAS NC STORM FUNDING LLC, a Delaware limited liability company, as Issuer,
and DUKE ENERGY CAROLINAS, LLC, a North Carolina limited liability company, as servicer, and acknowledged and accepted by THE BANK OF
NEW YORK MELLON TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association, as Indenture Trustee.


 


RECITALS


 


WHEREAS, pursuant to the Storm Recovery Law and the
Financing Order, Duke Energy Carolinas, in its capacity as seller (the “Seller”), and the Issuer are concurrently entering
into the Sale Agreement pursuant to which the Seller is selling and the Issuer is purchasing certain Storm Recovery Property created pursuant
to the Storm Recovery Law and the Financing Order described therein;


 


WHEREAS, in connection with its ownership of the
Storm Recovery Property relating to the Storm Recovery Bonds and in order to collect the associated Storm Recovery Charges, the Issuer
desires to engage the Servicer to carry out the functions described herein and the Servicer desires to be so engaged;


 


WHEREAS, the Issuer desires to engage the Servicer
to act on its behalf in obtaining True-Up Adjustments from the Commission and the Servicer desires to be so engaged;


 


WHEREAS, the Storm Recovery Charge Collections initially
may be commingled with other funds collected by the Servicer; and


 


WHEREAS, certain parties may have an interest in
such commingled collections, and such parties will have entered into the Intercreditor Agreement, which allows Duke Energy Carolinas to
allocate the collected, commingled funds according to each party’s interest;


 


NOW, THEREFORE, in consideration of the premises
and the mutual covenants herein contained, the parties hereto agree as follows:


 


ARTICLE
I

DEFINITIONS AND RULES OF CONSTRUCTION


 


Section 1.01.           Definitions and Rules of Construction.
Capitalized terms used but not otherwise defined in this Servicing Agreement shall have the respective meanings given to such terms in
Appendix A, which is hereby incorporated by reference into this Servicing Agreement as if set forth fully in this Servicing Agreement.
Not all terms defined in Appendix A are used in this Servicing Agreement. The rules of construction set forth in Appendix A
shall apply to this Servicing Agreement and are hereby incorporated by reference into this Servicing Agreement as if set forth fully
in this Servicing Agreement, however for purposes of this Servicing Agreement, unless otherwise indicated herein, the terms Storm Recovery
Charges, Closing Date, Storm Recovery Collateral and Storm Recovery Property mean the Storm Recovery Charges, Closing Date, Storm Recovery
Collateral and Storm Recovery Property for the Storm Recovery Bonds.


 






     

     


    

 


ARTICLE
II

APPOINTMENT AND AUTHORIZATION


 


Section 2.01.           Appointment of Servicer; Acceptance
of Appointment. The Issuer hereby appoints the Servicer, as an independent contractor, and the Servicer hereby accepts such appointment,
to perform the Servicer’s obligations pursuant to this Servicing Agreement on behalf of and for the benefit of the Issuer or any
assignee thereof in accordance with the terms of this Servicing Agreement and applicable law as it applies to the Servicer in its capacity
as servicer hereunder. This appointment and the Servicer’s acceptance thereof may not be revoked except in accordance with the
express terms of this Servicing Agreement.


 


Section 2.02.          
Authorization. With respect to all or any portion of the Storm Recovery Property, the Servicer shall be, and hereby is,
authorized and empowered by the Issuer to (a) execute and deliver, on behalf of itself and/or the Issuer, as the case may be, any and
all instruments, documents or notices, and (b) on behalf of itself and/or the Issuer, as the case may be, make any filing and participate
in proceedings of any kind with any Governmental Authority, including with the Commission. The Issuer shall execute and deliver to the
Servicer such documents as have been prepared by the Servicer for execution by the Issuer and shall furnish the Servicer with such other
documents as may be in the Issuer’s possession, in each case as the Servicer may determine to be necessary or appropriate to enable
it to carry out its servicing and administrative duties hereunder. Upon the Servicer’s written request, 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 the Storm Recovery Property. Notwithstanding any other provision herein, the Issuer shall have
dominion and control over the Storm Recovery Property, and the Servicer, in accordance with the terms hereof, is acting solely as the
servicing agent and custodian for the Issuer with respect to the Storm Recovery Property and the Storm Recovery Property Records for the
Storm Recovery Bonds. The Servicer shall not take any action that is not authorized by this Servicing Agreement or the Financing Order,
that is not consistent with its customary procedures and practices or that shall impair the rights of the Issuer or the Indenture Trustee
(on behalf of the Holders) in the Storm Recovery Property, in each case unless such action is required by applicable law or court or regulatory
order.


 






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ARTICLE
III

ROLE OF SERVICER


 


Section 3.01.           
Duties of Servicer. The Servicer, as agent for the Issuer, shall have the following duties:


 


(a)           Duties of Servicer Generally.


 


(i)            
The Servicer’s duties in general shall include: management, servicing and administration of the Storm Recovery Property;
calculating consumption, billing the Storm Recovery Charges, collecting the Storm Recovery Charges from Customers and posting all collections,
responding to inquiries by Customers, the Commission or any other Governmental Authority with respect to the Storm Recovery Property or
Storm Recovery Charges; investigating and handling delinquencies (and furnishing reports with respect to such delinquencies to the Issuer),
processing and depositing collections and making periodic remittances; furnishing periodic and current reports to the Issuer, the Commission,
the Indenture Trustee and the Rating Agencies; making all filings with the Commission and taking such other action as may be necessary
to perfect the Issuer’s ownership interests in and the Indenture Trustee’s first priority Lien on the Storm Recovery Property;
making all filings and taking such other action as may be necessary to perfect and maintain the perfection and priority of the Indenture
Trustee’s Lien on all Storm Recovery Collateral; selling as the agent for the Issuer, as its interests may appear, defaulted or
written off accounts in accordance with the Servicer’s usual and customary practices; taking all necessary action in connection
with True-Up Adjustments as set forth herein; and performing such other duties as may be specified under the Financing Order to be performed
by it. Anything to the contrary notwithstanding, the duties of the Servicer set forth in this Servicing Agreement shall be qualified in
their entirety by any Commission Regulations, the Financing Order and the U.S. federal securities laws and the rules and regulations promulgated
thereunder, including without limitation, Regulation AB1,
as in effect at the time such duties are to be performed. Without limiting the generality of this Section 3.01(a)(i), 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, consumption and bill calculation, billing, customer service functions, collections, posting, payment processing and
remittance set forth in Exhibit A. Any processing and depositing of collections, making of periodic remittances and furnishing
of periodic reports set forth in this Section 3.01(a)(i) shall be subject to the provisions of the Intercreditor Agreement.


 


(b)           Reporting Functions.


 


(i)           
Monthly Servicer’s Certificate. On or before the last Servicer Business Day of each month, the Servicer shall prepare
and deliver to the Issuer, the Indenture Trustee, the Commission and the Rating Agencies a written report substantially in the form of
Exhibit B (a “Monthly Servicer’s Certificate”) setting forth certain information relating to Storm Recovery
Charge Payments in connection with the Storm Recovery Charges received by the Servicer during the Collection Period preceding such date;
provided, however, that, for any month in which the Servicer is required to deliver a Semi-Annual Servicer’s Certificate pursuant
to Section 4.01(c)(ii), the Servicer shall prepare and deliver the Monthly Servicer’s Certificate no later than the date
of delivery of such Semi-Annual Servicer’s Certificate.


 





 






1 Note to Draft: May be edited
based on SEC comments.


 






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


 


(iii)           Other Information. Upon the
reasonable request of the Issuer, the Indenture Trustee, the Commission or any Rating Agency, the Servicer shall provide to the Issuer,
the Indenture Trustee, the Commission or such Rating Agency, as the case may be, any public financial information in respect of the Servicer,
or any material information regarding the Storm Recovery Property to the extent it is reasonably available to the Servicer, as may be
reasonably necessary and permitted by law to enable the Issuer, the Indenture Trustee, the Commission or the Rating Agencies to monitor
the performance by the Servicer hereunder; provided however, that any such request by the Indenture Trustee shall not create any obligation
for the Indenture Trustee to monitor the performance of the Servicer. In addition, so long as any of the Storm Recovery Bonds are outstanding,
the Servicer shall provide the Issuer, the Commission and the Indenture Trustee 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 Storm Recovery Charges applicable
to each Storm Recovery Rate Class.


 


(iv)           Preparation of Reports. The
Servicer shall prepare and deliver such additional reports as required under this Servicing Agreement, including a copy of each Semi-Annual
Servicer’s Certificate described in Section 4.01(c)(ii), the annual Certificate of Compliance described in Section 3.03
and the Annual Accountant’s Report described in Section 3.04. In addition, 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 or the Depositor under the U.S.
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 and required by applicable law, a copy or copies of (A) the Monthly Servicer’s
Certificates described in Section 3.01(b)(i) (under Form 10-D or any other applicable form), (B) the Semi-Annual Servicer’s
Certificates described in Section 4.01(c)(ii) (under Form 10-D or any other applicable form), (C) the annual statements of compliance,
attestation reports and other certificates described in Section 3.03 and (D) the Annual Accountant’s Report (and any attestation
required under Regulation AB) described in Section 3.04. In addition, the appropriate officer or officers of the Servicer shall
(in its separate capacity as Servicer) sign the Depositor’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 U.S. federal securities laws and/or any other applicable law.


 






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(c)           Opinions of Counsel. The Servicer shall
obtain on behalf of the Issuer and deliver to the Issuer and the Indenture Trustee:


 


(i)           
promptly after the execution and delivery of this Servicing Agreement and of each amendment hereto, an Opinion of Counsel from
external counsel of the Issuer either (A) to the effect that, in the opinion of such counsel, all filings, including filings with the
Secretary of State of the State of North Carolina, the Secretary of State of the State of Delaware and all filings pursuant to the UCC,
that are necessary under the UCC and the Storm Recovery Law to perfect or maintain, as applicable, the Liens of the Indenture Trustee
in the Storm Recovery Property have been authorized, executed and filed, and reciting the details of such filings or referring to prior
Opinions of Counsel in which such details are given, or (B) to the effect that, in the opinion of such counsel, no such action shall be
necessary to preserve, protect and perfect such Liens; and


 


(ii)            within ninety (90) days after the
beginning of each calendar year beginning with the first calendar year beginning more than three months after the date hereof, an Opinion
of Counsel, which counsel may be an employee of or counsel to the Issuer or the Servicer and which shall be reasonably satisfactory to
the Indenture Trustee, or, in the Indenture Trustee’s sole judgment, external counsel of the Issuer, dated as of a date during
such 90-day period, either (A) to the effect that, in the opinion of such counsel, all filings, including filings with the Secretary
of State of the State of North Carolina, the Secretary of State of the State of Delaware and all filings pursuant to the UCC, have been
authorized, executed and filed that are necessary under the UCC and the Storm Recovery Law to maintain the Liens of the Indenture Trustee
in the Storm Recovery Property, and reciting the details of such filings or referring to prior Opinions of Counsel in which such details
are given, or (B) to the effect that, in the opinion of such counsel, no such action shall be necessary to preserve, protect and perfect
such Liens.


 


Each Opinion of Counsel referred to in Section
3.01(c)(i) or Section 3.01(c)(ii) above shall specify any action necessary (as of the date of such opinion) to be taken in
the following year to perfect or maintain, as applicable, such interest or Lien.


 


Section 3.02.           
Servicing and Maintenance Standards. The Servicer will monitor payments and impose collection policies on Customers, as
permitted under the Financing Order and the rules of the Commission. On behalf of the Issuer, the Servicer shall: (a) manage, service,
administer, bill, charge, collect, receive and post collections in respect of the Storm Recovery Property with reasonable care and in
material compliance with each applicable Requirement of Law, including all applicable Commission Regulations and guidelines, using the
same degree of care and diligence that the Servicer exercises with respect to similar assets for its own account and, if applicable, for
others; (b) follow standards, policies and procedures in performing its duties as Servicer that are customary in the electric distribution
industry; (c) use all reasonable efforts, consistent with its customary servicing procedures, to enforce, and maintain rights in respect
of, the Storm Recovery Property and to impose, bill, charge, collect, receive and post the Storm Recovery Charges; (d) comply with each
Requirement of Law, including all applicable Commission Regulations and guidelines, applicable to and binding on it relating to the Storm
Recovery Property; (e) file all reports with the Commission required by the Financing Order; (f) file and maintain the effectiveness of
UCC financing statements filed with the Secretary of State of the State of North Carolina with respect to the property transferred under
the Sale Agreement; and (g) take such other action on behalf of the Issuer to ensure that the Lien of the Indenture Trustee on the Storm
Recovery Collateral remains perfected and of first priority. 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 Storm Recovery Property, which, in the Servicer’s
judgment, may include the taking of legal action, at the Issuer’s expense but subject to the priority of payments set forth in Section
8.02(e) of the Indenture.


 






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Section 3.03.           
Annual Reports on Compliance with Regulation AB.


 


(a)            The Servicer shall deliver to the Issuer, the
Indenture Trustee, the Commission and the Rating Agencies, on or before the earlier of (a) March 31 of each year or (b) with respect
to each calendar year during which the Depositor’s annual report on Form 10-K is required to be filed in accordance with the Exchange
Act and the rules and regulations thereunder, the date on which such annual report on Form 10-K is required to be filed in accordance
with the Exchange Act and the rules and regulations thereunder, certificates from a Responsible Officer of the Servicer (i) containing,
and certifying as to, the statements of compliance required by Item 1123 (or any successor or similar items or rule) of Regulation AB,
as then in effect, and (ii) containing, and certifying as to, the statements and assessment of compliance required by Item 1122(a) (or
any successor or similar items or rule) of Regulation AB, as then in effect. These certificates may be in the form of, or shall include
the forms attached as Exhibit D and Exhibit E, with, in the case of Exhibit D, such changes as may be required to
conform to the applicable securities law.


 


(b)           The Servicer shall use commercially reasonable
efforts to obtain, from each other party participating in the servicing function, any additional certifications as to the statements
and assessment required under Item 1122 (or any successor or similar items or rule) or Item 1123 of Regulation AB to the extent required
in connection with the filing of the annual report on Form 10-K; provided, however, that a failure to obtain such certifications shall
not be a breach of the Servicer’s duties hereunder. The parties acknowledge that the Indenture Trustee’s certifications shall
be limited to the Item 1122 certifications described in Exhibit C of the Indenture.


 


(c)           The initial Servicer, in its capacity as Depositor,
shall post on its or its parent company’s website and file with or furnish to the SEC, in periodic reports and other reports as
are required from time to time under Section 13 or Section 15(d) of the Exchange Act, the information described in Section 3.07(g) of
the Indenture to the extent such information is reasonably available to the Depositor.


 


(d)           Except to the extent permitted by applicable
law, the Issuer, shall not voluntarily suspend or terminate its filing obligations as issuing entity with the SEC as described in Section
3.03(c).


 






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Section 3.04.           
Annual Report by Independent Registered Public Accountants.


 


(a)            The Servicer, at its own expense in partial
consideration of the Servicing Fee paid to it, shall cause a firm of Independent registered public accountants (which may provide other
services to the Servicer or the Seller) to prepare annually, and the Servicer shall deliver annually to the Issuer, the Indenture Trustee,
the Commission and the Rating Agencies on or before the earlier of (i) March 31 of each year, beginning March 31, [2023], or (ii) with
respect to each calendar year during which the Issuer’s annual report on Form 10-K is required to be filed in accordance with the
Exchange Act and the rules and regulations thereunder, the date on which such annual report on Form 10-K is required to be filed in accordance
with the Exchange Act and the rules and regulations thereunder, a report (the “Annual Accountant’s Report”)
regarding the Servicer’s assessment of compliance with the servicing criteria set forth in Item 1122(d) of Regulation AB during
the immediately preceding twelve (12) months ended December 31 (or, in the case of the first Annual Accountant’s Report to be delivered
on or before March 31, 2023, the period of time from the date of this Agreement until December 31, 2022), in accordance with paragraph
(b) of Rule 13a-18 and Rule 15d-18 of the Exchange Act and Item 1122 of Regulation AB. Such report shall be signed by an authorized officer
of the Servicer and shall at a minimum address each of the servicing criteria specified in Exhibit C-1. 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 delivered pursuant to Section 3.04(a) shall also indicate that the accounting firm providing such report is independent
of the Servicer in accordance with the rules of the Public Company Accounting Oversight Board and shall include any attestation report
required under Item 1122(b) of Regulation AB, as then in effect. The costs of the Annual Accountant’s Report shall be reimbursable
as an Operating Expense under the Indenture.


 


ARTICLE
IV

SERVICES RELATED TO TRUE-UP ADJUSTMENTS


 


Section 4.01.           
True-Up Adjustments. From time to time, until the Collection in Full of the Charges for the Storm Recovery Bonds, the Servicer
shall identify the need for Semi-Annual True-Up Adjustments, and Optional Interim True-Up Adjustments and shall take all reasonable action
to obtain and implement such True-Up Adjustments, all in accordance with the following:


 


(a)           Expected Sinking Fund Schedule. The Expected
Sinking Fund Schedule for the Storm Recovery Bonds is attached hereto as Exhibit F. If the Expected Sinking Fund Schedule is revised,
the Servicer shall send a copy of such revised Expected Sinking Fund Schedule to the Issuer, the Indenture Trustee, the Commission and
the Rating Agencies promptly thereafter.


 






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(b)           True-Up Adjustments.


 


(i)            
Semi-Annual True-Up Adjustments and Filings. At the beginning of Duke Energy Carolinas’s billing cycle for [March]
and [September], and at least every three months beginning twelve months prior to the Scheduled Final Payment Date for the latest maturing
tranche, the Servicer shall: (A) update the data and assumptions underlying the calculation of the Storm Recovery Charges, including projected
electricity consumption during the next two Remittance Period for each Storm Recovery Rate Class and including Periodic Principal, interest
and estimated expenses and fees of the Issuer to be paid during such period, the Weighted Average Days Outstanding and write-offs; (B)
determine the Periodic Payment Requirements and Periodic Billing Requirement for the next two Remittance Period based on such updated
data and assumptions; (C) determine the Storm Recovery Charges to be allocated to each Storm Recovery Rate Class during the next two Remittance
Period based on such Periodic Billing Requirement and the terms of the Financing Order, the Tariff and any other tariffs filed pursuant
thereto; (D) make all required public notices and other filings with the Commission to reflect the revised Storm Recovery Charges, including
any Amendatory Schedule; and (E) take all reasonable actions and make all reasonable efforts to effect such Semi-Annual True-Up Adjustment
and to enforce the provisions of the Storm Recovery Law and the Financing Order; provided, that, in the case of any Semi-Annual True-Up
Adjustment following the Scheduled Final Payment Date for the latest maturing tranche of the Storm Recovery Bonds, the Semi-Annual True-Up
Adjustment will be calculated to ensure that the Storm Recovery Charges are sufficient to pay the Storm Recovery Bonds in full on the
next Payment Date. The Servicer shall implement the revised Storm Recovery Charges, if any, resulting from such Semi-Annual True-Up Adjustment
as of the Semi-Annual True-Up Adjustment Date.


 


(ii)            Optional Interim True-Up Adjustments
and Filings. No later than 30 days prior to the first day of the applicable monthly billing cycle, the Servicer shall: (A) update
the data and assumptions underlying the calculation of the Storm Recovery Charges, including projected electricity consumption during
the next two Remittance Period for each Storm Recovery Rate Class and including Periodic Principal, interest and estimated expenses and
fees of the Issuer to be paid during such period, the rate of delinquencies and write-offs; (B) determine the Periodic Payment Requirement
and Periodic Billing Requirement for the next two Remittance Period based on such updated data and assumptions; and (C) based upon such
updated data and requirements, project whether existing and projected Storm Recovery Charge Collections together with available fund
balances in the Excess Funds Subaccount, will be sufficient (x) to make on a timely basis all scheduled payments of Periodic Principal
and interest in respect of each Outstanding tranche of Storm Recovery Bonds during such Remittance Period, (y) to pay other Ongoing Financing
Costs on a timely basis and (z) to maintain the Capital Subaccount at the Required Capital Level. If the Servicer determines that Storm
Recovery Charges will not be sufficient for such purposes, the Servicer shall, no later than the date described in the first sentence
of this Section 4.01(b)(ii): (1) determine the Storm Recovery Charges to be allocated to each Storm Recovery Rate Class during
the next two Remittance Period based on such Periodic Billing Requirement and the terms of the Financing Order, the Tariff and other
tariffs filed pursuant thereto; (2) make all required public notices and other filings with the Commission to reflect the revised Storm
Recovery Charges, including any Amendatory Schedule; and (3) take all reasonable actions and make all reasonable efforts to effect such
Optional Interim True-Up Adjustment and to enforce the provisions of the Storm Recovery Law and the Financing Order.


 






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(c)          
Reports.


 


(i)           
Notification of Amendatory Schedule Filings and True-Up Adjustments. Whenever the Servicer files an Amendatory Schedule
with the Commission or implements revised Storm Recovery Charges with notice to the Commission without filing an Amendatory Schedule,
the Servicer shall send a copy of such filing or notice (together with a copy of all notices and documents that, in the Servicer’s
reasonable judgment, are material to the adjustments effected by such Amendatory Schedule or notice) to the Issuer, the Indenture Trustee
and the Rating Agencies concurrently therewith. If, for any reason any revised Storm Recovery Charges are not implemented and effective
on the applicable date set forth herein, the Servicer shall notify the Issuer, the Indenture Trustee and each Rating Agency by the end
of the second Servicer Business Day after such applicable date.


 


(ii)           
Semi-Annual Servicer’s Certificate. Not later than five (5) Servicer Business Days prior to each Payment Date or Special
Payment Date, the Servicer shall deliver a written report substantially in the form of Exhibit C (the “Semi-Annual Servicer’s
Certificate”) to the Issuer, the Indenture Trustee, the Commission and the Rating Agencies, which shall include all of the following
information (to the extent applicable and including any other information so specified in the Series Supplement) as to the Storm Recovery
Bonds with respect to such Payment Date or Special Payment Date or the period since the previous Payment Date, as applicable:


 


(A)             the
amount of the payment to Holders allocable to principal, if any;


 


(B)             
the amount of the payment to Holders allocable to interest;


 


(C)             
the aggregate Outstanding Amount of the Storm Recovery Bonds, before and after giving effect to any payments allocated to principal
reported under Section 4.01(c)(ii)(A);


 






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(D)             the difference, if any, between the
amount specified in Section 4.01(c)(ii)(C) and the Outstanding Amount specified in the Expected Sinking Fund Schedule;


 


(E)             
any other transfers and payments to be made on such Payment Date or Special Payment Date, including amounts paid to the Indenture
Trustee and to the Servicer; and


 


(F)             
the amounts on deposit in the Capital Subaccount and the Excess Funds Subaccount, after giving effect to the foregoing payments.


 


(iii)          
Reports to Customers.


 


(A)             After each revised Storm Recovery
Charge has gone into effect pursuant to a True-Up Adjustment, the Servicer shall, to the extent and in the manner and time frame required
by any applicable Commission Regulations cause to be prepared and delivered to Customers any required notices announcing such revised
Storm Recovery Charges.


 


(B)             
The Servicer shall comply with the requirements of the Financing Order with respect to the filing of the Storm Recovery Rate Schedule
to ensure that the Storm Recovery Charges are separate and apart from the Servicer’s other charges and appear as a separate line
item on the Bills sent to Customers.


 


Section 4.02.         
Limitation of Liability.


 


(a)          
The Issuer and the Servicer expressly agree and acknowledge that:


 


(i)           
In connection with any True-Up Adjustment, the Servicer is acting solely in its capacity as the servicing agent hereunder.


 


(ii)          
None of the Servicer, the Issuer or the Indenture Trustee is responsible in any manner for, and shall have no liability whatsoever
as a result of, any action, decision, ruling or other determination made or not made, or any delay (other than any delay resulting from
the Servicer’s failure to make any filings required by Section 4.01 in a timely and correct manner or any breach by the Servicer
of its duties under this Servicing Agreement that adversely affects the Storm Recovery Property or the True-Up Adjustments), by the Commission
in any way related to the Storm Recovery Property or in connection with any True-Up Adjustment, the subject of any filings under Section
4.01, any proposed True-Up Adjustment or the approval of any revised Storm Recovery Charges and the scheduled adjustments thereto.


 






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(iii)          Except to the extent that the Servicer
is liable under Section 6.02, the Servicer shall have no liability whatsoever relating to the calculation of any revised Storm
Recovery Charges and the scheduled adjustments thereto, including as a result of any inaccuracy of any of the assumptions made in such
calculation regarding expected energy consumption volume and the Weighted Average Days Outstanding, write-offs and estimated expenses
and fees of the Issuer so long as the Servicer has acted in good faith and has not acted in a negligent manner in connection therewith,
nor shall the Servicer have any liability whatsoever as a result of any Person, including the Holders, not receiving any payment, amount
or return anticipated or expected or in respect of any Storm Recovery Bond.


 


(b)           Notwithstanding the foregoing, this Section 4.02 shall not relieve the Servicer of liability for any misrepresentation by
the Servicer under Section 6.01 or for any breach by the Servicer of its other obligations under this Servicing Agreement.


 


ARTICLE
V

THE STORM RECOVERY PROPERTY


 


Section 5.01.         
Custody of Storm Recovery Property Records. To assure uniform quality in servicing the Storm Recovery Property and to reduce
administrative costs, the Issuer hereby revocably appoints the Servicer, and the Servicer hereby accepts such appointment, to act as the
agent of the Issuer as custodian of any and all documents and records that the Seller shall keep on file, in accordance with its customary
procedures, relating to the Storm Recovery Property, including copies of the Financing Order and Amendatory Schedules relating thereto
and all documents filed with the Commission in connection with any True-Up Adjustment and computational records relating thereto (collectively
for the Storm Recovery Bonds, the “Storm Recovery Property Records”), which are hereby constructively delivered to
the Indenture Trustee, as pledgee of the Issuer with respect to all Storm Recovery Property.


 


Section 5.02.         
Duties of Servicer as Custodian.


 


(a)           
Safekeeping. The Servicer shall hold the Storm Recovery Property Records on behalf of the Issuer and the Indenture Trustee
and maintain such accurate and complete accounts, records and computer systems pertaining to the Storm Recovery Property Records as shall
enable the Issuer and the Indenture Trustee, as applicable, to comply with this Servicing Agreement, the Sale Agreement and the Indenture.
In performing its duties as custodian, the Servicer shall act with reasonable care, using that degree of care and diligence that the Servicer
exercises with respect to comparable assets that the Servicer services for itself or, if applicable, for others. The Servicer shall promptly
report to the Issuer, the Indenture Trustee, the Commission and the Rating Agencies any failure on its part to hold the Storm Recovery
Property Records 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 Storm Recovery Property Records. The Servicer’s duties to hold the Storm Recovery Property Records set forth in this Section
5.02, to the extent the Storm Recovery Property Records have not been previously transferred to a successor Servicer pursuant to ARTICLE
VII, shall terminate one year and one day after the earlier of (i) the date on which the Servicer is succeeded by a successor Servicer
in accordance with ARTICLE VII and (ii) the first date on which no Storm Recovery Bonds are Outstanding.


 






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(b)          
Maintenance of and Access to Records. The Servicer shall maintain the Storm Recovery Property Records at 410 South Wilmington
Street, Raleigh, North Carolina 27601-1748 or at its facility located at Iron Mountain, 3125 Parkside Drive, Charlotte, North Carolina
28208, or at such other office as shall be specified to the Issuer, the Commission, Public Staff and the Indenture Trustee by written
notice at least 30 days prior to any change in location. The Servicer shall make available for inspection, audit and copying to the Issuer,
the Commission, the Public Staff and the Indenture Trustee or their respective duly authorized representatives, attorneys or auditors
the Storm Recovery Property Records at such times during normal business hours as the Issuer, the Commission, the Public Staff or the
Indenture Trustee shall reasonably request and that do not unreasonably interfere with the Servicer’s normal operations. Nothing
in this Section 5.02(b) shall affect the obligation of the Servicer to observe any applicable law (including any Commission Regulation)
prohibiting disclosure of information regarding Customers, and the failure of the Servicer to provide access to such information as a
result of such obligation shall not constitute a breach of this Section 5.02(b).


 


(c)          
Release of Documents. Upon instruction from the Indenture Trustee in accordance with the Indenture, the Servicer shall release
any Storm Recovery Property Records to the Indenture Trustee, the Indenture Trustee’s agent or the Indenture Trustee’s designee,
as the case may be, at such place or places as the Indenture Trustee may designate, as soon as practicable. Nothing in this Section
5.02(c) shall affect the obligation of the Servicer to observe any applicable law (including any Commission Regulation) prohibiting
disclosure of information regarding Customers, and the failure of the Servicer to provide access to such information as a result of such
obligation shall not constitute a breach of this Section 5.02(c).


 


(d)          
Defending Storm Recovery Property Against Claims. To the extent not undertaken by the Seller pursuant to Section 4.08 of
the Sale Agreement, the Servicer shall negotiate for the retention of legal counsel and such other experts as may be needed to institute
and maintain any action or proceeding, on behalf of and in the name of the Issuer, necessary to compel performance by the Commission or
the State of North Carolina of any of their obligations or duties under the Storm Recovery Law and the Financing Order, and the Servicer
agrees to assist the Issuer and its legal counsel in taking such legal or administrative actions, including defending against or instituting
and pursuing legal actions and appearing or testifying at hearings or similar proceedings, as may be reasonably necessary to attempt to
block or overturn any attempts to cause a repeal of, modification of or supplement to the Storm Recovery Law or the Financing Order, or
the rights of holders of Storm Recovery Property by legislative enactment, constitutional amendment or other means that would be adverse
to Holders or any series of additional Storm Recovery Bonds. In any proceedings related to the exercise of the power of eminent domain
by any municipality to acquire a portion of Duke Energy Carolinas’s electric distribution facilities, the Servicer will assert that
the court ordering such condemnation must treat such municipality as a successor to Duke Energy Carolinas under the Storm Recovery Law
and the Financing Order. The costs of any such action shall be payable as an Operating Expense in accordance with the priorities set forth
in Section 8.02(d) of the Indenture and any additional indenture. The Servicer’s obligations pursuant to this Section 5.02 shall
survive and continue notwithstanding the fact that the payment of Operating Expenses pursuant to Section 8.02 of the Indenture and any
supplemental indenture may be delayed; provided, that, the Servicer is obligated to institute and maintain such action or proceedings
only if it is being reimbursed on a current basis for its costs and expenses in taking such actions in accordance with Section 8.02 of
the Indenture and any additional indenture, and is not required to advance its own funds to satisfy these obligations.


 






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Section 5.03.         
Custodian’s Indemnification. The Servicer as custodian shall indemnify the Issuer, any Independent Manager and the
Indenture Trustee (for itself and for the benefit of the Holders) and each of their respective officers, directors, employees and agents
for, and defend and hold harmless each such Person from and against, any and all liabilities, obligations, losses, damages, payments and
claims, and reasonable costs or expenses, of any kind whatsoever (collectively, “Indemnified Losses”) that may be imposed
on, incurred by or asserted against each such Person as the result of any negligent act or omission in any way relating to the maintenance
and custody by the Servicer, as custodian, of the Storm Recovery Property Records; provided, however, that the Servicer shall not be liable
for any portion of any such amount resulting from the willful misconduct, bad faith or gross negligence of the Issuer, any Independent
Manager or the Indenture Trustee, as the case may be.


 


Indemnification under this Section 5.03 shall
survive resignation or removal of the Indenture Trustee or any Independent Manager and shall include reasonable out-of-pocket fees and
expenses of investigation and litigation (including reasonable attorneys’ fees and expenses).


 


Section 5.04.         
Effective Period and Termination. The Servicer’s appointment as custodian shall become effective as of the Closing
Date and shall continue in full force and effect until terminated pursuant to this Section 5.04. If the Servicer shall resign as
Servicer in accordance with the provisions of this Servicing Agreement or if all of the rights and obligations of the Servicer shall have
been terminated under Section 7.01, the appointment of the Servicer as custodian shall be terminated effective as of the date on
which the termination or resignation of the Servicer is effective. Additionally, if not sooner terminated as provided above, the Servicer’s
obligations as custodian shall terminate one year and one day after the date on which no Storm Recovery Bonds are Outstanding. Duke Energy
Carolinas shall not resign as Servicer if such resignation does not satisfy the Rating Agency Condition or without consent of the Commission.


 


Section 5.05.         
Third-Party Suppliers. So long as any of the Storm Recovery Bonds are Outstanding, the Servicer shall take reasonable efforts
to assure that no TPS bills or collects Storm Recovery Charges on behalf of the Issuer unless required by applicable law or regulation
and, to the extent permitted by applicable law or regulation, the Rating Agency Condition is satisfied. If an TPS does bill or collect
Storm Recovery Charges on behalf of the Issuer, upon the reasonable request of the Issuer, the Commission, the Indenture Trustee, or any
Rating Agency, the Servicer shall take reasonable steps to assure that such a TPS provides to the Issuer, the Commission, the Indenture
Trustee or the Rating Agencies, as the case may be, any public financial information in respect of such TPS, or any material information
regarding the Storm Recovery Property to the extent it is reasonably available to such TPS, as may be reasonably necessary and permitted
by law for the Issuer, the Commission, the Indenture Trustee or the Rating Agencies to monitor such TPS’ performance hereunder.
In addition, so long as any of the Storm Recovery Bonds are Outstanding, Servicer will use commercially reasonable efforts to ensure that
such TPS provide to the Issuer and to the Indenture Trustee, within a reasonable time after written request therefor, any information
available to the TPS or reasonably obtainable by it that is necessary to calculate the Storm Recovery Charges.


 






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ARTICLE
VI

THE SERVICER


 


Section 6.01.         
Representations and Warranties of Servicer. The Servicer makes the following representations and warranties, as of the Closing
Date, and as of such other dates as expressly provided in this Section 6.01, on which the Issuer and the Indenture Trustee are
deemed to have relied in entering into this Servicing Agreement relating to the servicing of the Storm Recovery Property, and on which
the Commission relied in exercising its rights to review and provide input pursuant to the terms of the Financing Order. The representations
and warranties shall survive the execution and delivery of this Servicing Agreement, the sale of the Storm Recovery Property and the pledge
thereof to the Indenture Trustee pursuant to the Indenture.


 


(a)          
Organization and Good Standing. The Servicer is duly organized, validly existing and is in good standing under the laws
of the state of its organization, with requisite power and authority to own its properties, to conduct its business as such properties
are currently owned and such business is presently conducted by it, to service the Storm Recovery Property and hold the records related
to the Storm Recovery Property, and to execute, deliver and carry out the terms of this Servicing Agreement and the Intercreditor Agreement.


 


(b)          
Due Qualification. The Servicer is duly qualified to do business, is in good standing and has obtained all necessary licenses
and approvals in all jurisdictions in which the ownership or lease of property or the conduct of its business (including the servicing
of the Storm Recovery Property as required under this Servicing Agreement) requires such qualifications, licenses or approvals (except
where a failure to qualify would not be reasonably likely to have a material adverse effect on the Servicer’s business, operations,
assets, revenues or properties or to its servicing of the Storm Recovery Property).


 


(c)          
Power and Authority. The execution, delivery and performance of the terms of this Servicing Agreement and the Intercreditor
Agreement have been duly authorized by all necessary action on the part of the Servicer under its organizational or governing documents
and laws.


 


(d)          
Binding Obligation. Each of this Servicing Agreement and the Intercreditor Agreement constitutes a legal, valid and binding
obligation of the Servicer enforceable against the Servicer in accordance with its respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and other laws relating to or affecting creditors’ rights generally
from time to time in effect and to general principles of equity (including concepts of materiality, reasonableness, good faith and fair
dealing), regardless of whether considered in a proceeding in equity or at law.


 






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(e)          
No Violation. The consummation of the transactions contemplated by the Servicing Agreement and the Intercreditor Agreement
do not conflict with, result in any breach of or constitute (with or without notice or lapse of time) a default under the Servicer’s
organizational documents or any indenture or other agreement or instrument to which the Servicer is a party or by which it or any of its
property is bound, result in the creation or imposition of any Lien upon the Servicer’s properties pursuant to the terms of any
such indenture or agreement or other instrument (other than any Lien that may be granted in favor of the Indenture Trustee for the benefit
of Holders under the Basic Documents) or violate any existing law or any existing order, rule or regulation applicable to the Servicer
of any Governmental Authority having jurisdiction over the Servicer or its properties.


 


(f)           
No Proceedings. To the Servicer’s knowledge, there are no proceedings or investigations pending or, to the Servicer’s
knowledge, threatened against the Servicer 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 Storm Recovery Bonds or
the consummation of the transactions contemplated by this Servicing Agreement or any of the other Basic Documents, or, if applicable,
any supplement to the Indenture or amendment to the 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 Servicing Agreement or any of the other Basic Documents or, if applicable, any supplement to the Indenture or amendment to the Sale
Agreement; or (iii) relating to the Servicer and which might materially and adversely affect the treatment of the Storm Recovery Bonds
for federal or state income, gross receipts or franchise tax purposes;


 


(g)          
Approvals. No governmental approvals, authorizations, consents, orders or other actions or filings with any Governmental
Authority are required for the Servicer to execute, deliver and perform its obligations under the Servicing Agreement except those that
have previously been obtained or made, those that are required to be made by the Servicer in the future pursuant to Article IV or the
Intercreditor Agreement and those that the Servicer may need to file in the future to continue the effectiveness of any financing statements;
and


 


(h)          
Reports and Certificates. Each report and certificate delivered in connection with any filing made to the Commission by
the Servicer on behalf of the Issuer with respect to the Storm Recovery 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 facts known
to the Servicer on the date such report or certificate is delivered).


 






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The Servicer, the Indenture Trustee and the Issuer
are not responsible as a result of any action, decision, ruling or other determination made or not made, or any delay (other than any
delay resulting from the Servicer’s failure to make any filings with the North Carolina Commission required by this Servicing Agreement
in a timely and correct manner or any breach by the Servicer of its duties under the Servicing Agreement that adversely affects the Storm
Recovery Property or the True-Up Adjustments), by the North Carolina Commission in any way related to the Storm Recovery Property or in
connection with any True-Up Adjustment, the subject of any such filings, any proposed True-Up Adjustment or the approval of any revised
Storm Recovery Charges and the scheduled adjustments thereto. Except to the extent that the Servicer otherwise is liable under the provisions
of this Servicing Agreement, the Servicer shall have no liability whatsoever relating to the calculation of any revised storm recovery
charges and the scheduled adjustments thereto, including as a result of any inaccuracy of any of the assumptions made in such calculations,
so long as the Servicer has acted in good faith and has not acted in a negligent manner in connection therewith, nor shall the Servicer
have any liability whatsoever as a result of any person or entity, including the Holders, not receiving any payment, amount or return
anticipated or expected or in respect of any Storm Recovery Bond generally.


 


Section 6.02.         
Indemnities of Servicer; Release of Claims. The Servicer shall be liable in accordance herewith only to the extent of the
obligations specifically undertaken by the Servicer under this Servicing Agreement.


 


(a)           The Servicer shall indemnify the Issuer, the Indenture Trustee (for itself and for the benefit of the Holders) and the Independent
Manager and each of their respective trustees, officers, directors, employees and agents (each, an “Indemnified Party”),
for, and defend and hold harmless each such Person from and against, any and all Indemnified Losses imposed on, 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, or
reckless disregard of, its duties or observance of its covenants under the Servicing Agreement and the Intercreditor Agreement, (ii) the
Servicer’s material breach of any of its representations or warranties that results in a Servicer Default under this Servicing Agreement
or a default under the Intercreditor Agreement; and (iii) litigation and related expenses relating to the Servicer’s status and
obligations as Servicer (other than any proceeding the Servicer is required to institute under this Servicing Agreement), except to the
extent of Indemnified Losses either resulting from the willful misconduct, bad faith or gross negligence of such Person seeking indemnification
hereunder or resulting from a breach of a representation or warranty made by such Person seeking indemnification hereunder in any of the
Basic Documents that gives rise to the Servicer’s breach.


 


(b)          
For purposes of Section 6.02(a), in the event of the termination of the rights and obligations of Duke Energy Carolinas
(or any successor thereto pursuant to Section 6.03) as Servicer pursuant to Section 7.01, or a resignation by such Servicer
pursuant to this Servicing Agreement, such Servicer shall be deemed to be the Servicer pending appointment of a successor Servicer pursuant
to Section 7.02.


 


(c)          
Indemnification under this Section 6.02 shall survive any repeal of, modification of, or supplement to, or judicial invalidation
of, the Storm Recovery Law or the Financing Order and shall survive the resignation or removal of the Indenture Trustee or any Independent
Manager or the termination of this Servicing Agreement and shall include reasonable out-of-pocket fees and expenses of investigation and
litigation (including reasonable attorneys’ fees and expenses).


 






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(d)          
Except to the extent expressly provided in this Servicing Agreement or the other Basic Documents (including the Servicer’s
claims with respect to the Servicing Fee and the payment of the purchase price of Storm Recovery Property), the Servicer hereby releases
and discharges the Issuer, any Independent Manager and the Indenture Trustee, and each of their respective officers, directors and agents
(collectively, the “Released Parties”), from any and all actions, claims and demands whatsoever, whenever arising,
which the Servicer, in its capacity as Servicer or otherwise, shall or may have against any such Person relating to the Storm Recovery
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 gross negligence of the Released Parties.


 


(e)           The Servicer will credit Customers to the extent there are higher Storm Recovery Charges, including higher servicing fees payable
to a Successor Servicer, because of the Servicer’s negligence, recklessness, willful misconduct or termination of the Servicing
Agreement for cause, provided, however, that any credit to Customers shall not impact the Storm Recovery Charges or the Storm Recovery
Property. The Servicer’s obligation to credit Customers will survive the termination of the servicing agreement.


 


(f)           
The Servicer shall not be required to indemnify an Indemnified Party for any amount paid or payable by such Indemnified Party in
the settlement of any action, proceeding or investigation without the written consent of the Servicer, which consent shall not be unreasonably
withheld. Promptly after receipt by an Indemnified Party of notice (or, in the case of the Indenture Trustee, receipt of notice by a Responsible
Officer only) of the commencement of any action, proceeding or investigation, such Indemnified Party shall, if a claim in respect thereof
is to be made against the Servicer under this Section 6.02, notify the Servicer in writing of the commencement thereof. Failure
by an Indemnified Party to so notify the Servicer shall relieve the Servicer from the obligation to indemnify and hold harmless such Indemnified
Party under this Section 6.02 only to the extent that the Servicer suffers actual prejudice as a result of such failure. With respect
to any action, proceeding or investigation brought by a third party for which indemnification may be sought under this Section 6.02,
the Servicer shall be entitled to conduct and control, at its expense and with counsel of its choosing that is reasonably satisfactory
to such Indemnified Party, the defense of any such action, proceeding or investigation (in which case the Servicer shall not thereafter
be responsible for the fees and expenses of any separate counsel retained by the Indemnified Party except as set forth below); provided,
that the Indemnified Party shall have the right to participate in such action, proceeding or investigation through counsel chosen by it
and at its own expense. Notwithstanding the Servicer’s election to assume the defense of any action, proceeding or investigation,
the Indemnified Party shall have the right to employ separate counsel (including local counsel), and the Servicer shall bear the reasonable
fees, costs and expenses of such separate counsel, if (i) the defendants in any such action include both the Indemnified Party and the
Servicer and the Indemnified Party shall have reasonably concluded that there may be legal defenses available to it that are different
from or additional to those available to the Servicer, (ii) the Servicer shall not have employed counsel reasonably satisfactory to the
Indemnified Party to represent the Indemnified Party within a reasonable time after notice of the institution of such action, (iii) the
Servicer shall authorize the Indemnified Party to employ separate counsel at the expense of the Servicer or (iv) in the case of the Indenture
Trustee, such action exposes the Indenture Trustee to a material risk of criminal liability or forfeiture or a Servicer Default has occurred
and is continuing. Notwithstanding the foregoing, the Servicer shall not be obligated to pay for the fees, costs and expenses of more
than one separate counsel for the Indemnified Parties other than one local counsel, if appropriate. The Servicer will not, without the
prior written consent of the Indemnified Party, settle or compromise or consent to the entry of any judgment with respect to any pending
or threatened claim, action, suit or proceeding in respect of which indemnification may be sought under this Section 6.02 (whether
or not the Indemnified Party is an actual or potential party to such claim or action) unless such settlement, compromise or consent includes
an unconditional release of the Indemnified Party from all liability arising out of such claim, action, suit or proceeding.


 






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Section 6.03.         
Binding Effect of Servicing Obligations. The obligations to continue to provide service and to collect and account for Storm
Recovery Charges will be binding upon the Servicer, any Successor and any other entity that provides distribution services to a Person
that is a North Carolina retail customer of Duke Energy Carolinas or any Successor so long as the Storm Recovery Charges have not been
fully collected and posted. Any Person (a) into which the Servicer may be merged, converted or consolidated and that is a Permitted Successor,
(b) that may result from any merger, conversion or consolidation to which the Servicer shall be a party and that is a Permitted Successor,
(c) that may succeed to the properties and assets of the Servicer substantially as a whole and that is a Permitted Successor or (d) that
otherwise is a Permitted Successor, which Person in any of the foregoing cases executes an agreement of assumption to perform all of the
obligations of the Servicer hereunder, shall be the successor to the Servicer under this Servicing Agreement without further act on the
part of any of the parties to this Servicing Agreement; provided, however, that (i) immediately after giving effect to such transaction,
no representation or warranty made pursuant to Section 6.01 shall have been breached and no Servicer Default and no event that,
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 Commission and the Indenture Trustee an Officer’s Certificate and an Opinion of Counsel from external
counsel stating that such consolidation, conversion, merger or succession and such agreement of assumption complies with this Section
6.03 and that all conditions precedent, if any, provided for in this Servicing Agreement relating to such transaction have been complied
with, (iii) the Servicer shall have delivered to the Issuer, the Indenture Trustee, the Commission and the Rating Agencies an Opinion
of Counsel from external counsel of the Servicer either (A) stating that, in the opinion of such counsel, all filings to be made by the
Servicer, including filings with the Commission pursuant to the Storm Recovery Law and the UCC, have been executed and filed and are in
full force and effect that are necessary to fully preserve, perfect and maintain the priority of the interests of the Issuer and the Liens
of the Indenture Trustee in the Storm Recovery Property and reciting the details of such filings or (B) stating that, in the opinion of
such counsel, no such action shall be necessary to preserve and protect such interests, (iv) the Servicer shall have delivered to the
Issuer, the Indenture Trustee, the Commission and the Rating Agencies an Opinion of Counsel from independent tax counsel stating that,
for U.S. federal income tax purposes, such consolidation, conversion, merger or succession and such agreement of assumption will not result
in a material adverse U.S. federal income tax consequence to the Issuer or the Holders of Storm Recovery Bonds, (v) the Servicer shall
have given the Rating Agencies prior written notice of such transaction and (vi) any applicable requirements of the Intercreditor Agreement
have been satisfied. When any Person (or more than one Person) acquires the properties and assets of the Servicer substantially as a whole
or otherwise becomes the successor, by merger, conversion, consolidation, sale, transfer, lease or otherwise, to all or substantially
all the assets of the Servicer in accordance with the terms of this Section 6.03, then, upon satisfaction of all of the other conditions
of this Section 6.03, the preceding Servicer shall automatically and without further notice be released from all its obligations
hereunder (except for responsibilities for its actions prior to such release).


 






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Section 6.04.         
Limitation on Liability of Servicer and Others.


 


(a)           
Except as otherwise provided under this Servicing Agreement, neither the Servicer nor any of the directors, officers, employees
or agents of the Servicer shall be liable to the Issuer or any other Person for any action taken or for refraining from the taking of
any action pursuant to this Servicing Agreement or for good faith errors in judgment; provided, however, that this provision shall not
protect the Servicer or any such Person against any liability that would otherwise be imposed by reason of negligence, recklessness or
willful misconduct in the performance of duties or by reason of reckless disregard of obligations and duties under this Servicing Agreement.
The Servicer and any director, officer, employee or agent of the Servicer may rely in good faith on the advice of counsel or on any document
of any kind, prima facie properly executed and submitted by any Person, respecting any matters arising under this Servicing Agreement.


 


(b)          
The Servicer acknowledges under the authority granted to Commission pursuant to Chapter 62 of the North Carolina General Statutes
that the Commission has authority to enter an order enforcing the provisions of this Servicing Agreement, including without limitation
the enforcement of Section 6.02(e) consistent with the Financing Order and Storm Recovery Law.


 


(c)           
Except as provided in this Servicing Agreement, including Section 5.02(d), the Servicer shall not be under any obligation
to appear in, prosecute or defend any legal action relating to the Storm Recovery Property that is not directly related to one of the
Servicer’s enumerated duties in this Servicing Agreement or related to its obligation to pay indemnification, and that in its reasonable
opinion may cause it to incur any expense or liability; provided, however, that the Servicer may, in respect of any Proceeding, undertake
any action that it is not specifically identified in this Servicing Agreement as a duty of the Servicer but that the Servicer reasonably
determines is necessary or desirable in order to protect the rights and duties of the Issuer or the Indenture Trustee under this Servicing
Agreement and the interests of the Holders and Customers under this Servicing Agreement.


 


Section 6.05.         
Duke Energy Carolinas Not to Resign as Servicer. Subject to the provisions of Section 6.03, Duke Energy Carolinas shall
not resign from the obligations and duties imposed on it as Servicer under this Servicing Agreement except upon a determination that the
performance of its duties under this Servicing Agreement shall no longer be permissible under applicable Requirements of Law. Notice of
any such determination permitting the resignation of Duke Energy Carolinas shall be communicated to the Issuer, the Commission, 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 Commission and each Indenture Trustee concurrently with or promptly after such notice. No such resignation shall become
effective until a Successor Servicer has been approved by the Commission and has assumed the servicing obligations and duties hereunder
of the Servicer in accordance with Section 7.02.


 






    19 


     


    

 


Section 6.06.         
Servicing Compensation.


 


(a)           
In consideration for its services hereunder, until the Collection in Full of the Charges, the Servicer shall receive an annual
fee (the “Servicing Fee”) in an amount equal to (i) 0.05% of the aggregate initial principal amount of all Storm Recovery
Bonds plus reimbursable expenses for so long as Duke Energy Carolinas or an Affiliate of Duke Energy Carolinas is the Servicer or (ii)
if Duke Energy Carolinas or any of its Affiliates is not the Servicer, an amount agreed upon by the Successor Servicer and the Indenture
Trustee, provided, that the annual Servicing Fee shall not exceed 0.60% of the aggregate initial principal amount of all Storm Recovery
Bonds, unless the Commission has approved the appointment of the Successor Servicer or the Commission does not act to either approve or
disapprove such appointment on or before the date which is 45 days after notice of the proposed appointment of the Successor Servicer
is provided to the Commission in the same manner substantially as provided in Section 8.01(c). The Servicing Fee owing shall be
calculated based on the initial principal amount of the Storm Recovery Bonds and shall be paid semi-annually, with half of the Servicing
Fee being paid on each Payment Date, except for the amount of the Servicing Fee to be paid on the first Payment Date in which the Servicing
Fee then due will be calculated based on the number of days that this Servicing Agreement has been in effect. In addition, the Servicer
shall be entitled to be reimbursed by the Issuer for filing fees and fees and expenses for attorneys, accountants, printing or other professional
services retained by the Issuer and paid for by the Servicer (or procured by the Servicer on behalf of the Issuer and paid for by the
Servicer) to meet the Issuer’s obligations under the Basic Documents (“Reimbursable Expenses”). Except for such
Reimbursable Expenses, the Servicer shall be required to pay all other costs and expenses incurred by the Servicer in performing its activities
hereunder (but, for the avoidance of doubt, excluding any such costs and expenses incurred by Duke Energy Carolinas in its capacity as
Administrator).


 


(b)          
The Servicing Fee set forth in Section 6.06(a) 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 any such date shall be added
to the Servicing Fee payable on the subsequent Payment Date. In no event shall the Indenture Trustee be liable for the payment of any
Servicing Fee or other amounts specified in this Section 6.06; provided, that this Section 6.06 does not relieve the Indenture
Trustee of any duties it has to allocate funds for payment for such fees under Section 8.02 of the Indenture.


 






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(c)           
The Servicer and the Issuer acknowledge and agree that the Servicer’s actual collections of Storm Recovery Charges on some
days might exceed the Servicer’s deemed collections, and that the Servicer’s actual collections of Storm Recovery Charges
on other days might be less than the Servicer’s deemed collections. The Servicer and the Issuer further acknowledge and agree that
the amount of these variances are likely to be small and are not likely to be biased in favor of over-remittances or under-remittances.
Consequently, so long as the Servicer faithfully makes all daily remittances based on weighted average days sales outstanding, as provided
for herein, the Servicer and the Issuer agree that no actual or deemed investment earnings shall be payable in respect of such over-remittances
or under-remittances. However, the Servicer shall remit at least annually to the Indenture Trustee, for the benefit of the Issuer, any
late charges received from Customers in respect of Storm Recovery Charges.


 


(d)          
The foregoing Servicing Fee constitutes a fair and reasonable compensation for the obligations to be performed by the Servicer.
Such Servicing Fee shall be determined without regard to the income of the Issuer, shall not be deemed to constitute distributions to
the recipient of any profit, loss or capital of the Issuer and shall be considered a fixed Operating Expense of the Issuer subject to
the limitations on such expenses set forth in the Financing Order.


 


(e)          
Any services required for or contemplated by the performance of the above-referenced services by the Servicer to be provided by
unaffiliated third parties 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 Servicer 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
Servicer and reimbursed by the Issuer in accordance with Section 6.06(a), or otherwise as the Servicer and the Issuer may mutually
arrange.


 


Section 6.07.         
Compliance with Applicable Law. The Servicer covenants and agrees, in servicing the Storm Recovery Property, to comply in
all material respects with all laws applicable to, and binding upon, the Servicer and relating to the Storm Recovery Property, the noncompliance
with which would have a material adverse effect on the value of the Storm Recovery Property; provided, however, that the foregoing is
not intended to, and shall not, impose any liability on the Servicer for noncompliance with any Requirement of Law that the Servicer is
contesting in good faith in accordance with its customary standards and procedures. It is expressly acknowledged that the payment of fees
to the Rating Agencies shall be at the expense of the Issuer and that, if the Servicer advances such payments to the Rating Agencies,
the Issuer shall reimburse the Servicer for any such advances.


 


Section 6.08.         
Access to Certain Records and Information Regarding Storm Recovery Property. The Servicer shall provide to the Indenture
Trustee access to the Storm Recovery Property Records for the Storm Recovery Bonds as is reasonably required for the Indenture Trustee
to perform its duties and obligations under the Indenture and the other Basic Documents and shall provide access to such records to the
Holders as required by applicable law. Access shall be afforded without charge, but only upon reasonable request and during normal business
hours at the offices of the Servicer. Nothing in this Section 6.08 shall affect the obligation of the Servicer to observe any applicable
law (including any Commission Regulation) prohibiting disclosure of information regarding Customers, and the failure of the Servicer to
provide access to such information as a result of such obligation shall not constitute a breach of this Section 6.08.


 






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Section 6.09.         
Appointments. The Servicer may at any time appoint any Person to perform all or any portion of its obligations as Servicer
hereunder, including a collection agent acting pursuant to the Intercreditor Agreement; provided, however, that, unless such Person is
an Affiliate of Duke Energy Carolinas, the Rating Agency Condition shall have been satisfied in connection therewith; provided, further,
that the Servicer shall remain obligated and be liable under this Servicing Agreement for the servicing and administering of the Storm
Recovery Property in accordance with the provisions hereof without diminution of such obligation and liability by virtue of the appointment
of such Person and to the same extent and under the same terms and conditions as if the Servicer alone were servicing and administering
the Storm Recovery Property. The fees and expenses of any such Person shall be as agreed between the Servicer and such Person from time
to time, and none of the Issuer, the Indenture Trustee, the Holders or any other Person shall have any responsibility therefor or right
or claim thereto. Any such appointment shall not constitute a Servicer resignation under Section 6.05.


 


Section 6.10.         
No Servicer Advances. The Servicer shall not make any advances of interest on or principal of the Storm Recovery Bonds.


 


Section 6.11.         
Remittances.


 


(a)          
The Storm Recovery Charge Collections on any Servicer Business Day (the “Daily Remittance”) shall be calculated
according to the procedures set forth in Exhibit A and remitted by the Servicer as soon as reasonably practicable to the General
Subaccount of the Collection Account but in no event later than two Servicer Business Days following such Servicer Business Day. Prior
to each remittance to the General Subaccount of the Collection Account pursuant to this Section 6.11, the Servicer shall provide
written notice (which may be via electronic means, including electronic mail) to the Indenture Trustee and, upon request, to the Issuer
of each such remittance (including the exact dollar amount to be remitted). The Servicer shall also, promptly upon receipt, remit to the
Collection Account any other proceeds of the Storm Recovery Collateral that it may receive from time to time. Reconciliations of bank
statements shall be as set forth in Exhibit A.


 


(b)          
The Servicer agrees and acknowledges that it holds all Storm Recovery Charge Payments collected by it and any other proceeds for
the Storm Recovery Collateral received by it for the benefit of the Indenture Trustee and the Holders and that all such amounts will be
remitted by the Servicer in accordance with this Section 6.11 without any surcharge, fee, offset, charge or other deduction except
for and interest earnings permitted by Section 6.06. The Servicer further agrees not to make any claim to reduce its obligation
to remit all Storm Recovery Charge Payments collected by it in accordance with this Servicing Agreement.


 


(c)           
Unless otherwise directed to do so by the Issuer, the Servicer shall be responsible for selecting Eligible Investments in which
the funds in the Collection Account shall be invested pursuant to Section 8.03 of the Indenture.


 


Section 6.12.         
Maintenance of Operations. Subject to Section 6.03, Duke Energy Carolinas agrees to continue, unless prevented by
circumstances beyond its control, to operate its electric distribution system to provide service so long as it is acting as the Servicer
under this Servicing Agreement.


 






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ARTICLE
VII

DEFAULT


 


Section 7.01.         
Servicer Default. If any one or more of the following events (a “Servicer Default”) shall occur and be
continuing:


 


(a)           
any failure by the Servicer to remit to the Collection Account 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 the
Indenture Trustee (with a copy of such notice being provided promptly upon receipt by the Servicer to the Commission) or after discovery
of such failure by a Responsible Officer of the Servicer;


 


(b)           
any failure on the part of the Servicer or, so long as the Servicer is Duke Energy Carolinas or an Affiliate thereof, any failure
on the part of Duke Energy Carolinas, as the case may be, duly to observe or to perform in any material respect any covenants or agreements
of the Servicer or Duke Energy Carolinas, as the case may be, set forth in this Servicing Agreement (other than as provided in Section
7.01(a) or Section 7.01(c)) or any other Basic Document to which it is a party, which failure shall (i) materially and adversely
affect the rights of the Holders and (ii) continue unremedied for a period of 60 days after the date on which (A) written notice of such
failure, requiring the same to be remedied, shall have been given to the Servicer or Duke Energy Carolinas, as the case may be, by the
Issuer, the Commission (with a copy to the Indenture Trustee) or to the Servicer or Duke Energy Carolinas, as the case may be, by the
Indenture Trustee or (B) such failure is discovered by a Responsible Officer of the Servicer;


 


(c)           
any failure by the Servicer duly to perform its obligations under Section 4.01(b) in the time and manner set forth therein,
which failure continues unremedied for a period of five Business Days;


 


(d)           
any representation or warranty made by the Servicer in this Servicing Agreement or any other Basic Document shall prove to have
been incorrect in a material respect when made, which has a material adverse effect on the Holders and which material adverse effect continues
unremedied for a period of 60 days after the date on which (i) written notice thereof, requiring the same to be remedied, shall have been
delivered to the Servicer (with a copy to the Indenture Trustee) by the Issuer or the Indenture Trustee (with a copy of such notice being
provided promptly upon receipt by the Servicer to the Commission), or (ii) such failure is discovered by a Responsible Officer of the
Servicer; or


 






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(e)           
an Insolvency Event occurs with respect to the Servicer or Duke Energy Carolinas;


 


then, and in each and every case, so
long as the Servicer Default shall not have been remedied, either the Indenture Trustee shall, upon the instruction of (i) Holders evidencing
a majority of the Outstanding Amount of the Storm Recovery Bonds or by the Commission, subject to the terms of the Intercreditor Agreement,
(ii) notice then given in writing to the Servicer (and to the Indenture Trustee if given by the Holders) (a “Termination Notice”),
terminate all the rights and obligations (other than the obligations set forth in Section 6.02 and the obligation under Section
7.02 to continue performing its functions as Servicer until a successor Servicer is appointed) of the Servicer under this Servicing
Agreement and under the Intercreditor Agreement; provided, however the Indenture Trustee shall not give a Termination Notice
upon instruction of the Commission unless the Rating Agency Condition is satisfied. In addition, upon a Servicer Default described in
Section 7.01(a), the Holders and the Indenture Trustee as financing parties under the Storm Recovery Law (or any of their representatives)
shall be entitled to apply to the Commission or a court of appropriate jurisdiction for an order for sequestration and payment of revenues
arising with respect to the Storm Recovery Property. On or after the receipt by the Servicer of a Termination Notice, all authority and
power of the Servicer under this Servicing Agreement, whether with respect to the Storm Recovery Bonds, the Storm Recovery Property, the
Storm Recovery Charges or otherwise, shall, without further action, pass to and be vested in such successor Servicer as may be appointed
under Section 7.02; 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, whether to complete the transfer
of the Storm Recovery Property Records and related documents, or otherwise. The predecessor Servicer shall cooperate with the successor
Servicer, the Issuer and the Indenture Trustee in effecting the termination of the responsibilities and rights of the predecessor Servicer
under this Servicing Agreement, including the transfer to the successor Servicer for administration by it of all Storm Recovery Property
Records and all cash amounts that shall at the time be held by the predecessor Servicer for remittance, or shall thereafter be received
by it with respect to the Storm Recovery Property or the Storm Recovery Charges. As soon as practicable after receipt by the Servicer
of such Termination Notice, the Servicer shall deliver the Storm Recovery Property Records to the successor Servicer. In case a successor
Servicer is appointed as a result of a Servicer Default, all reasonable costs and expenses (including reasonable attorneys’ fees
and expenses) incurred in connection with transferring the Storm Recovery Property Records to the successor Servicer and amending this
Servicing Agreement and the Intercreditor Agreement to reflect such succession as Servicer pursuant to this Section 7.01 shall
be paid by the predecessor Servicer upon presentation of reasonable documentation of such costs and expenses. Termination of Duke Energy
Carolinas as Servicer shall not terminate Duke Energy Carolinas’s rights or obligations under the Sale Agreement (except rights
thereunder deriving from its rights as the Servicer hereunder).


 






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Section 7.02.         
Appointment of Successor.


 


(a)           
Upon the Servicer’s receipt of a Termination Notice pursuant to Section 7.01 or the Servicer’s resignation or
removal in accordance with the terms of this Servicing Agreement, the predecessor Servicer shall continue to perform its functions as
Servicer under this Servicing Agreement and shall be entitled to receive the requisite portion of the Servicing Fee, until a successor
Servicer shall have assumed in writing the obligations of the Servicer hereunder as described below. In the event of the Servicer’s
removal or resignation hereunder, the Indenture Trustee may, at the written direction and with the consent of the Holders of a majority
of the Outstanding Amount of the Storm Recovery Bonds or of the Commission shall, but subject to the provisions of the Intercreditor Agreement,
appoint a successor Servicer with the Issuer’s prior written consent thereto (which consent shall not be unreasonably withheld),
and the successor Servicer shall accept its appointment by a written assumption in form reasonably acceptable to the Issuer and the Indenture
Trustee and provide prompt written notice of such assumption to the Issuer, the Commission and the Rating Agencies. If, within 30 days
after the delivery of the Termination Notice, a new Servicer shall not have been appointed, the Indenture Trustee may, at the direction
of the Holders of a majority of the Storm Recovery Bonds, petition the Commission or a court of competent jurisdiction to appoint a successor
Servicer under this Servicing Agreement. A Person shall qualify as a successor Servicer only if (i) such Person is permitted under Commission
Regulations to perform the duties of the Servicer, (ii) the Rating Agency Condition shall have been satisfied, (iii) such Person enters
into a servicing agreement with the Issuer having substantially the same provisions as this Servicing Agreement and (iv) such Person agrees
to perform the obligations of the Servicer under the Intercreditor Agreement. In no event shall the Indenture Trustee be liable for its
appointment of a successor Servicer. The Indenture Trustee’s expenses incurred under this Section 7.02(a) shall be at the
sole expense of the Issuer and payable from the Collection Account as provided in Section 8.02 of the Indenture.


 


(b)           
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 placed on the predecessor Servicer and shall be entitled to the
Servicing Fee and all the rights granted to the predecessor Servicer by the terms and provisions of this Servicing Agreement.


 


Section 7.03.         
Waiver of Past Defaults. The Indenture Trustee, with the written consent of the Holders evidencing a majority of the Outstanding
Amount of the Storm Recovery Bonds, 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 deposits to the Collection Account in accordance with this Servicing 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 Servicing Agreement. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereto. Promptly after the execution of any such waiver, the Servicer shall furnish copies of such waiver
to each of the Rating Agencies and the Commission.


 


Section 7.04.         
Notice of Servicer Default. The Servicer shall deliver to the Issuer, the Indenture Trustee, the Commission and the Rating
Agencies, promptly after having obtained knowledge thereof, but in no event later than five Business Days thereafter, written notice of
any event that, with the giving of notice or lapse of time, or both, would become a Servicer Default under Section 7.01.


 


Section 7.05.         
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.


 






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ARTICLE
VIII

MISCELLANEOUS PROVISIONS


 


Section 8.01.         
Amendment.


 


(a)           
Subject to Section 8.01(c), this Servicing Agreement may be amended in writing by the Servicer and the Issuer with the prior
written consent of the Indenture Trustee and the satisfaction of the Rating Agency Condition; 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
Amount. 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.


 


(b)           
Prior to the execution of any amendment to this Servicing Agreement, the Issuer and the Indenture Trustee shall be entitled to
receive and conclusively rely upon an Opinion of Counsel of external counsel stating that such amendment is authorized and permitted by
this Servicing Agreement and all conditions precedent, if any, provided for in this Servicing Agreement relating to such amendment have
been satisfied and upon the Opinion of Counsel from external counsel referred to in Section 3.01(c)(i). The Issuer and the Indenture
Trustee may, but shall not be obligated to, enter into any such amendment that affects their own rights, duties, indemnities or immunities
under this Servicing Agreement or otherwise.


 


(c)           
Notwithstanding anything to the contrary in this Section 8.01, no amendment or modification of this Servicing Agreement,
nor any waiver required by Section 7.03 hereof, shall be effective except upon satisfaction of the conditions precedent in this
paragraph (c).


 


(i)           
At least 15 days prior to the effectiveness of any such amendment or modification and after obtaining the other necessary approvals
set forth in Section 8.01(a) (except that the consent of the Indenture Trustee may be subject to the consent of the Holders if
such consent is required or sought by the Indenture Trustee in connection with such amendment or modification) the Servicer shall have
filed in Commission docket E-7, Sub 1243 written notification of any proposed amendment, with a copy delivered to the Director of the
Commission and the Executive Director of the Public Staff – North Carolina Utilities Commission, which notification shall contain:


 


(A)          
a reference to Docket No. E-7, Sub 1243;


 


(B)          
an Officer’s Certificate stating that the proposed amendment or modification has been approved by all parties to this Servicing
Agreement or alternatively, the waiver of default has been approved by the Holders of a majority of the Outstanding Amount of Storm Recovery
Bonds; and


 






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


 


(ii)          
If the Commission within 15 days (subject to extension as provided in clause (iii)) of receiving a notification complying with
subparagraph (i), shall have issued an order that the Commission might object to the proposed amendment or modification, then, except
as provided in clause (iv) below, such proposed amendment or modification shall not be effective unless and until the Commission subsequently
issues an order that it does not object to such proposed amendment or modification.


 


(iii)         
If the Commission takes no action within 60 days of the filing of the notice, then such amendment or modification may subsequently
become effective upon satisfaction of the other conditions specified in Section 8.01(a).


 


(iv)         
Following the delivery of an order from the Commission to the Servicer under subparagraph (ii), the Servicer and the Issuer shall
have the right at any time to withdraw from the Commission further consideration of any proposed amendment, modification or waiver of
default. The fact that the Servicer delivers notice to the Commission pursuant to this Section 8.01(a) does not obligate the Servicer
to amend this Servicing Agreement as provided in the notice.


 


Section 8.02.         
Maintenance of Accounts and Records.


 


(a)          
The Servicer shall maintain accounts and records as to the Storm Recovery Property accurately and in accordance with its standard
accounting procedures and in sufficient detail to permit reconciliation between Storm Recovery Charge Payments received by the Servicer
and Storm Recovery Charge Collections from time to time deposited in the Collection Account.


 


(b)          
The Servicer shall permit the Indenture Trustee and its agents at any time during normal business hours, upon reasonable notice
to the Servicer and to the extent it does not unreasonably interfere with the Servicer’s normal operations, to inspect, audit and
make copies of and abstracts from the Servicer’s records regarding the Storm Recovery Property and the Storm Recovery Charges. Nothing
in this Section 8.02(b) shall affect the obligation of the Servicer to observe any applicable law (including any Commission Regulation)
prohibiting disclosure of information regarding Customers, and the failure of the Servicer to provide access to such information as a
result of such obligation shall not constitute a breach of this Section 8.02(b).


 






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Section 8.03.         
Notices. Any notice, report or other communication given hereunder shall be in writing and shall be effective (i) upon receipt
when sent through the mails, registered or certified mail, return receipt requested, postage prepaid, with such receipt to be effective
the date of delivery indicated on the return receipt, (ii) upon receipt when sent by an overnight courier, (iii) on the date personally
delivered to an authorized officer of the party to which sent or (iv) on the date transmitted by facsimile or other electronic transmission
with a confirmation of receipt in all cases, addressed as follows:


 


(a)           
in the case of the Servicer, to Duke Energy Carolinas LLC, at (i) 526 South Church Street Charlotte, North Carolina 28202-1803,
Attention: Director, Rates and Regulatory Strategy, Telephone: 704-382-3853 and (ii) 550 South Tryon Street, Charlotte, North Carolina
28202, Attention: Treasurer, Telephone: 704-382-3853 c/o Assistant Treasurer;


 


(b)          
in the case of the Issuer, to Duke Energy Carolinas NC Storm Funding LLC, at 526 South Church Street Charlotte, North Carolina
28202-1803 Attention: Managers, Telephone: 704-382-3853;


 


(c)           
in the case of the Indenture Trustee, to the Corporate Trust Office;


 


(d)          
in the case of S&P, to S&P Global Ratings, a S&P Global Inc. business, [Structured Credit Surveillance], [55 Water
Street, New York, New York 10041], Telephone: (212) 438-8991, Email: [servicer_reports@standardandpoors.com] (all such notices to be delivered
to S&P in writing by email);


 


(e)           
in the case of Moody’s, to Moody’s Investors Service, Inc., ABS/RMBS Monitoring Department, 25th Floor,
7 World Trade Center, 250 Greenwich Street, New York, New York 10007, Email: ServicerReports@moodys.com (all such notice to be delivered
to Moody’s in writing by email), and solely for purposes of Rating Agency Condition communications: abscormonitoring@moodys.com;
and


 


(f)           
in the case of the Commission and the Public Staff – North Carolina Utilities Commission, by filing a notice in docket E-7,
Sub 1243 with a copy delivered to the Director of the Commission and the Executive Director of the Public Staff.


 


Each party hereto may, by notice given in accordance
herewith to the other party or parties hereto, designate any further or different address to which subsequent notices, reports and other
communications shall be sent.


 


Section 8.04.         
Assignment. Notwithstanding anything to the contrary contained herein, except as provided in Section 6.03 and as
provided in the provisions of this Servicing Agreement concerning the resignation of the Servicer, this Servicing Agreement may not be
assigned by the Servicer. Any assignment of this Servicing Agreement is subject to satisfaction of any conditions set forth in the Intercreditor
Agreement.


 


Section 8.05.         
Limitations on Rights of Others. The provisions of this Servicing Agreement are solely for the benefit of the Servicer and
the Issuer and, to the extent provided herein or in the other Basic Documents, the Indenture Trustee and the Holders, and the other Persons
expressly referred to herein, and such Persons shall have the right to enforce the relevant provisions of this Servicing Agreement. Nothing
in this Servicing Agreement, whether express or implied, shall be construed to give to any other Person any legal or equitable right,
remedy or claim in the Storm Recovery Property or Storm Recovery Collateral or under or in respect of this Servicing Agreement or any
covenants, conditions or provisions contained herein.


 






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Section 8.06.         
Severability. Any provision of this Servicing 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 remainder of such
provision (if any) or the remaining provisions hereof (unless such a construction shall be unreasonable), and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.


 


Section 8.07.         
Separate Counterparts. This Servicing 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 8.08.         
Governing Law. This Servicing Agreement shall be governed by and construed in accordance with the laws of the State of North
Carolina, 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 8.09.         
Assignment to Indenture Trustee. The Servicer hereby acknowledges and consents to the assignment by the Issuer to the Indenture
Trustee of any or all of the Issuer’s rights hereunder. 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 delivered pursuant hereto,
as to all of which any recourse shall be had solely to the assets of the Issuer subject to the availability of funds therefor under Section
8.02 of the Indenture.


 


Section 8.10.         
Nonpetition Covenants. Notwithstanding any prior termination of this Servicing Agreement or the Indenture, the Servicer
shall not, prior to the date that is one year and one day after the satisfaction and discharge of the Indenture, acquiesce, petition or
otherwise invoke or cause the Issuer to invoke or join with any Person in provoking the process of any Governmental Authority for the
purpose of commencing or sustaining an involuntary case against the Issuer under any U.S. federal or state bankruptcy, insolvency or similar
law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Issuer for any substantial
part of the property of the Issuer or ordering the dissolution, winding up or liquidation of the affairs of the Issuer.


 


Section 8.11.         
Limitation of Liability. It is expressly understood and agreed by the parties hereto that this Servicing Agreement is executed
and delivered by the Indenture Trustee, not individually or personally but solely as Indenture Trustee in the exercise of the powers and
authority conferred and vested in it, and that the Indenture Trustee, in acting hereunder, is entitled to all rights, benefits, protections,
immunities and indemnities accorded to it under the Indenture.


 


Section 8.12.         
Rule 17g-5 Compliance. The Servicer agrees that any notice, report, request for satisfaction of the Rating Agency Condition,
document or other information provided by the Servicer to any Rating Agency under this Servicing Agreement or any other Basic Document
to which it is a party for the purpose of determining the initial credit rating of the Storm Recovery Bonds or undertaking credit rating
surveillance of the Storm Recovery Bonds with any Rating Agency, or satisfy the Rating Agency Condition, shall be substantially concurrently
posted by the Servicer on the 17g-5 Website.


 


Section 8.13.         
Indenture Trustee Actions. In acting hereunder, the Indenture Trustee shall have the rights, protections and immunities
granted to it under the Indenture.


 


{SIGNATURE PAGE FOLLOWS}


 






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


 


	 	 	DUKE ENERGY CAROLINAS NC STORM FUNDING LLC, as Issuer
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	By:	 
	 	 	 	Name: [ ]
	 	 	 	Title: President, Chief Financial Officer and Treasurer
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	DUKE ENERGY CAROLINAS, LLC, as Servicer
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	By:	 
	 	 	 	Name: [ ]
	 	 	 	Title: Senior Vice President, Tax and Treasurer
	 	 	 	 
	ACKNOWLEDGED AND ACCEPTED:	 	 
	 	 	 	 
	THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL ASSOCIATION, as Indenture Trustee	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	By: 	 	 	 
	 	Name:	 	 
	 	Title:	 	 



 


Signature Page to Storm Recovery Property Servicing
Agreement


 






    


     


    

 


EXHIBIT A


 


SERVICING PROCEDURES


 


The Servicer agrees to comply with the following servicing procedures:


 


SECTION 1. Definitions.


 


Capitalized terms used herein and not otherwise defined herein shall
have the meanings ascribed to such terms in the Servicing Agreement (the “Agreement”).


 


SECTION 2. Data Acquisition.


 


(a) Installation and Maintenance of Meters. The Servicer shall
cause to be installed, replaced and maintained meters in accordance with the Servicer Policies and Practices.


 


(b) Meter Reading. In accordance with the Servicer Policies
and Practices, the Servicer shall obtain consumption measurements for each Customer or determine any Customer’s consumption on the
basis of estimates in accordance with Commission 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 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 as a result
of new metering and/or billing technologies.


 


SECTION 3. Consumption and Bill Calculation.


 


The Servicer shall obtain a calculation of each Customer’s consumption
(which may be based on data obtained from such Customer’s meter read or on consumption estimates determined in accordance with Commission
Regulations) in accordance with the Servicer Policies and Practices and shall determine therefrom Billed Storm Recovery Charges for the
Storm Recovery Bonds.


 


SECTION 4. Billing.


 


(a) Commencement of Billing. The Servicer
shall implement the Storm Recovery Charges as of the date following Closing Date for the Storm Recovery Bonds and shall thereafter bill
each Customer for each Customer’s Billed Storm Recovery Charges for the Storm Recovery Bonds in accordance with the provisions of
this Section 4.


 


(b) Frequency of Bills; Billing Practices.
In accordance with the Servicer Policies and Practices, the Servicer shall generate and issue a Bill to each Customer. In the event that
the Servicer makes any material modification to the Servicer Policies and Practices, it shall notify the Issuer, the Indenture Trustee
and the Rating Agencies as soon as practicable, and in no event later than 30 Servicer Business Days after such modification goes into
effect, but the Servicer may not make any modification that will materially adversely affect the Holders.


 






    


     


    

 


(c) Format.


 


(i) The Customer’s Bill will contain
a separate line item identifying the monthly charge representing the Storm Recovery Property. The Customer’s Bill shall contain
in text or in a footnote, text substantially to the effect that the monthly charge representing Storm Recovery Property has been approved
by the Financing Order, and that a portion of the monthly charge is being collected by the Servicer, as servicer, on behalf of the Issuer
as owner of the Storm Recovery Property.


 


(ii) The Servicer shall conform to such
requirements in respect of the format, structure and text of Bills delivered to Customers as Commission Regulations shall from time to
time prescribe. To the extent that Bill format, structure and text are not prescribed by applicable law or by Commission Regulations,
the Servicer shall, subject to clause (i) of this subsection (c), determine the format, structure and text of all Bills in accordance
with its reasonable business judgment, the Servicer Policies and Practices and historical practice.


 


(d) Delivery. Except as provided in the
next sentence, 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 or (ii) by any other means, whether electronic or otherwise, that the Servicer may from time
to time use in accordance with the Servicer Policies and Practices. The Servicer shall pay from its own funds all costs of issuance and
delivery of all Bills that it renders, including 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 Servicer Policies and Practices.


 


SECTION 6. Collections; Payment Processing; Remittance.


 


(a) Collection Efforts, Policies, Procedures.


 


(i) The Servicer shall collect Billed
Storm Recovery Charges for the Storm Recovery Bonds (including late charges in respect of Storm Recovery Charges) from Customers as and
when the same become due in accordance with such collection procedures as it follows with respect to comparable assets that it services
for itself or others including, in accordance with Commission Regulations and the Servicer Policies and Practices, that:


 


(A) The Servicer shall prepare and deliver
overdue notices to Customers.


 






    2


     


    

 


(B) The Servicer shall deliver past-due
and shut-off notices.


 


(C) The Servicer may employ the assistance
of collection agents.


 


(D) The Servicer shall apply Customer deposits
to the payment of delinquent accounts.


 


(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 Policies
and Practices and (B) would comply in all material respects with applicable law.


 


(iii) The Servicer shall accept payment
from Customers in respect of Billed Storm Recovery Charges for the Storm Recovery Bonds in such forms and methods and at such times and
places in accordance with the Servicer Policies and Practices.


 


(b) Payment Processing; Allocation; Priority
of Payments. 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 Servicer Business Days after receipt.


 


(c) Investment of Estimated Storm Recovery Charge
Payments Received. Prior to remittance on the applicable remittance date, the Servicer may invest estimated Storm Recovery Charges
Payments at its own risk and for its own benefit, and such investments and funds shall not be required to be segregated from the other
investments and funds of the Servicer.


 


(d) Calculation of Daily Remittance.


 


(i) The Servicer will remit Storm Recovery
Charges directly to the Indenture Trustee pursuant to Section 6.11 of the Servicing Agreement. The Servicer will remit Storm Recovery
Charges based on estimated collections using a weighted average balance of days outstanding (“ADO”) on Duke Energy
Carolinas’s retail bills. Storm Recovery Charge Collections for the Storm Recovery Bonds remitted will represent the charges estimated
to be received for any period based upon the ADO and an estimated system-wide write-off percentage.


 


(ii) The Storm Recovery Charge Collections
for the Storm Recovery Bonds will be remitted by the Servicer to the Indenture Trustee as soon as reasonably practicable to the General
Subaccount of the Collection Account on each Servicer Business Day, but in no event later than two Servicer Business Days following such
Servicer Business Day. Estimated daily Storm Recovery Charge Collections for the Storm Recovery Bonds will be remitted to the Indenture
Trustee on each Servicer Business Day based upon the ADO and estimated write-offs. Each day on which those remittances are made is referred
to as a daily remittance date.


 






    3


     


    

 


(iii) No less often than semi-annually,
the Servicer and the Indenture Trustee will reconcile remittances of estimated Storm Recovery Charge Collections for the Storm Recovery
Bonds with actual Storm Recovery Charge Payments for the Storm Recovery Bonds received by the Servicer to more accurately reflect the
amount of Billed Storm Recovery Charges for the Storm Recovery Bonds that should have been remitted, based on ADO and the actual system-wide
write-off percentage. To the extent the remittances of estimated payments arising from the Storm Recovery Charges exceed the amounts that
should have been remitted based on actual system-wide write-offs, the Servicer will be entitled to withhold the excess amount from any
subsequent remittance to the Indenture Trustee until the balance of such excess is reduced to zero. To the extent the remittances of estimated
payments arising from the Storm Recovery Charges are less than the amount that should have been remitted based on actual system wide write-offs,
the Servicer will remit the amount of the shortfall to the Indenture Trustee within two Servicer Business Days. Although the Servicer
will remit estimated Storm Recovery Charge Collections for the Storm Recovery Bonds to the Indenture Trustee, the Servicer will not be
obligated to make any payments on the Storm Recovery Bonds.


 


(iv) At least annually, the Servicer
also will remit to the Indenture Trustee, for the benefit of the Issuer, any late charges received from Customers with respect to the
Storm Recovery Charges.


 


(v) The Servicer agrees and acknowledges
that it holds all Storm Recovery Charge Collections for the Storm Recovery Bonds received by it and any other proceeds for the Storm Recovery
Collateral received by it for the benefit of the Indenture Trustee and the Holders and that all such amounts will be remitted by the Servicer
without any surcharge, fee, offset, charge or other deduction. The Servicer further agrees not to make any claim to reduce its obligation
to remit all Storm Recovery Charge Payments for the Storm Recovery Bonds collected by it in accordance with the Servicing Agreement.


 


(e) Partial Collections. Upon a partial
payment of amounts billed, including amounts billed under special contracts, such partial payments shall be allocated ratably among the
Storm Recovery Charges and the Seller’s other billed amounts (including any accrued interest and late fees) based on the ratio of
each component of the bill to the total bill. If more than one Series of Storm Recovery Bonds are Outstanding, partial payments allocable
to Storm Recovery Charges shall be allocated pro rata based upon the amount of Storm Recovery Charges owing with respect to each series.


 


(f) No Advances. The Servicer shall not
be obligated to advance any of its own funds to the Issuer.


 






    4


     


    

 


EXHIBIT B


 


FORM OF MONTHLY SERVICER’S
CERTIFICATE


 


See Attached


 






    


     


    

 


MONTHLY SERVICER’S
CERTIFICATE


 


DUKE ENERGY CAROLINAS NC STORM FUNDING LLC

$[ ] Storm Recovery Senior Secured Storm Recovery Bonds


 


Pursuant to Section 3.01(b) of the Storm
Recovery Property Servicing Agreement dated as of June 22, 2016 by and between Duke Energy Carolinas, LLC, as Servicer,
and Duke Energy Carolinas NC Storm Funding LLC, as Issuer (the “Servicing Agreement”), the Servicer does
hereby certify as follows:


 


Capitalized terms used but not defined 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 or subsections of the Servicing Agreement.


 


Current BILLING MONTH: {__________}


 


Current BILLING MONTH: {__/__/20__} - {__/__/20__}


 


Standard Billing for prior
BILLING MONTH


 


	Residential Total Billed	 	 	${__________}	 	 	 	 	 
	Residential STORM RECOVERY CHARGE (“SRC”) Billed	 	 	${__________}	 	 	 	{_.____}%
  
	 
	Small General Service Total Billed	 	 	${__________}	 	 	 	 	 
	Small General Service SRC Billed	 	 	${__________}	 	 	 	{_.____}%
  
	 
	Medium General Service Billed	 	 	${__________}	 	 	 	 	 
	Medium General Service SRC Billed	 	 	${__________}	 	 	 	{_.____}%
  
	 
	Large General Service Total Billed	 	 	${__________}	 	 	 	 	 
	Large General Service SRC Billed	 	 	${__________}	 	 	 	{_.____}%
  
	 
	Lighting Total Billed	 	 	${__________}	 	 	 	 	 
	Lighting SRC Billed	 	 	${__________}	 	 	 	{_.____}%
  
	 
	YTD Net Write-offs as a % of Billed Revenue	 	 	 	 	 	 	 	 
	Non-Residential Class Customer Write-offs	 	 	{_.____}%	 	 	 	 	 
	Residential Class Customer Write-offs	 	 	{_.____}%	 	 	 	 	 
	Total Write-offs	 	 	{_.____}%	 	 	 	 	 



 



    


     


    

 


Aggregate SRC Collections


 


	Total SRC Remitted for BILLING MONTH	 	 	 	 
	Residential SRC Collected	 	 	${__________}	 
	Small General Service SRC Collected	 	 	${__________}	 
	Medium General Service SRC Collected	 	 	${__________}	 
	Large General Service SRC Collected	 	 	${__________}	 
	Lighting SRC Collected	 	 	${__________}	 
	Sub-Total of SRC Collected	 	 	${__________}	 
	 	 	 	 	 
	Total SRC Collected and Remitted	 	 	${__________}	 
	 	 	 	 	 
	Aggregate SRC Remittances for {__________ 20__} BILLING MONTH	 	 	${__________}	 
	Aggregate SRC Remittances for {__________ 20__} BILLING MONTH	 	 	${__________}	 
	Aggregate SRC Remittances for {__________ 20__} BILLING MONTH	 	 	${__________}	 
	 	 	 	 	 
	Total Current SRC Remittances	 	 	${__________}	 



Current BILLING MONTH: {__/__/20__} - {__/__/20__}


 


 


Executed as of this {____} day of {__________} 20{__}.


 


	 	Duke Energy Carolinas, LLC, as Servicer
	 	 	 
	 	 	 
	 	By:	 
	 	 	Name:
	 	 	Title:
	 	 	 
	CC: DUKE ENERGY CAROLINAS NC STORM FUNDING LLC



 






    


     


    

 



 


EXHIBIT C


 


FORM OF SEMI-ANNUAL
SERVICER’S CERTIFICATE


 


See attached


 






     


     


    

 


SEMI-ANNUAL SERVICER’S
CERTIFICATE


 


Pursuant to Section 4.01(c)(ii) of the Storm
Recovery Property Servicing Agreement, dated as of [ ], 2021 (the “Servicing Agreement”), by and between Duke Energy
Carolinas, LLC, as servicer (the “Servicer”), and Duke Energy Carolinas NC Storm Funding LLC, the Servicer
does hereby certify, for the {__________}, 20{__} Payment Date (the “Current Payment Date”), as follows:


 


Capitalized terms used but not defined herein 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 or the Indenture, as the context indicates.


 


Collection Periods: {__________} to {__________}


 


Payment Date: {__________}, 20{__}


 


	1.	Collections Allocable and Aggregate Amounts Available for the
Current Payment Date:



 


	 	i.	Remittances for the {__________} Collection Period	${__________}
	 	ii.	Remittances for the {__________} Collection Period	${__________}
	 	iii.	Remittances for the {__________} Collection Period	${__________}
	 	iv.	Remittances for the {__________} Collection Period	${__________}
	 	v.	Remittances for the {__________} Collection Period	${__________}
	 	vi.	Remittances for the {__________} Collection Period	${__________}
	 	vii.	Investment Earnings on Capital Subaccount	${__________}
	 	viii.	Investment Earnings on Excess Funds Subaccount	${__________}
	 	ix.	Investment Earnings on General Subaccount	${__________}
	 	x.	General Subaccount Balance (sum of i through ix above)	${__________}
	 	xi.	Excess Funds Subaccount Balance as of prior Payment Date	${__________}
	 	xii.	Capital Subaccount Balance as of prior Payment Date	${__________}
	 	xiii.	Collection Account Balance (sum of xi through xii above)	${__________}


 


	2.	Outstanding Amounts as of prior Payment Date:



 


	 	i.	Storm Recovery [  ] {__} Outstanding Amount	${__________}
	 	ii.	Storm Recovery [  ] {__} Outstanding Amount	${__________}
	 	iii.	Storm Recovery [  ] {__} Outstanding Amount	${__________}
	 	vi.	Aggregate Outstanding Amount of all Storm Recovery Bonds	${__________}


 






     


     


    

 


	     	3.	Required Funding/Payments as of Current Payment Date:



 


	 	 	Principal	Principal Due
	 	i.	Storm Recovery [  ] {__}	${__________}
	 	ii.	Storm Recovery [  ] {__}	${__________}
	 	iii.	Storm Recovery [  ] {__}	${__________}
	 	vi.	All Storm Recovery Bonds	${__________}
	 	 	  Interest	 



 


	[Tranche/Class]	Interest Rate	Days in Interest Period2	Principal Balance	Interest Due
	vii. Storm Recovery [  ] {__}	{__}%	{_____}	${__________}	${________}
	viii. Storm Recovery [  ] {__}	{__}%	{_____}	${__________}	${________}
	ix. Storm Recovery [  ] {__}	{__}%	{_____}	${__________}	${________}
	 	 	 	 	 
	xii.	All Storm Recovery Bonds	${________}
	 	 	 	Required Level	Funding Required
	xiii.Capital Subaccount	${__________}	${__________}
	 	 	 	 	 	 





		     4.	Allocation of Remittances as of Current Payment Date Pursuant
to 8.02(e) of Indenture:



 


	i.  Trustee Fees and Expenses; Indemnity Amounts	${__________}
	ii.  Servicing Fee	${__________}
	iii.  Administration Fee	${__________}
	iv.  Operating Expenses	${__________}
	Storm Recovery Bonds	Aggregate	Per $1,000 of Original Principal Amount
	v.  Semi-Annual Interest (including any past-due for prior periods)	${__________}
	1.  Storm Recovery [  ] {__}Interest Payment	${__________}	${__________}	 
	2.  Storm Recovery [  ] {__} Interest Payment	${__________}	${__________}	 
	3.  Storm Recovery [  ] {__} Interest Payment	${__________}	${__________}	 
	 	${__________}	 	 
	vi.  Principal Due and Payable as a Result of an Event of Default or on Final Maturity Date	 	${__________}
	1.  Storm Recovery [  ] {__} Interest Payment	${__________}	${__________}	 
	2.  Storm Recovery [  ] {__} Interest Payment	${__________}	${__________}	 
	3.  Storm Recovery [  ] {__} Interest Payment	${__________}	${__________}	 
	 	${__________}	 	 
	vii.  Semi-Annual Principal	 	 	${__________}
	1.  Storm Recovery [  ] {__} Interest Payment	${__________}	${__________}	 
	2.  Storm Recovery [  ] {__} Interest Payment	${__________}	${__________}	 
	3.  Storm Recovery [  ] {__} Interest Payment	${__________}	${__________}	 
	 	${__________}	 	 



 


 






2 On
30/360 day basis for initial payment date; otherwise use one-half of annual rate.


 






     


     


    

 


	viii.  Other unpaid Operating Expenses	 	 	${__________}
	ix.  Funding of Capital Subaccount (to required level)	 	${__________}
	x.  Capital Subaccount Return to Duke Energy Carolinas	 	${__________}
	xi.  Deposit to Excess Funds Subaccount	 	${__________}
	xii.  Released to Issuer upon Retirement of all Storm Recovery Bonds	 	${__________}
	xiii.  Aggregate Remittances as of Current Payment Date	 	${__________}
	 	 	 	 	 


 


5.       Outstanding Amount and
Collection Account Balance as of Current Payment Date (after giving effect to payments to be made on such Payment Date):


 


	i.	Storm Recovery [  ] {__}	${__________}
	ii.	Storm Recovery [  ] {__}	${__________}
	iii.	Storm Recovery [  ] {__}	${__________}
	vi.	Aggregate Outstanding Amount of all Storm Recovery Bonds	${__________}
	vii.	Excess Funds Subaccount Balance	${__________}
	viii.	Capital Subaccount Balance	${__________}
	ix.	Aggregate Collection Account Balance	${__________}


 


6.       Subaccount Withdrawals
as of Current Payment Date (if applicable, pursuant to Section 8.02(e) of Indenture):


 


	i.	Excess Funds Subaccount	${__________}
	ii.	Capital Subaccount	${__________}
	iii.	Total Withdrawals	${__________}


 


7.       Shortfalls in Interest
and Principal Payments as of Current Payment Date:


 


	i.	Semi-annual Interest	 
	 	Storm Recovery [  ] {__} Interest Payment	${__________}
	 	Storm Recovery [  ] {__} Interest Payment	${__________}
	 	Storm Recovery [  ] {__} Interest Payment	${__________}
	 	Total	${__________}
	ii.	Semi-annual Principal	 
	 	Storm Recovery [  ] {__} Principal Payment	${__________}
	 	Storm Recovery [  ] {__} Principal Payment	${__________}
	 	Storm Recovery [  ] {__} Principal Payment	${__________}
	 	Total	${__________}


 


8.       Shortfalls in Payment of
Return on Invested Capital as of Current Payment Date:


 


	i.	Return on Invested Capital	${__________}


 


9.       Shortfalls in Required
Subaccount Levels as of Current Payment Date:


 


	i.	Capital Subaccount	${__________}


 






     


     


    

 


IN WITNESS WHEREOF, the undersigned has duly executed
and delivered this Semi-Annual Servicer’s Certificate this {____} day of {__________}, 20{__}. 


 


	 	Duke Energy Carolinas, LLC, as Servicer
	 	 
	 	By:	 
	 	 	Name:
	 	 	Title:



 



     


     


    

 


EXHIBIT D


 


FORM OF SERVICER CERTIFICATE


 


See attached


 






     


     


    

 


SERVICER CERTIFICATE


 


The undersigned hereby certifies that the undersigned
is the duly elected and acting {__________} of DUKE ENERGY CAROLINAS, LLC, as servicer (the “Servicer”) under
the Storm Recovery Property Servicing Agreement dated as of [ , 20 ] (the “Servicing Agreement”) by and between the
Servicer and [DUKE ENERGY CAROLINAS STORM FUNDING LLC, and further certifies that:


 


1.       The
undersigned is responsible for assessing the Servicer’s compliance with the servicing criteria set forth in Item 1122(d) of Regulation
AB (the “Servicing Criteria”).


 


2.       With
respect to each of the Servicing Criteria, the undersigned has 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 Depositor’s annual report on Form 10-K:


 


	Regulation AB

Reference	Servicing Criteria	Assessment






	General Servicing 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.
	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 pool assets are maintained.	Not applicable; transaction agreements do not provide 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; transaction agreements do not require a fidelity bond or errors and omissions policy.
	1122(d)(1)(v)	Aggregation of information, as applicable, is mathematically accurate and the information conveyed accurately reflects the information.	Applicable
	Cash Collection and Administration
	1122(d)(2)(i)	Payments on pool assets 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.
	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.



 






     


     


    

 





	Regulation AB

Reference	Servicing Criteria	Assessment





	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; no advances by the Servicer are permitted under the transaction agreements, except for payments of certain indemnities.
	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 since the related accounts are maintained by the Indenture Trustee.
	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) under the Exchange Act.	Applicable, but no current assessment required; all “custodial accounts” are maintained by the Indenture Trustee.
	1122(d)(2)(vi)	Unissued checks are safeguarded so as to prevent unauthorized access.	Not applicable; all payments 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.	Applicable; assessment below.
	Investor Remittances and Reporting
	1122(d)(3)(i)	Reports to investors, including those to be filed with the SEC, are maintained in accordance with the transaction agreements and applicable SEC 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 SEC 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 pool assets serviced by the servicer.	Applicable; assessment below.



 






     


     


    

 





	Regulation AB

Reference	Servicing Criteria	Assessment





	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.	Not applicable; investor records maintained by the Indenture Trustee.
	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.	Applicable.
	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.	Applicable; assessment below.
	Pool Asset Administration
	1122(d)(4)(i)	Collateral or security on pool assets is maintained as required by the transaction agreements or related pool asset documents.	Applicable; assessment below.
	1122(d)(4)(ii)	Pool assets and related documents are safeguarded as required by the transaction agreements.	Applicable; assessment below.
	1122(d)(4)(iii)	Any additions, removals or substitutions to the asset pool are made, reviewed and approved in accordance with any conditions or requirements in the transaction agreements.	Not applicable; no removals or substitutions of Storm Recovery Property are contemplated or allowed under the transaction documents.
	1122(d)(4)(iv)	Payments on pool assets, including any payoffs, made in accordance with the related pool asset 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 related pool asset agreements.	Applicable; assessment below.
	1122(d)(4)(v)	The servicer’s records regarding the pool assets agree with the servicer’s records with respect to an obligor’s unpaid principal balance.	Not applicable; because underlying obligation (Storm Recovery Charge) is not an interest-bearing instrument.
	1122(d)(4)(vi)	Changes with respect to the terms or status of an obligor’s pool assets (e.g., loan modifications or re-agings) are made, reviewed and approved by authorized personnel in accordance with the transaction agreements and related pool asset documents.	Applicable; assessment below.
	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; limited assessment below.  Servicer actions governed by Commission regulations.



 






     


     


    

 





	Regulation AB

Reference	Servicing Criteria	Assessment





	1122(d)(4)(viii)	Records documenting collection efforts are maintained during the period a pool 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 pool assets, 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 since no explicit documentation requirement with respect to delinquent accounts are imposed under the transaction agreements due to availability of “true-up” mechanism; and any such documentation is maintained in accordance with applicable North Carolina commission rules and regulations..
	1122(d)(4)(ix)	Adjustments to interest rates or rates of return for pool assets with variable rates are computed based on the related pool asset documents.	Not applicable; Storm Recovery Charges are not interest-bearing instruments.
	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 pool asset 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 pool asset documents and state laws; and (C) such funds are returned to the obligor within 30 calendar days of full repayment of the related pool assets, or such other number of days specified in the transaction agreements.	Not applicable.
	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; Servicer does not make payments on behalf of obligors.
	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 transaction agreements.
	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.



 



     


     


    




 





	Regulation AB

Reference	Servicing Criteria	Assessment





	1122(d)(4)(xiv)	Delinquencies, charge-offs and uncollectible accounts are recognized and recorded in accordance with the transaction agreements.	Applicable; assessment below.
	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 enhancement is required under the transaction agreements.


 


3.       To
the best of the undersigned’s knowledge, based on such review, the Servicer is in compliance in all material respects with the applicable
servicing criteria set forth above as of and for the period ended the end of the fiscal year covered by the Issuer’s annual report
on Form 10-K. {If not true, include description of any material instance of noncompliance.}


 


4.       {[             ],
an independent registered public accounting firm, has issued an attestation report on the Servicer’s assessment of compliance with
the applicable servicing criteria as of and for the period ended the end of the fiscal year covered by the Issuer’s annual report
on Form 10-K.}


 


5.       Capitalized
terms used but not defined herein have their respective meanings as set forth in the Servicing Agreement.


 



     


     


    




 


Executed as of this {____} day of {__________},
20{__}.


 


	 	DUKE ENERGY CAROLINAS LLC, as Servicer
	 	 
	 	By:	 
	 	 	Name:
	 	 	Title:



 






     


     


    

 


EXHIBIT E


 


FORM OF CERTIFICATE
OF COMPLIANCE


 


See attached


 






     


     


    

 


CERTIFICATE OF COMPLIANCE


 


The undersigned hereby certifies that the undersigned
is the duly elected and acting {__________} of DUKE ENERGY CAROLINAS, LLC, as servicer (the “Servicer”) under
the Storm Recovery Property Servicing Agreement dated as of [ ,20 ] (the “Servicing Agreement”) by and between the
Servicer and DUKE ENERGY CAROLINAS NC STORM FUNDING LLC, and further certifies that:


 


1.       A review
of the activities of the Servicer and of its performance under the Servicing Agreement during the twelve months ended {__________}, 20{__}
has been made under the supervision of the undersigned pursuant to Section 3.03 of the Servicing Agreement.


 


2.       To the
undersigned’s knowledge, based on such review, the Servicer has fulfilled all of its obligations in all material respects under
the Servicing Agreement throughout the twelve months ended {__________}, 20{__}, except as set forth on EXHIBIT A hereto.


 


Executed as of this
{____} day of {__________}, 20{__}.


 


	 	DUKE ENERGY CAROLINAS, LLC, as Servicer
	 	 
	 	By:	 
	 	 	Name:
	 	 	Title:



 






     


     


    

 


EXHIBIT A

TO

CERTIFICATE OF COMPLIANCE


 


LIST OF SERVICER DEFAULTS






The following Servicer Defaults, or events that
with the giving of notice, the lapse of time, or both, would become Servicer Defaults, known to the undersigned occurred during the twelve
months ended {__________}, 20{__}:


 


	Nature of Default	Status
	{__________}	{__________}


 



     


     


    




 


EXHIBIT F


 


EXPECTED SINKING FUND
SCHEDULE


 


See Attached


 



     


     


    




 


EXPECTED SINKING FUND SCHEDULE


 


Outstanding Principal Balance Per Storm Recovery
Bond


 






     


     


    

 


DEFINITIONS
AND RULES OF CONSTRUCTION


 


APPENDIX A


 


DEFINITIONS
AND RULES OF CONSTRUCTION


 


A.            Defined
Terms. The following terms have the following meanings:


 


“17g-5 Website” is defined in
Section 10.18(a) of the Indenture.


 


“Account Records” is defined in
Section 1(a)(i) of the Administration Agreement.


 


“Act” is defined in Section
10.03(a) of the Indenture.


 


“Additional Series” means issuance
by the Issuer of any series of Storm Recovery Bonds issued after the date hereof, that will be undertaken only if (i) such issuance has
been authorized by the Commission, (ii) the Rating Agency Condition has been satisfied and it is a condition of issuance for each Series
of Storm Recovery Bonds that such Additional Series receive a rating or ratings as required by the Financing Order or a Subsequent Financing
Order, (iii) the Issuer has delivered to the Indenture Trustee an Opinion of Counsel of a nationally recognized firm experienced in such
matters to the effect that after such issuance, in the opinion of such counsel, if either or both of Duke Energy Carolinas or the Seller
were to become a debtor in a case under the United States Bankruptcy Code (Title 11, U.S.C.), a federal court exercising bankruptcy jurisdiction
and exercising reasonable judgment after full consideration of all relevant factors would not order substantive consolidation of the assets
and liabilities of the Issuer with those of the bankruptcy estate of Duke Energy Carolinas or the Seller, subject to the customary exceptions,
qualifications and assumptions contained therein.


 


“Administration Agreement” means
the Administration Agreement, dated as of the date hereof, by and between Duke Energy Carolinas and the Issuer.


 


“Administration Fee” is defined
in Section 2 of the Administration Agreement.


 


“Administrator” means Duke Energy
Carolinas, as Administrator under the Administration Agreement, or any successor Administrator to the extent permitted under the Administration
Agreement.


 


“Affiliate” means, with respect
to any specified Person, any other Person controlling or controlled by or under common control with such specified Person. For the purposes
of this definition, “control” when used with respect to any specified Person means the power to direct the management and
policies of such specified Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise,
and the terms “controlling” and “controlled” have meanings correlative to the foregoing.


 


“Amendatory Schedule” means a
revision to service riders or any other notice filing filed with the Commission in respect of the Storm Recovery Rate Schedule pursuant
to a True-Up Adjustment.


 


“Annual Accountant’s Report”
is defined in Section 3.04(a) of the Servicing Agreement.


 






    A-1 


     


    

 


“Authorized Denomination” means,
with respect to any Storm Recovery Bond, the authorized denomination therefor specified in the Series Supplement, which shall be at least
$2,000 and, except as otherwise provided in the Series Supplement, integral multiples of $1,000 in excess thereof, except for one Storm
Recovery bond which may be of a smaller denomination.


 


“Bankruptcy Code” means Title
11 of the United States Code (11 U.S.C. §§ 101 et seq.).


 


“Basic Documents” means the
Indenture, Series Supplement, the Certificate of Formation, the LLC Agreement, the Administration Agreement, and, the Sale
Agreement, Bill of Sale, Servicing Agreement, Intercreditor Agreement, any joinder to an existing intercreditor agreement, Letter of
Representations, Underwriting Agreement and all other documents and certificates delivered in connection therewith.


 


“Bill of Sale” means a bill of
sale substantially in the form of Exhibit A to the Sale Agreement delivered pursuant to Section 2.02(a) of the Sale Agreement.


 


“Billed Storm Recovery Charges”
means the amounts of Storm Recovery Charges billed by the Servicer.


 


“Billing Period” means the period
created by dividing the calendar year into 12 consecutive periods of approximately 21 Servicer Business Days.


 


“Bills” means each of the regular
monthly bills, summary bills, opening bills and closing bills issued to Customers by Duke Energy Carolinas in its capacity as Servicer.


 


“Bond Interest Rate” means, with
respect to any Tranche of Storm Recovery Bonds, the rate at which interest accrues on the Storm Recovery Bonds of such Series or Tranche,
as specified in the Series Supplement.


 


“Book-Entry Form” means, with
respect to any Storm Recovery Bond, that such Storm Recovery Bond is not certificated and the ownership and transfers thereof shall be
made through book entries by a Clearing Agency as described in Section 2.11 of the Indenture and the Series Supplement pursuant
to which such Storm Recovery Bond was issued.


 


“Book-Entry Storm Recovery Bonds”
means any Storm Recovery Bonds issued in Book-Entry Form; provided, however, that, after the occurrence of a condition whereupon
book-entry registration and transfer are no longer permitted and Definitive Storm Recovery Bonds are to be issued to the Holder of such
Storm Recovery Bonds, such Storm Recovery Bonds shall no longer be “Book-Entry Storm Recovery Bonds”.


 


“Business Day” means any day other
than a Saturday, a Sunday or a day on which banking institutions in Raleigh, North Carolina, Charlotte, North Carolina or New York, New
York are, or DTC or the Corporate Trust Office is, authorized or obligated by law, regulation or executive order to be closed.


 


“Capital Contribution” means the
amount of cash contributed to the Issuer by Duke Energy Carolinas as specified in the LLC Agreement.


 






    A-2 


     


    

 


“Capital Subaccount” is defined
in Section 8.02(a) of the Indenture.


 


“Certificate of Compliance” means
the certificate referred to in Section 3.03 of the Servicing Agreement and substantially in the form of Exhibit E to the
Servicing Agreement.


 


“Certificate of Formation” means
the Certificate of Formation filed with the Secretary of State of the State of Delaware on August 12, 2021 pursuant to which the Issuer
was formed.


 


“Claim” means a “claim”
as defined in Section 101(5) of the Bankruptcy Code.


 


“Clearing Agency” means an organization
registered as a “clearing agency” pursuant to Section 17A of the Exchange Act.


 


“Clearing Agency Participant”
means a securities broker, dealer, bank, trust company, clearing corporation or other financial institution or other Person for whom from
time to time a Clearing Agency effects book entry transfers and pledges of securities deposited with such Clearing Agency.


 


“Closing Date” means the date
on which the Storm Recovery Bonds are originally issued in accordance with Section 2.10 of the Indenture and the Series Supplement.


 


“Code” means the Internal Revenue
Code of 1986.


 


“Collateral” is defined in the
preamble of the Indenture.


 


“Collection Account” is defined
in Section 8.02(a) of the Indenture for such Series.


 


“Collection in Full of the Charges”
means the day on which the aggregate amounts on deposit in the General Subaccount and the Excess Funds Subaccount are sufficient to pay
in full all the Outstanding Storm Recovery Bonds and to replenish any shortfall in the Capital Subaccount.


 


“Collection Period” means any
period commencing on the first Servicer Business Day of any Billing Period and ending on the last Servicer Business Day of such Billing
Period.


 


“Commission” means the North Carolina
Utilities Commission.


 


“Commission Condition” means the
satisfaction of any precondition to any amendment or modification to or action under any Basic Documents through the obtaining of Commission
consent or acquiescence, as described in the related Basic Document.


 


“Commission Regulations” means
any orders issued or rules or regulations, including temporary regulations, promulgated by the Commission pursuant to North Carolina law.


 






    A-3 


     


    

 



 


“Company Minutes” is defined in
Section 1(a)(iv) of the Administration Agreement.


 


“Corporate Trust Office” means
the office of the Indenture Trustee at which, at any particular time, its corporate trust business shall be administered, which office
as of the date hereof is located at BNY Mellon Global Corporate Trust, 4655 Salisbury Road, Suite 300, Jacksonville, Florida 32256; Telephone:
904-998-4714; Facsimile: 904-645-1930, or at such other address as the Indenture Trustee may designate from time to time by notice to
the Holders of Storm Recovery Bonds and the Issuer, or the principal corporate trust office of any successor trustee designated by like
notice.


 


“Covenant Defeasance Option” is
defined in Section 4.01(b) of the Indenture.


 


“Customer” means any existing
or future customer (including individuals, corporations, other businesses, and federal, state and local governmental entities) receiving
transmission or distribution service from Duke Energy Carolinas or its successors or assignees under Commission-approved rate schedules
or under special contracts, even if such customer elects to purchase electricity from an TPS following a fundamental change in regulation
of public utilities in North Carolina.


 


“Daily Remittance” is defined
in Section 6.11(a) of the Servicing Agreement.


 


“Default” means any occurrence
that is, or with notice or the lapse of time or both would become, an Event of Default.


 


“Definitive Storm Recovery Bonds”
is defined in Section 2.11 of the Indenture.


 


“Delaware UCC” means the Uniform
Commercial Code as in effect on the Closing Date in the State of Delaware.


 


“DTC” means The Depository Trust
Company.


 


“Duke Energy Carolinas” or “DEC”
means Duke Energy Carolinas, LLC, a North Carolina limited liability company.


 


“Duke Energy Carolinas NC Storm Funding
LLC” or “DEC NC Storm Funding” means the Issuer.


  


“Eligible Account” means a segregated
non-interest-bearing trust account with an Eligible Institution.


 






    A-4


     


    

 


“Eligible Institution”
means:


 


(a)          the
corporate trust department of the Indenture Trustee, so long as any of the securities of the Indenture Trustee have (i) either a short-term
credit rating from Moody’s of at least “P-1”, or a long-term unsecured debt rating from Moody’s of at least “A2”,
and (ii) have a credit rating from S&P of at least “A”; or


 


(b)          a
depository institution organized under the laws of the United States of America or any State (or any domestic branch of a foreign bank)
(i) that has either (A) a long-term issuer rating of “AA-” or higher by S&P and “A2” or higher by Moody’s,
or (B) a short-term issuer rating of “A-1” or higher by S&P and “P-1” or higher by Moody’s, and (ii)
whose deposits are insured by the Federal Deposit Insurance Corporation.


 


If so qualified under clause (b) above, the Indenture Trustee may be
considered an Eligible Institution for the purposes of clause (a) of this definition.


 


“Eligible Investments” means instruments
or investment property that evidence:


 


(a)           direct
obligations of, or obligations fully and unconditionally guaranteed as to timely payment by, the United States of America;


 


(b)           demand
or time deposits of, unsecured certificates of deposit of, money market deposit accounts of, bank deposit products of or bankers’
acceptances issued by, any depository institution (including, but not limited to, bank deposit products of the Indenture Trustee, acting
in its commercial capacity) incorporated or organized under the laws of the United States of America or any State thereof and subject
to supervision and examination by U.S. federal or state banking authorities, so long as the commercial paper or other short-term debt
obligations of such depository institution are, at the time of deposit, rated at least “A-1” and “P-1” or their
equivalents by each of S&P and Moody’s, or such lower rating as will not result in the downgrading or withdrawal of the ratings
of the Storm Recovery Bonds;


 


(c)           commercial
paper (including commercial paper of the Indenture Trustee, acting in its commercial capacity, and other than commercial paper of Duke
Energy Carolinas or any of its Affiliates), which at the time of purchase is rated at least “A-1” and “P-1” or
their equivalents by each of S&P and Moody’s or such lower rating as will not result in the downgrading or withdrawal of the
ratings of the Storm Recovery Bonds;


 


(d)           investments
in money market funds having a rating in the highest investment category granted thereby (including funds for which the Indenture Trustee
or any of its Affiliates is investment manager or advisor) from Moody’s and S&P;


 


(e)           repurchase
obligations with respect to any security that is a direct obligation of, or fully guaranteed by, the United States of America or its agencies
or instrumentalities, entered into with Eligible Institutions;


 






    A-5


     


    

 


(f)            repurchase
obligations with respect to any security or whole loan entered into with an Eligible Institution or with a registered broker/dealer acting
as principal and that meets the ratings criteria set forth below:


 


(i)          a
broker/dealer (acting as principal) registered as a broker or dealer under Section 15 of the Exchange Act (any such broker/dealer
being referred to in this definition as a “broker/dealer”), the unsecured short-term debt obligations of which are rated at
least “P-1” by Moody’s, “A-1+” by S&P at the time of entering into such repurchase obligation; or


 


(ii)          an
unrated broker/dealer, acting as principal, that is a wholly-owned subsidiary of a non-bank or bank holding company the unsecured short-term
debt obligations of which are rated at least “P-1” by Moody’s and “A-1+” by S&P at the time of purchase
so long as the obligations of such unrated broker/dealer are unconditionally guaranteed by such non-bank or bank holding company; and


 


(g)           any
other investment permitted by each of the Rating Agencies;


 


in each case maturing not later than the Business Day preceding the
next Payment Date or Special Payment Date, if applicable (for the avoidance of doubt, investments in money market funds or similar instruments
that are redeemable on demand shall be deemed to satisfy the foregoing requirement). Notwithstanding the foregoing: (1) no securities
or investments that mature in 30 days or more shall be “Eligible Investments” unless the issuer thereof has either
a short-term unsecured debt rating of at least “P-1” from Moody’s or a long-term unsecured debt rating of at least
 “A1” from Moody’s and also has a long-term unsecured debt rating of at least “A” from S&P; (2) no securities
or investments described in clauses (b) through (d) above that have maturities of more than 30 days but less than or equal to 3 months
shall be “Eligible Investments” unless the issuer thereof has a long-term unsecured debt rating of at least “A1”
from Moody’s and a short-term unsecured debt rating of at least “P-1” from Moody’s; (3) no securities or investments
described in clauses (b) through (d) above that have maturities of more than 3 months shall be “Eligible Investments”
unless the issuer thereof has a long-term unsecured debt rating of at least “A1” from Moody’s and a short-term unsecured
debt rating of at least “P-1” from Moody’s; (4) no securities or investments described in bullet points (b) through
(d) above which have a maturity of 60 days or less will be Eligible Investments unless such securities have a rating from S&P of
at least “A-1”; and (5) no securities or investments described in bullet points (b) through (d) above which have a maturity
of more than 60 days will be Eligible Investments unless such securities have a rating from S&P of at least “AA-”, “A-1+”
or “AAAm”.


 


“Event of Default”
is defined in Section 5.01 of the Indenture.


 


“Excess Funds Subaccount”
is defined in Section 8.02(a) of the Indenture.


 


“Exchange Act” means
the Securities Exchange Act of 1934.


 


“Expected Sinking Fund Schedule”
means, with respect to any Tranche, the expected sinking fund schedule related thereto set forth in the Series Supplement.


 


“Federal Book-Entry Regulations”
means 31 C.F.R. Part 357 et seq. (Department of Treasury).


 


“Final” means, with
respect to the Financing Order or Subsequent Financing Order, that the Financing Order has become final, that the Financing Order is not
being appealed and that the time for filing an appeal thereof has expired.


 






    A-6


     


    

 


“Final Maturity Date”
means, with respect to each Series of Tranche of Storm Recovery Bonds, the final maturity date therefor as specified in the applicable
Series Supplement.


 


“Financing Costs”
means all financing costs as defined in Section 62-172(a)(4)of the Storm Recovery Law allowed to be recovered by Duke Energy Carolinas
under the Financing Order.


 


“Financing Order”
means the financing order issued by the Commission to Duke Energy Carolinas on May 10, 2021, Docket No. E-7, Sub 1243, authorizing the
creation of the Storm Recovery Property, which was clarified and corrected by the NCUC in an Order Clarifying and Correcting Financing
Order on July 13, 2021.


 


“Financing Party”
means any and all of the following: the Holders, the Indenture Trustee, Duke Energy Carolinas, collateral agents, any party under the
Basic Documents, or any other person acting for the benefit of the Holders.


 


“North Carolina UCC”
means the Uniform Commercial Code as in effect on the Closing Date in the State of North Carolina.


 


“General Subaccount”
is defined in Section 8.02(a) of the Indenture for such Series.


 


“Global Storm Recovery Bond”
means a Storm Recovery Bond to be issued to the Holders thereof in Book-Entry Form, which Global Storm Bond shall be issued to the Clearing
Agency, or its nominee, in accordance with Section 2.11 of the Indenture and the Series Supplement.


 


“Governmental Authority”
means any nation or government, any U.S. federal, state, local or other political subdivision thereof and any court, administrative agency
or other instrumentality or entity exercising executive, legislative, judicial, regulatory or administrative functions of government.


 


“Grant” means mortgage,
pledge, bargain, sell, warrant, alienate, remise, release, convey, grant, transfer, create, grant a lien upon, a security interest in
and right of set-off against, deposit, set over and confirm pursuant to the Indenture and the Series Supplement. A Grant of the Collateral
shall include all rights, powers and options (but none of the obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for payments in respect of the Collateral and all other moneys payable
thereunder, to give and receive notices and other communications, to make waivers or other agreements, to exercise all rights and options,
to bring Proceedings in the name of the granting party or otherwise and generally to do and receive anything that the granting party is
or may be entitled to do or receive thereunder or with respect thereto.


 


“Holder” means the Person in whose
name a Storm Recovery Bond is registered on the Storm Recovery Bond Register.


 






    A-7


     


    

 


“Indemnified Losses” is defined
in Section 5.03 of the Servicing Agreement.


 


“Indemnified Party” is defined
in Section 6.02(a) of the Servicing Agreement.


 


“Indemnified Person” is defined
in Section 5.01(f) of the Sale Agreement.


 


“Indenture” means the Indenture,
dated as of the date hereof, by and between the Issuer and The Bank of New York Mellon Trust Company, a National Association, as Indenture
Trustee and as Securities Intermediary.


 


“Indenture Trustee” means The
Bank of New York Mellon Trust Company, National Association, a national banking association, as indenture trustee for the benefit of the
Secured Parties, or any other indenture trustee for the benefit of the Secured Parties, under the Indenture.


 


“Independent” means, when used
with respect to any specified Person, that such specified Person (a) is in fact independent of the Issuer, any other obligor on the Storm
Recovery Bonds, the Seller, the Servicer and any Affiliate of any of the foregoing Persons, (b) does not have any direct financial interest
or any material indirect financial interest in the Issuer, any such other obligor, the Seller, the Servicer or any Affiliate of any of
the foregoing Persons and (c) is not connected with the Issuer, any such other obligor, the Seller, the Servicer or any Affiliate of any
of the foregoing Persons as an officer, employee, promoter, underwriter, trustee, partner, director (other than as an independent director
or manager) or person performing similar functions.


 


“Independent Certificate” means
a certificate to be delivered to the Indenture Trustee under the circumstances described in, and otherwise complying with, the applicable
requirements of Section 10.01 of the Indenture, made by an Independent appraiser or other expert appointed by an Issuer Order and
consented to by the Indenture Trustee, and such certificate shall state that the signer has read the definition of “Independent”
in the Indenture and that the signer is Independent within the meaning thereof.


 


“Independent Manager” is defined
in Section 4.01(a) of the LLC Agreement.


 


“Independent Manager Fee” is defined
in Section 4.01(a) of the LLC Agreement.


 


“Insolvency Event” means, with
respect to a specified Person: (a) the filing of a decree or order for relief by a court having jurisdiction in the premises in respect
of such specified Person or any substantial part of its property in an involuntary case under any applicable U.S. federal or state bankruptcy,
insolvency or other similar law in effect as of the date hereof or thereafter, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official for such specified Person or for any substantial part of its property, or ordering the winding-up
or liquidation of such specified Person’s affairs, and such decree or order shall remain unstayed and in effect for a period of
60 consecutive days; or (b) the commencement by such specified Person of a voluntary case under any applicable U.S. federal or state bankruptcy,
insolvency or other similar law in effect as of the Closing Date or thereafter, or the consent by such specified Person to the entry of
an order for relief in an involuntary case under any such law, or the consent by such specified Person to the appointment of or taking
possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for such specified Person or for
any substantial part of its property, or the making by such specified Person of any general assignment for the benefit of creditors, or
the failure by such specified Person generally to pay its debts as such debts become due, or the taking of action by such specified Person
in furtherance of any of the foregoing.


 






    A-8


     


    

 


“Intercreditor Agreement” means
the Intercreditor Agreement, dated as of the date hereof, by and among the Duke Energy Business Services, Inc., Duke Energy Corporate
Services Inc., Duke Energy Corporation, Mizuho Bank, Ltd., the Bank of Nova Scotia, the Bank of Tokyo-Mitsubishi UFJ, Ltd., Duke Energy
Progress, LLC, Duke Energy Ohio, Inc., Duke Energy Progress NC Storm Funding LLC, Duke Energy Progress Receivables LLC, Cinergy Receivables
Company LLC and Duke Energy Receivables Finance Company, LLC, the Indenture Trustee, the Issuer, Duke Energy
Carolinas, and any subsequent such agreement.


 


“Investment Company Act” means
the Investment Company Act of 1940.


 


“Investment Earnings” means investment
earnings on funds deposited in the Collection Account net of losses and investment expenses.


 


“Issuer” means Duke Energy Carolinas
NC Storm Funding LLC, a Delaware limited liability company, named as such in the Indenture until a successor replaces it and, thereafter,
means the successor and, for purposes of any provision contained herein and required by the Trust Indenture Act, each other obligor on
the Storm Recovery Bonds.


 


“Issuer Documents” is defined
in Section 1(a)(iv) of the Administration Agreement.


 


“Issuer Order” means a written
order signed in the name of the Issuer by any one of its Responsible Officers and delivered to the Indenture Trustee or Paying Agent,
as applicable.


 


“Issuer Request” means a written
request signed in the name of the Issuer by any one of its Responsible Officers and delivered to the Indenture Trustee or Paying Agent,
as applicable.


 


“Legal Defeasance Option” is defined
in Section 4.01(b) of the Indenture.


 


“Letter of Representations” means
any applicable agreement between the Issuer and the applicable Clearing Agency, with respect to such Clearing Agency’s rights and
obligations (in its capacity as a Clearing Agency) with respect to any Book-Entry Storm Recovery Bonds.


 


“Lien” means a security interest,
lien, mortgage, charge, pledge, claim or encumbrance of any kind.


 


“LLC Agreement” means the Amended
and Restated Limited Liability Company Agreement of Duke Energy Carolinas NC Storm Funding LLC, dated as of August 12, 2021.


 






    A-9


     


    

 


“Losses” means (a) any and all
amounts of principal of and interest on the Storm Recovery Bonds not paid when due or when scheduled to be paid in accordance with their
terms and the amounts of any deposits by or to the Issuer required to have been made in accordance with the terms of the Basic Documents
or the Financing Order that are not made when so required and (b) any and all other liabilities, obligations, losses, claims, damages,
payments, costs or expenses of any kind whatsoever.


 


“Manager” means each manager of
the Issuer under the LLC Agreement.


 


“Member” has the meaning specified
in the first paragraph of the LLC Agreement.


 


“Monthly Servicer’s Certificate”
is defined in Section 3.01(b)(i) of the Servicing Agreement.


 


“Moody’s” means Moody’s
Investors Service, Inc. References to Moody’s are effective so long as Moody’s is a Rating Agency.


 


“North Carolina UCC”
means the Uniform Commercial Code as in effect on the Closing Date in the State of North Carolina.


 


“NRSRO” is defined in Section
10.19(b) of the Indenture.


 


“NY UCC” means the Uniform Commercial
Code as in effect on the date hereof in the State of New York.


 


“Officer’s Certificate”
means a certificate signed by a Responsible Officer of the Issuer under the circumstances described in, and otherwise complying with,
the applicable requirements of Section 10.01 of the Indenture, and delivered to the Indenture Trustee.


 


“Ongoing Financing Costs” means
the Financing Costs described as such in the Financing Order, including Operating Expenses and any other costs identified in the Basic
Documents; provided, however, that Ongoing Financing Costs do not include the Issuer’s costs of issuance of the Storm
Recovery Bonds.


 


“Operating Expenses” means all
unreimbursed fees, costs and out-of-pocket expenses of the Issuer, including all amounts owed by the Issuer to the Indenture Trustee (including
indemnities, legal, audit fees and expenses) or any Manager, the Servicing Fee, the Administration Fee, legal and accounting fees, Rating
Agency fees, any Regulatory Assessment Fees and related fees (i.e. website provider fees) and any franchise or other taxes owed by the
Issuer, including on investment income in the Collection Account.


 


“Opinion of Counsel” means one
or more written opinions of counsel, who may, except as otherwise expressly provided in the Basic Documents, be employees of or counsel
to the party providing such opinion of counsel, which counsel shall be reasonably acceptable to the party receiving such opinion of counsel,
and shall be in form and substance reasonably acceptable to such party.


 






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“Optional Interim True-Up Adjustment”
means each adjustment to the Storm Recovery Charges made pursuant to Section 4.01(b)(ii) of the Servicing Agreement.


 


“Outstanding” means, as of the
date of determination, all Storm Recovery Bonds theretofore authenticated and delivered under the Indenture, except:


 


(a)           Storm
Recovery Bonds theretofore canceled by the Storm Recovery Bond Registrar or delivered to the Storm Recovery Bond Registrar for cancellation;


 


(b)           Storm
Recovery Bonds or portions thereof the payment for which money in the necessary amount has been theretofore deposited with the Indenture
Trustee or any Paying Agent in trust for the Holders of such Storm Recovery Bonds; and


 


(c)           Storm
Recovery Bonds in exchange for or in lieu of other Storm Recovery Bonds that have been issued pursuant to the Indenture unless proof satisfactory
to the Indenture Trustee is presented that any such Storm Recovery Bonds are held by a Protected Purchaser; provided, that, in
determining whether the Holders of the requisite Outstanding Amount of the Storm Recovery Bonds or any Tranche thereof have given any
request, demand, authorization, direction, notice, consent or waiver under any Basic Document, Storm Recovery Bonds owned by the Issuer,
any other obligor upon the Storm Recovery Bonds, the Member, the Seller, the Servicer or any Affiliate of any of the foregoing Persons
shall be disregarded and deemed not to be Outstanding (unless one or more such Persons owns 100% of such Storm Recovery Bonds), except
that, in determining whether the Indenture Trustee shall be protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Storm Recovery Bonds that the Indenture Trustee actually knows to be so owned shall be so disregarded.
Storm Recovery Bonds so owned that have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction
of the Indenture Trustee the pledgee’s right so to act with respect to such Storm Recovery Bonds and that the pledgee is not the
Issuer, any other obligor upon the Storm Recovery Bonds, the Member, the Seller, the Servicer or any Affiliate of any of the foregoing
Persons.


 


“Outstanding Amount” means the
aggregate principal amount of all Storm Recovery Bonds, or, if the context requires, all Storm Recovery Bonds of a Tranche, Outstanding
at the date of determination.


 


“Paying Agent” means, with respect
to the Indenture, the Indenture Trustee and any other Person appointed as a paying agent for the Storm Recovery Bonds pursuant to the
Indenture.


 


“Payment Date” means, with respect
to any Tranche of Storm Recovery Bonds, the dates specified in the Series Supplement; provided, that if any such date is not a
Business Day, the Payment Date shall be the Business Day succeeding such date.


 


“Periodic Billing Requirement”
means, for any Remittance Period, the aggregate amount of Charges calculated by the Servicer as necessary to be billed during such period
in order to collect the Periodic Payment Requirement on a timely basis.


 






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“Periodic Interest” means, with
respect to any Payment Date, the periodic interest for such Payment Date as specified in the Series Supplement.


 


“Periodic Payment Requirement”
for any Remittance Period means the total dollar amount of Storm Recovery Charge Collections reasonably calculated by the Servicer in
accordance with Section 4.01 of the Servicing Agreement as necessary to be received during such Remittance Period (after giving effect
to the allocation and distribution of amounts on deposit in the Excess Funds Subaccount at the time of calculation and that are projected
to be available for payments on the Storm Recovery Bonds at the end of such Remittance Period and including any shortfalls in Periodic
Payment Requirements for any prior Remittance Period) in order to ensure that, as of the last Payment Date occurring in such Remittance
Period, (a) all accrued and unpaid principal of and interest on the Storm Recovery Bonds then due shall have been paid in full on a timely
basis, (b) the Outstanding Amount of the Storm Recovery Bonds is equal to the Projected Unpaid Balance on each Payment Date during such
Remittance Period, (c) the balance on deposit in the Capital Subaccount equals the Required Capital Level and (d) all other fees and expenses
due and owing and required or allowed to be paid under Section 8.02 of the Indenture as of such date shall have been paid in full; provided,
that, with respect to any Semi-Annual True-Up Adjustment or Optional Interim True-Up Adjustment occurring after the date that is one year
prior to the last Scheduled Final Payment Date for the Storm Recovery Bonds, the Periodic Payment Requirements shall be calculated to
ensure that sufficient Storm Recovery Charges will be collected to retire the Storm Recovery Bonds in full as of the next Payment Date.


 


“Periodic Principal” means, with
respect to any Payment Date, the excess, if any, of the Outstanding Amount of Storm Recovery Bonds over the outstanding principal balance
specified for such Payment Date on the Expected Sinking Fund Schedule.


 


“Permitted Lien” means the Lien
created by the Indenture.


 


“Permitted Successor” is defined
in Section 5.02 of the Sale Agreement.


 


“Person” means any individual,
corporation, limited liability company, estate, partnership, joint venture, association, joint stock company, trust (including any beneficiary
thereof), unincorporated organization or Governmental Authority.


 


“Predecessor Storm Recovery Bond”
means, with respect to any particular Storm Recovery Bond, every previous Storm Recovery Bond evidencing all or a portion of the same
debt as that evidenced by such particular Storm Recovery Bond, and, for the purpose of this definition, any Storm Recovery Bond authenticated
and delivered under Section 2.06 of the Indenture in lieu of a mutilated, lost, destroyed or stolen Storm Recovery Bond shall be
deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Storm Recovery Bond.


 


“Premises” is defined in Section
1(g) of the Administration Agreement.


 


“Proceeding” means any suit in
equity, action at law or other judicial or administrative proceeding.


 






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“Projected Unpaid Balance” means,
as of any Payment Date, the sum of the projected outstanding principal amount of each Tranche of Storm Recovery Bonds for such Payment
Date set forth in the Expected Sinking Fund Schedule.


 


“Protected Purchaser” has the
meaning specified in Section 8-303 of the UCC.:


 


“Public Staff” means the Public
Staff of the Commission, an independent agency established in N.C. Gen. Stat. § 62-15 et seq., that represents the interests of the
using and consuming public in matters pending before the Commission.


 


“Rating Agency” means, with respect
to any Tranche of Storm Recovery Bonds, any of Moody’s or S&P that provides a rating with respect to the Storm Recovery Bonds.
If no such organization (or successor) is any longer in existence, “Rating Agency” shall be a nationally recognized
statistical rating organization or other comparable Person designated by the Issuer, notice of which designation shall be given to the
Indenture Trustee and the Servicer.


 


“Rating Agency Condition” means,
with respect to any action, at least ten Business Days’ prior written notification to each Rating Agency of such action, and written
confirmation from each of S&P and Moody’s to the Servicer, the Indenture Trustee and the Issuer that such action will not result
in a suspension, reduction or withdrawal of the then current rating by such Rating Agency of any Tranche of Storm Recovery Bonds; provided,
that, if, within such ten Business Day period, any Rating Agency (other than S&P) has neither replied to such notification nor responded
in a manner that indicates that such Rating Agency is reviewing and considering the notification, then (a) the Issuer shall be required
to confirm that such Rating Agency has received the Rating Agency Condition request and, if it has, promptly request the related Rating
Agency Condition confirmation and (b) if the Rating Agency neither replies to such notification nor responds in a manner that indicates
it is reviewing and considering the notification within five Business Days following such second request, the applicable Rating Agency
Condition requirement shall not be deemed to apply to such Rating Agency. For the purposes of this definition, any confirmation, request,
acknowledgment or approval that is required to be in writing may be in the form of electronic mail or a press release (which may contain
a general waiver of a Rating Agency’s right to review or consent).


 


“Record Date” means one Business
Day prior to the applicable Payment Date.


 


“Registered Holder” means the
Person in whose name a Storm Recovery Bond is registered on the Storm Recovery Bond Register.


 


“Regulation AB” means the rules
of the SEC promulgated under Subpart 229.1100 – Asset Backed Securities (Regulation AB), 17 C.F.R. §§229.1100-229.1123.


 


“Reimbursable Expenses” is defined
in Section 2 of the Administration Agreement and Section 6.06(a) of the Servicing Agreement.


 


“Released Parties” is defined
in Section 6.02(d) of the Servicing Agreement.


 






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“Remittance Period” means, with
respect to any True-Up Adjustment, the period comprised of 6 consecutive Collection Periods beginning with the Collection Period three
months prior to when such True-Up Adjustment would go into effect, from the Closing Date to the first Scheduled Payment Date, and for
each subsequent period between Scheduled Payment Dates.


 


“Required Capital Level” means
the amount specified as such in the Series Supplement therefor.


 


“Requirement of Law” means any
foreign, U.S. federal, state or local laws, statutes, regulations, rules, codes or ordinances enacted, adopted, issued or promulgated
by any Governmental Authority or common law.


 


“Responsible Officer” means, with
respect to: (a) the Issuer, any Manager or any duly authorized officer; (b) the Indenture Trustee, any officer within the Corporate Trust
Office of such trustee (including the President, any Vice President, any Assistant Vice President, any Secretary, any Assistant Treasurer
or any other officer of the Indenture Trustee customarily performing functions similar to those performed by persons who at the time shall
be such officers, respectively, and that has direct responsibility for the administration of the Indenture and also, with respect to a
particular matter, any other officer to whom such matter is referred to because of such officer’s knowledge and familiarity with
the particular subject); (c) any corporation (other than the Indenture Trustee), the Chief Executive Officer, the President, any Vice
President, the Chief Financial Officer, the Treasurer, any Assistant Treasurer or any other duly authorized officer of such Person who
has been authorized to act in the circumstances; (d) any partnership, any general partner thereof; and (e) any other Person (other than
an individual), any duly authorized officer or member of such Person, as the context may require, who is authorized to act in matters
relating to such Person.


 


“Return on Invested Capital” means,
for any Payment Date with respect to any Remittance Period, the sum of (i) rate of return, payable to Duke Energy Carolinas, on its Capital
Contribution equal to the rate of interest payable on the longest maturing Tranche of Storm Recovery Bonds plus (ii) any Return on Invested
Capital not paid on any prior Payment Date.


 


“S&P” means Standard &
Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business. References to S&P are effective so long
as S&P is a Rating Agency.


 


“Sale Agreement” means the Storm
Recovery Property Purchase and Sale Agreement, dated as of the date hereof, by and between the Issuer and Duke Energy Carolinas, and acknowledged
and accepted by the Indenture Trustee.


 


“Scheduled Final Payment Date”
means, with respect to the Storm Recovery Bonds, the date with respect to each tranche when all interest and principal is scheduled to
be paid in accordance with the Expected Sinking Fund Schedule, as specified in the Series Supplement. For the avoidance of doubt, the
Scheduled Final Payment Date shall be the last Scheduled Payment Date set forth in the Expected Sinking Fund Schedule. The “last
Scheduled Final Payment Date” means the Scheduled Final Payment Date of the latest maturing Tranche of Storm Recovery Bonds.


 






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“Scheduled Payment Date” means,
with respect to each Tranche of Storm Recovery Bonds, each Payment Date on which principal for such Tranche is to be paid in accordance
with the Expected Sinking Fund Schedule for such Tranche.


 


“SEC” means the Securities and
Exchange Commission.


 


“Secured Obligations” means the
payment of principal of and premium, if any, interest on, and any other amounts owing in respect of, the Storm Recovery Bonds and all
fees, expenses, counsel fees and other amounts due and payable to the Indenture Trustee.


 


“Secured Parties” means the Indenture
Trustee, the Holders and any credit enhancer described in a Series Supplement.


 


“Securities Act” means the Securities
Act of 1933.


 


“Securities Intermediary” means
The Bank of New York Mellon Trust Company, a national banking association, solely in the capacity of a “securities intermediary”
as defined in the NY UCC and Federal Book-Entry Regulations or any successor securities intermediary under the Indenture.


 


“Seller” is defined in the preamble
to the Sale Agreement.


 


“Semi-Annual Servicer’s Certificate”
is defined in Section 4.01(c)(ii) of the Servicing Agreement.


 


“Semi-Annual True-Up Adjustment”
means each adjustment to the Storm Recovery Charges made in accordance with Section 4.01(b)(i) of the Servicing Agreement.


 


“Semi-Annual True-Up Adjustment Date”
means the first billing cycle of [March and September] of each year, commencing in [March], 2023.


 


“Series Supplement” means an indenture
supplemental to the Indenture in the form attached as Exhibit B to the Indenture that authorizes the issuance of Storm Recovery
Bonds.


 


“Servicer” means Duke Energy Carolinas,
as Servicer under the Servicing Agreement.


 


“Servicer Business Day” means
any day other than a Saturday, a Sunday or a day on which banking institutions in Raleigh, North Carolina, Charlotte, North Carolina or
New York, New York are authorized or obligated by law, regulation or executive order to be closed, on which the Servicer maintains normal
office hours and conducts business.


 


“Servicer Default” is defined
in Section 7.01 of the Servicing Agreement.


 


“Servicer Policies and Practices”
means, with respect to the Servicer’s duties under Exhibit A to the Servicing Agreement, 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 and, if applicable,
others.


 






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“Servicing Agreement” means the
Storm Recovery Property Servicing Agreement, dated as of the date hereof, by and between the Issuer and Duke Energy Carolinas, and acknowledged
and accepted by the Indenture Trustee.


 


“Servicing Fee” is defined in
Section 6.06(a) of the Servicing Agreement.


 


“Servicing Standard” means the
obligation of the Servicer to calculate, apply, remit and reconcile proceeds of the Property, including Storm Recovery Charge Payments,
and all other Collateral for the benefit of the Issuer and the Holders (a) with the same degree of care and diligence as the Servicer
applies with respect to payments owed to it for its own account, (b) in accordance with all applicable procedures and requirements established
by the Commission for collection of electric utility tariffs and (c) in accordance with the other terms of the Servicing Agreement.


 


“Special Payment Date” means the
date on which, with respect to any Tranche of Storm Recovery Bonds, any payment of principal of or interest (including any interest accruing
upon default) on, or any other amount in respect of, the Storm Recovery Bonds of such Series or Tranche that is not actually paid within
five days of the Payment Date applicable thereto is to be made by the Indenture Trustee to the Holders.


 


“Special Record Date” means, with
respect to any Special Payment Date, the close of business on the fifteenth day (whether or not a Business Day) preceding such Special
Payment Date.


 


“Sponsor” means Duke Energy Carolinas,
in its capacity as “sponsor” of the Storm Recovery Bonds within the meaning of Regulation AB.


 


“State” means any one of the fifty
states of the United States of America or the District of Columbia.


 


“State Pledge” means the pledge
of the State of North Carolina as set forth in Section 62-172(k) of the Storm Recovery Law.


 


“Storms” means Hurricanes Florence,
Dorian and Michael and Winter Storm Diego.


 


“Storm Recovery Bonds” means the
Series A Senior Secured Storm Recovery Bonds issued by the Issuer on the Closing Date.


 


“Storm Recovery Charge Collections”
means Storm Recovery Charges actually received by the Servicer to be remitted to the Collection Account.


 


“Storm Recovery Charge Payments”
means the payments made by Customers based on the Storm Recovery Charges.


 






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“Storm Recovery Charge” means
any storm-recovery charges as defined in Section 62-172(a)(13) of the Storm Recovery Law that are authorized by the Financing Order.


 


“Storm Recovery Collateral” means
Collateral for the benefit of Storm Recovery Bonds.


 


“Storm Recovery Costs” means
(i) Duke Energy Carolinas’ deferred asset balance associated with the Storms, including a return on the unrecovered balance,
and with respect to the capital investments, including a deferral of depreciation expense and a return on the investment determined
by the Commission to be prudently incurred in Docket No. E-7, Sub 1187 plus (ii) carrying costs through the
projected issuances date of the Storm Recovery Bonds, calculated at a rate authorized by the NCUC, (iii) plus up-front Financing
Costs “Storm Recovery Law” means the laws of the State of North Carolina adopted in 2019 enacted as Section
62-172, North Carolina Statutes.


 


“Storm Recovery Property” means
all storm recovery property as defined in Section 62-172(a)(15)a. of the Storm Recovery Law created pursuant to the Financing Order or
a Subsequent Financing Order and under the Storm Recovery Law, including the right to impose, bill, charge, collect and receive the Storm
Recovery Charges authorized under the Financing Order and to obtain periodic adjustments of the Storm Recovery Charges and all revenue,
collections, claims, rights to payments, payments, money, or proceeds arising from the rights and interests specified in Section 62-172(a)(15)b.,
regardless of whether such revenues, collections, claims, rights to payments, money, or proceeds are imposed, billed, received, collected,
or maintained together with or commingled with other revenues, collections, rights to payment, payments, money or proceeds.


 


“Storm Recovery Property Records”
is defined in Section 5.01 of the Servicing Agreement.


 


“Storm Recovery Rate Class” means
one of the [three] separate rate classes to whom Charges are allocated for ratemaking purposes in accordance with the Financing Order.


 


“Storm Recovery Rate Schedule”
means the Tariff sheets to be filed with the Commission stating the amounts of the Charges, as such Tariff sheets may be amended or modified
from time to time pursuant to a True-Up Adjustment.


 


“Subaccounts” is defined in Section
8.02(a) of the Indenture.


 


“Subsequent Financing Order” means,
a financing order of the Commission under the Storm Recovery Law issued to Duke Energy Carolinas subsequent to the Financing Order.


 


“Successor” means any successor
to Duke Energy Carolinas under the Storm Recovery Law, whether pursuant to any bankruptcy, reorganization or other insolvency proceeding
or pursuant to any merger, conversion, acquisition, sale or transfer, by operation of law, as a result of electric utility restructuring,
or otherwise.


 


“Successor Servicer” is defined
in Section 3.07(e) of the Indenture.


 






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“Tail-end Subaccount” is defined
in Section 8.02(a) of the Indenture.


 


“Tariff” means the most current
version on file with the Commission of [ ], 2021.


 


“Tax Returns” is defined in Section
1(a)(iii) of the Administration Agreement.


 


“Temporary Storm Recovery Bonds”
means Storm Recovery Bonds executed and, upon the receipt of an Issuer Order, authenticated and delivered by the Indenture Trustee pending
the preparation of Definitive Storm Recovery Bonds pursuant to Section 2.04 of the Indenture.


 


“Termination Notice” is defined
in Section 7.01 of the Servicing Agreement.


 


“TPS” means a third
party supplier which is authorized by law to sell electric service to a customer using the transmission or distribution system of Duke
Energy Carolinas.


 


“Tranche Maturity Date” means,
with respect to any Tranche of Storm Recovery Bonds, the maturity date therefor, as specified in the Series Supplement therefor.


 


“True-Up Adjustment” means any
Semi-Annual True-Up Adjustment or Optional Interim True-Up Adjustment, as the case may be.


 


“Trust Indenture Act” means the
Trust Indenture Act of 1939 as in force on the Closing Date, unless otherwise specifically provided.


 


“UCC” means the Uniform Commercial
Code as in effect in the relevant jurisdiction.


 


“Underwriters” means the underwriters
who purchase Storm Recovery Bonds of any Series from the Issuer and sell such Storm Recovery Bonds in a public offering.


 


“Underwriting Agreement” means
the Underwriting Agreement, dated [ ], 2021, by and among the Issuer, Duke Energy Carolinas, and the representatives of the several
Underwriters named therein, as the same may be amended, supplemented or modified from time to time, with respect to the issuance of the
Storm Recovery Bonds.


 


“U.S. Government Obligations”
means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including
any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and
that are not callable at the option of the issuer thereof.


 


“Weighted Average Days Outstanding”
means the weighted average number of days Duke Energy Carolinas monthly bills to Customers remain outstanding during the calendar year
preceding the calculation thereof pursuant to Section 4.01(b)(i) of the Servicing Agreement.


 






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B.             Rules
of Construction. Unless the context otherwise requires, in each Basic Document to which this Appendix A is attached:


 


(a)           All
accounting terms not specifically defined herein shall be construed in accordance with United States generally accepted accounting principles.
To the extent that the definitions of accounting terms in any Basic Document are inconsistent with the meanings of such terms under generally
accepted accounting principles or regulatory accounting principles, the definitions contained in such Basic Document shall control.


 


(b)           The
term “including” means “including without limitation”, and other forms of the verb “include”
have correlative meanings.


 


(c)           All
references to any Person shall include such Person’s permitted successors and assigns, and any reference to a Person in a particular
capacity excludes such Person in other capacities.


 


(d)           Unless
otherwise stated in any of the Basic Documents, in the computation of a period of time from a specified date to a later specified date,
the word “from” means “from and including” and each of the words “to” and “until” means
 “to but excluding”.


 


(e)           The
words “hereof”, “herein” and “hereunder” and words of similar import when used in any Basic Document
shall refer to such Basic Document as a whole and not to any particular provision of such Basic Document. References to Articles, Sections,
Appendices and Exhibits in any Basic Document are references to Articles, Sections, Appendices and Exhibits in or to such Basic Document
unless otherwise specified in such Basic Document.


 


(f)            The
various captions (including the tables of contents) in each Basic Document are provided solely for convenience of reference and shall
not affect the meaning or interpretation of any Basic Document.


 


(g)           The
definitions contained in this Appendix A apply equally to the singular and plural forms of such terms, and words of the masculine,
feminine or neuter gender shall mean and include the correlative words of other genders.


 


(h)           Unless
otherwise specified, references to an agreement or other document include references to such agreement or document as from time to time
amended, restated, reformed, supplemented or otherwise modified in accordance with the terms thereof (subject to any restrictions on such
amendments, restatements, reformations, supplements or modifications set forth in such agreement or document) and include any attachments
thereto.


 


(i)            References
to any law, rule, regulation or order of a Governmental Authority shall include such law, rule, regulation or order as from time to time
in effect, including any amendment, modification, codification, replacement or reenactment thereof or any substitution therefor.


 


(j)            The
word “will” shall be construed to have the same meaning and effect as the word “shall”.


 






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(k)           The
word “or” is not exclusive.


 


(l)            All
terms defined in the relevant Basic Document to which this Appendix A is attached shall have the defined meanings when used in
any certificate or other document made or delivered pursuant thereto unless otherwise defined therein.


 


(m)          A
term has the meaning assigned to it.


 






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