AMENDED AND RESTATED
                              OPERATING AGREEMENT

                                       OF

                          PJM INTERCONNECTION, L.L.C.

                               Dated June 2, 1997
                          (Revised December 31, 1997)


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OPERATING AGREEMENT
TABLE OF CONTENTS

1. DEFINITIONS ...........................................................     2
     1.1 Act .............................................................     2
     1.2 Affiliate .......................................................     2
     1.3 Agreement .......................................................     2
     1.4 Annual Meeting of the Members ...................................     2
     1.5 Board Member ....................................................     2
     1.6 Capacity Resource ...............................................     2
     1.7 Control Area ....................................................     3
     1.8 Electric Distributor ............................................     3
     1.9 Effective Date ..................................................     3
     1.10 Emergency ......................................................     3
     1.11 End-Use Customer ...............................................     3
     1.12 FERC ...........................................................     3
     1.13 Finance Committee ..............................................     4
     1.14 Generation Owner ...............................................     4
     1.15 Good Utility Practice ..........................................     4
     1.16 Interconnection ................................................     4
     1.17 LLC ............................................................     4
     1.18 Load Serving Entity ............................................     4
     1.19 Locational Marginal Price ......................................     4
     1.20 MAAC ...........................................................     4
     1.21 Market Buyer ...................................................     5
     1.22 Market Participant .............................................     5
     1.23 Market Seller ..................................................     5
     1.24 Member .........................................................     5
     1.25 Members Committee ..............................................     5
     1.26 NERC ...........................................................     5
     1.27 Office of the Interconnection ..................................     5
     1.28 Operating Reserve ..............................................     5
     1.29 Original PJM Agreement .........................................     5
     1.30 Other Supplier .................................................     6
     1.31 PJM Board ......................................................     6
     1.32 PJM Control Area ...............................................     6
     1.33 PJM Dispute Resolution Procedures ..............................     6
     1.34 PJM Interchange Energy Market ..................................     6
     1.35 PJM Manuals ....................................................     6
     1.36 PJM Tariff .....................................................     6
     1.37 Planning Period ................................................     6
     1.38 President ......................................................     6

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     1.39 Related Parties ...............................................      7
     1.40 Reliability Assurance Agreement ...............................      7
     1.41 Sector Votes ..................................................      7
     1.42 State .........................................................      7
     1.43 System ........................................................      7
     1.44 Transmission Facilities .......................................      7
     1.45 Transmission Owner ............................................      7
     1.46 Transmission Owners Agreement .................................      8
     1.47 User Group ....................................................      8
     1.48 Voting Member .................................................      8
     1.49 Weighted Interest .............................................      8
2. FORMATION, NAME; PLACE OF BUSINESS ...................................      8
     2.1 Formation of LLC; Certificate of Formation .....................      8
     2.2 Name of LLC ....................................................      9
     2.3 Place of Business ..............................................      9
     2.4 Registered Office and Registered Agent .........................      9
3. PURPOSES AND POWERS OF LLC ...........................................      9
     3.1 Purposes .......................................................      9
     3.2 Powers .........................................................     10
4. EFFECTIVE DATE AND TERMINATION .......................................     10
     4.1 Effective Date and Termination .................................     10
     4.2 Governing Law ..................................................     10
5. WORKING CAPITAL AND CAPITAL CONTRIBUTIONS ............................     11
     5.1 Funding of Working Capital and Capital Contributions ...........     11
     5.2 Contributions to Association ...................................     11
6. TAX STATUS AND DISTRIBUTIONS .........................................     11
     6.1 Tax Status .....................................................     11
     6.2 Return of Capital Contributions ................................     12
     6.3 Liquidating Distribution .......................................     12
7. PJM BOARD ............................................................     12
     7.1 Composition ....................................................     12
     7.2 Qualifications .................................................     13
     7.3 Term of Office .................................................     13
     7.4 Quorum .........................................................     13
     7.5 Operating and Capital Budgets ..................................     14
          7.5.1 Finance Committee .......................................     14
          7.5.2 Adoption of Budgets .....................................     14
     7.6 By-laws ........................................................     14
     7.7 Duties and Responsibilities of the PJM Board ...................     14
8. MEMBERS COMMITTEE ....................................................     16
     8.1 Sectors ........................................................     16
          8.1.1 Designation .............................................     16
          8.1.2 Related Parties .........................................     17
     8.2 Representatives ................................................     17

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          8.2.1 Appointment .............................................     17
          8.2.2 Regulatory Authorities ..................................     17
          8.2.3 Initial Representatives .................................     17
          8.2.4 Change of or Substitution for a Representative ..........     17
     8.3 Meetings .......................................................     18
          8.3.1 Regular and Special Meetings ............................     18
          8.3.2 Attendance ..............................................     18
          8.3.3 Quorum ..................................................     18
     8.4 Manner of Acting ...............................................     18
     8.5 Chair and Vice Chair of the Members Committee ..................     19
          8.5.1 Selection and Term ......................................     19
          8.5.2 Duties ..................................................     19
     8.6 Other Committees ...............................................     19
     8.7 User Groups ....................................................     20
     8.8 Powers of the Members Committee ................................     20
9. OFFICERS .............................................................     21
     9.1 Election and Term ..............................................     21
     9.2 President ......................................................     21
     9.3 Secretary ......................................................     21
     9.4 Treasurer ......................................................     22
     9.5 Renewal of Officers; Vacancies .................................     22
     9.6 Compensation ...................................................     22
10. OFFICE OF THE INTERCONNECTION .......................................     22
     10.1 Establishment .................................................     22
     10.2 Processes and Organization ....................................     23
     10.3 Confidential Information ......................................     23
     10.4 Duties and Responsibilities ...................................     25
11. MEMBERS .............................................................     25
     11.1 Management Rights .............................................     25
     11.2 Other Activities ..............................................     25
     11.3 Member Responsibilities .......................................     25
          11.3.1 General ................................................     25
          11.3.2 Facilities Planning and Operation ......................     26
          11.3.3 Electric Distributors ..................................     27
          11.3.4 Reports to the Office of the Interconnection ...........     28
     11.4 Regional Transmission Expansion Planning Protocol .............     28
     11.5 Member Right to Petition ......................................     28
     11.6 Membership Requirements .......................................     29
12. TRANSFERS OF MEMBERSHIP INTEREST ....................................     30
13. INTERCHANGE .........................................................     30
     13.1 Interchange Arrangements with Non-Members .....................     30
     13.2 Energy Market .................................................     30
14. METERING ............................................................     30
     14.1 Installation, Maintenance and Reading of Meters ...............     30

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     14.2 Metering Procedures ...........................................     30
     14.3 Integrated Megawatt-Hours .....................................     31
     14.4 Meter Locations ...............................................     31
15. ENFORCEMENT OF OBLIGATIONS ..........................................     31
     15.1 Failure to Meet Obligations ...................................     31
          15.1.1 Termination of Market Buyer Rights .....................     31
          15.1.2 Termination of Market Seller Rights ....................     31
     15.1.3 Payment of Bills ............................................     32
     15.2 Enforcement of Obligations ....................................     33
     15.3 Obligations to a Member in Default ............................     33
     15.4 Obligations of a Member in Default ............................     33
     15.5 No Implied Waiver .............................................     33
16. LIABILITY AND INDEMNITY .............................................     34
     16.1 Members .......................................................     34
     16.2 LLC Indemnified Parties .......................................     35
     16.3 Worker' Compensation Claims ...................................     36
     16.4 Limitation of Liability .......................................     36
     16.5 Resolution of Disputes ........................................     36
     16.6 Gross Negligence or Willful Misconduct ........................     36
     16.7 Insurance .....................................................     37
17. MEMBER REPRESENTATIONS, WARRANTIES AND COVENANTS ....................     37
     17.1 Representations and Warranties ................................     37
          17.1.1 Organization and Existence .............................     37
          17.1.2 Power and Authority ....................................     37
          17.1.3 Authorization and Enforceability .......................     37
          17.1.4 No Government Consents .................................     37
          17.1.5 No Conflict or Breach ..................................     37
          17.1.6 No Proceedings .........................................     38
     17.2 Municipal Electric Systems ....................................     38
     17.3 Survival ......................................................     38
18. MISCELLANEOUS PROVISIONS ............................................     38
     18.1 Transmission Owners Rights ....................................     38
     18.2 Fiscal and Taxable Year .......................................     38
     18.3 Reports .......................................................     38
     18.4 Bank Accounts; Checks, Notes and Drafts .......................     39
     18.5 Books and Records .............................................     39
     18.6 Amendment .....................................................     40
     18.7 Interpretation ................................................     40
     18.8 Severability ..................................................     40
     18.9 Force Majeure .................................................     41
     18.10 Further Assurances ...........................................     41
     18.11 Seal .........................................................     41
     18.12 Counterparts .................................................     41
     18.13 Costs of Meetings ............................................     41
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     18.14 Notice .......................................................     42
     18.15 Headings .....................................................     42
     18.16 No Third-Party Beneficiaries .................................     42
     18.17 Confidentiality ..............................................     42
          18.17.1 Party Access ..........................................     42
          18.17.2 Required Disclosure ...................................     43
     18.18 Termination and Withdrawal ...................................     43
          18.18.1 Termination ...........................................     43
          18.18.2 Withdrawal ............................................     43
          18.18.3 Winding Up ............................................     44
SCHEDULE 1 - PJM INTERCHANGE ENERGY MARKET ..............................      1
1. MARKET OPERATIONS ....................................................      1
     1.1 Introduction ...................................................      1
     1.2 Cost-based Offers ..............................................      1
     1.3 Definitions ....................................................      1
          1.3.1 Dispatch Rate ...........................................      1
          1.3.2 Equivalent Load .........................................      1
          1.3.3 External Market Buyer ...................................      1
          1.3.4 External Resource .......................................      2
          1.3.5 Fixed Transmission Right ................................      2
          1.3.6 Generating Market Buyer .................................      2
          1.3.7 Generator Forced Outage .................................      2
          1.3.8 Generator Maintenance Outage ............................      2
          1.3.9 Generator Planned Outage ................................      2
          1.3.10 Internal Market Buyer ..................................      2
          1.3.11 Inadvertent Interchange ................................      2
          1.3.12 Market Operations Center ...............................      3
          1.3.13 Maximum Generation Emergency ...........................      3
          1.3.14 Minimum Generation Emergency ...........................      3
          1.3.15 Network Resource .......................................      3
          1.3.16 Network Service User ...................................      3
          1.3.17 Network Transmission Service ...........................      3
          1.3.18 Normal Maximum Generation ..............................      3
          1.3.19 Normal Minimum Generation ..............................      3
          1.3.20 Offer Data .............................................      3
          1.3.21 Office of the Interconnection Control Center ...........      4
          1.3.22 Operating Day ..........................................      4
          1.3.23 Operating Margin .......................................      4
          1.3.24 Operating Margin Customer ..............................      4
          1.3.25 PJM Interchange ........................................      4
          1.3.26 PJM Interchange Export .................................      4
          1.3.27 PJM Interchange Import .................................      5
          1.3.28 PJM Open Access Same-time Information System ...........      5
          1.3.29 Point-to-Point Transmission Service ....................      5

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     1.3.30 Ramping Capability ..........................................      5
     1.3.31 Regulation ..................................................      5
     1.3.32 Regulation Class ............................................      5
     1.3.33 Spot Market Energy ..........................................      5
     1.3.34 Transmission Congestion Charge ..............................      5
     1.3.35 Transmission Congestion Credit ..............................      6
     1.3.36 Transmission Customer .......................................      6
     1.3.37 Transmission Forced Outage ..................................      6
     1.3.38 Transmission Planned Outage .................................      6
1.4 Market Buyers .......................................................      6
     1.4.1 Qualification ................................................      6
     1.4.2 Submission of Information ....................................      7
     1.4.3 Fees and Costs ...............................................      7
     1.4.4 Office of the Interconnection Determination ..................      8
     1.4.5 Existing Participants ........................................      8
     1.4.6 Withdrawal ...................................................      8
1.5 Market Sellers ......................................................      9
     1.5.1 Qualification ................................................      9
     1.5.2 Withdrawal ...................................................      9
1.6 Office of the Interconnection .......................................      9
     1.6.1 Operation of the PJM Interchange Energy Market ...............      9
     1.6.2 Scope of Services ............................................      9
     1.6.3 Records and Reports ..........................................     10
     1.6.4 PJM Manuals ..................................................     11
1.7 General .............................................................     11
     1.7.1 Market Sellers ...............................................     11
     1.7.2 Market Buyers ................................................     11
     1.7.3 Agents .......................................................     11
     1.7.4 General Obligations of the Market Participants ...............     11
     1.7.5 Market Operations Center .....................................     13
     1.7.6 Scheduling and Dispatching ...................................     13
     1.7.7 Pricing ......................................................     13
     1.7.8 Generating Market Buyer Resources ............................     13
     1.7.9 Delivery to an External Market Buyer .........................     13
     1.7.10 Other Transactions ..........................................     14
     1.7.11 Emergencies .................................................     14
     1.7.12 Fees and Charges ............................................     14
     1.7.13 Relationship to PJM Control Area ............................     14
     1.7.14 PJM Manuals .................................................     15
     1.7.15 Corrective Action ...........................................     15
     1.7.16 Recording ...................................................     15
     1.7.17 Operating Reserves ..........................................     15
     1.7.18 Regulation ..................................................     15
     1.7.19 Ramping .....................................................     16

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          1.7.20 Communication and Operating Requirements ...............     16
          1.7.21 Multi-settlement System ................................     17
     1.8 Selection, Scheduling and Dispatch Procedure Adjustment
         Process ........................................................     17
          1.8.1 PJM Dispute Resolution Agreement ........................     17
          1.8.2 Market or Control Area Hourly Operational Disputes ......     17
     1.9 Prescheduling ..................................................     18
          1.9.1 Outage Scheduling .......................................     18
          1.9.2 Planned Outages .........................................     18
          1.9.3 Generator Maintenance Outages ...........................     19
          1.9.4 Forced Outages ..........................................     19
          1.9.5 Market Participant Responsibilities .....................     20
          1.9.6 Internal Market Buyer Responsibilities ..................     20
          1.9.7 Market Seller Responsibilities ..........................     20
          1.9.8 Office of the Interconnection Responsibilities ..........     20
     1.10 Scheduling ....................................................     21
          1.10.1 Day-Ahead Scheduling ...................................     21
          1.10.2 Pool-Scheduled Resources ...............................     23
          1.10.3 Self-scheduled Resources ...............................     24
          1.10.4 Capacity Resources .....................................     24
          1.10.5 External Resources .....................................     25
          1.10.6 External Market Buyers .................................     26
          1.10.7 Bilateral Transactions .................................     26
          1.10.8 Office of the Interconnection Responsibilities .........     27
          1.10.9 Hourly Scheduling ......................................     27
     1.11 Dispatch ......................................................     28
          1.11.1 Resource Output ........................................     28
          1.11.2 Operating Basis ........................................     28
          1.11.3 Pool-dispatched Resources ..............................     29
          1.11.4 Regulation .............................................     29
          1.11.5 PJM Open Access Same-time Information System ...........     29
2. CALCULATION OF LOCATIONAL MARGINAL PRICES ............................     30
     2.1 Introduction ...................................................     30
     2.2 General ........................................................     30
     2.3 Determination of System Conditions Using the State
         Estimator ......................................................     31
     2.4 Determination of Energy Offers Used in Calculating
         Locational Marginal Prices .....................................     31
     2.5 Calculation of Locational Marginal Prices ......................     32
     2.6 Performance Evaluation .........................................     32
3. ACCOUNTING AND BILLING ...............................................     33
     3.1 Introduction ...................................................     33
     3.2 Market Buyers ..................................................     33
          3.2.1 Spot Market Energy ......................................     33
          3.2.2 Regulation ..............................................     34
          3.2.3 Operating Reserves ......................................     35
          3.2.4 Transmission Congestion .................................     35

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          3.2.5 Transmission Losses .....................................     35
          3.2.6 Emergency Energy ........................................     36
          3.2.7 Billing .................................................     36
     3.3 Market Sellers .................................................     36
          3.3.1 Spot Market Energy ......................................     37
          3.3.2 Regulation ..............................................     37
          3.3.3 Operating Reserves ......................................     37
          3.3.4 Emergency Energy ........................................     37
          3.3.5 Billing .................................................     38
     3.4 Transmission Customers .........................................     38
          3.4.1 Transmission Congestion .................................     38
          3.4.2 Transmission Losses .....................................     38
          3.4.3 Billing .................................................     38
     3.5 Other Control Areas ............................................     39
          3.5.1 Energy Sales ............................................     39
          3.5.2 Operating Margin Sales ..................................     39
          3.5.3 Transmission Congestion .................................     39
          3.5.4 Billing .................................................     39
     3.6 Metering Reconciliation ........................................     39
          3.6.1 Meter Correction Billing ................................     39
          3.6.2 Meter Corrections Between Market Participants ...........     40
          3.6.3 500 kV Meter Errors .....................................     40
          3.6.4 Meter Corrections Between Control Areas .................     40
          3.6.5 Meter Correction Data ...................................     40
     3.6.6 Correction Limits ............................................     40
4. RATE TABLE ...........................................................     41
     4.1 Offered Price Rates ............................................     41
     4.2 Transmission Losses ............................................     41
     4.3 Emergency Energy Purchases .....................................     41
5. CALCULATION OF TRANSMISSION CONGESTION CHARGES AND CREDITS ...........     42
     5.1 Transmission Congestion Charge Calculation .....................     42
          5.1.1 Calculation by Office of the Interconnection ............     42
          5.1.2 General .................................................     42
          5.1.3 Network Service User Calculation ........................     42
          5.1.4 Transmission Customer Calculation .......................     42
          5.1.5 Operating Margin Customer Calculation ...................     42
          5.1.6 Total Transmission Congestion Charges ...................     43
     5.2 Transmission Congestion Credit Calculation .....................     43
          5.2.1 Eligibility .............................................     43
          5.2.2 Fixed Transmission Rights ...............................     43
          5.2.3 Target Allocation for Network Service Users .............     44
          5.2.4 Target Allocation for other Holders .....................     44
          5.2.5 Calculation of Transmission Congestion Credits ..........     44
          5.2.6 Distribution of Excess Congestion Charges ...............     44

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SCHEDULE 2 - COMPONENTS OF COST ..........................................     1
SCHEDULE 3 - ALLOCATION OF OI COSTS ......................................     1
SCHEDULE 4 - STANDARD MEMBERSHIP AGREEMENT ...............................     1
SCHEDULE 5 - DISPUTE RESOLUTION PROCEDURE ................................     1
1. DEFINITIONS ...........................................................     1
     1.1 Alternate Dispute Resolution Committee ..........................     1
     1.2 MAAC Dispute Resolution Committee ...............................     1
     1.3 Related PJM Agreements ..........................................     1
2. PURPOSES AND OBJECTIVES ...............................................     1
     2.1 Common and Uniform Procedures ...................................     1
     2.2 Interpretation ..................................................     1
3. NEGOTIATION AND MEDIATION .............................................     2
     3.1 When Required ...................................................     2
     3.2 Procedures ......................................................     2
          3.2.1 Initiation ...............................................     2
          3.2.2 Selection of Mediator ....................................     2
          3.2.3 Advisory Mediator ........................................     2
          3.2.4 Mediation Process ........................................     3
          3.2.5 Mediator's Assessment ....................................     3
     3.3 Costs ...........................................................     4
4. ARBITRATION ...........................................................     4
     4.1 When Required ...................................................     4
     4.2 Binding Decision ................................................     4
     4.3 Initiation ......................................................     4
     4.4 Selection of Arbitrator(s) ......................................     4
     4.5 Procedures ......................................................     5
     4.6 Summary Disposition and Interim Measures ........................     5
          4.6.1 Lack of Good Faith Basis .................................     5
          4.6.2 Discovery Limits .........................................     5
          4.6.3 Interim Decision .........................................     5
     4.7 Discovery of Facts ..............................................     6
          4.7.1 Discovery Procedures .....................................     6
          4.7.2 Procedures Arbitrator ....................................     6
     4.8 Evidentiary Hearing .............................................     6
     4.9 Confidentiality .................................................     7
          4.9.1 Designation ..............................................     7
          4.9.2 Compulsory Disclosure ....................................     7
          4.9.3 Public Information .......................................     7
     4.10 Timetable ......................................................     8
     4.11 Advisory Interpretations .......................................     8
     4.12 Decisions ......................................................     8
     4.13 Costs ..........................................................     8
     4.14 Enforcement ....................................................     9
5. ALTERNATE DISPUTE RESOLUTION COMMITTEE ................................     9

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     5.1 Membership .....................................................      9
          5.1.1 Representatives .........................................      9
          5.1.2 Term ....................................................      9
     5.2 Voting Requirements ............................................      9
     5.3 Officers .......................................................      9
     5.4 Meetings .......................................................     10
     5.5 Responsibilities ...............................................     10
SCHEDULE 6 - REGIONAL TRANSMISSION EXPANSION PLANNING PROTOCOL ..........      1
1. REGIONAL TRANSMISSION EXPANSION PLANNING PROTOCOL ....................      1
     1.1 Purpose and Objectives .........................................      1
     1.2 Conformity with NERC and MAAC Criteria .........................      1
     1.3 Establishment of Committees ....................................      1
     1.4 Contents of the Regional Transmission Expansion Plan ...........      2
     1.5 Procedure for Development of the Regional Transmission
         Expansion Plan .................................................      2
          1.5.1 Commencement of the Process .............................      2
          1.5.2 Development of Scope, Assumptions and Procedures ........      3
          1.5.3 Scope of Studies ........................................      3
          1.5.4 Supply of Data ..........................................      3
          1.5.5 Coordination of the Regional Transmission Expansion Plan       3
          1.5.6 Development of the Recommended Regional Transmission
                Expansion Plan .. 3
     1.6 Approval of the Final Regional Transmission Expansion Plan .....      4
     1.7 Obligation to Build ............................................      5
     1.8 Relationship to the PJM Control Area Open Access
         Transmission PJM Tariff ........................................      5
SCHEDULE 7 - UNDERFREQUENCY RELAY OBLICATIONS AND CHARGES ...............      1
1. UNDERFREQUENCY RELAY OBLIGATION ......................................      1
     1.1 Application ....................................................      1
     1.2 Obligations ....................................................      1
2. UNDERFREQUENCY RELAY CHARGES .........................................      1
3. DISTRIBUTION OF UNDERFREQUENCY RELAY CHARGES .........................      2
     3.1 Share of Charges ...............................................      2
     3.2 Allocation by the Office of the Interconnection ................      2
SCHEDULE 8 -DELEGATION OF RELIABILITY RESPONSIBILITIES ..................      1
1. DELEGATION ...........................................................      1
2. NEW PARTIES ..........................................................      1
3. IMPLEMENTATION OF RELIABILITY ASSURANCE AGREEMENT ....................      1
SCHEDULE 9 - EMERGENCY PROCEDURE CHARGES ................................      1
1. EMERGENCY PROCEDURE CHARGE ...........................................      1
2. DISTRIBUTION OF EMERGENCY PROCEDURE CHARGES ..........................      1
     2.1 Complying Parties ..............................................      1
     2.2 All Parties ....................................................      1

                                       x
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                              AMENDED AND RESTATED

                              OPERATING AGREEMENT

                                       of

                          PJM INTERCONNECTION, L.L.C.

     This  Amended and  Restated  Operating  Agreement  of PJM  Interconnection,
L.L.C.,  dated as of this 2ndday of June,  1997,  amends and  restates as of the
Effective Date the Operating Agreement of PJM Interconnection, L.L.C. filed with
the FERC on April 2, 1997, as amended.of PJM Interconnection,  L.L.C. filed with
the FERC on April 2, 1997, as amended.

     WHEREAS,  certain of the Members have previously entered into an agreement,
originally  dated  September  26, 1956,  as amended and  supplemented  up to and
including  December 31, 1996,  stating "their  respective rights and obligations
with respect to the  coordinated  operation of their electric supply systems and
the  interchange  of electric  capacity  and energy among their  systems"  (such
agreement as amended and  supplemented  being  referred to as the  "Original PJM
Agreement"),  and which coordinated  operations and interchange came to be known
as the PJM Interconnection (the "Interconnection"); and

     WHEREAS,  pursuant to a  resolution  of June 16,  1993,  an  unincorporated
association  comprised of the parties to the Original PJM  Agreement  was formed
for the purpose of  implementation  of the  Original  PJM  Agreement  as it then
existed  and  as  it  subsequently  has  been  amended  and  supplemented,  such
association being known as the "PJM Interconnection Association"; and

     WHEREAS,  because of changes in federal law and policy,  the  Original  PJM
Agreement,  together with other documents and agreements,  was amended, restated
and submitted to FERC on December 31, 1996 to restructure fundamental aspects of
the operation of the Interconnection; and

     WHEREAS,  so that the  provisions  of the Original PJM  Agreement  could be
placed into effect consistent with a February 28, 1997 order of FERC,  including
those provisions related to the governance of the  Interconnection,  the parties
to the Original PJM Agreement, along with the other interested parties, approved
the conversion of the PJM  Interconnection  Association into the LLC pursuant to
the provisions of the Delaware  Limited  Liability  Company Act, as amended (the
"Delaware LLC Act"), pursuant to a Certificate of Formation (the "Certificate of
Formation") and a Certificate of Conversion (the  "Certificate of  Conversion"),
each filed with the  Delaware  Secretary  of State (the  "Recording  Office") on
March 31, 1997; and

     WHEREAS,  the Members wish to amend and restate the Operating  Agreement of
PJM Interconnection,  L.L.C. adopted in connection with the formation of the LLC
and as in effect  immediately  prior to the Effective Date in the form set forth
below; and

     WHEREAS,  the  Members  intend to form an  Independent  System  Operator in
accordance with the regulations of the Federal Energy Regulatory Commission; and


     Now, therefore, in consideration of the foregoing, and of the covenants and
agreements hereinafter set forth, the Members hereby agree as follows:

                                       1
<PAGE>
                                  DEFINITIONS

     Unless the context otherwise specifies or requires,  capitalized terms used
in this Agreement shall have the respective  meanings  assigned herein or in the
Schedules  hereto for all purposes of this  Agreement  (such  definitions  to be
equally  applicable  to both the  singular  and the  plural  forms of the  terms
defined).  Unless  otherwise  specified,  all  references  herein  to  Sections,
Schedules,  Exhibits  or  Appendices  are to  Sections,  Schedules,  Exhibits or
Appendices of this Agreement. As used in this Agreement:

     1.1 Act.

     "Act" shall mean the  Delaware  Limited  Liability  Company  Act,  Title 6,
ss.ss. 18-101 to 18- 1109 of the Delaware Code.

     1.2 Affiliate.

     "Affiliate" shall mean any two or more entities,  one of which controls the
other or that are under common  control.  "Control"  shall mean the  possession,
directly or indirectly,  of the power to direct the management or policies of an
entity.  Ownership of publicly-traded  equity securities of another entity shall
not result in control or  affiliation  for  purposes  of this  Agreement  if the
securities  are  held as an  investment,  the  holder  owns  (in its name or via
intermediaries)  less  than 10  percent  of the  outstanding  securities  of the
entity,  the  holder  does  not have  representation  on the  entity's  board of
directors (or equivalent managing entity) or vice versa, and the holder does not
in fact exercise  influence over  day-to-day  management  decisions.  Unless the
contrary is demonstrated to the satisfaction of the Members  Committee,  control
shall be presumed to arise from the ownership of or the power to vote,  directly
or indirectly, ten percent or more of the voting securities of such entity.

     1.3 Agreement.

     "Agreement" shall mean this Amended and Restated Operating Agreement of PJM
Interconnection,  L.L.C., including all Schedules, Exhibits, Appendices, addenda
or supplements hereto, as amended from time to time.

     1.4 Annual Meeting of the Members.

     "Annual Meeting of the Members" shall mean the meeting specified in Section
8.3.1 of this Agreement.

     1.5 Board Member.

     "Board Member" shall mean a member of the PJM Board.

     1.6 Capacity Resource.

     "Capacity  Resource"  shall mean the net capacity  from owned or contracted
for  generating  facilities  all of which (i) are  accredited  to a Load Serving
Entity  pursuant  to the  procedures  set  forth  in the  Reliability  Assurance
Agreement  and  (ii)  are  committed  to  satisfy  that  Load  Serving  Entity's
obligations under the Reliability Assurance Agreement and this Agreement. 

                                       2
<PAGE>


     1.7 Control Area.

     "Control  Area"  shall mean an  electric  power  system or  combination  of
electric  power  systems  bounded by  interconnection  metering and telemetry to
which a common automatic generation control scheme is applied in order to:

     (a) match the power  output of the  generators  within the  electric  power
system(s)  and  energy  purchased  from  entities  outside  the  electric  power
system(s), with the load within the electric power system(s);

     (b) maintain  scheduled  interchange  with other Control Areas,  within the
limits of Good Utility Practice;

     (c)  maintain  the  frequency  of  the  electric  power  system(s)   within
reasonable  limits in accordance with Good Utility  Practice and the criteria of
NERC and the applicable regional reliability council of NERC;

     (d) maintain  power flows on  transmission  facilities  within  appropriate
limits to preserve reliability; and

     (e) provide sufficient  generating  capacity to maintain operating reserves
in accordance with Good Utility Practice.

     1.8 Electric Distributor.

     "Electric  Distributor" shall mean a Member that owns or leases with rights
equivalent  to  ownership  electric  distribution  facilities  that  are used to
provide  electric  distribution  service to electric load within the PJM Control
Area.

     1.9 Effective Date.

     "Effective  Date" shall mean  August 1, 1997,  or such later date that FERC
permits this Agreement to go into effect.

     1.10 Emergency.

     "Emergency"  shall mean: (i) an abnormal system condition  requiring manual
or automatic  action to maintain  system  frequency,  or to prevent loss of firm
load,  equipment  damage,  or tripping of system  elements that could  adversely
affect  the  reliability  of an  electric  system or the  safety of  persons  or
property;  or (ii) a fuel shortage  requiring  departure  from normal  operating
procedures  in  order  to  minimize  the use of such  scarce  fuel;  or  (iii) a
condition that requires implementation of emergency procedures as defined in the
PJM Manuals.

     1.11 End-Use Customer.

     "End-Use  Customer"  shall  mean a  Member  that is a  retail  end-user  of
electricity within the PJM Control Area.

     1.12 FERC.

     "FERC" shall mean the Federal Energy Regulatory Commission or any successor
federal  agency,  commission or  department  exercising  jurisdiction  over this
Agreement. 

                                       3
<PAGE>


     1.13 Finance Committee.

     "Finance  Committee"  shall mean the body  formed  pursuant to Section 0 of
this Agreement.

     1.14 Generation Owner.

     "Generation  Owner"  shall mean a Member  that owns or leases  with  rights
equivalent to ownership  facilities for the  generation of electric  energy that
are located  within the PJM  Control  Area.  Purchasing  all or a portion of the
output of a generation facility shall not be sufficient to qualify a Member as a
Generation Owner.

     1.15 Good Utility Practice.

     "Good Utility  Practice" shall mean any of the practices,  methods and acts
engaged in or approved by a significant portion of the electric utility industry
during the  relevant  time  period,  or any of the  practices,  methods and acts
which, in the exercise of reasonable judgment in light of the facts known at the
time the decision was made,  could have been expected to accomplish  the desired
result  at  a  reasonable  cost   consistent   with  good  business   practices,
reliability,  safety and expedition. Good Utility Practice is not intended to be
limited to the optimum practice,  method, or act to the exclusion of all others,
but  rather is  intended  to  include  acceptable  practices,  methods,  or acts
generally accepted in the region.

     1.16 Interconnection.

     "Interconnection"  shall mean the  coordinated  operations and  interchange
resulting from the Original PJM Agreement as continued in this Agreement.

     1.17 LLC.

     "LLC" shall mean PJM Interconnection,  L.L.C., a Delaware limited liability
company.

     1.18 Load Serving Entity.

     "Load Serving Entity" shall mean an entity,  including a load aggregator or
power marketer,  (1) serving end-users within the PJM Control Area, and (2) that
has been granted the authority or has an  obligation  pursuant to state or local
law,  regulation  or franchise  to sell  electric  energy to end- users  located
within the PJM Control Area, or the duly designated agent of such an entity.

     1.19 Locational Marginal Price.

     "Locational  Marginal  Price"  shall  mean  the  hourly  integrated  market
clearing  marginal  price for energy at the  location the energy is delivered or
received, calculated as specified in Section 0 of Schedule 1 of this Agreement.

     1.20 MAAC.

     "MAAC" shall mean the  Mid-Atlantic  Area Council,  a  reliability  council
under  ss.  202 of the  Federal  Power  Act  established  pursuant  to the  MAAC
Agreement dated August 1, 1994, or any successor thereto. 

                                       4

<PAGE>


     1.21 Market Buyer.

     "Market Buyer" shall mean a Member that has met reasonable creditworthiness
standards established by the Office of the Interconnection and that is otherwise
able to make purchases in the PJM Interchange Energy Market.

     1.22 Market Participant.

     "Market Participant" shall mean a Market Buyer or a Market Seller, or both.

     1.23 Market Seller.

     "Market   Seller"   shall   mean  a   Member   that   has  met   reasonable
creditworthiness  standards established by the Office of the Interconnection and
that is otherwise able to make sales in the PJM Interchange Energy Market.

     1.24 Member.

     "Member"  shall mean an entity that satisfies the  requirements  of Section
11.6 of this Agreement and that (i) is a member of the LLC immediately  prior to
the Effective Date, or (ii) has executed an Additional  Member  Agreement in the
form set forth in Schedule 4 hereof.

     1.25 Members Committee.

     "Members Committee" shall mean the committee specified in Section 8 of this
Agreement composed of representatives of all the Members.

     1.26 NERC.

     "NERC" shall mean the North American Electric  Reliability  Council, or any
successor thereto.

     1.27 Office of the Interconnection.

     "Office of the Interconnection"  shall mean the employees and agents of the
LLC engaged in  implementation  of this Agreement and  administration of the PJM
Tariff,  subject  to the  supervision  and  oversight  of the PJM  Board  acting
pursuant to this Agreement.

     1.28 Operating Reserve.

     "Operating  Reserve" shall mean the amount of generating capacity scheduled
to be  available  for a  specified  period of an  Operating  Day to  ensure  the
reliable operation of the PJM Control Area, as specified in the PJM Manuals.

     1.29 Original PJM Agreement.

     "Original PJM Agreement" shall mean that certain  agreement between certain
of the  Members,  originally  dated  September  26,  1956,  and as  amended  and
supplemented up to and including December 31, 1996,  relating to the coordinated
operation  of their  electric  supply  systems and the  interchange  of electric
capacity and energy among their systems. 

                                       5

<PAGE>

     1.30 Other Supplier.

     "Other  Supplier"  shall  mean a  Member  that is (i) a  seller,  buyer  or
transmitter  of electric  capacity or energy in, from or through the PJM Control
Area, and (ii) is not a Generation  Owner,  Electric  Distributor,  Transmission
Owner or End-Use Customer.

     1.31 PJM Board.

     "PJM Board" shall mean the Board of Managers of the LLC, acting pursuant to
this Agreement.

     1.32 PJM Control Area.

     "PJM Control  Area" shall mean the Control Area  recognized  by NERC as the
PJM Control Area.

     1.33 PJM Dispute Resolution Procedures

     "PJM  Dispute  Resolution  Procedures"  shall mean the  procedures  for the
resolution of disputes set forth in Schedule 5 of this Agreement.

     1.34 PJM Interchange Energy Market.

     "PJM Interchange Energy Market" shall mean the regional  competitive market
administered by the Office of the  Interconnection  for the purchase and sale of
spot electric  energy at wholesale in interstate  commerce and related  services
established pursuant to Schedule 1 to this Agreement.

     1.35 PJM Manuals.

     "PJM Manuals" shall mean the instructions, rules, procedures and guidelines
established by the Office of the  Interconnection  for the operation,  planning,
and  accounting  requirements  of the PJM Control  Area and the PJM  Interchange
Energy Market.

     1.36 PJM Tariff.

     "PJM Tariff" shall mean the PJM Open Access  Transmission  Tariff providing
transmission  service  within the PJM Control  Area,  including  any  schedules,
appendices, or exhibits attached thereto, as in effect from time to time.

     1.37 Planning Period.

     "Planning  Period"  shall  initially  mean the 12 months be ginning  June 1
through May 31 of the following  year, or such other period  established  by the
Reliability Committee established under the Reliability Assurance Agreement.

     1.38 President.

     "President" shall have the meaning specified in Section 9.2.

                                       6


<PAGE>


     1.39 Related Parties.

     "Related  Parties"  shall  mean,  solely  for  purposes  of the  governance
provisions of this Agreement:  (i) any generation and  transmission  cooperative
and one of its distribution  cooperative  members;  and (ii) any joint municipal
agency and one of its members.  For purposes of this Agreement,  representatives
of state or federal government agencies shall not be deemed Related Parties with
respect to each other, and a public body's regulatory authority,  if any, over a
Member  shall  not be deemed to make it a Related  Party  with  respect  to that
Member.

     1.40 Reliability Assurance Agreement.

     "Reliability Assurance Agreement" shall mean that certain agreement,  dated
June 2,  1997  and as  amended  from  time to  time,  establishing  obligations,
standards  and  procedures  for  maintaining  the reliable  operation of the PJM
Control Area.

     1.41 Sector Votes.

     "Sector Votes" shall mean the affirmative and negative votes of each sector
on the Members Committee, as specified in Section 8.4.

     1.42 State.

     "State"  shall mean the District of Columbia and any State or  Commonwealth
of the United States.

     1.43 System.

     "System" shall mean the  interconnected  electric supply system of a Member
and its interconnected  subsidiaries exclusive of facilities which it may own or
control  outside of the PJM Control Area.  Each Member may include in its system
the electric supply systems of any party or parties other than Members which are
within the PJM Control Area, provided its  interconnection  agreements with such
other party or parties do not conflict with such inclusion.

     1.44 Transmission Facilities.

     "Transmission  Facilities"  shall mean facilities  that: (i) are within the
PJM Control Area; (ii) meet the definition of transmission  facilities  pursuant
to FERC's  Uniform  System of Accounts or have been  classified as  transmission
facilities in a ruling by FERC addressing such  facilities;  and (iii) have been
demonstrated  to the  satisfaction  of the Office of the  Interconnection  to be
integrated with the PJM Control Area transmission system and integrated into the
planning  and  operation  of the PJM Control  Area to serve all of the power and
transmission customers within the PJM Control Area.

     1.45 Transmission Owner.

     "Transmission  Owner"  shall mean a Member  that owns or leases with rights
equivalent to ownership  Transmission  Facilities.  Taking transmission  service
shall not be sufficient to qualify a Member as a Transmission Owner.

                                       7


<PAGE>


     1.46 Transmission Owners Agreement.

     "Transmission  Owners Agreement" shall mean that certain  agreement,  dated
June 2, 1997 and as amended from time to time, by and among Transmission  Owners
in the PJM Control Area providing for an open-access  transmission tariff in the
PJM Control Area, and for other purposes.

     1.47 User Group.

     "User  Group"  shall  mean a group  formed  pursuant  to  Section 0 of this
Agreement.  

     1.48 Voting Member  

     "Voting  Member"  shall mean (i) a Member as to which no other Member is an
Affiliate or Related Party,  or (ii) a Member together with any other Members as
to which it is an Affiliate or Related Party.

1.49     Weighted Interest.

"Weighted  Interest"  shall  be equal to  (0.1(1/N)  +  0.5(B/C)  +  0.2(D/E)  +
0.2(F/G)), where: 

     N = the total number of Members 
     B = the Member's internal peak demand for the previous  calendar year 
     C = the sum of factor B for all Members 
     D = the Member's net installed generating capacity located in the PJM 
         Control Area as of  January 1 of the  current  calendar  year 
     E = the sum of factor D for all Members 
     F = the sum of the Member's  circuit  miles of  transmission  facilities
         multiplied by the respective  operating  voltage for facilities 100 kV 
         and above as of  January 1 of the  current  calendar  year 
     G = the sum of factor F for all Members 

                     2. FORMATION, NAME; PLACE OF BUSINESS

     2.1 Formation of LLC; Certificate of Formation.

     The Members of the LLC hereby:

     (a) acknowledge the conversion of the PJM Interconnection  Association into
the LLC,  a limited  liability  company  pursuant  to the Act,  by virtue of the
filing of both the  Certificate  of Formation and the  Certificate of Conversion
with the Recording Office, effective as of March 31, 1997;

     (b) confirm and agree to their status as Members of the LLC;

     (c) enter into this Agreement for the purpose of amending and restating the
rights, duties, and relationship of the Members; and

     (d) agree that if the laws of any  jurisdiction  in which the LLC transacts
business so require,  the PJM Board also shall file, with the appropriate office
in that jurisdiction, any documents necessary for the LLC to qualify to transact
business  under such laws;  and (ii) agree and obligate  themselves  to execute,
acknowledge, and cause to be filed for record, in the place or places and manner
prescribed  by law, any  amendments  to the  Certificate  of Formation as may be
required, 

                                       8

<PAGE>


either by the Act, by the laws of any  jurisdiction  in which the LLC  transacts
business, or by this Agreement,  to reflect changes in the information contained
therein  or  otherwise  to  comply  with  the   requirements   of  law  for  the
continuation,  preservation,  and  operation  of the LLC as a limited  liability
company  under  the Act.  

     2.2 Name of LLC.

     The  name  under  which  the  LLC  shall   conduct  its  business  is  "PJM
Interconnection, L.L.C."

     2.3 Place of Business.

     The  location  of the  principal  place of business of the LLC shall be 955
Jefferson  Avenue,  Valley  Forge  Corporate  Center,  Norristown,  Pennsylvania
19403-2497.  The LLC may also have  offices at such other places both within and
without the State of  Delaware as the PJM Board may from time to time  determine
or the business of the LLC may require.

     2.4 Registered Office and Registered Agent.

     The street  address of the  initial  registered  office of the LLC shall be
1209 Orange Street,  Wilmington,  Delaware 19801, and the LLC's registered agent
at such address shall be The Corporation  Trust Company.  The registered  office
and registered agent may be changed by resolution of the PJM Board.

                         3. PURPOSES AND POWERS OF LLC

     3.1 Purposes.

     The purposes of the LLC shall be:

     (a) to operate  in  accordance  with FERC  requirements  as an  Independent
System Operator,  comprised of the PJM Board, the Office of the Interconnection,
and the Members Committee,  with the authorities and  responsibilities set forth
in this Agreement;

     (b) as  necessary  for the  operation of the  Interconnection  as specified
above: (i) to acquire and obtain licenses, permits and approvals, (ii) to own or
lease  property,  equipment  and  facilities,  and (iii) to contract  with third
parties to obtain goods and  services,  provided  that,  the L.L.C.  may procure
goods and services from a Member only after open and competitive bidding; and

     (c) to engage in any lawful  business  permitted  by the Act or the laws of
any  jurisdiction  in which the LLC may do business and to enter into any lawful
transaction and engage in any lawful  activities in furtherance of the foregoing
purposes and as may be  necessary,  incidental  or  convenient  to carry out the
business of the LLC as contemplated by this Agreement. 

                                       9

<PAGE>
     3.2 Powers.

     The LLC shall have the power to do any and all acts and  things  necessary,
appropriate,  advisable, or convenient for the furtherance and accomplishment of
the purposes of the LLC, including, without limitation, to engage in any kind of
activity and to enter into and perform  obligations  of any kind necessary to or
in connection with, or incidental to, the  accomplishment of the purposes of the
LLC, so long as said activities and  obligations  may be lawfully  engaged in or
performed by a limited liability company under the Act.

                        4. EFFECTIVE DATE AND TERMINATION

     4.1 Effective Date and Termination.

     (a) The  existence of the LLC  commenced on March 31, 1997,  as provided in
the Certificate of Formation and Certificate of Conversion which were filed with
the Recording  Office on March 31, 1997.  This Agreement shall amend and restate
the Operating Agreement of PJM Interconnection, L.L.C. as of the Effective Date.

     (b) The LLC shall continue in existence until terminated in accordance with
the terms of this  Agreement.  The  withdrawal or  termination  of any Member is
subject to the provisions of Section 0 of this Agreement.

     (c) Any  termination of this Agreement or withdrawal of any Member from the
Agreement shall be filed with the FERC and shall become  effective only upon the
FERC 's approval.

     Governing Law.

     This Agreement and all questions with respect to the rights and obligations
of the Members, the construction, enforcement and interpretation hereof, and the
formation,  administration  and  termination of the LLC shall be governed by the
provisions of the Act and other  applicable  laws of the State of Delaware,  and
the Federal Power Act. 

                                       10

<PAGE>


                  5. WORKING CAPITAL AND CAPITAL CONTRIBUTIONS

     5.1 Funding of Working Capital and Capital Contributions.

     (a) The Office of the Interconnection  shall attempt to obtain financing of
up to five million two hundred thousand dollars ($5,200,000) to meet the working
capital needs of the LLC,  which shall be limited to such working  capital needs
that  arise  from  timing in cash  flows  from  interchange  accounting,  tariff
administration  and  payment  of  the  operating  costs  of  the  Office  of the
Interconnection.  Such financing,  which shall be non-recourse to the Members of
the LLC and which shall be for a stated term without penalty for prepayment, may
be obtained by borrowing the amount  required at  market-based  interest  rates,
negotiated on an arm's length basis, (i) from a Member or Members or (ii) from a
commercial lender, supported, if necessary, by credit enhancements provided by a
Member or Members;  provided,  however,  no Member shall be obligated to provide
such financing or credit enhancements.  The LLC shall make such filings and seek
such  approvals  as  necessary  in order for the  principal,  interest  and fees
related to any such borrowing to be repaid through  charges under the PJM Tariff
as appropriate under Schedule 3 of this Agreement.

     (b) In the event  financing of the working  capital  needs of the Office of
the  Interconnection  is unavailable on commercially  reasonable  terms, the PJM
Board may require the Members to contribute  capital in the aggregate up to five
million two hundred thousand dollars  ($5,200,000) for the working capital needs
that could not be financed; provided that in such event each Member's obligation
to  contribute  additional  capital  shall  be in  proportion  to  its  Weighted
Interest,  multiplied  by the amount so requested by the PJM Board.  Each Member
that  contributes  such  capital  shall  be  entitled  to earn a  return  on the
contribution to the extent such  contribution has not been repaid,  which return
shall be at a fair  market rate as  determined  by the PJM Board but in no event
less than the  current  interest  rate  established  pursuant  to 18 C.F.R.  ss.
35.19a(a)(2)(iii);  provided further,  that any Member not wanting to contribute
the  requested  capital  contribution  may  withdraw  from  the LLC upon 90 days
written  notice  as  provided  in  Section  18.18.2  of  this   Agreement.   5.2
Contributions to Association.  All contributions  prior to the Effective Date of
the original Operating Agreement of PJM Interconnection, L.L.C. of cash or other
assets to the PJM  Interconnection  Association by persons who are now or in the
future  may  become  Members  of the LLC shall be deemed  contributions  by such
Members to the LLC.

                        6. TAX STATUS AND DISTRIBUTIONS

     6.1 Tax Status.

     The LLC shall make all  necessary  filings  under the  applicable  Treasury
Regulations to have the LLC taxed as a corporation. 

                                       11

<PAGE>
     6.2 Return of Capital Contributions.

     (a) In the event Members are required to  contribute  capital to the LLC in
accordance  with  Section 5.1  herein,  the LLC shall  request the  Transmission
Owners to recover such working  capital  through charges under the PJM Tariff as
provided in Schedule 3 of this Ag reement.  In the event all or a portion of the
working capital is recovered pursuant to the PJM Tariff, such amount(s) shall be
returned to the Members in accordance with their actual contributions.

     (b)   Except  for  return  of   capital   contributions   and   liquidating
distributions  as  provided  in the  foregoing  section  and Section 6.3 herein,
respectively, the LLC does not intend to make any distributions of cash or other
assets to its Members.

     6.3 Liquidating Distribution.

     Upon termination or liquidation of the LLC, the cash or other assets of the
LLC shall be distributed as follows:

     (a)  first,  in the  event the LLC has any  liabilities  at the time of its
termination  or  dissolution,  the LLC shall  liquidate such of its assets as is
necessary to satisfy such liabilities;

     (b) second,  any capital  contribution  in cash or in kind by any Member of
the PJM  Interconnection  Association  prior  to the  Effective  Date  shall  be
distributed  by the LLC  back to such  Member  in the form  received  by the PJM
Interconnection Association; and

     (c) third,  any  remaining  assets of the LLC shall be  distributed  to the
Members in proportion to their Weighted Interests.

                                  7. PJM BOARD

     7.1 Composition.

     There  shall be an LLC Board of Man agers,  referred  to herein as the "PJM
Board,"  composed of seven voting  members,  with the  President as a non-voting
member. The seven voting Board Members shall be elected by the Members Committee
from a slate of candidates for the then- existing vacancies or expiring terms on
the  PJM  Board.  An  independent  consultant,  retained  by the  Office  of the
Interconnection  upon  consideration  of the advice and  recommendations  of the
Members Committee,  shall be directed to prepare a list of persons qualified and
willing to serve on the PJM Board.  Not later than 30 days prior to each  Annual
Meeting of the Members,  the Office of the  Interconnection  shall distribute to
the  representatives  on the  Members  Committee  a slate  from  among  the list
proposed by the independent consultant, along with information on the background
and  experience  of the persons on the slate  appropriate  to  evaluating  their
fitness for service on the PJM Board.  Elections for the PJM Board shall be held
at each Annual Meeting of the Members,  for the purpose of selecting the initial
PJM Board in accordance  with the provisions of Section  7.3(a),  or selecting a
person to fill the seat of a Board  Member  whose term is  expiring.  Should the
Members  Committee fail to elect a full PJM Board from the slate proposed by the
independent  consultant,  the  Office of the  Interconnection  shall  direct the
independent  consultant,  or a replacement  consultant selected by the Office of
the Interconnection, to propose a list for a slate of nominees for any vacancies
on the PJM Board for consideration by the Members at the next regular meeting of
the Members Committee. 

                                       12



<PAGE>


     7.2 Qualifications.

     A Board  Member  shall not be,  and shall not have been at any time  within
five years of  election to the PJM Board,  a director,  officer or employee of a
Member or of an  Affiliate or Related  Party of a Member.  Except as provided in
the LLC's Standards of Conduct filed with the FERC, at any time while serving on
the PJM Board,  a Board Member  shall have no direct  business  relationship  or
other  affiliation with any Member or its Affiliates or Related Parties.  Of the
seven Board  Members,  four shall have  expertise and experience in the areas of
corporate leadership at the senior management or board of directors level, or in
the professional disciplines of finance or accounting,  engineering,  or utility
laws and regulation.  Of the other three Board Members, one shall have expertise
and experience in the operation or concerns of transmission dependent utilities,
one shall  have  expertise  and  experience  in the  operation  or  planning  of
transmission systems, and one shall have expertise and experience in the area of
commercial markets and trading and associated risk management.

     7.3 Term of Office.

     (a) The persons  serving as the Board of  Managers  of the LLC  immediately
prior to the  Effective  Date shall  continue in office  until the first  Annual
Meeting of the  Members.  At the first Annual  Meeting of the Members,  the then
current  members  of the PJM Board who  desire to  continue  in office  shall be
elected by the Members to serve until the second  Annual  Meeting of the Members
or until their  successors are elected,  along with such  additional  persons as
necessary  to  meet  the  composition   requirements  of  Section  7.1  and  the
qualification requirements of Section 7.2.

     (b) A Board  Member shall serve for a term of three years  commencing  with
the  Annual  Meeting  of the  Members  at which the Board  Member  was  elected;
provided,  however,  that two of the Board  Members  elected at the first Annual
Meeting of the Members  following the  Effective  Date shall be chosen by lot to
serve a term of one year,  three of such Board Members shall be chosen by lot to
serve a term of two years and the final two such  Board  Members  shall  serve a
term of three years.

     (c) Vacancies on the PJM Board  occurring  between  Annual  Meetings of the
Members shall be filled by vote of the then  remaining  Board  Members;  a Board
Member so selected  shall  serve  until the next Annual  Meeting at which time a
person  shall be  elected to serve the  balance of the term of the vacant  Board
Seat.  Removal of a Board  Member  shall  require  the  approval  of the Members
Committee.  

     7.4 Quorum.

     The presence in person or by telephone or other authorized electronic means
of a majority  of the voting  Board  Members  shall  constitute  a quorum at all
meetings of the PJM Board for the  transaction  of business  except as otherwise
provided by statute.  If a quorum shall not be present,  the Board  Members then
present  shall have the power to adjourn the meeting from time to time,  until a
quorum  shall be  present.  Provided a quorum is  present at a meeting,  the PJM
Board shall act by majority vote of the Board Members present. 

                                       13


<PAGE>

     7.5 Operating and Capital Budgets.

          7.5.1 Finance Committee.

          Not later than February 1 of each year, the entities  specified  below
shall select the members of a Finance Committee.  The Finance Committee shall be
composed  of one  representative  of the  parties to the  Reliability  Assurance
Agreement  chosen by the parties to that agreement,  one  representative  of the
parties  to the  Transmission  Owners  Agreement  chosen by the  parties to that
agreement,  two  representatives  of the Members Committee chosen by the Members
Committee and that are not  representatives  of an entity that is a party to the
Transmission  Owners  Agreement  or an  Affiliate  or  Related  Party of such an
entity, one representative of the Office of the Interconnection  selected by the
President,  and two  Board  Members  selected  by the  PJM  Board.  The  Members
Committee  shall  endeavor to elect  members of the Finance  Committee  that are
broadly  representative  of the  diversity of interests  among the Members.  The
Office of the  Interconnection  shall prepare annual budgets in accordance  with
processes and procedures  established by the PJM Board,  and shall timely submit
its budgets to the Finance  Committee for review.  The Finance  Committee  shall
submit its analysis of and recommendations on the budgets to the PJM Board, with
copies to the Members  Committee.  The Finance  Committee  shall also review and
comment upon any  additional  or amended  budgets  prepared by the Office of the
Interconnection at the request of the PJM Board or the Members Committee.

          7.5.2 Adoption of Budgets.

          The PJM Board  shall  adopt,  upon  consideration  of the  advice  and
recommendations of the Finance Committee,  operating and capital budgets for the
LLC,  and shall  distribute  to the Members for their  information  final annual
budgets  for the  following  fiscal  year not  later  than 60 days  prior to the
beginning of each fiscal year of the LLC.

     7.6 By-laws.

     To the extent not  inconsistent  with any provision of this Agreement,  the
PJM  Board   shall  adopt  such   by-laws   establishing   procedures   for  the
implementation of this Agreement as it may deem  appropriate,  including but not
limited to by-laws governing the scheduling, noticing and conduct of meetings of
the PJM Board,  selection of a Chair and Vice Chair of the PJM Board,  action by
the PJM Board without a meeting,  and the organization and  responsibilities  of
standing and special  committees of the PJM Board. Such by-laws shall not modify
or be  inconsistent  with any of the rights or  obligations  established by this
Agreement.

     7.7 Duties and Responsibilities of the PJM Board.

     In  accordance  with this  Agreement,  the PJM Board  shall  supervise  and
oversee all matters pertaining to the Interconnection and the LLC, and carry out
such other  duties as are herein  specified,  including  but not  limited to the
following duties and responsibilities:

          i)        As its primary  responsibility,  ensure that the  President,
                    the  other   officers   of  the  LLC,   and  Office  of  the
                    Interconnection  perform the duties and responsibilities set
                    forth in this Agreement,  including but not limited to those
                    set forth in Sections  9.2 through 9.4 and Section 10.4 in a
                    manner  consistent with (A) the safe and reliable  operation
                    of the Interconnection, (B) 

                                       14

<PAGE>


                    the creation and  operation  of a robust,  competitive,  and
                    non-discriminatory  electric power market in the PJM Control
                    Area,  and (C) the  principle  that a  Member  or  group  of
                    Members shall not have undue influence over the operation of
                    the Interconnection;

          ii)       Select the Officers of the LLC;

          iii)      Adopt budgets for the LLC;

          iv)       Approve  the  Regional   Transmission   Expansion   Plan  in
                    accordance with the provisions of the Regional  Transmission
                    Expansion  Planning Protocol set forth in Schedule 6 of this
                    Agreement.

          v)        On its own  initiative  or at the request of a User Group as
                    specified  herein,  submit  to the  Members  Committee  such
                    proposed  amendments  to  this  Agreement  or  any  Schedule
                    hereto,  or  a  proposed  new  Schedule,   as  it  may  deem
                    appropriate;

          vi)       Petition FERC to modify any  provision of this  Agreement or
                    any  Schedule  or  practice  hereunder  that  the PJM  Board
                    believes   to   be   unjust,    unreasonable,    or   unduly
                    discriminatory  under  Section 206 of the Federal Power Act,
                    subject  to the  right  of any  Member  or  the  Members  to
                    intervene in any resulting proceedings;

          vii)      Review for consistency  with the creation and operation of a
                    robust,  competitive and  non-discriminatory  electric power
                    market in the PJM Control  Area any change to rate design or
                    to non-rate  terms and conditions  proposed by  Transmission
                    Owners for filing  under  Section 205 of the  Federal  Power
                    Act.

          viii)     If and to the extent it shall deem appropriate, intervene in
                    any   proceeding  at  FERC   initiated  by  the  Members  in
                    accordance  with Section  11.5(b),  and participate in other
                    state and  federal  regulatory  proceedings  relating to the
                    interests of the LLC; ix) Review, in accordance with Section
                    15.1.3,  determinations of the Office of the Interconnection
                    with respect to events of default;

          x)        Assess  against  the other  Members in  proportion  to their
                    Weighted  Interest  an amount  equal to any  payment  to the
                    Office of the  Interconnection,  including interest thereon,
                    as to which a Member is in default;

          xi)       Esablish  reasonable  sanctions  for  failure of a Member to
                    comply with its obligations under this Agreement;

          xii)      Direct  the Office of the  Interconnection  on behalf of the
                    LLC to take appropriate legal or regulatory action against a
                    Member (A) to recover any unpaid amounts due from the Member
                    to the Office of the  Interconnection  under this  Agreement
                    and to make whole any Members  subject to an assessment as a
                    result of such unpaid  amount,  or (B) as may  otherwise  be
                    necessary to enforce the obligations of this Agreement; 

                                       15

<PAGE>


          xiii)     Resolve  claims by a Member that the  Reliability  Committee
                    established  by  the  Reliability  Assurance  Agreement  has
                    exercised its responsibilities in a manner inconsistent with
                    the creation  and  operation  of a robust,  competitive  and
                    non-discriminatory  electric power market in the PJM Control
                    Area, upon due  consideration of the views of the Member and
                    of the  Reliability  Committee,  and of the need to preserve
                    the reliability of electric service in the PJM Control Area.

          xiv)      Solicit the views of Members on, and commission from time to
                    time as it shall deem  appropriate  independent  reviews of,
                    (A) the  performance of the PJM  Interchange  Energy Market,
                    (B)  compliance  by Market  Participants  with the rules and
                    requirements of the PJM Interchange  Energy Market,  and (C)
                    the performance of the Office of the  Interconnection  under
                    performance  criteria  proposed by the Members Committee and
                    approved by the PJM Board; and

          xv)       Terminate a Member as may be appropriate  under the terms of
                    this Agreement.

                              8. MEMBERS COMMITTEE

     8.1 Sectors.

          18.1.1 Designation.

          Voting on the  Members  Committee  shall be by  sectors.  The  Members
Committee shall be composed of five sectors,  one for Generation Owners, one for
Other Suppliers, one for Transmission Owners, one for Electric Distributors, and
one for End-Use Customers, provided that there are at least five Members in each
Sector.  Except as specified in Section 8.1.2, each Voting Member shall have one
vote. Each Voting Member shall, within thirty (30) days after the Effective Date
or, if later, thirty (30) days after becoming a Member, and thereafter not later
than 10 days prior to the Annual  Meeting of the Members for each annual  period
beginning  with the Annual  Meeting of the  Members,  submit to the  President a
sealed notice of the sector in which it is qualified to vote or, if qualified to
participate in more than one sector, its rank order preference of the sectors in
which it wishes to vote, and shall be assigned to its highest-ranked sector that
has the minimum number of Members  specified above. If a Member is assigned to a
sector other than its  highest-ranked  sector in  accordance  with the preceding
sentence,  its higher sector  preference or preferences shall be honored as soon
as a  higher-ranked  sector  has  five or more  Members.  A  Voting  Member  may
designate  as its voting  sector any  sector  for which it or its  Affiliate  or
Related  Party  Members  is  qualified.  The sector  designations  of the Voting
Members shall be announced by the President at the Annual Meeting.

          8.1.2 Related Parties.

          The Members in a group of Related  Parties shall each be entitled to a
vote,  provided that all the Members in a group of Related  Parties that chooses
to exercise such rights shall be assigned to the Electric Distributor sector. 

                                       16

<PAGE>

     8.2 Representatives.

          8.2.1 Appointment.

          Each  Member  may  appoint a  representative  to serve on the  Members
Committee,  with  authority  to act for that Member  with  respect to actions or
decisions  by the  Members  Committee.  Each  Member may  appoint  an  alternate
representative  to act for that Member at meetings of the Members  Committee  in
the absence of the representative. A Member participating in the PJM Interchange
Energy Market through an agent may be  represented  on the Members  Committee by
that agent. A Member shall appoint its  representative  by giving written notice
identifying its representative and alternate representative to the Office of the
Interconnection. Members that are Affiliates or Related Parties may each appoint
a representative  and alternate  representative  to the Members  Committee,  but
shall vote as specified in Section 8.1.

          8.2.2 Regulatory Authorities.

          FERC and any other federal  agency with  regulatory  authority  over a
Member,  each State  electric  utility  regulatory  commission  with  regulatory
jurisdiction  within the PJM Control Area, and each office of consumer  advocate
from each  State  all or any part of the  territory  of which is within  the PJM
Control  Area,  may  nominate  one  representative  to  serve  as an ex  officio
non-voting member of the Members Committee.

          8.2.3 Initial Representatives.

          Initial representatives to the Members Committee shall be appointed no
later  than 30 days  after the  Effective  Date;  provided,  however,  that each
representative to the Management  Committee under the Operating Agreement of PJM
Interconnection,  L.L.C.  as in effect  immediately  prior to the Effective Date
shall  automatically  become a  representative  to the Members  Committee on the
Effective Date unless replaced as specified in Section 8.2.4. An entity becoming
a Member shall appoint a representative  to the Members  Committee no later than
30 days after becoming a Member.

          8.2.4 Change of or Substitution for a Representative.

          Any Member may change its  representative  or alternate on the Members
Committee  at  any  time  by  providing  written  notice  to the  Office  of the
Interconnection  identifying its replacement  representative  or alternate.  Any
representative  to the Members  Committee  may, by written  notice to the Chair,
designate  a  substitute  representative  from that Member to act for him or her
with respect to any matter specified in such notice. 

                                       17


<PAGE>


     8.3 Meetings.

          8.3.1 Regular and Special Meetings.

          The Members Committee shall hold regular meetings,  no less frequently
than once each calendar quarter at such time and at such place as shall be fixed
by the Chair. The Members  Committee shall hold an Annual Meeting of the Members
each calendar year at such time and place as shall be specified by the Chair. At
the Annual Meeting of the Members,  Board Members as necessary,  officers of the
Members  Committee,  and  representatives  to the  Finance  Committee  shall  be
elected.  The  Members  Committee  may  hold  special  meetings  for one or more
designated  purposes within the scope of the authority of the Members  Committee
when  called by the Chair on the Chair's  own  initiative,  or at the request of
five or more  representatives on the Members Committee.  The notice of a regular
or special meeting shall be distributed to the  representatives  as specified in
Section 18.13 of this  Agreement not later than seven days prior to the meeting,
shall  state the time and place of the  meeting,  and  shall  include  an agenda
sufficient  to notify  the  representatives  of the  substance  of matters to be
considered  at the meeting;  provided,  however,  that meetings may be called on
shorter  notice at the discretion of the Chair as the Chair shall deem necessary
to deal with an emergency or to meet a deadline for action.

          8.3.2 Attendance.

          Regular  and  special  meetings  may  be  conducted  in  person  or by
telephone, or other electronic means as authorized by the Members Committee. The
attendance  in  person  or  by  telephone  or  other   electronic   means  of  a
representative  or a duly  designated  substitute  shall be required in order to
vote.

          8.3.3 Quorum.

          The  attendance  as  specified  in Section  8.3.2 of a majority of the
Voting  Members from each of at least three sectors that each have at least five
Members  shall  constitute  a  quorum.  No  action  may be taken by the  Members
Committee at a meeting unless a quorum is present; provided,  however, that if a
quorum is not present,  the Voting  Members then present shall have the power to
adjourn the meeting from time to time until a quorum shall be present.

     8.4 Manner of Acting.

     (a) All matters brought up for a vote or approval by the Members  Committee
shall be stated in the form of a motion, which must be seconded. Only one motion
may be pending at one time.

     (b) Each  Sector  shall  be  entitled  to cast one and zero  one-hundredths
(1.00)  Sector  Votes.  Each  Voting  Member  shall be  entitled to cast one (1)
non-divisible  vote in its sector.  In the case of a Voting Member  comprised of
Affiliates or Related Parties,  any  representative,  alternate or substitute of
any of the Affiliated or Related Parties may cast the vote of the Voting Member.
The Sector  Vote of each  sector  shall be split into an  affirmative  component
based on votes for the pending motion,  and a negative  component based on votes
against the pending  motion,  in direct  proportion to the votes cast within the
sector for and against the pending motion, rounded to two decimal places.

     (c) The sum of  affirmative  Sector  Votes  necessary  to pass the  pending
motion shall be 

                                       18


<PAGE>

greater  than (but not merely  equal to) the product of .667  multiplied  by the
number of sectors that have at least five Members and that  participated  in the
vote.  

     (d) Voting Members not in attendance at the meeting as specified in Section
8.3.2 of this  Agreement or abstaining  shall not be counted as  affirmative  or
negative votes.

     8.5 Chair and Vice Chair of the Members Committee.

          8.5.1 Selection and Term.

          The  representatives or their alternates or substitutes on the Members
Committee shall elect from among the  representatives  a Chair and a Vice Chair.
The  offices  of Chair and Vice  Chair  shall be held for a term of one year and
until succession to the office occurs as specified  herein.  Except as specified
below, at each Annual Meeting of the Members the Vice Chair shall succeed to the
office of Chair,  and a new Vice Chair shall be elected.  If the office of Chair
becomes  vacant,  or the Chair leaves the  employment of the Member for whom the
Chair is the  representative,  or the Chair is no longer the  representative  of
such Member, the Vice Chair shall succeed to the office of Chair, and a new Vice
Chair  shall be elected at the next  regular or special  meeting of the  Members
Committee,  both such officers to serve until the second  Annual  Meeting of the
Members  following such succession or election to a vacant office. If the office
of Vice Chair  becomes  vacant,  or the Vice Chair leaves the  employment of the
Member  for whom the Vice Chair is the  representative,  or the Vice Chair is no
longer the  representative  of such Member, a new Vice Chair shall be elected at
the next regular or special meeting of the Members Committee.

          8.5.2 Duties.

          The Chair shall call and preside at meetings of the Members Committee,
and shall carry out such other  responsibilities  as the Members Committee shall
assign.  The Chair shall cause minutes of each meeting of the Members  Committee
to be taken and  maintained,  and shall cause notices of meetings of the Members
Committee  to be  distributed.  The Vice Chair shall  preside at meetings of the
Members  Committee in the absence of the Chair,  and shall otherwise act for the
Chair at the Chair's request.

     8.6 Other Committees.

     (a) The Members Committee may form, select the membership,  and oversee the
activities,  of an  Operating  Committee,  a Planning  Committee,  and an Energy
Market   Committee   as  standing   committees,   and  such  other   committees,
subcommittees,  task  forces,  working  groups or other  bodies as it shall deem
appropriate,  to provide advice and  recommendations to the Members Committee or
to the Office of the Interconnection as directed by the Members Committee.

     (b) The Members  Committee  shall elect  representatives  to the  Alternate
Dispute  Resolution  Committee  as  specified  in  the  PJM  Dispute  Resolution
Procedures.

     8.7 User Groups.

     (a) Any five or more  Members  sharing  a common  interest  may form a User
Group,  and may  invite  such  other  Members to join the User Group as the User
Group shall deem  appropriate.  Notification  of the  formation  of a User Group
shall be provided to all members of the Members Committee. 

                                       19


<PAGE>


     (b)  The  Members   Committee   shall  create  a  User  Group  composed  of
representatives  of bona fide public  interest and  environmental  organizations
that are  interested  in the  activities  of the LLC and are willing and able to
participate in such a User Group.

     Meetings of User Groups  shall be open to all Members and the Office of the
Interconnection.  Notices  and  agendas of  meetings  of a User  Group  shall be
provided to all Members that ask to receive them.

     (d) Any  recommendation  or proposal for action adopted by affirmative vote
of  three-fourths  or more of the members of a User Group shall be circulated by
the  Office  of the  Interconnection  to  the  representatives  on  the  Members
Committee and shall be  considered by the Members  Committee at its next regular
meeting occurring not earlier than 30 days after the circulation of such notice.

     (e) If the Members  Committee does not adopt a  recommendation  or proposal
submitted to it by a User Group, upon vote of nine-tenths or more of the members
of the User Group the  recommendation  or proposal  may be  submitted to the PJM
Board for its consideration in accordance with Section 7.7(v).

     8.8 Powers of the Members Committee.

     The  Members  Committee,  acting by adoption  of a motion as  specified  in
Section  8.4,  shall  have  the  power  to take the  actions  specified  in this
Agreement, including:

                    i)        Elect the members of the PJM Board;

                    ii)       In accordance  with the provisions of Section 18.6
                              of  this  Agreement,  amend  any  portion  of this
                              Agreement,  including  the  Schedules  hereto,  or
                              create new Schedules, and file any such amendments
                              or new  Schedules  with  FERC or other  regulatory
                              body of competent jurisdiction;

                    iii)      Terminate thisAgreement; and

                    iv)       Provide  advice  and  recommendations  to the  PJM
                              Board and the Office of the Interconnection.

                                  9. OFFICERS

     9.1 Election and Term.

     The  officers of the LLC shall  consist of a President,  a Secretary  and a
Treasurer.  The PJM Board may elect such other officers as it deems necessary to
carry out the  business  of the LLC.  All  officers  shall be elected by the PJM
Board and shall hold office  until the next annual  meeting of the PJM Board and
until their  successors  are  elected.  Any number of offices may be held by the
same person,  except that the offices of the  President and Treasurer may not be
held by the same person.

                                       20

<PAGE>


     9.2 President.

     The PJM Board shall appoint a President and Chief Executive  Officer of the
LLC (the  "President").  The President shall direct and supervise the day-to-day
operation of the LLC, and shall report to the PJM Board.  The President shall be
responsible for directing and supervising the Office of the  Interconnection  in
the  performance of the duties and  responsibilities  specified in Section 10.4.
The President  shall execute bonds,  mortgages and other  contracts  requiring a
seal, under the seal of the LLC, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly  delegated by the board to some other officer or agent of the
LLC. In the absence of the  President or in the event of his or her inability or
refusal to act, and if a vice president has been appointed by the PJM Board, the
Vice President (or in the event there be more than one Vice President,  the Vice
Presidents  in the  order  designated  by the PJM  Board in its  Minutes)  shall
perform  the duties of the  President,  and when so  acting,  shall have all the
powers of and be subject to all the  restrictions  upon the President.  The Vice
President  shall perform such other duties and have such other powers as the PJM
Board may from time to time prescribe.

     9.3 Secretary.

     The Secretary shall attend all meetings of the PJM Board and record all the
proceedings  of the  meetings  of the PJM Board in a minute  book to be kept for
that  purpose and shall  perform  like  duties for the  standing  committees  or
special  committees  when required.  He or she shall give, or cause to be given,
notice of all special  meetings of the PJM Board,  and shall  perform such other
duties  as  may be  prescribed  by the  PJM  Board  or  President,  under  whose
supervision  he or she shall be. He or she shall have  custody of the  corporate
seal of the LLC, and he or she, or an assistant secretary,  shall have authority
to affix the same to any instrument requiring it and, when so affixed, it may be
attested  by  his  or  her  signature  or by the  signature  of  such  assistant
secretary.  The PJM Board may give  general  authority  to any other  officer to
affix the seal of the LLC and to attest the  affixing  by his or her  signature.


     9.4 Treasurer.

     The Treasurer  shall have or arrange for the custody of the LLC's funds and
securities   and  shall  keep  full  and  accurate   accounts  of  receipts  and
disbursements  in books  belongings  to the LLC and shall deposit all moneys and
other  valuable  effects  in the  name  and to the  credit  of the  LLC in  such
depositories as may be designated by the PJM Board. The Treasurer shall disburse
the funds of the LLC as may be ordered by the PJM Board,  taking proper vouchers
for such  disbursements,  and shall render to the President and PJM Board at its
regular  meetings,  or when the PJM Board so requires,  an account of his or her
transactions as Treasurer and of the financial condition of the LLC. If required
by the Board,  the  Treasurer  shall give the LLC a bond (which shall be renewed
periodically)  in such  sum and  with  such  surety  or  sureties  as  shall  be
satisfactory to the PJM Board for the faithful  performance of the duties of his
office  and  of the  restoration  to  the  LLC,  in  case  of his or her  death,
resignation,  retirement or removal from office, of all books, papers, vouchers,
money and other  property of whatever kind in his or her possession or under his
or her control belonging to the LLC.

                                       21


<PAGE>


     9.5 Renewal of Officers; Vacancies.

     Any  officer  elected or  appointed  by the PJM Board may be removed at any
time by the  affirmative  vote of a majority of the PJM Board  eligible to vote.
Any vacancy occurring in any office of the LLC shall be filled by the PJM Board.

     9.6 Compensation.

     The  salaries of all  officers  and agents of the LLC,  and the  reasonable
compensation of the PJM Board, shall be fixed by the PJM Board.

                       10. OFFICE OF THE INTERCONNECTION.

     10.1 Establishment.

     The  Office  of  the   Interconnection   shall  implement  this  Agreement,
administer  the PJM Tariff,  and undertake  such other  responsibilities  as set
forth  herein.  All  personnel  of the  Office of the  Interconnection  shall be
employees of the LLC or under  contract  thereto.  The cost of the Office of the
Interconnection  and  expenses  associated  therewith,  including  salaries  and
expenses of said personnel,  space and any necessary facilities or other capital
expenditures,  shall be recovered in  accordance  with Schedule 3. The Office of
the  Interconnection  shall adopt,  publish and comply with standards of conduct
that satisfy the regulations of FERC.

     10.2 Processes and Organization.

     In  order  to  carry  out  the   responsibilities  of  the  Office  of  the
Interconnection for the safe and reliable operation of the Interconnection,  the
President may establish  processes and organization for operating  personnel and
facilities  as the  President  shall deem  appropriate,  and shall  request such
Members as the President shall deem appropriate to participate in such processes
and  organization.  All such processes and organization  shall be carried out in
accordance  with all applicable code of conduct or other  functional  separation
requirements of FERC.


     10.3 Confidential Information.

     The Office of the  Interconnection  shall comply with the  requirements  of
Section  18.17  with  respect to any  proprietary  or  confidential  information
received from or about any Member.

     10.4 Duties and Responsibilities.

     The Office of the Interconnection,  under the direction of the President as
supervised and overseen by the PJM Board,  shall carry out the following  duties
and responsibilities, in accordance with the provisions of this Agreement:

                    i)        Administer and implement this Agreement;

                    ii)       Perform  such  functions  in  furtherance  of this
                              Agreement  as the PJM  Board,  acting  within  the
                              scope of its  duties  and  responsibilities  under
                              this Agreement, may direct;

                    iii)      Prepare,  maintain, update and disseminate the PJM
                              Manuals;

                    iv)       Comply with MAAC and NERC  operation  and planning
                              standards, 

                                       22

<PAGE>


                    principles and guidelines;

          v)        Maintain  an  appropriately  trained  workforce,   and  such
                    equipment and facilities,  including  computer  hardware and
                    software  and  backup  power   supplies,   as  necessary  or
                    appropriate to implement or administer this Agreement;

          vi)       Direct the operation and coordinate  the  maintenance of the
                    facilities  of the  Interconnection  used for both  load and
                    reactive  supply,  so as to maintain  reliability of service
                    and  obtain  the   benefits  of  pooling   and   interchange
                    consistent with this Agreement and the Reliability Assurance
                    Agreement;

          vii)      Direct the operation and coordinate  the  maintenance of the
                    bulk power supply  facilities  of the  Interconnection  with
                    such  facilities  and  systems  of others  not party to this
                    Agreement in accordance with agreements  between the LLC and
                    such other systems to secure  reliability  and continuity of
                    service and other advantages of pooling on a regional basis;

          viii)     Perform   interchange   accounting   and  maintain   records
                    pertaining  to the operation of the PJM  Interchange  Energy
                    Market and the Interconnection;

          ix)       Notify the  Members of the  receipt  of any  application  to
                    become a  Member,  and of the  action  of the  Office of the
                    Interconnection  on  such  application,  including  but  not
                    limited to the  completion of  integration of a new Member's
                    system into the PJM  Control  Area as  specified  in Section
                    11.6(f);

          x)        Calculate the Weighted Interest of each Member;

          xi)       Maintain  accurate  records  of the  sectors  in which  each
                    Voting Member is entitled to vote, and calculate the results
                    of any vote taken in the Members Committee;


          xii)      Furnish appropriate  information and reports as are required
                    to keep the Members  regularly  informed of the outlook for,
                    the   functioning   of,   and   results   achieved   by  the
                    Interconnection;

          xiii)     File with FERC on behalf of the  Members any  amendments  to
                    this  Agreement or the Schedules  hereto,  any new Schedules
                    hereto,  and make any other regulatory  filings on behalf of
                    the  Members  or  the  LLC   necessary  to  implement   this
                    Agreement;

          xiv)      At the  direction  of the  PJM  Board,  submit  comments  to
                    regulatory   authorities   on  matters   pertinent   to  the
                    Interconnection;

          xv)       Consult  with the standing or other  committees  established
                    pursuant   to   Section   8.6(a)  on   matters   within  the
                    responsibility of the committee;

          xvi)      Perform   operating   studies  of  the  bulk  power   supply
                    facilities   of   the    Interconnection   and   make   such
                    recommendations   and  initiate   such  actions  as  may  be
                    necessary   to   maintain   reliable    operation   of   the
                    Interconnection;  

          xvii)     Accept, on behalf of the Members,  notices served under this
                    Agreement;

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<PAGE>


          xviii)    Perform those functions and undertake those responsibilities
                    transferred to it under the Transmission  Owners  Agreement,
                    including  (A)  direct  the  operation  of the  transmission
                    facilities  of  the  parties  to  the  Transmission   Owners
                    Agreement, (B) administer the PJM Tariff, and (C) administer
                    the Regional  Transmission  Expansion  Planning Protocol set
                    forth as Schedule 6 to this Agreement.

          xix)      Perform those functions and undertake those responsibilities
                    transferred to it under the Reliability Assurance Agreement,
                    as specified in Schedule 8 of this Agreement.

          xx)       Monitor the operation of the PJM Control  Area,  ensure that
                    appropriate  Emergency  plans are in place  and  appropriate
                    Emergency drills are conducted,  declare the existence of an
                    Emergency,  and  direct  the  operations  of the  Members as
                    necessary to manage, alleviate or end an Emergency;


          xxi)      Incorporate the grid reliability  requirements applicable to
                    nuclear  generating  units in the PJM Control Area  planning
                    and operating principles and practices; and

          xxii)     Initiate such legal or regulatory proceedings as directed by
                    the PJM Board to enforce the obligations of this Agreement.

                                  11. MEMBERS

     11.1 Management Rights.

     The  Members  or any of them shall not take part in the  management  of the
business of, and shall not transact any business for, the LLC in their  capacity
as Members, nor shall they have power to sign for or to bind the LLC. 

     11.2 Other Activities.

     Except as otherwise  expressly provided herein, any Member may engage in or
possess  any  interest  in  another  business  or  venture  of  any  nature  and
description,  independently  or with  others,  even if such  activities  compete
directly with the business of the LLC, and neither the LLC nor any Member hereof
shall have any rights in or to any such  independent  ventures  or the income or
profits derived  therefrom.  

     11.3 Member Responsibilities.

          11.3.1 General.

          To  facilitate  and  provide  for  the  work  of  the  Office  of  the
Interconnection  and  of  the  several  committees   appointed  by  the  Members
Committee, each Member shall, to the extent applicable;

          (a) Maintain  adequate  records and, subject to the provisions of this
Agreement  for  the  protection  of  the   confidentiality   of  proprietary  or
commercially sensitive  information,  provide data required for (i) coordination
of operations, (ii) accounting for all interchange 

                                       24


<PAGE>


transactions,  (iii)  preparation  of required  reports,  (iv)  coordination  of
planning, including those data required for capacity accounting, (v) preparation
of maintenance schedules,  (vi) analysis of system disturbances,  and (vii) such
other  purposes,  including those set forth in Schedule 2, as will contribute to
the  reliable and economic  operation of the  Interconnection;  

          (b) Provide such recording,  telemetering,  communication  and control
facilities  as are  required for the  coordination  of its  operations  with the
Office of the  Interconnection  and those of the other Members and to enable the
Office of the  Interconnection  to operate  the PJM Control  Area and  otherwise
implement and administer this Agreement,  including equipment required in normal
and  Emergency   operations  and  for  the  recording  and  analysis  of  system
disturbances;

          (c) Provide  adequate  and  properly  trained  personnel to (i) permit
participation in the coordinated operation of the Interconnection, (ii) meet its
obligation  on a timely  basis for supply of records  and data,  (iii)  serve on
committees  and  participate  in their  investigations,  and  (iv)  share in the
representation of the Interconnection in inter-regional and national reliability
activities;

          (d)  Share in the costs of  committee  activities  and  investigations
(including  costs of consultants,  computer time and other  appropriate  items),
communication  facilities used by all the Members (in addition to those provided
in the Office of the  Interconnection),  and such other expenses as are approved
for payment by the PJM Board, such costs to be recovered as provided in Schedule
3;

          (e) Comply with the requirements of the PJM Manuals and all directives
of the  Office of the  Interconnection  to take any  action  for the  purpose of
managing,  alleviating  or ending an Emergency,  and authorize the Office of the
Interconnection to direct the transfer or interruption of the delivery of energy
on their behalf to meet an  Emergency  and to  implement  agreements  with other
Control Areas  interconnected with the PJM Control Area for the mutual provision
of service to meet an  Emergency,  and be  subject  to the  emergency  procedure
charges  specified in Schedule 9 of this Agreement for any failure to follow the
Emergency instructions of the Office of the Interconnection.

          11.3.2 Facilities Planning and Operation.

          Consistent with and subject to the requirements of this Agreement, the
PJM  Tariff,  the MAAC  Agreement,  the  Reliability  Assurance  Agreement,  the
Transmission Owners Agreement,  and the PJM Manuals, each Member shall cooperate
with  the  other  Members  in the  coordinated  planning  and  operation  of the
facilities  of its  System  within  the PJM  Control  Area so as to  obtain  the
greatest  practicable  degree  of  reliability,  compatible  economy  and  other
advantages from such coordinated planning and operation.  In furtherance of such
cooperation each Member shall, as applicable:

          (a)   Consult   with  the  other   Members   and  the  Office  of  the
Interconnection,  and coordinate the installation of its electric generation and
Transmission  Facilities  with  those of such other  Members  so as to  maintain
reliable service in the PJM Control Area;

          (b)   Coordinate   with  the  other   Members,   the   Office  of  the
Interconnection  and with others in the planning  and  operation of the regional
facilities to secure a high level of  reliability  and continuity of service and
other advantages; 

                                       25


<PAGE>


          (c)   Cooperate   with  the  other  Members  and  the  Office  of  the
Interconnection in the implementation of all policies and procedures established
pursuant to this  Agreement  for dealing  with  Emergencies,  including  but not
limited to policies and procedures for maintaining or arranging for a portion of
a Member's Capacity  Resources at least equal to the level established  pursuant
to the Reliability Assurance Agreement to have the ability to go from a shutdown
condition  to  an  operating   condition  and  start  delivering  power  without
assistance from the power system;

          (d) Cooperate  with the members of MAAC to augment the  reliability of
the bulk power  supply  facilities  of the region and comply  with MAAC and NERC
operating and planning standards, principles and guidelines and the PJM Manuals;


          (e) Obtain or arrange for transmission service as appropriate to carry
out this Agreement;

          (f) Cooperate with the Office of the Interconnection's coordination of
the  operating  and  maintenance   schedules  of  the  Member's  generating  and
Transmission  Facilities  with the  facilities  of  other  Members  to  maintain
reliable  service to its own  customers  and those of the other  Members  and to
obtain economic efficiencies consistent therewith;

          (g)   Cooperate   with  the  other  Members  and  the  Office  of  the
Interconnection  in the analysis,  formulation  and  implementation  of plans to
prevent  or   eliminate   conditions   that  impair  the   reliability   of  the
Interconnection; and

          (h) Adopt and apply standards  adopted  pursuant to this Agreement and
conforming to MAAC and NERC  standards,  principles  and  guidelines and the PJM
Manuals,  for  system  design,   equipment  ratings,   operating  practices  and
maintenance practices.

          11.3.3 Electric Distributors.

          In  addition  to any of the  foregoing  responsibilities  that  may be
applicable,  each Member that is an  Electric  Distributor,  whether or not that
Member  votes in the Members  Committee in the  Electric  Distributor  sector or
meets  the  eligibility  requirements  for  any  other  sector  of  the  Members
Committee, shall:

          (a) Accept, comply with or be compatible with all standards applicable
within the PJM Control Area with respect to system  design,  equipment  ratings,
operating  practices and maintenance  practices as set forth in the PJM Manuals,
or be  subject  to an  interconnected  Member's  requirements  relating  to  the
foregoing,   so  that  sufficient  electrical  equipment,   control  capability,
information and communication are available to the Office of the Interconnection
for planning and operation of the PJM Control Area;

          (b) Assure the  continued  compatibility  of its local  system  energy
management  system  monitoring  and  telecommunications  systems to satisfy  the
technical requirements of interacting  automatically or manually with the Office
of the Interconnection as it directs the operation of the PJM Control Area;

          (c)  Maintain  or arrange  for a portion of its  connected  load to be
subject  to  control  by  automatic  underfrequency,   under-voltage,  or  other
load-shedding  devices at least equal to the levels established  pursuant to the
Reliability Assurance Agreement, or be subject to another 

                                       26


<PAGE>


Member's control for these purposes;

          (d) Provide or arrange for sufficient  reactive capability and voltage
control  facilities  to conform  to Good  Utility  Practice  and (i) to meet the
reactive  requirements of its system and customers and (ii) to maintain adequate
voltage levels and the stability required by the bulk power supply facilities of
the Interconnection;

          (e) Shed connected  load,  share Capacity  Resources,  initiate active
load management  programs,  and take such other  coordination  actions as may be
necessary in accordance with the directions of the Office of the Interconnection
in Emergencies;

          (f)  Maintain or arrange for a portion of its  Capacity  Resources  at
least  equal to the level  established  pursuant  to the  Reliability  Assurance
Agreement  to have the ability to go from a shutdown  condition  to an operating
condition and start delivering power without assistance from the power system;

          (g)Provide  or arrange  through  another  Member for the services of a
24-hour   local   control   center  to   coordinate   with  the  Office  of  the
Interconnection,  each such  control  center to be  furnished  with  appropriate
telemetry equipment as specified in the PJM Manuals, and to be staffed by system
operators  trained  and  delegated  sufficient  authority  to  take  any  action
necessary  to assure that the system for which the  operator is  responsible  is
operated in a stable and reliable manner;

          (h)  Provide  to  the  Office  of  the   Interconnection  all  System,
accounting,  customer  tracking,  load  forecasting  and other data necessary or
appropriate  to  implement  or  administer  this  Agreement  or the  Reliability
Assurance Agreement; and

          (i) Comply  with the  underfrequency  relay  obligations  and  charges
specified in Schedule 7 of this Agreement.

          11.3.4 Reports to the Office of the Interconnection.

          Each Member  shall report as promptly as possible to the Office of the
Interconnection  any changes in its operating  practices and procedures relating
to the reliability of the bulk power supply  facilities of the  Interconnection.
The Office of the Interconnection  shall review such reports,  and if any change
in an  operating  practice or  procedure of the Member is not in accord with the
established   operating   principles,   practices   and   procedures   for   the
Interconnection  and such  change  adversely  affects  the  Interconnection  and
regional  reliability,  it shall so inform such  Member,  and the other  Members
through their representative on the Operating  Committee,  and shall direct that
such  change be  modified to conform to the  established  operating  principles,
practices and procedures.

     11.4 Regional Transmission Expansion Planning Protocol.

     The Members shall participate in regional  transmission  expansion planning
in accordance with the Regional  Transmission  Expansion  Planning  Protocol set
forth in Schedule 6 to this Agreement. 

                                       27


<PAGE>


     11.5 Member Right to Petition.

     (a) Nothing  herein shall  deprive any Member of the right to petition FERC
to modify any provision of this Agreement or any Schedule or practice  hereunder
that the  petitioning  Member  believes  to be unjust,  unreasonable,  or unduly
discriminatory  under Section 206 of the Federal Power Act, subject to the right
of any other Member (a) to oppose said proposal, or (b) to withdraw from the LLC
pursuant to Section 4.1.

     (b) Nothing  herein shall be construed as affecting in any way the right of
the Members,  acting pursuant to a vote of the Members Committee as specified in
Section 8.4,  unilaterally  to make an  application  to FERC for a change in any
rate,  charge,  classification,  tariff or  service,  or any rule or  regulation
related thereto,  under section 205 of the Federal Power Act and pursuant to the
rules and regulations  promulgated by FERC  thereunder,  subject to the right of
any Member that voted against such change in any rate,  charge,  classification,
tariff or service,  or any rule or regulation  related thereto,  in intervene in
opposition to any such application.

     (c) Nothing in this Agreement  shall preclude those Members  joining in the
proposal  to  utilize  Locational  Marginal  Prices  to deal  with  transmission
congestion  from (i) filing  amendments to the Agreement  necessary to implement
the use of Locational Marginal Prices in the PJM Control Area in accordance with
such orders or other  directives as may be issued by FERC relating  thereto,  or
(ii)  implementing  the provisions of Sections 1.7.21 and 5.2.2(d) of Schedule 1
to this  Agreement,  without  further  authorization  or approval by the Members
Committee.

     11.6 Membership Requirements.

     (a) To qualify as a Member, an entity shall:

          i)        Be a  Transmission  Owner  within the PJM Control Area or an
                    Eligible Customer under the PJM Tariff;

          ii)       If not a Transmission Owner, be a Generation Owner, an Other
                    Supplier, an Electric Distributor, or an End-Use Consumer;

          iii)      Be  engaged  in buying,  selling  or  transmitting  electric
                    energy  in or  through  the  Interconnection  or have a good
                    faith intent to do so; and

          iv)       Accept the obligations set forth in this Agreement.

     (b)  Certain  Members  that are Load  Serving  Entities  are parties to the
Reliability  Assurance  Agreement.  Upon becoming a Member, any entity that is a
Load  Serving  Entity  and that  wishes  to  become a Market  Buyer  shall  also
simultaneously execute the Reliability Assurance Agreement.

     (c) An entity that wishes to become a party to this Agreement  shall apply,
in writing,  to the President setting forth its request,  its qualifications for
membership,  its  agreement to supply data as specified in this  Agreement,  its
agreement  to pay all costs and  expenses  in  accordance  with  Schedule 3, and
providing all information  specified pursuant to the Schedules to this Agreement
for entities that wish to become Market Participants.  Any such application that
meets all  applicable  requirements  shall be approved by the  President  within
sixty (60) days. 

                                       28


<PAGE>


     (d)Nothing  in this Section 11 is intended to remove,  in any respect,  the
choice of  participation  by other  utility  companies or  organizations  in the
operation of the Interconnection through inclusion in the System of a Member.

     (e) An entity whose  application  is accepted by the President  pursuant to
Section  11.6(c) shall execute a supplement to this  Agreement in  substantially
the form prescribed in Schedule 4, which  supplement  shall be  countersigned by
the  President  and tendered for filing with FERC by the  President.  The entity
shall become a Member effective on the date specified by FERC when accepting the
supplement for filing.

     (f) Entities whose applications  contemplate  expansion or rearrangement of
the PJM  Control  Area may become  Members  promptly  as  described  in Sections
11.6(c) and 11.6(e) above,  but the integration of the  applicant's  system into
all of the  operation  and  accounting  provisions  of  this  Agreement  and the
Reliability  Assurance  Agreement  shall  occur  only  after  completion  of all
required installations and modifications of metering,  communications,  computer
programming,  and other necessary and appropriate facilities and procedures,  as
determined   by  the   Office  of  the   Interconnection.   The  Office  of  the
Interconnection  shall  notify  the  other  Members  when such  integration  has
occurred.

                      12. TRANSFERS OF MEMBERSHIP INTEREST

     The rights and  obligations  created by this  Agreement  shall inure to and
bind the  successors  and assigns of such Member;  provided,  however,  that the
rights and obligations of any Member hereunder shall not be assigned without the
approval of the Members  Committee  except as to a successor  in  operation of a
Member's  electric  operating  properties by reason of a merger,  consolidation,
reorganization,   sale,   spinoff,   or  foreclosure,   as  a  result  of  which
substantially  all such  electric  operating  properties  are acquired by such a
successor, and such successor becomes a Member.

                                13. INTERCHANGE

     13.1 Interchange Arrangements with Non-Members.

     Any Member may enter into interchange  arrangements with others who are not
Members  with  respect to the  delivery  or receipt  of  capacity  and energy to
fulfill  its  obligations  hereunder  or for any other  purpose,  subject to the
standards and requirements established in or pursuant to this Agreement. 

                                       29


<PAGE>


     13.2 Energy Market.

     The Office of the  Interconnection  shall  administer  an efficient  energy
market within the  Interconnection,  to be known as the PJM  Interchange  Energy
Market,  in  which  Members  may  buy  and  sell  energy.   The  Office  of  the
Interconnection will schedule in advance and dispatch generation on the basis of
least-cost,   security-constrained   dispatch  and  the  prices  and   operating
characteristics   offered  by  sellers  within  and  into  the  Interconnection,
continuing  until  sufficient  generation  is  dispatched  to serve  the  energy
purchase   requirements   of  the   Interconnection   and   buyers  out  of  the
Interconnection,  as  well  as  the  requirements  of  the  Interconnection  for
ancillary services provided by such generation. Scheduling and dispatch shall be
conducted  in  accordance  with  applicable  schedules to the PJM Tariff and the
Schedules to this Agreement.

                                  14. METERING

     14.1 Installation, Maintenance and Reading of Meters.

     The quantities of electric energy involved in  determination of the amounts
of the  billing  rendered  hereunder  shall be  ascertained  by means of  meters
installed,  maintained  and read  either  at the  expense  of the party on whose
premises  the  meters are  located or as  otherwise  provided  for by  agreement
between the parties concerned.

     14.2 Metering Procedures.

     Procedures with respect to maintenance,  testing,  calibrating,  correction
and  registration  records,  and precision  tolerance of all metering  equipment
shall be in accordance  with Good Utility  Practice.  The expense of testing any
meter shall be borne by the party  owning  such meter,  except that when a meter
tested upon request of another party is found to register within the established
tolerance the party making the request shall bear the expense of such test.

     14.3 Integrated Megawatt-Hours

     All metering of energy required herein shall be the integration of megawatt
hours in the clock hour, and the quantities  thus obtained shall  constitute the
megawatt load for such clock hour; provided,  however,  that adjustment shall be
made for other  contractual  obligations  of any  Member as may be  required  to
determine  the  quantity to be accounted  for  hereunder,  and for  transmission
losses.

     14.4 Meter Locations.

     The meter  locations to be used by the Members in determining  their energy
transactions on the Interconnection  shall be as reasonably determined from time
to time by the Member or the Office of the Interconnection.

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<PAGE>


                         15. ENFORCEMENT OF OBLIGATIONS

     15.1 Failure to Meet Obligations.

          15.1.1 Termination of Market Buyer Rights.

          The Office of the  Interconnection  shall  terminate a Market  Buyer's
right to make purchases from the PJM Interchange  Energy Market if it determines
that the Market  Buyer does not  continue to meet the  obligations  set forth in
this Agreement, provided that the Office of the Interconnection has notified the
Market Buyer of any such  deficiency  and afforded the Market Buyer a reasonable
opportunity  to cure it. The Office of the  Interconnection  shall  reinstate  a
Market Buyer's right to make purchases  from the PJM  Interchange  Energy Market
upon demonstration by the Market Buyer that it has come into compliance with the
obligations set forth in this Agreement.

          15.1.2 Termination of Market Seller Rights.

          The  Office of the  Interconnection  shall not  accept  offers  from a
Market  Seller  that has not  complied  with the  prices,  terms,  or  operating
characteristics  of  any  of  its  prior  scheduled   transactions  in  the  PJM
Interchange  Energy  Market,  unless  such Market  Seller has taken  appropriate
measures  to the  satisfaction  of the Office of the  Interconnection  to ensure
future compliance.

          15.1.3 Payment of Bills.

          (a) A Member shall make full and timely  payment,  in accordance  with
the terms specified by the Office of the Interconnection,  of all bills rendered
in connection with  transactions  in the PJM Interchange  Energy Market or other
services  performed by the Office of the  Interconnection,  notwithstanding  any
disputed amount,  but any such payment shall not be deemed a waiver of any right
with respect to such  dispute.  Any Member that fails to make such  payment,  or
otherwise  fails to meet its  financial or other  obligations  to a Member,  the
Office  of the  Interconnection  or the LLC under  this  Agreement,  shall  upon
expiration of the 30 day period specified below be in default.  If the Office of
the Interconnection  concludes, upon its own initiative or the recommendation of
or complaint by the Members Committee or any Member,  that a Member is in breach
of any obligation under this Agreement,  the Office of the Interconnection shall
so notify  such Member and inform all other  Members.  The  notified  Member may
remedy such asserted  breach by: (i) paying all amounts  assertedly  due,  along
with  interest on such amounts  calculated in  accordance  with the  methodology
specified  for  interest  on  refunds  in FERC's  regulations  at 18 C.F.R.  ss.
35.19a(a)(2)(iii);  and (ii)  demonstration to the satisfaction of the Office of
the Interconnection  that the Member has taken appropriate  measures to meet any
other obligation of which it was deemed to be in breach; provided, however, that
any such payment or demonstration  may be subject to a reservation of rights, if
any,  to subject  such  matter to the PJM  Dispute  Resolution  Procedures;  and
provided,   further,   that  any  such   determination  by  the  Office  of  the
Interconnection  may be subject  to review by the PJM Board upon  request of the
Member  involved  or the  Office  of the  Interconnection.  If a Member  has not
remedied  a breach  by the 30th  day  following  receipt  of the  Office  of the
Interconnection's  notice,  or receipt of the PJM Board's decision on review, if
applicable,  then the Member  shall be in default and, in addition to such other
remedies as may be  available  to the LLC: 

          i)        A defaulting  Market  Participant  shall be  precluded  from
                    buying or selling 

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<PAGE>


                    energy  in the  PJM  Interchange  Energy  Market  until  the
                    default is remedied as set forth above.

          ii)       A defaulting  Member shall not be entitled to participate in
                    the activities of any committee or other body established by
                    the Members Committee or the Office of the Interconnection.

          iii)      A  defaulting  Member  shall not be  entitled to vote on the
                    Members  Committee  or any  other  committee  or other  body
                    established pursuant to this Agreement.

     15.2 Enforcement of Obligations.

     If the Office of the Interconnection sends a notice to the PJM Board that a
Member has failed to perform an obligation  under this Agreement,  the PJM Board
shall initiate such action against such Member to enforce such obligation as the
PJM Board shall deem appropriate. Subject to the procedures specified in Section
15.1,  a Member's  failure to perform  such  obligation  shall be deemed to be a
default under this Agreement. In order to remedy a default, but without limiting
any rights the LLC may have  against the  defaulting  Member,  the PJM Board may
assess against,  and collect from, the Members not in default,  in proportion to
their  Weighted  Interest,  an amount  equal to the amount  that the  defaulting
Member  has  failed to pay to the  Office  of the  Interconnection,  along  with
appropriate interest, but such assessment shall in no way relieve the defaulting
Member of its obligations, and shall confer upon the Members Committee the right
to recover the assessed amounts from the defaulting  Member.  In addition to any
amounts  in  default,  the  defaulting  Member  shall be  liable  to the LCC for
reasonable costs incurred in enforcing the defaulting Member's obligations.

     15.3 Obligations to a Member in Default.

     The  Members  have no  continuing  obligation  to provide  the  benefits of
interconnected operations to a Member in default.

     15.4 Obligations of a Member in Default.

     A Member  found  to be in  default  shall  take all  possible  measures  to
mitigate  the  continued  impact of the  default on the  Members not in default,
including, but not limited to, loading its own generation to supply its own load
to the maximum extent possible.

     15.5 No Implied Waiver.

     A failure of a Member,  the PJM Board, or the LLC to insist upon or enforce
strict  performance  of any of the  provisions  of this  Agreement  shall not be
construed as a waiver or  relinquishment to any extent of such entity's right to
assert or rely upon any such  provisions,  rights  and  remedies  in that or any
other instance; rather, the same shall be and remain in full force and effect.

                                       32


<PAGE>


                           16. LIABILITY AND INDEMNITY

     16.1 Members.

     (a) As between the Members,  except as may be otherwise agreed upon between
individual Members with respect to specified interconnections,  each Member will
indemnify  and hold  harmless  each of the  other  Members,  and its  directors,
officers,  employees,  agents,  or  representatives,  of and  from  any  and all
damages,  losses,  claims,  demands,  suits,  recoveries,   costs  and  expenses
(including all court costs and reasonable  attorneys' fees), caused by reason of
bodily injury, death or damage to property of any third party, resulting from or
attributable to the fault,  negligence or willful misconduct of such Member, its
directors,  officers, employees, agents, or representatives,  or resulting from,
arising out of, or in any way connected with the  performance of its obligations
under this  Agreement,  excepting only, and to the extent,  such cost,  expense,
damage,  liability  or loss may be caused by the  fault,  negligence  or willful
misconduct of any other Member.  The duty to indemnify under this Agreement will
continue in full force and effect  notwithstanding the expiration or termination
of this  Agreement  or the  withdrawal  of a Member  from this  Agreement,  with
respect  to any  loss,  liability,  damage  or other  expense  based on facts or
conditions which occurred prior to such termination or withdrawal.

     (b) The amount of any indemnity  payment arising hereunder shall be reduced
(including,  without  limitation,  retroactively)  by any insurance  proceeds or
other  amounts  actually  recovered  by the Member  seeking  indemnification  in
respect of the indemnified action, claim, demand, costs, damage or liability. If
any Member  shall have  received  an  indemnity  payment  for an action,  claim,
demand,  cost,  damage or  liability  and shall  subsequently  actually  receive
insurance proceeds or other amounts for such action, claim, demand, cost, damage
or liability,  then such Member shall pay to the Member that made such indemnity
payment the lesser of the amount of such  insurance  proceeds  or other  amounts
actually  received  and  retained  or the net amount of the  indemnity  payments
actually received previously. 

                                       33


<PAGE>


     16.2 LLC Indemnified Parties.

     (a) The LLC will  indemnify  and hold  harmless  the PJM  Board,  the LLC's
officers,  employees and agents, and any  representatives of the Members serving
on the Members Committee and any other committee created under Section 8 of this
Agreement   (all  such   Board   Members,   officers,   employees,   agents  and
representatives  for  purposes  of this  Section  160 being  referred to as "LLC
Indemnified Parties"),  of and from any and all actions,  claims, demands, costs
(including  consequential  or indirect  damages,  economic  losses and all court
costs and  reasonable  attorneys'  fees) and  liabilities  to any third parties,
arising from, or in any way connected  with,  the  performance  of the LLC under
this Agreement,  or the fact that such LLC Indemnified Party was serving in such
capacity,  except  to the  extent  that  such  action,  claim,  demand,  cost or
liability results from the willful  misconduct of any LLC Indemnified Party with
respect to  participation  in the  misconduct.  To the extent any dispute arises
between any Member and the LLC arising from, or in any way connected  with,  the
performance of the LLC under this Agreement, the Member and the LLC shall follow
the PJM  Dispute  Resolution  Procedures.  To the extent  that any such  action,
claim,  demand,  cost or liability  arises from a Member's  contractual or other
obligation  to provide  electric  service  directly or  indirectly to said third
party,  which  obligation  to  provide  service  is  limited by the terms of any
tariff, service agreement,  franchise,  statute,  regulatory requirement,  court
decision or other limiting provision, the Member designates the LLC and each LLC
Indemnified Party a beneficiary of said limitation.

     (b) An LLC  Indemnified  Party shall not be personally  liable for monetary
damages for any breach of fiduciary duty by such LLC Indemnified  Party,  except
that an LLC  Indemnified  Party  shall  be  liable  to the  extent  provided  by
applicable  law (i) for acts or  omissions  not in good  faith  or that  involve
intentional  misconduct  or  a  knowing  violation  of  law,  or  (ii)  for  any
transaction  from which the LLC Indemnified  Party derived an improper  personal
benefit.  Notwithstanding (i) and (ii), indemnification shall be made in respect
of any claim,  issue or matter as to which such person shall have been  adjudged
to be liable to the LLC if and to the extent that the court in which such action
or  suit  was  brought  shall  determine  upon  application  that,  despite  the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and  reasonably  entitled to indemnity for such expenses  which
such court shall deem  proper.  If  applicable  law is  hereafter  construed  or
amended to authorize the further  elimination  or limitation of the liability of
LLC Indemnified  Parties,  then the liability of the LLC Indemnified Parties, in
addition to the  limitation  on personal  liability  provided  herein,  shall be
limited to the fullest  extent  permitted  by law. No  amendment to or repeal of
this  section  shall  apply to or have any  effect on the  liability  or alleged
liability of any LLC Indemnified  Party or with respect to any acts or omissions
occurring prior to such amendment or repeal. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent,  shall not, of itself,  create a presumption  that
the  person  did  not  act in good  faith  and in a  manner  which  such  person
reasonably  believed to be in or not opposed to the best  interests  of the LLC,
and with respect to any criminal action or proceeding,  had reasonable  cause to
believe that his or her conduct was unlawful.

     (c) The LLC  may pay  expenses  incurred  by an LLC  Indemnified  Party  in
defending a civil,  criminal,  administrative or investigative  action,  suit or
proceeding  in  advance  of the  final  disposition  of  such  action,  suit  or
proceeding  upon  receipt  of an  undertaking  by  or  on  behalf  of  such  LLC
Indemnified Party to repay such amount if it shall ultimately be determined that
such LLC 

                                       34


<PAGE>


Indemnified  Party is not entitled to be indemnified by the LLC as authorized in
this Section.  

     (d) In the event the LLC incurs  liability  under this Section 16.2 that is
not adequately covered by insurance, such amounts shall be recovered pursuant to
the PJM Tariff as provided in Schedule 3 of this Agreement.

     16.3 Worker' Compensation Claims.

     Each  Member  shall  be  solely  responsible  for  all  claims  of its  own
employees, agents and servants growing out of any Worker's Compensation Law.

     16.4 Limitation of Liability.

     No Member or its directors, officers, employees, agents, or representatives
shall be liable  to any other  Member  or its  directors,  officers,  employees,
agents,  or  representatives,  whether  liability  arises out of contract,  tort
(including  negligence),  strict  liability,  or any  other  cause of or form of
action  whatsoever,  for any  indirect,  incidental,  consequential,  special or
punitive  cost,  expense,  damage or loss,  including but not limited to loss of
profits or revenues,  cost of capital of financing,  loss of goodwill or cost of
replacement power,  arising from such Member's performance or failure to perform
any of its  obligations  under this Agreement or the  ownership,  maintenance or
operation of its System; provided,  however, that nothing herein shall be deemed
to reduce or limit the  obligations  of any Member with respect to the claims of
persons or entities that are not parties to this Agreement.

     16.5 Resolution of Disputes.

     To the extent any dispute arises between one or more Members  regarding any
issue covered by this Agreement, the Members shall follow the dispute resolution
procedures set forth in the PJM Dispute Resolution Procedures.

     16.6 Gross Negligence or Willful Misconduct.

     Neither  the LLC nor the LLC  Indemnified  Parties  shall be  liable to the
Members or any of them for any claims,  demands or costs arising from, or in any
way connected  with, the  performance of the LLC under this Agreement other than
actions,  claims or demands  based on gross  negligence  or willful  misconduct;
provided,  however, that nothing herein shall limit or reduce the obligations of
the LLC to the Members or any of them under the express terms of this  Agreement
or the PJM Tariff,  including,  but not limited to,  those set forth in Sections
6.2 and 6.3 of this Agreement.

     16.7 Insurance.

     The PJM Board shall be  authorized to procure  insurance  against the risks
borne by the LLC and the LLC  Indemnified  Parties,  the cost of which  shall be
treated as a cost and expense of the LLC. 

                                       35


<PAGE>


              17. MEMBER REPRESENTATIONS, WARRANTIES AND COVENANTS

     17.1 Representations and Warranties.

     Each Member makes the following  representations  and warranties to the LLC
and each  other  Member,  as of the  Effective  Date or such  later date as such
Member shall become admitted as a Member of the LLC.

          17.1.1 Organization and Existence.

          Such Member is an entity duly organized,  validly existing and in good
standing under the laws of the state of its organization.

          17.1.2 Power and Authority.

          Such Member has the full power and  authority to execute,  deliver and
perform this Agreement and to carry out the transactions contemplated hereby.

          17.1.3 Authorization and Enforceability.

          The  execution  and delivery of this  Agreement by such Member and the
performance  of its  obligations  hereunder  have  been duly  authorized  by all
requisite  action  on the  part of the  Member,  and do not  conflict  with  any
applicable  law or with  any  other  agreement  binding  upon  the  Member.  The
Agreement has been duly  executed and  delivered by such Member and  constitutes
the legal, valid and binding obligation of such Member,  enforceable  against it
in accordance with the terms thereof,  except insofar as such enforceability may
be limited by  applicable  bankruptcy,  insolvency,  reorganization,  fraudulent
conveyance,  moratorium  or other  similar laws  affecting  the  enforcement  of
creditors'  rights generally,  and to general  principles of equity whether such
principles are considered in proceedings in law or in equity.

          17.1.4 No Government Consents.

          No  authorization,  consent,  approval  or  order  of,  notice  to  or
registration,  qualification,  declaration  or  filing  with,  any  governmental
authority is required for the execution, delivery and performance by such Member
of this  Agreement  or the  carrying  out by  such  Member  of the  transactions
contemplated  hereby other than such authorization,  consent,  approval or order
of,  notice to or  registration,  qualification,  declaration  or filing that is
pending before such governmental authority.

          17.1.5 No Conflict or Breach.

          None of the execution, delivery and performance by such Member of this
Agreement,  the compliance with the terms and provisions hereof and the carrying
out of the transactions  contemplated hereby, conflicts or will conflict with or
will  result  in a  breach  or  violation  of any of the  terms,  conditions  or
provisions of any law,  governmental rule or regulation or the charter documents
or bylaws of such Member or any applicable order, writ, injunction,  judgment or
decree of any court or governmental authority against such Member or by which it
or any of its properties, is bound, or any loan agreement,  indenture, mortgage,
bond, note, resolution,  contract or other agreement or instrument to which such
Member  is a  party  or by  which  it or any  of its  properties  is  bound,  or
constitutes  or will  constitute  a  default  thereunder  or will  result in the
imposition of any lien upon any of its properties. 

                                       36


<PAGE>


          17.1.6 No Proceedings.

          There are no actions at law,  suits in equity,  proceedings  or claims
pending or, to the knowledge of the Member, threatened against the Member before
any federal,  state,  foreign or local court,  tribunal or government  agency or
authority that might materially delay,  prevent or hinder the performance by the
Member of its obligations hereunder.

     17.2 Municipal Electric Systems.

     Any  provisions  of Section 17.1  notwithstanding,  if any Member that is a
municipal electric system believes in good faith that the provisions of Sections
5.1(b) and 16.1 of this  Agreement  may not  lawfully  be applied to that Member
under  applicable  state law  governing  municipal  activities,  the  Member may
request a waiver of the pertinent provisions of the Agreement.  Any such request
for waiver  shall be  supported  by an opinion of counsel  for the Member to the
effect that the  provision of the Agreement as to which waiver is sought may not
lawfully  be applied to the Member  under  applicable  state law.  The PJM Board
shall have the right to have the  opinion of the  Member's  counsel  reviewed by
counsel to the LLC. If the PJM Board  concludes  that either or both of Sections
5.1(b) and 16.1 of this  Agreement  may not  lawfully  be applied to a municipal
electric system Member, it shall waive the application of the affected provision
or  provisions  to such  municipal  Member.  Any Member not  permitted by law to
indemnify the other Members shall not be indemnified by the other Members.

     17.3 Survival.

     All  representations  and  warranties  contained  in this  Section 17 shall
survive  the  execution  and  delivery  of  this  Agreement.  

                           18. MISCELLANEOUS PROVISIONS

     18.1 [Reserved.]

     18.2 Fiscal and Taxable  Year.  

     The fiscal year and taxable year of the LLC shall be the calendar year.

     18.3 Reports. 

     Each year prior to the Annual  Meeting of the Members,  the PJM Board shall
cause to be  prepared  and  distributed  to the  Members  a report  of the LLC's
activities since the prior report.

                                       37


<PAGE>


     18.4 Bank Accounts; Checks, Notes and Drafts.

     (a) Funds of the LLC shall be  deposited  in an  account or  accounts  of a
type, in form and name and in a bank(s) or other financial  institution(s) which
are participants in federal insurance programs as selected by the PJM Board. The
PJM Board shall arrange for the appropriate conduct of such accounts.  Funds may
be withdrawn  from such accounts only for bona fide and  legitimate LLC purposes
and may from  time to time be  invested  in such  short-term  securities,  money
market  funds,  certificates  of deposit or other liquid assets as the PJM Board
deems appropriate. All checks or demands for money and notes of the LLC shall be
signed by any officer or by any other person designated by the PJM Board.

     (b) The Members  acknowledge  that the PJM Board may  maintain LLC funds in
accounts,  money market funds,  certificates of deposit,  other liquid assets in
excess of the insurance  provided by the Federal Deposit Insurance  Corporation,
or other depository  insurance  institutions and that the PJM Board shall not be
accountable  or liable  for any loss of such  funds  resulting  from  failure or
insolvency of the depository institution.

     (c) Checks,  notes,  drafts and other orders for the payment of money shall
be signed by such persons as the PJM Board from time to time may authorize. When
the  PJM  Board  so  authorizes,  the  signature  of any  such  person  may be a
facsimile.

     18.5 Books and Records.

     (a) At all times during the term of the LLC,  the PJM Board shall keep,  or
cause to be kept,  full and accurate  books of account,  records and  supporting
documents, which shall reflect, completely, accurately and in reasonable detail,
each  transaction  of the LLC. The books of account shall be maintained  and tax
returns  prepared and filed on the method of  accounting  determined  by the PJM
Board. The books of account, records and all documents and other writings of the
LLC shall be kept and maintained at the principal office of the Interconnection.

     (b) The PJM Board shall cause the Office of the  Interconnection to keep at
its principal office the following:

          i)        A current  list in  alphabetical  order of the full name and
                    last known  business  address of each  Member,  the Weighted
                    Interest of each Member, and the Members Committee sector of
                    each Voting Member;

          ii)       A copy of the  Certificate of Formation and the  Certificate
                    of Conversion, and all Certificates of Amendment thereto;

          iii)      Copies of the LLC's  federal,  state,  and local  income tax
                    returns  and  reports,  if any,  for the three  most  recent
                    years; and

          iv)       Copies of the Operating  Agreement,  as amended,  and of any
                    financial  statements  of the LLC for the three most  recent
                    years.

                                       38


<PAGE>


     18.6 Amendment.

     (a)  Except  as  provided  by law  or  otherwise  set  forth  herein,  this
Agreement,  including any Schedule hereto, may be amended, or a new Schedule may
be created, only upon: (i) submission of the proposed amendment to the PJM Board
for its review and  comments;  (ii) approval of the amendment or new Schedule by
the Members Committee,  after consideration of the comments of the PJM Board, in
accordance with Section 8.4, or written agreement to an amendment of all Members
not in default at the time the  amendment  is agreed  upon;  and (iii)  approval
and/or  acceptance for filing of the amendment by FERC and any other  regulatory
body with  jurisdiction  thereof as may be required by law. If and as necessary,
the Members  Committee may file with FERC or other  regulatory body of competent
jurisdiction  any  amendment  to this  Agreement  or to its  Schedules  or a new
Schedule not filed by the Office of the Interconnection.

     (b) Notwithstanding the foregoing, an applicant eligible to become a Member
in accordance  with the procedures  specified in this  Agreement  shall become a
Member  by  executing  a  counterpart  of this  Agreement  without  the need for
amendment  of this  Agreement  or  execution  of such  counterpart  by any other
Member.

     (c) Each of the following  fundamental  changes to the LLC shall require or
be deemed to require an amendment to this  Agreement and shall require the prior
approval of FERC:

          i)        Adoption of any plan of merger or consolidation;

          ii)       Adoption  of any plan of sale,  lease or  exchange of assets
                    relating to all, or  substantially  all, of the property and
                    assets of the LLC;

          iii)      Adoption of any plan of division relating to the division of
                    the  LLC  into  two or  more  corporations  or  other  legal
                    entities;

          iv)       Adoption of any plan  relating to the  conversion of the LLC
                    into a stock corporation;

          v)        Adoption of any proposal of voluntary dissolution; or

          vi)       Taking  any  action  which has the  purpose or effect of the
                    adoption  of any plan or  proposal  described  in items (i),
                    (ii), (iii), (iv) or (v) above.

     18.7 Interpretation.

     Wherever  the context may  require,  any noun or pronoun  used herein shall
include the corresponding masculine, feminine or neuter forms. The singular form
of nouns, pronouns and verbs shall include the plural and vice versa.

     18.8 Severability.

     Each provision of this Agreement  shall be considered  severable and if for
any reason any provision is  determined  by a court or  regulatory  authority of
competent  jurisdiction  to be invalid,  void or  unenforceable,  the  remaining
provisions of this  Agreement  shall continue in full force and effect and shall
in no way be  affected,  impaired  or  invalidated,  and such  invalid,  void or
unenforceable  provision shall be replaced with valid and enforceable  provision
or provisions which otherwise give effect to the original intent of the invalid,
void or unenforceable provision. 

                                       39


<PAGE>


     18.9 Force Majeure.

     No Member  shall be liable to any other  Member for damages or otherwise be
in breach of this  Agreement  to the extent and during the period such  Member's
performance is prevented by any cause or causes beyond such Member's control and
without such Member's fault or negligence, including but not limited to any act,
omission,  or  circumstance  occasioned by or in  consequence of any act of God,
labor disturbance, act of the public enemy, war, insurrection, riot, fire, storm
or flood,  explosion,  breakage  or  accident  to  machinery  or  equipment,  or
curtailment, order, regulation or restriction imposed by governmental,  military
or lawfully established civilian authorities;  provided,  however, that any such
foregoing event shall not excuse any payment obligation.  Upon the occurrence of
an event considered by a Member to constitute a force majeure event, such Member
shall use due  diligence to endeavor to continue to perform its  obligations  as
far as reasonably  practicable and to remedy the event,  provided that no Member
shall be required by this provision to settle any strike or labor dispute.

     18.10 Further Assurances.

     Each Member hereby agrees that it shall hereafter  execute and deliver such
further  instruments,  provide all  information and take or forbear such further
acts and things as may be reasonably  required or useful to carry out the intent
and purpose of this Agreement and as are not inconsistent with the terms hereof.

     18.11 Seal.

     The seal of the LLC shall have  inscribed  thereon the name of the LLC, the
year of its organization and the words "Corporate Seal,  Delaware." The seal may
be used by  causing it or a  facsimile  thereof  to be  impressed  or affixed or
reproduced or otherwise.

     18.12 Counterparts.

     This Agreement may be executed in any number of counterparts, each of which
shall be an original but all of which together will  constitute one  instrument,
binding upon all parties  hereto,  notwithstanding  that all of such parties may
not have executed the same counterpart.

     18.13 Costs of Meetings.

     Each  Member  shall be  responsible  for all  costs of its  representative,
alternate  or  substitute   in  attending   any  meeting.   The  Office  of  the
Interconnection  shall pay the other  reasonable  costs of  meetings  of the PJM
Board and the Members Committee, and such other committees,  subcommittees, task
forces,  working  groups,  User  Groups  or other  bodies  as  determined  to be
appropriate by the Office of the Interconnection, which costs otherwise shall be
paid by the Members attending. The Office of the Interconnection shall reimburse
all Board Members for their reasonable costs of attending meetings. 

                                       40


<PAGE>


     18.14 Notice.

     (a) Except as otherwise  expressly provided herein,  notices required under
this  Agreement  shall be in writing and shall be sent to a Member by  overnight
courier,  hand delivery,  telecopier or other reliable  electronic  means to the
representative  on the Members  Committee of such Member at the address for such
Member  previously  provided by such Member to the other Members or as otherwise
directed  by the Members  Committee.  Any such notice so sent shall be deemed to
have  been  given  (i) upon  delivery  if given by  overnight  couriers  or hand
delivery,  or (ii) upon  confirmation  if given by telecopier or other  reliable
electronic means.

     (b) Notices, as well as copies of the agenda and minutes of all meetings of
committees,  subcommittees,  task forces,  working groups, User Groups, or other
bodies formed under this  Agreement,  shall be posted in a timely fashion on and
made available for downloading from the PJM website.

     18.15 Headings.

     The section  headings used in this Agreement are for  convenience  only and
shall not affect the construction or  interpretation of any of the provisions of
this Agreement.

     18.16 No Third-Party Beneficiaries.

     This  Agreement is intended to be solely for the benefit of the Members and
their respective  successors and permitted  assigns and, unless expressly stated
herein,  is not  intended  to and shall not confer any rights or benefits on any
third party  (other  than  successors  and  permitted  assigns)  not a signatory
hereto.

     18.17 Confidentiality.

          18.17.1 Party Access.

          No Member  shall  have a right  hereunder  to  receive  or review  any
documents,  data or other  information of another Member,  including  documents,
data or other information provided to the Office of the Interconnection,  to the
extent such documents,  data or information have been designated as confidential
pursuant to the procedures  adopted by the Office of the  Interconnection  or to
the extent that they have been  designated as confidential by such other Member;
provided, however, a Member may receive and review any composite documents, data
and  other  information  that  may  be  developed  based  on  such  confidential
documents, data or information if the composite does not disclose any individual
Member's confidential data or information. 

                                       41


<PAGE>


          18.17.2 Required Disclosure.

          (a) Notwithstanding anything in the foregoing Section to the contrary,
if a Member or the Office of the  Interconnection is required by applicable law,
or in  the  course  of  administrative  or  judicial  proceedings,  to  disclose
information that is otherwise  required to be maintained in confidence  pursuant
to this  Agreement,  that Member or the Office of the  Interconnection  may make
disclosure of such information; provided, however, that as soon as the Member or
the Office of the Interconnection learns of the disclosure requirement and prior
to making  disclosure,  that Member or the Office of the  Interconnection  shall
notify the affected  Member or Members of the  requirement and the terms thereof
and the  affected  Member or Members may direct,  at their sole  discretion  and
cost,  any  challenge  to or defense  against the  disclosure  requirement.  The
disclosing  Member and the Office of the  Interconnection  shall  cooperate with
such  affected  Members  to the  maximum  extent  practicable  to  minimize  the
disclosure of the  information  consistent  with applicable law. Each Member and
the Office of the  Interconnection  shall cooperate with the affected Members to
obtain  proprietary or confidential  treatment of such information by the person
to whom such information is disclosed prior to any such disclosure.

          (b)The Office of the  Interconnection  shall endeavor to impose on any
contractors  retained to provide  technical  support or otherwise to assist with
the  implementation  or  administration  of this Agreement a contractual duty of
confidentiality  consistent with this Agreement. A Member shall not be obligated
to provide  confidential or proprietary  information to any contractor that does
not assume such a duty of confidentiality, and the Office of the Interconnection
shall not  provide  any such  information  to any such  contractor  without  the
express  written  permission  of the Member  providing  the  information.  18.18
Termination and Withdrawal.

          18.18.1 Termination.

          Upon  termination of this Agreement,  final settlement for obligations
under this Agreement shall include the accounting for the period ending with the
last day of the last month for which the Agreement was effective.

          18.18.2 Withdrawal.

          Subject to the  requirements  of Section  4.1(c) of this Agreement and
Section 1.4.6 of the Schedule 1 to this Agreement,  any Member may withdraw from
this Agreement upon 90 days notice to the Office of the Interconnection.

                                       42


<PAGE>


          18.18.3 Winding Up.

          Any provision of this Agreement that expressly or by implication comes
into or  remains  in force  following  the  termination  or  expiration  of this
Agreement shall survive such termination or expiration. The surviving provisions
shall include,  but shall not be limited to: (i) those  provisions  necessary to
permit the orderly conclusion, or continuation pursuant to another agreement, of
transactions  entered into prior to the decision to  terminate  this  Agreement,
(ii) those  provisions  necessary  to conduct  final  billing,  collection,  and
accounting  with  respect  to all  matters  arising  hereunder,  and  (iii)  the
indemnification provisions as applicable to periods prior to such termination or
expiration.

        IN WITNESS  whereof,  the  Members  have  caused  this  Agreement  to be
executed by their duly authorized representatives.

                                       43


<PAGE>


                                   SCHEDULE 1

                         PJM INTERCHANGE ENERGY MARKET

             (Revises and replaces former Schedules 7.01 and 7.03)

Issued:        June 2, 1997
Effective:     August 1, 1997 

                              1. MARKET OPERATIONS

     1.1 Introduction.

     This  Schedule sets forth the  scheduling,  other  procedures,  and certain
general  provisions  applicable to the operation of the PJM  Interchange  Energy
Market within the PJM Control Area.  This Schedule  addresses  each of the three
time-frames  pertinent  to the daily  operation  of the PJM  Interchange  Energy
Market: Prescheduling, Scheduling, and Dispatch.

     1.2 Cost-based Offers.

     Unless and until the FERC shall authorize the use of market-based prices in
the PJM Interchange Energy Market, all offers for energy or other services to be
sold on the PJM  Interchange  Energy Market from  generating  resources  located
within the PJM Control Area shall not exceed the variable cost of producing such
energy or other  service,  as determined  in accordance  with Schedule 2 to this
Agreement and applicable regulatory standards,  requirements and determinations;
provided  that, a Market Seller may offer to the PJM  Interchange  Energy Market
the right to call on energy from a resource the output of which has been sold on
a  bilateral  basis,  with  the  rate for such  energy  if  called  equal to the
curtailment rate specified in the bilateral contract.

     1.3 Definitions.

          1.3.1 Dispatch Rate.

          "Dispatch  Rate" shall mean the control  signal,  expressed in dollars
per  megawatt-hour,  calculated and transmitted  continuously and dynamically to
direct the output level of all generation  resources dispatched by the Office of
the Interconnection in accordance with the Offer Data.

          1.3.2 Equivalent Load.


          "Equivalent Load" shall mean the sum of an Internal Market Buyer's net
system requirements to serve its customer load in the PJM Control Area, plus its
net bilateral transactions.

          1.3.3 External Market Buyer.

          "External  Market Buyer" shall mean a Market Buyer making purchases of
energy from the PJM  Interchange  Energy  Market for  consumption  by  end-users
outside the PJM Control Area, or for load in the Control Area that is not served
by Network Transmission Service.


<PAGE>


          1.3.4 External Resource.

          "External  Resource" shall mean a generation  resource located outside
the metered boundaries of the PJM Control Area.

          1.3.5 Fixed Transmission Right.

          "Fixed Transmission Right" shall mean a number determined as specified
in Section 0 of this Schedule.

          1.3.6 Generating Market Buyer.

          "Generating  Market  Buyer"  shall mean an Internal  Market Buyer that
owns or has contractual rights to the output of generation  resources capable of
serving the Market Buyer's load in the PJM Control Area, or of selling energy or
related  services  in the PJM  Interchange  Energy  Market or  elsewhere.

          1.3.7 Generator Forced Outage.

          "Generator Forced Outage" shall mean an immediate  reduction in output
or capacity or removal from service,  in whole or in part, of a generating  unit
by reason of an Emergency or threatened  Emergency,  unanticipated  failure,  or
other cause  beyond the control of the owner or  operator  of the  facility,  as
specified in the relevant portions of the PJM Manuals.  A reduction in output or
removal  from  service of a  generating  unit in  response  to changes in market
conditions shall not constitute a Generator Forced Outage.

          1.3.8 Generator Maintenance Outage.

          "Generator  Maintenance  Outage" shall mean the scheduled removal from
service, in whole or in part, of a generating unit in order to perform necessary
repairs on specific components of the facility, if removal of the facility meets
the guidelines specified in the PJM Manuals.

          1.3.9 Generator Planned Outage.

          "Generator  Planned  Outage"  shall mean the  scheduled  removal  from
service,  in whole or in part, of a generating unit for inspection,  maintenance
or repair with the approval of the Office of the  Interconnection  in accordance
with the PJM Manuals.

          1.3.10 Internal Market Buyer.

          "Internal  Market Buyer" shall mean a Market Buyer making purchases of
energy from the PJM  Interchange  Energy  Market for  consumption  by  end-users
inside the PJM Control Area.

          1.3.11 Inadvertent Interchange.

          "Inadvertent Interchange" shall mean the difference between net actual
energy flow and net  scheduled  energy flow into or out of the PJM Control Area,
as determined  and allocated each hour by the Office of the  Interconnection  in
accordance with the procedures set forth in the PJM Manuals. 

                                       2


<PAGE>


          1.3.12 Market Operations Center.

          "Market  Operations  Center" shall mean the equipment,  facilities and
personnel  used by or on  behalf  of a Market  Participant  to  communicate  and
coordinate   with  the  Office  of  the   Interconnection   in  connection  with
transactions  in the PJM  Interchange  Energy Market or the operation of the PJM
Control Area.

          1.3.13 Maximum Generation Emergency.

          "Maximum Generation Emergency" shall mean an Emergency declared by the
Office  of the  Interconnection  in  which  the  Office  of the  Interconnection
anticipates  requesting one or more Capacity Resources to operate at its maximum
net or gross electrical power output, subject to the equipment stress limits for
such Capacity Resource, in order to manage, alleviate, or end the Emergency.

          1.3.14 Minimum Generation Emergency.

          "Minimum Generation Emergency" shall mean an Emergency declared by the
Office  of the  Interconnection  in  which  the  Office  of the  Interconnection
anticipates  requesting one or more generating  resources to operate at or below
Normal Minimum Generation, in order to manage, alleviate, or end the Emergency.

          1.3.15 Network Resource.

          "Network Resource" shall have the meaning specified in the PJM Tariff.

          1.3.16 Network Service User.

          "Network Service User" shall mean an entity using Network Transmission
Service.

          1.3.17 Network Transmission Service.

          "Network   Transmission   Service"  shall  mean  transmission  service
provided  pursuant to the rates,  terms and  conditions set forth in Part III of
the PJM Tariff,  or  transmission  service  comparable  to such  service that is
provided to a Load Serving Entity that is also a Regional  Transmission Owner as
that term is defined in the PJM Tariff.

          1.3.18 Normal Maximum Generation.

          "Normal Maximum  Generation"  shall mean the highest output level of a
generating resource under normal operating conditions.

          1.3.19 Normal Minimum Generation.

          "Normal  Minimum  Generation"  shall mean the lowest output level of a
generating resource under normal operating conditions.

          1.3.20 Offer Data.

          "Offer Data" shall mean the scheduling, operations planning, dispatch,
new resource,  and other data and information necessary to schedule and dispatch
generation  resources  for the  provision  of energy and other  services and the
maintenance of the  reliability and security of the  transmission  system in the
PJM Control Area,  and specified for  submission to the PJM  Interchange  Energy
Market for such purposes by the Office of the Interconnection.

                                       3


<PAGE>


          1.3.21 Office of the Interconnection Control Center.

          "Office  of  the  Interconnection   Control  Center"  shall  mean  the
equipment, facilities and personnel used by the Office of the Interconnection to
coordinate  and direct the  operation of the PJM Control Area and to  administer
the PJM Interchange  Energy Market,  including  facilities and equipment used to
communicate  and  coordinate  with the Market  Participants  in connection  with
transactions  in the PJM  Interchange  Energy Market or the operation of the PJM
Control Area.

          1.3.22 Operating Day.

          "Operating  Day"  shall  mean the daily 24 hour  period  beginning  at
midnight  for  which  transactions  on the PJM  Interchange  Energy  Market  are
scheduled.

          1.3.23 Operating Margin.

          "Operating Margin" shall mean the incremental adjustments, measured in
megawatts, required in PJM Control Area operations in order to accommodate, on a
first  contingency  basis,  an  operating  contingency  in the PJM Control  Area
resulting from operations in an  interconnected  Control Area. Such  adjustments
may result in constraints causing Transmission Congestion Charges, or may result
in Ancillary Services charges pursuant to the PJM Tariff.

          1.3.24 Operating Margin Customer.

          "Operating  Margin  Customer"  shall  mean a Control  Area  purchasing
Operating  Margin  pursuant to an agreement  between such other Control Area and
the LLC.

          1.3.25 PJM Interchange.

          "PJM  Interchange"   shall  mean  the  following,   as  determined  in
accordance  with the  Schedules  to this  Agreement:  (a) the amount by which an
Internal Market Buyer's hourly  Equivalent Load exceeds,  or is exceeded by, the
sum of the hourly outputs of the Internal  Market Buyer's  operating  generating
resources;  or (b) the hourly  scheduled  deliveries of Spot Market Energy by an
External Market Seller; or (c) the hourly net metered output of any other Market
Seller;  or (d) the hourly  scheduled  deliveries  of Spot  Market  Energy to an
External Market Buyer.

          1.3.26 PJM Interchange Export.

          "PJM  Interchange  Export" shall mean the following,  as determined in
accordance with Schedules to this Agreement: (a) the amount by which an Internal
Market  Buyer's  hourly  Equivalent  Load is  exceeded  by the sum of the hourly
outputs of the Internal Market Buyer's operating  generating  resources;  or (b)
the hourly scheduled deliveries of Spot Market Energy by a Market Seller from an
External  Resource;  or (c) the hourly net  metered  output of any other  Market
Seller.

          1.3.27 PJM Interchange Import.

          "PJM  Interchange  Import" shall mean the following,  as determined in
accordance  with the  Schedules  to this  Agreement:  (a) the amount by which an
Internal  Market  Buyer's hourly  Equivalent  Load exceeds the sum of the hourly
outputs of the Internal Market Buyer's operating  generating  resources;  or (b)
the hourly  scheduled  deliveries  of Spot Market  Energy to an External  Market
Buyer. 

                                       4


<PAGE>


          1.3.28 PJM Open Access Same-time  Information System. 

          "PJM  Open  Access  Same-time   Information  System"  shall  mean  the
electronic   communication  system  for  the  collection  and  dissemination  of
information about transmission services in the PJM Control Area, established and
operated by the Office of the  Interconnection in accordance with FERC standards
and requirements.

          1.3.29 Point-to-Point Transmission Service.

          "Point-to-Point  Transmission Service" shall mean transmission service
provided pursuant to the rates, terms and conditions set forth in Part II of the
PJM Tariff.

          1.3.30 Ramping Capability.

          "Ramping  Capability"  shall  mean the  sustained  rate of  change  of
generator output, in megawatts per minute.

          1.3.31 Regulation.

          "Regulation"  shall mean the capability of a specific  generating unit
with appropriate telecommunications, control and response capability to increase
or decrease its output in response to a regulating control signal, in accordance
with the specifications in the PJM Manuals.

          1.3.32 Regulation Class.

          "Regulation Class" shall mean a subset of the generation units capable
of providing  Regulation to the PJM Control Area  determined by a range of costs
for providing Regulation as specified by the Office of the Interconnection using
procedures specified in the PJM Manuals.

          1.3.33 Spot Market Energy.

          "Spot  Market  Energy"  shall  mean  energy  bought  or sold by Market
Participants  through the PJM Interchange  Energy Market at Locational  Marginal
Prices determined as specified in Section 2 of this Schedule.

          1.3.34 Transmission Congestion Charge.

          "Transmission  Congestion Charge" shall mean a charge  attributable to
the increased cost of energy delivered at a given load bus when the transmission
system serving that load bus is operating under  constrained  conditions,  which
shall be calculated and allocated as specified in Section 5.1 of this Schedule.

          1.3.35 Transmission Congestion Credit.

          "Transmission  Congestion  Credit" shall mean the  allocated  share of
total  Transmission   Congestion  Charges  credited  to  each  holder  of  Fixed
Transmission  Rights,  calculated  and  allocated as specified in Section 5.2 of
this Schedule.

          1.3.36 Transmission Customer.

          "Transmission  Customer"  shall  mean an entity  using  Point-to-Point
Transmission Service. 

                                       5


<PAGE>


          1.3.37 Transmission Forced Outage.

          "Transmission  Forced  Outage"  shall mean an  immediate  removal from
service of a  transmission  facility  by reason of an  Emergency  or  threatened
Emergency, unanticipated failure, or other cause beyond the control of the owner
or operator of the transmission  facility, as specified in the relevant portions
of the PJM Manuals.  A removal from  service of a  transmission  facility at the
request of the Office of the Interconnection to improve transmission  capability
shall not constitute a Forced Transmission Outage.

          1.3.38 Transmission Planned Outage.

          "Transmission  Planned  Outage"  shall  mean any  transmission  outage
scheduled  in  advance  for  a  pre-determined  duration  and  which  meets  the
notification  requirements  for such outages  specified in the PJM Manuals.  

     1.4 Market Buyers.

          1.4.1 Qualification.

          (a) To become a Market Buyer, an entity shall submit an application to
the Office of the  Interconnection,  in such form as shall be established by the
Office of the Interconnection.

          (b) An applicant  that is a Load Serving  Entity or that will purchase
on behalf of a Load Serving Entity shall  establish to the  satisfaction  of the
Office of the Interconnection that the end-users as to which it or its principal
is the Load Serving Entity,  and which will be served through energy and related
services   purchased  in  the  PJM  Interchange   Energy  Market,   are  located
electrically  within the PJM  Control  Area,  or will be brought  within the PJM
Control Area prior to any purchases  from the PJM  Interchange  Energy Market by
the Load Serving Entity or its agent.  Such applicant shall further  demonstrate
that:

          i)        The  foregoing  Load  Serving  Entity (the  applicant or its
                    principal)  is  obligated  to meet the  requirements  of the
                    Reliability Assurance Agreement; and

          ii)       The foregoing Load Serving Entity has  arrangements in place
                    for   Network   Transmission   Service   or   Point-To-Point
                    Transmission  Service for all PJM Interchange  Energy Market
                    purchases.

          (c) An applicant  that is not a Load Serving  Entity or  purchasing on
behalf of a Load Serving Entity shall demonstrate that:

          i)        The   applicant   has   obtained  or  will  obtain   Network
                    Transmission Service or Point-to-Point  Transmission Service
                    for all PJM Interchange Energy Market purchases; and

          ii)       The applicant's PJM Interchange Energy Market purchases will
                    ultimately  be delivered  to a load in another  Control Area
                    that is  recognized  by NERC and that  complies  with NERC's
                    standards for operating and planning  reliable bulk electric
                    systems.

          (d) All applicants shall demonstrate that:

                                       6


<PAGE>


          i)        The  applicant is capable of complying  with all  applicable
                    metering,   data   storage  and   transmission,   and  other
                    reliability,  operation,  planning and accounting  standards
                    and  requirements  for the operation of the PJM Control Area
                    and the PJM Interchange Energy Market;

          ii)       The   applicant   meets   the   creditworthiness   standards
                    established  by the  Office of the  Interconnection,  or has
                    provided  a  letter  of  credit  or other  form of  security
                    acceptable to the Office of the Interconnection; and

          iii)      The applicant has paid all  applicable  fees and  reimbursed
                    the  Office  of  the  Interconnection  for  all  unusual  or
                    extraordinary   costs  of  processing   and  evaluating  its
                    application to become a Market Buyer,  and has agreed in its
                    application  to  subject  any  disputes   arising  from  its
                    application to the PJM Dispute Resolution Procedures.

          (e) The applicant  shall become a Market Buyer upon a final  favorable
determination  on its  application  by the  Office  of  the  Interconnection  as
specified  below,  and  execution  by the  applicant  of  counterparts  of  this
Agreement.

          1.4.2 Submission of Information.

          The applicant  shall furnish all information  reasonably  requested by
the  Office  of the  Interconnection  in  order  to  determine  the  applicant's
qualification to be a Market Buyer. The Office of the  Interconnection may waive
the submission of information relating to any of the foregoing criteria,  to the
extent the  information  in the Office of the  Interconnection's  possession  is
sufficient to evaluate the application against such criteria.

          1.4.3 Fees and Costs.

          The Office of the  Interconnection  shall  require all  applicants  to
become a Market Buyer to pay a uniform  application fee, initially in the amount
of $1,500,  to defray the ordinary costs of processing  such  applications.  The
application  fee  shall  be  revised  from  time to time  as the  Office  of the
Interconnection shall determine to be necessary to recover its ordinary costs of
processing  applications.  Any unusual or  extraordinary  costs  incurred by the
Office of the  Interconnection  in processing an application shall be reimbursed
by the applicant.

          1.4.4 Office of the Interconnection Determination.

          Upon submission of the  information  specified  above,  and such other
information   as  shall   reasonably   be   requested   by  the  Office  of  the
Interconnection, the Office of the Interconnection shall undertake an evaluation
and  investigation  to  determine  whether  the  applicant  meets  the  criteria
specified above. As soon as practicable, but in any event not later than 60 days
after  submission  of the  foregoing  information,  or such later date as may be
necessary to satisfy the  requirements of the Reliability  Assurance  Agreement,
the Office of the Interconnection  shall notify the applicant and the members of
the Members Committee of its determination,  along with a written summary of the
basis for the  determination.  The Office of the  Interconnection  shall respond
promptly  to any  reasonable  and  timely  request  by a Member  for  additional
information  regarding  the  basis  for  the  Office  of  the  Interconnection's
determination,  and shall  take  such  action as it shall  deem  appropriate  in
response to any request for  reconsideration  or other  action  submitted to the
Office  of  the  Interconnection  not  later  than  30  days  from  the  initial
notification to the Members Committee. 

                                       7


<PAGE>


          1.4.5 Existing Participants.

          Any entity that was qualified to  participate as a Market Buyer in the
PJM   Interchange   Energy   Market  under  the   Operating   Agreement  of  PJM
Interconnection  L.L.C. in effect  immediately prior to the Effective Date shall
continue to be qualified to participate as a Market Buyer in the PJM Interchange
Energy Market under this Agreement.

          1.4.6 Withdrawal.

          (a) An Internal  Market  Buyer may  withdraw  from this  Agreement  by
giving  written  notice  to the  Office  of the  Interconnection  specifying  an
effective  date of  withdrawal  not earlier than the  effective  date of (i) its
withdrawal from the Reliability  Assurance Agreement,  or (ii) the assumption of
its obligations under the Reliability  Assurance Agreement by an agent that is a
Market Buyer.

          (b)An External Market Buyer may withdraw from this Agreement by giving
written notice to the Office of the Interconnection specifying an effective date
of withdrawal at least one day after the date of the notice.

          (c) Withdrawal from this Agreement shall not relieve a Market Buyer of
any obligation to pay for electric energy or related services purchased from the
PJM Interchange Energy Market prior to such withdrawal,  to pay its share of any
fees and charges incurred or assessed by the Office of the Interconnection prior
to the  date of  such  withdrawal,  or to  fulfill  any  obligation  to  provide
indemnification  for the  consequences  of acts,  omissions or events  occurring
prior to such  withdrawal;  and provided,  further,  that  withdrawal  from this
Agreement  shall not relieve  any Market  Buyer of any  obligations  it may have
under, or constitute withdrawal from, any other Related PJM Agreement.

          (d) A Market Buyer that has withdrawn  from this Agreement may reapply
to become a Market Buyer in  accordance  with the  provisions of this Section 0,
provided it is not in default of any obligation incurred under this Agreement.

     1.5 Market Sellers.

          1.5.1 Qualification.

          A Member that demonstrates to the Office of the  Interconnection  that
the Member  meets the  standards  for the  issuance  of an order  mandating  the
provision of transmission service under section 211 of the Federal Power Act, as
amended  by the  Energy  Policy Act of 1992,  may  become a Market  Seller  upon
execution of this Agreement and submission to the Office of the  Interconnection
of the applicable Offer Data in accordance with the provisions of this Schedule.
All Members that are Market Buyers shall become Market Sellers upon execution of
the PJM  Dispute  Resolution  Agreement  and  submission  to the  Office  of the
Interconnection  of the applicable  Offer Data in accordance with the provisions
of this Schedule. 

                                       8


<PAGE>


          1.5.2 Withdrawal.

          (a) A Market Seller may withdraw from this Agreement by giving written
notice to the Office of the  Interconnection  specifying  an  effective  date of
withdrawal  at least one day after the date of the  notice;  provided,  however,
that  withdrawal  shall not relieve a Market Seller of any obligation to deliver
electric  energy  or  related  services  to the PJM  Interchange  Energy  Market
pursuant to an offer made prior to such withdrawal, to pay its share of any fees
and charges incurred or assessed by the Office of the  Interconnection  prior to
the  date  of  such  withdrawal,   or  to  fulfill  any  obligation  to  provide
indemnification  for the  consequences of acts,  omissions,  or events occurring
prior to such  withdrawal;  and provided,  further,  that  withdrawal  shall not
relieve  any entity  that is a Market  Seller and is also a Market  Buyer of any
obligations it may have as a Market Buyer under,  or constitute  withdrawal as a
Market Buyer from, this Agreement or any other Related PJM Agreement.

          (b) A Market Seller that has withdrawn from this Agreement may reapply
to become a Market  Seller  at any  time,  provided  it is not in  default  with
respect to any obligation incurred under this Agreement.

     1.6  Office  of the  Interconnection. 

          1.6.1 Operation of the PJM Interchange Energy Market The Office of the
Interconnection  shall operate the PJM  Interchange  Energy Market in accordance
with this Agreement.

          1.6.2 Scope of Services.  The Office of the Interconnection  shall, on
behalf of the Market  Participants,  perform the services  pertaining to the PJM
Interchange Energy Market specified in this Agreement, including but not limited
to the following:

          i)        Administer the PJM Interchange  Energy Market as part of the
                    PJM Control Area,  including  scheduling and  dispatching of
                    generation resources, accounting for transactions, rendering
                    bills to the Market  Participants,  receiving  payments from
                    and   disbursing   payments  to  the  Market   Participants,
                    maintaining   appropriate   records,   and   monitoring  the
                    compliance  of Market  Participants  with the  provisions of
                    this Agreement, all in accordance with applicable provisions
                    of the  Office  of the  Interconnection  Agreement,  and the
                    Schedules to this Agreement;

          ii)       Review and  evaluate  the  qualification  of  entities to be
                    Market Buyers or Market Sellers under applicable  provisions
                    of this Agreement;

          iii)      Coordinate, in accordance with applicable provisions of this
                    Agreement,  the  Reliability  Assurance  Agreement,  and the
                    Transmission  Owners  Agreement,  maintenance  schedules for
                    generation and  transmission  resources  operated as part of
                    the PJM Control Area;

          iv)       Provide or coordinate  the  provision of ancillary  services
                    necessary  for the  operation of PJM Control Area or the PJM
                    Interchange  Energy Market; v) Determine and declare that an
                    Emergency is expected to exist, exists, or has 

                                       9


<PAGE>


                    ceased to exist, in all or any part of the PJM Control Area,
                    or  in  another  Control  Area  interconnected  directly  or
                    indirectly with the PJM Control Area, and serve as a primary
                    point of contact for interested state or federal agencies;

          vi)       Enter  into   agreements  for  the  transfer  of  energy  in
                    conditions constituting an Emergency in the PJM Control Area
                    or in a Control Area  interconnected with it, and the mutual
                    provision of other support in such Emergency conditions with
                    other  Control  Areas  interconnected  with the PJM  Control
                    Area, in accordance with the Schedules to this Agreement;

          vii)      Coordinate  the  curtailment  or shedding of load,  or other
                    measures appropriate to alleviate an Emergency,  in order to
                    preserve  reliability  in  accordance  with  NERC  and  MAAC
                    principles,  guidelines  and  standards,  and to ensure  the
                    operation  of the PJM Control Area in  accordance  with Good
                    Utility Practice and the this Agreement;

          viii)     Protect  confidential   information  as  specified  in  this
                    Agreement; and

          ix)       Send a representative  to meetings of the Members  Committee
                    or  other  Committees,   subcommittees,  or  working  groups
                    specified  in  this  Agreement  or  formed  by  the  Members
                    Committee when requested to do so by the chair or other head
                    of such committee or other group.

          1.6.3 Records and Reports.

          The Office of the  Interconnection  shall  prepare and  maintain  such
records and prepare such reports, including, but not limited to quarterly budget
reports,  as are required to document the  performance of its obligations to the
Market  Participants   hereunder  in  a  form  adopted  by  the  Office  of  the
Interconnection  upon  consideration  of the advice and  recommendations  of the
Members Committee.  The Office of the Interconnection shall also produce special
reports reasonably requested by the Members Committee and consistent with FERC's
standards of conduct; provided, however, the Market Participants shall reimburse
the Office of the  Interconnection  for the costs of producing  any such report.
Notwithstanding the foregoing,  the Office of the  Interconnection  shall not be
required to disclose  confidential or commercially  sensitive information in any
such report.

          1.6.4 PJM Manuals.

          The Office of the Interconnection  shall prepare,  maintain and update
the PJM  Manuals  consistent  with  this  Agreement.  The PJM  Manuals  shall be
available for inspection by the Market Participants, regulatory authorities with
jurisdiction over the LLC or any Member, and the public. 

     1.7 General.

          1.7.1 Market Sellers.

          Only Market  Sellers  shall be eligible to submit offers to the Office
of the  Interconnection  for the sale of electric energy or related  services in
the PJM Interchange Energy Market.  Market Sellers shall comply with the prices,
terms, and operating characteristics of all Offer Data submitted to and accepted
by the PJM Interchange Energy Market. 

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<PAGE>


          1.7.2 Market Buyers.

          Only Market  Buyers  shall be  eligible to purchase  energy or related
services in the PJM Interchange  Energy Market.  Market Buyers shall comply with
all requirements for making purchases from the PJM Interchange Energy Market.

          1.7.3 Agents.

          A Market  Participant may  participate in the PJM  Interchange  Energy
Market through an agent, provided that the Market Participant informs the Office
of the Interconnection in advance in writing of the appointment of such agent. A
Market Participant participating in the PJM Interchange Energy Market through an
agent  shall be bound by all of the acts or  representations  of such agent with
respect to transactions in the PJM Interchange  Energy Market,  and shall ensure
that any such agent complies with the requirements of this Agreement.

          1.7.4 General Obligations of the Market Participants.

          (a) In performing its obligations to the Office of the Interconnection
hereunder,  each Market  Participant  shall at all times (i) follow Good Utility
Practice,  (ii) comply with all applicable  laws and  regulations,  (iii) comply
with the applicable principles,  guidelines, standards and requirements of FERC,
NERC and MAAC, (iv) comply with the procedures  established for operation of the
PJM  Interchange  Energy Market and PJM Control Area and (v) cooperate  with the
Office of the  Interconnection as necessary for the operation of the PJM Control
Area in a safe, reliable manner consistent with Good Utility Practice.

          (b) Market Participants shall undertake all operations in or affecting
the PJM  Interchange  Energy Market and the PJM Control Area,  including but not
limited to compliance  with all  Emergency  procedures,  in accordance  with the
power and  authority  of the Office of the  Interconnection  with respect to the
operation  of the PJM  Interchange  Energy  Market and the PJM  Control  Area as
established  in  this  Agreement,  and as  specified  in the  Schedules  to this
Agreement and the PJM Manuals.  Failure to comply with the foregoing operational
requirements  shall subject a Market  Participant to such reasonable  charges or
other remedies or sanctions for  non-compliance as may be established by the PJM
Board,  including legal or regulatory proceedings as authorized by the PJM Board
to enforce the obligations of this Agreement.

          (c) The Office of the  Interconnection  may establish such  committees
with a representative of each Market  Participant,  and the Market  Participants
agree to provide appropriately  qualified personnel for such committees,  as may
be necessary for the Office of the  Interconnection  to perform its  obligations
hereunder.

          (d)  All  Market  Participants  shall  provide  to the  Office  of the
Interconnection the scheduling and other information  specified in the Schedules
to  this   Agreement,   and  such  other   information  as  the  Office  of  the
Interconnection  may reasonably require for the reliable and efficient operation
of the  PJM  Control  Area  and  the  PJM  Interchange  Energy  Market,  and for
compliance  with  applicable  regulatory  requirements  for  posting  market and
related  information.  Such information  shall be provided as much in advance as
possible,  but in no event later than the deadlines established by the Schedules
to this Agreement,  or by the Office of the  Interconnection in conformance with
such  Schedules.  Such  information  shall  include,  but  not  be  limited  to,
maintenance  and  other  anticipated   outages  of  generation  or  transmission
facilities,  scheduling and related  information on bilateral  transactions  and
self-scheduled resources, and implementation of 

                                       11


<PAGE>


active load management, interruption of load, and other load reduction measures.
The Office of the  Interconnection  shall abide by appropriate  requirements for
the non-disclosure and protection of any confidential or proprietary information
given to the Office of the Interconnection by a Market Participant.  Each Market
Participant shall maintain or cause to be maintained compatible  information and
communications  systems,  as  specified  by the  Office of the  Interconnection,
required to transmit scheduling,  dispatch, or other time-sensitive  information
to the  Office  of the  Interconnection  in a timely  manner. 

          (e) Each  Market  Participant  shall  install  and  operate,  or shall
otherwise  arrange for,  metering and related equipment capable of recording and
transmitting  all voice and data  communications  reasonably  necessary  for the
Office  of the  Interconnection  to  perform  the  services  specified  in  this
Agreement.  A Market Participant that elects to be separately billed for its PJM
Interchange  shall be individually  metered in accordance with Section 0 of this
Agreement,  or shall agree upon an allocation of PJM Interchange  between it and
the Market Participant  through whose meters the unmetered Market  Participant's
PJM  Interchange  is  delivered.  The  Office  of the  Interconnection  shall be
notified of the allocation by the foregoing Market Participants.

          (f) Each  Market  Participant  shall  operate,  or  shall  cause to be
operated,   any  generating   resources  owned  or  controlled  by  such  Market
Participant  that are within the PJM Control Area or otherwise  supplying energy
to or through  the PJM  Control  Area in a manner  that is  consistent  with the
standards,  requirements or directions of the Office of the  Interconnection and
that will permit the Office of the  Interconnection  to perform its  obligations
under this Agreement; provided, however, no Market Participant shall be required
to take any action that is inconsistent with Good Utility Practice or applicable
law.

          (g) Each Market  Participant shall follow the directions of the Office
of the Interconnection to take actions to prevent,  manage,  alleviate or end an
Emergency in a manner  consistent  with this Agreement and the procedures of the
PJM Control Area as specified  in the PJM Manuals. 

          (h) Each Market  Participant  shall  obtain and  maintain all permits,
licenses or approvals  required for the Market Participant to participate in the
PJM Interchange Energy Market in the manner contemplated by this Agreement.

          1.7.5 Market Operations Center.

          Each Market  Participant shall maintain a Market Operations Center, or
shall make appropriate  arrangements for the performance of such services on its
behalf.  A Market  Operations  Center  shall  meet the  performance,  equipment,
communications,  staffing and training  standards and requirements  specified in
this  Agreement for the scheduling  and  completion of  transactions  in the PJM
Interchange  Energy Market and the maintenance of the reliable  operation of the
PJM  Control  Area,  and shall be  sufficient  to enable (i) a Market  Seller to
perform all terms and  conditions  of its offers to the PJM  Interchange  Energy
Market,  and (ii) a Market Buyer to conform to the  requirements  for purchasing
from the PJM Interchange Energy Market. 

                                       12


<PAGE>


          1.7.6 Scheduling and Dispatching.

          (a) The Office of the  Interconnection  shall  schedule  and  dispatch
generation  economically  on  the  basis  of  least-cost,   security-constrained
dispatch and the prices and operating characteristics offered by Market Sellers,
continuing  until   sufficient   generation  is  dispatched  to  serve  the  PJM
Interchange  Energy  Market  energy  purchase  requirements  under normal system
conditions of the Market Buyers,  as well as the requirements of the PJM Control
Area for ancillary services provided by such generation, in accordance with this
Agreement.  Scheduling and dispatch  shall be conducted in accordance  with this
Agreement.


          (b) The Office of the Interconnection  shall undertake to identify any
conflict  or  incompatibility  between  the  scheduling  or other  deadlines  or
specifications applicable to the PJM Interchange Energy Market, and any relevant
procedures of another  Control Area, or any tariff  (including  the PJM Tariff).
Upon determining that any such conflict or incompatibility exists, the Office of
the Interconnection  shall propose tariff or procedural  changes,  and undertake
such  other  efforts as may be  appropriate,  to resolve  any such  conflict  or
incompatibility.

          1.7.7 Pricing.

          The  price  paid for  energy  bought  and sold in the PJM  Interchange
Energy Market will reflect the hourly Locational Marginal Price at each load and
generation bus,  determined by the Office of the  Interconnection  in accordance
with this Agreement.  Transmission Congestion Charges, which shall be determined
by differences in Locational  Marginal  Prices in an hour caused by transmission
constraints, shall be calculated and collected, and the revenues therefrom shall
be  disbursed,  by the Office of the  Interconnection  in  accordance  with this
Schedule.

          1.7.8 Generating Market Buyer Resources.

          A Generating  Market Buyer may elect to  self-schedule  its generation
resources up to that Generating  Market Buyer's  Equivalent  Load, in accordance
with  and  subject  to the  procedures  specified  in  this  Schedule,  and  the
accounting and billing requirements specified in Section 0 to this Agreement.

          1.7.9 Delivery to an External Market Buyer.

          A purchase of Spot Market Energy by an External  Market Buyer shall be
delivered to a bus or busses at the border of the PJM Control Area  specified by
the Office of the  Interconnection,  or to load in the Control  Area that is not
served  by  Network  Transmission  Service,  using  Point-to-Point  Transmission
Service paid for by the External Market Buyer.  Further  delivery of such energy
shall be the responsibility of the External Market Buyer. 

                                       13


<PAGE>


          1.7.10 Other Transactions.

          Market  Participants  may  enter  into  bilateral  contracts  for  the
purchase or sale of electric  energy to or from each other or any other  entity,
subject to the obligations of Internal Market Buyers to make Capacity  Resources
available  for  dispatch  by  the  Office  of  the  Interconnection.   Bilateral
arrangements  that  contemplate  the  physical  transfer  of energy to or from a
Market  Participant  shall be reported to and coordinated with the Office of the
Interconnection  in accordance  with this Schedule.  To the extent the Office of
the Interconnection dispatches a Generating Market Buyer's generation resources,
such  Generating  Market  Buyer  may elect to net the  output of such  resources
against its hourly  Equivalent  Load.  Such a  Generating  Market Buyer shall be
deemed a buyer from the PJM  Interchange  Energy Market to the extent of its PJM
Interchange  Imports, and shall be deemed a seller to the PJM Interchange Energy
Market to the extent of its PJM Interchange Exports.

          1.7.11 Emergencies.

          The Office of the Interconnection, with the assistance of the Member's
dispatchers as it may request, shall be responsible for monitoring the operation
of the PJM Control Area,  for  declaring the existence of an Emergency,  and for
directing  the  operations  of  Market  Participants  as  necessary  to  manage,
alleviate or end an Emergency.  The  standards,  policies and  procedures of the
Office of the  Interconnection  for  declaring  the  existence of an  Emergency,
including but not limited to a Minimum Generation  Emergency,  and for managing,
alleviating   or  ending  an  Emergency,   shall  apply  to  all  Members  on  a
non-discriminatory  basis.  Actions by the Office of the Interconnection and the
Market Participants shall be carried out in accordance with this Agreement,  the
NERC Operating Policies, MAAC reliability principles and standards, Good Utility
Practice,  and the PJM Manuals.  A  declaration  that an Emergency  exists or is
likely to exist by the  Office of the  Interconnection  shall be  binding on all
Market Participants until the Office of the  Interconnection  announces that the
actual or  threatened  Emergency  no longer  exists.  Consistent  with  existing
contracts,  all Market  Participants  shall comply with all directions  from the
Office of the Interconnection for the purpose of managing, alleviating or ending
an  Emergency.  The  Market  Participants  shall  authorize  the  Office  of the
Interconnection to purchase or sell energy on their behalf to meet an Emergency,
and otherwise to implement  agreements  with other Control Areas  interconnected
with the PJM  Control  Area  for the  mutual  provision  of  service  to meet an
Emergency, in accordance with this Agreement.

          1.7.12 Fees and Charges.

          Each Market  Participant  shall pay all fees and charges of the Office
of the  Interconnection  for operation of the PJM  Interchange  Energy Market as
determined  by and  allocated  to the  Market  Participant  by the Office of the
Interconnection in accordance with Schedule 3.

          1.7.13 Relationship to PJM Control Area.

          The PJM  Interchange  Energy Market operates within and subject to the
requirements for the operation of the PJM Control Area. 

                                       14


<PAGE>


          1.7.14 PJM Manuals.

          The  Office  of  the   Interconnection   shall  be   responsible   for
maintaining,  updating,  and  promulgating the PJM Manuals as they relate to the
operation of the PJM Interchange Energy Market. The PJM Manuals,  as they relate
to the operation of the PJM Interchange Energy Market,  shall conform and comply
with this Agreement,  NERC operating policies, and MAAC reliability  principles,
guidelines and standards, and shall be designed to facilitate  administration of
an  efficient  energy  market  within  industry  reliability  standards  and the
physical capabilities of the PJM Control Area.

          1.7.15 Corrective Action.

          Consistent   with   Good   Utility   Practice,   the   Office  of  the
Interconnection  shall be authorized to direct or coordinate  corrective action,
whether or not specified in the PJM Manuals,  as necessary to alleviate  unusual
conditions that threaten the integrity or reliability of the PJM Control Area or
the regional power system.

          1.7.16 Recording.

          Subject to the  requirements  of applicable  State or federal law, all
voice  communications with the Office of the Interconnection  Control Center may
be  recorded  by the Office of the  Interconnection  and any Market  Participant
communicating  with the Office of the  Interconnection  Control Center, and each
Market Participant hereby consents to such recording. 1.7.17 Operating Reserves.
The Office of the  Interconnection  shall schedule to the Operating  Reserve and
load-  following  objectives  of the PJM Control  Area in  scheduling  resources
pursuant to this Schedule. A table of Operating Reserve objectives is calculated
seasonally  for  various  peak load  levels  and  eight  weekly  periods  and is
published in the PJM Manuals.  Reserve levels are  probabilistically  determined
based on the season's  historical load forecasting error and expected generation
mix (including typical Planned and Forced/Unplanned Outages).

          1.7.18 Regulation.

          (a) Regulation  shall be supplied from  generators  located within the
metered electrical boundaries of the PJM Control Area. Generating Market Buyers,
and Market Sellers offering  Regulation,  shall comply with applicable standards
and  requirements  for Regulation  capability and dispatch  specified in the PJM
Manuals.

          (b) The Office of the  Interconnection  shall  obtain and  maintain an
amount of  Regulation  equal to the PJM Control  Area  Regulation  objective  as
specified in the PJM Manuals.

          (c) The Regulation  range of a unit shall be at least twice the amount
of Regulation assigned.

          (d) A unit capable of automatic energy dispatch that is also providing
Regulation  shall have its energy  dispatch range reduced by twice the amount of
the Regulation provided. The amount of Regulation provided by a unit shall serve
to redefine the Normal Minimum  Generation and Normal Maximum  Generation energy
limits of that  unit,  in that the  amount of  Regulation  shall be added to the
unit's Normal Minimum  Generation  energy limit,  and subtracted from its Normal
Maximum Generation energy limit. 

                                       15


<PAGE>


          (e) Qualified Regulation must satisfy the verification tests described
in the PJM Manuals.

          1.7.19 Ramping.

          A generator  dispatched by the Office of the Interconnection  pursuant
to a control signal appropriate to increase or decrease the generator's megawatt
output level shall be able to change output at the ramping rate specified in the
Offer Data submitted to the Office of the Interconnection for that generator.


          1.7.20 Communication and Operating Requirements.

          (a) Market Participants.  Each Market Participant shall have, or shall
arrange to have, its  transactions in the PJM Interchange  Energy Market subject
to control by a Market  Operations  Center,  with  staffing  and  communications
systems   capable   of   real-time   communication   with  the   Office  of  the
Interconnection  during  normal and Emergency  conditions  and of control of the
Market  Participant's  relevant  load  or  facilities  sufficient  to  meet  the
requirements of the Market  Participant's  transactions with the PJM Interchange
Energy  Market,  including  but not  limited to the  following  requirements  as
applicable.

          (b) Market Sellers selling from resources  within the PJM Control Area
shall: report to the Office of the  Interconnection  sources of energy available
for operation;  supply to the Office of the Interconnection all applicable Offer
Data; report to the Office of the Interconnection units that are self-scheduled;
report to the Office of the  Interconnection  bilateral  sales  transactions  to
buyers  not  within  the  PJM  Control  Area;  confirm  to  the  Office  of  the
Interconnection  bilateral  sales to Market  Buyers within the PJM Control Area;
respond to the Office of the Interconnection's  directives to start, shutdown or
change  output  levels of  generation  units,  or change  scheduled  voltages or
reactive  output levels;  continuously  maintain all Offer Data  concurrent with
on-line operating  information;  and ensure that, where so equipped,  generating
equipment is operated with control equipment functioning as specified in the PJM
Manuals.

          (c) Market Sellers selling from resources outside the PJM Control Area
shall:  provide to the Office of the  Interconnection all applicable Offer Data,
including offers specifying  amounts of energy available,  hours of availability
and   prices  of  energy   and  other   services;   respond  to  Office  of  the
Interconnection  directives to schedule  delivery or change delivery  schedules;
and communicate delivery schedules to the Market Seller's Control Area.

          (d)  Internal  Market  Buyers  shall:  provide  to the  Office  of the
Interconnection  forecasts of load to be served as required by the Office of the
Interconnection;  respond to Office of the  Interconnection  directives for load
management steps; report to the Office of the Interconnection Capacity Resources
to satisfy capacity obligations that are available for pool operation; report to
the Office of the Interconnection all bilateral purchase  transactions;  respond
to other Office of the Interconnection  directives such as those required during
Emergency operation.

          (e)  External  Market  Buyers  shall:  provide  to the  Office  of the
Interconnection  requests to purchase  specified amounts of energy for each hour
of the  Operating  Day  during  which  it  intends  to  purchase  from  the  PJM
Interchange  Energy Market,  along with Dispatch Rate levels above which it does
not  desire  to  purchase;  respond  to  other  Office  of  the  Interconnection
directives such as those required during Emergency operation.

                                       16


<PAGE>


          1.7.21 Multi-settlement System.

          The PJM Interchange Energy Market shall be enhanced by an amendment to
this Schedule, to be filed with FERC not later than December 31, 1997, that will
provide for the implementation of a  multi-settlement  system as soon thereafter
as shall be  determined  by the Office of the  Interconnection  to be reasonably
practical.  Such a system will provide an opportunity for Market Participants to
commit and obtain  commitments  to energy  prices  and  transmission  congestion
charges  at  certain  specified  deadlines  in  advance  of  the  Office  of the
Interconnection's  real-time dispatch.  The Members specified in Section 11.5(c)
of the Agreement, working with the Office of the Interconnection,  shall develop
the details of the implementation of such a multi- settlement system.

     1.8 Selection, Scheduling and Dispatch Procedure Adjustment Process.

          1.8.1 PJM Dispute Resolution Agreement.

          Subject  to  the  condition  specified  below,  any  Member  adversely
affected by a decision of the Office of the Interconnection  with respect to the
operation of the PJM Interchange  Energy Market,  including the qualification of
an entity to  participate  in that  market as a buyer or seller,  make seek such
relief as may be appropriate under the PJM Dispute Resolution  Procedures on the
grounds that such decision  does not have an adequate  basis in fact or does not
conform to the requirements of this Agreement.

          1.8.2 Market or Control Area Hourly Operational Disputes.

          (a) Market  Participants  shall comply with all  determinations of the
Office of the  Interconnection  on the  selection,  scheduling  or  dispatch  of
resources  in the PJM  Interchange  Energy  Market,  or to meet the  operational
requirements  of the PJM Control  Area.  Complaints  arising from or relating to
such  determinations  shall be  brought  to the  attention  of the Office of the
Interconnection  not later than the end of the fifth  business day after the end
of the Operating Day to which the selection or scheduling  relates,  or in which
the scheduling or dispatch took place,  and shall  include,  if  practicable,  a
proposed  resolution  of  the  complaint.  Upon  receiving  notification  of the
dispute,  the Office of the  Interconnection  and the Market Participant raising
the dispute  shall  exert  their best  efforts to obtain and retain all data and
other information  relating to the matter in dispute, and to notify other Market
Participants that are likely to be affected by the proposed resolution.  Subject
to confidentiality or other non-disclosure requirements,  representatives of the
Office of the  Interconnection,  the Market Participant raising the dispute, and
other interested Market  Participants,  shall meet within three business days of
the foregoing  notification,  or at such other or further times as the Office of
the  Interconnection  and the  Market  Participants  may  agree,  to review  the
relevant facts, and to seek agreement on a resolution of the dispute.

          (b) If the Office of the Interconnection determines that the matter in
dispute  discloses  a defect in  operating  policies,  practices  or  procedures
subject to the  discretion of the Office of the  Interconnection,  the Office of
the  Interconnection  shall  implement such changes as it deems  appropriate and
shall  so  notify  the  Members  Committee.  Alternatively,  the  Office  of the
Interconnection  may  notify the  Members  Committee  of a  proposed  change and
solicit the comments or other input of the Members.

          (c)  If  either  the  Office  of  the   Interconnection,   the  Market
Participant raising the dispute, or another affected Market Participant believes
that the matter in dispute has not been 

                                       17


<PAGE>


adequately  resolved,  or  discloses a need for changes in standards or policies
established  in or pursuant to the  Operating  Agreement,  any of the  foregoing
parties  may make a written  request  for  review of the  matter by the  Members
Committee,   and  shall  include  with  the  request  the   forwarding   party's
recommendation and such data or information (subject to confidentiality or other
non-disclosure requirements) as would enable the Members Committee to assess the
matter and the  recommendation.  The Members Committee shall take such action on
the  recommendation as it shall deem appropriate.  

          (d) Subject to the right of a Market  Participant to obtain correction
of accounting or billing errors,  the LLC or a Market  Participant  shall not be
entitled to actual, compensatory, consequential or punitive damages, opportunity
costs,  or  other  form  of  reimbursement  from  the  LLC or any  other  Market
Participant  for any  loss,  liability  or claim,  including  any claim for lost
profits,  incurred as a result of a mistake,  error or other fault by the Office
of the Interconnection in the selection, scheduling or dispatch of resources.

     1.9 Prescheduling.

     The following  procedures  and  principles  shall govern the  prescheduling
activities  necessary to plan for the reliable operation of the PJM Control Area
and for the efficient operation of the PJM Interchange Energy Market.

          1.9.1 Outage Scheduling.

          The  Office  of  the   Interconnection   shall  be   responsible   for
coordinating  and approving  requests for outages of generation and transmission
facilities as necessary  for the reliable  operation of the PJM Control Area, in
accordance  with  the PJM  Manuals.  The  Office  of the  Interconnection  shall
maintain  records of outages  and outage  requests  of these  facilities. 

          1.9.2 Planned Outages.

          (a) A Generator  Planned Outage shall be included in Generator Planned
Outage schedules  established  prior to the scheduled start date for the outage,
in accordance with standards and procedures specified in the PJM Manuals.

          (b) The Office of the Interconnection  shall conduct Generator Planned
Outage  scheduling  for Capacity  Resources in accordance  with the  Reliability
Assurance  Agreement  and the PJM Manuals and in  consultation  with the Members
owning or controlling  the output of Capacity  Resources.  A Market  Participant
shall not be expected to submit offers for the sale of energy or other services,
or to satisfy delivery  obligations,  from all or part of a generation  resource
undergoing  an  approved   Generator  Planned  Outage.  If  the  Office  of  the
Interconnection  determines  that approval of a Generator  Planned  Outage would
significantly  affect the reliable operation of the PJM Control Area, the Office
of the  Interconnection  may  withhold  approval or  withdraw a prior  approval.
Approval for a Generator Planned Outage of a Capacity Resource shall be withheld
or  withdrawn  only as  necessary  to ensure the  adequacy  of  reserves  or the
reliability   of  the  PJM  Control   Area  in   connection   with   anticipated
implementation  or  avoidance  of  Emergency  procedures.  If the  Office of the
Interconnection  withholds or withdraws  approval,  it shall coordinate with the
Market  Participant  owning  or  controlling  the  resource  to  reschedule  the
Generator  Planned  Outage of the Capacity  Resource at the  earliest  practical
time. The Office of the  Interconnection  shall if possible propose  alternative
schedules  with the  intent of  minimizing  the  economic  impact on the  Market
Participant of a Generator Planned Outage.

                                       18


<PAGE>


          (c)  The  Office  of  the   Interconnection   shall  conduct   Planned
Transmission  Outage  scheduling in accordance with procedures  specified in the
Transmission  Owners  Agreement  and  the  PJM  Manuals.  If the  Office  of the
Interconnection  determines that transmission  maintenance schedules proposed by
one or more  Members  would  significantly  affect the  efficient  and  reliable
operation of the PJM Control Area, the Office of the Interconnection may propose
alternative  schedules,  but such alternative shall minimize the economic impact
on  the  Member  or  Members  whose  maintenance  schedules  the  Office  of the
Interconnection proposes to modify.

          The  Office of the  Interconnection  shall  coordinate  resolution  of
outage  or other  planning  conflicts  that may give rise to  unreliable  system
conditions.  The Members shall comply with all maintenance schedules established
by the Office of the Interconnection.

          1.9.3 Generator Maintenance Outages

          A Market Participant may request approval for a Generator  Maintenance
Outage  of any  Capacity  Resource  from the  Office of the  Interconnection  in
accordance with the timetable and other procedures specified in the PJM Manuals.
The  Office  of  the  Interconnection   shall  approve  requests  for  Generator
Maintenance Outages for a Capacity Resource unless the outage would threaten the
adequacy of reserves in, or the  reliability  of, the PJM Control Area. A Market
Participant  shall not be  expected  to submit  offers for the sale of energy or
other services, or to satisfy delivery  obligations,  from a generation resource
undergoing an approved full or partial Generator Maintenance Outage.

          1.9.4 Forced Outages

          (a)  Each  Market  Seller  that  owns  or  controls  a  pool-scheduled
resource, or Capacity Resource whether or not pool-scheduled,  shall: (i) advise
the Office of the  Interconnection  of a  Generator  Forced  Outage  suffered or
anticipated  to be suffered by any such  resource as promptly as possible;  (ii)
provide the Office of the  Interconnection  with the expected date and time that
the resource will be made  available;  and (iii) make a record of the events and
circumstances  giving rise to the Generator Forced Outage. A Market Seller shall
not be expected to submit  offers for the sale of energy or other  services,  or
satisfy delivery obligations,  from a generation resource undergoing a Generator
Forced  Outage.  A Capacity  Resource  that does not  deliver all or part of its
scheduled  energy shall be deemed to have  experienced a Generator Forced Outage
with respect to such  undelivered  energy,  in  accordance  with  standards  and
procedures  for full and  partial  Generator  Forced  Outages  specified  in the
Reliability Assurance Agreement and the PJM Manuals.

          (b)The Office of the  Interconnection  shall receive  notification  of
Forced  Transmission  Outages,  and  information  on the return to  service,  of
Transmission Facilities in the PJM Control Area in accordance with standards and
procedures specified in the Transmission Owners Agreement and the PJM Manuals.

          1.9.5 Market Participant Responsibilities.

          Each  Market  Participant  making a bilateral  sale  covering a period
greater than the  following  Operating  Day from a generating  resource  located
within the PJM Control  Area for  delivery  outside  the PJM Control  Area shall
furnish to the Office of the  Interconnection,  in the form and manner specified
in the PJM Manuals,  information  regarding  the source of the energy,  the load
sink, the energy schedule, and the amount of energy being delivered.

                                       19


<PAGE>


          1.9.6 Internal Market Buyer Responsibilities.

          Each  Internal  Market  Buyer making a bilateral  purchase  covering a
period  greater than the following  Operating Day shall furnish to the Office of
the  Interconnection,  in the  form an  manner  specified  in the  PJM  Manuals,
information  regarding  the  source of the  energy,  the load  sink,  the energy
schedule,  and the amount of energy being delivered.  Each Internal Market Buyer
shall  provide  the  Office  of the  Interconnection  with  details  of any load
management   agreements   with   customers   that   allow  the   Office  of  the
Interconnection to reduce load under specified circumstances.

          1.9.7 Market Seller Responsibilities

          (a) Not less than 30 days before a Market  Seller's  initial  offer to
sell  energy from a given  generation  resource  on the PJM  Interchange  Energy
Market, the Market Seller shall furnish to the Office of the Interconnection the
information specified in the Offer Data for new generation resources.

          (b) Market Sellers  authorized  and intending to request  market-based
start-up and no-load fees in their Offer Data shall  submit a  specification  of
such fees to the Office of the  Interconnection  for each  generating unit as to
which the Market  Seller  intends to request such fees.  Any such  specification
shall  be  submitted  on or  before  March  31 for the  period  April 1  through
September  30, and on or before  September  30 for the period  October 1 through
March 31, and shall remain in effect without change  throughout each such period
for which a specification was submitted. The Office of the Interconnection shall
reject any request for start-up and no-load fees in a Market Seller's Offer Data
that does not  conform to the  Market  Seller's  specification  on file with the
Office of the Interconnection.

          1.9.8 Office of the Interconnection Responsibilities

          (a) The Office of the Interconnection shall perform seasonal operating
studies to assess the  forecasted  adequacy of  generating  reserves  and of the
transmission  system,  in accordance  with the  procedures  specified in the PJM
Manuals.

          (b) The Office of the Interconnection shall maintain and update tables
setting forth Operating Reserve and other reserve objectives as specified in the
PJM Manuals.

          (c) The  Office  of the  Interconnection  shall  receive  and  process
requests  for  firm  and  non-firm   transmission  service  in  accordance  with
procedures specified in the PJM Tariff.

          (d) The Office of the  Interconnection  shall  maintain  such data and
information  relating  to  generation  and  transmission  facilities  in the PJM
Control Area as may be necessary or  appropriate  to conduct the  scheduling and
dispatch of the PJM Interchange Energy Market and PJM Control Area.

          (e)The  Office of the  Interconnection  shall  coordinate  with  other
interconnected  Control  Area  as  necessary  to  manage,  alleviate  or  end an
Emergency. 

                                       20


<PAGE>


     1.10 Scheduling.

     The  following  scheduling  procedures  and  principles  shall  govern  the
commitment  of  resources  to the PJM  Interchange  Energy  Market over a period
extending from one week to one day prior to the Operating Day that  transactions
are to take place.  Scheduling  encompasses the day- ahead and hourly scheduling
process,  through which the Office of the Interconnection  determines,  based on
changing  forecasts of conditions and actions by Market  Participants and system
constraints,  a plan to serve the hourly energy and reserve  requirements of the
Internal  Market Buyers and the purchase  requests of the External Market Buyers
in the least costly manner,  subject to maintaining  the  reliability of the PJM
Control Area.  Scheduling shall be conducted as specified below,  subject to the
following  condition.  If the Office of the  Interconnection's  forecast for the
next seven days projects a likelihood of Emergency conditions, the Office of the
Interconnection may commit, for all or part of such seven day period, to the use
of generation resources with notification or start-up times greater than one day
as necessary in order to alleviate or mitigate  such  Emergency,  in  accordance
with the  Market  Sellers'  offers  for such  units  for  such  periods  and the
specifications in the PJM Manuals.

          1.10.1 Day-Ahead Scheduling.

          The following actions shall occur not later than 12:00 noon on the day
before the Operating Day for which transactions are being scheduled.

          (a) Each  Internal  Market  Buyer  shall  submit to the  Office of the
Interconnection  forecasts of its customer  loads for the next  Operating Day as
required by the PJM Manuals. If an Internal Market Buyer expects to curtail load
at a specific  Dispatch  Rate, it should specify the Dispatch Rate and estimated
load curtailment.

          (b) An  External  Market  Buyer  shall  submit  to the  Office  of the
Interconnection  requests to purchase  specified amounts of energy for each hour
of the  Operating  Day  during  which  it  intends  to  purchase  from  the  PJM
Interchange  Energy Market,  along with Dispatch Rate levels above which it does
not desire to purchase,  in accordance with the  specifications set forth in the
PJM Manuals.

          (c) Each  Generating  Market  Buyer shall  submit to the Office of the
Interconnection:   (i)  hourly  schedules  for  resource  increments,  including
hydropower  units,  self-scheduled  by the Market  Buyer to meet its  Equivalent
Load; and (ii) the Dispatch Rate at which each such self-scheduled resource will
disconnect or reduce output, or confirmation of the Market Buyer's intent not to
reduce output.

          (d)  All  Market  Participants  shall  submit  to  the  Office  of the
Interconnection  schedules  for  any  bilateral  transactions  involving  use of
generation or Transmission  Facilities as specified  below, and shall inform the
Office of the  Interconnection if the parties to the transaction are not willing
to incur Transmission Congestion Charges in order to complete any such scheduled
bilateral  transaction.  Scheduling of bilateral transactions shall be conducted
in  accordance  with the  specifications  in the PJM Manuals  and the  following
requirements:

          i)        Internal  Market  Buyers  shall  submit  schedules  for  all
                    bilateral  purchases  for  delivery  within the PJM  Control
                    Area,  whether from generation  resources  inside or outside
                    the PJM Control Area;

          ii)       Market Sellers shall submit schedules for bilateral sales to
                    entities outside 

                                       21


<PAGE>


                    the PJM Control Area from generation  within the PJM Control
                    Area; and

          iii)      In  addition  to  the  foregoing   schedules  for  bilateral
                    transactions, Market Participants shall submit confirmations
                    of each  scheduled  bilateral  transaction  from each  other
                    party to the transaction in addition to the party submitting
                    the schedule, or the adjacent Control Area.

          (e)  Market  Sellers  wishing  to sell on the PJM  Interchange  Energy
Market  shall  submit  offers for the supply of energy  (including  energy  from
hydropower  units),  Regulation,  Operating  Reserves or other  services for the
following  Operating  Day.  Offers  shall  be  submitted  to the  Office  of the
Interconnection in the form specified by the Office of the  Interconnection  and
shall contain the information  specified in the Office of the  Interconnection's
Offer Data  specification,  as applicable.  Market Sellers owning or controlling
the output of a Capacity  Resource that has not been rendered  unavailable  by a
Generation  Planned  Outage,  a Generator  Maintenance  Outage,  or a Generation
Forced Outage shall submit  offers for the  available  capacity of such Capacity
Resource,  including any portion that is self-scheduled by the Generating Market
Buyer claiming the resource as a Capacity Resource. The submission of offers for
resource  increments that are not Capacity Resources shall be optional,  but any
such  offers  must  contain  the  information  specified  in the  Office  of the
Interconnection's Offer Data specification,  as applicable.  Energy offered from
generation  resources that are not Capacity Resources shall not be supplied from
resources  that are included in or otherwise  committed to supply the  Operating
Reserves of another Control Area. The foregoing offers:

          i)        Shall  specify the  generation  resource and energy for each
                    hour in the offer period;

          ii)       Shall   specify  the  amounts  and  prices  for  the  entire
                    Operating  Day for each  resource  component  offered by the
                    Market Seller to the Office of the Interconnection;

          iii)      If based on energy  from a  specific  generating  unit,  may
                    specify start-up and no-load fees equal to the specification
                    of such fees for such  unit on file  with the  Office of the
                    Interconnection;

          iv)       Shall set forth any special conditions upon which the Market
                    Seller  proposes to supply a resource  increment,  including
                    any curtailment  rate specified in a bilateral  contract for
                    the output of the resource, or any cancellation fees;

          v)        May  include a schedule  of offers for prices and  operating
                    data  contingent on acceptance by the deadline  specified in
                    this Schedule, with a second schedule applicable if accepted
                    after the foregoing deadline;

          vi)       Shall  constitute an offer to submit the resource  increment
                    to the  Office of the  Interconnection  for  scheduling  and
                    dispatch in  accordance  with the terms of the offer,  which
                    offer shall remain open through the  Operating Day for which
                    the offer is submitted;


          vii)      Shall be final as to the price or prices at which the Market
                    Seller  proposes to supply  energy or other  services to the
                    PJM  Interchange  Energy Market,  such price or prices being
                    guaranteed  by the Market  Seller  for the period  extending
                    through the end of the following Operating Day; and 

                                       22


<PAGE>


          viii)     Shall    not    exceed   an    energy    offer    price   of
                    $1,000/megawatt-hour.

          (f) A Market  Seller  that  wishes to sell  Regulation  service  shall
submit an offer for  Regulation  that shall specify the MW of  Regulation  being
offered and the  Regulation  Class from which such  Regulation is being offered.
The range of costs defining  Regulation  Classes,  and the average cost for each
Regulation  Class,  shall  be  determined  periodically  by  the  Office  of the
Interconnection  on the basis of prior  energy bid prices and  appropriate  fuel
indices, in accordance with procedures  specified in the PJM Manuals.  Qualified
Regulation  capability must satisfy the verification  tests specified in the PJM
Manuals.

          Each  Market  Seller  owning or  controlling  the output of a Capacity
Resource  shall  submit a forecast  of the  availability  of each such  Capacity
Resource for the next seven days. A Market  Seller (i) may submit a  non-binding
forecast  of the  price at  which it  expects  to  offer a  generation  resource
increment  to the Office of the  Interconnection  over the next seven days,  and
(ii) shall submit a binding  offer for energy,  along with  start-up and no-load
fees,  if any,  for the next  seven  days or part  thereof,  for any  generation
resource  with  minimum  notification  or start-up  requirement  greater than 24
hours.

          (h) Each offer by a Market Seller of a Capacity  Resource shall remain
in effect for subsequent Operating Days until superseded or canceled.

          (i) The  Office  of the  Interconnection  shall  post on the PJM  Open
Access Same-time  Information System its estimate of the combined hourly load of
the  Market  Buyers  for the next  four  days,  and peak load  forecasts  for an
additional three days.

          1.10.2 Pool-Scheduled Resources.

          Pool-scheduled resources shall be governed by the following principles
and procedures.

          (a)  Pool-scheduled  resources  shall be selected by the Office of the
Interconnection  on the basis of the  prices  offered  for  energy  and  related
services,  start-up,  no-load and cancellation fees, and the specified operating
characteristics,  offered by Market Sellers to the Office of the Interconnection
by the 12:00 noon offer deadline.

          (b) A resource that is scheduled by a Market  Participant to support a
bilateral sale, or that is self-scheduled  by a Generating  Market Buyer,  shall
not  be  selected  by the  Office  of the  Interconnection  as a  pool-scheduled
resource except in an Emergency.

          (c) Market Sellers offering energy from hydropower or other facilities
with fuel or  environmental  limitations  may  submit  data to the Office of the
Interconnection  that is sufficient to enable the Office of the  Interconnection
to determine the available operating hours of such facilities.

          (d) The  Market  Seller of a  resource  selected  as a  pool-scheduled
resource shall receive  payments or credits for energy or related  services,  or
for start-up and no-load fees, from the Office of the  Interconnection on behalf
of  the  Market  Buyers  in  accordance  with  Schedule  3  to  this  Agreement.
Alternatively, the Market Seller shall receive any cancellation fee reflected in
the Market  Seller's  offer in lieu of start-up and no-load fees, if any, if the
Office  of the  Interconnection  cancels  its  selection  of the  resource  as a
pool-scheduled resource and so notifies the Market Seller before the resource is
synchronized. 
                                       23


<PAGE>


          (e) Market  Participants  shall make  available  their  pool-scheduled
resources  to the Office of the  Interconnection  for  coordinated  operation to
supply the needs of the PJM Control Area for Operating Reserves.

          1.10.3 Self-scheduled Resources.

          Self-scheduled resources shall be governed by the following principles
and procedures.  

          Each  Generating  Market  Buyer  shall  use  all  reasonable  efforts,
consistent with Good Utility Practice, not to self-schedule  resources in excess
of its Equivalent Load.

          (b) The  offered  prices  of  resources  that are  self-scheduled,  or
otherwise   not   following   the   dispatch   orders  of  the   Office  of  the
Interconnection, shall not be considered by the Office of the Interconnection in
determining Locational Marginal Prices.

          (c) Market  Participants  shall make  available  their  self-scheduled
resources  to the Office of the  Interconnection  for  coordinated  operation to
supply the needs of the PJM Control Area for Operating Reserves.

          1.10.4 Capacity Resources.

          (a) A Capacity Resource selected as a pool-scheduled resource shall be
made available for scheduling and dispatch at the direction of the Office of the
Interconnection.  A Capacity  Resource that does not deliver energy as scheduled
shall be deemed to have  experienced a Generator  Forced Outage to the extent of
such energy not delivered.

          (b) Energy from a Capacity  Resource  that has not been  selected as a
pool-scheduled  resource may be sold on a bilateral  basis by the Market Seller,
or may be  self-scheduled.  A Capacity  Resource that has not been selected as a
pool-scheduled resource and that has been sold on a bilateral basis must be made
available upon request to the Office of the  Interconnection  for scheduling and
dispatch  if the Office of the  Interconnection  declares  a Maximum  Generation
Emergency.  Any such  resource so scheduled  and  dispatched  shall  receive the
applicable Locational Marginal Price for energy delivered.

          (c) A Capacity Resource that has been self-scheduled shall not receive
payments or credits for start-up or no-load fees.

          1.10.5 External Resources.

          (a) External Resources may submit offers to the PJM Interchange Energy
Market, in accordance with the day-ahead  scheduling process specified above. An
External Resource selected as a pool-scheduled  resource shall be made available
for   scheduling   and   dispatch  at  the   direction  of  the  Office  of  the
Interconnection,  and except as specified below shall be compensated on the same
basis as other pool-scheduled resources. External Resources that are not capable
of dynamic dispatch shall, if selected by the Office of the  Interconnection  on
the  basis of the  Market  Seller's  Offer  Data,  be block  loaded on an hourly
scheduled  basis.  Market  Sellers  shall offer  External  Resources  to the PJM
Interchange  Energy  Market  on  either  a  resource-specific  or an  aggregated
resource basis.

          (b) Offers for External  Resources  from an aggregation of two or more
generating  units shall so indicate,  and shall specify,  in accordance with the
Offer Data requirements 

                                       24


<PAGE>


specified by the Office of the Interconnection: (i) energy prices; (ii) hours of
energy  availability;  (iii) a minimum  dispatch level;  (iv) a maximum dispatch
level; and (v) unless such information has previously been made available to the
Office of the Interconnection,  sufficient information,  as specified in the PJM
Manuals,  to enable the Office of the Interconnection to model the flow into the
PJM  Control  Area of any  energy  from  the  External  Resources  scheduled  in
accordance  with the Offer Data. If a Market Seller  submits more than one offer
on an  aggregated  resource  basis,  the  withdrawal  of any such offer shall be
deemed a withdrawal of all higher  priced  offers for the same period.  A Market
Seller offering energy from External  Resources on an aggregated  basis and that
does not deliver energy as scheduled by the Office of the Interconnection  shall
be assessed a non-delivery  charge as specified  below.  

          (c) Offers for External Resources on a  resource-specific  basis shall
specify the resource being offered,  along with the information specified in the
Offer Data as  applicable.  A Market Seller  offering an External  Resource on a
resource-specific  basis that does not deliver energy as scheduled by the Office
of the  Interconnection  shall be assessed a  non-delivery  charge as  specified
below, unless the resource being offered has suffered a Generator Forced Outage.
The  burden  shall be on the  Market  Seller to  demonstrate  to the  reasonable
satisfaction  of the  Office  of the  Interconnection  that the  resource  being
offered has experienced a Generator Forced Outage. 

          (d)  Subject  to the  conditions  specified  in  this  paragraph,  the
non-delivery  charge  for  External  Resources  that do not  deliver  energy  as
scheduled shall be calculated hourly as follows:  Pro-rated start-up plus hourly
no-load fees  specified in the Offer Data + [offered  minimum  dispatch  level x
(Locational Marginal Price - offered energy price) x 110%] . For purposes of the
foregoing calculation: (i) the Locational Marginal Price shall be the Locational
Marginal  Price at the  buses at which the  energy  from the  External  Resource
should have been  delivered  to the PJM  Control  Area;  (ii) if the  Locational
Marginal Price less the offered energy price is less than zero,  this difference
shall be set to zero;  and (iii)  start-up  and no-load fees shall be subject to
the requirements of this Schedule.  Payments or credits for non-delivery charges
shall be used by the  Office of the  Interconnection  to  reduce  or offset  PJM
Control Area costs for Operating Reserves.

          1.10.6 External Market Buyers.

          (a)  Deliveries  to an  External  Market  Buyer not subject to dynamic
dispatch  by the Office of the  Interconnection  shall be  delivered  on a block
loaded basis to the load bus or busses at the border of the PJM Control Area, or
in the PJM Control Area with respect to an External  Market  Buyer's load within
the PJM  Control  Area not  served by  Network  Service,  at which the energy is
delivered to or for the External  Market Buyer.  External Market Buyers shall be
charged the  Locational  Marginal  Price for energy at the foregoing load bus or
busses.

          (b) An External Market Buyer's hourly  schedules for energy  purchased
from the PJM  Interchange  Energy  Market shall conform to the ramping and other
applicable requirements of the interconnection agreement between the PJM Control
Area and the Control Area to which, whether as an intermediate or final point of
delivery, the purchased energy will initially be delivered.

          (c) The Office of the  Interconnection  shall curtail deliveries to an
External  Market Buyer if necessary to maintain  appropriate  reserve levels for
the PJM Control Area as defined in the PJM Manuals, or to avoid shedding load in
the PJM Control Area.

                                       25



<PAGE>


          (d) An  External  Market  Buyer  that  does not take  delivery  of the
amounts of energy  specified  in its  request to  purchase  shall be  assessed a
non-delivery  charge, or if using Point- to-Point service within the PJM Control
Area  shall  pay  for  imbalance  service  as  specified  in  the  Tariff.   The
non-delivery  charge shall be calculated  as the  summation  for all  applicable
busses of the product of (i) the  Locational  Marginal Price at each load bus at
which  delivery  was not  taken,  times (ii) the amount of energy not taken each
hour at such  bus.  The  non-delivery  charge  shall  not  apply  to  deliveries
curtailed by the Office of the Interconnection in accordance with this Schedule,
or for periods when the Dispatch Rate exceeds the maximum value specified by the
External Market Buyer in accordance with this Schedule.  Payments or credits for
non-delivery  charges  shall be used by the  Office  of the  Interconnection  to
reduce or offset PJM Control Area costs for Operating Reserves.

          1.10.7 Bilateral Transactions.

          Bilateral  transactions  as to which the  parties  have  notified  the
Office of the  Interconnection by 12:00 p.m. of the day before the Operating Day
that they are not  willing to incur  Transmission  Congestion  Charges  shall be
curtailed  by the  Office  of the  Interconnection  as  necessary  to  reduce or
alleviate  transmission  congestion.  Bilateral  transactions  willing  to incur
congestion   charges  shall  continue  to  be  implemented   during  periods  of
congestion, except as may be necessary to respond to Emergencies.

          1.10.8 Office of the Interconnection Responsibilities.

          (a) The Office of the  Interconnection  shall use its best  efforts to
determine the least-cost means of satisfying the projected  hourly  requirements
for  energy,  Operating  Reserves,  and other  ancillary  services of the Market
Buyers,  including  the  reliability  requirements  of the PJM Control  Area. In
making this  determination,  the Office of the  Interconnection  shall take into
account:  (i) the Office of the  Interconnection's  forecasts of PJM Interchange
Energy Market and PJM Control Area energy requirements, giving due consideration
to the energy  requirement  forecasts and purchase requests  submitted by Market
Buyers;  (ii) the offers submitted by Market Sellers;  (iii) the availability of
limited  energy  resources;  (iv) the  capacity,  location,  and other  relevant
characteristics  of  self-scheduled  resources;  (v) the  objectives  of the PJM
Control Area for Operating Reserves,  as specified in the PJM Manuals;  (vi) the
requirements  of the  PJM  Control  Area  for  Regulation  and  other  ancillary
services,  as specified  in the PJM  Manuals;  (vii) the benefits of avoiding or
minimizing transmission  constraint control operations,  as specified in the PJM
Manuals;  and  (viii)  such other  factors as the Office of the  Interconnection
reasonably concludes are relevant to the foregoing determination.  The Office of
the  Interconnection  shall develop a schedule of generation  resources based on
the foregoing determination.  The Office of the Interconnection shall report the
planned  schedule for a hydropower  resource to the operator of that resource as
necessary  for  plant  safety  and  security,  and  legal  limitations  on  pond
elevations.

          (b) Not later than 4:00 p.m. of the day before each  Operating Day, or
such earlier  deadline as may be specified by the Office of the  Interconnection
in the PJM Manuals, the Office of the Interconnection shall: (i) post on the PJM
Open  Access  Same-time  Information  System its  forecast of the  location  and
duration  of  any  expected  transmission  congestion,   and  of  the  range  of
differences  in Locational  Marginal  Prices  between major  subareas of the PJM
Control  Area  expected to result from such  transmission  congestion;  and (ii)
inform each Market Seller whether its offer or offers have been accepted. 

                                       26


<PAGE>


          (c) The Office of the  Interconnection  shall  revise its  schedule of
generation  resources  to  reflect  updated  projections  of  load,   conditions
affecting  electric system  operations in the PJM Control Area, the availability
of  and  constraints  on  limited  energy  and  other  resources,   transmission
constraints, and other relevant factors. The Office of the Interconnection shall
post on the PJM Open Access Same-time  Information  System at times specified in
the PJM Manuals a revised  forecast of the location and duration of any expected
transmission congestion,  and of the range of differences in Locational Marginal
Prices  between  major  subareas of the PJM Control Area expected to result from
such transmission congestion.

          1.10.9 Hourly Scheduling

          (a)   Following   the   initial   posting   of  the   Office   of  the
Interconnection's  transmission congestion forecast, and subject to the right of
the  Office of the  Interconnection  to  schedule  and  dispatch  pool-scheduled
resources  and to direct that  schedules  be changed in an  Emergency,  a Market
Participant may adjust the schedule of a resource under its dispatch  control on
an  hour-to-hour  basis beginning at 10:00 p.m. of the day before each Operating
Day, provided that the Office of the  Interconnection is notified not later than
60  minutes  prior to the hour in which the  adjustment  is to take  effect,  as
follows:

          i)        A  Generating  Market  Buyer  may  self-schedule  any of its
                    resource  increments,  including hydropower  resources,  not
                    previously  designated as self-scheduled and not selected as
                    a pool-scheduled resource;

          ii)       A  Market  Participant  may  request  the  scheduling  of  a
                    non-firm bilateral transaction; or

          iii)      A Generating Market Buyer may remove from service a resource
                    increment,  including  a  hydropower  resource,  that it had
                    previously  designated as self-scheduled,  provided that the
                    Office  of the  Interconnection  shall  have the  option  to
                    schedule  energy from any such resource  increment that is a
                    Capacity  Resource  at the price  offered in the  scheduling
                    process, with no obligation to pay any start-up fee.

          (b) An External Market Buyer may refuse delivery of some or all of the
energy it requested to purchase by notifying  the Office of the  Interconnection
of the  adjustment in deliveries  not later than 60 minutes prior to the hour in
which the  adjustment is to take effect.  Any such refusal of delivery  shall be
subject to non-delivery charges in accordance with this Schedule.

     1.11 Dispatch.

     The following  procedures and  principles  shall govern the dispatch of the
resources available to the Office of the Interconnection.

                                       27


<PAGE>


          1.11.1 Resource Output.

          The Office of the  Interconnection  shall have the authority to direct
any Market Seller to adjust the output of any pool-scheduled  resource increment
within the operating characteristics specified in the Market Seller's offer. The
Office of the Interconnection may cancel its selection of, or otherwise release,
pool-scheduled  resources,  subject  to an  obligation  to  pay  any  applicable
start-up,  no-load or cancellation fees. The Office of the Interconnection shall
adjust the output of  pool-scheduled  resource  increments as necessary:  (a) to
maintain  reliability,  and subject to that constraint,  to minimize the cost of
supplying the energy, reserves, and other services required by the Market Buyers
and the operation of the PJM Control Area;  (b) to balance load and  generation,
maintain  scheduled  tie flows,  and provide  frequency  support  within the PJM
Control Area; and (c) to minimize unscheduled  interchange not frequency related
between the PJM Control Area and other Control Areas.

          1.11.2 Operating Basis.

          In  carrying  out  the  foregoing   objectives,   the  Office  of  the
Interconnection  shall  conduct  the  operation  of  the  PJM  Control  Area  in
accordance with the PJM Manuals,  and shall:  (i) utilize  available  generating
reserves and obtain required replacements;  and (ii) monitor the availability of
adequate  reserves. 

          1.11.3 Pool-dispatched Resources

          (a) The Office of the Interconnection  shall implement the dispatch of
energy from  pool-scheduled  resources with limited energy by direct request. In
implementing  mandatory or economic use of limited energy resources,  the Office
of the  Interconnection  shall use its best efforts to select the most  economic
hours of operation for limited energy resources, in order to make optimal use of
such resources  consistent with the dynamic  load-following  requirements of the
PJM Control Area and the  availability  of other  resources to the Office of the
Interconnection.

          (b) The Office of the Interconnection  shall implement the dispatch of
energy from other  pool-dispatched  resource  increments,  including  generation
increments  from  Capacity  Resources  the  remaining  increments  of which  are
self-scheduled,  by sending  appropriate  signals and instructions to the entity
controlling  such  resources,  in accordance  with the PJM Manuals.  Each Market
Seller  shall  ensure that the entity  controlling  a  pool-dispatched  resource
offered  or made  available  by that  Market  Seller  complies  with the  energy
dispatch   signals   and   instructions   transmitted   by  the  Office  of  the
Interconnection.

          1.11.4 Regulation

          (a) A Market Buyer may satisfy its Regulation  obligation from its own
resources capable of performing Regulation service, by contractual  arrangements
with  other  Market  Participants  able to  provide  Regulation  service,  or by
purchases from the PJM Interchange Energy Market.

          (b) The Office of the Interconnection  shall obtain Regulation service
from  the  least-cost  alternatives  available  from  either  pool-scheduled  or
self-scheduled  resources  as needed to meet PJM Control Area  requirements  not
otherwise satisfied by the Market Buyers.

          (c) The Office of the  Interconnection  shall  dispatch  resources for
Regulation by sending  Regulation  signals and  instructions  to resources  from
which Regulation service has been 

                                       28


<PAGE>


offered by Market Sellers,  in accordance  with the PJM Manuals.  Market Sellers
shall comply with Regulation  dispatch signals and  instructions  transmitted by
the Office of the  Interconnection  and,  in the event of  conflict,  Regulation
dispatch  signals and  instructions  shall take  precedence over energy dispatch
signals and instructions.  Market Sellers shall exert all reasonable  efforts to
operate,  or ensure the operation of, their resources  supplying load in the PJM
Control Area as close to desired  output  levels as practical,  consistent  with
Good Utility Practice.  

          1.11.5 PJM Open Access Same-time Information System.

          The Office of the Interconnection  shall update the information posted
on the PJM Open Access Same-time  Information  System to reflect its dispatch of
generation resources. 

                                       29


<PAGE>


                  2. CALCULATION OF LOCATIONAL MARGINAL PRICES

     2.1 Introduction.

     The Office of the  Interconnection  shall  calculate the price of energy at
the  load  busses  and  generation  busses  in the PJM  Control  Area and at the
interface  busses between the PJM Control Area and adjacent Control Areas on the
basis of Locational  Marginal Prices.  Locational  Marginal Prices determined in
accordance  with  this  Section  shall be  calculated  every  five  minutes  and
integrated  hourly values of such  calculations  shall be the basis of sales and
purchases of energy in the PJM  Interchange  Energy  Market and of  Transmission
Congestion Charges under the PJM Tariff.

     2.2 General.

     The  Office  of  the   Interconnection   shall  determine  the  least  cost
security-constrained  dispatch,  which is the least costly means of serving load
at  different  locations  in the PJM  Control  Area  based on  actual  operating
conditions  existing on the power grid and on the prices at which Market Sellers
have offered to supply energy in the PJM Interchange  Energy Market.  Locational
Marginal  Prices for the  generation  and load busses in the PJM  Control  Area,
including interconnections with other Control Areas, will be calculated based on
the actual  economic  dispatch and the prices of energy offers.  The process for
the  determination  of Locational  Marginal  Prices shall be as follows: 

     (a) To determine actual  operating  conditions on the power grid in the PJM
Control Area,  the Office of the  Interconnection  shall use a computer model of
the interconnected  grid that uses available metered inputs regarding  generator
output,  loads,  and  power  flows  to model  remaining  flows  and  conditions,
producing  a  consistent  representation  of  power  flows on the  network.  The
computer  model  employed for this purpose,  referred to as the State  Estimator
program,  is a standard  industry tool and is described in Section 2.3 below. It
will be used to obtain information  regarding the output of generation supplying
energy  to the PJM  Control  Area,  loads  at  buses  in the PJM  Control  Area,
transmission losses, and power flows on binding transmission constraints for use
in the calculation of Locational Marginal Prices. Additional information used in
the calculation,  including  Dispatch Rates and real time schedules for external
transactions  between PJM and other  Control  Areas,  will be obtained  from the
Office of the  Interconnection's  dispatchers.  

     (b) Using the prices at which  energy is  offered by Market  Sellers to the
PJM Interchange Energy Market, the Office of the Interconnection shall determine
the offers of energy that will be  considered in the  calculation  of Locational
Marginal Prices.  As described in Section 2.4 below,  every offer of energy by a
Market Seller from a resource that is following  economic dispatch  instructions
of the Office of the  Interconnection  will be  utilized in the  calculation  of
Locational  Marginal Prices. 

     (c) Based on the system  conditions  on the PJM power grid,  determined  as
described in (a), and the eligible  energy  offers,  determined  as described in
(b), the Office of the Interconnection shall determine the least costly means of
obtaining  energy  to serve  the next  increment  of load at each bus in the PJM
Control Area, in the manner  described in Section 2.5 below.  The result of that
calculation  shall be a set of  Locational  Marginal  Prices based on the system
conditions at the time. 
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<PAGE>


     2.3 Determination of System Conditions Using the State Estimator.

     Power system operations,  including,  but not limited to, the determination
of the least costly means of serving  load,  depend upon the  availability  of a
complete and consistent  representation of generator  outputs,  loads, and power
flows on the network.  In calculating  Locational Marginal Prices, the Office of
the  Interconnection  shall  obtain a complete  and  consistent  description  of
conditions  on the  electric  network in the PJM Control  Area by using the most
recent power flow solution  produced by the State Estimator,  which is also used
by the Office of the  Interconnection  for other  functions  within power system
operations.  The State  Estimator is a standard  industry  tool that  produces a
power flow model based on available real-time metering information,  information
regarding  the  current  status of lines,  generators,  transformers,  and other
equipment,  bus load distribution  factors, and a representation of the electric
network,  to  provide a complete  description  of system  conditions,  including
conditions at busses for which real-time information is unavailable. The current
version of the State  Estimator  includes  over 1600  busses in the PJM  Control
Area, as well as interface busses with adjacent Control Areas. The Office of the
Interconnection  shall obtain a State  Estimator  solution  every five  minutes,
which shall provide the megawatt output of generators and the loads at busses in
the PJM Control Area,  transmission line losses, and actual flows or loadings on
constrained transmission facilities. External transactions between PJM and other
Control Areas shall be included in the Locational  Marginal Price calculation on
the basis of the real time  transaction  schedules  implemented by the Office of
the  Interconnection's  dispatcher. 

     2.4 Determination of Energy Offers Used in Calculating  Locational Marginal
Prices.

     (a) To determine the energy offers submitted to the PJM Interchange  Energy
Market that shall be used to  calculate  the  Locational  Marginal  Prices,  the
Office of the Interconnection  shall determine which resources are following its
economic  dispatch  instructions.  A resource will be considered to be following
economic  dispatch  instructions  and shall be  included in the  calculation  of
Locational Marginal Prices if:

          i)        the  price  bid by a  Market  Seller  for  energy  from  the
                    resource is less than or equal to the Dispatch  Rate for the
                    area of the  PJM  Control  Area in  which  the  resource  is
                    located; or

          ii)       the  resource is  specifically  requested  to operate by the
                    Office   of  the   Interconnection's   dispatcher.  

     (b) In determining  whether a resource satisfies the condition described in
(a), the Office of the  Interconnection  will determine the bid price associated
with an energy offer by  comparing  the actual  megawatt  output of the resource
with the Market  Seller's  offer price  curve.  Because of  practical  generator
response  limitations,  a resource whose megawatt output is not ten percent more
than the megawatt  level  specified on the offer price curve for the  applicable
Dispatch Rate shall be deemed to be following  economic  dispatch  instructions,
but the energy price offer used in the calculation of Locational Marginal Prices
shall not exceed the applicable  Dispatch Rate. Units that must be run for local
area  protection  shall  not be  considered  in the  calculation  of  Locational
Marginal Prices. 

                                       31


<PAGE>


     2.5 Calculation of Locational Marginal Prices.

     (a) The Office of the  Interconnection  shall  determine  the least  costly
means of obtaining energy to serve the next increment of load at each bus in the
PJM Control Area  represented  in the State  Estimator  and each  interface  bus
between the PJM Control Area and an adjacent  Control Area,  based on the system
conditions  described  by the most recent  power flow  solution  produced by the
State  Estimator  program and the energy  offers  determined  to be eligible for
consideration  under Section 2.4. This calculation  shall be made by applying an
incremental  linear  optimization  method to minimize energy costs, given actual
system  conditions,  a set  of  energy  offers,  and  any  binding  transmission
constraints  that may exist. In performing this  calculation,  the Office of the
Interconnection shall calculate the cost of serving an increment of load at each
bus from each resource  associated  with an eligible energy offer as the sum of:
(1) the price at which the  Market  Seller has  offered to supply an  additional
increment  of energy  from the  resource,  and (2) the  effect  on  transmission
congestion costs (whether  positive or negative)  associated with increasing the
output of the resource,  based on the effect of increased  generation  from that
resource on  transmission  line  loadings.  The energy  offer or offers that can
serve an  increment  of load at a bus at the  lowest  cost,  calculated  in this
manner, shall determine the Locational Marginal Price at that bus.

     (b) The calculation set forth in (a) shall be performed every five minutes,
using the Office of the  Interconnection's  Locational  Marginal  Price program,
producing a set of Locational  Marginal Prices based on system conditions during
the preceding interval.  The prices produced at five-minute  intervals during an
hour will be  integrated to determine the  Locational  Marginal  Prices for that
hour,  which will  determine  prices in the PJM  Interchange  Energy  Market and
Transmission  Congestion Costs under the PJM Tariff.

     2.6 Performance Evaluation.

     The Office of the  Interconnection  shall  undertake an  evaluation  of the
foregoing  procedures for the  determination of Locational  Marginal Prices,  as
well as the procedures for determining and allocating Fixed Transmission  Rights
and associated  Transmission Congestion Charges and Credits, not less often than
every two years,  in accordance with the PJM Manuals.  To the extent  practical,
the  Office of the  Interconnection  shall  retain  all data  needed to  perform
comparisons and other analyses of locational marginal pricing. The Office of the
Interconnection  shall  report  the  results  of its  evaluation  to the  Market
Participants,  along  with  its  recommendations,  if any,  for  changes  in the
procedures. 
                                       32


<PAGE>


                           3. ACCOUNTING AND BILLING

     3.1 Introduction.

     This  schedule  sets  forth  the  accounting  and  billing  principles  and
procedures for the purchase and sale of services on the PJM  Interchange  Energy
Market and for the operation of the PJM Control Area. 

     3.2 Market Buyers.

          3.2.1 Spot Market Energy.

          (a) At the end of each hour during an Operating Day, the Office of the
Interconnection  shall  calculate the load payment for each Market  Buyer's load
bus.  The load  payment at each bus shall be the  product of the Market  Buyer's
megawatts  of load at such load bus in the hour  times the  Locational  Marginal
Price at the bus. The megawatts of load at each load bus shall be the sum of the
megawatts of load for that bus of that Market Buyer as  determined  by the State
Estimator, plus an allocated share of transmission losses, plus any megawatts of
that Market Buyer's  bilateral sales to purchasers  outside the PJM Control Area
attributable  to that bus. The total load payment for each Market Buyer shall be
the sum of the load payments for each of a Market Buyer's load busses.

          (b) At the end of each hour during an Operating Day, the Office of the
Interconnection  shall  calculate  the  generation  revenue for each  Generating
Market Buyer's  generation  bus. The generation  revenue at each  generation bus
shall be the product of the Generating Market Buyer's megawatts of generation at
such generation bus in the hour times the Locational  Marginal Price at the bus.
The  megawatts  of  generation  at each  generation  bus shall be the sum of the
megawatts  of  generation  for  that  bus of that  Generating  Market  Buyer  as
determined by the State Estimator,  plus any megawatts of bilateral purchases of
that  Generating  Market  Buyer  from  sellers  outside  the  PJM  Control  Area
attributable  to that bus.  The total  generation  revenue  for each  Generating
Market  Buyer  shall  be the  sum of the  generation  revenues  for  each of the
Generating Market Buyer's generation busses.

          (c) At the end of each hour during an Operating Day, the Office of the
Interconnection shall calculate a net bill for each Market Buyer,  determined as
the difference between its total load payment and its total generation  revenue.
The portions of the net bill  attributable  to net hourly PJM Interchange and to
Transmission  Congestion  Charges shall be determined as set forth below.

          (d) At the end of each hour during an Operating Day, the Office of the
Interconnection  shall  calculate the total amount of net hourly PJM Interchange
for each Market Buyer,  including  Generating  Market Buyers, in accordance with
the PJM Manuals.  For Internal  Market Buyers,  this  calculation  shall include
determination  of the net energy flows from: (i) tie lines;  (ii) any generation
resource the output of which is  controlled by the Market Buyer but delivered to
it over another entity's Transmission Facilities;  (iii) any generation resource
the  output of which is  controlled  by  another  entity  but which is  directly
interconnected  with  the  Market  Buyer's  transmission  system;  (iv)  500  kV
transmission  losses;  (v) deliveries  pursuant to bilateral energy sales;  (vi)
receipts pursuant to bilateral energy purchases;  (vii) Inadvertent  Interchange
allocated to the Market Buyer; and (viii) the Market Buyer's  allocated share of
energy  purchased  from  another  Control  Area  in  connection  with a  Minimum
Generation Emergency in such other 

                                       33


<PAGE>


Control Area as specified in Section  0(0).  For External  Market  Buyers,  this
calculation shall determine the energy delivered pursuant to the External Market
Buyer's purchase request. 

          (e) The  Office  of the  Interconnection  shall  calculate  Locational
Marginal  Prices for each load and  generation  bus in the PJM Control  Area, in
accordance with Section 0 of this Schedule.

          (f) An Internal  Market Buyer shall be charged for Spot Market  Energy
purchases to the extent of its hourly net PJM Interchange Imports, determined as
specified  above.  An External Market Buyer shall be charged for its Spot Market
Energy  purchases based on the energy  delivered to it,  determined as specified
above.  The Office of the  Interconnection  shall  calculate an hourly  weighted
average  Locational  Marginal  Price for each such  Market  Buyer,  based on the
Locational  Marginal  Price at each load bus and the Market Buyer's load at that
bus.  The total  charge shall be the Market  Buyer's  total net PJM  Interchange
Imports times the weighted average Locational Marginal Price.

          (g) A Generating Market Buyer shall be credited as a Market Seller for
sales of Spot  Market  Energy to the extent of its  hourly  net PJM  Interchange
Exports, determined as specified above. The total credit shall be the sum of the
credits  determined by the product of (i) the hourly net amount of energy of PJM
Interchange Exports at the applicable generation bus from each of the Generating
Market Buyer's  generation  resources  determined to be making such  deliveries,
times (ii) the hourly  Locational  Marginal Price at that generation bus. If the
Office of the Interconnection dispatches energy to serve load in the PJM Control
Area,  the  pool-dispatched   generation   resources  determined  to  be  making
deliveries into PJM  Interchange of such Generating  Market Buyer shall be those
that  have  the  highest  Locational  Marginal  Prices  of the  Market  Seller's
generation resources.

          (h) If energy in excess of a Generating Market Buyer's Equivalent Load
flows to the PJM Control Area from a  self-scheduled  resource,  the  Generating
Market Buyer shall  receive a payment or credit for such excess energy at a rate
equal to the lesser of (i) 95% of the Locational  Marginal Price at the delivery
bus for such energy,  or (ii) the Locational  Marginal Price at the delivery bus
for such energy if the Locational  Marginal  Price is negative.  For purposes of
the  foregoing  calculation,  such  excess  energy  shall be deemed to have been
delivered  from  the  Generating  Market  Buyer's  self-scheduled   resource  or
resources  with the lowest  Locational  Marginal  Price or Prices at the time of
delivery.  Revenues  attributable to the difference  between the market clearing
price in the PJM  Interchange  Energy  Market and payments or credits for excess
energy  from  self-scheduled  resources  shall  be  used  by the  Office  of the
Interconnection  to  reduce or  offset  PJM  Control  Area  costs for  Operating
Reserves.

          3.2.2 Regulation.

          (a)  Each  Internal  Market  Buyer  shall  have an  hourly  Regulation
objective  equal  to its pro  rata  share  of the PJM  Control  Area  Regulation
requirements  for the hour,  based on the Market  Buyer's  total load in the PJM
Control Area for the hour.

          A Generating Market Buyer supplying Regulation at the direction of the
Office of the  Interconnection  in excess of its  hourly  Regulation  obligation
shall be credited  for each  increment of such  Regulation  at the price in that
hour for the  Regulation  Class  from  which the  Regulation  was  supplied,  as
determined by the Office of the Interconnection in accordance with 

                                       34


<PAGE>


procedures  specified in the PJM Manuals. An Internal Market Buyer that does not
meet its hourly Regulation obligation shall be charged for Regulation dispatched
by the Office of the  Interconnection  to meet such  obligation  at the  average
price paid by the Office of the Interconnection for Regulation. 

          3.2.3 Operating Reserves.

          (a) A Market Seller's  pool-scheduled  resources  capable of providing
operating  reserves  shall be  credited as  specified  below based on the prices
offered for the  operation  of such  resource,  provided  that the  resource was
available for the entire time specified in the Offer Data for such resource.

          (b) At the end of each  Operating  Day,  the  following  determination
shall be made for  each  synchronized  pool-scheduled  resource  of each  Market
Seller:  the total  offered  price for start-up and no-load fees and Spot Market
Energy, determined on the basis of the resource's actual output or available and
requested  time and type of  operation,  shall be compared to the total value of
that resource's Spot Market Energy. If the total offered price exceeds the total
value,  the difference  shall be credited to the Market  Seller.  Market Sellers
shall also be credited  on the basis of their  offered  prices for  synchronized
condensing  for  any   hydropower  or  combustion   turbine  units  operated  as
synchronous  condensers  at the  request  of Office of the  Interconnection  but
producing no energy.

          (c) The sum of the foregoing credits,  plus any cancellation fees paid
in accordance with Section  1.10.2(d),  less any amounts  received in accordance
with  Sections  1.10.5(d),  1.10.6(d) and 3.2.1(h) of this Schedule and payments
received  from  another  Control  Area for  Operating  Reserves or from users of
Point-to-Point  Transmission  Service  within the PJM Control Area for imbalance
service,  shall be the cost of  Operating  Reserves for the PJM Control Area for
each Operating Day.

          (d) The cost of  Operating  Reserves for each  Operating  Day shall be
allocated  and  charged to each  Market  Buyer in  proportion  to its total load
during that Operating Day in the PJM Control Area.

          3.2.4 Transmission Congestion.

          Each  Market  Buyer  shall be charged  or  credited  for  Transmission
Congestion Charges as specified in Section 5 of this Schedule.

          3.2.5 Transmission Losses.

          (a)  Whenever  the  Office  of  the   Interconnection   has  in  place
appropriate  computer  hardware,  software,  and other  necessary  resources  to
account for  marginal  losses in the dispatch of energy and the  calculation  of
Locational  Marginal Prices,  loss accounting shall be determined on that basis,
and the  provisions  of this Section  shall be revised  accordingly.  Until such
time, the following accounting provisions for losses shall apply.

          (b) Each Internal Market Buyer shall be credited in an amount equal to
its pro rata share of the  hourly  total  amounts  collected  from  Transmission
Customers either as charges for  transmission  losses in the PJM Control Area as
specified  in  Section  3.4.2 or for  transmission  losses  supplied  in kind in
accordance with Section  3.4.2(c) based on the Locational  Marginal Price at the
interface where such losses were  delivered.  This credit shall be determined by
the ratio of the 

                                       35


<PAGE>


Internal  Market Buyer's total hourly load,  divided by the total hourly load in
the PJM Control  Area.  

          (c)PJM  Control Area 500 kV losses shall be allocated to each Internal
Market Buyer in proportion to its hourly load in the PJM Control Area.

          3.2.6 Emergency Energy.

          (a) Internal Market Buyers shall be allocated a proportionate share of
the net cost of Emergency energy purchased by the Office of the Interconnection.
Such allocated  share shall be determined in proportion to the amount of net PJM
Interchange  Imports by each Internal  Market Buyer during the hour of each such
energy purchase.

          (b) Net revenues in excess of Locational  Marginal Prices attributable
to sales of energy in connection  with  Emergencies to other Control Areas shall
be credited to Internal  Market  Buyers in  proportion  to the amount of net PJM
Interchange  Imports by each  Internal  Market  Buyer  during  each hour of such
energy sales.

          (c) The costs,  revenues,  and energy  associated  with hourly  energy
purchased  from another  Control Area in  connection  with a Minimum  Generation
Emergency in such other Control Area, shall be allocated to each Internal Market
Buyer in  proportion to its load in the PJM Control Area during the hour of such
purchases.

          3.2.7 Billing.

          (a)  The  Office  of  the  Interconnection  shall  prepare  a  billing
statement  each  billing  cycle for each  Market  Buyer in  accordance  with the
charges and credits  specified in Sections 3.2.1 through 3.2.6 of this Schedule,
and showing the net amount to be paid or received by the Market  Buyer.  Billing
statements shall provide sufficient detail, as specified in the PJM Manuals,  to
allow  verification  of the billing amounts and completion of the Market Buyer's
internal accounting.

          (b) If deliveries to a Market Buyer that has PJM Interchange meters in
accordance with Section 14 of the Operating  Agreement include amounts delivered
for a Market Participant that does not have PJM Interchange meters separate from
those of the  metered  Market  Buyer,  the Office of the  Interconnection  shall
prepare a separate billing statement for the unmetered Market  Participant based
on the  allocation  of  deliveries  agreed upon between the Market Buyer and the
unmetered   Market   Participant   specified  by  them  to  the  Office  of  the
Interconnection.

     3.3 Market Sellers. 

     Except as provided in the following  sentence,  the  accounting and billing
principles and procedures  applicable to Generating Market Buyers functioning as
Market Sellers shall be as set forth in Section 3.2. This Section sets forth the
accounting and billing principles and procedures  applicable to all other Market
Sellers,  and to Generating  Market Buyers  functioning  as Market  Sellers with
respect to any matters not specified in Section 3.2.

          3.3.1 Spot Market Energy.

          (a) At the end of each hour during an Operating Day, the Office of the
Interconnection  shall determine the total net amount of hourly energy delivered
to the PJM Control Area by each  pool-scheduled or  pool-dispatched  resource of
each Market  Seller,  in  accordance  with the PJM  Manuals and the  calculation
described in Section 3.2.1(d). 

                                       36


<PAGE>


          (b) The  Office  of the  Interconnection  shall  calculate  Locational
Marginal  Prices  for each  generation  and load  bus in the PJM  Control  Area,
including the bus at each point of interconnection  between the PJM Control Area
and each adjacent Control Area, in accordance with Section 0 of this Schedule.

          (c) A Market  Seller shall be credited for sales of Spot Market Energy
to the extent of its hourly net  deliveries  of energy to the PJM  Control  Area
from the  Market  Seller's  pool-scheduled  or  pool-dispatched  resources.  For
pool-scheduled  resources  that  are  External  Resources,  the  Office  of  the
Interconnection  shall model, based on an appropriate flow analysis,  the hourly
amounts delivered from each such resource to the  corresponding  interface point
between the PJM Control Area and adjacent  Control  Areas.  The total credit for
each Market Seller shall be the sum of its credits  determined by the product of
(i) the hourly net amount of energy  delivered  to the PJM  Control  Area at the
applicable  generation  or  interface  bus  from  each  of the  Market  Seller's
pool-scheduled or  pool-dispatched  resources,  times (ii) the hourly Locational
Marginal Price at that bus.

          (d) Market  Sellers,  including  Generating  Market  Buyers,  shall be
charged for  non-delivery  of Spot Market  Energy  from  resources  that are not
Capacity Resources, as specified in Section 1.10.5(d) of this Schedule.

          3.3.2 Regulation.

          Each Market Seller that is also an Internal Market Buyer shall have an
hourly  Regulation  objective  as specified  in Section  3.2.2(a),  and shall be
credited or charged in  connection  therewith as specified in Section  3.2.2(b).
All other Market Sellers supplying  Regulation at the direction of the Office of
the  Interconnection  shall be credited for each increment of such Regulation at
the price in that hour for the  Regulation  Class from which the  Regulation was
supplied,  as determined by the Office of the Interconnection in accordance with
procedures specified in the PJM Manuals.

          3.3.3 Operating Reserves.

          A Market  Seller  shall be credited for its  pool-scheduled  resources
based on the prices  offered for the operation of such  resource,  provided that
the resource was available  for the entire time  specified in the Offer Data for
such resource, in accordance with the procedures set forth in Section 3.2.3(b).

          3.3.4 Emergency Energy.

          The costs and net  revenues  associated  with hourly  energy  sales to
other Control Areas in connection with a Minimum Generation Emergency in the PJM
Control Area shall be allocated to Market  Sellers in  proportion to their sales
to the PJM  Interchange  Energy  Market  from  generation  resources  within the
metered boundaries of the PJM Control Area in each hour in which such energy was
sold to other Control Areas. 

                                       37


<PAGE>


          3.3.5 Billing.

          The Office of the  Interconnection  shall prepare a billing  statement
each billing  cycle for each Market  Seller in  accordance  with the charges and
credits specified in Sections 3.3.1 through 3.3.4 of this Schedule,  and showing
the net amount to be paid or received by the Market Seller.  Billing  statements
shall  provide  sufficient  detail,  as specified  in the PJM Manuals,  to allow
verification  of the  billing  amounts  and  completion  of the Market  Seller's
internal accounting.

     3.4 Transmission Customers.

          3.4.1 Transmission Congestion.

          Each   Transmission   Customer  shall  be  charged  and  credited  for
Transmission Congestion Charges as specified in Section 5 of this Schedule.

          3.4.2 Transmission Losses

          (a)  Whenever  the  Office  of  the   Interconnection   has  in  place
appropriate  computer  hardware,  software,  and other  necessary  resources  to
account for  marginal  losses in the dispatch of energy and the  calculation  of
Locational  Marginal Prices,  loss accounting shall be determined on that basis,
and the  provisions  of this Section  shall be revised  accordingly.  Until such
time,  the  following   accounting   provisions  for  losses  shall  apply. 

          (b) Transmission  Customers other than entities that are also Internal
Market Buyers shall be charged for transmission losses in an amount equal to the
product of (i) the Transmission  Customer's  megawatt-hours  of deliveries using
Point-to-Point  Transmission Service, times (ii) the appropriate loss factor for
deliveries using Point-to-Point  Transmission Service,  times (iii) the weighted
average  Locational  Marginal Price for all load busses in the PJM Control Area.
The foregoing  average hourly loss factor shall be: (i) determined by the Office
of the  Interconnection  from time to time as conditions  affecting losses shall
warrant;  and (ii)  calculated  separately for on-peak and off-peak hours on the
basis of the average ratio of losses to load served in each such period.

          (c) A  Transmission  Customer  may  elect to pay for  losses  in kind,
rounded off to the nearest whole megawatt, rather than as specified above if its
total  deliveries  in an hour  using  Point-to-Point  Transmission  Service  are
greater  than  200  megawatts.  If it so  elects,  the  Transmission  Customer's
specified   source  for  the  energy  to  be  delivered   using   Point-to-Point
Transmission Service may be scheduled to supply to the PJM Control Area boundary
an amount of energy  equal to the  delivery  schedule  plus the amount of losses
determined by applying the appropriate  hourly loss factor as specified above to
the delivered amount.  

          3.4.3 Billing.

          The Office of the  Interconnection  shall prepare a billing  statement
each billing cycle for each Transmission Customer in accordance with the charges
and credits specified in Sections 0 through 0 of this Schedule,  and showing the
net  amount  to be  paid  or  received  by the  Transmission  Customer.  Billing
statements shall provide sufficient detail, as specified in the PJM Manuals,  to
allow  verification  of the billing  amounts and completion of the  Transmission
Customer's internal accounting. 

                                       38


<PAGE>


     3.5 Other Control Areas.

          3.5.1 Energy Sales.

          To the extent  appropriate in accordance  with Good Utility  Practice,
the Office of the Interconnection  may sell energy to an interconnected  Control
Area as necessary to  alleviate or end an Emergency in that Control  Area.  Such
sales shall be made (i) only to Control Areas that have  undertaken a commitment
pursuant  to a written  agreement  with the LLC to sell  energy on a  comparable
basis to the PJM Control Area, and (ii) only to the extent  consistent  with the
maintenance  of  reliability  in  the  PJM  Control  Area.  The  Office  of  the
Interconnection may decline to make such sales to a Control Area that the Office
of the Interconnection determines does not have in place and implement Emergency
procedures that are comparable to those followed in the PJM Control Area. If the
Office of the Interconnection sells energy to an interconnected  Control Area as
necessary to alleviate  or end an  Emergency in that Control  Area,  such energy
shall be sold at 150% of the  Locational  Marginal Price at the bus or busses at
the border of the PJM  Control  Area at which such  energy is  delivered. 

          3.5.2  Operating  Margin Sales.  

          The extent  appropriate in accordance with Good Utility Practice,  the
Office of the  Interconnection  may sell Operating  Margin to an  interconnected
Control Area as requested to alleviate an operating  contingency  resulting from
the affect of the  purchasing  Control  Area's  operations  on the  dispatch  of
resources  in the PJM  Control  Area.  Such sales  shall be made only to Control
Areas that have undertaken a commitment pursuant to a written agreement with the
Office of the  Interconnection  (i) to purchase  Operating  Margin  whenever the
purchasing  Control Area's  operations  will affect the dispatch of resources in
the PJM Control Area, and (ii) to sell Operating Margin on a comparable basis to
the LLC.

          3.5.3 Transmission Congestion. 

          Each  Control  Area  purchasing  Operating  Margin  shall be  assessed
Transmission  Congestion Charges as specified in Section 5.1.5 of this Schedule.


          3.5.4  Billing. 

          The Office of the  Interconnection  shall prepare a billing  statement
each billing cycle for each Control Area to which Emergency  energy or Operating
Margin was sold,  and  showing the net amount to be paid by such  Control  Area.
Billing  statements  shall provide  sufficient  detail,  as specified in the PJM
Manuals, to allow verification of the billing amounts.

     3.6 Metering Reconciliation.

          3.6.1 Meter Correction Billing.

          Metering errors and corrections  will be reconciled at the end of each
month by a meter  correction  charge or credit.  The  monthly  meter  correction
charge or credit shall be  determined by the product of the positive or negative
deviation in energy  amounts,  times the weighted  average  Locational  Marginal
Price for the affected Market Buyer. 

                                       39


<PAGE>


          3.6.2 Meter Corrections Between Market Participants.

          If a Market Participant or the Office of the Interconnection discovers
a meter error affecting an interchange of energy with another Market Participant
and  makes  the  error  known  to such  other  Market  Participant  prior to the
completion  by the  Office  of the  Interconnection  of the  accounting  for the
interchange,  and if both Market  Participants are willing to adjust hourly load
records to compensate  for the error and such  adjustment  does not affect other
parties, an adjustment in load records may be made by the Market Participants in
order  to  correct  for the  meter  error,  provided  corrected  information  is
furnished to the Office of the  Interconnection in accordance with the Office of
the Interconnection's  accounting  deadlines.  No such adjustment may be made if
the accounting for the Operating Day in which the interchange  occurred has been
completed by the Office of the Interconnection.

          3.6.3 500 kV Meter Errors.

          Billing  cycle  accounting  for 500 kV  transmission  losses  shall be
adjusted  to  account  for errors in meters on 500 kV  Transmission  Facilities.

          3.6.4 Meter Corrections Between Control Areas.

          An error between accounted for and metered interchange between a Party
in the PJM Control Area and an entity in another Control Area shall be corrected
by adjusting  the hourly meter  readings.  If this is not  practical,  the error
shall be accounted  for by a  correction  at the end of the billing  cycle.  The
Market  Participant with ties to such other Control Area  experiencing the error
shall account for the full amount of the discrepancy and an appropriate debit or
credit  shall be  applied  equally  among all Market  Buyers.  The Office of the
Interconnection  will adjust the actual interchange between the PJM Control Area
and the other  Control Area to maintain a proper  record of  inadvertent  energy
flow.  Meter  corrections  on the 500 kV system between the PJM Control Area and
other  Control  Areas shall be accounted  for through the internal 500 kV system
meter error  allocation at the end of the billing cycle.  

          3.6.5 Meter Correction Data.

          Meter   error   data  shall  be   submitted   to  the  Office  of  the
Interconnection  not later than noon on the second  working day of the Office of
the  Interconnection  after the end of the billing cycle applicable to the meter
correction.

          3.6.6 Correction Limits.

          A Market  Participant  may not  assert a claim  for an  adjustment  in
billing  as a result of a meter  error for any  error  discovered  more than two
years after the date on which the metering occurred. Any claim for an adjustment
in  billing  as a  result  of a meter  error  shall  be  limited  to  bills  for
transactions  occurring  in the most  recent  annual  accounting  period  of the
billing  Market  Participant  in which the meter error  occurred,  and the prior
annual accounting period. 

                                       40


<PAGE>


                                 4. RATE TABLE

     4.1 Offered Price Rates.

     Spot  Market  Energy,  Regulation,   Operating  Reserve,  and  Transmission
Congestion are based on offers to the Office of the Interconnection specified in
this Agreement.

     4.2 Transmission Losses.

     Average loss factors shall be as specified in the PJM Tariff.

     4.3 Emergency Energy Purchases.

     The pricing for Emergency energy purchases will be determined by the Office
of the  Interconnection  and the adjacent  Control Area,  in accordance  with an
agreement  between the Office of the  Interconnection  and such adjacent Control
Area that complies with this Agreement.

                                       41


<PAGE>


         5. CALCULATION OF TRANSMISSION CONGESTION CHARGES AND CREDITS

     5.1 Transmission Congestion Charge Calculation

          5.1.1 Calculation by Office of the Interconnection.

          When  the   transmission   system  is  operating   under   constrained
conditions,  the  Office of the  Interconnection  shall  calculate  Transmission
Congestion  Charges for each Network  Service User, the PJM  Interchange  Energy
Market, and each Transmission Customer.

          5.1.2 General.

          The  basis  for  the  Transmission  Congestion  Charges  shall  be the
Locational  Marginal  Prices  determined  in  accordance  with Section 2 of this
Schedule.

          5.1.3 Network Service User Calculation.

          Each Network  Service User shall be charged for the increased  cost of
energy incurred by it during each  constrained hour to deliver the output of its
firm Capacity  Resources or other owned or contracted  for  resources,  its firm
bilateral  purchases,  and its non-firm  bilateral  purchases as to which it has
elected to pay Transmission  Congestion  Charges.  The  Transmission  Congestion
Charge for deliveries  from each such source shall be the Network Service User's
hourly  net bill  less  its  hourly  net PJM  Interchange  payments  or sales as
determined  in  accordance  with Section 3.2.1 or Sections 3.3 and 3.3.1 of this
Schedule. 

          5.1.4 Transmission Customer Calculation.

          Each  Transmission  Customer  using Firm  Point-to-Point  Transmission
Service (as defined in the PJM Tariff),  and each  Transmission  Customer  using
Non-Firm Point-to-Point Transmission Service (as defined in the PJM Tariff) that
has elected to pay  Transmission  Congestion  Charges,  shall be charged for the
increased  cost of energy  during  constrained  hours for the delivery of energy
using Point-to-Point  Transmission  Service. The Transmission  Congestion Charge
for each such delivery shall be the delivery amount multiplied by the difference
between  the  Locational  Marginal  Price  at the  delivery  interface  and  the
Locational  Marginal Price at the source interface,  or for Market Sellers using
point-to-point  transmission  service for deliveries out of the PJM Control Area
from generating resources within the PJM Control Area shall be the amount of its
net bill less its net hourly PJM Interchange  payments or sales as determined in
accordance with Section 3.3 of this Schedule. 

          5.1.5  Operating  Margin  Customer  Calculation.  

          Each  Control  Area  purchasing  Operating  Margin  shall be  assessed
Transmission  Congestion  Charges  for any the  increase  in the cost of  energy
resulting from the provision of Operating  Margin.  The Transmission  Congestion
Charge shall be the amount of Operating  Margin  purchased in an hour multiplied
by the difference in the Locational Marginal Price at what would be the delivery
interface  and the  Locational  Marginal  Price  at  what  would  be the  source
interface,  if the operating  contingency that was the basis for the purchase of
Operating  Margin had occurred in that hour.  Operating  Margin may be allocated
among multiple  source and delivery  interfaces in accordance with an applicable
load flow study. 
                                       42


<PAGE>


          5.1.6 Total Transmission Congestion Charges.

          The total  Transmission  Congestion Charges collected by the Office of
the  Interconnection  each hour  will be the sum of the  amounts  determined  as
specified in this  Schedule.  The Office of the  Interconnection  shall  collect
Transmission  Congestion Charges for each hour the transmission  system operates
under constrained conditions.

     5.2 Transmission Congestion Credit Calculation.

          5.2.1 Eligibility.

          Each  Transmission  Customer  using firm  Point-to-Point  Transmission
Service and each Network Service User shall receive as a Transmission Congestion
Credit  a  proportional  share  of the  total  Transmission  Congestion  Charges
collected for each constrained hour.

          5.2.2 Fixed Transmission Rights

          (a) Transmission  Congestion Credits will be calculated based upon the
Fixed  Transmission  Rights  of  each  Network  Service  User  and  Transmission
Customer,  determined  as  specified  below.

          (b)Each  Network  Service User shall designate a subset of its Network
Resources  for which  Fixed  Transmission  Rights  will be  assigned.  The Fixed
Transmission  Right for each  Network  Resource  shall be a number of  megawatts
equal to or less than the  installed  capacity  summer  megawatt  rating of each
designated Network Resource, determined at the PJM Control Area transmission bus
at which the  designated  Network  Resource is connected to the  aggregate  load
busses of the Network Service User. The sum of each Network Service User's Fixed
Transmission  Rights  must be equal to or less than the Network  Service  User's
projected annual peak load.

          (c)Each   Transmission    Customer   receiving   firm   Point-to-Point
Transmission  Service shall be assigned  Fixed  Transmission  Rights.  The Fixed
Transmission  Right for each  instance of  Point-to-Point  Transmission  Service
shall be a number of megawatts  equal to the  megawatts  of firm  service  being
provided  between the receipt and delivery  points as to which the  Transmission
Customer  has  firm  Point-to-Point  Transmission  Service. 

          (d) The  foregoing  assignment of Fixed  Transmission  Rights shall be
enhanced by an amendment to this Schedule,  to be filed with FERC not later than
December 31, 1997, that will provide for an auction of Fixed Transmission Rights
over and above those FTRs  obtained  and retained by Network  Service  Users and
Transmission  Customers then receiving firm Point-to-Point  Transmission Service
(including  firm  Point-to-Point  transmission  service for  existing  bilateral
contracts),  such auction to be  implemented  as soon after December 31, 1997 as
shall be  determined  by the  Office  of the  Interconnection  to be  reasonably
practical. For so long as Fixed Transmission Rights are assigned on the basis of
Network Transmission Service and firm Point-to-Point  Transmission  Service, any
Fixed Transmission Rights awarded pursuant to an auction shall be simultaneously
feasible  with  all  Network   Transmission   Service  and  firm  Point-to-Point
Transmission  Service  obligations.  The Members specified in Section 11.5(c) of
the Agreement, working with the Office of the Interconnection, shall develop the
details of the  implementation of such an auction,  including but not limited to
the nature of the bidding process,  the frequency of auctions,  and the duration
of the Fixed Transmission Rights purchased at auction. 

                                       43


<PAGE>


          5.2.4 Target Allocation for Network Service Users.

          A  target  allocation  of  Transmission  Congestion  Credits  for each
Network  Service  User shall be  determined  for each of its Fixed  Transmission
Rights.  Each Fixed Transmission Right shall be multiplied by the percent of the
Network  Service User's annual peak load assigned to each load bus multiplied by
the  difference  calculated as the Network  Service  User's load bus  Locational
Marginal Price minus the generation bus Locational Marginal Price of the Network
Resource  associated  with  the  Fixed  Transmission  Right.  The  total  target
allocation  for  each  Fixed  Transmission  Right  is  the  sum  of  the  target
allocations  for each load bus.  The total  target  allocation  for each Network
Service User for each hour is the sum of the total target  allocations  for each
of the Network Service User's Fixed Transmission Rights.

          5.2.4 Target Allocation for other Holders.

          A  target  allocation  of  Transmission  Congestion  Credits  for each
Transmission  Customer or entity holding an FTR acquired by other means shall be
determined for each Fixed  Transmission  Right.  Each Fixed  Transmission  Right
shall be multiplied by the hourly Locational  Marginal Price differences for the
receipt  and  delivery  points  associated  with the Fixed  Transmission  Right,
calculated as the Locational  Marginal Price at the delivery  point(s) minus the
Locational  Marginal Price at the receipt point(s).  The total target allocation
for the  Transmission  Customer  for each  hour  shall be the sum of the  target
allocations   associated  with  all  of  the   Transmission   Customer's   Fixed
Transmission Rights.

          5.2.5 Calculation of Transmission Congestion Credits

          (a) The total of all the target  allocations  determined  as specified
above  shall be compared to the total  Transmission  Congestion  Charges in each
hour.  If the  total of the  target  allocations  is less  than the total of the
Transmission  Congestion  Charges,  the Transmission  Congestion Credit for each
Network  Service  User and  Transmission  Customer  shall be equal to its target
allocation.  All remaining Transmission  Congestion Charges shall be distributed
as described below in Section 5.2.6 "Distribution of Excess Congestion Charges."

          (b) If the total of the target  allocations  is greater than the total
Transmission  Congestion Charges for the hour, each holder of Fixed Transmission
Rights shall  receive a share of the total  Transmission  Congestion  Charges in
proportion to its target allocations.

          5.2.6 Distribution of Excess Congestion Charges

          (a) Excess  Transmission  Congestion  Charges  accumulated  in a month
shall be distributed to each holder of Fixed  Transmission  Rights in proportion
to, but not more than,  any deficiency in the share of  Transmission  Congestion
Charges received by the holder during that month as compared to its total target
allocations for the month.

          (b) Any excess Transmission Congestion Charges remaining at the end of
a month shall be distributed to Network Service Users and Transmission Customers
purchasing  Firm  Point-to-Point  Transmission  Service in  proportion  to their
Demand Charges for Network  Service and their charges for Reserved  Capacity for
Firm Point-to-Point Transmission Service. 

                                       44


<PAGE>


                                   SCHEDULE 2

                                 Revision No. 2

                               COMPONENTS OF COST
Issued:        June 2, 1997
Effective:     August 1, 1997

     (a) Each Market Participant obligated to sell operating capacity on the PJM
Interchange  Energy  Market at  cost-based  rates shall  include  the  following
components  or their  equivalent  in the  determination  of costs for  operating
capacity supplied to or from the Interconnection: 

     (1)  Boilers
          Firing-up cost;
          No-load cost during period of operation;
          Peak-prepared-for maintenance cost;
          Incremental labor cost; and
          Other incremental operating costs.

     (2)  Machines
          Starting cost from cold to synchronized operation; 
          No-load cost during period of operation; 
          Incremental labor cost; and 
          Other incremental operating costs.

     (b) Each  Member  obligated  to sell energy on the PJM  Interchange  Energy
Market at  cost-based  rates shall  include the  following  components  or their
equivalent  in  the   determination   of  costs  for  energy   supplied  to  the
Interconnection:

     Incremental fuel cost; 
     Incremental maintenance cost;
     Incremental labor cost; and
     Other incremental  operating costs. 

     (c) All fuel costs shall employ the marginal fuel price  experienced by the
Member.

     (d) The PJM Board, upon consideration of the advice and  recommendations of
the  Members  Committee,  shall from time to time define in detail the method of
determining the costs entering into the said  components,  and the Members shall
adhere to such  definitions in the preparation of incremental  costs used on the
Interconnection. 

                                       1


<PAGE>


                            SCHEDULE 2 -- EXHIBIT A

                  EXPLANATION OF THE TREATMENT OF THE COSTS OF
                              EMISSION ALLOWANCES

Issued:        June 2, 1997
Effective:     August 1, 1997

     The cost of emission allowances is included in "Other Incremental Operating
Costs" pursuant to Schedule 2. The replacement cost of emission  allowances will
be used to  recover  the cost of  emission  allowances  consumed  as a result of
producing  energy  for the  Interconnection.  

Index
     Consistent with definitions promulgated by the PJM Board upon consideration
of the advice and  recommendations  of the Members  Committee  under Schedule 2,
each Member  Schedule 2 will  determine and provide to the  Interconnection  its
replacement cost of emission allowances, such cost to be an amount not exceeding
the market price index published by Cantor- Fitzgerald  Environmental  Brokerage
Services  ("EBS"),  or a PJM Board  approved  index in the event that EBS should
cease  publication of such index. As with all other  components of cost required
for accounting under this Agreement,  each Member subject to Schedule 2 will use
the same replacement cost of emissions allowances, so determined, as it uses for
coordinating operation of its generating facilities hereunder.

     For each Member subject to Schedule 2, the cost of emissions  allowances is
included in the cost of energy supplied to or received from the Interconnection.

Payment
     The Members  subject to Schedule 2 waive the right of  payment-in-kind  for
emission allowances for transactions  wholly between the parties.  Cash payments
for emission  allowances  consumed in providing  energy for the  Interconnection
shall be incorporated into and conducted  pursuant to the billing procedures for
energy prescribed by this Agreement.

Calculation of Emission Allowance Amount and Cost
     Pursuant to the letter from the PJM  Interconnection to FERC dated June 26,
1995, the calculation of an annual average for the cost of emission  allowances,
described  below,  is required due to the profile of the PJM physical system and
PJM Energy  Management  software  system.  Approximately  five hundred and forty
generating  units  comprise the PJM system,  of which 9 units are Phase I units.
Current  real-time   operational   software  and  hardware  tools  used  in  the
transaction  of energy do not identify  individual  units,  and therefore do not
identify Phase I units.  (The pool has contracted  with a vendor to supply a new
Energy  Management  System to be installed  over the next several  years.) It is
currently not possible for system  operators to provide actual  individual  unit
emission allowance costs in real time transaction quotations.

     An average  emission  allowance  cost based on a standard  production  cost
study case will be used to calculate the average cost of emission allowances for
each pool  megawatt  produced.  This cost for the current  year is less than 0.2
dollars per megawatt-hour.

     In summary,  for the above-mentioned  reasons, it is not practical nor cost
effective to provide actual  individual  emission  allowance  costs in real-time
transaction quotations. Therefore, 

                                       1


<PAGE>


the annual average method is proposed.

     The Emission  Allowances (Tons of SO2)associated with a transaction will be
calculated by multiplying the magnitude of a transaction  (MWhr) by an Emissions
per MWHr Factor (Tons of SO2 per MWhr):

         Emission          Transaction           Emissions
         Allowances  =     Magnitude        x    per MWhr
         Used                                    Factor
         (Tons of S02)     (MWhr)               (Tons of S02 per MWhr)

     The  Emissions  per MWHr Factor will be calculated by dividing the forecast
annual  emissions  from all Phase I units (Tons of S02) by the  Forecast  Annual
Total PJM Energy Production (MWhr): 

          Emissions
          per MWhr=      Forecast Annual Phase I Unit Emissions (Tons of SO2)
          Factor         Forecast Annual Total PJM Energy Production (MWhr)
         (Tons of S02
          per MWhr)

     Likewise,  the cost (Dollars) of the Emission  Allowances for a transaction
will be calculated by multiplying the transaction  magnitude  (MWhr) by a Charge
per MWhr Factor (Dollars per MWHr).

     Cost of Emission      Transaction           Charge
     Allowances Used   =   Magnitude        x    per MWhr Factor
     (Dollars)            (MWhr)                (Dollars per MWhr)

     The Charge per MWhr  Factor will be  calculated  by  multiplying,  for each
Member subject to Schedule 2, its Forecast Annual Emissions (Tons of S02) by its
respective  Emissions  Allowance  Replacement  Cost  (Dollars per Ton of S02) to
yield each the forecasted annual costs of emissions  (Dollars).  Then, the total
of forecasted  annual cost of emissions for each Member subject to Schedule 2 is
divided by the Forecast Annual Total PJM Energy  Production  (MWhr) to determine
the Charge per MWHr Factor (Dollars per MWHr).

     Charge per
     MWhr Factor   =   Summation(A x B),    where:
               C

     A = Member's Forecasted Annual Emissions, (Tons of S20)
     B = Emission Allowance Replacement Cost, (Dollars per Ton of SO2, per
         company)
     C = Forecast Annual PJM Energy Production, (MWhr)

                                       2



<PAGE>


                                   SCHEDULE 3
                                 Revision No. 6

                      ALLOCATION OF THE COST AND EXPENSES
                      OF THE OFFICE OF THE INTERCONNECTION

Issued:        June 2, 1997
Effective:     August 1, 1997

     (a) Each  group of  Affiliates,  each group of  Related  Parties,  and each
Member  that is not in such a group  shall pay an  annual  membership  fee,  the
proceeds  of which  shall be used to defray the costs and  expenses  of the LLC,
including the Office of the Interconnection.  The amount of the annual fee as of
the  Effective  Date shall be $5,000.  The amount of the annual  membership  fee
shall  be  adjusted  from  time  to  time by the PJM  Board  to keep  pace  with
inflation.

     (b) All  remaining  costs of the operation of the LLC and the Office of the
Interconnection and the expenses,  including,  without limitation,  the costs of
any insurance and any claims not covered by insurance,  associated  therewith as
provided in this  Agreement  shall be costs of  Scheduling,  System  Control and
Dispatching  Service under the PJM Tariff and shall be recovered pursuant to the
PJM Tariff.

     (c) An entity  accepted for  membership  in the LLC shall pay all costs and
expenses  associated  with  additions  and  modifications  to its own  metering,
communication,  computer, and other appropriate facilities and procedures needed
to effect the inclusion of the entity in the operation of the Interconnection. 

                                       1


<PAGE>


                                   SCHEDULE 4
                                 Revision No. 1

            STANDARD FORM OF AGREEMENT TO BECOME A MEMBER OF THE LLC

Issued:        June 2, 1997
Effective:     August 1, 1997

     Any entity  which  wishes to become a Member of the LLC shall,  pursuant to
Section 0 of this Agreement,  tender to the President an  application,  upon the
acceptance  of which it shall  execute a  supplement  to this  Agreement  in the
following form:

                          Additional Member Agreement

1. This Additional Member Agreement (the "Supplemental Agreement"),  dated as of
__________________, is entered into among _____________ and the President of the
LLC acting on behalf of its Members.

2.  _____________  has  demonstrated  that it  meets  all of the  qualifications
required of a Member to the Operating Agreement. If expansion of the PJM Control
Area is  required  to  integrate  ____________________'s  facilities,  a copy of
Attachment  J from  the PJM  Tariff  marked  to show  changes  in  Control  Area
boundaries  is  attached  hereto.  ____________________  agrees  to pay  for all
required metering,  telemetering and hardware and software appropriate for it to
become a member.

3. ______________________ agrees to be bound by and accepts all the terms of the
Operating Agreement as of the above date.

4.  _________________________  hereby  gives notice that the name and address of
its  initial  representative  to  the  Members  Committee  under  the  Operating
Agreement shall be:

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

5. The  President  of the LLC is  authorized  under the  Operating  Agreement to
execute this Supplemental Agreement on behalf of the Members and to file it with
regulatory authorities having jurisdiction.

6. The Operating  Agreement is hereby amended to include ___________ as a Member
of the LLC thereto, effective as of ___________________, _____.

     IN WITNESS WHEREOF, _______________________ and the Members of the LLC have
caused this  Supplemental  Agreement  to be  executed  by their duly  authorized
representatives.

                  Members of the LLC
                                       1


<PAGE>


                        By:
                        Name:

                        Title: President

                        By:
                        Name:
                        Title:


                                       2


<PAGE>


                                   SCHEDULE 5
                                 Revision No. 1

                       PJM DISPUTE RESOLUTION PROCEDURES

Issued:        June 2, 1997
Effective:     August 1, 1997

                                 1. DEFINITIONS

     1.1 Alternate Dispute Resolution Committee.

     "Alternate   Dispute   Resolution   Committee"  shall  mean  the  Committee
established pursuant to Section 0 of this Schedule.

     1.2 MAAC Dispute Resolution Committee.

     "MAAC Dispute Resolution Committee" shall mean the committee established by
the Mid- Atlantic Area Council to administer its industry-specific mechanism for
resolving certain types of wholesale electricity disputes.

     1.3 Related PJM Agreements.

     "Related PJM Agreements" shall mean this Agreement, the Transmission Owners
Agreement, and the Reliability Assurance Agreement. 

                           2. PURPOSES AND OBJECTIVES

     2.1 Common and Uniform Procedures.

     The PJM Dispute Resolution  Procedures are intended to establish common and
uniform  procedures  for  resolving  disputes  arising  under  the  Related  PJM
Agreements.  To the extent  any of the  foregoing  agreements  or the PJM Tariff
contain dispute resolution  provisions  expressly applicable to disputes arising
thereunder,  however,  this Agreement shall not supplant such provisions,  which
shall apply according to their terms.


     2.2 Interpretation.

     To the extent  permitted  by  applicable  law,  the PJM Dispute  Resolution
Procedures  are to be  interpreted  to effectuate  the  objectives  set forth in
Section 2.1. To the extent permitted by these PJM Dispute Resolution Procedures,
the  Alternate  Dispute  Resolution  Committee  shall  coordinate  with the MAAC
Dispute  Resolution   Committee,   where  appropriate,   in  order  to  conserve
administrative   resources  and  to  avoid  duplication  of  dispute  resolution
staffing.


<PAGE>


                           NEGOTIATION AND MEDIATION

     3.1 When Required.

     The parties to a dispute shall undertake good-faith negotiations to resolve
any dispute as to a matter governed by one of the Related PJM  Agreements.  Each
party to a dispute shall  designate an executive  with  authority to resolve the
matter in dispute  to  participate  in such  negotiations.  Any  dispute as to a
matter  governed by one of the Related PJM Agreements that has not been resolved
through good-faith  negotiation shall be subject to non-binding  mediation prior
to the initiation of arbitral, regulatory, judicial, or other dispute resolution
proceedings as may be  appropriate  as provided by these PJM Dispute  Resolution
Procedures.

     3.2 Procedures.

          3.2.1 Initiation.

          If a dispute  that is subject to the  mediation  procedures  specified
herein has not been  resolved  through  good-faith  negotiation,  a party to the
dispute shall notify the Alternate  Dispute  Resolution  Committee in writing of
the existence  and nature of the dispute  prior to commencing  any other form of
proceeding  for  resolution  of the dispute.  The Alternate  Dispute  Resolution
Committee  shall  have  ten  calendar  days  from  the  date it  first  receives
notification  of the  existence  of a  dispute  from any of the  parties  to the
dispute in which to distribute to the parties a list of mediators.

          3.2.2 Selection of Mediator.

          The  Chair  of  the  Alternate  Dispute  Resolution   Committee  shall
distribute  to the  parties  by  facsimile  or  other  electronic  means  a list
containing  the names of seven  mediators  with  mediation  experience,  or with
technical or business experience in the electric power industry,  or both, as it
shall  deem  appropriate  to the  dispute.  The Chair of the  Alternate  Dispute
Resolution Committee may draw from the lists of mediators maintained by the MAAC
Dispute Resolution Committee,  as the Chair shall deem appropriate.  The persons
on the proposed list of mediators shall have no official, financial, or personal
conflict  of  interest  with  respect to the issues in  controversy,  unless the
interest is fully  disclosed  in writing to all  participants  in the  mediation
process  and all  such  participants  waive  in  writing  any  objection  to the
interest.  The parties shall  alternate in striking names from the list with the
last name on the list becoming the mediator.  The  determination  of which party
shall have the first strike off the list shall be determined by lot. The parties
shall have ten calendar days to complete the mediator selection process,  unless
the time is  extended  by mutual  agreement.  

          3.2.3 Advisory Mediator.

          If the Alternate Dispute Resolution Committee deems it appropriate, it
shall  distribute two lists,  one  containing the names of seven  mediators with
mediation  experience,  and one  containing  the names of seven  mediators  with
technical or business  experience in the electric power industry.  In connection
with circulating the foregoing lists, the Alternate Dispute Resolution Committee
shall specify one of the lists as  containing  the proposed  mediators,  and the
other as a list of proposed  advisors to assist the  mediator in  resolving  the
dispute.  The parties shall then utilize the  alternative  strike  procedure set
forth above  until one name  remains on each list,  with the last named  persons
serving as the mediator and advisor. 

                                       2


<PAGE>


          3.2.4 Mediation Process.

          The  disputing  parties  shall  attempt in good faith to resolve their
dispute  in  accordance  with  procedures  and a  timetable  established  by the
mediator. In furtherance of the mediation efforts, the mediator may:

          (a) Require the parties to meet for face-to-face discussions,  with or
without the mediator;

          (b) Act as an intermediary between the disputing parties;

          (c) Require the  disputing  parties to submit  written  statements  of
issues and positions;

          (d) If requested by the disputing parties at any time in the mediation
process,   provide  a  written  recommendation  on  resolution  of  the  dispute
including,  if  requested,  the  assessment by the mediator of the merits of the
principal positions being advanced by each of the disputing parties; and

          (e) Adopt, when appropriate, the Center for Public Resources Model ADR
Procedures  for the  Meditation  of Business  Disputes  (as revised from time to
time)  to the  extent  such  Procedures  are not  inconsistent  with  any  rule,
standard,  or procedure adopted by the Alternate Dispute Resolution Committee or
with any provision of this Agreement.

          3.2.5 Mediator's Assessment.

          (a) If a resolution of the dispute is not reached by the thirtieth day
after the  appointment of the mediator or such later date as may be agreed to by
the parties,  if not  previously  requested to do so the mediator shall promptly
provide  the  disputing  parties  with  a  written,  confidential,   non-binding
recommendation  on  resolution of the dispute,  including the  assessment by the
mediator of the merits of the principal  positions being advanced by each of the
disputing  parties.  The recommendation may incorporate or append, if and as the
mediator may deem  appropriate,  any  recommendations  or any  assessment of the
positions  of the parties by the advisor,  if any.  Upon  request,  the mediator
shall provide any additional  recommendations  or assessments the mediator shall
deem appropriate.

          (b) At a time and place  specified by the mediator  after  delivery of
the foregoing  recommendation,  the disputing parties shall meet in a good faith
attempt to resolve the dispute in light of the  recommendation  of the mediator.
Each  disputing  party  shall be  represented  at the  meeting by a person  with
authority to settle the dispute, along with such other persons as each disputing
party shall deem appropriate. If the disputing parties are unable to resolve the
dispute at or in connection with this meeting, then: (i) any disputing party may
commence such  arbitral,  judicial,  regulatory or other  proceedings  as may be
appropriate as provided in the PJM Dispute Resolution  Procedures;  and (ii) the
recommendation  of the  mediator,  and any  statements  made by any party in the
mediation  process,  shall  have no further  force or  effect,  and shall not be
admissible  for  any  purpose,  in  any  subsequent  arbitral,   administrative,
judicial, or other proceeding. 

                                       3


<PAGE>


     3.3 Costs.

     Except as  specified  in  Section 0, the costs of the time,  expenses,  and
other  charges of the mediator and any advisor,  and of the  mediation  process,
shall be borne by the  parties  to the  dispute,  with each  side in a  mediated
matter bearing  one-half of such costs, and each party bearing its own costs and
attorney's fees incurred in connection with the mediation.

                                 4. ARBITRATION

     4.1 When Required.

     Any  dispute  as to a  matter:  (i)  governed  by one of  the  Related  PJM
Agreements that has not been resolved through the mediation procedures specified
herein, (ii) involving a claim that one or more of the parties owes or is owed a
sum of money,  and (iii) the amount in controversy  is less than  $1,000,000.00,
shall be  subject to  binding  arbitration  in  accordance  with the  procedures
specified  herein.  If the parties so agree,  any other  disputes as to a matter
governed by a Related PJM Agreement may be submitted to binding  arbitration  in
accordance with the procedures specified herein. 

     4.2 Binding  Decision.  

     Except as  specified in Section 0, the  resolution  by  arbitration  of any
dispute under this Agreement shall not be binding. 

     4.3  Initiation. 

     A party or  parties  to a  dispute  which  is  subject  to the  arbitration
procedures  specified  herein shall send a written demand for arbitration to the
Chair of the Alternate  Dispute  Resolution  Committee  with a copy to the other
party or parties to the  dispute.  The demand for  arbitration  shall state each
claim for which arbitration is being demanded,  the relief being sought, a brief
summary of the grounds  for such  relief and the basis for the claim,  and shall
identify all other parties to the dispute.  

     4.4  Selection  of  Arbitrator(s).  

     The parties to a dispute for which  arbitration has been demanded may agree
on any person to serve as a single  arbitrator,  or shall endeavor in good faith
to agree on a single  arbitrator  from a list of  arbitrators  prepared  for the
dispute by the  Alternate  Dispute  Resolution  Committee  and  delivered to the
parties by facsimile or other  electronic  means  promptly  after receipt by the
Alternate  Dispute  Resolution  Committee  of  a  demand  for  arbitration.  The
Alternate  Dispute  Resolution  Committee may draw from the lists of arbitrators
maintained by the MAAC Dispute  Resolution  Committee,  as the Alternate Dispute
Resolution Committee deems appropriate.  If the parties are unable to agree on a
single arbitrator by the fourteenth day following delivery of the foregoing list
of  arbitrators  or such other date as agreed to by the parties,  then not later
than the end of the  seventh  business  day  thereafter  the  party  or  parties
demanding  arbitration on the one hand,  and the party or parties  responding to
the demand for arbitration on the other, shall each designate an arbitrator from
a list for the dispute prepared by the Alternate Dispute  Resolution  Committee.
The arbitrators so chosen shall then choose a third arbitrator. 

                                       4


<PAGE>


     4.5 Procedures.

     The Alternate Dispute Resolution Committee shall compile and make available
to the arbitrator(s) and the parties standard  procedures for the arbitration of
disputes,  which procedures (i) shall include provision,  upon good cause shown,
for  intervention  or other  participation  in the proceeding by any party whose
interests may be affected by its outcome, (ii) shall conform to the requirements
specified in these PJM Dispute Resolution Procedures,  and (iii) may be modified
or  adopted  for  use  in a  particular  proceeding  as the  arbitrator(s)  deem
appropriate.   To  the  extent  deemed  appropriate  by  the  Alternate  Dispute
Resolution Committee, the procedures adopted by the Alternate Dispute Resolution
Committee shall be based on the American  Arbitration  Association Rules, to the
extent such Rules are not  inconsistent  with any rule,  standard  or  procedure
adopted by the Alternate Dispute Resolution Committee,  or with any provision of
these PJM Dispute  Resolution  Procedures.  Upon selection of the arbitrator(s),
arbitration  shall go forward in  accordance  with  applicable  procedures. 

     4.6  Summary  Disposition  and Interim  Measures. 

          4.6.1 Lack of Good Faith Basis. 

          The procedures for  arbitration of a dispute shall provide a means for
summary  disposition of a demand for arbitration,  or a response to a demand for
arbitration,  that in the reasoned opinion of the arbitrator(s)  does not have a
good faith basis in either law or fact. If the arbitrator(s) determine(s) that a
demand for arbitration or response to a demand for  arbitration  does not have a
good faith basis in either law or fact, the arbitrator(s)  shall have discretion
to award the costs of the time, expenses, and other charges of the arbitrator(s)
to the  prevailing  party. 

          4.6.2  Discovery  Limits.  

          The procedures for the  arbitration of a dispute shall provide a means
for summary  disposition without discovery of facts if there is no dispute as to
any material  fact, or with such limited  discovery as the  arbitrator(s)  shall
determine is reasonably  likely to lead to the prompt resolution of any disputed
issue  of  material  fact. 

          4.6.3  Interim  Decision.  

          The procedures for the arbitration of a dispute shall permit any party
to a dispute to request the  arbitrator(s)  to render a written interim decision
requiring  that any action or  decision  that is the subject of a dispute not be
put into effect,  or imposing such other interim  measures as the  arbitrator(s)
deem necessary or appropriate, to preserve the rights and obligations secured by
any of the  Related  PJM  Agreements  during  the  pendency  of the  arbitration
proceeding.  The parties  shall be bound by such  written  decision  pending the
outcome of the arbitration proceeding. 

                                       5


<PAGE>


     4.7 Discovery of Facts.

          4.7.1 Discovery Procedures.

          The procedures for the arbitration of a dispute shall include adequate
provision for the discovery of relevant facts, including the taking of testimony
under oath, production of documents and other things, and inspection of land and
tangible  items.  The nature and extent of such discovery shall be determined as
provided  herein and shall take into account (i) the  complexity of the dispute,
(ii)  the  extent  to  which  facts  are  disputed,  and  (iii)  the  amount  in
controversy.  The  forms and  methods  for  taking  such  discovery  shall be as
described  in the Federal  Rules of Civil  Procedure,  except as modified by the
procedures  established  by the  Alternate  Dispute  Resolution  Committee,  the
arbitrator(s) or agreement of the parties.

          4.7.2 Procedures Arbitrator.

          The sole  arbitrator,  or the arbitrator  selected by the  arbitrators
chosen  by the  parties,  as the case may be (such  arbitrator  being  hereafter
referred  to  as  the  "Procedures   Arbitrator"),   shall  be  responsible  for
establishing  the timing,  amount,  and means of  discovery,  and for  resolving
discovery and other pre-hearing  disagreement.  If a dispute involves  contested
issues of fact, promptly after the selection of the arbitrator(s) the Procedures
Arbitrator   shall  convene  a  meeting  of  the  parties  for  the  purpose  of
establishing a schedule and plan of discovery and other pre-hearing actions. 

     4.8  Evidentiary  Hearing. 

     The  procedures  for the  arbitration  of a dispute  shall  provide  for an
evidentiary  hearing,  with  provision for the  cross-examination  of witnesses,
unless all  parties  consent to the  resolution  of the matter on the basis of a
written record.  The forms and methods for taking evidence shall be as described
in the  Federal  Rules  of  Evidence,  except  as  modified  by  the  procedures
established by the Alternate Dispute Resolution Committee,  the arbitrator(s) or
agreement of the parties.  The  arbitrator(s)  may require such written or other
submissions  from  the  parties  as  shall  be  deemed  appropriate,   including
submission  of  the  direct   testimony  of  witnesses  in  written  form.   The
arbitrator(s)  may exclude any evidence that is irrelevant,  immaterial,  unduly
repetitious or prejudicial,  or privileged. Any party or parties may arrange for
the  preparation  of a record of the hearing,  and shall pay the costs  thereof.
Such  party or  parties  shall  have no  obligation  to  provide or agree to the
provision  of a copy of the record of the hearing to any party that does not pay
an equal  share of the cost of the  record.  At the  request of any  party,  the
arbitrator(s)  shall  determine a fair and equitable  allocation of the costs of
the  preparation  of a record  between or among the  parties  to the  proceeding
willing to share such costs. 

                                       6


<PAGE>


     4.9 Confidentiality.

          4.9.1 Designation.

          Any  document  or  other  information  obtained  in the  course  of an
arbitral  proceeding  and  not  otherwise  available  to  the  receiving  party,
including  any  such  information  contained  in  documents  or  other  means of
recording  information  created  during  the  course of the  proceeding,  may be
designated  "Confidential" by the producing party. The party producing documents
or other  information  marked  "Confidential"  shall have  twenty  days from the
production of such material to submit a request to the Procedures  Arbitrator to
establish  such  requirements  for the  protection  of such  documents  or other
information  designated as  "Confidential" as may be reasonable and necessary to
protect the  confidentiality  and commercial  value of such  information and the
rights of the parties, which requirements shall be binding on all parties to the
dispute.  Prior to the decision of the  Procedures  Arbitrator  on a request for
confidential   treatment,   documents  or  other   information   designated   as
"Confidential"  shall  not be used by the  receiving  party or  parties,  or the
arbitrator(s),  or anyone working for or on behalf of any of the foregoing,  for
any purpose other than the arbitration proceeding, and shall not be disclosed in
any form to any person not involved in the  arbitration  proceeding  without the
prior written  consent of the party producing the information or as permitted by
the Procedures Arbitrator. 

          4.9.2 Compulsory  Disclosure. 

          Any party  receiving  a request or demand for  disclosure,  whether by
compulsory process, discovery request, or otherwise, of documents or information
obtained in the course of an arbitration  proceeding  that have been  designated
"Confidential" and that are subject to a non-disclosure  requirement under these
PJM Dispute  Resolution  Procedures or a decision of the Procedures  Arbitrator,
shall immediately inform the party from which the information was obtained,  and
shall  take  all  reasonable  steps,  short  of  incurring  sanctions  or  other
penalties,  to afford  the  person  or entity  from  which the  information  was
obtained an opportunity to protect the information  from  disclosure.  Any party
disclosing  information in violation of these PJM Dispute Resolution  Procedures
or requirements established by the Procedures Arbitrator shall thereby waive any
right  to  introduce  or  otherwise  use  such   information  in  any  judicial,
regulatory,  or other  legal or dispute  resolution  proceeding,  including  the
proceeding  in which the  information  was obtained. 

          4.9.3 Public Information.

          Nothing  in the  Related  PJM  Agreements  shall  preclude  the use of
documents or information properly obtained outside of an arbitral proceeding, or
otherwise  public,  for  any  legitimate  purpose,   notwithstanding   that  the
information was also obtained in the course of the arbitral proceeding. 

                                       7


<PAGE>


          4.10 Timetable.

          Promptly after the selection of the  arbitrator(s),  the arbitrator(s)
shall set a date for the issuance of the arbitral  decision,  which shall be not
later than eight months (or such earlier date as may be agreed to by the parties
to the dispute) from the date of the selection of the arbitrator(s),  with other
dates, including the dates for an evidentiary hearing or other final submissions
of evidence,  set in light of this date. The date for the evidentiary hearing or
other final  submission of evidence  shall not be changed  absent  extraordinary
circumstances.  The  arbitrator(s)  shall  have the power to  impose  sanctions,
including  dismissal of the  proceeding  for dilatory  tactics or undue delay in
completing the arbitral proceedings. 

          4.11  Advisory  Interpretations. 

          Except  as  to  matters   subject  to  decision  in  the   arbitration
proceeding,  the  arbitrator(s)  may  request  as may be  appropriate  from  any
committee or  subcommittee  established  under a Related PJM Agreement or by the
Office of the Interconnection,  an interpretation of any Related PJM Agreements,
or of any standard, requirement, procedure, tariff, Schedule, principle, plan or
other criterion or policy  established by any committee or subcommittee.  Except
to the  extent  that the  Office of the  Interconnection  is itself a party to a
dispute,  the  arbitrator(s)  may  request  the  advice  of  the  Office  of the
Interconnection  with respect to any matter relating to a responsibility  of the
Office of the Interconnection  under the Agreement or with respect to any of the
Related PJM Agreements, or to the PJM Manuals. Any such interpretation or advice
shall not relieve the arbitrator(s) of responsibility  for resolving the dispute
or  deciding  the  arbitration  proceeding  in  accordance  with  the  standards
specified  herein. 

          4.12  Decisions. 

          The arbitrator(s)  shall issue a written decision,  including findings
of fact and the legal basis for the  decision.  The arbitral  decision  shall be
based on (i) the  evidence  in the  record,  (ii) the terms of the  Related  PJM
Agreements, as applicable, (iii) applicable United States federal and state law,
including  the  Federal  Power  Act  and any  applicable  FERC  regulations  and
decisions,  and  international  treaties or agreements as  applicable,  and (iv)
relevant decisions in previous arbitration proceedings.  The arbitrator(s) shall
have  no  authority  to  revise  or  alter  any  provision  of the  Related  PJM
Agreements.   Any  arbitral  decision  issued  pursuant  to  these  PJM  Dispute
Resolution  Procedures that affects matters subject to the  jurisdiction of FERC
under Section 205 of the Federal Power Act shall be filed with FERC. 

          4.13 Costs.

          Unless the  arbitrator(s)  shall  decide  otherwise,  the costs of the
time,  expenses,  and other charges of the  arbitrator(s)  shall be borne by the
parties  to the  dispute,  with each side on an  arbitrated  issue  bearing  its
pro-rata  share of such costs,  and each party to an arbitral  proceeding  shall
bear its own costs and fees. The arbitrator(s) may award all or a portion of the
costs of the time, expenses,  and other charges of the arbitrator(s),  the costs
of  arbitration,  attorney's  fees,  and the costs of mediation,  if any, to any
party that substantially prevails on an issue determined by the arbitrator(s) to
have been raised without a substantial basis. 

                                       8


<PAGE>


     4.14 Enforcement.

     If the  decision of the  arbitrator(s)  is  binding,  the  judgment  may be
entered  on such  arbitral  award  by any  court  having  jurisdiction  thereof;
provided, however, that within one year of the issuance of the arbitral decision
any  party  affected  thereby  may  request  FERC or any other  federal,  state,
regulatory or judicial authority having jurisdiction to vacate,  modify, or take
such other action as may be  appropriate  with respect to any arbitral  decision
that is based upon an error of law, or is contrary to the  statutes,  rules,  or
regulations  administered  or applied  by such  authority.  Any party  making or
responding to, or intervening in proceedings  resulting  from, any such request,
shall request the authority to adopt the resolution,  if not clearly  erroneous,
of  any  issue  of  fact  expressly  or  necessarily  decided  in  the  arbitral
proceeding, whether or not the party participated in the arbitral proceeding.

                   5. ALTERNATE DISPUTE RESOLUTION COMMITTEE

     5.1 Membership.

          5.1.1  Representatives. 

          The Alternate  Dispute  Resolution  Committee shall be composed of two
representatives  selected  by  each of the  following:  (i)  the  Office  of the
Interconnection;   (ii)  the  Members  Committee;   (iii)  the  parties  to  the
Reliability Assurance Agreement; and (iv) the parties to the Transmission Owners
Agreement.  

          5.1.2  Term. 

          Representatives  on the Alternate Dispute  Resolution  Committee shall
serve  for  terms of three  years and may serve  additional  terms. 

     5.2 Voting Requirements. 

     Approval  or  adoption of  measures  by the  Alternate  Dispute  Resolution
Committee shall require two-thirds of the votes of the  representatives  present
and  voting.   Two-thirds  of  the  representatives  on  the  Alternate  Dispute
Resolution Committee shall constitute a quorum for the conduct of business. 

     5.3  Officers.  

     At the first meeting of the Alternate  Dispute  Resolution  Committee,  the
representatives  to the Alternate  Dispute  Resolution  Committee shall choose a
Chair and Vice Chair from among the representatives on the Committee.  The Chair
of the Alternate Dispute  Resolution  Committee shall preside at meetings of the
Committee,  and shall have the power to call  meetings of the  Committee  and to
exercise such other powers as are specified in this  Agreement or are authorized
by the Alternate Dispute Resolution  Committee.  The Vice Chair shall preside at
meetings of the  Alternate  Dispute  Resolution  Committee in the absence of the
Chair, and shall exercise such other powers as are delegated by the Chair. 

                                       9


<PAGE>


     5.4 Meetings.

     The Alternate  Dispute  Resolution  Committee  shall meet at such times and
places as determined by the  Committee,  or at the call of the Chair.  The Chair
shall call a meeting of the  Alternate  Dispute  Resolution  Committee  upon the
request  of two or more  representatives  on the  Alternate  Dispute  Resolution
Committee.

     5.5 Responsibilities.

     The duties of the Alternate  Dispute  Resolution  Committee include but are
not limited to the following:

          i)        Maintain  a list of persons  qualified  by  temperament  and
                    experience, and with technical or legal expertise in matters
                    likely to be the subject of disputes,  to serve as mediators
                    or   arbitrators   under   these  PJM   Dispute   Resolution
                    Procedures;

          ii)       Determine  the rates and other costs and charges  that shall
                    be paid to  mediators,  advisors and  arbitrators  for or in
                    connection with their services;

          iii)      Determine whether mediation is not warranted in a particular
                    dispute;

          iv)       Provide to disputing parties lists of mediators, advisors or
                    arbitrators to resolve particular disputes;

          v)        Compile  and  make   available   to  parties  to   disputes,
                    arbitrators,   and  other   interested   persons   suggested
                    procedures  for the  arbitration  of disputes in  accordance
                    with Section 4.5;

          vi)       Maintain   and  make   available  to  parties  to  disputes,
                    mediators,  advisors,   arbitrators,  and  other  interested
                    persons the written decisions required by Section 4.12;

          vii)      Establish  such  procedures  and  schedules,  in addition to
                    those  specified  herein,  as it shall deem  appropriate  to
                    further the prompt, efficient, fair and equitable resolution
                    of disputes; and

          viii)     Provide  such  oversight  and  supervision  of  the  dispute
                    resolution  processes and procedures  instituted pursuant to
                    the  Related  PJM   Agreements  as  may  be  appropriate  to
                    facilitate  the  prompt,   efficient,   fair  and  equitable
                    resolution of disputes. 

                                       10


<PAGE>


                                   SCHEDULE 6
                                 Revision No. 1

               REGIONAL TRANSMISSION EXPANSION PLANNING PROTOCOL
Issued:        June 2, 1997
Effective:     August 1, 1997

              1. REGIONAL TRANSMISSION EXPANSION PLANNING PROTOCOL

     Purpose and Objectives

     This Regional  Transmission  Expansion  Planning  Protocol shall govern the
process by which the Members  shall rely upon the Office of the  Interconnection
to  prepare  a plan  for  the  enhancement  and  expansion  of the  Transmission
Facilities in order to meet the demands for firm transmission service in the PJM
Control Area. The Regional  Transmission  Expansion  Plan to be developed  shall
enable the  transmission  needs in the PJM Control Area to be met on a reliable,
economic and environmentally acceptable basis. 

     1.2 Conformity  with NERC and MAAC Criteria 

     (a)  NERC  establishes  Planning  Principles  and  Guides  to  promote  the
reliability  and adequacy of the North  American bulk power supply as related to
the  operation and planning of electric  systems. 

     (b) MAAC is responsible for ensuring the adequacy, reliability and security
of the bulk  electric  supply  systems in the MAAC  region  through  coordinated
operations and planning of generation and transmission  facilities.  Toward that
end, it has adopted the NERC Planning  Principles and Guides and has established
detailed  Reliability  Principles  and  Standards for Planning the Bulk Electric
Supply System of the MAAC Group. 

     (c) The  Regional  Transmission  Expansion  Plan  shall  conform  with  the
applicable reliability principles,  guidelines and standards of NERC and MAAC in
accordance with the procedures detailed in the PJM Manuals. 

     1.3 Establishment of Committees 

     (a) The Regional  Transmission  Owners shall supply  representatives to the
Planning  Committee  to provide  the data,  information,  and  analysis  support
necessary to perform studies as required. As used herein, "Regional Transmission
Owner" shall be defined as it is in the PJM Open Access  Transmission PJM Tariff
("PJM Tariff"). 

     (b) The Transmission Expansion Advisory Committee established by the Office
of the  Interconnection  will provide input to the  development  of the Regional
Transmission  Expansion Plan. The Transmission Expansion Advisory Committee will
invite participation by: (i) all Transmission Customers, as that term is defined
in the PJM Tariff,  and  applicants  for  transmission  service;  (ii) any other
entity  proposing to provide  Transmission  Facilities to be integrated into the
PJM Control Area;  (iii) all Members;  (iv) the agencies and offices of consumer
advocates of the States in the PJM Control Area exercising  regulatory authority
over the rates, terms or conditions of


<PAGE>


electric service or the planning, siting,  construction or operation of electric
facilities and (v) any other interested entities or persons.

     1.4 Contents of the Regional Transmission Expansion Plan

     (a)  The  Office  of  the   Interconnection   shall  prepare  the  Regional
Transmission  Expansion Plan, which shall consolidate the transmission  needs of
the region into a single plan which is assessed on the basis of maintaining  the
PJM Control  Area's  reliability in an economic and  environmentally  acceptable
manner.

     (b) The Regional  Transmission  Expansion  Plan shall reflect  transmission
enhancements  and  expansions,   load  and  capacity  forecasts  and  generation
additions and retirements for the ensuing ten years.

     (c) The Regional Transmission Expansion Plan shall, as a minimum, include a
designation  of the Regional  Transmission  Owner or Owners or other entity that
will own a transmission facility and how all reasonably incurred costs are to be
recovered.  

     (d) The Regional  Transmission  Expansion Plan shall (i) avoid  unnecessary
duplication of facilities;  (ii) avoid the imposition of  unreasonable  costs on
any Regional  Transmission Owner or any user of Transmission  Facilities;  (iii)
take into  account  the legal and  contractual  rights  and  obligations  of the
Regional  Transmission  Owners; (iv) provide, if appropriate,  alternative means
for  meeting  transmission  needs in the PJM Control  Area;  and (v) provide for
coordination   with   existing   transmission   systems  and  with   appropriate
interregional and local expansion plans.

     1.5 Procedure for Development of the Regional Transmission Expansion Plan

          1.5.1   Commencement   of  the   Process  

          (a) The Office of the  Interconnection  shall initiate the enhancement
and  expansion  study process if (i) required as a result of a need for transfer
capability  identified by the Office of the Interconnection in its evaluation of
requests for firm  transmission  service with a term of one year or more or as a
result  of  the  Office  of  the   Interconnection's   on-going   evaluation  of
transmission system adequacy and performance; (ii) identified as a result of the
MAAC reliability  assessment or more stringent local  reliability  criteria,  if
any; (iii) constraints or available transfer  capability shortage are identified
by the Office of the  Interconnection  as a result of  generation  additions  or
retirements,  evaluation  of load  forecasts  or  proposals  for the addition of
Transmission  Facilities  in the PJM  Control  Area;  or (iv)  expansion  of the
transmission  system is proposed by the Regional  Transmission Owners or others.


          (b) The Office of the  Interconnection  shall notify the  Transmission
Expansion Advisory Committee of the commencement of an enhancement and expansion
study. The Transmission  Expansion Advisory Committee shall notify the Office of
the Interconnection in writing of any additional transmission  considerations to
be included.  

          1.5.2  Development of Scope,  Assumptions and Procedures

          Once  the  need  for an  enhancement  and  expansion  study  has  been
established,   the  Office  of  the  Interconnection   shall  consult  with  the
Transmission   Expansion  Advisory  Committee  to  prepare  the  study's  scope,
assumptions and procedures. 

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<PAGE>


          1.5.3 Scope of Studies

          In general, enhancement and expansion studies shall include:

          (a) An  identification  of  existing  and  projected  electric  system
limitations,  with accompanying simulations to identify the costs of controlling
those  limitations.  Potential  enhancements  and expansions will be proposed to
mitigate limitations controlled by non-economic means.

          (b) Evaluation and analysis of potential  enhancements and expansions,
including alternatives thereto, needed to mitigate such limitations.

          (c)  Engineering  studies  needed to determine the  effectiveness  and
compliance  (with   reliability   criteria)  of  recommended   enhancements  and
expansions.

          1.5.4 Supply of Data

          The  Regional   Transmission   Owners,   those   entities   requesting
transmission  service and any other entities  proposing to provide  Transmission
Facilities  to be  integrated  into  the PJM  Control  Area  shall  supply  such
information and data reasonably required by the Office of the Interconnection to
perform the enhancement and expansion study.


          1.5.5 Coordination of the Regional Transmission Expansion Plan

          (a) The  Regional  Transmission  Expansion  Plan shall be developed in
coordination  with  the  transmission   systems  of  the  surrounding   regional
reliability councils and with the local transmission providers.

          (b) The Regional Transmission Expansion Plan shall be developed by the
Office of the  Interconnection  in consultation with the Transmission  Expansion
Advisory  Committee  during the enhancement  and expansion study process.  

          1.5.6 Development of the Recommended Regional  Transmission  Expansion
Plan

          (a) Upon  completion  of its studies and  analysis,  the Office of the
Interconnection  shall prepare a recommended  enhancement and expansion plan for
review by the Transmission  Expansion Advisory  Committee.  The recommended plan
shall  include  recommendations  for cost  responsibility,  except for  directly
assigned costs, for any enhancement or expansion, based on the planning analysis
and other input from participants, including any indications of a willingness to
bear cost responsibility for an enhancement or expansion.

          (b)For the purposes of Section  1.5.6(a),  any  allocation of costs to
all of the Regional Transmission Owners shall be proportional to the load within
the Zones. Load shall be measured  consistent with the loads utilized to develop
the rates included in Attachment H to the PJM Tariff.

          (c) Any  Regional  Transmission  Owner and other  participants  on the
Transmission Expansion Advisory Committee may offer an alternative.

          (d) If the Office of the Interconnection adopts the alternative, based
upon  its  review  of the  relative  costs  and  benefits,  the  ability  of the
alternative to supply the required level of transmission service, and its impact
on the reliability of the Transmission Facilities, the Office of 

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<PAGE>


the  Interconnection  shall make any necessary  changes to the recommended plan.


          (e) If, based upon its review of the relative costs and benefits,  the
ability of the alternative to supply the required level of transmission service,
and the alternative's impact on the reliability of the Transmission  Facilities,
the Office of the Interconnection does not adopt such alternative,  the Regional
Transmission  Owner or Owners whose  alternative or  alternatives  have not been
accepted or to whom cost responsibility has been assigned and other participants
on the Transmission  Expansion  Advisory Committee may require that its or their
alternative(s) be submitted to Alternative Dispute Resolution.

     1.6 Approval of the Final Regional Transmission Expansion Plan

     (a) The PJM Board shall approve the final Regional  Transmission  Expansion
Plan, including any alternatives therein, in accordance with the requirements of
this Section 1.6.

     (b) If the facilities to be provided in the Regional Transmission Expansion
Plan are acceptable, but the Regional Transmission Owners and other entities who
have  indicated  a  willingness  to bear some or all of the cost  responsibility
cannot  unanimously  agree on the  allocation  of the costs of  enhancements  or
expansions, the cost responsibility shall be allocated (a) to those entities who
have indicated a willingness to bear some or all of the cost of  responsibility,
and (b) among the Regional  Transmission Owners in accordance with the following
guidelines:  

          i)        All of the  costs of  Transmission  Facilities  (other  than
                    transformers)  with a nominal operating voltage of 500 kV or
                    higher   shall  be   allocated   to  all  of  the   Regional
                    Transmission Owners;

          ii)       One-half of the costs of Transmission Facilities (other than
                    transformers)  with a nominal operating voltage of 230 kV or
                    345 kV  shall  be  allocated  to all  Regional  Transmission
                    Owners and one-half of the costs of such facilities shall be
                    allocated to the Regional Transmission Owners in whose Zone,
                    as that term is defined in the PJM Tariff,  the  enhancement
                    or expansion is to be located;

          iii)      All of the  costs of  Transmission  Facilities  (other  than
                    transformers)  with a nominal operating voltage below 230 kV
                    shall be  allocated to the  Regional  Transmission  Owner or
                    Owners  in  whose  Zone  the  enhancement  or  expansion  is
                    located;

          iv)       One-half of the costs of transformers  shall be allocated in
                    accordance  with the  methodology  specified in (a), (b), or
                    (c) above,  based  upon the  voltage at the high side of the
                    transformer  and one-half of the costs shall be allocated in
                    accordance with the  methodology  specified in (a), (b), and
                    (c)  above  based  upon the  voltage  at the low side of the
                    transformer,  unless the low side of the transformer is less
                    than  100  kV,  in  which  case  all  of  the  costs  of the
                    transformer shall be allocated to the Regional  Transmission
                    Owner or Owners in whose Zone the transformer is located.

     If a  Regional  Transmission  Expansion  Plan  is not  approved,  or if the
transmission  service  requested  by any entity is not  included  in an approved
Regional Transmission  Expansion Plan, nothing herein shall limit in any way the
right of any entity to seek relief pursuant to the provisions 

                                       4


<PAGE>


of Section 211 of the Federal Power Act.

     (d) Following PJM Board approval, the final Regional Transmission Expansion
Plan  shall be  submitted  to MAAC for  verification  that all  enhancements  or
expansions conform to all MAAC Reliability Principles and Standards.

     1.7 Obligation to Build

     (a) Subject to the requirements of applicable law,  government  regulations
and  approvals,  including,  without  limitation,  requirements  to  obtain  any
necessary  state or local siting,  construction  and operating  permits,  to the
availability  of  required  financing,  to  the  ability  to  acquire  necessary
right-of-way,  and to the right to recover,  pursuant to  appropriate  financial
arrangements  and tariffs or contracts,  all reasonably  incurred costs,  plus a
reasonable return on investment,  Regional Transmission Owners designated as the
appropriate  entities to construct and own or finance enhancements or expansions
specified in the Regional Transmission Expansion Plan shall construct and own or
finance  such  facilities  or enter into  appropriate  contracts to fulfill such
obligations.

     (b) Nothing  herein shall  prohibit any  Regional  Transmission  Owner from
seeking to recover the cost of enhancements or expansions on an incremental cost
basis or from seeking approval of such rate treatment from any regulatory agency
with jurisdiction over such rates.

     1.8  Relationship  to the PJM  Control  Area Open Access  Transmission  PJM
Tariff

     Nothing  herein  shall  modify the rights and  obligations  of an  Eligible
Customer  or a  Transmission  Customer,  as those  terms are  defined in the PJM
Tariff,   with  respect  to  required   studies  and   completion  of  necessary
enhancements  or  expansions.  An  Eligible  Customer or  Transmission  Customer
electing to follow the  procedures in the PJM Tariff  instead of the  procedures
provided  herein,   shall  also  be  responsible  for  the  related  costs.  The
enhancement and expansion study process under this Protocol shall be funded as a
part of the operating budget of the Office of the Interconnection. 

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<PAGE>


                                   SCHEDULE 7
                                 Revision No. 1

                  UNDERFREQUENCY RELAY OBLICATIONS AND CHARGES

Issued:        June 2, 1997
Effective:     August 1, 1997

                       1. UNDERFREQUENCY RELAY OBLIGATION

     1.1 Application.

     The  obligations  of this Schedule apply to each Member that is an Electric
Distributor, whether or not that Member participates in the Electric Distributor
sector on the Members  Committee or meets the eligibility  requirements  for any
other sector of the Members Committee.

     1.2 Obligations.

     Each  Electric  Distributor  shall  install or  contractually  arrange  for
underfrequency  relays to interrupt at least 30 percent of its peak load with 10
percent of the load interrupted at each of three frequency levels: 59.3 Hz, 58.9
Hz and 58.5 Hz. Upon the request of the  Reliability  Committee,  each  Electric
Distributor  shall  document  that it has  complied  with  the  requirement  for
underfrequency  load  shedding  relays.  

                        2. UNDERFREQUENCY RELAY CHARGES

     If  an  Electric  Distributor  is  determined  to  not  have  the  required
underfrequency  relays, it shall pay an underfrequency relay charge of: 

     Charge = D x R x 365 
               where 
     D = the amount, in megawatts, the Electric Distributor is deficient; and

     R =  the daily  rate per  megawatt,  which  shall be based on the  annual
          carrying charges for a new combustion turbine generator, installed and
          connected to the transmission  system,  which daily deficiency rate as
          of the Effective Date shall be $58.400/per  kilowatt-year  or $160 per
          megawatt-day. 

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<PAGE>


                3. DISTRIBUTION OF UNDERFREQUENCY RELAY CHARGES

     3.1 Share of Charges.

     Each  Electric  Distributor  that has complied  with the  requirements  for
underfrequency  relays  imposed  by this  Agreement  during a  Planning  Period,
without   incurring  an  underfrequency   relay  charge,   shall  share  in  any
underfrequency  relay charges paid by any other  Electric  Distributor  that has
failed to satisfy said obligation during such Planning Period. Such shares shall
be in proportion to the number of megawatts of a Electric  Distributor's load in
the most  recently  completed  month at the time of the peak for the PJM Control
Area during that month rounded to the next higher whole megawatt, as established
initially on the  Effective  Date and as updated at the  beginning of each month
thereafter.  

     3.2  Allocation by the Office of the  Interconnection.

     In the event all of the Electric Distributors have incurred  underfrequency
relay charges during a Planning Period, the  underfrequency  relay charges shall
be  distributed  among  the  Electric  Distributors  on an  equitable  basis  as
determined by the Office of the Interconnection. 

                                       2


<PAGE>


                                   SCHEDULE 8
                                 Revision No. 1

                   DELEGATION OF RELIABILITY RESPONSIBILTIES
Issued:        June 2, 1997
Effective:     August 1, 1997

                                 1. DELEGATION

     The  following  responsibilities  shall be  delegated  to the Office of the
Interconnection by the parties to the Reliability Assurance Agreement.

                                 2. NEW PARTIES

     With  regard  to the  addition,  withdrawal  or  removal  of a party to the
Reliability Assurance Agreement, the Office of the Interconnection shall:

     (a) Receive and evaluate the information submitted by entities that plan to
serve loads within the PJM Control Area,  including entities whose participation
in the  Agreement  will  expand the  boundaries  of the PJM Control  Area,  such
evaluation  to  be  conducted  in  accordance  with  the   requirements  of  the
Reliability Assurance Agreement; and

     (b) Evaluate the effects of the  withdrawal  or removal of a party from the
Reliability Assurance Agreement.

             3. IMPLEMENTATION OF RELIABILITY ASSURANCE AGREEMENT.

     With regard to the  implementation  of the  provisions  of the  Reliability
Assurance  Agreement,  the Office of the Interconnection  shall: 

     (a)  Receive  all  required  data and  forecasts  from the  parties  to the
Reliability Assurance Agreement;

     (b) Perform all  calculations  and  analyses  necessary  to  determine  the
Forecast Pool  Requirement,  the Forecast Zone  Requirement and the Forecast LSE
Obligation,  including  periodic  reviews  of the  capacity  benefit  margin for
consistency  with the  Reliability  Principles and  Standards,  as the foregoing
terms are defined in the Reliability Assurance Agreement;

     (c)  Monitor  the  compliance  of each party to the  Reliability  Assurance
Agreement with its obligations under the Reliability Assurance Agreement;

     (d) Keep cost  records,  and bill and collect any costs or charges due from
the parties to the Reliability  Assurance Agreement and distribute those charges
in accordance with the terms of the Reliability Assurance Agreement;

     (e) Assist with the development of rules and procedures for determining and

                                       1


<PAGE>


demonstrating the capability of Capacity Resources;

     (f) Establish  the  capability  and  deliverability  of Capacity  Resources
consistent with the requirements of the Reliability Assurance Agreement;

     (g) Collect and maintain generator availability data;

     (h)  Perform  any other  studies or analyses  required  to  administer  the
Reliability Assurance Agreement;

     (i) Coordinate  maintenance  schedules for generation resources operated as
part of the PJM Control Area;

     (j) Determine  and declare that an Emergency  exists or has ceased to exist
in all or any part of the PJM Control Area or in a Control  Area  interconnected
with the PJM Control Area;

     (k) Enter into  agreements for (i) the transfer of energy in Emergencies in
the PJM Control  Area or in a Control Area  interconnected  with the PJM Control
Area and (ii)  mutual  support  in such  Emergencies  with other  Control  Areas
interconnected  with the PJM Control Area; and 

     (l)  Coordinate  the  curtailment  or shedding of load,  or other  measures
appropriate  to alleviate an Emergency,  to preserve  reliability  in accordance
with FERC, NERC or MAAC principles,  guidelines,  standards and requirements and
the  PJM  Manuals,  and to  ensure  the  operation  of the PJM  Control  Area in
accordance with Good Utility Practice. 

                                       2


<PAGE>


                                   SCHEDULE 9
                                 Revision No. 1

                          EMERGENCY PROCEDURE CHARGES

Issued:        June 2, 1997
Effective:     August 1, 1997

                           EMERGENCY PROCEDURE CHARGE

     Following an Emergency, the compliance of each Member with the instructions
of the Office of the  Interconnection  shall be  evaluated  by the Office of the
Interconnection.  If, based on such  evaluation,  it is determined that a Member
failed to comply with the instructions of the Office of the  Interconnection  to
implement voltage reductions or to drop load, that Member shall demonstrate that
it employed  its best efforts to comply with such  instructions.  In the event a
Member failed to employ its best efforts to comply with the  instructions of the
Office of the  Interconnection,  that Member  shall pay an  emergency  procedure
charge as  follows:  

     (a) For each  megawatt of voltage  reduction  that was not  implemented  as
directed,  the Member shall pay 365 times the daily deficiency rate per megawatt
based on the annual  carrying  charges for a new combustion  turbine  generator,
installed and connected to the transmission  system, which daily deficiency rate
as of the  Effective  Date  shall  be  $58.400/per  kilowatt-year  or  $160  per
megawatt-day;  and  

     (b) For each megawatt of load that was not dropped as directed,  the Member
shall pay 730 times the daily  deficiency  rate per megawatt based on the annual
carrying charges for a new combustion turbine generator, installed and connected
to the transmission system, which daily deficiency rate as of the Effective Date
shall be $58.400/per kilowatt-year or $160 per megawatt- day. 

                 2. DISTRIBUTION OF EMERGENCY PROCEDURE CHARGES

     2.1  Complying  Parties.  Each Member that has complied  with the emergency
procedures  imposed by this Agreement during an Emergency,  without incurring an
emergency procedure charge,  shall share in any emergency procedure charges paid
by any other  Member  that has failed to satisfy  said  obligation  during  such
Emergency  in an equitable  manner to be  determined  by the PJM Board.  

     2.2 All Parties.

     In the event all of the Members have incurred  emergency  procedure charges
with respect to an Emergency,  the emergency  procedure  charges related to that
Emergency  shall be  distributed  in an equitable  manner as directed by the PJM
Board.