Document:

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                                                                    Exhibit 10.1

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                       TRANSITION PROPERTY SALE AGREEMENT

                                    between

                   RELIANT ENERGY TRANSITION BOND COMPANY LLC
                                     Issuer

                                      and

                          RELIANT ENERGY, INCORPORATED
                                     Seller

                          Dated as of October 24, 2001
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                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                           <C>
ARTICLE I DEFINITIONS .....................................................................    1
        Section 1.01 Definitions ..........................................................    1
        Section 1.02 Other Definitional Provisions ........................................    1

ARTICLE II CONVEYANCE OF THE TRANSITION PROPERTY ..........................................    2
        Section 2.01 Conveyance of the Initial Transition Property ........................    2
        Section 2.02 Conditions to Conveyance of the Transition Property ..................    3

ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER ......................................    5
        Section 3.01 Organization and Good Standing .......................................    5
        Section 3.02 Due Qualification ....................................................    5
        Section 3.03 Power and Authority ..................................................    5
        Section 3.04 Binding Obligation ...................................................    5
        Section 3.05 No Violation .........................................................    6
        Section 3.06 No Proceedings .......................................................    6
        Section 3.07 Approvals ............................................................    6
        Section 3.08 The Transition Property ..............................................    7
        Section 3.09 Solvency .............................................................    7
        Section 3.10 The Financing Order ..................................................    8
        Section 3.11 State Action .........................................................    8
        Section 3.12 No Court Order .......................................................    9
        Section 3.13 Approvals Concerning the Transition Property .........................    9
        Section 3.14 No Proceedings Concerning the Texas Electric Choice Plan .............    9
        Section 3.15 Assumptions ..........................................................    9
        Section 3.16 Creation of the Transition Property ..................................   10
        Section 3.17 Prospectus ...........................................................   10
        Section 3.18 Conversion to a Limited Liability Company ............................   10
        Section 3.19 Nature of Representations and Warranties .............................   11

ARTICLE IV COVENANTS OF THE SELLER ........................................................   11
        Section 4.01 Seller's Existence ...................................................   11
        Section 4.02 No Liens or Conveyances ..............................................   11
        Section 4.03 Delivery of Collections ..............................................   11
        Section 4.04 Notice of Liens ......................................................   12
        Section 4.05 Compliance With Law ..................................................   12
        Section 4.06 Covenants Related to the Transition Property .........................   12
        Section 4.07 Protection of Title ..................................................   13
        Section 4.08 Taxes ................................................................   14
</TABLE>

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<TABLE>
<S>                                                                                        <C>
     Section 4.09  Filings Pursuant to Financing Order..............................       14

ARTICLE V ADDITIONAL UNDERTAKINGS OF SELLER ........................................       14

     Section 5.01. Liability of the Seller; Indemnities ............................       15
     Section 5.02. Merger or Consolidation of, or Assumption of the
                   Obligations of, the Seller ......................................       16
     Section 5.03. Conversion of the Seller to a Limited Liability Company .........       18
     Section 5.04. Limitation on Liability of the Seller And Others ................       18

ARTICLE VI MISCELLANEOUS PROVISIONS ................................................       18
     Section 6.01  Amendment .......................................................       18
     Section 6.02  Notices .........................................................       19
     Section 6.03  Assignment by the Seller ........................................       20
     Section 6.04  Assignment to the Indenture Trustee .............................       20
     Section 6.05  Limitations on Rights of Others .................................       20
     Section 6.06  Severability ....................................................       20
     Section 6.07  Separate Counterparts ...........................................       21
     Section 6.08  Headings ........................................................       21
     Section 6.09  Governing Law ...................................................       21
     Section 6.10  Nonpetition Covenants ...........................................       21
</TABLE>

APPENDIX A DEFINITIONS

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     TRANSITION PROPERTY SALE AGREEMENT (this "Agreement") dated as of October
24, 2001, between RELIANT ENERGY TRANSITION BOND COMPANY LLC, a Delaware limited
liability company (the "Issuer"), and RELIANT ENERGY, INCORPORATED, a Texas
corporation, as seller (the "Seller").

     WHEREAS, the Issuer desires to purchase from time to time the Transition
Property created pursuant to the Texas Electric Choice Plan and financing
orders;

     WHEREAS, the Seller is willing to sell its rights and interests under the
Financing Order to the Issuer whereupon such rights and interests will become
the Transition Property;

     WHEREAS, the Issuer, in order to finance the purchase of the Transferred
Transition Property, will from time to time issue one or more series of
Transition Bonds under the Indenture; and

     WHEREAS, the Issuer, to secure its obligations under the Transition Bonds
and the Indenture, will pledge its right, title and interest in the Transferred
Transition Property and this Agreement to the Indenture Trustee for the benefit
of the Transition Bondholders.

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

                                   ARTICLE I

                                  DEFINITIONS

     Section 1.01 Definitions. Capitalized terms used herein and not otherwise
defined herein have the meanings assigned to them in Appendix A to this
Agreement.

     Section 1.02 Other Definitional Provisions.

          (a)     "Agreement" means this Transition Property Sale Agreement, as
     the same may be further amended, supplemented or otherwise modified and in
     effect from time to time.

          (b)     Non-capitalized terms used herein which are defined in the
     Texas Electric Choice Plan, as the context requires, have the meanings
     assigned to such terms in the Texas Electric Choice Plan, but without
     giving effect to amendments to the Texas Electric Choice Plan after the
     date hereof which have a material adverse effect on the Issuer or the
     Transition Bondholders.

          (c)     All terms defined in this Agreement shall have such defined
     meanings when used in any certificate or other document made or delivered
     pursuant hereto unless otherwise defined therein.

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

          (e)     The definitions contained in this Agreement are applicable to
     the singular as well as the plural forms of such terms.

                                   ARTICLE II

                     CONVEYANCE OF THE TRANSITION PROPERTY

     Section 2.01 Conveyance of the Initial Transition Property.

          (a)     In consideration of the Issuer's payment to or upon the order
     of the Seller of $738,197,000 (the "Initial Purchase Price") by wire
     transfer of funds immediately available on the date hereof to Seller's
     account no.          at         ,routing transit ABA #         , subject to
     the satisfaction or waiver of the conditions specified in Section 2.02, the
     Seller does hereby irrevocably sell, transfer, assign, set over and
     otherwise convey to the Issuer, without recourse (subject to the
     obligations of the Seller herein) or warranty, except as set forth herein,
     all right, title and interest of the Seller in, to and under the Financing
     Order as identified in the Bill of Sale delivered pursuant to Section
     2.02(i) on or prior to the Initial Transfer Date whereupon such rights and
     interests under the Financing Order shall become the Initial Transition
     Property (such sale, transfer, assignment, setting over and conveyance of
     the Initial Transition Property to include, to the fullest extent permitted
     by the Texas Electric Choice Plan, the right to impose, collect and receive
     the Transition Charges related to the Initial Transition Property, as the
     same may be adjusted from time to time). Such sale, transfer, assignment,
     setting over and conveyance of the Initial Transition Property is hereby
     expressly stated to be a sale or other absolute transfer and, pursuant to
     Section 39.308 of the Texas Electric Choice Plan and other applicable law,
     is a true sale and is not a secured transaction and title, legal and
     equitable, has passed to the Issuer. The preceding sentence is the
     statement referred to in Section 39.308 of the Texas Electric Choice Plan.
     The Seller agrees and confirms that upon payment of the Initial Purchase
     Price and the execution and delivery of this Agreement and the related Bill
     of Sale, the sale, transfer and assignment hereunder shall be effective and
     the Seller shall have no right, title or interest in, to or under the
     Initial Transition Property.

          (b)     Subject to the satisfaction or waiver of conditions specified
     in Section 2.02, the Issuer does hereby purchase the Initial Transition
     Property from the Seller for the consideration set forth in paragraph (a)
     above.

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          (c)     The Seller and the Issuer each acknowledge and agree that the
     purchase price for the Initial Transition Property sold pursuant to this
     Agreement is equal to its fair market value at the time of sale.

          (d)     The Seller and the Issuer further agree that from time to
     time, the Seller may offer to sell, and the Issuer may purchase, the
     Seller's rights and interests under separate financing orders as of
     Subsequent Transfer Dates whereupon such rights and interests under
     subsequent financing orders shall become Subsequent Transition Property,
     subject to the satisfaction or waiver of the conditions specified in
     Section 2.02, in exchange for consideration to be agreed upon (the
     "Subsequent Purchase Price"). The Seller and the Issuer hereby agree that
     each such sale, transfer, assignment, setting over and conveyance of any
     Subsequent Transition Property shall include, to the fullest extent
     permitted by the Texas Electric Choice Plan, the right to impose, collect
     and receive the Transition Charges related to such Subsequent Transition
     Property, as the same may be adjusted from time to time. Such sale,
     transfer, assignment, setting over and conveyance of the Subsequent
     Transition Property is hereby stated to be a sale or other absolute
     transfer and, pursuant to Section 39.308 of the Texas Electric Choice Plan
     and other applicable law, will be a true sale and is not a secured
     transaction and title, legal and equitable, will pass to the Issuer. The
     preceding sentence is the statement referred to in Section 39.308 of the
     Texas Electric Choice Plan. The Seller agrees and confirms that upon
     payment of the applicable Subsequent Purchase Price and the execution and
     delivery of the related Bill of Sale, the sale, transfer and assignment to
     the Issuer thereunder shall be effective and the Seller shall have no
     right, title or interest in, to or under the Subsequent Transition Property
     which is the subject of such Bill of Sale.

          (e)     Notwithstanding the foregoing, in the event that any sale,
     transfer, assignment, setting over and conveyance of any Transition
     Property is determined by any court of competent jurisdiction not to be a
     true sale as contemplated by the parties and as provided in Section 39.308
     of the Texas Electric Choice Plan, then such sale, transfer, assignment,
     setting over and conveyance shall be treated as a pledge of and grant of a
     security interest in such Transition Property under Section 39.309 of the
     Texas Electric Choice Plan and under Articles 8 and 9 of the Uniform
     Commercial Code as enacted in the State of Texas and each other applicable
     jurisdiction (the "UCC"), and the Seller shall be deemed to have granted,
     and does hereby grant, as of the date hereof, a security interest to the
     Issuer on behalf of itself and the Indenture Trustee in such Transition
     Property to secure a payment obligation incurred by the Seller in the
     amount paid by the Issuer for the Transition Property.

     Section 2.02 Conditions to Conveyance of the Transition Property. The
obligation of the Seller to sell, and the obligation of the Issuer to purchase
Transition Property upon the Initial Transfer Date or any Subsequent Transfer
Date shall be subject to and conditioned upon the satisfaction or waiver of each
of the following conditions:

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          (i)    on or prior to the applicable Transfer Date, the Seller shall
     deliver to the Issuer a duly executed Bill of Sale identifying the
     Transition Property to be purchased as of that date, substantially in the
     form of Exhibit A hereto;

          (ii)   as of the applicable Transfer Date, the representations and
     warranties of the Seller in this Agreement shall be true and correct and no
     breach by the Seller of its covenants in this Agreement shall exist and the
     Seller shall have delivered to the Issuer and the Indenture Trustee an
     Officer's Certificate to such effect and no Servicer Default shall have
     occurred and be continuing;

          (iii)  as of the applicable Transfer Date:

                 (A) the Issuer shall have sufficient funds available to pay the
          purchase price for the Transferred Transition Property to be purchased
          on such date, and

                 (B) all conditions set forth in the Indenture to the issuance
          of one or more Series of Transition Bonds intended to provide such
          funds shall have been satisfied or waived;

          (iv)   on or prior to the applicable Transfer Date, the Seller shall
     have taken all actions required under the Texas Electric Choice Plan, the
     Financing Order or a separate financing order, as the case may be, and
     other applicable law for the Issuer to have ownership of the Transferred
     Transition Property to be purchased on such date, free and clear of all
     Liens other than Liens created by the Issuer pursuant to the Indenture; and
     the Issuer, or the Servicer on behalf of the Issuer, shall have taken any
     action required for the Issuer to grant the Indenture Trustee a first
     priority perfected security interest in the Trust Estate and maintain such
     security interest as of such date (including all actions required under the
     Texas Electric Choice Plan, the Financing Order or a separate financing
     order, as the case may be, and the UCC);

          (v)    in the case of any sale of Subsequent Transition Property only,
     the Seller shall have provided the Issuer and each Rating Agency with a
     notice specifying the Subsequent Transfer Date for such Subsequent
     Transition Property not later than thirty (30) days prior to the Subsequent
     Transfer Date;

          (vi)   the Seller shall have delivered to each Rating Agency and to
     the Issuer any Opinions of Counsel requested by the Rating Agencies;

          (vii)  the Seller shall have delivered to the Indenture Trustee and
     the Issuer an Officer's Certificate confirming the satisfaction of each
     condition precedent specified in this Section 2.02;

          (viii) in the case of any sale of Subsequent Transition Property only,
     the Seller shall have taken any action necessary to satisfy the Rating
     Agency Condition; and

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          (ix) the Seller shall have received the Initial Purchase Price or the
     Subsequent Purchase Price, as applicable, in funds immediately available on
     the applicable Transfer Date.

                                  ARTICLE III

                    REPRESENTATIONS AND WARRANTIES OF SELLER

     As of each Transfer Date, the Seller makes the following representations
and warranties on which the Issuer has relied and will rely in acquiring the
Transferred Transition Property. The following representations and warranties
are made under existing law as in effect as of the applicable Transfer Date. The
Seller shall not be in breach of any representation or warranty herein as a
result of a change in law (which does not include a final, non-appealable
judicial holding by a court of competent jurisdiction that any provision of the
Texas Electric Choice Plan relevant to securitization is unconstitutional)
occurring after the applicable Transfer Date. The representations and warranties
shall survive the sale of the Transferred Transition Property to the Issuer and
the pledge thereof on each Transfer Date to the Indenture Trustee pursuant to
the Indenture.

     Section 3.01 Organization and Good Standing. The Seller is a corporation
duly organized and in good standing under the laws of the State of Texas, with
corporate power and authority to own its properties and to conduct its business
as currently owned or conducted.

     Section 3.02 Due Qualification. The Seller is duly qualified to do business
as a foreign corporation in good standing, and has obtained all necessary
licenses and approvals, in all jurisdictions in which the ownership or lease of
property or the conduct of its business requires such qualifications, licenses
or approvals (except where the failure to so qualify or obtain such licenses and
approvals would not be reasonably likely to have a material adverse effect on
the Seller's business, operations, assets, revenues or properties).

     Section 3.03 Power and Authority. The Seller has the corporate power and
authority to obtain the Financing Order and to execute and deliver this
Agreement and to carry out its terms; the Seller has the corporate power and
authority to own the rights and interests under the Financing Order, and to sell
and assign the rights and interests under the Financing Order, whereupon such
rights and interests will become the Transition Property, to the Issuer, and the
Seller has duly authorized such sale and assignment to the Issuer by all
necessary corporate action; and the execution, delivery and performance of this
Agreement have been duly authorized by the Seller by all necessary corporate
action.

     Section 3.04 Binding Obligation. This Agreement constitutes a legal, valid
and binding obligation of the Seller enforceable against the Seller in
accordance with its terms subject to bankruptcy, receivership, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors' or
secured parties' rights generally from time to time in effect and to general
principles of equity (including concepts of

                                       -5-

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materiality, reasonableness, good faith and fair dealing), regardless of whether
considered in a proceeding in equity or at law.

       Section 3.05 No Violation. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof do not:
(i) conflict with or result in any breach of any of the terms and provisions of,
or constitute (with or without notice or lapse of time) a default under, the
articles of incorporation or by-laws of the Seller, or any indenture, mortgage,
credit agreement or other agreement or instrument to which the Seller is a party
or by which it or its properties is bound; (ii) result in the creation or
imposition of any Lien upon any of the Seller's properties pursuant to the terms
of any such indenture or agreement or other instrument; or (iii) violate any
existing law or any existing order, rule or regulation applicable to the Seller
of any Governmental Authority having jurisdiction over the Seller or its
properties.

       Section 3.06 No Proceedings. Except as disclosed in the Issuer's
prospectus dated October 17, 2001 and the related prospectus supplement dated
October 17, 2001 relating to the Transition Bonds (together, the "Prospectus"),
there are no proceedings pending and, to the Seller's knowledge, (x) there are
no proceedings threatened and (y) there are no investigations pending or
threatened before any Governmental Authority having jurisdiction over the Seller
or its properties involving or relating to the Seller or the Issuer or, to the
Seller's knowledge, any other Person:

               (i)   asserting the invalidity of this Agreement, any of the
       other Basic Documents, the Transition Bonds, the Texas Electric Choice
       Plan or the Financing Order;

               (ii)  seeking to prevent the issuance of the Transition Bonds or
       the consummation of any of the transactions contemplated by this
       Agreement or any of the other Basic Documents;

               (iii) seeking any determination or ruling that could reasonably
       be expected to materially and adversely affect the performance by the
       Seller of its obligations under, or the validity or enforceability of,
       this Agreement, any of the other Basic Documents or the Transition Bonds;
       or

               (iv)  challenging the Seller's treatment of the Transition Bonds
       as debt of the Seller for federal or state income, gross receipts or
       franchise tax purposes.

       Section 3.07  Approvals. Except for continuation filings under the UCC
and other filings under the Texas Electric Choice Plan and the UCC, no approval,
authorization, consent, order or other action of, or filing with, any
Governmental Authority is required under an applicable law, rule or regulation
in connection with the execution and delivery by the Seller of this Agreement,
the performance by the Seller of the transactions contemplated hereby or the
fulfillment by the Seller of the terms hereof, except those that have been
obtained or made and those that the Seller, in its capacity as Servicer under
the Servicing Agreement, is required to make in the future pursuant to the
Servicing Agreement. The Issuance Advice Letter has been filed in accordance
with the Financing Order.

                                       -6-

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     Section 3.08 The Transition Property.

              (a) Information. Subject to Section 3.15, all information, as
     amended or supplemented from time to time prior to the date this
     representation is made, provided by the Seller to the Issuer with respect
     to the Transferred Transition Property (including the Financing Order and
     the Issuance Advice Letter) is correct in all material respects.

              (b) Effect of Transfer. Each sale, transfer, assignment, setting
     over and conveyance herein contemplated constitutes a sale or other
     absolute transfer of all right, title and interest of the Seller in, to and
     under the Financing Order from the Seller to the Issuer whereupon such
     rights and interests shall become the Transition Property; upon execution
     and delivery of this Agreement and the related Bill of Sale and payment of
     the Initial Purchase Price or Subsequent Purchase Price, as applicable, the
     Seller will have no right, title or interest in, to or under the
     Transferred Transition Property; and such Transferred Transition Property
     would not be a part of the estate of the Seller as debtor in the event of
     the filing of a bankruptcy petition by or against the Seller under any
     bankruptcy law.

             (c)  Transfer Filings.

                  (i)   The Seller is the sole owner of the rights and interests
                  under the Financing Order to be sold to the Issuer on the
                  applicable Transfer Date.

                  (ii)  On the Transfer Date, immediately upon the sale
                  hereunder, such Transferred Transition Property will have been
                  validly sold, assigned, transferred, set over and conveyed to
                  the Issuer free and clear of all Liens (except for any Lien
                  created in favor of the Transition Bondholders pursuant to
                  Section 39.309 of the Texas Electric Choice Plan or any Lien
                  created by the Issuer under the Basic Documents).

                  (iii) All actions or filings (including filings with the Texas
                  Secretary of State in accordance with the rules prescribed
                  under the Texas Electric Choice Plan and the UCC) necessary in
                  any jurisdiction to give the Issuer a first priority perfected
                  ownership interest in the Transferred Transition Property and
                  to grant to the Indenture Trustee a first priority perfected
                  security interest in such Transferred Transition Property,
                  free and clear of all Liens of the Seller or anyone else, have
                  been taken or made.

     Section 3.09 Solvency. After giving effect to the sale of any Transferred
Transition Property hereunder, the Seller:

             (i)  is solvent and expects to remain solvent,

                                       -7-

<PAGE>

             (ii)  is adequately capitalized to conduct its business and
     affairs considering its size and the nature of its business and intended
     purposes,

             (iii) is not engaged and does not expect to engage in a business
     for which its remaining property represents an unreasonably small portion
     of its capital,

             (iv)  reasonably believes that it will be able to pay its debts as
     they come due, and

             (v)   is able to pay its debts as they come due and does not
     intend to incur, or believe that it will incur, indebtedness that it will
     not be able to repay at its maturity.

     Section 3.10  The Financing Order.

             (a)   Each provision of the Texas Electric Choice Plan relevant to
     securitization is valid and constitutional under the Texas and United
     States Constitutions; the Financing Order as issued on May 31, 2000 and as
     interpreted by the Texas Commission on September 18, 2001 has been issued
     by the Texas Commission in accordance with the Texas Electric Choice Plan;
     the Financing Order and the process by which it was issued comply with all
     applicable laws, rules and regulations and the Financing Order is final and
     non-appealable and in full force and effect.

             (b)   As of the date of issuance of any Series of the Transition
     Bonds, the Transition Bonds of that Series (including those issued in
     respect of Subsequent Transition Property) will be entitled to the
     protections provided by the Texas Electric Choice Plan and the Financing
     Order, and the Financing Order and the Transition Charges authorized
     therein will have become irrevocable and not subject to reduction,
     impairment or adjustment by further action of the Texas Commission, except
     as permitted by Section 39.307 of the Texas Electric Choice Plan, and the
     Issuance Advice Letter relating to the Transferred Transition Property to
     be sold on such date has been filed in accordance with the Financing Order.
     The Texas Commission has not issued any order prior to the third business
     day after submission of the Issuance Advice Letter that the Transition
     Bonds do not comply with Ordering Paragraph 5 of the Financing Order and
     the initial Transition Charges and the final terms of the Transition Bonds
     set forth in the Issuance Advice Letter have become effective.

     Section 3.11  State Action.

             (a)   Under the Texas Electric Choice Plan, the State of Texas has
     pledged that it will not take or permit any action that would impair the
     value of the Transition Property, or, except as permitted in Section 39.307
     of the Texas Electric Choice Plan, reduce, alter or impair the Transition
     Charges until the principal, interest and premium, if any, and any other
     charges incurred and contracts to be performed in connection with the
     Transition Bonds, have been paid and performed in full.

                                       -8-

<PAGE>

              (b)  Under the laws of the State of Texas and the United States,
     the State of Texas could not constitutionally take any action of a
     legislative character, including the repeal or amendment of the Texas
     Electric Choice Plan, which would substantially limit, alter or impair the
     Transition Property or other rights vested in the Transition Bondholders
     pursuant to the Financing Order, or substantially limit, alter, impair or
     reduce the value or amount of the Transition Property, unless such action
     is a reasonable exercise of the State of Texas' sovereign powers and of a
     character reasonable and appropriate to the important public purpose
     justifying such action, and, under the takings clauses of the State of
     Texas and United States Constitutions, the State of Texas could not repeal
     or amend the Texas Electric Choice Plan or take any other action in
     contravention of its pledge quoted above without paying just compensation
     to the Transition Bondholders, as determined by a court of competent
     jurisdiction, if doing so would constitute a permanent appropriation of a
     substantial property interest of the Transition Bondholders in the
     Transition Property and deprive the Transition Bondholders of their
     reasonable expectations arising from their investments in the Transition
     Bonds; however, there is no assurance that, even if a court were to award
     just compensation, it would be sufficient to pay the full amount of
     principal of and interest on the Transition Bonds.

     Section 3.12  No Court Order. There is no order by any court providing for
the revocation, alteration, limitation or other impairment of the Texas Electric
Choice Plan, the Financing Order, the Issuance Advice Letter, the Transferred
Transition Property or the Transition Charges or any rights arising under any of
them or that seeks to enjoin the performance of any obligations under the
Financing Order.

     Section 3.13  Approvals Concerning the Transition Property. No other
approval, authorization, consent, order or other action of, or filing with any
Governmental Authority is required in connection with the creation or transfer
of the Seller's rights and interests under the Financing Order and the Issuer's
purchase of the Transferred Transition Property from the Seller, except those
that have been obtained or made.

     Section 3.14  No Proceedings Concerning the Texas Electric Choice Plan.
Except as disclosed in the Prospectus, there are no proceedings pending, and to
the best of the Seller's knowledge, (i) there are no proceedings threatened and
(ii) there are no investigations pending or threatened, before any Governmental
Authority having jurisdiction over the Issuer or the Seller or their respective
properties challenging the Texas Electric Choice Plan or the Financing Order.

     Section 3.15  Assumptions. The assumptions used in calculating the
Transition Charges in the Issuance Advice Letter are reasonable and made in good
faith; however, notwithstanding the foregoing, the Seller makes no
representation or warranty, express or implied, that the assumptions used in
calculating such Transition Charge will in fact be realized.

                                       -9-

<PAGE>

     Section 3.16  Creation of the Transition Property.

             (a)   Upon the effectiveness of the Issuance Advice Letter and the
     transfer of the Seller's rights and interests under the Financing Order and
     the Issuer's purchase of the Transition Property from the Seller pursuant
     to this Agreement, the Transferred Transition Property constitutes a
     present property right.

             (b)   Upon the effectiveness of the Issuance Advice Letter and the
     transfer of the Seller's rights and interests under the Financing Order and
     the Issuer's purchase of the Transferred Transition Property from the
     Seller pursuant to this Agreement, the Transferred Transition Property
     includes, without limitation:

                   (1)   the right to impose, collect and receive the Transition
                         Charges authorized in the Financing Order, including,
                         without limitation, the right to receive Transition
                         Charges in amounts and at times sufficient to pay
                         principal and interest on the Transition Bonds and make
                         deposits to the overcollateralization subaccount,

                    (2)  all rights and interest of the Seller under the
                         Financing Order,

                    (3)  the rights to file for periodic adjustments of the
                         Transition Charges as provided in the Financing Order,
                         and

                    (4)  all revenues and collections resulting from Transition
                         Charges.

             (c)    Upon the effectiveness of the Issuance Advice Letter and the
     transfer of the Seller's rights and interests under the Financing Order and
     the Issuer's purchase of the Transferred Transition Property from the
     Seller on such Transfer Date pursuant to this Agreement, the Transferred
     Transition Property is not subject to any Lien created by a previous
     indenture.

     Section 3.17   Prospectus. As of the date hereof, the information
describing the Seller under the caption "Reliant Energy" and the caption "The
Servicer of the Transition Property" in the Prospectus is true and correct in
all material respects.

     Section 3.18   Conversion to a Limited Liability Company. The conversion of
the Seller into a Texas limited liability company will not:

             (a)    interrupt the Seller's existence,

                                      -10-

<PAGE>
               (b) affect the Seller's rights, title and interests in its real
                   estate and other property or its power and authority to
                   perform its obligations under this Agreement, the Servicing
                   Agreement or the other Basic Documents,

               (c) impair or diminish the liabilities and obligations of the
                   Seller, including, without limitation, its obligations under
                   this Agreement or any other Basic Document, or

               (d) result (i) in the breach of any representation or warranty
                   made pursuant to this Article III or (ii) after notice or
                   lapse of time, or both, in a Servicer Default.

     Section 3.19 Nature of Representations and Warranties. The representations
and warranties set forth in Section 3.08 and Section 3.10 through Section 3.18,
insofar as they involve conclusions of law, are made not on the basis that the
Seller purports to be a legal expert or to be rendering legal advice, but rather
to reflect the parties' good faith understanding of the legal basis on which the
parties are entering into this Agreement and the other Basic Documents and the
basis on which the Transition Bondholders are purchasing the Transition Bonds,
and to reflect the parties' agreement that, if such understanding turns out to
be incorrect or inaccurate, the Seller will be obligated to indemnify the Issuer
and its permitted assigns (to the extent required by and in accordance with
Section 5.01), and that the Issuer and its permitted assigns will be entitled to
------------
enforce any rights and remedies under the Basic Documents on account of such
inaccuracy to the same extent as if the Seller had breached any other
representations or warranties hereunder.

                                   ARTICLE IV

                            COVENANTS OF THE SELLER

     Section 4.01 Seller's Existence. Subject to Section 5.02, so long as any of
the Transition Bonds are outstanding, the Seller shall keep in full force and
effect its existence and remain in good standing under the laws of the state of
its organization, and shall obtain and preserve its qualification to do business
in each jurisdiction in which such qualification is or will be necessary to
protect the validity and enforceability of this Agreement and each other
instrument or agreement to which the Seller is a party necessary to the proper
administration of this Agreement and the transactions contemplated hereby.

     Section 4.02 No Liens or Conveyances. Except for the conveyances hereunder
or any Lien under Section 39.309 of the Texas Electric Choice Plan for the
benefit of the Issuer, the Indenture Trustee and the Transition Bondholders, the
Seller shall not sell, pledge, assign or transfer to any other Person, or grant,
create, incur, assume or suffer to exist any Lien on, any of the Transition
Property, whether now existing or hereafter created, or any interest therein.
The Seller shall not at any time assert any Lien against or with respect to any
Transferred Transition Property, and shall defend the right, title and interest
of the Issuer and the Indenture Trustee, as assignee of the Issuer, in, to and
under the Transferred Transition Property, whether now existing or hereafter
created, against all claims of third parties claiming through or under the
Seller.

                                      -11-

<PAGE>

     Section 4.03 Delivery of Collections. It is anticipated that the Seller
will receive collections under the terms and provisions of the Intercreditor
Agreement in respect of the Transition Charges or the proceeds thereof other
than in its capacity as the Servicer. The Seller shall pay the Servicer all
payments received by the Seller in respect thereof, in accordance with the
Intercreditor Agreement, as soon as practicable after receipt thereof by the
Seller, but in no event later than two Business Days after receipt.

     Section 4.04 Notice of Liens. The Seller shall notify the Issuer and the
Indenture Trustee promptly after becoming aware of any Lien on any Transferred
Transition Property other than the conveyances hereunder, any Lien under the
Basic Documents or any Lien under Section 39.309 of the Texas Electric Choice
Plan or the UCC for the benefit of the Issuer or the Transition Bondholders.

     Section 4.05 Compliance With Law. The Seller shall comply with its
organizational or governing documents and all laws, treaties, rules, regulations
and determinations of any Governmental Authority applicable to the Seller,
except to the extent that failure to so comply would not materially adversely
affect the Issuer's or the Indenture Trustee's interests in the Transferred
Transition Property or under any of the Basic Documents or the Seller's
performance of its obligations hereunder.

     Section 4.06 Covenants Related to the Transition Property.

             (a)  So long as any of the Transition Bonds is outstanding, the
                  Seller shall:

                  (i)    treat the Transition Bonds as debt of the Issuer and
             not of the Seller, except for financial reporting or tax purposes,

                  (ii)   disclose in its financial statements that it is not the
             owner of the Transferred Transition Property and that the assets of
             the Issuer are not available to pay creditors of the Seller or any
             of its Affiliates (other than the Issuer),

                  (iii)  disclose the effects of all transactions between the
             Seller and the Issuer in accordance with generally accepted
             accounting principles, and

                  (iv)   not own or purchase any Transition Bonds.

             (b)  So long as any of the Transition Bonds is outstanding,

                  (i)    in all proceedings relating directly or indirectly to
             the Transferred Transition Property, the Seller shall: (A)
             affirmatively certify and confirm that it has sold all of its
             rights and interests under the Financing Order to the Issuer (other
             than for financial reporting or tax purposes), and (B) not make any
             statement or reference in respect of the Transferred Transition
             Property that is inconsistent with the ownership thereof by the
             Issuer (other than for financial reporting or tax purposes);

                                      -12-

<PAGE>

               (ii)  the Seller shall not take any action in respect of the
          Transferred Transition Property except solely in its capacity as the
          Servicer thereof pursuant to the Servicing Agreement or as
          contemplated by the Basic Documents, including without limitation, the
          Intercreditor Agreement; and

               (iii) the Issuer shall not sell transition bonds under a separate
          financing order in connection with the issuance of additional
          transition bonds unless the Rating Agency Condition shall have been
          satisfied.

          (c)  The Seller agrees that upon the sale by the Seller of all of its
     rights and interests under the Financing Order to the Issuer pursuant to
     this Agreement:

               (i)   to the fullest extent permitted by law, including the Texas
          Electric Choice Plan and applicable Texas Commission Regulations,
          the Issuer shall have all of the rights originally held by the Seller
          with respect to the Transferred Transition Property, including the
          right to collect any amounts payable by any Person responsible for
          remitting Transition Charges to the Servicer under the terms of the
          Financing Order or the Texas Electric Choice Plan or applicable tariff
          in respect of such Transferred Transition Property as provided in the
          Financing Order and the Texas Commission Regulations, notwithstanding
          any objection or direction to the contrary by the Seller, and

               (ii)  any payment to the Servicer by any Person responsible for
          remitting Transition Charges to the Servicer under the terms of the
          Financing Order or the Texas Electric Choice Plan or applicable tariff
          shall discharge such Person's obligations in respect of such
          Transferred Transition Property to the extent of such payment,
          notwithstanding any objection or direction to the contrary by the
          Seller.

     Section 4.07 Protection of Title. The Seller shall execute and file such
filings, and cause to be executed and filed such filings, and take all such
actions, all in such manner and in such places as may be required by law fully
to preserve, maintain and protect the interests of the Issuer and the Indenture
Trustee in the Transferred Transition Property, including, without limitation,
all filings required under the Texas Electric Choice Plan and the UCC relating
to the transfer of the ownership of the rights and interests under the Financing
Order by the Seller to the Issuer and the Issuer's ownership of the Transferred
Transition Property and the pledge of the Transferred Transition Property by the
Issuer to the Indenture Trustee. The Seller shall deliver (or cause to be
delivered) to the Issuer and the Indenture Trustee file-stamped copies of, or
filing receipts for, any document filed as provided above, as soon as available
following such filing. The Seller shall institute any action or proceeding
necessary to compel performance by the Texas Commission or the State of Texas of
any of their obligations or duties under the Texas Electric Choice Plan, any
Financing Order or any Issuance Advice Letter relating to the transfer of the
ownership of the rights and interests under the Financing Order by the Seller to
the Issuer and the Issuer's ownership of the Transferred Transition Property,
and the Seller agrees to take such legal or administrative actions, including
defending

                                      -13-

<PAGE>
against or instituting and pursuing legal actions and appearing or testifying at
hearings or similar proceedings, in each case as may be reasonably necessary:

     (a)  to protect the Issuer and the Transition Bondholders from claims,
          state actions or other actions or proceedings of third parties which,
          if successfully pursued, would result in a breach of any
          representation set forth in Article III; or

     (b)  so long as the Seller is also the Servicer, to block or overturn any
          attempts to cause a repeal of, modification of or supplement to the
          Texas Electric Choice Plan, the Financing Order, any Issuance Advice
          Letter or the rights of Transition Bondholders by legislative
          enactment or constitutional amendment that would be adverse to the
          Issuer, the Indenture Trustee or the Transition Bondholders.

The costs of any such actions or proceedings shall be reimbursed by the Issuer
to the Seller from amounts on deposit in the collection account as an operating
expense in accordance with the terms of the Indenture. The Seller's obligations
pursuant to this Section 4.07 shall survive and continue notwithstanding that
the payment of operating expenses pursuant to the Indenture may be delayed (it
being understood that the Seller may be required to advance its own funds to
satisfy its obligation hereunder). The Seller designates the Issuer as its agent
and attorney-in-fact to execute any filings of financing statements,
continuation statements or other instruments required of the Seller pursuant to
this Section, it being understood that the Issuer shall have no obligation to
execute any such instruments.

     Section 4.08 Taxes. So long as any of the Transition Bonds is outstanding,
the Seller shall pay all material taxes, assessments and governmental charges
imposed upon it or any of its properties or assets or with respect to any of its
franchises, businesses, income or property before any penalty accrues thereon if
the failure to pay any such taxes, assessments and governmental charges would,
after any applicable grace periods, notices or other similar requirements,
result in a Lien on the Transferred Transition Property; provided that no such
tax need be paid if the Seller or one of its Affiliates is contesting the same
in good faith by appropriate proceedings promptly instituted and diligently
conducted and if the Seller or such Affiliate has established appropriate
reserves as shall be required in conformity with generally accepted accounting
principles.

     Section 4.09 Filings Pursuant to Financing Order. The Seller shall comply
with all filing requirements, including making any post-closing filings, in
accordance with the Financing Order.

                                   ARTICLE V

                       ADDITIONAL UNDERTAKINGS OF SELLER

                                      -14-

<PAGE>
     The Seller hereby undertakes the obligations contained in this Article V
and acknowledges that the Issuer shall have the right to assign its rights with
respect to such obligations to the Indenture Trustee for the benefit of the
Transition Bondholders.

     Section 5.01. Liability of the Seller; Indemnities.

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

          (b) The Seller shall indemnify the Issuer and the Indenture Trustee,
     for itself and on behalf of the Transition Bondholders and any subsequent
     Transition Bondholders, and each of their respective officers, directors,
     managers, employees and agents for, and defend and hold harmless each such
     Person from and against, any and all taxes (other than any taxes imposed on
     Transition Bondholders solely as a result of their ownership of Transition
     Bonds) that may at any time be imposed on or asserted against any such
     Person under existing law as of any Transfer Date as a result of the sale
     and assignment of the Seller's rights and interests under the Financing
     Order by the Seller to the Issuer, the acquisition or holding of the
     Transferred Transition Property by the Issuer or the issuance and sale by
     the Issuer of the Transition Bonds, including any sales, gross receipts,
     general corporation, personal property, privilege, franchise or license
     taxes, but excluding any taxes imposed as a result of a failure of such
     Person to properly withhold or remit taxes imposed with respect to payments
     on any Transition Bond, in the event and to the extent such taxes are not
     recoverable as Qualified Costs, it being understood that the Transition
     Bondholders shall be entitled to enforce their rights against the Seller
     under this Section 5.01(b) solely through a cause of action brought for
     their benefit by the Indenture Trustee.

          (c) The Seller shall indemnify the Issuer and the Indenture Trustee,
     for itself and on behalf of the Transition Bondholders, and each of their
     respective officers, directors, managers, employees and agents for, and
     defend and hold harmless each such Person from and against, any and all
     amounts of principal of and interest on the Transition Bonds not paid when
     due or when scheduled to be paid in accordance with their terms and the
     amount of any deposits to the Issuer required to have been made in
     accordance with the terms of the Basic Documents which are not made when so
     required, in each case as a result of the Seller's breach of any of its
     representations, warranties or covenants contained in this Agreement.

          (d) The Seller shall indemnify the Issuer and the Indenture Trustee,
     for itself and on behalf of the Transition Bondholders, and each of their
     respective officers, directors, managers, employees and agents for, and
     defend and hold harmless each such Person from and against, any and all
     liabilities, obligations, claims, actions, suits or payments of any kind
     whatsoever that may be imposed on or asserted against any such Person
     (other than any liabilities, obligations or claims for or payments of
     principal of or interest on the Transition Bonds) together with any
     reasonable costs

                                      -15-

<PAGE>

     and expenses incurred by such Person, in each case as a result of the
     Seller's breach of any of its representations, warranties or covenants
     contained in this Agreement.

          (e)  The indemnification obligations of the Seller under this Section
     5.01 shall rank pari passu with all other general unsecured obligations of
     the Seller.

          (f)  Indemnification under this Section 5.01 shall survive the
     resignation or removal of the Indenture Trustee and the termination of
     this Agreement and shall include reasonable fees and expenses of
     investigation and litigation (including reasonable attorneys' fees and
     expenses). The Seller shall not indemnify any party under this Section 5.01
     for any changes in law (which does not include a final, non-appealable
     judicial holding by a court of competent jurisdiction that any provision of
     the Texas Electric Choice Plan relevant to securitization is
     unconstitutional) after the Transfer Date.

          (g)  The Seller shall pay any and all taxes levied or assessed upon
     all or any part of the Issuer's property or assets based on existing law as
     of the Transfer Date.

Notwithstanding the foregoing, in no event shall any such foregoing indemnity
extend to the collectibility of the Transition Charges from any Person
responsible for remitting Transition Charges to the Servicer under the terms of
the Financing Order, the Texas Electric Choice Plan or an applicable tariff, or
the creditworthiness of any such Person.

     Section 5.02. Merger or Consolidation of, or Assumption of the Obligations
of, the Seller.

Any Person:

          (a)  into which the Seller may be merged or consolidated and which
     succeeds to all or substantially all of the electric transmission and
     distribution business of the Seller (or, if transmission and distribution
     are split, which provides distribution service directly to a majority of
     the Seller's then existing customers),

          (b)  which results from the division of the Seller into two or more
     Persons and which succeeds to all or substantially all of the electric
     transmission and distribution business of the Seller (or, if transmission
     and distribution are split, which provides distribution service directly to
     a majority of the Seller's then existing customers),

          (c)  which may result from any merger or consolidation to which the
     Seller shall be a party and which succeeds to all or substantially all of
     the electric transmission and distribution business of the Seller (or, if
     transmission and distribution are split, which provides distribution
     service directly to a majority of the Seller's then existing customers),

                                       -16-

<PAGE>

          (d)   which may succeed to the properties and assets of the Seller
     substantially as a whole and which succeeds to all or substantially all of
     the electric transmission and distribution business of the Seller (or, if
     transmission and distribution are split, which provides distribution
     service directly to a majority of the Seller's then existing customers), or

          (e)   which may otherwise succeed to all or substantially all of the
     electric transmission and distribution business of the Seller (or, if
     transmission and distribution are split, which provides distribution
     service directly to a majority of the Seller's then existing customers),

which Person in any of the foregoing cases executes an agreement of
assumption to perform every obligation of the Seller under this Agreement, shall
be the successor to the Seller hereunder without the execution or filing of any
document or any further act by any of the parties to this Agreement; provided,
however, that

          (i)   immediately after giving effect to such transaction, no
     representation or warranty made pursuant to Article III shall have been
     breached and no Servicer Default, and no event that, after notice or lapse
     of time, or both, would become a Servicer Default, shall have occurred and
     be continuing,

          (ii)  the Rating Agencies shall have received prior written notice of
     such transaction,

          (iii) the Seller shall have delivered to the Issuer and the Indenture
     Trustee an Officer's Certificate and an Opinion of Counsel each stating
     that such consolidation, merger or succession and such agreement of
     assumption comply with this Section 5.02 and that all conditions precedent,
     if any, provided for in this Agreement relating to such transaction have
     been complied with,

          (iv)  the Seller shall have delivered to the Issuer and the Indenture
     Trustee an Opinion of Counsel either

                (A)  stating that, in the opinion of such counsel, all filings
          to be made by the Seller, including filings with the Texas Commission
          pursuant to the Texas Electric Choice Plan and the UCC, that are
          necessary fully to preserve and protect the respective interests of
          the Issuer and the Indenture Trustee in the Transferred Transition
          Property have been executed and filed, and reciting the details of
          such filings, or

                (B)  stating that, in the opinion of such counsel, no such
          action is necessary to preserve and protect such interests, and

          (v)   the Seller shall have delivered to the Issuer, the Indenture
     Trustee and the Rating Agencies an opinion of independent tax counsel (in
     form and substance satisfactory to the Seller, and which may be  based on
     a ruling from the Internal Revenue Service) to the effect that, for federal

                                      -17-

<PAGE>

     income tax purposes, such transaction will not result in a material adverse
     federal income tax consequence to the Seller, the Issuer, the Indenture
     Trustee or the Transition Bondholders.

Subject to Section 5.03, the Seller shall not consummate any transaction
referred to in clauses (a), (b), (c), (d) or (e) above except upon execution of
the above described agreement of assumption and compliance with clauses (i),
(ii), (iii), (iv) and (v) above. When any Person acquires the properties and
assets of the Seller substantially as a whole and succeeds to all or
substantially all of the electric transmission and distribution business of the
Seller (or, if transmission and distribution are split, which provides
distribution services directly to customers), or otherwise becomes the successor
to the Seller in accordance with the terms of this Section 5.02, then upon the
satisfaction of all of the other conditions of this Section 5.02, the Seller
shall automatically and without further notice be released from its obligations
hereunder.

     Section 5.03. Conversion of the Seller to a Limited Liability Company.
Notwithstanding anything in this Agreement to the contrary, the Seller shall be
able to convert to a Texas limited liability company without the execution of an
agreement of assumption and without compliance with clauses (i), (ii), (iii),
(iv) and (v) of Section 5.02.

     Section 5.04. Limitation on Liability of the Seller And Others. The Seller
and any director, officer, employee or agent of the Seller may rely in good
faith on the advice of counsel or on any document of any kind, prima facie
properly executed and submitted by any Person, respecting any matters arising
hereunder. Subject to Section 4.07, the Seller shall not be under any obligation
to appear in, prosecute or defend any legal action that is not incidental to its
obligations under this Agreement, and that in its opinion may involve it in any
expense or liability.

                                   ARTICLE VI

                            MISCELLANEOUS PROVISIONS

     Section 6.01 Amendment.

          (a)  This Agreement may be amended in writing by the Seller and the
     Issuer, provided that (i) the Rating Agency Condition has been satisfied in
     connection therewith and (ii) the Indenture Trustee and the Texas
     Commission have consented thereto or shall be conclusively deemed to have
     consented thereto, as the case may be. Promptly after the execution of any
     such amendment or consent, the Issuer shall furnish written notification of
     the substance of such amendment or consent to each of the Rating Agencies.
     With respect to the Texas Commission's consent to any amendment to this
     Agreement,

               (i)  the Seller may request the consent of the Texas Commission
          by delivering to the Texas Commission's executive director and general
          counsel a written request for such consent, which request shall
          contain:

                                       -18-

<PAGE>

                    (A) a reference to Docket No. 21655;

                    (B) an Officer's Certificate stating that the proposed
               amendment has been approved by all relevant parties; and

                    (C) a statement identifying the person to whom the Texas
               Commission or its staff is to address its consent to the proposed
               amendment or request additional time;

               (ii) The Texas Commission shall, within fifteen days of receiving
          the request for consent complying with Section 6.01(a)(i) above,
          either

                    (A) provide notice of its consent or lack of consent to the
               person specified in Section 6.01(a)(i)(C) above, or

                    (B) be conclusively deemed to have consented to the proposed
               amendment,

          unless, within fifteen days of receiving the request for consent
          complying with Section 6.01(a)(i) above, the Texas Commission or its
          staff delivers to the office of the person specified in Section
          6.01(a)(i)(C) above a written statement requesting an additional
          amount of time not to exceed thirty days in which to consider whether
          to consent to the proposed amendment. If the Texas Commission or its
          staff requests an extension of time in the manner set forth in the
          preceding sentence, then the Texas Commission shall either provide
          notice of its consent or lack of consent to the person specified in
          6.01(a)(i)(C) above no later than the last day of such extension of
          time or be conclusively deemed to have consented to the proposed
          amendment on the last day of such extension of time.

          (b)  Prior to the execution of any amendment to this Agreement, the
     Issuer and the Indenture Trustee shall be entitled to receive and rely
     upon an Opinion of Counsel stating that the execution of such amendment is
     authorized or permitted by this Agreement. The Issuer and the Indenture
     Trustee may, but shall not be obligated to, enter into any such amendment
     that affects their own rights, duties or immunities under this Agreement or
     otherwise.

     Section 6.02 Notices. Unless otherwise specifically provided herein, all
demands, notices and communications upon or to the Seller, the Issuer, the
Indenture Trustee, the Texas Commission or the Rating Agencies under this
Agreement shall be in writing, delivered personally, via facsimile, reputable
overnight courier or by certified mail, return-receipt requested, and shall be
deemed to have been duly given upon receipt

                                      -19-

<PAGE>

          (a) in the case of the Seller, to Reliant Energy, Incorporated, 1111
     Louisiana, Houston, Texas 77002, Attention: Treasurer,

          (b) in the case of the Issuer, to Reliant Energy Transition Bond
     Company LLC, 1111 Louisiana, Suite 4667, Houston, Texas 77002, Attention:
     Manager,

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

          (d) in the case of Standard & Poor's, to Standard & Poor's, 55 Water
     Street, New York, New York 10041, Attention: Asset Backed Surveillance
     Department,

          (e) in the case of Fitch, to Fitch, Inc., 1 State Street Plaza, New
     York, New York 10004, Attention: ABS Surveillance,

          (f) in the case the Indenture Trustee, at the address provided for
     notices or communications to the Indenture Trustee in the Indenture, and

          (g) in the case of the Texas Commission, to 1701 N. Congress Avenue,
     Austin, Texas 78711-3326, Attention: Executive Director and General
     Counsel;

or, as to each of the foregoing, at such other address as shall be designated by
written notice to the other parties.

     Section 6.03 Assignment by the Seller. Notwithstanding anything to the
contrary contained herein, except as provided in Section 5.02, this Agreement
may not be assigned by the Seller.

     Section 6.04 Assignment to the Indenture Trustee. The Seller hereby
acknowledges and consents to any pledge, assignment and grant of a security
interest by the Issuer to the Indenture Trustee pursuant to the Indenture for
the benefit of the Transition Bondholders of all right, title and interest of
the Issuer in, to and under the Transferred Transition Property and the proceeds
thereof and the assignment of any or all of the Issuer's rights hereunder to the
Indenture Trustee. Notwithstanding such assignment, in no event shall the
Indenture Trustee have any liability for the representations, warranties,
covenants, agreements or other obligations of the Issuer hereunder or in any of
the certificates, notices or agreements delivered pursuant hereto, as to all of
which recourse shall be had solely to the assets of the Issuer.

     Section 6.05 Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the Seller, the Issuer and the Indenture
Trustee, on behalf of itself and the Transition Bondholders, and nothing in this
Agreement, whether express or implied, shall be construed to give to any other
Person any legal or equitable right, remedy or claim in the Trust Estate or
under or in respect of this Agreement or any covenants, conditions or provisions
contained herein.

                                      -20-

<PAGE>

     Section 6.06 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

     Section 6.07 Separate Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.

     Section 6.08 Headings. The headings of the various Articles and Sections
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.

     Section 6.09 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

     Section 6.10 Nonpetition Covenants. (a) Notwithstanding any prior
termination of this Agreement or the Indenture, the Seller shall not, prior to
the date which is one year and one day after the termination of the Indenture,
petition or otherwise invoke or cause the Issuer to invoke the process of any
Governmental Authority for the purpose of commencing or sustaining a case
against the Issuer under any federal or state bankruptcy, insolvency or similar
law or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Issuer or any substantial part of
the property of the Issuer, or ordering the winding-up or liquidation of the
affairs of the Issuer.

     (b) Notwithstanding any prior termination of this Agreement or the
Indenture, the Issuer shall not, prior to the date which is one year and one day
after the termination of the Indenture, petition or otherwise invoke or cause
the Seller to invoke the process of any Governmental Authority for the purpose
of commencing or sustaining a case against the Seller under any federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Seller or any substantial part of the property of the Seller, or ordering the
winding-up or liquidation of the affairs of the Seller.

                    [Rest of page intentionally left blank]

                                      -21-

<PAGE>

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

                         RELIANT ENERGY TRANSITION BOND COMPANY LLC,
                            as Issuer,

                         By:____________________________________________________
                             Name:
                             Title:

                         RELIANT ENERGY, INCORPORATED,
                            as Seller,

                         By:____________________________________________________
                             Name:
                             Title:

<PAGE>

                            APPENDIX A - DEFINITIONS

     The definitions contained in this Appendix A are applicable to the singular
as well as the plural forms of such terms.

     "Administration Agreement" means the Administration Agreement, dated as of
October 24, 2001, between the Issuer and the Seller, as the same may be further
amended, supplemented or otherwise modified and in effect from time to time.

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

     "Agreement" or this "Sale Agreement" or the "Sale Agreement" means this
Transition Property Sale Agreement, as the same may be further amended,
supplemented or otherwise modified and in effect.

     "Basic Documents" means the Certificate of Formation of the Issuer which
was filed with the Secretary of State of the State of Delaware on November 10,
1999, as amended and restated on October 22, 2001, the Amended and Restated
Limited Liability Company Agreement of the Issuer dated as of October 24, 2001,
this Sale Agreement, each Bill of Sale, the Servicing Agreement, the
Intercreditor Agreement, the Administration Agreement and the Indenture.

     "Bill of Sale" means any bill of sale issued by the Seller to the Issuer
pursuant to the Sale Agreement evidencing the sale of the Transition Property by
the Seller to the Issuer.

     "Business Day" means any day other than a Saturday or Sunday or a day on
which banking institutions in the City of Houston, Texas, or in the City of New
York, New York, are required or authorized by law or executive order to remain
closed.

     "Class" means, with respect to any Series of Transition Bonds, any one of
the classes of Transition Bonds of that Series, as specified in the Series
Supplement for that Series.

     "Financing Order" means the Financing Order issued by the Texas Commission
on May 31, 2000 (PUC Docket No. 21665), pursuant to the Texas Electric Choice
Plan, as interpreted by the Texas Commission on September 18, 2001 (PUC Docket
No. 21665, SOAH Docket No. 473-99-2747).

     "Fitch" means Fitch, Inc., or its successor.

                                       A-1

<PAGE>

     "Governmental Authority" means any court or any federal or state regulatory
body, administrative agency or governmental instrumentality.

     "Holder" or "Transition Bondholder" means the Person in whose name a
Transition Bond of any Series or Class is registered on the Transition Bond
Register.

     "Indenture" means the Indenture, dated as of October 24, 2001, between the
Issuer and the Indenture Trustee, as the same may be further amended,
supplemented or otherwise modified and in effect from time to time by one or
more indentures supplemental thereto, and shall include the forms and terms of
the Transition Bonds established thereunder.

     "Indenture Trustee" means Bankers Trust Company, a New York banking
corporation, or its successor or any successor Indenture Trustee under the
Indenture.

     "Initial Purchase Price" has the meaning specified in Section 2.01(a)
hereof.

     "Initial Transfer Date" means the Series Issuance Date for the first Series
of Transition Bonds.

     "Initial Transition Property" means the Transition Property identified in
the Bill of Sale delivered pursuant to Section 2.02(i) on or prior to the
Initial Transfer Date and purchased by the Issuer from the Seller as of the
Initial Transfer Date pursuant to the Sale Agreement.

     "Intercreditor Agreement" means the Intercreditor Agreement, dated as of
October 24, 2001, among AEP Credit, Inc., The Bank of New York, the Issuer, the
Seller and the Trustee, as the same may be further amended, supplemented or
otherwise modified and in effect from time to time.

     "Issuance Advice Letter" shall mean each issuance advice letter submitted
to the Texas Commission by the Seller pursuant to the Financing Order in
connection with the issuance of a Series of Transition Bonds.

     "Issuer" means Reliant Energy Transition Bond Company LLC, a Delaware
limited liability company, or its successor under the Indenture.

     "Lien" means a security interest, lien, charge, pledge, equity or
encumbrance of any kind.

     "Moody's" means Moody's Investors Service, Inc., or its successor.

     "Officer's Certificate" means a certificate signed, in the case of the
Seller, by the chairman of the board, the chief executive officer, the
president, any vice chairman, any executive vice president, senior vice
president or vice president, the treasurer, assistant treasurer, the secretary
or any assistant secretary of the Seller.

                                       A-2

<PAGE>

     "Opinion of Counsel" means one or more written opinions of counsel who may
be an employee of or counsel to the Issuer or the Seller, which counsel shall be
reasonably acceptable to the Indenture Trustee, the Issuer or the Rating
Agencies, as applicable, and which shall be in form reasonably satisfactory to
the Indenture Trustee, if applicable.

     "Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), business trust, limited liability company, unincorporated organization
or government or any agency or political subdivision thereof.

     "proceeding" means any suit in equity, action at law or other judicial or
administrative proceeding.

     "Prospectus" has the meaning specified in Section 3.06 hereof.

     "Qualified Costs" has the meaning assigned to that term in the Texas
Electric Choice Plan and the Financing Order.

     "Rating Agency" means any rating agency rating the Transition Bonds of any
Class or Series at the time of issuance thereof at the request of the Issuer,
which initially shall be Moody's, Fitch and S&P. If no such organization or
successor is any longer in existence, "Rating Agency" shall be a nationally
recognized statistical rating organization or other comparable Person designated
by the Issuer, written notice of which designation shall be given to the
Indenture Trustee and the Servicer.

     "Rating Agency Condition" means, with respect to any action, the
notification to each Rating Agency of such action, and confirmation from S&P and
Fitch to the Indenture Trustee and the Issuer that such action will not result
in a reduction or withdrawal of the then current rating by such Rating Agency of
any outstanding Series or Class of Transition Bonds.

     "Reliant Energy" means Reliant Energy, Incorporated, a Texas corporation,
or its successor.

     "Seller" means Reliant Energy, or its successor, in its capacity as seller
of the rights and interests under the Financing Order to the Issuer pursuant to
the Sale Agreement.

     "Series" means any series of Transition Bonds issued by the Issuer and
authenticated by the Indenture Trustee pursuant to the Indenture, as specified
in the Series Supplement therefor.

     "Series Issuance Date" means, with respect to any Series, the date on which
the Transition Bonds of such Series are to be originally issued in accordance
with Section 2.10 of the Indenture and the Series Supplement for such Series.

     "Series Supplement" means a Supplemental Indenture that authorizes a
particular Series of Transition Bonds.

                                       A-3

<PAGE>

     "Servicer" means Reliant Energy, in its capacity as the servicer under the
Servicing Agreement, and each successor to Reliant Energy (in the same capacity)
pursuant to the relevant sections of the Servicing Agreement.

     "Servicer Default" means an event specified in Section 6.01 of the
Servicing Agreement.

     "Servicing Agreement" means the Transition Property Servicing Agreement,
dated as of October 24, 2001, between the Issuer and the Servicer and
acknowledged by the Indenture Trustee, as the same may be further amended,
supplemented and supplemented and in effect from time to time.

     "Standard & Poor's" or "S&P," means Standard & Poor's, a division of The
McGraw-Hill Companies, or its successor.

     "Subsequent Purchase Price" has the meaning specified in Section 2.01(d)
hereof.

     "Subsequent Sale" means the sale of additional rights and interests under a
separate financing order by the Seller to the Issuer after the Initial Transfer
Date, subject to the satisfaction of the conditions specified in the Sale
Agreement and the Indenture.

     "Subsequent Transfer Date" means the date that a Subsequent Sale will be
effective, specified in a written notice provided by the Seller to the Issuer
pursuant to the Sale Agreement.

     "Subsequent Transition Property" means Transition Property identified in a
Bill of Sale delivered pursuant to Section 2.02(i) with respect to the
Subsequent Transfer Date for such Transition Property and purchased by the
Issuer from the Seller as of such Subsequent Transfer Date pursuant to the Sale
Agreement.

     "Supplemental Indenture" means a supplemental indenture entered into by the
Issuer and the Indenture Trustee pursuant to Article IX of the Indenture.

     "Texas Commission" means the Public Utility Commission of Texas or any
successor.

     "Texas Commission Regulations" means, at any time, any regulations, orders
or directives promulgated, issued or adopted by the Texas Commission and in
effect at such time.

     "Texas Electric Choice Plan" means the Act of May 21, 1999, 76th Leg. R.S.
ch. 405, 1999.

     "Transfer Date" means the Initial Transfer Date or any Subsequent Transfer
Date, as applicable.

     "Transferred Transition Property" means the Transition Property that has
been purchased by the Issuer pursuant to a particular Bill of Sale.

                                       A-4

<PAGE>

     "Transition Bond" means any of the transition bonds (as defined in the
Texas Electric Choice Plan) issued by the Issuer pursuant to the Indenture.

     "Transition Bond Register" has the meaning specified in Section 2.05 of the
Indenture.

     "Transition Bond Registrar" means the Indenture Trustee, in its capacity as
keeper of the Transition Bond Register, or any other Person appointed to act in
such capacity by the Issuer pursuant to Section 2.05 of the Indenture.

     "Transition Charges" means the nonbypassable amounts to be charged for the
use or availability of electric services, approved by the Texas Commission in
the Financing Order to recover Qualified Costs, that may be collected by the
Seller, its successors, assignees or other collection agents as provided in the
Financing Order.

     "Transition Property" means the rights and interests of the Seller or its
successor under the Financing Order, once those rights are first transferred to
the Issuer or pledged in connection with the issuance of the Transition Bonds,
including the irrevocable right to impose, collect and receive through
Transition Charges payable by retail electric customers within Seller's
certificated service area as it existed on May 1, 1999, an amount sufficient to
cover the Qualified Costs of the Seller authorized in the Financing Order, the
right to receive Transition Charges in amounts and at times sufficient to pay
principal and interest and make other deposits in connection with the Transition
Bonds and all revenues and collections resulting from Transition Charges.

     "Trust Estate" has the meaning specified in the Granting Clause of the
Indenture.

     "UCC" means, unless the context otherwise requires, the Uniform Commercial
Code, as in effect in the relevant jurisdiction, as amended from time to time.

                                       A-5

<PAGE>

                                   EXHIBIT A

                                  BILL OF SALE

     1. This Bill of Sale is being delivered pursuant to the Transition Property
Sale Agreement, dated as of October 24, 2001 (the "Sale Agreement"), between
Reliant Energy, Incorporated (the "Seller") and Reliant Energy Transition Bond
Company LLC (the "Issuer"). All capitalized terms used but not defined herein
have the respective meanings ascribed thereto in the Sale Agreement.

     2. In consideration of the Issuer's payment to the Seller of
$[______________], receipt of which is hereby acknowledged, the Seller does
hereby irrevocably sell, transfer, assign, set over and otherwise convey to the
Issuer, without recourse or warranty, except as set forth in the Sale Agreement,
all right, title and interest of the Seller in, to and under the [Initial]
[Subsequent] Transition Property identified on Schedule 1 hereto (such sale,
                                               ----------
transfer, assignment, setting over and conveyance of the [Initial] [Subsequent]
Transition Property includes, to the fullest extent permitted by the Texas
Electric Choice Plan, the right to impose, collect and receive the Transition
Charges related to the [Initial] [Subsequent] Transition Property, as the same
may be adjusted from time to time). Such sale, transfer, assignment, setting
over and conveyance is hereby expressly stated to be a sale or other absolute
transfer and, pursuant to Section 39.308 of the Texas Electric Choice Plan and
other applicable law, is a true sale and is not a secured transaction and title,
legal and equitable, has passed to the Issuer. The preceding sentence is the
statement referred to in Section 39.308 of the Texas Electric Choice Plan. The
Seller agrees and confirms that, after giving effect to the sale evidenced by
this Bill of Sale, the Seller has no right, title or interest in, to or under
the [Initial] [Subsequent] Transition Property.

     3. The Issuer does hereby purchase the [Initial] [Subsequent] Transition
Property identified on Schedule 1 hereto from the Seller for the consideration
                       ----------
set forth in paragraph 2 above.

     4. The Seller and the Issuer each acknowledge and agree that the purchase
price for the [Initial] [Subsequent] Transition Property sold pursuant to this
Bill of Sale and the Sale Agreement is equal to its fair market value on the
date hereof.

     5. The Seller confirms that each of the representations and warranties on
the part of the Seller contained in the Sale Agreement are true and correct in
all respects on the date hereof as if made on the date hereof.

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

     7. THIS BILL OF SALE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS, WITHOUT REFERENCE TO ITS CONFLICT OF LAW

<PAGE>

PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

     IN WITNESS WHEREOF, the Seller and the Issuer have duly executed this Bill
of Sale as of the ___ day of ______, ____.

                    RELIANT ENERGY TRANSITION BOND COMPANY LLC,
                      as Issuer,

                     By: ____________________________________________
                         Name:
                         Title:

                    RELIANT ENERGY, INCORPORATED,
                      as Seller,

                    By:  ____________________________________________
                         Name:
                         Title:

<PAGE>

                                   SCHEDULE 1
                                       to
                                  BILL OF SALE

                   [Initial] [Subsequent] Transition Property<PAGE>

                                                                    Exhibit 10.2

                     TRANSITION PROPERTY SERVICING AGREEMENT

                                     between

                   RELIANT ENERGY TRANSITION BOND COMPANY LLC

                                     Issuer

                                       and

                          RELIANT ENERGY, INCORPORATED

                                    Servicer

                          Dated as of October 24, 2001

<PAGE>

                                Table of Contents

<TABLE>
<S>                                                                                    <C>
ARTICLE I DEFINITIONS ..............................................................    1

 SECTION 1.01. DEFINITIONS .........................................................    1
 SECTION 1.02. OTHER DEFINITIONAL PROVISIONS .......................................    1

ARTICLE II APPOINTMENT AND AUTHORIZATION OF SERVICER ...............................    2

 SECTION 2.01. APPOINTMENT OF THE SERVICER; ACCEPTANCE OF APPOINTMENT ..............    2
 SECTION 2.02. AUTHORIZATION .......................................................    2
 SECTION 2.03. DOMINION AND CONTROL OVER TRANSITION PROPERTY .......................    2

ARTICLE III BILLING SERVICES .......................................................    3

 SECTION 3.01. DUTIES OF THE SERVICER ..............................................    3
 SECTION 3.02. COLLECTION AND ALLOCATION OF TRANSITION CHARGES .....................    5
 SECTION 3.03. PAYMENT OF TC COLLECTIONS ...........................................    5
 SECTION 3.04. SERVICING AND MAINTENANCE STANDARDS .................................    7
 SECTION 3.05. SERVICER'S CERTIFICATES .............................................    8
 SECTION 3.06. ANNUAL STATEMENT AS TO COMPLIANCE; NOTICE OF DEFAULT ................    8
 SECTION 3.07. ANNUAL INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT .............    8
 SECTION 3.08. TRANSITION PROPERTY DOCUMENTATION ...................................    9
 SECTION 3.09. COMPUTER RECORDS; AUDITS OF DOCUMENTATION ...........................    9
 SECTION 3.10. DEFENDING TRANSITION PROPERTY AGAINST CLAIMS ........................   10
 SECTION 3.11. OPINIONS OF COUNSEL .................................................   10

ARTICLE IV SERVICES RELATED TO TRANSITION CHARGE ADJUSTMENTS AND RAAF
ADJUSTMENTS ........................................................................   11

 SECTION 4.01. TRANSITION CHARGE ADJUSTMENTS AND RAAF ADJUSTMENTS ..................   11

ARTICLE V THE SERVICER .............................................................   11

 SECTION 5.01. REPRESENTATIONS AND WARRANTIES OF THE SERVICER ......................   11
 SECTION 5.02. INDEMNITIES OF THE SERVICER; RELEASE OF CLAIMS ......................   14
 SECTION 5.03. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE OBLIGATIONS OF,
 THE SERVICER ......................................................................   16
 SECTION 5.04. ASSIGNMENT OF THE SERVICER'S OBLIGATIONS ............................   17
 SECTION 5.05. LIMITATION ON LIABILITY OF THE SERVICER AND OTHERS ..................   17
 SECTION 5.06. RELIANT ENERGY NOT TO RESIGN AS SERVICER ............................   18
</TABLE>

                                        i

<PAGE>

<TABLE>
<S>                                                                        <C>
 SECTION 5.07. SERVICING FEE ...........................................    18
 SECTION 5.08. SERVICER EXPENSES .......................................    19
 SECTION 5.09. APPOINTMENTS ............................................    19
 SECTION 5.10. NO SERVICER ADVANCES ....................................    19
 SECTION 5.11. REMITTANCES .............................................    19
 SECTION 5.12. PROTECTION OF TITLE .....................................    20

ARTICLE VI SERVICER DEFAULT ............................................    20

 SECTION 6.01. SERVICER DEFAULT ........................................    20
 SECTION 6.02. NOTICE OF SERVICER DEFAULT ..............................    22
 SECTION 6.03. WAIVER OF PAST DEFAULTS .................................    22
 SECTION 6.04. APPOINTMENT OF SUCCESSOR ................................    22
 SECTION 6.05. COOPERATION WITH SUCCESSOR ..............................    23

ARTICLE VII MISCELLANEOUS PROVISIONS ...................................    23

 SECTION 7.01. AMENDMENT ...............................................    23
 SECTION 7.02. NOTICES .................................................    23
 SECTION 7.03. ASSIGNMENT ..............................................    24
 SECTION 7.04. LIMITATIONS ON RIGHTS OF OTHERS .........................    24
 SECTION 7.05. SEVERABILITY ............................................    24
 SECTION 7.06. SEPARATE COUNTERPARTS ...................................    24
 SECTION 7.07. HEADINGS ................................................    25
 SECTION 7.08. GOVERNING LAW ...........................................    25
 SECTION 7.09. ASSIGNMENT TO THE TRUSTEE ...............................    25
 SECTION 7.10. NONPETITION COVENANTS ...................................    25
 SECTION 7.11. TERMINATION .............................................    25
 SECTION 7.12. IMPLEMENTATION OF TEXAS ELECTRIC CHOICE PLAN ............    25
 SECTION 7.13. PUCT CONSENT ............................................    25
 SECTION 7.14. EFFECT OF SUBSEQUENT PUCT REGULATIONS ...................    26

SCHEDULE A TO SERVICING AGREEMENT

ANNEX 1 TO SERVICING AGREEMENT

APPENDIX A - MASTER DEFINITIONS
</TABLE>

                                       ii

<PAGE>

TRANSITION PROPERTY SERVICING AGREEMENT dated as of October 24, 2001 (this
"Agreement") between RELIANT ENERGY TRANSITION BOND COMPANY LLC, a Delaware
limited liability company (the "Issuer"), and RELIANT ENERGY, INCORPORATED, a
Texas corporation ("Reliant Energy"), as the servicer of the Transition Property
hereunder (together with each successor to Reliant Energy in such capacity
pursuant to Section 5.03 or 6.04, the "Servicer").

         WHEREAS the Servicer is willing to service the Transition Property
purchased from the Seller by the Issuer;

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

         WHEREAS, the Texas Electric Choice Plan allows for customer choice in
the selection of electric-service providers beginning in January 2002, subject
to delay under certain circumstances (the first date of such customer choice to
be referred to as "Choice");

         WHEREAS, the Texas Electric Choice Plan allows for customer choice in
the selection of electric-service providers during a pilot program that began in
July 2001 (the "Pilot Program"), and during the Pilot Program both Reliant
Energy and certain REPs may provide electric service to various Customers;

         WHEREAS, the Transition Charges may not be itemized on Customers' bills
and the TC Collections initially will be commingled with other funds collected
from Customers and REPs (as applicable); and

         WHEREAS, a number of parties may have an interest in such commingled
collections, and such parties have entered into an Intercreditor Agreement as of
the date hereof that allows the party acting as both the Servicer and the
Receivables Servicer to allocate the collected, commingled funds according to
each interested party's interest;

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

                                    ARTICLE I

                                   DEFINITIONS

         SECTION 1.01. DEFINITIONS. Capitalized terms used but not otherwise
defined in this Agreement have the respective meanings set forth in Appendix A
hereto.

         SECTION 1.02. OTHER DEFINITIONAL PROVISIONS.

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

                                        1

<PAGE>

             (b) The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms.

             (c) All terms defined in this Agreement have the defined meanings
when used in any certificate or other document made or delivered pursuant to
this Agreement unless otherwise defined therein.

                                   ARTICLE II

                    APPOINTMENT AND AUTHORIZATION OF SERVICER

          SECTION 2.01. APPOINTMENT OF THE SERVICER; ACCEPTANCE OF APPOINTMENT.
Subject to Section 5.04, Section 5.06 and Article VI, the Issuer hereby appoints
the Servicer, and the Servicer hereby accepts such appointment, to perform the
Servicer's obligations pursuant to this Agreement on behalf of and for the
benefit of the Issuer in accordance with the terms of this Agreement. This
appointment and the Servicer's acceptance thereof may not be revoked except in
accordance with the express terms of this Agreement.

          SECTION 2.02. AUTHORIZATION. With respect to all or any portion of the
Transition Property, the Servicer shall be, and hereby is, authorized and
empowered by the Issuer to:

             (a) execute and deliver, on behalf of itself or the Issuer, as the
case may be, any and all instruments, documents or notices, and

             (b) on behalf of itself or the Issuer, as the case may be, make any
filing and participate in Proceedings related to the duties of the Servicer
hereunder with any governmental authorities, including with the PUCT.

          The Issuer shall furnish the Servicer with such documents as have been
prepared by the Servicer for execution by the Issuer, and with such other
documents as may be in the Issuer's possession, as necessary or appropriate to
enable the Servicer to carry out its servicing and administrative duties
hereunder. Upon the written request of the Servicer, the Issuer shall furnish
the Servicer with any powers of attorney or other documents necessary or
appropriate to enable the Servicer to carry out its duties hereunder.

          SECTION 2.03. DOMINION AND CONTROL OVER TRANSITION PROPERTY.
Notwithstanding any other provision contained herein, the Servicer and the
Issuer agree that the Issuer shall have dominion and control over the Transition
Property, and the Servicer, in accordance with the terms hereof, is acting
solely as the servicing agent of the Issuer with respect to the Transition
Property. The Servicer hereby agrees that it shall not take any action that is
not authorized by this Agreement, the Texas Electric Choice Plan or the
Financing Order, that is not consistent with its customary procedures and
practices, or that shall impair the rights of the Issuer with respect to the
Transition Property, in each case unless such action is required by law or court
or regulatory order.

                                        2

<PAGE>

                                  ARTICLE III

                                BILLING SERVICES

          SECTION 3.01. DUTIES OF THE SERVICER. The Servicer, as agent for the
Issuer (to the extent provided herein), shall have the following duties:

               (a)   Duties of Servicer Generally. The Servicer shall manage,
                     ----------------------------
service, administer and make collections in respect of the Transition Property.
The Servicer's duties will include:

               (i)   obtaining meter reads and providing such metering
         information to the REPs, as applicable (unless another entity assumes
         metering responsibilities in accordance with the Financing Order,
         applicable tariffs or the Texas Electric Choice Plan);

               (ii)  calculating and billing the Transition Charges;

               (iii) collecting payments of Transition Charges and payments with
         respect to Transition Property from all persons or entities responsible
         for remitting Transition Charges and other payments with respect to
         Transition Property to the Servicer under the Financing Order, the
         Texas Electric Choice Plan, PUCT Regulations or applicable tariffs;
         provided, however, the Issuer and the Servicer acknowledge and agree
         that pursuant to the Intercreditor Agreement, payments in respect of
         Transition Charges and Transition Property may be deposited initially
         into an account held and processed by Reliant Energy in its individual
         capacity for the benefit of the Servicer, and that Reliant Energy in
         its individual capacity may be replaced as the holder of such account
         by a Replacement Servicer or Designated Account Holder as those terms
         are defined and as set forth more fully in the Intercreditor Agreement;

               (iv)  posting all TC Collections remitted to the Servicer and
         posting all late-payment penalties assessed against REPs (as described
         in Section 3.02);

               (v)   responding to inquiries by Customers, REPs, the PUCT or any
         other State, local or federal governmental authority with respect to
         the Transition Property and the Transition Charges;

               (vi)  accounting for TC Collections and late-payment penalties of
         REPs, investigating and resolving delinquencies (including, where
         permitted by the Financing Order, Tariff TC and/or PUCT Regulations,
         terminating transmission and distribution service for nonpayment of
         charges), processing and depositing collections, making periodic
         remittances to the Trustee and furnishing periodic reports to the
         Issuer, the Trustee and each Rating Agency;

               (vii) providing certified calculations and other information
         reasonably requested by any party to the Intercreditor Agreement to
         allow such party to perform its duties properly under the Intercreditor
         Agreement and monitoring collections, allocations and remittances of
         funds for compliance with the Intercreditor Agreement;

                                        3

<PAGE>

               (viii) providing information reasonably requested by Reliant
         Energy in connection with the allocation of collections between
         Transition Charges and Transition Property on one hand, and other
         charges and fees on the other;

               (ix)   monitoring payments by each REP, reviewing any financial
         reports provided by each REP and monitoring compliance by each REP with
         the credit standards and deposit obligations set forth in the Financing
         Order;

               (x)    notifying each REP of any defaults by such REP in its
         payment obligations and other obligations (including its credit
         standards) under Tariff TC, and enforcing against such REP at the
         earliest date permitted by the Financing Order and Tariff TC any
         remedies provided by such Tariff TC, the Financing Order or other
         applicable law;

               (xi)   selling, as the agent for the Issuer, as its interest may
         appear, defaulted or written off accounts in accordance with the
         Servicer's usual and customary practices;

               (xii)  taking action in connection with Transition Charge
         Adjustments and RAAF Adjustments as is set forth herein; and

               (xiii) any other duties specified for a servicer under the
         Financing Order, Tariff TC, the Texas Electric Choice Plan or other
         applicable law.

         Anything to the contrary notwithstanding, the duties of the Servicer
set forth in this Agreement shall be qualified in their entirety by, and the
Servicer shall at all times comply with, the Financing Order, the Texas Electric
Choice Plan and any PUCT Regulations, orders or directions as in effect at the
time such duties are to be performed. Without limiting the generality of this
Section 3.01(a), in furtherance of the foregoing, the Servicer hereby agrees
that it shall also have, and shall comply with, the duties and responsibilities
relating to data acquisition, usage and bill calculation, billing, customer
service functions, collections, payment processing and remittance set forth in
Exhibit A hereto.

               (b)    Notification of Laws and Regulations. The Servicer shall
                      ------------------------------------
immediately notify the Issuer, the Trustee and each Rating Agency in writing of
any laws or PUCT Regulations, orders or directions hereafter promulgated that
have a material adverse effect on the Servicer's ability to perform its duties
under this Agreement.

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

                                        4

<PAGE>

     SECTION 3.02. COLLECTION AND ALLOCATION OF TRANSITION CHARGES.

               (a) The Servicer shall use all reasonable efforts to collect all
amounts owed in respect of Transition Charges and late-payment penalties (as set
forth in Section 3.02(c) below) as and when the same shall become due and shall
follow such collection procedures as it follows with respect to collection
activities that the Servicer conducts for itself or others. The Servicer shall
not change the amount of or reschedule the due date of any scheduled payment of
Transition Charges, except as contemplated in this Agreement or as required by
law or court or PUCT order or directive. The Servicer shall enforce at the
earliest possible date the obligations with respect to the Transition Charges of
each REP and each other Person owing or collecting Transition Charges, provided
that any REP shall be entitled to hold back from its payment of Transition
Charges to the Servicer an allowance for charge-offs according to the procedure
and calculations set forth in the Financing Order, Tariff TC and the Issuer
Annex.

               (b) Any amounts received into a lockbox or other account
controlled by the Servicer in the event of a default by an REP (as defined in
the Financing Order and Tariff TC) that represent a partial payment toward an
outstanding customer balance will be allocated first to Transition Charges and,
second, pro rata to other fees and charges, as specified in Tariff TC and
Finding of Fact No. 50(e)(3) in the Financing Order. Other than as described in
the preceding sentence, if a Customer or REP pays only a portion of its bill, a
pro rata portion of Transition Charge revenues shall be deemed to be collected,
and any such partial payment will be allocated, first, ratably based on the
amount owed for Transition Charges and the amount owed for other fees and
charges, other than late charges, owed to Reliant Energy or any successor and,
second, any remaining portion of such partial payment shall be allocated as late
charges to Reliant Energy or any successor.

               (c) If an REP fails to remit payment in full of all Transition
Charges billed to such REP by the close of business on the day that is 35
calendar days after the date on which the Transition Charges were billed to the
REP ("REP Billing Day"), the Servicer shall assess and collect a late-payment
penalty (the "Penalty") from such REP on the 36th day following the REP Billing
Day (the "Penalty Assessment Day"). The amount of such late-payment penalty
shall be 5% of the amount of TC Collections that were billed on the REP Billing
Day and not paid on or before the calendar day immediately preceding the Penalty
Assessment Day. All amounts collected in respect of Penalties shall be paid to
the Trustee for deposit in the Collection Account and shall be applied against
Transition Bond obligations. Disputes regarding whether and when an REP has made
payment of billed Transition Charges shall be resolved in accordance with
Section 8(b) of the Issuer Annex.

     SECTION 3.03. PAYMENT OF TC COLLECTIONS.

               (a) The Servicer shall prepare and deliver at Closing a
Collections Curve for collections arising from bills sent during each Billing
Month that is to occur from and including the Billing Month in which Closing
occurs through and including the Billing Month that includes the beginning of
Choice, inclusive (each such month, a "Pre-Choice Billing Month").

               (b) Prior to Choice and through the Billing Month that is seven
months after Choice but excluding any TC Collections with respect to any Pilot
Program,

                                      5

<PAGE>

               (i)  The Servicer agrees to remit actual TC Collections received
         by the Servicer with respect to any Pre-Choice Billing Month to the
         Trustee for deposit in the Collection Account not later than the
         Remittance Date immediately following the Reconciliation Date for such
         Pre-Choice Billing Month. In addition, the Servicer shall make periodic
         payments on account of TC Collections with respect to each Pre-Choice
         Billing Month to the Trustee for deposit in the Collection Account as
         follows:

                    (A) On each Monthly Remittance Date, for so long as the
               Servicer is in satisfaction of the conditions of Section 5.11(b),
               the Servicer shall remit to the Trustee with respect to each
               Pre-Choice Billing Month the amount of TC Collections estimated
               to have been received by the Servicer from Customers during the
               calendar month immediately preceding the Current Remittance
               Month, based on the applicable Collections Curve then in effect
               for the Customer Classes, for the Pre-Choice Billing Months, plus
               any Accrued Interest thereon from the date such TC Collections
               are estimated to have been received pursuant to this Section
               3.03(b)(i)(A). For purposes of the foregoing, no TC Collections
               shall be deemed to have been received in the Current Remittance
               Month with respect to any Pre-Choice Billing Month that is more
               than six months prior to the Current Remittance Month.

                    (B) On each Daily Remittance Date, for so long as the
               Servicer is not in satisfaction of the conditions of Section
               5.11(b), the Servicer shall remit to the Trustee with respect to
               the Pre-Choice Billing Months the amount of TC Collections
               estimated to have been received by the Servicer from Customers on
               such Daily Remittance Date with respect to the Pre-Choice Billing
               Months, including any amounts on deposit with the Servicer prior
               to such Daily Remittance Date during a period when the Servicer
               had been remitting on a Monthly Remittance Date, plus Accrued
               Interest thereon from the date such TC Collections are estimated
               to have been received pursuant to this Section 3.03(b)(i)(B),
               provided that for each such Pre-Choice Billing Month, such
               estimate of TC Collections shall be made by dividing (1) the
               amount of TC Collections estimated to be received from Customers
               during the Current Remittance Month, based on the applicable
               Collections Curve then in effect, for each of the Pre-Choice
               Billing Months divided by (2) the number of Business Days in the
               Current Remittance Month. For purposes of the foregoing, no TC
               Collections shall be deemed to have been received in the Current
               Remittance Month with respect to any Pre-Choice Billing Month
               that is more than seven months prior to the Current Remittance
               Month.

               (ii) On or before the Reconciliation Date for each Pre-Choice
          Billing Month, the Servicer shall determine whether there exists a
          Curve Payment Shortfall or an Excess Curve Payment with respect to
          such Billing Month by comparing the actual TC Collections of the
          Servicer with respect to such Billing Month to the Collections Curve
          Payments previously made by the Servicer to the Trustee in respect of
          such Billing Month. In the event there is a Curve Payment Shortfall
          with respect to such Billing Month, the Servicer shall pay the Curve
          Payment Shortfall to the Trustee for deposit into the Collection
          Account on that Reconciliation Date. In the event that there is an
          Excess

                                        6

<PAGE>

         Curve Payment for the applicable Billing Month, the Servicer may (i)
         reduce the amount that the Servicer is required to remit to the Trustee
         for deposit in the Collection Account on the corresponding Remittance
         Date (and, if necessary, succeeding Remittance Dates) by the amount of
         the Excess Curve Payment plus the amount of Accrued Interest originally
         paid by the Servicer to the Trustee thereon upon written notice to the
         Trustee, or (ii) require the Trustee by written direction to pay to the
         Servicer from the Collection Account the amount of the Excess Curve
         Payment plus the amount of Accrued Interest originally paid by the
         Servicer to the Trustee thereon, which payment shall become the
         property of the Servicer.

               (c) During any Pilot Program (with respect to TC Collections
attributable to such Pilot Program) and beginning with Choice,

               (i)  the Servicer shall collect and remit to the Trustee for
         deposit in the Collection Account on a monthly or daily basis in
         accordance with Section 5.11(a) or 5.11(b), as the case may be, the
         Transition Charges plus Accrued Interest thereon from the date or dates
         such Transition Charges were actually received in accordance with
         Section 3.02 upon receipt of such collection from any source; provided
         that

               (ii) the Servicer shall follow the procedure for making payments
         of actual TC Collections and TC Collections on account to the Trustee
         as set forth in Section 3.03(b) for the time period set forth therein
         in respect of Transition Charges collected by the Servicer from (A)
         Customers and others required to pay Transition Charges who are not
         receiving electric service from an REP during any Pilot Program and (B)
         Customers and others required to pay Transition Charges who are
         receiving electric service from an REP during any Pilot Program or
         beginning with Choice but maintain outstanding balances of Transition
         Charges and/or other charges and fees from the period prior to such
         Pilot Program or Choice, which outstanding balances are billed and
         collected by an entity other than such REP.

               (d)  The Servicer agrees and acknowledges that it will hold all
TC Collections and other Transition Property collected by it for the benefit of
the Issuer and the Trustee and that all amounts will be remitted by the Servicer
in accordance with this Agreement without any surcharge, fee, offset, charge or
other deduction other than as expressly permitted in the Financing Order or
Section 3.03(b)(ii) of this Agreement and without making any claim to reduce its
obligation to remit all TC Collections and any other proceeds of the Transition
Property collected by it.

          SECTION 3.04. SERVICING AND MAINTENANCE STANDARDS. The Servicer shall,
on behalf of the Issuer:

               (a) manage, service, administer and make collections in respect
of the Transition Property with reasonable care and in material compliance with
applicable law, including without limitation all applicable PUCT Regulations and
guidelines, using the highest degree of care and diligence that the Servicer
exercises with respect to billing and collection activities that the Servicer
conducts for itself and others;

                                        7

<PAGE>

               (b) follow standards, policies and procedures in performing its
duties as Servicer that are customary in the electric transmission and
distribution industry or that the PUCT has mandated and consistent with the
terms and provisions of the Financing Order, Tariff TC and existing law;

               (c) use all reasonable efforts to enforce and maintain the
Issuer's and the Trustee's rights in respect of the Transition Property;

               (d) calculate Transition Charges and RAAFs in compliance with the
Texas Electric Choice Plan, the Financing Order, any PUCT order related to
Transition Charge allocation and any applicable tariffs;

               (e) provide all reports to such parties to the Intercreditor
Agreement regarding the Transition Charges and RAAFs as are necessary to effect
collection, allocation and remittance of payments in respect of Transition
Charges and other collected funds in accordance with this Agreement and the
Intercreditor Agreement; and

               (f) make all filings required under the Texas Electric Choice
Plan or the UCC to maintain the perfected security interest of the Trustee in
the Trust Estate and use all reasonable efforts to otherwise enforce and
maintain the Trustee's rights in respect of the Transition Property and the
Trust Estate;

except where the failure to comply with any of the foregoing would not
materially and adversely affect the Issuer's or the Trustee's interest in the
Transition Property. The Servicer shall follow such customary and usual
practices and procedures as it shall deem necessary or advisable in its
servicing of all or any portion of the Transition Property, which, in the
Servicer's judgment, may include the taking of legal action pursuant to Section
3.10 hereof or otherwise.

          SECTION 3.05. SERVICER'S CERTIFICATES. The Servicer shall provide to
the Issuer, the Trustee and the Rating Agencies the statements and certificates
specified in the Issuer Annex at the time and in the manner set forth therein.

          SECTION 3.06. ANNUAL STATEMENT AS TO COMPLIANCE; NOTICE OF DEFAULT.
The Servicer shall deliver to the Issuer, to the Trustee and to each Rating
Agency, on or before March 31 of each year beginning March 31, 2002, an
Officers' Certificate, stating that:

               (i) a review of the activities of the Servicer during the
         preceding calendar year (or relevant portion thereof) and of its
         performance under this Agreement has been made under such officers'
         supervision and

               (ii) to the best of such officers' knowledge, based on such
         review, the Servicer has fulfilled all its obligations under this
         Agreement throughout such period or, if there has been a default in the
         fulfillment of any such obligation, stating that there has been a
         default and describing each such default.

          SECTION 3.07. ANNUAL INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT.

                                        8

<PAGE>

         (a)   The Servicer shall cause a firm of independent certified public
accountants (which may also provide other services to the Servicer or the
Seller) to prepare, and the Servicer shall deliver to the Issuer, to the Trustee
and to each Rating Agency, on or before March 31 of each year, beginning March
31, 2002, to and including the March 31 succeeding the retirement of all
Transition Bonds, a report addressed to the Servicer (the "Annual Accountant's
Report"), which may be included as part of the Servicer's customary auditing
activities, to the effect that such firm has performed certain procedures
related to financial matters in connection with the Servicer's compliance with
its obligations under this Agreement during the preceding calendar year (or, in
the case of the first Annual Accountant's Report, the period of time from the
first Sale Date through December 31, 2001), identifying the results of such
procedures and including any exceptions noted. In the event such accounting firm
requires the Trustee or the Issuer to agree or consent to the procedures
performed by such firm, the Issuer shall direct the Trustee in writing to so
agree; it being understood and agreed that the Trustee shall deliver such letter
of agreement or consent in conclusive reliance upon the direction of the Issuer,
and the Trustee shall not make any independent inquiry or investigation as to,
and shall have no obligation or liability in respect of, the sufficiency,
validity or correctness of such procedures.

         (b)   The Annual Accountant's Report shall also indicate that the
accounting firm providing such report is independent of the Servicer within the
meaning of the Code of Professional Ethics of the American Institute of
Certified Public Accountants.

     SECTION 3.08. TRANSITION PROPERTY DOCUMENTATION. To assure uniform quality
in servicing the Transition Property and to reduce administrative costs, the
Servicer shall keep on file, in accordance with its customary procedures, all
Transition Property Documentation, it being understood that the Servicer is
acting only as the servicing agent and custodian for the Issuer with respect to
the Transition Property Documentation.

     SECTION 3.09. COMPUTER RECORDS; AUDITS OF DOCUMENTATION.

         (a)   Safekeeping. The Servicer shall maintain accurate and complete
               -----------
accounts, records and computer systems pertaining to the Transition Property and
the Transition Property Documentation in accordance with its standard accounting
procedures and in sufficient detail to permit reconciliation between payments or
recoveries on (or with respect to) Transition Charges and the TC Collections
from time to time remitted to the Trustee pursuant to Section 5.11 and to enable
the Issuer to comply with this Agreement and the Indenture. The Servicer shall
conduct, or cause to be conducted, periodic audits of the Transition Property
Documentation held by it under this Agreement and of the related accounts,
records and computer systems, in such a manner as shall enable the Issuer and
the Trustee, as pledgee of the Issuer, to verify the accuracy of the Servicer's
record keeping. The Servicer shall promptly report to the Issuer and to the
Trustee any failure on the Servicer's part to hold the Transition Property
Documentation and maintain its accounts, records and computer systems as herein
provided and promptly take appropriate action to remedy any such failure.
Nothing herein shall be deemed to require an initial review or any periodic
review by the Issuer or the Trustee of the Transition Property Documentation.
The Servicer's duties to hold the Transition Property Documentation on behalf of
the Issuer set forth in this Section 3.09, to the extent such Transition
Property Documentation has not been previously transferred to a successor
Servicer, shall terminate three years after the

                                       9

<PAGE>

earlier of the date on which (i) the Servicer is succeeded by a successor
Servicer pursuant to the provisions of this Agreement or (ii) no Transition
Bonds of any Series are outstanding.

         (b)   Maintenance of and Access to Records. The Servicer shall maintain
               ------------------------------------
the Transition Property Documentation at 1111 Louisiana Street, Houston, Texas
or at such other office as shall be specified to the Issuer and to the Trustee
by written notice not later than 30 days prior to any change in location. The
Servicer shall permit the Issuer and the Trustee or their respective duly
authorized representatives, attorneys, agents or auditors at any time during
normal business hours to inspect, audit and make copies of and abstracts from
the Servicer's records regarding the Transition Property, the Transition Charges
and the Transition Property Documentation. The failure of the Servicer to
provide access to such information as a result of an obligation or applicable
law (including PUCT Regulations) prohibiting disclosure of information regarding
customers shall not constitute a breach of this Section 3.09(b).

         (c)   Release of Documents. Upon written instruction from the Trustee
               --------------------
in accordance with the Indenture, the Servicer shall release any Transition
Property Documentation to the Trustee, the Trustee's agent or the Trustee's
designee, as the case may be, at such place or places as the Trustee may
designate, as soon as practicable.

      SECTION 3.10. DEFENDING TRANSITION PROPERTY AGAINST CLAIMS. The Servicer
shall institute any action or Proceeding necessary to compel performance by the
PUCT, the State of Texas, each REP and each party to the Intercreditor Agreement
(and in the case of each REP at the earliest possible time) of any of their
obligations or duties under the Texas Electric Choice Plan, the Financing Order
or the Intercreditor Agreement with respect to the Transition Property, and the
Servicer agrees to take such legal or administrative actions, including
defending against or instituting and pursuing legal actions and appearing or
testifying at hearings or similar proceedings as may be reasonably necessary to
block or overturn any attempts to cause a repeal of, modification of, or
supplement to, the Texas Electric Choice Plan or the Financing Order. The costs
of any such action shall be payable from TC Collections as an Operating Expense
in accordance with the Indenture. The Servicer's obligations pursuant to this
Section 3.10 shall survive and continue notwithstanding the fact that the
payment of Operating Expenses pursuant to the Indenture may be delayed (it being
understood that the Servicer may be required initially to advance its own funds
to satisfy its obligations hereunder).

      SECTION 3.11. OPINIONS OF COUNSEL. The Servicer shall deliver to the
Issuer and to the Trustee:

         (a)   promptly after the execution and delivery of this Agreement and
of each amendment hereto, promptly after the execution of the Sale Agreement and
of each amendment thereto, and on each Sale Date, an Opinion of Counsel either:

         (i)   to the effect that, in the opinion of such counsel, all filings,
      including filings with the Secretary of State of the State of Texas
      pursuant to the Texas Electric Choice Plan and filings pursuant to the
      UCC, that are necessary to perfect the transfer and security interests of
      each of the Issuer and the Trustee in the Transition Property have been
      executed and filed and are in full force and effect, and reciting the
      details of such filings or referring to prior Opinions of Counsel in
      which such details are given, or

                                       10

<PAGE>

         (ii) to the effect that, in the opinion of such counsel, no such action
      shall be necessary to preserve and protect such interests; and

         (b)  within 90 days after the beginning of each calendar year beginning
with the first calendar year beginning more than three months after the first
Sale Date, an Opinion of Counsel, dated as of a date during such 90-day period,
either:

         (i)  to the effect that, in the opinion of such counsel, all filings,
      including filings with the Secretary of State of the State of Texas
      pursuant to the Texas Electric Choice Plan and filings pursuant to the
      UCC, that are necessary to fully preserve and protect the interests of
      each of the Issuer and the Trustee in the Transition Property have been
      executed and filed and are in full force and effect, and reciting the
      details of such filings or referring to prior Opinions of Counsel in
      which such details are given, or

         (ii) to the effect that, in the opinion of such counsel, no such action
      shall be necessary to preserve and protect such interest.

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

                                   ARTICLE IV

           SERVICES RELATED TO TRANSITION CHARGE ADJUSTMENTS AND RAAF
                                  ADJUSTMENTS

      SECTION 4.01. TRANSITION CHARGE ADJUSTMENTS AND RAAF ADJUSTMENTS. The
Servicer shall perform the calculations and take the actions relating to
adjusting the Transition Charges and RAAFs as set forth in the Issuer Annex at
the time and in the manner set forth therein.

                                   ARTICLE V

                                  THE SERVICER

      SECTION 5.01. REPRESENTATIONS AND WARRANTIES OF THE SERVICER. The Servicer
makes the following representations and warranties as of each Sale Date, on
which the Issuer has relied and will rely in acquiring Transition Property. The
representations and warranties shall survive the execution and delivery of this
Agreement, the sale of any of the Transition Property to the Issuer and the
pledge thereof to the Trustee pursuant to the Indenture.

         (a)  Organization and Good Standing. If the Servicer is Reliant Energy,
              ------------------------------
the Servicer is a corporation duly organized and in good standing under the laws
of the State of Texas, with the corporate power and authority to own its
properties and to conduct its business as such properties are currently owned
and such business is presently conducted and to execute, deliver and carry out
the terms of this Agreement and the Intercreditor Agreement and has the power,
authority and legal right to service the Transition Property. Any successor
Servicer hereto represents and warrants that it is a corporation duly organized
and in good standing under

                                       11

<PAGE>

the laws of the state of its incorporation, with the corporate power and
authority to own its properties and to conduct its business as such properties
are currently owned and such business is presently conducted and to execute,
deliver and carry out the terms of this Agreement and the Intercreditor
Agreement and has the power, authority and legal right to service the Transition
Property.

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

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

         (d)  Binding Obligation. This Agreement and the Intercreditor Agreement
              ------------------
constitute legal, valid and binding obligations of the Servicer enforceable
against the Servicer in accordance with their terms subject to bankruptcy,
receivership, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally from time to time in effect and to general
principles of equity (regardless of whether considered in a court proceeding in
equity or at law).

         (e)  No Violation. The consummation of the transactions contemplated by
              ------------
this Agreement and the Intercreditor Agreement (to the extent applicable to the
Servicer's responsibilities thereunder) and the fulfillment of the terms of each
will not conflict with, result in any breach of any of the terms and provisions
of, or constitute (with or without notice or lapse of time) a default under, the
articles of incorporation or by-laws of the Servicer, or any indenture,
agreement or other instrument to which the Servicer is a party or by which it is
bound or result in the creation or imposition of any Lien upon any of its
properties pursuant to the terms of any such indenture, agreement or other
instrument; or violate any law or any order, rule or regulation applicable to
the Servicer of any court or of any federal or State regulatory body,
administrative agency or other governmental instrumentality having jurisdiction
over the Servicer or its properties.

         (f)  Approvals. Except for the Issuance Advice Letter, filings with the
              ---------
PUCT for adjusting Transition Charges and RAAFs pursuant to Section 4.01 and the
Issuer Annex and filings with the Secretary of State of the State of Texas under
the Texas Electric Choice Plan and Article 9 of the UCC, no approval,
authorization, consent, order or other action of, or filing with, any court,
federal or State regulatory body, administrative agency or other governmental
instrumentality is required in connection with the execution and delivery by the
Servicer of this Agreement or the Intercreditor Agreement, the performance by
the Servicer of the transactions contemplated thereby or the fulfillment by the
Servicer of the terms of each, except those that

                                       12

<PAGE>

have been obtained or made or that are required by this Agreement to be made in
the future by the Servicer.

         (g)   No Proceedings. There are no Proceedings pending or, to the
               -------------
Servicer's best knowledge, threatened before any court, federal or State
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the Servicer or its properties:

         (i)   seeking any determination or ruling that might materially and
     adversely affect the Transition Property or the performance by the Servicer
     of its obligations under, or the validity or enforceability against the
     Servicer of, this Agreement, except as disclosed by the Servicer on
     Schedule A hereto;

         (ii)  relating to the Servicer and which might materially and adversely
     affect the federal or State income, gross receipts or franchise tax
     attributes of the Transition Property or the Transition Bonds; or

         (iii) seeking to prevent the issuance of the Transition Bonds or the
     consummation of any of the transactions contemplated by this Agreement or
     any of the other Basic Documents.

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

         (i)   Conversion. The conversion of Reliant Energy into a Texas limited
               ----------
liability company will not:

         (i)   interrupt Reliant Energy's existence;

         (ii)  affect Reliant Energy's rights, title and interests in its real
     estate and other property or its power and authority to perform its
     obligations under the Sale Agreement, this Agreement or the other Basic
     Documents;

         (iii) impair or diminish the liabilities and obligations of Reliant
     Energy, including, without limitation, its obligations under this Agreement
     or any other Basic Document;

         (iv)  affect the right, title and interest of the Issuer or the Trustee
     n and to the Transition Property, including without limitation any security
     interest of the Issuer or the Trustee in such property; or

                                       13

<PAGE>

         (v)   result in (A) the breach of any representation or warranty made
     pursuant to this Section 5.01 or (B) after notice or lapse of time, or
     both, a Servicer Default.

     SECTION 5.02.  INDEMNITIES OF THE SERVICER; RELEASE OF CLAIMS.

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

         (b)   The Servicer shall indemnify the Issuer and the Trustee (for
itself and on behalf of the Transition Bondholders) and each of their respective
trustees, members, managers, officers, directors, employees and agents for, and
defend and hold harmless each such Person from and against, any and all Losses
that may be imposed upon, incurred by or asserted against any such Person as a
result of:

         (i)   the Servicer's willful misconduct, bad faith or negligence in the
     performance of its duties or observance of its covenants under this
     Agreement or the Servicer's reckless disregard of its obligations and
     duties under this Agreement or the Intercreditor Agreement;

         (ii)  the Servicer's breach of any of its representations or warranties
     in this Agreement or the Intercreditor Agreement; or

         (iii) litigation and related expenses relating to its status and
     obligations as Servicer (other than any proceedings the Servicer is
     required to institute under this Agreement);

provided, however, that the Servicer shall not be liable for any Losses
resulting from the willful misconduct or gross negligence of any Person
indemnified pursuant to this Section 5.02 (each, an "Indemnified Person") or
resulting from a breach of a representation or warranty made by such Indemnified
Person to the Servicer in any Basic Document that gives rise to the Servicer's
breach.

         (c)   Promptly after receipt by an Indemnified Person of written notice
of its involvement in any action, proceeding or investigation, such Indemnified
Person shall, if a claim for indemnification in respect thereof is to be made
against the Servicer under this Section 5.02, notify the Servicer in writing of
such involvement. Failure by an Indemnified Person to so notify the Servicer
shall relieve the Servicer from the obligation to indemnify and hold harmless
such Indemnified Person under this Section 5.02 only to the extent that the
Servicer suffers actual prejudice as determined by a court of competent
jurisdiction as a result of such failure. With respect to any action, proceeding
or investigation brought by a third party for which indemnification may be
sought by an Indemnified Person under this Section 5.02, the Servicer shall be
entitled to assume the defense of any such action, proceeding or investigation
unless (x) such action, proceeding or investigation exposes the Indemnified
Person to a risk of criminal liability or forfeiture, (y) the Servicer and such
Indemnified Person have a conflict of interest in their respective defenses of
such action, proceeding or investigation or (z) there exists at the time the
Servicer would assume such defense an ongoing Servicer Default. Upon assumption
by the Servicer of the defense of any such action, proceeding or investigation,
the Indemnified Person

                                       14

<PAGE>

shall have the right to participate in such action or proceeding and to retain
its own counsel (including local counsel), and the Servicer shall bear the
reasonable fees, costs and expenses of such separate counsel. The Indemnified
Person shall not settle or compromise or consent to the entry of any judgment
with respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought under this Section 5.02 (whether
or not the Servicer is an actual or potential party to such claim or action)
unless the Servicer agrees in writing to such settlement, compromise or consent
and such settlement, compromise or consent includes an unconditional release of
the Servicer from all liability arising out of such claim, action, suit or
proceeding.

         (d)   The Servicer shall indemnify the Trustee and its respective
trustees, officers, directors, employees and agents for, and defend and hold
harmless each such Person from and against, any and all Losses that may be
imposed upon, incurred by or asserted against any such Person as a result of the
acceptance or performance of the trusts and duties contained herein and in the
Indenture, except to the extent that any such Loss (i) shall be due to the
willful misconduct, bad faith or gross negligence of the Trustee or (ii) shall
arise from the Trustee's breach of any of its representations or warranties set
forth in the Indenture; provided, however, that the foregoing indemnity is
extended to the Trustee solely in its individual capacity and not for the
benefit of the Transition Bondholders or any other Person. Such amounts with
respect to the Trustee shall be deposited and distributed in accordance with the
Indenture.

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

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

         (g)   The Servicer and the Issuer hereby acknowledge that,
notwithstanding anything herein to the contrary, the Trustee is a third-party
beneficiary of this Section 5.02 and is entitled to the benefits of the
indemnity from the Servicer contained herein and to bring any action to enforce
such indemnification directly against the Servicer.

                                       15

<PAGE>

     SECTION 5.03. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE OBLIGATIONS
OF, THE SERVICER. Any Person:

         (a)  into which the Servicer may be merged or consolidated and which
succeeds to all or substantially all of the electric transmission and
distribution business of the Servicer (or, if the Servicer's transmission and
distribution functions are split, which provides distribution services directly
to a majority of the Servicer's then-existing customers),

         (b)  which results from the division of the Servicer into two or more
Persons and which succeeds to all or substantially all of the electric
transmission and distribution business of the Servicer (or, if the Servicer's
transmission and distribution functions are split, which provides distribution
services directly to a majority of the Servicer's then-existing customers),

         (c)  which may result from any merger or consolidation to which the
Servicer shall be a party and which succeeds to all or substantially all of the
electric transmission and distribution business of the Servicer (or, if the
Servicer's transmission and distribution functions are split, which provides
distribution services directly to a majority of the Servicer's then-existing
customers),

         (d)  which may succeed to the properties and assets of the Servicer
substantially as a whole and which succeeds to all or substantially all of the
electric transmission and distribution business of the Servicer (or, if the
Servicer's transmission and distribution functions are split, which provides
distribution services directly to a majority of the Servicer's then-existing
customers), or

         (e)  which may otherwise succeed to all or substantially all of the
electric transmission and distribution business of the Servicer (or, if the
Servicer's transmission and distribution functions are split, which provides
distribution services directly to a majority of the Servicer's then-existing
customers),

which Person in any of the foregoing cases executes an agreement of assumption
to perform every obligation of the Servicer under this Agreement, shall be the
successor to the Servicer under this Agreement without the execution or filing
of any document or any further act by any of the parties to this Agreement;
provided, however, that:

         (i)  immediately after giving effect to such transaction, the
     representations and warranties made pursuant to Section 5.01 shall be true
     and correct and no Servicer Default, and no event that, after notice or
     lapse of time, or both, would become a Servicer Default, shall have
     occurred and be continuing;

         (ii) the Servicer shall have delivered to the Issuer and the Trustee an
     Officers' Certificate and an opinion of Independent counsel each stating
     that such consolidation, merger, conversion or succession and such
     agreement of assumption comply with this Section 5.03 and that all
     conditions precedent, if any, provided for in this Agreement relating to
     such transaction have been complied with;

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<PAGE>

         (iii) the Servicer shall have delivered to the Issuer, the Trustee and
     the Rating Agencies an Opinion of Counsel either

               (A) stating that, in the opinion of such counsel, all filings to
         be made by the Servicer, including filings with the PUCT pursuant to
         the Texas Electric Choice Plan and the UCC, that are necessary fully to
         preserve and protect the interests of each of the Issuer and the
         Trustee in the Transition Property have been executed and filed and are
         in full force and effect, and reciting the details of such filings or

               (B) stating that, in the opinion of such counsel, no such action
         is necessary to preserve and protect such interests;

         (iv)  the Rating Agencies shall have received prior written notice of
     such transaction; and

         (v)   the Servicer shall have delivered to the Issuer, the Trustee and
     the Rating Agencies an opinion of independent tax counsel (as selected by,
     and in form and substance satisfactory to, the Servicer, and which may be
     based on a ruling from the Internal Revenue Service) to the effect that,
     for federal income tax purposes, such consolidation or merger will not
     result in a material adverse federal income tax consequence to the
     Servicer, the Issuer, the Trustee or the Transition Bondholders.

The Servicer shall not consummate any transaction referred to in clauses (a),
(b), (c), (d) or (e) above except upon execution of the above-described
agreement of assumption and compliance with clauses (i), (ii), (iii), (iv) and
(v) above. When any Person acquires the properties and assets of the Servicer
substantially as a whole and becomes the successor to the Servicer in accordance
with the terms of this Section 5.03, then upon the satisfaction of all of the
other conditions of this Section 5.03, the Servicer shall automatically and
without further notice be released from its obligations hereunder.
Notwithstanding anything to the contrary contained in this Section 5.03, the
Servicer shall be able to convert to a Texas limited liability company without
execution of the above-described agreement, without compliance with clauses (i),
(ii), (iii), (iv) or (v) above and without the execution or filing of any
document or any further act by any of the parties to this Agreement; provided,
however, that after such conversion the Servicer shall make all filings required
under the Texas Electric Choice Plan or the UCC to reflect any change in the
name of the Servicer effective upon such conversion and shall, within 30 days of
such conversion, provide notice of such conversion to each Rating Agency.

     SECTION 5.04. ASSIGNMENT OF THE SERVICER'S OBLIGATIONS. Upon written notice
to the Trustee and the Rating Agencies, the Servicer may assign a portion of its
obligations hereunder to an assignee (A) in accordance with the Intercreditor
Agreement with respect to the obligations to maintain and process any account
into which initial collections may be deposited and process payments in respect
of Transition Charges or (B) subject to the satisfaction of Section 5.03.

     SECTION 5.05. LIMITATION ON LIABILITY OF THE SERVICER AND OTHERS. The
Servicer shall not be liable to the Issuer or the Trustee, except as provided
under this

                                       17

<PAGE>

Agreement, for any action taken or for refraining from the taking of any action
pursuant to this Agreement or for errors in judgment; provided, however, that
this provision shall not protect the Servicer against any liability that would
otherwise be imposed by reason of willful misconduct, bad faith or negligence in
the performance of its duties or by reason of reckless disregard of its
obligations and duties under this Agreement or the Intercreditor Agreement. The
Servicer and any director or officer or employee or agent of the Servicer may
rely in good faith on the advice of counsel reasonably acceptable to the Trustee
or on any document of any kind, reasonably believed to be genuine and to have
been signed by the proper party respecting any matters arising under this
Agreement.

     Except as provided in this Agreement, the Servicer shall not be under any
obligation to appear in, prosecute or defend any legal action that is not
incidental to its duties to service the Transition Property in accordance with
this Agreement or related to its obligation to pay indemnification, and that in
its reasonable opinion may cause it to incur any expense or liability; provided,
however, that the Servicer may undertake any reasonable action that it may deem
necessary or desirable in respect of this Agreement and the rights and duties of
the parties to this Agreement and the interests of the Transition Bondholders
under this Agreement. In such event, the legal expenses and costs of such action
and any liability resulting therefrom shall be expenses, costs and liabilities
of the Servicer.

     SECTION 5.06. RELIANT ENERGY NOT TO RESIGN AS SERVICER. Subject to the
provisions of Sections 5.03 and 5.04, Reliant Energy shall not resign from the
obligations and duties imposed on it as Servicer under this Agreement unless the
Servicer delivers to the Issuer, the Trustee and the PUCT written notice of such
resignation at the earliest practicable time and, concurrently therewith or
promptly thereafter, an opinion of Independent legal counsel that the Servicer's
performance of its duties under this Agreement shall no longer be permissible
under applicable law. No such resignation shall become effective until a
successor Servicer shall have assumed the servicing obligations and duties
hereunder of the Servicer in accordance with Section 6.04.

     SECTION 5.07. SERVICING FEE. The Issuer agrees to pay the Servicer on each
Payment Date, solely to the extent amounts are available therefor in accordance
with the Indenture, the Servicing Fee with respect to all Series of Transition
Bonds. For so long as:

          (i)   Reliant Energy or one of its affiliates is the Servicer,

          (ii)  a successor to Reliant Energy or one of its affiliates is the
     Servicer due to the operation of the provisions of Section 5.03, or

          (iii) any Person is the successor Servicer hereunder pursuant to the
     provisions of Section 5.04 if the predecessor Servicer was Reliant Energy
     or one of its affiliates,

the amount of the Servicing Fee paid to the Servicer annually shall equal 0.05%
of the Transition Bond Balance on the Initial Transfer Date and shall be
prorated into equal payment amounts based on the number of Payment Dates that
are expected to occur (a) in the remaining portion of the calendar year in which
the Servicer began to provide any of the services set forth in this Agreement
(provided that the Servicing Fee for such time period shall be prorated to the
fraction

                                       18

<PAGE>

of a calendar year during which the Servicer provides any of the services set
forth in this Agreement) and (b) in each calendar year thereafter.

     In the event that a successor Servicer not affiliated with Reliant Energy
is appointed in accordance with Section 6.04, the amount of Servicing Fee paid
to the Servicer annually shall be agreed upon by the successor Servicer and the
Trustee but shall in no event exceed 0.60% of the Transition Bond Balance on the
Initial Transfer Date and shall be prorated into equal payment amounts as set
forth in the preceding paragraph. The foregoing fees constitute a fair and
reasonable price for the obligations to be performed by the Servicer. The
Servicer and any successor Servicer agrees to pay from amounts received as the
Servicing Fee all fees due and owing pursuant to the Intercreditor Agreement,
and neither the Servicer nor any successor Servicer shall seek or be entitled to
any other or additional reimbursement therefor. The Trustee shall not be
responsible or liable for the Servicing Fee or any fees arising from the
Intercreditor Agreement or for any increase or differential in such fees.

     SECTION 5.08. SERVICER EXPENSES. Except as otherwise expressly provided
herein, the Servicer shall be required to pay all expenses incurred by it in
connection with its activities hereunder and under the Intercreditor Agreement,
including fees and disbursements of independent accountants and counsel, taxes
imposed on the Servicer and expenses incurred in connection with reports to
Transition Bondholders.

     SECTION 5.09. APPOINTMENTS. The Servicer, with written notice to the
Trustee, may at any time appoint a subservicer or agent to perform all or any
portion of its obligations as Servicer hereunder; provided, however, that the
Rating Agency Condition shall have been satisfied in connection therewith;
provided further that the Servicer shall remain obligated and be liable to the
Issuer for the servicing and administering of the Transition Property in
accordance with the provisions hereof without diminution of such obligation and
liability by virtue of the appointment of such subservicer or agent and to the
same extent and under the same terms and conditions as if the Servicer alone
were servicing and administering the Transition Property. The fees and expenses
of the subservicer or agent shall be as agreed between the Servicer and its
subservicer or agent from time to time, and none of the Issuer, the Trustee or
the Transition Bondholders shall have any responsibility therefor. Any such
appointment shall not constitute a Servicer resignation under Section 5.06. The
Designated Account Holder shall constitute a subservicer for purposes of this
Section 5.09.

     SECTION 5.10. NO SERVICER ADVANCES. Except as set forth in Section 3.03
regarding payments on account of TC Collections under the Collections Curve, the
Servicer shall not make any advances of interest on or principal of the
Transition Bonds.

     SECTION 5.11. REMITTANCES.

         (a) Except as provided in subsection (b) below, the Servicer shall
remit all TC Collections (from whatever source) and all proceeds of the Trust
Estate of the Issuer, if any, received by the Servicer, to the Trustee for
deposit pursuant to the Indenture, not later than the second Business Day after
receipt thereof (or, if earlier, deemed receipt, if the Collections Curves are
applicable).

                                       19

<PAGE>

          (b)   Notwithstanding the foregoing clause (a), as long as:

          (i)   Reliant Energy or any successor to Reliant Energy's electric
     transmission or distribution business, or both, remains the Servicer,

          (ii)  no Servicer Default has occurred and is continuing, and

          (iii) (A) Reliant Energy or such successor maintains a short-term
     rating of "A-1" or better by Standard & Poor's, "P-1" or better by Moody's
     and "F-1" or better by Fitch (and for five Business Days following a
     reduction in either such rating), or

          (B) the Servicer obtains a letter of credit or surety bond in form and
     substance satisfactory to the Trustee and issued by a bank or surety
     company, as the case may be, having a long-term unsecured credit rating
     from S&P of "AA" or better, from Moody's of "Aa3" or better and, if Fitch
     provides a rating thereon, from Fitch of "AA" or better and having capital
     and surplus not less than $50,000,000 to assure remittances of TC
     Collections on each Remittance Date and the Rating Agency Condition shall
     have been satisfied (and any conditions or limitations imposed by the
     Rating Agencies in connection therewith are complied with),

the Servicer need not make the daily remittances required by Section
3.03(a)(i)(B), but in lieu thereof, shall remit all TC Collections (from
whatever source) in accordance with Section 3.03(a)(i)(A), and all proceeds of
the Trust Estate of the Issuer, if any, received by the Servicer during any
Collection Period, to the Trustee for deposit pursuant to the Indenture, not
later than the corresponding Monthly Remittance Date.

     SECTION 5.12. PROTECTION OF TITLE. The Servicer shall execute and file all
such filings, including filings with the Secretary of State of the State of
Texas pursuant to the Texas Electric Choice Plan and Article 9 of the UCC, and
cause to be executed and filed all such filings, all in such manner and in such
places as may be required by law fully to preserve, maintain and protect the
interests of the Issuer and the Trustee in the Transition Property, including
all filings required under the Texas Electric Choice Plan and Article 9 of the
UCC relating to the transfer of the ownership or security interest in the
Transition Property by the Seller to the Issuer or any security interest granted
by the Issuer in the Transition Property. The Servicer shall deliver (or cause
to be delivered) to the Issuer and the Trustee file-stamped copies of, or filing
receipts for, any document filed as provided above, as soon as available
following such filing.

                                   ARTICLE VI

                                SERVICER DEFAULT

     SECTION 6.01. SERVICER DEFAULT. If any one of the following events (a
"Servicer Default") occurs and is continuing:

          (a)   any failure by the Servicer to remit to the Trustee, on behalf
of the Issuer, any required remittance by the date that such remittance must be
made that continues unremedied for a period of five Business Days; or

                                       20

<PAGE>

         (b)  any failure by the Servicer duly to observe or perform in any
material respect any other covenant or agreement of the Servicer set forth in
this Agreement (other than as provided in Section 6.01(a) or (c)) or any other
Basic Document to which it is a party in such capacity, which failure

         (i)  materially and adversely affects the Transition Property or the
     timely collection of the Transition Charges or the rights of the Trustee or
     the Transition Bondholders, and

         (ii) continues unremedied for a period of 60 days;

         (c)  any failure by the Servicer duly to perform its obligations under
Section 7 of Annex 1 to this Agreement in the time and manner set forth therein,
which failure continues unremedied for a period of five days;

         (d)  any representation or warranty made by the Servicer in this
Agreement or any Basic Document proves to have been incorrect when made, which
has a material adverse effect on the Transition Property or the Issuer's
ownership interest therein, the security interest of the Trustee in the
Transition Property, the Issuer, the Transition Bondholders or the investment of
the Transition Bondholders in the Transition Bonds, and which material adverse
effect continues unremedied for a period of 60 days after the date on which
written notice thereof shall have been given to the Servicer (with a copy to the
Trustee) by the Issuer or the Trustee or after discovery of such failure by an
officer of the Servicer, as the case may be; or

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

then, so long as the Servicer Default shall not have been remedied, and in no
other circumstances, the Trustee may, or shall upon the written instruction of
the Majority Holders, terminate all the rights and obligations (other than the
indemnification obligations set forth in Section 5.02 hereof and the obligation
under Section 6.04 to continue performing its functions as Servicer until a
successor Servicer is appointed) of the Servicer under this Agreement by notice
then given in writing to the Servicer (a "Termination Notice") and the Trustee
shall comply with the provisions of Section 5 of the Intercreditor Agreement.
The Servicer shall notify each Rating Agency promptly upon the Servicer's
receipt of a Termination Notice.

     In addition, upon a Servicer Default, the Issuer and the Trustee shall be
entitled to (y) apply to a state district court located in Travis County, Texas,
for sequestration and payment to the Trustee of revenues arising with respect to
the Transition Property, and (z) apply to the PUCT for an order that amounts
arising from the Transition Charges be transferred to a separate account for the
benefit of the Transition Bondholders, in accordance with the Texas Electric
Choice Plan.

     On or after the receipt by the Servicer of a Termination Notice, all
authority and power of the Servicer under this Agreement, whether with respect
to the Transition Property, the related Transition Charges or otherwise, shall,
upon appointment of a successor Servicer pursuant to Section 6.04 and pursuant
to the provisions of the Intercreditor Agreement, without further action, pass
to and be vested in such successor Servicer and, without limitation, the Trustee
is hereby authorized and empowered to execute and deliver, on behalf of the
predecessor Servicer,

                                       21

<PAGE>

as attorney-in-fact or otherwise, any and all documents and other instruments,
and to do or accomplish all other acts or things necessary or appropriate to
effect the purposes of such Termination Notice, whether to complete the transfer
of the Transition Property Documentation and related documents, or otherwise.
The predecessor Servicer shall cooperate with the successor Servicer, the
Trustee and the Issuer in effecting the termination of the responsibilities and
rights of the predecessor Servicer under this Agreement and the Intercreditor
Agreement, including the transfer to the successor Servicer for administration
by it of all cash amounts that shall at the time be held by the predecessor
Servicer for remittance, or shall thereafter be received by it with respect to
the Transition Property or the related Transition Charges. As soon as
practicable after receipt by the Servicer of such Termination Notice, the
Servicer shall deliver the Transition Property Documentation to the successor
Servicer. All reasonable costs and expenses (including attorneys' fees and
expenses) incurred in connection with transferring the Transition Property
Documentation to the successor Servicer and amending this Agreement or the
Intercreditor Agreement to reflect such succession as Servicer pursuant to this
Section shall be paid by the predecessor Servicer upon presentation of
documentation of such costs and expenses. Termination of Reliant Energy's rights
as a Servicer shall not terminate Reliant Energy's rights or obligations in its
individual capacity under the Sale Agreement or the Intercreditor Agreement
(except rights thereunder deriving from its rights as the Servicer hereunder).

     SECTION 6.02. NOTICE OF SERVICER DEFAULT. The Servicer shall deliver to the
Issuer, to the Trustee, to the PUCT, and to each Rating Agency promptly after
having obtained actual knowledge thereof, but in no event later than two
Business Days thereafter, written notice in an Officers' Certificate of any
event or circumstance which, with the giving of notice or the passage of time,
would become a Servicer Default under Section 6.01.

     SECTION 6.03. WAIVER OF PAST DEFAULTS. The Trustee, with the written
consent of the Majority Holders, may waive in writing in whole or in part any
default by the Servicer in the performance of its obligations hereunder and its
consequences, except a default in making any required remittances to the Trustee
of TC Collections from Transition Property in accordance with Section 5.11 of
this Agreement. Upon any such waiver of a past default, such default shall cease
to exist, and any Servicer Default arising therefrom shall be deemed to have
been remedied for every purpose of this Agreement. No such waiver shall extend
to any subsequent or other default or impair any right consequent thereto.

     SECTION 6.04. APPOINTMENT OF SUCCESSOR.

          (a) Upon the Servicer's receipt of a Termination Notice pursuant to
Section 6.01 or the Servicer's resignation in accordance with the terms of this
Agreement, the Servicer shall continue to perform its functions as Servicer
under this Agreement and shall be entitled to receive the requisite portion of
the Servicing Fee, until a successor Servicer shall have assumed in writing the
obligations of the Servicer hereunder as described below. In the event of the
Servicer's removal or resignation hereunder, the Trustee at the written
direction and with the consent of the Majority Holders shall appoint a successor
Servicer, and the successor Servicer shall accept its appointment by a written
assumption in form acceptable to the Issuer and the Trustee. In no event shall
the Trustee be liable for its appointment of a successor Servicer appointed with
due care. If, within 30 days after the delivery of the Termination Notice, a new
Servicer shall not have been appointed and accepted such appointment, the
Trustee may petition

                                       22

<PAGE>

the PUCT or a court of competent jurisdiction to appoint a successor Servicer
under this Agreement. A Person shall qualify as a successor Servicer only if:

          (i)   such Person is permitted under PUCT Regulations to perform the
     duties of the Servicer pursuant to the Texas Electric Choice Plan, the
     Financing Order and this Agreement,

          (ii)  the Rating Agency Condition shall have been satisfied, and

          (iii) such Person enters into a servicing agreement with the Issuer
     having substantially the same provisions as this Agreement and into the
     Intercreditor Agreement (as TC Servicer).

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

          (c)   The successor Servicer may not resign unless it is prohibited
from serving as such by law.

     SECTION 6.05. COOPERATION WITH SUCCESSOR. The predecessor Servicer
covenants and agrees with the Issuer that it will, on an ongoing basis,
cooperate with the successor Servicer and provide whatever information is, and
take whatever actions are, reasonably necessary to assist the successor Servicer
in performing its obligations hereunder.

                                  ARTICLE VII

                            MISCELLANEOUS PROVISIONS

     SECTION 7.01. AMENDMENT. This Agreement may be amended by the Servicer and
the Issuer, with the prior written consent of the Trustee, the consent of the
PUCT pursuant to Section 7.13 and the satisfaction of the Rating Agency
Condition. Promptly after the execution of any such amendment or consent, the
Issuer shall furnish written notification of the substance of such amendment or
consent to each of the Rating Agencies.

     Prior to the execution of any amendment to this Agreement, the Issuer and
the Trustee shall be entitled to receive and conclusively rely upon an Opinion
of Counsel stating that the execution of such amendment is authorized or
permitted by this Agreement and the Opinion of Counsel referred to in Section
3.11. The Issuer and the Trustee may, but shall not be obligated to, enter into
any such amendment which affects their own rights, duties or immunities under
this Agreement or otherwise.

     SECTION 7.02. NOTICES. All demands, notices and communications upon or to
the Servicer, the Issuer, the Trustee or the Rating Agencies under this
Agreement shall be in writing, delivered personally, via facsimile, reputable
overnight courier or by first class mail, postage prepaid, and shall be deemed
to have been duly given upon receipt

                                       23

<PAGE>

          (a) in the case of the Servicer, to Reliant Energy, 1111 Louisiana
Street, Houston, Texas 77002, Attention: Treasurer;

          (b) in the case of the Issuer, to Reliant Energy Transition Bond
Company LLC, 1111 Louisiana Street, Suite 4667, Houston, Texas 77002, Attention:
Manager;

          (c) in the case of the Trustee, at its Corporate Trust Office;

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

          (e) in the case of Standard & Poor's, to Standard & Poor's, a division
of The McGraw-Hill Companies, 55 Water Street, New York, New York 10041; and

          (f) in the case of Fitch, to Fitch, Inc., 1 State Street Plaza, New
York, New York 10004;

          (g) in the case of the PUCT, to 1701 N. Congress Avenue, Austin, Texas
78711-3326, Attention: Executive Director and General Counsel;

or, as to each of the foregoing, at such other address as shall be designated by
written notice to the other parties.

     SECTION 7.03. ASSIGNMENT. Notwithstanding anything to the contrary
contained herein, except as provided in Sections 5.03 and 5.04 and as provided
in the provisions of this Agreement concerning the resignation or termination of
the Servicer, this Agreement may not be assigned by the Servicer. Any purported
assignment not in compliance with this Agreement shall be void.

     SECTION 7.04. LIMITATIONS ON RIGHTS OF OTHERS. The provisions of this
Agreement are solely for the benefit of the Servicer, the Issuer and the
Trustee, on behalf of itself and the Transition Bondholders, and nothing in this
Agreement, whether express or implied, shall be construed to give to any other
Person any legal or equitable right, remedy or claim in the Trust Estate or
under or in respect of this Agreement or any covenants, conditions or provisions
contained herein.

     SECTION 7.05. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

     SECTION 7.06. SEPARATE COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.

                                       24

<PAGE>

        SECTION 7.07. HEADINGS. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.

        SECTION 7.08. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of Texas, without reference to its
conflict of law provisions, and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws.

        SECTION 7.09. ASSIGNMENT TO THE TRUSTEE. The Servicer hereby
acknowledges and consents to any pledge, assignment and grant of a security
interest by the Issuer to the Trustee pursuant to the Indenture for the benefit
of any Transition Bondholders of all right, title and interest of the Issuer in,
to and under the Transition Property owned by the Issuer and the proceeds
thereof and the assignment of any or all of the Issuer's rights hereunder and
under the Intercreditor Agreement to the Trustee. Notwithstanding such
assignment, in no event shall the Trustee have any liability for the
representations, warranties, covenants, agreements or other obligations of the
Issuer, hereunder or in any of the certificates, notices or agreements delivered
pursuant hereto, as to all of which recourse shall be had solely to the assets
of the Issuer.

        SECTION 7.10. NONPETITION COVENANTS. Notwithstanding any prior
termination of this Agreement or the Indenture, but subject to a court's rights
to order the sequestration and payment of revenues arising with respect to the
Transition Property pursuant to Section 39.309(f) of the Texas Electric Choice
Plan, the Servicer shall not, prior to the date which is one year and one day
after the termination of the Indenture, petition or otherwise invoke or cause
the Issuer to invoke the process of any court or government authority for the
purpose of commencing or sustaining a case against the Issuer under any federal
or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Issuer or any substantial part of the property of the Issuer, or ordering
the winding up or liquidation of the affairs of the Issuer.

        SECTION 7.11. TERMINATION. This Agreement shall terminate when all
Transition Bonds have been retired or redeemed in full.

        SECTION 7.12. IMPLEMENTATION OF TEXAS ELECTRIC CHOICE PLAN. In the event
that the effective date for implementation of the Choice provisions of the Texas
Electric Choice Plan shall be extended by the PUCT, all references in this
Agreement or in Appendix A hereto (Definitions) to the "Texas Electric Choice
Plan," "Choice," "January 1, 2002" or "January 2002" shall mean and be deemed to
be references to such extended date of implementation without further action
hereunder.

        SECTION 7.13. PUCT CONSENT. To the extent the consent of the PUCT is
required to effect any amendment to or modification of this Agreement or any
provision of this Agreement,

                                       25

<PAGE>

           (a)   Reliant Energy may request the consent of the PUCT by
delivering to the PUCT's executive director and general counsel a written
request for such consent, which request shall contain:

           (i)   a reference to Docket No. 21655;

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

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

           (b)   The PUCT shall, within fifteen days of receiving the request
      for consent complying with Section 7.13(a) above, either

           (i)   provide notice of its consent or lack of consent to the person
      specified in Section 7.13(a)(iii) above, or

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

unless, within fifteen days of receiving the request for consent complying with
Section 7.13(a) above, the PUCT or its staff delivers to the office of the
person specified in Section 7.13(a)(iii) above a written statement requesting an
additional amount of time not to exceed thirty days in which to consider whether
to consent to the proposed amendment or modification. If the PUCT or its staff
requests an extension of time in the manner set forth in the preceding sentence,
then the PUCT shall either provide notice of its consent or lack of consent to
the person specified in Section 7.13(a)(iii) above no later than the last day of
such extension of time or be conclusively deemed to have consented to the
proposed amendment or modification on the last day of such extension of time.

      SECTION 7.14. EFFECT OF SUBSEQUENT PUCT REGULATIONS. Notwithstanding
anything to the contrary contained in this Agreement (including Annex 1 hereto),
to the extent the PUCT promulgates any PUCT Regulation permitted by the
Financing Order or the Texas Electric Choice Plan whose effect is to modify or
supplement any provision of this Agreement relating to REP standards, this
Agreement shall be deemed to have been so modified or supplemented on the
effective date of such regulation, and all other provisions contained herein
shall be deemed modified accordingly without the necessity of any further action
by any party hereto. The Servicer will notify the Issuer and the Rating Agencies
of any such PUCT Regulation and the corresponding modification of or supplement
to this Agreement promptly upon obtaining knowledge thereof.

                                       26

<PAGE>

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

                                   RELIANT ENERGY TRANSITION  BOND COMPANY LLC

                                   By:
                                       _________________________________________
                                       Name:
                                       Title:

                                   RELIANT ENERGY, INCORPORATED, as Servicer

                                   By:
                                       _________________________________________
                                       Name:
                                       Title:

Acknowledged and Accepted:
Bankers Trust Company, not in its
individual capacity but solely as
Trustee on behalf of the Holders
of the Transition Bonds

By: _______________________________
         Name:
         Title:

                                       27

<PAGE>

                                   SCHEDULE A
                                       TO
                     TRANSITION PROPERTY SERVICING AGREEMENT

Proceedings pending or, to the Servicer's best knowledge, threatened before any
court, federal or State regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Servicer or its
properties seeking any determination or ruling that might materially and
adversely affect the Transition Property or the performance by the Servicer of
its obligations under, or the validity or enforceability against the Servicer
of, this Agreement:

NONE.

                                       28

<PAGE>
                                     ANNEX 1
                                       TO
                     TRANSITION PROPERTY SERVICING AGREEMENT

         The Servicer agrees to comply with the following with respect to
Reliant Energy Transition Bond Company LLC (the "Issuer"):

         SECTION 1. DEFINITIONS.

              (a)   Capitalized terms used herein and not otherwise defined
         shall have the meanings set forth in Appendix A to the Transition
         Property Servicing Agreement dated as of October 24, 2001, between the
         Issuer and Reliant Energy, as Servicer.

              (b)   Whenever used in this Annex 1, the following words and
         phrases shall have the following meanings:

         SECTION 2. CHANGES TO RAAF METHODOLOGY PURSUANT TO PUCT ORDER. If, as
provided in Tariff TC, the PUCT enters an order pursuant to Section 39.253(f) of
the Texas Electric Choice Plan, the Servicer shall recalculate the applicable
initial RAAFs for each class of Customer set forth in Tariff TC using the
methodology set forth in such PUCT order and file the RAAF Adjustment within
forty-five (45) days of the order's becoming final and nonappealable, and the
adjusted RAAF shall become effective thirty (30) days thereafter.

         SECTION 3. CALCULATION DATE STATEMENTS TO ISSUER AND TRUSTEE. For each
Calculation Date, the Servicer shall provide to the Issuer, the Trustee and the
Rating Agencies a statement indicating

              (a)   the Transition Bond Balance and the Projected Transition
         Bond Balance for each Series as of the immediately preceding Payment
         Date,

              (b)   the amount on deposit in the Overcollateralization
         Subaccount and the Scheduled Overcollateralization Level as of the
         immediately preceding Payment Date,

              (c)   the amount on deposit in the Capital Subaccount and the
         Required Capital Amount as of the immediately preceding Payment Date;

              (d)   the amount on deposit in the Reserve Subaccount as of the
         immediately preceding Payment Date;

              (e)   the Projected Transition Bond Balance and the Servicer's
         projection of the Transition Bond Balance on the Payment Date
         immediately preceding the next succeeding Adjustment Date;

              (f)   the Scheduled Overcollateralization Level and the Servicer's
         projection of the amount on deposit in the Overcollateralization
         Subaccount for the Payment Date immediately preceding the next
         succeeding Adjustment Date;

                                        1

<PAGE>
              (g)   the Required Capital Amount and the Servicer's projection of
         the amount on deposit in the Capital Subaccount for the Payment Date
         immediately preceding the next succeeding Adjustment Date; and

              (h)   the Servicer's projection of the amount on deposit in the
         Reserve Subaccount for the Payment Date immediately preceding the next
         succeeding Adjustment Date.

         SECTION 4. CALCULATION DATE ACTIVITY BETWEEN THE SERVICER AND REPS.

              (a) On or about each Calculation Date, the Servicer shall
reconcile with each REP that has chosen to hold back an allowance for
charge-offs in its payments of TC Collections to the Servicer in accordance with
the Financing Order and Tariff TC the amounts held back by the REP since the
previous Calculation Date (or since the issuance of the applicable Series of
Transition Bonds, in the case of the first Calculation Date) and the amounts
actually written off as uncollectible from Customer accounts that have been
permanently terminated during the same time period.

              (b) If the REP has held back less than the amount actually written
off as uncollectible during the time period, the REP shall be entitled to a
credit against future Transition Charge payments over the twelve-month period
immediately following the next Adjustment Date in the amount of the hold-back
shortfall and no other remedy. If the REP has held back more than the amount
actually written off as uncollectible during the time period, the permitted
charge-off percentage shall be adjusted so that it is projected that the REP
will remit to the Servicer the amount of such underpayment of TC Collections
over the twelve-month period immediately following the next upcoming Adjustment
Date.

              (c) The Servicer will incorporate the REPs' Customer default
information and any subsequent credits to the REPs for Transition Charges
already paid by the REPs to the Servicer in its calculation of the Transition
Charge Adjustments on the Calculation Date. The REPs' right under this Section 4
to receive a credit against future payments of TC Collections to the Servicer
shall not take effect until after the next upcoming Adjustment Date.

              (d) In any case the Servicer shall bill to and collect from each
REP such REP's share of the amount required to meet the requirements of the
Financing Order, provided that in addition each billing shall also include the
amount of the holdback allowed for chargeoffs.

         SECTION 5. REMITTANCE STATEMENTS. On or before each remittance by the
Servicer to the Trustee, the Servicer shall prepare and furnish to the Issuer
and the Trustee a statement setting forth the aggregate amount remitted or to be
remitted by the Servicer to the Trustee for deposit on such date pursuant to the
Indenture.

         SECTION 6. PAYMENT DATE STATEMENTS. By 12:00 noon Central Time on the
Business Day immediately preceding each Payment Date, the Servicer shall prepare
and furnish to the Issuer, the Trustee and the Rating Agencies a Semiannual
Servicer's Certificate setting forth the transfers and payments to be made in
respect of such Payment Date pursuant to Section

                                        2

<PAGE>

8.02(d) of the Indenture and the amounts thereof and the amounts to be paid to
Holders of Transition Bonds of each Series pursuant to Section 8.02(e) of the
Indenture.

         SECTION 7. TRANSITION CHARGE AND RAAF ADJUSTMENTS.

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

              (i)   the RAAF Adjustments to be made in accordance with the
         methodology set forth in Tariff TC, as may be modified from time to
         time by order from the PUCT,

              (ii)  the Transition Bond Balance as of each Calculation Date (a
         written copy of which shall be delivered by the Servicer to the Trustee
         within five days following such Calculation Date), and

              (iii) the Transition Charge Adjustment with respect to the
         Transition Property for the twelve-month period preceding and including
         the next upcoming Adjustment Date and each subsequent twelve-month
         period, such that the Servicer projects that TC Collections therefrom
         allocable to the Issuer will be sufficient so that:

                    (A) the Transition Bond Balance on the Payment Date
              immediately preceding the next Adjustment Date will equal the
              Projected Transition Bond Balance as of such date or, if earlier
              with respect to any Series or Class of Transition Bonds, by the
              Expected Final Payment Date therefor, taking into account any
              amounts on deposit in the Reserve Subaccount,

                    (B) the amount on deposit in the Overcollateralization
              Subaccount on the Payment Date immediately preceding the next
              Adjustment Date, or if earlier with respect to any Series or Class
              of Transition Bonds, by the Expected Final Payment Date therefor,
              will equal the Scheduled Overcollateralization Level for such
              date, taking into account amounts on deposit in the Reserve
              Subaccount,

                    (C) the amount on deposit in the Capital Subaccount on the
              Payment Date immediately preceding the next Adjustment Date, or if
              earlier with respect to any Series or Class of Transition Bonds,
              by the Expected Final Payment Date therefor, will equal the
              Required Capital Amount for such date, taking into account any
              amounts on deposit in the Reserve Subaccount,

                    (D) thereafter, the TC Collections will provide for
              amortization of the remaining outstanding principal amount of each
              Series in accordance with the Expected Amortization Schedule
              therefor, payment of interest on each Series when due and deposits
              to the Overcollateralization Subaccount such that the balance
              therein will equal the Scheduled Overcollateralization Level on
              each Payment Date,

                    (E) the Servicer can reconcile past overpayments and
              underpayments by the REP of Transition Charges arising out of
              hold-backs for charge-offs in accordance with Section 4 of this
              Annex,

                                        3

<PAGE>

                    (F) the Servicer can recover out of TC Collections the
              interest paid to an REP arising out of a dispute between the
              Servicer and such REP pursuant to Section 8(b) of this Annex for
              which the Servicer's claim to the funds in dispute was not clearly
              unfounded, and

                    (G) the fees and expenses of the Servicer, the Trustee, the
              independent managers of the Issuer and the Administrator and other
              fees expenses, charges and costs authorized in the Financing Order
              will be paid.

              (b)   On each Calculation Date, the Servicer shall make annual
reconciliation filings with the PUCT for that Calculation Date. The Servicer
shall promptly thereafter provide notice and a copy of such filings to each
Rating Agency. The Servicer's Calculation Date filings shall include:

              (i)   any RAAF Adjustments to take effect on the next Adjustment
     Date (in which case, the Servicer shall provide notice of such filing to
     all parties in PUCT Docket No. 21665 and shall participate in a contested
     case proceeding at the PUCT, the purpose of which will be to determine
     whether any proposed adjustment complies with the Financing Order, as set
     forth therein), and

              (ii)  a tariff supplement setting forth Transition Charge
     Adjustments to become effective on the next Adjustment Date and supporting
     data, including the calculation of the Transition Charge Adjustments.

              (c)   The Servicer shall calculate any interim Transition Charge
Adjustments to be requested between Calculation Dates to correct
under-collection or over-collection of Transition Charges, as set forth in the
Financing Order and Tariff TC. In the event an interim Transition Charge
Adjustment is permitted under Tariff TC, the Servicer will file for such an
adjustment with the PUCT not less than fifteen days prior to the proposed
Interim Adjustment Date. The Servicer shall promptly thereafter provide notice
and a copy of such filings to each Rating Agency. The Servicer will make the
interim filing described in this Section 7(c) no more frequently than every
three months if quarterly payments are made to Transition Bond Owners and no
more frequently than every six months if semi-annual payments are made to
Transition Bond Owners.

              (d)   The Servicer shall take reasonable steps to monitor the
Transition Charge rate for each class of Customers to determine whether any such
rate exceeds the maximum rate that class of Customers is obligated to pay under
Section 39.202(a) of the Texas Electric Choice Plan. If such maximum rate is
being exceeded for any class of Customers ("Affected Class"), then the Servicer
shall cause the billing entity for Customers in the Affected Class to apply the
maximum rate allowed under that section to the Affected Class, and the rates for
all other classes of Customers ("Remaining Classes") shall be recalculated using
the maximum rate for the Affected Class. The Servicer will allocate any
resulting deficiency in Transition Charges to the Remaining Classes based on the
ratio of the RAAFs then in effect.

              (e)   On each Adjustment Date and Interim Adjustment Date, the
Servicer shall

                                        4

<PAGE>

               (i)   take all reasonable actions and make all reasonable efforts
     in order to effectuate all adjustments approved by the PUCT to the
     Transition Charges and/or RAAFs, and

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

         SECTION 8.        OTHER ACTIVITY BETWEEN THE SERVICER AND REPS.

               (a)   In the event an REP provides a cash deposit to the Trustee
in the form of up to two months' maximum expected transition charge collections,
a surety bond or letter of credit (each an "REP Deposit") pursuant to the
Financing Order and Tariff TC,

               (i)   the Servicer shall agree with the REP as to the size of the
     initial REP Deposit,

               (ii)  no more frequently than quarterly, upon the request of
     either the REP or the Servicer, the Servicer shall cooperate with the REP
     as required by the Financing Order and Tariff TC to ensure that the REP
     Deposit accurately reflects up to two months' maximum TC Collections.
     Within 10 days following the review by the REP and Servicer of the size of
     the REP Deposit, either the REP shall remit to the Trustee the amount of
     any shortfall in the REP Deposit or the Servicer shall instruct the Trustee
     to remit to the REP any portion of the REP Deposit no longer required to be
     on deposit,

               (iii) The Servicer shall instruct the Trustee in writing to remit
     to the REP the REP Deposit, plus any investment earnings thereon, upon the
     Final Maturity Date of the final Class, if applicable, of the final Series
     of Transition Bonds except such portion of the REP Deposit as was utilized
     in satisfaction of the REP's obligation to remit billed Transition Charges,
     and

               (iv)  The Servicer shall instruct the Trustee to remit to the REP
     the REP Deposit, plus any investment earnings thereon, within 30 days of
     the date on which the REP Deposit is no longer required under the Financing
     Order or Tariff TC.

               (b)   In the event an REP disputes any amount of billed
Transition Charges, the Servicer shall require the REP to pay the disputed
amount under protest within the time for payment set forth in Section 3.02 of
this Agreement. The Servicer shall attempt to resolve informally the dispute
with the REP, or any dispute related to the date of receipt of Transition Charge
payments, Penalties, or the size of the required REP Deposit. If the REP and
the Servicer cannot reach an informal resolution to the dispute, either party
may file a complaint with the PUCT as set forth in the Financing Order and
Tariff TC. If the REP prevails in the informal dispute process or before the
PUCT, the Servicer shall provide the REP with a refund of the disputed amount
paid to the Servicer plus interest at a rate approved by the PUCT. As provided
in the Financing Order, Tariff TC and Section 7(a)(iii)(F) of this Annex,
interest paid by the Servicer shall be recoverable through Transition Charges
if the Servicer's claim to the funds is not clearly unfounded. In addition, as
provided in the Financing Order and Tariff TC, the Servicer shall not be
required to pay interest to the REP if the Servicer has received inaccurate

                                        5

<PAGE>

metering data from another entity providing competitive metering services
pursuant to the Texas Electric Choice Plan.

               (c)  The Servicer shall adhere to the instructions of an REP that
bills Customers for Transition Charges to terminate transmission and
distribution service to a Customer for nonpayment by the Customer pursuant to
the Financing Order and Tariff TC.

         SECTION 9. OTHER ACTIVITIES BY THE SERVICER.

               (a)  In addition to the obligation set forth in Section 8(c) of
this Annex, the Servicer shall have the rights and obligations to terminate
electric service for non-payment of Transition Charges under the circumstances
set forth in Tariff TC and PUCT Regulations.

               (b)  If an REP fails to remit payment in full of all Transition
Charges billed to such REP by the day that is 45 calendar days after the REP
Billing Day, the Servicer shall, in addition to assessing the Penalty against
such REP described in Section 3.02(c) of the Servicing Agreement, direct the
Trustee by written instruction to apply from such REP's REP Deposit (by making a
withdrawal from a deposit account, a demand under a surety bond, and/or a draw
under a letter of credit, as applicable) into the Collection Account the lesser
of the amount of Transition Charges such REP has failed to remit or the amount
of the REP Deposit. The Servicer shall notify the REP of such withdrawal, demand
and/or draw from the REP Deposit to the Collection Account and instruct the REP
to remit immediately the amount of such withdrawal, demand and/or draw to the
Trustee for replenishment of such REP's REP Deposit. The Servicer shall require
the REP to immediately replenish its REP Deposit and shall at the earliest
practicable date avail itself of such legal remedies as may be appropriate to
collect any remaining unpaid Transition Charges and associated penalties due to
the Servicer after application of the REP Deposit, in accordance with the
Financing Order and Tariff TC.

               (c)  If an REP is in default pursuant to Section 9, Part B,
Paragraphs D(3) and (4) of Tariff TC and Findings of Fact 50(e) and (f) of the
Financing Order (such default an "REP Default"), the Servicer shall perform such
duties as are required of the Servicer therein, including but not limited to the
following:

               (i)  in the event the REP in REP Default seeks to implement
     alternative arrangements with the Servicer regarding the billing and
     collection of Transition Charges pursuant to Section 9, Part B, Paragraph
     D(3) of Tariff TC and Finding of Fact 50(e) of the Financing Order, the
     Servicer shall consider proposals from such REP but shall not accept any
     proposal, and no proposal shall be deemed mutually suitable and agreeable,
     other than the options set forth in Section 9, Part B, Paragraphs D(3)(a)
     and D(3)(c) of Tariff TC unless (i) the Servicer is directed promptly in
     writing by the Trustee to accept a proposal of such REP following the
     approval of such proposal by the Majority Holders, (ii) such proposal would
     not materially and adversely affect the interests of the Transition
     Bondholders and (iii) the Rating Agency Condition has been satisfied; and

               (ii) in the event the REP in REP Default fails to immediately
     select and implement an alternative method of billing and collecting
     Transition Charges as specified in Section 9, Part B, Paragraph D(3) of
     Tariff TC and Finding of Fact 50(e) of the

                                        6

<PAGE>

     Financing Order or fails to adequately meet its responsibilities
     thereunder, the Servicer shall immediately allow the Provider of Last
     Resort or another qualified REP of a Customer's choosing to immediately
     assume responsibility for the billing and collection of Transition Charges
     from such Customer.

               (d) In the event the Provider of Last Resort defaults or is
ineligible to provide billing and collection of Transition Charges when
requested by a Customer or the Servicer, as applicable, the Servicer shall
assume responsibility for billing and collection of Transition Charges until a
new Provider of Last Resort is named by the PUCT or the Customer requests the
services of another REP, in accordance with Tariff TC and PUCT Regulations. In
any case, the Servicer shall enforce the obligations, and exercise its remedies
against, each REP including any Provider of Last Resort, at the earliest
possible time permitted under the Financing Order and Tariff TC.

                                        7

<PAGE>

                                   APPENDIX A

                                   DEFINITIONS

         The definitions contained in this Appendix A are applicable to the
singular as well as the plural forms of such terms.

         "Accrued Interest" means interest accrued at the Federal Funds Rate on
          ----------------
amounts held by the Servicer prior to, on, or after the date such amounts are
due and payable to the Trustee under this Agreement.

         "Act" has the meaning specified in Section 11.03 of the Indenture.
          ---

         "Adjustment Date" means the date other than an Interim Adjustment Date
          ---------------
on which any Transition Charge Adjustment (other than an interim (non-annual)
Transition Charge Adjustment) and/or any RAAF Adjustment, as applicable, becomes
effective. The first Adjustment Date will be on or about October 31, 2002, and
all subsequent Adjustment Dates shall be on or about the same day of the year in
subsequent years.

         "Administration Agreement" means the Administration Agreement dated as
          ------------------------
of October 24, 2001, between Reliant Energy, as Administrator, and the Issuer,
as the same may be amended and supplemented from time to time.

         "Administrator" means Reliant Energy as administrator under the
          -------------
Administration Agreement and each successor to or assignee of Reliant Energy in
the same capacity.

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

         "Annual Accountant's Report" has the meaning assigned to that term in
          --------------------------
Section 3.07 of the Servicing Agreement.

         "Basic Documents" means the Issuer LLC Agreement, the Issuer
          ---------------
Certificate of Formation, the Sale Agreement, the Servicing Agreement, the
Intercreditor Agreement, the Administration Agreement, the Indenture, any
Supplemental Indentures and any Bills of Sale.

         "Bill of Sale" has the meaning assigned to that term in the Sale
          ------------
Agreement.

         "Billing Month" means a particular calendar month during which
          -------------
Transition Charges are billed to Customers.

         "Book-Entry Transition Bonds" means beneficial interests in the
          ---------------------------
Transition Bonds, ownership and transfers of which shall be made through book
entries by a Clearing Agency as described in Section 2.11 of the Indenture.

                                        8

<PAGE>

         "Business Day" means any day other than a Saturday or Sunday or a day
          ------------
on which banking institutions in the City of Houston, Texas, or in the City of
New York, New York, are required or authorized by law or executive order to
remain closed.

         "Calculation Date" means, with respect to each Series of Transition
          ----------------
Bonds, the date on which the calculations and filings set forth in the Issuer
Annex will be made each year. The first Calculation Date will be no later than
October 17, 2002, if the Servicer requests only Transition Charge Adjustments,
and no later than August 2, 2002, if the Servicer requests any RAAF Adjustments
(whether or not the Servicer also requests Transition Charge Adjustments).
Subsequent Calculation Dates will be on or about the same applicable day of the
year in subsequent years.

         "Capital Subaccount" has the meaning specified in Section 8.02(a) of
          ------------------
the Indenture.

         "Choice" means the first date on which a Person who
          ------

               (a)  was a retail customer of electric service of Reliant Energy
located within Reliant Energy's service territory on May 1, 1999, or that became
a retail customer of electric service of Reliant Energy located within Reliant
Energy's service territory after May 1, 1999,

               (b)  is still located within Reliant Energy's service territory,
and

               (c)  has been, prior to such date, receiving electric
transmission and/or distribution service from Reliant Energy or the successor
to Reliant Energy's distribution business,

may receive retail electric service from an REP, which is expected to be either
the beginning of the first billing cycle for each Customer following January 1,
2002, or earlier, in the case of certain Pilot Programs.

         "Class" means, with respect to any Series, any one of the classes of
          -----
Transition Bonds of that Series, as specified in the Series Supplement for that
Series.

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

         "Clearing Agency Participant" means a broker, dealer, bank, other
          ---------------------------
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.

         "Collection Account" has the meaning specified in Section 8.02(a) of
          ------------------
the Indenture.

         "Collection Period" means the period from and including the first day
          -----------------
of a calendar month to but excluding the first day of the next calendar month.

         "Collections Curve" means a separate forecast prepared by the Servicer
          -----------------
for two groups of Customer Classes of the percentages of amounts billed in a
Pre-Choice Billing Month that are expected to be received during each of the
following six months.

                                        9

<PAGE>

         "Collections Curve Payment" means, with respect to a Billing Month, the
          -------------------------
sum of the amounts paid to the Trustee by the Servicer in respect of Transition
Charges over a six-month period following that Billing Month based on the
Collections Curves for that Billing Month.

         "Corporate Trust Office" means the principal office of the Trustee at
          ----------------------
which at any particular time its corporate trust business shall be administered,
which office as of the date of the execution of the Indenture is located at,
Four Albany Street, New York, New York, 10006 Attention: Corporate Trust and
Agency Services-Structured Finance Team, or at such other address as the Trustee
may designate from time to time by notice to the Transition Bondholders and the
Issuer, or the principal Corporate Trust Office of any successor Trustee (the
address of which the successor Trustee will notify the Transition Bondholders
and the Issuer).

         "Current Remittance Month" means the calendar month in which a
          ------------------------
particular Daily Remittance Date or Monthly Remittance Date occurs.

         "Curve Payment Shortfall" means, with respect to each Pre-Choice
          -----------------------
Billing Month and the Reconciliation Date for such Billing Month, the excess of
actual TC Collections the Servicer has received for that Billing Month over the
Collections Curve Payments previously made to the Trustee by the Servicer for
that Billing Month.

         "Customer Class" means each of the Transition Charge classes specified
          --------------
in the Financing Order.

         "Customers" means each Person from which Reliant Energy is authorized
          ---------
to recover retail stranded costs under the Texas Electric Choice Plan or any
PUCT Regulation.

         "Daily Remittance Date" means each Business Day of each calendar month.
          ---------------------

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

         "Designated Account Holder" has the meaning specified in the
          -------------------------
Intercreditor Agreement.

         "DTC" means The Depository Trust Company.
          ---

         "Event of Default" has the meaning specified in Section 5.01 of the
          ----------------
Indenture.

         "Excess Curve Payment" means, with respect to each Pre-Choice Billing
          --------------------
Month and the Reconciliation Date for such Billing Month, the excess of the
Collections Curve Payments previously made to the Trustee by the Servicer for
that Billing Month over actual TC Collections the Servicer has received for that
Billing Month.

         "Exchange Act" means the Securities Exchange Act of 1934, as amended.
          ------------

         "Expected Amortization Schedule" means, with respect to each Series or,
          ------------------------------
if applicable, each Class of Transition Bonds, the expected amortization
schedule for principal thereof, as specified in the Series Supplement therefor.

                                       10

<PAGE>

         "Expected Final Payment Date" means, with respect to each Series or, if
          ---------------------------
applicable, each Class of Transition Bonds, the date when all interest and
principal is scheduled to be paid for that Series or Class in accordance with
the Expected Amortization Schedule, as specified in the Series Supplement
therefor.

         "Federal Funds Rate" means, for any period, a fluctuating interest rate
          ------------------
per annum equal for each day during such period to the weighted average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day on such
transactions received by the Servicer from three federal funds brokers of
recognized standing selected by it.

         "Final Maturity Date" means, for each Series or, if applicable, each
          -------------------
Class of Transition Bonds, the date by which all principal and interest on the
Transition Bonds is required to be paid, as specified in the Series Supplement
therefor.

         "Financing Order" means the Financing Order issued by the PUCT on May
          ---------------
31, 2000, (PUC Docket No. 21665) pursuant to the Texas Electric Choice Plan, as
interpreted by the PUCT on September 18, 2001 (PUC Docket No. 21665, SOAH Docket
No ###-##-####).

         "Fitch" means Fitch, Inc., or any successor thereto.
          -----

         "Formation Documents" means, collectively, the Issuer Certificate of
          -------------------
Formation, the Issuer LLC Agreement and any other document pursuant to which the
Issuer is formed or governed, as the same may be amended and supplemented from
time to time.

         "Holder or Transition Bondholder" means the Person in whose name a
          -------------------------------
Transition Bond of any Series or Class is registered on the Transition Bond
Register.

         "Indenture" means the Indenture dated as of October 24, 2001, between
          ---------
the Issuer and the Trustee, as the same may be amended and supplemented from
time to time by one or more indentures supplemental thereto, and shall include
the forms and terms of the Transition Bonds established thereunder.

         "Independent" means, when used with respect to any specified Person,
          -----------
that the Person

               (a) is in fact independent of the Issuer, any other obligor upon
         the Transition Bonds, the Servicer and any Affiliate of any of the
         foregoing Persons,

               (b) does not have any direct financial interest or any material
         indirect financial interest in the Issuer, any such other obligor, the
         Servicer or any Affiliate of any of the foregoing Persons and

               (c) is not connected with the Issuer, any such other obligor, the
         Servicer or any Affiliate of any of the foregoing Persons as an
         officer, employee, promoter, underwriter, trustee, partner, director or
         person performing similar functions.

                                       11

<PAGE>

         "Initial Transfer Date" means the Series Issuance Date for the first
          ---------------------
Series of Transition Bonds.

         "Initial Transition Property" means the Transition Property sold by the
          ---------------------------
Seller to the Issuer as of the Initial Transfer Date pursuant to the Sale
Agreement.

         "Insolvency Event" means, with respect to a specified Person,
          ----------------

               (a) the filing of a decree or order for relief by a court having
         jurisdiction in the premises in respect of such Person or any
         substantial part of its property in an involuntary case under any
         applicable federal or State bankruptcy, insolvency or other similar law
         now or hereafter in effect, or appointing a receiver, liquidator,
         assignee, custodian, trustee, sequestrator or similar official for such
         Person or for any substantial part of its property, or ordering the
         winding-up or liquidation of such Person's affairs, and such decree or
         order shall remain unstayed and in effect for a period of 90
         consecutive days, or

               (b) the commencement by such Person of a voluntary case under any
         applicable federal or State bankruptcy, insolvency or other similar law
         now or hereafter in effect, or the consent by such Person to the entry
         of an order for relief in an involuntary case under any such law, or
         the consent by such Person to the appointment of or taking possession
         by a receiver, liquidator, assignee, custodian, trustee, sequestrator
         or similar official for such Person or for any substantial part of its
         property, or the making by such Person of any general assignment for
         the benefit of creditors, or the failure by such Person generally to
         pay its debts as such debts become due, or the taking of action by such
         Person in furtherance of any of the foregoing.

         "Intercreditor Agreement" means the Intercreditor Agreement dated as of
          -----------------------
October 24, 2001, among the Issuer, Reliant Energy, in its individual capacity
and as the Servicer, and the Trustee, AEP Credit, Inc., and The Bank of New
York, as the same may be amended and supplemented from time to time.

         "Interim Adjustment Date" means the effective date of any interim
          -----------------------
(non-annual) Transition Charge Adjustment.

         "Issuance Advice Letter" means the letter filed by Reliant Energy with
          ----------------------
the PUCT pursuant to Ordering Paragraph No. 5 of the Financing Order.

         "Issuer" means Reliant Energy Transition Bond Company LLC, a Delaware
          ------
limited liability company, or its successor or the party named as such in the
Indenture until a successor replaces it and, thereafter, means the successor.

         "Issuer Annex" means Annex 1 of the Servicing Agreement.
          ------------

         "Issuer Certificate of Formation" means the Certificate of Formation of
          -------------------------------
the Issuer that was filed with the Delaware Secretary of State on November 10,
1999, as the same may be amended and restated from time to time.

                                       12

<PAGE>

      "Issuer LLC Agreement" means the Amended and Restated Limited Liability
       --------------------
Company Agreement between the Issuer and Reliant Energy, as sole Member, dated
as of October 24, 2001, as the same may be amended and supplemented from time to
time.

      "Lien" means a security interest, lien, charge, pledge, equity or
       ----
encumbrance of any kind.

      "Losses" means collectively, any and all liabilities, obligations, losses,
       ------
damages, payments, costs or expenses of any kind whatsoever.

      "Majority Holders" means the Holders of a majority of the Outstanding
       ----------------
Amount of the Transition Bonds of all Series.

      "Monthly Remittance Date" means the twentieth (20th) day of each calendar
       -----------------------
month (or if such twentieth (20th) day is not a Business Day, the next Business
Day).

      "Moody's" means Moody's Investors Service Inc., or any successor thereto.
       -------

      "Officers' Certificate" means a certificate signed, in the case of Reliant
       ---------------------
Energy, by

              (a) the chairman of the board, the president, the vice chairman of
      the board or any vice president; and

              (b) a treasurer, assistant treasurer, secretary or assistant
      secretary.

      "Operating Expenses" means, with respect to the Issuer, all fees, costs,
       ------------------
expenses and indemnity payments owed by the Issuer, including all amounts owed
by the Issuer to the Trustee, the Servicing Fee, the fee payable by the Issuer
to the Administrator under the Administration Agreement, the fees and expenses
payable by the Issuer to the Independent managers of the Issuer and legal and
accounting fees, costs and expenses of the Issuer.

      "Opinion of Counsel" means one or more written opinions of counsel who may
       ------------------
be an employee of or counsel to Reliant Energy, which counsel shall be
reasonably acceptable to the Trustee, the Issuer or the Rating Agencies, as
applicable, and which shall be in form reasonably satisfactory to the Trustee,
if applicable.

      "Outstanding" with respect to Transition Bonds means, as of the date of
       -----------
determination, all Transition Bonds theretofore authenticated and delivered
under the Indenture except:

              (a) Transition Bonds theretofore cancelled by the Transition Bond
      Registrar or delivered to the Transition Bond Registrar for cancellation;

              (b) Transition Bonds or portions thereof the payment for which
      money in the necessary amount has been theretofore deposited with the
      Trustee or any Paying Agent in trust for the Holders of such Transition
      Bonds; provided, however, that if such Transition Bonds are to be
      redeemed, notice of such redemption has been duly given pursuant to the
      Indenture or provision therefor, satisfactory to the Trustee; and

                                       13

<PAGE>

              (c) Transition Bonds in exchange for or in lieu of other
      Transition Bonds which have been authenticated and delivered pursuant to
      the Indenture unless proof satisfactory to the Trustee is presented that
      any such Transition Bonds are held by a bona fide purchaser;

provided that in determining whether the Holders of the requisite Outstanding
Amount of the Transition Bonds or any Series or Class thereof have given any
request, demand, authorization, direction, notice, consent or waiver hereunder
or under any Basic Document, Transition Bonds owned by the Issuer, any other
obligor upon the Transition Bonds, the Servicer or any Affiliate of any of the
foregoing Persons shall be disregarded and deemed not to be Outstanding, except
that, in determining whether the Trustee shall be protected in relying upon any
such request, demand, authorization, direction, notice, consent or waiver, only
Transition Bonds that a Responsible Officer of the Trustee knows to be so owned
shall be so disregarded. Transition Bonds so owned that have been pledged in
good faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Transition Bonds and that the pledgee is not the Issuer, any other obligor upon
the Transition Bonds, the Servicer or any Affiliate of any of the foregoing
Persons.

      "Outstanding Amount" means the aggregate principal amount of all
       ------------------
Outstanding Transition Bonds or, if the context requires, all Outstanding
Transition Bonds of a Series or Class Outstanding at the date of determination.

      "Overcollateralization Subaccount" has the meaning specified in Section
       --------------------------------
8.02(a) of the Indenture.

      "Paying Agent" means the Trustee or any other Person that meets the
       ------------
eligibility standards for the Trustee specified in Section 6.11 of the Indenture
and is authorized by the Issuer to make the payments of principal of or premium,
if any, or interest on the Transition Bonds on behalf of the Issuer.

      "Payment Date" means, with respect to each Series or, if applicable, each
       ------------
Class of Transition Bonds, the date or dates specified as Payment Dates for such
Series or Class in the Series Supplement therefor.

      "Penalty" means a late-fee penalty assessed by the Servicer against an REP
       -------
for the REP's failure to remit timely payments of Transition Charges as set
forth in Section 3.02(c) of this Agreement.

      "Penalty Assessment Day" has the meaning specified in Section 3.02(c) of
       ----------------------
the Servicing Agreement.

      "Person" means any individual, corporation, estate, partnership, joint
       ------
venture, association, joint stock company, trust (including any beneficiary
thereof), business trust, limited liability company, unincorporated organization
or government or any agency or political subdivision thereof.

                                       14

<PAGE>

      "Pilot Program" means a pilot program before Choice under which certain
       -------------
Customers may choose to buy electric energy from certain REPs pursuant to
Section 39.104 of the Texas Electric Choice Plan.

      "Pre-Choice Billing Month" has the meaning specified in Section 3.03(a).
       ------------------------

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

      "Projected Transition Bond Balance" means, as of any date, the anticipated
       ---------------------------------
Outstanding Amount of Transition Bonds after giving effect to payment of the sum
of the amounts provided for in the Expected Amortization Schedules for each
outstanding Series of Transition Bonds and such date.

      "Provider of Last Resort" has the meaning specified in Section 39.106 of
       -----------------------
the Texas Electric Choice Plan.

      "PUCT" means the Public Utility Commission of Texas or any successor
       ----
entity thereto.

      "PUCT Regulations" means any regulations, rules, orders or directives
       ----------------
promulgated, issued or adopted by the PUCT.

      "Qualified Costs" has the meaning assigned to that term in the Texas
       ---------------
Electric Choice Plan and the Financing Order.

      "RAAF" means the regulatory asset allocation factor used to allocate
       ----
Transition Charges among different classes of Customers, as set forth in Tariff
TC and any other applicable tariff or order.

      "RAAF Adjustment" means each adjustment to any RAAF made in accordance
       ---------------
with Section 4.01 of the Servicing Agreement, Tariff TC and any other applicable
tariff, any order issued by the PUCT pursuant to Section 39.253 of the Texas
Electric Choice Plan, and the Issuer Annex.

      "Rating Agency" means any rating agency rating the Transition Bonds of any
       -------------
Class or Series at the time of issuance thereof at the request of the Issuer,
which initially shall be Moody's, Fitch and Standard & Poor's. If no such
organization or successor is any longer in existence, "Rating Agency" shall be a
nationally recognized statistical rating organization or other comparable Person
designated by the Issuer, written notice of which designation shall be given to
the Trustee and the Servicer.

      "Rating Agency Condition" means, with respect to any action, the
       -----------------------
notification in writing to each Rating Agency of such action, and confirmation
from S&P and Fitch to the Trustee and the Issuer that such action will not
result in a reduction or withdrawal of the then current rating by such Rating
Agency of any outstanding Series or Class of Transition Bonds.

      "Receivables Servicer" means Reliant Energy and each successor to or
       --------------------
assignee of Reliant Energy (in the same capacity) pursuant to the Intercreditor
Agreement.

                                       15

<PAGE>

      "Reconciliation Date" means, with respect to any Pre-Choice Billing Month,
       -------------------
the twentieth day (or if such twentieth day is not a Business Day, the next
Business Day) in the seventh month after such Billing Month.

      "Redemption Date" means, with respect to each Series or, if applicable,
       ---------------
each Class of Transition Bonds, the date for the redemption of the Transition
Bonds of such Series or Class pursuant to Sections 10.01 or 10.02 of the
Indenture or the Series Supplement for such Series or Class, which in each case
shall be a Payment Date.

      "Released Parties" has the meaning specified in Section 5.02(f) of the
       ----------------
Servicing Agreement.

      "Reliant Energy" means Reliant Energy, Incorporated, a Texas corporation,
       --------------
or its successor.

      "Remittance Date" means a Daily Remittance Date or a Monthly Remittance
       ---------------
Date, as applicable.

      "REP" means a retail electric provider under the Financing Order.
       ---

      "REP Billing Day" has the meaning specified in Section 3.02(c) of the
       ---------------
Servicing Agreement.

      "REP Default" has the meaning specified in Section 9(c) of the Issuer
       -----------
Annex.

      "REP Deposit" has the meaning specified in Section 8 of the Issuer Annex.
       -----------

      "Required Capital Amount" means the required balance in the Capital
       -----------------------
Subaccount on a particular date.

      "Reserve Subaccount" has the meaning specified in Section 8.02(a) of the
       ------------------
Indenture.

      "Responsible Officer" means, with respect to the Trustee, any officer
       -------------------
within the Corporate Trust Office of the Trustee, including any Vice President,
Director, Managing Officer, associate, Assistant Vice President, Secretary,
Assistant Secretary, or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject.

      "Retiring Trustee" means a Trustee that resigns or vacates the office of
       ----------------
Trustee for any reason.

      "Sale Agreement" means the Transition Property Sale Agreement dated as of
       --------------
October 24 2001, between the Seller and the Issuer, as the same may be amended
and supplemented from time to time.

                                       16

<PAGE>

      "Sale Date" means each date on which the Seller sells, transfers, assigns
       ---------
and conveys the Transition Property to the Issuer.

      "Scheduled Overcollateralization Level" means, with respect to any Payment
       -------------------------------------
Date, the amount set forth as such in Schedule 1 of the Indenture, as such
Schedule has been adjusted in accordance with Section 3.19 of the Indenture to
reflect redemptions or defeasances of Transition Bonds and issuances of
additional Series of Transition Bonds.

      "Seller" means Reliant Energy, or its successor, in its capacity as seller
       ------
of the Transition Property to the Issuer pursuant to the Sale Agreement.

      "Semiannual Servicer's Certificate" has the meaning specified in the
       ---------------------------------
Indenture.

      "Series" means any series of Transition Bonds issued by the Issuer and
       ------
authenticated by the Trustee pursuant to the Indenture, as specified in the
Series Supplement therefor.

      "Series Issuance Date" means, with respect to any Series, the date on
       --------------------
which the Transition Bonds of such Series are to be originally issued in
accordance with Section 2.10 of the Indenture and the Series Supplement for such
Series.

      "Series Supplement" means an indenture supplemental to the Indenture that
       -----------------
authorizes a particular Series of Transition Bonds.

      "Servicer" means Reliant Energy, as the servicer of the Transition
       --------
Property, and each successor to or assignee of Reliant Energy (in the same
capacity) pursuant to Section 5.03, 5.04, or 6.04 of the Servicing Agreement.

      "Servicer Default" means an event specified in Section 6.01 of the
       ----------------
Servicing Agreement.

      "Servicing Agreement" means the Transition Property Servicing Agreement
       -------------------
dated as of October 24, 2001, between the Issuer and the Servicer, and
acknowledged by the Trustee, as the same may be amended and supplemented from
time to time.

      "Servicing Fee" means the fee payable by the Issuer to the Servicer on
       -------------
each Payment Date with respect to each series of Transition Bonds in an amount
specified in Section 5.07 of the Servicing Agreement.

      "Standard & Poor's" or "S&P" means Standard & Poor's, a division of The
       --------------------------
McGraw-Hill Companies, or any successor thereto.

      "State" means any one of the 50 states of the United States of America or
       -----
the District of Columbia.

      "Subsequent Sale" means the sale of additional Transition Property by the
       ---------------
Seller to the Issuer after the Initial Transfer Date, subject to the
satisfaction of the conditions specified in the Sale Agreement and the
Indenture.

                                       17

<PAGE>

      "Subsequent Transfer Date" means the date that a Subsequent Sale will be
       ------------------------
effective, specified in a written notice provided by the Seller to the Issuer
pursuant to the Sale Agreement.

      "Subsequent Transition Property" means Transition Property sold by the
       ------------------------------
Seller to the Issuer as of a Subsequent Transfer Date pursuant to the Sale
Agreement.

      "Successor Servicer" means a successor Servicer appointed by the Trustee
       ------------------
pursuant to Section 6.04 of the Servicing Agreement which will succeed to all
the rights and duties of the Servicer under the Servicing Agreement.

      "Tariff TC" means the tariff on the form entitled "Schedule TC" approved
       ---------
by the PUCT in the Financing Order and filed by Reliant Energy prior to the
issuance of any Transition Bonds.

      "TC Collections" means amounts constituting good funds collected by any
       --------------
Person in respect of Transition Charges and Transition Property

      "TC Servicer" has the meaning specified in the Intercreditor Agreement.
       -----------

      "Termination Notice" has the meaning specified in Section 6.01 of the
       ------------------
Servicing Agreement.

      "Texas Electric Choice Plan" means the Act of May 21, 1999, 76th Leg. R.S.
       --------------------------
ch. 405, 1999.

      "Transfer Date" means the Initial Transfer Date or any Subsequent Transfer
       -------------
Date, as applicable.

      "Transition Bond" means any of the Transition Bonds (as defined in the
       ---------------
Texas Electric Choice Plan) issued by the Issuer pursuant to the Indenture.

      "Transition Bond Balance" means, as of any date, the aggregate Outstanding
       -----------------------
Amount of all Series of Transition Bonds on such date.

      "Transition Bond Owner" means, with respect to a Book-Entry Transition
       ---------------------
Bond, the Person who is the beneficial owner of such Book-Entry Transition Bond,
as reflected on the books of the Clearing Agency, or on the books of a Person
maintaining an account with such Clearing Agency (directly as a Clearing Agency
Participant or as an indirect participant, in each case in accordance with the
rules of such Clearing Agency).

      "Transition Bond Register" has the meaning specified in Section 2.05 of
       ------------------------
the Indenture.

      "Transition Bond Registrar" means the Trustee, in its capacity as keeper
       -------------------------
of the Transition Bond Register, or any successor to the Trustee in such
capacity.

      "Transition Charge Adjustment" means each adjustment to Transition Charges
       ----------------------------
related to the Transition Property made in accordance with Section 4.01 of the
Servicing Agreement and the Issuer Annex or in connection with the redemption or
refunding by the Issuer of Transition Bonds.

                                       18

<PAGE>

      "Transition Charges" means the nonbypassable amounts to be charged for the
       ------------------
use or availability of electric services, approved by the PUCT in the Financing
Order to recover Qualified Costs, that shall be collected by Reliant Energy, its
successors, assignees or other collection agents as provided for in the
Financing Order.

      "Transition Property" means the rights and interests of Seller or its
       -------------------
successor under the Financing Order, once those rights are first transferred to
the Issuer or pledged in connection with the issuance of the Transition Bonds,
including the irrevocable right to impose, collect and receive through
Transition Charges payable by retail electric customers within Seller's
certificated service area as it existed on May 1, 1999, an amount sufficient to
cover the Qualified Costs of the Seller authorized in the Financing Order, the
right to receive Transition Charges in amounts and at times sufficient to pay
principal and interest and make other deposits in connection with the Transition
Bonds and all revenues and collections resulting from Transition Charges.

      "Transition Property Documentation" means all documents relating to the
       ---------------------------------
Transition Property, including copies of the Financing Order and all documents
filed with the PUCT in connection with any Transition Charges Adjustment, as
described in Section 3.08 of the Servicing Agreement.

      "Trust Estate" has the meaning specified in the Granting Clause of the
       ------------
Indenture.

      "Trustee" means Bankers Trust Company, a New York banking corporation, as
       -------
trustee, or its successor or any successor Trustee under the Indenture.

      "UCC" means, unless the context otherwise requires, the Uniform Commercial
       ---
Code, as in effect in the relevant jurisdiction, as amended from time to  time

                                       19

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