Progress Energy

The Honorable Jocelyn G. Boyd Chief Clerk and Administrator

Junel2,2012

Public Service Commission of South Carolina Post Office Drawer 11649 Columbia, South Carolina 29211

RE: SCPSC Docket No. 20H-158-E Application of Duke Energy Corporation and Progress Energy, Inc., to Engage in a Business Combination Transaction and Address Regulatory Conditions and Codes of Conduct

Dear Mrs. Boyd:

Duke Energy Corporation ("Duke"), Progress Energy, Inc. ("Progress"), Duke Energy Carolinas, LLC (DEC), and Progress Energy Carolinas, Inc. ('PEC") (collectively, "the Applicants") are submitting in this docket the revised Joint Dispatch Agreement ("JDA") with the changes required by the Federal Energy Regulatory Commission's ("FERC") Order on Joint Dispatch Agreement and Joint Open Access Transmission Tariff, issued June 8, 2012 in Docket Nos. ER-12-1338-000, ERI2~1343~000, ER12~1345~000, ER12-1346-000, and ER12-1347-00l.

The FERC Order approved the IDA subject to a few revisions. FERC directed DEC and PEC to omit Section 3.2(c)(ii)-(iv) from the IDA and to remove the distinctjon between existing non~native load customers and new non~native load customers. As discussed below these required changes do not impact the $650 million guarantee in savings and do not impact any of the commitments made by the Applicants to the Office of Regulatory Staff in the memorandum dated May 17, 2012.

FERC stated that Section 3.2(c)(ii)~(iv) of the IDA pertained fundamentally to retail ratemaking and that the inclusion of such provisions is not appropriate in a FERC jurisdictional wholesale agreement and directed DEC and PEC to omit those provisions from the JDA. See FERC Order page 13, paragraph 37. Section 3.2(c)(ii)~(iv) of the IDA sets forth language that DEC and PEC were required to insert into any affiliate agreements pursuant to their North Carolina regulatory conditions as protection from preemption as approved in North Carolina Docket No. E-7, Sub 795, and Docket No. E~2, Sub 753 (and consolidated in Sub 844), respectively. This language is substantially similar to the language required in Section 3.l(b) of the North Carolina Regulatory Conditions filed in these dockets on September 2, 2011, as part of the Agreement and Stipulation of Settlement between the Applicants and the North Carolina Public Staff (the "North Carolina Regulatory Conditions"). The removal of Section 3.2(c)(ii)-(iv)

Progress Energy Service Company. llC PO Box~~~~ linlc1gh, NC 2760/

&~S Progress Energy

June 12, 2012

The Honorable Jocelyn G. BoydChief Clerk and AdministratorPublic Service Commission of South CarolinaPost Offic Drawer 11649Columbia, South Carolina 29211

RE; SCPSC Docket No. 2011-158-EApplication of Duke Energy Corporation and Progress Energy, Inc., to Engage in aBusiness Combination Transaction and Address Regulatory Conditions and Codes ofConduct

Dear Mrs. Boyd:

Duke Energy Corporation ("Duke"), Progress Energy, Inc. ("Progress"), Duke EnergyCarolinas, LLC (DEC), and Progress Energy Carolinas, Inc. ('PEC") (collectively, "theApplicants") are submitting in this docket the revised Joint Dispatch Agreement ("JDA") withthe changes required by the Federal Energy Regulatory Commission's ("FERC") Order on JointDispatch Agreement and Joint Open Access Transmission Tart+ issued June 8, 2012 in DocketNos. ER-12-1338-000, ER12-1343-000, ER12-1345-000, ER12-1346-000, and ER12-1347-001.

The FERC Order approved the JDA subject to a few revisions, FERC directed DEC andPEC to omit Section 3.2(c)(ii)-(iv) from the JDA and to remove the distinction between existingnon-native load customers and new non-native load customers. As discussed below theserequired changes do not impact the $650 million guarantee in savings and do not impact any ofthe commitments made by the Applicants to the Office of Regulatory Staff in the meinorandumdated May 17, 2012.

FERC stated that Section 3.2(c)(ii)-(iv) of the JDA pertained fundamentally to retailratemaking and that the inclusion of such provisions is not appropriate in a FERC jurisdictionalwholesale agreement and directed DEC and PEC to omit those provisions from the JDA. SeeFERC Order page 13, paragraph 37. Section 3,2(c)(ii)-(iv) of the JDA sets forth language thatDEC and PEC were required to insert into any affiliate agreements pursuant to their NorthCarolina regulatory conditions as protection from preemption as approved in North CarolinaDocket No. E-7, Sub 795, and Docket No. E-2, Sub 753 (and consolidated in Sub 844),respectively. This language is substantially similar to the language required in Section 3.1(b) ofthe North Carolina Regulatory Conditions filed in these dockets on September 2, 2011, as part ofthe Agreement and Stipulation of Settlement between the Applicants and the North CarolinaPublic Staff (the "North Carolina Regulatory Conditions"). The removal of Section 3.2(c)(ii)-(iv)

Pregress yeergy Service Cempeey, liCPO Rer igglgelerge, NC 27602

12,2012

from the JDA does not prevent the North Carolina Commission from imposing those requirements upon DEC and PEC. In fact, FERC stated in the paragraph discussing the omission of Section 3.2(c)(ii)-(iv) from the JDA that "we offer no view on the North Carolina Commission's authority to impose or apply such requirements in its proceedings." See FERC Order page 13, paragraph 37. Furthermore, Sections 14(a) and (b) of the JDA contain similar protections from preemption as Section 3.2(c)(ii) and (iii) contains. Also there is additional protection from preemption in the North Carolina Regulatory Conditions. Section 3.1 O(h) of the North Carolina Regulatory Conditions covers the same type of protection as that required i!n Section 3.l(b), and Section 3.l(c) requires DEC and PEC to fil.e advance notice of any affiliate contract that involves costs that will be assigned to DEC or PEC and that is required or intended to be filed with FERC giving the North Carolina Commission the ability to exercise jurisdiction over such affiliate agreements. Thus, elimination of Section 3.2(c)(ii)-(iv) from the JDA does not impact the preemption protections set forth in the North Carolina Regulatory Conditions.

The FERC also required DEC and PEC to remove the distinction in the JDA between sales to existing non-native load customers and sales to new non-native load customers. The FERC stated that the only difference between the two classes of non-native load customers was whether the customer entered into the sale before or after the effective date of the JDA and that there is no justification for different treatment of the two classes of customers. See FERC Order page 17, paragraph 46. 1 The merging of existing non-native load customers and new non-native load customers has no impact on the $650 million savings guarantee, because this revision only deals with non-native load transactions and does not impact native load. Furthermore, the existing non-native load customer class is small, only two contracts.2 Thus, when those two contracts expire, the class of ''existing non-native load sales" would disappear.

Merging these two types of sales will not change the total costs allocated to non-native load sales for purposes of the JDA. The resources allocated to native load will only be those that remain after the highest cost resources have been allocated to non-native load sales. The only difference will be that instead of first allocating the least expensive of these higher cost resources first to "existing" non-native load sales and the remainder to "new" non-native load sales, the most expensive resources will be allocated to non-native load sales as a whole. Therefore, as noted above, this change will not affect the allocation of costs to native load. Further, because the class of "existing" non-native load sales is so small, this change should not have a meaningful effect on the costs allocated to non-native load sales.

1 As noted by the FERC, the JDA distinguished between the sales made to non-native load customers based on whether the sales were entered into pre-merger or post-merger. The logic behind the distinction was that pre-merger sales were made based on the specific selling utility's costs, and post-merger sales would be based on both DEC's and PEC's costs. The JDA did not seek to distinguish between potentially non-native load purchasers or to dictate the tenns of such sales. Nevertheless, because existing non-native load sales are minimal and the effect of combining existing and new non-native load sales for JDA purposes is negligible, the Applicants are amenable to the modification described in the FERC IDA Order. 2 The first contract is a power sales agreement between PEC and North Carolina Electric Membership Corporation. PEC is selling 200 MWs in 2012 and 150 MWs from 2013 through 2024. The second contract is a power sales agreement between DEC and North Carolina Municipal Power Agency No. 1. DEC is selling up to 150 MWs and the agreement will tenninate December 31, 2012.

The Honorable Jocelyn G. Boyd June 12, 2012

from the JDA does not prevent the North Carolina Commission from imposing thoserequirements upon DEC and PEC, In fact, FERC stated in the paragraph discussing the omissionof Section 3.2(c)(ii)-(iv) from the JDA that "we offer no view on the North CarolinaCommission's authority to impose or apply such requirements in its proceedings." See FERCOrder page 13, paragraph 37. Furthermore, Sections 14(a) and (b) of the JDA contain similarprotections from preemption as Section 3.2(c)(ii) and (iii) contains. Also there is additionalprotection from preemption in the North Carolina Regulatory Conditions. Section 3,10(h) of theNorth Carolina Regulatory Conditions covers the same type of protection as that required inSection 3.1(b), and Section 3.1(c) requires DEC and PEC to file advance notice of any affiliatecontract that involves costs that will be assigned to DEC or PEC and that is required or intendedto be filed with FERC giving the North Carolina Commission the ability to exercise jurisdictionover such affiliate agreements. Thus, elimination of Section 3.2(c)(ii)-(iv) from the JDA doesnot impact the preemption protections set forth in the North Carolina Regulatory Conditions.

The FERC also required DEC and PEC to remove the distinction in the JDA betweensales to existing non-native load customers and sales to new non-native load customers. TheFERC stated that the only difference between the two classes of non-native load customers waswhether the customer entered into the sale before or after the effective date of the JDA and thatthere is no justification for different treatment of the two classes of customers. See FERC Orderpage 17, paragraph 46.'he merging of existing non-native load customers and new non-nativeload customers has no impact on the $650 million savings guarantee, because this revision onlydeals with non-native load transactions and does not impact native load. Furthermore, theexisting non-native load customer class is small, only two contracts. Thus, when those twocontracts expire, the class of "existing non-native load sales" would disappear.

Merging these two types of sales will not change the total costs allocated to non-nativeload sales for purposes of the JDA. The resources allocated to native load will only be those thatremain after the highest cost resources have been allocated to non-native load sales. The onlydifference will be that instead of first allocating the least expensive of these higher cost resourcesfirst to "existing" non-native load sales and the remainder to "new" non-native load sales, themost expensive resources will be allocated to non-native load sales as a whole. Therefore, asnoted above, this change will not affect the allocation of costs to native load. Further, becausethe class of "existing" non-native load sales is so small, this change should not have ameaningful effect on the costs allocated to non-native load sales.

As noted by the FERC, the JDA distinguished between the sales made to non-native load customers based onwhether the sales were entered into pre-merger or post-merger. The logic behind the distinction was that pre-mergersales were made based on the specific selling utility's costs, and post-merger sales would be based on both DEC'sand PEC's costs. The JDA did not seek to distinguish between potentially non-native load purchasers or to dictatethe terms of such sales. Nevertheless, because existing non-native load sales are minimal and the effect ofcombining existing and new non-native load sales for JDA purposes is negligible, the Applicants are amenable tothe modification described in the FERC JDA Order.'he first contract is a power sales agreement between PEC and North Carolina Electric Membership Corporation.PEC is selling 200 MWs in 2012 and 150 MWs from 2013 through 2024. The second contract is a power salesagreement between DEC and North Carolina Municipal Power Agency No. 1. DEC is selling up to 150 MWs andthe agreement will terminate December 31, 2012.

12,2012

Exhibit 1 attached hereto is a clean version of the revised JDA, and Exhibit 2 attached hereto is a redline version of the revised JDA.

The Applicants will submit verified testimony on June 13, 2012 regarding the impact of the FERC Orders issued on June 8, 2012 on the JDA, the $650 million guarantee of savings and the commitments made by the Applicants to the Office of Regulatory Staff in the memorandum dated May 17, 2012. That testimony will be consistent with what is set out in this letter.

KCB:mhm

Attachment

STAREG2623

Kendal C. Bowman Associate General Counsel Progress Energy Carolinas, Inc.

The Honorable Jocelyn G. Boyd June 12, 2012

Exhibit I attached hereto is a clean version of the revised JDA, and Exhibit 2 attachedhereto is a redline version of the revised JDA.

The Applicants will submit verified testimony on June 13, 2012 regarding the impact ofthe FERC Orders issued on June 8, 2012 on the JDA, the $650 million guarantee of savings andthe commitments made by the Applicants to the Office of Regulatory Staff in the memorandumdated May 17, 2012. That testimony will be consistent with what is set out in this letter.

Associate General CounselProgress Energy Carolinas, Inc.

KCB:mhm

Attachment

STAREG2623

PUBLIC SERVICE COMMISSION OF SOUTH CAROLINA

DOCKET NO. 2011-158-E

In the Matter of ) Application of Duke Energy Carolinas, LLC ) and Progress Energy Carolinas, Inc. to ) Engage in a Business Combination ) CERTIFICATE OF SERVICE Transaction )

)

I, Kendal C. Bowman, hereby certify that Duke Energy Carolinas, LLC and Progress Energy, Inc.'s Revisions to the Joint Dispatch Agreement have been served on all parties of record by e-mail, this 121

h day of June, 2012, addressed as follows:

mkl@bbrslaw.com; gas@bbrslaw.com; james.horwood@spiegelmcd.com; pwilbom@dawlegal.com; kghartey-tagoe@duke-energy.com; selliott@elliottlaw.us; robsmith@mvalaw.com; cedwards@regstaff.sc.gov; nsedwar@regstaff.sc.gov; fellerbe@robinsonlaw.com; newman@shermandunn.com; chad.burgess@scana.com; matthew.gissendanner@scana.com; Bholman@selcsc.org; chris.koon@ecsc.org; mike.couick@ecsc.org; jtiencken@tienckenlaw.com; gthompson@selcnc.org; peter.hopkins@spiegelmcd.com; pablo.nuesch@spiegelmcd.com; pconway@tienckenlaw.com; jtauber@selcdc.org;

. --w~ -------Kendal C. Bowman Associate General Counsel

BEFORE

THE PUBLIC SERVICE COMMISSION OFSOUTH CAROLINA

DOCKET NO. 2011-158-E

In the Matter ofApplication of Duke Energy Carolinas, LLCand Progress Energy Carolinas, Inc. toEngage in a Business CombinationTransaction

)

)

)) CERTIFICATE OF SERVICE))

I, Kendal C. Bowman, hereby certify that Duke Energy Carolinas, LLC and ProgressEnergy, Inc.'s Revisions to the Joint Dispatch Agreement have been served on all parties ofrecord by e-mail, this 12 day of June, 2012, addressed as follows:

mklibbrslaw.corn; gas bbrslaw.corn; james.horwood spiegelmcd.corn;pwilbornidawlegal.corn; kghartey-tagoeiduke-energy.corn; seiliottielliottlaw.us;robsmithimvalaw.corn; cedwardslregstaff sc.govt nsedwariregstaff.sc.gov;fellerbe robinsonlaw.corn; newman@shermandunn.corn; chad.burgessiscana.corn;matthew.gissendanneriscana.corn; Bholman@selcsc.org; chris.kooniecsc.org;mike.couick@ecsc.org; jtiencken tienckenlaw.corn; gthompsoniselcnc.org;peter.hopkinsispiegelmcd.corn; pablo.nuesch spiegelmcd.corn; pconway@tienckenlaw.corn;jtauber selcdc,org;

EXHIBIT I

DISPATCH AGREEMENT

BETWEEN

DUKE ENERGY CAROLINAS, LLC

AND

CAROLINA POWER & LIGHT COMPANY

JOINT DISPATCH AGREEMENT

BETWEEN

DUKE ENERGY CAROLINAS, LLC

AND

CAROLINA POWER & LIGHT COMPANY

OF CONTENTS

ARTICLE I DEFINITIONS .. .. ............... ........................ .. .. .. .......... .. .. ................. ............................ 2

ARTICLE II TERM OF AGREEMENT .............................. .. .......................... ............................... 3 2.1 Term .............................................................................. ........................................... 3

ARTICLE III SCOPE OF THE AGREEMENT .............................................................................. 3 3.1 Purpose ...................... .. ........................ .. ..... .. .................................. ......................... .3 3.2 Limits on Scope and Effect of the Agreement.. ................................... ................... J

ARTICLE IV THE JOINT DISPATCHER ................................................................ .. .................. .4 4.1 Joint Dispatch Function ........................................................................................... 4

ARTICLE V JOINT DISPATCH OF POWER SUPPLY RESOURCES ....................................... 5 5.1 Joint Dispatch ............. .. .. ... ............................. .......................................................... 5 5.2 Compliance with Contractual and Regulatory Obligations ..................................... 5

ARTICLE VI POWER SUPPLY RESOURCES AND NON-NATIVE LOAD SALES .................................................................... .. .............................. .......... .... .. .. ........... 6 6.1 Generating Resources ....................................... ....................................................... 6 6.2 Existing Power Purchases and New-Long Term Power Purchases ......................... 6 6.3 New Short-Term Power Purchases .......................................................................... ? 6.4 Existing Non-Native Load Sales .............................................................................. 7 6.5 New Non-Native Load Sales ................................................................................... ?

ARTICLE VII CALCULATION OF JOINT DISPATCH SAVINGS ................. .. ......................... ? 7.1 Overview ...... ..... ...... .. .... .......... .. ... ... ................ .... ...... .. ... ........... .. .. ........... .. .. ... .. .... ... 7 7.2 Allocation of Energy to New Non-Native Load Sales ................ .. .. ..... ........ ............ 8 7.3 Allocation of Energy to Existing Non-Native Load Sales ............... .. .... 8 7.4 Allocation of Energy to Native Load ............. .. ........................................................ 8 7.5 Payments for Purchases and Sales of Energy Between the Parties ......................... 8

ARTICLE Vill CAPACITY SALES ............................................................................................... 9 8.1 Capacity Sales ................... ......................... .. ............................................................ 9

ARTICLE IX BILLING PROCEDURES ....... .. .. .. ..... ..... .. ... ... .. .. ... ..... ............................................ 9 9.1 Records ...................................................... .. .. .......................................................... 9 9.2 Monthly Statements .................................... .. ......................................................... 10 9.3 Monthly Bills ......................................................................................................... 1 0 9.4 Billings and Payments ............................................................................................ 1 0 9.5 Taxes ...................................................................................................................... ! 0

ARTICLE X FORCE MAJEURE ................................................................................................. ! 0 10.1 Events Excusing Performance . ................ ... .. ......................................... ................ 1 0

TABLE OF CONTENTS

ARTICLE I DEFINITIONS .

ARTICLE II TERM OF AGREEMENT2.1 Term.

.3

.3

ARTICLE III SCOPE OF THE AGREEMENT3.1 Purpose.3.2 Limits on Scope and Effect of the Agreement

.....3.3

.3

ARTICLE IV THE JOINT DISPATCHER .....4.1 Joint Dispatch Function.

...44

ARTICLE V JOINT DISPATCH OF POWER SUPPLY RESOURCES .......5.1 Joint Dispatch..5.2 Compliance with Contractual and Regulatory Obligations.....

.......5.5

....... 5

ARTICLE VI POWER SUPPLY RESOURCES AND NON-NATIVE LOADSALES.6.1 Generating Resources.6.2 Existing Power Purchases and New-Long Term Power Purchases.....6.3 New Short-Term Power Purchases.6.4 Existing Non-Native Load Sales.......................................6.5 New Non-Native Load Sales.........................................

...6........6....,...7

.7. ......7

ARTICLE VII CALCULATION OF JOINT DISPATCH SAVINGS.7.1 Overview..7.2 Allocation of Energy to New Non-Native Load Sales...........,.......7.3 Allocation of Energy to Existing Non-Native Load Sales.............7.4 Allocation of Energy to Native Load.7.5 Payments for Purchases and Sales of Energy Between the Parties

,7,7

.................. 8

8

..................8

.................. 8

ARTICLE VIII CAPACITY SALES..8.1 Capacity Sales.,

99

ARTICLE IX BILLING PROCEDURES9.1 Records....9.2 Monthly Statements.9.3 Monthly Bills.9.4 Billings and Payments.9.5 Taxes....................................

99

10

1010

10

ARTICLE X FORCE MAJEURE10.1 Events Excusing Performance.

10

10

OF CONTENTS (continued)

ARTICLE XI INDUSTRY STANDARDS ................................................................................... 11 11.1 Adherence to Reliability Criteria .......................................................................... .11

ARTICLE XII GENERAL ..... ........ ......................................... ................................ ................ ...... 11 12.1 No Third Party Beneficiaries ..................................................................... ............ 11 12.2 Waivers .................................................................................................................. 11 12.3 Successors and Assigns .......................................................................................... 11 12.4 Liability and Indemnification ................ .. .............................................................. 12 12.5 Section Headings ............ .. ........... .. ........ ..................... ... ................. ...... ... ...... ...... .. 12 12.6 Notice .... ..................................................... ............................................. ... ............ 12

ARTICLE XIII REGULA TORY APPROVAL .......... .. ................................................................. 13 13.1 Regulatory Authorization ............................. .......................................................... 13 13.2 Changes .................................................................................................................. l3

ARTICLE XIV COMPLIANCE WITH NCUC REGULATORY ORDERS ............................... 13 14.1 DEC and PEC Regulatory Conditions ....................... .................... .. .. .... .... ...... ..... . 13

-11-

TABLE OF CONTENTS(continued)

ARTICLE XI INDUSTRY STANDARDS ..

11.1 Adherence to Reliability Criteria..

ARTICLE XII GENERAL12.1 No Third Party Beneficiaries..I 2.2 Waivers....................................12.3 Successors and Assigns.12.4 Liability and Indemnification.12.5 Section Headings.12.6 Notice.

ARTICLE XIII REGULATORY APPROVAL13.1 Regulatory Authorization..13.2 Changes..

ARTICLE XIV COMPLIANCE WITH NCUC REGULATORY ORDERS .....14.1 DEC and PEC Regulatory Conditions.

11

11

11

11

11

11

1212

12

13

13

13

...... I 3

13

AGREEMENT

THIS JOINT DISPATCH AGREEMENT ("Agreement") is made and entered into as of the __ day of , 20_, by and between Duke Energy Carolinas, LLC (''DEC"), and Carolina Power and Light Company, doing business as Progress Energy Carolinas, Inc. ("PEC") (collectively referred to herein as the "Parties" and individually as a "Party").

WHEREAS, DEC and PEC are the owners and operators of electric generation, transmission and distribution facilities and are engaged in the business of generating, transmitting, distributing, and selling electric energy to the retail customers in their franchised service areas in North Carolina and South Carolina and also at wholesale to municipalities, cooperatives, and other electric utilities; and

WHEREAS, Duke Energy Corporation, the parent company of DEC, and Progress Energy, Inc., the parent company of PEC, have entered into an Agreement and Plan of Merger dated January 8, 2011 ("Merger"); and

WHEREAS, DEC and PEC intend to jointly dispatch their Power Supply Resources in order to most economically serve the Native Load Customers of both DEC and PEC following the consummation of the Merger; and

WHEREAS, the Parties desire to establish a framework under which the foregoing joint dispatch of the DEC and PEC Power Supply Resources, and the resulting cost savings will be equitably shared between the Parties;

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein set forth, the Parties mutually agree as follows:

JOINT DISPATCH AGREEMENT

THIS JOINT DISPATCH AGREEMENT ("Agreement") is made and entered into as ofthe dayof, 20, by and between Duke Energy Carolinas, LLC ("DEC"), andCarolina Power and Light Company, doing business as Progress Energy Carolinas, Inc. ("PEC")(collectively referred to herein as the "Parties" and individually as a "Party" ).

WHEREAS, DEC and PEC are the owners and operators of electric generation,transmission and distribution facilities and are engaged in the business of generating,transmitting, distributing, and selling electric energy to the retail customers in their franchisedservice areas in North Carolina and South Carolina and also at wholesale to municipalities,cooperatives, and other electric utilities; and

WHEREAS, Duke Energy Corporation, the parent company of DEC, and ProgressEnergy, Inc., the parent company of PEC, have entered into an Agreement and Plan of Mergerdated January 8, 2011 ("Merger"); and

WI-IEREAS, DEC and PEC intend to jointly dispatch their Power Supply Resources inorder to most economically serve the Native Load Customers of both DEC and PEC followingthe consummation of the Merger; and

WHEREAS, the Parties desire to establish a framework under which the foregoing jointdispatch of the DEC and PEC Power Supply Resources, and the resulting cost savings wdII beequitably shared between the Parties;

NOW, THEREFORE, in consideration of the premises and the mutual covenants andagreements herein set forth, the Parties mutually agree as follows:

"Balancing Authority" means the responsible entity that integrates resource plans ahead of time, maintains load-interchange-generation balance within a Balancing Authority Area, and supports interconnection frequency in real time.

''Balancing Authority Area" or "BAA" means the collection of generation, transmission, and loads within the metered boundaries of the Balancing Authority within which the Balancing Authority maintains the load-resource balance.

"Industry Standards" means all applicable national and regional electric reliability council principles, guides, criteria, and standards and industry standard practices.

"Joint Dispatch" means the dispatch of the Power Supply Resources owned by DEC and PEC respectively on a least cost basis as described in Section 3.1.

"Must Run Resources" means generation units or power purchases that are dispatched out of merit order either due to contractual arrangements or to satisfy operational, reliability or regulatory requirements.

"Native Load" means the load of a Party's Retail Native Load Customers and the retail load of its wholesale customers or its wholesale customers' members served by the Party, directly or indirectly, at Native Load Priority.

"Native Load Customers" means a Party's Retail Native Load Customers plus its wholesale customers that have Native Load served by the Party, for which the Party has an obligation pursuant to current or future wholesale contracts, for the length of such contracts, to engage in planning and to sell and deliver electric capacity and energy in a manner comparable to the Party's service to its Retail Native Load Customers.

"Native Load Priority" means a priority of service equivalent to that provided by the Party to its Retail Native Load Customers.

"NCUC" means the North Carolina Utilities Commission.

"Non-Native Load Sales" means a Party's sales of energy at wholesale, not including transactions between the Parties pursuant to this Agreement or service to Native Load.

"Power Purchases" means purchases of energy at wholesale from sellers other than the other Party.

2

ARTICLE IDEFINITIONS

Capitalized terms shall have the meanings set forth below in the Article I. If a capitalized termis not defined below, it shall have the meaning provided elsewhere in this Agreement or ascommonly used in the electric utility industry.

"Balancing Authority" means the responsible entity that integrates resource plans ahead oftime, maintains load-interchange-generation balance within a Balancing Authority Area, andsupports interconnection frequency in real time,

"Balancing Authority Area" or "BAA" means the collection of generation, transmission, andloads within the metered boundaries of the Balancing Authority within which the BalancingAuthority maintains the load-resource balance.

"Industry Standards" means all applicable national and regional electric reliability councilprinciples, guides, criteria, and standards and industry standard practices.

"Joint Dispatch" means the dispatch of the Power Supply Resources owned by DEC and PECrespectively on a least cost basis as described in Section 3. L

"Must Run Resources" means generation units or power purchases that are dispatched out ofmerit order either due to contractual arrangements or to satisfy operational, reliability orregulatory requirements.

"Native Load" means the load of a Party's Retail Native Load Customers and the retail load ofits wholesale customers or its wholesale customers'embers served by the Party, directly orindirectly, at Native Load Priority.

"Native Load Customers" means a Party's Retail Native Load Customers plus its wholesalecustomers that have Native Load served by the Party, for which the Party has an obligationpursuant to current or future wholesale contracts, for the length of such contracts, to engage inplanning and to sell and deliver electric capacity and energy in a manner comparable to theParty's service to its Retail Native Load Customers.

"Native Load Priority" means a priority of service equivalent to that provided by the Party toits Retail Native Load Customers.

"NCUC" means the North Carolina Utilities Commission.

"Non-Native Load Sales" means a Party's sales of energy at wholesale, not includingtransactions between the Parties pursuant to this Agreement or service to Native Load.

"Power Purchases" means purchases of energy at wholesale from sellers other than the otherParty.

Supply Resources'' means the generating facilities owned by a Party and its Existing Power Purchases and Long Term Power Purchases as further provided herein to be used under this Agreement.

"PSCSC" means the Public Service Commission of South Carolina.

"Retail Native Load Customers" means the retail electric customers for which either DEC or PEC has an obligation under North Carolina and South Carolina law to engage in long-term planning and to supply all generation, transmission, distribution, delivery and sales, and other related services, including installing or contracting for capacity, if needed to provide adequate and reliable service.

"V ACAR" means the Virginia-Carolinas sub region within the North American Electric Reliability Corporation's (NERC) SERC Reliability Corporation (SERC).

"VACAR Reserve Sharing Group Arrangement" means the collection of agreements and procedures developed concurrently by the Principals and Operating Representatives of multiple two-party Interchange Agreements as described in the Operating Manual for the V ACAR Reserve Sharing Group Arrangement, Revision No. 2, dated January 11, 2011 by and among Dominion, Duke Energy Carolinas, LLC, Progress Energy Carolinas, Inc., South Carolina Electric & Gas Company and South Carolina Public Service Authority, as amended.

2. t Term.

ARTICLE II TERM OF AGREEMENT

Subject to approval and any conditions imposed by state and federal regulatory authorities, this Agreement shall take effect upon consummation of the Merger and shall continue in full force and effect for a period of five (5) years from the effective date, continuing thereafter until terminated by mutual agreement of the Parties or by either Party upon five (5) years' written notice to the other Party. If the Parties terminate the Merger prior to its consummation, this Agreement shall have no force or effect.

ARTICLE III SCOPE OF THE AGREEMENT

3.1 Purpose.

The primary purpose of this Agreement is to provide the contractual basis for the Joint Dispatch of the Power Supply Resources of both DEC and PEC for the purpose of reducing the cost of serving their Native Load Customers to the extent consistent with the provision of reliable electric service, Industry Standards, and applicable laws and regulations ("Joint Dispatch"). This Agreement also shall provide the contractual basis for the sharing of the cost savings resulting from such Joint Dispatch.

3.2 Limits on Scope and Effect of the Agreement.

3

"Power Supply Resources" means the generating facilities owned by a Party and its ExistingPower Purchases and Long Term Power Purchases as further provided herein to be used underthis Agreemcnt.

"PSCSC" means the Public Service Commission of South Carolina.

"Retail Native Load Customers" means the retail electric customers for which either DEC orPEC has an obligation under North Carolina and South Carolina law to engage in long-termplanning and to supply all generation, transmission, distribution, delivery and sales, and otherrelated services, including installing or contracting for capacity, if needed to provide adequateand reliable service.

"VACAR" means the Virginia-Carolinas sub region within the North American ElectricReliability Corporation's (NERC) SERC Reliability Corporation (SERC).

"VACAR Reserve Sharing Group Arrangement" means the collection of agreements andprocedures developed concurrently by the Principals and Operating Representatives of multipletwo-party Interchange Agreements as described in the Operating Manual for the VACARReserve Sharing Group Arrangement, Revision No. 2, dated January 11, 2011 by and amongDominion, Duke Energy Carolinas, LLC, Progress Energy Carolinas, Inc., South CarolinaElectric & Gas Company and South Carolina Public Service Authority, as amended.

ARTICLE IITERM OF AGREEMENT

2.1 Term.

Subject to approval and any conditions imposed by state and federal regulatoryauthorities, this Agreement shall take effect upon consummation of the Merger and shallcontinue in full force and effect for a period ol'ive (5) years from the effective date, continuingtherealier until terminated by mutual agreement of the Parties or by either Party upon five (5)years'ritten notice to the other Party. If the Parties terminate the Merger prior to itsconsummation, this Agreement shall have no force or effect,

ARTICLE IIISCOPE OF THE AGREEMENT

3.1 Purpose.

The primary purpose of this Agreement is to provide the contractual basis for the JointDispatch of the Power Supply Resources of both DEC and PEC for the purpose of reducing thecost of serving their Native Load Customers to the extent consistent with the provision ofreliable electric service, Industry Standards, and applicable laws and regulations ("JointDispatch" ). This Agreement also shall provide the contractual basis for the sharing of the costsavings resulting from such Joint Dispatch.

3.2 Limits on Sco and Effect of the A reement.

Providing for or requiring a single integrated electric system~

(ii) Providing for or requiring a single BAA, control area or transmission system;

(iii) Providing for or requiring joint planning or joint development of generation or transmission;

(iv) Providing for or requmng a Party to construct generation or transmission facilities for the benefit of the other Party;

(v) Transferring any rights to generation or transmission facilities from one Party to the other; or

(vi) Providing for or requmng any equalization of the Parties' production costs or rates.

(b) To the extent that the Parties desire to engage in any of the activities or take any of the actions described in Section 3.2 (a), the Parties will amend this Agreement or enter into a separate agreement, subject to approval by the applicable state and federal regulatory authorities.

(c) The participation by both DEC and PEC in this Agreement is voluntary, neither DEC nor PEC is obligated to participate in this Agreement or to make any purchases or sales pursuant thereto and the participation of both DEC and PEC in this Agreement is subject to termination, after notice is provided pursuant to Section 2.1 of this Agreement;

ARTICLE IV THE JOINT DISPATCHER

4.1 Joint Dispatch Function.

DEC shall act as the Joint Dispatcher, on behalf of DEC and PEC, and shall have the following responsibilities:

(a) Directing the dispatch of both DEC's and PEC's Power Supply Resources;

(b) Making Power Purchases for durations of less than one year ("New Short-Term Power Purchases") to serve the Parties' Native Loads and making Non-Native Load Sales for durations of less than one year from the Parties' Power Supply Resources to the benefit of each Party's Native Load Customers;

(c) Developing and providing bills and billing-related information to effectuate the terms of this Agreement;

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(a) Nothing in this Agreement is intended to or shall it be construed as:

(i) Providing for or requiring a single integrated electric system;

(ii) Providing for or requiring a single BAA, control area ortransmission system;

(iii) Providing for or requiring joint planning or joint development ofgeneration or transmission;

(iv) Providing for or requiring a Party to construct generation ortransmission facilities for the benefit of the other Party;

(v) Transferring any rights to generation or transmission facilities fromone Party to the other; or

(vi) Providing for or requiring any equalization of the Parties'roduction

costs or rates.

(b) To the extent that the Parties desire to engage in any of the activities ortake any of the actions described in Section 3.2 (a), the Parties will amend this Agreement orenter into a separate agreement, subject to approval by the applicable state and federal regulatoryauthorities.

(c) The participation by both DEC and PEC in this Agreement is voluntary,neither DEC nor PEC is obligated to participate in this Agreement or to make any purchases orsales pursuant thereto and the participation of both DEC and PEC in this Agreement is subject totermination, after notice is provided pursuant to Section 2.1 of this Agreement;

ARTICLE IVTHE JOINT DISPATCHER

4.1 Joint Dis atch Function.

DEC shall act as the Joint Dispatcher, on behalf of DEC and PEC, and shall have thefollowing responsibilities:

(a) Directing the dispatch of both DEC's and PEC's Power Supply Resources;

(b) Making Power Purchases for durations of less than one year ("New Short-Term Power Purchases") to serve the Parties'ative Loads and making Non-Native Load Salesfor durations of less than one year from the Parties'ower Supply Resources to the benefit ofeach Party's Native Load Customers;

(c) Developing and providing bills and billing-related information toeffectuate the terms of this Agreement;

Such other activities and duties as may be assigned from time to time by the mutual agreement of the Parties, including but not limited to administration of demand-side resources on behalf of the Parties, subject to applicable state and federal regulatory approvals; and

(e) Incurring the costs necessary to perform its responsibilities under this Agreement, subject to applicable state and federal regulatory approvals.

ARTICLE V JOINT DISPATCH OF POWER SUPPLY RESOURCES

5.1 Joint Dispatch.

As soon as practicable after the etTective date of the Merger, the Joint Dispatcher shaJI direct the dispatch of the Parties' Power Supply Resources in a manner that: (a) ensures the reliable fulfillment of each Party's service obligations to its Native Load Customers; (b) minimizes the total costs incurred to fulfill each Party's service obligations to its Native Load Customers; and (c) economically satisfies any obligations of each of the Parties with respect to Non-Native Load Sales. To these ends, the Joint Dispatcher shall direct the dispatch of the Power Supply Resources of both Parties consistent with Industry Standards for the safe and reliable operation of both of the Parties' electric systems, the safe and reliable operation of both of the Parties' generating resources, and all applicable laws and regulations, including but not limited to the applicable rules, regulations, orders, and conditions of the NCUC, the PSCSC, the Federal Energy Regulatory Commission ("FERC"), the North American Electric Reliability Corporation ("NERC"), and the SERC Reliability Corporation ("SERC").

5.2 Compliance with Contractual and Regulatory Obligations.

Nothing in this Agreement is intended to diminish or alter the jurisdiction or authority of the NCUC or the PSCSC over the Parties, including, among other things, the jurisdiction and authority to establish the retail rates on a bundled basis for each of the Parties, to impose regulatory accounting and reporting requirements, to impose service quality standards, to require each of the Parties to engage separately in least cost integrated resource planning, or to issue certificates of public convenience and necessity for new generating resources. In addition, nothing in this Agreement is intended to alter the Parties' contractual or regulatory obligations or to provide for Joint Dispatch in a fashion that is inconsistent with those obligations, including, without limitation, the following:

(a) DEC's obligation to plan for and provide least cost electric service to its Retail Native Load Customers and to its other Native Load Customers, and PEC's obligation to plan for and provide least cost electric service to its Retail Native Load Customers and it its other Native Load Customers;

(b) DEC's obligation to serve its Native Load Customers with the lowest cost power it can reasonably generate or purchase from other sources, before making power available for Non-Native Load Sales;

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(d) Such other activities and duties as may be assigned from time to time bythe mutual agreement of the Parties, including but not limited to administration of demand-sideresources on behalf of the Parties, subject to applicable state and federal regulatory approvals;and

(e) Incurring the costs necessary to perform its responsibilities under thisAgreement, subject to applicable state and federal regulatory approvals.

ARTICLE VJOINT DISPATCH OF POWER SUPPLY RESOURCES

5.1 J~oi t Dt t h.

As soon as practicable after the effective date of the Merger, the Joint Dispatcher shalldirect the dispatch of the Parties'ower Supply Resources in a manner that: (a) ensures thereliable fulfillment of each Party's service obligations to its Native Load Customers; (b)minimizes the total costs incurred to fulfill each Party's service obligations to its Native LoadCustomers; and (c) economically satisfies any obligations of each of the Parties with respect toNon-Native Load Sales. To these ends, the Joint Dispatcher shall direct the dispatch of thePower Supply Resources of both Parties consistent with Industry Standards for the safe andreliable operation of both of the Parties'lectric systems, the safe and reliable operation of bothof the Parties'enerating resources, and all applicable laws and regulations, including but notlimited to the applicable rules, regulations, orders, and conditions of the NCUC, the PSCSC, theFederal Energy Regulatory Commission ("FERC"), the North American Electric ReliabilityCorporation ("NERC"), and the SERC Reliability Corporation ("SERC").

5.2 Com liance with Contractual and Re lato Obli ations.

Nothing in this Agreement is intended to diminish or alter the jurisdiction or authority ofthe NCUC or the PSCSC over the Parties, including, among other things, the jurisdiction andauthority to establish the retail rates on a bundled basis for each of the Parties, to imposeregulatory accounting and reporting requirements, to impose service quality standards, to requireeach of the Parties to engage separately in least cost integrated resource planning, or to issuecertificates of public convenience and necessity for new generating resources. In addition,nothing in this Agreement is intended to alter the Parties'ontractual or regulatory obligations orto provide for Joint Dispatch in a fashion that is inconsistent with those obligations, including,without limitation, the following:

(a) DEC's obligation to plan for and provide least cost electric service to itsRetail Native Load Customers and to its other Native Load Customers, and PEC's obligation to

plan for and provide least cost electric service to its Retail Native Load Customers and it its otherNative Load Customers;

(b) DEC's obligation to serve its Native Load Customers with the lowest costpower it can reasonably generate or purchase from other sources, before making power availablefor Non-Native Load Sales;

PEC's obligation to serve its Native Load Customers with the lowest cost power it can reasonably generate or purchase from other sources, before making power available for Non-Native Load Sales;

(d) All of DEC's and PEC's respective obligations under wholesale purchase contracts, including contracts for the purchase of energy and capacity on a non-dispatchable basis;

(e) All of DEC's and PEC's respective obligations under wholesale sales contracts, including obligations under full and partial requirements sales contracts;

(f) All of DEC's and PEC's respective obligations under reliability exchange agreements existing prior to the effective date of this Agreement;

(g) DEC's and PEC's respective transmission rights and obligations, including rights and obligations under any transmission service agreements or transmission tariffs and their respective obligations to provide transmission services and to act as the BA for their respective BAAs;

(h) DEC's and PEC's respective individual obligations under the V ACAR Reserve Sharing Group Arrangement; and

(i) DEC's and PEC's respective obligations with respect to Must Run Resources to ensure that they are not dispatched in a manner inconsistent with the contractual, operational, reliability or regulatory requirements applicable to such Must Run Resources.

ARTICLE VI POWER SUPPLY RESOURCES AND NON-NATIVE LOAD SALES

6.1 Generating Resources.

As of the effective date of this Agreement, all generating resources including those that begin commercial operation after the effective date of this Agreement shall be a Power Supp1y Resource of the Party that owns it and that Party shall be responsible for the capacity costs and energy costs of such Power Supply Resources. If the Parties are subsequently allowed to develop future generating resources jointly or to enter into a reserve sharing agreement with respect to future generating resources, the Parties, at the time that they enter into such an arrangement, and subject to the receipt of all relevant state and federal regulatory approvals, shall agree, upon the allocation of the generation that is the subject of that arrangement for purposes of determining the Parties' Power Supply Resources and responsibility for capacity costs and energy costs.

6.2 Existing Power Purchases and New-Long Term Power Purchases.

The capacity costs (if any) and energy costs associated with Power Purchases contracted for by a Party prior to the effective date of this Agreement ("Existing Power Purchases") and with Power Purchases contracted for by a party after the effective date of this Agreement that are for a year or longer ("New Long-Term Power Purchases") shall be the responsibility of that

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(c) PEC's obligation to serve its Native Load Customers with the lowest costpower it can reasonably generate or purchase from other sources, before making power availablefor Non-Native Load Sales;

(d) All of DEC's and PEC's respective obligations under wholesale purchasecontracts, including contracts for the purchase of energy and capacity on a non-dispatchablebasis;

(e) All of DEC's and PEC's respective obligations under wholesale salescontracts, including obligations under full and partial requirements sales contracts;

(f) All of DEC's and PEC's respective obligations under reliability exchangeagreements existing prior to the effective date of this Agreement;

(g) DEC's and PEC's respective transmission rights and obligations, includingrights and obligations under any transmission service agreements or transmission tariffs and theirrespective obligations to provide transmission services and to act as the BA for their respectiveBAAs;

(h) DEC's and PEC's respective individual obligations under the VACARReserve Sharing Group Arrangement; and

(i) DEC's and PEC's respective obligations with respect to Must RunResources to ensure that they are not dispatched in a manner inconsistent with the contractual,operational, reliability or regulatory requirements applicable to such Must Run Resources.

ARTICLE VIPOWER SUPPLY RESOURCES AND NON-NATIVE LOAD SALES

6.1 Generatin Resources.

As of the effective date of this Agreement, all generating resources including those thatbegin commercial operation affer the effective date of this Agreement shall be a Power SupplyResource of the Party that owns it and that Party shall be responsible for the capacity costs andenergy costs of such Power Supply Resources. If the Parties are subsequently allowed todevelop future generating resources jointly or to enter into a reserve sharing agreement withrespect to future generating resources, the Parties, at the time that they enter into such anarrangement, and subject to the receipt of all relevant state and federal regulatory approvals, shallagree, upon the allocation of the generation that is the subject of that arrangement for purposes ofdetermining the Parties'ower Supply Resources and responsibility for capacity costs andenergy costs.

6.2 Existin Power Purchases and New-Lon Term Power Purchases.

The capacity costs (if any) and energy costs associated with Power Purchases contractedfor by a Party prior to the effective date of this Agreement ("Existing Power Purchases" ) andwith Power Purchases contracted for by a party after the effective date of this Agreement that arefor a year or longer ("New Long-Term Power Purchases") shall be the responsibility of that

Power Purchases and New Long-Term Power Purchases shall be Power Supply Resources of the contracting Party.

6.3 New Short-Term Power Purchases.

(a) Power Purchases contracted for by either Party after the effective date of the Agreement for duration of less than a year ("New Short-Term Power Purchases") shall be treated as follows:

(i) If a New Short-Term Power Purchase is determined after-the-fact to have been economic to both Parties or to neither Party, each Party shall be allocated a percentage of the MWh, capacity costs (if any) and the energy costs associated with such purchase equal to the Party's Native Load for the hours in which purchases are made divided by the sum of both Parties' Native Loads for such hours.

(ii) If a New Short-Term Power Purchase is subsequently determined to be economic to only one Party, the MWh, capacity costs (if any), and the energy costs associated with such purchase shall be allocated to the Party for which the New Short-Term Power Purchase is economic.

(b) The MWh of a New Short-Term Power Purchase that has been allocated to a Party pursuant to Section 6.3(a)(i) or (ii) shall be a Power Supply Resource of that Party. To the extent that a Party incurs energy costs for a New Short-Term Power Purchase that differs from the allocations set forth in Section 6.3(a) (i) or (ii), a transfer payment will be made to reconcile the difference.

6.4 Non-Native Load Sales.

Subject to Sections 7.2 and 7.4 each Party shall be responsible for the cost of the energy from its Power Supply Resources that serve Non-Native Load Sales, as determined by the Joint Dispatcher on an after-the-fact basis using production cost modeling.

ARTICLE VII CALCULATION OF JOINT DISPATCH SAVINGS

7.1 Overview.

(a) For each hour, the energy produced as a result of the Joint Dispatch shall be allocated to the Parties' Native Load obligations, and Non-Native Load Sales. The determination of how much energy is allocated to each Party shall be conducted on an after-the-fact basis as described below. Such energy allocation is solely for the purpose of calculating savings from the Joint Dispatch and the Parties payment obligations under this Article VII.

(b) The least cost energy from each Party's Power Supply Resources shall be applied first to serve its own Native Load obligations. If it is determined after-the-fact that a Party's Power Supply Resources provided energy to serve the other Party's Native Load service

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Party. Existing Power Purchases and New Long-Term Power Purchases shall be Power SupplyResources of the contracting Party.

6.3 New Short-Term Power Purchases.

(a) Power Purchases contracted for by either Party after the effective date ofthe Agreement for duration of less than a year ("New Short-Term Power Purchases") shall betreated as follows:

(i) If a New Short-Term Power Purchase is determined after-the-factto have been economic to both Parties or to neither Party, each Party shall be allocated apercentage of the MWh, capacity costs (if any) and the energy costs associated with suchpurchase equal to the Party's Native Load for the hours in which purchases are made divided bythe sum of both Parties'ative Loads for such hours.

(ii) If a New Short-Term Power Purchase is subsequently determinedto be economic to only one Party, the MWh, capacity costs (if any), and the energy costsassociated with such purchase shall be allocated to the Party for which the New Short-TermPower Purchase is economic.

(b) The MWh of a New Short-Term Power Purchase that has been allocated toa Party pursuant to Section 6.3(a)(i) or (ii) shall be a Power Supply Resource of that Party. Tothe extent that a Party incurs energy costs for a New Short-Term Power Purchase that differsfrom the allocations set forth in Section 6.3(a) (i) or (ii), a transfer payment will be made toreconcile the difference,

6.4 Non-Native Load Sales.

Subject to Sections 7.2 and 7.4 each Party shall be responsible for the cost of theenergy from its Power Supply Resources that serve Non-Native Load Sales, as determined by theJoint Dispatcher on an after-the-fact basis using production cost modeling.

ARTICLE VIICALCULATION OF JOINT DISPATCH SAVINGS

7.1 Overview.

(a) For each hour, the energy produced as a result of the Joint Dispatch shall beallocated to the Parties'ative Load obligations, and Non-Native Load Sales. The determinationof how much energy is allocated to each Party shall be conducted on an alter-the-fact basis asdescribed below. Such energy allocation is solely for the purpose of calculating savings from theJoint Dispatch and the Parties payment obligations under this Article Vll.

(b) The least cost energy from each Party's Power Supply Resources shall be appliedfirst to serve its own Native Load obligations. If it is determined after-the-fact that a Party'Power Supply Resources provided energy to serve the other Party's Native Load service

Parties.

(c) The transfer payments under this Agreement are intended to produce an energy cost for serving each Party's Native Load Customers that is the same as if such Native Load were served by that Party's Power Supply Resources, adjusted by the allocation of costs and savings of the Joint Dispatch as reflected in the payments set forth in Section 7.4.

7.2 Allocation of Energy to Non-Native Load Sales.

For each hour, Non-Native Load Sales shall be deemed to have been satisfied by the highest cost energy from the Parties' Power Supply Resources produced in that hour (other than Must Run Resources).

7.3 Allocation of Energy to Native Load.

After the allocation of energy costs to Non-Native Load Sales has been performed pursuant to Section 7.2, the remaining least cost energy produced in an hour by the Parties' Power Supply Resources shall be deemed to have served the Parties' Native Loads. Each Party's Native Load also shall be allocated the costs of energy produced from its own Must Run Resources. Each Party shall be responsible initially for the energy costs of its Power Supply Resources deemed to have served the Parties Native Loads ("Incurred Native Load Costs").

7.4 Payments for Purchases and Sales of Energy Between the Parties.

For each hour, a payment shall be calculated for the purchase and sale of energy between the Parties as a result of the Joint Dispatch of the Parties' Power Supply Resources. This payment shall be calculated as follows:

(a) Payments for energy sales to meet Non-Native Load Sales

(i) After the fact for each hour, the Joint Dispatcher shall use production cost models to determine, the energy costs allocated to the Non-Native Load Sales pursuant to Section 6.4.and 7.2. Such energy costs shall be compared to the revenues generated from such sales. This difference, whether positive or negative, will be considered the "Non­Native Load Sales Margin." Each Party shall be entitled to an amount equal to: (1) the energy cost from its Power Supply Resources allocated to the Non-Native Load Sales; (2) plus a percentage of the Non-Native Load Sales Margin equal to the MWh produced by the Party's Power Supply Resources during the hour divided by the total MWh produced by both Parties Power Supply Resources during the hour.

(ii) To the extent that the Parties incur energy costs for and revenues from Non-Native Load Sales that produces a different result than the calculation set forth in Section 7.4 (a)(i), a transfer payment will be made between the Parties to reconcile that difference.

(b) Payments for energy sales related to Native Load.

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obligations or Non-Native Load Sales obligations, then only such provision of energy shall beconsidered to be a wholesale power transaction between the Parties.

(c) The transfer payments under this Agreement are intended to produce an energycost for serving each Party's Native Load Customers that is the same as if such Native Load wereserved by that Party's Power Supply Resources, adjusted by the allocation of costs and savings ofthe Joint Dispatch as reflected in the payments set forth in Section 7.4.

7.2 Allocation of Ener to Non-Native Load Sales.

For each hour, Non-Native Load Sales shall be deemed to have been satisfied by thehighest cost energy from the Parties'ower Supply Resources produced in that hour (other thanMust Run Resources).

7.3 Allocation of Ener to Native Load.

Afler the allocation of energy costs to Non-Native Load Sales has been performedpursuant to Section 7.2, the remaining least cost energy produced in an hour by the Parties'ower

Supply Resources shall be deemed to have served the Parties'ative Loads. Each Party'Native Load also shall be allocated the costs of energy produced from its own Must RunResources. Each Party shall be responsible initially for the energy costs of its Power SupplyResources deemed to have served the Parties Native Loads (" Incurred Native Load Costs" ).

7.4 Pa ments for Purchases and Sales of Ener Between the Parties.

For each hour, a payment shall be calculated for the purchase and sale of energy betweenthe Parties as a result of the Joint Dispatch of the Parties'ower Supply Resources. Thispayment shall be calculated as follows:

(a) Payments for energy sales to meet Non-Native Load Sales

(i) After the fact for each hour, the Joint Dispatcher shall useproduction cost models to determine, the energy costs allocated to the Non-Native Load Salespursuant to Section 6.4.and 7.2. Such energy costs shall be compared to the revenues generatedfrom such sales. This difference, whether positive or negative, will be considered the "Non-Native Load Sales Margin." Each Party shall be entitled to an amount equal to: (I) the energycost from its Power Supply Resources allocated to the Non-Native Load Sales; (2) plus apercentage of the Non-Native Load Sales Margin equal to the MWh produced by the Party'Power Supply Resources during the hour divided by the total MWh produced by both PartiesPower Supply Resources during the hour.

(ii) To the extent that the Parties incur energy costs for and revenuesfrom Non-Native Load Sales that produces a different result than the calculation set forth inSection 7.4 (a)(i), a transfer payment will be made between the Parties to reconcile thatdifference.

(b) Payments for energy sales related to Native Load.

Party would have incurred to serve its Native Load without the benefit of Joint Dispatch ("Stand Alone Native Load Costs"). The positive difference between the cost of all Power Supply Resources deemed to have served the Parties' Native Load pursuant to Section 7.3 and the sum of the Parties Stand Alone Native Load Costs shall be the "Native Load Joint Dispatch Savings."

(ii) The Joint Dispatcher shall allocate to each Party a pro rata share of the Native Load Joint Dispatch Savings based on each Party's relative amount of MWh produced by their respective Power Supply Resources in the hour.

(iii) The Joint Dispatcher shall then subtract each Party's allocated share of Native Load Joint Dispatch Savings for the hour from its Stand Alone Native Load Costs for that hour. The resulting cost figure for each Party shall be that Party's "Joint Dispatch Native Load Costs" for the hour.

(iv) The Party whose Joint Dispatch Native Load Costs for an hour are more than its Incurred Native Load Costs for that hour shall owe the other Party a payment for that hour equal to the difference between its Joint Dispatch Native Load Costs and its Incurred Native Load Costs.

The Joint Dispatcher shall sum each Party's payment obligations reduced by its payment entitlements under Sections 7.4(a) and (b) above for that hour. The Party with a positive total shall owe that amount to the other Party as payment for energy sold to it during that hour.

8.1 Capacity Sales.

ARTICLE VIII CAP A CITY SALES

If a Party requires additional capacity for reliability purposes, and the other Party has the ability to supply all or some capacity (with or without accompanying energy), without impacting reliability or service quality to the selling Party's Native Load Customers, then the Joint Dispatcher may enter into a capacity sale on behalf of the selling Party pursuant to the selling Party's then-effective FERC-filed cost-based rate tariff and such sale shall be priced in accordance therewith. However, nothing in this Agreement shall be construed as creating a right in either Party to the capacity of the other Party.

9.1 Records.

ARTICLE IX BILLING PROCEDURES

The Joint Dispatcher shall maintain such records as may be necessary to determine the assignment of costs savings of Joint Dispatch and the payments required pursuant to this

9

(i) After the fact, for each hour, the Joint Dispatcher shall useproduction cost models to determine the cost each Party would have incurred to serve its NativeLoad without the benefit of Joint Dispatch ("Stand Alone Native Load Costs" ). The positivedifference between the cost of all Power Supply Resources deemed to have served theParties'ative

Load pursuant to Section 7.3 and the sum of the Parties Stand Alone Native Load Costsshall be the "Native Load Joint Dispatch Savings."

(ii) The Joint Dispatcher shall allocate to each Party a pro rata share ofthe Native Load Joint Dispatch Savings based on each Party's relative amount of MWh producedby their respective Power Supply Resources in the hour.

(iii) The Joint Dispatcher shall then subtract each Party's allocatedshare of Native Load Joint Dispatch Savings for the hour from its Stand Alone Native LoadCosts for that hour. The resulting cost figure for each Party shall be that Party's "Joint DispatchNative Load Costs" for the hour.

(iv) The Party whose Joint Dispatch Native Load Costs for an hour aremore than its Incurred Native Load Costs for that hour shall owe the other Party a payment forthat hour equal to the difference between its Joint Dispatch Native Load Costs and its IncurredNative Load Costs.

The Joint Dispatcher shall sum each Party's payment obligations reduced by its paymententitlements under Sections 7.4(a) and (b) above for that hour. The Party with a positive totalshall owe that amount to the other Party as payment for energy sold to it during that hour.

ARTICLE VIIICAPACITY SALES

8.1 ~C.it 8 t

If a Party requires additional capacity for reliability purposes, and the other Party has theability to supply all or some capacity (with or without accompanying energy), without impactingreliability or service quality to the selling Party's Native Load Customers, then the JointDispatcher may enter into a capacity sale on behalf of the selling Party pursuant to the sellingParty's then-effective FERC-filed cost-based rate tariff and such sale shall be priced inaccordance therewith. However, nothing in this Agreement shall be construed as creating a rightin either Party to the capacity of the other Party.

ARTICLE IXBILLING PROCEDURES

9.1 Records.

The Joint Dispatcher shall maintain such records as may be necessary to determine theassignment of costs savings of Joint Dispatch and the payments required pursuant to this

Parties as reasonably required, including as needed for state and federal regulatory purposes.

9.2 Monthly Statements.

As promptly as practicable after the end of each calendar month, the Joint Dispatcher shall prepare a statement setting forth the monthly summary of costs for which each Party is responsible and revenues from Short-Term Non-Native Load Sales to be allocated to each Party in sufficient detail as may be needed for settlements under the provisions of this Agreement. As required, the Joint Dispatcher may provide such statements on an estimated basis and then adjust those statements for actual results.

9.3 Monthly Bills.

As promptly as practicable after the end of each calendar month, the Joint Dispatcher shall prepare a monthly bill for each Party based on the sum of that Party's payment obligations reduced by its payment entitlements calculated pursuant to Section 7.4. The Joint Dispatcher shall net each Party's hourly payment obligations against its hourly payment entitlements, and render a bill for the differences. The bill for each December shall also state an annual payment amount that nets out each Party's obligations and entitlements for the calendar year.

9.4 Billings and Payments.

The Joint Dispatcher shall handle all billing between the Parties and with other entities with which the Joint Dispatcher engages in activities pursuant to this Agreement. Payment between the Parties shall be by making remittance of the net amount billed or by making appropriate accounting entries on the books of the Parties. Payment of the bills for a calendar year shall be made no later than 30 days after the receipt of the bill for December of that calendar year.

9.5 Taxes.

Should any federal, state, or local tax, surcharge or similar assessment, in addition to those that may now exist, be levied upon the energy dispatched pursuant to the terms of this Agreement or for the Joint Dispatcher's services provided in connection with this Agreement, or upon either of the Parties measured by energy or service, or the revenue therefrom, any such additional amounts shall be included in the net billing as described in Section 9.4.

ARTICLE X FORCE MAJEURE

10.1 Events Excusing Performance.

Neither Party shall be liable to the other Party for or on account of any loss, damage, injury, or expense resulting from or arising out of a delay or failure to perform, either in whole or in part, any of the agreements or obligations made by or imposed upon the Parties by this Agreement, by reason of or through strike, work stoppage of labor, failure of contractors or suppliers of materials (including fuel), failure of equipment, environmental restrictions, riot, fire,

10

Agreement. Such records shall be made available to the Parties as reasonably required, includingas needed for state and federal regulatory purposes.

9.2 Monthl Statements.

As promptly as practicable aAer the end of each calendar month, the Joint Dispatchershall prepare a statement setting forth the monthly summary of costs for which each Party isresponsible and revenues from Short-Term Non-Native Load Sales to be allocated to each Partyin sufficient detail as may be needed for settlements under the provisions of this Agreement. Asrequired, the Joint Dispatcher may provide such statements on an estimated basis and then adjustthose statements for actual results.

9.3 ~M339 Bill .

As promptly as practicable after the end of each calendar month, the Joint Dispatchershall prepare a monthly bill for each Party based on the sum of that Party's payment obligationsreduced by its payment entitlements calculated pursuant to Section 7.4. The Joint Dispatchershall nct each Party's hourly payment obligations against its hourly payment entitlements, andrender a bill for the differences. The bill for each December shall also state an annual paymentamount that nets out each Party's obligations and entitlements for the calendar year.

9.4 Billin and Pa ents.

The Joint Dispatcher shall handle all billing between the Parties and with other entitieswith which the Joint Dispatcher engages in activities pursuant to this Agreement. Paymentbetween the Parties shall be by making remittance of the net amount billed or by makingappropriate accounting entries on the books of the Parties. Payment of the bills for a calendaryear shall be made no later than 30 days aAer the receipt of the bill for December of that calendaryear.

9.5 Taxes.

Should any federal, state, or local tax, surcharge or similar assessment, in addition tothose that may now exist, be levied upon the energy dispatched pursuant to the terms of thisAgreement or for the Joint Dispatcher's services provided in connection with this Agreement, orupon either of the Parties measured by energy or service, or the revenue therefrom, any suchadditional amounts shall be included in the net billing as described in Section 9.4.

ARTICLE XFORCE MAJEURE

10.1 Events Excusin Performance.

Neither Party shall be liable to the other Party for or on account of any loss, damage,injury, or expense resulting from or arising out of a delay or failure to perform, either in whole orin part, any of the agreements or obligations made by or imposed upon the Parties by thisAgreement, by reason of or through strike, work stoppage of labor, failure of contractors orsuppliers of materials (including fuel), failure of equipmcnt, environmental restrictions, riot, fire,

10

Party experiencing such a delay or failure to perform shall use due diligence to remove the cause or causes thereof; however, no Party shall be required to add to, modify or upgrade any facilities, or to settle a strike or labor dispute except when, according to its own best judgment, such action is advisable.

ARTICLE XI INDUSTRY STANDARDS

11 .1 Adherence to Reliability Criteria.

The Parties agree to conform to Industry Standards as they affect the implementation or the Parties' performance of this Agreement.

ARTICLE XII GENERAL

12.1 No Third Party Beneficiaries.

This Agreement does not create rights of any character whatsoever in favor of any person, corporation, association, entity or power supplier, other than the Parties, and the obligations herein assumed by the Parties are solely for the use and benefit of said Parties. Nothing in this Agreement shall be construed as permitting or vesting, or attempting to permit or vest, in any person, corporation, association, entity or power supplier, other than the Parties, any rights hereunder or in any of the resources or facilities owned or controlled by the Parties or the use thereof.

12.2 Waivers.

Any waiver at any time by a Party of its rights with respect to a default under this Agreement, or with respect to any other matter arising in connection with this Agreement, shall not be deemed a waiver with respect to any subsequent default or matter. Any delay, short of the statutory period of limitation, in asserting or enforcing any right under this Agreement, shall not be deemed a waiver of such right.

12.3 Successors and Assigns.

This Agreement shall inure to the benefit of and be binding only upon the Parties and their respective successors and assigns, and shall not be assignable by any Party without the written consent of the other Party except to a successor in the operation of its properties by reason of a merger, consolidation, sale or foreclosure whereby substantially all such properties are acquired by or merged with those of such a successor, subject to all relevant state and federal regulatory approvals.

11

flood, ice, wind, invasion, civil war, commotion, insurrection, military or usurped power, orderof any court granted in any bona fide adverse legal proceedings or action, or of any civil ormilitary authority either de facto or de jure, explosion, Act of God or the public enemies, or anyother cause reasonably beyond its control and not attributable to its neglect. A Partyexperiencing such a delay or failure to perform shall use due diligence to remove the cause orcauses thereof; however, no Party shall be required to add to, modify or upgrade any facilities, orto settle a strike or labor dispute except when, according to its own best judgment, such action isadvisable.

ARTICLE XIINDUSTRY STANDARDS

11.1 Adherence to Reliabilit Criteria.

The Parties agree to conform to Industry Standards as they affect the implementation orthe Parties'erformance of this Agreement.

ARTICLE XIIGENERAL

12.1 No Third Part Beneficiaries.

This Agreement does not create rights of any character whatsoever in favor of anyperson, corporation, association, entity or power supplier, other than the Parties, and theobligations herein assumed by the Parties are solely for the use and benefit of said Parties.Nothing in this Agreement shall be construed as permitting or vesting, or attempting to permit orvest, in any person, corporation, association, entity or power supplier, other than the Parties, anyrights hereunder or in any of the resources or facilities owned or controlled by the Parties or theuse thereof.

12.2 Waivers.

Any waiver at any time by a Party of its rights with respect to a default under thisAgreement, or with respect to any other matter arising in connection with this Agreement, shallnot be deemed a waiver with respect to any subsequent default or matter. Any delay, short of thestatutory period of limitation, in asserting or enforcing any right under this Agreement, shall notbe deemed a waiver of such right.

12.3 Successors and Assi ns.

This Agreement shall inure to the benefit of and be binding only upon the Parties andtheir respective successors and assigns, and shall not be assignable by any Party without thewritten consent of the other Party except to a successor in the operation of its properties byreason of a merger, consolidation, sale or foreclosure whereby substantially all such propertiesare acquired by or merged with those of such a successor, subject to all relevant state and federalregulatory approvals.

11

U.S. mail, postage prepaid, certified or registered mail, addressed to:

Catherine S. Stempien Vice President - Legal Duke Energy Corporation 550 South Tryon Street Charlotte, NC 28202

David B. Fountain Vice President- Legal Progress Energy Service Company, LLC 410 S. Wilmington Street Raleigh, NC 27601

or in such other form or to such other address as the Parties may stipulate.

12

12.4 Liabilit and Indemnification.

Subject to any applicable state or federal law which may specilically restrict limitationson liability, each Party shall release, indemnify, and hold harmless the other Party, its directors,officers and employees from and against any and all liability for loss, damage or expense allegedto arise from, or incidental to, injury to persons and/or damage to property in connection with itsfacilities or the production or transmission of electric energy by or through such facilities, orrelated to performance or non-performance of this Agreement, including any negligence arisinghereunder. In no event shall any Party be liable to another Party for any indirect, special,incidental or consequential damages with respect to any claim arising out of this Agreement.

12.5 S~tio H di

The descriptive headings of the Articles and Sections of this Agreement are used forconvenience only and shall not modify or restrict any of the terms and provisions thereof.

12.6 Notice.

Any notice or demand for performance required or permitted under any of the provisionsof this Agreement shall be deemed to have been given on the date of such notice, in writing, isdeposited in the U.S. mail, postage prepaid, certified or registered mail, addressed to:

Catherine S. StempienVice President — LegalDuke Energy Corporation550 South Tryon StreetCharlotte, NC 28202

David B. FountainVice President — LegalProgress Energy Service Company, LLC410 S. Wilmington StreetRaleigh, NC 27601

or in such other form or to such other address as the Parties may stipulate.

12

REGULATORY APPROVAL

13.1 Regulatory Authorization.

This effectiveness of this Agreement is subject to and conditioned upon:

(a) Acceptance for filing without material condition or modification by the FERC;

(b) The Parties obtaining all necessary approvals from state regulatory authorities to consummate the Merger and enter into the Agreement, in all cases without material condition or modification.

13 .2 Changes.

It is contemplated by the Parties that it may be appropriate from time to time to change, amend, modify or supplement this Agreement to reflect changes in operating practices or costs of operations or for other reasons. Any such changes to this Agreement shall be in writing executed by the Parties, subject to all necessary state and federal regulatory authorizations.

ARTICLE XIV COMPLIANCE WITH

NCUC REGULATORY ORDERS

14.1 DEC and PEC Regulatory Conditions.

In compliance with NCUC regulatory conditions, the Parties agree as follows:

(a) To the extent Joint Dispatch under this Agreement transfers control of, or operational responsibility for, DEC's generation assets used for the generation of electric power for DEC's North Carolina retail customers, then:

(i) DEC will not commit to or carry out the transfer except in accordance with all applicable law, and the rules, regulations, and orders of the NCUC promulgated thereunder; and

(ii) DEC will not include in its North Carolina cost of service or rates the value of the transfer, whether or not subject to federal law, except as allowed by the NCUC in accordance with North Carolina law.

(b) To the extent Joint Dispatch under this Agreement transfers control of, or operational responsibility for, PEC's generation assets used for the generation of electric power for PEC's North Carolina retail customers, then:

(i) PEC will not commit to or carry out the transfer except in accordance with all applicable law, and the rules, regulations, and orders of the NCUC promulgated thereunder; and

13

ARTICLE XIIIREGULATORY APPROVAL

13.1 Re ulato Authorization.

This effectiveness of this Agreement is subject to and conditioned upon:

(a) Acceptance for filing without material condition or modification by the FERC;

(b) The Parties obtaining all necessary approvals from state regulatory authorities toconsummate the Merger and enter into the Agreement, in all cases without material condition ormodification.

13.2 ~Chan es.

lt is contemplated by the Parties that it may be appropriate from time to time to change,amend, modify or supplement this Agreement to reflect changes in operating practices or costs ofoperations or for other reasons. Any such changes to this Agreement shall be in writing executedby the Parties, subject to all necessary state and federal regulatory authorizations.

ARTICLE XIVCOMPLIANCE WITH

NCUC REGULATORY ORDERS

14.1 DEC and PEC Re iulato Conditions.

ln compliance with NCUC regulatory conditions, the Parties agree as follows:

(a) To the extent Joint Dispatch under this Agreement transfers control of, oroperational responsibility for, DEC's generation assets used for the generation of electric powerfor DEC's North Carolina retail customers, then:

(i) DEC will not commit to or carry out the transfer except in accordancewith all applicable law, and the rules, regulations, and orders of the NCUC promulgatedthereunder; and

(ii) DEC will not include in its North Carolina cost of service or rates thevalue of the transfer, whether or not subject to federal law, except as allowed by theNCUC in accordance with North Carolina law.

(b) To the extent Joint Dispatch under this Agreement transfers control of, oroperational responsibility for, PEC's generation assets used for the generation of electric powerfor PEC's North Carolina retail customers, then:

(i) PEC will not commit to or carry out the transfer except in accordance withall applicablc law, and the rules, regulations, and orders of the NCUC promulgatedthereunder; and

13

PEC will not include in its North Carolina cost of service or rates the value of the transfer, whether or not subject to federal law, except as allowed by the NCUC in accordance with North Carolina law.

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed and attested by their duly authorized officers on the day and year first above written.

DUKE ENERGY CAROLINAS, LLC

By:. ____________ _ Name: Brett C. Carter Title: President

PROGRESS ENERGY CAROLINAS, INC.

By: _____________ _

Name: Lloyd M. Yates Title: President and Chief Executive Officer

14

(ii) PEC will not include in its North Carolina cost of service or rates the valueof the transfer, whether or not subject to federal law, except as allowed by the NCUC inaccordance with North Carolina law.

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed andattested by their duly authorized officers on the day and year first above written.

DUKE ENERGY CAROLINAS) LLC

By:Name.'rett C. CarterTitle: President

PROGRESS ENERGY CAROLINAS, INC.

By:Name: Lloyd M. YatesTitle: President and Chief Executive Officer

14

·(Formatted: Cel'ltered .. ·· --EXHIBIT 2

POWER & LIGHT COMPANY

JOINT DISPATCH AGREEMENT

BETWEEN

DUKE ENERGY CAROLINAS, LLC

AND

CAROLINA POWER & LIGHT COMPANY

OF CONTENTS

ARTICLE I DEFfNITIONS ....................................................................................................... .;?.~

ARTICLE II TERM OF AGREEMENT ..................................................................................... 3-t-;; 2.1 Term ..................................................................................................................... 3-1-J

ARTICLE Ill SCOPE OF THE /\GREEMENT .......................................................................... J.;l3 3.1 Purpose ................................................................................................................. w 3.2 Limits on Scope and Eflect of the Agreement... ................................................. .4+4

ARTICLE IV Tilt JOINT DISPATCHER ................................................................................. 5-8 4.1 Joint Dispatch Function ....................................................................................... ~!-,)

ARTICLE V JOINT DISPATCH OF POWER SUPPLY RESOURCES .................................. .S-8 5.1 Joint Dispatch ....................................................................................................... ~~ 5.2 Compliance with Contractual and Regulatory Obligations ................................. 61-6

ARTICLE VI POWER SUPPLY RESOURCES AND NON-NATIVE LOAD SALES ............................................................................................................................. & 6.1 Generating Resources .......................................................................................... 71-7 6.2 Existing Power Purchases and New-Long Tcnn Power Purchases ..................... 7+1-6.3 New Short-Tenn Power Purchases . ..................................................................... 7++ 6.4 Existing Non-Native Load Sales .......................................................................... 8-hl! 6.5 New Non-Native Load Sales ............................................................................... 8+8

ARTICLE VII CALCULATION OF JOINT DISPATCH SAVINGS ........................................ X+S 7. I Overview ......................................................................................... ..................... ~~ 7.2 Allocation of Energy to New Non-Native Load Sales ......................................... .{L+S 7.3 A !location of Energy to Existing Non-Native Load Sales .............. ..................... 8-l-8 7.4 Allocation of Energy to Native Load ................................................................... 2±Q 7.5 Payments for Purchases and Sales of Energy Between the Parties ..................... 9+9

ARTICLE VIII CAPAC ITY SALES ....................................................................................... 1()-t..W

8.1 Capacity Sales .................................. ................................................................ 11-i--Ul

ARTICLE IX BILLING PROCEDURES ............................................................................... lU-H-9.1 Records ............................................................................................................ JJ.:.~ 9.2 Monthly Statements . ........................................................................................ 1.!_+++ 9.3 Monthly Bills ................................................................................................... jj_+++ 9.4 Billings and Payments ...................................................................................... jj_+++ 9.5 Taxes ................................................................................................................ 12+++

ARTICLE X FORCE MAJEURE ........................................................................................... 12~ I 0.1 Events Excusing Pcrfonnance ......................................................................... 12--1-H

-i-

OF CONTENTS (continued)

ARTICLE XI INDUSTRY STANDARDS ............................................................................. ~ 11.1 Adherence to Reliability Criteria ..................................................................... 124-l-2:

ARTICLE XII GENERAL ...................................................................................................... 124--l-2: 12.1 No Third Party Beneficiaries ........................................................................... J)JI·~

12.2 Waivers ............................................................................................................ ffih! 12.3 Successors and Assigns .................................................................................... IJ+-8 12.4 Liability and Indemnification .......................................................................... u_w 12.5 Section lleadings ..................................... ........................................................ 13.±-J-3-12.6 Notice ............................................................................................................... 13+-l-J

ARTICLE XI II REGULATORY APPROVAL ....................................................................... I5++4 13. I Regulatory Authorization ................................................................................. 15++4 13.2 Changes ............................................................................................................ ~I.-J-4

ARTICLE XIV COMPLIANCE WITH NCUC REGULATORY ORDERS ......................... 15++4 14.1 DEC and PEC Regulatory Conditions ............................................................. IS+-+4

-ii-

TABLE OF CONTENTS(continued)

ARTICLE XI INDUSTRY STANDARDS.I I.l Adhcrcnce to Reliability Criteria..

ARTICLE XII GENERAL .

12.1 No Third Party Beneficiaries.12.2 Waivers..12.3 Successors and Assigns...12.4 Liability and lndcmntt1cation..12.5 Section I leadings..12.6 Notice..

...12~

..124-I2...Qltg..LLbQ.J tt-t-:I..3344-3

...~l

...~1443

AR'llCLE XIII REGULATORY APPROVAL..13.1 Regulatory Authorization..13.2 Changes..

ARTICLE XIV COMPLIANCE WITH NCUC REGULATORY ORDERS ....

14.1 DEC and PEC Regulatory Conditions..

...154-1-4

..~1444...32 I-14

AGREEMENT

THIS JOINT DISPATCH AGREEMENT ("Agreement") is made and entered into as of the __ day of 20_ , by and between Duke Energy Carolinas, LLC ("DEC"), and Carolina Power and Light Company, doing business as Progress Energy Carolinas, Inc. ("PEC'') (collectively referred to herein as the "Parties" and individually as a "Party").

WHEREAS, DEC and PEC are the owners and operators of electric generation, transmission and distribution facilities and are engaged in the business of generating, transmitting, distributing, and selling electric energy to the retail customers in their franchised service areas in North Carolina and South Carolina and also at wholesale to municipalities, cooperatives, and other electric util ities; and

WHEREAS, Duke Energy Corporation, the parent company of DEC, and Progress Energy, Inc., the parent company of PEC, have entered into an Agreement and Plan of Merger dated January 8, 2011 ("Merger"); and

WHEREAS, DEC and PEC intend to jointly dispatch their Power Supply Resources in order to most economically serve the Native Load Customers of both DEC and PEC following the consummation of the Merger; and

WHEREAS, the Parties desire to establish a framework under which the foregoing joint dispatch of the DEC and PEC Power Supply Resources, and the resulting cost savings will be cqu.itably shared between the Parties;

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein set forth, the Parties mutually agree as follows:

JOINT DISPATCH AGREEMENT

THIS JOINT DISPATCI I AGRL'L'MENT (" Agreement" ) is made and entered into as ofthc dayof, 20, by and between Duke Energy Carolinas, LLC ("DEC"), andCarolina Power and Light Company, doing business as Progress Energy Carolinas, Inc. ("PEC")(collectively referred to hcrcin as the "Parties" and individually as a "Party").

WHFRFAS, DEC and PEC are thc owners and operators of electrio generation,transmission and distribution facilities and are engaged in the business ol'enerating,transmitting, distributing, and selling electric energy to the retail customers in their franchisedservice areas in North Carolina and South Carolina and also at wholesale to municipalities,cooperatives, and other electric utilities; and

WHERL'AS, Duke Energy Corporation, the parent company of DFC, and ProgressEnergy, Inc., the parent company of PEC, have entered into an Agreement and Plan of Mcrgcrdated January 8, 20l I ("Merger"); and

WHERFAS, DEC and PEC intend to jointly dispatch their Power Supply Resources in

order to most economically scrvc the Native Load Customers of both DEC and PEC i'ollowingthe consummation of thc Merger; and

WHEREAS, thc parties desire to establish a framework under which thc foregoing jointdispatch of the DEC and PEC Power Supply Resources, and the resulting cost savings will be

equitably shared between the Parties;

NOW, THERFFORE, in consideration of thc premises and the mutual covenants and

agrccments herein set forth, the Parties mutually agree as follows;

I DEFINITIONS

Capitalized terms shall have the meanings set forth below in the Article I. If a capitalized term is not defined below, it shall have the meaning provided elsewhere in this Agreement or as commonly used in the electric utility industry.

''Balancing Authority" means the responsible entity that integrates resource plans ahead of time, maintains load-interchange-generation balance within a Balancing Authority Area, and supports interconnection frequency in real time.

"Balancing Authority Area" or "BAA" means the collection of generation, transmission, and loads within the metered boundaries of the Balancing Authority within which the Balancing Authority maintains the load-resource balance.

,, 6JIIistiog Neo Nftl'io\·e beaHI SRies" ffl€'1lf1S ~leA ~lative LettEJ Seles maEJe f:li:IFSI:l8AIIe eeligtllitiAS eotereEI ioLe f!Fier te !he effeetive t:lute eft!! is AgreemeAt.

"Industry Standards" means all applicable national and regional electric reliability council principles, guides, criteria, and standards and industry standard practices.

"Joint Dispatch" means the dispatch or the Power Supply Resources owned by DEC and PEC respectively on a least cost basis as described in Section 3.1.

"Must Run Resources" means generation units or power purchases that are dispatched out of merit order either due to contractual arrangements or to satisfy operational, reliability or regulatory requirements.

"Native Load" means the load of a Party's Retail Native Load Customers and the retail load of its wholesale customers or its wholesale customers' members served by the Party, directly or indirectly, at Native Load Priority.

"Native Load Customers" means a Party's Retail Native Load Customers plus its wholesale customers that have Native Load served by the Party, for which th~ Party has an obligation pursuant to current or future wholesale contracts, for the length of such contracts, to engage in planning and to sell and deliver electric capacity and energy in a manner comparable to the Party's service to its Retail Native Load Customers.

"Native Load Priority" means a priority of service equivalent to that provided by the Party to its Retail Native Load Customers.

"NCUC" means the North Carolina Utilities Commission .

.!J..N.ew-Non Native bead Sales'' ~eaAn ~lon ~lali'f'e Load ~ale!; eAlered tAle al-ter £ke effeeti~·e­dete of tkis Agreemeot.

"Non-Native Load Sales" means a Party's sales of energy at wholesale, not including transactions between the Parties pursuant to this Agreement or service to Native Load.

2

ARTICLE I

DEFINITIONS

Capitalized terms shall have thc meanings set fonh below in thc Article I. If a capitalized termis not defined below, it shall have thc meaning provided elsewhere in this Agreement or ascommonly used in thc clcctric utility industry.

"Balancing Authority" means the responsible entity that integrates rcsourcc plans ahead oftime, maintains load-interchangc-gcncration balance within a Balancing Authority Area. andsupports interconnection frequency in real time.

"Balancing Authority Area" or "BAA" means the collection of generation, transmission, andloads within the mctcrcd bounduries of the Balancing Authority within which the BalancingAuthority maintains thc load-resource balance.

"Industry Standards" means all applicable national and regional electric reliability councilprinciples. guides, criteria, and standards and industry standard practices.

"Joint Dispatch" means thc dispatch of thc Power Supply Resources owned by DEC and PECrcspcctively on a least cost basis as described in Section 3.1.

"Must Run Resources" means generation units or power purchases that are dispatched out ofmerit order either due to contractual arrangements or to satisfy operational, reliability orregulatory requirements.

"Native Load" means the load of a Party's Retail Native Iz&ad Customers and the retail load ofits wholesale customers or its wholesale customers'embers served by the Party, dinxtly orindirectly, at Native I.oad Priority.

"Native Load Customers" means a Party's Retail Native Load Customers plus its wholcsal«customers that have Native Load scrvcd by the Party, for which the Party has an obligationpursuant to current or future wholesale contracts, for thc length of such contracts, to engage in

planning and to sell and deliver electric capacity and energy in a manner comparable to theParty's service to its Retail Native Load Customers.

"Native Load Priority" means a priority of s«rvicc equivalent to that provided by the Pany toits Retail Native Load Customers.

"NiCUC" means the North Carolina Utilities Commission.

on-Native-Loud-Sai .

'ateof-tttia-A

«Non-iVative Load Sales" means a party's sales of energy at wholesale, not includingtransactions between the Parties pursuant to this Agreemcnt or service to Native Ibad.

sellers other than the other Party.

" Power Supply Resources" means the generating facilities owned by a Party and its Existing Power Purchases and Long Term Power Purchases as further provided herein to be used under this Agreement.

"PSCSC" means the Public Service Commission of South Carolina.

" Retail Native Load Customers" means the retail electric customers tor which either DL::C or PEC has an obligation under North Carolina and South Carolina law to engage in long-term planning and to supply all generation, transmission, distribution, delivery and sales, and other related services, including installing or contracting for capacity, if needed to provide adequate and reliable service.

"VACAR" means the Virginia-Carolinas sub region within the North American Electric Reliability Corporation's (NERC) SERC Reliability Corporation (SERC).

"VACAR Reserve Sharing Group Arrangement" means the collection of agreements and procedures developed concurrently by the Principals and Operating Representatives of multiple two-party Interchange Agreements as described in the Operating Manual for the VACAR Reserve Sharing Group Arrangement, Revision No. 2, dated January II , 20 II by and among Dominion, Duke Energy Carolinas, LLC, Progress Energy Carolinas, Inc., South Carolina Electric & Gas Company and South Carolina Public Service Authority. as amended.

2.1 Term.

ARTICLE II TERM OF AGREEMENT

Subject to approval and any conditions imposed by state and federal regulatory authorities, this Agreement shall take effect upon consummation of the Merger and shall continue in full force and effect for a period of five (5) years from the effective date, continuing thercatlcr until terminated by mutual agreement of the Parties or by either Party upon five (5) years' written notice to the other Party. If the Parties terminate the Merger prior to its consummation, this Agreement shall have no force or effect.

ARTICLE Ill SCOPE OF THE AGREEMENT

3.1 ~·

The primary purpose of this Agreement is to provide the contractual basis for the Joint Dispatch of the Power Supply Resources of both DEC and PEC for the purpose of reducing the cost of serving their Native Load Customers to the extent consistent with the provision of reliable electric service, Industry Standards. and applicable laws and regulations ("Joint Dispatch"). This Agreement also shall provide the contractual basis for the sharing of the cost savings resulting from such Joint Dispatch.

3

"Power Purchases" means purchases of energy at wholcsalc from scllcrs other than the otherParty.

"Power Supply Resources" means the generating facilitics owned by a Party and its ExistingPower Purchases and Long Term Power Purchases as further provided herein to be used underthis Agrecmcnt.

"PSCSC" means thc Public Service Commission of South Carolina.

"Retail Native Load Customers" means the retail electric customers for which either DL'C orPEC has an obligation under North Carolina and South Carolina law to engage in long-termplanning and to supply all generation, transmission, distribution, delivery and sales, and otherrelated services, including installing or contracting for capacity, if nccdcd to provide adequateand rcliablc service.

"VACAR" means thc Virginia-Carolinas sub region within thc North American ElectricReliability Corporation's (NERC) SERC Reliability Corporation (SERC).

"VACAR Reserve Sharing Group Arrangement" means thc collection of agrccmcnts andprocedures dcvcloped concurrently by the Principals and Operating Representatives of multipletwo-party lntcrchangc Agreemcnts as described in thc Opcraiing Manual for thc VACARReserve Sharing Group Arrangemcnt, Revision No. 2, dated January I I, 2011 by and amongDominion, Duke Energy Carolinas, LLC, Progress Energy Carolinas, Inc., South CarolinaElectric & Gas Company and South Carolina Public Service Authority. as amended.

ARTICLE HTERM OF AGREEMENT

2.1 Igm.

Subject to approval and any conditions imposed by stute and fcdcral regulatoryauthoritics, this Agrccmcnt shall take cfl'ect upon consummation of the Merger and shallcontinue in full force and elycct for a period of live (5) years from the efl'ective date, continuingthercalicr until terminated by mutual agreement of thc Parties or by either Party upon five (5)years'ritten notice to thc other Party. If the Parties terminate thc Merger prior to itsconsummation, this Agreement shall have no force or effect.

A RTICLE I I I

SCOPE OF THE AGREEMENT

3. I

The primary purpose of this Agrccment is to provide thc contractual basis for the JointDispatch of the Power Supply Resources of both DEC and PEC for thc purpose of reducing thecost of serving their Native Load Customers to the extent consistent with the provision ofreliable electric service, Industry Standards, and applicable laws and regulations ("JointDispatch"). This Agr«ament also shall provide the contractual basis for the sharing of the cosisavings resulting from such Joint Dispatch.

!.imits on Scope and EfTect of the Agreement.,

(a) Nothing in this Agreement is intended to or shall it be construed as:

(i) Providing for or requiring a single integrated electric system;

(ii) Providing for or requiring a single BAA, control area or transmission system;

(iii) Providing for or requiring joint planning or joint development of generation or tran~mission;

(iv) Providing for or requiring a Party to construct generation or transmission facilities for the benefit of the other J>nrty;

(v) Transferring any rights tcrgcnerotion or transmission facilities from one Pany to the other; or

(vi) Providing for or requiring any equaliL.ation of the Parties' production costs or rates.

(b) To the extent that the Parties desire to engage in any of the activities or take any of the actions described in Section 3.2 (a), the Parties will amend this Agreement or enter into a separate agreement, subject to approval by the applicable state and federal regulatory authorities.

----(c) In aaditifln ttHhe foregeing, D6C ana PH' have egreeEI. in prev-iow.. praeeeEiiAgs eefere the "ICL'C {'SCL'C DeeiEel E 7. Stte 795 &AEl NCUC Deel<et (; 2. ~ttb 88~. FeS('eeti,•ely). ta inseFI inHHiey-elliliate egreelfteHt'l quell a'> thiq Agreelftent the-ful~ prtwisiens:

---f(+ii) The participation by both DEC and PEC in this Agreement is voluntary, neither DEC nor PEC is obligated to participate in this Agreement or to make any purchases or sales pursuant thereto and the participation of both DEC and PEC in this Agreement is subject to termination, after notice is provided pursuant to Section 2. 1 of this Agreement;

(ii) l>leither DtC ner PEC Rlli)' lftal<e er ine~:~r a eharge I:IREler this Agreement e'leepl in aeeerEieAee with l>IArtR Car-el iRa law ene the RAie~. reguletifiAS enEI eraeN ef the ~lCUG pPeA'tttlgeteEi therelfAEier:

(iii) ~~either m=c Aer PEC A't8) •,eek lfl reAeet iA its ~lonh C'fi1Aiil18 reltlil rete~ (i) ttR)' Cfl'i!:S iRel:lrreEI ttREier this Agreelftent eNeeeding the alftel:lnt allewea B) the I>ICbC' ftf (ii) AA) reH~AI:Ie le' el eamed ~:~nder the Agreelftenl ether than the ernettnl iRlfltttee B)'

the NCl'C; AAEl

(iv) Neither DF.C Rflr PJ:;C will a!i'iel'\ in AA)' lftRllft that the ~J(:'HG!fi etttherily t1:1 essigA. ell~:~eete. lftal<e pre ferme aEij~:~slffl t!Als Hl f:lf aisallew re•.·eAttes er eests fer rewil FilleAlaiEing end FefMhliOI)' a~?eewnling and rererting fli:IFflflSeq is flFt!eA'tfltt!d QRS DJ:C' aoo

4

32 i and Lr(Tact of thc

(a) Nothing in this Agrccment is intended to or shall it be construed as:

(i) Providing for or requiring a single integrated electric systcvn;

(ii) Providing for or requiring a single BAA, control area ortransmission system;

(iii) Providing for or requiring joint planning or joint dcvclopmcnt ofgcncration or transmission;

(iv) Pmviding for or requiring a Party to construct gcncration urtransmission I'acilities for thc benefit of the other Party;

(v) Tmnsfemng any rights ur generation or transmission facilities fromone Party to the other, or

(vi) Providing for or requiring any equalization of thc Parties'roduction

costs or rates.

(b) To the extent that thc Parties desirc to engage in any of thc activities ortake any of thc actions described in Section 3.2 (a), thc Parties will amend this Agreement orenter into a separate agrccmcnt. subject to approval by the applicable state and federal rcgulutoryauthorities.

'l'he participation by both DL'C and PEC in this Agreement isvoluntary, neither DFC nor PEC is obligated to participate in this Agrccmcnt or to make anypurchases or sales pursuant thcrcto and thc participation ofboth DL'C and PEC in this Agrccmentis subject to termination, at)er notice is provided pursuant to Section 2.1 of this Agrccmcnt;

ARTICLE IV THE JOINT DISPATCHER

4.1 Joint Dispatch function.

Dl::C shall act as the Joint Dispatcher, on behalf of DEC and PEC, and shall have the following responsibilities:

(a) Directing the dispatch of both DEC's and PEC's Power Supply Resources;

(b) Making Power Purchases for durations of less than one year (''New Short-Term Power Purchases") to serve the Parties' Native Loads and making Non-Native Load Sales for durations of less than one year from the Parties' Power Supply Resources to the benefit of each Party's Native Load Customers;

(c) Developing and providing bills and billing-related information to effectuate the terms of this Agreement;

(d) Such other activities and duties as may be assigned from time to time by the mutual agreement of the Parties, including but not limited to administration of demand-side resources on behalf of the Parties. subject to applicable state and federul regulatory approvals; and

(e) Incurring the costs necessary to perform its responsibilities under this Agreement. subject to applicable state and federal regulatory approvals.

ARTICLE V JOINT DISPATCH OF POWER SUPPLY RESOURCES

5.1 JQint Pispatch.

As soon as practicable after the effective date of the Merger, the Joint Dispatcher shall direct the dispatch or the Parties' Power Supply Resources in a manner that: (a) ensures the reliable fullillment of each Party's service obligations to its Native Load Customers; (b) minimi:t~s the total costs incurred to fulfill each Party's service obligations to its Native Load Customers; and (c) economically satisfies any obligations of each of the Parties with respect to Non-Native Load Sales. To these ends, the Joint Dispatcher shall direct the dispatch of the Power Supply Resources of both Parties consistent with Industry Standards for the safe and reliable operation of both of the Parties' electric systems, the safe and reliable operation of both of the Parties' generating resources, and all applicable laws and regulations, including but not limited to the applicable rules, regulations, orders, and conditions of the NCUC, the PSCSC. the Federal Energy Regulatory Commission {"FERC"), the North American Electric Reliability Corporation {"NERC"), and the SERC Reliability Corporation {"SERC").

5

ARTICLE IVTHE JOINT DISPATCHER

4.1 auutw h F

DEC shall act as the Joint Dispatcher, on behalf ol'L'C and PEC, and shall have thelollowing rcsponsibilitics:

(a) Directing the dispatch of both DEC's and PEC's Power Supply Resources;

(b) Making Power Purchases for durations of less than onc year ("Ncw Shon-Tcrm Power Purchases") to serve the Parties'ative Loads and making Non-Native Load Salesfor durations of less than onc year from the Parties'o~er Supply Resources to thc bvvtcfit ofeach Party's Native Iztad Customers;

(c) Developing and providing bills and billing-related information toeffectuat the terms of this Agreement;

(d) Such other activities and duties as may be assigned from time to time bythc mutual agreement of the Parties, including but not limited to administration of demand-sideresources on behalf of thc Parties, subject to applicable state and federal regula(ory approvals;and

(e) incurring thc costs necessary to perform its rcsponsibilitics undhv thisAgreement, subject to applicable state and federal regulatory approvuls.

ARTICLE VJOINT DISPATCH OF POWER SUPPLY RESOURCES

51

As soon as practicable atter thc cffcctivc date of the Merger, the Joint Dispatcher shalldirect the dispatch of the Parties'ower Supply Resources in a manner that: (a) ensures thereliable fullillment of each Party's service obligations to its Native Load Customers; (b)minimizes the total costs incurred to fulfill each Party's scrvicc obligations to its Native LoadCustumers; and (c) economically satislies any obligations of cash of the Parties with rcspcct toNon-Native Load Sales. 'I'o these ends, the Joint Dispatcher shall direct the dispatch of thcPower Supply Resources of both Parties consistent with Industry Standards for thc safe andreliable operation of both of the Parties'lectric systems, the safe and rcliablc operation of bothof the Parties'cncrating resources, and all applicable laws and regulations, including but notlimited to the applicable rules, regulations, orders, and conditions of thc NCUC, thc PSCSC, theFederal Energy Regulatory Commission ('FERC"), the North American Electric ReliabilityCorporation ("NERC"), and thc SERC Reliability Corporation ( SERC").

Compliance with Contractual and Regulatory Obligations.

Nothing in this Agreement is intended to diminish or alter the jurisdiction or authority of the NCUC or the PSCSC over the Parties, including, among other things, the jurisdiction and authority to establish the retail rates on a bundled basis for each of the Parties, to impose regulatory accounting and reporting requirements, to impose service quality standards, to require each of the Parties to engage separately in least cost integrated resource planning, or to issue certificates of public convenience and necessity for new generating resources. In addition, nothing in this Agreement is intended to alter the Parties' contractual or regulatory obligations or to provide for Joint Dispatch in a fashion that is inconsistent with those obligations, including, without limitation, the following:

(a) DEC's obligation to plan for and provide least cost electric service to its Retail Native Load Customers and to its other Native Load Customers, and PEC's obligation to plan for and provide least cost electric service to its Retail Native Load Customers and it its other Native Load Customers;

(b) DEC's obligation to serve its Native Load Customers with the lowest cost power it can reasonably generate or purchase from other sources, before making power available for Non-Native Load Sales;

(c) PEC's obligation to serve its Native Load Customers with the lowest cost power it can reasonably generate or purchase from other sources, before making power available for Non-Native Load Sales;

(d) All of DEC's and PEC's respective obligations under wholesale purchase contracts, including contracts for the purchase of energy and capacity on a non-dispatchable basis;

(e) All of DEC's and PEC's respective obligations under wholesale sales contracts, including obligations under full and partial requirements sales contracts;

(f) All of DEC's and PEC's respective obligations under reliability exchange agreements existing prior to the effective date of this Agreement;

(g) DEC's and PEC's respective transmission rights and obligations, including rights and obligations under any transmission service agreements or transmission tariffs and their respective obligations to provide transmission services and to act as the BA for their respective BAAs;

(h) DEC's and PEC's respective individual obligations under the VACAR Reserve Sharing Group Arrangement; and

(i) DEC's and PEC's respective obligations with respect to Must Run Resources to ensure that they are not dispatched in a manner inconsistent with the contractual, operational, reliability or regulatory requirementS applicable to such Must Run Resources.

6

5.2 m lianc with ontractualandRc ulat li ai n

Nothing in this Agreement is intended to diminish or alter the jurisdiction or authority ofthe NCUC or the pSCSC over thc parties, including, among other things, thc jurisdiction andauthority to establish the retail rates on a bundled basis for each of thc Parties, to imposeregulatory accounting and reporting requirements, to impose service quality standards, to requireeach of the Parties to engage separately in least cost integrated rcsourcc planning, or to issuecertificates of public convenience and ncccssity for new generating resources. In addition,nothing in this Agreement is intcndcd to alter thc Parties'ontractual or regulatory obligations orto provide for Joint Dispatch in a fashion that is inconsistent with those obligations, including,without limitution, the following:

(a) DFC's obligation to plan for and provide least cost clcctric scrvicc to itsRetail Native l.oad Customers and to its other Native Load Customers, and PEC's obligation toplan for and provide least cost clcctric service to its Retail Native Load Customers and it its otherNative Load Customers;

(b) DEC's obligation to serve its Native Load Customers with the lowest costpower it can reasonably generate or purchase from other sources, bcforc making powxm availableIor Non-Native Load Sales;

(c) PEC's obligation to serve its Native Load Customcts with the lowest costpower it can reasonably gencratc or purchase from other sources, before making power availablefor Non-Native Load Sales;

(d) All ol'DEC's and PEC's respective obligations under wholcsalc purchasecontracts, including contracts for the purchase of energy and capacity on a non-dispatchablcbasis;

(e) All of DEC's and PFC's respective obligations under wholcsalc salescontracts, including obligations under full and partial requirements sales contracts;

(I) All of DEC's and PFC's respective obligations under reliability exchangeagrccments existing prior to the eITcctivc date of this Agreement;

(g) DEC's and PEC's respective transmission rights and obligations, includingrights and obligations under any transmission service agreements or transmission taritTs and theirrespective obligations to provide transmission services and to act as the BA for their respectiveBAAs;

(h) DEC's and PEC's respective individual obligations under the VACARReserve Sharing Group Arrangcmcnt; and

(I) DL'C's and PEC's respective obligations with rcspcct to Must RunResources to ensure that they are not dispatched in a manner inconsistent with the contractual,operational, reliability or regulatory requirements applicable to such Must Run Resources.

VI POWER SUPPLY RESOURCES AND NON-NATIVE LOAD SALES

6.1 Generating Resources.

As of the effective date of this Agreement, all generating resources including those that begin commercial operation after the effective date of this Agreement shall be a Power Supply Resource of the Party that owns it and that Party shall be responsible for the capacity costs and energy costs of such Power Supply Resources. If the Parties arc subsequently allowed to develop future generating resources jointly or to enter into a reserve sharing agreement with respect to future generating resources, the Parties, at the time that they enter into such an arrangement, and subject to the receipt of all relevant state and federal regulatory approvals, shall agree, upon the allocation of the generation that is the subject of that arrangement for purposes of determining the Parties' Power Supply Resources and responsibility for capacity costs and energy costs.

6.2 Existing Power Purchases and New-Long Term Power Purchases.

The capacity costs (i r any) and energy costs associated with Power Purchases contracted for by a Party prior to the effective date of this Agreement ("Existing Power Purchases") and with Power Purchases contracted for by a party after the effective date of this Agreement that arc for a year or longer ("New Long-Term Power Purchases") shall be the responsibility of that Party. Existing Power Purchases and New Long-Term Power Purchases shall be Power Supply Resources of the contracting Party.

6.3 New Short-Term Power Purchases.

(a) Power Purchases contracted for by either Party after the effective date of the Agreement for duration of less than a year ("New Short-Term Power Purchases") shall be treated as follows:

(i) lf a New Short-Term Power Purchase is determined after-the-fact to have been economic to both Parties or to neither Party, each Party shall be allocated a percentage of the MWh, capacity costs (if any) and the energy costs associated with such purchase equal to the Party's Native Load for the hours in which purchases are made divided by the sum of both Parties' Native Loads for such hours.

(ii) If a New Short-Term Power Purchase is subsequently detennined to be economic to only one Party, the MWh, capacity costs (if any), and the energy costs associated with such purchase shall be allocated to the Party for which the New Short-Term Power Purchase is economic.

(b) The MWh of a New Short-Tenn Power Purchase that has been allocated to a Party pursuant to Section 6.3{a)(i) or (ii) shall be a Power Supply Resource of that Party. To the extent that a Party incurs energy costs for a New Short-Term Power Purchase that differs from the allocations set forth in Section 6.3(a) (i) or (ii), a transfer payment will be made to reconcile the difference.

7

ARTICLE VIPOWER SUPPLY RESOURCES AND NON-NATIVE LOAD SALES

6. I ~Gi L «.As of the effective date of this Agrccmcnt, all gcncrating resources including those that

begin commercial operation affer the effective date of this Agreement shall be a Power SupplyResource of the Party that owns it and that Party shall be responsible for the capacity costs andenergy costs of such Power Supply Resources. If the Parties are subsequently allowed todevelop future generating resources jointly or to enter into a reserve sharing agreement withrcspcct to future gcncrating rcsourccs, thc Parties, at the time that they enter into such anarrangement, and subject to the receipt of all relevant state and federal regulatory approvals, shallagrcc, upon thc allocation of thc gcncration that is thc subject of that arrangement for purposes ofdctcrmining the Parties'ower Supply Resources and responsibility for capacity costs andenergy costs.

6.2 Existin Power Purchases and Ncw-Lon Term Power Purchases.

The capacity costs (ii'any) and energy costs associated with Power Purchases contractedfor by a Party prior to the etfcctivc date of this Agrecmcnt ("Existing Power Purchases") andwith Power Purchases contracted for by a party at)cr thc effectiv date of this Agrcemcnt that arcfor a year or longer ("Ncw Long-Term Power Purchases" ) shall be the responsibility of thatParty. Existing Power Purchases and New Long-Term Power Purchases shall bc Power SupplyResources of the contracting Party.

6.3 Ncw h rt-Term P wer Purch ses.

(a) Power Purchases contracted for by either Party after the effective date ofthe Agreement for duration of less than a year ("New Short-Term Power Purchases") shall betreated as follows:

(i) If a New Short-Term Power Purchase is determined after-the-factto have been economic to both Parties or to neither Party, each Patty shall be allocated a

percentage of thc MWh, capacity costs (if any) and the energy costs associated with suchpurchase equal to the Party's Native Load for the hours in which purchases are made divided bythe sum ofboth Parties'Native Loads for such hours.

(ii) If a Ncw Short-Term Power Purchase is subsequently determinedto be economic to only one Party, the MWh, capacity costs (if any), and thc cncrgy costsassociated with such purchase shall be allocated to the Party for which thc Ncw Short-TermPower Purchase is economic.

(b) 'fhe MWh of a New Short-Term Power Purchase that has been allocated toa Party pursuant to Section 6.3(a)(i) or (ii) shall bc a Power Supply Resource of that Party. Tothe extent that a Party incurs energy costs for a Ncw Short-Term Power Purchase that dilfersfrom the allocations sct fonh in Section 6.3(a) (i) or (ii), a transfer payment will bc made toreconcile the difference.

Load Sales.

e1dstiAg }loA 1'lati'le Load 8ales sllall be tile re!;fJOAsibility of tfle Party that RBS

eoFtlraeted fer eaeh st~eh sale aAd are subjeet to tfle eAergy aAd eosl alleeatieA provisieAs of 8eetieA 7.3 aREI 7.5(b).

6.4 New-Non-Native Load Sales.

Subject to Sections 7.2 and 7.~1ta1 each Party shall be responsible for the cost of the energy from its Power Supply Resources that serve l>Jew-Non-Native Load Sales, as determined by the Joint Dispatcher on an after-the-fact basis using production cost modeling.

ARTICLE VII CALCULATION OF JOINT DISPATCH SAVINGS

7.1 Overview.

(a) For each hour, the energy produced as a result of the Joint Dispatch shall be allocated to the Parties' Native Load obligations, E1Ei$tiAg Ji'leA Native Load Sales. and New Non-Native Load Sales. The determination of how much energy is allocated to each Party shall be conducted on an after-the-fact basis as described below. Such energy allocation is solely for the purpose of calculating savings from the Joint Dispatch and the Parties payment obligations under this Article Vll.

(b) The least oost energy from each Party's Power Supply Resources shall be applied first to serve its own Native Load obligations. If it is determined after-the-fact that a Party's Power Supply Resources provided energy to serve the other Party's Native Load service obligations or Non-Native Load Sales obligations, then only such provision of energy shall be considered to be a wholesale power transaetjon between the Parties.

(c) The transfer payments under this Agreement are intended to produce an energy cost for serving each Party's Native Load Customers that is the same as if such Native Load were served by that Party's Power Supply Resources, adjusted by the allocation of costs and savings of the Joint Dispatch as reOectcd in the payments set forth in Section 7 .,)1.

7.2 Allocation of Energy to New-Non-Native Load Sales.

For each hour, New-Non-Native Load Sales shall be deemed to have been satisfied by the highest cost energy from the Parties' Power Supply Resources produced in that hour (other than Must Run Resources).

7.3 Alleeatian of hAerg)• to hl<istine 't>l~tive Loa(:! Sales.

:ro tlie 01<teAt that a Party has, iA an lleur. an El<istiRg NoR Nati\•e Load Sales J3t~rsuaAt to SeetioA 6.4, sueh Existing ~len Nati·,re beaEl Sales shall ee deen'!eEl to h&\'0 beeR satisfied by the neJ<t l:tighest eest eAergy (other thaA from M1:1st RttA Reso1:1rees) available after the alloeatien of

8

Formatted: No bullets or numbering, Tab stops: 9.63", List tab + Not at 1._.1.;..3" __ __;

6.4 New-Non-Native Load Sales.

6:$ Formatted: No butlets or numberlnp, rabslops: 9.63", ust tab+ Not at 1.13"

Subject to Sections 7.2 and 7.$4(st) each Party shall be responsible for the cost ofthe energy from its Power Supply Resources that serve New-Non-Native Load Sales, asdetermined by thc Joint Dispatcher on an aRer-thc-fact basis using production cost modeling.

ARTICLE VIICALCULATION OF JOINT DISPATCH SAVINGS

7.1 Qvewiew.

(a) For each hour, the energy produced as a result of the Joint Dispatch shall be

(allocated to the Parties'ative l.oad obligations, .

'. ' ' '. and NewNon-Native Load Sales. The determination of how much energy is allocated to each Party shallbe conducted on an after-the-fact basis as described below. Such energy allocation is solely forthc purpose of calculating savings from the Joint I)ispatch and the Panies payment obligationsunder this Article Vll.

(b) Thc (cast cost energy from each Party's Power Supply Resources shall bc appliedlirst to serve its own Native Load obligations. If it is determined atter-the-fact that a Party'Power Supply Resources provided energy to serve the other Party's Native Load scrviccobligations or Non-Native Load Sales obligations, then only such provision of energy shall beconsidcrcd to be a wholesale power transaction bctwecn the Parties.

(c) The transfer payments under this Agreement are intended to produce an energycost for serving each Party's Native Load Customers that is thc same as if such Native l.oad wereserved by that Party's Power Supply Resources, adjusted by the allocation of costs and savings ofthe Joint Dispatch as rellectcd in the payments sct forth in Section 7.$4.

7.2 cati n f Ener t New-No - a iv L ad Sales.

For each hour, New-Non-Native Load Sales shall be deemed to have been satisfied by thehighest cost energy from the Parties'ower Supply Resources produced in that hour (other thanMust Run Resources).

lo New NoR l>Jati,·e beae S!H~rswafll to SeetioA 7.2. 6aeh Pafty shall be responsi-bl-e iAitially for the eAeTE,")' eost of i'.'S Power Sl:lflfll)' Rese1:1rees eleemeel le ha~·e sen·ed the Parties' el<iStiAg l>JoA Jllati\'e boas Sales ("TAel-Jrred el<istiAg NoR Native boad Sales Costs").

+:41_.3 Allocation of Energy to Native Load.

After the allocation of energy costs to Non-Native Load Sales has been performed pursuant to Sections 7.2 aAel 7.3, the remaining least cost energy produced in an hour by the Parties' Power Supply Resources shall be deemed to have served the Parties' Native Loads. Each Party's Native Load also shall be allocated the costs of energy produced from its own Must Run Resources. Each Party shall be responsible initially for the energy costs of its Power Supply Resources deemed to have served the Parties Native Loads ("Incurred Native Load Costs").

':f-2.7 .4 Payments for Purchases and Sales of Energy Between the Parties.

For each hour, a payment shall be calculated for the purchase and sale of energy between the Parties as a result of the Joint Dispatch of the Parties' Power Supply Resources. This payment shall be calculated as follows:

(a) Payments for energy sales to meet New-Non-Native Load Sales

ti)_After the fact for each hour, the Joint Dispatcher shall use+::,·,·,~: ~F;,;;orm~a;;,;,tted~:,::In:;;;;den;;;;,;;;t:,;,F;;;;irs;;,;t l;;;lne~:.,;l;;,;. S6;;;,'=' ~--< production cost models to determine, the energy costs allocated to the New-Non-Native Load Formatted: Bullets and Numbering

Sales pursuant to Section 6.1H.t~.and. 7.2.-_ Such energy costs shall be compared to the revenues generated from such sales. This difference, whether positive or negative, will be considered the "Non-Native Load Sales Margin." Each Party shall be entitled to an amount equal to: (I) the energy cost from its Power Supply Resources allocated to the New-Non-Native Load Sales; (2) plus a percentage of the Non-Native Load Sales Margin equal to the MWh produced by the Party's Power Supply Resources during the hour divided by the total MWh produced by both Parties Power Supply Resources during the hour.

(ill__To the extent that the Parties incur energy costs for and revenues from New-Non-Native Load Sales that produces a different result than the calculation set forth in Section 7.M (a).Q}ti1, a tmnsfer payment will be made between the Parties to reconcile that difference.

(e) PaymeAts for eAergy sales to meet EldstiAg ~loA Jllative Lead ·sales.

(i) After the faet, fer eae!:l hour, the .l o i1~t Dis~atel:ter shall use preduetioA eost model!l w aeterA~iAe the eost that a Party would ha·•e iA&Urrea to satisf)· its ~JdstiAg JI>Jof'l l>hlti·,ee bead Sales without the beAefit of JoiAt Disf3aleh ("Slana Alene e?dstiAg Non Native Leael Sales Cost"). The flOSitive elifferenee bevweeA the east of all Power ~1:1 pply Reso~:~rees seemed to ha~·e satisfieel f;>•istiAg l>!eA l>lative Lead Sales eletermiAed p•trsuaAt te Seetion 7.3 aAd the sum of the Parties' Stana Alone E:>dstiAg JlloA Native Load Sales Costs !l~ be tne "J;xistiftg-Non Native Load Sales Joint Dispateh Sa~

9

7-.47 3 Allocation of Ener to Native Loa

Alter the allocation of energy costs to Non-Native Load Sales has been performed

~

pursuant to Sections 7.2~, the remaining least cost energy produced in an hour by theParties'ower Supply Resources shall be dccmed to have scrvcd thc Parties'ative Loads. EachParty's Native Load also shall be allocated the costs of energy produced from its own Must RunResources. Each Party shall bc responsible initially for the energy costs of its Power SupplyResources deemed to have served the Parties Native Loads (" Incurred Native Load Costs").

p 67 4 pa ments for p rch s and Sales of Encr Between the Partie .

For each hour, a payment shall be calculated for the purchase and sale of cncrgy betweenthe Parties as a result of the Joint Dispatch of thc Parties'ower Supply Resources. Thispayment shall be calculated as follows:

(a) Payments for energy sales to mcct New-Non-Native Load Sales

~iAIIcr thc I'act for each hour, the Joint Dispatcher shall use::-- ronnauea:tnusnenrstme:t.ss'roductioncost models to determine, thc energy costs allocated to thc Iqew-Non-Native Load Formatted: avlleu and Numbenng

Sales pursuant to Section 6.4$-sad-'W.~a.2- Such energy costs shall bc compared to therevenues generated from such sales. This difference, whether positive or negative, will beconsidcrcd the "Non-Native Load Sales Margin." Each Party shall be entitled to an amount

]equal to: (I) the energy cost from its Power Supply Resources allocated to the New-Non-Nativel,oad Sales; (2) plus a percentage of the Non-Native I.oad Sales Margin equal to the MWhproduced by thc Party's Power Supply Resources during the hour divided by the total MWhproduced by both Parties Power Supply Resources during the hour.

~ii To thc extent that the Parties incur energy costs for and revenuesfrom Nevv-Non-Native Load Sales that produces a ditferent result than the calculation sct forth in

Section 7.$4 (a)Lti), a transfer payment will be made between the Parties to reconcile thatditTerence.

nt44ispatehSavings—."

The> JfliBt Di·<reteher c;hall alleeate te eaeh PArt)' a f'IRl rata •;here-of the l'•1istiAg "leA Nath ~ l eed Sales JeiAt 9isJ*lleh !;a' iAgs haseel eA eaeh Part) 's relati\'e at~OIIAt efMWh f'IFOelt:U!ed R) their resf'leetive Pewer ~llf'lfl) Re•<et:trce•. iA the IHltlr.

(iii) The JeiAt Dic;t1ateher shall theA s~:~etFaet eaeh Party's alleeatoo sl~are ~:~f l'>~istiAg '!>leA 'l>Jati,•e baael Sale5 JeiAt Dil'ltlateh Sa¥ing& !fir the hewr IR:l1~ its 8ume AI~Ae eHistiAg '!>leA 'l>Jath·e beaEI Sales Casts fer !hat he11r. Tlle rest:tltiAg eest Ag~:~re far eeeh Pt!Fl~ shall ee that Pt:wty'~ "JeiAI Dispaleh El<isliAg NoR-Native l .etta 8ales Gests" fer the4leur,

(iv) Tl~rty ·n·hese JoiRt 9isf)ateh B?dsting P.lE'lB P.letive LE'lacf.-&Ties ~ttP-M hot:tP at·e tl'lere lh&R-i¥.HA-81:1!'1'-e6-NeR-Na~~t'!i-(;oHts fE'lr that hour Ahall ewe llle ether Pari)' tl fl!l)'l'flenl ret' that A81:1F eql:lal te l'lle aifferent~e eetween its JeiAl Dispa~ +;~fl8-N<ln 'l>Jative l.naEI Sales ('a·;ts end its IRBI:Irred ~liistiRg }leA Native Lead 81:1les Costs.

f:t't!lH Payments for energy sales related to Native Load.

(i) After the fact, for each hour, the Joint Dispatcher shall use production cost models to detcnnine the cost each Party would have incurred to serve its Native Load without the benefit of Joint Dispatch ("Stand Alone Native Load Costs"). The positive difference between the cost of all Power Supply Resources deemed to have served the Parties' Native Load pursuant to Section 7.4-l_and the sum of the Parties Stand Alone Native Load Costs shall be the "Native Load Joint Dispatch Savings."

(ii) The Joint Dispatcher shall allocate to each Party a pro rata share of the Native Load Joint Dispatch Savings based on each Party's relative amount ofMWh produced by their respective Power Supply Resources in the hour.

(iii) The Joint Dispatcher shall then subtract each Party's allocated share of Native Load Joint Dispatch Savings for the hour from its Stand Alone Native Load Costs for that hour. The resulting cost figure for each Party shall be that Party's "Joint Dispatch Native Load Costs" for the hour.

(iv) The Party whose Joint Dispatch Native Loud Costs for an hour arc more than its Incurred Native Load Costs for that hour shall owe the other Party a puymcnl for that hour equal to the di ffcrence between its Joint Dispatch Native Load Costs and its Incurred Native Load Costs.

The Joint Dispatcher shall sum each Party's payment obligations reduced by its payment entitlements under Sections 7.~(a) and: (b) aFIEI (e) above for that hour. The Party with a positive total shall owe that amount to the other Party as payment for energy sold to it during that hour.

ARTICLE VIII CAPACITY SALES

10

re)(h) Payments for energy sales related to Native l.oad.

(i) Aller the (act, for each hour, thc Joint Dispatcher shall useproduction cost models to dctcrmine the cost each Party would have incurred to scrvc its NativeLoad without the bcncfit of Joint Dispatch (" Stand Alone Native Load Costs"). Thc positivedi (Terence bctwccn the cost of all Pou er Supply Resources dccmed to have scrvcd thc Panies'Native Load pursuant to Section 7A-3 and thc sum of thc Ponies Stand Alone Native Load Costsshall be thc "Native Load Joint Dispatch Savings."

(ii) Thc Joint Dispatcher shall allocate to each Party a pro rata sharc ofthc Native Load Joint Dispatch Savings based on each Party's relative amount of M Wh producedby their respective Power Supply Resources in the hour.

(iii) The Joint Dispatcher shall then subtract each Party's allocatedsharc of Native Load Joint Dispatch Savings for thc hour from its Stand Alone Native LoadCosts for that hour. The resulting cost figure for each Party shall bc that Party's "Joint DispatchNative Load Costs" lor thc hour,

(iv) Thc Party whose Joint Dispatch Native l.oad Costs for an hour arcmore than its Incurred Native Load Costs for that hour shall owe thc other Party a payment forthat hour equal to the dilference between its Joint Dispatch Native Load Costs and its IncurredNative Load Costs.

The Joint Dispatcher shall sum each Party's payment obligations reduced by its payment

~

entitlcments under Sections 7.$4(a)~an - (b) as4++above for that hour. The Party with apositive toad shall owe that amount to the other Party as payment for energy sold to it during thathour.

ARTICLE VIIICAPACITY SALES

IO

Sales.

If a Party requires additional capacity for reliability purposes, and the other Party has the ability to supply all or some capacity (with or without accompanying energy), without impacting reliability or service quality to the selling Party's Native Load Customers, then the Joint Dispatcher may enter into a capacity sale on behalf of the selling Party pursuant to the selling Party's then-effective FERC-filcd cost-based rate tariff and such sale shall be priced in accordance therewith. However, nothing in this Agreement shall be construed as creating a right in either Party to the capacity of the other Party.

9.1 Records.

ARTICLE IX BILLING PROCEDURES

The Joint Dispatcher shall maintain such records as may be necessary to determine the assignment of costs savings of Joint Dispatch and the payments required pursuant to this Agreement. Such records shall be made available to the Parties as reasonably required, including as needed for state and federal regulatory purposes.

9.2 Monthly Statements.

As promptly as practicable afler the end of each calendar month, the Joint Dispatcher shall prepare a statement setting forth the monthly summary of costs for which each Party is responsible and revenues from Short-Term Non-Native Load Sales to be allocated to each Party in sufficient detail as may be needed for settlements under the provisions of this Agreement. As required, the Joint Dispatcher may provide such statements on an estimated basis and then adjust those statements for actual results.

9.3 Monthly Bills.

As promptly as practicable after the end of each calendar month, the Joint Dispatcher shall prepare a monthly bill fbr each Party based on the sum of that Party's payment obligations reduced by its payment entitlements calculated pursuant to Section 7 .~. The Joint Dispatcher shall net each Party's hourly payment obligations against its hourly payment entitlements, and render a bill for the differences. The bill for each December shall also state an annual payment amount that nets out each Party's obligations and entitlements for the calendar year.

9.4 Billings and Payments.

The Joint Dispatcher shall handle all billing between the Parties and with other entities with which the Joint Dispatcher engages in activities pursuant to this Agreement. Payment between the Parties shall be by making remittance of the net amount billed or by making appropriate accounting entries on the books of the Parties. Payment of the bills for a calendar year shall be made no later than 30 days after the receipt of the bill for December of that calendar year.

I I

8. I

gakkai

~agE

If a Party requires additional capacity for reliability purposes, and the other Party has theability to supply all or some capacity (with or without accompanying energy), without impactingreliability or scrvicc quality (o the selling Party's Native Load Customers, then thc JointDispatcher may enter into a capacity sale on behalf of the selling Party pursuant to the sellingParty's then-effective PERC-tiled cost-based rate tariff and such saic shall bc priced inaccordance thcrcwith. However, nothing in this Agreement shall bc construed as creating a rightin either Party to the capacity of the other Party.

ARTICLE IXBILLING PROCEDURES

9. I Records.

The Joint Dispatcher shall maintain such records as may be necessary to dcterminc thcassignment of costs savings of Joint Dispatch and thc payments required pursuant to thisAgreement. Such records shall be made available to the Parties as reasonably required. includingas needed for state and fcdcral regulatory purposes.

9.2 Month~It tcnncgls.

As promptly as practicable afler the end of each calendar month, thc Joint Dispatchershall prepare a statement setting forth thc monthly summary of costs for which each Party isresponsible and revenues from Short-Term Non-Native Load Sales to be allocated to each Partyin suflicicnt detail as may be nccdcd for settlements under the provisions of this Agrccmcnt. Asrequired, the Joint Dispatcher may provide such statements on an estimated basis and then adjustthose statements for actual results.

9.3 ~oh~i

As promptly as practicable aller thc cnd of each calendar month, the Joint Dispatchershall prepare a monthly bill for each Party based on thc sum of that Party's payment obligations

(reduced by its payment entitlemcnts calculated pursuant to Section 7.$4. The Joint Dispatchershall net each Party's hourly payment obligations against its hourly payment cntitlcmcnts, andrcndcr a bill for thc differences. 'fhc bill for each December shall also state an annual paymentamount that nets out each Party's obligations and entitlcments for thc calendar year.

9.4 B~IR s f

Thc Joint Dispatcher shall handle all billing between thc Parties and with other entitieswith which thc Joint Dispatcher engages in activities pursuant to this Agreement. Paymentbetwccn the Parties shall be by making remittance of thc net amount billed or by makingappropriate accounting entries on the books of thc Parties. Payment of the bills for a calendaryear shall be made no later than 30 days atter the receipt oF the bill for December of that calendaryear.

Should any federal, state, or local tax, surcharge or similar assessment, in addition to those that may now exist, be levied upon the energy dispatched pursuant to the terms of this Agreement or for the Joint Dispatcher's services provided in connection with this Agreement, or upon either of the Parties measured by energy or service, or the revenue therefrom, any such additional amounts shall be included in the net billing as described in Section 9.4.

ARTICLE X FORCE MAJEURE

I 0.1 Events Excusing Performance.

Neither Party shall be liable to the other Party for or on account of any loss, damage, injury, or expense resulting from or arising out of a delay or failure to perform, either in whole or in part, any of the agreements or obligations made by or imposed upon the Parties by this Agreement. by reason of or through strike, work stoppage of labor, failure of contractors or suppliers of materials (including fuel), failure of equipment, environmental restrictions, riot, fire. flood, ice, wind, invasion, civil war, commotion, insurrection, military or usurped power, order of any court granted in any bona fide adv·erse legal proceedings or action, or of any civil or military authority either de facto or de jure, explosion, Act of God or the public enemies, or any other cause reasonably beyond its control and not attributable to its neglect. A Party exp<:riencing such a delay or failure to perform shall usc due diligence to remove the cause or causes thereof; however, no Party shall be required to add to, modify or upgrade any facilities, or to settle a strike or labor dispute except when, according to its own best judgment, such action is advisable.

ARTl CLE XI INDUSTRY STANDARDS

11.1 Adherence to Reliability Criteria.

The Parties agree to con form to Industry Standards as they affect the implementation or the Parties' performance of this Agreement.

ARTICLE XIJ GENERAL

12.1 No Third Party Beneficiaries.

This Agreement does not create rights of any character whatsoever in favor of any person, corporation, association, entity or power supplier, other than the Parties, and the obligations herein assumed by the Parties are solely for the usc and benefit of said Parties. Nothing in this Agreement shall be construed as permitting or vesting, or attempting to permit or vest. in any person, corporation, association, entity or power supplier, other than the Parties, any rights hereunder or in any of the resources or facilities owned or controlled by the Parties or the usc thereof.

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9.5 Taxes.

Should any federal. state, or local tax, surcharge or similar assessment, in addition tothose that may now exist, be levied upon the cncrgy dispatched pursuant to the terms of thisAgreement or for the loint Dispatcher's services provided in connection with this Agrecmcnt, orupon either of thc Parties measured by energy or service, or the revenue therefrom, any suchadditional amounts shall bc included in ihe net billing as described in Section 9xk

ARTICLE XFORCE MAJEURE

10.1 Event in ormance.

Neither Party shall bc liable to thc other Party for or on account of any loss, damage,injury, or expense resulting from or arising out of a delay or failure to perform, either in whole orin pan, any of the agrccments or obligations made by or imposed upon the Parties by thisAgreement, by reason of or through strike, work stoppage of labor, failure of contractors orsuppliers of materials (including fuel), failure of equipment, environmental restrictions, riot, fire,flood, icc, wind, invasion, civil war, commotion, insurrection, military or usurped power, orderof any court granted in any bona fide adverse legal procccdings or action, or of any civil ormilitary authority either de facto or de jure, explosion, Act of God or the public enemies, or anyother cause reasonably beyond its control and not attributable to its neglect. A Partycxpcriencing such a delay or failure to perform shall use duc diligencc to remove thc cause orcauses thereof; however, no Party shall be required to add to, modify or upgrade any faciliiies, orto scttlc a strike or labor dispute except when, according to its own best judgment, such action isadvisable.

ARTICLE XlINDUSTRY STANDARDS

11.1 dh r n R 'ah'lit riteria.

The Parties agree to rxinl'orm to Industry Standards as they affect the implementation orthc Parties'erformance of this Agrccment.

ARTICLE XIIGENERAL

12.1 N Third ari Bc c ciari

This Agreement does not create rights of any character whatsoever in favor of anyperson, corporation, association, entity or power supplier, other than the Parties, and thcobligations herein assumed by the Parties are solely for ihe usc and benefit of said Parties.Nothing in this Agreement shall be construed as permitting or vesting, or attempting to permit orvesh in any person, corporation, association, entity or power supplier, other than thc Parties, anyrights hereunder or in any of the resources or facilitics owned or controlled by the Parties or ihcuse thereof.

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Any waiver at any time by a Party of its rights with respect to a default under this Agreement, or with respect to any other matter arising in connection with this Agreement, shall not be deemed a waiver with respect to any subsequent default or matter. Any delay, short of the statutory period of limitation, in asserting or enforcing any right under this Agreement, shall not be deemed a waiver of such right.

12.3 Successors and Assigns.

This Agreement shull Inure to the benefit of and be binding only upon the Parties and their respective successors and assigns, and shall not be assignable by any Party without the written consent of the other Party except to a successor in the operation of its properties by reason of a merger, consolidation, sale or foreclosure whereby substantially all such properties arc acquired by or merged with those of such a successor, subject to all relevant state and fcdcml regulatory approvals.

12.4 Liability and Indemnification.

Subject to any applicable state or fe<leml law which may specifically restrict limitations on liability, each Party shall release, indemnify, and hold harmless the other Party, its directors, officers and employees from and against any and all liability for loss, damage or expense alleged to arise from, or incidental to, injury to persons and/or damage to property in connection with its faci litics or the production or transmission of electric energy by or through such facilities, or related to performance or non-performance of this Agreement, including any negligence arising hereunder. In no event shall any Party be liable to another Party for any indirect, special, incidental or consequential damages with respect to any claim arising out of this Agreement.

12.5 Section Headings.

The descriptive headings of the Articles and Sections of this Agreement arc used for convenience only and shall not modify or restrict any of the terms and provisions thereof.

12.6 ~.

Any notice or demand tbr performance required or permitted under any of the provisions of this Agreement shall be deemed to have been given on the date of such notice, in writing, is deposited in the U.S. mail, postage prepaid, certified or registered mail, addressed to:

Catherine S. Stempien Vice President Legal Duke Energy Corpomtion 550 South Tryon Street Charlotte, NC 28202

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David B. Fountain Vice President - Legal Progress Energy Service Company, LLC 410 S. Wilmington Street Raleigh, NC 2760 I

12.2

~W'ny

waiver ai any time by a Party of its rights with respect to a default under thisAgrccmcnt, or with respect to any other matter arising in connection with this Agreement, shallnot be deemed a waiver with respect to any subsequent default or moner. Any delay, short of thestatutory period of limitation, in asserting or enlorcing any right under this Agreement, shall notbc deemed a waiver of such right.

12 3 httgqg52012301122k22ig02.

This Agreement shall inure to ihe benefit of and be binding only upon the Parties andtheir respective successors and assigns, and shall not be assignablc by any Party without thcwritten consent of the oiher Party except to a successor in thc operation of its properties byreason of a mcrgcr, consolidation, sale or foreclosure whtveby substantially all such propertiesarc acquired by or mcrgcd with those of such a successor, subject to all relevant state and fcdcralregulatory approvals.

12.4 l.iab' an

Subject to any applicable state or 1'ederal law which may specifically restrict limitationson liability, each Party shall release. indemnify, and hold harmlcua the other Party, its dircctots,oft1cers and employccs from and against any and all liability for loss, damage or expense allcgcdto arise from, or incidental to. injury to persons and/or damage to property in oonncction with itsfacilitics or the production or transmission of electric energy by or thmugh such facilititu. orrelated to performance or non-performance of this Agreemcnt, including any negligence arisinghcrcundcr. ln no event shall any Party bc liable to another Party for any indirect, special,incidental or consequential damages with respect to any claim arising out of this Agreement.

12.5 5Kfigtkjjggtjlggs.

Thc descriptiv headings of thc Articles and Sections of this Agreemcnt tuc used forconvenience only and shall not modify or restrict any of the terms and provisions thereof.

12.6

Any notice or demand Ibr pcrformancc required or permitted under any of thc provisionsof this Agrccmcnt shall bc deemed to have been given on thc date of such notice, in writing, is

dtT&osi ted in the U.S. mail, postage prepaid, certified or rcgistercd mail, addressed to:

Caiherinc S. StempicnVice President — LegalDuke Energy Corporation550 South Tryon StreetCharlotte. NC 28202

David B. FountainVice President — l.egalProgress Energy Service Company, LLC410 S. Wilmington StrcctRaleigh. NC 27601

13

form or to such other address as the Parties may stipulate.

14

or in such other finn or to such other address as the Parties may stipulate.

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REGULATORY APPROVAL

13 .I Regulatory Authorization.

This effectiveness of this Agreement is subject to and conditioned upon:

(a) Acceptance for tiling without material condition or modification by the FERC;

{b) The Parties obtaining all nccossary approvals from state regulatory authorities to consummate the Merger and enter into the Agreement, in all cases without material condition or modification.

13.2 Changes.

It is contemplated by the Parties that it may be appropriate from time to time to change, amend, modify or supplement this Agreement to reflect changes in operating practices or costs of operations or for other reasons. Any such changes to this Agreement shall be in writing executed by the Parties, subject to all necessary state and federal regulatory authorizations.

ARTICLE XIV COMPLIANCE WITH

NCUC REGULATORY ORDERS

14.1 DEC and PEC Regulatory Conditions.

In compliance with NCUC regulatory conditions, the Parties agree as follows:

(a) To the extent Joint Dispatch under this Agreement transfers control of, or operational responsibility for, DEC's generation assets used for the generation of electric rower for DEC's North Carolina retail customers, then:

(i) DRC will not commit to or carry out the transfer except in accordance with all applicable law, and the rules, regulations, and orders of the NCUC promulgated thereunder; and

(ii) DEC will not include in its North Carol ina cost of service or rates the value of the transfer, whether or not subject to federal law, except as allowed by the NCUC in accordance with North Carolina law.

(b) To the extent Joint Dispatch under this Agreement transfers control of, or operational responsibility for, PEC's generation assets used for the generation of electric power for PEC's North Carolina retail customers, then:

(i) PEC will not commit to or carry out the transfer except in accordance with all applicable law, and the rules, regulations, and orders of the NCUC promulgated thereunder; and

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ARTICLE XIIIREGULATORY APPROVAL

13.1 Rc ulato Auth rirati n.

This elfectivcncss of this Agrccmcnt is subject to and conditioned upon:

(a) Acceptance for filing without material condition or modification by thc FERC;and

(b) The Parties obtaining all ncccssary approvals from state regulatory authoritics toconsummate the Merger and cntcr inio the Agreement, in all cases without material condition ormodification.

13.2 C~han

lt is contemplated by thc Pmties that it may be appropriate from time to time to change.amend, modify or supplement this Agreement to reflect changes in operating practices or oosts ofoperations or for other reasons. Any such changes to this Agrecmcnt shall be in writing executedby thc parties, subject to all necessary state and federal regulatory authorizations.

ARTICLE XIVCOMPLIANCE WITH

NCUC REGULATORY ORDERS

14.1 'n nit'ncompliance with NCUC regulatory conditions, the Parties agree as follows:

(a) To the extent Joint Dispatch under this Agreement tnmsfers control of, oroperational responsibility for, DL'C's generation assets used fur the gcncration of electric powerI'or DEC's North Carolina retail customers, then:

(i) DFC will not commit to or carry out the transfer except in accordancewith all applicable law, and thc rules, regulations, and orders of thc NCUC promulgatedthereundcfl and

(ii) DL'C will not include in its North Carolina cost of service or rates thevalue ol'hc transfer, whether or not subject to fcdcral law, except as allowed by thcNCUC in accordance with North Carolina law.

(b) To thc extent Joint Dispatch under this Agreement transfers control of, oroperational responsibility for, PEC's generation assets used for the generation of electric powert'or PEC's North Carolina retail customers, then:

(i) PFC will not commit io or carry out the transfer except in accordance withall applicable law, and thc rules, regulations, and orders of'he NCUC promulgatedthcrcunder; and

IS

PEC will not include in its North Carolina cost of service or mtcs the value of the transfer, whether or not subject to federal law, except as allowed by the NCUC in accordance with North Carolina law.

IN WITNESS WllcRF.OF, the Parties have caused this Agreement to be executed and attested by their duly authori£ed officers on the day and year first above written.

DUKE ENERGY CAROLINAS, LLC

By: __ ---:~------­Name: Brett C. Carter Title: President

PROGRESS ENERGY CAROLINAS, INC.

By: __ ~-~------­Namc: Lloyd M. Yates Title: President and Chief Executive Officer

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(ii) PEC will not include in its North Carolina cost of service or rates thc valueof the transfer. v hether or not subject to federal law, except as allowed by th«NCUC inaccordance with North Carolina law.

IN WITNESS WIIERFOF, thc Parties have caused this Agreement to bc cxccuted andattcstcd by their duly authorized ofliccrs on the day and year first above written.

DUKE ENERGY CAROI.INAS, LLC

By:Name: Brett C. CarterTitle: President

PROGRESS ENERGY CAROLINAS, IiNC.

By:Name: Lloyd hh YatcsTitle: President and Chief Executive Ollicer