SF-1/A

As filed with the Securities and Exchange Commission on March 22, 2024

Registration Nos. 333-276553 and 333-276553-01​

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Amendment No. 2
to

FORM SF-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Duke Energy Progress, LLC (Exact name of registrant, sponsor and depositor as specified in its charter)	Duke Energy Progress SC Storm Funding LLC (Exact name of registrant and issuing entity as specified in its charter)
North Carolina (State or other jurisdiction of incorporation or organization)	Delaware (State or other jurisdiction of incorporation or organization)
333-276553 (Commission File Number)	333-276553-01 (Commission File Number)
000017797 (Central Index Key Number)	0002008486 (Central Index Key Number)
56-0165465 (I.R.S. Employer Identification Number)	99-0724467 (I.R.S. Employer Identification Number)
411 Fayetteville Street Raleigh, North Carolina 27601 (704)-382-3853 (Address, including zip code, and telephone number, including area code, of depositor’s principal executive offices)	411 Fayetteville Street Raleigh, North Carolina 27601 (704)-382-3853 (Address, including zip code, and telephone number, including area code, of issuing entity’s principal executive offices)

Robert T. Lucas III
Deputy General Counsel
525 South Tryon Street
Charlotte, North Carolina 28202

(Name, address, including zip code, and telephone number, including area code, of agent for service)

With Copies to:

Michael F. Fitzpatrick, Jr.
Adam R. O’Brian
Hunton Andrews Kurth LLP
200 Park Avenue
New York, NY 10166
(212) 309-1071 Eric D. Tashman
Norton Rose Fulbright US LLP
555 California Street
San Francisco, California 94104
(628) 231-6803

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ☐

The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, MARCH 22, 2024

PRELIMINARY PROSPECTUS

$177,365,000 SERIES A SENIOR SECURED STORM RECOVERY BONDS

DUKE ENERGY PROGRESS, LLC

Sponsor, Depositor and Initial Servicer
Central Index Key Number: 0000017797

DUKE ENERGY PROGRESS SC STORM FUNDING LLC

Issuing Entity
Central Index Key Number: 0002008486

Tranche

Expected Weighted Average Life (Years)

Principal Amount Offered*

Scheduled Final Payment Date

Final Maturity Date

Interest Rate

Initial Price to Public(1)

Underwriting Discounts and Commissions

Proceeds to Issuing Entity (Before Expenses)

A-1

​

​

$

177,365,000

​

​

​

%

​

%

​

%

​

$

*

Preliminary, subject to change

(1)

Interest on the Bonds will accrue from      , 2024. If the bonds are delivered after that date, the purchaser will pay accrued interest.

The total price to the public is $    . The total amount of the underwriting discounts and commissions is $    . The total amount of proceeds to Duke Energy Progress SC Storm Funding LLC before deduction of expenses (estimated to be $    ) is $    .

Duke Energy Progress, LLC or “DEP”, as “depositor”, is offering $177,365,000 of Series A Storm Recovery Bonds, referred to herein as the “Series A Bonds”, “Storm Recovery Bonds” or “bonds”, in one tranche to be issued by Duke Energy Progress SC Storm Funding LLC, referred to herein as “DEP SC Storm Funding”, as the issuing entity. DEP is also the “seller”, initial “servicer” and “sponsor” with regard to the bonds.

The Series A Bonds are senior secured obligations of DEP SC Storm Funding, and are its obligations only. The Series A Senior Secured Storm Recovery Bonds are supported by “storm recovery property”, which consists of all rights and interest of DEP SC Storm Funding under the financing order, including the right to impose, bill, charge, collect and receive nonbypassable charges based on the usage of electricity from DEP’s existing or future retail customers in South Carolina receiving transmission or distribution service, or both. These charges pay principal, interest and expenses of the Series A Bonds and are known as “storm recovery charges” and upon the issuance of the bonds may not be reduced, altered or impaired except as adjusted pursuant to the true-up mechanism described herein. These charges will be paid by all existing or future South Carolina customers receiving transmission or distribution service, or both, from DEP, or its successors or assignees under rate schedules approved by the Public Service Commission of South Carolina, referred to herein as the “PSCSC”, or under special contracts. Storm recovery charges are payable by customers even if the customers elect to purchase electricity from an alternative electricity supplier following a fundamental change in regulation of public utilities in South Carolina. Storm recovery property includes the right to a mandatory true-up mechanism for making any adjustments that are necessary to correct for any overcollection or undercollection of storm recovery charges or to otherwise ensure the timely payment of principal of and interest on the bonds when due and other financing costs and other required amounts and charges payable in connection with the bonds. With respect to the foregoing, interest is due on each payment date and principal is due upon the final maturity date and the PSCSC, except for changes made pursuant to the formula-based adjustment mechanism authorized under in the financing order, may not reduce, alter, or impair storm recovery charges until any and all principal, interest, premium (if any), financing costs and other costs have been paid in full.

The Series A Bonds do not constitute a debt, liability or other obligation of, or interest in, DEP or any of its other affiliates (other than DEP SC Storm Funding). The bonds will not be insured or guaranteed by DEP, including in its capacity as sponsor, depositor, seller or servicer, or by its parent, Duke Energy Corporation, any of their respective affiliates, the indenture trustee or any other person or entity. The Series A Bonds will be nonrecourse obligations, secured only by the collateral. The State of South Carolina, its agencies and instrumentalities, and its political subdivisions are not liable on the bonds and the bonds are not a debt of the State of South Carolina or any of its political subdivisions, agencies or instrumentalities. The bonds are not special obligations or indebtedness of the State, its agencies, or its political subdivisions. The bonds do not directly, indirectly, or contingently obligate the State of South Carolina or its agencies, instrumentalities, or political subdivisions, to levy any tax or make any appropriation for payment of the bonds, other than in their capacities as consumers of electricity.

The bonds will accrue interest from the date of issuance. The bonds are scheduled to pay principal and interest semi-annually as described herein. We will pay interest and principal on the bonds on       and       of each year, beginning on         , 20  . The Series A Bonds are not subject to optional redemption prior to maturity.

The Series A Bonds will be payable only from revenues received by DEP SC Storm Funding under the indenture for the bonds and funds on deposit in trust accounts relating to the bonds. These amounts, together with the storm recovery property, are the source of funds for the payment of principal of and interest on the Series A Bonds. A capital subaccount will hold the depositor’s capital contribution to DEP SC Storm Funding. An excess funds subaccount will hold revenues that are collected but not needed to meet current obligations associated with the Series A Bonds. Credit enhancement for the bonds will be provided by the true-up mechanism, as well as the capital subaccount. The primary purpose of the excess funds subaccount is not to provide credit enhancement for the bonds. However, amounts in the excess funds subaccount may be used to make debt service payments on the bonds when needed.

DEP is the depositor, sponsor, seller and initial servicer with regard to the bonds. DEP is the sole member and owner of DEP SC Storm Funding’s equity interest. DEP SC Storm Funding’s Central Index Key number is 0002008486. DEP’s Central Index Key number is 0000017797.

Investing in the Series A Bonds involves risks. See “Risk Factors” beginning on page 23 to read about factors you should consider before buying the Series A Bonds.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The Series A Bonds will be ready for delivery in book-entry form through the facilities of The Depository Trust Company against payment in New York, New York on or about     , 2024.

Joint Book-Running Managers

Goldman Sachs & Co. LLC RBC Capital Markets

The date of this prospectus is           , 2024

TABLE OF CONTENTS

ABOUT THIS PROSPECTUS	1
OFFERING RESTRICTIONS IN CERTAIN JURISDICTIONS	2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS	5
PROSPECTUS SUMMARY	7
SUMMARY OF RISK FACTORS	21
RISK FACTORS	23
DEP’S REVIEW OF STORM RECOVERY PROPERTY	40
THE STORM RECOVERY PROPERTY AND THE FINANCING ACT	43
DEP’S FINANCING ORDER	48
THE ISSUING ENTITY	51
RELATIONSHIP TO 2021 NC STORM RECOVERY BONDS	57
DUKE ENERGY PROGRESS, LLC	58
DESCRIPTION OF THE STORM RECOVERY BONDS	64
THE INDENTURE TRUSTEE	86
SECURITY FOR THE STORM RECOVERY BONDS	89
WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS FOR THE BONDS	96
ESTIMATED ANNUAL FEES AND EXPENSES	98
THE SALE AGREEMENT	99
THE SERVICING AGREEMENT	109
INTERCREDITOR AGREEMENTS	119
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES	120
STATE AND OTHER TAX CONSEQUENCES	124
ERISA CONSIDERATIONS	125
BANKRUPTCY AND CREDITORS’ RIGHTS ISSUES	129
USE OF PROCEEDS	133
PLAN OF DISTRIBUTION	134
AFFILIATIONS AND CERTAIN RELATIONSHIPS	136
LEGAL PROCEEDINGS	137
RATINGS	138
INVESTMENT COMPANY ACT OF 1940 AND VOLCKER RULE MATTERS	139
RISK RETENTION	140
WHERE YOU CAN FIND MORE INFORMATION	141
INCORPORATION BY REFERENCE	142
LEGAL MATTERS	143
GLOSSARY	144

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ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement filed with the Securities and Exchange Commission, or “SEC”. This prospectus provides you with a description of the Series A Senior Secured Storm Recovery Bonds being offered. You should carefully review this prospectus and the information, if any, contained in the documents referenced in this prospectus under the heading “Where You Can Find More Information.”

References in this prospectus to “we”, “us”, “our”, the “issuing entity” or “DEP SC Storm Funding” means Duke Energy Progress SC Storm Funding LLC. References to “DEP”, the “depositor” or the “sponsor” refer to Duke Energy Progress, LLC or to any successor thereto. References to the “servicer” are to DEP, and any successor servicer under the servicing agreement described in this prospectus. References to the “seller” mean DEP or any successor under the sale agreement described in this prospectus. References to the “administrator” mean DEP, or any successor or assignee under the administration agreement described in this prospectus. References to the PSCSC are to the Public Service Commission of South Carolina. References to the “Financing Act” are to Sections 58-27-1110 through 1180, South Carolina Code of Laws Annotated (“SC Code of Laws Annotated”). Unless the context otherwise requires, the term “customer” means all existing or future customers receiving transmission or distribution service, or both, from DEP or its successors or assignees under PSCSC-approved rate schedules or under special contracts, even if a customer elects to purchase electricity from an alternative electricity supplier following a fundamental change in regulation of public utilities in South Carolina. References to a “financing order”, unless the context indicates otherwise, are to the irrevocable financing order, dated October 13, 2023, issued by the PSCSC to DEP, as amended on October 23, 2023. You can find a glossary of some of the other defined terms used in this prospectus on page 144 of this prospectus.

We have included cross-references to sections in this prospectus to allow you to find further related discussions. You can also find key topics in the table of contents on the preceding pages. Check the table of contents to locate these sections.

You should rely only on the information contained or incorporated by reference in this prospectus. Neither we nor the depositor has authorized anyone else to provide you with any different information. If anyone provides you with different or inconsistent information, you should not rely on it. The bonds are not being offered in any jurisdiction where the offer or sale is not permitted. The information in this prospectus is current only as of the date of this prospectus.

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OFFERING RESTRICTIONS IN CERTAIN JURISDICTIONS

NOTICE TO RESIDENTS OF THE EUROPEAN ECONOMIC AREA

THE BONDS ARE NOT INTENDED TO BE OFFERED, SOLD OR OTHERWISE MADE AVAILABLE TO, AND SHOULD NOT BE OFFERED, SOLD OR OTHERWISE MADE AVAILABLE TO, ANY RETAIL INVESTOR IN THE EUROPEAN ECONOMIC AREA (“EEA”). FOR THESE PURPOSES, THE EXPRESSION “RETAIL INVESTOR” MEANS A PERSON WHO IS ONE (OR MORE) OF THE FOLLOWING: (1) A RETAIL CLIENT AS DEFINED IN POINT (11) OF ARTICLE 4(1) OF DIRECTIVE 2014/65/EU (AS AMENDED, “MIFID II”); (2) A CUSTOMER WITHIN THE MEANING OF DIRECTIVE (EU) 2016/97 (AS AMENDED), WHERE THAT CUSTOMER WOULD NOT QUALIFY AS A PROFESSIONAL CLIENT AS DEFINED IN POINT (10) OF ARTICLE 4(1) OF MIFID II; OR (3) NOT A QUALIFIED INVESTOR (“QUALIFIED INVESTOR”) WITHIN THE MEANING OF REGULATION 2017/1129 (AS AMENDED, THE “PROSPECTUS REGULATION”). CONSEQUENTLY NO KEY INFORMATION DOCUMENT REQUIRED BY REGULATION (EU) NO 1286/2014 (AS AMENDED, THE “PRIIPS REGULATION”) FOR OFFERING OR SELLING THE BONDS OR OTHERWISE MAKING THEM AVAILABLE TO RETAIL INVESTORS IN THE EEA HAS BEEN PREPARED; AND THEREFORE OFFERING OR SELLING THE BONDS OR OTHERWISE MAKING THEM AVAILABLE TO ANY RETAIL INVESTOR IN THE EEA MAY BE UNLAWFUL UNDER THE PRIIPS REGULATION.

THIS PROSPECTUS IS NOT A PROSPECTUS FOR PURPOSES OF THE PROSPECTUS REGULATION. THIS PROSPECTUS HAS BEEN PREPARED ON THE BASIS THAT ANY OFFER OF BONDS IN ANY MEMBER STATE OF THE EEA (EACH, A “RELEVANT STATE”) WILL BE MADE ONLY PURSUANT TO AN EXEMPTION UNDER THE PROSPECTUS REGULATION FROM THE REQUIREMENT TO PUBLISH A PROSPECTUS FOR OFFERS OF BONDS. ACCORDINGLY, ANY PERSON MAKING OR INTENDING TO MAKE AN OFFER IN THAT RELEVANT STATE OF BONDS WHICH ARE THE SUBJECT OF THE OFFERING CONTEMPLATED IN THIS PROSPECTUS MAY ONLY DO SO IN CIRCUMSTANCES IN WHICH NO OBLIGATION ARISES FOR THE ISSUING ENTITY OR ANY OF THE UNDERWRITERS TO PUBLISH A PROSPECTUS PURSUANT TO ARTICLE 3 OF THE PROSPECTUS REGULATION, IN RELATION TO SUCH OFFER. NEITHER THE ISSUING ENTITY NOR ANY UNDERWRITER HAVE AUTHORISED, NOR DO THEY AUTHORISE, THE MAKING OF ANY OFFER OF BONDS IN CIRCUMSTANCES IN WHICH AN OBLIGATION ARISES FOR THE ISSUING ENTITY OR ANY OF THE UNDERWRITERS TO PUBLISH A PROSPECTUS FOR SUCH OFFER.

ACCORDINGLY, ANY PERSON MAKING OR INTENDING TO MAKE AN OFFER IN THAT RELEVANT MEMBER STATE OF BONDS WHICH ARE THE SUBJECT OF THE OFFERING CONTEMPLATED IN THIS PROSPECTUS MAY DO SO ONLY WITH RESPECT TO QUALIFIED INVESTORS. NEITHER WE NOR ANY UNDERWRITER HAS AUTHORIZED, NOR DO WE OR THEY AUTHORIZE, THE MAKING OF ANY OFFER OF BONDS OTHER THAN TO QUALIFIED INVESTORS.

ANY DISTRIBUTOR SUBJECT TO MIFID II THAT IS OFFERING, SELLING OR RECOMMENDING THE BONDS IS RESPONSIBLE FOR UNDERTAKING ITS OWN TARGET MARKET ASSESSMENT IN RESPECT OF THE BONDS AND DETERMINING ITS OWN DISTRIBUTION CHANNELS FOR THE PURPOSES OF THE MIFID II PRODUCT GOVERNANCE RULES UNDER COMMISSION DELEGATED DIRECTIVE (EU) 2017/593 (AS AMENDED, THE “DELEGATED DIRECTIVE”). NEITHER WE NOR ANY UNDERWRITER MAKES ANY REPRESENTATIONS OR WARRANTIES AS TO A DISTRIBUTOR’S COMPLIANCE WITH THE DELEGATED DIRECTIVE.

EACH UNDERWRITER HAS REPRESENTED AND AGREED THAT IT HAS NOT OFFERED, SOLD OR OTHERWISE MADE AVAILABLE, AND WILL NOT OFFER, SELL OR OTHERWISE MAKE AVAILABLE, ANY BONDS WHICH ARE THE SUBJECT OF THE OFFERING CONTEMPLATED BY THIS PROSPECTUS TO ANY RETAIL INVESTOR (AS DEFINED ABOVE) IN THE EEA. FOR THIS PURPOSE, THE EXPRESSION OFFER INCLUDES THE COMMUNICATION IN ANY FORM AND BY ANY MEANS OF SUFFICIENT INFORMATION

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ON THE TERMS OF THE OFFER AND THE BONDS SO AS TO ENABLE AN INVESTOR TO DECIDE TO PURCHASE OR SUBSCRIBE FOR THE BONDS.

NOTICE TO RESIDENTS OF UNITED KINGDOM

THE BONDS ARE NOT INTENDED TO BE OFFERED, SOLD OR OTHERWISE MADE AVAILABLE TO AND SHOULD NOT BE OFFERED, SOLD OR OTHERWISE MADE AVAILABLE TO ANY RETAIL INVESTOR IN THE UNITED KINGDOM (“UK”). FOR THE PURPOSES OF THIS PROVISION:

(A)   THE EXPRESSION “RETAIL INVESTOR” MEANS A PERSON WHO IS ONE (OR MORE) OF THE FOLLOWING:

(I)   A RETAIL CLIENT AS DEFINED IN POINT (8) OF ARTICLE 2 OF REGULATION (EU) NO 2017/565 AS IT FORMS PART OF DOMESTIC LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018 (“EUWA”); OR

(II)   A CUSTOMER WITHIN THE MEANING OF THE PROVISIONS OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (AS AMENDED, THE “FSMA”) OF THE UNITED KINGDOM AND ANY RULES OR REGULATIONS MADE UNDER THE FSMA TO IMPLEMENT DIRECTIVE (EU) 2016/97, WHERE THAT CUSTOMER WOULD NOT QUALIFY AS A PROFESSIONAL CLIENT, AS DEFINED IN POINT (8) OF ARTICLE 2(1) OF REGULATION (EU) NO 600/2014 AS IT FORMS PART OF DOMESTIC LAW BY VIRTUE OF THE EUWA; OR

(III)   NOT A QUALIFIED INVESTOR AS DEFINED IN ARTICLE 2 OF THE PROSPECTUS REGULATION AS IT FORMS PART OF DOMESTIC LAW BY VIRTUE OF THE EUWA (THE “UK PROSPECTUS REGULATION”); AND

(B)   THE EXPRESSION “OFFER” INCLUDES THE COMMUNICATION IN ANY FORM AND BY ANY MEANS OF SUFFICIENT INFORMATION ON THE TERMS OF THE OFFER AND THE BONDS TO BE OFFERED SO AS TO ENABLE AN INVESTOR TO DECIDE TO PURCHASE OR SUBSCRIBE FOR THE BONDS.

CONSEQUENTLY, NO KEY INFORMATION DOCUMENT REQUIRED BY REGULATION (EU) NO 1286/2014 AS IT FORMS PART OF DOMESTIC LAW BY VIRTUE OF THE EUWA (THE “UK PRIIPS REGULATION”) FOR OFFERING OR SELLING THE BONDS OR OTHERWISE MAKING THEM AVAILABLE TO RETAIL INVESTORS IN THE UK HAS BEEN PREPARED AND THEREFORE OFFERING OR SELLING THE BONDS OR OTHERWISE MAKING THEM AVAILABLE TO ANY RETAIL INVESTOR IN THE UK MAY BE UNLAWFUL UNDER THE UK PRIIPS REGULATION. THIS PROSPECTUS HAS BEEN PREPARED ON THE BASIS THAT ANY OFFER OF BONDS IN THE UK WILL BE MADE PURSUANT TO AN EXEMPTION UNDER THE UK PROSPECTUS REGULATION FROM THE REQUIREMENT TO PUBLISH A PROSPECTUS FOR OFFERS OF BONDS. THIS IS NOT A PROSPECTUS FOR THE PURPOSES OF THE UK PROSPECTUS REGULATION.

THIS PROSPECTUS AND ANY OTHER MATERIAL IN RELATION TO THE BONDS IS ONLY BEING DISTRIBUTED TO, AND IS DIRECTED ONLY AT, PERSONS IN THE UK WHO ARE “QUALIFIED INVESTORS” ​(AS DEFINED IN THE UK PROSPECTUS REGULATION WHO ARE ALSO (I) INVESTMENT PROFESSIONALS FALLING WITHIN ARTICLE 19(5) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005 (AS AMENDED, THE “ORDER”), OR (II) HIGH NET WORTH ENTITIES OR OTHER PERSONS FALLING WITHIN ARTICLES 49(2)(A) TO (D) OF THE ORDER, OR (III) PERSONS TO WHOM IT WOULD OTHERWISE BE LAWFUL TO DISTRIBUTE IT, ALL SUCH PERSONS TOGETHER BEING REFERRED TO AS “RELEVANT PERSONS”. THE BONDS ARE ONLY AVAILABLE TO, AND ANY INVITATION, OFFER OR AGREEMENT TO SUBSCRIBE, PURCHASE OR OTHERWISE ACQUIRE SUCH BONDS WILL BE ENGAGED IN ONLY WITH, RELEVANT PERSONS. THIS PROSPECTUS AND ITS CONTENTS ARE CONFIDENTIAL AND SHOULD NOT BE DISTRIBUTED, PUBLISHED OR REPRODUCED (IN WHOLE OR IN PART) OR DISCLOSED BY

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ANY RECIPIENTS TO ANY OTHER PERSON IN THE UK. ANY PERSON IN THE UK THAT IS NOT A RELEVANT PERSON SHOULD NOT ACT OR RELY ON THIS PROSPECTUS OR ITS CONTENTS. THE BONDS ARE NOT BEING OFFERED TO THE PUBLIC IN THE UK.

IN ADDITION, IN THE UK, EACH UNDERWRITER HAS REPRESENTED AND AGREED IN THE UNDERWRITING AGREEMENT THAT THE BONDS MAY NOT BE OFFERED OTHER THAN BY AN UNDERWRITER THAT:

•

HAS ONLY COMMUNICATED OR CAUSED TO BE COMMUNICATED AND WILL ONLY COMMUNICATE OR CAUSE TO BE COMMUNICATED AN INVITATION OR INDUCEMENT TO ENGAGE IN INVESTMENT ACTIVITY (WITHIN THE MEANING OF SECTION 21 OF THE FSMA) RECEIVED BY IT IN CONNECTION WITH THE ISSUE OR SALE OF THE BONDS IN CIRCUMSTANCES IN WHICH SECTION 21(1) OF THE FSMA DOES NOT APPLY TO US; AND

•

HAS COMPLIED AND WILL COMPLY WITH ALL APPLICABLE PROVISIONS OF THE FSMA WITH RESPECT TO ANYTHING DONE BY IT IN RELATION TO THE BONDS IN, FROM OR OTHERWISE INVOLVING THE UK.

NOTICE TO RESIDENTS OF CANADA

THE BONDS MAY BE SOLD IN THE PROVINCES OF ALBERTA, BRITISH COLUMBIA AND ONTARIO ONLY TO PURCHASERS PURCHASING, OR DEEMED TO BE PURCHASING, AS PRINCIPAL THAT ARE ACCREDITED INVESTORS, AS DEFINED IN NATIONAL INSTRUMENT 45-106 PROSPECTUS EXEMPTIONS OR SUBSECTION 73.3(1) OF THE SECURITIES ACT (ONTARIO), AND ARE PERMITTED CLIENTS, AS DEFINED IN NATIONAL INSTRUMENT 31-103 REGISTRATION REQUIREMENTS, EXEMPTIONS AND ONGOING REGISTRANT OBLIGATIONS. ANY RESALE OF THE BONDS MUST BE MADE IN ACCORDANCE WITH AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE PROSPECTUS REQUIREMENTS OF APPLICABLE SECURITIES LAWS.

SECURITIES LEGISLATION IN CERTAIN PROVINCES OR TERRITORIES OF CANADA MAY PROVIDE A PURCHASER WITH REMEDIES FOR RESCISSION OR DAMAGES IF THIS PROSPECTUS (INCLUDING ANY AMENDMENT THERETO) CONTAINS A MISREPRESENTATION, PROVIDED THAT THE REMEDIES FOR RESCISSION OR DAMAGES ARE EXERCISED BY THE PURCHASER WITHIN THE TIME LIMIT PRESCRIBED BY THE SECURITIES LEGISLATION OF THE PURCHASER’S PROVINCE OR TERRITORY. THE PURCHASER SHOULD REFER TO ANY APPLICABLE PROVISIONS OF THE SECURITIES LEGISLATION OF THE PURCHASER’S PROVINCE OR TERRITORY FOR PARTICULARS OF THESE RIGHTS OR CONSULT WITH A LEGAL ADVISOR.

PURSUANT TO SECTION 3A.3 OF NATIONAL INSTRUMENT 33-105 UNDERWRITING CONFLICTS (NI 33-105), THE UNDERWRITERS ARE NOT REQUIRED TO COMPLY WITH THE DISCLOSURE REQUIREMENTS OF NI 33-105 REGARDING UNDERWRITER CONFLICTS OF INTEREST IN CONNECTION WITH THIS OFFERING.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements, including regarding expectations, estimates and projections about the electric consumption of customers, DEP’s ability to service the storm recovery property and collect the storm recovery charges, the issuing entity’s ability to pay back the bonds, and the PSCSC’s adherence to the South Carolina state pledge to protect the right of bondholders. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events of performance (often, but not always, through the use of words or phrases such as “will,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “believe,” “could,” “should,” “estimated,” “may,” “plan,” “potential,” “projection,” “target,” “outlook,” “is designed to,” or “intended”) are not statements of historical facts and may be forward-looking. Forward-looking statements involve estimates, assumptions and uncertainties. Accordingly, any such statements are qualified in their entirety by reference to important factors included in “Risk Factors” ​(in addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements) that could have a significant impact on financial results, and could cause actual results to differ materially from those contained in forward-looking statements made by or on behalf of us or DEP, in this prospectus, in presentations, on websites, in response to questions or otherwise.

The following are some factors, among others, that could cause actual results to differ materially from those expressed or implied by forward looking statements in this prospectus:

•

State and federal legislative and regulatory initiatives, including cost of compliance with existing and future environmental requirements, including those related to climate change, as well as rulings that affect cost and investment and investment recovery or have an impact on rate structures or market prices;

•

the accuracy of the servicer’s estimates of future demand and prices for energy;

•

the impact of extraordinary external events, such as the pandemic health event resulting from COVID-19, and their collateral consequences, including the disruption of global supply chains or the economic activity in our service territory and the influence of weather and other natural phenomena affecting electric customer energy usage in the service territory, including the economic, operational and other effects of severe storms, hurricanes, droughts and tornadoes, including extreme weather associated with climate change; costs and effects of legal and administrative proceedings, settlements, investigations and claims;

•

industrial, commercial and residential growth or decline in service territory or customer bases resulting from sustained downturns of the economy and the economic health of our service territory or variations in customer usage patterns, including energy efficiency efforts and use of alternative energy sources, such as self-generation and distributed generation technologies;

•

federal and state regulations, laws and other efforts designed to promote and expand the use of energy efficiency measures and distributed generation technologies, such as private solar and battery storage, in DEP service territory could result in customers leaving the electric distribution system, excess generation resources as well as stranded costs;

•

advancements in technology;

•

additional competition in electric markets and continued industry consolidation;

•

the ability to successfully operate electric generating facilities and deliver electricity to customers including direct or indirect effects to DEP resulting from an incident that affects the United States electric grid or generating resources;

•

the impact on our facilities and business from a terrorist or other attack, war, vandalism, cybersecurity threats, data security breaches, operational events, information technology failures or other catastrophic events, such as fires, explosions, pandemic health events or other similar occurrences;

•

the accuracy of the servicer’s forecast of energy consumption;

•

the accuracy of the servicer’s estimates of the customer payment patterns, including the rate of delinquencies and any collections curves;

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•

the reliability of the systems, procedures and other infrastructure necessary to operate the electric business in the service territory; and

•

other factors discussed in this prospectus and any of our subsequent SEC filings.

You should not place undue reliance on forward looking statements. Each forward-looking statement speaks only as of the date on which such statement is made, and, except to the extent required by law, the depositor does not undertake any obligation to update any forward-looking statement to reflect events or circumstances, including unanticipated events, after the date on which such statement is made. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

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PROSPECTUS SUMMARY

This summary highlights some information from this prospectus. Because this is a summary, it does not contain all of the information that may be important to you. You should read this prospectus in its entirety before you buy the bonds.

You should carefully consider the Risk Factors beginning on page 23 of this prospectus before you invest in the bonds

Securities offered:

Series A Senior Secured Storm Recovery Bonds of Duke Energy Progress SC Storm Funding LLC, as listed on the cover page of this prospectus (collectively, the “Series A Bonds”), beginning on the Initial Payment Date, we will pay interest semi-annually and principal semi-annually in accordance with the sinking fund schedule described in this prospectus.

Issuing entity and Capital
Structure:

Duke Energy Progress SC Storm Funding LLC is a special purpose subsidiary of DEP, organized as a Delaware limited liability company. DEP is our sole member and owns all of our equity interests. The issuing entity has no commercial operations. We were formed for the limited purpose of purchasing, owning and administering storm recovery property, issuing storm recovery bonds from time to time (including the Series A Bonds) and performing activities incidental thereto to finance certain activities of DEP related to the recovery of storm recovery costs. These are the first storm recovery bonds which DEP SC Storm Funding has issued. We may issue additional storm recovery bonds, but only under a new and separate financing order and a new indenture.

The issuing entity will be capitalized with an upfront cash deposit by DEP of 0.50% of the bonds’ principal amount issued (to be held in the capital subaccount) and will establish an excess funds subaccount to retain, until the next payment date, any amounts collected and remaining after all scheduled payments due on such payment date for the bonds have been made.

Our address and phone number are as follows: 411 Fayetteville Street Raleigh, North Carolina 27601, 704-382-3853.

Federal Income Tax Status:

The bonds will be treated as debt of DEP for U.S. federal income tax purposes. See “Material U.S. Federal Income Tax Consequences” in this prospectus. For federal income tax purposes, DEP will not recognize gross income unless and until DEP bills customers for the storm recovery charges and only in connection with such billing of customers for such storm recovery charges.

The depositor, sponsor, seller and
initial servicer of the bonds:

DEP is a regulated public utility primarily engaged in the generation, transmission, distribution, and sale of electricity in portions of North Carolina and South Carolina. DEP’s service area covers approximately 29,000 square miles across North Carolina and South Carolina. DEP supplies electric service to approximately 1.7 million residential, commercial and industrial customers, approximately 187,000 of these customers are in the northeastern part of South Carolina including Florence, Darlington, and Sumter counties. During the year ended December 31, 2023, DEP billed approximately 5.7 billion kilowatt hours of electricity to its electric customers in South Carolina, resulting in revenues of approximately $628 million.

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DEP’s retail rates payable by its South Carolina customers are regulated by PSCSC. The storm recovery charges will only be imposed on DEP’s customers in South Carolina.

The address and phone number of DEP are as follows: 411 Fayetteville Street, Raleigh, North Carolina 27601. DEP’s telephone number is 704-382-3853.

DEP is an indirect, wholly owned subsidiary of Duke Energy Corporation. DEP, as initial servicer, will bill and collect storm recovery charges and will remit storm recovery charge collections daily to the indenture trustee according to the terms of the servicing agreement. Neither DEP nor Duke Energy Corporation nor any other affiliate (other than us) is an obligor of the bonds. The bonds will not be insured or guaranteed by DEP, including in its capacity as sponsor, depositor, seller or servicer, or by its parent, Duke Energy Corporation, any of their respective affiliates, the indenture trustee or any other person or entity. There are currently no other retail electric providers operating in DEP’s South Carolina service territory. See “The Servicing Agreement” in this prospectus.

DEP, as initial servicer, will be entitled to receive an annual servicing fee in an amount equal to 0.05% of the aggregate initial principal amount of the bonds plus reasonable out-of-pocket expenses under the caption “The Servicing Agreement” in this prospectus. This servicing fee will be payable in equal installments on each semi-annual payment date, in arrears.

The indenture trustee will pay the servicing fee (together with any portion of the servicing fee that remains unpaid from prior payment dates) to the extent of available funds prior to the distribution of any interest on and principal of the bonds.

DEP, as administrator, will be entitled to receive an annual administration fee equal to $50,000 plus out-of-pocket expenses as further described herein under the caption “The Issuing Entity —  The Administration Agreement.” This annual administration fee will be payable annually, in arrears. The indenture trustee will pay the administration fee (together with any portion of the administration fee that remains unpaid from prior payment dates) to the extent of available funds prior to the distribution of any interest on and principal of the bonds.

Our relationship with DEP:

On the issue date for the Series A Bonds, DEP will sell storm recovery property to us pursuant to a sale agreement between us and DEP. DEP will service the storm recovery property pursuant to a servicing agreement between us and DEP. See “The Sale Agreement” and “The Servicing Agreement” in this prospectus.

Neither the bonds nor the property securing the bonds is an obligation of DEP or any of its affiliates, except for us.

The issuing entity’s relationship
with the PSCSC:

The issuing entity is responsible to the PSCSC, as provided in its organizational documents and the basic documents. Please read “The Issuing Entity” in this prospectus.

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Our managers:

The following is a list of our managers as of the date of this prospectus:

Name	Age	Title	Background
Karl W. Newlin	55	Manager	Karl W. Newlin has been Senior Vice President Corporate Development at Duke Energy Corporation since June 2018 and has been its Treasurer since November 2018. Prior to that, Mr. Newlin was Senior Vice President and Chief Commercial Officer — Natural Gas effective with the merger of Duke Energy Corporation and Piedmont Natural Gas Company, Inc. (“Piedmont”) in October 2016. Mr. Newlin joined Piedmont in 2010 to manage its strategic planning functions, new business development activities and joint venture investments. Mr. Newlin previously served as Managing Director, Investment Banking with Merrill Lynch & Co. in its New York and Los Angeles offices.
Cynthia S. Lee	57	Manager	Manager Cynthia S. Lee was appointed Vice President, Chief Accounting Officer and Controller of Duke Energy Corporation, effective May 2021. Prior to that, Ms. Lee served as Director, Investor Relations since June 2019 and in various accounting roles since joining Duke Energy Corporation in 2002.
Bernard J. Angelo	54	Independent Manager	Mr. Angelo joined Global Securitization Service, LLC in April 1997 and has extensive experience in managing commercial paper and medium term note programs. In addition to his administrative skills, he has over twenty-six years of experience in both the

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business and legal side of structured finance. He has been elected to and serves on the board of directors for a number of securitization programs.

At Global Securitization, Mr. Angelo has been active in assisting clients and their legal counsel during the structuring phase of their transactions as well as assimilating bank sponsored commercial paper programs into the operating matrix at Global Securitization.

Prior to joining Global Securitization, Mr. Angelo was an Assistant Vice President at Bankers Trust Company from January 1993 to April 1997 where he was responsible for oversight of the treasury and accounting functions on the Corporate Trust side of structured transactions managed by the bank. He has a B.S. in Finance from Siena College.

Credit ratings:

The bonds are expected to receive credit ratings from at least two nationally recognized statistical rating organizations. Please read “Ratings” in this prospectus.

Bond structure:

Sinking fund bonds: expected weighted average life    years. The bonds are scheduled to pay principal semi-annually. See “Weighted Average Life and Yield Considerations for the Bonds” in this prospectus.

Average life profile:

Stable, meaning prepayment is not permitted and the aggregate payments of principal of and interest on the bonds and the timing of such payments are not expected to change materially over the life of the bonds under the stress cases analyzed under the heading “Weighted Average Life and Yield Considerations for the Bonds — Weighted Average Life Sensitivity” in this prospectus.

Optional redemption:

No optional redemption. Non-callable for the life of the bonds.

Payment dates and interest
accrual:

Semi-annually,      and     . Interest will be calculated on a 30/360 basis. The first scheduled payment date is          , 202    (the “Initial Payment Date”).

Interest is due on each payment date for the Series A Bonds, and principal is due upon the final maturity date. Failure to pay the entire outstanding principal amount by the final maturity date will result in an event of default. See “Description of the Storm Recovery

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Bonds — Interest Payments Generally”, “— Principal Payments” and “— Events of Default; Rights Upon Event of Default” in this prospectus.

Tranche Scheduled Final
Payment Date Final Maturity
Date

Indenture trustee:

U.S. Bank Trust Company, National Association will act as indenture trustee under the indenture pursuant to which the bonds will be issued (the “indenture”). Please read “The Indenture Trustee” in this prospectus for a description of the trustee’s duties and responsibilities under the indenture.

Minimum denominations of the
bonds:

$2,000 and integral multiples of $1,000 in excess thereof, except for one bond, which may be of a smaller denomination.

Use of proceeds:

The issuing entity will use the proceeds of the offering to (i) purchase the storm recovery property relating to the bonds from DEP, who in turn will use the proceeds it receives from the sale of the storm recovery property to pay down a portion of its outstanding short-term debt that are intercompany moneypool borrowings which were funded by either commercial paper issued by Duke Energy Corporation or excess cash held by other utility operating companies and (ii) pay upfront bond issuance costs.

Background of transaction and
the enabling legislation, the
Financing Act:

In 2022, the South Carolina legislature enacted the “Financing Act”, codified as Sections 58-27-1110 through 1180, SC Code of Laws Annotated. The Financing Act allows public utilities to access lower-cost funds through storm recovery bonds pursuant to financing orders issued by the PSCSC.

The Financing Act permits the PSCSC to impose nonbypassable storm recovery charges on all existing or future customers receiving transmission or distribution service, or both, from DEP or its successors or assignees under PSCSC-approved rate schedules or under special contracts sufficient to pay principal of and interest on the bonds and other administrative expenses of the offering. The PSCSC governs the amount and terms for collections of these storm recovery charges through one or more financing orders issued to PSCSC and upon the issuance of the bonds these storm recovery charges may not be reduced, impaired, postponed, terminated or otherwise adjusted by the PSCSC except as adjusted pursuant to the true-up mechanism described herein.

Storm recovery charges
are nonbypassable by
customers:

The storm recovery charges are nonbypassable, consumption-based charges separate and apart from DEP’s base rates; the storm recovery charges are to be paid by all existing or future customers receiving transmission or distribution service, or both, from DEP or its successors or assignees under PSCSC-approved rate schedules or under special contracts. Such customers must pay storm recovery charges even if a customer elects to purchase electricity from an

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alternative electric supplier following a fundamental change in regulation of public utilities in South Carolina.

See “DEP’s Financing Order — Storm Recovery Charges” in this prospectus.

Relationship to 2021 NC Storm Recovery Bonds:

In November 2021, Duke Energy Progress NC Storm Funding LLC, a special purpose wholly-owned subsidiary of DEP, issued $769.6 million aggregate principal amount of senior secured storm recovery bonds (the “2021 NC Storm Recovery Bonds”) pursuant to Section 62-172, North Carolina General Statutes, to reimburse itself for the North Carolina portion of previously incurred storm recovery costs relating to Hurricanes Florence, Michael and Dorian and Winter Storm Diego, including the retirement of related debt. DEP currently acts as servicer with respect to the 2021 NC Storm Recovery Bonds. The 2021 NC Storm Recovery Bonds were issued by a separate issuing entity, are secured by a separate storm recovery property and were issued pursuant to a separate financing order under a different statute in a different state.

Bondholders will have no recourse to the charges associated with the 2021 NC Storm Recovery Bonds and holders of the 2021 NC Storm Recovery Bonds will have no recourse to the storm recovery charges.

Initial storm recovery
charge as a percentage of
customer’s total electricity
bill:

The initial storm recovery charge is expected to represent approximately    % of the total bill, as of                  , received by 1,000 kWh South Carolina residential customer of DEP.

South Carolina state pledge to
protect bondholder rights:

The State of South Carolina, and its agencies, including the PSCSC, have pledged to and agreed with the bondholders that it will not:

•

alter the provisions of the Financing Act, which authorizes the PSCSC to create an irrevocable contract right or chose in action by the issuance of a financing order, to create storm recovery property, and make the storm recovery charges imposed by the financing order irrevocable, binding, and nonbypassable charges;

•

take or permit any action that impairs or would impair the value of storm recovery property or the security for the storm recovery bonds or revises the storm recovery costs for which recovery is authorized;

•

in any way impair the rights and remedies of bondholders, assignees, and other financing parties; or,

•

except for changes made pursuant to the formula-based adjustment mechanism authorized under the Financing Act, reduce, alter, or impair storm recovery charges that are to be imposed, billed, charged collected, and remitted for the benefit of the bondholders, any assignee and any other financing parties until any and all principal, interest, premium, financing costs and other fees, expenses, or charges incurred, and any

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contracts to be performed in connection with the storm recovery bonds, have been paid and performed in full.

Nothing in this pledge will preclude limitation or alteration if full compensation is made by law for the full protection of the storm recovery charges collected pursuant to a financing order and of the bondholders and any assignee or financing party entering into a contract with the electric utility. Please read “Risk Factors — Risks Associated with Potential Judicial, Legislative or Regulatory Actions — Future South Carolina legislative action might attempt to invalidate the bonds or the storm recovery property” in this prospectus.

This agreement is referred to as the “state pledge”.

The bonds will not be a debt or general obligation of the PSCSC, the State of South Carolina, or any of its political subdivisions, agencies, or instrumentalities, and are not a charge on the full faith and credit or taxing power of the State of South Carolina or any other governmental agency, instrumentality or political subdivision.

PSCSC mandates statutory
true-up adjustments to the
storm recovery charges:

The Financing Act permits and the financing order requires that we, or DEP, file with the PSCSC at least semi-annually (or beginning twelve months prior to the scheduled final payment date, at least quarterly) a letter applying the true-up mechanism to be reviewed by the PSCSC for any mathematical or clerical errors to correct for any overcollection or undercollection of the storm recovery charges and make any adjustments to ensure the recovery of revenues sufficient to provide for the timely payment of scheduled principal of and interest on the bonds and other required amounts and charges payable in connection with the bonds (such amounts, the “periodic payment requirement”). In addition to the semi-annual true-up adjustment, the servicer is authorized to make interim adjustments at any time for any reason to ensure the timely payment of the periodic payment requirement.

There is no limit or cap on level
of storm recovery charges:

Under the financing order, DEP, as initial servicer, will impose on and collect from its existing or future retail customers in South Carolina receiving transmission or distribution service, or both, even if such customer elects to purchase electricity from an alternative supplier, Storm Recovery Charges in an amount sufficient to provide for the timely payment of principal of and interest on the bonds when due and other financing costs payable in connection with the bonds. See “Description of the Storm Recovery Bonds — Events of Default; Rights Upon Event of Default” in this prospectus.

Credit/security for the bonds:

The bonds are secured by storm recovery property, by funds on deposit in the collection account, including the general subaccount, the capital subaccount and the excess funds subaccount, by our rights under the various transaction documents, by our right to compel the servicer to file for and obtain true-up adjustments, and by all payments on or under the pledged collateral and by all proceeds in respect to the pledged collateral. See “Security for the Storm Recovery Bonds” in this prospectus. Storm recovery property is a present property right created by the Financing Act and the financing

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order and is protected by the state pledge described in this prospectus. See “The Storm Recovery Property and the Financing Act” in this prospectus.

In general, storm recovery property permits a storm recovery charge to be:

1.

paid by all existing or future South Carolina customers receiving transmission or distribution service, or both, from DEP or its successors or assignees under PSCSC-approved rate schedules or under special contracts, even if a customer elects to purchase electricity from an alternative electric supplier following a fundamental change in regulation of public utilities in South Carolina;

2.

collected by DEP, as servicer, and remitted to the indenture trustee daily to provide for payments in respect of the bonds; and

3.

adjusted at least semi-annually (or beginning twelve months prior to the scheduled final payment date, at least quarterly), and more frequently as needed to ensure recovery of revenues sufficient to pay principal of and interest on the bonds when due and other financing costs and other required amounts and charges payable in connection with the bonds.

The storm recovery property securing the bonds consists of all rights and interests of DEP under the financing order. The storm recovery property is being sold to us by DEP in connection with the issuance of the bonds. Storm recovery property is not a receivable, and the bonds are not secured by a pool of receivables.

Credit enhancement for the bonds will be provided by the true-up mechanism, as well as by the capital subaccount. The primary purpose of the excess funds subaccount is not to provide credit enhancement for the bonds but to hold funds collected in amounts that were more than necessary to pay current debt service. However, amounts in the excess funds subaccount may be used to make debt service payments on the bonds when needed.

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Transaction Parties:

The following chart shows the transaction parties and is a general summary of the transaction.

Allocation and flow of funds:

The following chart represents a general summary of the flow of funds.

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Generally, DEP’s transmission and distribution customers will pay storm recovery charges and all other components of their monthly electricity bills to DEP.

On each payment date, the indenture trustee will, with respect to the storm recovery bonds, pay or allocate, all amounts on deposit in the general subaccount of the collection account in the following order of priority:

1.

payment of the indenture trustee’s fees, expenses and outstanding indemnity amounts in an amount not to exceed annually $200,000 in the then current calendar year (the “Trustee Cap”); provided, however, that the Trustee Cap shall be disregarded and inapplicable upon acceleration following the occurrence of an event of default;

2.

payment of the servicing fee plus any unpaid servicing fees from prior payment dates;

3.

payment of the administration fee to the extent due on that payment date and of the allocable fees of the issuing entity’s independent manager plus any unpaid administration or management fees from prior payment dates;

4.

payment of all other ordinary periodic operating expenses not described above;

5.

payment of the interest then due, including any past-due interest;

6.

payment of the principal required to be paid on the final maturity date or as a result of acceleration upon an event of default;

7.

payment of the principal then scheduled to be paid in accordance with the expected sinking fund schedule, including any previously unpaid scheduled principal;

8.

payment of any of our remaining unpaid operating expenses (including any fees, expenses and indemnity amounts owed to the indenture trustee but unpaid due to the limitation in clause (1) above) and any remaining amounts owed pursuant to the basic documents;

9.

replenishment of any amounts drawn from the capital subaccount;

10.

release to DEP of an amount equal to the rate of return on the amount contributed to the capital subaccount, including any portion of such rate of return for any prior payment date that has not yet been paid, so long as no event of default has occurred and is continuing;

11.

allocation of the remainder collected, if any, to the excess funds subaccount for future payments; and

12.

after the bonds have been paid in full and discharged and all of the foregoing amounts are paid in full, the balance, together with all amounts in the capital subaccount and the excess funds subaccount, to us free and clear of the lien of the indenture.

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See “Security for the Storm Recovery Bonds — How Funds in the Collection Account Will Be Allocated” in this prospectus. The servicing fee referred to in clause (2) is described in “The Servicing Agreement”, and the amount of the administrative fee referred to in clause (3) above is described in “The Issuing Entity — The Administration Agreement” below.

With respect to any operating expense payable by us (but only as described in clauses (1) through (4) above) that will become due and payable prior to the next payment date, the administrator, on any business day, may direct the indenture trustee in writing to remit payment of such operating expense, in the amount specified in the written direction, on the next payment date from amounts on deposit in the general subaccount, the excess funds subaccount and the capital subaccount in that order, all as specified in such written direction.

Issuance of additional storm recovery bonds by us:

The issuing entity has been organized to serve as a special purpose limited liability company. As authorized by the financing order, our organizational documents as well as the transaction documents supporting the bonds give us the authority and flexibility to issue additional storm recovery bonds in future transactions, with the approval of the PSCSC. As a result, we may acquire additional storm recovery property and issue one or more additional series of storm recovery bonds that are supported by such additional and separate storm recovery property or other collateral. For example, such future financings may include additional series of storm recovery bonds to finance additional storm recovery costs.

Any additional storm recovery bonds may be issued by us, subject to the conditions described below. Each series of additional storm recovery bonds will be secured by separate storm recovery property created by an additional financing order. Any series of additional storm recovery bonds may include terms and provisions unique to that particular series of additional storm recovery bonds.

However, we may not issue additional storm recovery bonds unless the rating agency condition for the bonds has been satisfied. In addition, we may not issue additional storm recovery bonds unless each of the following conditions is satisfied:

•

DEP requests and receives another financing order from the PSCSC to issue such additional storm recovery bonds;

•

DEP shall be initial servicer and administrator for the series of additional storm recovery bonds and that the servicer and administrator cannot be replaced without the requisite approval of the holders of all series of storm recovery bonds then-outstanding;

•

each series of additional storm recovery bonds has recourse only to the storm recovery property and funds on deposit in the trust accounts held by the indenture trustee with respect to that series of additional storm recovery bonds, is nonrecourse to our other assets and does not constitute a claim against us if revenue from the storm recovery charges and funds on

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deposit in the trust accounts with respect to that series of additional storm recovery bonds are insufficient to pay such other series in full;

•

the indenture trustee and the rating agencies then rating any series of our outstanding storm recovery bonds are provided an opinion of a nationally recognized law firm experienced in such matters to the effect that such issuance would not result in our substantive consolidation with DEP and that there has been a true sale of the storm recovery property with respect to such series, subject to the customary exceptions, qualifications and assumptions contained therein;

•

transaction documentation for the other series provides that holders of the additional storm recovery bonds of the other series will not file or join in filing of any bankruptcy petition against us;

•

if holders of such additional storm recovery bonds are deemed to have any interest in any of our assets that are dedicated to the bonds, holders of such other additional storm recovery bonds must agree that their interest in the assets that are dedicated to the bonds is subordinate to claims or rights of holders of the bonds in accordance with the related intercreditor agreement;

•

each series of additional storm recovery bonds will have its own bank accounts or trust accounts and funds for each series of storm recovery bonds shall be remitted in accordance with the related servicing agreement and related intercreditor agreement; and

•

each series of additional storm recovery bonds will bear its own indenture trustee fees, servicer fees and administration fees due under the administration agreement.

Please read “Description of the Storm Recovery Bonds – Conditions of Issuance of Additional Storm Recovery Bonds and Acquisition of Additional Storm Recovery Property” in this prospectus.

The financing order requires that, in the event a customer does not pay in full all amounts owed under any bill including storm recovery charges, any resulting shortfalls in storm recovery charges will be allocated ratably among the storm recovery charges authorized in the financing order, any similar securitization charges, and DEP’s other billed amounts in a manner consistent with DEP’s current process for allocating partial payments. Please read “Description of the Storm Recovery Bonds — Allocations as Between Series” and “The Servicing Agreement — Remittances to Collection Account” in this prospectus.

Allocation among series:

In the event a series of additional storm recovery bonds is issued, the bonds will not be subordinated in right of payment to any other series of storm recovery bonds. Each series of storm recovery bonds would be secured by its own storm recovery property, which will include the right to impose, bill, charge, collect and receive storm recovery charges calculated in respect of that series, and the right to impose interim and semi-annual true-up adjustments in respect of that series. Each series would also have its own collection account,

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including any related subaccounts, into which revenue from the storm recovery charges relating to that series would be deposited and from which amounts would be withdrawn to pay the related series of storm recovery bonds. Holders of one series of storm recovery bonds would have no recourse to collateral for a different series. Each series that we may issue will also have the benefit of a true-up mechanism. Each series of storm recovery bonds will bear its own indenture trustee fees, servicer fees and administration fees due under, respectively, the Indenture, the Servicing Agreement and the Administration Agreement. See “Security for the Storm Recovery Bonds — Description of Indenture Accounts” and “— How Funds in the Collection Account Will Be Allocated” in this prospectus.

Although each series of storm recovery bonds would have its own storm recovery property, storm recovery charges relating to the bonds and storm recovery charges relating to any other series of storm recovery bonds may be collected through single electricity bills to each electric service customer. The storm recovery charges shall be identified as a separate line item on customer electricity bills and include both the rate and the amount of the charge.

In the event a customer does not pay in full all amounts owed under any bill including storm recovery charges, each servicer is required to allocate any resulting shortfalls in storm recovery charges ratably based on the amounts of storm recovery charges owing in respect of the bonds, any amounts owing to any other series and amounts owing to any other subsequently created special-purpose subsidiaries of the utilities which issue storm recovery bonds. See “The Servicing Agreement — Remittances to Collection Account” in this prospectus.

ERISA eligible:

Yes; please read “ERISA Considerations” in this prospectus.

1940 Act Registration:

The issuing entity will be relying on an exclusion or exemption from the definition of “investment company” under the 1940 Act contained Section 3(c)(5) of the 1940 Act, although there may be additional exclusions or exemptions available to the issuing entity. The issuing entity is being structured so as not to constitute a “covered fund” for purposes of the Volcker Rule under the Dodd-Frank Act.

Credit risk retention requirements:

The bonds are not subject to the 5% risk retention requirements imposed by Section 15G of the Securities Exchange Act of 1934 or the “Exchange Act” due to the exemption provided in Rule 19(b)(8) of the risk retention regulations in 17 C.F.R. Part 246 of the Exchange Act or “Regulation RR”. For information regarding the requirements of the European Union Securitization Regulation as to risk retention and other matters, please read “Risk Factors — Other Risks Associated with the Purchase of the Bonds — Regulatory provisions affecting certain investors could adversely affect the liquidity of the bonds” in this prospectus.

Our legal and covenant defeasance options:

The issuing entity may, by making certain deposits in trust and meeting specified conditions, at any time, terminate all of its obligations under the indenture and the series supplement with

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respect to the bonds or its obligations to comply with some of the covenants in the indenture and the series supplement, including some of the covenants described under “Description of the Storm Recovery Bonds — Covenants of DEP SC Storm Funding” in this prospectus. See “Description of the Storm Recovery Bonds — DEP SC Storm Funding’s Legal and Covenant Defeasance Options” in this prospectus.

Expected settlement date:

Settling flat. DTC, Clearstream and Euroclear.            , 20  .

Continuing disclosure: surveillance/internet-based information post issuance/ dedicated Web address:

Duke Energy Corporation, the parent of DEP, will establish a dedicated web address for the life of the bonds. The principal transaction documents and other information concerning the storm recovery charges and security relating to the bonds will be posted at such web address, which is currently located at www.duke-energy.com.

Pursuant to the indenture, the indenture trustee will make available on its website (currently located at https://pivot.usbank.com) to the holders of record of the bonds regular reports prepared by the servicer containing information concerning, among other things, us and the collateral. Unless and until the bonds are issued in definitive certificated form, the reports will be made available electronically on its website to The Depository Trust Company and to the beneficial owners of the bonds. These reports will not be examined and reported upon by an independent public accountant. In addition, no independent public accountant will provide an opinion thereon. Please read “Description of the Storm Recovery Bonds — Reports to Bondholders” in this prospectus.

Neither we nor the depositor is an asset-backed issuer and the bonds are not asset-backed securities as such terms are defined by the SEC in governing regulations Item 1101 of Regulation AB. However, we are filing offering documents and plan to file with the SEC required periodic and current reports related to the bonds consistent with the disclosure and reporting regime established in Regulation AB and will also post those periodic and current reports at the website set forth above.

Risk factors:

You should consider carefully the risk factors beginning on page 23 of this prospectus before you invest in the bonds.

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SUMMARY OF RISK FACTORS

Set forth below is a summary of the material risk factors which you should consider before deciding whether to invest in the bonds. These risks can affect the timing or ultimate payment of the bonds and value of your security. A description of such risk factors in greater details follows this summary.

Limited Source of Payment for the Bonds:   The only source of funds for the bonds is the storm recovery property and the other limited funds held by the indenture trustee. At the time of issuance of the bonds, we will have no other assets and the bonds are non-recourse to DEP. Therefore, the sources for repayment of the bonds are limited. You must rely for payment of the bonds solely upon the Financing Act, state and federal constitutional rights to enforcement of the securitization provisions of the Financing Act, the irrevocable financing order, collections of the storm recovery charges and funds on deposit in the related accounts held by the indenture trustee.

Risks Associated with Potential Judicial, Legislative or Regulatory Actions:   The storm recovery property is an asset created under the Financing Act and through regulatory proceedings at the PSCSC. Neither we nor DEP will indemnify you for any changes of law, whether as a result of Constitutional amendment, legislative enactment or any judicial proceedings.

True up adjustment filings made with the PSCSC may be challenged before the PSCSC, resulting in delays in implementation of the true-up adjustment. Additionally, subject to any required PSCSC approval, DEP may establish billing, collection and posting arrangements with customers which could impact the timing and amount of customer payments.

Also, a municipality may seek to acquire portions of DEP’s service territory, and may dispute their obligation to pay the storm recovery charges, or even if obligated to do so, may fail to bill and remit the storm recovery charges on a timely basis.

Servicing Forecasting Risks:   The collection of storm recovery charges on a timely and sufficient basis depends upon the ability of the servicer to accurately forecast customer usage. If the servicer inaccurately forecasts consumption or underestimates customer delinquencies for any reason, there could be a shortfall or material delay in storm recovery charge collections. Factors which might cause inaccurate projections of usage or customer delinquencies, include unanticipated weather conditions, cyber-attacks on DEP infrastructure, general economic conditions, natural or man-made disasters, such as storms or pandemics. DEP’s ability to collect storm recovery charges from customers may also be impacted by some of these same factors.

It may be difficult for us to find a replacement servicer should DEP default in its obligations. Assuming we can obtain a successive servicer, the successor servicer may be less effective in servicing the charges, potentially resulting in delay in collections, which might reduce the value of your investment.

Risks Associated with the Unusual Nature of Storm Recovery Property:   The unusual nature of the storm recovery property makes it unlikely that, in the event of a default, the storm recovery property could be sold. Although the bonds may be accelerated in the event of a default, as a practical matter, the storm recovery charges would likely not be accelerated.

Risk Associated with Storms:   DEP’s operations might be impacted by hurricanes, tropical storms or wind storms. Transmission, distribution and consumption of electricity might be interrupted temporarily, reducing the collections of storm recovery charges. There might be longer-lasting weather-related adverse effects on residential and commercial development and economic activity in the DEP service area, which could cause the per-kWh storm recovery charge to be greater than expected. Legislative action adverse to the bondholders might be taken in response, and such legislation, if challenged as a violation of the state pledge, might be defended on the basis of public necessity.

Risks Associated with the Potential Bankruptcy of the Seller or the Servicer:   In the event of a bankruptcy by DEP, you may experience a delay in payment or a default on payment of the bonds due to various factors, including the comingling of storm recovery charges with other revenue of the servicer, a challenge to the characterization of the sale of the storm recovery property as a financing transaction, an effort to consolidate our assets and liabilities with those of DEP, a characterization of storm recovery

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payments to the indenture trustee as preferential transfers, the treatment of our claims against DEP as unsecured claims, and a general limitation on the remedies available in a bankruptcy, including the risk of an automatic stay.

Other Risks:   Other risks associated with the purchase of the bonds include the inadequacy of any indemnification obligations provided by DEP, the impact of a change of ratings or the issuance of an unsolicited rating, the absence of a secondary market for the bonds, the issuance of additional storm recovery bonds or similar instruments creating greater burdens on the same customers, regulatory actions affecting certain investors and losses on investments held by the indenture trustee.

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RISK FACTORS

You should consider carefully all the information included in this prospectus, including the following factors and the statements contained under the “Cautionary Statement Regarding Forward-Looking Statements” in this prospectus, before you decide whether to invest in the bonds:

You might experience material payment delays as a result of limited sources of payment for the bonds and limited credit enhancement.

You may suffer material payment delays on your bonds if the collateral securing your bonds is insufficient to pay the accrued interest on and the principal amount of those bonds in full. The only source of funds for payments of interest on and principal of the bonds will be the collateral. The collateral for the bonds will be limited to:

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the storm recovery property securing the bonds, including the right to impose, bill, charge, collect and receive storm recovery charges and the right to implement the true-up mechanism in respect of the storm recovery charges;

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the funds on deposit in the accounts held by the indenture trustee; and

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our rights under various contracts described in this prospectus.

The bonds will not be insured or guaranteed by DEP, including in its capacity as sponsor, depositor, seller or servicer, or by its parent, Duke Energy Corporation, any of their respective affiliates, the indenture trustee or any other person or entity. The bonds will be nonrecourse obligations, secured only by the collateral. Delays in payment on the bonds might result in a reduction in the market value of the bonds and, therefore, the value of your investment in the bonds.

The bonds do not constitute a debt, liability or other obligation of, or interest in, DEP or any of its other affiliates (other than us). The State of South Carolina, its agencies and instrumentalities, and its political subdivisions are not liable on the bonds and the bonds are not a debt of the State of South Carolina or any of its political subdivisions. The bonds are not special obligations or indebtedness of the State of South Carolina, its agencies, or its political subdivisions. The bonds do not directly, indirectly, or contingently obligate the State of South Carolina or its agencies, instrumentalities, or political subdivisions, to levy any tax or make any appropriation for payment of the bonds, other than in their capacities as consumers of electricity.

You must rely for payment of principal of and interest on the bonds solely upon the Financing Act, state and federal constitutional rights to enforcement of the Financing Act, the financing order, collections of storm recovery charges and funds on deposit in the related accounts held pursuant to the indenture and the series supplement. If these amounts are not sufficient to make payments or these are delays in recoveries, you may experience material payment delays or incur a loss on your investment in the bonds. Our organizational documents restrict our right to acquire other assets unrelated to the transactions described in this prospectus. Please read “The Issuing Entity” in this prospectus.

Risks Associated with Potential Judicial, Legislative or Regulatory Actions

We are not obligated to indemnify you for changes in law.

Neither we nor DEP will indemnify you for any changes in the law, including any federal preemption or repeal or amendment of the Financing Act that may affect the value of your bonds. DEP will agree in the sale agreement to institute any action or proceeding as may be reasonably necessary to block or overturn any attempts to cause a repeal, modification or amendment to the Financing Act that would be materially adverse to us, the indenture trustee, or bondholders. However, DEP may not be able to take such action and, if DEP does take action, such action may not be successful. Although DEP or any successor seller might be required to indemnify us if legal action based on the law in effect at the time of the issuance of the bonds invalidates the storm recovery property, such indemnification obligations do not apply for any changes in law after the date the bonds are issued, whether such changes in law are effected by means of any legislative enactment, any constitutional amendment or any final and non-appealable judicial decision. Please read

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“The Sale Agreement — Seller Representations and Warranties” and “The Servicing Agreement — Servicing Standards and Covenants” in this prospectus.

Future legal action might challenge or invalidate the Financing Act or the financing order and materially adversely affect your investment.

The storm recovery property is created pursuant to the Financing Act and a financing order issued by the PSCSC pursuant to the Financing Act. The Financing Act became effective on June 17, 2022. DEP is the first utility to petition the PSCSC to issue storm recovery bonds under the Financing Act.

The Financing Act or any provisions thereof might be directly contested in courts or otherwise become the subject of litigation. In addition, the financing order or any provision thereof might be directly contested in courts or otherwise become the subject of litigation. As of the date of this prospectus, no such litigation has arisen; however, we cannot assure you that a lawsuit challenging the validity of the Financing Act or the financing order will not be filed in the future or that, if filed, such lawsuit will not be successful. If an invalidation of any relevant underlying legislative provision or financing order provision were to result from such litigation, you might lose some or all of your investment or you might experience delays in recovering your investment. See “The Storm Recovery Property and the Financing Act” and “DEP’s Financing Order” in this prospectus.

Other states have passed legislation similar to the Financing Act to authorize recoveries by utilities of specified costs, including storm recovery costs, environmental control costs, or costs associated with deregulation of the electricity market, and some of those laws have been challenged by judicial actions or utility commission proceedings. To date, none of those challenges have succeeded, but future judicial challenges might be made. An unfavorable decision challenging legislation similar to the Financing Act would not automatically invalidate the Financing Act or the financing order, but it might provoke a challenge to the Financing Act or the financing order, establish a legal precedent for a successful challenge to the Financing Act or the financing order or heighten awareness of the political and other risks of the bonds, and in that way may limit the liquidity and value of the bonds. Therefore, legal activity in other states might indirectly affect the value of your investment in the bonds.

Future South Carolina legislative action might attempt to invalidate the bonds or the storm recovery property.

Under the Financing Act, the State of South Carolina and its agencies have pledged not to (i) alter the provisions of the Financing Act, which authorizes the PSCSC to create an irrevocable contract or chose in action by the issuance of a financing order, to create storm recovery property and make the storm recovery charges imposed by the financing order irrevocable, binding and nonbypassable, (ii) take or permit any action that impairs or would impair the value of the storm recovery property or the security for the storm recovery bonds, or revises the storm recovery costs for which recovery is authorized, (iii) in any way impair the rights and remedies of the bondholders, assignees, and any other financing party or, (iv) except as provided in the true-up mechanism, reduce, alter, or impair storm recovery charges that are to be imposed, billed, charged, collected, and remitted for the benefit of the bondholders, any assignee and other financing parties until any and all principal, interest, premium, financing costs and other fees, expenses, or charges incurred, and any contracts to be performed in connection with the related storm recovery bonds, have been paid and performed in full. For a description of this state pledge, see “The Storm Recovery Property and the Financing Act — The Financing Act Provides for the Recovery of Storm Recovery Costs and the Issuance of the Bonds — The Financing Act Contains a State Pledge” in this prospectus. Despite the state pledge, the South Carolina legislature might attempt to repeal the Financing Act, or attempt to amend the Financing Act, or as described below, the PSCSC might take certain actions that impair the storm recovery property. As of the date of this prospectus, neither we nor DEP is aware of any pending legislation in the South Carolina legislature that would affect any provisions of the Financing Act. To date, there have been no reported U.S. federal or South Carolina cases addressing the repeal or amendment of securitization provisions analogous to those contained in the Statute. There have been cases in which U.S. federal courts have applied the Contract Clause of the United States Constitution or South Carolina courts have applied the Contract Clause of the South Carolina Constitution to strike down legislation regarding similar matters, such as legislation reducing or eliminating taxes, public charges or other sources of revenues servicing other types of bonds issued or contracts entered into by public instrumentalities or private issuers, or otherwise

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substantially impairing or eliminating the security for bonds or other indebtedness or contractual obligations. Based upon this case law, Hunton Andrews Kurth LLP, counsel to DEP and DEP SC Storm Funding, expects to deliver an opinion with respect to applicable federal constitutional principles relating to the impairment of contracts, that (i) in a properly prepared and presented case, a reviewing court of competent jurisdiction would conclude that the state pledge constitutes a contractual relationship between the bondholders and the State of South Carolina, and (ii) in the event that the South Carolina legislature passes any law (or the PSCSC exercising legislative powers takes any action) prior to the time that the bonds and related financing costs are fully paid and discharged that in either case alters, impairs, or reduces the value of the storm recovery property or the storm recovery charges, then, absent a demonstration by the State of South Carolina that such action or inaction is necessary to further a significant and legitimate public purpose, the bondholders (or the indenture trustee acting on their behalf) could successfully challenge, under the Contract Clause of the U.S. Constitution, the constitutionality of any such action or inaction that alters, impairs, or reduces the value of the storm recovery property or the storm recovery charges prior to the time that the bonds are fully paid and discharged, provided that the repeal or amendment or the action or inaction would substantially impair the rights of the owners of the storm recovery property or the bondholders. Preliminary injunctive relief should be available under federal law to delay implementation of any such action or inaction hereafter taken and determined to alter, impair, or reduce the value of the storm recovery property or the storm recovery charges so as to cause such an impairment in violation of the Contract Clause of the U.S. Constitution, and, upon final adjudication of a claim challenging any such action or inaction, permanent injunctive relief should be available under federal law to prevent implementation thereof. Baker, Donelson, Bearman, Caldwell & Berkowitz P.C. expects to deliver an opinion substantially to the same effect under the case law with respect to the Contract Clause of the South Carolina Constitution. Under South Carolina Law, preliminary injunctive relief, is available where a South Carolina state court hearing a request therefor finds (i) that the party requesting such injunctive relief has a likelihood of success on the merits, (ii) that such party will suffer irreparable harm if the preliminary injunctive relief is not granted, and (iii) that no adequate, alternative remedy at law exists; and a permanent injunction may be available if the party succeeds on the merits. It may be possible for the South Carolina legislature to repeal or amend the Financing Act or for the PSCSC to amend or revoke the financing order notwithstanding the pledge of the State of South Carolina, if the legislature or the PSCSC acts in order to serve a significant and legitimate public purpose, such as protecting the public health and safety or responding to a national or regional catastrophe affecting DEP’s service territory, or if the legislature otherwise acts in the valid exercise of the State of South Carolina’s police power.

In addition, any action of the South Carolina legislature adversely affecting the storm recovery property or the ability to collect storm recovery charges may be considered a taking under the United States Constitution or the South Carolina Constitution. Each of Hunton Andrews Kurth LLP and Baker, Donelson, Bearman, Caldwell & Berkowitz P.C. has advised us that they are not aware of any U.S. federal or South Carolina court cases addressing the applicability of the Takings Clause of the United States Constitution or South Carolina Constitution in a situation analogous to that which would be involved in an amendment or repeal of the Financing Act. It is possible that a court would decline even to apply a Takings Clause analysis to a claim based on an amendment or repeal of the Financing Act, since, for example, a court might determine that a Contract Clause analysis rather than a Takings Clause analysis should be applied. Hunton Andrews Kurth LLP expects to deliver an opinion to the effect that a court of competent jurisdiction, in a properly prepared and presented case, would hold that the Takings Clause of the U.S. Constitution would require the State of South Carolina to pay just compensation to the bondholders if a court determines that a repeal or amendment of the Financing Act, or any other action taken by the State of South Carolina in contravention of the state pledge, (a) completely deprived the bondholders of all economically beneficial use of the storm recovery property or (b) unduly interfered with the reasonable expectations of the bondholders arising from their investment in the bonds. In determining what is an undue interference, a court would consider the nature of the governmental action, the economic impact of the governmental action on the bondholders and the extent to which the governmental action interferes with distinct investment-backed expectations of the bondholders. Baker, Donelson, Bearman, Caldwell & Berkowitz P.C. expects to deliver an opinion substantially to the same effect under the Takings Clause of the South Carolina Constitution. In examining whether action of the South Carolina legislature amounts to a regulatory taking, both U.S. federal and South Carolina courts will consider the character of the governmental action and whether such action substantially advances the legitimate governmental interests of the State of South

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Carolina, the economic impact of the governmental action on the bondholders and the extent to which the governmental action interferes with distinct investment-backed expectations. Even if such State action or inaction is treated as a taking and the State of South Carolina provides you with an amount deemed to be full compensation, that amount might not be sufficient for you to fully recover your investment.

Further, nothing in the state pledge precludes any limitation or alteration of the Financing Act or a financing order if full compensation is made by law for the full protection of the storm recovery charges collected pursuant to a financing order and of the holders of the related series of bonds. It is unclear what full compensation and full protection would be afforded to holders of the bonds by the State of South Carolina if such limitation or alteration were attempted. Accordingly, no assurance can be given that any such provision would not adversely affect the market value of the related series of bonds, or the timing or receipt of payments with respect to such bonds.

We cannot assure you that a repeal of or amendment to the Financing Act will not be sought or adopted or that any action or inaction by the State of South Carolina adverse to your investment in the bonds will not occur. The servicer has agreed to take legal or administrative action, including instituting legal action, as may be reasonably necessary to attempt to block or overturn any attempts to cause a repeal of or amendment to the Financing Act or a modification of the financing order or storm recovery property. However, enforcement of any rights against the State of South Carolina or the PSCSC under the state pledge may be subject to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against State of South Carolina and local governmental entities in South Carolina. These limitations might include, for example, the necessity to exhaust administrative remedies prior to bringing suit in a court, or limitations on type and locations of courts in which the State of South Carolina or the PSCSC may be sued. See “The Servicing Agreement — Servicing Standards and Covenants” in this prospectus. However, we cannot assure that the servicer would be able to take this action or that this action would be successful.

Except as described in “The Sale Agreement — Indemnification” in this prospectus, neither DEP, nor any of its successors, assignees or affiliates will indemnify you for any change in law, including any amendment or repeal of the Financing Act, that might affect the value of the bonds.

The PSCSC might attempt to take actions which might reduce the value of your investment.

The Financing Act provides that the financing order issued to DEP is irrevocable upon the transfer of the storm recovery property to an assignee or the issuance of the bonds, whichever is earlier, and is not subject to amendment, modification or termination by subsequent action of the PSCSC, except for the periodic true-up adjustments. Apart from the financing order, the PSCSC retains the power to adopt, revise or rescind rules or regulations affecting DEP or a successor utility. The PSCSC also retains the power to interpret and implement the financing order. Any new or amended regulations or orders by the PSCSC for example, could affect the ability of the servicer to collect the storm recovery charges in full and on a timely basis. The servicer has agreed to take legal or administrative action to resist any PSCSC rule, regulation or decision that would violate the state pledge. We cannot assure you that the servicer would be successful in its efforts. Thus, future PSCSC rules, regulations or decisions might adversely affect the rating of the bonds, their price or the rate of storm recovery charge collections and, accordingly, the amortization of bonds and their weighted average lives. As a result, you could suffer a loss of your investment.

The servicer is required to file with the PSCSC, on our behalf, periodic true-up adjustments of the storm recovery charges. Under the irrevocable financing order, the PSCSC will act to administratively approve the requested adjustment (including, if applicable, the correction of any mathematical or clerical error in such calculations) within 60 days of the date of the request for adjustment. However, true-up adjustments could be challenged or might not be approved in a timely manner, and such an event might adversely affect the market perception and valuation of the bonds. Also, any such challenge or delay in approving a true-up adjustment could result in costly and time-consuming litigation, and such litigation could result in a shortfall or material delay in storm recovery charge collections. Please read “DEP’s Financing Order — True-Up Mechanism” and “The Servicing Agreement — The PSCSC’s Mandated True-Up Mechanism” in this prospectus.

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In addition, any amendments to the basic documents that have a reasonable possibility to impact the rates borne by customers will require the satisfaction of the PSCSC condition. However, amendments could be challenged or might not be approved in a timely manner, and such an event might adversely affect the market perception and valuation of the bonds. Also, any such challenge or delay in approving an amendment could result in delays in storm recovery charge collections.

The servicer may not fulfill its obligations to act on behalf of the bondholders to protect bondholders from actions by the PSCSC or the State of South Carolina, or the servicer may be unsuccessful in any such attempt.

The servicer will agree in the servicing agreement to take any action or proceeding necessary to compel performance by the PSCSC and the State of South Carolina of any of their obligations or duties under the Financing Act or the financing order, including any actions reasonably necessary to block or overturn attempts to cause a repeal or modification of the Financing Act or the financing order. The servicer, however, may not be able to take those actions for a number of reasons, including due to legal or regulatory restrictions, financial constraints and practical difficulties in successfully challenging any such legislative enactment or constitutional amendment. Additionally, any action the servicer is able to take may not be successful. Any such failure to perform its obligations or to successfully compel performance by the PSCSC or the State of South Carolina could negatively affect bondholders’ rights and result in a loss of their investment.

A municipal entity might assert the right to acquire portions of DEP’s electric distribution facilities and avoid payment of the storm recovery charges.

A municipality might bring a proceeding and allege that it has the right to acquire portions of an electric utility’s electric distribution facilities through the power of eminent domain for use as part of municipally-owned utility systems. If a municipality were to bring such a proceeding against DEP, DEP would first contest the municipality’s right to utilize eminent domain to acquire DEP’s electric distribution facilities. If the municipality was successful in such a proceeding, then after the final, non-appealable judgment, DEP would adhere to the covenant described below in the servicing agreement. A municipality may also seek to acquire portions of an electric utility’s electric distribution facilities by exercising a unilateral contract option to request a valuation and forced sale of the electric utility’s electric distribution facilities. There can be no assurance that one or more municipalities will not seek to acquire some or all of DEP’s electric distribution facilities while the bonds remain outstanding. The Financing Act specifies that storm recovery charges approved by a financing order shall be collected by an electric utility as well as its “successors or assignees.” In the servicing agreement, DEP has covenanted to assert in an appropriate forum that any municipality that acquires any portion of DEP’s electric distribution facilities by eminent domain or by exercising a unilateral contract option, must be treated as a successor to DEP under the Financing Act and the financing order and that customers in such municipalities remain responsible for payment of storm recovery charges. However, the involved municipality might assert that it should not be treated as a successor to DEP for these purposes and that its distribution customers are not responsible for payment of storm recovery charges. In any case, DEP cannot assure you that the storm recovery charges will be collected from customers of municipally-owned utilities who were formerly customers of DEP and that such an occurrence might not affect the timing or receipt of payments with respect to your bonds.

Neither DEP SC Storm Funding nor DEP is obligated to indemnify you for changes in law.

Neither we nor DEP nor any of their successors, assignees or affiliates will indemnify you for any changes in the law, including any federal preemption or repeal or amendment of the Financing Act that might affect the value of your bonds. DEP, as servicer, will agree in the servicing agreement to institute any action or proceeding as may be reasonably necessary to block or overturn any attempts to cause a repeal, modification or amendment to the Financing Act that would be materially adverse to us, the indenture trustee or bondholders. However, we cannot assure you that DEP would be able to take this action or that this action would be successful. Although DEP or any successor assignee might be required to indemnify us if legal action based on the law in effect at the time of the issuance of the bonds invalidates the storm recovery property, such indemnification obligations do not apply for any changes in law after the date the bonds are issued, whether such changes in law are effected by means of any legislative enactment, any constitutional amendment or any final and non-appealable judicial decision. See “The Sale Agreement —

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Seller Representations and Warranties” and “The Servicing Agreement — Servicing Standards and Covenants” in this prospectus.

Servicing Forecasting Risks

Inaccurate forecasting of electric consumption or collections might reduce scheduled payments on the bonds.

The storm recovery charges are calculated based on forecasted customer usage. The amount and the rate of storm recovery charge collections will depend in part on actual electricity consumption and the timing of collections and write-offs. The financing order approves the methodology by which the storm recovery charges will be calculated and adjusted from time to time by the servicer pursuant to true-up adjustment letters submitted to the PSCSC as described below, which includes the allocation of cost responsibility among customer rate classes based upon the cost responsibilities approved in DEP’s most recently filed rate case. If the servicer inaccurately forecasts electricity consumption (including forecasts of electric consumption by customer rate classes) or underestimates customer delinquency or write-offs when setting or adjusting the storm recovery charges, there could be a shortfall or material delay in storm recovery charge collections, which might result in missed or delayed payments of principal and interest and lengthened weighted average life of the bonds. Please read “DEP’s Financing Order — True-Up Mechanism” and “The Servicing Agreement — The PSCSC’s Mandated True-Up Mechanism” in this prospectus.

Inaccurate forecasting of electricity consumption by the servicer might result from, among other things:

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unanticipated weather or economic conditions, resulting in less electricity consumption than forecast;

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general economic conditions, such as the pandemic health event resulting from COVID-19, and their collateral consequences, including the disruption of global supply chains or the economic activity in our service territories causing customers to migrate from DEP’s service territory or reduce their electricity consumption;

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the occurrence of a natural disaster, such as a hurricane, wind storm or an act of war or terrorism, cyber-attack or other catastrophic event, including pandemics, unexpectedly disrupting electrical service and reducing electricity consumption;

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unanticipated changes in the market structure of the electric industry;

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large customers unexpectedly ceasing business or departing DEP’s service territory;

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dramatic and unexpected changes in energy prices resulting in decreased electricity consumption;

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customers consuming less electricity than anticipated because of increased energy prices, unanticipated increases in conservation efforts or unanticipated increases in electric consumption efficiency;

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differences or changes in forecasting methodology; or

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large customers switching to alternative sources of energy, including self-generation or co-generation of electric power in some cases without using DEP’s transmission or distribution system. Self-generators that receive no transmission or distribution service from DEP are not liable for the storm recovery charge. The Financing Act and financing order do not provide for exit fees to be charged to any customers that might leave the grid to self-generate.

Inaccurate forecasting of delinquencies or write-offs by the servicer could result from, among other things:

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unexpected deterioration of the economy, the occurrence of a natural disaster, an act of war or terrorism or other catastrophic events, including pandemics, causing greater write-offs than expected or forcing DEP or a successor utility to grant additional payment relief to more customers;

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an unexpected change in law that makes it more difficult for DEP or a successor distribution company to terminate service to nonpaying customers, or that requires DEP or a successor to apply more lenient credit standards for customers; or

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the unexpected introduction into the energy markets, as a result of a fundamental change in the regulation of electric utilities in South Carolina, of alternative energy suppliers who are authorized to collect payments arising from the storm recovery charges, but who may fail to remit customer charges to the servicer in a timely manner.

Your investment in the bonds depends on DEP or its successors or assignees acting as servicer of the storm recovery property.

DEP, as servicer, will be responsible for, among other things, calculating, billing, collecting and posting the storm recovery charges from customers, submitting requests to the PSCSC to adjust these charges, monitoring the collateral for the bonds and taking certain actions in the event of non-payment by a customer. The indenture trustee’s receipt of collections in respect of the storm recovery charges, which will be used to make payments on bonds, will depend in part on the skill and diligence of the servicer in performing these functions. The systems that the servicer has in place for storm recovery charge billings, collections and postings, as the same may be modified by any applicable current or future PSCSC regulations, might, in particular circumstances, cause the servicer to experience difficulty in performing these functions in a timely and completely accurate manner. If the servicer fails to make collections for any reason, then the servicer’s payments to the indenture trustee in respect of the storm recovery charges might be delayed or reduced. In that event, our payments on the bonds might be delayed or reduced.

If DEP SC Storm Funding needs to replace DEP as the servicer, DEP SC Storm Funding may experience difficulties finding and using a replacement servicer.

If DEP ceases to service the storm recovery property related to the bonds, it might be difficult to find a successor servicer. Also, any successor servicer might have less experience and ability than DEP, will need to receive approval from the PSCSC and might experience difficulties in collecting storm recovery charges and determining appropriate adjustments to the storm recovery charges and billing and/or payment arrangements may change, resulting in delays or disruptions of collections. A successor servicer might not be willing to perform except for fees higher than those approved in the financing order and might charge fees that, while permitted under the financing order, are substantially higher than the fees paid to DEP as servicer. Although a true-up adjustment would be required to allow for the increase in fees, there could be a gap between the incurrence of those fees and the implementation of a true-up adjustment to adjust for that increase that might adversely affect distributions to bondholders. In the event of the commencement of a case by or against the servicer under Title 11 of the United States Code, as amended, or the Bankruptcy Code, or similar laws, we and the indenture trustee might be prevented from effecting a transfer of servicing due to operation of the Bankruptcy Code. Any of these factors might delay the timing of payments and reduce the value of your investment.

DEP currently has accounts receivable sale arrangements under which it sells substantially all of its accounts receivable on a revolving basis. Under the intercreditor agreement to be entered into at the time of issuance of the bonds among DEP, us, the indenture trustee, the indenture trustee of the 2021 NC Storm Recovery Bonds, and the parties to DEP’s accounts receivable sale programs, replacement of the servicer would require the agreement of the indenture trustee and the administrative agents under the accounts receivable sale programs. In the event of a default by the servicer under the servicing agreement, if the indenture trustee and the administrative agents under the accounts receivable sale programs are unable to agree on a replacement servicer, the indenture trustee would not be able to replace DEP or any successor as servicer. Any of these events could adversely affect the billing, collection and posting of the storm recovery charges and the value of your investment in the bonds. See “The Servicing Agreement” in this prospectus.

In addition to the above, it is possible that DEP may, in the future, cause other subsidiaries to issue other securities, similar to the bonds that are backed by charges owing from customers or similar types of property. DEP has covenanted in the sale agreement that, in the event of any issuance of that sort, it will also enter into a joinder to, or amend, the intercreditor agreement with the indenture trustee and the trustees for those other issuances, which would provide that the servicer for the bonds and those other issuances must be one and the same entity. Any expansion of the intercreditor agreement to include those subsequent issuances could further impair the ability of the indenture trustee to appoint a successor servicer in the event of a servicer default.

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Changes to billing, collection and posting practices might reduce the value of your investment in the bonds.

The financing order specifies the methodology for determining the amount of the storm recovery charges we may impose. However, subject to any required PSCSC approval, the servicer may set its own billing, collection and posting arrangements with customers from whom it collects storm recovery charges, provided that these arrangements comply with any applicable PSCSC customer safeguards and the provisions of the servicing agreement. For example, to recover part of an outstanding bill, the servicer may agree to extend a customer’s payment schedule, including the storm recovery charges. Also, subject to any required PSCSC approval, the servicer may change billing, collection and posting practices, which might adversely impact the timing and amount of customer payments and might reduce storm recovery charge collections, thereby limiting our ability to make scheduled payments on the bonds. Separately, the PSCSC might require changes to these practices. Any changes in billing, collection and posting practices or regulations might make it more difficult for the servicer to collect the storm recovery charges and adversely affect the value of your investment in the bonds.

Cyberattacks and data security breaches could adversely affect DEP’s businesses.

Cybersecurity risks have increased in recent years as a result of the proliferation of new technologies and the increased sophistication, magnitude and frequency of cyberattacks and data security breaches. DEP relies on the continued operation of sophisticated digital information technology systems and network infrastructure, which are part of an interconnected grid. Additionally, connectivity to the internet continues to increase through grid modernization and other operational excellence initiatives. Because of the critical nature of the infrastructure, increased connectivity to the internet and technology systems’ inherent vulnerability to disability or failures due to hacking, viruses, acts of war or terrorism or other types of data security breaches, DEP face a heightened risk of cyberattack from foreign or domestic sources and have been subject, and will likely continue to be subject, to attempts to gain unauthorized access to information and/or information systems or to disrupt utility operations through computer viruses and phishing attempts either directly or indirectly through its material vendors or related third parties. In the event of a significant cybersecurity breach on either DEP or with one of our material vendors or related third parties, DEP could (i) have business operations disrupted, including the disruption of the operation of our assets and the power grid, collecting revenues or the recording, processing and/or reporting billing and collection information correctly, (ii) experience substantial loss of revenues, repair and restoration costs, penalties and costs for lack of compliance with relevant regulations, implementation costs for additional security measures to avert future cyberattacks and other financial loss and (iii) be subject to increased regulation, litigation and reputational damage all of which could materially affect DEP’s ability to bill and collect storm recovery charges or otherwise service the storm recovery property.

It might be difficult for successor servicers to collect the storm recovery charge from DEP’s customers.

Any successor servicer may bring an action against a customer for non-payment of the storm recovery charge, but only a successor servicer that is a successor electric utility may terminate service for failure to pay the storm recovery charge. Partial payment of monthly electric bills shall be allocated pro rata among the storm recovery charge and other charges on the bill. A successor servicer that does not have the threat of termination of service available to enforce payment of the storm recovery charge would need to rely on the successor electric utility to threaten to terminate service for nonpayment of other portions of monthly electric utility bills. This inability might reduce the value of your investment.

Risk Associated with the Unusual Nature of the Storm Recovery Property

Foreclosure of the indenture trustee’s lien on the storm recovery property for the bonds might not be practical, and acceleration of the bonds before maturity might result in your investment being repaid either earlier or later than expected.

Under the Financing Act, the indenture and the series supplement, the indenture trustee or the bondholders have the right to foreclose or otherwise enforce the lien on the storm recovery property securing the bonds. However, in the event of foreclosure, there is likely to be a limited market, if any, for the storm recovery property. Therefore, foreclosure might not be a realistic or practical remedy. Moreover,

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although principal of the bonds will be due and payable upon acceleration of the bonds before maturity, we do not anticipate that the storm recovery charges will be adjusted beyond the periodic payment requirement and therefore storm recovery charges likely would not be sufficient to pay principal due and payable upon such an acceleration, and the nature of our business will result in principal of the bonds being paid as funds become available. See “DEP’s Financing Order — True-Up Mechanism” in this prospectus. If there is an acceleration of the bonds, all of the bonds will be paid pro rata; therefore, some bonds might be paid earlier than expected and some bonds might be paid later than expected.

Risk Associated with Storms

Storm damage to DEP’s operations might impair payment of the bonds.

DEP’s operations might be impacted by hurricanes, tropical storms, winter storms or wind storms. Transmission, distribution and consumption of electricity might be interrupted temporarily, reducing the collections of storm recovery charges. There might be longer-lasting weather-related adverse effects on residential and commercial development and economic activity in the DEP service area, which could cause the per-kWh storm recovery charge to be greater than expected. Legislative action adverse to the bondholders might be taken in response, and such legislation, if challenged as a violation of the state pledge, might be defended on the basis of public necessity. Please read “The Storm Recovery Property and the Financing Act — The Financing Act Provides for the Recovery of Storm Recovery Costs and the Issuance of the Bonds — The Financing Act Contains a State Pledge” and “Risk Factors — Risks Associated with Potential Judicial, Legislative or Regulatory Actions — Future South Carolina legislative action might attempt to invalidate the bonds or the storm recovery property” in this prospectus.

Risks Associated with Potential Bankruptcy Proceedings of the Seller or the Servicer

For a more detailed discussion of the following bankruptcy risks, please read “Bankruptcy and Creditors’ Rights Issues” in this prospectus.

The servicer will commingle the storm recovery charges with other revenues it collects, which might obstruct access to the storm recovery charges in case of the servicer’s bankruptcy and reduce the value of your investment in the bonds.

DEP, as servicer, will be required to remit estimated storm recovery charge collections to the indenture trustee no later than the second servicer business day of receipt. Prior to remitting such funds to the indenture trustee, the servicer will not segregate the storm recovery charges from the other funds it collects from customers, including amounts relating to the 2021 NC Storm Recovery Bonds or its general funds. The storm recovery charges will be estimated and segregated only when the servicer remits them to the indenture trustee.

Despite this requirement, the servicer might fail to remit the full amount of the storm recovery charges payable to the indenture trustee or might fail to do so on a timely basis. This failure, whether voluntary or involuntary, might materially reduce the amount of storm recovery charge collections available to make payments on the bonds.

Absent a default under the servicing agreement, DEP will be required to remit estimated storm recovery charges to the indenture trustee. While DEP will be responsible for identifying and calculating the actual amount of storm recovery charges in the event of a default under the servicing agreement, it may be difficult for DEP to identify such charges, given existing limitations in its billing system.

The Financing Act provides that the priority of a lien and security interest perfected in recovery property is not impaired by the commingling of the funds arising from storm recovery charges with any other funds. In a bankruptcy of the servicer, however, a bankruptcy court might rule that federal bankruptcy law takes precedence over the Financing Act and might decline to recognize our right to collections of the storm recovery charges that are commingled with other funds of the servicer as of the date of bankruptcy. If so, the collections of the storm recovery charges held by the servicer as of the date of bankruptcy would not be available to pay amounts owing on the bonds. In this case, we would have only a general unsecured

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claim against the servicer for those amounts. This decision could cause material delays in payments of principal or interest, or losses, on your bonds and could materially reduce the value of your investment in the bonds.

Bankruptcy of DEP or any successor or assignee could result in losses or delays in payments on the bonds.

DEP, as seller, will represent and warrant in the sale agreement that the transfer of the storm recovery property to us under that sale agreement is a valid sale and assignment of that storm recovery property from the seller to us. The seller will also represent, warrant, and covenant that it will take the appropriate actions under the Financing Act to perfect a backup grant in the sold storm recovery property. The Financing Act provides that the transactions described in the sale agreement shall constitute a sale of the storm recovery property to us, and the seller and we will treat the transaction as a sale under applicable law, although for financial reporting and tax reporting purposes the transaction will be treated as debt of the seller. If the seller were to become a debtor in a bankruptcy case, and a party in interest (including the seller itself) were to take the position that the sale of the storm recovery property to us should be recharacterized as the grant of a security interest in such recovery property to secure a borrowing of the seller, delays in payments on the bonds could result. If a court were to adopt such position, then further delays as well as reductions in payments on the bonds could result.

Pursuant to the Financing Act and the financing order, upon the sale of the storm recovery property, the storm recovery property is created as a current property right, and it thereafter continuously exists as property for all purposes. Nonetheless, if the seller were to become the debtor in a bankruptcy case, a party in interest (including the seller itself) may take the position that, because the storm recovery charges are usage-based charges, recovery property comes into existence only as customers use electricity. If a court were to adopt this position, no assurance can be given that the court would not also rule that any storm recovery property relating to electricity consumed after the commencement of the seller’s bankruptcy case was not required to be transferred to us, thus resulting in delays or reductions of payments on the bonds.

A bankruptcy court generally follows state property law on issues such as those addressed by the provisions described above. However, a bankruptcy court has authority not to follow state law if it determines that the state law is contrary to a paramount federal bankruptcy policy or interest. If a bankruptcy court in a bankruptcy of DEP refused to enforce one or more of the State of South Carolina’s property law provisions described above for this reason, the effect of this decision on you as a bondholder would be similar to the treatment you would receive in a bankruptcy of DEP if the bonds had been issued directly by DEP, including without limitation possibly causing material delays in payment of, or losses on, your bonds and possibly materially reducing the value of your investment in the bonds. Specific examples of possible effects are set forth below. A decision by the bankruptcy court that, despite our separateness from DEP, our assets and liabilities and those of DEP should be substantively consolidated would have a similar effect on you as a bondholder.

The Issuing Entity has taken steps together with DEP, as the seller, to reduce the risk that in the event DEP or an affiliate of DEP were to become the debtor in a bankruptcy case, a court would order that our assets and liabilities be substantively consolidated with those of DEP or an affiliate. Such steps include, without limitation, provisions in our limited liability company agreement concerning entity separation and requiring an independent manager. Nonetheless, these steps might not be completely effective, and thus if DEP or an affiliate of DEP were to become a debtor in a bankruptcy case, a court may order that our assets and liabilities be substantively consolidated with those of DEP or the affiliate. This might cause material delays in payment of, or losses on, your bonds and might materially reduce the value of your investment in the bonds. For example:

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without permission from the bankruptcy court, the indenture trustee might be prevented from taking actions against DEP or recovering or using funds on your behalf or replacing DEP as the servicer;

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the bankruptcy court might order the indenture trustee to exchange the storm recovery property for other property, which might be of lower value;

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tax or other government liens on DEP’s property that arose after the transfer of the storm recovery property to us might nevertheless have priority over the indenture trustee’s lien and might be paid from storm recovery charge collections before payments on your bonds;

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the indenture trustee’s lien might not be properly perfected in storm recovery property collections that were commingled with other funds of DEP collected from customers as of the date of DEP’s bankruptcy, or might not be properly perfected in all of the storm recovery property, including, without limitation, if all perfection requirements are not met, and the lien might therefore be set aside in the bankruptcy, with the result that your bonds would represent only general unsecured claims against DEP;

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the bankruptcy court might rule that neither our property interest nor the indenture trustee’s lien extends to storm recovery charges in respect of electricity consumed after the commencement of DEP’s bankruptcy case, with the result that your bonds would represent only general unsecured claims against DEP;

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we and DEP might be relieved of the obligation to make any payments on your bonds during the pendency of the bankruptcy case and might be relieved of any obligation to pay interest accruing after the commencement of the case;

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DEP might be able to alter the terms of your bonds as part of its plan of reorganization;

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the bankruptcy court might rule that the storm recovery charges should be used to pay a portion of the cost of providing electric service;

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the bankruptcy court might rule that the remedy provisions of the sale agreement are unenforceable, leaving us with an unsecured claim of actual damages against DEP which might be expensive and difficult to prove;

Furthermore, if DEP enters bankruptcy proceedings, it might be permitted to stop acting as servicer with consent of the PSCSC, and it may be difficult to find a third party to act as servicer. The failure of the servicer to perform its duties or the inability to find a successor servicer might cause payment delays or losses on your investment in the bonds. Also, the mere fact of a servicer or seller bankruptcy proceeding might have an adverse effect on the resale market for the bonds and on the value of the bonds.

The sale of the storm recovery property might be construed as a financing and not a sale in a case of DEP’s bankruptcy which might delay or limit payments on the bonds.

The Financing Act provides that the characterization of a transfer of recovery property as a sale or other absolute transfer will not be affected or impaired by treatment of the transfer as a financing for federal or state tax purposes or financial reporting purposes. We and DEP will treat the transaction as a sale under applicable law, although for financial reporting and income and franchise tax purposes the transaction is intended to be treated as a financing. In the event of a bankruptcy of DEP, a party in interest in the bankruptcy might assert that the sale of the storm recovery property to us was a financing transaction and not a “sale or other absolute transfer” and that the treatment of the transaction for financial reporting and tax purposes as a financing and not a sale lends weight to that position. If a court were to characterize the transaction as a financing, we expect that we would, on behalf of ourselves and the indenture trustee, be treated as a secured creditor of DEP in the bankruptcy proceedings, although a court might determine that we only have an unsecured claim against DEP. Even if we had a security interest in the storm recovery property, we would not likely have access to the related storm recovery charge collections during the bankruptcy and would be subject to the risks of a secured creditor in a bankruptcy case, including the possible bankruptcy risks described in the immediately preceding risk factor. As a result, repayment of the bonds might be significantly delayed and a plan of reorganization in the bankruptcy might permanently modify the amount and timing of payments to us of the related storm recovery charge collections and therefore the amount and timing of funds available to us to pay bondholders.

If the servicer enters bankruptcy proceedings, transfers of the storm recovery charges by the servicer prior to the date of bankruptcy might constitute preferences, which means these funds might be unavailable to pay amounts owing on the bonds.

In the event of a bankruptcy of the servicer, a party in interest might take the position that the remittance of funds prior to bankruptcy of the servicer, pursuant to the servicing agreement, constitutes a preference under bankruptcy law if the remittance of those funds was deemed to be paid on account of a

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preexisting debt. If a court were to hold that the remittance of funds constitutes a preference, any such remittance within 90 days of the filing of the bankruptcy petition could be avoidable, and the funds could be required to be returned to the bankruptcy estate of the servicer. To the extent that storm recovery charges have been commingled with the general funds of the servicer, the risk that a court would hold that a remittance of funds was a preference would increase. Also, the issuing entity may be considered an “insider” of the servicer. If the issuing entity is considered to be an “insider” of the servicer, any such remittance to the issuing entity made within one year of the filing of the bankruptcy petition could be avoidable as well if the court were to hold that such remittance constitutes a preference. In either case, the issuing entity or the trustee would merely be an unsecured creditor of the servicer. If any funds were required to be returned to the bankruptcy estate of the servicer, the issuing entity would expect that the amount of any future storm recovery charges would be increased through the statutory true-up mechanism to recover such amount, though this would not eliminate the risk of payment delays or losses on your investment in the bonds.

Claims against DEP or any successor seller might be limited in the event of a bankruptcy of the seller.

If the seller were to become a debtor in a bankruptcy case, claims, including indemnity claims, by us against the seller under the sale agreement and the other documents executed in connection with the sale agreement likely would be unsecured claims and would be adjudicated in the bankruptcy case. In addition, the bankruptcy court might estimate any contingent claims that we have against the seller and, if it determines that the contingency giving rise to these claims is unlikely to occur, estimate the claims at a lower amount. A party in interest in the bankruptcy of the seller might challenge the enforceability of the indemnity provisions in a sale agreement. If a court were to hold that the indemnity provisions were unenforceable, we would be left with a claim for actual damages against the seller based on breach of contract principles, which would be subject to estimation and/or calculation by the court. We cannot give any assurance as to the result if any of the above-described actions or claims were made. Furthermore, we cannot give any assurance as to what percentage of their claims, if any, unsecured creditors would receive in any bankruptcy proceeding involving the seller.

The bankruptcy of DEP or any successor seller might limit the remedies available to the indenture trustee.

Upon an event of default for the bonds under the indenture, the Financing Act permits the indenture trustee to enforce the security interest in the storm recovery property, as well as the statutory lien created by the Financing Act in the storm recovery property, in accordance with the terms of the indenture. In this capacity, and pursuant to the Financing Act and the financing order, the indenture trustee is permitted to request a court to order the sequestration and payment to bondholders of all revenues arising with respect to the related storm recovery property. There can be no assurance, however, that a court would issue this order, after a DEP bankruptcy in light of the automatic stay provisions of Section 362 of the United States Bankruptcy Code. In that event, the indenture trustee would be required to seek an order from the bankruptcy court lifting the automatic stay to permit this action by a court, and an order requiring an accounting and segregation of the revenues arising from the storm recovery property. There can be no assurance that a court would grant either order.

Other Risks Associated with the Purchase of the Bonds

DEP’s obligation to indemnify DEP SC Storm Funding for a breach of a representation or warranty might not be sufficient to protect your investment.

DEP will be obligated under the sale agreement to indemnify us and the indenture trustee, for itself and on behalf of the bondholders, only in specified circumstances. DEP will not be obligated to repurchase the storm recovery property in the event of a breach of any of its representations, warranties or covenants regarding such storm recovery property. Similarly, DEP will be obligated under the servicing agreement to indemnify us and the indenture trustee, for itself and on behalf of the bondholders only in specified circumstances. Please read “The Sale Agreement” and “The Servicing Agreement” in this prospectus.

Neither the indenture trustee nor the bondholders will have the right to accelerate payments on the related bonds as a result of a breach under the sale agreement or servicing agreement, absent an event of default under the indenture and series supplement as described in “Description of the Storm Recovery

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Bonds — Events of Default; Rights Upon Event of Default.” Furthermore, DEP might not have sufficient funds available to satisfy its indemnification obligations, and the amount of any indemnification paid by DEP might not be sufficient for you to recover all of your investment in the bonds. In addition, if DEP becomes obligated to indemnify bondholders, the ratings on the bonds might be downgraded as a result of the circumstances causing the breach and the fact that bondholders will be unsecured creditors of DEP with respect to any of these indemnification amounts. DEP will not indemnify any person for any loss, damages, liability, obligation, claim, action, suit or payment resulting solely from a downgrade in the ratings on the bonds, or for any consequential damages, including any loss of market value of the bonds resulting from a default or a downgrade of the ratings of the bonds. Please read “The Sale Agreement — Seller Representations and Warranties” and “— Indemnification” in this prospectus.

DEP SC Storm Funding might issue additional series of storm recovery bonds.

The financing order authorizes us to issue one or more series of storm recovery bonds not to exceed the aggregate principal amount of the Securitizable Balance as of the issuance date. We may also, at our sole discretion, acquire separate and additional storm recovery property, and issue one or more additional storm recovery property bonds supported by such additional storm recovery property. In addition, DEP, in its sole discretion, may sell storm recovery property to one or more entities other than us in connection with the issuance of a new series of storm recovery bonds. Any new series would be offered pursuant to a separate registration statement and may include terms and provisions that would be unique to that particular series. We may not issue additional storm recovery bonds, nor may DEP sell storm recovery property to other entities issuing storm recovery bonds, if the issuance would not satisfy the rating agency condition. If additional series of storm recovery bonds are issued, storm recovery charge revenues collected by or for the benefit of DEP will be prorated among the owners of the storm recovery property associated with each such series based on the respective amounts of storm recovery charges billed and not yet paid. However, we cannot assure you that a new series or issuance would not cause reductions or delays in payment on your bonds. In addition, the servicer and the administrator cannot be replaced without the requisite approval of the holders of all series of the Bonds. Your interests might conflict with the interests of the beneficial owners of bonds of another series or with the interests of holders of other securities that might be issued, which could result in an outcome that is materially unfavorable to you.

The credit ratings are no indication of the expected rate of payment of principal on the bonds.

We expect the bonds will receive credit ratings from at least two nationally recognized statistical rating organizations (“NRSRO”). A rating is not a recommendation to buy, sell or hold the bonds. The ratings merely analyze the probability that we will repay the total principal amount of the bonds at the final maturity date (which is later than the scheduled final payment date) and will make timely interest payments. The ratings are not an indication that the rating agencies believe that principal payments are likely to be paid on time according to the expected sinking fund schedule.

Under Rule 17g-5 of the Exchange Act, NRSROs providing the sponsor with the requisite certification will have access to all information posted on a website by the sponsor for the purpose of determining the initial rating and monitoring the rating after the closing date in respect of the bonds. As a result, an NRSRO other than the NRSRO hired by the sponsor (the “hired NRSRO”) may issue ratings on the bonds (“unsolicited ratings”), which may be lower, and could be significantly lower, than the ratings assigned by the hired NRSROs. The unsolicited ratings may be issued prior to, or after, the closing date in respect of the bonds. Issuance of any unsolicited rating will not affect the issuance of the bonds. Issuance of an unsolicited rating lower than the ratings assigned by the hired NRSRO on the bonds might adversely affect the value of the bonds and, for regulated entities, could affect the status of the bonds as a legal investment or the capital treatment of the bonds. Investors in the bonds should consult with their legal counsel regarding the effect of the issuance of a rating by a non-hired NRSRO that is lower than the rating of a hired NRSRO. None of DEP, us, the underwriters or any of their affiliates will have any obligation to inform you of any unsolicited ratings assigned after the date of this prospectus. In addition, if we or DEP fail to make available to a non-hired NRSRO any information provided to any hired rating agency for the purpose of assigning or monitoring the ratings on the bonds, a hired NRSRO could withdraw its ratings on the bonds, which could adversely affect the market value of your bonds and/or limit your ability to resell your bonds.

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The bonds’ credit ratings might affect the market value of your bonds.

A downgrading of the credit ratings of the bonds might have an adverse effect on the market value of the bonds. Credit ratings might change at any time and an NRSRO has the authority to revise or withdraw its rating based solely upon its own judgment. In addition, any downgrade in the credit ratings of the bonds may result in the bonds becoming ineligible to be held by certain funds or investors, which may require such investors to liquidate their investment in the bonds and result in lower prices and a less liquid trading market for the bonds.

Technological change might make alternative energy sources more attractive in the future.

Technological developments and/or tax or other economic incentives might result in the introduction of economically attractive, more fuel-efficient, more environmentally-friendly and/or more cost-effective alternatives to purchasing electricity through a utility’s distribution facilities for increasing numbers of retail customers. Manufacturers of self-generation facilities may develop smaller-scale, more fuel-efficient on-site generating and/or storage units that can be cost-effective options for a greater number of retail customers. Moreover, an increase in self-service power may result if extreme weather conditions result in shortages of grid-supplied energy or if other factors cause grid-supplied energy to be less reliable. Those customers who self-generate will also be subject to pay storm recovery charges, but only to the extent of electricity ultimately delivered by means of DEP’s facilities. Technological developments might allow greater numbers of retail customers to reduce or even altogether avoid storm recovery charges under such provisions through on-site generation and storage. This might reduce the kilowatt-hours of electric energy delivered to retail customers by means of DEP’s transmission and distribution facilities, thereby causing storm recovery charges to the remaining retail customers to increase.

Absence of a secondary market for the bonds might limit your ability to resell bonds.

The underwriters for the bonds might assist in resales of such bonds but they are not required to do so. A secondary market for the bonds might not develop. If a secondary market does develop, it might not continue or there might not be sufficient liquidity to allow you to resell any of your bonds. We do not anticipate that any bonds will be listed on any securities exchange. Please read “Plan of Distribution” in this prospectus.

You might receive principal payments for the bonds later than you expect.

The amount and the rate of collection of the storm recovery charges for the bonds will be impacted by the actual electric usage by customers and collections from customers’ electricity bills by the servicer and, together with the related storm recovery charge adjustments, will generally determine whether there is a delay in the scheduled repayment of bond principal. If the servicer collects the storm recovery charges at a slower rate than expected, it might have to request adjustments of the storm recovery charges to correct for those delays. If those adjustments are not timely and accurate, you might experience a delay in payments of principal and interest and a decrease in the value of your investment in the bonds.

DEP’s credit ratings might affect the market value of your bonds.

Although DEP is not an obligor on the bonds, a downgrading of DEP’s current credit ratings might have an adverse effect, at least temporarily, on the market value of the bonds. Credit ratings might change at any time. A rating agency has the authority to revise or withdraw its rating based solely upon its own judgment.

The ratings are no indication of the expected rate of payment of principal on the bonds and DEP SC Storm Funding might pay principal of the bonds later than expected.

The bonds will be rated by one or more established rating agencies. A rating is not a recommendation to buy, sell or hold the bonds. The ratings merely analyze the probability that we will repay the total principal amount of the bonds at its final maturity date (which is later than the expected final payment date) and will make timely interest payments. The ratings are not an indication that the rating agencies believe that

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principal payments are likely to be paid on time according to the expected sinking fund schedule. Thus, we might repay the principal of your bonds later than you expect, which might materially reduce the value of your investment.

Regulatory provisions affecting certain investors could adversely affect the liquidity of the bonds.

European Union (“EU”) legislation comprising Regulation (EU) 2017/2402 (as amended, the “EU Securitization Regulation”) and certain related regulatory technical standards, implementing technical standards and official guidance (together, the European Securitization Rules) impose certain restrictions and obligations with regard to securitizations (as such term is defined for purposes of the “EU Securitization Regulation”). The European Securitization Rules are in force throughout the EU (and are expected also to be implemented in the non-EU member states of the European Economic Area) in respect of securitizations the securities of which were issued (or the securitization positions of which were created) on or after January 1, 2019.

Pursuant to the European Securitization Rules, EU Institutional Investors investing in a securitization (as so defined) must, among other things, verify that (a) certain credit-granting requirements are satisfied, (b) the originator, sponsor or original lender retains on an ongoing basis a material net economic interest which, in any event, shall not be less than 5%, determined in accordance with Article 6 of the EU Securitization Regulation, and discloses that risk retention, and (c) the originator, sponsor or relevant securitization special purpose entity has, where applicable, made available information as required by Article 7 of the EU Securitization Regulation. “EU Institutional Investors” include: (a) insurance undertakings and reinsurance undertakings as defined in Directive 2009/138/EC, as amended; (b) institutions for occupational retirement provision falling within the scope of Directive (EU) 2016/2341 (subject to certain exceptions), and certain investment managers and authorized entities appointed by such institutions; (c) alternative investment fund managers as defined in Directive 2011/61/EU which manage and/or market alternative investment funds in the EU; (d) certain internally-managed investment companies authorized in accordance with Directive 2009/65/EC, and managing companies as defined in that Directive; (e) credit institutions as defined in Regulation (EU) No 575/2013 (“CRR”) (and certain consolidated affiliates thereof); and (f) investment firms as defined in CRR (and certain consolidated affiliates thereof).

With respect to the United Kingdom (“UK”), relevant UK established or UK regulated persons (as described below) are subject to the restrictions and obligations of the EU Securitization Regulation as it forms part of UK domestic law by operation of the European Union (Withdrawal) Act 2018 (as amended, the “EUWA”), and as amended by the Securitisation (Amendment) (EU Exit) Regulations 2019, and as further amended from time to time, the “UK Securitization Regulation”. The UK Securitization Regulation, together with (a) all applicable binding technical standards made under the UK Securitization Regulation, (b) any EU regulatory technical standards or implementing technical standards relating to the EU Securitization Regulation (including such regulatory technical standards or implementing technical standards that are applicable pursuant to any transitional provisions of the EU Securitization Regulation) forming part of UK domestic law by operation of the EUWA, (c) all relevant guidance, policy statements or directions relating to the application of the UK Securitization Regulation (or any binding technical standards) published by the Financial Conduct Authority (the “FCA”) and/or the Prudential Regulation Authority (the “PRA”) (or their successors), (d) any guidelines relating to the application of the EU Securitization Regulation that are applicable in the UK, (e) any other transitional, saving or other provision relevant to the UK Securitization Regulation by virtue of the operation of the EUWA and (f) any other applicable laws, acts, statutory instruments, rules, guidance or policy statements published or enacted relating to the UK Securitization Regulation, in each case, as may be further amended, supplemented or replaced, from time to time, are referred to in this prospectus as the “UK Securitization Rules”.

Article 5 of the UK Securitization Regulation places certain conditions on investments in a “securitization” ​(as defined in the UK Securitization Regulation) by a UK Institutional Investor. UK Institutional Investors include: (a) an insurance undertaking as defined in section 417(1) of the Financial Services And Markets Act 2000 (as amended, the FSMA); (b) a reinsurance undertaking as defined in section 417(1) of the FSMA; (c) an occupational pension scheme as defined in section 1(1) of the Pension Schemes Act 1993 that has its main administration in the UK, or a fund manager of such a scheme appointed under section 34(2) of the Pensions Act 1995 that, in respect of activity undertaken pursuant to

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that appointment, is authorized for the purposes of section 31 of the FSMA; (d) an alternative investment fund manager as defined in regulation 4(1) of the Alternative Investment Fund Managers Regulation 2013 that markets or manages alternative investments funds (as defined in regulation 3 of the Alternative Investment Fund Managers Regulation 2013) in the UK; (e) a management company as defined in section 237(2) of the FSMA; (f) an undertaking for collective investment in transferable securities as defined by section 236A of the FSMA, which is an authorized open ended investment company as defined in section 237(3) of the FSMA; and (g) a CRR firm as defined in CRR, as it forms part of UK domestic law by virtue of the EUWA (and certain consolidated affiliates thereof).

Prior to investing in (or otherwise holding an exposure to) a “securitisation position” ​(as defined in the UK Securitization Regulation), a UK Institutional Investor, other than the originator, sponsor or original lender (each as defined in the UK Securitization Regulation), must, among other things: (a) verify that, where the originator or original lender is established in a third country (i.e. not within the UK), the originator or original lender grants all the credits giving rise to the underlying exposures on the basis of sound and well-defined criteria and clearly established processes for approving, amending, renewing and financing those credits and has effective systems in place to apply those criteria and processes to ensure that credit-granting is based on a thorough assessment of the obligor’s creditworthiness; (b) verify that, if established in the third country (i.e. not within the UK), the originator, sponsor or original lender retains on an ongoing basis a material net economic interest that, in any event, shall not be less than 5%, determined in accordance with Article 6 of the UK Securitization Regulation, and discloses the risk retention to the affected investors; (c) verify that, where established in a third country (i.e. not within the UK), the originator, sponsor or relevant securitization special purpose entity, where applicable, made available information that is substantially the same as that which it would have made available under Article 7 of the UK Securitization Regulation (which sets out certain transparency requirements) if it had been established in the UK and has done so with such frequency and modalities as are substantially the same as those with which it would have made information available if it had been established in the UK; and (d) carry out a due-diligence assessment that enables the UK Institutional Investor to assess the risks involved, considering at least (i) the risk characteristics of the securitisation position and the underlying exposures and (ii) all the structural features of the securitization that can materially impact the performance of the securitisation position.

Neither we nor DEP believe that the bonds fall within the definition of a “securitization” for purposes of the EU Securitization Regulation or the UK Securitization Regulation as there is no tranching of credit risk associated with exposures under the transactions described in this prospectus. Therefore, such transactions are not subject to the European Securitization Rules or the UK Securitization Rules. As such, neither we nor DEP, nor any other party to the transactions described in this prospectus, intend, or are required under the transaction documents, to retain a material net economic interest in respect of such transactions, or to take, or to refrain from taking, any other action, in a manner prescribed or contemplated by the European Securitization Rules or the UK Securitization Rules. In particular, no such person undertakes to take, or to refrain from taking, any action for purposes of compliance by any investor (or any other person) with any requirement of the European Securitization Rules or the UK Securitization Rules to which such investor (or other person) may be subject at any time.

However, if a competent authority were to take a contrary view and determine that the transactions described in this prospectus do constitute a securitization for purposes of the EU Securitization Regulation or the “UK Securitization Regulation”, then any failure by an EU Institutional Investor or a UK Institutional Investor (as applicable) to comply with any applicable European Securitization Rules or UK Securitization Rules (as applicable) with respect to an investment in the bonds may result in the imposition of a penalty regulatory capital charge on that investment or of other regulatory sanctions and remedial measures.

Consequently, the bonds may not be a suitable investment for EU Institutional Investors or UK Institutional Investors. As a result, the price and liquidity of the bonds in the secondary market may be adversely affected.

Prospective investors are responsible for analyzing their own legal and regulatory position and are advised to consult with their own advisors and any relevant regulator or other authority regarding the scope, applicability and compliance requirements of the European Securitization Rules and the UK Securitization Rule, and the suitability of the bonds for investment. Neither we nor DEP, nor any other party

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to the transactions described in this prospectus, make any representation as to any such matter, or have any liability to any investor (or any other person) for any non-compliance by any such person with the European Securitization Rules, the UK Securitization Rules or any other applicable legal, regulatory or other requirements.

If the investment of collected storm recovery charges and other funds held pursuant to the indenture and the series supplement in the collection account results in investment losses or the investments become illiquid, you might receive payment of principal of and interest on the bonds later than you expect.

Funds held pursuant to the indenture and the series supplement in the collection account will be invested in eligible investments. Eligible investments include money market funds having a rating from Moody’s Investors Service, Inc. (or any successor in interest), or Moody’s, and Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (or any successor in interest), or S&P, of P-1 and A-1, respectively. Although investments in these money market funds have traditionally been viewed as highly liquid with a low probability of principal loss, illiquidity and principal losses have been experienced by investors in certain of these funds as a result of disruptions in the financial markets in recent years. If investment losses or illiquidity are experienced, you might experience a delay in payments of principal and interest and a decrease in the value of your investment in the bonds.

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DEP’S REVIEW OF STORM RECOVERY PROPERTY

Pursuant to the rules of the SEC, DEP, as sponsor, has performed, as described below, a review of the storm recovery property underlying the bonds. As required by these rules, the review was designed and effected to provide reasonable assurance that disclosure regarding the storm recovery property is accurate in all material respects. DEP did not engage a third party in conducting its review.

The bonds will be secured under the indenture by the storm recovery bond collateral. The principal asset of the indenture’s trust estate is the storm recovery property relating to the bonds. The storm recovery property is a present property right authorized and created pursuant to Financing Act and the financing order. The storm recovery property includes the right to impose, bill, charge, collect and receive nonbypassable irrevocable storm recovery charges in amounts necessary to pay principal on and interest of the bonds and other required amounts and charges owing in connection with the bonds, the right under the financing order to obtain true-up adjustments of storm recovery charges under Financing Act (with respect to adjustments, in the manner and with the effect provided in the servicing agreement) and all revenue, collections, claims, right to payments, payments, money and proceeds arising out of the rights and interests created under the financing order. Under the Financing Act and the financing order, the storm recovery charges are payable by all existing or future customers receiving transmission or distribution service, or both, from DEP or its successors or assignees under PSCSC-approved rate schedules or under special contracts, even if a customer elects to purchase electricity from an alternative electricity supplier following a fundamental change in regulation of public utilities in South Carolina.

The storm recovery property is not a receivable, and the principal collateral securing the bonds is not a pool of receivables. Storm recovery charges that relate to the storm recovery property are irrevocable and not subject to reduction, impairment, postponement, termination or, except for the specified true-up adjustments to correct any overcollections or undercollections, adjustment by further action of the PSCSC. The rates at which storm recovery charges are billed to customers will be adjusted to correct any overcollections or undercollections from prior periods. These adjustments are intended to ensure the recovery of revenues sufficient to retire the principal amount of the bonds in accordance with the expected sinking fund schedule, to pay all interest on the bonds when due, to pay fees and expenses of servicing the bonds and premiums, if any, associated with the bonds and to fund any required credit enhancement for the bonds. In addition to the semi-annual true-up adjustments, the servicer is also required to implement (a) quarterly true-up adjustments, beginning twelve (12) months prior to the scheduled final payment date, and (b) may request an interim true-up adjustment at any time for any reason to ensure timely payment of scheduled principal of and interest on the bonds and other required amounts and charges owing in connection with the bonds on the next payment date. There is no cap on the level of storm recovery charges that may be imposed on electric customers as a result of the true-up mechanism to pay principal of and interest on the bonds when due and other required amounts and charges owing in connection with the bonds. All revenues and collections resulting from storm recovery charges provided for in the financing order are part of the storm recovery property. The storm recovery property relating to the bonds is described in more detail under “The Storm Recovery Property and the Financing Act” in this prospectus.

In the financing order, the PSCSC, among other things:

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orders that the owner of storm recovery property is authorized to impose, bill, charge, collect, and adjust from time to time (as described in the financing order) a storm recovery charge to be collected on a per kWh basis from all applicable customer rate classes until the bonds are paid in full and all other costs of the bonds have been recovered in full;

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orders that such storm recovery charges shall be in amounts sufficient to ensure the timely recovery of DEP’s storm recovery costs and financing costs including the payment of principal of and interest on the bonds;

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orders that upon the transfer of the storm recovery property to us by DEP, we will have (i) all rights and interest of DEP with respect to the storm recovery property including, without limitation, the right to impose, bill, charge, collect and receive storm recovery charges authorized by the financing order and to obtain periodic adjustments to the storm recovery charges and (ii) all revenues, collections, claims, rights to payments, payments, money or proceeds with respect thereto; and

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•

reaffirms that it shall not take or permit any action that impairs or would impair the value of storm recovery property or revise the storm recovery costs for which recovery is authorized, in any way impair the rights and remedies of the bondholders, assignees and other financing parties or, except for the true-up adjustment, reduce, alter, or impair storm recovery charges that are to be imposed, collected, charged and remitted for the benefit of the bondholders and other financing parties until any and all principal, interest, premium, financing costs and other fees, expenses, or charges incurred, and any contracts to be performed, in connection with the related bonds have been paid and performed in full.

Please read “The Storm Recovery Property and the Financing Act” and “DEP’s Financing Order” in this prospectus for more information.

The characteristics of storm recovery property are unlike the characteristics of assets underlying mortgage and other commercial asset based financings because storm recovery property is a creature of statute and state regulatory commission proceedings. Because the nature and characteristics of storm recovery property and many elements of storm recovery bond financings are set forth in and constrained by the Financing Act and the financing order, DEP, as sponsor, does not select the assets to be pledged as collateral in ways common to many traditional asset-based financings. Moreover, the bonds do not contain origination or underwriting elements similar to typical mortgage or other loan transactions involved in other forms of asset-backed securities. The Financing Act and the financing order require the imposition on, and collection of storm recovery charges from, existing or future customers. Since the storm recovery charges are assessed against all such customers and the true-up mechanism adjusts for the impact of customer defaults, the collectability of the storm recovery charges is not ultimately dependent upon the credit quality of particular DEP customers, as would be the case in the absence of the true-up adjustment.

The review by DEP of the storm recovery property underlying the bonds has involved a number of discrete steps and elements as described in more detail below. First, DEP has analyzed and applied the Financing Act’s requirements for recovering storm recovery costs and approval of the PSCSC for the issuance of the financing order and in its proposal with respect to the characteristics of the storm recovery property to be created pursuant to the financing order. In preparing this proposal, DEP worked with its counsel and its structuring advisor in preparing the application for a financing order. DEP has analyzed economic issues and practical issues for the scheduled payment of principal of and interest on the bonds, including the impact of economic factors, potential for disruptions due to weather or catastrophic events and its own forecasts for customer growth as well as the historic accuracy of its prior forecasts.

In light of the unique nature of the storm recovery property, DEP has taken (or, prior to the offering of the bonds, will take) the following actions in connection with its review of the storm recovery property and the preparation of the disclosure for inclusion in this prospectus describing the storm recovery property, the bonds and the proposed financing transaction:

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reviewed the Financing Act, other relevant provisions of South Carolina statutes and any applicable rules, regulations and orders of the PSCSC as they relate to the storm recovery property in connection with the preparation and filing of the application with the PSCSC for the approval of the financing order in order to confirm that the application and proposed financing order satisfied applicable statutory and regulatory requirements;

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actively participated in the proceeding before the PSCSC relating to the approval of the requested financing order;

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compared the process by which the financing order was adopted and approved by the PSCSC to the Financing Act and any applicable rules and regulations of the PSCSC as they relate to the storm recovery property to confirm that it met such requirements;

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compared the proposed terms of the bonds to the applicable requirements in the Financing Act, other relevant provisions of South Carolina statutes, the financing order and any applicable regulations of the PSCSC to confirm that they met such requirements;

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prepared and reviewed the agreements to be entered into in connection with the issuance of the bonds and compared such agreements to the applicable requirements in the Financing Act, other

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relevant provisions of South Carolina statutes, the financing order and any applicable regulations of the PSCSC to confirm that they met such requirements;

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reviewed the disclosure in this prospectus regarding the Financing Act, other relevant provisions of South Carolina statutes, the financing order and the agreements to be entered into in connection with the issuance of the bonds, and compared such descriptions to the relevant provisions of the Financing Act, other relevant provisions of South Carolina statutes, the financing order and such agreements to confirm the accuracy of such descriptions;

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consulted with legal counsel to assess if there is a basis upon which the bondholders (or the indenture trustee acting on their behalf) could successfully challenge the constitutionality of any legislative action by the State of South Carolina (including action by the PSCSC) that could repeal or amend the provisions of the Financing Act in a way that could substantially impair the value of the storm recovery property, or substantially reduce, alter or impair the storm recovery charges;

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reviewed the process and procedures in place for it, as servicer, to perform its obligations under the servicing agreement, including billing, collecting, receiving and posting the storm recovery charges to be provided for under the storm recovery property, forecasting storm recovery charges, and preparing and filing applications for true-up adjustments to the storm recovery charges;

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reviewed the operation of the true-up adjustment for adjusting storm recovery charge levels to meet the scheduled payments on the bonds and in this context took into account its experience with the PSCSC; and

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with the assistance of its advisors, prepared financial models in order to set the initial storm recovery charges to be provided for under the storm recovery property at levels expected to be sufficient to pay principal of and interest on the bonds when due and other required amounts and charges owing in connection with the bonds.

In connection with the preparation of such models, DEP:

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reviewed (i) the historical electric consumption and customer growth within its service territory and (ii) forecasts of expected energy sales and customer growth; and

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analyzed the sensitivity of the weighted average life of the bonds in relation to variances in actual energy consumption levels and related charge collections from forecasted levels and in relation to the true-up adjustment in order to assess the probability that the weighted average life of the bonds may be extended as a result of such variances, and in the context of the operation of the true-up adjustment for adjustment of storm recovery charges to address undercollections or overcollections in light of scheduled payments on the bonds to prevent an event of default.

As a result of this review, DEP has concluded that:

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the storm recovery property, the financing order and the agreements to be entered into in connection with the issuance of the bonds meet in all material respects the applicable statutory and regulatory requirements;

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the disclosure in this prospectus regarding the Financing Act, other relevant provisions of South Carolina statutes, the financing order and the agreements to be entered into in connection with the issuance of the bonds is, as of its respective date, accurate in all material respects and fails to omit any material information;

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the servicer has adequate processes and procedures in place to perform its obligations under the servicing agreement;

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storm recovery charges, as adjusted from time to time as provided in the Financing Act and the financing order, are expected to generate sufficient revenues to pay principal of and interest on the bonds when due and other required amounts and charges owing in connection with the bonds; and

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the design and scope of DEP’s review of the storm recovery property as described above is effective to provide reasonable assurance that the disclosure regarding the storm recovery property in this prospectus is accurate in all material respects.

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THE STORM RECOVERY PROPERTY AND THE FINANCING ACT

The Storm Recovery Property

In general terms, all of the rights and interests of DEP that relate to the bonds under the financing order, upon transfer to us pursuant to the sale agreement, are referred to in this prospectus as the storm recovery property. The storm recovery property includes the right to impose, bill, charge, collect and receive, through the storm recovery charges payable by existing or future customers who receive electric transmission or distribution service, or both, from DEP or its successors or assignees under rate schedules approved by the PSCSC or under special contracts, including the State of South Carolina and other governmental entities, an amount sufficient to pay principal and interest and other amounts in connection with the bonds. The Financing Act provides that the right to collect payments based on the storm recovery charge is a present property right that may be pledged, assigned or sold in connection with the issuance of the bonds.

The storm recovery property is not a receivable, and the principal collateral securing the bonds is not a pool of receivables.

During 2023, approximately 35% of DEP’s total South Carolina retail billed electric consumption was by residential customers, approximately 33% was by industrial customers and approximately 31% was by commercial customers, with other entities comprising approximately 1% of DEP’s total retail billed electric consumption. Except in their capacity as customers, neither the State of South Carolina nor any political subdivision, agency, authority or instrumentality of the State of South Carolina, nor any other entity, will be obligated to provide funds for the payment of principal of and interest on the bonds.

Storm recovery charges authorized in the financing order are irrevocable and not subject to reduction, impairment, or adjustment by further action of the PSCSC, except for at least semi-annual true-up adjustments that are necessary to correct for any overcollection or undercollection of the storm recovery charges or to otherwise ensure the timely payment of principal of and interest on the bonds when due and other financing costs and other required amounts and charges payable in connection with the bonds. Please read “DEP’s Financing Order — True-Up Mechanism” in this prospectus. All revenues resulting from storm recovery charges are part of the storm recovery property.

The storm recovery property relating to the bonds is described in more detail under “The Sale Agreement — Sale and Assignment of the Storm Recovery Property” in this prospectus.

The aggregate principal amount of bonds that may be issued pursuant to the financing order may not exceed the Securitizable Balance on the date of issuance. The servicer will bill and collect storm recovery charges allocable to the bonds and will remit the collections to the indenture trustee. DEP will include the storm recovery charges (which may relate to one or more series of bonds) as a separate line item on its customers’ bills.

Because the amount of storm recovery charge collections will depend in part on the amount of electricity consumed by customers of DEP or its successor, the amount of collections may vary from year to year. Please read “Duke Energy Progress, LLC” in this prospectus.

Under the Financing Act, if a default or termination occurs under the terms of the bonds, the indenture trustee or the holders of the bonds may foreclose on or otherwise enforce their lien and security interest in the storm recovery property.

However, in the event of foreclosure, there is likely to be a limited market, if any, for the storm recovery property. Therefore, foreclosure might not be a realistic or practical remedy. Please read “Risk Factors — Risks Associated with the Unusual Nature of the Storm Recovery Property — Foreclosure of the indenture trustee’s lien on the storm recovery property for the bonds might not be practical, and acceleration of the bonds before maturity might result in your investment being repaid either earlier or later than expected” and “Description of the Storm Recovery Bonds — Events of Default; Rights Upon Event of Default” in this prospectus.

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The Financing Act Authorizes Utilities to Recover Storm Recovery Costs Through the Issuance of Storm Recovery Bonds

On June 17, 2022, the Financing Act, codified as Sections 58-27-1110 through 1180, SC Code of Laws Annotated, became effective, authorizing public utilities in the State of South Carolina to petition the PSCSC for financing orders that authorize, among other things,

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The issuance of storm recovery bonds;

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The creation of storm recovery property; and

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The imposition, collection, and periodic adjustments of storm recovery charges.

The Financing Act gives an electric utility the opportunity to finance the recovery of storm recovery costs it has incurred or expects to incur and storm recovery costs was deemed reasonable and prudent by the PSCSC through a final order approving a settlement or other final order issued by the PSCSC.

In order to finance their storm recovery costs and financing costs, South Carolina utilities may petition for a financing order under the Financing Act. As described below, DEP petitioned for the first such financing order, which was issued by the PSCSC on October 13, 2023 and amended on October 23, 2023.

The Financing Act Provides for the Issuance of a Financing Order

The Financing Act authorizes the PSCSC to issue a financing order. A financing order provides for the creation of storm recovery property, including the right to impose, bill, charge, collect and receive the storm recovery charges and for the issuance of storm recovery bonds.

In addition, a financing order will:

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authorize the transfer of storm recovery property to an issuing entity to secure storm recovery bonds;

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set forth procedures for establishing the initial storm recovery charges and for periodic true-up adjustments to storm recovery charges in the event of overcollection or undercollection of storm recovery charges. In accordance with the Financing Act, Within sixty days after receiving a true-adjustment letter from the servicer, the PSCSC shall either approve the request or inform the servicer of a mathematical or clerical error. If the PSCSC informs the servicer of mathematical or clerical errors in its calculation, the electrical utility may correct its error and refile its request;

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remain in effect until the storm recovery bonds issued pursuant to the financing order have been paid in full or defeased and, in each case, the PSCSC-approved financing costs of such bonds have been recovered in full; and

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remain in effect and unabated notwithstanding the reorganization, bankruptcy, or other insolvency proceedings, merger, or sale of the electric utility or its successors or assignees.

Having issued the financing order, the PSCSC may not, in exercising its powers and carrying out its duties regarding any matter within its authority, (i) consider storm recovery bonds issued pursuant to the financing order to be the debt of DEP other than for federal income tax purposes, (ii) consider the storm recovery charges paid under the financing order to be the revenue of DEP for any purpose, or (iii) consider the storm recovery costs or financing costs specified in the financing order to be the costs of DEP, nor may the PSCSC determine any action taken by DEP which is consistent with the financing order to be unjust or unreasonable.

The Financing Act Provides for the Creation of Storm Recovery Property to Secure the Bonds

The Financing Act authorizes the PSCSC, through issuance of a financing order, to provide for the creation of storm recovery property to secure repayment of storm recovery bonds. Storm recovery property is defined under the Financing Act as all of the following:

(i)   all rights and interests of an electric utility or its successor or assignee under a financing order, including the right to impose, bill, charge, collect and receive storm recovery charges authorized

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in the financing order and to obtain periodic adjustments to such storm recovery charges as provided in the financing order, and

(ii)   all revenues, collections, claims, rights to payment, payments, money or proceeds arising from the rights and interests specified in the financing order, regardless of whether such revenues, collections, claims, rights to payment, payments, money or proceeds are imposed, billed, received, collected or maintained together with or commingled with other revenues, collections, rights to payment, payments, money or proceeds.

Pursuant to the Financing Act and a financing order, the owner of storm recovery property is authorized to impose and collect a nonbypassable, consumption based, storm recovery charge, which charges shall be paid by all existing or future customers receiving transmission or distribution service, or both, from the electric utility (or its successors or assignees) under PSCSC-approved rate schedules or under special contracts (i.e., contracts with large industrial users), even if the customer elects to purchase electricity from an alternative electric supplier following a fundamental change in regulation of public utilities in South Carolina. Under current law, customers of South Carolina electric utilities cannot buy their electricity from alternative electric suppliers.

The storm recovery charges authorized to be imposed and collected pursuant to the Financing Act and a financing order are designed to recover (among other financing costs) all principal of and interest on the bonds, and any other costs of issuing, supporting, repaying, refunding and servicing such bonds, as more fully described below.

The Financing Act Provides for the Recovery of Storm Recovery Costs and the Issuance of the Bonds

The Financing Act contains a number of provisions designed to facilitate the recovery of storm recovery costs and the issuance of storm recovery bonds.

A Financing Order is Irrevocable.   Once storm recovery bonds have been issued or storm recovery property has been transferred under an effective financing order, the financing order, together with the storm recovery charges established in the financing order, are irrevocable and not subject to amendment, modification or termination by the PSCSC. The only exception is for periodic true-up adjustments pursuant to the Financing Act in order to correct overcollections or undercollections of storm recovery charges and to ensure that sufficient funds are available for payments of principal of and interest on the storm recovery bonds when due and other financing costs and required amounts and charges payable in connection with such bonds. Unlike the citizens of certain other states, the citizens of South Carolina currently do not have the constitutional right to adopt or revise state laws by initiative or referendum. Thus, absent an amendment of the South Carolina Constitution, the Financing Act cannot be amended or released by direct action of the electorate of South Carolina.

The Financing Act Contains a State Pledge.   Under the Financing Act, the State of South Carolina and its agencies, including the PSCSC, has pledged to storm recovery bondholders, that it will not (i) alter the provisions of the Financing Act that make the storm recovery charges imposed by a financing order irrevocable, binding and nonbypassable, (ii) take or permit any action that impairs or would impair the value of the storm recovery property, (iii) impair the rights and remedies of the holders, assignees, and other financing parties or (iv) except for “true-up” adjustments discussed in the following paragraph, reduce, alter, or impair the storm recovery charges to be imposed, collected and remitted for the benefit of the holders of storm recovery bonds until any and all principal, interest, other financing costs and other fees, expenses, or charges incurred, and any contracts to be performed in connection with the storm recovery bonds, have been paid in full. This state pledge does not preclude any limitation or alteration of the Financing Act or a financing order if “full compensation” is made by law for the “full protection” of the storm recovery charges collected pursuant to a financing order and of the holders of the storm recovery bonds or any financing party entering into a contract with the electric utility. Further, even after a financing order is effective, the PSCSC retains the power to interpret the financing order. Please read “Risk Factors — Risks Associated with Potential Judicial, Legislative or Regulatory Actions” in this prospectus.

Storm Recovery Charge Adjustments.   The Financing Act requires the PSCSC to provide a formula-based true-up mechanism pursuant to which the storm recovery charges are to be reviewed and adjusted at

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least semi-annually such review by the PSCSC being limited to review of mathematical or clerical errors. The purposes of these adjustments are:

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to correct any overcollections or undercollections of the charges during the preceding remittance period, and

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to ensure the recovery of storm recovery charges sufficient to provide for the timely payments of scheduled principal of and interest on the storm recovery bonds, financing costs and other required amounts and charges payable in connection with the storm recovery bonds.

Neither the Financing Act nor the financing order imposes any cap on the size of storm recovery charges.

Transmission and Distribution Customers Cannot Avoid Storm Recovery Charges — Nonbypassable.   The Financing Act provides that the storm recovery charges are nonbypassable. The charges will be collected from all existing or future South Carolina customers receiving transmission or distribution service, or both, from the utility or its successors or assignees under PSCSC-approved rate schedules or under special contracts, even if the customer elects to purchase electricity from an alternative electric supplier following a fundamental change in regulation of public utilities in the State of South Carolina. Self-generators that receive no transmission or distribution service from DEP are not liable for the storm recovery charge. The Financing Act and the financing order do not provide for exit fees to be charged to any customers that might leave the grid to self-generate.

Any successor to DEP, whether pursuant to any reorganization, bankruptcy, or other insolvency proceeding or whether pursuant to any merger or acquisition, sale, or other business combination, or transfer by operation of law, as a result of electric utility restructuring or otherwise, is required to cooperate with the servicer in performing and satisfying all obligations of, and will have the same rights under the financing order as, DEP in the same manner and to the same extent as DEP, including cooperating with the servicer in collecting and paying to us the revenues, collections, payments or proceeds of the storm recovery property.

The Financing Act Protects the Lien on Storm Recovery Property for the Benefit of Bondholders.   The Financing Act governs whether the transfer of storm recovery property from the electric utility to an issuer of bonds will be enforceable and will be perfected under South Carolina law and whether the security interest granted by us to the indenture trustee in the storm recovery property will be perfected under South Carolina law. The Financing Act provides that a transfer of an interest in storm recovery property to an assignee is enforceable only upon all of the following items having been attained:

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the issuance of the financing order,

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the seller having rights in the storm recovery property or the power to transfer rights in the storm recovery property to an assignee,

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transfer documents having been executed and delivered to the assignee in connection with the issuance of bonds, and

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the receipt of value for the storm recovery property.

A transfer of or security interest in the storm recovery property is perfected by means of a filing under the Financing Act. Upon perfection, the lien attaches both to storm recovery property and to all proceeds of storm recovery property, whether the related storm recovery charges have accrued or not. Perfection of the indenture trustee’s security interest in the storm recovery property is necessary in order to establish the priority of the indenture trustee’s security interests over claims of other parties to the storm recovery property.

The Financing Act provides that the priority of a security interest in storm recovery property will not be impaired by:

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later modifications to the financing order or storm recovery property; or

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commingling of funds arising from storm recovery property with other funds.

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The Financing Act further provides that any other security interest that may apply to such funds, other than a security interest perfected in accordance with the Financing Act, are terminated when such funds are transferred to a segregated account for the assignee or a financing party.

The Financing Act Provides that the Transfer of Storm Recovery Property Is a True Sale.   The Financing Act provides that an electric utility’s transfer of storm recovery property is a “true sale” and is not a pledge of or a secured transaction relating to the electric utility’s right, title and interest in the storm recovery property (other than for federal and state income and franchise tax purposes) and that legal and equitable title passes to the transferee, if the agreement governing that transfer expressly states that the transfer is a sale or other absolute transfer. The Financing Act provides that the transfer as a true sale is not affected by:

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commingling of amounts arising with respect to the storm recovery property with other amounts;

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retention by the seller of (i) a partial or residual interest, including an equity interest, in the storm recovery property, whether direct or indirect, or whether subordinate or otherwise or (ii) the right to recover costs associated with taxes, franchise fees, or license fees imposed on the collection of storm recovery charges;

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any recourse that the transferee may have against the electric utility;

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any indemnification rights, obligations, or repurchase rights made or provided by the electric utility;

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the obligation of the electric utility to collect storm recovery charges on behalf of an assignee;

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the seller acting as servicer of the storm recovery charges;

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the treatment of the sale, conveyance, assignment, or other transfer for tax, financial reporting, or other purposes;

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granting or providing to holders of the bonds a preferred right to the storm recovery property or credit enhancement by the electric utility or its affiliates with respect to the related bonds; or

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any application of the formula-based adjustment mechanism.

Please read “Risk Factors — Risks Associated with Potential Bankruptcy Proceedings of the Seller or the Servicer” and “Bankruptcy and Creditors’ Rights Issues” in this prospectus.

The Bonds are Legal Investments for South Carolina Investors that Require Statutory Authority

Under the Financing Act, the following South Carolina entities may legally invest any sinking funds, moneys, or other funds belonging to them or under their control in the bonds:

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the South Carolina Pooled Investment Fund established pursuant to Section 6-6-10 of the SC Code of Laws Annotated;

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banks and bankers, savings and loan associations, credit unions, trust companies, savings banks and institutions, investment companies, insurance companies, insurance associations, and other persons carrying on a banking or insurance business;

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personal representatives, guardians, trustees, and other fiduciaries; and

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all other persons whatsoever who are now or may hereafter be authorized to invest in bonds or other obligations of a similar nature.

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DEP’S FINANCING ORDER

DEP’s Storm Recovery Financing Order

On October 13, 2023, the PSCSC issued to DEP its first financing order under the Financing Act and amended the financing order on October 23, 2023. No party appealed the financing order and the financing order became final and non-appealable on November 23, 2023. After issuance of the bonds, the financing order, pursuant to the Financing Act, is irrevocable and is not subject to amendment, modification or termination by further action of the PSCSC, except as contemplated by the periodic true-up adjustments.

The financing order authorizes the issuance of the bonds in one or more series in an aggregate principal amount not to exceed an amount equal to the Securitizable Balance as of the issuance date plus up-front financing costs to issue the bonds.

Storm Recovery Charges

Storm Recovery Charges Will Be Imposed in Amounts Sufficient to Pay the Bonds and Related Costs.   Under the financing order, the PSCSC authorizes the owner of storm recovery property to impose, bill, charge, collect and receive a storm recovery charge, to be collected on a per kWh basis from all applicable DEP South Carolina customers until the bonds are paid in full and all financing costs and other costs of the bonds have been recovered in full. Such storm recovery charges are designed to be in amounts sufficient to retire the principal amount of the bonds in accordance with the expected sinking fund schedule, to pay all interest on the bonds when due, to pay fees and expenses of servicing the bonds and premiums, if any, associated with the bonds and to fund any required credit enhancement for the bonds. Under the financing order, there is no limit on the amount of the storm recovery charge.

Each Rate Class Will Pay a Different Storm Recovery Charge Based upon Ratemaking Cost Allocation.   Under the Financing Act and the financing order, storm recovery charges are determined by allocating the revenue requirement payable from such charges among all South Carolina customer rate classes in accordance with the cost-of-service methodology approved by the PSCSC in DEP’s most recently filed rate case. The storm recovery charge will be a single per kilowatt hour charge assessed against each rate class of customers as part of each customer’s regular monthly billing.

The defined rate classes of customers and their respective percentage allocations of responsibility for the payment of revenue requirements to be recovered from the storm recovery charges based upon the most recently PSCSC approved rate case by DEP and therefore approved in the financing order are set forth below. The initial Allocation Percentages set forth below are approximate.

South Carolina Rate Class	Allocation Percentage
Residential	​	67.01%
Small General Service	​	9.72%
Medium General Service	​	12.60%
Large General Service	​	4.08%
Lighting	​	6.59%
​	​	100.00%

In accordance with the Financing Act and the financing order, the allocation methodology for the storm recovery charges will be adjusted concurrently with the subsequent true-up adjustment filing using the customer class allocation methodology approved by the PSCSC in the then most recent general rate proceeding for DEP.

Although the storm recovery charges payable by each rate class of customers will differ, any deficiency in the payment of such charges by any class of customers, including write-offs or other reasons, will be included in determining the revenue requirement used in calculating the next “true-up” adjustment for all customers. Similarly, if the servicer decides to implement an optional interim true-up to address an expected deficiency in the payment of such charges by a particular class of customers, the expected deficiency will

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be included in determining the revenue requirement which will be allocated among all classes of customers in the true-up adjustment. Please read “DEP’s Financing Order — True-Up Mechanism” below.

The Financing Order Provides a Procedure to Calculate the Initial Storm Recovery Charge.   The initial storm recovery charges will be determined in accordance with the financing order and filed with the PSCSC as part of the bond approval process described below. Please read “DEP’s Financing Order — Issuance Advice Letter Process” below. As of                      , the approximate initial storm recovery charge for an average 1,000 kWh South Carolina residential customer will be $      per month. The storm recovery charges will become effective for all billing periods on and after the date of issue of the bonds and will be subject to periodic true-up as described below.

DEP Will Collect the Storm Recovery Charges as Initial Servicer.   Storm recovery charges will be assessed by DEP, as the initial servicer, for our benefit as owner of the storm recovery property. Storm recovery charges will be based on a customer’s actual consumption of electricity delivered by means of DEP’s transmission and distribution facilities from time to time. Storm recovery charges will be collected by DEP from customers as part of its normal collection activities. Storm recovery charges will be deposited by DEP into the collection account under the terms of the indenture, the series supplement and the servicing agreement. Estimated daily storm recovery charge collections will be remitted to the indenture trustee on each business day. The estimated payments made by DEP will be based upon the average number of days each bill remains outstanding, adjusted for any expected delinquencies. Estimated remittances will be reconciled with actual storm recovery bond collections at least semi-annually, and the overcollection or undercollection credited to or remitted by the servicer. Those customers who self-generate will also be subject to pay storm recovery charges, but only to the extent of electricity ultimately delivered by means of DEP’s facilities. Self-generators that receive no transmission or distribution service from DEP are not liable for the storm recovery charge. Please read “The Servicing Agreement — Remittances to Collection Account” in this prospectus.

Partial Payments of Storm Recovery Charges Will Be Pro-Rated.   If a customer pays only a portion of its bill, after the application of late charges to such bill, partial payment will be allocated ratably among the storm recovery charges, any similar securitization charges and DEP’s other billed amounts in a manner that is consistent with DEP’s current process for allocating partial payments where cash collections are first applied to billed deposits, then to installment plans (if any are existing)1, past due charges including past due storm recovery charges, current month charges, including storm recovery charges and finally to late payment fees.

True-Up Mechanism

Storm Recovery Charges Must Be Trued-Up At Least Semi-Annually.   The Financing Act permits and the financing order requires that we, or the electric utility, file with the PSCSC at least semi-annually (at least quarterly beginning twelve months prior to the scheduled final payment date) a letter applying the true-up mechanism to be reviewed by the PSCSC for any mathematical or clerical errors to correct for any overcollection or undercollection of the storm recovery charges and make any adjustments to ensure the recovery of revenues sufficient to provide for the timely payment of the periodic payment requirement. Under the servicing agreement, the servicer will make adjustments to the storm recovery charges at least semi-annually. In addition to the semi-annual true-up adjustment, the servicer is authorized to make interim adjustments at any time for any reason to ensure the timely payment of the periodic payment requirement. Necessary true-up adjustments are to be made to correct for overcollection or undercollection of storm recovery charges or to otherwise ensure the timely payment of the periodic payment requirement. There are no caps on the level of storm recovery charges that may be imposed on customers as a result of the true-up process.

In addition to the semi-annual true-up adjustments, the servicer (a) is also required to implement quarterly true-up adjustments beginning twelve months prior to the scheduled final payment date, and (b) may request an interim true-up adjustment at any time for any reason to ensure timely payment of principal of and interest on the bonds and other required amounts and charges owing in connection with the bonds on the next payment date.

1

Storm recovery charges are factored into installment plan accounts paid by customers.

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Upon the filing of a true-up adjustment letter made pursuant to the financing order, the PSCSC shall either administratively approve the requested true-up calculation in writing or inform the servicer of any mathematical or clerical errors in its calculation as expeditiously as possible but no later than 60 days following the servicer’s true-up filing; and that notification and correction of any mathematical or clerical errors shall be made so that the true-up is implemented within 60 days of the servicer’s filing of a true-up adjustment letter. If a correction is requested, the servicer will work expeditiously to file corrections to the true-up calculations. Upon administrative approval, no further action of the PSCSC will be required prior to implementation of the true-up.

Pursuant to the financing order, after the completion of three semi-annual true-up periods, DEP and the South Carolina Office of Regulatory Staff (“ORS”) will discuss possibly reducing the time period to review filed true-up adjustment letters from 60 to 30 days. There, however, can be no assurance that the review period will be reduced to 30 days.

True-Up Mechanism and State Pledge.

The State of South Carolina has pledged in the Financing Act that it and its agencies, including the PSCSC, will not take or permit any action that would impair the value of the storm recovery property, or, except as permitted in connection with a true-up adjustment authorized by the Financing Act, reduce, alter or impair the storm recovery charges until the principal, interest and premium, if any, and any other charges incurred and contracts to be performed in connection with the related bonds, have been paid and performed in full.

Issuance Advice Letter Process

The Financing Act and the financing order provide a procedure for approval of the process by which the storm recovery bonds will be issued and the effectiveness of the initial storm recovery charges. On the first business day after pricing of the bonds and prior to their issuance, DEP is required to file with the PSCSC an issuance advice letter, which will contain, among other things:

•

the actual structure of the storm recovery bond issuance;

•

the scheduled final payment dates and legal maturities of the storm recovery bonds;

•

over-collateralization levels (if any);

•

any other credit enhancements;

•

revised estimates of the up-front financing costs proposed to be financed and estimates of the ongoing financing costs for the first collection period;

•

certifications as required by the Financing Act and Financing Order; and

•

other information specific to the storm recovery bonds from proceeds of the storm recovery bonds.

No later than noon on the fourth business day after pricing, the PSCSC shall either accept the issuance advice letter or deliver an order to DEP to prevent the issuance of the storm recovery bonds.

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THE ISSUING ENTITY

General

The issuing entity is a limited liability company organized under the laws of the State of Delaware and are governed by an amended and restated limited liability company agreement. DEP is our sole member. We were formed on January 12, 2024.

The issuing entity has been organized to serve as a special purpose subsidiary of DEP, for the limited purpose of holding the storm recovery property and issuing the storm recovery bonds secured by the storm recovery property and the other collateral and related activities to finance certain activities of DEP related to the recovery of storm recovery costs. At the time of the issuance of the storm recovery bonds, our assets available to secure the bonds will consist primarily of the storm recovery property and the other collateral held under the indenture and the series supplement for the storm recovery bonds.

As authorized by the financing order, our organizational documents, as well as the transactional documents supporting the storm recovery bonds, give us the authority and flexibility to issue additional series of storm recovery bonds authorized by the financing order or one or more future financing orders issued by the PSCSC and to acquire additional storm recovery property which will be pledged to the payment of other storm recovery bonds unless a separate issuer is required to satisfy the rating agency condition. As a result, we may acquire additional storm recovery property and issue one or more additional series of storm recovery bonds that are supported by such additional and separate storm recovery property or other collateral to finance the storm recovery costs approved by a financing order, or to finance other storm recovery costs. See “Security for the Storm Recovery Bonds — Issuance of Additional Storm Recovery Bonds” and “— Allocations as Between Series of Storm Recovery Bonds” in this prospectus.

Each series of storm recovery bonds that we may issue will be backed by separate storm recovery property we acquire for the separate purpose of repaying that series. Any new series of storm recovery bonds may include terms and conditions that would be unique to that particular series. Each series that we may issue will have the benefit of a true-up mechanism.

However, additional series of storm recovery bonds may not be issued unless that rating agency condition has been satisfied. See “Security for the Storm Recovery Bonds — Issuance of Additional Storm Recovery Bonds” in this prospectus.

As of the date of this prospectus, the issuing entity has not carried on any business activities and has no operating history. Our limited liability company agreement has been filed as an exhibit to the registration statement of which this prospectus forms a part.

We will enter into a servicing agreement under which DEP, on our behalf, will manage, service and administer, and make collections in respect of, the storm recovery property. See “The Servicing Agreement” in this prospectus.

On or before the date of issuance of the storm recovery bonds, DEP will make a capital contribution to us in an amount not less than 0.5% of the initial principal amount of the bonds. Under the financing order, DEP will be entitled to a return on this capital contribution equal to the rate of interest on the storm recovery bond. This return will be available for distribution to DEP, subject to the priority of payment set forth in the indenture and the series supplement. See “Security for the Storm Recovery Bonds — How Funds in the Collection Account Will Be Allocated” in this prospectus.

Our principal place of business is 411 Fayetteville Street, Raleigh, North Carolina 27601, 704-382-3853.

Managers

Pursuant to our limited liability company agreement, our business will be managed by a management committee consisting of three or more managers. Our limited liability company agreement requires that we have at least one independent manager, whose selection and replacement will be subject to ratification by the PSCSC. The independent manager must be a natural person who, for the five-year period prior to his or

51

her appointment as an independent manager has not been and during the continuation of his or her service as independent manager is not:

•

a member, partner, equity holder, manager, director, officer or employee of DEP or any of its equity holders or Affiliates (other than as an independent director, independent manager or special member of DEP or an Affiliate of DEP that is not in the direct chain of ownership of DEP and that is required by such DEP’s creditors to be a single purpose bankruptcy remote entity); provided, that the indirect or beneficial ownership of stock of the Member or its Affiliates through a mutual fund or similar diversified investment vehicle with respect to which the owner does not have discretion or control over the investments held by such diversified investment vehicle shall not preclude such owner from being an independent manager;

•

a creditor, supplier or service provider (including provider of professional services) to the issuing entity, the Member or any of their respective equity holders or Affiliates (other than a nationally-recognized company that routinely provides professional independent managers and other corporate services to the issuing entity, the Member or any of its Affiliates in the ordinary course of its business);

•

a family member of any such member, partner, equity holder, manager, director, officer, employee, creditor, supplier or service provider; or

•

a Person that controls (whether directly, indirectly or otherwise) any of the bullets above.

DEP, as our sole member, will appoint the independent manager prior to the issuance of the bonds. None of our managers or officers has been involved in any legal proceedings which are specified in Item 401(f) of the SEC’s Regulation S-K. None of our managers or officers beneficially own any equity interest in us.

The following is a list of our managers as of the date of this prospectus:

Name	Age	Title	Background
Karl W. Newlin	55	Manager	Karl W. Newlin has been Senior Vice President Corporate Development at Duke Energy Corporation since June 2018 and has been its Treasurer since November 2018. Prior to that, Mr. Newlin was Senior Vice President and Chief Commercial Officer — Natural Gas effective with the merger of Duke Energy Corporation and Piedmont Natural Gas Company, Inc. (“Piedmont”) in October 2016. Mr. Newlin joined Piedmont in 2010 to manage its strategic planning functions, new business development activities and joint venture investments. Mr. Newlin previously served as Managing Director, Investment Banking with Merrill Lynch & Co. in its New York and Los Angeles offices.
Cynthia S. Lee	57	Manager	Cynthia S. Lee was appointed Vice President, Chief Accounting Officer and Controller of Duke Energy Corporation, effective May 2021. Prior to that, Ms. Lee served as Director, Investor Relations since June 2019 and in various accounting roles since joining Duke Energy Corporation in 2002.
Bernard J. Angelo	54	Independent Manager	Mr. Angelo joined Global Securitization Service, LLC in April 1997 and has extensive experience in managing commercial paper and medium term note programs. In addition to his administrative skills, he has over twenty-six years of experience in both the business and legal side of structured finance. He has been elected to and serves on the board of directors for a number of securitization programs.

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Name	Age	Title	Background
​	​	​	At Global Securitization, Mr. Angelo has been active in assisting clients and their legal counsel during the structuring phase of their transactions as well as assimilating bank sponsored commercial paper programs into the operating matrix at Global Securitization. Prior to joining Global Securitization, Mr. Angelo was an Assistant Vice President at Bankers Trust Company from January 1993 to April 1997 where he was responsible for oversight of the treasury and accounting functions on the Corporate Trust side of structured transactions managed by the bank. He has a B.S. in Finance from Siena College.

No compensation has been paid to any manager since we were formed. Our managers, other than any independent manager, are officers, directors or managers of DEP or its other affiliates and have not been and will not be separately compensated by us for their services on our behalf. We will pay the independent manager annual fees from our revenues and will reimburse such independent manager for reasonable and documented expenses These expenses include the reasonable compensation, expenses and disbursements of the agents, representatives, experts and counsel that the independent manager may employ in connection with the exercise and performance of their rights and duties under our limited liability company agreement, the indenture, the series supplement, the sale agreement and the servicing agreement. In the event that more than one series of storm recovery bonds is issued, independent manager fees and certain other operating expenses payable by us on a payment date will be assessed to each series on a pro rata basis, based upon the respective outstanding principal amounts of each series.

The issuing entity’s limited liability company agreement provides that the managers will not be personally liable for any of our debts, obligations or liabilities to the extent permitted by law. Our limited liability company agreement further provides that, to the fullest extent permitted by law, we will indemnify the managers against any liability incurred in connection with their services as managers for us except if caused by the manager’s fraud, gross negligence or willful misconduct or in the case of an independent manager, bad faith or willful misconduct. We will pay any indemnification amounts owed to managers out of funds in the collection account, subject to the priority of payments described in “Security for the Storm Recovery Bonds — How Funds in the Collection Account Will Be Allocated” in this prospectus.

Restricted Purposes

We have been created for the limited purpose of:

•

acquiring, owning, holding, administering, servicing or entering into agreements regarding the receipt and servicing of the storm recovery property and the other collateral, along with certain other related assets with respect to one or more series of storm recovery bonds;

•

managing, selling, assigning, pledging, collecting amounts due on or otherwise deal with the storm recovery property and the other collateral and related assets with respect to one or more series of storm recovery bonds to be so acquired in accordance with the terms of the basic documents relating to such series;

•

negotiating, authorizing, executing, delivering, assuming the obligations under, and perform its duties under, the basic documents and any other agreement or instrument or document relating to the activities set forth in the above bullets; provided, that each party to any such agreement under which material obligations are imposed upon DEP SC Storm Funding shall covenant that it shall not, prior to the date which is one year and one day after the termination of the indenture and the payment in full of the storm recovery bonds and any other amounts owed under any indenture, acquiesce, petition or otherwise invoke or cause DEP SC Storm Funding to invoke the process of any court or Governmental Authority for the purpose of commencing or sustaining an involuntary case against DEP under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of DEP or

53

any substantial part of the property of DEP SC Storm Funding; or ordering the winding up or liquidation of the affairs of DEP SC Storm Funding; and provided, further, that DEP SC Storm Funding shall be permitted to incur additional indebtedness or other liabilities payable to service providers and trade creditors in the ordinary course of business in connection with the foregoing activities;

•

filing with the U.S. Securities and Exchange Commission one or more registration statements, including any pre-effective or post-effective amendments thereto and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended (including any prospectus supplement, prospectus and exhibits contained therein) and file such applications, reports, surety bonds, irrevocable consents, appointments of attorney for service of process and other papers and documents necessary or desirable to register one or more series of storm recovery bonds under the securities or “Blue Sky” laws of various jurisdictions;

•

authorizing, executing, delivering, issuing and registering one or more series of storm recovery bonds;

•

distributing amounts released to the issuing entity;

•

making payment on the storm recovery bonds;

•

pledging our interest in storm recovery property and other collateral relating to any series of storm recovery bonds to an indenture trustee under one or more indentures and one or more series supplements in order to secure the related series of storm recovery bonds; and

•

engaging in any lawful act or activity and exercise any powers permitted to limited liability companies formed under the laws of the State of Delaware that, in either case, are incidental to, or necessary, suitable or convenient for the accomplishment of the above-mentioned purposes.

The issuing entity’s limited liability company agreement does not permit us to engage in any activities not directly related to these purposes, including issuing or investing in additional securities, borrowing money or making loans to other persons. The list of permitted activities set forth in our limited liability company agreement may not be altered, amended or repealed without the affirmative vote of a majority of our managers, which vote must include the affirmative vote of our independent manager. Our limited liability company agreement and the indenture will prohibit us from issuing any storm recovery bonds (as such term is defined in the Financing Act), other than the bonds that we will offer pursuant to this prospectus and any additional storm recovery bonds issued by us pursuant to a separate financing order and secured by separate recovery property. Please read “Security for the Storm Recovery Bonds — Issuance of Additional Storm Recovery Bonds” and “— Allocations as Between Series of Storm Recovery Bonds” in this prospectus.

DEP SC Storm Funding is authorized to issue additional series of storm recovery bonds that are supported by additional and separate storm recovery property and other separate collateral.

We have been organized to serve as a special purpose Delaware limited liability company, for the purpose of holding storm recovery property and issuing storm recovery bonds secured by storm recovery property and other collateral and related activities to finance certain activities of DEP related to storm recovery. At the time of issuance of the bonds, our assets will consist primarily of the storm recovery property and the other collateral held under the indenture and series supplement for the bonds. As authorized by the financing order, our organizational documents as well as the transaction documents supporting the bonds give us the authority and flexibility to issue additional storm recovery bonds (including additional storm recovery bonds authorized by one or more future financing orders), with the approval of the PSCSC. As a result, we may acquire additional, separate storm recovery property and issue one or more additional series of storm recovery bonds that are supported by such additional and separate storm recovery property or other collateral. For example, such future financings may include additional series of storm recovery bonds to finance additional storm recovery costs in South Carolina. If authorized by the PSCSC, such future financings may include storm recovery bonds issued to finance costs, if any, which result from future storms.

Each series of storm recovery bonds that we may issue will be backed by separate storm recovery property we acquire for the separate purpose of repaying that series. Any new series of storm recovery

54

bonds may include terms and conditions that would be unique to that particular series. Each series of storm recovery bonds that we may issue will have the benefit of a true-up mechanism.

However, additional series of storm recovery bonds may not be issued if such issuance would not satisfy the rating agency condition for the bonds. See “Security for the Storm Recovery Bonds — Issuance of Additional Storm Recovery Bonds” and “— Allocations as Between Series of Storm Recovery Bonds” in this prospectus.

In addition, our organizational documents require us to operate in a manner intended to reduce the likelihood that we would be consolidated in DEP’s bankruptcy estate if DEP becomes involved in a bankruptcy proceeding. We have no intent to file a voluntary petition for relief under the Bankruptcy Code, so long as we are solvent and do not reasonably foresee becoming insolvent.

DEP SC Storm Funding’s Relationship with DEP

On the issue date of the bonds, DEP will sell storm recovery property to us pursuant to the sale agreement between us and DEP. DEP will service such storm recovery property pursuant to a servicing agreement between us and DEP related to the bonds. Please read “The Sale Agreement” and “The Servicing Agreement” in this prospectus. DEP will provide certain administrative services to us, pursuant to an administration agreement.

Our bonds will be included on the consolidated balance sheet of our parent, DEP, a regulated public utility, as required by the Financial Accounting Standards Board and the SEC Office of Chief Accountant governing corporate financial reporting for investor-owned utilities.

Our bonds will be treated as debt of DEP for U.S. federal income tax purposes. See “Material U.S. Federal Income Tax Consequences” in this prospectus. For federal income tax purposes, DEP will not recognize gross income unless and until DEP bills customers for the storm recovery charges and only in connection with such billing of customers for such storm recovery charges.

Ongoing PSCSC Oversight

The Issuing Entity is responsible to the PSCSC on an ongoing basis to the extent provided in our organization documents and the transaction documents. The servicer, on our behalf, will file periodic adjustments to storm recovery charges with the PSCSC. In addition, under the terms of the financing order, the Issuing Entity and the indenture trustee are not permitted to waive any material obligations of DEP as transferor or as servicer of the storm recovery property under the transaction documents without the consent of the PSCSC.

Continuing Disclosure: SEC Filings

Neither we nor the depositor is an asset-backed issuer and the bonds are not asset-backed securities as such terms are defined by the SEC in governing regulations Item 1101 of Regulation AB. We plan to file with the SEC required periodic and current reports related to the bonds consistent with the disclosure and reporting regime established in Regulation AB and will also post those periodic and current reports at a website associated with us or our affiliates.

DEP SC Storm Funding is a Separate and Distinct Legal Entity

Under our limited liability company agreement, we may not file a voluntary petition for relief under the Bankruptcy Code without a unanimous vote of our managers, including the independent manager. DEP has agreed that it will not cause us to file a voluntary petition for relief under the bankruptcy code without the affirmative vote of DEP and a unanimous vote of our mangers, including the independent manager. Our limited liability company agreement requires us to maintain our existence separate from DEP including:

•

taking all reasonable steps to continue our identity as a separate legal entity;

•

making it apparent to third persons that we are an entity with assets and liabilities distinct from those of DEP, other affiliates of DEP, the managers or any other person and correcting any known misunderstandings; and

55

•

making it apparent to third persons that, except for federal and certain other tax and accounting purposes, we are not a division of DEP or any of its affiliated entities or any other person.

The separateness provisions in our limited liability company agreement may be amended by us, with the affirmative vote of the independent manager, and DEP with written notice to the indenture trustee, as well as satisfaction of the rating agency condition and the PSCSC condition (described below). Please read “Description of the Storm Recovery Bonds — Procedure for Obtaining Consent or Deemed Consent of the PSCSC.”

The Administration Agreement

Pursuant to an administration agreement between DEP and us, DEP will provide or arrange for the provision of administrative services to us, including services relating to the required filings with the SEC with respect to the bonds, any financial statements or tax returns we might be required to file, qualifications to do business, and minutes of our managers’ meetings. We will pay DEP an administration fee equal to a fixed fee of $50,000 per annum for performing such services described above, plus out-of-pocket expenses. These out-of-pocket expenses shall be all costs and expenses of services performed by unaffiliated third parties and actually incurred by the administrator in connection with the performance of its obligations under the administration agreement (but for the avoidance of doubt, excluding any such costs and expenses incurred by DEP in its capacity as servicer). There is no limit on the amount of these out-of-pocket expenses, and they will be recovered as ongoing financing costs through the collection of the storm recovery charges and paid in accordance with the payment waterfall in the Indenture. Please read “Security for the Storm Recovery Bonds — How Funds in the Collection Account Will be Allocated.” The $50,000 fee will be paid annually in arrears.

The administrator may not resign or be removed without satisfaction of the rating agency condition and the PSCSC condition, and without the successor administrator assuming all of the obligations of the former administrator under the administration agreement.

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RELATIONSHIP TO 2021 NC STORM RECOVERY BONDS

DEP served as sponsor and has acted as servicer with respect to $769,627,000 original aggregate principal amount of the 2021 NC Storm Recovery Bonds, issued on November 24, 2021 which were issued to reimburse itself for the North Carolina portion of previously incurred storm recovery costs relating to Hurricanes Florence, Michael and Dorian and Winter Storm Diego in North Carolina.

The underlying structures of the 2021 NC Storm Recovery Bonds are comparable to the underlying structure of the bonds in that DEP, pursuant to the authority granted by the North Carolina Utilities Commission in a financing order, created property, namely, the right to impose, collect and receive storm recovery charges necessary to make timely payments of principal and interest and other ongoing financing costs of the 2021 NC Storm Recovery Bonds. The charges with respect to those storm recovery bonds have been included on the bills of DEP’s customers in North Carolina since December 2021. DEP services the charges authorized by the North Carolina financing order. In servicing the storm recovery property described herein, DEP will draw upon its servicing experience with the 2021 NC Storm Recovery Bonds.

Beyond its experience servicing securitization charges in connection with the 2021 NC Storm Recovery Bonds, DEP has a long history of collecting charges from its customers and allocating them accordingly, which it will be doing on the issuing entity’s behalf, as initial servicer of the storm recovery property.

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DUKE ENERGY PROGRESS, LLC

The Depositor, Sponsor, Seller and Servicer

DEP will be the seller and initial servicer of the bonds and will be the depositor and sponsor of the transaction in which bonds covered by this prospectus are issued. DEP is a regulated public utility primarily engaged in the generation, transmission, distribution, and sale of electricity in portions of North Carolina and South Carolina. DEP’s service area covers approximately 29,000 square miles across North Carolina and South Carolina. Only DEP’s South Carolina retail customers are subject to the storm recovery charges. DEP supplies electric service to approximately 1.7 million residential, commercial and industrial customers, approximately 187,000 of these customers are in the northeastern part of South Carolina including Florence, Darlington, and Sumter counties. During the year ended December 31, 2023 DEP billed approximately 5.7 billion kilowatt hours of electricity to its electric customers in South Carolina, resulting in revenues of approximately $628 million. DEP is an indirect, wholly-owned subsidiary of Duke Energy Corporation, whose shares are listed on the New York Stock Exchange. Both we and DEP are identified by Standard Industrial Classification Code No. 4911, “Electric Services”.

DEP is subject to the jurisdiction of the PSCSC with respect to retail utility rates, accounting, utility services, certain facilities, certain asset transfers, certain corporate mergers and other matters. DEP is subject to the jurisdiction of the Federal Energy Regulatory Commission under the Federal Power Act with respect to acquisitions, operations and disposals of certain assets and facilities, services provided and rates charged, conduct among affiliates and other matters.

Following the sale of the storm recovery property to us, DEP will have no ownership or other interest in the storm recovery property transferred to us and will have no right to receive any storm recovery charges (other than collected as servicer on our behalf). Neither DEP nor any of its affiliates will purchase any bonds.

Revenues, Customer Base and Energy Consumption

The table below sets forth DEP’s total billed retail revenues from retail sales of electrical energy to its South Carolina customers for the years 2019 to 2023:

Billed Retail Total Revenues ($ in 000’s)

Customer Class	2019			2020			2021			2022			2023
Residential	​	$	251,562	​	$	233,631	​	$	236,889	​	$	249,794	​	$	276,693
Commercial	​	​	179,955	​	​	167,972	​	​	170,477	​	​	193,703	​	​	198,684
Industrial	​	​	130,298	​	​	120,026	​	​	106,975	​	​	141,372	​	​	131,008
Lighting	​	​	18,291	​	​	18,353	​	​	17,714	​	​	19,803	​	​	21,245
Total*	​	$	580,106	​	$	539,982	​	$	532,055	​	$	604,672	​	$	627,630

*

Totals may not add up due to rounding.

The table below sets forth the average number of South Carolina customers by class for the years 2019 to 2023:

Average Number of Retail Customer Accounts

Customer Class	2019		2020		2021		2022		2023
Residential	​	139,675	​	141,335	​	144,426	​	152,396	​	153,987
Commercial	​	31,963	​	31,695	​	31,940	​	31,595	​	32,113
Industrial	​	63	​	64	​	63	​	60	​	61
Lighting	​	737	​	831	​	826	​	817	​	826
Total	​	172,438	​	173,925	​	177,255	​	184,868	​	186,987

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The table below sets forth DEP’s billed retail energy sales to its South Carolina customers for the years 2019 to 2023:

Electric Usage (Billed GWh)

Rate Class	2019		2020		2021		2022		2023
Residential	​	2,081	​	1,978	​	2,080	​	2,042	​	1,935
Commercial	​	1,923	​	1,768	​	1,808	​	1,855	​	1,762
Industrial	​	2,221	​	2,108	​	2,072	​	2,188	​	1,885
Lighting	​	77	​	76	​	73	​	72	​	72
Total	​	6,302	​	5,930	​	6,033	​	6,157	​	5,654

Percentage Concentration within DEP’s Large Commercial and Industrial Customers

For the year ended December 31, 2023, the ten largest retail electric customers represented approximately 23% of DEP’s retail kilowatt-hour sales. The ten largest customers are in the large general service rate classes. There are no material concentrations in the residential class. As of the date of this prospectus, no customer or group of related customers will be obligated to pay more than 10% of the storm recovery charges.

Estimated Consumption and Estimate Variance

DEP’s calculation of the initial storm recovery charges and subsequent adjustments are based on electricity consumption estimates for each customer rate class. Pursuant to FERC guidance, each customer is included in a customer revenue class and billed in accordance with PSCSC-approved rate tariffs which correlate to the rate classes disclosed herein depending on the type of service provided. There is no direct correlation between revenue class and rate class, with the exception of residential customers who are in both the residential revenue class and residential rate class. Individual customers within each customer revenue class will be billed for storm recovery charges based on their consumption. DEP will use these estimates to calculate and set the storm recovery charges at levels to ensure revenues sufficient to pay interest on and principal of the bonds when due, to pay fees and expenses of servicing and retiring the bonds and to replenish the capital subaccount. With respect to the foregoing, interest is due on each payment date and principal is due upon the final maturity date. See “Description of the Storm Recovery Bonds — Events of Default; Rights Upon Event of Default” in this prospectus.

DEP conducts sales estimate variance analyses on a regular basis to monitor the accuracy of energy sales estimates against recorded weather-adjusted consumption (adjusted to remove the impacts of weather). The table below presents estimates of the billed retail energy sales in GWh for the years 2019 through 2023 compared to weather-adjusted consumption for such periods. Each estimate was made in the prior year.

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Estimate Variances (by customer class)
Weather-Adjusted Consumption Variance for Ultimate Electric Delivery (GWh)

​	2019		2020		2021		2022		2023
Residential	​		​		​		​		​
Weather Adjusted	​	18,009	​	18,435	​	18,807	​	18,989	​	18,518
Forecast	​	18,016	​	18,092	​	18,303	​	18,777	​	19,192
Variance	​	0.0%	​	1.9%	​	2.8%	​	1.1%	​	-3.5%
Commercial	​	​	​	​	​	​	​	​	​	​
Weather Adjusted	​	13,833	​	12,930	​	13,376	​	13,636	​	13,291
Forecast	​	14,007	​	13,963	​	13,728	​	13,931	​	13,749
Variance	​	-1.2%	​	-7.4%	​	-2.6%	​	-2.1%	​	-3.3%
Industrial	​	​	​	​	​	​	​	​	​	​
Weather Adjusted	​	11,882	​	11,521	​	11,268	​	12,034	​	11,049
Forecast	​	11,971	​	11,900	​	11,746	​	11,765	​	11,512
Variance	​	-0.7%	​	-3.2%	​	-4.1%	​	2.3%	​	-4.0%
Lighting	​	​	​	​	​	​	​	​	​	​
Weather Adjusted	​	77	​	77	​	140	​	25	​	86
Forecast	​	72	​	76	​	76	​	77	​	78
Variance	​	8.0%	​	1.4%	​	85.9%	​	-67.1%	​	9.2%
Total	​	​	​	​	​	​	​	​	​	​
Weather Adjusted	​	43,801	​	42,963	​	43,592	​	42,964	​	42,944
Forecast	​	44,065	​	44,032	​	43,852	​	44,551	​	44,531
Variance	​	-0.6%	​	-2.4%	​	-0.6%	​	0.3%	​	-3.6%

Actual consumption depends on several factors, including temperatures and economic conditions. For example, while DEP’s methodology for estimating consumption assumes normal weather conditions, abnormally hot summers or cold winters can add growth in electricity sales, while conversely, abnormally cool summers or warm winters can suppress growth in electricity consumption. Regional economic conditions can also affect consumption as retail customers curb electricity consumption to save money, businesses close and retail customers migrate to other service territories. Accordingly, variations in weather conditions will affect the accuracy of any estimate.

Billing and Collections

The storm recovery charges collected from DEP’s South Carolina customers’ electricity bills, without exception, must be remitted on a daily basis to the indenture trustee. Under the irrevocable financing order, the PSCSC, as directed by the Financing Act, will implement the true-up mechanism for making any adjustments that are necessary to correct for any overcollection or undercollection of the storm recovery charges or to otherwise ensure the timely payment of principal of and interest on the bonds when due and other financing costs and other required amounts and charges payable in connection with the bonds.

Credit Policy.   DEP is required to provide transmission and distribution service to all qualified customers. DEP verifies all customers to ensure validity and searches its customer information system to determine whether DEP has previously served the customer. Certain accounts are secured with deposits if warranted. The amount of the deposit reflects the estimated use over a two-month period, which is what the South Carolina Administrative Code allows DEP to collect.

Residential Accounts

First time customers establishing residential electric accounts are required to pay a deposit. As a courtesy, DEP may waive the residential deposit requirement if the customer’s overall external credit score

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meets a specific score threshold. If a deposit is required, electric service is not connected until the deposit is paid. Returning residential customers and existing residential customers connecting additional residential accounts may be required to satisfy the deposit requirement if the credit score warrants. Internal credit is not considered for additional service or returning customers.

Residential customers are cross-referenced in the customer information system to search for unsatisfied debt. If a returning customer left unsatisfied debt, the unpaid bill must be satisfied prior to connecting service.

DEP offers a Guarantee Contract for residential accounts as a cash alternative, when a deposit is required. The applicant must secure a guarantor who has established service with DEP for greater than two years with no more than one delinquent payment within the immediate twelve months. The guarantor must pass the external credit score threshold to assume additional risk. The guarantor must provide a thirty-day written notice cease responsibility. This time period allows for securing a cash deposit (or another guarantor) for the applicant. In the event of default, the debt is reported on the consumer credit reports for both the applicant and guarantor (as co-signer).

Non-Residential Accounts

Non-residential accounts are required to pay a deposit per service point (meter). As a general rule, non-residential accounts require deposit coverage. First time customers establishing non-residential accounts must pay the deposit requirement prior to connecting service. Current non-residential customers connecting additional service points may be offered the option of billing the deposit if their credit record allows. Consumer credit is not used to determine credit worthiness on non-residential accounts. Existing residential customers turning on non-residential accounts cannot use their satisfactory payment record to reduce or eliminate the deposit requirement. Credit history for each is mutually exclusive. DEP’s Retail Tariff prohibits disconnecting service for a different class of service; therefore, unpaid non-residential balances cannot be transferred to active residential accounts for collection. On an exceptional basis, commercial credit reports may be utilized to aid in deposit decision. DEP uses Moody’s or S&P for publicly traded companies, audited financials for privately held companies, and Experian Intelliscores for small to mid-sized companies to evaluate credit history.

Non-residential deposits may be satisfied with cash or a cash alternative such as a surety bond or irrevocable letter of credit. Deposit coverage remains in force for the life of the account. Surety bonds and irrevocable letters of credit are issued by surety (insurance) companies and banks which have their own specific criteria defining credit worthiness. Customers applying for those forms of coverage must meet the third party’s qualifications. In the event of the cash alternative cancellation, DEP requires that the third-party give a minimum 60-day notification by certified, returned receipt mail. The minimum 60 days is required in order to secure another form of deposit prior to cancellation to limit risk. DEP’s process is to bill a cash deposit within 24 hours of receipt of cash alternative cancellation. Electric service may be interrupted if deposit is not secured.

Billing Process.   DEP bills its customers once every 26 to 34 days and distributes approximately an equal number of bills each business day. For the year ended December 31, 2023, DEP rendered an average of approximately 82,256 bills on each business day to its customers. For accounts with potential billing error exceptions, reports are generated for manual review. This review examines accounts that have abnormally high or low bills, potential meter-reading errors and possible meter malfunctions.

Approximately 105,494 residential customers, which constitute approximately 7% of DEP’s residential customers, choose to be billed using DEP’s budget billing program. For these customers, DEP determines and bills a monthly budget based on the last twelve months of billing history for each account. The budget amount is reviewed quarterly or annually based on customer preference and adjusted if customer usage has changed more than a predetermined amount. Overpayments or underpayments for actual consumption during the prior year are reconciled on each customer’s monthly bill.

Collection and Write-Off Policy.   DEP receives approximately 18% of its total bill payments via U.S. mail. Approximately 78% of bill payments are received via electronic payments. DEP receives the remainder of payments via third-party pay agents and field collection. DEP billings are initiated by the scheduled monthly meter reading. Each month, the electric meter is read to determine previous month’s usage. Daily

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readings are downloaded into the billing system and a bill is generated giving the customer 25 calendar days to pay. If payment is not received and the service amount is $50 or greater, the account is deemed to be in collections. All residential (Email, SMS, automated call) and non-residential (email and automated call) customers are provided notice prior to discontinuance of service for non-payment. Customer accounts are considered delinquent if not paid within 30 days of invoicing. Following notice, residential customers are subject to disconnection after 90 days following invoicing. Non-residential customers are subject to disconnection after 65 days following invoicing.

If payment is not made, within 10 days from completed disconnect order, the billing system will automatically issue a move out order for account to be made final. If usage is registered on meter after move-out is complete, order is system generated to check for possible meter tampering.

With all final bills, the customer is given 25 calendar days to pay. If payment is not received by the final due date, the account is written off 45 days after the final bill due date. The effect of all write-offs and delinquencies are taken into account in the true-up adjustment process.

DEP may change its credit, billing, collections and termination/restoration of service policies and procedures from time to time. It is expected that any such changes would be designed to enhance DEP’s ability to bill and collect customer charges on a timely basis. Please read “Risk Factors — Servicing Forecasting Risks — Changes to billing, collection and posting practices might reduce the value of your investment in the bonds” in this prospectus.

Loss Experience.   The following table sets forth information relating to DEP’s annual net write-offs for all retail customers for the years 2019 to 2023:

​	2019			2020			2021			2022			2023
Billed Electric Revenues ($ in millions)	​	$	4,284	​	$	4,016	​	$	4,025	​	$	4,582	​	$	4,855
Net Write-offs ($ in millions)	​	$	11	​	$	8	​	$	12	​	$	35	​	$	43
Percentage of Billed Retail Revenues(1)	​	​	0.26%	​	​	0.20%	​	​	0.30%	​	​	0.76%	​	​	0.89%

(1)

Segregated numbers between North Carolina retail customers and South Carolina retail customers are unavailable.

From 2019 to current, DEP’s annual ratios of net write-offs to billed retail revenues have been between 0.20% and 0.89%. DEP is not aware of any material factors, other than the impact of COVID-19, a slow economy and higher energy prices that caused these annual ratios to vary.

DEP determines a customer’s account to be inactive on the date:

•

the customer gives notice requesting discontinuance of service;

•

a new customer applies for service at a location where the customer of record has not yet discontinued service; or

•

the customer’s service remains off after non-payment.

DEP’s policy is to write-off an inactive account to bad debt expense approximately 30 days after the date the account is final billed if payment has not been received. The effect of all write-offs and delinquencies are taken into account in the true-up mechanism.

Days Revenue Outstanding.   The following table sets forth information relating to the average number of days all retail customer electricity bills remained outstanding for the years 2019 through 2023:

​	2019		2020		2021		2022		2023
Average number of days outstanding	​	25	​	29	​	34	​	40	​	38

Delinquencies as a Percentage of Total Billed Revenues.   The following table sets forth information relating to the delinquencies as a percentage of total billed revenues for all classes of customers of DEP on December 31st of years 2019 to 2023. Payments are aged when the following month’s bill is rendered. This

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historical information is presented because DEP’s actual accounts receivable aging experience may affect the amounts charged-off, and consequently the total amounts remitted, that arise from the storm recovery charges.

​	December 31,
​	2019		2020		2021		2022		2023
Total accounts receivable aging (% of total outstanding) After:	​	​	​	​	​	​	​	​	​	​
30 – 59 days	​	11.4	​	8.7	​	13.4	​	7.9	​	9.4
60 – 89 days	​	0.9	​	1.3	​	6.5	​	4.3	​	3.8
90+ days	​	0.5	​	1.0	​	11.4	​	14.0	​	10.2
Total	​	12.8	​	11.0	​	31.3	​	26.2	​	23.4

The accounts receivable aging experience for DEP has deteriorated since 2019. DEP is not aware of any material factors, other than other than the impact of COVID-19, a slow economy and higher energy prices that caused the accounts receivable aging experience to vary.

DEP Legal Proceedings

There are no legal or governmental proceedings pending against DEP, the issuing entity, the sponsor, seller, or servicer, or of which any property of the foregoing is subject, that is material to the holders of the storm recovery bonds.

Prior Storm Recovery Charge Experience, Sponsor Experience or Servicing Experience Relating to Storm Recovery Charges

DEP has prior experience as a securitization sponsor and the servicer for a series of storm recovery bonds issued in 2021 by Duke Energy Progress NC Storm Funding LLC. Furthermore, DEP is highly experienced in calculating and implementing rates and charges under various cost recovery riders and billing those amounts to customers. These riders include a coal inventory rider, excess deferred income tax rider, renewable energy rider, energy efficiency rider/demand side management rider, joint municipal power agency rider and competitive procurement of renewable energy rider. These riders are subject to regular and periodic true-up, including filing with and review and approval by the PSCSC. The calculation of storm recovery charges and related billings will follow essentially the same processes as the other cost recovery riders. Though these charges are not remitted to a subsidiary, the method of calculating, imposing and collecting is the same.

Though storm recovery property is not a receivable, DEP is currently the originator, seller and servicer under a financing arrangement involving the sale of accounts receivable from its customers. In its capacity as servicer, DEP has serviced the collections of receivables from its customers as well as managed the intercreditor arrangements among the different parties for that transaction.

In addition, DEP’s affiliates, Duke Energy Florida, LLC sponsored and is the servicer for a series of nuclear asset recovery bonds issued in 2016 by Duke Energy Florida Project Financing LLC and Duke Energy Carolinas, LLC, sponsored and is the servicer for a series of storm recovery bonds issued in 2021 by Duke Energy Carolinas NC Storm Funding LLC.

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DESCRIPTION OF THE STORM RECOVERY BONDS

The following summary describes the material terms of the bonds, the indenture and the series supplement. The forms of the bond, the indenture and the series supplement have been filed as exhibits to the registration statement of which this prospectus forms a part. Please read “Where You Can Find More Information” in this prospectus.

We will issue the bonds and secure their payment under an indenture and the series supplement that we will enter into with U.S. Bank Trust Company, National Association, as indenture trustee, referred to in this prospectus as the “indenture trustee”. We will issue the bonds in minimum denominations of $2,000 and in integral multiples of $1,000 in excess thereof, except that we may issue one bond in a smaller denomination. The initial principal balance, scheduled final payment date, final maturity date and interest rate of the bonds are stated in the table below.

General

The bonds will be issued in authorized denominations of $2,000 and in integral multiples of $1,000 above that amount, except that one bond may be in a smaller denomination. We expect to issue the bonds in one series consisting of one tranche designation with an associated expected sinking fund schedule, but we may issue the bonds in a different number of tranches depending on pricing considerations. The principal amount, interest rate, scheduled payment date, and final maturity date are listed below. The scheduled final payment date for the bonds is the date by which we expect to pay in full all interest and principal. The final maturity date of the bonds is the legal maturity date. The failure to pay principal of the bonds by the scheduled final payment date will not be an event of default under the indenture and the series supplement. An event of default would occur if there is a failure to pay principal for the final legal maturity date. True-up adjustments will occur at least semi-annually or more frequently as necessary to maintain the expected sinking fund schedule.

Tranche	Expected Weighted Average Life (Years)	Principal Amount Offered			Scheduled Final Payment Date	Final Maturity Date	Interest Rate
​	​	​	$	177,365,000	​	​	​	%

All bonds will be payable solely from, and secured solely by, a pledge of and lien on the storm recovery property and the other collateral relating to the bonds as provided in the indenture and the series supplement. The bonds will be nonrecourse obligations, secured only by the collateral. See “Security for the Storm Recovery Bonds — Pledge of Collateral” in this prospectus. The bonds will not constitute a debt, liability or other obligation of, or interest in, DEP or any of its other affiliates (other than us).The bonds will not be insured or guaranteed by DEP, including in capacity as sponsor, depositor, seller or servicer, or by its parent, Duke Energy Corporation, any of their respective affiliates, the indenture trustee or any other person or entity. The bonds will not be a debt or general obligation of the State of South Carolina or any of its political subdivisions, agencies, or instrumentalities, nor are they special obligations or indebtedness of the State of South Carolina or an agency or political subdivision.

Interest Payments Generally

Beginning           , 20   , we are required to pay interest semi-annually on the bonds on each       and       (or, if any payment date is not a business day, the following business day) of each year. The record date (so long as the bonds are evidenced by book-entry) for any payment of interest on and principal of the bonds will be the business day immediately before the applicable payment date.

Interest on bonds will accrue from, and including, the issue date to, but excluding, the first payment date, and thereafter from and including the previous payment date to (but excluding) the applicable payment date until the bonds have been paid in full, at the interest rate indicated in the table on the cover page of this prospectus and in the table above. Each of those periods is referred to as an “interest accrual period”. We will calculate interest on the bonds on the basis of a 360-day year of twelve 30-day months.

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On each payment date, we will pay interest on the bonds equal to the following amounts:

•

accrued interest on the principal balance of the bonds as of the close of business on the preceding semi-annual payment date, or the date of the original issuance of the bonds, after giving effect to all payments of principal made on the preceding semi-annual payment date, if any; and

•

if there has been a payment default, any interest payable but unpaid on any prior payment date, together with interest on such unpaid interest, if any.

On each payment date, we will pay interest on the bonds before we pay principal on the bonds.

Please read “Security for the Storm Recovery Bonds — How Funds in the Collection Account Will Be Allocated” in this prospectus.

Principal Payments

On each payment date, we will pay principal of the bonds to the bondholders equal to the sum, without duplication, of:

•

the unpaid principal amount of any bond whose final maturity date is on that payment date, plus

•

the unpaid principal amount of any bond upon acceleration following an event of default relating to the bonds, plus

•

any overdue payments of principal, plus

•

any unpaid and previously scheduled payments of principal, plus

•

the principal scheduled to be paid on any bond on that payment date,

but only to the extent funds are available in the collection account after payment of certain of our fees and expenses and after payment of interest as described above under “— Interest Payments Generally” in this prospectus. If the indenture trustee receives insufficient collections of storm recovery charges for any payment date, and amounts in the collection account (and the applicable subaccounts of the collection account) are not sufficient to make up the shortfall, principal of bonds may be payable later than expected. Please read “Risk Factors — Other Risks Associated with the Purchase of the Bonds” in this prospectus. To the extent funds are so available, we will make scheduled payments of principal of the bonds to the holders of the bonds, until the principal balance has been reduced to zero.

However, on any payment date, unless an event of default has occurred and is continuing and the bonds have been declared due and payable, the indenture trustee will make principal payments on the bonds only until the outstanding principal balances of the bonds have been reduced to the principal balances specified in the applicable expected sinking fund schedule for that payment date. Accordingly, principal of the bonds may be paid later, but not sooner, than reflected in the expected sinking fund schedule, except in the case of an acceleration. The entire unpaid principal balance of the bonds will be due and payable on the final maturity date. The failure to make a scheduled payment of principal on the bonds because there are not sufficient funds in the collection account does not constitute a default or an event of default under the indenture, except for the failure to pay in full the unpaid balance upon the final maturity date.

Unless the bonds have been accelerated following an event of default, any excess funds remaining in the collection account after payment of principal, interest, applicable fees and expenses and payments to the applicable subaccounts of the collection account will be retained in the excess funds subaccount until applied on a subsequent payment date.

If an event of default (other than a breach by the State of South Carolina of the state pledge) has occurred and is continuing, then the indenture trustee or the holders of not less than a majority in principal amount of the bonds then outstanding may declare the bonds to be immediately due and payable, in which event the entire unpaid principal amount of the bonds will become due and payable. Please read “— Events of Default; Rights Upon Event of Default” in this prospectus. However, the nature of our business will result in payment of principal upon an acceleration of the bonds being made as funds become available. Please read “Risk Factors — Risks Associated With the Unusual Nature of the Storm Recovery Property — Foreclosure of the indenture trustee’s lien on the storm recovery property for the bonds might

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not be practical, and acceleration of the bonds before maturity might result in your investment being repaid either earlier or later than expected” and “Risk Factors — You might experience material payment delays as a result of limited sources of payment for the bonds and limited credit enhancements” in this prospectus.

If there is a shortfall in the amounts available to make principal payments on the bonds that are due and payable, including upon an acceleration following an event of default, the indenture trustee will distribute principal from the collection account based on the principal amount then due and payable on the payment date; and if there is a shortfall in the remaining amounts available to make principal payments on the bonds that are scheduled to be paid, the indenture trustee will distribute principal from the collection account based on the principal amount then scheduled to be paid on the payment date.

The expected sinking fund schedule below sets forth the corresponding principal payment that is scheduled to be made on each payment date for the bonds from the issuance date to the scheduled final payment date. Similarly, the expected sinking fund schedule below sets forth the principal balance that is scheduled to remain outstanding on each payment date for the bonds from the issuance date to the scheduled final payment date.

EXPECTED SINKING FUND SCHEDULE

Semi-Annual Payment Date	Principal Payment
Closing Date	​	$

We cannot assure you that the principal balance of the bonds will be reduced at the rate indicated in the table above. The actual reduction in principal balances may occur more slowly. The actual reduction in principal balances will not occur more quickly than indicated in the above table, except in the case of acceleration due to an event of default under the indenture. The bonds will not be in default if principal is not paid as specified in the schedule above unless the principal is not paid in full on or before the final maturity date.

EXPECTED AMORTIZATION SCHEDULE
OUTSTANDING PRINCIPAL BALANCE

Semi-Annual Payment Date	Balance
Issuance Date	​	$

On each payment date, the indenture trustee will make principal payments to the extent the principal balance of the bonds exceeds the amount indicated for that payment date in the table above and to the extent of funds available in the collection account after payment of certain of our fees and expenses and after payment of interest.

Distribution Following Acceleration

Upon an acceleration of the maturity of the bonds, the total outstanding principal balance of and interest accrued on the bonds will be payable. Although principal will be due and payable upon acceleration, the nature of our business will result in principal being paid as funds become available. Please read “Risk Factors — Risks Associated with the Unusual Nature of the Storm Recovery Property — Foreclosure of the indenture trustee’s lien on the storm recovery property for the bonds might not be practical, and acceleration of the bonds before maturity might result in your investment being repaid either earlier or later than expected” and “Risk Factors — You might experience material payment delays as a result of limited sources of payment for the bonds and limited credit enhancements” in this prospectus.

No Optional Redemption

We may not voluntarily redeem the bonds.

Payments on the Bonds

The indenture trustee will pay on each payment date to the holders of the bonds, to the extent of available funds in the collection account, all payments of principal and interest then due. The indenture

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trustee will make each payment other than the final payment with respect to any bonds to the holders of record of the bonds on the record date for that payment date. The indenture trustee will make the final payment for the bonds, however, only upon presentation and surrender of the bonds at the office or agency of the indenture trustee specified in the notice given by the indenture trustee of the final payment. The indenture trustee will send notice of the final payment to the bondholders no later than five days prior to the final payment date, specifying the date set for the final payment and the amount of the payment.

The failure to pay accrued interest on any payment date (even if the failure is caused by a shortfall in storm recovery charges received) will result in an event of default for the bonds unless such failure is cured within five business days. Any interest not paid when due (plus interest on the defaulted interest at the applicable interest rate to the extent lawful) will be payable to the bondholders on a special record date. The special record date will be at least 15 business days prior to the date on which the indenture trustee is to make such special payment (a “special payment date”). We will fix any special record date and special payment date. At least 10 days before any special record date, the indenture trustee will send to each affected bondholder a notice that states the special record date, the special payment date and the amount of defaulted interest (plus interest on the defaulted interest) to be paid. Please read “— Events of Default; Rights Upon Event of Default” in this prospectus.

The entire unpaid principal amount of the bonds will be due and payable (i) on the final maturity date or (ii) upon a declaration of acceleration by the indenture trustee or the holders of a majority in principal amount of the bonds if an event of default under the indenture and the series supplement (other than an event of default arising from any act or failure to act by the State of South Carolina or any of its agencies (including the PSCSC) that violates the state pledge or is not in accordance with the state pledge) occurs and is continuing.

However, the nature of our business will result in payment of principal upon an acceleration of the bonds being made as funds become available. Please read “Risk Factors — You might experience payment delay as a result of limited sources of payment for the bonds and limited credit enhancement” and “Risk Factors — Risk Associated with the Unusual Nature of the Storm Recovery Property — Foreclosure of the indenture trustee’s lien on the storm recovery property for the bonds might not be practical, and acceleration of the bonds before maturity might result in your investment being repaid either earlier or later than expected” in this prospectus.

At the time, if any, we issue the bonds in the form of definitive bonds and not to The Depository Trust Company, or “DTC”, or its nominee, the indenture trustee will make payments on a payment date or a special payment date by check sent to each holder of a definitive bond of record on the applicable record date at its address appearing on the register maintained with respect to the bonds. Upon written application by a holder of the bonds in physical form to the indenture trustee not later than the applicable record date, the indenture trustee will make payments by wire transfer to an account maintained by the payee.

If any special payment date or other date specified for any payments to bondholders is not a business day, the indenture trustee will make payments scheduled to be made on that special payment date or other date on the next business day, and no interest will accrue upon the payment during the intervening period.

Principal Payments on the Bonds

After paying fees, expenses and interest as described above, the indenture trustee will pay the principal due on each payment date to the holders of the bonds. The indenture trustee will not pay principal on a payment date if making the payment would reduce the principal balance of the bonds to an amount lower than the balance specified in the expected sinking fund schedule for the bonds on that payment date, except in the case of an acceleration of the bonds following an event of default.

Registration and Transfer of the Bonds

All bonds will be represented by one or more bonds registered in the name of Cede & Co., as nominee of DTC. There will be no service charge for any registration or transfer of the bonds, but the indenture trustee may require the owner to pay a sum sufficient to cover any tax or other governmental charge.

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We will issue the bonds in the minimum initial denominations of $2,000 and in integral multiples of $1,000 above that amount, except that one bond may be in a smaller denomination.

The indenture trustee will make payments of interest and principal on each payment date to the bondholders in whose names the bonds were registered on the record date.

The Bonds Will Be Issued in Book-Entry Form

The bonds will be available to investors only in the form of book-entry bonds. We will initially register any book-entry bonds in the name of Cede & Co., the nominee of DTC. Bondholders may also hold bonds through Clearstream Banking, société anonyme, or “Clearstream”, or Euroclear Bank S.A./N.V., as operator of the Euroclear system, or “Euroclear”, in Europe or in any other manner described in the prospectus. You may hold your bonds directly with one of these systems if you are a participant in the system or indirectly through organizations that are participants.

The Role of DTC, Clearstream and Euroclear

Cede & Co., as nominee for DTC, will hold the global bond or global bonds representing the bonds. Clearstream and Euroclear will hold omnibus positions on behalf of the Clearstream customers and Euroclear participants, respectively, through customers’ securities accounts in Clearstream’s and Euroclear’s names on the books of their respective depositaries. These depositaries will, in turn, hold these positions in customers’ securities accounts in the depositaries’ names on the books of DTC.

The Function of DTC

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Exchange Act. DTC holds and provides asset servicing for U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments that DTC’s participants (“direct participants”) deposit with DTC. DTC also facilitates the post-trade settlement among direct participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between direct participants’ accounts, thereby eliminating the need for physical movement of securities certificates. Direct participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. The users of its regulated subsidiaries own DTCC. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a direct participant, either directly or indirectly (“indirect participants”). The DTC rules applicable to its participants are on file with the SEC. More information about DTC can be found at www.dtcc.com and www.dtc.org.

The Function of Clearstream

Clearstream holds securities for its customers and facilitates the clearance and settlement of securities transactions between Clearstream customers through electronic book-entry changes in accounts of Clearstream customers, thereby eliminating the need for physical movement of securities. Transactions may be settled by Clearstream in any of various currencies, including United States dollars. Clearstream provides to its customers, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Clearstream also deals with domestic securities markets in various countries through established depositary and custodial relationships. Clearstream is registered as a bank in Luxembourg and therefore is subject to regulation by the Luxembourg Commission de Surveillance du Secteur Financier, which supervises Luxembourg banks. Clearstream’s customers are world-wide financial institutions including underwriters, securities brokers and dealers, banks, trust companies and clearing corporations, among others, and may include the underwriters of the bonds. Clearstream’s U.S. customers are limited to securities brokers and dealers and banks. Clearstream

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has customers located in various countries. Indirect access to Clearstream is also available to other institutions that clear through or maintain a custodial relationship with an account holder of Clearstream. Clearstream has established an electronic bridge with Euroclear to facilitate settlement of trades between Clearstream and Euroclear.

The Function of Euroclear

Euroclear holds securities and book-entry interests in securities for Euroclear participants and facilitates the clearance and settlement of securities transactions between Euroclear participants, and between Euroclear participants and participants of certain other securities intermediaries through simultaneous electronic book-entry delivery against payment, thereby eliminating the need for physical movement of securities and any risk from lack of simultaneous transfers of securities and cash. Such transactions may be settled in any of various currencies, including United States dollars. The Euroclear System includes various other services, including, among other things, safekeeping, administration, clearance and settlement, securities lending and borrowing and interfaces with domestic markets in several countries generally similar to the arrangements for cross-market transfers with DTC described below. The Euroclear System is operated by Euroclear Bank S.A./N.V. Euroclear participants include central banks and other banks, securities brokers and dealers and other professional financial intermediaries and may include the underwriters of the bonds. Indirect access to the Euroclear System is also available to other firms that clear through or maintain a custodial relationship with a Euroclear participant, either directly or indirectly.

Terms and Conditions of Euroclear

Securities clearance accounts and cash accounts with Euroclear are governed by the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of the Euroclear System, and applicable Belgian law (collectively, the “Euroclear terms and conditions”). These Euroclear terms and conditions govern transfers of securities and cash within the Euroclear System, withdrawals of securities and cash from the Euroclear System and receipts of payments with respect to securities in the Euroclear System. All securities in Euroclear are held on a fungible basis without attribution of specific securities to specific securities clearance accounts. Euroclear acts under the Euroclear terms and conditions only on behalf of Euroclear participants and has no record of or relationship with persons or entities holding through Euroclear participants.

The Rules for Transfers Among DTC, Clearstream or Euroclear Participants

Transfers between DTC participants will occur in accordance with DTC rules. Transfers between Clearstream customers or Euroclear participants will occur in the ordinary way in accordance with their applicable rules and operating procedures and will be settled using procedures applicable to conventional securities held in registered form.

Cross-market transfers between persons or entities holding directly or indirectly through DTC, on the one hand, and directly or indirectly through Clearstream customers or Euroclear participants, on the other, will be effected through DTC in accordance with DTC rules on behalf of the relevant European international clearing system by its depositary; however, those cross-market transactions will require delivery of instructions to the relevant European international clearing system by the counterparty in that system in accordance with its rules and procedures and within its established deadlines, which will be based on European time. The relevant European international clearing system will, if the transaction meets its settlement requirements, deliver instructions to its depositary to take action to effect final settlement on its behalf by delivering or receiving bonds in DTC and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Clearstream customers and Euroclear participants may not deliver instructions directly to Clearstream’s and Euroclear’s depositaries.

Because of time-zone differences, credits of securities in Clearstream or Euroclear as a result of a transaction with a participant will be made during the subsequent securities settlement processing, dated the business day following the DTC settlement date, and those credits or any transactions in those securities settled during that processing will be reported to the relevant Clearstream customer or Euroclear participant on that business day. Cash received in Clearstream or Euroclear as a result of sales of securities by or through a Clearstream customer or a Euroclear participant to a DTC participant will be received with value on the

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DTC settlement date but will be available in the relevant Clearstream or Euroclear cash account only as of the business day following settlement in DTC.

DTC’s Nominee Will Be the Holder of the Bonds

Bondholders that are not participants or indirect participants but desire to purchase, sell or otherwise transfer ownership of, or other interest in, bonds may do so only through participants and indirect participants. In addition, bondholders will receive all payments of principal of and interest on the bonds from the indenture trustee through the participants, who in turn will receive them from DTC. Under a book-entry format, bondholders may experience some delay in their receipt of payments because payments will be forwarded by the indenture trustee to Cede & Co., as nominee for DTC. DTC will forward those payments to its participants, who thereafter will forward them to indirect participants or bondholders. It is anticipated that the only bondholder will be Cede & Co., as nominee of DTC. The indenture trustee will not recognize beneficial owners of interest in bonds held by DTC or its nominee as bondholders, as that term is used in the indenture, and such beneficial owners will be permitted to exercise the rights of bondholders only indirectly through the participants, who in turn will exercise the rights of bondholders through DTC.

Under the rules, regulations and procedures creating and affecting DTC and its operations, DTC is required to make book-entry transfers of book-entry certificates among participants on whose behalf it acts with respect to the bonds and is required to receive and transmit payments of principal of and interest on the bonds. Participants and indirect participants with whom bondholders have accounts with respect to the bonds similarly are required to make book-entry transfers and receive and transmit those payments on behalf of their respective bondholders. Accordingly, although bondholders will not possess bonds, bondholders will receive payments and will be able to transfer their interests.

Because DTC can act only on behalf of participants, who in turn act on behalf of indirect participants and certain banks, the ability of a bondholder to pledge bonds to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of those bonds, may be limited due to the lack of a physical certificate for those bonds.

DTC has advised us that it will take any action permitted to be taken by a bondholder under the indenture only at the direction of one or more participants to whose account with DTC the bonds are credited. Additionally, DTC has advised us that it will take those actions with respect to specified percentages of the collateral amount only at the direction of and on behalf of participants whose holdings include interests that satisfy those specified percentages. DTC may take conflicting actions with respect to other interests to the extent that those actions are taken on behalf of participants whose holdings include those interests.

Except as required by law, none of any underwriter, the servicer, DEP, the indenture trustee, DEP SC Storm Funding or any other party will have any liability for any aspect of the records relating to or payments made on account of beneficial interests in the certificates held by Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any records relating to such beneficial interests.

How Storm Recovery Bond Payments Will Be Credited by Clearstream and Euroclear

Payments with respect to bonds held through Clearstream or Euroclear will be credited to the cash accounts of Clearstream customers or Euroclear participants in accordance with the applicable system’s rules and operating procedures, to the extent received by its depositary. Those payments will be subject to tax reporting in accordance with relevant United States tax laws and regulations. Please read “Material U.S. Federal Income Tax Consequences” in this prospectus. Clearstream or the Euroclear Operator, as the case may be, will take any other action permitted to be taken by a bondholder under the indenture on behalf of a Clearstream customer or Euroclear participant only in accordance with its applicable rules and operating procedures and subject to its depositary’s ability to effect those actions on its behalf through DTC.

Although DTC, Clearstream and Euroclear have agreed to the foregoing procedures in order to facilitate transfers of the bonds among participants of DTC, Clearstream and Euroclear, they are under no obligation to perform or continue to perform those procedures, and those procedures may be discontinued at any time.

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Definitive Bonds

The bonds will be issued in registered, certificated form to bondholders, or their nominees, rather than to DTC, or its nominee, only under the circumstances provided in the indenture, which will include: (i) DEP SC Storm Funding advising the indenture trustee in writing that DTC is no longer willing or able to properly discharge its responsibilities as nominee and depositary with respect to the book-entry bonds of that series and that we are unable to locate a qualified successor; (ii) our electing to terminate the book-entry system through DTC, with written notice to the indenture trustee; or (iii) after the occurrence of an event of default under the indenture, holders of bonds aggregating a majority of the aggregate outstanding principal amount of the bonds maintained as book-entry bonds advising us, the indenture trustee and DTC in writing that the continuation of a book-entry system through DTC (or a successor) is no longer in the best interests of those bondholders. Upon surrender by DTC of the definitive securities representing the bonds and instructions for registration, the indenture trustee will issue the bonds in the form of definitive bonds, and thereafter the indenture trustee will recognize the registered holders of the definitive bonds as bondholders under the indenture or series supplement. Upon issuance of definitive bonds, the bonds evidenced by such definitive bonds will be transferable directly (and not exclusively on a book-entry basis) and registered holders will deal directly with the indenture trustee with respect to transfers, notices and payments.

The indenture trustee will make payment of principal of and interest on the bonds directly to bondholders in accordance with the procedures set forth herein and in the indenture or series supplement. The indenture trustee will make interest payments and principal payments to bondholders in whose names the definitive bonds were registered at the close of business on the related record date. The indenture trustee will make payments by wire transfer to an account maintained by the bondholder in accordance with payment instructions delivered to the indenture trustee by such bondholders. The indenture trustee will make the final payment on any bond (whether definitive bonds or notes registered in the name of Cede & Co.), however, only upon presentation and surrender of the bond on the final payment date at the office or agency that is specified in the notice of final payment to bondholders. The indenture trustee will provide the notice to registered bondholders not later than the fifth day prior to the final payment date.

Definitive bonds will be transferable and exchangeable at the offices of the transfer agent and registrar, which initially will be the indenture trustee. There will be no service charge for any registration of transfer or exchange, but the transfer agent and registrar may require payment of a sum sufficient to cover any tax or other governmental charge imposed in connection therewith.

Conditions of Issuance of Additional Storm Recovery Bonds and Acquisition of Additional Storm Recovery Property

Our acquisition of storm recovery property and issuance of additional series of storm recovery bonds with respect thereto after the acquisition and issuance described in this prospectus is subject to the following conditions, among others:

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DEP requests and receives another financing order from the PSCSC to issue such additional storm recovery bonds;

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DEP must serve as initial servicer and administrator for such series of the additional storm recovery bonds and that the servicer and the administrator cannot be replaced without the requisite approval of the holders of all series of storm recovery bonds then-outstanding;

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satisfaction of the rating agency condition;

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each series of the additional storm recovery bonds has recourse only to the storm recovery property created by the additional financing order and funds on deposit in the trust accounts held by the indenture trustee with respect to that series, is nonrecourse to the storm recovery property securing the bonds and does not constitute a claim against us if revenue from the storm recovery charges and funds on deposit in the trust accounts with respect to that series are insufficient to pay such other series in full;

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we have provided to the indenture trustee and the rating agencies then rating any series of our outstanding storm recovery bonds an opinion of a nationally recognized law firm experienced in

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such matters to the effect that such issuance would not result in our substantive consolidation with DEP and that there has been a true sale of the storm recovery property for such series, subject to the customary exceptions, qualifications and assumptions contained therein;

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transaction documentation for the other series provides that holders of the storm recovery bonds of the other series will not file or join in filing of any bankruptcy petition against us;

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if holders of such other series are deemed to have any interest in any of our assets that are dedicated to the storm recovery bonds, holders of such other storm recovery bonds must agree that their interest in the assets that are dedicated to the bonds is subordinate to claims or rights of holders of the storm recovery bonds, as the case may be in accordance with the related intercreditor agreement;

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each series will have its own bank accounts or trust accounts;

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funds for each series of storm recovery bonds shall be remitted in accordance with the related servicing agreement and related intercreditor agreement;

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each series of additional storm recovery bonds will have its own indenture; and

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each series of storm recovery bonds will bear its own indenture trustee fees, servicer fees and administration fees.

The sale of storm recovery property created by an additional financing order and issuance of additional storm recovery bonds with respect thereto after the acquisition and issuance described in this prospectus is subject to our satisfaction of the rating agency condition.

In addition, DEP has covenanted under the sale agreement that the execution of a joinder to an existing intercreditor agreement or a new intercreditor agreement, as circumstances require, is a condition precedent to the sale of property by DEP consisting of nonbypassable charges payable by customers comparable to the storm recovery property sold by DEP pursuant to the sale agreement. Please read “Security for the Storm Recovery Bonds — Issuance of Additional Storm Recovery Bonds” in this prospectus.

Allocations as Between Series

The financing order requires storm recovery charges to be shown as a separate line item on the periodic bills sent to customers and include both the rate and the amount of each of the storm recovery charges on each bill. Although each additional series of storm recovery bonds will have its own storm recovery property reflecting the right to impose, bill, charge, collect and receive a separate storm recovery charge, storm recovery charges relating to the bonds and storm recovery charges relating to any additional series of storm recovery bonds will be collected through single periodic bills to each customer. In the event a customer does not pay in full all amounts owed under any bill including storm recovery charges, the servicer is required to allocate partial payments ratably among the storm recovery charge, other similar securitization charges and DEP’s other billed amounts that is consistent with DEP’s current process for allocating partial payments, where cash collections are first applied to billed deposits, then to installment payments (if existing), then to past due charges, including past due storm recovery charges, then to current month charges, including storm recovery charges, and finally to late payment fees. To the extent a customer is making installment payments, such payments will include storm recovery charges owed by such customer. Please read “The Servicing Agreement — Remittances to Collection Account” in this prospectus.

Access of Bondholders

Upon written request of any bondholder or group of bondholders evidencing at least 10% of the aggregate outstanding principal amount of the bonds, the indenture trustee will afford the bondholder or bondholders making such request a copy of a current list of bondholders for purposes of communicating with other bondholders with respect to their rights under the indenture or the series supplement; provided, that the indenture trustee gives prior written notice to us of such request.

The indenture or the series supplement does not provide for any annual or other meetings of bondholders.

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Reports to Bondholders

On or prior to each payment date, special payment date or any other date specified in the indenture or the series supplement for payments, the servicer will deliver to us and the indenture trustee, and the indenture trustee will make available on its website (currently located at https://pivot.usabank.com), a statement prepared by the servicer with respect to the payment to be made on the payment date, special payment date or other date, as the case may be, setting forth the following information:

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the amount of the payment to bondholders allocable to (i) principal and (ii) interest;

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the aggregate outstanding principal balance of the bonds, before and after giving effect to payments allocated to principal reported immediately above;

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the difference, if any, between the amount specified immediately above and the principal amount scheduled to be outstanding on that date according to the related expected sinking fund schedule;

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any other transfers and payments to be made on such payment date, special payment date or other date, including amounts paid to the indenture trustee and the servicer;

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the amounts on deposit in the capital subaccount and the excess funds subaccount, after giving effect to the foregoing payments;

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the amount paid or to be paid to the indenture trustee since the preceding payment date;

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the amount paid or to be paid to the servicer since the preceding payment date; and

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the amount of any other transfers and payments made pursuant to the indenture or the series supplement since the preceding payment date.

The reports will be available to bondholders upon request to the indenture trustee or the servicer. Such reports will not constitute financial statements prepared in accordance with generally accepted accounting principles. The financial information provided to bondholders will not be examined and reported upon by an independent public accountant. In addition, an independent public accountant will not provide an opinion on the financial information.

Within the prescribed period of time for tax reporting purposes after the end of each calendar year during the term of the bonds, the indenture trustee, so long as it is acting as paying agent and transfer agent and registrar for the bonds, will, upon written request by us or any bondholder, send to persons or entities that at any time during the calendar year were bondholders and received any payment on the bonds, a statement containing certain information for the purposes of the bondholder’s preparation of United States federal and state income tax returns.

Although neither we nor the depositor are an asset-backed issuer and the bonds are not asset-backed securities as defined by the SEC in governing regulations Item 1101 of Regulation AB, we intend to file with the SEC reports related to the bonds consistent with the disclosure and regulatory regime established by Regulation AB. Such reports will be filed under the name of DEP SC Storm Funding and will include reports on Form 10-D, Form 10-K and Form 8-K. Please read “The Servicing Agreement — Evidence as to Compliance” in this prospectus.

Website Disclosure

We will, to the extent permitted by and consistent with our and the sponsor’s legal obligations under applicable securities laws, cause to be posted on a website associated with us or our affiliates, currently located at www.duke-energy.com, periodic and current reports containing, to the extent such information is reasonably available to us:

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a statement of storm recovery charge remittances made to the indenture trustee, balances in the collection account (and each subaccount thereof) and the balance of outstanding storm recovery bonds, in each case, as of the most recent payment date;

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the semi-annual servicer’s certificates and monthly servicer’s certificates delivered for the bonds pursuant to the servicing agreement;

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•

the text (or a link to the website where a reader can find the text) of each filing of a True-Up Adjustment and the results of each such filing;

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changes in the long-term or short-term credit ratings of the servicer assigned by the rating agencies;

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material legislative or regulatory developments directly relevant to the bonds; and

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any reports and other information that are required to be filed with the SEC under the Exchange Act, including but not limited to periodic and current reports related to the bonds consistent with the disclosure and reporting regime established in Regulation AB.

Notwithstanding the foregoing, nothing herein shall preclude the issuing entity from voluntarily suspending or terminating its filing obligations as issuing entity with the SEC to the extent permitted by applicable law.

Information on DEP’s website or that can be accessed through the website is not incorporated into and does not constitute a part of the registration statement of which this prospectus forms a part.

DEP SC Storm Funding and the Indenture Trustee May Modify the Indenture and the Series Supplement

Modifications of the Indenture that Do Not Require Consent of Storm Recovery Bondholders

From time to time, and without the consent of the bondholders (but with prior notice to the indenture trustee and the rating agencies), we and the indenture trustee may enter into one or more agreements supplemental to the indenture and to the series supplement for various purposes described in the indenture and the series supplement, including:

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to correct or amplify the description of any property, including the collateral subject to the lien of the indenture or the series supplement, or to better convey, assure and confirm to the indenture trustee the property subject to the lien of the indenture or the series supplement, or to add additional property;

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to add to the covenants for the benefit of the bondholders and the indenture trustee, or surrender any right or power conferred to us by the indenture or the series supplement;

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to convey, transfer, assign, mortgage or pledge any property to or with the indenture trustee;

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to cure any ambiguity or correct or supplement any provision in the indenture, in the series supplement or in any supplemental indenture that may be inconsistent with any other provision in the indenture, in the series supplement or in any supplemental indenture or to make any other provisions with respect to matters or questions arising under the indenture, under the series supplement or under any supplemental indenture, provided however, that (i) such action will not, as evidenced by an officer’s certificate, adversely affect in any material respect the interests of the bondholders and (ii) the rating agency condition (as defined under “Glossary”) shall have been satisfied with respect thereto;

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to evidence and provide for the acceptance of the appointment under the indenture of a successor trustee with respect to the bonds and to add or change any of the provisions of the indenture or the series supplement as shall be necessary to facilitate the administration of the trusts thereunder by more than one trustee;

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to evidence the succession of another person or entity to us in accordance with the terms of the indenture and in the series supplement and the assumption by any such successor of the covenants in the indenture, in the series supplement and in the bonds;

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to modify, eliminate or add to the provisions of the indenture or the series supplement to such extent as shall be necessary to effect qualification under the Trust Indenture Act of 1939, as amended, or the Trust Indenture Act, and to add provisions expressly required by the Trust Indenture Act;

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to qualify the bonds for registration with a clearing agency;

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to satisfy any rating agency requirements;

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to set forth the terms of any series that has not therefore been authorized; or

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•

to authorize the appointment of any fiduciary for the bonds required or advisable with the listing of the bonds on any stock exchange and otherwise amend the indenture or the series supplement to incorporate changes requested or required by any government authority, stock exchange authority or fiduciary in connection with such listing.

Modifications of the Indenture or the Series Supplement that Require the Approval of Storm Recovery Bondholders

We may, with the consent of bondholders holding a majority of the aggregate outstanding principal amount of the bonds to be affected (and with prior notice to the rating agencies), enter into one or more indentures supplemental to the indenture for the purpose of, among other things, adding any provisions to or changing in any manner or eliminating any of the provisions of the indenture or modifying in any manner the rights of bondholders. In determining whether a majority of holders have consented, bonds owned by us, DEP or any other of our affiliates shall be disregarded, except that, in determining whether the indenture trustee shall be protected in relying upon any such consent, the indenture trustee shall only be required to disregard any bonds it actually knows to be so owned. No supplement, however, may, without the consent of each bondholder affected thereby, take certain actions enumerated in the indenture or in the series supplement, including:

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change the date of payment of any installment of principal of or premium, if any, or interest on any bond, or reduce in any manner the principal amount thereof, the interest rate thereon or the premium, if any, with respect thereto;

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change the provisions of the indenture or series supplement and any applicable supplemental indenture relating to the application of collections on, or the proceeds of the sale of, the collateral to payment of principal of or premium, if any, or interest on the bonds, or change the place of payment where, or coin or currency in which, any bond or any interest thereon is payable;

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reduce the percentage of the aggregate amount of the outstanding bonds, , the consent of the bondholders of which is required for any supplemental indenture, or the consent of the bondholders of which is required for any waiver of compliance with those provisions of the indenture or the series supplement specified therein or of defaults specified therein and their consequences provided for in the indenture;

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reduce the percentage of the outstanding amount of the bonds the holders of which are required to direct the indenture trustee to direct us to sell or liquidate the collateral;

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modify any of the provisions of the indenture or series supplement in a manner so as to affect the amount of any payment of interest, principal or premium, if any, payable on any bond on any payment date or change the expected sinking fund schedule or final maturity date of the bonds;

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decrease the required capital amount;

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permit the creation of any lien ranking prior to or on a parity with the lien of the indenture with respect to any of the collateral for the bonds or, except as otherwise permitted or contemplated in the indenture or the series supplement, terminate the lien of the indenture on any property at any time subject thereto or deprive the holder of any bond of the security provided by the lien of the indenture;

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cause any material adverse U.S. federal income tax consequence to the seller, us, our managers, the indenture trustee or the beneficial owners of the bonds;

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modify the provisions of the indenture or the series supplement with respect to amendments to the indenture and to certain of the other basic documents requiring consent of bondholders except to increase any percentage specified; or

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impair the right to institute suit for enforcement of the provisions of the indenture or the series supplement regarding payment or application of funds.

Promptly following the execution of any supplement to the indenture, the indenture trustee will furnish or make available electronically either a copy of such supplement or written notice of the substance of the supplement to each bondholder of a bond to which such supplement relates, and a copy of such supplement

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to each rating agency. No supplemental indenture will be effective unless the conditions set forth in the indenture, relating to the PSCSC’s right to object (or to issue a statement that it might object) to such supplemental indenture, have been met. Please read “— Procedure for Obtaining Consent or Deemed Consent of the PSCSC” below.

Notification of the Rating Agencies, the PSCSC, the Indenture Trustee and the Storm Recovery Bondholders of Any Modification

If we, DEP, the administrator or the servicer or any other party to the applicable agreement:

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proposes to amend, modify, waive, supplement, terminate or surrender, or agree to any amendment, modification, waiver, supplement, termination or surrender of, the terms of the sale agreement, the administration agreement, the servicing agreement or the intercreditor agreement; or

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waives timely performance or observance by DEP, the administrator or the servicer under the sale agreement, the administration agreement, the servicing agreement or the intercreditor agreement, in each case in a way that would materially and adversely affect the interests of bondholders, we must first notify the rating agencies and satisfy the rating agency condition. Upon receiving notification regarding satisfaction of the rating agency condition, we must thereafter notify the indenture trustee, the PSCSC and the bondholders in writing of the proposed amendment, modification, waiver, supplement, termination or surrender and whether the rating agency condition has been satisfied with respect thereto (or, upon our written request, the indenture trustee shall so notify the bondholders on our behalf). The indenture trustee will consent to this proposed amendment, modification, supplement, waiver, termination or surrender only if the rating agency condition has been satisfied and only with the (i) written consent of the holders of a majority of the outstanding principal amount of the bonds materially and adversely affected thereby and (ii) if necessary under the sale agreement, servicing agreement, administration agreement or intercreditor agreement, satisfaction of the PSCSC condition. In determining whether a majority of holders have consented, bonds owned by us, DEP or any other of our affiliates shall be disregarded, except that, in determining whether the indenture trustee shall be protected in relying upon any such consent, the indenture trustee shall only be required to disregard any bonds it actually knows to be so owned.

Modifications to the Sale Agreement, the Administration Agreement, the Servicing Agreement and Other Basic Documents

Except as set forth under “Notification of the Rating Agencies, the PSCSC, the Indenture Trustee and the Storm Recovery Bondholders of Any Modification”, the sale agreement, the administration agreement, the servicing agreement and the intercreditor agreement may be amended, so long as such amendment does not change the true-up mechanism and the rating agency condition is satisfied in connection therewith and, to the extent required by the sale agreement, the administration agreement, the servicing agreement or the intercreditor agreement, as the case may be, the PSCSC condition has been satisfied, at any time and from time to time, without the consent of the bondholders, but with the acknowledgement of the indenture trustee upon receipt by the indenture trustee of an officer’s certificate evidencing satisfaction of such rating agency condition and an opinion of counsel of external counsel evidencing that such amendment is in accordance with the provisions of such basic document, including to the extent required the sale agreement, the administration agreement, the servicing agreement and the intercreditor agreement, satisfaction of the PSCSC Condition. The servicing agreement does not provide any bondholder or any other person or entity with any legal or equitable right, remedy or claim in the storm recovery property, the servicing agreement or any covenants, conditions or provisions contained therein.

Enforcement of the Sale Agreement, the Administration Agreement, the Servicing Agreement and Other Basic Documents

The indenture provides that we will take all lawful actions to enforce our rights under the sale agreement, the administration agreement, the servicing agreement, the intercreditor agreement and the other basic documents. The indenture also provides that, promptly following a default, we will take all lawful actions the indenture trustee may request to compel or secure the performance and observance by each of DEP, each other party under the intercreditor agreement, the administrator and the servicer of their respective obligations

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to us under or in connection with the sale agreement, the administration agreement, the servicing agreement and the intercreditor agreement. So long as no event of default occurs and is continuing, we may exercise any and all rights, remedies, powers and privileges lawfully available to us under or in connection with the sale agreement, the administration agreement, the servicing agreement and the intercreditor agreement provided that such action shall not adversely affect the interest of bondholders in any material respect. However, if we or the servicer propose to amend, modify, waive, supplement, terminate or surrender, or agree to any amendment, modification, supplement, termination, waiver or surrender of, the process for adjusting the storm recovery charges, we must notify the indenture trustee and the bondholders and, when required, the PSCSC in writing of this proposal (or, upon our written request, the indenture trustee shall so notify the bondholders on our behalf). In addition, the indenture trustee may consent to this proposal only with the written consent of the holders of a majority of the principal amount of the outstanding bonds affected thereby and only if the rating agency condition is satisfied. In determining whether a majority of holders have consented, bonds owned by us, DEP or any other of our affiliates shall be disregarded, except that, in determining whether the indenture trustee shall be protected in relying upon any such consent, the indenture trustee shall only be required to disregard any bonds it actually knows to be so owned.

If an event of default occurs and is continuing, the indenture trustee may, and, at the written direction of the holders of a majority of the outstanding amount of bonds or the PSCSC, shall exercise all of our rights, remedies, powers, privileges and claims against DEP, the administrator and the servicer, under or in connection with the sale agreement, the administration agreement, the servicing agreement and the intercreditor agreement, including the right or power to take any action to compel or secure performance or observance by the seller, the administrator or the servicer of each of their obligations to DEP SC Storm Funding thereunder and to give any consent, request, notice, direction, approval, extension or waiver under the sale agreement, the servicing agreement, the intercreditor agreement and the administration agreement and any right of ours to take this action shall be suspended.

Procedure for Obtaining Consent or Deemed Consent of the PSCSC

The PSCSC must consent or acquiesce prior to the implementation of any amendment, modification or supplement to the indenture or the other basic documents, or certain waiver of a default under any basic document if the resulting changes to a basic document by such amendment, modification or supplement or any such waiver is determined to have a reasonable possibility to impact the rates borne by customers. Each of such basic documents sets forth procedures whereby we or DEP, as the case may be, may request such consent or acquiescence. The process, described below, for obtaining PSCSC consent or acquiescence is referred to as the PSCSC condition. The “PSCSC condition” will be satisfied if, after receiving notice of any such amendment or modification or requested waiver, the PSCSC consents in writing to such action or waiver. Subject to the state pledge not to impair the value of the storm recovery property, the PSCSC may object to any such amendment, modification or waiver in its sole discretion.

Covenants of DEP SC Storm Funding

We may not consolidate with or merge into any other entity, unless:

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the entity formed by or surviving the consolidation or merger is organized under the laws of the United States or any state of the United States;

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the entity expressly assumes, by a supplemental indenture, the performance or observance of all of our agreements and covenants under the indenture and the series supplement;

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the entity expressly assumes all of our obligations and succeeds to all of our rights under the sale agreement, the servicing agreement and any other basic document to which we are a party;

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no default, event of default or servicer default under the indenture or the series supplement has occurred and is continuing immediately after the merger or consolidation;

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the rating agency condition will have been satisfied with respect to the merger or consolidation;

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the issuing entity has delivered to DEP, the indenture trustee and the rating agencies an opinion or opinions of outside tax counsel (as selected by us, in form and substance reasonably satisfactory to DEP and the indenture trustee, and which may be based on a ruling from the IRS) to the effect that the

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consolidation or merger will not result in a material adverse federal or state income tax consequence to us, DEP, the indenture trustee or the then existing bondholders;

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any action as is necessary to maintain the lien and the perfected security interest in the collateral created by the indenture has been taken, as evidenced by an opinion of counsel of our external counsel delivered to the indenture trustee; and

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the issuing entity has delivered to the indenture trustee an officer’s certificate and an opinion of counsel of our external counsel, each stating that such consolidation or merger and such supplemental indenture comply with the indenture and the series supplement and that all conditions precedent in the indenture and the series supplement provided for relating to the transaction have been complied with.

We may not sell, convey, exchange, transfer or otherwise dispose of any of our properties or assets included in the collateral to any person or entity, unless:

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the person or entity acquiring the properties and assets:

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is a United States citizen or an entity organized under the laws of the United States or any State;

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expressly assumes, by a supplemental indenture, the performance or observance of all of our agreements and covenants under the indenture and series supplement;

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expressly agrees by the supplemental indenture that all right, title and interest so conveyed or transferred will be subject and subordinate to the rights of bondholders;

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unless otherwise specified in the supplemental indenture referred to above, expressly agrees to indemnify, defend and hold us and the indenture trustee harmless against and from any loss, liability or expense arising under or related to the indenture or the series supplement and the bonds;

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expressly agrees by means of the supplemental indenture that the person or entity (or if a group of persons or entities, then one specified person or entity) will make all filings with the SEC (and any other appropriate person or entity) required by the Exchange Act in connection with the storm recovery bond collateral and the bonds; and

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if such sale, conveyance, exchange, transfer or disposal relates to our rights and obligations under the sale agreement or the servicing agreement, such person or entity assumes all obligations and succeeds to all of our rights under the sale agreement and the servicing agreement, as applicable;

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no default, event of default or servicer default under the indenture or the series supplement has occurred and is continuing immediately after the transactions;

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the rating agency condition has been satisfied with respect to such transaction;

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we have delivered to DEP, the indenture trustee and the rating agencies an opinion or opinions of outside tax counsel (as selected by us, in form and substance reasonably satisfactory to DEP, and which may be based on a ruling from the IRS) to the effect that the disposition will not result in a material adverse federal or state income tax consequence to us, DEP, the indenture trustee or the then existing bondholders;

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any action as is necessary to maintain the lien and the perfected security interest in the collateral created by the indenture has been taken as evidenced by an opinion of counsel of external counsel delivered to the indenture trustee; and

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we have delivered to the indenture trustee an officer’s certificate and an opinion of counsel of our external counsel, each stating that the conveyance or transfer complies with the indenture and all conditions precedent therein provided for relating to the transaction have been complied with.

We will not, among other things, for so long as any bonds are outstanding:

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except as expressly permitted by the indenture and the other basic documents, or in connection with the issuance of any additional storm recovery bonds, sell, transfer, exchange or otherwise dispose of any of our assets unless in accordance with the remedies provisions of the indenture or the series supplement;

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claim any credit on, or make any deduction from the principal or premium, if any, or interest payable in respect of, the bonds (other than amounts properly withheld from such payments under the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, the Treasury regulations promulgated thereunder or other tax laws) or assert any claim against any present or former bondholder by reason of the payment of the taxes levied or assessed upon any part of the collateral;

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except in the case of a consolidation or merger as permitted under the indenture, terminate our existence, or dissolve or liquidate in whole or in part;

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permit the validity or effectiveness of the indenture or the other basic documents to be impaired;

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permit the lien of the indenture to be amended, hypothecated, subordinated, terminated or discharged or permit any person or entity to be released from any covenants or obligations with respect to the bonds except as may be expressly permitted by the indenture or the series supplement;

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permit any lien, charge, pledge, claim, security interest, mortgage or other encumbrance, other than the lien and security interest granted under the indenture, to be created on or extend to or otherwise arise upon or burden the collateral or any part thereof or any interest therein or the proceeds thereof (other than tax liens arising by operation of law with respect to amounts not yet due);

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permit the lien granted under the indenture not to constitute a valid first priority perfected security interest in the collateral;

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elect to be classified as an association taxable as a corporation for U.S. federal income tax purposes, file any tax return or take any other action inconsistent with our treatment for U.S. federal income tax purposes and, to the extent consistent with applicable state tax law, state income and franchise tax purposes, as a disregarded entity that is not separate from our sole member;

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change our name, identity or structure or the location of its chief executive office unless, at least ten business days prior to the effective date of any such change, we deliver to the indenture trustee (with copies to each rating agency) such documents, instruments or agreements, executed by us, as are necessary to reflect such change and to continue the perfection of the security interest of the indenture or the series supplement;

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except to the extent permitted by applicable law, voluntarily suspend or terminate our SEC filing obligations;

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take any action that is subject to the rating agency condition without satisfying the rating agency condition; or

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issue any debt obligations other than the storm recovery bonds permitted by the indenture.

The issuing entity may not engage in any business other than financing, purchasing, owning, administering, managing, and servicing the storm recovery property and other collateral and issuing the bonds or additional storm recovery bonds pursuant to an additional financing order issued by the PSCSC pursuant to the Financing Act.

The issuing entity will not issue, incur, assume, guarantee or otherwise become liable for any other indebtedness except for one or more series of storm recovery bonds. Also, we will not, except as contemplated by the bonds and the basic documents, make any loan or advance or credit to, or guarantee, endorse or otherwise become contingently liable, directly or indirectly, in connection with the obligations, stocks or dividends of, or own, purchase, repurchase or acquire (or agree contingently to do so) any stock, obligations, assets or securities of, or any other interest in, or make any capital contribution to, any other person or entity. We will not, except for the acquisition of storm recovery property as contemplated by the bonds and the basic documents, make any expenditure (by long-term or operating lease or otherwise) for capital assets (either realty or personalty).

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The issuing entity will not, directly or indirectly, make payments to or distributions, dividends or redemptions to any holder of its equity interest in respect of that interest except in accordance with the indenture, the series supplement and other basic documents.

The issuing entity will cause the servicer to deliver to the indenture trustee the annual accountant’s certificates, compliance certificates, reports regarding distributions and statements to bondholders required by the servicing agreement.

Events of Default; Rights Upon Event of Default

An event of default with respect to the bonds is defined in the indenture as any one of the following events:

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a default for five business days in the payment when due of any interest on any bond (whether such failure to pay interest is caused by a shortfall in storm recovery charges received or otherwise);

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a default in the payment of the then unpaid principal on the final maturity date;

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a default in the observance or performance of any of our covenants or agreements made in the indenture or the series supplement (other than defaults described above) and the continuation of any default for a period of 30 days after the earlier of (i) the date that written notice of the default is given to us by the indenture trustee or to us and the indenture trustee by the holders of at least 25% in principal amount of the bonds then outstanding or (ii) the date that we had actual knowledge of the default;

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any representation or warranty made by us in the indenture, the series supplement or in any certificate or other writing delivered pursuant to the indenture or the series supplement or in connection with the indenture or series supplement having been incorrect in any material respect as of the time made, and such breach not having been cured within 30 days after the earlier of (i) the date that notice of the breach is given by registered or certified mail to us by the indenture trustee or to us and the indenture trustee by the holders of at least 25% in principal amount of the bonds then outstanding or (ii) the date that we had actual knowledge of the default;

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certain events of bankruptcy, insolvency, receivership or liquidation; or

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a breach by the State of South Carolina or any of its agencies (including the PSCSC), that violates the pledge of the State of South Carolina or is not in accordance with the pledge of the State of South Carolina.

If an event of default (other than as specified in the last bullet point above) should occur and be continuing with respect to the bonds, the indenture trustee or holders of a majority in principal amount of the bonds then outstanding may declare the unpaid principal of the bonds and all accrued and unpaid interest thereon to be immediately due and payable. However, the nature of our business will result in payment of principal upon an acceleration of the bonds being made as funds become available. Please read “Risk Factors — Risk Associated with the Unusual Nature of the Storm Recovery Property — Foreclosure of the indenture trustee’s lien on the storm recovery property for the bonds might not be practical, and acceleration of the bonds before maturity might result in your investment being repaid either earlier or later than expected” and “Risk Factors — You might experience material payment delays as a result of limited sources of payment for the bonds and limited credit enhancement”. The holders of a majority in principal amount of the bonds may rescind and annul that declaration and its consequences so long as we deposit with the indenture trustee any past due amounts of all storm recovery bonds and expenses of the indenture trustee and all events of default of all storm recovery bonds, other than the nonpayment caused by acceleration, have been cured. Additionally, the indenture trustee may exercise all of our rights, remedies, powers, privileges and claims against the seller or the servicer or the administrator under or in connection with the sale agreement, the servicing agreement and the administration agreement. If an event of default as specified in the last bullet above has occurred, the servicer will be obligated under the servicing agreement to institute (and the indenture trustee, for the benefit of the bondholders, will be entitled and empowered to institute) any suits, actions or proceedings at law, in equity or otherwise, to enforce the pledge of the State of South Carolina and to collect any monetary damages as a result of a breach thereof, and each of the seller, the servicer and the indenture trustee may prosecute any suit, action or proceeding to final judgment or decree. The

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servicer is obligated to institute and maintain such action or proceedings only if it is being reimbursed on a current basis for its costs and expenses and is not required to advance its own funds in order to bring any suits, actions or proceedings and, for so long as the legal actions were pending, the servicer will be required, unless otherwise prohibited by applicable law or court or regulatory order in effect at that time, to bill, collect and post the storm recovery charges, perform adjustments and discharge its obligations under the servicing agreement. The indenture trustee will not be deemed to have knowledge of any event of default or a breach of representation or warranty unless a responsible officer of the indenture trustee has actual knowledge of the default or the indenture trustee has received written notice of the default in accordance with the indenture.

If an event of default (other than a breach by the State of South Carolina or any of its agencies of the pledge of the State of South Carolina as specified in the last bullet point above) shall have occurred and be continuing, the indenture trustee may, at the written direction of the holders of a majority in principal amount of the bonds then outstanding, either sell the storm recovery property or elect to have us maintain possession of all or a portion of such storm recovery property and continue to apply storm recovery charge collections as if there had been no declaration of acceleration. There is likely to be a limited market, if any, for the storm recovery property following a foreclosure, in light of the event of default, the unique nature of the storm recovery property as an asset and other factors discussed in this prospectus. In addition, the indenture trustee is prohibited from selling the storm recovery property following an event of default, other than a default in the payment of any principal or a default for five business days or more in the payment of any interest on any bond, unless:

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the holders of all the outstanding bonds consent to the sale;

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the proceeds of the sale are sufficient to pay in full the principal of and the accrued interest on the outstanding bonds; or

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the indenture trustee determines that the proceeds of the collateral would not be sufficient on an ongoing basis to make all payments on the bonds as those payments would have become due if the bonds had not been declared due and payable, and the indenture trustee obtains the consent of the holders of at least two-thirds of the aggregate outstanding amount of the bonds.

Subject to the provisions of the indenture and the series supplement relating to the duties of the indenture trustee, if an event of default occurs and is continuing, the indenture trustee will be under no obligation to exercise any of the rights or powers under the bonds at the request or direction of any of the holders of bonds if the indenture trustee believes in its discretion it will not be adequately indemnified against the costs, expenses and liabilities that might be incurred by it in complying with the request. Subject to the provisions for indemnification and certain limitations contained in the indenture or in the series supplement:

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the holders of a majority in principal amount of the outstanding bonds will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the indenture trustee; and

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prior to the acceleration of the bonds, the holders of a majority in principal amount of the bonds then outstanding may, in certain cases, waive any default with respect thereto, except a default in the payment of principal or interest or a default in respect of a covenant or provision of the indenture or the series supplement that cannot be modified without the consent of all of the holders of the outstanding bonds affected thereby.

No holder of any bond will have the right to institute any proceeding, to avail itself of any remedies provided in the Financing Act or of the right to foreclose on the collateral, or otherwise to enforce the lien and security interest on the collateral or to seek the appointment of a receiver or indenture trustee, or for any other remedy under the indenture or the series supplement, unless:

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the holder previously has given to the indenture trustee written notice of a continuing event of default;

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the holders of a majority in principal amount of the outstanding bonds have made written request of the indenture trustee to institute the proceeding in its own name as indenture trustee;

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the holder or holders have offered the indenture trustee satisfactory indemnity;

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•

the indenture trustee has for 60 days failed to institute the proceeding; and

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no direction inconsistent with the written request has been given to the indenture trustee during the 60-day period by the holders of a majority in principal amount of the outstanding bonds.

In addition, the indenture trustee and the servicer will covenant and each bondholder will be deemed to covenant that it will not, prior to the date that is one year and one day after the termination of the indenture or the series supplement, institute against us or against our managers or our member or members any bankruptcy, reorganization or other proceeding under any federal or state bankruptcy or similar law, subject to the right of a circuit court of the State of South Carolina to order sequestration and payment of revenues arising with respect to the storm recovery property.

Neither any manager nor the indenture trustee in its individual capacity, nor any holder of any ownership interest in us, nor any of their respective owners, beneficiaries, agents, officers, directors, employees, successors or assigns will, in the absence of an express agreement to the contrary, be personally liable for the payment of the principal of or interest on the bonds or for our agreements contained in the indenture or the series supplement.

Actions by Bondholders

Subject to certain exceptions, the holders of a majority of the aggregate outstanding amount of the bonds issued under the indenture or the series supplement will have the right to direct the time, method and place of (i) conducting any proceeding for any remedy available to the indenture trustee and (ii) exercising any trust or power conferred on the indenture trustee under the indenture or under the series supplement; provided, that:

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the direction is not in conflict with any rule of law or with the indenture or the series supplement and would not involve the indenture trustee in personal liability or expense;

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subject to any other conditions specified in the indenture or the series supplement, any direction to the indenture trustee to sell or liquidate the collateral shall be by holders of 100% of the bonds;

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if the conditions specified in the indenture have been satisfied and the indenture trustee elects to retain the collateral in accordance with the indenture, then any direction to the indenture trustee by less than 100% of bondholders to sell or liquidate the collateral will be of no force and effect; and

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the indenture trustee may take any other action deemed proper by the indenture trustee that is not inconsistent with the direction.

If any circumstance under which the indenture trustee is required to seek instructions from the holders of the bonds with respect to any action or vote, the indenture trustee will take the action or vote for or against any proposal in proportion to the principal amount, of bonds taking the corresponding position. Notwithstanding the foregoing, the indenture allows each bondholder to institute suit for the enforcement of payment of (i) the interest, if any, on its bonds that remains unpaid as of the applicable due date and (ii) the unpaid principal, if any, of its bonds on the final maturity date.

Annual Report of Indenture Trustee

If required by the Trust Indenture Act, the indenture trustee will be required to send each year to all bondholders a brief report, commencing in March 31, 2025. The report must state, among other things:

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any change in the indenture trustee’s eligibility and qualification to continue as the indenture trustee under the indenture;

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any amounts advanced by it under the indenture or the series supplement;

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any change in the amount, interest rate and maturity date of specific indebtedness owing by us to the indenture trustee in the indenture trustee’s individual capacity;

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any change in the property and funds physically held pursuant to the indenture or the series supplement; and

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any action taken by it that materially affects the bonds and that has not been previously reported.

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Annual Compliance Statement

We will file annually, with the indenture trustee, the PSCSC and the rating agencies, a written statement as to whether we have fulfilled our obligations under the indenture.

Satisfaction and Discharge of Indenture

The indenture will cease to be of further effect with respect to the bonds and the indenture trustee, on our written demand and at its expense, will execute instruments acknowledging satisfaction and discharge of the indenture with respect to the bonds, when:

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either all bonds that have already been authenticated or delivered, with certain exceptions set forth in the indenture, have been delivered to the indenture trustee for cancellation or either the scheduled final payment date for bonds not delivered for cancellation has occurred or will occur within one year and we have irrevocably deposited or cause to be deposited in trust with the indenture trustee cash and/or U.S. government obligations that through the payments of principal and interest in accordance with their terms are in an amount sufficient to pay principal, interest and premiums, if any, on the bonds and ongoing other financing costs and all other sums payable by us with respect to the bonds when scheduled to be paid and to discharge the entire indebtedness on such bonds when due;

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we have paid all other sums payable by us with respect to the bonds under the indenture; and

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we have delivered to the indenture trustee an officer’s certificate, an opinion of its external counsel and, if required by the Trust Indenture Act or the indenture trustee, a certificate from a firm of independent registered public accountants, each stating that there has been compliance with the conditions precedent in the indenture relating to the satisfaction and discharge of the indenture.

DEP SC Storm Funding’s Legal and Covenant Defeasance Options

We may, at any time, terminate all of our obligations under the indenture and the series supplement, referred to herein as the “legal defeasance option”, or terminate our obligations to comply with some of the covenants in the indenture and the series supplement, including some of the covenants described under “— Covenants of DEP SC Storm Funding”, referred to herein as the “covenant defeasance option”.

We may exercise the legal defeasance option of the bonds notwithstanding our prior exercise of the covenant defeasance option. If we exercise the legal defeasance option, the bonds will be entitled to payment only from the funds or other obligations set aside under the indenture or the series supplement for payment thereof as described below. The bonds will not be subject to payment through redemption or acceleration prior to the scheduled final payment date or redemption date, as applicable. If we exercise the covenant defeasance option, the maturity of the bonds may not be accelerated because of an event of default relating to a default in the observance or performance of any of our covenants or agreements made in the indenture or in the series supplement.

The indenture provides that we may exercise our legal defeasance option or our covenant defeasance option of bonds only if:

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we irrevocably deposit or cause to be irrevocably deposited in trust with the indenture trustee cash and/or U.S. government obligations that through the payments of principal and interest in accordance with their terms are in an amount sufficient without reinvestment, to pay principal, interest and premium, if any, on the bonds and ongoing financing costs and any other sums payable under the indenture or the series supplement with respect to the bonds when scheduled to be paid and to discharge the entire indebtedness on the bonds when due;

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we deliver to the indenture trustee a certificate from a nationally recognized firm of independent registered public accountants expressing its opinion that the payments of principal of and interest on the U.S. government obligations when due and without reinvestment plus any deposited cash will provide cash at times and in sufficient amounts to pay in respect of the bonds:

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principal in accordance with the expected sinking fund schedule therefore;

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interest when due; and

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ongoing financing costs and all other sums payable under the indenture or the series supplement with respect to the bonds;

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in the case of the legal defeasance option, 95 days after the deposit is made and during the 95-day period no default relating to events of our bankruptcy, insolvency, receivership or liquidation occurs and is continuing at the end of the period;

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no default has occurred and is continuing on the day of this deposit and after giving effect thereto;

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in the case of the legal defeasance option, we deliver to the indenture trustee an opinion of its external counsel stating that it has received from, or there has been published by, the IRS a ruling, or since the date of execution of the indenture and the series supplement, there has been a change in the applicable U.S. federal income tax law, and in either case confirming that the holders of the bonds will not recognize income, gain or loss for U.S. federal income tax purposes as a result of the exercise of the legal defeasance option and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if the legal defeasance had not occurred;

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in the case of the covenant defeasance option, we deliver to the indenture trustee an opinion of our external counsel to the effect that the holders of the bonds will not recognize income, gain or loss for U.S. federal income tax purposes as a result of the exercise of the covenant defeasance option and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if the covenant defeasance had not occurred;

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we deliver to the indenture trustee a certificate of one of our officers and an opinion of our counsel, each stating that all conditions precedent to the legal defeasance option or the covenant defeasance option, as applicable, have been complied with as required by the indenture or the series supplement;

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we deliver to the indenture trustee an opinion of our external counsel to the effect that: (i) in a case under the Bankruptcy Code in which DEP (or any of its affiliates, other than us) is the debtor, the court would hold that the deposited cash or U.S. government obligations would not be in the bankruptcy estate of DEP (or any of its affiliates, other than us, that deposited the cash or U.S. government obligations); and (ii) in the event DEP (or any of its affiliates, other than us, that deposited the cash or U.S. government obligations) were to be a debtor in a case under the Bankruptcy Code, the court would not disregard the separate legal existence of DEP (or any of its affiliates, other than us, that deposited the cash or U.S. government obligations) and us so as to order substantive consolidation under the Bankruptcy Code of our assets and liabilities with the assets and liabilities of DEP or such other affiliate; and

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the rating agency condition has been satisfied with respect to the exercise of any legal defeasance option or covenant defeasance option.

No Recourse to Others

No recourse may be taken directly or indirectly, by the bondholders with respect to our obligations or the indenture trustee’s obligations on the bonds, under the indenture or any supplement thereto or any certificate or other writing delivered in connection therewith, against (i) DEP SC Storm Funding, other than from the storm recovery bond collateral, (ii) any owner of a beneficial interest in DEP SC Storm Funding (including DEP) or (iii) any shareholder, partner, owner, beneficiary, agent, officer, director, employee or agent of the indenture trustee, the managers or any owner of a beneficial interest in DEP SC Storm Funding (including DEP) in its individual capacity, or of any successors or assigns or any of them in their respective individual or corporate capacities, except as any such person or entity may have expressly agreed. Each holder by accepting a bond specifically confirms the nonrecourse nature of these obligations and waives and releases all such liability. The waiver and release are part of the consideration for issuance of the bonds.

Notwithstanding any provision of the indenture or the series supplement to the contrary, bondholders shall look only to the storm recovery bond collateral with respect to any amounts due to the bondholders under the indenture and the bonds, and, in the event such collateral is insufficient to pay in full the amounts owed on the bonds, shall have no recourse against us in respect of such insufficiency. Each bondholder by accepting a bond specifically confirms the nonrecourse nature of these obligations and waives and releases all such liability. The waiver and release are part of consideration for issuance of the bonds.

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Certain Regulatory Provisions

No Credit Risk Retention Expected.   Section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act added section 15G to the Exchange Act, generally requiring sponsors of asset-backed securities to retain not less than 5% of the credit risk of the assets collateralizing the asset-backed securities. The final common rule adopted by the SEC and other U.S. agencies on October 22, 2014 provides that this 5% risk retention requirement does not apply to qualifying electric utility sponsored ratepayer obligation charge bond transactions. We and DEP believe that the storm recovery bonds qualify for this exception, and as a result, the storm recovery bonds will not be subject to the general 5% risk retention requirement of section 15G of the Exchange Act.

We and DEP believe that the bonds will also not be subject to the 5% risk retention requirement imposed by the European Securitisation Regulation or the UK Securitisation Regulation. For the purposes of the EU Securitisation Rules and the UK Securitisation Rules, we and DEP believe the issue of the bonds does not fall within the definition of a “securitisation” as the credit risk associated with exposure is not tranched. We and DEP believe, therefore, that neither the EU Securitisation Rules nor the UK Securitisation Rules apply to the issue of the bonds.

If a European regulator or a UK regulator should decide that the issue of the bonds is a “securitisation” for the purposes of the EU Securitisation Rules or the UK Securitisaton Rules then failure to comply with one or more of the requirements set out in such rules might result in the imposition of a penal capital charge with respect to the investment made in the securitization by a credit institution and investment firm regulated in a Member State of the European Economic Area or, as the case may be, the United Kingdom and in each case its consolidated group affiliates.

None of DEP, us, any underwriter or any other party to the transaction of which this offering is a part intends to retain a material net economic interest in the transaction of which this offering is a part for the purposes of the risk retention requirements discussed in above or take any other action that may be required by investors for the purposes of their compliance with these requirements.

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THE INDENTURE TRUSTEE

U.S. Bank Trust Company, National Association, a national banking association (“U.S. Bank Trust Co.”), will be the “indenture trustee”, and will act as the paying agent and registrar for the storm recovery bonds. U.S. Bank National Association (“U.S. Bank N.A.”) made a strategic decision to reposition its corporate trust business by transferring substantially all of its corporate trust business to its affiliate, U.S. Bank Trust Co., a non-depository trust company (U.S. Bank N.A. and U.S. Bank Trust Co. are collectively referred to herein as “U.S. Bank”). Upon U.S. Bank Trust Co.’s succession to the business of U.S. Bank N.A., it became a wholly owned subsidiary of U.S. Bank N.A. The indenture trustee will maintain the accounts of the issuing entity in the name of the indenture trustee at U.S. Bank N.A.

U.S. Bancorp, with total assets exceeding $688 billion as of September 30, 2023, is the parent company of U.S. Bank N.A., the fifth largest commercial bank in the United States. As of September 30, 2023, U.S. Bancorp operated over 2,200 branch offices in 26 states. A network of specialized U.S. Bancorp offices across the nation provides a comprehensive line of banking, brokerage, insurance, investment, mortgage, trust and payment services products to consumers, businesses, and institutions.

U.S. Bank has one of the largest corporate trust businesses in the country with office locations in 48 domestic and 2 international cities. The indenture will be administered from U.S. Bank’s corporate trust office located at 190 South LaSalle Street, 7th Floor, Chicago, Illinois 60603.

U.S. Bank has provided corporate trust services since 1924. As of September 30, 2023, U.S. Bank was acting as trustee with respect to over 127,000 issuances of securities with an aggregate outstanding principal balance of over $5.8 trillion. This portfolio includes corporate and municipal bonds, mortgage-backed and asset-backed securities and collateralized debt obligations.

The indenture trustee shall make each monthly statement available to the bondholders via the indenture trustee’s internet website at https://pivot.usbank.com. Bondholders with questions may direct them to the indenture trustee’s bondholder services group at (800) 934-6802.

U.S. Bank serves or has served as indenture trustee, paying agent and registrar on several issues of utility rate-payer backed securities.

U.S. Bank N.A. and other large financial institutions have been sued in their capacity as trustee or successor trustee for certain residential mortgage-backed securities (“RMBS”) trusts. The complaints, primarily filed by investors or investor groups against U.S. Bank N.A. and similar institutions, allege the trustees caused losses to investors as a result of alleged failures by the sponsors, mortgage loan sellers and servicers to comply with the governing agreements for these RMBS trusts. Plaintiffs generally assert causes of action based upon the trustees’ purported failures to enforce repurchase obligations of mortgage loan sellers for alleged breaches of representations and warranties, notify securityholders of purported events of default allegedly caused by breaches of servicing standards by mortgage loan servicers and abide by a heightened standard of care following alleged events of default.

U.S. Bank N.A. denies liability and believes that it has performed its obligations under the RMBS trusts in good faith, that its actions were not the cause of losses to investors, that it has meritorious defenses, and it has contested and intends to continue contesting the plaintiffs’ claims vigorously. However, U.S. Bank N.A. cannot assure you as to the outcome of any of the litigation, or the possible impact of these litigations on the trustee or the RMBS trusts.

On March 9, 2018, a law firm purporting to represent fifteen Delaware statutory trusts (the “DST”) that issued securities backed by student loans (the “Student Loans”) filed a lawsuit in the Delaware Court of Chancery against U.S. Bank N.A. in its capacities as indenture trustee and successor special servicer, and three other institutions in their respective transaction capacities, with respect to the DSTs and the Student Loans. This lawsuit is captioned The National Collegiate Student Loan Master Trust I, et al. v. U.S. Bank National Association, et al., C.A. No. 2018-0167-JRS (Del. Ch.) (the “NCMSLT Action”). The complaint, as amended on June 15, 2018, alleged that the DSTs have been harmed as a result of purported misconduct or omissions by the defendants concerning administration of the trusts and special servicing of the Student Loans. Since the filing of the NCMSLT Action, certain Student Loan borrowers have made

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assertions against U.S. Bank N.A. concerning special servicing that appear to be based on certain allegations made on behalf of the DSTs in the NCMSLT Action.

U.S. Bank N.A. has filed a motion seeking dismissal of the operative complaint in its entirety with prejudice pursuant to Chancery Court Rules 12(b)(1) and 12(b)(6) or, in the alternative, a stay of the case while other prior filed disputes involving the DSTs and the Student Loans are litigated. On November 7, 2018, the Court ruled that the case should be stayed in its entirety pending resolution of the first-filed cases. On January 21, 2020, the Court entered an order consolidating for pretrial purposes the NCMSLT Action and three other lawsuits pending in the Delaware Court of Chancery concerning the DSTs and the Student Loans, which remains pending.

U.S. Bank N.A. denies liability in the NCMSLT Action and believes it has performed its obligations as indenture trustee and special servicer in good faith and in compliance in all material respects with the terms of the agreements governing the DSTs and that it has meritorious defenses. It has contested and intends to continue contesting the plaintiffs’ claims vigorously.

The indenture trustee (or any other eligible institution in any capacity under the indenture) may resign at any time upon 30 days’ prior written notice to the issuing entity. The holders of a majority of aggregate outstanding principal amount of the bonds may remove the indenture trustee (or any other eligible institution in any capacity under the indenture) upon 30 days’ prior written notice to the indenture trustee (or such other eligible institution) and may appoint a successor indenture trustee (or successor eligible institution in the applicable capacity). The issuing entity will remove the indenture trustee if the indenture trustee ceases to be eligible to continue in this capacity under the indenture, the indenture trustee becomes a debtor in a bankruptcy proceeding or is adjudicated insolvent, a receiver or other public officer takes charge of the indenture trustee or its property, the indenture trustee becomes incapable of acting or the indenture trustee fails to provide to the issuing entity any information pertaining to the indenture trustee it reasonably requests which is necessary for the issuing entity to satisfy its reporting obligations under the federal securities laws. The issuing entity will remove any person (other than the indenture trustee) acting in any capacity under the indenture that fails to constitute an eligible institution with 30 day’s prior notice. If the indenture trustee resigns or is removed or a vacancy exists in the office of indenture trustee for any reason, the issuing entity will be obligated promptly to appoint a successor indenture trustee eligible under the indenture and notice of such appointment is required to be promptly given to each Rating Agency by the successor indenture trustee. If any person (other than the indenture trustee) acting in any capacity under the indenture as an eligible institution is removed or fails to constitute an eligible institution or if a vacancy exists in any such capacity for any reason, the issuing entity will promptly appoint a successor to such capacity that constitutes an eligible institution. No resignation or removal of the indenture trustee (or any other person acting as an eligible institution) will become effective until acceptance of the appointment by a successor indenture trustee (or a successor eligible institution). The issuing entity is responsible for payment of the expenses associated with any such removal or resignation.

The indenture trustee will at all times satisfy the requirements of the Trust Indenture Act and Section 26(a)(1) of the Investment Company Act of 1940 and have a combined capital and surplus of at least $50 million and a long-term issuer rating from Moody’s in one of its generic rating categories that signifies investment grade and a long-term issuer rating from S&P of at least “A.” If the indenture trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business or assets to, another entity, the resulting, surviving or transferee entity will without any further action be the successor indenture trustee.

The indenture trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers under the indenture; provided that its conduct does not constitute willful misconduct, negligence or bad faith. The issuing entity has agreed to indemnify and hold harmless the indenture trustee and its officers, directors, employees and agents against any and all cost, damage, loss, liability, tax or expense (including reasonable attorney’s fees and expenses, including the costs of defending any claim or bringing any claim to enforce the issuing entity’s indemnification obligations under the indenture) incurred by it in connection with the administration and enforcement of the indenture, the series supplement and the other basic documents and the performance of its duties under the indenture and its obligations under or pursuant to the indenture, the series supplement and the other basic documents, provided that the issuing entity is not required to pay any expense or indemnify against any loss, liability

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or expense incurred by the indenture trustee through the indenture trustee’s own willful misconduct, negligence or bad faith. Please read “Security for the Storm Recovery Bonds — How Funds in the Collection Account Will Be Allocated” in this prospectus.

The issuing entity, DEP and their respective affiliates may from time to time enter into normal banking and trustee relationships with the indenture trustee or its affiliates. Affiliates of the indenture trustee act as lender for, and provide other banking, investment banking and other financial services to, Duke Energy Corporation, DEP and their respective affiliates.

No relationships currently exist or existed during the past two years between DEP, the issuing entity and each of their respective affiliates, on the one hand, and the indenture trustee and its affiliates, on the other hand, that would be outside the ordinary course of business or on terms other than would be obtained in an arm’s length transaction with an unrelated third party.

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SECURITY FOR THE STORM RECOVERY BONDS

General

The bonds issued under the indenture will be non-recourse obligations and will be payable solely from and secured solely by a pledge of and lien on the storm recovery property relating to the bonds and other collateral as provided in the indenture and the series supplement. Storm recovery property includes the right to impose, bill, charge, collect and receive storm recovery charges. These charges will be paid by all existing or future South Carolina customers receiving transmission or distribution service, or both, from DEP or its successors or assignees under rate schedules approved by the PSCSC or under special contracts. Storm recovery charges are payable by customers even if the customers elect to purchase electricity from an alternative electricity supplier following a fundamental change in regulation of public utilities in South Carolina. Storm recovery property includes the right to implement the true-up mechanism, at least semi-annually. See “The Storm Recovery Property and the Financing Act” in this prospectus.

Issuance of Additional Storm Recovery Bonds

We have been organized to serve as a special purpose subsidiary of DEP. As authorized by the financing order, our organizational documents as well as the transaction documents supporting the bonds give us the authority and flexibility to issue additional storm recovery bonds in future transactions, with the approval of the PSCSC and the satisfaction of the rating agency condition. As a result, we may acquire additional separate storm recovery property and issue one or more additional series of storm recovery bonds that are supported by such additional and separate storm recovery property. For example, such future financings may include additional series of storm recovery bonds to finance additional storm recovery costs for future storms. If authorized by the PSCSC, such future financings may include storm recovery bonds issued to finance costs, if any, which result from future storms.

Each series of storm recovery bonds that may be issued will be backed by separate storm recovery property we acquire for the separate purpose of repaying that series of storm recovery bonds. Each series of storm recovery bonds that may be issued will have the benefit of a true-up mechanism.

Any new series of storm recovery bonds may include terms and provisions that would be unique to that particular series of storm recovery bonds. See “Description of the Storm Recovery Bonds — Conditions of Issuance of Additional Storm Recovery Bonds and Acquisition of Additional Storm Recovery Property” in this prospectus.

Allocations as Between Series of Storm Recovery Bonds

The bonds will not be subordinated in right of payment to any other series of storm recovery bonds. In the event of a future issuance of additional storm recovery bonds, each series of storm recovery bonds will be secured by its own separate storm recovery property, which will include the right to impose, bill, charge, collect and receive storm recovery charges calculated in respect of that series, and the right to impose interim and annual true-up adjustments to correct overcollections or undercollections in respect of that series. Each series will also have its own collection account, including any related subaccounts, into which revenue from the storm recovery charges relating to that series will be deposited and from which amounts will be withdrawn to pay the related series of storm recovery bonds. Holders of one series of storm recovery bonds will have no recourse to collateral for a different series. The independent manager fees and certain other operating expenses payable by us on a payment date may be assessed to each series of storm recovery bonds on a pro rata basis, based upon the respective outstanding principal amounts of each series. See “—​Description of Indenture Accounts” and “— How Funds in the Collection Account Will Be Allocated” in this prospectus.

Although each series of storm recovery bonds will have its own separate storm recovery property, storm recovery charges relating to the bonds and storm recovery charges relating to any other series will be collected through single bills to individual electric service customers that include all charges related to the purchase of electricity, without separately itemizing the storm recovery charges component of the bill or the storm recovery charges components applicable to separate series. However, customer electricity bills will state that a portion of the electricity bill consists of the rights to the storm recovery charges that have

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been sold to us. In the event a customer does not pay in full all amounts owed under any bill including storm recovery charges, each servicer is required to allocate any resulting shortfalls in storm recovery charges ratably among the amounts of storm recovery charges owing in respect of the bonds, any amounts owing to any other series and amounts owing to any other subsequently created special-purpose subsidiaries of the utilities which issue storm recovery bonds and other DEP billed amounts, in a manner that is consistent with DEP’s current process for allocating partial payments. See “The Servicing Agreement — Remittances to Collection Account” in this prospectus.

Pledge of Collateral

To secure the payment of principal of and interest on the bonds, we will grant to the indenture trustee a security interest in all of our right, title and interest (whether owned on the issuance date or thereafter acquired or arising) in and to the following property:

•

the storm recovery property created under and pursuant to the financing order and the Financing Act, and transferred by the seller to us pursuant to the sale agreement (including, to the fullest extent permitted by law, the right to impose, bill, charge, collect and receive storm recovery charges, the right to obtain true-up adjustments to those charges, and all revenue, collections, claims, rights to payments, payments, money and proceeds arising out of the rights and interests created under the financing order);

•

all storm recovery charges related to the foregoing storm recovery property;

•

the sale agreement and the bill of sale executed in connection therewith and all property and interests in property transferred under the sale agreement and the bill of sale with respect to the foregoing storm recovery property and the bonds;

•

the servicing agreement, the administration agreement, the intercreditor agreement and any subservicing, agency, administration or collection agreements executed in connection therewith, to the extent related to the foregoing storm recovery property and the bonds;

•

the collection account, relating to the bonds and established under the indenture and the series supplement, all subaccounts thereof and all amounts of cash, instruments, investment property or other assets on deposit therein or credited thereto from time to time and all financial assets and securities entitlements carried therein or credited thereto;

•

all rights to compel the servicer to file for and obtain true-up adjustments to the storm recovery charges in accordance with the Financing Act and the financing order;

•

all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing, whether such claims, demands, causes and choses in action constitute storm recovery property, accounts, general intangibles, instruments, contract rights, chattel paper or proceeds of such items or any other form of property;

•

all accounts, chattel paper, deposit accounts, documents, general intangibles, goods, instruments, investment property, letters of credit, letters-of-credit rights, money, commercial tort claims and supporting obligations related to the foregoing; and

•

all payments on or under and all proceeds in respect of any or all of the foregoing. The collateral does not include:

•

cash or other property that has been released pursuant to the terms of the indenture and the series supplement;

•

amounts deposited with us on the issuance date, for payment of costs of issuance with respect to the bonds (together with any interest earnings thereon); and

•

proceeds from the sale of the bonds required to pay the purchase price of the foregoing storm recovery property paid pursuant to the sale agreement and the costs of the issuance of the bonds.

We refer to the foregoing assets in which we, as assignee of the seller, will grant the indenture trustee a security interest as the “storm recovery bond collateral”. Please read “— How Funds in the Collection Account Will Be Allocated” in this prospectus.

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Security Interest in the Collateral

Section 58-27-1125 of the Financing Act provides that a valid and enforceable security interest in storm recovery property will attach and be perfected only upon the later of: the issuance of a financing order, the execution and delivery of a security agreement by the debtor in connection with issuance of a series of bonds, the debtor has rights in such bonds or the power to transfer rights in such bonds or the receipt of value for such bonds. Upon perfection by filing notice with the South Carolina Secretary of State, the lien and security interest will be continuously perfected. Section 58-27-1125(B) of the Financing Act further provides that such security interest in the storm recovery property and all proceeds of the storm recovery property, whether or not billed, accrued or collected, and whether or not deposited into the collection account and however evidenced, will have priority in the order of filing and take precedence over any subsequent judicial or other lien creditor. No continuation statements are necessary to maintain such perfection.

The relative priority of the lien and security interest perfected under Section 58-27-1125 of the Financing Act is not impaired by later modification of the financing order or the commingling of revenues arising with respect to any storm recovery property with other funds (subject to the tracing requirements of federal bankruptcy law).

The financing order creates a valid and enforceable lien and security interest in the storm recovery property and the indenture and the series supplement state that it constitutes a security agreement within the meaning of the Financing Act. The servicer pledges in the servicing agreement to file with the South Carolina Secretary of State on or before the date of issuance the filing required by Section 58-27-1125 of the Financing Act to perfect the lien of the indenture trustee in the storm recovery property. The seller will represent, at the time of issuance of the bonds, that no prior filing has been made under the terms of Section 58-27-1125 of the Financing Act with respect to the storm recovery property securing the bonds to be issued other than a filing which provides the indenture trustee with a first priority perfected security interest in the storm recovery property.

Certain items of the storm recovery bond collateral may not constitute storm recovery property and the perfection of the indenture trustee’s security interest in those items of collateral would therefore be subject to the UCC or common law and not Section 58-27-1125 of the Financing Act. These items consist of our rights in:

•

the related sale agreement, servicing agreement and administration agreement;

•

the capital subaccount or any other funds on deposit in the collection account which do not constitute storm recovery charge collections, together with all instruments, investment property or other assets on deposit therein or credited thereto and all financial assets and securities entitlements carried therein or credited thereto which do not constitute storm recovery charge collections;

•

all accounts, accounts receivable, general intangibles, chattel paper, documents, money, investment property, deposit accounts, notes, drafts, acceptances, letters of credit, letter of credit rights, insurance proceeds, condemnation awards, rights to payment of any and every kind and other forms of obligations and receivables, instruments and other property; and

•

proceeds of the foregoing items.

As a condition to the issuance of the bonds, we will have made all filings and taken any other action required by the UCC or common law to perfect the lien of the indenture trustee in all the items included in collateral which do not constitute storm recovery property. We will also covenant to take all actions necessary to maintain or preserve the lien and security interest on a first priority perfected basis. We will represent, along with the seller, at the time of issuance of the bonds, that no prior filing has been made with respect to the storm recovery property by either party under the terms of the UCC, other than a filing which provides the indenture trustee with a first priority perfected security interest in the collateral on a parity basis with that securing any outstanding bonds.

Description of Indenture Accounts

Collection Account

Pursuant to the indenture and the series supplement, we will establish a segregated trust account for each series of bonds called the “collection account” with an eligible institution (as defined below) in the

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name of and for the benefit of the indenture trustee. The collection account will be under the sole dominion and exclusive control of the indenture trustee. There shall be established by the indenture trustee in respect of the collection account various subaccounts: a “general subaccount”, an “excess funds subaccount”, and a “capital subaccount”, which need not be separate bank accounts. For administrative purposes, the subaccounts may be established by the indenture trustee as separate accounts that will be recognized individually as subaccounts and collectively as the collection account. All amounts in the collection account not allocated to any other subaccount will be allocated to the general subaccount. Unless the context indicates otherwise, references in this prospectus to the collection account include the collection account and each of the subaccounts contained therein.

The following institutions are “eligible institutions” for the establishment of the collection account:

•

the corporate trust department of the indenture trustee or an affiliate thereof, so long as the indenture trustee or such affiliate has (i) either a short-term deposit or issuer rating from Moody’s of at least “P-1” or a long-term unsecured debt or issuer rating from Moody’s of at least “A2”, and (ii) a short-term deposit or issuer rating from S&P of at least “A-1”, or a long-term unsecured debt or issuer rating from S&P of at least “A”; or

•

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

provided, however, that if an eligible institution then being utilized for any purposes under the indenture or the series supplement no longer meets the definition of eligible institution, then the issuing entity shall replace such eligible institution within sixty (60) days of such eligible institution no longer meeting the definition of eligible institution.

Permitted Investments for Funds in the Collection Account

Funds in the collection account, general subaccount, excess funds subaccount and capital subaccount, may be invested only in such investments as meet the criteria set forth in the indenture and the series supplement.

The indenture trustee will have access to the collection account for the purpose of making deposits in and withdrawals from the collection account in accordance with the indenture and the series supplement. The servicer will select the eligible investments in which funds will be invested, unless otherwise directed by us. The indenture trustee shall have no investment discretion. Absent written instructions to invest, funds shall remain uninvested.

The servicer will remit storm recovery charge payments to the collection account in the manner described under “The Servicing Agreement — Remittances to Collection Account”.

General Subaccount

The general subaccount will hold all funds held in the collection account that are not held in the other subaccounts. The servicer will remit all storm recovery charge payments to the general subaccount. On or prior to each payment date, the indenture trustee will draw on amounts in the general subaccount to pay our expenses and to pay interest and make scheduled payments on the bonds, and to make other payments and transfers in accordance with the terms of the indenture and the series supplement. Funds in the general subaccount will be invested in the eligible investments described above.

Excess Funds Subaccount

The indenture trustee, at the direction of the servicer, will deposit in the excess funds subaccount storm recovery charge collections, together with the collection of earnings from investment and reinvestment of amounts in the collection account, available with respect to any payment date in excess of amounts necessary to make the payments specified on such payment date. The excess funds subaccount will also hold all

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investment earnings on the collection account other than the amount of the permitted return in amounts held in the capital account in excess of such amounts.

Capital Subaccount

In connection with the issuance of the bonds, DEP, in its capacity as our sole owner, will contribute capital to us in an amount equal to the “required capital level”. This amount will be at least 0.5% of the initial principal amount of the bonds issued. DEP will fund this amount directly and not from the proceeds of the sale of the bonds. This amount will be deposited into the capital subaccount on the issuance date.

In the event that amounts on deposit in the general subaccount and the excess funds subaccount are insufficient to make scheduled payments of principal of and interest on the bonds and payments of fees and expenses contemplated by the first nine bullet points under “— How Funds in the Collection Account Will Be Allocated” below, the indenture trustee will draw on amounts in the capital subaccount to make such payments up to the amount of such insufficiency.

In the event of any such withdrawal, collected storm recovery charges available on any subsequent payment date that are not necessary to pay scheduled payments of principal of and interest on the bonds and payments of fees and expenses will be used to replenish any amounts drawn from the capital subaccount. If the bonds have been retired as of any payment date, the amounts on deposit in the capital subaccount will be released to us, free of the lien of the indenture.

How Funds in the Collection Account Will Be Allocated

On each payment date on which payments are due on the bonds, the indenture trustee will with respect to the bonds, pay or allocate, at the direction of the servicer, all amounts on deposit in the collection account (including investment earnings thereon) to pay the following amounts in the following priority:

1.

payment of the indenture trustee’s fees, expenses and outstanding indemnity amounts relating to the bonds in an amount not to exceed annually $200,000 in the then current calendar year (the “Trustee Cap”); provided, however, that the Trustee Cap shall be disregarded and inapplicable upon acceleration following the occurrence of an event of default;

2.

payment of the servicing fee plus any unpaid servicing fees from prior payment dates as described under “The Servicing Agreement — Servicing Compensation”;

3.

payment of the administration fee to the extent due on that payment date and of the allocable fees of the issuing entity’s independent manager plus any unpaid administration or management fees from prior payment dates;

4.

payment of all other ordinary periodic operating expenses not described above;

5.

payment of the interest then due, including any past-due interest (together with interest on such past-due interest at the applicable interest rate);

6.

payment of the principal required to be paid on the final maturity date or as a result of acceleration upon an event of default;

7.

payment of the principal then scheduled to be paid in accordance with the expected sinking fund schedule, including any previously unpaid scheduled principal;

8.

payment of any of our remaining unpaid operating expenses (including any fees, expenses and indemnity amounts owed to the indenture trustee but unpaid due to the limitation in clause 1 above) and any remaining amounts owed pursuant to the basic documents;

9.

replenishment of any amounts drawn from the capital subaccount;

10.

release to DEP of an amount equal to the rate of return (calculated at a rate per annum equal to the rate of interest payable on the longest maturing bond) on the amount contributed to the capital subaccount, including any portion of such rate of return for any prior payment date that has not yet been paid, so long as no event of default has occurred and is continuing;

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11.

allocation of the remainder collected, if any, to the excess funds subaccount for future payments; and

12.

after the bonds have been paid in full and discharged and all of the foregoing amounts are paid in full, the balance, together with all amounts in the capital subaccount and the excess funds subaccount, to us free and clear of the lien of the indenture and credited to customers through the normal ratemaking processes.

The servicing fee referred to in clause (2) is described in “The Servicing Agreement”, and the amount of the administrative fee referred to in clause (3) above is described in “The Issuing Entity — The Administration Agreement” in this prospectus.

If, on any payment date, funds in the general account are insufficient to make the allocations or payments contemplated by items 1 through 9 above, the indenture trustee will draw from amounts on deposit in the following accounts in the following order up to the amount of the shortfall:

•

from the excess funds subaccount for allocations and payments contemplated in items 1 through 9; and

•

from the capital subaccount for allocations and payments contemplated by items 1 through 8 above.

If the indenture trustee uses amounts on deposit in the capital subaccount to pay those amounts or make those transfers, as the case may be, subsequent adjustments to the related storm recovery charges will take into account, among other things, the need to replenish those amounts.

If, on any payment date, available collections of the storm recovery charges allocable to the bonds, together with available amounts in the subaccounts, are not sufficient to pay interest due on all outstanding bonds on that payment date, amounts available will be allocated pro rata based on the amount of interest payable. If, on any payment date, remaining collections of the storm recovery charges, together with available amounts in the subaccounts, are not sufficient to pay principal due and payable on all outstanding bonds on that payment date (i.e. principal required to be paid on the bonds on a final maturity date or as a result of acceleration upon an event of default), amounts available will be allocated pro rata based on the principal amount then due and payable at its final maturity or upon acceleration. If, on any payment date, remaining collections of the storm recovery charges, together with available amounts in the subaccounts, are not sufficient to pay principal scheduled to be paid on all outstanding bonds (i.e. payment of the principal then scheduled to be paid on the bonds in accordance with the expected sinking fund schedule), amounts available will be allocated pro rata based on the principal amounts then scheduled to be paid on the payment date.

With respect to any operating expense payable by us (but only as described in clauses (1) through (4) above) that will become due and payable prior to the next payment date, the administrator, on any business day, may direct the indenture trustee in writing to remit payment of such operating expense, in the amount specified in the written direction, on the next payment date from amounts on deposit in the general subaccount, the excess funds subaccount and the capital subaccount in that order, all as specified in such written direction.

Right of Foreclosure

Section 58-27-1125(B)(7) of the Financing Act provides that if an event of default or termination occurs under the bonds, the bondholders or their representatives, as secured parties, may foreclose or otherwise enforce the lien on the storm recovery property securing such bonds as if they were a secured party under Article 9 of the UCC, and that a court may order that amounts arising from that storm recovery property be transferred to a separate account for the holder’s benefit, to which their lien and security interest will apply. Upon application by or on behalf of an indenture trustee to a circuit court in South Carolina, such court shall order sequestration and payment to the indenture trustee of revenues arising from the related storm recovery property.

State Pledge

The state pledge in the Financing Act is described under “The Storm Recovery Property and the Financing Act — The Financing Act Provides for the Recovery of Storm Recovery Costs and the Issuance

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of the Bonds — The Financing Act Contains a State Pledge” in this prospectus. The bondholders and the indenture trustee will be entitled to the benefit of the state pledge and we are authorized to and will include the state pledge on the bonds. We acknowledge that any purchase by a bondholder of a storm recovery bond is made in reliance on the state pledge.

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WEIGHTED AVERAGE LIFE AND YIELD CONSIDERATIONS FOR THE BONDS

The actual amount of principal and interest payments in respect of the bonds on each semi-annual payment date and the weighted average life thereof will depend on the timing of receipt of storm recovery charges and the implementation of the true-up mechanism. The aggregate amount of storm recovery charges collected and the rate of principal amortization depends, in part, on energy consumption and the rate of delinquencies and write-offs. The storm recovery charges are required to be adjusted at least every six months based in part on the actual rate of collected storm recovery charges. However, we can give no assurance that the servicer will forecast accurately actual electricity consumption and the rate of delinquencies and write- offs or implement adjustments to the storm recovery charges so as to cause storm recovery charges to be collected at any particular rate. Please read “Risk Factors — Servicing Forecasting Risks — Inaccurate forecasting of electric consumption or collections might reduce scheduled payments on the bonds” and “DEP’s Financing Order — True-Up Mechanism”.

If the servicer collects storm recovery charges at a slower rate than forecast during the period of time between mandatory semi-annual true-up adjustments and does not implement an interim true-up adjustment, the bonds may be retired later than scheduled. The servicer, however, may implement a true-up at any time it believes the slower collections may affect the timely payment of principal of and interest on the bonds on a scheduled payment date prior to the mandatory semi- annual true-up adjustment.

No prepayment is permitted. Except in the event of an acceleration of the final payment date of the bonds after an event of default, the bonds will not be paid at a rate faster than that contemplated in the expected sinking fund schedule even if the receipt of collected storm recovery charges is greater than anticipated. Instead, receipts in excess of the amounts necessary to pay debt service on the bonds in accordance with the applicable expected sinking fund schedules, to pay related fees and expenses and to fund subaccounts of the related collection account will be allocated to the excess funds subaccount. Amounts on deposit in the excess funds subaccount will be taken into consideration in calculating the next true-up adjustment.

Upon an acceleration, due to the nature of our business, payment of principal of the bonds will only be made as funds become available. Please read “Risk Factors — Risk Associated with the Unusual Nature of the Storm recovery Property — Foreclosure of the indenture trustee’s lien on the storm recovery property for the bonds might not be practical, and acceleration of the bonds before maturity might result in your investment being repaid either earlier or later than expected” and “Risk Factors — You might experience material payment delays as a result of limited sources of payment for the bonds and limited credit enhancement”.

Weighted Average Life Sensitivity

Weighted average life refers to the average amount of time from the date of issuance of a security until each dollar of principal of the security has been repaid to the investor. The rate of principal payments, the aggregate amount of each interest payment and the actual final payment date will depend on the timing of the servicer’s receipt of storm recovery charges from customers. Changes in the expected weighted average lives of the bonds in relation to variances in actual energy consumption levels (retail electric sales) from forecast levels are shown below.

​	​	Weighted Average Life Sensitivity
​	Expected Weighted Average Life (Years)	-5% (       Standard Deviations from Mean)	Change (days)*	-15% (       Standard Deviations from Mean)	Change (days)*
Tranche		WAL (yrs)		WAL (yrs)

*

Number is rounded to whole days

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Assumptions

In preparing the analysis above, the following assumptions, among others, have been made:

(i)

in relation to the initial forecast, the forecast error stays constant over the life of the bonds and is equal to an overestimate of electricity consumption of 5% (         standard deviations from mean) or 15% (         standard deviations from mean);

(ii)

the servicer makes timely and accurate semi-annually true-up adjustments (at least quarterly beginning twelve months prior to the scheduled final payment date), but makes no interim true-up adjustments;

(iii)

customer write-off rates are held constant at     %, and DEP remits all storm recovery charges on average        days after such charges are billed;

(iv)

for purposes of setting subsequent storm recovery charges, and for purposes of calculating actual storm recovery charge collections, net charge-off rate as a percentage of billed revenue and the average days sales outstanding per customer bill are both held constant at DEP’s maximum (most unfavorable) for the most recent         years;

(v)

ongoing financing costs are equal to projections;

(vi)

during the first payment period, interest will accrue for approximately         months and the storm recovery charges will be collected for approximately         months; and

(vii)

there is no acceleration of the final maturity date of the bonds.

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ESTIMATED ANNUAL FEES AND EXPENSES

Estimated initial annual fees and expenses payable from the storm recovery charges are shown below. For the priorities in application of funds under the indenture and the series supplement, please refer to “Security for the Storm Recovery Bonds — How Funds in the Collection Account Will Be Allocated” in this prospectus.

As set forth in the table below, we are obligated to pay fees to DEP, as servicer, the indenture trustee, our independent manager and DEP, as administrator. We are also obligated to pay DEP an annual return on its invested capital. The following tables illustrate these arrangement.

Recipient	Source of Payment	Fees and Expenses Payable
Servicer	storm recovery charge collections and investment earnings	$88,683 per annum (so long as DEP is servicer), payable in installments on each payment date, plus reimbursable expenses
Indenture Trustee	storm recovery charge collections and investment earnings	$8,500 per annum, plus expenses and transaction charges, if applicable
Administrator	storm recovery charge collections and investment earnings	$50,000 per annum, payable annually, in arrears plus expenses
Independent Manager	storm recovery charge collections and investment earnings	$2,500 per annum plus expenses
DEP return on invested capital	storm recovery charge collections and investment earnings	$45,410 per annum

If DEP or any of its affiliates is not the servicer, an amount agreed upon by the successor servicer and the indenture trustee (acting at the written direction of a majority of bondholders), provided, that the fee shall not exceed 0.60% of the original aggregate principal amount of the bonds unless such higher fee is approved by the PSCSC.

The storm recovery charges will also be used by the indenture trustee for the payment of our other financing costs and expenses relating to the bonds, such as accounting and audit fees, rating agency fees and legal fees. In addition storm recovery charges will be used to pay the South Carolina license tax as an ordinary periodic operating expense. DEP estimates this amount to be approximately $43,000 per annum.

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THE SALE AGREEMENT

The following summary describes the material terms and provisions of the purchase and sale agreement, or sale agreement, pursuant to which we will purchase storm recovery property from the seller. The form of the sale agreement has been filed as an exhibit to the registration statement of which this prospectus forms a part.

Sale and Assignment of the Storm Recovery Property

On the issuance date the seller will sell to us, without recourse its entire right, title and interest in and to the storm recovery property to be transferred to us on that date, subject to the satisfaction of the conditions specified in the sale agreement and the indenture and the series supplement. If additional series of bond are issued under the financing order, then the conditions described below must also be satisfied each time a sale of storm recovery property is made, which we will refer to as an issuance date. We will finance the initial purchase of storm recovery property through the issuance of the bonds. The storm recovery property will include all of the seller’s rights under the financing order related to such storm recovery property to impose, bill, charge, collect and receive storm recovery charges, the right to obtain true-up adjustments and all revenue, collections, claims, rights to payments, payments, money and proceeds arising out of rights and interests under the financing order.

The Financing Act provides that storm recovery property shall constitute our present property right even though the imposition and collection of storm recovery charges depends on the further acts of the electric utility that have not yet occurred and on future electricity consumption. The Financing Act also provides that an agreement by an electric utility to sell, convey, assign or transfer storm recovery property that expressly states that the transfer is a sale or other absolute transfer is an absolute transfer and true sale of, and is not a pledge of or secured transaction relating to, the seller’s right, title and interest in, to and under the storm recovery property. The Financing Act provides that after the transaction contemplated by the financing order, the storm recovery property will not be subject to any claims of the seller or the seller’s creditors. As of the date hereof, there are no other creditors holding a security interest in the storm recovery property.

Under the Financing Act, each sale of storm recovery property will constitute a true sale under South Carolina law whether or not:

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the storm recovery charges are commingled with other amounts held by DEP;

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we have any recourse against DEP;

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DEP retains any equity interest in the storm recovery property;

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DEP acts as a collector of storm recovery charges relating to the storm recovery property;

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DEP acts as a servicer of storm recovery charges relating to the storm recovery property;

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DEP treats the transfer as a financing for tax, financial reporting or other purposes;

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DEP grants or provides bondholders a preferred right to the storm recovery property or credit enhancement; or

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DEP applies the true-up mechanism.

In accordance with the Financing Act, a valid and enforceable lien and security interest in the storm recovery property will be created upon the issuance of the financing order and the execution and delivery of the related sale agreement in connection with the issuance of the bonds. The Financing Act provides that the lien and security interest attaches automatically from the time that value is received for the bonds and, on perfection through the timely filing of a notice with the South Carolina Secretary of State, will be a continuously perfected lien and security interest in the storm recovery property. The Financing Act further provides that upon the issuance of the financing order, the execution and delivery of the related sale agreement and the related bill of sale and the filing of a notice with the South Carolina Secretary of State in accordance with the Financing Act, the transfer of the storm recovery property will be perfected as against all third persons, including subsequent judicial or other lien creditors.

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Conditions to the Sale of Storm Recovery Property

Our obligation to purchase and the seller’s obligation to sell storm recovery property on the issuance date is subject to the satisfaction or waiver of each of the following conditions:

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on or prior to the issuance date, the seller shall have delivered to us a duly executed bill of sale identifying the storm recovery property to be conveyed on that date;

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on or prior to the issuance date, the seller shall have obtained a financing order from the PSCSC creating the storm recovery property;

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as of the issuance date, the seller may not be insolvent and may not be made insolvent by the sale of storm recovery property to us, and the seller may not be aware of any pending insolvency with respect to itself;

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as of the issuance date, the representations and warranties of the seller in the sale agreement must be true and correct with the same force and effect as if made on that date (except to the extent they relate to an earlier date), the seller may not have breached any covenant or agreement in the sale agreement, and the servicer shall not have defaulted or be in default under the servicing agreement;

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as of the issuance date, we must have sufficient funds available to pay the purchase price for the storm recovery property to be conveyed and all conditions to the issuance of the bonds intended to provide the funds set forth in the indenture and the series supplement must have been satisfied or waived;

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on or prior to the issuance date, the seller must have taken all action required to transfer ownership of storm recovery property to be conveyed on the issuance date, free and clear of all liens other than liens created by us pursuant to the basic documents and to perfect such transfer, including filing any statements or filings under the Financing Act or the South Carolina Uniform Commercial Code; and we or the servicer, on our behalf, must have taken any action required for us to grant the indenture trustee a lien and first priority perfected security interest in the collateral and maintain that security interest as of the issuance date;

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the seller must receive and deliver to us and to the rating agencies any opinions of counsel required by the rating agencies;

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the seller must receive and deliver to us and the indenture trustee an opinion or opinions of outside tax counsel (as selected by the seller, and in form and substance reasonably satisfactory to us) to the effect that (i) we will not be subject to U.S. federal income tax as an entity separate from its sole owner, (ii) that the bonds will be treated as debt of our sole owner for U.S. federal income tax purposes and (iii) for U.S. federal income tax purposes, the issuance of the bonds will not result in gross income to the seller;

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on and as of the issuance date, our certificate of formation, our limited liability company agreement, the servicing agreement, the sale agreement, the indenture, the series supplement, the Financing Act and the financing order must be in full force and effect;

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the bonds shall have received the highest credit ratings possible;

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the seller must deliver to the indenture trustee and the issuing entity, an officer’s certificate confirming the satisfaction of each of these conditions; and

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the seller shall have received the purchase price.

Seller Representations and Warranties

In the sale agreement, the seller will represent and warrant to us, as of the issuance date, to the effect, among other things, that:

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subject to the clause below regarding assumptions used in calculating the storm recovery charges as of the issuance date, all written information, as amended or supplemented from time to time, provided by the seller to us with respect to the storm recovery property (including the expected sinking fund schedule and the financing order relating to the storm recovery property) is true and correct in all

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material respects and does not omit any material facts and all historical data for the purpose of calculating the initial storm recovery charges in the issuance advice letter and the initial true-up adjustment request are true and correct, and the assumptions used for such calculations are reasonable and made in good faith;

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the transfer, sale, assignment and conveyance of the storm recovery property constitutes a sale or other absolute transfer of all of the seller’s right, title and interest in the storm recovery property to us; upon the execution and delivery of the sale agreement, the seller will have no right, title or interest in the storm recovery property and the storm recovery property would not be part of the estate of the seller as debtor in the event of a filing of a bankruptcy petition by or against the seller;

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the seller is the sole owner of the storm recovery property sold to us on the transfer date and such sale will have been made free and clear of all liens other than liens created by us pursuant to the indenture and the series supplement; all actions or filings, including filings under the Financing Act and the UCC, necessary to give us a valid first priority perfected security interest in the storm recovery property and to grant the indenture trustee a first priority perfected security interest in the storm recovery property, free and clear of all liens of the seller or anyone else have been taken or made;

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the seller is not aware (after due inquiry) of any judgment or tax lien filings against us or the seller;

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under the laws of the State of South Carolina (including the Financing Act) and the United States in effect on the issuance date:

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the financing order pursuant to which the rights and interests of the seller have been created, including the right to impose, bill, charge, collect and receive the storm recovery charges and the interest in and to the storm recovery property, has become final and non-appealable and is in full force and effect;

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as of the issuance of the bonds, those bonds are entitled to the protection provided in the Financing Act and, accordingly, the financing order and the storm recovery charges are not revocable by the PSCSC;

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as of the issuance of the bonds, revisions to DEP’s electric tariff to implement the storm recovery charges have been filed and are in full force and effect, such revisions are consistent with the financing order, and any electric tariff implemented consistent with a financing order issued by the PSCSC is not subject to modification by the PSCSC except for true-up adjustments made in accordance with the Financing Act;

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the process by which the financing order was adopted and approved complies with all applicable laws, rules and regulations; and

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no governmental approvals, authorizations, consents, orders or other actions or filings, other than filings under the Financing Act or the UCC of South Carolina or Delaware, are required for the seller to execute, deliver and perform its obligations under the sale agreement except those which have previously been obtained or made or are required to be made by the servicer in the future pursuant to the related servicing agreement; and

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under the Financing Act, the State of South Carolina may not take any action which would impair, reduce or alter the value of the storm recovery property, or impair the storm recovery charges to be imposed, collected or remitted for the benefit of the related bondholders, until the principal, interest or other charges incurred or contracts to be performed in connection with the bonds are paid or performed in full. Furthermore, under the contract clause of the United States Constitution, the State of South Carolina, including the PSCSC, cannot take any action that substantially impairs the rights of the related bondholders unless such action is a reasonable exercise of the State of South Carolina’s sovereign powers and of a character reasonable and appropriate to further a significant and legitimate public purpose. Under the Takings Clause of the United States Constitution and the Takings Clause of the South Carolina Constitution, the State of South Carolina would likely be required to pay just compensation to the bondholders if a court of competent jurisdiction determines that a repeal or amendment of the Financing Act or any other action taken by the State of South Carolina in contravention of the state pledge, (a) constitutes a permanent appropriation of a substantial property interest of the bondholders in the storm recovery property

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or (b) substantially impairs the value of the storm recovery property so as to unduly interfere with the reasonable expectations of the related bondholders arising from their investment in the bonds, unless such court finds that just compensation is provided to the bondholders; but nothing in this paragraph precludes any limitation or alteration if full compensation is made by law for the full protection of the storm recovery charges and of the related bondholders or any assignee or party entering into a contract with the seller.

These representations and warranties made above by the seller will survive the execution and delivery of the sale agreement and our pledge of the storm recovery property to the indenture trustee. The seller will further represent and warrant that:

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the seller is a limited liability company duly organized, validly existing and in good standing under the laws of North Carolina, with requisite power and authority to own its properties and conduct its business, including all necessary foreign qualifications, as of the transfer date;

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the seller is duly qualified to do business and is in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business shall require such qualifications, licenses or approvals (except where the failure to so qualify or obtain such licenses and approvals would not be reasonably likely to have a material adverse effect on the seller’s business, operations, assets, revenues or properties, the storm recovery property, the issuing entity or the storm recovery bonds);

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the seller has the requisite power and authority to execute and deliver the sale agreement and to carry out its terms; the seller has full power and authority to own the related storm recovery property and sell and assign the storm recovery property to us, and the seller has duly authorized such sale and assignment to us by all necessary action; and the execution, delivery and performance of the sale agreement has been duly authorized by the seller by all necessary action;

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the sale agreement constitutes a legal, valid and binding obligation of the seller, enforceable against it in accordance with its terms, subject to bankruptcy, receivership, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally from time to time in effect and to general principles of equity, regardless of whether considered in a proceeding in equity or at law;

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the consummation of the transactions contemplated by the sale agreement do not conflict with, result in any breach of any of the terms and provisions of, or constitute a default under, the seller’s organizational documents or any indenture, or other material agreement or instrument to which the seller is a party or by which it is bound, result in the creation or imposition of any lien upon the seller’s properties pursuant to the terms of any such indenture, agreement or other instrument (other than any that may be granted under the related basic documents or any liens created by us pursuant to the Financing Act) or violate any existing law or any order, rule or regulation applicable to the seller of any court or of any federal or state regulatory body, administrative agency or other government instrumentality having jurisdiction over the seller or its properties. The storm recovery property is not subject to any lien, other than the liens created by the indenture and the Financing Act;

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except as disclosed in the sale agreement, there are no proceedings or, to the seller’s knowledge, investigations pending or threatened, before any court, federal or state regulatory body, administrative agencies or other governmental instrumentality having jurisdiction over the seller or its properties:

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asserting the invalidity of the related basic documents, the related bonds, the Financing Act or the financing order;

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seeking to prevent the issuance of the bonds or the consummation of any of the transactions contemplated by the basic documents;

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seeking a determination or ruling that could reasonably be expected to materially and adversely affect the performance by the seller of its obligations under, or the validity or enforceability of, the basic documents, the related series of bonds or the financing order; or

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challenging the seller’s treatment of the related series of bonds as debt of the seller for federal and state tax purposes;

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no governmental approvals, authorizations, consents, orders or other actions or filings, other than filings under the Financing Act or with the South Carolina Secretary of State or the UCC of Delaware, are required for the seller to execute, deliver and perform its obligations under the sale agreement except those which have previously been obtained or made or are required to be made by the servicer in the future pursuant to the related servicing agreement;

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with respect to the Financing Act and the irrevocable financing order

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the irrevocable financing order has been issued by the PSCSC in accordance with the Financing Act in compliance with all applicable laws, rules and regulations; the financing order became effective pursuant to the Financing Act and is in full force and effect and final and nonappealable, and

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the bonds are entitled to the protections provided by the Financing Act and the financing order is not subject to impairment, and the right to impose, collect and adjust the storm recovery charge is irrevocable and not subject to reduction, impairment or adjustment, except for the periodic adjustments to the storm recovery charges provided for in the financing order;

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there is no order by a court providing for the revocation, alteration, limitation or other impairment of the Financing Act, financing order, storm recovery property or storm recovery charges, or any rights arising under them, or that seeks to enjoin the performance of any obligations under the financing order which is adverse to the position of the related storm recovery bondholders;

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apart from amending the Constitution of the State of South Carolina by initiative, the voters of the State of South Carolina have no initiative powers to amend, repeal or revoke the Financing Act;

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for purposes of the Financing Act, the storm recovery property constitutes a present property right that will continue to exist until the related bonds are paid in full and the financing costs associated with those bonds have been recovered in full;

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the storm recovery property consists of (a) the irrevocable right of the seller under the financing order to impose, bill, charge, collect and receive storm recovery charges in the amount necessary to provide for full recovery of principal of and interest on the related bonds, together with the financing costs associated with those bonds; (b) the right under the financing order to obtain true-up adjustments of the storm recovery charges and (c) all proceeds arising out of the rights and interest described in (a) and (b);

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after giving effect to the sale of the storm recovery property under the sale agreement, DEP:

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is solvent and expects to remain solvent;

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is adequately capitalized to conduct its business and affairs considering its size and the nature of its business and intended purposes;

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is not engaged and does not expect to engage in a business for which its remaining property represents unreasonably small capital;

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reasonably believes that it will be able to pay its debts as they become due; and

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is able to pay its debts as they mature and does not intend to incur, or believes that it will not incur, indebtedness that it will not be able to repay at its maturity; and

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notwithstanding the foregoing, the seller makes no representation or warranty that amounts collected from the storm recovery charges will be sufficient to meet payment obligations on the bonds or assumptions made in calculating the storm recovery charges will in fact be realized.

Certain of the representations and warranties that the seller will make in the sale agreement involve conclusions of law. The seller will make those representations and warranties in order to reflect the good faith understanding of the legal basis on which the bondholders are purchasing the bonds and to reflect the agreement that, if this understanding proves to be incorrect, the seller will be obligated to indemnify us under certain circumstances to the same extent as if the seller had breached its representations and warranties under the sale agreement. Please read “— Indemnification.”

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The seller will not be in breach of any representation or warranty as a result of any change in law occurring after the issuance date, including by means of any legislative enactment, constitutional amendment or voter initiative (if subsequently authorized) that renders any of the representations or warranties untrue.

Covenants of the Seller

In the sale agreement, the seller will make the following covenants:

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So long as any of the related bonds are outstanding, the seller will keep in full force and effect its existence and remain in good standing or equivalent status under the laws of the jurisdiction of its organization, and will obtain and preserve its qualifications to do business in each jurisdiction in which such qualification is or will be necessary to protect the validity and enforceability of the sale agreement and each other instrument or agreement to which the seller is a party necessary to the proper administration of the sale agreement and the transactions contemplated thereby.

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Except for the conveyances under the sale agreement or any lien for our benefit, the related bondholders or the indenture trustee, the seller will not sell, pledge, assign or transfer to any other person, or grant, create, incur, assume or suffer to exist any lien on, any of the related storm recovery property, whether existing as of the transfer date or thereafter created, or any interest therein. The seller will not at any time assert any lien against or with respect to any related storm recovery property, and will defend the right, title and interest of DEP SC Storm Funding and of the indenture trustee as our assignee in, to and under such storm recovery property against all claims of third parties claiming through or under the seller.

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The seller will use the proceeds of the sale of the related storm recovery property in accordance with the financing order.

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If the seller is not the servicer and the seller receives any collections of the storm recovery charges with respect to the related storm recovery property or the proceeds thereof, the seller will pay the servicer all payments received by the seller in respect thereof as soon as practicable after receipt thereof by the seller, but in no event later than two business days after the seller becomes aware of such receipt.

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The seller will notify us and the indenture trustee in writing promptly after becoming aware of any lien on any of the related storm recovery property, other than the conveyances under the related sale agreement, indenture and series supplement.

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The seller will materially comply with its organizational or governing documents and all laws, treaties, rules, regulations and determinations of any governmental authority applicable to it, except to the extent that failure to so comply would not materially adversely affect our or the indenture trustee’s interests in the storm recovery property under any of the related basic documents, the timing or amount of storm recovery charges payable by customers or of seller’s performance of its material obligations under the sale agreement.

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So long as any of the bonds are outstanding:

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the seller will treat storm recovery property as the issuing entity’s property for all purposes and not that of the seller, except for financial accounting, U.S. federal income tax purposes and state income and franchise tax purposes;

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the seller will treat such bonds as debt of DEP SC Storm Funding and not that of the seller, except for financial accounting and federal income tax purposes;

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the seller will disclose in its financial statements that it is not the owner of the related storm recovery property and that our assets are not available to pay creditors of the seller or its affiliates (other than us);

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the seller will not own or purchase any such bonds; and

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the seller will disclose the effects of all transactions between us and the seller in accordance with generally accepted accounting principles.

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The seller agrees that, upon the sale by the seller of storm recovery property to us pursuant to the sale agreement:

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to the fullest extent permitted by law, including the Financing Act and applicable regulations of the PSCSC, we will have all of the rights originally held by the seller with respect to the related storm recovery property, including the right to collect any amounts payable by any customer in respect of such storm recovery property, notwithstanding any objection or direction to the contrary by the seller; and

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any payment by any customer to us of storm recovery charges will discharge that customer’s obligations in respect of the related storm recovery property to the extent of such payment, notwithstanding any objection or direction to the contrary by the seller.

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So long as any of the bonds are outstanding:

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in all proceedings relating directly or indirectly to the related storm recovery property, the seller will affirmatively certify and confirm that it has sold all of its rights and interests in and to such property (other than for financial accounting or tax purposes);

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the seller will not make any statement or reference in respect of the related storm recovery property that is inconsistent with our ownership interest (other than for financial accounting or tax purposes);

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the seller will not take any action in respect of the related storm recovery property except as contemplated by the basic documents;

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neither we nor the seller shall take any action, file any tax return or make any election inconsistent with our treatment, for U.S. federal income tax purposes and, to the extent consistent with applicable state tax law, state income and franchise tax purposes, as a disregarded entity that is not separate from the seller (or, if relevant, from another sole owner); and

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The seller will execute and file, or cause to be executed and filed, such filings required by law to fully preserve, maintain protect and perfect our ownership interest in the related storm recovery property.

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The seller will institute any action or proceeding necessary to compel performance by the PSCSC, the State of South Carolina or any of their respective agents of any of their obligations or duties under the Financing Act, any financing order or any issuance advice letter. The seller also agrees to take those legal or administrative actions that may be reasonably necessary to attempt (i) to protect us and the indenture trustee from claims, state actions or other actions or proceedings of third parties which, if successfully pursued, would result in a breach of any representation or warranty of the seller in the sale agreement and (ii) to block or overturn any attempts to cause a repeal of, modification of or supplement to the Financing Act, the financing order, any issuance advice letter or the rights of the related bondholders by legislative enactment or constitutional amendment that would be materially adverse to us, the indenture trustee or the bondholders or which would otherwise cause an impairment of the rights of DEP SC Storm Funding or the indenture trustee or the bondholders. The costs of any such actions or proceedings undertaken by the seller will be reimbursed by us as an operating expense.

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So long as any of the related bonds are outstanding, the seller will pay, and will cause each of its affiliates to pay, all material taxes, assessments and governmental charges imposed upon it or any of its properties or assets or with respect to any of its franchises, business, income or property before any penalty accrues if the failure to pay any such taxes, assessments and governmental charges would, after any applicable grace periods, notices or other similar requirements, result in a lien on the related storm recovery property, provided that no such tax need be paid if the seller or one of its affiliates is contesting the same in good faith by appropriate proceedings promptly instituted and diligently conducted and if the seller or such affiliate has established appropriate reserves as shall be required in conformity with generally accepted accounting principles.

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The seller will comply with all filing requirements, including any post closing filings, in accordance with the financing order.

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Promptly after obtaining knowledge of any breach in any material respect of its representations and warranties or covenants in the sale agreement, the seller will notify us, the indenture trustee, the PSCSC and the rating agencies in writing of the breach.

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Even if the sale agreement, indenture or series supplement is terminated, the seller will not, prior to the date which is one year and one day after the termination of the indenture and payment in full of the bonds and other amounts owed under the indenture and the series supplement, acquiesce, petition or otherwise invoke or cause us to invoke the process of any court or government authority for the purpose of commencing or sustaining a case against us under any federal or state bankruptcy, insolvency or similar law, appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official or any substantial part of our property, or ordering the winding up or liquidation of our affairs.

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Upon our request, the seller will execute and deliver such further instruments and do such further acts as may be necessary to carry out the provisions and purposes of the sale agreement with notice to the PSCSC and ORS, provided, however, that the delivery of such notice shall not delay the implementation of any instrument delivered in accordance with this covenant.

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The seller shall not continue as or become a party to any (i) new trade receivables purchase and sale agreement or similar arrangement under which it sells all or any portion of its accounts receivables owing from South Carolina retail transmission or distribution, or both, customers unless the indenture trustee, the seller and the other parties to such additional arrangement shall have entered into a joinder or amendment to the intercreditor agreement in connection therewith and the terms of the documentation evidencing such trade receivables purchase and sale arrangement or similar arrangement shall expressly exclude storm recovery property (including storm recovery charges) from any receivables or other assets pledged or sold under such arrangement or (ii) sale agreement selling to any other affiliate property consisting of charges similar to the storm recovery charges sold pursuant to the sale agreement, payable by customers pursuant to the Financing Act or any similar law, unless the seller and the other parties to such arrangement shall have entered into a joinder or amendment to the intercreditor agreement in connection with any agreement or similar arrangement described in the sale agreement.

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So long as any of the bonds are outstanding, the seller shall not sell any “storm recovery property” or similar property, to secure another issuance of storm recovery bonds or similar bonds unless the rating agency condition has been satisfied.

Indemnification

The seller will indemnify, defend and hold harmless us, the indenture trustee (for itself and for the benefit of the bondholders), and any of our and the indenture trustee’s respective officers, directors, managers, including our independent manager, employees and agents against:

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any and all amounts of principal of and interest on the bonds not paid when due or when scheduled to be paid;

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any deposits required to be made by or to us under the basic documents or the financing order that are not made when required; and

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any and all other liabilities, obligations, losses, claims, damages, payments, costs or expenses that may be imposed on or asserted against any person, other than any liabilities, obligations or claims for or payments of principal of or interest on the bonds, together with any reasonable costs and expenses actually incurred by such person,

in each case, as a result of a breach by the seller of any of its representations, warranties and covenants in the sale agreement, except to the extent of losses either resulting from the willful misconduct, bad faith or gross negligence of such indemnified persons or resulting from a breach of a representation or warranty made by such indemnified persons in any of the basic documents that gives rise to the seller’s breach of a covenant. The seller will have a 30-day opportunity to cure upon notice from us of a material breach of a covenant. Furthermore, bondholders shall be entitled to enforce their rights against the seller under this paragraph solely through a course of action brought for their behalf by the indenture trustee.

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The seller will indemnify us and the indenture trustee (for itself and for the benefit of the bondholders)and each of their respective officers, directors, employees, trustees, managers and agents for, and defend and hold harmless each such person or entity from and against, any and all taxes (other than taxes imposed on the bondholders as a result of their ownership of bonds) that may at any time be imposed on or asserted against any such person or entity as a result of (i) the sale and assignment of the storm recovery property to us, (ii) our ownership and assignment of the storm recovery property, (iii) the issuance and sale by us of the bonds or (iv) the other transactions contemplated in the basic documents, including any franchise, sales, gross receipts, general corporation, tangible personal property, privilege or license taxes, but excluding any taxes imposed as a result of a failure of such person or entity to withhold or remit taxes with respect to payments on the bonds.

The seller’s obligations provided for in the sale agreement will survive any repeal of, modification of, supplement to, or judicial invalidation of, the Financing Act or the financing order and will survive the resignation or removal of the indenture trustee or the termination of the sale agreement and will rank pari passu with other general, unsecured obligations of the seller. The seller shall not indemnify any person or entity otherwise indemnified under the sale agreement for any changes in law after the issuance date, whether such changes in law are effected by means of any legislative enactment, any constitutional amendment or any final and non-appealable judicial decision.

Amendment

The sale agreement may be amended with the prior written consent of the indenture trustee and the satisfaction of the rating agency condition and if any amendment would adversely affect in any material respect the interest of any bondholder, the consent of a majority of bondholders of Series A Bonds. In determining whether a majority of bondholders have consented, bonds owned by the issuing entity or any affiliate of the issuing entity shall be disregarded, except that, in determining whether the indenture trustee shall be protected in relying upon any such consent, the indenture trustee shall be protected in relying upon any such consent, the indenture trustee shall only be required to disregard any bonds it actually knows to be so owned. An amendment that is determined by the seller to have a reasonable possibility to impact rates borne by customers shall also satisfy the PSCSC condition within the time periods and subject to the conditions set forth in the sale agreement. We will notify the rating agencies promptly after the execution of any such amendment or consent. Please read “Description of the Storm Recovery Bonds — Procedure for Obtaining Consent or Deemed Consent of the PSCSC” in this prospectus.

Assumptions of the Obligations of the Seller

Any person (a) into which the seller may be merged or consolidated and which succeeds to all or substantially all of the electric distribution business of the seller, (b) which results from the division of the seller into two or more persons and which succeeds to all or substantially all of the electric distribution business of the seller, (c) which may result from any merger or consolidation to which the seller shall be a party and which succeeds to all or substantially all of the electric distribution business of the seller, (d) which may succeed to the properties and assets of the seller substantially as a whole and which succeeds to all or substantially all of the electric distribution business of the seller, or (e) which may otherwise succeed to all or substantially all of the electric distribution business of the seller, and which person in any of the foregoing cases executes an agreement of assumption to perform every obligation of the seller under the sale agreement, shall be the successor to the seller thereunder without the execution or filing of any document or any further act by any of the parties so long as the conditions of any such assumption are met. The conditions include:

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immediately after giving effect to such transaction, no representation or warranty made in the sale agreement will have been breached, and no servicer default, and no event that, after notice or lapse of time, or both, would become a servicer default will have occurred and be continuing;

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the seller shall have delivered to us and to the indenture trustee an officers’ certificate and an opinion of counsel stating that such consolidation, merger or succession and each agreement of assumption comply with the requirements of the sale agreement and that all conditions precedent relating to such transaction have been complied with;

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the seller shall have delivered to us, to the indenture trustee and the rating agencies an opinion of counsel stating, in the opinion of such counsel, either (a) all filings to be made by DEP, in its capacity as seller or as servicer, including filings under the Financing Act with the South Carolina Secretary of State and the UCC, that are necessary to preserve our interests and the interests of the indenture trustee in the related storm recovery property have been executed and filed or (b) that no such action is necessary to preserve such interests,

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the rating agencies will have received prior written notice of the transaction, and

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the seller shall have delivered to us, to the indenture trustee and to the rating agencies an opinion of an independent tax counsel to the effect that, for federal income tax purposes, such consolidation or other succession to, and assumption of, the obligations of the seller will not result in a material adverse federal income tax consequence to us or to the seller, the indenture trustee or the holders of the outstanding bonds of the related series.

So long as the conditions of any such assumption are met, the depositor will automatically be released from its obligations under the related sale agreement.

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THE SERVICING AGREEMENT

The following summary describes the material terms and provisions of the servicing agreement pursuant to which the servicer is undertaking to service the storm recovery property. The form of the servicing agreement has been filed as an exhibit to the registration statement of which this prospectus forms a part.

Servicing Procedures

The servicer will manage, service and administer, bill, collect and post all payments in respect of, the storm recovery property according to the terms of the servicing agreement. The servicer’s duties will include:

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calculating consumption, billing the storm recovery charges, collecting the storm recovery charges from customers and posting all collections;

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responding to inquiries of customers, the PSCSC or any other governmental authority regarding the storm recovery property or storm recovery charges;

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investigating and handling delinquencies (and furnishing reports with respect to such delinquencies to the issuing entity);

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processing and depositing collections and making periodic remittances;

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furnishing periodic and current reports and statements to us, the PSCSC, the rating agencies and the indenture trustee;

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making all filings with the PSCSC and taking all other actions necessary to perfect our ownership interests in and the indenture trustee’s lien on the storm recovery property;

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making all filings and taking such other action as may be necessary to perfect the indenture trustee’s lien on and security interest in all collateral;

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selling, as our agent, as our interests may appear, defaulted or written off accounts;

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taking all necessary action in connection with true-up adjustments; and

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performing other duties specified under the financing order.

The servicer will be required to notify us, the indenture trustee and the rating agencies in writing of any laws or PSCSC regulations promulgated after the execution of the servicing agreement that have a material adverse effect on the servicer’s ability to perform its duties under the servicing agreement. The servicer is also authorized to execute and deliver documents and to make filings and participate in proceedings on our behalf.

In addition, upon our reasonable request or the reasonable request of any rating agency, the servicer will provide to us or any rating agency public financial information about the servicer and any material information about the storm recovery property that is reasonably available, as may be reasonably necessary and permitted by law to enable us or any rating agency to monitor the servicer’s performance, and, so long as any bonds are outstanding, within a reasonable time after written request thereof, any information available to the servicer or reasonably obtainable by it that is necessary to calculate the storm recovery charges applicable to each storm recovery rate class. The servicer will also prepare any reports required to be filed by us with the SEC, as further described below, and will cause to be delivered required opinions of counsel to the effect that all filings with the State of South Carolina and the Secretary of State of the State of Delaware necessary to preserve and protect the interests of the indenture trustee in the storm recovery property have been made.

Servicing Standards and Covenants

The servicing agreement will require the servicer, in servicing and administering the storm recovery property, to employ or cause to be employed procedures and exercise or cause to be exercised the same care and diligence it customarily employs and exercises with respect to billing, collection and posting activities it conducts for its own account and, if applicable, for others.

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The servicing agreement will require the servicer to implement procedures and policies to ensure that customers remit the storm recovery charges to the servicer on our behalf and on behalf of the bondholders. The servicer will also monitor payments and will impose collection policies on customers, as permitted under the financing order and the rules of the PSCSC.

The servicing agreement will require the servicer to (i) manage, service, administer, bill, charge, collect, receive and post collections in respect of the storm recovery property with reasonable care and in material compliance with applicable requirements of law, including all applicable regulations of the PSCSC, (ii) calculate storm recovery charges in accordance with the Financing Act; (iii) follow standards, policies and procedures in performing its duties as servicer that are customary in the electric distribution industry, (iv) use all reasonable efforts, consistent with its customary servicing procedures, to enforce, and maintain rights in respect of, the storm recovery property and to impose, bill, collect and post the storm recovery charges, (v) comply with all requirements of law, including all applicable regulations of the PSCSC applicable to and binding on it relating to the storm recovery property, (vi) file all reports with the PSCSC required by the financing order, (vii) file and maintain the effectiveness of financing statements filed with the South Carolina Secretary of State with respect to the property transferred under the sale agreement and (viii) take such other action on our behalf to ensure that the lien of the indenture trustee on the collateral remains perfected and of first priority. The servicer shall follow customary and usual practices and procedures as it deems necessary or advisable in servicing the storm recovery property, which, in the servicer’s judgment, may include taking legal action at our expense but subject to the priority of payments set forth in the indenture or in the series supplement.

Notwithstanding anything to the contrary in the servicing agreement, the duties of the servicer set forth in the servicing agreement shall be qualified and limited in their entirety by the Financing Act, the financing order and any PSCSC regulation as in effect at the time such duties are to be performed.

The servicing agreement will also require the servicer to provide various reports regarding the storm recovery charges and allocation of the storm recovery charges among various classes of customers and payments to the bondholders, in each case as are necessary to effect collection, allocation and remittance of payments in respect of storm recovery charges and other collected funds as required under the basic documents.

The servicer will be responsible for instituting or maintaining any action or proceeding to compel performance by the State of South Carolina or the PSCSC of their respective obligations under the Financing Act, the financing order or subsequent financing order and any true-up adjustment. The servicer will assist us in taking such legal or administrative actions, including defending against or instituting and pursuing legal actions and appearing or testifying at hearings or similar proceedings, as may be reasonably necessary to attempt to block or overturn any attempts to cause a repeal of, modification of or supplement to the Financing Act, the financing order or the rights of holders of storm recovery property by legislative enactment, constitutional amendment or other means that would be adverse to bondholders. Any costs associated with such legal or administrative action will be borne by us as an operating expense; provided, however, that the servicer will be obligated to institute and maintain such action or proceedings only if it is being reimbursed on a current basis for its costs and expenses in taking such actions in accordance with the related indenture or series supplement, and is not required to advance its own funds to satisfy these obligations.

In any proceedings related to the exercise of the power of eminent domain by any municipality to acquire a portion of DEP’s electric distribution facilities, the servicer will assert that the court ordering such condemnation must treat such municipality as a successor to DEP under the Financing Act and the financing order.

Each servicing agreement will also designate the servicer as the custodian of our records and documents.

The PSCSC’s Mandated True-Up Mechanism

The Financing Act permits and the financing order requires that storm recovery charges be reviewed and adjusted at least semi-annually (or beginning twelve months prior to the scheduled final payment date, at least quarterly) to correct for any overcollection or undercollection of the storm recovery charges or to

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otherwise ensure the timely payment of the periodic payment requirement. Under the servicing agreement, the servicer will make adjustments to the storm recovery charges at least semi-annually.

In addition to the semi-annual true-up adjustment, the servicer is authorized to make interim adjustments at any time for any reason to ensure the timely payment of the periodic payment requirement. Necessary true-up adjustments are to be made to correct for any overcollection or undercollection of the storm recovery charges or to otherwise ensure the timely payment of the periodic payment requirement.

There are no caps on the level of storm recovery charges that may be imposed on customers as a result of the true-up process. In addition to the semi-annual true-up adjustments, the servicer (a) is also required to implement quarterly true-up adjustments beginning twelve months prior to the scheduled final payment date for such bonds, and (b) may request an interim true-up adjustment at any time for any reason to ensure timely payment of principal of and interest on the bonds and other required amounts and charges owing in connection with the bonds on the next payment date. For more information on the true-up mechanism, please read “DEP’s Financing Order — True-Up Mechanism”.

Each true-up adjustment will allocate the revenue requirement among all customer rate classes in accordance with the cost-of-service methodology approved in DEP’s last rate case before the PSCSC.

As part of each true-up adjustment, the servicer will calculate the storm recovery charges that must be billed in order to generate the revenues for the semi-annual period necessary to result in:

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all accrued and unpaid interest on the bonds being paid in full;

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the outstanding principal balance of the bonds equaling the amount provided in the expected sinking fund schedule;

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the amount on deposit in the capital subaccount equaling the required capital level; and

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all of our other fees, expenses and indemnities being paid. by the next scheduled payment date.

There is no cap on the level of storm recovery charges that may be imposed on customers as a result of the true-up mechanism to pay principal of and interest on the bonds when due and ongoing financing costs.

Upon the filing of a true-up adjustment letter made pursuant to the financing order, the PSCSC shall either administratively approve the requested true-up calculation in writing or inform the servicer of any mathematical or clerical errors in its calculation as expeditiously as possible but no later than 60 days following the servicer’s true-up filing; and that notification and correction of any mathematical or clerical errors shall be made so that the true-up is implemented within 60 days of the servicer’s filing of a true-up adjustment letter. If the PSCSC identifies a mathematical or clerical error, the servicer will promptly correct the related true-up filing and resubmit. Upon administrative approval, no further action of the PSCSC will be required prior to implementation of the true-up.

Remittances to Collection Account

The servicer will remit storm recovery charges directly to the indenture trustee on a daily basis. The servicer will remit storm recovery charges based on estimated collections using a weighted average balance of days outstanding (“ADO”) on DEP’s retail bills. Storm recovery charge collections remitted will represent the charges estimated to be received for any period based upon the ADO and an estimated system-wide write-off percentage.

Each day on which those remittances are made is referred to as a daily remittance date. The estimated payments are made from collections received from customers.

No less often than semi-annually, the servicer will reconcile remittances of estimated storm recovery charge collections with actual storm recovery charge payments received by the servicer and remitted to the indenture trustee to more accurately reflect the amount of billed storm recovery charges that should have been remitted, based on ADO and the actual system-wide write-off percentage. To the extent the remittances of estimated payments arising from the storm recovery charges exceed the amounts that should have been remitted based on actual system-wide write-offs, the servicer will be entitled to withhold the excess amount from any subsequent remittance to the indenture trustee until the balance of such excess is reduced to zero. To

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the extent the remittances of estimated payments arising from the storm recovery charges are less than the amount that should have been remitted based on actual system wide write-offs, the servicer will remit the amount of the shortfall to the indenture trustee within two business days. Although the servicer will remit estimated storm recovery charge collections for the storm recovery bonds to the indenture trustee, the servicer will not be obligated to make any payments on the bonds.

At least annually, the servicer also will remit to the indenture trustee, for our benefit, any late payment fees received from customers with respect of storm recovery charges.

The servicer has agreed and acknowledged that it holds all storm recovery charge collections for the storm recovery bonds received by it and any other proceeds for the storm recovery bond collateral received by it for the benefit of the indenture trustee and the bondholders and that all such amounts will be remitted by the servicer without any surcharge, fee, offset, charge or other deduction. The servicer has further agreed not to make any claim to reduce its obligation to remit all storm recovery charge payments collected by it in accordance with this servicing agreement.

Servicing Compensation

The servicer will be entitled to receive an annual servicing fee with respect to the bonds in an amount equal to:

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0.05% on an annualized basis of the original principal amount of bonds plus reasonable out-of-pocket expenses so long as the servicer remains DEP or an affiliate; or

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if DEP or any of its affiliates is not the servicer, an amount agreed upon by the successor servicer and the indenture trustee, provided, that the fee shall not exceed 0.60% of the original aggregate principal amount of the bonds unless the PSCSC has approved the appointment of a successor.

The servicing fee shall be paid semi-annually, with half of the servicing fee being paid on each payment date, except for the amount of the servicing fee to be paid on the first payment date in which the servicing fee then due will be calculated based on the number of days the Servicing Agreement has been in effect. The indenture trustee will pay the servicing fee on each payment date (together with any portion of the servicing fee that remains unpaid from prior payment dates) to the extent of available funds prior to the distribution of any interest on and principal of the bonds. The servicer shall be entitled to be reimbursed by the issuing entity for certain out-of-pocket expenses, including filing fees and reasonable fees and expenses for attorneys, accountants, printing or other professional services retained by the issuing entity and paid for by the servicer (or procured by the servicer on behalf of the issuing entity and paid for by the servicer) to meet the issuing entity’s obligations under the basic documents. Except for those reimbursable expenses, the servicer shall be required to pay all other costs and expenses incurred by the servicer in performing its activities hereunder (but, for the avoidance of doubt, excluding any such costs and expenses incurred by DEP in its capacity as administrator). There is no limit on the amount of these out-of-pocket expenses, and they will be recovered as ongoing financing costs through the collection of the storm recovery charges and paid to the servicer in accordance with the payment waterfall in the Indenture. See “Security for the Storm Recovery Bonds — How Funds in the Collection Account Will Be Allocated” in this prospectus.

Servicer Representations and Warranties

In the servicing agreement, the servicer will represent and warrant to us, the indenture trustee and the PSCSC as of the issuance date of the bonds, among other things, that:

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the servicer is duly organized, validly existing and is in good standing under the laws of the state of its organization, with requisite power and authority to own its properties, to conduct its business as such properties are currently owned and such business is presently conducted by it, to service the storm recovery property and hold the records related to the storm recovery property, and to execute, deliver and carry out the terms of the servicing agreement and the intercreditor agreement;

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the servicer is duly qualified to do business, is in good standing and has obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of property or the conduct of its business (including the servicing of the storm recovery property as required under the servicing agreement) requires such qualifications, licenses or approvals (except where a failure to qualify would

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not be reasonably likely to have a material adverse effect on the servicer’s business, operations, assets, revenues or properties or to its servicing of the storm recovery property);

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the execution, delivery and performance of the terms of the servicing agreement and the intercreditor agreement have been duly authorized by all necessary action on the part of the servicer under its organizational or governing documents and laws;

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each of the servicing agreement and the intercreditor agreement constitutes a legal, valid and binding obligation of the servicer, enforceable against it in accordance with its respective terms, subject to applicable insolvency, reorganization, moratorium, fraudulent transfer and other laws relating to or affecting creditors’ rights generally from time to time in effect and to general principles of equity (including concepts of materiality, reasonableness, good faith and fair dealing), regardless of whether considered in a proceeding in equity or at law;

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the consummation of the transactions contemplated by the servicing agreement and the intercreditor agreement do not conflict with, result in any breach of or constitute (with or without notice or lapse of time) a default under the servicer’s organizational documents or any indenture or other agreement or instrument to which the servicer is a party or by which it or any of its property is bound, result in the creation or imposition of any lien upon the servicer’s properties pursuant to the terms of any such indenture or agreement or other instrument (other than any lien that may be granted in favor of the indenture trustee for the benefit of bondholders under the basic documents) or violate any existing law or any existing order, rule or regulation applicable to the servicer of any governmental authority having jurisdiction over the servicer or its properties;

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to the servicer’s knowledge, there are no proceedings or investigations pending or, to the servicer’s knowledge, threatened against the servicer before any court, federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the servicer or its properties: (i) seeking to prevent issuance of the bonds or the consummation of the transactions contemplated by the servicing agreement or any of the other basic documents, or, if applicable, any additional indenture, any additional series supplement or subsequent sale agreement; (ii) seeking any determination or ruling that might materially and adversely affect the performance by the servicer of its obligations under, or the validity or enforceability against the servicer of, the servicing agreement or any of the other basic documents, or, if applicable, any additional indenture, any additional series supplement or subsequent sale agreement; or (iii) relating to the servicer and which might materially and adversely affect the federal or state income, gross receipts or franchise tax attributes of the bonds;

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no governmental approvals, authorizations, consents, orders or other actions or filings with any governmental authority are required for the servicer to execute, deliver and perform its obligations under the servicing agreement except those that have previously been obtained or made, those that are required to be made by the servicer in the future pursuant to the servicing agreement or the intercreditor agreement and those that the servicer may need to file in the future to continue the effectiveness of any financing statements; and

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each report or certificate delivered in connection with any filing made to the PSCSC by the servicer on our behalf with respect to the storm recovery charges or true-up adjustments will constitute a representation and warranty by the servicer that each such report or certificate, as the case may be, is true and correct in all material respects. To the extent that any such report or certificate is based in part or upon or contains assumptions, forecasts or other predictions of future events, the representation and warranty of the servicer with respect thereto will be limited to the representation and warranty that such assumptions, forecasts or other predictions of future events are reasonable based upon historical performance and the facts known to the servicer on the date such report or certificate is delivered.

The servicer, the indenture trustee and DEP SC Storm Funding are not responsible as a result of any action, decision, ruling or other determination made or not made, or any delay (other than any delay resulting from the servicer’s failure to make any filings with the PSCSC required by the servicing agreement in a timely and correct manner or any breach by the servicer of its duties under the servicing agreement that adversely affects the storm recovery property or the true-up adjustments), by the PSCSC in any way related

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to the storm recovery property or in connection with any true-up adjustment, the subject of any such filings, any proposed true-up adjustment or the approval of any revised storm recovery charges and the scheduled adjustments thereto. Except to the extent that the servicer otherwise is liable under the provisions of the servicing agreement, the servicer shall have no liability whatsoever relating to the calculation of any revised storm recovery charges and the scheduled adjustments thereto, including as a result of any inaccuracy of any of the assumptions made in such calculations, so long as the servicer has acted in good faith and has not acted in a negligent manner in connection therewith, nor shall the servicer have any liability whatsoever as a result of any person or entity, including the bondholders, not receiving any payment, amount or return anticipated or expected or in respect of any bond generally.

The Servicer Will Indemnify DEP SC Storm Funding and Other Entities in Limited Circumstances

The servicer will indemnify, defend and hold harmless DEP SC Storm Funding and the indenture trustee (for itself and for the related bondholders’ benefit) and the independent manager and each of their respective officers, directors, employees and agents from any and all liabilities, obligations, losses, damages, payments and claims, and reasonable costs or expenses, arising as a result of:

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the servicer’s willful misconduct, bad faith or negligence in the performance of, or reckless disregard of, its duties or observance of its covenants under the servicing agreement and the intercreditor agreement;

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the servicer’s material breach of any of its representations or warranties that results in a default by the servicer under the servicing agreement or the intercreditor agreement; and

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litigation and related expenses relating to its status and obligations as servicer (other than any proceeding the servicer is required to institute under the servicing agreement).

The servicer will not be liable, however, for any liabilities, obligations, losses, damages, payments or claims, or reasonable costs or expenses, resulting from the willful misconduct, bad faith or gross negligence of the party seeking indemnification, or resulting from a breach of a representation or warranty made by any such person or entity in any of the basic documents that give rise to the servicer’s breach.

Except for payment of the servicing fee and payment of the purchase price of the storm recovery property, the servicing agreement also provides that the servicer releases and discharges us and our independent manager, the indenture trustee and each of our respective officers, directors and agents from any and all actions, claims and demands that the servicer, in the capacity of servicer or otherwise, may have against those parties relating to the storm recovery property or the servicer’s activities with respect to the storm recovery property, other than actions, claims and demands arising from the willful misconduct, bad faith or gross negligence of the parties.

The servicer will indemnify the indenture trustee (in its own capacity) and its respective officers, directors and agents for any and all liabilities, obligations, losses, damages payments and claims arising from the acceptance and performance of the trusts and the duties under the servicing agreement and in the indenture, except to the extent that any such liability, obligation, loss, damage, payment and claim, and reasonable cost or expense, is due to the willful misconduct, bad faith or gross negligence of the indenture trustee.

This indemnification will survive the resignation or removal of the indenture trustee and the termination of the servicing agreement.

Evidence as to Compliance

The servicing agreement will provide that the servicer will furnish annually to us, the indenture trustee and the rating agencies, on or before the earlier of March 31 of each year, beginning March 31, 2025 or on the date on which our annual report on Form 10-K relating to the bonds is required to be filed with the SEC, certificates from a responsible officer of the servicer containing and certifying compliance with specified servicing criteria as required by Item 1122(a) and Item 1123 of the rules of the SEC known as Regulation AB promulgated under Subpart 229.1100 — Asset-Backed Securities (Regulation AB), 17 C.F.R. §§229.1100 – 229.1125, as such may be amended from time to time (or any successor or similar item or

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rule), during the preceding 12 months ended December 31 (or preceding period since the issuance date of the bonds in the case of the first statement), together with a certificate by an officer of the servicer certifying the statements set forth therein.

The servicing agreement also provides that a firm of independent registered public accountants will furnish annually to us, and provide to the indenture trustee, the PSCSC and the rating agencies on or before the earlier of March 31 of each year, beginning March 31, 2025 or on the date on which the annual report on Form 10-K relating to the bonds is required to be filed with the SEC, an annual accountant’s report, which will include any required attestation report that attests to and reports on the servicer’s assessment report described in the preceding paragraph, and such attestation shall be in accordance with Rules 1-02(a)(3) and 2-02(g) of Regulation S-X under the Securities Act of 1933, as amended, and the Exchange Act. The report will also indicate that the accounting firm providing the report is independent of the servicer within the meaning of the rules of the Public Company Accounting Oversight Board. The cost of the annual accountant’s report will be reimbursable as an operating expense under the indenture and the series supplement.

Copies of the above reports will be filed with the SEC. Please read “Where You Can Find Additional Information” in this prospectus. You may also obtain copies of the above statements and certificates by sending a written request addressed to the indenture trustee.

The servicer will also be required to deliver to us, the indenture trustee , the PSCSC and the rating agencies monthly reports setting forth certain information relating to collections of storm recovery charges received during the preceding calendar month and, shortly before each payment date, a report setting forth the amount of principal and interest payable to bondholders on such date, the aggregate outstanding amount of the bonds, before and after giving effect to any payment of principal on such payment date, the difference between the principal outstanding on the bonds and the amounts specified in the related expected sinking fund schedule after giving effect to any such payments and the amounts on deposit in the capital subaccount and excess funds subaccount after giving effect to all transfers and payments to be made on such payment date.

In addition, the servicer is required to send copies of each filing or notice evidencing a true-up adjustment to us, the indenture trustee and the rating agencies. The servicer is also required to provide to the rating agencies any non-confidential and non-proprietary information as is reasonably requested by the rating agencies.

Matters Regarding the Servicer

The servicing agreement will provide that DEP may not resign from its obligations and duties as servicer thereunder, except when DEP delivers to the indenture trustee and PSCSC an opinion of external legal counsel to the effect that DEP’s performance of its duties under the servicing agreement is no longer permissible under applicable law. No resignation by DEP as servicer will become effective until a successor servicer has been approved by the PSCSC and assumed DEP’s servicing obligations and duties under the servicing agreement.

The servicing agreement further provides that neither the servicer nor any of its directors, officers, employees, and agents will be liable to us or to any other person or entity, except as provided under the servicing agreement, for taking any action or for refraining from taking any action under the servicing agreement or for good faith errors in judgment. However, neither the servicer nor any of its directors, officers or agents will be protected against any liability that would otherwise be imposed by reason of negligence, recklessness or willful misconduct in the performance of its duties or by reason of reckless disregard of obligations and duties under this servicing agreement. The servicer and any of its directors, officers, employees or agents may rely in good faith on the advice of counsel or on any document submitted by any person or entity respecting any matters under the servicing agreement. The servicer has also acknowledged that the PSCSC has the authority to enforce the provisions of the servicing agreement for the benefit of customers. Except as provided in the servicing agreement, the servicer is under no obligation to appear in, prosecute or defend any legal action that is not directly related to one of its duties in the servicing agreement or otherwise related to its indemnification obligations.

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Any entity which becomes the successor by merger, consolidation, division, sale, transfer, lease, management contract or otherwise to all or substantially all of the servicer’s electric distribution business may assume all of the rights and obligations of the servicer under the servicing agreement without the execution or filing of any document. The following are conditions to the transfer of the duties and obligations to a successor servicer:

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immediately after the transfer, no representation or warranty made by the servicer in the servicing agreement will have been breached and no servicer default or event which after notice of, lapse of time or both, would become a servicer default, has occurred and is continuing;

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the servicer has delivered to us, to the PSCSC, to the indenture trustee and the rating agencies an officer’s certificate and an opinion of counsel stating that the transfer complies with the servicing agreement and all conditions to the transfer under the servicing agreement have been complied with;

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the servicer has delivered to us, to the indenture trustee and the rating agencies an opinion of counsel stating either that all necessary filings, including those under the Financing Act and the UCC, to fully preserve and protect our interests in all of the storm recovery property have been made or that no such filings are required;

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the servicer has given prior written notice to the rating agencies;

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the servicer has delivered to us, the indenture trustee and the rating agencies, an opinion of counsel stating that for U.S. federal income tax purposes, such consolidation, conversion, merger or succession and such agreement of assumption will not result in material adverse U.S. federal income tax consequences for the bondholders; and

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any applicable requirements of the intercreditor agreement have been satisfied.

So long as the conditions of any such assumptions are met, then the prior servicer will automatically be released from its obligations under the servicing agreement.

Servicer Defaults

Servicer defaults under the servicing agreement will include:

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any failure by the servicer to remit any amount, including payments arising from the storm recovery charges into the collection account as required under the servicing agreement, which failure continues unremedied for five business days after written notice from us or the indenture trustee is received by the servicer (with a copy of such notice being provided promptly upon receipt by the servicer to the PSCSC) or after discovery of the failure by a responsible officer of the servicer;

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any failure by the servicer to duly perform its obligations to make storm recovery charge adjustment filings in the time and manner set forth in the servicing agreement, which failure continues unremedied for a period of five business days;

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any failure by the servicer or, if the servicer is DEP or an affiliate of DEP, by DEP to observe or perform in any material respect any covenants or agreements in the servicing agreement or the other basic documents to which it is a party, which failure materially and adversely affects the rights of bondholders and which failure continues unremedied for 60 days after written notice of this failure has been given to the servicer or, if the servicer is DEP or an affiliate of DEP, by us, or by the indenture trustee (with a copy of such notice being provided upon receipt by the servicer to the PSCSC and the indenture trustee) or after such failure is discovered by a responsible officer of the servicer;

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any representation or warranty made by the servicer in the servicing agreement or any other basic document proves to have been incorrect in a material respect when made, which has a material adverse effect on the bondholders and which material adverse effect continues unremedied for a period of 60 days after the giving of written notice to the servicer by us, the PSCSC or the indenture trustee or after such failure is discovered by a responsible officer of the servicer; and

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events of bankruptcy, insolvency, receivership or liquidation of the servicer.

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Rights Upon a Servicer Default

In the event of a servicer default that remains unremedied, the indenture trustee, at the written direction of the holders of a majority of the outstanding principal amount of the storm recovery bonds, or at the written direction of the PSCSC, subject to the terms of the intercreditor agreement, by notice then given in writing to the servicer, will terminate all the rights and obligations (other than servicer’s indemnity obligation and obligation to continue performing its functions as servicer until a successor servicer is appointed) of the servicer under the servicing agreement and under the intercreditor agreement; provided, however the indenture trustee shall not give a termination notice upon instruction of the PSCSC unless the rating agency condition is satisfied. In addition, upon a servicer default, then we and the indenture trustee shall be entitled to apply to any court of competent jurisdiction for sequestration and payment to the indenture trustee of revenues arising with respect to the applicable storm recovery property.

On or after the receipt by the servicer of a notice of termination, all authority and power of the servicer under the servicing agreement, whether with respect to the storm recovery bonds, the storm recovery property, the related storm recovery charges or otherwise, shall, upon appointment of a successor servicer under the servicer agreement, without further action, pass to and be vested in such successor servicer and, without limitation, the indenture trustee is hereby authorized and empowered to execute and deliver, on behalf of the predecessor servicer, as attorney-in-fact or otherwise, any and all documents and other instruments, and to do or accomplish all other acts or things necessary or appropriate to effect the purposes of the notice of termination, whether to complete the transfer of the storm recovery property records and related documents, or otherwise. The predecessor servicer shall cooperate with the successor servicer, the indenture trustee and with us in effecting the termination of the responsibilities and rights of the predecessor servicer under the servicing agreement, including the transfer to the successor servicer for administration by it of all cash amounts that shall at the time be held by the predecessor servicer for remittance, or shall thereafter be received by it with respect to the storm recovery property or the related storm recovery charges. As soon as practicable after receipt by the servicer of such notice of termination, the servicer shall deliver the storm recovery property records to the successor servicer. All reasonable costs and expenses (including attorneys’ fees and expenses) incurred in connection with transferring the storm recovery property records to the successor servicer and amending the servicing agreement to reflect such succession as servicer pursuant to the servicing agreement shall be paid by the predecessor servicer upon presentation of reasonable documentation of such costs and expenses. Termination of DEP as servicer shall not terminate DEP’s rights or obligations under the sale agreement or any other basic document other than the servicing agreement.

Waiver of Past Defaults

The indenture trustee, with the written consent of the holders of a majority of the outstanding principal amount of the bonds may waive in writing any default by the servicer in the performance of its obligations under the servicing agreement and its consequences, except a default in making any required deposits to the collection account in accordance with the servicing agreement, provided, however, that an event of default of a material obligation of the servicer under the servicing agreement may not be waived without satisfaction of the PSCSC condition. Upon any such waiver of a past default, such default shall cease to exist, and any default of the servicer arising therefrom shall be deemed to have been remedied for every purpose of the servicing agreement. The servicing agreement will provide that no waiver will impair the related bondholders’ rights relating to subsequent defaults.

Successor Servicer

Upon the receipt of a notice of termination or upon the servicer’s resignation or removal in accordance with the terms of the servicing agreement, the predecessor servicer shall continue to perform its functions as servicer and shall be entitled to receive the requisite portion of the servicing fees, until a successor servicer has assumed in writing the obligations of the servicer. In the event of the servicer’s removal or resignation, the indenture trustee, at the written direction of the holders of a majority of the principal amount of the outstanding bonds of the related series, or the PSCSC, shall appoint a successor servicer with our prior written consent (which consent shall not be unreasonably withheld).

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If no successor servicer has been appointed within 30 days after the delivery of the termination notice, the indenture trustee, at the written direction of the holders of not less than a majority of the outstanding amount of the related bonds, will petition the PSCSC or a court of competent jurisdiction for the appointment of, a successor servicer which is permitted to perform the duties of the servicer pursuant to the Financing Act, the PSCSC regulations, the financing order and the servicing agreement, satisfies criteria specified by the nationally recognized statistical rating agencies rating the bonds, enters into a servicing agreement with us having substantially the same provisions as the servicing agreement in effect between us and the predecessor servicer and, if applicable, its compensation is approved (or not disapproved) by the PSCSC. Any successor servicer may resign only if it is prohibited from servicing as such by applicable law.

If for any reason a third party assumes the role of the servicer under the servicing agreement, the servicing agreement will require the servicer, on an ongoing basis, to cooperate with us, the indenture trustee and the successor servicer and provide whatever information is, and take whatever actions are, reasonably necessary to assist the successor servicer in performing its obligations under the servicing agreement.

Amendment

The servicing agreement may be amended in writing by the servicer and us, if a copy of the amendment is provided by us to each rating agency and the PSCSC and if the rating agency condition have been satisfied, with the prior written consent of the indenture trustee; provided, that such amendment may not adversely affect the interest of any bondholder in any material respect without the consent of the bondholders of a majority of the outstanding principal amount of bonds. In addition, if the servicer determines that the amendment has a reasonable possibility to impact the rates borne by customers, the PSCSC condition must be satisfied.

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INTERCREDITOR AGREEMENTS

DEP and its affiliates currently have accounts receivable sale agreements under which it sells substantially all its accounts receivable on a revolving basis (other than the storm recovery charges, which are entitlements of ours and not the servicer, and which are excluded from such arrangements). Prior to being remitted by the servicer, storm recovery charges pass through the same account as other amounts sold under DEP’s accounts receivable sales program. Under DEP’s intercreditor agreement, among DEP, us, the indenture trustee, the indenture trustee for the 2021 NC Storm Recovery Bonds and administrative agent with respect to the accounts receivable sales program, (i) the storm recovery charges are excluded from the assets sold under the accounts receivable sales program and (ii) replacement of the servicers will require the agreement of each of the indenture trustee, the indenture trustee for the 2021 NC Storm Recovery Bonds and the administrative agent with respect to the accounts receivable sales program. In the event that the administrative agent with respect to the accounts receivable sales program exercises exclusive control over any account in which collections of storm recovery charges are commingled, the intercreditor agreement obligates the administrative agent, upon receipt of information from DEP as servicer, to allocate funds on deposit related to the storm recovery charges and remit such amounts at the direction of the servicer. In the sale agreement, DEP has covenanted that it will not enter into any future sale of charges owing by electric customers to affiliates for the purpose of issuing bonds backed by such charges without causing the parties to such issuance to become party to an intercreditor agreement. In addition, in connection with the issuance of the storm recovery bonds, the issuing entity and indenture trustee will execute a joinder to the existing intercreditor arrangement among DEP and its affiliates whereby the storm recovery charges will be identified as property of the issuing entity pledged to the indenture trustee. Please refer to “Risk Factors — Servicing Forecasting Risks — If DEP SC Storm Funding needs to replace DEP as the servicer, DEP SC Storm Funding may experience difficulties finding and using a replacement servicer”.

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

The following discussion describes the material U.S. federal income tax consequences to U.S. Holders (as defined below) and Non-U.S. Holders (as defined below) of the purchase, ownership, and disposition of the Series A Bonds acquired in this offering and, insofar as it relates to matters of U.S. federal income tax law and regulations or legal conclusions with respect thereto, constitutes the opinion of DEP’s tax counsel, Hunton Andrews Kurth LLP. Except where noted, this discussion only applies to Series A Bonds that are held as capital assets (within the meaning of the Internal Revenue Code) by holders who purchase the Series A Bonds upon their original issuance at their original issue price. This discussion does not address the tax considerations applicable to subsequent purchasers of Series A Bonds. This discussion does not describe all of the material tax considerations that may be relevant to holders in light of their particular circumstances or to holders subject to special rules, such as certain financial institutions, regulated investment companies, real estate investment trusts, banks, insurance companies, tax-exempt entities, certain former citizens or residents of the United States, dealers in securities, traders in securities that elect to use a mark-to-market method of accounting, partnerships for U.S. federal income tax purposes and other pass-through entities (and persons holding the Series A Bonds through a partnership for U.S. federal income tax purposes or other pass-through entity), U.S. Holders whose functional currency is not the U.S. dollar, passive foreign investment companies, controlled foreign corporations, and corporations that accumulate earnings to avoid U.S. federal income tax, accrual method taxpayers subject to special tax accounting rules under Section 451(b) of the Internal Revenue Code, or persons holding the Series A Bonds as part of a hedge, straddle, or other integrated transaction. In addition, this discussion does not address the effect of any state, local, foreign, or other tax laws or any U.S. Medicare contribution tax on net investment income, federal estate, gift, alternative minimum or foreign tax considerations. This discussion is based upon the Internal Revenue Code, administrative pronouncements, judicial decisions, and final, temporary, and proposed Treasury regulations, all as in effect on the date hereof, and all of which are subject to change or differing interpretations, possibly with retroactive effect, so as to result in U.S. federal income tax consequences different from those discussed below.

As used in this prospectus, the term “U.S. Holder” means a beneficial owner of a Series A Bond that is for U.S. federal income tax purposes:

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an individual citizen or resident of the United States;

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a corporation (or other entity taxable as a corporation) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;

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an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

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a trust (i) with respect to which a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all of its substantial decisions, or (ii) that was in existence on August 20, 1996 and has a valid election in effect under applicable Treasury regulations to be treated as a domestic trust.

The term “Non-U.S. Holder” means a beneficial owner of a Series A Bond that is neither a U.S. Holder nor a partnership (or other pass-through entity).

If a partnership for U.S. federal income tax purposes holds Series A Bonds, the tax treatment of such partnership and its partners will generally depend on the status of the partner and the activities of such partnership and its partners. If a holder of Series A Bonds is a partnership or a partner in such a partnership, such holder should consult with its own tax advisors regarding the U.S. federal income tax considerations of the purchase, ownership and disposition of Series A Bonds.

THIS SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE DESCRIPTION OF ALL TAX CONSEQUENCES RELATING TO THE PURCHASE, OWNERSHIP, AND DISPOSITION OF THE SERIES A BONDS. PROSPECTIVE INVESTORS SHOULD CONSULT WITH THEIR TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES TO THEM (INCLUDING THE APPLICATION AND EFFECT OF ANY STATE, LOCAL, AND NON-U.S. INCOME AND OTHER TAX LAWS) OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE SERIES A BONDS.

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Taxation of the Issuing Entity and Characterization of the Series A Bonds

Concurrent with the issuance of the Series A Bonds, Hunton Andrews Kurth LLP, as special tax counsel to the issuing entity and DEP, will deliver its opinion that based upon the Internal Revenue Code, the Treasury regulations promulgated thereunder, and Revenue Procedure 2005-62, for U.S. federal income tax purposes (i) the issuance of the Series A Bonds will be a “qualifying securitization” within the meaning of Revenue Procedure 2005-62, (ii) the issuing entity will not be treated as a taxable entity separate and apart from DEP, (iii) the Series A Bonds will be treated as obligations of DEP as expressly set forth in section 6.02 of Revenue Procedure 2005-62 and (iv) DEP will not be treated as recognizing gross income upon the issuance of the Series A Bonds. By acquiring a Series A Bond, a beneficial owner agrees to treat the Series A Bond as debt of DEP for U.S. federal income tax purposes. This opinion is based on certain representations made by the issuing entity and DEP and on the application of current law to the facts as established by the indenture and other relevant documents and assumes compliance with the indenture and such other documents as in effect on the date of issuance of the Series A Bonds.

Tax Consequences to U.S. Holders

Interest

DEP and the issuing entity expect that the Series A Bonds will not be issued with more than a de minimis amount of original issue discount, or “OID”, for U.S. federal income tax purposes. Thus, stated interest on the Series A Bonds generally will be taxable to a U.S. Holder as ordinary income at the time it is received or accrued in accordance with such U.S. Holder’s regular method of accounting for U.S. federal income tax purposes. If, however, the issue price of the Series A Bonds is less than their stated principal amount and the difference is equal to or more than a de minimis amount (as set forth in the applicable Treasury regulations), U.S. Holders will be required to include the difference in income as OID as it accrues in accordance with the constant yield method (as set forth in the applicable Treasury regulations). The remainder of this discussion assumes that the Series A Bonds will not be treated as issued with OID.

Sale, Exchange, or Retirement of Series A Bonds

On a sale, exchange, or retirement of a Series A Bond, a U.S. Holder generally will recognize taxable gain or loss equal to the difference between the amount received (other than any amount received attributable to accrued but unpaid interest on the Series A Bond not previously included in income, which will be taxable as ordinary income) and the U.S. Holder’s adjusted tax basis in the Series A Bond. A U.S. Holder’s adjusted tax basis in a Series A Bond is the U.S. Holder’s cost, subject to adjustments such as reductions in basis for principal payments received previously. Gain or loss will generally be capital gain or loss, and will be long-term capital gain or loss if the Series A Bond was held for more than one year at the time of disposition. Long-term capital gains of non-corporate U.S. Holders may be eligible for reduced rates of taxation. The deductibility of capital losses by both corporate and non-corporate U.S. Holders is subject to limitations.

Information Reporting and Backup Withholding

In general, information reporting requirements will apply to certain payments of principal and interest on the Series A Bonds and to the proceeds from the sale of the Series A Bonds unless the recipient is an exempt recipient. In addition, backup withholding at the current rate will apply to the payments if a U.S. Holder fails to provide its taxpayer identification number, a certificate of exempt status, or otherwise comply with the applicable requirements of the U.S. backup withholding rules.

Backup withholding is not an additional tax. Any amounts withheld from payments to a U.S. Holder under the backup withholding rules will be allowed as a credit against such U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the IRS. U.S. Holders should consult their own tax advisors regarding the application of backup withholding in their particular situation, the availability of an exemption from backup withholding, and the procedure for obtaining such an exemption, if available.

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Tax Consequences to Non-U.S. Holders

Interest

Subject to the discussion below concerning backup withholding and FATCA, a Non-U.S. Holder generally will not be subject to U.S. federal income and withholding tax on interest received in respect of the Series A Bonds, provided that such interest is not effectively connected with such Non-U.S. Holder’s conduct of a U.S. trade or business and such Non-U.S. Holder (i) does not own, actually or constructively, 10% or more of the total combined voting power of DEP, (ii) is not a controlled foreign corporation for U.S. federal income tax purposes directly or indirectly related to DEP within the meaning of section 881(c)(3)(C) of the Internal Revenue Code, (iii) is not a bank whose receipt of interest on the Series A Bonds is described in section 881(C)(3)(A) of the Internal Revenue Code, and (iv) satisfies certain certification requirements under penalties of perjury (generally through the provision of a properly completed and executed IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable).

A Non-U.S. Holder that does not qualify for the exemption from withholding described above (the “Portfolio Interest Exemption”), generally will be subject to U.S. federal withholding tax at a 30% rate on payments of interest on the Series A Bonds unless (i) such interest is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States (and, if an applicable tax treaty so requires, is attributable to the conduct of a trade or business through a permanent establishment or fixed base in the United States) and the Non-U.S. Holder provides the applicable paying agent an IRS Form W-8ECI (or appropriate substitute form) or (ii) the Non-U.S. Holder provides a properly completed IRS Form W-8BEN or W-8BEN-E (or successor form), as applicable, establishing an exemption from or reduction in withholding under an applicable tax treaty.

If interest or other income received with respect to Series A Bonds is effectively connected with a United States trade or business conducted by a Non-U.S. Holder (and, if an applicable tax treaty so requires, is attributable to the conduct of a trade or business through a permanent establishment or fixed base in the United States), the Non-U.S. Holder generally will be subject to U.S. federal income tax on such interest or other income on a net income basis at the regular graduated rates applicable to U.S. Holders. In addition, if the Non-U.S. Holder is a foreign corporation, it may be subject to a branch profits tax equal to 30% of its effectively connected earnings and profits for the taxable year, subject to certain adjustments, unless reduced or eliminated by an applicable tax treaty.

Sale, Exchange, or Retirement of Series A Bonds

Subject to the backup withholding discussions below, a Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax on gain realized on the sale or exchange of the Series A Bonds (other than gain that represents accrued but unpaid interest not previously included in income, which will be subject to the rules described above regarding payments of interest), unless:

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the Non-U.S. Holder is an individual who is present in the United States for 183 days or more during the taxable year and certain other conditions are met; or

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the gain is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base maintained by the Non-U.S. Holder in the United States).

Except to the extent that an applicable income tax treaty otherwise provides, generally a Non-U.S. Holder will be taxed on a net income basis at the same graduated rates applicable to U.S. Holders with respect to gain that is effectively connected with the Non-U.S. Holder’s conduct of a U.S. trade or business. A corporate Non-U.S. Holder may also, under certain circumstances, be subject to the branch profits tax described above. A Non-U.S. Holder who is both an individual present in the United States for 183 days or more in the taxable year and meets certain other conditions will be subject to U.S. federal income tax at a rate of 30% (or at a reduced rate under an applicable income tax treaty) on the amount by which capital gains from U.S. sources (including gains from the sale or other disposition of the Series A Bonds) exceed capital losses allocable to U.S. sources. To claim the benefit of an applicable income tax treaty, a Non-U.S. Holder may be required to file an income tax return and disclose its position under the U.S. Treasury regulations concerning treaty-based return positions.

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Information Reporting and Backup Withholding

Generally, the amount of interest paid to a Non-U.S. Holder and the amount of tax, if any, withheld with respect to those payments must be reported to the IRS and to the Non-U.S. Holder. Copies of the information returns reporting such interest payments and any withholding may also be made available to the tax authorities in the country in which the Non-U.S. Holder resides under the provisions of an applicable tax treaty.

In general, a Non-U.S. Holder will not be subject to backup withholding with respect to payments of interest on the Series A Bonds that are made to the Non-U.S. Holder, provided that the Non-U.S. Holder has provided certification that such Non-U.S. Holder is a Non-U.S. Holder, and the payor does not have actual knowledge or reason to know that the Non-U.S. Holder is a United States person as defined under Section 7701(a)(30) of the Internal Revenue Code.

Information reporting and, depending on the circumstances, backup withholding will apply to the proceeds of a sale or other disposition (including a retirement or redemption) of Series A Bonds within the United States or conducted through certain U.S.-related financial intermediaries unless the Non-U.S. Holder certifies to the payor under penalties of perjury that it is a Non-U.S. Holder and the payor does not have actual knowledge or reason to know that the Non-U.S. Holder is a United States person as defined under the Internal Revenue Code, or the Non-U.S. Holder otherwise establishes an exemption.

Backup withholding is not an additional tax. Any amounts withheld from a payment to a Non-U.S. Holder under the backup withholding rules will be allowed as a credit against such Non-U.S. Holder’s U.S. federal income tax liability and may entitle such Non-U.S. Holder to a refund, provided that the required information is timely furnished to the IRS. Non-U.S. Holders should consult their tax advisors regarding the application of information reporting and backup withholding in their particular situations, the availability of an exemption from backup withholding, and the procedure for obtaining such an exemption, if available.

The Foreign Account Tax Compliance Act (FATCA)

Pursuant to Sections 1471 through 1474 of the Internal Revenue Code (commonly referred to as “FATCA”), Treasury regulations thereunder, and administrative guidance, issuers of certain debt instruments and their agents, as applicable, are required to withhold 30% of the amount of any “withholdable payments” with respect to such instruments paid to (i) a foreign financial institution (whether such foreign financial institution is the beneficial owner or an intermediary) unless such institution enters into an agreement with the United States government to collect and report to the United States government, on an annual basis, information with respect to its U.S. account holders and meets certain other specified requirements (or, in certain circumstances, complies with similar reporting requirements of the non-United States government in the jurisdiction in which it is organized or located under an intergovernmental agreement between such non-United States government and the United States government) or (ii) a non-financial foreign entity (whether such non-financial foreign entity is the beneficial owner or an intermediary) unless such entity certifies that it does not have any “substantial U.S. owners” or provides certain information regarding the entity’s “substantial U.S. owners” and such entity meets certain other specified requirements. FATCA generally will apply to all payments otherwise subject to FATCA withholding without regard to whether the beneficial owner of the payment is a United States person or would otherwise be entitled to an exemption from imposition of withholding tax pursuant to an applicable tax treaty with the United States or United States domestic law.

Non-U.S. Holders should consult their own tax advisors regarding the possible implications of FATCA and whether FATCA may be relevant to such Non-U.S. Holder’s acquisition, ownership, and disposition of the Series A Bonds.

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STATE AND OTHER TAX CONSEQUENCES

In addition to the federal income tax consequences described in “Material U.S. Federal Income Tax Consequences” in this prospectus, potential investors should consider the state and local tax consequences of the acquisition, ownership, and disposition of the Series A Bonds offered by this prospectus. State tax law may differ substantially from the corresponding federal tax law, and the discussion above does not purport to describe any aspect of the tax laws of any state or other jurisdiction. Therefore, prospective investors should consult their tax advisors about the various tax consequences of investments in the bonds offered by this prospectus.

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ERISA CONSIDERATIONS

This discussion is based on current provisions of ERISA and the Internal Revenue Code, existing and currently proposed regulations under ERISA and the Internal Revenue Code, the legislative history of ERISA and the Internal Revenue Code, existing administrative rulings of the United States Department of Labor (the “DOL”) and reported judicial decisions. No assurance can be given that legislative, judicial, or administrative changes will not affect the accuracy of any statements herein with respect to transactions entered into or contemplated prior to the effective date of such changes. This discussion does not purport to deal with all aspects of ERISA or the Internal Revenue Code or, to the extent not preempted, any state laws.

General

ERISA and the Internal Revenue Code impose certain requirements on employee benefit plans subject to ERISA and/or Section 4975 of the Internal Revenue Code and on persons or entities that are fiduciaries with respect to such plans. For purposes of this discussion, “Plans” refers to employee benefit plans (as defined in Section 3(3) of ERISA) subject to Title I of ERISA, plans (as defined in Section 4975(e)(1) of the Internal Revenue Code) subject to Section 4975 of the Internal Revenue Code (which includes individual retirement accounts and annuities and Keogh plans) and entities, including collective investment funds and insurance company general or separate accounts, that may be deemed to hold the assets of the foregoing by virtue of such employee benefit plan’s or plan’s investment in such entities. A fiduciary of a Plan is any person or entity that in connection with the assets of the Plan:

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exercises discretionary authority or control over the management or disposition of plan assets; or

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provides investment advice for a fee.

Some plans, such as governmental plans, certain church plans and non-U.S. plans, and the fiduciaries of those plans, may not be subject to the fiduciary responsibility provisions of ERISA or the prohibited transaction rules of ERISA or Section 4975 of the Internal Revenue Code. Accordingly, assets of these plans may be invested in the bonds without regard to the ERISA considerations described below, provided that a governmental or church plan that is qualified and exempt from taxation under Sections 401(a) and 501(a) of the Internal Revenue Code is subject to the prohibited transaction rules in Section 503 of the Internal Revenue Code. In addition, any such governmental, church or non-U.S. plans may be subject to the provisions of federal, state, local or other laws or regulations that are substantially similar to Title I of ERISA or Section 4975 of the Internal Revenue Code (collectively “Similar Law”). Accordingly, any fiduciary of such a plan must determine whether the acquisition, holding and disposition of the bonds will not constitute or result in a violation of Similar Law.

ERISA imposes certain general fiduciary requirements on fiduciaries of Plans that are subject to Title I of ERISA, including:

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investment prudence and diversification; and

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the investment of the assets of such Plan in accordance with the documents governing such Plan.

Section 406 of ERISA and Section 4975 of the Internal Revenue Code also prohibit a broad range of transactions involving the assets of a Plan and persons or entities that have certain specified relationships to the Plan, referred to as “parties in interest” ​(as defined under ERISA) or “disqualified persons” ​(as defined under the Code), unless a statutory or administrative exemption is available. For purposes of this discussion, “parties in interest” include parties in interest under ERISA and disqualified persons under the Internal Revenue Code. The types of transactions between a Plan and a party in interest that are prohibited include, but are not limited to, the following:

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sales, exchanges or leases of property;

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loans or other extensions of credit; and

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the furnishing of goods or services.

Certain persons or entities that participate in a prohibited transaction may be subject to an excise tax under Section 4975 of the Internal Revenue Code or a penalty imposed under Section 502(i) of ERISA,

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unless a statutory, administrative or individual exemption is available. In addition, the persons or entities involved in the prohibited transaction may have to cancel the transaction and the fiduciary of the Plan that engaged in the prohibited transaction may have to pay an amount to the Plan for any losses realized by the Plan or profits realized by these persons or entities. In addition, individual retirement accounts involved in the prohibited transaction (if the prohibited transaction involves the owner of the account or his or her beneficiary) may be disqualified, which would result in adverse tax consequences to the owner of the account.

Regulation of Assets Included in a Plan

A fiduciary’s investment of the assets of a Plan in the bonds may cause our assets to be deemed assets of such Plan. The DOL regulations at 29 CFR Section 2510.3-101 as modified by Section 3(42) of ERISA, (collectively, the “plan asset regulations”), provide that the assets of an entity will be deemed to be “plan assets” of a Plan that purchases an interest in the entity if the interest that is purchased by the Plan is an equity interest and none of the exceptions contained in the plan asset regulations is applicable. Under the plan asset regulations, an entity’s assets (here, our assets) generally would not be considered to be “plan assets” if, among other things:

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the equity interests acquired by a Plan are publicly offered securities (i.e., the equity interests are part of a class of securities that is widely held by 100 or more investors independent of us and each other, are “freely transferable” ​(as determined under the Plan Asset Regulations) and are either registered under certain provisions of the federal securities laws or sold to the Plan as part of a public offering under certain conditions);

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such entity is an “operating company” ​(i.e., it is primarily engaged in the production or sale of a product or service other than the investment of capital either directly or through a majority-owned subsidiary or subsidiaries); or

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investment in such entity by “benefit plan investors” ​(which includes Plans) is not “significant,” which is defined under the Plan Asset Regulations to mean that immediately after the most recent acquisition of any equity interest in such entity, less than 25% of the value of each class of equity interests in such entity (disregarding interests held by persons (other than benefit plan investors) with discretionary authority or control over the assets of such entity who provide investment advice for a fee (direct or indirect) with respect to such assets, and any affiliates thereof) is held by benefit plan investors. An equity interest is defined in the plan asset regulations as an interest in an entity other than an instrument that is treated as indebtedness under applicable local law and that has no substantial equity features. Although there is no authority directly on point and assuming that the bonds are treated as indebtedness under applicable local law, it is anticipated that the bonds should be treated as indebtedness for purposes of the plan asset regulations.

If the bonds were deemed to be equity interests in us and none of the exceptions contained in the plan asset regulations were applicable, then our assets would be considered to be assets of any Plans that acquire the bonds. The extent to which the bonds are held by Plans will not be monitored. If our assets were deemed to constitute “plan assets” pursuant to the plan asset regulations, transactions we might enter into, or may have entered into in the ordinary course of business, might constitute non-exempt prohibited transactions under ERISA and or Section 4975 of the Internal Revenue Code.

In addition, the acquisition or holding of the bonds by or on behalf of, or using plan assets of, a Plan could give rise to a prohibited transaction if we or the indenture trustee, DEP, any other servicer, Duke Energy, any underwriter or certain of their affiliates has, or acquires, a relationship to an investing Plan. Before acquiring any bonds by or on behalf of, or with plan assets of, a Plan, you should consider and consult with counsel as to whether the acquisition, holding or disposition of the bonds might result in a prohibited transaction under ERISA or the Internal Revenue Code and, if so, whether any prohibited transaction exemption might apply to the purchase, holding or disposition of the bonds.

Prohibited Transaction Exemptions

If you are a fiduciary of a Plan or any other person or entity proposing to acquire the bonds on behalf of or using plan assets of, a Plan, before acquiring any bonds, you should consider the availability of one of

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the DOL’s prohibited transaction class exemptions, referred to as PTCEs, or one of the statutory exemptions provided by ERISA or Section 4975 of the Internal Revenue Code, which include:

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PTCE 75-1, relating to transactions effected by certain broker-dealers, reporting dealers and banks;

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PTCE 84-14, relating to transactions effected by a “qualified professional asset manager”;

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PTCE 90-1, relating to transactions involving insurance company separate accounts;

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PTCE 91-38, relating to transactions involving bank collective investment funds;

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PTCE 95-60, relating to transactions involving insurance company general accounts;

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PTCE 96-23, relating to transactions effected by an “in-house asset manager”; and

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the statutory service provider exemption provided under Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Internal Revenue Code, relating to certain transactions between plans and certain parties in interest that are not fiduciaries or their affiliates with respect to the transaction.

We cannot provide any assurance that any of these class exemptions or statutory exemptions will apply with respect to any particular investment in the bonds by, on behalf of or using plan assets of, a Plan or, even if it were deemed to apply, that any exemption would apply to all transactions that may occur in connection with the investment. For example, even if one of these class exemptions or statutory exemptions were deemed to apply, bonds may not be purchased with assets of any Plan if we or the indenture trustee, DEP, any other servicer, Duke Energy Corporation, any underwriter or any of their affiliates:

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has investment discretion over the assets of the Plan used to purchase the bonds; or

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has authority or responsibility to give, or regularly gives, investment advice regarding the assets of the Plan used to purchase the bonds for a fee under an agreement or understanding that the advice will serve as a primary basis for investment decisions for the assets of the Plan, and will be based on the particular investment needs of the Plan.

Representation

Each purchaser or transferee of a bond will be deemed to have represented and warranted by virtue of its acquisition of a bond on each day from and including the date of its acquisition of the bonds through and including the date of disposition of any such bond that either (i) it is not and is not acting on behalf of, or using plan assets of, (a) a Plan or any governmental, church or non-U.S. plan that is subject to Similar Law or (ii) its acquisition, holding and disposition of the bond, in the case of a Plan, will not constitute or result in a non-exempt prohibited transaction in violation of Section 406 of ERISA or Section 4975 the Internal Revenue Code or, in the case of a governmental, church or non-U.S. plan subject to Similar Law, will not result in or constitute a violation of Similar Law.

Consultation with Counsel

The foregoing discussion is general in nature and is not intended to be all inclusive nor should it be construed as legal advice. If you are a fiduciary or other person which proposes to acquire the bonds on behalf of, or with plan assets of a Plan or a governmental, church or non-U.S. plan subject to Similar Law, you should consider your general fiduciary obligations under ERISA or the Internal Revenue Code and you should consult with your legal counsel as to the potential applicability of the plan asset regulation and other provisions of ERISA, the prohibited transaction provisions of ERISA and Section 4975 of the Internal Revenue Code to any such investment and the availability of any prohibited transaction exemption in connection with any investment or, in the case of a governmental, church or non-U.S. plan subject to Similar Law, the applicability of any Similar Law.

None of we, DEP, Duke Energy Corporation nor any initial purchaser, or any of our or their respective affiliates, is making an investment recommendation or providing investment advice on which a Plan or the fiduciary making the investment decision for such Plan has relied in connection with the decision to acquire the notes in this offering, and none of them is acting as a fiduciary to such Plan in connection with such Plan’s acquisition of any notes.

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The sale of bonds to a Plan or any governmental, church or non-U.S. plan subject to Similar Law is in no respect a representation by us, the indenture trustee, DEP, any other servicer, Duke Energy Corporation, any underwriter or any of our or their affiliates that this investment meets all relevant legal requirements for investments by such Plans or plans generally or any particular Plan or plan or that this investment is appropriate for such Plans or plans generally or any particular Plan or plan.

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BANKRUPTCY AND CREDITORS’ RIGHTS ISSUES

Challenge to True Sale Treatment

DEP will represent and warrant that the transfer of the storm recovery property in accordance with the sale agreement constitutes a true and valid sale and assignment of the storm recovery property by DEP to us. It will be a condition of closing for the sale of the storm recovery property pursuant to the sale agreement that DEP will take the appropriate actions under the Financing Act, including filing a notice of transfer of an interest in the storm recovery property, to perfect this sale. The Financing Act provides that the sale, conveyance, assignment, or other transfer of storm recovery property by an electric utility to an assignee that the parties have in the governing documentation expressly stated to be a sale or other absolute transfer is an absolute transfer and true sale of, and not a pledge of or secured transaction relating to, the transferor’s right, title, and interest in, to, and under the storm recovery property, other than for federal and state income tax purposes. We and DEP will treat such a transaction as a sale under applicable law. However, we expect that bonds will be reflected as debt on DEP’s consolidated financial statements. In addition, we anticipate that the bonds will be treated as debt of DEP for U.S. federal income tax purposes. Please read “Material U.S. Federal Income Tax Consequences”. In the event of a bankruptcy of a party to a sale agreement, if a party in interest in the bankruptcy were to take the position that the transfer of the storm recovery property to us pursuant to that sale agreement was a financing transaction and not a true sale under applicable creditors’ rights principles, there can be no assurance that a court would not adopt this position. Even if a court did not ultimately recharacterize the transaction as a financing transaction, the mere commencement of a bankruptcy of DEP and the attendant possible uncertainty surrounding the treatment of the transaction could result in delays in payments on the bonds.

In that regard, we note that the bankruptcy court in In re LTV Steel Company, Inc., et al., 274 B.R. 278 (Bankr. N. D. Oh. 2001), issued an interim order that observed that a debtor, LTV Steel Company, Inc., which had previously entered into financing arrangements with respect both to its inventory and its accounts receivable, may have “at least some equitable interest in the inventory and receivables, and that this interest is property of the Debtor’s estate. …sufficient to support the entry of” an interim order permitting the debtor to use proceeds of the property sold in the financing. 274 B.R. at 285. The court based its decision in large part on its view of the equities of the case.

LTV Steel Company, Inc. and the investors subsequently settled their dispute over the terms of the interim order and the bankruptcy court entered a final order in which the parties admitted and the court found that the pre-petition transactions constituted true sales. The court did not otherwise overrule its earlier ruling. The LTV Steel Company, Inc. memorandum opinion serves as an example of the pervasive equity powers of bankruptcy courts and the importance that such courts may ascribe to the goal of reorganization, particularly where the assets sold are integral to the ongoing operation of the debtor’s business.

Even if creditors did not challenge the sale of storm recovery property as a true sale, a bankruptcy filing by DEP could trigger a bankruptcy filing by us with similar negative consequences for bondholders. In a more recent bankruptcy case, In re General Growth Properties, Inc., 409 B.R. 43, 54 (Bankr. S.D.N.Y. 2009), General Growth Properties, Inc. filed for bankruptcy together with many of its direct and indirect subsidiaries, including many subsidiaries that were organized as special purpose vehicles. The Southern District of New York bankruptcy court upheld the validity of the filings of these special purpose subsidiaries and allowed the subsidiaries, over the objections of their creditors, to use the lenders’ cash collateral to make loans to the parent for general corporate purposes. The creditors received adequate protection in the form of current interest payments and replacement liens to mitigate any diminution in value resulting from the use of the cash collateral, but the opinion serves as a reminder that bankruptcy courts may subordinate legal rights of creditors to the interests of helping debtors reorganize.

We and DEP have attempted to mitigate the impact of a possible recharacterization of a sale of storm recovery property as a financing transaction under applicable creditors’ rights principles. The sale agreement will provide that if the transfer of the applicable storm recovery property is thereafter recharacterized by a court as a financing transaction and not a true sale, the transfer by DEP will be deemed to have granted to us on our behalf and on behalf of the indenture trustee a first priority security interest in all of DEP’s right, title and interest in, to and under the storm recovery property and all proceeds thereof. In addition, the sale agreement will require the filing of a notice of security interest in the storm recovery property and the

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proceeds thereof as collateral in accordance with the Financing Act. As a result of this filing, we would, in the event of a recharacterization, be a secured creditor of DEP and entitled to recover against the collateral or its value. This does not, however, eliminate the risk of payment delays or reductions and other adverse effects caused by a DEP bankruptcy. Further, if, for any reason, a storm recovery property notice is not filed under the Financing Act and we fail to perfect our interest in the storm recovery property, and the transfer is thereafter deemed not to constitute a true sale, we would be an unsecured creditor of DEP.

The Financing Act provides that, except as provided in the Financing Act, the creation, granting, perfection and enforcement of liens and security interests in storm recovery property are governed by the Financing Act and not by the South Carolina Uniform Commercial Code. Under the Financing Act, a valid and enforceable lien and security interest in storm recovery property may be created only upon the later of (i) the issuance of a financing order, (ii) the execution and delivery of a security agreement by the party granting such security interest, (iii) the party granting such security interest has rights in such storm recovery property or the power to transfer rights in such storm recovery property, or (iv) the receipt of value for the storm recovery property. Upon perfection through the filing of a financing statement to the South Carolina Secretary of State, the security interest shall be a continuously perfected lien in the storm recovery property, with priority in the order of filing and take precedence over any subsequent judicial or other lien creditor. None of this, however, mitigates the risk of payment delays and other adverse effects caused by a DEP bankruptcy.

If, for any reason, a financing statement is not filed under the Financing Act and we fail to perfect our interest in the storm recovery property sold pursuant to a sale agreement as required by the Financing Act, and the transfer is thereafter deemed not to constitute a true sale, we would be an unsecured creditor of DEP. Notwithstanding any failure on our part to perfect our interest in the storm recovery property, under the Financing Act and the financing order, a statutory lien on the storm recovery property and the proceeds thereof arises by operation of law automatically without any action on the part of DEP, us or any other person. This statutory lien secures all obligations, then existing or thereafter arising, to the holders and the indenture trustee of the holders of the storm recovery bonds issued pursuant to the financing order. Under the Financing Act, this statutory lien is valid, perfected and enforceable against the owner of the storm recovery property and all third parties upon the effectiveness of the financing order without any further public notice (although protective filings (including the filing by us of financing statements as described above) is permitted under the Financing Act). If DEP were to become a debtor in a bankruptcy case and a bankruptcy court determined that we were an unsecured creditor, there can be no assurance that the court would be made aware of the statutory lien described above or, if the court was aware of the statutory lien arising under the Financing Act and the financing order, that the court would determine that indenture trustee and the holders of the storm recovery bonds have a first priority statutory lien or are secured creditors of DEP.

Substantive Consolidation of DEP SC Storm Funding and DEP

If DEP were to become a debtor in a bankruptcy case, a party in interest might attempt to substantively consolidate our assets and liabilities with those of DEP. We and DEP have taken steps to attempt to minimize this risk. Please read “The Issuing Entity” in this prospectus. However, no assurance can be given that if DEP were to become a debtor in a bankruptcy case, a court would not order that our assets and liabilities be substantively consolidated with those of DEP. Substantive consolidation would result in payment of the claims of the beneficial owners of the bonds to be subject to substantial delay and to adjustment in timing and amount under a plan of reorganization in the bankruptcy case.

Status of Storm Recovery Property as Present Property

DEP will represent in the sale agreement, and the Financing Act provides, that the storm recovery property sold pursuant to such sale agreement constitutes a present property right on the date that it is first transferred to us in connection with the issuance of the bonds. Nevertheless, no assurance can be given that, in the event of a bankruptcy of DEP a court would not rule that the applicable storm recovery property comes into existence only as customers use electricity.

If a court were to accept the argument that the applicable storm recovery property comes into existence only as customers use electricity, no assurance can be given that a security interest in favor of the bondholders

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would attach to the storm recovery charges in respect of electricity consumed after the commencement of the bankruptcy case or that the storm recovery property has been sold to us. If it were determined that the storm recovery property had not been sold to us, and the security interest in favor of the bondholders did not attach to the applicable storm recovery charges in respect of electricity consumed after the commencement of the bankruptcy case, then we would have an unsecured claim against DEP. If so, there would be delays and/or reductions in payments on the bonds. Whether or not a court determined that storm recovery property had been sold to us pursuant to a sale agreement, no assurances can be given that a court would not rule that any storm recovery charges relating to electricity consumed after the commencement of the bankruptcy could not be transferred to us or the indenture trustee.

In addition, in the event of a bankruptcy of DEP, a party in interest in the bankruptcy could assert that we should pay, or that we should be charged for, a portion of DEP’s costs associated with the distribution of the electricity, usage of which gave rise to the storm recovery charge receipts used to make payments on the bonds.

Regardless of whether DEP is the debtor in a bankruptcy case, if a court were to accept the argument that storm recovery property sold pursuant to the sale agreement comes into existence only as customers use electricity, a tax or government lien or other nonconsensual lien on property of DEP arising before that storm recovery property came into existence could have priority over our interest in that storm recovery property. Adjustments to the storm recovery charges may be available to mitigate this exposure, although there may be delays in implementing these adjustments.

Estimation of Claims; Challenges to Indemnity Claims

If DEP were to become a debtor in a bankruptcy case, claims, including indemnity claims, by us or the indenture trustee against DEP, as seller, under the sale agreement and the other documents executed in connection therewith would be unsecured claims and would be subject to being discharged in the bankruptcy case. In addition, a party in interest in the bankruptcy may request that the bankruptcy court estimate any contingent claims that we or the indenture trustee have against DEP. That party may then take the position that these claims should be estimated at zero or at a low amount because the contingency giving rise to these claims is unlikely to occur. If a court were to hold that the indemnity provisions were unenforceable, we or the indenture trustee, as applicable, would be left with a claim for actual damages against DEP based on breach of contract principles. The actual amount of these damages would be subject to estimation and/or calculation by the court.

No assurances can be given as to the result of any of the above-described actions or claims. Furthermore, no assurance can be given as to what percentage of their claims, if any, unsecured creditors would receive in any bankruptcy proceeding involving DEP.

Enforcement of Rights by the Indenture Trustee

Upon an event of default under the indenture or the series supplement, the indenture trustee may enforce the security interest in the storm recovery property sold pursuant to the sale agreement in accordance with the terms of the indenture and the series supplement. In this capacity, an interested party such as the indenture trustee or the PSCSC is permitted to request that a South Carolina court order the sequestration and payment to bondholders of all revenues arising with respect to the storm recovery property. There can be no assurance, however, that a judge would issue this order after a seller bankruptcy in light of the automatic stay provisions of Section 362 of the Bankruptcy Code. In that event, the indenture trustee may under the indenture seek an order from the bankruptcy court lifting the automatic stay with respect to this action by the PSCSC or a court and an order requiring an accounting and segregation of the revenues arising from the storm recovery property sold pursuant to the sale agreement. There can be no assurance that a court would grant either order.

Bankruptcy of the Servicer

The servicer is entitled to commingle the storm recovery charges that it receives with its own funds until each date on which the servicer is required to remit funds to the indenture trustee as specified in the servicing agreement. The Financing Act provides that the priority of a lien and security interest created under

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the Financing Act is not impaired by the commingling of funds arising from storm recovery charges with other funds. In the event of a bankruptcy of the servicer, a party in interest in the bankruptcy might assert, and a court might rule, that the storm recovery charges commingled by the servicer with its own funds and held by the servicer, prior to and as of the date of bankruptcy were property of the servicer as of that date, and are therefore property of the servicer’s bankruptcy estate, rather than our property. If the court so rules, then the court would likely rule that the indenture trustee has only a general unsecured claim against the servicer for the amount of commingled storm recovery charges held as of that date and could not recover the commingled storm recovery charges held as of the date of the bankruptcy.

However, if the court were to rule in our favor on the ownership of the commingled storm recovery charges, the automatic stay arising upon the bankruptcy of the servicer could delay the indenture trustee from receiving the commingled storm recovery charges held by the servicer as of the date of the bankruptcy until the court grants relief from the stay. A court ruling on any request for relief from the stay could be delayed pending the court’s resolution of whether the commingled storm recovery charges are our property or are property of the servicer, including resolution of any tracing of proceeds issues.

The servicing agreement will provide that the indenture trustee, as our assignee, together with the other persons and entities specified therein, may vote to appoint a successor servicer that satisfies the rating agency condition. The servicing agreement will also provide that the indenture trustee, together with the other persons and entities specified therein, may petition the PSCSC or a court of competent jurisdiction to appoint a successor servicer that meets this criterion. However, the automatic stay in effect during a servicer bankruptcy might delay or prevent a successor servicer’s replacement of the servicer. Even if a successor servicer may be appointed and may replace the servicer, a successor may be difficult to obtain and may not be capable of performing all of the duties that DEP as servicer was capable of performing. Furthermore, should the servicer enter into bankruptcy, it may be permitted to stop acting as servicer.

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USE OF PROCEEDS

Proceeds will be used to pay expenses of issuance and to purchase the storm recovery property from DEP and to pay financing costs relating to the bonds. In accordance with the financing order, DEP will use the proceeds it receives from the sale of the storm recovery property to (i) reimburse itself for previously incurred storm recovery costs relating to the following storms: Winter Storms Pax and Ulysses, Hurricanes Matthew, Florence, Michael, Dorian and Izzy and Tropical Storm Jasper, including the retirement of short-term debt that are intercompany moneypool borrowings which were funded by either commercial paper issued by Duke Energy Corporation or excess cash held by other utility operating companies and (ii) pay upfront bond issuance costs.

The costs of issuance of the bonds and other initial costs of the transaction, net of underwriting discounts and commissions of $        , are expected to be approximately $        . An aggregate of approximately $       of such costs are payable to the servicer in connection with set-up costs, including costs incurred in connection with establishing DEP SC Storm Funding and building the necessary information technology systems, processes and reports.

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PLAN OF DISTRIBUTION

Subject to the terms and conditions in the underwriting agreement among DEP SC Storm Funding, DEP, and the underwriters, Goldman Sachs & Co. LLC and RBC Capital Markets, LLC, we have agreed to sell to the underwriters, and the underwriters have severally agreed to purchase, the principal amount of the bonds listed opposite each underwriter’s name below:

Underwriter	Tranche
Goldman Sachs & Co. LLC	​	​	​
RBC Capital Markets, LLC	​	​	​
Total	​	$	177,365,000

Under the underwriting agreement, the underwriters will take and pay for all of the bonds offered, if any are taken. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated.

The Underwriters’ Sales Price for the Bonds

The bonds sold by the underwriters to the public will be initially offered at the prices to the public set forth on the cover of this prospectus. The underwriters propose initially to offer the bonds to dealers at such prices, less a selling concession not to exceed the percentage listed below. The underwriters may allow, and dealers may reallow, a discount not to exceed the percentage listed below.

​	Selling Concession		Reallowance Discount
Tranche	​	%	​	%

After the initial public offering, the public offering prices, selling concessions and reallowance discounts may change.

No Assurance as to Resale Price or Resale Liquidity for the Bonds

The bonds are a new issue of securities with no established trading market. They will not be listed on any securities exchange. The underwriters have advised the depositor and us that they intend to make a market in the bonds, but they are not obligated to do so and may discontinue market making at any time without notice. The depositor cannot assure you that a liquid trading market will develop for the bonds.

Various Types of Underwriter Transactions That May Affect the Price of the Bonds

The underwriters may engage in overallotment transactions, stabilizing transactions, syndicate covering transactions and penalty bids with respect to the bonds in accordance with Regulation M under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Overallotment transactions involve syndicate sales in excess of the offering size, which create a syndicate short position. Stabilizing transactions are bids to purchase the bonds, which are permitted, so long as the stabilizing bids do not exceed a specific maximum price. Syndicate covering transactions involve purchases of the bonds in the open market after the distribution has been completed in order to cover syndicate short positions. Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the bonds originally sold by the syndicate member are purchased in a syndicate covering transaction. These overallotment transactions, stabilizing transactions, syndicate covering transactions and penalty bids may cause the prices of the bonds to be higher than they would otherwise be. None of us, DEP, the indenture trustee, our managers or any of the underwriters represents that the underwriters will engage in any of these transactions or that these transactions, if commenced, will not be discontinued without notice at any time. Neither we nor DEP have entered into any arrangement with any underwriter under which an underwriter may purchase additional bonds in connection with this offering.

Certain of the underwriters and their affiliates have in the past provided, and may in the future from time to time provide, investment banking and general financing and banking services to Duke Energy Corporation, DEP and its affiliates for which they have in the past received, and in the future may receive, customary fees.

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We and DEP have agreed to indemnify the underwriters against some liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribute to payments the underwriters may be required to make in respect of those liabilities.

The underwriters are offering the bonds, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters, including the validity of the bonds and other conditions contained in the underwriting agreement, such as receipt of ratings confirmations, officers’ certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject offers in whole or in part.

The bonds are expected to be delivered against payment for the bonds on or about the date specified in the last paragraph of the cover page of this prospectus, which will be the     business day following the date of pricing of the bonds. Since trades in the secondary market generally settle in two business days, purchasers who wish to trade bonds on the date of pricing or the succeeding     business days will be required, by virtue of the fact that the bonds initially will settle in T+     , to specify alternative settlement arrangements to prevent a failed settlement.

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AFFILIATIONS AND CERTAIN RELATIONSHIPS

We are a wholly-owned subsidiary of Duke Energy Progress, LLC. Duke Energy Progress, LLC is an indirect wholly-owned operating subsidiary of Duke Energy Corporation. Each of the sponsor, the depositor, Lead Underwriters may maintain other banking relationships in the ordinary course with U.S. Bank Trust Company, National Association.

In addition, affiliates of Goldman Sachs & Co. LLC and RBC Capital Markets, LLC are lenders under Duke Energy Corporation’s five year credit facility.

Affiliates of the indenture trustee act as lender for, and provide other banking, investment banking and other financial services to DEP, Duke Energy Corporation and their respective affiliates.

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LEGAL PROCEEDINGS

From time to time, the issuing entity and DEP may be subject to various legal proceedings and claims that arise in the course of their business activities. Although the results of litigation and claims cannot be predicted with certainty, as of the date of this prospectus, the issuing entity and DEP do not believe they are party to any claim or litigation, the outcome of which, if determined adversely to the issuing entity or DEP, would individually or in the aggregate be reasonably expected to be material to bondholders. Regardless of the outcome, litigation can have an adverse impact on the issuing entity and DEP because of defense and settlement costs, diversion of management resources and other factors.

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RATINGS

DEP expects that the bonds will receive credit ratings from at least two rating agencies. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating. No person or entity is obligated to maintain the rating on any bonds and, accordingly, DEP can give no assurance that the ratings assigned to the bonds upon initial issuance will not be lowered or withdrawn by a rating agency at any time thereafter. If a rating of the bonds is lowered or withdrawn, the liquidity of the bonds may be adversely affected. In general, ratings address credit risk and do not represent any assessment of any particular rate of principal payments on the bonds other than the payment in full of the bonds by the final maturity date, as well as the timely payment of interest.

Under Rule 17g-5 under the Exchange Act, NRSROs providing the servicer with the requisite certification will have access to all information posted on a website by the servicer for the purpose of determining the initial rating and monitoring the rating after the issuance date in respect of the bonds. As a result, an NRSRO other than the hired NRSROs may issue unsolicited ratings on the bonds, which may be lower, and could be significantly lower, than the ratings assigned by the hired NRSRO. The unsolicited ratings may be issued prior to, or after, the issuance date in respect of the bonds.

Issuance of any unsolicited rating will not affect the issuance of the bonds. Issuance of an unsolicited rating lower than the ratings assigned by the hired NRSRO on the bonds might adversely affect the value of the bonds and, for regulated entities, could affect the status of the bonds as a legal investment or the capital treatment of the bonds. Investors in the bonds should consult with their legal counsel regarding the effect of the issuance of a rating by a non-hired NRSRO that is lower than the rating of a hired NRSRO.

A portion of the fees paid by DEP to a rating agency that is hired to assign a rating on the bonds is contingent upon the issuance of the bonds. In addition to the fees paid by DEP to a rating agency at closing, DEP will pay a fee to the rating agency for ongoing surveillance for so long as the bonds are outstanding. However, no rating agency is under any obligation to continue to monitor or provide a rating on the bonds.

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INVESTMENT COMPANY ACT OF 1940 AND VOLCKER RULE MATTERS

The issuing entity will be relying on an exclusion or exemption from the definition of “investment company” under the Investment Company Act of 1940, as amended, or the “1940 Act”, contained in Section 3(c)(5) of the 1940 Act, although there may be additional exclusions or exemptions available to the issuing entity. As a result of such exclusion, the issuing entity will not be subject to regulation as an “investment company” under the 1940 Act.

In addition, the issuing entity is being structured so as not to constitute a “covered fund” for purposes of the Volcker Rule, or the “Volcker Rule”, under the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the “Dodd-Frank Act”. As part of the Dodd-Frank Act, federal law prohibits a “banking entity” — which is broadly defined to include banks, bank holding companies and affiliates thereof-from engaging in proprietary trading or holding ownership interests in certain private funds. The definition of “covered fund” in the regulations adopted to implement the Volcker Rule includes (generally) any entity that would be an investment company under the 1940 Act but for the exemption provided under Section 3(c)(1) or 3(c)(7) thereunder. Because the Issuing Entity will rely on Section 3(c)(5) of the 1940 Act, it will not be considered a “covered fund” within the meaning of the Volcker Rule regulations.

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RISK RETENTION

This offering of Bonds is a public utility securitization exempt from the risk retention requirements imposed by Section 15G of the Exchange Act due to the exemption provided in Rule 19(b)(8) of Regulation RR.

For information regarding the requirements of the EU Securitization Regulation as to risk retention and other matters, please read “Risk Factors — Other Risks Associated with the Purchase of the Bonds — Regulatory provisions affecting certain investors could adversely affect the liquidity of the bonds” in this prospectus.

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WHERE YOU CAN FIND MORE INFORMATION

This prospectus is part of a registration statement the depositor has filed with the SEC relating to the bonds. This prospectus describes the material terms of some of the documents that have been filed or will file as exhibits to the registration statement. However, this prospectus does not contain all of the information contained in the registration statement and the exhibits. Any statements contained in this prospectus concerning the provisions of any document filed as an exhibit to the registration statement or otherwise filed with the SEC are not necessarily complete. Each statement concerning those provisions is qualified in its entirety by reference to the respective exhibit. Information filed with the SEC can be inspected at the SEC’s Internet site located at http://www.sec.gov. You may also read and copy the registration statement, the exhibits and any other documents filed with the SEC at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549 on official business days between the hours of 10:00 am and 3:00 pm. You may obtain further information regarding the operation of the SEC’s Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also obtain a copy of filings with the SEC at no cost, by writing to or telephoning at the following address:

Duke Energy Progress SC Storm Funding LLC
411 Fayetteville Street
Raleigh, North Carolina 27601
704-382-3853

The SEC Securities Act file numbers are 333-276553 and 333-276553-01.

We will also file with the SEC all the periodic and current reports that are required to be filed under the Exchange Act and the rules, regulations or orders of the SEC thereunder.

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INCORPORATION BY REFERENCE

The SEC allows us to “incorporate by reference” into this prospectus information we or the depositor file with the SEC. This means disclosure of important information may be made by referring you to the documents containing the information. The information incorporated by reference is considered to be part of this prospectus, unless such information is updated or superseded by the information that we or the depositor file subsequently that is incorporated by reference into this prospectus.

To the extent that we are required by law to file such reports and information with the SEC under the Exchange Act, we will file annual and current reports and other information with the SEC. We are incorporating by reference any future filings made by us or the sponsor, but solely in its capacity as our sponsor with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering, excluding any information that is furnished to and not filed with the SEC. These reports will be filed under our own name as issuing entity.

We are incorporating into this prospectus any future distribution report on Form 10-D, current report on Form 8-K or any amendment to any such report which we or DEP, solely in its capacity as our depositor, make with the SEC until the offering of the bonds in completed. These reports will be filed under our own name as issuing entity. In addition, these reports will be posted on a website associated with us or our affiliates, currently located at www.duke-energy.com. These reports will be filed under our own name as issuing entity. Any statement contained in this prospectus or in a document incorporated or deemed to be incorporated by reference in this prospectus will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus or in any separately filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes that statement.

Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute part of this prospectus.

Under the indenture, we may voluntarily suspend or terminate filing obligations with the SEC, to the extent it becomes permitted by applicable law.

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LEGAL MATTERS

Certain legal matters relating to the bonds, including certain U.S. federal income tax matters, will be passed on by Hunton Andrews Kurth LLP, counsel to DEP and DEP SC Storm Funding. Certain other legal matters relating to the bonds will be passed on by Baker, Donelson, Bearman, Caldwell & Berkowitz P.C., South Carolina counsel to DEP, by Troutman Pepper Hamilton Sanders LLP, special Delaware counsel to DEP SC Storm Funding, and by Norton Rose Fulbright US LLP counsel to the underwriters.

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GLOSSARY

As used in this prospectus the terms below have the following meanings:

“2021 NC Storm Recovery Bonds” means the $769.7 million aggregate principal amount of senior secured storm recovery bonds issued in November 2021 by Duke Energy Progress NC Storm Funding LLC pursuant to Section 62-172, North Carolina General Statutes.

“Administration agreement” means the administration agreement to be entered into on the issuance date between Duke Energy Progress SC Storm Funding LLC and DEP.

“Administrator” means DEP, and each successor or assignee of DEP (in the same capacity) pursuant to the administration agreement.

“ADO” means average balance of days outstanding.

“Bankruptcy Code” means Title 11 of the United States Code, as amended.

“Basic documents” means, the indenture (including the series supplement), our certificate of formation, our LLC agreement, the sale agreement, the servicing agreement, the bill of sale, the administration agreement, the intercreditor agreement, the joinder to an existing intercreditor agreement, the letter of representations executed by us in favor of DTC, any underwriting agreement or purchase or distribution agreement, and all documents and certificates contemplated thereby or delivered in connection therewith.

“Bondholder” means a registered holder of the bonds.

“Bonds” means the Series A Senior Secured Storm Recovery Bonds offered pursuant to this prospectus.

“Business day” means any day other than a Saturday, a Sunday or a day on which banking institutions in Charlotte, North Carolina or New York, New York, are, or DTC or the corporate trust office of the indenture trustee, is, authorized or obligated by law, regulation or executive order to remain closed.

“Capital subaccount” means the capital subaccount named in the indenture.

“Clearstream” means Clearstream Banking, société anonyme, Luxembourg.

“Code” or “Internal Revenue Code” means the Internal Revenue Code of 1986, as amended.

“Collection account” means the segregated trust account relating to the bonds designated the collection account for that series and held by the indenture trustee under the indenture.

“Customer” means any South Carolina retail customer (individuals, corporations, other businesses, and federal, state and local governmental entities) receiving transmission or distribution service from DEP or its successors or assignees under PSCSC -approved rate schedules or under special contracts, even if the customer elects to purchase electricity from an alternative electricity supplier following a fundamental change in regulation of public utilities in South Carolina.

“Definitive bonds” means bonds issued in fully registered, certificated form.

“DEP” means Duke Energy Progress, LLC.

“DEP SC Storm Funding” means Duke Energy Progress SC Storm Funding LLC, the issuing entity.

“Depositor” means Duke Energy Progress, LLC.

“DOL” means the U.S. Department of Labor.

“DTC” means The Depository Trust Company, New York, New York, and its nominee holder, Cede & Co.

“DTCC” means The Depository Trust & Clearing Corporation.

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“Eligible institution” means:

(a) the corporate trust department of the indenture trustee or an affiliate thereof, so long as the indenture trustee or such affiliate have (i) either a short-term deposit or issuer rating from Moody’s of at least “P-1” or a long-term unsecured debt or issuer rating from Moody’s of at least “A2”, and (ii) a short-term deposit or issuer rating from S&P of at least “A-1”, or a long-term unsecured debt or issuer rating from S&P of at least “A”; or

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

provided, however, that if an eligible institution then being utilized for any purposes under the indenture or the series supplement no longer meets the definition of eligible institution, then the issuing entity shall replace such eligible institution within sixty (60) days of such eligible institution no longer meeting the definition of eligible institution.

“Eligible investments” means:

Funds in the collection account may be invested at the direction of the servicer only in such investments as meet the criteria described below and which mature on or before the business day immediately preceding the next payment date:

(1)

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

(2)

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

(3)

commercial paper (including commercial paper of the indenture trustee, acting in its commercial capacity, and other commercial paper of DEP or any of its affiliates), which, at the time of purchase is rated at least “A-1” or “P-1” or their equivalents by each of S&P and Moody’s or such lower rating as will not result in the downgrading or withdrawal of the ratings of the Series A Bonds;

(4)

investments in money market funds which have a rating in the highest investment category granted thereby (including funds for which the indenture trustee or any of its affiliates is investment manager or advisor) from Moody’s and S&P;

(5)

repurchase obligations with respect to any security that is a direct obligation of, or fully guaranteed by, the United States of America or certain of its agencies or instrumentalities, entered into with eligible institutions;

(6)

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

a.

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

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b.

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

(7)

any other investment permitted by each rating agency.

Notwithstanding the foregoing: (a) no securities or investments which mature in 30 days or more will be eligible investments unless the issuing entity thereof has either a short-term unsecured debt rating of at least “P-1” from Moody’s or a long-term unsecured debt rating of at least “A1” from Moody’s; (b) no securities or investments described in clauses (2) through (4) above which have maturities of more than 30 days but less than or equal to 3 months will be eligible investments unless the issuing entity thereof has a long-term unsecured debt rating of at least “A1” from Moody’s and a short-term unsecured debt rating of at least “P-1” from Moody’s; (c) no securities or investments described in clauses (2) through (4) above which have maturities of more than 3 months will be eligible investments unless the issuing entity thereof has a long-term unsecured debt rating of at least “A1” from Moody’s and a short-term unsecured debt rating of at least “P-1” from Moody’s; (d) no securities or investments described in clauses (2) through (4) above which have a maturity of 60 days or less will be eligible investments unless such securities have a rating from S&P of at least “A-1”; and (e) no securities or investments described in clauses (2) through (4) above which have a maturity of 365 days or less will be eligible investments unless such securities have a rating from S&P of at least “AA-”, “A-1+” or “AAAm”.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“Euroclear Operator” or “Euroclear” means Euroclear Bank S.A./N.V.

“Euroclear participants” means participants of the Euroclear System.

“Events of Default” means those events of defaults under the indenture.

“Excess funds subaccount” means that excess funds subaccount created pursuant to the indenture.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“FATCA” means the legislation enacted in March 2010 and related Treasury guidance that, when applicable, imposes U.S. federal withholding tax at a rate of 30% on certain payments on, and the gross proceeds from the sale or other disposition of, obligations that produce U.S. source income to certain foreign entities.

“Financing Act” means Sections 58-27-1110 through 1180, SC Code of Laws Annotated.

“Financing order” means, with respect to the bonds, the irrevocable financing order, dated October 13, 2023, issued by the PSCSC to DEP as amended on October 23, 2023, and if context requires, any other financing order issued by the PSCSC to DEP pursuant to the Financing Act.

“GWh” means gigawatt-hour.

“Hired NRSROs” means the NRSROs hired by the seller.

“Indenture” means the indenture to be entered into between DEP SC Storm Funding, the indenture trustee, the securities intermediary and the account bank providing for the bonds, and any other series of storm recovery bonds that might be issued pursuant to the financing order, as the same may be amended and supplemented from time to time.

“Indenture trustee” means U.S. Bank Trust Company, National Association or any successor indenture trustee under the indenture.

“Indirect Participants” means banks, brokers, dealers, trust companies and other entities that clear through or maintain a custodial relationship with a DTC participant either directly or indirectly.

“Issuing Entity” means Duke Energy Progress SC Storm Funding LLC.

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“Intercreditor Agreement” means the intercreditor agreement to be entered into on the issue between DEP SC Storm Funding, DEP and the other parties to DEP’s accounts receivable agreement, as the same may be amended or supplemented from time to time.

“kWh” means kilowatt-hour.

“Moody’s” means Moody’s Investors Service, Inc.

“Nonbypassable” refers to the right of the servicer to collect the storm recovery charges from all existing or future customers of DEP.

“NRSRO” means a nationally recognized statistical rating organization.

“Operating expenses” means all unreimbursed fees, costs and out-of-pocket expenses of the Issuer, including all amounts owed by the Issuer to the Indenture Trustee (including indemnities, legal, audit fees and expenses) or any manager, the servicing fee, the administration fee, legal and accounting fees, Rating Agency fees and related fees (i.e. website provider fees) and any franchise, license or other taxes owed by the Issuer, including on investment income in the collection account.

“ORS” means the South Carolina Office of Regulatory Staff.

“Participant” means an organization that participates in DTC.

“Parties in interest” means “parties in interest” under ERISA and “disqualified persons” under the Code.

“Payment date” means the date or dates on which interest and principal are to be payable.

“Periodic Payment Requirement” means, for each payment date, the scheduled principal of and interest on the bonds and other financing costs and other required amounts and charges to be accrued in connection with the bonds.

“Plan assets” means assets of Plans.

“Plan asset regulations” means the DOL regulations at 29 CFR 2510.3-101, as modified by Section 3(42) of ERISA.

“Plans” means employee benefit plans and other plans and arrangements, including individual retirement accounts and annuities, Keogh plans and some collective investment funds and insurance company general or separate accounts in which the assets of these plans, accounts or arrangements are invested.

“PSCSC” means the Public Service Commission of South Carolina.

“PSCSC condition” means, with respect to amendments, modifications, or supplements to, or waivers of defaults under, any basic document, the process for obtaining from the PSCSC its required consent for the proposed action.

“PSCSC regulations” means any regulations, including temporary regulations, promulgated by the PSCSC pursuant to South Carolina law.

“PTCE” means prohibited transaction class exemption.

“Rating agency” means any of Moody’s and S&P.

“Rating agency condition” means, with respect to any action, at least ten business days’ prior written notification to each rating agency of such action, and written confirmation from each of S&P and Moody’s to the servicer, the indenture trustee and us that such action will not result in a suspension, reduction or withdrawal of the then current rating by such rating agency of the bonds issued by us; provided, that, if within such ten business day period, any rating agency (other than S&P) has neither replied to such notification nor responded in a manner that indicates that such rating agency is reviewing and considering the notification, then (i) we shall be required to confirm that such rating agency has received the rating agency condition

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request, and if it has, promptly request the related rating agency condition confirmation and (ii) if the rating agency neither replies to such notification nor responds in a manner that indicates it is reviewing and considering the notification within five business days following such second request, the applicable rating agency condition requirement shall not be deemed to apply to such rating agency. For the purposes of this definition, any confirmation, request, acknowledgment or approval that is required to be in writing may be in the form of electronic mail or a press release (which may contain a general waiver of a rating agency’s right to review or consent).

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

“Regulation AB” means the rules of the SEC promulgated under Subpart 229.1100 — Asset-Backed Securities (Regulation AB), 17 C.F.R. §§229.1100-229.1125, as such may be amended from time to time.

“Required capital level” means the amount required to be funded in the capital account for the bonds, which will equal 0.50% of the initial principal amount of the bonds issued.

“Return on invested capital” means, for any payment date with respect to any calculation period, the sum of (i) rate of return, payable to DEP, on its capital contribution equal to the rate of interest payable on the longest maturing bond plus (ii) any return on invested capital not paid on any prior payment date.

“S&P” means Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business.

“Sale agreement” means the purchase and sale agreement to be entered into on the issuance date between DEP SC Storm Funding and DEP pursuant to which DEP will sell and we will buy the storm recovery property securing the bonds.

“SC Code of Laws Annotated” means the South Carolina Code of Laws Annotated.

“Scheduled final payment date” means, each payment date on which principal is to be paid in accordance with the expected sinking fund schedule.

“SEC” means the U.S. Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended.

“Securities intermediary” means U.S. Bank National Association or any successor securities intermediary under the indenture.

“Securitizable Balance” means the sum of approximately $170.6 million, representing the storm recovering costs, adjusted to include the final amount of carrying costs through the issuance date.

“Seller” means DEP, as the seller of the storm recovery property, and each successor of DEP (in the same capacity) pursuant to the sale agreement.

“Series supplement” means that series supplement to the indenture to be entered into on the issue date between DEP SC Storm Funding and the indenture trustee or any future series supplement to the indenture to be entered into on a future date between us and the indenture trustee.

“Servicer” means DEP, as the servicer of the storm recovery property, and each successor or assignee of DEP (in the same capacity) pursuant to the servicing agreement.

“Servicer business day” means any day other than a Saturday, a Sunday or a day on which banking institutions in Columbia, South Carolina, Greenville, South Carolina or New York, New York or the corporate trustee office of the indenture trustee is authorized or obligated by law, regulation or executive order to be closed, on which the Servicer maintains normal office hours and conducts business.

“Servicing agreement” means the servicing agreement to be entered into on the issue date between DEP SC Storm Funding and DEP, as the same may be amended and supplemented from time to time, pursuant to which DEP undertakes to service the storm recovery property.

“Similar Law” means, collectively, provisions under any federal, state, local, non-U.S. or other laws or regulations that are substantially similar to Section 4975 of the Code or Title I of ERISA.

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“Special payment date” means the later of the date on which any special payment is confirmed to be received by the indenture trustee, or the date the special payment is scheduled to be delivered to the indenture trustee.

“Special payment” means any payment received by the indenture trustee following a payment default on the bonds.

“State pledge” means the pledge of the State of South Carolina under the Financing Act in which the State of South Carolina pledges to and agrees with the bondholders, any assignee and any financing parties that the State and its agencies, including the PSCSC, will not (i) alter the provisions of the Financing Act that make the storm recovery charges imposed by the financing order irrevocable, binding, and nonbypassable, (ii) take or permit any action that impairs or would impair the value of storm recovery property, the security for the storm recovery bonds or revises the storm recovery costs, (iii) impair the rights and remedies of the holders, assignees, and other financing parties or (iv) except as part of the true-up mechanism, reduce, alter or impair storm recovery charges that are imposed, collected and remitted for the benefit of the bondholders and other financing parties, until all principal, interest, premium, financing costs and other fees, expenses, or changes incurred, and any contracts to be performed, in connection with the storm recovery bonds have been paid or performed in full.

“Storms” means the Winter Storms Pax and Ulysses, Hurricanes Matthew, Florence, Michael, Dorian and Izzy and Tropical Storm Jasper.

“Storm recovery bonds” means, unless the context requires otherwise, the storm recovery bonds offered pursuant to this prospectus.

“Storm recovery bond collateral” means (a) the storm recovery property created under and pursuant to the financing order and the Financing Act, and transferred by the seller to us pursuant to the sale agreement (including, to the fullest extent permitted by law, the right to impose, bill, charge, collect and receive the storm recovery charges, the right to obtain periodic adjustments to the storm recovery charges, and all revenue, collections, claims, rights to payments, payments, money and proceeds arising out of the rights and interests created under the financing order), (b) all storm recovery charges related to the storm recovery property, (c) the sale agreement and the bill of sale executed in connection therewith and all property and interests in property transferred under the sale agreement and the bill of sale with respect to the storm recovery property and the bonds, (d) the servicing agreement, the administration agreement, the intercreditor agreement and any subservicing, agency, administration or collection agreements executed in connection therewith, to the extent related to the foregoing storm recovery property and the bonds, (e) the collection account, all subaccounts thereof and all amounts of cash, instruments, investment property or other assets on deposit therein or credited thereto from time to time and all financial assets and securities entitlements carried therein or credited thereto, (f) all rights to compel the servicer to file for and obtain periodic adjustments to the storm recovery charges in accordance with section 58-27-1110(C)(2)(f) and section 58-27-1110(C)(4) of the Financing Act and the financing order, (g) all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing, whether such claims, demands, causes and choses in action constitute storm recovery property, accounts, general intangibles, instruments, contract rights, chattel paper or proceeds of such items or any other form of property, (h) all accounts, chattel paper, deposit accounts, documents, general intangibles, goods, instruments, investment property, letters of credit, letters-of-credit rights, money, commercial tort claims and supporting obligations related to the foregoing, and (i) all payments on or under, and all proceeds in respect of, any or all of the foregoing.

“Storm recovery charge” means special, irrevocable nonbypassable charges to be paid by all existing or future customers, and authorized by the financing order to recover the storm recovery costs specified in the financing order.

“Storm recovery costs” means (i) the deferred asset balance associated with the Storms, including a return on the unrecovered balance, and with respect to the capital investments, including a deferral of depreciation expense and a return on the investment determined by the PSCSC to be prudently incurred in Docket No. 2023-89-E, plus (ii) carrying costs through the projected issuances date of the Series A Bonds, calculated at a rate authorized by the PSCSC, (iii) plus up-front Financing Costs as defined in the Financing Act.

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“Storm recovery property” means the storm recovery property as defined in the Financing Act and the financing order, and that is sold by the seller to us under the sale agreement.

“Terms and conditions” means the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of the Euroclear System and applicable Belgium law.

“Tranche” means a weighted average life designation for the bonds.

“Treasury regulations” means proposed or issued regulations promulgated from time to time under the Internal Revenue Code.

“True-Up Mechanism” means the mechanism required by the financing order whereby storm recovery charges are reviewed and adjusted at least semi-annually or more frequently as necessary and permitted by the financing order. The rates at which storm recovery charges are billed to customers will be adjusted to correct any overcollections or undercollections from prior periods.

“Trust Indenture Act” means the Trust Indenture Act of 1939, as amended.

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

“U.S. Holder” means a beneficial owner of a bond that is a U.S. person.

“U.S. person” means for U.S. federal income tax purposes:

(i)

a U.S. citizen or individual resident of the United States;

(ii)

a corporation (including an entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

(iii)

an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or

(iv)

a trust if (A) a court in the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (B) it has a valid election in place to be treated as a U.S. person.

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$177,365,000 SERIES A SENIOR SECURED STORM RECOVERY BONDS

DUKE ENERGY PROGRESS, LLC

Depositor, Sponsor and Initial Servicer

DUKE ENERGY PROGRESS SC STORM FUNDING LLC

Issuing Entity

PROSPECTUS

Joint Book-Running Managers

Goldman Sachs & Co. LLC

RBC Capital Markets

Through and including     (the 90th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and when offering an unsold allotment or subscription.

PART II

Information Not Required in Prospectus

Item 12.   Other Expenses of Issuance and Distribution

The following table sets forth the various expenses expected to be incurred by the registrant in connection with the issuance and distribution of the securities being registered by this prospectus, other than underwriting discounts and commissions. All amounts are estimated except the Securities and Exchange Commission registration fee.

Securities and Exchange Commission registration fee	$	26,179
Printing expenses	​	150,000
Trustee fees and expenses	​	35,000
Legal fees and expenses	​	2,265,000
Accounting fees and expenses	​	115,000
Rating Agencies’ fees and expenses	​	395,000
Structuring agent fees and expenses	​	308,644
Miscellaneous fees and expenses	​	55,000
Total	$	3,349,823

Item 13.   Indemnification of Directors and Officers

DUKE ENERGY PROGRESS SC STORM FUNDING LLC

Section 18-108 of the Delaware Limited Liability Company Act provides that subject to such standards and restrictions, if any, as are set forth in the limited liability company agreement of a limited liability company, a limited liability company may, and shall have the power to, indemnify and hold harmless any member or manager or other person from and against any and all claims and demands whatsoever. Under the limited liability company agreement of DEP SC Storm Funding, the issuing entity will indemnify its managers to the fullest extent permitted by law against any liability incurred with respect to their services as managers under the issuing entity’s limited liability company agreement, except for liabilities arising from their own fraud, gross negligence or willful misconduct or, in the case of an independent manager, their bad faith or willful misconduct.

DUKE ENERGY PROGRESS, LLC

Part 3 of Article 3 of the North Carolina Limited Liability Company Act and the Limited Liability Company Operating Agreement of Duke Energy Progress (“DEP”) permit or require indemnification of its directors and officers in a variety of circumstances, which may include liabilities under the Securities Act. In addition, DEP maintains insurance on behalf of directors, officers, employees or agents, which may cover liabilities under the Securities Act.

The Limited Liability Company Operating Agreement of DEP provides that any person who is or was serving as a member, director, officer, employee or agent of DEP or who, at the request of DEP, is or was serving as a director, manager, officer, employee or agent of another corporation, limited liability company, partnership, joint venture, trust or other enterprise or as a trustee or administrator under an employee benefit plan, shall be indemnified by DEP, to the fullest extent permitted by law, against (a) litigation expenses, including costs, expenses and reasonable attorneys’ fees incurred by any such person in connection with any threatened, pending or completed action, suit or proceedings, whether civil, criminal, administrative or investigative, whether formal or informal, and whether or not brought by or on behalf of DEP, arising out of such person’s status as such or such person’s activities in any of the foregoing capacities, (b) liability, including payments made by such person in satisfaction of any judgment, money decree, fine (including an excise tax assessed with respect to an employee benefit plan), penalty or settlement for which such person may have become liable in any such action, suit or proceeding, (c) payments made and personal liabilities reasonably incurred in the authorized conduct of the business of DEP or for the preservation of its business

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and its property and (d) reasonable costs, expenses and attorneys’ fees incurred by such person in connection with the enforcement of the indemnification rights provided in the agreement. The agreement further provides that any person who is or was serving in any of the foregoing capacities for or on behalf of DEP shall be conclusively deemed to be doing or to have done so in reliance upon, and as consideration for, such indemnification rights. The agreement also states that the rights of indemnification described above (which shall be deemed to be a contract between any such person and DEP enforceable on the part of such person notwithstanding any subsequent amendment or repeal of the agreement) shall inure to the benefit of the successors, estates or legal representatives of any such person and shall not be exclusive of any other rights to which such person may be entitled apart from the agreement, by contract, resolution or otherwise.

Item 14.   Exhibits

List of Exhibits

EXHIBIT NO.	DESCRIPTION OF EXHIBIT
1.1	Form of Underwriting Agreement***
3.1	Certificate of Formation of Duke Energy Progress SC Storm Funding LLC*
3.2	Form of Amended and Restated Limited Liability Company Agreement of Duke Energy Progress SC Storm Funding LLC***
4.1	Form of Indenture between Duke Energy Progress SC Storm Funding LLC and the Indenture Trustee (including forms of the storm recovery bonds and series supplement)***
5.1	Opinion of Hunton Andrews Kurth LLP with respect to legality***
8.1	Opinion of Hunton Andrews Kurth LLP with respect to federal tax matters***
10.1	Form of Storm Recovery Property Servicing Agreement between Duke Energy Progress SC Storm Funding LLC and Duke Energy Progress, LLC, as Servicer***
10.2	Form of Storm Recovery Property Purchase and Sale Agreement between Duke Energy Progress SC Storm Funding LLC and Duke Energy Progress, LLC, as Seller***
10.3	Form of Administration Agreement between Duke Energy Progress SC Storm Funding LLC and Duke Energy Progress, LLC, as Administrator***
10.4	Form of Intercreditor Agreement, among Duke Energy Progress, LLC, Duke Energy Progress SC Storm Funding LLC, Duke Energy Progress NC Storm Funding, LLC, Duke Energy Progress Receivables LLC, The Bank Of New York Mellon Trust Company, National Association, U.S. Bank Trust Company, National Association and MUFG Bank, LTD***
10.5	Form of Joinder Agreement to the Amended and Restated Intercreditor Agreement, dated December 20, 2013, between Duke Energy Progress SC Storm Funding LLC and U.S. Bank Trust Company, National Association***
21.1	List of Subsidiaries*
23.1	Consent of Hunton Andrews Kurth LLP (included as part of its opinion filed as Exhibit 5.1 and Exhibit 8.1)***
24.1	Power of Attorney of Duke Energy Progress, LLC*
25.1	Form of T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of U.S. Bank Trust Company, National Association*
99.1	Financing Order**
99.2	Form of Opinion of Hunton Andrews Kurth LLP with respect to U.S. constitutional matters***
99.3	Form of Opinion of Baker, Donelson, Bearman, Caldwell & Berkowitz P.C. with respect to South Carolina constitutional matters***
99.4	Consent of Manager Nominee**
107.1	Calculation of Filing Fee Tables***

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*

Previously filed with the Registration Statement on Form SF-1 of Duke Energy Progress SC Storm Funding LLC and Duke Energy Progress, LLC (File Nos. 333-276553 and 333-276553-01) filed on January 17, 2024.

**

Previously filed with the Registration Statement on Amendment No. 1 to Form SF-1 of Duke Energy Progress SC Storm Funding LLC and Duke Energy Progress, LLC (File Nos. 333-276553 and 333-276553-01) filed on March 8, 2024.

***

Filed herewith.

Item 15.   Undertakings

(a)

The undersigned registrant hereby undertakes that:

(i)

For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective.

(ii)

For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(b)

As to incorporation by reference:

(i)

For purposes of determining any liability under the Securities Act of 1933, each filing of the issuing entity’s annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(ii)

For the purpose of determining any liability under the Securities Act of 1933, each filing of the annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 of a third party that is incorporated by reference in the registration statement in accordance with Item 1100(c)(1) of Regulation AB (17 CFR 229.1100(c)(1)) shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(c)

As to indemnification:

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrants pursuant to the foregoing provisions, or otherwise, each registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by a registrant of expenses incurred or paid by a director, officer or controlling person of such registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, each registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

(d)

As to qualification of trust indentures:

The undersigned registrants hereby undertake to file an application for the purpose of determining the eligibility of the indenture trustee to act under Subsection (a) of Section 310 of the Trust Indenture Act in accordance with the rules and regulations prescribed by the Commission under Section 305(b)(2) of the Act.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form SF-1 and has duly caused this Amendment No. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Charlotte, State of North Carolina, on the 22nd day of March, 2024.

DUKE ENERGY PROGRESS, LLC

By:

/s/ Lynn J. Good

Name: Lynn J. Good
Title:  Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the registration statement has been signed by the following persons in the capacities and on the dates indicated.

Signatures	Title	Date
/s/ Lynn J. Good Lynn J. Good	Chief Executive Officer (Principal Executive Officer)	March 22, 2024
/s/ Brian D. Savoy Brian D. Savoy	Executive Vice President and Chief Financial Officer (Principal Financial Officer)	March 22, 2024
/s/ Cynthia S. Lee Cynthia S. Lee	Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)	March 22, 2024

Duke Energy Progress, LLC Majority of Board of Directors:

/s/ Kodwo Ghartey-Tagoe *Kodwo Ghartey-Tagoe	Director	March 22, 2024
/s/ T. Preston Gillespie Jr. *T. Preston Gillespie Jr.	Director	March 22, 2024
/s/ R. Alexander Glenn *R. Alexander Glenn	Director	March 22, 2024
/s/ Lynn J. Good *Lynn J. Good	Director	March 22, 2024
/s/ Julia S. Janson *Julia S. Janson	Director	March 22, 2024
*By: /s/ Robert T. Lucas III Robert T. Lucas III Attorney-in-fact	​	​

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form SF-1 and has duly caused this Amendment No. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Charlotte, State of North Carolina, on the 22nd day of March, 2024.

DUKE ENERGY PROGRESS SC STORM FUNDING LLC

By:

/s/ Karl W. Newlin

Name:  Karl W. Newlin
Title:   Manager, President, Treasurer and Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the registration statement has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Karl W. Newlin Karl W. Newlin	Manager, President, Treasurer and Chief Financial Officer (Principal Executive Officer and Financial Officer)	March 22, 2024
/s/ Cynthia S. Lee Cynthia S. Lee	Manager and Controller (Principal Accounting Officer)	March 22, 2024

II-5

EX-1.1

Exhibit 1.1

DUKE ENERGY PROGRESS SC STORM FUNDING LLC

$177,365,000 SERIES A SENIOR SECURED STORM RECOVERY BONDS

UNDERWRITING AGREEMENT

[______], 2024

To the Underwriters named in Schedule I hereto

Ladies and Gentlemen:

1.            Introduction. Duke Energy Progress SC Storm Funding LLC, a Delaware limited liability company (the “Issuer”), a wholly-owned subsidiary of Duke Energy Progress, LLC, a North Carolina limited liability company (the “Depositor”), proposes to issue and sell $177,365,000 aggregate principal amount of its Series A Senior Secured Storm Recovery Bonds, (the “Bonds”), identified in Schedule I hereto. The Issuer and the Depositor, hereby confirm their agreement with the several Underwriters (as defined below) as set forth herein.

The term “Underwriters” as used in this Underwriting Agreement (the “Underwriting Agreement”) shall be deemed to mean the entities named in Schedule I hereto.

Capitalized terms used and not otherwise defined in this Agreement shall have the meanings given to them in the Indenture (as defined below) attached hereto as Exhibit A.

2.            Description of the Bonds. The Bonds will be issued pursuant to an indenture to be dated as of [____], 2024, as supplemented by one or more series supplements thereto (as so supplemented, the “Indenture”), among the Issuer, U.S. Bank Trust Company, National Association as indenture trustee (the “Indenture Trustee”), U.S. Bank National Association, as securities intermediary and account bank. The Bonds will be senior secured obligations of the Issuer and will be supported by storm recovery property (the “Storm Recovery Property”), as more fully described in the irrevocable financing order by the Public Service Commission of South Carolina (“PSCSC”) to the Depositor dated October 13, 2023, as amended on October 23, 2023, relating to the Bonds, (the “Financing Order”). The Storm Recovery Property will be sold to the Issuer by the Depositor pursuant to the Storm Recovery Property Purchase and Sale Agreement, to be dated on or about [___], 2024 (the “Sale Agreement”) between the Depositor and the Issuer. The Storm Recovery Property securing the Bonds will be serviced pursuant to the Storm Recovery Property Servicing Agreement, to be dated on or about [___], 2024 (the “Servicing Agreement”) between the Depositor, as servicer, and the Issuer, as owner of the Storm Recovery Property sold to it pursuant to the Sale Agreement.

3.            Representations and Warranties of the Issuer. The Issuer represents and warrants to each Underwriter that:

(a)            The Bonds have been registered on Form SF-1 pursuant to guidance from the Securities and Exchange Commission (the “Commission”) and in accordance with such guidance the Issuer and the Bonds meet the requirements for the use of Form SF-1 under the Securities Act of 1933, as amended (the “Securities Act”). The Issuer, in its capacity as co-registrant and issuing entity with respect to the Bonds, and the Depositor, in its capacity as co-registrant and as sponsor for the Issuer, have prepared and filed with the Commission a registration statement on such form on January 17, 2024 (Registration Nos. 333-276553 and 333-276533-01), as amended by Amendment No. 1 thereto filed March 8, 2024, and Amendment No. 2 thereto filed [March 22, 2024], including a prospectus, for the registration under the Securities Act of up to $177,365,000 aggregate principal amount of the Bonds. Such registration statement, as amended (“Registration Statement Nos. 333-276553 and 333-276553-01”), has been declared effective by the Commission and no stop order suspending such effectiveness has been issued under the Securities Act and no proceedings for that purpose have been instituted or are pending or, to the knowledge of the Issuer, threatened by the Commission. No storm recovery bonds registered with the Commission under the Securities Act pursuant to Registration Statement Nos 333-276553 and 333-276533-01 have been previously issued. References herein to the term “Registration Statement” shall be deemed to refer to Registration Statement Nos. 333-276553 and 333-276553-01, including any amendment thereto, and any information in a prospectus, as amended or supplemented as of the Effective Date (as defined below), deemed or retroactively deemed to be a part thereof pursuant to Rule 430A under the Securities Act (“Rule 430A”) that has not been superseded or modified. “Registration Statement” without reference to a time means the Registration Statement as of the Applicable Time (as defined below), which the parties agree is the time of the first contract of sale (as used in Rule 159 under the Securities Act) for the Bonds, and shall be considered the “Effective Date” of the Registration Statement relating to the Bonds, and information contained in a form of prospectus (as amended or supplemented as of the Effective Date) that is deemed retroactively to be a part of the Registration Statement pursuant to Rule 430A shall be considered to be included in the Registration Statement as of the time specified in Rule 430A. The final prospectus relating to the Bonds, as filed with the Commission pursuant to Rule 424(b) under the Securities Act is referred to herein as the “Final Prospectus”; and the most recent preliminary prospectus that omitted information to be included upon pricing in a form of prospectus filed with the Commission pursuant to Rule 424(b) under the Securities Act and that was used after the initial effectiveness of the Registration Statement and prior to the Applicable Time is referred to herein as the “Pricing Prospectus”. The Pricing Prospectus and the Issuer Free Writing Prospectuses (as defined below) identified in Part A and Part B of Schedule III hereto, considered together with the Intex File (as defined below), are referred to herein as the “Pricing Package”.

(b)            At the time the Registration Statement initially became effective, at the time of each amendment (whether by post-effective amendment, incorporated report or form of prospectus) and on the Effective Date relating to the Bonds, the Registration Statement fully complied, and the Final Prospectus, both as of its date and at and as of the Closing Date, and the Indenture, at the Closing Date, will fully comply in all material respects with the applicable requirements of the Securities Act and the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”), and, in each case, the applicable instructions, rules and regulations of the Commission thereunder; the Registration Statement, at each of the aforementioned dates, did not and will not contain any untrue statement of a material fact, or omit to state any material fact required to be stated therein or necessary to make the statements therein, not misleading; the Final Prospectus, both as of its date and at and as of the Closing Date, will not contain an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, that the foregoing representations and warranties in this paragraph (b) shall not apply to statements or omissions made in reliance upon and in conformity with any Underwriter Information as defined in Section 11(e) below or to any statements in or omissions from any Statements of Eligibility on Form T-l (or amendments thereto) of the Indenture Trustee under the Indenture filed as exhibits to the Registration Statement or to any statement or omissions made in the Registration Statement or the Final Prospectus relating to The Depository Trust Company (“DTC”) Book-Entry System that are based solely on information contained in published reports of the DTC.

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(c)            As of its date, at the Applicable Time and on the date of its filing, if applicable, the Pricing Prospectus and each Issuer Free Writing Prospectus (when considered together with the Pricing Prospectus), did not include any untrue statement of a material fact nor when considered together, omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (except that the principal amount of the Bonds, , expected average life and sensitivity data, proceeds to Issuer, underwriter allocation, selling concession, reallowance discounts, issuance date, the expected amortization schedule, the initial principal balance, the scheduled final payment date, the final maturity date, and the expected sinking fund schedule described in the Pricing Prospectus were subject to completion or change based on market conditions, and the interest rate, price to the public and underwriting discounts and commissions as well as certain other information dependent on the foregoing and other pricing related information was not included in the Pricing Prospectus). The Pricing Package, at the Applicable Time did not, and at all subsequent times through the completion of the offer and the sale of the Bonds on the Closing Date will not, include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The two preceding sentences do not apply to statements in or omissions from the Pricing Package, the Pricing Term Sheet or any other Issuer Free Writing Prospectus in reliance upon and in conformity with any Underwriter Information. “Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as defined in Rule 433(h) under the Securities Act, relating to the Bonds, in the form filed or required to be filed with the Commission or, if not required to be filed, in the form required to be retained in the Issuer’s records pursuant to Rule 433(g) of the Securities Act. References to the term “Free Writing Prospectus” shall mean a free writing prospectus, as defined in Rule 405 under the Securities Act. “Intex File” means the files available at the Index deal titled “[•]” concerning the characteristics of the Bonds or Storm Recovery Property. References to the term “Applicable Time” mean [•] P.M., eastern time, on the date hereof. The Issuer represents, warrants and agrees that it has treated and agrees that it will treat each of the free writing prospectuses listed in Schedule III and Schedule IV hereto as an Issuer Free Writing Prospectus, and that each such Issuer Free Writing Prospectus has fully complied and will fully comply with the applicable requirements of Rules 164 and 433 under the Securities Act, including timely Commission filing where required, legending and record keeping. The Issuer represents, warrants and agrees that there have been no Issuer Free Writing Prospectuses used in connection with the offering of the Bonds (as contemplated by the Registration Statement, the Pricing Package and the Final Prospectus) other than the materials listed on Schedule III hereto.

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(d)            Each Issuer Free Writing Prospectus, as of its issue date and at all subsequent times through the completion of the offer and sale of the Bonds on the Closing Date or until any earlier date that the Issuer or the Depositor notified or notifies the Underwriters as described in the next sentence, did not, does not and will not include any information that conflicted, conflicts or will conflict with the information then contained in the Registration Statement. If at any time following issuance of an Issuer Free Writing Prospectus an event or development has occurred or occurs, the result of which is that such Issuer Free Writing Prospectus conflicts or would conflict with the information then contained in the Registration Statement or includes or would include an untrue statement of a material fact or, when considered together with the Pricing Package, omits or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances prevailing at that subsequent time, not misleading, (i) the Depositor or the Issuer has promptly notified or will promptly notify the Underwriters and (ii) the Depositor or the Issuer has promptly amended or will promptly amend or supplement such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission. The foregoing two sentences do not apply to statements in or omissions from any Issuer Free Writing Prospectus in reliance upon and in conformity with any Underwriter Information.

(e)            The Issuer has been duly formed and is validly existing as a limited liability company in good standing under the Limited Liability Company Act of the State of Delaware, as amended, with full limited liability company power and authority to execute, deliver and perform its obligations under this Agreement, the Indenture, the Bonds, the Sale Agreement, the bill of sale contemplated by the Sale Agreement (the “Bill of Sale”), the Servicing Agreement, the Joinder to Intercreditor Agreement to be dated as of the Closing Date among the Issuer, the Depositor and its affiliates and the Indenture Trustee (the “Joinder Intercreditor Agreement”), the intercreditor agreement to be dated as of the Closing Date among the Issuer, the Depositor, its affiliates, The Bank of New York Mellon Trust Company, National Association and MUFG Bank, LTD (the “Intercreditor Agreement”), and the administration agreement to be dated as of the Closing Date between the Issuer and the Depositor (the “Administration Agreement”) and the other agreements and instruments contemplated by the Pricing Package and the Final Prospectus to which the Issuer is a party (collectively, the “Issuer Documents”), to complete the Issuer Transactions (as defined below) and to own its properties and conduct its business as described in the Registration Statement, the Pricing Package and the Final Prospectus; the Issuer has been duly qualified as a foreign limited liability company for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, except where failure to so qualify or to be in good standing would not, individually or in the aggregate reasonably be expected to have (A) a material adverse effect on business, properties, financial condition or results of operations of the Issuer or (B) a material adverse effect on the performance by the Issuer of this Agreement or any of the Issuer Documents or the consummation of any of the transactions contemplated hereby or thereby (collectively, clauses (A) and (B), an “Issuer Material Adverse Effect”); the Issuer has conducted and will conduct no business in the future that would be inconsistent with the description of the Issuer’s business set forth in the Registration Statement, the Pricing Package and the Final Prospectus; the Issuer is not a party to or bound by any agreement or instrument other than the Issuer Documents and other agreements or instruments incidental to its formation and the Rating Agency Letters (as defined below); the Issuer has no material liabilities or obligations other than those arising out of the transactions.

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(f)             The Issuer has no subsidiaries within the meaning of Rule 405 at the Securities Act.

(g)            The issuance and sale of the Bonds, the execution, delivery and performance by the Issuer of the Bonds, the purchase of the Storm Recovery Property by the Issuer from the Depositor, the execution, delivery and performance by the Issuer of this Agreement and the Issuer Documents, the application of the proceeds from the sale of the Bonds as described under “Use of Proceeds” in each of the Pricing Package, the Registration Statement and the Final Prospectus and the consummation of the transactions contemplated hereby and thereby (collectively, the “Issuer Transactions”), will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, impose any lien, charge or encumbrance upon any property or assets of the Issuer or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, license, lease or other agreement or instrument (giving effect to any amendments or terminations thereof as contemplated by the Registration Statement, the Pricing Package and the Final Prospectus) to which the Issuer is a party or by which the Issuer is bound or to which any of the property or assets of the Issuer is subject, except for liens created by the Indenture or the other Issuer Documents, (ii) result in any violation of the provisions of the Issuer’s certificate of formation or limited liability company agreement (collectively, the “Issuer Charter Documents”), or (iii) result in any violation of any statute, law, judgment, order, decree, rule or regulation of any court, regulatory body, administrative agency, arbitrator or governmental agency or body having jurisdiction over the Issuer, or any of its properties or assets, except (in the case of clauses (i) and (iii)) as would not, individually or in the aggregate, be reasonably expected to have an Issuer Material Adverse Effect.

(h)            This Agreement has been duly authorized, executed and delivered by the Issuer, which has the necessary limited liability company power and authority to execute, deliver and perform its obligations under this Agreement.

(i)             The Issuer (i) is not in violation of the Issuer Charter Documents, (ii) is not in default and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust or other agreement or instrument to which the Issuer is a party or by which it is bound or to which any of its properties is subject, except for any such defaults that would not, individually or in the aggregate, be reasonably expected to have an Issuer Material Adverse Effect, and (iii) is not in violation of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Issuer, to which it or its property may be subject, except for any such violations that would not, individually or in the aggregate, be reasonably expected to have an Issuer Material Adverse Effect.

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(j)             The Indenture has been duly authorized by the Issuer, and, on the Closing Date, will have been duly executed and delivered by the Issuer and will be a valid and binding instrument, enforceable against the Issuer in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). On the Closing Date, the Indenture will (i) comply as to form in all material respects with the requirements of the Trust Indenture Act and (ii) conform in all material respects to the description thereof in the Registration Statement, the Pricing Package and Final Prospectus.

(k)            The Bonds have been duly authorized by the Issuer for issuance and sale to the Underwriters pursuant to this Agreement and, when executed by the Issuer and authenticated by the Indenture Trustee in accordance with the Indenture and delivered to the Underwriters against payment therefor in accordance with the terms of this Agreement, will constitute valid and binding obligations of the Issuer entitled to the benefits of the Indenture and enforceable against the Issuer in accordance with their terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). The Bonds, when issued, will conform in all material respects to the description thereof in the Registration Statement, the Pricing Package and Final Prospectus. The Issuer has all requisite limited liability company power and authority to issue, sell and deliver the Bonds in accordance with and upon the terms and conditions set forth herein and in the Registration Statement, the Pricing Package and Final Prospectus.

(l)             There is no litigation or any legal or governmental proceeding to which the Issuer is a party or to which any property of the Issuer is subject or which is pending or, to the knowledge of the Issuer, threatened against the Issuer or any property of the Issuer except as would not, individually or in the aggregate, be reasonably be expected to have an Issuer Material Adverse Effect.

(m)           Other than any necessary action or inaction by the PSCSC or any filings required by the Financing Act or the Financing Order, no approval, authorization, consent, filing with or order of any court or governmental agency or body (except such as have been already obtained and other than in connection or in compliance with the provisions of applicable blue-sky laws or securities laws of any state, as to which the Issuer makes no representations or warranties under this paragraph (m)), is legally required for the transactions contemplated hereby, including issuance and sale by the Issuer of the Bonds pursuant to this Agreement.

(n)            The Issuer is not, and, after giving effect to the sale and issuance of the Bonds and the application of the proceeds thereof as described in the Pricing Package and the Final Prospectus, will not be an “investment company” within the meaning of the Investment Company Act of 1940, as amended (the “1940 Act”).

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(o)            The nationally recognized accounting firm which has performed certain procedures with respect to certain statistical and structural information contained in the Pricing Package and the Final Prospectus, are independent public accountants.

(p)            Each of the Sale Agreement, the Bill of Sale, the Servicing Agreement, the Administration Agreement, the Intercreditor Agreement and the Joinder Intercreditor Agreement has been duly and validly authorized by the Issuer, and when executed and delivered by the Issuer on or prior to the Closing Date and the other parties thereto, will constitute a valid and legally binding obligation of the Issuer, enforceable against the Issuer in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

(q)            Relying on an exclusion or exemption from the definition of “investment company” under the 1940 Act under Section 3(c)(5)(A) under the 1940 Act, although additional exclusions or exemption may be available, the Issuer is not a “covered fund” for purposes of the regulations adopted to implement Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

(r)             The Issuer has complied with the written representations, acknowledgements and covenants (the “17g-5 Representations”) relating to compliance with Rule 17g-5 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) set forth in the (i) undertaking, dated as of November 9, 2023, by the Issuer to Moody’s (as defined below) and (ii) letter, dated November 9, 2023, from the Issuer to S&P (as defined below and together with Moody’s, the “Rating Agencies”) (collectively, the “Rating Agency Letters”), other than (x) any noncompliance of the 17g-5 Representations that would not, individually or in the aggregate, be reasonably expected to have a material adverse effect on the rating of the Bonds or the Bonds or (y) any noncompliance arising from the breach by an Underwriter of the representations and warranties and covenants set forth in Section 14 hereof.

(s)            Issuer will comply, and has complied, in all material respects, with its diligence and disclosure obligations in respect to the Bonds under Rule 193 of the Securities Act and Items 1111(a)(7) and 1111(a)(8) of Regulation AB.

(t)             The Bonds are not subject to the risk retention requirements imposed by Section 15G of the Exchange Act.

(u)            At the time of filing the Registration Statement, at the earliest time thereafter that the Issuer made a bona fide offer (within the meaning of Rule 164(h)(2)) of the Bonds and at the date hereof, the Issuer was not and is not an “ineligible issuer”, as defined in Rule 405 of the Rules and Regulations.

(v)            Other than the security interest to be granted to the Indenture Trustee under the Indenture, pursuant to the other Issuer Documents, as of the Closing Date, the Issuer has not pledged, assigned, sold or granted as of the Closing Date a security interest in the Storm Recovery Property. As of the Closing Date, all action necessary (including the filing of UCC-1 financing statements) to protect and evidence the Indenture Trustee’s security interest in the Storm Recovery Property in the United States will have been duly and effectively taken (as described in, and subject to any exceptions to be set forth in, the Indenture or any other Issuer Document). As of or within a reasonable time after the Closing Date, no security agreement, financing statement, equivalent security or lien instrument or continuation statement authorized by the Issuer or the Depositor and listing such person as debtor covering all or any part of the Storm Recovery Property shall be on file or of record in any jurisdiction in the United States except (i) in respect of any such security interest of the Depositor that will be released on the Closing Date or (ii) such as may have been filed, recorded or made by such person in favor of the Indenture Trustee on behalf of the Holders of Bonds in connection with the Indenture, and no such person has authorized any such filing.

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(w)           The statements made in the Registration Statement, the Pricing Package and the Final Prospectus under the caption “Description of the Storm Recovery Bonds” insofar as it constitutes a summary of the terms of the Bonds, and under captions “Risk Factors,” “The Storm Recovery Property and the Financing Act,” “DEP’s Financing Order,” “The Issuing Entity,” “Duke Energy Progress, LLC,” “Security for the Storm Recovery Bonds,” “Weighted Average Life and Yield Considerations for the Bonds,” “The Sale Agreement,” “The Servicing Agreement,” “Intercreditor Agreements,” “Material U.S. Federal Income Tax Consequences,” “State and Other Tax Consequences,” “ERISA Considerations,” and “Bankruptcy and Creditors’ Rights Issues,” insofar as they purport to constitute summaries of the terms of statutes, rules or regulations, legal or governmental proceedings or contracts and other documents, constitute accurate summaries of the terms of such statutes, rules and regulations, legal and governmental proceedings and contracts and other documents in all material respects subject to the qualifications and limitations set forth therein.

(x)             The statements included in the Registration Statement, the Pricing Package and the Final Prospectus under the heading “Weighted Average Life and Yield Considerations For the Bonds—Weighted Average Life Sensitivity” have been derived in the manner described under, and subject to the qualifications and limitations set forth under, the heading “Weighted Average Life and Yield Considerations For the Bonds—Assumptions.” The assumptions used in preparing such statements provide a reasonable basis for presenting the effects of the events described therein and such statements give reasonable effect to those assumptions and events in good faith.

(y)            The accountant which has delivered the Initial AUP Letter referred to in Section 9(j) hereof, does not, as of the date of such report, have any material relationships with the Issuer or any of its affiliates other than such material relationships in which it is engaged to render professional services.

(z)            The statistical and market-related data included in the Registration Statement, the Pricing Package and the Final Prospectus are based on or derived from sources that the Issuer believes to be reliable in all material respects.

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(aa)          The Issuer is not a party to any contract, agreement or understanding with any person (other than this Agreement) that would be reasonably likely to give rise to a valid claim against it or the Underwriters for a brokerage commission, finder’s fee or like payment in connection with the offering and sale of the Bonds.

4.            Representations and Warranties of the Depositor. The Depositor represents and warrants to each Underwriter that:

(a)            The Depositor, in its capacity as co-registrant and sponsor with respect to the Bonds, meets the requirements to use Form SF-1 under the Securities Act and has prepared and filed with the Commission the Registration Statement for the registration under the Securities Act of up to $177,365,000 aggregate principal amount of the Bonds. The Registration Statement has been declared effective by the Commission and no stop order suspending such effectiveness has been issued under the Securities Act and no proceedings for that purpose have been instituted or are pending, or to the knowledge of the Depositor, threatened by the Commission.

(b)            At the time the Registration Statement initially became effective, at the time of each amendment (whether by post-effective amendment, incorporated report or form of prospectus) and on the Effective Date relating to the Bonds, the Registration Statement fully complied, and the Final Prospectus, both as of its date and at and as of the Closing Date, and the Indenture, at the Closing Date, will fully comply in all material respects with the applicable requirements of the Securities Act and the Trust Indenture Act, and, in each case, the applicable instructions, rules and regulations of the Commission thereunder; the Registration Statement, at each of the aforementioned dates, did not and will not contain any untrue statement of a material fact, or omit to state any material fact required to be stated therein or necessary to make the statements therein, not misleading; the Final Prospectus, both as of its date and at and as of the Closing Date, will not contain an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, that the foregoing representations and warranties in this paragraph (b) shall not apply to statements or omissions made in reliance upon and in conformity with any Underwriter Information or to any statements in or omissions from any Statements of Eligibility on Form T-l (or amendments thereto) of the Indenture Trustee under the Indenture filed as exhibits to the Registration Statement or to any statements or omissions made in the Registration Statement or the Final Prospectus relating to DTC Book-Entry System that are based solely on information contained in published reports of the DTC.

(c)            As of its date, at the Applicable Time and on the date of its filing, if applicable, the Pricing Prospectus and each Issuer Free Writing Prospectus with the Intex File (when considered together with the Pricing Prospectus), did not include any untrue statement of a material fact nor when considered together, omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (except that the principal amount of the Bonds, proceeds to Issuer, underwriter allocation, selling concession, reallowance discounts, issuance date, scheduled payment dates, the initial principal balance, the scheduled final payment date, the final maturity date, the expected average life and sensitivity data, selling concession, reallowance discounts, issuance date, the expected amortization schedule and the expected sinking fund schedule described in the Pricing Prospectus were subject to completion or change based on market conditions, and the servicing fee, the interest rate, price to the public and underwriting discounts and commissions as well as certain other information dependent on the foregoing and other pricing related information was not included in the Pricing Prospectus). The Pricing Package, at the Applicable Time did not, and at all subsequent times through the completion of the offer and the sale of the Bonds on the Closing Date will not, include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The two preceding sentences do not apply to statements in or omissions from the Pricing Package, the Pricing Term Sheet or any other Issuer Free Writing Prospectus in reliance upon and in conformity with any Underwriter Information. The Depositor represents, warrants and agrees that it has treated and agrees that it will treat each of the free writing prospectuses listed in Schedule III and Schedule IV hereto as an Issuer Free Writing Prospectus, and that each such Issuer Free Writing Prospectus has fully complied and will fully comply with the applicable requirements of Rules 164 and 433 under the Securities Act, including timely Commission filing where required, legending and record keeping. The Depositor represents, warrants and agrees that there have been no Issuer Free Writing Prospectuses used in connection with the offering of the Bonds (as contemplated by the Registration Statement, the Pricing Package and the Final Prospectus) other than the materials listed on Schedule III hereto.

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(d)            Each Issuer Free Writing Prospectus, as of its issue date and at all subsequent times through the completion of the offer and sale of the Bonds on the Closing Date or until any earlier date that the Issuer or the Depositor notified or notifies the Underwriters as described in the next sentence, did not, does not and will not include any information that conflicted, conflicts or will conflict with the information then contained in the Registration Statement. If at any time following issuance of an Issuer Free Writing Prospectus an event or development has occurred or occurs, the result of which is that such Issuer Free Writing Prospectus conflicts or would conflict with the information then contained in the Registration Statement or includes or would include an untrue statement of a material fact or, when considered together with the Pricing Package, omits or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances prevailing at that subsequent time, not misleading, (i) the Depositor or the Issuer has promptly notified or will promptly notify the Underwriters and (ii) the Depositor or the Issuer has promptly amended or will promptly amend or supplement such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission. The foregoing two sentences do not apply to statements in or omissions from any Issuer Free Writing Prospectus in reliance upon and in conformity with any Underwriter Information.

(e)            The Depositor has been duly formed and is validly existing as a limited liability company in good standing under the North Carolina Limited Liability Company Act, with full limited liability company power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement, the Pricing Package and the Final Prospectus and to complete the Depositor Transactions (as defined below), and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, except where failure to so qualify or to be in good standing would not, individually or in the aggregate reasonably be expected to have (A) a material adverse effect on the business, financial condition or results of operations of the Depositor and its subsidiaries taken as a whole or (B) a material adverse effect on the performance by the Depositor of this Agreement, the Receivables Amendments (as defined below) or any of the Issuer Documents to which it is a party or the consummation of any of the transactions contemplated hereby or thereby (collectively, clauses (A) and (B), a “Depositor Material Adverse Effect”), and has all requisite power and authority to sell Storm Recovery Property as described in the Pricing Package and to execute, deliver and otherwise perform its obligation under any Issuer Document to which it is a party and the execute the amended and restated limited liability company agreement of the Issuer to be dated as of the Closing Date (the “LLC Agreement”). The Depositor is the direct and beneficial owner of all of the limited liability company interests of the Issuer; and based on current law, the Issuer is not classified as an association taxable as a corporation for United States federal income tax purposes.

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(f)            Each significant subsidiary (as defined in Rule 405 under the Securities Act) of the Depositor has been duly organized and is validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite authority to own or lease its properties and conduct its business and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not, individually or in the aggregate, be reasonably expected to have a Depositor Material Adverse Effect.

(g)            The execution, delivery and performance by the Depositor of this Agreement, the Receivables Amendments, and each Issuer Document to which it is a party, the application of the proceeds by the Depositor from the sale of the Storm Recovery Property as described under “Use of Proceeds” in each of the Registration Statement, the Pricing Package and the Final Prospectus and the consummation of the transactions contemplated hereby and thereby (the “Depositor Transactions”), will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, impose any lien, charge or encumbrance upon any property or assets of the Depositor or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, license, lease or other agreement or instrument (giving effect to amendments or terminations thereof as contemplated by the Registration Statement, the Pricing Package and the Final Prospectus) to which the Depositor is a party or by which the Depositor is bound or to which any of its properties or assets are subject, (ii) result in any violation of the provisions of the Depositor’s Articles of Organization or Limited Liability Company Operating Agreement (collectively, the “Depositor Charter Documents”), or (iii) result in any violation of any statute, law, judgment, order, decree, rule or regulation of any court, regulatory body, administrative agency, arbitrator or governmental agency or body having jurisdiction over the Depositor, or any of its respective properties or assets, except (in the case of clauses (i) and (iii)) as would not, individually or in the aggregate, be reasonably expected to have a Depositor Material Adverse Effect.

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(h)            This Agreement has been duly authorized, executed and delivered by the Depositor, which has the necessary limited liability company power and authority to execute, deliver and perform its obligations under this Agreement.

(i)             The Depositor is not in violation of or default of and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in (i) the Depositor Charter Documents, (ii) any indenture, mortgage, deed of trust or other agreement or instrument to which the Depositor is a party or by which it is bound or to which any of its properties is subject, except for any such defaults that would not, individually or in the aggregate, be reasonably expected to have a Depositor Material Adverse Effect, and (iii) is not in violation of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over it to which it or its property may be subject, except for any such violations that would not, individually or in the aggregate, be reasonably expected to have a Depositor Material Adverse Effect.

(j)             There is no litigation or any legal or governmental proceeding to which the Depositor or any of its subsidiaries is a party or to which any property of the Depositor or any of its subsidiaries is subject or which is pending or, to the knowledge of the Depositor, threatened against the Depositor or any of its subsidiaries that would, individually or in the aggregate, be reasonably expected to have in a Depositor Material Adverse Effect.

(k)            Other than any necessary action or inaction by the PSCSC or any filings required by the Financing Law or the Financing Order, no approval, authorization, consent, filing with or order of any court or governmental agency or body (except such as have been already obtained and other than in connection or in compliance with the provisions of applicable blue-sky laws or securities laws of any state, as to which the Depositor makes no representations or warranties), is legally required for the issuance and sale by the Issuer of the Bonds.

(l)             Neither the Issuer nor the Depositor is, and, after giving effect to the sale and issuance of the Bonds and the application of the proceeds thereof as described in the Pricing Package and the Final Prospectus, will be, an “investment company” within the meaning of the 1940 Act.

(m)           Relying on an exclusion or exemption from the definition of “investment company” under the 1940 Act Under Section 3(c)(5)(A) under the 1940 Act, although additional exclusions or exemption may be available, the Issuer is not a “covered fund” for purposes of the regulations adopted to implement Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

(n)            Each of the Sale Agreement, the Bill of Sale, the Servicing Agreement, the Administration Agreement, the Intercreditor Agreement, the Joinder Intercreditor Agreement and the Receivables Amendments has been duly and validly authorized by the Depositor, and when executed and delivered by the Depositor and the other parties thereto will constitute a valid and legally binding obligation of the Depositor enforceable against the Depositor in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

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(o)            There are no South Carolina transfer taxes related to the transfer of the Storm Recovery Property or the issuance and sale of the Bonds to the Underwriters pursuant to this Agreement required to be paid at or prior to the Closing Date by the Depositor or the Issuer.

(p)            The nationally recognized accounting firm referenced in Section 3(o) is a firm of independent public accountants with respect to the Depositor as required by the Securities Act and the rules and regulations of the Commission thereunder.

(q)            The Depositor, in its capacity as sponsor with the respect to the Bonds, has caused the Issuer to comply with the 17g-5 Representations, other than (x) any noncompliance of the 17g-5 Representations that would not, individually or in the aggregate, be reasonably expected to have a material adverse effect on the rating of the Bonds or the Bonds or (y) any noncompliance arising from the breach by an Underwriter of the representations and warranties and covenants set forth in Section 14 hereof.

(r)             The Depositor will comply, and has complied, in all material respects, with its diligence and disclosure obligations in respect to the Bonds under Rule 193 of the Act and Items 1111(a)(7) and 1111(a)(8) of Regulation AB.

(s)            The Bonds are not subject to the risk retention requirements imposed by Section 15G of the Exchange Act.

(t)             At the time of filing the Registration Statement, at the earliest time thereafter that the Depositor made a bona fide offer (within the meaning of Rule 164(h)(2)) of the Bonds and at the date hereof, the Depositor was not and is not an “ineligible issuer”, as defined in Rule 405 under the Securities Act.

(u)            Other than as provided in the Sale Agreement and Bill of Sale, pursuant to the other Issuer Documents, as of the Closing Date, the Depositor has not pledged, assigned, sold or granted as of the Closing Date a security interest in the Storm Recovery Property. As of the Closing Date, all action necessary (including the filing of UCC-1 financing statements) to protect and evidence the Indenture Trustee’s security interest in the Storm Recovery Property in the United States will have been duly and effectively taken (as described in, and subject to any exceptions to be set forth in, the Indenture or any other Issuer Document). As of or within a reasonable time after the Closing Date, no security agreement, financing statement, equivalent security or lien instrument or continuation statement authorized by the Issuer or the Depositor and listing such person as debtor covering all or any part of the Storm Recovery Property shall be on file or of record in any jurisdiction in the United States except (i) in respect of any such security interest of the Depositor that will be released on the Closing Date or (ii) such as may have been filed, recorded or made by such person in favor of the Indenture Trustee on behalf of the Holders of Bonds in connection with the Indenture, and no such person has authorized any such filing.

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(v)            The statements made in the Registration Statement, the Pricing Package and the Final Prospectus under the caption “Description of the Storm Recovery Bonds” insofar as it constitutes a summary of the terms of the Bonds, and under captions “Risk Factors,” “The Storm Recovery Property and the Financing Act,” “DEP’s Financing Order,” “The Issuing Entity,” “Duke Energy Progress, LLC,” “Security for the Storm Recovery Bonds,” “Weighted Average Life and Yield Considerations for the Bonds,” “The Sale Agreement,” “The Servicing Agreement,” “Intercreditor Agreements,” “Material U.S. Federal Income Tax Consequences,” “State and Other Tax Consequences,” “ERISA Considerations,” and “Bankruptcy and Creditors’ Rights Issues,” insofar as they purport to constitute summaries of the terms of statutes, rules or regulations, legal or governmental proceedings or contracts and other documents, constitute accurate summaries of the terms of such statutes, rules and regulations, legal and governmental proceedings and contracts and other documents in all material respects subject to the qualifications and limitations set forth therein.

(w)            The statements included in the Registration Statement, the Pricing Package and the Final Prospectus under the heading “Weighted Average Life and Yield Considerations For the Bonds—Weighted Average Life Sensitivity” have been derived in the manner described under, and subject to the qualifications and limitations set forth under, the heading “Weighted Average Life and Yield Considerations For the Bonds—Assumptions.” The assumptions used in preparing such statements provide a reasonable basis for presenting the effects of the events described therein and such statements give reasonable effect to those assumptions and events in good faith.

(x)             The account which has delivered the Initial AUP Letter referred to in Section 9(j) hereof, does not, as of the date of such report, have any material relationships with the Depositor or any of its affiliates other than such material relationships in which it is engage to render professional services.

(y)            The statistical and market-related data included in the Registration Statement, the Pricing Package and the Final Prospectus are based on or derived from sources that the Depositor believes to be reliable in all material respects.

(z)            The Depositor is not a party to any contract, agreement or understanding with any person (other than this Agreement) that would be reasonably likely to give rise to a valid claim against it or the Underwriters for a brokerage commission, finder’s fee or like payment in connection with the offering and sale of the Bonds.

(aa)          The Depositor has no reason to believe that the representations of the Issuer set forth in Section 3 are untrue.

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5.            Investor Communications.

(a)            The Issuer and the Depositor each represents and agrees that, unless it has obtained or obtains the prior consent of the Underwriters, and each Underwriter represents and agrees that, unless it has obtained or obtains the prior consent of the Issuer and the Depositor and the Underwriters, it has not made and will not make any offer relating to the Bonds that would constitute an Issuer Free Writing Prospectus or Free Writing Prospectus (other than those identified on Schedule III and Schedule IV hereto) required to be filed by the Issuer or the Depositor, as applicable, with the Commission or retained by the Issuer or the Depositor, as applicable, under Rule 433 under the Securities Act; provided that the prior written consent of the parties hereto shall be deemed to have been given in respect of the Pricing Term Sheet and each other Free Writing Prospectus specifically identified in Schedule III and Schedule IV hereto.

(b)            The Depositor and the Issuer (or the Underwriters at the direction of the Issuer) will prepare a final pricing term sheet relating to the Bonds (the “Pricing Term Sheet”), containing only information that describes the final pricing terms of the Bonds and otherwise in a form consented to by the Underwriters, and will file the Pricing Term Sheet within the period required by Rule 433(d)(5)(ii) under the Securities Act following the date such final pricing terms have been established for all tranches of the offering of the Bonds. The Pricing Term Sheet is an Issuer Free Writing Prospectus for purposes of this Agreement.

(c)            Each Underwriter may provide to investors one or more of the Free Writing Prospectuses relating to offering of the Bonds, and the Pricing Term Sheet, subject to the following conditions:

(i)            An Underwriter shall not convey or deliver any Written Communication (as defined herein) to any person or entity in connection with the initial offering of the Bonds, unless such Written Communication (A) constitutes a prospectus satisfying the requirements of Rule 430A under the Securities Act, or (B)(i) is made in reliance on Rule 134 under the Securities Act, is an Issuer Free Writing Prospectus listed on Schedule III hereto or is an Underwriter Free Writing Prospectus (as defined below) and (ii) such Written Communication is preceded or accompanied by a prospectus satisfying the requirements of Section 10(a) of the Securities Act. “Written Communication” has the same meaning as that term is defined in Rule 405 under the Securities Act.

(ii)           An “Underwriter Free Writing Prospectus” means any free writing prospectus that contains only preliminary or final terms of the Bonds and is not required to be filed by the Depositor or the Issuer pursuant to Rule 433 under the Securities Act and that contains information substantially the same as the information contained in the Pricing Package or Pricing Term Sheet (which may include, without limitation, (i) the size, rating, price, CUSIPs, coupon, yield, spread, benchmark, status and/or legal maturity date of the Bonds, the weighted average life, expected first and final scheduled payment dates, trade date, settlement date, transaction parties, credit enhancement, logistical details related to the location and timing of access to the roadshow, ERISA eligibility, legal investment status and payment window of the Bonds and (ii) a column or other entry showing the status of the subscriptions for the Bonds, both for the Bonds as a whole and for each Underwriter’s retention, and/or expected pricing parameters of the Bonds).

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(iii)          Each Underwriter shall comply with all applicable laws and regulations in connection with the use of Free Writing Prospectuses and Terms Sheets, including, but not limited to Rules 164 and 433 under the Securities Act.

(iv)          All Free Writing Prospectuses provided to investors, whether or not filed with the Commission, shall bear a legend including substantially the following statement:

Duke Energy Progress SC Storm Funding LLC and Duke Energy Progress, LLC have filed a registration statement (including a prospectus) with the Securities and Exchange Commission (“SEC”) for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents that Duke Energy Progress SC Storm Funding LLC and Duke Energy Progress, LLC have filed with the SEC for more complete information about Duke Energy Progress SC Storm Funding LLC and the offering. You may get these documents for free by visiting EDGAR on the SEC web site at www.sec.gov. Alternatively, Duke Energy Progress SC Storm Funding LLC, any underwriter or any dealer participating in the offering will arrange to send you the prospectus if you request it by calling Duke Energy Progress, LLC at 1-704-382-3853, Goldman Sachs & Co. LLC toll-free at 1-866-520-4056 and RBC Capital Markets, LLC toll-free at 1-866-375-6829.

(v)           The Issuer and the Underwriters shall have the right to require additional specific legends or notations to appear on any Free Writing Prospectus, the right to require changes regarding the use of terminology and the right to determine the types of information appearing therein with the approval of, in the case of the Issuer, the Underwriters and, in the case of the Underwriters, the Issuer (which in either case shall not be unreasonably withheld).

(vi)          Each Underwriter covenants with the Issuer and the Depositor that after the Final Prospectus is available and until the completion of the offer and sale of the Bonds, such Underwriter shall not distribute any written information concerning the Bonds to an investor unless such information is preceded or accompanied by the Final Prospectus or by notice to the investor that the Final Prospectus is available for free by visiting EDGAR on the Commission website at www.sec.gov.

(vii)         Each Underwriter covenants that if an Underwriter shall use an Underwriter Free Writing Prospectus that contains information in addition to (x) “issuer information”, including information with respect to the Depositor, as defined in Rule 433(h)(2) under the Securities Act or (y) the information in the Pricing Package, the liability arising from its use of such additional information shall be the sole responsibility of the Underwriter using such Underwriting Free Writing Prospectus unless the Underwriter Free Writing Prospectus (or any information contained therein) was consented to in advance by the Depositor; provided, however, that, for the avoidance of doubt, this clause (vii) shall not be interpreted as tantamount to the indemnification obligations contained in Section 11(b) hereof, and no Underwriter shall be responsible for any errors or omissions in an Underwriter Free Writing Prospectus to the extent that such error or omission related to or was derived from any information provided by the Issuer or the Depositor.

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6.            Purchase, Sale and Delivery of Bonds.

(a)            On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Issuer agrees to sell to each of the Underwriters, and each Underwriter agrees, severally and not jointly, to purchase from the Issuer, at a purchase price set forth in Schedule I hereto, the respective principal amounts of Bonds set forth opposite the names of the Underwriters in Schedule II hereto plus the respective principal amounts of additional Bonds that each such Underwriter may become obligated to purchase pursuant to the provisions of Section 6(c) hereof. The Issuer shall pay (in the form of a discount to the principal amount of the offered Bonds) to the Underwriters a commission equal to $[___].

(b)            Delivery of the Bonds against payment of the aggregate purchase price therefor by wire transfer in federal funds shall be made at the place, on the date and at the time specified in Schedule I hereto, or at such other place, time and date as shall be agreed upon in writing by the Issuer and the Underwriters. The hour and date of such delivery and payment are herein called the “Closing Date”. The Bonds shall be delivered to DTC or to U.S. Bank Trust Company, National Association, as custodian for DTC, in fully registered global form registered in the name of Cede & Co., for the respective accounts specified by the Underwriters not later than the close of business on the business day preceding the Closing Date or such other time as may be agreed upon by the Underwriters. The Issuer agrees to make the Bonds available to the Underwriters for checking purposes not later than 1:00 P.M.. New York Time on the last business day preceding the Closing Date at the place specified for delivery of the Bonds in Schedule I hereto, or at such other place as the Issuer may specify.

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(c)            If any Underwriter shall fail or refuse to purchase and pay for the aggregate principal amount of Bonds that such Underwriter has agreed to purchase and pay for hereunder, the Issuer shall promptly give notice to the other Underwriters of the default of such Underwriter, and the other Underwriters shall have the right within 24 hours after the receipt of such notice to determine to purchase, or to procure one or more others, who are members of the Financial Industry Regulatory Authority (“FINRA”) (or, if not members of the FINRA, who are not eligible for membership in the FINRA and who agree (i) to make no sales within the United States, its territories or its possessions or to persons who are citizens thereof or residents therein and (ii) in making sales to comply with the FINRA’s Conduct Rules) and satisfactory to the Issuer, to purchase, upon the terms herein set forth, the aggregate principal amount of Bonds that the defaulting Underwriter had agreed to purchase. If any non-defaulting Underwriter or Underwriters shall determine to exercise such right, such Underwriter or Underwriters shall give written notice to the Issuer of the determination in that regard within 24 hours after receipt of notice of any such default, and thereupon the Closing Date shall be postponed for such period, not exceeding three business days, as the Issuer shall determine. If in the event of such a default no non-defaulting Underwriter shall give such notice, this Agreement may be terminated by the Issuer, upon notice given to the non-defaulting Underwriters, within a further period of 24 hours. If the Issuer does not elect to terminate this Agreement it shall have the right, irrespective of such default:

(i)            to require each non-defaulting Underwriter to purchase and pay for the respective aggregate principal amount of Bonds that it had agreed to purchase hereunder as hereinabove provided and, in addition, the aggregate principal amount of Bonds that the defaulting Underwriter shall have so failed to purchase up to an aggregate principal amount of Bonds equal to ten percent (10%) of the aggregate principal amount of Bonds that such non-defaulting Underwriter has otherwise agreed to purchase hereunder, and/or

(ii)            to procure one or more persons, reasonably acceptable to the Underwriters, who are members of the FINRA (or, if not members of the FINRA, who are not eligible for membership in the FINRA and who agree (i) to make no sales within the United States, its territories or its possessions or to persons who are citizens thereof or residents therein and (ii) in making sales to comply with the FINRA’s Conduct Rules), to purchase, upon the terms herein set forth, either all or a part of the aggregate principal amount of Bonds that such defaulting Underwriter had agreed to purchase or that portion thereof that the remaining Underwriters shall not be obligated to purchase pursuant to the foregoing clause (a).

In the event the Issuer shall exercise its rights under (i) and/or (ii) above, the Issuer shall give written notice thereof to the non-defaulting Underwriters within such further period of 24 hours, and thereupon the Closing Date shall be postponed for such period, not exceeding three business days, as the Issuer shall determine.

In the computation of any period of 24 hours referred to in this Section 6, there shall be excluded a period of 24 hours in respect of each Saturday, Sunday or legal holiday that would otherwise be included in such period of time.

Any action taken by the Issuer or the Depositor under this Section 6 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement.

7.            Offering by the Underwriters. It is understood that the several Underwriters propose to offer the Bonds for sale to the public as set forth in the Registration Statement, the Pricing Package and the Final Prospectus.

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8.            Covenants.

(a)            Covenants of the Issuer. The Issuer covenants and agrees with the several Underwriters that:

(i)            The Issuer will promptly deliver to the Underwriters and Counsel for the Underwriters a conformed copy of the Registration Statement, certified by an officer of the Issuer to be in the form as originally filed and all amendments thereto, including all consents and exhibits filed therewith. The Issuer will deliver to each of the Underwriters, as soon as practicable after the date hereof, such number of copies of any preliminary prospectus, the Final Prospectus, the Registration Statement, and all amendments of and supplements to such documents, if any, as you may reasonably request. Prior to 5:30 P.M., New York City time, on the second business day next succeeding the date of this Agreement and from time to time thereafter, the Issuer will furnish the Underwriters with copies of the Final Prospectus in New York City in such quantities as you may reasonably request.

(ii)           (A) If at any time when a Final Prospectus or Pricing Package (or, in lieu thereof, the notice referred to in Rule 173(a) under the Securities Act) is required to be delivered under the Securities Act, any event shall have occurred as a result of which the Pricing Package (prior to the availability of the Final Prospectus) or the Final Prospectus as then amended or supplemented would, in the reasonable judgment of the Underwriters or the Issuer, include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time of delivery of such Pricing Package or Final Prospectus (or, in lieu thereof, the notice referred to in Rule 173(a) under the Securities Act), not misleading; (B) if to comply with the Securities Act, the Exchange Act or the related rules and regulations (including, without limitation, Section 11(a) or 12(a)(2) under the Securities Act and Rule 10b-5 under the Exchange Act) it shall be necessary at any time to amend or supplement the Pricing Package, the Final Prospectus or the Registration Statement, or to file any document incorporated by reference in the Registration Statement, the Pricing Package or the Final Prospectus or in any amendment thereof or supplement thereto; or (C) if an event or development has occurred or occurs, the result of which is that such Issuer Free Writing Prospectus conflicts or would conflict with the information then contained in the Registration Statement or includes or would include an untrue statement of a material fact or, when considered together with the Pricing Package, omits or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances prevailing at that subsequent time, then, in each case of (A), (B) or (C), the Issuer will notify the Underwriters promptly and prepare and file with the Commission an appropriate amendment, supplement or document (the use of which has been consented to by the Underwriters) that will correct such statement or omission or effect such compliance, and will use its best efforts to have any amendment to the Registration Statement declared effective as soon as possible.

(iii)          The Issuer shall prepare the Final Prospectus in a form approved by the Underwriters and file such Final Prospectus pursuant to, and within the time period specified in, Rule 424(b) and Rule 430A under the Securities Act. The Issuer will not file any amendment to the Registration Statement or amendment or supplement to the Final Prospectus or amendment or supplement to the Pricing Package during the period when a prospectus relating to the Bonds is required to be delivered under the Securities Act, without reasonable prior notice to the Underwriters or to which Norton Rose Fulbright US LLP, who are acting as counsel for the Underwriters (“Counsel for the Underwriters”), shall reasonably object by written notice to the Issuer within two business days after notification thereof. The Issuer shall notify the Underwriters promptly (and, if requested by the Underwriters, confirm such notice in writing) (i) when the Registration Statement and any amendments thereto become effective, (ii) of any request by the Commission for any amendment of or supplement to the Registration Statement or the Prospectus or for any additional information, (iii) of the Issuer’s intention to file, or prepare any supplement or amendment to, the Registration Statement, any preliminary prospectus, the Final Prospectus or the Pricing Package, (iv) of the delivery to the Commission for filing of any amendment of or supplement to the Registration Statement or the Final Prospectus, including but not limited to Rule 462(b) under the Securities Act, (v) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto, or suspending the use of any preliminary prospectus, the Final Prospectus or the Pricing Package or, in each case, of the initiation or threatening of any proceedings therefore, (vi) of the receipt of any comments from the Commission, and (vii) of the receipt by the Issuer of any notification with respect to the suspension of the qualification of the Bonds for sale in any state or jurisdiction or the initiation or threatening of any proceeding for that purpose. If the Commission shall propose or enter a stop order at any time, the Issuer will use its reasonable best efforts to prevent the issuance of any such stop order and, if issued, to obtain the lifting of such order as soon as possible.

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(iv)          The Issuer will furnish such proper information as may be lawfully required and otherwise cooperate in qualifying the Bonds for offer and sale under the blue-sky laws of the states of the United States as the Underwriters may designate; provided that the Issuer shall not be required to qualify as a foreign limited liability company or dealer in securities, to file any consents to service of process under the laws of any jurisdiction, or meet any other requirements deemed by the Issuer to be unduly burdensome.

(v)           The Issuer will, except as herein provided, pay or cause to be paid all expenses in connection with (i) the preparation and filing by it of the Registration Statement, the Pricing Package and Final Prospectus (including any amendments and supplements thereto) and any Issuer Free Writing Prospectuses, (ii) the issuance and delivery of the Bonds as provided in Section 6 hereof (including, without limitation, reasonable documented fees and out-of-pocket disbursements of Counsel for the Underwriters and all trustee, rating agency and PSCSC advisor fees), (iii) the qualification of the Bonds under blue-sky laws (including counsel fees not to exceed $5,000), (iv) the printing and delivery to the Underwriters of reasonable quantities of the Registration Statement and, except as provided in Section 8(a)(iv) hereof, of the Pricing Package and Final Prospectus. If the obligation of the Underwriters to purchase the Bonds terminates in accordance with the provisions of Sections 9 or 10 hereof, the Issuer (x) will reimburse (or cause to be reimbursed) the Underwriters for the reasonable fees and out-of-pocket disbursements of Counsel for the Underwriters, and (y) will reimburse or cause to be reimbursed the Underwriters for their reasonable documented out-of-pocket expenses, such out-of-pocket expenses in an aggregate amount not exceeding $200,000 incurred in contemplation of the performance of this Agreement. The Issuer shall not in any event be liable to any of the several Underwriters for damages on account of loss of anticipated profits.

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(vi)          The Issuer shall use all commercially reasonable efforts to cause the conditions precedent set forth in Section 9 hereof to be fulfilled at or prior to the Closing Date.

(vii)         For a period commencing on the date hereof and ending on the 15th day after the date of the Final Prospectus, the Issuer agrees not to, directly or indirectly, (i) offer for sale, sell, or otherwise dispose of (or enter into any transaction or device that is designed to, or would be expected to, result in the disposition by any person at any time in the future of) any storm recovery bonds of the Issuer thereof substantially similar to the Bonds (“Similar Debt Securities”) or securities convertible into or exchangeable for Similar Debt Securities, sell or grant options, rights or warrants with respect to Similar Debt Securities or securities convertible into or exchangeable for Similar Debt Securities, (ii) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of Similar Debt Securities whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Similar Debt Securities or other securities, in cash or otherwise, (iii) file or cause to be filed a registration statement, including any amendments, with respect to the registration of Similar Debt Securities or securities convertible, exercisable or exchangeable into Similar Debt Securities or (iv) publicly announce an offering of any Similar Debt Securities or securities convertible or exchangeable into Similar Debt Securities, in each case without the prior written consent of the Underwriters.

(viii)        To the extent, if any, that any rating necessary to satisfy the condition set forth in Section 9(n) hereof is conditioned upon the furnishing of documents or the taking of other actions by the Issuer on or after the Closing Date, the Issuer shall furnish such documents and take such other actions to the extent reasonably requested by any Rating Agency.

(ix)           For a period from the date of this Agreement until the retirement of the Bonds or until such time as the Underwriters shall cease to maintain a secondary market in the Bonds, whichever occurs first, the Issuer shall file with the Commission, and to the extent permitted by and consistent with the Issuer’s obligations under applicable law, make available on the website associated with the Issuer’s parent, such periodic reports, if any, as are required from time to time under Section 13 or Section 15(d) of the Exchange Act; provided that the Issuer shall not voluntarily suspend or terminate its filing obligations with the Commission unless permitted under applicable law and the terms of the Issuer Documents. The Issuer shall also, to the extent permitted by and consistent with the Issuer’s obligations under applicable law, include in any periodic and other reports to be filed with the Commission as provided above or posted on the website associated with the Issuer’s parent, such information as required by Section 3.07(g) of the Indenture with respect to the Bonds. To the extent that the Issuer’s obligations are terminated or limited by an amendment to Section 3.07(g) of the Indenture, or otherwise, such obligations shall be correspondingly terminated or limited hereunder.

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(x)            So long as any of the Bonds are outstanding, the Issuer will furnish to the Underwriters, if and to the extent not posted on the Issuer or its affiliate’s website, (A) as soon as available, a copy of each report of the Issuer filed with the Commission under the Exchange Act or mailed to the bondholders (in each case to the extent such reports are not publicly available on the Commission’s website), (B) upon request, a copy of any filings with the PSCSC pursuant to the Financing Order including, but not limited to any issuance advice letter or any annual, semi-annual or more frequent true-up adjustment filings, and (C) from time to time, any information (other than confidential or proprietary information) concerning the Issuer as the Underwriters may reasonably request.

(xi)          So long as the Bonds are rated by any Rating Agency, the Issuer will comply with the 17g-5 Representations, other than (x) any noncompliance of the 17g-5 Representations that would not have a material adverse effect on the rating of the Bonds or the Bonds or (y) any noncompliance arising from the breach by an Underwriter of the representations and warranties and covenants set forth in Section 14 hereof.

(xii)          If the Issuer elects to rely upon Rule 462(b) of the Securities Act, the Issuer shall file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462 by 10:00 p.m.  (New York City time), on the date of this Agreement, and the Issuer shall at the time of filing either pay to the Commission the filing fee for the Rule 462 Registration Statement or give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the Securities Act.

(xiii)         The Issuer will not take, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any stabilization or manipulation of the price of the Bonds and will not take any action prohibited by Regulation M under the Exchange Act in connection with the distribution of the Bonds contemplated hereby.

(b)            Covenants of the Depositor. The Depositor covenants and agrees with the several Underwriters that, to the extent that the Issuer has not already performed such act pursuant to Section 8(a):

(i)            To the extent permitted by applicable law and the agreements and instruments that bind the Depositor, the Depositor will use its reasonable best efforts to cause the Issuer to comply with the covenants set forth in Section 8(a) hereof.

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(ii)           The Depositor will use its reasonable best efforts to prevent the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement and, if issued, to obtain as soon as possible the withdrawal thereof.

(iii)          (A) If at any time when a Final Prospectus or Pricing Package (or, in lieu thereof, the notice referred to in Rule 173(a) under the Securities Act) is required to be delivered under the Securities Act, any event shall have occurred as a result of which the Pricing Package (prior to the availability of the Final Prospectus) or the Final Prospectus as then amended or supplemented would, in the reasonable judgment of the Underwriters or the Depositor, include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time of delivery of such Pricing Package or Final Prospectus (or, in lieu thereof, the notice referred to in Rule 173(a) under the Securities Act), not misleading; or (B) if to comply with the Securities Act, the Exchange Act or the related rules and regulations (including, without limitation, Section 11(a) or 12(a)(2) under the Securities Act and Rule 10b-5 under the Exchange Act) it shall be necessary at any time to amend or supplement the Pricing Package, the Final Prospectus or the Registration Statement, or to file any document incorporated by reference in the Registration Statement, the Pricing Package or the Final Prospectus or in any amendment thereof or supplement thereto, then, in each case of (A) or (B), the Depositor will notify the Underwriters promptly and prepare and file with the Commission an appropriate amendment, supplement or document (the use of which has been consented to by the Underwriters) that will correct such statement or omission or effect such compliance, and will use its best efforts to have any amendment to the Registration Statement declared effective as soon as possible.

(iv)          The Depositor shall prepare the Final Prospectus in a form approved by the Underwriters and file such Final Prospectus pursuant to, and within the time period specified in, Rule 424(b) and Rule 430A under the Securities Act. The Depositor will not file any amendment to the Registration Statement or amendment or supplement to the Final Prospectus or amendment or supplement to the Pricing Package during the period when a prospectus relating to the Bonds is required to be delivered under the Securities Act, without reasonable prior notice to the Underwriters or to which Counsel for the Underwriters shall reasonably object by written notice to the Issuer within two business days after notification thereof. The Depositor shall notify the Underwriters promptly (and, if requested by the Underwriters, confirm such notice in writing) (i) when the Registration Statement and any amendments thereto become effective, (ii) of any request by the Commission for any amendment of or supplement to the Registration Statement or the Prospectus or for any additional information, (iii) of the Depositor’s intention to file, or prepare any supplement or amendment to, the Registration Statement, any preliminary prospectus, the Final Prospectus or the Pricing Package, (iv) of the delivery to the Commission for filing of any amendment of or supplement to the Registration Statement or the Final Prospectus, including but not limited to Rule 462(b) under the Securities Act, (v) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto, or suspending the use of any preliminary prospectus, the Final Prospectus or the Pricing Package or, in each case, of the initiation or threatening of any proceedings therefore, (vi) of the receipt of any comments from the Commission, and (vii) of the receipt by the Issuer of any notification with respect to the suspension of the qualification of the Bonds for sale in any state or jurisdiction or the initiation or threatening of any proceeding for that purpose. If the Commission shall propose or enter a stop order at any time, the Depositor will use reasonable best efforts to prevent the issuance of any such stop order and, if issued, to obtain the lifting of such order as soon as possible.

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(v)           The Depositor shall use all commercially reasonable efforts to cause the conditions precedent set forth in Section 9 hereof to be fulfilled at or prior to the Closing Date.

(vi)          For a period commencing on the date hereof and ending on the 15th day after the date of the Final Prospectus, the Depositor agrees not to, directly or indirectly, (i) offer for sale, sell, or otherwise dispose of (or enter into any transaction or device that is designed to, or would be expected to, result in the disposition by any person at any time in the future of) any Similar Debt Securities or securities convertible into or exchangeable for Similar Debt Securities, sell or grant options, rights or warrants with respect to Similar Debt Securities or securities convertible into or exchangeable for Similar Debt Securities, (ii) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of Similar Debt Securities whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Similar Debt Securities or other securities, in cash or otherwise, (iii) file or cause to be filed a registration statement, including any amendments, with respect to the registration of Similar Debt Securities or securities convertible, exercisable or exchangeable into Similar Debt Securities, or (iv) publicly announce an offering of any Similar Debt Securities or securities convertible or exchangeable into Similar Debt Securities, in each case without the prior written consent the Underwriters.

(vii)         The Depositor will cause the proceeds for the issuance and sale of the Bonds to be applied for the purposes described in the Pricing Package.

(viii)        The Depositor, to the extent not paid for by the Issuer, will pay or cause to paid all reasonable expenses described in Section 8(a)(v) hereof.

(ix)           As soon as practicable, but not later than 16 months, after the date hereof, the Depositor will make generally available (by posting on its website or otherwise) to its security holders, an earnings statement (which need not be audited) that will satisfy the provisions of Section 11(a) of the Securities Act.

(x)            To the extent, if any, that any rating necessary to satisfy the condition set forth in Section 9(n) hereof is conditioned upon the furnishing of documents or the taking of other actions by the Depositor on or after the Closing Date, the Depositor shall furnish such documents and take such other actions to the extent reasonably requested by any Rating Agency.

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(xi)           The initial storm recovery charge for the Bonds will be calculated in accordance with the Financing Order.

(xii)          So long as any of the Bonds are outstanding, the Depositor, in its capacity as sponsor with respect to the Bonds, will cause the Issuer to furnish to the Underwriters, if and to the extent not posted on EDGAR or the Depositor or its affiliate’s website, (A) upon request, a copy of any filings with the PSCSC pursuant to the Financing Order including, but not limited to any issuance advice letter, any true-up adjustment filings, and (B) from time to time, any public financial information in respect of the Depositor, or any material information regarding the Storm Recovery Property to the extent it is reasonably available (other than confidential or proprietary information) concerning the Issuer as the Underwriters may reasonably request.

(xiii)        So long as the Bonds are rated by a Rating Agency, the Depositor, in its capacity as sponsor with respect to the Bonds, will cause the Issuer to comply with the 17g-5 Representations, other than (x) any noncompliance of the 17g-5 Representations that would not have a material adverse effect on the Bonds or the rating of the Bonds or (y) any noncompliance arising from the breach by an Underwriter of the representations and warranties and covenants set forth in Section 14 hereof.

9.            Conditions to the Obligations of the Underwriters. The obligations of the Underwriters to purchase the Bonds shall be subject to the accuracy of the representations and warranties on the part of the Issuer and the Depositor contained in this Agreement, on the part of the Depositor contained in Article III of the Sale Agreement, and on the part of the Depositor contained in Section 6.01 of the Servicing Agreement as of the Closing Date, to the accuracy of the statements of the Issuer and the Depositor made in any certificates pursuant to the provisions hereof, to the performance by the Issuer and the Depositor of their obligations hereunder, and to the following additional conditions:

(a)            The Final Prospectus shall have been filed with the Commission pursuant to Rule 424 no later than the second business day following the date hereof. In addition, all material required to be filed by the Issuer or the Depositor pursuant to Rule 433(d) under the Securities Act that was prepared by either of them or that was prepared by any Underwriter and timely provided to the Issuer or the Depositor shall have been filed with the Commission within the applicable time period prescribed for such filing by such Rule 433(d).

(b)            No stop order suspending the effectiveness of the Registration Statement shall be in effect, and no proceedings for that purpose shall be pending before, or threatened by, the Commission on the Closing Date; and the Underwriters shall have received one or more certificates, dated the Closing Date and signed by an officer of the Depositor and the Issuer, as appropriate, to the effect that no such stop order is in effect and that no proceedings for such purpose are pending before, or to the knowledge of the Depositor or the Issuer, as the case may be, threatened by, the Commission.

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(c)            Baker, Donelson, Bearman, Caldwell & Berkowitz P.C., special South Carolina counsel for the Issuer and the Depositor, shall have furnished to the Underwriters their written opinions, in form and substance reasonably satisfactory to the Underwriters and Counsel for the Underwriters, dated the Closing Date.

(d)            Hunton Andrews Kurth LLP, counsel for the Issuer and the Depositor, shall have furnished to the Underwriters its written respective opinions, in form and substance reasonably satisfactory to the Underwriters and Counsel for the Underwriters, dated the Closing Date.

(e)            Troutman Pepper Hamilton Sanders LLP, special Delaware counsel for the Issuer, shall have furnished to the Underwriters their written opinions, in form and substance reasonably satisfactory to the Underwriters and Counsel for the Underwriters, dated the Closing Date.

(f)             Haynesworth Sinkler Boyd, P.A., South Carolina tax counsel for the Issuer, shall have furnished to the Underwriters their written opinions, in form and substance reasonably satisfactory to the Underwriters and Counsel for the Underwriters, dated the Closing Date.

(g)            In-house counsel for the Issuer and the Depositor shall have furnished to the Underwriters its written respective opinions, in form and substance reasonably satisfactory to the Underwriters and Counsel for the Underwriters, dated the Closing Date.

(h)            Hunton Andrews Kurth LLP, counsel for the Issuer and Depositor, shall have furnished to the Underwriters a letter, in form and substance reasonably satisfactory to the Underwriters and Counsel for the Underwriters, dated the Closing Date regarding negative assurances with respect to the Pricing Package and the Prospectus.

(i)             Norton Rose Fulbright US LLP, counsel for the Underwriters, shall have furnished to the Underwriters a negative assurance letter covering such matters as the Underwriters may reasonably require, dated as of the Closing Date.

(j)             Emmet, Marvin & Martin LLP, counsel for the Indenture Trustee, shall have furnished to the Underwriters their written opinions, in form and substance reasonably satisfactory to the Underwriters and Counsel for the Underwriters, dated the Closing Date.

(k)            At the time of execution of this Agreement, the Underwriters shall have received from an independent accountant a letter (the “Initial AUP Letter”), in form and substance reasonably satisfactory to the Underwriters, addressed to the Underwriters and dated the date hereof, concerning certain agreed-upon procedures performed in respect of the information presented in the Registration Statement, the Pricing Package and the Final Prospectus.

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(l)             With respect to the Initial AUP Letter referred to in the preceding paragraph and delivered to the Underwriters concurrently with the execution of this Agreement, the independent accountant referred to in the preceding paragraph shall have furnished to the Underwriters a “bring-down letter,” addressed to the Underwriters and dated the Closing Date stating, as of the Closing Date (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in each of the Registration Statement, the Pricing Package or the Final Prospectus, as of a date not more than three (3) days prior to the Closing Date), (i) the conclusions and findings of such firm with respect to the matters covered by the Initial AUP Letter, and (ii) confirming in all material respects the conclusions and findings set forth in the Initial AUP Letter.

(m)           The LLC Agreement, the Issuer Documents and any amendment or supplement to any of the foregoing shall have been executed and delivered and the Underwriters shall have received true and executed copies of each such document.

(n)            All amendments and related documentation with respect to the receivables financing entered into by Duke Energy Progress Receivables Finance Company, LLC, as buyer, the Lenders signatory thereto, the Managing Agents signatory thereto and MUFG Bank Ltd., as administrative agent and acknowledged by Duke Energy Progress, LLC, as Property Servicer and Originator (collectively, the “Receivables Amendments”), in form and substance reasonably satisfactory to the Underwriters and Counsel for the Underwriters, shall have been executed and delivered and the Underwriters shall have received true and executed copies of each such document.

(o)            At the Closing Date, (i) the Underwriters shall have received a letter stating that the Bonds have received the ratings set forth in the Free Writing Prospectus, dated [____], 2024, by Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”) and (ii) no such rating agency shall have, since the date of this Agreement, downgraded or publicly announced that it has under surveillance or review, with possible negative implications, its ratings of the Bonds.

(p)            On or prior to the Closing Date, the Issuer shall have delivered to the Underwriters evidence, in form and substance reasonably satisfactory to the Underwriters, that appropriate filings have been or are being made in accordance with Sections 58-27-1110 through 1180, South Carolina Code of Laws Annotated (the “Financing Act”), the Financing Order and other applicable law reflecting the grant of a security interest by the Issuer in the collateral relating to the Bonds to the Indenture Trustee, including the filing of the requisite financing statements in the office of the Secretary of State of the State of South Carolina and the Secretary of State of the State of Delaware.

(q)            The PSCSC shall have received all necessary opinions, letters, evidence and certificates required by the Financing Order.

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(r)            The final issuance advice letter, in a form consistent with the provisions of the Financing Order, shall have been filed with the PSCSC and the period during which the PSCSC may issue a stop order shall have expired without the issuance thereof.

(s)            The Financing Act has been duly enacted by the Legislature of the State of South Carolina and has not been repealed or amended and the Financing Order has been duly adopted by the PSCSC, has not been revoked or amended, and is final and not subject to appeal, and, to the knowledge of the Depositor or the Issuer, (A) the validity of the Financing Act and the Financing Order are not the subject of any pending appeal or litigation, (B) there has been no challenge to the constitutionality of the Financing Act or the Financing Order under the Constitution of the State of South Carolina, (C) the Financing Act and the Financing Order have not been amended or repealed by a direct act of the South Carolina Legislature, and (D) voters have not amended the South Carolina Constitution in a manner that amends, repeals, or affects the Financing Act or the Financing Order.

(t)            On or prior to the Closing Date, the Depositor shall have funded the capital subaccount of the Issuer with cash in an amount equal to $885,350.

(u)            The Issuer and the Depositor shall have furnished or caused to be furnished or agree to furnish to the Rating Agencies at the Closing Date such opinions and certificates as the Rating Agencies shall have reasonably requested prior to the Closing Date. Any opinion letters delivered on the Closing Date to the Rating Agencies beyond those being delivered to the Underwriters above shall either (x) include the Underwriters as addressees or (y) be accompanied by reliance letters addressed to the Underwriters referencing such letters.

(v)            The Underwriters shall not have discovered and disclosed to the Issuer on or prior to the Closing Date that, in the opinion of the Underwriters after consultation with counsel, either (A) the Registration Statement (in the form as of the Effective Date) contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (B) the Pricing Package (in the form as of the Applicable Time) or the Final Prospectus (in the form as of its date) contains an untrue statement of a material fact or to omits to state a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.

(w)            On or after the date hereof, there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally or of the securities of the Depositor or Duke Energy Corporation, on the New York Stock Exchange; (ii) a general moratorium on commercial banking activities in New York declared by either Federal or New York State authorities or a material disruption in commercial banking services or securities settlement or clearance services in the United States; (iii) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war, if the effect of any such event specified in this subsection 9(v) in the reasonable judgment of the Underwriters makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Bonds on the terms and in the manner contemplated in the Pricing Package and the Final Prospectus. In such event there shall be no liability on the part of any party to any other party except as otherwise provided in Section 11 hereof and except for the expenses to be borne by the Issuer as provided in Section 8(a)(v) hereof.

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(x)            The Issuer and the Depositor shall have furnished or caused to be furnished to the Underwriters dated as of the Closing Date certificates of the Treasurer or Assistant Treasurer of the Issuer and the Depositor, or other officer reasonably satisfactory to the Underwriters, as to such matters as the Underwriters may reasonably request, including, without limitation, a statement:

(i)            That the representations, warranties and agreements of the Issuer in Sections 3 and 5 and the Depositor in Sections 4 and 5 hereof are true and correct on and as of the Closing Date (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date), that the Issuer and the Depositor have complied with all their respective agreements contained herein and in any other Issuer Document to which any of them is a party and satisfied all the conditions on their part to be performed or satisfied hereunder or thereunder at or prior to the Closing Date, and that no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are threatened by the Commission;

(ii)            To the knowledge of the Issuer and the Depositor, no other materials have been used in connection with the Offering other than the Registration Statement, the Pricing Package, the Final Prospectus, the investor presentation dated [____], 2024 and the documents and information listed on Schedule III and Schedule IV hereto;

(iii)          Since the respective most recent dates as of which information is given in the Registration Statement, Pricing Package and the Final Prospectus and up to the Closing Date, there shall not have been any material adverse change in the condition of the Issuer and the Depositor, financial or otherwise, except as reflected in or contemplated by the Registration Statement, Pricing Package and the Final Prospectus, and, since such dates and up to the Closing Date, there shall not have been any material transaction entered into by the Issuer or the Depositor other than transactions contemplated by the Registration Statement, Pricing Package and the Final Prospectus and transactions in the ordinary course of business, the effect of which in the Issuer’s or the Depositor’s reasonable judgment, as applicable, is so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Bonds on the terms and in the manner contemplated by the Registration Statement, Pricing Package and the Final Prospectus.

(y)            The Bonds shall be eligible for clearance and settlement in the United States through DTC.

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All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to Counsel for the Underwriters.

If any of the conditions specified in this Section 9 shall not have been fulfilled when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be in all material respects reasonably satisfactory in form and substance to the Underwriters and Counsel for the Underwriters, all obligations of the Underwriters hereunder may be canceled at, or at any time prior to, the Closing Date by the Underwriters. Notice of such cancellation shall be given to the Issuer in writing or by telephone or facsimile confirmed in writing.

10.          Conditions of the Issuer s Obligations.

The obligation of the Issuer to deliver the Bonds shall be subject to the conditions that no stop order suspending the effectiveness of the Registration Statement shall be in effect at the Closing Date and no proceeding for that purpose shall be pending before, or threatened by, the Commission at the Closing Date and the condition set forth in Section 9(q) shall have been satisfied. In case these conditions shall not have been fulfilled, this Agreement may be terminated by the Issuer upon notice thereof to the Underwriters. Any such termination shall be without liability of any party to any other party except as otherwise provided in Sections 8(a)(v) and 11 hereof.

11.          Indemnification and Contribution.

(a)            The Issuer and Depositor agree to jointly and severally indemnify and hold harmless each Underwriter, its respective affiliates, officers, employees and directors, and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Securities Act, as follows:

(i)            against any and all loss, liability, claim, damage or expense whatsoever joint or several, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto) or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, the Pricing Package, the Final Prospectus (or any amendment or supplement thereto), any Issuer Free Writing Prospectus, any issuer free writing prospectus as defined in Rule 433 under the Securities Act or any materials or information provided to investors by, or with approval of, the Issuer or the Depositor in connection with the offering of the Bonds, including any “roadshow” (as defined in Rule 433 under the Securities Act) or investor presentation made to investors by the Issuer or the Depositor (whether in person or electronically) including, without limitation, the materials listed on Schedule IV hereto, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, unless such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with Underwriter Information furnished to the Issuer or the Depositor by the Underwriters expressly for use in the Registration Statement (or any amendment thereto), any preliminary prospectus, the Pricing Package, the Final Prospectus (or any amendment or supplement thereto) or any Issuer Free Writing Prospectus;

30

(ii)           against any and all losses, liabilities, claims, damages and expenses whatsoever to the extent of the aggregate amount paid in settlement of any litigation, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Issuer or the Depositor; and

(iii)          against any and all expenses whatsoever reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) of this Section 11.

In no case shall the Issuer or the Depositor be liable under this indemnity agreement with respect to any claim made against any Underwriter or any such controlling person unless the Issuer or the Depositor shall be notified in writing of the nature of the claim within a reasonable time after the assertion thereof, but failure so to notify the Issuer or the Depositor (i) shall not relieve it from any liability under this Section 11(a) unless and to the extent the failure to provide such notification results in forfeiture by the Issuer or Depositor of any rights and defenses and (ii) shall not relieve it from any liability which it may have otherwise than under subsections 11(a) and 11(d). Each of the Issuer and the Depositor shall be entitled to participate at its own expense in the defense, or, if it so elects, within a reasonable time after receipt of such notice, to assume the defense of any suit brought to enforce any such claim, but if it so elects to assume the defense, such defense shall be conducted by counsel chosen by it and approved by the Underwriter or Underwriters or controlling person or persons, or defendant or defendants in any suit so brought, which approval shall not be unreasonably withheld. In any such suit, any Underwriter or any such controlling person shall have the right to employ its own counsel, but the fees and expenses of such counsel shall be at the expense of such Underwriter or such controlling person unless (i) the Issuer and the Depositor and such Underwriter shall have mutually agreed to the employment of such counsel, or (ii) the named parties to any such action (including any impleaded parties) include both such Underwriter or such controlling person and the Issuer or the Depositor and such Underwriter or such controlling person shall have been advised by such counsel that a conflict of interest between the Issuer or the Depositor on one hand and such Underwriter or such controlling person on the other may arise and for this reason it is not desirable for the same counsel to represent both the indemnifying party and also the indemnified party (it being understood, however, that the Issuer and the Depositor shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (and local counsel) for all such Underwriters and all such controlling persons, which firm shall be designated in writing by you). The Issuer and the Depositor agrees to notify you within a reasonable time of the assertion of any claim against it, any of its officers or directors or any person who controls the Issuer or the Depositor within the meaning of Section 15 of the Securities Act, in connection with the sale of the Bonds. For the avoidance of doubt, any indemnity payment required to be paid by the Issuer pursuant to this Section 11 shall not be included in the Periodic Payment Requirement (as defined in the Indenture)) nor shall such amounts be included in a True-Up Adjustment (as defined in the Indenture).

31

(b)            Each Underwriter, severally and not jointly, agrees that it will indemnify and hold harmless the Issuer and the Depositor, their directors and each of the officers of the Issuer and the Depositor who signed the Registration Statement and each person, if any, who controls the Issuer and the Depositor within the meaning of Section 15 of the Securities Act to the same extent as the indemnity contained in subsection (a) of this Section, but only with respect to statements or omissions made in the Registration Statement (or any amendment thereto), any preliminary prospectus, the Pricing Package, the Final Prospectus (or any amendment or supplement thereto) or any Issuer Free Writing Prospectus, in reliance upon and in conformity with Underwriter Information furnished to the Issuer or the Depositor by the Underwriters expressly for use in the Registration Statement (or any amendment thereto), any preliminary prospectus, the Pricing Package, the Prospectus (or any amendment or supplement thereto) or any Issuer Free Writing Prospectus. In case any action shall be brought against the Issuer or the Depositor or any person so indemnified based on the Registration Statement (or any amendment thereto), the Preliminary Prospectus, the Pricing Package, the Final Prospectus (or any amendment or supplement thereto) or any Issuer Free Writing Prospectus and in respect of which indemnity may be sought against any Underwriter, such Underwriter shall have the rights and duties given to the Issuer and the Depositor, and the Issuer, the Depositor and each person so indemnified shall have the rights and duties given to the Underwriters by the provisions of subsection (a) of this Section.

(c)            No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding and does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party.

32

(d)            If the indemnification provided for in this Section 11 is unavailable to or insufficient to hold harmless an indemnified party in respect of any and all loss, liability, claim, damage and expense whatsoever (or actions in respect thereof) that would otherwise have been indemnified under the terms of such indemnity, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Issuer and the Depositor on the one hand and the Underwriters on the other from the offering of the Bonds. If, however, the allocation provided by the immediately preceding sentence is not available for any reason, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Issuer and the Depositor on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Issuer and the Depositor on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Issuer or Depositor bear to the total compensation received by the Underwriters in respect of the underwriting discount as set forth in the table on the cover page of the Final Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuer or the Depositor on the one hand or the Underwriters on the other and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Issuer and the Depositor and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 11 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section. The amount paid or payable by an indemnified party as a result of the losses, liabilities, claims, damages or expenses (or actions in respect thereof) referred to above in this Section 11 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section, no Underwriter (except as may be provided in any agreement among the Underwriters relating to the offering of the Bonds) shall be required to contribute any amount in excess of the amount, with respect to the Underwriters, by which the total price at which the Bonds underwritten by it and distributed to the public were offered to the public net of any costs associated therewith, exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters’ obligations to contribute are several in proportion to their respective obligations and not joint.

(e)            The Underwriters severally confirm and the Issuer and Depositor acknowledge and agree that (i) the statements under the heading “Plan of Distribution” in (a) the second and third sentences in the paragraph immediately under “The Underwriters’ Sales Price for the Bonds”; (b) the third sentence under the caption “No Assurance as to Resale Price or Resale Liquidity for the Bonds”; (c) the first paragraph under the caption “Various Types of Underwriter Transactions that May Affect the Price of the Bonds” (except the last sentence thereof); (d) the second sentence of the fourth full paragraph and the last sentence of the fifth full paragraph under the caption “Various Types of Underwriter Transactions that May Affect the Price of the Bonds” Registration Statement, the Pricing Package and the Final Prospectus and (e) under the heading “Other Risks Associated with the Purchase of the Bonds” in the Pricing Prospectus, the first sentence under the caption “Absence of a secondary market for the bonds might limit your ability to resell bonds” and (ii) the names of the Underwriters set forth on the front and back cover page of any preliminary prospectus and the Final Prospectus (collectively, “Underwriter Information”) hereto constitute the only information concerning such Underwriters furnished in writing to the Issuer and Depositor by or on behalf of the Underwriters specifically for inclusion in any Free Writing Prospectus, the Registration Statement, the Pricing Package or the Final Prospectus or in any amendment or supplement thereto.

33

12.          Representations and Indemnities to Survive Delivery. The respective indemnities, agreements, representations, warranties and other statements of the Issuer and the Depositor or their officers and of the several Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of any Underwriter or the Issuer and the Depositor, or any of their officers or directors or any controlling person, and will survive delivery of and payment for the Bonds.

13.          Waiver of Jury Trial. Each of the Issuer and the Depositor and each of the Underwriters hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

14.          Representations, Warranties and Covenants of the Underwriters. The Underwriters, severally and not jointly, represent, warrant and agree with the Issuer and the Depositor that, unless the Underwriters obtained, or will obtain, the prior written consent of the Issuer or the Depositor, the Underwriters (x) have not delivered, and will not deliver, any Rating Information (as defined below) to any Rating Agency until and unless the Issuer or the Depositor advises the Underwriters that such Rating Information is posted to the Issuer’s website maintained by the Issuer pursuant to paragraph (a)(3)(iii)(B) of Rule 17g-5 under the Exchange Act in the same form as it will be provided to such Rating Agency, and (y) have not participated, and will not participate, with any Rating Agency in any oral communication of any Rating Information without the participation of a representative of the Issuer or the Depositor. For purposes of this Section 14, “Rating Information” means any information provided to a Rating Agency for the purpose of determining an initial credit rating on the Bonds.

15.          No Advisory or Fiduciary Relationship. Each of the Issuer and the Depositor acknowledges and agrees that (a) the purchase and sale of the Bonds pursuant to this Agreement, including the determination of the offering price of the Bonds and any related discounts and commissions, is an arm’s-length commercial transaction between the Issuer and the Depositor, on the one hand, and the several Underwriters, on the other hand, (b) in connection with the offering and the process leading thereto, each Underwriter is and has been acting solely as a principal and is not the agent or fiduciary of either the Issuer or the Depositor, any of their subsidiaries or their respective members, directors, creditors, employees or any other party, (c) no Underwriter has assumed or will assume an advisory or fiduciary responsibility in favor of the Issuer or the Depositor with respect to the offering or the process leading thereto (irrespective of whether such Underwriter has advised or is currently advising the Issuer or the Depositor or any of its subsidiaries on other matters) and no Underwriter has any obligation to the Issuer or the Depositor with respect to the offering except the obligations expressly set forth in this Agreement, (d) the Underwriters and their respective affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Issuer or the Depositor, (e) any duties and obligations that the Underwriters may have to the Issuer or the Depositor shall be limited to those duties and obligations specifically stated herein and (f) the Underwriters have not provided any legal, accounting, regulatory or tax advice with respect to the offering and each of the Issuer and the Depositor has consulted its own respective legal, accounting, regulatory and tax advisors to the extent it deemed appropriate.

34

16.          Notices. All communications hereunder will be in writing and may be given by United States mail, courier service, telecopy, telefax or facsimile (confirmed by telephone or in writing in the case of notice by telecopy, telefax or facsimile) or any other customary means of communication, and any such communication shall be effective when delivered, or if mailed, three days after deposit in the United States mail with proper postage for ordinary mail prepaid, and if sent to the Underwriters, to it at the address specified in Schedule I hereto, in each case, with a copy to Norton Rose Fulbright US LLP, 555 California Street, San Francisco, California 94104, Attention: Eric D. Tashman (E-mail: eric.tashman@nortonrosefulbright.com; and if sent to the Issuer, to it at [550 South Tryon Street, DEC 40A, Charlotte, North Carolina 28202, Attention: Treasurer, Fax: (980) 373-3699]. Any such communications shall take effect upon receipt thereof. The parties hereto, by notice to the others, may designate additional or different addresses for subsequent communications.

17.          Business Day. As used herein, the term “business day” shall mean any day when the Commission’s office in Washington, D.C. is open for business.

18.          Successors. This Agreement shall inure to the benefit of and be binding upon the Underwriters and the Issuer and the Depositor and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the parties hereto and their respective successors and the controlling persons, officers and directors referred to in Section 11 and their respective successors, heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained; this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of the parties hereto and their respective successors and said controlling persons, officers and directors and their respective successors, heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Bonds from any Underwriter shall be deemed to be a successor or assign by reason merely of such purchase.

19.          Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to this Agreement or any document to be signed in connection with this Agreement shall be deemed to include electronic signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, and the parties hereto consent to conduct the transactions contemplated hereunder by electronic means.

35

20.           Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

THIS AGREEMENT AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS AGREEMENT, THE RELATIONSHIPS OF THE PARTIES AND/OR THE INTERPRETATIONS AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ITS CONFLICT OF LAW PROVISIONS (OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW). EACH OF THE PARTIES HERETO HEREBY AGREES TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE STATE OF NEW YORK. EACH OF THE PARTIES HERETO HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER IN ANY OF THE AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.

TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE BETWEEN THE PARTIES HERETO ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN ANY OF THEM IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. INSTEAD, ANY SUCH DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.

21.          Integration. This Agreement supersedes all prior agreements and understandings (whether written or oral) among the Issuer, the Depositor and the Underwriters, or any of them, with respect to the subject matter hereof.

22.          Recognition of the U.S. Special Resolution Regimes.

(a)            In the event that any Underwriter that is a Covered Entity becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer from such Underwriter of this Agreement, and any interest and obligation in or under this Agreement, will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if this Agreement, and any such interest and obligation, were governed by the laws of the United States or a state of the United States.

(b)            In the event that any Underwriter that is a Covered Entity or a BHC Act Affiliate of such Underwriter

becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under this Agreement that may be exercised against such Underwriter are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if this Agreement were governed by the laws of the United States or a state of the United States.

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“BHC Act Affiliate” has the meaning assigned to the term “affiliate” in, and shall be interpreted in accordance with, 12 U.S.C. § 1841(k).

“Covered Entity” means any of the following:

(i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. §252.82(b);

(ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. §47.3(b); or

(iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. §382.2(b).

“Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.

“U.S. Special Resolution Regime” means each of (i) the Federal Deposit Insurance Act and the regulations promulgated thereunder and (ii) Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations promulgated thereunder.

If the foregoing is in accordance with your understanding, kindly sign and return to us two counterparts hereof, and upon confirmation and acceptance by the Underwriters, this letter and such confirmation and acceptance will become a binding agreement between the Issuer and the Depositor, on the one hand, and each of the Underwriters, on the other hand, in accordance with its terms.

Very truly yours,
DUKE ENERGY PROGRESS, LLC
By:
	Name:
	Title:
DUKE ENERGY PROGRESS SC STORM FUNDING LLC
By:
	Name:
	Title:

37

The foregoing Agreement is hereby confirmed and accepted as of the date first above written.

GOLDMAN SACHS & CO. LLC

RBC CAPITAL MARKETS, LLC

On behalf of each of the Underwriters

GOLDMAN SACHS & CO. LLC

By:

Name:

Title:

RBC CAPITAL MARKETS, LLC

By:

Name:

Title:

SCHEDULE I

Underwriting Agreement dated [●], 2024

Registration Statement Nos. 333-276553 and 333-276533-01

Underwriters: Goldman Sachs & Co. LLC and RBC Capital Markets, LLC

c/o Goldman Sachs & Co. LLC

Address: 200 West Street, 7^th Floor

New York, New York 10282

Attention: Katrina Niehaus, Managing Director

c/o RBC Capital Markets, LLC

Address: Brookfield Place

200 Vesey Street, 8^th Floor

New York, New York 10281

Attention: Eric Schwarz, Vice President

Title, Purchase Price and Description of Bonds:

Title: DUKE ENERGY PROGRESS SC STORM FUNDING LLC

$177,365,000 SERIES A SENIOR SECURED STORM RECOVERY BONDS

Total Principal Amount of Tranche

Bond Rate

Price to Public

Underwriting Discounts and Commissions

Proceeds to Issuer (Before Expenses)

Tranche A

$

[●]

[●]

%

[●]

%

[●]

%

$

[●]

Total

$

[●]

$

[●]

Original Issue Discount (if any): $[●]

Redemption provisions: None

Other provisions: None

Closing Date, Time and Location: [___] [●], 2024, 10:00 A.M.; offices of Hunton Andrews Kurth LLP, 200 Park Avenue, New York, New York 10166 and simultaneously in the offices of Norton Rose Fulbright US LLP; 555 California Street, Suite 3300, San Francisco, California 94104

I-1

SCHEDULE II

Principal Amount of Bonds to be Purchased

Underwriter	Tranche A-1		Total
Goldman Sachs & Co. LLC	$	[●]	$	[●]
RBC Capital Markets, LLC		[●]		[●]
Total	$	[●]	$	[●]

II-1

SCHEDULE III

Schedule of Certain Marketing Materials

Issuer Free Writing Prospectuses required to be filed pursuant to Rule 433:

Preliminary Term Sheet, dated [●], 2024

Pricing Term Sheet, dated [●], 2024

III-1

SCHEDULE IV

Schedule of Certain Investor Presentations

Issuer Free Writing Prospectus not required to be filed

Electronic Road Show [•], 2024 through [•], 2024

IV-1

EX-3.2

 

Exhibit 3.2

 

AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT

 

OF

 

DUKE ENERGY PROGRESS SC STORM FUNDING LLC

 

Dated and Effective as of [ ], 2024

 

 

 

 

TABLE OF CONTENTS

 

Page

 

ARTICLE I            GENERAL PROVISIONS	1
SECTION 1.01 Definitions	1
SECTION 1.02 Sole Member; Registered Office and Agent	2
SECTION 1.03 Other Offices	2
SECTION 1.04 Name	3
SECTION 1.05 Purpose; Nature of Business Permitted; Powers	3
SECTION 1.06 Limited Liability Company Agreement; Certificate of Formation	4
SECTION 1.07 Separate Existence	4
SECTION 1.08 Limitation on Certain Activities	7
SECTION 1.09 No State Law Partnership	8
ARTICLE II           CAPITAL	8
SECTION 2.01 Initial Capital	8
SECTION 2.02 Additional Capital Contributions	9
SECTION 2.03 Capital Account	9
SECTION 2.04 Interest on Capital Account	9
ARTICLE III          ALLOCATIONS; BOOKS	9
SECTION 3.01 Allocations of Income and Loss	9
SECTION 3.02 Company to be Disregarded for Tax Purposes	10
SECTION 3.03 Books of Account	10
SECTION 3.04 Access to Accounting Records	10
SECTION 3.05 Annual Tax Information	10
SECTION 3.06 Internal Revenue Service Communications	10
ARTICLE IV          MEMBER	10
SECTION 4.01 Powers	10
SECTION 4.02 Compensation of Member	12
SECTION 4.03 Other Ventures	12
SECTION 4.04 Actions by the Member	12
ARTICLE V           OFFICERS	12
SECTION 5.01 Designation; Term; Qualifications	12
SECTION 5.02 Removal and Resignation	13
SECTION 5.03 Vacancies	13
SECTION 5.04 Compensation	13

ARTICLE VI          MEMBERSHIP INTEREST	14
SECTION 6.01 General	14

 

 

SECTION 6.02 Distributions	14
SECTION 6.03 Rights on Liquidation, Dissolution or Winding Up	14
SECTION 6.04 Redemption	14
SECTION 6.05 Voting Rights	14
SECTION 6.06 Transfer of Membership Interests	14
SECTION 6.07 Admission of Transferee as Member	15
ARTICLE VII        MANAGERS	15
SECTION 7.01 Managers	15
SECTION 7.02 Powers of the Managers	16
SECTION 7.03 Compensation	17
SECTION 7.04 Removal of Managers	17
SECTION 7.05 Resignation of Manager	17
SECTION 7.06 Vacancies	17
SECTION 7.07 Meetings of the Managers	18
SECTION 7.08 Electronic Communications	18
SECTION 7.09 Committees of Managers	18
SECTION 7.10 Limitations on Independent Managers	18
ARTICLE VIII       EXPENSES	19
SECTION 8.01 Expenses	19
ARTICLE IX          PERPETUAL EXISTENCE; DISSOLUTION, LIQUIDATION AND WINDING-UP	19
SECTION 9.01 Existence	19
SECTION 9.02 Dissolution	20
SECTION 9.03 Accounting	20
SECTION 9.04 Certificate of Cancellation	20
SECTION 9.05 Winding Up	20
SECTION 9.06 Order of Payment of Liabilities Upon Dissolution	20
SECTION 9.07 Limitations on Payments Made in Dissolution	21
SECTION 9.08 Limitation on Liability	21
ARTICLE X            INDEMNIFICATION	21
SECTION 10.01 Indemnity	21
SECTION 10.02 Indemnity for Actions By or In the Right of the Company	21
SECTION 10.03 Indemnity If Successful	22
SECTION 10.04 Expenses	22
SECTION 10.05 Advance Payment of Expenses	22
SECTION 10.06 Other Arrangements Not Excluded	22

 

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ARTICLE XI           MISCELLANEOUS PROVISIONS	23
SECTION 11.01 No Bankruptcy Petition; Dissolution	23
SECTION 11.02 Amendments	23
SECTION 11.03 Commission Condition	24
SECTION 11.04 Governing Law	24
SECTION 11.05 Headings	24
SECTION 11.06 Severability	25
SECTION 11.07 Assigns	25
SECTION 11.08 Enforcement by Each Independent Manager	25
SECTION 11.09 Waiver of Partition; Nature of Interest	25
SECTION 11.10 Benefits of Agreement; No Third-Party Rights	25

 

EXHIBITS, SCHEDULES AND APPENDIX

 

Schedule A	Schedule of Capital Contributions of Member
Schedule B	Initial Managers
Schedule C	Initial Officers
Exhibit A	Management Agreement
Appendix A	Definitions

 

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AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF

 

DUKE ENERGY PROGRESS SC STORM FUNDING LLC

 

This AMENDED AND RESTATED LIMITED LIABILITY COMPANY

 

AGREEMENT (this “Agreement”) of DUKE ENERGY PROGRESS SC STORM FUNDING LLC, a Delaware limited liability company (the “Company”), is made and entered into as of [ ], 2024 by DUKE ENERGY PROGRESS, LLC, a North Carolina limited liability company (including any additional or successor members of the Company other than Special Members, the “Member”).

 

WHEREAS, the Member has caused to be filed a Certificate of Formation with the Secretary of State of the State of Delaware to form the Company under and pursuant to the LLC Act and has entered into a Limited Liability Company Agreement of the Company, dated as of January 12, 2024 (the “Original LLC Agreement”); and

 

WHEREAS, in accordance with the LLC Act, the Member desires to enter into this Agreement to amend and restate in its entirety the Original LLC Agreement and to set forth the rights, powers and interests of the Member with respect to the Company and its Membership Interest therein and to provide for the management of the business and operations of the Company.

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the Member, intending to be legally bound, hereby agrees to amend and restate in its entirety the Original LLC Agreement as follows:

 

ARTICLE I

 

GENERAL PROVISIONS

 

SECTION 1.01 Definitions.

 

(a)            Unless otherwise defined herein, capitalized terms used herein shall have the meanings assigned to them in Appendix A attached hereto.

 

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

 

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

 

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

 

(e)            Non-capitalized terms used herein which are defined in the LLC Act, shall, as the context requires, have the meanings assigned to such terms in the LLC Act as of the date hereof, but without giving effect to amendments to the LLC Act.

 

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SECTION 1.02 Sole Member; Registered Office and Agent.

 

(a)            The initial sole member of the Company shall be Duke Energy Progress, LLC, a North Carolina limited liability company, or any successor as sole member pursuant to Sections 1.02(c), 6.06 and 6.07. The registered office and registered agent of the Company in the State of Delaware shall be The Corporation Trust Company, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The Member may change said registered office and agent from one location to another in the State of Delaware. The Member shall provide notice of any such change to the Indenture Trustee.

 

(b)            Upon the occurrence of any event that causes the Member to cease to be a member of the Company (other than upon continuation of the Company without dissolution upon the transfer or assignment by the Member of all of its limited liability company interest in the Company and the admission of the transferee or an additional member of the Company pursuant to Sections 6.06 and 6.07), each Person acting as an Independent Manager (as defined herein) pursuant to the terms of this Agreement shall, without any action of any Person and simultaneously with the Member ceasing to be a member of the Company, automatically be admitted to the Company as a Special Member and shall continue the Company without dissolution. No Special Member may resign from the Company or transfer its rights as Special Member unless (i) a successor Special Member has been admitted to the Company as Special Member by executing a counterpart to this Agreement, and (ii) such successor has also accepted its appointment as an Independent Manager pursuant to this Agreement; provided, however, the Special Members shall automatically cease to be members of the Company upon the admission to the Company of a substitute Member. Each Special Member shall be a member of the Company that has no interest in the profits, losses and capital of the Company and has no right to receive any distributions of Company assets (and no Special Member shall be treated as a member of the Company for federal income tax purposes). Pursuant to Section 18-301 of the LLC Act, a Special Member shall not be required to make any capital contributions to the Company and shall not receive a limited liability company interest in the Company. A Special Member, in its capacity as Special Member, may not bind the Company. Except as required by any mandatory provision of the LLC Act, each Special Member, in its capacity as Special Member, shall have no right to vote on, approve or otherwise consent to any action by, or matter relating to, the Company, including the merger, consolidation or conversion of the Company. In order to implement the admission to the Company of each Special Member, each Person acting as an Independent Manager pursuant to this Agreement shall execute a counterpart to this Agreement. Prior to its admission to the Company as Special Member, each Person acting as an Independent Manager pursuant to this Agreement shall not be a member of the Company. A “Special Member” means, upon such Person’s admission to the Company as a member of the Company pursuant to this Section 1.02(b), a Person acting as an Independent Manager, in such Person’s capacity as a member of the Company. A Special Member shall only have the rights and duties expressly set forth in this Agreement. For purposes of this Agreement, a Special Member is not included within the defined term “Member”.

 

(c)            The Company may admit additional Members with the affirmative vote of a majority of the Managers, which vote must include the affirmative vote of each Independent Manager. Notwithstanding the preceding sentence, it shall be a condition to the admission of any additional Member that the sole Member shall have received an opinion of outside tax counsel (as selected by the Member in form and substance reasonably satisfactory to the Member) that the admission of such additional Member shall not cause the Company to be treated, for federal income tax purposes, as having more than a “sole owner” and that the Company shall not be treated, for federal income tax purposes, as an entity separate from such “sole owner”.

 

SECTION 1.03 Other Offices. The Company may have an office at 411 Fayetteville Street, Raleigh, North Carolina 27601 or at any other offices that may at any time be established by the Member at any place or places within or outside the State of Delaware. The Member shall provide notice to the Indenture Trustee of any change in the location of the Company’s office.

 

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SECTION 1.04 Name. The name of the Company shall be “Duke Energy Progress SC Storm Funding LLC”. The name of the Company may be changed from time to time by the Member with ten (10) days’ prior written notice to the Managers and the Indenture Trustee, and the filing of an appropriate amendment to the Certificate of Formation with the Secretary of State as required by the LLC Act.

 

SECTION 1.05 Purpose; Nature of Business Permitted; Powers. The Company is intended to qualify as an “Assignee” as defined in S.C. Code Ann. § 58-27-1105(2) of the Storm Recovery Law. The purposes for which the Company is formed are limited to:

 

(a)            acquire, own, hold, administer, service or enter into agreements regarding the receipt and servicing of Storm Recovery Property and other Storm Recovery Bond Collateral, along with certain other related assets with respect to one or more series of Storm Recovery Bonds;

 

(b)            manage, sell, assign, pledge, collect amounts due on or otherwise deal with the Storm Recovery Property and other Storm Recovery Bond Collateral and related assets with respect to one or more series of Storm Recovery Bonds to be so acquired in accordance with the terms of the Basic Documents relating to such series;

 

(c)            negotiate, authorize, execute, deliver, assume the obligations under, and perform its duties under, the Basic Documents and any other agreement or instrument or document relating to the activities set forth in clauses (a) and (b) above; provided, that each party to any such agreement under which material obligations are imposed upon the Company shall covenant that it shall not, prior to the date which is one year and one day after the termination of the Indenture and the payment in full of the Storm Recovery Bonds and any other amounts owed under any Indenture, acquiesce, petition or otherwise invoke or cause the Company to invoke the process of any court or Governmental Authority for the purpose of commencing or sustaining an involuntary case against the Company under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Company or any substantial part of the property of the Company; or ordering the winding up or liquidation of the affairs of the Company; and provided, further, that the Company shall be permitted to incur additional indebtedness or other liabilities payable to service providers and trade creditors in the ordinary course of business in connection with the foregoing activities;

 

(d)            file with the U.S. Securities and Exchange Commission one or more registration statements, including any pre-effective or post-effective amendments thereto and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended (including any prospectus supplement, prospectus and exhibits contained therein) and file such applications, reports, surety bonds, irrevocable consents, appointments of attorney for service of process and other papers and documents necessary or desirable to register one or more series of Storm Recovery Bonds under the securities or “Blue Sky” laws of various jurisdictions;

 

(e)            authorize, execute, deliver, issue and register one or more series of Storm Recovery Bonds;

 

(f)            distribute amounts released to the Company;

 

(g)            make payments on the Storm Recovery Bonds;

 

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(h)            pledge its interest in Storm Recovery Property and other Storm Bond Collateral relating to any series of Storm Recovery Bonds to the Indenture Trustee under the related Indenture in order to secure the related series of Storm Recovery Bonds; and

 

(i)            engage in any lawful act or activity and exercise any powers permitted to limited liability companies formed under the laws of the State of Delaware that, in either case, are incidental to, or necessary, suitable or convenient for the accomplishment of the above-mentioned purposes.

 

The Company shall engage only in any activities related to the foregoing purposes or required or authorized by the terms of the Basic Documents or other agreements referenced above. The Company shall have all powers reasonably incidental, necessary, suitable or convenient to effect the foregoing purposes, including all powers granted under the LLC Act. The Company, the Member, any Manager (other than an Independent Manager), or any officer of the Company, acting singly or collectively, on behalf of the Company, may enter into and perform the Basic Documents and all registration statements, underwriting agreements, documents, agreements, certificates or financing statements contemplated thereby or related thereto, all without any further act, vote or approval of any Member, Manager or other Person, notwithstanding any other provision of this Agreement, the LLC Act, or other applicable law, rule or regulation.

 

Notwithstanding any other provision of this Agreement, the LLC Act or other applicable law, any Basic Document executed prior to the date hereof by any Member, Manager or officer on behalf of the Company is hereby ratified and approved in all respects. The authorization set forth in the two preceding sentences shall not be deemed a restriction on the power and authority of the Member or any Manager, including any Independent Manager, to enter into other agreements or documents on behalf of the Company as authorized pursuant to this Agreement and the LLC Act. The Company shall possess and may exercise all the powers and privileges granted by the LLC Act or by any other law or by this Agreement, together with any powers incidental thereto, insofar as such powers and privileges are incidental, necessary, suitable or convenient to the conduct, promotion or attainment of the business purposes or activities of the Company.

 

SECTION 1.06 Limited Liability Company Agreement; Certificate of Formation. This Agreement shall constitute a “limited liability company agreement” within the meaning of the LLC Act. Kenna Jordan, as an authorized person within the meaning of the LLC Act, has caused a certificate of formation of the Company to be executed and filed in the office of the Secretary of State on January 12, 2024 (such execution and filing being hereby ratified and approved in all respects). The existence of the Company as a separate legal entity shall continue until the cancellation of the Certificate of Formation of the Company as provided in the LLC Act.

 

SECTION 1.07 Separate Existence. Except for financial reporting purposes (to the extent required by generally accepted accounting principles) and for federal income tax purposes and, to the extent consistent with applicable state tax law, state income and franchise tax purposes, the Member and the Managers shall take all steps necessary to continue the identity of the Company as a separate legal entity and to make it apparent to third Persons that the Company is an entity with assets and liabilities distinct from those of the Member, Affiliates of the Member or any other Person, and that, the Company is not a division of any of the Affiliates of the Company or any other Person. In that regard, and without limiting the foregoing in any manner, the Company shall:

 

(a)            maintain office space separate and clearly delineated from the office space of any Affiliate;

 

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(b)            maintain the assets of the Company in such a manner that it is not costly or difficult to segregate, identify or ascertain its individual assets from those of any other Person, including any Affiliate;

 

(c)            maintain a separate telephone number;

 

(d)            conduct all transactions with Affiliates on an arm’s-length basis;

 

(e)            not guarantee, become obligated for or pay the debts of any Affiliate or hold the credit of the Company out as being available to satisfy the obligations of any Affiliate or other Person (nor, except as contemplated in the Basic Documents, indemnify any Person for losses resulting therefrom), nor, except as contemplated in the Basic Documents, have any of its obligations guaranteed by any Affiliate or hold the Company out as responsible for the debts of any Affiliate or other Person or for the decisions or actions with respect to the business and affairs of any Affiliate, nor seek or obtain credit or incur any obligation to any third party based upon the creditworthiness or assets of any Affiliate or any other Person (i.e. other than based on the assets of the Company) nor allow any Affiliate to do such things based on the credit of the Company;

 

(f)             except as expressly otherwise permitted hereunder or under any of the Basic Documents, not permit the commingling or pooling of the Company’s funds or other assets with the funds or other assets of any Affiliate;

 

(g)            maintain separate deposit and other bank accounts and funds (separately identifiable from those of the Member or any other Person) to which no Affiliate has any access, which accounts shall be maintained in the name and, to the extent not inconsistent with applicable federal tax law, with the tax identification number of the Company;

 

(h)            maintain full books of accounts and records (financial or other) and financial statements separate from those of its Affiliates or any other Person, prepared and maintained in accordance with generally accepted accounting principles (including, all resolutions, records, agreements or instruments underlying or regarding the transactions contemplated by the Basic Documents or otherwise) and audited annually by an independent accounting firm which shall provide such audit to the Indenture Trustee;

 

(i)             pay its own liabilities out of its own funds, including fees and expenses of the Administrator pursuant to the Administration Agreement and the Servicer pursuant to any Servicing Agreement;

 

(j)             not hire or maintain any employees, but shall compensate (either directly or through reimbursement of the Company’s allocable share of any shared expenses) all consultants, agents and Affiliates, to the extent applicable, for services provided to the Company by such consultants, agents or Affiliates, in each case, from the Company’s own funds;

 

(k)            allocate fairly and reasonably the salaries of and the expenses related to providing the benefits of officers shared with the Member, any Special Member or any Manager;

 

(l)             allocate fairly and reasonably any overhead shared with the Member, any Special Member or any Manager;

 

(m)           pay from its own bank accounts for accounting and payroll services, rent, lease and other expenses (or the Company’s allocable share of any such amounts provided by one or more other Affiliates) and not have such operating expenses (or the Company’s allocable share thereof) paid by any Affiliates; provided, that the Member shall be permitted to pay the initial organization expenses of the Company and certain of the expenses related to the transactions contemplated by the Basic Documents as provided therein;

 

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(n)            maintain adequate capitalization to conduct its business and affairs considering the Company’s size and the nature of its business and intended purposes and, after giving effect to the transactions contemplated by the Basic Documents, refrain from engaging in a business for which its remaining property represents an unreasonably small capital;

 

(o)            conduct all of the Company’s business (whether in writing or orally) solely in the name of the Company through the Member and the Company’s Managers, officers and agents and hold the Company out as an entity separate from any Affiliate;

 

(p)            not make or declare any distributions of cash or property to the Member except in accordance with appropriate limited liability company formalities and only consistent with sound business judgment to the extent that it is permitted pursuant to the Basic Documents and not violative of any applicable law;

 

(q)            otherwise practice and adhere to all limited liability company procedures and formalities to the extent required by this Agreement or all other appropriate constituent documents and the laws of its state of formation and all other appropriate jurisdictions;

 

(r)             not appoint an Affiliate or any employee of an Affiliate as an agent of the Company, except as otherwise permitted in the Basic Documents (although such Persons can qualify as a Manager or as an officer of the Company);

 

(s)             not acquire obligations or securities of or make loans or advances to or pledge its assets for the benefit of any Affiliate, the Member or any Affiliate of the Member (other than the Company);

 

(t)             except as expressly provided in the Basic Documents, not permit the Member or any Affiliate to guarantee, pay or become liable for the debts of the Company nor permit any such Person to hold out its creditworthiness as being available to pay the liabilities and expenses of the Company nor, except for the indemnities in this Agreement and the Basic Documents, indemnify any Person for losses resulting therefrom;

 

(u)            maintain separate minutes of the actions of the Member and the Managers, in their capacities as such, including actions with respect to the transactions contemplated by the Basic Documents;

 

(v)            cause (i) all written and oral communications, including letters, invoices, purchase orders, and contracts, of the Company to be made solely in the name of the Company, (ii) the Company to have its own tax identification number (to the extent not inconsistent with applicable federal tax law), stationery, checks and business forms, separate from those of any Affiliate, (iii) all Affiliates not to use the stationery or business forms of the Company, and cause the Company not to use the stationery or business forms of any Affiliate, and (iv) all Affiliates not to conduct business in the name of the Company, and cause the Company not to conduct business in the name of any Affiliate;

 

(w)           direct creditors of the Company to send invoices and other statements of account of the Company directly to the Company and not to any Affiliate and cause the Affiliates to direct their creditors not to send invoices and other statements of accounts of such Affiliates to the Company;

 

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(x)            cause the Member to maintain as official records all resolutions, agreements, and other instruments underlying or regarding the transactions contemplated by the Basic Documents;

 

(y)            disclose, and cause the Member to disclose, in its financial statements the effects of all transactions between the Member and the Company in accordance with generally accepted accounting principles, and in a manner which makes it clear that (i) the Company is a separate legal entity, (ii) the assets of the Company (including the Storm Recovery Property transferred to the Company pursuant to the Sale Agreement) are not assets of any Affiliate and are not available to pay creditors of any Affiliate and (iii) neither the Member nor any other Affiliate is liable or responsible for the debts of the Company;

 

(z)             treat and cause the Member to treat the transfer of Storm Recovery Property from the Member to the Company as a sale under the Storm Recovery Law;

 

(aa)          except as described herein with respect to tax purposes and financial reporting, describe and cause each Affiliate to describe the Company, and hold the Company out as a separate legal entity and not as a division or department of any Affiliate, and promptly correct any known misunderstanding regarding the Company’s identity separate from any Affiliate or any other Person;

 

(bb)         so long as any of the Storm Recovery Bonds are outstanding, treat the Storm Recovery Bonds as debt for all purposes and specifically as debt of the Company, other than for financial reporting, state or federal regulatory or tax purposes;

 

(cc)          solely for purposes of federal taxes and, to the extent consistent with applicable state, local and other tax law, solely for purposes of state, local and other taxes, so long as any of the Storm Recovery Bonds are outstanding, treat the Storm Recovery Bonds as indebtedness of the Member secured by the Storm Recovery Bond Collateral unless otherwise required by appropriate taxing authorities;

 

(dd)          file its own tax returns, if any, as may be required under applicable law, to the extent (i) not part of a consolidated group filing a consolidated return or returns or (ii) not treated as a division or disregarded entity for tax purposes of another taxpayer, and pay any taxes so required to be paid under applicable law;

 

(ee)           maintain its valid existence in good standing under the laws of the State of Delaware and maintain its qualification to do business under the laws of such other jurisdictions as its operations require;

 

(ff)            not form, or cause to be formed, any subsidiaries;

 

(gg)          comply with all laws applicable to the transactions contemplated by this Agreement and the Basic Documents; and

 

(hh)          cause the Member to observe in all material respects all limited liability company procedures and formalities, if any, required by this Agreement, the laws of the State of Delaware and all other appropriate jurisdictions.

 

SECTION 1.08 Limitation on Certain Activities. Notwithstanding any other provisions of this Agreement, the Company, and the Member or Managers on behalf of the Company, shall not:

 

(a)            engage in any business or activity other than as set forth in Article I hereof;

 

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(b)            without the affirmative vote of the Member and the affirmative vote of all of the Managers, including each Independent Manager, file a voluntary petition for relief under the Bankruptcy Code or similar law, consent to the institution of insolvency or bankruptcy proceedings against the Company or otherwise institute insolvency or bankruptcy proceedings with respect to the Company or take any company action in furtherance of any such filing or institution of a proceeding;

 

(c)            without the affirmative vote of all Managers, including each Independent Manager, and then only to the extent permitted by the Basic Documents, convert, merge or consolidate with any other Person or sell all or substantially all of its assets or acquire all or substantially all of the assets or capital stock or other ownership interest of any other Person;

 

(d)            take any action, file any tax return, or make any election inconsistent with the treatment of the Company, for purposes of federal income taxes and, to the extent consistent with applicable state tax law, state income and franchise tax purposes, as a disregarded entity that is not separate from the Member;

 

(e)            incur any indebtedness or assume or guarantee any indebtedness of any Person (other than the indebtedness incurred under the Basic Documents);

 

(f)             issue any bonds other than the Storm Recovery Bonds contemplated by the Basic Documents or, upon satisfaction of the Rating Agency Condition, additional series of Storm Recovery Bonds pursuant to a Subsequent Financing Order; or

 

(g)            to the fullest extent permitted by law, without the affirmative vote of its Member and the affirmative vote of all Managers, including each Independent Manager, execute any dissolution, liquidation, or winding up of the Company.

 

So long as any of the Storm Recovery Bonds are outstanding, the Company and the Member shall give written notice to each applicable Rating Agency of any action described in clause (b), (c) or (g) of this Section 1.08 which is taken by or on behalf of the Company with the required affirmative vote of the Member and all Managers as therein described.

 

SECTION 1.09 No State Law Partnership. No provisions of this Agreement shall be deemed or construed to constitute a partnership (including a limited partnership) or joint venture, or the Member a partner or joint venturer of or with any Manager or the Company, for any purposes.

 

ARTICLE II

 

CAPITAL

 

SECTION 2.01 Initial Capital. The initial capital of the Company shall be the sum of cash contributed to the Company by the Member (the “Capital Contribution”) in the amount set out opposite the name of the Member on Schedule A hereto, as amended from time to time and incorporated herein by this reference.

 

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SECTION 2.02 Additional Capital Contributions. The assets of the Company are expected to generate a return sufficient to satisfy all obligations of the Company under this Agreement and the other Basic Documents and any other obligations of the Company. It is expected that no capital contributions to the Company will be necessary after the purchase of the Storm Recovery Property. On or prior to the date of issuance of the Storm Recovery Bonds, the Member shall make an additional contribution to the Company in an amount equal to at least 0.50% of the initial principal amount thereof or such greater amount as agreed to by the Member in connection with the issuance by the Company of the Storm Recovery Bonds, which amount the Company shall deposit into the Capital Subaccount established by the Indenture Trustee as provided in the Indenture. No capital contribution by the Member to the Company will be made for the purpose of mitigating losses on Storm Recovery Property that has previously been transferred to the Company, and all capital contributions shall be made in accordance with all applicable limited liability company procedures and requirements, including proper record keeping by the Member and the Company. Each capital contribution will be acknowledged by a written receipt signed by any one of the Managers. The Managers acknowledge and agree that, notwithstanding anything in this Agreement to the contrary, such additional contribution will be managed by an investment manager selected by the Servicer who shall invest such amounts only in investments eligible pursuant to the Basic Documents, and all income earned thereon shall be allocated or paid by the Indenture Trustee in accordance with the provisions of the Indenture.

 

SECTION 2.03 Capital Account. A Capital Account shall be established and maintained for the Member on the Company’s books (the “Capital Account”).

 

SECTION 2.04 Interest on Capital Account. Except for the Return on Invested Capital, no interest shall be paid or credited to the Member on its Capital Account or upon any undistributed profits left on deposit with the Company. Except as provided herein or by law, the Member shall have no right to demand or receive the return of its Capital Contribution.

 

ARTICLE III

 

ALLOCATIONS; BOOKS

 

SECTION 3.01 Allocations of Income and Loss.

 

(a)            Book Allocations. The net income and net loss of the Company shall be allocated entirely to the Member.

 

(b)            Tax Allocations. Because the Company is not making (and will not make) an election to be treated as an association taxable as a corporation under Section 301.7701-3(a) of the Treasury Regulations, and because the Company is a business entity that has a single owner and is not a corporation, it is expected to be disregarded as an entity separate from its owner for federal income tax purposes under Section 301.7701-3(b)(1) of the Treasury Regulations. Accordingly, all items of income, gain, loss, deduction and credit of the Company for all taxable periods will be treated for federal income tax purposes, and for state and local income and other tax purposes to the extent permitted by applicable law, as realized or incurred directly by the Member. To the extent not so permitted, all items of income, gain, loss, deduction and credit of the Company shall be allocated entirely to the Member as permitted by applicable tax law, and the Member shall pay (or indemnify the Company, the Indenture Trustee and each of their officers, managers, employees or agents for, and defend and hold harmless each such person from and against its payment of) any taxes levied or assessed upon all or any part of the Company’s property or assets based on existing law as of the date hereof, including any sales, gross receipts, general corporation, personal property, privilege, franchise or license taxes (but excluding any taxes imposed as a result of a failure of such Person to properly withhold or remit taxes imposed with respect to payments on any Storm Recovery Bond). The Indenture Trustee (on behalf of the Secured Parties) shall be a third party beneficiary of the Member’s obligations set forth in this Section 3.01, it being understood that Holders shall be entitled to enforce their rights against the Member under this Section 3.01 solely through a cause of action brought for their benefit by the Indenture Trustee.

 

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SECTION 3.02 Company to be Disregarded for Tax Purposes. The Company shall comply with the applicable provisions of the Code and the applicable Treasury Regulations thereunder in the manner necessary to effect the intention of the parties that the Company be treated, for federal income tax purposes, as a disregarded entity that is not separate from the Member pursuant to Treasury Regulations Section 301.7701-1 et seq. and that the Company be accorded such treatment until its dissolution pursuant to Article IX hereof and shall take all actions, and shall refrain from taking any action, required by the Code or Treasury Regulations thereunder in order to maintain such status of the Company. In addition, for federal income tax purposes, the Company may not claim any credit on, or make any deduction from the principal or premium, if any, or interest payable in respect of, the Storm Recovery Bonds (other than amounts properly withheld from such payments under the Code or other tax laws) or assert any claim against any present or former Holder by reason of the payment of the taxes levied or assessed upon any part of the Storm Recovery Bond Collateral.

 

SECTION 3.03 Books of Account. At all times during the continuance of the Company, the Company shall maintain or cause to be maintained full, true, complete and correct books of account in accordance with generally accepted accounting principles, using the fiscal year and taxable year of the Member. In addition, the Company shall keep all records required to be kept pursuant to the LLC Act.

 

SECTION 3.04 Access to Accounting Records. All books and records of the Company shall be maintained at any office of the Company or at the Company’s principal place of business, and the Member, and its duly authorized representative, shall have access to them at such office of the Company and the right to inspect and copy them at reasonable times.

 

SECTION 3.05 Annual Tax Information. The Managers shall cause the Company to deliver to the Member all information necessary for the preparation of the Member’s federal income tax return.

 

SECTION 3.06 Internal Revenue Service Communications. The Member shall communicate and negotiate with the Internal Revenue Service on any federal tax matter on behalf of the Member and the Company.

 

ARTICLE IV

 

MEMBER

 

SECTION 4.01 Powers. Subject to the provisions of this Agreement and the LLC Act, all powers shall be exercised by or under the authority of, and the business and affairs of the Company shall be controlled by, the Member pursuant to Section 4.04. The Member may delegate any or all such powers to the Managers. Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the Member shall have the following powers:

 

(a)            To select and remove the Managers and all officers and agents of the Company, prescribe such powers and duties for them as may be consistent with the LLC Act and other applicable law and this Agreement, fix their compensation, and require from them security for faithful service; provided, that, except as provided in Section 7.06, at all times the Company shall have at least one Independent Manager. Prior to issuance of any Storm Recovery Bonds, the Member shall appoint at least one Independent Manager, subject to ratification by the Commission. An “Independent Manager” means an individual who (1) has prior experience as an independent director, independent manager or independent member, (2) is employed by a nationally-recognized company that provides professional Independent Managers and other corporate services in the ordinary course of its business, (3) is duly appointed as an Independent Manager and (4) is not and has not been for at least five years from the date of his or her or its appointment, and will not while serving as Independent Manager, be any of the following:

 

(i)            a member, partner, equity holder, manager, director, officer or employee of the Company or any of its equity holders or Affiliates (other than as an independent director, independent manager or special member of the Company or an Affiliate of the Company that is not in the direct chain of ownership of the Company and that is required by a creditor to be a single purpose bankruptcy remote entity); provided, that the indirect or beneficial ownership of stock of the Member or its Affiliates through a mutual fund or similar diversified investment vehicle with respect to which the owner does not have discretion or control over the investments held by such diversified investment vehicle shall not preclude such owner from being an Independent Manager;

 

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(ii)            a creditor, supplier or service provider (including provider of professional services) to the Company, the Member or any of their respective equity holders or Affiliates (other than a nationally-recognized company that routinely provides professional Independent Managers and other corporate services to the Company, the Member or any of its Affiliates in the ordinary course of its business);

 

(iii)           a family member of any such member, partner, equity holder, manager, director, officer, employee, creditor, supplier or service provider; or

 

(iv)           a Person that controls (whether directly, indirectly or otherwise) any of (i), (ii) or (iii) above.

 

A natural person who otherwise satisfies the foregoing definition and satisfies subparagraph (i) by reason of being the independent manager or independent director of a “special purpose entity” affiliated with the Company shall be qualified to serve as an Independent Manager of the Company, provided that the fees that such individual earns from serving as an independent manager or independent director of affiliates of the Company in any given year constitute in the aggregate less than five percent (5%) of such individual’s annual income for that year. For purposes of this paragraph, a “special purpose entity” is an entity, whose organizational documents contain restrictions on its activities and impose requirements intended to preserve such entity’s separateness that are substantially similar to the Special Purpose Provisions (as hereinafter defined) of this Agreement.

 

The Company shall pay each Independent Manager annual fees totaling not more than $2,500 per year (the “Independent Manager Fee”). Such fees shall be determined without regard to the income of the Company, shall not be deemed to constitute distributions to the recipient of any profit, loss or capital of the Company and shall be considered a fixed Operating Expense of the Company. Each Manager, including each Independent Manager, is hereby deemed to be a “manager” within the meaning of Section 18-101(12) of the LLC Act.

 

Promptly following any resignation or replacement of any Independent Manager, the Member shall give written notice to each applicable Rating Agency of any such resignation or replacement.

 

(b)            Subject to Sections 1.07 and 1.08 and Article VII hereof, to conduct, manage and control the affairs and business of the Company, and to make such rules and regulations therefor consistent with the LLC Act and other applicable law and this Agreement.

 

(c)            To change the registered agent and office of the Company in Delaware from one location to another; to fix and locate from time to time one or more other offices of the Company; and to designate any place within or without the State of Delaware for the conduct of the business of the Company.

 

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SECTION 4.02 Compensation of Member. To the extent permitted by applicable law, the Company shall have authority to reimburse the Member for out-of-pocket expenses incurred by the Member in connection with its service to the Company. It is understood that the compensation paid to the Member under the provisions of this Section 4.02 shall be determined without regard to the income of the Company, shall not be deemed to constitute distributions to the recipient of any profit, loss or capital of the Company and shall be considered an On-going Financing Cost of the Company subject to the limitations on such expenses set forth in the Financing Order.

 

SECTION 4.03 Other Ventures. Notwithstanding any duties (including fiduciary duties) otherwise existing at law or in equity, it is expressly agreed that the Member, the Managers and any Affiliates, officers, directors, managers, stockholders, partners or employees of the Member, may engage in other business ventures of any nature and description, whether or not in competition with the Company, independently or with others, and the Company shall not have any rights in and to any independent venture or activity or the income or profits derived therefrom.

 

SECTION 4.04 Actions by the Member. All actions of the Member may be taken by written resolution of the Member which shall be signed on behalf of the Member by an authorized officer of the Member and filed with the records of the Company.

 

ARTICLE V

 

OFFICERS

 

SECTION 5.01 Designation; Term; Qualifications.

 

(a)            Officers. Subject to the last sentence of this Section 5.01(a), the Managers may, from time to time, designate one or more Persons to be officers of the Company. Any officer so designated shall have such title and authority and perform such duties as the Managers may, from time to time, delegate to them. Each officer shall hold office for the term for which such officer is designated and until its successor shall be duly designated and shall qualify or until its death, resignation or removal as provided in this Agreement. Any Person may hold any number of offices. No officer need be a Manager, the Member, a Delaware resident, or a United States citizen. The Member hereby appoints the Persons identified on Schedule C to be the officers of the Company.

 

(b)            President. The President shall be the chief executive officer of the Company, shall preside at all meetings of the Managers, shall be responsible for the general and active management of the business of the Company and shall see that all orders and resolutions of the Managers are carried into effect. The President or any other officer authorized by the President or the Managers may execute all contracts, except: (i) where required or permitted by law or this Agreement to be otherwise signed and executed, including Section 1.08; and (ii) where signing and execution thereof shall be expressly delegated by the Managers to some other officer or agent of the Company.

 

(c)            Vice President. In the absence of the President or in the event of the President’s inability to act, the Vice President, if any (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Managers, or in the absence of any designation, then in the order of their election), shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents, if any, shall perform such other duties and have such other powers as the Managers may from time to time prescribe.

 

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(d)            Secretary and Assistant Secretary. The Secretary shall be responsible for filing legal documents and maintaining records for the Company. The Secretary shall attend all meetings of the Managers and record all the proceedings of the meetings of the Company and of the Managers in a book to be kept for that purpose and shall perform like duties for the standing committees when required. The Secretary shall give, or shall cause to be given, notice of all meetings of the Member, if any, and special meetings of the Managers, and shall perform such other duties as may be prescribed by the Managers or the President, under whose supervision the Secretary shall serve. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Managers (or if there be no such determination, then in order of their designation), shall, in the absence of the Secretary or in the event of the Secretary’s inability to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Managers may from time to time prescribe.

 

(e)            Treasurer and Assistant Treasurer. The Treasurer shall have the custody of the Company funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Company and shall deposit all moneys and other valuable effects in the name and to the credit of the Company in such depositories as may be designated by the Manager. The Treasurer shall disburse the funds of the Company as may be ordered by the Manager, taking proper vouchers for such disbursements, and shall render to the President and to the Managers, at its regular meetings or when the Managers so require, an account of all of the Treasurer’s transactions and of the financial condition of the Company. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Managers (or if there be no such determination, then in the order of their designation), shall, in the absence of the Treasurer or in the event of the Treasurer’s inability to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Managers may from time to time prescribe.

 

(f)            Officers as Agents. The officers of the Company, to the extent their powers as set forth in this Agreement or otherwise vested in them by action of the Managers are not inconsistent with this Agreement, are agents of the Company for the purpose of the Company’s business and, subject to Section 1.08, the actions of the officers taken in accordance with such powers shall bind the Company.

 

(g)            Duties of Managers and Officers. Except to the extent otherwise provided herein, each Manager (other than the Independent Managers) and officer of the Company shall have a fiduciary duty of loyalty and care similar to that of directors and officers of business corporations organized under the General Corporation Law of the State of Delaware.

 

SECTION 5.02 Removal and Resignation. Any officer of the Company may be removed as such, with or without cause, by the Managers at any time. Any officer of the Company may resign as such at any time upon written notice to the Company. Such resignation shall be made in writing and shall take effect at the time specified therein or, if no time is specified therein, at the time of its receipt by the Managers.

 

SECTION 5.03 Vacancies. Any vacancy occurring in any office of the Company may be filled by the Managers.

 

SECTION 5.04 Compensation. The compensation, if any, of the officers of the Company shall be fixed from time to time by the Managers. Such compensation shall be determined without regard to the income of the Company, shall not be deemed to constitute distributions to the recipient of any profit, loss or capital of the Company and shall be considered a fixed Operating Expense of the Company subject to the limitations on such expenses set forth in the Financing Order.

 

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ARTICLE VI

 

MEMBERSHIP INTEREST

 

SECTION 6.01 General. “Membership Interest” means the limited liability company interest of the Member in the Company. The Membership Interest constitutes personal property and, subject to Section 6.06, shall be freely transferable and assignable in whole but not in part upon registration of such transfer and assignment on the books of the Company in accordance with the procedures established for such purpose by the Managers of the Company.

 

SECTION 6.02 Distributions. The Member shall be entitled to receive, out of the assets of the Company legally available therefor, distributions payable in cash in such amounts, if any, as the Managers shall declare. Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not make a distribution to the Member on account of its interest in the Company if such distribution would violate the LLC Act or any other applicable law or any Basic Document.

 

SECTION 6.03 Rights on Liquidation, Dissolution or Winding Up.

 

(a)            In the event of any liquidation, dissolution or winding up of the Company, the Member shall be entitled to all remaining assets of the Company available for distribution to the Member after satisfaction (whether by payment or reasonable provision for payment) of all liabilities, debts and obligations of the Company.

 

(b)            Neither the sale of all or substantially all of the property or business of the Company, nor the merger or consolidation of the Company into or with another Person or other entity, shall be deemed to be a dissolution, liquidation or winding up, voluntary or involuntary, for the purpose of this Section 6.03.

 

SECTION 6.04 Redemption. The Membership Interest shall not be redeemable.

 

SECTION 6.05 Voting Rights. Subject to the terms of this Agreement, the Member shall have the sole right to vote on all matters as to which members of a limited liability company shall be entitled to vote pursuant to the LLC Act and other applicable law.

 

SECTION 6.06 Transfer of Membership Interests.

 

(a)            The Member may transfer its Membership Interest, in whole but not in part, but the transferee shall not be admitted as a Member except in accordance with Section 6.07. Until the transferee is admitted as a Member, the Member shall continue to be the sole member of the Company (subject to Section 1.02) and to be entitled to exercise any rights or powers of a Member of the Company with respect to the Membership Interest transferred.

 

(b)            A Member may not hold, sell, assign, pledge or otherwise transfer its Membership Interest in whole or in part to (1) an “employee benefit plan” (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)) that is subject to Title I of ERISA, a “plan” as defined in Section 4975(e)(1) of the Code that is subject to Section 4975 of the Code or an entity that is deemed to hold “plan assets” of any of the foregoing by reason of such employee benefit plan’s or plan’s investment in the entity or (2) a governmental, church or non-U.S. plan that is subject to any federal, state, local or other laws or regulations that are substantially similar to Title I of ERISA or Section 4975 of the Code.

 

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(c)            To the fullest extent permitted by law, any purported transfer of any Membership Interest in violation of the provisions of this Agreement shall be wholly void and shall not effectuate the transfer contemplated thereby. Notwithstanding anything contained herein to the contrary and to the fullest extent permitted by law, the Member may not transfer any Membership Interest in violation of any provision of this Agreement or in violation of any applicable federal or state securities laws.

 

SECTION 6.07 Admission of Transferee as Member.

 

(a)            A transferee of a Membership Interest desiring to be admitted as a Member must execute a counterpart of, or an agreement adopting, this Agreement and, except as permitted by paragraph (b) below, shall not be admitted without unanimous affirmative vote of the Managers, which vote must include the affirmative vote of each Independent Manager. Upon admission of the transferee as a Member, the transferee shall have the rights, powers and duties and shall be subject to the restrictions and liabilities of the Member under this Agreement and the LLC Act. The transferee shall also be liable, to the extent of the Membership Interest transferred, for the unfulfilled obligations, if any, of the transferor Member to make capital contributions to the Company, but shall not be obligated for liabilities unknown to the transferee at the time such transferee was admitted as a Member and that could not be ascertained from this Agreement. Except as set forth in paragraph (b) below, whether or not the transferee of a Membership Interest becomes a Member, the Member transferring the Membership Interest is not released from any liability to the Company under this Agreement or the LLC Act.

 

(b)            The approval of the Managers, including each Independent Manager, shall not be required for the transfer of the Membership Interest from the Member to any successor pursuant to Section 5.02 of the Sale Agreement or the admission of such Person as a Member. Once the transferee of a Membership Interest pursuant to this paragraph (b) becomes a Member, the prior Member shall cease to be a member of the Company and shall be released from any liability to the Company under this Agreement and the LLC Act.

 

ARTICLE VII

 

MANAGERS

 

SECTION 7.01 Managers.

 

(a)            Subject to Sections 1.07 and 1.08, the business and affairs of the Company shall be managed by or under the direction of three or more Managers designated by the Member. Subject to the terms of this Agreement, the Member may determine at any time in its sole and absolute discretion the number of Managers. Subject in all cases to the terms of this Agreement, the authorized number of Managers may be increased or decreased by the Member at any time in its sole and absolute discretion, upon notice to all Managers; provided, that, except as provided in Section 7.06, at all times the Company shall have at least one Independent Manager. The initial number of Managers shall be three, one of which shall be an Independent Manager. Each Manager designated by the Member shall hold office until a successor is elected and qualified or until such Manager’s earlier death, resignation, expulsion or removal. Each Manager shall execute and deliver the Management Agreement in the form attached hereto as Exhibit A. Managers need not be a Member. The initial Managers designated by the Member are listed on Schedule B hereto.

 

(b)            Each Manager shall be designated by the Member and shall hold office for the term for which designated and until a successor has been designated.

 

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(c)            The Managers shall be obliged to devote only as much of their time to the Company’s business as shall be reasonably required in light of the Company’s business and objectives. Subject to Section 7.02, a Manager shall perform his or her duties as a Manager in good faith, in a manner he or she reasonably believes to be in the best interests of the Company, and with such care as an ordinarily prudent Person in a like position would use under similar circumstances.

 

(d)            Except as otherwise provided in this Agreement, the Managers shall act by the affirmative vote of a majority of the Managers. Each Manager shall have the authority to sign duly authorized agreements and other instruments on behalf of the Company without the joinder of any other Manager.

 

(e)            Subject to the terms of this Agreement, any action may be taken by the Managers without a meeting and without prior notice if authorized by the written consent of a majority of the Managers (or such greater number as is required by this Agreement), which written consent shall be filed with the records of the Company.

 

(f)            Every Manager is an agent of the Company for the purpose of its business, and the act of every Manager, including the execution in the Company name of any instrument for carrying on the business of the Company, binds the Company, unless such act is in contravention of this Agreement or unless the Manager so acting otherwise lacks the authority to act for the Company and the Person with whom he or she is dealing has knowledge of the fact that he or she has no such authority.

 

(g)            To the extent permitted by law, the Managers shall not be personally liable for the Company’s debts, obligations or liabilities.

 

SECTION 7.02 Powers of the Managers. Subject to the terms of this Agreement, the Managers shall have the right and authority to take all actions which the Managers deem incidental, necessary, suitable or convenient for the day-to-day management and conduct of the Company’s business.

 

Each Independent Manager may not delegate his, hers or its duties, authorities or responsibilities hereunder. If any Independent Manager resigns, dies or becomes incapacitated, or such position is otherwise vacant, no action requiring the unanimous affirmative vote of the Managers shall be taken until a successor Independent Manager is appointed by the Member and qualifies and approves such action.

 

To the fullest extent permitted by law, including Section 18-1101(c) of the LLC Act, and notwithstanding any duty otherwise existing at law or in equity, the Independent Managers shall consider only the interests of the Company, including its creditors, in acting or otherwise voting on the matters referred to in Section 1.08. Except for duties to the Company as set forth in the immediately preceding sentence (including duties to the Member and the Company’s creditors solely to the extent of their respective economic interests in the Company but excluding (i) all other interests of the Member, (ii) the interests of other Affiliates of the Company, and (iii) the interests of any group of Affiliates of which the Company is a part), the Independent Managers shall not have any fiduciary duties to the Member, any Manager or any other Person bound by this Agreement; provided, however, the foregoing shall not eliminate the implied contractual covenant of good faith and fair dealing. To the fullest extent permitted by law, including Section 18-1101(e) of the LLC Act, an Independent Manager shall not be liable to the Company, the Member or any other Person bound by this Agreement for breach of contract or breach of duties (including fiduciary duties), unless the Independent Manager acted in bad faith or engaged in willful misconduct.

 

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No Independent Manager shall at any time serve as trustee in bankruptcy for any Affiliate of the Company.

 

Subject to the terms of this Agreement, the Managers may exercise all powers of the Company and do all such lawful acts and things as are not prohibited by the LLC Act, other applicable law or this Agreement directed or required to be exercised or done by the Member. All duly authorized instruments, contracts, agreements and documents providing for the acquisition or disposition of property of the Company shall be valid and binding on the Company if executed by one or more of the Managers.

 

Notwithstanding the terms of Section 7.01, 7.07 or 7.09 or any provision of this Agreement to the contrary, (x) no meeting or vote with respect to any action described in clause (b), (c) or (g) of Section 1.08 or any amendment to any of the Special Purpose Provisions (as hereinafter defined) shall be conducted unless each Independent Manager is present and (y) neither the Company nor the Member, any Manager or any officer on behalf of the Company shall (i) take any action described in clause (b), (c) or (g) of Section 1.08 or (ii) adopt any amendment to any of the Special Purpose Provisions unless each Independent Manager has consented thereto. The vote or consent of an Independent Manager with respect to any such action or amendment shall not be dictated by the Member or any other Manager or officer of the Company.

 

SECTION 7.03 Compensation. To the extent permitted by applicable law, the Company may reimburse any Manager, directly or indirectly, for out-of-pocket expenses incurred by such Manager in connection with its services rendered to the Company. Such compensation shall be determined by the Managers without regard to the income of the Company, shall not be deemed to constitute distributions to the recipient of any profit, loss or capital of the Company and shall be considered a fixed Operating Expense of the Company subject to the limitations on such expenses set forth in the Financing Order.

 

SECTION 7.04 Removal of Managers.

 

(a)            Subject to Section 4.01, the Member may remove any Manager with or without cause at any time.

 

(b)            Subject to Sections 4.01 and 7.05, any removal of a Manager shall become effective on such date as may be specified by the Member and in a notice delivered to any remaining Managers or the Manager designated to replace the removed Manager (except that it shall not be effective on a date earlier than the date such notice is delivered to the remaining Managers or the Manager designated to replace the removed Manager). Should a Manager be removed who is also the Member, the Member shall continue to participate in the Company as the Member and receive its share of the Company’s income, gains, losses, deductions and credits pursuant to this Agreement.

 

SECTION 7.05 Resignation of Manager. A Manager other than an Independent Manager may resign as a Manager at any time by thirty (30) days’ prior notice to the Member. An Independent Manager may not withdraw or resign as a Manager of the Company without the consent of the Member. No resignation or removal of an Independent Manager, and no appointment of a successor Independent Manager, shall be effective until such successor (i) shall have accepted his or her appointment as an Independent Manager by a written instrument, which may be a counterpart signature page to the Management Agreement in the form attached hereto as Exhibit A, and (ii) shall have executed a counterpart to this Agreement.

 

SECTION 7.06 Vacancies. Subject to Section 4.01, any vacancies among the Managers may be filled by the Member. In the event of a vacancy in the position of Independent Manager, the Member shall, as soon as practicable, appoint a successor Independent Manager, subject to the ratification by the Commission.

 

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Notwithstanding anything to the contrary contained in this Agreement, no Independent Manager shall be removed or replaced unless the Company provides the Indenture Trustee with no less than two (2) Business Days’ prior written notice of (a) any proposed removal of such Independent Manager, and (b) the identity of the proposed replacement Independent Manager, together with a certification that such replacement satisfies the requirements for an Independent Manager set forth in this Agreement.

 

SECTION 7.07 Meetings of the Managers. The Managers may hold meetings, both regular and special, within or outside the State of Delaware. Regular meetings of the Managers may be held without notice at such time and at such place as shall from time to time be determined by the Managers. Special meetings of the Managers may be called by the President on not less than one day’s notice to each Manager by telephone, facsimile, mail, telegram or any other means of communication, and special meetings shall be called by the President or Secretary in like manner and with like notice upon the written request of any one or more of the Managers.

 

SECTION 7.08 Electronic Communications. Managers, or any committee designated by the Managers, may participate in meetings of the Managers, or any committee, by means of telephone conference or similar communications equipment that allows all Persons participating in the meeting to hear each other, and such participation in a meeting shall constitute presence in Person at the meeting. If all the participants are participating by telephone conference or similar communications equipment, the meeting shall be deemed to be held at the principal place of business of the Company.

 

SECTION 7.09 Committees of Managers.

 

(a)            The Managers may, by resolution passed by a majority of the Managers, designate one or more committees, each committee to consist of one or more of the Managers. The Managers may designate one or more Managers as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.

 

(b)            In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such members constitute a quorum, may unanimously appoint another Manager to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Managers, shall have and may exercise all the powers and authority of the Managers in the management of the business and affairs of the Company. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Managers. Each committee shall keep regular minutes of its meetings and report the same to the Managers when required.

 

SECTION 7.10 Limitations on Independent Managers. All right, power and authority of each Independent Manager shall be limited to the extent necessary to exercise those rights and perform those duties specifically set forth in this Agreement.

 

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ARTICLE VIII

 

EXPENSES

 

SECTION 8.01 Expenses. Except as otherwise provided in this Agreement or the other Basic Documents, the Company shall be responsible for all expenses and the allocation thereof including without limitation:

 

(a)            all expenses incurred by the Member or its Affiliates in organizing the Company;

 

(b)            all expenses related to the business of the Company and all routine administrative expenses of the Company, including the maintenance of books and records of the Company, and the preparation and dispatch to the Member of checks, financial reports, tax returns and notices required pursuant to this Agreement;

 

(c)            all expenses incurred in connection with any litigation or arbitration involving the Company (including the cost of any investigation and preparation) and the amount of any judgment or settlement paid in connection therewith;

 

(d)            all expenses for indemnity or contribution payable by the Company to any Person;

 

(e)            all expenses incurred in connection with the collection of amounts due to the Company from any Person;

 

(f)            all expenses incurred in connection with the preparation of amendments to this Agreement;

 

(g)            all expenses incurred in connection with the liquidation, dissolution and winding up of the Company; and

 

(h)            all expenses otherwise allocated in good faith to the Company by the Managers.

 

ARTICLE IX

 

PERPETUAL EXISTENCE; DISSOLUTION, LIQUIDATION AND WINDING-UP

 

SECTION 9.01 Existence.

 

(a)            The Company shall have a perpetual existence. So long as any of the Storm Recovery Bonds are outstanding, the Member shall not be entitled to consent to the dissolution of the Company.

 

(b)            Notwithstanding any provision of this Agreement, the Bankruptcy of the Member or Special Member will not cause such Member or Special Member, respectively, to cease to be a member of the Company, and upon the occurrence of such an event, the business of the Company shall continue without dissolution. For purposes of this Section 9.01(b), “Bankruptcy” means, with respect to any Person (A) if such Person (i) makes an assignment for the benefit of creditors, (ii) files a voluntary petition in bankruptcy, (iii) is adjudged a bankrupt or insolvent, or has entered against it an order for relief, in any bankruptcy or insolvency proceedings, (iv) files a petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation or similar relief under any statute, law or regulation, (v) files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against it in any proceeding of this nature, or (vi) seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator of the Person or of all or any substantial part of its properties, or (B) if 120 days after the commencement of any proceeding against the Person seeking reorganization, arrangement, composition, readjustment, liquidation or similar relief under any statute, law or regulation, if the proceeding has not been dismissed or if within 90 days after the appointment without such Person’s consent or acquiescence of a trustee, receiver or liquidator of such Person or of all or any substantial part of its properties, the appointment is not vacated or stayed, or within 90 days after the expiration of any such stay, the appointment is not vacated. The foregoing definition of “Bankruptcy” is intended to replace and shall supersede and replace the definition of “Bankruptcy” set forth in Sections 18-101(1) and 18-304 of the LLC Act. Upon the occurrence of any event that causes the last remaining member of the Company to cease to be a member of the Company or that causes the Member to cease to be a member of the Company (other than upon continuation of the Company without dissolution upon an assignment by the Member of all of its limited liability company interest in the Company and the admission of the transferee pursuant to Sections 6.06 and 6.07), to the fullest extent permitted by law, the personal representative of such member is hereby authorized to, and shall, within ninety (90) days after the occurrence of the event that terminated the continued membership of such member in the Company, agree in writing (i) to continue the Company and (ii) to the admission of the personal representative or its nominee or designee, as the case may be, as a substitute member of the Company, effective as of the occurrence of the event that terminated the continued membership of the last remaining member of the Company or the Member in the Company.

 

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SECTION 9.02 Dissolution. The Company shall be dissolved and its affairs shall be wound up upon the occurrence of the earliest of the following events:

 

(a)            subject to Section 1.08, the election to dissolve the Company made in writing by the Member and each Manager, including each Independent Manager, as permitted under the Basic Documents and after the discharge in full of the Storm Recovery Bonds;

 

(b)            the termination of the legal existence of the last remaining member of the Company or the occurrence of any event that causes the last remaining member of the Company to cease to be a member of the Company unless the business of the Company is continued without dissolution in a manner permitted by the LLC Act or this Agreement; or

 

(c)            the entry of a decree of judicial dissolution of the Company pursuant to Section 18-802 of the LLC Act.

 

SECTION 9.03 Accounting. In the event of the dissolution, liquidation and winding-up of the Company, a proper accounting shall be made of the Capital Account of the Member and of the net income or net loss of the Company from the date of the last previous accounting to the date of dissolution.

 

SECTION 9.04 Certificate of Cancellation. As soon as possible following the occurrence of any of the events specified in Section 9.02 and the completion of the winding up of the Company, the Person winding up the business and affairs of the Company, as an authorized person, shall cause to be executed a Certificate of Cancellation of the Certificate of Formation and file the Certificate of Cancellation of the Certificate of Formation as required by the LLC Act.

 

SECTION 9.05 Winding Up. Upon the occurrence of any event specified in Section 9.02, the Company shall continue solely for the purpose of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors. The Member, or if there is no Member, the Managers, shall be responsible for overseeing the winding up and liquidation of the Company, shall take full account of the liabilities of the Company and its assets, shall either cause its assets to be sold or distributed, and if sold as promptly as is consistent with obtaining the fair market value thereof, shall cause the proceeds therefrom, to the extent sufficient therefor, to be applied and distributed as provided in Section 9.06.

 

SECTION 9.06 Order of Payment of Liabilities Upon Dissolution. After determining that all debts and liabilities of the Company, including all contingent, conditional or unmatured liabilities of the Company, in the process of winding-up, including, without limitation, debts and liabilities to the Member in the event it is a creditor of the Company to the extent otherwise permitted by law, have been paid or adequately provided for, the remaining assets shall be distributed in cash or in kind to the Member.

 

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SECTION 9.07 Limitations on Payments Made in Dissolution. Except as otherwise specifically provided in this Agreement, the Member shall only be entitled to look solely to the assets of Company for the return of its positive Capital Account balance and shall have no recourse for its Capital Contribution and/or share of net income (upon dissolution or otherwise) against any Manager.

 

SECTION 9.08 Limitation on Liability. Except as otherwise provided by the LLC Act and except as otherwise characterized for tax and financial reporting purposes, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no Member or Manager shall be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Member or a Manager.

 

ARTICLE X

 

INDEMNIFICATION

 

SECTION 10.01 Indemnity. Subject to the provisions of Section 10.04 hereof, to the fullest extent permitted by law, the Company shall indemnify any Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the Company, by reason of the fact that such Person is or was a Manager, Member, officer, controlling Person, legal representative or agent of the Company, or is or was serving at the request of the Company as a member, manager, director, officer, partner, shareholder, controlling Person, legal representative or agent of another limited liability company, partnership, corporation, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by such Person in connection with the action, suit or proceeding if such Person acted in good faith and in a manner which such Person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to a criminal action or proceeding, had no reasonable cause to believe such Person’s conduct was unlawful; provided that such Person shall not be entitled to indemnification if such judgment, penalty, fine or other expense was directly caused by such Person’s fraud, gross negligence or willful misconduct or, in the case of an Independent Manager, bad faith or willful misconduct.

 

SECTION 10.02 Indemnity for Actions By or In the Right of the Company. Subject to the provisions of Section 10.04 hereof, to the fullest extent permitted by law, the Company shall indemnify any Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the rights of the Company to procure a judgment in its favor by reason of the fact that such Person is or was a Member, Manager, officer, controlling Person, legal representative or agent of the Company, or is or was serving at the request of the Company as a member, manager, director, officer, partner, shareholder, controlling Person, legal representative or agent of another limited liability company, corporation, partnership, joint venture, trust or other enterprise, against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by such Person in connection with the defense or settlement of the actions or suit if such Person acted in good faith and in a manner which such Person reasonably believed to be in or not opposed to the best interests of the Company; provided that such Person shall not be entitled to indemnification if such judgment, penalty, fine or other expense was directly caused by such Person’s fraud, gross negligence or willful misconduct or, in the case of an Independent Manager, bad faith or willful misconduct. Indemnification may not be made for any claim, issue or matter as to which such Person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the Company or for amounts paid in settlement to the Company, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the Person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

 

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SECTION 10.03 Indemnity If Successful. To the fullest extent permitted by law, the Company shall indemnify any Person who is or was a Manager, Member, officer, controlling Person, legal representative or agent of the Company, or is or was serving at the request of the Company as a member, manager, director, officer, partner, shareholder, controlling Person, legal representative or agent of another limited liability company, corporation, partnership, joint venture, trust or other enterprise against expenses, including reasonable attorneys’ fees, actually and reasonably incurred by him or her in connection with the defense of any action, suit or proceeding referred to in Sections 10.01 and 10.02 or in defense of any claim, issue or matter therein, to the extent that such Person has been successful on the merits.

 

SECTION 10.04 Expenses. Any indemnification under Sections 10.01 and 10.02, as well as the advance payment of expenses permitted under Section 10.05 unless ordered by a court or advanced pursuant to Section 10.05 below, must be made by the Company only as authorized in the specific case upon a determination that indemnification of the Manager, Member, officer, controlling Person, legal representative or agent is proper in the circumstances. The determination must be made:

 

(a)            by the Member if the Member was not a party to the act, suit or proceeding; or

 

(b)            if the Member was a party to the act, suit or proceeding by independent legal counsel in a written opinion.

 

SECTION 10.05 Advance Payment of Expenses. The expenses of each Person who is or was a Manager, Member, officer, controlling Person, legal representative or agent, or is or was serving at the request of the Company as a member, manager, director, officer, partner, shareholder, controlling Person, legal representative or agent of another limited liability company, corporation, partnership, joint venture, trust or other enterprise, incurred in defending a civil or criminal action, suit or proceeding may be paid by the Company as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of such Person to repay the amount if it is ultimately determined by a court of competent jurisdiction that such Person is not entitled to be indemnified by the Company. The provisions of this Section 10.05 shall not affect any rights to advancement of expenses to which personnel other than the Member or the Managers (other than each Independent Manager) may be entitled under any contract or otherwise by law.

 

SECTION 10.06 Other Arrangements Not Excluded. The indemnification and advancement of expenses authorized in or ordered by a court pursuant to this Article X:

 

(a)            does not exclude any other rights to which a Person seeking indemnification or advancement of expenses may be entitled under any agreement, decision of the Member, consent or action of the Managers, or otherwise, for either an action of any Person who is or was a Manager, Member, officer, controlling Person, legal representative or agent, or is or was serving at the request of the Company as a member, manager, director, officer, partner, shareholder, controlling Person, legal representative or agent of another limited liability company, corporation, partnership, joint venture, trust or other enterprise, in the official capacity of such Person or an action in another capacity while holding such position, except that indemnification and advancement, unless ordered by a court pursuant to Section 10.05 above, may not be made to or on behalf of such Person if a final adjudication established that its acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and were material to the cause of action; and

 

(b)            continues for a Person who has ceased to be a Member, Manager, officer, legal representative or agent and inures to the benefit of the successors, heirs, executors and administrators of such a Person.

 

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ARTICLE XI

 

MISCELLANEOUS PROVISIONS

 

SECTION 11.01 No Bankruptcy Petition; Dissolution.

 

(a)            To the fullest extent permitted by law, the Member, each Special Member and each Manager hereby covenant and agree (or shall be deemed to have hereby covenanted and agreed) that, prior to the date which is one year and one day after the termination of the Indenture and the payment in full of the Storm Recovery Bonds and any other amounts owed under the Indenture, it will not acquiesce, petition or otherwise invoke or cause the Company to invoke the process of any court or Governmental Authority for the purpose of commencing or sustaining an involuntary case against the Company under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Company or any substantial part of the property of the Company, or ordering the winding up or liquidation of the affairs of the Company; provided, however, that nothing in this Section 11.01 shall constitute a waiver of any right to indemnification, reimbursement or other payment from the Company pursuant to this Agreement. This Section 11.01 is not intended to apply to the filing of a voluntary bankruptcy petition on behalf of the Company which is governed by Section 1.08 of this Agreement.

 

(b)            To the fullest extent permitted by law, the Member, each Special Member and each Manager hereby covenant and agree (or shall be deemed to have hereby covenanted and agreed) that, until the termination of the Indenture and the payment in full of the Storm Recovery Bonds and any other amounts owed under the Indenture, the Member, such Special Member and such Manager will not consent to, or make application for, or institute or maintain any action for, the dissolution of the Company under Section 18-801 or 18-802 of the LLC Act or otherwise.

 

(c)            In the event that the Member, any Special Member or any Manager takes action in violation of this Section 11.01, the Company agrees that it shall file an answer with the court or otherwise properly contest the taking of such action and raise the defense that the Member, the Special Member or Manager, as the case may be, has agreed in writing not to take such action and should be estopped and precluded therefrom and such other defenses, if any, as its counsel advises that it may assert.

 

(d)            The provisions of this Section 11.01 shall survive the termination of this Agreement and the resignation, withdrawal or removal of the Member, any Special Member or any Manager. Nothing herein contained shall preclude participation by the Member, any Special Member or a Manager in assertion or defense of its claims in any such proceeding involving the Company.

 

SECTION 11.02 Amendments.

 

(a)            The power to alter, amend or repeal this Agreement shall be only with the consent of the Member, provided, that the Company shall not alter, amend or repeal any provision of Sections 1.02(b) and (c), 1.05, 1.07, 1.08, 3.01(b), 3.02, 6.06, 6.07, 7.02, 7.05, 7.06, 9.01, 9.02, 11.02 and 11.07 of this Agreement or the definition of “Independent Manager” contained herein or the requirement that at all times the Company have at least one Independent Manager (collectively, the “Special Purpose Provisions”) without, in each case, the affirmative vote of a majority of the Managers, which vote must include the affirmative vote of each Independent Manager. So long as any of the Storm Recovery Bonds are outstanding, the Company and the Member shall give written notice to each applicable Rating Agency of any amendment to this Agreement. The effectiveness of any amendment of the Special Purpose Provisions shall be subject to the Rating Agency notice conditions set forth in the Basic Documents (other than an amendment which is necessary: (i) to cure any ambiguity or (ii) to correct or supplement any such provision in a manner consistent with the intent of this Agreement).

 

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(b)            The Company’s power to alter or amend the Certificate of Formation shall be vested in the Member. Upon obtaining the approval of any amendment, supplement or restatement as to the Certificate of Formation, the Member on behalf of the Company shall cause a Certificate of Amendment or Amended and Restated Certificate of Formation to be prepared, executed and filed in accordance with the LLC Act.

 

(c)            Notwithstanding anything in this Agreement to the contrary, including Sections 11.02(a) and (b), unless and until the Storm Recovery Bonds are issued and outstanding, the Member may, without the need for any consent or action of, or notice to, any other Person, including any Manager, any officer, the Indenture Trustee or any Rating Agency, alter, amend or repeal this Agreement in any manner.

 

SECTION 11.03 Commission Condition. Notwithstanding anything to the contrary in Section 11.02, no amendment or modification of this Agreement that the Member determines has a reasonable possibility to impact the rates borne by customers shall be effective unless the process set forth in this Section 11.03 has been followed.

 

(a)            At least thirtieth (30) days prior to the effectiveness of any such amendment or modification and after obtaining the other necessary approvals set forth in Section 11.02 above (except that the consent of the Indenture Trustee may be subject to the consent of Holders of the Storm Recovery Bonds if such consent is required or sought by the Indenture Trustee in connection with such amendment or modification), the Member shall have filed in Commission Docket No. 2023-89-E written notification of any proposed amendment, with a copy delivered to the Director of the Commission and the Executive Director of the Office of Regulatory Staff, which notification shall contain:

 

(i)            a reference to Docket No. 2023-89-E;

 

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

 

(iii)            a description of the proposed amendment, including the purpose of such amendment.

 

(b)            No later than 5:00 p.m. on the 30^th business day after receipt of notice of a proposed amendment complying with subparagraph(i), the Commission shall issue an order either (i) approving the proposed amendment or (ii) preventing the adoption such amendment or modification. Following the delivery of an order from the Commission to the Member under subparagraph (b), the Member and the Company shall have the right at any time to withdraw from the Commission further consideration of any proposed amendment. The fact that the Administrator delivers notice to the Commission pursuant to this Section 11.03(b) does not obligate the Administrator to amend the Agreement as provided in the notice.

 

SECTION 11.04 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

 

SECTION 11.05 Headings. The headings of the various Articles and Sections herein are for convenience of reference only and shall not define or limit any of the terms or provisions hereof.

 

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SECTION 11.06 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remainder of such provision (if any) or the remaining provisions hereof (unless such construction shall be unreasonable), and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

 

SECTION 11.07 Assigns. Each and all of the covenants, terms, provisions and agreements contained in this Agreement shall be binding upon and inure to the benefit of the Member, and its permitted successors and assigns.

 

SECTION 11.08 Enforcement by Each Independent Manager. Notwithstanding any other provision of this Agreement, the Member agrees that this Agreement constitutes a legal, valid and binding agreement of the Member, and is enforceable against the Member by each Independent Manager in accordance with its terms.

 

SECTION 11.09 Waiver of Partition; Nature of Interest. Except as otherwise expressly provided in this Agreement, to the fullest extent permitted by law, each of the Member and the Special Members hereby irrevocably waives any right or power that such Person might have to cause the Company or any of its assets to be partitioned, to cause the appointment of a receiver for all or any portion of the assets of the Company, to compel any sale of all or any portion of the assets of the Company pursuant to any applicable law or to file a complaint or to institute any proceeding at law or in equity to cause the dissolution, liquidation, winding up or termination of the Company. The Member shall not have any interest in any specific assets of the Company, and the Member shall not have the status of a creditor with respect to any distribution pursuant to this Agreement.

 

SECTION 11.10 Benefits of Agreement; No Third-Party Rights. Except for the Indenture Trustee with respect to the Special Purpose Provisions and Persons entitled to indemnification hereunder, none of the provisions of this Agreement shall be for the benefit of or enforceable by any creditor of the Company or by any creditor of the Member or Special Member. Nothing in this Agreement shall be deemed to create any right in any Person (other than the Indenture Trustee with respect to the Special Purpose Provisions and Persons entitled to indemnification hereunder) not a party hereto, and this Agreement shall not be construed in any respect to be a contract in whole or in part for the benefit of any third Person.

 

[SIGNATURE PAGE FOLLOWS]

 

25

 

 

IN WITNESS WHEREOF, this Agreement is hereby executed by the undersigned as the sole Member of the Company and is effective as of the date first written above.

 

		DUKE ENERGY PROGRESS, LLC
		By:
		Name:
		Title:
ACKNOWLEDGED AND AGREED:
	,
as Independent Manager

 

Signature Page to Limited Liability Company Agreement

 

 

 

 

SCHEDULE A

 

SCHEDULE OF CAPITAL CONTRIBUTIONS OF MEMBER

 

MEMBER’S NAME	CAPITAL CONTRIBUTION		MEMBERSHIP INTEREST PERCENTAGE			CAPITAL ACCOUNT
Duke Energy Progress, LLC	$	100		100	%	$	100

 

SCHEDULE A

 

 

 

 

SCHEDULE B

 

INITIAL MANAGER

 

Karl W. Newlin

 

Cynthia S. Lee

 

Bernard J. Angelo

 

SCHEDULE B

 

 

 

 

SCHEDULE C

 

INITIAL OFFICERS

 

Name	Office
Karl W. Newlin	President, Treasurer and Chief Financial Officer
Cynthia S. Lee	Controller
Robert T. Lucas III	Secretary
Christopher R. Bauer	Assistant Treasurer
Michael S. Hendershott	Assistant Treasurer
David S. Maltz	Assistant Secretary
Cassandra M. Springer	Assistant Secretary

 

SCHEDULE C

 

 

 

 

EXHIBIT A

 

MANAGEMENT AGREEMENT

 

[filing date]

 

Duke Energy Progress SC Storm Funding LLC

411 Fayetteville Street

Raleigh, North Carolina 27601

 

Re: Management Agreement — Duke Energy Progress SC Storm Funding LLC

 

Ladies and Gentlemen:

 

For good and valuable consideration, each of the undersigned Persons, who have been designated as managers of Duke Energy Progress SC Storm Funding LLC, a Delaware limited liability company (the “Company”), in accordance with the Amended and Restated Limited Liability Company Agreement of the Company, dated as of [ ], 2024 (as it may be amended, restated, supplemented or otherwise modified from time to time, the “LLC Agreement”), hereby agree as follows:

 

1.            Each of the undersigned accepts such Person’s rights and authority as a Manager under the LLC Agreement and agrees to perform and discharge such Person’s duties and obligations as a Manager under the LLC Agreement, and further agrees that such rights, authorities, duties and obligations under the LLC Agreement shall continue until such Person’s successor as a Manager is designated or until such Person’s resignation or removal as a Manager in accordance with the LLC Agreement. Each of the undersigned agrees and acknowledges that it has been designated as a “manager” of the Company within the meaning of the Delaware Limited Liability Company Act.

 

2.            Until a year and one day has passed since the date that the last obligation under the Basic Documents was paid, to the fullest extent permitted by law, each of the undersigned agrees, solely in its capacity as a creditor of the Company on account of any indemnification or other payment owing to the undersigned by the Company, not to acquiesce, petition or otherwise invoke or cause the Company to invoke the process of any court or governmental authority for the purpose of commencing or sustaining a case against the Company under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Company or any substantial part of the property of the Company, or ordering the winding up or liquidation of the affairs of the Company.

 

3.            THIS MANAGEMENT AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.

 

Capitalized terms used and not otherwise defined herein have the meanings set forth in the LLC Agreement.

 

EXHIBIT A-1-2

 

 

This Management Agreement may be executed in any number of counterparts, each of which shall be deemed an original of this Management Agreement and all of which together shall constitute one and the same instrument.

 

IN WITNESS WHEREOF, the undersigned have executed this Management Agreement as of the day and year first above written.

 

 

EXHIBIT A-1-3

 

 

APPENDIX A

 

DEFINITIONS

 

As used in this Agreement, the following terms have the following meanings:

 

“Administration Agreement” means an administration agreement to be entered into between the Company and the Administrator pursuant to which the Administrator will provide certain management services to the Company.

 

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

 

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

 

“Agreement” has the meaning set forth in the preamble to this Agreement.

 

“Bankruptcy” is defined in Section 9.01(b) of this Agreement.

 

“Bankruptcy Code” means Title 11 of the United States Code (11 U.S.C. §§ 101 et seq.), as amended from time to time.

 

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

 

“Bill of Sale” means the bill of sale in connection with the sale of the Storm Recovery Property pursuant to the Sale Agreement.

 

“Capital Account” is defined in Section 2.03 of this Agreement.

 

“Capital Contribution” is defined in Section 2.01 of this Agreement.

 

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

 

“Clearing Agency” means an organization registered as a “clearing agency” pursuant to Section 17A of the Securities Exchange Act of 1934, as amended.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Collection Account” means the account established and maintained by the Indenture Trustee in connection with the Indenture and any subaccounts contained therein.

 

“Commission” means the South Carolina Public Service Commission.

 

EXHIBIT A-1-4

 

 

“Company” has the meaning set forth in the preamble to this Agreement.

 

“DEP” means Duke Energy Progress, LLC, a North Carolina limited liability company, and any of its successors or permitted assigns.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

“Financing Order” means the financing order issued by the Commission to DEP on as October 13, 2023, as amended on October 23, 2023, Docket No. 2023-89-E, authorizing the creation of the Storm Recovery Property.

 

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

 

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

 

“Indenture” means an Indenture to be entered into among the Company, the Indenture Trustee and U.S. Bank National Association as securities intermediary and account bank, authorizing the issuance of the Storm Recovery Bonds, as originally executed and, as from time to time supplemented or amended by any supplements or indentures supplemental thereto entered into pursuant to the applicable provisions of the Indenture, as so supplemented or amended, or both, and shall include the forms and terms of the Storm Recovery Bonds established thereunder.

 

“Indenture Trustee” means U.S. Bank Trust Company, National Association, a national banking association, as indenture trustee for the benefit of the Secured Parties, or any successor indenture trustee for the benefit of the Secured Parties, under the Indenture.

 

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

 

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

 

“Intercreditor Agreement” means the Intercreditor Agreement, dated December 20, 2013, by and among the Duke Energy Business Services, Inc., Duke Energy Corporate Services Inc., Duke Energy Corporation, Mizuho Bank, Ltd., the Bank of Nova Scotia, the Bank of Tokyo-Mitsubishi UFJ, Ltd., Duke Energy Carolinas, LLC, Duke Energy Ohio, Inc., Duke Energy Carolinas NC Storm Funding LLC, Duke Energy Progress Receivables LLC, Cinergy Receivables Company LLC and Duke Energy Receivables Finance Company, LLC, the Bank of New York Mellon Trust Company, N.A., the Indenture Trustee, Duke Energy Progress NC Storm Funding LLC, the Issuer, Duke Energy Progress, and any subsequent such agreement.

 

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

 

“LLC Act” means the Delaware Limited Liability Company Act, as amended.

 

“Manager” means each manager of the Company under this Agreement.

 

“Member” has the meaning set forth in the preamble to this Agreement.

 

EXHIBIT A-1-5

 

 

“Membership Interest” is defined in Section 6.01 of this Agreement.

 

“On-going Financing Cost” means the Financing Costs described as such in the Financing Order or a Subsequent Financing Order, including Operating Expenses and any other costs identified in the Basic Documents; provided, however, that On-going Financing Costs do not include the Company’s costs of issuance of the Storm Recovery Bonds.

 

“Operating Expenses” means all unreimbursed fees, costs and out-of-pocket expenses of the Company, including all amounts owed by the Company to the Indenture Trustee (including indemnitees, legal fees and expense), or any Manager, fees of the Servicer pursuant to the Servicing Agreement, fees of the Administrator pursuant to the Administration Agreement, legal and accounting fees, Rating Agency and related fees (i.e. website provider fees), and any franchise, license or other taxes owed by the Company, including on investment income in the Collection Account.

 

“Original LLC Agreement” has the meaning set forth in the preamble to this Agreement.

 

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

 

“Rating Agency” with respect to the Storm Recovery Bonds, means each of Moody’s Investors Service, Inc., Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business, or any successors thereto, which provides a rating with respect to the Storm Recovery Bonds. If no such organization or successor is any longer in existence, “Rating Agency” shall be a nationally recognized statistical rating organization or other comparable Person designated by the Company, notice of which designation shall be given to the Indenture Trustee and the Servicer.

 

“Sale Agreement” means a sale agreement to be entered into pursuant to which the Seller will sell its rights and interests in the Storm Recovery Property to the Company.

 

“Secretary of State” means the Secretary of State of the State of Delaware.

 

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

 

“Seller” means DEP.

 

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

 

“Servicer” means DEP, as Servicer under the Servicing Agreement, or any successor Servicer to the extent permitted under the Servicing Agreement.

 

“Servicing Agreement” means a servicing agreement to be entered into pursuant to which the Servicer will service the Storm Recovery Property on behalf of the Company.

 

“Special Member” is defined in Section 1.02(b) of this Agreement.

 

“Special Purpose Provisions” is defined in Section 11.02(a) of this Agreement.

 

EXHIBIT A-1-6

 

 

“Storm Recovery Bonds” means the Storm Recovery Bonds authorized by the (i) Financing Order or (ii) a Subsequent Financing Order, each and issued under an Indenture.

 

“Storm Recovery Bond Collateral” means the Storm Recovery Property created under and pursuant to the Financing Order or a Subsequent Financing Order and the Storm Recovery Law with respect to such series, and transferred by the Seller to the Company pursuant to the related Sale Agreement (including, to the fullest extent permitted by law, the right to impose, collect and receive Storm Recovery Charges, the right to obtain periodic adjustments to the Storm Recovery Charges, and all revenue, collections, claims, rights to payments, payments, money and or proceeds of or arising from the Storm Recovery Charges out of the rights and interests created under the Financing Order), (a) all Storm Recovery Charges related to the Storm Recovery Property with respect to such series, (b) the Sale Agreement and the Bill of Sale executed in connection with such series of Storm Recovery Bonds therewith and all property and interests in property transferred under the Sale Agreement and the Bill of Sale with respect to the foregoing Storm Recovery Property and the such series of Storm Recovery Bonds, (c) the Servicing Agreement, the Administration Agreement, the Intercreditor Agreement and any subservicing, agency, administration or collection agreements executed in connection therewith, to the extent related to the foregoing Storm Recovery Property and such series of Storm Recovery Bonds, (d) the Collection Account, all subaccounts thereof and all amounts of cash, instruments, investment property or other assets on deposit therein or credited thereto from time to time and all financial assets and securities entitlements carried therein or credited thereto with respect to such series of Storm Recovery Bonds, (e) all rights to compel the Servicer to file for and obtain adjustments to the Storm Recovery Charges in accordance with Section 58-27-1110(C)(4) of the Storm Recovery Law and the related Financing Order, (f) all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing, whether such claims, demands, causes and choses in action constitute Storm Recovery Property, accounts, general intangibles, instruments, contract rights, chattel paper or proceeds of such items or any other form of property with respect to such series of Storm Recovery Bonds, (g) all accounts, chattel paper, deposit accounts, documents, general intangibles, goods, instruments, investment property, letters of credit, letters-of-credit rights, money, commercial tort claims and supporting obligations with respect to such series of Storm Recovery Bonds related to the foregoing and (h) all payments on or under, and all proceeds in respect of, any or all of the foregoing with respect to such series of Storm Recovery Bonds.

 

“Storm Recovery Charge” means any storm-recovery charges as defined in Section 58-27-1105(15) of the Storm Recovery Law that are authorized by the Financing Order.

 

“Storm Recovery Law” means the laws of the State of South Carolina adopted in 2022 enacted as S.C. Code Ann. §§ 58-27-1105-1180, South Carolina Code of Laws.

 

“Storm Recovery Property” means all storm recovery property as defined in Section 58-27-1105(17)(a) of the Storm Recovery Law created pursuant to the Financing Order or a Subsequent Financing Order and under the Storm Recovery Law, including the right to impose, bill, charge, collect and receive the Storm Recovery Charges authorized under the Financing Order or a Subsequent Financing Order and to obtain periodic adjustments of the Storm Recovery Charges and all revenue, collections, claims, rights to payments, payments, money, or proceeds arising from the rights and interests specified in Section 58-27-1105(17)(b) of the Storm Recovery Law, regardless of whether such revenues, collections, claims, rights to payments, money, or proceeds are imposed, billed, received, collected, or maintained together with or commingled with other revenues, collections, rights to payment, payments, money or proceeds.

 

“Subsequent Financing Order” means with respect to any other series of Storm Recovery Bonds, any other financing order issued by the Commission with respect to such other series of storm recovery bonds pursuant to the Storm Recovery Law for the benefit of DEP.

 

EXHIBIT A-1-7

 

 

“Tariff” means the most current version on file with the Commission.

 

“Treasury Regulations” means the regulations, including proposed or temporary regulations, promulgated under the Code.

 

“Underwriting Agreement” means the Underwriting Agreement, to be dated as of the date the Storm Recovery Bonds are priced, 2024, by and among DEP, the representatives of the several underwriters named therein and the Company.

 

EXHIBIT A-1-8

 

EX-4.1

Exhibit 4.1

INDENTURE

by and among

DUKE ENERGY PROGRESS SC STORM FUNDING LLC,

Issuer

and

U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION,

Indenture Trustee

and

U.S. BANK NATIONAL ASSOCIATION,

Securities Intermediary and Account Bank

Dated as of [   ], 2024

  

TABLE OF CONTENTS

Page

ARTICLE I              Definitions AND RULES OF CONSTRUCTION; Incorporation by Reference		9
SECTION 1.01.	Definitions and Rules of Construction	9
SECTION 1.02.	Incorporation by Reference of Trust Indenture Act	9
ARTICLE II             The Storm Recovery Bonds		9
SECTION 2.01.	Form	9
SECTION 2.02.	Denominations: Storm Recovery Bonds	10
SECTION 2.03.	Execution, Authentication and Delivery	11
SECTION 2.04.	Temporary Storm Recovery Bonds	12
SECTION 2.05.	Registration; Registration of Transfer and Exchange of Storm Recovery Bonds	12
SECTION 2.06.	Mutilated, Destroyed, Lost or Stolen Storm Recovery Bonds	14
SECTION 2.07.	Persons Deemed Owner	15
SECTION 2.08.	Payment of Principal, Premium, if any, and Interest; Interest on Overdue Principal; Principal, Premium, if any, and Interest Rights Preserved	15
SECTION 2.09.	Cancellation	16
SECTION 2.10.	Outstanding Amount; Authentication and Delivery of Storm Recovery Bonds	16
SECTION 2.11.	Book-Entry Storm Recovery Bonds	19
SECTION 2.12.	Notices to Clearing Agency	20
SECTION 2.13.	Definitive Storm Recovery Bonds	20
SECTION 2.14.	CUSIP Number	21
SECTION 2.15.	Letter of Representations	21
SECTION 2.16.	Tax Treatment	21
SECTION 2.17.	State Pledge	21
SECTION 2.18.	Security Interests	22
SECTION 2.19.	Bonds are not Obligations of the State of South Carolina	23
ARTICLE III           Covenants		23
SECTION 3.01.	Payment of Principal, Premium, if any, and Interest	23
SECTION 3.02.	Maintenance of Office or Agency	23
SECTION 3.03.	Money for Payments To Be Held in Trust	24
SECTION 3.04.	Existence	25
SECTION 3.05.	Protection of Collateral	25
SECTION 3.06.	Opinions as to Collateral	26
SECTION 3.07.	Performance of Obligations; Servicing; SEC Filings	27
SECTION 3.08.	Certain Negative Covenants	29
SECTION 3.09.	Annual Statement as to Compliance	30
SECTION 3.10.	Issuer May Consolidate, etc., Only on Certain Terms	30
SECTION 3.11.	Successor or Transferee	32
SECTION 3.12.	No Other Business	33
SECTION 3.13.	No Borrowing	33

2

SECTION 3.14.	Servicer’s Obligations	33
SECTION 3.15.	Guarantees, Loans, Advances and Other Liabilities	33
SECTION 3.16.	Capital Expenditures	33
SECTION 3.17.	Restricted Payments	33
SECTION 3.18.	Notice of Events of Default	33
SECTION 3.19.	Further Instruments and Acts	34
SECTION 3.20.	Inspection	34
SECTION 3.21.	RESERVED	34
SECTION 3.22.	Additional Storm Recovery Bonds	34
SECTION 3.23.	Sale Agreement, Servicing Agreement, Intercreditor Agreement and Administration Agreement Covenants	36
SECTION 3.24.	Taxes	38
SECTION 3.25.	Notices from Holders	38
SECTION 3.26.	Volcker Rule	38
ARTICLE IV            Satisfaction and Discharge; Defeasance		38
SECTION 4.01.	Satisfaction and Discharge of Indenture; Defeasance	38
SECTION 4.02.	Conditions to Defeasance	40
SECTION 4.03.	Application of Trust Money	41
SECTION 4.04.	Repayment of Moneys Held by Paying Agent	42
ARTICLE V             Remedies		42
SECTION 5.01.	Events of Default	42
SECTION 5.02.	Acceleration of Maturity; Rescission and Annulment	43
SECTION 5.03.	Collection of Indebtedness and Suits for Enforcement by Indenture Trustee	44
SECTION 5.04.	Remedies; Priorities	46
SECTION 5.05.	Optional Preservation of the Collateral	47
SECTION 5.06.	Limitation of Suits	47
SECTION 5.07.	Unconditional Rights of Holders To Receive Principal, Premium, if any, and Interest	48
SECTION 5.08.	Restoration of Rights and Remedies	48
SECTION 5.09.	Rights and Remedies Cumulative	48
SECTION 5.10.	Delay or Omission Not a Waiver	49
SECTION 5.11.	Control by Holders	49
SECTION 5.12.	Waiver of Past Defaults	49
SECTION 5.13.	Undertaking for Costs	50
SECTION 5.14.	Waiver of Stay or Extension Laws	50
SECTION 5.15.	Action on Storm Recovery Bonds	50
ARTICLE VI           The Indenture Trustee		51
SECTION 6.01.	Duties of Indenture Trustee	51
SECTION 6.02.	Rights of Indenture Trustee	53
SECTION 6.03.	Individual Rights of Indenture Trustee	55
SECTION 6.04.	Indenture Trustee’s Disclaimer	56
SECTION 6.05.	Notice of Defaults	56
SECTION 6.06.	Reports by Indenture Trustee to Holders	56
SECTION 6.07.	Compensation and Indemnity	58

3

SECTION 6.08.	Replacement of Indenture Trustee and Securities Intermediary	59
SECTION 6.09.	Successor Indenture Trustee by Merger	60
SECTION 6.10.	Appointment of Co-Trustee or Separate Trustee	60
SECTION 6.11.	Eligibility; Disqualification	61
SECTION 6.12.	Preferential Collection of Claims Against Issuer	61
SECTION 6.13.	Representations and Warranties of Indenture Trustee	62
SECTION 6.14.	Annual Report by Independent Registered Public Accountants	62
SECTION 6.15.	Custody of Collateral	62
SECTION 6.16.	FATCA	63
ARTICLE VII           Holders’ Lists and Reports		63
SECTION 7.01.	Issuer To Furnish Indenture Trustee Names and Addresses of Holders	63
SECTION 7.02.	Preservation of Information; Communications to Holders	63
SECTION 7.03.	Reports by Issuer	64
SECTION 7.04.	Reports by Indenture Trustee	64
ARTICLE VIII         Accounts, Disbursements and Releases		65
SECTION 8.01.	Collection of Money	65
SECTION 8.02.	Collection Account	65
SECTION 8.03.	General Provisions Regarding the Collection Account	68
SECTION 8.04.	Release of Collateral	69
SECTION 8.05.	Opinion of Counsel	70
SECTION 8.06.	Reports by Independent Registered Public Accountants	70
ARTICLE IX            SUPPLEMENTAL INDENTURES		71
SECTION 9.01.	Supplemental Indentures Without Consent of Holders	71
SECTION 9.02.	Supplemental Indentures with Consent of Holders	73
SECTION 9.03.	Commission Condition	74
SECTION 9.04.	Execution of Supplemental Indentures	75
SECTION 9.05.	Effect of Supplemental Indenture	75
SECTION 9.06.	Conformity with Trust Indenture Act	75
SECTION 9.07.	Reference in Storm Recovery Bonds to Supplemental Indentures	76
ARTICLE X             MISCELLANEOUS		76
SECTION 10.01.	Compliance Certificates and Opinions, etc.	76
SECTION 10.02.	Form of Documents Delivered to Indenture Trustee	77
SECTION 10.03.	Acts of Holders	78
SECTION 10.04.	Notices, etc., to Indenture Trustee, Issuer, Rating Agencies and Commission	78
SECTION 10.05.	Notices to Holders; Waiver	80
SECTION 10.06.	Conflict with Trust Indenture Act	80
SECTION 10.07.	Successors and Assigns	80
SECTION 10.08.	Severability	80
SECTION 10.09.	Benefits of Indenture	81
SECTION 10.10.	Legal Holidays	81
SECTION 10.11.	GOVERNING LAW	81
SECTION 10.12.	Counterparts	81
SECTION 10.13.	Recording of Indenture	81

4

SECTION 10.14.	No Recourse to Issuer	82
SECTION 10.15.	Basic Documents	82
SECTION 10.16.	No Petition	82
SECTION 10.17.	Securities Intermediary and the Account Bank	82
SECTION 10.18.	Rule 17g-5 Compliance	83
SECTION 10.19.	Submission to Non-Exclusive Jurisdiction; Waiver of Jury Trial	83
SECTION 10.20.	Certain Tax Laws	84

EXHIBITS

Exhibit A	Form of Storm Recovery Bonds
Exhibit B	Form of Series Supplement
Exhibit C	Servicing Criteria to be Addressed by Indenture Trustee in Assessment of Compliance

APPENDIX

Appendix A Definitions and Rules of Construction

5

TRUST INDENTURE ACT CROSS REFERENCE TABLE

Trust Indenture Act Section		Indenture Section
310	(a)(1)	6.11
	(a)(2)	6.11
	(a)(3)	6.10(b)(i)
	(a)(4)	Not applicable
	(a)(5)	6.11
	(b)	6.11
311	(a)	6.12
	(b)	6.12
312	(a)	7.01 and 7.02
	(b)	7.02(b)
	(c)	7.02(c)
313	(a)	7.04
	(b)(1)	7.04
	(b)(2)	7.04
	(c)	7.03(a) and 7.04
	(d)	Not applicable
314	(a)	3.09, 4.01 and 7.03(a)
	(b)	3.06 and 4.01
	(c)(1)	2.10, 4.01, 8.04(b) and 10.01(a)
	(c)(2)	2.10, 4.01, 8.04(b) and 10.01(a)
	(c)(3)	2.10, 4.01, and 10.01(a)
	(d)	8.04(b) and 10.01
	(e)	10.01(a)
	(f)	10.01(a)
315	(a)	6.01(b)(i) and 6.01(b)(ii)

6

Trust Indenture Act Section		Indenture Section
	(b)	6.05
	(c)	6.01(a)
	(d)	6.01(c)(i), 6.01(c)(ii) and 6.01(c)(iii)
	(e)	5.13
316	(a) (last sentence)	Appendix A – definition of “Outstanding”
	(a)(1)(A)	5.11
	(a)(1)(B)	5.12
	(a)(2)	Not applicable
	(b)	5.07
	(c)	Appendix A – definition of “Record Date”
317	(a)(1)	5.03(a)
	(a)(2)	5.03(c)(iv)
	(b)	3.03
318	(a)	10.06
	(b)	10.06
	(c)	10.06

This cross reference table shall not, for any purpose, be deemed to be part of this Indenture.

7

This INDENTURE, dated as of [   ], 2024, is by and among DUKE ENERGY PROGRESS SC STORM FUNDING LLC, a Delaware limited liability company, and U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION, in its capacity as trustee for the benefit of the Secured Parties and U.S. BANK NATIONAL ASSOCIATION in its capacity as a securities intermediary and account bank.

In consideration of the mutual agreements herein contained, each party hereto agrees as follows for the benefit of the other party hereto and each of the Holders:

RECITALS OF THE ISSUER

The Issuer has duly authorized the execution and delivery of this Indenture and the creation and issuance of Storm Recovery Bonds issuable hereunder, which will be of substantially the tenor set forth in the Series Supplement to this Indenture duly executed and delivered by the Issuer and the Indenture Trustee.

Storm Recovery Bonds shall be non-recourse obligations and shall be secured by and payable solely out of the proceeds of the Storm Recovery Property and the other Storm Recovery Collateral as provided herein. If and to the extent that such proceeds of the Storm Recovery Property and the other Storm Recovery Collateral are insufficient to pay all amounts owing with respect to the Storm Recovery Bonds, then, except as otherwise expressly provided hereunder, the Holders shall have no Claim in respect of such insufficiency against the Issuer or the Indenture Trustee, and the Holders, by their acceptance of the Storm Recovery Bonds, waive any such Claim.

All things necessary to (a) make the Storm Recovery Bonds, when executed by the Issuer and authenticated and delivered by the Indenture Trustee hereunder and duly issued by the Issuer, valid obligations, and (b) make this Indenture a valid agreement of the Issuer, in each case, in accordance with their respective terms, have been done.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

That the Issuer, in consideration of the premises herein contained and of the purchase of Storm Recovery Bonds by the Holders and of other good and lawful consideration, the receipt and sufficiency of which are hereby acknowledged, and to secure, equally and ratably without prejudice, priority or distinction, except as specifically otherwise set forth in this Indenture, the payment of the Storm Recovery Bonds, the payment of all other amounts due under or in connection with this Indenture (including all fees, expenses, counsel fees and other amounts due and owing to the Indenture Trustee) and the performance and observance of all of the covenants and conditions contained herein or in the Storm Recovery Bonds, has hereby executed and delivered this Indenture and by these presents does hereby and by the Series Supplement will convey, grant, assign, transfer and pledge, in each case, in and unto the Indenture Trustee, its successors and assigns forever, for the benefit of the Secured Parties, all and singular the property described in the Series Supplement (such property herein referred to as “Storm Recovery Collateral” or “Collateral.”

8

AND IT IS HEREBY COVENANTED, DECLARED AND AGREED between the parties hereto that all Storm Recovery Bonds are to be issued, countersigned and delivered and that all of the Collateral is to be held and applied, subject to the further covenants, conditions, releases, uses and trusts hereinafter set forth, and the Issuer, for itself and any successor, does hereby covenant and agree to and with the Indenture Trustee and its successors in said trust, for the benefit of the Secured Parties, as follows:

ARTICLE I

Definitions AND RULES OF CONSTRUCTION; Incorporation by Reference

SECTION 1.01.         Definitions and Rules of Construction. Capitalized terms used but not otherwise defined in this Indenture shall have the respective meanings given to such terms in Appendix A, which is hereby incorporated by reference into this Indenture as if set forth fully in this Indenture. Not all terms defined in Appendix A are used in this Indenture. The rules of construction set forth in Appendix A shall apply to this Indenture and are hereby incorporated by reference into this Indenture as if set forth fully in this Indenture.

SECTION 1.02.         Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the Trust Indenture Act, that provision is incorporated by reference in and made a part of this Indenture. The following Trust Indenture Act terms used in this Indenture have the following meanings:

“indenture securities” means the Storm Recovery Bonds.

“indenture security holder” means a Holder.

“indenture to be qualified” means this Indenture.

“indenture trustee” or “institutional trustee” means the Indenture Trustee.

“obligor” on the indenture securities means the Issuer and any other obligor on the indenture securities.

All other Trust Indenture Act terms used in this Indenture that are defined by the Trust Indenture Act, defined by Trust Indenture Act reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions.

ARTICLE II

The Storm Recovery Bonds

SECTION 2.01.         Form. The Storm Recovery Bonds and the Indenture Trustee’s certificate of authentication shall be in substantially the forms set forth in Exhibit A, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture or by the related Series Supplement and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may, consistently herewith, be determined by the officers executing the Storm Recovery Bonds, as evidenced by their execution of the Storm Recovery Bonds.

9

The Storm Recovery Bonds shall be typewritten, printed, lithographed or engraved or produced by any combination of these methods (with or without steel engraved borders), all as determined by the officers executing the Storm Recovery Bonds, as evidenced by their execution of the Storm Recovery Bonds.

Each Storm Recovery Bond shall be dated the date of its authentication.

SECTION 2.02.         Denominations: Storm Recovery Bonds. The Storm Recovery Bonds shall be issuable in the Authorized Denominations specified in the Series Supplement.

The Storm Recovery Bonds shall, at the election of and as authorized by a Responsible Officer of the Issuer, and set forth in the Series Supplement, be issued in one tranche, and shall be designated generally as the “[Series A] Senior Secured Storm Recovery Bonds” of the Issuer, with such further particular designations added or incorporated in such title for the Storm Recovery Bonds as a Responsible Officer of the Issuer may determine. All Storm Recovery Bonds shall be identical in all respects except for the denominations thereof, the Holder thereof, the numbering thereon, the legends thereon and the CUSIP number thereon. All Storm Recovery Bonds shall be in all respects equally and ratably entitled to the benefits hereof without preference, priority or distinction on account of the actual time or times of authentication and delivery, all in accordance with the terms and provisions of this Indenture.

The Storm Recovery Bonds shall be created by the Series Supplement authorized by a Responsible Officer of the Issuer, which shall specify and establish the terms and provisions thereof, including the following:

(a)	the principal amount;
(b)	the Bond Interest Rate or the formula, if any, used to calculate Bond Interest Rate;
(c)	the Payment Dates;
(d)	the Scheduled Payment Dates;
(e)	the Scheduled Final Payment Date;
(f)	the Final Maturity Date;
(g)	the issuance date;
(h)	the Authorized Denominations;
(i)	the Expected Sinking Fund Schedule;
(j)	the place or places for the payment of interest, principal and premium, if any;
(k)	any additional Secured Parties;
(l)	the identity of the Indenture Trustee;

10

(m) the Storm Recovery Charges and the Storm Recovery Collateral;

(n) whether or not the Storm Recovery Bonds are to be Book-Entry Storm Recovery Bonds and the extent to which Section 2.11 should apply; and

(o)           any other terms of the Storm Recovery Bonds that are not inconsistent with the provisions of this Indenture and as to which the Rating Agency Condition is satisfied.

SECTION 2.03.          Execution, Authentication and Delivery. The Storm Recovery Bonds shall be executed on behalf of the Issuer by any of its Responsible Officers. The signature of any such Responsible Officer on the Storm Recovery Bonds may be manual, electronic or facsimile.

Storm Recovery Bonds bearing the manual, electronic or facsimile signature of individuals who were at any time Responsible Officers of the Issuer shall bind the Issuer, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of the Storm Recovery Bonds or did not hold such offices at the date of the Storm Recovery Bonds.

At any time and from time to time after the execution and delivery of this Indenture, the Issuer may deliver Storm Recovery Bonds executed by the Issuer to the Indenture Trustee pursuant to an Issuer Order for authentication; and the Indenture Trustee shall authenticate and deliver the Storm Recovery Bonds as in this Indenture provided and not otherwise.

No Storm Recovery Bond shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Storm Recovery Bond a certificate of authentication substantially in the form provided for therein executed by the Indenture Trustee by the manual, electronic or facsimile signature of one of its authorized signatories, and such certificate upon any Storm Recovery Bond shall be conclusive evidence, and the only evidence, that such Storm Recovery Bond has been duly authenticated and delivered hereunder.

The words “execution,” signed,” signature,” and words of like import in this Indenture shall include images of manually executed signatures transmitted by facsimile, email or other electronic format (including, without limitation, “pdf,” “tif” or “jpg”) and other electronic signatures (including without limitation, DocuSign and AdobeSign). The use of electronic signatures and electronic records (including, without limitation, any contract or other record created, generated, sent, communicated, received, or stored by electronic means) shall be of the same legal effect, validity and enforceability as a manually executed signature or use of a paper-based record-keeping system to the fullest extent permitted by applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act and any other applicable law, including, without limitation, any state law based on the Uniform Electronic Transactions Act or the Uniform Commercial Code.

11

SECTION 2.04.         Temporary Storm Recovery Bonds. Pending the preparation of Definitive Storm Recovery Bonds pursuant to Section 2.13, the Issuer may execute, and upon receipt of an Issuer Order the Indenture Trustee shall authenticate and deliver, Temporary Storm Recovery Bonds that are printed, lithographed, typewritten, mimeographed or otherwise produced, of the tenor of the Definitive Storm Recovery Bonds in lieu of which they are issued and with such variations not inconsistent with the terms of this Indenture and the related Series Supplement as the officers executing the Storm Recovery Bonds may determine, as evidenced by their execution of the Storm Recovery Bonds.

If Temporary Storm Recovery Bonds are issued, the Issuer will cause Definitive Storm Recovery Bonds to be prepared without unreasonable delay. After the preparation of Definitive Storm Recovery Bonds, the Temporary Storm Recovery Bonds shall be exchangeable for Definitive Storm Recovery Bonds upon surrender of the Temporary Storm Recovery Bonds at the office or agency of the Issuer to be maintained as provided in Section 3.02, without charge to the Holder. Upon surrender for cancellation of any one or more Temporary Storm Recovery Bonds, the Issuer shall execute and the Indenture Trustee shall authenticate and deliver in exchange therefor a like principal amount of Definitive Storm Recovery Bonds of authorized denominations. Until so delivered in exchange, the Temporary Storm Recovery Bonds shall in all respects be entitled to the same benefits under this Indenture as Definitive Storm Recovery Bonds.

SECTION 2.05.         Registration; Registration of Transfer and Exchange of Storm Recovery Bonds. The Issuer shall cause to be kept a register (the “Storm Recovery Bond Register”) in which, subject to such reasonable regulations as it may prescribe, the Issuer shall provide for the registration of Storm Recovery Bonds and the registration of transfers of Storm Recovery Bonds. U.S. Bank Trust Company, National Association shall be “Storm Recovery Bond Registrar” for the purpose of registering the Storm Recovery Bonds and transfers of Storm Recovery Bonds as herein provided. Upon any resignation of any Storm Recovery Bond Registrar, the Issuer shall promptly appoint a successor or, if it elects not to make such an appointment, assume the duties of Storm Recovery Bond Registrar.

If a Person other than the Indenture Trustee is appointed by the Issuer as Storm Recovery Bond Registrar, the Issuer will give the Indenture Trustee prompt written notice of the appointment of such Storm Recovery Bond Registrar and of the location, and any change in the location, of the Storm Recovery Bond Register, and the Indenture Trustee shall have the right to inspect the Storm Recovery Bond Register at all reasonable times and to obtain copies thereof, and the Indenture Trustee shall have the right to rely conclusively upon a certificate executed on behalf of the Storm Recovery Bond Registrar by a Responsible Officer thereof as to the names and addresses of the Holders and the principal amount and number of the Storm Recovery Bonds.

Upon surrender for registration of transfer of any Storm Recovery Bond at the office or agency of the Issuer to be maintained as provided in Section 3.02, provided that the requirements of Section 8-401 of the UCC are met, the Issuer shall execute, and the Indenture Trustee shall authenticate and the Holder shall obtain from the Indenture Trustee, in the name of the designated transferee or transferees, one or more new Storm Recovery Bonds, in any Authorized Denominations, of the same aggregate principal amount.

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At the option of the Holder, Storm Recovery Bonds may be exchanged for other Storm Recovery Bonds, in any Authorized Denominations, of the same aggregate principal amount, upon surrender of the Storm Recovery Bonds to be exchanged at such office or agency as provided in Section 3.02. Whenever any Storm Recovery Bonds are so surrendered for exchange, the Issuer shall, provided that the requirements of Section 8-401 of the UCC are met, execute, and, upon any such execution, the Indenture Trustee shall authenticate and the Holder shall obtain from the Indenture Trustee, the Storm Recovery Bonds that the Holder making the exchange is entitled to receive.

All Storm Recovery Bonds issued upon any registration of transfer or exchange of other Storm Recovery Bonds shall be the valid obligations of the Issuer, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Storm Recovery Bonds surrendered upon such registration of transfer or exchange.

Every Storm Recovery Bond presented or surrendered for registration of transfer or exchange shall be duly endorsed by, or be accompanied by: (a) a written instrument of transfer in form satisfactory to the Indenture Trustee duly executed by the Holder thereof or such Holder’s attorney duly authorized in writing, with such signature guaranteed by an institution that is a member of: (i) The Securities Transfer Agent Medallion Program (STAMP); (ii) The New York Stock Exchange Medallion Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP); or (iv) such other signature guaranty program acceptable to the Indenture Trustee; and (b) such other documents as the Indenture Trustee may require.

Each transferee of Storm Recovery Bond in definitive form that is presented for registration will be required to represent and warrant (or in the case of a Storm Recovery Bond held in Book-Entry Form will be deemed to represent and warrant by virtue of its acquisition of the Storm Recovery Bond) on each day from and including the date of its acquisition of the Storm Recovery Bond through and including the date of disposition of any such Storm Recovery Bond that either (i) it is not and is not acting on behalf of, or using plan assets of, (a) a Plan or any governmental, church or non-U.S. plan that is subject to any Similar Law or (ii) its acquisition, holding and disposition of the Storm Recovery Bond, in the case of a Plan, will not constitute or result in a non-exempt prohibited transaction in violation of Section 406 of ERISA or Section 4975 of the Code or, in the case of a governmental, church or non-U.S. plan subject to Similar Law, will not result in or constitute a violation of such Similar Law.

No service charge shall be made to a Holder for any registration of transfer or exchange of Storm Recovery Bonds, but the Issuer or the Indenture Trustee may require payment of a sum sufficient to cover any tax or other governmental charge or any fees or expenses of the Indenture Trustee that may be imposed in connection with any registration of transfer or exchange of Storm Recovery Bonds, other than exchanges pursuant to Section 2.04 or Section 2.06 not involving any transfer.

The preceding provisions of this Section 2.05 notwithstanding, the Issuer shall not be required to make, and the Storm Recovery Bond Registrar need not register, transfers or exchanges of any Storm Recovery Bond that has been submitted within 15 days preceding the due date for any payment with respect to such Storm Recovery Bond until after such due date has occurred.

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SECTION 2.06.         Mutilated, Destroyed, Lost or Stolen Storm Recovery Bonds. If (a) any mutilated Storm Recovery Bond is surrendered to the Indenture Trustee or the Indenture Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Storm Recovery Bond and (b) there is delivered to the Indenture Trustee such security or indemnity as may be required by it to hold the Issuer and the Indenture Trustee harmless, then, in the absence of notice to the Issuer, the Storm Recovery Bond Registrar or the Indenture Trustee that such Storm Recovery Bond has been acquired by a Protected Purchaser, the Issuer shall, provided that the requirements of Section 8-401 of the UCC are met, execute, and, upon the Issuer’s written request, the Indenture Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Storm Recovery Bond, a replacement Storm Recovery Bond of like Series and principal amount, bearing a number not contemporaneously outstanding; provided, however, that, if any such destroyed, lost or stolen Storm Recovery Bond, but not a mutilated Storm Recovery Bond, shall have become or within seven days shall be due and payable, instead of issuing a replacement Storm Recovery Bond, the Issuer may pay such destroyed, lost or stolen Storm Recovery Bond when so due or payable without surrender thereof. If, after the delivery of such replacement Storm Recovery Bond or payment of a destroyed, lost or stolen Storm Recovery Bond pursuant to the proviso to the preceding sentence, a Protected Purchaser of the original Storm Recovery Bond in lieu of which such replacement Storm Recovery Bond was issued presents for payment such original Storm Recovery Bond, the Issuer and the Indenture Trustee shall be entitled to recover such replacement Storm Recovery Bond (or such payment) from the Person to whom it was delivered or any Person taking such replacement Storm Recovery Bond from such Person to whom such replacement Storm Recovery Bond was delivered or any assignee of such Person, except a Protected Purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the Issuer or the Indenture Trustee in connection therewith.

Upon the issuance of any replacement Storm Recovery Bond under this Section 2.06, the Issuer and/or the Indenture Trustee may require the payment by the Holder of such Storm Recovery Bond of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other reasonable expenses (including the fees and expenses of the Indenture Trustee and the Storm Recovery Bond Registrar) in connection therewith.

Every replacement Storm Recovery Bond issued pursuant to this Section 2.06 in replacement of any mutilated, destroyed, lost or stolen Storm Recovery Bond shall constitute an original additional contractual obligation of the Issuer, whether or not the mutilated, destroyed, lost or stolen Storm Recovery Bond shall be found at any time or enforced by any Person, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Storm Recovery Bonds duly issued hereunder.

The provisions of this Section 2.06 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Storm Recovery Bonds.

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SECTION 2.07.         Persons Deemed Owner. Prior to due presentment for registration of transfer of any Storm Recovery Bond, the Issuer, the Indenture Trustee, the Storm Recovery Bond Registrar and any agent of the Issuer or the Indenture Trustee may treat the Person in whose name any Storm Recovery Bond is registered (as of the day of determination) as the owner of such Storm Recovery Bond for the purpose of receiving payments of principal of and premium, if any, and interest on such Storm Recovery Bond and for all other purposes whatsoever, whether or not such Storm Recovery Bond be overdue, and none of the Issuer, the Indenture Trustee or any agent of the Issuer or the Indenture Trustee shall be affected by notice to the contrary.

SECTION 2.08.         Payment of Principal, Premium, if any, and Interest; Interest on Overdue Principal; Principal, Premium, if any, and Interest Rights Preserved.

(a)            The Storm Recovery Bonds shall accrue interest as provided in applicable Series Supplement at the applicable Bond Interest Rate, and such interest shall be payable on each applicable Payment Date. Any installment of interest, principal or premium, if any, payable on any Storm Recovery Bond that is punctually paid or duly provided for on the applicable Payment Date shall be paid to the Person in whose name such Storm Recovery Bond (or one or more Predecessor Storm Recovery Bonds) is registered on the Record Date for the applicable Payment Date by check mailed first-class, postage prepaid, to the Person whose name appears as the Registered Holder (or by wire transfer to an account maintained by such Holder) in accordance with payment instructions delivered to the Indenture Trustee by such Holder, and, with respect to Book-Entry Storm Recovery Bonds, payments will be made by wire transfer in immediately available funds to the account designated by the Holder of the applicable Global Storm Recovery Bond unless and until such Global Storm Recovery Bond is exchanged for Definitive Storm Recovery Bonds (in which event payments shall be made as provided above) and except for the final installment of principal and premium, if any, payable with respect to such Storm Recovery Bond on a Payment Date, which shall be payable as provided below.

(b)            The principal of each Storm Recovery Bond shall be paid, to the extent funds are available therefor in the Collection Account for such Series, in installments on each Payment Date specified in the Series Supplement; provided, that installments of principal not paid when scheduled to be paid in accordance with the Expected Sinking Fund Schedule shall be paid upon receipt of money available for such purpose, in the order set forth in the Expected Sinking Fund Schedule. Failure to pay principal in accordance with such Expected Sinking Fund Schedule because moneys are not available pursuant to Section 8.02 to make such payments shall not constitute a Default or Event of Default under this Indenture; provided, however, that failure to pay the entire unpaid principal amount of the Storm Recovery Bonds upon the Final Maturity Date for the Storm Recovery Bonds shall constitute an Event of Default under this Indenture as set forth in Section 5.01. Notwithstanding the foregoing, the entire unpaid principal amount of the Storm Recovery Bonds shall be due and payable, if not previously paid, on the date on which an Event of Default shall have occurred and be continuing, if the Indenture Trustee or the Holders of Storm Recovery Bonds representing a majority of the Outstanding Amount of Storm Recovery Bonds have declared such Storm Recovery Bonds to be immediately due and payable in the manner provided in Section 5.02. All payments of principal and premium, if any, on such Storm Recovery Bonds shall be made pro rata to the Holders entitled thereto unless otherwise provided in the Series Supplement. The Indenture Trustee shall notify the Person in whose name a Storm Recovery Bond is registered at the close of business on the Record Date preceding the Payment Date on which the Issuer expects that the final installment of principal of and premium, if any, and interest on such Storm Recovery Bond will be paid. Such notice shall be mailed no later than five days prior to such final Payment Date and shall specify that such final installment will be payable only upon presentation and surrender of such Storm Recovery Bond and shall specify the place where such Storm Recovery Bond may be presented and surrendered for payment of such installment.

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(c)            If interest on the Storm Recovery Bonds is not paid when due, such defaulted interest shall be paid (plus interest on such defaulted interest at the applicable Bond Interest Rate to the extent lawful) to the Persons who are Holders on a subsequent Special Record Date, which date shall be at least 15 Business Days prior to the Special Payment Date. The Issuer shall fix or cause to be fixed any such Special Record Date and Special Payment Date, and, at least ten days before any such Special Record Date, the Issuer shall mail to each affected Holder a notice that states the Special Record Date, the Special Payment Date and the amount of defaulted interest (plus interest on such defaulted interest) to be paid.

SECTION 2.09.         Cancellation. All Storm Recovery Bonds surrendered for payment, registration of transfer or exchange shall, if surrendered to any Person other than the Indenture Trustee, be delivered to the Indenture Trustee and shall be promptly canceled by the Indenture Trustee. The Issuer may at any time deliver to the Indenture Trustee for cancellation any Storm Recovery Bonds previously authenticated and delivered hereunder that the Issuer may have acquired in any manner whatsoever, and all Storm Recovery Bonds so delivered shall be promptly canceled by the Indenture Trustee. No Storm Recovery Bonds shall be authenticated in lieu of or in exchange for any Storm Recovery Bonds canceled as provided in this Section 2.09, except as expressly permitted by this Indenture. All canceled Storm Recovery Bonds may be held or disposed of by the Indenture Trustee in accordance with its standard retention or disposal policy as in effect at the time.

SECTION 2.10.         Outstanding Amount; Authentication and Delivery of Storm Recovery Bonds. The aggregate Outstanding Amount of Storm Recovery Bonds that may be authenticated and delivered under this Indenture shall not exceed the aggregate of the amount of Storm Recovery Bonds that are authorized in the Financing Order, but otherwise shall be unlimited.

Storm Recovery Bonds may at any time be executed by the Issuer and delivered to the Indenture Trustee for authentication and thereupon the same shall be authenticated and delivered by the Indenture Trustee upon Issuer Request and upon delivery by the Issuer to the Indenture Trustee of the following (and if applicable, subject further to the requirements of Section 3.21):

(a)            Issuer Action. An Issuer Order authorizing and directing the authentication and delivery of the Storm Recovery Bonds by the Indenture Trustee and specifying the principal amount of Storm Recovery Bonds to be authenticated.

(b)            Authorizations. Copies of (i) the Financing Order, which shall be in full force and effect and be Final, (ii) certified resolutions of the Managers or Member of the Issuer authorizing the execution and delivery of the Series Supplement and the execution, authentication and delivery of the Storm Recovery Bonds and (iii) a Series Supplement duly executed by the Issuer.

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(c)            Opinions. An opinion or opinions, portions of which may be delivered by one or more counsel for the Issuer, portions of which may be delivered by one or more counsel for the Servicer, and portions of which may be delivered by one or more counsel for the Seller, dated the Closing Date, in each case subject to the customary exceptions, qualifications and assumptions contained therein, stating that (i) all conditions precedent provided for in this Indenture relating to (A) the authentication and delivery of the Issuer’s Storm Recovery Bonds and (B) the execution of the Series Supplement to this Indenture dated the Closing Date have been complied with, (ii) the execution of the Series Supplement to this Indenture dated the Closing Date is permitted by this Indenture, (iii) such action has been taken with respect to the recording and filing of this Indenture, any indentures supplemental hereto and any other requisite documents, and with respect to the execution and filing of any filings with the Commission, the Secretary of State of the State of Delaware or the Secretary of State of the State of South Carolina pursuant to the Storm Recovery Law and the Financing Order, financing statements and continuation statements, as are necessary to perfect and make effective the Lien and the perfected security interest created by this Indenture and Series Supplement, and, based on a review of a current report of a search of the appropriate governmental filing office, no other Lien that can be perfected solely by the filing of financing statements under the applicable Uniform Commercial Code ranks equal or prior to the Lien of the Indenture Trustee in the Storm Recovery Collateral, and reciting the details of such action, or stating that, in the opinion of such counsel, no such action is necessary to make effective such Lien, together with the other Opinions of Counsel described in Sections 9(c) through 9(i) of the Underwriting Agreement for such Series (other than Sections 9(g) and 9(h) thereof) relating to the Issuer’s Storm Recovery Bonds.

(d)            Authorizing Certificate. An Officer’s Certificate, dated the Closing Date, of the Issuer certifying that (i) the Issuer has duly authorized the execution and delivery of this Indenture and the related Series Supplement and the execution and delivery of the Series of Storm Recovery Bonds and (ii) the Series Supplement is in the form attached thereto and complies with the requirements of Section 2.02.

(e)            The Storm Recovery Collateral. The Issuer shall have made or caused to be made all filings with the Commission and the Secretary of State of the State of South Carolina pursuant to the Financing Order and the Storm Recovery Law and all other filings necessary to perfect the Grant of the Storm Recovery Collateral to the Indenture Trustee and the Lien of this Indenture and the Series Supplement, including but not limited to UCC Financing Statements in Delaware or South Carolina as applicable.

(f)            Certificates of the Issuer and the Seller.

(i)             An Officer’s Certificate from the Issuer, dated as of the Closing Date:

(A)           to the effect that (1) the Issuer is not in Default under this Indenture and that the issuance of the Storm Recovery Bonds will not result in any Default or in any breach of any of the terms, conditions or provisions of or constitute a default under the Financing Order or any indenture, mortgage, deed of trust or other agreement or instrument to which the Issuer is a party or by which it or its property is bound or any order of any court or administrative agency entered in any Proceeding to which the Issuer is a party or by which it or its property may be bound or to which it or its property may be subject and (2) all conditions precedent provided in this Indenture relating to the execution, authentication and delivery of the Storm Recovery Bonds have been complied with;

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(B)            to the effect that: the Issuer has not assigned any interest or participation in the Storm Recovery Collateral except for the Grant contained in this Indenture and the Series Supplement; the Issuer has the power and right to Grant the Storm Recovery Collateral to the Indenture Trustee as security hereunder and thereunder; and the Issuer, subject to the terms of this Indenture, has Granted to the Indenture Trustee a first priority perfected security interest in all of its right, title and interest in and to such Storm Recovery Collateral free and clear of any Lien arising as a result of actions of the Issuer or through the Issuer, except Permitted Liens;

(C)            to the effect that the Issuer has appointed the firm of Independent registered public accountants as contemplated in Section 8.06;

(D)           to the effect that the respective Sale Agreement, Servicing Agreement, Administration Agreement and Intercreditor Agreement are, to the knowledge of the Issuer (and assuming such agreements are enforceable against all parties thereto other than the Issuer and Duke Energy Progress), in full force and effect and, to the knowledge of the Issuer, that no party is in default of its obligations under such agreements;

(E)            certifying that the Storm Recovery Bonds have received the ratings from the Rating Agencies if required by the Underwriting Agreement for such Series as a condition to the issuance of such Storm Recovery Bonds; and

(F)            stating that (i) all conditions precedent provided for in this Indenture relating to (a) the authentication and delivery of the Issuer’s Storm Recovery Bonds, and (b) the execution of the Series Supplement to this Indenture dated as of the date of this Indenture, have been compiled with, (ii) the execution of the Series Supplement to this Indenture dated as of the date of this Indenture is authorized or permitted by this Indenture, and (iii) the Issuer has delivered the documents required under this Section 2.10 and has otherwise satisfied the requirements set out in this Section 2.10, including, but not limited to, complying with Section 2.10(f)(i) hereof.

(ii)            An officer’s certificate from the Seller, dated as of the Closing Date, to the effect that:

(A)           in the case of the Storm Recovery Property identified in the Bill of Sale, immediately prior to the conveyance thereof to the Issuer pursuant to the Sale Agreement: the Seller was the original and the sole owner of such Storm Recovery Property, free and clear of any Lien; the Seller had not assigned any interest or participation in such Storm Recovery Property and the proceeds thereof other than to the Issuer pursuant to the Sale Agreement for such Series; the Seller has the power, authority and right to own, sell and assign such Storm Recovery Property and the proceeds thereof to the Issuer; the Seller has its chief executive office in the State of North Carolina; and the Seller, subject to the terms of the Sale Agreement, has validly sold and assigned to the Issuer all of its right, title and interest in and to such Storm Recovery Property and the proceeds thereof, free and clear of any Lien (other than Permitted Liens) and such sale and assignment is absolute and irrevocable and has been perfected;

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(B)            in the case of the Storm Recovery Property identified in the Bill of Sale, immediately prior to the conveyance thereof to the Issuer pursuant to the Sale Agreement, the attached copy of the Financing Order, creating such Storm Recovery Property is true and complete and is in full force and effect; and

(C)            the Required Capital Level has been deposited or caused to be deposited by the Seller with the Indenture Trustee for crediting to the Capital Subaccount.

(g)            [RESERVED]

(h)            Requirements of Series Supplement. Such other funds, accounts, documents, certificates, agreements, instruments or opinions as may be required by the terms of the Series Supplement.

(i)             Other Requirements. Such other documents, certificates, agreements, instruments or opinions as the Indenture Trustee may reasonably require.

SECTION 2.11.         Book-Entry Storm Recovery Bonds. Unless the Series Supplement provides otherwise, all of the Storm Recovery Bonds shall be issued in Book-Entry Form, and the Issuer shall execute and the Indenture Trustee shall, in accordance with this Section 2.11 and the Issuer Order, authenticate and deliver one or more Global Storm Recovery Bonds, evidencing the Storm Recovery Bonds, which (a) shall be an aggregate original principal amount equal to the aggregate original principal amount of the Storm Recovery Bonds to be issued pursuant to the Issuer Order, (b) shall be registered in the name of the Clearing Agency therefor or its nominee, which shall initially be Cede & Co., as nominee for The Depository Trust Company, the initial Clearing Agency, (c) shall be delivered by the Indenture Trustee pursuant to such Clearing Agency’s or such nominee’s instructions and (d) shall bear a legend substantially to the effect set forth in Exhibit A to the Form of Series Supplement.

Each Clearing Agency designated pursuant to this Section 2.11 must, at the time of its designation and at all times while it serves as Clearing Agency hereunder, be a “clearing agency” registered under the Exchange Act and any other applicable statute or regulation.

No Holder of Storm Recovery Bonds issued in Book-Entry Form shall receive a Definitive Storm Recovery Bond representing such Holder’s interest in any of the Storm Recovery Bonds, except as provided in Section 2.13. Unless (and until) certificated, fully registered Storm Recovery Bonds (the “Definitive Storm Recovery Bonds”) have been issued to the Holders pursuant to Section 2.13 or pursuant to the Series Supplement relating thereto:

(i)             the provisions of this Section 2.11 shall be in full force and effect;

(ii)            the Issuer, the Servicer, the Paying Agent, the Storm Recovery Bond Registrar and the Indenture Trustee may deal with the Clearing Agency for all purposes (including the making of distributions on the Storm Recovery Bonds and the giving of instructions or directions hereunder) as the authorized representative of the Holders;

(iii)           to the extent that the provisions of this Section 2.11 conflict with any other provisions of this Indenture, the provisions of this Section 2.11 shall control;

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(iv)           the rights of Holders shall be exercised only through the Clearing Agency and the Clearing Agency Participants and shall be limited to those established by law and agreements between such Holders and the Clearing Agency and/or the Clearing Agency Participants. Pursuant to the Letter of Representations, unless and until Definitive Storm Recovery Bonds are issued pursuant to Section 2.13, the initial Clearing Agency will make book-entry transfers among the Clearing Agency Participants and receive and transmit distributions of principal of and interest on the Book-Entry Storm Recovery Bonds to such Clearing Agency Participants; and

(v)            whenever this Indenture requires or permits actions to be taken based upon instruction or directions of the Holders evidencing a specified percentage of the Outstanding Amount of Storm Recovery Bonds, the Clearing Agency shall be deemed to represent such percentage only to the extent that it has received instructions to such effect from the Holders and/or the Clearing Agency Participants owning or representing, respectively, such required percentage of the beneficial interest in the Storm Recovery Bonds and has delivered such instructions to a Responsible Officer of the Indenture Trustee.

SECTION 2.12.         Notices to Clearing Agency. Unless and until Definitive Storm Recovery Bonds shall have been issued to Holders pursuant to Section 2.13, whenever notice, payment or other communications to the holders of Book-Entry Storm Recovery Bonds is required under this Indenture, the Indenture Trustee, the Servicer and the Paying Agent, as applicable, shall make all such payments to, and give all such notices and communications specified herein, to the Clearing Agency.

SECTION 2.13.         Definitive Storm Recovery Bonds. If (a) (i) the Issuer advises the Indenture Trustee in writing that the Clearing Agency is no longer willing or able to properly discharge its responsibilities under any Letter of Representations and (ii) the Issuer is unable to locate a qualified successor Clearing Agency, (b) the Issuer, at its option, advises the Indenture Trustee in writing that it elects to terminate the book-entry system through the Clearing Agency or (c) after the occurrence of an Event of Default hereunder, Holders holding Storm Recovery Bonds aggregating a majority of the aggregate Outstanding Amount of Storm Recovery Bonds maintained as Book-Entry Storm Recovery Bonds advise the Indenture Trustee, the Issuer and the Clearing Agency (through the Clearing Agency Participants) in writing that the continuation of a book-entry system through the Clearing Agency is no longer in the best interests of the Holders, the Issuer shall notify the Clearing Agency, the Indenture Trustee and all such Holders in writing of the occurrence of any such event and of the availability of Definitive Storm Recovery Bonds to the Holders requesting the same. Upon surrender to the Indenture Trustee of the Global Storm Recovery Bonds by the Clearing Agency accompanied by registration instructions from such Clearing Agency for registration, the Issuer shall execute, and the Indenture Trustee shall authenticate and deliver, Definitive Storm Recovery Bonds in accordance with the instructions of the Clearing Agency. None of the Issuer, the Storm Recovery Bond Registrar, the Paying Agent or the Indenture Trustee shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be fully protected in relying on, such instructions. Upon the issuance of Definitive Storm Recovery Bonds, the Indenture Trustee shall recognize the Holders of the Definitive Storm Recovery Bonds as Holders hereunder without need for any consent or acknowledgement from the Holders.

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Definitive Storm Recovery Bonds will be transferable and exchangeable at the offices of the Storm Recovery Bond Registrar.

SECTION 2.14.        CUSIP Number. The Issuer in issuing any Storm Recovery Bonds may use a “CUSIP” number and, if so used, the Indenture Trustee shall use the CUSIP number provided to it by the Issuer in any notices to the Holders thereof as a convenience to such Holders; provided, that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Storm Recovery Bonds and that reliance may be placed only on the other identification numbers printed on the Storm Recovery Bonds. The Issuer shall promptly notify the Indenture Trustee in writing of any change in the CUSIP number with respect to any Storm Recovery Bond.

SECTION 2.15.         Letter of Representations. The Issuer shall comply with the terms of each Letter of Representations applicable to the Issuer.

SECTION 2.16.        Tax Treatment. The Issuer and the Indenture Trustee, by entering into this Indenture, and the Holders and any Persons holding a beneficial interest in any Storm Recovery Bond, by acquiring any Storm Recovery Bond or interest therein, (a) express their intention that, solely for the purposes of U.S. federal taxes and, to the extent consistent with applicable state, local and other tax law, solely for the purposes of state, local and other taxes, the Storm Recovery Bonds qualify under applicable tax law as indebtedness of the Member secured by the respective Storm Recovery Collateral and (b) solely for the purposes of U.S. federal taxes and, to the extent consistent with applicable state, local and other tax law, solely for purposes of state, local and other taxes, so long as any of the Storm Recovery Bonds are outstanding, agree to treat the Storm Recovery Bonds as indebtedness of the Member secured by the respective Storm Recovery Collateral unless otherwise required by appropriate taxing authorities.

SECTION 2.17.         State Pledge. Under the laws of the State of South Carolina in effect on the date hereof, pursuant to S.C. Code Ann. § 58-27-1155, the State of South Carolina and its agencies (including the Commission) have pledged and agreed with the Holders, the Indenture Trustee, other Financing Parties that the State of South Carolina and its agencies will not (a) alter the provisions of S.C. Code Ann. § 58-27-1155(A)(1) which make the Storm Recovery Charges imposed by the Financing Order irrevocable, binding, and nonbypassable charges; (b) take or permit any action that impairs or would impair the value of the Storm Recovery Property or the security for the Storm Recovery Bonds or revises the Storm Recovery Costs for which recovery is authorized; (c) in any way impair the rights and remedies of the Holders, assignees, and other Financing Parties or (d) except as authorized under the Storm Recovery Law, reduce, alter, or impair Storm Recovery Charges that are to be imposed, collected, and remitted for the benefit of the Holders, the Indenture Trustee and other Financing Parties until any and all principal, interest, premium, Financing Costs and other fees, expenses, or charges incurred, and any contracts to be performed, in connection with the Storm Recovery Bonds have been paid and performed in full.

The Issuer hereby acknowledges that the purchase of any Storm Recovery Bond by a Holder or the purchase of any beneficial interest in a Storm Recovery Bond by any Person and the Indenture Trustee’s obligations to perform hereunder are made in reliance on such agreement and pledge by the State of South Carolina.

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SECTION 2.18.         Security Interests. The Issuer hereby makes the following representations and warranties. Other than the security interests granted to the Indenture Trustee pursuant to this Indenture, the Issuer has not pledged, granted, sold, conveyed or otherwise assigned any interests or security interests in the Collateral and no security agreement, financing statement or equivalent security or Lien instrument listing the Issuer as debtor covering all or any part of the Collateral is on file or of record in any jurisdiction, except such as may have been filed, recorded or made by the Issuer in favor of the Indenture Trustee on behalf of the Secured Parties in connection with this Indenture. This Indenture constitute a valid and continuing lien on, and first priority perfected security interest in, the Storm Recovery Collateral in favor of the Indenture Trustee on behalf of the Secured Parties, which lien and security interest is prior to all other Liens and is enforceable as such as against creditors of and purchasers from the Issuer in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors’ rights generally or by general equitable principles, whether considered in a proceeding at law or in equity and by an implied covenant of good faith and fair dealing. With respect to all Storm Recovery Collateral, this Indenture, together with the Series Supplement, creates a valid and continuing first priority perfected security interest (as defined in the UCC) in such related Storm Recovery Collateral, which security interest is prior to all other Liens and is enforceable as such as against creditors of and purchasers from the Issuer in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors’ rights generally or by general equitable principles, whether considered in a proceeding at law or in equity and by an implied covenant of good faith and fair dealing. The Issuer has good and marketable title to the Collateral free and clear of any Lien of any Person other than Permitted Liens. All of the Collateral constitutes Property or accounts, deposit accounts, investment property or general intangibles (as each such term is defined in the UCC), except that proceeds of the Collateral may also take the form of instruments. The Issuer has taken, or caused the Servicer to take, all action necessary to perfect the security interest in the Storm Recovery Collateral granted to the Indenture Trustee, for the benefit of the Secured Parties. The Issuer has filed (or has caused the Servicer to file) all appropriate financing statements in the proper filing offices in the appropriate jurisdictions under applicable law in order to perfect the security interest in the Storm Recovery Collateral granted to the Indenture Trustee. The Issuer has not authorized the filing of and is not aware, after due inquiry, of any financing statements against the Issuer that include a description of the Collateral other than those filed in favor of the Indenture Trustee. The Issuer is not aware of any judgment or tax lien filings against the Issuer. The Collection Account (including all subaccounts thereof other than the Capital Subaccount) constitutes a “securities account” within the meaning of the UCC and the Capital Subaccount constitutes a “deposit account” within the meaning of the UCC. The Issuer has taken all steps necessary to cause the Securities Intermediary of each such securities account to identify in its records the Indenture Trustee as the Person having a security entitlement against the Securities Intermediary in such securities account, no Collection Account is in the name of any Person other than the Indenture Trustee, and the Issuer has not consented to the Securities Intermediary of the Collection Account to comply with entitlement orders of any Person other than the Indenture Trustee. All of the Collateral constituting investment property has been and will have been credited to the Collection Account or a subaccount thereof, and the Securities Intermediary for the Collection Account has agreed to treat all assets credited to the Collection Account (other than cash) as “financial assets” within the meaning of the UCC and cash will be allocated to the Capital Subaccount. Accordingly, the Indenture Trustee has a first priority perfected security interest in the Collection Account, all funds and financial assets on deposit therein, and all securities entitlements relating thereto. The representations and warranties set forth in this Section 2.18 shall survive the execution and delivery of this Indenture and the issuance of any Storm Recovery Bonds, shall be deemed re-made on each date on which any funds in the Collection Account are distributed to the Issuer as provided in Section 8.04 or otherwise released from the Lien of the Indenture and may not be waived by any party hereto except pursuant to a supplemental indenture executed in accordance with Article IX and as to which the Rating Agency Condition has been satisfied.

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SECTION 2.19.         Bonds are not Obligations of the State of South Carolina. The Issuer and Indenture Trustee hereby acknowledge neither the State of South Carolina, its agencies, and instrumentalities, nor its political subdivisions are liable on the Storm Recovery Bonds, and the Storm Recovery Bonds are not a debt or a general obligation of the State of South Carolina or any of its political subdivisions, agencies, or instrumentalities nor are they special obligations or indebtedness of the State, its agencies, or its political subdivisions. The Storm Recovery Bonds do not, directly, indirectly, or contingently obligate the State of South Carolina or its agencies, instrumentalities, or political subdivisions, to levy any tax or make any appropriation for payment of the Storm Recovery Bonds, other than in their capacities as consumers of electricity.

ARTICLE III

Covenants

SECTION 3.01.         Payment of Principal, Premium, if any, and Interest. The principal of and premium, if any, and interest on the Storm Recovery Bonds shall be duly and punctually paid by the Issuer, or the Servicer on behalf of the Issuer, in accordance with the terms of the Storm Recovery Bonds and this Indenture and the Series Supplement; provided, that, except on a Final Maturity Date or upon the acceleration of the Storm Recovery Bonds following the occurrence of an Event of Default, the Issuer shall only be obligated to pay the principal of such Storm Recovery Bonds on each Payment Date therefor to the extent moneys are available for such payment pursuant to Section 8.02. Amounts properly withheld under the Code, the Treasury regulations promulgated thereunder or other tax laws by any Person from a payment to any Holder of interest or principal or premium, if any, shall be considered as having been paid by the Issuer to such Holder for all purposes of this Indenture.

SECTION 3.02.         Maintenance of Office or Agency. The Issuer shall initially maintain in St. Paul, Minnesota an office or agency where Storm Recovery Bonds may be surrendered for registration of transfer or exchange. The Issuer shall give prompt written notice to the Indenture Trustee of the location, and of any change in the location, of any such office or agency. The Issuer hereby initially appoints the Indenture Trustee to serve as its agent for the foregoing purposes, and the Corporate Trust Office of the Indenture Trustee shall serve as the offices provided above in this Section 3.02. If at any time the Issuer shall fail to maintain any such office or agency or shall fail to furnish the Indenture Trustee with the address thereof, such surrenders may be made at the office of the Indenture Trustee located at the Corporate Trust Office, and the Issuer hereby appoints the Indenture Trustee as its agent to receive all such surrenders.

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SECTION 3.03.         Money for Payments To Be Held in Trust. As provided in Section 8.02(a), all payments of amounts due and payable with respect to any Storm Recovery Bonds that are to be made from amounts withdrawn from the Collection Account pursuant to Section 8.02(d) shall be made on behalf of the Issuer by the Indenture Trustee or by another Paying Agent, and no amounts so withdrawn from the Collection Account for payments with respect to any Storm Recovery Bonds shall be paid over to the Issuer except as provided in this Section 3.03 and Section 8.02.

Each Paying Agent shall meet the eligibility criteria set forth for any Indenture Trustee under Section 6.11. The Issuer will cause each Paying Agent other than the Indenture Trustee to execute and deliver to the Indenture Trustee an instrument in which such Paying Agent shall agree with the Indenture Trustee (and if the Indenture Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions of this Section 3.03, that such Paying Agent will:

(a)            hold all sums held by it for the payment of amounts due with respect to the Storm Recovery Bonds in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided and pay such sums to such Persons as herein provided;

(b)            give the Indenture Trustee unless the Indenture Trustee is the Paying Agent, the Commission and the Rating Agencies written notice of any Default by the Issuer of which it has actual knowledge in the making of any payment required to be made with respect to the Storm Recovery Bonds;

(c)            at any time during the continuance of any such Default, upon the written request of the Indenture Trustee, forthwith pay to the Indenture Trustee all sums so held in trust by such Paying Agent;

(d)            immediately, with notice to the Rating Agencies, resign as a Paying Agent and forthwith pay to the Indenture Trustee all sums held by it in trust for the payment of Storm Recovery Bonds if at any time the Paying Agent determines that it has ceased to meet the standards required to be met by a Paying Agent at the time of such determination; and

(e)            comply with all requirements of the Code, the Treasury regulations promulgated thereunder and other tax laws with respect to the withholding from any payments made by it on any Storm Recovery Bonds of any applicable withholding taxes imposed thereon and with respect to any applicable reporting requirements in connection therewith.

The Issuer may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, by Issuer Order direct any Paying Agent to pay to the Indenture Trustee all sums held in trust by such Paying Agent, such sums to be held by the Indenture Trustee upon the same trusts as those upon which the sums were held by such Paying Agent; and, upon such payment by any Paying Agent to the Indenture Trustee, such Paying Agent shall be released from all further liability with respect to such money.

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Subject to applicable laws with respect to escheatment of funds, any money held by the Indenture Trustee or any Paying Agent in trust for the payment of any amount due with respect to any Storm Recovery Bond and remaining unclaimed for two years after such amount has become due and payable shall be discharged from such trust and be paid to the Issuer upon receipt of an Issuer Request; and, subject to Section 10.14, the Holder of such Storm Recovery Bond shall thereafter, as an unsecured general creditor, look only to the Issuer for payment thereof (but only to the extent of the amounts so paid to the Issuer), and all liability of the Indenture Trustee or such Paying Agent with respect to such trust money shall thereupon cease; provided, however, that the Indenture Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Issuer, cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Issuer. The Indenture Trustee may also adopt and employ, at the written direction and expense of the Issuer, any other reasonable means of notification of such repayment (including mailing notice of such repayment to Holders whose right to or interest in moneys due and payable but not claimed is determinable from the records of the Indenture Trustee or of any Paying Agent, at the last address of record for each such Holder).

SECTION 3.04.         Existence. The Issuer shall keep in full effect its existence, rights and franchises as a limited liability company under the laws of the State of Delaware (unless it becomes, or any successor Issuer hereunder is or becomes, organized under the laws of any other State or of the United States of America, in which case the Issuer will keep in full effect its existence, rights and franchises under the laws of such other jurisdiction) and will obtain and preserve its qualification to do business in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Indenture, the other Basic Documents, the Storm Recovery Bonds, the Collateral and each other instrument or agreement referenced herein or therein.

SECTION 3.05.         Protection of Collateral. The Issuer shall from time to time execute and deliver all such supplements and amendments hereto and all filings with the Commission, the Secretary of State of the State of Delaware or the Secretary of State of the State of South Carolina pursuant to the Financing Order or to the Storm Recovery Law and all financing statements, continuation statements, instruments of further assurance and other instruments, and shall take such other action necessary or advisable, to:

(a)            maintain or preserve the Lien (and the priority thereof) of this Indenture and the Series Supplement or carry out more effectively the purposes hereof;

(b)            perfect, publish notice of or protect the validity of any Grant made or to be made by this Indenture;

(c)            enforce any of the Collateral;

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(d)            preserve and defend title to the Collateral and the rights of the Indenture Trustee and the Holders in such Collateral against the Claims of all Persons, including a challenge by any party to the validity or enforceability of the Financing Order, the Storm Recovery Property or any proceeding relating thereto and institute any action or proceeding necessary to compel performance by the Commission or the State of South Carolina of any of its obligations or duties under the Storm Recovery Law, the State Pledge, or the Financing Order; and

(e)            pay any and all taxes levied or assessed upon all or any part of the Collateral.

The Indenture Trustee is specifically permitted and authorized, but not required to file financing statements covering the Collateral, including financing statements that describe the Collateral as “all assets” or “all personal property” of the Issuer; provided, however, that such authorization shall not be deemed to be an obligation.

SECTION 3.06.        Opinions as to Collateral.

(a)            Within 90 days after the beginning of each calendar year beginning with the calendar year beginning January 1, 2025, the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel of the Issuer either stating that, in the opinion of such counsel, such action has been taken with respect to the recording, filing, re-recording and refiling of this Indenture, any indentures supplemental hereto and any other requisite documents, and with respect to the execution and filing of any filings with the Commission, the Secretary of State of the State of Delaware or the Secretary of State of the State of South Carolina pursuant to the Storm Recovery Law and the Financing Order, financing statements and continuation statements, as are necessary to maintain the Lien and the perfected security interest created by this Indenture and reciting the details of such action, or stating that, in the opinion of such counsel, no such action is necessary to maintain such Lien. Such Opinion of Counsel shall also describe the recording, filing, re-recording and refiling of this Indenture, any indentures supplemental hereto and any other requisite documents and the execution and filing of any filings with the Commission, the Secretary of State of the State of Delaware or the Secretary of State of the State of South Carolina, financing statements and continuation statements that will, in the opinion of such counsel, be required within the 12-month period following the date of such opinion to maintain the Lien and the perfected security interest created by this Indenture.

(b)            Prior to the effectiveness of any amendment to the Sale Agreement or the Servicing Agreement, the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel of external counsel of the Issuer either (i) stating that, in the opinion of such counsel, all filings, including UCC financing statements and other filings with the Commission, the Secretary of State of the State of Delaware or the Secretary of State of the State of South Carolina pursuant to the Storm Recovery Law or the applicable Financing Order have been executed and filed that are necessary fully to preserve and protect the Lien of the Issuer and the Indenture Trustee in the Storm Recovery Property and the Storm Recovery Collateral, respectively, and the proceeds thereof, and reciting the details of such filings or referring to prior Opinions of Counsel in which such details are given, or (ii) stating that, in the opinion of such counsel, no such action shall be necessary to preserve and protect such Lien.

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SECTION 3.07.         Performance of Obligations; Servicing; SEC Filings.

(a)            The Issuer (i) shall diligently pursue any and all actions to enforce its rights under each instrument or agreement included in the Collateral and (ii) shall not take any action and shall use its best efforts not to permit any action to be taken by others that would release any Person from any of such Person’s covenants or obligations under any such instrument or agreement or that would result in the amendment, hypothecation, subordination, termination or discharge of, or impair the validity or effectiveness of, any such instrument or agreement, except, in each case, as expressly provided in this Indenture, the Series Supplement, the Sale Agreement, the Servicing Agreement, the Intercreditor Agreement or such other instrument or agreement.

(b)            The Issuer may contract with other Persons selected with due care to assist it in performing its duties under this Indenture, and any performance of such duties by a Person identified to the Indenture Trustee herein or in an Officer’s Certificate shall be deemed to be action taken by the Issuer. Initially, the Issuer has contracted with the Servicer to assist the Issuer in performing its duties under this Indenture.

(c)            The Issuer shall punctually perform and observe all of its obligations and agreements contained in this Indenture, the Series Supplement, the other Basic Documents and the instruments and agreements included in the Collateral, including filing or causing to be filed all filings with the Commission, the Secretary of State of the State of Delaware or the Secretary of State of the State of South Carolina pursuant to the Storm Recovery Law or the Financing Order, all UCC financing statements and all continuation statements required to be filed by it by the terms of this Indenture, the Series Supplement, the Sale Agreement and the Servicing Agreement in accordance with and within the time periods provided for herein and therein.

(d)            If the Issuer shall have knowledge of the occurrence of a Servicer Default under the Servicing Agreement for such Series, the Issuer shall promptly give written notice thereof to the Indenture Trustee, the Commission and the Rating Agencies and shall specify in such notice the response or action, if any, the Issuer has taken or is taking with respect to such Servicer Default. If a Servicer Default shall arise from the failure of the Servicer to perform any of its duties or obligations under the Servicing Agreement with respect to the Storm Recovery Property, the Storm Recovery Collateral or the Storm Recovery Charges, the Issuer shall take all reasonable steps available to it to remedy such failure.

(e)            As promptly as possible after the giving of notice of termination to the Servicer and the Rating Agencies of the Servicer’s rights and powers pursuant to Section 7.01 of the Servicing Agreement, the Indenture Trustee shall, at the written direction either (a) of the Holders evidencing a majority of the Outstanding Amount of the Storm Recovery Bonds, or (b) of the Commission, appoint a successor Servicer (the “Successor Servicer”), and such Successor Servicer shall accept its appointment by a written assumption in a form acceptable to the Issuer. A Person shall qualify as a Successor Servicer only if such Person satisfies the requirements of the Servicing Agreement and the Intercreditor Agreement. If, within 30 days after the delivery of the notice referred to above, a new Servicer shall not have been appointed, the Indenture Trustee may petition the Commission or a court of competent jurisdiction to appoint a Successor Servicer. In connection with any such appointment, Duke Energy Progress may make such arrangements for the compensation of such Successor Servicer as it and such successor shall agree, subject to the limitations set forth in Section 8.02 and in the Servicing Agreement.

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(f)             Upon any termination of the Servicer’s rights and powers pursuant to the Servicing Agreement, the Indenture Trustee shall promptly notify the Issuer, the Holders and the Rating Agencies of such termination. As soon as a Successor Servicer is appointed, the Indenture Trustee shall notify the Issuer, the Holders and the Rating Agencies of such appointment, specifying in such notice the name and address of such Successor Servicer.

(g)            The Issuer shall (or shall cause the Sponsor to) post on its website (which for this purpose may be the website of any direct or indirect parent company of the Issuer) and, to the extent consistent with the Issuer’s and the Sponsor’s obligations under applicable law, file with or furnish to the SEC in periodic reports and other reports as are required from time to time under Section 13 or Section 15(d) of the Exchange Act, the following information (other than any such information filed with the SEC and publicly available to investors unless the Issuer specifically requests such items to be posted) with respect to the Outstanding Storm Recovery Bonds, in each case to the extent such information is reasonably available to the Issuer:

(i)             statements of any remittances of Storm Recovery Charges made to the Indenture Trustee (to be included in a Form 10-D or Form 10-K, or successor forms thereto);

(ii)            a statement reporting the balances in the Collection Account and in each subaccount of the Collection Account as of all Payment Dates (to be included on the next Form 10-D filed);

(iii)            each Semi-Annual Servicer’s Certificate as required to be submitted pursuant to the Servicing Agreement (to be filed with a Form 10-D, Form 10-K or Form 8-K, or successor forms thereto);

(iv)           each Monthly Servicer’s Certificate as required to be submitted pursuant to the Servicing Agreement;

(v)            the text (or a link to the website where a reader can find the text) of each filing of a True-Up Adjustment and the results of each such filing;

(vi)           changes in the long-term or short-term credit ratings of the Servicer assigned by the Rating Agencies;

(vii)          material legislative or regulatory developments directly relevant to the Outstanding Storm Recovery Bonds (to be filed or furnished in a Form 8-K); and

(viii)         any reports and other information that the Issuer is required to file with the SEC under the Exchange Act, including but not limited to periodic and current reports related to the Storm Recovery Bonds consistent with the disclosure and reporting regime established in Regulation AB.

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Notwithstanding the foregoing, nothing herein shall preclude the Issuer from voluntarily suspending or terminating its filing obligations as Issuer with the SEC to the extent permitted by applicable law. Any such reports or information delivered to the Indenture Trustee for purposes of this Section 3.07(g) is for informational purposes only, and the Indenture Trustee’s receipt of such reports or information shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Issuer’s compliance with any of its covenants hereunder (as to which the Indenture Trustee is entitled to conclusively rely on an Officer’s Certificate).

(h)            The Issuer shall direct the Indenture Trustee to post on the Indenture Trustee’s website for investors (based solely on information set forth in the Annual Servicer’s Certificate) with respect to the Outstanding Storm Recovery Bonds, to the extent such information is set forth in the Annual Servicer’s Certificate, a statement showing the balance of Outstanding Storm Recovery Bonds that reflects the actual payments made on the Storm Recovery Bonds during the applicable period.

The address of the Indenture Trustee’s website for investors is https://pivot.usbank.com. The Indenture Trustee shall promptly notify the Issuer, the Holders and the Rating Agencies of any change to the address of the website for investors.

(i)            The Issuer shall make all filings required under the Storm Recovery Law relating to the transfer of the ownership or security interest in the Storm Recovery Property other than those required to be made by the Seller or the Servicer pursuant to the Basic Documents.

SECTION 3.08.      Certain Negative Covenants. So long as Storm Recovery Bonds are Outstanding, the Issuer shall not:

(a)            except as expressly permitted by this Indenture and the other Basic Documents, or in connection with the issuance of additional series of storm recovery bonds in accordance with Section 3.22 of this Indenture, sell, transfer, convey, exchange or otherwise dispose of any of the properties or assets of the Issuer, including those included in the Collateral, unless in accordance with Article V;

(b)            claim any credit on, or make any deduction from the principal or premium, if any, or interest payable in respect of, the Storm Recovery Bonds (other than amounts properly withheld from such payments under the Code, the Treasury regulations promulgated thereunder or other tax laws) or assert any claim against any present or former Holder by reason of the payment of the taxes levied or assessed upon any part of the Collateral;

(c)            terminate its existence or dissolve or liquidate in whole or in part, except in a transaction permitted by Section 3.10;

(d)            (i) permit the validity or effectiveness of this Indenture or the other Basic Documents to be impaired, or permit the Lien of this Indenture to be amended, hypothecated, subordinated, terminated or discharged, or permit any Person to be released from any covenants or obligations with respect to the Storm Recovery Bonds under this Indenture except as may be expressly permitted hereby, (ii) permit any Lien (other than the Lien of this Indenture) to be created on or extend to or otherwise arise upon or burden the Collateral or any part thereof or any interest therein or the proceeds thereof (other than tax liens arising by operation of law with respect to amounts not yet due) or (iii) permit the Lien of the Indenture not to constitute a valid first priority perfected security interest in the related Storm Recovery Collateral;

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(e)            elect to be classified as an association taxable as a corporation for U.S. federal income tax purposes or otherwise take any action, file any tax return or make any election inconsistent with the treatment of the Issuer, for U.S. federal income tax purposes and, to the extent consistent with applicable state tax law, state income and franchise tax purposes, as a disregarded entity that is not separate from the sole owner of the Issuer;

(f)            change its name, identity or structure or the location of its chief executive office, unless at least ten Business Days prior to the effective date of any such change the Issuer delivers to the Indenture Trustee (with copies to the Rating Agencies) such documents, instruments or agreements, executed by the Issuer, as are necessary to reflect such change and to continue the perfection of the security interest of this Indenture;

(g)            take any action that is subject to a Rating Agency Condition without satisfying the Rating Agency Condition;

(h)            except to the extent permitted by applicable law, voluntarily suspend or terminate its filing obligations with the SEC as described in Section 3.07(g); or

(i)            issue any debt obligations other than storm recovery bonds permitted by this Indenture.

SECTION 3.09.      Annual Statement as to Compliance. The Issuer will deliver to the Indenture Trustee, the Commission and the Rating Agencies not later than March 31 of each year (commencing with March 31, 2025), an Officer’s Certificate stating, as to the Responsible Officer signing such Officer’s Certificate, that:

(a)            a review of the activities of the Issuer during the preceding 12 months ended December 31 (or, in the case of the first such Officer’s Certificate, since the date hereof) and of performance under this Indenture has been made; and

(b)            to the best of such Responsible Officer’s knowledge, based on such review, the Issuer has in all material respects complied with all conditions and covenants under this Indenture throughout such 12-month period (or such shorter period in the case of the first such Officer’s Certificate), or, if there has been a default in the compliance of any such condition or covenant, specifying each such default known to such Responsible Officer and the nature and status thereof.

SECTION 3.10.         Issuer May Consolidate, etc., Only on Certain Terms.

(a)            The Issuer shall not consolidate or merge with or into any other Person, unless:

(i)            the Person (if other than the Issuer) formed by or surviving such consolidation or merger shall (A) be a Person organized and existing under the laws of the United States of America or any State, (B) expressly assume, by an indenture supplemental hereto, executed and delivered to the Indenture Trustee, in form and substance satisfactory to the Indenture Trustee, the performance or observance of every agreement and covenant of this Indenture and the Series Supplement on the part of the Issuer to be performed or observed, all as provided herein and in the Series Supplement, and (C) assume all obligations and succeed to all rights of the Issuer under the Sale Agreement, Servicing Agreement and the other Basic Document to which the Issuer is a party;

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(ii)            immediately after giving effect to such merger or consolidation, no Default, Event of Default or Servicer Default shall have occurred and be continuing;

(iii)           the Rating Agency Condition shall have been satisfied with respect to such merger or consolidation;

(iv)           the Issuer shall have delivered to Duke Energy Progress, the Indenture Trustee and the Rating Agencies an opinion or opinions of outside tax counsel (as selected by the Issuer, in form and substance reasonably satisfactory to Duke Energy Progress and the Indenture Trustee, and which may be based on a ruling from the Internal Revenue Service (unless the Internal Revenue Service has announced that it will not rule on the issues described in this paragraph)) to the effect that the consolidation or merger will not result in a material adverse U.S. federal or state income tax consequence to the Issuer, Duke Energy Progress, the Indenture Trustee or the then-existing Holders;

(v)            any action as is necessary to maintain the Lien and the perfected security interest in the Collateral created by this Indenture shall have been taken as evidenced by an Opinion of Counsel of external counsel of the Issuer delivered to the Indenture Trustee; and

(vi)           the Issuer shall have delivered to the Indenture Trustee an Officer’s Certificate and an Opinion of Counsel of external counsel of the Issuer each stating that such consolidation or merger and such supplemental indenture comply with this Indenture and the Series Supplement and that all conditions precedent herein provided for in this Section 3.10(a) with respect to such transaction have been complied with (including any filing required by the Exchange Act).

(b)            Except as specifically provided herein, the Issuer shall not sell, convey, exchange, transfer or otherwise dispose of any of its properties or assets included in the Collateral, to any Person, unless:

(i)             the Person that acquires the properties and assets of the Issuer, the conveyance or transfer of which is hereby restricted, (A) shall be a United States citizen or a Person organized and existing under the laws of the United States of America or any State, (B) expressly assumes, by an indenture supplemental hereto, executed and delivered to the Indenture Trustee, in form and substance satisfactory to the Indenture Trustee, the performance or observance of every agreement and covenant of this Indenture on the part of the Issuer to be performed or observed, all as provided herein and in the Series Supplement, (C) expressly agrees by means of such supplemental indenture that all right, title and interest so sold, conveyed, exchanged, transferred or otherwise disposed of shall be subject and subordinate to the rights of Holders, (D) unless otherwise provided in the supplemental indenture referred to in Section 3.10(b)(i)(B), expressly agrees to indemnify, defend and hold harmless the Issuer and the Indenture Trustee against and from any loss, liability or expense arising under or related to this Indenture, the Series Supplement and the Storm Recovery Bonds, (E) expressly agrees by means of such supplemental indenture that such Person (or if a group of Persons, then one specified Person) shall make all filings with the SEC (and any other appropriate Person) required by the Exchange Act in connection with the Collateral and the Storm Recovery Bonds and (F) if such sale, conveyance, exchange, transfer or disposal relates to the Issuer’s rights and obligations under the Sale Agreement or the Servicing Agreement, assumes all obligations and succeeds to all rights of the Issuer under the Sale Agreement and the Servicing Agreement, as applicable;

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(ii)            immediately after giving effect to such transaction, no Default, Event of Default or Servicer Default shall have occurred and be continuing;

(iii)            the Rating Agency Condition shall have been satisfied with respect to such transaction;

(iv)            the Issuer shall have delivered to Duke Energy Progress, the Indenture Trustee and the Rating Agencies an opinion or opinions of outside tax counsel (as selected by the Issuer, in form and substance reasonably satisfactory to Duke Energy Progress, and which may be based on a ruling from the Internal Revenue Service) to the effect that the disposition will not result in a material adverse U.S. federal or state income tax consequence to the Issuer, Duke Energy Progress, the Indenture Trustee or the then-existing Holders;

(v)            any action as is necessary to maintain the Lien and the perfected security interest in the Collateral created by this Indenture shall have been taken as evidenced by an Opinion of Counsel of external counsel of the Issuer delivered to the Indenture Trustee; and

(vi)            the Issuer shall have delivered to the Indenture Trustee an Officer’s Certificate and an Opinion of Counsel of external counsel of the Issuer each stating that such sale, conveyance, exchange, transfer or other disposition and such supplemental indenture comply with this Indenture and that all conditions precedent herein provided for in this Section 3.10(b) with respect to such transaction have been complied with (including any filing required by the Exchange Act).

SECTION 3.11.         Successor or Transferee.

(a)            Upon any consolidation or merger of the Issuer in accordance with Section 3.10(a), the Person formed by or surviving such consolidation or merger (if other than the Issuer) shall succeed to, and be substituted for, and may exercise every right and power of, the Issuer under this Indenture with the same effect as if such Person had been named as the Issuer herein.

(b)            Except as set forth in Section 6.07, upon a sale, conveyance, exchange, transfer or other disposition of all the assets and properties of the Issuer in accordance with Section 3.10(b), the Issuer will be released from every covenant and agreement of this Indenture and the other Basic Documents to be observed or performed on the part of the Issuer with respect to the Storm Recovery Bonds and the Property immediately following the consummation of such acquisition upon the delivery of written notice to the Indenture Trustee from the Person acquiring such assets and properties stating that the Issuer is to be so released.

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SECTION 3.12.         No Other Business. The Issuer shall not engage in any business other than financing, purchasing, owning, administering, managing and servicing the Property and the other Collateral and the issuance of the Storm Recovery Bonds in the manner contemplated by the Financing Order and this Indenture and the other Basic Documents and activities incidental thereto.

SECTION 3.13.         No Borrowing. The Issuer shall not issue, incur, assume, guarantee or otherwise become liable, directly or indirectly, for any indebtedness except for the Storm Recovery Bonds and any other indebtedness expressly permitted by or arising under the Basic Documents.

SECTION 3.14.         Servicer’s Obligations. The Issuer shall enforce the Servicer’s compliance with and performance of all of the Servicer’s material obligations under the Servicing Agreement.

SECTION 3.15.         Guarantees, Loans, Advances and Other Liabilities. Except as otherwise contemplated by the Sale Agreement, the Servicing Agreement or this Indenture, the Issuer shall not make any loan or advance or credit to, or guarantee (directly or indirectly or by an instrument having the effect of assuring another’s payment or performance on any obligation or capability of so doing or otherwise), endorse or otherwise become contingently liable, directly or indirectly, in connection with the obligations, stocks or dividends of, or own, purchase, repurchase or acquire (or agree contingently to do so) any stock, obligations, assets or securities of, or any other interest in, or make any capital contribution to, any other Person.

SECTION 3.16.         Capital Expenditures. Other than the purchase of Storm Recovery Property from the Seller on a Closing Date, the Issuer shall not make any expenditure (by long-term or operating lease or otherwise) for capital assets (either realty or personalty).

SECTION 3.17.         Restricted Payments. Except as provided in Section 8.04(c), the Issuer shall not, directly or indirectly, (a) pay any dividend or make any distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, to any owner of an interest in the Issuer or otherwise with respect to any ownership or equity interest or similar security in or of the Issuer, (b) redeem, purchase, retire or otherwise acquire for value any such ownership or equity interest or similar security or (c) set aside or otherwise segregate any amounts for any such purpose; provided, however, that, if no Event of Default shall have occurred and be continuing or would be caused thereby, the Issuer may make, or cause to be made, any such distributions to any owner of an interest in the Issuer or otherwise with respect to any ownership or equity interest or similar security in or of the Issuer using funds distributed to the Issuer pursuant to Section 8.02(e)(xi) to the extent that such distributions would not cause the balance of the Capital Subaccount to decline below the Required Capital Level. The Issuer will not, directly or indirectly, make payments to or distributions from the Collection Account except in accordance with this Indenture and the other Basic Documents.

SECTION 3.18.         Notice of Events of Default. The Issuer agrees to give the Indenture Trustee, the Commission and the Rating Agencies prompt written notice of each Default or Event of Default hereunder as provided in Section 5.01, and each default on the part of the Seller or the Servicer of its obligations under the Sale Agreement or the Servicing Agreement, respectively.

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SECTION 3.19.         Further Instruments and Acts. Upon request of the Indenture Trustee or as required by applicable law, the Issuer shall execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture and to maintain the first priority perfected security interest of the Indenture Trustee in the Collateral.

SECTION 3.20.         Inspection. The Issuer agrees that, on reasonable prior notice, it will permit any representative of the Indenture Trustee and any representative of the Commission or Office of Regulatory Staff, during the Issuer’s normal business hours, to examine all the books of account, records, reports and other papers of the Issuer, to make copies and extracts therefrom, to cause such books to be audited annually by Independent registered public accountants, and to discuss the Issuer’s affairs, finances and accounts with the Issuer’s officers, employees and Independent registered public accountants, all at such reasonable times and as often as may be reasonably requested. The Indenture Trustee, the Commission and Office of Regulatory Staff shall and shall cause its representatives to hold in confidence all such information except to the extent disclosure may be required by law (and all reasonable applications for confidential treatment are unavailing) and except to the extent that the Indenture Trustee may reasonably determine that such disclosure is consistent with its obligations hereunder. Notwithstanding anything herein to the contrary, the preceding sentence shall not be construed to prohibit (a) disclosure of any and all information that is or becomes publicly known, or information obtained by the Indenture Trustee from sources other than the Issuer, provided such parties are rightfully in possession of such information, (b) disclosure of any and all information (i) if required to do so by any applicable statute, law, rule or regulation, (ii) pursuant to any subpoena, civil investigative demand or similar demand or request of any court or regulatory authority exercising its proper jurisdiction, (iii) in any preliminary or final prospectus, registration statement or other document a copy of which has been filed with the SEC, (iv) to any affiliate, independent or internal auditor, agent, employee or attorney of the Indenture Trustee having a need to know the same, provided that such parties agree to be bound by the confidentiality provisions contained in this Section 3.20, or (v) to any Rating Agency or (c) any other disclosure authorized by the Issuer.

SECTION 3.21.         [RESERVED]

SECTION 3.22.         Additional Storm Recovery Bonds.

 (a)           Following the issuance by the Commission of any Subsequent Financing Order or pursuant to remaining authority under the Financing Order, the Issuer may, in its sole discretion but subject to the terms contained in this Section 3.22, acquire additional and separate storm recovery bond collateral and issue additional storm recovery bonds under any such subsequent indenture that are backed by such separate additional storm recovery bond collateral. Any additional storm recovery bonds may include terms and provisions unique to such additional storm recovery bonds.

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 (b)           In addition to all applicable requirements set forth in any subsequent indenture for any additional storm recovery bonds, the following conditions must be satisfied in connection with any issuance of additional storm recovery bonds:

(i) Duke Energy Progress requests and receives a Subsequent Financing Order from the Commission to recover additional storm recovery costs through the issuance of additional storm recovery bonds;

(ii) Duke Energy Progress must serve as initial servicer and administrator for such series of the additional storm recovery bonds and that the servicer and the administrator cannot be replaced without the requisite approval of the holders of all series of Storm Recovery Bonds then-Outstanding;

(iii) satisfaction of the Rating Agency Condition;

(iv) each series of the additional storm recovery bonds has recourse only to the storm recovery property created by the Financing Order or any Subsequent Financing Order, as the case may be, and funds on deposit in the trust accounts held by the Indenture Trustee with respect to that series, is nonrecourse to the Storm Recovery Property securing the Storm Recovery Bonds and does not constitute a claim against the Issuer if revenue from the storm recovery charges and funds on deposit in the trust accounts with respect to that series are insufficient to pay such other series in full;

(v) the Issuer has provided to the Indenture Trustee and the Rating Agencies then rating any series of the Issuer’s Outstanding Storm Recovery Bonds an opinion of a nationally recognized law firm experienced in such matters to the effect that such issuance would not result in the Issuer’s substantive consolidation with Duke Energy Progress and that there has been a true sale of the storm recovery property for such series, subject to the customary exceptions, qualifications and assumptions contained therein;

(vi) transaction documentation for the other series provides that the indenture trustee on behalf of holders of the storm recovery bonds of the other series will not file or join in filing of any bankruptcy petition against the Issuer;

(vii) if holders of such other series are deemed to have any interest in any of the Storm Recovery Collateral dedicated to the Storm Recovery Bonds, holders of such additional storm recovery bonds must agree that their interest in the storm recovery collateral dedicated to the additional storm recovery bonds is only a first priority perfected interest in the assets relating to the additional storm recovery bonds, as the case may be, in accordance with the related intercreditor agreement;

(viii) each series of additional storm recovery bonds will have its own bank accounts or trust accounts and funds for each series of storm recovery bonds shall be remitted in accordance with the related servicing agreement and related intercreditor agreement;

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(ix) no series of additional storm recovery bonds will be issued under this Indenture; and

(x) each series will bear its own indenture trustee fees, servicer fees and administration fees.

SECTION 3.23.         Sale Agreement, Servicing Agreement, Intercreditor Agreement and Administration Agreement Covenants.

(a)            The Issuer agrees to take all such lawful actions to enforce its rights under the Sale Agreement, the Servicing Agreement, the Intercreditor Agreement, the Administration Agreement and the other Basic Documents, and to compel or secure the performance and observance by the Seller, the Servicer, the Administrator and Duke Energy Progress of each of their respective obligations to the Issuer under or in connection with the Sale Agreement, the Servicing Agreement, the Intercreditor Agreement, the Administration Agreement and the other Basic Documents in accordance with the terms thereof. So long as no Event of Default occurs and is continuing, but subject to Section 3.23(f), the Issuer may exercise any and all rights, remedies, powers and privileges lawfully available to the Issuer under or in connection with the Sale Agreement, the Servicing Agreement, the Intercreditor Agreement and the Administration Agreement; provided, that such action shall not adversely affect the interests of the Holders in any material respect.

(b)            If an Event of Default occurs and is continuing, the Indenture Trustee may, and at the direction (which direction shall be in writing) of the Holders of a majority of the Outstanding Amount of the Storm Recovery Bonds affected thereby or the Commission, shall, exercise all rights, remedies, powers, privileges and claims of the Issuer against the Seller, Duke Energy Progress, the Administrator and the Servicer, as the case may be, under or in connection with the Sale Agreement, the Servicing Agreement, the Intercreditor Agreement and the Administration Agreement, including the right or power to take any action to compel or secure performance or observance by the Seller, Duke Energy Progress, the Administrator or the Servicer of each of their obligations to the Issuer thereunder and to give any consent, request, notice, direction, approval, extension or waiver under the Sale Agreement, the Servicing Agreement, the Intercreditor Agreement and the Administration Agreement, and any right of the Issuer to take such action shall be suspended.

(c)            Except as set forth in Section 3.23(d), the Administration Agreement, the Sale Agreement, the Servicing Agreement and the Intercreditor Agreement may be amended in accordance with the provisions thereof, so long as the Rating Agency Condition is satisfied in connection therewith, at any time and from time to time, without the consent of the Holders of the Storm Recovery Bonds, but with the acknowledgement of the Indenture Trustee; provided, that the Indenture Trustee shall provide such acknowledgement upon receipt of an Officer’s Certificate of the Issuer evidencing satisfaction of such Rating Agency Condition, an Opinion of Counsel of external counsel of the Issuer evidencing that such amendment is in accordance with the provisions of such Basic Document, including, to the extent required by such Basic Documents, satisfaction of the Commission Condition (as described in Section 9.03 hereof, or alternatively, if applicable, Section 13(b) of the Administration Agreement, Section 6.01(b) of the Sale Agreement or Section 8.01(c) of the Servicing Agreement).

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(d)            Except as set forth in Section 3.23(e), if the Issuer, the Seller, Duke Energy Progress, the Administrator, the Servicer or any other party to the respective agreement proposes to amend, modify, waive, supplement, terminate or surrender, or agree to any amendment, modification, waiver, supplement, termination or surrender of, the terms of the Sale Agreement, the Administration Agreement, the Servicing Agreement or the Intercreditor Agreement, or waive timely performance or observance by the Seller, Duke Energy Progress, the Administrator, the Servicer or any other party under the Sale Agreement, the Administration Agreement, the Servicing Agreement or the Intercreditor Agreement, in each case in such a way as would materially and adversely affect the interests of any Holder of Storm Recovery Bonds, the Issuer shall first notify the Rating Agencies of the proposed amendment, modification, waiver, supplement, termination or surrender and shall promptly notify the Indenture Trustee, the Commission and the Holders of the Storm Recovery Bonds in writing of the proposed amendment, modification, waiver, supplement, termination or surrender and whether the Rating Agency Condition has been satisfied with respect thereto (or, pursuant to an Issuer Request, the Indenture Trustee shall so notify the Holders of the Storm Recovery Bonds on the Issuer’s behalf). The Indenture Trustee shall consent to such proposed amendment, modification, waiver, supplement, termination or surrender only if the Rating Agency Condition is satisfied and only with the (i) prior written consent of the Holders of a majority of the Outstanding Amount of Storm Recovery Bonds materially and adversely affected thereby and (ii) to the extent required by terms of the Sale Agreement, Administration Agreement, Servicing Agreement or the Intercreditor Agreement, satisfaction of the Commission Condition, (as described in Section 9.03 hereof, or alternatively, if applicable, Section 13(b) of the Administration Agreement, Section 6.01(b) of the Sale Agreement or Section 8.01(c) of the Servicing Agreement). If any such amendment, modification, waiver, supplement, termination or surrender shall be so consented to by the Indenture Trustee or such Holders, the Issuer agrees to execute and deliver, in its own name and at its own expense, such agreements, instruments, consents and other documents as shall be necessary or appropriate in the circumstances.

(e)            If the Issuer or the Servicer proposes to amend, modify, waive, supplement, terminate or surrender, or to agree to any amendment, modification, supplement, termination, waiver or surrender of, the process for True-Up Adjustments, the Issuer shall notify the Indenture Trustee and the Holders of the Storm Recovery Bonds and, when required, the Commission in writing of such proposal (or, pursuant to an Issuer Request, the Indenture Trustee shall so notify the Holders of the Storm Recovery Bonds on the Issuer’s behalf), and the Indenture Trustee shall consent thereto with the prior written consent of the Holders of a majority of the Outstanding Amount of Storm Recovery Bonds affected thereby and only if the Rating Agency Condition, and to the extent required by the Servicing Agreement, Commission Condition, have been satisfied with respect thereto.

(f)            Promptly following a default by the Seller under the Sale Agreement, by the Administrator under the Administration Agreement or by any party under the Intercreditor Agreement, or the occurrence of a Servicer Default under the Servicing Agreement, and at the Issuer’s expense, the Issuer agrees to take all such lawful actions as the Indenture Trustee may request to compel or secure the performance and observance by each of the Seller, the Administrator or the Servicer, and by such party to the Intercreditor Agreement, of their obligations under and in accordance with the Sale Agreement, the Servicing Agreement, the Administration Agreement and the Intercreditor Agreement, as the case may be, in accordance with the terms thereof, and to exercise any and all rights, remedies, powers and privileges lawfully available to the Issuer under or in connection with such agreements to the extent and in the manner directed by the Indenture Trustee, including the transmission of notices of any default by the Seller, the Administrator or the Servicer, respectively, thereunder and the institution of legal or administrative actions or Proceedings to compel or secure performance of their obligations under the Sale Agreement, the Servicing Agreement for such Series, the Administration Agreement or the Intercreditor Agreement.

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SECTION 3.24.      Taxes. So long as any of the Storm Recovery Bonds are Outstanding, the Issuer shall pay all taxes, assessments and governmental charges imposed upon it or any of its properties or assets or with respect to any of its franchises, business, income or property before any penalty accrues thereon if the failure to pay any such taxes, assessments and governmental charges would, after any applicable grace periods, notices or other similar requirements, result in a Lien on the Collateral; provided, that no such tax need be paid if the Issuer is contesting the same in good faith by appropriate proceedings promptly instituted and diligently conducted and if the Issuer has established appropriate reserves as shall be required in conformity with generally accepted accounting principles.

SECTION 3.25.      Notices from Holders. The Issuer shall promptly transmit any notice received by it from the Holders to the Indenture Trustee.

SECTION 3.26.      Volcker Rule. The Issuer is structured so as not to be a “covered fund” under the regulations adopted to implement Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly known as the “Volcker Rule.”

ARTICLE IV

Satisfaction and Discharge; Defeasance

SECTION 4.01.      Satisfaction and Discharge of Indenture; Defeasance.

(a)            This Indenture shall cease to be of further effect with respect to the Storm Recovery Bonds, and the Indenture Trustee, on reasonable written demand of and at the expense of the Issuer, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture with respect to the Storm Recovery Bonds, when:

(i)             Either:

(A)          all Storm Recovery Bonds theretofore authenticated and delivered (other than (1) Storm Recovery Bonds that have been destroyed, lost or stolen and that have been replaced or paid as provided in Section 2.06 and (2) Storm Recovery Bonds for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Issuer and thereafter repaid to the Issuer or discharged from such trust, as provided in the last paragraph of Section 3.03) have been delivered to the Indenture Trustee for cancellation; or

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(B)           either (1) the Scheduled Final Payment Date has occurred with respect to all Storm Recovery Bonds not theretofore delivered to the Indenture Trustee for cancellation or (2) the Storm Recovery Bonds will be due and payable on their respective Scheduled Final Payment Dates within one year, and, in any such case, the Issuer has irrevocably deposited or caused to be irrevocably deposited in trust with the Indenture Trustee (i) cash and/or (ii) U.S. Government Obligations that through the scheduled payments of principal and interest in respect thereof in accordance with their terms are in an amount sufficient to pay principal, interest and premium, if any, on the Storm Recovery Bonds of such Series not theretofore delivered to the Indenture Trustee for cancellation, Ongoing Financing Costs and all other sums payable hereunder by the Issuer with respect to the Storm Recovery Bonds when scheduled to be paid and to discharge the entire indebtedness on the Storm Recovery Bonds when due;

(ii)            the Issuer has paid or caused to be paid all other sums payable hereunder by the Issuer; and

(iii)           pursuant to Section 10.04, the Issuer has delivered to the Indenture Trustee an Officer’s Certificate, an Opinion of Counsel of external counsel of the Issuer and (if required by the Trust Indenture Act or the Indenture Trustee) an Independent Certificate from a firm of registered public accountants, each meeting the applicable requirements of Section 10.01(a) and each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture with respect to the Storm Recovery Bonds have been complied with.

(b)           Subject to Section 4.01(c) and Section 4.02, the Issuer at any time may terminate (i) all its obligations under this Indenture with respect to the Storm Recovery Bonds of any Series (“Legal Defeasance Option”) or (ii) its obligations under Section 3.04, Section 3.05, Section 3.06, Section 3.07, Section 3.08, Section 3.09, Section 3.10, Section 3.12, Section 3.13, Section 3.14, Section 3.15, Section 3.16, Section 3.17, Section 3.18 and Section 3.19 and the operation of Section 5.01(c) with respect to the Storm Recovery Bonds (“Covenant Defeasance Option”). The Issuer may exercise the Legal Defeasance Option with respect to the Storm Recovery Bonds notwithstanding its prior exercise of the Covenant Defeasance Option.

If the Issuer exercises the Legal Defeasance Option, the maturity of the Storm Recovery Bonds may not be accelerated because of an Event of Default. If the Issuer exercises the Covenant Defeasance Option, the maturity of the Storm Recovery Bonds may not be accelerated because of an Event of Default specified in Section 5.01(c).

Upon satisfaction of the conditions set forth herein to the exercise of the Legal Defeasance Option or the Covenant Defeasance Option of the Storm Recovery Bonds, the Indenture Trustee, on reasonable written demand of and at the expense of the Issuer, shall execute proper instruments acknowledging satisfaction and discharge of the obligations that are terminated pursuant to such exercise.

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(c)            Notwithstanding Section 4.01(a) and Section 4.01(b), (i) rights of registration of transfer and exchange, (ii) substitution of mutilated, destroyed, lost or stolen Storm Recovery Bonds, (iii) rights of Holders to receive payments of principal, premium, if any, and interest, (iv) Section 4.03 and Section 4.04, (v) the rights, obligations and immunities of the Indenture Trustee hereunder (including the rights of the Indenture Trustee under Section 6.07 and the obligations of the Indenture Trustee under Section 4.03) and (vi) the rights of Holders as beneficiaries hereof with respect to the property deposited with the Indenture Trustee payable to all or any of them, each shall survive until the Storm Recovery Bonds as to which this Indenture or certain obligations hereunder have been satisfied and discharged pursuant to Section 4.01(a) or Section 4.01(b). Thereafter the obligations in Section 6.07 and Section 4.04 shall survive.

SECTION 4.02.      Conditions to Defeasance. The Issuer may exercise the Legal Defeasance Option or the Covenant Defeasance Option with respect to the Storm Recovery Bonds only if:

(a)            the Issuer has irrevocably deposited or caused to be irrevocably deposited in trust with the Indenture Trustee (i) cash and/or (ii) U.S. Government Obligations that through the scheduled payments of principal and interest in respect thereof in accordance with their terms are in an amount sufficient to pay principal, interest and premium, if any, on the Storm Recovery Bonds not therefore delivered to the Indenture Trustee for cancellation and On-going Financing Costs and all other sums payable hereunder by the Issuer with respect to the Storm Recovery Bonds when scheduled to be paid and to discharge the entire indebtedness on the Storm Recovery Bonds when due;

(b)            the Issuer delivers to the Indenture Trustee a certificate from a nationally recognized firm of Independent registered public accountants expressing its opinion that the payments of principal of and interest on the deposited U.S. Government Obligations when due and without reinvestment plus any deposited cash will provide cash at such times and in such amounts (but, in the case of the Legal Defeasance Option only, not more than such amounts) as will be sufficient to pay in respect of the Storm Recovery Bonds (i) principal in accordance with the Expected Sinking Fund Schedule therefor, (ii) interest when due and (iii) On-going Financing Costs and all other sums payable hereunder by the Issuer with respect to the Storm Recovery Bonds;

(c)            in the case of the Legal Defeasance Option, 95 days after the deposit is made and during the 95-day period no Default specified in Section 5.01(e) or Section 5.01(f) occurs that is continuing at the end of the period;

(d)            no Default has occurred and is continuing on the day of such deposit and after giving effect thereto;

(e)            in the case of an exercise of the Legal Defeasance Option, the Issuer shall have delivered to the Indenture Trustee an Opinion of Counsel of external counsel of the Issuer stating that (i) the Issuer has received from, or there has been published by, the Internal Revenue Service a ruling or (ii) since the date of execution of this Indenture, there has been a change in the applicable U.S. federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Storm Recovery Bonds will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such legal defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such legal defeasance had not occurred;

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(f)             in the case of an exercise of the Covenant Defeasance Option, the Issuer shall have delivered to the Indenture Trustee an Opinion of Counsel of external counsel of the Issuer to the effect that the Holders of the Storm Recovery Bonds of such Series will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such covenant defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred;

(g)            the Issuer delivers to the Indenture Trustee an Officer’s Certificate and an Opinion of Counsel, each stating that all conditions precedent to the Legal Defeasance Option or the Covenant Defeasance Option, as applicable, have been complied with as required by this Article IV;

(h)            the Issuer delivers to the Indenture Trustee an Opinion of Counsel of external counsel of the Issuer to the effect that: (i) in a case under the Bankruptcy Code in which Duke Energy Progress (or any of its Affiliates, other than the Issuer) is the debtor, the court would hold that the deposited moneys or U.S. Government Obligations would not be in the bankruptcy estate of Duke Energy Progress (or any of its Affiliates, other than the Issuer, that deposited the moneys or U.S. Government Obligations); and (ii) in the event Duke Energy Progress (or any of its Affiliates, other than the Issuer, that deposited the moneys or U.S. Government Obligations) were to be a debtor in a case under the Bankruptcy Code, the court would not disregard the separate legal existence of Duke Energy Progress (or any of its Affiliates, other than the Issuer, that deposited the moneys or U.S. Government Obligations) and the Issuer so as to order substantive consolidation under the Bankruptcy Code of the Issuer’s assets and liabilities with the assets and liabilities of Duke Energy Progress or such other Affiliate; and

(i)             the Rating Agency Condition shall have been satisfied with respect to the exercise of any Legal Defeasance Option or Covenant Defeasance Option.

Notwithstanding any other provision of this Section 4.02, no delivery of moneys or U.S. Government Obligations to the Indenture Trustee shall terminate any obligation of the Issuer to the Indenture Trustee under this Indenture or the Series Supplement or any obligation of the Issuer to apply such moneys or U.S. Government Obligations under Section 4.03 until principal of and premium, if any, and interest on the Storm Recovery Bonds of such Series shall have been paid in accordance with the provisions of this Indenture and the Series Supplement.

SECTION 4.03.      Application of Trust Money. All moneys or U.S. Government Obligations deposited with the Indenture Trustee pursuant to Section 4.01 or Section 4.02 shall be held in trust and applied by it, in accordance with the provisions of the Storm Recovery Bonds and this Indenture, to the payment, either directly or through any Paying Agent, as the Indenture Trustee may determine, to the Holders of the particular Storm Recovery Bonds for the payment of which such moneys have been deposited with the Indenture Trustee, of all sums due and to become due thereon for principal, premium, if any, and interest; but such moneys need not be segregated from other funds except to the extent required herein or in the Servicing Agreement or required by law. Notwithstanding anything to the contrary in this Article IV, the Indenture Trustee shall deliver or pay to the Issuer from time to time upon Issuer Request any moneys or U.S. Government Obligations held by it pursuant to Section 4.02 that, in the opinion of a nationally recognized firm of Independent registered public accountants expressed in a written certification thereof delivered to the Indenture Trustee (and not at the cost or expense of the Indenture Trustee), are in excess of the amount thereof that would be required to be deposited for the purpose for which such moneys or U.S. Government Obligations were deposited; provided, that any such payment shall be subject to the satisfaction of the Rating Agency Condition.

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SECTION 4.04.      Repayment of Moneys Held by Paying Agent. In connection with the satisfaction and discharge of this Indenture or the Covenant Defeasance Option or Legal Defeasance Option with respect to Storm Recovery Bonds, all moneys then held by any Paying Agent other than the Indenture Trustee under the provisions of this Indenture shall, upon demand of the Issuer, be paid to the Indenture Trustee to be held and applied according to Section 3.03 and thereupon such Paying Agent shall be released from all further liability with respect to such moneys.

ARTICLE V

Remedies

SECTION 5.01.      Events of Default. “Event of Default” means any one or more of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):

(a)            default in the payment of any interest on any Storm Recovery Bond when the same becomes due and payable (whether such failure to pay interest is caused by a shortfall in Storm Recovery Charges received or otherwise), and such default shall continue for a period of five Business Days;

(b)            default in the payment of the then unpaid principal of any Storm Recovery Bond on the Final Maturity Date;

(c)            default in the observance or performance of any covenant or agreement of the Issuer made in this Indenture (other than defaults specified in Section 5.01(a) or Section 5.01(b)), and such default shall continue or not be cured, for a period of 30 days after the earlier of (i) the date that there shall have been given, by registered or certified mail, to the Issuer by the Indenture Trustee or to the Issuer and the Indenture Trustee by the Holders of at least 25 percent of the Outstanding Amount of the Storm Recovery Bonds, a written notice specifying such default and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder or (ii) the date that the Issuer has actual knowledge of the default;

(d)            any representation or warranty of the Issuer made in this Indenture, the Series Supplement or in any certificate or other writing delivered pursuant hereto or the Series Supplement or in connection herewith proving to have been incorrect in any material respect as of the time when the same shall have been made, and the circumstance or condition in respect of which such representation or warranty was incorrect shall not have been eliminated or otherwise cured, within 30 days after the earlier of (i) the date that there shall have been given, by registered or certified mail, to the Issuer by the Indenture Trustee or to the Issuer and the Indenture Trustee by the Holders of at least twenty-five (25) percent of the Outstanding Amount of the Storm Recovery Bonds, a written notice specifying such incorrect representation or warranty and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder or (ii) the date the Issuer has actual knowledge of the default;

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

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

(g)            any act or failure to act by the State of South Carolina or any of its agencies (including the Commission), that violates the State Pledge or is not in accordance with the State Pledge.

The Issuer shall deliver to a Responsible Officer of the Indenture Trustee and to the Rating Agencies, within five days after a Responsible Officer of the Issuer has knowledge of the occurrence thereof, written notice in the form of an Officer’s Certificate of any event (i) that is an Event of Default under Section 5.01(a), Section 5.01(b), Section 5.01(f), or Section 5.01(g)or (ii) that with the giving of notice, the lapse of time, or both, would become an Event of Default under Section 5.01(c), Section 5.01(d) or Section 5.01(e), including, in each case, the status of such Default or Event of Default and what action the Issuer is taking or proposes to take with respect thereto.

SECTION 5.02.      Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default under Section 5.01(g)) should occur and be continuing, then and in every such case the Indenture Trustee or the Holders representing a majority of the Outstanding Amount of the Storm Recovery Bonds may declare the Storm Recovery Bonds to be immediately due and payable, by a notice in writing to the Issuer (and to the Indenture Trustee and the Commission if given by Holders), and upon any such declaration the unpaid principal amount of the Storm Recovery Bonds, together with accrued and unpaid interest thereon through the date of acceleration, shall become immediately due and payable.

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At any time after such declaration of acceleration of maturity has been made and before a judgment or decree for payment of the money due has been obtained by the Indenture Trustee as hereinafter in this Article V provided, the Holders representing a majority of the Outstanding Amount of the Storm Recovery Bonds, by written notice to the Issuer, the Commission and the Indenture Trustee, may rescind and annul such declaration and its consequences if:

(a)            the Issuer has paid or deposited with the Indenture Trustee a sum sufficient to pay:

(i)            all payments of principal of and premium, if any, and interest on all Storm Recovery Bonds due and owing at such time as if such Event of Default had not occurred and was not continuing and all other amounts that would then be due hereunder or upon the Storm Recovery Bonds if the Event of Default giving rise to such acceleration had not occurred; and

(ii)            all sums paid or advanced by the Indenture Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee and its agents and counsel; and

(b)            all Events of Default, other than the nonpayment of the principal of the Storm Recovery Bonds of such Series that has become due solely by such acceleration, have been cured or waived as provided in Section 5.12.

No such rescission shall affect any subsequent default or impair any right consequent thereto.

SECTION 5.03.      Collection of Indebtedness and Suits for Enforcement by Indenture Trustee.

(a)            If an Event of Default under Section 5.01(a) or Section 5.01(b) has occurred and is continuing, subject to Section 10.16, the Indenture Trustee, in its own name and as trustee of an express trust, may institute a Proceeding for the collection of the sums so due and unpaid, and may prosecute such Proceeding to judgment or final decree, and, subject to the limitations on recourse set forth herein, may enforce the same against the Issuer or other obligor upon the Storm Recovery Bonds and collect in the manner provided by law out of the property of the Issuer or other obligor upon the Storm Recovery Bonds wherever situated the moneys payable, or the Storm Recovery Collateral and the proceeds thereof, the whole amount then due and payable on the Storm Recovery Bonds for principal, premium, if any, and interest, with interest upon the overdue principal and premium, if any, and, to the extent payment at such rate of interest shall be legally enforceable, upon overdue installments of interest, at the respective rate borne by the Storm Recovery Bonds and in addition thereto such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee and its agents and counsel.

(b)            If an Event of Default (other than Event of Default under Section 5.01(g)) occurs and is continuing, the Indenture Trustee shall, as more particularly provided in Section 5.04, proceed to protect and enforce its rights and the rights of the Holders, by such appropriate Proceedings as the Indenture Trustee shall deem most effective to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy or legal or equitable right vested in the Indenture Trustee by this Indenture and the Series Supplement or by law, including foreclosing or otherwise enforcing the Lien of the Collateral securing the Storm Recovery Bonds or applying to the Commission or a court of competent jurisdiction for sequestration of revenues arising with respect to the Property.

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(c)            If an Event of Default under Section 5.01(e) or Section 5.01(f) has occurred and is continuing, the Indenture Trustee, irrespective of whether the principal of any Storm Recovery Bonds shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Indenture Trustee shall have made any demand pursuant to the provisions of this Section 5.03, shall be entitled and empowered, by intervention in any Proceedings related to such Event of Default or otherwise:

(i)             to file and prove a claim or claims for the whole amount of principal, premium, if any, and interest owing and unpaid in respect of the Storm Recovery Bonds and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Indenture Trustee (including any claim for reasonable compensation to the Indenture Trustee and each predecessor Indenture Trustee, and their respective agents, attorneys and counsel, and for reimbursement of all expenses and liabilities incurred, and all advances made, by the Indenture Trustee and each predecessor Indenture Trustee, except as a result of negligence or bad faith) and of the Holders allowed in such Proceedings;

(ii)            unless prohibited by applicable law and regulations, to vote on behalf of the Holders in any election of a trustee in bankruptcy, a standby trustee or Person performing similar functions in any such Proceedings;

(iii)            to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute all amounts received with respect to the claims of the Holders and of the Indenture Trustee on their behalf; and

(iv)            to file such proofs of claim and other papers and documents as may be necessary or advisable in order to have the claims of the Indenture Trustee or the Holders allowed in any judicial proceeding relative to the Issuer, its creditors and its property;

and any trustee, receiver, liquidator, custodian or other similar official in any such Proceeding is hereby authorized by each of such Holders to make payments to the Indenture Trustee, and, in the event that the Indenture Trustee shall consent to the making of payments directly to such Holders, to pay to the Indenture Trustee such amounts as shall be sufficient to cover reasonable compensation to the Indenture Trustee, each predecessor Indenture Trustee and their respective agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Indenture Trustee and each predecessor Indenture Trustee except as a result of negligence or bad faith.

(d)            Nothing herein contained shall be deemed to authorize the Indenture Trustee to authorize or consent to or vote for or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Storm Recovery Bonds or the rights of any Holder thereof or to authorize the Indenture Trustee to vote in respect of the claim of any Holder in any such proceeding except, as aforesaid, to vote for the election of a trustee in bankruptcy or similar Person.

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(e)            All rights of action and of asserting claims under this Indenture, or under any of the Storm Recovery Bonds, may be enforced by the Indenture Trustee without the possession of any of the Storm Recovery Bonds or the production thereof in any trial or other Proceedings relative thereto, and any such action or proceedings instituted by the Indenture Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment, subject to the payment of the expenses, disbursements and compensation of the Indenture Trustee, each predecessor Indenture Trustee and their respective agents and attorneys, shall be for the ratable benefit of the Holders of the Storm Recovery Bonds.

SECTION 5.04.      Remedies; Priorities.

(a)            If an Event of Default (other than an Event of Default under Section 5.01(g)) shall have occurred and be continuing, the Indenture Trustee may do one or more of the following (subject to Section 5.05):

(i)            institute Proceedings in its own name and as trustee of an express trust for the collection of all amounts then payable on the Storm Recovery Bonds or under this Indenture with respect thereto, whether by declaration of acceleration or otherwise, and, subject to the limitations on recovery set forth herein, enforce any judgment obtained, and collect from the Issuer or any other obligor moneys adjudged due, upon the Storm Recovery Bonds;

(ii)            institute Proceedings from time to time for the complete or partial foreclosure of this Indenture with respect to the Storm Recovery Collateral;

(iii)           exercise any remedies of a secured party under the UCC, the Storm Recovery Law or any other applicable law and take any other appropriate action to protect and enforce the rights and remedies of the Indenture Trustee and the Holders of the Storm Recovery Bonds;

(iv)          at the written direction of the Holders of a majority of the Outstanding Amount of the Storm Recovery Bonds, either sell the Storm Recovery Collateral or any portion thereof or rights or interest therein, at one or more public or private sales called and conducted in any manner permitted by law, or elect that the Issuer maintain possession of all or a portion of the Storm Recovery Collateral pursuant to Section 5.05 and continue to apply the Storm Recovery Charge Collection as if there had been no declaration of acceleration; and

(v)           exercise all rights, remedies, powers, privileges and claims of the Issuer against the Seller, the Administrator or the Servicer under or in connection with, and pursuant to the terms of, the Sale Agreement, the Administration Agreement or the Servicing Agreement;

provided, however, that the Indenture Trustee may not sell or otherwise liquidate any portion of the Storm Recovery Collateral following such an Event of Default, other than an Event of Default described in Section 5.01(a) or Section 5.01(b), unless (A) the Holders of 100 percent of the Outstanding Amount of the Storm Recovery Bonds consent thereto, (B) the proceeds of such sale or liquidation distributable to the Holders are sufficient to discharge in full all amounts then due and unpaid upon the Storm Recovery Bonds for principal, premium, if any, and interest after taking into account payment of all amounts due prior thereto pursuant to the priorities set forth in Section 8.02(e) or (C) the Indenture Trustee determines that the Storm Recovery Collateral will not continue to provide sufficient funds for all payments on the Storm Recovery Bonds as they would have become due if the Storm Recovery Bonds had not been declared due and payable, and the Indenture Trustee obtains the written consent of Holders of at least two-thirds of the Outstanding Amount of the Storm Recovery Bonds. In determining such sufficiency or insufficiency with respect to clause (B) above and clause (C) above, the Indenture Trustee may, but need not, obtain and conclusively rely upon an opinion of an Independent investment banking or accounting firm of national reputation as to the feasibility of such proposed action and as to the sufficiency of the Storm Recovery Collateral for such purpose, at Issuer’s expense.

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(b)           If an Event of Default under Section 5.01(g) shall have occurred and be continuing, the Indenture Trustee, for the benefit of the Secured Parties, shall be entitled and empowered, to the extent permitted by applicable law, to institute or participate in Proceedings necessary to compel performance of or to enforce the State Pledge and to collect any monetary damages incurred by the Holders or the Indenture Trustee as a result of any such Event of Default, and may prosecute any such Proceeding to final judgment or decree. Such remedy shall be the only remedy that the Indenture Trustee may exercise if the only Event of Default that has occurred and is continuing is an Event of Default under Section 5.01(g).

(c)            If the Indenture Trustee collects any money pursuant to this Article V, it shall pay out such money in accordance with the priorities set forth in Section 8.02(e).

SECTION 5.05.      Optional Preservation of the Collateral. If the Storm Recovery Bonds have been declared to be due and payable under Section 5.02 following an Event of Default and such declaration and its consequences have not been rescinded and annulled, the Indenture Trustee may, but need not, elect to maintain possession of all or a portion of the related Storm Recovery Collateral. It is the desire of the parties hereto and the Holders that there be at all times sufficient funds for the payment of principal of and premium, if any, and interest on the Storm Recovery Bonds, and the Indenture Trustee shall take such desire into account when determining whether or not to maintain possession of the Storm Recovery Collateral. In determining whether to maintain possession of the Storm Recovery Collateral or sell or liquidate the same, the Indenture Trustee may, but need not, obtain and conclusively rely upon an opinion of an Independent investment banking or accounting firm of national reputation as to the feasibility of such proposed action and as to the sufficiency of the Storm Recovery Collateral for such purpose.

SECTION 5.06.      Limitation of Suits. No Holder of any Storm Recovery Bond shall have any right to institute any Proceeding, judicial or otherwise, to avail itself of any remedies provided in the Storm Recovery Law or to avail itself of the right to foreclose on the Storm Recovery Collateral or otherwise enforce the Lien and the security interest on the Storm Recovery Collateral with respect to this Indenture and the Series Supplement, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless:

(a)            such Holder previously has given written notice to the Indenture Trustee of a continuing Event of Default;

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(b)            the Holders of a majority of the Outstanding Amount of the Storm Recovery Bonds have made written request to the Indenture Trustee to institute such Proceeding in respect of such Event of Default in its own name as Indenture Trustee hereunder;

(c)            such Holder or Holders have offered to the Indenture Trustee indemnity satisfactory to it against the costs, expenses and liabilities to be incurred in complying with such request;

(d)            the Indenture Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute such Proceedings; and

(e)            no direction inconsistent with such written request has been given to the Indenture Trustee during such 60-day period by the Holders of a majority of the Outstanding Amount of the Storm Recovery Bonds;

it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided.

In the event the Indenture Trustee shall receive conflicting or inconsistent requests and indemnity from two or more groups of Holders, each representing less than a majority of the Outstanding Amount of the Storm Recovery Bonds, the Indenture Trustee in its sole discretion may file a petition with a court of competent jurisdiction to resolve such conflict or determine what action, if any, shall be taken, notwithstanding any other provisions of this Indenture.

SECTION 5.07.      Unconditional Rights of Holders To Receive Principal, Premium, if any, and Interest. Notwithstanding any other provisions in this Indenture, the Holder of any Storm Recovery Bond shall have the right, which is absolute and unconditional, (a) to receive payment of (i) the interest, if any, on such Storm Recovery Bond on the due dates thereof expressed in such Storm Recovery Bond or in this Indenture or (ii) the unpaid principal, if any, of the Storm Recovery Bonds on the Final Maturity Date and (b) to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder.

SECTION 5.08.      Restoration of Rights and Remedies. If the Indenture Trustee or any Holder has instituted any Proceeding to enforce any right or remedy under this Indenture and such Proceeding has been discontinued or abandoned for any reason or has been determined adversely to the Indenture Trustee or to such Holder, then and in every such case the Issuer, the Indenture Trustee and the Holders shall, subject to any determination in such Proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Indenture Trustee and the Holders shall continue as though no such Proceeding had been instituted.

SECTION 5.09.      Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Indenture Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.

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SECTION 5.10.      Delay or Omission Not a Waiver. No delay or omission of the Indenture Trustee or any Holder to exercise any right or remedy accruing upon any Default or Event of Default shall impair any such right or remedy or constitute a waiver of any such Default or Event of Default or an acquiescence therein. Every right and remedy given by this Article V or by law to the Indenture Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Indenture Trustee or by the Holders, as the case may be.

SECTION 5.11.      Control by Holders. The Holders of a majority of the Outstanding Amount of the Storm Recovery Bonds shall have the right to direct the time, method and place of conducting any Proceeding for any remedy available to the Indenture Trustee with respect to the Storm Recovery Bonds or exercising any trust or power conferred on the Indenture Trustee; provided, that:

(a)           such direction shall not be in conflict with any rule of law or with this Indenture or the Series Supplement and shall not involve the Indenture Trustee in any personal liability or expense;

(b)           subject to other conditions specified in Section 5.04, any direction to the Indenture Trustee to sell or liquidate any Storm Recovery Collateral shall be by the Holders representing 100 percent of the Outstanding Amount of the Storm Recovery Bonds;

(c)            if the conditions set forth in Section 5.05 have been satisfied and the Indenture Trustee elects to retain the Storm Recovery Collateral pursuant to Section 5.05, then any direction to the Indenture Trustee by Holders representing less than 100 percent of the Outstanding Amount of the Storm Recovery Bonds to sell or liquidate the Storm Recovery Collateral shall be of no force and effect; and

(d)           the Indenture Trustee may take any other action deemed proper by the Indenture Trustee that is not inconsistent with such direction;

provided, however, that the Indenture Trustee’s duties shall be subject to Section 6.01, and the Indenture Trustee need not take any action that it determines might involve it in liability or might materially adversely affect the rights of any Holders not consenting to such action. Furthermore and without limiting the foregoing, the Indenture Trustee shall not be required to take any action for which it reasonably believes that it will not be indemnified to its satisfaction against any cost, expense or liabilities.

SECTION 5.12.      Waiver of Past Defaults. Prior to the declaration of the acceleration of the maturity of the Storm Recovery Bonds as provided in Section 5.02, the Holders representing a majority of the Outstanding Amount of the Storm Recovery Bonds may waive any past Default or Event of Default and its consequences except a Default (a) in payment of principal of or premium, if any, or interest on any of the Storm Recovery Bonds or (b) in respect of a covenant or provision hereof that cannot be modified or amended without the consent of the Holder of each Storm Recovery Bond affected. In the case of any such waiver, the Issuer, the Indenture Trustee and the Holders shall be restored to their former positions and rights hereunder, respectively, but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereto.

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Upon any such waiver, such Default shall cease to exist and be deemed to have been cured and not to have occurred, and any Event of Default arising therefrom shall be deemed to have been cured and not to have occurred, for every purpose of this Indenture, but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereto.

SECTION 5.13.      Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Storm Recovery Bond by such Holder’s acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Indenture Trustee for any action taken, suffered or omitted by it as Indenture Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys’ fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 5.13 shall not apply to (a) any suit instituted by the Indenture Trustee, (b) any suit instituted by any Holder, or group of Holders, in each case holding in the aggregate more than ten percent of the Outstanding Amount of the Storm Recovery Bonds of a Series or (c) any suit instituted by any Holder for the enforcement of the payment of (i) interest on any Storm Recovery Bond on or after the due dates expressed in such Storm Recovery Bond and in this Indenture or (ii) the unpaid principal, if any, of any Storm Recovery Bond on or after the Final Maturity Date.

SECTION 5.14.      Waiver of Stay or Extension Laws. The Issuer covenants (to the extent that it may lawfully do so) that it will not at any time insist upon or plead or, in any manner whatsoever, claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Issuer (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Indenture Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.

SECTION 5.15.      Action on Storm Recovery Bonds. The Indenture Trustee’s right to seek and recover judgment on the Storm Recovery Bonds or under this Indenture shall not be affected by the seeking, obtaining or application of any other relief under or with respect to this Indenture. Neither the Lien of this Indenture nor any rights or remedies of the Indenture Trustee or the Holders shall be impaired by the recovery of any judgment by the Indenture Trustee against the Issuer or by the levy of any execution under such judgment upon any portion of the Collateral or any other assets of the Issuer.

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ARTICLE VI

The Indenture Trustee

SECTION 6.01.      Duties of Indenture Trustee.

(a)            If an Event of Default has occurred and is continuing, the Indenture Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs.

(b)            Except during the continuance of an Event of Default:

(i)             the Indenture Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Indenture Trustee; and

(ii)            in the absence of bad faith on its part, the Indenture Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Indenture Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Indenture Trustee, the Indenture Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein).

(c)            The Indenture Trustee may not be relieved from liability for its own negligent action, its own bad faith, its own negligent failure to act or its own willful misconduct, except that:

(i)             this Section 6.01(c) does not limit the effect of Section 6.01(b);

(ii)            the Indenture Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer unless it is proved that the Indenture Trustee was negligent in ascertaining the pertinent facts; and

(iii)            the Indenture Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it hereunder.

(d)            Every provision of this Indenture that in any way relates to the Indenture Trustee is subject to Section 6.01(a), Section 6.01(b) and Section 6.01(c).

(e)            The Indenture Trustee shall not be liable for interest on any money received by it except as the Indenture Trustee may agree in writing with the Issuer.

(f)             Money held in trust by the Indenture Trustee need not be segregated from other funds held by the Indenture Trustee except to the extent required by law or the terms of this Indenture, the Sale Agreement, the Servicing Agreement or the Administration Agreement.

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(g)            No provision of this Indenture shall require the Indenture Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayments of such funds or indemnity satisfactory to it against such risk or liability is not reasonably assured to it.

(h)            Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Indenture Trustee shall be subject to the provisions of this Section 6.01 and to the provisions of the Trust Indenture Act.

(i)             In the event that U.S. Bank Trust Company, National Association is also acting as Paying Agent or Storm Recovery Bond Registrar hereunder, the protections of this Article VI shall also be afforded to U.S. Bank Trust Company, National Association in its capacity as Paying Agent or Storm Recovery Bond Registrar.

(j)             Except for the express duties of the Indenture Trustee with respect to the administrative functions set forth in the Basic Documents, the Indenture Trustee shall have no obligation to administer, service or collect Property or to maintain, monitor or otherwise supervise the administration, servicing or collection of the Storm Recovery Charges.

(k)            Under no circumstance shall the Indenture Trustee be liable for any indebtedness of the Issuer, the Servicer or the Seller evidenced by or arising under the Storm Recovery Bonds or the Basic Documents. None of the provisions of this Indenture shall in any event require the Indenture Trustee to perform or be responsible for the performance of any of the Servicer’s or Administrator’s obligations under the Basic Documents.

(l)            Commencing with March 15, 2025, on or before March 15th of each fiscal year ending December 31, so long as the Issuer is required to file Exchange Act reports, the Indenture Trustee shall (i) deliver to the Issuer a report (in form and substance reasonably satisfactory to the Issuer and addressed to the Issuer and signed by an authorized officer of the Indenture Trustee) regarding the Indenture Trustee’s assessment of compliance, during the preceding fiscal year ended December 31, with each of the applicable servicing criteria specified on Exhibit C as required under Rule 13a-18 and Rule 15d-18 under the Exchange Act and Item 1122 of Regulation AB and (ii) deliver to the Issuer a report of an Independent registered public accounting firm reasonably acceptable to the Issuer that attests to and reports on, in accordance with Rule 1-02(a)(3) and Rule 2-02(g) of Regulation S-X under the Securities Act and the Exchange Act, the assessment of compliance made by the Indenture Trustee and delivered pursuant to Section 6.01(l)(i).

(m)          Any discretion, permissive right or privilege of the Indenture Trustee hereunder shall not be deemed to be or otherwise construed as a duty or obligation.

(n)           The Indenture Trustee’s receipt of publicly available reports hereunder shall not constitute constructive or actual notice or knowledge of any information contained therein or determinable therefrom, including but not limited to a party’s compliance with covenants under the Indenture.

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SECTION 6.02.      Rights of Indenture Trustee.

(a)            The Indenture Trustee may conclusively rely and shall be fully protected in relying on any document believed by it to be genuine and to have been signed or presented by the proper person. The Indenture Trustee need not investigate any fact or matter stated in such document.

(b)            Before the Indenture Trustee acts or refrains from acting, it may require and shall be entitled to receive an Officer’s Certificate or an Opinion of Counsel, which counsel may be an employee of or counsel to the Issuer or the Seller or external counsel of the Issuer, and which shall be reasonably satisfactory to the Indenture Trustee, (at no cost or expense to the Indenture Trustee) that such action is required or permitted hereunder. The Indenture Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officer’s Certificate or Opinion of Counsel.

(c)            The Indenture Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys or a custodian or nominee, and the Indenture Trustee shall not be responsible for any misconduct or negligence on the part of, or for the supervision of, any such agent, attorney, custodian or nominee appointed with due care by it hereunder. The Indenture Trustee shall give prompt written notice to the Issuer, in which case the Issuer shall then give prompt written notice to the Rating Agencies, of the appointment of any such agent, custodian or nominee to whom it delegates any of its express duties under this Indenture; provided, that the Indenture Trustee shall not be obligated to give such notice (i) if the Issuer or the Holders have directed the Indenture Trustee to appoint such agent, custodian or nominee (in which event the Issuer shall give prompt notice to the Rating Agencies of any such direction) or (ii) of the appointment of any agents, custodians or nominees made at any time that an Event of Default of the Issuer has occurred and is continuing.

(d)           The Indenture Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within its rights or powers; provided, however, that the Indenture Trustee’s conduct does not constitute willful misconduct, negligence or bad faith.

(e)           The Indenture Trustee may consult with counsel, accountants and other experts, and the advice or opinion of counsel with respect to legal matters and such accountants or other experts with respect to other matters relating to this Indenture and the Storm Recovery Bonds shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel, accountants and other experts.

(f)            The Indenture Trustee shall be under no obligation (i) to take any action or exercise any of the rights or powers vested in it by this Indenture or any other Basic Document at the request or direction of any Holders pursuant to this Indenture or (ii) to institute, conduct or defend any litigation hereunder or thereunder or in relation hereto or thereto, at the request, order or direction of any of the Holders pursuant to the provisions of this Indenture and the Series Supplement or otherwise, unless it shall have received security or indemnity satisfactory to it against the costs, expenses and liabilities that may be incurred.

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(g)            The Indenture Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties.

(h)            Any request or direction of the Issuer mentioned herein shall be sufficiently evidenced by an Issuer Request or an Issuer Order.

(i)            Whenever in the administration of this Indenture the Indenture Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Indenture Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, conclusively rely upon an Officer’s Certificate.

(j)            The Indenture Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document.

(k)            In no event shall the Indenture Trustee be responsible or liable for special, indirect or consequential loss or damage of any kind whatsoever (including loss of profit) irrespective of whether the Indenture Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.

(l)             In no event shall the Indenture Trustee be responsible or liable for any failure or delay in the performance of its obligations hereunder arising out of or caused by, directly or indirectly, forces beyond its control, including strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, pandemics or epidemics, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities, communications or computer (software and hardware) services, it being understood that the Indenture Trustee shall use reasonable efforts that are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.

(m)          The Indenture Trustee shall not be deemed to have notice of any Servicer Default, Default or Event of Default unless it has actual knowledge or written notice of any event which is in fact such a default is received by a Responsible Officer of the Indenture Trustee at the Corporate Trust Office of the Indenture Trustee, and such notice references the Storm Recovery Bonds and this Indenture.

(n)           The rights, privileges, protections, immunities and benefits given to the Indenture Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Indenture Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder.

(o)           Beyond the exercise of reasonable care in the custody thereof, the Indenture Trustee will have no duty as to any Storm Recovery Collateral in its possession or control or in the possession or control of any agent or bailee or any income thereon or as to preservation of rights against prior parties or any other rights pertaining thereto. The Indenture Trustee will be deemed to have exercised reasonable care in the custody of the Storm Recovery Collateral in its possession if the Storm Recovery Collateral is accorded treatment substantially equal to that which it accords its own property, and the Indenture Trustee will not be liable or responsible for any loss or diminution in the value of any of the Storm Recovery Collateral by reason of the act or omission of any carrier, forwarding agency or other agent or bailee selected by the Indenture Trustee in good faith.

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(p)            The Indenture Trustee will not be responsible for the existence, genuineness or value of any of the Storm Recovery Collateral or for the validity, sufficiency, perfection, priority or enforceability of the Liens in any of the Storm Recovery Collateral, except to the extent such action or omission constitutes negligence or willful misconduct on the part of the Indenture Trustee. The Indenture Trustee shall not be responsible for the validity of the title of any grantor to the collateral, for insuring the Storm Recovery Collateral or for the payment of taxes, charges, assessments or liens upon the Storm Recovery Collateral or otherwise as to the maintenance of the Storm Recovery Collateral.

(q)            In the event that the Indenture Trustee is required to acquire title to an asset for any reason, or take any managerial action of any kind in regard thereto, in order to carry out any fiduciary or trust obligation for the benefit of another, which in the Indenture Trustee’s sole discretion may cause the Indenture Trustee, as applicable, to be considered an “owner or operator” under any environmental laws or otherwise cause the Indenture Trustee to incur, or be exposed to, any environmental liability or any liability under any other federal, state or local law, the Indenture Trustee reserves the right, instead of taking such action, either to resign as Indenture Trustee or to arrange for the transfer of the title or control of the asset to a court appointed receiver. The Indenture Trustee will not be liable to any person for any environmental claims or any environmental liabilities or contribution actions under any federal, state or local law, rule or regulation by reason of the Indenture Trustee’s actions and conduct as authorized, empowered and directed hereunder or relating to any kind of discharge or release or threatened discharge or release of any hazardous materials into the environment.

(r)            The Indenture Trustee shall not be liable for failure to perform its duties hereunder if such failure is a direct or proximate result of another party’s failure to perform its own obligations hereunder.

SECTION 6.03.      Individual Rights of Indenture Trustee. The Indenture Trustee in its individual or any other capacity may become the owner or pledgee of Storm Recovery Bonds and may otherwise deal with the Issuer or its Affiliates with the same rights it would have if it were not Indenture Trustee. Any Paying Agent, Storm Recovery Bond Registrar, co-registrar or co-paying agent or agent appointed under Section 3.02 may do the same with like rights. However, the Indenture Trustee must comply with Section 6.11 and Section 6.12.

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SECTION 6.04.      Indenture Trustee’s Disclaimer.

(a)            The Indenture Trustee shall not be responsible for and makes no representation (other than as set forth in Section 6.13) as to the validity or adequacy of this Indenture or the Storm Recovery Bonds, it shall not be accountable for the Issuer’s use of the proceeds from the Storm Recovery Bonds, and it shall not be responsible for any statement of the Issuer in this Indenture or in any document issued in connection with the sale of the Storm Recovery Bonds or in the Storm Recovery Bonds other than the Indenture Trustee’s certificate of authentication. The Indenture Trustee shall not be responsible for the form, character, genuineness, sufficiency, value or validity of any of the Collateral (or for the perfection or priority of the Liens thereon), or for or in respect of the Storm Recovery Bonds (other than the certificate of authentication for the Storm Recovery Bonds) or the Basic Documents, the filing of any financing statements, the recording of any documents or otherwise perfecting the security interest in the Collateral, and the Indenture Trustee shall in no event assume or incur any liability, duty or obligation to any Holder, other than as expressly provided in this Indenture. The Indenture Trustee shall not be liable for the default or misconduct of the Issuer, the Seller or the Servicer under the Basic Documents or otherwise, and the Indenture Trustee shall have no obligation or liability to perform the obligations of such Persons.

(b)            The Indenture Trustee shall not be responsible for (i) the validity of the title of the Issuer to the Collateral, (ii) insuring the Collateral or (iii) the payment of taxes, charges, assessments or Liens upon the Collateral or otherwise as to the maintenance of the Collateral. The Indenture Trustee shall have no duty to ascertain or inquire as to the performance or observance of any of the terms of this Indenture or any of the other Basic Documents. The Indenture Trustee shall not be responsible for filing any financing or continuation statements or recording any documents or instruments in any public office at any time or times or otherwise perfecting or maintaining the perfection of any security interest in the Collateral.

SECTION 6.05.      Notice of Defaults. If a Default occurs and is continuing and if it is actually known to a Responsible Officer of the Indenture Trustee or a Responsible Officer of the Indenture Trustee has been notified in writing of such Default, the Indenture Trustee shall deliver to each Rating Agency (or otherwise make available by posting such notice to the Indenture Trustee’s website at https://pivot.usbank.com), to the Commission (pursuant to Section 10.04(e)) and each Holder of Storm Recovery Bonds notice of the Default within ten Business Days after actual notice of such Default was received by a Responsible Officer of the Indenture Trustee (provided that the Indenture Trustee shall give the Rating Agencies prompt notice of any payment default in respect of the Storm Recovery Bonds). Except in the case of a Default in payment of principal of and premium, if any, or interest on any Storm Recovery Bond, the Indenture Trustee may withhold the notice of the Default if and so long as a committee of its Responsible Officers in good faith determines that withholding such notice is in the interests of Holders. In no event shall the Indenture Trustee be deemed to have knowledge of a Default unless a Responsible Officer of the Indenture Trustee shall have actual knowledge of a Default or shall have received written notice thereof.

SECTION 6.06.      Reports by Indenture Trustee to Holders.

(a)            So long as Storm Recovery Bonds are Outstanding and the Indenture Trustee is the Storm Recovery Bond Registrar and Paying Agent, upon the written request of any Holder or the Issuer, within the prescribed period of time for tax reporting purposes after the end of each calendar year, the Indenture Trustee shall deliver to each relevant current or former Holder such information in its possession as may be required to enable such Holder to prepare its U.S. federal income and any applicable local or state tax returns. If the Storm Recovery Bond Registrar and Paying Agent is other than the Indenture Trustee, such Storm Recovery Bond Registrar and Paying Agent, within the prescribed period of time for tax reporting purposes after the end of each calendar year, shall deliver to each relevant current or former Holder such information in its possession as may be required to enable such Holder to prepare its U.S. federal income and any applicable local or state tax returns.

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(b)           On or prior to each Payment Date or Special Payment Date therefor, the Indenture Trustee will deliver to each Holder of the Storm Recovery Bonds on such Payment Date or Special Payment Date a statement as provided to the Issuer and the Indenture Trustee and prepared by the Servicer, which will include (to the extent applicable) the following information (and any other information so specified in the Series Supplement) as to the Storm Recovery Bonds with respect to such Payment Date or Special Payment Date or the period since the previous Payment Date, as applicable:

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

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

(iii)          the aggregate Outstanding Amount of the Storm Recovery Bonds, before and after giving effect to any payments allocated to principal reported under Section 6.06(b)(i);

(iv)          the difference, if any, between the amount specified in Section 6.06(b)(iii) and the Outstanding Amount specified in the related Expected Sinking Fund Schedule;

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

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

(vii)         the amount paid or to be paid to the Indenture Trustee since the preceding Payment Date;

(viii)         the amount paid or to be paid to the Servicer since the preceding Payment Date; and

(ix)          the amount of any other transfers and payments made pursuant to this Indenture or the Series Supplement since the preceding Payment Date.

(c)           The Issuer shall send a copy of each of the Certificate of Compliance delivered to it pursuant to Section 3.03 of the Servicing Agreement and the Annual Accountant’s Report delivered to it pursuant to Section 3.04 of the Servicing Agreement to the Commission, the Rating Agencies, the Indenture Trustee and to the Servicer for posting on the 17g-5 Website in accordance with Rule 17g-5 under the Exchange Act. A copy of such certificate and report may be obtained by any Holder by a request in writing to the Indenture Trustee.

(d)           The Indenture Trustee may consult with counsel and the advice or opinion of such counsel with respect to legal matters relating to this Indenture and the Storm Recovery Bonds shall be full and complete authorization and protection from liability with respect to any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. Any reasonable legal fees incurred by the Indenture Trustee shall be payable to the Indenture Trustee from amounts hold in the Collection Account in accordance with the provisions set forth in Section 8.02(e).

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SECTION 6.07.      Compensation and Indemnity. The Issuer shall pay to the Indenture Trustee from time to time reasonable compensation for its services. The Indenture Trustee’s compensation shall not, to the extent permitted by law, be limited by any law on compensation of a trustee of an express trust. The Issuer shall reimburse the Indenture Trustee for all reasonable out-of-pocket expenses incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Indenture Trustee’s agents, counsel, accountants and experts. The Issuer shall indemnify and hold harmless the Indenture Trustee and its officers, directors, employees and agents against any and all cost, damage, loss, liability, tax or expense (including reasonable attorneys’ fees and expenses) incurred by it in connection with the administration and the enforcement of this Indenture, the Series Supplement and the other Basic Documents and the Indenture Trustee’s rights, powers and obligations (including the costs of defending any claim or bringing any claim to enforce the Issuer’s indemnification obligations hereunder) under this Indenture, the Series Supplement and the other Basic Documents and the performance of its duties hereunder and thereunder and obligations under or pursuant to this Indenture, the Series Supplement and the other Basic Documents other than any such tax on the compensation of the Indenture Trustee for its services as Indenture Trustee. The Indenture Trustee shall notify the Issuer as soon as is reasonably practicable of any claim for which it may seek indemnity. Failure by the Indenture Trustee to so notify the Issuer shall not relieve the Issuer of its obligations hereunder. The Issuer shall defend the claim, the Indenture Trustee may have separate counsel, and the Issuer shall pay the reasonable fees and expenses of such counsel. The Issuer need not reimburse any expense or indemnify against any loss, liability or expense incurred by the Indenture Trustee through the Indenture Trustee’s own willful misconduct, negligence or bad faith.

The payment obligations to the Indenture Trustee pursuant to this Section 6.07 shall survive the discharge of this Indenture and Series Supplement or the earlier resignation or removal of the Indenture Trustee. When the Indenture Trustee incurs expenses after the occurrence of a Default specified in Section 5.01(e) or Section 5.01(f) with respect to the Issuer, the expenses are intended to constitute expenses of administration under the Bankruptcy Code or any other applicable U.S. federal or state bankruptcy, insolvency or similar law.

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SECTION 6.08.      Replacement of Indenture Trustee and Securities Intermediary and the Account Bank.

(a)            The Indenture Trustee may resign at any time upon 30 days’ prior written notice to the Issuer subject to Section 6.08(c). The Holders of a majority of the Outstanding Amount of the Storm Recovery Bonds may remove the Indenture Trustee by so notifying the Indenture Trustee not less than 31 days prior to the date of removal and may appoint a successor Indenture Trustee. The Issuer shall remove the Indenture Trustee if:

(i)            the Indenture Trustee fails to comply with Section 6.11;

(ii)           the Indenture Trustee is adjudged a bankrupt or insolvent;

(iii)          a receiver or other public officer takes charge of the Indenture Trustee or its property;

(iv)          the Indenture Trustee otherwise becomes incapable of acting; or

(v)            the Indenture Trustee fails to provide to the Issuer any information reasonably requested by the Issuer pertaining to the Indenture Trustee and necessary for the Issuer or the Sponsor to comply with its respective reporting obligations under the Exchange Act and Regulation AB and such failure is not resolved to the Issuer’s and the Indenture Trustee’s mutual satisfaction within a reasonable period of time.

Any removal or resignation of the Indenture Trustee shall also constitute a removal or resignation of the Securities Intermediary and the Account Bank.

(b)            If the Indenture Trustee gives notice of resignation or is removed or if a vacancy exists in the office of Indenture Trustee for any reason (the Indenture Trustee in such event being referred to herein as the retiring Indenture Trustee), the Issuer shall promptly appoint a successor Indenture Trustee and Securities Intermediary and the Account Bank.

(c)            A successor Indenture Trustee shall deliver a written acceptance of its appointment as the Indenture Trustee, as the Securities Intermediary and as Account Bank to the retiring Indenture Trustee and to the Issuer. Thereupon the resignation or removal of the retiring Indenture Trustee shall become effective, and the successor Indenture Trustee shall have all the rights, powers and duties of the Indenture Trustee, Securities Intermediary and Account Bank, as applicable, under this Indenture and the other Basic Documents. No resignation or removal of the Indenture Trustee pursuant to this Section 6.08 shall become effective until acceptance of the appointment by a successor Indenture Trustee having the qualifications set forth in Section 6.11. Notice of any such appointment shall be promptly given to each Rating Agency and the Commission by the successor Indenture Trustee. The successor Indenture Trustee shall mail a notice of its succession to Holders. The retiring Indenture Trustee shall promptly transfer all property held by it as Indenture Trustee to the successor Indenture Trustee.

(d)            If a successor Indenture Trustee does not take office within 60 days after the retiring Indenture Trustee resigns or is removed, the retiring Indenture Trustee, the Issuer or the Holders of a majority in Outstanding Amount of the Storm Recovery Bonds may petition any court of competent jurisdiction for the appointment of a successor Indenture Trustee.

(e)            If the Indenture Trustee fails to comply with Section 6.11, any Holder may petition any court of competent jurisdiction for the removal of the Indenture Trustee and the appointment of a successor Indenture Trustee.

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(f)            Notwithstanding the replacement of the Indenture Trustee pursuant to this Section 6.08, the Issuer’s obligations under Section 6.07 shall continue for the benefit of the retiring Indenture Trustee.

SECTION 6.09.      Successor Indenture Trustee by Merger. If the Indenture Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation or banking association without any further act shall be the successor Indenture Trustee; provided, however, that, if such successor Indenture Trustee is not eligible under Section 6.11, then the successor Indenture Trustee shall be replaced in accordance with Section 6.08. Notice of any such event shall be promptly given to each Rating Agency and the Commission by the successor Indenture Trustee.

In case at the time such successor or successors by merger, conversion, consolidation or transfer shall succeed to the trusts created by this Indenture any of the Storm Recovery Bonds shall have been authenticated but not delivered, any such successor to the Indenture Trustee may adopt the certificate of authentication of any predecessor trustee and deliver the Storm Recovery Bonds so authenticated; and, in case at that time any of the Storm Recovery Bonds shall not have been authenticated, any successor to the Indenture Trustee may authenticate the Storm Recovery Bonds either in the name of any predecessor hereunder or in the name of the successor to the Indenture Trustee; and in all such cases such certificates shall have the full force that it is anywhere in the Storm Recovery Bonds or in this Indenture provided that the certificate of the Indenture Trustee shall have.

SECTION 6.10.      Appointment of Co-Trustee or Separate Trustee.

(a)            Notwithstanding any other provisions of this Indenture, at any time, for the purpose of meeting any legal requirement of any jurisdiction in which any part of the trust created by this Indenture or the Collateral may at the time be located, the Indenture Trustee shall have the power and may execute and deliver all instruments to appoint one or more Persons to act as a co-trustee or co-trustees, or separate trustee or separate trustees, of all or any part of the trust created by this Indenture or the Collateral, and to vest in such Person or Persons, in such capacity and for the benefit of the Secured Parties, such title to the Collateral, or any part hereof, and, subject to the other provisions of this Section 6.10, such powers, duties, obligations, rights and trusts as the Indenture Trustee may consider necessary or desirable. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 6.11 and no notice to Holders of the appointment of any co-trustee or separate trustee shall be required under Section 6.08. Notice of any such appointment shall be promptly given to each Rating Agency and to the Commission by the Indenture Trustee.

(b)            Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions:

(i)            all rights, powers, duties and obligations conferred or imposed upon the Indenture Trustee shall be conferred or imposed upon and exercised or performed by the Indenture Trustee and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Indenture Trustee joining in such act), except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed the Indenture Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Collateral or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co-trustee, but solely at the direction of the Indenture Trustee;

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(ii)            no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; and

(iii)           the Indenture Trustee may at any time accept the resignation of or remove any separate trustee or co-trustee.

(c)            Any notice, request or other writing given to the Indenture Trustee shall be deemed to have been given to each of the then-separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Indenture and the conditions of this Article VI. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Indenture Trustee or separately, as may be provided therein, subject to all the provisions of this Indenture, specifically including every provision of this Indenture relating to the conduct of, affecting the liability of, or affording protection to, the Indenture Trustee. Every such instrument shall be filed with the Indenture Trustee.

(d)            Any separate trustee or co-trustee may at any time constitute the Indenture Trustee, its agent or its attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Indenture on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Indenture Trustee, to the extent permitted by law, without the appointment of a new or successor trustee.

SECTION 6.11.      Eligibility; Disqualification. The Indenture Trustee shall at all times satisfy the requirements of Section 310(a)(1) of the Trust Indenture Act, Section 310(a)(5) of the Trust Indenture Act and Rule 3a-7 of the Investment Company Act. The Indenture Trustee shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition and shall have a long-term debt or issuer rating from each of S&P and Moody’s in one of its generic rating categories that signifies investment grade. The Indenture Trustee shall comply with Section 310(b) of the Trust Indenture Act, including the optional provision permitted by the second sentence of Section 310(b)(9) of the Trust Indenture Act; provided, however, that there shall be excluded from the operation of Section 310(b)(1) of the Trust Indenture Act any indenture or indentures under which other securities of the Issuer are outstanding if the requirements for such exclusion set forth in Section 310(b)(1) of the Trust Indenture Act are met.

SECTION 6.12.      Preferential Collection of Claims Against Issuer. The Indenture Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding any creditor relationship listed in Section 311(b) of the Trust Indenture Act. An Indenture Trustee who has resigned or been removed shall be subject to Section 311(a) of the Trust Indenture Act to the extent indicated therein.

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SECTION 6.13.      Representations and Warranties of Indenture Trustee. The Indenture Trustee hereby represents and warrants as of the date hereof that:

(a)            the Indenture Trustee is a national banking association duly organized and validly existing under the laws of the United States of America; and

(b)            the Indenture Trustee has full power, authority and legal right to execute, deliver and perform its obligations under this Indenture and the other Basic Documents to which the Indenture Trustee is a party and has taken all necessary action to authorize the execution, delivery and performance of obligations by it of this Indenture and such other Basic Documents.

SECTION 6.14.      Annual Report by Independent Registered Public Accountants. The Indenture Trustee hereby covenants that it will cooperate fully with the firm of Independent registered public accountants performing the procedures required under Section 3.04 of the Servicing Agreement, it being understood and agreed that the Indenture Trustee will so cooperate in conclusive reliance upon the direction of the Issuer, and the Indenture Trustee makes no independent inquiry or investigation to, and shall have no obligation or liability in respect of, the sufficiency, validity or correctness of such procedures.

SECTION 6.15.      Custody of Collateral. The Indenture Trustee shall hold such of the Collateral (and any other collateral that may be granted to the Indenture Trustee) as consists of instruments, deposit accounts, negotiable documents, money, goods, letters of credit and advices of credit in the State of New York. The Indenture Trustee shall hold such of the Collateral as constitute investment property through the Securities Intermediary (which, as of the date hereof, is U.S. Bank National Association). The initial Securities Intermediary hereby agrees (and each future Securities Intermediary shall agree) with the Indenture Trustee that (a) such investment property (other than cash) shall at all times be credited to a securities account of the Indenture Trustee, (b) the Securities Intermediary shall treat the Indenture Trustee as entitled to exercise the rights that comprise each financial asset credited to such securities account, (c) all property (other than cash) credited to such securities account shall be treated as a financial asset, (d) the Securities Intermediary shall comply with entitlement orders originated by the Indenture Trustee without the further consent of any other Person, (e) the Securities Intermediary will not agree with any Person other than the Indenture Trustee to comply with entitlement orders originated by such other Person, (f) such securities accounts and the property credited thereto shall not be subject to any Lien or right of set-off in favor of the Securities Intermediary or anyone claiming through it (other than the Indenture Trustee) and (g) such agreement shall be governed by the internal laws of the State of New York. Terms used in the preceding sentence that are defined in the UCC and not otherwise defined herein shall have the meaning set forth in the UCC. Except as permitted by this Section 6.15 or elsewhere in this Indenture, the Indenture Trustee shall not hold Collateral through an agent or a nominee.

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SECTION 6.16.      FATCA.

The Issuer agrees (i) to provide the Indenture Trustee with such reasonable information as it has in its possession to enable the Indenture Trustee to determine whether any payments pursuant to the Indenture are subject to the withholding requirements described in Section 1471(b) of the Internal Revenue Code or otherwise imposed pursuant to Sections 1471 through 1474 of the Internal Revenue Code and any regulations, or agreements thereunder or official interpretations thereof (“Applicable Law”), and (ii) that the Indenture Trustee shall be entitled to make any withholding or deduction from payments under the Indenture to the extent necessary to comply with Applicable Law, for which the Indenture Trustee shall not have any liability.

ARTICLE VII

Holders’ Lists and Reports

SECTION 7.01.      Issuer To Furnish Indenture Trustee Names and Addresses of Holders. The Issuer will furnish or cause to be furnished to the Indenture Trustee (a) not more than five days after the earlier of (i) each Record Date and (ii) six months after the last Record Date, a list, in such form as the Indenture Trustee may reasonably require, of the names and addresses of the Holders as of such Record Date, and (b) at such other times as the Indenture Trustee may request in writing, within 30 days after receipt by the Issuer of any such request, a list of similar form and content as of a date not more than ten days prior to the time such list is furnished; provided, however, that, so long as the Indenture Trustee is the Storm Recovery Bond Registrar, no such list shall be required to be furnished.

SECTION 7.02.      Preservation of Information; Communications to Holders.

(a)            The Indenture Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of the Holders contained in the most recent list furnished to the Indenture Trustee as provided in Section 7.01 and the names and addresses of Holders received by the Indenture Trustee in its capacity as Storm Recovery Bond Registrar. The Indenture Trustee may destroy any list furnished to it as provided in Section 7.01 upon receipt of a new list so furnished.

(b)            Holders may communicate pursuant to Section 312(b) of the Trust Indenture Act with other Holders with respect to their rights under this Indenture or under the Storm Recovery Bonds. In addition, upon the written request of any Holder or group of Holders or of all Outstanding Storm Recovery Bonds evidencing at least 10 percent of the Outstanding Amount of the Storm Recovery Bonds, as applicable, the Indenture Trustee shall afford the Holder or Holders making such request a copy of a current list of Holders for purposes of communicating with other Holders with respect to their rights hereunder; provided, that the Indenture Trustee gives prior written notice to the Issuer of such request.

(c)            The Issuer, the Indenture Trustee and the Storm Recovery Bond Registrar shall have the protection of Section 312(c) of the Trust Indenture Act.

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SECTION 7.03.      Reports by Issuer.

(a)            The Issuer shall:

(i)            so long as the Issuer or the Sponsor is required to file such documents with the SEC, provide to the Indenture Trustee and the Commission, within 15 days after the Issuer is required to file the same with the SEC, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may from time to time by rules and regulations prescribe) that the Issuer or the Sponsor may be required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act;

(ii)            provide to the Indenture Trustee and the Commission and file with the SEC, in accordance with rules and regulations prescribed from time to time by the SEC, such additional information, documents and reports with respect to compliance by the Issuer with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and

(iii)           supply to the Indenture Trustee (and the Indenture Trustee shall transmit to all Holders described in Section 313(c) of the Trust Indenture Act) and the Commission, such summaries of any information, documents and reports required to be filed by the Issuer pursuant to Section 7.03(a)(i) and Section 7.03(a)(ii) as may be required by rules and regulations prescribed from time to time by the SEC.

Except as may be provided by Section 313(c) of the Trust Indenture Act, the Issuer may fulfill its obligation to provide the materials described in this Section 7.03(a) by providing such materials in electronic format.

(b)           Unless the Issuer otherwise determines, the fiscal year of the Issuer shall end on December 31 of each year and will promptly notify the Indenture Trustee regarding any change in fiscal year.

(c)            Delivery of such reports, information and documents to the Indenture Trustee is for informational purposes only and the Indenture Trustee’s receipt of such shall not constitute actual or constructive notice or knowledge of any information contained therein or determinable from information contained therein, including the Issuer’s compliance with any of its covenants hereunder (as to which the Indenture Trustee is entitled to rely exclusively on Officer’s Certificates).

SECTION 7.04.      Reports by Indenture Trustee. If required by Section 313(a) of the Trust Indenture Act, within 60 days after March 31 of each year, commencing with March 31, 2025, the Indenture Trustee shall send to each Holder as required by Section 313(c) of the Trust Indenture Act a brief report dated as of such date that complies with Section 313(a) of the Trust Indenture Act. The Indenture Trustee also shall comply with Section 313(b) of the Trust Indenture Act; provided, however, that the initial report if required to be so issued shall be delivered not more than 12 months after the initial issuance of the Storm Recovery Bonds.

A copy of each report at the time of its sending to Holders shall be filed by the Servicer with the SEC and each stock exchange, if any, on which the Storm Recovery Bonds are listed. The Issuer shall notify the Indenture Trustee in writing if and when the Storm Recovery Bonds are listed on any stock exchange.

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ARTICLE VIII

Accounts, Disbursements and Releases

SECTION 8.01.      Collection of Money. Except as otherwise expressly provided herein, the Indenture Trustee may demand payment or delivery of, and shall receive and collect, directly and without intervention or assistance of any fiscal agent or other intermediary, all money and other property payable to or receivable by the Indenture Trustee pursuant to this Indenture and the other Basic Documents. The Indenture Trustee shall apply all such money received by it as provided in this Indenture within two (2) Business Days. Except as otherwise expressly provided in this Indenture, if any default occurs in the making of any payment or performance under any agreement or instrument that is part of the Collateral, the Indenture Trustee may take such action as may be appropriate to enforce such payment or performance, subject to Article VI, including the institution and prosecution of appropriate Proceedings. Any such action shall be without prejudice to any right to claim a Default or Event of Default under this Indenture and any right to proceed thereafter as provided in Article V.

SECTION 8.02.      Collection Account.

(a)            Prior to the Closing Date issued hereunder, the Issuer shall open or cause to be opened with the Securities Intermediary located at the Indenture Trustee’s office, or at another Eligible Institution, one or more segregated trust accounts in the Indenture Trustee’s name for the deposit of Storm Recovery Charge Collections for Bonds and all other amounts received with respect to the Storm Recovery Collateral servicing the Bonds (the “Collection Account” and collectively, the “Collection Accounts”). The Indenture Trustee shall hold the Collection Account for the benefit of the related Holders, the Indenture Trustee and the other persons indemnified hereunder. There shall be established by the Indenture Trustee in respect of each Collection Account three subaccounts: a general subaccount (the “General Subaccount”); an excess funds subaccount (the “Excess Funds Subaccount”); a capital subaccount (the “Capital Subaccount” and, together with the General Subaccount and the Excess Funds Subaccount, the “Subaccounts”). For administrative purposes, the Subaccounts may be established by the Securities Intermediary as separate accounts. Such separate accounts will be recognized individually as a Subaccount and collectively as the “Collection Account”. Prior to or concurrently with the issuance of the Storm Recovery Bonds, the Member shall deposit into the Capital Subaccount an amount equal to the Required Capital Level. All amounts in the Collection Account not allocated to any other subaccount shall be allocated to the General Subaccount. Prior to the initial Payment Date, all amounts in the Collection Account (other than funds deposited into the Capital Subaccount up to the Required Capital Level) shall be allocated to the General Subaccount. All references to a Collection Account shall be deemed to include reference to all subaccounts contained therein. Withdrawals from and deposits to each of the foregoing subaccounts of the Collection Account shall be made as set forth in Sections 8.02(d) and 8.02(e). The Collection Account shall at all times be maintained in an Eligible Account and will be under the sole dominion and exclusive control of the Indenture Trustee, through the Securities Intermediary, and only the Indenture Trustee shall have access to the applicable Collection Account for the purpose of making deposits in and withdrawals from the applicable Collection Account in accordance with this Indenture. Funds in a Collection Account shall not be commingled with any other moneys. All moneys deposited from time to time in the Collection Account, all deposits therein pursuant to this Indenture and all investments made in Eligible Investments as directed in writing by the Issuer with such moneys, including all income or other gain from such investments, shall be held by the Securities Intermediary in the Collection Account as part of the Storm Recovery Collateral as herein provided. The Indenture Trustee shall have no investment discretion. Absent written instructions to invest, funds shall remain uninvested. The Securities Intermediary shall have no liability in respect of losses incurred as a result of the liquidation of any Eligible Investment prior to its stated maturity or its date of redemption or the failure of the Issuer or the Servicer to provide timely written investment direction.

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(b)            The Securities Intermediary hereby confirms that (i) each Collection Account is, or at inception will be established as, a “securities account” as such term is defined in Section 8-501(a) of the UCC, (ii) it is a “securities intermediary” (as such term is defined in Section 8-102(a)(14) of the UCC) and is acting in such capacity with respect to such accounts, (iii) the Indenture Trustee for the benefit of the Secured Parties is the sole “entitlement holder” (as such term is defined in Section 8-102(a)(7) of the UCC) with respect to such accounts and (iv) no other Person shall have the right to give “entitlement orders” (as such term is defined in Section 8-102(a)(8)) with respect to such accounts. The Securities Intermediary hereby further agrees that each item of property (whether investment property, financial asset, security, instrument or cash) received by it will be credited to the applicable Collection Account and shall be treated by it as a “financial asset” within the meaning of Section 8-102(a)(9) of the UCC. Notwithstanding anything to the contrary, the State of New York shall be deemed to be the jurisdiction of the Securities Intermediary for purposes of Section 8-110 of the UCC, and the Collection Accounts (as well as the securities entitlements related thereto) shall be governed by the laws of the State of New York.

(c)            The Indenture Trustee shall have sole dominion and exclusive control over all moneys in the applicable Collection Account through the Securities Intermediary and shall apply such amounts therein as provided in this Section 8.02.

(d)            Storm Recovery Charge Collections shall be deposited in the applicable General Subaccount as provided in Section 6.11 of the Servicing Agreement. All deposits to and withdrawals from the Collection Account, all allocations to the subaccounts of the Collection Account and any amounts to be paid to the Servicer under Section 8.02(e) shall be made by the Indenture Trustee in accordance with the written instructions provided by the Servicer in the Monthly Servicer’s Certificate or the Annual Servicer’s Certificate.

(e)            On each Payment Date for Bonds, the Indenture Trustee shall apply all amounts on deposit in the applicable Collection Account, including all Investment Earnings thereon, in accordance with the Annual Servicer’s Certificate, in the following priority:

(i)             payment of the Indenture Trustee’s fees, expenses and outstanding indemnity amounts shall be paid to the Indenture Trustee (subject to Section 6.07) in an amount not to exceed the amount set forth in the Series Supplement (the “Indenture Trustee Cap”); provided, however, that the Indenture Trustee Cap shall be disregarded and inapplicable upon the acceleration of the Storm Recovery Bonds following the occurrence of an Event of Default;

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(ii)            payment of the Servicing Fee with respect to such Payment Date, plus any unpaid Servicing Fees for prior Payment Dates shall be paid to the Servicer;

(iii)            payment of the Administration Fee for such Payment Date shall be paid to the Administrator and the allocable share of the Independent Manager Fee for such Payment Date shall be paid to the Independent Manager, with any unpaid Administration Fees or Independent Manager Fees from prior Payment Dates;

(iv)           payment of all other ordinary periodic Operating Expenses for such Payment Date not described above shall be paid to the parties to which such Operating Expenses are owed;

(v)            payment of Periodic Interest for such Payment Date with respect to such Series, including any overdue Periodic Interest (together with, to the extent lawful, interest on such overdue Periodic Interest at the applicable Bond Interest Rate), with respect to the Storm Recovery Bonds shall be paid to the Holders of Storm Recovery Bonds;

(vi)           payment of the principal required to be paid on the Storm Recovery Bonds of the Series on the Final Maturity Date or as a result of an acceleration upon an Event of Default shall be paid to the Holders of Storm Recovery Bonds;

(vii)          payment of Periodic Principal for such Payment Date in accordance with the expected sinking fund schedule, including any previously unpaid Periodic Principal, with respect to the Storm Recovery Bonds shall be paid to the Holders of Storm Recovery Bonds, pro rata if there is a deficiency;

(viii)         payment of the allocable share of any other unpaid Operating Expenses (including any such amounts owed to the Indenture Trustee, but unpaid due to the limitation in Section 8.02(e)(i)) and any remaining amounts owed pursuant to the Basic Documents shall be paid to the parties to which such Operating Expenses or remaining amounts are owed;

(ix)           replenishment of the amount, if any, by which the Required Capital Level exceeds the amount in the Capital Subaccount as of such Payment Date shall be allocated to the Capital Subaccount;

(x)            the Return on Invested Capital then due and payable shall be paid to Duke Energy Progress;

(xi)           the balance, if any, shall be allocated to the Excess Funds Subaccount; and

(xii)           after the Storm Recovery Bonds have been paid in full and discharged, and all of the other foregoing amounts are paid in full, together with all amounts due and payable to the Indenture Trustee under Section 6.07 or otherwise, the balance (including all amounts then held in the Capital Subaccount and the Excess Funds Subaccount), if any, shall be paid to the Issuer, free from the Lien of this Indenture and the applicable Series Supplement and credited to Customers through normal ratemaking processes.

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All payments to the Holders of the Storm Recovery Bonds pursuant to Section 8.02(e)(v), Section 8.02(e)(vi) and Section 8.02(e)(vii) shall be made to such Holders pro rata based on the respective amounts of interest and/or principal owed. In the case of an Event of Default, then, in accordance with Section 5.04(c), in respect of any application of moneys pursuant to Section 8.02(e)(v) or Section 8.02(e)(vi), moneys will be applied pursuant to Section 8.02(e)(v) and Section 8.02(e)(vi), as the case may be, in such order, on a pro rata basis, based upon the interest or the principal owed.

(f)            If on any Payment Date, or, for any amounts payable under Section 8.02(e)(i), Section 8.02(e)(ii), Section 8.02(e)(iii) and Section 8.02(e)(iv), on any Business Day, funds on deposit in the General Subaccount are insufficient to make the payments contemplated by Section 8.02(e)(i), Section 8.02(e)(ii), Section 8.02(e)(iii), Section 8.02(e)(iv), Section 8.02(e)(v), Section 8.02(e)(vi), Section 8.02(e)(vii), Section 8.02(e)(viii) and Section 8.02(e)(iv), the Indenture Trustee shall (i) first, draw from amounts on deposit in the Excess Funds Subaccount, and (ii) second, draw from amounts on deposit in the Capital Subaccount, in each case, up to the amount of such shortfall in order to make the payments contemplated by Section 8.02(e)(i), Section 8.02(e)(ii), Section 8.02(e)(iii), Section 8.02(e)(iv), Section 8.02(e)(v), Section 8.02(e)(vi), Section 8.02(e)(vii) and Section 8.02(e)(viii). In addition, if on any Payment Date funds on deposit in the General Subaccount are insufficient to make the allocations contemplated by Section 8.02(e)(ix), the Indenture Trustee shall draw any amounts on deposit in the Excess Funds Subaccount to make such allocations to the Capital Subaccount.

(g)            With respect to any Operating Expense payable by the Issuer (but only as described in Section 8.02(e)(i), Section 8.02(e)(ii), Section 8.02(e)(iii) and Section 8.02(e)(iv)) that will become due and payable prior to the next Payment Date, the Administrator, on any Business Day, may direct the Indenture Trustee in writing to remit payment of such Operating Expense, in the amount specified in the written direction, on the next Payment Date from amounts on deposit in the General Subaccount, the Excess Funds Subaccount and the Capital Subaccount, in that order, all as specified in the written direction to the Indenture Trustee.

SECTION 8.03.      General Provisions Regarding the Collection Account.

(a)            So long as no Default or Event of Default shall have occurred and be continuing, all or a portion of the funds in the Collection Account shall be invested in Eligible Investments and reinvested by the Indenture Trustee upon Issuer Order; provided, however, that such Eligible Investments shall not mature or be redeemed later than the Business Day prior to the next Payment Date or Special Payment Date, if applicable, for the Storm Recovery Bonds. All income or other gain from investments of moneys deposited in the Collection Account shall be deposited by the Indenture Trustee in such Collection Account, and any loss resulting from such investments shall be charged to the Collection Account. The Issuer will not direct the Indenture Trustee to make any investment of any funds or to sell any investment held in any Collection Account unless the security interest Granted and perfected in such account will continue to be perfected in such investment or the proceeds of such sale, in either case without any further action by any Person, and, in connection with any direction to the Indenture Trustee to make any such investment or sale, if requested by the Indenture Trustee, the Issuer shall deliver to the Indenture Trustee an Opinion of Counsel of external counsel of the Issuer (at the Issuer’s cost and expense) to such effect. In no event shall the Indenture Trustee be liable for the selection of Eligible Investments or for investment losses incurred thereon. The Indenture Trustee shall have no liability in respect of losses incurred as a result of the liquidation of any Eligible Investment prior to its stated maturity or its date of redemption or the failure of the Issuer or the Servicer to provide timely written investment direction. The Indenture Trustee shall have no obligation to invest or reinvest any amounts held hereunder in the absence of written investment direction pursuant to an Issuer Order, in which case such amount shall remain uninvested.

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(b)            Subject to Section 6.01(c), the Indenture Trustee shall not in any way be held liable by reason of any insufficiency in the Collection Account resulting from any loss on any Eligible Investment included therein except for losses attributable to the Indenture Trustee’s failure to make payments on such Eligible Investments issued by the Indenture Trustee, in its commercial capacity as principal obligor and not as trustee, in accordance with their terms.

(c)            If (i) the Issuer shall have failed to give written investment directions for any funds on deposit in the Collection Account to the Indenture Trustee by 11:00 a.m. New York City time (or such other time as may be agreed by the Issuer and Indenture Trustee) on any Business Day or (ii) a Default or Event of Default shall have occurred and be continuing with respect to the Storm Recovery Bonds but the Storm Recovery Bonds shall not have been declared due and payable pursuant to Section 5.02, then the Indenture Trustee shall, to the fullest extent practicable, invest and reinvest funds in such Collection Account in Eligible Investments specified in the most recent written investment directions delivered by the Issuer to the Indenture Trustee; provided, that if the Issuer has never delivered written investment directions to the Indenture Trustee, the Indenture Trustee shall not invest or reinvest such funds in any investments.

(d)            The parties hereto acknowledge that the Servicer may, pursuant to the Servicing Agreement, select Eligible Investments on behalf of the Issuer.

(e)            Except as otherwise provided hereunder or agreed in writing among the parties hereto, the Issuer shall retain the authority to institute, participate and join in any plan of reorganization, readjustment, merger or consolidation with respect to the issuer of any Eligible Investments held hereunder, and, in general, to exercise each and every other power or right with respect to each such asset or investment as Persons generally have and enjoy with respect to their own assets and investment, including power to vote upon any Eligible Investments.

SECTION 8.04.      Release of Collateral.

(a)            So long as the Issuer is not in default hereunder and no Default hereunder would occur as a result of such action, the Issuer, through the Servicer, may collect, sell or otherwise dispose of written-off receivables, at any time and from time to time in the ordinary course of business, without any notice to, or release or consent by, the Indenture Trustee, but only as and to the extent permitted by the Basic Documents; provided, however, that any and all proceeds of such dispositions shall become Collateral and be deposited to the General Subaccount immediately upon receipt thereof by the Issuer or any other Person, including the Servicer. Without limiting the foregoing, the Servicer, may, at any time and from time to time without any notice to, or release or consent by, the Indenture Trustee, sell or otherwise dispose of any Collateral previously written-off as a defaulted or uncollectible account in accordance with the terms of the Servicing Agreement and the requirements of the proviso in the preceding sentence.

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(b)            The Indenture Trustee may, and when required by the provisions of this Indenture shall, execute instruments to release property from the Lien of this Indenture, or convey the Indenture Trustee’s interest in the same, in a manner and under circumstances that are not inconsistent with the provisions of this Indenture. No party relying upon an instrument executed by the Indenture Trustee as provided in this Article VIII shall be bound to ascertain the Indenture Trustee’s authority, inquire into the satisfaction of any conditions precedent or see to the application of any moneys. The Indenture Trustee shall release property from the Lien of this Indenture pursuant to this Section 8.04(b) only upon receipt of an Issuer Request accompanied by an Officer’s Certificate, an Opinion of Counsel of external counsel of the Issuer (at the Issuer’s cost and expense) and (if required by the Trust Indenture Act) Independent Certificates in accordance with Section 314(c) of the Trust Indenture Act and Section 314(d)(1) of the Trust Indenture Act meeting the applicable requirements of Section 10.01.

(c)            The Indenture Trustee shall, at such time as there are no Storm Recovery Bonds Outstanding and all sums payable to the Indenture Trustee pursuant to Section 6.07 or otherwise have been paid, release any remaining portion of the Storm Recovery Collateral that secured the Storm Recovery Bonds from the Lien of this Indenture and release to the Issuer or any other Person entitled thereto any funds or investments then on deposit in or credited to the Collection Account.

SECTION 8.05.      Opinion of Counsel. The Indenture Trustee shall receive at least seven days’ notice when requested by the Issuer to take any action pursuant to Section 8.04, accompanied by copies of any instruments involved, and the Indenture Trustee shall also require, as a condition to such action, an Opinion of Counsel of external counsel of the Issuer, in form and substance satisfactory to the Indenture Trustee, stating the legal effect of any such action, outlining the steps required to complete the same, and concluding that all conditions precedent to the taking of such action have been complied with and such action will not materially and adversely impair the security for the Storm Recovery Bonds or the rights of the Holders in contravention of the provisions of this Indenture and any Series Supplement; provided, however, that such Opinion of Counsel shall not be required to express an opinion as to the fair value of the Collateral. Counsel rendering any such opinion may rely, without independent investigation, on the accuracy and validity of any certificate or other instrument delivered to the Indenture Trustee in connection with any such action.

SECTION 8.06.      Reports by Independent Registered Public Accountants. As of the date hereof, the Issuer shall appoint a firm of Independent registered public accountants of recognized national reputation for purposes of preparing and delivering the reports or certificates of such accountants required by this Indenture and the Series Supplement. In the event such firm requires the Indenture Trustee to agree to the procedures performed by such firm, the Issuer shall direct the Indenture Trustee in writing to so agree, it being understood and agreed that the Indenture Trustee will deliver such letter of agreement in conclusive reliance upon the direction of the Issuer, and the Indenture Trustee makes no independent inquiry or investigation to, and shall have no obligation or liability in respect of, the sufficiency, validity or correctness of such procedures. Upon any resignation by, or termination by the Issuer of, such firm, the Issuer shall provide written notice thereof to the Indenture Trustee and shall promptly appoint a successor thereto that shall also be a firm of Independent registered public accountants of recognized national reputation. If the Issuer shall fail to appoint a successor to a firm of Independent registered public accountants that has resigned or been terminated within 15 days after such resignation or termination, the Indenture Trustee shall promptly notify the Issuer of such failure in writing. If the Issuer shall not have appointed a successor within ten days thereafter, the Indenture Trustee shall promptly appoint a successor firm of Independent registered public accountants of recognized national reputation; provided, that the Indenture Trustee shall have no liability with respect to such appointment. The fees of such Independent registered public accountants and its successor shall be payable by the Issuer.

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ARTICLE IX

SUPPLEMENTAL INDENTURES

SECTION 9.01.      Supplemental Indentures Without Consent of Holders.

(a)            Without the consent of the Holders of any Storm Recovery Bonds but with prior notice to the Rating Agencies, the Issuer and the Indenture Trustee, when authorized by an Issuer Order, at any time and from time to time, may enter into one or more indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act as in force at the date of the execution thereof), in form satisfactory to the Indenture Trustee, for any of the following purposes:

(i)             to correct or amplify the description of any property, including the Collateral, at any time subject to the Lien of this Indenture, or better to assure, convey and confirm unto the Indenture Trustee any property subject or required to be subjected to the Lien of this Indenture, or to subject to the Lien of this Indenture additional property;

(ii)            to evidence the succession, in compliance with the applicable provisions hereof, of another Person to the Issuer, and the assumption by any such successor of the covenants of the Issuer herein and in the Storm Recovery Bonds;

(iii)           to add to the covenants of the Issuer, for the benefit of the Secured Parties, or to surrender any right or power herein conferred upon the Issuer;

(iv)           to convey, transfer, assign, mortgage or pledge any property to or with the Indenture Trustee;

(v)            to cure any ambiguity, to correct or supplement any provision herein or in any supplemental indenture, including the Series Supplement, that may be inconsistent with any other provision herein or in any supplemental indenture, including the Series Supplement, or to make any other provisions with respect to matters or questions arising under this Indenture or in any supplemental indenture; provided, that (A) such action shall not, as evidenced by an Officer’s Certificate, adversely affect in any material respect the interests of the Holders of the Storm Recovery Bonds and (B) the Rating Agency Condition shall have been satisfied with respect thereto;

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(vi)           to evidence and provide for the acceptance of the appointment hereunder by a successor trustee with respect to the Storm Recovery Bonds and to add to or change any of the provisions of this Indenture as shall be necessary to facilitate the administration of the trusts hereunder by more than one trustee, pursuant to the requirements of Article VI;

(vii)          to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualification of this Indenture under the Trust Indenture Act and to add to this Indenture such other provisions as may be expressly required by the Trust Indenture Act;

(viii)         to qualify the Storm Recovery Bonds for registration with a Clearing Agency;

(ix)           to satisfy any Rating Agency requirements;

(x)            to set forth the terms of a series of Storm Recovery Bonds that has not therefore been authorized; and

(xi)            to authorize the appointment of any fiduciary for the Storm Recovery Bonds required or advisable with the listing of the Storm Recovery Bonds on any stock exchange and otherwise amend this Indenture to incorporate changes requested or required by any government authority, stock exchange authority or fiduciary in connection with such listing.

The Indenture Trustee is hereby authorized to join in the execution of any such supplemental indenture and to make any further appropriate agreements and stipulations that may be therein contained.

(b)            The Issuer and the Indenture Trustee, when authorized by an Issuer Order, may, also without the consent of any of the Holders of the Storm Recovery Bonds, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, this Indenture or of modifying in any manner the rights of the Holders of the Storm Recovery Bonds under this Indenture; provided, however, that (i) such action shall not, as evidenced by an Opinion of Counsel of nationally recognized counsel of the Issuer experienced in structured finance transactions, adversely affect in any material respect the interests of the Holders and (ii) the Rating Agency Condition shall have been satisfied with respect thereto.

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SECTION 9.02.      Supplemental Indentures with Consent of Holders. The Issuer and the Indenture Trustee, when authorized by an Issuer Order, also may, with prior notice to the Rating Agencies and with the consent of the Holders of a majority of the Outstanding Amount of the Storm Recovery Bonds to be affected, by Act of such Holders delivered to the Issuer and the Indenture Trustee, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, this Indenture or of modifying in any manner the rights of the Holders of the Storm Recovery Bonds under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Storm Recovery Bond affected thereby:

(i)             change the date of payment of any installment of principal of or premium, if any, or interest on any Storm Recovery Bond, or reduce the principal amount thereof, the interest rate thereon or premium, if any, with respect thereto;

(ii)            change the provisions of this Indenture and the Series Supplement relating to the application of collections on, or the proceeds of the sale of, the Collateral to payment of principal of or premium, if any, or interest on the Storm Recovery Bonds, or change any place of payment where, or the coin or currency in which, any Storm Recovery Bond or the interest thereon is payable;

(iii)           reduce the percentage of the Outstanding Amount of the Storm Recovery Bonds thereof, the consent of the Holders of which is required for any such supplemental indenture, or the consent of the Holders of which is required for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences provided for in this Indenture;

(iv)           reduce the percentage of the Outstanding Amount of the Storm Recovery Bonds required to direct the Indenture Trustee to direct the Issuer to sell or liquidate the Storm Recovery Collateral pursuant to Section 5.04;

(v)            modify any provision of this Section 9.02 or any provision of the other Basic Documents similarly specifying the rights of the Holders to consent to modification thereof, except to increase any percentage specified herein or to provide that those provisions of this Indenture or the other Basic Documents referenced in this Section 9.02 cannot be modified or waived without the consent of the Holder of each Outstanding Storm Recovery Bond affected thereby;

(vi)           modify any of the provisions of this Indenture in such manner as to affect the calculation of the amount of any payment of interest, principal or premium, if any, due on any Storm Recovery Bond on any Payment Date (including the calculation of any of the individual components of such calculation) or change the Expected Sinking Fund Schedule or Final Maturity Date of Storm Recovery Bonds;

(vii)          decrease the Required Capital Level with respect to any Series;

(viii)         permit the creation of any Lien ranking prior to or on a parity with the Lien of this Indenture with respect to any part of the Collateral or, except as otherwise permitted or contemplated herein, terminate the Lien of this Indenture on any property at any time subject hereto or deprive the Holder of any Storm Recovery Bond of the security provided by the Lien of this Indenture;

(ix)            cause any material adverse U.S. federal income tax consequence to the Seller, the Issuer, the Managers, the Indenture Trustee or the then-existing Holders; or

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(x)             impair the right to institute suit for the enforcement of the provisions of this Indenture regarding payment or application of funds.

It shall not be necessary for any Act of Holders under this Section 9.02 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.

Promptly after the execution by the Issuer and the Indenture Trustee of any supplemental indenture pursuant to this Section 9.02, the Issuer shall furnish or make available electronically to the Rating Agencies a copy of such supplemental indenture and to the Holders of the Storm Recovery Bonds to which such supplemental indenture relates either a copy of such supplemental indenture or a notice setting forth in general terms the substance of such supplemental indenture. Any failure of the Issuer to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture.

SECTION 9.03.      Commission Condition. Notwithstanding anything to the contrary in Section 9.01 or 9.02, no supplemental indenture or other action to waive a default hereunder that the Issuer determines has a reasonable possibility to impact the rates borne by customers, shall be effective except upon satisfaction of the conditions precedent in this Section 9.03.

(a)            At least 30 days prior to the effectiveness of any such Supplemental Indenture or other action and after obtaining the other necessary approvals set forth in Section 9.02 (except that the consent of the Indenture Trustee may be subject to the consent of the Holders if such consent is required or sought by the Indenture Trustee in connection with such Supplemental Indenture) or prior to the effectiveness of any waiver of a default approved by the Holders of a majority of the Outstanding Amount of Storm Recovery Bonds as provided in Section 5.12, the Servicer shall have filed in Commission docket 2023-89-E written notification of any proposed indenture or indentures supplemental or waiver of such default, addressed to the Chief Clerk/Executive Director of the Commission with a copy delivered to the Office of Regulatory Staff and all parties of record, which notification shall contain:

(i)             a reference to Docket No. 2023-89-E;

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

(iii)           a description of the proposed supplemental indenture, including the purpose of such Supplemental Indenture or the waiver of default.

(b)            No later than 5:00 pm on the 30th business day after receipt of notice of a proposed supplemental indenture complying with subparagraph (i), the Commission shall issue an order either (i) approving the proposed Supplemental Indenture or waiver of default or (ii) preventing the adoption of such supplemental indenture or waiver of default.

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(c)            Following the delivery of an order from the Commission to the Servicer under paragraph (b), the Servicer and the Issuer shall have the right at any time to withdraw from the Commission further consideration of any proposed Supplemental Indenture, modification or waiver of default. The fact that the Servicer delivers notice to the Commission pursuant to this Section 9.03 does not obligate the Servicer to amend the Indenture as provided in the notice.

SECTION 9.04.      Execution of Supplemental Indentures. In executing any supplemental indenture permitted by this Article IX or the modifications thereby of the trust created by this Indenture, the Indenture Trustee shall be fully protected in relying upon an Opinion of Counsel stating that the execution of such supplemental indenture is authorized and permitted by this Indenture and all conditions precedent, if any, provided for in this Indenture relating to such supplemental indenture or modification have been satisfied. The Indenture Trustee may, but shall not be obligated to, enter into any such supplemental indenture that affects the Indenture Trustee’s own rights, duties, liabilities or immunities under this Indenture or otherwise.

SECTION 9.05.      Effect of Supplemental Indenture. Upon the execution of any supplemental indenture pursuant to the provisions hereof, this Indenture shall be and be deemed to be modified and amended in accordance therewith with respect to Storm Recovery Bonds affected thereby, and the respective rights, limitations of rights, obligations, duties, liabilities and immunities under this Indenture of the Indenture Trustee, the Issuer and the Holders shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes.

SECTION 9.06.      Conformity with Trust Indenture Act. Every amendment of this Indenture and every supplemental indenture executed pursuant to this Article IX shall conform to the requirements of the Trust Indenture Act as then in effect so long as this Indenture shall then be qualified under the Trust Indenture Act.

SECTION 9.07.      Reference in Storm Recovery Bonds to Supplemental Indentures. Storm Recovery Bonds authenticated and delivered after the execution of any supplemental indenture pursuant to this Article IX may, and if required by the Indenture Trustee shall, bear a notation in form approved by the Indenture Trustee as to any matter provided for in such supplemental indenture. If the Issuer shall so determine, new Storm Recovery Bonds so modified as to conform, in the opinion of the Issuer, to any such supplemental indenture may be prepared and executed by the Issuer and authenticated and delivered by the Indenture Trustee in exchange for Outstanding Storm Recovery Bonds.

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ARTICLE X

MISCELLANEOUS

SECTION 10.01.    Compliance Certificates and Opinions, etc.

(a)            Upon any application or request by the Issuer to the Indenture Trustee to take any action under any provision of this Indenture, the Issuer shall furnish to the Indenture Trustee (i) an Officer’s Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, (ii) an Opinion of Counsel stating that in the opinion of such counsel the amendment is authorized and permitted and all such conditions precedent, if any, have been complied with and (iii) (if required by the Trust Indenture Act) an Independent Certificate from a firm of registered public accountants meeting the applicable requirements of this Section 10.01, except that, in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture, no additional certificate or opinion need be furnished.

Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include:

(i)             a statement that each signatory of such certificate or opinion has read or has caused to be read such covenant or condition and the definitions herein relating thereto;

(ii)            a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

(iii)           a statement that, in the opinion of each such signatory, such signatory has made such examination or investigation as is necessary to enable such signatory to express an informed opinion as to whether or not such covenant or condition has been complied with; and

(iv)           a statement as to whether, in the opinion of each such signatory, such condition or covenant has been complied with.

(b)            Prior to the deposit of any Collateral or other property or securities with the Indenture Trustee that is to be made the basis for the release of any property or securities subject to the Lien of this Indenture, the Issuer shall, in addition to any obligation imposed in Section 10.01(a) or elsewhere in this Indenture, furnish to the Indenture Trustee an Officer’s Certificate certifying or stating the opinion of each person signing such certificate as to the fair value (within 90 days of such deposit) to the Issuer of the Collateral or other property or securities to be so deposited.

(c)            Whenever the Issuer is required to furnish to the Indenture Trustee an Officer’s Certificate certifying or stating the opinion of any signer thereof as to the matters described in Section 10.01(b), the Issuer shall also deliver to the Indenture Trustee an Independent Certificate as to the same matters, if the fair value to the Issuer of the securities to be so deposited and of all other such securities made the basis of any such withdrawal or release since the commencement of the then-current fiscal year of the Issuer, as set forth in the certificates delivered pursuant to Section 10.01(b) and this Section 10.01(c), is ten percent or more of the Outstanding Amount of the Storm Recovery Bonds, but such a certificate need not be furnished with respect to any securities so deposited, if the fair value thereof to the Issuer as set forth in the related Officer’s Certificate is less than the lesser of (A) $25,000 or (B) one percent of the Outstanding Amount of the Storm Recovery Bonds.

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(d)            Whenever any property or securities are to be released from the Lien of this Indenture other than pursuant to Section 8.02(e), the Issuer shall also furnish to the Indenture Trustee an Officer’s Certificate certifying or stating the opinion of each person signing such certificate as to the fair value (within 90 days of such release) of the property or securities proposed to be released and stating that in the opinion of such person the proposed release will not impair the security under this Indenture in contravention of the provisions hereof.

(e)            Whenever the Issuer is required to furnish to the Indenture Trustee an Officer’s Certificate certifying or stating the opinion of any signatory thereof as to the matters described in Section 10.01(d), the Issuer shall also furnish to the Indenture Trustee an Independent Certificate as to the same matters if the fair value of the property or securities with respect thereto, or securities released from the Lien of this Indenture (other than pursuant to Section 8.02(e)) since the commencement of the then-current calendar year, as set forth in the certificates required by Section 10.01(d) and this Section 10.01(e), equals 10 percent or more of the Outstanding Amount of the Storm Recovery Bonds, but such certificate need not be furnished in the case of any release of property or securities if the fair value thereof as set forth in the related Officer’s Certificate is less than the lesser of (A) $25,000 or (B) one percent of the then Outstanding Amount of the Storm Recovery Bonds.

(f)             Notwithstanding any other provision of this Section 10.01, the Indenture Trustee may (A) collect, liquidate, sell or otherwise dispose of the Storm Recovery Property and the other Collateral as and to the extent permitted or required by the Basic Documents and (B) make cash payments out of the Collection Account as and to the extent permitted or required by the Basic Documents.

SECTION 10.02.    Form of Documents Delivered to Indenture Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.

Any certificate or opinion of a Responsible Officer of the Issuer may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his or her certificate or opinion is based are erroneous. Any such certificate of a Responsible Officer or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Servicer or the Issuer stating that the information with respect to such factual matters is in the possession of the Servicer or the Issuer, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.

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Whenever in this Indenture, in connection with any application or certificate or report to the Indenture Trustee, it is provided that the Issuer shall deliver any document as a condition of the granting of such application, or as evidence of the Issuer’s compliance with any term hereof, it is intended that the truth and accuracy, at the time of the granting of such application or at the effective date of such certificate or report (as the case may be), of the facts and opinions stated in such document shall in such case be conditions precedent to the right of the Issuer to have such application granted or to the sufficiency of such certificate or report. The foregoing shall not, however, be construed to affect the Indenture Trustee’s right to rely conclusively upon the truth and accuracy of any statement or opinion contained in any such document as provided in Article VI.

Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.

SECTION 10.03.    Acts of Holders.

(a)            Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing, and except as herein otherwise expressly provided such action shall become effective when such instrument or instruments are delivered to the Indenture Trustee and, where it is hereby expressly required, to the Issuer. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “Act” of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.01) conclusive in favor of the Indenture Trustee and the Issuer, if made in the manner provided in this Section 10.03.

(b)            The fact and date of the execution by any Person of any such instrument or writing may be proved in any manner that the Indenture Trustee deems sufficient.

(c)            The ownership of Storm Recovery Bonds shall be proved by the Storm Recovery Bond Register.

(d)            Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Storm Recovery Bonds shall bind the Holder of every Storm Recovery Bond issued upon the registration thereof or in exchange therefor or in lieu thereof, in respect of anything done, omitted or suffered to be done by the Indenture Trustee or the Issuer in reliance thereon, whether or not notation of such action is made upon such Storm Recovery Bond.

SECTION 10.04.    Notices, etc., to Indenture Trustee, Issuer, Rating Agencies and Commission. Any notice, report or other communication given hereunder shall be in writing and shall be effective (i) upon receipt when sent through the mails, registered or certified mail, return receipt requested, postage prepaid, with such receipt to be effective the date of delivery indicated on the return receipt, (ii) upon receipt when sent by an overnight courier, (iii) on the date personally delivered to an authorized officer of the party to which sent or (iv) on the date transmitted by facsimile or other electronic transmission with a confirmation of receipt in all cases, addressed as follows:

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(a)            in the case of the Issuer, to Duke Energy Progress, LLC, at 411 Fayetteville Street Raleigh, North Carolina 27601, Attention: Director, Rates and Regulatory Strategy, Telephone: 704-382-3853 in care of (c/o): Director, Rates and Regulatory Planning and at 525 South Tryon Street, Charlotte, North Carolina 28202, Attention: Treasurer, Telephone: 704-382-3853 c/o Assistant Treasurer;

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

(c)            In the case of Moody’s, to Moody’s Investor Services, Inc., ABS/RMBS Monitoring Department, 24th Floor, 7 World Trade Center, 250 Greenwich Street, New York, New York, Email: servicerreports@moodys.com;

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

(e)            if to the Commission, by filing a notice in Docket No. 2023-89-E addressed to the Chief Clerk/Executive Director of the Commission with a copy delivered to the Office of Regulatory Staff and all parties of record.

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

The Indenture Trustee agrees to accept and act upon instructions or directions pursuant to this Indenture sent by the Issuer by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods; provided, however, that (a) subsequent to such transmission of written instructions, the Issuer shall provide the originally executed instructions or directions to the Indenture Trustee in a timely manner, and (b) such originally executed instructions or directions shall be signed by an authorized representative of the Issuer providing such instructions or directions. If the Issuer elects to give the Indenture Trustee e-mail or facsimile instructions (or instructions by a similar electronic method) and the Indenture Trustee in its discretion elects to act upon such instructions, the Indenture Trustee's understanding of such instructions shall be deemed controlling. The Indenture Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Indenture Trustee's reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The Issuer agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Indenture Trustee, including without limitation the risk of the Indenture Trustee acting on unauthorized instructions, and the risk or interception and misuse by third parties.

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SECTION 10.05.    Notices to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class, postage prepaid to each Holder affected by such event, at such Holder’s address as it appears on the Storm Recovery Bond Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice nor any defect in any notice so mailed to any particular Holder shall affect the sufficiency of such notice with respect to other Holders, and any notice that is mailed in the manner herein provided shall conclusively be presumed to have been duly given.

Where this Indenture provides for notice in any manner, such notice may be waived in writing by any Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Indenture Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such a waiver.

In case, by reason of the suspension of regular mail service as a result of a strike, work stoppage or similar activity, it shall be impractical to mail notice of any event of Holders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Indenture Trustee shall be deemed to be a sufficient giving of such notice.

Where this Indenture provides for notice to the Rating Agencies, failure to give such notice shall not affect any other rights or obligations created hereunder and shall not under any circumstance constitute a Default or Event of Default.

SECTION 10.06.    Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with another provision hereof that is required to be included in this Indenture by any of the provisions of the Trust Indenture Act, such required provision shall control.

The provisions of Sections 310 through 317 of the Trust Indenture Act that impose duties on any Person (including the provisions automatically deemed included herein unless expressly excluded by this Indenture) are a part of and govern this Indenture, whether or not physically contained herein.

SECTION 10.07.    Successors and Assigns. All covenants and agreements in this Indenture and the Storm Recovery Bonds by the Issuer shall bind its successors and assigns, whether so expressed or not. All agreements of the Indenture Trustee in this Indenture shall bind its successors.

SECTION 10.08.    Severability. Any provision in this Indenture or in the Storm Recovery Bonds that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remainder of such provision (if any) or the remaining provisions hereof (unless such construction shall be unreasonable), and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

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SECTION 10.09.    Benefits of Indenture. Nothing in this Indenture or in the Storm Recovery Bonds, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, and the Holders, and any other party secured hereunder, and any other Person with an ownership interest in any part of the Collateral, any benefit or any legal or equitable right, remedy or claim under this Indenture.

SECTION 10.10.    Legal Holidays. In any case where the date on which any payment is due shall not be a Business Day, then (notwithstanding any other provision of the Storm Recovery Bonds or this Indenture) payment need not be made on such date, but may be made on the next Business Day with the same force and effect as if made on the date on which nominally due, and no interest shall accrue for the period from and after any such nominal date.

SECTION 10.11.    GOVERNING LAW. This Indenture shall be governed by and construed in accordance with the laws of the State of New York, without reference to its conflict of law provisions (other than Section 5-1401 of the New York General Obligations Law and Sections 9-301 through 9-306 of the NY UCC), and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws; provided, that the creation, attachment and perfection of any Liens created hereunder in Storm Recovery Property, and all rights and remedies of the Indenture Trustee and the Holders with respect to the Storm Recovery Property, shall be governed by the laws of the State of South Carolina.

SECTION 10.12.    Counterparts. This Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. The Issuer and Indenture Trustee agree that this Indenture may be electronically signed, that any digital or electronic signatures (including pdf, facsimile or electronically imaged signatures provided by DocuSign or any other digital signature provider as specified in writing to the Indenture Trustee) appearing on this Indenture are the same as handwritten signatures for the purposes of validity, enforceability and admissibility, and that delivery of any such electronic signature to, or a signed copy of, this Indenture may be made by facsimile, email or other electronic transmission. The Issuer agrees to assume all risks arising out of the use of digital signatures and electronic methods of submitting such signatures to the Indenture Trustee, including without limitation the risk of the Indenture Trustee acting upon documents with unauthorized signatures and the risk of interception and misuse by third parties.

SECTION 10.13.    Recording of Indenture. If this Indenture is subject to recording in any appropriate public recording offices, such recording is to be effected by the Issuer and at its expense accompanied by an Opinion of Counsel at the Issuer’s cost and expense (which may be counsel to the Indenture Trustee or any other counsel reasonably acceptable to the Indenture Trustee or, if requested by the Indenture Trustee, external counsel of the Issuer) to the effect that such recording is necessary either for the protection of the Holders or any other Person secured hereunder or for the enforcement of any right or remedy granted to the Indenture Trustee under this Indenture.

81

SECTION 10.14.    No Recourse to Issuer. No recourse may be taken, directly or indirectly, with respect to the obligations of the Issuer or the Indenture Trustee on the Storm Recovery Bonds or under this Indenture or any certificate or other writing delivered in connection herewith or therewith, against (a) the Issuer, other than from the Storm Recovery Collateral, (b) any owner of a membership interest in the Issuer (including Duke Energy Progress) or (c) any shareholder, partner, owner, beneficiary, agent, officer or employee of the Indenture Trustee, the Managers or any owner of a membership interest in the Issuer (including Duke Energy Progress) in its respective individual capacity, or of any successor or assign of any of them in their respective individual or corporate capacities, except as any such Person may have expressly agreed in writing. Notwithstanding any provision of this Indenture or any Series Supplement to the contrary, Holders shall look only to the Storm Recovery Collateral with respect to any amounts due to the Holders hereunder and under the Storm Recovery Bonds and, in the event such Storm Recovery Collateral is insufficient to pay in full the amounts owed on the Storm Recovery Bonds, shall have no recourse against the Issuer in respect of such insufficiency. Each Holder by accepting a Storm Recovery Bond specifically confirms the nonrecourse nature of these obligations and waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Storm Recovery Bonds.

SECTION 10.15.    Basic Documents. The Indenture Trustee is hereby authorized and directed to execute and deliver the Servicing Agreement and the Sale Agreement and to execute and deliver any other Basic Document that it is requested to acknowledge, and accept, including, upon receipt of an Issuer Request, the joinder to the Intercreditor Agreement. Such request shall be accompanied by an Opinion of Counsel of external counsel of the Issuer, upon which the Indenture Trustee may rely conclusively with no duty of independent investigation or inquiry, to the effect that all conditions precedent for the execution of the Intercreditor Agreement have been satisfied. The Intercreditor Agreement shall be binding on the Holders and all Holders are deemed to have consented to the provisions of this Section 10.15.

SECTION 10.16.    No Petition. The Indenture Trustee, by entering into this Indenture, and each Holder, by accepting a Storm Recovery Bond (or interest therein) issued hereunder, hereby covenant and agree that they shall not, prior to the date that is one year and one day after the termination of this Indenture, acquiesce, petition or otherwise invoke or cause the Issuer or any Manager to invoke the process of any court or government authority for the purpose of commencing or sustaining a case against the Issuer under any bankruptcy or insolvency law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Issuer or any substantial part of its property, or ordering the dissolution, winding up or liquidation of the affairs of the Issuer. Nothing in this Section 10.16 shall preclude, or be deemed to estop, such Holder or the Indenture Trustee (a) from taking or omitting to take any action prior to such date in (i) any case or proceeding voluntarily filed or commenced by or on behalf of the Issuer under or pursuant to any such law or (ii) any involuntary case or proceeding pertaining to the Issuer that is filed or commenced by or on behalf of a Person other than such Holder and is not joined in by such Holder (or any Person to which such Holder shall have assigned, transferred or otherwise conveyed any part of the obligations of the Issuer hereunder) under or pursuant to any such law or (b) from commencing or prosecuting any legal action that is not an involuntary case or proceeding under or pursuant to any such law against the Issuer or any of its properties.

SECTION 10.17.    Securities Intermediary and Account Bank. Each of the Securities Intermediary and the Account Bank, in acting under this Indenture, is entitled to all rights, benefits, protections, immunities and indemnities accorded to U.S. Bank Trust Company, National Association, in its capacity as Indenture Trustee under this Indenture.

82

SECTION 10.18.    Rule 17g-5 Compliance.

(a)            The Indenture Trustee agrees that any notice, report, request for satisfaction of the Rating Agency Condition, document or other information provided by the Indenture Trustee to any Rating Agency under this Indenture or any other Basic Document to which it is a party for the purpose of determining or confirming the credit rating of the Storm Recovery Bonds or undertaking credit rating surveillance of the Storm Recovery Bonds shall be provided, substantially concurrently, to the Servicer for posting on a password-protected website (the “17g-5 Website”). The Servicer shall be responsible for posting all of the information on the 17g-5 Website.

(b)            The Indenture Trustee will not be responsible for creating or maintaining the 17g-5 Website, posting any information to the 17g-5 Website or assuring that the 17g-5 Website complies with the requirements of this Indenture, Rule 17g-5 under the Exchange Act or any other law or regulation. In no event shall the Indenture Trustee be deemed to make any representation in respect of the content of the 17g-5 Website or compliance by the 17g-5 Website with this Indenture, Rule 17g-5 under the Exchange Act or any other law or regulation. The Indenture Trustee shall have no obligation to engage in or respond to any oral communications with respect to the transactions contemplated hereby, any transaction documents relating hereto or in any way relating to the Storm Recovery Bonds or for the purposes of determining the initial credit rating of the Storm Recovery Bonds or undertaking credit rating surveillance of the Storm Recovery Bonds with any Rating Agency or any of its respective officers, directors or employees. The Indenture Trustee shall not be responsible or liable for the dissemination of any identification numbers or passwords for the 17g-5 Website, including by the Servicer, the Rating Agencies, a nationally recognized statistical rating organization (“NRSRO”), any of their respective agents or any other party. Additionally, the Indenture Trustee shall not be liable for the use of the information posted on the 17g-5 Website, whether by the Servicer, the Rating Agencies, an NRSRO or any other third party that may gain access to the 17g-5 Website or the information posted thereon.

SECTION 10.19.    Submission to Non-Exclusive Jurisdiction; Waiver of Jury Trial. Each of the Issuer and the Indenture Trustee and each Holder (by its acceptance of the Storm Recovery Bonds) hereby irrevocably submits to the non-exclusive jurisdiction of any New York State court sitting in The Borough of Manhattan in The City of New York or any U.S. federal court sitting in The Borough of Manhattan in The City of New York in respect of any suit, action or proceeding arising out of or relating to this Indenture and the Storm Recovery Bonds and irrevocably accepts for itself and in respect of its respective property, generally and unconditionally, jurisdiction of the aforesaid courts. Each of the Issuer and the Indenture Trustee irrevocably waives, to the fullest extent that it may effectively do so under applicable law, trial by jury.

83

SECTION 10.20.    Certain Tax Laws. In order to comply with applicable tax laws, rules and regulations (inclusive of directives, guidelines and interpretations promulgated by competent authorities) in effect from time to time to which a foreign financial institution, issuer, trustee, paying agent, holder or other institution is or has agreed to be subject related to the Basic Documents, the Issuer agrees (a) to provide to the Indenture Trustee sufficient information about Holders or other applicable parties and/or transactions (including any modification to the terms of such transactions) so as to enable the Indenture Trustee to determine whether it has tax-related obligations under such applicable tax laws, rules and regulations (inclusive of directives, guidelines and interpretations promulgated by competent authorities) and (b) that the Indenture Trustee shall be entitled to make any withholding or deduction from payments under the Basic Documents to the extent necessary to comply with such applicable tax laws, rules and regulations (inclusive of directives, guidelines and interpretations promulgated by competent authorities) for which the Indenture Trustee shall not have any liability.

{SIGNATURE PAGE FOLLOWS}

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IN WITNESS WHEREOF, the Issuer, the Indenture Trustee, the Securities Intermediary and the Account Bank have caused this Indenture to be duly executed by their respective officers thereunto duly authorized and duly attested, all as of the day and year first above written.

DUKE ENERGY PROGRESS SC STORM FUNDING LLC,
as Issuer
By:
	Name:
	Title:
U.S. Bank Trust Company, National Association,
as Indenture Trustee
By:
	Name:
	Title:
U.S. Bank National Association,
as Securities Intermediary and Account Bank
By:
	Name:
	Title:

Signature Page to
Indenture

EXHIBIT A

FORM OF STORM RECOVERY BOND

See attached.

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE REGISTERED FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO THE NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION, TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON OR ENTITY IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

No.  {_____} ${__________}

CUSIP No.: {__________}

THE PRINCIPAL OF THIS SERIES A, SENIOR SECURED STORM RECOVERY BOND, (THIS “STORM RECOVERY BOND”) WILL BE PAID IN INSTALLMENTS AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS STORM RECOVERY BOND AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ABOVE. THE HOLDER OF THIS STORM RECOVERY BOND HAS NO RECOURSE TO THE ISSUER HEREOF AND AGREES TO LOOK ONLY TO THE STORM RECOVERY COLLATERAL, AS DESCRIBED IN THE INDENTURE, FOR PAYMENT OF ANY AMOUNTS DUE HEREUNDER. ALL OBLIGATIONS OF THE ISSUER OF THIS STORM RECOVERY BOND UNDER THE TERMS OF THE INDENTURE WILL BE RELEASED AND DISCHARGED UPON PAYMENT IN FULL HEREOF OR AS OTHERWISE PROVIDED IN SECTION 3.10(b) OR ARTICLE IV OF THE INDENTURE. THE HOLDER OF THIS STORM RECOVERY BOND HEREBY COVENANTS AND AGREES THAT PRIOR TO THE DATE THAT IS ONE YEAR AND ONE DAY AFTER THE PAYMENT IN FULL OF THIS STORM RECOVERY BOND, IT WILL NOT INSTITUTE AGAINST, OR JOIN ANY OTHER PERSON IN INSTITUTING AGAINST, THE ISSUER ANY BANKRUPTCY, REORGANIZATION, ARRANGEMENT, INSOLVENCY OR LIQUIDATION PROCEEDINGS OR OTHER SIMILAR PROCEEDING UNDER THE LAWS OF THE UNITED STATES OR ANY STATE OF THE UNITED STATES. NOTHING IN THIS PARAGRAPH SHALL PRECLUDE, OR BE DEEMED TO ESTOP, SUCH HOLDER (A) FROM TAKING OR OMITTING TO TAKE ANY ACTION PRIOR TO SUCH DATE IN (I) ANY CASE OR PROCEEDING VOLUNTARILY FILED OR COMMENCED BY OR ON BEHALF OF THE ISSUER UNDER OR PURSUANT TO ANY SUCH LAW OR (II) ANY INVOLUNTARY CASE OR PROCEEDING PERTAINING TO THE ISSUER THAT IS FILED OR COMMENCED BY OR ON BEHALF OF A PERSON OTHER THAN SUCH HOLDER AND IS NOT JOINED IN BY SUCH HOLDER (OR ANY PERSON TO WHICH SUCH HOLDER SHALL HAVE ASSIGNED, TRANSFERRED OR OTHERWISE CONVEYED ANY PART OF THE OBLIGATIONS OF THE ISSUER HEREUNDER) UNDER OR PURSUANT TO ANY SUCH LAW OR (B) FROM COMMENCING OR PROSECUTING ANY LEGAL ACTION THAT IS NOT AN INVOLUNTARY CASE OR PROCEEDING UNDER OR PURSUANT TO ANY SUCH LAW AGAINST THE ISSUER OR ANY OF ITS PROPERTIES.

A-1 

NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF SOUTH CAROLINA IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, OR INTEREST ON, THIS STORM RECOVERY BOND. NOR SHALL THE HOLDER OF THIS STORM RECOVERY BOND HAVE ANY RECOURSE AGAINST THE STATE OF SOUTH CAROLINA, ITS AGENCIES, INSTRUMENTALITIES, OR POLITICAL SUBDIVISIONS FOR THE PAYMENT OF THE PRINCIPAL OF, OR INTEREST ON, THIS STORM RECOVERY BOND.

DUKE ENERGY PROGRESS SC STORM FUNDING LLC
SERIES A SENIOR SECURED STORM RECOVERY BONDS,

BOND INTEREST RATE	ORIGINAL PRINCIPAL AMOUNT	SCHEDULED FINAL PAYMENT DATE	FINAL MATURITY DATE
{____}%	${__________}	{__________}, 20{__}	{__________}, 20{__}

Duke Energy Progress SC Storm Funding LLC, a limited liability company created under the laws of the State of Delaware (herein referred to as the “Issuer”), for value received, hereby promises to pay to {__________}, or registered assigns, the Original Principal Amount shown above in semi-annual installments on the Payment Dates and in the amounts specified below or, if less, the amounts determined pursuant to Section 8.02 of the Indenture, in each year, commencing on the date determined as provided below and ending on or before the Final Maturity Date shown above and to pay interest, at the Bond Interest Rate shown above, on each {__________} and {__________} or, if any such day is not a Business Day, the next Business Day, commencing on {__________}, 20{__} and continuing until the earlier of the payment in full of the principal hereof and the Final Maturity Date (each, a “Payment Date”), on the principal amount of this Storm Recovery Bond. Interest on this Storm Recovery Bond will accrue for each Payment Date from the most recent Payment Date on which interest has been paid to but excluding such Payment Date or, if no interest has yet been paid, from the date of issuance. Interest will be computed on the basis of {__________}. Such principal of and interest on this Storm Recovery Bond shall be paid in the manner specified below.

The principal of and interest on this Storm Recovery Bond are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. All payments made by the Issuer with respect to this Storm Recovery Bond shall be applied first to interest due and payable on this Storm Recovery Bond as provided above and then to the unpaid principal of and premium, if any, on this Storm Recovery Bond, all in the manner set forth in the Indenture.

A-2 

Unless the certificate of authentication hereon has been executed by the Indenture Trustee whose name appears below by manual or electronic signature, this Storm Recovery Bond shall not be entitled to any benefit under the Indenture referred to below or be valid or obligatory for any purpose.

A-3 

IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed, manually, electronically or in facsimile, by its Responsible Officer.

Date: {__________}, 20{__}	DUKE ENERGY PROGRESS SC STORM FUNDING LLC,
	as Issuer
	By:
		Name:	[             ]
		Title:	[             ]

A-4 

INDENTURE TRUSTEE’S
CERTIFICATE OF AUTHENTICATION

Dated: {__________}, 20{__}

This is one of the Series A, Senior Secured Storm Recovery Bonds, designated above and referred to in the within-mentioned Indenture.

U.S. Bank Trust Company, National Association,
as Indenture Trustee
By:
	Name:	[             ]
	Title:	[             ]

A-5 

This Senior Secured Storm Recovery Bond, Series A, is one of a duly authorized issue of Series A Senior Secured Storm Recovery Bonds of the Issuer (herein called the “Series A Bonds”), which Bonds are issuable in one or more Series, which Series are issuable in one or more tranches. The Series A Bonds, which include this Senior Secured Storm Recovery Bond (herein called the “Storm Recovery Bonds”), issued and to be issued under that certain Indenture dated as of [[  ], 2024] (as supplemented by the Series Supplement (as defined below), the “Indenture”), between the Issuer and, in its capacity as indenture trustee (the “Indenture Trustee”, which term includes any successor indenture trustee under the Indenture) and in its separate capacity as a securities intermediary (the “Securities Intermediary”, which term includes any successor securities intermediary under the Indenture) and as an account bank (the “Account Bank”), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights and obligations thereunder of the Issuer, the Indenture Trustee and the Holders of the Bonds. For purposes herein, “Series Supplement” means that certain Series Supplement dated as of {        , 20  } between the Issuer and the Indenture Trustee. All terms used in this Storm Recovery Bond that are defined in the Indenture, as amended, restated, supplemented or otherwise modified from time to time, shall have the meanings assigned to such terms in the Indenture.

The principal of this Storm Recovery Bond shall be payable on each Payment Date only to the extent that amounts in the Collection Account for the Series A Bonds are available therefor, and only until the outstanding principal balance thereof on the preceding Payment Date (after giving effect to all payments of principal, if any, made on the preceding Payment Date) has been reduced to the principal balance specified in the Expected Sinking Fund Schedule that is attached to the Series Supplement as Schedule A, unless payable earlier because an Event of Default shall have occurred and be continuing and the Indenture Trustee or the Holders representing a majority of the Outstanding Amount of the Bonds of this Series have declared the Series A Bonds to be immediately due and payable in accordance with Section 5.02 of the Indenture (unless such declaration shall have been rescinded and annulled in accordance with Section 5.02 of the Indenture). However, actual principal payments may be made in lesser than expected amounts and at later than expected times as determined pursuant to Section 8.02 of the Indenture. The entire unpaid principal amount of this Storm Recovery Bond shall be due and payable on the Final Maturity Date hereof. Notwithstanding the foregoing, the entire unpaid principal amount of the Bonds shall be due and payable, if not then previously paid, on the date on which an Event of Default shall have occurred and be continuing and the Indenture Trustee or the Holders of the Bonds representing a majority of the Outstanding Amount of the Bonds of this Series have declared the Storm Recovery Bonds to be immediately due and payable in the manner provided in Section 5.02 of the Indenture (unless such declaration shall have been rescinded and annulled in accordance with Section 5.02 of the Indenture). All principal payments on the Storm Recovery Bonds shall be made pro rata to the Holders of the Storm Recovery Bonds entitled thereto based on the respective principal amounts of the Storm Recovery Bonds held by them.

A-6 

Payments of interest on this Storm Recovery Bond due and payable on each Payment Date, together with the installment of principal or premium, if any, shall be made by check mailed first-class, postage prepaid, to the Person whose name appears as the Registered Holder of this Storm Recovery Bond (or one or more Predecessor Storm Recovery Bonds) on the Storm Recovery Bond Register as of the close of business on the Record Date or in such other manner as may be provided in the Indenture or the Series Supplement, except that (a) upon application to the Indenture Trustee by any Holder owning a Global Storm Recovery Bond evidencing this Storm Recovery Bond not later than the applicable Record Date, payment will be made by wire transfer to an account maintained by such Holder, and (b) if this Storm Recovery Bond is held in Book-Entry Form, payments will be made by wire transfer in immediately available funds to the account designated by the Holder of the applicable Global Storm Recovery Bond evidencing this Storm Recovery Bond unless and until such Global Storm Recovery Bond is exchanged for Definitive Storm Recovery Bonds (in which event payments shall be made as provided above) and except for the final installment of principal and premium, if any, payable with respect to this Storm Recovery Bond on a Payment Date, which shall be payable as provided below. Such checks shall be mailed to the Person entitled thereto at the address of such Person as it appears on the Storm Recovery Bond Register as of the applicable Record Date without requiring that this Storm Recovery Bond be submitted for notation of payment. Any reduction in the principal amount of this Storm Recovery Bond (or any one or more Predecessor Storm Recovery Bonds) effected by any payments made on any Payment Date shall be binding upon all future Holders of this Storm Recovery Bond and of any Storm Recovery Bond issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not noted hereon. If funds are expected to be available, as provided in the Indenture, for payment in full of the then-remaining unpaid principal amount of this Storm Recovery Bond on a Payment Date, then the Indenture Trustee, in the name of and on behalf of the Issuer, will notify the Person who was the Registered Holder hereof as of the Record Date preceding such Payment Date by notice sent no later than five days prior to such final Payment Date and shall specify that such final installment will be payable only upon presentation and surrender of this Storm Recovery Bond and shall specify the place where this Storm Recovery Bond may be presented and surrendered for payment of such installment.

The Issuer shall pay interest on overdue installments of interest at the Bond Interest Rate to the extent lawful.

This Storm Recovery Bond is a “storm recovery bond” as such term is defined in the Storm Recovery Law. Principal and interest due and payable on this Storm Recovery Bond are payable from and secured primarily by Storm Recovery Property created and established by the Financing Order obtained from the Public Service Commission of South Carolina pursuant to the Storm Recovery Law. Storm Recovery Property consists of the rights and interests of the Seller in the Financing Order, including the right to impose, bill, collect and receive Storm Recovery Charges, the right to obtain True-Up Adjustments and all revenue, collections, claims, rights to payments, payments, moneys and proceeds arising out of the rights and interests created under the Financing Order.

Under the laws of the State of South Carolina in effect on the date hereof, pursuant to S.C. Code Ann. § 58-27-1155, the State of South Carolina and its agencies (including the Commission) has pledged and agreed with the Holders, the Indenture Trustee other Financing Parties that the State of South Carolina and its agencies will not (a) alter the provisions of S.C. Code Ann. § 58-27-1155 which make the Storm Recovery Charges imposed by the Financing Order irrevocable, binding, and nonbypassable charges; (b) take or permit any action that impairs or would impair the value of Storm Recovery Property or revises the Storm Recovery Costs for which recovery is authorized; (c) in any way impair the rights and remedies of the bondholders, assignees and other Financing Parties; (d) or except as authorized under the Storm Recovery Law, reduce, alter, or impair Storm Recovery Charges that are to be imposed, billed, charged, collected, and remitted for the benefit of the bondholders, any assignee, the Indenture Trustee and any other Financing Parties until any and all principal, interest, premium, financing costs and other fees, expenses, or charges incurred, and any contracts to be performed, in connection with the related Storm Recovery Bonds have been paid and performed in full.

A-7 

The Issuer and Duke Energy Progress hereby acknowledge that the purchase of this Storm Recovery Bond by the Holder hereof or the purchase of any beneficial interest herein by any Person are made in reliance on the foregoing pledge.

Neither the State of South Carolina, its agencies, and instrumentalities, nor its political subdivisions are liable on the Storm Recovery Bonds, and the Storm Recovery Bonds are not a debt or a general obligation of the State of South Carolina or any of its political subdivisions, agencies, or instrumentalities nor are they special obligations or indebtedness of the State, its agencies, or its political subdivisions. The Storm Recovery Bonds do not, directly, indirectly, or contingently obligate the State of South Carolina or its agencies, instrumentalities, or political subdivisions, to levy any tax or make any appropriation for payment of the Storm Recovery Bonds, other than in their capacities as consumers of electricity.

As provided in the Indenture and subject to certain limitations set forth therein, the transfer of this Storm Recovery Bond may be registered on the Storm Recovery Bond Register upon surrender of this Storm Recovery Bond for registration of transfer at the office or agency designated by the Issuer pursuant to the Indenture, duly endorsed by, or accompanied by, (a) a written instrument of transfer in form satisfactory to the Indenture Trustee duly executed by the Holder hereof or such Holder’s attorney duly authorized in writing, with such signature guaranteed by: (i) The Securities Transfer Agent Medallion Program (STAMP); (ii) The New York Stock Exchange Medallion Program (MSP); (iii) The Stock Exchange Medallion Program (SEMP); or (iv) such other signature guaranty program acceptable to the Indenture Trustee, and (b) such other documents as the Indenture Trustee may require, and thereupon one or more new Storm Recovery Bonds of Authorized Denominations and in the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge will be charged for any registration of transfer or exchange of this Storm Recovery Bond, but the transferor may be required to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any such registration of transfer or exchange, other than exchanges pursuant to Section 2.04 or Section 2.06 of the Indenture not involving any transfer.

Each Holder, by acceptance of a Storm Recovery Bond, covenants and agrees that no recourse may be taken, directly or indirectly, with respect to the obligations of the Issuer or the Indenture Trustee on the Storm Recovery Bonds or under the Indenture or any certificate or other writing delivered in connection therewith, against (a) any owner of a membership interest in the Issuer (including Duke Energy Progress) or (b) any shareholder, partner, owner, beneficiary, agent, officer or employee of the Indenture Trustee, the Managers or any owner of a membership interest in the Issuer (including Duke Energy Progress) in its respective individual or corporate capacities, or of any successor or assign of any of them in their individual or corporate capacities, except as any such Person may have expressly agreed in writing. Each Holder by accepting a Storm Recovery Bond specifically confirms the nonrecourse nature of these obligations and waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Storm Recovery Bonds.

A-8 

Prior to the due presentment for registration of transfer of this Storm Recovery Bond, the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture Trustee may treat the Person in whose name this Storm Recovery Bond is registered (as of the day of determination) as the owner hereof for the purpose of receiving payments of principal of and premium, if any, and interest on this Storm Recovery Bond and for all other purposes whatsoever, whether or not this Storm Recovery Bond be overdue, and none of the Issuer, the Indenture Trustee or any such agent shall be affected by notice to the contrary.

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Issuer and the rights of the Holders of the Storm Recovery Bonds under the Indenture at any time by the Issuer with the consent of the Holders representing a majority of the Outstanding Amount of all Storm Recovery Bonds at the time outstanding to be affected and upon the satisfaction of the Rating Agency Condition and Commission Condition, if necessary. The Indenture also contains provisions permitting the Holders representing specified percentages of the Outstanding Amount of the Storm Recovery Bonds, on behalf of the Holders of all the Storm Recovery Bonds, with the consent of the Commission, to waive certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Storm Recovery Bond (or any one of more Predecessor Storm Recovery Bonds) shall be conclusive and binding upon such Holder and upon all future Holders of this Storm Recovery Bond and of any Storm Recovery Bond issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof whether or not notation of such consent or waiver is made upon this Storm Recovery Bond. The Indenture also permits the Indenture Trustee to amend or waive certain terms and conditions set forth in the Indenture without the consent of Holders of the Storm Recovery Bonds issued thereunder, but with the satisfaction of the Commission Condition, if necessary.

The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of the Issuer on a Storm Recovery Bond and (b) certain restrictive covenants and the related Events of Default, upon compliance by the Issuer with certain conditions set forth in the Indenture, which provisions apply to this Storm Recovery Bond.

The term “Issuer” as used in this Storm Recovery Bond includes any successor to the Issuer under the Indenture.

The Issuer is permitted by the Indenture, under certain circumstances, to merge or consolidate, subject to the rights of the Indenture Trustee and the Holders under the Indenture.

The Storm Recovery Bonds are issuable only in registered form in denominations as provided in the Indenture and the Series Supplement subject to certain limitations therein set forth.

A-9 

This Storm Recovery Bond, the Indenture and the Series Supplement shall be construed in accordance with the laws of the State of New York, without reference to its conflict of law provisions (other than Section 5-1401 of the New York General Obligations Law and Sections 9-301 through 9-306 of the NY UCC), and the obligations, rights and remedies of the parties hereunder and thereunder shall be determined in accordance with such laws; provided, that the creation, attachment and perfection of any Liens created under the Indenture in Storm Recovery Property, and all rights and remedies of the Indenture Trustee and the Holders with respect to the Storm Recovery Property, shall be governed by the laws of the State of South Carolina.

No reference herein to the Indenture and no provision of this Storm Recovery Bond or of the Indenture shall alter or impair the obligation, which is absolute and unconditional, to pay the principal of and interest on this Storm Recovery Bond at the times, place and rate and in the coin or currency herein prescribed.

The Issuer and the Indenture Trustee, by entering into the Indenture, and the Holders and any Persons holding a beneficial interest in any Storm Recovery Bond, by acquiring any Storm Recovery Bond or interest therein, (a) express their intention that, solely for the purpose of U.S. federal taxes and, to the extent consistent with applicable state, local and other tax law, solely for the purpose of state, local and other taxes, the Storm Recovery Bonds qualify under applicable tax law as indebtedness of the sole owner of the Issuer secured by the Storm Recovery Collateral and (b) solely for purposes of U.S. federal taxes and, to the extent consistent with applicable state, local and other tax law, solely for purposes of state, local and other taxes, so long as any of the Storm Recovery Bonds are outstanding, agree to treat the Storm Recovery Bonds as indebtedness of the sole owner of the Issuer secured by the Storm Recovery Collateral unless otherwise required by appropriate taxing authorities.

A-10 

ABBREVIATIONS

The following abbreviations, when used above on this Storm Recovery Bond, shall be construed as though they were written out in full according to applicable laws or regulations.

TEN COM	as tenants in common
TEN ENT	as tenants by the entireties
JT TEN	as joint tenants with right of survivorship and not as tenants in common
UNIF GIFT MIN ACT	___________________ Custodian ______________________ (Custodian)                                                (minor)
	Under Uniform Gifts to Minor Act (____________________) (State)

Additional abbreviations may also be used though not in the above list.

A-11 

ASSIGNMENT

Social Security or taxpayer I.D. or other identifying number of assignee ____________

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto

(name and address of assignee)

the within Storm Recovery Bond and all rights thereunder, and hereby irrevocably constitutes and appoints ____________, attorney, to transfer said Storm Recovery Bond on the books kept for registration thereof, with full power of substitution in the premises.

Dated:
	Signature Guaranteed:

The signature to this assignment must correspond with the name of the registered owner as it appears on the within Storm Recovery Bond in every particular, without alteration, enlargement or any change whatsoever.

NOTE: Signature(s) must be guaranteed by an institution that is a member of: (i) The Securities Transfer Agent Medallion Program (STAMP); (ii) The New York Stock Exchange Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP); or (iv) such other signature guaranty program acceptable to the Indenture Trustee.

A-12 

EXHIBIT B

FORM OF SERIES SUPPLEMENT

See attached.

This SERIES SUPPLEMENT, dated as of {      , 20   } (this “Supplement”), is by and between DUKE ENERGY PROGRESS SC STORM FUNDING LLC, a limited liability company created under the laws of the State of Delaware (the “Issuer”), and U.S. Bank Trust Company, National Association (“Bank”), in its capacity as indenture trustee (the “Indenture Trustee”) for the benefit of the Secured Parties under the Indenture dated as of [[   ], 2024] (the “Indenture”), by and between the Issuer and U.S. Bank Trust Company, National Association, in its capacity as Indenture Trustee and U.S. Bank National Association, in its capacity as a securities intermediary and account bank.

PRELIMINARY STATEMENT

Section 9.01 of the Indenture provides, among other things, that the Issuer and the Indenture Trustee may at any time enter into an indenture supplemental to the Indenture for the purposes of authorizing the issuance by the Issuer of a Series of the Storm Recovery Bonds and specifying the terms thereof. The Issuer has duly authorized the creation of a Series of the Storm Recovery Bonds with an initial aggregate principal amount of ${__________} to be known as Series A Senior Secured Storm Recovery Bonds (the “Series A Storm Recovery Bonds”), and the Issuer and the Indenture Trustee are executing and delivering this Supplement in order to provide for the Series A Storm Recovery Bonds.

All terms used in this Supplement that are defined in the Indenture, either directly or by reference therein, have the meanings assigned to them therein, except to the extent such terms are defined or modified in this Supplement or the context clearly requires otherwise. In the event that any term or provision contained herein shall conflict with or be inconsistent with any term or provision contained in the Indenture, the terms and provisions of this Supplement shall govern.

GRANTING CLAUSE

With respect to the Series A Storm Recovery Bonds, the Issuer hereby Grants to the Indenture Trustee, as Indenture Trustee for the benefit of the Secured Parties of the Series A Storm Recovery Bonds, all of the Issuer’s right, title and interest (whether now owned or hereafter acquired or arising) in and to (a) the Storm Recovery Property created under and pursuant to the Financing Order and the Storm Recovery Law, and transferred by the Seller to the Issuer on the date hereof pursuant to the Sale Agreement (including, to the fullest extent permitted by law, the right to impose, bill, charge, collect and receive the Storm Recovery Charges, the right to obtain periodic adjustments to the Storm Recovery Charges, and all revenue, collections, claims, rights to payments, payments, money and proceeds arising out of the rights and interests created under the Financing Order), (b) all Storm Recovery Charges related to the Storm Recovery Property, (c) the Sale Agreement and the Bill of Sale executed in connection therewith and all property and interests in property transferred under the Sale Agreement and the Bill of Sale with respect to the Storm Recovery Property and the Series A Storm Recovery Bonds, (d) the Servicing Agreement, the Administration Agreement, the Intercreditor Agreement and any subservicing, agency, administration or collection agreements executed in connection therewith, to the extent related to the foregoing Storm Recovery Property and the Series A Storm Recovery Bonds, (e) the Collection Account for the Series A Storm Recovery Bonds, all subaccounts thereof and all amounts of cash, instruments, investment property or other assets on deposit therein or credited thereto from time to time and all financial assets and securities entitlements carried therein or credited thereto, (f) all rights to compel the Servicer to file for and obtain periodic adjustments to the Storm Recovery Charges in accordance with S.C. Code Ann. § 58-27-1110(C)(2)(f). and the Financing Order, (g) all present and future claims, demands, causes and choses in action in respect of any or all of the foregoing, whether such claims, demands, causes and choses in action constitute Storm Recovery Property, accounts, general intangibles, instruments, contract rights, chattel paper or proceeds of such items or any other form of property, (h) all accounts, chattel paper, deposit accounts, documents, general intangibles, goods, instruments, investment property, letters of credit, letters-of-credit rights, money, commercial tort claims and supporting obligations related to the foregoing, and (i) all payments on or under, and all proceeds in respect of, any or all of the foregoing (the “Storm Recovery Collateral”), it being understood that the following do not constitute Storm Recovery Collateral: (x) cash that has been released pursuant to the terms of the Indenture, including Section 8.02(e)(x) of the Indenture and, following retirement of all Outstanding Series A Storm Recovery Bonds, pursuant to Section 8.02(e)(xii) of the Indenture, (y) amounts deposited with the Issuer on the Closing Date, for payment of costs of issuance with respect to the Series A Storm Recovery Bonds (together with any interest earnings thereon) or (z) proceeds from the sale of the Series A Storm Recovery Bonds required to pay the purchase price for the Storm Recovery Property and paid pursuant to the Sale Agreement for such Series and upfront Financing Costs, it being understood that such amounts described in clause (x) and clause (y) above shall not be subject to Section 3.17 of the Indenture. For the avoidance of doubt, any storm recovery property created with respect to an additional series of storm recovery bonds issued pursuant to another indenture shall not be Storm Recovery Collateral.

B-1 

The foregoing Grant is made in trust to secure the Secured Obligations equally and ratably without prejudice, priority or distinction, except as expressly provided in the Indenture, to secure compliance with the provisions of the Indenture with respect to the Series A Storm Recovery Bonds, all as provided in the Indenture and to secure the performance by the Issuer of all of its obligations under the Indenture. The Indenture and this Supplement constitute a security agreement within the meaning of the Storm Recovery Law and under the UCC to the extent that the provisions of the UCC are applicable hereto.

The Indenture Trustee, as indenture trustee on behalf of the Secured Parties of the Series A Storm Recovery Bonds, acknowledges such Grant and accepts the trusts under this Supplement and the Indenture in accordance with the provisions of this Supplement and the Indenture.

SECTION 1.           Designation. The Series A Storm Recovery Bonds shall be designated generally as the Storm Recovery Bonds.

SECTION 2.           Initial Principal Amount; Bond Interest Rate; Scheduled Final Payment Date; Final Maturity Date; Required Capital Level. The Series A Storm Recovery Bonds shall have the initial principal amount, bear interest at the rates per annum (the “Bond Interest Rate”) and shall have the Scheduled Final Payment Dates and the Final Maturity Dates set forth below:

B-2 

Weighted Average Life	Initial Principal Amount	Bond Interest Rate	Scheduled Final Payment Date	Final Maturity Date
{__}	${__________}	{____}%	{_____}, 20{__}	{_____}, 20{__}

The Bond Interest Rate shall be computed by the Issuer on the basis of a 360-day year of twelve 30-day months.

The Required Capital Level for the Series A Storm Recovery Bonds shall be equal to {__}% of the initial principal amount thereof.

SECTION 3.           Authentication Date; Payment Dates; Expected Sinking Fund Schedule for Principal; Periodic Interest; Book-Entry Storm Recovery Bonds; Indenture Trustee Caps.

(a)            Authentication Date. The Series A Storm Recovery Bonds that are authenticated and delivered by the Indenture Trustee to or upon the order of the Issuer on {________} (the “Closing Date”) shall have as their date of authentication {________}.

(b)            Payment Dates. The “Payment Dates” for the Series A Storm Recovery Bonds are {__________} and {__________} of each year or, if any such date is not a Business Day, the next Business Day, commencing on {__________}, 20{__} and continuing until the earlier of repayment of the Series A Storm Recovery Bonds in full and the Final Maturity Date.

(c)            Expected Sinking Fund Schedule for Principal. Unless an Event of Default shall have occurred and be continuing, on each Payment Date, the Indenture Trustee shall distribute to the Holders of record as of the related Record Date amounts payable pursuant to Section 8.02(e) of the Indenture as principal, to the holders of the Series A, Storm Recovery Bonds, until the Outstanding Amount of such Series A, Storm Recovery Bonds thereof has been reduced to zero; provided, however, that in no event shall a principal payment pursuant to this Section 3(c) on a Payment Date be greater than the amount necessary to reduce the Outstanding Amount of Storm Recovery Bonds to the amount specified in the Expected Sinking Fund Schedule that is attached as Schedule A hereto and Payment Date.

(d)            Periodic Interest. “Periodic Interest” will be payable on the Series A Storm Recovery Bonds on each Payment Date in an amount equal to one-half of the product of (i) the applicable Bond Interest Rate and (ii) the Outstanding Amount of the Series A Storm Recovery Bonds as of the close of business on the preceding Payment Date after giving effect to all payments of principal made to the Holders of the Series A Storm Recovery Bonds on such preceding Payment Date; provided, however, that, with respect to the initial Payment Date, or if no payment has yet been made, interest on the outstanding principal balance will accrue from and including the Closing Date to, but excluding, the following Payment Date.

(e)            Book-Entry Storm Recovery Bonds. The Series A Storm Recovery Bonds shall be Book-Entry Storm Recovery Bonds, and the applicable provisions of Section 2.11 of the Indenture shall apply to the Series A Storm Recovery Bonds.

B-3 

(f)            Indenture Trustee Cap. The amount payable with respect to the Series A Storm Recovery Bonds pursuant to Section 8.02(e)(i) of the Indenture shall not exceed $200,000 annually; provided, however, that the Indenture Trustee Cap shall be disregarded and inapplicable upon the acceleration of the Storm Recovery Bonds following the occurrence of an Event of Default.

SECTION 4.           Authorized Denominations. The Series A Storm Recovery Bonds shall be issuable in denominations of $2,000 and integral multiples of $1,000 in excess thereof, except for one bond, which may be a smaller denomination} (the “Authorized Denominations”).

SECTION 5.           Delivery and Payment for the Series A Storm Recovery Bonds; Form of the Series A Storm Recovery Bonds. The Indenture Trustee shall deliver the Series A Storm Recovery Bonds to the Issuer when authenticated in accordance with Section 2.03 of the Indenture. The Series A Storm Recovery Bonds shall be in the form of Exhibit{s} {__} hereto.

SECTION 6.           Ratification of Indenture. As supplemented by this Supplement, the Indenture is in all respects ratified and confirmed and the Indenture, as so supplemented by this Supplement, shall be read, taken and construed as one and the same instrument. This Supplement amends, modifies and supplements the Indenture only insofar as it relates to the Series A Storm Recovery Bonds.

SECTION 7.           Counterparts. This Supplement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument.

SECTION 8.           Governing Law. This Supplement shall be governed by and construed in accordance with the laws of the State of New York, without reference to its conflict of law provisions (other than Section 5-1401 of the New York General Obligations Law and Sections 9-301 through 9-306 of the NY UCC), and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws; provided, that, the creation, attachment and perfection of any Liens created under the Indenture in Storm Recovery Property, and all rights and remedies of the Indenture Trustee and the Holders with respect to the Storm Recovery Property, shall be governed by the laws of the State of South Carolina.

SECTION 9.           Issuer Obligation. No recourse may be taken directly or indirectly by the Holders with respect to the obligations of the Issuer on the Series A Storm Recovery Bonds, under the Indenture or this Supplement or any certificate or other writing delivered in connection herewith or therewith, against (a) any owner of a beneficial interest in the Issuer (including Duke Energy Progress) or (b) any shareholder, partner, owner, beneficiary, officer, director, employee or agent of the Indenture Trustee, the Managers or any owner of a beneficial interest in the Issuer (including Duke Energy Progress) in its individual capacity, or of any successor or assign of any of them in their respective individual or corporate capacities, except as any such Person may have expressly agreed. Each Holder by accepting a Series A Storm Recovery Bond specifically confirms the nonrecourse nature of these obligations and waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Series A Storm Recovery Bonds.

B-4 

SECTION 10.         Indenture Trustee Disclaimer. The Indenture Trustee is not responsible for the validity or sufficiency of this Supplement or for the recitals contained herein.

SECTION 11.         Submission to Non-Exclusive Jurisdiction; Waiver of Jury Trial. Each of the Issuer and the Indenture Trustee and each Holder (by its acceptance of the Storm Recovery Bonds) hereby irrevocably submits to the non-exclusive jurisdiction of any New York State court sitting in The Borough of Manhattan in The City of New York or any U.S. federal court sitting in The Borough of Manhattan in The City of New York in respect of any suit, action or proceeding arising out of or relating to this Supplement and the Series A Storm Recovery Bonds and irrevocably accepts for itself and in respect of its respective property, generally and unconditionally, jurisdiction of the aforesaid courts. Each of the Issuer and the Indenture Trustee irrevocably waives, to the fullest extent that it may effectively do so under applicable law, trial by jury.

B-5 

IN WITNESS WHEREOF, the Issuer, the Indenture Trustee, the Securities Intermediary and the Account Bank have caused this Supplement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written.

DUKE ENERGY PROGRESS SC STORM FUNDING LLC,
as Issuer
By:
	Name:	[             ]
	Title:	[             ]
U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION,
not in its individual capacity but solely as Indenture Trustee
By:
	Name:	[             ]
	Title:	[             ]
U.S. BANK NATIONAL ASSOCIATION,
not in its individual capacity but solely as Securities Intermediary and Account Bank
By:
	Name:	[             ]
	Title:	[             ]

B-6 

SCHEDULE A
TO SERIES SUPPLEMENT

Expected SINKING FUND Schedule

Outstanding Principal Balance

Date	tranche {__}
Closing Date	${__________}
{__________}, 20{__}	${__________}
{__________}, 20{__}	${__________}
{__________}, 20{__}	${__________}

B-7 

EXHIBIT {__}
TO SERIES SUPPLEMENT

FORM OF SERIES A STORM RECOVERY BONDS

{__________}

B-8 

EXHIBIT C

SERVICING CRITERIA TO BE ADDRESSED
BY INDENTURE TRUSTEE IN ASSESSMENT OF COMPLIANCE

Regulation AB Reference	Servicing Criteria	Applicable Indenture Trustee Responsibility
	General Servicing Considerations
1122(d)(1)(i)	Policies and procedures are instituted to monitor any performance or other triggers and events of default in accordance with the transaction agreements.
1122(d)(1)(ii)	If any material servicing activities are outsourced to third parties, policies and procedures are instituted to monitor the third party’s performance and compliance with such servicing activities.
1122(d)(1)(iii)	Any requirements in the transaction agreements to maintain a back-up servicer for the pool assets are maintained.
1122(d)(1)(iv)	A fidelity bond and errors and omissions policy is in effect on the party participating in the servicing function throughout the reporting period in the amount of coverage required by and otherwise in accordance with the terms of the transaction agreements.
1122(d)(1)(v)	Aggregation of information, as applicable, is mathematically accurate and the information conveyed accurately reflects the information.
	Cash Collection and Administration
1122(d)(2)(i)	Payments on pool assets are deposited into the appropriate custodial bank accounts and related bank clearing accounts no more than two business days following receipt, or such other number of days specified in the transaction agreements.	X
1122(d)(2)(ii)	Disbursements made via wire transfer on behalf of an obligor or to an investor are made only by authorized personnel.	X
1122(d)(2)(iii)	Advances of funds or guarantees regarding collections, cash flows or distributions, and any interest or other fees charged for such advances, are made, reviewed and approved as specified in the transaction agreements.
1122(d)(2)(iv)	The related accounts for the transaction, such as cash reserve accounts or accounts established as a form of overcollateralization, are separately maintained (e.g., with respect to commingling of cash) as set forth in the transaction agreements.	X
1122(d)(2)(v)	Each custodial account is maintained at a federally insured depository institution as set forth in the transaction agreements.  For purposes of this criterion, “federally insured depository institution” with respect to a foreign financial institution means a foreign financial institution that meets the requirements of Rule 13k-1(b)(1) under the Exchange Act.	X
1122(d)(2)(vi)	Unissued checks are safeguarded so as to prevent unauthorized access.
1122(d)(2)(vii)	Reconciliations are prepared on a monthly basis for all asset-backed securities related bank accounts, including custodial accounts and related bank clearing accounts.  These reconciliations are:  (A) mathematically accurate; (B) prepared within 30 calendar days after the bank statement cutoff date, or such other number of days specified in the transaction agreements; (C) reviewed and approved by someone other than the person who prepared the reconciliation; and (D) contain explanations for reconciling items.  These reconciling items are resolved within 90 calendar days of their original identification, or such other number of days specified in the transaction agreements.
	Investor Remittances and Reporting
1122(d)(3)(i)	Reports to investors, including those to be filed with the SEC, are maintained in accordance with the transaction agreements and applicable SEC requirements.  Specifically, such reports:  (A) are prepared in accordance with timeframes and other terms set forth in the transaction agreements; (B) provide information calculated in accordance with the terms specified in the transaction agreements; (C) are filed with the SEC as required by its rules and regulations; and (D) agree with investors’ or the trustee’s records as to the total unpaid principal balance and number of pool assets serviced by the servicer.
1122(d)(3)(ii)	Amounts due to investors are allocated and remitted in accordance with timeframes, distribution priority and other terms set forth in the transaction agreements.	X
1122(d)(3)(iii)	Disbursements made to an investor are posted within two business days to the servicer’s investor records, or such other number of days specified in the transaction agreements.	X

C-1 

Regulation AB Reference	Servicing Criteria	Applicable Indenture Trustee Responsibility
1122(d)(3)(iv)	Amounts remitted to investors per the investor reports agree with cancelled checks, or other form of payment, or custodial bank statements.	X
	Pool Asset Administration
1122(d)(4)(i)	Collateral or security on pool assets is maintained as required by the transaction agreements or related pool asset documents.
1122(d)(4)(ii)	Pool assets and related documents are safeguarded as required by the transaction agreements.
1122(d)(4)(iii)	Any additions, removals or substitutions to the asset pool are made, reviewed and approved in accordance with any conditions or requirements in the transaction agreements.
1122(d)(4)(iv)	Payments on pool assets, including any payoffs, made in accordance with the related pool asset documents are posted to the servicer’s obligor records maintained no more than two business days after receipt, or such other number of days specified in the transaction agreements, and allocated to principal, interest or other items (e.g., escrow) in accordance with the related pool asset documents.
1122(d)(4)(v)	The servicer’s records regarding the pool assets agree with the servicer’s records with respect to an obligor’s unpaid principal balance.
1122(d)(4)(vi)	Changes with respect to the terms or status of an obligor’s pool assets (e.g., loan modifications or re-agings) are made, reviewed and approved by authorized personnel in accordance with the transaction agreements and related pool asset documents.
1122(d)(4)(vii)	Loss mitigation or recovery actions (e.g., forbearance plans, modifications and deeds in lieu of foreclosure, foreclosures and repossessions, as applicable) are initiated, conducted and concluded in accordance with the timeframes or other requirements established by the transaction agreements.
1122(d)(4)(viii)	Records documenting collection efforts are maintained during the period a pool asset is delinquent in accordance with the transaction agreements.  Such records are maintained on at least a monthly basis, or such other period specified in the transaction agreements, and describe the entity’s activities in monitoring delinquent pool assets, including, for example, phone calls, letters and payment rescheduling plans in cases where delinquency is deemed temporary (e.g., illness or unemployment).
1122(d)(4)(ix)	Adjustments to interest rates or rates of return for pool assets with variable rates are computed based on the related pool asset documents.
1122(d)(4)(x)	Regarding any funds held in trust for an obligor (such as escrow accounts):  (A) such funds are analyzed, in accordance with the obligor’s pool asset documents, on at least an annual basis, or such other period specified in the transaction agreements; (B) interest on such funds is paid, or credited, to obligors in accordance with applicable pool asset documents and state laws; and (C) such funds are returned to the obligor within 30 calendar days of full repayment of the related pool assets, or such other number of days specified in the transaction agreements.
1122(d)(4)(xi)	Payments made on behalf of an obligor (such as tax or insurance payments) are made on or before the related penalty or expiration dates, as indicated on the appropriate bills or notices for such payments, provided that such support has been received by the servicer at least 30 calendar days prior to these dates, or such other number of days specified in the transaction agreements.
1122(d)(4)(xii)	Any late payment penalties in connection with any payment to be made on behalf of an obligor are paid from the servicer’s funds and not charged to the obligor, unless the late payment was due to the obligor’s error or omission.
1122(d)(4)(xiii)	Disbursements made on behalf of an obligor are posted within two business days to the obligor’s records maintained by the servicer, or such other number of days specified in the transaction agreements.
1122(d)(4)(xiv)	Delinquencies, charge-offs and uncollectible accounts are recognized and recorded in accordance with the transaction agreements.
1122(d)(4)(xv)	Any external enhancement or other support, identified in Item 1114(a)(1) through (3) or Item 1115 of Regulation AB, is maintained as set forth in the transaction agreements.

C-2 

 

APPENDIX A

 

DEFINITIONS AND RULES OF CONSTRUCTION

 

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

 

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

 

“Account Bank” means U.S. Bank National Association, a national banking association, solely in the capacity of an “account bank,” as defined in the NY UCC and Federal Book-Entry Regulations, or any successor account bank under the Indenture.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

A-1 

 

 

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

 

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

 

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

 

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

 

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

 

“Bond Interest Rate” means the rate at which interest accrues on the Storm Recovery Bonds, as specified in the Series Supplement.

 

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

 

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

 

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

 

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

 

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

 

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

 

A-2 

 

 

“Certificate of Formation” means the Certificate of Formation filed with the Secretary of State of the State of Delaware on January 12, 2024 pursuant to which the Issuer was formed.

 

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

 

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

 

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

 

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

 

“Code” means the Internal Revenue Code of 1986.

 

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

 

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

 

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

 

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

 

“Commission” means the Public Service Commission of South Carolina.

 

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

 

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

 

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

 

“Corporate Trust Office” means the office of the Indenture Trustee at which, at any particular time, its corporate trust business shall be administered, which office (for all purposes other than registration of transfer of the Storm Recovery Bonds) as of the date hereof is located at 190 S. LaSalle Street, 7th Floor, Chicago, IL 60603, Attention: Duke Energy Progress SC Storm Funding LLC, Series A, and for registration of transfers of Storm Recovery Bonds, the office is located at 111 Filmore Avenue East, St. Paul, MN 55107, Attention: Bondholder Services— Duke Energy Progress SC Storm Funding LLC, Series A, or at such other address as the Indenture Trustee may designate from time to time by notice to the Holders of Storm Recovery Bonds and the Issuer, or the principal corporate trust office of any successor trustee designated by like notice.

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

 

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“Customer” means any existing or future retail customer receiving transmission or distribution service from Duke Energy Progress or its successors or assignees under Commission-approved rate schedules or under special contracts, even if such customer elects to purchase electricity from an alternative energy supplier following a fundamental change in regulation of public utilities in South Carolina.

 

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

 

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

 

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

 

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

 

“Depositor” means Duke Energy Progress, in its capacity as “depositor” of the Storm Recovery Property within the meaning of Regulation AB.

 

“DTC” means The Depository Trust Company.

 

“Duke Energy Progress” or “DEP” means Duke Energy Progress, LLC, a North Carolina limited liability company.

 

“Duke Energy Progress SC Storm Funding LLC” or “DEP SC Storm Funding” means the Issuer.

 

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

 

“Eligible Institution” means:

 

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

 

(b)            a depository institution organized under the laws of the United States of America or any State (or any domestic branch of a foreign bank)

 

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(i) that has either (A) a long-term unsecured debt or issuer rating of “AA-” or higher by S&P and “A2” or higher by Moody’s, or (B) a short-term deposit, short-term (bank deposit) or issuer rating of “A-1” or higher by S&P and “P-1” or higher by Moody’s, and

 

(ii) whose deposits are insured by the Federal Deposit Insurance Corporation;

 

provided, however, that if an Eligible Institution then being utilized for any purposes under the Indenture or the Series Supplement no longer meets the definition of Eligible Institution, then the Issuer shall replace such Eligible Institution within sixty (60) days of such Eligible Institution no longer meeting the definition of Eligible Institution.

 

“Eligible Investments” means:

 

Funds in the Collection Account may be invested at the direction of the Servicer only in such investments as meet the criteria described below and which mature on or before the business day immediately preceding the next payment date:

 

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

 

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

 

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

 

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

 

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

 

A-5 

 

 

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

 

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

 

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

 

(7)            any other investment permitted by each Rating Agency;

 

Notwithstanding the foregoing: (a) no securities or investments which mature in 30 days or more will be Eligible Investments unless the Issuer thereof has either a short-term unsecured debt rating of at least “P-1” from Moody’s or a long-term unsecured debt rating of at least “A1” from Moody’s; (b) no securities or investments described in clauses (2) through (4) above which have maturities of more than 30 days but less than or equal to 3 months will be Eligible Investments unless the Issuer thereof has a long-term unsecured debt rating of at least “A1” from Moody’s and a short-term unsecured debt rating of at least “P-1” from Moody’s; (c) no securities or investments described in clauses (2) through (4) above which have maturities of more than 3 months will be Eligible Investments unless the Issuer thereof has a long-term unsecured debt rating of at least “A1” from Moody’s and a short-term unsecured debt rating of at least “P-1” from Moody’s; (d) no securities or investments described in clauses (2) through (4) above which have a maturity of 60 days or less will be Eligible Investments unless such securities have a rating from S&P of at least “A-1”; and (e) no securities or investments described in clauses (2) through (4) above which have a maturity of 365 days or less will be Eligible Investments unless such securities have a rating from S&P of at least “AA-”, “A-1+” or “AAAm”.

“ERISA” is the Employee Retirement Income Security Act of 1974, as amended.

 

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

 

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

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Expected Sinking Fund Schedule” means the expected sinking fund schedule related thereto set forth in the Series Supplement.

 

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

 

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

 

“Final Maturity Date” means the final maturity date therefor as specified in the applicable Series Supplement.

 

“Financing Costs” means all financing costs as defined in Section 58-27-1105(7) of the Storm Recovery Law allowed to be recovered by Duke Energy Progress under the Financing Order.

 

“Financing Order” means the financing order issued by the Commission to Duke Energy Progress on October 13, 2023, as amended on October 23, 2023, Docket No. 2023-89-E, authorizing the creation of the Storm Recovery Property.

 

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

 

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

 

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

 

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

 

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

 

A-7 

 

 

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

 

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

 

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

 

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

 

“Indenture” means the Indenture, dated as of the date hereof, by and between the Issuer and U.S. Bank Trust Company, National Association, as Indenture Trustee and U.S. Bank National Association as Securities Intermediary and Account Bank.

 

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

 

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

 

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

 

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

 

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

 

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

 

A-8 

 

 

“Intercreditor Agreement” means the Intercreditor Agreement, dated December 20, 2013, by and among Duke Energy Business Services, Inc., Duke Energy Corporate Services Inc., Duke Energy Corporation, Mizuho Bank, Ltd., the Bank of Nova Scotia, the Bank of Tokyo-Mitsubishi UFJ, Ltd., Duke Energy Carolinas, LLC, Duke Energy Ohio, Inc., Duke Energy Carolinas NC Storm Funding LLC, Duke Energy Progress Receivables LLC, Cinergy Receivables Company LLC and Duke Energy Receivables Finance Company, LLC, the Bank of New York Mellon Trust Company, N.A., the Indenture Trustee, Duke Energy Progress NC Storm Funding LLC, the Issuer, Duke Energy Progress, and any subsequent such agreement.

 

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

 

“Investment Company Act” means the Investment Company Act of 1940, as amended.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

A-9 

 

 

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

 

“LLC Agreement” means the Amended and Restated Limited Liability Company Agreement of Duke Energy Progress SC Storm Funding LLC, dated as of [ ], 2024.

 

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

 

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

 

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

 

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

 

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

 

“NRSRO” is defined in Section 10.18(b) of the Indenture.

 

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

 

“Office of Regulatory Staff” or “ORS” means the South Carolina Office of Regulatory Staff.

 

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

 

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

 

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

 

A-10 

 

 

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

 

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

 

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

 

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

 

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

 

“Outstanding Amount” means the aggregate principal amount of all Storm Recovery Bonds, Outstanding at the date of determination.

 

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

 

“Payment Date” means the dates specified in the Series Supplement; provided, that if any such date is not a Business Day, the Payment Date shall be the Business Day succeeding such date.

 

A-11 

 

 

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

 

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

 

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

 

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

 

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

 

“Permitted Successor” means any Person (a) into which the Seller may be merged or consolidated and which succeeds to all or substantially all of the electric distribution business of the Seller, (b) which results from the division of the Seller into two or more Persons and which succeeds to all or substantially all of the electric distribution business of the Seller, (c) which may result from any merger or consolidation to which the Seller shall be a party and which succeeds to all or substantially all of the electric distribution business of the Seller, (d) which may succeed to the properties and assets of the Seller substantially as a whole and which succeeds to all or substantially all of the electric distribution business of the Seller, or (e) which may otherwise succeed to all or substantially all of the electric distribution business of the Seller.

 

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

 

A-12 

 

 

“Plan” is an employee benefit plan (as defined in Section 3(3) of ERISA) subject to Title I of ERISA, a plan (as defined in Section 4975(e)(1) of the Internal Revenue Code) subject to Section 4975 of the Internal Revenue Code or an entity that is be deemed to hold the assets of any of the foregoing by virtue of such employee benefit plan’s or plan’s investment in such entity.

 

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

 

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

 

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

 

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

 

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

 

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

 

“Rating Agency Condition” means, with respect to any action, at least ten Business Days’ prior written notification to each Rating Agency of such action, and written confirmation from each of S&P and Moody’s to the Servicer, the Trustee and the Issuer that such action will not result in a suspension, reduction or withdrawal of the then current rating by such Rating Agency of the Storm Recovery Bonds and that prior to the taking of the proposed action no other Rating Agency shall have provided written notice to the Issuer that such action has resulted or would result in the suspension, reduction or withdrawal of the then current rating of the Storm Recovery Bonds; provided, that, if within such ten Business Day period, any Rating Agency (other than S&P) has neither replied to such notification nor responded in a manner that indicates that such Rating Agency is reviewing and considering the notification, then (i) the requesting party shall be required to confirm that such Rating Agency has received the Rating Agency Condition request, and if it has, promptly request the related Rating Agency Condition confirmation and (ii) if the Rating Agency neither replies to such notification nor responds in a manner that indicates it is reviewing and considering the notification within five Business Days following such second request, the applicable Rating Agency Condition requirement shall not be deemed to apply to such Rating Agency. For the purposes of this definition, any confirmation, request, acknowledgment or approval that is required to be in writing may be in the form of electronic mail or a press release (which may contain a general waiver of a Rating Agency’s right to review or consent).

 

A-13 

 

 

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

 

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

 

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

 

“Reimbursable Expenses” is defined with respect to the Administrator in Section 2 of the Administration Agreement, and with respect to the Servicer, in Section 6.06(a) of the Servicing Agreement.

 

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

 

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

 

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

 

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

 

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

 

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

 

A-14 

 

 

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

 

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

 

“Scheduled Final Payment Date” means, with respect to the Storm Recovery Bonds, the date when all interest and principal is scheduled to be paid in accordance with the Expected Sinking Fund Schedule, as specified in the Series Supplement.

 

“Scheduled Payment Date” means each Payment Date on which principal is to be paid in accordance with the Expected Sinking Fund Schedule.

 

“SEC” means the Securities and Exchange Commission.

 

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

 

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

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Securities Intermediary” means U.S. Bank National Association, a national banking association, solely in the capacity of a “securities intermediary” as defined in the NY UCC and Federal Book-Entry Regulations or any successor securities intermediary under the Indenture.

 

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

 

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

 

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

 

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

 

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

 

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

 

A-15 

 

 

“Servicer Business Day” means any day other than a Saturday, a Sunday or a day on which banking institutions in Columbia, South Carolina, Greenville, South Carolina or New York, New York or the Corporate Trustee Office of the Indenture Trustee is authorized or obligated by law, regulation or executive order to be closed, on which the Servicer maintains normal office hours and conducts business.

 

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

 

“Servicer Policies and Practices” means, with respect to the Servicer’s duties under Exhibit A to the Servicing Agreement, the policies and practices of the Servicer applicable to such duties that the Servicer follows with respect to comparable assets that it services for itself and, if applicable, others.

 

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

 

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

 

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

 

“Similar Law” is any federal, state, local or other laws or regulations that are substantially similar to Title I of ERISA or Section 4975 of the Internal Revenue Code.

 

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

 

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

 

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

 

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

 

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

 

A-16 

 

 

“State Pledge” means the pledge of the State of South Carolina as set forth in Section 58-27-1155 of the Storm Recovery Law.

 

“Storms” means Winter Storms Pax and Ulysses, Hurricanes Matthew, Florence, Michael, Dorian and Izzy and Tropical Storm Jasper.

 

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

 

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

 

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

 

“Storm Recovery Charge” means any storm-recovery charges as defined in Section 58-27-1105(15) of the Storm Recovery Law that are authorized by the Financing Order.

 

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

 

“Storm Recovery Costs” means (i) Duke Energy Progress’s deferred asset balance associated with the Storms, including a return on the unrecovered balance, and with respect to the capital investments, including a deferral of depreciation expense and a return on the investment determined by the Commission to be prudently incurred in Docket No. E-7, Sub 1214 plus (ii)  carrying costs through the projected issuances date of the Storm Recovery Bonds, calculated at a rate authorized by the Commission, (iii) plus up-front Financing Costs.

 

“Storm Recovery Law” means the laws of the State of South Carolina adopted in 2022 enacted as S.C. Code Ann. §§ 58-27-1105-1180, South Carolina Code of Laws.

 

“Storm Recovery Property” means all storm recovery property as defined in Section 58-27-1105(17) of the Storm Recovery Law created pursuant to the Financing Order or a Subsequent Financing Order and under the Storm Recovery Law, including the right to impose, bill, charge, collect and receive the Storm Recovery Charges authorized under the Financing Order or a Subsequent Financing Order and to obtain periodic adjustments of the Storm Recovery Charges and all revenue, collections, claims, rights to payments, payments, money, or proceeds arising from the rights and interests specified in Section 58-27-1105(17) of the Storm Recovery Law, regardless of whether such revenues, collections, claims, rights to payments, money, or proceeds are imposed, billed, received, collected, or maintained together with or commingled with other revenues, collections, rights to payment, payments, money or proceeds.

 

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

 

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

 

A-17 

 

 

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

 

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

 

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

 

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

 

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

 

“Tariff” means the most current version on file with the Commission.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Underwriting Agreement” means the Underwriting Agreement, dated [ ], 2024 by and among the Issuer, Duke Energy Progress, and the representatives of the several Underwriters named therein, as the same may be amended, supplemented or modified from time to time, with respect to the issuance of the Storm Recovery Bonds.

 

A-18

 

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

 

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

 

A-19

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

A-20

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

 

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

 

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

 

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

 

A-21 

 

EX-5.1

Exhibit 5.1

FILE NO: 034085.0000278

March 22, 2024

Duke Energy Progress, LLC 

Duke Energy Progress SC Storm Funding LLC 

411 Fayetteville Street

Raleigh, North Carolina 27601

Re:        Duke Energy Progress, LLC

               Registration Statement on Form SF-1

To the Addressees:

We have acted as counsel to Duke Energy Progress, LLC, a North Carolina limited liability company (“DEP”) and Duke Energy Progress SC Storm Funding LLC, a Delaware limited liability company (the “Company”), in connection with the preparation of the Registration Statement filed on Form SF-1 (Registration Nos. 333-276553 and 333-276553-01) filed on January 17, 2024 and as amended by Amendment No. 1 filed on March 8, 2024 and Amendment No. 2 filed on March 22, 2024 (collectively, the “Registration Statement”) with the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Securities Act”), relating to the proposed issuance of up to $177,365,000 of Series A Storm Recovery Bonds (the “Bonds”) of the Company to be offered in such manner as described in the prospectus (the “Prospectus”) included as part of the Registration Statement. The Bonds are to be issued under an Indenture (the “Base Indenture”) to be entered into among the Company, U.S. Bank Trust Company, National Association, as indenture trustee (the “Indenture Trustee”) and U.S. Bank National Association as securities intermediary and account bank, as to be supplemented by a Series Supplement establishing the form(s), terms and other provisions of the Bonds (the “Series Supplement” and, together with the Base Indenture, the “Indenture”) between the Company and the Indenture Trustee, the form of each of which has been filed as an exhibit to the Registration Statement.

This opinion letter is being delivered in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Securities Act.

We are familiar with the proceedings taken and proposed to be taken by the Company in connection with the proposed authorization, issuance and sale of the Bonds. In rendering the opinions expressed below, we have examined and relied upon copies of the Registration Statement and the exhibits filed therewith, and the form of Indenture. We have also examined originals, or copies of originals certified to our satisfaction, of such agreements, documents, certificates and statements of government officials and other instruments, and have examined such questions of law and have satisfied ourselves as to such matters of fact, as we have considered relevant and necessary as a basis for the opinions expressed below. We have assumed (i) the genuineness of all signatures, (ii) the authenticity of all documents submitted to us as originals and (iii) the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such latter documents. In delivering the opinions expressed below, we have relied without independent verification, as to factual matters, on certifications and other written or oral statements of governmental and other public officials and of officers and representatives of the Company and DEP. We have also assumed that the Indenture will be the valid and legally binding obligation of the Indenture Trustee without independent verification.

ATLANTA  AUSTIN  BANGKOK  BEIJING  BOSTON  BRUSSELS  CHARLOTTE  DALLAS  DUBAI  HOUSTON

LONDON  LOS ANGELES  MIAMI  NEW YORK  RICHMOND  SAN FRANCISCO  TOKYO  TYSONS  WASHINGTON, DC

www.HuntonAK.com

March 22, 2024

Page 2

Based on the foregoing, and subject to the qualifications and limitations hereinafter set forth, we are of the opinion that:

1. The Company is a limited liability company validly existing and in good standing under the laws of the State of Delaware;

2. The Company has limited liability company power and authority to execute and deliver the Indenture, to authorize and issue the Bonds and to perform its obligations under the Indenture and the Bonds; and

3. The Bonds will be validly issued and binding obligations of the Company when (i) the Registration Statement, as finally amended (including any post-effective amendments), shall have become effective under the Securities Act; (ii) the member or managers of the Company have taken all necessary limited liability company action to approve the issuance and establish the terms of the Bonds, the terms of the offering of the Bonds and related matters; (iii) the Indenture shall have been qualified under the Trust Indenture Act of 1939, as amended, and duly executed and delivered by the Company and the Indenture Trustee; and (iv) the Bonds shall have been duly executed and authenticated in accordance with the provisions of the Indenture and shall have been duly delivered to the purchasers thereof against payment of the agreed consideration therefor.

Our opinion in paragraph 3 above is subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, fraudulent transfer and other similar laws relating to or affecting creditors’ rights generally and to general equitable principles (regardless of whether considered in a proceeding in equity or at law), including concepts of commercial reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief.

We express no opinion herein as to the law of any jurisdiction other than the law of the State of New York and the Limited Liability Company Act of the State of Delaware.

March 22, 2024

Page 3

We hereby consent to (i) the filing of this opinion letter as an exhibit to the Registration Statement and to all references to us included in or made a part of the Registration Statement and (ii) the posting of a copy of this opinion letter to an internet website required under Rule 17g-5 under the Securities Exchange Act of 1934 and maintained by DEP for the purpose of complying with such rule. In giving the foregoing consent, we do not hereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission thereunder. This opinion letter is limited to the matters stated herein, and no opinion may be implied or inferred beyond the matters expressly stated in this opinion letter. This opinion letter is given as of the date hereof, and we assume no obligation to advise you after the date hereof of facts or circumstances that come to our attention or changes in the law, including judicial or administrative interpretations thereof, that occur which could affect the opinions contained herein.

Very truly yours,

/s/ Hunton Andrews Kurth LLP

EX-8.1

Exhibit 8.1

Hunton Andrews Kurth LLP file no.: 034085.278

March 22, 2024

Duke Energy Progress, LLC 

Duke Energy Progress SC Storm Funding LLC

c/o Duke Energy Progress, LLC 

410 South Wilmington Street 

Raleigh, North Carolina 27601-1748

Duke Energy Progress SC Storm Funding LLC
STORM RECOVERY BONDS

Ladies and Gentlemen:

We have acted as United States federal income tax counsel to Duke Energy Progress, LLC, a North Carolina limited liability company (“DEP”), and DEP’s wholly-owned subsidiary, Duke Energy Progress SC Storm Funding LLC (the “Issuer”), in connection with the Registration Statement on Form SF-1 (File Nos. 333-276553 and 333-276553-01) (the “Registration Statement”) filed on January 17, 2024, and as amended by Amendment No. 1 filed on March 8, 2024, and Amendment No. 2 filed on March 22, 2024, with the Securities and Exchange Commission pursuant to the Securities Act of 1933, including the prospectus therein (the “Prospectus”) included as part of the Registration Statement, relating to the registration thereunder of the Issuer’s one tranche of Series A Storm Recovery Bonds (the “Bonds”). The Company intends to issue the Bonds in an aggregate principal amount of $177,365,000, pursuant to an Indenture among the Issuer, as issuer, U.S. Bank Trust Company, National Association (“U.S. Bank Trust”), as indenture trustee, and U.S. Bank National Association, as securities intermediary and account bank (“U.S. Bank”), together with a Series Supplement between the Issuer, U.S. Bank Trust, and U.S. Bank establishing the form and terms of such Bonds (collectively the “Indenture”). Capitalized terms used and not defined herein have the respective meanings ascribed to them in the Prospectus. You have requested our opinion regarding certain U.S. federal income tax matters.

We have reviewed the Registration Statement, including the Prospectus, as part of the Registration Statement (collectively, the “Offering Documents”), relating to the Bonds, and the basic documents (as defined in the Prospectus, and together with the Offering Documents, the “Transaction Documents”).

ATLANTA AUSTIN BANGKOK BEIJING B OSTON BRUSSELS CHARLOTTE DALLAS DUBAI HOUSTON

LONDON LOS ANGELES MIAMI NEW YORK RICHMOND SAN FRANCISCO TOKYO TYSONS WASHINGTON, DC

www.HuntonAK.com 

Duke Energy Progress, LLC

Duke Energy Progress SC Storm Funding LLC

March 22, 2024 

Page 2

We are familiar with the proceedings taken by DEP and the Issuer in connection with the authorization, issuance and sale of the Bonds. As to any facts material to the opinions expressed herein, we have relied, without independent verification, upon certificates and statements and representations and warranties of officers and other representatives and agents of DEP, the Issuer, U.S. Bank Trust, U.S. Bank and other parties and signatories to the Transaction Documents and of public officials.

In rendering this opinion letter, except for the matters that are specifically addressed in the opinions expressed below, with your permission we have assumed, and are relying thereon without independent investigation, (i) the authenticity of all Transaction Documents submitted to us as originals or as copies thereof, and the conformity to the originals of all Transaction Documents submitted to us as copies, (ii) the genuineness of signatures, (iii) the legal capacity of natural persons signing the basic documents, (iv) the necessary entity formation and continuing existence in the jurisdiction of formation, and the necessary licensing and qualification in all jurisdictions, of the parties to all basic documents, (v) the necessary entity authorization, execution, delivery and enforceability (as limited by bankruptcy and other insolvency laws) of the basic documents, and the necessary entity power and authority with respect thereto, (vi) that each of the parties and signatories to the basic documents have complied and will comply (without waiver) with all of the provisions and representations and certifications of such basic documents, (vii) that the Issuer and the other parties and signatories to the basic documents have conducted and will conduct their activities only as provided in the Transaction Documents, (viii) that there has been no mutual mistake of fact or misunderstanding, fraud, duress or undue influence in connection with any Transaction Document and (ix) that there is not any other agreement that modifies or supplements the agreements expressed in any Transaction Document to which this opinion letter relates and that renders any of the opinions expressed below inconsistent with such Transaction Document as so modified or supplemented. Finally, we have assumed that Article 8 of Chapter 27, Title 58 of the South Carolina Code of Laws is valid and that the financing order (as defined in the Prospectus) issued by the Public Service Commission of South Carolina (“PSCSC”) on October 13, 2023, as amended on October 23, 2023, is valid, complies with South Carolina law, is in full force and effect, and is final and non-appealable.

In rendering this opinion letter, except for the matters that are specifically addressed in the opinions expressed below, we have made no inquiry, have conducted no investigation and assume no responsibility with respect to (a) the accuracy of and compliance by the parties thereto with the representations, financial calculations, warranties, covenants, certifications and assumptions as to factual matters contained in any Transaction Document or otherwise provided to us or (b) the conformity of the underlying assets and related documents to the requirements of any agreement to which this opinion letter relates.

Duke Energy Progress, LLC

Duke Energy Progress SC Storm Funding LLC

March 22, 2024

Page 3

Based upon the foregoing and based upon, in particular, Revenue Procedure 2005-62, 2005-2 C.B. 507 (the “Revenue Procedure”), and subject to the qualifications, representations, warranties, covenants, certifications, financial calculations and assumptions stated herein and in the Transaction Documents, we are of the opinion that if (i) all of the parties and signatories to the Transaction Documents comply (without waiver) with all of the provisions of the Indenture and the other Transaction Documents prepared and executed in connection with such transaction and (ii) the Bonds are issued as described in the Transaction Documents and not as part of another transaction or series of transactions that would require the Issuer, DEP, any investor or any other participant to treat such transaction or transactions as subject to the disclosure, registration or list maintenance requirements of section 6011, 6111 or 6112 of the Internal Revenue Code, as amended (the “Code”), then, in each case below, solely for United States federal income tax purposes:

1.            the issuance of the Bonds will be a “qualifying securitization” within the meaning of the Revenue Procedure;

2.            the Bonds will be characterized as obligations of DEP for United States federal income tax purposes as expressly set forth in section 6.02 of the Revenue Procedure;

3.            the Issuer will not be subject to federal income tax as an entity separate from DEP (the Issuer’s sole member); and

4.            DEP will not be treated as recognizing gross income upon the issuance of the Bonds.

You should be aware that the above opinions represent our conclusions as to the application of existing law to the transaction described above. There can be no assurance, however, that contrary positions will not be taken by the Internal Revenue Service or that existing law, regulations, administrative rules and practice will not change. Any such change might be retroactive and might affect the opinions set forth above. We also caution you that our opinions depend upon the facts, qualifications, representations, warranties, covenants, certifications, financial calculations, assumptions and Transaction Documents to which this letter refers, which are subject to change, reinterpretation and misunderstanding. Our conclusion could differ if these items on which we have relied are, become or are found to be, different. No opinion has been sought, and none has been given, concerning the tax consequences of the transaction described herein or of the acquisition, ownership, or disposition of the Bonds under the laws of any state, locality or foreign jurisdiction.

Duke Energy Progress, LLC

Duke Energy Progress SC Storm Funding LLC

March 22, 2024

Page 4

These opinions are rendered as of the date hereof, speak only as of the date hereof and are based on the current provisions of the Code and the Treasury Regulations issued or proposed thereunder, revenue rulings, revenue procedures and other published releases of the Internal Revenue Service and current case law, any of which can change at any time. We undertake no obligation to update this opinion letter after the date hereof or advise you of changes in the event there is any change in legal authorities, facts, qualifications, representations, warranties, covenants, certifications, financial calculations, assumptions or Transaction Documents on which this opinion letter is based (including the taking of any action by any party or signatory to the basic documents or any amendments to any basic document pursuant to any opinion of counsel or a waiver), or any inaccuracy in any of these items upon which we have relied in rendering this opinion letter, unless we are specifically engaged to do so.

In rendering this opinion letter, other than as expressly stated above, we do not express any opinion concerning any law other than the federal income tax laws of the United States, including without limitation the Code, Treasury Regulations promulgated thereunder and administrative and judicial interpretations thereof, all of which are subject to change. We do not express any opinion herein with respect to any matter not specifically addressed in the opinions expressed above, including without limitation, (i) any statute, regulation or provision of law of any state, county, municipality or other political subdivision or any agency or instrumentality thereof, (ii) the securities laws of any jurisdiction or (iii) the tax laws of any jurisdiction (other than the federal income tax laws of the United States and only as specifically described in the opinions above). Additional issues may exist that could affect the United States federal tax treatment of the transaction that is the subject of this opinion letter, and this opinion letter does not consider or provide a conclusion with respect to any such additional issues.

We are furnishing this opinion letter to you and this opinion letter is not to be relied on, circulated, quoted or otherwise referred to for any other purpose. We hereby consent, however, to (a) the posting of a copy of this opinion letter to an internet website required under Rule 17g-5 under the Securities Exchange Act of 1934, as amended, and maintained by DEP solely for the purpose of complying with such rule and (b) the filing of this opinion letter as Exhibit 8.1 to the Registration Statement and the incorporation thereof in the Registration Statement and the use of our name under the captions “Material U.S. Federal Income Tax Consequences” and “Legal Matters” in the Prospectus. In giving this consent, we do not admit that we are in the category of persons whose consent is required by Section 7 of the Securities Act of 1933, as amended, or the rules and regulations promulgated thereunder by the Securities and Exchange Commission.

Very truly yours,

/s/ Hunton Andrews Kurth LLP

EX-10.1

Exhibit 10.1

STORM RECOVERY PROPERTY SERVICING AGREEMENT

by and between

DUKE ENERGY PROGRESS SC STORM FUNDING LLC,

Issuer

and

DUKE ENERGY PROGRESS, LLC,

Servicer

Acknowledged and Accepted by

U.S. Bank Trust Company, National Association, as Indenture Trustee

Dated as of [   ], 2024

TABLE OF CONTENTS

Page

ARTICLE I            DEFINITIONS AND RULES OF CONSTRUCTION		1
Section 1.01.	Definitions and Rules of Construction	1
ARTICLE II          APPOINTMENT AND AUTHORIZATION		2
Section 2.01.	Appointment of Servicer; Acceptance of Appointment	2
Section 2.02.	Authorization	2
Section 2.03.	Dominion and Control Over the Storm Recovery Property	2
ARTICLE III         ROLE OF SERVICER		3
Section 3.01.	Duties of Servicer	3
Section 3.02.	Servicing and Maintenance Standards	5
Section 3.03.	Annual Reports on Compliance with Regulation AB	5
Section 3.04.	Annual Report by Independent Registered Public Accountants	6
ARTICLE IV         SERVICES RELATED TO TRUE-UP ADJUSTMENTS		7
Section 4.01.	True-Up Adjustments	7
Section 4.02.	Limitation of Liability	9
ARTICLE V          THE STORM RECOVERY PROPERTY		10
Section 5.01.	Custody of Storm Recovery Property Records	10
Section 5.02.	Duties of Servicer as Custodian	10
Section 5.03.	Custodian’s Indemnification	12
Section 5.04.	Effective Period and Termination	12
Section 5.05.	Third-Party Suppliers	12
ARTICLE VI         THE SERVICER		13
Section 6.01.	Representations and Warranties of Servicer	13
Section 6.02.	Indemnities of Servicer; Release of Claims	15
Section 6.03.	Binding Effect of Servicing Obligations	17
Section 6.04.	Limitation on Liability of Servicer and Others	18
Section 6.05.	Duke Energy Progress Not to Resign as Servicer	18
Section 6.06.	Servicing Compensation	19
Section 6.07.	Compliance with Applicable Law	20
Section 6.08.	Access to Certain Records and Information Regarding Storm Recovery Property	20
Section 6.09.	Appointments	20

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Section 6.10.	No Servicer Advances	21
Section 6.11.	Remittances	21
Section 6.12.	Maintenance of Operations	21
ARTICLE VII       DEFAULT		21
Section 7.01.	Servicer Default	21
Section 7.02.	Appointment of Successor	23
Section 7.03.	Waiver of Past Defaults	24
Section 7.04.	Notice of Servicer Default	24
Section 7.05.	Cooperation with Successor	24
ARTICLE VIII      MISCELLANEOUS PROVISIONS		24
Section 8.01.	Amendment	24
Section 8.02.	Maintenance of Accounts and Records	26
Section 8.03.	Notices	26
Section 8.04.	Assignment	27
Section 8.05.	Limitations on Rights of Others	27
Section 8.06.	Severability	27
Section 8.07.	Separate Counterparts	27
Section 8.08.	Governing Law	28
Section 8.09.	Assignment to Indenture Trustee	28
Section 8.10.	Nonpetition Covenants	28
Section 8.11.	Limitation of Liability	28
Section 8.12.	Rule 17g-5 Compliance	28
Section 8.13.	Indenture Trustee Actions	28

EXHIBITS

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

APPENDIX

Appendix A Definitions and Rules of Construction

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This STORM RECOVERY PROPERTY SERVICING AGREEMENT, dated as of [   ], 2024, is by and between DUKE ENERGY PROGRESS SC STORM FUNDING LLC, a Delaware limited liability company, as Issuer, and DUKE ENERGY PROGRESS, LLC, a North Carolina limited liability company, as Servicer, and acknowledged and accepted by U.S. Bank Trust Company, National Association, a national banking association, as Indenture Trustee.

RECITALS

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

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

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

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

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

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

ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION

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

ARTICLE II
APPOINTMENT AND AUTHORIZATION

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

Section 2.02.         Authorization. With respect to all or any portion of the Storm Recovery Property, the Servicer shall be, and hereby is, authorized and empowered by the Issuer to (a) execute and deliver, on behalf of itself and/or the Issuer, as the case may be, any and all instruments, documents or notices, and (b) on behalf of itself and/or the Issuer, as the case may be, make any filing and participate in proceedings of any kind with any Governmental Authority, including with the Commission. The Issuer shall execute and deliver to the Servicer such documents as have been prepared by the Servicer for execution by the Issuer and shall furnish the Servicer with such other documents as may be in the Issuer’s possession, in each case as the Servicer may determine to be necessary or appropriate to enable it to carry out its servicing and administrative duties hereunder. Upon the Servicer’s written request, the Issuer shall furnish the Servicer with any powers of attorney or other documents necessary or appropriate to enable the Servicer to carry out its duties hereunder.

Section 2.03.         Dominion and Control Over the Storm Recovery Property. Notwithstanding any other provision herein, the Issuer shall have dominion and control over the Storm Recovery Property, and the Servicer, in accordance with the terms hereof, is acting solely as the servicing agent and custodian for the Issuer with respect to the Storm Recovery Property and the Storm Recovery Property Records for the Storm Recovery Bonds. The Servicer shall not take any action that is not authorized by this Servicing Agreement or the Financing Order, that is not consistent with its customary procedures and practices or that shall impair the rights of the Issuer or the Indenture Trustee (on behalf of the Holders) in the Storm Recovery Property, in each case unless such action is required by applicable law or court or regulatory order.

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ARTICLE III
ROLE OF SERVICER

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

(a)           Duties of Servicer Generally.

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

(b)           Reporting Functions.

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

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

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

(iv)          Preparation of Reports. The Servicer shall prepare and deliver such additional reports as required under this Servicing Agreement, including a copy of each Semi-Annual Servicer’s Certificate described in Section 4.01(c)(ii), the annual Certificate of Compliance described in Section 3.03 and the Annual Accountant’s Report described in Section 3.04. In addition, the Servicer shall prepare, procure, deliver and/or file, or cause to be prepared, procured, delivered or filed, any reports, attestations, exhibits, certificates or other documents required to be delivered or filed with the SEC (and/or any other Governmental Authority) by the Issuer or the Depositor under the U.S. federal securities or other applicable laws or in accordance with the Basic Documents, including but without limiting the generality of foregoing, filing with the SEC, if applicable and required by applicable law, a copy or copies of (A) the Monthly Servicer’s Certificates described in Section 3.01(b)(i) (under Form 10-D or any other applicable form), (B) the Semi-Annual Servicer’s Certificates described in Section 4.01(c)(ii) (under Form 10-D or any other applicable form), (C) the annual statements of compliance, attestation reports and other certificates described in Section 3.03 and (D) the Annual Accountant’s Report (and any attestation required under Regulation AB) described in Section 3.04. In addition, the appropriate officer or officers of the Servicer shall (in its separate capacity as Servicer) sign the Depositor’s annual report on Form 10-K (and any other applicable SEC or other reports, attestations, certifications and other documents), to the extent that the Servicer’s signature is required by, and consistent with, the U.S. federal securities laws and/or any other applicable law.

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

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

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

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

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

Section 3.03.         Annual Reports on Compliance with Regulation AB.

(a)           The Servicer shall deliver to the Issuer, the Indenture Trustee, the Commission and the Rating Agencies, on or before the earlier of (a) March 31 of each year, beginning March 31, 2025 or (b) with respect to each calendar year during which the Depositor’s annual report on Form 10-K is required to be filed in accordance with the Exchange Act and the rules and regulations thereunder, the date on which such annual report on Form 10-K is required to be filed in accordance with the Exchange Act and the rules and regulations thereunder, certificates from a Responsible Officer of the Servicer (i) containing, and certifying as to, the statements of compliance required by Item 1123 (or any successor or similar items or rule) of Regulation AB, as then in effect, and (ii) containing, and certifying as to, the statements and assessment of compliance required by Item 1122(a) (or any successor or similar items or rule) of Regulation AB, as then in effect. These certificates may be in the form of, or shall include the forms attached as Exhibit D and Exhibit E, with, in the case of Exhibit D, such changes as may be required to conform to the applicable securities law.

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

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

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

Section 3.04.         Annual Report by Independent Registered Public Accountants.

(a)           The Servicer, at its own expense in partial consideration of the Servicing Fee paid to it, shall cause a firm of Independent registered public accountants (which may provide other services to the Servicer or the Seller) to prepare annually, and the Servicer shall deliver annually to the Issuer, the Indenture Trustee, the Commission and the Rating Agencies on or before the earlier of (i) March 31 of each year, beginning March 31, 2025, or (ii) with respect to each calendar year during which the Issuer’s annual report on Form 10-K is required to be filed in accordance with the Exchange Act and the rules and regulations thereunder, the date on which such annual report on Form 10-K is required to be filed in accordance with the Exchange Act and the rules and regulations thereunder, a report (the “Annual Accountant’s Report”) regarding the Servicer’s assessment of compliance with the servicing criteria set forth in Item 1122(d) of Regulation AB during the immediately preceding twelve (12) months ended December 31 (or, in the case of the first Annual Accountant’s Report to be delivered on or before March 31, 2025, the period of time from the date of this Agreement until December 31, 2024), in accordance with paragraph (b) of Rule 13a-18 and Rule 15d-18 of the Exchange Act and Item 1122 of Regulation AB. Such report shall be signed by an authorized officer of the Servicer and shall at a minimum address each of the servicing criteria specified in Exhibit C-1. In the event that the accounting firm providing such report requires the Indenture Trustee to agree or consent to the procedures performed by such firm, the Issuer shall direct the Indenture Trustee in writing to so agree; it being understood and agreed that the Indenture Trustee will deliver such letter of agreement or consent in conclusive reliance upon the direction of the Issuer, and the Indenture Trustee will not make any independent inquiry or investigation as to, and shall have no obligation or liability in respect of the sufficiency, validity or correctness of such procedures.

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(b)           The Annual Accountant’s Report delivered pursuant to Section 3.04(a) shall also indicate that the accounting firm providing such report is independent of the Servicer in accordance with the rules of the Public Company Accounting Oversight Board and shall include any attestation report required under Item 1122(b) of Regulation AB, as then in effect. The costs of the Annual Accountant’s Report shall be reimbursable as an Operating Expense under the Indenture.

ARTICLE IV
SERVICES RELATED TO TRUE-UP ADJUSTMENTS

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

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

(b)           True-Up Adjustments.

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

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(ii)           Interim True-Up Adjustments and Filings. No later than 60 days prior to the first day of the applicable monthly billing cycle, the Servicer shall: (A) update the data and assumptions underlying the calculation of the Storm Recovery Charges, including projected electricity consumption during the next two Remittance Period for each Storm Recovery Rate Class and including Periodic Principal, interest and estimated expenses and fees of the Issuer to be paid during such period, the rate of delinquencies and write-offs; (B) determine the Periodic Payment Requirement and Periodic Billing Requirement for the next two Remittance Period based on such updated data and assumptions; and (C) based upon such updated data and requirements, project whether existing and projected Storm Recovery Charge Collections together with available fund balances in the Excess Funds Subaccount, will be sufficient (x) to make on a timely basis all scheduled payments of Periodic Principal and interest during such Remittance Period, (y) to pay other Ongoing Financing Costs on a timely basis and (z) to maintain the Capital Subaccount at the Required Capital Level. If the Servicer determines that Storm Recovery Charges will not be sufficient for such purposes, the Servicer shall, no later than the date described in the first sentence of this Section 4.01(b)(ii): (1) determine the Storm Recovery Charges to be allocated to each Storm Recovery Rate Class during the next two Remittance Period based on such Periodic Billing Requirement and the terms of the Financing Order, the Tariff and other tariffs filed pursuant thereto; (2) make all required public notices and other filings with the Commission to reflect the revised Storm Recovery Charges, including any Amendatory Schedule; and (3) take all reasonable actions and make all reasonable efforts to effect such Interim True-Up Adjustment and to enforce the provisions of the Storm Recovery Law and the Financing Order.

(c)           Reports.

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

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

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

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

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

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

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

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

(iii)          Reports to Customers.

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

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

Section 4.02.         Limitation of Liability.

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

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

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

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

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

ARTICLE V
THE STORM RECOVERY PROPERTY

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

Section 5.02.         Duties of Servicer as Custodian.

(a)           Safekeeping. The Servicer shall hold the Storm Recovery Property Records on behalf of the Issuer and the Indenture Trustee and maintain such accurate and complete accounts, records and computer systems pertaining to the Storm Recovery Property Records as shall enable the Issuer and the Indenture Trustee, as applicable, to comply with this Servicing Agreement, the Sale Agreement and the Indenture. In performing its duties as custodian, the Servicer shall act with reasonable care, using that degree of care and diligence that the Servicer exercises with respect to comparable assets that the Servicer services for itself or, if applicable, for others. The Servicer shall promptly report to the Issuer, the Indenture Trustee, the Commission and the Rating Agencies any failure on its part to hold the Storm Recovery Property Records and maintain its accounts, records and computer systems as herein provided and promptly take appropriate action to remedy any such failure. Nothing herein shall be deemed to require an initial review or any periodic review by the Issuer or the Indenture Trustee of the Storm Recovery Property Records. The Servicer’s duties to hold the Storm Recovery Property Records set forth in this Section 5.02, to the extent the Storm Recovery Property Records have not been previously transferred to a Successor Servicer pursuant to ARTICLE VII, shall terminate one year and one day after the earlier of (i) the date on which the Servicer is succeeded by a Successor Servicer in accordance with ARTICLE VII and (ii) the first date on which no Storm Recovery Bonds are Outstanding.

(b)           Maintenance of and Access to Records. The Servicer shall maintain the Storm Recovery Property Records at 526 South Church Street, North Carolina 27601-1748 or at its facility located at Iron Mountain, 3125 Parkside Drive, Charlotte, North Carolina 28208, or at such other office as shall be specified to the Issuer, the Commission, the Office of Regulatory Staff and the Indenture Trustee by written notice at least 30 days prior to any change in location. The Servicer shall make available for inspection, audit and copying to the Issuer, the Commission, the Public Staff and the Indenture Trustee or their respective duly authorized representatives, attorneys or auditors the Storm Recovery Property Records at such times during normal business hours as the Issuer, the Commission, the Public Staff or the Indenture Trustee shall reasonably request and that do not unreasonably interfere with the Servicer’s normal operations. Nothing in this Section 5.02(b) shall affect the obligation of the Servicer to observe any applicable law (including any Commission Regulation) prohibiting disclosure of information regarding Customers, and the failure of the Servicer to provide access to such information as a result of such obligation shall not constitute a breach of this Section 5.02(b).

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

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

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

Indemnification under this Section 5.03 shall survive resignation or removal of the Indenture Trustee or any Independent Manager and shall include reasonable out-of-pocket fees and expenses of investigation and litigation (including reasonable attorneys’ fees and expenses and expenses and the reasonable fees, out-of-pocket expenses and costs incurred in connection with any action, claim or suit brought to enforce the indemnification obligations of the Servicer hereunder).

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

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

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ARTICLE VI
THE SERVICER

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

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

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

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

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

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

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(f)            No Proceedings. To the Servicer’s knowledge, there are no proceedings or investigations pending or, to the Servicer’s knowledge, threatened against the Servicer before any court, federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Servicer or its properties: (i) seeking to prevent issuance of the Storm Recovery Bonds or the consummation of the transactions contemplated by this Servicing Agreement or any of the other Basic Documents, or, if applicable, any supplement to the Indenture or amendment to the Sale Agreement; (ii) seeking any determination or ruling that might materially and adversely affect the performance by the Servicer of its obligations under, or the validity or enforceability against the Servicer of, this Servicing Agreement or any of the other Basic Documents or, if applicable, any supplement to the Indenture or amendment to the Sale Agreement; or (iii) relating to the Servicer and which might materially and adversely affect the treatment of the Storm Recovery Bonds for federal or state income, gross receipts or franchise tax purposes;

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

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

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

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

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

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

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

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

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

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

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

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Section 6.04.         Limitation on Liability of Servicer and Others.

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

(b)           The Servicer acknowledges under the authority granted to the Commission pursuant to Title 58, Chapter 27 of the South Carolina Code of Laws Annotated that the Commission has authority to enter an order enforcing the provisions of this Servicing Agreement, including without limitation the enforcement of Section 6.02 consistent with the Financing Order and Storm Recovery Law.

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

Section 6.05.         Duke Energy Progress Not to Resign as Servicer. Subject to the provisions of Section 6.03, Duke Energy Progress shall not resign from the obligations and duties imposed on it as Servicer under this Servicing Agreement except upon a determination that the performance of its duties under this Servicing Agreement shall no longer be permissible under applicable Requirements of Law. Notice of any such determination permitting the resignation of Duke Energy Progress shall be communicated to the Issuer, the Commission, the Indenture Trustee and each Rating Agency at the earliest practicable time (and, if such communication is not in writing, shall be confirmed in writing at the earliest practicable time), and any such determination shall be evidenced by an Opinion of Counsel to such effect delivered to the Issuer, the Commission and the Indenture Trustee concurrently with or promptly after such notice. No such resignation shall become effective until a Successor Servicer has been approved by the Commission and has assumed the servicing obligations and duties hereunder of the Servicer in accordance with Section 7.02.

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Section 6.06.         Servicing Compensation.

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

(b)           The Servicing Fee set forth in Section 6.06(a) shall be paid to the Servicer by the Indenture Trustee, on each Payment Date in accordance with the priorities set forth in Section 8.02(e) of the Indenture, by wire transfer of immediately available funds from the Collection Account to an account designated by the Servicer. Any portion of the Servicing Fee not paid on any such date shall be added to the Servicing Fee payable on the subsequent Payment Date. In no event shall the Indenture Trustee be liable for the payment of any Servicing Fee or other amounts specified in this Section 6.06; provided, that this Section 6.06 does not relieve the Indenture Trustee of any duties it has to allocate funds for payment for such fees under Section 8.02 of the Indenture.

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

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

(e)           Any services required for or contemplated by the performance of the above-referenced services by the Servicer to be provided by unaffiliated third parties may, if provided for or otherwise contemplated by the Financing Order and if the Issuer deems it necessary or desirable, be arranged by the Issuer or by the Servicer at the direction (which may be general or specific) of the Issuer. Costs and expenses associated with the contracting for such third-party professional services may be paid directly by the Issuer or paid by the Servicer and reimbursed by the Issuer in accordance with Section 6.06(a), or otherwise as the Servicer and the Issuer may mutually arrange.

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

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

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

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

Section 6.11.         Remittances.

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

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

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

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

ARTICLE VII
DEFAULT

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

(a)           any failure by the Servicer to remit to the Collection Account on behalf of the Issuer any required remittance that shall continue unremedied for a period of five Business Days after written notice of such failure is received by the Servicer from the Issuer or the Indenture Trustee (with a copy of such notice being provided promptly upon receipt by the Servicer to the Commission) or after discovery of such failure by a Responsible Officer of the Servicer;

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

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

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

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

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

Section 7.02.         Appointment of Successor.

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

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

Section 7.03.         Waiver of Past Defaults. The Indenture Trustee, with the written consent of the Holders evidencing a majority of the Outstanding Amount of the Storm Recovery Bonds, may waive in writing any default by the Servicer in the performance of its obligations hereunder and its consequences, except a default in making any required deposits to the Collection Account in accordance with this Servicing Agreement, provided, however, that a default of a material obligation of the Servicer hereunder may not be waived without the consent of the Commission pursuant to Section 8.01(c). Upon any such waiver of a past default, such default shall cease to exist, and any Servicer Default arising therefrom shall be deemed to have been remedied for every purpose of this Servicing Agreement. No such waiver shall extend to any subsequent or other default or impair any right consequent thereto. Promptly after the execution of any such waiver, the Servicer shall furnish copies of such waiver to each of the Rating Agencies and the Commission.

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

Section 7.05.         Cooperation with Successor. The Servicer covenants and agrees with the Issuer that it will, on an ongoing basis, cooperate with the Successor Servicer and provide whatever information is, and take whatever actions are, reasonably necessary to assist the Successor Servicer in performing its obligations hereunder.

ARTICLE VIII
MISCELLANEOUS PROVISIONS

Section 8.01.         Amendment.

(a)           Subject to Section 8.01(c), this Servicing Agreement may be amended in writing by the Servicer and the Issuer with the prior written consent of the Indenture Trustee and the satisfaction of the Rating Agency Condition; provided, that any such amendment may not adversely affect the interest of any Holder in any material respect without the consent of the Holders of a majority of the Outstanding Amount. Promptly after the execution of any such amendment or consent, the Issuer shall furnish copies of such amendment or consent to each of the Rating Agencies.

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

(c)           Notwithstanding anything to the contrary in this Section 8.01, no amendment or modification of this Servicing Agreement that the Servicer determines has a reasonable possibility to impact the rates borne by customers, nor any waiver required by Section 7.03 hereof, shall be effective except upon satisfaction of the conditions precedent in this paragraph (c).

(i)            At least 30 days prior to the effectiveness of any such amendment or modification and after obtaining the other necessary approvals set forth in Section 8.01(a) (except that the consent of the Indenture Trustee may be subject to the consent of the Holders if such consent is required or sought by the Indenture Trustee in connection with such amendment or modification) the Servicer shall have filed in Commission docket 2023-89-E written notification of any proposed amendment, addressed to the Chief Clerk/Executive Director of the Commission with a copy delivered to the Office of Regulatory Staff and all parties of record, which notification shall contain:

(A)          a reference to Docket No. 2023-89-E;

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

(C)          a description of the proposed amendment, including the purpose of such amendment.

(ii)           No later than 5:00 pm on the 30th business day after receipt of notice of a proposed amendment complying with subparagraph (i), the Commission shall issue an order either (i) approving the proposed amendment or (ii) preventing the adoption of such amendment or modification.

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

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Section 8.02.         Maintenance of Accounts and Records.

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

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

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

(a)           in the case of the Servicer, to Duke Energy Progress, LLC, at 411 Fayetteville Street Raleigh, North Carolina 27601, Attention: Director, Rates and Regulatory Strategy, Telephone: 704-382-3853 in care of (c/o): Director, Rates and Regulatory Planning and at 525 South Tryon Street, Charlotte, North Carolina 28202, Attention: Treasurer, Telephone: 704-382-3853 c/o Assistant Treasurer;

(b)           in the case of the Issuer, to Duke Energy Progress SC Storm Funding LLC, at 411 Fayetteville Street Raleigh, North Carolina 27601, Attention: Manager, Telephone: 704-382-3853 in care of (c/o): Treasurer and at 525 South Tryon Street, Charlotte, North Carolina 28202, Attention: Structured Finance Director, Telephone: 704-382-2264;

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

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

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(e)           in the case of Moody’s, to Moody’s Investors Service, Inc., ABS/RMBS Monitoring Department, 24^th Floor, 7 World Trade Center, 250 Greenwich Street, New York, New York 10007, Email: ServicerReports@moodys.com (all such notice to be delivered to Moody’s in writing by email), and solely for purposes of Rating Agency Condition communications: abscormonitoring@moodys.com; and

(f)            if to the Commission, by filing a notice in Docket No. 2023-89-E addressed to the Chief Clerk/Executive Director of the Commission with a copy delivered to the Office of Regulatory Staff and all parties of record.

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

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

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

Section 8.06.         Severability. Any provision of this Servicing Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remainder of such provision (if any) or the remaining provisions hereof (unless such a construction shall be unreasonable), and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 8.07.         Separate Counterparts. This Servicing Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. The parties hereto agree that this Servicing Agreement may be electronically signed, that any digital or electronic signatures (including pdf, facsimile or electronically imaged signatures provided by AdobeSign, DocuSign, Diligent Board or any other digital signature provider as specified and agreed upon in writing to the other parties) appearing on this Servicing Agreement are the same as handwritten signatures for the purposes of validity, enforceability and admissibility, and that delivery of any such electronic signature to, or a signed copy of, this Servicing Agreement may be made by facsimile, email or other electronic transmission.

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Section 8.08.      Governing Law. This Servicing Agreement shall be governed by and construed in accordance with the laws of the State of South Carolina, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws.

Section 8.09.      Assignment to Indenture Trustee. The Servicer hereby acknowledges and consents to the assignment and grant of a security interest by the Issuer to the Indenture Trustee for the benefit of the Secured Parties pursuant to the Indenture of any or all of the Issuer’s rights hereunder. In no event shall the Indenture Trustee have any liability for the representations, warranties, covenants, agreements or other obligations of the Issuer hereunder or in any of the certificates delivered pursuant hereto, as to all of which any recourse shall be had solely to the assets of the Issuer subject to the availability of funds therefor under Section 8.02 of the Indenture.

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

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

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

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

Section 8.14.      Waiver of Jury Trial. EACH OF THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS INDENTURE AND FOR ANY COUNTERCLAIM THEREIN.

{SIGNATURE PAGE FOLLOWS}

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

DUKE ENERGY PROGRESS SC STORM FUNDING LLC, as Issuer
By:
	Name:
	Title:
DUKE ENERGY PROGRESS, LLC, as Servicer
By:
	Name:
	Title:

ACKNOWLEDGED AND ACCEPTED:
U.S. Bank Trust Company, National Association, not in its individual capacity but solely as Indenture Trustee
By:
	Name:
	Title:

Signature Page to Nuclear Asset Recovery Servicing Agreement

EXHIBIT A

SERVICING PROCEDURES

The Servicer agrees to comply with the following servicing procedures:

SECTION 1. Definitions.

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

SECTION 2. Data Acquisition.

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

(b) Meter Reading. In accordance with the Servicer Policies and Practices, the Servicer shall obtain consumption measurements for each Customer or determine any Customer’s consumption on the basis of estimates in accordance with Commission Regulations.

(c) Cost of Metering. The Issuer shall not be obligated to pay any costs associated with the metering duties set forth in this Section 2, including the costs of installing, replacing and maintaining meters, nor shall the Issuer be entitled to any credit against the Servicing Fee for any cost savings realized by the Servicer as a result of new metering and/or billing technologies.

SECTION 3. Consumption and Bill Calculation.

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

SECTION 4. Billing.

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

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

(c) Format.

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

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

(d) Delivery. Except as provided in the next sentence, the Servicer shall deliver all Bills to Customers (i) by United States mail in such class or classes as are consistent with the Servicer Policies and Practices or (ii) by any other means, whether electronic or otherwise, that the Servicer may from time to time use in accordance with the Servicer Policies and Practices. The Servicer shall pay from its own funds all costs of issuance and delivery of all Bills that it renders, including printing and postage costs as the same may increase or decrease from time to time.

SECTION 5. Customer Service Functions.

The Servicer shall handle all Customer inquiries and other Customer service matters according to the Servicer Policies and Practices.

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SECTION 6. Collections; Payment Processing; Remittance.

(a) Collection Efforts, Policies, Procedures.

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

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

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

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

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

(ii) The Servicer shall not waive any late payment charge or any other fee or charge relating to delinquent payments, if any, or waive, vary or modify any terms of payment of any amounts payable by a Customer, in each case unless such waiver or action: (A) would be in accordance with the Servicer Policies and Practices and (B) would comply in all material respects with applicable law.

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

(b) Payment Processing; Allocation; Priority of Payments. The Servicer shall post all payments received to Customer accounts as promptly as practicable, and, in any event, substantially all payments shall be posted no later than two Servicer Business Days after receipt.

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

(d) Calculation of Daily Remittance.

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

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

3

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

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

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

(e) Partial Collections. Upon a partial payment of amounts billed, after application of late payment charges, partial payments shall be allocated ratably among the Storm Recovery Charges, any similar securitization charges and DEP’s other billed amounts in a manner that is consistent with DEP’s current process for allocating partial payments where cash collections are first applied to billed deposits, then to installment plans (if any are existing), past due charges, including past due storm recovery charges, current month charges, including storm recovery charges and finally to late payment fees.

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

4

EXHIBIT B

FORM OF MONTHLY SERVICER’S CERTIFICATE

See Attached

MONTHLY SERVICER’S CERTIFICATE

DUKE ENERGY PROGRESS SC STORM FUNDING LLC
$[    ] Storm Recovery Senior Secured Storm Recovery Bonds

Pursuant to Section 3.01(b) of the Storm Recovery Property Servicing Agreement dated as of [   ], 2024 by and between Duke Energy Progress, LLC, as Servicer, and Duke Energy Progress SC Storm Funding LLC, as Issuer (the “Servicing Agreement”), the Servicer does hereby certify as follows:

Capitalized terms used but not defined in this Monthly Servicer’s Certificate have their respective meanings as set forth in the Servicing Agreement. References herein to certain sections and subsections are references to the respective sections or subsections of the Servicing Agreement.

Current BILLING MONTH: {__________}

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

Standard Billing for prior BILLING MONTH

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

Aggregate SRC Collections

Total SRC Remitted for BILLING MONTH
Residential SRC Collected	${__________}
Small General Service SRC Collected	${__________}
Medium General Service SRC Collected	${__________}
Large General Service SRC Collected	${__________}
Lighting SRC Collected	${__________}
Sub-Total of SRC Collected	${__________}

Total SRC Collected and Remitted	${__________}
Aggregate SRC Remittances for {__________ 20__} BILLING MONTH	${__________}
Aggregate SRC Remittances for {__________ 20__} BILLING MONTH	${__________}
Aggregate SRC Remittances for {__________ 20__} BILLING MONTH	${__________}
Total Current SRC Remittances	${__________}

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

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

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

CC:         DUKE ENERGY PROGRESS SC STORM FUNDING LLC

EXHIBIT C

FORM OF SEMI-ANNUAL SERVICER’S CERTIFICATE

See attached

SEMI-ANNUAL SERVICER’S CERTIFICATE

Pursuant to Section 4.01(c)(ii) of the Storm Recovery Property Servicing Agreement, dated as of [   ], 2024 (the “Servicing Agreement”), by and between Duke Energy Progress, LLC, as servicer (the “Servicer”), and Duke Energy Progress SC Storm Funding LLC, the Servicer does hereby certify, for the {__________}, 20{__} Payment Date (the “Current Payment Date”), as follows:

Capitalized terms used but not defined herein have their respective meanings as set forth in the Servicing Agreement. References herein to certain sections and subsections are references to the respective sections of the Servicing Agreement or the Indenture, as the context indicates.

Collection Periods: {__________} to {__________}

Payment Date: {__________}, 20{__}

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

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

2.            Outstanding Amounts of as of prior Payment Date:

vi. Aggregate Outstanding Amount of all Storm Recovery Bonds ${__________}

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

	Principal	Principal Due
vi.	All Storm Recovery Bonds	${__________}
	Interest

[Tranche/Class]	Interest Rate	Days in Interest Period1		Principal Balance	Interest Due
vii. Storm Recovery [  ] {__}	{__}%	{_____}		${__________}	${________}
xii.	All Storm Recovery Bonds				${________}
			Required Level		Funding Required
xiii. Capital Subaccount			${__________}		${__________}

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

i.  Trustee Fees and Expenses; Indemnity Amounts			${__________}
ii.  Servicing Fee			${__________}
iii.  Administration Fee			${__________}
iv.  Operating Expenses			${__________}
Storm Recovery Bonds	Aggregate		Per $1,000 of Original Principal Amount
v.  Semi-Annual Interest (including any past-due for prior periods)			${__________}
1.  Storm Recovery [  ] {__}Interest Payment	${__________}		${__________}
	${__________}
vi.  Principal Due and Payable as a Result of an Event of Default or on Final Maturity Date				${__________}
1.  Storm Recovery [  ] {__} Interest Payment	${__________}	${__________}
	${__________}
vii.  Semi-Annual Principal				${__________}
1.  Storm Recovery [  ] {__} Interest Payment	${__________}	${__________}
	${__________}
viii.  Other unpaid Operating Expenses				${__________}
ix.  Funding of Capital Subaccount (to required level)				${__________}
x.  Capital Subaccount Return to Duke Energy Progress				${__________}
xi.  Deposit to Excess Funds Subaccount				${__________}
xii.  Released to Issuer upon Retirement of all Storm Recovery Bonds				${__________}
xiii.  Aggregate Remittances as of Current Payment Date				${__________}

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

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

¹ On 30/360 day basis for initial payment date; otherwise use one-half of annual rate.

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

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

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

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

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

i. Return on Invested Capital ${__________}

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

i. Capital Subaccount ${__________}

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

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

  

EXHIBIT D

FORM OF SERVICER CERTIFICATE

See attached

SERVICER CERTIFICATE

The undersigned hereby certifies that the undersigned is the duly elected and acting {__________} of DUKE ENERGY PROGRESS, LLC, as servicer (the “Servicer”) under the Storm Recovery Property Servicing Agreement dated as of [   ], 2024 (the “Servicing Agreement”) by and between the Servicer and DUKE ENERGY PROGRESS SC STORM FUNDING LLC, and further certifies that:

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

2.             With respect to each of the Servicing Criteria, the undersigned has made the following assessment of the Servicing Criteria in accordance with Item 1122(d) of Regulation AB, with such discussion regarding the performance of such Servicing Criteria during the fiscal year covered by the Depositor’s annual report on Form 10-K:

Regulation AB Reference	Servicing Criteria	Assessment
General Servicing Considerations
1122(d)(1)(i)	Policies and procedures are instituted to monitor any performance or other triggers and events of default in accordance with the transaction agreements.	Applicable; assessment below.
1122(d)(1)(ii)	If any material servicing activities are outsourced to third parties, policies and procedures are instituted to monitor the third party’s performance and compliance with such servicing activities.	Not applicable.
1122(d)(1)(iii)	Any requirements in the transaction agreements to maintain a back-up servicer for pool assets are maintained.	Not applicable; transaction agreements do not provide for a back-up servicer.
1122(d)(1)(iv)	A fidelity bond and errors and omissions policy is in effect on the party participating in the servicing function throughout the reporting period in the amount of coverage required by and otherwise in accordance with the terms of the transaction agreements.	Not applicable; transaction agreements do not require a fidelity bond or errors and omissions policy.
1122(d)(1)(v)	Aggregation of information, as applicable, is mathematically accurate and the information conveyed accurately reflects the information.	Applicable.
Cash Collection and Administration
1122(d)(2)(i)	Payments on pool assets are deposited into the appropriate custodial bank accounts and related bank clearing accounts no more than two business days following receipt, or such other number of days specified in the transaction agreements.	Applicable.
1122(d)(2)(ii)	Disbursements made via wire transfer on behalf of an obligor or to an investor are made only by authorized personnel.	Not applicable.

Regulation AB Reference	Servicing Criteria	Assessment
1122(d)(2)(iii)	Advances of funds or guarantees regarding collections, cash flows or distributions, and any interest or other fees charged for such advances, are made, reviewed and approved as specified in the transaction agreements.	Applicable; no advances by the Servicer are permitted under the transaction agreements, except for payments of certain indemnities.
1122(d)(2)(iv)	The related accounts for the transaction, such as cash reserve accounts or accounts established as a form of overcollateralization, are separately maintained (e.g., with respect to commingling of cash) as set forth in the transaction agreements.	Applicable, but no current assessment is required since the related accounts are maintained by the Indenture Trustee.
1122(d)(2)(v)	Each custodial account is maintained at a federally insured depository institution as set forth in the transaction agreements.  For purposes of this criterion, “federally insured depository institution” with respect to a foreign financial institution means a foreign financial institution that meets the requirements of Rule 13k-1(b)(1) under the Exchange Act.	Applicable, but no current assessment required; all “custodial accounts” are maintained by the Indenture Trustee.
1122(d)(2)(vi)	Unissued checks are safeguarded so as to prevent unauthorized access.	Not applicable; all payments made by wire transfer.
1122(d)(2)(vii)	Reconciliations are prepared on a monthly basis for all asset-backed securities related bank accounts, including custodial accounts and related bank clearing accounts.  These reconciliations are: (A) mathematically accurate; (B) prepared within 30 calendar days after the bank statement cutoff date, or such other number of days specified in the transaction agreements; (C) reviewed and approved by someone other than the person who prepared the reconciliation; and (D) contain explanations for reconciling items.  These reconciling items are resolved within 90 calendar days of their original identification, or such other number of days specified in the transaction agreements.	Applicable; assessment below.
Investor Remittances and Reporting
1122(d)(3)(i)	Reports to investors, including those to be filed with the SEC, are maintained in accordance with the transaction agreements and applicable SEC requirements.  Specifically, such reports: (A) are prepared in accordance with timeframes and other terms set forth in the transaction agreements; (B) provide information calculated in accordance with the terms specified in the transaction agreements; (C) are filed with the SEC as required by its rules and regulations; and (D) agree with investors’ or the trustee’s records as to the total unpaid principal balance and number of pool assets serviced by the servicer.	Applicable; assessment below.

Regulation AB Reference	Servicing Criteria	Assessment
1122(d)(3)(ii)	Amounts due to investors are allocated and remitted in accordance with timeframes, distribution priority and other terms set forth in the transaction agreements.	Not applicable; investor records maintained by the Indenture Trustee.
1122(d)(3)(iii)	Disbursements made to an investor are posted within two business days to the servicer’s investor records, or such other number of days specified in the transaction agreements.	Not applicable.
1122(d)(3)(iv)	Amounts remitted to investors per the investor reports agree with cancelled checks, or other form of payment, or custodial bank statements.	Applicable; assessment below.
Pool Asset Administration
1122(d)(4)(i)	Collateral or security on pool assets is maintained as required by the transaction agreements or related pool asset documents.	Applicable; assessment below.
1122(d)(4)(ii)	Pool assets and related documents are safeguarded as required by the transaction agreements.	Applicable; assessment below.
1122(d)(4)(iii)	Any additions, removals or substitutions to the asset pool are made, reviewed and approved in accordance with any conditions or requirements in the transaction agreements.	Not applicable; no removals or substitutions of Storm Recovery Property are contemplated or allowed under the transaction documents.
1122(d)(4)(iv)	Payments on pool assets, including any payoffs, made in accordance with the related pool asset documents are posted to the servicer’s obligor records maintained no more than two business days after receipt, or such other number of days specified in the transaction agreements, and allocated to principal, interest or other items (e.g., escrow) in accordance with the related pool asset agreements.	Applicable; assessment below.
1122(d)(4)(v)	The servicer’s records regarding the pool assets agree with the servicer’s records with respect to an obligor’s unpaid principal balance.	Not applicable; because underlying obligation (Storm Recovery Charge) is not an interest-bearing instrument.
1122(d)(4)(vi)	Changes with respect to the terms or status of an obligor’s pool assets (e.g., loan modifications or re-agings) are made, reviewed and approved by authorized personnel in accordance with the transaction agreements and related pool asset documents.	Not Applicable.
1122(d)(4)(vii)	Loss mitigation or recovery actions (e.g., forbearance plans, modifications and deeds in lieu of foreclosure, foreclosures and repossessions, as applicable) are initiated, conducted and concluded in accordance with the timeframes or other requirements established by the transaction agreements.	Applicable; limited assessment below.  Servicer actions governed by Commission regulations.

Regulation AB Reference	Servicing Criteria	Assessment
1122(d)(4)(viii)	Records documenting collection efforts are maintained during the period a pool asset is delinquent in accordance with the transaction agreements.  Such records are maintained on at least a monthly basis, or such other period specified in the transaction agreements, and describe the entity’s activities in monitoring delinquent pool assets, including, for example, phone calls, letters and payment rescheduling plans in cases where delinquency is deemed temporary (e.g., illness or unemployment).	Applicable, but does not require assessment since no explicit documentation requirement with respect to delinquent accounts are imposed under the transaction agreements due to availability of “true-up” mechanism; and any such documentation is maintained in accordance with applicable South Carolina commission rules and regulations.
1122(d)(4)(ix)	Adjustments to interest rates or rates of return for pool assets with variable rates are computed based on the related pool asset documents.	Not applicable; Storm Recovery Charges are not interest-bearing instruments.
1122(d)(4)(x)	Regarding any funds held in trust for an obligor (such as escrow accounts): (A) such funds are analyzed, in accordance with the obligor’s pool asset documents, on at least an annual basis, or such other period specified in the transaction agreements; (B) interest on such funds is paid, or credited, to obligors in accordance with applicable pool asset documents and state laws; and (C) such funds are returned to the obligor within 30 calendar days of full repayment of the related pool assets, or such other number of days specified in the transaction agreements.	Not applicable.
1122(d)(4)(xi)	Payments made on behalf of an obligor (such as tax or insurance payments) are made on or before the related penalty or expiration dates, as indicated on the appropriate bills or notices for such payments, provided that such support has been received by the servicer at least 30 calendar days prior to these dates, or such other number of days specified in the transaction agreements.	Not applicable; Servicer does not make payments on behalf of obligors.
1122(d)(4)(xii)	Any late payment penalties in connection with any payment to be made on behalf of an obligor are paid from the servicer’s funds and not charged to the obligor, unless the late payment was due to the obligor’s error or omission.	Not applicable; Servicer cannot make advances of its own funds on behalf of customers under the transaction agreements.
1122(d)(4)(xiii)	Disbursements made on behalf of an obligor are posted within two business days to the obligor’s records maintained by the servicer, or such other number of days specified in the transaction agreements.	Not applicable; Servicer cannot make advances of its own funds on behalf of customers to pay principal or interest on the bonds.

Regulation AB Reference	Servicing Criteria	Assessment
1122(d)(4)(xiv)	Delinquencies, charge-offs and uncollectible accounts are recognized and recorded in accordance with the transaction agreements.	Applicable; assessment below.
1122(d)(4)(xv)	Any external enhancement or other support, identified in Item 1114(a)(1) through (3) or Item 1115 of Regulation AB, is maintained as set forth in the transaction agreements.	Not applicable; no external enhancement is required under the transaction agreements.

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

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

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

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

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

EXHIBIT E

FORM OF CERTIFICATE OF COMPLIANCE

See attached

CERTIFICATE OF COMPLIANCE

The undersigned hereby certifies that the undersigned is the duly elected and acting {__________} of DUKE ENERGY PROGRESS, LLC, as servicer (the “Servicer”) under the Storm Recovery Property Servicing Agreement dated as of [   ], 2024 (the “Servicing Agreement”) by and between the Servicer and DUKE ENERGY PROGRESS SC STORM FUNDING LLC, and further certifies that:

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

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

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

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

EXHIBIT A
TO
CERTIFICATE OF COMPLIANCE

LIST OF SERVICER DEFAULTS

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

Nature of Default	Status
{__________}	{__________}

EXHIBIT F

EXPECTED SINKING FUND SCHEDULE*

Date	tranche A-1
Closing Date
Total

*             Totals may not add up due to rounding.

Outstanding Principal Balance Per Storm Recovery Bond

Date	tranche A-1
Closing Date
Total

EX-10.2

 

Exhibit 10.2

 

STORM RECOVERY PROPERTY PURCHASE AND SALE AGREEMENT

 

by and between

 

DUKE ENERGY PROGRESS SC STORM FUNDING LLC,

 

Issuer

 

and

 

Duke Energy Progress, LLC,

 

Seller

 

Acknowledged and Accepted by

 

U.S. Bank Trust Company, National Association, as Indenture Trustee

 

Dated as of [   ], 2024

 

 

 

 

TABLE OF CONTENTS

 

Page

 

ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION	1
SECTION 1.01. Definitions and Rules of Construction	1
ARTICLE II CONVEYANCE OF STORM RECOVERY PROPERTY	2
SECTION 2.01. Conveyance of Storm Recovery Property	2
SECTION 2.02. Conditions to Conveyance of Storm Recovery Property	2
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER	4
SECTION 3.01. Organization and Good Standing	4
SECTION 3.02. Due Qualification	4
SECTION 3.03. Power and Authority	4
SECTION 3.04. Binding Obligation	4
SECTION 3.05. No Violation	4
SECTION 3.06. No Proceedings	5
SECTION 3.07. Approvals	5
SECTION 3.08. The Storm Recovery Property	5
SECTION 3.09. Limitations on Representations and Warranties	8
ARTICLE IV COVENANTS OF THE SELLER	9
SECTION 4.01. Existence	9
SECTION 4.02. No Liens	9
SECTION 4.03. Use of Proceeds	9
SECTION 4.04. Delivery of Collections	9
SECTION 4.05. Notice of Liens	9
SECTION 4.06. Compliance with Law	9
SECTION 4.07. Covenants Related to Storm Recovery Bonds and Storm Recovery Property	9
SECTION 4.08. Protection of Title	10
SECTION 4.09. Nonpetition Covenants	11
SECTION 4.10. Taxes	11
SECTION 4.11. Notice of Breach to Rating Agencies, Etc.	12
SECTION 4.12. Filing Requirements	12
SECTION 4.13. Further Assurances	12
SECTION 4.14. Intercreditor Agreement	12
SECTION 4.15. Additional Sale of Storm Recovery Property	12
ARTICLE V THE SELLER	13
SECTION 5.01. Liability of Seller; Indemnities	13
SECTION 5.02. Merger, Conversion or Consolidation of, or Assumption of the Obligations of, Seller	14
SECTION 5.03. Limitation on Liability of Seller and Others	15

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ARTICLE VI MISCELLANEOUS PROVISIONS	15
SECTION 6.01. Amendment	15
SECTION 6.02. Notices	17
SECTION 6.03. Assignment	17
SECTION 6.04. Limitations on Rights of Third Parties	17
SECTION 6.05. Severability	18
SECTION 6.06. Separate Counterparts	18
SECTION 6.07. Governing Law	18
SECTION 6.08. Assignment to Indenture Trustee	18
SECTION 6.09. Limitation of Liability	18
SECTION 6.10. Waivers	18

 

EXHIBIT

 

Exhibit A      Form of Bill of Sale

 

APPENDIX

 

Appendix A      Definitions and Rules of Construction

 

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This STORM RECOVERY PROPERTY PURCHASE AND SALE AGREEMENT, dated as of [   ], 2024, is by and between Duke Energy Progress SC Storm Funding LLC, a Delaware limited liability company, and Duke Energy Progress, LLC (the “Seller”), a North Carolina limited liability company, and acknowledged and accepted by U.S. Bank Trust Company, National Association, a national banking association, as indenture trustee.

 

RECITALS

 

WHEREAS, the Issuer desires to purchase the Storm Recovery Property created pursuant to the Storm Recovery Law;

 

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

 

WHEREAS, the Issuer, in order to finance the purchase of the Storm Recovery Property, will issue the Storm Recovery Bonds under the Indenture; and

 

WHEREAS, the Issuer, to secure its obligations under the Storm Recovery Bonds and the Indenture, will pledge, among other things, all right, title and interest of the Issuer in and to the Storm Recovery Property and this Sale Agreement to the Indenture Trustee for the benefit of the Secured Parties.

 

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

 

ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION

 

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

 

 

 

 

ARTICLE II
CONVEYANCE OF STORM RECOVERY PROPERTY

 

SECTION 2.01.         Conveyance of Storm Recovery Property.

 

(a)            In consideration of the Issuer’s delivery to or upon the order of the Seller of $[    ], subject to the conditions specified in Section 2.02, the Seller does hereby irrevocably sell, transfer, assign, set over and otherwise convey to the Issuer, without recourse or warranty, except as set forth herein, all right, title and interest of the Seller in, to and under the Storm Recovery Property (such sale, transfer, assignment, setting over and conveyance of the Storm Recovery Property includes, to the fullest extent permitted by the Storm Recovery Law and the South Carolina UCC, the assignment of all revenues, collections, claims, rights to payments, payments, money or proceeds arising from the rights and interests specified in the Financing Order, including the right to impose, bill, charge, collect, and receive Storm Recovery Charges related to the Storm Recovery Property, as the same may be adjusted from time to time pursuant to the True-Up Adjustment Mechanism). Such sale, assignment, or other absolute transfer of the Storm Recovery Property or other absolute transfer is hereby expressly stated to be a sale or other absolute transfer and, pursuant to S.C. Code Ann. § 58-27-1125(C)(1), shall be treated as an absolute transfer and true sale and not as a pledge of or secured transaction relating to the Seller’s right, title, and interest in, to, and under the Storm Recovery Property. The Seller and the Issuer agree that after giving effect to the sale, transfer, assignment, setting over and conveyance contemplated hereby the Seller has no right, title or interest in, to or under the Storm Recovery Property to which a security interest could attach because (i) it has sold, transferred, assigned, set over and conveyed all right, title and interest in and to the Storm Recovery Property to the Issuer, (ii) as provided in S.C. Code Ann. § 58-27-1125(C), all right, title and interest shall have passed to the Issuer and (iii) as provided in S.C. Code Ann. § 58-27-1125(C)(4), appropriate financing statements shall have been filed and such transfer is perfected against all third parties, including subsequent judicial or other lien creditors. If such sale, transfer, assignment, setting over and conveyance is held by any court of competent jurisdiction not to be a true sale as provided in S.C. Code Ann. § 58-27-1125(C), then such sale, transfer, assignment, setting over and conveyance shall be treated as a pledge of the Storm Recovery Property and as the creation of a security interest (within the meaning of the Storm Recovery Law and the UCC) in the Storm Recovery Property and, without prejudice to its position that it has absolutely transferred all of its rights in the Storm Recovery Property to the Issuer, the Seller hereby grants a security interest in the Storm Recovery Property to the Issuer (and to the Indenture Trustee for the benefit of the Secured Parties) to secure their respective rights under the Basic Documents to receive the Storm Recovery Charges and all other Storm Recovery Property.

 

(b)            Subject to Section 2.02, the Issuer does hereby purchase the Storm Recovery Property from the Seller for the consideration set forth in Section 2.01(a).

 

SECTION 2.02.         Conditions to Conveyance of Storm Recovery Property. The obligation of the Seller to sell, and the obligation of the Issuer to purchase, Storm Recovery Property on the Closing Date shall be subject to the satisfaction or waiver of each of the following conditions:

 

(a)            on or prior to the Closing Date, the Seller shall have delivered to the Issuer a duly executed Bill of Sale identifying and conveying the Storm Recovery Property on the Closing Date;

 

(b)            on or prior to the Closing Date, the Seller shall have obtained the Financing Order creating the Storm Recovery Property;

 

(c)            as of the Closing Date, the Seller is not insolvent and will not have been made insolvent by such sale and the Seller is not aware of any pending insolvency with respect to itself;

 

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(d)            as of the Closing Date, (i) the representations and warranties of the Seller in this Sale Agreement must be true and correct with the same force and effect as if made on that date (except to the extent they relate to an earlier date), (ii) on and as of the Closing Date no breach of any covenant or agreement of the Seller contained in this Sale Agreement has occurred and is continuing and (iii) no Servicer Default shall have occurred and be continuing;

 

(e)            as of the Closing Date, (i) the Issuer shall have sufficient funds available to pay the purchase price for the Storm Recovery Property to be conveyed on such date and (ii) all conditions to the issuance of the Storm Recovery Bonds intended to provide such funds set forth in the Indenture and the applicable Series Supplement shall have been satisfied or waived;

 

(f)            on or prior to the Closing Date, the Seller shall have taken all action required to transfer to the Issuer ownership of the Storm Recovery Property on such date, free and clear of all Liens other than Liens created by the Issuer pursuant to the Basic Documents and to perfect such transfer, including filing any statements or filings under the Storm Recovery Law or the South Carolina UCC; and the Issuer or the Servicer, on behalf of the Issuer, shall have taken any action required for the Issuer to grant the Indenture Trustee a Lien and first priority perfected security interest in the Storm Recovery Collateral and maintain such security interest as of the Closing Date;

 

(g)            the Seller shall have received and delivered to the Rating Agencies and the Issuer any Opinions of Counsel required by the Rating Agencies;

 

(h)            the Seller shall have received and delivered to the Issuer and the Indenture Trustee, an opinion or opinions of outside tax counsel (as selected by the Seller, and in form and substance reasonably satisfactory to the Issuer) to the effect that (i) the Issuer will not be subject to U.S. federal income tax as an entity separate from its sole owner and that the Storm Recovery Bonds will be treated as debt of the Issuer’s sole owner for U.S. federal income tax purposes and (ii) for U.S. federal income tax purposes, the issuance of the Storm Recovery Bonds will not result in gross income to the Seller;

 

(i)            on and as of the Closing Date, each of the Certificate of Formation, the LLC Agreement, the Servicing Agreement, this Sale Agreement, the Indenture, the Series Supplement, the Financing Order and the Storm Recovery Law shall be in full force and effect;

 

(j)            the Storm Recovery Bonds shall have received the highest credit ratings possible, as evidenced by a certification from the Seller;

 

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

 

(l)            the Seller shall have received the purchase price for the Storm Recovery Property.

 

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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER

 

Subject to Section 3.09, the Seller makes the following representations and warranties, as of the Closing Date, and the Seller acknowledges that the Issuer has relied thereon in acquiring the Storm Recovery Property. The representations and warranties shall survive the sale and transfer of Storm Recovery Property to the Issuer and the pledge thereof to the Indenture Trustee pursuant to the Indenture. The Seller agrees that (i) the Issuer may assign the right to enforce the following representations and warranties to the Indenture Trustee and (ii) the following representations and warranties inure to the benefit of the Issuer and the Indenture Trustee.

 

SECTION 3.01.         Organization and Good Standing. The Seller is a limited liability company duly organized, validly existing and in good standing under the laws of the state of North Carolina, with requisite power and authority to own its properties and conduct its business, including all necessary foreign qualifications, as of the Closing Date.

 

SECTION 3.02.         Due Qualification. The Seller is duly qualified to do business and is in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business shall require such qualifications, licenses or approvals (except where the failure to so qualify or obtain such licenses and approvals would not be reasonably likely to have a material adverse effect on the Seller’s business, operations, assets, revenues or properties, the Storm Recovery Property, the Issuer or the Storm Recovery Bonds).

 

SECTION 3.03.         Power and Authority. The Seller has the requisite power and authority to execute and deliver this Sale Agreement and to carry out its terms. The Seller has full power and authority to own the Storm Recovery Property and to sell and assign the Storm Recovery Property to the Issuer and the Seller has duly authorized such sale and assignment to the Issuer by all necessary action. The execution, delivery and performance of obligations under this Sale Agreement have been duly authorized by all necessary action on the part of the Seller under its organizational documents and laws.

 

SECTION 3.04.         Binding Obligation. This Sale Agreement constitutes a legal, valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms, subject to bankruptcy, receivership, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally from time to time in effect and to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

 

SECTION 3.05.         No Violation. The consummation of the transactions contemplated by this Sale Agreement and the fulfillment of the terms hereof do not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under, the Seller’s organizational documents or any indenture, or other material agreement or instrument to which the Seller is a party or by which it is bound, result in the creation or imposition of any Lien upon any of the Seller’s properties pursuant to the terms of any such indenture, agreement or other instrument (other than any Lien that may be granted in the Issuer’s favor or any Lien under the Basic Documents or any Liens created by the Issuer pursuant to the Storm Recovery Law) or violate any existing law or any order, rule or regulation applicable to the Seller issued by any Governmental Authority having jurisdiction over the Seller or its properties. The Storm Recovery Property is not subject to any Lien thereon, other than the Liens created by the Indenture and the Storm Recovery Law.

 

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SECTION 3.06.         No Proceedings. Except as disclosed in Schedule 3.06, there are no proceedings or, to the Seller’s knowledge, investigations pending or proceedings threatened, before any Governmental Authority having jurisdiction over the Seller or its properties: (a) asserting the invalidity of the Basic Documents, the Storm Recovery Bonds, the Storm Recovery Law or the Financing Order; (b) seeking to prevent the issuance of the Storm Recovery Bonds or the consummation of any of the transactions contemplated by the Basic Documents; (c) seeking a determination or ruling that could reasonably be expected to materially and adversely affect the performance by the Seller of its obligations under, or the validity or enforceability of, the Basic Documents, the related series of Storm Recovery Bonds or the Financing Order; or (d) challenging the Seller’s treatment of the Storm Recovery Bonds as debt of the Seller for U.S. federal income tax purposes.

 

SECTION 3.07.         Approvals. No governmental approvals, authorizations, consents, orders or other actions or filings, other than filings under the Storm Recovery Law or with the Secretary of State of the State of South Carolina or the UCC of Delaware, are required for the Seller to execute, deliver and perform its obligations under this Sale Agreement except those which have previously been obtained or made or are required to be made by the Servicer in the future pursuant to the Servicing Agreement.

 

SECTION 3.08.         The Storm Recovery Property.

 

(a)            Information. Subject to Section 3.08(h), at the Closing Date, all written information, as amended or supplemented from time to time, provided by the Seller to the Issuer with respect to the Storm Recovery Property (including the Expected Sinking Fund Schedule and the Financing Order) is true and correct in all material respects and does not omit any material facts and all historical data for the purpose of calculating the initial storm recovery charges in the issuance advice letter and initial routine true-up adjustment request are true and correct, and the assumptions used for such calculations are reasonable and made in good faith.

 

(b)            True-Sale and Absolute Transfer. The transfer, sale, assignment and conveyance of the Storm Recovery Property constitutes a sale or other absolute transfer of all of the Seller’s right, title and interest in the Storm Recovery Property to the Issuer; upon the execution and delivery of this Sale Agreement and the Bill of Sale on the Closing Date, the Storm Recovery Property shall be validly transferred and sold to the Issuer and the Seller will have no right, title or interest in the Storm Recovery Property and the Storm Recovery Property would not be part of the estate of the Seller as debtor in the event of a filing of a bankruptcy petition by or against the Seller under any bankruptcy law. The Seller hereby represents that no portion of the Storm Recovery Property has been sold, transferred, assigned, pledged or otherwise conveyed by the Seller to any person other than the Issuer, and, to the Seller’s knowledge (after due inquiry), no security agreement, financing statement or equivalent security or lien instrument listing the Seller as debtor covering all or a portion of the Storm Recovery Property is on file or of record in any jurisdiction, except such as may have been file or recorded in favor of the Issuer or the Indenture Trustee in connection with the Basic Documents.

 

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(c)            Title. The Seller is the sole owner of the Storm Recovery Property sold to the Issuer on the Closing Date and such sale is made free and clear of all Liens other than Liens created by the Issuer pursuant to Indenture. All actions or filings, including filings under the Storm Recovery Law and the UCC, necessary to give the Issuer a valid ownership interest in the Storm Recovery Property and to grant the Indenture Trustee a first priority perfected security interest in the Storm Recovery Property, free and clear of all Liens of the Seller or any other Person have been taken or made.

 

(d)            Financing Order; Other Approvals. On the Closing Date, under the laws of the State of South Carolina (including the Storm Recovery Law) and the United States in effect on the Closing Date: (i) The Financing Order has been issued by the Commission in accordance with the Storm Recovery Law, and such order and the process by which it was issued comply with all applicable laws, rules and regulations. The Financing Order has become effective pursuant to the Storm Recovery Law and is, and as of the date of issuance of the Storm Recovery Bonds will be, in full force and effect and final and non-appealable; (ii) the Storm Recovery Bonds will be entitled to the protections provided by the Storm Recovery Law and, accordingly, the Financing Order and the Storm Recovery Charges are irrevocable and not subject to reduction by the Commission, except for the True-Up Adjustments to the Storm Recovery Charges provided for in the Financing Order; (iii) revisions to Duke Energy Progress’s electric tariff to implement the Storm Recovery Charges have been filed and are in full force and effect, such revisions are consistent with the Financing Order, and any electric tariff implemented consistent with a Financing Order issued by the Commission is not subject to modification by the Commission except for True-Up Adjustments made in accordance with the Storm Recovery Law; (iv) the process by which the Financing Order was adopted and approved complies with all applicable laws, rules and regulations; and (vi) no Governmental Approvals, authorizations, consents, orders or other actions or filings, other than filings under the Storm Recovery Law or the UCC of South Carolina or Delaware, are required for the Seller to executed, deliver and perform its obligations under this Sale Agreement except those which have previously been obtained or made or are required to be made by the Servicer in the future pursuant to the Servicing Agreement.

 

(e)            State Action. Under the Storm Recovery Law, the State of South Carolina and its agencies, including the Commission, may not take or permit any action that would impair the value of the Storm Recovery Property or the Storm Recovery Collateral or, except for the True-Up Adjustment, reduce, alter, or impair the Storm Recovery Charges to be imposed, charged, collected and remitted to the Issuer, for the benefit of the Holders of the Storm Recovery Bonds until the principal, interest or other charges incurred or contracts to be performed in connection with the Storm Recovery Bonds are paid or performed in full. Furthermore, under the Contract Clause of the United States Constitution, any action taken by the State of South Carolina or its agencies, including the Commission that substantially impairs the rights of the Holders of the Storm Recovery Bonds are likely to be found by a court of competent jurisdiction to be an impairment of contract with respect to the State Pledge, unless such action is a reasonable exercise of the State of South Carolina’s sovereign powers and of a character reasonable and appropriate to further a significant and legitimate public purpose. Under the Takings Clauses of the State of South Carolina and United States Constitutions, the State of South Carolina would likely be required to pay just compensation to the Holders if a court of competent jurisdiction determines that a repeal or amendment of the Storm Recovery Law or any other action taken by the State of South Carolina in contravention of the State Pledge, (a) constitutes a permanent appropriation of a substantial property interest of the Holders in the Storm Recovery Property or (b) substantially impairs the value of the Storm Recovery Property so as to unduly interfere with the reasonable expectations of the Holders arising from their investment in the Storm Recovery Bonds, unless such court finds that just compensation has been provided to the Holders of the Storm Recovery Bonds. Nothing in this paragraph precludes any limitation or alteration if full compensation is made by law for the full protection of the Storm Recovery Charges and of the Holders of the Storm Recovery Bonds or any assignee or party entering into a contract with the Seller.

 

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(f)            No Repeal of the Storm Recovery Law. Apart from amending the Constitution of the State of South Carolina by initiative, the voters of the State of South Carolina do not have initiative powers to amend, repeal or revoke the Storm Recovery Law.

 

(g)            Tax Liens. After due inquiry, the Seller is not aware of any judgment or tax lien filing against the Issuer or the Seller.

 

(h)            Assumptions. On the Closing Date, based upon the information available to the Seller on such date, the assumptions used in calculating the Storm Recovery Charges are reasonable and are made in good faith. Notwithstanding the foregoing, the Seller makes no representation or warranty, express or implied, that amounts actually collected arising from those Storm Recovery Charges will in fact be sufficient to meet the payment obligations on the related Storm Recovery Bonds or that the assumptions used in calculating such Storm Recovery Charges will in fact be realized.

 

(i)             Creation of Storm Recovery Property.

 

(i)             For purposes of the Storm Recovery Law, the Storm Recovery Property constitutes a present property right that will continue to exist until the Storm Recovery Bonds issued pursuant to the Financing Order are paid in full and all Financing Costs of the Storm Recovery Bonds have been recovered in full; and

 

(ii)            the Storm Recovery Property consists of (A) all rights and interest of the Seller under the Financing Order, including the right to impose, bill, charge, collect and receive Storm Recovery Charges; (B) the right under the Financing Order to obtain True-Up Adjustments of the Storm Recovery Charges; and (C) all revenues, collections, claims, rights to payments, payments, money and proceeds arising out of the rights and interests described in (A) and (B).

 

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

 

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(k)            Prospectus. As of the date hereof, the information describing the Seller under the caption “DEP’s Review of Storm Recovery Property” and “Duke Energy Progress, LLC–The Depositor, Sponsor, Seller and Servicer” in the prospectus dated [     ], 2024 relating to the Storm Recovery Bonds is true and correct in all material respects.

 

(l)             Solvency. After giving effect to the sale of the Storm Recovery Property hereunder, the Seller:

 

(i)             is solvent and expects to remain solvent;

 

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

 

(iii)           is not engaged in nor does it expect to engage in a business for which its remaining property represents unreasonably small capital;

 

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

 

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

 

(m)           No Court Order. There is no order by any court providing for the revocation, alteration, limitation or other impairment of the Storm Recovery Law, the Financing Order, the Storm Recovery Property or the Storm Recovery Charges or any rights arising under any of them or that seeks to enjoin the performance of any obligations under the Financing Order which is adverse to the position of the related Holders of Storm Recovery Bonds.

 

(n)            Survival of Representations and Warranties The representations and warranties set forth in this Section 3.08 shall survive the execution and delivery of this Sale Agreement and may not be waived by any party hereto except pursuant to a written agreement executed in accordance with Article VI and as to which the Rating Agency Condition has been satisfied.

 

SECTION 3.09.         Limitations on Representations and Warranties. Without prejudice to any of the other rights of the parties, the Seller will not be in breach of any representation or warranty as a result of a change in law by means of any legislative enactment, constitutional amendment or voter initiative. Notwithstanding anything in this Sale Agreement to the contrary, the Seller makes no representation that amounts collected will be sufficient to meet the obligations on the Storm Recovery Bonds.

 

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ARTICLE IV
COVENANTS OF THE SELLER

 

SECTION 4.01.         Existence. Subject to Section 5.02, so long as any of the Storm Recovery Bonds are Outstanding, the Seller (a) will keep in full force and effect its existence and remain in good standing or equivalent status under the laws of the jurisdiction of its organization and (b) will obtain and preserve its qualifications to do business in each jurisdiction in which such qualification is or will be necessary to protect the validity and enforceability of this Sale Agreement and each other instrument or agreement to which the Seller is a party necessary to the proper administration of this Sale Agreement and the transactions contemplated thereby.

 

SECTION 4.02.         No Liens. Except for the conveyances under this Sale Agreement or any Lien for the benefit of the Issuer, the Holders of the Storm Recovery Bonds or the Indenture Trustee, the Seller will not sell, pledge, assign or transfer to any other person, or grant, create, incur, assume or suffer to exist any Lien on, any of the Storm Recovery Property, whether existing as of the transfer date or thereafter created, or any interest therein. The Seller will not at any time assert any Lien against or with respect to any Storm Recovery Property, and will defend the right, title and interest of the Issuer and of the Indenture Trustee, on behalf of the Secured Parties, in, to and under the Storm Recovery Property against all claims of third parties claiming through or under the Seller.

 

SECTION 4.03.         Use of Proceeds. The Seller will use the proceeds of the sale of the related Storm Recovery Property in accordance with the Financing Order.

 

SECTION 4.04.         Delivery of Collections. In the event that the Seller receives any Storm Recovery Charge Collections or other payments in respect of the Storm Recovery Charges or the proceeds thereof, other than in its capacity as the Servicer, the Seller agrees to pay to the Servicer, on behalf of the Issuer, all payments received by it in respect thereof as soon as practicable after receipt thereof by the Seller, but in no event later than two Business Days after the Seller becomes aware of such receipt.

 

SECTION 4.05.         Notice of Liens. The Seller shall notify the Issuer and the Indenture Trustee in writing, promptly after becoming aware of any Lien on any of the Storm Recovery Property, other than the conveyances hereunder and any Lien pursuant to the Basic Documents, including the Lien in favor of the Indenture Trustee for the benefit of the Holders of the Storm Recovery Bonds.

 

SECTION 4.06.         Compliance with Law. The Seller will materially comply with its organizational or governing documents and all laws, treaties, rules, regulations and determinations of any Governmental Authority applicable to it, except to the extent that failure to so comply would not materially adversely affect the Issuer’s or the Indenture Trustee’s interests in the Storm Recovery Property under any of the Basic Documents, the timing or amount of Storm Recovery Charges payable by Customers or of Seller’s performance of its material obligations under this Sale Agreement.

 

SECTION 4.07.         Covenants Related to Storm Recovery Bonds and Storm Recovery Property.

 

(a)            So long as any of the Storm Recovery Bonds are Outstanding, the Seller shall treat the Storm Recovery Property as the Issuer’s property for all purposes other than financial accounting, U.S. federal income tax purposes and state income and franchise tax purposes.

 

(b)            So long as any of the Storm Recovery Bonds are Outstanding, the Seller shall treat such Storm Recovery Bonds as debt of the Issuer and not that of the Seller, except for financial accounting and U.S. federal income tax purposes. For U.S. federal income tax purposes, so long as any of the Storm Recovery Bonds are Outstanding, the Seller agrees to treat such Storm Recovery Bonds as indebtedness of the Seller (as the sole owner of the Issuer) secured by the related Storm Recovery Collateral unless otherwise required by appropriate taxing authorities.

 

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(c)            So long as any of the Storm Recovery Bonds are Outstanding, the Seller shall disclose in its financial statements that the Issuer and not the Seller is the owner of the Storm Recovery Property and that the assets of the Issuer are not available to pay creditors of the Seller or its Affiliates (other than the Issuer).

 

(d)            So long as any of the Storm Recovery Bonds are Outstanding, the Seller shall not own or purchase any Storm Recovery Bonds.

 

(e)            So long as the Storm Recovery Bonds are Outstanding, the Seller shall disclose the effects of all transactions between the Seller and the Issuer in accordance with generally accepted accounting principles.

 

(f)            The Seller agrees that, upon the sale by the Seller of the Storm Recovery Property to the Issuer pursuant to this Sale Agreement, (i) to the fullest extent permitted by law, including applicable Commission Regulations and the Storm Recovery Law, the Issuer shall have all of the rights originally held by the Seller with respect to the Storm Recovery Property, including the right (subject to the terms of the Servicing Agreement) to exercise any and all rights and remedies to collect any amounts payable by any Customer in respect of the Storm Recovery Property, notwithstanding any objection or direction to the contrary by the Seller (and the Seller agrees not to make any such objection or to take any such contrary action) and (ii) any payment by any Customer directly to the Issuer shall discharge such Customer’s obligations, if any, in respect of the Storm Recovery Property to the extent of such payment, notwithstanding any objection or direction to the contrary by the Seller.

 

(g)            So long as any of the Storm Recovery Bonds are Outstanding, (i) in all proceedings relating directly or indirectly to the Storm Recovery Property, the Seller shall affirmatively certify and confirm that it has sold all of its rights and interests in and to such property (other than for financial accounting or tax purposes), (ii) the Seller shall not make any statement or reference in respect of the Storm Recovery Property that is inconsistent with the ownership interest of the Issuer (other than for financial accounting or tax purposes), (iii) the Seller shall not take any action in respect of the Storm Recovery Property except solely in its capacity as the Servicer thereof pursuant to the Servicing Agreement or as otherwise contemplated by the Basic Documents, and (iv) neither the Seller nor the Issuer shall take any action, file any tax return or make any election inconsistent with the treatment of the Issuer, for U.S. federal income tax purposes and, to the extent consistent with applicable state tax law, state income and franchise tax purposes, as a disregarded entity that is not separate from the Seller (or, if relevant, from another sole owner of the Issuer).

 

SECTION 4.08.         Protection of Title. The Seller shall execute and file such filings, including filings with the Secretary of State of the State of South Carolina pursuant to the Storm Recovery Law, and cause to be executed and filed such filings, all in such manner and in such places as may be required by law to fully preserve, maintain, protect and perfect the ownership interest of the Issuer, and the back-up precautionary security interest of the Issuer pursuant to Section 2.01, and the first priority security interest of the Indenture Trustee in the Storm Recovery Property, including all filings (including but not limited to continuation statements) required under the Storm Recovery Law and the UCC relating to the transfer of the ownership of the rights and interest in the Storm Recovery Property by the Seller to the Issuer or the pledge of the Issuer’s interest in the Storm Recovery Property to the Indenture Trustee. The Seller shall deliver or cause to be delivered to the Issuer and the Indenture Trustee file-stamped copies of, or filing receipts for, any document filed as provided above, as soon as available following such filing. The Seller shall institute any action or proceeding necessary to compel performance by the Commission, the State of South Carolina or any of their respective agents of any of their obligations or duties under the Storm Recovery Law, the Financing Order, or any issuance advice letter for the Storm Recovery Bonds and the Seller agrees to take such legal or administrative actions, including defending against or instituting and pursuing legal actions and appearing or testifying at hearings or similar proceedings, in each case as may be reasonably necessary (a) to seek to protect the Issuer and the Secured Parties from claims, state actions or other actions or proceedings of third parties that, if successfully pursued, would result in a breach of any representation set forth in Article III or any covenant set forth in Article IV and (b) to seek to block or overturn any attempts to cause a repeal of, modification of or supplement to the Storm Recovery Law, the Financing Order or any issuance advice letter for the Storm Recovery Bonds, or the rights of Holders of the Storm Recovery Bonds by legislative enactment or constitutional amendment that would be materially adverse to the Issuer or the Secured Parties or that would otherwise cause an impairment of the rights of the Issuer or the Secured Parties. The costs of any such actions or proceedings undertaken by the Seller will be reimbursed by the Issuer as an Operating Expense.

 

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SECTION 4.09.         Nonpetition Covenants. Notwithstanding any prior termination of this Sale Agreement or the Indenture, the Seller shall not, prior to the date that is one year and one day after the termination of the Indenture and payment in full of the Storm Recovery Bonds or any other amounts owed under the Indenture, acquiesce, petition or otherwise invoke or cause the Issuer to invoke the process of any Governmental Authority for the purpose of commencing or sustaining a voluntary case against the Issuer under any U.S. federal or state bankruptcy, insolvency or similar law, appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official or any substantial part of the property of the Issuer, or ordering the winding up or liquidation of the affairs of the Issuer.

 

SECTION 4.10.         Taxes. So long as any of the Storm Recovery Bonds are outstanding, the Seller shall, and shall cause each of its Affiliates to, pay all material taxes, assessments and governmental charges imposed upon it or any of its properties or assets or with respect to any of its franchises, business, income or property before any penalty accrues thereon if the failure to pay any such taxes, assessments and governmental charges would, after any applicable grace periods, notices or other similar requirements, result in a Lien on the Storm Recovery Property; provided, that no such tax need be paid if the Seller or one of its Affiliates is contesting the same in good faith by appropriate proceedings promptly instituted and diligently conducted and if the Seller or such Affiliate has established appropriate reserves as shall be required in conformity with generally accepted accounting principles.

 

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SECTION 4.11.         Notice of Breach to Rating Agencies, Etc. Promptly after obtaining knowledge thereof, in the event of a breach in any material respect (without regard to any materiality qualifier contained in such representation, warranty or covenant) of any of the Seller’s representations, warranties or covenants contained herein, the Seller shall promptly notify the Issuer, the Indenture Trustee, the Commission and the Rating Agencies, in writing, of such breach. For the avoidance of doubt, any breach that would adversely affect scheduled payments on the Storm Recovery Bonds will be deemed to be a material breach for purposes of this Section 4.11.

 

SECTION 4.12.         Filing Requirements. The Seller shall comply with all filing requirements, including any post-closing filings, in accordance with the Financing Order.

 

SECTION 4.13.         Further Assurances. Upon the request of the Issuer, the Seller shall execute and deliver such further instruments and do such further acts as may be reasonably necessary to carry out the provisions and purposes of this Sale Agreement with notice to the Commission and the Office of Regulatory Staff as provided in Section 6.02, provided, however, that the delivery of such notice shall not delay the implementation of any instrument delivered in accordance with this Section.

 

SECTION 4.14.         Intercreditor Agreement. The Seller shall not continue as or become a party to any (i) new trade receivables purchase and sale agreement or similar arrangement under which it sells all or any portion of its accounts receivables owing from South Carolina retail transmission or distribution, or both, customers unless the Indenture Trustee, the Seller and the other parties to such additional arrangement shall have entered into a joinder or amendment to the Intercreditor Agreement in connection therewith and the terms of the documentation evidencing such trade receivables purchase and sale arrangement or similar arrangement shall expressly exclude Storm Recovery Property (including Storm Recovery Charges) from any receivables or other assets pledged or sold under such arrangement or (ii) sale agreement selling to any other Affiliate property consisting of charges similar to the Charges sold pursuant to this Sale Agreement, payable by Customers pursuant to the Storm Recovery Law or any similar law, unless the Seller and the other parties to such arrangement shall have entered into a joinder or amendment to the Intercreditor Agreement in connection with any agreement or similar arrangement described in this Section 4.14.

 

SECTION 4.15.         Additional Sale of Storm Recovery Property. So long as any of the Storm Recovery Bonds are outstanding, the Seller shall not sell any “storm recovery property” (as defined in the Storm Recovery Law) or similar property, to secure another issuance of storm recovery bonds or similar bonds unless the Rating Agency Condition has been satisfied. In the case of a subsequent conveyance of storm recovery property only, on or prior to the issuance date, the Seller shall provide Duke Energy Progress SC Storm Funding LLC and the Rating Agencies with a timely additional notice.

 

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ARTICLE V
THE SELLER

 

SECTION 5.01.         Liability of Seller; Indemnities.

 

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

 

(b)            The Seller shall indemnify the Issuer and the Indenture Trustee (for itself and the benefit of the Holders of the Storm Recovery Bonds), and each of their respective officers, directors, employees, trustees, managers, including the Independent Manager, and agents for, and defend and hold harmless each such Person from and against, any and all taxes (other than taxes imposed on Holders as a result of their ownership of a Storm Recovery Bond) that may at any time be imposed on or asserted against any such Person as a result of the sale and assignment of the Storm Recovery Property to the Issuer, including any franchise, sales, gross receipts, general corporation, tangible personal property, privilege or license taxes, but excluding any taxes imposed as a result of a failure of such Person to withhold or remit taxes with respect to payments on any Storm Recovery Bond, it being understood that the Holders of Storm Recovery Bonds shall be entitled to enforce their rights against the Seller under this Section 5.01(b) solely through a cause of action brought for their benefit by the Indenture Trustee as set forth in the Indenture.

 

(c)            The Seller shall indemnify the Issuer and the Indenture Trustee (for itself and the benefit of the Holders of the Storm Recovery Bonds) and each of their respective officers, directors, employees, trustees, managers and agents for, and defend and hold harmless each such Person from and against, any and all taxes (other than taxes imposed on Holders as a result of their ownership of a Storm Recovery Bond) that may at any time be imposed on or asserted against any such Person as a result of the Issuer’s ownership and assignment of the Storm Recovery Property, the issuance and sale by the Issuer of the Storm Recovery Bonds or the other transactions contemplated in the Basic Documents, including any franchise, sales, gross receipts, general corporation, tangible personal property, privilege or license taxes, but excluding any taxes imposed as a result of a failure of such Person to withhold or remit taxes with respect to payments on any Storm Recovery Bond.

 

(d)            Indemnification under Sections 5.01(b), 5.01(c), 5.01(d) and 5.01(e) shall include reasonable out-of-pocket fees and expenses of investigation and litigation (including reasonable attorneys’ fees and expenses), except as otherwise expressly provided in this Sale Agreement.

 

(e)            The Seller shall indemnify the Issuer and the Indenture Trustee (for itself and for the benefit of the Holders of the Storm Recovery Bonds), and each of the Issuer’s and the Indenture Trustee’s respective officers, directors, managers, employees and agents (each, an “Indemnified Person”) for, and defend and hold harmless each such Person from and against, (i) any and all amounts of principal of and interest on the Storm Recovery Bonds not paid when due or when scheduled to be paid in accordance with their terms and the amount of any deposits to the Issuer required to have been made in accordance with the terms of the Basic Documents which are not made when so required, in each case as a result of the Seller’s breach of any of its representations, warranties or covenants contained in this Sale Agreement, and (ii) any and all Losses that may be imposed on or asserted against any such Person, other than any liabilities, obligations or claims for or payments of principal of or interest on the Storm Recovery Bonds, together with any reasonable costs and expenses actually incurred by such Person, as a result of the Seller’s material breach of any of its representations, warranties or covenants contained in this Sale Agreement, except to the extent of Losses either resulting from the willful misconduct, bad faith or gross negligence of such Indemnified Person or resulting from a breach of a representation or warranty made by such Indemnified Person in any of the Basic Documents that gives rise to Seller’s breach, and provided that, with respect to a material breach of a representation, warranty or covenant, the Seller has first had a 30-day opportunity to cure such breach beginning with the receipt of a notice of breach from the Issuer or the Indenture Trustee and has failed to cure such breach within such period; and provided further that the Holders of the Storm Recovery Bonds shall be entitled to enforce their rights against the Seller under this Section 5.01(e) solely through a cause of action brought for their benefit by the Indenture Trustee.

 

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(f)            The Seller shall indemnify the Servicer (if the Servicer is not the Seller) for the costs of any action instituted by the Servicer pursuant to Section 5.02(d) of the Servicing Agreement that are not paid as Operating Expenses in accordance with the priorities set forth in Section 8.02(e) of the Indenture.

 

(g)            The remedies provided in this Sale Agreement are the sole and exclusive remedies against the Seller for breach of its representations and warranties in this Sale Agreement.

 

(h)            The Seller’s obligations under this Section 5.01 shall survive any repeal of, modification of, or supplement to, or judicial invalidation of, the Storm Recovery Law or the Financing Order and shall survive the resignation or removal of the Indenture Trustee or the termination of this Sale Agreement and will rank pari passu with other general, unsecured obligations of the Seller. The Seller shall not indemnify any party under this Section 5.01 for any changes in law after the Closing Date, whether such changes in law are effected by means of any legislative enactment, any constitutional amendment or any final and non-appealable judicial decision.

 

SECTION 5.02.         Merger, Conversion or Consolidation of, or Assumption of the Obligations of, Seller. Any Person (a) into which the Seller may be merged or consolidated and which succeeds to all or substantially all of the electric distribution business of the Seller, (b) which results from the division of the Seller into two or more Persons and which succeeds to all or substantially all of the electric distribution business of the Seller, (c) which may result from any merger or consolidation to which the Seller shall be a party and which succeeds to all or substantially all of the electric distribution business of the Seller, (d) which may succeed to the properties and assets of the Seller substantially as a whole and which succeeds to all or substantially all of the electric distribution business of the Seller, or (e) which may otherwise succeed to all or substantially all of the electric distribution business of the Seller, which Person in any of the foregoing cases executes an agreement of assumption to perform every obligation of the Seller under this Sale Agreement, shall be the successor to the Seller hereunder without the execution or filing of any document or any further act by any of the parties to this Sale Agreement; provided, however, that: (i) immediately after giving effect to such transaction, no representation or warranty made pursuant to Article III shall have been breached and no Servicer Default, and no event that, after notice or lapse of time, or both, would become a Servicer Default, shall have occurred and be continuing, (ii) the Seller shall have delivered to the Issuer and the Indenture Trustee an Officer's Certificate and an Opinion of Counsel each stating that such consolidation, reorganization, merger or succession and such agreement of assumption comply with this Section 5.02 and that all conditions precedent, if any, provided for in this Sale Agreement relating to such transaction have been complied with, (iii) the Seller shall have delivered to the Issuer and the Indenture Trustee an Opinion of Counsel stating that, in the opinion of such counsel, either (A) all filings to be made by the Seller or the Seller, in its capacity as Seller or as Servicer, including filings under the Storm Recovery Law with the Secretary of the State of the State of South Carolina and the UCC, that are necessary or advisable to fully preserve and protect the respective interests of the Issuer and the Indenture Trustee in the Storm Recovery Property have been executed and filed, and reciting the details of such filings, or (B) no such action is necessary to preserve and protect such interests, (iv) the Seller shall have given the Rating Agencies prior written notice of such transaction and (v) the Seller shall have delivered to the Issuer, the Indenture Trustee and the Rating Agencies an Opinion of Counsel from external tax counsel stating that, for U.S. federal income tax purposes, such consolidation, conversion, merger or succession and such agreement of assumption will not result in a material U.S. federal income tax consequence to the Issuer, the Seller, the Indenture Trustee or the Holders of Storm Recovery Bonds. When any Person (or more than one Person) acquires the properties and assets of the Seller substantially as a whole or otherwise becomes the successor, whether by merger, conversion, consolidation, sale, transfer, lease, management contract or otherwise, to all or substantially all of the assets of the Seller in accordance with the terms of this Section 5.02, then, upon satisfaction of all of the other conditions of this Section 5.02, the preceding Seller shall automatically and without further notice be released from all of its obligations hereunder.

 

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SECTION 5.03.         Limitation on Liability of Seller and Others. The Seller and any director, officer, employee or agent of the Seller may rely in good faith on the advice of counsel or on any document of any kind, prima facie properly executed and submitted by any Person, respecting any matters arising hereunder. Subject to Section 4.08, the Seller shall not be under any obligation to appear in, prosecute or defend any legal action that is not incidental to its obligations under this Sale Agreement and that in its opinion may involve it in any expense or liability.

 

ARTICLE VI
MISCELLANEOUS PROVISIONS

 

SECTION 6.01.         Amendment.

 

(a)            Subject to Section 6.01(b), this Sale Agreement may be amended in writing by the Seller and the Issuer with (a) the prior written consent of the Indenture Trustee (b) the satisfaction of the Rating Agency Condition and (c) if any amendment would adversely affect in any material respect the interest of any Holder of the Storm Recovery Bonds, the consent of a majority of the Holders of the Storm Recovery Bonds. In determining whether a majority of Holders of the Bonds have consented, Bonds owned by the Issuer or any Affiliate of the Issuer shall be disregarded, except that, in determining whether the Indenture Trustee shall be protected in relying upon any such consent, the Indenture Trustee shall only be required to disregard any Bonds it actually knows to be so owned. Promptly after the execution of any such amendment or consent, the Issuer shall furnish copies of such amendment or consent to each of the Rating Agencies.

 

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

 

(b)            Notwithstanding anything to the contrary in this Section 6.01, no amendment or modification of this Agreement that the Seller determines has a reasonable possibility to impact the rates borne by customers shall be effective except upon satisfaction of the conditions precedent in this paragraph (b).

 

(i)            At least 30 days prior to the effectiveness of any such amendment or modification and after obtaining the other necessary approvals set forth in Section 6.01(a) (except that the consent of the Indenture Trustee may be subject to the consent of the Holders of the Storm Recovery Bonds if such consent is required or sought by the Indenture Trustee in connection with such amendment or modification) the Seller shall have filed in Commission docket 2023-89-E written notification of any proposed amendment, addressed to the Chief Clerk/Executive Director of the Commission with a copy delivered to the Office of Regulatory Staff and all parties of record, which notification shall contain:

 

A.            a reference to Docket No. 2023-89-E;

 

B.            an Officer’s Certificate stating that the proposed amendment or modification has been approved by all parties to this Sale Agreement; and

 

C.            a description of the proposed amendment, including the purpose of such amendment.

 

(ii)            No later than 5:00 p.m. on the 30^th business day after receipt of notice of a proposed amendment complying with subparagraph(i), the Commission shall issue an order either (i) approving the proposed amendment or (ii) preventing the adoption of such amendment or modification.

 

(iii)            Following the delivery of an order from the Commission to the Seller under subparagraph (ii), the Seller and the Issuer shall have the right at any time to withdraw from the Commission further consideration of any proposed amendment. The fact that the Seller delivers notice to the Commission pursuant to this Section 6.01(b) does not obligate the Seller to amend the Sale Agreement as provided in the notice.

 

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SECTION 6.02.         Notices. Any notice, report or other communication given hereunder shall be in writing and shall be effective (i) upon receipt when sent through the mails, registered or certified mail, return receipt requested, postage prepaid, with such receipt to be effective the date of delivery indicated on the return receipt, (ii) upon receipt when sent by an overnight courier, (iii) on the date personally delivered to an authorized officer of the party to which sent or (iv) on the date transmitted by facsimile or other electronic transmission with a confirmation of receipt in all cases, addressed as follows:

 

(a)            in the case of Seller, to Duke Energy Progress, LLC, at 411 Fayetteville Street Raleigh, North Carolina 27601, Attention: Director, Rates and Regulatory Strategy, Telephone: 704-382-3853 in care of (c/o): Director, Rates and Regulatory Planning and at 525 South Tryon Street, Charlotte, North Carolina 28202, Attention: Treasurer, Telephone: 704-382-3853 c/o Assistant Treasurer;

 

(b)            in the case of the Issuer, to Duke Energy Progress SC Storm Funding LLC, at 411 Fayetteville Street Raleigh, North Carolina 27601, Attention: Manager, Telephone: 704-382-3853 in care of (c/o): Treasurer and at 525 South Tryon Street, Charlotte, North Carolina 28202, Attention: Structured Finance Director, Telephone: 704-382-2264;

 

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

 

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

 

(e)            in the case of Moody’s, to Moody’s Investors Service, Inc., ABS/RMBS Monitoring Department, 24th Floor, 7 World Trade Center, 250 Greenwich Street, New York, New York 10007, Email: ServicerReports@moodys.com (all such notices to be delivered to Moody’s in writing by email), and solely for purposes of Rating Agency Condition communications: abscormonitoring@moodys.com; and

 

(f)            if to the Commission, by filing a notice in Docket No. 2023-89-E addressed to the Chief Clerk/Executive Director of the Commission with a copy delivered to the Office of Regulatory Staff and all parties of record.

 

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

 

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

 

SECTION 6.04.         Limitations on Rights of Third Parties. The provisions of this Sale Agreement are solely for the benefit of the Seller, the Issuer, the Indenture Trustee (for the benefit of the Secured Parties) and the other Persons expressly referred to herein, and such Persons shall have the right to enforce the relevant provisions of this Sale Agreement. Nothing in this Sale Agreement, whether express or implied, shall be construed to give to any other Person any legal or equitable right, remedy or claim in the Storm Recovery Property or under or in respect of this Sale Agreement or any covenants, conditions or provisions contained herein. The Seller acknowledges under the authority granted to the Commission pursuant to Title 58, Chapter 27 of the South Carolina Code of Laws that the Commission has authority to enter an order enforcing the provisions of this Sale Agreement consistent with the Financing Order and Storm Recovery Law.

 

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SECTION 6.05.         Severability. Any provision of this Sale Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remainder of such provision (if any) or the remaining provisions hereof (unless such construction shall be unreasonable), and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

 

SECTION 6.06.         Separate Counterparts. This Sale Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. The parties hereto agree that this Sale Agreement may be electronically signed, that any digital or electronic signatures (including pdf, facsimile or electronically imaged signatures provided by AdobeSign, DocuSign, Diligent Board or any other digital signature provider as specified and agreed upon in writing to the other parties) appearing on this Sale Agreement are the same as handwritten signatures for the purposes of validity, enforceability and admissibility, and that delivery of any such electronic signature to, or a signed copy of, this Sale Agreement may be made by facsimile, email or other electronic transmission.

 

SECTION 6.07.         Governing Law. This Sale Agreement shall be construed in accordance with the laws of the State of South Carolina, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws.

 

SECTION 6.08.         Assignment to Indenture Trustee. The Seller hereby acknowledges and consents to any mortgage, pledge, assignment and grant of a security interest by the Issuer to the Indenture Trustee pursuant to the Indenture for the benefit of the Secured Parties of all right, title and interest of the Issuer in, to and under this Sale Agreement, the Storm Recovery Property and the proceeds thereof and the assignment of any or all of the Issuer’s rights hereunder to the Indenture Trustee for the benefit of the Secured Parties.

 

SECTION 6.09.         Limitation of Liability. It is expressly understood and agreed by the parties hereto that this Sale Agreement is executed and delivered by the Indenture Trustee, not individually or personally but solely as Indenture Trustee on behalf of the Secured Parties, in the exercise of the powers and authority conferred and vested in it. The Indenture Trustee in acting hereunder is entitled to all rights, benefits, protections, immunities and indemnities accorded to it under the Indenture.

 

SECTION 6.10.         Waivers. Any term or provision of this Sale Agreement may be waived, or the time for its performance may be extended, by the party or parties entitled to the benefit thereof; provided, however, that no such waiver delivered by the Issuer shall be effective unless (i) the Indenture Trustee has given its prior written consent thereto and (ii) to extent such waiver would be to a material obligation of the Seller, as transferor of the Storm Recovery Property, the Commission shall have provided its consent in accordance with Section 6.01(b) of this Sale Agreement. Any such waiver shall be validly and sufficiently authorized for the purposes of this Sale Agreement if, as to any party, it is authorized in writing by an authorized representative of such party, with prompt written notice of any such waiver to be provided to the Rating Agencies and the Commission. The failure of any party hereto to enforce at any time any provision of this Sale Agreement shall not be construed to be a waiver of such provision, nor in any way to affect the validity of this Sale Agreement or any part hereof or the right of any party thereafter to enforce each and every such provision. No waiver of any breach of this Sale Agreement shall be held to constitute a waiver of any other or subsequent breach.

 

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

 

	DUKE ENERGY PROGRESS SC STORM FUNDING LLC
	as Issuer
	By:
		Name:
		Title:
	DUKE ENERGY PROGRESS, LLC
	as Seller
	By:
		Name:
		Title:

 

Acknowledged and Accepted:

 

U.S. Bank Trust Company, National Association, 

not in its individual capacity but solely as Indenture Trustee

 

By:
	Name:
	Title:

 

Signature Page to Storm Recovery Property Purchase and Sale Agreement

 

 

 

 

EXHIBIT A

 

FORM OF BILL OF SALE

 

See attached

 

E-A-1 

 

 

BILL OF SALE

 

This Bill of Sale is being delivered pursuant to the Storm Recovery Property Purchase and Sale Agreement, dated as of [   ], 2024 (the “Sale Agreement”), by and between Duke Energy Progress, LLC (the “Seller”) and Duke Energy Progress SC Storm Recovery Funding LLC (the “Issuer”). All capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to such terms in the Sale Agreement.

 

In consideration of the Issuer’s delivery to or upon the order of the Seller of $[    ], the Seller does hereby irrevocably sell, transfer, assign, set over and otherwise convey to the Issuer, without recourse or warranty, except as set forth in the Sale Agreement, all right, title and interest of the Seller in and to the Storm Recovery Property created or arising under the Financing Order dated October 13, 2023, as amended on October 23, 2023 issued by the Public Service Commission of South Carolina under the Storm Recovery Law (such sale, transfer, assignment, setting over and conveyance of the Storm Recovery Property includes, to the fullest extent permitted by the Storm Recovery Law, the rights and interests of the Seller under the Financing Order, including the right of the Seller and any Successor or assignee of the Seller to impose, bill, charge, collect and receive Storm Recovery Charges, the right to obtain True-Up Adjustments and all revenue, collections, claims, rights to payments, payments, moneys and proceeds arising from the rights and interests specified in the Financing Order). Such sale, transfer, assignment, setting over and conveyance is hereby expressly stated to be a sale or other absolute transfer and, pursuant to S.C. Code Ann. § 58-27-1125(C)(1), shall be treated as a true sale and not as a pledge of or secured transaction relating to the Seller’s right, title, and interest in, to, and under the Storm Recovery Property. The Seller and the Issuer agree that after giving effect to the sale, transfer, assignment, setting over and conveyance contemplated hereby the Seller has no right, title or interest in, to, or under the Storm Recovery Property to which a security interest could attach because (i) it has sold, transferred, assigned, set over and conveyed all right, title and interest in and to the Storm Recovery Property to the Issuer, (ii) as provided in S.C. Code Ann. § 58-27-1125(C), all right, title and interest shall have passed to the Issuer and (iii) as provided in S.C. Code Ann. § 58-27-1125(C)(4), appropriate financing statements have been filed and such transfer is perfected against all third parties, including subsequent judicial or other lien creditors. If such sale, transfer, assignment, setting over and conveyance is held by any court of competent jurisdiction not to be a true sale as provided in S.C. Code Ann. § 58-27-1125(C), then such sale, transfer, assignment, setting over and conveyance shall be treated as a pledge of the Storm Recovery Property and as the creation of a security interest (within the meaning of the Storm Recovery Law and the UCC) in the Storm Recovery Property and, without prejudice to its position that it has absolutely transferred all of its rights in the Storm Recovery Property to the Issuer, the Seller hereby grants a security interest in the Storm Recovery Property to the Issuer (and to the Indenture Trustee for the benefit of the Secured Parties) to secure their respective rights under the Basic Documents to receive the Storm Recovery Charges and all other Storm Recovery Property.

 

The Issuer does hereby purchase the Storm Recovery Property from the Seller for the consideration set forth in the preceding paragraph.

 

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Each of the Seller and the Issuer acknowledges and agrees that the purchase price for the Storm Recovery Property sold pursuant to this Bill of Sale and the Sale Agreement is equal to its fair market value at the time of sale.

 

The Seller confirms that (i) each of the representations and warranties on the part of the Seller contained in the Sale Agreement are true and correct in all respects on the date hereof as if made on the date hereof and (ii) each condition precedent that must be satisfied under Section 2.02 of the Sale Agreement has been satisfied upon or prior to the execution and delivery of this Bill of Sale by the Seller.

 

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

 

This Bill of Sale shall be construed in accordance with the laws of the State of South Carolina, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such law.

 

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IN WITNESS WHEREOF, the Seller and the Issuer have duly executed this Bill of Sale as of this [   ] day of [     ], 2024.

 

	Duke Energy Progress SC Storm Funding LLC,
	as Issuer
	By:
		Name:
		Title:
	Duke Energy Progress, LLC,
	as Seller
	By:
		Name:
		Title:

 

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EX-10.3

 

Exhibit 10.3

 

ADMINISTRATION AGREEMENT

 

This ADMINISTRATION AGREEMENT, dated as of [   ], 2024, is entered into by and between Duke Energy Progress, LLC, a North Carolina limited liability company (“DEP”), as administrator (the “Administrator”), and Duke Energy Progress SC Storm Funding LLC, a Delaware limited liability company (the “Issuer”).

 

Capitalized terms used but not otherwise defined in this Administration Agreement shall have the respective meanings given to such terms in Appendix A, which is hereby incorporated by reference into this Administration Agreement as if set forth fully in this Administration Agreement. Not all terms defined in Appendix A are used in this Administration Agreement. The rules of construction set forth in Appendix A shall apply to this Administration Agreement and are hereby incorporated by reference into this Administration Agreement as if set forth fully in this Administration Agreement.

 

W I T N E S S E T H:

 

WHEREAS, the Issuer is issuing Storm Recovery Bonds pursuant to the Indenture and the Series Supplement dated the date hereof;

 

WHEREAS, the Issuer has entered into certain agreements in connection with the issuance of Storm Recovery Bonds, including (a) the Indenture, (b) the Servicing Agreement, (c) the Sale Agreement and (d) the other Basic Documents to which the Issuer is a party;

 

WHEREAS, pursuant to the Basic Documents, the Issuer is required to perform certain duties in connection with the Basic Documents, the Storm Recovery Bonds and the Storm Recovery Collateral pledged to the Indenture Trustee pursuant to the Indenture and Series Supplement dated the date hereof;

 

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

 

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

 

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

 

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

 

 

 

 

(a)            furnish the Issuer with ordinary clerical, bookkeeping and other corporate administrative services necessary and appropriate for the Issuer, including the following services:

 

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

 

(ii)            prepare and, after execution by the Issuer, file with the SEC and any applicable state agencies documents required to be filed by the Issuer with the SEC and any applicable state agencies, including periodic reports required to be filed under the Exchange Act;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(i)            provide the Indenture Trustee with copies of the filings by the Issuer under the Securities Exchange Act of 1934, as amended; and

 

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

 

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

 

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

 

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

 

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

 

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Section 4      Additional Information to be Furnished to the Issuer. The Administrator shall furnish to the Issuer from time to time such additional information regarding the Storm Recovery Collateral or the Collateral, as applicable, as the Issuer shall reasonably request.

 

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

 

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

 

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

 

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

 

(a)            This Administration Agreement shall continue in force until the payment in full of the Storm Recovery Bonds and any other amount that may become due and payable under the Indenture, upon which event this Administration Agreement shall automatically terminate. Notwithstanding the foregoing, the Administrator’s obligation under Section 11(c) to indemnify DEP Customers shall survive termination of this Administration Agreement.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(e)            No resignation or removal of the Administrator pursuant to this Section 8 shall be effective until a successor Administrator has been appointed by the Issuer, the Rating Agency Condition shall have been satisfied with respect to the proposed appointment, the Commission Condition set forth in Section 13(b) of this Administration Agreement has been satisfied, and such successor Administrator has agreed in writing to be bound by the terms of this Administration Agreement in the same manner as the Administrator is bound hereunder.

 

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

 

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

 

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Section 10      Administrator’s Liability.

 

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

 

(b)            The Administrator acknowledges under the authority granted to Commission pursuant to Title 58, Chapter 27 of the South Carolina Code of Laws that the Commission has authority to enter an order enforcing the provisions of this Administration Agreement consistent with the Financing Order and Storm Recovery Law.

 

Section 11      Indemnity.

 

(a)            Subject to the priority of payments set forth in the Indenture, the Issuer shall indemnify the Administrator and its shareholders, directors, officers, employees and affiliates against all losses, claims, damages, penalties, judgments, liabilities and expenses (including all expenses of litigation or preparation therefor whether or not the Administrator is a party thereto) that any of them may pay or incur arising out of or relating to this Administration Agreement and the services called for herein; provided, however, that such indemnity shall not apply to any such loss, claim, damage, penalty, judgment, liability or expense resulting from the Administrator’s negligence or willful misconduct in the performance of its obligations hereunder.

 

(b)            The Administrator shall indemnify the Issuer and its members, managers, officers and employees against all losses, claims, damages, penalties, judgments, liabilities and expenses (including all expenses of litigation or preparation therefor whether or not the Issuer is a party thereto) that any of them may incur as a result of the Administrator’s negligence or willful misconduct in the performance of its obligations hereunder.

 

(c)            The Administrator will credit Customers to the extent there are higher Storm Recovery Charges resulting from the Administrator's negligence, recklessness or willful misconduct, provided, however, that any credit to Customers shall not impact the Storm Recovery Charges or the Storm Recovery Property. This Section 11(c) shall survive the termination of this Administration Agreement, and any amounts paid with respect thereto shall be remitted and deposited with the Indenture Trustee for deposit into the Collection Account, unless otherwise directed by the Commission.

 

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Section 12      Notices.

 

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

 

(b)            if to the Issuer, to Duke Energy Progress SC Storm Funding LLC, at 411 Fayetteville Street Raleigh, North Carolina 27601, Attention: Manager, Telephone: 704-382-3853;

 

(c)            if to the Administrator, to Duke Energy Progress, LLC, at 411 Fayetteville Street Raleigh, North Carolina 27601, Attention: Director, Rates and Regulatory Strategy, Telephone: 704-382-3853 in care of (c/o): Director, Rates and Regulatory Planning and at 525 South Tryon Street, Charlotte, North Carolina 28202, Attention: Treasurer, Telephone: 704-382-3853 c/o Assistant Treasurer;

 

(d)            if to the Commission, by filing a notice in Docket No. 2023-89-E addressed to the Chief Clerk/Executive Director of the Commission with a copy delivered to the Office of Regulatory Staff and all parties of record ; and

 

(e)            if to the Indenture Trustee, to the Corporate Trust Office.

 

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

 

Section 13      Amendments.

 

(a)            Subject to Section 13(b), this Administration Agreement may be amended from time to time by a written amendment duly executed and delivered by each of the Issuer and the Administrator, with the prior written consent of the Indenture Trustee, the satisfaction of the Rating Agency Condition; provided, that any such amendment may not adversely affect the interest of any Holder in any material respect without the consent of the Holders of a majority of the outstanding principal amount of all Storm Recovery Bonds. Promptly after the execution of any such amendment or consent, the Issuer shall furnish copies of such amendment or consent to each of the Rating Agencies.

 

(b)            Commission Condition. Notwithstanding anything to the contrary in this Section 13, no amendment or modification of this Administration Agreement that the Administrator determines has a reasonably possibility to impact the rates borne by customers shall be effective, nor shall any action requiring satisfaction of this condition pursuant to Section 8(e), Section 8(f), or Section 14 of this Administration Agreement be taken or be effective except upon satisfaction of the conditions precedent in this paragraph (b).

 

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(i)            At least 30 days prior to the effectiveness of any such amendment or modification and after obtaining the other necessary approvals set forth in Section 13(a) (except that the consent of the Indenture Trustee may be subject to the consent of the Holders of the Storm Recovery Bonds if such consent is required or sought by the Indenture Trustee in connection with such amendment or modification) the Administrator shall have filed in Commission docket 2023-89-E written notification of any proposed amendment, addressed to the Chief Clerk/Executive Director of the Commission with a copy delivered to the Office of Regulatory Staff and all parties of record, which notification shall contain:

 

(A)            a reference to Docket No. 2023-89-E;

 

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

 

(ii)            description of the proposed amendment, including the purpose of such amendment.

 

(iii)            No later than 5:00 pm on the 30th business day after receipt of notice of a proposed amendment complying with subparagraph (i), the Commission shall issue an order either (i) approving the proposed amendment or (ii) preventing the adoption of such amendment or modification.

 

(iv)            Following the delivery of an order from the Commission to the Administrator under subparagraph (ii), the Administrator and the Issuer shall have the right at any time to withdraw from the Commission further consideration of any proposed amendment. The fact that the Administrator delivers notice to the Commission pursuant to this Section 13(b) does not obligate the Administrator to amend this Administration Agreement as provided in the notice.

 

Section 14      Successors and Assigns. This Administration Agreement may not be assigned by the Administrator unless such assignment is previously consented to in writing by the Issuer and the Indenture Trustee and by Order by the Commission and subject to the satisfaction of the Rating Agency Condition in connection therewith. Any assignment with such consent and satisfaction, if accepted by the assignee, shall bind the assignee hereunder in the same manner as the Administrator is bound hereunder. Notwithstanding the foregoing, this Administration Agreement may be assigned by the Administrator without the consent of the Issuer, the Commission or the Indenture Trustee and without satisfaction of the Rating Agency Condition and the Commission Condition to a corporation or other organization that is a successor (by merger, reorganization, consolidation or purchase of assets) to the Administrator, including any Permitted Successor; provided, that such successor or organization executes and delivers to the Issuer and the Commission an agreement in which such corporation or other organization agrees to be bound hereunder by the terms of said assignment in the same manner as the Administrator is bound hereunder. Subject to the foregoing, this Administration Agreement shall bind any successors or assigns of the parties hereto. Upon satisfaction of all of the conditions of this Section 14, the preceding Administrator shall automatically and without further notice be released from all of its obligations hereunder.

 

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Section 15      Governing Law. This Administration Agreement shall be construed in accordance with the laws of the State of South Carolina, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws.

 

Section 16      Counterparts. This Administration Agreement may be executed in counterparts, each of which when so executed shall be an original, but all of which together shall constitute but one and the same Administration Agreement. The parties hereto agree that this Administration Agreement may be electronically signed, that any digital or electronic signatures (including pdf, facsimile or electronically imaged signatures provided by AdobeSign, DocuSign, Diligent Board or any other digital signature provider as specified and agreed upon in writing to the other parties) appearing on this Administration Agreement are the same as handwritten signatures for the purposes of validity, enforceability and admissibility, and that delivery of any such electronic signature to, or a signed copy of, this Administration Agreement may be made by facsimile, email or other electronic transmission.

 

Section 17      Severability. Any provision of this Administration Agreement that is prohibited or unenforceable in any jurisdiction shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

 

Section 18      Nonpetition Covenant. Notwithstanding any prior termination of this Administration Agreement, the Administrator covenants that it shall not, prior to the date that is one year and one day after payment in full of all Storm Recovery Bonds, acquiesce, petition or otherwise invoke or cause the Issuer to invoke the process of any court or government authority for the purpose of commencing or sustaining an involuntary case against the Issuer under any U.S. federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Issuer or any substantial part of its property or ordering the winding up or liquidation of the affairs of the Issuer.

 

Section 19      Assignment to Indenture Trustee. The Administrator hereby acknowledges and consents to any mortgage, pledge, assignment and grant of a security interest by the Issuer to the Indenture Trustee for the benefit of the Holders pursuant to the Indenture of any or all of the Issuer’s rights hereunder and the assignment of any or all of the Issuer’s rights hereunder to the Indenture Trustee for the benefit of the Holders.

 

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

 

	DUKE ENERGY PROGRESS SC STORM FUNDING LLC,
	as Issuer
	By:
		Name:
		Title:
	DUKE ENERGY PROGRESS, LLC,
	as Administrator
	By:
		Name:
		Title:

 

Signature Page to Administration Agreement

 

 

 

EX-10.4

Exhibit 10.4

INTERCREDITOR AGREEMENT

This INTERCREDITOR AGREEMENT (this “Agreement”) is made as of __________ ____, 2024, by and among:

(a)             Duke Energy Progress, LLC (in its individual capacity, the “Company”), as the Receivables Servicer referred to below, in its separate capacity as the initial servicer of the NC Customer Property (as defined herein) (including any successor in such capacity, the “NC Property Servicer”) and in its separate capacity as the initial servicer of the SC Customer Property (as defined herein) referred to below (including any successor in such capacity, the “SC Property Servicer”; the NC Property Servicer and the SC Property Servicer, each a “Property Servicer”), and in its separate respective capacities as a collection agent for the benefit of each of the Property Servicers and the Receivables Servicer in accordance with the terms of this Agreement;

(b)             Duke Energy Progress NC Storm Funding LLC, a Delaware limited liability company (the “NC Bond Issuer”);

(c)             The Bank of New York Mellon Trust Company, National Association, a national banking association, in its capacity as indenture trustee (including any successor in such capacity, the “NC Bond Trustee”) under the NC Indenture referred to below;

(d)             Duke Energy Progress SC Storm Funding LLC, a Delaware limited liability company (the “SC Bond Issuer” and, together with the NC Bond Issuer, the “Bond Issuers”);

(e)             U.S. Bank Trust Company, National Association, a national banking association, in its capacity as indenture trustee (including any successor in such capacity, the “SC Bond Trustee” and, together with the NC Bond Trustee, the “Bond Trustees”) under the SC Indenture referred to below;

(f)              Duke Energy Progress Receivables LLC, a Delaware limited liability company (the “Buyer”); and

(g)             MUFG Bank, Ltd., as Administrative Agent (in such capacity, and including any successor agent, the “Administrative Agent”) for the Receivables Lenders referred to below.

WHEREAS, pursuant to the terms of that certain Receivables Purchase Agreement, dated as of December 20, 2013 (as previously amended and as it may hereafter from time to time be further amended, restated or modified and as supplemented from time to time, the “Purchase Agreement”), between the Buyer and the Company, the Company has sold and may hereafter sell to the Buyer all of the Company’s right, title and interest in and to certain Receivables, Related Security, Collections and all Proceeds (as such terms are defined in the Purchase Agreement; and the Receivables, Related Security, Collections and all Proceeds thereof are collectively referred to herein as the “Receivables”);

WHEREAS, pursuant to that certain Credit Agreement, dated as of December 20, 2013 (as previously amended and as it may hereafter from time to time be further amended, restated or modified and as supplemented from time to time, the “Credit Agreement”), by and among the Buyer, the Administrative Agent and the financial institutions and other entities party thereto as Lenders and as Managing Agents (such Lenders, such Managing Agents and the Administrative Agent being collectively referred to as the “Receivables Lenders”), the Buyer has granted a security interest in the Receivables to the Administrative Agent for the benefit of the Receivables Lenders; and

WHEREAS, pursuant to the terms of the Purchase Agreement, the Credit Agreement and the Servicing Agreement, dated as of December 20, 2013 (as previously amended and as it may hereafter from time to time be further amended, restated or modified and as supplemented from time to time, the “Receivables Servicing Agreement”, and together with the Purchase Agreement and the Credit Agreement, collectively, the “Receivables Agreements”), the Company has been appointed as a servicer (the “Receivables Servicer”) and has agreed to provide certain servicing and collection functions with respect to the Receivables;

WHEREAS, pursuant to the terms of that certain Storm Recovery Property Purchase and Sale Agreement, dated as of November 24, 2021 (as it may hereafter from time to time be amended, restated or modified and as supplemented from time to time, the “NC Sale Agreement”), between the NC Bond Issuer and the Company in its capacity as seller, the Company has sold to the NC Bond Issuer certain assets known as “Storm Recovery Property” which includes the right to impose, charge and collect “Storm Recovery Charges” as each such term is defined or as otherwise used in N.C. Gen. Stat. § 62-172 (such Storm Recovery Property, the “NC Customer Property” and such Storm Recovery Charges, the “NC Customer Charges”);

WHEREAS, pursuant to the terms of that certain Indenture dated as of November 24, 2021 (as it may hereafter from time to time be amended, restated or modified and as supplemented by the Series Supplement (as defined in the NC Indenture) and any other supplemental indenture from time to time, the Series Supplement and Indenture, as supplemented, being collectively referred to herein as the “NC Indenture”), between the NC Bond Issuer and the NC Bond Trustee, the NC Bond Issuer, among other things, has granted to the NC Bond Trustee a security interest in certain of its assets, including the NC Customer Property, to secure, among other things, the bonds issued pursuant to the NC Indenture (the “NC Bonds”);

WHEREAS, pursuant to the terms of that certain Storm Recovery Property Servicing Agreement dated as of November 24, 2021 (as it may hereafter from time to time be amended, restated or modified and as supplemented from time to time, the “NC Servicing Agreement,” and the NC Servicing Agreement, together with the NC Sale Agreement and the NC Indenture, the “NC Bond Agreements”), between the NC Bond Issuer and the NC Property Servicer, the NC Property Servicer has agreed to provide for the benefit of the NC Bond Issuer certain servicing and collection functions with respect to the NC Customer Charges;

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WHEREAS, pursuant to the terms of that certain Storm Recovery Property Purchase and Sale Agreement, dated on or around [_________ ___, 2024] (as it may hereafter from time to time be amended, restated or modified and as supplemented from time to time, the “SC Sale Agreement”), between the SC Bond Issuer and the Company in its capacity as seller, the Company has sold to the SC Bond Issuer certain assets known as “Storm Recovery Property” which includes the right to impose, charge and collect “Storm Recovery Charges” as each such term is defined or as otherwise used in S.C. Code Ann. § 58-27-1100-1180 (such Storm Recovery Property, the “SC Customer Property” and such Storm Recovery Charges, the “SC Customer Charges”; the SC Customer Property together with the NC Customer Property, the “Customer Property” and the SC Customer Charges together with the SC Customer Charges, the “Customer Charges”);

WHEREAS, pursuant to the terms of that certain Indenture dated on or around [________ ___, 2024] (as it may hereafter from time to time be amended, restated or modified and as supplemented by the Series Supplement (as defined in the SC Indenture) and any other supplemental indenture from time to time, the Series Supplement and Indenture, as supplemented, being collectively referred to herein as the “SC Indenture” and together with the NC Indenture, the “Indentures”), between the SC Bond Issuer and the SC Bond Trustee, the SC Bond Issuer, among other things, has granted to the SC Bond Trustee a security interest in certain of its assets, including the SC Customer Property, to secure, among other things, the bonds issued pursuant to the SC Indenture (the “SC Bonds”);

WHEREAS, pursuant to the terms of that certain Storm Recovery Property Servicing Agreement dated on or around [___________ ___, 2024] (as it may hereafter from time to time be amended, restated or modified and as supplemented from time to time, the “SC Servicing Agreement,” and, together with the NC Servicing Agreement and the Receivables Servicing Agreement, the “Servicing Agreements”; and the SC Servicing Agreement, together with the SC Sale Agreement and the SC Indenture, the “SC Bond Agreements” and together with the NC Bond Agreements, the “Bond Agreements”), between the SC Bond Issuer and the SC Property Servicer, the SC Property Servicer has agreed to provide for the benefit of the SC Bond Issuer certain servicing and collection functions with respect to the SC Customer Charges;

WHEREAS, the Receivables, the NC Customer Charges and the SC Customer Charges will be invoiced collectively on single bills sent to the Company’s retail customers (the “Customers”), which Customers are obligated to pay each of the Receivables, the NC Customer Charges and the SC Customer Charges, and the parties hereto wish to agree upon their respective rights relating to the Receivables, the NC Customer Charges and the SC Customer Charges and any bank accounts into which collections of the foregoing may be deposited, as well as other matters of common interest to them which arise under or result from the coexistence of the NC Bond Agreements, the SC Bond Agreements and the Receivables Agreements; and

WHEREAS, the Administrative Agent, on behalf of the Receivables Lenders, has a security interest in the Receivables, the NC Bond Trustee has a security interest in the NC Customer Charges and the SC Bond Trustee has a security interest in the SC Customer Charges, and neither the NC Bond Trustee nor the SC Bond Trustee have a security interest in the Receivables, neither the Administrative Agent nor the SC Bond Trustee have a security interest in the NC Customer Charges and neither the Administrative Agent nor the NC Bond Trustee have a security interest in the SC Customer Charges.

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

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SECTION 1.             Acknowledgment of Ownership Interests and Security Interests.

(a)             Each of the parties hereto hereby acknowledges the ownership interest of the NC Bond Issuer in the NC Customer Property, including the NC Customer Charges and the revenues, collections, claims, rights, payments, money and proceeds arising therefrom, and the security interests granted therein in favor of the NC Bond Trustee for the benefit of itself and the holders of the NC Bonds. Each of the parties hereto hereby acknowledges the ownership interest of the SC Bond Issuer in the SC Customer Property, including the SC Customer Charges and the revenues, collections, claims, rights, payments, money and proceeds arising therefrom, and the security interests granted therein in favor of the SC Bond Trustee for the benefit of itself and the holders of the SC Bonds. Each of the parties hereto hereby acknowledges the ownership interest and security interests of the Buyer and the Receivables Lenders in the Receivables and the revenues, collections, claims, rights, payments, money and proceeds arising therefrom. The parties hereto agree that the NC Customer Property, the SC Customer Property and the Receivables each shall constitute separate property rights notwithstanding that they may be evidenced by a single bill. The Company and the Receivables Servicer further agree that they will not include any Customer Property in calculating the amount of the Receivables sold or financed or to be sold or financed under the Receivables Agreements. Accordingly, the Receivables Lenders and the Receivables Servicer each acknowledge that, notwithstanding anything in the Receivables Agreements to the contrary, none of such parties has any interest in the Customer Property, and each Bond Trustee, each Bond Issuer and each Property Servicer further acknowledge that, notwithstanding anything in the Bond Agreements to the contrary, none of such parties has any interest in the Receivables.

(b)             Each of the Administrative Agent and the Buyer hereby releases all liens and security interests of any kind whatsoever which the Administrative Agent or the Buyer may hold in any Customer Property. Each of the Administrative Agent and Buyer agrees, upon the reasonable request of the Company or a Bond Trustee, to execute and deliver to such Bond Trustee such UCC partial release statements and other documents and instruments, and to do such other acts and things, as the Company or such Bond Trustee may reasonably request in order to evidence the release provided for in this Section 1(b) and/or to execute and deliver to such Bond Trustee UCC financing statement amendments to exclude the Customer Property from the collateral covered by any existing UCC financing statements relating to the Receivables Agreements; provided, however, that failure to execute and deliver any such partial release statements, financing statement amendments, documents or instruments, or to do such acts and things, shall not affect or impair the release provided for in this Section 1(b).

(c)             For the avoidance of doubt, each Bond Issuer and each Bond Trustee hereby releases all liens and security interests, if any, of any kind whatsoever which either of them may hold in the Receivables. Each Bond Issuer and each Bond Trustee agrees, upon the reasonable request of the Administrative Agent or the Buyer, to execute and deliver to the Administrative Agent or the Buyer, as applicable, such UCC partial release statements and other documents and instruments, and to do such other acts and things, as the Administrative Agent or the Buyer may reasonably request in order to evidence the release provided for in this Section 1(c) and/or to execute and deliver to the Administrative Agent or the Buyer, as applicable, UCC financing statement amendments to exclude such Receivables from the assets covered by any existing UCC financing statements relating to the Bond Agreements; provided, however, that failure to execute and deliver any such partial release statements, financing statement amendments, documents or instruments, or to do such acts and things, shall not affect or impair the release provided for in this Section 1(c).

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SECTION 2.             Deposit Accounts.

(a)             The parties hereto each acknowledge that collections with respect to the Customer Property and the Receivables may from time to time be deposited into one or more designated accounts of the Buyer (the “Buyer Accounts”) and that such Buyer Accounts are subject to a security interest in favor of the Administrative Agent and account control agreements among the Buyer, the Administrative Agent and the applicable account bank (the “Account Control Agreements”). Further, the parties hereto each acknowledge that collections with respect to the Customer Property and the Receivables may from time to time be deposited into one or more designated accounts of the Company or the Receivables Servicer (the “Company Accounts” and together with the Buyer Accounts, the “Deposit Accounts”). Subject to Section 4, the Company, in its capacity as a collection agent for the benefit of the other parties hereto, agrees to:

(i)            maintain the collections in the Deposit Accounts for the benefit of each Property Servicer, each Bond Trustee, each Bond Issuer, the Receivables Servicer, the Buyer, the Administrative Agent and the Receivables Lenders, as their respective interests may appear, subject to the perfected security interest of the Administrative Agent in the Deposit Accounts and the provisions of the Receivables Agreements and this Agreement;

(ii)            promptly identify which funds constitute collections in respect of the NC Customer Property, the SC Customer Property and the Receivables, respectively, and allocate and remit funds from the Deposit Accounts (x) in the case of collections relating to the NC Customer Property, at the times and in the manner specified in the NC Bond Agreements to the NC Bond Trustee; (y) in the case of collections relating to the SC Customer Property, at the times and in the manner specified in the SC Bond Agreements to the SC Bond Trustee; and (z) in the case of collections relating to the Receivables, allocate and remit funds to the Receivables Lenders and the Buyer at the times and in the manner specified in the Receivables Agreements; provided, that:

(A)            with respect to each customer rate class, to the extent that any shortfall exists between the aggregate amount billed and the aggregate amount collected in the Deposit Accounts, such shortfall will be allocated among the NC Customer Charges, the SC Customer Charges and the Receivables pursuant to the following formula: (x) the amount billed with respect to NC Customer Charge, the SC Customer Charge or the Receivable, as applicable, minus (y)(1) the amount billed with respect to the NC Customer Charge, the SC Customer Charge or the Receivable, as applicable, multiplied by (2) (A) the total amount collected, divided by (B) the total amount billed; and

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(B)            late payment penalties of the Receivables shall be allocated (x) to the Administrative Agent for the benefit of the Receivables Lenders to the extent that any such late payment penalties have been pledged to the Administrative Agent for the benefit of the Receivables Lenders and (y) otherwise to the Company; and

(iii)           maintain records as to the amounts deposited into the Deposit Accounts, the amounts remitted therefrom and the identifications and allocations as provided above in this subsection (a).

(b)             Each Bond Trustee, each Bond Issuer, the Buyer and the Receivables Lenders shall each have the right to require an accounting from time to time of collections, deposits, allocations and remittances by the Company relating to the Deposit Accounts. Because of difficulties inherent in allocating collections on a daily basis, the Property Servicers may implement percentage-based estimates for the purposes of determining the amount of collections which are allocable to the Customer Property, which allocations will be subject to monthly reconciliations but will otherwise be deemed conclusive, subject to reconciliation as provided in the following sentences. In the event that the estimated remittances to the NC Bond Issuer or the SC Bond Issuer, as applicable, for any calendar month are less than the actual amounts of the related NC Customer Charge collections or the related SC Customer Charge collections, as applicable, such Bond Issuer shall look to the related Property Servicer for any such shortfall and shall have no claims against the Administrative Agent, the Buyer or the Receivables Lenders for such amounts. In the event that the estimated remittances to the NC Bond Issuer or the SC Bond Issuer, as applicable, are greater than the actual amounts of the related NC Customer Charge collections or the related SC Customer Charge collections, as applicable, such Bond Issuer, as applicable, shall remit such excess collections (or net such excess collections in accordance with the following sentence) to the related Property Servicer for forwarding to the Administrative Agent for the benefit of the Receivables Lenders (or the Receivables Servicer on their behalf) for application in accordance with the terms of the Receivables Agreements. Notwithstanding the foregoing, nothing in this paragraph shall (i) eliminate the right of the Receivables Lenders and the Administrative Agent, as assignees of the Company and/or the Buyer under the Receivables Agreements, to cause any such reconciliation payments to be paid directly to the Administrative Agent or its designee or (ii) eliminate or impair any rights or remedies the Administrative Agent or any Receivables Lender may have under the Receivables Agreements, or release the Buyer, the Company or the Receivables Servicer from any obligations under the Receivables Agreements, in respect of any such shortfall or (iii) prohibit any party (the “remitting party”) from netting any reconciliation payments to be paid under this clause (b) by such remitting party to another party (the “receiving party”) against the amounts to be paid under this clause (b) by such receiving party to the remitting party.

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(c)             For the avoidance of doubt, the NC Bond Trustee and the NC Bond Issuer waive any interest in deposits to the Deposit Accounts to the extent that they are properly allocable as collections with respect to the SC Customer Charges or the Receivables and the SC Bond Trustee and the SC Bond Issuer waive any interest in deposits to the Deposit Accounts to the extent that they are properly allocable as collections with respect to the NC Customer Charges or the Receivables. Each of the parties hereto acknowledges the respective security interests of the others in amounts on deposit in the Deposit Accounts to the extent of their respective interests as described in this Agreement.

(d)             In no event may a Bond Trustee, a Bond Issuer or a Property Servicer take any action with respect to Customer Charges in a manner that would result in such Bond Trustee obtaining possession of, or any control over, collections of Receivables or any Deposit Account. In the event that a Bond Trustee, a Bond Issuer or a Property Servicer obtains possession of any collections related to the Receivables, such Bond Trustee, a Bond Issuer or a Property Servicer, as applicable, shall notify the Administrative Agent of such fact, shall hold such amounts in trust and shall promptly deliver them to the Administrative Agent (or its designees) upon request. Except as contemplated by this Section 2 with respect to the Administrative Agent’s exercise of control over the Buyer Accounts, in no event may the Administrative Agent or the Buyer take any action with respect to the collection of the Receivables in a manner that would result in the Administrative Agent or the Buyer, as applicable, obtaining possession of, or any control over, collections of Customer Charges. In the event that the Buyer obtains possession of any collections of Customer Charges, the Buyer shall notify the related Bond Trustee of such fact, shall hold them in trust and shall promptly deliver them to such Bond Trustee upon request.

(e)             In the event that the Administrative Agent has exercised exclusive control over any Buyer Account (an “Exclusive Control Event”), it shall, promptly following receipt of information provided to it by the Company and consistent with this Section 2 and Section 7 which allocates the funds on deposit therein as being related to the Customer Property, remit such collections related to the Customer Property at the direction of the applicable Property Servicer. Following an Exclusive Control Event in respect of any Buyer Account, if any funds in such Buyer Account are identified as constituting NC Customer Property or SC Customer Property, upon the request of the NC Property Servicer or the SC Property Servicer, as applicable, the Administrative Agent shall (at the expense of the Company) promptly remit such funds to the account specified by the related Property Servicer; provided, however, that the Administrative Agent shall be under no duty or obligation to turn over any collections related to the SC Customer Property or NC Customer Property if either (i) the Administrative Agent has not received such information and reports reasonably requested by the Administrative Agent detailing the amount of funds then held in the Deposit Accounts that constitute collections related to Receivables and the amount of funds that constitute funds related to Customer Property or (ii) the Administrative Agent believes in good faith such funds related to Customer Property constitute available funds and the remittance of such funds to the applicable Bond Trustee would violate any applicable law or any order of any court or other governmental authority; provided, further, that if by sixty (60) days following the occurrence of the Exclusive Control Event, the Administrative Agent has not received such information set forth in clause (i) of the immediately preceding proviso, the Administrative Agent shall (unless clause (ii) in the immediately preceding proviso applies) make such allocation on the basis of the allocation for the last month prior to the Exclusive Control Event for which the Company performed the allocation or provided information for the allocation of funds in such Deposit Account and remit such funds in accordance with such allocation on the next succeeding calendar month end and on each calendar month end thereafter.

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(f)             Except as expressly contemplated herein, each of the Company and the Buyer agrees that it shall not sell, dispose of, or otherwise transfer ownership of a Deposit Account or any funds on deposit therein to any other person, nor create or suffer to exist any lien on any Deposit Account or any funds on deposit therein other than acknowledgments with respect to the property of any other entities or the collateral of any other creditors that may from time to time be deposited into the Deposit Accounts hereunder. Neither the Buyer nor the Company shall amend or modify the provisions governing the operation of any Deposit Account in any way which could adversely affect the provisions of this Agreement without the prior written consent of each other party hereto. Each of the Company and the Buyer agrees that it shall not allow any pledge or sale of any receivables, charges or other liabilities owned by it or by any of its subsidiaries in which the collections thereon are to be directed to any Deposit Account, unless the purchasers or secured parties with respect to any such receivables, charges or other liabilities agree to become parties hereto.

SECTION 3.             Time or Order of Attachment. The acknowledgments contained in Sections 1 and 2 are applicable irrespective of the time or order of attachment or perfection of security or ownership interests or the time or order of filing or recording of financing statements or mortgages or filings under applicable law.

SECTION 4.             Servicing.

(a)             Pursuant to Section 2, the Company, in its role as collection agent hereunder, shall allocate and remit funds received from Customers for the benefit of the each Bond Issuer, each Bond Trustee, the Buyer and the Receivables Lenders, respectively, and, until the Company’s access to one or more of the Buyer Accounts is revoked pursuant to the Account Control Agreements, shall control the movement of such funds out of the Deposit Accounts (such allocation, remittance and deposits hereafter called the “Allocation Services”) in accordance with the terms of this Agreement. The same entity must always act as servicer in the performance of the Allocation Services as to both the Bond Agreements and the Receivables Agreements.

(b)             In the event that a Bond Trustee is entitled to and directed by the applicable bondholders of the Bonds under the applicable Indenture to exercise its right, pursuant to the related Bond Agreements, to replace the Company as Property Servicer, or in the event that the Administrative Agent is entitled to and desires to exercise its right to replace the Company as Receivables Servicer, and, in either such case, therefore to terminate the role of the Company as the provider of the Allocation Services hereunder, the party desiring or directed to exercise such right shall promptly give written notice to the other parties (a “Servicer Termination Notice”) in accordance with the notice provisions of this Agreement and consult with the other with respect to the Person who would replace the Company in such capacity and also in its other capacities as Property Servicer under each Bond Agreement and/or Receivables Servicer under the Receivables Servicing Agreement, as applicable. Any successor to the Company in such capacities shall be agreed to by each Bond Trustee (in accordance with the Bond Agreements) and the Administrative Agent within ten (10) Business Days of the date of the Servicer Termination Notice, and such successor shall be subject to satisfaction of the Rating Agency Condition (as defined below) and otherwise satisfy the provisions of the Receivables Servicing Agreement and the Receivables Agreements. “Business Day” means any day other than a Saturday, Sunday, or any holiday for national banks or any New York banking corporation in Charlotte, North Carolina, Atlanta, Georgia or New York, New York. The Person named as replacement collection agent in accordance with this Section 4 is referred to herein as the “Replacement Collection Agent.” The parties hereto agree that any entity succeeding to the rights of the Company as Receivables Servicer or as Property Servicer shall be the same entity.

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(c)             Anything in this Agreement to the contrary notwithstanding, any action taken by a Bond Trustee or the Administrative Agent to appoint a Replacement Servicer pursuant to this Section 4 shall be subject to the Rating Agency Condition. For the purposes of this Agreement, the “Rating Agency Condition” has the meaning set forth on Exhibit B. The parties hereto acknowledge and agree that the approval or the consent of the rating agencies which is required in order to satisfy the Rating Agency Condition is not subject to any standard of commercial reasonableness, and the parties are bound to satisfy this condition whether or not the rating agencies are unreasonable or arbitrary.

SECTION 5.             Sharing of Information. The parties hereto agree to cooperate with each other and make available to each other or any Replacement Collection Agent any and all records and other data relevant to the Customer Property and the Receivables which they may have in their possession or may from time to time receive from the Company, the Property Servicer or the Receivables Servicer or any successor hereto or thereto, including, without limitation, any and all computer programs, data files, documents, instruments, files and records and any receptacles and cabinets containing the same as may be reasonably necessary for the other parties hereto to exercise its rights under this Agreement or evaluate the performance of such party of its obligations hereunder or for any Replacement Collection Agent to perform its duties hereunder. The Company and the Buyer each hereby consents to the release of information regarding the Company and the Buyer, respectively, pursuant to this Section 5.

SECTION 6.             No Joint Venture; No Fiduciary Obligations; Etc.

(a)             Nothing herein contained shall be deemed as effecting a joint venture among any of the Company, the Bond Issuers, the Bond Trustees, the Property Servicers, the Administrative Agent, the Receivables Lenders, the Receivables Servicer and the Buyer.

(b)             Neither Buyer nor the Administrative Agent is the agent of, or owes any fiduciary obligation to, any Bond Trustee, any Bond Issuer, the bondholders or any other party under this Agreement. Each Bond Trustee (on behalf of itself and the bondholders), each Bond Issuer and the Company hereby waives any right that it may now have or hereafter acquire to make any claim against the Buyer or the Administrative Agent, in their respective capacities as such, on the basis of any such fiduciary obligation hereunder. No Bond Trustee nor Bond Issuer is the agent of, or owes any fiduciary obligation to, the Buyer or the Administrative Agent or any other party under this Agreement. Each of the Administrative Agent, the Company and the Buyer hereby waives any right that it may now have or hereafter acquire to make any claim against any Bond Trustee or any Bond Issuer on the basis of any such fiduciary obligation hereunder.

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(c)             Notwithstanding anything herein to the contrary, none of the Buyer, the Administrative Agent, any Bond Trustee or any Bond Issuer shall be required to take any action that exposes or which it reasonably believes could expose it to personal liability or that is contrary to either Indenture, any Servicing Agreement, any Receivables Agreement or applicable law.

(d)             None of the Buyer, the Administrative Agent, any Bond Trustee or any Bond Issuer nor any of their respective directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement, except for its or their own gross negligence, bad faith or willful misconduct. Without limiting the foregoing, each of the Buyer, the Administrative Agent, each Bond Trustee and each Bond Issuer: (i) may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (ii) makes no warranty or representation to any party and shall not be responsible to any party for any statements, warranties or representations made by any other party in connection with this Agreement or any other agreement; (iii) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any other agreement on the part of any other party; and (iv) shall incur no liability under or in respect of this Agreement by acting upon any writing (which may be by facsimile or other electronic transmission) believed by it in good faith to be genuine and signed or sent by the proper party or parties.

SECTION 7.             Method of Adjustment and Allocation. Each of the parties hereto acknowledges that (i) the SC Property Servicer will adjust and calculate payments of SC Customer Charges in accordance with the calculation methodology specified in the true-up mechanism described in Section 4.01 of the SC Servicing Agreement and allocate payments of Customer Charges in accordance with Section 6 of Exhibit A of the SC Servicing Agreement (attached as Exhibit C hereto) and (ii) the NC Property Servicer will adjust and calculate payments of NC Customer Charges in accordance with the calculation methodology specified in the true-up mechanism described in Section 4.01 of the NC Servicing Agreement and allocate payments of Customer Charges in accordance with Section 6 of Exhibit A of the NC Servicing Agreement (attached as Exhibit D hereto), and each of the parties hereto hereby acknowledges that none of the NC Bond Trustee, the SC Bond Trustee, the Administrative Agent nor any Receivables Lenders shall be deemed or required under this Agreement to have any knowledge of or responsibility for the terms of such documents or any such adjustment, calculation and allocation. Accordingly, each of the Administrative Agent and the Receivables Lenders, the NC Bond Trustee and the SC Bond Trustee may, for the purposes of this Agreement, conclusively rely on the accuracy of the calculations of the Property Servicer in making such adjustments, calculations and allocations. In addition, the Administrative Agent may, for the purposes of this Agreement, conclusively rely on the accuracy of the identification of receivables, allocations of collections and calculations by the Company as calculation agent. Such acknowledgement shall not relieve the Receivables Servicer of any of its obligations under the Receivables Agreements, including to make payments in accordance with the terms thereof, nor shall it relieve the Property Servicers of their respective obligations under the Servicing Agreements.

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SECTION 8.             Termination. This Agreement shall terminate: (i) as to a Bond Issuer and the related Bond Trustee upon the payment in full of the related Bonds, and (ii) as to the Buyer, the Administrative Agent and the Receivables Lenders upon the termination of the Receivables Agreements as to the Company and the Buyer and the release of the Company and the Buyer from all further obligations thereunder, except, in each case, that the understandings and acknowledgements contained in Sections 1, 2, 3, 6 and 15 shall survive the termination of this Agreement. Termination of this Agreement as to any party or parties pursuant to the foregoing sentence shall not affect the rights and obligations of the remaining parties hereto vis-à-vis one another.

SECTION 9.             Governing Law; Jurisdiction; Waiver of Jury Trial.

(a)            THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (INCLUDING, WITHOUT LIMITATION, SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF NEW YORK, BUT OTHERWISE WITHOUT REGARD TO THE LAW OF CONFLICTS) OF THE STATE OF NEW YORK.

(b)             In connection with any suit, claim, action or proceeding arising out of or relating to this Agreement and the transactions contemplated hereby, each party hereto hereby consents to the in personam jurisdiction of any court of the State of New York or any U.S. federal court located in the Borough of Manhattan in the City of New York, State of New York; each party hereto agrees that service by registered mail, or any other form equivalent thereto (or, in the alternative, by any other means sufficient under applicable law, rules and regulations) at the addresses set forth in Section 17 hereof shall be valid and sufficient for all purposes; and each party hereto agrees to, and irrevocably waives any objection based on forum non conveniens or venue not to, appear in such state or U.S. federal court located in the Borough of Manhattan. Each of the Company, the Buyer, the Property Servicers, the Receivables Servicer and each Bond Issuer irrevocably designates CT Corporation System, 111 Eighth Avenue, New York, NY 10011, as its agent and attorney-in-fact for the acceptance of service of process and making an appearance on its behalf in any such action or proceeding and taking all such acts as may be necessary or appropriate in order to confer jurisdiction over it by such state or U.S. federal court in the Borough of Manhattan, and each of such parties stipulates that such appointment is irrevocable and coupled with an interest.

(c)            EACH OF THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.

11

SECTION 10.         Further Assurances. Each of the parties hereto agrees to execute any and all agreements, instruments, financing statements, releases and any and all other documents reasonably requested by any of the other parties hereto in order to effectuate the intent of this Agreement. In each case where a release is to be given pursuant to this Agreement, the term release shall include any documents or instruments necessary to effect a release, as contemplated by this Agreement. All releases, subordinations and other instruments submitted to the executing party are to be prepared at the expense of the Company. Notwithstanding anything herein to the contrary, no Bond Trustee shall be required to execute any such agreements, instruments, releases or other documents unless directed to do so by an “Issuer Order,” as such term is defined in the related Indenture.

SECTION 11.          Limitation on Rights of Others. This Agreement is solely for the benefit of the parties hereto, the holders of the Bonds and the Receivables Lenders, and no other person or entity shall have any rights, benefits, priority or interest under or because of the existence of this Agreement.

SECTION 12.          Amendments.

(a)             No amendment of the terms of this Agreement shall be effective unless evidenced by a written instrument signed by the parties hereto at the time of such amendment, except as provided in clause (b).

(b)             In the event that (x) the Company hereafter causes any property (“Additional Customer Property”) consisting of the right to impose specified charges on Customers to be created and sold and pledged by the buyer thereof for the benefit of bondholders pursuant to any financing order of the North Carolina Utilities Commission or the South Carolina Public Service Commission, and the Company acts as servicer for the bonds issued pursuant to such financing order, or (y) the Company enters into any new receivables program following the termination of the Receivables Agreements in which the Company participates as a seller or as a servicer of receivables, then, in either such event, upon the written request of the Company, the other parties hereto agree that this Agreement may be amended and restated (i) to add as parties hereto the relevant issuer of such additional bonds, the indenture trustee therefor, and the servicer of such Additional Customer Property and/or the relevant purchasers, lenders and servicers under such replacement receivables program, as the case may be, and (ii) to reflect the rights and obligations of the parties with respect to such new receivables purchases on terms substantially similar to the rights and obligations of the Receivables Servicer, the Administrative Agent and the Receivables Lenders hereunder and (iii) to reflect the rights and obligations of the parties with respect to any such Additional Customer Property on terms substantially similar to the rights and obligations of each Bond Issuer, each Bond Trustee and each Property Servicer hereunder; provided that no such amendment shall be effective unless (x) evidenced by a written instrument signed by the parties hereto and such additional parties and (y) the Rating Agency Condition shall have been satisfied with respect thereto and provided, further, that no party hereto shall be required to execute any such amended agreement on terms which are materially more disadvantageous to it or to the holders of the Bonds (in the case of each Bond Trustee) or to the Receivables Lenders (in the case of the Administrative Agent) than the terms contained herein. In addition, no Bond Trustee shall be required to execute any such amendment unless directed to do so by an “Issuer Order,” as such term is defined in the applicable Indenture, and shall be entitled to receive an Opinion of Counsel, as such term is defined in the applicable Indenture, stating that the execution of such amendment is authorized and permitted by this Agreement and the applicable Indenture and all conditions precedent, if any, provided for in this Agreement and the applicable Indenture relating to such amendment have been complied with.

12

SECTION 13.          Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any Person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other Persons, or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.

SECTION 14.        Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. The words “execution”, “signed” and “signature” and words of like import in this Agreement or in any other certificate, agreement or document related to this Agreement (to the extent not prohibited under governing documents) shall include images of manually executed signatures transmitted by facsimile or other electronic format (including “pdf”, “tif” or “jpg”) and other electronic signatures (including DocuSign and AdobeSign). Delivery of an executed counterpart of a signature page to this Agreement by facsimile or other electronic means shall be effective as delivery of a manually executed counterpart of this Agreement.

SECTION 15.          Nonpetition Covenant.

(a)             Notwithstanding any prior termination of this Agreement or the related Indenture, each of the parties covenants that it shall not, prior to the date which is one year and one day after payment in full of the last outstanding Bonds issued by such Bond Issuer, acquiesce, petition or otherwise invoke or cause a Bond Issuer to invoke the process of any court or government authority for the purpose of commencing or sustaining a case against such Bond Issuer under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of such Bond Issuer or any substantial part of its property, or ordering the winding up or liquidation of the affairs of such Bond Issuer.

(b)             Notwithstanding any prior termination of this Agreement or the Credit Agreement, each of the parties hereto other than the Administrative Agent hereby covenants and agrees that it shall not, prior to the date which is one year and one day after the termination of the Credit Agreement and the payment in full of all amounts owing by the Buyer thereunder, acquiesce, petition or otherwise invoke or cause the Buyer to invoke the process of any court or government authority for the purpose of commencing or sustaining a case against the Buyer under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Buyer or any substantial part of the property of the Buyer, or ordering the winding up or liquidation of the affairs of the Buyer.

13

SECTION 16.         Trustees. Each Bond Trustee, in acting hereunder, is entitled to all rights, benefits, protections, immunities and indemnities accorded to it under the respective Indenture.

SECTION 17.         Notices, Etc. Any notice provided or permitted by this Agreement to be made upon, given or furnished to or filed with any party hereto shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing by facsimile transmission, other electronic transmission (including email), first-class mail or overnight delivery service to the applicable party at its address set forth on Exhibit A hereto or, as to any party, at such other address as shall be designated by such party by written notice to the other parties hereto.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

14

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

DUKE ENERGY PROGRESS, LLC, as Company, as Property Servicer, as Receivables Servicer and as a collection agent
By:
Name:
Title:
DUKE ENERGY PROGRESS NC STORM FUNDING, LLC, as the NC Bond Issuer
By:
Name:
Title:
DUKE ENERGY PROGRESS SC STORM FUNDING, LLC, as the SC Bond Issuer
By:
Name:
Title:
DUKE ENERGY PROGRESS RECEIVABLES LLC, as the Buyer
By:
Name:
Title:

Signature Page to Intercreditor Agreement

THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL ASSOCIATION, as the NC Bond Trustee
By:
Name:
Title:
U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION, as the SC Bond Trustee
By:
Name:
Title:
MUFG BANK, LTD., as Administrative Agent
By:
Name:
Title:

Signature Page to Intercreditor Agreement

EXHIBIT A

NOTICE ADDRESSES

Duke Energy Progress, LLC

550 South Tryon Street
Charlotte, North Carolina 28202
Attention: Treasurer
Telephone: (704) 382-3853

Email: [___]

Duke Energy Progress NC Storm Funding, LLC

410 South Wilmington Street
Raleigh, North Carolina 27601-1748
Attention: Managers
Telephone: 704-382-3853

Email: [___]

Duke Energy Progress SC Storm Funding, LLC

[_________________]

Duke Energy Progress Receivables LLC

526 South Church Street
Charlotte, North Carolina 28202
Attention: Vice President and Treasurer
Telephone: (704) 382-2620
Facsimile: (704) 373-3699

Email: [__]

The Bank of New York Mellon Trust Company, National Association

Corporate Trust Department

4655 Salisbury Road, Suite 300

Jacksonville, FL 32256

Telephone: [904-998-4714]

Email: [___]

U.S. Bank Trust Company, National Association

U.S. Bank Trust Company, National Association

190 S. LaSalle Street, 7^th Floor

Chicago, IL 60603

Attention: Duke Energy Progress SC Storm Funding LLC

Email: [___]

MUFG Bank, Ltd.

[__________________]

EXHIBIT B

Rating Agency Condition

To Come

E-F-19

EX-10.5

Exhibit 10.5

JOINDER AGREEMENT

___________ ____, 2024

Reference is made to that certain Amended and Restated Intercreditor Agreement, dated as of December 20, 2013 (as amended by that amendment No. 1 dated as of August 1, 2023 and as otherwise amended, supplemented or otherwise modified prior to the date hereof, the “Intercreditor Agreement”), by and among Duke Energy Business Services LLC (as successor to Duke Energy Business Services, Inc.), a Delaware limited liability company (“DEBS”), as Receivables Sub-Servicer, Duke Energy Corporate Services Inc., a Delaware corporation (together with DEBS, the “Account Owners” and each, an “Account Owner”), Duke Energy Corporation, a Delaware corporation (the “Parent”), the “Receivables Servicers” from time to time party thereto, the “Creditors” from time to time party thereto, and the “Receivables Purchasers” form time to time party thereto. Each capitalized term used herein and not defined herein shall have the meaning ascribed thereto in the Intercreditor Agreement.

WHEREAS, Duke Energy Progress SC Storm Funding LLC, a subsidiary of the Parent (“New Purchaser”), plans to issue secured storm recovery bonds and U.S. Bank Trust Company, National Association, will be the trustee (in such capacity, the “New Creditor”) for the secured parties under that certain Indenture dated on or around the date hereof (the “Indenture”) between the New Purchaser and the New Creditor, in which the collections thereon are to be serviced by Duke Progress and directed to the Master Account pursuant to the Indenture;

WHEREAS, the New Creditor wishes to obtain the benefits and assume the burdens of being a Creditor under the Intercreditor Agreement;

WHEREAS, the New Purchaser wishes to obtain the benefits and assume the burdens of being a Purchaser under the Intercreditor Agreement;

NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, Duke Progress, the Account Owners, the Parent, the New Purchaser and the New Creditor hereby agree as follows:

1.            Assumption and Agreement. The New Creditor hereby covenants and agrees (a) to perform each and every covenant, agreement and obligation of a Creditor under the Intercreditor Agreement, at the time, in the manner and in all other respects as provided therein, and (b) to be bound by each and every term and provision of the Intercreditor Agreement as though the Intercreditor Agreement had originally been made, executed and delivered by such Creditor. The New Purchaser hereby covenants and agrees (a) to perform each and every covenant, agreement and obligation of a Receivables Purchaser under the Intercreditor Agreement, at the time, in the manner and in all other respects as provided therein, and (b) to be bound by each and every term and provision of the Intercreditor Agreement as though the Intercreditor Agreement had originally been made, executed and delivered by such Receivables Purchaser. The undersigned New Purchaser and New Creditor each hereby acknowledges, agrees and confirms that, by its execution of this Joinder Agreement, it will be deemed to be a party to the Intercreditor Agreement and shall be a “New Purchaser” or “New Creditor”, respectively, under the Intercreditor Agreement and shall have all of the rights and obligations of such respective party thereunder as if it had executed the Intercreditor Agreement.

2.            Defined Terms. Upon the effectiveness of this Joinder Agreement, the parties hereto agree that, as used in the Intercreditor Agreement as modified hereby, the term “Receivables Agreements” shall include the Indenture referenced above, the term “Creditor” shall include the New Creditor party hereto, the term “Interest Holders” shall include the Secured Parties (as defined in the Indenture), and the term “Receivables Purchaser” shall include the New Purchaser party hereto.

3.            Notices. Notices to the New Creditor and the New Purchaser pursuant to the Intercreditor Agreement as modified hereby shall be addressed, delivered or transmitted to each such party at its address or facsimile number set forth on Annex I hereto.

4.            Effectiveness. This Joinder Agreement shall become effective when it shall have been executed and delivered in accordance with Section 15 of the Intercreditor Agreement.

5.            Trustee. The New Creditor, as Trustee, in acting under the Intercreditor Agreement is entitled to all rights benefits, protections, immunities and indemnities accorded to it under the Indenture.

[The remainder of this page is intentionally blank.]

IN WITNESS WHEREOF, the parties hereto have caused this Joinder Agreement to be executed by their duly authorized officers.

DUKE ENERGY PROGRESS SC STORM FUNDING LLC,

as a New Purchaser

By:

Name:

Title:

U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION

as a New Creditor

By:

Name:

Title:

Signature Page to Joinder Agreement

(Duke Energy Progress – SC Securitization)

Duke Progress, the Parent and the Account Owners hereby acknowledge the terms of the Intercreditor Agreement as modified hereby. Duke Progress, the Parent and the Account Owners hereby certify that, with respect to each Receivables Agreement subject to the Intercreditor Agreement, no default, event of default, event of termination or other event that allows for the acceleration of the repayment of indebtedness outstanding thereunder or the termination of any funding commitment thereunder shall result from the New Creditor party hereto becoming subject to the Intercreditor Agreement or from the New Purchaser’s incurrence of indebtedness under or guaranty of obligations under the Indenture to which such New Creditor is subject.

DUKE ENERGY PROGRESS, LLC,

as Receivables Servicer of the Other Receivables sold to the New Purchaser

By:

Name:

Title:

DUKE ENERGY BUSINESS SERVICES LLC,

as Account Owner and as a collection agent

By:

Name:

Title:

DUKE ENERGY CORPORATE SERVICES INC.,

as Account Owner

By:

Name:

Title:

DUKE ENERGY CORPORATION, as Parent

By:

Name:

Title:

Signature Page to Joinder Agreement

(Duke Energy Progress – SC Securitization)

ANNEX I

TO

JOINDER AGREEMENT

NEW CREDITOR:

U.S. Bank Trust Company, National Association

190 S. LaSalle Street, 7th Floor

Chicago, IL 60603
Attention: Duke Energy Progress SC Storm Funding LLC

Day to day business contact

Name: Jose Galarza
Telephone: 312-332-7453
Email: jose.galarza@usbank.com

NEW PURCHASER:

Duke Energy Progress SC Storm Funding LLC
411 Fayetteville Street

Raleigh, North Carolina 27601
Attention: Managers
Telephone: 704-382-3853

EX-99.1

Exhibit 99.1

BEFORE

THE PUBLIC SERVICE COMMISSION OF

SOUTH CAROLINA

DOCKET NO. 2023-89-E - ORDER NO. 2023-752(A)

OCTOBER 23, 2023

IN RE: Duke Energy Progress, LLC’s Petition for a Financing Order (“Phase II”) )
)
)
)
)
)
) STORM RECOVERY
FINANCING ORDER
APPROVING
COMPREHENSIVE
SETTLEMENT
AGREEMENT AND
ACCOUNTING ORDER

After the issuance of Order No. 2023-752, an inadvertent scrivener’s error was discovered in the definition of “public interest,” as defined by S.C. Code Ann. section 58-4-10(B) in the Dissent. The error does not change the substantive argument made in the Dissent or the outcome of the Order. The Office of Regulatory Staff filed a letter noting this error and acknowledged that it does not affect the outcome or conclusions contained in the Order. The Amended Order amends the Dissent with correction only to the most recent definition S.C. Code Ann. section 58-4-10(B). There are no other changes to Order No. 2023-752, and this amendment does not change any argument or analysis.

This matter comes before the Public Service Commission of South Carolina (Commission) on the May 31, 2023, Petition of Duke Energy Progress, LLC (DEP or the Company) for Issuance of a Storm Recovery Financing Order (the Petition) by the Commission pursuant to S.C. Code Ann. section 58-27-1110.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 2

I.              PROCEDURAL HISTORY AND JURISDICTION

On May 31, 2023, pursuant to S.C. Code Ann. section 58-27-1110(A) (Supp. 2023), S.C. Code Ann. Regs. 103-825 (2012), and other applicable rules and regulations of the Commission, DEP filed its Petition requesting that the Commission grant authorization for the financing of the Company’s storm recovery costs incurred due to storm recovery activities required as a result of the following storms: Pax, Ulysses, Matthew, Florence, Michael, Dorian, Izzy and Jasper (the Storms). Specifically, DEP seeks the following: (1) authorization to finance its Securitizable Balance plus up-front Financing Costs incurred in connection with the issuance of the Storm Recovery Bonds¹; (2) approval of the proposed securitization financing structure; (3) approval to issue Storm Recovery Bonds², secured by the pledge of Storm Recovery Property, in one or more series in an aggregate principal amount not to exceed the relevant Securitizable Balance plus up-front Financing Costs; (4) approval of the Financing Costs, including up-front Financing Costs and on-going Financing Costs, incurred in connection with the issuance of Storm Recovery Bonds; (5) approval to create Storm Recovery Property, including the right to (i) impose, bill, charge, collect, and receive nonbypassable Storm Recovery Charge; and (ii) obtain periodic formulaic adjustments to the Storm Recovery Charge as provided in this Financing Order; and (6) approval of the tariff to implement the Storm Recovery Charge. With regard to the Petition, the Company was represented in this proceeding by Carnal O. Robinson, Esquire; J. Ashley Cooper, Esquire; Alexandrea Breazeale, Esquire; James H. Jeffries IV, Esquire; and Kristin M. Athens, Esquire.³

¹ See Finding of Fact 4 defining Securitizable Balance

² Capitalized terms not otherwise defined herein shall have the meaning assigned to them in S.C. Code Ann. sections 58-27-1105 through 1180 referred to herein as the “Storm Securitization Statute”.

³ James H. Jeffries IV was admitted pro hac vice pursuant to Commission Order No. 2023-570. Kristin M. Athens was admitted pro hac vice pursuant to Commission Order No. 2023-499.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 3

In support of its Petition, DEP filed the Direct Testimony and Exhibits of Thomas J. Heath Jr., Structured Finance Director with Duke Energy Business Services, LLC (DEBS); Kimberly K. Smith, Rates & Regulatory Strategy Manager with Duke Energy Carolinas, LLC; Jacalyn H. Moore, Rates & Regulatory Strategy Manager with DEBS; Nicholas G. Speros, Director of Accounting with DEBS; and Katrina T. Niehaus, Managing Director, Head of the Corporate Asset Backed Securities Finance Group with Goldman Sachs & Co. Tr. pp. 46, 186, 310, 322, & 358. On July 11, 2023, DEP filed an Errata to the Petition and the Direct Testimony and Exhibits of Witness Kimberly K. Smith. Tr. p. 188. On July 21, 2023, DEP filed Supplemental Direct Testimony and Exhibits of Witness Jacalyn H. Moore. Tr. p. 324. On August 10, 2023, DEP filed Rebuttal Testimony and Exhibits, where applicable, of Thomas J. Heath, Jr., Katrina T. Niehaus, Kimberly K. Smith, Nicholas G. Speros, and Jacalyn H. Moore. Tr. pp. 48, 190. On August 22, 2023, DEP filed Revised Rebuttal Testimony of Kimberly K. Smith. Tr. p. 190. On September 8, 2023, DEP submitted Amended Rebuttal Testimony and Exhibit of Thomas J. Heath, Jr., Amended Rebuttal Testimony of Katrina T. Niehaus, and Settlement Testimony of Thomas J. Heath Jr. Tr. pp. 48; 360. On September 12, 2023, DEP filed Hearing Exhibit 7 providing the net present value savings calculation for a 10-Year and 15-Year Bond Recovery Period. Tr. p. 282.

On June 7, 2023, the South Carolina Department of Consumer Affairs (DCA) petitioned the Commission to intervene, which was granted on June 22, 2023, by Order No. 2023-70-H. DCA was represented in this proceeding by Carri Grube Lybarker, Esquire, and Roger P. Hall, Esquire. On July 26, 2023, DCA filed the Direct Testimony of Aaron Rothschild. On August 22, 2023, DCA filed Surrebuttal Testimony of Aaron Rothschild. On September 8, 2023, DCA filed Testimony of Aaron Rothschild in support of the Settlement Agreement.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 4

On June 21, 2023, Nucor Steel - South Carolina (Nucor Steel) petitioned the Commission to intervene, which was granted on July 3, 2023, by Order No. 2023-74-H. Nucor Steel was represented in this proceeding by Robert R. Smith II, Esquire, and Michael K. Lavanga, Esquire.⁴ 

The South Carolina Office of Regulatory Staff (ORS) is a party of record to proceedings before the Commission pursuant to S.C. Code Ann. Section 58-4-10(B) (Supp. 2023). ORS was represented in this proceeding by Christopher M. Huber, Esquire, Donna L. Rhaney, Esquire, and Joshua E. Austin, Esquire. On July 26, 2023, ORS filed the Direct Testimony and Exhibit of Michael L. Seaman- Huynh, Deputy Director of Energy Operations with ORS; Direct Testimony and Exhibits of Jeremy E. Traska, Managing Director of Debt Capital Markets & Advisory Group with Drexel Hamilton, LLC; Direct Testimony of Mark A. Rhoden, Chief Financial Officer with ORS, and Direct Testimony and Exhibits of Lane Kollen, Vice President and Principal with J. Kennedy and Associates, Inc. Tr. pp. 239, 251, 529, & 536. On August 22, 2023, ORS filed Surrebuttal Testimony and Exhibit of Mark A. Rhoden and Surrebuttal Testimony of Lane Kollen. Tr. pp. 241, 253. On September 8, 2023, ORS filed Settlement Testimony of Mark A. Rhoden. Tr. p. 255.

On August 25, 2023, DCA filed a letter with attachments on behalf of DCA witness Rothschild. On August 28, 2023, DEP filed a motion to strike DCA witness Rothschild’s direct and surrebuttal testimony. DCA filed its response to the motion on September 1, 2023, and ORS filed a letter and exhibit this same day. DEP filed a reply to DCA’ s response to the motion to strike on September 5, 2023. The motion was withdrawn with prejudice during the hearing of this matter.⁵

⁴ Michael K. Lavanga was admitted pro hac vice pursuant to Commission Order No. 2023-492. 

⁵ During the hearing of this matter, the pending motion was withdrawn, with prejudice. Each party confirmed that withdrawal was being freely and voluntarily made, and all parties specifically disclaimed any prejudice associated with the motion. Attorneys on behalf of each party, confirmed to the Commission that by withdrawal of the motion, the parties knowingly agreed to waive all rights and other legal remedies available to them by the withdrawal of the motion. As such, the withdrawal of the motion during the proceeding has the effect of that provision being stricken from the Comprehensive Settlement Agreement, which is reflected in Order Exhibit No. 1. Tr. p. 290:16-301:19.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 5

On September 5, 2023, DEP filed a Stipulation between DEP, ORS, DCA and Nucor Steel regarding various matters before the Commission. On September 6, 2023, the Commission convened the hearing on this matter with the Honorable Florence P. Belser presiding. At the commencement of the hearing, the Commission permitted a delay of the hearing in order to allow the Commission time to review the Stipulation filed on September 5, 2023.

When the hearing reconvened, counsel for DEP informed the Commission that the Parties had reached a global, comprehensive settlement resolving all issues in the case, and requested a recess in the proceeding to allow the Parties to memorialize the agreement and for certain Parties to file settlement testimony supporting the comprehensive settlement agreement. The Commission agreed to stay the proceeding related to DEP’ s Petition until Monday, September 11, 2023.

On September 8, 2023, ORS filed a Comprehensive Settlement Agreement⁶ (Settlement Agreement) between DEP, ORS, DCA and Nucor Steel (the Parties) attached hereto in this Financing Order as Order Exhibit No. 1. The Commission resumed the hearing on September 11, 2023, and accepted the Settlement Agreement into evidence.

DEP presented the direct, supplemental direct, rebuttal, revised or amended rebuttal, and settlement testimonies of witnesses Heath, Smith, Moore, Speros, and Niehaus. DCA presented the settlement testimony of witness Rothschild. ORS presented the direct, surrebuttal, and settlement testimonies of witnesses Rhoden, Seaman-Huynh⁷, Kollen, and Traska. The pre-filed testimonies and exhibits of DEP’s five witnesses, the settlement testimony of DCA’s witness, and the pre-filed testimony and exhibits of ORS’ s four witnesses were accepted into the record without objection.

⁶ The Stipulation filed on September 5, 2023, only addressed certain issues in the proceeding, but the Comprehensive Settlement Agreement was a proposed resolution of all issues in the proceeding.

⁷ Witness Seaman-Huynh’s Direct Testimony and Exhibit were entered into the record without him appearing to present it. An Affidavit verifying his Direct Testimony and Exhibit was filed with the Commission on September 11, 2023.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 6

The Commission also marked and accepted into evidence late-filed Hearing Exhibit 7 provided on September 12, 2023, which provides the net present value savings calculations for both a 10- year and 15-year storm bond recovery period, calculated as of May 22, 2023. Tr. p. 282.

II.             STATUTORY STANDARDS AND REQUIRED FINDINGS

The Storm Securitization Statute establishes the process by which an electrical utility may petition the Commission for a financing order authorizing the electrical utility to finance storm recovery costs associated with storm recovery activities with the proceeds of storm recovery bonds that are secured by the storm recovery property. Before granting a financing order, the Commission must find two primary conditions: (1) that the issuance of the storm recovery bonds and the imposition of a storm recovery charge will provide quantifiable net benefits to customers on a present value basis as compared to the costs that would have been incurred absent the issuance of storm recovery bonds and (2)that the structuring, marketing, and pricing of the storm recovery bonds will result in the lowest storm recovery charge consistent with market conditions at the time the storm recovery bonds are priced and the terms set forth in this Financing Order. S.C. Code Ann. § 58-27-1110(C)(2)(b) and (c) (Supp. 2023).

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 7

To support this finding, the utility must submit a petition that includes (a) a description of its storm recovery activities; (b) an estimate of the storm recovery costs; (c) the proposed level of storm recovery reserve, if any; (d) an indicator of the amount of storm recovery costs to be financed using storm recovery bonds; (e) an estimate of the financing costs related to the storm recovery bonds; (f) an estimate of the storm recovery charge necessary to recover storm recovery costs; and (g) a comparison between the net present value of the cost to customers estimated to result from the issuance of storm recovery bonds and the cost that would result from the application of the traditional method of financing and recovering storm recovery costs — this comparison must demonstrate that the issuance of storm recovery bonds and the imposition of a storm recovery charge are expected to provide quantifiable net benefits to customers on a present value basis. S.C. Code Ann. § 58-27-1110(A) (Supp. 2023).

When issued, in addition to the findings referenced above required by section 58-27-1110(C)(2)(b) and (c), the financing order must also include all elements required by section 58-27-1110(C)(2):

(a)              except for changes made pursuant to the formula-based mechanism authorized under this section, the amount of storm recovery costs, including the level of storm recovery reserves, if any, to be financed using storm recovery bonds. The Commission shall describe and estimate the amount of financing costs that may be recovered through storm recovery charges and specify the period over which storm recovery costs and financing costs may be recovered;

(b)              a finding that the proposed issuance of recovery bonds and the imposition and collections of a storm recovery charge will provide quantifiable net benefits to customers on a present value basis as compared to the costs that would have been incurred absent the issuance of storm recovery bonds;

(c)              a finding that the structuring, marketing, and pricing of the storm recovery bonds will result in the lowest storm recovery charges consistent with market conditions at the time the storm recovery bonds are priced and the terms set forth in such financing order. The financing order must provide detailed findings of fact addressing cost effectiveness and associated rate impacts upon retail customers and retail customer classes;

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(d)              a requirement that, for so long as the storm recovery bonds are outstanding and until all financing costs have been paid in full, the imposition and collection of storm recovery charges authorized under a financing order shall be nonbypassable and paid by all existing and future retail customers receiving transmission or distribution service, or both, from the electrical utility or its successors or assignees under commission-approved rate schedules or under special contracts, even if a customer elects to purchase electricity from an alternative electric supplier following a fundamental change in regulation of electrical utilities in this State;

(e)              a determination of what portion, if any, of the storm recovery reserves, if any, must be held in a funded reserve and any limitations on how the reserve may be held, accessed, or used;

(f)               a formula-based true-up mechanism for making, at least annually, expeditious periodic adjustments in the storm recovery charges that customers are required to pay pursuant to the financing order and for making any adjustments that are necessary to correct for any overcollection or undercollection of the charges or to otherwise ensure the timely payment of storm recovery bonds, financing costs, and other required amounts and charges payable in connection with the storm recovery bonds;

(g)              the storm recovery property that is or shall be created in favor of an electrical utility or its successors or assignees, and that shall be used to pay or secure storm recovery bonds and all financing costs;

(h)              the degree of flexibility to be afforded to the electrical utility in establishing the terms and conditions of the storm recovery bonds including, but not limited to, repayment schedules, expected interest rates, and other financing costs, and subject to any conditions in the financing order, including the pre-bond issuance review process which the commission shall establish;

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(i)               how storm recovery charges will be allocated among customer classes;

(j)               a requirement that, after the final terms of an issuance of storm recovery bonds have been established and before the issuance of storm recovery bonds, the electrical utility determines the resulting initial storm recovery charge in accordance with the financing order and that such initial storm recovery charge be final and effective upon the issuance of such storm recovery bonds without further commission action so long as the recovery charge is consistent with the financing order and the pre-bond issuance review process established by the commission in the financing order is complete;

(k)               a method of tracing funds collected as storm recovery charges, or other proceeds of storm recovery property, and the determination that such method shall be deemed the method of tracing such funds and determining the identifiable cash proceeds of any storm recovery property subject to a financing order under applicable law; and

(l)               any other conditions not otherwise inconsistent with this section that the commission determines are appropriate.

This financing order, as described in greater detail herein infra, fully satisfies each element required by section 58-27-1110(C)(2).

The Storm Securitization Statute specifies that the financing order must also include a requirement that the electrical utility file with the Commission at least annually a letter applying the formula-based mechanism, and request adjustments in the storm recovery charge, if necessary, to a level sufficient to ensure the bond payment obligations. The Commission’s review of this filing is limited to determining mathematical and clerical errors in the application of the formula-based mechanism relating to the appropriate amount of any overcollection or undercollection of storm recovery charges and the amount of an adjustment. S.C. Code Ann. § 58-27-1110(C)(4) (Supp. 2023).

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III.           STANDARD OF REVIEW

With regard to the Petition, the burden of proof is the preponderance of the evidence standard. See S.C. Code Ann. § 1-23-600(A)(5) (Supp. 2023) (“Unless otherwise provided by statute, the standard of proof in a contested case is by a preponderance of the evidence.”). This means that the Commission should grant DEP’s Petition if the Company has demonstrated, by a preponderance of the evidence, that it has met the requirements of the Storm Securitization Statute, including that the issuance of the storm recovery bonds and the imposition of a storm recovery charge will provide quantifiable net benefits to customers on a present value basis as compared to the costs that would have been incurred absent the issuance of storm recovery bonds and that the structuring, marketing, and pricing of the storm recovery bonds will result in the lowest storm recovery charge consistent with market conditions at the time the storm recovery bonds are priced and the terms set forth in this Financing Order. S.C. Code Ann. § 58-27-1110(C)(2)(b) and (c) (Supp. 2023).

The record supports the issuance of a financing order under the terms of the Settlement Agreement.

The Commission’s decision on the Petition must be based upon substantial evidence in the record. Additionally, pursuant to S.C. Code Ann. section 58-27-1110(2)(1) (Supp. 2023), the Commission may impose any other conditions not otherwise inconsistent with the Securitization statute, that the Commission determines appropriate. However, in accordance with the non-severable Comprehensive Settlement Agreement presented by the Settling Parties for approval without exception, modification, or additional provisions, the Commission is not exercising its statutory authority to impose conditions beyond what has been presented in the Comprehensive Settlement Agreement, nor have the Settling Parties asked that the Commission exercise such authority. Therefore, the Commission finds that this Financing Order is based upon the substantial evidence in the record as presented by the Settling Parties.

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IV.           FINDINGS OF FACT AND CONCLUSIONS OF LAW

Based upon the Petition, the Settlement Agreement, the testimony, and exhibits received into evidence at the hearing and the entire record of this proceeding, the Commission makes the following findings of fact:

A. Jurisdiction

1.              DEP is a limited liability company duly organized and existing under the laws of the State of North Carolina. It is a public utility under the laws of the State of South Carolina and is subject to the jurisdiction of this Commission pursuant to S.C. Code Ann. section 58-3-140(A) (Supp. 2023) and an electrical utility under S.C. Code Ann. section 58-27-10(7) (Supp. 2023). The Company is engaged in the business of generating, transmitting, distributing, and selling electric power to the public in the northeastern portion of South Carolina, a substantial portion of the coastal plain of North Carolina extending from the Piedmont to the Atlantic coast and between the Pamlico River and the South Carolina border, the lower Piedmont section of North Carolina and area in western North Carolina in and around the City of Asheville. DEP, with its offices and principal places of business in Raleigh, North Carolina, is a wholly owned subsidiary of Duke Energy, with its offices and principal place of business in Charlotte, North Carolina.

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2.              The Commission has jurisdiction over the rates and charges, rate schedules, classifications, and practices of public utilities operating in South Carolina, including DEP, as generally provided in S.C. Code Ann. sections 58-27-10, et seq (2015 and Supp. 2023).

B. Petition

3.              Having received Commission Order No. 2023-260 in Docket No. 2022-256-E, determining the amount of the Company’s approved principal costs under S.C. Code Ann. section 58- 27-1110(B) (Supp. 2023), DEP is properly before the Commission requesting authorization to recover its approved storm recovery costs through the issuance of storm recovery bonds based upon its Petition pursuant to S.C. Code Ann. section 58-27-1110 (Supp. 2023).

C. Settlement Agreement

4.              On September 8, 2023, ORS filed the Settlement Agreement, signed by all parties, resolving all issues in dispute.

5.              The Commission, having carefully reviewed the Settlement Agreement, the evidence in the record, and considered the testimony of witnesses who concluded that the proposal would, in fact, provide quantifiable net benefits to customers on a present value basis as compared to the costs that would have been incurred absent the issuance of Storm Recovery Bonds and (ii) result in the lowest Storm Recovery Charge consistent with market conditions at the time the Storm Recovery Bonds are priced and the terms set forth in this Financing Order, finds and concludes that the provisions of the Settlement Agreement are just and reasonable as to all the Parties and are in the public interest. Therefore, the Settlement Agreement should be approved in its entirety. The specific terms of the Settlement Agreement are addressed in the following findings of fact: 7, 9, 11-14, 22, 24-26, 29, 35-36, 38, 41-53 and 55-57.

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6.              The complete Settlement Agreement, included hereto as Order Exhibit No. 1, is incorporated by reference.

D. Costs Eligible for Recovery Through Securitization

Storm Recovery Costs

7.              In accordance with the Commission’s findings of fact and conclusions of law in Order No. 2023-260, the Storm Recovery Costs of approximately $170.6 million, subject to adjustments including the final amount of carrying costs through the issuance date of the Storm Recovery Bonds, are eligible for recovery through the issuance of storm recovery bonds (the Securitizable Balance). The Storm Recovery Costs do not include an amount to pre-fund the Company’s storm recovery reserve through the issuance of Storm Recovery Bonds.

Up-front Financing Costs

8.              DEP’s estimated up-front Financing Costs updated in Heath Rebuttal Exhibit 1 and in Attachment 2, in the form of the proposed Issuance Advice Letter, Order Exhibit No. 4, are estimated between $5.96 million to $7.09 million, which includes but is not limited to legal, consulting and accounting fees and expenses, rating agency fees, plus costs of outside consultants and counsel to the Commission and the ORS, are reasonable and prudent, made in the best interest of DEP’s customers, and eligible for recovery through securitization. The up-front Financing Costs are subject to adjustment in the Issuance Advice Letter that DEP will file with the Commission after the Storm Recovery Bonds are priced, as further described in Findings of Fact 48-53.

9.              DEP is permitted to establish a regulatory asset to defer up-front financing costs in excess of final estimates included in the Issuance Advice Letter, if any; provided, however that the costs subject to deferral would not impact the storm recovery bonds or charges that are the subject of this proceeding. DEP will accrue carrying costs on the regulatory asset, net of accumulated deferred income taxes (ADIT), at DEP’s approved pre-tax weighted average cost of capital (WACC) in effect at the time the deferral costs are incurred. DEP will then request that all such costs are included in base rates during the next base rate proceeding. It is reasonable that all parties reserve their right to review the reasonableness and prudency of those costs in the next rate proceeding.

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On-going Financing Costs

10.           The on-going Financing Costs identified in DEP’s Petition and in Attachment 4 of the form Issuance Advice Letter, Order Exhibit No. 4, estimated to be approximately $0.4 million annually, subject to update and adjustment in the Issuance Advice Letter as described in this Financing Orders⁸, are reasonable and prudent, made in the best interest of DEP’s customers, and qualify as Financing Costs eligible for recovery pursuant to S.C. Code Ann. section 58-27-1105(7) (Supp. 2023).

Utility Assessment Fee, License Tax and Sales Tax

11.           DEP will seek an opinion from the South Carolina Department of Revenue (the SCDOR) regarding whether (i) License Tax on Utilities under S.C. Code Ann. section 12-20-100 (2014) and (ii) Sales Tax arising under S.C. Code Title 12 apply to the storm recovery charges. Until the SCDOR provides an opinion in response to DEP’s request regarding the License Tax under S.C. Code Ann. section 12-20-100, DEP proposes to collect the License Tax as an initial matter until it receives final clarification from the SCDOR. Until SCDOR provides an opinion in response to DEP’s request regarding the Sales Tax, DEP proposes to collect Sales Tax as an initial matter on the storm recovery charges from customers to whom sales of electricity are not otherwise exempt from Sales Tax until it receives final clarification from the SCDOR. Exempt customers from whom the Company does not propose to collect Sales Tax include but are not limited to all residential customers.

⁸ On-Going Financing Costs were updated in Heath’s Amended Rebuttal Exhibit 1-5.

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12.           If the License Tax is deemed not to apply, then the Company will file an amended consolidated return and will pass the cash refunded by the SCDOR back through an invoice from the Company, as the Servicer, to the Special Purpose Entity (SPE). The SPE will credit the License Taxes paid from customers back to customers through the next applicable true-up filing.

13.           If the Company collects Sales Taxes that are subsequently deemed not to apply, then the Company will credit customers via a miscellaneous credit on their subsequent electricity bill.

14.           The Settling Parties agreed in the Settlement Agreement that the Commission will determine if DEP should collect a Utility Assessment Fee arising under Sections 58-27-50, 58-4-60, and 58-3-100 to be included in the calculation of ongoing financing costs. S.C. Code Ann. §§ 58-27-50 & 58-3-100 (2015); S.C. Code Ann. § 58-4-60 (Supp. 2023). The Commission finds that that the SPE is not a utility as defined by South Carolina law, and no Utility Assessment Fee shall be collected on the basis of storm recovery charges of the SPE.

Capital Contribution

15.           DEP’s capital contribution to the SPE shall earn a return at the interest rate of the longest maturing tranche of the Storm Recovery Bonds, which is reasonable and prudent.

E. Structure of Bond Issuance

16.           DEP’s proposed financing structure adheres to the requirements of the Storm Securitization Statute.

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Special Purpose Entity

17.           For purposes of issuing storm recovery bonds, it is reasonable for DEP to create a SPE, which will be a Delaware limited liability company (LLC) with DEP as its sole member. The SPE will be an “assignee” as defined in S.C. Code Ann. Section 58-27-1105(2) (Supp. 2023), and when an interest in Storm Recovery Property is transferred, other than as security, to the SPE, the SPE may issue Storm Recovery Bonds in accordance with this Financing Order.

Storm Recovery Property

18.           It is reasonable for DEP to sell or otherwise transfer Storm Recovery Property to the SPE pursuant to the terms of this Financing Order. Upon the transfer by DEP of the Storm Recovery Property to the SPE, that SPE will have all of the rights, title, and interest of DEP with respect to such Storm Recovery Property, including the right to impose, bill, charge, collect, and receive the Storm Recovery Charge authorized by this Financing Order and to obtain periodic formulaic adjustments to the Storm Recovery Charge. Such Storm Recovery Property is expected to be pledged by the SPE to, and held and administered by, an indenture trustee as collateral for payment of the Storm Recovery Bonds to ensure that the proposed issuance of Storm Recovery Bonds and the imposition of the Storm Recovery Charge will: (i) provide quantifiable net benefits to customers on a present value basis as compared to the costs that would have been incurred absent the issuance of Storm Recovery Bonds and (ii) result in the lowest Storm Recovery Charge consistent with market conditions at the time the Storm Recovery Bonds are priced and the terms set forth in this Financing Order (collectively, the Statutory Cost Objectives).

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19.           The Storm Securitization Statute provides that the State of South Carolina and its agencies, including this Commission, pledge and agree with bondholders, the owners of the Storm Recovery Property, and other financing parties that the State and its agencies, including the Commission, will not take any of the following actions as to any outstanding Storm Recovery Bonds, Storm Recovery Charge, or Storm Recovery Property: (i) alter the provisions of the Storm Securitization Statute, which authorize the Commission to create an irrevocable contract right or chose in action by the issuance of this Financing Order, create Storm Recovery Property and make the Storm Recovery Charge imposed by this Financing Order an irrevocable, binding or nonbypassable charge; (ii) take or permit any action that impairs or would impair the value of the Storm Recovery Property or the security for the Storm Recovery Bonds or revise the Storm Recovery Costs for which storm recovery is authorized; (iii) in any way impair the rights and remedies of the bondholders, assignees, and other financing parties; or (iv) except for changes made pursuant to the True-Up Mechanism, reduce, alter or impair the Storm Recovery Charge until any and all principal, interest, premium (if any), Financing Costs and other fees, expenses or charges incurred, and any contracts to be performed in connection with the Storm Recovery Bonds, have been paid and performed in full, as further described in S.C. Code Ann. section 58-27-1155(A) (Supp. 2023). This paragraph does not preclude limitation or alteration if full compensation is made by law for the full protection of the storm recovery charges collected pursuant to a financing order and of the bondholders and any assignee or financing party entering into a contract with the electrical utility. S.C. Code Ann. § 58-27-1155(A) (Supp. 2023).

Form of Transaction Documents

20.           The forms of the servicing agreement, purchase and sale agreement, administration agreement, limited liability company agreement, and indenture, originally filed as exhibits to Company witness Thomas J. Heath Jr.’s testimony (collectively, the “Transaction Documents”) are in the public interest and necessary to facilitate the transaction and are approved, subject to Finding of Fact 22.

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21.           It is reasonable and prudent for any modifications to the Transaction Documents to be reviewed and provided input by the Bond Advisory Team, defined below in Finding of Fact 43, to ensure that the Statutory Cost Objectives are achieved and for compliance with the terms of this Financing Order.

Offering and Sale of Bonds

22.            It is reasonable for DEP to issue the Storm Recovery Bonds through a negotiated sale or other sales option to achieve the Statutory Cost Objectives. Furthermore, DEP will have the flexibility to utilize a means of sale other than an SEC-registered sale, such as a Rule 144A offering, if market volatility or other factors indicate that such a sale would be the best manner to achieve the “Statutory Cost Objectives” defined herein. DEP agrees to consider the advice and input from the Bond Advisory Team and DCA prior to making such decision. If a means of sale other than an SEC registered sale is proposed to be utilized, the rationale for the decision shall be explained in detail in the Issuance Advice Letter submitted to the Commission.

Amortization of Storm Recovery Bonds

23.           The proposed duration of the bond repayment period is reasonable and prudent.

The expected term of the scheduled final payment date of the last maturing tranche of bonds issued pursuant to the authority granted herein, as determined in the reasonable discretion of DEP, is to be no later than 20 years, from the issuance of the series of Storm Recovery Bonds. The legal maturity date of each tranche may be longer than the scheduled final payment date for that tranche.

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Cap on Costs of Securitization Financing

24.           It is appropriate for the Storm Recovery Bonds, or each tranche thereof if multiple tranches are issued, to have a fixed interest rate, determined consistent with current market conditions. Unless otherwise discussed with the Bond Advisory Team (as defined herein), to ensure the issuance of Storm Recovery Bonds results in quantifiable net benefits, the weighted average interest rate on the Storm Recovery Bonds will not exceed 7.0%. If the 7.0% cap based on the weighted average interest rate on the bonds is projected to be exceeded, DEP will discuss with the Bond Team and develop a recommendation, based on the advice and input from the members and participants on the Bond Advisory Team, for the Commission on whether to proceed with the issuance in accordance with the Statutory Cost Objectives. For informational purposes, the rationale for the final interest rate decision, whether above or below such cap, shall be explained in the Issuance Advice Letter submitted to this Commission. This rationale shall include, but not be limited to, the comparisons made to determine how the interest rate(s) results in the lowest storm recovery charges consistent with market conditions at the time the storm recovery bonds are priced and the terms set forth in the Financing Order. If market conditions change and it becomes necessary, in order to best achieve the Statutory Cost Objectives, DEP will have the flexibility to utilize floating-rate securities for one or more tranches of bonds. DEP shall consider the advice and input of the Bond Advisory Team prior to making its decision to issue any floating rate bonds. DEP is further authorized to issue such bonds but will be required to execute agreements to swap the floating payments to fixed-rate payments to ensure that Statutory Cost Objectives are achieved. Tr. pp. 471:7-480:24; 360.8:17-360.9:6. If one or more tranches of bonds are to be issued as floating-rate bonds, the rationale for the decision shall be explained in the Issuance Advice Letter submitted to this Commission.

Credit Ratings of Storm Recovery Bonds

25.           DEP should strive for the Storm Recovery Bonds to achieve AAA credit ratings or the highest equivalent credit ratings given for the type of securities the SPE issues, consistent with its overarching obligation to meet the Statutory Cost Objectives. DEP agrees to necessary credit enhancements, with recovery of related costs as on-going Financing Costs, only to achieve such ratings, only if and to the extent such credit enhancements and corresponding credit ratings are warranted to meet the Statutory Cost Objectives. The cost of any such credit enhancements shall be included in the determination whether the Statutory Cost Objectives are met.

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26.           If the ratings from S&P Global Ratings (S&P) and Moody’s Investor Service (Moody’s) result in split bond ratings, the Company will seek advice and input from the Bond Advisory Team on whether to obtain a third rating from Fitch Ratings, Inc. (Fitch). If the final credit rating on the proposed bonds is not AAA or Aaa, the rationale for the decision shall be explained in the Issuance Advice Letter submitted to the Commission.

Security for the Storm Recovery Bonds

27.           The utilization by the SPE of a collection account, including a general subaccount, a capital subaccount, and an excess funds subaccount, is reasonable and prudent. DEP may include other subaccounts in the collection account, if necessary to obtain the highest possible credit ratings on the Storm Recovery Bonds.

DEP as Initial Servicer of the Storm Recovery Bonds

28.           DEP’s proposal to act as initial servicer of the Storm Recovery Bonds is reasonable and prudent.⁹

29.           The on-going annual servicing fee for DEP, acting as the initial servicer, in the amount of 0.05 percent (5 basis points) of the initial principal amount of the Storm Recovery Bonds plus out-of-pocket expenses provided for in the servicing agreement is necessary to compensate the servicer adequately and ensure the high credit quality of the Storm Recovery Bonds and is reasonable and prudent.

⁹ “Rating agencies expect that the Company will be the servicer but assume that a replacement servicer may require additional compensation to perform these services, without access to the Company’s existing infrastructure and customer relationships. Illustrative draft forms of both the Servicing and Administration Agreements are included in the testimony of witness Heath as Heath Exhibits 2b and 2d.” Tr. p. 358.62:21-358.63:3.

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DEP as Administrator of the SPE

30.            DEP’s proposal to act as an administrator of the SPE under the proposed financing transaction is reasonable and prudent.

31.            The on-going fee to be paid to the administrator of $50,000 per year plus out-of- pocket expenses included in the administration agreement is necessary to cover the costs and expenses of administering the SPE and to preserve the integrity of the bankruptcy-remote structure of the SPE and the high credit quality of the Storm Recovery Bonds and is reasonable and prudent.

Storm Recovery Bonds to be Treated as Debt for Federal Income Tax Purposes

32.            DEP shall structure the Storm Recovery Bond transactions in a way that meets all requirements for the Internal Revenue Service’s (IRS) safe harbor treatment provided for in IRS Revenue Procedure 2005-62.

F. Storm Recovery Charges

Imposition and Computation of Storm Recovery Charge

33.            To repay the Storm Recovery Bonds and on-going Financing Costs, DEP is authorized to impose the Storm Recovery Charge to be collected on a per kWh basis from all applicable customer rate classes until the Storm Recovery Bonds and related Financing Costs are paid in full.

34.            The Securitizable Balance plus up-front Financing Costs to be financed using Storm Recovery Bonds shall be the principal amount of Storm Recovery Bonds shown in Order Exhibit No. 2 to this Financing Order.

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35.            The calculation methodology for the Storm Recovery Charge by customer class in Smith Exhibit 3, as clarified and amended by paragraph 13 of the Settlement Agreement, is just and reasonable. It is also just and reasonable that the allocation methodology for the Storm Recovery Charge be adjusted concurrently with a subsequent true-up adjustment for any changes to the customer class allocation methodology approved by the Commission in subsequent general rate proceedings for DEP.

36.            DEP will use a weather normalization calculation methodology that matches its most current South Carolina rate case. This calculation will use 30 years of historical data to determine normal weather heating and cooling degree days in the calculation of the forecast variance factor. The variance factor will be equal to one standard deviation of the normal weather variation and will be applied by customer class to DEP’s most current retail spring or fall forecast which includes the upcoming rate period.

37.            In the event of a customer’s partial payment of a bill, after application of late charges such partial payment shall be allocated ratably among the Storm Recovery Charge, any similar securitization charges, and DEP’s other billed amounts in a manner that is consistent with DEP’s current process for allocating partial payments.

Treatment of Storm Recovery Charge in Tariff and on Retail Customer Bills

38.            DEP’s proposed Tariff implementing the Storm Recovery Charge as amended by the Settlement Agreement indicates the Storm Recovery Charge and the ownership of the charge.

39.            DEP is authorized and directed to include the Storm Recovery Charge on each customer’s bill as a separate line item and include both the rate and the amount of the charge on each bill as well as a statement that the SPE is the owner of the rights to the Storm Recovery Charge and that DEP is acting as a servicer for the SPE.

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True-up of Storm Recovery Charges

40.            The formulaic true-up mechanism (True-up Mechanism) and associated procedures described in DEP’s proposed Tariff, are reasonable and prudent. The True-up Mechanism is attached to this Financing Order as Order Exhibit No. 3.

41.            The ORS and the Commission shall have 60 days to review and inform the Company of any mathematical or clerical errors in its calculation pursuant to S.C. Code Ann. section 58-27-1110(C)(4) (Supp. 2023). It is reasonable for DEP and ORS to engage in a good faith discussion to discuss reducing the time period from 60 days to 30 days after the completion of three semi-annual true-up periods.

G. Accumulated Deferred Income Taxes

42.            From the date of the Financing Order, the Company will defer and compound the return on Storm Cost ADIT (Storm ADIT) at its most recently approved pre-tax WACC to a regulatory liability until base rates are reset in the next base rate case proceeding. At that time, the Storm ADIT and the deferred return on the Storm ADIT regulatory liability will be included as a reduction to rate base and will be amortized as a negative expense to return the deferred Storm ADIT benefit to customers.

H. Bond Advisory Team

43.            To ensure that the structuring, marketing, and pricing of the Storm Recovery Bonds will result in the lowest Storm Recovery Charge consistent with market conditions at the time the Storm Recovery Bonds are priced and the terms set forth in this Financing Order, it is reasonable to create an advisory body to meet regularly to review and provide input on the structuring, marketing, and pricing of the Storm Recovery Bonds (the Bond Advisory Team). It is further statutorily compliant for decisions regarding the structuring, marketing, and pricing of the Storm Recovery Bonds to be made by DEP, with advice and input from the other members and participants on the Bond Advisory Team. It is also statutorily compliant for the Bond Advisory Team to consist of representatives from DEP and the ORS. In accordance with the Comprehensive Settlement Agreement proposed by the Settling Parties, DEP and the ORS may designate staff, counsel, and consultants to participate on the Bond Advisory Team on their behalf. It is further statutorily compliant that designated staff and attorneys of DCA, and the Underwriters and their counsel be invited to also attend meetings of the Bond Advisory Team as participants, able to provide input just as ORS. DCA shall be invited to every meeting of the Bond Advisory Team.¹⁰

¹⁰ Parties assured the Commission the invitation of DCA was a practical consideration, only related to staffing and budgetary considerations. Otherwise, DCA can provide input just as ORS. Tr. pp. 156:16-157:9; 94: 17-23.

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44.            The ORS shall be designated as the Qualified Independent Third Party (QITP) under S.C. Code Ann. section 58-27-1110(C)(6) (Supp. 2023). ORS is charged by law with the duty to represent the public interest of South Carolina pursuant to S.C. Code Ann. section 58-4-10(B) (Supp. 2023). As QITP, ORS or their representative shall be able to participate in Bond Advisory Team meetings so that it will be able to provide the certification and any other information it believes this Commission should consider when reviewing the Issuance Advice Letter as contemplated pursuant to S.C. Code Ann. section 58-27-1110(C)(6)(a) (Supp. 2023). It is appropriate for ORS to follow its statutory charge under S.C. Code Ann. section 58-4-10(B) (Supp. 2023) in how ORS fulfills the role of QITP. This is a specific provision contained in the Comprehensive Settlement Agreement, presented by the Settling Parties for approval without exception, modification, or additional provisions. Order Exhibit No. 1, Paragraph 23. ORS, at its discretion, may designate staff, counsel, and consultants to assist ORS in fulfilling its role as QITP.

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45.            DEP shall provide all members and participants on the Bond Advisory Team, with timely information to allow the members and participants on the Bond Advisory Team to be informed fully and in advance regarding all aspects of the structuring, marketing, and pricing of the Storm Recovery Bonds. DEP will invite and allow the Bond Advisory Team and DCA to be present during communications with underwriters, credit rating agencies, and investors provided customary practices to ensure compliance with securities laws and regulations are followed. DEP shall invite all members of the Bond Advisory Team and the DCA to join all Bond Advisory Team meetings to review and comment on all aspects of the structuring, marketing, and pricing of the Storm Recovery Bonds, including without limitation the following: the selection and retention of underwriters and other transaction participants; the terms of all Transaction Documents; the length of the bond terms; the interest rates of the bonds (including whether the interest rate is floating or fixed); the capital contribution to the extent the amount required in the IRS Revenue Procedure 2005-62; the transaction structure; the issuance strategy; appropriate credit enhancements; and the credit rating process.

46.            It is just and reasonable for DEP to have the sole right to select all counsel and advisors for DEP and the SPE.

47.            None of the ORS, DCA or their designees, consultants or counsel are agents of DEP or the SPE. They are not issuers, sponsors, or depositors of the Storm Recovery Bonds. Their role on, or as participants with, the Bond Advisory Team is to provide advice and input that is independent of DEP. Neither ORS nor DCA are granted decision making authority with DEP on the Bond Advisory Team, per the terms of the Comprehensive Settlement Agreement presented for approval.

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OCTOBER 23, 2023
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I. Issuance Advice Letter

48.            Because the actual structure and pricing of the Storm Recovery Bonds are unknown as of the issuance of this Financing Order, the Commission finds it is reasonable and prudent to adopt the Issuance Advice Letter process prescribed by S.C. Code Ann. section 58-27-1110(C)(6) (Supp. 2023). Accordingly, within one business day after final terms of the Storm Recovery Bonds are determined, DEP shall provide to the Commission an Issuance Advice Letter as permitted in S.C. Code Ann. section 58-27-1110(C)(6)(a) (Supp. 2023), attached hereto as Order Exhibit No. 4.

49.            Such Issuance Advice Letter shall include the final terms of the Storm Recovery Bonds, up-front Financing Costs and on-going Financing Costs as well as any explanations or rationales for the final terms required pursuant to the Settlement Agreement. In accordance with S.C. Code Ann. section 58-27-1110(C)(6)(a) (Supp. 2023), the Issuance Advice Letter shall include certification from DEP, the primary underwriter(s) and the QITP (provided one business day after the Issuance Advice Letter is filed), as a condition to closing, certifying whether the sale of Storm Recovery Bonds complies with the requirements of the Storm Securitization Statute and the Financing Order. In the Issuance Advice Letter, DEP shall certify whether the issuance of Storm Recovery Bonds and the imposition and collection of a Storm Recovery Charge will in fact provide quantifiable net benefits to customers on a present-value basis as compared to the costs that would have been incurred absent the issuance of Storm Recovery Bonds. DEP and the primary underwriter(s) shall certify whether the structuring, marketing, and pricing of the Storm Recovery Bonds will in fact result in the lowest Storm Recovery Charge consistent with market conditions at the time the Storm Recovery Bonds were priced and the terms set forth in this Financing Order.

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50.            No later than one business day after DEP provides the Issuance Advice Letter to the Commission, the QITP shall review the Issuance Advice Letter and deliver its certification to the Commission along with any other information it believes the Commission should consider as it decides whether to accept the Issuance Advice Letter. Drafts of the Issuance Advice Letter shall be provided to the Bond Advisory Team and DCA approximately two weeks prior to the expected date of commencement of marketing the Storm Recovery Bonds. The Bond Advisory Team and DCA shall provide any comments to the draft Issuance Advice Letter one week after the receipt of the draft Issuance Advice Letter. The QITP shall certify whether the issuance of Storm Recovery Bonds and the imposition and collection of a Storm Recovery Charge will in fact provide quantifiable net benefits to customers on a present-value basis as compared to the costs that would have been incurred absent the issuance of Storm Recovery Bonds and whether the structuring, marketing, and pricing of the Storm Recovery Bonds will in fact result in the lowest Storm Recovery Charge consistent with market conditions at the time the Storm Recovery Bonds were priced and the terms set forth in this Financing Order.

51.            After the Issuance Advice Letter has been submitted, but prior to noon on the fourth business day after the final terms of the Storm Recovery Bonds are determined, DEP will be available to answer any questions from the Commission about the final agreed upon terms of the Storm Recovery Bonds. The Commission agrees with the Parties that, in connection with the submission of the Issuance Advice Letter, information designated by DEP or any other party as confidential shall be provided to the Commission under seal or in a closed session.

52.            No later than noon on the fourth business day after pricing, the Commission shall either accept the Issuance Advice Letter or deliver an order to DEP to prevent the issuance of the Storm Recovery Bonds.

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53.            If the actual up-front Financing Costs are less than the amount appearing in the final Issuance Advice Letter filed within one business day after actual pricing of the Storm Recovery Bonds, such unspent amount will be reflected in the next True-Up Adjustment Letter (as defined herein). Conversely, to the extent that the actual up-front Financing Costs are in excess of the amount appearing in the final Issuance Advice Letter filed within one business day after actual pricing of the Storm Recovery Bonds, then DEP shall book such excess amounts to a regulatory asset, which will accrue carrying costs at the Company’s approved pre-tax WACC in effect at the time the deferral costs are incurred. DEP will request that all such costs are included in base rates during the next base rate proceeding. The Parties reserve their right to review the reasonableness and prudency of those costs in the next rate proceeding.

J. Commission’s Independent Consultant

54.            In connection with its responsibilities under the Storm Securitization Statute, the Commission has retained an independent outside consultant (the Commission’s Consultant) to serve as advisor and counsel to the Commission. In addition, the Commission’s Consultant engaged outside legal counsel to assist in performing its responsibilities under S.C. Code Ann. section 58-27-1170 (Supp. 2023). Consistent with the requirements of S.C. Code Ann. section 58-27-1170, the Commission finds the compensation approved by the Commission to be paid to the Commission’s Consultant and its outside legal counsel does not exceed compensation generally paid by the regulated industry for such specialists and shall be considered an up-front Financing Cost.

K. Flexibility

55.            It is reasonable and prudent to allow DEP, with the advice and input from the Bond Advisory Team as described in Findings of Fact Nos. 43-47 and the Issuance Advice Letter and certification procedures described in Findings of Fact Nos. 48-53, flexibility in establishing the final terms and conditions of the Storm Recovery Bonds and therefore the ability, at its option, to cause one or more series of Storm Recovery Bonds to be issued, in order to achieve the Statutory Cost Objectives.

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L. Statutory Cost Objectives

56.            The issuance of Storm Recovery Bonds and imposition and collection of a Storm Recovery Charge as authorized in this Financing Order will provide quantifiable net benefits to customers on a present value basis as compared to the costs that would have been incurred absent the issuance of Storm Recovery Bonds, and will result in the lowest Storm Recovery Charge consistent with market conditions at the time the Storm Recovery Bonds are priced and the terms set forth in this Financing Order.

57.            This Financing Order adheres to the statutory requirements outlined by the Storm Securitization Statute necessary to issue a financing order authorizing an electrical utility to finance storm recovery costs.

V.            EVIDENCE AND CONCLUSIONS FOR FINDINGS OF FACT

A. Evidence and Conclusions for Findings of Fact Nos. 1-2

The evidence supporting these findings of fact and conclusions of law is contained in the Petition, the testimony and exhibits of the witnesses, and the entire record in this proceeding. These findings and conclusions are informational, procedural, and jurisdictional in nature.

B. Evidence and Conclusions for Finding of Fact No. 3

In accordance with the Storm Securitization Statute, the Petition included a description of DEP’s storm recovery activities, an estimate of the Storm Recovery Costs, the proposed level of storm recovery reserve (zero), an indicator of the amount of Storm Recovery Costs to be financed using Storm Recovery Bonds, an estimate of the Financing Costs related to the bonds, an estimate of the Storm Recovery Charge necessary to recover costs, and a comparison between the net present value of the cost to customers estimated to result from the issuance of Storm Recovery Bonds and the cost that would result from the application of the traditional method of financing and recovering its Storm Recovery Costs. As explained in the testimony of Company witness Kimberly K. Smith, DEP demonstrated that issuing Storm Recovery Bonds, and imposing the Storm Recovery Charge, is expected to result in quantifiable net benefits to customers on a present value basis as compared to the costs that would have occurred absent the issuance of Storm Recovery Bonds.

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The Commission finds and concludes that the Petition satisfies the requirements of the Storm Securitization Statute, as discussed further herein, by including each of the necessary items required by S.C. Code Ann. section 58-27-1110(A) (Supp. 2023). Therefore, pursuant to the Storm Securitization Statute, the Commission has the information necessary to issue a Financing Order as well as any other relief necessary for DEP to finance its Storm Recovery Costs.

C. Evidence and Conclusions for Findings of Fact Nos. 4-6

The evidence supporting these findings and conclusions is contained in the Petition, the Settlement Agreement, the testimony and exhibits of the witnesses, and the entire record in this proceeding.

The Commission convened and conducted a hearing in this matter and has considered all issues raised by the Parties and evidence presented. Moreover, the Commission has carefully considered the terms of the Settlement Agreement, the testimony of witnesses, and specifically considered the question of whether the terms contained in the Settlement Agreement will result in achievement of Statutory Cost Objectives, would be just, fair, and reasonable; in the public interest; and would be in accordance with applicable law and sound regulatory policy. For the reasons set forth below, the Commission adopted the Comprehensive Settlement Agreement on September 20, 2023, during a Special Called Commission Business Meeting, because the Commission finds the Comprehensive Settlement Agreement will result in achievement of the Statutory Cost Objectives; is in the public interest; and is otherwise in accordance with applicable law. The Settlement Agreement was accepted into the record of the hearing as Hearing Exhibit 1 (now Order Exhibit No. 1).

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The Settlement Agreement is described by the Settling Parties as “comprehensive” and “the result of extensive negotiation and compromise among the Parties...” Order Exhibit No. 1, Paragraph 2. The Settlement Agreement covers a variety of terms within this Financing Order including the Incremental Up-front Financing Costs in Excess of the Estimated Up-front Financing Costs; the Utility Assessment Fee, License Tax and Sales Tax; the True-Up Period pursuant to S.C. Code Ann. section 58-27-1110(C)(4) (Supp. 2023); the Rate Calculations; the Storm Securitization Tariff Sheet; the Cap on Costs of Securitization Financing; Storm Cost Accumulated Deferred Income Taxes Regulatory Liability; this Financing Order; the Rating Agencies; the Means of Sale; Floating-Rate Bonds; the Bond Advisory Team; the QITP; and the Issuance Advice Letter Process.

The complete Settlement Agreement is attached as Order Exhibit No. 1 and is incorporated by reference.

Based on all the evidence, the Commission finds and concludes that the Settlement Agreement will result in achieving the Statutory Cost Objectives and is just, reasonable, and in the public interest.

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D. Evidence and Conclusions for Finding of Fact No. 7

The evidence supporting these findings and conclusions is contained in the Petition, the Settlement Agreement, the testimony and exhibits of the witnesses, and the entire record in this proceeding.

Storm Recovery Costs

In Order No. 2023-260, the Commission approved the February 7,2023, stipulation between DEP, the ORS, and all other parties to the proceeding that resolved several accounting issues, including a cost of debt return for the Storms during the deferral period. In that Order, the Commission also granted ORS’ s recommendations and adjustments requiring DEP to (i) subtract Modified Accelerated Cost Recovery Systems (MACRS) depreciation ADIT from the Company’s quantification of the capital cost rate base for Hurricanes Matthew (D) and Florence (D) and correct bonus depreciation to account for the update provided to ORS during this proceeding; (ii) calculate DEP’s deferred carrying costs approved in this proceeding on the capital cost rate base and regulatory asset based on the prior month balances of each of these components; and (iii) disallow recovery of the non-incremental storm restoration costs associated with work performed by native contractors as identified by the ORS, along with all deferred carrying costs associated with these non-incremental storm restoration costs. Specifically, the Commission approved the total Phase I principal costs of approximately $170.6 million consisting of: (a) deferred incremental O&M; (b) deferred capital costs and (c) estimated carrying costs through February 2024, the aggregate of such costs is referred to herein as the Securitizable Balance. See Order No. 2023-260.

In its Petition, DEP requested the authority to finance its Storm Recovery Costs through the issuance of storm recovery bonds of approximately $176.0 million, which includes the $170.6 million approved in Order No. 2023-260 plus an estimated $5.4 million in up-front Financing Costs. The requested amount is also premised on a Storm Recovery Bond issuance date on or before March 1, 2024. DEP may update the estimated deferred carrying cost component of the total amount of approved carrying costs to account for any difference in carrying costs resulting from the Company’s estimated date of issuance and actual date of issuance, net of ADIT at DEP’s approved cost of debt in effect at the time the deferred costs are incurred. Tr. p. 46.18:4-10. The Company will report to the Commission the final carrying costs and up-front Financing Costs so financed in the Issuance Advice Letter as described below. Tr. p. 186.13:15-21.

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S.C. Code Ann. section 58-27-1105(16)(c) (Supp. 2023) requires that DEP’s actual Storm Recovery Costs eligible for financing be reasonable and prudently incurred. The Storm Recovery Costs that were included in the Company’s Petition have been the subject of discovery and audit by ORS and other interested parties to that proceeding. Commission Order No. 2023-260 determined the amount of Storm Recovery Costs eligible to be financed using storm recovery bonds. See Order No. 2023-260 at 51. Consistent with that Order, the Commission finds that DEP’s Storm Recovery Costs are now eligible for recovery through financing. DEP shall reflect the actual amount of Storm Recovery Costs recovered by the issuance of Storm Recovery Bonds in the Issuance Advice Letter. Tr. p. 186.13:15-21.

The Commission also finds that DEP’s calculation of estimated carrying costs associated with the Storm Recovery Costs net of ADIT at DEP’s approved cost of debt in effect at the time the deferred costs are incurred is consistent with Order No. 2023-260. Further, the Commission finds that DEP’s method of calculating and reflecting its final carrying costs in the Issuance Advice Letter is reasonable and prudent and in compliance with Ordering Paragraph 8 in Order No. 2023-260. See Order No. 2023-260 at 52. Accordingly, the Commission finds that DEP should be permitted to finance its Storm Recovery Costs, including carrying costs, as provided in this Financing Order.

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OCTOBER 23, 2023
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E. Evidence and Conclusions for Findings of Fact Nos. 8-9

The evidence supporting these findings and conclusions is contained in the Petition, the Settlement Agreement, the testimony and exhibits of the witnesses, and the entire record in this proceeding.

Up-front Financing Costs

In the Petition, DEP requested that its up-front Financing Costs associated with the securitization process be included in the principal amount of Storm Recovery Bonds in accordance with S.C. Code Ann. section 58-27-1105(14) (Supp. 2023). Petition at 21. Company witness Heath testified that such costs include the fees and expenses to obtain the Financing Order, as well as the fees and expenses associated with the structuring, marketing, and pricing of the Storm Recovery Bonds, including the following: external and incremental internal legal fees and expenses, structuring advisory fees and expenses, any interest rate lock or swap fees and costs, underwriting fees and original issue discount, rating agency and trustee fees (including trustee’s counsel), accounting fees, information technology programming costs, servicer’s set-up costs, printing and marketing expenses, stock exchange listing fees and compliance fees, filing and registration fees, the costs of the Commission Consultant and its outside legal counsel, and costs of outside consultants retained by ORS for this proceeding and the costs of consultants retained by ORS acting as the QITP. Tr. pp. 46.18:15-23; 46.19:1-10. A complete list of all up-front Financing Costs will be included in Attachment 2 of the Issuance Advice Letter; a form of the Issuance Advice Letter, with preliminary estimates of up-front Financing Costs, is included in Order Exhibit No. 4 of this Financing Order. Company witness Heath further stated that up-front Financing Costs include reimbursement to DEP for amounts advanced for payment of such costs. Id. Company witness Heath provided a range of estimates of the up-front Financing Costs, and explained based on those figures, DEP’s estimated up-front Financing Costs of between $5.96 million to $7.09 million as reflected in Heath Rebuttal Exhibit 1. Company witness Heath also stated that the estimates will be updated to actual up-front Financing Costs incurred during the proposed Issuance Advice Letter process. Id.

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Company witness Smith testified that since the final up-front Financing Costs may not be known until after the Commission (i) issues its Financing Order, (ii) accepts the Issuance Advice Letter and (iii) the Company issues the Storm Recovery Bonds, if the actual up-front Financing Costs are below the amount reflected in the Issuance Advice Letter provided to the Commission, then the difference will be credited back to customers in the true-up adjustment letter process described by Company witness Smith. Tr. p. 186.14:8-22. Conversely, if the actual up-front Financing Costs are more than the amounts appearing in the Issuance Advice Letter, DEP may establish a regulatory asset to defer any prudently incurred excess amounts of up-front Financing Costs to preserve them for later recovery in its next general rate case proceeding provided, however, that the costs subject to deferral would not impact the Storm Recovery Bonds or Storm Recovery Charges. The regulatory asset would accrue carrying costs net of ADIT, at DEP’ s approved pre-tax WACC in effect at the time the deferral costs are incurred. Order Exhibit No. 1, Paragraph 15. In the Settlement Agreement, DCA, ORS and Nucor Steel reserve their right to review the reasonableness and prudency of the above costs in the next rate proceeding. Order Exhibit No. 1, Paragraph 6.

The up-front Financing Costs, such as legal fees and expenses and the costs of outside consultants and counsel, will not be known until after the financing is completed. Further, other up-front Financing Costs will vary depending on the size of the final issuance of the Storm Recovery Bonds. Specifically, the Securities and Exchange Commission (SEC) registration fee, underwriters’ fees, and rating agency fee are proportional to the amount of qualified costs actually financed. Other up-front Financing Costs, such as original issue discount, will be determined at the time of the sale. The costs approved by the Commission of a Commission Consultant and or outside legal counsel as well as the costs of any outside consultants or counsel retained by ORS are costs, which are fully recoverable from Storm Recovery Bond proceeds, will not be final until the bonds are ready to be issued. Accordingly, actual up-front Financing Costs will not be known until after the pricing of the Storm Recovery Bonds. Tr. pp. 46.18:15-23; 46.19:1-10.

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S.C. Code Ann. section 58-27-1105(7) (Supp. 2023) defines Financing Costs. The Commission finds that DEP’s proposed up-front Financing Costs fall within this definition, and that these issuance costs are therefore Financing Costs eligible for recovery pursuant to the Storm Securitization Statute.

F. Evidence and Conclusions for Finding of Fact No. 10

The evidence supporting these findings and conclusions is contained in the Petition, the testimony and exhibits of the witnesses, and the entire record in this proceeding.

On-going Financing Costs

In the Petition, DEP requested that its on-going Financing Costs be recovered through the Storm Recovery Charge authorized by this Financing Order. Company witness Heath testified that on-going Financing Costs include servicing fees; return on invested capital; administration fees; accounting and auditing fees; regulatory assessment fees; legal fees; rating agency surveillance fees; trustee fees (including any indemnity owed to the Trustee); independent director or manager fees; and other miscellaneous fees associated with the servicing of the Storm Recovery Bonds. Tr. p. 46.28:5-16. Witness Heath also provided estimates of on-going Financing Costs in Heath Exhibit 1, as updated in Heath Rebuttal Exhibit 1. Hearing Exhibits 1 and 2. Company witness Heath further testified that because on-going Financing Costs are recovered through the Storm Recovery Charge, DEP will include the actual amounts in the True- Up Adjustment Letters and any disparities would be resolved through the True-up Mechanism described in Company witness Nicholas G. Speros’s testimony. Tr. p. 46.33:18-22.

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The Commission finds that the estimates for on-going Financing Costs will result in achieving the Statutory Cost Objectives, are just and reasonable, in the public interest, and, as further described below, are eligible for recovery under the Storm Securitization Statute.

Servicing Fees and Administrative Fees

According to Company witness Heath, servicing responsibilities will include billing, monitoring, collecting, and remitting the storm recovery charge; reporting requirements imposed by the servicing agreement; implementing the True-up Mechanism; procedures required to coordinate required audits related to DEP’s role as servicer; legal and accounting functions related to the servicing obligation; and communication with rating agencies. Tr. p. 46.29:7-13. Administration fees cover expenses associated with administrative functions DEP will be providing to the SPE, separate from those of the servicer, and include maintaining the general accounting records, preparation of quarterly and annual financial statements, arranging for annual audits of the SPE’s financial statements, preparing all required external financial filings, preparing any required income or other tax returns, and related support. Tr. p. 46.30:6-14. Company witness Heath provided an estimate of the servicing and administration fees, an approximate $88,565.00 servicing fee (five basis points) and a $50,000.00 administrative fee. Tr. pp. 148:23-149:5. See also Hearing Exhibits 1, 2, and corrected Exhibit 3.

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The Servicing and Administration Fees collected by DEP or any Affiliate of DEP¹¹, acting as either the Servicer or the Administrator under the Servicing Agreement or Administration Agreement, respectively, will be included in DEP’s cost of service such that DEP will credit back all periodic servicing fees in excess of DEP’s or an affiliate of DEP’s incremental costs of performing servicing and administration functions. The expenses incurred by DEP, or such affiliate to perform obligations under the Servicing Agreement or Administration Agreement not otherwise recovered through the Storm Recovery Charge will likewise be included in DEP’s cost of service, subject to review as to reasonableness in an appropriate rate proceeding.

Having reviewed the testimony of the parties, the Commission finds that this treatment of the servicing and administration fees will result in achieving the Statutory Cost Objectives and is just, reasonable, and in the public interest.

G. Evidence and Conclusions for Findings of Fact Nos. 11-14

The evidence supporting these findings and conclusions is contained in the Petition, the Settlement Agreement, the testimony and exhibits of the witnesses and the entire record in this proceeding.

Utility Assessment Fee, License Tax and Sales Tax

ORS witness Rhoden testified that the Utility Assessment Fee should not be calculated or collected on storm recovery charges and should not be included as an ongoing financing cost. Tr. p. 251.11:8-11. Witness Rhoden also recommended that the Company seek “written guidance from SCDOR” as to whether the License Tax and Sales Tax arising under South Carolina law should be collected by the SPE. Tr. p. 251.12:13-15. In rebuttal, Company witness Speros noted that, with respect to the Utility Assessment Fee, the Company would defer to the Commission and the ORS as to whether it should seek written guidance regarding application of the fee. Tr. p. 312.5:20-23. As for the License Tax and Sales Tax, witness Speros explained that the Company would seek guidance from the SCDOR regarding applicability. Tr. p. 312.7:1-11.

¹¹ Any servicer, other than the Company, shall be preapproved by the Commission, which includes approval of the fee to be charged.

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As this is the first utility securitization transaction in South Carolina, DEP agreed to seek an opinion from the SCDOR regarding whether (i) License Tax on Utilities under S.C. Code Ann. section 12-20-100 (2014) and (ii) Sales Tax arising under S.C. Code Title 12 apply to the storm recovery charges. Order Exhibit No. 1, Paragraph 7. Until SCDOR provides an opinion in response to DEP’s request regarding the License Tax under S.C. Code Ann. section 12-20-100 (2014), DEP proposes to collect License Tax as an initial matter until it receives final clarification from SCDOR. If the License Tax is deemed not to apply, then DEP will file an amended consolidated return with the SCDOR and will pass the cash back through an invoice from the Servicer to the SPE. The SPE will credit the License Taxes paid from customers back through the next applicable true-up filing. Order Exhibit No. 1, Paragraph 9.

Until SCDOR provides an opinion in response to DEP’s request regarding the Sales Tax, DEP will collect Sales Tax as an initial matter on the storm recovery charges from customers to whom sales of electricity are not otherwise considered exempt from Sales Tax until it receives final clarification from SCDOR. Exempt customers from whom the Company does not propose to collect Sales Tax include, but are not limited to, all residential customers. If the Company collects Sales Taxes that are subsequently deemed not to apply, the Company will credit customers via a miscellaneous credit on their subsequent electricity bill. Order Exhibit No. 1, Paragraph 10. By ensuring that customers are made whole if the License Tax or Sales Tax is deemed inapplicable, the Settlement Agreement provides a safeguard to customers by mitigating the risk that the storm recovery charge will be subsequently increased to collect back taxes, while ensuring that any taxes collected initially that are deemed not to apply will flow back to customers. Tr. p. 50.8:2-9.

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Lastly, the Settling Parties requested a determination from this Commission as to whether the Storm Recovery Charge is subject to the Utility Assessment Fee under Sections 58-27-50, 58-4-60 and 58-7-100. S.C. Code Ann. §§ 58-27-50 & 58-3-100 (2015); S.C. Code Ann. § 58-4-60 (Supp. 2023); Order Exhibit No. 1, Paragraph 8. Based on a review of the law, and the limited review of the SPE and true-up mechanism beyond the bond issuance, the Commission determines that the SPE is not a utility as defined by South Carolina law, and no Utility Assessment Fee shall be collected on the basis of storm recovery charges of the SPE.

H. Evidence and Conclusions for Finding of Fact No. 15

The evidence supporting these findings and conclusions is contained in the Petition, the testimony and exhibits of the witnesses, and the entire record in this proceeding.

Return on Capital Contribution

The Company proposed to earn a return on its capital contribution to the SPE equal to the rate of interest payable on the longest maturing tranche of Storm Recovery Bonds. Company witness Heath testified that the proposed return on the capital contribution is necessary and consistent with general ratemaking principles because DEP will be contributing capital to the SPE for the duration of the term of the Storm Recovery Bonds (i.e., 20 years). Tr. p. 46.10:11-14. Absent the bond issuance, DEP has testified it would be able to invest such capital in other ways where it would be entitled to earn a return (i.e., lost opportunity costs), most likely in an amount higher than anticipated in this transaction (e.g., the Company’s WACC).

Moreover, in the absence of this capital contribution, the bonds would likely receive less favorable tax treatment and be more expensive for customers.

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Having reviewed the testimony of the parties, the Commission finds that the return is reasonable and prudent and is eligible for recovery as an on-going Financing Cost to be recovered through the Storm Recovery Charge. Further, the return on invested capital will be paid to DEP in accordance with a priority of payments.

I. Evidence and Conclusions for Finding of Fact No. 16

The evidence supporting these findings and conclusions is contained in the Petition, the testimony and exhibits of the witnesses, and the entire record in this proceeding.

A description of DEP’s proposed transaction is contained in its Petition and the testimony and exhibits submitted therewith. In brief, DEP has proposed a transaction structure that includes all of the following:

· The use of an SPE as issuer of Storm Recovery Bonds, limiting the risks to bondholders of any adverse impact resulting from a bankruptcy proceeding of DEP or any affiliate.

· The SPE’ s use of the proceeds from the issue of Storm Recovery Bonds to purchase from DEP the Storm Recovery Property and receive collections of the Storm Recovery Charge.

· DEP’s use of the proceeds from that sale to the SPE to finance and recover the Securitizable Balance and pay the up-front Financing Costs.

· The right to impose, bill, charge, collect, and receive the Storm Recovery Charge that are nonbypassable and which must be trued-up at least semi-annually, and may be trued-up more frequently at the option of the servicer, to ensure the timely payment of the debt service and on-going Financing Costs as scheduled.

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· The use of a collection account which includes, without limitation, a capital subaccount at the SPE funded initially by a deposit from DEP equal to at least 0.50 percent of the initial principal amount of the Storm Recovery Bonds issued by the SPE.

· A servicer, initially DEP, responsible for billing and collecting the Storm Recovery Charge from existing and future retail customers.

· Compliance with the provisions established in IRS Revenue Procedure 2005-62 to ensure favorable federal income tax treatment.

More specifically, DEP proposed that the SPE will be created and then DEP will transfer the rights to impose, bill, charge, collect, and receive the Storm Recovery Charge and to obtain true-up adjustments, along with the other rights arising pursuant to this Financing Order, to the SPE. Upon such transfer and simultaneously with the issuance of Storm Recovery Bonds, these transferred rights will become Storm Recovery Property as provided by the Storm Securitization Statute.

DEP proposed that the SPE will issue Storm Recovery Bonds and will transfer the net proceeds from the sale of such bonds to DEP in consideration for the sale of the Storm Recovery Property. The SPE will be organized and managed in a manner designed to maintain the SPE as a bankruptcy-remote entity and designed to be unaffected by a bankruptcy of DEP or any other affiliate of DEP or any of their respective successors. The Storm Recovery Bonds will be issued pursuant to an indenture and administered by an indenture trustee. Tr. p. 46.11:14-22. The Storm Recovery Bonds will be secured by and payable solely from the Storm Recovery Property created pursuant to this Financing Order. The Storm Recovery Property and other collateral will be pledged to the indenture trustee for the benefit of the holders of the Storm Recovery Bonds and to secure payment of principal, interest on the Storm Recovery Bonds, and on-going Financing Costs. DEP proposed that the servicer of the Storm Recovery Bonds collect the Storm Recovery Charge and remit those amounts to the indenture trustee on behalf of the SPE. The servicer will be responsible for making any required or allowed true-ups of the Storm Recovery Charge. If the servicer defaults on its obligations under the servicing agreement, the indenture trustee, acting for the benefit of holders of Storm Recovery Bonds, may appoint a successor servicer. DEP will act as the initial servicer (and as administrator) for the Storm Recovery Bonds. Tr. p. 46.11:9-13.

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The Storm Recovery Charge will be calculated to ensure the collection of an amount sufficient to pay the debt service due on the Storm Recovery Bonds together with the on-going Financing Costs, which include the servicing fee, administration fees for the SPE, rating agencies’ fees, trustee fees and expenses, legal and accounting fees, other on-going fees and expenses, and the cost of replenishing the capital subaccount (or overcollateralization subaccount, if required). These on-going Financing Costs are Financing Costs eligible for recovery pursuant to the Storm Securitization Statute and are addressed further in this Financing Order, in connection with Finding of Fact No. 10.

DEP has proposed that the Storm Recovery Charge will be calculated and adjusted pursuant to the formula-based method, the True-up Mechanism, described in Company witness Speros’s testimony and included as Order Exhibit No. 3 to this Financing Order. DEP has requested approval of a Storm Recovery Charge sufficient to recover the principal and interest on the Storm Recovery Bonds plus on-going Financing Costs. DEP proposes that the Storm Recovery Charge be adjusted at least semi-annually until 12 months prior to the scheduled final payment date of the latest maturing tranche of the Storm Recovery Bonds, at which point the Storm Recovery Charge shall be adjusted at least quarterly, to ensure that the amount collected from Storm Recovery Charge is sufficient to pay the debt service on the Storm Recovery Bonds and all on-going Financing Costs. Company witness Katrina T. Niehaus also testified that DEP’s proposed bond structure is designed to provide substantially level annual debt service and revenue requirements over the life of the bond issue and would result in declining Storm Recovery Charge over time, assuming growth in customer energy consumption, other factors being equal. Tr. p. 358.31:5-16.

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The Commission finds DEP’s proposed transaction structure reasonable and in compliance with the Storm Securitization Statute. Moreover, portions of DEP’s proposed transaction structure, described in this Financing Order, are necessary to enable the Storm Recovery Bonds to obtain the highest bond credit rating possible, with an objective of the highest possible credit ratings, to further ensure that the proposed issuance of the Storm Recovery Bonds on behalf of DEP, and the imposition of the Storm Recovery Charge will meet the Statutory Cost Objectives. Accordingly, DEP’s issuance structure is hereby approved.

J. Evidence and Conclusions for Finding of Fact No. 17.

The evidence supporting these findings and conclusions is contained in the Petition, the testimony and exhibits of the witnesses, and the entire record in this proceeding.

Special Purpose Entity

Under DEP’s financing structure, DEP will create an SPE as a bankruptcy-remote Delaware LLC with DEP as its sole member, as set forth in the limited liability company agreement discussed further below. The SPE will be formed for the limited purpose of acquiring Storm Recovery Property from DEP, issuing Storm Recovery Bonds in one or more series (each of which may be issued in one or more tranches), and performing other activities relating thereto or otherwise authorized by the limited liability company agreement. The rights, obligations, structure, and restrictions described in this Financing Order with respect to the SPE are applicable to each such purchaser of Storm Recovery Property to the extent of the Storm Recovery Property acquired by it and the Storm Recovery Bonds issued by it. Tr. pp. 358.15:17-358.16:11.

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DEP proposed the following: (i) that the SPE may issue Storm Recovery Bonds in an aggregate amount not to exceed the Securitizable Balance approved by this Financing Order plus up-front Financing Costs; and (ii) to pledge to an indenture trustee, as collateral for payment of the Storm Recovery Bonds, the Storm Recovery Property, including the SPE’s right to receive the Storm Recovery Charge as and when collected, and other collateral described in the indenture. The SPE will not be permitted to engage in any other activities and will have no assets other than the Storm Recovery Property and related assets to support its obligations under the Storm Recovery Bonds. DEP states that these restrictions on the activities of the SPE and restrictions on the ability of DEP to take action on the SPE’ s behalf are imposed to achieve the objective that the SPE will be bankruptcy-remote and not be affected by a bankruptcy of DEP or any affiliate or successor of DEP. Tr. p. 358.11-12.

DEP proposed that the SPE will be managed by a board of managers with rights and duties set forth in its organizational documents. Hearing Exhibit 2. As long as the Storm Recovery Bonds remain outstanding, the SPE will have at least one independent manager with no organizational affiliation with DEP other than possibly acting as independent manager(s) for another bankruptcy-remote subsidiary of DEP or its affiliates. The SPE will not be permitted to amend the provisions of its limited liability company agreement or other organizational documents that relate to bankruptcy-remoteness of the SPE without the consent of the independent manager(s). Similarly, the SPE will not be permitted to institute bankruptcy or insolvency proceedings or to consent to the institution of bankruptcy or insolvency proceedings against it, or to dissolve, liquidate, consolidate, convert, or merge without the consent of the independent manager(s). Other restrictions to facilitate bankruptcy-remoteness may also be included in the organizational documents of the SPE as required by the rating agencies. Tr. p. 358.54:11-21. The Commission agrees that these restrictions ensure that the SPE is bankruptcy-remote are reasonable and necessary to achieve the Statutory Cost Objectives.

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The SPE will have no staff to perform administrative services, such as routine corporate maintenance, reporting, and accounting functions. DEP proposed that these administrative services will be provided by DEP pursuant to the terms of the administration agreement between the SPE and DEP. Tr. pp. 46.11:9-13; 46.3:6-14.

Per rating agency and IRS requirements, DEP will transfer to the SPE an amount required to capitalize each SPE adequately (the SPE Capitalization Level) for deposit into the capital subaccount. The SPE Capitalization Level is expected to be 0.50 percent of the initial principal amount of the Storm Recovery Bonds to be issued by the SPE or such greater amount as might be needed to meet IRS or rating agency requirements. The actual SPE Capitalization Level will depend on tax and rating agency requirements. Moreover, the Commission confirms that the SPE will be an “assignee” as defined in S.C. Code Ann. section 58-27-1105(2) (Supp. 2023), when ownership of the Storm Recovery Property is transferred to such SPE, and such SPE may issue Storm Recovery Bonds in accordance with this Financing Order as discussed further herein. Tr. pp. 358.25:6-358.27:9.

K. Evidence and Conclusions for Findings of Fact Nos. 18-19

The evidence supporting these findings and conclusions is contained in the Petition, the testimony and exhibits of the witnesses, and the entire record in this proceeding.

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Storm Recovery Property

The Commission determines, consistent with S.C. Code Ann. section 58-27-1105(17) (Supp. 2023), that Storm Recovery Property consists of the following: (1) all rights and interests of DEP or any successor or assignee of DEP under this Financing Order, including the right to impose, bill, charge, collect, and receive Storm Recovery Charge authorized in this Financing Order and to obtain periodic true-up adjustments to such Storm Recovery Charge as provided in this Financing Order and (2) all revenues, collections, claims, rights to payments, payments, money, or proceeds arising from the rights and interests specified in this Financing Order, regardless of whether such revenues, collections, claims, rights to payment, payments, money, or proceeds are imposed, billed, received, collected, or maintained together with or commingled with other revenues, collections, rights to payment, payments, money, or proceeds.

As DEP has requested, pursuant to S.C. Code Ann. section 58-27-1110(A) (Supp. 2023), the Commission determines that it is reasonable and prudent that the creation of the Storm Recovery Property be conditioned upon, and simultaneous with, the sale of such Storm Recovery Property to the SPE and the pledge of such Storm Recovery Property to secure the Storm Recovery Bonds.

The Storm Recovery Property shall constitute an existing, present intangible property right or interest therein, notwithstanding that the imposition and collection of the Storm Recovery Charge depends on DEP performing its servicing functions relating to the collection of the Storm Recovery Charge and on future electricity consumption. Such property shall exist regardless of whether the revenues or proceeds arising from the property have been billed, have accrued, or have been collected and notwithstanding the fact that the value or amount of the property is dependent on the future provision of service to retail customers by DEP or its successors or assignees and future consumption of electricity by retail customers. Furthermore, the Storm Recovery Property shall continue to exist until the Storm Recovery Bonds are paid in full and all Financing Costs and other costs of the Storm Recovery Bonds have been recovered in full.

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The Storm Recovery Property also constitutes an existing present intangible property right or interest therein for purposes of contracts concerning the sale or pledge of property. See S.C. Code Ann. § 58-27-1125(A)(1) and (C)(3) (Supp. 2023). The interest of a transferee, purchaser, acquirer, assignee, or pledgee in the Storm Recovery Property, and in the revenue and collections arising from that property, is not subject to setoff, counterclaim, surcharge, or defense by DEP or any other person or in connection with the reorganization, bankruptcy, or other insolvency of DEP or any other entity. See S.C. Code Ann. § 58-27-1125(A)(5) (Supp. 2023).

The creation, attachment, granting, perfection, priority and enforcement of liens and security interests in Storm Recovery Property are governed by S.C. Code Ann. section 58-27-1125(B) (Supp. 2023). Pursuant to S.C. Code Ann. section 58-27-1125(B)(5) (Supp. 2023), the priority of a security interest in Storm Recovery Property is not affected by the commingling of the Storm Recovery Charge with other amounts. Any pledgee or secured party shall have a perfected security interest in the amount of the Storm Recovery Charge that is deposited in the collection account or any other cash or deposit account of DEP in which the Storm Recovery Charge has been commingled with other funds and any other security interest that may apply to those funds shall be terminated when such funds are transferred to the collection account.

When DEP transfers Storm Recovery Property to the SPE pursuant to this Financing Order under an agreement that expressly states that the transfer is a true sale and absolute transfer in accordance with the sale, assignment and transfer provisions of S.C. Code Ann. section 58-27-1125(C) (Supp. 2023), that transfer shall constitute an absolute transfer and true sale and not a pledge of or secured transaction or other financing arrangement, and title to the Storm Recovery Property shall immediately pass to the SPE. After such a transfer, the Storm Recovery Property shall not be subject to any claims of DEP or its creditors, other than creditors holding a properly perfected prior security interest in the Storm Recovery Property perfected by S.C. Code Ann. section 58-27-1125 (Supp. 2023).

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As provided by S.C. Code Ann. section 58-27-1125(C)(2) (Supp. 2023), the characterization of the sale, conveyance, assignment, or transfer of Storm Recovery

Property as an absolute transfer and true sale or other absolute transfer and the corresponding characterization of the transferee’s property interest shall not be affected by any of the following: (1) commingling of the Storm Recovery Charge arising with respect to the Storm Recovery Property with other amounts; (2) the retention by DEP of a (i) partial or residual interest, including an equity interest, in the Storm Recovery Property, whether direct or indirect, or whether subordinate or otherwise or (ii) the right to recover costs associated with taxes, franchise fees or license fees imposed on the collection of the Storm Recovery Charge; (3) any recourse that the transferee may have against DEP; (4) any indemnification rights, obligations, or repurchase rights made or provided by DEP; (5) the obligation of DEP to collect the Storm Recovery Charge on behalf of the SPE; (6) DEP acting as the servicer of the Storm Recovery Charge or the existence of any contract that authorizes or requires DEP, to the extent that any interest in Storm Recovery Property is sold or assigned, to contract with the assignee or any financing party that it will continue to operate its system to provide service to its customers for the benefit and account of such assignee or financing party, and will account for and remit such amounts to or for the account of such assignee or financing party; (7) the treatment of the sale, conveyance, assignment, or other transfer for tax, financial reporting, or other purposes; (8) granting or providing to holders of the Storm Recovery Bonds a preferred right to the Storm Recovery Property or credit enhancement by DEP or its affiliates with respect to the Storm Recovery Bonds; or (9) any application of the True-up Mechanism.

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In addition, the method of tracing funds collected as the Storm Recovery Charge, or other proceeds of Storm Recovery Property and determining the identifiable cash proceeds of any storm recovery property is set forth in the servicing agreement, the final version of which shall be provided to the Commission concurrent with DEP’s filing with the SEC. Furthermore, the Company agrees to trace funds in a manner consistent with the Company’s current practice, which is tracking of funds collected based on actual daily billings to customers adjusted for (i) a weighted average balance of days outstanding and (ii) estimated write-offs rate. Tr. p. 312.4:15-19.

The Commission finds that the terms and conditions discussed above regarding Storm Recovery Property are reasonable and adhere to the requirements of the Storm Securitization Statute. In addition, the Storm Recovery Property and all other collateral is to be held and administered by an indenture trustee pursuant to the indenture, which helps ensure lower Storm Recovery Charge and that the Statutory Cost Objectives will be achieved. Accordingly, the Commission approves the (i) creation of Storm Recovery Property, including the rights to impose, bill, charge, collect, and receive Storm Recovery Charge and obtain periodic adjustments to the Storm Recovery Charge and (ii) DEP’s sale of the Storm Recovery Property to the SPE.

As provided in S.C. Code Ann. section 58-27-1125(A)(4) (Supp. 2023), if DEP defaults on any required remittance of amounts collected in respect of Storm Recovery Property specified in this Financing Order, the Court of Common Pleas in Richland County, South Carolina, upon application by an interested party, and without limiting any other remedies available to the applying party, shall order the sequestration and payment of the revenues arising from such Storm Recovery Property to the financing parties or their assignees. This Financing Order shall remain in full force and effect notwithstanding any reorganization, bankruptcy, or other insolvency proceedings with respect to DEP or its successors or assignees.

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L. Evidence and Conclusions For Findings of Fact Nos. 20-21

The evidence supporting these findings and conclusions is contained in the Petition, the testimony and exhibits of the witnesses, and the entire record in this proceeding.

Form of Transaction Documents

DEP submitted for approval the forms of Transaction Documents necessary for the issuance of the Storm Recovery Bonds. Hearing Exhibit 2.

The purchase and sale agreement and administration agreement are between DEP and the SPE. These contracts set out in substantial detail certain terms and conditions relating to the transaction structure for each issuance of Storm Recovery Bonds, including the proposed sale of Storm Recovery Property to the SPE, the administration of the SPE, and the servicing of the Storm Recovery Charge and Storm Recovery Bonds. Hearing Exhibit 2. Tr. p. 42.22:4-7.

The limited liability company agreement constitutes the organizing document of the SPE, with DEP as the sole member. DEP anticipates that the limited liability company agreement would be executed substantially in the form submitted to this Commission, subject to such changes deemed necessary or advisable to satisfy bankruptcy opinion and rating agency considerations.

DEP has also submitted a form of indenture between the SPE and an indenture trustee, which sets forth proposed security and terms for the Storm Recovery Bonds.

In addition, DEP will execute a servicing agreement with the SPE. DEP will be the initial servicer but may be succeeded as servicer as detailed in the servicing agreement, subject to approval of the Commission. Pursuant to the servicing agreement, the servicer is required, among other things, to impose, bill, charge, collect, and receive the Storm Recovery Charge for the benefit and account of the SPE; to make the periodic true-up adjustments of Storm Recovery Charge required or allowed by this Financing Order; and to account for and remit its collection of Storm Recovery Charge to or for the account of the SPE in accordance with the remittance procedures contained in the servicing agreement without any charge, deduction, or surcharge of any kind, other than the servicing fee specified in the servicing agreement. In the servicing agreement, DEP commits to maintaining accurate and complete accounts of the Storm Recovery Property. See Hearing Exhibit 2. Further, DEP as servicer will maintain custodial bank accounts and bank clearing accounts and must deposit collections within two days. Id. DEP also commits to remitting at least annually to the indenture trustee, for the benefit of the Issuer, any late charges received from customers in respect of the Storm Recovery Charge. Id.

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Under the servicing agreement, if any servicer fails to fully perform its servicing obligations, the indenture trustee or its designee may, and upon the instruction of the requisite percentage of holders of the outstanding bonds shall, appoint an alternate party to replace the defaulting servicer. The obligations of the servicer under the servicing agreement, the circumstances under which an alternate servicer may be appointed, and the conditions precedent for any amendment of such agreement will be more fully specified in the servicing agreement. The rights of the SPE under its servicing agreement will be included in the collateral pledged to the indenture trustee under its indenture for the benefit of holders of the Storm Recovery Bonds.

Drafts of these agreements were filed in order that this Commission may evaluate the principal rights and responsibilities of the parties thereto. However, Company witness Niehaus noted in her direct testimony that these drafts were merely “illustrative,” and that the actual structure of the Storm Recovery Bonds could differ “materially.” Tr. p. 358.29:13-20. The Commission hereby determines that the Transaction Documents described above are necessary to facilitate the proposed financing structure approved herein. Moreover, the Transaction Documents are reasonable and will help to achieve the Statutory Cost Objectives.

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Accordingly, the form Transaction Documents are approved subject to further advice and input by the Bond Advisory Team as provided in Findings of Fact 43-47 to ensure that the Statutory Cost Objectives are achieved and for compliance with this Financing Order and the Storm Securitization Statute.

M. Evidence and Conclusions for Finding of Fact No. 22

The evidence supporting these findings and conclusions is contained in the Petition, the Settlement Agreement, the testimony and exhibits of the witnesses, and the entire record in this proceeding.

Offering and Sale of the Bonds

In its Petition, DEP requested the flexibility to determine which transaction structure is best tailored to then-existing rating agency considerations, market conditions, and investor preferences, so that the financing of the Storm Recovery Costs can achieve the Statutory Cost Objectives. Petition at 32.

DEP has proposed that the Storm Recovery Bonds be offered pursuant to an SEC-registered offering in order to reach the broadest number of potential investors and ultimately achieve the lowest storm recovery charge. Petition at 30. The Company has also provided testimony to the effect that the vast majority of utility securitizations have been sold as SEC-registered public transactions. Tr. pp. 358.33-358.34. Further, DEP has provided testimony to the effect that an SEC-registered, public offering is likely to result in a lower cost of funds relative to a non-SEC- registered offering, including a Rule 144A qualified institutional offering, all else being equal, due to the enhanced transparency and liquidity of publicly registered securities. Id. The record demonstrates that it is appropriate and prudent to permit DEP to have flexibility and authority, with advice and input from the Bond Advisory Team, to pursue other sales options that result in the achievement of the Statutory Cost Objectives for customers consistent with market conditions at the time the Storm Recovery Bonds are priced. The Settlement Agreement provides that if a means of sale other than an SEC-registered sale is proposed to be utilized, the rationale for the decision shall be explained in the Issuance Advice Letter submitted to the Commission. Order Exhibit No. 1, Paragraph 19. DCA witness Rothschild testified that this additional Settlement Agreement term, whereby a detailed rationale must be provided in the issuance advice letter submitted to the Commission, provides additional transparency and accountability to the process. Tr. pp. 205.12:13-205.13:7.

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DEP intends to pursue a negotiated sales process for issuance of the bonds, pursuant to a sale negotiated with one or more underwriters, as described in the testimony of Company witness Niehaus, because it is expected to lead to the lowest storm recovery charge for customers. Tr. p. 46.13:18-20. Further, DEP, with the advice and input of the Bond Advisory Team including invited member DCA, will select underwriters who DEP believes are in the best position to achieve its Statutory Cost Objectives. Tr. p. 46.42:7-12.

The Commission finds that the issuance of the Storm Recovery Bonds pursuant to an SEC-registered negotiated sale process is expected to result in lower overall costs and satisfy the Statutory Cost Objectives and should therefore be approved. However, DEP is also authorized to pursue other sale options, including a Rule 144A offering, if the Statutory Cost Objective could not be achieved with a negotiated sale, and DEP determines that other sale options would satisfy the Statutory Cost Objectives. The Commission therefore finds it necessary to grant DEP flexibility and authority, with advice and input from the Bond Advisory Team, to pursue other sales options that result in the achievement of the Statutory Cost Objectives for customers consistent with market conditions at the time the Storm Recovery Bonds are priced. By allowing the Company flexibility to determine which of the above issuance structures are best tailored to then existing rating agency considerations, market conditions, and investor preferences, the financing of Storm Recovery Costs can be reasonably expected to result in the lowest Storm Recovery Charge consistent with market conditions at the time the Storm Recovery Bonds are priced, and the terms set forth in this Financing Order. In accordance with the Settlement Agreement, if a means of sale other than an SEC-registered sale is proposed to be utilized, the rationale for the decision shall be explained in the Issuance Advice Letter submitted to the Commission. Order Exhibit No. 1, Paragraph 19.

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N. Evidence and Conclusions for Findings of Fact Nos. 23-26

The evidence supporting these findings and conclusions is contained in the Petition, the testimony and exhibits of the witnesses, the Settlement Agreement, and the entire record in this proceeding.

Amortization, Interest Rates, and Credit Ratings of Storm Recovery Bonds

DEP proposed an approximately 20-year bond repayment period for the Storm Recovery Charge. Company witness Heath testified that the approximately 20-year proposal provides a greater level of quantifiable benefits to customers on a present value basis as compared to the costs that would have been incurred absent the issuance of storm recovery bonds, and will result in the lowest storm recovery charge consistent with market conditions at the time the storm recovery bonds are priced and the terms set forth in a financing order issued by the Commission. Tr. p. 46.14:16-22. Company witness Heath also explained that the legal maturity date of each tranche may be longer than the scheduled final payment date for that tranche. Having reviewed the testimony of the parties the Commission finds that this bond repayment period is reasonable and prudent. As requested by the Commission, DEP provided models showing the savings of a 10-year model and a 15-year model, which confirms the greater level of quantifiable benefits to customers on a present value basis. Tr. p. 282.

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The first payment of principal and interest for the Storm Recovery Bonds shall occur within 12 months of issuance. Payments of principal and interest thereafter shall be no less frequent than semi-annually. Annual payments of principal of and interest on the Storm Recovery Bonds shall be substantially level over the expected term of the Storm Recovery Bonds. DEP shall decide the exact scheduled final payment dates and legal final maturities of each tranche to ensure the issuance of Storm Recovery Bonds meets the Statutory Cost Objectives. The Commission finds that this proposed structure—providing substantially level annual debt service and revenue requirements over the life of the Storm Recovery Bonds—is reasonable and prudent and shall be utilized.

As to interest rates, Company witness Niehaus recommended that the Storm Recovery Bonds should be issued at a fixed rate. Tr. pp. 358.34-358.35. She explained that fixed rates result in predictable revenue requirements, which facilitates the true-up process. Id. If floating rate bonds were issued, it would be necessary to enter into interest rate swaps in order to create a fixed rate payment obligation, and the swap arrangement would increase risks for customers. Id. The Commission determines that each tranche of the Storm Recovery Bonds should have a fixed interest rate, subject to market conditions. If market conditions change, and it becomes necessary for one or more tranches of bonds to be issued as floating-rate securities in order to achieve the Statutory Cost Objectives, DEP is authorized to issue such bonds but will be required to execute agreements to swap the floating payments to fixed-rate payments in order to achieve the Statutory Cost Objectives. Tr. pp. 471:7-480:24. As noted in Findings of Fact Nos. 24 and 48-53, a decision to issue floating rate bonds or securities must be subject to advice and input from the Bond Advisory Team, and consistent with S.C. Code Ann. section 58-27-1110(C)(6)(a) (Supp. 2023), DEP, the primary underwriter(s), and the QITP would all have to certify that an issuance of Storm Recovery Bonds that has one or more floating rate tranches resulted in the lowest Storm Recovery Charge consistent with market conditions at the time the Storm Recovery Bonds were priced and the terms set forth in this Financing Order and the rationale for the decision to issue floating rate bonds would be set forth in the Issuance Advice Letter. In making this certification the costs of any interest rate swap agreements shall be included as part of the total cost of the proposed issuance. This flexibility will ensure that DEP can achieve quantifiable net benefits for customers as required by the Storm Securitization Statute and ensure that DEP achieves the Statutory Cost Objective of lowest storm recovery charges consistent with market conditions at the time the storm recovery bonds are priced. The Company anticipates that the Storm Recovery Bonds will have the highest possible credit rating from at least two nationally recognized rating agencies, S&P and Moody’s. The Commission hereby grants DEP authority to agree to necessary credit enhancements, with recovery of related costs as a form of on-going Financing Costs to achieve the Statutory Cost Objectives. In the Settlement Agreement, DEP agreed that if the ratings from S&P and Moody’s result in split bond ratings, the Company will seek advice and input from the Bond Advisory Team on whether to obtain a third rating from Fitch. DCA witness Rothschild specifically supported this term of the Settlement Agreement. Tr. pp. 205.12:21-23; 205.13:7. Consistent with the Settlement Agreement, if the final credit rating on the proposed bonds is not AAA or Aaa, the rationale for the decision shall be explained in the Issuance Advice Letter submitted to the Commission. Order Exhibit No. 1, Paragraph 18.

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Cap on Costs of Securitization Financing

ORS witness Kollen initially proposed a 7.0% cap on the cost of the securitization financing to “ensure that the actual financing remains cost-effective and that there will be actual quantifiable net benefits if interest rates increase prior to the actual securitization financing.” Tr. p. 239.4:4-9. In response, Company witness Heath confirmed that the Company calculated a breakeven cost of 7.70%. Tr. p. 48.8:1-4. The Settling Parties agreed that to ensure the issuance of Storm recovery Bonds results in quantifiable net benefit, the weighted average interest rate on the Storm Recovery Bonds will not exceed 7.0%. Order Exhibit No. 1, Paragraph 14. However, if the 7.0% cap based on the weighted average interest rate on the bonds is projected to be exceeded, the Parties agreed that DEP shall discuss with the Bond Advisory Team and develop a recommendation, based on their advice and input, for the Commission on whether to proceed with the issuance in accordance with the Statutory Cost Objectives. In the Settlement Agreement, DEP has further agreed for informational purposes, to include the rationale for the final interest rate decision, whether above or below the cap, in the Issuance Advice Letter. Id. The rationale, will include, but not be limited to, the comparisons made to determine how the interest rate(s) results in the lowest storm recovery charges consistent with market conditions at the time the Storm Recovery Bonds are priced and the terms set forth in this Financing Order. Id. The Commission hereby finds and concludes the 7.0% cap and related terms agreed upon in the Settlement Agreement, to be just and reasonable and necessary to achieve the Statutory Cost Objectives.

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O. Evidence and Conclusions for Findings of Fact No. 27

The evidence supporting these findings and conclusions is contained in the Petition, the testimony and exhibits of the witnesses, and the entire record in this proceeding.

Security for Storm Recovery Bonds

DEP proposed that the payment of the Storm Recovery Bonds and the Storm Recovery Charge authorized by this Financing Order is to be secured by the Storm Recovery Property created by this Financing Order and by certain other collateral as described herein. The Storm Recovery Bonds will be issued pursuant to an indenture under which the indenture trustee will administer the trust.

DEP proposed that the SPE will establish a collection account as a trust account to be held by its indenture trustee as collateral to facilitate the payment of the principal of interest on, and on-going Financing Costs related to, the Storm Recovery Bonds in full and on a timely basis. Tr. p. 358.23-24. The collection account will include the general subaccount, the capital subaccount and the excess funds subaccount, and may include other subaccounts if required to obtain the highest possible credit rating on the Storm Recovery Bonds in order to achieve the Statutory Cost Objectives. Id.

DEP proposes that Storm Recovery Charge remittances from the servicer with respect to the Storm Recovery Bonds will be deposited into the general subaccount for the SPE. On a periodic basis, the money in the general subaccount will be allocated to pay expenses of the SPE, to pay principal of and interest on the Storm Recovery Bonds, and to meet the funding requirements of the other subaccounts, according to specified payment priority established in the indenture. Funds in the general subaccount will be invested by the indenture trustee in short-term, high-quality investments, and such funds (including, to the extent necessary, investment earnings) will be applied by the indenture trustee to pay principal of and interest on the Storm Recovery Bonds as well as all other components of the on-going Financing Costs payable by the SPE.

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OCTOBER 23, 2023
PAGE 59

When the Storm Recovery Bonds are issued, DEP proposes that it will make a capital contribution to the SPE, which the SPE will deposit into its capital subaccount. Tr. p. 46.31:5-8. The capital subaccount is available, if necessary, to serve as collateral for timely payment of principal and interest on the Storm Recovery Bonds and is considered a credit enhancement. Tr. pp. 46.9:14-17; 46.31:10-12. The Storm Recovery Bond proceeds will not be used to fund this capital contribution. The amount of the capital contribution will be at least 0.50 percent of the original principal amount of the Storm Recovery Bonds issued by the SPE. The capital subaccount will serve as collateral to facilitate timely payment of principal of and interest on the Storm Recovery Bonds. To the extent that the capital subaccount must be drawn upon to pay these amounts due to a shortfall in the Storm Recovery Charge collections, it will be replenished to its original level during the next six-month period through the true-up process described below. The funds in the capital subaccount will be invested in short-term, high-quality investments and, if necessary, such funds (including investment earnings) will be used by the indenture trustee to pay principal of, and interest on, the Storm Recovery Bonds and the on-going Financing Costs payable by the SPE. It is just and reasonable for DEP to earn a rate of return on its invested capital in the SPE equal to the rate of interest payable on the longest maturing tranche of Storm Recovery Bonds and this return on invested capital should be a component of the Periodic Payment Requirement (as defined below), and accordingly, recovered from the Storm Recovery Charge.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 60

Any excess funds subaccount will hold any Storm Recovery Charge collections and investment earnings on the collection account in excess of the amounts needed to pay current principal of and interest on the Storm Recovery Bonds and to pay all of the on-going Financing Costs payable by the SPE including, but not limited to, funding or replenishing the capital subaccount. Any balance in or amounts allocated to such excess funds subaccount on a true-up adjustment date will be subtracted from any amounts required for such period for purposes of the true-up adjustment. The funds in the excess funds subaccount will be invested in short- term, high-quality investments, and such funds (including investment earnings thereon) will be available to pay principal of and interest on the Storm Recovery Bonds and the on-going Financing Costs payable by the SPE.

DEP also proposed that any collection account and the subaccounts described above are intended to facilitate the full and timely payment of scheduled principal of, and interest on, the Storm Recovery Bonds and all other on-going Financing Costs payable by the SPE. If the amount of Storm Recovery Charge collections in the general subaccount is insufficient to make, on a timely basis, all scheduled payments of principal of and interest on the Storm Recovery Bonds and to make payment on all of the other on-going Financing Costs payable by the SPE, the excess funds subaccount and the capital subaccount will be drawn down, in that order, to make such payments. Any deficiency in the capital subaccount due to such withdrawals must be replenished on a periodic basis through the true-up process.

In addition to the foregoing, there may be such additional accounts and subaccounts as are necessary to segregate amounts received from various sources, or to be used for specified purposes. Upon the maturity of the Storm Recovery Bonds and upon the discharge of all obligations with respect to such bonds, amounts remaining in each collection account, as well as later collections of Storm Recovery Charge, will be released. As noted in this Financing Order, equivalent amounts, less the amount of any capital subaccount, will be booked to a regulatory liability, will accrue carrying costs, net of ADIT at DEP’s approved pre-tax WACC in effect at the time the deferral is incurred, and will be credited back to customers in the Company’s next general rate case proceeding following the maturity of the Storm Recovery Bonds.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 61

Based upon the foregoing, the Commission finds that utilization of a collection account, including a general subaccount, a capital subaccount, and an excess funds subaccount, as proposed by DEP, is reasonable and should help achieve the Statutory Cost Objectives. Moreover, it is necessary to grant DEP the flexibility and authority to include other subaccounts in the collection account where required to obtain the highest possible credit rating on the series of Storm Recovery Bonds, which will in turn lower the Storm Recovery Charge for customers.

P. Evidence and Conclusions for Findings of Fact Nos. 28-29

The evidence supporting these findings and conclusions is contained in the Petition, the Settlement Agreement, the testimony and exhibits of the witnesses, and the entire record in this proceeding.

DEP as Initial Servicer of the Storm Recovery Bonds

DEP proposes to execute a servicing agreement with the SPE, the final version of which shall be provided to this Commission concurrent with its filing with the SEC.

Under the servicing agreement, the servicer shall be required, among other things, to: (i) impose, bill, charge, collect, and receive the Storm Recovery Charge for the benefit of the SPE; (ii) make the true-up adjustments of Storm Recovery Charge required or allowed by this Financing Order; and (iii) account for and remit the Storm Recovery Charge to or for the account of the SPE in accordance with the remittance procedures contained in the servicing agreement without any charge, deduction, or surcharge of any kind, other than the servicing fee specified in the servicing agreement. The appropriate servicing fee shall be as set forth in this Financing Order.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 62

To preserve the integrity of the bankruptcy-remote structure of the SPE and ensure the high credit quality of the Storm Recovery Bonds, the servicer must be adequately compensated for the services it provides, including the calculation, billing, and collection of the Storm Recovery Charge; remittance of the Storm Recovery Charge to the indenture trustee; and the preparation, filing, and processing of the True-up Adjustment Letter. DEP’s proposed form of servicing agreement provides for an on-going servicing fee for the initial servicer in the amount of 0.05 percent of the initial principal amount of the Storm Recovery Bonds plus out-of-pocket expenses. DEP has submitted testimony on the costs anticipated to be incurred by it in connection with the servicing functions under the servicing agreement, and the Commission finds such costs to be reasonable and prudent. Tr. pp. 46.29:14-46.30:14.

DEP’s proposed form of servicing agreement provides for an annual fee for on-going services of 0.05 percent of the initial principal amount of the Storm Recovery Bonds so long as DEP acts as servicer, plus out-of-pocket expenses. In addition to the annual on-going servicing fee, DEP shall recover its expenses as an up-front financing cost, to recover set-up costs of the servicer, including information technology programming costs to adapt DEP’s existing systems to bill, charge, collect, receive, and process the Storm Recovery Charge, and to set up necessary servicing functions. The evidence shows that these amounts represent a prudently incurred cost to DEP, and the Commission finds that those costs are reasonable.

However, the servicing fees collected by DEP, or an affiliate acting as the servicer under the Servicing Agreement will be reflected in DEP’s on-going cost of service such that any amounts in excess of DEP’s incremental cost of servicing the Storm Recovery Bonds shall be returned to DEP’s retail customers. The expenses incurred by DEP or such affiliate to perform obligations under the Servicing Agreement not otherwise recovered through the Storm Recovery Charge will likewise be reflected in DEP’s on-going cost of service.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 63

DEP has proposed that it will not be permitted to voluntarily resign from its duties as a servicer if the resignation will harm the credit rating on Storm Recovery Bonds issued by SPE. Even if DEP’s resignation as servicer would not harm the credit rating on the Storm Recovery Bonds issued by the SPE, the Commission finds and directs that DEP shall not be permitted to voluntarily resign from its duties as servicer without the express permission of the Commission. In the event DEP must resign as servicer, DEP’s replacement shall be approved by the Commission. If DEP defaults on its duties as servicer or is required for any reason to discontinue those functions, then DEP proposes that a successor servicer acceptable to the indenture trustee be named to replace DEP as servicer so long as such replacement would not cause any of the then current credit ratings of the Storm Recovery Bonds to be suspended, withdrawn or downgraded. The Commission holds that any successor servicer to DEP must also be acceptable to the Commission.

DEP has proposed that, and the Commission finds and directs that, the servicing fee payable to a substitute servicer, if a substitute servicer be approved by the Commission, should not exceed 0.60 percent per annum on the initial principal balance of the Storm Recovery Bonds issued by the SPE, unless a higher fee is approved by the Commission. Tr. p. 46.29:16-19. See also Hearing Exhibit 2.

In the Servicing Agreement, DEP, as Servicer, shall agree to credit its retail customers to the extent there are higher servicing fees payable to any substitute servicer because of DEP’s negligence, recklessness, or willful misconduct in acting as a servicer.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 64

The Commission finds and directs that the SPE and the indenture trustee shall not be permitted to waive any material obligations of DEP as transferor or as servicer of Storm Recovery Property without consent of this Commission.

Furthermore, it is contemplated that DEP shall act as the servicer for the Storm Recovery Bonds until the Storm Recovery Bonds are fully paid. In the event of a change in utility regulation in the State of South Carolina, alternative energy suppliers are required to bill and collect the storm recovery charges and meet all other credit rating agency criteria so as not to negatively affect the Storm Recovery Bonds’ credit rating, as outlined in the testimony of witness Niehaus and ORS witness Traska. Tr. pp. 358.36-358.38; 360:4-7; & 536:10-11.

The Commission thereby finds and concludes that it is reasonable for DEP to act as initial servicer, unless and until the Commission grants approval of a successor servicer, under the proposed financing transaction, which will reduce risk associated with the proposed securitization, therefore resulting in a lower Storm Recovery Charge and greater benefits to customers. Accordingly, this Financing Order requires DEP to act as initial servicer pursuant to the servicing agreement under the proposed financing structure.

Q. Evidence and Conclusions for Findings of Fact Nos. 30-31

The evidence supporting these findings and conclusions is contained in the Petition, the testimony and exhibits of the witnesses, and the entire record in this proceeding.

DEP as Administrator of the SPE

Pursuant to the administration agreement explained above, DEP will perform the administrative duties necessary to maintain the SPE. The appropriate administration fee shall be as set forth in this Financing Order.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 65

DEP’s proposed form of administration agreement provides for a $50,000 annual fee plus out-of-pocket expenses paid to an administrator for performing the services required by the administration agreement to be paid in equal installments on each payment date. Witness Heath discusses the costs anticipated to be incurred by it in connection with the administration agreement in his testimony. The Commission finds that DEP has demonstrated that this annual fee is necessary to cover any costs to be incurred by DEP in performing services as administrator. The Commission also finds and concludes that it is reasonable for DEP to act as an administrator of the SPE under the proposed financing transaction. Accordingly, this Financing Order requires DEP to act as administrator pursuant to the administration agreement under the proposed financing structure.

The administration fees collected by DEP or any affiliate acting as the administrator under the Administration Agreement will be included in DEP’s cost of service such that any amount in excess of DEP’s incremental costs of administering the SPE shall be returned to DEP’s retail customers. The expenses incurred by DEP or such affiliate to perform obligations under the Administration Agreement not otherwise recovered through the Storm Recovery Charge will likewise be included in DEP’s cost of service.

R. Evidence and Conclusions For Finding of Fact No. 32

Company witness Heath explained that the Company would not realize taxable income from receipt of cash in exchange for the issuance of the Storm Recovery Bonds provided that the transaction was structured in accordance with IRS safe harbor rules described in IRS Revenue Procedure 2005-62. Tr. p. 46.34:3-10. Therefore, the Commission believes it is just and reasonable for DEP to structure the Storm Recovery Bond transactions in a way that meets all requirements for the IRS’ safe harbor treatment, including, for federal income tax purposes, that the Storm Recovery Bonds be treated as debt of DEP.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 66

S. Evidence and Conclusion for Findings of Fact Nos. 33-37

The evidence supporting these findings and conclusions is contained in the Petition, the testimony and exhibits of the witnesses, the Settlement Agreement and the entire record in this proceeding.

DEP seeks authorization to collect from its customers, in the manner provided in this Financing Order and/or the Tariff approved hereby, a Storm Recovery Charge in an amount sufficient to provide for the timely payment of principal of and interest on the Storm Recovery Bonds and all other on-going Financing Costs as described in the Evidence and Conclusions for Findings of Fact Nos. 38-39.

To repay the Storm Recovery Bonds and on-going Financing Costs, DEP is hereby authorized to implement a Storm Recovery Charge to be collected on a per kWh basis from all applicable customer rate classes until the Storm Recovery Bonds and associated Financing Costs are paid in full. The Storm Recovery Charge is nonbypassable and must be paid by all existing or future retail customers receiving transmission or distribution services from DEP or its successors or assignees under Commission-approved rate schedules or under special contracts, even if the retail customer elects to purchase electricity from an alternative electricity supplier following a fundamental change in regulation of electrical utilities in this state. See S.C. Code Ann. §§ 58-27-1105(15) and 1110(C)(2)(d) (Supp. 2023). In the event there is a fundamental change in the regulation of electrical utilities, the Storm Recovery Charge shall be collected from retail electric customers in a manner that will not adversely affect the credit rating on the Storm Recovery Bonds.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 67

In summary, the Storm Securitization Statute provides for the recovery of Storm Recovery Costs through Storm Recovery Bonds. Accordingly, to compute the Storm Recovery Charge, DEP first applied the allocation factors to the total first year revenue requirement as presented in Smith Exhibit 3 in order to allocate the revenue requirements to each customer rate class. Specifically, DEP applied the allocation factors to the customer rate classes in the manner in which these costs would have been allocated in the cost-of-service study approved in the 2022 DEP Rate Case, Docket No. 2022-254-E as required by the Storm Securitization Statute.

Next, as presented in the testimony of Company witness Jacalyn H. Moore, the rate was calculated by dividing total revenue requirements for each customer rate class by the effective kWh sales forecast for each customer rate class. DEP used the allocation factors as well as the sales forecast to calculate the proposed initial Storm-Recovery Charge per kWh by customer rate class. The resulting Storm Recovery Charge was then set forth in the proposed Tariff, as shown in witness Moore’s Exhibit 2. (Hearing Exhibit 12).

DEP submitted the True-up Mechanism, which is a formula-based mechanism as described in S.C. Code Ann. section 58-27-1110(C)(2)(f) (Supp. 2023), used to calculate, and adjust from time to time, the Storm Recovery Charge for each customer rate class. DEP supported the Petition with the testimony of Company witness Speros, who provided the True-up Mechanism to determine the Periodic Payment Requirement (defined further below) to be recovered from the Storm Recovery Charge. This True-up Mechanism is attached as Order Exhibit No. 3.

DEP also submitted the supporting testimony of Company witness Smith with respect to allocation of these periodic costs and Company witness Moore presents in her testimony and exhibits the computation of the Storm Recovery Charge for each customer rate class for DEP. Tr. p. 181; Hearing Exhibits 12 & 13. As discussed in the testimony of witness Smith and shown in Smith Exhibits 1-4, DEP presents the estimated Storm Recovery Charge, as described in S.C. Code Ann. section 58-27-1110(16) (Supp. 2023). Tr. p. 40.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 68

As agreed to by the Parties in the Settlement Agreement, DEP will use 30 years of historical data to determine normal weather heating and cooling degree days in the calculation of the forecast variance factor. The variance factor will be equal to one standard deviation of the normal weather variation and will be applied by customer class to DEP’s most current retail Spring or Fall forecast which includes the upcoming rate period. Order Exhibit No. 1, Paragraph 12.

In S.C. Code Ann. section 58-27-1155(A) (Supp. 2023), the State and its agencies, including this Commission, pledge to and agree with the bondholders, the owners of Storm Recovery Property, and other financing parties that the State and its agencies, including this Commission, will not do any of the following: (1) alter the provisions of the Storm Securitization Statute, which authorize this Commission to create an irrevocable contract right or chose in action by the issuance of this Financing Order, to create Storm Recovery Property, and make the Storm Recovery Charge imposed by this Financing Order an irrevocable, binding or nonbypassable charge; (2) take or permit any action that impairs or would impair the value of Storm Recovery Property or the security for the Storm Recovery Bonds, or revises the Storm Recovery Costs for which recovery is authorized; (3) in any way impair the rights and remedies of the bondholders, assignees, and other financing parties; or (4) except for changes made pursuant to the True-up Mechanism, reduce, alter, or impair the Storm Recovery Charge that is to be imposed, billed, charged, collected, and remitted for the benefit of the bondholders, any assignee, and any other financing parties until any and all principal, interest, premium, Financing Costs and other fees, expenses, or charges incurred, and any contracts to be performed in connection with the related Storm Recovery Bonds, have been paid and performed in full. This paragraph does not preclude limitation or alteration if full compensation is made by law for the full protection of the storm recovery charges collected pursuant to a financing order and of the bondholders and any assignee or financing party entering into a contract with the electrical utility.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 69

The Commission hereby finds that the cost allocation formula described on DEP’s testimony, included in the Settlement Agreement and embedded in the True-up Mechanism is consistent with S.C. Code Ann. sections 58-27-1110(C)(2)(f) and 58-27-1110(C)(2)(i) (Supp. 2023) and is reasonable and reasonable. The Commission also anticipates that stress case analyses, as described in witness Niehaus’s testimony, will show that the broad-based nature of the True-up Mechanism under S.C. Code Ann. section 58-27-1110(C)(2)(f) (Supp. 2023) and the State Pledge under S.C. Code Ann. section 58-27-1155 (Supp. 2023), will serve to minimize credit risk associated with the Storm Recovery Bonds (i.e., that sufficient funds will be available and paid to discharge the principal and interest when due).

T. Evidence and Conclusions for Findings of Fact Nos. 38-39

The evidence supporting these findings and conclusions is contained in the Petition, the testimony and exhibits of the witnesses, the Settlement Agreement and the entire record in this proceeding.

DEP submitted a proposed Tariff included as Moore Exhibit 2 attached to witness Moore’s testimony to impose the Storm Recovery Charge. Hearing Exhibits 12 & 13. Pursuant to S.C. Code Ann. section 58-27-1120(1) (Supp. 2023), the tariffs shall “explicitly reflect that a portion of the charges on such bill represents [storm] recovery charges approved in a financing order issued to the electrical utility and, if the storm recovery property has been transferred to an assignee, must include a statement to the effect that the assignee is the owner of the rights to [storm] recovery charges and that the electrical utility or other entity, if applicable, is acting as a collection agent or servicer for the assignee.” In addition, the “tariff applicable to customers must indicate the [storm] recovery charge and the ownership of the charge.” S.C. Code Ann. § 58-27-1120(1) (Supp. 2023).

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 70

The tariff will also describe the methodology for calculating the storm recovery charges using the following language displayed clearly on the tariff and not contained in a footnote:

The securitization charge billing rate for each rate class shall be determined sequentially, first by calculating the forecast semi-annual or interim period revenue requirement (in $000), including the over/under recovery from the prior period, as presented in the attached format; second, by calculating the revenue requirement by class for the same period used for the forecast revenue requirement using the class allocation methodology from the most recent base rate case proceeding; third, by calculating the forecast mWh sales by class using total retail forecast mWh sales sourced from the Company’s current Spring or Fall retail load forecast allocated to rate classes using the most current annual billed kWh sales report from the Company’s billing system; fourth, by calculating the adjusted forecast retail mWh sales by reducing the forecast mWh sales by class by one standard deviation from normal weather over thirty years, calculated in the same manner used for base rate case purposes; and fifth, by calculating the securitization charge billing rates per kWh by class by dividing the forecast revenue requirement (in $000) by class by the adjusted retail mWh sales by class. (Order Exhibit No. 1, Paragraph 13).

The Commission finds that the form of DEP’s proposed Tariff introduced into evidence as Moore Exhibit 2, and attached to Company witness Moore’s testimony and the additional language included in the Settlement Agreement includes the required language necessary to effectuate S.C. Code Ann. section 58-27-1120(1) and is hereby approved. The Commission determines that DEP’s applicable Storm Recovery Charge shall be recognized as a separate line item on retail customer bills and include both the rate and the amount of the charge and in accordance with S.C. Code Ann. section 58-27-1120(2) (Supp. 2023). Moreover, all electric bills issued by DEP must state that, as approved in a financing order, all rights to the Storm Recovery Charge are owned by the SPE and that DEP is acting as collection agent or servicer for its SPE.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 71

U. Evidence and Conclusions for Findings of Fact Nos. 40-41

The evidence supporting these findings and conclusions is contained in the Petition, the testimony and exhibits of the witnesses, the Settlement Agreement and the entire record in this proceeding.

Pursuant to S.C. Code Ann. section 58-27-1110(C)(4) (Supp. 2023), the servicer of the Storm Recovery Property will file for standard true-up adjustments to the Storm Recovery Charge at least semi-annually (and at least quarterly beginning 12 months prior to the scheduled final payment date for the latest maturing tranche of a series of Storm Recovery Bonds) to ensure Storm Recovery Charge collections are sufficient to provide for the timely payment of the principal of and interest on the Storm Recovery Bonds and of all of the on-going Financing Costs payable by the SPE in respect of Storm Recovery Bonds as approved under this Financing Order. This required periodic payment of all such amounts will also include deficiencies on past due amounts for any reason for the Storm Recovery Bonds.

Pursuant to S.C. Code Ann. section 58-27-1110(C)(2)(0 (Supp. 2023), this Financing Order must include a formula-based true-up mechanism for making expeditious periodic adjustments in the Storm Recovery Charge that retail customers are required to pay pursuant to this Financing Order and for making any adjustments that are necessary to correct for any overcollection or undercollection of the charge or to otherwise ensure the timely payment of the Periodic Payment Requirement (as defined below).

Consistent with S.C. Code Ann. section 58-27-1110(C)(4) (Supp. 2023), DEP will file with the Commission at least semi-annually (and at least quarterly beginning 12 months prior to the scheduled final payment date for the latest maturing tranche of the Storm Recovery Bonds) a letter applying the formula-based True-up Mechanism and based on estimates of consumption for each rate class and other mathematical factors, requesting Commission approval to make the necessary adjustments.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 72

In addition to the semi-annual true-up adjustments, DEP proposes that the servicer of the Storm Recovery Property also be authorized to make interim true-up adjustments at any time and for any reason in order to ensure the recovery of revenues sufficient to provide for the timely payment of Periodic Payment Requirement.

The Commission accepts the Company’s true-up proposals as reasonable, and finds that it is reasonable and prudent that DEP adhere to the following requirements:

· After issuance of Storm Recovery Bonds on behalf of DEP, the servicer will submit at least semi-annually (and at least quarterly beginning 12 months prior to the scheduled final payment date of the last maturing tranche of the Storm Recovery Bonds) a letter in this docket for Commission review, as described in S.C. Code Ann. section 58-27- 1110(C)(4) (Supp. 2023), and in the form attached hereto as Appendix C.

· The True-up Adjustment Letter will apply the formula-based True-up Mechanism described herein and in Appendix C to this Financing Order for making expeditious periodic adjustments in the relevant Storm Recovery Charge to correct for any overcollection or undercollection of the charge or to otherwise ensure the timely payment of the Periodic Payment Requirement for the Storm Recovery Bonds.

· The “Periodic Payment Requirement” will be composed of the following components for each collection period: (i) the payments of the principal of and interest on the Storm Recovery Bonds issued by the SPE, in accordance with the expected amortization schedule, including deficiencies on past-due principal and interest for any reason, and (ii) on-going Financing Costs payable during the collection period and the costs of funding and/or replenishing the capital subaccount and any other credit enhancements established in connection with the Storm Recovery Bonds and other related fees and expenses.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 73

· The first Periodic Payment Requirement established through the Issuance Advice Letter procedures may be calculated based upon a set of collection periods greater or less than twelve collection periods. Notwithstanding the foregoing, in the event that any Storm Recovery Bonds are outstanding following the scheduled final payment date for the tranche of the latest maturing Storm Recovery Bonds, the Periodic Payment Requirement will be calculated so that collections are sufficient to make all payments on those Storm Recovery Bonds, and in respect of Financing Costs, no later than the immediately following payment date.

· Along with each True-up Adjustment Letter, the servicer shall provide workpapers showing all inputs and calculations, including its calculation of the Storm Recovery Charge by customer rate class. Pursuant to S.C. Code Ann. section 58-27-1110(C)(4) (Supp. 2023), the Commission, upon the filing of a True-up Adjustment Letter made pursuant to this Financing Order, shall render an administrative approval of the request, or inform the servicer of any mathematical or clerical errors in its calculation as expeditiously as possible, but no later than 60 days following the Servicer’s true-up filing. Upon administrative approval, no further action of this Commission will be required prior to implementation of the true-up. In his testimony, DEP witness Speros explained that a shorter time to review the true-up will reduce the lag between calculating the true-up and realizing collection, which should allow for more accurate collections. Tr. p. 310.8. Recognizing, however that the proposed issuance of Storm Recovery Bonds will be the first such transaction in South Carolina, DEP and ORS agreed to engage in a good faith discussion to discuss reducing the time period to review filed True-Up Adjustment Letters from 60 days to 30 days after the completion of 3 semi- annual true-up periods. (Order Exhibit No. 1, Paragraph 11).

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 74

· To ensure adequate Storm Recovery Charge collections and to avoid large overcollections and undercollections over time, the Commission directs that the servicer shall calculate the Storm Recovery Charge using DEP’s most recent MWH sales forecast by rate class from the Company’s most recent period over which the storm recovery charge will be billed and DEP’s estimates of related expenses. Each periodic true-up adjustment should ensure that Storm Recovery Charge collections are sufficient to meet the Periodic Payment Requirement. The calculation of the Storm Recovery Charge will also reflect both a projection of uncollectible Storm Recovery Charge and a projection of payment lags between the billing and collection of the Storm Recovery Charge based upon DEP’ s most recent experience regarding collection of the Storm Recovery Charge.

The Commission hereby approves the True-up Mechanism and determines that each True-up Adjustment Letter shall be based upon the cumulative differences, regardless of the reason, between the Periodic Payment Requirement (including scheduled principal and interest payments on the Storm Recovery Bonds) and the amount of Storm Recovery Charge collections and estimated Storm Recovery Charge collections to the indenture trustee.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 75

V. Evidence and Conclusions for Finding of Fact No. 42

The evidence supporting these findings and conclusions is contained in the Petition, the testimony and exhibits of the witnesses, the Settlement Agreement and the entire record in this proceeding.

The Company’s calculation of quantifiable net benefits assumes that customers will receive a reduction in base revenues for the carrying costs on the storm cost regulatory asset ADIT at the pre-tax WACC. Tr. p. 239.4:11-14. However, such a reduction in base revenues will not occur until base rates are reset in a future base rate case proceeding. Tr. p. 239.4:15-16. ORS witness Kollen recommended that the Commission direct the Company to defer carrying and compound costs on the Storm ADIT at the Company’s WACC to a regulatory liability established for this purpose, from the date the securitization financing closes until the date when the Storm ADIT is included in base rates in a future general rate case proceeding. Tr. p. 239.4:16-20. In rebuttal Company witness Smith explained its plan to include the Storm ADIT as a reduction to rate base in its Quarterly Financial Reports filed with the Commission in Docket No. 2006-270-E, as opposed proposing a deferral until the next general rate case proceeding. Tr. p. 190.4:3-7. However, as part of the Settlement Agreement, the Company has agreed to ORS witness Kollen’s proposal.

The Commission hereby approves the terms of the Settlement Agreement which state that from the date of the Financing Order, the Company will defer and compound the return on Storm ADIT at its most recently approved pre-tax WACC until base rates are reset in the next base rate case proceeding. At that time, the Storm ADIT and the deferred return on the Storm ADIT will be included as a reduction to rate base and the deferred regulatory liability will be amortized as a negative expense to return the deferred Storm ADIT benefit to customers. Order Exhibit No. 1, Paragraph 15.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
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W. Evidence and Conclusions for Findings of Fact Nos. 43-47

The evidence supporting these findings of fact is found in the Petition, the testimony and exhibits of Company witnesses Heath and Niehaus, the testimony of DCA witness Rothschild, the Settlement Agreement and the entire record in this proceeding.

Company witness Heath testified that in order to assist the Commission to evaluate the final terms of the transaction and whether or not the statutory cost objectives were in fact met, the Company proposes the Commission adopt an Issuance Advice Letter process as contemplated by S.C. Code Ann. section 58-27-1110(C)(6) (Supp. 2023) that includes certification from the Company, the primary underwriter(s), and a Qualified Independent Third-Party designated by the Commission (provided one business day after the Issuance Advice Letter is filed). Tr. pp. 45:1-46:2. DCA witness Rothschild also testified that the Bond Advisory Team will provide an additional layer of oversight to help ensure the storm recovery bonds are priced, structured, registered, and marketed to achieve customer savings. Tr. p. 205.9:5-8. Ultimately, Mr. Rothschild testified that he believed the provisions contained in the Settlement Agreement were the result of considerable work and negotiation amongst the Settling Parties, and having DCA involved, and informed, and able to provide input in the process will achieve the Statutory Cost Objectives. Tr. p. 222:3-20.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 77

In accordance with S.C. Code Ann. section 58-27-1110(C)(6)(a) (Supp. 2023), the Commission has the authority to designate a Qualified Independent Third-Party, and the certification of DEP and the Qualified Independent Third-Party shall certify whether the issuance of Storm Recovery Bonds and the imposition and collection of a Storm Recovery Charge will in fact provide quantifiable net benefits to customers on a present value basis as compared to the costs that would have been incurred absent the issuance of the Storm Recovery Bonds. The certifications of DEP, primary underwriter(s), and the Qualified Independent Third-Party shall certify whether the sale of Storm Recovery Bonds complies with the requirements of the Storm Securitization Statute and this Financing Order, and whether the structuring, marketing, and pricing of the Storm Recovery Bonds will in fact result in the lowest Storm Recovery Charge consistent with market conditions at the time the Storm Recovery Bonds were priced and the terms set forth in this Financing Order. In addition, the Qualified Independent Third-Party shall deliver to the Commission any other information it believes the Commission should consider as to its decision regarding the Issuance Advice Letter.

In accordance with the non-severable Comprehensive Settlement Agreement presented by the Settling Parties for approval without exception, modification, or additional provisions, the Commission concludes that an advisory body shall be established consisting of DEP, the ORS, and ORS acting as the Qualified Independent Third-Party (the Bond Advisory Team) to allow for the development of a thorough understanding of the process for structuring, marketing, and pricing of storm recovery bonds in South Carolina. DEP and the ORS may designate staff, counsel, and consultants to participate on the Bond Advisory Team on their behalf. The Commission also concludes that the designated staff and attorneys of DCA and the underwriters and their counsel shall be invited to attend meetings of the Bond Advisory Team as participants. DCA shall be invited to every meeting of the Bond Advisory Team and provided the same materials as the DEP or ORS.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 78

For the Bond Advisory Team to perform its duties and to participate in the structuring, marketing, and pricing the Storm Recovery Bonds, DEP must provide the members and other participants of the Bond Advisory Team with timely information. Accordingly, DEP shall invite the entire Bond Advisory Team and other participants to participate in all Bond Advisory Team meetings. The Bond Advisory Team must also be given an opportunity to review the structuring, marketing, and pricing of the Storm Recovery Bonds, including but not limited to the selection and retention of underwriters and other transaction participants; the terms of all Transaction Documents; the length of the bond terms; the interest rates of the bonds; the capital contribution to the extent the amount required in the IRS Revenue Procedure 2005-62; the transaction structure; the issuance strategy; pricing strategy; appropriate credit enhancements; and the credit rating process. Furthermore, DEP will, with the advice and input from other participants on the Bond Advisory Team, develop appropriate and necessary disclosures in the registration statement and other marketing materials including but not limited to highlighting the credit features of the Storm Recovery Bonds such as the true-up, nonbypassable nature of the charges, the state pledge, bankruptcy and reorganization protections, and non-appealable Financing Order. However, consistent with DEP’ s statutory right to direct how it places the Storm Recovery Bonds to market, it is reasonable and prudent for DEP to have the exclusive right to select all counsel and advisors for DEP and the SPE.

X. Evidence and Conclusions for Findings of Fact Nos. 48-54

The evidence supporting these findings and conclusions is contained in the Petition, the testimony and exhibits of the witnesses, the Comprehensive Settlement Agreement and the entire record in this proceeding.

Because the actual structure and pricing of the Storm Recovery Bonds are unknown as of the issuance of this Financing Order, the Commission finds it is just, reasonable, and appropriate to require DEP to provide to the Commission, within one business day after final terms of the Storm Recovery Bonds are determined for each series of Storm Recovery Bonds, an Issuance Advice Letter as prescribed in S.C. Code Ann. section 58-27-1110(C)(6)(a) (Supp. 2023), as well as a form of True- up Adjustment Letter attached hereto as Appendices C and D, respectively.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 79

Such Issuance Advice Letter shall include the final terms of the Storm Recovery Bond, up- front Financing Costs and on-going Financing Costs, as well as any necessary explanations or rationales for the final terms required pursuant to the Comprehensive Settlement Agreement. In accordance with S.C. Code Ann. section 58-27-1110(C)(6)(a) (Supp. 2023), the Issuance Advice Letter shall include certifications from DEP, the primary underwriter(s), and the QITP (provided one business day after the Issuance Advice Letter is filed) certifying whether the sale of Storm Recovery Bonds complies with the requirements of the Storm Securitization Statute and the Financing Order. DEP shall certify whether the issuance of Storm Recovery Bonds and the imposition and collection of a Storm Recovery Charge will in fact provide quantifiable net benefits to customers on a present value basis as compared to the costs that would have been incurred absent the issuance of Storm Recovery Bonds. DEP and the primary underwriter(s) shall certify whether the structuring, marketing, and pricing of the Storm Recovery Bonds will in fact result in the lowest Storm Recovery Charge consistent with market conditions at the time the Storm Recovery Bonds were priced and the terms set forth in this Financing Order.

No later than one business day after the Company provides the Issuance Advice Letter, the QITP shall review the Issuance Advice Letter and deliver its certification to the Commission along with any other information it believes the Commission should consider as to the Commission’s decision to accept the Issuance Advice Letter. To ensure compliance with the statutory timeline, DEP will provide a draft issuance advice letter to the Bond Advisory Team, including DCA for review not later than two weeks before the expected date of commencement of marketing the Storm Recovery Bonds. The Bond Advisory Team, including DCA will review the draft issuance advice letter and provide timely feedback to DEP based on the progression of structuring, marketing, and pricing of the Storm Recovery Bonds.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 80

The QITP shall certify whether the issuance of Storm Recovery Bonds and the imposition and collection of a Storm Recovery Charge will in fact provide quantifiable net benefits to customers on a present-value basis as compared to the costs that would have been incurred absent the issuance of Storm Recovery Bonds and whether the structuring, marketing, and pricing of the Storm Recovery Bonds will in fact result in the lowest Storm Recovery Charge consistent with market conditions at the time the Storm Recovery Bonds were priced and the terms set forth in this Financing Order.

No later than noon on the fourth business day after pricing, the Commission shall either accept the Issuance Advice Letter or deliver an order to DEP to prevent the issuance of the Storm Recovery Bonds.¹² To assist the Commission with its review of the Issuance Advice Letter, after the Issuance Advice Letter has been submitted to the Commission, but prior to noon on the fourth business day after the final terms of the Storm Recovery Bonds are determined, DEP will be available to answer any questions from the Commission about the final agreed upon terms of the bond issuance contained in the Issuance Advice Letter. The Commission shall have the option to submit the questions in written form to all parties for DEP to respond or request that DEP make a presentation before the Commission. The information designated by DEP or Parties as confidential shall be provided to the Commission under seal or in a closed session. Order Exhibit No. 1, Paragraph 25.

¹² To receive the highest possible rating from credit rating agencies and minimize any perceived risk by investors that could impact pricing, the regulatory process must be complete and no longer subject to appeal before the storm recovery bonds can be sold to investors. The Commission will therefore take action on the Issuance Advice Letter in a manner that does not subject the decision to accept the Issuance Advice Letter to appeal, in accordance with S.C. Code Ann. § 58-27-1110(C)(6)(b) (Supp. 2023). S.C. Code Ann. § 58-27-1110(C)(6)(b) distinguishes between the Commission “accept[ing] the issuance advice letter” or, alternatively, “deliver[ing] an order to the electrical utility to prevent the issuance of the storm recovery bonds,” to reflect this requirement. (emphasis added). Accordingly, if the Commission decides to accept the Issuance Advice Letter, it will do so at a Commission business meeting without issuing an order

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 81

If the actual up-front Financing Costs are less than the amount appearing in the final Issuance Advice Letter filed within one business day after actual pricing of the Storm Recovery Bonds, such unspent amount will be reflected in the next True-Up Adjustment Letter (as defined herein). Conversely, to the extent that the actual up-front Financing Costs are in excess of the amount appearing in the final Issuance Advice Letter filed within one business day after actual pricing of the Storm Recovery Bonds, that DEP shall book such incurred excess amounts to a regulatory asset. The regulatory asset shall accrue carrying costs, net of ADIT, at DEP’s approved pre-tax weighted average cost of capital in effect at the time the deferral costs are incurred. DEP will request that all such costs are included in base rates during its next base rate proceeding. The Parties reserve their right to review the reasonableness and prudency of those costs in the next rate proceeding.

DEP will retain sole discretion regarding whether or when to assign, sell, or otherwise transfer any rights concerning Storm Recovery Property arising under this Financing Order, or to cause the issuance of any Storm Recovery Bonds authorized in this Financing Order, pursuant to S.C. Code Ann. section 58-27-1110(C)(5) (Supp. 2023); provided, that any issuance must satisfy the Statutory Costs Objectives and shall be subject to the provisions of the preceding paragraph. Subject to the Issuance Advice Letter procedures and the Commission’s power to issue an order to stop the transaction as described above, the SPE will issue the Storm Recovery Bonds on or after the fifth business day after pricing of the Storm Recovery Bonds.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 82

In the event either of the following occurs: (i) DEP determines that the issuance of the Storm Recovery Bonds would not achieve the Statutory Cost Objectives or (ii) the Commission does not permit issuance of the Storm Recovery Bonds, then as provided in S.C. Code Ann. section 58- 27-1110(C)(6)(b) (Supp. 2023), DEP shall not be precluded from seeking to recover Financing Costs incurred and carrying costs accrued after issuance of the Commission Order No. 2023-260 in its next general rate proceeding. S.C. Code Ann. § 58-27-1115(B) (Supp. 2023).

Y. Evidence and Conclusions for Finding of Fact No. 55

The evidence supporting these findings and conclusions is contained in the Petition, the testimony and exhibits of the witnesses, and the entire record in this proceeding. During this proceeding, the Commission retained a consultant to serve as advisors and counsel to the Commission. Consistent with the requirements of S.C. Code Ann. section 58-27-1170 (Supp. 2023), the Commission maintains documentation to support the compensation paid and approved by the Commission to the Commission’s Consultant and its outside legal counsel does not exceed compensation generally paid by the regulated industry for such specialist and such aggregate compensation shall be considered an up-front Financing Cost.

Z. Evidence and Conclusions for Finding of Fact No. 56

The evidence supporting these findings and conclusions is contained in the Petition, the Comprehensive Settlement Agreement, the testimony and exhibits of the witnesses, and the entire record in this proceeding.

S.C. Code Ann. section 58-27-1110(C)(2)(h) (Supp. 2023) requires the Commission to specify the degree of flexibility to be afforded to DEP in establishing the terms and conditions of the Storm Recovery Bonds, including, but not limited to, repayment schedules, expected interest rates, and other Financing Costs, and subject to any conditions in this Financing Order, including the pre-bond issuance review process established by the Commission.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 83

Throughout this Financing Order, the Commission has granted DEP flexibility within parameters. For instance, the SPE may issue Storm Recovery Bonds with a scheduled final payment date of no later than 20 years from the date of the issuance of the Storm Recovery Bonds; however, the legal maturity date may be longer in accordance with rating agency requirements. Pursuant to Company witness Niehaus’s testimony, this difference provides additional credit protection, allowing shortfalls in principal payments to be recovered over an additional period and therefore helping in achieving the targeted highest possible credit rating, and ensuring achievement of the Statutory Cost Objectives. Tr. p. 358:12-17. It is not necessary, nor is it possible, to enumerate here every instance in which the Commission has given DEP flexibility to establish the terms and conditions of the Storm Recovery Bonds. The flexibility required for this type of transaction incorporates the Bond Advisory Team process to ensure achievement of the Statutory Cost Objectives.

The Commission finds that Storm Recovery Bonds may be issued in one or more tranches, and the Storm Recovery Bonds must be structured by DEP to achieve the Statutory Cost Objectives. DEP shall be afforded flexibility, consistent with the terms of the Comprehensive Settlement Agreement, in determining the final terms of the Storm Recovery Bonds, including payment and maturity dates, interest rates (or the method of determining interest rates), the terms of any interest rate swap agreement, interest rate lock or similar agreement, the creation and funding of any supplemental capital, reserve or other subaccount, and the issuance of Storm Recovery Bonds through the SPE.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 84

As noted above, certain costs, such as debt service on the Storm Recovery Bonds, as well as the on-going fees of the trustee, rating agency surveillance fees, regulatory assessment fees, and the costs of any other credit enhancement or interest rate swaps, will not be known until after the pricing of a series of Storm Recovery Bonds. This Financing Order provides flexibility to recover such costs through the Storm Recovery Charge and the true-up of such charge. In this Financing Order, the Commission has established the Issuance Advice Letter, Bond Advisory Team, and independent certification procedures in order to grant DEP flexibility, while still ensuring that the structuring, marketing, and pricing of Storm Recovery Bonds achieve the Statutory Cost Objectives.

The Commission finds that a bond structure that provides for value of the costs to customers that are estimated to result from the issuance of substantially levelized annual revenue requirements over the expected life of the Storm Recovery Bonds is in the public interest and should be used. This structure offers the benefit of not relying upon electrical utility customer growth and will allow the resulting overall weighted average Storm Recovery Charge to remain level or decline over time if billing determinants remain level or grow.

AA. Evidence and Conclusions for Findings 57-58

The evidence supporting these findings and conclusions is contained in the Petition, the Settlement Agreement, the testimony and exhibits of the witnesses, and the entire record in this proceeding.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 85

S.C. Code Ann. Section 58-27-1110(A)(7) (Supp. 2023) requires an electrical utility petitioning the Commission for a financing order to provide “a comparison between the net present Storm Recovery Bonds based on current market conditions and the costs that would result from the application of the traditional method of financing and recovering Storm Recovery Costs from customers.” In addition, S.C. Code Ann. Section 58-27-1110(A)(7) (Supp. 2023) requires an electrical utility petitioning the Commission for a Financing Order to “demonstrate that the issuance of storm recovery bonds and the imposition of [the] Storm Recovery [Charge] are expected to provide quantifiable net benefits to customers on a present value basis as compared to the costs that would have occurred absent the issuance of Storm Recovery Bonds.”

DEP provided the cost comparison required by S.C. Code Ann. Section 58-27-1110(A)(7) (Supp. 2023) in Smith Supplemental Exhibit 5. Hearing Exhibit 5. This exhibit shows the calculation of both the total estimated net present value of costs to customers under the Storm Recovery Charge as well as the total cumulative costs to customers under the traditional cost recovery method. Therefore, as an initial matter, the Commission concludes that DEP has provided the necessary comparison required by S.C. Code Ann. Section 58-27-1110(A)(7) (Supp. 2023).

As shown in Smith Supplemental Exhibit 5, using the traditional method of cost recovery, the net present value of total retail costs to customers is approximately $171 million. Using the storm securitization method of cost recovery and recovering Storm Recovery Costs through the Storm Recovery Charge, the net present value of total retail costs to customers is approximately $130 million. This results in approximately $41 million, or approximately 24 percent, in quantifiable net benefits to customers. The revenue requirements and customer impacts for the Traditional Recovery Model and Storm Recovery Charge Model are presented and calculated in Smith Supplemental Exhibit 5. Hearing Exhibit 5. In addition, Company witnesses Heath and Smith testified that assuming a 150-basis point increase in the assumed total interest rate for the bonds, there would still be benefits to customers greater than 10 percent on a net present value basis. Tr. pp. 46.37:5-10; 186.21:12-18.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
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Thus, the Commission finds that the issuance of the Storm Recovery Bonds and the imposition of the Storm Recovery Charge authorized by this Financing Order will provide quantifiable net benefits to customers on a present value basis as compared to the costs that would have been incurred absent the issuance of the Storm Recovery Bonds, in accordance with S.C. Code Ann. section 58-27-1110(A)(7) (Supp. 2023).

Additionally, the Commission finds and concludes that there is ample evidence in the record the Statutory Cost Objectives will be achieved. This evidence includes the testimony of Company witness Heath that DEP will not proceed with pricing the Storm Recovery Bonds without certifications from DEP, the primary underwriter(s) and the QITP, required by the Storm Securitization Statute. Furthermore, the process established by DEP and as set forth in this Financing Order relative to the structuring, marketing and pricing of the Storm Recovery Bonds, along with the advice and input from the Bond Advisory Team and the continued oversight of the Commission through the Issuance Advice Letter process pursuant to S.C. Code Ann. section 58-27-1110(C)(6) (Supp. 2023), and the certification and letter required by Findings of Fact Nos. 48-54, ensures the Securitization will result in the lowest Storm Recovery Charge consistent with market conditions at the time the Storm Recovery Bonds are priced and the terms set forth in this Financing Order, as required by S.C. Code Ann. section 58-27-1110(C)(2)(c) (Supp. 2023). The record in this case demonstrates that professionals who collectively possess the necessary experience and professionalism in pricing, structuring, and marketing complex securities—including rate reduction securities—will bring their experience to the process, ultimately for the benefit of ratepayers, and provide their expertise to the pricing, structuring, and marketing of the Storm Recovery Bonds through their participation on the Bond Advisory Team. Many of these professionals were involved in the successful $1.3 billion securitization of Duke Energy Florida’s nuclear plant retirement costs and the successful $1.0 billion securitizations of DEC and DEP’s storm recovery costs in North Carolina, who provided assurances to the Commission that the proposal will achieve the Statutory Cost Objective. Importantly, this Financing Order establishes a and flexible procedure to allow DEP to address the requirements of market participants or any changes in market conditions as the issuance date approaches. After the bonds are priced, and as otherwise provided for in this Financing Order, DEP, the primary underwriter(s), and the QITP will give the applicable certifications as to whether the Statutory Cost Objectives have been met. Finally, through the issuance advice letter process, the Commission has a final opportunity to approve or disapprove issuance of the Storm Recovery Bonds.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 87

Finally if DEP, primary underwriter(s), or the QITP do not provide the certification contemplated by S.C. Code Ann. section 58-27-1110(C)(6)(a) (Supp. 2023), or the Commission delivers an order to prevent the issuance of the Storm Recovery Bonds pursuant to S.C. Code Ann. section 58-27- 1110(C)(6)(b), DEP agrees to hold a Bond Advisory Team meeting, to include DCA if it so chooses to participate to discuss any potential next steps, including whether to pursue another securitization financing as opposed to traditional cost recovery, and will explain its final decision to Bond Advisory Team members including DCA. Order Exhibit No. 1, Paragraph 26.

VI.           ORDERING PARAGRAPHS

NOW THEREFORE, IT IS HEREBY ORDERED THAT:

1.            The Comprehensive Settlement Agreement entered into by the Settling Parties to this Docket, is just and reasonable, is in the public interest, and is consistent with law and regulatory policy. Accordingly, the Settlement Agreement is approved in its entirety.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 88

2.            Mitigation of Rate Impacts: The proposed issuance of Storm Recovery Bonds and the imposition and collection of the Storm Recovery Charge will provide quantifiable net benefits to customers on a present value basis as compared to the costs that would have been incurred absent the issuance of Storm Recovery Bonds and will result in the lowest storm recovery charge consistent with market conditions at the time the Storm Recovery Bonds are priced and the terms set forth in this Financing Order.

3.            Authority to Securitize: DEP’s Petition for a Financing Order authorizing the issuances by DEP of Storm Recovery Bonds is granted as to DEP, subject to the terms set forth in the body of this Financing Order. DEP is hereby authorized to cause the issuance by the SPE of Storm Recovery Bonds secured by the pledge of Storm Recovery Property, in one or more series in an aggregate principal amount not to exceed the sum of the Securitizable Balance and the up- front Financing Costs. The proceeds received by DEP from the SPE’ s sale of such bonds are to be used by DEP to finance the equivalent of:

(i) recovery of Storm Recovery Costs, which includes carrying costs necessary to account for the number of days, as applicable, either greater than or less than assumed in the Carrying Costs calculation, calculated at a debt only rate of return as reflected in the Issuance Advice Letter described in this Financing Order; and

(ii) recovery of the up-front Financing Costs incurred in connection with issuance of the Storm Recovery Bonds. Carrying costs and up-front Financing Costs are subject to update, adjustment, and approval pursuant to the terms of this Financing Order and the Issuance Advice Letter procedures as provided by this Financing Order.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 89

4.            Outside Costs: Consistent with the requirements of S.C. Code Ann. section 58-27-1170 (Supp. 2023), that the Commission-approved costs associated with the Commission’s Consultant, and outside legal counsel engaged by the Commission’s Consultant and ORS’s outside consultants and outside counsel do not exceed compensation generally paid by the regulated industry for such specialists and are approved for payment under the terms of such party’s contractual arrangements with the Commission or ORS. Such costs of the Commission’s Consultant, its outside legal counsel, and ORS’s outside consultants and outside counsel qualify as up-front Financing Costs and shall be paid from proceeds of Storm Recovery Bonds.

5.            Structure: The proposed transaction structure for the Storm Recovery Bonds, as set forth in the body of this Financing Order, is approved.

6.            IRS Safe Harbor Provisions: DEP shall structure the Storm Recovery Bond transactions in a way that complies with the “safe harbor” provisions of IRS Revenue Procedure 2005-62.

7.            License Tax and Sales Tax: DEP shall comply with the Settlement Agreement in its treatment of the (i) License Tax on Utilities under S.C. Code Ann. section 12-20-100 (2014) and (ii) Sales Tax arising under S.C. Code Title 12 with respect to the storm recovery charges.

8.            Utility Assessment Fee: The Commission determines that the SPE is not a utility as defined by South Carolina law, and no Utility Assessment Fee shall be collected on the basis of storm recovery charges of the SPE.

9.            SPE: DEP is authorized to form an SPE to be structured as discussed in this Financing Order. DEP is authorized to execute a limited liability company agreement, consistent with the form included as Heath Exhibit 2e (Hearing Exhibit 2) to witness Heath’s testimony and the terms and conditions of this Financing Order. The SPE shall be funded with an amount of capital that is sufficient for the SPE to carry out its intended functions as contemplated in the Petition and this Financing Order. The Commission approves an initial capital contribution of 0.5 percent of the initial aggregate principal amount of a series of Storm Recovery Bonds or such greater amount as the credit rating agencies shall require. The capital contributions by DEP to the SPE shall be funded by DEP and not from the proceeds of the sale of Storm Recovery Bonds. DEP will be permitted to earn a rate of return on its invested capital in SPE equal to the rate of interest payable on the longest maturing tranche of Storm Recovery Bonds and this return on invested capital should be a component of the Periodic Payment Requirement.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 90

10.           Issuance: In accordance with the terms of this Financing Order and subject to the criteria and procedures described herein, the SPE is authorized to issue Storm Recovery Bonds in an aggregate principal amount not to exceed the Securitizable Balance plus up-front Financing Costs (as of the date the Storm Recovery Bonds are issued) and may pledge to an indenture trustee, as collateral for payment of the Storm Recovery Bonds, the Storm Recovery Property, including the SPE’s right to receive the related Storm Recovery Charge as and when collected, the SPE’s rights under the servicing agreement and other collateral described in the indenture. Subject to the terms of this Financing Order, DEP retains sole discretion regarding whether to assign, sell, or otherwise transfer Storm Recovery Property and to cause the Storm Recovery Bonds to be issued, including the right to defer or postpone such assignment, sale, transfer, or issuance.

11.           Form Agreements: The Commission finds good cause to authorize DEP to provide service to the SPE under the servicing agreement and for the servicing agreement to become effective at the time the transaction is permitted to proceed pursuant to the terms of this Financing Order. The Commission finds good cause to authorize DEP to administer the SPE under the administration agreement and for the administration agreement to become effective at the time the transaction is permitted to proceed pursuant to the terms of this Financing Order. The Commission finds good cause to authorize DEP to enter into a storm recovery property purchase and sale agreement with the SPE to become effective at the time the transaction is permitted to proceed pursuant to the terms of this Financing Order. The forms of such agreements are hereby approved, subject to review and input by the Bond Advisory Team to ensure that the Statutory Cost Objectives are achieved and for compliance with this Financing Order and the Storm Securitization Statute.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 91

12.           Servicing and Administration Fees: DEP shall be entitled to receive a servicing fee equal to 0.05% (5 basis points) of the initial aggregate principal amount of the Storm Recovery Bond per annum and an administrative fee of $50,000 per annum. The servicing and administration fees collected by DEP or any affiliate of DEP, acting as either the servicer or the administrator under the Servicing Agreement or Administration Agreement, respectively, will be included in DEP’s cost of service such that DEP will credit back all periodic servicing fees in excess of DEP’s or an affiliate of DEP’s incremental costs of performing servicing and administration functions. The expenses incurred by DEP, or such affiliate, to perform obligations under the Servicing Agreement or Administration Agreement not otherwise recovered through the Storm Recovery Charge will likewise be included in DEP’ s cost of service.

13.           DEP as Servicer: DEP shall act as initial servicer under the proposed financing transaction and is granted flexibility to act as servicer pursuant to the servicing agreement discussed in this Financing Order.

14.           Third-Party Supplier: In the event of a change in utility regulation in the State of South Carolina, alternative energy suppliers are required to bill and collect the storm recovery charges and meet all other credit rating agency criteria so as not to negatively affect the Storm Recovery Bonds’ credit rating.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 92

15.           Creation of Storm Recovery Property: The creation of the DEP Storm Recovery Property as described in this Financing Order is approved and, upon transfer of the Storm Recovery Property to the SPE, shall be created, and shall consist of: (1) all rights and interests of DEP or its successors or assignees under this Financing Order, including the right to impose, bill, charge, collect, and receive Storm Recovery Charge authorized in this Financing Order and to obtain periodic adjustments to such charge as provided in this Financing Order, and (2) all revenues, collections, claims, rights to payments, payments, money, or proceeds arising from the rights and interests specified in this Financing Order, regardless of whether such revenues, collections, claims, rights to payment, payments, money, or proceeds are imposed, billed, charged, received, collected, or maintained together with or commingled with other revenues, collections, rights to payment, payments, money, or proceeds. The creation of Storm Recovery Property is conditioned upon, and shall be simultaneous with, the sale or other transfer of the Storm Recovery Property to the SPE, the issuance of the Storm Recovery Bonds, and the pledge of the Storm Recovery Property to secure a series of Storm Recovery Bonds.

16.           Recovery of the Storm Recovery Charge: DEP shall impose on, and shall collect, as initial servicer, from all existing and future retail customers receiving transmission or distribution service, or both, from DEP, even if such customer elects to purchase electricity from an alternative electricity supplier, the Storm Recovery Charge in an amount sufficient to provide for the timely recovery of its Periodic Payment Requirement detailed in this Financing Order, including, without limitation, payment of principal and interest on the Storm Recovery Bonds.

17.           Approval of Tariff: The form of the Tariff schedule as shown in Moore Exhibit 2 is approved with the addition of the language in the manner proposed in the Settlement Agreement as described in Evidence and Conclusions for Findings of Fact Nos. 38-39.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 93

18.           Imposition and Collection, Nonbypassability: DEP is authorized to impose, bill, charge, collect, receive, and adjust from time to time pursuant to the True-up Mechanism as described in this Financing Order a Storm Recovery Charge, to be collected on a per kWh basis from each of its existing and future retail customers until the related Storm Recovery Bonds are paid in full and all related Financing Costs and other costs of the bonds have been recovered in full. Such Storm Recovery Charge shall be a nonbypassable charge that is separate and apart from DEP’s base rates and shall be paid by all DEP existing and future retail customers receiving transmission or distribution service, or both, from DEP or its successors or assignees under Commission-approved rate schedules as provided in this Financing Order. In the event the State of South Carolina elects to permit customers to purchase electricity from an alternative electric supplier, pursuant to S.C. Code Ann. section 58-27-1110(C)(2)(d) (Supp. 2023), such customers shall still be required to pay their portion of the Storm Recovery Charge in accordance with Ordering Paragraph 14. Such Storm Recovery Charge shall be in an amount sufficient to ensure the timely recovery of DEP’s Storm Recovery Costs and Financing Costs (up-front and on-going) detailed in this Financing Order and the Issuance Advice Letter, including payment of principal of and interest on the Storm Recovery Bonds.

19.           Allocation: That the Storm Recovery Charge shall be allocated to the customer rate classes based on DEP’s approved allocation methodology in the proposed Tariff; and that it is just and reasonable that the Storm Recovery Charge be adjusted for any changes to the customer allocation methodology approved by the Commission in subsequent general rate proceedings for DEP.

20.           Collection Period: This Financing Order and the Storm Recovery Charge authorized hereby shall remain in effect until the Storm Recovery Bonds and all Financing Costs related thereto have been paid or recovered in full. This Financing Order shall remain in effect and unabated notwithstanding the reorganization, bankruptcy, or other insolvency proceedings of DEP or its successors or assignees. Following repayment of the Storm Recovery Bonds and the relevant Financing Costs authorized in this Financing Order and release of the funds by the indenture trustee, each SPE shall distribute the final balance of its collection account to DEP, and DEP shall credit other electric rates and charges by a like amount.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 94

21.           Ownership Notification and Separate Line-Item Charge: That DEP is authorized to use its proposed procedure to explicitly reflect that a portion of the charge on such bill represents the Storm Recovery Charge approved in this Financing Order and must include a statement to the effect that the SPE is the owner of the rights to the Storm Recovery Charge and that DEP is acting as servicer for the SPE. The Tariff applicable to customers must indicate the Storm Recovery Charge and the ownership of that charge. DEP shall identify amounts owed with respect to its Storm Recovery Property as a separate line item on individual electric bills.

22.           True-up Mechanism: The True-up Mechanism as described in this Financing Order and identified in Appendix C to this Financing Order is approved and shall be adopted.

23.           True-up Adjustment Letter: DEP or its assignee(s) are authorized to recover the Periodic Payment Requirement and shall file with the Commission at least semi-annually (and at least quarterly beginning 12 months prior to the scheduled final payment date of the latest maturing tranche of Storm Recovery Bonds) a True-up Adjustment Letter as described in this Financing Order, which shall be based upon the cumulative differences, regardless of the reason, between the Periodic Payment Requirement and the actual amount of Storm Recovery Charge remittances to the indenture trustee for the series of Storm Recovery Bonds. Upon the filing of a True-up Adjustment Letter made pursuant to this Financing Order, the Commission shall either administratively approve the requested true-up calculation in writing or inform the servicer of any mathematical or clerical errors in its calculation as expeditiously as possible but no later than 60 days following the servicer’s true-up filing. Upon administrative approval, no further action of this Commission will be required prior to implementation of the true-up. DEP and ORS shall engage in a good faith discussion to discuss reducing the time period to review filed True-Up Adjustment Letters from 60 days to 30 days after the completion of 3 semi-annual true-up periods.

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OCTOBER 23, 2023
PAGE 95

24.           Changes to the Storm Recovery Charge: Upon any change to customer rates and charges stemming from the True-up Mechanism, DEP shall file appropriately revised tariff sheets with this Commission, provided, however, that approval of the Storm Recovery Charge shall not be delayed or otherwise adversely impacted by the Commission’s decision with respect to the tariff.

25.           Bond Advisory Team: A Bond Advisory Team shall be formed, consisting of representatives of DEP, its advisors and counsel, and the ORS acting as QITP, each of which may designate staff, counsel, and consultants to participate on the Bond Advisory Team. The designated staff and attorneys of DCA and the underwriters and the underwriters’ counsel shall be invited to attend all meetings of the Bond Advisory Team as full participants, and to provide input just as ORS.

26.           Qualified Independent Third-Party: The Commission designates ORS to serve as the QITP under S.C. Code Ann. section 58-27- 1110(C)(6) (Supp. 2023). ORS shall fulfill its role as QITP in accordance with its statutory charge to represent the public interest of South Carolina pursuant to S.C. Code Ann. section 58-4-10(B) (Supp. 2023). ORS, at its discretion, may designate staff, counsel, and consultants to assist ORS in fulfilling its role as QITP.

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OCTOBER 23, 2023
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27.           Bond Issuance Process: Consistent with S.C. Code Ann. sections 58-27-1115 and 58-27-1170 (Supp. 2023), DEP has final authority to direct how the Storm Recovery Bonds are placed to market and shall make all decisions regarding pricing, structuring, and marketing the Storm Recovery Bonds, with advice and input from the other members of the Bond Advisory Team and DCA as described in this Financing Order; and that the final structure of the transaction, including pricing, shall be subject to final review by this Commission through the Issuance Advice Letter process described in Ordering Paragraph 32 to ensure that all requirements of the Storm Securitization Statute and this Financing Order have been met.

28.           Cap on Costs of Securitization Financing: To ensure the issuance of Storm Recovery Bonds results in quantifiable net benefits, the weighted average interest rate on the Storm Recovery Bonds will not exceed 7.0%; however, if the 7.0% cap is projected to be exceeded, DEP shall discuss with the Bond Advisory Team members and DCA and develop a recommendation, based on their advice and input, for the Commission on whether to proceed with the issuance in accordance with the Statutory Cost Objectives. For informational purposes, the rationale for the final weighted average interest rate, whether above or below such cap, shall be explained in the Issuance Advice Letter submitted to the Commission. This rationale shall include, but not be limited to, the comparisons made to determine how the interest rate(s) results in the lowest storm recovery charges consistent with market conditions at the time the storm recovery bonds are priced and the terms set forth in the Financing Order. If market conditions change and it becomes necessary, in order to best achieve the Statutory Cost Objectives, for one or more tranches of bonds to be issued with a floating-rate, DEP shall consider the advice and input of the Bond Advisory Team prior to making its decision to issue any floating rate bonds. DEP is further authorized to issue such bonds but will be required to execute agreements to swap floating rate payments to fixed-rate payments to achieve the Statutory Cost Objectives. If one or more tranches of bonds are to be issued as floating-rate bonds, the rationale for the decision shall be addressed in the Issuance Advice Letter submitted to the Commission.

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OCTOBER 23, 2023
PAGE 97

29.            Ratings Agencies: DEP shall obtain ratings from two Rating Agencies, S&P and Moody’s. If the ratings from S&P and Moody’s result in split bond ratings, DEP shall seek advice and input from the Bond Advisory Team on whether to obtain a third rating from Fitch.

30.           Storm Cost ADIT Regulatory Liability: From the date of the Financing Order, DEP shall defer and compound the return on Storm Cost ADIT (“Storm ADIT”) at its most recently approved pre-tax WACC as a regulatory liability until base rates are reset in the next base rate case proceeding. At that time, the Storm ADIT regulatory liability and the deferred return on the Storm ADIT will be included as a reduction to rate base and the deferred regulatory liability will be amortized as a negative expense to return the deferred Storm ADIT benefit to customers.

31.           Roles of the Bond Advisory Team: DEP shall provide all members of the Bond Advisory Team as well as the designated staff and attorneys of DCA attending any Bond Advisory Team meetings with timely information so they may be informed fully and in advance regarding the structuring, marketing, and pricing of the Storm Recovery Bonds. The members and participants of the Bond Advisory Team are entitled to be present during communications with underwriters, credit rating agencies, and investors provided customary practices are followed. DEP shall invite all members of the Bond Advisory Team and the designated staff and attorneys of DCA to join all Bond Advisory Team meetings to review and provide input on all aspects of the structuring, pricing, and marketing of the Storm Recovery Bonds, including without limitation the selection and retention of underwriters and other transaction participants; the terms and conditions of all Transaction Documents (including changes from the forms approved in this Financing Order); the legal maturity dates and final scheduled payment dates of the Storm Recovery Bonds; the interest rates of the Storm Recovery Bonds (including whether the interest rate is floating or fixed); the capitalization of the Storm Recovery Bonds; the transaction structure; the issuance strategy; appropriate credit enhancements; and the credit rating process, except that that DEP shall have sole right to select and engage all counsel and advisors for DEP and the SPE.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 98

32.           Issuance Advice Letter: In accordance with S.C. Code Ann. section 58-27- 1110(C)(6)(a) (Supp. 2023), the Commission shall require DEP to provide an Issuance Advice Letter along with the True-up Adjustment Letter in final form to the Commission no later than one business day after final terms of the storm recovery bonds are determined, substantially in the form of Appendix D to this Financing Order describing the final terms of the Storm Recovery Bond issuance, up-front financing costs and on-going financing costs, as well as the explanations and rationales for the final terms as described in the Settlement Agreement. The Issuance Advice Letter shall include a certification from DEP, the primary underwriter(s), and ORS as the QITP designated by this Commission (provided one business day after the Issuance Advice Letter is filed), certifying whether the sale of Storm Recovery Bonds complies with the requirements of the Storm Securitization Statute and the Financing Order. DEP and the QITP shall certify whether the issuance of Storm Recovery Bonds and the imposition and collection of a Storm Recovery Charge will in fact provide quantifiable net benefits to customers on a present-value basis as compared to the costs that would have been incurred absent the issuance of Storm Recovery Bonds. DEP, the QITP, and the primary underwriter(s) shall certify whether the structuring, marketing, and pricing of the Storm Recovery Bonds will in fact result in the lowest Storm Recovery Charge consistent with market conditions at the time the Storm Recovery Bonds were priced and the terms set forth in this Financing Order.

33.           The QITP shall review the Issuance Advice Letter and deliver its certification to the Commission along with any other information it believes the Commission should consider as to the Commission’s decision whether to accept the Issuance Advice Letter no later than one business day after the filing of the Issuance Advice Letter with the Commission.

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34.           The QITP shall certify whether the issuance of Storm Recovery Bonds and the imposition and collection of a Storm Recovery Charge will in fact provide quantifiable net benefits to customers on a present-value basis as compared to the costs that would have been incurred absent the issuance of Storm Recovery Bonds and whether the structuring, marketing, and pricing of the Storm Recovery Bonds will in fact result in the lowest Storm Recovery Charge consistent with market conditions at the time the Storm Recovery Bonds were priced and the terms set forth in this Financing Order.

35.           After the Issuance Advice Letter is submitted but prior to noon on the fourth business day after pricing, DEP will be available to respond to questions from the Commission. If requested by DEP, such responses may be provided on a confidential basis.

36.           By no later than noon on the fourth business day after the final terms of the Storm Recovery Bonds are determined, the Commission shall either accept the issuance advice letter or deliver an order to the electrical utility to prevent the issuance of the storm recovery bonds.

37.           Draft Issuance Advice Letter: DEP will submit a draft issuance advice letter to the Bond Advisory Team and DCA for review not later than two weeks before the expected date of commencement of marketing the Storm Recovery Bonds. The Bond Advisory Team and DCA will review the issuance advice letter and provide timely feedback to DEP based on the progression of structuring, marketing and pricing of the Storm Recovery Bonds. The Bond Advisory Team and DCA shall provide any comments to the draft not later than one week after receipt of the draft Issuance Advice Letter from DEP.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 100

38.      Approval of Regulatory Asset: DEP’s request to establish a regulatory asset to defer any incurred excess amounts, or undercollection of the up-front Financing Costs is approved. The regulatory asset shall be in an amount equal to the difference between up-front Financing Costs identified in the final Issuance Advice Letter and actual up-front Financing Costs incurred. The regulatory asset shall accrue carrying costs, net of ADIT, at DEP’s approved pre-tax WACC in effect at the time the deferral costs are incurred. DEP shall request that all such costs be included in base rates during the next base rate proceeding and the Parties reserve their right to review the reasonableness and prudency of those costs in the next rate case proceeding.

39.      State Pledge: The SPE issuing Storm Recovery Bonds is authorized, pursuant to S.C. Code Ann. section 58-27-1155(B) (Supp. 2023) and this Financing Order, to include the State of South Carolina pledge, which includes a pledge by this Commission, with respect to Storm Recovery Property and Storm Recovery Bonds and related documentation as provided for in S.C. Code Ann. section 58-27-1155(A) (Supp. 2023). The Commission further acknowledges that the SPE issuer would be considered a financing party for purposes of S.C. Code Ann. section 58-27-1105(9) (Supp. 2023).

40.      No Liability of State or its Agencies, Instrumentalities or Political Subdivisions; Storm Recovery Bonds Not Public Debt: Neither the State of South Carolina, its agencies, and instrumentalities, nor its political subdivisions are liable on any Storm Recovery Bonds, and the Storm Recovery Bonds are not a debt or a general obligation of the State of South Carolina or any of its political subdivisions, agencies, or instrumentalities nor are they special obligations or indebtedness of the State of South Carolina, its agencies, or its political subdivisions. An issue of Storm Recovery Bonds does not, directly, indirectly, or contingently obligate the State of South Carolina or its agencies, instrumentalities, or political subdivisions, to levy any tax or make any appropriation for payment of the Storm Recovery Bonds, other than in their capacities as consumers of electricity. As provided in S.C. Code Ann. section 58-27-1145 (Supp. 2023), all Storm Recovery Bonds must contain this statement: “Neither the full faith and credit nor the taxing power of the State of South Carolina is pledged to the payment of the principal of, or interest on, this bond, nor shall the holder of this bond have any recourse against the State, its agencies, instrumentalities, or political subdivisions for the payment of the principal of, or interest on, this bond.”

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
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41.      Irrevocability: Upon the earlier of either (i) the transfer of the Storm Recovery Property or (ii) issuance of the Storm Recovery Bonds, which shall be substantially simultaneous, this Financing Order shall become irrevocable, and, except for changes made pursuant to the True-up Mechanism authorized and otherwise described in this Financing Order, the Commission may not amend, modify, or terminate this Financing Order by any subsequent action nor reduce, impair, postpone, terminate, or otherwise adjust the Storm Recovery Charge pursuant to this Financing Order.

BY ORDER OF THE COMMISSION:

Florence P. Belser, Chair
Public Service Commission of
South Carolina
FOR THE MAJORITY

******************

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 102

Commissioner Thomas J. Ervin, dissenting: Based on my review of the law and the facts, I cannot approve the proposed Settlement Agreement in this proceeding. The proposed financing mechanism fails to ensure the lowest storm recovery charges for ratepayers, as required by law. Therefore, I must respectfully dissent.

This is the first utility securitization proceeding in South Carolina under the Securitization Act. Duke Energy Progress, LLC’s (DEP) storm recovery costs total roughly $170.6 million, which is currently a utility liability. The Act provides for a mechanism for the Commission to review and approve a requested utility securitization, which, if approved, makes the utility’s ratepayers solely responsible for repaying these costs, which will appear as a line item on ratepayers’ monthly utility bills once the securitization bonds are issued. The Commission’s Order is intended to see that ratepayers are protected throughout the securitization process. Unfortunately, the Majority Opinion falls short of the legal requirements established by the South Carolina General Assembly. See S.C. Code Ann. section 58-27-1110 (Supp. 2023).

In enacting legislation for securitizing storm costs, the South Carolina Legislature made it clear that “[i]t is in the interest of the State and its citizens to encourage and facilitate the use of securitized bonds...and to empower the commission to review a securitization mechanism to determine whether it is consistent with the public interest and worthy of approval.” S.C. Code Ann. section 58-27-1100 (Supp. 2023) (emphasis added). The Commission is explicitly authorized to evaluate DEP’s financing mechanism.

Unfortunately, the Majority has relinquished its authority in this case by adopting the proposed Settlement Agreement. The Commission’s hands are effectively tied by the “all-or-nothing” posture of the case. Duke Energy Progress, LLC’s request should be denied for the following reasons.

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OCTOBER 23, 2023
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First, Act 227 of 2022 (the Securitization Act) requires the Commission to ensure lowest storm recovery charges before approving a financing order. Specifically, the Commission shall not issue a financing order unless the following elements, among others, are met:

1) a finding that the proposed issuance of the recovery bonds and the imposition and collection of a storm recovery charge will provide quantifiable net benefits to customers on a present value basis as compared to the costs that would have been incurred absent the issuance of storm recovery bonds;

2) a finding that the structuring, marketing, and pricing of the storm recovery bonds will result in the lowest storm recovery charges consistent with market conditions at the time the storm recovery bonds are priced and the terms set forth in such financing order....

S.C. Code Ann. section 58-27-1110(C)(2)(b) and (c) (Supp. 2023) (emphasis added).

Electrical utilities are afforded a certain amount of flexibility in establishing financing terms and conditions. This is necessary because market conditions may change. We cannot predict the future. However, without sufficient protections in place for the ratepayers, the proposed Financing Order fails to ensure the lowest cost for ratepayers.

Bond Advisory Team

The proposed Settlement Agreement provides for the use of a Bond Advisory Team (Bond Team) involving DEP and the Office of Regulatory Staff (ORS). Unfortunately, it lacks a meaningful ratepayer representative. In order to help meet the lowest cost standard, the process should have certain safeguards, including a ratepayer representative on the Bond Team. The Department of Consumer Affairs (DCA) is statutorily given the responsibility of representing ratepayer interests. Unfortunately, DCA has been excluded from being a “formal member” of the Bond Team by the proposed Settlement Agreement. ¹³

¹³ As an “informal member” of the Bond Team, the proposed Settlement Agreement provides that DCA will be invited to attend all meetings and provided the same information provided to “formal members” of the Bond Team. However, DCA will not be involved in certifying the process. Tr. pp. 86-87.

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The other “informal member” of the Bond Tam is the underwriter(s) and their counsel. Company Witness Heath noted “we deal with underwriters frequently” ... “and we know what their perspective is in a transaction.” Tr. p. 80:19-21. Unfortunately, what is best for the underwriter is not always going to be best for the consumer. The underwriters clearly have no fiduciary duty to the ratepayers. Tr. pp. 380:22-381:1. If there is no one on the Bond Team advocating solely for the ratepayers’ interests,¹⁴ the result may not be the lowest storm recovery charge. The statutory mandate to provide lowest costs for the consumer reaffirms the importance of DCA’ s presence in this lopsided process.

Instead of collaboration and joint decision-making authority, the proposed Settlement Agreement allows the investor-owned utility to have the final say concerning any and all terms of the securitization process. “The way the bond advisory team operates is going to be the call of...the full participating members.” Tr. p. 81:20-23. As such, DCA will have very limited input in how the securitization process is implemented and structured. The tragic result is that ratepayers are without a voice in this process. This is clearly a violation of the statute, which requires the Commission to guarantee that ratepayers get the lowest storm recovery charges.

¹⁴ As discussed further below, ORS does not just represent ratepayer interests. If ORS represented just ratepayers -- and no one else — there would be no need for DCA, and ORS as a member of the Bond Advisory Team would be sufficient. However, ORS and DCA do not represent the exact same interests.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
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ORS as the QITP

The Settlement Agreement also provides that ORS will act as the Qualified Independent Third Party (QITP) under S.C. Code Ann. section 58-27-1110(C)(6) (Supp. 2023). Settlement Agreement, p. 10 (1[ 23; Tr. p. 70:9-10. This is problematic for several reasons. First, the law states that the QITP is to be “designated by the [C]ommission...” S.C. Code Ann. section 58-27-1110(C)(6)(a) (Supp. 2023) (emphasis added). Therefore, the Commission relinquished its statutory authority when it decided to allow the Parties to unilaterally determine the QITP:

Q: Well, the statute says we get to pick the independent qualified expert....the General Assembly, in its wisdom, understood that, and gave us the authority to appoint who we deem independent and qualified as an expert to participate in this process. Wouldn’t you agree with that?

A: We’re asking you to approve an -- a settlement that --where we have agreed to the ORS serving as that qualified independent third party. And we’re asking you to approve that settlement in its entirety. So I guess, if you -- if you didn’t --if you didn’t like the settlement, then, for whatever reason, you could -- you would not approve it.

Tr. pp. 103:6-104:5. Witness Rothschild agreed that the Commission has the authority to designate the qualified independent third-party expert. Tr. p. 225:21-24. The Majority surrendered this safeguard.

Second, ORS does not meet the basic requirements of a QITP. By law, the QITP must certify “whether the sale of storm recovery bonds complies with the requirements of this article and the financing order.” S.C. Code Ann. section 58-27-1110(C)(6)(a) (Supp. 2023). ORS “would be providing a certification as to achievement of the statutory objectives...the quantifiable benefits and lowest storm recovery charges consistent with market conditions at the time the bonds are priced.” Tr. p. 84:17-22. Every witness who testified agreed that securitization of storm recovery costs is a highly complex task, requiring an expert with significant skill and experience.

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ORS is simply not qualified to serve in this capacity. ORS has never been involved in a securitization bond process before. See Tr. pp. 263:23-264:10. If ORS intends to hire someone to do the job, we do not know who they will choose, if they will meet the qualifications, or if they will even hire anyone at all. By adopting the proposed Settlement Agreement, the Parties are asking the Commission to simply trust them instead of providing lawful checks and balances as contemplated by the statute. This is highly unorthodox. Unfortunately, the majority decision could lead to significant adverse consequences for the ratepayers in the DEP jurisdictional territory. This outcome does not implement what the South Carolina General Assembly envisioned under the Securitization Act.

Third, ORS is neither independent nor a third party under any rational interpretation of the statute. Because “qualified independent third party” is not defined in the Act, we must look to its ordinary meaning. As South Carolina courts have consistently held, “[t]he legislature’s intent should be ascertained primarily from the plain language of the statute” Enos v. Doe, 380 S.C. 295, 303, 669 S.E.2d 619, 622 (Ct. App. 2008). The plain language suggests independence from a financial interest in the bonds but also independence from anyone who has a financial interest in the pricing of the bonds to be paid by ratepayers. Although ORS may not have an interest in the pricing of the bonds, ORS’ s interests are not completely independent from the utility’s interests. By law, ORS represents the public interest, which includes not only ratepayers, but also the general public and utilities. “Public interest” means:

the concerns of the using and consuming public with respect to public utility services, regardless of the class of customer, and preservation of continued investment in and maintenance of utility facilities so as to provide reliable and high quality utility services.

S.C. Code Ann. section 58-4-10(B) (Supp. 2023) (emphasis added).

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ORS is not truly independent from this proceeding. Nor is ORS a third party. This is evidenced by the fact that they are a party to the proceeding. ORS helped draft the Settlement Agreement that is guiding the process at issue. How can they be expected to be a check on the process they helped create? The Commission must ensure proper alignment of interests so that the QITP can function as a check on the utility and the underwriter.

Flexible Provisions

Throughout the hearing, DEP witnesses gave assurances that certain flexible provisions in the proposed Settlement Agreement were unlikely to be used and were included just in case. DEP witnesses testified that the likelihood of using a flexible provision, such as the “floating-rate bond,” is so remote that it should not cause concern. However, Witness Heath noted that if the floating-rate bond is used, there would likely be an interest rate swap, which would cost ratepayers more in the long run. Tr. p. 58:3-5. ORS Witness Traska reiterated the risk of “unanticipated costs to the ratepayer.” Tr. p. 536.15:20-22. Witness Niehaus agreed: “[w]ith floating rate bonds, the most common way to mitigate charge volatility is to use interest rate swaps or hedges, which introduce counterparty risk and additional costs to the transaction.” Tr. p. 360.8:13-15. “In today’s market, floating rate bonds, swaps, and hedges are expected to create additional documentation costs and introduce additional risks for customers...These additional costs do not support the goal of obtaining the lowest charges for customers.” Tr. pp. 358.34:19-358.35:2. DEP could have provided assurances that if this and other provisions are triggered, they would not pursue a sale. DEP has failed to provide this assurance.

The proposed Settlement Agreement also contemplates a Rule 144A sale. Rule 144A sales are private offerings involving a smaller pool of investors. Tr. 358.33. Witness Heath conceded that “a fully registered transaction, fully registered and marketed to the broadest spectrum of potential investors, is the means of sale that will achieve the lowest storm recovery charges consistent with market conditions, not a 144A filing.” Tr. p. 52:12-19. Nonetheless, DEP requests “the flexibility” “to pursue a 144A offering.” Id. This is not in the best interest of the ratepayers.

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OCTOBER 23, 2023
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Likewise, there is also a provision that the weighted average interest rate on the storm recovery bonds will not exceed 7.0%. However, if it is projected to be exceeded, DEP will decide whether or not to proceed with the issuance. According to Witness Heath, “if interest rates were to...continue to go up over the next several months and...if it ever got to 7.75 percent, there would be zero savings for customers for doing the -- the storm recovery bonds compared to traditional recovery.” Tr. p. 66:17-22. It is difficult to reconcile the need for a 7.0% cap when there is a provision that allows it to be exceeded.

Although DEP is planning on servicing the bonds, “in a very unlikely scenario that DEP would not service these bonds, that million-dollar fee is for hiring a replacement servicer.” Tr. p. 149:20-22. Again, the contingencies built into the proposed Financing Order could mean greater costs for the ratepayer, who is ultimately “on the hook” for costs.

Finally, the formation of various “subaccounts” was referenced in DEP’ s testimony. Tr. pp. 358.24-358.26. Witness Niehaus explained that there was a need for a collection account, a general subaccount, a capital subaccount, and an excess funds subaccount. Id. However, she did not explain the need for other subaccounts within the collection account, which is a provision in the proposed Financing Order. By creating more subaccounts, DEP will add more costs for the ratepayers.

The Commission and the ratepayers are being asked to trust DEP in their request for flexibility, but DEP has rejected the safeguards the Securitization Act specifically requires. Why is ORS designated as the QITP? Is the QITP duly qualified, independent, and a third-party, as required by law? How does a floating-rate bond help reach the lowest cost objective required by statute? How can the Majority make a finding of fact of “lowest cost charges to the ratepayers” that includes an adjustable rate? Why is there a 7.0% interest rate cap that can be exceeded? Why is there a provision that allows for a 144A sale when it will not benefit the rate payers? Will corporate securities be used? Or asset-backed securities? I still do not have answers to these questions.

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OCTOBER 23, 2023
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Ultimately, I do not think flexible terms for the Company outweigh the lowest cost mandate for the consumer. Therefore, I must respectfully disagree with the Majority.

Any Other Conditions Not Inconsistent

Pursuant to S.C. Code Ann. section 58-27-1110(2)(1) (Supp. 2023), the Commission “may impose any other conditions not otherwise inconsistent with [the securitization statute] that the [C]ommission determines to be appropriate.” However, the non-severable Settlement Agreement ignores this provision of law, and intentionally excludes the Commission from utilizing its power to protect the ratepayers. While there may be benefits to reaching a settlement agreement, settlement agreements do not always serve the ratepayers’ interests.

Conclusion

The Commission is limited in its ability to review cases. But here, the Commission’s hands were tied by the “all-or-nothing” proposed Settlement Agreement. DEP’s proposed Financing Order is also fundamentally flawed as it fails to protect ratepayers’ interests. In my opinion, the Company has failed to make reasonable and prudent efforts to minimize costs for its ratepayers. Therefore, I must respectfully dissent.

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
PAGE 110

 

Thomas J Ervin, Commissioner 
Fourth Congressional District 
Public Service Commission of South Carolina 
FOR THE DISSENT

Order Exhibit No. 1

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
Page 1 of 18

BEFORE

THE PUBLIC SERVICE COMMISSION OF

SOUTH CAROLINA

DOCKET NO. 2023-89-E

IN RE: Duke Energy Progress, LLC’s Petition for a Storm Securitization Financing Order (“Phase II”) Order  ) ) ) ) COMPREHENSIVE
SETTLEMENT
AGREEMENT

Pursuant to S.C. Code Ann. §1-23-320(F), and all other applicable statutes and regulations, this Settlement Agreement (“Settlement Agreement”) is made by and among Duke Energy Progress, LLC (“DEP” or the “Company”), the South Carolina Office of Regulatory Staff (“ORS”), the South Carolina Department of Consumer Affairs (“DCA”), and Nucor Steel — South Carolina (“Nucor”) (collectively referred to as the “Settling Parties”, “Parties”, or sometimes individually as “Party”);

WHEREAS, the above-captioned proceeding has been established by the Public Service Commission of South Carolina (“Commission”) pursuant to the procedure established in S.C. Code Ann. § 58-27-1110, and the Parties to this Settlement Agreement are parties of record in the above-captioned docket;

WHEREAS, the DCA by law may advocate for the interest of consumers in matters before the Commission pursuant to S.C. Code Ann. § 37-6-604(C) and filed a timely petition to intervene in this proceeding pursuant to S.C. Code Ann. Reg. 103-825(A)(3);

WHEREAS, a petition to intervene filed by Nucor pursuant to S.C. Code Ann. Reg. 103-825(A)(3) was granted by the Commission.

WHEREAS, the Parties have varying legal positions regarding certain issues in this proceeding;

Page 1 of 18

Order Exhibit No. 1

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
Page 2 of 18

WHEREAS, the Parties filed a stipulation resolving the majority of issues in this proceeding on September 5, 2023;

WHEREAS, the Parties have engaged in further discussions to determine whether a comprehensive settlement agreement on all issues among all parties would be in their best interest and, in the case of ORS, in the public interest, and in the case of DCA, in the interest of consumers; and

WHEREAS, following these additional discussions, the Parties have each determined that their interests, the DCA determined the consumer interest,¹⁵ and ORS determined that the public interest, would be best served by stipulating to all matters at issue in the above-captioned case under the terms and conditions set forth below:

NOW, THEREFORE, the Parties hereby stipulate and agree to the following terms.

A.      SETTLEMENT OF TESTIMONY AND WAIVER OF CROSS-EXAMINATION

1.      Without constraining, inhibiting, or impairing their arguments or positions in future proceedings, the Parties agree as follows in this proceeding:

2.      The Parties agree to stipulate into the record before the Commission this Settlement Agreement.

3.      The Parties agree to stipulate into the record before the Commission without summarization the pre-filed testimony and exhibits (collectively, the “Stipulated Testimony”) of the below witnesses who have pre-filed testimony to date, including any testimony and exhibits supporting approval of this Settlement Agreement. The Parties agree that any pre-filed testimony not listed below shall not be entered into the record. The Parties also agree to waive cross-examination of all pre-filed testimony. However, the Parties reserve the right to engage in cross or redirect examination of witnesses (identified below) as necessary to respond to issues raised by the examination of their witnesses, if any, by non-parties or the Commission, that are outside the scope of the Settlement Agreement. The Parties further agree the scope of any such cross or redirect examination will be limited to clarifying the terms of the Settlement Agreement or reaffirming the witness’s support of the Settlement Agreement as a just and reasonable compromise.

¹⁵ The DCA’s mission is to protect consumers from inequities in the marketplace through advocacy, mediation, enforcement, and education. Consumer interest for the purpose of DCA’s representation includes South Carolina residents who purchase utility services primarily for a personal, family, or household use.

Page 2 of 18

Order Exhibit No. 1

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
Page 3 of 18

DEP witnesses:

1.      Thomas J. Heath, Jr. (Direct, Amended Rebuttal, and Settlement) 

2.      Katrina T. Niehaus (Direct, Amended Rebuttal) 

3.      Kimberly K. Smith (Direct, Supplemental Direct, and Revised Rebuttal) 

4.      Nicholas G. Speros (Direct and Rebuttal) 

5.      Jacalyn H. Moore (Direct, Supplemental Direct, and Rebuttal)

ORS witnesses:

1.      Mark A. Rhoden (Direct Surrebuttal, and Settlement) 

2.      Michael L. Seaman-Huynh (Direct) 

3.      Lane Kollen (Direct and Surrebuttal) 

4.      Jeremy E. Traska (Direct)

DCA Settlement witness:

1.      Aaron L. Rothschild (Settlement testimony only)

4.      The Parties agree to offer no other evidence in the proceeding other than the
Stipulated testimony and Exhibits and this Settlement Agreement unless the additional evidence is to support the Settlement Agreement, consists of changes comparable to that which would be presented via an errata sheet or through a witness noting a correction or clarification, consists of a witness adopting the testimony of another if permitted by the Commission, or is responsive to issues raised by examination of the Parties’ witnesses by non-Parties, parties which are not signatories to this Settlement Agreement, the Commission, or by late-filed testimony by non-parties. The Parties agree that nothing herein will preclude each Party from advancing its respective positions in the event that the Commission does not approve the Settlement Agreement in its entirety.

Page 3 of 18

Order Exhibit No. 1

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
Page 4 of 18

5.      The Parties agree that this Settlement Agreement pertains to matters addressed in this case, and unless specified otherwise, nothing in this Settlement Agreement binds Parties from taking an alternative position in any current or future proceeding in South Carolina or any other jurisdiction. The Parties agree that the Settlement Agreement terms agreed upon in this case are reasonable, in the public interest, and in accordance with South Carolina law and regulatory policy. Parties’ agreement that the terms of the Settlement Agreement are reasonable as a whole does not in any way indicate any Party’s position as to the reasonableness of any single term taken out of the context of the agreement.

B.      SETTLEMENT TERMS

1.      This Settlement Agreement is a compromise of all the positions advanced by the Parties. The Parties agree to and accept the proposal set out immediately below, and this proposal is hereby adopted, accepted, and acknowledges as the final agreement of the Parties.

2.      The Parties agree that this Settlement Agreement is comprehensive and non-severable. This Settlement Agreement is the result of extensive negotiation and compromise among the Parties, and it resolves all issues presented including all pending motions. The Parties agree that if the Commission declines to approve the Settlement Agreement in its entirety and without modification, any Party may withdraw from the Settlement Agreement and be released from its terms without penalty or obligation.

Page 4 of 18

Order Exhibit No. 1

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
Page 5 of 18

Incremental up-front Financing Cost Regulator Asset.

3.      DEP will establish a regulatory asset to defer up-front financing costs in excess of final estimates included in the Issuance Advice Letter, if any; provided, however, that the costs subject to deferral would not impact the storm recovery bonds or charges that are the subject of this proceeding.

4.      DEP will accrue carrying costs on the regulatory asset, net of accumulated deferred income taxes (“ADIT”), at DEP’s approved pre-tax weighted average cost of capital in effect at the time the deferral costs are incurred. As with all provisions in this Settlement Agreement, unless specified otherwise, nothing in this provision is precedential or binds Parties from taking an alternative position in any current or future proceeding in South Carolina or any other jurisdiction.

5.      DEP will request that all such costs are included in base rates during the next base rate proceeding.

6.      The Parties reserve their right to review the reasonableness and prudency of those costs in the next rate proceeding.

Utility Assessment Fee, License Tax, and Sales Tax.

7.      DEP will seek an opinion from the South Carolina Department of Revenue (the “SCDOR”) regarding whether (i) License Tax on Utilities under S.C. Code Ann. § 12-20-100 and (ii) Sales Tax arising under S.C. Code Title 12 apply to the storm recovery charges.

8.      The Parties agree the Commission will determine if DEP should collect a Utility Assessment Fee arising under S.C. Code Ann. §§ 58-27-50, 58-4-60, and 58-3-100 to be included in the calculation of ongoing financing costs.

9.      Until the SCDOR provides an opinion in response to DEP’s request regarding the License Tax under S.C. Code Ann. § 12-20-100, the Company proposes to collect such taxes as an initial matter until it receives final clarification from the SCDOR. If the License Tax is deemed not to apply, then the Company will file an amended consolidated return and will pass the cash back through an invoice from the Servicer to the special purpose entity (“SPE”). The SPE will credit the License Taxes paid from customers back through the next applicable true-up filing.

Page 5 of 18

Order Exhibit No. 1

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
Page 6 of 18

10.      Until the SCDOR provides an opinion in response to DEP’s request regarding the Sales Tax, the Company proposes to collect Sales Tax as an initial matter on the storm recovery charges from customers to whom sales of electricity are not otherwise considered exempt from Sales Tax until it receives final clarification from the SCDOR. Exempt customers from whom the Company does not propose to collect Sales Tax include but are not limited to all residential customers. If the Company collects Sales Taxes that are subsequently deemed not to apply, then the Company will credit customers via a miscellaneous credit on their subsequent electricity bill.

True-up Period Pursuant to S.C. Code Ann. § 58-27-1110(C)(4).

11.      DEP agrees that the time period for the Commission to either approve the request under S.C. Code Ann. § 58-27-1110(C)(4) or inform the Company of any mathematical or clerical errors in its calculation shall be the sixty (60) days for which the statute provides. However, DEP and ORS agree to engage in a good faith discussion to discuss reducing the time period from sixty (60) days to thirty (30) days after the completion of three (3) semi-annual true-up periods.

Rate Calculations.

12.      DEP will use a weather normalization calculation methodology that matches its most current South Carolina rate case (currently Docket No. 2022-254-E). This calculation will use 30 years of historical weather data to determine normal weather heating and cooling degree days in the calculation of the forecast variance factor. The variance factor will be equal to one standard deviation of the normal weather variation and will be applied by customer class to the Company’s most current retail Spring or Fall forecast which includes the upcoming rate period.

Page 6 of 18

Order Exhibit No. 1

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
Page 7 of 18

Storm Securitization Tariff Sheet (“STS Tariff”).

13.      The Parties agree the following language shall be displayed clearly on the STS tariff and not contained in a footnote:

The securitization charge billing rate for each rate class shall be determined sequentially, first by calculating the forecast semi-annual or interim period revenue requirement (in $000), including the over/under recovery from the prior period, as presented in the attached format; second, by calculating the revenue requirement by class for the same period used for the forecast revenue requirement using the class allocation methodology from the most recent base rate case proceeding; third, by calculating the forecast mWh sales by class using total retail forecast mWh sales sourced from the Company’s current Spring or Fall retail load forecast allocated to rate classes using the most current annual billed kWh sales report from the Company’s billing system; fourth, by calculating the adjusted forecast retail mWh sales by reducing the forecast mWh sales by class by one standard deviation from normal weather over thirty years, calculated in the same manner used for base rate case purposes; and fifth, by calculating the securitization charge billing rates per kWh by class by dividing the forecast revenue requirement (in $000) by class by the adjusted retail mWh sales by class.

Cap on Costs of Securitization Financing.

14.      The Parties agree to a 7.0% cap based on the weighted average interest rate on the bonds in the securitization financing. However, if the fi_nancing cost cap is projected to be exceeded, DEP agrees to discuss with the Bond Advisory Team and develop a recommendation, based on their advice and input, for the Commission on whether to proceed with the issuance in accordance with the statutory cost objectives. The Parties agree that the Commission’s decision whether to accept the issuance advice letter is governed by the terms of S.C. Code Ann. § 58-27-1100 et seq. However, for informational purposes, the rationale for the final interest rate decision, whether above or below the cap, shall be explained in the issuance advice letter submitted to the Commission. This rationale shall include, but not be limited to, the comparisons made to determine how the interest rate(s) results in the lowest storm recovery charges consistent with market conditions at the time the storm recovery bonds are priced and the terms set forth in the financing order.

Page 7 of 18

Order Exhibit No. 1

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
Page 8 of 18

Storm Cost Accumulated Deferred Income Taxes (“ADIT”) Regulatory Liability.

15.      From the date of the financing order, the Company will defer and compound the return on Storm ADIT at its most recently approved pre-tax weighted average cost of capital (“WACC”) until base rates are reset in the next base rate case proceeding. At that time, the Storm ADIT and the deferred return on the Storm ADIT will be included as a reduction to rate base and the deferred regulatory liability will be amortized as a negative expense to return the deferred Storm ADIT benefit to customers.

Financing Order.

16.      DEP will amend the proposed financing order included in its Petition to include the following language regarding third-party energy providers:

In the event of a change in utility regulation in the State of South Carolina, alternative energy providers are required to bill and collect the storm recovery charges and meet other all other Credit Rating Agency criteria so as not to negatively affect the Storm Recovery Bonds’ credit rating.

17.      The Parties agree to file a Joint Proposed Financing Order consistent with the stipulated matters set forth herein.

Ratings Agencies.

18.      DEP will obtain ratings from two Ratings Agencies, those being S&P and Moody’s. If the ratings from S&P and Moody’s result in split bonds ratings, DEP will seek advice and input from the Bond Advisory Team on whether to obtain a third rating from Fitch. If the final credit rating on the proposed bonds is not AAA or Aaa, the rationale for the decision shall be explained in the issuance advice letter submitted to the Commission.

Page 8 of 18

Order Exhibit No. 1

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
Page 9 of 18

Means of Sale.

19.      DEP will have the flexibility to utilize a means of sale other than an SEC-registered sale, such as a Rule 144A offering, if market volatility or other factors indicate that such a sale would be the best manner to achieve the “Statutory Cost Objectives” defined in DEP’s proposed financing order. DEP agrees to consider the advice and input from the Bond Advisory Team prior to making such decision. If a means of sale other than an SEC-registered sale is proposed to be utilized, the rationale for the decision shall be explained in the issuance advice letter submitted to the Commission.

Floating-Rate Bonds.

20.      DEP will have the flexibility to utilize floating-rate bonds if market conditions change and it becomes necessary for one or more tranches of bonds to be issued as floating-rate securities in order to achieve the “Statutory Cost Objectives” defined in DEP’s proposed financing order. DEP agrees to consider the advice and input from the Bond Advisory Team prior to making such decision. If one or more tranches of bonds is to be issued as floating-rate securities, the rationale for the decision shall be explained in the issuance advice letter submitted to the Commission.

Bond Advisory Team.

21.      The Parties agree that the Bond Advisory Team (“BAT’) shall consist of the following formal members:

1. DEP: Designated Duke Energy Progress, LLC employees, advisors and counsel

2. ORS: Designated ORS staff, attorneys and consultants

Page 9 of 18

Order Exhibit No. 1

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
Page 10 of 18

22.      The Parties agree that the following entities will be invited to participate in BAT meetings:

1. Underwriters and their counsel.

2. DCA: Designated staff and attorneys. DCA will be invited to attend all BAT meetings and provided the same information provided to formal members of the BAT. The Parties agree DCA’s participation in BAT meetings will not prevent its participation in any future proceedings involving DEP, its affiliates, or parent company.

Qualified Independent Third Party (“QITP”)

23.      The Parties agree to ORS acting as the QITP under S.C. Code Ann. § 58-27-1110(C)(6). ORS is charged by law with the duty to represent the public interest of South Carolina pursuant to S.C. Code Ann. § 58-4-10(B). The Parties understand and agree it is appropriate for ORS to follow its statutory charge under S.C. Code Ann. § 58-4-10(B) in how ORS fulfills the role of QITP.

Disclosure.

24.      The Parties agree that DEP will work with the members of the Bond Advisory Team to develop appropriate and necessary disclosures in the registration statement and other marketing materials including but not limited to highlighting the credit features of the storm recovery bonds such as the true-up, nonbypassable nature of the charges, the state pledge, bankruptcy and reorganization protections, and non-appealable Financing Order.

Page 10 of 18

Order Exhibit No. 1

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
Page 11 of 18

Issuance Advice Letter Process.

25.      The Parties agree that after the Issuance Advice Letter has been submitted to the Commission, but prior to noon on the fourth business day after the final terms of the storm recovery bonds are determined, DEP will be available to answer any questions from the Commission about the final agreed upon terms of the bond issuance contained in the issuance advice letter. The Commission shall have the option to submit the questions in written form to all parties for DEP to respond or request that the Company make a presentation before the Commission. Settling Parties agree that information designated by DEP or the parties as confidential shall be provided to the Commission under seal or in a closed session.

26.      If DEP, underwriters, or the QITP do not provide the certification contemplated by S.C. Code Ann. § 58-27-1110(C)(6)(a), or the Commission delivers an order to prevent the issuance of the storm recovery bonds pursuant to S.C. Code Ann. § 58-27-1110(C)(6)(b), DEP agrees to hold a BAT meeting for members and DCA to discuss any potential next steps, including whether to pursue another securitization financing as opposed to traditional cost recovery, and will explain its final decision to BAT members and DCA.

27.      The Parties agree to hold in abeyance all pending motions before the Commission The Parties agree that if the Commission enters a directive adopting the Settlement Agreement, all pending motions will be considered moot.

C.      REMAINING SETTLEMENT TERMS AND CONDITIONS

1.      The Parties agree that this Settlement Agreement is reasonable, is in the public interest, is in accordance with law and regulatory policy, and agree to support the resolution of issues agreed to herein in this proceeding and not to undertake any action to undermine that support. This Settlement Agreement in no way constitutes a waiver or acceptance of the position of any Party or its affiliates in any current or future proceeding in South Carolina or any other jurisdiction. Except as specifically provided otherwise previously herein, this Settlement Agreement does not establish any precedent with respect to the issues resolved herein and in no way precludes any Party from advocating an alternative position in any current or future proceeding in South Carolina or any other jurisdiction.

Page 11 of 18

Order Exhibit No. 1

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
Page 12 of 18

2.      Further, ORS is charged by law with the duty to represent the public interest of South Carolina pursuant to S.C. Code Ann. § 58-4-10(B), which reads in part as follows:

... ‘public interest’ means the concerns of the using and consuming public with respect to public utility services, regardless of the class of customer and preservation of continued investment in and maintenance of utility facilities so as to provide reliable and high quality utility services.

ORS believes this Settlement Agreement reached among the Parties serves the public interest, as defined above.

3.      Except as necessary to effectuate the terms of this Settlement Agreement, the Parties agree that signing this Settlement Agreement: (a) will not constrain, inhibit, impair, or prejudice their arguments held in future or collateral proceedings; (b) will not constitute a precedent or evidence of acceptable practice in future proceedings; and (c) will not limit the relief, rates, recovery, or rates of return that any Party may seek or advocate in any future proceeding.

4.      The Parties agree this Settlement Agreement must be read and construed as a whole, and to cooperate in good faith with one another in recommending and advocating to the Commission that this Settlement Agreement be accepted and approved by the Commission in its entirety as a fair and reasonable resolution of certain issues currently pending in the above-captioned proceeding and detailed herein, and to take no action inconsistent with its adoption by the Commission. The Parties agree to use their best efforts before any reviewing court in the event of an appeal to defend and support any Commission order issued approving this Settlement Agreement and the terms and conditions contained herein.

5.      The Parties ask the Commission to approve this Settlement Agreement in its entirety without exception, modification, or additional provisions.

Page 12 of 18

Order Exhibit No. 1

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
Page 13 of 18

6.      This Settlement Agreement shall be interpreted according to South Carolina law.

7.      This Settlement Agreement contains the final and complete agreement of the Parties on certain issues described previously herein. There are no other terms or conditions to which the Parties have agreed that require approval of the Commission.

8.      The Parties on behalf of themselves and their agents (including but not limited to their attorneys, hired consultants, and any independent contractors) agree that they have entered into this Settlement Agreement freely and voluntarily and that none of them have been pressured or unduly encouraged to enter into this Settlement Agreement.

9.      The Parties represent that the terms of this Settlement Agreement are based upon full and accurate information known as of the date this Settlement Agreement is executed. If, after execution, any Party is made aware of information that conflicts, nullifies, or is otherwise materially different than that information upon which this Settlement Agreement is based, any Party may withdraw from the Settlement Agreement with written notice to the other Parties.

10.      This Settlement Agreement shall bind and inure to the benefit of the signatories hereto and their representatives, predecessors, successors, assigns, agents, shareholders, officers, directors (in their individual and representative capacities), subsidiaries, affiliates, parent corporations, if any, joint ventures, heirs, executors, administrators, trustees, and attorneys.

11.      Each Party shall act in good faith in its performance under this Settlement Agreement and in its dealings with the other Parties under or in connection with this Settlement Agreement.

12.      The Parties to this Settlement Agreement agree that any party to this proceeding not currently a signatory to this Settlement Agreement may join in the Settlement Agreement.

Page 13 of 18

Order Exhibit No. 1

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
Page 14 of 18

13.      The terms and conditions herein fully represent the final and complete agreement of the Parties hereto. There are no other terms to which the Parties have agreed. Therefore, each Party acknowledges its consent and agreement to this Settlement Agreement, by affixing its signature or by authorizing its counsel to affix his or her signature to this document where indicated below. Counsel’s signature represents his or her representation that his or her client has authorized the execution of the agreement. Facsimile signatures and e-mail signatures shall be as effective as original signatures to bind any Party. This document may be signed in counterparts, with the various signature pages combined with the body of the document constituting an original and provable copy of this Settlement Agreement. The Parties agree that in the event any Party should fail to indicate its consent to this Settlement Agreement and the terms contained herein, then this Settlement Agreement shall be null and void and will not be binding on any Party.

[SIGNATURES ON THE FOLLOWING PAGES]

Page 14 of 18

Order Exhibit No. 1

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
Page 15 of 18

Representing Duke Energy Progress, LLC

Carnal O. Robinson, Esquire

Duke Energy Progress, LLC

40 West Broad Street

Greenville, South Carolina 29601

(864) 238-4385

camal.robinson@duke-energy.com

J. Ashley Cooper, Esquire

Alexandra B. Breazeale, Esquire

Baker, Donelson, Bearman, Caldwell & Berkowitz P.C.

40 Calhoun Street, Suite 200B

Charleston, South Carolina 29401

(854) 214-5910

(854) 214-5916

jacooper@bakerdonelson.com

abreazeale@bakerdonelson.com

James H. Jeffries, IV, Esquire

McGuireWoods LLP

201 North Tryon Street, Suite 3000

Charlotte, North Carolina 28202

(704) 343-2348

jjeffries@mcguirewoods.com

Kristin M. Athens, Esquire

McGuireWoods LLP

501 Fayetteville Street, Suite 500

Raleigh, North Carolina 27601

(919) 835-5909

kathens@mcguirewoods.com

Page 15 of 18

Order Exhibit No. 1

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
Page 16 of 18

Representing the South Carolina Office of Regulatory Staff

Christopher M. Huber, Esquire

Donna L. Rhaney, Esquire

Joshua E. Austin, Esquire

South Carolina Office of Regulatory Staff

1401 Main Street, Suite 900

Columbia, SC 29201

Phone: (803) 737-5252 (CH)

(803) 737-0609 (DR)

(803) 737-0817 (JA)

Email: chuber@ors.sc.gov

drhaney@ors.sc.gov

jaustin@ors.sc.gov

Page 16 of 18

Order Exhibit No. 1

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
Page 17 of 18

Representing the South Carolina Department of Consumer Affairs

s/ Roger P. Hall

Carri Grube Lybarker, Esquire

Roger P. Hall, Esquire

S.C. Department of Consumer Affairs

293 Greystone Blvd., Suite 400

P.O. Box 5757

Columbia, South Carolina 29250

Phone: (803)734-4200

Email: clybarker@scconsumer.gov

rhall@scconsumer.gov

Page 17 of 18

Order Exhibit No. 1

DOCKET NO. 2023-89-E – ORDER NO. 2023-752(A)
OCTOBER 23, 2023
Page 18 of 18

Representing Nucor Steel — South Carolina

s/Michael K. Lavanga

Michael K. Lavanga, Esquire

Stone Mattheis Xenopoulos & Brew, PC

1025 Thomas Jefferson Street, NW

Eighth Floor, West Tower

Washington, DC 20007

mkl@smxblaw.com

Robert R. Smith, II, Esquire

Moore & Van Allen, PLLC

100 North Tryon Street

Suite 4700

Charlotte, NC 28202

Page 18 of 18

Order Exhibit No. 2
Docket No. 2023-89-E – Order No. 2023-752(A)
October 23, 2023
Page 1 of 1

SUMMARY OF CALCULATION OF DEP’S
PRINCIPAL AMOUNT OF STORM RECOVERY BONDS

(IN MILLIONS)

Securitizable Balance: Estimated Storm Recovery Costs (incremental O&M costs, deferred capital costs and carrying costs)16	$	170.6
Estimated up-front Financing Costs17	$	6.5
Principal Amount of Storm Recovery Bonds	$	177.1

¹⁶ Order No. 2023-260 at 51.

¹⁷ Final Up-front Financing Costs to be included in the Issuance Advice Letter.

Order Exhibit No. 3
Docket No. 2023-89-E – Order No. 2023-752(A)
October 23, 2023
Page 1 of 2

[Form of Standard True-up Adjustment Letter]

[              , 20 ]

The Honorable Jocelyn G. Boyd

Chief Clerk/Administrator

The Public Service Commission of South Carolina

101 Executive Center Drive, Suite 100 1

Columbia, South Carolina 29210

Re: Duke Energy Progress, LLC’s Petition for a Storm Securitization Financing Order (“Phase II”)
Docket No.: 2023-89-E

Dear Ms. Boyd:

Pursuant to the Public Service Commission of South Carolina (Commission) [ , 20 ] Order in Docket No. 2023-89-E (the DEP Financing Order), Duke Energy Progress, LLC (DEP) as Servicer of the [ ] (Storm Recovery Bonds) has provided a request for an adjustment to the storm recovery bond charge (Storm Recovery Charge). This adjustment is intended to satisfy the requirements of S.C. Code Ann. § 58-27-1110(C)(4), and the Financing Order by ensuring that the Storm Recovery Charge will recover amounts sufficient to timely provide for payments of debt service and other required amounts in connection with the Storm Recovery Bonds.

Per the Financing Order, “After issuance of Storm Recovery Bonds on behalf of DEP, the servicer will submit at least semi-annually¹⁸ (and at least quarterly beginning 12 months prior to the last scheduled final payment date of the last maturing tranche of...Storm Recovery Bonds) a letter in this docket for Commission review, as described in S.C. Code Ann. § 58-27-1110(C)(4), and in the form attached hereto...and as an exhibit to the servicing agreement” (True-up Adjustment Letter). The Storm Recovery Bonds were issued on [     , 20 ]. DEP provided its first True-up Adjustment Letter on [      , 20 ].

¹⁸ Except for the period after the bond issuance which may be longer.

Order Exhibit No. 3
Docket No. 2023-89-E – Order No. 2023-752(A)
October 23, 2023
Page 2 of 2

Ordering Paragraph [22] of the Financing Order describes how such True-up Adjustment Letters are to be handled. Upon the providing of a True-up Adjustment Letter made pursuant to this Financing Order, the Commission shall either administratively approve the requested true-up calculation in writing or inform the servicer of any mathematical or clerical errors in its calculation as expeditiously as possible but no later than 60 days following the servicer’s true-up submission. Upon administrative approval, no further action of this Commission will be required prior to implementation of the true-up. Attached is the [TBD] Revised Sheet No. [ ] reflecting the change in the Storm Recovery Charge.

Per DEP’s request in its True-up Adjustment Letter and in accordance with the Financing Order, the proposed adjustments to the Storm Recovery Charge will be effective on [     , 20 ].

Respectfully submitted,

Duke Energy Progress, LLC

Attachments

Order Exhibit No. 4
Docket No. 2023-89-E – Order No. 2023-752(A)
October 23, 2023
Page 1 of 13

DUKE ENERGY PROGRESS, LLC
Storm Recovery Charge True-up Mechanism Form
For the Period __________, 20__ through __________, 20__

  Storm Recovery Charge True-up Mechanism Form

  For Storm Recovery Charge to be effective ______

	Description		Calculation of the True-up (1)		Projected Revenue Requirement to be Billed and Collected  (2)		Revenue Requirement for Storm Recovery Charge (1)+(2)=(3)
1	Storm Recovery Bond Repayment Charge (remitted to SPE)
2
3	True-up for the Prior Remittance Period Beginning ______ and Ending ______:
4	Principal		$                           -
5	Interest
6	Servicing Costs
7	Other On-Going Costs*
8	Total Prior Remittance Period Revenue Requirements (Line 4+5+6+7)		$                           -
9	Prior Remittance Period Actual Cash Receipt Transfers and Interest income:
10	Cash Receipts Transferred to the SPE
11	Interest Income on Subaccounts at the SPE
12	Total Current Period Actual Daily Cash Receipts Transfers and Interest Income (Line 10+11)		$                           -
13	(Over)/Under Collections of Prior Remittance Period Requirements (Line 8+12)		-
14	Cash in Excess Funds Subaccount		-
15	Cumulative (Over)/Under Collections through Prior Remittance Period (Line 13+14)		$                           -				$                           -
16
17
18	Current Remittance Period Beginning ______ and Ending ______:	(E)
19	Principal		$                           -
20	Interest
21	Servicing Costs
22	Other On-Going Costs*
23	Total Current Remittance Period Revenue Requirement (Line 19+20+21+22)		$                           -
24
25	Current Remittance Period Cash Receipt Transfers and Interest Income:
26	Cash Receipts Transferred to SPE	(A)	$                           -	(B)	$                           -
27	Interest Income on Subaccounts at SPE	(A)		(B)
28	Total Current Remittance Period Cash Receipt Transfers and Interest Income (Line 26+27)		$                           -		$                           -
29	Estimated Current Remittance Period (Over)/Under Collection (Line 23+28)		$                           -		$                           -		$                           -
30
31
32	Projected Remittance Period Beginning ______ and Ending ______:	(E)
33	Principal				$                           -
34	Interest
35	Servicing Costs
36	Other On-Going Costs*
37	Projected Remittance Period Revenue Requirement (Line 33+34+35+36)				$                           -		$                           -
38
39	Total Revenue Requirements (Line 15+29+37)						$                           -
40	Forecasted kWh Sales for the Projected Remittance Period Collections (Adjusted for Uncollectibles)					(C)
41	Average Retail Storm Recovery Charge per kWh to be effective ______ (Line 39/40)					(D)	0.0000
42
43
44
45	Notes:
46	(A) Amounts are based on actual collections for ______ through ______.
47	(B) Includes estimated future remittance amounts for ______ through ______.
48	(C) Projected for services rendered ______ through ______. Collections are calculated based upon the ADO and estimated write-offs.
49	(D) Amount will be allocated to each customer class in accordance with allocations approved in last general rate case.
50	(E) Collections are assumed to be on a month lag from service rendered date.
51	*Other On-going Costs:
52	Pursuant to the Section XX of the Financing Order, the Other On-Going Costs are subject to review.  The Other On-Going Costs for the prior remittance period on Line 7, represent actual on-going costs that may be adjusted as needed for any mathematical or clerical errors.  The amounts shown for the current and projected remittance period include estimates that will be adjusted for actual costs in future true-up forms.
53	Disputed Other On-Going Costs
54	Only adjustments related to mathematical or clerical errors will be included in the Storm Recovery Charge true-up process.  Any Other On-Going costs that are disputed for reasons other than mathematical or clerical accuracy, will not be adjusted through the Storm Recovery Charge true-up process.  Disputed costs will be addressed in the Company's next general rate case.  The total of disputed Other On-Going Costs to-date, not yet resolved in a general rate case, are _______.

Order Exhibit No. 4
Docket No. 2023-89-E – Order No. 2023-752(A)
October 23, 2023
Page 2 of 13

[Form of Issuance Advice Letter]

[           , 20 ]

The Honorable Jocelyn G. Boyd

Chief Clerk/Administrator

The Public Service Commission of South Carolina

101 Executive Center Drive, Suite 100

2 Columbia, South Carolina 29210

Re: Duke Energy Progress, LLC’s Petition for a Storm Securitization Financing Order (“Phase II”)
Docket No.: 2023-89-E

Dear Ms. Boyd:

Pursuant to the financing order in the above-captioned docket (Financing Order), Duke Energy Progress, LLC (the Company) hereby transmits for filing this combined Issuance Advice Letter and Form of True-up Adjustment Letter. Any terms not defined herein shall have the meanings ascribed thereto in the Financing Order or S.C. Code Ann. §§ 58-27-1100-1180.

In the Financing Order, the Commission requires the Company to provide an Issuance Advice Letter to the Commission following pricing of a series of Storm Recovery Bonds.

The terms of pricing and issuance of the first series of Storm Recovery Bonds are as follows:

Name of Storm Recovery Bonds: [ ]

Name of SPE: [ ]

Name of Storm Recovery Bond Trustee:

Expected Closing Date: [ ]

Preliminary Bond Ratings¹⁹: Moody’s, [Aaa(sf)]; Standard & Poor’s, [AAA(sf)];

Fitch, [AAAsf] (final ratings to be received prior to closing)

Total Principal Amount of Storm Recovery Bonds to be Issued (i.e., Amount of Storm Recovery Costs and up-front Financing Costs to be financed): $[ ] (See Attachment 1) Estimated up-front Financing Costs: $[ ] (See Attachment 2)

Interest Rates and Expected Amortization Schedules of the Storm Recovery Bonds (See Attachment 3):

Distributions to Investors: Semi-annually

Method of Interest Rate: Fixed ____________; Floating __________

Weighted Average Coupon Rate²⁰: [       ]%

Annualized Weighted Average Yield²¹: [ ]%

¹⁹ The Company anticipates receiving bond ratings from at least two of the three major rating agencies.

²⁰ Weighted by modified duration and principal amount of each tranche.

²¹ Weighted by modified duration and principal amount, calculated including selling commissions.

Order Exhibit No. 4
Docket No. 2023-89-E – Order No. 2023-752(A)
October 23, 2023
Page 3 of 13

Initial Balance of capital subaccount: $[              ]

Estimated/Actual on-going Financing Costs for first year of Storm Recovery Bonds:
$[          ] (See Attachment 4)

The Financing Order requires the Company to confirm, using the methodology approved therein, that the actual terms of the Storm Recovery Bonds result in compliance with the Financing Order. The Company certifies that the following are true:

1.      the issuance of Storm Recovery Bonds and imposition and collection of Storm Recovery Charge as authorized in this Financing Order provide quantifiable net benefits to customers on a present-value basis as compared to the costs that would have been incurred absent the issuance of Storm Recovery Bonds;

2.      the aggregate principal amount of Storm Recovery Bonds issued does not exceed the Securitizable Balance;

3.      the Storm Recovery Bonds will be issued in one or more series comprised of one or more tranches having scheduled final payment of not more than approximately [20] years;

4.      the Storm Recovery Bonds have received a rating of Aaa(sf) / AAA(sf) from at least two of the three major rating agencies;²²

5.      the Storm Recovery Bonds are structured to achieve substantially level debt service payments on an annual basis;

6.      the issuance of the Storm Recovery Bonds has been structured in accordance with IRS Revenue Procedure 2005-62;

7.      [the weighted average interest rate on the Storm Recovery Bonds in the securitization financing is less than 7.00%; and]

²² If not Aaa(sf)/AAA(sf), DEP will provide an explanation.

Order Exhibit No. 4
Docket No. 2023-89-E – Order No. 2023-752(A)
October 23, 2023
Page 4 of 13

8.      the structuring, marketing, and pricing of the Storm Recovery Bonds resulted in the lowest Storm Recovery Charge consistent with market conditions at the time the Storm Recovery Bonds are priced and the terms set forth in this Financing Order;²³

9.      [Add discussion regarding floating rate bonds or 144A including rationale for such, as necessary.]

The initial storm recovery charge (the “Initial Charge”) has been calculated in accordance with the methodology described in the Financing Order and based upon the structuring and pricing terms of the Storm Recovery Bonds set forth in this combined Issuance Advice Letter and Form of True-up Adjustment Letter.

Attachment 5 provides the Revenue Requirements for calculating the Initial Charge. Attachment 6 calculates the Initial Charge based upon the cost allocation formula approved in the Financing Order. Attachment 7 is a comparison between the net present value of costs to customers that are estimated to result from the issuance of Storm Recovery Bonds and the costs that would result from the application of the traditional method of recovering Storm Recovery Costs from customers. Also attached are the calculations and supporting data for such tables. The Company’s certification is Attachment 8.

Pursuant to the Financing Order, the transaction may proceed and the Initial Charge will take effect unless a stop order is issued by the Commission prior to noon on [ , 20 ] (4 business days after pricing); and the Company, as servicer, or any successor servicer and on behalf of the trustee as assignee of the SPE, is required to apply at least semi-annually for mandatory periodic adjustment to the Storm Recovery Charge. The Initial Charge shall remain in effect until changed in accordance with the provisions of Ordering Paragraph 23 of the Financing Order.

The Company’s certification required by the Financing Order is set forth in Attachment 8, which also includes the statement of the actions taken by the Company to achieve the Statutory Cost Objectives as required by the Financing Order.

Respectfully submitted,

Duke Energy Progress, LLC

Attachments

²³ DEP will provide the necessary rationales and explanations herein as required by the Settlement Agreement.

Order Exhibit No. 4
Docket No. 2023-89-E – Order No. 2023-752(A)
October 23, 2023
Page 5 of 13

TOTAL PRINCIPAL AMOUNT OF STORM RECOVERY BONDS TO BE ISSUED (TOTAL AMOUNT OF STORM RECOVERY COSTS AND UP-FRONT FINANCING COSTS TO BE FINANCED)

Storm Recovery Costs, including estimated carrying costs through February 2024 Estimated up-front Financing Costs included in Proposed Structure (refer to attachment 2)	$ $
Total Storm Recovery Bond Issuance (rounded up)	$

Order Exhibit No. 4
Docket No. 2023-89-E – Order No. 2023-752(A)
October 23, 2023
Page 6 of 13

ESTIMATED UP-FRONT FINANCING COSTS

Underwriters’ Fees and Expenses Servicer Set-up Fee (including IT Programming Costs) Legal Fees Rating Agency Fees ORS Financial Advisor Fees ORS Legal Fees DEP Structuring Advisor Fee [Commission’s Consultant’s Fees] Accounting Fees SEC Fees SPE Set-up Fee Marketing and Miscellaneous Fees and Expenses Printing / Edgarizing Expenses Trustees/Trustees Counsels Fee and Expenses Original Issue Discount Other Ancillary Agreements

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

TOTAL ESTIMATED UP-FRONT FINANCING COSTS

$

Order Exhibit No. 4
Docket No. 2023-89-E – Order No. 2023-752(A)
October 23, 2023
Page 7 of 13

EXPECTED AMORTIZATION SCHEDULE

A.      General Terms

Tranche Price Coupon Fixed/
Floating Average Life Expected Final Maturity Legal Final Maturity

B.      Scheduled Amortization Requirement of Storm Recovery Bonds

Series [ ], Tranche [A-1]
Payment Date	Beginning Principal Balance	Interest	Principal	Total Payment	Ending Principal Balance

Series [ ], Tranche [A-2]
Payment Date	Beginning Principal Balance	Interest	Principal	Total Payment	Ending Principal Balance

Order Exhibit No. 4
Docket No. 2023-89-E – Order No. 2023-752(A)
October 23, 2023
Page 8 of 13

ESTIMATED ANNUAL ON-GOING FINANCING COSTS

	Annual Amount
Servicing Fee24 Return on Invested Capital Administration Fee Accounting Fees Regulatory Assessment Fees Legal Fees Rating Agency Surveillance Fees Trustee Fees Independent Manager Fees Miscellaneous Fees and Expenses	$ $ $ $ $ $ $ $ $ $
TOTAL ESTIMATED ANNUAL ON-GOING FINANCING COSTS	$

 

²⁴ Low end of the range assumes the Company is the servicer (0.05%). Upper end of the range reflects a substitute servicer (0.60%).

Order Exhibit No. 4
Docket No. 2023-89-E – Order No. 2023-752(A)
October 23, 2023
Page 9 of 13

REVENUE REQUIREMENT AND INPUT VALUES

Initial Payment Period from [    , 20 ] to [    , 20 ]	Bond Repayment	Total
Forecasted retail kWh sales Percent of billed amounts expected to be charged-off Forecasted % of billings paid in the applicable period Forecasted retail kWh sales billed and collected Storm Recovery Bond principal payment Storm Recovery Bond interest payment Forecasted On-going Financing Costs (excluding principal and interest) Total collection requirement for applicable period	$ $ $ $	% % $ $ $ $

Order Exhibit No. 4
Docket No. 2023-89-E – Order No. 2023-752(A)
October 23, 2023
Page 10 of 13

 

Quantifiable Net Benefits to Customers

[To be updated]

[Workpapers to be attached]

Order Exhibit No. 4
Docket No. 2023-89-E – Order No. 2023-752(A)
October 23, 2023
Page 11 of 13

Form of Company Certification

[         , 20 ]

The Honorable Jocelyn G. Boyd

Chief Clerk/Administrator

The Public Service Commission of South Carolina

101 Executive Center Drive, Suite 100

1 Columbia, South Carolina 29210

Re: Duke Energy Progress, LLC’s Petition for a Storm Securitization Financing Order (“Phase II”)
Docket No.: 2023-89-E

Dear Ms. Boyd:

Duke Energy Progress, LLC (the “Company”) submits this Certification pursuant to Ordering Paragraph 24 of the Financing Order in Docket No. 2023-89-E (the “Financing Order”). All capitalized terms not defined in this letter shall have the meanings ascribed to them in the Financing Order.

In its issuance advice letter dated [   , 20  ], the Company has set forth the following particulars of the Storm Recovery Bonds:

Name of Storm Recovery Bonds:

Name of SPE: [ ]

Name of Storm Recovery Bond Trustee:

Closing Date: [          , 20  ]

Preliminary Bond Ratings²⁵: Moody’s [Aaa(sf)]; Standard & Poor’s [AAA(sf)];

Fitch [AAAsf] (final ratings to be received prior to closing)

Total Principal Amount of Storm Recovery Bonds to be Issued: $ (See Attachment 1)

Estimated up-front Financing Costs: $ (See Attachment 2)

Interest Rates and Expected Amortization Schedule: (See Attachment 3)

Distributions to Investors: Semi-annually

Weighted Average Coupon Rate²⁶:         %

Annualized Weighted Average Yield:           %²⁷

Initial Balance of capital subaccount: $

Estimated/Actual on-going Financing Costs for first year of Storm Recovery Bonds:

$[           ]

As required by the Financing Order, the Company prepared a comparison between the net present value of costs to customers that are estimated to result from the issuance of Storm Recovery Bonds and the costs that would have been incurred absent the issuance of the Storm Recovery Bonds.

²⁵ The Company anticipates receiving bond ratings from at least two of the three major rating agencies.

²⁶ Weighted by modified duration and principal amount of each tranche.

²⁷ Weighted by modified duration and principal amount, calculated including selling commissions.

Order Exhibit No. 4
Docket No. 2023-89-E – Order No. 2023-752(A)
October 23, 2023
Page 12 of 13

In accordance with the procedures set forth in the Financing Order, the following actions were taken in connection with the structuring and pricing and Financing Costs of the Storm Recovery Bonds in order to satisfy the statutory cost objectives:

· [Included credit enhancements in the form of the true-up mechanism and an equity contribution to [ ] of 0.50% of the original principal amount of the bonds;

· Developed rating agency presentations and worked actively with the rating agencies during the rating agency process to achieve Aaa(sf) / AAAsf from at least two of the three major rating agencies;

· Worked to select key transaction participants, including lead underwriters and co-managers through an RFI process to determine that they have relevant experience and execution capabilities, and who were aligned with DEP’s objectives, namely broad distribution to investors and willingness to market the bonds in a manner consistent with the superior credit quality and uniqueness of the bonds;

· Hired a diverse group of underwriters, including underwriters with international and mid-tier expertise in order to attract a wide variety of potential investors;

· Reviewed detailed marketing plans submitted by underwriter(s);

· Provided information to the Bond Advisory Team and DCA on a timely basis so that they were fully informed could review and provide input on the structuring, marketing, and pricing of the Storm Recovery Bonds;

· Worked with the members of the Bond Advisory Team to develop appropriate and necessary disclosures in the registration statement and other marketing materials including but not limited to highlighting the credit features of the Storm Recovery Bonds, such as the true-up, nonbypassable nature of the charges, the state pledge, bankruptcy and reorganization protections, and non-appealable Financing Order.

· Allowed sufficient time for investors to review [relevant marketing materials] and preliminary prospectus and to ask questions regarding the transaction;

· Arranged issuance of rating agency pre-sale reports during the marketing period;

· During the period that the bonds were marketed, held numerous market update discussions with the underwriting team to develop recommendation for pricing;

· Had multiple conversations with all of the members of the underwriting team during the marketing phase in which we stressed the requirements of the Financing Order;

· Developed and implemented a marketing plan designed to encourage each of the underwriters to aggressively market the bonds to a broad base of prospective corporate and asset backed securities investors, including investors who have not previously purchased this type of security;

· Conducted roadshows with over [ ] investors;

· Provided other potential investors with access to an internet roadshow for viewing at investors’ convenience;

· Adapted the bond offering to market conditions and investor demand at the time of pricing consistent with the guidelines outlined within the Financing Order. Variables impacting the final structure of the transaction were evaluated including the length of the average lives and maturity of the bonds and the interest rate requirements at the time of pricing so that the structure of the transaction would correspond to investor preferences and rating agency requirements for the highest rating possible;

Order Exhibit No. 4
Docket No. 2023-89-E – Order No. 2023-752(A)
October 23, 2023
Page 13 of 13

· Developed bond allocations and preliminary price guidance designed to achieve customer savings; and

· Additional items to be included if DEP determines appropriate.

Based on the statutory criteria and procedures, the record in this proceeding, and other provisions of this Financing Order, DEP certifies the statutory requirements for issuance of a financing order and Storm Recovery Bonds have been met, specifically that the issuance of the Storm Recovery Bonds on behalf of DEP and the imposition and collecting of Storm Recovery Charge authorized by this Financing Order provide quantifiable net benefits to customers of DEP on a present-value basis as compared to the costs that would have been incurred absent the issuance of Storm Recovery Bonds and that the structuring and pricing of the Storm Recovery Bonds issued on behalf of DEP result in the lowest Storm Recovery Charge payable by the customers of DEP consistent with market conditions at the time such Storm Recovery Bonds are priced and the terms set forth in the Financing Order.

This certification is being provided to the Commission by the Company in accordance with the terms of the Financing Order, and no one other than the Commission shall be entitled to rely on the certification provided herein for any purpose.

Respectfully Submitted,

Duke Energy Progress, LLC

EX-99.2

Exhibit 99.2

[Closing Date], 2024

To the Persons Listed on the Attached Schedule I

Re: Federal Constitutional Law Issues related to Duke Energy Progress Storm Recovery Bonds

Opinion Recipients:

We have served as counsel to Duke Energy Progress, LLC (“DEP”), a South Carolina public utility, in connection with the issuance and sale on the date hereof by Duke Energy Progress SC Storm Funding LLC, a Delaware limited liability company (the “Issuer”), of $177,365,000 aggregate principal amount of the Issuer’s Senior Storm Recovery Bonds (the “Bonds”), which are more fully described in the Registration Statement on Form SF-1 (File Nos. 333-276553 and 333-276553-01) filed on January 17, 2024, as amended by Amendment No. 1 thereto filed on March 8, 2024 and as amended by Amendment No. 2 thereto filed on March 22, 2024 (the “Registration Statement”) and the preliminary prospectus, subject to completion, dated [date], which was filed with the Commission pursuant to Rule 424(b)(3) of the rules and regulations of the Commission and the final prospectus, dated [date], which was filed with the Commission pursuant Rule 424(b)(1) of the rules and regulations of the Commission. The Bonds are being sold pursuant to the provisions of the Underwriting Agreement dated [date] (the “Underwriting Agreement”) between DEP, the Issuer, and underwriters named in Schedule I to the Underwriting Agreement. The Bonds are being issued under the provisions of the Indenture dated as of the date hereof (the “Indenture”) among the Issuer, U.S. Bank Trust Company, National Association, as indenture trustee (the “Indenture Trustee”) and U.S. Bank National Association, as securities intermediary and account bank. According to the Indenture, the Indenture Trustee holds the storm recovery property described below (the “Storm Recovery Property”) as collateral security for the payment of the Bonds.

In 2022, the South Carolina legislature enacted the “Financing Act,” codified as Sections 58-27-1110 through 1180 of the SC Code of Laws Annotated. The Financing Act, which became effective on June 17, 2022, allows public utilities to access lower-cost funds through storm recovery bonds pursuant to financing orders issued by the Public Service Commission of South Carolina (“PSCSC”). The Financing Act permits the PSCSC to impose nonbypassable storm recovery charges on all existing or future customers receiving transmission or distribution service, or both, from DEP or its successors or assignees under PSCSC-approved rate schedules or under special contracts sufficient to pay principal of and interest on the bonds and other administrative expenses of the offering. The PSCSC governs the amount and terms for collections of these storm recovery charges through one or more financing orders issued to PSCSC and upon the issuance of the bonds these storm recovery charges may not be reduced, impaired, postponed, terminated or otherwise adjusted by the PSCSC except as adjusted pursuant to the true-up mechanism described in the statute.

ATLANTA     AUSTIN     BANGKOK     BEIJING     BOSTON     BRUSSELS     CHARLOTTE     DALLAS     DUBAI     HOUSTON     LONDON

LOS ANGELES     MIAMI     NEW YORK     RICHMOND     SAN FRANCISCO     TOKYO     TYSONS     WASHINGTON, DC

www.HuntonAK.com

To the Persons Listed on the Attached Schedule I

[closing date], 2024

Page 2

In the Financing Act, the State of South Carolina has pledged to the bondholders that it will not:

1) alter the provisions of the Financing Act, which authorize the PSCSC to create an irrevocable contract right or chose in action by the issuance of a financing order, to create storm recovery property, and make the storm recovery charges imposed by a financing order irrevocable, binding, or nonbypassable charges;

2) take or permit any action that impairs or would impair the value of storm recovery property or the security for the storm recovery bonds, or revises the storm recovery costs for which storm recovery is authorized;

3) in any way impair the rights and remedies of the bondholders, assignees, and other financing parties; or

(4) except for changes made pursuant to the formula-based adjustment mechanism authorized under this article, reduce, alter, or impair storm recovery charges that are to be imposed, billed, charged, collected, and remitted for the benefit of the bondholders, any assignee and any other financing parties until any and all principal, interest, premium, financing costs and other fees, expenses, or charges incurred, and any contracts to be performed in connection with the related storm recovery bonds, have been paid and performed in full.¹

This agreement is referred to as the “State Pledge.” Under the State Pledge, nothing will preclude limitation or alteration if full compensation is made by law for the full protection of the storm recovery charges collected pursuant to a financing order and of the bondholders and any assignee or financing party entering into a contract with the electric utility.²

On May 31, 2023, DEP filed a petition requesting that the PSCSC grant authorization for the financing of storm recovery costs incurred due to storm recovery activities required as a result of the following storms: Pax, Ulysses, Matthew, Florence, Michael, Dorian, Izzy and. On October 13, 2023, in Docket No. 2023-89-E, the PSCSC issued to DEP its first financing order under the Financing Act. The PSCSC amended the financing order on October 23, 2023 (as amended, the “Financing Order”). No party appealed the Financing Order and it became final and non-appealable on November 23, 2023. After issuance of the bonds, the Financing Order, pursuant to the Financing Act, is irrevocable and is not subject to amendment, modification or termination by further action of the PSCSC, except as contemplated by the periodic true-up adjustments. The Financing Order authorizes the issuance of the bonds in one or more series in an aggregate principal amount not to exceed an amount equal to the Securitizable Balance as of the issuance date plus up-front financing costs to issue the bonds.

¹ S.C. Code Ann. § 58-27-1155(A)(1)–(4).

² Id. § 58-27-1155(A)

To the Persons Listed on the Attached Schedule I

[closing date], 2024

Page 3

QUESTIONS PRESENTED

You have requested our reasoned opinion with respect to the following questions presented under the Federal Constitution:

(A)(i) Whether the holders of the Bonds (the “Bondholders”), by virtue of the State Pledge, could successfully challenge under Article I, Section 10 of the United States Constitution (the “Federal Contract Clause”) the constitutionality of any legislative action of the State of South Carolina (the “State”), whether by legislation or voter initiative, that becomes law (“Legislative Action”) that alters, impairs, or reduces the value of the Storm Recovery Property or the Storm Recovery Charges so as to impair (a) the terms of the Indenture or the Bonds or (b) the rights and remedies of the Bondholders (or the Indenture Trustee acting on their behalf) before the Bonds are fully paid and discharged;³

(ii) Whether preliminary injunctive relief would be available under federal law to delay implementation of Legislative Action that results in an Impairment pending final adjudication of a claim challenging such Legislative Action in federal court and, assuming a favorable final adjudication of such claim, whether permanent injunctive relief would be available to enjoin the implementation of the challenged Legislative Action.

(B)(i) Whether, under the Takings Clause of the Fifth Amendment to the United States Constitution (the “Federal Takings Clause”), the State could repeal or amend the Storm Recovery Law or take any other action in contravention of the State Pledge without paying just compensation to the Bondholders, as determined by a court of competent jurisdiction, if doing so (a) constituted a permanent appropriation of a substantial property interest of the Bondholders in the Storm Recovery Property or denied all economically productive use of the Storm Recovery Property; (b) destroyed the Storm Recovery Property other than in response to emergency conditions; or (c) substantially reduced, altered, or impaired the value of the Storm Recovery Property so as to unduly interfere with the reasonable expectations of the Bondholders arising from their investments in the Bonds (a “Taking”).

³ Any impairment described in clause (a) or (b) is referred to herein as an “Impairment.”

To the Persons Listed on the Attached Schedule I

[closing date], 2024

Page 4

OPINIONS

Based on our review of the facts and the relevant judicial authorities, and subject to the qualifications, limitations, and assumptions set forth in this letter (including the assumption that any Impairment would be “substantial”), it is our opinion that a reviewing court of competent jurisdiction, in a properly prepared and presented case:

(1) would conclude, with respect to the question presented above in (A)(i), that the State Pledge constitutes a contractual relationship between the Bondholders and the State and that, absent a demonstration by the State that an Impairment is necessary to further a significant and legitimate public purpose, and upon a finding by the court that an evident and more moderate course would serve the State’s purposes equally well, the Bondholders (or the Indenture Trustee acting on their behalf) could successfully challenge under the Federal Contract Clause the constitutionality of any Legislative Action determined by such court to cause an Impairment before the Bonds are fully paid and discharged;

(2) would conclude, with respect to the question presented above in (A)(ii), that sound and substantial arguments support the granting of preliminary injunctive relief and that permanent injunctive relief is available under federal law to prevent implementation of Legislative Action hereafter taken and determined by such court to cause an Impairment in violation of the Federal Contract Clause; and

(3) would conclude, with respect to the question presented above in (B), that under the Federal Takings Clause, the State is required to pay just compensation to the Bondholders if the State’s repeal or amendment of the Storm Recovery Law or taking of any other action in contravention of the State Pledge constituted a Taking.

We note that this letter is limited to the laws of the United States of America. Our opinions are based on our evaluation of the facts and circumstances described herein and the existing precedent and arguments relevant to the factual circumstances likely to exist at the time of a challenge to Legislative Action (or other State action) based on the Federal Contract Clause or Takings Clause. Such precedent and such circumstances could change materially from those discussed below. Accordingly, the opinions herein are intended to express our belief as to the result that should be obtainable through the proper application of existing judicial decisions in a properly prepared and presented case. None of the foregoing opinions is intended to be a guaranty as to what a particular court would hold; rather, each such opinion is an expression as to the decision a court ought to reach if the issue were properly prepared and presented and the court followed what we believe to be the applicable legal principles under existing precedent.

In addition, we are not aware of any reported controlling precedent that is directly on point with respect to the questions presented above. Thus, our analysis is a reasoned application of judicial decisions involving similar or analogous circumstances. Moreover, the application of equitable principles (including the issuance of injunctive relief) is subject to the discretion of the court asked to apply them. We cannot predict the facts and circumstances that will be present in the future and may be relevant to the exercise of such discretion. As a result, there can be no assurance that a court will follow our reasoning or reach the conclusions that we believe are supported by current precedent. The recipients of this letter should assess these considerations in analyzing the risks associated with the subject transaction.

To the Persons Listed on the Attached Schedule I

[closing date], 2024

Page 5

DISCUSSION

I. THE FEDERAL CONTRACT CLAUSE

The Federal Contract Clause provides that “[n]o State shall . . . pass any . . . Law impairing the Obligation of Contracts.”⁴ The United States Supreme Court has long instructed that this language serves “to encourage trade and credit by promoting confidence in the stability of contractual obligations.”⁵ Accordingly, “the [Federal] Contract Clause limits the power of the States to modify their own contracts as well as to regulate those between private parties.”⁶ While on its face the Federal Contract Clause appears to proscribe any law impairing the obligation of contracts, the Supreme Court has made clear that the Clause’s proscription “is not an absolute one and is not to be read with literal exactness like a mathematical formula.’”⁷

Instead, the Supreme Court applies a three-part test to determine whether a legislative action violates the Federal Contract Clause:

(1) whether the legislative action operates as a substantial impairment of a contractual relationship;

(2) assuming such an impairment, whether the legislative action is justified by a significant and legitimate public purpose; and

(3) whether the adjustment of the rights and responsibilities of the contracting parties is reasonable and appropriate given the public purpose behind the legislative action.⁸

⁴ U.S. Const. art. I, § 10.

⁵ U.S. Trust Co. v. New Jersey, 431 U.S. 1, 15 (1977).

⁶ Id. at 17.

⁷ Id. at 21 (internal quotation marks omitted); see also Energy Reserves Grp., Inc. v. Kan. Power & Light Co., 459 U.S. 400, 410 (1983) (“Although the language of the [Federal] Contract Clause is facially absolute, its prohibition must be accommodated to the inherent police power of the State ‘to safeguard the vital interests of its people.’”) (quoting Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. 398, 434 (1934)).

⁸ Energy Reserves, 459 U.S. at 411–13; see also RUI One Corp. v. City of Berkeley, 371 F.3d 1137, 1147 (9th Cir. 2004) (citations omitted).

To the Persons Listed on the Attached Schedule I

[closing date], 2024

Page 6

In addition, in cases involving a contract with a state, there is an additional step known as the “reserved powers doctrine.” That doctrine requires a reviewing court to ask whether a state has “surrender[ed] an essential attribute of its sovereignty,” which the state is not permitted to do.⁹

The following subparts address: (1) whether a contract exists between the State and the Bondholders; (2) if so, whether that contract violates the “reserved powers” doctrine; and (3) the State’s burden in justifying an Impairment. The determination of whether a Legislative Action constitutes a substantial impairment of a particular contract is a fact-specific analysis, and nothing in this letter expresses an opinion as to how a court of competent jurisdiction would resolve that issue with respect to the Financing Order, the Storm Recovery Property, or the Bonds. Therefore, we assume for purposes of this letter that any Impairment resulting from a challenged Legislative Action would be substantial under the Federal Contract Clause.

A. The Existence of a Contractual Relationship

The law is clear that a contractual relationship may, in certain circumstances, arise from a legislative enactment. Courts have recognized, however, a general presumption that “absent some clear indication that [a] legislature intends to bind itself contractually, . . . ‘a law is not intended to create private contractual or vested rights but merely declares a policy to be pursued until the legislature shall ordain otherwise.’”¹⁰ That presumption arises from the principle that a legislature’s primary function “is not to make contracts, but to make laws that establish the policy of the state.”¹¹

The general presumption against a contractual relationship may be overcome where the language of the statute at issue indicates an intent to create contractual rights. To determine whether a contract has been created by a statute, courts have explained, “it is of first importance to examine the language of the statute.”¹² On this score, the United States Supreme Court has held that a statute creates a contractual relationship between a state and private parties if the statute contains adequate language of contractual undertaking.¹³ According to the Court, a statutory contract is created “when the language and circumstances evince a legislative intent to create private rights of a contractual nature enforceable against the State.”¹⁴

⁹ U.S. Trust, 431 U.S. at 23. The Supreme Court has sometimes indicated that Contract Clause challenges should be reviewed in three steps and sometimes indicated the review shall involve two steps. Compare Energy Reserves, 459 U.S. at 411-12 (identifying three-part test: (1) “substantial impairment,” (2) “significant and legitimate public purpose,” and (3) “reasonable” and “appropriate” means), with Sveen v. Melin, –– U.S. ––, 138 S. Ct. 1815, 1821-22 (2018) (referencing two-part test: (1) “substantial impairment,” and (2) “whether the state law is drawn in an appropriate and reasonable way to advance a significant and legitimate public purpose” (internal quotation marks omitted)). Whether articulated as a three-part or two-part test, however, the substance of the inquiry is the same. Melendez v. City of New York, 16 F.4th 992, 1031 (2d Cir. 2021).

¹⁰ Nat’l R.R. Passenger Corp. v. Atchison, Topeka & Santa Fe Ry. Co., 470 U.S. 451, 465–66 (1985) (quoting Dodge v. Bd. of Education, 302 U.S. 74, 79 (1937)).

¹¹ Id. at 466 (citing Ind. ex. Rel. Anderson v. Brand, 303 U.S. 95, 104–05 (1938)).

¹² Dodge, 302 U.S. at 78.

¹³ See Brand, 303 U.S. at 104–05 (noting that “the cardinal inquiry is as to the terms of the statute supposed to create such a contract”); U.S. Trust, 431 U.S. at 17–18, 17 n.14.

¹⁴ U.S. Trust, 431 U.S. at 17 n.14; accord AFSCME Maryland Council 3 v. Maryland, 61 F.4th 143, 149 (4th Cir. 2023) (quoting U.S. Trust, 431 at 17 n.14).

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Several Supreme Court decisions support the conclusion that the State Pledge creates a contractual relationship between the State and the Bondholders. For example, in U.S. Trust, the Supreme Court affirmed the trial court’s uncontested finding that a statutory covenant between two states that benefitted the holders of certain bonds gave rise to a contractual obligation between the states and those bondholders.¹⁵ The covenant at issue limited the ability of the Port Authorities of New York and New Jersey to subsidize rail-passenger transportation with revenues and reserves pledged as security for various bonds. In finding the presence of a contract between the states and the bondholders, the Court emphasized that “[t]he intent to make a contract is clear from the statutory language: ‘The 2 States covenant and agree with each other and with the holders of any affected bonds.’”¹⁶

Similarly, in Brand, the Supreme Court held that the Indiana Teachers’ Tenure Act formed a contract between the state and specified teachers because the statutory language showed a clear contractual intent. Specifically, the Court based its decision on the legislature’s repeated and intentional use of the word “contract” throughout the statute to describe the legal relationship between the state and the impacted teachers.¹⁷ “The title of the act,” too, was “couched in terms of contract,” and “[t]he tenor of the act indicate[d] that the word ‘contract’ was not used inadvertently or in other than its usual legal meaning.”¹⁸

¹⁵ Id. at 17–18.

¹⁶ Id. at 18 (quoting 1962 N.J. LAWS, c. 8, § 6; 1962 N.Y. LAWS, c. 209, § 6).

¹⁷ Brand, 303 U.S. at 105. That said, the mere use of the word “contract,” without more, will not necessarily establish the requisite contractual intent. See Nat’l R.R., 470 U.S. at 470. Indeed, in National Railroad, the Court found that the use of the word “contract” in the Rail Passenger Service Act defined only the relationship between the newly created nongovernmental corporation Amtrak and the railroads, not a contractual relationship between the United States and the railroads. The Court made clear that “[l]egislation outlining the terms on which private parties may execute contracts does not on its own constitute a statutory contract.” Id. at 467.

¹⁸ Brand, 303 U.S. at 105.

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Like the language of the covenants considered in U.S. Trust and Brand, the language of the State Pledge manifests the South Carolina legislature’s intent to bind the State. In particular, the State Pledge provides, in pertinent part, that “[t]he State and its agencies, including the commission, pledge and agree with bondholders, the owners of the storm recovery property, and other financing parties that the State and its agencies will not take any action listed in [§ 58-27-1155(A)] as to any outstanding storm recovery bonds, storm recovery charges, or storm recovery property.”¹⁹ Similar to the terms “covenant” and “agree” quoted in U.S. Trust, and the word “contract” in Brand, the terms “pledge” and “agree” evince a desire to create private rights of a contractual nature enforceable against the State. And “[t]he tenor of the” State Pledge, as in Brand, indicates that those words were “not used inadvertently or other than [their] usual legal meaning.”²⁰ Also consistent with the language at issue in U.S. Trust, the State Pledge names the beneficiaries of the State’s pledge and agreement.²¹ Finally, it bears mention that the State authorized an issuer of Storm Recovery Bonds to include the State Pledge in contracts with the holders of Storm Recovery Bonds (such as the Bondholders).²² On this record, there is ample evidence to overcome the general presumption against statutory contracts and to conclude that the State Pledge creates a contractual relationship between the State and the Bondholders under the Federal Contract Clause. Perhaps equally important, we are unaware of any circumstances surrounding the enactment of the Storm Recovery Law suggesting that the South Carolina legislature did not intend to bind contractually the State through the State Pledge.

B. The Reserved Powers Doctrine

As noted, the reserved powers doctrine limits the State’s ability to contract away an essential attribute of its sovereignty.²³ According to this doctrine, if a contract purports to capitulate a state’s “reserved powers,” such a contract is void as a matter of law. Although the scope of the reserved powers doctrine has not been precisely defined by courts, Supreme Court case law has established that a state cannot enter into contracts that forbid the exercise of the state’s police powers or the state’s power of eminent domain.²⁴ On the other hand, the Court has made clear that a state’s “power to enter into effective financial contracts cannot be questioned,” and promises that are “purely financial” do not necessarily compromise a state’s reserved powers.²⁵

¹⁹ S.C. Code Ann. § 58-27-1155(A).

²⁰ Brand, 303 U.S. at 105.

²¹ S.C. Code Ann. § 58-27-1155(A) (“The State and its agencies, including the commission, pledge and agree with bondholders, the owners of the storm recovery property, and other financing parties. . . .”).

²² Id. § 58-27-1155(B) (“Any person or entity that issues storm recovery bonds may include the language specified in this section in the storm recovery bonds and related documentation.”).

²³ U.S. Trust, 431 U.S. at 23.

²⁴ Id. at 23–24, 24 nn.20–21 (citing Stone v. Mississippi, 101 U.S. 814, 817 (1880); W. River Bridge Co. v. Dix, 47 U.S. 507, 525–26 (1848)).

²⁵ Id. at 24; see also Cont’l Ill. Nat’l Bank & Trust Co. v. Washington, 696 F.2d 692, 699 (9th Cir. 1983) (“Thus, insofar as the purely financial aspects of the agreement are concerned, reservations are not to be lightly inferred.”).

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In our view, the State Pledge does not purport to surrender any reserved powers of the State. Although the State’s commitment not to “tak[e] or permit[] any action that impairs or would impair the value of storm recovery property or the security for the storm recovery bonds, or revises the storm recovery costs for which storm recovery is authorized” arguably is broader than the commitment in U.S. Trust that revenues and reserves securing bonds would not be depleted beyond a certain level,²⁶ the State Pledge does not purport to contract away or forbid the future exercise of the State’s power of eminent domain or police power to protect public health and safety. Through “financing order[s]” (like the Order), the State will authorize electric utilities to issue “storm recovery bonds” (such as the Bonds) and pledges not to impair the value of the “storm recovery property” (i.e., the Storm Recovery Property) securing such instruments. In other words, the State Pledge constitutes an agreement made by the State not to impair the financial security for storm recovery bonds to foster the capital markets’ acceptance of such bonds, which are expressly authorized and will be issued to facilitate the recovery of the costs of catastrophic storms. As such, we believe that the State Pledge is akin to the “financial contract” involved in U.S. Trust, and therefore would not be viewed as an impermissible surrender of an essential attribute of state sovereignty.

C. The State’s Burden to Justify an Impairment

To survive scrutiny under the Federal Contract Clause, a substantial impairment by a state of a statutory contract can be justified only with “a significant and legitimate public purpose . . . such as the remedying of a broad and general social or economic problem.”²⁷ In addition, the state must show that its action causing a substantial impairment is “reasonable and necessary to serve” such a public purpose. Admittedly, this analysis is case- and fact-specific, but the contours of the analysis are illustrated by several decisions of the United States Supreme Court.

²⁶ S.C. Code Ann. § 58-27-1155(A)(2); U.S. Trust, 431 U.S. at 25.

²⁷ Energy Reserves, 459 U.S. at 411–12 (citation omitted). We are aware of no authority supporting the proposition that the will of the people, in and of itself, constitutes a broad and significant public purpose sufficient for a substantial impairment by a state of a statutory contract to survive a challenge under the Federal Contract Clause.

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For instance, in Home Building & Loan Association v. Blaisdell—“the leading case in the modern era of [Federal] Contract Clause interpretation”²⁸—the Court assessed a challenge to a Minnesota law that, in response to economic conditions caused by the Great Depression: (1) authorized county courts to extend the period of redemption from foreclosure sales on mortgages “for such additional time as the court may deem just and equitable,” subject to certain limitations; and (2) regulated actions for deficiency judgments.²⁹ In upholding the Minnesota law, the Court relied on the following factors: (1) an economic emergency threatened the loss of homes and land that provided state residents with necessary shelter and means of subsistence; (2) the law was not enacted for the benefit of specific individuals but for the protection of a broad interest of society; (3) the relief provided by the law was appropriately tailored to the emergency and could only be granted in reasonable conditions; (4) the conditions on which the law extended the period of redemption were not unreasonable; and (5) the law was temporary in operation and limited to the emergency on which it was based.

During the same term, the Supreme Court qualified its decision in Blaisdell, emphasizing the importance of the last factor analyzed—i.e., “the temporary and conditional relief which the legislation granted.”³⁰ In that case, the Court addressed a challenge to an Arkansas law providing that money paid to any Arkansas resident as the insured or beneficiary designated under an insurance policy would be exempt from liability or seizure under judicial process.³¹ The Court struck down the Arkansas law under the Federal Contract Clause, and in so doing noted that the Arkansas law was not a temporary emergency measure like the Minnesota law at issue in Blaisdell. Two other contemporaneous opinions issued by the Supreme Court vacated laws passed in response to the economic emergency created by the Great Depression, thereby reinforcing the notion that, to be justified, an impairment must be the result of a reasonable, necessary, and tailored response to a broad and significant public concern.³²

Relatedly, the deference that courts give to a legislature’s determination of the need for an impairment has turned on whether the contract at issue is a private one or whether the state is a contracting party. In fact, any deference, the Supreme Court has instructed, to legislative judgment as to the necessity and reasonableness of a particular action, “is not appropriate” when the state is a party to the contract at issue.³³ In that circumstance, a “stricter standard” should apply, for as the Court in Energy Reserves pointed out, “[i]n almost every case, the Court has held a governmental unit to its contractual obligations when it enters financial or other markets.”³⁴ The Ninth Circuit, too, has held that “[c]ourts defer to a lesser degree when the State is a party to the contract because the State’s self-interest is at stake.”³⁵

²⁸ U.S. Trust, 431 U.S. at 15; see also HAPCO v. City of Philadelphia, 482 F. Supp. 3d 337, 350 (E.D. Pa. 2020 ) (continuing to refer to Blaisdell as “[t]he leading case in the modern era of Contract Clause interpretation”).

²⁹ 290 U.S. 398, 415–18 (1934).

³⁰ W.B. Worthen Co. v. Thomas, 292 U.S. 426, 434 (1934).

³¹ Id. at 429–30.

³² See Treigle v. Acme Homestead Ass’n, 297 U.S. 189 (1936); W.B. Worthen Co. v. Kavanaugh, 295 U.S. 56 (1935).

³³ U.S. Trust, 431 U.S. at 25–26. The Fourth Circuit has held that “at least some deference” is appropriate even when a state acts to impair a public contract, although it has stated this is less deference than would be accorded if the state acted to impair a private contract. Baltimore Tchrs. Union, Am. Fed’n of Tchrs. Loc. 340, AFL-CIO v. Mayor & City Council of Baltimore, 6 F.3d 1012, 1019 (4th Cir. 1993).

³⁴ 459 U.S. at 412–13 n.14.

³⁵ RUI One, 371 F.3d at 1147 (internal quotation marks omitted).

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The leading case involving the impairment of contracts to which the state is a party is U.S. Trust. There, two states agreed not to deplete the revenues and reserves securing certain bonds below a specified level. The states thereafter repealed that promise, justifying the repeal with the purported need to finance new mass transit projects in order to promote and encourage additional use of public transportation in light of energy shortages and environmental concerns.³⁶ The Court ruled that the states’ action was invalid under the Federal Contract Clause because repeal of the covenant was “neither necessary to achievement of the plan nor reasonable in light of the circumstances.”³⁷ The Court further stated that a modification less drastic than total repeal would have permitted the states to achieve their plan to improve commuter rail service, and, in fact, the states could have achieved that goal without modifying the covenant at all. For example, the states could have “discourage[d] automobile use through taxes on gasoline or parking, . . .  and use[d] the revenues to subsidize mass transit projects.”³⁸

Moreover, the Court contrasted the legislation under consideration with the statute challenged in City of El Paso v. Simmons, which limited to five years the reinstatement rights of defaulting purchasers of land from the state.³⁹ For many years prior to the enactment of that statute, defaulting purchasers were allowed to reinstate their claims upon written request and payment of delinquent interest unless the rights of third parties had intervened. In U.S. Trust, the Court opined that this older statute “had effects that were unforeseen and unintended by the legislature when originally adopted” in that “speculators were placed in a position to obtain windfall benefits.”⁴⁰ Thus, according to the Court, the state’s adoption of a statute of limitations was reasonable to restrict parties to gains expected from the contract when the original statute was adopted. By comparison, the need for mass transportation in New York and New Jersey was not a new development and the likelihood that publicly owned commuter railroads would produce substantial deficits was well known when the states adopted the covenant.⁴¹

³⁶ 431 U.S. at 28–29.

³⁷ Id. at 29.

³⁸ Id. at 30 n.29.

³⁹ 379 U.S. 497 (1965).

⁴⁰ U.S. Trust, 431 U.S. at 31.

⁴¹ Id. at 31–32.

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The U.S. Trust Court also distinguished its prior holding in Faitoute Iron & Steel Co. v. City of Asbury Park,⁴² which was, at that point, the “only time in th[e 20th] century that alteration of a municipal bond contract ha[d] been sustained.”⁴³ Faitoute involved a state municipal reorganization act under which bankrupt local governments could be placed in receivership by a state agency. The holders of certain municipal revenue bonds received new securities bearing lower interest rates and later maturities. As recounted in U.S. Trust, the Faitoute Court rejected the bondholders’ Federal Contract Clause claims on the ground that the “old bonds represented only theoretical rights; as a practical matter the city could not raise its taxes enough to pay off its creditors under the old contract terms,” and thus the plan “enabled the city to meet its financial obligations more effectively.”⁴⁴ U.S. Trust explained that the obligation in Faitoute was “discharged, not impaired” by the plan.⁴⁵

The case law demonstrates that the State bears a substantial burden in attempting to justify a significant impairment of a contract to which it is a party. As the Supreme Court put it, “[i]n almost every case, the Court has held a governmental unit to its contractual obligations when it enters financial or other markets.”⁴⁶ That is because a state action that impairs contracts to which it is a party must further a significant, legitimate, and broad public purpose. And that public purpose must be served by a reasonable, necessary, and carefully tailored measure, since “a State is not free to impose a drastic impairment when an evident and more moderate course would serve its purposes equally well.”⁴⁷

Subject to the qualifications, limitations, and assumptions set forth in this letter, it is our opinion that a reviewing court of competent jurisdiction, in a properly prepared and presented case, would conclude that the State Pledge constitutes a contractual relationship between the Bondholders and the State under the Federal Contract Clause. We are also of the view that, absent a demonstration by the State that an Impairment is necessary to further a significant and legitimate public purpose, and upon a finding by the court that an evident and more moderate course would serve the State’s purposes equally well, the Bondholders (or the Indenture Trustee acting on their behalf) could successfully challenge under the Federal Contract Clause the constitutionality of any Legislative Action determined by such court to alter, impair, or reduce the value of the Storm Recovery Property or the Storm Recovery Charges so as to cause an Impairment before the Bonds are fully paid and discharged.

⁴² 316 U.S. 502 (1942).

⁴³ U.S. Trust, 431 U.S. at 27.

⁴⁴ Id. at 28.

⁴⁵ Id.

⁴⁶ Energy Reserves, 459 U.S. at 412 n.14 (citing U.S. Trust, 431 U.S. at 25–28); see also, e.g., Kavanaugh, 295 U.S. 56; Murray v. Charleston, 96 U.S. 432 (1877).

⁴⁷ U.S. Trust, 431 U.S. at 31.

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II. INJUNCTIVE RELIEF

In a challenge to Legislative Action under the Federal Contract Clause, we expect that a plaintiff would seek, among other potential remedies, an injunction preventing state officials from enforcing the provisions of such Legislative Action.⁴⁸ A preliminary injunction would serve to delay the implementation of the Legislative Action pending the final resolution of the Contract Clause challenge, whereas a permanent injunction would prevent any future implementation of the Legislative Action once the court has resolved the merits of the litigation.

A. The Availability of Preliminary Injunctive Relief in Federal Court

A federal court balances the following equitable factors in deciding whether to grant preliminary injunctive relief: (1) whether the party seeking an injunction is likely to succeed on the merits; (2) whether the party is likely to suffer irreparable harm in the absence of injunctive relief; (3) whether the balance of equities tips in favor of the party seeking the injunction; and (4) whether an injunction is in the public interest.⁴⁹ The decision to grant or deny a preliminary injunction is committed to the sound discretion of a federal district court, and the court’s exercise of that discretion is reviewed on appeal under the deferential “abuse of discretion” standard.⁵⁰

⁴⁸ Notably, if a plaintiff also sought money damages in federal court, the state defendant(s) could claim immunity. The Eleventh Amendment generally bars federal courts from granting money damages against the State, unless the State waived that immunity. Pele v. Penn. Higher Educ. Assistance Agency, 628 F. App’x 870, 871 (4th Cir. 2015) (“Absent consent by the state or valid Congressional abrogation, the Eleventh Amendment bars an action in federal court seeking money damages against a state.”) (citing Bland v. Roberts, 730 F.3d 368, 389–90 (4th Cir.2013)); see also Zito v. N.C. Coastal Res. Comm’n, 8 F.4th 281, 284–85, 290–91 (4th Cir. 2021) (holding that “State sovereign immunity bars [plaintiffs’] [Fifth Amendment] takings claims against the [North Carolina Coastal Resources] Commission in federal court when North Carolina’s courts remain open to adjudicating those claims”).

⁴⁹ See, e.g., Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 20 (2008); Pashby v. Delia, 709 F.3d 307, 331 (4th Cir. 2013). Following the Supreme Court’s ruling in Winter, the Fourth Circuit rejected its previous alternative formulation of the test that “‘grant[ing] or deny[ing] a preliminary injunction depends upon a ‘flexible interplay’ among all the factors considered . . . for all four [factors] are intertwined and each affects in degree all the others,’” e.g., that the greater the relative hardship to the party seeking the preliminary injunction, the less probability of success must be shown. See Real Truth About Obama, Inc. v. Fed. Election Comm’n, 575 F.3d 342, 346–47 (4th Cir. 2009), cert. granted, judgment vacated on other grounds, 559 U.S. 1089 (2010) (quoting and rejecting Blackwelder Furniture Co. of Statesville v. Seilig Mfg. Co., 550 F.2d 189, 196 (4th Cir. 1977)). Instead, “[c]ourts considering whether to impose preliminary injunctions must separately consider each Winter factor.” Pashby, 709 F.3d at 321.

⁵⁰ Pashby, 709 F.3d at 319.

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Success on the Merits. For purposes of this opinion, and consistent with the assumptions above, we assume that a reviewing court would find a strong likelihood of success on the merits, i.e., that the Legislative Action is likely an Impairment. Thus, we examine only the three remaining elements of the standard for a preliminary injunction.

Irreparable Harm. In evaluating the irreparable harm prong on a request for a preliminary injunction, federal courts evaluate whether (1) there is a sufficient causal connection between the alleged injury and the conduct sought to be enjoined;⁵¹ (2) irreparable injury is likely in the absence of an injunction;⁵² (3) the threat of harm to the plaintiff is immediate;⁵³ and (4) litigation can offer monetary compensation instead, i.e., an availability of an alternative remedy.⁵⁴

Causation. To obtain a preliminary injunction, Bondholders would have to prove that enforcement of the Legislative Action caused harm to them, such as loss of expected payments or loss of bond value. Because an Impairment, by definition, is Legislative Action that operates to the detriment of Bondholders, we believe that Bondholders would be able to show causation.

⁵¹ See Perfect 10, Inc. v. Google, Inc., 653 F.3d 976, 982 (9th Cir. 2011); Garcia v. Google, Inc., 786 F.3d 733, 745 (9th Cir. 2015).

⁵² See Winter, 555 U.S. at 22.

⁵³ See, e.g., Universal Furniture Int’l, Inc. v. Collezione Europa USA, Inc., 196 F. App’x 166, 172 (4th Cir. 2006).

⁵⁴ See Sampson v. Murray, 415 U.S. 61, 90 (1974); Roe v. Dep’t of Def., 947 F.3d 207, 228 (4th Cir. 2020), as amended (Jan. 14, 2020) (“Mere injuries, however substantial, in terms of money, time and energy necessarily expended in the absence of [an injunction] are not enough.”) (citation omitted); Mtn. Valley Pipeline, LLC v. 6.56 Acres of Land, Owned by Sandra Townes Powell, 915 F.3d 197, 218 (4th Cir. 2019), cert. denied sub nom. Givens v. Mtn. Valley Pipeline, LLC, 140 S. Ct. 300 (2019) (“In the unusual circumstances presented here, in which monetary damages will be unavailable to remedy financial losses when litigation ends, there is no bar to treating those losses as irreparable injury justifying preliminary relief.”); 11A Wright & Miller, Fed. Prac. & Proc. Civ. § 2948.1 (3d ed.) (“a preliminary injunction usually will be denied if it appears that the applicant has an adequate alternate remedy in the form of money damages or other relief” (footnote omitted) (collecting cases)).

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Likelihood of Injury. Bondholders would also have to prove that their harm is likely in the absence of an injunction. Again, however, the presence of likely harm is what makes the Legislative Action an Impairment in the first place. Thus, we assume here that Bondholders could prove likely harm without an injunction. As noted below, with respect to alternative remedies, where a constitutional violation is established, the irreparable injury element is satisfied.

Immediacy. If scheduled payments are disrupted or bond values are depressed by Legislative Action before a trial on the merits, then the Bondholders can prove immediate harm. If, however, a trial on the merits could take place before such harm occurs, then the harm may not be immediate enough to support a preliminary injunction.⁵⁵

Alternative Remedies. Unless the State waives immunity, the Eleventh Amendment bars federal courts from granting money damages against the State. Thus, absent such a waiver, money damages would be unavailable to redress the harm to the Bondholders from the Legislative Action. Moreover, where a “constitutional violation is established,” for instance a violation of the Federal Contract Clause, “usually no further showing of irreparable injury is necessary” to obtain a preliminary injunction.⁵⁶

Balance of Equities. In deciding whether to grant a preliminary injunction, courts typically identify the harm that a preliminary injunction might cause the defendant, and weigh that harm against the plaintiff’s threatened injury.⁵⁷ Here, a court will likely consider the balance of harm in the “public interest” step of the analysis because the balance of equities and the public interest often merge when the government is the party opposing the request for a preliminary injunction.⁵⁸

⁵⁵ See, e.g., HCI Techs., Inc. v. Avaya, Inc., 446 F. Supp. 2d 518, 520–21 (E.D. Va. 2006) (denying motion for preliminary injunction due to lack of “immediate irreparable harm”), aff’d, 241 F. App’x 115 (4th Cir. 2007).

⁵⁶ 11A Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, FEDERAL PRACTICE AND PROCEDURE § 2944, at 94 (2d ed. 1995) (citing cases); Leaders of a Beautiful Struggle v. Baltimore Police Dep’t, 2 F.4th 330, 346 (4th Cir. 2021) (“Because there is a likely constitutional violation, the irreparable harm factor is satisfied.”).

⁵⁷ See Winter, 555 U.S. at 24.

⁵⁸ See Nken v. Holder, 556 U.S. 418, 435 (2009).

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Public Interest. In assessing the last element of a preliminary injunction request, courts “pay particular regard for the public consequences in employing the extraordinary remedy of injunction.”⁵⁹ In fact, “[a]ny time a State is enjoined by a court from effectuating statutes enacted by representatives of its people, it suffers a form of irreparable injury.”⁶⁰ But the law is also clear that there is no “blanket presumption in favor of the government in all preliminary injunction cases.”⁶¹ And importantly, the government has no interest in enforcing unconstitutional laws,⁶² and courts have instructed that financial concerns are not a paramount public interest.⁶³ Thus, if a court determines that the Bondholders have established a substantial likelihood that a Legislative Action is unconstitutional under the Contract Clause—and, for the reasons explained above, we believe they can—then the “public interest” factor will counsel in favor of an injunction.

Based on the foregoing, the Bondholders likely could satisfy the standards for preliminary injunctive relief to prevent an unconstitutional Impairment, although much will depend on the particulars of the Legislative Action.

B. The Availability of Permanent Injunctive Relief in Federal Court

The requirements for a permanent injunction are much the same as those for a preliminary injunction. As noted above, the only meaningful difference is that, to obtain a permanent injunction, the Bondholders must show actual success on the merits, i.e., prevailing at trial.⁶⁴ Because we expect that the Bondholders could obtain a preliminary injunction (subject to the caveats described above), we also expect that they could obtain a permanent injunction after succeeding at trial.

⁵⁹ Winter, 555 U.S. at 24; see also Salazar v. Buono, 559 U.S. 700, 714 (2010); see also Roe, 947 F.3d at 230–31.

⁶⁰ Maryland v. King, 567 U.S. 1301, 1303 (2012) (internal quotation marks omitted).

⁶¹ Rodriguez v. Robbins, 715 F.3d 1127, 1145–46 (9th Cir. 2013).

⁶² See Centro Tepeyac v. Montgomery Cnty., 722 F.3d 184, 191 (4th Cir. 2013) (en banc) (“a state is in no way harmed by issuance of a preliminary injunction which prevents the state from enforcing restrictions likely to be found unconstitutional”) (citation omitted); N. Y. Progress & Prot. PAC v. Walsh, 733 F.3d 483, 488 (2nd Cir. 2013); KH Outdoor, LLC v. City of Trussville, 458 F.3d 1261, 1272 (11th Cir. 2006).

⁶³ See, e.g., Pashby, 709 F.3d at 331 (“[T]he public interest in this case lies with safeguarding public health rather than with assuaging North Carolina’s budgetary woes.”) (finding that public interest weighed in favor of preliminary injunction enjoining state from implementing new Medicaid eligibility policy).

⁶⁴ See eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006); Mayor of Baltimore v. Azar, 973 F.3d 258, 274 (4th Cir. 2020) (“A party seeking a permanent injunction must demonstrate ‘actual success’ on the merits, rather than a mere ‘likelihood of success’ required to obtain a preliminary injunction.”).

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III. THE FEDERAL TAKINGS CLAUSE

The Federal Takings Clause provides that private property shall not “be taken for public use, without just compensation.”⁶⁵ The Federal Takings Clause is applicable to state action via the Fourteenth Amendment,⁶⁶ and the Clause covers both tangible and intangible property.⁶⁷ Rights under contracts can be property for purposes of the Federal Takings Clause,⁶⁸ but legislation that “disregards or destroys” contract rights does not always constitute a taking.⁶⁹ Where intangible property is at issue, state law will determine whether a property right exists. And if a court determines that an intangible asset is property, the court will then consider whether the owner of that property interest had a “reasonable investment-backed expectation” that the property right would be protected.⁷⁰

The United States Supreme Court has suggested that the Federal Takings Clause may be implicated by a diverse range of government actions, including when the government (1) permanently appropriates or denies all economically productive use of property;⁷¹ (2) destroys property other than in response to emergency conditions;⁷² and (3) reduces, alters, or impairs the value of property so as to unduly interfere with reasonable investment-backed expectations.⁷³ To decide whether a particular interference is “undue,” courts have considered the nature of the governmental action and weighed the public purpose served by the action against the degree to which it interferes with legitimate property interests and/or investment-backed expectations.⁷⁴

⁶⁵ U.S. Const. amend. V.

⁶⁶ See Webb’s Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 160 (1980).

⁶⁷ See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1003 (1984).

⁶⁸ See Lynch v. United States, 292 U.S. 571, 577 (1934).

⁶⁹ See Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211, 224 (1986).

⁷⁰ PruneYard Shopping Ctr. v. Robins, 447 U.S. 74, 83 (1980); see also 2 Ronald D. Rotunda & John E. Nowak, TREATISE ON CONSTITUTIONAL LAW: SUBSTANCE AND PROCEDURE § 15.12(a)(iii), at 971 (5th ed. 2012).

⁷¹ See, e.g., Connolly, 475 U.S. at 225; Palazzolo v. Rhode Island, 533 U.S. 606, 617 (2001); Lucas v. S.C. Coastal Council, 505 U.S. 1003, 1027–28 (1992); United States v. Sec. Indus. Bank, 459 U.S. 70, 77 (1982).

⁷² The emergency exception to the just compensation requirement of the Federal Takings Clause often arises in cases involving the government’s activities during military hostilities. See, e.g., Nat’l Bd. of Young Men’s Christian Ass’ns v. United States, 395 U.S. 85 (1969); United States v. Cent. Eureka Mining Co., 357 U.S. 155 (1958). Of note, though, the exception is not limited to wartime activities. See Miller v. Schoene, 276 U.S. 272 (1928).

⁷³ See Connolly, 475 U.S. at 224–25; Cent. Eureka Mining, 357 U.S. 155.

⁷⁴ See, e.g., Keystone Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. 470, 485 (1987).

To the Persons Listed on the Attached Schedule I

[closing date], 2024

Page 18

The Supreme Court has identified two categories of regulatory action that constitute per se takings: (1) regulations that require a property owner to suffer a permanent physical invasion of property, and (2) regulations that deprive the owner of all economically beneficial use of the property.⁷⁵ Beyond these two narrow categories, challenges to regulations that interfere with protected property interests are governed by the three-part test set forth in Penn Central Transportation Co. v. City of New York.⁷⁶ Under that test, a regulation constitutes a taking if it denies a property owner “economically viable use” of that property, which is, in turn, determined by three factors: (1) the character of the governmental action; (2) the economic impact of the regulation on the claimant; and (3) the extent to which the regulation has interfered with distinct investment-backed expectations.⁷⁷

The first Penn Central factor requires the Court to examine “the purpose and importance of the public interest underlying a regulatory imposition” with an “inquir[y] into the degree of harm created by the claimant’s prohibited activity, its social value and location, and the ease with which any harm stemming from it could be prevented.”⁷⁸

The second Penn Central factor incorporates the principle enunciated by Justice Holmes many years ago: “Government hardly could go on if to some extent values incident to property could not be diminished without paying for every such change in the general law.”⁷⁹ Nevertheless, “not every destruction or injury to property by governmental action has been held to be a ‘taking’ in the constitutional sense.”⁸⁰ Diminution in property value alone, for example, does not constitute a taking unless accompanied by serious economic harm.

⁷⁵ Lingle v. Chevron U.S.A. Inc., 544 U.S. 528, 538 (2005).

⁷⁶ 438 U.S. 104 (1978).

⁷⁷ Id. at 124, 138 n.36.

⁷⁸ Maritrans Inc. v. United States, 342 F.3d 1344, 1356 (Fed. Cir. 2003) (internal quotation marks omitted).

⁷⁹ Penn. Coal Co. v. Mahon, 260 U.S. 393, 413 (1922).

⁸⁰ Armstrong v. United States, 364 U.S. 40, 48 (1960).

To the Persons Listed on the Attached Schedule I

[closing date], 2024

Page 19

The third and final Penn Central factor is “a way of limiting takings recovery to owners who could demonstrate that they bought their property in reliance on a state of affairs that did not include the challenged regulatory regime.”⁸¹ The burden under this factor of showing interference with reasonable, investment-backed expectations is a heavy one.⁸² Indeed, a reasonable, investment-backed expectation “must be more than a ‘unilateral expectation or an abstract need,’”⁸³ and “legislation readjusting rights and burdens is not unlawful solely because it upsets otherwise settled expectations.”⁸⁴ To sustain a claim under the Federal Takings Clause, the challenging party must show that it had a “reasonable expectation” at the time the contract was entered that the party “would proceed without possible hindrance” arising from changes in government policy.⁸⁵

We are not aware of any case law that addresses the applicability of the Federal Takings Clause in the context of a purported exercise by a state of its police power to abrogate or impair contracts otherwise binding on the state. The outcome, thus, of any claim that interference by the State with the value of the Storm Recovery Property without compensation is unconstitutional would likely depend on factors such as the State interest furthered by that interference and the extent of financial loss to the Bondholders caused by that interference. Also relevant to a court’s inquiry would be the extent to which the Bondholders had a reasonable expectation that changes in government policy and regulation would not interfere with their investment. With respect to the last factor, we note that the Financing Act expressly provides for the creation of Storm Recovery Property in connection with the issuance of the Bonds, and further provides that the Order, once final, is irrevocable.⁸⁶ Moreover, through the State Pledge, the State has “pledge[d] and agree[d] with [the] bondholders” not to impair the value of the Storm Recovery Property.⁸⁷ Given the foregoing, we believe that Bondholders very likely have reasonable investment-backed expectations in their investments in the Bonds.

⁸¹ Loveladies Harbor, Inc. v. United States, 28 F.3d 1171, 1176 (Fed. Cir. 1994).

⁸² DeBenedictis, 480 U.S. at 493.

⁸³ Monsanto, 467 U.S. at 1005–06 (quoting Webb’s Fabulous Pharmacies, 449 U.S. at 161).

⁸⁴ Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 16 (1976).

⁸⁵ Chang v. United States, 859 F.2d 893, 897 (Fed. Cir. 1988).

⁸⁶ S.C. Code Ann. § 58-27-1110 (C)(5) (“Subsequent to the transfer of storm recovery property to an assignee or the issuance of storm recovery bonds authorized thereby, whichever is earlier, a financing order is irrevocable and, except for changes made pursuant to the formula-based mechanism authorized in this article, the commission may not amend, modify, or terminate the financing order by any subsequent action or reduce, impair, postpone, terminate, or otherwise adjust recovery charges approved in the financing order.”).

⁸⁷ Id. § 58-27-1155(A).

To the Persons Listed on the Attached Schedule I

[closing date], 2024

Page 20

Based on our analysis of relevant judicial authority, it is our opinion, as set forth above and subject to the qualifications, limitations, and assumptions in this letter, that under the Federal Takings Clause, a reviewing court of competent jurisdiction would hold that the State is required to pay just compensation to the Bondholders if the State’s repeal or amendment of the Storm Recovery Law or any other action by the State in contravention of the State Pledge constituted a Taking. As noted earlier, in determining whether there is an undue interference, a court would consider the nature of the governmental action and weigh the public purpose served by that action against the degree to which the action interferes with the legitimate property interests and distinct investment-backed expectations of the Bondholders. There can be no assurance, however, that any such award of just compensation would be sufficient to pay the full amount of principal of and interest on the Bonds.

*            *            *            *            *            *            *

This opinion letter may not be relied on in any manner or for any purpose by any person other than the addressees listed on Schedule I hereto. Nor may you rely on this opinion letter for any purpose other than the transactions described herein. This opinion letter may not be quoted, published, communicated, or otherwise made available in whole or in part to any person (including, without limitation, any person who acquires a Bond or any interest therein from an Underwriter), other than the addressees listed on Schedule I hereto, without our specific prior written consent, except that each of the Underwriters may furnish copies of this letter (1) to any of its accountants or attorneys, (2) to comply with any subpoena, order, regulation, ruling, or request of any judicial, administrative, governmental, supervisory, or legislative body or committee or any self-regulatory body (including any securities or commodities exchange or the Financial Industry Regulatory Authority, Inc.), (3) to any other person for the purpose of substantiating an Underwriter’s due diligence defense, and (4) as otherwise required by law. Provided, however, that none of the foregoing persons is entitled to rely hereon unless an addressee hereof, a copy of this opinion letter may be posted by or at the direction of DEP or the Issuer to an internet website required under Rule 17g-5 promulgated under the Securities Exchange Act of 1934, as amended, and maintained in connection with the ratings on the Bonds solely for the purpose of compliance with such rule or undertakings pursuant thereto made by DEP or the Issuer, such permission to post a copy of this letter to such website shall not be construed to entitle any person, including any credit rating agency, who is not an addressee hereof to rely on this opinion letter.

We hereby consent to the filing of this letter as an exhibit to the Registration Statement, and to all references to our firm included in or made a part of the Registration Statement. In giving the foregoing consents, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the related rules and regulations of the U.S. Securities and Exchange Commission.

This opinion letter is being issued as of the date hereof, and we assume no obligation to update or supplement this opinion letter to reflect any facts or circumstances which may hereafter come to our attention with respect to the matters discussed herein, including any changes in applicable law which may hereafter occur.

Very truly yours,

Schedule I

EX-99.3

Exhibit 99.3

BD DRAFT – SUBJECT TO ONGOING INTERNAL REVIEW

___________ __, 2024

To the Parties listed on

Schedule I attached hereto.

$[_________________] 

DUKE ENERGY PROGRESS SC STORM FUNDING LLC 

SERIES [__] STORM RECOVERY BONDS

Ladies and Gentlemen:

We have served as South Carolina counsel to Duke Energy Progress, LLC (“DEP”), a limited liability company duly organized and existing under the laws of the State of North Carolina and a public utility under the laws of the State of South Carolina, in connection with the issuance and sale on the date hereof by Duke Energy Progress SC Storm Funding LLC, a Delaware limited liability company (the “Issuer”), of $_____________ aggregate principal amount of the Issuer’s Storm Recovery Bonds (the “Bonds”), which are more fully described in the Registration Statement on Form SF-1 (File Nos. _____________ and _____________) filed on _____________, 2024 (the “Registration Statement”) and the preliminary prospectus, subject to completion, dated _____________, 2024 (the “Preliminary Prospectus”), which was filed with the Securities Exchange Commission (the “SEC”), pursuant to Rule 424(b)(3) of the rules and regulations of the SEC and the final prospectus, dated _____________, 2024, which was filed with the SEC pursuant Rule 424(b)(1) of the rules and regulations of the SEC (the “Final Prospectus”). The Bonds are being sold pursuant to the provisions of the Underwriting Agreement dated _____________, 2024 (the “Underwriting Agreement”) between DEP, the Issuer, and underwriters named in Schedule I to the Underwriting Agreement. The Bonds are being issued under the provisions of the Indenture dated as of the date hereof (the “Indenture”) between the Issuer and __________________________, as indenture trustee (the “Indenture Trustee”). According to the Indenture, the Indenture Trustee holds the storm recovery property described below (the “Storm Recovery Property”) as collateral security for the payment of the Bonds.

In 2022, the South Carolina legislature enacted the Storm Damage Recovery Law, codified as Section S.C. Code Ann. § 58-27-1100 et seq. of the South Carolina Code of Laws Annotated. The Storm Damage Recovery Law allows public utilities to access lower-cost funds through storm recovery bonds pursuant to financing orders issued by the Commission. The Storm Damage Recovery Law permits the Commission to impose nonbypassable storm recovery charges on all existing or future customers receiving transmission or distribution service, or both, from DEP or its successors or assignees under Commission-approved rate schedules or under special contracts sufficient to pay principal of and interest on the bonds and other administrative expenses of the offering. The Commission governs the amount and terms for collections of these storm recovery charges through one or more financing orders issued to DEP. Upon the transfer of storm recovery property to an assignee or the issuance of the bonds, whichever is earlier, the financing orders are irrevocable. Except for changes made pursuant to the formula-based true-up mechanism, the Commission may not amend, modify, or terminate the financing order by any subsequent action or reduce, impair, postpone, terminate, or otherwise adjust recovery charges approved in the financing order.

Page 2

The State of South Carolina and its agencies, including the Commission, have pledged and agreed with the bondholders that the State and its agencies will not take any of the following actions:

· altering the provisions of the Storm Damage Recovery Law, which authorize the Commission to create an irrevocable contract right or chose in action by the issuance of a financing order, to create storm recovery property, and make the storm recovery charges imposed by a financing order irrevocable, binding, or nonbypassable charges;

· taking or permitting any action that impairs or would impair the value of storm recovery property or the security for the storm recovery bonds, or revises the storm recovery costs for which storm recovery is authorized;

· in any way impairing the rights and remedies of the bondholders, assignees, and other financing parties; or

· except for changes made pursuant to the formula-based adjustment mechanism authorized under the Storm Damage Recovery Law, reducing, altering, or impairing storm recovery charges that are to be imposed, billed, charged, collected, and remitted for the benefit of the bondholders, any assignee and any other financing parties until any and all principal, interest, premium, financing costs and other fees, expenses, or charges incurred, and any contracts to be performed in connection with the related storm recovery bonds, have been paid and performed in full.¹

(the “State Pledge”). Nothing in the State Pledge will preclude limitation or alteration if full compensation is made by law for the full protection of the storm recovery charges collected pursuant to a financing order and of the bondholders and any assignee or financing party entering into a contract with the electric utility.²

On May 31, 2023, DEP filed with the Commission a petition for a storm securitization financing order. Consistent with the Storm Damage Recovery Law, the Storm Recovery Property was created in favor of DEP pursuant to a financing order issued by the Commission on October 13, 2023, in Docket No. 2023-89-E, which order was later amended by subsequent order on October 23, 2023 (collectively, the “Order”). On the date hereof and simultaneous with the issuance of the Bonds, the Storm Recovery Property was sold and assigned to the Issuer in accordance with the provisions of a Storm Recovery Property Purchase and Sale Agreement between DEP and the Issuer in consideration for the payment by the Issuer.

¹ S.C. Code Ann. § 58-27-1155(A).

² Id.

Page 3

QUESTIONS PRESENTED

You have requested our reasoned opinion with respect to the following questions presented under the South Carolina Constitution:

1.            Whether a South Carolina Court would conclude:

(a) that the State Pledge constitutes a contractual relationship between the Bondholders and the State of South Carolina; and

(b) under applicable State of South Carolina constitutional principles relating to the impairment of contracts, that, absent full provisions made by law for the protection of the Storm Recovery Charges collected pursuant to a financing order and of the bondholders and any assignee or financing party entering into a contract with DEP, the South Carolina legislature could not enact legislation that: (A) repeals or amends the State Pledge; (B) repeals or amends the Financing Act; (C) alters, impairs, or reduces the Storm Recovery Property; or (D) alters, impairs, or reduces the Storm Recovery Charges so as to impair: (i) the terms of the Indenture or the Bonds; or (ii) the rights and remedies of the Bondholders (or the Indenture Trustee acting on their behalf) if such repeal, amendment or other action would prevent the payment of the Bonds or would substantially affect the security for the Bonds;³

2.            Whether a South Carolina Court would conclude that the State of South Carolina would be required to pay just compensation to the Bondholders if the State of South Carolina, including the exercise of its legislative powers, undertook any action in contravention of the State Pledge that: (a) constituted a permanent appropriation of a substantial property interest of the Bondholders in the Storm Recovery Property or denied all economically beneficial or productive use of the Storm Recovery Property; (b) destroyed the Storm Recovery Property, other than in response to emergency conditions; or (c) substantially altered, impaired, or reduced the Storm Recovery Charges, Storm Recovery Property, the Financing Order, or any rights thereunder so as to unduly interfere with the reasonable expectations of the Bondholders arising from their investments in the Bonds (a “Taking”); and

3.            Whether any attempt by the State of South Carolina or any agency or instrumentality of the State of South Carolina to repeal or amend the Financing Act or the Financing Order or to take other action in contravention of the State Pledge would be subject to preliminary injunction if a South Carolina Court hearing a request therefor finds (i) that the party requesting such injunctive relief has a likelihood of success on the merits, (ii) that such party will suffer irreparable harm if the preliminary injunctive relief is not granted, (iii) that no adequate, alternative remedy at law exists and (iv) that the issuance of such injunctive relief would not adversely affect the public interest; further, upon final adjudication of the challenged repeal, amendment or other action, the alleged wrongful conduct would be subject to a permanent injunction if the petitioning party succeeds on the merits and the Court hearing a request therefor makes the findings set forth in clauses (ii) through (iv).

³ Any impairment described in clause (i) or (ii) is referred to herein as an “Impairment.”

Page 4

OPINIONS

Based on our review of the relevant judicial authority, and subject to the qualifications, limitations, and assumptions set forth in this letter (including the assumption that any Impairment would be “substantial”), it is our opinion that a reviewing court in South Carolina of competent jurisdiction, in a properly prepared and presented case:

(1) would conclude, with respect to the questions presented above in (1)(a) and (b), that the State Pledge constitutes a contractual relationship between the Bondholders and the State and that, absent a demonstration by the State that an Impairment is necessary to further a significant and legitimate public purpose, the Bondholders (or the Indenture Trustee acting on their behalf) could successfully challenge under the State Contract Clause the constitutionality of any Legislative Action determined by such court to cause an Impairment before the Bonds are fully paid and discharged;

(2) would conclude, with respect to the questions presented above in (2), that under the State Takings Clause, the State is required to pay just compensation to the Bondholders if the State’s repeal or amendment of the Storm Damage Recovery Law or taking of any other action in contravention of the State Pledge constituted a Taking; and

(3) would conclude, with respect to the question presented above in (3), that, under South Carolina state law, preliminary injunctive relief may be available where the party requesting such injunctive relief demonstrates that (i) it has a likelihood of success on the merits, (ii) it will suffer irreparable harm if the preliminary injunctive relief is not granted, and (iii) that no adequate, alternative remedy at law exists; and that a permanent injunction may be available if the party succeeds on the merits.

We note that this letter is limited solely to the laws of the State of State Carolina. Our opinions are based on (x) our evaluation of existing precedent and (y) arguments related to the factual circumstances likely to exist at the time of a State Contract Clause or State Takings Clause challenge to Legislative Action or other State action. Such precedent and such circumstances could change materially from those discussed below. Accordingly, the opinions herein are intended to express our belief as to the result that should be obtainable through the proper application of existing judicial decisions in a properly prepared and presented case. None of the foregoing opinions are intended to be a guaranty as to what a particular court would hold; rather, each such opinion is an expression as to the decision a court ought to reach if the issue were properly prepared and presented and the court followed what we believe to be the applicable legal principles under existing precedent.

In addition, we are not aware of any reported controlling precedent that is directly on point with respect to the questions presented above. Thus, our analysis is a reasoned application of judicial decisions involving similar or analogous circumstances. Moreover, the application of equitable principles (including the issuance of injunctive relief) is subject to the discretion of the court asked to apply them. We cannot predict the facts and circumstances that will be present in the future and may be relevant to the exercise of such discretion. As a result, there can be no assurance that a court will follow our reasoning or reach the conclusions that we believe are supported by current precedent. The recipients of this letter should assess these considerations in analyzing the risks associated with the subject transaction.

Page 5

DISCUSSION

I. THE STATE CONTRACT CLAUSE

The State Contract Clause provides that “[n]o . . . law impairing the obligation of contracts . . . shall be passed . . . .”⁴ The general purpose of the State Contract Clause is to encourage trade and credit by promoting confidence in the stability of contractual obligations.⁵ Accordingly, it is well-settled that the State Contract Clause limits the power of the State to modify its own contracts, as well as those between private parties.⁶ Although the State Contract Clause appears to proscribe any law impairing the obligation of contracts, the Supreme Court of South Carolina has made clear that the Clause’s proscription “is not an absolute one and is not to be read with literal exactness like a mathematical formula.”⁷ And, while the State Contract Clause prohibits the government from arbitrarily impairing the obligations of contract, there must be a careful balancing of the competing interests involved.⁸

In interpreting the State Contract Clause, the Supreme Court of South Carolina has followed federal precedent construing the Federal Contract Clause.⁹ Thus, to determine whether the State Contract Clause limits application of certain laws, South Carolina courts apply the following three-part test:

First, the Court must determine whether the State law has in fact operated as a substantial impairment of a contractual relationship. If the State regulation constitutes a substantial impairment, the State, in justification, must have a significant and legitimate public purpose behind the regulation. Once a legitimate public purpose has been identified, the next inquiry is whether the adjustment of contractual rights is based upon reasonable conditions and is of a character appropriate to the public purpose.¹⁰

⁴ S.C. Const. art. I, § 4.

⁵ Citizens for Lee County, Inc. v. Lee County, 308 S.C. 23, 30 (1992).

⁶ S.C. Pub. Serv. Auth. v. Citizens and Southern Nat. Bank of S.C., 300 S.C. 142, 164 (1989).

⁷ Kirven v. Central States Health & Life Co., of Omaha, 409 S.C. 30, 40 (2014) (internal quotation marks and citations omitted).

⁸ Citizens for Lee County, 308 S.C. at 30.

⁹ Ken Moorhead Oil Co. v. Federated Mut. Ins. Co., 323 S.C. 532, 539 (1996); S.C. Pub. Serv. Auth. v. Citizens and Southern Nat. Bank of S.C., 300 S.C. 142, 164 (1989) (“The South Carolina Supreme Court now applies the same standard for analyzing claims under the state constitution as the federal courts apply.”); G-H Ins. Agency, Inc. v. Continental Ins. Co., 278 S.C. 241, 246 (1982) (“The mandate of the state and federal constitutions relating to impairment of contracts is basically the same.”).

Page 6

Additionally, in cases involving a contract with the State, the “reserved powers doctrine” requires the reviewing court to ask whether the General Assembly has “surrender[ed] an essential attribute of [the State’s] sovereignty,” which it may not do.¹¹

The following subparts address: (1) whether a contract exists between the State and the Bondholders; (2) if so, whether that contract violates the “reserved powers” doctrine; and (3) the State’s burden in justifying an Impairment. The determination of whether a Legislative Action constitutes a substantial impairment of a particular contract is a fact-specific analysis,¹² and nothing in this letter expresses an opinion as to how a court of competent jurisdiction would resolve that issue with respect to the Order, the Storm Recovery Property, or the Bonds. Therefore, we assume for purposes of this letter that any Impairment resulting from a challenged Legislative Action would be substantial under the State Contract Clause.

A. The Existence of a Contractual Relationship

Legislation may, in certain circumstances, give rise to a contractual relationship. The existence of a contract generally is a question of state law.¹³ However, there is a general presumption that “absent some clear indication that [a] legislature intends to bind itself contractually, . . . ‘a law is not intended to create private contractual or vested rights but merely declares a policy to be pursued until the legislature shall ordain otherwise.’ ”¹⁴ That presumption arises from the principle that a legislature’s primary function “is not to make contracts, but to make laws that establish the policy of the state.”¹⁵

¹⁰ Kirven, 409 S.C. at 40-41; see also Citizens for Lee County, 308 S.C. at 30 (“The United States Supreme Court in United States Trust Co. v. New Jersey, 431 U.S. 1, 97 S.Ct. 1505, 52 L.Ed.2d 92 (1977), set forth an analysis for determining whether a violation of the Contract Clause of the Federal Constitution has occurred. First, there must be a preliminary determination that there exists a technical impairment of the contract. Second, such impairment must be unconstitutional; and there must be a substantial impairment of the parties' rights under the contract. Finally, it must be ascertained whether the impairing law is reasonable and necessary under the circumstances.”).

¹¹ U.S. Trust Co. v. New Jersey, 431 U.S. 1, 23 (1977); Shealy v. Southern Ry. Co., 127 S.C. 15, 120 S.E. 561, 562 (1924) (“[T]he state cannot barter away the right to use the police power, and cannot by any contract divest itself of the power to provide for acknowledged objects of legislation falling within the domain of the police power.”).

¹² For purposes of determining whether there is a substantial impairment of contract, South Carolina courts consider whether the law in question altered the reasonable expectations of the parties. Kirven, 409 S.C. at 41; see Mibbs, Inc. v. S.C. Dep’t of Revenue, 337 S.C. 601, 608 (1999) (acknowledging there is “no substantial impairment of a contract where the subject of the contract is a highly regulated business whose history makes further regulation foreseeable”); but see Rick’s Amusement, Inc. v. State, 351 S.C. 352, 361 (2001) (making clear that its ruling does not affect the certainty of contracts in other highly regulated field like banking and insurance).

¹³ Alston v. City of Camden, 322 S.C. 38, 44, 471 S.E.2d 174, 177 (1996).

¹⁴ Nat’l R.R. Passenger Corp. v. Atchison, Topeka & Santa Fe Ry. Co., 470 U.S. 451, 465–66 (1985) (quoting Dodge v. Bd. of Education, 302 U.S. 74, 79 (1937)), quoted and cited with approval in Alston v. City of Camden, 322 S.C. at 45-46, 471 S.E.2d at 177-178.

Page 7

The general presumption against a contractual relationship may be overcome where the language of the statute at issue indicates an intent to create contractual rights. To determine whether a contract has been created by a statute, “it is of first importance [to courts] to examine the language of the statute.”¹⁶

The United States Supreme Court has held that a statute creates a contractual relationship between a state and private parties if the statute contains adequate language of contractual undertaking.¹⁷ A statutory contract is created “when the language and circumstances evince a legislative intent to create private rights of a contractual nature enforceable against the State.”¹⁸

The decision of the Supreme Court of South Carolina in S.C. Pub. Serv. Auth. v. Summers, 282 S.C. 148 (1984), is instructive and supports the conclusion that the State Pledge creates a contractual relationship between the State and the Bondholders. The Summers Court held that a statutory pledge by the State to “not alter or limit the rights” arising from bonds constituted a contract between a State entity and bondholders. The statutory pledge at issue in Summers included the following relevant text:

The State of South Carolina does hereby pledge to and agree with any person, firm or corporation, the government of the United States and any corporation or agency created, designated or established by the United States, subscribing to or acquiring the notes, bonds, evidence of indebtedness or other obligations to be issued by the Public Service Authority for the construction of any project, that the State will not alter or limit the rights hereby vested in the Public Service Authority until the said notes, bonds, evidence of indebtedness or other obligations, together with the interest thereon, are fully met and discharged....¹⁹

¹⁵ Id. at 466 (citing Ind. ex. Rel. Anderson v. Brand, 303 U.S. 95, 104–05 (1938)), quoted in Alston, 322 S.C. at 46, 471 S.E.2d at 178.

¹⁶ Dodge, 302 U.S. at 78; see, e.g., Alston, 322 S.C. at 46-47, 471 S.E.2d at 178 (analyzing the language of the City ordinance); S.C. Pub. Serv. Auth. v. Summers, 282 S.C. 148 (1984) (analyzing the language of the state statute).

¹⁷ See Brand, 303 U.S. at 104–05 (noting that “the cardinal inquiry is as to the terms of the statute supposed to create such a contract”); U.S. Trust, 431 U.S. at 17–18, 18 n.14.

¹⁸ U.S. Trust, 431 U.S. at 18 n.14.

¹⁹ Id. In Summers, the Supreme Court of South Carolina affirmed the trial court’s ruling that the imposition of ad valorem property taxes on property of the South Carolina Public Service Authority violated the State Contract Clause, finding that the tax exemption granted the South Carolina Public Service Authority was an important security provision to the bondholders, which could not be altered or repealed, and that the imposition of ad valorem property taxes clearly impaired this security provision as well as the State's covenant not to alter any rights of the South Carolina Public Service Authority. Summers, 282 S.C. at 154-55, 318 S.E.2d at 116. Notably, Appellants also argued that a subsequent constitutional amendment had repealed the property tax exemptions, but the Court determined that the State Contract Clause protects against this type of repeal and that “[a] legislative act which creates a contract may not be impaired or repealed by a subsequent constitutional amendment.” Summers, 282 S.C. at 155, 318 S.E.2d at 116-17 (citing Columbia Water Power Co. v. Campbell, 75 S.C. 34, 54 S.E. 833 (1906)).

Page 8

The Summers Court found that the above statutory pledge—which is similar to the State Pledge and which the State made and which the bonds referred to and incorporated— created “a contract protected by the contract clause, as the bonds themselves constitute a contract between the South Carolina Public Service Authority and its bondholders.”²⁰

Decisions of the United States Supreme Court also support the conclusion that the State Pledge creates a contractual relationship between the State and the Bondholders. In U.S. Trust Co. v. New Jersey, 431 U.S. 1 (1977), the Court affirmed the trial court’s uncontested finding that a statutory covenant between two states that benefitted the holders of certain bonds gave rise to a contractual obligation between the states and those bondholders.²¹ The covenant at issue limited the ability of the Port Authorities of New York and New Jersey to subsidize rail-passenger transportation with revenues and reserves pledged as security for various bonds. In finding the existence of a contract between the states and the bondholders, the Court emphasized that “[t]he intent to make a contract is clear from the statutory language: ‘The 2 States covenant and agree with each other and with the holders of any affected bonds.’”²²

Similarly, in Ind. ex. Rel. Anderson v. Brand, 303 U.S. 95 (1938), the United States Supreme Court held that the Indiana Teachers’ Tenure Act formed a contract between the state and specified teachers because the statutory language evidenced a clear contractual intent. The Brand Court based its decision on the legislature’s repeated and intentional use of the word “contract” throughout the statute to describe the legal relationship between the state and the impacted teachers.²³ “The title of the act,” too, was “couched in terms of contract,” and “[t]he tenor of the act indicate[d] that the word ‘contract’ was not used inadvertently or other than its usual legal meaning.”²⁴

²⁰ S.C. Pub. Serv. Auth. v. Summers, 282 S.C. 148, 154, 318 S.E.2d 113, 116 (1984). In Summers, the Supreme Court of South Carolina affirmed the trial court’s ruling that the imposition of ad valorem property taxes on property of the South Carolina Public Service Authority violated the State Contract Clause and the statutory covenants the Appellants also argued that subsequent constitutional amendment had repealed the property tax exemptions, but Court determined that the State Contract Clause protects against this type of repeal and that “[a] legislative act which creates a contract may not be impaired or repealed by a subsequent constitutional amendment.”

²¹ U.S. Trust, 431 U.S. at 17–18.

²² Id. at 18 (quoting 1962 N.J. LAWS, c. 8, § 6; 1962 N.Y. LAWS, c. 209, § 6).

²³ Brand, 303 U.S. at 105. That said, the mere use of the word “contract,” without more, will not necessarily establish the requisite contractual intent. See Nat’l R.R., 470 U.S. at 470. Indeed, in National Railroad, the Court found that the use of the word “contract” in the Rail Passenger Service Act defined only the relationship between the newly created nongovernmental corporation Amtrak and the railroads, not a contractual relationship between the United States and the railroads. The Court made clear that “[l]egislation outlining the terms on which private parties may execute contracts does not on its own constitute a statutory contract.” Id. at 467.

²⁴ Brand, 303 U.S. at 105.

Page 9

The above State and United States Supreme Court cases support our conclusion that a South Carolina court would find that the State Pledge constitutes a contract. Like the language of the covenant considered in Summers, the language of the State Pledge evidences the South Carolina General Assembly’s intent to bind the State. In particular, the State Pledge provides, in pertinent part, that “[t]he State and its agencies, including the commission, pledge and agree with bondholders, the owners of the storm recovery property, and other financing parties that the State and its agencies will not take any action listed in [S.C. Code Ann. §  58-27-1155(A)]. . . .”²⁵ Similar to the terms “covenant” and “agree” quoted in U.S. Trust, and the word “contract” in Brand, the State Pledge’s use of the terms “pledge” and “agree” evince a desire to create private rights of a contractual nature enforceable against the State. And “[t]he tenor of the” State Pledge, as in Brand, indicates that those words were “not used inadvertently or other than [in their] usual legal meaning.”²⁶ Also consistent with the language at issue in U.S. Trust, the State Pledge names the beneficiaries of the State’s pledge and agreement.²⁷ Finally, it is significant that the State authorized an issuer of Storm Recovery Bonds to include the State Pledge in contracts with the holders of Storm Recovery Bonds (such as the Bondholders).²⁸ In sum, there is ample evidence to overcome the general presumption against statutory contracts and to conclude that the State Pledge creates a contractual relationship between the State and the Bondholders under the State Contract Clause. Perhaps equally important, we are unaware of any circumstances surrounding the enactment of the Storm Damage Recovery Law suggesting that the South Carolina General Assembly did not intend to bind contractually the State through the State Pledge.

B. The Reserved Powers Doctrine

As noted, the reserved powers doctrine limits the State’s ability to contract away an essential attribute of its sovereignty.²⁹ According to this doctrine, a contract is void as a matter of law if the contract purports to surrender a state’s “reserved powers.” Although the scope of the reserved powers doctrine has not been precisely defined by courts, United States Supreme Court case law has established that a state cannot enter into contracts that forbid the exercise of the state’s police powers or the state’s power of eminent domain.³⁰ On the other hand, the United States Supreme Court has made clear that a state’s “power to enter into effective financial contracts cannot be questioned,” and promises that are “purely financial” do not necessarily compromise a state’s reserved powers.³¹

²⁵ S.C. Code Ann. § 58-27-1155(A).

²⁶ Brand, 303 U.S. at 105.

²⁷ S.C. Code Ann. § 58-27-1155(A) (“The State and its agencies, including the commission, pledge and agree with bondholders, the owners of the storm recovery property, and other financing parties . . . .”).

²⁸ S.C. Code Ann. § 58-27-1155(B) (“Any person or entity that issues storm recovery bonds may include the language specified in this section in the storm recovery bonds and related documentation.”).

²⁹ U.S. Trust, 431 U.S. at 23.

³⁰ Id. at 23–24, 24 nn.20–21 (citing Stone v. Mississippi, 101 U.S. 814, 817 (1880); W. River Bridge Co. v. Dix, 47 U.S. 507, 525–26 (1848)).

Page 10

In South Carolina, the South Carolina Supreme Court has likewise concluded that the General Assembly may not contract away its police powers:

It is a fundamental principle of constitutional law that in matters relating to the police power each successive Legislature is of equal authority, and that a legislative body cannot part with its right to exercise such power, but that it inherently has authority to use the police power again and again, as often as the public interests may require. It has been said that the governmental power of self-protection cannot be contracted away, nor can the exercise of rights granted nor the use of property be withdrawn from the implied liability to governmental regulation in particulars essential to the preservation of the community from injury. These principles are embodied in the familiar rule that the state cannot barter away the right to use the police power, and cannot by any contract divest itself of the power to provide for acknowledged objects of legislation falling within the domain of the police power. Accordingly, the Legislature cannot surrender or limit such powers either by affirmative action or by inaction, or abridge them by any grant, contract, or delegation whatsoever. The discretion of the Legislature cannot be parted with any more than the power itself.³²

Based on existing case law, it is our opinion that a South Carolina court would find that the State Pledge does not improperly surrender any reserved powers of the State. Although the State’s commitment to not take or permit “any action that impairs or would impair the value of storm recovery property or the security for the storm recovery bonds or revises the storm recovery costs for which storm recovery is authorized” is arguably broader than the commitment in U.S. Trust (that revenues and reserves securing bonds would not be depleted beyond a certain level),³³ the State Pledge importantly does not contract away or forbid the future exercise of the State’s power of eminent domain or police power to protect public health and safety. Instead, the State Pledge provides that, through “financing order[s]” (like the Order), the State will authorize electric utilities to issue “storm recovery bonds” (such as the Bonds) and that the State, via the State Pledge, will not impair the value of the “storm recovery property” (i.e., the Storm Recovery Property) securing such instruments. In other words, the State Pledge constitutes an agreement made by the State not to impair the financial security for storm recovery bonds to foster the capital markets’ acceptance of such bonds, which are expressly authorized and will be issued to facilitate the recovery of the costs of catastrophic storms. As such, we believe that the State Pledge is akin to the “financial contract” involved in U.S. Trust, and therefore would not be viewed as an impermissible surrender of an essential attribute of state sovereignty. Additionally, the Supreme Court of South Carolina’s upholding of a pledge similar to the State Pledge in Summers supports this conclusion.

³¹ Id. at 24; see also Cont’l Ill. Nat’l Bank & Trust Co. v. Washington, 696 F.2d 692, 699 (9th Cir. 1983) (“Thus, insofar as the purely financial aspects of the agreement are concerned, reservations are not to be lightly inferred.”).

³² Shealy, 127 S.C. 15, 120 S.E. at 562.

³³ S.C. Code Ann. § 58-27-1155(A)(2); U.S. Trust, 431 U.S. at 25.

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C. The State’s Burden to Justify an Impairment

If the State were to substantially impair the contract with the Bondholders, the State, in order to survive scrutiny under the State Contract Clause, would have to demonstrate “a significant and legitimate public purpose” behind that substantial impairment. ³⁴ Additionally, the State also would have to show that “the adjustment of contractual rights is based upon reasonable conditions and is of a character appropriate to the public purpose.”³⁵ Notably, when the State is a party to the contract it seeks to impair by subsequent legislation, heightened scrutiny by the court is appropriate. ³⁶

Traditional analysis of reasonableness and necessity focuses on such issues as (1) whether an emergency exists justifying the impairment; (2) whether the law was enacted to protect a basic societal interest, rather than a favored group; (3) whether the law is narrowly tailored to the emergency at hand; (4) whether the imposed conditions are reasonable; and (5) whether the law is limited to the duration of the emergency.”³⁷ Such analysis is case- and fact-specific; however, both the State and United States Supreme Courts have provided a helpful discussion of the contours of the analysis.

For example, in G-H Ins. Agency, Inc. v. Continental Ins. Co., 278 S.C. 241, 246, 294 S.E.2d 336, 339 (1982), the State Supreme Court highlighted that justification for impairment historically has involved temporary measures and significant public emergency. In doing so, it noted:

Interference is tolerated usually temporarily and to a limited degree, provided the encroachment is for the good of the public and is both reasonable and necessary. [The U.S. Supreme Court decisions in U.S. Trust and Allied Structural Steel Company v. Spannaus, et al., 438 U.S. 234 (1978)], in redefining the parameters of the contract clause protection in the context of contemporary constitutional law, acknowledge that states must possess broad powers to adopt regulatory measures in the furtherance of public interest even if the result will, on occasion, be the impairment of private contracts. The police power is, however, ultimately subject to scrutiny under the contract clauses and the legislation must be upon reasonable conditions and of a character appropriate to the public purpose justifying its adoption.³⁸

³⁴ Kirven, 409 S.C. at 41.

³⁵ Id.

³⁶ Ken Moorhead Oil Co. v. Federated Mut. Ins. Co., 323 S.C. 532, 545, 476 S.E.2d 481, 488 (1996).

³⁷ Ken Moorhead Oil Co., 323 S.C. at 545, 476 S.E.2d at 488-89.

³⁸ G-H Ins. Agency, Inc. v. Continental Ins. Co., 278 S.C. 241, 246, 294 S.E.2d 336, 339 (1982).

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The Continental Court also noted prior instances justifying impairment have involved significant and unprecedented public emergencies:

Mr. Justice Stewart, speaking for the [United States] Supreme Court, in Allied Structural Steel Company, Inc., indicated the appropriate considerations to be used in determining the issues of reasonableness and necessity”:

If the Contract Clause is to retain any meaning at all, however, it must be understood to impose some limits upon the power of a State to abridge existing contractual relationships, even in the exercise of its otherwise legitimate police power. The existence and nature of those limits were clearly indicated in a series of cases in this Court arising from the efforts of the States to deal with the unprecedented emergencies brought on by the severe economic depression of the early 1930's.

In Home Building & Loan Assn. v. Blaisdell, 290 U.S. 398, 54 S.Ct. 231, 78 L.Ed. 413, the Court upheld against a Contract Clause attack a mortgage moratorium law that Minnesota had enacted to provide relief for homeowners threatened with foreclosure. Although the legislation conflicted directly with lenders' contractual foreclosure rights, the Court there acknowledged that, despite the Contract Clause, the States retain residual authority to enact laws “to safeguard the vital interests of [their] people.” Id., at 434, 54 S.Ct. at 239. In upholding the state mortgage moratorium law, the Court found five factors significant. First, the state legislature had declared in the Act itself that an emergency need for the protection of homeowners existed. Id., at 444, 54 S.Ct., at 242. Second, the state law was enacted to protect a basic societal interest, not a favored group. Id., at 445, 54 S.Ct., at 242. Third, the relief was appropriately tailored to the emergency that it was designed to meet. Ibid. Fourth, the imposed conditions were reasonable. Id., at 445–447, 54 S.Ct., at 242–243. And, finally, the legislation was limited to the duration of the emergency. Id., at 447, 54 S.Ct., at 243.

The Blaisdell opinion thus clearly implied that if the Minnesota moratorium legislation had not possessed the characteristics attributed to it by the Court, it would have been invalid under the Contract Clause of the Constitution. These implications were given concrete force in three cases that followed closely in Blaisdell's wake. ³⁹

³⁹ G-H Ins. Agency, Inc., 278 S.C. at 247-48, 294 S.E.2d at 339-40.

Page 13

Relying on this federal precedent, the Continental Court held that a contested provision of The South Carolina Automobile Reparation Reformation Act of 1974 was “unconstitutional as an impairment of contractual rights under both the Constitution of South Carolina . . . .” ⁴⁰ The contested provision would have prohibited an insurance company from terminating its representation by an agency despite that the agreement entered into between the insurance and the agency prior to the Act provided that it could be terminated by either party at any time by written notice. In doing so, the Court emphasized that the contested provision “was not necessary to the accomplishment of the overall purpose of [t]he [a]ct;” that “[t]he impact of the provision was traumatic to some agents and insurance companies;” that “[t]here was no provision for gradual application or a grace period” and “[t]he impact of the proscription was immediate, irrevocable and without limit as to time;” that “the predominant purpose of the challenged provision was to protect the private interests of affected insurance agents rather than any broader societal interest; and that its essential features were not in any event reasonably related to the public purpose asserted for [the] [a]ct [] by the legislature.” ⁴¹

In 1934, the United States Supreme Court reiterated that justification for interference is usually temporal in nature. In W.B. Worthen Co. v. Thomas, 292 U.S. 426 (1934), the Court emphasized the importance of the last factor analyzed—i.e., “the temporary and conditional relief which the legislation granted.”⁴² In that case, the Court addressed a challenge to an Arkansas law providing that money paid to any resident as the insured or beneficiary designated under an insurance policy would be exempt from liability or seizure under judicial process.⁴³ The Court struck down the law under the Federal Contract Clause, noting that the Arkansas law was not a temporary emergency measure like the Minnesota law at issue in Blaisdell. Two other contemporaneous opinions issued by the Court vacated laws passed in response to the economic emergency created by the Great Depression, thereby reinforcing that, to be justified, an impairment must be the result of a reasonable, necessary, and tailored response to a broad and significant public concern.⁴⁴

Relatedly, the deference courts give to a legislature’s determination of the need for an impairment has turned on whether the contract is a private one or whether the state is a contracting party. The Court has instructed that any deference to legislative judgment as to the necessity and reasonableness of a particular action “is not appropriate” when the state is a party to a contract.⁴⁵ In that circumstance, a “stricter standard” should apply, for as the Court in Energy Reserves Group, Inc. v. Kan. Power and Light Co., 459 U.S. 400 (1983), pointed out, “[i]n almost every case, the Court has held a governmental unit to its contractual obligations when it enters financial or other markets.”⁴⁶

⁴⁰ G-H Ins. Agency, Inc. v. Continental Ins. Co., 278 S.C. at 249, 294 S.E.2d at 340.

⁴¹ G-H Ins. Agency, Inc., 278 S.C. at 248, 294 S.E.2d at 340.

⁴² W.B. Worthen Co. v. Thomas, 292 U.S. 426, 434 (1934).

⁴³ Id. at 429–30.

⁴⁴ See Treigle v. Acme Homestead Ass’n, 297 U.S. 189 (1936); W.B. Worthen Co. v. Kavanaugh, 295 U.S. 56 (1935).

⁴⁵ U.S. Trust, 431 U.S. at 25–26.

Page 14

The leading case involving the impairment of contracts to which the state is a party is U.S. Trust. There, two states agreed not to deplete the revenues and reserves securing certain bonds below a specified level. The states thereafter repealed that promise to finance new mass transit projects, justifying the repeal with the purported need to promote and encourage additional use of public transportation in light of energy shortages and environmental concerns.⁴⁷ The United States Supreme Court ruled that the states’ action was invalid under the Federal Contract Clause because repeal of the covenant was “neither necessary to achievement of the plan nor reasonable in light of the circumstances.”⁴⁸ The Court further stated that a modification less drastic than total repeal would have permitted the states to achieve their plan to improve commuter rail service. For instance, the states could have achieved that goal without modifying the covenant at all by “discourag[ing] automobile use through taxes on gasoline or parking, . . .  and use[ing] the revenues to subsidize mass transit projects.”⁴⁹

The U.S. Trust Court also contrasted the legislation under consideration with the statute challenged in City of El Paso v. Simmons, 379 U.S. 497 (1965), which limited to five years the reinstatement rights of defaulting purchasers of land from the state. For many years prior to the enactment of that statute, defaulting purchasers were allowed to reinstate their claims upon written request and payment of delinquent interest unless the rights of third parties had intervened. In U.S. Trust, the Court opined that this older statute “had effects that were unforeseen and unintended by the legislature when originally adopted” in that “speculators were placed in a position to obtain windfall benefits.”⁵⁰ Thus, according to the Court, the state’s adoption of a statute of limitations was reasonable to restrict parties to gains expected from the contract when the original statute was adopted. By comparison, the need for mass transportation in New York and New Jersey was not a new development and the likelihood that publicly owned commuter railroads would produce substantial deficits was well known when the states adopted the covenant.⁵¹

The U.S. Trust Court also distinguished its prior holding in Faitoute Iron & Steel Co. v. City of Asbury Park, 316 U.S. 502 (1942), which was then the “only time in th[e 20th] century that alteration of a municipal bond contract ha[d] been sustained.”⁵² Faitoute involved a state municipal reorganization act under which bankrupt local governments could be placed in receivership by a state agency. The holders of certain municipal revenue bonds received new securities bearing lower interest rates and later maturities. As discussed in U.S. Trust, the Faitoute Court rejected the bondholders’ Federal Contract Clause claims because the “old bonds represented only theoretical rights; practically, the city could not raise its taxes enough to pay off its creditors under the old contract terms,” and thus the plan “enabled the city to meet its financial obligations more effectively.”⁵³ U.S. Trust explained that the obligation in Faitoute was “discharged, not impaired” by the plan.⁵⁴

⁴⁶ 459 U.S. at 412–13 n.14.

⁴⁷ 431 U.S. at 28–29.

⁴⁸ Id. at 29.

⁴⁹ Id. at 30 n.29.

⁵⁰ Id. at 31.

⁵¹ Id. at 31–32.

⁵² Id. at 27.

Page 15

At bottom, the case law demonstrates that the State bears a substantial burden in attempting to justify a significant impairment of a contract to which it is a party. That is because a state action that impairs contracts to which it is a party must further a significant, legitimate, and broad public purpose, and that public purpose must be served by a reasonable, necessary, and carefully tailored measure as “a State is not free to impose a drastic impairment when an evident and more moderate course would service its purposes equally well.”⁵⁵

In conclusion, subject to the qualifications, limitations, and assumptions set forth in this letter, it is our opinion that a reviewing South Carolina court of competent jurisdiction, in a properly prepared and presented case, would conclude that the State Pledge constitutes a contractual relationship between the Bondholders and the State. We are also of the view that, absent a demonstration by the State that an Impairment is necessary to further a significant and legitimate public purpose, the Bondholders (or the Indenture Trustee acting on their behalf) could successfully challenge under the State Contract Clause the constitutionality of any Legislative Action determined by such court to alter, impair, or reduce the value of the Storm Recovery Property or the Storm Recovery Charges so as to cause an Impairment before the Bonds are fully paid and discharged.

II. THE STATE TAKINGS CLAUSE

The State Takings Clause provides that private property shall not be taken . . . for public use without just compensation being first made for the property.⁵⁶ “South Carolina courts have embraced federal takings jurisprudence as providing the rubric under which [they] analyze whether an interference with someone's property interests amounts to a constitutional taking,”⁵⁷ and “[t]he takings analysis under the South Carolina Constitution is identical to the analysis under federal law.”⁵⁸

⁵³ Id. at 28.

⁵⁴ Id.

⁵⁵ U.S. Trust, 431 U.S. at 31.

⁵⁶ S.C. Const. art. I, § 13.

⁵⁷ Applied Bldg. Sciences, Inc. v. Dep’t of Commerce, 2024 WL 174157 (Jan. 17, 2024) (quoting Hardin v. S.C. Dep’t of Transp., 371 S.C. 598, 604, 641 S.E.2d 437, 441 (2007)).

Page 16

Parties claiming a taking must first show they have a legitimate property interest.⁵⁹ That interest may be tangible or intangible.⁶⁰ The existence of property interests is often determined by reference to sources such as state law,⁶¹ and in South Carolina, “[p]roperty interests ‘are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law—rules or understandings that secure certain benefits and that support claims of entitlement to those benefits.’”⁶² The sufficiency of the expectation of entitlement depends largely upon the extent to which the statute contains mandatory language.⁶³

The United States Supreme Court has suggested that the Federal Takings Clause—the analysis of which is identical to the State Takings Clause according to the Supreme Court of South Carolina—may be implicated by a diverse range of government actions, including when the government (1) permanently appropriates or denies all economically productive use of property;⁶⁴ (2) destroys property other than in response to emergency conditions;⁶⁵ and (3) reduces, alters, or impairs the value of property so as to unduly interfere with reasonable investment-backed expectations.⁶⁶ To decide whether a particular interference is “undue,” courts have considered the nature of the governmental action and weighed the public purpose served by the action against the degree to which it interferes with legitimate property interests and/or investment-backed expectations.⁶⁷ The Supreme Court of South Carolina has also recognized that “[e]conomic regulation may effect a taking.”⁶⁸

⁵⁸ Braden’s Folly, LLC v. City of Folly Beach, 439 S.C. 171, 190 at n. 17, 886 S.E.2d 674, 684 at n. 17 (2023) (citing Byrd v. City of Hartsville, 365 S.C. 650, 656 at n.6, 620 S.E.2d 76, 79 at n.6 (2005).

⁵⁹ Grimsley v. SLED, 396 S.C. 276, 283-84, 721 S.E.2d 423, 427 (2012).

⁶⁰ See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1003 (1984).

⁶¹ Hardin, 371 S.C. at 604, 641 S.E.2d at 441.

⁶² Grimsley, 396 S.C. at 284, 721 S.E.2d at 427 (quoting Snipes v. McAndrew, 280 S.C. 320, 324, 313 S.E.2d 294, 297 (1984) (citing Bd. of Regents of State Colls. v. Roth, 408 U.S. 564 (1972)).

⁶³ Id.

⁶⁴ See, e.g., Connolly, 475 U.S. at 225; Palazzolo v. Rhode Island, 533 U.S. 606, 617 (2001); Lucas v. S.C. Coastal Council, 505 U.S. 1003, 1027–28 (1992); United States v. Sec. Indus. Bank, 459 U.S. 70, 77 (1982).

⁶⁵ The emergency exception to the just compensation requirement of the Federal Takings Clause often arises in cases involving the government’s activities during military hostilities. See, e.g., Nat’l Bd. of Young Men’s Christian Ass’ns v. United States, 395 U.S. 85 (1969); United States v. Cent. Eureka Mining Co., 357 U.S. 155 (1958). Of note, though, the exception is not limited to wartime activities. See Miller v. Schoene, 276 U.S. 272 (1928).

⁶⁶ See Connolly, 475 U.S. at 224–25; Cent. Eureka Mining, 357 U.S. 155.

Page 17

As the Supreme Court of South Carolina discussed in Braden’s Folly, LLC v. City of Folly Beach, 439 S.C. 171, 886 S.E.2d 674 (2023), the United States Supreme Court has identified two categories of regulatory action that constitute per se takings: (1) regulations that require a property owner to suffer a permanent physical invasion of property,⁶⁹ and (2) regulations that deprive the owner of all economically beneficial use of the property.⁷⁰ Other than these two narrow categories, regulatory takings challenges are generally governed by the three-part balancing test set forth in Penn Central Transportation Co. v. City of New York, 438 U.S. 104 (1978).⁷¹ To determine whether the regulation denies the property owner “economically viable use” of the property and therefore constitutes a taking, that test requires the court to consider three factors: “(1) the economic impact of the regulation on the claimant; (2) the extent to which the regulation has interfered with distinct investment-backed expectations; and (3) the character of the governmental action”⁷² with “[m]ore recent cases describ[ing] the second factor as the degree of interference with ‘reasonable’ investment-backed expectations.”⁷³

The first Penn Central factor examines the economic impact of the regulation on the claimant. The proposition that “a diminution in property value, standing alone, can establish a taking” has been “uniformly rejected.” ⁷⁴ Rather, “‘[t]he extent of diminution in value is but one fact for consideration in determining whether governmental action constitutes a taking.’” ⁷⁵

⁶⁷ See, e.g., Keystone Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. 470, 485 (1987).

⁶⁸ Id. (citing Eastern Enterprises v. Apfel, 524 U.S. 498 (1998)).

⁶⁹ See Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982) (holding a government regulation that requires a property owner suffer a permanent physical invasion of his property, however minor, will require just compensation).

⁷⁰ See Lucas v. S.C. Coastal Council, 505 U.S. 1003 (1992) (finding a regulation that completely deprives a property owner of all economically beneficial use of his property amounts to a compensable taking)

⁷¹ Braden’s Folly, LLC, 439 S.C. at 192, 886 S.E.2d at 685-86.

⁷² Braden’s Folly, LLC, 439 S.C. at 193, 886 S.E.2d at 686 (internal quotations and citations omitted); Rick’s Amusement, Inc. v. State, 351 S.C. 352, 357, 570 S.E.2d 155, 157 (2001); Rick’s Amusement, Inc. v. State, 351 S.C. 352, 357, 570 S.E.2d 155, 157 (2001) (citing Penn Central Transp. Co. v. City of New York, 438 U.S. 104 (1978)).

⁷³ Rick’s Amusement, Inc. v. State, 351 S.C. 352, 357, 570 S.E.2d 155, 157 (2001) (citing Concrete Pipe and Products of California, Inc. v. Construction Laborers Pension Trust for Southern California, 508 U.S. 602 (1993) and Westside Quik Shop, Inc. v. Stewart, 341 S.C. 297, 534 S.E.2d 270, cert. denied 531 U.S. 1029 (2000)).

⁷⁴ Braden’s Folly, LLC, 439 S.C. at 199, 886 S.E.2d at 689.

⁷⁵ Id. (quoting Dunes W. Golf Club, LLC v. Town of Mt. Pleasant, 401 S.C. 280, 317, 737 S.E.2d 601, 621 (2013) (cleaned up) (citation omitted)).

Page 18

The second Penn Central factor—consideration of investment-backed expectations—has as its purpose to “limit recoveries to property owners who can demonstrate that they [invested in] their property in reliance on a state of affairs that did not include the challenged regulatory regime.”⁷⁶ The burden under this factor of showing interference with reasonable, investment-backed expectations is a heavy one.⁷⁷ Indeed, “[a] reasonable, investment-backed expectation must be more than a ‘unilateral expectation or an abstract need,”⁷⁸ and “legislation readjusting rights and burdens is not unlawful solely because it upsets otherwise settled expectations.”⁷⁹ “Rather, courts will evaluate a property owner's reasonable, investment-backed expectations through an objective lens.”⁸⁰ “The critical question is what a reasonable owner in the claimant's position should have anticipated;”⁸¹ in other words, to sustain a takings claim, the claimant must show that it had a “reasonable expectation” at the time the contract was entered into that the contract “would proceed without possible hindrance” arising from changes in government policy.⁸²

The third and final Penn Central factor requires the court to “analyze the character of the government action, specifically, whether [it] is akin to an eminent domain action,” i.e., is the government action “functionally equivalent to the classic taking in which government directly appropriates private property or ousts the owner from his domain.”⁸³ For example, an unconstitutional taking may more readily be found where the regulation causes “private property to be pressed into some form of public service under the guise of mitigating serious public harm,” whereas no Constitutional violation will be found where the regulation is merely a “public program adjusting the benefits and burdens of economic life to promote the common good.” ⁸⁴ Therefore, the court must consider “the magnitude or character of the burden a particular regulation imposes upon private property rights as well as how any regulatory burden is distributed among property owners.”⁸⁵

⁷⁶ Braden’s Folly, LLC, 439 S.C. at 203, 886 S.E.2d at 691 (quoting Columbia Venture, LLC v. Richland Cnty., 413 S.C. 423, 449, 776 S.E.2d 900, 914 (2015) (internal alteration and quotation marks omitted)).

⁷⁷ DeBenedictis, 480 U.S. at 493.

⁷⁸ Braden’s Folly, LLC, 439 S.C. at 203, 886 S.E.2d at 691 (quoting Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1005 (1984) (quoting Webb’s Fabulous Pharmacies v. Beckwith, 449 U.S. 155, 161 (1980)).

⁷⁹ Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 16 (1976).

⁸⁰ Braden’s Folly, LLC, 439 S.C. at 203, 886 S.E.2d at 691.

⁸¹ Columbia Venture, LLC, 413 S.C. at 449, 776 S.E.2d at 914 (quoting Chancellor Manor v. U.S., 331 F.3d 891, 904 (Fed. Cir. 2003)) (internal alterations and quotation marks omitted)).

⁸² Chang v. United States, 859 F.2d 893, 897 (Fed. Cir. 1988).

⁸³ Braden’s Folly, LLC, 439 S.C. at 210, 886 S.E.2d at 695 (internal quotation marks and citations omitted).

⁸⁴ Braden’s Folly, LLC, 439 S.C. at 210, 886 S.E.2d at 695 (internal alterations, quotation marks and citations omitted).

Page 19

We are not aware of any case law that addresses the applicability of the State Takings Clause in the context of a purported exercise by South Carolina of its police power to abrogate or impair contracts otherwise binding on the State.⁸⁶ The outcome, thus, of any claim that interference by the State with the value of the Storm Recovery Property without compensation is unconstitutional would likely depend on factors such as the State interest furthered by that interference and the extent of financial loss to the Bondholders caused by that interference. Also relevant to a court’s inquiry would be the extent to which the Bondholders had a reasonable expectation that changes in government policy and regulation would not interfere with their investment. With respect to the last factor, we note that the Storm Damage Recovery Law expressly provides for the creation of Storm Recovery Property in connection with the issuance of the Bonds, and further provides that the Order, once final, is irrevocable.⁸⁷ Moreover, through the State Pledge, the State has “pledge[d] and agree[d] with [the] bondholders” not to impair the value of the Storm Recovery Property.⁸⁸ Given the foregoing, we believe that a South Carolina court would find that Bondholders very likely have reasonable investment-backed expectations in their investments in the Bonds.

In sum, based on our analysis of relevant judicial authority, it is our opinion, as set forth above and subject to the qualifications, limitations, and assumptions in this letter, that under the State Takings Clause, a reviewing South Carolina court of competent jurisdiction would hold that the State is required to pay just compensation to the Bondholders if the State’s repeal or amendment of the Storm Damage Recovery Law or any other action by the State in contravention of the State Pledge constituted a Taking. As noted earlier, in determining whether there is an undue interference, a South Carolina court would consider the nature of the governmental action and weigh the public purpose served by that action against the degree to which the action interferes with the legitimate property interests and distinct investment-backed expectations of the Bondholders. There can be no assurance, however, that any such award of just compensation would be sufficient to pay the full amount of principal and interest on the Bonds.

⁸⁵ Braden’s Folly, LLC, 439 S.C. at 210, 886 S.E.2d at 695 (internal alterations, quotation marks and citations omitted).

⁸⁶ The Supreme Court of South Carolina has recognized a distinction between the State's exercise of eminent domain and its exercise of the police power. “[J]ust compensation is required in the case of the exercise of eminent domain but not for the loss by the property owner which results from the constitutional exercise of the police power.” S.C. State Highway Dept. v. Wilson, 254 S.C. 360, 365, 175 S.E.2d 391, 394 (1970). Although extensive, the state’s police power is not unlimited and cannot exceed constitutional and reasonable limits. Henderson v. Greenwood, 172 S. C. 16, 172 S. E. 689, 691-92 (1934) (noting “mere statement .. . . that [law] is passed under the police power does not give [legislative body] carte blanche to pass an unreasonable [law] or one opposed to the Constitution or laws of the state” and that the “Legislature itself [does] not [have] the power to pass [] a drastic and unreasonable law under the guise of acting within the police power”).

⁸⁷ S.C. Code Ann. § 58-27-1110(C)(5) (“Subsequent to the transfer of storm recovery property to an assignee or the issuance of storm recovery bonds authorized thereby, whichever is earlier, a financing order is irrevocable and, except for changes made pursuant to the formula-based mechanism authorized in this article, the commission may not amend, modify, or terminate the financing order by any subsequent action or reduce, impair, postpone, terminate, or otherwise adjust storm recovery charges approved in the financing order.”).

⁸⁸ S.C. Code Ann. § 58-27-1155(A).

Page 20

III. INJUNCTIVE RELIEF

In a challenge to Legislative Action under the State Contract Clause, we expect that a plaintiff would seek, among other potential remedies, an injunction preventing State officials from enforcing the provisions of such Legislative Action. A preliminary injunction would serve to delay the implementation of the Legislative Action pending the final resolution of the Contract Clause challenge, whereas a permanent injunction would prevent any future implementation of the Legislative Action once the court has resolved the merits of the litigation.

A. The Availability of Preliminary Injunctive Relief in State Court

“Actions for injunctive relief are equitable in nature.”⁸⁹ Injunctions are a drastic remedy that courts issue, in their discretion, to prevent irreparable harm suffered by the plaintiff.⁹⁰ In South Carolina, to obtain a preliminary injunction, the moving party must show that (1) without such relief it will suffer irreparable harm, (2) it has a likelihood of success on the merits, and (3) there is no adequate remedy at law.⁹¹ Some South Carolina cases indicate that the plaintiff must suffer “immediate,” irreparable harm without the injunction.⁹² According to the Supreme Court of South Carolina, “an adequate remedy at law is one which is as certain, practical, complete and efficient to attain the ends of justice and its administration as the remedy in equity.⁹³ “[I]n order to receive the aid of a Court of equity to enjoin a public corporation or department of government in the performance of actions or duties provided by statute, there must be allegations or showing that the public department or corporation has exercised its power in an arbitrary, oppressive or capricious manner.”⁹⁴

⁸⁹ Hipp v. S.C. Dep’t of Motor Vehicles, 381 S.C. 323, 324, 673 S.E.2d 416 (2009).

⁹⁰ Scratch Golf Co. v. Dunes West Residential Golf Properties, Inc., 361 S.C. 117, 121, 603 S.E.2d 905, 907 (2004).

⁹¹ Poynter Invs., Inc. v. Century Builders of Piedmont, Inc., 387 S.C. 583, 586-87, 694 S.E.2d 15, 17 (2010).

⁹² See, e.g., Compton v. S.C. Dep’t of Corrections, 392 S.C. 361, 366, 709 S.E.2d 639, 642 (2011).

⁹³ Santee Cooper Resort, Inc. v. S.C. Pub. Serv. Comm’n, 298 S.C. 179, 185, 379 S.E.2d 119 (1989).

⁹⁴ Richland Cnty. v. S.C. Dep't of Revenue, 422 S.C. 292, 311, 811 S.E.2d 758, 768 (2018) (quoting Headdon v. State Highway Dep't, 197 S.C. 118, 14 S.E.2d 586, 588 (1941) (internal quotations omitted)).

Page 21

The Supreme Court of South Carolina has stated:

. . . whether a wrong is irreparable, in the sense that equity may intervene, and whether there is an adequate remedy at law for a wrong, are questions that are not decided by narrow and artificial rules. The Courts proceed realistically if the threatened wrong involves actual damage; the mere uncertainty of fixing the measure of such damage to the injured party may itself be sufficient to justify the exercise of equitable jurisdiction; and if the available legal remedy in a given case reduces itself to a matter of words, rather than to a matter of efficacy, because of its impracticability, or because the threatened acts may continue during the progress of an action at law, or because successive actions at law would be necessary to protect the plaintiff’s rights, equity will hold that the existence of the legal remedy is not an obstacle to the exertion of the equitable power.⁹⁵

The decision to grant or deny a preliminary injunction is committed to the sound discretion of the trial court, and the court’s exercise of that discretion will not be overturned unless it is “clearly erroneous.”⁹⁶ Unlike federal courts, South Carolina state courts have determined that “balancing the equities” is “neither necessary nor appropriate in a preliminary injunction case, where the three requirements (irreparable harm, success on merits, and inadequate remedy at law) are well established and clearly delineate the burden of proof and of persuasion” and that such balancing is “subsumed by the irreparable harm and inadequate remedy at law components of the three-part test.”⁹⁷

Success on the Merits. For purposes of this opinion, and consistent with the assumptions above, we assume that a reviewing court would find a strong likelihood of success on the merits, i.e., that the Legislative Action is likely an Impairment. Thus, we examine only the two remaining elements of the standard for a preliminary injunction.

Irreparable Harm. Bondholders would also have to prove that, in the absence of an injunction, enforcement of the Legislative Action would cause them harm, such as the loss of expected payments or loss of bond value. Again, however, because an Impairment, by definition, is Legislative Action that operates to the detriment of Bondholders, we assume here that Bondholders could prove that they would be harmed without an injunction. Further, if scheduled payments are disrupted or bond values are depressed by Legislative Action before a trial on the merits, then the Bondholders can prove immediate harm. If, however, a trial on the merits could take place before such harm occurs, then the harm may not be immediate enough to support a preliminary injunction.⁹⁸ We note, however, that federal courts in South Carolina have held that “any deprivation of constitutional rights for even minimal periods of time unquestionably constitutes irreparable injury.”⁹⁹ Similarly, the Supreme Court of South Carolina has held that a violation of law supports irreparable harm.¹⁰⁰

⁹⁵ Columbia Broadcasting System, Inc. v. Custom Recording Co., 258 S.C. 465, 477-78, 189 S.E.2d 305, 311-12 (1972) (quoting Kirk v. Clark, 191 S.C. 205, 4 S.E.2d 13 (1939)).

⁹⁶ Atwood Agency v. Black, 374 S.C. 68, 72, 646 S.E.2d 882, 884 (2007).

⁹⁷ Poynter Invs., Inc., 387 S.C. at 587, 694 S.E.2d at 17.

⁹⁸ See, e.g., Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380, 386 (7th Cir. 1984).

Page 22

No Adequate Remedy at Law. We have no actual knowledge of any other “adequate remedy at law” which Bondholders could pursue should the State or any agency or instrumentality of the State attempt to repeal or amend the Financing Act or the Financing Order or to take other action in a manner that alters, impairs, or reduces the rights of the Bondholders.

Based on the foregoing, the Bondholders may be able to obtain preliminary injunctive relief to prevent an unconstitutional Impairment if they are able to satisfy the standards referenced above for such, although much will depend on the particulars of the Legislative Action and whether any alternative remedy at law is available.

B. The Availability of Permanent Injunctive Relief in State Court

If the Bondholders obtain a preliminary injunction (subject to the caveats described above) in a South Carolina court of competent jurisdiction, they may also be able to obtain a permanent injunction after succeeding at trial.

*           *           *          *         *         *         *

This opinion letter may not be relied on in any manner or for any purpose by any person other than the addressees listed on Schedule I hereto. Nor may any person rely on this opinion letter for any purpose other than the transactions described herein. This opinion letter may not be quoted, published, communicated, or otherwise made available in whole or in part to any person (including, without limitation, any person who acquires a Bond or any interest therein from an Underwriter), other than the addressees listed on Schedule I hereto, without our specific prior written consent, except that each of the Underwriters may furnish copies of this letter (1) to any of its accountants or attorneys, (2) to comply with any subpoena, order, regulation, ruling, or request of any judicial, administrative, governmental, supervisory, or legislative body or committee or any self-regulatory body (including any securities or commodities exchange or the Financial Industry Regulatory Authority, Inc.), (3) to any other person for the purpose of substantiating an Underwriter’s due diligence defense, and (4) as otherwise required by law. Provided, however, that none of the foregoing persons is entitled to rely hereon unless an addressee hereof, a copy of this opinion letter may be posted by or at the direction of DEP or the Issuer to an internet website required under Rule 17g-5 promulgated under the Securities Exchange Act of 1934, as amended, and maintained in connection with the ratings on the Bonds solely for the purpose of compliance with such rule or undertakings pursuant thereto made by DEP or the Issuer. Such permission to post a copy of this letter to such website shall not be construed to entitle any person, including any credit rating agency, who is not an addressee hereof to rely on this opinion letter.

⁹⁹ See, e.g., Langham Branch Creek Quarry, LLC v. York Cnty., No. CV 0:22-0799-MGL, 2022 WL 1156875, at *6 (D.S.C. Apr. 19, 2022) (internal quotations omitted). 

¹⁰⁰ See Richland Cnty. v. S.C. Dep't of Revenue, 422 S.C. at 311, 811 S.E.2d at 768 (granting the Department of Revenue’s request for a preliminary injunction to enjoin the County from violating a law because “the taxpayers of Richland County would suffer irreparable harm if the County is not required to follow the law”).

Page 23

We hereby consent to the filing of this letter as an exhibit to the Registration Statement, and to all references to our firm included in or made a part of the Registration Statement, the Preliminary Prospectus and the Final Prospectus. In giving the foregoing consents, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the related rules and regulations of the Commission.

This opinion letter is being issued as of the date hereof, and we assume no obligation to update or supplement this opinion letter to reflect any facts or circumstances which may hereafter come to our attention with respect to the matters discussed herein, including any changes in applicable law which may hereafter occur.

Very truly yours,

SCHEDULE I

ADDRESSEES

Goldman Sachs & Co. LLC 

200 West Street, 7^th Floor 

New York, New York 10282

RBC Capital Markets, LLC 

Brookfield Place 

200 Vesey Street, 8^th Floor 

New York, New York 10281

As Representatives of the several Underwriters

Duke Energy Progress, LLC 

411 Fayetteville Street 

Raleigh, North Carolina 27601

Duke Energy Progress SC Storm Recovery Funding LLC 

411 Fayetteville Street 

Raleigh, North Carolina 27601

U.S. Bank Trust Company, National Association 190 S. LaSalle Street, 7^th Floor 

Chicago, Illinois 60603

Moody’s Investors Service, Inc. 

7 World Trade Center 

250 Greenwich Street, 25th Floor 

New York, New York 10007 

Attention: ABS/RMBS Monitoring Department

S&P Global Ratings, a division of S&P Global Inc. 

55 Water Street, 40th Floor 

New York, New York 10041 

Attention: Structured Credit Surveillance

EX-99.4

Exhibit 99.4

Consent of Independent Manager

Duke Energy Progress, LLC and Duke Energy Progress SC Storm Funding LLC are filing a Registration Statement on Form SF-1 (the “Registration Statement”) with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Securities Act”), in connection with the public offering of storm recovery bonds. In connection therewith, I hereby consent, pursuant to Rule 438 of the Securities Act, to being named as a manager of Duke Energy Progress SC Storm Funding LLC in the Registration Statement, as may be amended from time to time. I also consent to the filing of this consent as an exhibit to such Registration Statement and any amendments thereto.

/s/ Bernard J. Angelo

Name: Bernard J. Angelo

EX-FILING FEES

Exhibit 107.1

Calculation of Filing Fee Table

Form SF-1

(Form Type)

Duke Energy Progress, LLC (Exact name of registrant, sponsor and depositor as specified in its charter) Duke Energy Progress SC Storm Funding LLC (Exact name of registrant and issuing entity as specified in its charter)

Table 1: Newly Registered Securities

	Security Type	Security Class Title	Fee Calculation or Carry Forward Rule	Amount Registered	Proposed Maximum Offering Price Per Unit	Maximum Aggregate Offering Price(1)	Fee Rate	Amount of Registration Fee (1)
Fees to be Paid	Asset-Backed Securities	Series A Senior Secured Storm Recovery Bonds	457(o)	$295,000	100%	$295,000	0.00014760	$43.54
Fees Previously Paid	Asset-Backed Securities	Series A Senior Secured Storm Recovery Bonds	457(o)	$176,070,000	100%	$176,070,000	0.00014760	$25,987.93
	Asset-Backed Securities	Senior Secured Storm Recovery Bonds, Series	457(o)	$1,000,000	100%	$1,000,000	0.00014760	$147.60
Total Offering Amount						$177,365,000		$26,179.07
Total Fees Previously Paid(2)								$26,135.53
Total Fees Offsets								$0.00
Net Fee Due								$43.54

(1)

Estimated solely for the purpose of calculating the registration fee.

(2)

$147.60 was previously paid in connection with the initial filing of this Registration Statement on January 17, 2024 where $1,000,000 aggregate principal amount of Series A Senior Secured Storm Recovery Bonds were registered. $25,987.93 was previously paid in connection with the second filing of this Registration Statement on March 8, 2024 where $176,070,000 aggregate principal amount of Series A Senior Secured Storm Recovery Bonds were registered.