TNP LETTERHEAD





August 16, 1996

Mr. Tim Soles
Amoco  Corporation
Worldwide Engineering & Construction
3700 Bay Area Boulevard
Mail Code 4365
Houston, Texas  77058

Re:  Letter  Agreement  for the  Purchase and Sale of Energy  Between  Texas-New
     Mexico Power Company & Amoco Chemical Company & Amoco Oil Company

Dear Mr. Soles:

     This letter  agreement is hereby  entered  into by  Texas-New  Mexico Power
Company (TNP),  Amoco Oil Company (AOC) and Amoco Chemical  Company (ACC),  also
known  collectively  herein as Amoco,  in order to achieve mutual intents of (1)
lowering  AOC's and ACC's  electrical  costs on an annual  basis,  (2) providing
electric  service  for the total AOC and ACC  loads  and (3)  providing  dynamic
scheduling  capability  for  Amoco to make  excess  electrical  energy  sales to
Houston Lighting & Power (HL&P).

     This letter agreement shall become effective as of May 1, 1996 and continue
through an initial term of September 30, 1996.  The agreement will continue on a
monthly  basis  after  its  initial  term has  expired  unless  any party to the
agreement  gives 30 days written  notice of intent to terminate  the  agreement.
This letter  agreement  shall  supersede and replace in their entirety all prior
Conjunctive Billing  Agreements.  Furthermore,  TNP shall  retroactively  adjust
billing to AOC and ACC under the terms of this letter agreement to the effective
date of this agreement.

     This letter  agreement  shall become  effective  retroactive to May 1, 1996
upon execution, however the parties recognize that a new tariff with the City of
Texas City must be approved by the City of Texas City in order to implement  the
pricing on TNP's power purchase and sale from/to Amoco. TNP will work diligently
to seek approval from the City. If TNP fails to obtain  approval of this tariff,
then  Amoco will be billed  according  to the  Agreement  For  Consolidating  Of
Metering And Billing Of  Electrical  Service in effect prior to the execution of
this letter agreement.


Sale/Purchase of AOC and ACC's Internal Energy Production and Consumption

     TNP  agrees  to  purchase  monthly  all  of  ACC's  metered  generation  of
electrical  energy and a fixed (215,000 kW @ 85% Capacity Factor) monthly amount
of AOC's electrical  energy  production at a price of $0.0175 per  kilowatt-hour
(kWh).  In  addition,  TNP agrees to purchase  from AOC the net monthly  metered
energy exported by AOC to TNP that can be used to supply ACC with any electrical
energy purchase requirements above ACC's own metered generated electrical energy
at a price of $0.0175  per kWh.  Amoco  agrees to  purchase  that same amount of
electrical  energy to serve the AOC and ACC internal  energy  requirements  at a
price of $0.01975 per kWh. The $0.01975 per kWh includes $0.00225 per kWh tariff
fees that must be approved by the City of Texas City.

AOC/ACC Energy Purchases Above Their Combined Internal Generation

     If for any reason  during  the  billing  month  should  Amoco not  actually
produce an amount of electrical  energy that is at least equal to Amoco's actual
internal  energy  load,  then TNP shall be  obligated  to  provide  this  energy
difference at a total price of $0.0275 per kWh.  There will be no demand charges
associated with any power sales to AOC or ACC or power purchases by TNP.

     TNP will provide all maintenance energy replacement service to both AOC and
ACC similar to that as referenced in the ACC Agreement for Standby Service dated
August 1, 1987 and the AOC Agreement for Standby Service dated July 1, 1987.

     TNP agrees to use its best efforts to obtain the lowest priced  maintenance
energy   replacement   service  to  both  AOC  and  ACC.   As  outlined  in  the
aforementioned agreements for maintenance energy replacement service, AOC and/or
ACC each agree to provide TNP with at least 50 days written  notice prior to the
date  maintenance  energy  replacement  service is required and schedule no more
than 6 periods  each of  maintenance  service  during a  calendar  year with TNP
approval,  for an aggregate of 60 days each. The maintenance  energy replacement
service cost will be no more than $0.0275 per kWh.  There will be no reservation
or  demand  charges   associated  with  TNP  providing  the  maintenance  energy
replacement service to AOC and ACC.

     It is the  intent of TNP and Amoco that in the  future,  Amoco may elect to
purchase any or all of the  electrical  energy for internal load that is not met
by  the  TNP  purchase  of  Amoco  generation,   including   maintenance  energy
replacement service, from other sources than TNP.





Sale of AOC and ACC Excess Energy to HL&P

     Excess  electrical  energy  shall be  defined  as AOC's and ACC's  combined
metered  electrical energy outputs to TNP less any internal needs as measured by
TNP's metered electrical energy inputs to AOC and ACC.

     Excess  electrical  energy  shall be  scheduled  for  delivery  to the HL&P
control area  through  TNP's  control area by the use of a Dynamic  Schedule (as
that term is used in the ERCOT Operating Guides). The integrated amount of power
delivered in each hour shall be considered  the energy  scheduled for that hour.
HL&P will  integrate the Dynamic  Schedule  signals  provided by TNP hourly.  In
performing the hourly  integration,  HL&P will formulate by truncations to whole
Megawatt  hours  (MWhs)  such that any  remaining  kWhs in a MWh will be carried
forward to the next MWh.

     During  those  periods  (if any)  when any party to this  letter  agreement
experiences  a  communication  failure in its  dynamic  signals,  the last value
received by HL&P will be retained.  During the telemetry downtime and as soon as
mutually  acceptable  arrangements  can be made between Amoco, TNP and HL&P, the
transaction will be administered through the use of static schedules prepared by
Amoco and delivered to TNP and HL&P.

     In the event excess  electrical  energy  scheduled by Amoco for delivery to
the HL&P  control area can not be delivered  with a Dynamic  Schedule,  a static
schedule will be used. TNP agrees to coordinate with Amoco the static scheduling
of excess  electrical  energy  for sale to HL&P.  TNP on  behalf  of Amoco  will
schedule  the excess  electrical  energy  for sale to HL&P on a hourly  basis as
close as it reasonably can in order to match the production of excess electrical
energy.  Doing such will allow TNP to mitigate the quantity of electrical energy
which TNP will be  required  to provide on behalf of Amoco in order to match the
schedule of excess  electrical energy sales by Amoco to HL&P and to mitigate the
quantity  of excess  electrical  energy  which will be  purchased  by TNP due to
production  of  excess  electrical  energy  exceeding  the  schedule  of  excess
electrical  energy sales  submitted  to HL&P.  Should TNP be required to provide
electrical  energy on behalf of Amoco to meet the schedule for excess electrical
energy sales to HL&P, then the charge to Amoco shall be TNP's actual incremental
energy  cost.  If TNP is required to purchase  production  of excess  electrical
energy that exceeds the schedule of excess  electrical energy sales submitted to
HL&P, then Amoco shall be compensated at TNP's actual decremental energy cost.

Other & Miscellaneous

     Exhibit A describes the accounting methodology that will be used under this
letter agreement and Exhibit B shows a sample billing of the AOC and ACC May and
June's  billings  under this letter  agreement.  These  exhibits are intended to
demonstrate  the  principles of this letter  agreement and the effect on the AOC
and ACC electrical energy costs.

     This  letter  agreement  is  considered  confidential  and  should  not  be
publicized  for any reason other than that  necessary  to seek tariff  approval.
Billing  shall be  consolidated  and  include  sufficient  detail  for  Amoco to
internally disburse costs and savings amongst AOC and ACC.

Stranded Cost Recovery

     In further  consideration  of the mutual  benefits to be derived  from this
letter  agreement,  TNP  agrees  that it will  not  seek  recovery  of  stranded
investment costs as a result of this letter  agreement.  It is not the intent of
the parties  that the  structure of this letter  agreement  and the purchase and
sale of  electrical  energy  should  create any  incremental  liability for such
stranded costs by AOC and ACC.  However,  if as a result of this agreement,  any
stranded  costs are  imposed on AOC or ACC by any  current or future  applicable
law, tariff, rule,  regulation or order of any legislative or regulatory body to
pay for stranded costs  attributable  to deregulation of TNP, HL&P, or any other
utility,  it is agreed that TNP will, to the extent legally possible,  reimburse
or credit AOC or ACC, as applicable,  for any such stranded costs imposed on AOC
or ACC as a result of this agreement.  Further, in such event, the parties agree
that they will immediately  restructure this letter agreement,  or any successor
agreement, to alleviate or minimize such exposure.

Continued Discussions

     The parties  also agree to continue to  negotiate  in good faith toward the
execution of a mutually acceptable long term agreement.

Signature Clause

     The  signatories   hereto  represent  that  they  have  been  appropriately
authorized  to enter  into this  Agreement  on behalf of the party for whom each
signs.

     IN WITNESS  WHEREOF,  the Parties have caused this Agreement to be executed
this ______ day of ______________, 1996 in multiple counterparts.



AMOCO CHEMICAL COMPANY

By:     _______________________________________

Title:  _______________________________________

Date:   _______________________________________



AMOCO OIL COMPANY

By:     _______________________________________

Title:  _______________________________________

Date:   _______________________________________



TEXAS-NEW MEXICO POWER COMPANY

By:     _______________________________________

Title:  _______________________________________

Date:   _______________________________________