Incentive Compensation Award Agreement
                         for Short- and Long-Term Awards


     This Agreement is dated and effective as of January 1, 1998, and is between
___________________________________   ("Participant"),  Texas-New  Mexico  Power
Company (the "Company") and TNP Enterprises, Inc. ("TNPE").

                                    RECITALS

     A Committee  appointed by and having full authority to act on behalf of the
Board of Directors  of the Company and TNPE,  respectively,  (collectively,  the
"Compensation Committee") adopted the following incentive compensation plans:

          A.   Texas-New Mexico Power Company  Management  Short-Term  Incentive
               Plan ("Management Plan"); and

          B.   TNP Enterprises, Inc. Equity Incentive Plan ("Equity Plan").

     On April 28, 1995, the  Shareholders  approved the adoption by the Board of
Directors of the Equity Plan.

     The Management  Plan provides for the payment of cash if certain  incentive
goals are achieved.  The Equity Plan provides for the delivery of stock options,
stock,  and performance  units upon the  achievement of certain  incentive goals
which may be short-term and/or long-term goals.

     On  February  16,  1998,  the  Compensation   Committee  (the  "Committee")
established  the  performance  goals to be achieved  in order to earn  incentive
compensation under the plans.

     The Participant has been selected to receive awards under each plan subject
to the terms of each  applicable  plan and the  Participant  signing  this Award
Agreement.

     The  Participant  and the Company agree that this Agreement does not affect
Participant's  status as an employee at will and further agree that either party
may terminate Participant's employment at any time with or without cause.

     The Committee reserves, in its sole discretion,  the right to interpret the
terms  and  conditions  of any  award  and this  agreement  and to  resolve  any
disagreements  or disputes  concerning  this Award Agreement and any decision is
binding upon all parties.

     In consideration of the Recitals and mutual covenants and agreements below,
the Participant and the Company desire to and by their respective  signatures do
hereby agree to the terms and conditions set forth below.

                                    AGREEMENT

                                SHORT-TERM AWARDS

     Short-Term Cash Award:  Participant is hereby granted _____% of the control
point  for  Participant's  salary  range  as  established  by  the  Compensation
Committee at the  beginning of each plan year.  The cash award is subject to the
1998  short-term  goals for the Management  Plan being met as such goals are set
forth on Exhibit A attached hereto and made a part hereof for all purposes. Such
award may be adjusted  between 50% and 150% on a straight  line basis  depending
upon  where  the  performance  related  to each  goal  occurs  within  the range
established for each goal. No award payment will be made for  performance  below
the  established  minimum  for each goal set forth in  Exhibit A. The cash award
shall be paid no later than March 15th following the end of the plan year.

     The  parties  agree  that no  portion  of the cash  award is due or payable
regardless of whether any Corporate Operational Goal or  Departmental/Individual
Goals are met unless the minimum Corporate  Financial Goal is met. Further,  the
Committee reserves the right to make year-end  adjustments which may account for
any unusual or unforeseen events that impact the attainability of any goal.

     Allocation of Awards:  Participant agrees that the total amount of the cash
award  will  be  allocated  among  the  Corporate   Financial  Goal,   Corporate
Operational Goals, and  Departmental/Individual  Performance Goals applicable to
such  Participant as is set forth in Exhibit B which is attached hereto and made
a part hereof for all purposes.

     Participant  agrees  that to the extent  any  amount of the total  award is
allocated to the Departmental/Individual  Performance Goals, such amount will be
due and  payable  only to the  extent the  performance  of the  Participant,  as
determined by the officer  executing  this Agreement on behalf of the Company in
such  officer's  sole  discretion  (or, if  Participant  is the Chief  Executive
Officer,  then as  determined by the  Committee in its sole  discretion),  falls
within the  Performance  Rating  range set forth in Exhibit C which is  attached
hereto and made a part hereof for all purposes.

                                 LONG-TERM AWARD

     Long-Term Stock Award: Participant is hereby granted a stock award equal to
_____% of the control point for Participant's salary range as established by the
Compensation  Committee as of the  beginning of the long-term  plan cycle.  Such
long-term plan cycle award opportunity granted pursuant to the Equity Plan being
met is subject to the goals set forth on Exhibit D which is attached  hereto and
made a part hereof for all purposes.  Such award may be adjusted between 50% and
150% on a straight line basis,  depending upon where the performance  related to
each goal occurs  within the range  established  for each goal. No award payment
will be made for  performance  below the  established  minimum for each goal set
forth in Exhibit  D. Any stock  award  earned  shall be paid no later than March
15th  following  the end of the 1998  long-term  plan cycle.  The 1998 Plan year
cycle will be a period of three years beginning January 1, 1998.

     Allocation of Award: Participant agrees that the total amount awarded under
the  Equity  Plan  will be  allocated  35% to the  goal  established  for  Total
Shareholder Return in comparison to the S&P 500, and 65% to the goal established
for Total Shareholder  Return in comparison to the S&P Electrical Utility Group.
The amounts  allocated  to each set of goals will be due and payable only to the
extent each such goal shall be met as set forth in Exhibit D.

                                  GENERAL TERMS

     Dividend  Equivalents:  Participant shall have the right to receive, at the
time  any  stock  awards  are  paid,  cash in an  amount  equal  in value to the
dividends  declared  on each  Share on each  record  date  occurring  during the
applicable  performance period established for each plan.  Dividend  equivalents
will not include any dividends on the dividend  equivalents  accrued  during the
applicable performance periods.

     Pro-Ration of Awards:  If a Participant  begins employment or Participant's
employment is terminated due to retirement,  death, or disability  during a plan
year or the 1998 long-term performance cycle, any award earned shall be prorated
based on the number of months of participation within the plan year or long-term
plan cycle. The prorated award will be based upon performance determined at year
or cycle end and will be paid at the same time as all other awards are paid from
each of the plans under which awards are made.

     Termination of Employment: If employment is terminated for any reason other
than  retirement,  death,  or disability,  any award  opportunity  granted under
either  plan shall be  forfeited,  provided  that the  Committee  may waive such
forfeiture upon the CEO's recommendation, provided that if the Change in Control
paragraph is applicable that paragraph shall control.

     Change in Control:  In the event a Change in Control occurs as that term is
defined in the Executive Agreement for Severance Compensation,  then performance
under this  Agreement  will be deemed to have been at target.  To the extent any
payment  of an award  would  have  been in  stock,  such  award  shall be deemed
converted to a cash award in an amount equal to the value of the stock as of the
day the  Change in  Control  event  occurs.  Provided  that  Participant  is not
terminated  for Cause,  as that term is defined in the  Executive  Agreement for
Severance compensation,  the Participant shall be entitled to receive payment of
the awards  granted  herein no later than the fifth  calendar day  following the
date of termination or 30 days following the Change in Control event,  whichever
first occurs.

     Valuation of Shares: Shares issued under the Equity Plan pursuant to having
been earned  under the plan and the terms of this  Agreement  shall be valued by
averaging  the high and low prices of the stock on the first  trading day of the
plan performance period (the "Share Value"). The Share Value shall be applied to
the  dollar  value of the  award to arrive  at the  equivalent  number of shares
awarded.  The awarded  shares  shall be adjusted for the average of the high and
low stock price on the last trading day of the plan year.

     Tax  Treatment:  Payments  are  taxable to the  Participant  in the year of
receipt. The Company will have the right to deduct any federal,  state, or local
taxes required by law to be withheld.  In regard to any award made hereunder,  a
Participant,  at  Participant's  option,  may elect to have the Company withhold
sufficient  stock,  to the  extent  payable,  to pay the taxes  then due on such
award.

     Provisions   Consistent  with  Plan:  This  Agreement  shall  be  construed
consistent  with the provisions of the applicable plan under which any award may
be made.  Where  matters  are not  addressed  in this Award  Agreement,  but are
addressed in the  Management  Plan or Equity Plan,  then such terms are deemed a
part of this Award  Agreement  and shall  apply  equally  to all awards  granted
herein,  except for where such terms obviously apply solely to one of the plans.
If there is a conflict  between the  provisions of this Agreement and such plan,
the provisions of the applicable  plan control.  Unless  otherwise  noted to the
contrary, the definition of terms in each Plan also apply in this Agreement.

     Attorney  Fees:  In the event  either party is required to bring a cause of
action  against  the other to  enforce  the terms of this  Agreement,  then such
party, to the extent such party is successful in such action,  shall be entitled
to reasonable attorney fees.

     Governing Law: This Agreement shall be governed by the laws of the State of
Texas. Venue for any cause of action shall be Tarrant County, Texas.

Texas-New Mexico Power Company              Participant:

By:  ____________________                   By:  ____________________
Kevern R. Joyce
President & Chief Executive Officer

TNP Enterprises, Inc.                                Participant

By:_____________________                    By:_____________________
Kevern R. Joyce
President & Chief Executive Officer

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                                                                                                                         EXHIBIT  A


                              TNP ENTERPRISES, INC.
                         TEXAS-NEW MEXICO POWER COMPANY
                      Short-Term Incentive Corporate Goals

-------------------------------------------- ---------------------------- ---------------------------------------------
                                                                                           1997 Goals
Measurement                                           Objective               Minimum         Target        Maximum
                                                                          ---------------- ------------- --------------

Financial
<C>                                                                            <C>             <C>           <C> 
1.   Cash Value Added                             Improve Financial            4.05            4.40          4.75
                                                  Condition

Corporate Threshold                                                            4.05

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

-------------------------------------------- ---------------------------- ---------------- ------------- --------------
Operational
2.   Customer Satisfaction  Rating                Improve Customer              79              82            85
     (Use CSI instead of overall                  Service
     favorability in 1997)

3.   O&M Costs/KWH Sales  (cents per KWH)         Reduce Operating Costs
                                                                               4.15            3.95          3.75

4.   Equivalent Forced Outage Rate (Moved         Improve TNP One's
     to Plant Specific Goals in 1997)             Reliability                  4.7             4.5            4.3

5.   Injury Frequency Ratio                       Reduce Employee
                                                  Accidents                    5.05            4.44          3.82
                                                                                49              43            37
6.   System Reliability
     A)    Average Minutes of Outage per          Reduce Outage  Time           86              76            66
           customer
 
     B)    Average Number of Outages per          Reduce No. of
           customer                               Customers Interrupted        1.40            1.25          1.10
-------------------------------------------- ---------------------------- ---------------- ------------- --------------
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                                                                                                                           EXHIBIT B

                                                                TEXAS-NEW MEXICO POWER COMPANY
                                                                   Short-Term Incentive Plan
                                                                  Weighting of 1997 Goals for
                                                          Texas-New Mexico Power Company Participants
                                        Corporate
                                     Financial                                          Corporate Operational

                                      Cash      Customer        O&M               Avg.        Avg.
                                      Value   Satisfaction    Costs/per        Minutes of   Number of         Departmental/
                                      Added      Rating         KWH       IFR    Outage     Outages     EFOR   Individual    Total
                                     -------  -------------  -----------  ----  ---------  ----------  ------  ------------ --------

<S>                                    <C>        <C>             <C>      <C>    <C>        <C>         <C>       <C>        <C> 
CEO                                    60          5              5        5        5          5         5         10         100%

SR VP CCO                              60         10              5        5        5          5                   10         100%
   RCOs                                50          5              5        5      2.5        2.5                   30         100%
   Key Employees                       50          5              5        5      2.5        2.5                   30         100%

SR VP Power Resources                  60          5              5                                      5         25         100%
   Asst. Res. Acq.                     60          5              5                                                30         100%
   Asst. VP Ind. Mkt.                  60          5              5                                                30         100%
   Key Participants                    60          5              5                                                30         100%
   Plant Mgr. & Key Participants       60          5              5                                      *         30         100%

SR VP CFO                              60          5              5                                                30         100%
   Controller                          60          5              5                                                30         100%
   Treasurer                           60          5              5                                                30         100%
   Key Employees                       60          5              5                                                30         100%

SR VP Corporate Relations              60          5              5        5                                       25         100%
   VP HR                               60          5              5        5                                       25         100%
   Sec Gen Counsel                     60          5              5                                                30         100%
   Key Employees                       60          5              5                                                30         100%

* 1/3 of TNP One's Departmental Goal will be EFOR.

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                                                                                                                          EXHIBIT C


                DEPARTMENTAL/INDIVIDUAL PERFORMANCE TARGET GOALS


                                                                          Individual Performance as a % of
Performance Rating                                                                  Target Award

<C>                                                                                     <C> 
4 --   Greatly exceeded expectations for objective(s)                                   150%
       (maximum)

3 --   Exceeded expectations for objective(s)                                           125%

2 --   Achieved expectations for objective(s) (target)                                  100%

1 --   Almost achieved expectations for objective(s)                                    50%
       (minimum)

0 --   Improvement needed, failed to meet objective(s)                                   0%
 
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                                                                                                                          EXHIBIT D


                           LONG-TERM STOCK AWARD GOALS


         Total Shareholder Return           Payout on the basis of matrix reflecting total
                                                     shareholder return in relation to each of the
                                                     S&P 500 and the S&P Electric Utility Index.


                                                                TSR to S&P 500 (35% weighting)

            Performance                           Ranking                    % of Target Shares Earned

<S>                                            <C>                                      <C> 
              Maximum                        =>75th percentile                          150%
              Target                         =>55th percentile                          100%
              Minimum                        =>35th percentile                          50%
           Below Minimum                     <=35th percentile                           0%

                                                       TSR to S&P Electric Utility Index (65% weighting)

            Performance                           Ranking                    % of Target Shares Earned

              Maximum                        =>75th percentile                          150%
              Target                         =>55th percentile                          100%
              Minimum                        =>35th percentile                          50%
           Below Minimum                     <=35th percentile                           0%

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