Page 1
                     Incentive Compensation Award Agreement
                         for Short- and Long-Term Awards


     This Agreement is dated and effective as of January 1, 1997, 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  January  20,  1997,  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 awarded _____% of the control
point  established  for  Participant's  salary range as of the beginning of each
plan  year  as a cash  award  subject  to the  1997  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.

     Short-Term Stock Award: Participant is hereby awarded _____% of the control
point established for Participant's salary range as of the beginning of the plan
year as a stock award  subject to the 1997 goals being met as such goals are set
forth on  Exhibit  A.  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 stock award shall be paid no later than March 15th  following  the end of
the plan year.

     The  parties  agree that no  portion  of the stock  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.

     Restrictions on Sale of Stock: Participant agrees that the short-term stock
award is restricted from being sold for a two-year  period  following the end of
____________________  (the "Restriction  Period").  Participant  agrees that any
stock  issued  as a  short-term  stock  award  will  bear a legend  stating  any
applicable  restrictions.  Participant  further  agrees that such stock award is
forfeited and of no effect in the event that  Participant  attempts to sell such
stock during the Restriction Period.

     Notwithstanding  the foregoing,  all  restrictions on the sale of the stock
lapse and said stock may be freely sold or transferred if during the Restriction
Period one of the following should occur:

     a.   Participant's  employment  should be  terminated  for any reason other
          than cause.

     b.   A Change of Control should occur as that term is defined in the Equity
          Plan.

(Participant should be cognizant of Rule 16(b) to the extent it may apply.)

     Allocation of Awards:  Participant  agrees that total amounts awarded under
the cash and stock awards 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.

     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 awarded _____% of the control
point  established  for  Participant's  salary range as of the  beginning of the
long-term  plan cycle as a stock award subject to the 1997  long-term plan cycle
award opportunities  established for the Equity Plan being met as such goals are
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 1997 long-term  plan cycle.  The 1997 Plan year cycle will be a period of
three years beginning January 1, 1997.

     Allocation of Award: Participant agrees that the total amount awarded under
the  Equity  Plan  will be  allocated  50% to the  goal  established  for  Total
Shareholder Return in comparison to the S&P 500, and 50% 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's  employment is terminated due to
retirement,  death,  or  disability  during a plan  year or the  1997  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.

     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 and last  trading
days 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  stock  award  made
hereunder a Participant,  at Participant's option, may elect to have the Company
withhold sufficient stock to pay the taxes then due on such stock 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:  ____________________


TNP Enterprises, Inc.                       Participant

By:_____________________                    By:_____________________


<PAGE>
<TABLE>
<CAPTION>
                                                                                              EXHIBIT  A
                              TNP ENTERPRISES, INC.
                         TEXAS-NEW MEXICO POWER COMPANY
                      Short-Term Incentive Corporate Goals

<S>                                         <C>                     <C>           <C>              <C>
                                                                                  1997 Goals
Measurement                                 Objective               Minimum         Target         Maximum
___________                                 _________               _______         ______         _______                         

Financial

1.   Cash Value Added                       Improve Financial       4.05             4.40          4.75
                                            Condition

Corporate Threshold                                                 4.05


Opeational

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

3.   O&M Costs/KWH Sales  ((cent)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         5.05             4.44          3.82
                                            Accidents               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

</TABLE>
<PAGE>
                                                                       EXHIBIT B
<TABLE>
<CAPTION>

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

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

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.

</TABLE>

<PAGE>
<TABLE>
                                                                      EXHIBIT C
<CAPTION>

                DEPARTMENTAL/INDIVIDUAL PERFORMANCE TARGET GOALS

<S>                                                    <C>  
                                                       Individual Performance 
        Performance Rating                               as a % of Target Award


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%

</TABLE>


<PAGE>
                                                                      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 (50% weighting)

Performance                  Ranking                  % of Target Shares Earned

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

                TSR to S&P Electric Utility Index (50% weighting)

Performance                  Ranking                  % of Target Shares Earned

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



<PAGE>


                          SCHEDULE OF AWARD AGREEMENTS


       Employee                                    Position
--------------------------------------------------------------------------------

1.    Kevern Joyce                 Chairman President & CEO
2.    Jack Chambers                Sr VP & Chief Customer Officer
3.    Manjit Cheema                Sr VP & Chief Financial Officer
4.    John Edwards                 Sr VP - Corporate Relations
5.    Ralph Johnson                Sr VP - Power Resources
6.    Doug Hobbs                   VP - Business Development
7.    Allan Davis                  VP - Regional Customer Officer
8.    Larry Dillon                 VP - Regional Customer Officer
9.    Melissa Davis                VP - Regional Customer Officer
10.   Dennis Cash                  VP - Human Resources
1.    Mike Blanchard               Corporate Secretary & General Counsel
12.   John Montgomery              President (Facility Works)
13.   Pat Bridges                  Treasurer
14.   Scott Forbes                 Controller
15.   Randy Ownby                  Asst. VP - Resource Acquisition
16.   Larry Gunderson              Director Regulatory & Governmental Affairs
17.   Mark Wilson                  Plant Manager
18.   Mark Coulson                 Asst VP - Industrial Marketing
19.   Cathy Means                  Director - Information Services